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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For the Fifty Two
Weeks Ended December 28, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee required)
Commission File Number 0-17237
HOME PRODUCTS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<C> <C>
DELAWARE APPLIED FOR
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4501 WEST 47TH STREET 60632
CHICAGO, ILLINOIS (Zip Code)
(Address of principal executive offices)
</TABLE>
(773) 890-1010
(Registrant's telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Name of Each Exchange On Which Registered
None
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class
Common, Par Value $0.01 Per Share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Shares of common stock, par value $0.01 outstanding at February 28, 1997 --
4,375,578. Aggregate market value of such shares held by non-affiliates as of
that date -- $26,273,027.
DOCUMENTS INCORPORATED BY REFERENCE.
Home Products International, Inc. definitive proxy statement dated April 4,
1997 for the 1996 Annual Meeting ("Proxy Statement") -- Part III
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PART I
ITEM 1. BUSINESS
Home Products International, Inc., an international consumer space
management company headquartered in Chicago, Illinois, designs, manufactures and
markets quality houseware and home improvement products. The Company, based on
consolidated pro forma net sales of $114 million in 1996, is one of the largest
companies in the U.S. consumer housewares product industry and has a significant
market share in each of its product lines. The Company's houseware product lines
include bath and shower organizers, hooks and home helpers, home/closet
organization products, children's organization and safety products and storage
containers. The Company's home improvement product line consists of durable
plastic exterior shutters.
References to "HPI" or the "Company" are to Home Products International,
Inc., a Delaware corporation, and its wholly-owned subsidiaries, Selfix, Inc., a
Delaware corporation ("SELFIX"), Tamor Corporation ("TAMOR"), a Massachusetts
corporation, and Shutters, Inc., an Illinois corporation ("SHUTTERS"). On
February 18, 1997, the Company became the holding company for, and successor
registrant under the Securities Exchange Act of 1934 (the "EXCHANGE ACT") to,
Selfix and Selfix became a wholly-owned subsidiary of the Company through a
holding company reorganization under the General Corporation Law of Delaware
(the "DGCL"). Where the context requires, certain references to the "Company"
are to Home Products International, Inc., in its capacity as a holding company,
or to Selfix prior to the holding company reorganization. The holding company
structure is intended to provide a framework that will accommodate future growth
from internal operations, acquisitions, and joint ventures, while providing for
greater administrative and operational flexibility.
RESTRUCTURING COMPLETED
The Company was founded in 1952 as a privately held manufacturer and
distributor of plastic hooks and became a public company following the
completion of its initial public offering of common stock in 1988. During 1994,
the Company's Chief Executive Officer, James Tennant, and its Chief Financial
Officer, James Winslow, were hired to restructure the Company's operations and
improve its profitability. As part of this restructuring, the Company refocused
its sales and marketing efforts, increased its international distribution
capabilities, upgraded its financial controls, eliminated unprofitable product
lines, and reduced overhead. The Company incurred operating losses of
approximately $4.5 million in 1994 and $4.1 million in 1995, resulting from the
costs of this restructuring, including inventory and fixed-asset write-downs,
severance pay and plant-closing costs. This restructuring was completed in 1995.
The Company had operating profits of $1.4 million in 1996.
TAMOR ACQUISITION
Effective January 1, 1997, the Company acquired Tamor, a privately held
company founded in 1947, and its affiliated product distribution company,
Housewares, Inc. (the "TAMOR ACQUISITION"). Tamor designs, manufactures and
markets quality plastic houseware products. The Company believes the Tamor
Acquisition will result in significant increases in 1997 gross sales. If the
Tamor Acquisition had occurred on January 1, 1996, the Company's 1996 net sales
of $38.2 million would have been increased by $75.7 million to $113.9 million
and operating profits of $1.4 million would have increased by $6.3 million to
$7.7 million. The Company believes that it will be able to capitalize on certain
synergies that exist between Selfix and Tamor. First, the Tamor Acquisition will
enable the Company to expand the number of product lines offered and the number
of products offered within existing product lines as well as increase its
distribution network and international sales. Selfix's largest selling product
lines, bath/shower organization and hooks and home helpers, complement Tamor's
largest selling product lines, home/closet organization and storage containers.
Currently, Tamor sells its products primarily through major discount retailers
and has very limited international sales while Selfix sells more of its products
through hardware/home centers and has increasing export sales. Second, the Tamor
Acquisition will enable the Company to use excess manufacturing capacity at the
Selfix and Shutters facilities resulting in more efficient use of fixed costs.
Tamor was operating near full
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capacity at its manufacturing facilities which constrained its growth and forced
it to outsource production in 1996 while the Company's other manufacturing
facilities were operating at less than full capacity.
GENERAL
HPI operates in two industry segments:
1) The design, manufacture, and marketing of quality HOUSEWARES
products, through its wholly owned subsidiaries, Selfix and Tamor. These
products, generally branded as "Selfix" or "Tamor" products, are sold
principally through mass market trade channels: discount, variety,
supermarket, drug, hardware/home center, and specialty stores. Selfix and
Tamor sell both direct to retailers and through wholesale distributors.
Selfix and Tamor products generally retail from $1 to $20, with a
substantial majority retailing for under $10. The Company believes it is,
through its subsidiaries Selfix and Tamor, a leading manufacturer of
value-priced, high-volume bath and shower organizers, storage containers
and home organization products.
2) The design, manufacture, and marketing of quality HOME IMPROVEMENT
PRODUCTS, through its wholly owned subsidiary, Shutters. These products,
generally branded as "Shutters, Inc." products, are sold principally
through wholesalers that service the residential construction, repair and
remodeling industry. The Company believes that Shutters is a leading
manufacturer of durable, plastic exterior shutters.
GROWTH STRATEGY
The housewares industry segment, including plastic products, is highly
fragmented. Over the past several years, retailers have consolidated rapidly,
with mass discounters such as Wal-Mart, Kmart, and Target capturing increasingly
larger shares of the market. Management believes that as these retailers
consolidate, they are actively seeking to reduce the number of suppliers from
whom they source product. As a result, management believes that larger
housewares manufacturers with focused product lines covering entire categories
(such as Storage Containers or Bath/Shower Organization) will capture
increasingly larger market shares at the expense of smaller manufacturers with
limited product offerings. The Company intends to continue to focus on the
entry-level price segment and to grow by expanding its offerings within existing
product categories, by making selective acquisitions which management believes
offer synergistic opportunities, and by capitalizing on established distribution
channels to increase international sales.
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PRODUCTS
Gross Sales by Product Category.
The following table sets forth the amounts and percentages of the Company's
historical gross sales by product categories, for the periods indicated. These
sales do not reflect the historical sales of Tamor.
GROSS SALES
<TABLE>
<CAPTION>
1994 1995 1996
--------------- --------------- ---------------
SALES % SALES % SALES %
----- - ----- - ----- -
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Bath and Shower Organization.................. $ 15,300 34% $ 15,071 35% $ 15,479 38%
Hooks and Helpers............................. 7,398 17 8,645 20 6,279 16
Juvenile Products............................. 8,259 19 6,683 15 7,369 18
Home/Closet Organization...................... 4,848 11 4,144 9 2,248 5
-------- --- -------- --- -------- ---
Housewares Products......................... $ 35,805 81% $ 34,543 79% $ 31,375 77%
Home Improvement Products................... 8,417 19 8,993 21 9,457 23
-------- --- -------- --- -------- ---
Total Gross Sales............................. $ 44,222 100% $ 43,536 100% $ 40,832 100%
=== === ===
Allowances.................................... (3,237) (2,497) (2,632)
-------- -------- --------
Total Net Sales............................... $ 40,985 $ 41,039 $ 38,200
======== ======== ========
</TABLE>
The following table sets forth pro forma gross sales by product category as
if the acquisition of Tamor had occurred on January 1, 1994. This table is
intended to show sales trends by product category of HPI.
PRO FORMA GROSS SALES
<TABLE>
<CAPTION>
1994 1995 1996
--------------- --------------- ---------------
SALES % SALES % SALES %
----- - ----- - ----- -
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Bath and Shower Organization.................. $ 15,300 15% $ 15,071 14% $ 15,479 13%
Hooks and Helpers............................. 7,398 7 8,645 8 6,279 5
Home/Closet Organization...................... 38,175 38 38,844 36 40,819 33
Juvenile Products............................. 12,593 13 11,243 11 10,999 9
Storage Containers............................ 18,832 19 24,243 23 39,050 32
-------- --- -------- --- -------- ---
Housewares Products......................... $ 92,298 92% $ 98,046 92% $112,626 92%
Home Improvement Products................... 8,417 8 8,993 8 9,457 8
-------- --- -------- --- -------- ---
Total Gross Sales............................. $100,715 100% $107,039 100% $122,083 100%
=== === ===
Allowances.................................... (5,923) (5,699) (8,169)
-------- -------- --------
Total Net Sales............................... $ 94,792 $101,340 $113,914
======== ======== ========
</TABLE>
HOUSEWARES PRODUCTS
Bath and Shower Organization. The Company markets a broad line of
value-priced plastic bath accessories and organizers, primarily under the brand
name Selfix. These include shower organizers, towel bars, soap dishes, shelves,
portable showers sprays, and fog-free shower mirrors. In January of 1997, Selfix
launched a major line extension in the Bath and Shower Organization category,
Suction-Lock(R) Organizers. The Company believes it is a leading producer of
opening price-point plastic bath accessories.
Hooks and Helpers. The Company markets a complete line of over 150 hooks,
primarily made of plastic, under the brand name Selfix. The original product
marketed by Selfix was a plastic hook, unique in that it employed a proprietary
no-tools mounting system. Selfix has expanded its offering of these patented,
self-
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adhesive hooks, and the Company believes it offers a complete line in the
opening price point segment. Augmenting the plastic hooks are a line of metal
picture hooks, sold to the same customer base.
Home/Closet Organization Products. The Company offers a variety of products
for general home organization, under both the "Selfix" and "Tamor" brand names.
This category is comprised primarily of plastic clothes hangers, which
represented 60% of this category's pro forma gross dollar sales in 1996. Due to
the commodity nature of the hanger segment, margins in this category are
inherently lower, while unit volumes are substantially higher. Management
believes that Tamor has a leading U.S. market share in plastic clothes hangers,
and that its broad product offering gives it a competitive advantage over other
hanger manufacturers.
Also included in this category are other plastic organizers, closet and
clothing care products, recycling containers, plastic kitchen organizers and
housewares products, and vinyl coated wire kitchen organizers.
Juvenile Products. The Company markets a line of quality children's
organization products, under the brand names Tidy Kids(R), Kidtivity(R) and Lil'
Helpers(TM). Both Selfix and Tamor market juvenile products. These include
closet extenders, hook racks, storage cubes, clothes hangers, and under-the-bed
storage trolleys. These products are sold in the juvenile or housewares
departments of its core customers, and also through specialty juvenile retailers
like Toys R Us and Baby Superstores. The Company believes it created a market
niche of children's organization products in the development and successful
sales of its Tidy Kids(R) and Lil Helpers(TM) products, and that it offers the
premier children's organization program in the industry. Child safety products,
marketed under the licensed Fisher-Price(R) brand, offer synergies in sales and
merchandising, as they are sold in channels identical to other juvenile
products.
Storage Containers. The Company offers a variety of plastic home storage
containers under the Tamor brand name. These range in size from shoe boxes to
jumbo (48 gallon) totes, and include specialty Christmas containers sold during
the holiday season. These products range in retail price from $2 to $20 and
contain a variety of product attributes, including removable wheels and
domed-top lids, which increase storage capacity. Management believes these
features are key to obtaining shelf space and competing in the market. This is
the fastest growing segment for Tamor, and management believes it has a
significant share of the U.S. $800 million retail market.
Home Improvement Products. Through Shutters, the Company markets a unique
line of plastic exterior shutters to the construction trades and consumer home
improvement catalogs. Because of a patented design, the shutters are assembled
from components, rather than formed in a single piece. This allows the shutters
to be configured in the largest variety of sizes and colors in the industry.
Shutters markets the shutters in component form to remodeling distributors, and
in finished form to home center retailers. In both cases, the key competitive
advantage is customization of size and color, and quick turnaround service. In
early 1997, Shutters entered a new market segment with "fixed-size" shutters,
utilizing existing trade channels.
MARKETING AND DISTRIBUTION
The Company's housewares products are sold through national and regional
discount, variety, supermarket, drug, hardware/home center, and specialty
stores. Selfix and Tamor both sell directly to major retail customers through
its company sales management personnel. Selfix and Tamor sell to approximately
3,000 other customers, through a network of approximately 50 independent
manufacturers representatives. Including Tamor on a pro forma basis, Wal-Mart
accounted for 14% of the Company's gross sales in 1996, and Kmart Corporation
accounted for 8% of gross sales. The loss of either of these customers would
have a material adverse effect on the Company. No other customer accounted for
more than 5% of sales.
The Company's primary marketing strategy is to design innovative products
with consumer features and benefits, and focus on marketing the product to its
retail selling partners. Management believes that one of its competitive
advantages is prompt and reliable product delivery of value-priced high-volume
products, allowing customers to maintain minimal inventories. The Company
believes that the customer specific merchandising programs it offers enable
retailers to achieve a higher return on its products than the products of many
of its competitors. To that end, both Selfix and Tamor offer customers a variety
of retail support services, including
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customized merchandise planogramming, small shipping packs, point-of-purchase
displays, Electronic-Data-Interchange (EDI) order transmission, and just-in-time
(JIT) product delivery designed to continue their growth with volume retailers.
Shutters sells its home improvement products through 20 independent
manufacturers' representatives to approximately 800 customers, the majority of
which are distributors who supply home repair and remodeling contractors.
Shutters also sells directly to national and regional home improvement catalog
distributors.
PRODUCT AND RESEARCH DEVELOPMENT
The Company employs five people in Product Research and Development, and
uses computer-aided design (CAD) systems to enhance its product development
efforts. New products have been the critical driver in the Company's sales
growth. Although the Company's historical accounting records do not separately
present research and development expenses, the Company estimates that for 1994,
1995 and 1996, expenses associated with research and development were $436,000,
$501,000 and $330,000, respectively.
FOREIGN AND EXPORT SALES/SEGMENT INFORMATION
Including Tamor on a pro forma basis, the Company's 1996 sales outside the
United States accounted for 6% of its total net sales. Sales to Canada accounted
for 2% of the Company's net sales in 1996.
See Management's Discussion and Analysis of Financial Condition and Results
of Operations and Note 12 to Consolidated Financial Statements for information
regarding the gross sales, operating profit (loss) and identifiable assets
attributable to each operating and geographic reporting segments.
SEASONALITY
Sales of the Company's products are generally higher in the second and
third quarter of the calendar year because of the seasonality of the Company's
home improvement products. Sales of these products are impacted by weather
conditions which are generally better in the late spring, summer and early fall.
Net earnings vary proportionally more than the variation in sales due to the
effect of fixed costs.
COMPETITION
The Company competes with a number of well established domestic and foreign
manufacturers, many with greater resources than the Company. Many competitor
companies are either privately held or divisions of larger entities. Many of the
Company's products also compete with substitute products made of alternate
materials. There is no reliable qualitative method of determining the Company's
position in its various markets. The Company believes it is recognized as a
strong competitor in the marketplace based on its innovative yet value-priced
products and reliable, timely volume delivery.
The Company exports products manufactured in the United States and
purchases finished goods products from Asia and Latin America. Consequently, the
Company's competitive position may be affected by fluctuations in the exchange
rates of certain foreign currencies relative to the U.S. dollar.
PATENTS, TRADEMARKS AND LICENSES
Selfix, Tamor, and Shutters own a number of trademarks and approximately
100 United States mechanical and design patents relating to various products and
manufacturing processes. The Company believes that in the aggregate its patents
enhance its business, in part by discouraging competitors from adopting patented
features of its products. The Company believes, however, that there are no
patents, trademarks or licenses material to the business.
Through the acquisition of Mericon Child Safety Products in 1995, Selfix
entered into a licensing agreement with Fisher-Price, Inc. of East Aurora, N.Y.
The contractual agreement calls for a percentage-based royalty to be paid to
Fisher-Price for Selfix sales of the branded Fisher-Price product, which is
designed,
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manufactured and marketed by Selfix. The agreement, which calls for certain
conditions to be met by both parties, is in effect through December 31, 1997.
RAW MATERIALS AND PRODUCTION
The Company manufactures the majority of its products at its five
manufacturing facilities using injection molding and extrusion processes. The
Company's production processes utilize fully automated raw material handling
systems and high speed packaging equipment. Many of the injection molding and
extrusion operations are also automated and are supported by incentive based,
manually performed secondary operations.
The primary raw material used in the Company's plastic injection molding
operations is plastic resin, primarily polypropylene. Plastic resin is a
commodity with pricing parameters tied to supply and demand characteristics
beyond the Company's control. As a result of the Tamor acquisition, the Company
is now a significant user of plastic resin. In total, the Company expects to use
80 - 90 million pounds of plastic resin in 1997. Because of the large amount of
plastic resin used and the relative inability to pass cost increases along to
its retail customers, the Company is highly susceptible to changes in plastic
resin pricing. In 1997, plastic resin costs are expected to account for
approximately 24% of the Company's total net sales and 33% of its cost of goods
sold assuming current price levels remain the same.
Plastic resin prices can vary widely from year to year and are very
difficult to predict beyond a few months. Tamor's plastic resin cost history is
illustrative of the swings that can occur in resin pricing. Tamor, which uses
about 90% of the Company's resin requirements, experienced average price
increases from 1993 to 1994 of 26%, from 1994 to 1995 of another 25% but then
experienced a price decrease from 1995 to 1996 of 16%.
The Company is able to use off-prime grades of material. As a result, it
does not purchase its plastic resin directly from manufacturers but rather is
able to buy through brokers in a secondary market. This enables the Company to
buy at a discount. Buying at a discount off-prime material costs gives the
Company a cost advantage over some of its competitors but does not alleviate the
pricing risks inherent with buying a commodity raw material. Plastic resin is in
demand by a number of different industries, many of which are quite different
from the Company's primary housewares business. For example, the automobile and
housing industries are very large users of plastic resin. As such, demand
changes in the automobile industry or the number of new housing starts can have
an impact on plastic resin pricing.
There is no futures market for plastic resin. As such, the Company cannot
lock in its costs without purchasing significant quantities beyond its immediate
manufacturing needs. Management has determined that it will purchase resin in
quantities that best fit its manufacturing needs and ability to store such
purchases.
INVENTORY CONTROL
The Company produces to and sells from inventory, based on forecasted unit
sales, and generally ships within a short period of time after receipt of an
order. Consequently, the Company does not believe that information with respect
to backlog is meaningful.
ENVIRONMENT
Compliance with Federal, state or local provisions relating to protection
of the environment is not expected to have a material effect on the Company's
capital expenditures, earnings or competitive position.
EMPLOYEES
As of February 28, 1997, the Company employed 493 persons in the United
States. Approximately 92 are hourly employees at its Leominster, Massachusetts
facility, covered by a collective bargaining agreement which expires in March,
1999; 145 are hourly employees at its Chicago, Illinois facilities, covered by a
collective bargaining agreement which expires in January, 1998.
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ITEM 2. PROPERTIES
The Company's headquarters and the Selfix manufacturing, assembly,
packaging and distribution operations are located in a leased building of
approximately 186,000 square feet on 10.5 acres in Chicago, Illinois. The lease
expires in July 2010 and grants the Company a right of first refusal on the sale
of the property at any time during its term.
Selfix also leases 83,505 square feet as a storage and distribution
facility in Chicago, Illinois. This lease expires on September 30, 1997.
Selfix closed its 34,000 square foot Canadian assembly and packaging
facility in March, 1996. The Scarborough, Ontario facility is subject to a lease
expiring in 1999, however the Company has reached a tentative agreement to
terminate the lease as of March 31, 1997. The expected cost to terminate the
lease will not have a significant effect on the Company's 1997 financial
results.
Shutters' manufacturing, assembly, packaging and distribution facilities
are located in a building owned by the Company of approximately 62,500 square
feet on 12 acres in Hebron, Illinois.
Tamor's subsidiary headquarters and one of its three manufacturing
facilities are located in an owned building of approximately 100,000 square feet
in Leominster, Massachusetts. Tamor also has manufacturing and distribution
operations at a leased 180,000 square foot facility in Louisiana, Missouri and
an owned 45,000 square foot facility in Thomasville, Georgia. Tamor also leases
a 220,000 square foot distribution facility in Fitchburg, Massachusetts.
The Company considers its properties generally to be in good condition,
well maintained as well as suitable and adequate to carry on the Company's
business.
ITEM 3. LEGAL PROCEEDINGS
The Company is not aware of any material pending legal proceedings against
it or any of its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and key employees of the Company, and their
respective ages and principal positions as of February 28, 1997, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
James R. Tennant..................... 44 Chairman of the Board and Chief Executive Officer of
Home Products and Chief Executive Officer of Selfix
James E. Winslow..................... 42 Executive Vice President, Chief Financial Officer and
Secretary of Home Products and Executive Vice President
of Selfix
Leonard J. Tocci..................... 55 Chief Executive Officer of Tamor
Dennis M. Gerrard.................... 43 President of Tamor
Jeffrey R. Dolan..................... 40 Senior Vice President -- Sales and Marketing of Selfix
David E. Limanni..................... 48 Vice President -- Manufacturing of Tamor
Peter L. Graves...................... 39 Vice President -- Product Marketing of Selfix
Robert Holz.......................... 48 Vice President -- International Sales of Selfix
Richard M. Tocci..................... 48 Vice President -- Operations of Tamor
Michael J. Ricard.................... 57 Vice President -- General Manager of Shutters
</TABLE>
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James R. Tennant joined the Company as Chairman of the Board and Chief
Executive Officer in April, 1994. Mr. Tennant was elected a Director of the
Company in December, 1992 and was a member of the Company's Compensation
Committee until April, 1994. From 1982 to 1994, Mr. Tennant was President of
Foote, Cone & Belding/Direct, an international advertising agency. From 1979 to
1982, he was employed by Young and Rubicam, an advertising agency, his final
position being Senior Vice President.
James E. Winslow was named Executive Vice President in October, 1996. Mr.
Winslow joined the Company as Chief Financial Officer and Senior Vice President
in November, 1994. In 1994, Mr. Winslow was Executive Vice President and Chief
Financial Officer of Stella Foods, Inc. From 1983 to 1994, Mr. Winslow was
employed by Wilson Sporting Goods Co. in various capacities, his final position
being Vice President and Chief Financial Officer.
Leonard J. Tocci joined the Company as Chief Executive Officer of Tamor in
February, 1997. From 1988 until 1997, Mr. Tocci was President of Tamor. From
1977 to 1986, Mr. Tocci owned and operated American Hanger, Inc. Leonard J.
Tocci is the brother of Richard M. Tocci.
Dennis M. Gerrard joined the Company as President of Tamor in February,
1997. From 1995 to 1996, Mr. Gerrard was Vice President of Marketing -- Plastics
of EKCO Housewares. From 1993 to 1995, he was Vice President of Sales and
Marketing for Tamor. From 1985 to 1993, Mr. Gerrard was employed by Whitney
Productions, Inc., a supplier of corrugated storage products, with his final
position being President.
Jeffrey R. Dolan joined the Company as Senior Vice President -- Sales of
Selfix in August, 1995. In 1996 Mr. Dolan was named Senior Vice President --
Sales and Marketing of Selfix. From 1982 to 1995, Mr. Dolan was employed by
Rubbermaid, Inc., in various sales management capacities, his final position
being Vice President National Accounts.
David E. Limanni joined the Company as Vice President -- Manufacturing of
Tamor in February, 1997. From 1994 to 1997, Mr. Limanni was Director of
Operations Midwest region for Tamor. From 1993 to 1994, Mr. Limanni was
Operations Manager -- West Coast for Syroco, Inc. From 1991 to 1993, Mr. Limanni
was General Manager of Alpha Plastics. From 1989 to 1991, Mr. Limanni was
General Manager of Syroco, Inc. From 1983 to 1989 Mr. Limanni was Vice President
of Operations for Beacon Plastics.
Peter L. Graves has been Vice President -- Product Marketing of Selfix
since October, 1994. Mr. Graves joined the Company in 1981 as a copywriter and
has served in various sales and marketing positions in the Company, with his
previous position in the Company being Manager of Sales and Marketing
Administration of Selfix.
Robert Holz has been Vice President -- International Sales of Selfix since
1996. Mr. Holz joined the Company as Director of International Sales in 1995.
From 1993 to 1995, he was Director of Sales for Sunbeam/Oster International.
From 1987 to 1993, Mr. Holz was Sales Manager for Frigidaire. From 1984 to 1987,
Mr. Holz was Sales Manager for H.R. Johnson.
Richard M. Tocci joined the Company as Vice President -- Operations of
Tamor in February, 1997. From 1988 to 1997, Mr. Tocci was Treasurer and Vice
President -- Operations of Tamor. From 1977 to 1987, he was employed by American
Hanger, Inc., with his final position being Vice President of Operations.
Richard M. Tocci is the brother of Leonard J. Tocci.
Michael J. Ricard has been Vice President and General Manager of Shutters
since September, 1996. From October, 1995 to September, 1996, he was Vice
President -- Sales of Shutters. Mr. Ricard joined the Company in 1988 as Product
Development Manager of Selfix. He became National Sales Manager of Shutters in
1989. From 1986 to 1988, he was employed by Cedco as General Manager. From 1983
to 1986, he was Vice President -- Sales of Superior Plastics.
Officers serve at the discretion of the Board of Directors, except as
provided in the employment agreements of Mr. Tennant, Mr. Leonard Tocci and Mr.
Richard Tocci. See "Executive Compensation."
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on The NASDAQ National Market(sm)
under the symbol "HPII". The Company believes that as of February 28, 1997 there
were 156 holders of record and in excess of 591 beneficial holders of the
Company's common stock.
The Company has never paid a cash dividend on its common stock and
currently anticipates that all of its earnings will be retained for use in the
operation and expansion of its business.
The following table sets forth for the periods indicated the high and low
bid quotations for the Common Stock as reported on The NASDAQ National
Market(sm). The prices reported reflect inter-dealer prices, without retail
mark-up, mark-down or commission, and may not reflect actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Fifty-two weeks ended December 30, 1995:
First Quarter............................................. $5.25 $4.00
Second Quarter............................................ $5.25 $4.25
Third Quarter............................................. $5.75 $4.25
Fourth Quarter............................................ $5.875 $4.75
Fifty-two weeks ended December 28, 1996:
First Quarter............................................. $5.625 $4.125
Second Quarter............................................ $5.125 $4.125
Third Quarter............................................. $5.00 $4.50
Fourth Quarter............................................ $8.625 $4.25
</TABLE>
10
<PAGE> 11
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................. $35,209 $39,711 $40,985 $41,039 $38,200
Cost of goods sold.................... 22,297 22,504 25,587 25,678 22,992
--------- --------- --------- --------- ---------
Gross profit....................... 12,912 17,207 15,398 15,361 15,208
Operating expenses.................... 13,501 14,214 18,185 17,385 13,843
Restructuring charge.................. -- -- 1,701 2,051 --
--------- --------- --------- --------- ---------
Operating profit (loss)............ (589) 2,993 (4,488) (4,075) 1,365
Interest expense...................... (1,038) (1,066) (999) (896) (707)
Other income (expense), net........... 192 126 (295) 688 148
--------- --------- --------- --------- ---------
Earnings (loss) before income taxes... (1,435) 2,053 (5,782) (4,283) 806
Income tax (expense) benefit....... 654 (574) (221) 273 --
--------- --------- --------- --------- ---------
Earnings (loss) before the cumulative
effect of a change in accounting
for income taxes................... (781) 1,479 (6,003) (4,010) 806
--------- --------- --------- --------- ---------
Cumulative effect of a change in
accounting for income taxes........ -- 36 -- -- --
--------- --------- --------- --------- ---------
Net earnings (loss)................ $ (781) $ 1,515 $(6,003) $(4,010) $ 806
========= ========= ========= ========= =========
Net earnings (loss) per common and
common equivalent share............ $ (0.23) $ 0.43 $ (0.70) $ (1.11) $ 0.21
========= ========= ========= ========= =========
Number of weighted average common and
common equivalent shares
outstanding........................ 3,448,267 3,511,100 3,538,758 3,616,924 3,853,502
</TABLE>
<TABLE>
<CAPTION>
AS OF FISCAL YEAR END
-------------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET AND CASH FLOW DATA:
Working capital....................... $11,599 $12,752 $11,026 $ 6,712 $ 7,152
Property, plant and equipment, net.... 10,154 11,524 10,466 8,453 7,934
Intangible assets..................... 3,828 2,941 1,536 2,693 2,527
Total assets.......................... 32,828 35,354 30,761 24,976 24,705
Long-term obligations (less current
maturities)........................ 11,130 9,120 9,421 7,022 6,184
Stockholders' equity.................. 17,715 19,326 13,623 10,847 11,709
Cash provided by operating
activities......................... 2,917 4,193 2,032 2,575 1,823
</TABLE>
11
<PAGE> 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Effective January 1, 1997, the Company acquired Tamor, a privately held
company founded in 1947. Tamor designs, manufactures and markets quality plastic
housewares products.
Tamor was acquired for a total purchase price of $42.6 million consisting
of approximately $27.8 million in cash, $2.4 million in common stock (480,000
shares) and the assumption of $12.4 million in short and long term debt. On
February 27, 1997, the Company entered into a credit agreement (the "Credit
Agreement") with the lenders which are parties thereto and General Electric
Capital Corporation ("GECC"), as agent, which provided the funds necessary to
complete the acquisition and paydown Tamor's existing short and long term debt.
The financing facilities under the Credit Agreement consist of a revolving
credit facility and two term loans. The Company also executed a subordinated
equity bridge note (the "SUBORDINATED NOTE") in favor of GECC. The revolving
credit facility, the term loans and the Subordinated Note together provide a
total of $67 million of available financing. The Credit Agreement is secured by
a pledge of all of the assets of the subsidiaries of the Company and all of the
shares of capital stock of such subsidiaries. Interest on the revolving credit
facility and term notes is initially charged at floating rates of 125-200 basis
points over the lender's prime rate or 275-350 basis points over LIBOR, at the
option of the Company. The Subordinated Note of $7 million bears interest at
11.5%, where the Company elects to pay interest in cash, and the Company issued
a warrant to acquire 79,204 shares of the Company's common stock to GECC in
connection with the Subordinated Note. The Company has the option to repurchase
the warrant if the Subordinated Note has been paid in full by July 31, 1997 for
an aggregate cash call price of approximately $.8 million. If the Subordinated
Note is not repaid in full on or before July 31, 1997, the number of shares
issuable upon the exercise of the warrant will increase. (See Note 15 to
Consolidated Financial Statements). The provisions of the Credit Agreement
include restrictions on additional indebtedness, asset sales, acquisitions or
mergers, capital expenditures and dividend payments, among other things. As
defined in the Credit Agreement, the Company is also required to meet certain
financial tests which include, but are not limited to, those relating to a
minimum net worth test, and a minimum interest coverage ratio.
If the Tamor Acquisition had occurred on January 1, 1996, the Company's
1996 net sales of $38.2 million would have been increased by $75.7 million to
$113.9 million and operating profits of $1.4 million would have increased by
$6.3 million to $7.7 million. Tamor's sales have increased over the past three
years at a compounded growth rate of 21% primarily as a result of new product
introductions. Sales and operating profits are expected to increase in 1997 as
several new products contribute to growth.
In the discussion and analysis that follows, all comparisons and results of
operations pertain to Selfix and Shutters and do not include any pro forma
information regarding Tamor unless otherwise stated. Management believes that
the future financial and operating performance of the Company will be
significantly impacted by the financial and operating performance of Tamor and
the Company's ability to successfully integrate Tamor. The Company's business
strategy contemplates that the Company will pursue other potential acquisitions.
The Company currently has no agreements or understandings with respect to any
acquisitions and there can be no assurance that the Company will be successful
in pursuing other potential acquisitions. However, the costs associated with
this strategy, means of financing any potential acquisitions and consummation
and integration of any potential acquisitions could significantly impact the
Company's financial and operating performance. Further, restrictive covenants in
the Credit Agreement may limit the Company's ability to pursue its acquisition
strategy.
The Company reports on a 52-53 week year ending on the last Saturday of
December. References to the fiscal years 1994, 1995 and 1996 are for the
fifty-three weeks ended December 31, 1994, fifty-two weeks ended December 30,
1995 and the fifty-two weeks ended December 28, 1996, respectively. The
estimated favorable impact on net sales of the fifty-third week in 1994 was
offset by additional salaries and operating expenses of the additional week.
Management believes the fifty-third week had no meaningful impact on 1994
results or on comparisons between years.
12
<PAGE> 13
FISCAL YEAR 1996 AS COMPARED TO FISCAL YEAR 1995
Fiscal year 1996 results began to reflect the positive benefits of the
restructuring actions taken during fiscal years 1994 and 1995. The Company's
1996 positive earnings result of $.8 million was achieved as a result of reduced
operating expenses, improved manufacturing efficiencies and increased gross
profit margins.
Operating initiatives implemented in 1994 and 1995 have directly benefited
1996 results as follows:
- A 24% reduction in the workforce
- The elimination of unprofitable product lines
- The closing of 3 facilities
- A reduction in outside warehousing costs
- A 29% reduction of gross inventory
- Operating expenses have been reduced below amounts spent in fiscal 1993
In the discussion that follows, the impact of several items affecting
financial comparability is detailed. The items include management operating
initiatives implemented in 1994 and 1995 as well as other significant items.
Restructuring charges totaling $2.1 million were recorded in 1995 related to the
decisions to exit certain unprofitable product lines, close Selfix' Canadian
facility and move the Canadian operations to Chicago. Such charges included
severance benefits, the write-off of Canadian fixed assets, run out costs on the
Canadian building lease and the write-off of inventory and intangibles related
to discontinued product lines. In addition to the restructuring charges, other
management initiatives and unusual items included an increase in the allowances
for uncollectible accounts receivable of $.4 million to address the uncertain
financial condition of several retailers; charges of $.5 million were recorded
to implement management initiatives to re-engineer operations from both a
customer service and manufacturing perspective; and fixed asset values were
reduced $.3 million as a result of a reassessment of expected utility and useful
lives. Further, other income was positively impacted by the favorable settlement
of a non-compete and consulting agreement. The favorable settlement allowed $.3
million of related accruals to be reversed into earnings. The items and charges
discussed in this paragraph are collectively referred to as "the 1995 unusual
items". The impact of the 1995 unusual items on operating profit (loss) and
earnings (loss) before income taxes was to increase the loss by $3.3 million and
$3.0 million, respectively.
In the discussion that follows, comparisons of 1996 results to 1995 results
are net of the 1995 unusual items. Management believes that this allows for a
better understanding of 1996 operating performance.
1996 net earnings of $.8 million were significantly better than the 1995
net loss of $1.0 million, net of the 1995 unusual items. The increase in
earnings was achieved as a result of improved gross margins and significantly
reduced operating expenses.
Net sales of $38.2 million were down $2.8 million from the prior year.
Reduction in sales was a direct result of decisions made in 1995 to discontinue
the sale of certain unprofitable housewares products. Products discontinued were
across all of the housewares product lines but were greatest in the hooks and
home helpers and home organization product lines. Home bathwares sales were up
3% from 1995 as a result of an expanded line of shower organizers. Juvenile
products sales were up 10% as the Company had a full year in which to sell the
child safety product line acquired in October, 1995. Home improvement products
rose 5% as a result of increased placement with remodeling distributors.
Gross profit margins in 1996 were 39.8% of net sales up slightly from
1995's margins of 38.5%, net of the 1995 unusual items. Increased gross profit
margins were attributable to a slight decrease in the cost of plastic resin but
more significantly to the impact of decisions made in 1995 and the selling of
fewer lower margin products.
Plastic resin costs declined about 9% during 1996 to an average cost of
$.48/pound. The Company used approximately 7 million pounds of plastic resin
resulting in a cost savings of $.3 million as compared to 1995
13
<PAGE> 14
cost levels. Declines in resin costs were a reflection of plastic resin market
factors and not as a result of any change in the Company's buying practices.
Selling expenses, net of the 1995 unusual items, dropped from 25.6% of net
sales to 23.7%. Warehousing and customer service costs were reduced by the first
quarter closing of Selfix' Canadian facility. All Canadian business is now
serviced from Selfix' manufacturing and distribution facilities in Chicago. This
resulted in personnel reductions and reduced warehousing costs. In addition,
management decided it was better served by outsourcing certain product design
services. This resulted in further personnel related savings.
Administrative expenses also declined as a percent of net sales. 1996
administrative expenses were 12.0% of net sales as compared to 13.7% in 1995,
net of the 1995 unusual items. Management efforts to evaluate and reduce
spending successfully reduced personnel costs, professional fees and nearly all
other administrative items. Costs related to the search and evaluation of
acquisition targets were significantly decreased in 1996. Management devoted the
majority of its attention to cost reduction efforts, manufacturing efficiencies,
and managing the impact of selling the reduced product line. Fourth quarter
costs of approximately $.2 million related to the Tamor Acquisition have been
capitalized.
Amortization of intangibles decreased from 1.2% of net sales in 1995 to .5%
in 1996. The decrease in amortization is the result of 1995 write-offs of
previously capitalized patents and trademarks related to discontinued product
lines.
The Company incurred restructuring charges of $2.1 million in 1995. No such
charges were incurred in 1996. The 1995 restructuring charge was the result of
the Company's decision to exit certain unprofitable product lines, close Selfix'
Canadian facility and move the Canadian operations to the Chicago manufacturing
and distribution facilities. The charges for the closing and relocation of the
Canadian operation totaled $1.0 million including severance benefits of $.2
million covering all of the Canadian employees. The relocation of the Canadian
operation was completed in the first half of 1996. The remaining $1.1 million of
restructuring charges pertains to product lines the Company decided to exit and
the write-off of related product molds, inventory and patents.
In December, 1995, the Company used excess cash to pay down a $1.5 million
note payable to a bank. In addition, $.8 million of installment payments on
variable rate demand bonds were made. As a result of these actions, the
Company's interest income in 1996 decreased $.15 million as compared to 1995 and
interest expense was reduced $.2 million. Changes in interest rates had no
significant impact on interest income or expense between years. Other income,
net of the 1995 unusual items, decreased from $.2 million to $.1 million. 1995
results included gains on sales of fixed assets and a franchise tax refund.
Neither of these events were as significant in 1996.
The Company was able to use tax losses from prior years to reduce current
year tax provisions to zero. In 1995 and 1994, however, the Company was unable
to record a significant tax benefit on pre-tax losses because of the
unavailability of tax loss carrybacks. An income tax benefit of $.3 million was
recorded in 1995 through the utilization of alternative minimum tax carrybacks.
The Company has about $6.5 million of book tax losses to shelter future reported
pre tax earnings.
Net earnings in 1996 were $.8 million, or $.21 per share, based on
3,853,502 weighted average common shares and common share equivalents. This
compares to a net loss of $4.0 million recorded in 1995, or $1.11 loss per share
based on 3,616,924 weighted average common shares and common share equivalents.
The $4.8 million turnaround in profitability is due to the operating
improvements achieved over the past few years and a $3.0 million reduction in
unusual charges. The increase in common shares and common share equivalents is
the result of stock issued in connection with the Company's Employee Stock
Purchase Plan and the dilutive impact of stock options. The increase in the
Company's year end stock price from $5.625 to $8.625 caused several previously
issued stock option grants to be treated as dilutive for purposes of the common
share equivalent determination.
14
<PAGE> 15
FISCAL YEAR 1995 AS COMPARED TO FISCAL YEAR 1994
During 1994, management began a restructuring of operations and analysis of
market trends which resulted in the decision to exit certain product lines,
consolidate facilities and take actions to reduce fixed costs. In the discussion
that follows, the management initiatives and other significant items occurring
in 1994 are detailed. Restructuring charges totaled $1.7 million related to a
work force reduction in the Chicago facility, termination of existing employee
arrangements and the writedown of inventory and fixed assets related to product
lines to be discontinued. In addition to the restructuring charges, other
management initiatives and unusual items included an increase in the reserves
for returns and allowances of $.8 million to reflect current market pricing
trends and potential product warranty claims; inventory reserves were increased
$1.0 million to address slow moving and obsolete finished goods and packaging;
fixed asset write-offs of $.4 million were recorded for assets that had
significantly diminished useful lives; search and relocation costs of $.2
million were incurred for the turnover of the senior management team; accounts
receivable of $.2 million were written off related to the bankruptcy of a
significant home improvement products customer; and intangible assets from
previous acquisitions were reduced $.6 million due to projected sales declines
on the related product lines acquired. Further, other expense was increased $.5
million related to the write-off of future benefits from non-compete and
consulting agreements arising from a previous acquisition; $.3 million related
to the investigation and remediation of an environmental matter; and $.1 million
for losses on fixed assets sold. Partially offsetting these additional expenses
was $.5 million of income from the favorable settlement of a patent infringement
lawsuit. The items and charges discussed in this paragraph are collectively
referred to as "the 1994 unusual items". The impact of the 1994 unusual items on
operating profit (loss) and earnings (loss) before income taxes was to increase
the 1994 loss by $4.9 million and $5.3 million, respectively.
In the discussion that follows, comparisons of 1995 results to 1994 results
are net of both the 1995 unusual items and the 1994 unusual items. Management
believes this allows for a better understanding of 1995 operating performance.
Net sales during fiscal year 1995 of $41.0 million were unchanged from the
prior fiscal year. During the year, however, the Company identified certain
products to discontinue primarily in the home organization category. As a
result, product sales of this category declined 15%. Further, juvenile products
declined 19% as a result of reduced trade channel fill-in of initial product
offerings. These reductions were offset by healthy improvements (up 4%) in the
Company's stronger categories of home bathwares and hooks, where the Company has
larger market shares. Increased sales of these products were driven by a 16%
increase in domestic sales to the Company's largest customer due to improved
distribution and new product offerings. Sales of the Company's home improvement
products increased 7% as a result of increased penetration of the home center
retail market and also through increased volume with remodeling distributors.
Penetration of the home center retail market was supported by the Company's make
to order program allowing consumers to customize both the color and size of
their shutters.
Gross profit, net of the 1995 and 1994 unusual items, declined from 42.0%
of net sales in 1994 to 38.5% in 1995. The decrease in gross profit margins was
primarily the result of cost increases related to plastic resin, the Company's
primary raw material. During 1995, the Company's cost of plastic resin increased
34% causing gross profit margins to decline by 2.6%. Plastic resin costs
declined in the third and fourth quarters from their mid year highs. Gross
margins were also impacted by Canadian sales mix shifts away from high margin
core product categories to the lower margin hanging hardware product line. The
Company concluded it could not effectively and profitably compete in hanging
hardware and decided to exit this product line. The related costs to exit this
product line are included in the 1995 restructuring charge.
Selling expenses, net of the 1995 and 1994 unusual items, were 25.6% of net
sales as compared to 25.9% in 1994. The decrease was a result of the Company's
consolidation of its Chicago warehousing facilities from four to two. This
action was taken to improve customer service, increase operating efficiencies
and reduce costs. The Company's ability to consolidate warehouses was also a
direct result of actions taken in 1994 and 1995 to reduce Stock Keeping Units
(SKUs) and inventory. The Company's restructuring actions in 1994 to reduce
headcount also had a favorable impact on selling expenses. Offsetting much of
the savings from the above actions, were increased payroll and travel costs for
sales personnel.
15
<PAGE> 16
Administrative expenses, net of the 1995 and 1994 unusual items, increased
slightly from 13.2% of net sales in 1994 to 13.7% in 1995. The increase is
attributable to costs incurred related to the Company's search for strategic
acquisitions. During 1995, the Company evaluated several acquisition targets and
incurred legal, audit and investment banking fees during the evaluation and
negotiation process. Fees and costs related to acquisition activities are
expensed as incurred unless a transaction is completed. Administrative expenses
also increased as a result of the Company's management incentive plans. Expenses
for such plans increased as a result of the Company achieving its operating
budget in 1995. The operating budget was not achieved in 1994 and no management
incentive costs were incurred.
Amortization of intangibles, net of the 1995 and 1994 unusual items,
decreased from 2.1% of sales in 1994 to 1.2% in 1995. The decrease is the result
of the reduction in patents, trademarks and other intangibles during 1994. The
reduction in these assets resulted in reduced amortization in 1995. Further,
some of the Company's intangibles reached the end of their respective
amortization periods during early 1995 further reducing amortization expense as
compared to 1994.
Restructuring charges were incurred in both 1995 and 1994. Such charges
increased from $1.7 million in 1994 to $2.1 million in 1995. In 1994, the
Company's new senior management team began a restructuring of operations,
analysis of customer and market trends, assessment of product lines, SKUs and
customers served together with a review of operating strategies. In 1994, the
Company recorded a $1.7 million restructuring charge related to the analysis and
assessments completed at that time. The 1994 charge relates to costs of
severance and termination benefits paid or accrued for a change in level and
composition of employees at its Chicago facilities, the termination of existing
employee arrangements, as well as inventory adjustments and fixed asset
writedowns related to product lines to be discontinued.
In the fourth quarter of 1995, the Company announced its intent to further
consolidate facilities and exit additional product lines. The 1995 restructuring
charge was a result of the Company's decision to exit certain unprofitable
product lines, close Selfix' Canadian facility and move the Canadian operations
to the Chicago manufacturing and distribution facilities. The restructuring
charges for these initiatives totaled $2.1 million. The charges for the closing
and relocation of the Canadian operation totaled $1.0 million including
severance benefits of $.2 million covering all of the Canadian employees. The
relocation of the Canadian operation was completed in the first quarter of 1996.
The remaining $1.1 million of restructuring charges pertains to product lines
the Company decided to exit and the write-off of related product molds,
inventory and patents.
Interest income was essentially unchanged from the prior year. Interest
expense declined $.1 million as a result of lower debt levels. Changes in
interest rates between years had no significant impact on interest income or
expense. Other income, net of the 1995 and 1994 unusual items discussed above,
increased $.3 million as a result of gains on sales of fixed assets and a
franchise tax refund from prior years.
An income tax benefit of $.3 million was recorded in 1995 through the
utilization of alternative minimum tax carrybacks. This compares to income tax
expense in 1994 of $.2 million related to foreign income taxes. During 1995, the
Company ceased operation of its United Kingdom and Hong Kong subsidiaries and as
such did not generate any foreign taxed earnings or losses of significance. The
Company was unable to record a significant tax benefit on the 1995 or 1994
pre-tax losses because of the unavailability of tax loss carrybacks. The losses
from both years will be available to reduce future taxable income.
The net loss in 1995 was $4.0 million or $1.11 per share based on 3,616,924
weighted average common share and common share equivalents. This compares to the
net loss of $6.0 million recorded in 1994 or $1.70 per share based on 3,538,758
of weighted average common shares and common share equivalents. The increase in
common shares and common share equivalents is the result of stock issued in
connection with the acquisition of Mericon Child Safety Products and the
partially offsetting impact of treasury shares acquired during the year. The
$2.0 million decrease in net loss between years was due primarily to the $2.3
million reduction in unusual items discussed above.
Net of the 1995 and 1994 unusual items, 1995 results were a net loss of
$1.0 million as compared to a net loss in 1994 of $.7 million. The decline in
earnings was primarily the result of decreased gross margins.
16
<PAGE> 17
OPERATING RESULTS BY INDUSTRY SEGMENT
The Company operates in two industry segments: housewares products and home
improvement products. The housewares segment sells its products under the Selfix
brand and operates as Selfix, Inc. The home improvement products segment is
operated as Shutters, Inc. Tamor, acquired in February 1997, will be reported
within the housewares segment. Tamor will sell its products under its existing
brand names (including Tamor) and be operated as Tamor Corporation.
Although both segments use plastic resin as the primary raw material, the
products of each segment are quite different and are sold through different
trade channels. The two segments operate independently with separate management
teams. The 1995 and 1994 unusual items impacted both segments. The housewares
segment operating profit was negatively impacted in 1995 and 1994 by $3.3
million and $4.0 million, respectively. The home improvement segment was not
impacted in 1995 but was negatively impacted by $.9 million in 1994.
HOUSEWARES
The housewares segment significantly improved its profitability in 1996.
Operating profits of $.9 million were achieved as compared to an operating loss
of $1.6 million in 1995, net of the 1995 unusual items. The improvement resulted
from higher gross profit margins and reduced operating expenses. The majority of
the operating initiatives and cost cutting measures of the past three years
benefited the housewares segment. The Selfix line of products has been
significantly streamlined from nearly 2,000 SKUs in 1994 to under 700 as of the
end of 1996. The reduction in SKUs has allowed management to concentrate on
selling more profitable products, allocate capital resources accordingly and
cutback personnel. The reduction in expense base and the improved margins on
items sold, has positioned the segment for continued profitability.
The 1995 operating loss of the housewares segment, net of the 1995 unusual
items, was $1.6 million as compared to an operating profit of $.1 million in
1994. The operating loss was partially the result of higher resin costs. Other
factors impacting results were the decline in gross profit margins due to
Canadian sales mix shifts to a lower margin hardware product line, the costs
associated with the Company's search for strategic acquisitions and the
additional costs of new management incentive plans.
HOME IMPROVEMENT PRODUCTS
Operating profits of the home improvement segment declined in 1996 to $.5
million from $.8 million in 1995. The decline in profitability occurred
primarily in the first quarter when sales were significantly constrained by
weather conditions in the midwest and northeast. Late winter storms deferred the
start of the building season. This resulted in missed sales and significant
unabsorbed fixed manufacturing costs. Although sales caught up later in the
year, the unabsorbed manufacturing costs could not be recovered. In addition,
operating expenses increased 11% to support new product introductions and to
pursue new trade channel opportunities. During the fourth quarter, management
initiated a series of changes to permanently reduce manufacturing costs and
operating expenses. This resulted in a fourth quarter profit as compared to
historical fourth quarter losses. Further, these changes positioned the home
improvement segment for improved profitability in 1997.
Operating profits in 1995 of $.8 million were up $.4 million as compared to
1994's result of $.4 million, net of the 1995 and 1994 unusual items. Increased
profitability was the result of improved manufacturing efficiencies through
reduced turnover of personnel and improved work flows. These cost efficiencies
offset the increased cost of plastic resins. Additional savings occurred in
operating expenses related to new product development costs and amortization of
intangibles. Amortization expenses were reduced as a result of the expiration of
non-compete and consulting agreements arising from the 1988 acquisition of
Shutters by the Company.
17
<PAGE> 18
CAPITAL RESOURCES AND LIQUIDITY
Cash and cash equivalents at December 28, 1996 were $2.9 million as
compared to $3.0 million at December 30, 1995. The Company's operating cash flow
of $1.8 million was sufficient to fund operations, pay down debt of $.9 million
and acquire new fixed assets totaling $1.6 million. During 1996 the Company
consolidated its banking relationships and obtained a new line of credit. At
December 28, 1996, there was no balance outstanding against the line of credit
and the company was in compliance with all loan covenants.
The required borrowings for the Tamor Acquisition has significantly changed
the Company's financial structure. To fund the acquisition, financing facilities
were provided by commercial lenders to replace and augment the financing
facilities in place at December 28, 1996. The financing facilities consist of
$40 million of term notes and a $20 million revolving line of credit under the
Credit Agreement and the $7 million Subordinated Note. At February 28, 1997, the
Company had total short and long term debt outstanding of $54 million and unused
availability under the revolving line of credit of $11.1 million. There were no
borrowings outstanding under the revolving line of credit. During 1997, $2.5
million of debt will come due.
The Company's capital spending needs in 1997 are expected to be between
$7.5 and $10.0 million. Most of the spending relates to new injection molding
presses and molds to support Tamor's sales growth and new product development.
Also included in the capital spending forecast is approximately $2.4 million to
expand Tamor's Missouri manufacturing and warehouse facility. The Company
believes that its existing financing facilities will provide sufficient capital
to fund operations, make the required debt repayments and meet the capital
spending needs. The Company is considering the possibility of a stock offering
to provide funds to paydown a portion of the term notes and Subordinated Note.
However, there can be no assurance that such an offering will occur.
OUTLOOK
During 1996, the Company significantly improved its operating results. This
was particularly true during the last 9 months of the year when operating
profits rose to $2.3 million as compared to a $.7 million loss in the prior year
9 month period, net of the 1995 unusual items. Both Selfix and Shutters are now
positioned for improved profitable performance as a result of the operating
initiatives and cost cutting measures of the past few years. Having achieved
significant reductions in operating break-even points, both businesses are
positioned for improved profitability at current sales levels. With base line
profitability improved, management expects to turn its attention to sales
growth. New product introductions and expanded distribution internationally will
be the key factors in achieving sales growth.
The Company believes that the Tamor Acquisition will add significantly to
1997 sales. If the Tamor Acquisition had occurred on January 1, 1996, the
Company's 1996 net sales would have been increased by $75.7 million and
operating profits increased by $6.3 million. Tamor's sales have increased over
the past three years at a compounded growth rate of 21%. Sales growth will be
driven by several new product introductions in the storage container category.
In addition, management expects the addition of Tamor will provide opportunities
to use excess manufacturing capacity at Selfix and Shutters. This will result in
more efficient use of fixed costs and an overall improvement in gross profit
margins.
The addition of Tamor increases the Company's exposure to the risks of
unfavorable changes in raw material costs. Tamor uses significantly more plastic
resin than does the Company's other businesses. Further, Tamor operates at lower
margins and thus its profitability is more sensitive to changes in plastic resin
prices. As the cost of plastic resin fluctuates, it can have a significant
impact on operating results. The Company currently expects resin prices for 1997
to stay at about the same level as 1996.
As a result of the Tamor Acquisition, the Company is highly leveraged and
as such will be more sensitive to changes in interest rates. Further, the
Company will be subject to tighter borrowing limits than it has historically
operated under. As such, the Company may be constrained from time-to-time in its
ability to pursue sales growth opportunities. However, management believes that
current financing facilities are sufficient to fund 1997's anticipated growth
and required expenditures to support new product development.
18
<PAGE> 19
Management will continue to seek strategic acquisitions of companies and
product lines that fit within the desired categories of products for the home.
Such categories currently include home storage, home organization and bathwares.
Management expects continued sales and earnings growth as a result of these
anticipated action steps but that additional financing may be necessary to
support acquisition activity. However, restrictive covenants in the Credit
Agreement may limit the Company's ability to pursue its acquisition strategy.
FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K, including "Business," "Properties," "Legal
Proceedings" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" contains forward-looking statements within the
meaning of the "safe-harbor" provisions of the Private Securities Litigation
Reform Act of 1995. Such statements are based on management's current
expectations and are subject to a number of factors and uncertainties which
could cause actual results to differ materially from those described in the
forward-looking statements. Such factors and uncertainties include, but are not
limited to: (i) the anticipated effect of the Tamor Acquisition on the Company's
sales and earnings; (ii) the impact of the level of the Company's indebtedness;
(iii) restrictive covenants contained in the Company's various debt documents;
(iv) general economic conditions and conditions in the retail environment; (v)
the Company's dependence on a few large customers; (vi) price fluctuations in
the raw materials used by the Company, particularly plastic resin; (vii)
competitive conditions in the Company's markets; (viii) the seasonal nature of
the Company's business; (ix) the Company's ability to execute its acquisition
strategy; (x) fluctuations in the stock market; (xi) the extent to which the
Company is able to retain and attract key personnel; (xii) relationships with
retailers; and (xiii) the impact of federal, state and local environmental
requirements (including the impact of current or future environmental claims
against the Company). As a result, the Company's operating results may
fluctuate, especially when measured on a quarterly basis.
19
<PAGE> 20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Listed below are the financial statements and supplementary data included
in this part of the Annual Report on Form 10-K:
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
(a) Financial Statements
Reports of Independent Public Accountants................. F-1
Consolidated Statements of Operations for 1994, 1995 and F-3
1996......................................................
Consolidated Balance Sheets at December 30, 1995 and F-4
December 28, 1996.........................................
Consolidated Statements of Stockholders' Equity for 1994, F-5
1995 and 1996.............................................
Consolidated Statements of Cash Flows for 1994, 1995 and F-6
1996......................................................
Notes to Consolidated Financial Statements................ F-7
(b) Supplementary Data
Summary of Quarterly Financial Information................ F-22
Financial statement schedule is included on page F-25 of
this report. See Item 14.
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company dismissed Grant Thornton LLP, its independent public
accountants, effective April 12, 1996.
In connection with the audits of 1994 and 1995, and during the interim
period prior to the dismissal, there were no disagreements with the former
accountants on any matter of accounting principle or practice, financial
statement disclosure, or auditing scope or procedure.
The former accountants' report on the financial statements of the Company
for 1994 and 1995 was unqualified.
The Company has engaged Arthur Andersen LLP as its new independent public
accountants effective with the dismissal of its former accountants. During 1994,
1995 and during the interim period prior to engagement, there were no
consultations with the newly engaged accountants with regard to either the
application of accounting principles as to any specific transaction, either
completed or proposed; the type of audit opinion that would be rendered on the
Company's financial statements; or any matter of disagreements with the former
accountants.
The Company's Board of Directors approved the audit committee's
recommendation to change accountants.
20
<PAGE> 21
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the Company's executive officers is included under
Part I of this Form 10-K.
Information set forth under "Election of Directors" in the Proxy Statement
is incorporated herein by reference. The information set forth under "Executive
Officers of the Registrant" in Part I of this Annual Report on Form 10-K is
incorporated by reference herein.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under "Additional Information -- Executive
Compensation" and "Additional Information -- Employment Agreements" in the Proxy
Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the "Security Ownership of Principal
Holders and Management" in the Proxy Statement is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under "Certain Transactions" in the Proxy
Statement is incorporated herein by reference.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Listed below are the financial statements, additional financial
information, reports and exhibits included in this part of the Annual Report on
Form 10-K:
(A) FINANCIAL STATEMENTS
The financial statements and notes to the consolidated financial statements
are referred to in Item 8.
<TABLE>
<CAPTION>
(B) ADDITIONAL FINANCIAL INFORMATION PAGE NO.
<S> <C> <C>
Reports of Independent Public Accountants on Schedule....... F-23
Schedule II -- Valuation and Qualifying Accounts............ F-25
(C) REPORTS FILED ON FORM 8-K
None
EXHIBITS (NUMBERED IN ACCORDANCE WITH ITEM 601 OF REGULATION
(D) S-K)
</TABLE>
21
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of February 13, 1997,
by and among Selfix, Inc., HPI Merger, Inc. and Home
Products International, Inc. Incorporated by reference from
Exhibit 2.1 to Form 8-B Registration Statement filed on
February 20, 1997.
2.2 Agreement and Plan of Merger, dated as of October 24, 1995,
by and among Selfix, Inc., Mericon Corporation, Claw, L.L.C.
and Dennis Buckshaw. Incorporated by reference from Exhibit
2.2 to Form 8-B Registration Statement filed on February 20,
1997.
2.3 Stock Purchase Agreement, made as of January 1, 1997,
between the Company, Leonard J. Tocci, Richard M. Tocci,
Lawrence J. Tata, Michael P. Tata and Barbara L. Tata.
Incorporated by reference from Exhibit 2.2 to Form 8-K dated
February 28, 1997.
2.4 Agreement and Plan of Merger, dated as of January 1, 1997,
by and among the Company, Houseware Sales, Inc. and the
individual shareholders of Houseware Sales, Inc.
Incorporated by reference from Exhibit 2.1 to Form 8-K dated
February 28, 1997.
3.1 Certificate of Incorporation of the Company filed with the
Delaware Secretary of State on February 7, 1997.
Incorporated by reference from Exhibit 3.1 to Form 8-B
Registration Statement filed on February 20, 1997.
3.2 By-laws of the Company. Incorporated by reference from
Exhibit 3.2 to Form 8-B Registration Statement filed on
February 20, 1997.
10.1 The Company's 1994 Stock Option Plan. Incorporated by
reference by Exhibit A of the Company's Proxy Statement for
its 1994 Annual Meeting.*
10.2 The Company's 1991 Stock Option Plan. Incorporated by
reference from Exhibit A of the Company's Proxy Statement
for its 1991 Annual Meeting.*
10.3 The Company's 1987 Stock Option Plan Incorporated by
reference from Exhibit 10.8 to Form S-1 Registration
Statement No. 33-23881.*
10.4 Lease, dated July 24, 1980, among Selfix as Tenant and NLR
Gift Trust and MJR Gift Trust as Landlord concerning
Selfix's facility in Chicago, Illinois. Incorporated by
reference from Exhibit 10.9 to Form S-1 Registration
Statement No. 33-23881.
10.5 Patent licensing agreement, dated as of November 2, 1971,
between Selfix and Meyer J. Ragir concerning M.J. Molding
Process. Incorporated by reference from Exhibit 10.13 to
Form S-1 Registration Statement No. 33-23881.
10.6 Patent licensing agreement, dated as of November 15, 1971,
between Selfix and Meyer J. Ragir concerning Suction Lock
Products. Incorporated by reference from Exhibit 10.14 to
Form S-1 Registration Statement No. 33-23881.
10.7 Patent licensing agreement, dated as of June 1, 1981,
between Selfix and Meyer J. Ragir concerning Shower
Organizer Products. Incorporated by reference from Exhibit
10.15 to Form S-1 Registration Statement No. 33-23881.
10.8 Loan Agreement dated December, 1989 between Selfix and
Illinois Development Finance Authority in connection with
Selfix's Industrial Revenue Bond. Incorporated by reference
from the Company's Form 10-K for the year ended May 31,
1990.
10.9 Loan Agreement dated September, 1990 between Selfix and
Illinois Development Finance Authority in connection with
Selfix's Industrial Revenue Bond. Incorporated by reference
from the Company's Form 10-K for the fifty-two weeks ended
December 28, 1991.
*10.10 Credit Agreement dated February 27, 1997 among Selfix, Inc.,
Tamor Corporation and Shutters, Inc. as Borrowers, the
Company, General Electric Capital Corporation, as Agent and
Lender, and LaSalle National Bank, as Lender.
</TABLE>
22
<PAGE> 23
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
<C> <S>
*10.11 The Company, Selfix, Inc., Tamor Corporation, Shutters, Inc.
Subordinated Equity Bridge Notes due February 27, 2005 Note
Purchase Agreement.
10.12 Employment Agreement dated January 1, 1997 between the
Company and James R. Tennant, Chairman of the Board and
Chief Executive Officer. Incorporated by reference from
Exhibit 10.10 to Form 8-B Registration Statement filed on
February 20, 1997.**
10.13 Reimbursement Agreement by and among Selfix, Shutters, Inc.
and LaSalle National Bank dated as of April 12, 1996
relating to letter of credit issued in connection with the
Series 1990 Bonds. Incorporated by reference from Exhibit
10.11 to Form 8-B Registration Statement filed on February
20, 1997.
*10.14 Employment Agreement dated February 28, 1997 between the
Company and Leonard Tocci.**
*10.15 Employment Agreement dated February 28, 1997 between the
Company and Richard Tocci.**
*10.16 Lease Agreement, dated February 7, 1995, by and between
Packaging Resources, Inc., as Landlord, and Tamor
Corporation, as Tenant for Manufacturing and Distribution
Facilities at Louisiana, Missouri, as amended by First
Amendment dated March 29, 1995.
*10.17 Lease Agreement, dated March 6, 1992, by and between
Gottsegen Realty Venture, Robert Gottsegen, Trustee, as
Landlord and Victory Button, Inc., as Tenant (predecessor in
interest to Tamor) for Warehouse Facilities at Fitchburg,
Massachusetts, and First Addendum dated May 10, 1993.
*11.1 Statement Regarding Computation of Earnings Per Share is
included in the Notes to the Consolidated Financial
Statements referred to in Item 8 hereof.
16.1 Letter re: Change in Certifying Accountant. Incorporated by
reference from Exhibit 16.1 to Form 8-K filed by the Company
on April 22, 1996.
*21.1 List of Subsidiaries.
*23.1 Consent of Arthur Andersen LLP.
*23.2 Consent of Grant Thornton LLP.
*27.1 Financial Data Schedule.
</TABLE>
- -------------------------
* Filed herewith, exhibits not marked with an asterisk are incorporated by
reference.
** Indicates an employee benefit plan, management contract or compensatory plan
or arrangement in which a named executive officer participates.
23
<PAGE> 24
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors
Home Products International, Inc.
We have audited the accompanying consolidated balance sheet of Home
Products International, Inc. (formerly Selfix, Inc.) (a Delaware corporation)
and subsidiaries as of December 28, 1996, and the related consolidated
statements of operations, stockholders' equity and cash flows for the fifty-two
week period then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Home Product International,
Inc. and subsidiaries as of December 28, 1996, and the results of its operations
and its cash flows for the fifty-two week period then ended in conformity with
generally accepted accounting principles.
Arthur Andersen LLP
Chicago, Illinois
February 7, 1997, except with
respect to the transactions discussed
in Note 15, as to which the date
is February 28, 1997
F-1
<PAGE> 25
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Home Products International, Inc. (formerly Selfix, Inc.)
We have audited the accompanying consolidated balance sheet of Home
Products International, Inc. (formerly Selfix, Inc.) and Subsidiaries as of
December 30, 1995, and the related consolidated statements of operations,
stockholders' equity and cash flows for the 52-week period ended December 30,
1995 and the 53-week period ended December 31, 1994. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Home Products
International, Inc. and Subsidiaries as of December 30, 1995, and the
consolidated results of their operations and their consolidated cash flows for
the 52-week period ended December 30, 1995 and the 53-week period ended December
31, 1994, in conformity with generally accepted accounting principles.
GRANT THORNTON LLP
Chicago, Illinois
February 9, 1996
F-2
<PAGE> 26
HOME PRODUCTS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEAR
-----------------------------
1994 1995 1996
---- ---- ----
(IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net sales................................................... $40,985 $41,039 $38,200
Cost of goods sold.......................................... 25,587 25,678 22,992
------- ------- -------
Gross profit.............................................. 15,398 15,361 15,208
Operating expenses
Selling................................................... 10,991 10,474 9,042
Administrative............................................ 5,789 6,433 4,600
Amortization of intangible assets......................... 1,405 478 201
Restructuring charge...................................... 1,701 2,051 --
------- ------- -------
19,886 19,436 13,843
------- ------- -------
Operating profit (loss)................................... (4,488) (4,075) 1,365
------- ------- -------
Other income (expense)
Interest income........................................... 206 230 80
Interest (expense)........................................ (999) (896) (707)
Other income (expense).................................... (501) 458 68
------- ------- -------
(1,294) (208) (559)
------- ------- -------
Earnings (loss) before income taxes......................... (5,782) (4,283) 806
Income tax (expense) benefit................................ (221) 273 --
------- ------- -------
Net earnings (loss)......................................... $(6,003) $(4,010) $ 806
======= ======= =======
Net earnings (loss) per common and common equivalent
share..................................................... $ (1.70) $ (1.11) $ 0.21
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 27
HOME PRODUCTS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF FISCAL YEAR END
----------------------
1995 1996
---- ----
(IN THOUSANDS,
EXCEPT SHARE AMOUNTS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,982 $ 2,878
Investments in marketable securities...................... 516 1
Accounts receivable net of allowance for doubtful accounts
of $1,395 at December 30, 1995, $901 at December 28,
1996................................................... 4,690 6,476
Notes and other receivables............................... 83 118
Refundable income taxes................................... 222 --
Inventories, net.......................................... 5,151 4,391
Prepaid expenses and other current assets................. 175 100
-------- --------
Total current assets................................... 13,819 13,964
-------- --------
Property, plant and equipment -- at cost.................... 21,362 22,515
Less accumulated depreciation and amortization.............. (12,909) (14,581)
-------- --------
Property, plant and equipment, net.......................... 8,453 7,934
-------- --------
Intangible and other assets................................. 2,704 2,807
-------- --------
Total assets................................................ $ 24,976 $ 24,705
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term obligations............... $ 892 $ 838
Accounts payable.......................................... 1,334 1,956
Accrued liabilities....................................... 4,881 4,018
-------- --------
Total current liabilities.............................. 7,107 6,812
-------- --------
Long-term obligations -- net of current maturities.......... 7,022 6,184
Stockholders' equity:
Preferred stock -- authorized, 500,000 shares, $.01 par
value; none issued..................................... -- --
Common stock -- authorized 7,500,000 shares, $.01 par
value; 3,861,784 shares issued at December 30, 1995 and
3,881,423 shares issued at December 28, 1996........... 39 39
Additional paid-in capital................................ 10,765 10,839
Retained earnings......................................... 490 1,296
Common stock held in treasury -- at cost (58,762
shares)................................................ (264) (264)
Currency translation adjustments.......................... (192) (201)
Other, net................................................ 9 --
-------- --------
Total stockholders' equity............................. 10,847 11,709
-------- --------
Total liabilities and stockholders' equity.................. $ 24,976 $ 24,705
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 28
HOME PRODUCTS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON
ADDITIONAL CURRENCY STOCK HELD
PREFERRED COMMON PAID-IN RETAINED TRANSLATION OTHER, IN TREASURY
STOCK STOCK CAPITAL EARNINGS ADJUSTMENTS NET AT COST TOTAL
--------- ------ ---------- -------- ----------- ------ ----------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 25, 1993...... $ -- $35 $ 8,945 $10,503 $(157) $ -- $ -- $19,326
Net loss.......................... -- -- -- (6,003) -- -- -- (6,003)
Issuance of 99,385 shares of
common stock in connection with
exercise of stock options....... -- 1 415 -- -- -- -- 416
Other............................. -- -- -- -- -- (51) -- (51)
Translation adjustments........... -- -- -- -- (65) -- -- (65)
--- --- ------- ------- ----- ---- ----- -------
BALANCE AT DECEMBER 31, 1994...... -- 36 9,360 4,500 (222) (51) -- 13,623
Net loss.......................... -- -- -- (4,010) -- -- -- (4,010)
Issuance of 250,000 shares of
common stock in connection with
the acquisition of Mericon Child
Safety Products................. -- 3 1,372 -- -- -- -- 1,375
Issuance of 8,147 shares of common
stock in connection with
exercise of stock options....... -- -- 33 -- -- -- -- 33
Purchase of 58,762 common shares
held in treasury at cost........ -- -- -- -- -- -- (264) (264)
Other............................. -- -- -- -- -- 60 -- 60
Translation adjustments........... -- -- -- -- 30 -- -- 30
--- --- ------- ------- ----- ---- ----- -------
BALANCE AT DECEMBER 30, 1995...... -- 39 10,765 490 (192) 9 (264) 10,847
Net earnings...................... -- -- -- 806 -- -- -- 806
Issuance of 19,639 shares of
common stock in connection with
employee stock purchase plan.... -- -- 74 -- -- -- -- 74
Other............................. -- -- -- -- -- (9) -- (9)
Translation adjustments........... -- -- -- -- (9) -- -- (9)
--- --- ------- ------- ----- ---- ----- -------
BALANCE AT DECEMBER 28, 1996...... $ -- $39 $10,839 $ 1,296 $(201) $ -- $(264) $11,709
=== === ======= ======= ===== ==== ===== =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 29
HOME PRODUCTS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEAR
-----------------------------
1994 1995 1996
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)....................................... $(6,003) $(4,010) $ 806
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization.......................... 4,330 3,337 2,214
Deferred income tax expense............................ 378 -- --
Provision for restructuring charge..................... 1,701 2,051 --
Changes in assets and liabilities:
(Increase) decrease in accounts receivable........... (765) 494 (1,786)
Decrease in inventories.............................. 1,312 105 760
(Increase) decrease in refundable income taxes....... (151) 159 222
(Increase) decrease in other assets.................. 469 23 (269)
(Increase) decrease in notes and other receivables... (1,709) 1,691 (35)
Increase (decrease) in accounts payable.............. 551 (681) 622
Increase (decrease) in accrued liabilities........... 1,768 (603) (793)
Other operating activities, net........................ 151 9 82
------- ------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... 2,032 2,575 1,823
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale or maturity of marketable securities... 2,231 408 515
Capital expenditures, net................................. (2,326) (1,215) (1,624)
Investment in marketable securities....................... (1,485) -- --
Restricted cash -- Industrial Revenue Bond................ 1,221 5 --
Payment and direct costs for Mericon Child Safety
Products............................................... -- (921) --
------- ------- -------
NET CASH (USED IN) INVESTING ACTIVITIES..................... (359) (1,723) (1,109)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on borrowings.................................... (3,098) (2,471) (860)
Proceeds from borrowings.................................. 1,500 -- --
Payment of capital lease obligation....................... (23) (27) (32)
Purchase of treasury stock................................ -- (264) --
Issuance of common stock under stock purchase plan........ -- -- 74
Exercise of common stock options.......................... 416 33 --
------- ------- -------
NET CASH (USED IN) FINANCING ACTIVITIES..................... (1,205) (2,729) (818)
------- ------- -------
Net increase (decrease) in cash and cash equivalents...... 468 (1,877) (104)
Cash and cash equivalents at beginning of year............ 4,391 4,859 2,982
------- ------- -------
Cash and cash equivalents at end of year.................. $ 4,859 $ 2,982 $ 2,878
======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the year for:
Interest and swap fees.................................... $ 905 $ 822 $ 599
Income taxes, net......................................... 10 (457) (314)
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 30
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, DECEMBER 30, 1995 AND DECEMBER 28, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Home Products International, Inc. (the "Company") and its subsidiaries
design, manufacture and market products in two industry segments: housewares
products and home improvement products. Housewares products are marketed
principally through mass market trade channels throughout the United States and
internationally. Home improvement products are sold principally through
wholesalers that service the residential construction, repair and remodeling
industry throughout the United States.
Principles of Consolidation.
The accompanying statements include the accounts of the Company and its
wholly-owned subsidiaries, Selfix, Inc. and Shutters, Inc. All significant
intercompany transactions and balances have been eliminated. The accompanying
statements do not include the accounts of Tamor Corporation, a Massachusetts
corporation ("Tamor"), and Housewares, Inc. ("Housewares") since the Company did
not complete the acquisition until after the end of fiscal year 1996. See Note
15 for more information regarding the acquisition of Tamor and Housewares.
Use of Estimates.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments and Credit Risk.
The carrying value of cash, cash equivalents, investments and long-term
obligations approximate their fair values based upon quoted market rates. As of
December 30, 1995 and December 28, 1996, the Company had no significant
concentrations of credit risk related to cash equivalents.
Translation of Foreign Currencies.
All balance sheet accounts of foreign operations are translated into U.S.
dollars at the year-end exchange rates. Statement of operations items are
translated at the weighted average exchange rates for the year. The resulting
currency translation adjustments are made directly to a separate component of
stockholders' equity.
Inventories.
Inventories are stated at the lower of cost or net realizable value with
cost determined on a first in, first out (FIFO) basis.
Property, Plant and Equipment.
Property, plant and equipment are stated at cost. Depreciation is charged
against results of operations over the estimated service lives of the related
assets.
Improvements to leased property are amortized over the life of the lease or
the life of the improvement, whichever is shorter. For financial reporting
purposes, the Company uses both straight-line and declining-
F-7
<PAGE> 31
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
balance methods of depreciation. For tax purposes, the Company generally uses
accelerated methods where permitted.
The estimated service lives of the fixed assets are as follows:
<TABLE>
<S> <C>
Buildings................................................... 30 years
Land and building under capital lease....................... lease term
Machinery, equipment and vehicles........................... 3 - 8 years
Tools and dies.............................................. 5 years
Furniture, fixtures and office equipment.................... 2 - 8 years
Leasehold improvements...................................... lease term
</TABLE>
Revenue Recognition.
The Company recognizes revenue as products are shipped to customers.
Intangible Assets.
Goodwill, which represents the excess of the purchase price over the fair
value of net assets acquired, is amortized over periods ranging from 20 to 40
years. Covenants not to compete are amortized on a straight-line basis over the
terms of the respective agreements. Patents, royalty rights, trademarks acquired
and licensing agreements are amortized over their estimated useful lives ranging
from 5 to 10 years.
Income Taxes.
Deferred tax assets and liabilities are determined at the end of each
period, based on differences between the financial statement bases of assets and
liabilities and the tax bases of those same assets and liabilities, using the
currently enacted statutory tax rates. Deferred income tax expense is measured
by the change in the net deferred income tax asset or liability during the year.
Earnings (Loss) Per Share.
Earnings (loss) per share is computed by dividing net earnings (loss) by
the weighted average number of common share and common share equivalents
outstanding during the year. Weighted average common share and common share
equivalents were 3,538,758, 3,616,924 and 3,853,502, for 1994, 1995 and 1996,
respectively.
Benefit Plans.
The Company provides a profit sharing and savings plan (including a 401(k)
plan) to which both the Company and eligible employees may contribute. Company
contributions to the profit sharing and savings plan are voluntary and at the
discretion of the Board of Directors. The Company matches the employee 401(k)
plan contributions with limitations. The total Company contributions to both
plans are limited to the maximum deductible amount under the Federal income tax
law.
The Company also provides a retirement plan for its employees covered under
a collective bargaining agreement. The Company is required to contribute to this
plan based on the number of employees in the collective bargaining unit who have
satisfied eligibility requirements. Employees do not contribute to the plan. The
amount of the Company contribution is determined by the collective bargaining
agreement.
F-8
<PAGE> 32
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The contributions to all the profit sharing, savings, and retirement plans
for 1994, 1995 and 1996, were $257, $259, and $248, respectively.
Cash and Cash Equivalents.
The Company considers all highly liquid, short-term investments with an
original maturity of three months or less, to be cash equivalents.
Investments in Marketable Securities.
At the beginning of fiscal 1994, the Company adopted a new accounting
method for investment securities in accordance with Statement of Financial
Accounting Standard (SFAS) No. 115 which required the Company to designate its
securities as held to maturity, available for sale or trading. Securities held
to maturity are accounted for at amortized cost and management must express a
positive intent to hold these securities to maturity. Available-for-sale
securities are those that management designates as available to be sold in
response to changes in market interest rates or liquidity needs. All marketable
securities held by the Company are accounted for as available-for-sale
securities. The Company does not invest in trading securities. The effect of the
accounting change was not applied retroactively; therefore, there was no
restatement of prior year investments or cumulative effect of a change in
accounting principle on prior year income. The cumulative effect at the
beginning of fiscal year 1994 was not material.
Fiscal Year.
The Company's fiscal year ends on the last Saturday in December and, as a
result, a fifty-third week is added every 5 or 6 years. The fiscal year ending
December 31, 1994 consisted of fifty-three weeks. References to the fiscal years
1994, 1995 and 1996 are for the fifty-three weeks ended December 31, 1994, the
fifty-two weeks ended December 30, 1995 and the fifty-two weeks ended December
28, 1996, respectively.
Related Party.
A director of the Company is the executor and co-trustee of certain estates
and trusts which beneficially own 48% of the Company's outstanding common stock
as of February 28, 1997. In such capacities, the director exercises either sole
or shared voting and investment power for these shares. The director disclaims
beneficial ownership of this stock. The director is also co-trustee to certain
related trusts which lease facilities to the Company as discussed in Notes 8 and
9. In addition, the director is a partner in a law firm which is the Company's
general counsel.
NOTE 2. STATEMENT OF OPERATIONS AND RESTRUCTURING CHARGES
The 1994 restructuring charge of $1,701 relates to costs of severance and
termination benefits paid or accrued for a change in the level and composition
of employees, termination of existing employee arrangements, inventory
adjustments and fixed asset writedowns related to product lines to be
discontinued. The actions and charges were based on assessments completed by
year-end 1994. The Company provided for severance benefits approximating $1,010
for employee terminations during the third and fourth quarters. Such benefits
covered approximately 25 employees across most departments, which represented
17% of the administrative staff, or 5% of total employees. All such terminations
were completed by the end of the first quarter of 1995. Inventory and fixed
asset write-offs related to products to be discontinued were $460 and $231,
respectively. At the end of 1995, no balances remained in these accounts.
In the fourth quarter of 1995, the Company announced its intent to
consolidate facilities and exit additional product lines. The 1995 charge is a
result of the Company's decision to exit certain unprofitable product lines,
close the Company's Canadian facility and move the Canadian operations to the
Chicago
F-9
<PAGE> 33
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
manufacturing and distribution facilities. The restructuring charges for these
initiatives totaled $2,051. The charges for the closing and relocation of the
Canadian operation totaled $951 including severance benefits of $184 covering
all of the Canadian employees. The relocation of the Canadian operation was
completed in the first half of 1996. The remaining $1,100 of restructuring
charges pertains to product lines the Company has decided to exit and the
related write-off of product molds, inventory and patents. Approximately $66 of
inventory reserves, $74 of accrued legal and accrued severance and $140 of
accrued facility closing costs remained on the Company's books at December 28,
1996.
In 1995, the Company received approximately $1,400, net of a contingent
liability, as its share of the net proceeds from a patent suit settlement. The
Company recorded approximately $500 as its share of the proceeds in other income
in 1994.
NOTE 3. INVENTORIES
The components of the Company's inventory were as follows:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Finished goods.............................................. $3,165 $2,604
Work-in-process............................................. 893 1,003
Raw materials............................................... 1,093 784
------ ------
$5,151 $4,391
====== ======
</TABLE>
NOTE 4. PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment were as follows:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Buildings and land....................................... $ 2,167 $ 2,176
Land and building under capital lease.................... 2,535 2,535
Machinery, equipment and vehicles........................ 7,259 7,092
Tools and dies........................................... 5,570 6,704
Furniture, fixtures and office equipment................. 2,446 2,679
Leasehold improvements................................... 1,385 1,329
-------- --------
21,362 22,515
Less accumulated depreciation and amortization........... (12,909) (14,581)
-------- --------
$ 8,453 $ 7,934
======== ========
</TABLE>
F-10
<PAGE> 34
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Goodwill, net of accumulated amortization of $174 on
December 30, 1995 and $223 on December 28, 1996........... $2,027 $1,978
Covenants not to compete, net of accumulated amortization of
$1 on December 30, 1995 and $7 on December 28, 1996....... 29 23
Industrial Revenue Bond fees, net of accumulated
amortization of $169 on December 30, 1995 and $202 on
December 28, 1996......................................... 234 201
Patents, net of accumulated amortization of $1,269 on
December 30, 1995 and $1,327 on December 28, 1996......... 211 153
Licensing agreement, net of accumulated amortization of $3
on December 30, 1995 and $23 on December 28, 1996......... 192 172
------ ------
$2,693 $2,527
====== ======
</TABLE>
NOTE 6. LINE OF CREDIT
On April 12, 1996 the Company completed the consolidation of its banking
relationships and entered into a credit agreement with LaSalle National Bank
(the "LaSalle Credit Agreement"). The LaSalle Credit Agreement provided an
$8,000 line of credit subject to asset based availability formulas and a line of
credit to support letters of credit required for the Company's Industrial
Development Finance Authority Bonds (the "IDBs"). All of the Company's assets
were pledged as collateral in support of the LaSalle Credit Agreement. At
December 28, 1996 there were no borrowings outstanding under the asset based
line of credit. The LaSalle Credit Agreement was terminated and all collateral
was released in connection with the debt incurred relating to the acquisition of
Tamor. (See Note 15).
NOTE 7. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Salaries and wages.......................................... $1,585 $1,104
Property, payroll and other taxes........................... 317 296
Profit sharing trust........................................ 204 217
Sales incentives and commissions............................ 731 814
Accrued professional fees................................... 337 192
Warranty reserve............................................ 495 453
Accrued facility closing costs.............................. 484 140
Other....................................................... 728 802
------ ------
$4,881 $4,018
====== ======
</TABLE>
F-11
<PAGE> 35
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8. LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Mortgage note payable bearing interest at 85.6% of prime,
payable in equal monthly installments of $5,208 through
January 1997; collateralized by land and buildings of
Shutters, Inc............................................. $ 60 $ --
Illinois Development Finance Authority (IDFA) variable rate
demand bonds (Shutters, Inc. Project) Series 1989, issued
December 1989, with interest at a weekly variable rate and
principal payable in annual installments on December 1.
The variable rate at December 28, 1996 was 4.6%........... 2,800 2,400
Illinois Development Finance Authority (IDFA) variable rate
demand Industrial Development Revenue Bonds (Selfix, Inc.
Project) Series 1990, issued September 1990, with interest
at a weekly variable rate and principal payable in annual
installments due December 1. The variable rate at December
28, 1996 was 4.6%......................................... 3,200 2,800
Capital lease obligations................................... 1,854 1,822
------ ------
7,914 7,022
Less current maturities..................................... (892) (838)
------ ------
$7,022 $6,184
====== ======
</TABLE>
Under the terms of the IDFA agreements, the Company may not distribute any
cash dividends. Terms of both IDFA demand bonds provide that the holder may
periodically put the bonds back to the Company which are then remarketed under a
remarketing agreement with a bank. Terms of each remarketing agreement include
irrevocable letters of credit, which provides for borrowings by the Company to
repurchase the bonds until remarketed. The letters of credit have an interest
rate of 1/2%. The terms of these debt agreements include several financial
covenants which have been met by the Company.
The Company entered into an interest rate swap on May 1, 1994 with a
termination date of May 1, 1997. The notional amount of the contract is $1,500
with a fixed rate of 6.45% and a floating rate option based on the U.S. dollar
LIBOR rate. Settlement dates are calendar quarters which commenced on August 1,
1994. The swap fees are included in interest expense.
Aggregate principal payments on long-term debt, excluding capital lease
obligations as of December 28, 1996 are as follows:
<TABLE>
<S> <C>
Years ending:
1997...................................................... $ 800
1998...................................................... 800
1999...................................................... 800
2000...................................................... 800
2001...................................................... 800
Thereafter................................................ 1,200
</TABLE>
Capital lease obligations include a lease agreement between the Company and
two related trusts for the Company's principal factory and corporate office.
Lease payments to the trusts were $478, $491 and $467, in
F-12
<PAGE> 36
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1994, 1995 and 1996, respectively. The lease payments were adjusted in July of
1995 to reflect increases in the Consumer Price Index.
The following schedule shows future minimum lease payments (excluding
rental increases resulting from increases in the Consumer Price Index) together
with the present value of the payments for capital lease obligations.
<TABLE>
<S> <C>
Years ending:
1997...................................................... $ 342
1998...................................................... 342
1999...................................................... 342
2000...................................................... 342
2001...................................................... 342
Thereafter................................................ 2,939
-------
4,649
Less amount representing interest........................... (2,827)
-------
Present value of minimum lease payments..................... $ 1,822
-------
Long-term portion........................................... $ 1,784
Current portion............................................. 38
-------
$ 1,822
=======
</TABLE>
The following is an analysis of the leased land and building under
capitalized lease:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Land and building........................................... $2,535 $2,535
Less accumulated amortization............................... (1,638) (1,769)
------ ------
$ 897 $ 766
====== ======
</TABLE>
NOTE 9. COMMITMENTS AND CONTINGENCIES
The Company also leases certain manufacturing, distribution and office
facilities, including the Canadian facility which is leased from a related trust
(annual rental expense of approximately $115), under operating leases expiring
at various dates through 1999. Most of these leases contain renewal options.
Future minimum rental payments under noncancellable operating leases are as
follows:
<TABLE>
<CAPTION>
YEARS ENDING:
- -------------
<S> <C> <C>
1997................................................................... $297
1998................................................................... 115
1999................................................................... 96
----
$508
====
</TABLE>
Rent expense under operating leases for 1994, 1995 and 1996 was $399, $381,
and $354, respectively.
The Company has investigated and remediated an environmental matter at its
principal facility in Chicago. In 1994, the Company recorded a $300 accrual for
the cost of such investigation and remediation. Actions to date have been funded
from this accrual. Approximately $61 remained in this account at the end of
1996.
F-13
<PAGE> 37
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10. INCOME TAXES
The components of earnings (loss) before income taxes are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Domestic............................................ $(5,631) $(3,262) $1,122
Foreign............................................. (151) (1,021) (316)
------- ------- ------
$(5,782) $(4,283) $ 806
======= ======= ======
</TABLE>
Significant components of the Company's deferred tax items as of December
30, 1995 and December 28, 1996 are as follows:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
DEFERRED TAX ASSETS
Inventory reserves....................................... $ 463 $ 388
Employee benefit expenses and other accruals............. 513 450
Accounts receivable reserve.............................. 365 241
Overhead capitalized in inventory for tax purposes
only.................................................. 171 26
Capitalized lease treated as operating lease for tax
purposes.............................................. 393 430
Reserve for returns...................................... 291 109
Minimum tax, R&D and other credits....................... 332 349
Other accrued liabilities................................ 398 344
Unrealized capital losses and contribution
carryforwards......................................... 151 133
Net operating loss carryforward.......................... 393 612
Other.................................................... 417 407
------- -------
Gross deferred tax assets.................................. 3,887 3,489
------- -------
DEFERRED TAX LIABILITIES
Depreciation............................................. 447 301
Other.................................................... 41 45
------- -------
Gross deferred tax liabilities............................. 488 346
------- -------
Deferred tax assets net of deferred liabilities............ 3,399 3,143
Valuation allowance........................................ (3,399) (3,143)
------- -------
Net deferred tax asset..................................... $ -- $ --
======= =======
</TABLE>
Income tax (expense) benefit is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Current
U.S. federal........................................ $ 45 $ 247 $ 0
Foreign............................................. 67 (22) 10
State............................................... 45 48 0
------- ----- -----
157 273 10
------- ----- -----
Deferred
U.S. federal........................................ 2,215 463 (266)
(Increase) decrease in valuation allowance.......... (2,593) (463) 256
------- ----- -----
(378) -- (10)
------- ----- -----
Total income tax (expense) benefit.................... $ (221) $ 273 $ --
======= ===== =====
</TABLE>
F-14
<PAGE> 38
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income tax (expense) benefit differs from amounts computed based on the
U.S. federal statutory tax rate applied to earnings (loss) before tax as
follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Computed at statutory U.S. federal income tax rate... $ 1,966 $1,456 $(282)
State income taxes, net of U.S. federal tax
benefit............................................ 267 32 39
Foreign tax rate difference and foreign loss
carryforwards...................................... 13 (460) --
Tax exempt interest.................................. 26 25 12
Other................................................ 100 317 (25)
Change in valuation allowance........................ (2,593) (463) 256
------- ------ -----
$ (221) $ 273 $ --
======= ====== =====
</TABLE>
The Company decreased the valuation allowance from $3,399 as of December
30, 1995 to $3,143 as of December 28, 1996. The decrease is based on the
Company's evaluation of the future realization of tax benefits recorded as
deferred tax assets.
The Company also has research and development credit carryforwards of
approximately $61 expiring through the year 2010, net operating loss
carryforwards of $1,576 expiring through 2011, state investment tax credit
carryforwards of approximately $88 expiring through 2000, foreign net operating
loss carryforwards of $1,082 expiring in 2002 and alternative minimum tax credit
carryforwards of approximately $198 which do not have an expiration date.
NOTE 11. STOCK OPTIONS
Under the 1987, 1991 and 1994 stock option plans, as amended, key employees
and certain key nonemployees were granted options to purchase shares of the
Company's common stock.
Options granted may or may not be "incentive stock options" as defined by
the Internal Revenue Code of 1986. The exercise price is determined by the
Company's Board of Directors at the time of grant but may not be less than 100%
of the market price at the time of grant for incentive stock options. Options
may not be granted for a term greater than ten years.
During 1995, the Company's Board of Directors cancelled 460,000 options to
various members of senior management at prices ranging from $7.50 to $12.00 and
reissued these options at prices ranging from $6.00 to $8.00 which exceeded the
market price on the date of reissuance.
A summary of the transactions in the option plans is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
----------------- ------------------ -----------------
SHARES PRICE* SHARES PRICE* SHARES PRICE*
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at beginning of year... 228,460 $4.65 557,842 $8.65 598,527 $6.74
Granted.................................... 458,800 9.51 626,700 7.22 248,900 4.95
Exercised.................................. (99,385) 4.23 (8,147) 4.15 -- --
Cancelled.................................. (30,033) 6.13 (577,868) 9.14 (65,440) 6.20
------- -------- -------
Unexercised Options outstanding at end of
year..................................... 557,842 8.65 598,527 6.74 781,987 6.21
======= ======== =======
Options exercisable at end of year......... 58,487 4.41 15,784 4.69 16,754 4.89
======= ======== =======
Available for grant........................ 234,226 195,394 1,934
======= ======== =======
</TABLE>
- -------------------------
* Weighted average
F-15
<PAGE> 39
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<S> <C> <C> <C>
Price range of options
Granted.......................................... $4.25 - $12.00 $4.13 - $12.00 $4.25 - $6.00
Exercised........................................ $4.23 - $ 5.00 $4.00 - $ 4.23 --
Cancelled........................................ $4.75 - $ 6.14 $3.13 - $12.00 $4.13 - $8.00
Outstanding...................................... $3.13 - $12.00 $4.13 - $ 8.00 $4.13 - $8.00
</TABLE>
The above stock options have the following characteristics as of December
28, 1996:
<TABLE>
<CAPTION>
REMAINING
SHARES LIFE SHARES
GRANT YEAR OUTSTANDING PRICE* (IN YEARS)* EXERCISABLE
- ---------- ----------- ------ ----------- -----------
<S> <C> <C> <C> <C>
1987.................................................. 5,971 $4.23 .3 5,971
1988.................................................. 1,117 6.14 1.5 1,117
1991.................................................. 8,000 4.88 4.3 8,000
1993.................................................. 5,000 6.50 6.8 1,666
1994.................................................. 10,399 4.25 8.0 --
1995.................................................. 513,000 6.87 8.4 --
1996.................................................. 238,500 4.96 9.7 --
------- ------
781,987 16,754
======= ======
</TABLE>
- -------------------------
* Weighted average
During 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting For Stock-Based Compensation." The statement required the Company to
calculate the value of stock options at the date of the grant using an option
pricing model. The Company has elected the "pro forma, disclosure only" option
permitted under SFAS No. 123, instead of recording a charge to operations.
A summary of the average grant date exercise price and fair value per
option share is as follows:
<TABLE>
<CAPTION>
1995 1996
---------------------- ----------------------
EXERCISE EXERCISE
PRICE* FAIR VALUE* PRICE* FAIR VALUE*
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Exercise price exceeds market price................... $7.19 $1.33 $5.00 $2.01
Exercise price equals market price.................... 5.19 2.34 4.74 2.11
</TABLE>
- -------------------------
* Weighted average
During 1995 and 1996, 600,000 and 200,000 options, respectively, were
granted with an exercise price exceeding the market price. All other options
were granted with an exercise price equal to the market price.
F-16
<PAGE> 40
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Had compensation cost for the Company's 1995 and 1996 grants been
determined using the above fair values and considering the applicable vesting
periods, the Company's reported results would have been impacted as follows:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Net earnings (loss)
As reported............................................... $(4,010) $806
Pro forma................................................. (4,092) 564
======= ====
Net earnings (loss) per common and common equivalent share
As reported............................................... $ (1.11) $.21
Pro forma................................................. (1.13) .15
======= ====
</TABLE>
The fair value of each option granted during 1995 and 1996 is estimated
using the following assumptions: (1) dividend yield of 0%, (2) expected
volatility of 41%, (3) risk free rate at grant date averaging 6.2% for 1995 and
6.5% for 1996 and (4) expected life of 5 years.
NOTE 12. SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in two industry segments, the housewares segment and
the home improvement products segment. The housewares segment provided
approximately 77% of the Company's gross sales in 1996 through sales of its home
bathware, hook and home helpers, juvenile products and home organization
products to national and regional discount, variety, supermarket, drug,
hardware/home center and specialty store customers. The home improvement
products segment provided approximately 23% of the Company's gross sales in
1996. The segment's plastic exterior shutters are sold to distributors as well
as national and regional home center retailers. 1996 sales to customers outside
the United States accounted for approximately 17% of total net sales with Canada
accounting for approximately 7% of total net sales. Information about the
Company's operations in these segments is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Gross sales:
Housewares....................................... $35,805 $34,543 $31,375
Home improvement products........................ 8,417 8,993 9,457
------- ------- -------
Consolidated.................................. $44,222 $43,536 $40,832
======= ======= =======
Operating profit (loss):
Housewares....................................... $(3,949) $(4,892) $ 904
Home improvement products........................ (539) 817 461
------- ------- -------
Consolidated.................................. $(4,488) $(4,075) $ 1,365
======= ======= =======
Identifiable assets:
Housewares....................................... $24,785 $19,687 $19,615
Home improvement products........................ 5,998 5,300 5,090
Eliminations..................................... (22) (11) --
------- ------- -------
Consolidated.................................. $30,761 $24,976 $24,705
======= ======= =======
Depreciation and amortization:
Housewares....................................... $ 3,083 $ 2,684 $ 1,532
Home improvement products........................ 1,247 653 682
------- ------- -------
Consolidated.................................. $ 4,330 $ 3,337 $ 2,214
======= ======= =======
Capital expenditures, net:
Housewares....................................... $ 2,158 $ 880 $ 982
Home improvement products........................ 168 335 642
------- ------- -------
Consolidated.................................. $ 2,326 $ 1,215 $ 1,624
======= ======= =======
</TABLE>
F-17
<PAGE> 41
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information about the Company's operations by geographic area is as
follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Gross sales:
United States.................................... $40,422 $40,283 $38,855
Foreign.......................................... 3,800 3,253 1,977
------- ------- -------
Consolidated.................................. $44,222 $43,536 $40,832
======= ======= =======
Operating profit (loss):
United States.................................... $(4,185) $(2,975) $ 1,386
Foreign.......................................... (303) (1,100) (21)
------- ------- -------
Consolidated.................................. $(4,488) $(4,075) $ 1,365
======= ======= =======
Identifiable assets:
United States.................................... $27,468 $23,699 $24,170
Foreign.......................................... 3,315 1,288 535
Eliminations..................................... (22) (11) --
------- ------- -------
Consolidated.................................. $30,761 $24,976 $24,705
======= ======= =======
</TABLE>
One customer represented 11%, 12% and 12% of gross sales for 1994, 1995,
and 1996. The percentage of their receivable to the total receivable is slightly
above their relationship to sales.
NOTE 13. EMPLOYEE STOCK PURCHASE PLAN
The 1995 Employee Stock Purchase Plan allows eligible employees to purchase
up to 200,000 shares of the Company's stock. The purchase price shall be the
lesser of 85% of the fair market value of a common share on the first day of
each purchase period or the fair market value of a common share on the last day
of such purchase period adjusted to the nearest 1/8 point. As of December 28,
1996, 19,639 shares had been purchased under the plan.
NOTE 14. ACQUISITION OF MERICON CHILD SAFETY PRODUCTS
On October 24, 1995, the Company acquired the common stock of Mericon Child
Safety Products for a purchase price of $2,421. The acquisition agreement also
provided for a non-compete period of five years.
Consideration for the acquisition included issuance of 250,000 shares of
the Company's common stock. The Purchase price was allocated as follows:
<TABLE>
<S> <C>
Current assets.............................................. $ 400
Goodwill.................................................... 1,796
Licensing agreement and covenant not to compete............. 225
------
$2,421
Less:
Liabilities............................................... $ 125
Common stock issued....................................... 1,375
------
Cash consideration and direct costs....................... $ 921
======
</TABLE>
Results of operations are included from the date of acquisition. Results of
operations prior to date of acquisition were not material.
F-18
<PAGE> 42
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 15. SUBSEQUENT EVENTS
Effective January 1, 1997, the Company acquired Tamor and its affiliated
product distribution company, Housewares. Tamor, headquartered in Leominster,
Massachusetts, is a leading manufacturer of home storage and organization
products and has three manufacturing facilities in the United States. Following
are audited combined financial results for Tamor and Housewares for 1996:
<TABLE>
<CAPTION>
1996
----
<S> <C>
Net sales................................................... $75,714
Gross profit................................................ 17,896
Operating expenses.......................................... 13,524
Operating income............................................ 4,372
Net income.................................................. 3,515
</TABLE>
The acquisition will be accounted for as a purchase in 1997. The purchase
price will be allocated to the assets acquired and liabilities assumed based
upon their estimated fair values. Results of operations for Tamor and Housewares
will be included with those of the Company for periods subsequent to January 1,
1997.
The excess of the purchase price over the net assets acquired, which is
expected to be approximately $25,000, will be amortized over a period not
exceeding 40 years. The purchase price allocation will be determined during 1997
when appraisals, other studies and additional information become available.
Accordingly, the final allocation may have a material effect on the supplemental
unaudited pro forma information presented below.
The following unaudited pro forma information presents the combined results
of operations as if the acquisition had been completed at the beginning of 1996
and may not be indicative of what would have occurred had the acquisition
actually been made as of such date or results which may occur in the future.
<TABLE>
<CAPTION>
1996
----
(UNAUDITED)
<S> <C>
Net sales................................................... $113,914
Operating income............................................ 7,748
Net income.................................................. 2,472
</TABLE>
Adjustments made in arriving at the pro forma unaudited combined results
include increased interest expense and amortization of debt issuance costs on
acquisition debt, amortization of goodwill, certain operating expense reductions
and related tax adjustments. No effect has been given in operating expenses to
the fair value of assets acquired, depreciable values or lives, transition and
restructuring costs or synergistic benefits which may be realized from the
acquisition.
Total consideration for the acquisition was approximately $42,600
consisting of approximately $27,800 in cash, $2,400 in common stock (480,000
shares) and the assumption of $12,400 in short and long term debt. The source of
funds for the acquisition included cash of the Company as well as a portion of
the proceeds of a new $60,000 Credit Agreement (the "CREDIT AGREEMENT"), dated
as of February 27, 1997, among the Company, Selfix, Tamor, Shutters, the lenders
which are parties thereto and General Electric Capital Corporation ("GECC"), as
agent, and a new $7,000 Note Purchase Agreement (the "NOTE AGREEMENT"), dated as
of February 27, 1997, among Selfix, Tamor, Shutters (the foregoing,
collectively, the "JOINT ISSUERS"), the Company and GECC. The Credit Agreement
consists of a revolving credit facility and term loans. GECC purchased a $7,000
subordinated equity bridge note (the "SUBORDINATED NOTE") dated February 27,
1997 issued by the Joint Issuers pursuant to the Note Agreement. All loans under
the Credit Agreement are secured by substantially all of the assets of the
subsidiaries of the Company and a pledge by the Company of all of the
outstanding shares of capital stock of such subsidiaries.
The provisions of the Credit Agreement include restrictions on additional
indebtedness, asset sales, acquisitions or mergers, capital expenditures and
dividend payments, among other things. As defined in the
F-19
<PAGE> 43
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Credit Agreement, the Company is also required to meet certain financial tests
which include, but are not limited to, those relating to a minimum net worth
test and a minimum interest coverage ratio.
The revolving credit facility provides up to $20,000 (including a letter of
credit subfacility of up to $10,000) subject to the availability of sufficient
qualifying collateral consisting of certain accounts receivable and inventory.
Interest is charged, at the Company's option, at either: (i) the 1, 2, or 3
month reserve adjusted LIBOR plus a margin of 2.75%; or (ii) a floating rate
equal to the prime rate plus a margin of 1.25%. Interest is paid monthly for
borrowings which bear interest based on the prime rate, and is paid at the end
of the applicable LIBOR period for borrowings which bear interest based on a
LIBOR rate. An unused facility fee of .5% per annum is charged on the average
unused daily balance. On February 28, 1997, there was no balance outstanding
under the revolving line of credit and unused availability was $11,100. The
availability under the revolving credit facility was reduced by the issuance of
two letters of credit in the aggregate face amount of $5,600 which secure the
IDBs. The revolving credit facility terminates on August 28, 2002.
The Credit Agreement also includes two term loans consisting of a $20,000
22 quarter term loan A and a $20,000 30 quarter term loan B. Both term loans are
immediately due and payable in full if the revolving credit facility is
terminated.
Term loan A is required to be repaid in quarterly principal installments
commencing in April of 1997. Aggregate principal repayments for term loan A are
as follows:
<TABLE>
<CAPTION>
YEARS ENDING
- ------------
<S> <C> <C>
1997.................................................................... $1,500
1998.................................................................... 2,750
1999.................................................................... 3,375
2000.................................................................... 3,500
2001.................................................................... 4,625
Thereafter.............................................................. 4,250
</TABLE>
Interest is charged, at the Company's option, at either the 1, 2 or 3 month
reserve adjusted LIBOR rate plus a margin of 3.00% or a floating rate equal to
the prime rate plus a margin of 1.50%. At February 28, 1997, the rate was 9.75%.
Interest is paid monthly for prime rate based loans and at the end of the
applicable LIBOR period for LIBOR based loans.
Term loan B is required to be repaid in quarterly principal installments
commencing in April of 1997. Aggregate principal repayments for term loan B are
as follows:
<TABLE>
<CAPTION>
YEARS ENDING
- ------------
<S> <C> <C>
1997.................................................................... $ 150
1998.................................................................... 200
1999.................................................................... 200
2000.................................................................... 200
2001.................................................................... 200
Thereafter.............................................................. 19,050
</TABLE>
Interest is charged, at the Company's option, at either the 1, 2 or 3 month
reserve adjusted LIBOR rate plus a margin of 3.50% or a floating rate equal to
the prime rate plus a margin of 2.00%. At February 28, 1997, the rate was
10.25%. Interest is paid monthly for prime rate based loans and at the end of
the applicable LIBOR period for LIBOR based loans.
After the fiscal quarter of the Company ended in December, 1997 the
interest rates applicable to the obligations outstanding under the Credit
Agreement are subject to adjustment (up or down) based on the Company's
quarterly consolidated financial performance.
F-20
<PAGE> 44
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Subordinated Note matures on February 27, 2005, and is secured by a
second lien on substantially all of the assets of the Company's subsidiaries. As
such, the Subordinated Note is subordinated in right of payment from the
proceeds of such collateral to the revolving credit facility and to term loans A
and B. If all outstanding obligations under the Credit Agreement have been paid
and the commitment under the revolving credit facility has been terminated, the
Joint Issuers must prepay the Subordinated Note in full. Interest is payable
quarterly and is charged, at the Company's option, at a rate of 11.5% per annum,
provided that such cash payments shall not exceed 25% of the Company's Excess
Cash Flow (as defined in the Note Agreement) or through the issuance of
payment-in-kind notes bearing interest at a rate of 13.5% per annum. At February
28, 1997, the rate on the Subordinated Note was 13.5%.
In connection with the Subordinated Note, the Company issued a warrant to
GECC to purchase 79,204 shares of common stock (the "Warrant") exercisable at
50% of the Market Price (as defined in the Warrant) on February 27, 1997 (the
"Closing Date"), at any time during the period commencing on August 1, 1997
through February 27, 2007. If the Subordinated Note has been paid in full on or
prior to July 31, 1997, the Company has the option to repurchase the Warrant at
a price equal to $792.
If the Subordinated Note is not repaid in full on or prior to July 31,
1997, the number of shares issuable upon exercise of the Warrant will be
increased by that number of shares which is equal to the difference between (i)
5% of the total number of shares of the Company's common stock then outstanding
on a fully diluted basis, and (ii) 79,204 shares. If the Subordinated Note is
not repaid in full on or prior to February 27, 1998, the number of shares
issuable upon exercise of the Warrant will be further increased by that number
of shares which is equal to 2% of the total number of shares of the Company's
common stock then outstanding on a fully diluted basis. The number of shares
issuable upon exercise of the Warrant will be further increased annually by 1%
of the total number of shares of the Company's common stock then outstanding on
a fully diluted basis if the Subordinated Note is not repaid in full on or prior
to February 27, 1999 and on each anniversary date of the Closing Date
thereafter. The exercise price for the shares issuable upon exercise of the
Warrant issued after the Closing Date will be 50% of the Market Price. The
Company may call the shares issued or issuable upon the exercise of the Warrant
and terminate the Warrant at any time after July 31, 2002 at a call price equal
to the Market Price for such shares, but in no event will the call price be less
than $10 per share.
The Credit Agreement provides for mandatory prepayments of obligations
under the Credit Agreement and the Subordinated Note from the following funds:
all net proceeds of any sale or other disposition of any assets (other than the
sale of inventory and other items in the ordinary course of business), all net
insurance proceeds, 100% of the net cash proceeds from the issuance of equity
securities and 75% of annual consolidated excess cash flow as defined in the
Credit Agreement. Mandatory prepayments from the proceeds of any issuance of
equity securities shall be applied as follows: first, 50% of such proceeds
applied to accrued interest and principal of the Subordinated Note and the
remaining 50% applied to accrued interest and principal of term loan A and term
loan B, ratably; and second, 100% of such proceeds applied ratably to accrued
interest and principal of term loan A and term loan B after the Subordinated
Note has been repaid in full. All mandatory prepayments from sources other than
the issuance of equity securities shall be applied as follows: (a) fees and
expenses owed under the Credit Agreement; (b) pro rata to term loans A and B
until both such loans are repaid in full; (c) to repay amounts outstanding under
the revolving credit facility without reduction in availability; and (d) other
obligations outstanding under the Credit Agreement. The Company will also be
required to pay a prepayment premium, as defined in the Credit Agreement, if the
revolving credit facility is terminated or the Company prepays all or any
portion of term loan A or term loan B other than as a result of the mandatory
prepayment discussed above.
F-21
<PAGE> 45
ITEM 8. QUARTERLY FINANCIAL INFORMATION -- UNAUDITED (IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
<TABLE>
<CAPTION>
THIRTEEN THIRTEEN THIRTEEN THIRTEEN
WEEKS WEEKS WEEKS WEEKS
ENDED ENDED ENDED ENDED
APRIL 1 JULY 1 SEPTEMBER 30 DECEMBER 30
-------- -------- ------------ -----------
<S> <C> <C> <C> <C>
1995
Net sales.......................................... $10,742 $10,628 $10,319 $ 9,350
Gross profit....................................... 4,030 4,226 3,842 3,263
Net earnings (loss)................................ (246) 39 42 (3,845)
Earnings (loss) per common and common equivalent
share............................................ $ (0.07) $ 0.01 $ 0.01 $ (1.03)
</TABLE>
<TABLE>
<CAPTION>
THIRTEEN THIRTEEN THIRTEEN THIRTEEN
WEEKS WEEKS WEEKS WEEKS
ENDED ENDED ENDED ENDED
MARCH 30 JUNE 29 SEPTEMBER 28 DECEMBER 28
-------- -------- ------------ -----------
<S> <C> <C> <C> <C>
1996
Net sales.......................................... $ 8,625 $10,155 $10,728 $8,692
Gross profit....................................... 2,858 4,311 4,388 3,651
Net earnings (loss)................................ (1,116) 709 764 449
Earnings (loss) per common and common equivalent
share............................................ $ (0.29) $ 0.19 $ 0.20 $ 0.11
</TABLE>
F-22
<PAGE> 46
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors
Home Products International Inc.
We have audited in accordance with generally accepted auditing standards
the consolidated financial statements of Home Products International, Inc.
(formerly Selfix, Inc.) as of and for the fifty-two week period ended December
28, 1996 included in this Form 10-K, and have issued our report thereon dated
February 7, 1997, except with respect to the transactions discussed in Note 15,
as to which the date is February 28, 1997. Our audit was made for the purpose of
forming an opinion on those statements taken as a whole. The financial statement
schedule listed in Item 14(b) is the responsibility of the Company's management
and is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Chicago, Illinois
February 7, 1997, except with
respect to the transactions
discussed in Note 15, as to which
the date is February 28, 1997
F-23
<PAGE> 47
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE
Board of Directors
Home Products International, Inc. (Formerly Selfix, Inc.)
In connection with our audit of the consolidated financial statements of
Home Products International, Inc. (formerly Selfix, Inc.) and Subsidiaries
referred to in our report dated February 9, 1996, we have also audited Schedule
II for the 52-week and 53-week periods ended December 30, 1995 and December 31,
1994, respectively. In our opinion, this schedule presents fairly, in all
material respects, the information required to be set forth therein.
GRANT THORNTON LLP
Chicago, Illinois
February 9, 1996
F-24
<PAGE> 48
SCHEDULE II
HOME PRODUCTS INTERNATIONAL, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE FIFTY-THREE WEEKS ENDED DECEMBER 31, 1994,
FOR THE FIFTY-TWO WEEKS ENDED DECEMBER 30, 1995,
FOR THE FIFTY-TWO WEEKS ENDED DECEMBER 28, 1996
<TABLE>
<CAPTION>
ADDITIONS DEDUCTIONS
BALANCE AT CHARGED TO (NET BALANCE AT
BEGINNING COSTS AND WRITE-OFFS/ END OF
OF PERIOD EXPENSES RECOVERIES) PERIOD
---------- ---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
December 31, 1994................................... $1,255 $ 565 $ (389) $1,431
December 30, 1995................................... $1,431 $ 524 $ (560) $1,395
December 28, 1996................................... $1,395 $ 211 $ (705) $ 901
WARRANTY RESERVES
December 31, 1994................................... $ 12 $ 500 $ (1) $ 511
December 30, 1995................................... $ 511 $ -- $ (16) $ 495
December 28, 1996................................... $ 495 $ -- $ (42) $ 453
INVENTORY RESERVES
December 31, 1994................................... $ 621 $2,018 $(1,079) $1,560
December 30, 1995................................... $1,560 $1,648 $ (797) $2,411
December 28, 1996................................... $2,411 $ 678 $(2,096) $ 993
</TABLE>
F-25
<PAGE> 49
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
HOME PRODUCTS INTERNATIONAL, INC.
By /s/ JAMES R. TENNANT
------------------------------------
James R. Tennant
Date March 26, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JAMES R. TENNANT Chairman of the Board and Chief March 26, 1997
- ------------------------------------------------ Executive Officer
James R. Tennant
/s/ JAMES E. WINSLOW Executive Vice President, Chief March 26, 1997
- ------------------------------------------------ Financial Officer and Secretary
James E. Winslow
/s/ CHARLES R. CAMPBELL Director March 26, 1997
- ------------------------------------------------
Charles R. Campbell
/s/ MARSHALL RAGIR Director March 26, 1997
- ------------------------------------------------
Marshall Ragir
/s/ JEFFREY C. RUBENSTEIN Director March 26, 1997
- ------------------------------------------------
Jeffrey C. Rubenstein
/s/ DANIEL B. SHURE Director March 26, 1997
- ------------------------------------------------
Daniel B. Shure
/s/ JOEL D. SPUNGIN Director March 26, 1997
- ------------------------------------------------
Joel D. Spungin
</TABLE>
S-1
<PAGE> 1
Exhibit 10.10
EXECUTION COPY
================================================================================
CREDIT AGREEMENT
DATED AS OF FEBRUARY 27, 1997
AMONG
SELFIX, INC.,
TAMOR CORPORATION, AND
SHUTTERS, INC.,
AS BORROWERS,
THE OTHER CREDIT PARTIES SIGNATORY HERETO,
AS CREDIT PARTIES,
THE LENDERS SIGNATORY HERETO
FROM TIME TO TIME,
AS LENDERS,
AND
GENERAL ELECTRIC CAPITAL CORPORATION,
AS AGENT AND LENDER
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. AMOUNT AND TERMS OF CREDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Credit Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
-----------------
1.2 Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
-----------------
1.3 Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
-----------
1.4 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
---------------
1.5 Interest and Applicable Margins. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
-------------------------------
1.6 Eligible Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
-----------------
1.7 Eligible Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
------------------
1.8 Cash Management Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
-----------------------
1.9 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
----
1.10 Receipt of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
-------------------
1.11 Application and Allocation of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
--------------------------------------
1.12 Loan Account and Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
---------------------------
1.13 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
---------
1.14 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
------
1.15 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
-----
1.16 Capital Adequacy; Increased Costs; Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
---------------------------------------------
1.17 Single Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
-----------
2. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.1 Conditions to the Initial Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
-------------------------------
2.2 Further Conditions to Each Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
-------------------------------
3. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.1 Corporate Existence; Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
----------------------------------------
3.2 Executive Offices; FEIN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
-----------------------
3.3 Corporate Power, Authorization, Enforceable Obligations . . . . . . . . . . . . . . . . . . . . . . 28
-------------------------------------------------------
3.4 Financial Statements and Projections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
------------------------------------
3.5 Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
-----------------------
3.6 Ownership of Property; Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
----------------------------
3.7 Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
-------------
3.8 Ventures, Subsidiaries and Affiliates; Outstanding Stock . . . . . . . . . . . . . . . . . . . . . . 30
--------------------------------------------------------
3.9 Government Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
---------------------
3.10 Margin Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
------------------
3.11 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
-----
3.12 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
-----
3.13 No Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
-------------
3.14 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
-------
3.15 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
---------------------
3.16 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
---------------
3.17 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
---------------------
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
3.18 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
---------
3.19 Deposit and Disbursement Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
---------------------------------
3.20 Government Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
--------------------
3.21 Customer and Trade Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
----------------------------
3.22 Agreements and Other Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
------------------------------
3.23 Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
--------
3.24 Acquisition Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
---------------------
3.25 Subordinated Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
-----------------
4. FINANCIAL STATEMENTS AND INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
4.1 Reports and Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
-------------------
4.2 Communication with Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
------------------------------
5. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.1 Maintenance of Existence and Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . 36
------------------------------------------------
5.2 Payment of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
----------------------
5.3 Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
-----------------
5.4 Insurance; Damage to or Destruction of Collateral . . . . . . . . . . . . . . . . . . . . . . . . . 37
-------------------------------------------------
5.5 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
--------------------
5.6 Supplemental Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
-----------------------
5.7 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
---------------------
5.8 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
---------------------
5.9 Landlords' Agreements, Mortgagee Agreements and Bailee Letters . . . . . . . . . . . . . . . . . . . 40
--------------------------------------------------------------
5.10 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
------------------
5.11 Acquisition Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
---------------------
6. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.1 Mergers, Subsidiaries, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
--------------------------
6.2 Investments; Loans and Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
-------------------------------
6.3 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
------------
6.4 Employee Loans and Affiliate Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
-----------------------------------------
6.5 Capital Structure and Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
------------------------------
6.6 Guaranteed Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
-----------------------
6.7 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
-----
6.8 Sale of Stock and Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
------------------------
6.9 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
-----
6.10 Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
-------------------
6.11 Hazardous Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
-------------------
6.12 Sale-Leasebacks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
---------------
6.13 Cancellation of Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
----------------------------
6.14 Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
-------------------
6.15 Change of Corporate Name or Location; Change of Fiscal Year . . . . . . . . . . . . . . . . . . . . 44
-----------------------------------------------------------
6.16 No Impairment of Intercompany Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
---------------------------------------
6.17 No Speculative Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
---------------------------
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
6.18 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
------
6.19 Changes Relating to Subordinated Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
-------------------------------------
6.20 Acquisition Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
------------------------
7. TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
7.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
-----------
7.2 Survival of Obligations Upon Termination of Financing Arrangements . . . . . . . . . . . . . . . . . 46
------------------------------------------------------------------
8. EVENTS OF DEFAULT: RIGHTS AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
8.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
-----------------
8.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
--------
8.3 Waivers by Credit Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
-------------------------
9. ASSIGNMENT AND PARTICIPATIONS; APPOINTMENT OF AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
9.1 Assignment and Participations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
-----------------------------
9.2 Appointment of Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
--------------------
9.3 Agent's Reliance, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
----------------------
9.4 GE Capital and Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
-------------------------
9.5 Lender Credit Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
----------------------
9.6 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
---------------
9.7 Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
---------------
9.8 Setoff and Sharing of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
------------------------------
9.9 Advances; Payments; Non-Funding Lenders; Information; Actions in Concert . . . . . . . . . . . . . . 54
------------------------------------------------------------------------
10. SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
10.1 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
----------------------
11. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
11.1 Complete Agreement; Modification of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
---------------------------------------------
11.2 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
----------------------
11.3 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
-----------------
11.4 No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
---------
11.5 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
--------
11.6 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
------------
11.7 Conflict of Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
-----------------
11.8 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
---------------
11.9 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
-------------
11.10 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
-------
11.11 Section Titles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
--------------
11.12 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
------------
11.13 WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
--------------------
11.14 Press Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
--------------
11.15 Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
-------------
</TABLE>
<PAGE> 5
<TABLE>
<S> <C> <C>
11.16 Advice of Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
-----------------
11.17 No Strict Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
----------------------
12. CROSS-GUARANTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
12.1 Cross-Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
--------------
12.2 Waivers by Borrowers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
--------------------
12.3 Benefit of Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
-------------------
12.4 Subordination of Subrogation, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
---------------------------------
12.5 Election of Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
--------------------
12.6 Limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
----------
12.7 Contribution with Respect to Guaranty Obligations . . . . . . . . . . . . . . . . . . . . . . . . . 66
-------------------------------------------------
12.8 Liability Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
--------------------
</TABLE>
<PAGE> 6
INDEX OF APPENDICES
<TABLE>
<S> <C>
Exhibit 1.1(a)(i) - Form of Notice of Revolving Credit Advance
Exhibit 1.1(a)(ii) - Form of Revolving Note
Exhibit 1.1(b) - Form of Term Note
Exhibit 1.1(c)(ii) - Form of Swing Line Note
Exhibit 1.5(e) - Form of Notice of Conversion/Continuation
Exhibit 4.1(b) - Form of Borrowing Base Certificate
Exhibit 9.1(a) - Form of Assignment Agreement
Schedule 1.1 - Responsible Individual
Schedule 1.4 - Sources and Uses; Funds Flow Memorandum
Schedule 3.2 - Executive Offices; FEIN
Schedule 3.4(A) - Financial Statements
Schedule 3.4(B) - Pro Forma
Schedule 3.4(C) - Projections
Schedule 3.6 - Real Estate and Leases
Schedule 3.7 - Labor Matters
Schedule 3.8 - Ventures, Subsidiaries and Affiliates; Outstanding Stock
Schedule 3.11 - Tax Matters
Schedule 3.12 - ERISA Plans
Schedule 3.13 - Litigation
Schedule 3.15 - Intellectual Property
Schedule 3.17 - Hazardous Materials
Schedule 3.18 - Insurance
Schedule 3.19 - Deposit and Disbursement Accounts
Schedule 3.20 - Government Contracts
Schedule 3.22 - Material Agreements
Schedule 5.1 - Trade Names
Schedule 5.4 - Insurance
Schedule 6.2 - Investments
Schedule 6.3 - Indebtedness
Schedule 6.4(a) - Transactions with Affiliates
Schedule 6.7 - Existing Liens
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 Additional Closing 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 9.9(a)) - Lenders' Wire Transfer Information
--------------
Annex I (Section 11.10) - Notice Addresses
-------------
</TABLE>
<PAGE> 7
CREDIT AGREEMENT, dated as of February 27,1997, among SELFIX,
INC., a Delaware corporation ("Selfix"), TAMOR CORPORATION., a Massachusetts
corporation ("Tamor") and SHUTTERS, INC., an Illinois corporation ("Shutters")
(Selfix, Tamor and Shutters are sometimes collectively referred to herein as
the "Borrowers" and individually as a "Borrower"); the other Credit Parties
signatory hereto; GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation
(in its individual capacity, "GE Capital"), for itself, as Lender, and as Agent
for Lenders, and the other Lenders signatory hereto from time to time.
RECITALS
WHEREAS, Borrowers desire that Lenders extend revolving and
term credit facilities to Borrowers of up to Sixty Million Dollars
($60,000,000) in the aggregate, for the purpose of funding a portion of the
Acquisition and refinancing certain indebtedness of Borrowers and to provide
(a) working capital financing for Borrowers, and (b) funds for other general
corporate purposes of Borrowers; and for these purposes, Lenders are willing to
make certain loans and other extensions of credit to Borrowers of up to such
amount upon the terms and conditions set forth herein; and
WHEREAS, Borrowers desire to secure all of their obligations
under the Loan Documents by granting to Agent, for the benefit of Agent and
Lenders, a security interest in and lien upon all of their existing and after-
acquired personal and real property; and
WHEREAS, capitalized terms used in this Agreement shall have
the meanings ascribed to them in Annex A. All Annexes, Disclosure Schedules,
Exhibits and other attachments (collectively, "Appendices") hereto, or
expressly identified to this Agreement, are incorporated herein by reference,
and taken together, shall constitute but a single agreement. These Recitals
shall be construed as part of the Agreement.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants hereinafter contained, and for other good and valuable
consideration, the parties hereto agree as follows:
1. AMOUNT AND TERMS OF CREDIT
1.1 Credit Facilities.
(a) Revolving Credit Facility. (i) Subject to the terms
and conditions hereof, each Revolving Lender agrees to make available from time
to time until the Commitment Termination Date its Pro Rata Share of advances
(each, a "Revolving Credit Advance"). The Pro Rata Share of the Revolving Loan
of any Revolving Lender shall not at any time exceed its separate Revolving
Loan Commitment. The obligations of each Revolving Lender hereunder shall be
several and not joint. The aggregate amount of Revolving Credit Advances
outstanding shall not exceed at any time the lesser of (A) the Maximum Amount
and (B) the Aggregate Borrowing Base, in each case less the sum of the Letter
of Credit Obligations and the Swing Line Loan outstanding at such time
("Borrowing Availability"), except as set forth in Section 1.1(a)(iii).
Moreover, the sum of the Revolving Loan and Swing Line Loan outstanding to any
Borrower shall not exceed at any time that Borrower's
<PAGE> 8
separate Borrowing Base, except as set forth in Section 1.1(a)(iii). 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 Agent identified on Schedule 1.1 at the address
specified thereon. Thos notices must be given no later than (1) 10:30 a.m.
(Chicago time) on the Business Day of the proposed Revolving Credit Advance,
in the case of an Index Rate Loan, or (2) 11:00 a.m. (Chicago time) on the date
which is three (3) 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") must be given in writing (by telecopy or overnight courier)
substantially in the form of Exhibit 1.1(a)(i), and shall include the
information required in such Exhibit and such other information as may be
required by Agent. 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).
(ii) Each Borrower shall execute and deliver to
each Revolving Lender a note to evidence the Revolving Loan Commitment of that
Revolving Lender. Each note shall be in the principal amount of the Revolving
Loan Commitment of the applicable Revolving Lender, dated the Closing Date and
substantially in the form of Exhibit 1.1(a)(ii) (each a "Revolving Note" and,
collectively, the "Revolving Notes"). Each Revolving Note shall represent the
obligation of each Borrower to pay the amount of each Revolving Lender's
Revolving Loan Commitment or, if less, the applicable Revolving Lender's Pro
Rata Share of the aggregate unpaid principal amount of all Revolving Credit
Advances to such Borrower together with interest thereon as prescribed in
Section 1.5. The entire unpaid balance of the aggregate 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.
(iii) At the request of Borrower Representative, in
its discretion Agent may (but shall have absolutely no obligation to), make
Revolving Credit Advances to Borrowers on behalf of Revolving Lenders in
amounts which cause the outstanding balance of the aggregate Revolving Loan to
exceed the Aggregate Borrowing Base (less the Swing Line Loan) or which cause
the outstanding balance of the Revolving Loan owing by any Borrower to exceed
that Borrower's separate Borrowing Base (less the Swing Line Loan advanced to
that Borrower) (any such excess Revolving Credit Advances are herein referred
to collectively as "Overadvances"), and no such event or occurrence shall cause
or constitute a waiver by Agent or Lenders of any Default or Event of Default
that may result therefrom or of Agent's, Swing Line Lender's or Revolving
Lenders' right to refuse to make any further Overadvances, Swing Line Advances
or Revolving Credit Advances, or incur any Letter of Credit Obligations, as the
case may be, at any time that an Overadvance exists or would result therefrom.
In addition, Overadvances may be made even if the conditions to lending set
forth in Section 2 have not been met. All Overadvances shall constitute Index
Rate Loans, shall bear interest at the Default Rate and shall be payable on
demand. Except as otherwise provided in Section 1.11(b), the authority of
Agent to make Overadvances is limited to an aggregate amount not to exceed
$500,000 at any time, shall not cause the aggregate Revolving Loan to exceed
the Maximum Amount, and may be revoked prospectively by a written notice to
Agent signed by Revolving Lenders holding fifty percent (50%) or more of the
Revolving Loan Commitments.
2
<PAGE> 9
(b) (1) Term Loan A. (i) Subject to the terms and
conditions hereof, each Lender having a Term Loan A Commitment agrees to make a
term loan on the Closing Date to (A) Selfix (the "Selfix Term Loan A") in the
original principal amount of its Selfix Term Loan A Commitment; (B) Tamor (the
"Tamor Term Loan A") in the original principal amount of its Tamor Term Loan A
Commitment, and (C) Shutters (the "Shutters Term Loan A" and, collectively
with the Selfix Term Loan A and the Tamor Term Loan A, the "Term Loan A") in
the original principal amount of its Shutters Term Loan A Commitment. The
obligations of each Term A Lender hereunder shall be several and not joint.
Each such Term Loan A shall be evidenced by promissory notes substantially in
the form of Exhibit 1.1(b) (each a "Term Note A" and collectively the "Term A
Notes"), and each Borrower shall execute and deliver its respective Term Note A
to the applicable Term A Lender. Each Term Note A shall represent the
obligation of the applicable Borrower to pay the amount of its Term Loan A to
the applicable Lender, together with interest thereon as prescribed in Section
1.5.
(ii) (A) Selfix shall pay the principal amount of the Selfix
Term Loan A in twenty-two (22) consecutive quarterly installments on the first
day of January, April, July and October of each year, commencing April 1, 1997,
as follows:
<TABLE>
<CAPTION>
Payment Installment
Date Amount (each)
--------- -------------
<S> <C> <C>
1-4 April 1, July 1, and October 1, 1997
January 1, 1998 $ 87,500
5-8 April 1, July 1, and October 1, 1998
January 1, 1999 $ 131,250
9-12 April 1, July 1, and October 1, 1999
January 1, 2000 $ 153,125
13-16 April 1, July 1, and October 1, 2000
January 1, 2001 $ 153,125
17-20 April 1, July 1, and October 1, 2001
January 1, 2002 $ 218,750
21-22 April 1 and July 1, 2002 $ 262,500
</TABLE>
(B) Tamor shall pay the principal amount of the Tamor
Term Loan A in twenty-two (22) consecutive quarterly installments on the first
day of January, April, July and October of each year, commencing April 1, 1997,
as follows:
3
<PAGE> 10
<TABLE>
<CAPTION>
Payment Installment
Date Amount (each)
--------- -------------
<S> <C> <C>
1-4 April 1, July 1, and October 1, 1997
January 1, 1998 $ 375,000
5-8 April 1, July 1, and October 1, 1998
January 1, 1999 $ 562,500
9-12 April 1, July 1, and October 1, 1999
January 1, 2000 $ 656,250
13-16 April 1, July 1, and October 1, 2000
January 1, 2001 $ 656,250
17-20 April 1, July 1, and October 1, 2001
January 1, 2002 $ 937,500
21-22 April 1 and July 1, 2002 $ 1,125,000
</TABLE>
(C) Shutters shall pay the principal amount of the
Shutters Term Loan A in twenty-two (22) consecutive quarterly installments on
the first day of January, April and October of each year, commencing April 1,
1997, as follows:
<TABLE>
<CAPTION>
Payment Installment
Date Amount (each)
--------- -------------
<S> <C> <C>
1-4 April 1, July 1, and October 1, 1997
January 1, 1998 $ 37,500
5-8 April 1, July 1, and October 1, 1998
January 1, 1999 $ 56,250
9-12 April 1, July 1, and October 1, 1999
January 1, 2000 $ 65,625
13-16 April 1, July 1, and October 1, 2000
January 1, 2001 $ 65,625
17-20 April 1, July 1, and October 1, 2001
January 1, 2002 $ 93,750
21-22 April 1 and July 1, 2002 $112,500
</TABLE>
4
<PAGE> 11
(iii) Notwithstanding the foregoing clauses (A)-(C), the
aggregate outstanding principal balance of the Selfix Term Loan A, the Tamor
Term Loan A and the Shutters Term Loan A shall each be due and payable in full
in immediately available funds on the Commitment Termination Date, if not
sooner paid in full.
(iv) Each payment of principal with respect to the Selfix
Term Loan A, the Tamor Term Loan A and the Shutters Term Loan A shall be paid
to Agent for the ratable benefit of each Term A Lender, ratably in proportion
to each such Term A Lender's respective Selfix Term Loan A Commitment, Tamor
Term Loan A Commitment and Shutters Term Loan A Commitment, as applicable.
(b) (2) Term Loan B. (i) Subject to the terms
and conditions hereof, each Term B Lender agrees to make a term loan on the
Closing Date to (A) Selfix (the "Selfix Term Loan B") in the original principal
amount of its Selfix Term Loan B Commitment; (B) Tamor (the "Tamor Term Loan
B") in the original principal amount of its Tamor Term Loan B Commitment, and
(C) Shutters (the "Shutters Term Loan B" and, collectively with the Selfix Term
Loan B and the Tamor Term Loan B, the "Term Loan B") in the original principal
amount of its Shutters Term Loan B Commitment. The obligations of each Term B
Lender hereunder shall be several and not joint. Each such Term B Loan shall
be evidenced by promissory notes substantially in the form of Exhibit 1.1(b)
(each a "Term Note B" and collectively the "Term B Notes"), and each Borrower
shall execute and deliver its respective Term Note B to the applicable Term B
Lender. Each Term Note B shall represent the obligation of the applicable
Borrower to pay the amount of its Term Loan B to the applicable Lender,
together with interest thereon as prescribed in Section 1.5.
(ii) (A) Selfix shall pay the principal amount of the Selfix
Term Loan B in thirty (30) consecutive quarterly installments on the first day
of January, April, July and October of each year, commencing April 1, 1997, as
follows:
<TABLE>
<CAPTION>
Payment Installment
Date Amount (each)
--------- -------------
<S> <C> <C>
1-22 April 1, July 1, and October 1, 1997
January 1, April 1, July 1, and October 1, 1998
January 1, April 1, July 1, and October 1, 1999
January 1, April 1, July 1, and October 1, 2000
January 1, April 1, July 1, and October 1, 2001,
and January 1, April 1, and July 1, 2002 $ 8,750
23-26 October 1, 2002,
January 1, April 1, and July 1, 2003 $413,437
27-30 October 1, 2003,
January 1, April 1, and July 1, 2004 $413,438
</TABLE>
5
<PAGE> 12
(B) Tamor shall pay the principal amount of the Tamor
Term Loan B in thirty (30) consecutive quarterly installments on the first day
of January, April, July and October of each year, commencing April 1, 1997, as
follows:
<TABLE>
<CAPTION>
Payment Installment
Date Amount (each)
---------- ----------
<S> <C> <C>
1-22 April 1, July 1, and October 1, 1997
January 1, April 1, July 1, and October 1, 1998
January 1, April 1, July 1, and October 1, 1999
January 1, April 1, July 1, and October 1, 2000
January 1, April 1, July 1, and October 1, 2001,
January 1, April 1, and July 1, 2002 $ 37,500
23-26 October 1, 2002,
January 1, April 1, and July 1, 2003 $1,771,875
27-30 October 1, 2003,
January 1, April 1, and July 1, 2004 $1,771,875
</TABLE>
(C) Shutters shall pay the principal amount of the
Shutters Term Loan B in thirty (30) consecutive quarterly installments on the
first day of January, April and October of each year, commencing April 1, 1997,
as follows:
<TABLE>
<CAPTION>
Payment Installment
Date Amount (each)
---------- ----------
<S> <C> <C>
1-22 April 1, July 1, and October 1, 1997
January 1, April 1, July 1, and October 1, 1998
January 1, April 1, July 1, and October 1, 1999
January 1, April 1, July 1, and October 1, 2000
January 1, April 1, July 1, and October 1, 2001,
January 1, April 1, and July 1, 2002 $ 3,750
23-26 October 1, 2002,
January 1, April 1, and July 1, 2003 $177,187
27-30 October 1, 2003,
January 1, April 1, and July 1, 2004 $177,188
</TABLE>
6
<PAGE> 13
(iii) Notwithstanding the foregoing clauses (A)-(C), the
aggregate outstanding principal balance of the Selfix Term Loan B, the Tamor
Term Loan B and the Shutters Term Loan B shall each be due and payable in full
in immediately available funds on the Commitment Termination Date, if not
sooner paid in full.
(iv) Each payment of principal with respect to the Selfix
Term Loan B, the Tamor Term Loan B and the Shutters Term Loan B shall be paid
to Agent for the ratable benefit of each Term B Lender, ratably in proportion
to each such Term B Lender's respective Selfix Term Loan B Commitment, Tamor
Term Loan B Commitment and Shutters Term Loan B Commitment, as applicable.
(c) Swing Line Facility. (i) Agent shall notify the
Swing Line Lender upon Agent's receipt of any Notice of Revolving Credit
Advance. Subject to the terms and conditions hereof, the Swing Line Lender
may, in its discretion, make available from time to time until the Commitment
Termination Date advances (each, a "Swing Line Advance") in accordance with any
such notice. The aggregate amount of Swing Line Advances outstanding shall not
exceed the lesser of (A) the Swing Line Commitment and (B) the Aggregate
Borrowing Base less the outstanding balance of the Revolving Loan at such time
("Swing Line Availability"). Moreover, the Swing Line Loan outstanding to any
Borrower shall not exceed at any time that Borrower's separate Borrowing Base
less the Revolving Loan outstanding to such Borrower. Until the Commitment
Termination Date, Borrowers may from time to time borrow, repay and reborrow
under this Section 1.1(c). Each Swing Line Advance shall be made pursuant to a
Notice of Revolving Credit Advance delivered to Agent by Borrower
Representative on behalf of the applicable Borrower in accordance with Section
1.1(a). Those notices must be given no later than 11:00 a.m. (Chicago time) on
the Business Day of the proposed Swing Line Advance. Notwithstanding any other
provision of this Agreement or the other Loan Documents, the Swing Line Loan
shall constitute an Index Rate Loan. Borrowers shall repay the aggregate
outstanding principal amount of the Swing Line Loan upon demand therefor by
Agent.
(ii) Each Borrower shall execute and deliver to the Swing
Line Lender a promissory note to evidence the Swing Line Commitment. Each note
shall be in the principal amount of the Swing Line Commitment of the Swing Line
Lender, dated the Closing Date and substantially in the form of Exhibit
1.1(c)(ii) (each a "Swing Line Note" and, collectively, the "Swing Line
Notes"). Each Swing Line Note shall represent the obligation of each Borrower
to pay the amount of the Swing Line Commitment or, if less, the aggregate
unpaid principal amount of all Swing Line Advances made to such Borrower
together with interest thereon as prescribed in Section 1.5. The entire unpaid
balance of the Swing Line Loan and all other non-contingent Obligations shall
be immediately due and payable in full in immediately available funds on the
Commitment Termination Date if not sooner paid in full.
(iii) Refunding of Swing Line Loans. The Swing Line
Lender, at any time and from time to time in its sole and absolute discretion,
may on behalf of any Borrower (and each Borrower hereby irrevocably authorizes
the Swing Line Lender to so act on its behalf) request each Revolving Lender
(including the Swing Line Lender) to make a Revolving Credit Advance to such
Borrower
7
<PAGE> 14
(which shall be an Index Rate Loan) in an amount equal to such Revolving
Lender's Pro Rata Share of the principal amount of such Borrower's Swing Line
Loan (the "Refunded Swing Line Loan") outstanding on the date such notice is
given. Unless any of the events described in Sections 8.1(g), 8.1(h) or 8.1(i)
shall have occurred (in which event the procedures of Section 1.1(c)(iv) shall
apply) and regardless of whether the conditions precedent set forth in this
Agreement to the making of a Revolving Credit Advance are then satisfied, each
Revolving Lender shall disburse directly to Agent, its Pro Rata Share of a
Revolving Credit Advance on behalf of the Swing Line Lender, prior to 2:00 p.m.
(Chicago time), in immediately available funds on the Business Day next
succeeding the date such notice is given. The proceeds of such Revolving
Credit Advances shall be immediately paid to the Swing Line Lender and applied
to repay the Refunded Swing Line Loan of the applicable Borrower.
(iv) Participation in Swing Line Loans. If, prior to
refunding a Swing Line Loan with a Revolving Credit Advance pursuant to Section
1.1(c)(iii), one of the events described in Sections 8.1(g), 8.1(h) or 8.1(i)
shall have occurred, then, subject to the provisions of Section 1.1(c)(v)
below, each Revolving Lender will, on the date such Revolving Credit Advance
was to have been made for the benefit of the applicable Borrower, purchase from
the Swing Line Lender an undivided participation interest in the Swing Line
Loan to such Borrower in an amount equal to its Pro Rata Share of such Swing
Line Loan. Upon request, each Revolving Lender will promptly transfer to the
Swing Line Lender, in immediately available funds, the amount of its
participation and upon receipt thereof the Swing Line Lender will deliver to
such Revolving Lender a Swing Line Loan Participation Certificate,
substantially the form of Exhibit 1.1(c)(iv), dated the date of receipt of such
funds and in such amount.
(v) Revolving Lenders' Obligations Unconditional. Each
Revolving Lender's obligation to make Revolving Credit Advances in accordance
with Section 1.1(c)(iii) and to purchase participating interests in accordance
with Section 1.1(c)(iv) shall be absolute and unconditional and shall not be
affected by any circumstance, including (A) any setoff, counterclaim,
recoupment, defense or other right which such Revolving Lender may have against
the Swing Line Lender, any Borrower or any other Person for any reason
whatsoever; (B) the occurrence or continuance of any Default or Event of
Default; (C) any inability of any Borrower to satisfy the conditions precedent
to borrowing set forth in this Agreement on the date upon which such
participating interest is to be purchased or (D) any other circumstance,
happening or event whatsoever, whether or not similar to any of the foregoing.
If any Revolving Lender does not make available to Agent or the Swing Line
Lender, as applicable, the amount required pursuant to Section 1.1(c)(iii) or
1.1(c)(iv), as the case may be, the Swing Line Lender shall be entitled to
recover such amount on demand from such Revolving Lender, together with
interest thereon for each day from the date of non-payment until such amount is
paid in full at the Federal Funds Rate for the first two Business Days and at
the Index Rate thereafter.
(d) Reliance on Notices; Appointment of Borrower
Representative. Agent shall be entitled to rely upon, and shall be fully
protected in relying upon, any Notice of Revolving Credit Advance, Notice of
Conversion/Continuation or similar notice reasonably believed by Agent to be
genuine. Agent may assume that each Person executing and delivering such a
notice was duly
8
<PAGE> 15
authorized, unless the responsible individual acting thereon for Agent has
actual knowledge to the contrary. Each Borrower hereby designates Selfix as
its representative and agent on its behalf for the purposes of issuing Notices
of Revolving Credit Advances, Notices of Swing Line Advances and Notices of
Conversion/Continuation, giving instructions with respect to the disbursement
of the proceeds of the Loans, selecting interest rate options, requesting
Letters of Credit, giving and receiving all other notices and consents
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. Agent and each 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.
1.2 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 Revolving Lenders agree to incur, or purchase participations in,
Letter of Credit Obligations in respect of each Borrower.
1.3 Prepayments.
(a) Voluntary Prepayments. Borrowers may at any time on
at least fifteen (15) days' prior written notice upon a partial prepayment (or
at least thirty (30) days' prior written notice in the case of a prepayment in
full) by Borrower Representative to Agent (i) voluntarily prepay all or part of
the Term Loan A or Term Loan B and/or (ii) voluntarily prepay all or part of
the Revolving Loan and terminate or reduce the Revolving Loan Commitment;
provided that (A) any such prepayments or reductions shall be in a minimum
amount of $500,000 and integral multiples of $250,000 in excess of such amount
and (B) the Revolving Loan Commitment shall not be reduced to an amount less
than the L/C Sublimit plus five million dollars ($5,000,000). In addition,
Borrowers may at any time on at least thirty (30) days for prior written notice
by Borrower Representative to Agent terminate the Revolving Loan Commitment;
provided that upon such termination, all Loans and other Obligations shall be
immediately due and payable in full. Any such voluntary prepayment and any
such reduction or termination of the Revolving Loan Commitment must be
accompanied by the payment of the fee required by Section 1.9(c), if any, plus
the payment of 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, or request Swing Line Advances shall simultaneously be permanently
reduced or terminated, as the case may be; provided that a permanent reduction
of the Revolving Loan Commitment shall not require a corresponding pro rata
reduction in the L/C Sublimit (as defined in Annex B). Each
9
<PAGE> 16
notice of partial prepayment shall designate the Loans or other Obligations to
which such prepayment is to be applied, provided that any partial prepayments
of the Term Loan made by or on behalf of any Borrower shall be applied to
prepay the scheduled installments of such Borrower's Term Loan in inverse order
of maturity.
(b) Mandatory Prepayments. (i) If at any time the
outstanding balance of the aggregate Revolving Loan exceeds the lesser of (A)
the Maximum Amount and (B) the Aggregate Borrowing Base, less, in each case,
the aggregate outstanding Swing Line Loan at such time, 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 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. Furthermore, if the outstanding balance of the Revolving Loan of any
Borrower exceeds that Borrower's separate Borrowing Base at any time less the
outstanding balance of the Swing Line Loan of such Borrower at such time, the
applicable Borrower shall immediately repay its Revolving Credit Advances in
the amount of such excess (and, if necessary, shall provide cash collateral for
its Letter of Credit Obligations as described above). Notwithstanding the
foregoing, any Overadvance made pursuant to Section 1.1(a)(iii) shall be
repaid on demand.
(ii) Immediately upon receipt by any Credit Party of
proceeds of any asset disposition (including condemnation proceeds, but
excluding proceeds of asset dispositions permitted by Sections 6.8 (a) and
6.8(b)) or any sale of Stock of any Subsidiary of any Credit Party, Borrowers
shall prepay the Loans 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 clause (c)(1) below.
(iii) Except for the proceeds of approximately $1,500,000
of Holdings Stock to be put into escrow pursuant to the Acquisition Agreement
as security for Holdings' and Selfix's obligation to reimburse the stockholders
of Tamor under Section 2.5(d) of the Acquisition Agreement, if Holdings or any
Borrower issues Stock, no later than the Business Day following the date of
receipt of the proceeds thereof, all Borrowers (in the case of an issuance by
Holdings) or the issuing Borrower shall prepay the Loans in an amount equal to
all or a portion of such proceeds, in accordance with clause (c)(2) below, net
of underwriting discounts and commissions and other reasonable costs paid to
non-Affiliates in connection therewith.
(iv) Until the Termination Date, Borrowers shall prepay
the Obligations on the earlier of the date which is ten (10) days after (A) the
date on which Borrowers' annual audited Financial Statements for the
immediately preceding Fiscal Year are delivered pursuant to Annex E or (B) the
date on which such annual audited Financial Statements were required to be
delivered
10
<PAGE> 17
pursuant to Annex E, in an amount equal to seventy-five percent (75%) of Excess
Cash Flow for the immediately preceding Fiscal Year. Any prepayments from
Excess Cash Flow paid pursuant to this clause (iv) shall be allocated to each
Borrower's Obligations based upon such Borrower's relative contribution to
Excess Cash Flow and shall be applied in accordance with clause (c)(1) below.
Each such prepayment shall be accompanied by a certificate signed by Borrower
Representative's chief financial officer certifying the manner in which Excess
Cash Flow, the resulting prepayment, and the method of allocation to each
Borrower's Obligations were calculated, which certificate shall be in form and
substance reasonably satisfactory to Agent.
(c)(1) Application of Certain Mandatory Prepayments. Any
prepayments made by any Borrower pursuant to clauses (b)(ii) or (iv) or Section
5.4(c) shall be applied as follows: first, to Fees and reimbursable expenses
of Agent and other Lenders then due and payable pursuant to any of the Loan
Documents; second, to interest then due and payable on such Borrower's Term
Loans, pro rata; third, ratably to prepay the scheduled installments of such
Borrower's Term Loans in inverse order of maturity, until such Loans shall have
been prepaid in full; fourth to interest then due and payable on the Term Loans
of each other Borrower, pro rata; fifth, to prepay the scheduled installments
of the Term Loans of such other Borrowers in inverse order of maturity, until
such Loans shall have been prepaid in full; sixth, to interest then due and
payable on Revolving Credit Advances (including Swing Line Advances) made to
such Borrower; seventh, to the principal balance of Revolving Credit Advances
(including Swing Line Advances) outstanding to such Borrower until the same
shall have been paid in full; eighth, to any Letter of Credit Obligations of
such Borrower 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; ninth, to interest then due
and payable on the Revolving Credit Advances (including Swing Line Advances)
outstanding to each other Borrower, pro rata; tenth, to the principal balance
of the Revolving Credit Advances (including Swing Line Advances) made to each
other Borrower, pro rata, until the same shall have been paid in full; and
last, to any Letter of Credit Obligations of each other Borrower, pro rata, 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. Neither
the Revolving Loan Commitment nor the Swing Line Commitment shall be
permanently reduced by the amount of any such prepayments.
(c)(2) Application of Mandatory Prepayments from Stock
Sales. All prepayments made by Holdings or any Borrower pursuant to clause
(b)(iii) above shall be applied as follows: first, 50% of the balance of such
prepayments shall be applied to accrued interest and to the principal of the
Subordinated Notes, and the remaining 50% of the balance of such prepayment
shall be applied, ratably, to accrued interest and to the principal balances of
Term Loan A and Term Loan B; and second, after payment in full of the
Subordinated Notes, 100% of such prepayment shall be applied, ratably, to
accrued interest and to the principal balances of Term Loan A and Term Loan B.
All such prepayments of the Term Loans shall be applied to scheduled
installments in inverse order of maturity.
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<PAGE> 18
(d) Nothing in this Section 1.3 shall be construed to
constitute Agent's or any Lender's consent to any transaction referred to in
clauses (b)(ii) and (b)(iii) above which is not permitted by other provisions
of this Agreement or the other Loan Documents.
1.4 Use of Proceeds. Borrowers shall utilize the
proceeds of the Term Loans, the Revolving Loan and the Swing Line Advances
solely for the Acquisition and the Refinancing (and to pay any related
transaction expenses), and for the financing of Borrowers' ordinary working
capital and general corporate needs (but excluding in any event the making of
any Restricted Payment not specifically permitted by Section 6.14). Disclosure
Schedule (1.4) contains a description of Borrowers' sources and uses of funds
as of the Closing Date, including Loans and Letter of Credit Obligations to be
made or incurred on that date, and a funds flow memorandum detailing how funds
from each source are to be transferred to particular uses.
1.5 Interest and Applicable Margins. (a) Borrowers
shall pay interest to Agent, for the ratable benefit of Lenders in accordance
with the various Loans being made by each Lender, in arrears on each applicable
Interest Payment Date, at the following rates: (i) with respect to the
Revolving Credit Advances, the Index Rate plus the Applicable Revolver Index
Margin per annum or, at the election of Borrower Representative, the applicable
LIBOR Rate plus the Applicable Revolver LIBOR Margin per annum, based on the
aggregate Revolving Credit Advances outstanding from time to time; (ii) with
respect to Term Loan A, the Index Rate plus the Applicable Term Loan A Index
Margin per annum or, at the election of Borrower Representative, the applicable
LIBOR Rate plus the Applicable Term Loan A LIBOR Margin per annum; (iii) with
respect to Term Loan B, the Index Rate plus the Applicable Term Loan B Index
Margin per annum or, at the election of Borrower Representative, the applicable
LIBOR Rate plus the Applicable Term Loan B LIBOR Margin per annum and (iv) with
respect to the Swing Line Loan, the Index Rate plus the Applicable Revolver
Index Margin per annum.
The Applicable Revolver Index Margin, Applicable Term Loan A
Index Margin, Applicable Term Loan B Index Margin, Applicable Revolver LIBOR
Margin and Applicable Term Loan A LIBOR Margin and Applicable Term Loan B LIBOR
Margin will be 1.25%, 1.50%, 2.00%, 2.75%, 3.00% and 3.50% per annum,
respectively, as of the Closing Date. The Applicable Margins will be adjusted
(up or down) prospectively on a quarterly basis as determined by Borrowers'
consolidated financial performance, commencing with the first day of the first
calendar month that occurs more than five (5) days after delivery of Borrowers'
quarterly Financial Statements to Lenders for the Fiscal Quarter in December,
1997. Adjustments in Applicable Margins will be determined by reference to the
following grids:
12
<PAGE> 19
<TABLE>
<CAPTION>
LEVEL OF
LEVERAGE RATIO IS: APPLICABLE MARGINS:
----------------- ------------------
<S> <C>
( 2.5 Level I
(3.5, but ) 2.5 Level II
-
(5.0, but ) 3.5 Level III
-
(6.00, but ) 5.0 Level IV
-
) 6.00 Level V
-
</TABLE>
<TABLE>
<CAPTION>
APPLICABLE MARGINS
------------------
LEVEL I LEVEL II LEVEL III LEVEL IV LEVEL V
------- -------- --------- -------- -------
<S> <C> <C> <C> <C> <C>
Applicable Revolver .50% .75% 1.0% 1.25% 1.50%
Index Margin
Applicable Revolver LIBOR Margin 2.0% 2.25% 2.50% 2.75% 3.00%
Applicable Term Loan A Index .75% 1.0% 1.25% 1.50% 1.75%
Margin
Applicable Term Loan A LIBOR 2.25% 2.50% 2.75% 3.0% 3.25%
Margin
Applicable Term Loan B Index 1.25% 1.50% 1.75% 2.0% 2.25%
Margin
Applicable Term Loan B LIBOR 2.75% 3.0% 3.25% 3.5% 3.75%
Margin
</TABLE>
All adjustments in the Applicable Margins after December 31,
1997 will be implemented quarterly on a prospective basis, for each calendar
month commencing at least five (5) days after the date of delivery to Lenders
of the quarterly unaudited or annual audited (as applicable) Financial
Statements of Borrowers evidencing the need for an adjustment. Concurrently
with the delivery of those Financial Statements, Borrower Representative shall
deliver to Agent and Lenders a certificate, signed by its chief financial
officer, setting forth in reasonable detail the basis for the continuance of,
or any change in, the Applicable Margins. Failure to timely deliver such
Financial Statements shall, in addition to any other remedy provided for in
this Agreement, result in an increase in the Applicable Margins to the highest
level set forth in the foregoing grid, until the first day of the first
calendar month following the delivery of those Financial Statements
demonstrating that such an increase is not required. If an Event of Default
shall have occurred or be continuing at the time any reduction in the
Applicable Margins is to be implemented, that reduction shall be deferred until
the
13
<PAGE> 20
first day of the first calendar month following the date on which such Default
or Event of Default is waived or cured.
(b) If any payment on any Loan becomes due and payable on
a day 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 Agent on the basis of a three hundred and
sixty (360) day year, in each case for the actual number of days occurring in
the period for which such interest and Fees are payable. The Index Rate shall
be determined each day based upon the Index Rate as in effect each day. Each
determination by Agent of an interest rate hereunder shall be conclusive,
absent manifest error.
(d) So long as any Event of Default shall have occurred
and be continuing, and at the election of Agent (or upon the written request of
Requisite Lenders) confirmed by written notice from Agent to Borrower
Representative, the interest rates applicable to the Loans 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
("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 Default or Event
of Default until that Default or Event of Default is cured or waived and shall
be payable upon demand.
(e) So long as no Default or Event of Default shall have
occurred and be continuing, and subject to the additional conditions precedent
set forth in Section 2.2, Borrower Representative shall have the option to (i)
request that any Revolving Credit Advances be made as a LIBOR Loan, (ii)
convert at any time all or any part of outstanding Loans (other than the Swing
Line 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
Loan (other than the Swing Line 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 Loan to be made or continued as, or converted into, a LIBOR
Loan must be in a minimum amount of $2,000,000 integral multiples of $500,000
in excess of such amount. Any such election must be made by 11:00 a.m.
(Chicago time) on the third (3rd) Business Day prior to (1) the date of any
proposed Advance which is to bear interest at the LIBOR Rate, (2) the end of
each LIBOR Period with respect to any LIBOR Loans to be continued as such, or
(3) 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
11:00 a.m. (Chicago time) on the third (3rd) Business Day prior to the end of
the LIBOR Period with respect thereto (or if a Default or 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
14
<PAGE> 21
to an Index Rate Loan at the end of its LIBOR Period. Borrower
Representative must make such election by notice to Agent 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). No Loan may be made as
or converted into a LIBOR Loan until the earlier of forty-five (45) days after
the Closing Date or completion of syndication.
(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, however, that if
at any time thereafter the rate of interest payable 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 Agent, on
behalf of Lenders, is equal to the total interest which 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)
above, 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 any Lender pursuant to the terms hereof exceed the
amount which such 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 a Lender has received interest
hereunder in excess of the Maximum Lawful Rate, Agent 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.
1.6 Eligible Accounts. Based on the most recent
Borrowing Base Certificate delivered by each Borrower to Agent and on other
information available to Agent, Agent shall in its reasonable credit judgment
determine which Accounts of each Borrower shall be "Eligible Accounts" for
purposes of this Agreement. In determining whether a particular Account of any
Borrower constitutes an Eligible Account, Agent shall not include any such
Account to which any of the exclusionary criteria set forth below applies.
Agent reserves the right, at any time and from time to time after the Closing
Date, upon prior written notice to Borrower Representative to adjust any such
criteria, to establish new criteria and to adjust advance rates with respect to
Eligible Accounts, in its reasonable credit judgment, subject to the approval
of Supermajority Revolving Lenders in the case of adjustments or new criteria
or changes in advance rates which have the effect of making more credit
available. Eligible Accounts shall not include any Account of any Borrower:
15
<PAGE> 22
(a) which does not arise from the sale of goods or the
performance of services by such Borrower in the ordinary course of its
business;
(b) upon which (i) such Borrower's right to receive
payment is not absolute or is contingent upon the fulfillment of any condition
whatsoever or (ii) such Borrower is not able to bring suit or otherwise enforce
its remedies against the Account Debtor through judicial process;
(c) to the extent any defense, counterclaim, setoff or
dispute is asserted as to such Account or if the Account represents a progress
billing consisting of an invoice for goods sold or used 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;
(d) that is not a true and correct statement of 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 Agent
in form and substance, has not been sent to the applicable Account Debtor;
(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 Agent, on behalf of itself and Lenders;
(g) that arises from a sale to any director, officer,
other employee or Affiliate of any Credit Party, or to any entity which 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 Agent,
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, and any amendments thereto, 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) unless payment thereof is
assured by a letter of credit, satisfactory to Agent 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;
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(k) that arises with respect to goods which are delivered
on a bill-and-hold, 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) it is not paid within the earlier of: sixty (60) days
following its due date or ninety (90) days following its original
invoice date;
(ii) if any 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) if any 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) which is the obligation of an Account Debtor if fifty
percent (50%) or more of the dollar amount of all Accounts owing by that
Account Debtor are ineligible under the other criteria set forth in this
Section 1.6;
(n) as to which Agent's interest, on behalf of itself and
Lenders, therein is not a first priority perfected security interest;
(o) as to which any of the representations or warranties
pertaining to Accounts set forth in this Agreement or the Security Agreement 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 Agent, in its reasonable discretion;
(r) which is payable in any currency other than Dollars;
or
(s) which is unacceptable to Agent in its reasonable
credit judgment.
1.7 Eligible Inventory. Based on the most recent
Borrowing Base Certificate delivered by each Borrower to Agent and on other
information available to Agent, Agent shall in its reasonable credit judgment
determine which Inventory of each Borrower shall be "Eligible Inventory" for
purposes of this Agreement. In determining whether any particular Inventory of
any Borrower constitutes Eligible Inventory, Agent shall not include any such
Inventory to which any of the
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exclusionary criteria set forth below applies. Agent reserves the right, at
any time and from time to time after the Closing Date, upon prior written
notice to Borrower Representative to adjust any such criteria, to establish new
criteria and to adjust advance rates with respect to Eligible Inventory, in its
reasonable credit judgment, subject to the approval of Supermajority Revolving
Lenders in the case of adjustments or new criteria or changes in advance rates
which have the effect of making more credit available. Eligible Inventory
shall not include any Inventory of any Borrower:
(a) that 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 that Inventory),
except Permitted Encumbrances;
(b) that is (i) not located on premises owned, leased or
operated by such Borrower or (ii) is stored with a bailee, warehouseman or
similar Person, unless Agent has given its prior consent thereto and unless (x)
a satisfactory bailee letter or landlord waiver has been delivered to Agent, or
(y) Reserves satisfactory to Agent have been established with respect thereto,
or (iii) located at any site if the aggregate book value of Inventory at any
such location is less than $100,000;
(c) that is placed on consignment, is in transit or is
otherwise not located on premises owned or leased by such Borrower;
(d) that is covered by a negotiable document of title,
unless such document has been delivered to Agent;
(e) that in Agent's reasonable determination, is excess,
obsolete, unsalable, shopworn, seconds, damaged or unfit for sale;
(f) that consists of display items or packing or shipping
materials, manufacturing supplies, work-in-process Inventory or replacement
parts;
(g) that consists of goods which have been returned by
the buyer;
(h) that is not of a type held for sale in the ordinary
course of such Borrower's business;
(i) as to which Agent's Lien, on behalf of itself and
Lenders, therein is not a first priority perfected Lien;
(j) as to which any of the representations or warranties
pertaining to Inventory set forth in this Agreement or the Security Agreement
is untrue;
(k) consists of any costs associated with "freight-in"
charges;
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(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 reasonably
acceptable to Agent; or
(n) is otherwise unacceptable to Agent in its reasonable
credit judgment.
1.8 Cash Management Systems. On or prior to the Closing
Date, Borrowers will establish and will maintain until the Termination Date,
the cash management systems described on Annex C (the "Cash Management
Systems").
1.9 Fees. (a) Borrowers shall pay to GE Capital,
individually, the Fees specified in that certain fee letter dated as of
February 24, 1997 among Borrowers and GE Capital (the "GE Capital Fee Letter"),
at the times specified for payment therein.
(b) As additional compensation for the Revolving Lenders,
Borrowers agree to pay to Agent, for the ratable benefit of such Lenders, 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 one- half percent (0.5%) per
annum (calculated on the basis of a 360 day year for actual days elapsed) of
the difference between (x) the Maximum Amount (as it may be reduced from time
to time) and (y) the average for the period of the daily closing balances of
the aggregate Revolving Loan and the Swing Line Loan outstanding during the
period for which such fee is due.
(c) If Borrowers prepay all or any portion of the Term
Loan A or Term Loan B or prepay the Revolving Loan and reduce or terminate the
Revolving Loan Commitment, whether voluntarily or involuntarily and whether
before or after acceleration of the Obligations, Borrowers shall pay to Agent,
for the benefit of Lenders as liquidated damages and compensation for the costs
of being prepared to make funds available hereunder an amount determined by
multiplying the Applicable Percentage (as defined below) by (i) the principal
amount of the Term Loans prepaid, and (ii) the amount of the reduction of the
Revolving Loan Commitment. As used herein, the term "Applicable Percentage"
shall mean (x) three percent (3.0%), in the case of a prepayment on or prior to
the first anniversary of the Closing Date, (y) two percent (2.0%), in the case
of a prepayment after the first anniversary of the Closing Date but on or prior
to the second anniversary, and (z) one percent (1.0%), in the case of a
prepayment after the second anniversary of the Closing Date but on or prior to
the third anniversary. Notwithstanding the foregoing, no prepayment fee shall
be payable by Borrowers upon a voluntary prepayment of Term Loan A or Term Loan
B from Borrowers' operating cash flow in the ordinary course or a mandatory
prepayment made pursuant to Sections 1.3(b) or 1.16(c); provided that Borrowers
do not permanently reduce the Revolving Loan Commitment upon any such
prepayment and, in the case of prepayments made pursuant to Section 1.3(b)(ii)
or (b)(iii), the transaction giving rise to the applicable prepayment is
expressly permitted under Section 6.
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1.10 Receipt of Payments. Borrowers shall make each
payment under this Agreement not later than 1:00 p.m. (Chicago 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 day of receipt of immediately available funds
therefor in the Collection Account prior to 1:00 p.m. Chicago time. Payments
received after 1:00 p.m. Chicago time on any Business Day shall be deemed to
have been received on the following Business Day.
1.11 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 Swing Line Loan and the Revolving Loan; (ii) payments
matching specific scheduled payments then due shall be applied to those
scheduled payments; (iii) voluntary prepayments shall be applied as determined
by Borrower Representative, subject to the provisions of Section 1.3(a); and
(iv) mandatory prepayments shall be applied as set forth in Section 1.3. 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 each
Borrower hereby irrevocably agrees that Agent shall have the continuing
exclusive right to apply any and all such payments against the Obligations of
Borrowers as Agent may deem advisable notwithstanding any previous entry by
Agent in the Loan Account or any other books and records. In the absence of a
specific determination by Agent with respect thereto, payments shall be applied
to amounts then due and payable in the following order: (1) to Fees and Agent's
and the Lenders' expenses reimbursable hereunder; (2) to interest on the Swing
Line Loan; (3) to principal payments on the Swing Line Loan; (4) to interest on
the other Loans, ratably in proportion to the interest accrued as to each Loan;
(5) to principal payments on the other Loans and to provide cash collateral for
Letter of Credit Obligations in the manner described in Annex B, ratably to the
aggregate, combined principal balance of the other Loans and outstanding Letter
of Credit Obligations; and (6) to all other Obligations including expenses of
Lenders to the extent reimbursable under Section 11.3.
(b) Agent is authorized to, and at its sole election may,
charge to the Revolving Loan balance on behalf of each Borrower 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 promptly pay
any such amounts as and when due, even if such charges would cause the balance
of the aggregate Revolving Loan and the Swing Line Loan to exceed Borrowing
Availability or would cause the balance of the Revolving Loan and the Swing
Line Loan of any Borrower to exceed such Borrower's separate Borrowing Base.
At Agent's option and to the extent permitted by law, any charges so made shall
constitute part of the Revolving Loan hereunder.
1.12 Loan Account and Accounting. Agent shall maintain a
loan account (the "Loan Account") on its books to record: (a) all Advances and
the Term Loan, (b) all payments made
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by Borrowers, and (c) all other debits and credits as provided in this
Agreement with respect to the Loans or any other Obligations. All entries in
the Loan Account shall be made in accordance with Agent's customary accounting
practices as in effect from time to time. The balance in the Loan Account, as
recorded on Agent's most recent printout or other written statement, shall be
presumptive evidence of the amounts due and owing to Agent and Lenders by each
Borrower; provided that any failure to so record or any error in so recording
shall not limit or otherwise affect any Borrower's duty to pay the Obligations.
Agent shall render to Borrower Representative and each Lender a monthly
accounting of transactions with respect to the Loans setting forth the balance
of the Loan Account as to each Borrower. Unless Borrower Representative
notifies Agent in writing of any objection to any such accounting (specifically
describing the basis for such objection), within thirty (30) days after the
date thereof, each and every such accounting shall (absent manifest error) be
deemed final, binding and conclusive upon Borrowers 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.
1.13 Indemnity. (a) Each Credit Party that is a
signatory hereto shall jointly and severally indemnify and hold harmless each
of Agent, Lenders and their respective 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) which 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 such 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 that 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 WHICH 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 Lenders 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 that
repayment is made pursuant to any provision of this Agreement or any other Loan
Document or is the result of acceleration, by operation of law or otherwise);
(ii) any
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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,
Borrowers shall jointly and severally indemnify and hold harmless each 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 a Lender under
this subsection, each Lender shall be deemed to have actually funded its
relevant LIBOR Loan through the purchase of a deposit bearing interest at the
LIBOR Rate in an amount equal to the amount of that LIBOR Loan and having a
maturity comparable to the relevant Interest Period; provided, however, that
each 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, each 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 ten (10) Business Days of receipt thereof, specifying the basis
for such objection in detail.
1.14 Access. Each Credit Party which is a party hereto
shall, during normal business hours, from time to time upon three (3) Business
Day's prior notice as frequently as Agent determines to be appropriate: (a)
provide Agent 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, (b) permit Agent, and any of its officers,
employees and agents, to inspect, audit and make extracts from any Credit
Party's books and records, and (c) permit Agent, 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 Credit Party. If an
Event of Default shall have occurred and be continuing, each such Credit Party
shall provide such access to Agent and to each Lender at all times and without
advance notice. Furthermore, so long as any Event of Default shall have
occurred and be continuing, Borrowers shall provide Agent and each Lender with
access to their suppliers and customers. Each Credit Party shall make
available to Agent and its counsel, as quickly as is possible under the
circumstances, originals or copies of all books and records which Agent may
request. Each Credit Party shall deliver any document or instrument necessary
for Agent, as it may from time to time reasonably request, to obtain records
from any service bureau or other Person which maintains records for such Credit
Party, and shall maintain duplicate records or supporting documentation on
media, including computer tapes and discs owned by such Credit Party. Agent
will give Lenders at least ten (10) days' prior written notice of regularly
scheduled audits. Representatives of other Lenders may accompany Agent's
representatives on regularly scheduled audits at no charge to Borrowers.
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1.15 Taxes. (a) Any and all payments by each Borrower
hereunder (including any payments made pursuant to Section 12) or under the
Notes 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 (including any sum payable pursuant to Section 12) or under
the Notes, (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) Agent or Lenders, as
applicable, receive an amount equal to the sum they 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
or other authority in accordance with applicable law. Within thirty (30) days
after the date of any payment of Taxes, Borrower Representative shall furnish
to Agent the original or a certified copy of a receipt evidencing payment
thereof.
(b) Each Credit Party that is a signatory hereto shall
jointly and severally indemnify and, within ten (10) days of demand therefor,
pay Agent and each Lender for the full amount of Taxes (including any Taxes
imposed by any jurisdiction on amounts payable under this Section 1.15) paid by
Agent or such Lender, as appropriate, and any liability (including penalties,
interest and expenses) arising therefrom or with respect thereto, whether or
not such Taxes were correctly or legally asserted.
(c) Each Lender organized under the laws of a
jurisdiction outside the United States (a "Foreign Lender") as to which
payments to be made under this Agreement or under the Notes are exempt from
United States withholding tax under an applicable statute or tax treaty shall
provide to Borrower Representative and Agent a properly completed and executed
IRS Form 4224 or Form 1001 or other applicable form, certificate or document
prescribed by the IRS or the United States certifying as to such Foreign
Lender's entitlement to such exemption (a "Certificate of Exemption"). Any
foreign Person that seeks to become a Lender under this Agreement shall provide
a Certificate of Exemption to Borrower Representative and Agent prior to
becoming a Lender hereunder. No foreign Person may become a Lender hereunder
if such Person is unable to deliver a Certificate of Exemption.
1.16 Capital Adequacy; Increased Costs; Illegality. (a)
If any 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 any 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 such
Lender and thereby reducing the rate of return on such Lender's capital as a
consequence of its obligations hereunder, then Borrowers shall from time to
time upon demand by such Lender (with a copy of such demand to Agent) pay to
Agent, for the account of such Lender, additional amounts sufficient to
compensate such Lender for such reduction. A certificate as to the amount of
that reduction and showing the basis of the computation thereof submitted by
such Lender to Borrower
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Representative and to Agent shall, absent manifest error, be final, conclusive
and binding 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), there
shall be any increase in the cost to any Lender of agreeing to make or making,
funding or maintaining any Loan, then Borrowers shall from time to time, upon
demand by such Lender (with a copy of such demand to Agent), pay to Agent for
the account of such Lender additional amounts sufficient to compensate such
Lender for such increased cost. A certificate as to the amount of such
increased cost, submitted to Borrower Representative and to Agent by such
Lender, shall be conclusive and binding on Borrowers for all purposes, absent
manifest error. Each Lender agrees that, as promptly as practicable after it
becomes aware of any circumstances referred to above which would result in any
such increased cost, the affected Lender shall, to the extent not inconsistent
with such 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 any
Lender to agree to make or to make or to continue to fund or maintain any LIBOR
Loan, then, unless that Lender is able to make or to continue to fund or to
maintain such LIBOR Loan at another branch or office of that Lender without, in
that Lender's opinion, adversely affecting it or its Loans or the income
obtained therefrom, on notice thereof and demand therefor by such Lender to
Borrower Representative through Agent, (i) the obligation of such 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 Loans owing by such Borrower to such Lender, together with interest
accrued thereon, unless Borrower Representative on behalf of such Borrower,
within five (5) Business Days after the delivery of such notice and demand,
converts all such Loans into a Loan bearing interest based on the Index Rate.
(d) Replacement of Lender in Respect of Increased Costs.
Within fifteen (15) days after receipt by Borrower Representative of written
notice and demand from any Lender (an "Affected Lender") for payment of
additional amounts or increased costs as provided in Section 1.15(a), 1.16(a)
or 1.16(b), Borrower Representative may, at its option, notify Agent and such
Affected Lender of its intention to replace the Affected Lender. So long as no
Default or Event of Default shall have occurred and be continuing, Borrower
Representative, with the consent of Agent, may obtain, at Borrowers' expense, a
replacement Lender ("Replacement Lender") for the Affected Lender, which
Replacement Lender must be satisfactory to Agent. If Borrowers obtain a
Replacement Lender within ninety (90) days following notice of their intention
to do so, the Affected Lender must sell and assign its Loans and Commitments to
such Replacement Lender for an amount equal to the principal balance of all
Loans held by the Affected Lender and all accrued interest and Fees with
respect thereto through the date of such sale, provided that Borrowers shall
have
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reimbursed such Affected Lender for the additional amounts or increased costs
that it is entitled to receive under this Agreement through the date of such
sale and assignment.
Notwithstanding the foregoing, Borrowers shall not have the right to obtain a
Replacement Lender if the Affected Lender rescinds its demand for increased
costs or additional amounts within fifteen (15) days following its receipt of
Borrowers' notice of intention to replace such Affected Lender. Furthermore,
if Borrowers give a notice of intention to replace and do not so replace such
Affected Lender within ninety (90) days thereafter, Borrowers' rights under
this Section 1.16(d) shall terminate and Borrowers shall promptly pay all
increased costs or additional amounts demanded by such Affected Lender pursuant
to Sections 1.15(a), 1.16(a) and 1.16(b).
1.17 Single Loan. All Loans to each Borrower and all
of the other Obligations of each Borrower arising under this Agreement and the
other Loan Documents shall constitute one general obligation of that Borrower
secured, until the Termination Date, by all of its Collateral.
2. CONDITIONS PRECEDENT
2.1 Conditions to the Initial Loans.
No Lender shall be obligated to make any Loan 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 or provided for in a manner reasonably satisfactory to Agent, or
waived in writing by Agent and Lenders:
(a) Credit Agreement; Loan Documents. This Agreement or
counterparts hereof shall have been duly executed by, and delivered to,
Borrowers, Agent and Lenders; and Agent shall have received such documents,
instruments, agreements and legal opinions as Agent shall request in connection
with the transactions contemplated by this Agreement and the other Loan
Documents, including all those listed in the Closing Checklist attached hereto
as Annex D, each in form and substance satisfactory to Agent.
(b) Repayment of Prior Lender Obligations; Satisfaction
of Outstanding L/Cs. (i) Agent shall have received a fully executed original
or copy of pay-off letters satisfactory to Agent confirming that all of the
Indebtedness owed by any Credit Party to each Prior Lender will be repaid in
full from the proceeds of the Term Loans and the initial Revolving Credit
Advance and all Liens upon any of the property of Borrowers or any of their
Subsidiaries in favor of Prior Lenders shall be terminated by Prior Lenders
immediately upon such payment; and (ii) all letters of credit issued or
guaranteed by any Prior Lender shall have been cash collateralized, supported
by a guaranty of Agent or supported by a Letter of Credit issued pursuant to
Annex B, as mutually agreed upon by Agent, Borrowers and Prior Lender.
(c) Approvals. Agent shall have received (i)
satisfactory evidence that the Credit Parties have obtained all required
consents and approvals of all Persons including all requisite
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Governmental Authorities, to the execution, delivery and performance of this
Agreement and the other Loan Documents and the consummation of the Related
Transactions or (ii) an officer's certificate in form and substance
satisfactory to Agent affirming that no such consents or approvals are
required.
(d) Opening Availability. The Eligible Accounts and
Eligible Inventory of each Borrower 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 Agent, to provide Borrowers, collectively, with Net
Borrowing Availability, after giving effect to the initial Revolving Credit
Advance made to each Borrower, the incurrence of any initial Letter of Credit
Obligations and the consummation of the Related Transactions (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 $5,000,000.
(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 (including the Fees specified in the GE Capital Fee Letter), and
shall have reimbursed Agent for all fees, costs and expenses of closing
presented as of the Closing Date, and GE Capital shall have paid a closing fee
to LaSalle National Bank equal to 1% of its Commitment.
(f) Equity and Indebtedness. As of the Closing Date and
after giving effect to the Related Transactions, Holdings shall have
stockholders common equity of approximately $14,100,000 and Holdings and its
Subsidiaries shall not have Indebtedness outstanding in excess of $56,750,000.
(g) Consummation of Related Transactions. Agent and
Lenders shall have received fully executed copies of the Acquisition Agreement
but for the cash consideration thereunder, the Subordinated Notes, and each of
the other Related Transactions Documents, each of which shall be in form and
substance satisfactory to Agent and its counsel. The Acquisition and the other
Related Transactions shall have been consummated in accordance with the terms
of the Acquisition Agreement and the other Related Transactions Documents but
for the payment of the cash purchase price payable on the Closing Date pursuant
to the Acquisition Agreement.
(h)(i) The Credit Parties shall have, immediately prior to
the Acquisition, at least $1,900,000 of cash on hand which will be used to fund
a portion of the cash consideration paid for the Acquisition; (ii) Holdings
shall pay at least $2,400,000 of the consideration for the Acquisition by the
issuance of its common stock; (iii) the cash portion of the consideration paid
for the Acquisition shall not exceed $48,300,000; and (iv) aggregate fees and
closing costs for the Related Transactions will not exceed $3,700,000.
2.2 Further Conditions to Each Loan. Except as otherwise
expressly provided herein, no Lender shall be obligated to fund any Loan,
convert or continue any Loan as a LIBOR Loan or incur any Letter of Credit
Obligation, if, as of the date thereof:
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(a) Any representation or warranty by any Credit Party
contained herein or in any of the other Loan Documents 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; or
(b) Any event or circumstance having a Material Adverse
Effect shall have occurred since the date hereof; or
(c) (i) Any Event of Default shall have occurred and be
continuing or would result after giving effect to any Loan (or the incurrence
of any Letter of Credit Obligations), or (ii) a Default shall have occurred and
be continuing or would result after giving effect to any Loan, and Agent or
Requisite Revolving Lenders shall have determined not to make any Loan or incur
any Letter of Credit Obligation so long as that Default is continuing; or
(d) After giving effect to any Advance (or the incurrence
of any Letter of Credit Obligations), (i) the outstanding principal amount of
the aggregate Revolving Loan would exceed the lesser of the Aggregate Borrowing
Base and the Maximum Amount, less, in each case, the outstanding principal
amount of the Swing Line Loan, or (ii) the outstanding principal amount of the
Revolving Loan of the applicable Borrower would exceed such Borrower's separate
Borrowing Base less the outstanding principal amount of the Swing Line Loan to
that Borrower; or
(e) After giving effect to any Swing Line Advance, (i)
the outstanding principal amount of the Swing Line Loan would exceed Swing Line
Availability, or (ii) the outstanding principal amount of the Swing Line Loan
of the applicable Borrower would exceed such Borrower's separate Borrowing Base
less the outstanding principal amount of the Revolving Loan to that Borrower.
The request and acceptance by any Borrower of the proceeds of any Loan, the
incurrence of any Letter of Credit Obligations or the conversion or
continuation of any Loan into, or as, a LIBOR Loan, as the case may be, shall
be deemed to constitute, as of the date of such request or acceptance, (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
cross-guaranty provisions set forth in Section 12 and of the granting and
continuance of Agent's Liens, on behalf of itself and Lenders, pursuant to the
Collateral Documents.
3. REPRESENTATIONS AND WARRANTIES
To induce Lenders to make the Loans and to incur Letter of
Credit Obligations, the Credit Parties executing this Agreement, jointly and
severally, make the following representations and warranties to Agent and each
Lender with respect to all Credit Parties, each and all of which shall survive
the execution and delivery of this Agreement.
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3.1 Corporate Existence; Compliance with Law. Each
Credit Party (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, except where the failure to be so
qualified would not have a Material Adverse Effect; (c) 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) has all material 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 by-laws; 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.
3.2 Executive Offices; FEIN. As of the Closing Date, the
current location of each Credit Party's chief executive office and principal
place of business is set forth in Disclosure Schedule (3.2), and none of such
locations have changed within the twelve (12) months preceding the Closing
Date. In addition, Disclosure Schedule (3.2) lists the federal employer
identification number of each Credit Party.
3.3 Corporate Power, Authorization, Enforceable
Obligations. The execution, delivery and performance by each Credit Party of
the Loan Documents to which it is a party and the creation of all Liens
provided for therein: (a) are within such Person's corporate power; (b) have
been duly authorized by all necessary or proper corporate and shareholder
action; (c) do not contravene any provision of such Person's charter or bylaws;
(d) do not violate in any material respect any law or regulation, or any order
or decree of any court or Governmental Authority; (e) 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 Person is a party or by which such Person or any of its property is
bound; (f) do not result in the creation or imposition of any Lien upon any of
the property of such Person other than those in favor of Agent, on behalf of
itself and Lenders, pursuant to the Loan Documents; and (g) do not require the
consent or approval of any Governmental Authority or any other Person, except
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 Credit Party thereto and each such Loan Document shall then constitute a
legal, valid and binding obligation of such Credit Party enforceable against it
in accordance with its terms.
3.4 Financial Statements and Projections. Except for the
Projections, all Financial Statements concerning Holdings and its Subsidiaries
which 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
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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 or prior to the date
hereof:
(i) The audited combined balance sheets of Tamor and
Housewares at December 31, 1995 and 1996 and the related combined
statements of income, stockholders' equity and cash flows for each of
the three Fiscal Years for the period ended December 31, 1996,
certified by BDO Seidman.
(ii) The audited consolidated balance sheet at December
30, 1995 and the related consolidated statement(s) of income and cash
flows of Selfix and Shutters for the Fiscal Year then ended.
(iii) The preliminary consolidated audited balance sheets at
December 28, 1996 and the related consolidated statements of income
and cash flow of Selfix and Shutters for the fiscal year then ended.
(b) Pro Forma. The Pro Forma delivered on or prior to
the date hereof and attached hereto as Disclosure Schedule (3.4(B)) was
prepared by Borrowers giving pro forma effect to the Related Transactions, was
based on the unaudited consolidated and consolidating balance sheets of
Borrowers and their Subsidiaries dated as of January 31, 1997, and was prepared
in accordance with GAAP, with only such adjustments thereto as would be
required in accordance with GAAP.
(c) Forecasts. The forecasts delivered on or prior to
the date hereof and attached hereto as Disclosure Schedule (3.4(C)) have been
prepared by Borrowers in light of the past operations of their businesses and
reflect projections for the Fiscal Year beginning on December 29, 1996 on a
month by month basis. The forecasts 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 December 31, 1996
and the Closing Date, (a) no Credit Party has incurred any obligations,
contingent or non-contingent liabilities, liabilities for Charges, long-term
leases or unusual forward or long-term commitments which are not reflected in
the Pro Forma and which, 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 Credit Party or has become
binding upon any Credit Party's assets and no law or regulation applicable to
any Credit Party has been adopted which has had or could reasonably be expected
to have a
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Material Adverse Effect, and (c) no Credit Party 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, which alone or in the
aggregate could reasonably be expected to have a Material Adverse Effect.
Between December 31, 1996 and the Closing Date no event has occurred, which
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 on Disclosure Schedule (3.6)
constitutes all of the real property owned, leased, subleased, or used by any
Credit Party. Each Credit Party 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, all as described on Disclosure Schedule (3.6),
and copies of all such leases or a summary of terms thereof satisfactory to
Agent have been delivered to Agent. Disclosure Schedule (3.6) further
describes any Real Estate with respect to which any Credit Party is a lessor,
sublessor or assignor as of the Closing Date. Each Credit Party also has good
and marketable title to, or valid leasehold interests in, all of its personal
properties and assets. As of the Closing Date, none of the properties and
assets of any Credit Party are subject to any Liens other than Permitted
Encumbrances, and there are no facts, circumstances or conditions known to any
Credit Party that may result in any Liens (including Liens arising under
Environmental Laws) other than Permitted Encumbrances. Disclosure Schedule
(3.6) also describes any purchase options, rights of first refusal or other
similar contractual rights pertaining to any Real Estate. As of the Closing
Date, no portion of any Credit Party's Real Estate has suffered any material
damage by fire or other casualty loss which 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 they are 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 Credit Party are pending or, to
any Credit Party's knowledge, threatened; (b) hours worked by and payment made
to employees of each Credit Party comply with the Fair Labor Standards Act and
each other federal, state, local or foreign law applicable to such matter; (c)
all payments due from any Credit Party for employee health and welfare
insurance have been paid or accrued as a liability on the books of such Credit
Party; (d) except as set forth in Disclosure Schedule (3.7), no Credit Party is
a party to or bound by any collective bargaining agreement, management
agreement, consulting agreement or any employment agreement (and true and
complete copies of any agreements described on Disclosure Schedule (3.7) have
been delivered to Agent); (e) there is no organizing activity involving any
Credit Party pending or, to any Credit Party's knowledge, threatened by any
labor union or group of employees; (f) there are no representation proceedings
pending or, to any Credit Party's knowledge, threatened with the National Labor
Relations Board, and no labor organization or group of employees of any Credit
Party has made a pending demand for recognition; and (g) except as set forth in
Disclosure Schedule (3.7), there are no complaints or charges against any
Credit Party pending or, to the knowledge of any Credit Party, 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 any Credit Party of any individual.
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3.8 Ventures, Subsidiaries and Affiliates; Outstanding
Stock. Except as set forth in Disclosure Schedule (3.8), no Credit Party 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 Credit Party is owned by each of the stockholders and
in the amounts set forth on Disclosure Schedule (3.8). There are no outstanding
rights to purchase, options, warrants or similar rights or agreements pursuant
to which any Credit Party 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 Credit
Party as of the Closing Date is described in Section 6.3 (including Disclosure
Schedule (6.3)).
3.9 Government Regulation. No Credit Party 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 as amended. No Credit Party 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 Loans by Lenders to Borrowers, the incurrence of the Letter of
Credit Obligations on behalf of Borrowers, the application of the proceeds
thereof and repayment thereof and the consummation of the Related Transactions
will not violate any material provision of any such statute or any rule,
regulation or order issued by the Securities and Exchange Commission.
3.10 Margin Regulations. No Credit Party 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 or G 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 Credit Party owns any Margin
Stock, and none of the proceeds of the Loans 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 Indebtedness which was originally incurred to purchase or carry
any Margin Stock or for any other purpose which might cause any of the Loans or
other extensions of credit under this Agreement to be considered a "purpose
credit" within the meaning of Regulation G, T, U or X of the Federal Reserve
Board. No Credit Party will take or permit to be taken any action which 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 Credit Party 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 Credit Party
from its respective employees for all periods in full and complete compliance
with all applicable federal, state, local and foreign law and such withholdings
have been timely paid to the respective Governmental Authorities. Disclosure
Schedule (3.11) sets forth as of the Closing Date
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those taxable years for which any Credit Party'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. Except as described on Disclosure Schedule
(3.11), no Credit Party has executed or filed with the IRS or any other
Governmental Authority any agreement or other document extending, or having the
effect of extending, the period for assessment or collection of any Charges.
None of the Credit Parties and their respective predecessors are liable for any
Charges: (a) under any agreement (including any tax sharing agreements) or (b)
to each Credit Party's knowledge, as a transferee. As of the Closing Date, no
Credit Party has agreed or been requested to make any adjustment under IRC
Section 481(a), by reason of a change in accounting method or otherwise, which
would have a Material Adverse Effect.
3.12 ERISA. (a) Disclosure Schedule (3.12) lists and
separately identifies all Title IV Plans, Multiemployer Plans, ESOPs and
Retiree Welfare Plans. Copies of all such listed Plans, together with a copy
of the latest form 5500 for each such Plan, have been delivered to Agent. 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 which 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 filing of reports required under the IRC or ERISA. No Credit
Party or 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. No Credit Party or ERISA Affiliate has engaged in a
prohibited transaction, as defined in Section 4975 of the IRC, in connection
with any Plan, which would subject any Credit Party 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 Credit Party, 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 Credit Party 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 with
Unfunded Pension Liabilities has been transferred outside of the "controlled
group" (within the meaning of Section 4001(a)(14) of ERISA) of any Credit Party
or ERISA Affiliate; and (vi) 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 the equivalent 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 Credit
Party, threatened against any Credit Party, before any Governmental Authority
or before any arbitrator or panel of arbitrators (collectively, "Litigation"),
(a) which challenges any Credit Party'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
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any Loan Document or any action taken thereunder, or (b) which has a reasonable
risk of being determined adversely to any Credit Party and which, if so
determined, could have a Material Adverse Effect. Except as set forth on
Disclosure Schedule (3.13), as of the Closing Date there is no Litigation
pending or threatened which seeks damages in excess of $250,000 or injunctive
relief or alleges criminal misconduct of any Credit Party.
3.14 Brokers. No broker or finder acting on behalf of any
Credit Party brought about the obtaining, making or closing of the Loans or the
Related Transactions, 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
Credit Party owns or has rights to use all Intellectual Property necessary to
continue to conduct its business as now conducted by it or proposed to be
conducted by it, and each material Patent, Trademark and License is listed,
together with application or registration numbers, as applicable, in Disclosure
Schedule (3.15) hereto. To its knowledge, each Credit Party conducts its
business and affairs without infringement of or interference with any
Intellectual Property of any other Person.
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 Credit
Party to Agent or any 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 Agent, on behalf of itself and Lenders, 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.
3.17 Environmental Matters. (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
which would not result in Environmental Liabilities which could reasonably be
expected to exceed $250,000; (ii) no Credit Party has caused or suffered to
occur any Release of Hazardous Materials on, at, in, under, above, to, from or
about any of its Real Estate; (iii) the Credit Parties are and have been in
compliance with all Environmental Laws, except for such noncompliance which
would not result in Environmental Liabilities which could reasonably be
expected to exceed $250,000; (iv) the Credit Parties have obtained, and are in
compliance with, all Environmental Permits required by Environmental Laws for
the operations of their respective businesses as presently conducted or as
proposed to be conducted, except where the failure to so obtain or comply with
such Environmental Permits would not result in Environmental Liabilities which
could reasonably be expected to exceed $250,000, and all such Environmental
Permits are valid, uncontested and in good standing; (v) no Credit Party 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
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Environmental Liabilities of such Credit Party which could reasonably be
expected to exceed $250,000, and no Credit Party has permitted any current or
former tenant or occupant of the Real Estate to engage in any such operations;
(vi) there is no Litigation arising under or related to any Environmental Laws,
Environmental Permits or Hazardous Material which seeks damages, penalties,
fines, costs or expenses in excess of $25,000 or injunctive relief, or which
alleges criminal misconduct by any Credit Party; (vii) no notice has been
received by any Credit Party identifying it as a "potentially responsible
party" or requesting information under CERCLA or analogous state statutes, and
to the knowledge of the Credit Parties, there are no facts, circumstances or
conditions that may result in any Credit Party being identified as a
"potentially responsible party" under CERCLA or analogous state statutes; and
(viii) the Credit Parties have provided to Agent copies of all existing
environmental reports, reviews and audits and all written information
pertaining to actual or potential Environmental Liabilities, in each case
relating to any Credit Party.
(b) Each Credit Party hereby acknowledges and agrees that
Agent (i) is not now, and has not ever been, in control of any of the Real
Estate or any Credit Party's affairs, and (ii) does not have the capacity
through the provisions of the Loan Documents or otherwise to influence any
Credit Party'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 Credit Party, as well as a summary of the terms of
each such policy.
3.19 Deposit and Disbursement Accounts. Disclosure
Schedule (3.19) lists all banks and other financial institutions at which any
Credit Party maintains deposits and/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.
3.20 Government Contracts. Except as set forth in
Disclosure Schedule (3.20), as of the Closing Date, no Credit Party is a party
to any contract or agreement with any Governmental Authority and no Credit
Party's Accounts are subject to the Federal Assignment of Claims Act, as
amended (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 Credit Party,
threatened termination or cancellation of, or any material adverse modification
or change in: (a) the business relationship of any Credit Party with any
customer or group of customers whose purchases during the preceding twelve (12)
months caused them to be ranked among the ten largest customers of such Credit
Party; or (b) the business relationship of any Credit Party with any supplier
material to its operations.
3.22 Agreements and Other Documents. As of the Closing
Date, each Credit Party has provided to Agent or its counsel, on behalf of
Lenders, accurate and complete copies (or
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summaries) of all of the following agreements or documents to which any it is
subject and each of which are listed on Disclosure Schedule (3.22): (a) supply
agreements and purchase agreements not terminable by such Credit Party within
sixty (60) days following written notice issued by such Credit Party and
involving transactions in excess of $1,000,000 per annum; (b) any lease 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 the Credit Parties, the absence of which could be reasonably
likely to have a Material Adverse Effect; (d) instruments or documents
evidencing Indebtedness of such Credit Party and any security interest granted
by such Credit Party 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 Credit Party.
3.23 Solvency. Both before and after giving effect to (a)
the Loans and Letter of Credit Obligations to be made or extended on the
Closing Date or such other date as Loans and Letter of Credit Obligations
requested hereunder are made or extended, (b) the disbursement of the proceeds
of such Loans pursuant to the instructions of Borrower Representative, (c) the
Acquisition, the Refinancing and the consummation of the other Related
Transactions and (d) the payment and accrual of all transaction costs in
connection with the foregoing, each Credit Party is Solvent.
3.24 Acquisition Agreement As of the Closing Date,
Borrowers have delivered to Agent a complete and correct copy of the
Acquisition Agreement (including all schedules, exhibits, amendments,
supplements, modifications, assignments and all other documents delivered
pursuant thereto or in connection therewith). No Credit Party and, to the
Credit Parties' knowledge, no other Person party thereto, is in default in the
performance or compliance with any provisions thereof. The Acquisition
Agreement complies with, and the Acquisition has been consummated in accordance
in all material respects with, all applicable laws. The Acquisition Agreement
is in full force and effect as of the Closing Date, has not been terminated,
rescinded or withdrawn. All requisite approvals by Governmental Authorities
having jurisdiction over Seller, any Credit Party and other Persons referenced
therein, with respect to the transactions contemplated by the Acquisition
Agreement, have been obtained, and no such approvals impose any conditions to
the consummation of the transactions contemplated by the Acquisition Agreement
or to the conduct by any Credit Party of its business thereafter. To the best
of each Credit Party's knowledge, none of the Seller's representations or
warranties in the Acquisition Agreement contain any untrue statement of a
material fact or omit any fact necessary to make the statements therein not
misleading. Each of the representations and warranties given by each
applicable Credit Party in the Acquisition Agreement is true and correct in all
material respects. Notwithstanding anything contained in the Acquisition
Agreement to the contrary, such representations and warranties of the Credit
Parties are incorporated into this Agreement by this Section 3.24 and shall,
solely for purposes of this Agreement and the benefit of Agent and Lenders,
survive the consummation of the Acquisition.
3.25 Subordinated Debt. As of the Closing Date, Borrowers
have delivered to Lenders a complete and correct copy of the Subordinated Notes
(including all schedules, exhibits, amendments, supplements, modifications,
assignments and all other documents delivered pursuant thereto or in connection
therewith). Borrowers have the corporate power and authority to incur the
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Indebtedness evidenced by the Subordinated Notes. The subordination provisions
of the Subordinated Notes are enforceable against the holder of the
Subordinated Notes by Lenders. All Obligations, including the Obligations to
pay principal of and interest on the Loans and the Letter of Credit
Obligations, constitute senior Indebtedness entitled to the benefits of the
subordination provisions contained in the Subordinated Notes. The principal of
and interest on the Notes, all Letter of Credit Obligations and all other
Obligations will constitute "senior debt" as that or any similar term is or may
be used in any other instrument evidencing or applicable to any other
Subordinated Debt. Borrowers acknowledge that each Lender is entering into
this Agreement and is extending the Commitments in reliance upon the
subordination provisions of the Subordinated Notes and this Section 3.25.
4. FINANCIAL STATEMENTS AND INFORMATION
4.1 Reports and Notices. (a) Each Credit Party executing
this Agreement hereby agrees that from and after the Closing Date and until the
Termination Date, it shall deliver to Agent and/or Lenders, as required, 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 Credit Party executing this Agreement hereby
agrees that from and after the Closing Date and until the Termination Date, it
shall deliver to Agent and/or Lenders, as required, the various 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 Credit Party
executing this Agreement authorizes Agent and, so long as an Event of Default
shall have occurred and be continuing, each Lender, to communicate directly
with its independent certified public accountants including Arthur Andersen &
Company, and authorizes and shall instruct those accountants and advisors to
disclose and make available to Agent and each Lender any and all Financial
Statements and other supporting financial documents, schedules and information
relating to any Credit Party (including copies of any issued management
letters) with respect to the business, financial condition and other affairs of
any Credit Party.
5. AFFIRMATIVE COVENANTS
Each Credit Party executing this Credit Agreement jointly and
severally agrees as to all Credit Parties that from and after the date hereof
and until the Termination Date:
5.1 Maintenance of Existence and Conduct of Business.
Each Credit Party shall: (a) do or cause to be done all things reasonably
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 conducted or as otherwise permitted hereunder; (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
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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; and (d) transact business only in
such corporate and trade names as are set forth in Disclosure Schedule (5.1).
5.2 Payment of Obligations. (a) Subject to Section
5.2(b), each Credit Party shall pay and discharge or cause to be paid and
discharged promptly all Charges payable by it, including (A) 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 (B) lawful claims for labor,
materials, supplies and services or otherwise, before any thereof shall become
past due.
(b) Each Credit Party may in good faith contest, by
appropriate proceedings, the validity or amount of any Charges or claims
described in Section 5.2(a); provided, that (i) at the time of commencement of
any such contest no Event of Default shall have occurred and be continuing,
(ii) adequate reserves with respect to such contest are maintained on the books
of such Credit Party, in accordance with GAAP, (iii) such contest is maintained
and prosecuted continuously and with diligence and operates to suspend
collection or enforcement of such Charges or claims or any Lien in respect
thereof, (iv) none of the Collateral becomes subject to forfeiture or loss as a
result of such contest, (v) no Lien shall be imposed to secure payment of such
Charges or claims other than Permitted Encumbrances, (vi) such Credit Party
shall promptly pay or discharge such contested Charges or claims and all
additional charges, interest, penalties and expenses, if any, and shall deliver
to Agent evidence acceptable to Agent of such compliance, payment or discharge,
if such contest is terminated or discontinued adversely to such Credit Party or
the conditions set forth in this Section 5.2(b) are no longer met, and (vii)
Agent has not advised Borrowers in writing that Agent reasonably believes that
nonpayment or nondischarge thereof could have or result in a Material Adverse
Effect.
5.3 Books and Records. Each Credit Party 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)).
5.4 Insurance; Damage to or Destruction of Collateral.
(a) The Credit Parties shall, at their sole cost and expense, maintain the
policies of insurance described on Disclosure Schedule (3.18) in form and with
insurers reasonably acceptable to Agent. If any Credit Party 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, Agent 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 which Agent
deems advisable. Agent shall have no obligation to obtain insurance for any
Credit Party or pay any premiums therefor. By doing so, Agent shall not be
deemed to have waived any Default or Event of Default arising from any Credit
Party's failure to maintain such insurance or pay any premiums therefor. All
sums so disbursed, including attorneys' fees, court costs and other charges
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related thereto, shall be payable on demand by Borrowers to Agent and shall be
additional Obligations hereunder secured by the Collateral.
(b) Agent reserves the right at any time upon any change
in any Credit Party's risk profile (including any change in the product mix
maintained by any Credit Party or any laws affecting the potential liability of
such Credit Party) upon reasonable prior notice to Borrower Representative to
require additional forms and limits of insurance to, in Agent's reasonable
opinion, adequately protect both Agent's and Lender's interests in all or any
portion of the Collateral and to ensure that each Credit Party is protected by
insurance in amounts and with coverage customary for its industry. If
requested by Agent, each Credit Party shall deliver to Agent from time to time
a report of a reputable insurance broker, satisfactory to Agent, with respect
to its insurance policies.
(c) Each Borrower shall deliver to Agent, in form and
substance reasonably satisfactory to Agent, endorsements to (i) all "All Risk"
and business interruption insurance naming Agent, on behalf of itself and
Lenders, as loss payee, and (ii) all general liability and other liability
policies naming Agent, on behalf of itself and Lenders, as additional insured.
Each Borrower irrevocably makes, constitutes and appoints Agent (and all
officers, employees or agents designated by Agent), so long as any Event of
Default shall have occurred and be continuing or the anticipated insurance
proceeds exceed $750,000 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. Agent shall have no duty to exercise
any rights or powers granted to it pursuant to the foregoing power-of-attorney.
Borrower Representative shall promptly notify Agent of any loss, damage, or
destruction to the Collateral in the amount of $250,000 or more, whether or not
covered by insurance. After deducting from such proceeds the expenses, if any,
incurred by Agent in the collection or handling thereof, Agent may, at its
option, apply such proceeds to the reduction of the Obligations in accordance
with Section 1.3(d), or permit or require the applicable Borrower to use such
money, or any part thereof, to replace, repair, restore or rebuild the
Collateral in a diligent and expeditious manner with materials and workmanship
of substantially the same quality as existed before the loss, damage or
destruction. Notwithstanding the foregoing, if the casualty giving rise to such
insurance proceeds would not reasonably be expected to have a Material Adverse
Effect and such insurance proceeds do not exceed $750,000 in the aggregate,
Agent shall permit the applicable Borrower to replace, restore, repair or
rebuild the property; provided that if such Borrower shall not have completed
or entered into binding agreements to complete such replacement, restoration,
repair or rebuilding within 180 days of such casualty, Agent may apply such
insurance proceeds to the Obligations in accordance with Section 1.3(d). All
insurance proceeds which are to be made available to any Borrower to replace,
repair, restore or rebuild the Collateral shall be applied by Agent to reduce
the outstanding principal balance of the Revolving Loan of such Borrower (which
application shall not result in a permanent reduction of the Revolving Loan
Commitment) and upon such application, Agent shall establish a Reserve against
the separate Borrowing Base of the affected Borrower in an amount equal to the
amount of such proceeds so applied. Thereafter, such funds shall be made
available to that Borrower to provide funds to replace,
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repair, restore or rebuild the Collateral as follows: (i) Borrower
Representative shall request a Revolving Credit Advance be made to such
Borrower in the amount requested to be released; (ii) so long as the conditions
set forth in Section 2.2 have been met, Revolving Lenders shall make such
Revolving Credit Advance; and (iii) the Reserve established with respect to
such insurance proceeds shall be reduced by the amount of such Revolving Credit
Advance. To the extent not used to replace, repair, restore or rebuild the
Collateral, such insurance proceeds shall be applied in accordance with Section
1.3(d).
5.5 Compliance with Laws. Each Credit Party shall comply
with all federal, state, local and foreign laws and regulations applicable to
it, including those relating to 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
reasonably requested by Agent (which request will not be made more frequently
than once each year absent the occurrence and continuance of an Event of
Default), the Credit Parties shall supplement each Disclosure Schedule hereto,
or any representation herein or in any other Loan Document, with respect to any
matter hereafter arising which, 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 which is
necessary to correct any information in such Disclosure Schedule or
representation which 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 Agent and Requisite
Lenders 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 Credit Party will conduct
its business and affairs without infringement of any Intellectual Property of
any other Person.
5.8 Environmental Matters. Each Credit Party 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 which could not reasonably be
expected to have a Material Adverse Effect; (b) implement any and all
investigation, remediation, removal and response actions which are appropriate
or necessary to maintain the value and marketability of the Real Estate or to
otherwise 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; (c) notify Agent promptly after such Credit Party
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
which is reasonably likely to result in Environmental Liabilities in excess of
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$25,000; and (d) promptly forward to Agent a copy of any order, notice, request
for information or any communication or report received by such Credit Party 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 $500,000, 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. If Agent at any time has a reasonable
basis to believe that there may be a violation of any Environmental Laws or
Environmental Permits by any Credit Party or any Environmental Liability
arising thereunder, or a Release of Hazardous Materials on, at, in, under,
above, to, from or about any of its Real Estate, which, in each case, could
reasonably be expected to have a Material Adverse Effect, then each Credit
Party shall, upon Agent's written request (i) cause the performance of such
environmental audits including subsurface sampling of soil and groundwater, and
preparation of such environmental reports, at Borrowers' expense, as Agent may
from time to time request, which shall be conducted by reputable environmental
consulting firms acceptable to Agent and shall be in form and substance
acceptable to Agent, and (ii) permit Agent or its representatives to have
access to all Real Estate for the purpose of conducting such environmental
audits and testing as Agent deems appropriate, including subsurface sampling of
soil and groundwater. Borrowers shall reimburse Agent for the costs of such
audits and tests and the same will constitute a part of the Obligations secured
hereunder.
5.9 Landlords' Agreements, Mortgagee Agreements and
Bailee Letters. Each Credit Party shall use its best efforts to obtain a
landlord's agreement, mortgagee agreement or bailee letter, as applicable, from
the lessor of each leased property or mortgagee of owned property or with
respect to any warehouse, processor or converter facility or other location
where Collateral is located, which agreement or letter shall contain a waiver
or subordination of all Liens or claims that the landlord, mortgagee or bailee
may assert against the Inventory or Collateral at that location, and shall
otherwise be satisfactory in form and substance to Agent. With respect to such
locations or warehouse space leased or owned as of the Closing Date, if Agent
has not received a landlord or mortgagee agreement or bailee letter as of the
Closing Date, any Borrower's Eligible Inventory at that location shall, in
Agent's discretion, be excluded from the Borrowing Base or be subject to such
Reserves as may be established by Agent in its reasonable credit judgment.
After the Closing Date, no real property or warehouse space shall be leased or
acquired by any Credit Party and no Inventory shall be shipped to a processor
or converter under arrangements established after the Closing Date, unless and
until a satisfactory landlord or mortgagee agreement or bailee letter, as
appropriate, shall first have been obtained with respect to such location;
provided that Borrowers may hold Inventory with a book value not to exceed
$250,000 in the aggregate at newly established locations with Agent's prior
approval and subject to a Reserve established at Agent's discretion. Each
Credit Party shall timely and fully pay and perform its obligations under all
leases and other agreements with respect to each leased location or public
warehouse where any Collateral is or may be located.
5.10 Further Assurances. Each Credit Party executing this
Agreement agrees that it shall and shall cause each other Credit Party to, at
such Credit Party's expense and upon request of Agent, duly execute and
deliver, or cause to be duly executed and delivered, to Agent such further
instruments and do and cause to be done such further acts as may be reasonably
necessary or proper
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in the opinion of Agent to carry out more effectually the provisions and
purposes of this Agreement or any other Loan Document.
5.11 Acquisition Agreement. The Credit Parties shall not
waive any material representation, warranty, covenant or indemnity of Sellers
contained in the Acquisition Agreement and shall diligently enforce the same.
6. NEGATIVE COVENANTS
Each Credit Party executing this Agreement jointly and
severally agrees as to all Credit Parties that, without the prior written
consent of Agent and the Requisite Lenders, from and after the date hereof
until the Termination Date:
6.1 Mergers, Subsidiaries, Etc. No Credit Party 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, except that any Borrower may merge with another
Borrower, provided that Borrower Representative shall be the survivor of any
such merger to which it is a party.
6.2 Investments; Loans and Advances. Except as otherwise
expressly permitted by this Section 6, no Credit Party 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 (a) Borrowers 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; (b) each Credit Party may maintain its existing investments in its
Subsidiaries as of the Closing Date; (c) other investments set forth on
Schedule 6.2 hereto; and (d) so long as no Event of Default shall have occurred
and be continuing, Borrowers may make investments up to $5,000,000 in the
aggregate, subject to Control Letters in favor of Agent for the benefit of
Lenders or otherwise subject to a perfected security interest in favor of Agent
for the benefit of Lenders, 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 Corporation 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 secured rating of "A" or better by a
nationally recognized rating agency (an "A Rated Bank"), and (iv) time
deposits, maturing no more than 30 days from the date of creation thereof with
A Rated Banks. No Credit Party shall maintain funds on deposit in its
disbursement accounts in excess of funds reasonably necessary to cover checks
issued against such account.
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6.3 Indebtedness. (a) No Credit Party shall create,
incur, assume or permit to exist any Indebtedness, except (without duplication)
(i) Indebtedness secured by purchase money security interests permitted in
clause (c) of Section 6.7, (ii) the Loans and the other Obligations, (iii)
deferred taxes, (iv) unfunded pension fund and other employee benefit plan
obligations and liabilities to the extent they are permitted to remain unfunded
under applicable law, (v) existing Indebtedness described in Disclosure
Schedule (6.3) and refinancings thereof or amendments or modifications thereto
which do not have the effect of increasing the principal amount thereof or
changing the amortization thereof (other than to extend the same) and which are
otherwise on terms and conditions no less favorable to any Credit Party, Agent
or any Lender, as determined by Agent, than the terms of the Indebtedness being
refinanced, amended or modified, (vi) the Subordinated Debt outstanding under
the Subordinated Notes, (vii) Indebtedness consisting of intercompany loans and
advances made by any Borrower to any other Credit Party, provided that (A) each
Borrower shall have executed and delivered to each other Borrower, on the
Closing Date, a demand note (collectively, the "Intercompany Notes") to
evidence any such intercompany Indebtedness owing at any time by such Borrower
to such other Borrowers which Intercompany Notes shall be in form and substance
satisfactory to Agent and shall be pledged and delivered to Agent pursuant to
the applicable Pledge Agreement or Security Agreement as additional collateral
security for the Obligations; (B) each Borrower shall record all intercompany
transactions on its books and records in a manner satisfactory to Agent; (C)
the obligations of each Borrower under any such Intercompany Notes shall be
subordinated to the Obligations of such Borrower hereunder in a manner
satisfactory to Agent; (D) at the time any such intercompany loan or advance is
made by any Borrower to any other Borrower and after giving effect thereto,
each such Borrower shall be Solvent; (E) no Default or Event of Default would
occur and be continuing after giving effect to any such proposed intercompany
loan; and (F) in the case of any intercompany Indebtedness, the Borrower
advancing such funds shall have Net Borrowing Availability under its separate
Borrowing Base of not less than the following respective amounts after giving
effect to such intercompany loan: $500,000 in the case of Selfix, $1,000,000
in the case of Tamor and $250,000 in the case of Shutters, and (viii) seven day
notes issued by Holdings to Sellers pursuant to the Acquisition Agreement.
(b) No Credit Party 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 prior to
the maturity thereof, 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 (excluding Subordinated Debt) not in excess of $250,000, or
(iv) the Subordinated Debt outstanding under the Subordinated Notes to the
extent of mandatory prepayments thereof permitted or required under Section
1.3.
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 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
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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. In addition,
if any such transaction or series of related transactions involves payments in
excess of $250,000 in the aggregate, the terms of these transactions must be
disclosed in advance to Agent and Lenders. All such transactions existing as
of the date hereof are described on Disclosure Schedule (6.4(a)).
(b) No Credit Party shall enter into any lending or
borrowing transaction with any employees of any Credit Party, except 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 and stock option financing up to a maximum of $100,000 to
any employee and up to a maximum of $250,000 in the aggregate at any one time
outstanding.
6.5 Capital Structure and Business. No Credit Party
shall (a) make any changes in any of its business objectives, purposes or
operations which could have or result in a Material Adverse Effect, (b) make
any change in its capital structure as described on 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,
except that Holdings may make a Qualified Public Offering of its common Stock
so long as (i) the proceeds thereof are applied in prepayment of the
Obligations as required by Section 1.3(b)(iii), and (ii) no Change of Control
occurs after giving effect thereto, or (c) amend its charter or bylaws in a
manner which would adversely affect Agent or Lenders or such Credit Party'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 or businesses
reasonably related thereto.
6.6 Guaranteed Indebtedness. No Credit Party 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 Credit Party, and (b) for Guaranteed Indebtedness incurred for
the benefit of any other Credit Party if the primary obligation is expressly
permitted by this Agreement.
6.7 Liens. No Credit Party 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
(a) Permitted Encumbrances; (b) Liens in existence on the date hereof and
summarized on Disclosure Schedule (6.7); and (c) Liens created after the date
hereof 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 Credit Party 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 $5,000,000
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 twenty (20) days following such purchase and does not exceed
100% of the purchase price of the subject assets). In addition, no Credit
Party shall become a party to any agreement, note, indenture or instrument, or
take any other
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action, which would prohibit the creation of a Lien on any of its properties or
other assets in favor of Agent, on behalf of itself and Lenders, as additional
collateral for the Obligations, except operating leases, Capital Leases or
Licenses which prohibit Liens upon the assets that are subject thereto.
6.8 Sale of Stock and Assets. No Credit Party shall
sell, transfer, convey, assign or otherwise dispose of any of its properties or
other assets, including its capital Stock or the capital Stock of any of its
Subsidiaries (whether in a public or a private offering or otherwise but
subject, in the case of Holdings, to the provisions of Section 6.5(b)) or any
of their Accounts, other than (a) the sale of Inventory in the ordinary course
of business, and (b) the sale, transfer, conveyance or other disposition by a
Credit Party of Equipment or Fixtures that are obsolete or no longer used or
useful in such Credit Party's business and having a value not exceeding
$250,000 in the aggregate in any Fiscal Year and (c) so long as no Event of
Default shall have occurred and be continuing other Equipment and Fixtures
having a value not exceeding $250,000 in the aggregate in any Fiscal Year.
With respect to any disposition of assets or other properties permitted
pursuant to clause (b) and clause (c) above, Agent agrees on reasonable prior
written notice to release its Lien on such assets or other properties in order
to permit the applicable Credit Party 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 Credit Party shall, or shall cause or
permit any ERISA Affiliate to, cause or permit to occur an event which could
result in the imposition of a Lien under Section 412 of the IRC or Section 302
or 4068 of ERISA.
6.10 Financial Covenants. Borrowers shall not breach or
fail to comply with any of the Financial Covenants (the "Financial Covenants")
set forth in Annex G.
6.11 Hazardous Materials. No Credit Party 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 (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 impacts which could not reasonably be expected to
have a Material Adverse Effect.
6.12 Sale-Leasebacks. No Credit Party shall engage in any
sale-leaseback, synthetic lease or similar transaction involving any of its
assets.
6.13 Cancellation of Indebtedness. No Credit Party 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. No Credit Party shall make any
Restricted Payment, except (a) intercompany loans and advances between
Borrowers to the extent permitted by Section 6.3 above and payment of the seven
day notes issued pursuant to the Acquisition Agreement, (b)
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dividends and distributions by Subsidiaries of any Borrower paid to such
Borrower, (c) employee loans permitted under Section 6.4(b) above, (d)
Restricted Payments by Borrowers to Holdings in such amounts and at such times
as are necessary to permit Holdings to pay the consolidated federal income
taxes of Holdings and Borrowers, (e) scheduled payments of interest with
respect to the Subordinated Debt (f) the principal amount of the Subordinated
Notes with the proceeds of a public offering of Stock by Holdings and (g) the
Warrant issued on the Closing Date for a call price of $792,040; provided that
as to clauses (f) and (g) Term Loan A and Term Loan B are prepaid by at least
$7,000,000 from the same source of proceeds and provided further that (i) no
Event of Default shall have occurred and be continuing or would result after
giving effect to any payment pursuant to clauses (e), (f) and (g) above, and
(ii) the timing of the payments referred to in clauses (e), (f) and (g) above
shall be set at dates which permit the delivery of Financial Statements
necessary to determine current financial covenant compliance prior to each
payment.
6.15 Change of Corporate Name or Location; Change of
Fiscal Year. No Credit Party 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 any case without at
least thirty (30) days prior written notice to Agent and after Agent's written
acknowledgment that any reasonable action requested by Agent in connection
therewith, including to continue the perfection of any Liens in favor of Agent,
on behalf of Lenders, in any Collateral, has been completed or taken, and
provided that any such new location shall be in the continental United States.
Without limiting the foregoing, no Credit Party shall change its name, identity
or corporate structure in any manner which might make any financing or
continuation statement filed in connection herewith seriously misleading within
the meaning of Section 9-402(7) of the Code or any other then applicable
provision of the Code except upon prior written notice to Agent and Lenders and
after Agent's written acknowledgment that any reasonable action requested by
Agent in connection therewith, including to continue the perfection of any
Liens in favor of Agent, on behalf of Lenders, in any Collateral, has been
completed or taken. No Credit Party 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) which 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.
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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 Holdings and its Subsidiaries
on a consolidated basis would exceed $1,500,000.
6.19 Changes Relating to Subordinated Debt. No Credit
Party shall change or amend the terms of any Subordinated Debt (or any
indenture or agreement in connection therewith) if the effect of such amendment
is to: (a) increase the interest rate on such Subordinated Debt; (b) change the
dates upon which payments of principal or interest are due on such Subordinated
Debt other than to extend such dates; (c) change any default or event of
default other than to delete or make less restrictive any default provision
therein, or add any covenant with respect to such Subordinated Debt; (d) change
the redemption or prepayment provisions of such Subordinated Debt other than to
extend the dates therefor or to reduce the premiums payable in connection
therewith; (e) grant any security or collateral to secure payment of such
Subordinated Debt; or (f) change or amend any other term if such change or
amendment would materially increase the obligations of the obligor or confer
additional material rights to the holder of such Subordinated Debt in a manner
adverse to any Credit Party or Lenders.
6.20 Acquisition Transactions. Notwithstanding any
provision herein contained to the contrary, Borrowers may make intercompany
loans to Holdings on the Closing Date in an amount sufficient to effectuate the
Acquisition.
7. TERM
7.1 Termination. The financing arrangements contemplated
hereby shall be in effect until the Commitment Termination Date, and the Loans
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 for 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 Agent and Lenders relating to any unpaid portion of the Loans 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 Agent
and each 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 however,
that in all events 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
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8.1 Events of Default. 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) fails to make any payment of
principal of, or interest on, or Fees owing in respect of, the Loans or any of
the other Obligations when due and payable, or (ii) within ten (10) days
following Agent's demand for such reimbursement or payment of expenses, fails
to pay or reimburse Agent or Lenders for any expense reimbursable hereunder or
under any other Loan Document.
(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 five (5)
Business 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 twenty
(20) days or more.
(e) A default or breach shall occur under any other
agreement, document or instrument to which any Credit Party is a party which is
not cured within any applicable grace period, 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 Credit Party 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 is untrue or incorrect in any material 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 Agent or any Lender by any Credit Party
is untrue or incorrect in any material respect as of the date when made or
deemed made.
(g) Assets of any Credit Party with a fair market value
of $250,000 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 Credit Party
and such condition continues for thirty (30) days or more.
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(h) A case or proceeding shall have been commenced
against any Credit Party seeking a decree or order in respect of any Credit
Party (i) under Title 11 of the United States Code, as now constituted or
hereafter amended or any other applicable federal, state or foreign bankruptcy
or other similar law, (ii) appointing a custodian, receiver, liquidator,
assignee, trustee or sequestrator (or similar official) for any Credit Party or
of any substantial part of any such Person's assets, or (iii) ordering the
winding-up or liquidation of the affairs of any Credit Party, and such case or
proceeding shall remain undismissed or unstayed for sixty (60) days or more or
such court shall enter a decree or order granting the relief sought in such
case or proceeding.
(i) Any Credit Party (i) shall file a petition seeking
relief under Title 11 of the United States Code, as now constituted or
hereafter amended, or any other applicable federal, state or foreign bankruptcy
or other similar law, (ii) shall fail to contest in a timely and appropriate
manner or shall consent to the institution of proceedings thereunder or to the
filing of any such petition or to the appointment of or taking possession by a
custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar
official) of any Credit Party or of any substantial part of any such Person's
assets, (iii) shall make an assignment for the benefit of creditors, (iv) shall
take any corporate action in furtherance of any of the foregoing; or (v) shall
admit in writing its inability to, or shall be generally unable to, pay its
debts as such debts become due.
(j) A final judgment or judgments for the payment of
money in excess of $500,000 in the aggregate at any time outstanding shall be
rendered against any Credit Party and the same shall not, within thirty (30)
days after the entry thereof, have been discharged or execution thereof stayed
or bonded pending appeal, or shall not have been discharged prior to the
expiration of any such stay.
(k) 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 security interest created under any Loan Document shall
cease to be a valid and perfected first priority security interest or Lien
(except as otherwise permitted herein or therein) in any of the Collateral
purported to be covered thereby.
(l) Any "Change of Control" shall occur.
(m) Any event shall occur, whether or not insured or
insurable, as a result of which revenue- producing activities cease or are
substantially curtailed at any facility of Borrowers generating more than 10%
of Borrowers' consolidated revenues for the Fiscal Year preceding such event
and such cessation or curtailment continues for more than 30 days.
8.2 Remedies. (a) If any Event of Default shall have
occurred and be continuing or if a Default shall have occurred and be
continuing and Agent or Requisite Revolving Lenders shall have determined not
to make any Advances or incur any Letter of Credit Obligations so long as that
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specific Default is continuing, Agent may (and at the written request of the
Requisite Revolving Lenders shall), without notice, suspend this facility with
respect to further Advances and/or the incurrence of further Letter of Credit
Obligations whereupon any further Advances and Letter of Credit Obligations
shall be made or extended in Agent's sole discretion (or in the sole discretion
of the Requisite Revolving Lenders, if such suspension occurred at their
direction) so long as such Default or Event of Default is continuing. If any
Event of Default shall have occurred and be continuing, Agent may (and at the
written request of Requisite Lenders shall), without notice except as otherwise
expressly provided herein, increase the rate of interest applicable to the
Loans and the Letter of Credit Fees to the Default Rate.
(b) If any Event of Default shall have occurred and be
continuing, Agent may (and at the written request of the Requisite Lenders
shall), (i) terminate this facility with respect to further Advances or the
incurrence of further Letter of Credit Obligations; (ii) declare all or any
portion of the Obligations, including all or any portion of any Loan to be
forthwith due and payable, and require that the Letter of Credit Obligations be
cash collateralized as provided in Annex B, all without presentment, demand,
protest or further notice of any kind, all of which are expressly waived by
Borrowers and each other Credit Party; and (iii) exercise any rights and
remedies provided to Agent under the Loan Documents and/or at law or equity,
including all remedies provided under the Code; provided, however, that upon
the occurrence of an Event of Default specified in Sections 8.1(g), (h) or (i),
all of the Obligations, including the aggregate Revolving Loan, shall become
immediately due and payable without declaration, notice or demand by any
Person.
8.3 Waivers by Credit Parties. Except as otherwise
provided for in this Agreement or by applicable law, each Credit Party waives
(including for purposes of Section 12): (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 Agent on which any Credit Party may in any way be liable, and
hereby ratifies and confirms whatever Agent may do in this regard, (b) all
rights to notice and a hearing prior to Agent's taking possession or control
of, or to Agent's replevy, attachment or levy upon, the Collateral or any bond
or security which might be required by any court prior to allowing Agent to
exercise any of its remedies, and (c) the benefit of all valuation, appraisal,
marshalling and exemption laws.
9. ASSIGNMENT AND PARTICIPATIONS; APPOINTMENT OF AGENT
9.1 Assignment and Participations. (a) The Credit
Parties signatory hereto consent to any Lender's assignment of, and/or sale of
participations in, at any time or times, the Loan Documents, Loans, Letter of
Credit Obligations and any Commitment or of any portion thereof or interest
therein, including any Lender's rights, title, interests, remedies, powers or
duties thereunder, whether evidenced by a writing or not. Any assignment by a
Lender shall (i) require the consent of Agent (which shall not be unreasonably
withheld or delayed; provided that no consent by Borrower Representative shall
be required so long as any Event of Default shall have occurred and be
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continuing) and the execution of an assignment agreement (an "Assignment
Agreement") substantially in the from attached hereto as Exhibit 9.1(a) and
otherwise in form and substance satisfactory to, and acknowledged by, Agent;
(ii) be conditioned on such assignee Lender representing to the assigning
Lender and Agent that it is purchasing the applicable Loans to be assigned to
it for its own account, for investment purposes and not with a view to the
distribution thereof; (iii) if a partial assignment, be in an amount at least
equal to $5,000,000 and, after giving effect to any such partial assignment,
the assigning Lender shall have retained Commitments in an amount at least
equal to $5,000,000; and (iv) include a payment to Agent of an assignment fee
of $3,500. In the case of an assignment by a Lender under this Section 9.1,
the assignee shall have, to the extent of such assignment, the same rights,
benefits and obligations as it would if it were a Lender hereunder. The
assigning Lender shall be relieved of its obligations hereunder with respect to
its Commitments or assigned portion thereof from and after the date of such
assignment. Each Borrower hereby acknowledges and agrees that any assignment
will give rise to a direct obligation of Borrowers to the assignee and that the
assignee shall be considered to be a "Lender". In all instances, each Lender's
liability to make Loans hereunder shall be several and not joint and shall be
limited to such Lender's Pro Rata Share of the applicable Commitment. In the
event Agent or any Lender assigns or otherwise transfers all or any part of a
Note, Agent or any such Lender shall so notify Borrowers and Borrowers shall,
upon the request of Agent or such Lender, execute new Notes in exchange for the
Notes being assigned. Notwithstanding the foregoing provisions of this Section
9.1(a), any Lender may at any time pledge or assign all or any portion of such
Lender's rights under this Agreement and the other Loan Documents to a Federal
Reserve Bank; provided, however, that no such pledge or assignment shall
release such Lender from such Lender's obligations hereunder or under any other
Loan Document.
(b) Any participation by a Lender of all or any part of
its Commitments shall be in an amount at least equal to $5,000,000, and with
the understanding that all amounts payable by Borrowers hereunder shall be
determined as if that Lender had not sold such participation, and that the
holder of any such participation shall not be entitled to require such 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, any Loan in which such holder participates, (ii) any extension
of the scheduled amortization of the principal amount of any 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, 1.16 and 9.8, 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.
Neither Agent nor any Lender (other than the Lender selling a participation)
shall have any duty to any participant and may continue to deal solely with the
Lender selling a participation as if no such sale had occurred.
(c) Except as expressly provided in this Section 9.1, no
Lender shall, as between Borrowers and that Lender, or Agent and that Lender,
be relieved of any of its obligations hereunder
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as a result of any sale, assignment, transfer or negotiation of, or granting of
participation in, all or any part of the Loans, the Notes or other Obligations
owed to such Lender.
(d) Each Credit Party executing this Agreement shall
assist any Lender permitted to sell assignments or participations under this
Section 9.1 as reasonably required to enable the assigning or selling Lender to
effect any such assignment or participation, including the execution and
delivery of any and all agreements, notes and other documents and instruments
as shall be requested and, if requested by Agent, the preparation of
informational materials for, and the participation of management in meetings
with, potential assignees or 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(c).
(e) A Lender may furnish any information concerning
Borrowers in the possession of such Lender from time to time to assignees and
participants (including prospective assignees and participants). Each Lender
shall obtain from assignees or participants confidentiality covenants
substantially equivalent to those contained in Section 11.8.
(f) So long as no Event of Default shall have occurred
and be continuing, no Lender shall assign or sell participations in any portion
of its Loans or Commitments to a potential Lender or participant, if, as of the
date of the proposed assignment or sale, the assignee Lender or participant
would be subject to capital adequacy or similar requirements under Section
1.16(a), increased costs under Section 1.16(b), an inability to fund LIBOR
Loans under Section 1.16(c), or withholding taxes in accordance with Section
1.16(d).
9.2 Appointment of Agent. GE Capital is hereby appointed
to act on behalf of all Lenders as Agent under this Agreement and the other
Loan Documents. The provisions of this Section 9.2 are solely for the benefit
of Agent and Lenders and no Credit Party nor any other Person shall have any
rights as a third party beneficiary of any of the provisions hereof. In
performing its functions and duties under this Agreement and the other Loan
Documents, Agent shall act solely as an agent of Lenders and does not assume
and shall not be deemed to have assumed any obligation toward or relationship
of agency or trust with or for any Credit Party or any other Person. Agent
shall have no duties or responsibilities except for those expressly set forth
in this Agreement and the other Loan Documents. The duties of Agent shall be
mechanical and administrative in nature and Agent shall not have, or be deemed
to have, by reason of this Agreement, any other Loan Document or otherwise a
fiduciary relationship in respect of any Lender. Neither Agent nor any of its
Affiliates nor any of their respective officers, directors, employees, agents
or representatives shall be liable to any Lender for any action taken or
omitted to be taken by it hereunder or under any other Loan Document, or in
connection herewith or therewith, except for damages caused by its or their own
gross negligence or willful misconduct.
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If Agent shall request instructions from Requisite Lenders,
Requisite Revolving Lenders, Supermajority Revolving Lenders or all affected
Lenders with respect to any act or action (including failure to act) in
connection with this Agreement or any other Loan Document, then Agent shall be
entitled to refrain from such act or taking such action unless and until Agent
shall have received instructions from Requisite Lenders, Requisite Revolving
Lenders, Supermajority Revolving Lenders or all affected Lenders, as the case
may be, and Agent shall not incur liability to any Person by reason of so
refraining. Agent shall be fully justified in failing or refusing to take any
action hereunder or under any other Loan Document (a) if such action would, in
the opinion of Agent, be contrary to law or the terms of this Agreement or any
other Loan Document, (b) if such action would, in the opinion of Agent, expose
Agent to Environmental Liabilities or (c) if Agent shall not first be
indemnified to its satisfaction against any and all liability and expense which
may be incurred by it by reason of taking or continuing to take any such
action. Without limiting the foregoing, no Lender shall have any right of
action whatsoever against Agent as a result of Agent acting or refraining from
acting hereunder or under any other Loan Document in accordance with the
instructions of Requisite Lenders, Requisite Revolving Lenders, Supermajority
Revolving Lenders or all affected Lenders, as applicable.
9.3 Agent's Reliance, Etc. Neither Agent nor any of its
Affiliates nor any of their respective directors, officers, agents or employees
shall be liable for any action taken or omitted to be taken by it or them under
or in connection with this Agreement or the other Loan Documents, except for
damages caused by its or their own gross negligence or willful misconduct.
Without limitation of the generality of the foregoing, Agent: (a) may treat
the payee of any Note as the holder thereof until Agent receives written notice
of the assignment or transfer thereof signed by such payee and in form
satisfactory to Agent; (b) may consult with legal counsel, independent public
accountants and other experts selected by it and shall not be liable for any
action taken or omitted to be taken in good faith by it in accordance with the
advice of such counsel, accountants or experts; (c) makes no warranty or
representation to any Lender and shall not be responsible to any Lender for any
statements, warranties or representations made in or in connection with this
Agreement or the other Loan Documents; (d) shall not have any duty to ascertain
or to inquire as to the performance or observance of any of the terms,
covenants or conditions of this Agreement or the other Loan Documents on the
part of any Credit Party or to inspect the Collateral (including the books and
records) of any Credit Party; (e) shall not be responsible to any Lender for
the due execution, legality, validity, enforceability, genuineness, sufficiency
or value of this Agreement or the other Loan Documents or any other instrument
or document furnished pursuant hereto or thereto; and (f) shall incur no
liability under or in respect of this Agreement or the other Loan Documents by
acting upon any notice, consent, certificate or other instrument or writing
(which may be by telecopy, telegram, cable or telex) believed by it to be
genuine and signed or sent by the proper party or parties.
9.4 GE Capital and Affiliates. With respect to its
Commitments hereunder, GE Capital shall have the same rights and powers under
this Agreement and the other Loan Documents as any other Lender and may
exercise the same as though it were not Agent; and the term "Lender" or
"Lenders" shall, unless otherwise expressly indicated, include GE Capital in
its individual capacity. GE Capital and its Affiliates may lend money to,
invest in, and generally engage in any kind
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of business with, any Credit Party, any of their Affiliates and any Person who
may do business with or own securities of any Credit Party or any such
Affiliate, all as if GE Capital were not Agent and without any duty to account
therefor to Lenders. GE Capital and its Affiliates may accept fees and other
consideration from any Credit Party for services in connection with this
Agreement or otherwise without having to account for the same to Lenders. Each
Lender acknowledges that GE Capital holds disproportionate interests in the
Loans, a Subordinated Note and a warrant for Holdings Stock.
9.5 Lender Credit Decision. Each Lender acknowledges
that it has, independently and without reliance upon Agent or any other Lender
and based on the Financial Statements referred to in Section 3.4(a) and such
other documents and information as it has deemed appropriate, made its own
credit and financial analysis of the Credit Parties and its own decision to
enter into this Agreement. Each Lender also acknowledges that it will,
independently and without reliance upon Agent or any other Lender and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
this Agreement. Each Lender acknowledges the potential conflict of interest of
each other Lender as a result of Lenders holding disproportionate interests in
the Loans, and expressly consents to, and waives any claim based upon, such
conflict of interest.
9.6 Indemnification. Lenders agree to indemnify Agent
(to the extent not reimbursed by Borrowers and without limiting the obligations
of Borrowers hereunder), ratably according to their respective Pro Rata Shares,
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever which may be imposed on, incurred by, or asserted
against Agent in any way relating to or arising out of this Agreement or any
other Loan Document or any action taken or omitted by Agent in connection
therewith; provided, however, that no Lender shall be liable for any portion of
such liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting from Agent's gross negligence
or willful misconduct. Without limiting the foregoing, each Lender agrees to
reimburse Agent promptly upon demand for its ratable share of any out-of-pocket
expenses (including counsel fees) incurred by Agent in connection with the
preparation, execution, delivery, administration, modification, amendment or
enforcement (whether through negotiations, legal proceedings or otherwise) of,
or legal advice in respect of rights or responsibilities under, this Agreement
and each other Loan Document, to the extent that Agent is not reimbursed for
such expenses by Borrowers.
9.7 Successor Agent. Agent may resign at any time by
giving not less than thirty (30) days' prior written notice thereof to Lenders
and Borrower Representative. Upon any such resignation, the Requisite Lenders
shall have the right to appoint a successor Agent. If no successor Agent shall
have been so appointed by the Requisite Lenders and shall have accepted such
appointment within 30 days after the resigning Agent's giving notice of
resignation, then the resigning Agent may, on behalf of Lenders, appoint a
successor Agent, which shall be a Lender, if a Lender is willing to accept such
appointment, or otherwise shall be a commercial bank or financial institution
or a subsidiary of a commercial bank or financial institution if such
commercial bank or financial institution is organized under the laws of the
United States of America or of any State thereof and
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has a combined capital and surplus of at least $300,000,000. If no successor
Agent has been appointed pursuant to the foregoing, by the 30th day after the
date such notice of resignation was given by the resigning Agent, such
resignation shall become effective and the Requisite Lenders shall thereafter
perform all the duties of Agent hereunder until such time, if any, as the
Requisite Lenders appoint a successor Agent as provided above. Any successor
Agent appointed by Requisite Lenders hereunder shall be subject to the approval
of Borrower Representative, such approval not to be unreasonably withheld or
delayed; provided that such approval shall not be required if a Default or an
Event of Default shall have occurred and be continuing. Upon the acceptance of
any appointment as Agent hereunder by a successor Agent, such successor Agent
shall succeed to and become vested with all the rights, powers, privileges and
duties of the resigning Agent. Upon the earlier of the acceptance of any
appointment as Agent hereunder by a successor Agent or the effective date of
the resigning Agent's resignation, the resigning Agent shall be discharged from
its duties and obligations under this Agreement and the other Loan Documents,
except that any indemnity rights or other rights in favor of such resigning
Agent shall continue. After any resigning Agent's resignation hereunder, the
provisions of this Section 9 shall inure to its benefit as to any actions taken
or omitted to be taken by it while it was Agent under this Agreement and the
other Loan Documents. Agent may be removed at the written direction of the
holders (other than Agent) of two-thirds or more of the Commitments (excluding
Agent's Commitment); provided that in so doing, such Lenders shall be deemed to
have waived and released any and all claims they may have against Agent. In
addition to the foregoing, Requisite Lenders may remove Agent upon not less
than ten (10) days' prior written notice to Agent for cause, consisting of one
or more instances of gross negligence or wilful misconduct, as specified in
such notice.
9.8 Setoff and Sharing of Payments. In addition to any
rights now or hereafter granted under applicable law and not by way of
limitation of any such rights, upon the occurrence and during the continuance
of any Event of Default, each Lender and each holder of any Note is hereby
authorized at any time or from time to time, without notice to any Borrower or
to any other Person, any such notice being hereby expressly waived, to set off
and to appropriate and to apply any and all balances held by it at any of its
offices for the account of any Borrower (regardless of whether such balances
are then due to such Borrower) and any other properties or assets any time held
or owing by that Lender or that holder to or for the credit or for the account
of Borrowers against and on account of any of the Obligations which are not
paid when due. Any Lender or holder of any Note exercising a right to set off
or otherwise receiving any payment on account of the Obligations in excess of
its Pro Rata Share thereof shall purchase for cash (and the other Lenders or
holders shall sell) such participations in each such other Lender's or holder's
Pro Rata Share of the Obligations as would be necessary to cause such Lender to
share the amount so set off or otherwise received with each other Lender or
holder in accordance with their respective Pro Rata Shares. Each Lender's
obligation under this Section 9.8 shall be in addition to and not in limitation
of its obligations to purchase a participation in an amount equal to its Pro
Rata Share of the Swing Line Loans under Section 1.1. Each Borrower agrees, to
the fullest extent permitted by law, that (a) any Lender or holder may exercise
its right to set off with respect to amounts in excess of its Pro Rata Share of
the Obligations and may sell participations in such amount so set off to other
Lenders and holders and (b) any Lender or holders so purchasing a participation
in the Loans made or other Obligations held
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by other Lenders or holders may exercise all rights of set-off, bankers' lien,
counterclaim or similar rights with respect to such participation as fully as
if such Lender or holder were a direct holder of the Loans and the other
Obligations in the amount of such participation. Notwithstanding the
foregoing, if all or any portion of the set-off amount or payment otherwise
received is thereafter recovered from the Lender that has exercised the right
of set-off, the purchase of participations by that Lender shall be rescinded
and the purchase price restored without interest.
9.9 Advances; Payments; Non-Funding Lenders; Information; Actions in
Concert.
(a) Advances; Payments. (i) Revolving Lenders shall
refund or participate in the Swing Line Loan in accordance with clauses (iii)
and (iv) of Section 1.1(c). If the Swing Line Lender declines to make a Swing
Line Loan or if Swing Line Availability is zero, Agent shall notify Revolving
Lenders, promptly after receipt of a Notice of Revolving Credit Advance and in
any event prior to 12:30 p.m. (Chicago time) on the date such Notice of
Revolving Advance is received, by telecopy, telephone or other similar form of
transmission. Each Revolving Lender shall make the amount of such Lender's Pro
Rata Share of each Revolving Credit Advance available to Agent in same day
funds by wire transfer to Agent's account as set forth in Annex H not later
than 2:00 p.m. (Chicago time) on the requested funding date, in the case of an
Index Rate Loan and not later than 11:00 a.m. (Chicago time) on the requested
funding date in the case of a LIBOR Loan. After receipt of such wire transfers
(or, in the Agent's sole discretion, before receipt of such wire transfers),
subject to the terms hereof, Agent shall make the requested Revolving Credit
Advance to the Borrower designated by Borrower Representative in the Notice of
Revolving Credit Advance. All payments by each Revolving Lender shall be made
without setoff, counterclaim or deduction of any kind.
(ii) On the second (2nd) Business Day of each
calendar week or more frequently as aggregate cumulative payments in excess of
$1,000,000 are received with respect to the Loans (other than the Swing Line
Loan) (each, a "Settlement Date"), Agent will advise each Lender by telephone
and telecopy of the amount of such Lender's Pro Rata Share of principal,
interest and Fees paid for the benefit of Lenders with respect to each
applicable Loan. Provided that such Lender has made all payments required to
be made by it and has purchased all participations required to be purchased by
it under this Agreement and the other Loan Documents as of such Settlement
Date, Agent will pay to each Lender such Lender's Pro Rata Share of principal,
interest and Fees paid by Borrowers since the previous Settlement Date for the
benefit of that Lender on the Loans held by it. Such payments shall be made by
wire transfer to such Lender's account (as specified by such Lender in Annex H
or the applicable Assignment Agreement) not later than 1:00 p.m. (Chicago time)
on the next Business Day following each Settlement Date.
(b) Availability of Lender's Pro Rata Share. Agent may
assume that each Revolving Lender will make its Pro Rata Share of each
Revolving Credit Advance available to Agent on each funding date. If such Pro
Rata Share is not, in fact, paid to Agent by such Revolving Lender when due,
Agent will be entitled to recover such amount on demand from such Revolving
Lender without set-off, counterclaim or deduction of any kind. If any
Revolving Lender fails to pay the amount of its Pro Rata Share forthwith upon
Agent's demand, Agent shall promptly notify Borrower
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Representative and Borrowers shall immediately repay such amount to Agent.
Nothing in this Section 9.9(b) or elsewhere in this Agreement or the other Loan
Documents shall be deemed to require Agent to advance funds on behalf of any
Revolving Lender or to relieve any Revolving Lender from its obligation to
fulfill its Commitments hereunder or to prejudice any rights that Borrowers may
have against any Revolving Lender as a result of any default by such Revolving
Lender hereunder. To the extent that Agent advances funds to any Borrower on
behalf of any Revolving Lender and is not reimbursed therefor on the same
Business Day as such Advance is made, Agent shall be entitled to retain for its
account all interest accrued on such Advance until reimbursed by the applicable
Revolving Lender.
(c) Return of Payments. (i) If Agent pays an amount
to a Lender under this Agreement in the belief or expectation that a related
payment has been or will be received by Agent from Borrowers and such related
payment is not received by Agent, then Agent will be entitled to recover such
amount from such Lender on demand without set-off, counterclaim or deduction of
any kind.
(ii) If Agent determines at any time that any amount
received by Agent under this Agreement must be returned to any Borrower or paid
to any other Person pursuant to any insolvency law or otherwise, then,
notwithstanding any other term or condition of this Agreement or any other Loan
Document, Agent will not be required to distribute any portion thereof to any
Lender. In addition, each Lender will repay to Agent on demand any portion of
such amount that Agent has distributed to such Lender, together with interest
at such rate, if any, as Agent is required to pay to any Borrower or such other
Person, without set-off, counterclaim or deduction of any kind.
(d) Non-Funding Lenders. The failure of any Revolving
Lender (such Revolving Lender, a "Non-Funding Lender") to make any Revolving
Credit Advance or to purchase any participation in any Swing Line Loan to be
made or purchased by it on the date specified therefor shall not relieve any
other Revolving Lender (each such other Revolving Lender, an "Other Lender") of
its obligations to make such Advance or purchase such participation on such
date, but neither any Other Lender nor Agent shall be responsible for the
failure of any Non-Funding Lender to make an Advance to be made, or to purchase
a participation to be purchased, by such Non-Funding Lender, and no Non-Funding
Lender shall have any obligation to Agent or any Other Lender for the failure
by such Non-Funding Lender. Notwithstanding anything set forth herein to the
contrary, a Non-Funding Lender (so long as it shall remain a Non-Funding
Lender) shall not have any voting or consent rights under or with respect to
any Loan Document or constitute a "Lender" or a "Revolving Lender" (or be
included in the calculation of "Requisite Lenders", "Requisite Revolving
Lenders" or "Supermajority Revolving Lenders" hereunder) for any voting or
consent rights under or with respect to any Loan Document.
(e) Dissemination of Information. Agent will provide
Lenders with any notice of Event of Default received by Agent from, or
delivered by Agent to, any Credit Party. Lenders acknowledge that Borrowers
are required to provide Financial Statements and Collateral Reports to
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Lenders in accordance with Annexes E and F hereto and agree that Agent shall
have no duty to provide the same to Lenders.
(f) Actions in Concert. Anything in this Agreement to
the contrary notwithstanding, each Lender hereby agrees with each other Lender
that no Lender shall take any action to protect or enforce its rights arising
out of this Agreement or the Loan Documents (including exercising any rights of
set-off) without first obtaining the prior written consent of Agent or
Requisite Lenders, it being the intent of Lenders that any such action to
protect or enforce rights under this Agreement and the Notes shall be taken in
concert and at the direction or with the consent of Agent.
10. SUCCESSORS AND ASSIGNS
10.1 Successors and Assigns. This Agreement and the other
Loan Documents shall be binding on and shall inure to the benefit of each
Credit Party, Agent, Lenders and their respective successors and assigns
(including, in the case of any Credit Party, a 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 Agent and Requisite
Lenders. Any such purported assignment, transfer, hypothecation or other
conveyance by any Credit Party without the prior express written consent of
Agent and Requisite Lenders shall be void. The terms and provisions of this
Agreement are for the purpose of defining the relative rights and obligations
of each Credit Party, Agent and Lenders 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 below. Any letter of interest,
commitment letter, and/or fee letter (other than the GE Capital Fee Letter)
and/or confidentiality agreement between any Credit Party and Agent or any
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) Except for actions
expressly permitted to be taken by Agent, no amendment, modification,
termination or waiver of any provision of this Agreement or any of the Notes,
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 Agent and
Borrowers, and by Requisite Lenders, Requisite Revolving Lenders, Supermajority
Revolving Lenders or all affected Lenders, as applicable. Except as set forth
in clauses (b) and (c) below, all such amendments, modifications, terminations
or waivers requiring the consent of any Lenders shall require the written
consent of Requisite Lenders.
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(b) No amendment, modification, termination or waiver of
or consent with respect to any provision of this Agreement which increases the
percentage advance rates set forth in the definition of the Selfix Borrowing
Base, the Tamor Borrowing Base or the Shutters Borrowing Base, or which makes
less restrictive the nondiscretionary criteria for exclusion from Eligible
Accounts and Eligible Inventory set forth in Sections 1.6 and 1.7, shall be
effective unless the same shall be in writing and signed by Agent,
Supermajority Revolving Lenders and Borrowers. No amendment, modification,
termination or waiver of or consent with respect to any provision of this
Agreement which waives compliance with the conditions precedent set forth in
Section 2.2 to the making of any Loan or the incurrence of any Letter of Credit
Obligations shall be effective unless the same shall be in writing and signed
by Agent, Requisite Revolving Lenders and Borrowers. Notwithstanding anything
contained in this Agreement to the contrary, no waiver or consent with respect
to any Default (if in connection therewith Agent or Requisite Revolving
Lenders, as the case may be, have exercised its or their right to suspend the
making or incurrence of further Advances or Letter of Credit Obligations
pursuant to Section 8.2(a)) or any Event of Default shall be effective for
purposes of the conditions precedent to the making of Loans or the incurrence
of Letter of Credit Obligations set forth in Section 2.2 unless the same shall
be in writing and signed by Agent, Requisite Revolving Lenders and Borrowers.
(c) No amendment, modification, termination or waiver
shall, unless in writing and signed by Agent and each Lender directly affected
thereby, do any of the following: (i) increase the principal amount of any
Lender's Commitment (which action shall be deemed to directly affect all
Lenders); (ii) reduce the principal of, rate of interest on or Fees payable
with respect to any Loan or Letter of Credit Obligations of any affected
Lender; (iii) change any scheduled payment date or final maturity date of the
principal amount of any Loan of any affected Lender; (iv) waive, forgive,
defer, extend or postpone any payment of interest or Fees as to any affected
Lender; (v) release any Guaranty or, except as otherwise permitted herein or in
the other Loan Documents, permit any Credit Party to sell or otherwise dispose
of any Collateral with a value exceeding $5,000,000 in the aggregate (which
action shall be deemed to directly affect all Lenders); (vi) change the
percentage of the Commitments or of the aggregate unpaid principal amount of
the Loans which shall be required for Lenders or any of them to take any action
hereunder; and (vii) amend or waive this Section 11.2 or the definitions of the
terms "Requisite Lenders", "Requisite Revolving Lenders" or "Supermajority
Revolving Lenders" insofar as such definitions affect the substance of this
Section 11.2. Furthermore, no amendment, modification, termination or waiver
affecting the rights or duties of Agent under this Agreement or any other Loan
Document shall be effective unless in writing and signed by Agent, in addition
to Lenders required hereinabove to take such action. Each amendment,
modification, termination or waiver shall be effective only in the specific
instance and for the specific purpose for which it was given. No amendment,
modification, termination or waiver shall be required for Agent to take
additional Collateral pursuant to any Loan Document. No amendment,
modification, termination or waiver of any provision of any Note shall be
effective without the written concurrence of the holder of that Note. No
notice to or demand on any Credit Party in any case shall entitle such Credit
Party or any other Credit Party to any other or further notice or demand in
similar or other circumstances. Any amendment, modification, termination,
waiver or consent effected in
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accordance with this Section 11.2 shall be binding upon each holder of the
Notes at the time outstanding and each future holder of the Notes.
(d) If, in connection with any proposed amendment,
modification, waiver or termination (a "Proposed Change"):
(i) requiring the consent of all affected
Lenders, the consent of Requisite Lenders is obtained, but the
consent of other Lenders whose consent is required is not
obtained (any such Lender whose consent is not obtained as
described this clause (i) and in clauses (ii), (iii) and (iv)
below being referred to as a "Non-Consenting Lender"), or
(ii) requiring the consent of Supermajority
Revolving Lenders, the consent of Requisite Revolving Lenders
is obtained, but the consent of Supermajority Revolving
Lenders is not obtained, or
(iii) requiring the consent of Requisite Revolving
Lenders, the consent of Revolving Lenders holding 51% or more
of the aggregate Revolving Loan Commitments is obtained, but
the consent of Requisite Revolving Lenders is not obtained, or
(iv) requiring the consent of Requisite Lenders,
the consent of Lenders holding 51% or more of the aggregate
Commitments is obtained, but the consent of Requisite Lenders
is not obtained,
then, so long as Agent is not a Non-Consenting Lender, at Borrower
Representative's request, Agent or a Person acceptable to Agent shall have the
right with Agent's consent and in Agent's sole discretion (but shall have no
obligation) to purchase from such Non-Consenting Lenders, and such
Non-Consenting Lenders agree that they shall, upon Agent's request, sell and
assign to Agent or such Person, all of the Commitments of such Non-Consenting
Lender for an amount equal to the principal balance of all Loans held by the
Non-Consenting Lender and all accrued interest and Fees with respect thereto
through the date of sale, such purchase and sale to be consummated pursuant to
an executed Assignment Agreement.
(e) 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 Commitments and a release of all claims
against Agent and Lenders, 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, Agent 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.
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11.3 Fees and Expenses. Borrowers shall reimburse Agent
for all out-of-pocket expenses incurred in connection with the preparation of
the Loan Documents (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 the Related Transactions and advice in connection
therewith). Borrowers shall reimburse Agent (and, with respect to clauses (c)
and (d) below, all Lenders) 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 Agent of the proceeds of the Loans;
(b) any amendment, modification or waiver of, or
consent with respect to, any of the Loan Documents or Related Transactions
Documents or advice in connection with the administration of the Loans made
pursuant hereto or its rights hereunder or thereunder;
(c) any litigation, contest, dispute, suit,
proceeding or action (whether instituted by Agent, any Lender, any Borrower or
any other Person) in any way relating to the Collateral, any of the Loan
Documents or any other agreement to be executed or delivered in connection
therewith or herewith, whether as party, witness, or otherwise, 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 Agent 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 Loans during the pendency of one or more Events of Default; provided
that in the case of reimbursement of counsel for Lenders other than Agent, such
reimbursement shall be limited to one counsel for all such Lenders;
(d) any attempt to enforce any remedies of Agent
against any or all of the Credit Parties or any other Person that may be
obligated to Agent or any 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 Loans during the pendency of one or more
Events of Default; provided that in the case of reimbursement of counsel for
Lenders other than Agent, such reimbursement shall be limited to one counsel
for all such Lenders;
(e) any work-out or restructuring of the Loans
during the pendency of one or more Events of Default;
(f) efforts to (i) monitor the Loans 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;
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including 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 any way or respect arising in connection with or
relating to any of the events or actions described in this Section 11.3 shall
be payable, on demand, by Borrowers to Agent. 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. Agent's or any Lender's failure, at any
time or times, to require strict performance by the Credit Parties of any
provision of this Agreement and any of the other Loan Documents shall not
waive, affect or diminish any right of Agent or such Lender thereafter to
demand strict compliance and performance 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. Subject to the provisions of Section 11.2, 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 Agent or any Lender, unless such waiver or suspension is
by an instrument in writing signed by an officer of or other authorized
employee of Agent and the applicable required Lenders, and directed to
Borrowers specifying such suspension or waiver.
11.5 Remedies. Agent's and Lenders' rights and remedies
under this Agreement shall be cumulative and nonexclusive of any other rights
and remedies which Agent or any 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 shall be prohibited by or invalid under applicable law, such
provision shall be ineffective to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the remaining
provisions of this Agreement.
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. Agent and each Lender agree to use
commercially reasonable efforts (equivalent to the efforts Agent or such Lender
applies to maintaining the confidentiality of
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its own confidential information) to maintain as confidential all confidential
information provided to them by the Credit Parties and designated as
confidential for a period of two (2) years following receipt thereof, except
that Agent and any Lender may disclose such information (a) to Persons employed
or engaged by Agent or such Lender in evaluating, approving, structuring or
administering the Loans and the Commitments; (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 Agent or such Lender to be compelled by any court decree, subpoena or legal
or administrative order or process; (d) as, in the opinion of Agent's or such
Lender's counsel, 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 Agent or such Lender is a party; or (f) which ceases to be
confidential through no fault of Agent or such 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 LAWS OF THE STATE OF ILLINOIS APPLICABLE TO CONTRACTS MADE AND
PERFORMED IN THAT STATE AND ANY APPLICABLE LAWS OF THE UNITED STATES OF
AMERICA. EACH CREDIT PARTY HEREBY CONSENTS AND AGREES THAT THE STATE OR
FEDERAL COURTS LOCATED IN COOK COUNTY, CITY OF CHICAGO, ILLINOIS SHALL HAVE
EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE
CREDIT PARTIES, AGENT AND LENDERS 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 AGENT, LENDERS AND
THE CREDIT PARTIES ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO
BE HEARD BY A COURT LOCATED OUTSIDE OF COOK COUNTY, CITY OF CHICAGO, ILLINOIS
AND, PROVIDED, FURTHER NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO
PRECLUDE AGENT FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER
JURISDICTION TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE
OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF AGENT.
EACH CREDIT PARTY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH CREDIT
PARTY HEREBY WAIVES ANY OBJECTION WHICH SUCH CREDIT PARTY MAY HAVE BASED UPON
LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND
HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY SUCH COURT. EACH CREDIT PARTY HEREBY
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WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN
ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND
OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO SUCH
CREDIT PARTY AT THE ADDRESS SET FORTH IN ANNEX I OF THIS AGREEMENT AND THAT
SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF SUCH CREDIT
PARTY'S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S.
MAILS, PROPER POSTAGE PREPAID.
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 three (3) 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 (1) 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 on Annex I 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 Agent) designated on Annex I 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
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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 AGENT, LENDERS 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 using the name of GE Capital or
its affiliates or referring to this Agreement, the other Loan Documents or the
Related Transactions Documents without at least two (2) 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 Agent or any
Lender of a tombstone or similar advertising material relating to the financing
transactions contemplated by this Agreement.
11.15 Reinstatement. This Agreement shall remain in full
force and effect and continue to be effective should any petition be filed by
or against any Borrower for liquidation or reorganization, should any Borrower
become insolvent or make an assignment for the benefit of any creditor or
creditors or should a receiver or trustee be appointed for all or any
significant part of any Borrower's assets, and shall continue to be effective
or to 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
conveyance," 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.
11.16 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.
12. CROSS-GUARANTY
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12.1 Cross-Guaranty. Each Borrower hereby agrees that
such Borrower is jointly and severally liable for, and hereby absolutely and
unconditionally guarantees to Agent and Lenders and their respective successors
and assigns, the full and prompt payment (whether at stated maturity, by
acceleration or otherwise) and performance of, all Obligations owed or
hereafter owing to Agent and Lenders by each other Borrower. Each Borrower
agrees that its guaranty obligation hereunder is a continuing guaranty of
payment and performance and not of collection, and that its obligations under
this Section 12 shall be absolute and unconditional, irrespective of, and
unaffected by,
(a) 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;
(b) the absence of any action to enforce this
Agreement (including this Section 12) or any other Loan Document or
the waiver or consent by Agent and Lenders with respect to any of the
provisions thereof;
(c) 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 Agent and Lenders in
respect thereof (including the release of any such security);
(d) the insolvency of any Credit Party; or
(e) any other action or circumstances which might
otherwise constitute a legal or equitable discharge or defense of a
surety or guarantor,
it being agreed by each Borrower that its obligations under this Section 12
shall not be discharged until the payment and performance, in full, of the
Obligations has occurred. Each Borrower shall be regarded, and shall be in the
same position, as principal debtor with respect to the Obligations guaranteed
hereunder.
12.2 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 Agent or Lenders to
marshall assets or to proceed in respect of the Obligations guaranteed
hereunder 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, Agent and Lenders 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 12 and such waivers,
Agent and Lenders would decline to enter into this Agreement.
12.3 Benefit of Guaranty. Each Borrower agrees that the
provisions of this Section 12 are for the benefit of Agent and Lenders and
their respective successors, transferees, endorsees
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<PAGE> 72
and assigns, and nothing herein contained shall impair, as between any other
Borrower and Agent or Lenders, the obligations of such other Borrower under the
Loan Documents.
12.4 Subordination of Subrogation, Etc. Notwithstanding
anything to the contrary in this Agreement or in any other Loan Document, and
except as set forth in Section 12.7, 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 Agent and Lenders and shall not limit or
otherwise affect such Borrower's liability hereunder or the enforceability of
this Section 12, and that Agent, Lenders and their respective successors and
assigns are intended third party beneficiaries of the waivers and agreements
set forth in this Section 12.4.
12.5 Election of Remedies. If Agent or any Lender may,
under applicable law, proceed to realize its benefits under any of the Loan
Documents giving Agent or such 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, Agent or any 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 12. If, in the exercise of any
of its rights and remedies, Agent or any 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 Agent or such Lender and waives any claim based upon such action,
even if such action by Agent or such Lender shall result in a full or partial
loss of any rights of subrogation which each Borrower might otherwise have had
but for such action by Agent or such Lender. Any election of remedies which
results in the denial or impairment of the right of Agent or any 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
Agent or any Lender shall bid at any foreclosure or trustee's sale or at any
private sale permitted by law or the Loan Documents, Agent or such Lender may
bid all or less than the amount of the Obligations and the amount of such bid
need not be paid by Agent or such Lender but shall be credited against the
Obligations. The amount of the successful bid at any such sale, whether Agent,
Lender or any other party is the successful bidder, shall be conclusively
deemed to be the fair market value of the Collateral and the difference between
such bid amount and the remaining balance of the Obligations shall be
conclusively deemed to be the amount of the Obligations guaranteed under this
Section 12, notwithstanding that any present or future law or court decision or
ruling may have the effect of reducing the amount of any deficiency claim to
which Agent or any Lender might otherwise be entitled but for such bidding at
any such sale.
12.6 Limitation. Notwithstanding any provision herein
contained to the contrary, each Borrower's liability under this Section 12
(which liability is in any event in addition to amounts for which such Borrower
is primarily liable under Section 1) shall be limited to an amount not to
exceed as of any date of determination the greater of:
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(a) the net amount of all Loans advanced to any other
Borrower under this Agreement and then re-loaned or otherwise transferred to,
or for the benefit of, such Borrower; and
(b) the amount which could be claimed by Agent and
Lenders from such Borrower under this Section 12 without rendering such claim
voidable or avoidable under Section 548 of Chapter 11 of the Bankruptcy Code or
under any applicable state Uniform Fraudulent Transfer Act, Uniform Fraudulent
Conveyance Act or similar statute or common law after taking into account,
among other things, such Borrower's right of contribution and indemnification
from each other Borrower under Section 12.7.
12.7 Contribution with Respect to Guaranty Obligations.
(a) To the extent that any Borrower shall make a payment
under this Section 12 of all or any of the Obligations (other than Loans made
to that Borrower for which it is primarily liable) (a "Guarantor Payment")
which, taking into account all other Guarantor Payments then previously or
concurrently made by any other Borrower, exceeds the amount which such Borrower
would otherwise have paid if each Borrower had paid the aggregate Obligations
satisfied by such Guarantor Payment in the same proportion that such Borrower's
"Allocable Amount" (as defined below) (as determined immediately prior to such
Guarantor Payment) bore to the aggregate Allocable Amounts of each of the
Borrowers as determined immediately prior to the making of such Guarantor
Payment, then, following indefeasible payment in full in cash of the
Obligations and termination of the Commitments, such Borrower shall be entitled
to receive contribution and indemnification payments from, and be reimbursed
by, each other Borrower for the amount of such excess, pro rata based upon
their respective Allocable Amounts in effect immediately prior to such
Guarantor Payment.
(b) As of any date of determination, the "Allocable
Amount" of any Borrower shall be equal to the maximum amount of the claim which
could then be recovered from such Borrower under this Section 12 without
rendering such claim voidable or avoidable under Section 548 of Chapter 11 of
the Bankruptcy Code or under any applicable state Uniform Fraudulent Transfer
Act, Uniform Fraudulent Conveyance Act or similar statute or common law.
(c) This Section 12.7 is intended only to define the
relative rights of Borrowers and nothing set forth in this Section 12.7 is
intended to or shall impair the obligations of Borrowers, jointly and
severally, to pay any amounts as and when the same shall become due and payable
in accordance with the terms of this Agreement, including Section 12.1.
Nothing contained in this Section 12.7 shall limit the liability of any
Borrower to pay the Loans made directly or indirectly to that Borrower and
accrued interest, Fees and expenses with respect thereto for which such
Borrower shall be primarily liable.
(d) The parties hereto acknowledge that the rights of
contribution and indemnification hereunder shall constitute assets of the
Borrower to which such contribution and indemnification is owing.
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(e) The rights of the indemnifying Borrowers against
other Credit Parties under this Section 12.7 shall be exercisable upon the full
and indefeasible payment of the Obligations and the termination of the
Commitments.
12.8 Liability Cumulative. The liability of Borrowers
under this Section 12 is in addition to and shall be cumulative with all
liabilities of each Borrower to Agent and Lenders 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 Borrower, without any limitation as to
amount, unless the instrument or agreement evidencing or creating such other
liability specifically provides to the contrary.
[signature page follows]
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<PAGE> 75
IN WITNESS WHEREOF, this Agreement has been duly executed as
of the date first written above.
SELFIX, INC.
By: ________________________________
Title:______________________________
TAMOR CORPORATION
By: ________________________________
Title:______________________________
SHUTTERS, INC.
By: ________________________________
Title:______________________________
<PAGE> 76
<TABLE>
<S> <C>
GENERAL ELECTRIC CAPITAL
CORPORATION,
Revolving Loan as Agent and Lender
Commitment (including
a Swing Line Commitment
of $500,000):
$15,000,000 By: _______________________________
Title: _____________________________
Selfix Term Loan A
Commitment:
$2,625,000
Tamor Term
Loan A Commitment:
$11,250,000
Shutters Term
Loan A Commitment:
$1,125,000
Selfix Term Loan B
Commitment:
$2,625,000
Tamor Term
Loan B Commitment:
$11,250,000
Shutters Term
Loan B Commitment:
$1,125,000
</TABLE>
<PAGE> 77
<TABLE>
<S> <C>
LASALLE NATIONAL BANK,
Revolving Loan as Lender
Commitment:
$5,000,000 By: _______________________________
Title: _____________________________
Selfix Term Loan A
Commitment:
$875,000
Tamor Term
Loan A Commitment:
$3,750,000
Shutters Term
Loan A Commitment:
$375,000
Selfix Term Loan B
Commitment:
$875,000
Tamor Term
Loan B Commitment:
$3,750,000
Shutters Term
Loan B Commitment:
$375,000
</TABLE>
<PAGE> 78
The following Person is a signatory to this Agreement in its
capacity as a Credit Party and not as a Borrower.
HOME PRODUCTS INTERNATIONAL, INC.
By:
----------------------------------
Title:
-------------------------------
<PAGE> 79
ANNEX A (RECITALS)
TO
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 section references in the following definitions
shall refer to Sections of the Agreement:
"Account Debtor" shall mean any Person who may become
obligated to any Credit Party 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 Credit Party and, in any
event, 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) now owned or hereafter received or acquired by
or belonging or owing to any Credit Party, whether arising out of goods sold or
services rendered by it or from any other transaction (including any such
obligations which may be characterized as an account or contract right under the
Code), (b) all of each Credit Party's rights in, to and under all purchase
orders or receipts now owned or hereafter acquired by it for goods or services,
(c) all of each Credit Party's rights to any goods represented by any of the
foregoing (including all 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 any Credit Party,
under all purchase orders and contracts for the sale of goods or the performance
of services or both by such Credit Party or in connection with any other
transaction (whether or not yet earned by performance on the part of such Credit
Party) now or hereafter in existence, including the right to receive the
proceeds of said purchase orders and contracts, and (e) all collateral security
and guarantees of any kind, now or hereafter in existence, given by any Person
with respect to any of the foregoing.
"Acquisition" shall mean, collectively, the following
sequential steps: (i) a subsidiary of Holdings will be merged with Selfix and
Selfix will become a wholly-owned Subsidiary of Holdings; (ii) Selfix will
distribute to Holdings approximately $1,900,000 in cash on hand; (iii) Selfix
will distribute to Holdings the capital stock of Shutters; (iv) Housewares will
be merged into a wholly-owned merger Subsidiary of Holdings; (v) Holdings,
through the same acquisition Subsidiary, will acquire, for total consideration
of $50,700,000 (approximately $1,900,000 from cash on hand), 100% of the
outstanding stock of Tamor; (vi) the acquisition Subsidiary will then merge into
Tamor; and (vii) outstanding indebtedness of Selfix, Tamor and Shutters will be
repaid.
"Acquisition Agreement" shall mean collectively (i) the Stock
Purchase
<PAGE> 80
Agreement between Selfix and the stockholders of Tamor and (ii) the Agreement
and Plan of Merger among Selfix, Housewares and the stockholders of Housewares,
each made as of January 1, 1997; and (iii) all other documents, agreements and
instruments entered into in connection with the Acquisition.
"Advance" shall mean any Revolving Credit Advance or Swing
Line Advance, as the context may require.
"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 Persons,
(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 and (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, however, that the term
"Affiliate" shall specifically exclude Agent and each Lender.
"Agent" shall mean GE Capital or its successor appointed
pursuant to Section 9.7.
"Aggregate Borrowing Base" shall mean, as of any date of
determination, an amount equal to the sum of the Selfix Borrowing Base, the
Tamor Borrowing Base and the Shutters Borrowing Base.
"Agreement" shall mean the Credit Agreement by and among
Borrowers, the other Credit Parties named therein, GE Capital, as Agent and
Lender and the other Lenders signatory from time to time to the Agreement.
"Appendices" shall have the meaning assigned to it in the
recitals to the Agreement.
"Applicable Margins" means collectively the Applicable
Revolver Index Margin, the Applicable Term Loan A Index Margin, the Applicable
Term Loan B Index Margin, the Applicable Revolver LIBOR Margin and the
Applicable Term Loan A LIBOR Margin and the Applicable Term Loan B LIBOR Margin.
"Applicable Revolver Index Margin" shall mean the per annum
interest rate margin from time to time in effect and payable in addition to the
Index Rate applicable to the Revolving Loan, as determined by reference to
Section 1.5(a) of the Agreement.
"Applicable Revolver LIBOR Margin" shall mean the per annum
interest rate
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from time to time in effect and payable in addition to the LIBOR Rate applicable
to the Revolving Loan, as determined by reference to Section 1.5(a) of the
Agreement.
"Applicable Term Loan A Index Margin" shall mean the per annum
interest rate from time to time in effect and payable in addition to the Index
Rate applicable to Term Loan A, as determined by reference to Section 1.5(a) of
the Agreement.
"Applicable Term Loan A LIBOR Margin" shall mean the per annum
interest rate from time to time in effect and payable in addition to the LIBOR
Rate applicable to Term Loan A, as determined by reference to Section 1.5(a) of
the Agreement.
"Applicable Term Loan B Index Margin" shall mean the per annum
interest rate from time to time in effect and payable in addition to the Index
Rate applicable to Term Loan B, as determined by reference to Section 1.5(a) of
the Agreement.
"Applicable Term Loan B LIBOR Margin" shall mean the per annum
interest rate from time to time in effect and payable in addition to the LIBOR
Rate applicable to Term Loan B, as determined by reference to Section 1.5(a) of
the Agreement.
"Assignment Agreement" shall have the meaning assigned to it
in Section 9.1(a).
"Borrower Accounts" shall have the meaning assigned to it in
Annex C.
"Borrower Representative" shall mean Selfix in its capacity as
Borrower Representative pursuant to the provisions of Section 1.1(c).
"Borrowers" and "Borrower" shall have the respective meanings
assigned thereto in the recitals to the Agreement.
"Borrowing Availability" shall have the meaning assigned to it
in Section 1.1(a)(i).
"Borrowing Base" shall mean, as the context may require, the
Selfix Borrowing Base, the Tamor Borrowing Base and the Shutters Borrowing Base
or any such Borrowing Base.
"Borrowing Base Certificate" shall mean a certificate to be
executed and delivered from time to time by each Borrower in the form attached
to the Agreement as Exhibit 4.1(b).
"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
State of Illinois 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
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(by the issuance of securities, 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.
"Cash Management Systems" shall have the meaning assigned to
it in Section 1.8.
"Change of Control" means any of the following: (a) any person
or group of persons (within the meaning of the Securities and Exchange Act of
1934, as amended) 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 capital Stock of Holdings having the right to vote for the
election of directors of Holdings under ordinary circumstances other than the
Ragir Family Trusts; (b) during any period of twelve consecutive calendar
months, individuals who at the beginning of such period constituted the board of
directors of Holdings (together with any new directors whose election by the
board of directors of Holdings or whose nomination for election by the
stockholders of Holdings 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 elections or nomination for election was previously so
approved) cease for any reason other than death or disability to constitute a
majority of the directors then in office, (c) Holdings shall cease to own and
control all of the economic and voting rights associated with all of the
outstanding capital Stock of the Borrowers.
"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 Credit
Party, (b) any Credit Party's ownership or use of any properties or other
assets, or (e) any other aspect of any Credit Party's business.
"Chattel Paper" shall mean any "chattel paper," as such term
is defined in the Code, now owned or hereafter acquired by any Credit Party,
wherever located.
"Closing Date" shall mean February 27, 1997.
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"Closing Checklist" 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.
"Code" shall mean the Uniform Commercial Code as the same may,
from time to time, be enacted and in effect in the State of Illinois provided,
however, in the event that, by reason of mandatory provisions of law, any or all
of the attachment, perfection or priority of Agent's or any Lender's security
interest in any Collateral is governed by the Uniform Commercial Code as enacted
and in effect in a jurisdiction other than the State of Illinois, the term
"Code" shall mean the Uniform Commercial Code as enacted and in effect in such
other jurisdiction solely for purposes of the provisions hereof relating to such
attachment, perfection or priority 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 Agent, on behalf of itself and Lenders, to secure the
Obligations.
"Collateral Documents" shall mean the Security Agreement, the
Pledge Agreements, the Guaranties, the Mortgages, the Patent Security Agreement,
the Trademark Security Agreement and all similar agreements entered into
guaranteeing payment of, or granting a Lien upon property as security for
payment of, the Obligations.
"Collateral Reports" shall mean the reports with respect to
the Collateral referred to in Annex F.
"Collection Account" shall mean that certain account of Agent,
account number 502- 328-54 in the name of Agent at Bankers Trust Company in New
York, New York.
"Commitment Termination Date" shall mean the earliest of (a)
August 28, 2002, (b) the date of termination of Lenders' obligations to make
Advances and/or incur Letter of Credit Obligations or permit existing Loans to
remain outstanding pursuant to Section 8.2(b), and (c) the date of indefeasible
prepayment in full by Borrowers of the Loans and 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 and the Swing Line Commitment to zero
dollars ($0), in accordance with the provisions of Section 1.3(a).
"Commitments" shall mean (a) as to any Lender, the aggregate
of such Lender's Revolving Loan Commitment (including without duplication the
Swing Line Lender's Swing
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Line Commitment) and Term Loan Commitment as set forth on the signature page to
the Agreement or in the most recent Assignment Agreement executed by such Lender
and (b) as to all Lenders, the aggregate of all Lenders' Revolving Loan
Commitments (including without duplication the Swing Line Lender's Swing Line
Commitment) and Term Loan Commitments, which aggregate commitment shall be Sixty
Million Dollars ($60,000,000) on the Closing Date, as such amount may be
adjusted, if at all, from time to time in accordance with the Agreement.
"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," as such term is
defined in the Code, now owned or hereafter acquired by any Credit Party, in any
event, including all contracts, undertakings, or agreements (other than rights
evidenced by Chattel Paper, Documents or Instruments) in or under which any
Credit Party 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" means a letter agreement between Agent and
(i) the issuer of uncertificated securities with respect to uncertificated
securities in the name of any Credit Party, (ii) 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 Credit Party, (iii) a futures commission merchant or clearing house with
respect to commodity accounts and commodity contracts held by any Credit Party,
whereby, among other things, the issuer, securities intermediary or futures
commission merchant disclaims any security interest in the applicable financial
assets, acknowledges the Lien of Agent, on behalf of itself and Lenders, on such
financial assets, and agrees to follow the instructions or entitlement orders of
Agent without further consent by the affected Credit Party.
"Credit Parties" shall mean Holdings and each Borrower.
"Default" shall mean any event which, 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
on Annex C.
"Disclosure Schedules" shall mean the Schedules prepared by
Borrowers and denominated as Disclosure Schedules 1.4 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 Credit Party,
wherever located.
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"Dollars" or "$" shall mean lawful currency of the United
States of America.
"EBITA" shall mean, with respect to any Person for any fiscal
period, EBITDA excluding the add-back of depreciation.
"EBITDA" shall mean, with respect to any Person for any fiscal
period, an amount equal to (a) consolidated net income of such Person for such
period, minus (b) the sum of (i) income tax credits, (ii) interest income, (iii)
gain from extraordinary items for such period, (iv) any aggregate net gain (but
not any aggregate net loss) during such period arising from the sale, exchange
or other disposition of capital assets by such Person (including any fixed
assets, whether tangible or intangible, all inventory sold in conjunction with
the disposition of fixed assets and all securities), and (v) any other non-cash
gains which have been added in determining consolidated net income, in each case
to the extent included in the calculation of consolidated net income of such
Person for such period in accordance with GAAP, but without duplication, plus
(c) the sum of (i) any provision for income taxes, (ii) Interest Expense, (iii)
loss from extraordinary items for such period, (iv) the amount of non-cash
charges (including depreciation and amortization) for such period, (v) amortized
debt discount for such period, and (vi) the amount of any deduction to
consolidated net income as the result of any grant to any members of the
management of such Person of any Stock, in each case to the extent included in
the calculation of consolidated net income of such Person for such period in
accordance with GAAP, but without duplication. For purposes of this definition,
the following items shall be excluded in determining consolidated net income of
a Person: (1) the income (or deficit) of any other Person accrued prior to the
date it became a Subsidiary of, or was merged or consolidated into, such Person
or any of such Person's Subsidiaries; (2) the income (or deficit) of any other
Person (other than a Subsidiary) in which such Person has an ownership interest,
except to the extent any such income has actually been received by such Person
in the form of cash dividends or distributions; (3) the undistributed earnings
of any Subsidiary of such Person to the extent that the declaration or payment
of dividends or similar distributions by such Subsidiary is not at the time
permitted by the terms of any contractual obligation or requirement of law
applicable to such Subsidiary; (4) any restoration to income of any contingency
reserve, except to the extent that provision for such reserve was made out of
income accrued during such period; (5) any write-up of any asset; (6) any net
gain from the collection of the proceeds of life insurance policies; (7) any net
gain arising from the acquisition of any securities, or the extinguishment,
under GAAP, of any Indebtedness, of such Person, (8) in the case of a successor
to such Person by consolidation or merger or as a transferee of its assets, any
earnings of such successor prior to such consolidation, merger or transfer of
assets, and (9) any deferred credit representing the excess of equity in any
Subsidiary of such Person at the date of acquisition of such Subsidiary over the
cost to such Person of the investment in such Subsidiary.
"Eligible Accounts" shall have the meaning assigned to it in
Section 1.6 of the Agreement.
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"Eligible Inventory" shall have the meaning assigned to it in
Section 1.7 of the Agreement.
"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 in each case as amended or
supplemented from time to time, 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.), each as from time to time amended, 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, 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, registrations or other written
documents 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 Credit Party,
wherever located and, in any event, including all such Credit Party's machinery
and equipment, including processing equipment, conveyors, machine tools, data
processing and computer equipment with software and peripheral equipment (other
than software constituting part of the Accounts), and all engineering,
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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 not
forming a part of real property, all whether now owned or hereafter acquired,
and wherever situated, 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 (or any successor legislation thereto), as amended from time to time,
and any regulations promulgated thereunder.
"ERISA Affiliate" shall mean, with respect to any Credit
Party, any trade or business (whether or not incorporated) which, together with
such Credit Party, are treated as a "controlled group of corporation," a group
of trades or businesses under "common control," or an "affiliated service group"
within the meaning of Sections 414(b), (c), (m) or (o) of the IRC.
"ERISA Event" shall mean, with respect to any Credit Party 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 Credit Party 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 Credit Party 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 Credit
Party 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 which 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; or (i) the loss of a Qualified Plan's qualification or tax exempt status.
"ESOP" shall mean a Plan which is intended to satisfy the
requirements of Section 4975(e)(7) of the IRC.
"Event of Default" shall have the meaning assigned to it in
Section 8.1.
"Excess Cash Flow" shall mean, without duplication, with
respect to any Fiscal Year of Borrowers and their Subsidiaries, consolidated net
income plus (a) depreciation, amortization and Interest Expense to the extent
deducted in determining consolidated net income,
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minus (b) Capital Expenditures during such Fiscal Year (excluding the portion
thereof financed from sources other than the Credit Agreement) minus (c)
Interest Expense paid or accrued (excluding any original issue discount,
interest paid in kind or amortized debt discount, to the extent included in
determining Interest Expense) and scheduled principal payments paid or payable
in respect of Funded Debt, plus or minus (as the case may be), (d) extraordinary
gains or losses which are cash items not included in the calculation of net
income, minus (e) mandatory prepayments paid in cash pursuant to Section 1.3
other than mandatory prepayments made pursuant to Sections 1.3(b)(i), 1.3(b)(iv)
or 1.3(d), plus (f) taxes deducted in determining consolidated net income to the
extent not paid for in cash.
"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
Agent.
"Federal Reserve Board" means the Board of Governors of the
Federal Reserve System, or any successor thereto.
"Fees" shall mean any and all fees payable to Agent or any
Lender pursuant to the Agreement or any of the other Loan Documents.
"Financial Statements" shall mean the consolidated and
consolidating income statements, statements of cash flows and balance sheets of
Holdings and Borrowers delivered in accordance with Section 3.4 of the Agreement
and Annex E to the Agreement.
"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 generally on the Saturday closest to the last day
of March, June, September and December of each year.
"Fiscal Year" shall mean any of the annual accounting periods
of Borrowers ending on December of each year.
"Fixed Charges" shall mean, with respect to any Person for any
fiscal period, the aggregate of all Interest Expense paid or accrued during such
period (other than Interest Expense with respect to the Subordinated Notes not
paid in cash), plus (a) scheduled payments of principal with respect to
Indebtedness during such period.
"Fixed Charge Coverage Ratio" shall mean, with respect to any
Person for any fiscal period, the ratio of (i) EBITDA less the sum of Capital
Expenditures and income taxes paid in cash during such period to (ii) Fixed
Charges.
"Fixtures" shall mean any "fixtures" as such term is defined
in the Code, now
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owned or hereafter acquired by any Credit Party.
"Funded Debt" shall mean, with respect to any Person, all
Indebtedness for borrowed money evidenced by notes, bonds, debentures, or
similar evidences of Indebtedness and which by its terms matures more than one
year from, or is directly or indirectly renewable or extendible at such Person's
option under a revolving credit or similar agreement obligating the lender or
lenders to extend credit over a period of more than one year from the date of
creation thereof, and specifically including Capital Lease Obligations, current
maturities of long-term debt, revolving credit and short-term debt extendible
beyond one year at the option of the debtor, and also including, in the case of
Borrowers, the Obligations.
"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.
"GE Capital Fee Letter" shall mean that certain letter, dated
as of February 24, 1997, between GE Capital and Selfix with respect to certain
Fees to be paid from time to time by Borrowers to GE Capital.
"General Intangibles" shall mean any "general intangibles," as
such term is defined in the Code, now owned or hereafter acquired by any Credit
Party, and, in any event, including all right, title and interest which such
Credit Party may now or hereafter have in or under any Contract, all customer
lists, Licenses, Trademarks, Patents, and all applications therefor and
reissues, extensions or renewals thereof, rights in Intellectual Property,
interests in partnerships, joint ventures and other business associations,
licenses, permits, trade secrets, proprietary or confidential information,
inventions (whether or not patented or patentable), technical information,
procedures, designs, 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 securities, choses in action, deposit, checking and other bank
accounts, rights to receive tax refunds and other payments, rights of
indemnification, all books and records, correspondence, credit files, invoices
and other papers, including without limitation all tapes, cards, computer runs
and other papers and documents in the possession or under the control of such
Credit Party or any computer bureau or service company from time to time acting
for such Credit Party.
"Goods" shall mean any "goods" as such term is defined in the
Code, now or hereafter acquired by any Credit Party.
"Governmental Authority" shall mean any nation or government,
any state or other political subdivision thereof, and any agency, department or
other entity exercising
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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 obligations") of any other Person (the "primary
obligor") in any manner, including any obligation or arrangement of such Person
(a) to purchase or repurchase any such primary obligation, (b) to advance or
supply funds (i) for the purchase or payment of any such primary obligation or
(ii) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency or any balance sheet condition
of the primary obligor, (c) to 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) to 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 made 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.
"Guaranties" shall mean, collectively, the Holdings Guaranty,
and any other guaranty executed by any Guarantor in favor of Agent and Lenders
in respect of the Obligations.
"Guarantors" shall mean Holdings, and each other Person, if
any, which executes a guarantee or other similar agreement in favor of Agent in
connection with the transactions contemplated by the Agreement and the other
Loan Documents.
"Hazardous Material" shall mean any substance, material or
waste which is regulated by or forms the basis of liability now or hereafter
under, any Environmental Laws, including any material or substance which 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, (b)
petroleum or any fraction or by-product thereof, asbestos, polychlorinated
biphenyls (PCB's), or any radioactive substance.
"Holdings" shall mean Home Products International, Inc., a
Delaware corporation.
"Holdings Guaranty" shall mean the guaranty of payment of the
Obligations dated as of the Closing Date, executed and delivered by Holdings.
"Holdings Pledge Agreement" shall mean the Pledge Agreement
dated as of the Closing Date executed by Holdings in favor of Agent on behalf of
itself and Lenders, pledging all of the Stock of its Subsidiaries and all
Intercompany Notes owing to or held by it.
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"Housewares" shall mean Houseware Sales, Inc., a Massachusetts
corporation.
"Indebtedness" of any Person shall mean 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 (6) months or more,
but excluding obligations to trade creditors incurred in the ordinary course of
business that are not overdue by more than six (6) 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, (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.
"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 (i) 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 Federal Reserve statistical release H.15 (519) entitled
"Selected Interest Rates" as the Bank prime loan rate or its equivalent), and
(ii) the Federal Funds Rate plus fifty (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 a Loan or portion thereof 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 Credit Party,
wherever located, and, in any event, including all certificated securities, all
certificates of deposit, and all notes and other, without limitation, evidences
of indebtedness, other than instruments that constitute, or are a part of a
group of writings that constitute, Chattel Paper.
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"Intellectual Property" shall mean any and all Licenses,
Patents, Trademarks, trade secrets and customer lists.
"Intercompany Notes" shall have the meaning assigned to it in
Section 6.3.
"Interest Coverage Ratio" shall mean, with respect to any
Person for any period, the ratio of EBITDA less the sum of Capital Expenditures
to Interest Expense.
"Interest Expense" shall mean, with respect to any Person for
any fiscal period, interest expense (whether cash or non-cash excluding interest
on the Subordinated Notes paid by the issuance of Subordinated Notes) of such
Person determined in accordance with GAAP for the relevant period ended on such
date, including, in any event, interest expense with respect to any Funded Debt
of such Person.
"Interest Payment Date" means (a) as to any Index Rate Loan,
the first Business Day of each month to occur while such Loan is outstanding,
(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 all of the
Commitments have been terminated and the Loans have been paid in full and (y)
the Commitment Termination Date shall be deemed to be an "Interest Payment Date"
with respect to any interest which is then accrued under the Agreement.
"Inventory" shall mean any "inventory," as such term is
defined in the Code, now or hereafter owned or acquired by any Credit Party,
wherever located, and, in any event, including inventory, merchandise, goods and
other personal property which are held by or on behalf of any Credit Party for
sale or lease or are furnished or are to be furnished under a contract of
service, or which constitute raw materials, work in process or materials used or
consumed or to be used or consumed in such Credit Party's business or in the
processing, production, packaging, promotion, delivery or shipping of the same,
including other supplies.
"Investment Property" shall have the meaning ascribed thereto
in Section 9-115 of the Code in those jurisdictions in which such definition has
been adopted and shall include (i) all securities, whether certificated or
uncertificated, including stocks, bonds, interests in limited liability
companies, partnership interests, treasuries, certificates of deposit, and
mutual fund shares; (ii) all securities entitlements of any Credit Party,
including the rights of any Credit Party 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 that account; (iii) all securities accounts held by any Credit
Party; (iv) all commodity contracts held by any Credit Party; and (v) all
commodity accounts held by any Credit Party.
"IRC" shall mean the Internal Revenue Code of 1986, as
amended, and any successor thereto.
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"IRS" shall mean the Internal Revenue Service, or any
successor thereto.
"L/C Issuer" shall have the meaning assigned to such term in
Annex B.
"Lenders" shall mean GE Capital, the other Lenders named on
the signature page of the Agreement, and, if any such Lender shall decide to
assign all or any portion of the Obligations, such term shall include such
assignee.
"Letter of Credit Fee" has the meaning ascribed thereto in
Annex B.
"Letter of Credit Obligations" shall mean all outstanding
obligations incurred by Agent and Lenders 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
Agent with respect to any Letter of Credit. The amount of such Letter of Credit
Obligations shall equal the maximum amount which may be payable by Agent or
Lenders 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 Agent and Lenders have incurred
Letter of Credit Obligations.
"Leverage Ratio" shall mean, with respect to any Person as of
any date of determination, the ratio of (a) Funded Debt, to (b) EBITA.
"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 a Loan or any portion thereof 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 set forth in Borrower Representative's irrevocable notice to
Agent as set forth in Section 1.5(e); provided that the foregoing provision
relating to LIBOR Periods is subject to the following:
(a) 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;
(b) any LIBOR Period that would otherwise extend beyond the
Commitment
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Termination Date shall end two (2) LIBOR Business Days prior to such
date;
(c) any LIBOR Period pertaining to a LIBOR Loan 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;
(d) 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
(e) Borrower Representative shall select LIBOR Periods so that
there shall be no more than five (5) separate LIBOR Loans in existence
at any one time.
"LIBOR Rate" shall mean for each LIBOR Period, a rate of
interest determined by Agent equal to:
(a) the offered rate for deposits in United States Dollars for
the applicable LIBOR Period which appears on Telerate Page 3750 as of
11:00 a.m., London time, on the second full LIBOR Business Day next
preceding the first day of each 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 which is two (2) LIBOR Business Days
prior to the beginning of such LIBOR Period (including basic,
supplemental, marginal and emergency reserves under any regulations of
the Board of Governors of the Federal Reserve system 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 such Board
which are required to be maintained by a member bank of the Federal
Reserve System (such rate to be adjusted to the nearest one sixteenth
of one percent (1/16th of 1%) or, if there is not a nearest one
sixteenth of one percent (1/16th of 1%), to the next highest one
sixteenth of one percent (1/16th of 1%).
If such interest rates shall cease to be available from
Telerate News Service, the LIBOR Rate shall be determined from such
financial reporting service or other information as shall be mutually
acceptable to Agent and Borrower Representative.
"License" shall mean any Patent License, Trademark License or
other license of rights or interests now held or hereafter acquired by any
Credit Party.
"Lien" shall mean any mortgage or deed of trust, pledge,
hypothecation, assignment, deposit arrangement, lien, charge, claim, security
interest, easement or encumbrance,
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or preference, priority 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 Notes, the
Collateral Documents and all other agreements, instruments, documents and
certificates identified in the Closing Checklist executed and delivered to, or
in favor of, Agent and/or Lenders 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, or any employee of any Credit Party, and delivered to Agent or any
Lender in connection with the Agreement or the transactions contemplated hereby.
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 as the same may be in effect at any and all times such reference
becomes operative. Notwithstanding the foregoing, the term "Loan Document" shall
exclude documents that evidence or govern the Subordinated Debt.
"Loans" shall mean the Revolving Loan, the Swing Line Loan and
the Term Loans.
"Material Adverse Effect" shall mean a material adverse effect
on (a) the business, assets, operations, prospects or financial or other
condition of the Credit Parties considered as a whole, (b) the Borrowers'
ability to pay any of the Loans or any of the other Obligations in accordance
with the terms of the Agreement, (c) the Collateral or Agent's Liens, on behalf
of itself and Lenders, on the Collateral or the priority of such Liens, or (d)
Agent's or any Lender's material rights and remedies under the Agreement and the
other Loan Documents. Without limiting the foregoing, any event or occurrence
which results or could reasonably be expected to result in losses, costs or
liabilities in excess of (i) $3,500,000 prior to a public offering of Holdings'
common Stock and payment in full of the Subordinated Debt or (ii) $7,500,000
thereafter shall be deemed to have had Material Adverse Effect.
"Maximum Amount" shall mean, at any particular time, an amount
equal to the Revolving Loan Commitment of all Lenders, which shall equal
$20,000,000 as of the Closing Date.
"Mortgaged Properties" shall have the meaning assigned to it
in Annex D.
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"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 Credit Party to Agent
with respect to the Mortgaged Properties, all in form and substance satisfactory
to Agent.
"Multiemployer Plan" shall mean a "multiemployer plan" as
defined in Section 4001(a)(3) of ERISA, to which any Credit Party or ERISA
Affiliate is making, is obligated to 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 (a) as to all Borrowers, the lesser of (i) the Maximum Amount and
(ii) the Aggregate Borrowing Base, in each case less the sum of the aggregate
Revolving Loan and Swing Line Loan then outstanding, or (b) as to an individual
Borrower, the lesser of (i) the Maximum Amount less the sum of the Revolving
Loan and Swing Line Loan outstanding to all other Borrowers and (ii) that
Borrower's separate Borrowing Base, less the sum of the Revolving Loan and Swing
Line Loan outstanding to that Borrower.
"Net Worth" shall mean, with respect to any Person as of any
date of determination, the book value of the assets (including, but not limited
to all general intangibles and goodwill) of such Person, minus (a) reserves
applicable thereto, and minus (b) all of such Person's liabilities on a
consolidated basis (including accrued and deferred income taxes), will be
determined in accordance with GAAP.
"Notes" shall mean the Revolving Notes, the Swing Line Notes
and the Term Notes, collectively.
"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 Agent or any 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 which accrues after the commencement of any case or
proceeding in bankruptcy after the insolvency of, or for the reorganization of
any Credit Party, whether or not allowed in such proceeding), Fees, Charges,
expenses, attorneys' fees and any other sum chargeable to any Credit Party under
the Agreement
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or any of the other Loan Documents. Notwithstanding the foregoing, the term
"Obligations" shall exclude any portion of the Subordinated Debt. However, the
term Obligations expressly excludes the Subordinated Debt.
"Overadvance" shall have the meaning assigned to it in Section
1.1(a)(iii).
"Patent Security Agreements" shall mean the Patent Security
Agreements made in favor of Agent, on behalf of itself and Lenders, by each
applicable Credit Party.
"Patent License" shall mean rights under any written agreement
now owned or hereafter acquired by any Credit Party 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 Credit
Party now holds or hereafter acquires any interest: (a) all letters patent of
the United States or 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, any State or Territory thereof, or any other country, and (b)
all reissues, continuations, continuations-in-part or extensions thereof.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or
any successor thereto.
"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 obligations
under workmen's compensation, unemployment insurance, social security or public
liability laws or similar legislation; (c) pledges or deposits of money securing
bids, tenders, contracts (other than contracts for the payment of money) or
leases to which any Credit Party is a party as lessee made in the ordinary
course of business; (d) deposits of money securing statutory obligations of any
Credit Party; (e) 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 and/or Real Estate; (f) carriers', warehousemen's,
suppliers' or other similar possessory liens arising in the ordinary course of
business and not past due, so long as such Liens attach only to Inventory; (g)
deposits securing, or in lieu of, surety, appeal or customs bonds in proceedings
to which any Credit Party is a party; (h) any attachment or judgment lien not
constituting an Event of Default under Section 8.1(j), so long as such Lien only
attaches to Real Estate; (i) 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; (j) presently
existing or hereinafter created Liens in favor of Agent, on behalf of Lenders;
and (k) Liens expressly permitted under clauses (b) and (c) of Section 6.7 of
the Agreement.
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"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).
"Plan" shall mean, at any time, an employee benefit plan, as
defined in Section 3(3) of ERISA, which any Credit Party maintains, contributes
to or has an obligation to contribute to on behalf of participants who are or
were employed by any Credit Party.
"Pledge Agreements" shall mean the Pledge Agreement executed
and delivered by Holdings as of the Closing Date and any pledge agreements
entered into after the Closing Date by any Credit Party (as required by the
Agreement or any other Loan Document).
"Prior Lender" shall mean each of LaSalle National Bank, Fleet
Bank and Flagship Bank.
"Proceeds" shall mean "proceeds," as such term is defined in
the Code and, in any event, shall include (a) any and all proceeds of any
insurance, indemnity, warranty or guaranty payable to any Credit Party 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 Credit Party 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 Credit Party 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 Trademark or Trademark License, or for
injury to the goodwill associated with any Trademark or Trademark License, (d)
any recoveries by any Credit Party 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.
"Pro Forma" means the unaudited consolidated and consolidating
balance sheet of Borrowers and their Subsidiaries as of January 31, 1997, after
giving pro forma effect to the Related Transactions.
"Projections" means Borrowers' budgeted consolidated and
consolidating: (a) balance sheets; (b) profit and loss statements; (c) cash flow
statements; and (d) capitalization 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.
"Pro Rata Share" shall mean with respect to all matters
relating to any Lender (a)
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with respect to the Revolving Loan or the Swing Line Loan, the percentage
obtained by dividing (i) the Revolving Loan Commitment, including the Swing Line
Commitment of that Lender by (ii) the aggregate Revolving Loan Commitments,
including the Swing Line Commitment of all Lenders, and (b) with respect to the
Term Loan, the percentage obtained by dividing (i) the Term Loan Commitment of
that Lender by (ii) the aggregate Term Loan Commitments of all Lenders, as any
such percentages may be adjusted by assignments permitted pursuant to Section
9.1.
"Qualified Plan" shall mean a Plan which is intended to be
tax-qualified under Section 401(a) of the IRC.
"Qualified Public Offering" shall mean a firm underwritten
public offering of common stock registered on form S-1, S-2 or S-3 under the
Securities Act of 1933, as amended, by a nationally recognized investment
banking firm, resulting in net proceeds to the issuer of at least $10,000,000,
and after giving effect to which the issuer shall be qualified for listing on
the NASDAQ National Market, the American Stock Exchange or the New York Stock
Exchange.
"Real Estate" shall have the meaning assigned to it in Section
3.6.
"Refinancing" shall mean the repayment in full by Borrowers of
the Prior Lender Obligations on the Closing Date.
"Refunded Swing Line Loan" shall have the meaning assigned to
it in Section 1.1(c)(iii).
"Related Transactions" means each borrowing under the
Revolving Loan and the Term Loans on the Closing Date, the Acquisition, the
Reorganization, the Refinancing, the issuance of the Subordinated Notes, the
payment of all fees, costs and expenses associated with all of the foregoing and
the execution and delivery of all of the Related Transactions Documents.
"Related Transactions Documents" shall mean the Loan
Documents, the Acquisition Agreement, and the Subordinated Notes.
"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.
"Requisite Lenders" shall mean (a) Lenders having more than
sixty-six and two-thirds percent (66 2/3%) of the Commitments of all Lenders, or
(b) if the Commitments have been terminated, more than sixty-six and two-thirds
percent (66 2/3%) of the aggregate outstanding amount of all Loans (with the
Swing Line Loan being attributed to the Lender making such Loan) and Letter of
Credit Obligations; provided that so long as all of the Commitments are held by
GE Capital and LaSalle National Bank, "Requisite Lenders" shall
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mean both of such Lenders.
"Requisite Revolving Lenders" shall mean (a) Lenders having
more than sixty-six and two-thirds percent (66 2/3%) of the Revolving Loan
Commitments of all Lenders, or (b) if the Revolving Loan Commitments have been
terminated, more than sixty-six and two-thirds percent (66 2/3%) of the
aggregate outstanding amount of the Revolving Loan (with the Swing Line Loan
being attributed to the Lender making such Loan) and Letter of Credit
Obligations.
"Reserves" shall mean, with respect to the Borrowing Base of
any Borrower (a) reserves established by Agent from time to time against
Eligible Inventory pursuant to Section 5.9, (b) reserves established pursuant to
Section 5.4(c), and (c) such other reserves against Eligible Accounts or
Eligible Inventory of any Borrower which Agent may, in its reasonable credit
judgment, establish from time to time. Without limiting the generality of the
foregoing, Reserves established to ensure the payment of accrued Interest
Expenses, Environmental Liabilities or Indebtedness shall be deemed to be a
reasonable exercise of Agent's credit judgment.
"Restricted Payment" shall mean (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 a Person's Stock,
(b) any payment on account of the purchase, redemption, defeasance, sinking fund
or other retirement of a Person's Stock or any other payment or distribution
made in respect thereof, either directly or indirectly, (c) any payment or
prepayment of principal of, premium, if any, or interest, fees or other charges
on or with respect to, and any redemption, purchase, retirement, defeasance,
sinking fund or similar payment and any claim for rescission with respect to,
any Subordinated Debt; (d) 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 (other
than by means of cancellation of Subordinated Debt); (e) 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; (f) any payment, loan, contribution,
or other transfer of funds or other property to any Stockholder of such Person;
and (g) any payment of management fees (or other fees of a similar nature) by
such Person to any Stockholder of such Person or their Affiliates.
"Retiree Welfare Plan" shall mean, at any time, a Plan that is
a "welfare plan" as defined in Section 3(1) of ERISA, 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)(i).
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"Revolving Lenders" shall mean, as of any date of
determination, Lenders having a Revolving Loan Commitment.
"Revolving Loan" shall mean as the context may require, at any
time, the sum of (i) the aggregate amount of Revolving Credit Advances
outstanding to any Borrower or to all Borrowers plus (ii) the aggregate Letter
of Credit Obligations incurred on behalf of any Borrower or all Borrowers.
"Revolving Loan Commitment" shall mean (a) as to any Lender,
the aggregate commitment of such Lender to make Revolving Credit Advances
(including without duplication Swing Line Advances) and/or incur Letter of
Credit Obligations as set forth in the signature page to the Agreement or in the
most recent Assignment Agreement executed by such Lender and (b) as to all
Lenders, the aggregate commitment of all Lenders to make Revolving Credit
Advances (including without duplication Swing Line Advances) and/or incur Letter
of Credit Obligations, which aggregate commitment shall be Twenty Million
($20,000,000) 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(a)(ii).
"Security Agreement" shall mean the Security Agreement of even
date herewith entered into among Agent, on behalf of itself and Lenders, and
each Credit Party that is a signatory thereto.
"Selfix" means Selfix, Inc., a Delaware corporation.
"Selfix Borrowing Base" shall mean, as of any date of
determination by Agent, from time to time, an amount equal to the sum at such
time of:
(a) eighty-five percent (85%) of Selfix's Eligible Accounts,
less any Reserves established by Agent at such time; and
(b) fifty percent (50%) of the book value of Selfix's Eligible
Inventory valued on a first-in, first-out basis (at the lower of cost
or market), less any Reserves established by Agent at such time.
"Selfix Term Loan A" shall have the meaning assigned to it in
Section 1.1(b)(i).
"Selfix Term Loan A Commitment" shall mean (a) as to any
Lender with a Selfix Term Loan A Commitment, the commitment of such Lender to
make its Pro Rata Share of the Selfix Term Loan A as set forth on the signature
page to the Agreement or in the most recent Assignment Agreement executed by
such Lender, and (b) as to all Lenders with a Selfix Term Loan A Commitment, the
aggregate commitment of all Lenders to make the Selfix Term Loan A,
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which aggregate commitment shall be Three Million Five Hundred Thousand Dollars
($3,500,000) on the Closing Date.
"Selfix Term Loan B" shall have the meaning assigned to it in
Section 1.1(b)(i).
"Selfix Term Loan B Commitment" shall mean (a) as to any
Lender with a Selfix Term Loan B Commitment, the commitment of such Lender to
make its Pro Rata Share of the Selfix Term Loan B as set forth on the signature
page to the Agreement or in the most recent Assignment Agreement executed by
such Lender, and (b) as to all Lenders with a Selfix Term Loan B Commitment, the
aggregate commitment of all Lenders to make the Selfix Term Loan B, which
aggregate commitment shall be Three Million Five Hundred Thousand Dollars
($3,500,000) on the Closing Date.
"Sellers" shall mean Leonard Tocci, Richard M. Tocci, Lawrence
J. Tata, Michael P. Tata, Barbara J. Tata, Leanne Whitney, Lynel Tocci and
Linnea Tocci.
"Shutters" means Shutters, Inc., an Illinois corporation.
"Shutters Borrowing Base" shall mean, as of any date of
determination by Agent, from time to time, an amount equal to the sum at such
time of:
(a) eighty-five percent (85%) of Shutters' Eligible Accounts,
less any Reserves established by Agent at such time; and
(b) fifty percent (50%) of the book value of Shutters'
Eligible Inventory valued on a first-in, first-out basis (at the lower
of cost or market), less any Reserves established by Agent at such
time.
"Shutters Term Loan A" shall have the meaning assigned to it
in Section 1.1(b)(i).
"Shutters Term Loan A Commitment" shall mean (a) as to any
Lender with a Shutters Term Loan A Commitment, the commitment of such Lender to
make its Pro Rata Share of the Shutters Term Loan A as set forth on the
signature page to the Agreement or in the most recent Assignment Agreement
executed by such Lender, and (b) as to all Lenders with a Shutters Term Loan A
Commitment, the aggregate commitment of all Lenders to make the Shutters Term
Loan A, which aggregate commitment shall be One Million Five Hundred Thousand
Dollars ($1,500,000) on the Closing Date.
"Shutters Term Loan B" shall have the meaning assigned to it
in Section 1.1(b)(i).
"Shutters Term Loan B Commitment" shall mean (a) as to any
Lender with a Shutters Term Loan B Commitment, the commitment of such Lender to
make its Pro Rata Share of the Shutters Term Loan B as set forth on the
signature page to the Agreement or in the most
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recent Assignment Agreement executed by such Lender, and (b) as to all Lenders
with a Shutters Term Loan B Commitment, the aggregate commitment of all Lenders
to make the Shutters Term Loan B, which aggregate commitment shall be One
Million Five Hundred Thousand Dollars ($1,500,000) on the Closing Date.
"Solvent" shall mean, with respect to any Person on a
particular date, that on such date (a) the fair value of the property of such
Person is greater than the total amount of liabilities, including contingent
liabilities, of such Person; (b) the present fair salable value of the assets of
such Person is not less than the amount that will be required to pay the
probably liability of such Person on its debts as they become absolute and
matured; (c) such Person does not intend to, and does not believe that it will,
incur debts or liabilities beyond such Person's ability to pay as such debts and
liabilities mature; and (d) such Person is not engaged in a business or
transaction, and is not about to engage in a business or transaction, for which
such Person's property would constitute an unreasonably small capital. The
amount of contingent liabilities (such as litigation, guarantees and pension
plan liabilities) at any time shall be computed as the amount which, in light of
all the facts and circumstances existing at the time, represents the amount
which can be reasonably be expected to become an actual or matured liability.
"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 of 1934, as amended).
"Subordinated Debt" shall mean the Indebtedness of Borrowers
evidenced by the Subordinated Notes and any other Indebtedness of any Credit
Party subordinated to the Obligations in a manner and form satisfactory to Agent
and Lenders in their sole discretion, as to right and time of payment and as to
any other rights and remedies thereunder.
"Subordinated Notes" shall mean those certain Subordinated
Equity Bridge Notes due on the eighth anniversary of the date hereof issued by
Borrowers, jointly and severally, in the original principal amount of
$7,000,000, and all payment-in-kind notes issued to pay interest with respect
thereto.
"Subsidiary" shall mean, with respect to any Person, (a) any
corporation of which an aggregate of more than fifty percent (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 and/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 fifty percent (50%) or more of such Stock
whether by proxy, agreement, operation of law or otherwise, and
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(b) any partnership or limited liability company in which such Person and/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
fifty percent (50%) or of which any such Person is a general partner or may
exercise the powers of a general partner.
"Supermajority Revolving Lenders" shall mean (a) Lenders
having eighty percent (80%) or more of the Revolving Loan Commitments of all
Lenders, or (b) if the Revolving Loan Commitments have been terminated, eighty
percent (80%) or more of the aggregate outstanding amount of the Revolving Loan
(with the Swing Line Loan being attributed to the Lender making such Loan) and
Letter of Credit Obligations.
"Swing Line Advance" has the meaning assigned to it in Section
1.1(c)(i).
"Swing Line Availability" has the meaning assigned to it in
Section 1.1(c)(i).
"Swing Line Commitment" shall mean, as to the Swing Line
Lender, the commitment of the Swing Line Lender to make Swing Line Loans as set
forth on the signature page to the Agreement, which commitment constitutes a
subfacility of the Revolving Loan Commitment of the Swing Line Lender.
"Swing Line Lender" shall mean GE Capital.
"Swing Line Loan" shall mean, as the context may require, at
any time, the aggregate amount of Swing Line Advances outstanding to any
Borrower or to all Borrowers.
"Swing Line Loan Participation Certificate" shall mean a
certificate delivered pursuant to Section 1.1(c)(iv).
"Swing Line Note" has the meaning assigned to it in Section
1.1(c)(ii).
"Tamor" means Tamor Corporation, a Massachusetts corporation.
"Tamor Borrowing Base" shall mean, as of any date of
determination by Agent, from time to time, an amount equal to the sum at such
time of:
(a) eighty-five percent (85%) of Tamor's Eligible Accounts,
less any Reserves established by Agent at such time; and
(b) fifty percent (50%) of the book value of Tamor's Eligible
Inventory valued on a first-in, first-out basis (at the lower of cost
or market), less any Reserves established by Agent at such time.
"Tamor Term Loan A" shall have the meaning assigned to it in
Section 1.1(b)(i).
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"Tamor Term Loan A Commitment" shall mean (a) as to any Lender
with a Tamor Term Loan Commitment, the commitment of such Lender to make its Pro
Rata Share of the Tamor Term Loan A as set forth on the signature page to the
Agreement or in the most recent Assignment Agreement executed by such Lender,
and (b) as to all Lenders with a Tamor Term Loan Commitment, the aggregate
commitment of all Lenders to make the Tamor Term Loan, which aggregate
commitment shall be Fifteen Million Dollars ($15,000,000) on the Closing Date.
"Tamor Term Loan B" shall have the meaning assigned to it in
Section 1.1(c)(i).
"Tamor Term Loan B Commitment" shall mean (a) as to any Lender
with a Tamor Term Loan Commitment, the commitment of such Lender to make its Pro
Rata Share of the Tamor Term Loan B as set forth on the signature page to the
Agreement or in the most recent Assignment Agreement executed by such Lender,
and (b) as to all Lenders with a Tamor Term Loan Commitment, the aggregate
commitment of all Lenders to make the Tamor Term Loan, which aggregate
commitment shall be Fifteen Million Dollars ($15,000,000) on the Closing Date.
"Taxes" shall mean taxes, levies, imposts, deductions, Charges
or withholdings, and all liabilities with respect thereto, excluding taxes
imposed on or measured by the net income of Agent or a Lender by the
jurisdictions under the laws of which Agent and Lenders are organized or any
political subdivision thereof.
"Term Lenders" shall mean those Lenders having Term Loan
Commitments.
"Term Loan" shall have the meaning assigned to it in Section
1.1(b).
"Term Loan Commitment" shall mean, collectively, the Selfix
Term Loan A Commitment, the Tamor Term Loan A Commitment, the Shutters Term Loan
A Commitment, the Selfix Term Loan B Commitment, the Tamor Term Loan B
Commitment, the Shutters Term Loan B Commitment,
"Term Note" shall have the meaning assigned to it in Section
1.1(b)(i).
"Termination Date" shall mean the date on which the Loans have
been indefeasibly repaid in full and all other Obligations under the Agreement
and the other Loan Documents have been completely discharged and Letter of
Credit Obligations have been cash collateralized, cancelled or backed by
stand-by letters of credit in accordance with Annex B, and none of Borrowers
shall have any further right to borrow any monies under the Agreement.
"Title IV Plan" shall mean an employee pension benefit plan,
as defined in Section 3 (2) of ERISA (other than a Multiemployer Plan), which is
covered by Title IV of
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ERISA, which any Credit Party or ERISA Affiliate maintains, contributes to or
has an obligation to contribute to, or has maintained, contributed to or had an
obligation to contribute to, on behalf of participants who are or were employed
by any of them.
"Trademark Security Agreements" shall mean the Trademark
Security Agreements made in favor of Agent, on behalf of Lenders, by each
applicable Credit Party.
"Trademark License" shall mean rights under any written
agreement now owned or hereafter acquired by any Credit Party granting any right
to use any Trademark.
"Trademarks" shall mean all of the following now owned or
hereafter acquired by any Credit Party: (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), now owned or existing or hereafter adopted or
acquired, 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 reissues, extensions or renewals
thereof; and (c) all goodwill associated with or symbolized by any of the
foregoing.
"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 (5) years following a transaction which might reasonably be expected to be
covered by Section 4069 of ERISA, the liabilities (whether or not accrued) that
could be avoided by any Credit Party or any ERISA Affiliate as a result of such
transaction.
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 Illinois 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,
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feminine or neuter gender shall include the masculine, feminine and neuter
genders. The words "including", "includes" and "include" shall be deemed to be
followed by the words "without limitation"; 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.
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ANNEX B (Section 1.2)
TO
CREDIT AGREEMENT
LETTERS OF CREDIT
(a) Issuance. Subject to the terms and conditions of the
Agreement, Agent and Revolving Lenders agree 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 Agent in its sole
discretion (each, an "L/C Issuer")) for such Borrower's account and guaranteed
by Agent; provided, however, that if the L/C Issuer is a Revolving Lender, then
such Letters of Credit shall not be guaranteed by Agent but rather each
Revolving Lender shall, subject to the terms and conditions hereinafter set
forth, purchase (or be deemed to have purchased) risk participations in all such
Letters of Credit issued with the written consent of Agent, as more fully
described in paragraph (b)(ii) below. The aggregate amount of all such Letter of
Credit Obligations shall not at any time exceed the least of (i) Ten Million
($10,000,000) (the "L/C Sublimit"), and (ii) the Maximum Amount less the
aggregate outstanding principal balance of the Revolving Credit Advances and the
Swing Line Loan, and (iii) the Aggregate Borrowing Base less the aggregate
outstanding principal balance of the Revolving Credit Advances and the Swing
Line Loan. Furthermore, the aggregate amount of any Letter of Credit Obligations
incurred on behalf of any Borrower shall not at any time exceed such Borrower's
separate Borrowing Base less the aggregate principal balance of the Revolving
Credit Advances and the Swing Line Loan to such Borrower. Except for two IRB
Letters of Credit outstanding on the Closing Date that have an Expiry Date of
April 1, 1998, no such Letter of Credit shall have an expiry date which is more
than one year following the date of issuance thereof, and neither Agent nor
Revolving Lenders shall be under any obligation to incur Letter of Credit
Obligations in respect of, or purchase risk participations in, any Letter of
Credit having an expiry date which is later than the Commitment Termination
Date.
(b) (i) Advances Automatic; Participations. In the event that
Agent or any Revolving 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) of the Agreement 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, and each Revolving
Lender shall be obligated to pay its Pro Rata Share thereof in accordance with
the Agreement. The failure of any Revolving Lender to make available to Agent
for Agent's own account its Pro Rata Share of any such Revolving Credit Advance
or payment by Agent under or in respect of a Letter of Credit shall not relieve
any other Revolving Lender of its obligation hereunder to make available to
Agent its Pro Rata Share thereof, but no Revolving Lender shall be responsible
for the failure
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of any other Revolving Lender to make available such other Revolving Lender's
Pro Rata Share of any such payment.
(ii) If it shall be illegal or unlawful for any
Borrower to incur Revolving Credit Advances as contemplated by paragraph (b)(i)
above because of an Event of Default described in Section 8.1(h) or (i) or
otherwise or if it shall be illegal or unlawful for any Revolving Lender to be
deemed to have assumed a ratable share of the reimbursement obligations owed to
an L/C Issuer, or if the L/C Issuer is a Revolving Lender, then (i) immediately
and without further action whatsoever, each Revolving Lender shall be deemed to
have irrevocably and unconditionally purchased from Agent (or such L/C Issuer,
as the case may be) an undivided interest and participation equal to such
Revolving Lender's Pro Rata Share (based on the Revolving Loan Commitments) of
the Letter of Credit Obligations in respect of all Letters of Credit then
outstanding and (ii) thereafter, immediately upon issuance of any Letter of
Credit, each Revolving Lender shall be deemed to have irrevocably and
unconditionally purchased from Agent (or such L/C Issuer, as the case may be) an
undivided interest and participation in such Revolving Lender's Pro Rata Share
(based on the Revolving Loan Commitments) of the Letter of Credit Obligations
with respect to such Letter of Credit on the date of such issuance. Each
Revolving Lender shall fund its participation in all payments or disbursements
made under the Letters of Credit in the same manner as provided in the Agreement
with respect to Revolving Credit Advances.
(c) Cash Collateral. 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 Agent for the
benefit of Revolving Lenders cash or cash equivalents acceptable to Agent ("Cash
Equivalents") in an amount equal to 105% 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 Agent in a cash
collateral account (the "Cash Collateral Account") maintained at a bank or
financial institution acceptable to Agent. The Cash Collateral Account shall be
in the name of the applicable Borrower and shall be pledged to, and subject to
the control of, Agent, for the benefit of Agent and Lenders, in a manner
satisfactory to Agent. Each Borrower hereby pledges and grants to Agent, on
behalf of Lenders, 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.
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 (i) provide cash collateral therefor in the manner
described above, or (ii) cause all such Letters of Credit and guaranties thereof
to be canceled and returned, or (iii) 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 105% of the
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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 Agent in its sole discretion.
From time to time after funds are deposited in the Cash
Collateral Account by any Borrower, whether before or after the Commitment
Termination Date, Agent may apply such funds or Cash Equivalents then held in
the Cash Collateral Account to the payment of any amounts, in such order as
Agent may elect, as shall be or shall become due and payable by such Borrower to
Lenders 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.
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 Lenders in respect thereof, any funds remaining in the
Cash Collateral Account shall be applied to other Obligations when 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 to Agent for the
benefit of Revolving Lenders, as compensation to such Lenders for Letter of
Credit Obligations incurred hereunder, (x) all costs and expenses incurred by
Agent or any Lender on account of such Letter of Credit Obligations, and (y) 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 two
percent (2.0%) per annum multiplied by the maximum amount available from time to
time to be drawn under the applicable Letter of Credit. Such fee shall be paid
to Agent for the benefit of the Revolving Lenders in arrears, on the first day
of each month. In addition, Borrowers shall pay 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 Agent at least two (2) 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 guarantied.
Notwithstanding anything contained herein to the contrary, Letter of Credit
applications by Borrower Representative and approvals by Agent may be made and
transmitted pursuant to electronic codes and security measures mutually agreed
upon and established by and among Borrower Representative, Agent and the L/C
Issuer.
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(f) Obligation Absolute. The obligation of Borrowers to
reimburse Agent and Revolving Lenders 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, and the
obligations of each Revolving Lender to make payments to Agent with respect to
Letters of Credit shall be unconditional and irrevocable. Such obligations of
Borrowers and Revolving Lenders shall be paid strictly in accordance with the
terms hereof under all circumstances including the following circumstances:
(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, set-off, defense or other
right which any Borrower or any of their respective Affiliates or any
Lender 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), Agent, any 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 Agent or any L/C Issuer under any Letter of
Credit or guaranty thereof against presentation of a demand, draft or
certificate or other document which does not comply with the terms of
such Letter of Credit or such guaranty;
(v) any other circumstance or happening whatsoever, which 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 Lenders' Duties. In addition to
amounts payable as elsewhere provided in the Agreement, Borrowers hereby agree
to pay and to protect, indemnify, and save harmless Agent and each Lender from
and against any and all claims, demands, liabilities, damages, losses, costs,
charges and expenses (including attorneys' fees and allocated costs of internal
counsel) which Agent or any Lender may incur or be subject to as a consequence,
direct or indirect, of (i) the issuance of any Letter of Credit or guaranty
thereof, or (ii) the failure of Agent or any Lender seeking indemnification or
of 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
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or Governmental Authority, in each case other than to the extent solely as a
result of the gross negligence or willful misconduct of Agent or such Lender (as
finally determined by a court of competent jurisdiction).
As between Agent and any 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 furtherance and not in limitation
of the foregoing, to the fullest extent permitted by law neither Agent nor any
Lender shall be responsible: (i) for 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; (ii) for 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, which may prove to be invalid or ineffective for any reason; (iii) for
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 Agent under any Letter of Credit or
guaranty thereof, Agent 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; (iv) for errors, omissions, interruptions or delays
in transmission or delivery of any messages, by mail, cable, telegraph, telex or
otherwise, whether or not they be in cipher; (v) for errors in interpretation of
technical terms; (vi) for 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; (vii) for the credit of the
proceeds of any drawing under any Letter of Credit or guaranty thereof; and
(viii) for any consequences arising from causes beyond the control of Agent or
any Lender. None of the above shall affect, impair, or prevent the vesting of
any of Agent's or any Lender's rights or powers hereunder or under the
Agreement.
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.
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ANNEX C (Section 1.8)
TO
CREDIT AGREEMENT
CASH MANAGEMENT SYSTEMS
Each Borrower shall, and shall cause its Subsidiaries to, establish and
maintain the Cash Management Systems described below:
(a) On or before the Closing Date and until the Termination
Date, each Borrower shall (i) establish lock boxes ("Lock Boxes") at one or more
of the banks set forth on Disclosure Schedule (3.19), and shall request in
writing and otherwise take such reasonable steps to ensure that all Account
Debtors forward payment directly to such Lock Boxes, and (ii) deposit and cause
its Subsidiaries to deposit or cause to be deposited promptly, and in any event
no later than the first Business Day after the date of receipt thereof, all
cash, checks, drafts or other similar items of payment relating to or
constituting payments made in respect of any and all Collateral (whether or not
otherwise delivered to a Lock Box) into bank accounts in such Borrower's name or
any such Subsidiary's name (collectively, the "Borrower Accounts") at banks set
forth on Disclosure Schedule (3.19) (each, a "Relationship Bank"). On or before
the Closing Date, each Borrower shall have established a concentration account
in its name (each a "Concentration Account" and collectively, the "Concentration
Accounts") at the bank or banks which shall be designated as the Concentration
Account bank for each such Borrower on Disclosure Schedule (3.19) (each a
"Concentration Account Bank" and collectively, the "Concentration Account
Banks"), which banks shall be satisfactory to Agent.
(b) On or before the Closing Date (or such later date as Agent
shall consent to in writing), each Concentration Account Bank, each bank where a
Disbursement Account is located and all other Relationship Banks, shall have
entered into tri-party blocked account agreements with Agent, for the benefit of
itself and Lenders, and the applicable Borrower and Subsidiaries thereof, as
applicable, in form and substance acceptable to Agent, which shall become
operative on or prior to the Closing Date. Each such blocked account agreement
shall provide, among other things, that (i) all items of payment deposited in
such account and proceeds thereof deposited in the applicable Concentration
Account are held by such bank as agent or bailee-in-possession for Agent, on
behalf of Lenders, (ii) the bank executing such agreement 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 (A) with respect to
banks at which a Borrower Account is located, such bank agrees to forward
immediately all amounts in each Borrower Account to such Borrower's
Concentration Account Bank and to commence the process of daily sweeps from such
Borrower Account into
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the applicable Concentration Account and (B) with respect to each Concentration
Account Bank, such bank agrees to immediately forward all amounts received in
the applicable Concentration Account to the Collection Account through daily
sweeps from such Concentration Account into the Collection Account. No Borrower
shall, or shall cause or permit any Subsidiary thereof to, accumulate or
maintain cash in disbursement or payroll accounts as of any date of
determination in excess of checks outstanding against such accounts as of that
date and amounts necessary to meet minimum balance requirements.
(c) So long as no Default or Event of Default has occurred and
is continuing, Borrowers may amend Disclosure Schedule (3.19) to add or replace
a Relationship Bank, Lock Box or Borrower Account or to replace any
Concentration Account or any Disbursement Account; provided, however, that (i)
Agent 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
such account or Lock Box, the applicable Borrower and/or the Subsidiaries
thereof, as applicable, and such bank shall have executed and delivered to Agent
a tri-party blocked account agreement, in form and substance satisfactory to
Agent. Borrowers shall close any of their accounts (and establish replacement
accounts in accordance with the foregoing sentence) promptly and in any event
within thirty (30) days of notice from Agent that the creditworthiness of any
bank holding an account is no longer acceptable in Agent's reasonable judgment,
or as promptly as practicable and in any event within sixty (60) days of notice
from Agent that the operating performance, funds transfer and/or availability
procedures or performance with respect to accounts or lockboxes of the bank
holding such accounts or Agent's liability under any tri-party blocked account
agreement with such bank is no longer acceptable in Agent's reasonable judgment.
(d) The Lock Boxes, Borrower Accounts, Disbursement Accounts
and the Concentration 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 Agent, on behalf of itself and
Lenders, pursuant to the Security Agreement.
(e) All amounts deposited in the Collection Account shall be
deemed received by Agent in accordance with Section 1.10 of the Agreement and
shall be applied (and allocated) by Agent in accordance with Section 1.11 of the
Agreement. 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.
(f) Each Borrower may maintain, in its name, an account (each
a "Disbursement Account" and collectively, the "Disbursement Accounts") at a
bank acceptable to Agent into which Agent shall, from time to time, deposit
proceeds of Revolving Credit Advances and Swing Line Advances made to such
Borrower pursuant to Section 1.1 for use by such Borrower solely in accordance
with the provisions of Section 1.4.
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(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 Agent, for
the benefit of itself and Lenders, all checks, cash and other items of payment
received by such Borrower or any such Related Person, and (ii) within one (1)
Business Day after receipt by such Borrower or any such Related Person of any
checks, cash or other items or payment, deposit the same into a Borrower Account
of such Borrower. Each Borrower and each Related Person thereof acknowledges and
agrees that all cash, checks or items of payment constituting proceeds of
Collateral are the property of Agent and Lenders. All proceeds of the sale or
other disposition of any Collateral, shall be deposited directly into the
applicable Borrower Accounts.
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ANNEX D (SECTION 2.1(A))
TO
CREDIT AGREEMENT
SCHEDULE OF ADDITIONAL CLOSING DOCUMENTS
In addition to, and not in limitation of, the conditions described in Section
2.1 of the Agreement, pursuant to Section 2.1(a), the following items must be
received by Agent in form and substance satisfactory to Agent on or prior to the
Closing Date (each capitalized term used but not otherwise defined herein shall
have the meaning ascribed thereto in Annex A to the Agreement):
A. Appendices. All Appendices to the Agreement, in form and substance
satisfactory to Agent.
B. Revolving Notes, Swing Line Notes and Term Notes. Duly executed
originals of the Revolving Notes, Swing Line Notes and Term Notes for each
applicable Lender, dated the Closing Date.
C. Security Agreement. Duly executed originals of the Security
Agreement, dated the Closing Date, and all instruments, documents and agreements
executed pursuant thereto.
D. Insurance. Satisfactory evidence that the insurance policies
required by Section 5.4 are in full force and effect, together with appropriate
evidence showing loss payable and/or additional insured clauses or endorsements,
as requested by Agent, in favor of Agent, on behalf of Lenders.
E. Security Interests and Code Filings. (a) Evidence satisfactory to
Agent that Agent (for the benefit of itself and Lenders) has a valid and
perfected first priority security interest in the Collateral, including (i) such
documents duly executed by each Credit Party (including financing statements
under the Code and other applicable documents under the laws of any jurisdiction
with respect to the perfection of Liens) as Agent may request in order to
perfect its security interests in the Collateral and (ii) copies of Code search
reports listing all effective financing statements that name any Credit Party as
debtor, together with copies of such financing statements, none of which shall
cover the Collateral, except for those relating to the Prior Lender Obligations
(all of which shall be terminated on the Closing Date).
(b) Evidence satisfactory to Agent, including copies, of all
UCC-1 and other financing statements filed in favor of any Credit Party with
respect to each location, if any, at which Inventory may be consigned.
(c) Control Letters from (i) all issuers of uncertificated
securities and financial assets held by each Borrower, (ii) all securities
intermediaries with respect to all securities
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accounts and securities entitlements of any Borrower, and (iii) all futures
commission agents and clearing houses with respect to all commodities contracts
and commodities accounts held by any Borrower.
F. Payoff Letters; Termination Statements. Copies of duly executed
payoff letters, in form and substance satisfactory to Agent, by each of LaSalle
National Bank, Fleet Bank and Flagship Bank, together with (a) UCC-3 or other
appropriate termination statements, in form and substance satisfactory to Agent,
manually signed by each Prior Lender terminating all liens of each Prior Lender
upon any of the personal property of each Credit Party, and (b) termination of
all blocked account agreements, bank agency agreements or other similar
agreements or arrangements or arrangements in favor of each Prior Lender.
G. Intellectual Property Security Agreements. Duly executed originals
of Trademark Security Agreements and Patent Security Agreements, each dated the
Closing Date and signed by each Credit Party which owns Trademarks and/or
Patents, as applicable, all in form and substance satisfactory to Agent,
together with all instruments, documents and agreements executed pursuant
thereto.
H. Acquisition Agreement. Final and complete copies of the Acquisition
Agreement.
(i) Tamor Stock Purchase Agreement with all schedules;
(ii) Agreement and Plan of Merger re Houseware Sales.
I. Subordinated Notes. A final and complete copy of the Subordinated
Notes Documents.
(i) Subordinated Notes Purchase Agreement;
(ii) Subordinated Notes;
(iii) Subordinated Notes Security Agreement;
(iv) UCC-1 Financing Statements in favor of GE Capital
individually;
(v) Warrant; and
(vi) Allocation Agreement.
J. Initial Borrowing Base Certificate. Duly executed originals of an
initial Borrowing Base Certificate from each Borrower, dated the Closing Date,
reflecting information concerning Eligible Accounts and Eligible Inventory of
such Borrower.
K. Initial Notice of Revolving Credit Advance. Duly executed originals
of a Notice of Revolving Credit Advance, dated the Closing Date, with respect to
the initial Revolving Credit Advance to be requested by Borrower Representative
on the Closing Date.
L. Letter of Direction. (i) Duly executed originals of a letter of
direction from Borrower Representative addressed to Agent, on behalf of itself
and Lenders, with respect to the
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disbursement on the Closing Date of the proceeds of the Term Loans and the
initial Revolving Credit Advance.
(ii) Funds Flow Memorandum
M. Cash Management System; Blocked Account Agreements. Evidence
satisfactory to Agent that, as of the Closing Date, Cash Management Systems
complying with Annex C to the Agreement have been established and are currently
being maintained in the manner set forth in such Annex C, together with copies
of duly executed tri-party blocked account and lock box agreements, satisfactory
to Agent, with the banks as required by Annex C.
N. Charter and Good Standing. For each Credit Party, such Person's (a)
charter and all amendments thereto, (b) good standing certificates (including
verification of tax status) in its state of incorporation and (c) good standing
certificates (including verification of tax status) and certificates of
qualification to conduct business in each jurisdiction where its ownership or
lease of property or the conduct of its business requires such qualification,
each dated a recent date prior to the Closing Date and certified by the
applicable Secretary of State or other authorized Governmental Authority.
O. Bylaws and Resolutions. For each Credit Party, (a) such Person's
bylaws, together with all amendments thereto and (b) resolutions of such
Person's Board of Directors and stockholders, approving and authorizing the
execution, delivery and performance of the Loan Documents to which such Person
is a party and the transactions to be consummated in connection therewith, each
certified as of the Closing Date by such Person's corporate secretary or an
assistant secretary as being in full force and effect without any modification
or amendment.
P. Incumbency Certificates. For each Credit Party, signature and
incumbency certificates of the officers of each such Person executing any of the
Loan Documents, certified as of the Closing Date by such Person's corporate
secretary or an assistant secretary as being true, accurate, correct and
complete.
Q. Opinions of Counsel. Duly executed originals of opinions of Much,
Shelist, Freed, Denenberg, Ament, Bell & Rubenstein, counsel for the Credit
Parties, together with any local counsel opinions requested by Agent, each in
form and substance satisfactory to Agent and its counsel, dated the Closing
Date, and each accompanied by a letter addressed to such counsel from the Credit
Parties, authorizing and directing such counsel to address its opinion to Agent,
on behalf of Lenders, and to include in such opinion an express statement to the
effect that Agent and Lenders are authorized to rely on such opinion.
R. Guaranty. Duly executed originals of the Holdings Guaranty.
S. Pledge Agreement. Duly executed originals of each of the Pledge
Agreement accompanied by (a) share certificates representing all of the
outstanding Stock being pledged
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pursuant to such Pledge Agreement and stock powers for such share certificates
executed in blank and (b) the original Intercompany Notes and other instruments
evidencing Indebtedness being pledged pursuant to such Pledge Agreement, duly
endorsed in blank.
T. Accountants' Letter. A letter authorizing the independent certified
public accountants of the Credit Parties to communicate with Agent and Lenders
in accordance with Section 4.2 and acknowledging Lenders' reliance on the
auditor's certification of past and future Financial Statements.
U. Appointment of Agent for Service. An appointment of CSC Corporation
as each Credit Party's agent for service of process.
V. Solvency Opinion. To Agent for the benefit of Lenders a solvency
opinion satisfactory by Valuation Research in form and substance satisfactory to
Agent.
W. Fee Letter. Duly executed originals of the GE Capital Fee Letter.
X. Officer's Certificate. Agent shall have received duly executed
originals of a certificate of the Chief Executive Officer and Chief Financial
Officer of each Borrower, dated the Closing Date, stating that, since September
30, 1996 (a) no event or condition has occurred or is existing which could
reasonably be expected to have a Material Adverse Effect; (b) there has been no
material adverse change in the industry in which any Borrower operates; (c) no
Litigation has been commenced which, if successful, would have a Material
Adverse Effect or could challenge any of the transactions contemplated by the
Agreement and the other Loan Documents; (d) there have been no Restricted
Payments made by any Credit Party; and (e) there has been no material increase
in liabilities, liquidated or contingent, and no material decrease in assets of
any Borrower or any of its Subsidiaries.
Y. Waivers. Agent, on behalf of Lenders, shall have received landlord
waivers and consents, bailee letters and mortgagee agreements in form and
substance satisfactory to Agent, in each case as required pursuant to Section
5.9.
Z. Real Estate Documents. Mortgages, title insurance policies and other
real estate documents as set forth on Annex D-1 hereto.
AA. Environmental Reports. Agent shall have received Phase I
Environmental Site Assessment Reports, consistent with American Society for
Testing and Materials (ASTM) Standard E 1527-94 and applicable state
requirements, on all of the owned Real Estate, dated no more than 6 months prior
to the Closing Date, prepared by environmental engineers satisfactory to Agent,
all in form and substance satisfactory to Agent, in its sole discretion; and
Agent shall have further received such environmental review and audit reports,
including Phase II reports, with respect to all of Tamor's owned Real Estate of
any Credit Party and Agent shall be satisfied, in its sole discretion, with the
contents of all such environmental reports. Agent shall have
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received letters executed by the environmental firms preparing such
environmental reports, in form and substance satisfactory to Agent, authorizing
Agent and Lenders to rely on such reports.
BB. Audited Financials; Financial Condition. Agent shall have received
Borrowers' preliminary draft audited Financial Statements for the Fiscal Year
ended December 31, 1996. Each Borrower shall have provided Agent with its
current operating statements, a consolidated and consolidating balance sheet and
statement of cash flows, the Pro Forma, Projections, and a Borrowing Base
Certificate with respect to such Borrower certified by its Chief Financial
Officer, in each case in form and substance satisfactory to Agent, and Agent
shall be satisfied, in its sole discretion, with all of the foregoing. Agent
shall have further received a certificate of the Chief Executive Officer and/or
the Chief Financial Officer of each Borrower, based on such Pro Forma and
Projections, to the effect that (a) such Borrower will be Solvent upon the
consummation of the transactions contemplated herein; (b) the Pro Forma fairly
presents the financial condition of such Borrower as of the date thereof after
giving effect to the transactions contemplated by the Loan Documents; (c) the
Projections are based upon estimates and assumptions stated therein, all of
which such Borrower believes to be reasonable and fair in light of current
conditions and current facts known to such Borrower and, as of the Closing Date,
reflect such Borrower's good faith and reasonable estimates of its future
financial performance and of the other information projected therein for the
period set forth therein; (d) the Fair Salable Balance Sheet was prepared on the
same basis as the Pro Forma, except that Borrowers' assets are set forth therein
at their fair salable values on a going concern basis, and the liabilities set
forth therein include all contingent liabilities of Borrower stated at the
reasonably estimated present values thereof; and (e) containing such other
statements with respect to the solvency of such Borrower and matters related
thereto as Agent shall request.
CC. Other Documents. Such other certificates, documents and agreements
respecting any Credit Party as Agent may, in its sole discretion, request.
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ANNEX E (Section 4.1(a))
TO
CREDIT AGREEMENT
FINANCIAL STATEMENTS AND PROJECTIONS -- REPORTING
Borrowers shall deliver or cause to be delivered to Agent or
to Agent and Lenders, as indicated, the following:
(a) Monthly Financials. To Agent and Lenders, within thirty
(30) days after the end of each Fiscal Month, financial information regarding
Holdings and its 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 flow 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); and (iii) a summary of the outstanding balance
of all Intercompany Notes as of the last day of that Fiscal Month. Such
financial information shall be accompanied by 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)
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 month and for the period then ended 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. To Agent and Lenders, within
forty-five (45) days after the end of each Fiscal Quarter, consolidated and
consolidating financial information regarding Holdings and its 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 flow 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). 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 of the financial covenants set forth on Annex G which is
tested on a quarterly basis and (B) the certification of the Chief Financial
Officer of Borrower Representative that (i) such financial information
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<PAGE> 122
presents fairly in accordance with GAAP (subject to normal year-end adjustments)
the financial position, results of operations and statements of cash flows of
Holdings and its Subsidiaries, on both a consolidated and consolidating basis,
as at the end of such Fiscal Quarter and for the period then ended, (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. In addition, Borrowers shall deliver to Agent
and Lenders, within forty-five (45) days after the end of each Fiscal Quarter, a
management discussion and analysis which 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. To Agent and Lenders, as soon as
available, but not later than thirty (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 include a
statement of all of the material assumptions on which such plan is based, will
include monthly balance sheets and a monthly budget for the following year and
will 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. To Agent and Lenders, within
ninety (90) days after the end of each Fiscal Year, audited Financial Statements
for Holdings and its Subsidiaries on a consolidated and consolidating 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 and the figures contained in the Projections for such
Fiscal Year, which Financial Statements shall be prepared in accordance with
GAAP, certified without qualification, by an independent certified public
accounting firm of national standing or otherwise acceptable to Agent. 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 set forth on Annex G, (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) a letter addressed to Agent, on behalf of itself and Lenders, in
form and substance reasonably satisfactory to Agent and subject to standard
qualifications taken by nationally recognized accounting firms, signed by such
accounting firm acknowledging that Agent and Lenders are entitled to rely upon
such accounting firm's certification of such audited Financial Statements, (iv)
the annual letters to such accountants in connection with their audit
examination detailing contingent liabilities and
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<PAGE> 123
material litigation matters, and (v) the certification of the Chief Executive
Officer or Chief Financial Officer of Holdings 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
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. To Agent and Lenders, within five (5)
Business Days after receipt thereof by any Credit Party, copies of all
management letters, exception reports or similar letters or reports received by
such Credit Party from its independent certified public accountants;
(f) Default Notices. To Agent and Lenders, as soon as
practicable, and in any event within five (5) Business Days after an executive
officer of any Borrower has actual knowledge of the existence of any Default,
Event of Default or other event which 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 Business Day;
(g) SEC Filings and Press Releases. To Agent and Lenders,
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) Subordinated Debt and Equity Notices. To Agent and
Lenders, as soon as practicable, copies of all material written notices given or
received by any Credit Party with respect to any Subordinated Debt or Stock of
such Person, and, within two (2) Business Days after any Credit Party obtains
knowledge of any matured or unmatured event of default with respect to any
Subordinated Debt, notice of such event of default;
(i) Supplemental Schedules. To Agent and Lenders, supplemental
disclosures, if any, required by Section 5.6 of the Agreement;
(j) Litigation. To Agent and Lenders in writing, promptly upon
learning thereof, notice of any Litigation commenced or threatened against any
Credit Party 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 Credit Party or ERISA Affiliate in connection with any
Plan, (iv) alleges criminal misconduct by any Credit Party, or (v) alleges the
violation of any law
E-126
<PAGE> 124
regarding, or seeks remedies in connection with, any Environmental Liabilities;
(k) Insurance Notices. To Agent and Lenders, disclosure of
losses or casualties required by Section 5.4 of the Agreement;
(l) To Agent and Lenders, copies of (i) any and all default
notices received under or with respect to any leased location or public
warehouse where Collateral is located, and (ii) such other notices or documents
as Agent may request in its reasonable discretion; and
(m) Other Documents. To Agent and Lenders, such other
financial and other information respecting any Credit Party's business or
financial condition as Agent or any Lender shall, from time to time, request.
E-127
<PAGE> 125
ANNEX F (Section 4.1(b))
TO
CREDIT AGREEMENT
COLLATERAL REPORTS
Borrowers shall deliver or cause to be delivered the
following:
(a) To Agent and any Lender that has requested copies thereof
in writing, on the first Business Day of each week as of the last day of the
prior week, a Borrowing Base Certificate with respect to each Borrower, in each
case accompanied by such supporting detail and documentation as shall be
requested by Agent in its reasonable discretion;
(b) To Agent, upon its request, and in no event less
frequently than five (5) Business Days after the end of each Fiscal Month
(together with a copy of all or any part of such delivery requested by any
Lender in writing after the Closing Date), each of the following:
(i) 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 Agent in its reasonable discretion; and
(ii) 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 Agent in its reasonable discretion.
(c) To Agent, 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 to
such Annex E, in each case accompanied by such supporting detail and
documentation as shall be requested by Agent in its reasonable discretion;
(d) To Agent, 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, or
Trademark with the United States Patent and Trademark Office or any similar
office or agency which any Credit Party thereof has filed in the prior Fiscal
Quarter;
(e) Each Borrower, at its own expense, shall deliver to Agent
the results of each physical verification, if any, which such Borrower or any of
its Subsidiaries may in their
<PAGE> 126
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 Agent, conduct, and deliver the results of, such physical
verifications as Agent may require);
(f) Each Borrower, at its own expense, shall deliver to Agent
such appraisals of its assets as Agent may request at any time after the
occurrence and during the continuance of a Default or an Event of Default, such
appraisals to be conducted by an appraiser, and in form and substance,
satisfactory to Agent; and
(g) Such other reports, statements and reconciliations with
respect to the Borrowing Base or Collateral of any or all Credit Parties as
Agent shall from time to time request in its reasonable discretion.
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<PAGE> 127
ANNEX G (Section 6.10)
TO
CREDIT AGREEMENT
FINANCIAL COVENANTS
Borrowers shall not breach or fail to comply with any of the
following financial covenants, each of which shall be calculated in accordance
with GAAP consistently applied:
(a) Maximum Capital Expenditures. Holdings and its Subsidiaries on a
consolidated basis shall not make Capital Expenditures in excess of $8,500,000,
during any Fiscal Year.
(b) Minimum Fixed Charge Coverage Ratio. Holdings and its Subsidiaries
shall have on a consolidated basis at the end of each Fiscal Quarter set forth
below, a Fixed Charge Coverage Ratio for the 12-month period then ended (or with
respect to the Fiscal Quarters ending on or before September 30, 1997, the
period commencing on December 29, 1996 and ending on the last day of such Fiscal
Quarter) of not less than the following:
1.0 to 1.0 for each Fiscal Quarter ending in September, 1997; December, 1997;
March, 1998; and June, 1998
1.0 to 1.0 for each Fiscal Quarter ending in September, 1998; and
December, 1998
1.2 to 1.0 for the Fiscal Quarter ending in March, 1999; and
each Fiscal Quarter end thereafter.
(c) Minimum EBITA. Holdings and its Subsidiaries on a consolidated
basis shall have, at the end of each Fiscal Quarter set forth below, EBITA for
the respective periods set forth below of not less than the following:
<TABLE>
<CAPTION>
Period EBITA
<S> <C>
the two fiscal quarters ending in June of 1997 $ 4,400,000
the three fiscal quarters ending in September of 1997 $ 8,000,000
the four fiscal quarters ending in:
December of 1997 $11,300,000
March of 1998 $12,000,000
June of 1998 $13,000,000
September of 1998 $14,000,000
December of 1998 $14,200,000
March of 1999 $14,500,000
June of 1999 $14,750,000
September of 1999 $15,500,000
December of 1999 $16,500,000
March of 2000 $16,750,000
</TABLE>
<PAGE> 128
<TABLE>
<S> <C>
June of 2000 $17,000,000
September of 2000 $17,250,000
December of 2000 $17,400,000
March of 2001 $17,750,000
June of 2001 $17,900,000
September of 2001 $18,100,000
December of 2001 $18,250,000
March of 2002 $18,950,000
June of 2002 $19,500,000
September of 2002 $19,500,000
and each Fiscal Quarter thereafter $22,000,000
</TABLE>
(d) Minimum Net Worth. Holdings and its Subsidiaries on a consolidated
basis shall maintain at all times Net Worth equal to or greater than $14,100,000
measured as of the last day of each Fiscal Quarter and increased by an amount
equal to fifty percent (50%) of the cumulative positive net income from the
Closing Date through the last day of that Fiscal Quarter.
(e) Minimum Interest Coverage Ratio. Holdings and its Subsidiaries on a
consolidated basis shall have at the end of each Fiscal Quarter set forth below,
an Interest Coverage Ratio for the 12-month period then ended (or with respect
to the Fiscal Quarters ending on or before September 30, 1997, the period
commencing on December 29, 1996 and ending on the last day of such Fiscal
Quarter) of not less than the following:
1.75 to 1.0 for three fiscal quarters ending in September of 1997
2.0 to 1.0 for each Fiscal Quarter ending in December of 1997 and
March of 1998
2.25 to 1.0 for each Fiscal Quarter ending in June of 1998 and
September of 1998
2.0 to 1.0 for the Fiscal Quarter ending in December of 1998 and
each Fiscal Quarter end thereafter.
Unless otherwise specifically provided herein, any accounting
term used in the Agreement shall have the meaning customarily given such term in
accordance with GAAP, and all financial computations hereunder shall be computed
in accordance with GAAP consistently applied. That certain items or computations
are explicitly modified by the phrase "in accordance with GAAP" shall in no way
be construed to limit the foregoing. If any "Accounting Changes" (as defined
below) occur and such changes result in a change in the calculation of the
financial covenants, standards or terms used in the Agreement or any other Loan
Document, then Borrowers, Agent and Lenders agree to enter into negotiations in
order to amend such provisions of the Agreement so as to equitably reflect such
Accounting Changes with the desired result that the criteria for evaluating
Borrowers' and their Subsidiaries' financial condition shall be the same after
such Accounting Changes as if such Accounting Changes had not been made;
provided, however, that the agreement of Requisite Lenders to any required
amendments of such provisions shall be sufficient to bind all Lenders.
"Accounting Changes" means (a) changes in
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<PAGE> 129
accounting principles required by the promulgation of any rule, regulation,
pronouncement or opinion by the Financial Accounting Standards Board of the
American Institute of Certified Public Accountants (or successor thereto or any
agency with similar functions), (b) changes in accounting principles concurred
in by any Borrower's certified public accountants; (c) purchase accounting
adjustments under A.P.B. 16 and/or 17 and EITF 88-16, and the application of the
accounting principles set forth in FASB 109, including the establishment of
reserves pursuant thereto and any subsequent reversal (in whole or in part) of
such reserves; and (d) the reversal of any reserves established as a result of
purchase accounting adjustments. All such adjustments resulting from
expenditures made subsequent to the Closing Date (including capitalization of
costs and expenses or payment of pre-Closing Date liabilities) shall be treated
as expenses in the period the expenditures are made and deducted as part of the
calculation of EBITDA in such period. If Agent, Borrowers and Requisite Lenders
agree upon the required amendments, then after appropriate amendments have been
executed and the underlying Accounting Change with respect thereto has been
implemented, any reference to GAAP contained in the Agreement or in any other
Loan Document shall, only to the extent of such Accounting Change, refer to
GAAP, consistently applied after giving effect to the implementation of such
Accounting Change. If Agent, Borrowers and Requisite Lenders cannot agree upon
the required amendments within thirty (30) days following the date of
implementation of any Accounting Change, then all Financial Statements delivered
and all calculations of financial covenants and other standards and terms in
accordance with the Agreement and the other Loan Documents shall be prepared,
delivered and made without regard to the underlying Accounting Change.
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<PAGE> 130
ANNEX H (Section 9.9(a))
TO
CREDIT AGREEMENT
WIRE TRANSFER INFORMATION
Name: General Electric Capital Corporation
Bank: Bankers Trust Company
New York, New York
ABA No.: 021001033
Account No.: 50232854
Account Name: GECC/CF Depository
Reference: Selfix, Inc.
Reference Number: CFC 4075
<PAGE> 131
ANNEX I (Section 11.10)
TO
CREDIT AGREEMENT
NOTICE ADDRESSES
(A) If to Agent or GE Capital, at
General Electric Capital Corporation
105 West Madison Street - Suite 1600
Chicago, Illinois 60602
Attention: Selfix Account Manager
Telecopier No.: (312) 419-5992
Telephone No.: (312) 419-0985
with copies to:
Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601
Attention: David G. Crumbaugh
Telecopier No.: (312) 558-5700
Telephone No.: (312) 558-5844
and
General Electric Capital Corporation
201 High Ridge Road
Stamford, Connecticut 06927-5100
Attention: Corporate Counsel
Telecopier No.: (203) 316-7889
Telephone No.: (203) 316-7552
(B) If to any Borrower, to Borrower Representative, at
Selfix, Inc.
4501 West 47th Street
Chicago, Illinois 60632
Attention: James Tennant
Telecopier No.: (773) 890-8901
Telephone No.: (773) 890-8916
<PAGE> 132
with copies to:
Much, Shelist, Freed, Denenberg,
Ament, Bell & Rubenstein
200 N. LaSalle Street
Suite 2100
Chicago, Illinois 60601
Attention: Jeffrey C. Rubenstein
Telecopier No.: (312) 621-1750
Telephone No.: (312) 346-3100
I-135
<PAGE> 1
EXHIBIT - 10.11
EXECUTION COPY
HOME PRODUCTS INTERNATIONAL, INC.
SELFIX, INC.
TAMOR CORPORATION
SHUTTERS, INC.
SUBORDINATED EQUITY BRIDGE NOTES DUE
FEBRUARY 27, 2005
-------------------------
NOTE PURCHASE AGREEMENT
-------------------------
DATED AS OF FEBRUARY 27, 1997
<PAGE> 2
TABLE OF CONTENTS
PAGE
1.1 The Notes........................................................... 1
1.2. Note Terms, Prepayments............................................. 1
2. Sale and Purchase of Note........................................... 2
3.1 Closing; Fees....................................................... 2
4. Conditions Precedent; Conditions to Closing......................... 3
4.1.1 Representations and Warranties............................. 3
4.1.2 Performance; No Default.................................... 3
4.1.3 Opinions of Counsel........................................ 3
4.1.4 Credit Agreement........................................... 3
4.1.5 Warrant Agreement.......................................... 3
4.1.6 Security Documents......................................... 3
4.1.7 Certain Legal Matters...................................... 3
4.1.8 Compliance with Securities Laws............................ 3
4.1.9 Proceedings and Documents.................................. 3
4.1.10 No Actions Pending......................................... 4
4.1.11 Other Documents............................................ 4
4.1.12 Performance; No Default.................................... 4
5. Representations and Warranties...................................... 4
5.1. Disclosure................................................. 4
5.2. No Material Adverse Effect................................. 4
5.3. No Default................................................. 4
5.4. Organization, Powers, Capitalization and Good Standing..... 5
5.5. Financial Statements....................................... 5
5.6. Property................................................... 6
5.7. Investigations, Audits, Etc................................ 6
5.8. Employee Matters........................................... 6
5.9. Solvency................................................... 6
5.10. Compliance with Laws....................................... 6
5.11. Pending and Threatened Litigation.......................... 6
6. Purchase Intent..................................................... 6
7. Financial Covenants and Reporting................................... 7
7.1. Financial Statements and Other Reports..................... 7
7.2. Accounting Terms; Utilization of GAAP for Purposes of
Calculations Under Agreement............................... 8
7.3. Inspection................................................. 8
8. Affirmative and Negative Covenants.................................. 8
i
<PAGE> 3
8.1. Liens, etc................................................ 9
8.2. Investments; Joint Ventures............................... 9
8.3. Restricted Payments....................................... 9
8.4. Restriction on Certain Amendments and Fundamental Changes. 9
8.5. Disposal of Assets or Subsidiary Stock.................... 9
8.6. Transactions with Affiliates.............................. 10
8.7. Conduct of Business....................................... 10
8.8. Indebtedness.............................................. 10
8.9. Fiscal Year............................................... 10
8.10. Press Release; Public Offering Materials.................. 10
8.11. Subsidiaries.............................................. 10
8.12. Compliance With Laws...................................... 10
8.13. Maintenance of Properties; Insurance...................... 11
8.14. Corporate Existence, Etc.................................. 11
8.15. Intervening Debt.......................................... 11
8.16. Notice of Default......................................... 11
9. Prepayment of Notes................................................ 11
9.1 Maturity; Surrender....................................... 11
10. Subordination of Notes............................................. 11
10.1. General................................................... 11
10.2. Senior Loans.............................................. 12
10.3. Default in Respect of Senior Loans and the Notes.......... 12
10.4. Insolvency, etc........................................... 13
10.5. Payments and Distributions Received....................... 13
10.6. No Prejudice or Impairment................................ 13
10.7. Payment of Senior Loans, Subrogation, etc................. 14
10.8. Filing of Claims.......................................... 14
10.9. Reliance; Binding on Subsequent Holders................... 14
11. Registration, Transfer and Substitution of Securities.............. 15
11.1. Note Register; Ownership of Notes......................... 15
11.2. Transfer and Exchange of Notes............................ 15
11.3. Replacement of Notes...................................... 15
11.4. Notes Held Holdings, etc., Deemed Not Outstanding......... 15
12. Payments on Notes.................................................. 15
13. Events of Default; Acceleration.................................... 16
14. Remedies on Default................................................ 18
15. Definitions........................................................ 18
15.1. Certain Defined Terms..................................... 18
15.2. Accounting and other Terms................................ 23
16. Submission to Jurisdiction; Waiver................................. 23
ii
<PAGE> 4
17. Survival of Representations and Warranties.......................... 24
18. Amendments and Waivers.............................................. 24
19. Indemnification..................................................... 24
20. Notices, etc........................................................ 25
21. Miscellaneous....................................................... 26
<PAGE> 5
SCHEDULES
SCHEDULE 5.3 Defaults Under Agreements
SCHEDULE 5.4(B) Capitalization
SCHEDULE 5.4(D) Qualification
SCHEDULE 5.7 Audits and Investigations
SCHEDULE 5.8 Employee Matters
SCHEDULE 8.6 Transactions With Affiliates
EXHIBITS
EXHIBIT 1.1 Form of Subordinated Equity Bridge Note Due 2005
EXHIBIT 7.1 Compliance Certificate
<PAGE> 6
NOTE PURCHASE AGREEMENT
This Note Purchase Agreement dated as of February 27, 1997, is
by and among Selfix, Inc., a Delaware corporation; Tamor Corporation, a
Massachusetts corporation and Shutters, Inc., an Illinois corporation (the
"Joint Issuers"); Home Products International, Inc., a Delaware corporation
("Holdings"); and General Electric Capital Corporation, a New York corporation
and the other Note Purchasers that are signatories hereto (the "Note
Purchasers").
In Witness Whereof the parties hereto agree as follows:
1.1. The Notes. The Joint Issuers have authorized the issuance
and sale of Subordinated Equity Bridge Notes due February 27, 2005 (including
any notes issued in payment of interest pursuant to Section 1.2 or in
substitution therefor pursuant to Section 11, collectively, the "Notes"), to be
in the form of the Note set forth in Exhibit 1.1, with such changes thereto, if
any, as may be approved by the Note Purchasers and the Joint Issuers.
1.2. Note Terms, Prepayments. (a) Except as set forth in
clause (b) below, the Notes shall bear interest at a rate of thirteen and
one-half percent (13.5%) per annum, and interest shall be paid solely by the
issuance of Notes in the amount of such interest. Such Notes shall, themselves,
bear interest at the same interest rates as herein set forth, shall be due and
payable in full on February 27, 2005, and shall be subject to all of the terms
and conditions of this Agreement, including, without limitation, this Section
1.2(a). The outstanding principal balance of all of the Notes, together with all
accrued and unpaid interest thereon, shall be due and payable in full on
February 27, 2005. Interest shall be payable quarterly in arrears on each
Interest Payment Date. Interest on the Notes shall be calculated daily on the
basis of a three hundred sixty (360) day year for the actual number of days
elapsed in the period during which it accrues. If the Majority Holders so elect,
after the occurrence of an Event of Default and for so long as it continues, the
Notes shall bear interest at a per annum rate equal to 15.5% per annum. The Note
Purchasers agree that under no circumstances will the rate of interest
chargeable be in excess of the maximum amount permitted by law. If excess
interest is charged and paid in error, the Note Purchasers agree that the excess
amount will be promptly refunded to the Joint Issuers.
(b) So long as no event of default shall have occurred and be
continuing under the Credit Agreement, the Joint Issuers may, at their election,
pay interest in cash on all Notes issued in accordance with this Agreement;
provided that the aggregate amount of cash interest paid on the Notes shall not
exceed 25% of
<PAGE> 7
Excess Cash Flow from January 1, 1997 through any date of determination and the
amount of Excess Cash Flow shall be determined annually for each Fiscal Year
based on Holdings' annual audited financial statements, commencing with its
Fiscal Year ending December 31, 1997. So long as interest on the outstanding
Notes is paid in cash, the outstanding Notes shall bear interest at eleven and
one-half percent (11.5%) per annum.
(c) If Holdings or any Joint Issuer issues equity securities,
no later than the Business Day following the date of receipt of the proceeds
thereof, the Joint Issuers shall prepay the Notes, ratably, in an amount equal
to 50% of the proceeds of such equity issuance, net of underwriting discounts
and commissions and other reasonable out-of-pocket costs incurred in connection
therewith. In addition, the Joint Issuers shall prepay the Notes in full upon
payment in full of the Senior Loans and termination of the Senior Lenders'
commitment to make Senior Loans.
(d) In addition to the mandatory prepayments required under
clause (c) above, the Joint Issuers may voluntarily prepay the Notes in whole or
in part (in integral multiples of $100,000) at any time upon not less than ten
(10) days' prior written notice to the Note Purchasers. All prepayments, whether
mandatory or voluntary, shall be applied first to accrued interest under the
Notes, pro rata, and then to the principal balance of the Notes, pro rata, and
all prepayments may be made without premium or penalty.
2. Sale and Purchase of Note. The Joint Issuers will issue and
sell to the Note Purchasers on the date hereof Notes in the aggregate principal
amount of $7,000,000 in the respective principal amounts set forth on the
signature pages hereto. Such Notes shall be issued in the State of Illinois and
governed by the laws of that State.
3.1 Closing; Fees. The sale of the Notes to be purchased by
the Note Purchasers shall take place at the offices of Winston & Strawn, 35 West
Wacker Drive, Chicago, Illinois 60601, at a closing (the "Closing") on February
27, 1997 or on such other Business Day thereafter as may be agreed upon by the
Joint Issuers and the Majority Holders (the "Closing Date"). At the Closing, the
Joint Issuers will deliver to each Note Purchaser the Notes to be purchased by
it in the principal amount set forth on the signature pages hereto on such date
against delivery by each Note Purchaser to Selfix or its order of immediately
available funds in the amount of the principal amount of each Note to be
purchase by it. If, at the Closing, the Joint Issuers shall fail to tender to
any Note Purchaser the Notes to be purchased by it as provided herein, or any of
the material conditions specified in Section 4 shall not have been fulfilled to
to the Note Purchasers' satisfaction, all of the Note
<PAGE> 8
Purchasers shall be relieved of their respective obligations under this
Agreement, without thereby waiving any other rights such Note Purchasers may
have by reason of such failure or such non-fulfillment.
3.2 The Joint Issuers agree, jointly and severally, to
promptly pay all reasonable fees, costs and expenses (including those of
attorneys) incurred by the Note Purchasers in connection with any matters
arising out of the Note Purchase Documents and the other Related Transactions
Documents, in connection with the examination, review, due diligence
investigation, documentation, negotiation and closing of the transactions
identified herein and in connection with the continued administration (other
than administrative matters arising in the ordinary course) of the Note Purchase
Documents including any amendments, modifications, and waivers of or with
respect to the Note Purchase Documents or any of the other Related Transactions
Documents. The Joint Issuers agree, jointly and severally, to promptly pay all
reasonable fees, costs and expenses incurred by each Note Purchaser in
connection with any action to enforce any Note Purchase Document or to collect
any payments due from the Joint Issuers. All fees, costs and expenses for which
the Joint Issuers are responsible under this Section 3.2 shall be payable on
demand and secured by the Collateral (as defined in the Security Documents).
4. Conditions Precedent; Conditions to Closing. Each Note
Purchaser's obligation to execute and deliver this Agreement and to purchase and
pay for the Note to be sold to it at the Closing is subject to the fulfillment
to the reasonable satisfaction of the Majority Holders, prior to or at the
Closing, of the following conditions:
4.1.1 Representations and Warranties. The representations and
warranties of Holdings and each of the Joint Issuers contained in this Agreement
and those otherwise made in writing by or on behalf of the Joint Issuers in
connection with the transactions identified in this Agreement shall be correct
in all material respects at the time of Closing.
4.1.2 Performance; No Default. The Joint Issuers shall have
performed and complied in all material respects with all agreements and
conditions contained in this Agreement required to be performed or complied with
by them prior to or at the Closing and at the time of the Closing no Default or
Event of Default shall have occurred and be continuing.
4.1.3 Opinions of Counsel. Each Note Purchaser shall have
received from Much, Shelist, Freed, Denenberg, Ament, Bell & Rubenstein PC,
counsel to Holdings and the Joint Issuers, a favorable opinion in form and
substance reasonably satisfactory to the Majority Holders, addressed to the Note
Purchasers and dated the Closing Date.
<PAGE> 9
4.1.4 Credit Agreement. The Related Transactions shall have
been consummated.
4.1.5 Warrant Agreement. Each Note Purchaser shall have
received duly executed copies of the Warrant and any and all documents,
instruments or agreements required to be executed and/or delivered in connection
therewith, including, without limitation, a duly executed Allocation Agreement.
4.1.6 Security Documents. Each Note Purchaser shall have
received duly executed copies of the Security Agreement and each of the other
Security Documents, together with reasonably satisfactory evidence that the Note
Purchasers have a valid and perfected second priority security interest in the
Collateral (as defined in the Security Documents), subject only to liens and
encumbrances permitted herein, in the Security Agreement or in the Credit
Agreement.
4.1.7 Certain Legal Matters. On the date of the Closing, no
Note Purchaser's purchase of the Note shall be prohibited by any applicable law
or governmental regulation.
4.1.8 Compliance with Securities Laws. The offering and sale
of the Note to be issued at the Closing shall have complied with all applicable
requirements of federal and state securities laws.
4.1.9 Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated by this Agreement
and the other Related Transactions Documents to be executed and delivered on the
Closing Date and all documents and instruments incident to such transactions
shall be reasonably satisfactory to each Note Purchaser, and each Note Purchaser
shall have received all such counterpart originals or certified or other copies
of such documents as it may reasonably request.
4.1.10 No Actions Pending. There shall be no suit, action,
investigation, inquiry or other proceeding by any governmental body or any other
Person or any other legal or administrative proceeding, pending or, to the Joint
Issuers' knowledge, threatened, which questions the validity or legality of the
transactions contemplated by this Agreement or any of the other Related
Transactions Documents or which seeks damages or injunctive or other equitable
relief in connection therewith.
4.1.11 Other Documents. Each Note Purchaser's obligation to
purchase the Note on the Closing Date is, in addition to the conditions
precedent specified above, subject to the delivery to it of all Note Purchase
Documents, all in form and substance reasonably satisfactory to the initial Note
<PAGE> 10
Purchasers.
4.1.12 Performance; No Default. The Joint Issuers shall have
performed and complied in all material respects with all agreements and
conditions contained in this Agreement required to be performed or complied with
by any of them as of the Closing Date and, as of the Closing Date, no Default or
Event of Default shall have occurred and be continuing.
5. Representations and Warranties. The Joint Issuers represent
and warrant to each Note Purchaser that:
5.1. Disclosure. No representation or warranty of Holdings or
any Joint Issuer contained in this Agreement, the financial statements referred
to in Section 5.5, the other Related Transactions Documents or any other
document, certificate or written statement furnished to any Note Purchaser by or
on behalf of any such Person for use in connection with the Note Purchase
Documents or the other Related Transactions Documents contains any untrue
statement of a material fact or omits or will omit to state a material fact
necessary in order to make the statements contained herein or therein not
misleading in light of the circumstances in which the same were made.
5.2. No Material Adverse Effect. Since December 31, 1996, no
events have occurred which, taken as a whole, have had a Material Adverse
Effect.
5.3. No Default. The consummation of the Related Transactions
does not and will not violate, conflict with, result in a breach of, or
constitute a default (with due notice or lapse of time or both) under, or
require the consent of any third party under, any material contract of the Joint
Issuers except if such violations, conflicts, breaches or defaults have either
been waived on or before the Closing Date and are disclosed on Schedule 5.3 or
could not reasonably be expected to have, either individually or in the
aggregate, a Material Adverse Effect.
5.4. Organization, Powers, Capitalization and Good Standing.
(A) Organization and Powers. Each Joint Issuer and Holdings is
a corporation, duly organized, validly existing and in good standing under the
laws of the State of its incorporation. Each of the Joint Issuers has all
requisite corporate power and authority to own and operate its properties, to
carry on its business as now conducted and proposed to be conducted, to enter
into each Related Transactions Document to which it is a party and to carry out
the Related Transactions.
(B) Capitalization. The authorized and issued capital stock of
Holdings and each of the Joint Issuers is as set forth
<PAGE> 11
on Schedule 5.4(B). All issued and outstanding shares of capital stock of each
of the Joint Issuers are duly authorized and validly issued, fully paid,
nonassessable, and such shares were issued in compliance with all applicable
state and federal laws concerning the issuance of securities. The capital stock
of each of the Joint Issuers is owned by Holdings. There are no preemptive or
other outstanding rights, options, warrants, conversion rights or similar
agreements or understandings for the purchase or acquisition from Holdings or
any Joint Issuer of any shares of capital stock or other securities of any such
entity, except for the Warrant and the other securities disclosed in the
Schedules to the Credit Agreement as of the Closing Date.
(C) Binding Obligation. This Agreement is, and the other
Related Transactions Documents when executed and delivered will be, the legally
valid and binding obligations of Holdings and the Joint Issuers, respectively,
each enforceable against each of them, as applicable, in accordance with their
respective terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, liquidation, moratorium and similar laws affecting
creditors' rights generally, and by general principles of equity.
(D) Qualification. Each of the Joint Issuers is duly qualified
and in good standing wherever necessary to carry on its business and operations,
except in jurisdictions in which the failure to be qualified and in good
standing could not reasonably be expected to have a Material Adverse Effect. All
jurisdictions in which each Joint Issuer is qualified to do business are set
forth on Schedule 5.4(D).
5.5. Financial Statements. All financial statements concerning
any of the Joint Issuers which have been or will hereafter be furnished to the
Note Purchasers pursuant to this Agreement, including those listed below, have
been or will be prepared in accordance with GAAP consistently applied (except as
disclosed therein) and do or will present fairly the financial condition of the
corporations covered thereby as at the dates thereof and the results of their
operations for the periods then ended.
(A) The audited balance sheets for fiscal year 1995 and the
related statement of income of each Joint Issuer, for the fiscal year
then ended, certified by BDO Seidman in the case of Tamor and Arthur
Andersen in the case of Selfix and Shutters.
(B) The unaudited balance sheets for Fiscal Year 1996 and the
related statements of income of each Joint Issuer for the twelve (12)
months then ended.
5.6. Property. Each Joint Issuer owns, is licensed to
<PAGE> 12
use or otherwise has the right to use, all assets used in or necessary for the
conduct of its business as currently conducted or that are material to the
condition (financial or other), business or operations of the Joint Issuers.
5.7. Investigations, Audits, Etc. Except as set forth on
Schedule 5.7, none of the Joint Issuers are the subject of any review or audit
by the Internal Revenue Service or any governmental authority concerning the
violation or possible violation of any law.
5.8. Employee Matters. Except as set forth on Schedule 5.8,
(a) no Joint Issuer has any obligation under any collective bargaining
agreement, (b) no petition for certification or union election is pending with
respect to the employees of any Joint Issuer and no union or collective
bargaining unit has sought such certification or recognition with respect to the
employees of any Joint Issuer and (c) there are no strikes, slowdowns, work
stoppages or controversies pending or, to the best knowledge of the Joint
Issuers threatened between any Joint Issuer and its respective employees, other
than employee grievances arising in the ordinary course of business which could
not reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect.
5.9. Solvency. As of and from and after the date of this
Agreement and after giving effect to the consummation of the Related
Transactions, each Joint Issuer: (a) owns and will own assets the fair saleable
value of which are greater than the total amount of liabilities (including
contingent liabilities) of that Joint Issuer; (b) is able to pay its debts as
they become due; (c) has capital that is not unreasonably small in relation to
its business as presently conducted or any contemplated or undertaken
transaction; and (d) does not intend to incur and does not believe that it will
incur debts beyond its ability to pay such debts as they become due.
5.10. Compliance with Laws. Each Joint Issuer is in compliance
with all applicable laws after giving effect to the Related Transactions, where
failure to comply would not have a Material Adverse Effect.
5.11. Pending and Threatened Litigation. Neither Holdings nor
any Joint Issuer is a party to any litigation that is pending or to the
knowledge of any Joint Issuer, threatened, which is likely to be determined
adversely to Holdings or that Joint Issuer and, which, if so determined, would
have a Material Adverse Effect.
6. Purchase Intent. Each Note Purchaser represents that it is
purchasing a Note hereunder for its own account, not with a view to the
distribution thereof or with any present
<PAGE> 13
intention of distributing or selling such Note except in compliance with the
Securities Act, provided that the disposition of each Note Purchaser's property
shall at all times be within its control. Each Note Purchaser represents that it
is an accredited investor, within the meaning of Regulation 501(a) under the
Securities Act.
7. Financial Covenants and Reporting. Holdings agrees that so
long as any Note is outstanding, unless each Note Purchaser shall otherwise give
its prior written consent, Holdings shall comply with and shall cause each of
the other Joint Issuers that are owned or controlled by it to comply with all
covenants in this Section 7 applicable to such Person.
7.1. Financial Statements and Other Reports. Holdings will
maintain, and cause each of its Subsidiaries to maintain, a system of accounting
established and administered in accordance with sound business practices to
permit preparation of financial statements in conformity with GAAP (it being
understood that monthly financial statements are not required to have footnote
disclosures). Holdings will deliver to each Note Purchaser each of the financial
statements and other reports described below.
(A) Monthly Financials. As soon as available and in any event
within thirty (30) days after the end of each month, Holdings will deliver to
each Note Purchaser (1) the consolidated and consolidating balance sheet of
Holdings and its Subsidiaries as at the end of such month and the related
consolidated and consolidating statements of income, stockholders' equity and
cash flow for such month and for the period from the beginning of the then
current fiscal year of such Person to the end of such month and (2) a schedule
of the outstanding Indebtedness for borrowed money of each such Person
describing in reasonable detail each such debt issue or loan outstanding and the
principal amount and amount of accrued and unpaid interest with respect to each
such debt issue or loan.
(B) Year-End Financials. As soon as available and in any event
within ninety (90) days after the end of each fiscal year of Holdings, Holdings
will deliver to each Note Purchaser (1) the consolidated and consolidating
balance sheet of Holdings and each of its Subsidiaries as at the end of such
year and the related consolidated and consolidating statements of income,
stockholders' equity and cash flow for such fiscal year, (2) a schedule of the
outstanding Indebtedness for borrowed money of each such Person describing in
reasonable detail each such debt issue or loan outstanding and the principal
amount and amount of accrued and unpaid interest with respect to each such debt
issue or loan and (3) an unqualified report with respect to the financial
statements from a firm of certified public accountants selected by Holdings and
reasonably acceptable to the Majority Holders.
<PAGE> 14
(C) Compliance Certificate. Together with each delivery of
financial statements of Holdings and its Subsidiaries pursuant to Sections
7.1(A) and 7.1(B) above, Holdings will deliver to each Note Purchaser a fully
and properly completed Compliance Certificate (in substantially the same form as
Exhibit 7.1) signed by Holdings' chief executive officer or chief financial
officer.
(D) Accountants' Reports. Promptly upon receipt thereof,
Holdings will deliver copies of all significant reports submitted by Holdings'
outside auditors in connection with each annual, interim or special audit or
review of any type of the financial statements or related internal control
systems of Holdings made by such accountants, including any comment letter
submitted by such accountants to management in connection with their services.
(E) SEC Filings and Press Releases. Promptly upon their
becoming available, Holdings will deliver to each Note Purchaser copies of (1)
all financial statements, reports, notices and proxy statements made publicly
available by Holdings, to its security holders, (2) all regular and periodic
reports and all registration statements and prospectuses, if any, filed by
Holdings, with any securities exchange or with the Securities and Exchange
Commission or any governmental or private regulatory authority, and (3) all
press releases and other statements made available by Holdings, to the public
concerning material adverse changes or other developments in the business of any
such Person.
(F) Events of Default, Etc. Promptly upon any officer of
Holdings obtaining knowledge of any of the following events or conditions,
Holdings shall deliver to each Note Purchaser copies of all notices given or
received by Holdings with respect to any such event or condition and a
certificate of Holdings' chief executive officer specifying the nature and
period of existence of such event or condition and what action Holdings has
taken, is taking and proposes to take with respect thereto: (1) any condition or
event that constitutes an Event of Default or Default; (2) any notice that any
Person has given to Holdings or any of its Subsidiaries or any other action
taken with respect to a claimed default or event or condition of the type
referred to in Section 13(e); or (3) any event or condition that could
reasonably be expected to result in any Material Adverse Effect.
(G) Litigation. Holdings shall notify each Note Purchaser in
writing, promptly upon learning thereof, of any litigation commenced or
threatened against Holdings or any of its Subsidiaries, and of the institution
against it of any suit or administrative proceeding that (a) seeks damages of
$250,000 or more or (b) seeks injunctive relief.
(H) Other Information. With reasonable promptness,
<PAGE> 15
Holdings will deliver such other information and data with respect to Holdings
or any Joint Issuer as from time to time may be reasonably requested by the
Majority Holders.
7.2. Accounting Terms; Utilization of GAAP for Purposes of
Calculations Under Agreement. For purposes of this Agreement, all accounting
terms not otherwise defined herein shall have the meanings assigned to such
terms in conformity with GAAP. Financial statements and other information
furnished to the Note Purchasers pursuant to Section 7.1 shall be prepared in
accordance with GAAP as in effect at the time of such preparation.
7.3. Inspection. Holdings shall permit any authorized
representatives designated from time to time by the Majority Holders to visit
and inspect any of the properties of Holdings or any of its Subsidiaries,
including its and their financial and accounting records, and to make copies and
take extracts therefrom, and to discuss its and their affairs, finances and
business with its and their officers and certified public accountants, at such
reasonable times during normal business hours and as often as may be reasonably
requested.
8. Affirmative and Negative Covenants. Holdings covenants
that, from the date of this Agreement through the Closing and thereafter so long
as any of the Notes are outstanding:
8.1. Liens, etc. (A) Holdings will not, and will not permit
any of its Subsidiaries to, directly or indirectly create, incur, assume or
permit to exist any Lien on or with respect to any property or asset (including
any document or instrument in respect of goods or accounts receivable) of
Holdings or any of its Subsidiaries, whether now owned or held or hereafter
acquired, or any income or profits therefrom, except Liens securing the Senior
Loans or otherwise permitted under the Credit Agreement.
(B) No Negative Pledges. Holdings will not and will not
permit any of its Subsidiaries directly or indirectly to enter into or assume
any agreement (other than the Note Purchase Documents or as permitted under the
Credit Agreement) prohibiting the creation or assumption of any Lien upon its
properties or assets, whether now owned or hereafter acquired, except leases or
licenses which prohibit liens on the property subject thereto.
(C) No Restrictions on Subsidiary Distributions to
Holdings. Except as provided herein and in the Credit Agreement, Holdings will
not and will not permit any of its Subsidiaries directly or indirectly to create
or otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any such Subsidiary
<PAGE> 16
to: (1) pay dividends or make any other distribution on any of such Subsidiary's
capital stock owned by Holdings or any Subsidiary of Holdings; (2) pay any
Indebtedness owed to Holdings or any other Subsidiary; (3) make loans or
advances to Holdings or any other Subsidiary; or (4) transfer any of its
property or assets to Holdings or any other Subsidiary.
8.2. Investments; Joint Ventures. Holdings will not and will
not permit any of its Subsidiaries directly or indirectly to make or own any
Investment in any Person except Investments permitted from time to time under
the Credit Agreement.
8.3. Restricted Payments. Holdings will not directly or
indirectly declare, order, pay, make or set apart any sum for any Restricted
Payment except Restricted Payments permitted from time to time under the Credit
Agreement as in effect on the date hereof.
8.4. Restriction on Certain Amendments and Fundamental
Changes. Holdings will not and will not permit any of its Subsidiaries directly
or indirectly to: (a) amend, modify or waive any term or provision of its
charter or by-laws in a manner which would have a Material Adverse Effect; (b)
enter into any transaction of merger or consolidation, except that any
Subsidiary may be merged with or into Holdings (provided that Holdings is the
surviving entity) or any other Subsidiary of Holdings; (c) liquidate, wind-up or
dissolve itself (or suffer any liquidation or dissolution); or (d) except as
permitted by the Credit Agreement or consented to by the Senior Lenders, acquire
by purchase or otherwise all or any substantial part of the business or assets
of any other Person.
8.5. Disposal of Assets or Subsidiary Stock. Holdings will not
and will not permit any of its Subsidiaries directly or indirectly to: convey,
sell, lease, sublease, transfer or otherwise dispose of, or grant any Person an
option to acquire, in one transaction or a series of transactions any of its
property, business or assets, or the capital stock of or other equity interests
in any of its Subsidiaries, whether now owned or hereafter acquired, except
dispositions permitted under the Credit Agreement.
8.6. Transactions with Affiliates. Except as otherwise
permitted herein (or in the Credit Agreement), Holdings will not and will not
permit any of its Subsidiaries directly or indirectly to, enter into or be a
party to any transaction with any Affiliate of Holdings, except (a) as set forth
on Schedule 8.6, or (b) in the ordinary course of and pursuant to the reasonable
requirements of Holdings' or such Subsidiary's business and upon fair and
reasonable terms and are no less favorable to Holdings or such Subsidiary than
would be obtained
<PAGE> 17
in a comparable arm's-length transaction with a Person that is not an Affiliate
of Holdings or such Subsidiary.
8.7. Conduct of Business. Holdings will not and will not
permit any of its Subsidiaries directly or indirectly to engage in any business
other than businesses currently engaged in by them or any lines of business
reasonably related thereto.
8.8. Indebtedness. Holdings will not and will not permit any
of its Subsidiaries directly or indirectly to incur or become liable in any
manner with respect to any Subordinated Indebtedness or any other Indebtedness
except the Senior Loans under the Credit Agreement (as from time to time in
effect) or as permitted under the Credit Agreement (as from time to time in
effect).
8.9. Fiscal Year. Neither Holdings nor any Subsidiary of
Holdings shall change its fiscal year without the Majority Holders' prior
written consent, which shall not be unreasonably withheld.
8.10. Press Release; Public Offering Materials. Holdings will
not and will not permit any of its Subsidiaries to disclose any Note Purchaser's
identity in any press release or in any prospectus, proxy statement or other
materials filed with any governmental authority except as required by law
following the Note Purchasers' prior review.
8.11. Subsidiaries. Except as permitted in the Credit
Agreement, Holdings will not and will not permit any of its Subsidiaries
directly or indirectly to establish, create or acquire any new Subsidiary
without the Majority Holders' prior written consent, which shall not be
unreasonably withheld.
8.12. Compliance With Laws. Holdings shall comply with all
federal, state, local and foreign laws and regulations applicable to it,
including those relating to licensing, ERISA and labor matters and Environmental
Laws (as defined in the Credit Agreement) and Environmental Permits (as defined
in the Credit Agreement) 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. Holdings will comply and will cause each of its
Subsidiaries to comply in all material respects with the requirements of all
applicable laws, rules, regulations and orders of any governmental authority
(including, without limitation, laws, rules, regulations and orders relating to
taxes, employer and employee contributions, securities, employee retirement and
welfare benefits, environmental protection matters and employee health and
safety) as now in effect and which may be imposed in the future in all
jurisdictions in which Holdings or its Subsidiaries are now doing business or
may hereafter be doing business. This Section 8.12
<PAGE> 18
shall not preclude Holdings or any Subsidiary from contesting any taxes or other
payments, if they are being diligently contested in good faith and if
appropriate reserves have been recorded in conformity with GAAP.
8.13. Maintenance of Properties; Insurance. Holdings will
maintain or cause to be maintained all material properties used in the business
of Holdings and its Subsidiaries consistent with industry standards and will
make or cause to be made all appropriate repairs, renewals and replacements
thereof. Holdings will maintain or cause to be maintained, with financially
sound and reputable insurers, public liability and property damage insurance
with respect to its business and properties and the business and properties of
its Subsidiaries against loss or damage of the kinds customarily carried or
maintained by corporations of established reputation engaged in similar
businesses and in amounts as set forth in the Credit Agreement and will deliver
evidence thereof to the Note Purchasers. Holdings represents and warrants that
it and each of its Subsidiaries currently maintains all material properties as
set forth above and maintains all insurance described above.
8.14. Corporate Existence, Etc. Except as otherwise permitted
hereunder, Holdings will, and will cause each of its Subsidiaries to, at all
times preserve and keep in full force and effect its respective corporate
existence and all rights and franchises material to its respective business.
8.15. Intervening Debt. Neither Holdings nor any Joint Issuer
shall incur any indebtedness that is subordinated in right of payment to the
Senior Loans and superior in right of payment or pari passu with the Notes.
8.16. Notice of Default. Holdings shall promptly notify the
Majority Holders of the occurrence of any Default or Event of Default known to
it hereunder.
9. Prepayment of Notes.
9.1. Maturity; Surrender. In the case of each prepayment in
accordance with Section 1.2(c) or (d), the principal amount of each Note to be
prepaid shall mature and become due and payable on the date fixed for such
prepayment, together with interest on such principal amount accrued to such
date.
10. Subordination of Notes.
10.1. General. All obligations under this Agreement and the
Notes, including without limitation, principal, interest, fees, expenses (the
"Subordinated Obligations") shall be subordinate and junior in right of payment
to all Senior Loans
<PAGE> 19
(as defined in Section 10.2) to the extent and in the manner provided in this
Section 10. In furtherance of the foregoing, notwithstanding the date, manner or
order of grant, attachment or perfection of any Liens granted to the Senior
Lenders or to the Note Purchasers and notwithstanding any provisions of the UCC
or any applicable law or decision or any other circumstance, the Note Purchasers
agree that all Liens granted by Holdings or any Joint Issuer to the Note
Purchasers to secure the obligations under the Notes are hereby subordinated to
all Liens granted by Holdings or any Joint Issuer to secure the Senior Loans.
10.2. Senior Loans. As used in this Section 10, the term
"Senior Loans" shall mean all principal of and premium, if any, and interest
(including post-petition interest during any proceeding under the Bankruptcy
Code, whether or not allowed in such proceeding) on and fees, and expenses and
all other obligations including, without limitation, Holdings' obligations as a
guarantor and obligations to cash collateralize letters of credit, payable in
connection with, all loans and financial accommodations from time to time
outstanding under or in connection with the Credit Agreement. The Senior Loans
shall continue to be Senior Loans and entitled to the benefits of these
subordination provisions irrespective of any amendment, restatement,
modification or waiver of any term of the Senior Loans or extension or renewal
of the Senior Loans.
10.3. Default in Respect of Senior Loans and the Notes.
(a) Upon the occurrence of an Event of Default with respect to
any Senior Loans, as defined in the Credit Agreement, permitting the holders
thereof to accelerate the maturity thereof, then, unless and until such event of
default shall have been remedied or waived in writing or shall have ceased to
exist, no direct or indirect payment (in cash, property or securities or by
set-off or otherwise, except securities which are subordinate and junior in
right of payment to the payment of Senior Loans at least to the extent provided
in this Section 10) shall be made on account of the Subordinated Obligations or
on any Note or as a sinking fund for any Note, or in respect of any redemption,
retirement, purchase or other acquisition of any Note.
(b) The holders of the Notes shall not take any action to
enforce payment of any of the Subordinated Obligations or any security interest
or lien securing payment of the Notes (including, without limitation,
acceleration of the maturity of the Notes) until the earliest to occur of the
following: (i) final payment in full in cash of all Senior Loans and termination
of the commitments with respect thereto; (ii) the acceleration of any of the
Senior Loans, (iii) February 27, 2006; or (iv) the occurrence of an Event of
Default described in Section 13(f) or 13(g) hereof; provided that, in the event
of the
<PAGE> 20
nonpayment when due of scheduled principal payments or required interest
payments (unless prohibited by Section 10.3(a)) such holders may ask or make
demand for payment of any such amount but shall not take any other action to
enforce payment of such amount; provided further that any payments received
shall be subject to the terms of Section 10.5 hereof.
(c) If the holders of the Senior Loans release their security
interests or liens in any items of Collateral, the holders of the Notes shall
release their security interests or liens in the same items of Collateral.
10.4. Insolvency, etc. In the event of:
(a) any insolvency, bankruptcy, receivership, liquidation,
reorganization, readjustment, composition or other similar proceeding
relating to Holdings, its creditors as such or its property,
(b) any proceeding for the liquidation, dissolution or other
winding-up of Holdings or any Joint Issuer, voluntary or involuntary,
whether or not involving insolvency or bankruptcy proceedings,
(c) any assignment by Holdings or any Joint Issuer for the
benefit of creditors, or
(d) any other marshaling of the assets of Holdings or any
Joint Issuer,
all Senior Loans shall first be paid in full in cash before payment or
distribution, whether in cash, securities or other property, shall be made to
any holder of any Note on account of any Note. Any payment or distribution,
whether in cash, securities or other property (other than securities of Holdings
or any other corporation provided for by a plan of reorganization or
readjustment the payment of which is subordinate, at least to the extent
provided in this Section 10 with respect to any Note, to the payment of all
Senior Loans at the time outstanding and to any securities issued in respect
thereof under any such plan of reorganization or readjustment), which would
otherwise (but for these subordination provisions) be payable or deliverable in
respect of the Notes shall be paid or delivered directly to the holders of
Senior Loans until all Senior Loans shall have been paid in full in cash.
10.5. Payments and Distributions Received. If any payment or
distribution of any character or any security, whether in cash, securities or
other property (other than securities of Holdings or any other corporation
provided for by a plan of reorganization or readjustment the payment of which is
subordinate, at least to the extent provided in this Section 10
<PAGE> 21
with respect to any Note, to the payment of all Senior Loans at the time
outstanding and to any securities issued in respect thereof under any such plan
of reorganization or readjustment), shall be received by any holder of any Note
in contravention of any of the terms hereof and before all the Senior Loans
shall have been paid in full in cash and the commitments with respect thereto
have been terminated, such payment or distribution or security shall be received
in trust for the benefit of, and shall be paid over or delivered and transferred
to, the holders of the Senior Loans at the time outstanding for application to
the payment of all Senior Loans remaining unpaid, to the extent necessary to pay
all such Senior Loans in full in cash.
10.6. No Prejudice or Impairment. No present or future holder
of any Senior Loans shall be prejudiced in its right to enforce subordination of
the Notes by any act or failure to act on the part of Holdings, any Joint Issuer
or the holders of the Notes. Without in any way limiting the generality of the
preceding sentence, the holders of Senior Loans may, at any time and from time
to time, without the consent of or notice to the holders of the Notes, without
incurring responsibility to the holders of the Notes and without impairing or
releasing the subordination provided in this Section 10 or the obligations of
the holders of the Notes to the holders of Senior Loans, do any one or more of
the following: (a) change the manner, place or terms of payment of, or renew or
alter any Senior Loans, or otherwise amend or supplement in any manner, any
Senior Loans or any instrument evidencing the same or any agreement under which
Senior Loans is outstanding; (b) sell, exchange, release or otherwise deal with
any property pledged, mortgaged or otherwise securing any Senior Loans; (c)
release any Person liable in any manner for the collection or payment of any
Senior Loans; and (d) exercise or refrain from exercising any rights against any
obligor. Holdings shall notify the holders of the Notes of any of the events
described in the preceding sentence, but any failure so to notify such holders
shall not affect or impair the rights of the holders of Senior Loans hereunder.
Nothing contained herein shall impair, as between Holdings and the holder of any
Notes, the obligation of Holdings to pay to the holder thereof the principal
thereof and interest thereon as and when the same shall become due and payable
in accordance with the terms thereof and of this Agreement, or prevent the
holder of any Note from exercising all rights, powers and remedies otherwise
permitted by applicable law or hereunder upon a Default or Event of Default
hereunder, all subject to the terms of this Section 10 and the rights of the
holders of the Senior Loans to receive cash, securities or other property
otherwise payable or deliverable to the holders of the Notes.
10.7. Payment of Senior Loans, Subrogation, etc. Upon the
payment in full of all Senior Loans in cash and termination of the commitments
with respect thereto, the holders
<PAGE> 22
of the Notes shall be subrogated to all rights of any holders of Senior Loans to
receive any further payments or distributions applicable to the Senior Loans
until the Notes shall have been paid in full, but only to the extent that any
payment or distribution otherwise payable with respect to the Notes has been
applied to the Senior Loans, and, for the purposes of such subrogation, no
payment or distribution received by the holders of Senior Loans of cash,
securities, or other property to which the holders of the Notes would have been
entitled except for this Section 10 shall, as between Holdings and its creditors
other than the holders of Senior Loans, on the one hand, and the holders of the
Notes, on the other, be deemed to be a payment or distribution by Holdings or
any Joint Issuer on account of Senior Loans.
10.8. Filing of Claims. The holders of the Notes hereby
irrevocably authorize and empower the holders of the Senior Loans to file a
claim or proof of claim in any proceeding under the Bankruptcy Code for any
portion of the Notes if the holder or holders thereof shall have failed to file
a claim or proof of claim with respect thereto at least 10 days prior to the
date established by rule of law or order of court for such filing. Except as
expressly stated in this Section 10.8, the holders of the Notes retain their
rights to vote their claims to accept or reject any plan of partial or complete
liquidation, reorganization, arrangement or composition.
10.9. Reliance; Binding on Subsequent Holders. Holdings and
each Joint Issuer agree, and each present and future holder of a Note, by its
acceptance of such Note, agrees to be bound by the subordination provisions of
this Section 10, and agrees that such subordination provisions are inducement to
the present and future holders of Senior Loans to continue to hold such
Indebtedness and/or to make advances of credit to the Joint Issuers and/or
Holdings.
11. Registration, Transfer and Substitution of Securities.
11.1. Note Register; Ownership of Notes. Holdings will keep at
its principal office a register in which Holdings will provide for the
registration of Notes and the registration of transfers of Notes and the Senior
Loans. Holdings may treat the Person in whose name any Note is registered on
such register as the owner thereof for the purpose of receiving payment of the
principal of and interest on such Note and for all other purposes, whether or
not such Note shall be overdue, and Holdings shall not be affected by any notice
to the contrary. All references in this Agreement to a "holder" of any Note
shall mean the Person in whose name such Note is at the time registered on such
register.
<PAGE> 23
11.2. Transfer and Exchange of Notes. Upon surrender of any
Note for registration of transfer or for exchange to Holdings at its principal
office, the Joint Issuers at their expense (except for transfer taxes) will
execute and deliver in exchange therefor a new Note or Notes in denominations of
at least $100,000 (except one Note may be issued in a lesser principal amount if
the unpaid principal amount of the surrendered Note is not evenly divisible by,
or is less than, $100,000), as may be requested by the holder or transferee,
which aggregate the unpaid principal amount of such surrendered Note, registered
as such holder or transferee may request, dated so that there will be no loss of
interest on such surrendered Note and otherwise of like tenor.
11.3. Replacement of Notes. Upon receipt of evidence
reasonably satisfactory to Holdings of the loss, theft, destruction or
mutilation of any Note and, in the case of any such loss, theft or destruction,
upon delivery of an indemnity bond in such reasonable amount as Holdings may
determine (or, in the case of any Note held by any institutional holder or its
nominee, of an unsecured indemnity agreement from such institutional holder
reasonably satisfactory to Holdings), or, in the case of any such mutilation,
upon the surrender of such Note for cancellation, at the principal office of
Holdings, the Joint Issuers, at their expense, will execute and deliver, in lieu
thereof, a new Note in the unpaid principal amount of such lost, stolen,
destroyed or mutilated Note, dated so that there will be no loss of interest on
such Note and otherwise of like tenor. Any Note in lieu of which any such new
Note has been so executed and delivered by the Joint Issuers shall not be deemed
to be an outstanding Note for any purpose of this Agreement.
11.4. Notes Held Holdings, etc., Deemed Not Outstanding. For
the purposes of determining whether the holders of the Notes of the requisite
principal amount at the time outstanding have taken any action authorized by
this Agreement with respect to the giving of consents or approvals or with
respect to acceleration upon an Event of Default, any Notes directly or
indirectly owned by Holdings or any of its Subsidiaries or Affiliates shall be
disregarded and deemed not to be outstanding.
12. Payments on Notes. All payments by the Joint Issuers of
principal, interest and fees becoming due on or with respect to the Notes shall
be made in same day funds and delivered to the Note Purchasers by wire transfer
to such account as each Note Purchaser may from time to time designate.
The Joint Issuers shall receive credit for such funds if received by 1:00 p.m.
CST on such day. In the absence of timely notice and receipt, such funds shall
be deemed to have been paid on the next Business Day. Whenever any payment to be
made hereunder
<PAGE> 24
shall be stated to be due on a day that is not a Business Day, the payment may
be made on the next succeeding Business Day and such extension of time shall be
included in the computation of the amount of interest and fees due hereunder.
13. Events of Default; Acceleration. If any of the following
conditions or events ("Events of Default") shall occur and be continuing:
(a) if the Joint Issuers or Holdings, as guarantor, shall
default in the payment of any principal of any Note when the same
becomes due and payable, whether at maturity or at a date fixed for
prepayment or by acceleration or otherwise; or
(b) if the Joint Issuers or Holdings, as guarantor, shall
default in the payment of any interest on any Note (whether by issuance
of a Note or payment in cash as required by the terms hereof) for more
than 5 days after the same becomes due and payable; or
(c) if Holdings or any Joint Issuer shall default in the
performance of or compliance with any other material term contained in
this Agreement or any other Note Purchase Document and such default
shall continue unremedied for 30 days after such failure shall first
have become known to any officer of Holdings or written notice thereof
shall have been received by Holdings from any holder of any Note; or
(d) if any representation or warranty made in writing by or on
behalf of Holdings or any Joint Issuer in this Agreement, any other
Note Purchase Document, or in any instrument furnished in compliance
with or in reference to this Agreement shall prove to have been false
or incorrect in any material respect on the date as of which made; or
(e) if any event shall occur or condition shall exist in
respect of any Indebtedness of Holdings or any Joint Issuer in excess
of $1,000,000 or under any evidence of any such Indebtedness or of any
mortgage, indenture or other agreement relating thereto, the effect of
which event or condition is to cause the acceleration of such
Indebtedness before its stated maturity or before its regularly
scheduled dates of payment; or
(f) (1) An order for relief is entered with respect to
Holdings or any Joint Issuer or any such Person commences a voluntary
case under the Bankruptcy Code, or consents to the entry of an order
for relief in an involuntary case or to the conversion of an
involuntary case to a voluntary case under any such law or consents to
the appointment of or taking possession by a receiver, trustee or other
custodian
<PAGE> 25
for all or a substantial part of its property; or (2) Holdings or any
Joint Issuer makes any assignment for the benefit of creditors; or (3)
the Board of Directors of Holdings or any Joint Issuer adopts any
resolution or otherwise authorizes action to approve any of the actions
referred to in this subsection 13(f); or
(g) (1) A court enters a decree or order for relief with
respect to Holdings or any Joint Issuer in an involuntary case under
the Bankruptcy Code, which decree or order is not stayed or other
similar relief is not granted under any applicable federal or state law
within sixty (60) days after the entry thereof; or (2) the continuance
of any of the following events for sixty (60) days or more unless
dismissed, bonded or discharged: (a) an involuntary case is commenced
against Holdings or any Joint Issuer under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect; or (b) a
decree or order of a court for the appointment of a receiver,
liquidator, sequestrator, trustee, custodian or other officer having
similar powers over Holdings or any Joint Issuer or over all or a
substantial part of its property, is entered; or (c) an interim
receiver, trustee or other custodian is appointed without the consent
of Holdings or any Joint Issuer, as applicable, for all or a
substantial part of the property of such Person; or
(h) A final judgment or judgments in any individual case or in
the aggregate at any time, in excess of $500,000 (in either case not
adequately covered by insurance as to which the insurance company has
acknowledged coverage) is entered or filed against Holdings or any
Joint Issuer or any of their respective assets and remains
undischarged, unvacated, unbonded or unstayed for a period of thirty
(30) days or more; or
(i) (1) Holdings or any Joint Issuer fails to make full
payment when due of all amounts which, under the provisions of any
employee benefit plans or any applicable provisions of the Internal
Revenue Code as amended from time to time ("IRC"), such Person is
required to pay as contributions thereto and such failure results in
the imposition of a lien on the assets of Holdings or any Joint Issuer;
or (2) an accumulated funding deficiency in excess of $1,000,000 occurs
or exists, whether or not waived, with respect to any Holdings' or any
Joint Issuer's employee benefit plans; or (3) any such employee benefit
plans lose their status as a qualified plan under the IRC which results
in the imposition of a material lien on the assets of Holdings or any
Joint Issuer; or
(j) Any of the Note Purchase Documents for any reason,
<PAGE> 26
other than a partial or full release in accordance with the terms
thereof, ceases to be in full force and effect or is declared to be
null and void, or Holdings or any Joint Issuer denies that it has any
further liability under any Note Purchase Document to which it is
party, or gives notice to such effect; or
(k) A Change of Control as defined under the Credit Agreement
(as in effect on the date hereof) shall occur and be continuing: (1)
upon the occurrence of any Event of Default described in subdivision
(f) or (g) of this Section 13, the unpaid principal amount of and
accrued interest on the Notes shall automatically become due and
payable immediately; or (2) upon the occurrence of any other Event of
Default, any holder or holders of 25% or more in principal amount of
the Notes at the time outstanding may at any time (unless all Events of
Default shall theretofore have been remedied) at its or their option,
by written notice or notices to Holdings as agent for the Joint
Issuers, declare all the Notes to be due and payable, whereupon the
same shall forthwith mature and become due and payable immediately if
no Senior Loans are then outstanding.
14. Remedies on Default. Subject to the terms of Section 10
hereof: In case any one or more Events of Default shall occur and be continuing,
the holder of any Note at the time outstanding may proceed to protect and
enforce the rights of such holder by an action at law, suit in equity or other
appropriate proceeding, whether for the specific performance of any agreement
contained herein or in such Note, or for an injunction against a violation of
any of the terms hereof or thereof, or in aid of the exercise of any power
granted hereby or thereby or by law or otherwise (it being agreed, however, that
no holder of a Note shall commence or continue any such proceeding in the case
of any Event of Default which shall have been waived in accordance with Section
18). In the case of a default in the payment of any principal of or any interest
on any Note, Joint Issuers will, jointly and severally, pay to the holder
thereof such further amount as shall be sufficient to cover the costs and
expenses (including, without limitation, reasonable attorneys' fees, expenses
and disbursements) incurred in connection with any such proceeding or
collection. No course of dealing and no delay on the part of any holder of any
Note in exercising any right, power or remedy shall operate as a waiver thereof
or otherwise prejudice such holder's rights, powers or remedies. No right, power
or remedy conferred by this Agreement or by any Note upon any holder thereof
shall be exclusive of any other right, power or remedy referred to herein or
therein or now or hereafter available at law, in equity, by statute or
otherwise.
15. Definitions.
15.1. Certain Defined Terms. As used in this
<PAGE> 27
Agreement, the following terms have the following respective meanings:
Affiliate: With respect to any Person, (i) 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 any class of the Stock
or other equity interests of such Person or possesses, directly or indirectly,
the power to direct or cause the direction of the management of such Person,
whether through ownership of Stock or other equity interests, by contract or
otherwise, (ii) each Person that controls, is controlled by or is under common
control with such Person or any Affiliate of such Person or (iii) each of such
Person's employees, officers, directors, joint venturers and partners. 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.
Allocation Agreement: That certain Agreement Regarding Issue
Price of even date herewith between each initial Note Purchaser and Holdings,
pursuant to which the purchase price paid for the Notes and the Warrant shall be
allocated for purposes of calculating original issue discount.
Bankruptcy Code: Title 11 of the United States Code entitled
"Bankruptcy", as amended from time to time or any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect and all rules and
regulations promulgated thereunder.
Business Day: Any day except a Saturday, a Sunday or other day
on which commercial banks in the State of New York or the State of Illinois are
required or authorized by law to be closed.
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.
Closing: As defined in Section 3.
<PAGE> 28
Closing Date: As defined in Section 3.
Collateral: Any property covered by the Security 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 any Note Purchaser to secure any of the obligations
with respect to the Note Purchase Documents.
Credit Agreement: That certain Credit Agreement of even date
herewith among the Joint Issuers, General Electric Capital Corporation in its
capacity as Agent and Lender, and the Lenders that are from time to time parties
thereto, as the same may be amended, modified, extended, renewed or otherwise
supplemented from time to time and any credit agreement evidencing the
successive refunding, refinancing or replacement thereof.
Default: A condition or event which, with notice or lapse of
time or both, would become an Event of Default.
Event of Default: The meaning specified in Section 13.
Excess Cash Flow: Shall mean, without duplication, with
respect to any Fiscal Year of the Joint Issuers and their Subsidiaries,
consolidated net income plus (a) depreciation, amortization and Interest Expense
to the extent deducted in determining consolidated net income, minus (c) Capital
Expenditures during such Fiscal Year (excluding the portion thereof financed
from sources other than the Credit Agreement), minus (d) Interest Expense paid
or accrued (excluding any original issue discount, interest paid in kind or
amortized debt discount, to the extent included in determining Interest Expense)
and scheduled principal payments paid or payable in respect of Funded Debt, plus
or minus (as the case may be), (e) extraordinary gains or losses which are cash
items not included in the calculation of net income, minus (f) mandatory
prepayments paid in cash pursuant to Section 1.3 of the Credit Agreement other
than mandatory prepayments made pursuant to Sections 1.3(b)(i), 1.3(b)(iv) or
1.3(d) therein, plus (g) taxes deducted in determining consolidated net income
to the extent not paid for in cash.
Exchange Act: The Securities Exchange Act of 1934, as amended,
or any successor federal statute.
Fiscal Year: Shall mean any of the annual accounting periods
of the Joint Issuers ending on the Saturday closest to December 31st of each
year.
Funded Debt: Shall mean, with respect to any Person, all
indebtedness for borrowed money evidenced by notes, bonds,
<PAGE> 29
debentures, or similar evidences of Indebtedness and which by its terms matures
more than one year from, or is directly or indirectly renewable or extendible at
such Person's option under a revolving credit or similar agreement obligating
the lender or lenders to extend credit over a period of more than one year from
the date of creation thereof, and specifically including Capital Lease
Obligations, current maturities of long-term debt, revolving credit and
short-term debt extendible beyond one year at the option of the debtor.
Holdings: Home Products International, Inc., a Delaware
corporation.
Holdings Guaranty: A guaranty by Holdings of payment of the
Notes.
Indebtedness: As applied to any Person, means: (a) all
indebtedness for borrowed money; (b) that portion of obligations with respect to
capital leases that is properly classified as a liability on a balance sheet in
conformity with GAAP; (c) notes payable and drafts accepted representing
extensions of credit whether or not representing obligations for borrowed money;
(d) any obligation owed for all or any part of the deferred purchase price of
property or services if the purchase price is due more than six (6) months from
the date the obligation is incurred or is evidenced by a note or similar written
instrument; and (e) all indebtedness secured by any Lien on any property or
asset owned or held by that Person regardless of whether the indebtedness
secured thereby shall have been assumed by that Person or is nonrecourse to the
credit of that Person.
Indemnified Party: As defined in Section 19.
Interest Expense: Shall mean, with respect to any Person for
any fiscal period, interest expense (whether cash or non-cash) of such Person
determined in accordance with generally accepted accounting principles for the
relevant period ended on such date, including, in any event, interest expense
with respect to any Funded Debt of such Person.
Interest Payment Date: In each year, February 20 (with respect
to the Fiscal Quarter ending December 31 of the preceding Fiscal Year), May 20
(with respect to the Fiscal Quarter ending March 31), August 20 (with respect to
the Fiscal Quarter ending June 30), and November 20 (with respect to the Fiscal
Quarter ending September 30), commencing with the Interest Payment Date of May
20, 1997.
Investment: As to any Person, any loan, advance (other than
commission, travel and similar advances to officers and employees made in the
ordinary course of business), extension of
<PAGE> 30
credit (other than accounts receivable arising in the ordinary course of
business on terms customary in the trade), deposit account or investment in, or
purchase or other acquisition of, the stock, partnership interests, notes,
debentures or other securities of any other Person made by such Person.
Lien: As to any Person, any lien, mortgage, pledge, security
interest, charge or encumbrance of any kind, whether voluntary or involuntary,
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, and any agreement to give any security interest).
Majority Holders: Note Purchasers holding a majority in
principal amount of the Notes outstanding hereunder.
Material Adverse Effect: A material adverse effect on (i) the
business, properties, assets, operations, prospects or financial or other
condition of Holdings and its Subsidiaries considered as a whole, (ii) Holdings'
and its Subsidiaries' ability to perform their respective obligations under any
Note Purchase Document, (iii) the Collateral or the Note Purchasers' Liens on
the Collateral or the priority of any such Lien, or (iv) the Note Purchasers'
rights and remedies under this Agreement or any other Note Purchase Document. In
determining whether any individual event would result in a Material Adverse
Effect, notwithstanding that such event does not of itself have such effect, a
Material Adverse Effect shall be deemed to have occurred if the cumulative
effect of such event and all other then existing events would result in a
Material Adverse Effect.
Note Purchase Documents: This Agreement, the Notes, the
Security Documents, the Warrant, the Allocation Agreement, the Holdings
Guaranty, and all other instruments, documents and agreements executed by or on
behalf of Holdings or any Joint Issuer and delivered concurrently herewith or at
any time hereafter to any Note Purchaser in connection with the Notes and other
transactions contemplated by this Agreement, including without limitation all
such documents executed and delivered after the Closing Date in connection with
Liens granted to the Note Purchasers, all as amended, supplemented or modified
from time to time.
Note Purchasers: General Electric Capital Corporation, each
other purchaser of Notes on the Closing Date and the successors and assigns of
each such Person.
Officer's Certificate: A certificate executed on behalf of
Holdings by its Chief Executive Officer or Chief Financial Officer.
Person: Natural persons, corporations, limited liability
companies, limited partnerships, general partnerships,
<PAGE> 31
joint stock companies, joint ventures, associations, companies, trusts, banks,
trust companies, land trusts, business trusts or other organizations, whether or
not legal entities, and governments and agencies and political subdivisions
thereof and their respective permitted successors and assigns (or in the case of
a governmental person, the successor functional equivalent of such Person).
Pro Forma: The unaudited consolidated balance sheets of each
of Holdings and its Subsidiaries prepared in accordance with GAAP as of the
Closing Date after giving effect to the Related Transactions. The Pro Forma is
annexed hereto as Schedule 15.1(A).
Projections: Holdings' forecasted consolidated: (a) balance
sheets; (b) profit and loss statements; (c) cash flow statements; and (d)
capitalization statements, all prepared on a consistent basis with Holdings'
historical financial statements, together with appropriate supporting details
and a statement of underlying assumptions. The Projections represent and will
represent as of the date thereof the good faith estimate of Holdings and its
senior management concerning the most probable course of its business.
Related Transactions: The execution and delivery of each of
the Note Purchase Documents required to be executed and delivered on the Closing
Date, the issuance and sale of the initial Notes on the Closing Date, and each
of the "Related Transactions" as defined in the Credit Agreement.
Related Transactions Documents: The Note Purchase Documents,
the Credit Agreement and all other agreements, instruments and documents
executed or delivered in connection with the Related Transactions.
Restricted Payment: Shall mean (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 a Person's stock,
(b) any payment on account of the purchase, redemption, defeasance, sinking fund
or other retirement of a Person's stock or any other payment or distribution
made in respect thereof, either directly or indirectly, (c) any payment or
prepayment of principal of, premium, if any, or interest, fees or other charges
on or with respect to, and any redemption, purchase, retirement, defeasance,
sinking fund or similar payment and any claim for rescission with respect to,
any subordinated debt; (d) 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; (e)
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,
<PAGE> 32
any shares of such Person's stock or of claim for reimbursement, indemnification
or contribution arising out of or related to any such claim for damages or
rescission; (f) any payment, loan, contribution, or other transfer of funds or
other property to any stockholder of such Person; and (g) any payment of
management fees (or other fees of a similar nature) by such Person to any
stockholder of such Person or their affiliates.
Securities Act: The Securities Act of 1933, as amended or any
successor federal statute.
Security Agreement: That certain Subordinated Note Security
Agreement of even date herewith executed by the Joint Issuers in favor of the
Note Purchasers, in form and substance satisfactory to the Majority Holders.
Security Documents: The Security Agreement and all
instruments, documents, financing statements and agreements executed by or on
behalf of any Joint Issuers to provide collateral security with respect to the
Notes including, without limitation, any security agreement or pledge agreement,
second mortgages on each parcel of real estate owned by each Joint Issuer, and
all instruments, documents and agreements executed pursuant to the terms of the
foregoing.
Senior Lenders: Any lender which may from time to time provide
financing to any of the Joint Issuers pursuant to the Credit Agreement.
Senior Loans: As defined in Section 10.2.
Subsidiary: With respect to any Person, any corporation,
partnership, association or other business entity of which more than fifty
percent (50%) of the total voting power of shares of stock (or equivalent
ownership or controlling interest) entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by that
Person or one or more of the other Subsidiaries of that Person or a combination
thereof.
Warrant: The Warrant Agreements dated as of the Closing Date
issued by Holdings to the initial Note Purchasers.
15.2. Accounting and other Terms. For the purposes of this
Agreement, all accounting terms not otherwise defined herein shall have the
meaning assigned to them in accordance with GAAP. To the extent not otherwise
defined herein, all defined terms herein shall have the meanings ascribed
thereto in Schedule A to the Credit Agreement as in effect on the date hereof.
16. Submission to Jurisdiction; Waiver. Holdings
<PAGE> 33
and each Joint Issuer hereby irrevocably (a) agree that any legal or equitable
action, suit or proceeding arising out of or relating to this Agreement or any
transaction contemplated hereby or the subject matter of any of the foregoing
may be instituted in any state or federal court in the City of Chicago,
Illinois, (b) waive any objection which they may now or hereafter have to the
venue of any action, suit or proceeding, and (c) irrevocably submit themselves
to the nonexclusive jurisdiction of any state or federal court of competent
jurisdiction in Chicago, Illinois, for purposes of any such action, suit or
proceeding. Holdings and each Joint Issuer waive personal service of process and
consents that service of process upon it may be made by certified or registered
mail, return receipt requested, at its address specified or determined in
accordance with the provisions of Section 20, and service so made shall be
deemed completed on the third business day after mailing. Nothing contained in
this Section 16 shall be deemed to affect the rights of any Note Purchaser to
serve process in any other manner permitted by law or to commence legal
proceedings or otherwise proceed against Holdings and/or any Joint Issuer in any
jurisdiction. Each of the parties hereto irrevocably waives any right it may
have to a trial by jury in respect of any claim based upon, or arising out of
the terms and conditions of, this Agreement.
17. Survival of Representations and Warranties. All
representations and warranties contained in this Agreement or made in writing by
or on behalf of Holdings or any Joint Issuer in connection with the transactions
contemplated by this Agreement shall survive the execution and delivery of this
Agreement, any investigation at any time made by any Note Purchaser or on its
behalf, the purchase of the initial Note by any Note Purchaser under this
Agreement and any disposition of the same and the payment of the Notes.
18. Amendments and Waivers. Any term of this Agreement or of
the Notes may be amended and the observance of any term of this Agreement or of
the Notes may be waived (either generally or in a particular instance and either
retroactively or prospectively) only with the written consent of Holdings and
the Majority Holders, provided that, without the prior written consent of the
holders of all the Notes at the time outstanding, no such amendment or waiver
shall (a) change the maturity or the principal amount of, or reduce the rate or
change the time of payment of interest on, or decrease the amount or the time of
payment of any principal payable on any payment or prepayment of, any Note, (b)
reduce the aforesaid percentages of the principal amount of the Notes the
holders of which are required to consent to any such amendment or waiver, (c)
decrease the percentage of the principal amount of the Notes the holders of
which may declare the Notes to be due and payable as provided in Section 13, or
(e) otherwise change or waive any of the terms of Section 10 or this Section 18.
Any amendment or waiver effected in
<PAGE> 34
accordance with this Section 18 shall be binding upon each holder of any Note
issued and outstanding pursuant to this Agreement, each future holder of any
Note and Holdings and the Joint Issuers.
19. Indemnification. Holdings and the Joint Issuers, jointly
and severally, will indemnify and hold harmless each Note Purchaser and each
person who controls a Note Purchaser within the meaning of the Securities Act or
the Exchange Act and each Affiliate of a Note Purchaser and each Note
Purchaser's respective directors, officers, employees and agents (any and all of
whom are referred to as the "Indemnified Party") from and against any and all
losses, claims, damages and liabilities, whether joint or several (including all
legal fees or other expenses reasonably incurred by any Indemnified Party in
connection with the preparation for or defense of any pending or threatened
third party claim, action or proceeding, whether or not resulting in any
liability), to which such Indemnified Party may become subject (whether or not
such Indemnified Party is a party thereto) under any applicable federal or state
law or otherwise, caused by or arising out of, or allegedly caused by or arising
out of this Agreement and the other Related Transactions Documents or any
transaction contemplated hereby or thereby; provided that Holdings and the Joint
Issuers shall not be liable for any indemnification to any Indemnified Party to
the extent that any such losses, claims, damages or liabilities are the result
of any representation made by such Indemnified Party in Section 6 or result from
such Indemnified Party's gross negligence or willful misconduct. To the extent
that Holdings or any Joint Issuer is strictly liable under any environmental
laws, Holdings' or the applicable Joint Issuer's obligations to indemnify under
this Section 19 shall likewise be without regard to fault on the part of
Holdings or the applicable Joint Issuer and with respect to the violation of law
which results in liability to Holdings and/or the applicable Joint Issuer. To
the extent that the undertaking to indemnify, pay and hold harmless set forth in
this Section 19 may be unenforceable because it is violative of any law or
public policy, Holdings and/or the applicable Joint Issuer shall contribute the
maximum portion that it is permitted to pay an satisfy under applicable law to
the payment and satisfaction of all indemnified liabilities incurred by the
Indemnified Parties or any of them. Notwithstanding any other provision of this
Agreement to the contrary, the provisions of and undertakings and
indemnifications set forth in this Section 19 shall survive the satisfaction and
payment of the Notes and the termination of this Agreement. All of the foregoing
indemnification liabilities shall be secured by the Collateral. NO INDEMNIFIED
PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY OTHER PARTY HERETO, 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 WHICH MAY BE ALLEGED AS A
<PAGE> 35
RESULT OF CREDIT HAVING BEEN EXTENDED OR TERMINATED UNDER THIS AGREEMENT AND THE
OTHER NOTE PURCHASE DOCUMENTS.
Promptly after receipt by an Indemnified Party of notice of
any claim, action or proceeding with respect to which an Indemnified Party is
entitled to indemnity hereunder, such Indemnified Party will notify Holdings of
such claim or the commencement of such action or proceeding, provided that the
failure of an Indemnified Party to give notice as provided herein shall not
relieve Holdings of its obligations under this Section 19 with respect to such
Indemnified Party, except to the extent that Holdings is actually prejudiced by
such failure. Holdings and the Joint Issuers will assume the defense of such
claim, action or proceeding and will employ counsel satisfactory to the
Indemnified Party and will pay the fees and expenses of such counsel.
Notwithstanding the preceding sentence, the Indemnified Party will be entitled,
at the expense of Holdings and the Joint Issuers, to employ counsel separate
from counsel for Holdings and the Joint Issuers and for any other party in such
action if the Indemnified Party reasonably determines that a conflict of
interest or other reasonable basis exists which makes representation by counsel
chosen by Holdings and the Joint Issuers not advisable, but Holdings and the
Joint Issuers will not be obligated to pay the fees and expenses of more than
one counsel for all Indemnified Parties.
20. Notices, etc. Except as otherwise provided in this
Agreement, notices and other communications under this Agreement shall be in
writing and shall be delivered, or mailed by registered or certified mail,
return receipt requested, or by overnight courier, or sent by telex or telecopy,
addressed, (a) if to the initial Note Purchasers, at the addresses set forth on
signature page hereof or at such other address as the initial Note Purchasers
shall have furnished to Holdings in writing, or (b) if to any other holder of
any Note, at such address as such other holder shall have furnished to Holdings
in writing, or, until any such other holder so furnishes to Holdings an address,
then to and at the address of the last holder of such Note who has furnished an
address to Holdings, or (c) if to Holdings or any Joint Issuer, to Selfix, Inc.,
4501 West 47th Street, Chicago, Illinois 60632, Attention: Chief Executive
Officer, telecopy no. (773) 890-0523 with a copy to, Much, Shelist, Freed,
Denenberg, Ament, Bell & Rubenstein PC, 200 N. LaSalle St., Suite 2100, Chicago,
IL 60601, Attention: Jeffrey C. Rubenstein, telecopy (312) 621-1750 or at such
other address, or to the attention of such other officer, as Holdings shall have
furnished to each Note Purchaser. All such notices and communications shall be
deemed to have been given or made (i) when delivered, if by hand, (ii) one
Business Day after submission to a reputable courier for overnight delivery,
(iii) on the fifth Business Day after being mailed by registered or certified
mail, or (iv) if telecopied, when telecopy receipt is confirmed.
<PAGE> 36
21. Miscellaneous. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto, whether so expressed or not, and, in particular,
shall inure to the benefit of and be enforceable by any holder or holders at the
time of the Notes sold hereunder or any part thereof. This Agreement and the
Note Purchase Documents embody the entire agreement and understanding between
the Note Purchaser and Holdings and the Joint Issuers and supersede all prior
agreements and understandings relating to the subject matter hereof. THIS
AGREEMENT AND THE NOTES SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE
LAWS APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THE STATE OF ILLINOIS. The
headings in this Agreement are for purposes of reference only and shall not
limit or otherwise affect the meaning hereof. This Agreement may be executed in
any number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument. All payment obligations of Holdings
and the Joint Issuers hereunder or under the Notes shall be joint and several.
[signature page follows]
<PAGE> 37
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Note Purchase Agreement on the date first above written.
HOLDINGS:
HOME PRODUCTS INTERNATIONAL, INC.
By:________________________
Title:_____________________
JOINT ISSUERS:
SELFIX, INC.
By:________________________
Title:_____________________
TAMOR CORPORATION
By:________________________
Title:_____________________
SHUTTERS, INC.
By:________________________
Title:_____________________
<PAGE> 38
THE INITIAL NOTE PURCHASER:
GENERAL ELECTRIC CAPITAL
CORPORATION
Amount: $7,000,000
By:__________________________________________
Name:________________________________________
Its: Authorized Signatory
Address: 105 West Madison Street - Suite 1600
Chicago, Illinois 60602
Attention: Selfix Account Manager
<PAGE> 39
EXHIBIT 1.1
TO
NOTE PURCHASE AGREEMENT
FORM OF
FIXED RATE SUBORDINATED NOTE
$7,000,000 February 27, 1997
FOR VALUE RECEIVED, the undersigned, SELFIX, INC. a Delaware
corporation; TAMOR CORPORATION, a Massachusetts corporation; and SHUTTERS, INC.,
an Illinois corporation (individually a "Joint Issuer" and, collectively, the
"Joint Issuers"), hereby unconditionally PROMISE TO PAY to the order of GENERAL
ELECTRIC CAPITAL CORPORATION, a New York corporation ("GE Capital"), in its
individual capacity, at 105 W. Madison St., Suite 1600, Chicago, IL 60602, or at
such other place as the holder of this Fixed Rate Subordinated Note 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 Seven
Million Dollars ($7,000,000), together with interest on the unpaid principal
amount of this Fixed Rate Subordinated Note outstanding from time to time from
the date hereof, at the rate provided in the Note Purchase Agreement (as
hereinafter defined). The Joint Issuers agree that they will be jointly and
severally liable for the payment of all amounts due hereunder.
This Fixed Rate Subordinated Note is issued pursuant to that
certain Note Purchase Agreement dated as of February 27, 1997 by and among the
Joint Issuers, Home Products International, Inc., a Delaware corporation, and GE
Capital (as the same from time to time may be amended, restated, supplemented or
otherwise modified, the "Note Purchase Agreement"), and is entitled to the
benefit and security of the Note Purchase Documents provided for therein, to
which reference is hereby made for a statement of all of the terms and
conditions under which the indebtedness evidenced hereby is made and is to be
repaid and for a statement of GE Capital's remedies upon the occurrence and
during the continuance of an Event of Default. All capitalized terms, unless
otherwise defined herein, shall have the meanings ascribed to them in the Note
Purchase Agreement.
The principal amount of the indebtedness evidenced hereby
shall be payable in one installment on February 27, 2005, if not sooner paid in
full, and is subject to certain prepayments as set forth in the Note Purchase
Agreement. Interest thereon shall be paid until such principal amount is paid in
full at such interest rates and at such times, as are specified in the Note
Purchase Agreement.
<PAGE> 40
If any payment on this Fixed Rate Subordinated 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 rate applicable for the
prior month during such extension.
Upon and after the occurrence of an Event of Default, this
Fixed Rate Subordinated Note may, as provided in the Note Purchase Agreement,
and without demand, notice or legal process of any kind, be declared, and
immediately shall become, due and payable.
Demand, presentment, protest and notice of nonpayment and
protest are hereby waived by Joint Issuers to the fullest extent permitted by
law.
All payments under this Fixed Rate Subordinated Note shall be
paid in the State of Illinois, and this Fixed Rate Subordinated Note shall be
interpreted, governed by, and construed in accordance with, the laws of the
State of Illinois applicable to promissory notes made and payable in such State.
SELFIX, INC.
By:___________________________
Name:______________________
Title:_____________________
TAMOR CORPORATION
By:___________________________
Name:______________________
Title:_____________________
SHUTTERS, INC.
By:___________________________
Name:______________________
Title:_____________________
<PAGE> 41
NOTE PURCHASE AGREEMENT
EXHIBIT 7.1
I, the undersigned, being the Chief Executive Officer/Chief Financial
Officer of Household Products International, Inc., a Delaware corporation
("Holdings"), hereby certifies that the financial statements attached hereto
present fairly in accordance with GAAP the financial position, results of
operations and statement of cash flows of Holdings and its Subsidiaries on a
consolidated and consolidating basis, as at the end of such year and for the
period then ended, and that no Default or Event of Default has occurred and is
continuing as of the date hereof or, if a Default or Event of Default shall have
occurred and be continuing describing the same and all efforts undertaken to
cure the same.
Dated:________ Home Products International, Inc.
By:_________________________________
Title:______________________________
<PAGE> 42
EXECUTION COPY
SUBORDINATED NOTE SECURITY AGREEMENT
SUBORDINATED NOTE SECURITY AGREEMENT, dated February 27, 1997
(as it may be amended, supplemented or otherwise modified from time to time,
this "Security Agreement"), made by SELFIX, INC., a Delaware corporation
(individually, "Selfix"), TAMOR CORPORATION, a Massachusetts corporation
(individually, "Tamor"), and SHUTTERS, INC., an Illinois corporation
(individually, "Shutters") (Selfix, Tamor and Shutters collectively,
"Grantors"), in favor of GENERAL ELECTRIC CAPITAL CORPORATION, a New York
corporation ("GE Capital"), as agent for holders of the Subordinated Notes (the
"Agent").
W I T N E S S E T H:
WHEREAS, pursuant to that certain Note Purchase Agreement,
dated as of even date hereof, by and between Grantors and GE Capital, as Agent
for holders of the Subordinated Notes (as the same may from time to time be
amended, modified or supplemented, the "Note Purchase Agreement"), GE Capital
has agreed to purchase from Grantors fixed rate subordinated equity bridge notes
(the "Subordinated Notes") in the principal amount of $7,000,000;
WHEREAS, Grantors have agreed to grant to the holders of the
Subordinated Notes a Lien and security interest in, to and under substantially
all of their assets to secure payment of any and all obligations owing by
Grantors to the holders of the Subordinated Notes under the Note Purchase
Agreement; and
WHEREAS, GE Capital is willing to purchase the Subordinated
Notes but only upon the condition, among others, that Grantors shall have
executed and delivered to GE Capital this Security Agreement.
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants herein contained and for other good and valuable consideration,
the receipt of which is hereby acknowledged, the parties hereto agree as
follows:
1. Defined Terms. Unless otherwise defined herein, terms
defined in the Note Purchase Agreement are used herein as therein defined, and
the following terms shall have the following meanings (such meanings being
equally applicable to both the singular and plural forms of the terms defined):
"Account Debtor" shall mean any "account debtor," as such term
is defined in the Code.
"Accounts" shall mean any "account," as such term is defined
in the Code, now owned or hereafter acquired by any Grantor and, in any event,
including (a) all accounts receivable, other receivables, book debts and other
forms of obligations (other than forms of
<PAGE> 43
obligations evidenced by Chattel Paper, Documents or Instruments) now owned or
hereafter received or acquired by or belonging or owing to any Grantor whether
arising out of goods sold or services rendered by any Grantor or from any other
transaction, (including any such obligations which may be characterized as an
account or contract right under the Code), (b) and all of each Grantor's rights
in, to and under all purchase orders or receipts now owned or hereafter acquired
by it for goods or services, (c) all of each Grantor's rights to any goods
represented by any of the foregoing (including unpaid seller's 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 any Grantor, under all purchase orders and contracts for the sale of goods or
the performance of services or both by such Grantor or in connection with any
other transaction (whether or not yet earned by performance on the part of such
Grantor), now or hereafter in existence, including the right to receive the
proceeds of said purchase orders and contracts, and (e) all collateral security
and guarantees of any kind, now or hereafter in existence, given by any Person
with respect to any of the foregoing.
"Chattel Paper" shall mean any "chattel paper," as such term
is defined in the Code, now owned or hereafter acquired by any Grantor.
"Code" shall mean the Uniform Commercial Code as the same may,
from time to time, be enacted and in effect in the State of Illinois provided,
however, in the event that, by reason of mandatory provisions of law, any or all
of the attachment, perfection or priority of Agent's or any Note Purchaser's
security interest in any Collateral is governed by the Uniform Commercial Code
as enacted and in effect in a jurisdiction other than the State of Illinois, the
term "Code" shall mean the Uniform Commercial Code as enacted and in effect in
such other jurisdiction solely for purposes of the provisions hereof relating to
such attachment, perfection or priority and for purposes of definitions related
to such provisions.
"Collateral" shall have the meaning assigned to such term in
Section 2 of this Security Agreement.
"Contracts" shall mean all "contracts" as such term is defined
in the Code, now or hereafter acquired by any Grantor, in any event, including
all contracts, undertakings, or agreements (other than rights evidenced by
Chattel Paper, Documents or Instruments) in or under which any Grantor 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.
"Documents" shall mean any "documents," as such term is
defined in the Code, now owned or hereafter acquired by any Grantor, wherever
located.
"Equipment" shall mean all "equipment," as such term is
defined in the Code, now owned or hereafter acquired by any Grantor, wherever
located and, in any event, including all of such Grantor's machinery and
equipment, including processing equipment, conveyors, machine tools, data
processing and computer equipment with software and peripheral equipment
-2-
<PAGE> 44
(other than software constituting part of the Accounts), 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 not
forming a part of real property, all whether now owned or hereafter acquired,
and wherever situated, 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.
"Fixtures" shall mean any "fixtures," as such term is defined
in the Code, now owned or hereafter acquired by any Grantor.
"General Intangibles" shall mean any "general intangibles," as
such term is defined in the Code, now owned or hereafter acquired by any
Grantor, and, in any event, including all right, title and interest which such
Grantor may now or hereafter have in or under any Contract, all customer lists,
Licenses, Trademarks, Patents, and all applications therefor and reissues,
extensions or renewals thereof, rights in Intellectual Property, interests in
partnerships, joint ventures and other business associations, licenses, permits,
trade secrets, proprietary or confidential information, inventions (whether or
not patented or patentable), technical information, procedures, designs,
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 securities,
choses in action, deposit, checking and other bank accounts, rights to receive
tax refunds and other payments, rights of indemnification, all books and
records, correspondence, credit files, invoices and other papers, including
without limitation all tapes, cards, computer runs and other papers and
documents in the possession or under the control of such Grantor or any computer
bureau or service company from time to time acting for such Grantor.
"hereby," "herein," "hereof," "hereunder" and words of similar
import refer to this Security Agreement as a whole (including, without
limitation, any schedules hereto) and not merely to the specific section,
paragraph or clause in which the respective word appears.
"Instruments" shall mean any "instrument," as such term is
defined in the Code, now owned or hereafter acquired by any Grantor, wherever
located, and, in any event, including all certificated securities, all
certificates of deposit, and all notes and other, without limitation, evidences
of indebtedness, other than instruments that constitute, or are a part of a
group of writings that constitute, Chattel Paper.
"Intellectual Property Collateral" shall mean any and all
Licenses, Patents,
-3-
<PAGE> 45
Trademarks and trade secrets and customer lists as to which Agent has been
granted a security interest hereunder.
"Inventory" shall mean all "inventory," as such term is
defined in the Code, now owned or hereafter acquired by any Grantor, wherever
located, and, in any event, including inventory, merchandise, goods and other
personal property which are held by or on behalf of any Grantor for sale or
lease or are furnished or are to be furnished under a contract of service, or
which constitute raw materials, work in process or materials used or consumed or
to be used or consumed in such Grantor's business, or in the processing,
production, packaging, promotion, delivery or shipping of the same, including
other supplies.
"Investment Property" shall have the meaning ascribed thereto
in Section 9-115 of the Code in those jurisdictions in which such definition has
been adopted and shall include (i) all securities, whether certificated or
uncertificated, including stocks, bonds, interests in limited liability
companies, partnership interests, treasuries, certificates of deposit, and
mutual fund shares; (ii) all securities entitlements of any Grantor, including
the rights of any Grantor 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 that
account; (iii) all securities accounts held by any Grantor; (iv) all commodity
contracts held by any Grantor; and (v) all commodity accounts held by any
Grantor.
"License" shall mean any Patent License, Trademark License or
other license as to which Agent has been granted a security interest hereunder.
"Patent License" shall mean rights under any written agreement
now owned or hereafter acquired by any Grantor granting any right with respect
to any invention on which a Patent is in existence.
"Patents" shall mean all of the following now or hereafter
acquired by any Grantor: (i) all patents and patent applications, (ii) all
inventions and improvements described and claimed therein, (iii) all reissues,
divisions, continuations, renewals, extensions and continuations-in-part
thereof, (iv) all income, royalties, damages and payments now and hereafter due
and/or payable to any Grantor with respect thereto, including, without
limitation, damages and payments for past, present or future infringements or
misappropriation thereof, (v) all rights to sue for past, present and future
infringements or misappropriation thereof, and (vi) all other rights
corresponding thereto throughout the world.
"Proceeds" shall mean "proceeds," as such term is defined in
the Code and, in any event, shall include (i) any and all proceeds of any
insurance, indemnity, warranty or guaranty payable to any Grantor from time to
time with respect to any of the Collateral, (ii) any and all payments (in any
form whatsoever) made or due and payable to any Grantor 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 body,
authority, bureau or agency (or any person
-4-
<PAGE> 46
acting under color of governmental authority), (iii) any claim of any Grantor
against third parties (A) for past, present or future infringement of any Patent
or Patent License or (B) for past, present or future infringement or dilution of
any Trademark or Trademark License or for injury to the goodwill associated with
any Trademark, Trademark registration or Trademark licensed under any Trademark
License, (iv) any recoveries by any Grantor against third parties with respect
to any litigation or dispute concerning any of the Collateral, and (v) 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.
"Secured Obligations" shall mean the obligations of each
Grantor to Agent pursuant to the Note Purchase Agreement and the Subordinated
Notes, including, without limitation, principal, interest, fees and expenses.
"Security Agreement" shall mean this Security Agreement, as
the same may from time to time be amended, modified or supplemented and shall
refer to this Security Agreement as in effect on the date such reference becomes
operative.
"Trademark License" shall mean rights under any written
agreement now owned or hereafter acquired by any Grantor granting any right to
use any Trademark.
"Trademarks" shall mean all of the following now owned or
hereafter acquired by any Grantor: (i) all trademarks (including service marks
and trade names, whether registered or at common law), registrations and
applications therefor, and the entire product lines and goodwill of any
Grantor's business connected therewith and symbolized thereby, (ii) all renewals
thereof, (iii) all income, royalties, damages and payments now and hereafter due
or payable or both with respect thereto, including, without limitation, damages
and payments for past, present or future infringements or misappropriations
thereof, (iv) all rights to sue for past, present and future infringements or
misappropriations thereof, and (v) all other rights corresponding thereto
throughout the world.
2. Grant of Security Interest.
(a) As collateral security for the prompt and complete
payment and performance when due (whether at stated maturity, by acceleration or
otherwise) of all the Secured Obligations, each Grantor hereby assigns, conveys,
mortgages, pledges, hypothecates and transfers to Agent on behalf of the holders
of the Subordinated Notes, and hereby grants to Agent on behalf of the holders
of the Subordinated Notes, a second Lien on all of such Grantor's right, title
and interest in, to and under the following (all of which being hereinafter
collectively called the, "Collateral"):
(i) all Accounts;
(ii) all Chattel Paper;
-5-
<PAGE> 47
(iii) all Contracts;
(iv) all Documents;
(v) all Equipment;
(vi) all Fixtures;
(vii) all General Intangibles;
(viii) all goods;
(ix) all Instruments;
(x) all Inventory;
(xi) all Investment Property;
(xii) all Grantor's Accounts, concentration
Accounts, disbursement Accounts and all
other deposit and other bank accounts and
all deposits therein;
(xiii) all money, cash or cash equivalents of any
Grantor; and
(xiv) 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.
(b) In addition, as collateral security for the prompt and
complete payment when due of the Secured Obligations and in order to
induce Agent as aforesaid, Agent is hereby granted a second Lien on
all property of any Grantor held by Agent, including, without
limitation, all property of every description (including any real
property subject to any mortgage), now or hereafter in the possession
or custody of or in transit to Agent for any purpose, including
safekeeping, collection or pledge, for the account of any Grantor, or
as to which any Grantor may have any right or power.
3. Rights of Agent; Limitations on Agent's Obligations.
(a) It is expressly agreed by Grantors that, anything herein
to the contrary notwithstanding, each 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 and each Grantor shall perform all of its
duties and obligations thereunder, all in accordance with and pursuant
to the terms and provisions of each such
-6-
<PAGE> 48
Contract or License. Agent shall not have any obligation or liability
under any Contract or License by reason of or arising out of this
Security Agreement or the granting to Agent of a security interest
therein or the receipt by Agent of any payment relating to any
Contract or License pursuant hereto, nor shall Agent be required or
obligated in any manner to perform or fulfill any of the obligations
of any Grantor under or pursuant to any 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 Contract or License, or to
present or file any claim, or to take any action to collect or enforce
any performance or the payment of any amounts which may have been
assigned to it or to which it may be entitled at any time or times.
(b) Agent authorizes each Grantor to collect its Accounts
provided that such collection is performed in a prudent and
businesslike manner, and Agent may, upon the occurrence and during the
continuation of any Event of Default and without notice, limit or
terminate said authority at any time. If required by Agent after
payment in full of the Senior Loans and at any time during the
continuation of any Event of Default, any Proceeds, when first
collected by any Grantor, received in payment of any such Account or in
payment for any of its Inventory or on account of any of its Contracts,
shall be promptly deposited by such Grantor in precisely the form
received (with all necessary endorsements) in a special bank account
maintained by Agent subject to withdrawal by Agent only, as hereinafter
provided, and until so turned over shall be deemed to be held in trust
by such Grantor for and as Agent's property and shall not be commingled
with such Grantor's other funds or properties. Such Proceeds, when
deposited, shall continue to be collateral security for all of the
Secured Obligations and shall not constitute payment thereof until
applied as hereinafter provided. Agent shall apply all or a part of the
funds on deposit in said special account to the principal of or
interest on or both in respect of any of the Secured Obligations in
accordance with the provisions of Section 7(d) hereof and any part of
such funds which Agent elects not so to apply and deems not required as
collateral security for the Secured Obligations shall be paid over from
time to time by Agent to such Grantor. If an Event of Default has
occurred and is continuing and after payment in full of the Senior
Loans and, at the request of Agent, each Grantor shall deliver to Agent
all original and other documents evidencing, and relating to, the sale
and delivery of such Inventory or the performance of labor or service
which created such Accounts, including, without limitation, all
original orders, invoices and shipping receipts; and, prior to the
occurrence of an Event of Default, Grantor shall deliver photocopies
thereof to Agent at its request.
(c) Agent may at any time after payment in full of the Senior
Loans and upon the occurrence and during the continuation of any Event
of Default (whether or not waived), after first notifying the Grantors
of its intention to do so, notify Account Debtors of each Grantor,
parties to the Contracts of each Grantor, obligors of Instruments of
each Grantor and obligors in respect of Chattel Paper of each Grantor
that the Accounts and the right, title and interest of each Grantor in
and under such Contracts, such Instruments
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and such Chattel Paper have been assigned to Agent and that payments
shall be made directly to Agent. Upon the request of Agent after
payment in full of the Senior Loans, each Grantor will so notify such
Account Debtors, parties to such Contracts, obligors of such
Instruments and obligors in respect of such Chattel Paper that payments
shall be made directly to Agent. Upon the occurrence and during the
continuation of an Event of Default (whether or not waived), after
payment in full of the Senior Loans, Agent may in its own name or in
the name of others communicate with such Account Debtors, parties to
such Contracts, obligors of such Instruments and obligors in respect of
such Chattel Paper to verify with such Persons to Agent's satisfaction
the existence, amount and terms of any such Accounts, Contracts,
Instruments or Chattel Paper.
(d) Upon reasonable prior notice to any Grantor (unless
an Event of Default has occurred and is continuing, in which case no
notice is necessary), Agent shall have the right, during normal
business hours, to make test verifications of the Accounts and physical
verifications of the Inventory in any manner and through any medium
that it considers advisable, and all Grantors agree to furnish all such
assistance and information as Agent may require in connection
therewith. Upon the occurrence and continuation of an Event of Default,
each Grantor at its expense will cause certified independent public
accountants satisfactory to Agent to prepare and deliver to Agent at
any time and from time to time promptly upon Agent's request, the
following reports: (i) a reconciliation of all its Accounts, (ii) an
aging of all its Accounts, (iii) trial balances, and (iv) a test
verification of such Accounts as Agent may request. Each Grantor at its
expense will cause certified independent public accountants
satisfactory to Agent to prepare and deliver to Agent the results of
the annual physical verification of its Inventory made or observed by
such accountants.
4. Representations and Warranties. Each Grantor hereby
represents and warrants that:
(a) Except for the security interest granted to Agent
pursuant to this Security Agreement and other Liens permitted by the
Note Purchase Agreement, each Grantor is the sole owner of each item of
the Collateral in which it purports to grant a security interest
hereunder, having good and marketable title thereto, free and clear of
any and all Liens. No material amounts payable under or in connection
with any of its Accounts or Contracts are evidenced by Instruments
which have not been delivered to Agent.
(b) 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 by any Grantor in
favor of Agent pursuant to this Security Agreement or such as relate to
other Liens permitted by the Note Purchase Agreement.
(c) Appropriate financing statements having been filed in the
jurisdictions
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listed on Schedule I hereto, this Security Agreement is effective to
create a valid and continuing lien on and perfected security interest
in the Collateral with respect to which a security interest may be
perfected by the filing of financing statements pursuant to the Code,
or by filing in the United States Patent and Trademark Office, in favor
of Agent, prior to all other Liens except Liens permitted by the Note
Purchase Agreement, and is enforceable as such as against creditors of
and purchasers from any Grantor (other than purchasers of Inventory in
the ordinary course of business) and as against any purchaser of real
property where any of the Equipment is located and any present or
future creditor obtaining a Lien on such real property. All action
necessary or desirable to protect and perfect such security interest in
each item of the Collateral has been duly taken.
(d) Each Grantor's principal place of business and the
place where its records concerning the Collateral are kept and the
location of its Inventory and Equipment are set forth on Schedule II
hereto, and no Grantors will change such principal place of business or
remove such records or change the location of its Inventory and
Equipment unless it has taken such action as is necessary to cause the
security interest of Agent in the Collateral to continue to be
perfected. No Grantor will change its principal place of business or
the place where its records concerning the Collateral are kept or
change the locations of its Inventory and Equipment without giving
thirty (30) days' prior written notice thereof to Agent.
(e) The amount represented by each Grantor to Agent from
time to time as owing by each Account Debtor or by all Account Debtors
in respect of the Accounts of such Grantor will at such time be the
correct amount actually and unconditionally owing by such Account
Debtors thereunder.
5. Covenants. Grantors covenant and agree with Agent
that from and after the date of this Security Agreement and until the Secured
Obligations are fully satisfied:
(a) Further Documentation; Pledge of Instruments. At any
time and from time to time, upon the written request of Agent, and at
the sole expense of Grantors, Grantors will promptly and duly execute
and deliver any and all such further instruments and documents and take
such further action as Agent may reasonably deem desirable to obtain
the full benefits of this Security Agreement and of the rights and
powers herein granted, including, without limitation, using their best
efforts to secure all consents and approvals necessary or appropriate
for the assignment to Agent of any License or Contract held by any
Grantor or in which any Grantor has any rights not heretofore assigned,
the filing of any financing or continuation statements under the Code
with respect to the Liens and security interests granted hereby,
transferring Collateral to Agent's possession (if a security interest
in such Collateral can be perfected by possession), and using its best
efforts to obtain waivers of Liens from landlords and mortgagees.
Grantors also hereby authorize Agent to file any such financing or
continuation statement without the signature of any Grantor to the
extent permitted by
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applicable law. If any amount payable under or in connection with any
of the Collateral shall be or become evidenced by any Instrument, after
the Senior Loans has been paid in full, such Instrument shall be
immediately pledged to Agent hereunder, and shall be duly endorsed in a
manner satisfactory to Agent and delivered to Agent.
(b) Maintenance of Records. Each Grantor will keep and
maintain at its own cost and expense satisfactory and complete records
of the Collateral, including, without limitation, a record of all
payments received and all credits granted with respect to the
Collateral and all other dealings with the Collateral. Each Grantor
will mark its books and records pertaining to the Collateral to
evidence this Security Agreement and the security interests granted
hereby. All Chattel Paper will 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." For Agent's further security, each Grantor agrees that
Agent shall have a special property interest in all of each Grantor's
books and records pertaining to the Collateral and, upon the occurrence
and during the continuation of any Event of Default, after the Senior
Loans has been paid in full, each Grantor shall deliver and turn over
any such books and records to Agent or to its representatives at any
time on demand of Agent. Prior to the occurrence of an Event of Default
and upon reasonable notice from Agent, each Grantor shall permit any
representative of Agent to inspect such books and records and will
provide photocopies thereof to Agent.
(c) Indemnification. In any suit, proceeding or action brought
by Agent relating to any Account, Chattel Paper, Contract, General
Intangible or Instrument for any sum owing thereunder, or to enforce
any provision of any Account, Chattel Paper, Contract, General
Intangible or Instrument, each Grantor will save, indemnify and keep
Agent harmless from and against all expense, 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 any 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 any Grantor, and all such
obligations of each Grantor shall be and remain enforceable against and
only against such Grantor and shall not be enforceable against Agent.
(d) Payment of Obligations. Each Grantor will pay promptly
when due all taxes, assessments and governmental charges or levies
imposed upon the Collateral or in respect of its income or profits
therefrom and all claims of any kind (including, without limitation,
claims for labor, materials and supplies), except that no such charge
need be paid if (i) such nonpayment does not involve any danger of the
sale, forfeiture or loss of any of the Collateral or any interest
therein, and (ii) such charge is being contested in good faith, by
proper proceedings, and adequate reserves therefor have been
established by each Grantor in accordance with and to the extent
required by GAAP.
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(e) Compliance with Terms of Accounts, etc. In all material
respects, each Grantor will perform and comply with all obligations in
respect of Accounts, Chattel Paper, Contracts and Licenses and all
other agreements to which it is a party or by which it are bound.
(f) Limitation on Liens on Collateral. Grantors will not
create, permit or suffer to exist, and will defend the Collateral
against and take such other action as is necessary to remove, any Lien
on the Collateral except Liens permitted by the Note Purchase
Agreement, and will defend the right, title and interest of Agent in
and to any of each Grantor's rights under the Chattel Paper, Contracts,
Documents, General Intangibles and Instruments and to the Equipment and
Inventory and in and to the Proceeds thereof against the claims and
demands of all Persons whomsoever.
(g) Limitations on Modifications of Accounts. Upon the
occurrence and during the continuation of any Default or Event of
Default, no Grantor will, without Agent's prior written consent, grant
any extension of the time of payment of any of the Accounts, Chattel
Paper or Instruments, compromise, compound or settle the same for less
than the full amount thereof, release, wholly or partly, any Person
liable for the payment thereof, or allow any credit or discount
whatsoever thereon other than trade discounts granted in the ordinary
course of business of such Grantor.
(h) Maintenance of Insurance. Each Grantor will maintain, with
financially sound and reputable companies, insurance policies (i)
insuring their Inventory and Equipment against loss by fire, explosion,
theft and such other casualties as are usually insured against by
companies engaged in the same or similar businesses and (ii) insuring
each Grantor and Agent against liability for personal injury and
property damage relating to such Inventory and Equipment, such policies
to be in such amounts and against at least such risks, as are usually
insured against, in the same general area by companies engaged in the
same or a similar business, naming Agent as an additional insured with
losses payable to each Grantor and Agent as their respective interests
may appear under a standard "lender loss-payable" clause.
(i) Further Identification of Collateral. Each Grantor will if
so requested by Agent furnish to Agent, as often as Agent reasonably
requests, statements and schedules further identifying and describing
the Collateral and such other reports in connection with the Collateral
as Agent may reasonably request, all in reasonable detail.
(j) Notices. Each Grantor will advise Agent promptly, in
reasonable detail, (i) of any material Lien, security interest,
encumbrance or claim made or asserted against any of the Collateral,
(ii) of any material change in the composition of the Collateral, and
(iii) of the occurrence of any other event which would have a material
adverse effect on the aggregate value of the Collateral or on the
security interests created hereunder.
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<PAGE> 53
(k) Right of Inspection. Upon reasonable notice to any
Grantor (unless an Event of Default has occurred and is continuing, in
which case no notice is necessary), Agent shall at all reasonable times
have access during normal business hours to all of the books and
records and correspondence of each Grantor, and Agent or its
representatives may examine the same, take extracts therefrom and make
photocopies thereof, and each Grantor agrees to render to Agent, at
such Grantor's cost and expense, such clerical and other assistance as
may be reasonably requested with regard thereto. Upon reasonable notice
to any Grantor (unless an Event of Default has occurred and is
continuing, in which case no notice is necessary), Agent and its
representatives shall also have the right, at reasonable times and
during normal business hours, to enter into and upon any premises where
any of the Equipment or Inventory is located for the purpose of
inspecting the same, observing its use or otherwise protecting its
interests therein.
(l) Maintenance of Equipment. Each Grantor will keep and
maintain the Equipment in good operating condition sufficient for the
continuation of the business conducted by each Grantor on a basis
consistent with past practices, and each Grantor will provide all
maintenance and service and all repairs necessary for such purpose.
(m) Continuous Perfection. Grantors will not change their
names, identities or corporate structures in any manner which might
make any financing or continuation statement filed in connection
herewith seriously misleading within the meaning of section 9-402(7) of
the Code (or any other then applicable provision of the Code) unless
such Grantor shall have given Agent at least thirty (30) days' prior
written notice thereof and shall have taken all action (or made
arrangements to take such action substantially simultaneously with such
change if it is impossible to take such action in advance) necessary or
reasonably requested by Agent to amend such financing statement or
continuation statement so that it is not seriously misleading.
(n) Covenants Regarding Intellectual Property Collateral.
(i) Each Grantor shall notify Agent immediately if
it knows or has reason to know that any application or
registration relating to any Trademark which is material to
the conduct of such Grantor's business may become abandoned or
dedicated, or of any adverse determination or development
(including, without limitation, the institution of, or any
such determination or development in, any proceeding in the
United States Patent and Trademark Office or any court)
regarding such Grantor's ownership of any Patent or Trademark
which is material to the conduct of such Grantor's business,
its right to register the same, or to keep and maintain the
same.
(ii) In no event shall any Grantor, either itself or
through any agent, employee, licensee or designee, file an
application for the registration of any Trademark with the
United States Patent or Trademark Office or any similar
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<PAGE> 54
office or agency in any other country or any political
subdivision thereof, unless it promptly informs Agent, and,
upon request of Agent, executes and delivers any and all
agreements, instruments, documents, and papers as Agent may
request to evidence Agent's security interest in such
Trademark and the General Intangibles, including, without
limitation, the goodwill of such Grantor relating thereto or
represented thereby.
(iii) Each Grantor will take all necessary and
appropriate actions to maintain and pursue each application,
to obtain the relevant registration, and to maintain the
registration of each of the Trademarks which are material to
the conduct of such Grantor's business, including, without
limitation, the filing of applications for renewal, affidavits
of use, affidavits of incontestability and opposition and
interference and cancellation proceedings.
(iv) In the event that any of the Intellectual
Property Collateral is infringed, misappropriated or diluted
by a third party, the applicable Grantor shall notify Agent
promptly after it learns thereof and shall, unless such
Grantor shall reasonably determine that such Intellectual
Property Collateral is not material to the conduct of such
Grantor's business, promptly sue for infringement,
misappropriation or dilution and to recover any and all
damages for such infringement, misappropriation or dilution,
and take such other actions as such Grantor shall reasonably
deem appropriate under the circumstances to protect such
Intellectual Property Collateral.
6. Agent's Appointment as Attorney-in-Fact.
(a) Each Grantor hereby irrevocably constitutes and
appoints Agent and any officer or Agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of such Grantor
and in the name of each Grantor or in its own name, from time to time
in Agent's discretion, for the purpose of carrying out the terms of
this Security Agreement, to take any and all appropriate action and to
execute and deliver any and all documents and instruments which may be
necessary or desirable to accomplish the purposes of this Security
Agreement and, without limiting the generality of the foregoing, hereby
gives Agent the power and right, on behalf of each Grantor, without
notice to or assent by any Grantor to do the following after the Senior
Loans has been paid in full:
(i) in the name of each Grantor or its own name or
otherwise, to take possession of and endorse and collect any
checks, drafts, notes, acceptances or other Instruments for
the payment of moneys due under any Collateral and to receive
payment of any and all monies, claims, and other amounts due
or to become due at any time arising out of or in respect of
any Collateral;
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<PAGE> 55
(ii) to pay or discharge taxes, Liens, security
interests or other encumbrances levied or placed on or
threatened against the Collateral, to effect any repairs or
any insurance called for by the terms of this Security
Agreement and to pay all or any part of the premiums therefor
and the costs thereof; and
(iii) Upon the occurrence and during the continuation
of an Event of Default (A) to direct any party liable for any
payment under any of the Collateral to make payment of any and
all moneys due, and to become due thereunder, directly to
Agent or as Agent shall direct; (B) to ask, demand and receive
payment of and receipt for any and all moneys, claims and
other amounts due, and to become due at any time, in respect
of or arising out of any Collateral; (C) to sign and indorse
any invoices, freight or express bills, bills of lading,
storage or warehouse receipts, drafts against debtors,
assignments, verifications and notices in connection with
accounts and other Documents constituting or relating to the
Collateral; (D) to file any claim or take or commence and
prosecute any suits, actions or proceedings at law or in
equity in any court of competent jurisdiction to collect the
Collateral or any part thereof and to enforce any other right
in respect of any Collateral; (E) to defend any suit, action
or proceeding brought against any Grantor with respect to any
Collateral; (F) to settle, compromise or adjust any suit,
action or proceeding described above and, in connection
therewith, to give such discharges or releases as Agent may
deem appropriate; (G) to license or, to the extent permitted
by an applicable license, sublicense, whether general, special
or otherwise, and whether on an exclusive or non-exclusive
basis, any Patent or Trademark, throughout the world for such
term or terms, on such conditions, and in such manner, as
Agent shall in its sole discretion determine; and (H) to sell,
transfer, pledge, make, any agreement with respect to or
otherwise deal with any of the Collateral as fully and
completely as though Agent were the absolute owner thereof for
all purposes, and to do, at Agent's option and at such
Grantor's expense, at any time, or from time to time, all acts
and things which Agent reasonably deems necessary to protect,
preserve or realize upon the Collateral and Agent's Lien
therein, in order to effect the intent of this Security
Agreement, all as fully and effectively as each Grantor,
respectively, might do.
(b) Agent agrees that, except upon the occurrence and during
the continuation of an Event of Default, it will forebear from
exercising the power of attorney or any rights granted to Agent
pursuant to this Section 6(iii). Each Grantor hereby ratifies, to the
extent permitted by law, all that said attorneys shall lawfully do or
cause to be done by virtue hereof. The power of attorney granted
pursuant to this Section 6 is a power coupled with an interest and
shall be irrevocable until the Secured Obligations are indefeasibly
paid in full.
(c) The powers conferred on Agent hereunder are solely to
protect Agent's interests in the Collateral and shall not impose any
duty upon it to exercise any such
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<PAGE> 56
powers. Agent shall be accountable only for amounts that it actually
receives as a result of the exercise of such powers and neither it nor
any of its officers, directors, employees or agents shall be
responsible to any Grantor for any act or failure to act, except for
its own gross negligence or willful misconduct.
(d) Each Grantor also authorizes Agent, at any time and
from time to time upon the occurrence and during the continuation of
any Event of Default and after the Senior Loans has been paid in full,
(i) to communicate in its own name with any party to any Contract with
regard to the assignment of the right, title and interest of such
Grantor in and under the Contracts hereunder and other matters relating
thereto and (ii) to execute, in connection with the sale provided for
in Section 7 hereof, any endorsements, assignments or other instruments
of conveyance or transfer with respect to the Collateral.
7. Remedies, Rights upon Default.
(a) If any Event of Default shall occur and be
continuing, subject to the terms of the Note Purchase Agreement, Agent
shall exercise in addition to all other rights and remedies granted to
it in this Security Agreement and in any other instrument or agreement
securing, evidencing or relating to the Secured Obligations, 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 Agent, without demand of performance or other demand,
advertisement or notice of any kind (except the notice specified below
of time and place of public or private sale) to or upon any Grantor or
any other person (all and each of which demands, advertisements and/or
notices are hereby expressly waived to the maximum extent permitted by
the Code and other applicable law), may forthwith collect, receive,
appropriate and realize upon the Collateral, or any part thereof,
and/or may forthwith 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, at any exchange or broker's board or
at any of Agent's offices or elsewhere at such prices as it may deem
best, for cash or on credit or for future delivery without assumption
of any credit risk. Agent 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 Grantor hereby releases. Each Grantor further
agrees, at Agent's request, to assemble the Collateral and make it
available to Agent at places which Agent shall reasonably select,
whether at any Grantor's premises or elsewhere. Agent shall apply the
net proceeds of any such collection, recovery, receipt, appropriation,
realization or sale, as provided in Section 7(d) hereof, all Grantors
remaining liable for any deficiency remaining unpaid after such
application, and only after so paying over such net proceeds and after
the payment by Agent of any other amount required by any provision of
law, including section 9-504(1)(c) of the Code, need Agent account for
the surplus, if any, to such Grantor. To the maximum extent permitted
by applicable law, each Grantor waives
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all claims, damages, and demands against Agent arising out of the
repossession, retention or sale of the Collateral except such as arise
out of the gross negligence or willful misconduct of Agent as finally
determined by a court of competent jurisdiction after all possible
appeals have been exhausted. Each Grantor agrees that Agent need not
give more than ten (10) days' notice (which notification shall be
deemed given when mailed or delivered on an overnight basis, postage
prepaid, addressed to such Grantor at its address referred to in
Section 11 hereof) of the time and place of any public sale or of the
time after which a private sale may take place and that such notice 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 amounts to which Agent is
entitled, such Grantors also being liable for the fees of any attorneys
employed by Agent to collect such deficiency.
(b) Each Grantor also agrees to pay all costs of Agent
including, without limitation, reasonable attorneys' fees, incurred in
connection with the enforcement of any of its rights and remedies
hereunder.
(c) 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.
(d) After payment in full of the Senior Loans, the
Proceeds of any sale, disposition or other realization upon all or any
part of the Collateral (including real property) shall be distributed
by Agent in the following order of priorities:
first, to Agent in an amount sufficient to pay in
full the expenses of Agent in connection with such sale,
disposition or other realization, including all reasonable
expenses, liabilities and advances incurred or made by Agent
in connection therewith, including, without limitation,
attorney's fees;
second, to Agent and such other holders, if any, of
the Subordinated Notes in an amount equal to the then unpaid
principal of and accrued interest and prepayment premiums, if
any, on the Secured Obligations applicable to the Subordinated
Notes, and if such Proceeds shall be insufficient to pay in
full such amount, then to Agent and such other holders, if
any, of the Subordinated Notes ratably in accordance with the
then unpaid amounts thereof owing to Agent and each such
holder; and
finally, upon payment in full of all of the Secured
Obligations, to pay to the Grantors, or their representatives
or as a court of competent jurisdiction may direct, any
surplus then remaining from such Proceeds.
8. Grant of License to Use Intellectual Property Collateral.
For the purpose of enabling Agent to exercise rights and remedies under
Section 7 hereof at such time as Agent,
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without regard to this Section 8, shall be lawfully entitled to exercise such
rights and remedies, each Grantor hereby grants to Agent an irrevocable,
non-exclusive license (exercisable without payment of royalty or other
compensation to any Grantor) to use, license or sublicense any Patent, Trade
Secret or Trademark, now owned or hereafter acquired by any Grantor, and
wherever the same may be located, and including, without limitation, in such
license reasonable access to all media in which any of the licensed items may be
recorded or stored and to all computer and automatic machinery software and
programs used for the compilation or printout thereof.
9. Appointment of Agent. By its acceptance of a Subordinated
Note, each Note Purchaser appoints GE Capital as agent for purposes of enforcing
each Note Purchaser's rights with respect to Collateral, including any real
property of the Grantors subject to any mortgage. The provisions of this Section
9 are solely for the benefit of GE Capital and the Note Purchasers and no
Grantor nor any other person shall have any rights as a third party beneficiary
of any of the provisions hereof. In performing its functions and duties under
this Security Agreement and the other Note Purchase Documents, GE Capital shall
act solely as an agent of the Note Purchasers and does not assume and shall not
be deemed to have assumed any obligation toward or relationship of agency or
trust with or for any Note Purchaser or any other person. GE Capital shall have
no duties or responsibilities except for those expressly set forth in this
Security Agreement and the other Note Purchase Documents. The duties of GE
Capital shall be mechanical and administrative in nature and GE Capital shall
not have, or be deemed to have, by reason of this Security Agreement, any other
Note Purchase Document or otherwise, a fiduciary relationship in respect of any
Note Purchaser. Neither GE Capital nor any of its affiliates nor any of their
respective officers, directors, employees, agents or representatives shall be
liable to any Note Purchaser for any action taken or omitted to be taken by it
hereunder or under any other Note Purchase Document, or in connection herewith
or therewith, except for damages solely caused by its or their own gross
negligence or willful misconduct as finally determined by a court of competent
jurisdiction.
(a) GE Capital's Reliance, Etc. GE Capital: (a) may treat the
payee of any Note as the holder thereof until GE Capital receives
written notice of the assignment or transfer thereof signed by such
payee and in form satisfactory to GE Capital; (b) may consult with
legal counsel, independent public accountants and other experts
selected by it and shall not be liable for any action taken or omitted
to be taken in good faith by it in accordance with the advice of such
counsel, accountants or experts; (c) makes no warranty or
representation to any Note Purchaser and shall not be responsible to
any Note Purchaser for any statements, warranties or representations
made in or in connection with this Security Agreement or the other Note
Purchase Documents; (d) shall not have any duty to ascertain or to
inquire as to the performance or observance of any of the terms,
covenants or conditions of this Security Agreement or the other Note
Purchase Documents on the part of any Grantor or to inspect the
Collateral (including the books and records) of any Grantor; (e) shall
not be responsible to any Note Purchaser for the due execution,
legality, validity, enforceability, genuineness, sufficiency or value
of this
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Security Agreement or the other Note Purchase Documents or any other
instrument or document furnished pursuant hereto or thereto; and (f)
shall incur no liability under or in respect of this Security Agreement
or the other Note Purchase Documents by acting upon any notice,
consent, certificate or other instrument or writing (which may be by
telecopy, telegram, cable or telex) believed by it to be genuine and
signed or sent by the proper party or parties (including the Majority
Holders).
(b) GE Capital and affiliates. With respect to its commitments
hereunder, GE Capital shall have the same rights and powers under this
Security Agreement and the other Note Purchase Documents as any other
Note Purchaser and may exercise the same as though it were not GE
Capital; and the term "Note Purchaser" or "Note Purchasers" shall,
unless otherwise expressly indicated, include GE Capital in its
individual capacity. GE Capital and its affiliates may lend money to,
invest in, and generally engage in any kind of business with, any
Grantor, any of their affiliates and any person who may do business
with or own securities of any Grantor or any such affiliate, all as if
GE Capital were not GE Capital and without any duty to account therefor
to the Note Purchasers. GE Capital and its Affiliates may accept fees
and other consideration from any Grantor for services in connection
with this Security Agreement or otherwise without having to account for
the same to the Note Purchasers. GE Capital has also made Senior Loans
to the Grantors and received a warrant from Selfix. Each Note Purchaser
acknowledges the potential conflict of interest between GE Capital as
an agent and lender holding disproportionate interests in the Senior
Loans, GE Capital as a holder of the Subordinated Notes pursuant to the
Note Purchase Agreement and warrant holder of Selfix and GE Capital as
GE Capital.
(c) Note Purchaser Credit Decision. Each Note Purchaser
acknowledges that it has, independently and without reliance upon GE
Capital or any other Note Purchaser and based on documents and
information as it has deemed appropriate, made its own credit and
financial analysis of the Grantors and its own decision to enter into
this Security Agreement. Each Note Purchaser also acknowledges that it
will, independently and without reliance upon GE Capital or any other
Note Purchaser and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit decisions
in taking or not taking action under this Security Agreement. Each Note
Purchaser acknowledges that GE Capital holds Senior Loans and is the
agent for Senior Lenders.
(d) Indemnification. The Note Purchasers agree to indemnify
Agent (to the extent not reimbursed by Grantors and without limiting
the obligations of the Grantors hereunder), ratably according to their
respective pro rata shares, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever which
may be imposed on, incurred by, or asserted against Agent in any way
relating to or arising out of this Security Agreement or any other Note
Purchase Document or any action taken or omitted
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<PAGE> 60
by Agent in connection therewith; provided, however, that no Note
Purchaser shall be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from Agent's gross
negligence or wilful misconduct. Without limiting the foregoing, each
Note Purchaser agrees to reimburse Agent promptly upon demand for its
ratable share of any out-of-pocket expenses (including counsel fees)
incurred by Agent in connection with the preparation, execution,
delivery, administration, modification, amendment or enforcement
(whether through negotiations, legal proceedings or otherwise) of, or
legal advice in respect of rights or responsibilities under, this
Security Agreement and each other Note Purchase Document, to the extent
that Agent is not reimbursed for such expenses by Grantors.
(e) Successor Agent. GE Capital may resign at any time by
giving not less than thirty (30) days' prior written notice thereof to
the Note Purchasers. Upon any such resignation, the holders of
Subordinated Notes (other than GE Capital) shall have the right to
appoint a successor agent which shall be a holder of Subordinated
Notes. Upon the acceptance of any appointment as agent hereunder by a
successor agent, such successor agent shall succeed to and become
vested with all the rights, powers, privileges and duties of the
resigning agent. Upon the earlier of the acceptance of any appointment
as agent hereunder by a successor agent or the effective date of the
resigning agent's resignation, the resigning agent shall be discharged
from its duties and obligations under this Security Agreement and the
other Note Purchase Documents, except that any indemnity rights or
other rights in favor of such resigning agent shall continue. After any
resigning agent's resignation hereunder, the provisions of this Section
9 shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was agent under this Security Agreement and the
other Note Purchase Documents.
10. Reinstatement. This Security Agreement shall remain in
full force and effect and continue to be effective should any petition be filed
by or against any Grantor for liquidation or reorganization, should any Grantor
become insolvent or make an assignment for the benefit of creditors or should a
receiver or trustee be appointed for all or any significant part of any
Grantor's assets, 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 conveyance", 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.
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
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<PAGE> 61
the parties desires to give or serve upon any other communication with respect
to this Security Agreement, each such notice, demand, request, consent,
approval, declaration or other communication shall be in writing and either
shall be delivered in person with receipt acknowledged or sent by registered or
certified mail, return receipt requested, postage prepaid, or by telecopy and
confirmed by telecopy answerback addressed as follows:
(a) If to Agent, at:
General Electric Capital Corporation
105 West Madison Street
Suite 1600
Chicago, Illinois 60602
Attention: Account Manager Selfix
Telecopy Number: (312) 419-5992
With copies to:
General Electric Capital Corporation
201 High Ridge Road
Stamford, Connecticut 06927-5100
Attention: Corporate Counsel
Telecopy Number: (203) 316-7889
and
Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601
Attention: David G. Crumbaugh, Esq.
Telecopy Number: (312) 558-5700
(b) If to any Grantor, at:
Selfix, Inc.
4501 West 47th Street
Chicago, Illinois 60632
Attention: James Tennant
Telecopy Number: (773) 890-8901
With a copy to:
Much, Shelist, Freed, Denenberg, Ament
Bell & Rubenstein PC
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<PAGE> 62
200 North LaSalle Street
Chicago, Illinois 60601
Attention: Jeffrey Rubenstein
Telecopy Number: (312) 621-1750
or at such other address 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. Every notice, demand, request,
consent, approval, declaration or other communication hereunder shall be deemed
to have been duly given or served on the date on which personally delivered,
with receipt acknowledged, telecopied and confirmed by telecopy answerback or
three (3) Business Days after the same shall have been deposited in the United
States mail. Failure or delay in delivering copies of any notice, demand,
request, consent, approval, declaration or other communication to the persons
designated above to receive copies shall in no way adversely affect the
effectiveness of such notice, demand, request, consent, approval, declaration or
other communication.
12. Severability. Any provision of this Security Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
13. No Waiver; Cumulative Remedies. Agent 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, signed by
Agent, and then only to the extent therein set forth. A waiver by Agent of any
right or remedy hereunder on any one occasion shall not be construed as a bar to
any right or remedy which Agent would otherwise have had on any future occasion.
No failure to exercise nor any delay in exercising on the part of Agent, 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 hereunder provided 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 Agent and, where applicable by any
Grantor.
14. Successors and Assigns; Governing Law.
(a) This Security Agreement and all obligations of Grantors
hereunder shall be binding upon the successors and assigns of any
Grantor, and shall, together with the rights and remedies of Agent
hereunder, inure to the benefit of Agent, its respective successors and
assigns. No sales of participations, other sales, assignments,
transfers or other dispositions of any agreement governing or
instrument evidencing the Secured
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<PAGE> 63
Obligations or any portion thereof or interest therein shall in any
manner affect the security interest granted to Agent hereunder.
(b) This Security Agreement shall be governed by, and be
construed and interpreted in accordance with, the laws of the State of
Illinois, applicable to contracts made and performed in that State.
15. Waiver of Jury Trial. Each Grantor waives all right to
trial by jury in any action or proceeding to enforce or defend any rights or
remedies hereunder, under the Note Purchase Agreement or under the Note Purchase
Documents or relating to each of the foregoing.
16. 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.
17. Counterparts. This Security Agreement may be executed in
any number of counterparts, which shall, collectively and separately, constitute
one agreement.
18. Limitation on Actions. NOTWITHSTANDING ANY PROVISION
HEREIN CONTAINED TO THE CONTRARY, THE LIEN CREATED UNDER, AND THE TERMS AND
PROVISIONS OF, AND AGENT'S RIGHTS, POWERS AND REMEDIES UNDER, THIS SECURITY
AGREEMENT ARE SUBJECT TO AND LIMITED BY THE SUBORDINATION PROVISIONS CONTAINED
IN THE NOTE PURCHASE AGREEMENT INCLUDING, WITHOUT LIMITATION, SECTION 10.3(b)
THEREOF AS IN EFFECT ON THE DATE HEREOF.
[signature page follows]
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<PAGE> 64
IN WITNESS WHEREOF, each of the parties hereto has caused this
Security Agreement to be executed and delivered by its duly authorized officer
on the date first set forth above.
GRANTORS
SELFIX, INC.
By:
Name:
Title:
TAMOR CORPORATION
By:
Name:
Title:
SHUTTERS, INC.
By:
Name:
Title:
Accepted and acknowledged by:
GENERAL ELECTRIC CAPITAL CORPORATION
By:
Name:
Title:
<PAGE> 65
EXECUTION COPY
- --------------------------------------------------------------------------------
THIS WARRANT AND ANY SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND NEITHER THIS WARRANT NOR ANY SUCH SHARES MAY BE TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT.
WARRANT
TO PURCHASE COMMON STOCK OF
HOME PRODUCTS INTERNATIONAL, INC.
DATED AS OF FEBRUARY 27, 1997
- --------------------------------------------------------------------------------
<PAGE> 66
TABLE OF CONTENTS
PAGE
ARTICLE 1 DEFINITIONS....................................................... 1
ARTICLE 2 EXERCISE OF WARRANT............................................... 5
2.1 Shares; Price; Notice..................................... 5
2.2 Manner of Exercise; Issuance of Common Stock.............. 6
2.3 Payment of Taxes.......................................... 7
2.4 Fractional Shares......................................... 7
2.5 Continued Validity........................................ 7
2.6 Payment by Application of Obligations..................... 7
ARTICLE 3 REGISTRATION, TRANSFER AND EXCHANGE............................... 8
3.1 Maintenance of Registration Books......................... 8
3.2 Transfer.................................................. 8
3.3 Loss or Mutilation........................................ 8
3.4 Expenses.................................................. 8
ARTICLE 4 ADJUSTMENTS; ANTIDILUTION PROVISIONS.............................. 9
4.1 General Statements of Intent.............................. 9
4.2 No Dilutive Issuances..................................... 9
4.3 Adjustment of Current Warrant Price....................... 10
4.4 Adjustment of Number of Shares Purchasable;
Consideration Receivable.................................. 10
4.5 Certain Other Distributions............................... 11
4.6 Other Actions Affecting Common Stock...................... 12
4.7 Certain Limitations....................................... 12
4.8 Preferred Stock........................................... 12
4.9 Excluded Transactions..................................... 12
4.10 Exemptions or Deferrals from Adjustment Procedure......... 12
4.11 Notice of Adjustments..................................... 13
4.12 Notice of Corporate Action................................ 13
ARTICLE 5 RESTRICTIONS ON TRANSFER.......................................... 14
5.1 Notice of Proposed Transfer; Registration Not Required.... 14
5.2 Required Registration and Qualification................... 15
5.3 Incidental Registration and Qualification................. 16
5.4 Registration and Qualification Procedures................. 17
5.5 Holdback Agreements....................................... 19
5.6 Allocation of Expenses.................................... 19
5.7 Indemnification........................................... 20
5.8 Legend on Warrants and Certificates....................... 21
5.9 Termination of Restrictions............................... 22
<PAGE> 67
5.10 Supplying Information...................................... 22
5.11 Liquidated Damages......................................... 22
ARTICLE 6 PARTICIPATION IN CORPORATE DISTRIBUTIONS.......................... 23
6.1 Company's Obligation to Make Payments...................... 23
ARTICLE 7 MANDATORY CALL.................................................... 23
7.1 Mandatory Call............................................. 23
7.2 Voluntary Call............................................. 24
ARTICLE 8 INTENTIONALLY DELETED............................................. 24
ARTICLE 9 FINANCIAL AND BUSINESS INFORMATION................................ 24
9.1 Monthly and Quarterly Information.......................... 24
9.2 Annual Information......................................... 24
9.3 Filings.................................................... 24
ARTICLE 10 REPRESENTATIONS AND WARRANTIES OF THE COMPANY..................... 25
10.1 Organization and Capitalization of the Company............. 25
10.2 Authority.................................................. 25
10.3 No Legal Bar............................................... 25
10.4 Validity of Shares......................................... 25
10.5 Incorporation of Representations and Warranties
of Credit Agreement........................................ 25
ARTICLE 11 VARIOUS COVENANTS OF THE COMPANY.................................. 26
11.1 No Impairment or Amendment................................. 26
11.2 Reservation of Common Stock; Qualification................. 26
11.3 Taking of Record........................................... 27
11.4 Listing on Securities Exchange............................. 27
11.5 Availability of Information................................ 27
11.6 Certain Expenses........................................... 27
ARTICLE 12 MISCELLANEOUS..................................................... 27
12.1 Nonwaiver and Expenses..................................... 27
12.2 Limitation of Liability.................................... 28
12.3 Notice Generally........................................... 28
12.4 Successors and Assigns..................................... 29
12.5 Remedies................................................... 29
12.6 Amendment.................................................. 29
12.7 Severability............................................... 29
12.8 Headings................................................... 29
12.9 GOVERNING LAW.............................................. 29
12.10 Jurisdiction............................................... 29
<PAGE> 68
12.11 WAIVER OF JURY TRIAL....................................... 29
EXHIBITS
Exhibit A Subscription Form
Exhibit B Assignment Form
<PAGE> 69
THIS WARRANT AND ANY SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND NEITHER THIS WARRANT NOR ANY SUCH SHARES MAY BE TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT.
WARRANT
TO PURCHASE COMMON STOCK OF
HOME PRODUCTS INTERNATIONAL, INC.
THIS IS TO CERTIFY that GENERAL ELECTRIC CAPITAL CORPORATION, or its
registered assigns, is entitled upon the due exercise hereof at any time prior
to the Expiration Date (as hereinafter defined), to purchase as of the Closing
Date an aggregate of 79,204 shares of Common Stock, $.01 par value, of Home
Products International, Inc., a Delaware corporation, at a Current Warrant Price
per share equal to 50% of the Market Price therefor as of the Closing Date (such
Current Warrant Price and the number of shares of Common Stock purchasable
hereunder being subject to adjustment as provided herein), and to exercise the
other rights, powers and privileges hereinafter provided, all on the terms and
conditions and pursuant to the provisions of this Warrant (this "Warrant").
ARTICLE 1
DEFINITIONS
As used in this Warrant, the following terms have the respective
meanings set forth below (capitalized terms used but not otherwise defined
herein shall have the meanings ascribed thereto in the Credit Agreement (as
hereinafter defined and whether or not in effect)):
"Adjustment Transaction" means any of (i) any declaration of a dividend
upon, or distribution in respect of, any of the Company's capital stock, payable
in Common Stock, or options, warrants or securities convertible into Common
Stock, (ii) the subdivision or combination by the Company of its outstanding
Common Stock into a larger or smaller number of shares of Common Stock, (iii)
any capital reorganization or reclassification of the capital stock of the
Company, (iv) the consolidation or merger of the Company with or into another
corporation in which the Company's stockholders receive securities of another
entity, or (v) the sale or transfer of the property of the Company in (or
substantially in) its entirety in which the
<PAGE> 70
Company's stockholders receive securities of another entity.
"Affiliate" of any entity means a Person which directly or indirectly
through one or more intermediaries controls, or is controlled by, or is under
common control with, such entity. The term "control," as used with respect to
any Person, means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise.
"Appraised Value" means as to each share of Common Stock or other
equity securities issued by the Company, (i) so long as such Common Stock or
other equity security is actively traded on the NASDAQ or on a national
securities exchange, the Market Price, and (ii) otherwise, the fair market value
per share of Common Stock on a Fully Diluted Outstanding basis as determined by
agreement of the Majority Holders of this Warrant and the Company, or, if such
agreement is not obtained within 30 days after the relevant determination date,
as determined by a nationally recognized investment bank jointly selected by the
Company and the Majority Holders of this Warrant pursuant to an appraisal
process. If no agreement is reached within that 30-day period as to the
Appraised Value or the identity of the investment bank, the investment bank
shall be William Blair & Company. For purposes of determining the Appraised
Value of the Common Stock if it is no longer actively traded on the NASDAQ or on
a national exchange, the fair market value of the Common Stock shall equal the
price per share of Common Stock that could be obtained in an open sale of all
the outstanding Common Stock, valued as a whole on the basis of a sale of the
Company in an arms' length sale between a willing buyer and a willing seller,
neither acting under compulsion, without discount for illiquidity, minority
interest or otherwise, with ample time for marketing and closing, and assigning
equal value to each share of Common Stock. The determination of Appraised Value
by agreement between the Company and the Majority Holders or by that investment
bank shall be final and binding on the Company and all holders of Warrant
Shares. The cost of any investment bank's determination of the Appraised Value
will be borne by the Company and any such investment bank will be given full
access to the books, records, properties and employees of the Company and its
Subsidiaries.
"Assignment" means the form of Assignment attached as Exhibit B to this
Warrant.
"Closing Date" means February 27, 1997.
"Commission" means the Securities and Exchange Commission or any other
Federal agency from time to time administering the Securities Act.
"Common Stock" means (except where the context otherwise indicates) the
Common Stock, $.01 par value, of the Company, and any capital stock into which
such Common Stock may thereafter be exchanged, and shall also include (i)
capital stock of the Company of any other class (regardless of how denominated)
issued to the holders of shares of Common Stock upon any reclassification
thereof which is also not preferred as to dividends or assets over any other
class of stock of the Company and which is not subject to redemption, and (ii)
shares of common stock of any successor or acquiring corporation (as defined in
Section 4.4(b)) received by or
<PAGE> 71
distributed to the holders of Common Stock of the Company in the circumstances
contemplated by Section 4.4(b).
"Company" means Home Products International, Inc., a Delaware
corporation, and any successor corporation.
"Credit Agreement" means the Credit Agreement of even date herewith
among the Company, GE Capital, individually and as Agent thereunder, and the
other lenders from time to time party thereto, as the same may be amended,
restated, supplemented or otherwise modified from time to time.
"Current Warrant Price" means, in respect of a share of Common Stock at
any date herein specified, the price per share at which a share of Common Stock
may be purchased upon exercise of this Warrant on such date.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any similar federal statute, and the rules and regulations of the Commission
promulgated thereunder, all as the same shall be in effect from time to time.
"Exercise Period" means the period commencing on the August 1, 1997 and
terminating at 5:00 p.m., Chicago time, on the tenth anniversary of the Closing
Date during which this Warrant is exercisable pursuant to Section 2.2.
"Expiration Date" means the tenth anniversary of the Closing Date.
"Fully Diluted Outstanding" means, when used with reference to Common
Stock, at any date as of which the number of shares thereof is to be determined,
all shares of Common Stock Outstanding at such date and all shares of Common
Stock issuable in respect of this Warrant, and any other options or warrants to
purchase, or securities convertible into, shares of Common Stock, which options,
warrants and convertible securities are outstanding on such date and would be
deemed outstanding in accordance with GAAP for purposes of determining book
value or net income per share.
"GAAP" has the meaning assigned thereto in the Credit Agreement.
"GE Capital" means General Electric Capital Corporation, a New York
corporation.
"Issuable Warrant Shares" means the number of shares of Common Stock
issuable from time to time upon exercise of this Warrant.
"Issued Warrant Shares" means (a) the cumulative total of the shares of
Common Stock issued from time to time upon exercise of this Warrant, plus (b)
any shares of Common Stock issued as a stock dividend with respect to such
shares or as part of a stock split affecting such shares.
<PAGE> 72
"Majority Holders" means the Persons holding a majority of the Warrant
Shares issued or issuable hereunder.
"Market Price" means, as to the Common Stock as of any date of
determination, the average of the publicly quoted bid and asked closing prices
per share of Common Stock on the NASDAQ or the average of the closing prices per
share of Common Stock on a national securities exchange, in each case, for the
fifteen (15) consecutive trading days preceding that date of determination.
"Net Book Value" as of any date means (i) the total consolidated assets
of the Company and its Subsidiaries minus (ii) the total consolidated
liabilities of the Company and its Subsidiaries, determined in accordance with
GAAP.
"Notice of Exercise" means the form of Notice of Exercise attached as
Exhibit A to this Warrant.
"Opinion of Counsel" means an opinion of counsel experienced in
Securities Act matters chosen by the applicable holder of this Warrant or the
applicable holder of Issued Warrant Shares.
"Other Property" has the meaning set forth in Section 4.4.
"Outstanding" means, when used with reference to Common Stock, at any
date as of which the number of shares thereof is to be determined, all issued
shares of Common Stock except shares then owned or held by or for the account of
the Company or any Subsidiary thereof, and shall include all shares issuable in
respect of outstanding scrip or any certificates representing fractional
interests in shares of Common Stock.
"Person" has the meaning assigned thereto in the Credit Agreement.
"Piggy-Back Shares" has the meaning set forth in Section 5.3.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations of the Commission
promulgated thereunder, all as the same shall be in effect from time to time.
"Subordinated Debt" means the principal of, and all payment-in-kind
notes and accrued interest with respect to, the Subordinated Equity Bridge
Notes.
"Subordinated Notes" means the Subordinated Equity Bridge Notes in the
initial principal amount of $7,000,000 issued by the Company to GE Capital and
other note purchasers on the date hereof.
<PAGE> 73
"Subsidiary" has the meaning assigned thereto in the Credit Agreement.
"Tranche" as to each group of Warrant Shares, refers to the date on
which the Warrant became effective as to those Issuable Warrant Shares and the
Current Warrant Price at which the Warrant is exercisable as to those Shares,
all as determined in accordance with Section 2.1.
"Warrant" means this warrant dated as of the Closing Date issued to the
initial holder hereof and all warrants issued upon the partial exercise,
transfer or division of or in substitution for any Warrant.
"Warrant Shares" means the Issuable Warrant Shares plus the Issued
Warrant Shares, but only during such time as certificates representing such
shares or this Warrant are required to bear the legend set forth in Section 5.8.
Whenever used in this Warrant, any noun or pronoun shall be deemed to
include both the singular and the plural and to cover all genders, and the words
"herein", "hereof", and "hereunder" and words of similar import shall refer to
this instrument as a whole, including any amendments hereto.
ARTICLE 2
EXERCISE OF WARRANT
2.1 Shares; Price; Notice. This Warrant shall be exercisable for 79,204
shares of Common Stock (the "Tranche 1 Warrant Shares") at a Current Warrant
Price per share equal to 50% of the Market Price determined as of the Closing
Date. This Warrant may be exercised by the applicable holder hereof at any time
during the Exercise Period by delivery to the Company of a Notice of Exercise
duly executed by such holder specifying the number of shares of Common Stock to
be purchased.
Notwithstanding the foregoing, if the Subordinated Debt has not been
paid in full in cash on or prior to the following dates, the number of shares of
Common Stock for which this Warrant is exercisable shall be automatically
increased on those dates as set forth below:
i) on July 31, 1997, the number of Issuable Warrant shares
shall be increased by that number of shares equal to the difference
between five percent 5.0% of the total number of shares of Fully
Diluted Outstanding Common Stock as of that date and 79,204 shares of
Common Stock (the "Tranche 2 Warrant Shares");
ii) on February 27, 1998, the number of Issuable Warrant
shares shall be increased by that number of shares equal to two percent
2.0% of the total number of shares of Fully Diluted Outstanding Common
Stock as of that date (the "Tranche 3 Warrant Shares");
<PAGE> 74
iii) on February 27, 1999, and on each subsequent anniversary
of the Closing Date until and including February 27, 2005, the number
of Issuable Warrant shares shall be increased by that number of shares
equal to one percent 1.0% of the total number of shares of Fully
Diluted Outstanding Common Stock as of each of those dates (the
"Subsequent Tranches of Warrant Shares").
Each Tranche of Warrant Shares shall be exercisable at a different
Current Warrant Price. The Current Warrant Price for each Tranche will be equal
to 50% of the Market Price determined as of the date that Tranche of Warrant
Shares became effective. By way of example, the Current Warrant Price for the
Tranche 2 Warrant Shares will equal 50% of the Market Price determined as of
July 31, 1997, and the Current Warrant Price for each Subsequent Tranche of
Warrant Shares shall be 50% of the Market Price determined as of the anniversary
date on which that particular Tranche of Warrant Shares became effective.
The increases in Issuable Warrant Shares described above shall occur at
the dates specified above regardless of whether this Warrant shall have been
exercised in whole or in part prior to any date specified for an increase.
2.2 Manner of Exercise; Issuance of Common Stock. To exercise this
Warrant, a holder hereof shall deliver to the Company (a) a Notice of Exercise
duly executed by such holder hereof specifying the number of shares of Common
Stock to be purchased and the applicable Tranche(s) and Current Warrant Price(s)
applicable to those shares, (b) an amount equal to the aggregate Current Warrant
Prices for all shares of Common Stock as to which this Warrant is then being
exercised and (c) this Warrant. At the option of an exercising holder hereof,
payment of such aggregate Current Warrant Price shall be made by (a) wire
transfer of funds to an account in a bank located in the United States
designated by the Company for such purpose; (b) certified or official bank check
payable to the order of the Company; (c) deducting from the shares deliverable
upon exercise hereof a number of shares having an aggregate Appraised Value on
the date of exercise equal to such aggregate Current Warrant Price (and so
directing the Company in the Notice); (d) applying certain indebtedness as
provided in Section 2.6 hereof; or (e) any combination of such methods.
Upon receipt of the above items, the Company shall, as promptly as
practicable, and in any event within five days thereafter, cause to be issued
and delivered to the applicable holder (or its nominee) or, subject to Article
5, the transferee designated in the Notice of Exercise, a certificate or
certificates representing shares of Common Stock equal in the aggregate to the
number of shares of Common Stock specified in the Notice of Exercise, reduced by
any applicable shares used as part of the payment therefor under Section 2.2(c)
above. Such certificate or certificates shall be registered in the name of such
holder hereof (or its nominee) or in the name of such transferee, as the case
may be.
If this Warrant is exercised in part, the Company shall, at the time of
delivery of such
<PAGE> 75
certificate or certificates, issue and deliver to the applicable holder hereof
or, subject to Article 5, the transferee so designated in the Notice of
Exercise, a new Warrant evidencing the right of such holder hereof or such
transferee to purchase the aggregate number of shares of Common Stock for which
this Warrant shall not have been exercised, and this Warrant shall be cancelled.
Unless otherwise requested by the exercising holder, this Warrant shall
be deemed to have been exercised and such certificate or certificates shall be
deemed to have been issued, and the applicable holder or transferee so
designated in the Notice of Exercise shall be deemed to have become the holder
of record of such shares for all purposes, as of the close of business on the
date the Notice of Exercise, together with payment of the aggregate Current
Warrant Price and this Warrant, is received by the Company.
2.3 Payment of Taxes. All shares of Common Stock issuable upon the
exercise of this Warrant pursuant to the terms hereof shall be duly authorized,
validly issued, fully paid and nonassessable and without any preemptive rights.
The Company shall pay all expenses in connection with, and all taxes and other
governmental charges that may be imposed with respect to, the issue or delivery
thereof (other than any income taxes imposed on each holder hereof in connection
herewith), unless such tax or charge is imposed by law upon such holder, in
which case such taxes or charges shall be paid by such holder and (except with
respect to any such income taxes) reimbursed to such holder by the Company.
2.4 Fractional Shares. The Company shall not be required to issue
fractional shares of Common Stock or scrip representing fractional shares of
Common Stock upon any exercise of this Warrant. As to any fractional share of
Common Stock which any holder hereof would otherwise be entitled to purchase
from the Company upon such exercise, the Company shall purchase from such holder
such fractional share at a price equal to an amount calculated by multiplying
such fractional share (calculated to the nearest .001 of a share) by the
Appraised Value per share calculated as of the date of the Notice of Exercise.
Payment of such amount shall be made at the time of delivery of any certificate
or certificates deliverable upon such exercise in cash or by check payable to
the order of the applicable holder hereof or, subject to Article 5, the
transferee designated in the Notice of Exercise, as the case may be.
2.5 Continued Validity. A holder of shares of Common Stock issued upon
the exercise of this Warrant, in whole or in part (other than a holder who
acquires such shares after the same have been publicly sold pursuant to a
Registration Statement under the Securities Act or sold pursuant to Rule 144
thereunder or issued pursuant to a Section4.2 private placement), shall continue
to be entitled with respect to such shares to all rights to which it would have
been entitled as a holder under this Warrant. The Company will, at the time of
any exercise of this Warrant, in whole or in part upon the request of the holder
of the shares of Common Stock issued upon the exercise hereof, acknowledge in
writing, in form reasonably satisfactory to such holder, its continuing
obligation to afford to such holder all such rights; provided, however, that if
such holder shall fail to make any such request, such failure shall not affect
the continuing obligation of the Company to afford to such holder all such
rights.
<PAGE> 76
2.6 Payment by Application of Obligations. Subject to the terms of the
Note Purchase Agreement pursuant to which the Equity Bridge Notes were issued,
upon any exercise of this Warrant, a holder hereof may, if such holder also
holds Subordinated Debt, at its option, instruct the Company, by so specifying
in the form of Notice of Exercise submitted herewith, to apply to the payment of
the Current Warrant Price all or any part of the Subordinated Debt owed to such
holder in such order as such holder shall determine.
ARTICLE 3
REGISTRATION, TRANSFER AND EXCHANGE
3.1 Maintenance of Registration Books. As long as this Warrant remains
outstanding, the Company shall maintain an office or agency (which may be the
principal executive offices of the Company) where this Warrant may be presented
for exercise and registration of transfer as provided in this Warrant. The
Company shall keep at its principal executive offices a register in which the
Company shall provide for the registration, transfer and exchange of this
Warrant. The Company shall not at any time, except upon the dissolution,
liquidation or winding up of the Company, close such register or its stock
transfer books so as to result in preventing or delaying the exercise or
transfer of this Warrant.
3.2 Transfer. Upon surrender for registration of transfer of this
Warrant at such office, together with an Assignment of this Warrant duly
executed by any holder or its agent or attorney, the Company shall promptly
execute and deliver a new Warrant or Warrants, subject to Article 5, in the name
of the designated transferee or transferees, and in the denomination specified
in such Assignment, and shall issue to the transferor a new Warrant evidencing
the portion of this Warrant not so assigned, and this Warrant shall promptly be
canceled. This Warrant, if properly assigned, may be exercised by a new holder
without first having a new Warrant issued.
Any Warrant issued upon any such registration of transfer shall be the
valid obligation of the Company evidencing the same rights, and entitled to the
same benefits, as the Warrant surrendered upon such registration of transfer.
3.3 Loss or Mutilation. Upon receipt by the Company from a holder
hereof of evidence reasonably satisfactory to it of the ownership of and the
loss, theft, destruction or mutilation of this Warrant and an indemnity
reasonably satisfactory to it (it being understood that the written agreement of
GE Capital shall be sufficient indemnity, so long as GE Capital is not then the
subject of a bankruptcy or insolvency proceeding and has not made an assignment
for the benefit of its creditors), and in case of mutilation upon surrender and
cancellation hereof, the Company will execute and deliver in lieu hereof a new
Warrant of like tenor to such holder; provided, in the case of mutilation, no
indemnity shall be required if this Warrant in identifiable form is surrendered
to the Company for cancellation.
<PAGE> 77
3.4 Expenses. The Company shall prepare, issue and deliver at its own
expense any new Warrant or Warrants pursuant to this Article 3.
ARTICLE 4
ADJUSTMENTS; ANTIDILUTION PROVISIONS
4.1 General Statements of Intent. The Company hereby acknowledges that
the initial number of shares of Common Stock issuable upon exercise of this
Warrant was calculated based upon the representation of the Company that the
number of shares of Common Stock Outstanding as of the Closing Date was
3,881,000 shares of Common Stock. If for any reason it shall hereafter be
determined by the Majority Holders that the actual number of shares of Common
Stock on a Fully Diluted Outstanding basis as of the Closing Date was different
from the foregoing, such Majority Holders may notify the Company of such
determination and if the Company does not dispute the same, the Company shall
forthwith reissue this Warrant with appropriate adjustments as shall be
reasonably acceptable to the Majority Holders in the initial number of shares of
Common Stock issuable upon the exercise hereof. If the Company shall dispute
such determination (or the number of Issuable Warrant Shares to be set forth in
the reissued Warrant) and the parties cannot otherwise resolve the dispute
promptly and in good faith, then the Company shall appoint a firm of independent
public accountants of recognized national standing (which may be the regular
auditors of the Company), which shall give their opinion as to the adjustment,
if any, to be made to the number of shares of Common Stock issuable upon
exercise of this Warrant. The Company shall bear the expense of such independent
public accountants. Upon receipt of such opinion, the Company shall promptly
mail a copy thereof to each holder of this Warrant and shall make the adjustment
described therein.
It is the intent of the parties hereto that after giving effect to any
exercise of this Warrant, the holders hereof and the holders of Issued Warrant
Shares would collectively be the owners of (or have the right to acquire
pursuant hereto) 2.0% (as such amount may be adjusted upon the failure to pay
the Subordinated Note in full or in the event of a cashless exercise hereof
pursuant to the terms hereof) of the Common Stock calculated on a Fully Diluted
Outstanding basis, except as such percentage may be reduced as a consequence of
an issuance of Common Stock not requiring any adjustment in the number of shares
purchasable in accordance with Section 4.9.
4.2 No Dilutive Issuances. Except for transactions contemplated in
Sections 4.4, 4.5, and 4.9, the Company shall not issue or sell any shares of
Common Stock (or options, warrants or securities convertible into Common Stock)
after the Closing Date for a consideration less than Appraised Value per share,
or (ii) Current Warrant Price or otherwise engage in any dilutive transaction,
provided that, notwithstanding any contrary definition or other provision of
this Agreement, if such Common Stock or other securities are then actively
traded on the NASDAQ or any other national securities exchange, then for
purposes of this Section the "Appraised Value" shall mean the trading price for
such Common Stock or other securities on the applicable exchange solely as of
the date and time of such issuance or sale. Except for purposes of
<PAGE> 78
determining Appraised Value for Common Stock or other securities which are then
being traded on the NASDAQ or any other national securities exchange, the date
as of which the Appraised Value per share of Common Stock shall be computed
shall be the last day of the most recently completed fiscal period of the
Company for which financial statements have been delivered pursuant to Section
9.1 or 9.2 prior to which the Company shall first enter into a firm contract for
the issuance of such shares or issue such shares. For purposes of this Section
4.2, the issuance of warrants (other than this Warrant), options or other
securities convertible into Common Stock after the Closing Date (except as
referred to in Section 4.9(iii)) shall be deemed to be the same as the issuance
of additional shares of Common Stock. For purposes of the foregoing calculation,
the aggregate consideration received upon the issuance of options, warrants and
securities convertible into Common Stock shall be deemed to be (x) the
consideration paid to the Company in cash, if any, for the issuance thereof,
plus (y) the aggregate consideration payable to the Company upon the exercise or
conversion thereof, discounted to present value at the prime rate (as reported
in the Wall Street Journal on the first business day following the date of
issuance) and assuming that such exercise or conversion price will be paid on
the last day permitted for the exercise or conversion thereof.
4.3 Adjustment of Current Warrant Price. Upon any adjustment of the
number of shares of Common Stock issuable upon exercise of this Warrant as
provided in Section 4.4, the applicable Current Warrant Prices in effect
immediately prior to such adjustment shall be adjusted by multiplying such
Current Warrant Prices by a fraction, the numerator of which shall be the number
of shares of Common Stock issuable upon exercise of this Warrant immediately
prior to such adjustment and the denominator of which shall be the number of
shares of Common Stock issuable upon exercise of this Warrant immediately after
giving effect to such adjustment.
4.4 Adjustment of Number of Shares Purchasable; Consideration
Receivable. The number of shares of Common Stock issuable upon exercise of this
Warrant, and consideration receivable, shall be subject to adjustment from time
to time upon the occurrence of an Adjustment Transaction as hereinafter set
forth.
(a) Stock Dividends, Subdivisions and Combinations. In the event
that the Company subsequent to the Closing Date shall:
(i) declare a dividend upon, or make any distribution in
respect of, any of its stock, payable in Common Stock, convertible
securities or stock purchase rights, or
(ii) subdivide its outstanding shares of Common Stock into a
larger number of shares of Common Stock, or
(iii) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock,
<PAGE> 79
then the number of shares of Common Stock issuable upon exercise of
this Warrant shall be adjusted to that number determined by dividing
the number of shares of Common Stock issuable upon exercise of this
Warrant immediately prior to such event by a fraction (A) the numerator
of which shall be the total number of outstanding shares of Common
Stock of the Company immediately prior to such event, and (B) the
denominator of which shall be the total number of outstanding shares of
Common Stock of the Company immediately after such event, treating as
outstanding all shares of Common Stock issuable upon conversions or
exchanges of such convertible securities and exercises of such stock
purchase rights.
(b) Reorganization, Reclassification, Merger, Consolidation or
Disposition of Assets. In case the Company shall reorganize its
capital, reclassify its capital stock, consolidate or merge with or
into another corporation (where the Company is not the surviving
corporation) or where there is a change in or distribution with respect
to the Common Stock, or sell, transfer or otherwise dispose of all or
substantially all of its property, assets or business to another
corporation and, pursuant to the terms of such reorganization,
reclassification, merger, consolidation or disposition of assets,
shares of common stock of the successor or acquiring corporation, or
any cash, shares of stock or other securities or property of any nature
whatsoever (including warrants or other subscription or purchase
rights) in addition to or in lieu of common stock of the successor or
acquiring corporation ("Other Property"), are to be received by or
distributed to the holders of Common Stock of the Company, then each
holder of this Warrant shall have the right thereafter to receive, upon
exercise of this Warrant, the number of shares of common stock of the
successor or acquiring corporation or of the Company, if it is the
surviving corporation, and Other Property receivable upon or as a
result of such reorganization, reclassification, merger, consolidation
or disposition of assets by a holder of the number of shares of Common
Stock for which this Warrant is exercisable immediately prior to such
event. In case of any such reorganization, reclassification, merger,
consolidation or disposition of assets, the successor or acquiring
corporation (if other than the Company) shall expressly assume the due
and punctual observance and performance of each and every covenant and
condition of this Warrant to be performed and observed by the Company
and all the obligations and liabilities hereunder, subject to such
modifications as may be deemed appropriate (as determined by resolution
of the Board of Directors of the Company acting in good faith) in order
to provide for adjustments of shares of the Common Stock for which this
Warrant is exercisable which shall be as nearly equivalent as
practicable to the adjustments provided for in this Article 4. For
purposes of this Section 4.4(b), "common stock of the successor or
acquiring corporation" shall include stock of such corporation of any
class which is not preferred as to dividends, distributions or assets
over any other class of stock of such corporation and which is not
subject to redemption and shall also include any evidences of
indebtedness, shares of stock or other securities which are convertible
into or exchangeable for any such stock, either immediately or upon the
arrival of a specified date or the happening of a specified event and
any warrants or other rights to subscribe
<PAGE> 80
for or purchase any such stock. The foregoing provisions of this
Section 4.4(b) shall similarly apply to successive reorganizations,
reclassifications, mergers, consolidations or disposition of assets.
4.5 Certain Other Distributions. If at any time the Company shall
declare, set aside funds for or pay to the holders of its Common Stock any
dividend or other distribution of:
(a) cash,
(b) any evidences of its indebtedness, any shares of its
capital stock or any other securities or property of any nature
whatsoever, or
(c) any warrants or other rights to subscribe for or purchase
any evidences of its indebtedness, any shares of its capital stock or
any other securities or property of any nature whatsoever,
then, the Company shall pay or distribute to each holder of this Warrant its
ratable share of such dividend or distribution as if this Warrant had been fully
exercised immediately prior to the date of any such dividend or distribution
described above or credit such amount against the Current Warrant Price,
provided, however, that if such dividend is a cash dividend under Section 4.5(a)
above, then, at the Company's option, the Company may either pay the
appropriate, ratable portion of such cash dividend to each holder of this
Warrant, or set the amount thereof off against the respective Current Warrant
Prices for the applicable Tranches.
4.6 Other Actions Affecting Common Stock. In case at any time or from
time to time the Company shall take any action in respect of its Common Stock
which would have a materially adverse effect upon the rights of a holder of this
Warrant or the economic value of this Warrant, then the number of shares of
Common Stock for which this Warrant is exercisable and/or the Current Warrant
Price thereof shall be adjusted in such manner as is equitable in the
circumstances.
4.7 Certain Limitations. Notwithstanding anything herein to the
contrary, the Company agrees not to enter into any transaction which, by reason
of any adjustment hereunder, would cause the Current Warrant Price to be less
than the par value per share of Common Stock.
4.8 Preferred Stock. So long as any Warrant Shares are outstanding, the
Company shall not issue any shares of capital stock having any preferences over
any shares of Common Stock with respect to dividends, distributions or
liquidation.
4.9 Excluded Transactions. Notwithstanding any contrary provision of
this Agreement, no adjustment under this Section 4 shall be required in the
number of shares of Common Stock for which this Warrant is exercisable in the
case of (i) the issuance of shares of Common Stock upon the exercise in whole or
in part of this Warrant, (ii) the issuance of shares
<PAGE> 81
of Common Stock pursuant to a rights offering in which applicable holder hereof
elects to participate or (iii) the issuance to management officers, directors or
employees of Common Stock or options or other securities convertible into Common
Stock not to exceed an aggregate of 1,500,000 shares of Common Stock or the
equivalent thereof, or such other employee stock purchase plans as exist from
time to time.
4.10 Exemptions or Deferrals from Adjustment Procedure. If any issuance
of Common Stock or other transaction, which would otherwise require a
determination of the Appraised Value of the Common Stock, occurs within ninety
(90) days of a prior determination of that Appraised Value, the Appraised Value
of the Common Stock as previously determined shall govern and the appraisal
process contained in the definition of Appraised Value may be avoided; provided
that in such instance if the Company requests a new appraisal, the same shall be
obtained at the cost and expense of the Company.
If any transaction requiring a determination of Appraised Value shall
occur which involves the issuance of less than 25,000 shares of Common Stock or
options, warrants or securities convertible into less than 25,000 shares of
Common Stock, and the Company and the Majority Holders are unable to agree upon
the Appraised Value of the Common Stock or the securities involved in that
transaction or the adjustment in the number of shares of Common Stock issuable
upon exercise of this Warrant, then the submission of such determination to an
investment bank in accordance with the definition of "Appraised Value" shall be
deferred until the earlier of (i) the date on which the aggregate number of
shares of Common Stock or options, warrants or other securities convertible into
Common Stock issued by the Company (and as to which no adjustment in the number
of shares of Common Stock issuable under this Warrant has been made) equals or
exceeds 25,000 shares of Common Stock in the aggregate or (ii) the date on which
any dividend, distribution or other payment is to be made with respect to the
Common Stock, in which case the investment bank's determination of the number of
shares issuable upon exercise of this Warrant shall be retroactive to the date
of such payment.
4.11 Notice of Adjustments. Whenever the number of shares of Common
Stock for which this Warrant is exercisable, or whenever the Current Warrant
Price at which a share of Common Stock may be purchased upon exercise of this
Warrant, shall be adjusted pursuant to this Article 4, the Company shall
forthwith prepare a certificate to be executed by the chief financial officer of
the Company setting forth, in reasonable detail, the event requiring the
adjustment and the method by which such adjustment was calculated, specifying
the number of shares of Common Stock for which this Warrant is exercisable and
describing the number and kind of any other shares of stock or Other Property
for which this Warrant is exercisable, and any change in the purchase price or
prices thereof, after giving effect to such adjustment or change. The Company
shall promptly cause a signed copy of such certificate to be delivered to all
holders of Warrants in accordance with Section 12.3. The Company shall keep at
its office or agency designated pursuant to Section 3.1 copies of all such
certificates and cause the same to be available for inspection at said office
during normal business hours by each holder hereof or any prospective purchaser
of this Warrant designated by any holder hereof.
<PAGE> 82
4.12 Notice of Corporate Action. If at any time
(a) The Company shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend
(other than a cash dividend payable out of earnings or earned surplus
legally available for the payment of dividends under the laws of the
jurisdiction of incorporation of the Company) or other distribution, or
any right to subscribe for or purchase any evidences of its
indebtedness, any shares of stock of any class or any other securities
or property, or to receive any other right, or
(b) there shall be any capital reorganization of the Company,
any reclassification or recapitalization of the capital stock of the
Company or any consolidation or merger of the Company with, or any
sale, transfer or other disposition of all or substantially all of the
property, assets or business of the Company to, another corporation, or
(c) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of such cases, the Company shall give to each holder
hereof (i) at least ten (10) days' prior written notice of the date on which a
record date shall be selected for such dividend, distribution or right or for
determining rights to vote in respect of any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up, and (ii) in the case of any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up, at least twenty (20) days'
prior written notice of the date when the same shall take place. Such notice in
accordance with the foregoing clause also shall specify (x) the date on which
any such record is to be taken for the purpose of such dividend, distribution or
right, the date on which the holders of Common Stock shall be entitled to any
such dividend, distribution or right, and the amount and character thereof, and
(y) the date on which any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up is to take place and the time, if any such time is to be fixed, as of which
the holders of Common Stock shall be entitled to exchange their shares of Common
Stock for securities or other property deliverable upon such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up. Each such written notice shall be
sufficiently given if addressed to each holder hereof at the last address of
such holder appearing on the books of the Company and delivered in accordance
with Section 12.3.
ARTICLE 5
RESTRICTIONS ON TRANSFER
The conditions contained in the following sections of this Article 5
are intended to ensure compliance with the Securities Act in respect of the
transfer of this Warrant and Common Stock
<PAGE> 83
issuable upon the exercise thereof. Reference in this Article 5 to shares of
Common Stock issuable upon the exercise of this Warrant includes shares of
Common Stock theretofore issued upon the exercise of this Warrant which are then
evidenced by certificates required to bear the legend set forth in Section 5.8.
5.1 Notice of Proposed Transfer; Registration Not Required. Each holder
hereof and each holder of any shares of Common Stock issuable upon the exercise
of this Warrant, by acceptance hereof or thereof, agrees to give written notice
to the Company, prior to any transfer of this Warrant, such shares of Common
Stock or any portion hereof or thereof, of its intention to make such transfer.
Such holder shall request an Opinion of Counsel (which shall be rendered by
counsel reasonably acceptable to the Company) that the proposed transfer may be
effected without registration or qualification under any federal or state
securities or blue sky law. Counsel shall, as promptly as practicable, notify
the Company and the applicable holder of such opinion and of the terms and
conditions, if any, to be observed in such transfer, whereupon the applicable
holder shall be entitled to transfer this Warrant or such shares of Common Stock
(or portion thereof). In the event this Warrant shall be exercised as an
incident to such transfer, such exercise shall relate back and for all purposes
of this Warrant be deemed to have occurred as of the date of such notice
regardless of delays incurred by reason of the provisions of this Article 5
which may result in the actual exercise on any later date.
Notwithstanding the provisions of the foregoing paragraph, each holder
hereof or shares of Common Stock issuable upon the exercise hereof, shall be
permitted to transfer this Warrant or any such shares of Common Stock to a
limited number of institutional holders without obtaining an Opinion of Counsel,
provided that (i) each such holder represents in writing that it is acquiring
such securities for investment and not with a view to the distribution thereof
(subject, however, to any requirement of law that the disposition thereof shall
at all times be within the control of such holder) and (ii) each such holder
agrees in writing to be bound by all the restrictions on transfer contained in
this Article 5.
5.2 Required Registration and Qualification. If the Majority Holders so
elect, at any time after August 1, 1997, such Persons shall have the right to
request the Company to use its best efforts to effect the registration and
qualification of part or all of the Warrant Shares under the Securities Act and
the securities or blue sky laws of any jurisdiction; provided, however, the
Company shall not be required to use such best efforts (i) on more than two (2)
occasions for all Warrants or Issued Warrant Shares pursuant to this Section 5.2
or (ii) if the Company shall so request, for a period not to exceed nine (9)
months immediately following the date a public offering of the Common Stock
(pursuant to an effective registration statement under the Securities Act) is
commenced. Such request by the Majority Holders shall be in writing and shall
specify the number of shares to be registered or qualified and the jurisdictions
in which such registration or qualification is desired. In no event shall the
Majority Holders be entitled to request a registration of less than thirty
percent (30%) of the then remaining Warrant Shares.
Upon such request, the Company shall promptly (a) take such steps as
are necessary or
<PAGE> 84
appropriate to prepare for a registration or qualification of shares of Common
Stock and (b) give written notice to the holders hereof and holders of Issued
Warrant Shares bearing the legend required by Section 5.8 hereof of a proposed
registration or qualification by the Company under the Securities Act and under
the securities or blue sky laws of the requested jurisdictions and shall, as
expeditiously as possible, in good faith, use its best efforts to effect any
such registration or qualification of the aggregate number of Warrant Shares
designated in such request, all to the extent requisite to permit the
disposition (in accordance with the intended methods thereof) by the prospective
sellers of Warrant Shares to be registered or qualified, with notification to or
approval of any governmental authority under any federal or state law, or any
listing with any securities exchange, which may be required to permit the sale
or disposition of any Warrant Shares which the holders of such shares propose to
make, and the Company will keep effective and current such registration or
qualification for a period of nine (9) months.
If the managing underwriter, who shall be selected by the Company,
advises the prospective sellers in writing that the aggregate number of Warrant
Shares to be sold in the proposed distribution and other shares of Common Stock,
if any, requested to be registered by other holders of registration rights or
proposed to be included in such registration by the Company should be less than
the number of Warrant Shares and other shares of Common Stock requested or
proposed to be registered, the number of Warrant Shares and other shares of
Common Stock to be sold by each prospective seller (including the Company) shall
be reduced as follows: first, the number of shares of Common Stock proposed to
be registered by the Company shall be reduced to zero, if necessary; second, the
number of shares of Common Stock proposed to be registered by the holders of
Common Stock possessing registration rights granted by the Company other than
under or arising from this Warrant shall be reduced to zero, if necessary; and
third, the number of Warrant Shares proposed to be included in such registration
shall be reduced pro rata, so that each prospective seller may sell that
proportion of Warrant Shares to be sold in the proposed distribution which the
number of Warrant Shares proposed to be sold by such prospective seller bears to
the aggregate number of Warrant Shares proposed to be sold by all prospective
sellers. If such underwriter determines that the number of shares of Common
Stock proposed to be sold is insufficient to proceed with such registration or
qualification, the Company shall use its best efforts to effect such
registration as soon as commercially practicable thereafter.
5.3 Incidental Registration and Qualification. If the Company or any
security holder of the Company other than a holder hereof or of Issued Warrant
Shares proposes to register any securities of the Company under the Securities
Act on any registration form (otherwise than for the registration of securities
to be offered and sold by the Company pursuant to (a) an employee benefit plan,
(b) a dividend or interest reinvestment plan, (c) other similar plans or (d)
reclassifications of securities, mergers, consolidations and acquisitions of
assets) permitting a secondary offering or distribution, not less than ninety
(90) days prior to each such registration the Company shall give to the holders
hereof and the holders of Issued Warrant Shares bearing the legend required by
Section 5.8 written notice of such proposal which shall describe in detail the
proposed registration and distribution (including those jurisdictions where
registration or qualification under the securities or blue sky laws is intended)
and, upon the written request of
<PAGE> 85
any holder hereof or any holder of Issued Warrant Shares furnished within
thirty (30) days after the date of any such notice, proceed to include in such
registration such Warrant Shares ("Piggy-Back Shares") as have been requested
by any such holder to be included in such registration. The holders hereof or
any holder of such Issued Warrant Shares shall in its request describe briefly
the proposed disposition of such shares of Common Stock. The Company will in
each instance use its best efforts to cause all such Piggy-Back Shares to be
registered under the Securities Act and qualified under the securities or blue
sky laws of any jurisdiction requested by a prospective seller, all to the
extent necessary to permit the sale or other disposition thereof (in the manner
stated in such request) by a prospective seller of the securities so
registered.
If the managing underwriter, who shall be selected by the Person who
initiated such registration, advises the Company in writing that, in its
opinion, the inclusion of the Piggy-Back Shares with the securities being
registered by the Company and other prospective sellers would materially
adversely affect the distribution of all such securities, then (a) the Company
and each prospective seller may sell that proportion of the shares of Common
Stock to be sold in the proposed distribution which the number of shares of
Common Stock proposed to be sold by such prospective seller bears to the
aggregate number of shares of Common Stock proposed to be sold by all
prospective sellers (including the Company) or (b) a prospective seller may at
its option delay its offering and sale for a period not to exceed ninety (90)
days after the effective date of such registration as such managing underwriter
shall reasonably request. In the event of such delay, the Company shall use its
best efforts to effect any registration or qualification under the Securities
Act and the securities or blue sky laws of any jurisdiction as may be necessary
to permit such prospective seller to make its proposed offering and sale
following the end of such period of delay and shall pay all expenses related
thereto in accordance with Section 5.4.
Each holder hereof and of Issued Warrant Shares who has requested
shares of Common Stock to be included in a registration pursuant to this Section
5.3, by acceptance hereof or thereof, agrees to (a) the selection by the Company
or such other security holder of the underwriter to manage such registration and
(b) execute an underwriting agreement with such underwriter that is (i)
reasonably satisfactory to such holder and (ii) in customary form.
5.4 Registration and Qualification Procedures. Whenever the
Company is required by the provisions of Section 5.2 or 5.3 to use its best
efforts to effect the registration of any of its securities under the Securities
Act, the Company will, as expeditiously as is possible:
(a) prepare and file with the Commission a registration
statement with respect to such securities in connection with which the
Company will give the sellers, their underwriters, if any, their
respective counsel and accountants the opportunity to participate in
the preparation of such registration statement, each prospectus
included therein or filed with the Commission, and each amendment
thereof or supplement thereto, and will give each of them such access
to its books and records and such opportunities to discuss the business
of the Company with its officers and the independent public accountants
who have certified their financial statements as shall be necessary, in
the
<PAGE> 86
opinion of such sellers' and such underwriters' respective counsel, to
conduct a reasonable investigation within the meaning of the Securities
Act;
(b) 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 the prospectus current and to comply with the
provisions of the Securities Act with respect to the sale of all
securities covered by such registration statement whenever the seller
of such securities shall desire to sell the same; provided, however,
the Company shall have no obligation to file any amendment or
supplement at its own expense more than nine (9) months after the
effective date of such registration statement;
(c) furnish to each seller such numbers of copies of
preliminary prospectuses and prospectuses and each supplement or
amendment thereto and such other documents as each seller may
reasonably request in order to facilitate the sale or other disposition
of the securities owned by such seller in conformity with (i) the
requirements of the Securities Act and (ii) the seller's proposed
method of distribution;
(d) register or qualify the securities covered by such
registration statement under the securities or blue sky laws of such
jurisdictions within the United States as each seller shall request,
and do such other reasonable acts and things as may be required of it
to enable each seller to consummate the sale or other disposition in
such jurisdictions of the securities owned by such seller; provided,
however, that the Company shall not be required to (i) qualify as a
foreign corporation or consent to a general and unlimited service of
process in any such jurisdiction or (ii) qualify as a dealer in
securities;
(e) furnish, at the request of any seller on the date such
securities are delivered to the underwriters for sale pursuant to such
registration or, if such securities are not being sold through
underwriters, on the date the registration statement with respect to
such securities becomes effective, (i) an opinion, dated such date, of
counsel representing the Company for the purposes of such registration,
addressed to the underwriters, if any, and to the seller making such
request, covering such legal matters with respect to the registration
in respect of which such opinion is being given as are customarily
included in such opinions and (ii) letters, dated, respectively, (1)
the effective date of the registration statement and (2) the date such
securities are delivered to the underwriters, if any, for sale pursuant
to such registration, from a firm of independent certified public
accountants of recognized national standing selected by the Company,
addressed to the underwriters, if any, and to the sellers making such
request, covering such financial, statistical and accounting matters
with respect to the registration in respect of which such letters are
being given as the seller of such securities may reasonably request and
are customarily included in such letters;
(f) otherwise use its best efforts to comply with all
applicable rules and
<PAGE> 87
regulations of the Commission, and make available to its security
holders as soon as reasonably practicable, but not later than sixteen
(16) months after the effective date of the registration statement, an
earnings statement covering a period of at least twelve (12) months
beginning after the effective date of the registration statement, which
earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act;
(g) enter into and perform an underwriting agreement with the
managing underwriter, if any, selected as provided in Section 5.2 or
5.3, containing customary (i) terms of offer and sale of the
securities, payment provisions, underwriting discounts and commissions
and (ii) representations, warranties, covenants, indemnities, terms and
conditions; the sellers may, at their option, require that any or all
of the representations and warranties by, and the other agreements on
the part of, the Company to and for the benefit of such underwriters
shall also be made to and for the benefit of such sellers and that any
or all of the conditions precedent to the obligations of such
underwriters under such under writing agreement be conditions precedent
to the obligations of such sellers; such sellers shall not be required
to make any representations or warranties to or agreements with the
Company or the underwriters other than representations, warranties or
agreements regarding such sellers and such sellers' intended method of
distribution and any other representation required by law;
(h) notify each seller at any time when a prospectus
relating to the registration is required to be delivered under the
Securities Act, upon discovery that, or upon the happening of any event
as a result of which, the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a
material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in
the light of the circumstances under which they were made, at the
request of any such seller promptly prepare and furnish to such seller
a reasonable number of copies of a supplement to or an amendment of
such prospectus as may be necessary so that, as thereafter delivered to
the purchasers of such securities, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under which
they were made; and
(i) keep each seller advised in writing as to the
initiation and progress of any registration under Section 5.2 or 5.3.
5.5 Holdback Agreements. The Company agrees not to effect any
public sale or distribution of its equity securities or securities convertible
into or exchangeable or exercisable for any of such securities during the seven
(7) days prior to or ninety (90) days after any underwritten registration
pursuant to Section 5.2 or 5.3 has become effective, except as part of such
underwritten registration and except pursuant to registrations on Form S-8 or
S-4 or any successor or similar forms thereto, and to cause each Person who
purchases its equity securities or any securities convertible into or
exchangeable or exercisable for any of such securities at any
<PAGE> 88
time after the date of this Warrant (other than in a public offering) to agree
not to effect any such public sale or distribution of such securities, during
such period.
5.6 Allocation of Expenses. If the Company is required by the
provisions of Section 5.2 or 5.3 to use its best efforts to effect the
registration or qualification under the Securities Act or any state securities
or blue sky laws of any of the Warrant Shares, the Company shall pay all
expenses in connection therewith, including, without limitation, (a) all
expenses incident to filing with the National Association of Securities Dealers,
Inc., (b) registration fees, (c) printing expenses, (d) accounting and legal
fees and expenses, (e) expenses of any special audits incident to or required by
any such registration or qualification, (f) premiums for insurance in such
amount, if any, deemed appropriate by the managing underwriter and (g) expenses
of complying with the securities or blue sky laws of any jurisdictions in
connection with such registration or qualification; provided, however, the
Company shall not be liable for (1) any discounts or commissions to any
underwriter attributable to Warrant Shares being sold; (2) any stock transfer
taxes incurred in respect of the Warrant Shares being sold; (3) the legal fees
of any holder of this Warrant or Warrant Shares being sold.
5.7 Indemnification. In connection with any registration or
qualification of securities under Section 5.2 or 5.3, the Company agrees to
indemnify the holders of this Warrant and the holders of any Warrant Shares and
each underwriter thereof, including each person, if any, who controls any holder
or such stockholder or underwriter within the meaning of Section 15 of the
Securities Act, against all losses, claims, damages, liabilities and expenses
(including reasonable costs of investigation) caused by any untrue, or alleged
untrue, statement of a material fact contained in any registration statement,
preliminary prospectus, prospectus or notification or offering circular (as
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto) or caused by any omission, or alleged omission, to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages, liabilities or expenses are caused by any untrue statement or alleged
untrue statement or omission or alleged omission based upon information
furnished in writing to the Company by the applicable holder or any such
stockholder or underwriter expressly for use therein. The Company and each
officer, director and controlling Person of the Company shall be indemnified by
the holders of this Warrant and by the holders of any Issued Warrant Shares for
all such losses, claims, damages, liabilities and expenses (including the costs
of reasonable investigation) caused by any such untrue, or alleged untrue,
statement or any such omission or alleged omission, based upon information
furnished in writing to the Company by the holders hereof or any such
stockholder expressly for use therein.
Promptly upon receipt by a party indemnified under this Section 5.7 of
notice of the commencement of any action against such indemnified party in
respect of which indemnity or reimbursement may be sought against any
indemnifying party under this Section 5.7, such indemnified party shall notify
the indemnifying party in writing of the commencement of such action, but the
failure so to notify the indemnifying party shall not relieve it of any
liability which it may have to any indemnified party under this Section 5.7
unless such failure shall
<PAGE> 89
materially adversely affect the defense of such action. In case notice of
commencement of any such action shall be given to the indemnifying party as
above provided, the indemnifying party shall be entitled to participate in and,
to the extent it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense of such action at its own expense, with counsel
chosen by it and satisfactory to such indemnified party. The indemnified party
shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
(other than reasonable costs of investigation) shall be paid by the indemnified
party unless (a) the indemnifying party agrees to pay the same, (b) the
indemnifying party fails to assume the defense of such action with counsel
reasonably satisfactory to the indemnified party or (c) the named parties to any
such action (including any impleaded parties) have been advised by such counsel
that representation of such indemnified party and the indemnifying party by the
same counsel would be inappropriate under applicable standards of professional
conduct (in which case the indemnifying party shall not have the right to assume
the defense of such action on behalf of such indemnified party). No indemnifying
party shall be liable for any settlement entered into without its consent.
If the indemnification provided for in this Section is unavailable or
insufficient to hold harmless an indemnified party in respect of any losses,
claims, damages, liabilities, expenses or action in respect thereof referred to
herein, then each indemnifying party shall in lieu of indemnifying such
indemnified party contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages, liabilities, expenses or
actions in such proportion as is appropriate to reflect the relative fault of
the Company, on the one hand, and the sellers of such Common Stock, on the
other, in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities, expenses or actions as well as any other
relevant equitable considerations, including the failure to give the notice
required hereunder. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact relates to information supplied by the Company, on the one hand, or the
sellers of such Common Stock, on the other hand, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company and each holder hereof agree that it
would not be just and equitable if contribution pursuant to this Section were
determined by pro rata allocation (even if all of the sellers of such Common
Stock were treated as one entity for such purpose) or by any other method of
allocation which did not take account of the equitable considerations referred
to above. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities or action in respect thereof, referred to
above, shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim. Notwithstanding the contribution provisions of this
Section, in no event shall the amount contributed by any seller of Common Stock
exceed the aggregate gross offering proceeds received by such seller from the
sale of Common Stock to which such contribution claim relates. No person guilty
of fraudulent misrepresentations (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who is not
guilty of such fraudulent misrepresentation.
Each holder of this Warrant and each holder of shares of Issued Warrant
Shares upon the
<PAGE> 90
exercise hereof and bearing the legend required by Section 5.8, by acceptance
hereof or thereof, as the case may be, agrees to the indemnification and
contribution provisions of this Section 5.7.
5.8 Legend on Warrants and Certificates. Each Warrant shall bear a
legend in substantially the following form:
"This Warrant and any shares issuable upon the exercise of this Warrant
have not been registered under the Securities Act of 1933, as amended,
and neither this Warrant nor any such shares may be transferred in the
absence of such registration or an exemption therefrom under such Act."
In case any shares of Common Stock are issued upon the exercise in whole or in
part of this Warrant or are thereafter transferred, in either case under such
circumstances that no registration under the Securities Act is required, each
certificate representing such shares shall bear on the face thereof the
following legend:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and any transfer thereof
is subject to the conditions specified in the Warrant dated as of
February , 1997 originally issued by Home Products International, Inc.
(the "Company") to General Electric Capital Corporation to purchase
shares of Common Stock, $.01 par value, of the Company. A copy of the
form of such Warrant is on file with the Secretary of the Company at
its principal executive office, and will be furnished without charge by
the Company to each holder of this certificate upon written request to
the Secretary of the Company at such address."
5.9 Termination of Restrictions. The restrictions imposed under this
Article 5 upon the transferability of this Warrant or of Warrant Shares shall
cease when (a) a registration statement covering such Warrant or Warrant Shares
becomes effective under the Securities Act or (b) the Company receives an
Opinion of Counsel that such restrictions are no longer required in order to
ensure compliance with the Securities Act. When such restrictions terminate, the
Company shall, or shall instruct its transfer agent and registrar to, issue new
certificates in the name of the applicable holder not bearing the legends
required under Section 5.8.
5.10 Supplying Information. The Company, the holders hereof and each
holder of Warrant Shares shall cooperate with each other in supplying such
information as may be necessary for any of such parties to complete and file any
information reporting forms presently or hereafter required by the Commission or
any commissioner or other authority administering the blue sky or securities
laws of any jurisdiction where shares of Common Stock are proposed to be sold
pursuant to Section 5.2 or 5.3.
5.11 Liquidated Damages. In the event the Company fails to comply with
any provision of Section 5.2, 5.3 or 5.4, upon written request of the holders of
this Warrant or any holder of Warrant Shares, the Company shall promptly obtain
an opinion of the independent
<PAGE> 91
investment banking firm of William Blair & Company estimating the net proceeds
which such Person would have received (after deducting underwriting commissions
and discounts and any other expenses that would have been solely attributable to
the registration or qualification of such shares of Common Stock) upon the sale
of shares of Common Stock proposed to be sold pursuant to such registration or
qualification. Such opinion of an independent investment banking firm shall be
(a) delivered in writing to the Company, with a copy to such Person, within (7)
seven days after the date of the request of such Person to the Company and (b)
conclusive and binding on the Company and such Person.
Within thirty (30) days of receipt by the Company of such estimate, the
Company shall pay to such Person an amount equal to (a) such estimated net
proceeds minus (b) in the case of this Warrant or portion hereof that has not
been exercised, the aggregate Current Warrant Price payable upon the exercise
hereof. Payment of such amount shall be made by a certified or official bank
check payable to the order of such Person. Upon payment to such Person of such
liquidated damages, such Person shall assign to the Company this Warrant and the
Issued Warrant Shares proposed to be sold pursuant to the registration or
qualification in question without any representation or warranty (other than
that such holder has not taken any action which would impair its ownership of or
right to transfer to the Company the Warrant or such shares of Common Stock). If
less than all of the Issued Warrant Shares were proposed to be sold pursuant to
the registration or qualification in question, the Company shall cancel this
Warrant and issue in the name of, and deliver to, the applicable holder,
pursuant to Article 2, a new Warrant for the Issued Warrant Shares not required
to be assigned to the Company pursuant to the provisions of the preceding
sentence. The Company agrees that the amount of actual damages that would be
sustained by the applicable holder as a result of the failure of the Company to
comply with any provisions of Section 5.2, 5.3 or 5.4 is not capable of
ascertainment on any other basis.
ARTICLE 6
PARTICIPATION IN CORPORATE DISTRIBUTIONS
6.1 Company's Obligation to Make Payments. The Company shall not
repurchase or redeem any of its equity securities or any securities convertible
into or exchangeable for such equity securities or any warrants or other rights
to purchase such equity securities (except to the extent permitted under the
terms of the Credit Agreement) unless it concurrently makes a cash payment to
the holders of this Warrant equal to the product of (i) the quotient obtained by
dividing (x) the aggregate amount of cash and the aggregate fair value of any
property paid out by the Company in connection with any such repurchase or
redemption at the time, as determined in good faith by the Board of Directors of
the Company, by (y) the number of shares of Fully Diluted Outstanding Common
Stock (including shares of Common Stock then issuable upon exercise of this
Warrant) immediately after such repurchase or redemption, and (ii) the number of
shares of Common Stock then issuable upon the exercise of this Warrant. Upon any
such payment by the Company, the number of shares of Common Stock then issuable
upon the exercise of this Warrant shall be adjusted by multiplying the number of
shares of Common Stock
<PAGE> 92
for which this Warrant is exercisable immediately prior to such payment by a
fraction (A) the numerator of which shall be the number of shares of Common
Stock Outstanding immediately after such repurchase or redemption, and (B) the
denominator of which shall be the number of shares of Common Stock Outstanding
immediately prior to such repurchase or redemption. Concurrently, each holder of
this Warrant shall deliver the same to the Company for cancellation and the
Company shall deliver to each holder a new Warrant evidencing the adjusted
number of unpurchased shares of Common Stock called for by this Article 6, which
new Warrant shall in all other respects be identical to this Warrant, or, at the
request of the applicable holder, appropriate notation may be made on this
Warrant and the same returned to the applicable holder hereof.
ARTICLE 7
MANDATORY CALL
7.1 Mandatory Call. If the Subordinated Debt has been paid in full on
prior to July 31, 1997, the Company shall concurrently repurchase this Warrant
at a call price equal to $10 per Issuable Warrant Share ($792,040 in the
aggregate) and the holders hereof shall surrender this Warrant for cancellation
upon payment of the call price in immediately available funds.
7.2 Voluntary Call. The Company may call the Warrant shares and
terminate this Warrant at any time after July 31, 2002, at a call price equal to
the greater of:
(i) the Market Price for such Warrant Shares reduced by the respective
Current Warrant Prices therefore (if not paid as to Issuable Warrant Shares); or
(ii) ten dollars ($10.00) per Warrant Share reduced by the respective Current
Warrant Prices therefor, (if not paid as to Issuable Warrant Shares). The
Company shall exercise such call by providing written notice to the then holders
of this Warrant, and the parties shall close such transaction within thirty (30)
days of such notice, at the Company's principal office. At such closing, the
Company shall pay the call price in full to the holders of this Warrant, and the
holders of this Warrant shall surrender it to the Company.
ARTICLE 8
INTENTIONALLY DELETED
ARTICLE 9
FINANCIAL AND BUSINESS INFORMATION
9.1 Monthly and Quarterly Information. While the Credit Agreement is in
effect, the Company will deliver to GE Capital copies of the monthly financial
statements required to be delivered to the Agent, as and when the same are
delivered to the Agent. As to holders other than GE Capital and as to GE Capital
after the Credit Agreement has been terminated, the Company shall provide to
such holders, within ten (10) days after the filing thereof with the Commission,
copies of all quarterly financial statements and other financial reports
required to
<PAGE> 93
be filed with the Commission or which the Company elects to file with the
Commission or otherwise to publicly disclose.
9.2 Annual Information. While the Credit Agreement is in effect, the
Company will deliver to each holder hereof copies of the annual financial
statements required to be delivered to the Agent under the Credit Agreement as
and when the same are delivered to such Agent. Thereafter, the Company shall
provide to such holder hereof, as and when required to be filed with the
Commission, copies of all annual financial statements, annual reports to
stockholders and proxy statements required to be filed with the Commission.
9.3 Filings. The Company will deliver to each holder hereof promptly
upon their becoming available one copy of each report, notice or proxy statement
sent by the Company to its stockholders generally, and of each regular or
periodic report pursuant to the Exchange Act, and any registration statement,
prospectus or written communication (other than transmittal letters) pursuant to
the Securities Act filed by the Company with the Commission or any securities
exchange on which shares of Common Stock are listed.
ARTICLE 10
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each holder of this
Warrant that as of the Closing Date:
10.1 Organization and Capitalization of the Company. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. The authorized capital of the Company consists of
7,500,000 shares of Common Stock, par value $.01 per share and 500,000 shares of
preferred stock $.01 par value per share, none of which preferred stock has been
issued. No unissued shares of Common Stock are reserved for any purpose other
than for issuance upon the exercise of this Warrant. Except as set forth on
Disclosure Schedule (3.8) of the Credit Agreement as of the date hereof, there
are no outstanding rights to purchase, options, warrants or similar rights or
agreements pursuant to which the Company may be required to issue, sell,
repurchase or redeem any shares of Common Stock or other equity securities, and
there are no preemptive rights in effect with respect to the issuance of any
shares of Common Stock. All the outstanding shares of Common Stock have been
duly authorized, validly issued without violation of any preemptive or similar
rights and are fully paid and nonassessable.
10.2 Authority. The Company has full corporate power and authority to
execute and deliver this Warrant and to perform all of its obligations
hereunder, and the execution, delivery and performance hereof has been duly
authorized by all necessary corporate action on its part. This Warrant has been
duly executed on behalf of the Company and constitutes the legal, valid and
binding obligation of the Company enforceable in accordance with its terms.
<PAGE> 94
10.3 No Legal Bar. Neither the execution, delivery or performance of
this Warrant will (a) conflict with or result in a violation of the Articles of
Incorporation or By-Laws of the Company, (b) conflict with or result in a
violation of any law, statute, regulation, order or decree applicable to the
Company or any Affiliate of the Company, (c) require any consent or
authorization or filing with, or other act by or in respect of any governmental
authority or (d) result in a breach of, constitute a default under or constitute
an event creating rights of acceleration, termination or cancellation under any
mortgage, lease, contract, franchise, instrument or other agreement to which the
Company is a party or by which it is bound.
10.4 Validity of Shares. The Company has duly authorized the issuance
of shares of Common Stock pursuant to this Warrant and has reserved sufficient
shares of Common Stock to be issued upon exercise of this Warrant. The Common
Stock, when paid for and delivered pursuant to the terms of this Warrant, will
constitute duly authorized, validly issued, fully paid and nonassessable shares
of Common Stock of the Company.
10.5 Incorporation of Representations and Warranties of Credit
Agreement. The representations and warranties made by the Company in the Credit
Agreement are incorporated herein by reference and shall be deemed to be made
herein.
ARTICLE 11
VARIOUS COVENANTS OF THE COMPANY
11.1 No Impairment or Amendment. The Company shall not by any action
including, without limitation, amending its Articles of Incorporation, or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms of this Warrant,
but will at all times in good faith assist in the carrying out of all such terms
and in taking of all such actions as may be necessary or appropriate to protect
the rights of each holder hereof against impairment. Without limiting the
generality of the foregoing, the Company will (a) not increase the par value of
any shares of Common Stock receivable upon the exercise of this Warrant above
the then Current Warrant Price therefor upon such exercise immediately prior to
such increase in par value, (b) take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable shares of Common Stock upon the exercise of this Warrant, (c)
obtain all such authorizations, exemptions or consents from any public
regulatory body having jurisdiction thereof as may be necessary to enable the
Company to perform its obligations under this Warrant, (d) not issue any capital
stock of any class which is preferred as to dividends or as to the distribution
of assets upon the voluntary or involuntary dissolution, liquidation or winding
up of the Company, (e) not undertake any reverse stock split, combination,
reorganization or other reclassification of its capital stock which would have
the effect of making this Warrant exercisable for less than __% of the shares of
Common Stock Outstanding , and (f) not, without the written consent of Majority
Holders, amend its Articles of Incorporation.
Upon the request of the holder hereof, the Company will at any time
during the period
<PAGE> 95
this Warrant is outstanding acknowledge in writing, in form satisfactory to each
holder, the continuing validity of this Warrant and the Company's obligations
hereunder.
11.2 Reservation of Common Stock; Qualification.
(a) From and after the Closing Date, the Company shall at all
times reserve and keep available for issue upon the exercise of this
Warrant such number of its authorized but unissued shares of Common
Stock as will be sufficient to permit the exercise in full of this
Warrant. All shares of Common Stock which shall be so issuable, when
issued upon exercise of this Warrant and payment therefor in accordance
with the terms of this Warrant, shall be duly authorized and validly
issued and fully paid and nonassessable, and not subject to preemptive
rights.
(b) Before taking any action which would cause an adjustment
reducing the Current Warrant Price below the then par value, if any, of
the shares of Common Stock issuable upon exercise of this Warrant, the
Company shall take any corporate action which may be necessary in order
that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock at such adjusted Current Warrant
Price.
(c) If any shares of Common Stock required to be reserved for
issuance upon exercise of Warrants require registration or
qualification with any governmental authority or other governmental
approval or filing under any federal or state law before such shares
may be so issued, the Company will in good faith and as expeditiously
as possible and at its expense endeavor to cause such shares to be duly
registered or qualified.
11.3 Taking of Record. In the case of all dividends or other
distributions by the Company to the holders of its Common Stock with respect to
which any provision of Article 4 refers to the taking of a record of such
holders, the Company will in each such case take such a record and will take
such record as of the close of business on a Business Day.
11.4 Listing on Securities Exchange. If the Company shall list any
shares of Common Stock on any securities exchange it will, at its expense, list
thereon, maintain and increase when necessary such listing of, all Issued
Warrant Shares and, to the extent permissible under the applicable securities
exchange rules, all Issuable Warrant Shares so long as any shares of Common
Stock shall be so listed. The Company will also so list on each securities
exchange, and will maintain such listing of, any other securities which the
holders of this Warrant shall be entitled to receive upon the exercise thereof
if at the time any securities of the same class shall be listed on such
securities exchange by the Company.
11.5 Availability of Information. The Company will cooperate with
each holder hereof or of Issued Warrant Shares in supplying such information as
may be necessary for such holders to complete and file any information reporting
forms presently or hereafter required by the Commission as a condition to the
availability of an exemption from the Securities Act for the
<PAGE> 96
sale of this Warrant or such Issued Warrant Shares.
11.6 Certain Expenses. The Company shall pay all expenses in
connection with, and all taxes (other than stock transfer taxes) and other
governmental charges that may be imposed in respect of, the issue, sale and
delivery of the Warrant, the Issuable Warrant Shares and the Issued Warrant
Shares.
ARTICLE 12
MISCELLANEOUS
12.1 Nonwaiver and Expenses. No course of dealing or any delay or
failure to exercise any right hereunder on the part of any holder hereof shall
operate as a waiver of such right or otherwise prejudice such holder's rights,
powers or remedies. If the Company fails to make, when due, any payments
provided for hereunder, or fails to comply with any other provision of this
Warrant, the Company shall pay to each holder hereof such amounts as shall be
sufficient to cover any costs and expenses including, but not limited to,
reasonable attorneys' fees, including those of appellate proceedings, incurred
by such holder in collecting any amounts due pursuant hereto or in otherwise
enforcing any of its rights, powers or remedies hereunder.
12.2 Limitation of Liability. No provision hereof, in the absence
of affirmative action by each holder hereof to purchase shares of Common Stock,
and no enumeration herein of the rights or privileges of such holder hereof,
shall give rise to any liability of such holder for the purchase price of any
Common Stock or as a stockholder of the Company, whether such liability is
asserted by the Company or by creditors of the Company.
12.3 Notice Generally. Any notice, demand, request, consent,
approval, declaration, delivery or other communication hereunder to be made
pursuant to the provisions of this Warrant shall be sufficiently given or made
if in writing and either delivered in person with receipt acknowledged or sent
by registered or certified mail, return receipt requested, postage prepaid, or
by telecopy and confirmed by telecopy answerback, addressed as follows:
(a) If to any holder hereof or holder of Issued Warrant
Shares, at its last known address appearing on the books of the Company
maintained for such purpose.
(b) If to the Company, at:
Selfix, Inc.
4501 West 47th Street
Chicago, Illinois 60632
Attention: Chief Executive Officer
with a copy to:
<PAGE> 97
Much, Shelist, Freed, Denenberg, Ament,
Bell & Rubenstein PC
200 North LaSalle Street
Suite 2100
Chicago, IL 60601
Attention: Jeffrey Rubenstein
or at such other address 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. Every notice, demand, request,
consent, approval, declaration, delivery or other communication hereunder shall
be deemed to have been duly given or served on the date on which personally
delivered, with receipt acknowledged, telecopied and confirmed by telecopy
answerback, or five (5) business days after the same shall have been deposited
in the United States mail, certified, or one (1) business day after the same has
been deposited with a reputable overnight courier with instructions to deliver
the same on the next Business Day. Failure or delay in delivering copies of any
notice, demand, request, approval, declaration, delivery or other communication
to the person designated above to receive a copy shall in no way adversely
affect the effectiveness of such notice, demand, request, approval, declaration,
delivery or other communication.
12.4 Successors and Assigns. This Warrant and the rights evidenced
hereby shall inure to the benefit of and be binding upon the successors of the
Company, each holder hereof and (to the extent provided herein) each holder of
Issued Warrant Shares, and shall be enforceable by any such holder.
12.5 Remedies. The Company stipulates that the remedies at law of each
holder of this Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate and that, to the fullest extent
permitted by law, such terms may be specifically enforced by a decree for the
specific performance of any agreement contained herein or by an injunction
against a violation of any of the terms hereof or otherwise.
12.6 Amendment. This Warrant may be modified or amended or the
provisions hereof waived with the written consent of the Company and Majority
Holders; provided that this Warrant may not be modified or amended to reduce the
number of shares of Common Stock for which this Warrant is exercisable or to
increase the price at which such shares may be purchased upon exercise of this
Warrant (before giving effect to any adjustment as provided herein) without the
prior written consent of each holder hereof.
12.7 Severability. Wherever possible, each provision of this Warrant
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of
<PAGE> 98
such provision or the remaining provisions of this Warrant.
12.8 Headings. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
12.9 GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY THE INTERNAL
LAWS AND DECISIONS OF THE STATE OF ILLINOIS, APPLICABLE TO CONTRACTS MADE AND
PERFORMED IN THAT STATE.
12.10 Jurisdiction. The Company and each holder hereof consent and
agree that the State or Federal Courts located in the City of Chicago, Illinois
shall have exclusive jurisdiction to hear and determine any claims or disputes
between the Company and such holder in connection with this Warrant that are not
resolved by an investment banking firm or [accounting firm] in accordance with
the terms hereof, and the Company and each holder hereof hereby submit to the
jurisdiction of such courts.
12.11 WAIVER OF JURY TRIAL. TO ACHIEVE THE BEST COMBINATION OF THE
BENEFITS OF THE JUDICIAL SYSTEM AND ARBITRATION, THE COMPANY AND THE HOLDERS
HEREOF AGREE THAT IF ANY DISPUTE IN CONNECTION WITH THIS WARRANT IS NOT RESOLVED
BY AN INVESTMENT BANKING FIRM IN ACCORDANCE WITH THE TERMS HEREOF, THE COMPANY
AND EACH SUCH HOLDER WAIVE ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, SUIT, OR
PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE IN CONNECTION HEREWITH.
[signature page follows]
<PAGE> 99
IN WITNESS WHEREOF, the Company has caused this Warrant to be
duly executed and its corporate seal to be impressed hereon and attested by its
Secretary or an Assistant Secretary.
Dated: February 27, 1997.
HOME PRODUCTS INTERNATIONAL, INC.
By:
Name:
Title:
Attest:
By:
Its:
<PAGE> 100
EXHIBIT A
NOTICE OF EXERCISE
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably
exercises this Warrant for the purchase of _____ Shares of Common Stock of Home
Products International, Inc. and herewith makes payment therefor in the amount
of $__________ as follows:
$________________ by wire transfer;
$________________ by certified or official bank check enclosed
herewith;
$________________ by deducting from the shares delivered upon
exercise hereof a number of shares having an
aggregate Appraised Value on the date of exercise
equal to the aggregate Current Warrant Price for
all shares as to which this Warrant is then being
exercised;
[$________________ by application of the Obligations as provided in
Section 2.6 of this Warrant;]
all at the price and on the terms and conditions specified in this Warrant and
requests that certificates for the shares of Common Stock hereby purchased (and
any securities or other property issuable upon such exercise) be issued in the
name of and delivered to _______________________ whose address is
____________________ _________________________ and, if such shares of Common
Stock shall not include all of the shares of Common Stock issuable as provided
in this Warrant, that a new Warrant of like tenor and date for the balance of
the shares of Common Stock issuable hereunder be delivered to the undersigned
[_______________]. The Common Stock as to which the Warrant is exercised
consists of the following numbers of shares from the following Tranches at the
following respective Current Warrant Prices:________________________________.
___________________________________
(Name of Registered Owner)
___________________________________
(Signature of Registered Owner)
___________________________________
(Street Address)
___________________________________
<PAGE> 101
(City) (State) (Zip Code)
<PAGE> 102
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned registered owner of this
Warrant hereby sells, assigns and transfers unto the Assignee named below all of
the rights of the undersigned under this Warrant, with respect to the number of
shares of Common Stock set forth below:
Name and Address of Assignee No. of Shares of Common Stock
and does hereby irrevocably constitute and appoint _________________________
attorney-in-fact to register such transfer on the books of Home Products
International, Inc. maintained for the purpose, with full power of substitution
in the premises.
Dated: Print Name:
Signature:
Witness:
NOTICE: The signature on this assignment must correspond with the name
as written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatsoever.
<PAGE> 1
Exhibit 10.14
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), made as of February 26th,
1997, is made by and between Selfix, Inc., a Delaware corporation ("SELFIX"),
Tamor corporation, a Massachusetts corporation (the "COMPANY"), Home Products
International, Inc. ("HPI"), the parent corporation of Selfix, and Leonard
Tocci of Leominster, Massachusetts (the "EXECUTIVE"). Selfix and its affiliates
(including any parent of Selfix), to the extent any of them are conducting the
Business (as defined below) jointly with the Company or to the extent the
Company is involved in any Business involving Selfix products which may be
marketed or used by the Company are collectively referred to as "GREATER
TAMOR." In such case as Selfix and its subsidiaries are reorganized into a
holding company structure, all references to Selfix in this Agreement shall also
be construed to refer to Selfix's parent company.
RECITALS:
A. The company is engaged in the business of designing,
manufacturing, importing, marketing and distributing bathware and houseware
related products (the "BUSINESS").
B. HPI, concurrently with the execution of this Agreement, is
purchasing all the equity in the Company (the "ACQUISITION").
C. Selfix desires for the Executive to continue his employment
with the Company after the Acquisition, and the Executive is willing to continue
such employment.
D. Executive has had and will continue to have access to the
Company's confidential and proprietary information and will have access in the
future to confidential and proprietary information of Greater Tamor. In order
to protect Greater Tamor from unfair competition by the Executive associated
with his relationship with the Company, customers and his access to
confidential and proprietary information, the Company and the Executive wish to
set forth in this Agreement certain restrictive covenants to be adhered to by
the Executive.
CLAUSES:
In consideration of the foregoing, as well as the mutual covenants and
promises set forth herein, the parties agree as follows:
1. EMPLOYMENT AND TERM. The Company hereby employs Executive to
serve as the Chief Executive Officer of the Company and Executive hereby
accepts such employment. Unless earlier terminated in accordance with this
Agreement, the term of this Agreement will begin on the date of this Agreement
("EFFECTIVE DATE") and will continue for a period of three (3) years (the
"INITIAL TERM"). Unless the Company or the Executive notifies the other party
of its intention to terminate the Term of employment at least sixty days before
the expiration of the Term, Executive's term of employment with the company
shall thereafter be extended for a period of one year. Each one year extension
shall be referred to as a "RENEWAL TERM". Executive and Selfix agree to
negotiate Executive's employment arrangements following the
<PAGE> 2
Initial Term at least six (6) months before the end of the Initial Term. The
Executive's actual term of employment with the Company under this Agreement,
inclusive of the Initial Term and any Renewal Term, or any shorter period,
shall be referred to as the "TERM".
2. EMPLOYMENT DUTIES.
2.1 TITLE/RESPONSIBILITIES. The Executive shall perform his duties
as Chief Executive Officer of the Company, which duties shall include the
normal and customary duties of such office and such other duties as may be
assigned to him by Selfix's Chief Executive Officer (the "CEO") or the Board of
Directors of Selfix (the "BOARD"). Executive shall oversee the day to day
management of the Company, including but not limited to: (i) hiring and firing;
(ii) subject to the approval of the CEO, directing legal services for patent
work; and (iii) implementing budget decisions relating to marketing, sales,
pricing, product development, product sourcing, billing, and collection. The
Executive shall report to the CEO and provide the CEO with periodic reports
upon request. Executive shall be responsible for the preparation of an annual
capital budget and an annual operating budget in accordance with regular
budgeting procedures of Selfix, which budgets shall be subject to the approval
of the CEO and the Board. Executive shall at all times discharge his duties in
consultation with and subject to the general direction and control of the CEO.
2.2 FULL TIME AND ATTENTION. Executive shall devote his exclusive
and full time attention, energy and skills to the performance of his duties as
Chief Executive Officer of the Company, but nothing in this Agreement shall
preclude Executive from engaging in charitable and community affairs, provided
that such activities do not interfere with the performance of his duties or
responsibilities under this Agreement.
2.3 OFFICE LOCATION. Executive shall be located in the Leominster,
Massachusetts metropolitan area, unless he otherwise consents.
3. COMPENSATION.
3.1 BASE SALARY. During the Initial Term, Executive shall receive
an annual base salary ("BASE SALARY") of Three Hundred Thousand Dollars
($300,000), payable in accordance with the Company's payroll practices for
executive employees (reduced solely by all applicable payroll and withholding
taxes and other legal garnishments). The CEO shall undertake periodic
performance reviews of Executive and the CEO may, with appropriate Board
approval, adjust Base Salary to reflect Executive's performance and/or the
financial position of the Company, provided, however, the Base Salary shall not
be less than Three Hundred Thousand Dollars ($300.000).
3.2 BONUS. In addition to the Base Salary, Executive shall receive
discretionary annual incentive compensation to be determined by the CEO, with
appropriate approval of the Board. Such determination shall be reached using
the substantially similar method, formula and
2
<PAGE> 3
analysis utilized by the Board with respect to determining the discretionary
annual incentive compensation of the CEO, consistent with past practices.
4. EXPENSE ALLOWANCES AND FRINGE BENEFITS.
4.1 VACATION. Executive shall be entitled to vacation in accordance
with the Company's vacation policy for senior executives which policy shall be
substantially similar to that of Selfix for its executives.
4.2 EMPLOYMENT BENEFIT PLANS. Executive will be entitled to participate
in the employee and executive benefit plans the Company now or hereafter makes
available to executives and/or other salaried employees, including, without
limitation, retirement plans, group life insurance, hospitalization, surgical
and major medical, vacations and holidays and other fringe benefits, in
accordance with the terms of such plans, if applicable, and subject to
eligibility and vesting requirements in effect from time to time, provided
however, that nothing herein shall require the Company to create or continue
any such plan or benefit. It is intended that all such benefits and plans be
substantially similar to benefits and plans made available to Selfix executives.
4.3 BUSINESS/AUTOMOBILE EXPENSE REIMBURSEMENT. The Company shall
reimburse Executive for all reasonable and proper expenses incurred by him in
executing his duties for the Company. Reimbursement shall be conditioned upon
Executive's compliance with all policies adopted by the Company regarding
expense reimbursement including, without limitation, policies regarding the
documentation and timely submission of such expenses. At his option, Executive
may during the Term either have the use of a Company automobile or a $500 per
month automobile allowance (exclusive of any reimbursement for costs of
operating and maintaining the automobile).
5. TERMINATION.
5.1 DEATH. In the event of the death of the Executive during the Term
of this Agreement, this Agreement shall terminate in its entirety, provided,
however, that all amounts which accrued to Executive prior to the date of his
death shall be paid to his estate in accordance with the Company's standard
payroll practice.
5.2 DISABILITY. In the event the Executive becomes "Disabled" (defined
below) for a period of 90 consecutive days, or for 120 days (irrespective of
whether such days are consecutive) during any six-month period, the Company
may, at its option, terminate the Executive's employment. Such option shall be
exercised by the Company giving notice to Executive of its intention to
terminate Executive's employment, to be effective on the date set forth in the
notice, which in no event shall be less than 30 days after the date of the
notice.
For purposes of this Agreement, Executive shall be deemed to have
become "Disabled" if,
3
<PAGE> 4
because of physical or mental disability or drug or alcohol dependency or abuse
he shall have been unable to perform his duties hereunder. So long as this
Agreement is in effect and during any such period in which he is Disabled,
Executive shall be entitled to all compensation, benefits, rights and
entitlement under the Agreement. Compensation shall, however, be reduced by any
amount paid to Executive by any long-term disability insurance policy or
coverage provided by the Company or for which the Company paid the premiums, if
applicable.
5.3 TERMINATION BY THE COMPANY FOR CAUSE. The Company shall have the
option of terminating Executive's employment immediately for "Cause" (as
defined below). The term "Cause", as used herein, shall mean (a) dishonesty,
fraud, embezzlement, theft, conviction of a felony or any crime involving moral
turpitude, (b) gross dereliction or gross neglect of duties hereunder, or a
material breach of Sections 8 or 9 of this Agreement, (c) willful refusal to
perform the duties hereunder, or (d) willful misconduct materially and
demonstrably injurious to Selfix or the Company.
5.4 VOLUNTARY TERMINATION BY EXECUTIVE. Executive may terminate this
Agreement prior to the end of the Term upon ninety (90) days prior written
notice to the Company, in which the event the Company shall be obligated only
to pay him his total remuneration and other applicable benefits described in
Sections 3.1 and 4 up to the date of termination set forth in a notice of
termination given to the Company.
5.5 TERMINATION IN THE EVENT OF FILING UNDER CHAPTER 7. In the event
that the Company or Selfix files a petition for liquidation under Title 7 of
the Bankruptcy Code, or has a petition for liquidation under such title filed
involuntarily against it, then Executive shall be released from all obligations
under this Agreement. In addition, if the Company is in Chapter 11
reorganization, Executive shall be released from all obligations under the
Agreement if his compensation benefits under the plan of reorganization is not
equivalent to his compensation and benefits under this Agreement.
6. CHANGE OF CONTROL.
6.1 DEFINITIONS. For purposes of this Agreement, a "Change of Control"
shall have occurred if any person or group (as defined in Section 13(d) of the
Security Act of 1934) other than the Ragir family or their affiliates
(including, without limitation, trusts for their benefit or private foundations
established by them) or Selfix's parent (by virtue of a corporate
reorganization) becomes the beneficial owner of shares of stock in Selfix
representing fifty percent (50%) or more of the total number of voting shares
that may be cast for the election of directors of Selfix.
6.2 TERMINATION FOLLOWING CHANGE OF CONTROL. In the event Executive's
active full-time employment with the Company terminates within one hundred
eighty (180) days after a Change of Control, either voluntarily or
involuntarily, whether by the Company or Executive:
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<PAGE> 5
(i) The Company shall pay Executive on the date of such
termination an amount equal to one hundred percent (100%) of Executive's
yearly Base Salary then in effect; and
(ii) All stock options granted by the Company to Executive under
Section 7 below shall become immediately vested and exercisable in
accordance with their terms.
To the extent that the Board votes to adopt any policies with respect to
so-called "golden parachutes" for senior executives, Executive shall have be
included under any such policies.
6.3 NO DUPLICATION. Notwithstanding anything to the contrary, if the
Executive first becomes entitled to payment pursuant to Section 6.2 above, such
payment shall be in lieu of all other payments he would have been entitled to
pursuant to this Agreement.
7. STOCK OPTIONS
7.1 GRANT. Subject to the conditions identified in Section 7.2 below,
HPI grants the Executive, pursuant to its Stock Option Plan, the following
options to purchase common stock of HPI, at the following strike price
(collectively the "Stock Options"): Fifty Thousand (50,000) shares of HPI's
common stock with a strike price of Four and Three-Eighths Dollars ($4 3/8) per
share. The Stock Options will not begin to vest and the Executive may not
exercise any of the Stock Options until twelve (12) months from the Effective
Date. However, as of the date of the expiration of such twelve (12) month
period, and on the same day of each of the following two years, the Stock
Options shall vest and become exercisable on a prorata basis, so that the
Executive is vested and is entitled to exercise one-third (1/3) of each of the
Stock Options on each such date. If not exercised prior thereto, the Stock
Options shall expire in their entirety on December 31, 2003. If a Change of
Control occurs during the Term, then all of the Stock Options shall vest
immediately and become immediately exercisable, irrespective of whether any of
the aforesaid Stock Option periods have matured.
7.2 TERMINATION OF EMPLOYMENT. (a) Upon the Executive's death, the
Executive's estate, personal representative or executor shall have the option
to exercise that number of vested options eligible for exercise pursuant to
Section 7.1 as of the date of the Executive's death. Such option must be
exercised within 90 days of the appointment of an executor or personal
representative of Executive's estate: (b) Except for those Stock Options which
are exercisable on an accelerated basis following the occurrence of a Change of
Control, if the Executive's employment is terminated other than for Cause, then
any Stock Options which are vested as of the date of the termination of
employment, shall be exercisable by the Executive within 90 days of the
termination of employment; (c) Except as specifically provided in this Section
7.2, upon termination of the Executive's employment any unvested Stock Options
shall terminate in their entirety and be of no further force or effect. If the
Executive's employment is terminated or Cause, he will forfeit all Stock
Options, whether or not vested.
5
<PAGE> 6
7.3 NON-ASSIGNABILITY. The Stock Options and related rights set forth
in this Agreement are personal to the Executive. The Executive therefore may
not assign, pledge, alienate, devise or in any other manner transfer
(voluntarily or involuntarily) all or any part of the Stock Options. The
Executive's attempt to do so shall be void ab initio, and shall be without
legal, beneficial or other effect and shall result in the complete termination
of all Stock Options of the Executive as well as the Executive's right to
exercise the same under this Agreement.
8. RESTRICTIVE COVENANTS
8.1 ACKNOWLEDGMENTS. Executive acknowledges that: (i) during the
course of his association and employment with the Company, and due to his
position, from time to time, as the Chief Executive Officer of the Company, he
will be in contact with suppliers and customers of the Company and will have
access to Greater Tamor's respective confidential and proprietary information
including without limitation, its properties, research and development,
accounts, books and records, sales, know-how, software, technology, inventions,
techniques, profits, products, customer lists, requirements, suppliers, cost
data, memoranda, devices, processes, methods, procedures, formulas, prices,
pricing and other corporate activities, whether or not in written form or
marked "Confidential", whether developed by Executive or others, which relate
to the business operations, research and development, engineering, products or
activities of the Company or Greater Tamor (collectively "Confidential
Information"); (ii) the Confidential Information constitutes trade secrets of
Greater Tamor, within the meaning of the applicable state trade secrets laws;
(iii) all documents, electronic, magnetic or other media and information which
concern the Confidential Information are highly confidential and also
constitute trade secrets as identified above; (iv) Greater Tamor has invested
and will continue to invest considerable sums of money to obtain and maintain
its Confidential Information; (v) Greater Tamor derives substantial economic
benefit due to the confidentiality of its Confidential Information and
inventions; (vi) Greater Tamor's competitors would obtain unfair economic and
competitive advantages of its Confidential Information or inventions were
divulged; (vii) Greater Tamor has instituted procedures to maintain the
confidentiality of its Confidential Information; and (viii) the Confidential
Information constitutes a highly significant factor in Greater Tamor's ability
to conduct its businesses profitably. The term "Confidential Information," with
respect to the Executive, shall include only that Confidential Information of
which the Executive has or should have knowledge.
8.2 NONDISCLOSURE. Recognizing that the disclosure or improper use of
Confidential Information will cause serious and irreparable injury to Greater
Tamor, Executive agrees that he will not at any time, before or for five (5)
years after the termination of his employment, directly or indirectly: (i)
disclose, divulge, alienate, transfer assign or sell Confidential Information
to any third party or otherwise use Confidential Information (not otherwise
excluded below) for his own benefit or the benefit of others unless previously
authorized, in writing, by Selfix to do so; (ii) attack, take any action or
fail to take any action which could vitiate any of Greater Tamor's rights,
titles or interests in any of its trade secrets, Confidential Information,
inventions or "Assigned Intellectual Property" (as defined in Section 9.1
below); or (iii) disassemble or reverse engineer
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<PAGE> 7
any of the Confidential Information, inventions or Assigned Intellectual
Property for himself or others.
8.3 NONSOLICITIATION. In order to protect the secrecy of the
Confidential Information and the goodwill associated with Greater Tamor's
relationship with its customers, the Executive covenants and agrees that,
during the Term and for a period of five (5) years following the termination of
his employment for any reason whatsoever, he will not, directly or indirectly,
through one or more intermediaries or affiliates or otherwise:
(i) solicit anyone who was a customer of Greater Tamor
during the term of Executive's employment with the Company with respect to
business which competes with the Business as it is then being conducted;
(ii) solicit any prospective customer of Greater Tamor with
whom Executive has contact during his employment with the Company during the
preceding twelve (12) months with respect to business which competes with the
Business as it is then being conducted; and/or
(iii) divert, take away, solicit or seek to induce employment
of any the employees of Greater Tamor or its Affiliates.
8.4 NON-COMPETITION. Executive, as part of the Acquisition and in
further consideration for his future employment with the Company, has entered
into a Non-Competition Agreement with Greater Tamor as of the same date as this
Agreement.
8.5 ENFORCEMENT OF COVENANTS. The parties have attempted to limit
Executive's rights to compete only to the extent necessary to protect Greater
Tamor from unfair competition. If, however, the restrictive covenants contained
in this Agreement are held to be unenforceable at any time, the parties
specifically direct the court, arbitrator or other trier of fact to modify and
enforce said covenants to the extent that it believes is reasonable under the
circumstances existing at that time, rather than deleting or rendering
unenforceable such restriction(s).
9. PROPERTY; INVENTIONS
9.1 ASSIGNMENT. Executive agrees that all discoveries, inventions,
ideas, concepts, research and other information, processes, products, methods
and improvements which are conceived, developed or otherwise made by him alone
or jointly with others during the Initial Term or any Renewal Term
(collectively, "INVENTIONS"), shall be the sole property of the Company.
Executive therefore grants, conveys, transfers, alienates and assigns
exclusively to the Company, for and throughout the world, in and for all
languages (including but not limited to computer languages and human languages,
whether now existing or subsequently developed during the Term) all rights,
titles and interests (legal, equitable, use or otherwise) which Executive has,
may have in the future or may have the right to claim now or in the future
acquired during the
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<PAGE> 8
Term (but not to exceed the Term plus a period of five (5) years after
termination of his employment), in all Inventions and related copyrights,
patents, trademarks, trade names and servicemarks (whether or not registered,
including all associated applications therefor and the right to file and
register the same in the Company's or any other name), modifications,
improvements, derivative works and/or other work which Executive conceives
solely or jointly with others (collectively the "ASSIGNED INTELLECTUAL
PROPERTY") which; (i) are related to any trade secrets, Confidential Information
or other proprietary materials of the Companies; (ii) are predicated upon or
relate to work Executive performs for Greater Tamor (whether or not done during
normal working hours); or (iii) Executive develops based on materials,
equipment, facilities or information Greater Tamor. The foregoing assignment by
Executive is under any and all foreign or domestic, federal, state or local
copyright, trade secret, intellectual property, patent or other laws, is
intended to be all inclusive and without reservation, and specifically includes
the right to sue for and collect and retain all damages associated with past,
present or future infringements of any or all of the Assigned Intellectual
Property.
9.2 NO RETAINED RIGHTS. Executive's assignment of the Assigned
Intellectual Property to the Company under this Agreement constitutes a
complete, absolute and exclusive transfer of all rights (legal, equitable, use
and otherwise) in the Assigned Intellectual Property. The Executive does not
reserve or retain any right, title or interest in any Assigned Intellectual
Property or any trade secrets, Confidential Information or related information
which concerns any Assigned Intellectual Property. Executive acknowledges and
agrees that the Assigned Intellectual Property constitutes the sole, exclusive
and confidential property of the Company. Executive shall disclose to the
Company, in full, accurate detail and in writing, all Inventions, derivative
works, improvements and/or developments (whether or not patentable,
copyrightable or otherwise protectable under law) which Executive makes or
assists in making either during the course of his employment with the Company
or that in any way concern, relate to or are based upon the Confidential
Information, Assigned Intellectual Property or any other trade secrets of
Greater Tamor, and acknowledges that the same constitutes the Greater Tamor's
sole property.
9.3 DUTY TO ASSIST. If at any time (during or after the Term)
Greater Tamor deems it necessary or appropriate, the Executive shall execute
and deliver any and all instruments and documents and shall provide such
assistance (including testifying in court or other judicial or administrative
proceeding) which Greater Tamor believes are reasonably necessary either to
evidence or register the assignment of rights made by the Executive in this
Agreement, or to apply for, obtain, register or enforce any copyright, patent
or trademark or otherwise protect or enforce Greater Tamor's interests therein,
provided, however, Executive shall not be required to warrant any intellectual
property or the value of Greater Tamor's interest therein. If assistance as
described in this Section is required of Executive after the Executive is no
longer employed by the Company, the Company shall reimburse Executive for
reasonable expenses associated with such assistance.
9.4 RETURN OF MATERIALS. If Executive ceases to be employed by the
Company, or at any other time upon request of Greater Tamor, he shall promptly
return to Greater Tamor any
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<PAGE> 9
records, disks, programs, software, agreements, books of account, corporate
memoranda, customer lists or other property which constitute or in any way
relate to Confidential Information or otherwise belong to Greater Tamor or its
customers. The Executive will not retain copies of the foregoing items (in hard
copy or electronically stored).
10. REMEDIES
Executive understands and agrees that his breach of any of the
provisions of Sections 8 or 9 will cause irreparable and continuing damage to
Greater Tamor, that Greater Tamor would not have any adequate remedy at law for
the material breach by Executive of any one or more of the covenants set forth
in this Agreement and that, in the event of any such material breach, in
addition to the other remedies which may be available. Selfix or the Company
may obtain an injunction, or other equitable relief, with bond, to enjoin
Executive from the breach of such covenants, including but not limited to the
right to obtain an immediate temporary restraining order. If Selfix or the
Company institutes legal action for injunctive or other relief as a result of
Executive's violation or breach of any of the provisions of Sections 8 or 9,
the parties agree, upon request of either party, to jointly ask the court to
have the matter then before such court order that the matter be submitted for
determination by arbitration in accordance with the commercial rules of the
American Arbitration Association to be conducted in Boston, Massachusetts. The
remedies described in this Section are in addition to, and not to the exclusion
of, any other damages Selfix or the Company may be able to prove. The Executive
agrees to indemnify and reimburse Greater Tamor for any and all costs,
expenses (including but not limited to attorney's fees), losses and damages
paid or incurred as a result of or arising from the Executive's breach of
Sections 8 or 9 of this Agreement, but only to the extent that Greater Tamor
prevails in any enforcement action taken against Executive in accordance with
this Section.
11. GENERAL PROVISIONS
11.1 GOVERNING LAW. The validity, interpretation, construction and
performance of this Agreement and the rights of the parties thereunder shall be
interpreted and enforced under Massachusetts law without reference to
principles of conflicts of laws.
11.2 ASSIGNMENT; SUCCESSORS; BINDING AGREEMENT. Executive may not
assign, pledge or encumber his interest in this Agreement or any part thereof
and may not delegate his duties hereunder. This Agreement shall be binding on
and inure to the benefit of Greater Tamor's successors and assigns; provided,
however that the Executive hereby releases Greater Tamor from any acts by any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) in breach or contravention of this Agreement. Subject to the
limitations imposed by Section 5, this Agreement shall inure to the benefit of
and be enforceable by Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributee, devises and legatees.
11.3 NO WAIVER OR FORBEARANCE OF BREACH. The waiver by any party of
the breach of
9
<PAGE> 10
any provision of this Agreement shall not be deemed to be a waiver of any
subsequent breach. Forbearance of any breach of this Agreement shall not
constitute acceptance or approval of that breach or of any future breach, nor
shall it prejudice Great Tamor's right to action in response to any breach.
11.4 NOTICE. For the purposes of this Agreement, notices and all
other communications provided for in this Agreement, shall be provided by all
parties of this Agreement in writing: by (I) actual delivery of the notice into
the hands of the party entitled to receive it, (ii) by mailing the notice by
registered or certified mail, return receipt requested, in which case the
notice shall be deemed to be given two (2) days following on the date of its
mailing; (iii) by Federal Express or other overnight carrier, in which case the
notice shall be deemed to be given on the day following delivery into the hands
of such carrier; or (iv) by facsimile, in which case notice shall be deemed
given on the day sent. Each such notice shall be addressed as follows:
<TABLE>
<CAPTION>
<S> <C>
If to Selfix If to the Executive
------------------ -------------------
Selfix, Inc. Leonard Tocci
Attn: Chief Executive Officer c/o Tamor Plastics Corp.
4501 W. 47th Street P.O. Box 1186
Chicago, IL 60632 Leominster, MA 01453
Fax: (773) 890-0523 Fax: (508) 534-6772
With a copy to: With a copy to:
Much Shelist Freed Denenberg Roncone Law Offices
Ament Bell & Rubenstein, P.C. Attn: John Roncone
Attn: Jeffrey C. Rubenstein 142 Main Street
200 North LaSalle Street Leominster, MA 01453
Chicago, IL 60601-1095 Fax: (508) 840-6000
Fax: (312) 621-1750
</TABLE>
11.5 MODIFICATION; WAIVER; ENTIRE AGREEMENT. No provisions of this
Agreement may be modified, waived or discharged unless such waiver,
modification or discharge is agreed to in a writing signed by Executive and the
CEO. No waiver by either party hereto at any time of any breach by the other
party of, or compliance with, any condition or provision of this Agreement to
be performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or any prior or subsequent
time. No agreements or representations, oral or otherwise, express or implied,
with respect to the subject matter hereof have been made by either party which
are not expressly set forth in this Agreement.
11.6 VALIDITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall
10
<PAGE> 11
remain in full force and effect.
11.7 CONTROLLING DOCUMENT. This Agreement supersedes and replaces
any prior employment agreements between the Company and the Executive.
11.8 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
11.9 GUARANTY. Provided Executive is not in default under this
Agreement, HPI guarantees to Executive the prompt performance of this
Agreement.
11.10 INDEMNIFICATION/DIRECTORS AND OFFICERS INSURANCE. The Company
shall indemnify the Executive and hold him harmless for all acts or decisions
made by him in good faith while performing services for the Company. The
Company shall also use its best efforts to obtain coverage for him under any
insurance policy now in force or hereinafter obtained during the term of this
Agreement covering the other Officers and Directors of the Company against
lawsuits. The Company shall pay for all expenses including attorney's fees,
actually and necessarily incurred by the Executive in connection with the
defense of such act, suit or proceeding covered by this indemnification and in
connection with any related appeal, including the cost of court settlements.
SELFIX, INC. TAMOR CORPORATION,
By: /s/ James D. Tennant By: /s/Richard M. Tocci
------------------------- ----------------------------
Its: Chairman and CEO It: Treasurer
------------------------- ----------------------------
/s/ Leonard J. Tocci HOME PRODUCTS INTERNATIONAL, INC.
- ------------------------------
Leonard J. Tocci,Individually
By: James D. Tennant
-----------------------------
Its: Chairman and CEO
-----------------------------
11
<PAGE> 12
NON-COMPETITION AGREEMENT
THIS AGREEMENT is made as of the 27th day of February, 1997, by and
among SELFIX, INC., a Delaware corporation with its principal place of business
at 4501 W. 47th Street, Chicago, Illinois 60632 ("SELFIX"), TAMOR PLASTICS
CORP., a Massachusetts corporation ("TAMOR") and LEONARD J. TOCCI, now residing
at Leominster Mass ("LEONARD").
RECITALS
A. Selfix is engaged in the business of manufacturing and distributing
housewares, bathwares, storage products and systems, children's products and
other items.
B. Tamor is also engaged in the business of manufacturing and
distributing housewares, bathwares and storage products.
C. Housewares Sales, Inc. ("HOUSEWARES"), a Massachusetts corporation,
is engaged in the business of marketing and selling housewares, bathwares and
storage products, which products are primarily manufactured by Tamor.
Housewares is owned by Leonard and his family.
D. The business of Tamor and Housewares, together with any business
conducted jointly by Tamor, Housewares and/or Selfix in which Leonard may be
involved during his employment by Tamor (as described below), and any business
involving Selfix products which may be marketed or used by Tamor shall be
referred to as the "BUSINESS".
E. Simultaneous with the execution of this Agreement, Selfix is
purchasing all of the equity of Tamor and is merging Housewares with and into
Selfix (collectively the "TRANSACTIONS").
F. Leonard is presently employed as the Chairman and Chief Executive
Officer of Tamor and President of Housewares. In light of Leonard's experience
in managing and expanding the business of Tamor and creating its products,
Selfix desires that Tamor continue to employ Leonard in the same capacity as he
is presently employed.
<PAGE> 13
G. In recognition of the acknowledged importance and sensitivity of
the confidential information to which Leonard has access and the legitimate
need of Tamor to protect and enjoy its goodwill and customer relationships,
Selfix was not willing to consummate the Transactions without the protection
against unfair competition this Agreement affords.
H. Leonard has agreed that during the term of his employment and
following his termination of employment with Tamor (or Selfix or any affiliated
entity conducting or operating the Business) for any reason, with or without
cause, he will not engage in any business which competes with the Business
pursuant to the terms of this Agreement.
CLAUSES
1. NOW, THEREFORE, in consideration of the premises and the following
covenants and agreements, the parties agree as follows:
ACKNOWLEDGEMENTS. Leonard acknowledges and agrees that: (i) he has
been an officer, director, shareholder and an employee of Tamor and Housewares
for a number of years; (ii) the past and future services rendered, or to be
rendered, by Leonard to Tamor and Housewares were and are of extraordinary
merit and constitute a necessary and valuable contribution to the general
growth and development of Tamor; (iii) during the course of his employment with
and relationship to Tamor and Housewares, he has and may acquire special
knowledge of their relationships and business techniques, internal business
organization, financial data, marketing plans, intellectual property and other
proprietary matters; and (iv) Selfix would not be willing to consummate the
Transactions without the protection against unfair competition this Agreement
affords.
2. RESTRICTIONS ON COMPETITION. During the term of his employment
with Tamor (or Selfix or any affiliate of Selfix conducting or operating the
Business, any such entity, together with Tamor is referred to as "Greater
Tamor"), and for a period of five (5) years following the termination of
Leonard's employment with Tamor, for any reason (the "RESTRICTIVE PERIOD"),
Leonard shall not directly or indirectly, own, manage, operate, control,
2
<PAGE> 14
be employed by, participate in, or be connected in any manner with the
ownership (except for minor ownership in a public company), management,
operation, or control of any business (i) which is located within any state or
country in which Greater Tamor does business, and (ii) which competes with the
Business or Greater Tamor. Leonard agrees that his breach of any of the
covenants contained in this Section 2 will result in irreparable harm and
continuing damages to Greater Tamor and the Business and that Greater Tamor's
remedy at law for any such breach or threatened breach will be inadequate and,
accordingly, in addition to such other remedies as may be available to Greater
Tamor at law in equity in such event, any court of competent jurisdiction may
issue a decree of specific performance and a temporary or permanent injunction,
with bond, enjoining and restricting the breach, or threatened breach, of any
such covenant. If Greater Tamor institute legal action for injunctive or other
relief as a result of Leonard's violation or breach of any restrictive
covenants in Section 2 of this Agreement, the parties agree, upon request of
either party, to jointly ask the relevant court of competent jurisdiction to
have the matter then before such court order that the matter be submitted for
determination by arbitration in accordance with the commercial rules of the
American Arbitration Association to be conducted in Boston, Massachusetts.
Furthermore, Greater Tamor may seek any and all other remedies to which it may
be entitled.
3. NON-SOLICITATION. During the Restrictive Period, Leonard will
not, directly or indirectly, through one or more intermediaries or affiliates
or otherwise:
(i) solicit anyone who was a customer of
Greater Tamor during the term of Leonard's employment
with Greater Tamor with respect to business which
competes with the Business as it is then being
conducted;
(ii) solicit any prospective customer of
Greater Tamor with whom Leonard has contact during his
employment with Greater Tamor during the preceding
twelve (12) months with respect to business which
competes with the Business as it is then being
conducted; and/or
(iii) divert, take away, solicit or seek to
induce employment of any of the employees of Greater
Tamor.
3
<PAGE> 15
4. CONSIDERATION. In consideration of Leonard's agreement to not
compete as set forth in this Agreement, Selfix agrees to pay or cause Tamor to
pay to Leonard the sum of Fifty Thousand Dollars ($50,000.00) at the closing of
the Transactions.
5. UNENFORCEABLE PROVISION. If any court of competent jurisdiction
shall determine that any of the restrictions contained in Section 2 or 3 hereof
are unreasonable, invalid or unenforceable, it is the intention of the parties
that the restrictive covenant shall not be terminated or invalidated, but shall
be deemed amended to the extent required to render it reasonable, valid or
enforceable, such amendment to apply only with respect to the operation of
Section 2 or 3 hereof in the jurisdiction of the court which has made such
adjudication.
6. SEVERABILITY. If a court of competent jurisdiction rules that
any one or more of this Agreement's provisions are invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any of this Agreement's other provisions, and this Agreement
shall be construed as if it has never contained such invalid, illegal or
unenforceable provision.
7. ATTORNEY'S FEES AND COSTS. In any dispute under this Agreement
brought before a court of competent jurisdiction, the prevailing party shall
pay to the non-prevailing party the reasonable attorney's fee and costs
incurred by such party.
8. NO ASSIGNMENT. Leonard shall not have the right to assign this
Agreement or any of his rights or obligations hereunder to another party or
parties without the written consent of Selfix. Selfix may assign this Agreement
and any of its rights or obligations hereunder to any of its affiliates or
successor entities as part of any reorganization or as part of the sale or
transfer of assets (by merger or otherwise) to which this Agreement pertains.
9. APPLICABLE LAW. The laws of the Commonwealth of Massachusetts
shall govern the interpretation of this Agreement, irrespective of the fact
that one or more of the parties now or may become a resident of a different
jurisdiction.
4
<PAGE> 16
10. NO WAIVER. No waiver by Greater Tamor of Leonard's breach of
any covenant or obligation hereof shall be considered to be a continuing waiver
of any such covenant or provision, or a waiver of any other or future breach
thereof.
11. NOTICE. For the purposes of this Agreement, notices and all
other communications provided for in this Agreement, shall be provided by all
parties of this Agreement in writing: by (i) actual delivery of the notice into
the hands of the party entitled to receive it, (ii) by mailing the notice by
registered or certified mail, return receipt requested, in which case the
notice shall be deemed to be given two (2) days following on the date of its
mailing; (iii) by Federal Express or other overnight carrier, in which case the
notice shall be deemed to be given on the day following delivery into the hands
of such carrier; or (iv) by facsimile, in which case notice shall be deemed
given on the day sent. Each such notice shall be addressed as follows:
If to Selfix or Tamor: If to Leonard:
Selfix, Inc. Leonard J. Tocci
Attention: James D. Tennant c/o Tamor Plastics Corp.
4501 W. 47th Street 106 Carter Street
Chicago, IL 60632 Leominster, MA 01453
With a copy to: With a copy to:
Much Shelist Freed Denenberg Bodanza & Bodanza
Ament Bell & Rubenstein, P.C. Attn: Mark C. Bodanza
Attn: Jeffrey C. Rubenstein 36 School Street
200 North LaSalle Street Leominster, MA 01453
Suite 2100
Chicago, IL 60601-1095
Fax: (312) 621-1750
12. TERMINATION IN THE EVENT OF FILING UNDER CHAPTER 7. In the
event that Selfix, the Company or the parent of Selfix files a petition for
liquidation under Title 7 of the Bankruptcy Code, or has a petition for
liquidation under such title filed involuntarily against it, then Leonard shall
be released from all obligations under this Agreement.
5
<PAGE> 17
13. COMPLETE UNDERSTANDING. This Agreement contains all of the
agreements and understandings between the parties hereto with respect to the
restrictive covenant, and no oral agreements or written correspondence shall be
held to affect the provisions hereof. All subsequent changes and modifications,
to be valid, shall be by written instrument executed by Tamor, Selfix and
Leonard.
LEONARD J. TOCCI, individually SELFIX, INC., a Delaware corporation
Leonard J. Tocci by: James R. Tennant
- ----------------------------- --------------------------------
James R. Tennant, President
TAMOR PLASTICS CORP., a Massachusetts
corporation
By: James R. Tennant
-------------------------------
Its: Chairman
-------------------------------
6
<PAGE> 1
EXHIBIT 10.15
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "AGREEMENT"), dated as of February 26th,
1997, is made by and between Selfix, Inc., a Delaware corporation ("SELFIX"),
Tamor Corporation, a Massachusetts corporation (the "COMPANY"), Home Products
International, Inc., ("HPI"), the parent corporation of Selfix, and Richard M.
Tocci of Leominster, Massachusetts (the "EXECUTIVE"). Selfix, the Company, and
any subsidiaries of Selfix and the Company are collectively hereinafter
referred to as the "COMPANIES". In such case as Selfix and its subsidiaries are
reorganized into a holding company structure, all references to Selfix in this
Agreement shall also be construed to refer to Selfix's parent company.
RECITALS:
A. The Company is engaged in the business of designing,
manufacturing, importing, marketing and distributing bathware and houseware
related products (the "BUSINESS").
B. Selfix, concurrently with the execution of this Agreement, is
purchasing all the equity in the Company (the "ACQUISITION").
C. Selfix desires for the Executive to continue his employment
with the Company after the Acquisition, and the Executive is willing to
continue such employment.
D. Executive has had and will continue to have access to the
Company's confidential and proprietary information and will have access in the
future to confidential and proprietary information of the Companies. In order
to protect the Companies from unfair competition by the Executive associated
with his relationship with the Companies, customers and his access to
confidential and proprietary information, the Companies and the Executive wish
to set forth in this Agreement certain restrictive covenants to be adhered to
by the Executive.
CLAUSES:
In consideration of the foregoing, as well as the mutual covenants and
promises set forth herein, the parties agree as follows:
1. EMPLOYMENT AND TERM. The Company hereby employs Executive to
serve as the Vice President, Operations, of the Company and Executive hereby
accepts such employment. Unless earlier terminated in accordance with this
Agreement, the term of this Agreement will begin on the date of this Agreement
("EFFECTIVE DATE") and will continue for a period of two (2) years (the
"INITIAL TERM"). Unless the Company or the Executive notifies the other party
of its intention to terminate the Term of employment at least sixty days before
the expiration of the Term, Executive's term of employment with the Company
shall thereafter be extended for a period of one year. Each one year extension
shall be referred to as a "RENEWAL TERM". Executive and Selfix agree to
negotiate Executive's employment arrangements following the Initial Term at
least six (6) months before the end of the Initial Term. The Executive' actual
term of employment with the Company under this Agreement, inclusive of the
Initial Term and any Renewal Term, or any shorter period, shall be referred to
as the "TERM."
<PAGE> 2
2. EMPLOYMENT DUTIES.
2.1 TITLE/RESPONSIBILITIES. The Executive shall perform his duties
as Vice President, Operations, of the Company, which duties shall include the
normal and customary duties of such office and such other duties as may be
assigned to him by the Company's Chief Executive Officer (the "CEO") or the
Chief Executive Officer of Selfix (the "Selfix CEO"). The Executive shall report
to the CEO and perform such duties as directed by the CEO, and provide the CEO
with periodic reports upon request. Executive shall at all times discharge his
duties in consultation with and subject to the general direction and reasonable
control of the CEO.
2.2 FULL TIME AND ATTENTION. Executive shall devote his exclusive
and full time attention, energy and skills to the performance of his duties as
Vice President, Operations, of the Company, but nothing in this Agreement shall
preclude Executive from engaging in charitable and community affairs, provided
that such activities do not interfere with the performance of his duties or
responsibilities under this Agreement.
2.3 OFFICE LOCATION. Executive shall be located in the Leominster,
Massachusetts metropolitan area, unless he otherwise consents.
3. COMPENSATION.
3.1 BASE SALARY. During the Initial Term, Executive shall receive
an annual base salary ("BASE SALARY") of One Hundred Seventy-Eight Thousand
Dollars ($178,000), payable in accordance with the Company's payroll practices
for executive employees (reduced solely by all applicable payroll and
withholding taxes and other legal garnishments). The CEO shall undertake
periodic performance reviews of Executive and the CEO may, with appropriate
Selfix CEO approval, adjust Base Salary to reflect Executive's performance
and/or the financial position of the Company, provided, however, the Base
Salary shall not be less than One Hundred Seventy-Eight Thousand Dollars
($178,000).
3.2 BONUS. In addition to the Base Salary, Executive shall be
eligible to participate in the Company's senior management bonus program, which
program shall be substantially similar to that of the Companies' for its
senior management.
4. EXPENSE ALLOWANCES AND FRINGE BENEFITS.
4.1 VACATION. Executive shall be entitled to vacation in accordance
with the Company's vacation policy for senior executives which policy shall be
substantially similar to that of the Companies for its executives, provided,
however, Executive shall be entitled to a minimum of five (5) weeks paid
vacation each year during the Term.
4.2 EMPLOYMENT BENEFIT PLANS. Executive will be entitled to
participate in the employee and executive benefit plans the Company now or
hereafter makes available to executives and/or other salaried employees,
including, without limitation, retirement plans, group life insurance,
hospitalization, surgical and major medical, including salary continuation
arrangements in the event of long-term disability, vacations and holidays and
other fringe benefits, in accordance with the terms of such plans and subject
to eligibility and vesting requirements in effect from time to time, provided
however, that nothing herein shall require the Company to create or continue
any such plan or benefit. It is intended that all such benefits and plans be
<PAGE> 3
substantially similar to benefits and plans made available to the Companies'
executives.
4.3 BUSINESS EXPENSE REIMBURSEMENT. The Company shall reimburse
Executive for all reasonable and proper expenses incurred by him in executing
his duties for the Company. Reimbursement shall be conditioned upon Executive's
compliance with all policies adopted by the Company regarding expense
reimbursement including, without limitation, regarding, the documentation and
timely submission of such expenses. The Company shall also provide the
Executive with the use of the Company automobile which he presently is using,
and any comparable replacement at such times as the Company's policy provides.
5. TERMINATION.
5.1 DEATH. In the event of the death of the Executive during the Term
of this Agreement, this Agreement shall terminate in its entirety, provided,
however, that all amounts which accrued to Executive prior to the date of his
death shall be paid to his estate in accordance with the Company's standard
payroll practice.
5.2 DISABILITY. In the event the Executive becomes "DISABLED" (defined
below) for a period of 90 consecutive days, or for 120 days (irrespective or
whether such days are consecutive) during any six-month period, the Company
may, at its option, terminate the Executive's employment. Such option shall be
exercised by the Company giving notice to Executive of its intention to
terminate Executive's employment, to be effective on the date set forth in the
notice, which in no event shall be less than 30 days after the date of the
notice.
For purposes of this Agreement, Executive shall be deemed to have
become "DISABLED" if, because of physical or mental disability or drug or
alcohol dependency or abuse he shall have been unable to perform his duties
hereunder. So long as this Agreement is in effect, and during such period in
which he is Disabled, Executive shall be entitled to all compensation,
benefits, rights and entitlements under this Agreement; provided, however,
Compensation shall be reduced by the amount of any disability benefits which
Executive receives from Company sponsored disability plans.
5.3 TERMINATION BY THE COMPANY FOR CAUSE. The Company shall have the
option of terminating Executive's employment immediately for "Cause" (as
defined below). The term "CAUSE", as used herein, shall mean (a) dishonesty,
fraud, embezzlement, theft, conviction of a felony or any crime involving moral
turpitude, (b) gross dereliction or gross neglect of duties hereunder, or a
material breach of Sections 8 or 9 of this Agreement, (c) willful refusal to
perform the duties hereunder, or (d) willful misconduct materially and
demonstrably injurious to Selfix or the Company.
5.4 VOLUNTARY TERMINATION BY EXECUTIVE. Executive may terminate this
Agreement prior to the end of the Term upon ninety (90) days prior written
notice to the Company, in which event the Company shall be obligated only to
pay him his total remuneration and other applicable benefits described in
Sections 3.1 and 4 up to the date of termination set forth in a notice of
termination given to the Company.
5.5 TERMINATION IN THE EVENT OF FILING UNDER CHAPTER 7. In the event
that the Company or Selfix files a petition for liquidation under Chapter 7 of
the U.S. Bankruptcy Code, or has a petition for liquidation under such Chapter
filed involuntarily against it, then Executive
<PAGE> 4
shall be released from all obligations under this Agreement. In addition, if
the Company is in Chapter 11 reorganization, Executive shall be released from
all obligations under the Agreement if his compensation and benefits under the
plan of reorganization is not equivalent to his compensation and benefits under
this Agreement.
6. CHANGE OF CONTROL.
6.1 DEFINITIONS. For purposes of this Agreement, a "CHANGE OF CONTROL"
shall have occurred if any person or group (as defined in Section 13(d) of the
Security Act of 1934) other than the Ragir family or their affiliates
(including, without limitation, trust for their benefit or private foundations
established by them) or Selfix's parent (by virtue of a corporate
reorganization) becomes the beneficial owner of shares of stock in Selfix
representing fifty percent (50%) or more of the total number of voting shares
that may be cast for election of directors of Selfix.
6.2 TERMINATION FOLLOWING CHANGE OF CONTROL. In the event Executive's
active full-time employment with the Company terminates within one hundred
eighty (180) days after a Change of Control, either voluntarily or
involuntarily, whether by the Company or Executive, the Company shall pay
Executive on the date of such termination an amount equal to one hundred
percent (100%) of Executive's yearly base Salary then in effect.
6.3 NO DUPLICATION. Notwithstanding anything to the contrary, if the
Executive first becomes entitled to payment pursuant to Section 6.2 above, such
payment shall be in lieu of all other payments he would have been entitled to
pursuant to this Agreement.
7. RESTRICTIVE COVENANTS.
7.1 ACKNOWLEDGEMENTS. Executive acknowledges that: (i) during the
course of his association and employment with the Company, and due to his
position, from time to time, as the Vice President, Operation, of the Company,
he will be in contact with suppliers and customers of the Companies and will
have access to the Companies and their affiliates' respective confidential and
proprietary information including without limitation, its properties, research
and development, accounts, books and records, sales, know-how, software,
technology, inventions, techniques, profits, products, customer lists,
requirements, suppliers, cost data, memoranda, devices, processes, methods,
procedures, formulas, prices, pricing and other corporate activities, whether
or not in written form or marked "Confidential", whether developed by Executive
or others, which relate to the business operations, research and development,
engineering, products or activities of the Companies or their affiliates
(collectively "CONFIDENTIAL INFORMATION"); (ii) the Confidential Information
constitutes trade secrets of the Companies, within the meaning of the
applicable state trade secrets laws; (iii) all documents, electronic, magnetic
or other media and information which concern the Confidential Information are
highly confidential and also constitute trade secrets as identified above; (iv)
the Companies have invested and will continue to invest considerable sums of
money to obtain and maintain its Confidential Information; (v) the Companies
derive substantial economic benefit due to the confidentiality of their
Confidential Information and inventions; (vi) the Companies' competitors would
obtain unfair economic and competitive advantages if its Confidential
Information or inventions were divulged; (vii) the Companies have instituted
procedures to maintain the confidentiality of its Confidential Information; and
(viii) the Confidential Information constitutes a highly significant factor in
the Companies' ability to conduct its businesses profitably. The term
"Confidential Information,"
<PAGE> 5
with respect to the Executive, shall include only that Confidential Information
of which the Executive has or should have knowledge.
7.2 NONDISCLOSURE. Recognizing that the disclosure or improper use of
Confidential Information will cause serious and irreparable injury to the
Companies, Executive agrees that he will not at any time, before or for
eighteen (18) months after the termination of his employment, directly or
indirectly; (i) disclose, divulge, alienate, transfer assign or sell
Confidential Information to any third party or otherwise use Confidential
Information (not otherwise excluded below) for his own benefit or the benefit
of others unless previously authorized, in writing, by Selfix to do so; (ii)
attack, take any action or fail to take any action which could vitiate any of
the Companies' rights, titles or interests in any of its trade secrets,
Confidential Information, inventions or "Assigned Intellectual Property" (as
defined in Section 8.1 below); or (iii) disassemble or reverse engineer any of
the Confidential Information, inventions or Assigned Intellectual Property for
himself or others.
7.3 NONSOLICITATION. In order to protect the secrecy of the
Confidential Information and the goodwill associated with the Companies'
relationship with its customers, the Executive covenants and agrees that,
during the Term and for a period of eighteen (18) months following the
termination of his employment for any reason whatsoever, he will not, directly
or indirectly, through one or more intermediaries or affiliates or otherwise:
(i) solicit anyone who was a customer of the Companies during the
term of Executive's employment with the Company with respect to business
which competes with the Company's Business as it is then being
conducted;
(ii) solicit any prospective customer of the Companies with whom
Executive has contact during his employment with the Company during the
preceding twelve (12) months with respect to business which competes
with the Business as it is then being conducted; and/or
(iii) divert, take away, solicit or seek to induce employment of
any of the employees of the Companies or their affiliates.
7.4 NON-COMPETITION. Executive, as part of the Acquisition and in
further consideration for his future employment with the Company, has entered
into a NonCompetition Agreement with the Companies as of the same date as this
Agreement.
7.5 ENFORCEMENT OF COVENANTS. The parties have attempted to limit
Executive's rights to compete only to the extent necessary to protect the
Companies from unfair competition. If, however, the restrictive covenants
contained in this Agreement are held to be unenforceable at any time, the
parties specifically direct the court, arbitrator or other trier of fact to
modify and enforce said covenants to the extent that it believes is reasonable
under the circumstances existing at that time, rather than deleting or
rendering unenforceable such restriction(s).
8. PROPERTY: INVENTIONS.
8.1 ASSIGNMENT. Executive agrees that all discoveries, inventions,
ideas, concepts, research and other information, processes, products, methods
and improvements (collectively
<PAGE> 6
"INVENTIONS") which are conceived, developed or otherwise made by him alone or
jointly with others during the Initial Term or/any Renewal Term and that relate
to the Business shall be the sole property of the Company. Executive therefore
grants, conveys, transfers, alienates and assigns exclusively to the company,
for and throughout the world, in and for all languages (including but not
limited to computer languages and human languages whether now existing or
subsequently developed during the Term) all rights, titles and interests
(legal, equitable, use or otherwise) which Executive has, may have in the
future or may have the right to claim now or in the future, in all Inventions,
copyrights, patents, trademarks, trade names and servicemarks (whether or not
registered, including all associated applications therefor and the right to
file and register the same in the Company's or any other name), modifications,
improvements, derivative works and/or other work which Executive conceives
solely or jointly with others (collectively the "ASSIGNED INTELLECTUAL
PROPERTY") which: (i) are related to any trade secrets, Confidential
Information or other proprietary materials of the Companies; (ii) relate to
work Executive performs for the Companies (whether or not done during normal
working hours); or (iii) Executive develops based on materials, equipment,
facilities or information of the Companies. The foregoing assignment by
Executive is under any and all foreign or domestic, federal, state or local
copyright, trade secret, intellectual property, patent or other laws, is
intended to be all inclusive and without reservation, and specifically includes
the right to sue for and collect and retain all damages associated with past,
present or future infringements of any or all of the Assigned Intellectual
Property.
8.2 NO RETAINED RIGHTS. Executive's assignment of the Assigned
Intellectual Property to the Company under this Agreement constitutes a
complete, absolute and exclusive transfer of all rights (legal, equitable, use
and otherwise) in the Assigned Intellectual Property. The Executive does not
reserve or retain any right, title or interest in any Assigned Intellectual
Property or any trade secrets, Confidential Information or related information
which concerns any Assigned Intellectual Property. Executive acknowledges and
agrees that the Assigned Intellectual Property constitutes the sole, exclusive
and confidential property of the Companies. Executive shall disclose to the
Companies, in full, accurate detail and in writing, all Inventions, derivative
works, improvements and/or developments (whether or not patentable,
copyrightable or otherwise protectable under law) which Executive makes or
assists in making either during the course of his employment with the Company
or that in any way concern, relate to or are based upon the Confidential
Information, Assigned Intellectual Property or any other trade secrets of the
Companies, and acknowledges that the same constitutes the Companies' sole
property.
8.3 DUTY TO ASSIST. If at any time (during or after the Term) the
Companies deems it necessary or appropriate, the Executive shall execute and
deliver any and all instruments and documents and shall provide such assistance
(including testifying in court or other judicial or administrative proceeding)
which the Companies believes are reasonably necessary either to evidence or
register the assignment of rights made by the Executive in this Agreement, or
to apply for, obtain, register or enforce any copyright, patent or trademark or
otherwise protect or enforce the Companies' interests therein; provided,
however, that Executive shall not be required to warrant any intellectual
property or the nature of the Companies' interest therein and, should his
assistance be required subsequent to the Term, Executive shall be reimbursed
for reasonable expenses associated with such assistance.
8.4 RETURN OF MATERIALS. If Executive ceases to be employed by the
Company, or at any other time upon request of the Companies, he shall promptly
return to the Companies any records, disks, programs, software, agreements,
books of account, corporate memoranda,
<PAGE> 7
customer lists or other property which constitute or in any way relate to
Confidential Information or otherwise belong to the Companies or their
customers. The Executive will not retain copies of the foregoing items (in hard
copy or electronically stored).
9. REMEDIES
9.1 EQUITABLE AND OTHER RELIEF. Executive understands and agrees that his
breach of an of the provisions of Sections 7 and 8 will cause irreparable and
continuing damage to the Companies, that the Companies would not have any
adequate remedy at law for the material breach by Executive of any one or more
of the covenants set forth in this Agreement and that, in the event of any such
material breach, in addition to the other remedies which may be available,
Selfix or the Company may obtain an injunction, or other equitable relief to
enjoin Executive from the breach or threatened breach of such covenants,
including but not limited to the right to obtain an immediate temporary
restraining order. Such remedies are in addition to, and not to the exclusion
of, any other damages Selfix or the Company may be able to prove. The Executive
agrees to indemnify and reimburse the Companies for any and all costs, expenses
(including but not limited to attorney's fees, whether or not a lawsuit is
filed), losses and damages paid or incurred as a result of or arising from the
Executive's breach of Sections 7 or 8 of this Agreement, but only to the extent
that the Companies prevail in any enforcement action taken against Executive in
accordance with this Section.
9.2 ARBITRATION. Should either party elect to submit any dispute
hereunder to arbitration, then such party shall notify the other party as to
the demand for arbitration pursuant to the rules of the American Arbitration
Association ("AAA"). Such dispute shall then be determined by binding
arbitration in Boston, Massachusetts, in accordance with the commercial rules
of the AAA.
10. GENERAL PROVISIONS
10.1 GOVERNING LAW. The validity, interpretation, construction and
performance of this Agreement and the rights of the parties thereunder shall be
interpreted and enforced under Massachusetts law without reference to
principles of conflicts of laws.
10.2 ASSIGNMENTS; SUCCESSORS: BINDING AGREEMENT. Executive may not assign,
pledge or encumber his interest in this Agreement or any part thereof and may
not delegate his duties hereunder. This Agreement shall be binding on and inure
to the benefit of the Companies' successors and assigns. This Agreement shall
inure to the benefit of and be enforceable by Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributee,
devisees and legatees. The obligations of the Executive shall be released if
any of the Companies shall fill a bankruptcy petition or assignment for the
benefit of creditors that results in liquidation or adversely affects the
Executive's wages or benefits hereunder.
10.3 NO WAIVER OR FORBEARANCE OF BREACH. The waiver by any party of the
breach of any provision of this Agreement shall not be deemed to be a waiver of
any subsequent breach. Forbearance of any breach of this Agreement shall not
constitute acceptance or approval of that breach or of any future breach, nor
shall it prejudice the Companies' right to action in response to any breach.
10.4 NOTICE. For the purposes of this Agreement, notices and all other
communications
<PAGE> 8
provided for in this Agreement, shall be provided by all parties of this
Agreement in writing: by (i) actual delivery of the notice into the hands of
the party entitled to receive it; (ii) by mailing the notice by registered or
certified mail, return receipt requested, in which case the notice shall be
deemed to be given two (2) days following on the date of its mailing; (iii) by
Federal Express or other overnight carrier, in which case the notice shall be
deemed to be given on the day following delivery into the hands of such
carrier; or (iv) by facsimile, in which case notice shall be deemed given on
the day sent. Each such notice shall be addressed as follows:
If to Selfix: If to the Executive:
Selfix, Inc. Richard Tocci
Attn: Chief Executive Officer c/o Tamor Plastics Corp.
4501 W. 47th Street P.O. Box 1186
Chicago, IL 60632 Leominster, MA 01453
Fax: (773) 890-0523 Fax: (508) 534-6772
With a copy to: With a copy to:
Much Shelist Freed Denenberg Bodanza & Bodanza
Ament Bell & Rubenstein, P.C. Attn: Mark Bodanza
Attn: Jeffrey C. Rubenstein 36 School Street
200 North LaSalle Street Leominster, MA 01453
Chicago, IL 60601-1095 Fax: (508) 840-1222
Fax: (312) 621-1750
10.5 MODIFICATION; WAIVER; ENTIRE AGREEMENT. No provisions of this
Agreement may be modified, waived or discharged unless such waiver,
modification or discharge is agreed to in a writing signed by Executive and
such officer as may be specifically designated by the Board. No waiver by
either party hereto at any time of any breach by the other party of, or
compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or any prior or subsequent time. No
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party which are
not expressly set forth in this Agreement.
10.6 INDEMNIFICATION/DIRECTORS AND OFFICERS INSURANCE. The Company
shall indemnify the Executive and hold him harmless for all acts or decisions
made by him in good faith while performing services for the Company. The
Companies shall also use their best efforts to obtain coverage for him under
any insurance policy now in force or hereinafter obtained during the term of
this Agreement covering the other Officers and Directors of the Companies
against lawsuits. The Company shall pay for all expenses including attorney's
fees, actually and necessarily incurred by the Executive in connection with
the defense of such act, suit or proceeding covered by this indemnification and
in connection with any related appeal, including the cost of court settlements.
10.7 VALIDITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
10.8 CONTROLLING DOCUMENT. This Agreement supersedes and replaces any
prior
<PAGE> 9
employment agreements between the Company and the Executive.
10.9 GUARANTY. Provided Executive is not in default under this
Agreement, HPI guarantees to Executive the prompt performance of this
Agreement.
10.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
SELFIX, INC. TAMOR CORPORATION,
BY: /s/ James R. Tennant BY: /s/ Leonard J. Tocci
- ------------------------------ ---------------------------------
Its: Chairman & CEO Its: CEO
- ------------------------------ ---------------------------------
/s/ Richard M. Tocci HOME PRODUCTS INTERNATIONAL, INC.
- ------------------------------
Richard M. Tocci, Individually
BY: /s/ James R. Tennant
---------------------------------
Its: Chairman & CEO
---------------------------------
<PAGE> 10
NON-COMPETITION AGREEMENT
THIS AGREEMENT is made as of the 26th day of February, 1997, by and
among SELFIX, INC., a Delaware corporation with its principal place of business
at 4501 W. 47th Street, Chicago, Illinois 60632 ("SELFIX"), TAMOR CORPORATION,
a Massachusetts corporation ("TAMOR") and RICHARD M. TOCCI, now residing
at ("RICHARD"). In such case as Selfix and its
subsidiaries are reorganized into a holding company structure, all references
to Selfix in this Agreement shall also be construed to refer to Selfix's parent
company.
RECITALS
A. Selfix is engaged in the business of manufacturing and
distributing housewares, bathwares, storage products and systems, children's
products and other items.
B. Tamor is also engaged in the business of manufacturing and
distributing housewares, bathwares and storage products.
C. Housewares Sales, Inc. ("HOUSEWARES"), a Massachusetts
corporation, is engaged in the business of marketing and selling housewares,
bathwares and storage products, which products are primarily manufactured by
Tamor.
D. The business of Tamor and Housewares, together with any
business conducted jointly by Tamor, Housewares and/or Selfix, and any business
involving Selfix products which may be marketed or used by Tamor shall be
referred to as the "BUSINESS".
E. Simultaneous with the execution of this Agreement, Selfix is
purchasing all of the equity of Tamor and is merging Housewares with and into
Selfix (collectively the "TRANSACTIONS").
F. Richard is presently employed as a senior executive of Tamor.
In light of Richard's experience in managing and expanding the business of
Tamor and creating its products, and in recognition of the acknowledged
importance and sensitivity of the confidential information to which Richard has
had access and the legitimate need of Tamor to protect and
<PAGE> 11
enjoy its goodwill and customer relationships, Selfix was not willing to
consummate the Transactions without the protection against unfair competition
this Agreement affords.
G. Richard has agreed that during the term of his employment and
following termination of employment with Tamor (or Selfix or any affiliated
entity conducting or operating the Business) for any reason, he will not engage
in any business which competes with the Business pursuant to the terms of this
Agreement.
CLAUSES
1. NOW, THEREFORE, in consideration of the premises and the
following covenants and agreements, the parties agree as follows:
ACKNOWLEDGMENTS. Richard acknowledges and agrees that: (i) he
has been an officer, director, shareholder and an employee of Tamor for a
number of years; (ii) the past and future services rendered, or to be rendered,
by Richard to Tamor were and are of extraordinary merit and constitute a
necessary and valuable contribution to the general growth and development of
Tamor; (iii) during the course of his employment with and relationship to
Tamor, he has and may acquire special knowledge of its relationships and
business techniques, internal business organization, financial data, marketing
plans, intellectual property and other proprietary matters; and (iv) Selfix
would not be willing to consummate the Transactions without the protection
against unfair competition this Agreement affords.
2. RESTRICTIONS ON COMPETITION. During the term of his employment
with Tamor or Selfix or any affiliate of Selfix conducting or operating the
Business (any such entity together with Tamor is referred to as "Greater
Tamor"), and for a period of eighteen (18) months following the termination of
Richard's employment with Greater Tamor, for any reason (the "RESTRICTIVE
PERIOD"), Richard shall not directly or indirectly, own, manage, operate,
control, be employed by, participate in, or be connected in any manner with the
ownership (except for minor ownership in a public company), management,
operation, or control of any business (i) which is located within any state or
country in which Greater Tamor does
<PAGE> 12
Business, and (ii) which competes with the Business of Greater Tamor. Richard
agrees that his breach of any of the covenants contained in this Section 2 will
result in irreparable harm and continuing damages to Greater Tamor and the
Business and that Greater Tamor's remedy at law for any such breach or
threatened breach will be inadequate and, accordingly, in addition to such
other remedies as may be available to Greater Tamor at law or in equity in such
event, any court of competent jurisdiction may issue a decree of specific
performance and a temporary or permanent injunction, without bond, enjoining
and restricting the breach, or threatened breach, of any such covenant. If
Greater Tamor institute legal action for injunctive or other relief as a result
of Richard's violation or breach of any restrictive covenants in Section 2 of
this Agreement, the parties, at the request of either party, agree to jointly
ask the relevant court of competent jurisdiction to have the matter then before
such court order that the matter be submitted for determination by arbitration
in accordance with the commercial rules of the American Arbitration
Association, to be conducted in Boston, Massachusetts. Furthermore, Greater
Tamor may seek any and all other remedies to which it may be entitled.
3. NON-SOLICITATION. During the Restrictive Period, Richard will
not, directly or indirectly, through one or more intermediaries or affiliates
or otherwise:
(i) solicit anyone who was a customer of
Greater Tamor during the term of Richard's employment
with Greater Tamor with respect to business which
competes with the Business as it is then being
conducted;
(ii) solicit any prospective customer of
Greater Tamor with whom Richard has contact during his
employment with Greater Tamor during the preceding
twelve (12) months with respect to business which
competes with the Business as it is then being
conducted; and/or
(iii) divert, take away, solicit or seek to
induce employment of any of the employees of Greater
Tamor.
4. CONSIDERATION. In consideration of Richard's agreement to not
compete as set forth in this Agreement, Selfix agrees to pay or cause Tamor to
pay Richard the sum of Ten Thousand Dollars ($10,000.000) at the closing of the
Transactions.
<PAGE> 13
5. UNENFORCEABLE PROVISION. If any court of competent jurisdiction
shall determine that any of the restrictions contained in Section 2 or 3 hereof
are unreasonable, invalid or unenforceable, it is the intention of the parties
that the restrictive covenant shall not be terminated or invalidated, but shall
be deemed amended to the extent required to render it reasonable, valid or
enforceable, such amendment to apply only with respect to the operation of
Section 2 or 3 hereof in the jurisdiction of the court which has made such
adjudication.
6. SEVERABILITY. If a court of competent jurisdiction rules that
any one or more of this Agreement's provisions are invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any of this Agreement's other provisions, and this Agreement
shall be construed as if it has never contained such invalid, illegal or
unenforceable provision.
7. ATTORNEY'S FEES AND COSTS. In any dispute under this Agreement
the prevailing party in litigation or arbitration shall pay to the
non-prevailing party the reasonable legal fees and costs incurred by such party.
8. NO ASSIGNMENT. Richard shall not have the right to assign this
Agreement or any of his rights or obligations hereunder to another party or
parties.
9. APPLICABLE LAW. The laws of the Commonwealth of Massachusetts
shall govern the interpretation of this Agreement, irrespective of the fact
that one or more of the parties now or may become a resident of a different
jurisdiction.
10. NO WAIVER. No waiver by Greater Tamor of Richard's breach of
any covenant or obligation hereof shall be considered to be a continuing waiver
of any such covenant or provision, or a waiver of any other or future breach
thereof.
11. NOTICE. For the purposes of this Agreement, notices and all
other communications provided for in this Agreement, shall be provided by all
parties of this Agreement in writing: by (i) actual delivery of the notice into
the hands of the party entitled to receive it, (ii) by mailing the notice by
registered or certified mail, return receipt requested in
<PAGE> 14
which case the notice shall be deemed to be given two (2) days following on the
date of its mailing; (iii) by Federal Express or other overnight carrier, in
which case the notice shall be deemed to be given on the day following delivery
into the hands of such carrier; or (iv) by facsimile, in which case notice
shall be deemed given on the day sent. Each such notice shall be addressed as
follows:
If to Selfix or Tamor: If to Richard:
Selfix, Inc. Richard M. Tocci
Attention: James D. Tennant 121 Scenic Drive
4501 W. 47th Street Leominster, MA 01453
Chicago, IL 60632
With a copy to: With a copy to:
Much Shelist Freed Denenberg Bodanza & Bodanza
Ament Bell & Rubenstein, P.C. Attn: Mark C. Bodanza
Attn: Jeffrey C. Rubenstein 36 School Street
200 North LaSalle Street Leominster, MA 01453
Suite 2100
Chicago, IL 60601-1095 Fax: (508)840-1222
Fax: (312)621-1750
12. TERMINATION IN THE EVENT OF FILING BANKRUPTCY. In the event of a
bankruptcy filing or assignment for the benefit of creditors which results in
the liquidation of the assets of Selfix, its parent company or Tamor, or
affects the wages of Richard adversely, then Richard shall be released from all
obligations under this Agreement.
13. COMPLETE UNDERSTANDING. This Agreement contains all of the
agreements and understandings between the parties hereto with respect to the
restrictive covenant, and no oral agreements or written correspondence shall be
held to affect the provisions hereof. All
5
<PAGE> 15
subsequent changes and modifications, to be valid, shall be by written
instrument executed by Tamor, Selfix and Richard.
/s/ Richard M. Tocci SELFIX, INC., A Delaware corporation
- ------------------------------
RICHARD M. TOCCI, individually
By: /s/ James R. Tennant
--------------------------------
James R. Tennant, President
TAMOR CORPORATION, a Massachusetts
corporation
By: /s/ Leonard J. Tocci
--------------------------------
Its: CEO
-------------------------------
6
<PAGE> 1
EXHIBIT 10.16
FIRST AMENDMENT TO A LEASE OF THE
REAL ESTATE LOCATED AT
3016 WEST GEORGIA STREET, LOUISIANA, MISSOURI
BETWEEN
PACKAGING RESOURCES INCORPORATED, LESSOR
AND
TAMOR PLASTICS CORP., LESSEE,
SAID LEASE BEING DATED FEBRUARY 2, 1995
AND RECORDED WITH THE PIKE COUNTY RECORDER'S OFFICE
ON MARCH 29, 1995 AT BOOK 324, PAGE 2447
NOW THEREFORE, in consideration of the following mutual covenants, the
parties hereto agree to add the following Article XXV to the aforementioned
lease:
ARTICLE XXV
OPTION TO PURCHASE
25.1 Option to Purchase Demised Premises.
Tenant shall have the option to purchase the Demised Premises (the
"Option") as hereinafter provided, subject to the conditions and limitations
contained in this Paragraph 25:
(a) Option Period and Option Price. The option period shall commence on
March 1, 1997 ("Commencement Date") and will continue for a period
of eighteen (18) months ("Option Period"). Tenant shall have the
option to purchase the Demised Premises at an option price ("Option
Price") equal to One Million Five Hundred Thousand and 00/100
Dollars ($1,500,000.00), subject to the following reductions, if
any:
(i) if the Option is exercised within six (6) months of the
Commencement Date of the Option Period, then the Option Price
shall be reduced by thirty (30%) percent of the total amount of
all Basic Rent actually paid by Tenant to Landlord from the
Commencement Date of the option period to the date of Closing;
(ii) if the Option is exercised after six (6) months of the
Commencement Date of the Option Period, but before one (1) year
from the Commencement Date of the Option Period, then the
Option Price shall be reduced by ten (10%) percent of the
total amount of all Basic Rent actually paid by Tenant to
Landlord from the Commencement Date of the option period to
the date of Closing; and
1
<PAGE> 2
(iii) if the Option is exercised more than one (1) year after the
Commencement Date of the Option Period, then there shall be no
reduction to the Option Price.
(b) Tenant may only exercise the Option during the Option Period if this
Lease Agreement is in full force and effect at the time Tenant
notifies Landlord of the exercise of the Option and at the time set
for closing of the Option. Tenant may only exercise the Option and
proceed to close the same strictly in accordance with the terms and
conditions hereof, and said purchase shall be at the Option Price, as
applicable, and in accordance with the terms and conditions herein
contained.
(c) Tenant shall exercise the Option, if at all, by delivering to Landlord
written notice sixty (60) days prior to the date Tenant wishes to
close upon the Option (the "Notice"), accompanied by its certified or
cashier's check in the sum of One Hundred Thousand and 00/100
($100,000.00) Dollars ("Earnest Money"). Except as expressly provided
in Paragraphs 25(d) and (n) hereof, the Earnest Money shall be
non-refundable in all events whether or not the closing of the Option
shall have occurred.
(d) Landlord shall, within thirty (30) days after receipt of the Earnest
Money, furnish to Tenant a commitment for an owner's policy of title
insurance (the "Commitment") issued by a title insurance company
selected by Landlord (the "Title Insurer") showing title to the
Demised Premises in Landlord, subject only to the exceptions described
in subparagraph (e) in this Paragraph 25 hereof (the "Permitted
Exceptions"). Tenant shall pay all costs of issuance of the Commitment
and any policy issued in connection therewith. Tenant shall be
allowed ten (10) days after receipt of the Commitment and all
underlying title documents for examination and the making of
objections to any title matter that is not a Permitted Except (the
"Unpermitted Exceptions"). Said objections shall be made in writing
or deemed to be waived. If any objections are so made, Landlord shall
be allowed thirty (30) days to cause the Title Insurer to remove or
endorse over any Unpermitted Exception.
If any Unpermitted Exceptions are not removed or endorsed over with
thirty (30) days from the date of written objection thereto, as above
provided, any agreement of purchase resulting from the exercise of the
Option shall, at the written election of the Tenant, be null and
void. In such event neither party shall be liable for damages to the
other party, Landlord shall return to Tenant the Earnest Money, and
this Lease Agreement shall continue in full force and effect for the
balance of the Term, if any shall remain. Tenant shall exercise such
election by declaring any such resulting purchase agreement null and
void by delivering to Landlord a written notice to such effect within
three (3) days after the expiration of the aforesaid thirty (30) day
period. Failure by Tenant to deliver to Landlord, in
2
<PAGE> 3
writing, the aforesaid election to declare the resulting purchase agreement
null and void within the time period prescribed herein shall constitute an
election by Tenant to take title to the Demised Premises as it then is
(with the right to deduct from the Option Price liens and encumbrances of a
definite and ascertainable amount if created by Landlord or any party
claiming by, through or under Landlord, other than Tenant).
If the title to the Demised Premises is without objections, or be so made
within thirty (30) days after the date of written objection thereto, and
Tenant shall thereafter default in its obligation to close the Option and
pay the balance of the Option Price, then Landlord may terminate the
exercise of the Option and any resulting purchase agreement, and retain all
monies paid on the exercise of the Option, including, without limitation,
the Earnest Money, but this provision shall not deprive Landlord the right
of claim for damages or enforcing specific performance and, at Landlord's
election, such default shall constitute an event of default under this
Lease Agreement.
(e) Subject to the performance by Tenant, Landlord agrees to execute and
deliver a Special Warranty Deed, conveying title to the Demised Premises to
Tenant or as Tenant may designate, subject only to the following
exceptions:
(i) Buildings, zoning and subdivision laws, ordinances and other local,
State and Federal laws, rules, ordinances and regulations, so long
as they do not materially interfere with the current use of the
premises;
(ii) Covenants, conditions and restrictions of record; private, public
and utility easements and streets, road and highway rights of ways,
if any; party wall agreements, if any; special taxes or assessments
for improvements not yet completed; installments not due at the date
hereof of any special tax or assessment for improvements heretofore
completed; and general taxes not yet due and payable; so long as
they do not materially interfere with the current use of the
premises;
(iii) Rights of Tenant, assignees of Tenant, subtenants of Tenant, and
their successors and assigns, if any;
(iv) Annual installments of special assessments levied subsequent to
closing of the Option;
(v) Matters created or caused by Tenant;
(vi) Other taxes and charges which are the obligation of Tenant under
this Lease Agreement;
3
<PAGE> 4
(vii) Such other reasonable easements and restrictions as may be
placed by Landlord upon the Demised Premises in connection with
the ownership or development of the Demised Premises or
reasonably requested by local governmental agencies and
divisions thereof, so long as they do not materially interfere
with the current use of the premises;
(viii) Such other easements, restrictions or such other title matters
and exceptions, as may be consented to by Tenant in a separate
writing;
(ix) Any mortgage assumed by Tenant or which Tenant shall take title
subject to, by consent; and
Tenant shall be required to assume any obligation of Landlord (as owner
of Demised Premises) under those matters listed in (i) through (ix)
above and, with respect to any mortgage so assumed, Tenant shall
indemnify and hold harmless Landlord from and against any further
liability in respect to such mortgage or collateral mortgage documents
by assumption agreement satisfactory to Landlord.
If Tenant shall have performed its obligations hereunder and Landlord
shall default in its obligations to convey the Demised Premises to
Tenant, Tenant shall be entitled to enforce specific performance of the
Option, as its sole and exclusive remedy.
(f) Closing of the Option shall occur within forty-five (45) days from
receipt by Landlord of the Earnest Money or such other date as
may be mutually agreed upon in writing by Landlord and Tenant,
or as such date may be extended by reason of delays occasioned by
operation of Paragraph 25(d) hereof. All rents and other charges payable
by Tenant in respect to the Demised Premises and all other obligations
of Tenant hereunder accruing prior to closing obligations of Tenant
hereunder accruing prior to closing of the Option shall be paid,
performed and complied with until such time as closing of the Option
shall occur and the full Option Price has been paid to Landlord.
Notwithstanding any provision to the contrary herein contained, if the
date of closing of the Option shall extend beyond the term of the Lease,
the Lease and all rights and obligations as therein contained shall be
extended to the date of closing of the Option on the same terms as set
forth in the Lease.
(g) At the Option Closing, Landlord shall deliver or cause to be delivered
to Tenant the following items, duly executed and acknowledged where
necessary.
(i) Special Warranty Deed. A special warranty deed conveying to
Tenant fee simple title to the Demised Premises, subject only
to the Permitted Exceptions (defined in numbered subparagraph
(e) herein);
4
<PAGE> 5
(ii) Affidavit of Title. An affidavit of title of Landlord, in
customary form, dated as of the date of Closing, subject only to
the Permitted Exceptions, certifying that since the date of the
title commitment Landlord has not done or suffered to be done
anything that could in any way affect the title to the Demised
Premises other than by, through or under Tenant, and no
proceedings have been filed by or against Landlord which would
affect the Landlord's title to the Demised Premises;
(iii) Bill of Sale. A bill of sale and assignment with a special
warranty of title conveying all of Landlord's right, title and
interest in and to all the fixtures attached or appurtenant to
or used in connection with the Demised Premises, including
without limitation, all plumbing, lighting, electrical,
sprinkler, heating, ventilating and air conditioning systems,
free and clear of all liens and encumbrances except the
Permitted Exceptions, and listed in Exhibits B & C attached
hereto and incorporated as a part of this Lease and Amendment.
(iv) Additional Documents. Such additional documents as may be
reasonably required by Tenant to consummate the sale of the
Demised Premises to Tenant.
(h) At the Option Closing, Tenant shall deliver to Landlord the Option
Price required under subparagraph 25(a) hereof, any unpaid Basic Rent,
or Additional Rent or other charges due under this Lease Agreement, and
such additional documents as may be reasonably required by Landlord to
consummate the sale of the Demised Premises.
Closing shall occur through an escrow with the escrow department of the
Title Company ("Escrowee"), in accordance with the general provisions of the
Escrowee's usual form of deed and money escrow agreement, with special
provisions inserted in the escrow agreement as may be required to conform to
this Paragraph 25 in this Lease Agreement, subject to the terms of a separate
money lender's escrow, if any. The escrow agreement shall provide that Tenant
shall not be required to deposit funds in the escrow until the Escrowee is
prepared to disburse such funds and insure Tenant's title as required herein.
The attorneys for both Landlord and Tenant are authorized to sign the escrow
agreement. Upon the creation of such escrow, payment of the applicable Purchase
Price and delivery of the deed shall be made through the escrow. The cost of
the deed and money escrow shall be divided equally between Landlord and Tenant.
The terms and provisions of this Paragraph 25 of this Lease Agreement shall not
be merged into nor in any manner superseded by the escrow agreement.
5
<PAGE> 6
The Option Price shall be paid to Landlord by Tenant by wire transfer
of "good funds" on the date of closing of the Option, subject to a
credit in the amount of the Earnest Money.
The parties agree that any adjustments for rent shall be made as of the
date of closing of the Option. The parties further agree that all
closing costs and other costs arising from or related to Tenant's
exercise of the Option including, without limitation, title and survey
charges, charges for the state, county and local transfer taxes,
recording fees, any lender consent or related transfer or prepayment
fees, and Tenant's attorneys' fees shall be paid by Tenant.
(i) Time shall be of the essence in the performance of the terms and
conditions of the Option. The Option is appurtenant to Tenant's interest
in this Lease Agreement and may not be assigned separately therefrom.
Tenant's rights to the Option shall lapse upon the termination of the
Lease Agreement without further act of the parties. In the event of such
lapse, Landlord shall be entitled to execute and record an instrument
with the Office of the Recorder of Deeds of Pike County, Missouri,
evidencing the Option termination.
(j) In the event of a condemnation subsequent to exercise of the Option,
the Option shall terminate and all awards resulting from any
condemnation proceedings shall be the property of Landlord. Tenant
hereby assigning its interest thereon to the Landlord and Tenant hereby
waiving any right Tenant has now or may have under present or future
applicable laws.
(k) At closing of the Option, Tenant shall deliver to Landlord and Landlord
shall deliver to Tenant an agreement cancelling and terminating this
Lease Agreement and releasing each party from its obligations to the
other party under this Lease accruing subsequent to Closing. Further, at
Closing, Tenant shall deliver to Landlord the cash sums required in this
Paragraph 25 and such other documents and agreements, in recordable
form if required, and otherwise in form and content acceptable to
Landlord, as may be required for closing of the Option.
(l) Tenant shall indemnify, defend and hold Landlord harmless from the
claim of any broker or agent claiming by, through or under Tenant
arising out of exercise of the Option. Landlord shall indemnify, defend
and hold Tenant harmless from the claim of any broker or agent claiming
by, through or under Landlord arising out of exercise of the Option.
(m) Tenant's, purchase of the Demised Premises shall be "as-is, where-is",
Tenant acknowledging that it has thoroughly inspected and examined the
Demised Premises and upon closing of the Option will purchase the
Demised Premises "as-is, where-is", entirely on the basis of Tenant's
own evaluation and knowledge and
6
<PAGE> 7
not based upon any written or oral representations, warranties,
understandings, promises or agreements, expressed or implied,
of Landlord or its employees, representatives or agents.
(n) Anything herein to the contrary notwithstanding, the Option
shall be subject to and contingent upon (i) Landlord obtaining
from its lender(s) a release of the lien of any mortgage, trust
deed or similar debt instrument encumbering the Demised
Premises, and (ii) such additional or modified terms and
conditions as Landlord's lender may request. In the event
Landlord shall not receive such release and consent, Landlord
shall so notify Tenant and any resulting purchase agreement
shall be null and void. In such event neither party shall be
liable for damage to the other party, Landlord shall return
the Earnest Money to Tenant, and the Lease Agreement shall
continue in full force and effect for the remaining portion of
the Lease Term; provided, however, should Landlord not obtain
said Release of Lien, it alone shall be fully responsible for
its own cost and Tenant's connected with the attempted
exercise of this Option.
This Agreement and its Amendments contains the following exhibits:
Exhibit B - Items to be included as "fixtures" in the
Louisiana, MO plant
Exhibit C - Equipment and items left for lease to
Tamor In Louisiana, MO plant
IN WITNESS WHEREOF, each of the parties hereto have caused this First
Amendment to a Lease of the Real Estate Located at 3016 West Georgia Street,
Louisiana, Missouri, between Packaging Resources Incorporation, Lessor, and
Tamor Plastics Corp., Lessee, (said lease being dated February 2, 1995 and
recorded with the Pike County Recorder's Office on March 29, 1995 at Book 324,
Page 2447), to be executed this ____ day of Nov., 1996.
LANDLORD: TENANT:
PACKAGING RESOURCES INCORPORATED, TAMOR PLASTICS CORP.,
a Delaware corporation a Massachusetts Corporation
By: /s/ By: /s/
----------------------------- -----------------------------
Its: Vice President Its: President
------------------------ ------------------------
By: /s/ By:
----------------------------- ------------------------------
Its: Its: Treasurer
------------------------- --------------------------
7
<PAGE> 8
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
The foregoing instrument was acknowledged before me this 1st day
of November, 1996, by Jerry J. Corirossi and by ---------- of PACKAGING
RESOURCES INCORPORATED, a Delaware corporation, on behalf of the corporation and
for the uses and purposes therein contained.
- -------------------------------
Theresa C. Davis
"OFFICIAL SEAL" ------------------------------
THERESA C. DAVIS Notary Public
NOTARY PUBLIC, STATE OF ILLINOIS My commission expires: 4-20-98
MY COMMISSION EXPIRES 4/20/98
- -------------------------------
STATE OF MASSACHUSETTS )
) SS
COUNTY OF WORCESTER )
The foregoing instrument was acknowledged before me this 1st day
of November, 1996 by Dennis Gerrard, President and Richard M. Tocci, Treasurer
of TAMOR PLASTICS CORP., a Massachusetts corporation, on behalf of the
corporation and for the uses and purposes therein contained.
Mark C. Bodanza
---------------------------------
Notary Public - Mark C. Bodanza
My commission expires: 10-24-97
[NOTARY PUBLIC SEAL]
8
<PAGE> 9
- ---------
PACKAGING
- ---------
RESOURCES EXHIBIT B
- --------- ---------
Items to be included as "fixtures" in the Louisiana, MO
plant offering.
ASSET NO. DESCRIPTION
- --------- -----------
2646 Whitlock Vac. Pump
2647 Whitlock Vac. Pump
2769 German Vac. Pump
2778 Whitlock Vac. Pump/Surge Bin
2786 Whitlock Vac. Pump
2788 Whitlock Vac. Pump
2789 Whitlock Vac. Pump
2790 Butler Vac. Pump
2791 Whitlock Vac. Pump
2792 Whitlock Surge Pump
2793 Whitlock Surge Pump
2809 Vac. Pump
2857 GD Air Compressor
2958 GD Air Compressor
2959 Wilkerson Air Dryer
2961 Carrier Chiller
2962 Carrier Chiller
2963 Chill Water System
2964 Carrier Chiller
2965 Carrier Chiller
2966 210,000# Silo
2967 210,000# Silo
2968 210,000# Silo
2969 210,000# Silo
2970 210,000# Silo
2971 210,000# Silo
2972 210,000# Silo
2973 IMCS Silo
2974 IMCS Silo
2975 IMCS Silo
2976 IMCS Silo
2977 Transformer
2978 Transformer
2979 Transformer
4-Small Silos for Surge Bins
2-15HP Pumps
5-7 1/2HP Pumps
2627 Air Conditioner
2618 A/C
2639 A/C
2640 A/C
2641 A/C
2642 A/C
2643 A/C
2644 A/C
2645 Air Conditioner
2716 Dumm Duot
2717 Transformer
2718 Transformer
2778 Transfer Tubing
2814 Chiller
2815 Chiller
2816 Chiller
2817 Air Compressor
2818 Air Compressor
2819 Chiller
<PAGE> 10
EXHIBIT B
---------
-Page 2-
FIXTURES
Continued
2840 Air Conditioner
2841 Air Conditioner
2842 Air Conditioner
2843 Air Conditioner
2844 Air Conditioner
2845 Chiller
2887 Air Conditioner
2898 Phone System (in place)
2948 Air Compressor/Dryer
2949 Air Compressor/Dryer
2987 Air Conditioner
Extinguishers/Hoses
Converyor Bolts to floor in Holding/Printing
<PAGE> 11
2/19/96 Exhibit C
<TABLE>
<CAPTION>
EQUIPMENT AND ITEMS LEFT FOR LEASE TO TAMOR IN LOUISIANA, MO
<S> <C>
02548 MODULAR DESK UNIT FRONT OFFICE
02549 MODULAR DESK UNIT FRONT OFFICE
02550 MODULAR DESK UNIT PLANNING OFFICE
02551 MODULAR DESK UNIT PLANNING OFFICE
02684 ANTIQUE CONFERENCE TABLE/CHAIRS/CREDENZA/END TABLE FRONT OFFICE
02806 WW REFRIGERATOR
02810 CLARK FORKLIFT SER#TM247-0828-755FB
02918 CATERPILLAR FORKLIFT SER#SD81335
02923 CLARK FORKLIFT SER#TM247-0128-0020FA
02925 CATERPILLAR FORKLIFT SER#SD81827
02927 CLARK FORKLIFT SER#TM247-0351-6990FD
02945 BATTERY CHARGER ??? MODEL ?????-????? SER#87D1483
02946 BATTERY CHARGER . . . SER#89B1089
02947 BATTERY CHARGER . . . SER#89B1087
02812 BATTERY CHARGER . . . SER#89B1091
02514 BATTERY CHARGER . . . SER#89B1088
02615 SPREADER BAR FOR BATTERY LFT.
02616 HYDRAULIC PALLET JACK
02622 DOOR RAMPS 70'/72'
02623 LANTECH PALLET WRAPPER
02624 STEEL DOCK RAMP
02632 WORK PLATFORM
02851 PALLET JACK ATLAS SER#P?????
02676 INJECTION MOLDING MACHINE IMPCO MDL350-R50 SER#Z-118 79
02677 INJECTION MOLDING MACHINE IMPCO MDL350-R50 SER#Z-118 79
03113 INJECTION MOLDING MACHINE IMP?? MDL350-R50 SER#P-0180
02787 IMCS STORAGE BIN
02814 CHILLER W/ COMPRESSORS CARRIER MDL???????? SER#Y217?03
02??? CHILLER CARRIER MDL30HKD40-630 SER#3890???
02??? CHILLER APPL. ENGINEERING SER#??????
02817 AIR COMPRESSOR GARDNER DENVER MDLSKBL SER#629938
02??? TANK APPROX. 38'x72'
02819 CHILL WATER SYSTEM
02849 DRILL PRESS ENCO MDL 126-2220 MNFT.#96375
02955 OIL RECLAIM SERFILCO MDL 50R83-????
02960 SAND FILTER AMERICAN MD.#657000 NT0691
02782 SCALE/SCALE HEAD PENNSYLVANIA SER#189?94
*EQUIPMENT AND ITEMS LEFT FOR LEASE BUT NOT ON THE ASSET LIST
AIR COMPRESSOR 100HP GARDNER/DENVER SER#M38926
AIR DRYER WILKERSON MDLA12-HH-POO SER#01-10-89-8?41
AIR COMPRESSOR 60HP GARDNER/DENVER
AIR DRYER WILKERSON MDLA13-HH-POO SER#08-18-86-0974
AIR COND COMP/CARRIER MDL SPLIT SYSTEM 38AD-024-820 SER#P?82848
AIR CONDITIONING BLOWER
</TABLE>
STATE OF MISSOURI)
) ss. IN THE RECORDER'S OFFICE.
COUNTY OF PIKE )
I, Sherry McCarty, Circuit Clerk and Ex-Officio Recorder of said County, do
hereby certify that the within instrument of writing was on the 26th day of
--
November A.D. 1996 at 11 o'clock 35 minutes A.M., duly filed for record in this
- -------- -- -- -- -
office and is Recorded in the Records of this office in Book 324, Page 7323.
--- ----
IN WITNESS WHEREOF I have hereunto set my hand
and affixed my official seal at Bowling
Green, Missouri this 26th day of November, 1996.
-- -------- --
Sherry McCarty Circuit Clerk &
Ex Officio Recorder
<PAGE> 12
EXHIBIT 10.16
LEASE AGREEMENT
THIS LEASE AGREEMENT made this 7th day of February, 1995, by and
between PACKAGING RESOURCES INCORPORATED, a Delaware corporation ("Landlord")
and TAMOR PLASTICS CORP., a Massachusetts corporation ("Tenant").
W I T N E S S E T H:
Landlord, for and in consideration of the rents, covenants and
agreements hereinafter reserved, mentioned and contained on the part of Tenant,
its successors and assigns, to be paid, kept, observed and performed, has
leased, rented, let and demised, and by these presents does lease, rent, let
and demise unto Tenant, and Tenant does hereby take and hire, upon and subject
to the conditions and limitations hereinafter expressed, all that parcel of
land situated in the City of Louisiana, county of Pike and State of Missouri,
described in Exhibit A attached hereto and made a part hereof (containing
approximately 13.57 acres), together with any and all appurtenant easements
relating thereto (hereinafter called the "Land"), together with all
improvements located thereon. All improvements, building equipment and fixtures
of Landlord (except Tenant's trade fixtures), installed or located thereon,
together with all additions, alterations and replacements thereof are
hereinafter referred to as the "Improvements", including those items of
equipment and all fixtures listed and scheduled on Exhibit B attached hereto
and incorporated herein. All structures located upon the being a part of the
Land and Improvements which are constructed for human occupancy or for storage
of goods, merchandise, equipment, or other personal property are collectively
called the "Building". The Land, the Improvements, and the Building are
sometimes hereinafter collectively referred to as the "Demised Premises".
ARTICLE I
TERM OF LEASE
1.1 The initial term of this Lease Agreement shall commence on
March 1, 1995 (the "Commencement Date") and shall continue for a term of two
(2) years thereafter ending on the date immediately preceding the two (2) year
anniversary date of the Commencement Date. The initial term, together with the
renewal terms described in Paragraph 1.2 below, if applicable, are sometimes
hereinafter generally referred to as the "Term."
1.2 Tenant is hereby granted two options to renew (the "renewal
terms") this Lease Agreement each for an additional term of three (3) years on
the same terms and conditions contained herein except for the rent to be paid
hereunder. Each option is
<PAGE> 13
granted upon the condition that [i] written notice of the exercise of the
option shall be given by Tenant to Landlord not less than one hundred eighty
(180) days prior to the end of the initial term or first option term, as the
case may be, of this Lease Agreement, and [ii] at the time of the giving of
such notice and at the expiration of the initial term or first option term, as
the case may be, there are no defaults in the covenants, agreements, terms and
conditions on the part of Tenant to be kept and performed hereunder and all
Basic Rent and Additional Rent has been fully paid. If exercised, the first
renewal term shall commence on the day following the end of the initial term of
this Lease Agreement, and if exercised, the second renewal term shall commence
on the day following the end of the first renewal term of this Lease Agreement.
Notwithstanding clause [i] noted in this Paragraph 1.2, Landlord and Tenant
agree that Tenant's exercise of each option to renew shall be automatic, unless
Tenant does not meet the conditions of clause [ii] noted in this paragraph 1.2,
or Tenant gives Landlord one hundred eighty (180) days prior written notice that
it will not exercise such renewal option.
ARTICLE II
AS-IS, WHERE-IS; COMPLIANCE
2.1 Except as provided in Paragraph 2.2 below, Tenant acknowledges
that it has thoroughly inspected and examined the Demised Premises and has
executed this lease Agreement and upon occupancy accepts the Demised Premises
"as-is, where-is," entirely on the basis of Tenant's own evaluation and
knowledge and not based upon any written or oral representations, warranties,
understandings, promises or agreements, express or implied, of Landlord or its
employees, representatives or agents including any real estate broker as
described in Article XXI of this lease Agreement. Upon the execution of this
Lease Agreement and upon occupancy of the Demised Premises, Tenant shall be
conclusively deemed to have leased the Demised Premises "as-is, where is," and
Landlord shall have no obligation to make repairs, replacements, alterations
or improvements.
2.2 Landlord hereby represents to Tenant that (as of the
Commencement Date) (i) to the best of Landlord's knowledge, the Demised
Premises are in substantial compliance with all applicable building code
requirements; (ii) Landlord has not received any notification from any
governmental agency, entity or individual, and otherwise has no knowledge, that
its signage is in violation of governmental laws, ordinances, rules or
regulations; (iii) to the best of Landlord's knowledge (a) there are no
"Hazardous Substances" or "Hazardous Materials" on the Demised Premises which
are in violation of any environmental statutes, ordinances or regulations, and
(b) there are no conditions existing with respect to the Demised Premises which
are in violation of any environmental statutes, ordinances or regulations.
Landlord further represents to Tenant that it has no knowledge of any
environmental conditions
2
<PAGE> 14
existing at the Demised Premises, other than those conditions contained in an
Environmental Phase I Audit performed by ENSOR. Tenant hereby acknowledges and
accepts the findings contained in the ENSOR Phase I Audit. Landlord agrees that
promptly after Tenant's execution of this Lease Agreement, Landlord shall
engage ENSOR at its sole cost and expense to conduct a Phase II Audit of the
Demised Premises, and Landlord further agrees that in the event that the ENSOR
Phase II Audit indicates that further remediation at the Demised Premises is
required, Landlord agrees that it shall perform the required remediation at its
sole cost and expense, as well as all remediation indicated by the ENSOR Phase
I Audit, again at Landlord's sole cost and expense.
ARTICLE III
RENT
3.1 In consideration of the leasing of the Demised Premises, Tenant
covenants to pay Landlord, without previous demand therefor and without any
right of setoff or deduction whatsoever, at the office of Landlord at:
Packaging Resources Incorporated
One Conway Park
100 Field Drive
Lake Forest, Illinois 60045
Attn: Mr. Jerry J. Corirossi, Vice President
or at such other place as Landlord may from time to time designate in writing,
an annual rental for each year of the initial term Two Hundred Seventy-Three
Thousand Six Hundred Ninety-Four and 56/100 Dollars ($273,694.56), payable in
advance, in equal monthly installments of Twenty-Two Thousand Eight Hundred
Seven and 88/100 Dollars ($22,807.88), commencing on the Commencement Date as
set forth in Paragraph 1.1 and continuing on the first day of each month
thereafter. The rent provided for in this Paragraph 3.1 and in Paragraph 3.4
with respect to the initial term is hereinafter called the "Basic Rent." The
parties hereto agree that the Basic Rent is based upon a rental rate equal to
$1.50 per square foot of the Buildings located on the Demised Premises, and the
parties hereto further acknowledge and agree that the Buildings located on the
Demised Premises contain approximately 182,463 square feet.
Notwithstanding anything contained in this Section 3.1 to the contrary,
Landlord and Tenant each hereby agree that if for any reason whatsoever
Landlord is unable to complete the environmental remediation work, described
under Section 2.2 above, on or before March 1, 1995 and as a result of such
failure Tenant is unable to use any Building or part or portion thereof, then
this Lease Agreement shall remain in full force and effect, except as Tenant's
sole and exclusive remedy for its inability to use such Building or part or
portion thereof, Tenant shall be entitled to a reduction in
-3-
<PAGE> 15
Tenant's Basic Rent obligation on a per diem basis, equal to the amount
obtained as follows: $1.50 per square foot per year multiplied by the affected
square footage, multiplied by the number of days such affected square footage
is unavailable for Tenant's occupancy and use, divided by 365 days per year.
(For example: if approximately 500 square feet of the Demised Premises is
unavailable for Tenant's use and occupancy for a period of 30 days, then Tenant
shall be entitled to a reduction in its Basic Rent obligation which is equal to
$61.64).
3.2 The Basic Rent shall be absolutely net to Landlord so that this
Lease Agreement shall yield, net to Landlord, the Basic Rent specified in
Paragraph 3.1 and 3.4, as applicable, in each year of the Term and that all
impositions, taxes, insurance premiums, utility charges, maintenance, repair
and replacement expenses, all expenses relating to compliance with laws, and
all other costs, fees, charges, expenses, reimbursements and obligations of
every kind and nature whatsoever, relating to the Demised Premises (excepting
only Landlord's portion of the proration of real estate taxes and special
assessments for those periods contained within the term of this Lease Agreement
as referred to in Paragraph 5.1 and certain taxes of Landlord referred to in
the last sentence of Paragraph 5.3 of this Lease Agreement) which may arise or
become due during the Term or by reason of events occurring during the term of
this Lease Agreement shall be paid or discharged by Tenant as additional rent
(all such items being sometimes hereinafter collectively referred to as
"Additional Rent"), and Tenant hereby agrees to indemnify, defend and save
Landlord harmless from and against such impositions, taxes, insurance premiums,
utility charges, maintenance, repair and replacement expenses, all expenses
relating to compliance with laws, and all other costs, fees, charges, expenses,
reimbursements and obligations referred to above.
3.3 All payments of Basic Rent and Additional Rent shall be payable
without previous demand therefor and without any right of setoff or deduction
whatsoever, and in case of nonpayment of any item of Additional Rent by Tenant
when the same is due, Landlord shall have, in addition to all its other rights
and remedies, all provisions of this Lease Agreement or by law in the case of
nonpayment of Basic Rent. The performance and observance by Tenant of all the
terms, covenants, conditions and agreements to be performed or observed by
Tenant hereunder shall be performed and observed by Tenant at Tenant's sole
cost and expense. Any installment of Basic Rent or Additional Rent or any other
charges payable by Tenant under the provisions hereof which shall not be paid
when due shall bear interest at an annual rate equal to two percentage points
per annum in excess of the published prime rate of interest announced from time
to time by The First National Bank of Chicago (the "Prime Rate") (or similar
institution if said bank shall cease to exist or to publish such Prime Rate)
from the date
-4-
<PAGE> 16
when the same is due hereunder until the same shall be paid, but in no event in
excess of the maximum lawful rate permitted to be charged by Landlord against
Tenant. Said rate of interest is sometimes hereinafter referred to as the
"Maximum Rate of Interest."
3.4 Tenant agrees that its Basic Rent obligation payable under this
Lease Agreement for each lease year during each of the renewal terms shall
increase on an annual basis as follows; Tenant's Basic Rent obligation under
this Lease Agreement shall be the amount which is equal to the total (or
annual) Basic Rent payable by Tenant for the immediately preceding lease, plus
an amount which is equal to the greater of (a) a percentage of the total Basic
Rent for the immediately preceding lease year equal to the percentage increase,
if any, in the revised Consumer Price Index ("CPI") for all Urban Consumers,
U.S. City Average, All Items (1982 84-100), published by the U.S. Bureau of
Labor Statistics for the last month of the immediately preceding lease year
over the CPI for the first month of the immediately preceding lease year (if
the publication of the CPI is discontinued, such other index or indices
mutually acceptable to Tenant and Landlord which reflect the then broad range
of economic factors represented by the CPI shall be used), or (b) 3% of the
Basic Rent payable by Tenant to Landlord for the immediately preceding lease
year. Basic Rent payable by Tenant to Landlord for each lease year during each
renewal term shall also be payable in equal monthly installments, commencing on
the first day of each month during such lease year and otherwise in accordance
and in the same manner as indicated under Paragraph 3.1 above.
ARTICLE IV
USE OF DEMISED PREMISES
4.1 The Demised Premises including all buildings or other
improvements hereafter erected upon the same shall be used for such activities
as may be lawfully carried on in and about the Demised Premises. Tenant shall
not use or occupy the same, or permit them to be used or occupied, contrary to
any statute, rule, order, ordinance, requirement or regulation applicable
thereto, or in any manner which would violate any certificate of occupancy
affecting the same, or which would make void or voidable any insurance then in
force with respect thereto or which would make it impossible to obtain fire or
other insurance thereon required to be furnished hereunder by Tenant, or which
would cause structural injury to the improvements or cause the value or
usefulness of the Demised Premises, or any portion thereof, substantially to
diminish (reasonable wear and tear excepted), or which would constitute a
public or private nuisance or waste, and Tenant agrees that it will promptly,
upon discovery of any such use, take all necessary steps to compel the
discontinuance of such use. Further, Tenant shall not use, store, or dispose of
any so-called "hazardous wastes" or
-5-
<PAGE> 17
"hazardous substances" as defined by federal, state or local environmental laws
(including, so-called "Superfund Laws") on the Demised Premises, except as
provided in Paragraph 23.2 of this Lease Agreement.
4.2 Tenant shall not use, suffer, or permit the Demised Premises, or
any portion thereof, to be used by Tenant, any third party or the public, as
such, without restriction or in such manner as might reasonably tend to impair
Landlord's title to the Demised Premises, or any portion thereof, or in such
manner as might reasonably make possible a claim or claims of adverse usage or
adverse possession by the public, as such, or third persons, or of implied
dedication of the Demised Premises, or any portion thereof. Nothing in this
Lease Agreement contained and no action or inaction by Landlord shall be deemed
or construed to mean that Landlord has granted to Tenant any right, power or
permission to do any act or make any agreement that may create, or give rise to
or be the foundation for any such right, title, interest, lien, charge or other
encumbrance upon the estate of Landlord in the Demised Premises.
ARTICLE V
PAYMENT OF TAXES, ASSESSMENTS, ETC.
5.1 Tenant shall pay or cause to be paid, as Additional Rent, all
real estate taxes, special assessments and all other public or governmental
charges of any nature (all of which are sometimes referred to herein as the
"Impositions"), now or hereafter imposed, assessed, levied or becoming a charge
or lien upon the Demised Premises or now or hereafter arising in respect of the
occupancy, use or possession of, or any activity conducted on the Demised
Premises, at any and all times during the Term of this Lease Agreement. Tenant
shall pay all real estate taxes, whether heretofore or hereafter levied or
assessed upon the Demised Premises, or any portion thereof, which are due and
payable during the term of this Lease Agreement and relating to any period
contained within the Term of this Lease Agreement.
5.2 Tenant shall have the right at its own expense to contest the
amount or validity, in whole or in part, of any Imposition by appropriate
proceedings diligently conducted in good faith, but only after payment of such
Imposition, or if available by local law, after posting such collateral as may
be authorized in lieu of payment, or by such other procedure to which Landlord
may consent.
5.3 If, at any time during the Term of this Lease Agreement, under
the laws of the State of Missouri or any political subdivision thereof, a tax
or excise on rents or upon the renting or leasing provided for herein or
contemplated hereby, or other tax, however described, is levied or assessed by
the State of
-6-
<PAGE> 18
Missouri or any political subdivision thereof against Landlord on account of,
or measured by the amount of the rents expressly reserved hereunder, and
provided such tax is in lieu of or as a substitute for, in whole or in part,
real estate taxes or other ad valorem taxes, Tenant shall pay and discharge
such tax or excise on rents or other tax, but only to the extent of the amount
thereof which is lawfully assessed or imposed upon Landlord and which was so
assessed or imposed as a direct result of Landlord's ownership of the land or
of this Lease Agreement or of the rentals or amount or rentals accruing under
this Lease Agreement. Nothing contained in this Lease Agreement shall require
Tenant to pay any Municipal, State or Federal net income or excess profits
taxes assessed against Landlord, or any Municipal, State or Federal net income
or excess profits taxes assessed against Landlord, or any Municipal, State or
Federal capital levy, estate, succession, inheritance or transfer taxes of
Landlord, or corporation franchise taxes imposed upon any corporate owner of the
fee of the Demised Premises.
5.4 All payments to be made by Tenant pursuant to the provisions
hereof shall be made before the same become delinquent, and upon demand Tenant
shall furnish Landlord, within fifteen (15) days after the date when the same
are payable as herein provided, official receipts or other evidence
satisfactory to Landlord that such payments have been made.
5.5 At Landlord's written demand or at the request of any mortgagee
of the Demised Premises, Tenant shall pay to Landlord or such mortgagee, as the
case may be, the known or estimated yearly real estate taxes and assessments
payable with respect to the Demised Premises in monthly payments equal to
one-twelfth (1/12) of the known or estimated yearly real estate taxes and
assessments next payable with respect to the Demised Premises.
ARTICLE VI
INSURANCE
6.1 Throughout the Term of this Lease Agreement, Tenant shall at its
sole cost and expense maintain: (i) fire and extended coverage insurance with
respect to the Demised Premises, including the Building and the Improvements,
which coverage shall include vandalism coverage, and which at all times shall
be in an amount equal to one hundred percent (100%) of the then full
replacement cost of the Building and Improvements; and (ii) comprehensive
general liability and property damage insurance against claims for personal
injury or death, and for personal property damage occurring in, upon or about
the Demised Premises, or attributed to any act or alleged defective or improper
condition of the Demised Premises, with limits of not less than [Two Million
Dollars ($2,000,000.00)] single limit coverage on an occurrence basis.
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6.2 All insurance maintained by Tenant pursuant to this Article shall
(i) name Landlord and Tenant, as their respective interests may appear; (ii) be
in such form and contain such coverage as Landlord may reasonably request;
(iii) provide that no cancellation thereof shall be effective until at least
thirty (30) days after receipt by Landlord of written notice thereof, such
notice to be given in the manner provided in this Lease Agreement; (iv) be
obtained and maintained from and with a reputable and financially sound
insurance company authorized to issue insurance in the state in which the
Demised Premises are located; and (v) shall specifically insure (by contractual
liability endorsement) Tenant's obligations under Paragraph 20.3 of this Lease
Agreement.
6.3 Tenant shall deliver to Landlord the original or a duplicate
original of each such policy or policies or renewals thereof, with evidence of
the payment of the premiums thereon, and shall procure renewals thereof from
time to time at least twenty (20) days before the expiration of any similar
policy then existing, and in default of such delivery Landlord may procure any
such insurance for such periods as Landlord shall elect, and Tenant shall, on
demand, reimburse Landlord for all expenditures made by Landlord for such
insurance as and for Additional Rent as set forth in Paragraph 3.3 hereof.
Tenant shall neither do nor suffer anything to be done whereby any of the
insurance required by the provisions of this Article shall or may be
invalidated in whole or part.
6.4 Tenant shall maintain insurance coverage (including loss of use and
business interruption coverage) upon Tenant's business and upon all personal
property of Tenant or the personal property of others kept, stored or
maintained on the Demised Premises against loss or damage by fire, windstorm or
other casualties or causes for such amount as Tenant may desire, and Tenant
agrees that such policies shall contain a waiver of subrogation clause as to
Landlord. Tenant hereby waives, releases, discharges and agrees to indemnify
and defend Landlord, its agents and employees from and against all claims
whatsoever arising out of loss, claim, expense or damage to or destruction of
any such personal property or to Tenant's business notwithstanding that such
loss, claim, expense or damage may have been caused by Landlord, its agents or
employees, and Tenant agrees to look to the insurance coverage only in the
event of such loss.
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ARTICLE VII
UTILITIES
7.1 During the Term of this Lease Agreement, Tenant will pay, when due,
all charges of every nature, kind or description for utilities furnished to the
Demised Premises or chargeable against the Demised Premises, including without
limitation all charges for water, sewage, heat, gas, light, garbage,
electricity, telephone, steam, power, or other public or private utility
services.
7.2 In the event that any charge or fee is required by the state in
which the Demised Premises is located, or by any agency, subdivision, or
instrumentality thereof, or by any utility company furnishing services or
utilities to the Demised Premises, as a condition precedent to furnishing or
continuing to furnish utilities or services to the Demised Premises, such
charge or fee shall be deemed to be a utility charge payable by Tenant;
provided, however, Landlord agrees that Tenant shall be responsible for the
payment of assessments relating to capital improvements to utilities which are
amortized and payable during the Term hereof. The provisions of this Paragraph
7.2 shall include, but not be limited to, any charges or fees for present or
future water or sewer capacity to serve the Demised Premises, any charges for
the underground installation of gas or other utilities or services, and other
charges relating to the extension of or change in the facilities necessary to
provide the Demised Premises with adequate utility services. In the event that
Landlord has paid any such charge or fee after the date hereof, Tenant shall
reimburse Landlord for such utility charge.
ARTICLE VIII
REPAIRS
8.1 Tenant, at its sole cost and expense, throughout the Term of this
Lease Agreement, shall take good care of the Demised Premises (including any
improvements hereafter erected or installed on the Land), and shall keep the
same in good order and condition, and shall make and perform all routine
maintenance thereof and all necessary repairs thereto, interior and exterior,
structural and nonstructural, ordinary and extraordinary, foreseen and
unforeseen, of every nature, kind and description. When used in this Article
VIII, "repairs" shall include all necessary replacements, renewals,
alterations, additions and betterments, subject to the notice provisions to
Landlord contained within Article XIX. All repairs made by Tenant shall be at
least equal in quality to the original work and shall be made by Tenant in
accordance with all laws, ordinances and regulations whether heretofore or
hereafter enacted. The necessity for or adequacy of maintenance and repairs
shall be measured by the standards which are appropriate for improvements of
similar construction and class, provided that Tenant shall in any
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event make all repairs necessary to avoid any structural damage or other damage
or injury to the Improvements.
8.2 Tenant, at its sole cost and expense, shall take good care of,
repair and maintain any and all driveways, pathways, roadways, sidewalks,
curbs, spur tracks, parking areas, loading areas, landscaped areas, entrances
and passageways on or appurtenant to the Demised Premises, in good order and
repair and shall promptly remove all accumulated snow, ice and debris from any
and all driveways, pathways, roadways, sidewalks, curbs, parking areas, loading
areas, entrances and passageways, and keep all portions of the Demised
Premises, including areas appurtenant thereto, in a clean and orderly condition
free of snow, ice, dirt, rubbish, debris and unlawful obstructions.
8.3 Except as may be otherwise specifically set forth in this Lease
Agreement, Landlord shall not be required to furnish any services or facilities
or to make any repairs or alterations in, about or to the Demised Premises or
any improvements hereafter erected thereon. Tenant hereby assumes the full and
sole responsibility for the condition, operation, repair, replacement,
maintenance and management of the Demised Premises and all improvements
hereafter erected thereon, and Tenant hereby waives any rights created by any
law now or hereafter in force to make repairs to the Demised Premises or
improvements hereafter erected thereon at Landlord's expense.
8.4 Tenant shall not cause or suffer any waste or damage,
disfigurement or injury to the Demised Premises, or any improvements hereafter
erected thereon, or to the fixtures or equipment therein, or permit or suffer
any overloading of the floors or other use of the Improvements that would place
an undue stress on the same or any portion thereof beyond that for which the
same was designed.
ARTICLE IX
COMPLIANCE WITH LAWS AND ORDINANCES
9.1 Tenant shall, throughout the term of this Lease Agreement, and
at Tenant's sole cost and expense, promptly comply or cause compliance with or
remove or cure any violation of any and all present and future laws,
ordinances, orders, rules, regulations and requirements of all Federal, State,
Municipal and other governmental bodies having jurisdiction over the Demised
Premises and the appropriate departments, commissions, boards and officers
thereof, and the orders, rules and regulations of the Board of Fire
Underwriters where the Demised Premises are situated, or any other body now or
hereafter constituted exercising lawful or valid authority over the Demised
Premises, or any portion thereof, or the sidewalks, curbs, roadways, alleys,
entrances or railroad track facilities adjacent or appurtenant thereto, or
exercising authority
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with respect to the use or manner of use of the Demised Premises, or such
adjacent or appurtenant facilities, and whether the compliance, curing or
removal of any such violation and the costs and expenses necessitated thereby
shall have been foreseen or unforeseen, ordinary or extraordinary, and whether
or not the same shall be presently within the contemplation of Landlord and
Tenant or shall involve any change of government policy, or require structural
or extraordinary repairs, alterations or additions by Tenant and irrespective
of the costs thereof.
9.2 Tenant, at its sole cost and expense, shall comply with all
agreements, contracts, easements, restrictions, reservations or covenants,
which are of record or which Tenant may otherwise become aware of, it any,
affecting the Demised Premises. Tenant shall also comply with, observe and
perform all provisions and requirements of all policies of insurance at any
time in force with respect to the Demised Premises and required to be obtained
and maintained under the terms of Article VI hereof and shall comply with all
development permits issued by governmental authorities issued in connection
with development of the Demised Premises, if any.
9.3 Notwithstanding that it may be usual and customary for Landlord
to assume responsibility and performance of any or all of the obligations set
forth in this Article IX, and notwithstanding any order, rule or regulation
directed to Landlord to perform, Tenant hereby assumes such obligations
because, by nature of this Lease Agreement, the rents and income derived from
this Lease Agreement by Landlord are net rentals not to be diminished by any
expense incident to the ownership, occupancy, use, leasing, or possession of
the Demised Premises or any portion thereof.
9.4 Upon the prior written consent of Landlord, which consent shall
not be unreasonably withheld or delayed, Tenant, at its sole cost and expense
and without cost or expense to Landlord, shall have the right to contest the
validity or application of any law or ordinance referred to in this Article IX
in the name of Tenant or Landlord, or both, by appropriate legal proceedings
diligently conducted but only if by the terms of any such law or ordinance,
pending the prosecution of any such proceeding, compliance therewith may
legally be delayed without the incurrence of any lien, charge or liability of
any kind against the Demised Premises, or any portion thereof, and without
subjecting Landlord or Tenant to any liability, civil or criminal, for failure
so to comply therewith until the final determination of such proceeding;
provided, however, if any lien, charge or civil liability would be incurred by
reason of any such delay, Tenant nevertheless, on the prior written consent of
Landlord, may contest as aforesaid and delay as aforesaid, provided that such
delay would not subject Tenant or Landlord to criminal liability and Tenant
(i) furnishes Landlord security, reasonably satisfactory to Landlord, against
any
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loss or injury by reason of any such contest or delay, (ii) prosecutes the
contest with due diligence and in good faith, and (iii) agrees to indemnify,
defend and hold harmless Landlord and the Demised Premises from any charge,
liability, or expense whatsoever. The security furnished to Landlord by Tenant
shall be in the form of a cash deposit or a Certificate of Deposit issued by a
national bank or Federal savings and loan association payable to Landlord. Said
deposit shall be held, administered and distributed as Landlord may reasonably
direct.
If necessary or proper to permit Tenant so to contest the validity or
application of any such law or ordinance, Landlord shall, at Tenant's sole cost
and expense, including reasonable attorneys' fees incurred by Landlord, execute
and deliver any appropriate papers or other documents; provided, Landlord shall
not be required to execute any document or consent to any proceeding which
would result in the imposition of any cost, charge, expense or penalty on
Landlord or the Demised Premises.
ARTICLE X
MECHANIC'S LIENS AND OTHER LIENS
10.1 Tenant shall not suffer or permit any mechanic's lien or other
lien to be filed against the Demised Premises, or any portion thereof, by
reason of work, labor, skill, services, equipment or materials supplied or
claimed to have been supplied to the Demised Premises at the request of Tenant,
or anyone holding the Demised Premises, or any portion thereof, through or
under Tenant. If any such mechanic's lien or other lien shall at any time be
filed against the Demised Premises, or any portion thereof, Tenant shall cause
the same to be discharged of record, or handled in an alternative manner
available under local law which meets with Landlord's reasonable approval,
within thirty (30) days after the date of filing the same. If Tenant shall fail
to discharge such mechanic's lien or liens or other lien or liens within such
period, or otherwise dispose of same as herein provided, then, in addition to
any other right or remedy of Landlord, Landlord may, but shall not be obligated
to, discharge the same by paying to the claimant the amount claimed to be due
or by procuring the discharge of such lien as to the Demised Premises by
deposit in the court having jurisdiction of such lien, the foreclosure thereof
or other proceeding with respect thereto, of a cash sum sufficient to secure
the discharge of the same, or by the deposit of a bond or other security with
such court sufficient in form, content and amount to procure the discharge of
such lien, or in such other manner as is now or may in the future be provided
by present or future law for the discharge of such lien as a lien against the
Demised Premises. Any amount paid by Landlord, or the value of any deposit so
made by Landlord, together with all costs, fees and expenses in connection
therewith (including reasonable attorneys' fees of Landlord), together with
interest thereon at the Maximum Rate of Interest set
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forth in Paragraph 3.4 hereof, shall be repaid by Tenant to Landlord on demand
by Landlord and if unpaid may be treated as Additional Rent. Tenant shall
indemnify and defend Landlord against and save Landlord and the Demised
Premises, and any portion thereof, harmless from all losses, costs, damages,
expenses, liabilities, suits, penalties, claims, demands and obligations,
including, without limitation, reasonable attorneys' fees resulting from the
assertion, filing, foreclosure or other legal proceeding with respect to any
such mechanic's lien or other lien.
All materialmen, contractors, artisans, mechanics, laborers and any
other person now or hereafter furnishing any labor, services, materials,
supplies or equipment to Tenant with respect to the Demised Premises, or any
portion thereof, are hereby charged with notice that they must look
exclusively to Tenant to obtain payment for the same. Notice is hereby given
that Landlord shall not be liable for any labor, services, materials, supplies,
skill, machinery, fixtures or equipment furnished or to be furnished to Tenant
upon credit, and that no mechanic's lien or other lien for any such labor,
services, materials, supplies, machinery, fixtures or equipment shall attach to
or affect the estate or interest of Landlord in and to the Demised Premises, or
any portion thereof.
10.2 Tenant shall not create, permit or suffer, and shall promptly
discharge and satisfy of record, any other lien, encumbrance, charge, security
interest, or other right or interest which shall be or become a lien,
encumbrance, charge or security interest upon the Demised Premises, or any
portion thereof, or the income therefrom, or on the interest of Landlord or
Tenant in the Demised Premises, or any portion thereof, save and except for
those liens, encumbrances, charges, security interests, or other rights or
interests consented to, in writing, by Landlord, or those mortgages,
assigments of rents assignments of leases and other mortgage documentation
placed thereon by Landlord in financing or refinancing the Demised Premises.
ARTICLE XI
INTENT OF PARTIES
11.1 Landlord and Tenant do each state and represent that it is their
respective intention that this Lease Agreement be interpreted and construed as
an absolute net lease and all Basic Rent and Additional Rent shall be paid by
Tenant to Landlord without abatement, deduction, diminution deferment,
suspension, reduction, setoff, defense or counterclaim with respect to the
same; and the obligations of Tenant shall not be affected by reason of damage to
or destruction of the Demised Premises from whatever cause (except as provided
for in Article XIII hereof); nor shall the obligations of Tenant be affected by
reason of any condemnation, eminent domain or like proceedings (except as
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provided in Article XIV hereof); nor shall the obligations of Tenant be
affected by reason of any other cause whether similar or dissimilar to the
foregoing or by any laws or customs to the contrary. It is the further express
intent of Landlord and Tenant that (i) the obligations of Landlord and Tenant
hereunder shall be separate and independent covenants and agreements and that
Basic Rent and Additional Rent, and all other charges and sums payable by
Tenant hereunder, shall commence at the times provided herein and shall
continue to be payable in all events unless the obligations to pay the same
shall be terminated pursuant to an express provision in this Lease Agreement;
(ii) all costs or expenses of whatsoever character or kind, general or special,
ordinary or extraordinary, foreseen or unforeseen, and of every kind and nature
whatsoever that may be necessary or required in and about the Demised Premises,
or any portion thereof, and Tenant's possession or authorized use thereof
during the term of this Lease Agreement, shall be paid by Tenant and all
provisions of this Lease Agreement are to be interpreted and construed in light
of the intention expressed in this Paragraph 11.1; (iii) the Basic Rent
specified in Article III shall be absolutely net to Landlord so that this Lease
Agreement shall yield net to Landlord the Basic Rent specified in Article III
in each year during the term of this Lease Agreement; (iv) all Impositions,
insurance premiums, utility expense, repair and maintenance expense, and all
other costs, fees, interest, charges, expenses, reimbursements and obligations
of every kind and nature whatsoever relating to the Demised Premises, or any
portion thereof, which may arise or become due during the term of this Lease
Agreement, or any extension or renewal thereof, shall be paid or discharged by
Tenant as Additional Rent; and (v) Tenant hereby agrees to indemnify, defend
and save Landlord harmless from and against such costs, fees, charges,
expenses, reimbursements and obligations, and any interest thereon.
11.2 If Tenant shall at any time fail to pay any Imposition pursuant to
the provisions of Article V, or to take out, pay for, maintain and deliver any
of the insurance policies or certificates of insurance provided for in Article
VI, or shall fail to make any other payment or perform any other act on its
part to be made or performed, then Landlord, after ten (10) days prior
written notice to Tenant (or without notice in case of emergency), and without
waiving or releasing Tenant from any obligation of Tenant contained in this
Lease Agreement, may, but shall be under no obligation to do so, (i) pay any
Imposition payable by Tenant pursuant to the provisions of Article V; (ii) take
out, pay for and maintain any of the insurance policies provided for in Article
VI; or (iii) make any other payment or perform any other act on Tenant's part
to be paid or performed as provided in this Lease Agreement, and Landlord may
enter upon the Demised Premises for any such purpose and take all such action
therein or thereon as may be necessary therefor. Nothing herein contained shall
be deemed a waiver or release of Tenant from any obligation of Tenant in this
Lease Agreement.
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11.3 All sums so paid by Landlord and all costs and expenses, including
reasonable attorneys' fees, incurred by Landlord in connection with the
performance of any such act, together with interest thereon at the Maximum Rate
of Interest provided for in Paragraph 3.3 hereof, from the respective dates of
Landlord's making of each payment of such cost and expense, including
reasonable attorneys' fees, shall be paid by Tenant to Landlord on demand.
Landlord shall not be limited in the proof of any damages which Landlord may
claim against Tenant, arising out of or by reason of Tenant's failure to
provide and keep in force insurance as aforesaid, to the amount of the
insurance premium or premiums not paid or not incurred by Tenant and which
would have been payable upon such insurance, but Landlord shall also be
entitled to recover as damages for such breach the uninsured amount of any loss
(to the extent of any deficiency between the dollar limits of insurance
required by the provisions of this Lease Agreement and the dollar limits of the
insurance actually carried by Tenant), damages, costs and expenses of suit,
including reasonable attorneys' fees, suffered or incurred by reason of damage
to or destruction of the Demised Premises, or any portion thereof or other
damage or loss which Tenant is required to insure against hereunder, occurring
during any period when Tenant shall have failed or neglected to provide
insurance as aforesaid. If Tenant shall fail to perform any act required of it,
Landlord may perform the same, but shall not be required to do so, in such
manner and to such extent as Landlord may deem reasonably necessary, and in
exercising any such right to employ counsel and to pay necessary and incidental
costs and expenses, including reasonable attorneys' fees. All sums so paid by
Landlord and all necessary and incidental costs and expenses in connection with
the performance of any such act by landlord, together with interest thereon at
the Maximum Rate of Interest provided for in Paragraph 3.4 hereof from the date
of making such expenditure by Landlord, shall be deemed Additional Rent
hereunder and, except as is otherwise expressly provided herein, shall be
payable to Landlord on demand or, at the option of Landlord, may be added to
any monthly rental then due or thereafter becoming due under this Lease
Agreement, and Tenant covenants to pay any such sum or sums, with interest as
aforesaid, and Landlord shall have, in addition to any other right or remedy of
Landlord, the same rights and remedies in the event of nonpayment thereof by
Tenant as in the case of default by Tenant in the payment of monthly Basic
Rent.
ARTICLE XII
DEFAULTS OF TENANT
12.1 If any one or more of the following events (in this Article
sometimes called "Events of Default") shall happen:
(a) If default shall be made in the due and punctual payment of
any Basic Rent or Additional Rent
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payable under this Lease Agreement or in the payment of any
obligations to be paid by Tenant, when and as the same shall become due and
payable, and such default shall continue for a period of five (5) business
days after written notice thereof given by Landlord to Tenant;
(b) If default shall be made by Tenant in keeping, observing or
performing any of the terms contained in this Lease Agreement, other than
those referred to in Subparagraphs (a) and (c) of this Paragraph 12.1,
which does not expose Landlord to criminal liability (it being intended
that no cure period shall be provided with respect to any default which
might expose Landlord to criminal liability), and such default shall
continue for a period of ten (10) days after written notice thereof given
by Landlord to Tenant or in the case of such a default or contingency which
cannot with due diligence and in good faith be cured within ten (10) days,
and Tenant fails to proceed promptly and with due diligence and in good
faith, to cure the same and thereafter to prosecute the curing of such
default with due diligence and in good faith, it being intended that in
connection with a default which does not expose Landlord to criminal
liability, not susceptible of being cured with due diligence and in good
faith within ten (10) days, that the time allowed Tenant within which to
cure the same shall be extended for such period as may be necessary for
the curing thereof promptly with due diligence and in good faith, but in
no event shall such additional cure period exceed twenty (20) days from
and after the expiration of the original ten (10) day cure period;
(c) If default shall be made by Tenant, by operation of law or
otherwise, under the provisions of Article XV hereof relating to
assignment, sublease, mortgage or other transfer of Tenant's interest in
this Lease Agreement or in the Demised Premises or in the income arising
therefrom; and
(d) If default shall be made by Tenant in keeping, observing or
performing any of the terms contained in this Lease Agreement, other than
those referred to in Subparagraphs (a), (b) and (c) of this Paragraph 12.1,
and which exposes Landlord to criminal liability, and such default shall
continue after written notice thereof given by Landlord to Tenant, and
Tenant fails to proceed timely and promptly with all due diligence and in
good faith to cure the same and thereafter to prosecute the curing of such
default with all due diligence, it being intended that in connection with a
default which exposes Landlord to criminal liability that Tenant shall
proceed
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immediately to cure or correct such condition with continuity and with all
due diligence and in good faith;
then, and in any such event, Landlord, at any time thereafter during the
continuance of any such Event of Default, may give written notice to Tenant
specifying such Event of Default or Events of Default and stating that this
Lease Agreement and the terms hereby demised shall expire and terminate on the
date specified in such notice, and upon the date specified in such notice this
Lease Agreement and the terms hereby demised, and all rights of Tenant under
this Lease Agreement, including all options to purchase contained therein,
whether exercised or not, may, at Landlord's option terminate, or in the
alternative or in addition to the foregoing remedy, Landlord may assert and have
the benefit of any other remedy allowed herein, at law, or in equity, including
the right to regain possession of the Demised Premises.
12.2 Upon any expiration or termination of this Lease Agreement, Tenant
shall quit and peaceably surrender the Demised Premises, and all portions
thereof, to Landlord, and Landlord, upon or at any time after any such
expiration or termination, may, without further notice, enter upon and reenter
the Demised Premises, and all portions thereof, and possess and repossess itself
thereof, by force, summary proceeding, ejectment or otherwise, and may
dispossess Tenant and remove Tenant and all other persons and property from the
Demised Premises, and all portions thereof, and may have, hold and enjoy the
Demised Premises and the right to receive all rental and other income of and
from the same.
12.3 At any time, or from time to time after any such expiration or
termination, Landlord may relet the Demised Premises, or any portion thereof, in
the name of Landlord or otherwise, for such term or terms (which may be greater
or less than the period which would otherwise have constituted the balance of
the term of this Lease Agreement) and on such conditions (which may include
concessions or free rent) as Landlord, in its sole discretion, may determine and
may collect and receive the rents therefor. Landlord shall in no way be
responsible or liable for any failure to relet the Demised Premises, or any part
thereof, or for any failure to collect any rent due upon any such reletting.
Nothing herein contained shall be deemed to excuse Landlord from mitigating its
damages as may be required by law.
12.4 No such expiration or termination of this Lease Agreement or retaking
of possession shall relieve Tenant of its liabilities and obligations under this
Lease Agreement (as if this Lease Agreement had not been so terminated), and
such liabilities and obligations shall survive any such expiration or
termination. In the event of any such termination, whether or not the Demised
Premises, or any portion thereof, shall have been relet, Tenant shall pay to
Landlord a sum equal to the Basic Rent, and the
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Additional Rent and any other charges required to be paid by Tenant, up to the
time of such expiration or termination of this Lease Agreement or retaking of
possession by Landlord, and thereafter Tenant, until the end of what would have
been the term of this Lease Agreement in the absence of such expiration or
termination, shall be liable to Landlord for, and shall pay to Landlord, as and
for agreed current damages for Tenant's default:
(a) The equivalent of the amount of the Basic Rent and Additional
Rent which would be payable under this Lease Agreement by Tenant if
this Lease Agreement were still in effect, less
(b) The net proceeds of any reletting effected pursuant to the
provisions of Paragraph 12.3 hereof after deducting all of Landlord's
expenses in connection with such reletting, including, without
limitation, all repossession costs, brokerage commissions, legal
expenses, reasonable attorneys' fees, alterations costs, and expenses
of preparation of the Demised Premises, or any portion thereof, for
such reletting.
Tenant shall pay such current damages in the amount determined in accordance
with the terms of this Paragraph 12.4, as set forth in a written statement
thereof from Landlord to Tenant (hereinafter called the "Deficiency"), to
Landlord in monthly installments on the days on which the Basic Rent would
have been payable under this Lease Agreement is this Lease Agreement were still
in effect, and Landlord shall be entitled to recover from Tenant each monthly
installment of the Deficiency as the same shall arise.
12.5 At any time after any such termination or retaking of
possession, whether or not Landlord shall have collected any monthly
Deficiencies as set forth in Paragraph 12.4, Landlord shall be entitled to
recover from Tenant, and Tenant shall pay to Landlord, on demand, as and for
damages for Tenant's default, an amount equal to the excess, if any, of the
then present worth of the aggregate of the Basic Rent and Additional Rent and
any other charges to be paid by Tenant hereunder for the unexpired portion of
the term of this Lease Agreement (assuming this Lease Agreement had not been so
terminated), and the then present worth of the then aggregate fair and
reasonable fair market rent of the Demised Premises for the same period. In the
computation of present worth, a discount at the rate of six percent (6%) per
annum shall be employed. If the Demised Premises, or any portion thereof, be
relet by Landlord for the unexpired term of this Lease Agreement, or any part
thereof, before presentation of proof of such damages to any court, commission
or tribunal, the amount of rent reserved upon such reletting shall, prima
facie, be the fair and reasonable fair market rent for the part or the whole of
the Demised Premises so relet during the term of the reletting. Nothing herein
contained or contained in Paragraph 12.4 shall limit or prejudice
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the right of Landlord to prove for and obtain, as damages by reason of such
expiration or termination, an amount equal to the maximum allowed by any
statute or rule of law in effect at the time when, and governing the
proceedings in which, such damages are to be proved, whether or not such amount
be greater, equal to or less than the amount of the difference referred to
above.
12.6 No failure by Landlord to insist upon the performance of any of
the terms of this Lease Agreement or to exercise any right or remedy consequent
upon a breach thereof, and no acceptance by Landlord of full or partial rent
from Tenant or any third party during the continuance of any such breach, shall
constitute a waiver of any such breach or of any of the terms of this lease
Agreement. None of the terms of this Lease Agreement to be kept, observed or
performed by Landlord or by Tenant, and no breach thereof, shall be waived,
altered or modified except by a written instrument executed by Landlord and/or
by Tenant, as the case may be. No waiver of any breach shall affect or alter
this Lease Agreement, but each of the terms of this Lease Agreement shall
continue in full force and effect with respect to any other then existing or
subsequent breach of this Lease Agreement. No waiver of any default of Tenant
herein shall be implied from any omission by Landlord to take any action on
account of such default, if such default persists or is repeated and no express
waiver shall affect any default other than the default specified in the express
waiver and that only for the time and to the extent therein stated. One or more
waivers by Landlord shall not be construed as a waiver of a subsequent breach
of the same covenant, term or condition.
12.7 In the event of any breach or threatened breach by Tenant of
any of the terms contained in this lease Agreement, Landlord shall be entitled
to enjoin such breach or threatened breach and shall have the right to invoke
any right or remedy allowed at law or in equity or by statute or otherwise as
though entry, reentry, summary proceedings and other remedies were not provided
for in this Lease Agreement. Each remedy or right of Landlord provided for in
this Lease Agreement shall be cumulative and shall be in addition to every
other right or remedy provided for in this lease Agreement, or now or hereafter
existing at law or in equity or by statute or otherwise, and the exercise or
the beginning of the exercise by Landlord of any one or more of such rights or
remedies shall not preclude the simultaneous or later exercise by Landlord of
any or all other rights or remedies.
12.8 If, during the term of this Lease Agreement, (i) Tenant shall
make an assignment for the benefit of creditors, (ii) a voluntary petition be
filed by Tenant under any law having for its purpose the adjudication of Tenant
a bankrupt, or Tenant be adjudged a bankrupt pursuant to an involuntary
petition in bankruptcy, (iii) a receiver be appointed for the property of
Tenant, or (iv) any department of the State or Federal government, or any
officer thereof duly authorized, shall take possession of
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the business or property of Tenant, the occurrence of any such contingency
shall be deemed a breach of the Lease Agreement and this Lease Agreement shall,
IPSO FACTO upon the happening of any of said contingencies, be terminated and
the same shall expire as fully and completely as if the day of the happening of
such contingency were the date herein specifically fixed for the expiration of
the term, and Tenant will then quit and surrender the Demised Premises, but
Tenant shall remain liable as hereinafter provided. Notwithstanding other
provisions of this Lease Agreement, or any present or future law, Landlord
shall be entitled to recover from Tenant or Tenant's estate (in lieu of the
equivalent of the amount of all rent and other charges unpaid at the date of
such termination) as damages for loss of the bargain and not as a penalty, an
aggregate sum which at the time of such termination represents the difference
between the then present worth of the aggregate of the Basic Rent and
Additional Rent and any other charges payable to Tenant hereunder that would
have accrued for the balance of the term of this Lease Agreement (assuming this
Lease Agreement had not been so terminated), over the then present worth of the
aggregate fair market rent of the Demised Premises for the balance of such
period, unless any statute or rule of law covering the proceedings in which
such damages are to be proved shall limit the amount of such claim capable of
being so proved, in which case Landlord shall be entitled to prove as and for
liquidated damages by reason of such breach and termination of this Lease
Agreement the maximum amount which may be allowed by or under such statute or
rule of law. In the computation of present worth, a discount rate of six
percent (6%) per annum shall be employed. Nothing contained herein shall limit
or prejudice Landlord's right to prove and obtain as liquidated damages arising
out of such breach and termination the maximum amount allowed by any such
statute or rule of law which may govern the proceedings in which such damages
are to be proved, whether or not such amount be greater, equal to, or less than
the amount of the excess of the present value of the rent and other charges
required herein over the present value of the fair market rents referred to
above. Specified remedies to which Landlord may resort under the terms of this
Paragraph 12.8 are cumulative and are not intended to be exclusive of any other
remedies or means of redress to which Landlord may be lawfully entitled.
12.9 Tenant hereby expressly waives, so far as permitted by law, any
and all right of redemption or reentry or repossession or to revive the
validity and existence of this Lease Agreement in the event that Tenant shall
be dispossessed by a judgment or by order of any court having jurisdiction over
the Demised Premises or the interpretation of this Lease Agreement or in case
of entry, reentry or repossession by Landlord or in case of any expiration or
termination of this Lease Agreement.
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ARTICLE XIII
DESTRUCTION AND RESTORATION
13.1 In case of any damage or loss to the Demised Premises by reason of
fire or other casualty, Tenant shall give immediate notice thereof to Landlord.
If the Demised Premises shall at any time be damaged or destroyed by fire or
other casualty, Lessee shall promptly cause to be repaired, rebuilt or restored
(hereinafter the "Restoration") the same at Tenant's expense, so as to make the
Demised Premises at least equal in value to the Demised Premises existing
immediately prior to such occurrence and as nearly similar in character as
shall be practicable and reasonable. Landlord shall apply and make available to
Tenant the net proceeds of any fire or other casualty insurance paid to
Landlord, after deduction of any reasonable costs of collection, including
attorneys' fees, for such Restoration as the same progresses.
13.2 Notwithstanding any provision to the contrary herein contained,
the Restoration as set forth in Paragraph 13.1 shall be governed, coordinated
and implemented by Landlord, whose discretion therewith shall control, it being
intended that Tenants involvement therein shall be limited to those economic
matters set forth in Paragraph 13.1. Landlord shall fulfill its Restoration
responsibilities in the manner which it deems reasonable.
13.3 Except as provided for in Paragraph 13.4, no destruction of or
damage to the Demised Premises, or any portion thereof, by fire, casualty or
otherwise shall permit Tenant to surrender this Lease Agreement or shall
relieve Tenant from its liability to pay to Landlord the Basic Rent and
Additional Rent, payable under this Lease Agreement or from any of its other
obligations under this Lease Agreement, and Tenant waives any rights now or
hereafter conferred upon Tenant by present or future law or otherwise to quit
or surrender this Lease Agreement or the Demised Premises, or any portion
thereof, to Landlord or to any suspension, diminution, abatement or reduction
of rent on account of such damage or destruction.
13.4 If at any time during the Term of this Lease Agreement the Demised
Premises shall be so damaged by fire or other casualty that the cost of
Restoration shall exceed fifty percent (50%) of the replacement value thereof,
exclusive of foundations, immediately prior to such damage, Landlord may,
within sixty (60) days after such damage, give notice to Tenant of its election
to terminate this Lease Agreement and this Lease Agreement shall cease and come
to an end as of the date of the damage as aforesaid, with the same force and
effect as if such date were the date hereinbefore fixed for the expiration of
the Term, and Basic Rent and Additional Rent shall thereafter be apportioned
and paid to the time of such termination. In such event Tenant shall have no
obligation to undertake the Restoration and the entire insurance
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proceeds resultant therefrom shall be and remain the property of Lessor.
ARTICLE XIV
CONDEMNATION
14.1 If by the exercise of the power of eminent domain the Demised
Premises shall be taken, or a portion thereof shall be taken and such taking
prevents the full economic use of the Demised Premises for the purposes
described herein, the Term of this Lease Agreement and the Term and estate
hereby granted shall terminate on the date when the possession of the part so
taken shall be required for such use or purpose. Tenant shall have no right to
share in any condemnation award except as set forth in Paragraph 14.3 hereof,
but Basic Rent, Additional Rent, and other amounts payable hereunder shall be
apportioned as of the date of such termination.
14.2 If by the exercise of the power of eminent domain a portion of the
Demised Premises is taken, but such taking does not prevent the full economic
use of the Demised Premises for the purposes described herein, the Lease
Agreement shall terminate as of the date of taking as to the part which is
taken, and shall continue in force as to the remainder of the Demised Premises.
Tenant shall have no right to share in the condemnation award for such taking,
except as put forth in Paragraph 14.3 hereof, but Basic Rent, Additional Rent,
and other amounts payable hereunder shall be apportioned as of the date of such
termination.
14.3 In any taking of the Demised Premises, or any portion thereof,
whether or not this Lease Agreement is terminated as in this Article provided,
Tenant shall not be entitled to any portion of the award for the taking of the
Demised Premises or damage to the Building or the Improvements, or for the
estate or interest of Tenant therein, all such award, damages, consequential
damages and compensation being hereby assigned to Landlord, and Tenant hereby
waives any right it now has or may have under present or future law to receive
any separate award of damages for its interest in the Demised Premises, or any
portion thereof, or its interest in this Lease Agreement, except that Tenant
shall have, nevertheless, the limited right to prove in any such proceeding and
to receive any separate award which may be made for damages to or condemnation
of Tenant's movable trade fixtures and equipment and for moving expenses so
long as such claims by Tenant do not reduce Landlord's award below what it would
be absent such claim.
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ARTICLE XV
ASSIGNMENT, SUBLETTING, ETC.
15.1 Tenant shall not sublet the Demised Premises, or any portion
thereof, nor assign, mortgage, pledge, transfer or otherwise encumber or
dispose of this Lease Agreement, or any interest therein, or in any manner
assign, mortgage, pledge, transfer or otherwise encumber or dispose of its
interest or estate in the Demised Premises, or any portion thereof, without
obtaining Landlord's prior written express consent in each and every instance,
which consent, however, to an assignment of this Lease Agreement or subletting
of the Demised Premises shall not be unreasonably withheld or delayed, provided
the following conditions are complied with:
(a) Any assignment of this Lease Agreement shall transfer to
the assignee all of Tenant's right, title and interest in this Lease
Agreement and all of Tenant's estate or interest in the Demised
Premises.
(b) At the time of any assignment or subletting, and at the
time when Tenant requests Landlord's written consent thereto, this Lease
Agreement must be in full force and effect, without any breach or
default thereunder on the part of Tenant.
(c) Any such assignee shall assume, by written recordable
instrument in form and content satisfactory to Landlord, the due
performance of all of Tenant's obligations under this Lease Agreement,
including any accrued obligations at the time of the effective date of
the assignment, and such assumption agreement shall state that the
same is made by the assignee for the express benefit of Landlord as a
third party beneficiary thereof. A copy of the assignment and
assumption agreement, both in form and content satisfactory to
Landlord, fully executed and acknowledged by assignee, together with
related documents and agreements and a certified copy of a properly
executed corporate resolution (if the assignee be a corporation)
authorizing the execution and delivery of such assumption agreement,
shall be sent to Landlord ten (10) days prior to the effective date of
such assignment, and in any event within ten (10) days after execution
thereof.
(d) In the case of a subletting, a copy of any sublease
fully executed and acknowledged by Tenant and sublessee shall be mailed
to Landlord ten (10) days prior to the effective date of such
subletting, and in any event within ten (10) days after execution there
of.
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<PAGE> 35
(e) Such assignment or subletting shall be subject to all the
provisions, terms, convenants and conditions of this Lease Agreement,
and Tenant-Assignor and the assignee or assignees shall continue to be
and reamin liable under the Lease Agreement, as it may be amended from
time to time.
(f) Each sublease permitted under this Paragraph 15.1 shall
contain provisions to the effect that (i) such sublease is only for
actual use and occupancy by the sublesee; (ii) such sublease is
subject and subordinate to all of the terms, covenants and conditions
of this Lease Agreement and to all of the rights of Landlord
thereunder; and (iii) in the event this Lease Agreement shall
terminate before the expiration of such sublease, the sublessee
thereunder will, at Landlord's option, attorn to Landlord and waive any
rights the sublessee may have to terminate the sublease or to surrender
possession thereunder, as a result of the termination of this Lease
Agreement. Further, no subtenant or occupant of the Demised Premises
shall have any greater rights in respect to Landlord than such party
would have if such party had assumed the obligations of and limitation
of rights of Tenant hereunder at the time such party becamse a subtenant
or occupant, and Tenant shall cause each subtenant and occupant to so
agree.
(g) Tenant agrees to pay on behalf of Landlord any and all
costs of Landlord, including reasonable attorneys' fees, occasioned by
such assignment or subletting.
(h) If any modification to the Lease Agreement is proposed to
be made after such assignment or sublease, then, at Landlord's option,
all prior assignors and sublessors, and all such obligated
parties, shall be required to confirm in writing their approval of such
modification, and that their obligations continue as to the Lease
Agreement as so modified.
(i) The use to which the assignee or sublessee may put the
Demised Premises shall not involve the use of so-called "hazardous
materials," except as provided in Paragraph 23.2 of this lease
Agreement, or constitute a use which will materially increase the
physical depreciation over the use to which the assignor is using such
Demised Premises.
15.2 Notwithstanding anything contained in this Lease Agreement to the
contrary and notwithstanding any consent by Landlord to any sublease of the
Demised Premises, or any portion thereof, or to any assignment of this Lease
Agreement or of
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<PAGE> 36
Tenant's Interest or estate in the Demised Premises, no sublease shall assign
its sublease nor further sublease the Demised Premises, or any portion thereof,
and no assignee shall further assign its interest in this Lease Agreement or
its interest or estate in the Demised Premises, or any portion thereof, nor
sublease the Demised Premises, or any portion thereof, without Landlord's prior
written consent in each and every instance. No such assignment or subleasing
shall relieve Tenant (or any assignor of Tenant's interest) from any of
Tenant's obligations in this Lease Agreement contained.
15.3 Notwithstanding anything contained in this Lease Agreement to
the contrary, should Tenant desire to assign this Lease Agreement, or its
interest or estate in the Demised Premises, or sublet the Demised Premises, or
any portion thereof, it shall give written notice of its intention to do so to
Landlord sixty (60) days or more before the effective date of such proposed
assignment or subletting and Landlord may, at any time within thirty (30) days
after the receipt of such notice from Tenant, cancel this Lease Agreement by
giving Tenant written notice of its intention to do so, in which event such
cancellation shall become effective upon the date specified by Landlord, but
not less than thirty (30) days nor more than ninety (90) days after its receipt
by Tenant, with the same force and effect as if said cancellation date were the
date originally set forth as the expiration date of the Term of this Lease
Agreement. Landlord may enter into a direct lease with the proposed sublessee
or assignee or with any other persons as Landlord may desire without obligation
or liability to Tenant, its assignees, sublessees or their respective
successors, assigns, agents or brokers.
15.4 Tenant's failure to comply with all of the foregoing provisions
and conditions of Article XV shall (whether or not Landlord's consent is
required under this Article), at Landlord's option, render any purported
assignment or subletting null and void and of no force and effect.
15.5 Landlord acknowledges that, in connection with Tenant's
operations at the Demised Premises, Tenant shall require in-house tool and die
services/operations, and that in connection with such required
services/operations Tenant desires to sublease a portion of the Demised
Premises to a tool and die specialist, exclusively for the purpose of serving
Tenant's tool and die needs for Tenant's operations at the Demised Premises.
Tenant hereby acknowledges and agrees that any such subletting that Tenant
shall require for such purpose, shall require Landlord's prior written consent,
and Tenant shall be required by Landlord to comply with each of the above terms
and conditions pertaining to subleases proposed for any part or portion of the
Demised Premises. Landlord hereby agrees that it shall not act unreasonably in
determining whether to withhold or grant its consent for any such sublease.
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ARTICLE XVI
SUBORDINATION; NONDISTURBANCE;
NOTICE TO MORTGAGEE AND ATTORNMENT
16.1 This Lease Agreement and all rights of Tenant therein, and all
interest or estate of Tenant in the Demised Premises, or any portion thereof,
shall be subject and subordinate to the lien of any mortgage, deed of trust,
security instrument or other document of like nature, hereinafter referred to
as "Mortgage," which may be in existence as of the Commencement Date or which
may hereafter at any time be placed upon the Demised Premises, or any portion
thereof, by Landlord, and to any replacements, renewals, amendments,
modifications, extensions or refinancing thereof, and to each and every advance
made under any Mortgage. Tenant agrees at any time hereafter, and from time to
time on demand of Landlord, to execute and deliver to Landlord any instruments,
releases or other documents that may be reasonably required for the purpose of
evidencing the subjecting and subordinating of this Lease Agreement to the lien
of any such Mortgage. It is agreed, however, that so long as Tenant shall not
be in default in the payment of Basic Rent and Additional Rent and the
performance and observance of all covenants, conditions, provisions, terms and
agreements to be performed and observed by Tenant under this Lease Agreement,
(i) such subordination agreement or other instrument, release or document shall
contain and (ii) Tenant on its own request may seek and Landlord will use its
best efforts (excluding however any obligation by Landlord to pay fees or
charges imposed by any such mortgagee in connection therewith) to obtain from
any such Mortgagee (including the mortgagee in place as of the Commencement
Date), a so-called "Nondisturbance Agreement" in reasonable form, providing
that if Tenant shall not be in default as provided above, then Tenant's right
to quiet enjoyment under this Lease Agreement, its right to continue to occupy
the Demised Premises, and all portions thereof, and its right to conduct its
business thereon in accordance with the covenants, conditions, provisions,
terms and agreements herein contained shall not be interfered with, hindered or
molested, and further that Tenant's interest in and to the Lease Agreement
shall remain in full force and effect, including the option to purchase under
Paragraph 18.1 hereof. The lien of any such Mortgage shall not cover Tenant's
trade fixtures or other personal property of Tenant located in or on the
Demised Premises.
16.2 In the event of any act or omission of Landlord constituting a
default by Landlord, Tenant shall not exercise any remedy until Tenant has
given Landlord and any mortgagee of the Demised Premises a prior thirty (30)
day written notice of such act or omission and until a reasonable period of
time to allow Landlord or the mortgagee to remedy such act or omission shall
have elapsed following the giving of such notice; provided, however, if such
act or omission cannot, with due diligence and in good faith, be remedied
within such thirty (30) day period, the Landlord and
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mortgagee shall be allowed such further period of time as may be reasonably
necessary provided that it commence remedying the same with due diligence and
in good faith within said thirty (30) day period, but in no event shall such
additional cure period exceed forty-five (45) days from and after the
expiration of the original thirty (30) day cure period. Nothing herein
contained shall be construed or interpreted as requiring any mortgagee to
remedy such act or omission.
16.3 Subject to the provisions for nondisturbance language as provided
in Paragraph 16.1 hereof, if any mortgagee shall succeed to the rights of
Landlord under this Lease Agreement or to ownership of the Demised Premises,
whether through possession or foreclosure or the delivery of a deed to the
Demised Premises, then, upon written request of such mortgagee so succeeding to
Landlord's rights hereunder, Tenant shall attorn to and recognize such
mortgagee as Tenant's landlord under this Lease Agreement, and shall promptly
execute and deliver any instrument that such mortgagee may reasonably request
to evidence such attornment (whether before or after making of the mortgage).
In the event of any other transfer of Landlord's interest under this Lease
Agreement, upon the written request of the transferee and Landlord, Tenant
shall attorn to and recognize such transferee as Tenant's landlord under this
Lease Agreement and shall promptly execute and deliver any instrument that such
transferee and Landlord may reasonably request to evidence such attornment.
ARTICLE XVII
SIGNS
17.1 Tenant, at Tenant's sole cost and expense, may erect signs on the
exterior or interior of the Building or on the landscaped area adjacent
thereto, provided that such sign or signs (i) do not cause any structural
damage or other damage to the Building; (ii) do not violate applicable
governmental laws, ordinances, rules or regulations; (iii) do not violate any
existing restrictions affecting the Demised Premises; (iv) are compatible with
the architecture of the Building and the landscaped area adjacent thereto; and
(v) have received the written approval of Landlord (which approval shall not be
unreasonably withheld or delayed).
ARTICLE XVIII
INTENTIONALLY DELETED
ARTICLE XIX
CHANGES AND ALTERATIONS
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19.1 During the Term of this Lease Agreement, Tenant shall not make
changes and alterations, structural or otherwise, to the Building, Improvements
and fixtures, now or hereafter erected on the Demised Premises, without
obtaining Landlord's prior written consent thereto in each and every instance,
which consent shall not be unreasonably withheld or delayed. Notwithstanding
any provision hereof appearing to the contrary, Landlord shall not be required
to grant its consent for any change or alteration which, in Landlord's
reasonable determination, diminishes the value of the Building, Improvements or
fixtures. Landlord hereby agrees that Tenant shall be permitted to raise the
roof in a certain area of the Building, affecting a portion of the Building's
roof, containing approximately 7,500 square feet; provided Tenant complies with
Section 19.2 hereinbelow, and with all other provisions contained in this Lease.
19.2 To the extent that Landlord consents to any alteration to the
Demised Premises proposed by Tenant, Tenant agrees that all changes, additions
and work to implement any such alteration shall be done completely at Tenant's
sole cost and expense, and any such alteration shall:
(a) comply with Article IX hereof and with the requirements of
all governmental or quasi-governmental authorities having jurisdiction
over building matters and zoning requirements, and with the requirements
of Landlord's insurance carriers;
(b) be made only with the prior written consent of Landlord;
(c) equal or exceed the quality of materials used for the
Building; and
(d) be carried out only by persons selected by Tenant and
approved in writing by Landlord, who shall, if required by Landlord,
deliver to Landlord before commencement of the work performance and
payment bonds as well as proof of worker's compensation and public
liability and property damage insurance coverage, with Landlord named
as an additional insured, in amounts, with companies, and in form
reasonably satisfactory to Landlord, which shall remain in effect during
the entire period in which the work will be carried out.
Tenant shall indemnify Landlord against any increase in property taxes on or
fire or casualty insurance premiums for the Building attributable to such
change, addition or improvement, any such increase to be borne by Tenant.
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ARTICLE XX
MISCELLANEOUS PROVISIONS
20.1 Tenant agrees to permit Landlord and authorized representatives of
Landlord to enter upon the Demised Premises at all reasonable times during
ordinary business hours for the purpose of inspecting the same and making any
necessary repairs to comply with any laws, ordinances, rules, regulations or
requirements of any public body, or the Board of Fire Underwriters, or any
similar body. Nothing herein contained shall imply any duty upon the part of
Landlord to do any such work which, under any provision of this Lease Agreement,
Tenant may be required to perform and the performance thereof by Landlord shall
not constitute a waiver of Tenant's default in failing to perform the same.
Landlord may, during the progress of any work, keep and store upon the Demised
Premises all necessary materials, tools and equipment. Landlord shall not in
any event be liable for inconvenience, annoyance, disturbance, loss of business
or other damage to Tenant by reason of making repairs or the performance of any
work in or about the Demised Premises, or on account of bringing material,
supplies and equipment into, upon or through the Demised Premises during the
course thereof, and the obligations of Tenant under this Lease Agreement shall
not be thereby affected in any manner whatsoever.
20.2 Landlord is hereby given the right during normal business hours at
any time during the term of this Lease Agreement to enter upon the Demised
Premises and to exhibit the same for the purpose of mortgaging or selling the
same. During the final one (1) year of the term Landlord shall be entitled to
display on the Demised Premises, in such manner as to not unreasonably
interfere with Tenant's business, signs indicating that the Demised Premises
are for rent or sale and suitably identifying Landlord or its agent. Tenant
agrees that such signs may remain unmolested upon the Demised Premises and that
Landlord may exhibit said premises to prospective tenants during said period.
20.3 To the fullest extent allowed by law, and except and to the extent
that the following may be occasioned by Landlord's negligence as a landlord
under the terms and provisions of this Lease Agreement, Tenant shall at all
times indemnify, defend and hold Landlord harmless against and from any and all
claims by or on behalf of any person or persons, firm or firms, corporation or
corporations, arising from the conduct or management, or from any work or
things whatsoever done in or about the Demised Premises, and will further
indemnify, defend and hold Landlord harmless against and from any and all
claims arising during the term of this Lease Agreement, from any condition of
the Improvements or any street, curb or sidewalk adjoining the Demised
Premises, or of any passageways or space therein or appurtenant thereto, or
arising from any breach or default on the part of Tenant in the performance of
any covenant or agreement on the part of Tenant to be performed, pursuant to
the terms of this Lease Agreement, or arising from any
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<PAGE> 41
act or negligence of Tenant, its agents, servants, employees or licensees, or
arising from any accident, injury or damage whatsoever caused to any person,
firm or corporation occurring during the term of this Lease Agreement, in or
about the Demised Premises or upon the sidewalk and the land adjacent thereto,
and from and against all costs, attorneys' fees, expenses and liabilities
incurred in or about any such claim or action or proceeding brought thereon;
and in case any action or proceeding be brought against Landlord by reason of
any such claim, Tenant, upon notice from Landlord, covenants to defend such
action or proceeding by counsel reasonably satisfactory to Landlord. Tenant's
obligations under this Paragraph 20.3 shall be insured by contractual liability
endorsement on Tenant's policies of insurance required under the provisions of
Paragraph 6.2 hereof.
20.4 All notices, demands and requests which may be or are required to
be given, demanded or requested by either party to the other shall be in
writing. All notices, demands and requests shall be sent by United States
registered or certified mail, postage prepaid, addressed as follows:
If to Landlord:
Packaging Resources Incorporated
One Conway Park
100 Field Drive
Lake Forest, Illinois 60045
Attn: Mr. Jerry J. Corirossi, Vice President
If to Tenant:
Tamor Plastics Corp.
106 Carter Street
Leominster, Massachusetts 01453
Attn: Leonard J. Tocci, President
With a copy to:
Bodanza & Bodanza
36 School Street
Leominster, MA 01453
Attn: Mark Bodanza, Esq.
or at such other place as Landlord or Tenant may from time to time designate by
written notice. Notices, demands and requests which shall be served upon
Landlord by Tenant, or upon Tenant by Landlord, in the manner aforesaid, shall
be deemed to be sufficient served or given for all purposes hereunder at the
time such notice, demand or request shall be mailed.
20.5 [Intentionally Omitted.]
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20.6 Landlord covenants and agrees that Tenant, upon paying the Basic
Rent and Additional Rent, and upon observing and keeping the covenants,
agreements and conditions of this Lease Agreement on its part to be kept,
observed and performed, shall lawfully and quietly hold, occupy and enjoy the
Demised Premises (subject to the provisions of this Lease Agreement) during the
term of this Lease Agreement without hindrance or molestation by Landlord or by
any person or persons claiming under Landlord.
20.7 The term "Landlord," as used in this Lease Agreement so far as
covenants or obligations on the part of Landlord are concerned, shall be
limited to mean and include only the owner or owners at the time in question
of the fee of the Demised Premises, and in the event of any transfer or
transfers of conveyance the then grantor shall be automatically freed and
relieved from and after the date of such transfer or conveyance of all
liability as respects the performance of any covenants or obligations on the
part of Landlord contained in this Lease Agreement thereafter to be performed,
provided that any funds in the hands of such landlord or the then grantor at
the time of such transfer, in which Tenant has an interest, shall be turned
over to the grantee, and any amount then due and payable to Tenant by Landlord
or the then grantor under any provision of this Lease Agreement shall be paid
to Tenant, it being intended hereby that the covenants and obligations
contained in this Lease Agreement on the part of Landlord shall, subject to
the aforesaid, be binding on Landlord, its successors and assigns, only during
and in respect of their respective successive periods of ownership.
20.8 In the event that Tenant is a corporation, Tenant shall, without
charge to Landlord, at any time and from time to time within fifteen (15) days
after written request by Landlord, deliver to Landlord, in connection with any
proposed sale or mortgage of the Demised Premises, the following instruments
and documents:
(a) A certified copy of the resolution of the
board of directors of Tenant authorizing the execution
and delivery of the Lease Agreement.
(b) Certificate of Good Standing in the state
of incorporation of tenant and in the state in which
the Demised Premises are located issued by the
appropriate state authority and bearing a current
date.
(c) Such other certifications or statements as
Landlord may reasonably require.
20.9 If any covenant, condition, provision, term or agreement of this
Lease Agreement shall, to any extent, be held invalid or unenforceable, the
remaining covenants, conditions, provisions, terms and agreements of this Lease
Agreement shall not
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be affected thereby, but each covenant, condition, provision, term or agreement
of this Lease Agreement shall be valid and in force to the fullest extent
permitted by law. This Lease Agreement shall be construed and be enforceable in
accordance with the laws of the state in which the Demised Premises are located.
20.10 The covenants and agreements herein contained shall bind and
inure to the benefit of Landlord, its successors and assigns, and Tenant and
its permitted successors and assigns.
20.11 The caption of each article of this Lease Agreement is for
convenience of reference only, and in no way defines, limits or describes the
scope or intent of such article or of this Lease Agreement.
20.12 This Lease Agreement does not create the relationship of
principal and agent, or of partnership, joint venture, or of any association or
relationship between Landlord and Tenant, the sole relationship between
Landlord and Tenant being that of landlord and tenant.
20.13 All preliminary and contemporaneous negotiations are merged into
and incorporated in this Lease Agreement. This Lease Agreement contains the
entire agreement between the parties and shall not be modified or amended in
any manner except by an instrument in writing executed by the parties hereto.
20.14 There shall be no merger of this Lease Agreement or the leasehold
estate created by this Lease Agreement with any other estate or interest in the
Demised Premises by reason of the fact that the same person, firm, corporation
or other entity may acquire, hold or own directly or indirectly, (i) this
Lease Agreement or the leasehold interest created by this Lease Agreement or
any interest therein, and (ii) any such other estate or interest in the Demised
Premises, or any portion thereof. No such merger shall occur unless and until
all persons, firms, corporations or other entities having an interest
(including a security interest) in (1) this Lease Agreement or the leasehold
estate created thereby, and (2) any such other estate or interest in the
Demised Premises, or any portion thereof, shall join in a written instrument
expressly effecting such merger and shall duly record the same.
20.15 Tenant acknowledges that the Demised Premises are the property of
Landlord and that Tenant has no right to the property owned or paid for by
Landlord or to fixtures attached to the Demised Premises, except to possess
same in accordance with and during the term thereof.
20.16 No surrender to Landlord to this Lease Agreement or of the
Demised Premises, or any portion thereof, or any interest therein, prior to the
expiration of the Term of this Lease
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<PAGE> 44
Agreement shall be valid or effective unless agreed to and accepted in writing
by Landlord and consented to in writing by all contract vendees and mortgagees,
and no act or omission by Landlord or any representative or agent of Landlord,
other than such a written acceptance by Landlord consented to by all contract
vendees and the mortgagees, as aforesaid, shall constitute an acceptance of any
such surrender.
20.17 At the expiration of the Term of this Lease Agreement or upon the
termination of this Lease Agreement for any reason whatsoever, Tenant shall
surrender the Demised Premises, together with the Building, Improvements,
fixtures and structures in the same condition as the same were in upon delivery
of possession thereto at the Commencement Date of the Term of this Lease
Agreement, reasonable wear and tear, approved alterations and improvements
(subject to Article XIX) and Tenants moveable trade fixtures and equipment
excepted, and shall surrender all keys to the Demised Premises to Landlord at
the place then fixed for the payment of Basic Rent and shall inform Landlord of
all combinations on locks, safes and vaults, if any. Tenant shall at such time
remove all of its property therefrom and all alterations and improvements
placed thereon by Tenant if so requested by Landlord. Tenant shall repair any
damage to the Demised Premises caused by such removal, and any and all such
property not so removed shall, at Landlord's option, become the exclusive
property of Landlord or be disposed of by Landlord, at Tenant's cost and
expense, without further notice to or demand upon Tenant. If the Demised
Premises be not surrendered as above set forth, Tenant shall indemnify, defend
and hold Landlord harmless against loss or liability resulting from the delay
by Tenant in so surrendering the Demised premises, including, without
limitation, any claim made by any succeeding occupant founded on such delay.
Tenant's obligation to observe or perform this covenant shall survive the
expiration or other termination of this Lease Agreement.
All property of Tenant not removed on or before the last day of the
Term of this Lease Agreement shall be deemed abandoned. Tenant hereby appoints
Landlord its agent to remove all property of Tenant from the Demised Premises
upon termination of this Lease Agreement and to cause its transportation and
storage for Tenant's benefit, all at the sole cost and risk of Tenant and
Landlord shall not be liable for damage, theft, misappropriation or loss
thereof and Landlord shall not be liable in any manner in or respect thereto.
Tenant shall pay all costs and expenses of such removal, transportation and
storage. Tenant shall reimburse Landlord upon demand for any expenses incurred
by Landlord with respect to removal or storage of abandoned property and with
respect to restoring said Demised Premises to good order, condition and repair.
20.18 All obligations (together with interest or money obligations at
the Maximum Rate of Interest) accruing prior to
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<PAGE> 45
expiration of the Term of this Lease Agreement shall survive the expiration or
other termination of this Lease Agreement.
ARTICLE XXI
BROKERAGE
21.1 Tenant represents and warrants to Landlord that Tenant has not
incurred any obligation or liability, contingent or otherwise, for brokerage or
finder's fees or agent's commissions or other like payment in connection with
this Lease Agreement or the transactions contemplated hereby, and Tenant agrees
to indemnify, defend and hold Landlord harmless against and in respect of any
such obligation and liability based in any way upon agreements, arrangements or
understandings made or claimed to have been made by Tenant with any third
person. Landlord hereby agrees to indemnify and defend Tenant against any claim
for commission which is due and payable to any broker on the transaction
contemplated hereby arising out of any agreements or understandings made or
claimed to have been made by Landlord with any third party. In respect to any
claim indemnified herein, the indemnifying party shall be given prompt notice
of such claims and opportunity to defend with counsel of its selection.
Anything herein to the contrary notwithstanding, Landlord shall pay any
commission arising out of this transaction negotiated by Landlord with Listing
Broker.
ARTICLE XXII
SECURITY DEPOSIT
22.1 Landlord is currently holding the sum of Twenty Two Thousand
Eight Hundred Seven and 00/100 Dollars ($22,807.00) as a security deposit
("Security Deposit") for the full and faithful performance by Tenant of each
and every term, provision, covenant and condition of this Lease Agreement. In
the event that Tenant defaults in respect to any of the terms, provisions,
covenants and conditions of this Lease Agreement, including, but not limited
to, the payment of Basic Rent, Additional Rent, or other charges or items to be
paid or provided for by Tenant, Landlord may use, apply or retain the whole or
any part of the Security Deposit for the payment of any such amount in default
or for any other sum which Landlord may expend or be required to expend by
reason of Tenant's default, including, but not limited to, any damages or
deficiency in the reletting of the Leased Premises, whether such damages or
deficiency may accrue before or after reentry by Landlord. Tenant shall not be
entitled to any interest on the Security Deposit. It is expressly understood
and agreed that such deposit is not an advance rental deposit or a measure of
Landlord's damages in case of Tenant's default. Upon application of any part of
the Security Deposit by Lessor as provided herein, Tenant shall pay to Landlord
on demand the amount so applied in order to restore the Security Deposit to its
original amount. Any application of the Security
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<PAGE> 46
Deposit by Landlord shall not be deemed to have cured Tenant's default by
reason of which the application is made.
22.2 In the event of a bona fide sale of the Building situated on the
Demised Premises, Landlord shall have the right to transfer the Security
Deposit to its vendee for the benefit of Tenant, and thereafter Landlord shall
be released of all liability for the return of such deposit and Tenant agrees
to look to said vendee for the return of its Security Deposit. It is agreed
that this provision shall apply to every transfer or assignment made of the
Security Deposit to any new landlord.
22.3 This Security Deposit shall not be assigned or encumbered by
Tenant. It is expressly understood that the reentry of the Demised Premises by
Landlord for any default on the part of Tenant prior to the expiration of the
Term of this Lease Agreement shall not be deemed a termination of this Lease
Agreement so as to entitle Tenant to recover the Security Deposit, and the
Security Deposit shall be retained and remain in the possession of Landlord
until the end of the Term of this Lease Agreement.
22.4 Actions by Landlord against Tenant for breach of this Lease shall
in no way be limited or restricted by the amount of this Security Deposit and
resort to such deposit shall not waive any other rights or constitute an
election of remedies which Landlord may have.
22.5 If Tenant shall fully and faithfully comply with all the terms,
provisions, covenants and conditions of this Lease Agreement, the Security
Deposit, or any balance thereof, shall be returned to Tenant, without interest
thereon, within thirty (30) days after the time fixed herein as the expiration
of the Term hereof and after the removal of Tenant and surrender of possession
of the Demised Premises to Landlord.
ARTICLE XXIII
ASBESTOS AND HAZARDOUS SUBSTANCES
23.1 Tenant shall not install or permit to be installed in the Demised
Premises, asbestos or any substance containing asbestos. With respect to any
such material, Tenant shall promptly remove any such material at Tenant's sole
cost and expense. If Tenant shall fail to so remove, Landlord may, after notice
to Tenant and the expiration of the earlier of (i) applicable cure period
hereunder or (ii) the cure period permitted under the applicable law, rule,
regulation or order, either declare this Lease Agreement to be in default or do
whatever is necessary to eliminate said substances from the Demised Premises or
otherwise comply with the applicable law, rule, regulation or order and the
cost thereof shall be due and payable upon demand. Tenant shall give to
Landlord and its agents and employees access to the Demised
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<PAGE> 47
Premises and hereby authorizes Landlord to remove said asbestos or substances.
Tenant shall indemnify Landlord and hold Landlord harmless from and against all
loss, cost, damage and expense (including, without limitation, attorney's fees
and costs incurred in the investigation, defense and settlement of claims) that
Landlord may incur as a result of or in connection with the assertion against
Landlord of any claim relating to the presence or removal of any asbestos
substance referred to in this Paragraph 23.1, or compliance with any federal,
state or local laws, rules, regulations or orders relating thereto, provided
such claim relates to the asbestos installed by Tenant. In addition, Tenant
acknowledges that in the event asbestos located at the Demised Premises by or
through the actions of Tenant or persons claiming under or through Tenant, is
caused to be removed from the Demised Premises by Tenant or by Landlord, that
the Environmental Protection Agency number assigned to such asbestos so removed
shall be solely in the name of the Tenant, and Tenant shall assume all
liability for such removed asbestos. Tenant agrees that it shall indemnify and
hold Landlord harmless from and against any claim or claims, arising from or
relating to all environmental conditions or environmental matters, other than
the Pre-Existing Environmental Conditions (defined hereinbelow), arising from
or caused by Tenant's use, possession or occupancy of the Demised Premises, and
the use, possession or occupancy of the Demised Premises by those persons
claiming under or through Tenant. Tenant's obligations hereunder shall survive
the expiration or earlier termination of the Lease Agreement as provided
herein.
Further, Landlord agrees that it shall be solely responsible for the
remediation of all asbestos and/or asbestos containing materials and
environmental conditions (hereinafter the "Pre-existing Environmental
Conditions") located at the Demised Premises and those environmental problems,
matters or conditions, existing at the Demised Premises on a date which is
prior to Tenant's use or occupancy thereof, or those environmental problems,
conditions or matters which are noted in the ENSOR Phase I Audit or the ENSOR
Phase II Audit to be promptly completed by Landlord (so long as no such
environmental problem, condition or matter is attributable to Tenant's use or
occupancy of the Demised Premises). Any Environmental Protection Agency number
required to be issued in connection with such remediation shall be the
responsibility of Landlord and not Tenant. Landlord agrees that it shall
indemnify and hold Tenant harmless from and against any claim or claims,
arising from or related to the Pre-existing Environmental Conditions.
Landlord's obligations hereunder shall survive the expiration or earlier
termination of this Lease Agreement as provided herein.
23.2 (a) For purposes of this Paragraph 23.2, "hazardous substance"
means any matter giving rise to liability under the Resource Conservation and
Recovery Act ("RCRA"), 42 U.S.C. Section 6901 et seq., the Comprehensive
Environmental Response,
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<PAGE> 48
Compensation and Liability Act ("CERCLA"), 52 U.S.C. Sections 9601 et seq.,
state, local or municipal laws, rules, regulations or orders (hereinafter
"State and Local Laws"), or any common law theory based on nuisance or strict
liability.
(b) Notwithstanding anything contained in Article XXIII to the
contrary, Tenant shall not generate, manufacture, treat, store, dispose,
release, recycle, handle, use, or otherwise manage any Hazardous Substance or
"Hazardous Material" at the Demised Premises. For purposes of this Lease
Agreement, the term "Hazardous Material" shall mean any material, chemical,
substance, or article that is or contains a Hazardous Substance,
polychlorinated biphenyls, asbestos, or radioactive matter. Notwithstanding
the foregoing, Tenant is authorized to store, handle, or use a Hazardous
Material that is or contains a Hazardous Substance provided that such Hazardous
Material is not and does not contain a "hazardous waste" (as that term is
defined in the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901,
et seq., and its implementing regulations) and provided further that during the
Term of this Lease Agreement and upon termination of the Term, such Hazardous
Substance and/or Hazardous Material will be stored, handled, used and disposed
of in strict accordance with all applicable federal, state, and local laws and
regulations. Tenant's failure to comply with the provisions of this Article
XXIII shall constitute a default under this Lease Agreement. Tenant's
obligation hereunder shall survive the termination of this Lease Agreement.
(c) If the presence, release, threat of release, placement on or in
the Demised Premises, or the generation, transportation, storage, treatment, or
disposal at the Demised Premises of any hazardous substance: (i) gives rise to
liability (including, but not limited to, a response action, remedial action,
or removal action) under RCRA, CERCLA, State and Local Laws, or any common law
theory based on nuisance or strict liability, (ii) causes a significant public
health effect, or (iii) pollutes or threatens to pollute the environment,
Tenant shall promptly take any and all remedial and removal action necessary to
clean up the Demised Premises and mitigate exposure to liability arising from
the hazardous substance, whether or not required by law.
(d) Tenant shall indemnify, defend and hold Landlord harmless from all
damages, costs, losses, expenses (including, but not limited to, actual
attorneys' fees and engineering fees) arising from or attributable to any
breach by Tenant of any of its covenants contained in this Paragraph 23.2.
Tenant's obligations hereunder shall survive the termination of this Lease
Agreement. Notwithstanding any provision herein contained, Tenant shall not be
obligated to indemnify Landlord for any "Hazardous Substances" or "Hazardous
Materials" which existed on or in the Premises prior to the Commencement Date.
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ARTICLE XXIV
COUNTERPARTS
24.1 This Lease Agreement may be executed in any number of
counterparts, each of which shall be deemed an original but all of which
together shall constitute but one instrument.
This Agreement Includes the Following Exhibits
Exhibit A - Description of Land
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<PAGE> 50
IN WITNESS WHEREOF, each of the parties hereto has caused this Lease
Agreement to be duly executed as of the day and year first above written.
LANDLORD: TENANT:
PACKAGING RESOURCES INCORPORATED, TAMOR PLASTICS CORP.,
a Delaware corporation a Massachusetts corporation
By: [Signature] By: Leonard J. Tocci
--------------------------- -----------------------------
Its: Vice President Its: President
--------------------------- -----------------------------
[Signature] [Signature]
--------------------------- -----------------------------
Vice President Treasurer
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
The foregoing instrument was acknowledged before me this 7th day of
February, 1995, by [Signature] and by [Signature] and _________________ of
PACKAGING RESOURCES INCORPORATED, a Delaware corporation, on behalf of the
corporation and for the uses and purposes therein contained.
- ---------------------------------
"OFFICIAL SEAL" Dawn V. Stone
DAWN V. STONE ------------------------------
NOTARY PUBLIC, STATE OF ILLINOIS Notary Public
MY COMMISSION EXPIRES 12/3/97
- -------------------------------- My Commission Expires: 12-3-97
STATE OF MASSACHUSETTS )
) SS
COUNTY OF WORCESTER )
The foregoing instrument was acknowledged before me this 3rd day of
February, 1995, by Leonard J. Tocci and by Richard M. Tocci of TAMOR PLASTICS
CORP., a Massachusetts corporation, on behalf of the corporation and for the
uses and purposes therein contained.
Rebecca A. Lynch
-----------------------------
Notary Public
My Commission Expires: 3/30/01
[NOTARY PUBLIC SEAL]
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<PAGE> 51
EXHIBIT A
Legal Description
All of Lot No. 140 in Block No. 15, of the Original Town, now City of
Louisiana, Missouri, as shown by the recorded plat of said town, now City of
Louisiana, in Pike County, Missouri, subject to easements and restrictions of
record and zoning ordinances.
All of that part of Lot Numbered Five (5) of Hugh Allen's Addition to
the City of Louisiana, Pike County, Missouri, described as follows: Beginning
at the northwesterly corner of said Lot Number Five (5) at the intersection of
the easterly line of the right of way of Highway 54, thence South 37 degrees
west following the said right of way line 104.25 feet, thence south 53 degrees
east 377.12 feet, thence north 37 degrees east 104.25 feet to the east of
northeast corner of the land herein conveyed; thence north 53 degrees west
377.12 feet to the beginning, reserving and excepting from the above a strip of
ground along the southerly line thereof, 15 feet wide for a public roadway;
together with the improvements located thereon, and subject to easements and
restrictions of record and zoning ordinances.
Begin at the intersection of the westerly line of Lot 5 of Hugh Allen's
Addition to Louisiana, Missouri and the southerly right-of-way line of Missouri
State Highway No. 54 and run southeasterly Six Hundred (600) feet along the
West line of Lot 5 and Lot 8, to the northerly right-of-way line of the Gulf,
Mobile and Ohio Railroad, thence easterly along said right-of-way Four Hundred
Seventeen (417) feet to the westerly line of 30th Street, run thence
northwesterly along the said 30th Street line One Hundred Forty (140) feet, run
thence Southwesterly and parallel to said Highway No. 54 Two Hundred Eight
(208) feet, thence northwesterly and parallel to 30th Street One Hundred
Twenty-three (123) feet, thence southwesterly and parallel to said Highway 54
One Hundred Four (104) ft. thence northwesterly and parallel to 30th Street
Three Hundred Seventy-seven (377) feet to the southerly right-of-way line of
the Highway, then westerly with the Highway right-of-way One Hundred Four (104)
feet to the point of beginning. The above described property being the westerly
half and forty (40) feet off the south end of the easterly half of Lot No. 5 of
Hugh Allen's Addition to Louisiana, Missouri, and that part of Lots 8 and 9 of
Hugh Allen's Addition to Louisiana, Missouri, lying north of the Gulf, Mobile
and Ohio Railroad right-of-way except a plat Two Hundred Eight (208) feet in
depth measured parallel to Highway No. 54 and Eighty (80) feet measured along
the westerly line of 30th Street of the Northerly part of Lot 9 which has been
leased to the Garment Factory, Together with all improvements thereon; and
further subject to easements and restrictions of record and zoning ordinances.
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<PAGE> 52
A strip of ground Fifteen (15) feet wide and being the Western Fifteen (15)
feet of the East one-half (1/2) of Lot Number Five (5) of Hugh Allen's Addition
to the City of Louisiana, Missouri, except Forty (40) feet on the South end of
said lot, as described and retained and dedicated for a public highway, and set
forth in Warranty Deed from Robert A. Campbell and Margaret I. Campbell to
Michael Creamer, et al, Directors of School District No. 5, Township 54, Range
2 West, Pike County, Missouri which deed is recorded in Book 113 at Page 383 of
the Deed Records of Pike County, Missouri. This fifteen (15) foot strip of land
has been also described as lying along the southerly part of the said East
one-half of Lot Number Five (5) of Hugh Allen's Addition , but it is the same
fifteen (15) foot strip of ground.
BEING all of Lots 6 and 15 and all that part of Lots 7 and 16 which lie north
of the north right-of-way line of the Illinois-Central-Gulf Railroad and being
a part of the SE 1/4 Section 24, Township 54 North of the Base Line, Range 2
West of the Fifth Principal Meridian, and being more particularly described by
metes and bounds as follows:
BEGINNING at an iron rod at the northeast corner of Lot 6 of Hugh Allen's
Addition to Louisiana, according to the plat thereof filed in Vol. 1, Page 44,
Plat Records of Pike County;
THENCE S 52 degrees 23' E 595.75' with the east line of Lots 6 and 7 to an iron
rod on the north line of the Illinois-Central-Gulf Railroad;
THENCE S 43 degrees 35' 20" W 654.77' with the north line of said railroad to
an iron rod on the west line of Lot 16 of Hugh Allen's Addition;
THENCE N 31 degrees 39' 20" W 563.16' with the westerly line of Lots 15 and 16
to an angle iron at the northwest corner of Lot 15;
THENCE N 37 degrees 30' E 451.90' with the north line of Lots ___ and 15 and
along the south line of Georgia Street to the place of beginning containing
7.18 acres of land, subject to easements, conditions or restrictions of record,
if any.
All of Lots Seven (7), Eight (8), and Nine (9) in Block Two (2) of Fritz
Subdivision of the Hugh Allen's Addition to the City of Louisiana, Pike County,
Missouri.
ALSO, a part of Lot Nine (9) of Hugh Allen's Addition to the City of Louisiana,
Pike County, Missouri described by metes and bounds as follows to wit:
Beginning at an iron rod marking the most Northerly Corner of above mentioned
Block Two (2); thence in a Southeasterly direction on and along the Westerly
line of 30th Street one hundred ninety-nine and seven tenths (199.7) feet to an
iron pipe, one hundred Forty (140) feet Northwesterly as measured along the
Westerly side of said 30th Street from the Northerly right-of-way of the G.M.
and O. right-of-way; thence Westerly-Southwesterly parallel to South Caroline
Street two hundred and eight (208) feet to an iron rod; thence Northwesterly
parallel to 30th Street one hundred ninety-nine and
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<PAGE> 53
seven tenths (199.7) feet to an iron rod marking the Northwesterly Corner of
said Block Two (2); thence on and along the Northerly side of said Block Two
(2) in a Northeasterly direction two hundred and eight (208) feet to the point
of beginning; as per survey #68-0104 by James H. Fleming, Registered land
Surveyor #177, Missouri.
Any right, title and interest that the Party of the First Part might have to a
tract lying adjacent to and to the Northwest of Lots Seven (7), Eight (8), and
Nine (9) in Fritz's Subdivision of Hugh Allen's Addition, to the City of
Louisiana, Missouri, said tract being approximately sixty-five (65) feet wide
along 30th Street and being Two Hundred and Eight (208) feet in depth along
said lots, and said tract would be an extension of South Carolina Street if it
were extended.
All of Lots Numbered Two (2) and Five (5) in Block One (1) in Fritz's
Subdivision of Hugh Allen's Addition to the City of Louisiana, Missouri.
All that part of South Carolina Street lying Southwest of 30th Street of Fritz
Addition to the City of Louisiana which reverted to Grantors herein by reason
of City of Louisiana Ordinance No. 6380, vacating that portion of said Street,
said Ordinance being recorded in the Deed Records of Pike County, Missouri in
Book 322, at Page 3694.
Lots numbered One (1) and Six (6), in Block Numbered One (1), in Fritz's
Subdivision of Hugh Allen's Addition to the City of Louisiana, MO.
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<PAGE> 54
EXHIBIT B
Items to be included as "fixtures" in the Louisiana, MO plant offering:
ASSET NO. DESCRIPTION
- --------- -----------
2646 Whitlock Vac. Pump
2647 Whitlock Vac. Pump
2769 German Vac. Pump
2778 Whitlock Vac. Pump/Surge Bin
2786 Whitlock Vac. Pump
2788 Whitlock Vac. Pump
2789 Whitlock Vac. Pump
2790 Butler Vac. Pump
2791 Whitlock Vac. Pump
2792 Whitlock Surge Bin
2793 Whitlock Surge Bin
2809 Vac. Pump
2957 GD Air Compressor
2958 GD Air Compressor
2959 Wilkerson Air Dryer
2961 Carrier Chiller
2962 Carrier Chiller
2963 Chill Water System
2964 Carrier Chiller
2965 Carrier Chiller
2966 210,000# Silo
2967 210,000# Silo
2968 210,000# Silo
2969 210,000# Silo
2970 210,000# Silo
2971 210,000# Silo
2972 210,000# Silo
2973 IMCS Silo
2974 IMCS Silo
2975 IMCS Silo
2976 IMCS Silo
2977 Transformer
2978 Transformer
2979 Transformer
4-Small Silos for Surge Bins
2-15HP Pumps
5-7 1/2HP Pumps
C:\docs\kas\hph\louisiana\lease.
<PAGE> 1
Exhibit 10.17
LEASE AGREEMENT
AGREEMENT AND LEASE MADE THIS 6th day of March, 1992 by and between
Gottsegen Realty Venture, Robert Gottsegen, Trustee of Gottsegen Realty
Venture, Roger Gottsegen, Trustee, Commonwealth of Massachusetts, hereinafter
called "Landlord", and VICTORY BUTTON, INC., a Massachusetts corporation with
principal offices in Leominster, Massachusetts, hereinafter called "Tenant",
which expression shall include its successors, executors, administrators and
assigns.
WHEREAS, the Landlord owns a parcel of land with a building thereon in
Fitchburg, Massachusetts, and
WHEREAS, the Tenant is desirous of leasing said land and building to be
used for a plastics manufacturing and warehouse facility, and the Landlord is
willing to lease said property to said Tenant,
NOW, THEREFORE, the parties agree as follows:
LEASED PREMISES
The Landlord hereby demises and leases unto the Tenant the following
described parcel of land and building located at Crawford Street, Fitchburg,
Massachusetts, bounded and described as contained in Exhibit "A" attached
hereto and incorporated herein by reference.
1
<PAGE> 2
I
USE OF DEMISED PREMISES
The demised premises are to be used by the Tenant for a plastics
manufacturing facility and warehouse or any other use permissible under the
current zoning of said demised premises, any future amendments to the zoning
ordinance or any special permits, variances or licenses obtained by the Tenant
by petition to the proper granting authority.
II
TERM OF LEASE
The term of this lease shall be for thirty-six (36) months commencing
on April 1, 1992 and ending on March 31, 1995. The Tenant shall thereafter hold
said premises hereby leased during the full term of this lease and paying as
rent, except only in case of fire, the sum of Eight Hundred Seventy Five
Thousand Nine Hundred and Eighty Eight Dollars ($875,988.00) for said term,
payable in equal monthly installments of Twenty Four Thousand Three Hundred and
Thirty Three Dollars ($24,333.00).
III
REAL ESTATE TAXES
The Tenant shall pay the real estate taxes levied by the City of
Fitchburg on the demised premises.
IV
The Tenant shall pay for all water and sewer charges assessed by the
City of Fitchburg on said property for the
2
<PAGE> 3
term of this lease and shall pay for all electricity and heat used on said
premises.
V
TENANT'S OBLIGATION TO REPAIR
The Tenant shall have the express obligation to make repairs to the
interior of the demised premises, except repairs required because of reasonable
wear and tear and the Landlord's obligation with respect to damage by fire as
hereinafter exempted, and the Tenant shall hold the Landlord harmless from any
loss, cost or damage in connection therewith where said loss, cost or damage is
occasioned by the Tenant, its agents, servants or employees, or by persons
coming on the demised premises at the express or implied invitation of the
Tenant.
VI
LANDLORD'S OBLIGATION TO REPAIR
The Landlord shall have the express obligation to make, promptly after
the necessity therefore arises, such repairs to the roof and structure, and
plumbing and electrical systems and the exterior of the building of which the
demised premises are a part, as may be necessary to keep the building in good
repair and condition.
3
<PAGE> 4
VII
ASSIGNMENT
The Tenant shall not assign this lease, nor underlet the whole or any
part of the demised premises without first obtaining the written consent of the
Landlord. The Landlord covenants and agrees that he will not unreasonably
withhold such written consent for such assignment or underletting.
VIII
PAYMENT OF RENT
The Tenant agrees that it will during said term and for such further
time as the said Tenant or any person or persons claiming under it shall hold
said premises or any part thereof pay unto the Landlord and his assigns the
said yearly rent hereinbefore provided for upon the days hereinbefore appointed
for the payment of rent during said term.
IX
STOCK IN TRADE AND FIXTURES
The Tenant's stock in trade and fixtures in the demised premises shall
be at the sole risk of the Tenant, except if loss, cost of damage in connection
therewith is occasioned by the active negligence of the Landlord, its agents,
servants or employees.
X
DAMAGE BY FIRE
The Landlord agrees that no claim shall be made and that no suit or
action, either at law or in equity, shall be
4
<PAGE> 5
brought by the Landlord or by any person, firm or corporation claiming by,
through or under the Landlord, against the Tenant, its successors and assigns,
for any loss, cost or damage caused by or resulting from fire, of whatsoever
origin, to the building constituting the demised premises are a part, as the
case may be.
XI
DAMAGE TO PREMISES BY FIRE, CASUALTY OR BY
TAKING FOR PUBLIC USE
Provided always, that in case the said premises or any part thereof
shall be taken for any street or other public use or shall be destroyed or
damaged by fire or other casualty, or by the action of the City of Fitchburg or
other public authorities, after the execution hereof and before the expiration
of said term, then a just proportion of the rent hereinbefore reserved,
according to the nature and extent of the taking or injury sustained by the
demised premises, or in the case of such taking, what may remain thereof, shall
have been put in proper condition for use and occupation with due diligence by
Landlord at Landlord's sole cost and expense, and in case of taking there shall
be a permanent abatement according to the nature and extent of the portion of
the premises taken; PROVIDED, however, that in case the said premises or any
substantial part thereof, shall be taken for any street or other public use, or
shall
5
<PAGE> 6
be destroyed or substantially damaged by fire or casualty, or condemned by the
action of the City of Fitchburg or other public authorities after the execution
hereof and before the expiration of the said term, then this lease and the said
term shall terminate at the election of the Landlord or its representatives or
assigns or of the Tenant and such election may be made in case of any such
taking or destruction notwithstanding the entire interest of the Landlord or
its representatives or assigns may have been divested by such taking, and if
the lease shall not be terminated as aforesaid, the Landlord shall proceed with
all expedition to restore the premises to their condition before said fire or
casualty, or in case of a taking to put what may remain of said premises in
proper and fit condition for use of said purposes. Should any such taking
exceed five percent (5%) of the lot area, as described on Exhibit "A", then
this lease and the said term shall terminate at the election of the Tenant.
XII
INSURANCE
The Tenant shall insure, at its sole expense, the building on the
demised premises against the risk of fire. The Tenant shall provide, at its
sole expense, public liability insurance, including property damage with a One
Million Dollar ($1,000,000.00) limit and name Landlord as additional insured,
and including death and personal injury with One Million Dollar ($1,000,000.00)
limits.
6
<PAGE> 7
XIII
TENANT'S OBLIGATION AT THE END OF TERM
The Tenant shall at the expiration of said term peaceably yield up to
the said Landlord all and singular the premises in such repair as the same are
in at the commencement of said term or may be put in by the said Landlord or
its representatives during the continuance thereof, reasonable wear and use
thereof and such other damage, the obligation to repair which has hereinbefore
been specifically provided for in this lease, only excepted.
XIV
DEFAULT, INSOLVENCY ET CETERA OF TENANT
If the Tenant shall neglect or fail to perform and observe any of the
covenants in this instrument, which on its part are to be performed and such
default shall continue for a period of thirty (30) days after the mailing of a
written notice, postage prepaid from the Landlord to the Tenant specifying such
default, or if the Tenant shall be declared bankrupt or insolvent according to
law, or if any assignment shall be made of any of its property for the benefit
of creditors, then and in any of the said cases, the Landlord or those having
their estate in said premises, lawfully may immediately or at any time
thereafter and while such neglect or default continues and without further
notice of demand, enter into and upon the premises or any part thereof in the
name of the whole and repossess the same as of their former estate and expel
the said Tenant and those
7
<PAGE> 8
claiming under it, and remove their effects (forcibly if necessary) without
being taken or deemed guilty of any manner of trespass and without prejudice to
any remedies which might otherwise be used for arrears of rent, or preceding
breach of covenant and that upon entry as aforesaid the said term shall cease
and be ended.
XV
REMOVAL OF FIXTURES AND STOCK IN TRADE AT
END OF LEASE
So far as the same are not inconsistent with the term of the lease, as
hereinbefore provided, the Tenant at the expiration of this lease or within a
period of thirty (30) days thereafter shall have the right to remove all
fixtures, trade or otherwise, which it has installed upon the demised premises
during the term of this lease, or by its assignor, during prior leases.
XVI
OPTION FOR RENEWAL
The Tenant shall have the right to extend the term of this lease for a
period of thirty-six (36) months, beginning on April 1, 1995, and ending on
March 31, 1998, upon the same terms, covenants, conditions and rent. The Tenant
will be deemed to have elected such right to extend unless it has notified the
Landlord, in writing, to the contrary.
8
<PAGE> 9
XVII
COVENANTS AND AGREEMENTS
All of the covenants, agreements and conditions of this lease shall
accrue to the benefit of and be binding upon the respective parties hereto and
their successors and assigns as if they were in every case named and express.
This agreement and lease shall be deemed a Massachusetts contract and
governed by the laws of the Commonwealth of Massachusetts.
XVIII
QUIET ENJOYMENT
The Landlord agrees that if the Tenant shall pay the rent as aforesaid
and perform the covenants and agreements herein contained on its part to be
paid and performed, the Tenant shall peaceably hold and enjoy the said rented
premises without hindrance or interruption by the Landlord or by any other
person or persons.
XIX
NOTICES
All notices, demands and requests to be given hereunder by either party
shall be in writing and must be sent by first class mail to the persons and at
the addresses as contained in Exhibit "B" attached hereto.
XX
LANDLORD'S COOPERATION
If any provision of law, act, rule, code, regulation, ordinance or
other provision of any state, municipal or
9
<PAGE> 10
other governmental department, board, bureau or agency having jurisdiction over
the demised premises or any of the appurtenances thereunto belonging shall
require that the owner of the demised premises join in, consent to or institute
any action, proceeding or application with respect to the exercise by Tenant of
any right, not in violation of the terms of the lease, for the enjoyment and
use of the demised premises or of any buildings or improvements now or
hereafter thereon, or the appurtenances thereunto belonging, Landlord agrees,
to the extent that same is reasonable, free of expense to Tenant to give
Landlord's consent thereto and Tenant may, in its name, in Landlord's name or
in both names, institute such actions or proceedings and make such applications
as shall be requisite for Tenant's enjoyment and use of the premises, and the
appurtenances thereunto belonging. In the event the Landlord shall fail or
neglect to comply with any of its obligations as set forth in this numbered
article, Tenant may, in addition to any other remedies, as agent or attorney in
fact or Landlord do all such things a Landlord is obligated hereunder to do and
to execute, acknowledge and deliver all instruments required for Tenant to
exercise its rights pursuant to this lease for the lawful enjoyment and use of
the demised premises; and in any such case Landlord hereby irrevocably
nominates, constitutes and appoints Tenant Landlord's proper and legal
10
<PAGE> 11
attorney in fact for such action, proceeding or application; and Tenant will
indemnify and hold Landlord harmless from all such costs and expenses. All
actions and proceedings shall be conducted, all applications shall be made, and
all instructions and documents required shall be prepared by Tenant's attorney
at Tenant's expense.
XXI
CURING DEFAULTS
If either party is required to perform or comply with any agreement or
provision hereof and shall fail to do so within the time provided therefor (or
if not time is provided therefore then within thirty (30) days after written
demand for compliance shall have been received by any party hereto from the
other unless such default shall be of such nature that same cannot be
completely cured within such thirty (30) days period but the curing thereof has
commenced within the said thirty (30) day period and shall thereafter be
continued with reasonable diligence) then, in each such case, upon the
expiration of the time provided in this article for the performance or
compliance therewith or for the curing of same, the party demanding compliance
may perform and comply therewith for the account and at the expense of the
party failing to do so; and the party failing to do immediately upon receipt of
an itemized invoice of the cost and expense thereof, agrees to pay promptly the
reasonable cost and expense incurred by the other party
11
<PAGE> 12
hereto, with interest at the rate of ten percent (10%) per annum to the date
payment is received. Should the Tenant be the party failing to make such
payment, the cost and expense thereof shall be charged to Tenant as additional
rent, which shall be paid by the Tenant on the next rent payment date following
the date of receipt by Tenant of such invoice, and in the event such additional
rent shall not be paid when due, it may be collected in the same manner as is
herein provided for the collection of rent. Should the Landlord be the party
failing to make such payment to the Tenant, then the Tenant, without impairing
or affecting any other of its rights, shall have the right to withhold payment
of all rent, and additional rent if any, until Tenant has recouped all such
costs and expenses, with interest as aforesaid, to the date full payment is
received. In any such case, if Landlord is in default hereunder, tenant,
without impairing or affecting any other rights it may have for damages or
otherwise, shall have the right to cancel and terminate this lease by giving
written notice of Tenant's election to do so unless said default is cured
within thirty (30) days of said written notice; and upon giving such notice the
life of this lease shall cease and come to an end as of the date set forth in
said notice, with the same force and effect as if the date set forth were the
date originally fixed for the termination of the term and of any extended term
thereof. In computing the
12
<PAGE> 13
time within which either party is required to comply with any covenant,
agreement or provision of this lease, there shall be excluded therefrom periods
of reasonable delay on account of war, "labor troubles", "Acts of God" and
other unavoidable delays.
XXII
BROKER'S COMMISSION
The Landlord and Tenant covenant that this lease was directly
negotiated between them and that no broker was involved in bringing about this
agreement. No claim of a broker's fee shall be made against either party.
XXIII
OPTION TO PURCHASE
The Landlord and Tenant agree that the Tenant, their executors,
administrators or assigns shall have the right on or before March 31, 1998 to
give notice to the Landlord, their executors, administrators or assigns of
their desire to purchase title to said premises free and clear of all
encumbrances, hereby demised, and that the Landlord shall upon receipt of said
notice and upon payment by the Tenant of the sum of Three Million Two Hundred
Thousand Dollars ($3,200,000.00) and all rent accrued to that time, convey said
premises unto the Tenant, their executors, administrators or assigns.
The parties acknowledge and agree that the lack of a Chapter 21E Test
Report demonstrating compliance with all environmental laws, regulations and
standards in a form
13
<PAGE> 14
acceptable to the Tenant and any mortgage lender shall be deemed an encumbrance
on the property. The Landlord shall bear the sole and full expense of all
testing, reports, engineering and remedial work required to obtain full
compliance with all environmental laws, regulations, rules and standards. The
Landlord shall commence testing within thirty (30) days from a written notice
received by the Landlord from the Tenant indicating Tenant's desire to exercise
its option to purchase. The testing is to be completed within ninety (90) days
from the receipt of said notice. Should environmental testing result in
findings requiring remedial work to achieve compliance, then the Landlord shall
complete the action required within one hundred eighty (180) days from the
receipt of Tenant's notice exercising its option to purchase. Should the
Landlord fail to perform its obligations within the time limits heretofore
described, the Tenant will be entitled to the sole and exclusive option to
cancel its notice and obligation to purchase free from any and all expense or
to extend such time periods in each case for a period up to or equal to the
original time limit as provided above. The Landlord shall not be required by
this agreement to undertake remedial work exceeding Three Hundred Thousand
Dollars ($300,000.00) in value and should the Landlord not
14
<PAGE> 15
undertake such measures as a result the Tenant shall be discharged at no
expense from any obligation to purchase the realty of the Landlord.
SIGNED the date above first written.
LANDLORD:
-----------------------------------
/s/ Robert Gottsegen
-----------------------------------
BY:
TENANT:
VICTORY BUTTON, INC.
/s/ President, Leonard J. Tocci
-----------------------------------
BY:
15
<PAGE> 16
ADDENDUM NO.1
This Agreement shall comprise an Addendum to certain Lease Agreement
between the parties dated March 6, 1992 for the land and building of the
landlord located on Crawford Street, Fitchburg, Massachusetts.
In consideration of the mutual covenants contained herein, the parties
agree as follows:
1. The Landlord agrees that the Tenant shall have the right to a second
extension of the lease term for the period beginning April 1, 1998 and
ending March 31, 2001, upon the same terms, covenants, conditions and
rent. The Tenant will be deemed to have elected such right to extend
unless it has notified the landlord in writing to the contrary.
Signed this 10th day of May, 1993.
The Landlord: The Tenant:
By: /s/ ROBERT GOTTSEGEN By: /s/ RICHARD M. TOCCI
------------------------- ---------------------------
Robert Gottsegen, Trustee Richard M. Tocci, President
Gottsegen Realty Venture Victory Button Co., Inc.
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANT
Selfix, Inc.
Chicago, IL, U.S.A.
Shutters, Inc.
Hebron, IL, U.S.A.
Tamor Corporation
Leominster, MA, U.S.A.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports included in this Form 10-K, into the Company's previously filed
Registration Statements on Form S-8 (33-65041 and 33-67622).
/s/ Arthur Andersen LLP
Chicago, Illinois
March 27, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our reports included in this Form 10-K, into the
Company's previously filed Registration Statements on Form S-8
(33-65041 and 33-67622).
/s/ GRANT THORNTON LLP
Grant Thornton LLP
Chicago, Illinois
March 27, 1997
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