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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 (No Fee Required)
For the Fifty Two
Weeks Ended December 27, 1997
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>
<S> <C>
DELAWARE 36-4147027
(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. [ ]
Shares of common stock, par value $0.01 outstanding at March 25, 1998 --
7,943,680. Aggregate market value of such shares held by non-affiliates as of
that date -- $128,091,840.
DOCUMENTS INCORPORATED BY REFERENCE.
Home Products International, Inc. definitive proxy statement dated April
13, 1998 for the 1998 Annual Meeting ("Proxy Statement") -- Part III
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PART I
ITEM 1. BUSINESS
Home Products International, Inc. designs, manufactures and markets a broad
range of quality consumer houseware products. The Company is a leading supplier
to large national retailers of value-priced laundry care products and
accessories, storage and organization products including storage containers,
bath and shower organization products, hooks, hangers, home/closet organization
products and juvenile organization products. The Company holds a significant
market share in the United States in its key product categories of ironing
boards, ironing board covers and pads, plastic storage containers, plastic
hangers and bath and shower organization products. The Company's products are
sold in the United States through most of the large national retailers,
including Wal-Mart, Sam's Club, Target, Kmart, Home Depot, Toys 'R Us, Walgreens
and Bed Bath & Beyond. The Company also sells its products internationally in
over 40 countries. The Company is comprised of four operating subsidiaries,
Tamor, which was acquired February 28, 1997, (effective as of January 1, 1997),
Seymour, which was acquired December 30, 1997, Selfix and Shutters. On a
consolidated pro forma basis, 1997 net sales of $222.3 million makes HPI one of
the largest companies in the fragmented U.S. consumer housewares industry.
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, a Massachusetts corporation
("TAMOR"), Shutters, Inc., an Illinois corporation ("SHUTTERS"), and Seymour
Housewares Corporation an Indiana corporation ("SEYMOUR"). 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. 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.
The Company was originally founded as Selfix in 1952 as a privately held
manufacturer and distributor of plastic hooks. After being acquired in 1962 by
Meyer and Norma Ragir, the Company expanded the number of product categories it
offered, as well as the product lines within each category, resulting in
increased net sales and net earnings. In fiscal 1987, Selfix acquired Shutters,
a manufacturer and marketer of home improvement products, primarily durable
plastic exterior shutters. Selfix became a public company following an initial
public offering of its Common Stock in fiscal 1988. Although net sales had
increased to approximately $40.0 million in fiscal 1993, Selfix's operating
profits were marginal primarily due to under performing products, some of which
were acquired in two unsuccessful acquisitions in the early 1990's, and the
death of the Company's chief executive officer in 1992 which caused a void in
management. In addition, a lack of management controls resulted in sales of many
under performing products and a significant increase in operating expenses
primarily attributable to increased overhead expenses.
In April, 1994, Selfix hired James Tennant, then a member of its Board of
Directors with substantial marketing and management experience, to be Chairman
of the Board of Directors and Chief Executive Officer. Mr. Tennant set out to
restructure the Company's operations and improve its profitability. As part of
this restructuring, the Company replaced its entire senior management group,
focused its sales and marketing efforts, increased its distribution
capabilities, upgraded its financial and systems controls, eliminated under
performing product lines which resulted in a significant decrease of SKU's and
reduced overhead expenses. The Company incurred operating losses of
approximately $4.5 million in fiscal 1994 and $4.0 million in fiscal 1995,
resulting primarily from the costs of this restructuring. The restructuring,
completed in fiscal 1995, contributed to operating profits of $1.4 million in
fiscal 1996 and net earnings of $0.8 million.
Once the restructuring was completed, Selfix began to aggressively pursue a
strategy of disciplined growth through acquisition. Effective January 1, 1997,
the Company completed the acquisition of Tamor and its affiliated product
distribution company, Houseware Sales, Inc., and effective December 30, 1997 the
Company completed its acquisition of Seymour.
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TAMOR ACQUISITION
Effective January 1, 1997, the Company acquired Tamor Plastics Corporation,
a privately held company founded in 1947, and its affiliated product
distribution company, Houseware Sales, Inc. (the "TAMOR ACQUISITION"). (Tamor
Plastics Corporation and Houseware Sales, Inc. are collectively referred to
herein as "TAMOR"). Tamor designs, manufactures and markets quality plastic
housewares products. 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 $6.8 million to $8.2 million. See Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Fiscal Year 1997 as
Compared to Fiscal Year 1996, for further comment on the positive impact of the
Tamor Acquisition on the overall fiscal 1997 operating results.
SEYMOUR ACQUISITION
Effective December 30, 1997, (within the Company's 1998 fiscal year) the
Company acquired Seymour Sales Corporation and its wholly owned subsidiary,
Seymour Housewares Corporation, (collectively, "SEYMOUR"), a privately held
company originally founded in 1942 (the "SEYMOUR ACQUISITION"). Seymour is a
leading designer, manufacturer, and marketer of consumer laundry care products.
Seymour produces a full line of ironing boards, ironing board covers and pads
and numerous laundry related accessories. The Company believes that the Seymour
Acquisition will result in significant increases in 1998 sales. If the Seymour
Acquisition had occurred on January 1, 1997, the Company's 1997 net sales of
$129.3 million would have been increased by $93.0 million to $222.3 million and
operating profit of $12.7 million would have been increased by $2.6 million to
$15.3 million. The pro forma operating profit of $15.3 million includes a charge
of $2.6 million related to management's plans to consolidate and dispose of
certain manufacturing operations.
CONSOLIDATION STRATEGY
The Company plans to take advantage of consolidation opportunities in the
housewares industry, a large market comprised of a highly fragmented supplier
base. To provide complete product lines to national retailers, suppliers of
housewares products have begun to consolidate. The Company believes that there
are a number of excellent acquisition candidates because the suppliers of
consumer houseware products are highly fragmented with no single supplier
accounting for more than 5% of the total sales. The Company believes it is
well-positioned to pursue its strategy of growth through acquisition given its
access to the capital markets and its increased visibility from the recent
acquisitions of Tamor and Seymour.
To improve margins and operating efficiencies, the Company believes large
national retailers are continuing to reduce the number of suppliers of
housewares products. These retailers are forming key partnerships with suppliers
that can provide complete product lines within product categories, profitable
fast-turning products, timely delivery and merchandising support. With its
numerous product lines and strong relationships with these retailers, the
Company believes it is well positioned to continue to meet their needs.
The Company intends to aggressively pursue a strategy of disciplined growth
through acquisitions. By consolidating product lines and channels of
distribution through acquisitions, the Company believes it can successfully gain
market share and increase sales in its key product categories of ironing boards,
ironing board pads and covers, plastic storage containers, plastic hangers and
bath and shower organization products.
GENERAL
HPI currently operates in two industry segments:
1) The design, manufacture, marketing, and distribution of high
quality HOUSEWARES products is accomplished through its wholly owned
subsidiaries, Selfix, Tamor and Seymour. These products, generally branded
as "Selfix", "Tamor" or "Seymour" products, are sold principally through
mass market trade channels: discount, variety, supermarket, drug,
hardware/home center, and specialty stores. Selfix and Tamor products
generally retail from $1 to $20, with a substantial majority retailing for
under $10. Seymour products generally retail from $2 to $40. The Company
believes it is a leading manufacturer of
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high-quality, value-priced, and high-volume, bath and shower organizer
products, storage containers, home organization products, and consumer
laundry care products.
2) The design, manufacture, and marketing of quality HOME IMPROVEMENT
PRODUCTS is accomplished 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.
PRODUCTS
Gross Sales by Product Category -- Historical.
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 (pre 1997 sales), nor does it
include sales figures for Seymour.
GROSS SALES
<TABLE>
<CAPTION>
1997 1996 1995
--------------- -------------- --------------
SALES % SALES % SALES %
----- - ----- - ----- -
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Home/Closet Organization........................ $ 54,172 40% $ 8,527 21% $12,789 29%
Storage Containers.............................. 47,275 34 -- -- -- --
Bath and Shower Organization.................... 16,646 12 15,479 38 15,071 35
Juvenile Products............................... 11,652 8 7,369 18 6,683 15
-------- --- ------- --- ------- ---
Housewares Products........................... $129,745 94% $31,375 77% $34,543 79%
Home Improvement Products..................... 8,385 6 9,457 23 8,993 21
-------- --- ------- --- ------- ---
Total Gross Sales............................... $138,130 100% $40,832 100% $43,536 100%
=== === ===
Allowances...................................... (8,806) (2,632) (2,497)
-------- ------- -------
Total Net Sales................................. $129,324 $38,200 $41,039
======== ======= =======
</TABLE>
The following table sets forth consolidated pro forma gross sales by
product category as if the acquisition of Seymour and Tamor had occurred on
January 1, 1995. This table is provided in order to show sales trends by product
category.
PRO FORMA GROSS SALES
<TABLE>
<CAPTION>
1997 1996 1995
--------------- --------------- ---------------
SALES % SALES % SALES %
----- - ----- - ----- -
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Ironing Boards, Covers, and Pads.............. $ 75,370 32% $ 73,025 32% $ 76,695 36%
Home/Closet Organization...................... 55,874 23 48,859 22 49,332 23
Storage Containers............................ 47,275 20 39,050 17 24,243 11
Laundry Accessories........................... 17,562 7 21,603 10 20,200 10
Bath and Shower Organization.................. 16,646 7 15,479 7 15,071 7
Juvenile Products............................. 16,614 7 18,222 8 18,841 9
-------- --- -------- --- -------- ---
Housewares Products......................... $229,341 96% $216,238 96% $204,382 96%
Home Improvement Products................... 8,385 4 9,457 4 8,993 4
-------- --- -------- --- -------- ---
Total Gross Sales............................. $237,726 100% $225,695 100% $213,375 100%
=== === ===
Allowances.................................... (15,439) (16,981) (14,723)
-------- -------- --------
Total Net Sales............................... $222,287 $208,714 $198,652
======== ======== ========
</TABLE>
Ironing Boards, Covers and Pads. The Company offers a significant variety
of ironing boards under the Seymour brand name (approximately 185 individual
SKU's) and command over 75% of the U.S. market. Key
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products in this category include the EasyBoard (perforated board), SureFoot
(vented, four-leg board), ReadyPress (over-the-door) and WorkWizard (vented,
four-leg with hanger rack). The Company is the leading manufacturer of ironing
board covers and pads, under the Seymour brand name, and hold approximately 65%
of the U.S. market. The Company offers eight different types of covers and pads
in over 85 different designs that fit not only its own ironing boards, but all
regular size boards. The Company's covers are known for their scorch resistance
and it is the only company that sells ironing board covers with 3M Scotchguard
protection.
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 33% of this category's gross dollar sales in 1997. 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. In addition to plastic hangers, 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-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.
Also included in this category are other plastic organizers, closet and
clothing care products, recycling containers, plastic kitchen organizers
(including vinyl coated wire kitchen organizers) and miscellaneous housewares
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 containers sold during the winter
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 meaningful share of the $800
million U.S. market.
Laundry Accessories. The Company is the leading U.S. producer of laundry
accessories with approximately 25% of the total U.S. market. Key products within
this category include: drying racks, laundry bags, hampers and sorters,
clotheslines, and clothes pins.
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 shower 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.
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). Selfix, Tamor, and Seymour each market juvenile products. These
products include closet extenders, hook racks, storage cubes, clothes hangers,
under-the-bed storage trolleys, and safety gates. 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 Babies R Us. 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.
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
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key competitive advantage is customization of size and color, and quick
turnaround service. In 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, Tamor and Seymour all sell directly to major retail customers
through its sales management personnel and through manufacturer's
representatives. Selfix, Tamor, and Seymour sell to approximately 3,000 other
customers, through a network of approximately 50 independent manufacturers
representatives. Including Seymour on a pro forma basis, Wal-Mart (including
Sam's Club) accounted for 23% of the Company's gross sales in 1997, K-mart
Corporation accounted for 12% of 1997 gross sales, and Target accounted for 6%
of 1997 gross sales. The loss of one these customers could have a material
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, Selfix, Tamor and Seymour offer customers a
variety of retail support services, including customized merchandise
planogramming, small shipping packs, point-of-purchase displays,
Electronic-Data-Interchange (EDI) order transmission, and just-in-time (JIT)
product delivery.
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's Product Research and Development department uses
computer-aided design (CAD) systems to enhance its product development efforts.
New products have been a 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 1997, 1996 and 1995,
expenses associated with research and development were $360,000, $330,000 and
$501,000, respectively.
FOREIGN AND EXPORT SALES/SEGMENT INFORMATION
Including Seymour on a pro forma basis, the Company's 1997 sales outside
the United States accounted for 7% of its total net sales. Sales to Canada
accounted for 3% of the Company's net sales in 1997.
See Management's Discussion and Analysis of Financial Condition and Results
of Operations and Note 15 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 houseware products are generally higher in the
second and third quarter of the calendar year. This seasonality is primarily
attributable to the spring/summer wedding season, increased home buying/building
during the spring/summer months, and the back to school season. Laundry care
products, and storage container products, gifts typically given at bridal
showers, (held during the spring/summer wedding season) generate increased
demand for these and the Company's other houseware products. The surge in home
buying/building during the spring/summer months and the need for new houseware
products further explain seasonality of the Company's houseware products.
Finally, the back-to-school season, including college students moving out of the
house for the first time also contribute to an increase in demand for the
Company's houseware products during the spring/summer months.
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Sales of the Company's home improvement products are generally higher in
the second and third quarter as well. This seasonality is attributable to the
favorable weather conditions typically experienced in the spring and summer
months.
COMPETITION
The Company competes with a number of well established domestic and foreign
manufacturers, some with greater resources than the Company. Many of the
Company's products also compete with substitute products made of alternate
materials. 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
Subsidiaries of the Company own a number of trademarks and approximately
150 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
obtained a licensing agreement with Fisher-Price, Inc. of East Aurora, N.Y. The
agreement required the Company to pay a percentage-based royalty to Fisher-Price
for sales by Selfix of Fisher-Price branded products, which are designed,
manufactured and marketed by Selfix. As of December 27, 1997, the Company
terminated its agreement with Fisher-Price. The termination of the agreement is
not expected to have a significant impact on sales. Sales of Fisher-Price
branded products in 1997 approximated $.6 million.
RAW MATERIALS AND PRODUCTION
The Company manufactures the majority of its products at its various
manufacturing facilities. As a result of the Seymour Acquisition, the Company
has been able to significantly diversify its primary raw material needs. With
the acquisition of Seymour, whose primary raw materials are cold rolled steel
and greige fabric, plastic resin based products accounted for approximately 55%
of the Company's 1997 pro forma net sales, as compared to 95% prior to the
acquisition.
The primary raw material used in the Company's plastic injection molding
operations is plastic resin, primarily polypropylene. Plastic is a spot
commodity with pricing parameters tied to supply and demand characteristics
beyond the Company's control. In total, the Company expects to use 80 million
pounds of plastic resin in 1998.
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. For fiscal 1997 the cost
of resin on a pro forma basis accounted for approximately 18% of the Company's
total cost of goods sold and 13% of the Company's net sales. 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 price
decreases from 1995 to 1996 of 16%, and from 1996 to 1997 of 10%.
Due to the nature of certain resin based products the Company is able to
use off-prime grades of resin. 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
off-prime material at a discount 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 utilized by a number of different
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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.
The primary raw materials used in the Company's consumer laundry care
operations are cold rolled steel and greige fabric. Steel procurement, including
secondary and primary steel, and steel wire, is typically at spot prices which
have moderated during 1997, and are anticipated to remain flat throughout 1998.
The Company purchases approximately 25,000 tons of cold rolled steel annually.
Greige fabric, purchased from brokers, is a cotton based product, with pricing
tied to the world cotton markets. The Company anticipates a slight increase in
the cost of greige fabric in the second half of 1998. Purchases of greige fabric
approximate 7 million yards annually.
The Company's production processes utilize automated machinery and systems
where appropriate. Certain laundry care facilities employ the use of an
automated manufacturing production line to produce perforated top ironing
boards. Additionally, automated cutting and layout machines are used to maximize
the usage of greige fabric. The Company also performs all printing and coating
of the ironing board covers and pads in-house. Many of the injection molding and
extrusion operations are also automated and are supported by incentive based,
manually performed secondary operations.
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 December 30, 1997, the Company employed 1,240 persons in the United
States. Approximately 90 are hourly employees at its Leominster, Massachusetts
facility, covered by a collective bargaining agreement which expires in March,
1999; 150 are hourly employees at its Chicago, Illinois facilities, covered by a
collective bargaining agreement which expires in January, 2001; and 200 are
hourly employees at its Reynosa, Mexico facility covered by a collective
bargaining agreement which expires in December, 1999.
The Company utilizes the services of approximately 350 temporary workers in
its injection molding operations, for assembly and in certain warehouses.
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ITEM 2. PROPERTIES
The Company, including Seymour, maintained facilities with an aggregate of
1,924,000 square foot of space. The Company considers all of its facilities to
be in good operating condition. Currently, all of the Company's manufacturing
facilities are operating at or near full capacity. The following table
summarizes the principal physical properties, both owned and leased, used by the
Company in its operations:
<TABLE>
<CAPTION>
SIZE
FACILITY USE (SQUARE FEET) OWNED/LEASED
-------- --- ------------- ------------
<S> <C> <C> <C>
SELFIX
Chicago, IL...................... Manufacturing/Distribution 186,000 Leased
Chicago, IL...................... Storage/Distribution 83,500 Leased
TAMOR
Fitchburg, MA.................... Distribution 220,000 Leased
Leominster, MA................... Manufacturing 100,000 Owned
Leominster, MA................... Sales Office 5,000 Leased
Leominster, MA................... Storage 120,000 Leased
Louisiana, MO.................... Manufacturing/Distribution 340,000 Owned
Thomasville, GA.................. Manufacturing/Distribution 45,000 Owned
SHUTTERS
Hebron, IL....................... Manufacturing/Distribution 62,500 Owned
SEYMOUR
Mooresville, NC.................. Manufacturing/Distribution 270,000 Owned
McAllen, TX...................... Administration/Distribution 5,000 Leased
Reynosa, Mexico.................. Manufacturing 30,000 Owned
Seymour, IN
Corporate...................... Corporate administration 10,000 Owned
East Plant..................... Manufacturing 70,000 Owned
South Plant.................... Manufacturing/Distribution 105,000 Owned
Skaggs Facility................ Storage 40,000 Leased
West Plant..................... Manufacturing/Distribution/Storage 132,000 Owned
Logistics Center............... Storage/Distribution 100,000 Leased
</TABLE>
Selfix closed its 34,000 square foot Canadian assembly and packaging
facility in March, 1996. The Scarborough, Ontario facility was subject to a
lease expiring in 1999, however the Company terminated the lease as of March 31,
1997. The cost to terminate the lease was not material to the Company's 1997
financial results.
ITEM 3. LEGAL PROCEEDINGS
A subsidiary of the Company was notified in early 1997, that it has been
named co-defendants, along with an unrelated third party, in a product
liability/personal injury suit. The suit seeks $7.0 million in total damages,
one-half from each defendant. The Company, and its subsidiary have adequate
levels of insurance coverage, and its defense is being handled by its insurance
carrier's attorneys. Although management of the Company cannot predict the
ultimate outcome of this matter with certainty, it believes that the ultimate
resolution to this matter will not have a material effect on the Company's
financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
9
<PAGE> 10
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company, and their respective ages and
principal positions as of March 25, 1998, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
James R. Tennant.......................... 45 Chairman of the Board and Chief Executive Officer
Stephen R. Brian.......................... 49 President and Chief Operating Officer
James E. Winslow.......................... 43 Executive Vice President, Chief Financial Officer
and Secretary
</TABLE>
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. Previously,
he was employed by Young and Rubicam, an advertising agency, his final position
being Executive Vice President.
Stephen R. Brian joined the Company as President and Chief Operating
Officer in January 1998. From June, 1996 to January, 1998, Mr. Brian was
President and Chief Executive Officer of Seymour Housewares Corporation. From
April, 1994 to June, 1996, Mr. Brian was Executive Vice President Manufacturing
and Technology for Sunbeam. Prior to April, 1994, Mr. Brian was employed by
Hamilton Beach/Proctor Silex with his final position being Executive Vice
President of Operations.
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.
Officers serve at the discretion of the Board of Directors, except as
provided in the employment agreements of Mr. Tennant and Mr. Brian.
10
<PAGE> 11
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 Markets(SM)
under the symbol "HPII". The Company believes that as of March 25, 1998 there
were 250 holders of record and in excess of 1,000 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 27, 1997:
First Quarter............................................. $12.75 $ 8.00
Second Quarter............................................ $11.19 $ 9.38
Third Quarter............................................. $15.88 $ 9.75
Fourth Quarter............................................ $14.75 $10.25
Fifty-two weeks ended December 28, 1996:
First Quarter............................................. $ 5.63 $ 4.13
Second Quarter............................................ $ 5.13 $ 4.13
Third Quarter............................................. $ 5.00 $ 4.50
Fourth Quarter............................................ $ 8.63 $ 4.25
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............................................ $ 5.88 $ 4.75
</TABLE>
11
<PAGE> 12
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL YEAR
----------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................... $129,324 $38,200 $41,039 $40,985 $39,711
Cost of goods sold.......................... 88,888 22,992 25,678 25,587 22,504
-------- ------- ------- ------- -------
Gross profit............................. 40,436 15,208 15,361 15,398 17,207
Operating expenses.......................... 27,688 13,843 17,385 18,185 14,214
Restructuring charge........................ -- -- 2,051 1,701 --
-------- ------- ------- ------- -------
Operating profit (loss).................. 12,748 1,365 (4,075) (4,488) 2,993
Interest expense............................ 5,152 707 896 999 1,066
Other income (expense), net................. 70 148 688 (295) 126
-------- ------- ------- ------- -------
Earnings (loss) before income taxes......... 7,666 806 (4,283) (5,782) 2,053
Income tax expense (benefit)............. 346 -- (273) 221 574
-------- ------- ------- ------- -------
Earnings (loss) before the cumulative effect
of a change in accounting for income
taxes.................................... 7,320 806 (4,010) (6,003) 1,479
-------- ------- ------- ------- -------
Cumulative effect of a change in accounting
for income taxes......................... -- -- -- -- 36
-------- ------- ------- ------- -------
Net earnings (loss)...................... $ 7,320 $ 806 $(4,010) $(6,003) $ 1,515
======== ======= ======= ======= =======
Net earnings per common share -- Basic...... $ 1.35 $ 0.21 $ (1.11) $ (1.70) $ 0.43
======== ======= ======= ======= =======
Net earnings per common share -- Diluted.... $ 1.29 $ 0.21 $ (1.11) $ (1.70) $ 0.43
======== ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF FISCAL YEAR END
----------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET AND CASH FLOW DATA:
Working capital............................. $ 8,263 $ 7,152 $ 6,712 $11,026 $12,752
Property, plant and equipment, net.......... 28,380 7,934 8,453 10,466 11,524
Intangible assets........................... 29,391 2,527 2,693 1,536 2,941
Total assets................................ 99,343 24,705 24,976 30,761 35,354
Long-term obligations (less current
maturities).............................. 30,700 6,184 7,022 9,421 9,120
Stockholders' equity........................ 42,216 11,709 10,847 13,623 19,326
Cash provided by operating activities....... 878 1,823 2,575 2,027 4,193
</TABLE>
12
<PAGE> 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company reports on a 52-53 week year ending on the last Saturday of
December. References to the fiscal years 1997, 1996 and 1995 are for the
fifty-two weeks ended December 27, 1997, December 28, 1996, and December 30,
1995.
FISCAL YEAR 1997 AS COMPARED TO FISCAL YEAR 1996
The following discussion and analysis compares the actual results of 1997
to the pro forma results for 1996. Management believes that such a comparison
(pro forma 1996 results for Tamor) is necessary to meaningfully analyze the
changes occurring in such years. The pro forma financial results give effect to
the Tamor Acquisition, and related financing, as if each of the transactions had
occurred on January 1, 1996. The pro forma operating expenses reflect (i)
additional amortization expense resulting from the recording of goodwill
associated with the Tamor Acquisition, (ii) net estimated cost savings as a
result of the Tamor Acquisition, including a net reduction in discretionary
distributions paid to and on behalf of related parties of Tamor and (iii)
additional costs associated with the Company's 401(k) and profit sharing plans
and certain other fees. The pro forma interest expense reflects the estimated
net increase in interest expense as if the Tamor Acquisition and related
financing had occurred on January 1, 1996. The pro forma number of weighted
average shares assumes the shares issued as a result of the Tamor Acquisition
(480,000 shares) and a warrant issued in connection with the acquisition
financing were outstanding as of January 1, 1996.
As such, in the discussion that follows, all comparisons are made on a pro
forma basis with reference to the following (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
PRO FORMA
FIFTY-TWO WEEKS FIFTY-TWO WEEKS
ENDED ENDED
DECEMBER 27, 1997 DECEMBER 28, 1996
----------------- -----------------
<S> <C> <C> <C> <C>
Net sales.............................................. $129,324 100.0% $113,904 100.0%
Cost of goods sold..................................... 88,888 68.7% 80,810 70.9%
-------- ----- -------- -----
Gross profit......................................... 40,436 31.3% 33,104 29.1%
Operating expenses..................................... 27,688 21.5% 24,864 21.8%
-------- ----- -------- -----
Operating profit..................................... 12,748 9.8% 8,240 7.3%
Interest expense....................................... 5,152 4.0% 6,328 5.6%
Other income (expense)................................. 70 .1% 847 .7%
-------- ----- -------- -----
Earnings before income taxes........................... 7,666 5.9% 2,759 2.4%
Income tax expense..................................... 346 .2% 160 .1%
-------- ----- -------- -----
Net earnings........................................... $ 7,320 5.7% $ 2,599 2.3%
======== ===== ======== =====
Net earnings per common share -- Basic................. $ 1.35 $ 0.60
======== ========
Net earnings per common share -- Diluted............... $ 1.29 $ 0.59
======== ========
</TABLE>
Net Sales. Net sales of $129.3 million were up $15.4 million from the prior
year. The sales increase was primarily driven by new product introductions
within Tamor's storage container line. The introduction of the flat lid 20, 30,
and 48 gallon storage totes contributed $12.0 million of new product sales.
Growth in the storage category was driven by continuing consumer trends toward
larger, more durable products for storage of seasonal and other items. Sales of
plastic hangers increased $3.4 million from 1996 as a result of aggressive
pricing action taken in response to competitive pressures. 1997 also saw an
increase in the bath and shower category with the introduction of Selfix's
Suction Lock bath line. This increase offsets declines in less profitable
juvenile and home organization products. Home improvement products experienced a
decrease of $.9 million due to postponed remodeling projects by end users.
Gross Profit. Gross profit margins in 1997 were 31.3% of net sales, up
significantly from 1996 margins of 29.1%. The margin improvement was a direct
result of a decline in the cost of plastic resin. The average cost of plastic
resin dropped from $0.37 per pound in 1996 to $0.33 in 1997. The Company used 74
million pounds of
13
<PAGE> 14
plastic resin in 1996 and as such realized savings of approximately $2.6 million
as compared to 1996. This savings represents 2% of 1997 net sales. 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. In addition to the
decrease in plastic resin, margins also benefited from improved usage of
existing capacity. Tamor was able to shift some of its excess molding capacity
($2.1 million) to Selfix and Shutters, allowing all three entities to run nearly
at full capacity. Fixed costs were absorbed over an expanded manufacturing
volume thus reducing unit costs as a percent of net sales.
Operating Expenses. Operating expenses, including selling, administrative,
and amortization of intangibles decreased slightly as a percentage of net sales
from 1996 to 1997. Selling expenses decreased from 14.9% of net sales in 1996 to
14.3% in 1997. The slight decrease as a percentage of net sales is attributable
to the Company's continuous efforts to effectively manage costs. Administrative
expenses increased from 6.2% of net sales in 1996 to 6.5% in 1997. The minor
increase is due to the 1997 implementation of two separate incentive bonus plans
, as well as an increase in the reserve for bad debts. Amortization of
intangibles increased slightly but as a percentage of net sales remained
constant at .7% of net sales.
Interest Expense. Interest expense of $5.2 million in 1997 decreased $1.2
million from 1996 due to a secondary public stock offering of 2.3 million shares
in the third quarter. Proceeds from the offering, $20.9 million, were used to
repay a subordinated note of $7.0 million, term notes of $13.6 million, and
accrued interest of $.3 million.
Income taxes. The Company was able to use federal net operating loss
carryforwards, and the elimination of its valuation allowance to reduce the 1997
federal tax liability to zero. The valuation allowance was eliminated as a
result of the Company's determination that it was more likely than not that the
benefit of the deferred tax assets recorded would be realized. The Company
recorded a provision for state income taxes in the amount of $346, as a result
of the inability to use tax loss carryforwards in Massachusetts, Tamor's primary
state of business. The pro forma 1996 results also reflect zero federal tax
expense, and the state provision recorded reflects the actual state taxes paid
by Tamor.
Net earnings. Net earnings in 1997 were $7.3 million, or $1.29 per common
share -- diluted, based on 5.7 million weighted average common shares
outstanding. This compares to net earnings of $2.6 million in 1996, or $.59 per
common share -- diluted, based on 4.4 million weighted average common shares
outstanding. The $4.7 million increase in profitability is due to a 13.5%
increase in net sales combined with a 2.2% increase in gross margin. The
increase in weighted average common shares outstanding is the result of the
secondary public stock offering in July, 1997, the exercise of stock options
throughout 1997, and stock issued in connection with the Company's Employee
Stock Purchase Plan.
14
<PAGE> 15
FISCAL 1996 COMPARED TO FISCAL 1995
The following discussion and analysis compares the actual historical
results of 1996 and 1995 without consideration for the Tamor Acquisition, (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
FIFTY-TWO FIFTY-TWO
WEEKS ENDED WEEKS ENDED
DECEMBER 28, 1996 DECEMBER 30, 1995
------------------ ------------------
<S> <C> <C> <C> <C>
Net sales......................................... $38,200 100.0% $41,039 100.0%
Cost of goods sold................................ 22,992 60.2% 25,678 62.6%
------- ------ ------- ------
Gross profit................................. 15,208 39.8% 15,361 37.4%
Operating expenses................................ 13,843 36.2% 17,385 42.3%
Restructuring charge.............................. -- -- 2,051 5.0%
------- ------ ------- ------
Operating profit............................. 1,365 3.6% (4,075) (9.9)%
Interest expense.................................. 707 1.9% 896 2.2%
Other income (expense)............................ 148 .4% 688 1.7%
------- ------ ------- ------
Earnings before income taxes...................... 806 2.1% (4,283) (10.4)%
Income tax expense................................ -- -- 273 .6%
------- ------ ------- ------
Net earnings...................................... $ 806 2.1% $(4,010) (9.8)%
======= ====== ======= ======
Net earnings per common share -- Basic............ $0.21 $(1.11)
======= =======
Net earnings per common share -- Diluted.......... $0.21 $(1.11)
======= =======
</TABLE>
General. Fiscal 1996 results began to reflect the positive benefits of the
restructuring actions taken during fiscal years 1994 and 1995. The Company's net
earnings in fiscal 1996 of $0.8 million reflect reduced operating expenses,
improved manufacturing efficiencies and increased gross profit margins.
Overhead reductions and operating initiatives which were implemented in
1994 and 1995 directly benefited 1996 results as follows: (i) a 24% reduction in
the workforce; (ii) the elimination of unprofitable product lines; (iii) the
closing of three facilities; (iv) a reduction in outside warehousing costs; (v)
a 29% reduction of gross inventory; and (vi) the reduction of operating expenses
below amounts spent in fiscal 1993.
Net sales. Net sales of $38.2 million in 1996 decreased $2.8 million, or
7%, from net sales in 1995 of $41.0 million. The reduction in sales was a direct
result of decisions made in 1995 to discontinue the sale of certain under
performing housewares products. Discontinued products, accounting for $3.3
million of 1995 net sales, 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 increased 3% from 1995 as a result of an expanded line of
shower organizers. Juvenile products sales increased 10% as the Company had a
full year in which to sell the child safety product line acquired in October,
1995. Home improvement products increased 5% as a result of increased placement
with remodeling distributors.
Gross profit. Gross profit margins in 1996 were 39.8% of net sales, an
increase from margins in 1995 of 37.4% of net sales. 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 $0.48 per pound from an average cost of $0.53 per pound
for plastic resin during 1995. Selfix used approximately seven million pounds of
plastic resin resulting in a cost savings of $0.3 million as compared to 1995
cost levels. The 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.
Operating expenses. Selling expenses decreased from 25.5% of net sales in
1995 to 23.7% of net sales in 1996. Warehousing and customer service costs were
reduced by the first quarter closing of the Company's Canadian facility. All
Canadian business is now serviced from the Company's manufacturing and
distribution facilities in Chicago. The closing resulted in personnel reductions
and reduced warehousing costs. In addition,
15
<PAGE> 16
management decided that the Company was better served by outsourcing certain
product design services. This resulted in further personnel related savings.
Administrative expenses also decreased as a percent of net sales.
Administrative expenses were 12% of net sales in 1996 as compared to 15.7% in
1995. 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 a reduced number of product lines. Fourth quarter costs in
1996 of approximately $0.2 million related to the Tamor Acquisition were
capitalized. In addition, 1995 included an increase in the allowance for
doubtful accounts of $0.4 million to address the uncertain financial condition
of several retailers. Further, management decided in 1995 to outsource its
management information department and incurred $0.4 million of charges for
related severance payments and equipment write-offs.
Amortization of intangibles decreased from 1.1% of net sales in 1995 to
0.5% in 1996. The decrease in amortization is the result of 1995 write-offs of
previously capitalized patents and trademarks related to discontinued product
lines.
Restructuring charge. Restructuring charges totaling $2.1 million were
recorded in 1995 related to discontinuing certain unprofitable product lines,
closing the Company's Canadian facility and moving the Canadian operations to
Chicago. Such charges included severance benefits, the write-off of Canadian
fixed assets, early lease termination charges on the Canadian building lease and
the write-off of inventory and intangibles related to discontinued product
lines. The charges for the closing and relocation of the Canadian operation
totaled $1.0 million including severance benefits of $0.2 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 related to product lines the Company decided to discontinue and the
write-off of related product molds, inventory and patents. The after tax and
earnings per share impact of the write-off of depreciable assets in connection
with the 1995 restructuring charge was $1.0 million and $0.27, respectively.
Interest expense. In December, 1995, the Company used excess cash to pay
down a $1.5 million note payable to a bank. In addition, $0.8 million of
installment payments on variable rate demand bonds were made. As a result of
these payments, Selfix's 1996 interest expense was reduced $0.2 million as
compared to 1995. Changes in interest rates had no significant impact on
interest expense between years.
Other income (expense). 1996 other income of $0.1 million was significantly
less than the $0.7 million of other income in 1995. Other income in 1995 was
positively impacted by the favorable settlement of a non-compete and consulting
agreement. The favorable settlement allowed $0.3 million of related accruals to
be reversed into 1995 earnings. In addition, 1995 other income included gains on
sales of fixed assets and a franchise tax refund.
Income taxes. 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 $0.3
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 (loss). Net earnings in 1996 were $0.8 million or $0.21 per
common share -- diluted, based on 3.9 million weighted average common shares
outstanding. This compares to a net loss of $4.0 million in 1995 or $1.11 loss
per common share -- diluted, based on 3.6 million weighted average common shares
outstanding. The $4.8 million turnaround in profitability was due to the
operating improvements achieved over the prior few years and the $2.1 million
decrease in restructuring charges. The increase in common shares and common
share equivalents was the result of stock issued in connection with the
Company's 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.
16
<PAGE> 17
OPERATING RESULTS BY INDUSTRY SEGMENT
The Company operates in two industry segments: (i) housewares products and
(ii) home improvement products.
HOUSEWARES
The housewares segment significantly improved its profitability in 1997.
Operating profit of $12.3 million was achieved compared to pro forma (for the
Tamor Acquisition) operating profits in 1996 of $7.7 million. The improvement
resulted primarily from a 13.5% increase in net sales and a drop in the cost of
plastic resin of $0.03 per pound or $2.4 million as compared to 1996. Other
factors adding to the improvement were better utilization of existing capacity,
allowing for the reduction in outside molding, and holding selling and marketing
expenses steady in spite of the increase in sales.
Operating profit of $.9 million in 1996 was up $5.8 million as compared to
a loss in 1995, of $4.9 million. The improvement resulted from higher gross
profit margins and reduced operating expenses. The majority of the operating
initiatives and cost cutting measures of the prior two years benefited the
housewares segment. The Selfix line of products was significantly streamlined
from nearly 2,000 SKU's in 1994 to under 700 as of the end of 1996. The
reduction in SKU's has allowed management to concentrate on selling more
profitable products, allocate capital resources accordingly and cutback
personnel. Additionally, 1995 results included a $2.1 million restructuring
charge, whereas 1996 did not.
HOME IMPROVEMENT PRODUCTS
Operating profit of the home improvement segment remained flat from 1997 to
1996 at $.5 million. Sales for 1997 decreased $1.1 million as a result of
postponed remodeling projects by end users. Offsetting the effects of a decline
in sales were higher gross profit margins. The cost of plastic resin decreased
$0.06 per pound in 1997 or $.2 million as compared to 1996. Shutters was able to
operate at nearly full capacity in 1997 by molding for the housewares segment,
allowing them to absorb their fixed costs over an expanded manufacturing volume,
thus reducing unit costs as a percentage of net sales. In response to the sales
shortfall, operating expenses were significantly reduced in 1997.
Operating profits in 1996 of $.5 million declined 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 8% 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.
SEYMOUR ACQUISITION
Effective December 30, 1997, (within the Company's 1998 fiscal year) the
Company acquired Seymour, a privately held company originally founded in 1942.
Seymour is a leading designer, manufacturer and marketer of consumer laundry
care products. Seymour manufactures and markets a full line of ironing boards,
ironing board covers and pads and numerous laundry related accessories.
Seymour was acquired for a total purchase price of $100.7 million,
consisting of $16.4 million in cash, $14.3 million in common stock (1,320,700
shares) and the assumption of $70.0 million of debt. The necessary funds to
complete the acquisition were obtained from a credit agreement entered into on
December 30, 1997, (the "12/30/97 CREDIT AGREEMENT"), with the lenders which are
parties thereto and General Electric Capital Corporation ("GECC").
The financing facilities under the 12/30/97 Credit Agreement consist of a
$20.0 million revolving credit facility and two term loans totaling $110.0
million. The Company also executed a $10.0 million senior
17
<PAGE> 18
subordinated note in favor of GECC. The revolving credit facility, the term
loans and the senior subordinated note provided a total of $140.0 million of
available financing. The 12/30/97 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 loans is initially charged at floating rates of 100-150 basis points
over the lender's prime rate or 250-300 basis points over LIBOR, at the option
of the Company. The senior subordinated note of $10.0 million bears interest at
a floating rate of 300 basis points over the lender's prime rate, but in no
event less than 11%. (See Note 16 to Consolidated Financial Statements for
additional information in regards to the 12/30/97 Credit Agreement).
If the Seymour Acquisition had occurred on January 1, 1997, the Company's
1997 net sales of $129.3 million would have been increased by $93.0 million to
$222.3 million and operating profits of $12.7 million would have been increased
by $2.6 million to $15.3 million. The pro forma operating profit of $15.3
million includes a charge of $2.6 million related to management's plans to
consolidate and dispose of certain manufacturing operations.
CAPITAL RESOURCES AND LIQUIDITY
Cash and cash equivalents at December 27, 1997 were $.6 million as compared
to $2.9 million at December 28, 1996. The decrease in cash is the result of
daily sweeps against the Company's revolving line of credit that was established
in February, 1997 in connection with the Tamor Acquisition. Capital spending of
$8.6 million was used to acquire molds to support new product introductions,
additional injection molding machines and to fund an expansion of the company's
Missouri warehouse facility. Since the Tamor Acquisition, working capital has
increased $4.3 million.
In July, 1997, the Company completed a secondary stock offering of 2.3
million shares of common stock. Net proceeds of $20.9 million were used to repay
a subordinated note of $7.0 million, term notes of $13.6 million and accrued
interest of $.3 million.
The required borrowings for the Seymour Acquisition have significantly
changed the Company's financial structure. To fund the acquisition, increased
financing facilities were provided by commercial lenders to replace and augment
the financing facilities in place at December 27, 1997. The new financing
facilities consist of $110.0 million of term loans and a $20.0 million revolving
line of credit under the 12/30/97 Credit Agreement and a $10.0 million senior
subordinated note. At March 25, 1998, the Company had total short and long term
debt outstanding of $126.7 million and unused availability under the revolving
line of credit of $11.8 million. During 1998, $5.0 million of debt will come
due.
The Company's capital spending needs in 1998 are expected to be between
$10.0 and $12.0 million. Most of the spending relates to new injection molding
presses to expand existing capacity and to replace old, inefficient machines.
The replacement machines are expected to reduce manufacturing cycle times and
ongoing maintenance costs. In addition, the Company exercised an option to
purchase the leased manufacturing and warehouse facility in Missouri at an
approximate cost of $1.4 million. Where possible, management will pursue
alternative means of financing such as capital leases and purchase money
transactions. In addition, operating leases will be pursued to the extent it
represents an attractive economic alternative.
The Company believes its existing financing facilities together with its
cash flow from operations will provide sufficient capital to fund operations,
make the required debt repayments and meet the anticipated capital spending
needs.
Management intends to continue to pursue its consolidation strategy within
the housewares industry. The current financing facilities are not intended to
fund future acquisitions. The ability to successfully fund future acquisitions
will depend on the financial situation of the target company, possible
renegotiation of existing credit terms or the possibility of obtaining an
alternative credit facility, and the ability to use company stock in lieu of
cash. Alternative financing arrangements are currently being explored including
the possibility of a public debt offering, and the creation of a working capital
and acquisition line of credit. However, no commitments have been made as of
March 25, 1998.
18
<PAGE> 19
OUTLOOK
1997's operating and financial results exceeded management's expectations
at the time of the January, 1997 Tamor acquisition. Several planned strategic
initiatives were successfully completed:
- integration of the Tamor business into HPI
- utilization of excess manufacturing capacity to improve gross profit
margins
- continued improved profitability of the Selfix business
- follow-on stock offering of 2.3 million shares, which raised over $20
million to pay down debt, increased institutional ownership and expanded
analyst coverage of the Company
- increased share price and shareholder value with share price rising 43%
- announcement at year end of the completion of the Seymour Acquisition
Management expects 1998 to be an equally fulfilling year for its
shareholders.
On a pro forma basis, 1997 sales were up 13.5% to 1996. While increased
sales and market presence is vitally important, growth must also be profitable.
Not all of the 1997 sales growth was sufficiently profitable. In addition, the
company was using its productive capacity at nearly 100%. As a result, the
Company faces the challenge in 1998 of putting manufacturing capacity to its
most profitable use. Certain products will continue to be outsourced but only
when product profitability targets are met. To this end, management anticipates
slower sales growth in 1998 while new product sales replace products expected to
be discontinued. This will allow the Company to better use its manufacturing
capacity to produce those products that provide the highest returns. During
1998, the Company will evaluate its production capacity needs and identify ways
by which to add capacity. Management continues to believe that significant sales
growth opportunities exist in the storage container category. It is management's
intention to have the capacity in place by 1999 to allow for aggressive pursuit
of profitable sales growth in this category.
The Seymour Acquisition will add significantly to 1998 sales. If the
Seymour Acquisition had occurred on January 1, 1997, the Company's 1997 sales
would have increased by $93 million. Further, it is management's intention to
fully integrate Seymour's operating functions such as sales, marketing and
finance into the existing operating departments of other HPI businesses. This
will allow for a reduction of pro forma operating expenses and improved
profitability.
The Seymour product line is more seasonal than the Company's other
products. Sales of Seymour products are concentrated in the second and third
quarter. This corresponds to the spring/summer wedding season and the
back-to-school season. As a result, 1998 sales and earnings are expected to be
significantly higher in the second and third quarters as compared to the first
and fourth quarters.
Because the Seymour products are composed primarily of steel and fabric,
they provide a diversification hedge against the Company's exposure to
fluctuations in the cost of plastic resin. In 1998, management expects the cost
of plastic resin to represent about 12% of net sales as compared to 22% in 1997.
The Company currently expects resin prices to increase slightly in 1998 as a
result of changes in product mix, the composition of resins used and a
tightening of resin supply.
As a result of the Seymour 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 tight borrowing limits and mandatory repayments.
Management expects, however, that cash flow from operations will be sufficient
to fund needed capital improvements and new product development. Offsetting some
of the interest rate risk is a reduction in interest rate margins as defined in
the 12/30/97 Credit Agreement. The Company's 1997 financial performance allowed
for a lessening of such margins by about 50 basis points.
Management will continue to seek strategic acquisitions of companies and
product lines that fit within the desired categories of products for the home.
Management expects continued sales and earnings growth from future acquisitions
but that additional financing may be necessary to support acquisition activity.
19
<PAGE> 20
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 and the Seymour
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.
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 Balance Sheets at December 27, 1997 and F-3
December 28, 1996...........................................
Consolidated Statements of Operations for 1997, 1996 and F-4
1995........................................................
Consolidated Statements of Stockholders' Equity for 1997, F-5
1996 and 1995...............................................
Consolidated Statements of Cash Flows for 1997, 1996 and F-6
1995........................................................
Notes to Consolidated Financial Statements.................. F-7
(b) Supplementary Data
Summary of Quarterly Financial Information.................. F-26
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Board of Directors of the Company has appointed Arthur Andersen LLP,
independent public accountants, as independent auditors to examine the annual
consolidated financial statements of the Company and its subsidiary companies
for 1998. Arthur Andersen LLP has served as the Company's independent auditors
since 1996.
The Company dismissed Grant Thornton LLP, its independent public
accountants, effective April 12, 1996.
In connection with the audit of 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.
During 1995 and during the interim period prior to engagement by Arthur
Andersen LLP, there were no consultations with Arthur Andersen LLP 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 former accountants' report on the financial statements of the Company
for 1995 was unqualified.
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 herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under "Compensation of Executive Officers" and
"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
Stockholders and Management" in the Proxy Statement is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under "Certain Relationships and Related
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>
Reports of Independent Public Accountants on Schedule II.... F-24
Schedule II -- Valuation and Qualifying Accounts............ F-26
</TABLE>
(C) REPORTS FILED ON FORM 8-K
<TABLE>
<CAPTION>
DATE FILED ITEMS REPORTED
---------- --------------
<S> <C>
11-24-97 The Company signed a definitive agreement to acquire Seymour
Housewares, Inc. There were no financial statements filed
with this Form 8-K.
</TABLE>
(D) EXHIBITS (NUMBERED IN ACCORDANCE WITH ITEM 601 OF REGULATION S-K)
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.
2.5 Amended and Restated Agreement, dated December 30, 1997, by
and among the Company, Seymour Sales Corporation, Seymour
Housewares Corporation, and Chase Venture Capital Associates
(majority shareholder of Seymour Sales Corporation).
Incorporated by reference from Exhibit 2.1 to Form 8-K dated
January 13, 1998, which was subsequently modified as stated
in Item 2 to Form 8-K/A dated March 16, 1998.
*2.6 Form of Escrow Agreement (Exhibit 2.8 from Amended and
Restated Agreement, dated December 30, 1997 by and among the
Company, Seymour Sales Corporation, Seymour Housewares
Corporation, and Chase Venture Capital Associates (majority
shareholder of Seymour Sales Corporation)) by and among
HPII, the security holders of Sales, Majority Shareholder,
and LaSalle.
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.
4.1 Form of Rights Agreement dated as of May 21, 1997, between
Home Products International, Inc. and ChaseMellon
Shareholder Services L.L.C., as Rights Agent, which includes
as Exhibit B thereto the Form of Right Certificate.
Incorporated by reference from Exhibit 4.2 to Form S-2
Registration Statement (File No. 333-25871) filed on April
25, 1997.
10.1 The Company's 1994 Stock Option Plan. Incorporated by
reference from 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.
</TABLE>
22
<PAGE> 23
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
<C> <S>
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 as of December 30, 1997 among Selfix,
Inc., Tamor Corporation, Seymour Housewares Corporation, and
Shutters, Inc., as Borrowers, the Company, General Electric
Capital Corporation, as Agent and Lender, and other Lenders
signatory hereto from time to time.
*10.11 Note Purchase Agreement dated as of December 30, 1997, among
Selfix, Inc., Tamor Corporation, Shutters, Inc., and Seymour
Housewares Corporation, Home Products International, Inc.,
(referred to herein as Joint Issuers) and General Electric
Capital Corporation individually, and as Agent for itself
and other Note Purchasers signatory hereto.
*10.12 $5,000,000 Senior Subordinated Note -- General Electric
Capital Corporation, due December 30, 2006.
*10.13 $5,000,000 Senior Subordinated Note -- Archimedes Funding,
L.L.C. due December 30, 2006.
*10.14 Subordinated Note Security Agreement dated December 30, 1997
among Selfix, Inc., Tamor Corporation, Shutters, Inc., and
Seymour Housewares Corporation, Home Products International,
Inc., (collectively referred to herein as Grantors) in favor
of General Electric Capital Corporation.
10.15 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.**
*10.16 Employment Agreement dated January 5, 1998 between the
Company and Stephen R. Brian, President and Chief Operating
Officer.**
10.17 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.
10.18 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.
10.19 Description of the 1998 Executive Incentive Bonus Plan.
Incorporated by reference to the Compensation Committee
Report contained in Form Pre 14A dated April 13, 1998.**
10.20 Description of the 1998 Management Incentive Bonus Plan.
Incorporated by reference to the Compensation Committee
Report contained in Form Pre 14A dated April 13, 1998.**
*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 sheets of Home
Products International, Inc. (formerly Selfix, Inc.) (a Delaware corporation)
and subsidiaries as of December 27, 1997 and December 28, 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the fifty-two week periods 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 audits 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 27, 1997 and December 28, 1996, and the
results of its operations and its cash flows for the fifty-two week periods then
ended in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Chicago, Illinois
February 6, 1998
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 statements of operations,
stockholders' equity and cash flows for the 52-week period ended December 30,
1995 of Home Products International, Inc., (formerly Selfix, Inc.). 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 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 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 audit provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated results of their operations and their
consolidated cash flows for the 52-week period ended December 30, 1995 of Home
Products International, Inc. and Subsidiaries, in conformity with generally
accepted accounting principles.
GRANT THORNTON LLP
Chicago, Illinois
February 9, 1996
F-2
<PAGE> 26
HOME PRODUCTS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF FISCAL YEAR END
----------------------
1997 1996
---- ----
(IN THOUSANDS,
EXCEPT SHARE AMOUNTS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 583 $ 2,878
Accounts receivable, net of allowance for doubtful
accounts of $1,716 at December 27, 1997 and $901 at
December 28, 1996...................................... 20,802 6,476
Notes and other receivables............................... 80 119
Inventories, net.......................................... 12,797 4,391
Prepaid expenses and other current assets................. 428 100
-------- --------
Total current assets................................... 34,690 13,964
-------- --------
Property, plant and equipment -- at cost.................... 47,634 22,515
Less accumulated depreciation and amortization.............. (19,254) (14,581)
-------- --------
Property, plant and equipment, net.......................... 28,380 7,934
-------- --------
Deferred income taxes....................................... 3,466 --
Intangible and other assets................................. 32,807 2,807
-------- --------
Total assets................................................ $ 99,343 $ 24,705
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term obligations............... $ 3,850 $ 838
Accounts payable.......................................... 9,664 1,956
Accrued liabilities....................................... 12,913 4,018
-------- --------
Total current liabilities.............................. 26,427 6,812
-------- --------
Long-term obligations -- net of current maturities.......... 30,700 6,184
Stockholders' equity:
Preferred stock -- authorized, 500,000 shares, $.01 par
value; none issued..................................... -- --
Common stock -- authorized 15,000,000 shares, $.01 par
value; 6,674,271 shares issued at December 27, 1997 and
3,881,423 shares issued at December 28, 1996........... 67 39
Additional paid-in capital................................ 33,956 10,839
Retained earnings......................................... 8,616 1,296
Common stock held in treasury -- at cost (58,762
shares)................................................ (264) (264)
Currency translation adjustments.......................... (159) (201)
-------- --------
Total stockholders' equity............................. 42,216 11,709
-------- --------
Total liabilities and stockholders' equity.................. $ 99,343 $ 24,705
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 27
HOME PRODUCTS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEAR
--------------------------------
1997 1996 1995
---- ---- ----
(IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net sales.................................................. $129,324 $38,200 $41,039
Cost of goods sold......................................... 88,888 22,992 25,678
-------- ------- -------
Gross profit............................................. 40,436 15,208 15,361
Operating expenses
Selling.................................................. 18,332 9,042 10,474
Administrative........................................... 8,474 4,600 6,433
Amortization of intangible assets........................ 882 201 478
Restructuring charge..................................... -- -- 2,051
-------- ------- -------
27,688 13,843 19,436
-------- ------- -------
Operating profit (loss).................................. 12,748 1,365 (4,075)
-------- ------- -------
Other income (expense)
Interest income.......................................... 50 80 230
Interest (expense)....................................... (5,152) (707) (896)
Other income (expense)................................... 20 68 458
-------- ------- -------
(5,082) (559) (208)
-------- ------- -------
Earnings (loss) before income taxes........................ 7,666 806 (4,283)
Income tax (expense) benefit............................... (346) -- 273
-------- ------- -------
Net earnings (loss)........................................ $ 7,320 $ 806 $(4,010)
======== ======= =======
Net earnings (loss) per common share -- Basic.............. $ 1.35 $ 0.21 $ (1.11)
======== ======= =======
Net earnings (loss) per common share -- Diluted............ $ 1.29 $ 0.21 $ (1.11)
======== ======= =======
</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 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 9,147 shares of common
stock in connection with
exercise of stock options....... -- -- 33 -- -- -- -- 33
Purchase of 58,762 common share
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
Net earnings...................... -- -- -- 7,320 -- -- -- 7,320
Issuance of 19,560 shares in
connection with employee stock
purchase plan................... -- -- 107 -- -- -- -- 107
Issuance or 480,000 shares of
common stock in connection with
Tamor Acquisition............... -- 5 2,395 -- -- -- -- 2,400
Issuance of 2,280,000 shares of
common stock in connection with
secondary public offering....... -- 23 20,148 -- -- -- -- 20,171
Issuance of warrant............... -- -- 400 -- -- -- -- 400
Stock options exercised........... -- -- 67 -- -- -- -- 67
Issuance of 13,288 shares of
common stock in connection with
the exercise of stock options...
Translation adjustments........... -- -- -- -- 42 -- -- 42
---- --- ------- ------- ----- ---- ----- -------
BALANCE AT DECEMBER 27, 1997...... $ -- $67 $33,956 $ 8,616 $(159) $ -- $(264) $42,216
==== === ======= ======= ===== ==== ===== =======
</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
-----------------------------
1997 1996 1995
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)....................................... $ 7,320 $ 806 $(4,010)
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Depreciation and amortization.......................... 5,687 2,214 3,337
Provision for restructuring charge..................... -- -- 2,051
Changes in assets and liabilities:
(Increase) decrease in accounts receivable............. (5,428) (1,786) 494
(Increase) decrease in inventories..................... (2,280) 760 105
Decrease in refundable income taxes.................... -- 222 159
Increase in net deferred tax asset..................... (3,466) -- --
(Increase) decrease in notes and other receivables..... -- (35) 1,691
Increase (decrease) in accounts payable................ (4,695) 622 (681)
Increase (decrease) in accrued liabilities............. 5,060 (793) (603)
Other operating activities, net........................ (1,320) (187) 32
------- ------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... 878 1,823 2,575
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Tamor Acquisition, net of cash acquired................... (27,876) -- --
Proceeds from sale or maturity of marketable securities... -- 515 408
Capital expenditures, net................................. (8,382) (1,624) (1,215)
Restricted cash -- Industrial Revenue Bond................ -- -- 5
Mericon Child Safety Products Acquisition, net of cash
acquired............................................... -- -- (921)
------- ------- -------
NET CASH USED FOR INVESTING ACTIVITIES...................... (36,258) (1,109) (1,723)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on borrowings.................................... (34,609) (860) (2,471)
Proceeds from borrowings and warrants..................... 44,158 -- --
Net proceeds from borrowings under revolving line of
credit................................................. 3,355 -- --
Net proceeds from secondary stock offering................ 20,171 -- --
Payment of capital lease obligation....................... (164) (32) (27)
Purchase of treasury stock................................ -- -- (264)
Exercise of common stock options and issuance of common
stock under stock purchase plan........................ 174 74 33
------- ------- -------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES........ 33,085 (818) (2,729)
------- ------- -------
Net decrease in cash and cash equivalents................. (2,295) (104) (1,877)
Cash and cash equivalents at beginning of year............ 2,878 2,982 4,859
------- ------- -------
Cash and cash equivalents at end of year.................. $ 583 $ 2,878 $ 2,982
======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the year for:
Interest.................................................. $ 3,568 $ 599 $ 822
------- ------- -------
Income taxes, net......................................... 1,255 (314) (457)
------- ------- -------
</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 27, 1997, DECEMBER 28, 1996, AND DECEMBER 30, 1995
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Home Products International, Inc. (the "Company") and its subsidiary
companies 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 consolidated financial statements include the accounts of the Company
and its subsidiary companies. All significant intercompany transactions and
balances have been eliminated. The accompanying statements do not include the
accounts of Seymour Sales Corporation or its wholly owned subsidiary, Seymour
Housewares Corporation, (collectively, "Seymour"), as the Company did not
complete the acquisition until after the end of fiscal 1997. See Note 16 for
more information regarding the acquisition of Seymour.
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,
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 27, 1997, and December 28, 1996, the Company had no significant
concentrations of credit risk related to cash equivalents.
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 the straight-line method of depreciation. For tax
purposes, the Company uses accelerated methods where permitted.
F-7
<PAGE> 31
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, dies and molds....................................... 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 forty 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 five to
ten years.
Long-Lived Assets.
In fiscal 1996, the Company adopted Statement of Financial Accounting
Standard No. 121, ("SFAS 121"), "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed Of". The statement requires entities
to review long-lived assets and certain intangible assets in certain
circumstances, and if the value of the asset is impaired, an impairment loss
shall be recognized. The adoption of this policy had no material effect on the
Company's financial position or results of operations.
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.
Net Earnings (Loss) Per Common Share.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"),
which established new standards for the computation and presentation of earning
per share information. As required, the Company has adopted the provisions of
SFAS 128 for its year end 1997 financial statements, and has restated all prior
year earnings per share information. Net earnings (loss) per common
share -- basic, was calculated by dividing net earnings (loss) applicable to
common shares by the weighted average number of common shares outstanding during
each year. Net earnings (loss) per common share -- diluted, reflects the
potential dilution that could occur assuming exercise of all outstanding
"in-the-money" stock options. A reconciliation of the net earnings (loss)
F-8
<PAGE> 32
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and the number of shares used in computing basic and diluted earnings per share
was as follows (in thousands, except share and per share amounts):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net earnings (loss) per common share -- Basic:
Net earnings (loss) applicable to common shares...... $7,320 $ 806 $(4,010)
====== ====== =======
Weighted average common shares outstanding for the
year............................................... 5,436 3,820 3,617
====== ====== =======
Net earnings (loss) per common share -- Basic........ $ 1.35 $ 0.21 $ (1.11)
====== ====== =======
Net earnings (loss) per common share -- Diluted:
Net earnings (loss) applicable to common shares...... $7,320 $ 806 $(4,010)
====== ====== =======
Weighted average common shares outstanding for the
year............................................... 5,436 3,820 3,617
Increase in shares which would result from exercise
of "in-the-money" stock options.................... 246 34 --
------ ------ -------
Weighted average common shares assuming conversion of
the above securities............................... 5,682 3,854 3,617
====== ====== =======
Net earnings (loss) per common share -- Diluted...... $ 1.29 $ 0.21 $ (1.11)
====== ====== =======
</TABLE>
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 certain limitations. The total Company contributions to
both plans are limited to the maximum deductible amount under the Federal income
tax law.
The Company provides retirement plans for its employees covered under
collective bargaining agreements. The amount of the Company contribution is
determined by the respective collective bargaining agreement.
The contributions to all the profit sharing, savings, and retirement plans
for 1997, 1996 and 1995, were $414, $248, and $259, 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.
Fiscal Year.
The Company's fiscal year ends on the last Saturday in December. References
to the fiscal years 1997, 1996 and 1995 are for the fifty-two weeks ended
December 27, 1997, December 28, 1996 and December 30, 1995.
Related Parties.
A director of the Company is the executor and co-trustee of certain estates
and trusts which lease facilities to the Company as discussed in Note 9. In
addition, the director is a partner in a law firm which is the Company's general
counsel. Total fees paid to this law firm in fiscal 1997 were $730.
F-9
<PAGE> 33
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In fiscal 1997 the Company engaged the services of a management consulting
firm in which a director of the Company is a partner. Total fees paid to this
management consulting firm in 1997 were $99.
In fiscal 1997, Tamor purchased raw materials and packaging from vendors
whose ownership was related to certain officers of Tamor. Such transactions were
as follows: (i) raw materials totaling $9,835, and packaging totaling $1,700.
Management believes the transactions were conducted on an arm's length basis at
competitive prices.
NOTE 2. ACQUISITION OF TAMOR PLASTICS CORPORATION AND HOUSEWARE SALES, INC.
Pursuant to an agreement dated October 29, 1996, the Company, as of January
1, 1997, took operating and financial control of Tamor Plastics Corporation, and
its affiliated product distribution company, Houseware Sales, Inc.,
(collectively, "TAMOR"), assumed substantially all of the liabilities of Tamor
and retained substantially all of the earnings from Tamor's operations (the
"TAMOR ACQUISITION"). Actual results are combined since the date of effective
control although the purchase did not close until February 28, 1997. Tamor,
founded in 1947, designs, manufactures, and markets quality plastic houseware
products, including storage totes, hangers, and juvenile organization products.
The Tamor Acquisition was completed by the Company for a total purchase
price of $41,900 consisting of $27,800 in cash, $2,400 of Common Stock (480,000
shares), and the assumption of $11,700 of short and long-term debt. The funds
used for the Tamor Acquisition were obtained from a credit agreement entered
into with General Electric Capital Corporation, ("GECC"), on February 27, 1997,
(the "CREDIT AGREEMENT"). See Note 9 for additional information on the Credit
Agreement.
The Tamor Acquisition was accounted for as a purchase, and the operating
results of Tamor have been included in the accompanying financial statements
from January 1, 1997, the effective date of the acquisition. The excess of the
purchase price over the fair value of the assets acquired (goodwill)
approximated $27,599 and is being amortized over a period of forty years.
The unaudited pro forma consolidated results of operations as of December 28,
1996 would have been as follows, if the Tamor Acquisition had occurred on
January 1, 1996:
<TABLE>
<S> <C>
Net Sales................................................... $113,914
Gross Profit................................................ 33,104
Operating Income............................................ 8,240
Net Income.................................................. 2,599
Net earnings per common share -- Basic...................... $ 0.60
Net earnings per common share -- Diluted.................... $ 0.59
</TABLE>
Adjustments made in arriving at the pro forma combined results include
increased interest expense and amortization of debt issuance costs on
acquisition debt, amortization of goodwill, and certain operating expense
reductions. No effect has been given in operating expenses to the fair value of
the assets acquired, depreciable values or lives, or synergistic benefits which
may be realized from the acquisition.
The pro forma consolidated results do not purport to be indicative of
results that would have occurred had the Tamor Acquisition been in effect as of
January 1, 1996 nor do they purport to be indicative of the results that will be
obtained in the future.
NOTE 3. ACQUISITION OF MERICON CHILD SAFETY PRODUCTS
On October 24, 1995, the Company acquired 100% of the common stock of
Mericon Child Safety Products for a total purchase price of $2,421 consisting of
250,000 shares of the Company's common stock. The acquisition was accounted for
as a purchase, and accordingly, the results of operations are included in the
F-10
<PAGE> 34
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
consolidated financial results from the date of acquisition. The purchase price
in excess of the fair value of net assets acquired (goodwill) of approximately
$1,796 is being amortized over a period of forty years.
NOTE 4. PUBLIC STOCK OFFERING
On June 30, 1997, the Company completed a secondary public offering of
2,000,000 new shares of its common stock. Net proceeds in the amount of $18,300
were used to repay the subordinated note of $7,000, term notes of $11,100, and
accrued interest of $200. On July 16, 1997, an additional 280,000 shares were
sold pursuant to an underwriter's over-allotment provision. Net proceeds of
$2,600 were used to repay term notes of $2,500 and accrued interest of $100.
See Note 9 for additional information regarding the repayment of debt.
NOTE 5. INVENTORIES
The components of the Company's inventory were as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Finished goods.............................................. $ 7,335 $2,604
Work-in-process............................................. 2,225 1,003
Raw materials............................................... 3,237 784
------- ------
$12,797 $4,391
======= ======
</TABLE>
NOTE 6. PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment were as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Buildings and land....................................... $ 5,588 $ 2,176
Land and building under capital lease.................... 2,535 2,535
Machinery, equipment and vehicles........................ 17,936 7,092
Tools and dies........................................... 16,303 6,704
Furniture, fixtures and office equipment................. 3,339 2,679
Leasehold improvements................................... 1,933 1,329
-------- --------
47,634 22,515
Less accumulated depreciation and amortization........... (19,254) (14,581)
-------- --------
$ 28,380 $ 7,934
======== ========
</TABLE>
F-11
<PAGE> 35
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7. INTANGIBLES AND OTHER ASSETS
Intangibles and other assets consist of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Goodwill, net of accumulated amortization of $993 on
December 27, 1997, and $223 on December 28, 1996.......... $28,892 $1,978
Covenants not to compete, net of accumulated amortization of
$13 on December 27, 1997, and $7 on December 28, 1996..... 77 23
Industrial Revenue Bond fees, net of accumulated
amortization of $230 on December 27, 1997, and $202 on
December 28, 1996......................................... 173 201
Patents, net of accumulated amortization of $1,384 on
December 27, 1997, and $1,327 on December 28, 1996........ 96 153
Licensing agreement, net of accumulated amortization of $42
on December 27, 1997, and $23 on December 28, 1996........ 153 172
Deferred financing fees, net of accumulated amortization of
$439 on December 27, 1997, and $20 on December 28, 1996... 3,320 77
Other assets................................................ 96 203
------- ------
$32,807 $2,807
======= ======
</TABLE>
NOTE 8. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Compensation and other benefits............................. $ 3,012 $1,540
Sales incentives and commissions............................ 2,721 814
Income taxes payable........................................ 3,551 92
Other....................................................... 3,629 1,572
------- ------
$12,913 $4,018
======= ======
</TABLE>
F-12
<PAGE> 36
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9. LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Revolving credit facility, variable rate, due August 28,
2002...................................................... $ 3,355 $ --
Term Loan A, variable rate, due July 1, 2002................ 11,783 --
Term Loan B, variable rate, due July 1, 2004................ 12,938 --
Illinois Development Finance Authority (IDFA) variable rate
demand Industrial Development Revenue bonds (Shutters
Project) Series 1989, due November 1, 2002................ 2,000 2,400
Illinois Development Finance Authority (IDFA) variable rate
demand Industrial Development Revenue Bonds (Selfix, Inc.
Project) Series 1990, due September 1, 2005............... 2,400 2,800
Capital lease obligations................................... 2,074 1,822
------- ------
34,550 7,022
Less current maturities..................................... (3,850) (838)
------- ------
$30,700 $6,184
======= ======
</TABLE>
In connection with the Tamor Acquisition, (as more fully described in Note
2), the Company entered into a credit agreement dated February 27, 1997 (the
"CREDIT AGREEMENT"), with GECC which provided (i) a $20,000 revolving credit
facility, (ii) a twenty-two quarter $20,000 term loan, and (iii) a thirty
quarter $20,000 term loan. In addition, the Company obtained a $7,000
subordinated equity bridge note (the "SUBORDINATED NOTE") through GECC. However,
as more fully described in Note 16, effective December 30, 1997 the Company
terminated the February 27, 1997, Credit Agreement, and entered into a $130,000
credit agreement dated December 30, 1997 (the "12/30/97 CREDIT AGREEMENT") with
GECC. In addition to the 12/30/97 Credit Agreement, the Company obtained a
$10,000 senior subordinated note, also through GECC.
In connection with the Subordinated Note, the Company issued a warrant (the
"WARRANT") to purchase 79,204 shares of common stock, exercisable at 50% of the
Market price ($5.80 per share), as defined in the Warrant. The exercise period
commenced on August 1, 1997, and terminates on February 27, 2007. The Warrant
was recorded by the Company at its estimated fair value of $400. As of December
27, 1997 the Warrant had not been exercised.
As discussed in Note 4, on June 24, 1997, the Company completed a secondary
public offering of 2,000,000 shares of its common stock. Net proceeds in the
amount of $18,300 were used to fully repay the Subordinated Note of $7,000, term
notes of $11,100, and accrued interest of $200. On July 16, 1997, an additional
280,000 shares were sold pursuant to an underwriter's over-allotment provision.
Net proceeds of $2,600 were used to repay term notes of $2,500 and accrued
interest of $100.
The IDFA variable rate demand Industrial Development Bonds (Shutters
Project) Series 1989, were issued in December 1989, and mature on November 1,
2002. Interest is calculated based upon a weekly variable rate, and is paid
monthly. Principal is payable in annual installments, due on December 1. The
variable rate at December 27, 1997, and December 28, 1996, was 4.6%.
The IDFA variable rate demand Industrial Development Bonds (Selfix Project)
Series 1990, were issued in September 1990, and mature on September 1, 2005.
Interest is calculated based upon a weekly variable rate, and is paid monthly.
Principal is payable in annual installments, due on December 1. The variable
rate at December 27, 1997, and December 28, 1996, was 4.6%.
F-13
<PAGE> 37
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Capital lease obligations include; (i) a lease agreement between Selfix and
two related trusts for Selfix's principal factory and corporate office; and (ii)
starting in fiscal 1997, various equipment lease agreements. Lease payments to
the trusts were $519, $467 and $491, in 1997, 1996 and 1995, respectively, and
lease payments for machinery and equipment in 1997 were $140.
The following schedule shows future minimum lease payments together with
the present value of the payments for capital lease obligations.
<TABLE>
<S> <C>
Years ending:
1998...................................................... $ 430
1999...................................................... 422
2000...................................................... 417
2001...................................................... 407
2002...................................................... 367
Thereafter................................................ 2,604
-------
Less amount representing interest........................... (4,644)
-------
Present value of minimum lease payments..................... $ 2,074
=======
Long-term portion........................................... $ 1,974
Current portion............................................. 100
-------
$ 2,074
=======
</TABLE>
NOTE 10. COMMITMENTS AND CONTINGENCIES
The Company leases certain manufacturing, distribution, and office
facilities under noncancellable operating leases, expiring at various dates
through 1999. Future minimum lease payments amount to $1,046, and $1,020 for
fiscal years 1998 and 1999, respectively. Rent expense under operating leases
for 1997, 1996, and 1995, was $1,184, $354, and $381, respectively.
NOTE 11. INCOME TAXES
The components of earnings (loss) before income taxes are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Domestic............................................. $7,602 $1,122 $(3,262)
Foreign.............................................. 64 (316) (1,021)
------ ------ -------
$7,666 $ 806 $(4,283)
====== ====== =======
</TABLE>
F-14
<PAGE> 38
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Significant components of the Company's deferred tax items as of December
27, 1997 and December 28, 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
DEFERRED TAX ASSETS
Inventory reserves and overhead capitalized for tax
purposes............................................... $1,166 $ 414
Employee benefit expenses and other accruals.............. 341 450
Accounts receivable reserve............................... 423 241
Capitalized lease treated as operating lease for tax
purposes............................................... 378 430
Accrued advertising, volume rebates and reserves for
returns................................................ 890 109
Other accrued liabilities................................. 235 344
Net operating loss carryforward........................... -- 612
Other..................................................... 936 889
------ -------
Gross deferred tax assets................................... 4,369 3,489
------ -------
DEFERRED TAX LIABILITIES
Depreciation.............................................. 628 301
Other..................................................... 275 45
------ -------
Gross deferred tax liabilities.............................. 903 346
------ -------
Deferred tax assets net of deferred liabilities............. 3,466 3,143
Valuation allowance......................................... -- (3,143)
------ -------
Net deferred tax asset...................................... $3,466 $ --
====== =======
</TABLE>
In fiscal 1997, the Company received a refund of approximately $330
relating to federal income taxes paid in prior years. Through the claim for
refund filed, and the level of fiscal 1997 taxable income, the Company utilized
all federal net operating loss carryforwards in fiscal 1997.
The Company has research and development credit carryforwards of
approximately $11, expiring through the year 2010, state investment tax credit
carryforwards of approximately $86 expiring through 2000 and foreign net
operating loss carryforwards of $1,082 expiring in 2002.
The Company eliminated the valuation allowance as of December 27, 1997
based upon the determination that it is more likely than not that the Company
will realize the benefits generated from the deferred tax assets recorded.
Income tax expense (benefit) is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current
U.S. federal........................................ $ 1,721 $ 0 $(247)
Foreign............................................. -- (10) 22
State............................................... 346 0 (48)
------- ----- -----
2,067 (10) (273)
------- ----- -----
Deferred
U.S. federal........................................ 1,422 266 (463)
Increase (decrease) in valuation allowance.......... (3,143) (256) 463
------- ----- -----
(1,721) 10 --
------- ----- -----
Total income tax expense (benefit).................... $ 346 $ -- $(273)
======= ===== =====
</TABLE>
F-15
<PAGE> 39
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>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Computed at statutory U.S. federal income tax
rate.............................................. $ 2,683 $ 282 $(1,456)
State income taxes, net of U.S. federal tax
benefit........................................... 383 (39) (32)
Foreign tax rate difference and foreign loss
carryforwards..................................... -- -- 460
Tax exempt interest................................. -- (12) (25)
Exercise of Stock Options........................... (34) -- --
Non deductible goodwill............................. 62 -- --
Other............................................... 395 25 317
Change in valuation allowance....................... (3,143) (256) 463
------- ----- -------
$ 346 $ -- $ (273)
======= ===== =======
</TABLE>
NOTE 12. STOCK OPTIONS
Under the 1987, 1991 and 1994 stock option plans as amended, (collectively,
the "Stock Option Plan") key employees and certain key nonemployees were granted
options to purchase shares of the Company's common stock. All stock option
grants are authorized by the Compensation Committee of the Board of Directors,
which is comprised of outside directors.
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.
All options granted, with the exception of those granted to the Chief
Executive Officer, vest within a five year period. The options granted to the
Chief Executive Officer vest on an accelerated schedule in accordance with his
employment contract.
In 1997, the shareholders of the Company voted to increase the maximum
number of shares of common stock which may be granted under the Stock Option
Plan by 450,000 shares to a maximum available of 1,475,000. A total of 120,820
shares of common stock have been issued as of December 27, 1997 from the Stock
Option Plan, and 1,354,180 shares remain in reserve.
The Company applies APB Opinion 25 "Accounting for Stock Based Compensation
and related interpretations in accounting for stock option awards under the
Stock Option Plan. Accordingly, no compensation cost has been recognized in the
Company's financial statements. As required by SFAS 123, the Company has
computed, for pro forma disclosure purposes, the value of options granted during
fiscal years 1997 and 1996 using an option pricing model. The weighted average
assumptions used for stock option grants for 1997 and 1996 were a dividend yield
of 0%, expected volatility of the market price of the Company's common stock of
43% for 1997, and 41% for 1996, a weighted-average expected life of the options
of approximately five years, and weighted average risk free interest rates of
6.3% for fiscal 1997 and 6.5% for fiscal 1996.
Option valuation models require the input of highly subjective assumptions
including the expected stock price volatility. Because changes in the subjective
input assumptions can materially affect the fair value estimates, in
management's opinion, the existing model does not necessarily provide a reliable
single measure of the fair value of its employee stock based compensation plan.
F-16
<PAGE> 40
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Had compensation cost for the Company's 1997 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>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net earnings (loss)
As reported......................................... $7,320 $ 806 $(4,010)
Pro forma........................................... 6,720 564 (4,092)
Net earnings (loss) per common share -- Basic
As reported......................................... $ 1.35 $0.21 $ (1.11)
Pro forma........................................... $ 1.24 $0.15 $ (1.13)
Net earnings (loss) per common share -- Diluted
As reported......................................... $ 1.29 $0.21 $ (1.11)
Pro forma........................................... $ 1.18 $0.15 $ (1.13)
</TABLE>
A summary of the transactions in the option plans is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------ ---------------- -----------------
SHARES PRICE* SHARES PRICE* SHARES PRICE*
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at beginning of year.... 781,987 $ 6.21 598,527 $6.74 557,842 $8.65
Granted..................................... 497,900 10.17 248,900 4.95 626,700 7.22
Exercised................................... (13,288) 4.58 -- -- (8,147) 4.15
Canceled.................................... (45,100) 10.38 (65,440) 6.20 (577,868) 9.14
--------- ------- --------
Unexercised options outstanding at end of
year...................................... 1,221,499 7.70 781,987 6.21 598,527 6.74
========= ======= ========
Options exercisable at end of year.......... 199,734 6.75 16,754 4.89 15,784 4.69
========= ======= ========
Available for grant......................... 132,681 1,934 195,394
========= ======= ========
</TABLE>
- -------------------------
* Weighted average
<TABLE>
<CAPTION>
1997 1996 1995
-------------- ------------- --------------
<S> <C> <C> <C>
Price range of options
Granted...................................... $4.38 - $14.00 $4.25 - $6.00 $4.13 - $12.00
Exercised.................................... $4.23 - $ 5.00 $ -- - $ -- $4.00 - $ 4.23
Canceled..................................... $4.25 - $10.38 $4.13 - $8.00 $3.13 - $12.00
Outstanding.................................. $4.13 - $14.00 $4.13 - $8.00 $4.13 - $ 8.00
</TABLE>
- -------------------------
* Weighted average
The above stock options have the following characteristics as of December
27, 1997:
<TABLE>
<CAPTION>
SHARES REMAINING LIFE SHARES
GRANT YEAR OUTSTANDING PRICE* (IN YEARS)* EXERCISABLE
- ---------- ----------- ------ -------------- -----------
<S> <C> <C> <C> <C>
Pre-1995..................................... 16,399 $ 5.09 5.5 16,399
1995......................................... 512,200 6.88 7.5 116,668
1996......................................... 238,000 4.96 8.8 66,667
1997......................................... 454,900 10.15 9.8 --
--------- -------
1,221,499 199,734
========= =======
</TABLE>
- -------------------------
* Weighted average
F-17
<PAGE> 41
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 27,
1997, and December 28, 1996, 19,560, and 19,639 shares respectively had been
purchased under the plan.
NOTE 14. STATEMENT OF OPERATIONS AND RESTRUCTURING CHARGES
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 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. As of December 27, 1997, no balances remained in these accounts.
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 15. 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 94% of the Company's gross sales in 1997 and the home improvement
products segment provided approximately 6% of the Company's gross sales in 1997.
Sales to customers outside the United States in 1997 accounted for approximately
6% of total net sales
F-18
<PAGE> 42
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
with Canada accounting for approximately 2% of total net sales. Information
about the Company's operations in these segments is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Gross sales:
Housewares...................................... $129,745 $31,375 $34,543
Home improvement products....................... 8,385 9,457 8,993
-------- ------- -------
Consolidated................................. $138,130 $40,832 $43,536
======== ======= =======
Operating profit (loss):
Housewares...................................... $ 12,277 $ 904 $(4,892)
Home improvement products....................... 471 461 817
-------- ------- -------
Consolidated................................. $ 12,748 $ 1,365 $(4,075)
======== ======= =======
Identifiable assets:
Housewares...................................... $ 93,898 $19,615 $19,676
Home improvement products....................... 5,445 5,090 5,300
-------- ------- -------
Consolidated................................. $ 99,343 $24,705 $24,976
======== ======= =======
Depreciation and amortization:
Housewares...................................... $ 5,274 $ 1,532 $ 2,684
Home improvement products....................... 413 682 653
-------- ------- -------
Consolidated................................. $ 5,687 $ 2,214 $ 3,337
======== ======= =======
Capital expenditures, net:
Housewares...................................... $ 8,062 $ 982 $ 880
Home improvement products....................... 320 642 335
-------- ------- -------
Consolidated................................. $ 8,382 $ 1,624 $ 1,215
======== ======= =======
</TABLE>
Information about the Company's operations by geographic area is as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Gross sales:
United States................................... $136,407 $38,855 $40,283
Foreign......................................... 1,723 1,977 3,253
-------- ------- -------
Consolidated................................. $138,130 $40,832 $43,536
======== ======= =======
Operating profit (loss):
United States................................... $ 12,689 $ 1,386 $(2,975)
Foreign......................................... 59 (21) (1,100)
-------- ------- -------
Consolidated................................. $ 12,748 $ 1,365 $(4,075)
======== ======= =======
Identifiable assets:
United States................................... $ 99,018 $24,170 $23,699
Foreign......................................... 325 535 1,277
-------- ------- -------
Consolidated................................. $ 99,343 $24,705 $24,976
======== ======= =======
</TABLE>
As a percentage of gross sales, a single customer represented 23% in 1997,
and 12% in each of 1996 and 1995. A second customer represented 10% of 1997
gross sales, and less than 10% of gross sales in each of 1996 and 1995.
F-19
<PAGE> 43
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 16. SUBSEQUENT EVENTS
Effective December 30, 1997, (within the Company's fiscal 1998), the
Company completed the acquisition of Seymour Sales Corporation and its wholly
owned subsidiary, Seymour Housewares Corporation, (collectively, "SEYMOUR").
Seymour, headquartered in Seymour, Indiana, is an industry leading manufacturer
and marketer of consumer laundry care products, including a full line of ironing
boards, ironing board covers and pads, and numerous laundry related accessories.
The acquisition will be accounted for as a purchase. As such, the excess of
the purchase price over the estimated fair value of the acquired net assets,
which approximates, $35,000, will be recorded as goodwill and amortized over
forty years. The purchase price allocation will be determined in 1998 when
additional information becomes available. Accordingly, the final allocation may
have a material effect on the pro forma information presented below.
Total consideration for the acquisition was $100,700, consisting of
approximately $16,400 in cash, $14,300 in common stock (1,320,700 shares) and
the assumption of $70,000 of debt.
The following unaudited pro forma information for the fifty-two weeks ended
December 27, 1997 presents the combined results of operations as if the
acquisition had been completed at the beginning of 1997, 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.
Had the Seymour Acquisition occurred on January 1, 1997, pro forma net
sales would have been $222,287, and operating profit would have been $15,332.
Pro forma net income before extraordinary item would have been $3,972 or $0.59
per common share -- basic and $0.57 per common share -- diluted. Pro forma net
earnings, after a $1,800 net of tax extraordinary item for the write-off of
deferred financing fees related to a prior credit agreement would have been
$2,172 or $0.32 per common share -- basic and $0.31 per common share -- diluted.
Adjustments made in arriving at the pro forma unaudited combined results
include increased interest expense, amortization of debt issuance costs on
acquisition debt, amortization of goodwill, certain operating expense reductions
and income tax expense recorded at an estimated combined statutory rate of 40%,
prior to adjustment to the valuation allowance. 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.
The source of funds for the acquisition included the proceeds of a $130,000
Credit Agreement, dated December 30, 1997, (the "12/30/97 CREDIT AGREEMENT"),
among the Company, Selfix, Shutters, Tamor, and Seymour, the lenders which are
parties thereto and General Electric Capital Corporation ("GECC") as agent, and
a $10,000 senior subordinated note (the "12/30/97 SENIOR SUBORDINATED NOTE"),
dated December 30, 1997. The 12/30/97 Credit Agreement consists of a $20,000
revolving credit facility (the "12/30/97 REVOLVER") and $110,000 in senior term
loans. All loans under the 12/30/97 Credit Agreement are secured by
substantially all of the assets of the subsidiaries of the Company (including
Seymour) and a pledge by the Company of all the outstanding shares of capital
stock of such subsidiaries.
The provisions of the 12/30/97 Credit Agreement include restrictions on
additional indebtedness, asset sales, acquisitions or mergers, capital
expenditures and dividend payments, among other things. As defined in the
12/30/97 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 12/30/97 Revolver provides up to $20,000 (including a letter of credit
facility of up to $15,000) subject to the availability of sufficient qualifying
collateral. Interest is charged, at the Company's option, at either (i) the 1, 2
or 3 month reserve adjusted LIBOR rate plus a margin of 2.5%; or (ii) a floating
rate equal to the prime rate plus a margin of 1.0%. Interest is paid monthly for
borrowings which bear interest based on
F-20
<PAGE> 44
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. As of December 30,
1997, there were no borrowings outstanding on the 12/30/97 Revolver and unused
availability was $13,400. Availability was reduced by several letters of credit
outstanding as of December 30, 1997, which totaled $6,600. The 12/30/97 Revolver
terminates on December 30, 2002.
The 12/30/97 Credit Agreement also includes two senior term loans, (i)
consisting of a $50,000 twenty-four quarter senior term loan ("SENIOR TERM LOAN
A") and (ii) a $60,000 thirty-two quarter senior term loan ("SENIOR TERM LOAN
B"). Both term loans are immediately due and payable in full if the 12/30/97
Revolver is terminated.
Senior Term Loan A is required to be repaid in quarterly principal
installments commencing in April 1998. Aggregate principal repayments for the
Senior Term Loan A are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
- ------------
<S> <C>
1998................................................................... $ 3,750
1999................................................................... 6,500
2000................................................................... 7,750
2001................................................................... 9,500
2002................................................................... 10,000
Thereafter............................................................. 12,500
</TABLE>
Interest is charged, at the Company's option at either: (i) the 1, 2 or 3
month reserve adjusted LIBOR plus a margin of 2.5%; or (ii) a floating rate
equal to the prime rate plus a margin of 1.0%. 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.
Senior Term Loan B is required to be repaid in quarterly principal
installments commencing in April of 1998. Aggregate principal repayments for the
Senior Term Loan B are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
- ------------
<S> <C>
1998................................................................... $ 450
1999................................................................... 600
2000................................................................... 600
2001................................................................... 600
2002................................................................... 600
Thereafter............................................................. 57,150
</TABLE>
Interest is charged, at the Company's option, at either: (i) the 1, 2 or 3
month reserve adjusted LIBOR plus a margin of 3.0%; or (ii) a floating rate
equal to the prime rate plus a margin of 1.5%. 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.
The interest rates applicable to the obligations outstanding under the
12/30/97 Credit Agreement are subject to adjustment (up or down) based on the
Company's year to date 1998 consolidated financial performance.
The 12/30/97 Senior Subordinated Note matures on December 30, 2006, and is
secured by a second lien on substantially all of the assets of the Company's
subsidiaries. As such, the 12/30/97 Senior Subordinated Note is subordinated in
right of payment from the proceeds of such collateral to the 12/30/97 Revolver
and to the Senior Term Loans A and B. If all outstanding obligations under the
12/30/97 Credit Agreement have been paid and the commitment under the 12/30/97
Revolver has been terminated, the Company must prepay the 12/30/97 Senior
Subordinated Note in full. Interest is payable monthly, and is charged at a rate
of prime
F-21
<PAGE> 45
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
plus a margin of 3%, but in no event less than 11% per annum. The 12/30/97
Senior Subordinated Note is due and payable in a single installment on December
30, 2006.
The 12/30/97 Senior Subordinated Note contains a fee which is due and
payable to GECC upon repayment of the principal. If the 12/30/97 Senior
Subordinated Note is repaid in full on or prior to December 30, 1999, the
required fee is $500; if repaid in full after December 30, 1999, but prior to
December 30, 2000, the fee is $750; if repaid in full after December 30, 2000,
but prior to December 30, 2001, the fee is $1,200; if repaid in full after
December 30, 2001, but prior to December 30, 2002, the fee is $1,600; and if
repaid on or after December 30, 2002, the fee is $2,000.
The 12/30/97 Credit Agreement provides for mandatory prepayments of
obligations under the 12/30/97 Credit Agreement and the 12/30/97 Senior
Subordinated Note from proceeds received in certain transactions outside the
normal scope of the Company's business, such as the sale of fixed assets, or the
receipt of insurance proceeds. Additionally, the Company is subject to an annual
mandatory prepayment out of "excess cash", as defined in the 12/30/97 Credit
Agreement. The Company will be subject to a prepayment premium, as defined in
the 12/30/97 Credit Agreement, until December 30, 1999, if the revolving credit
facility is terminated or the Company prepays all or any portion of the Senior
Term Loans A or B other than as a result of the mandatory prepayments discussed
above.
F-22
<PAGE> 46
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
MARCH 29 JUNE 28 SEPTEMBER 27 DECEMBER 27
-------- -------- ------------ -----------
<S> <C> <C> <C> <C>
1997
Net sales.......................................... $31,738 $33,023 $32,875 $31,688
Gross profit....................................... 9,128 10,124 10,377 10,807
Net earnings (loss)................................ 1,032 1,789 2,421 2,078
Earnings (loss) per common share -- Basic.......... $ 0.24 $ 0.41 $ 0.37 $ 0.31
Earnings (loss) per common share -- Diluted........ $ 0.23 $ 0.40 $ 0.36 $ 0.30
</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 share -- Basic.......... $ (0.29) $ 0.19 $ 0.20 $ 0.11
Earnings (loss) per common share -- Diluted........ $ (0.29) $ 0.19 $ 0.20 $ 0.11
</TABLE>
F-23
<PAGE> 47
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SCHEDULE II
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
27, 1997 and December 28, 1996 included in this Form 10-K, and have issued our
report thereon dated February 6, 1998. Our audits were 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 audits 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 6, 1998
F-24
<PAGE> 48
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE II
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 period ended December 30, 1995. 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-25
<PAGE> 49
SCHEDULE II
HOME PRODUCTS INTERNATIONAL, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE FIFTY-TWO WEEKS ENDED DECEMBER 27, 1997,
FOR THE FIFTY-TWO WEEKS ENDED DECEMBER 28, 1996,
FOR THE FIFTY-TWO WEEKS ENDED DECEMBER 30, 1995
<TABLE>
<CAPTION>
ADDITIONS
---------------------- DEDUCTIONS
BALANCE AT CHARGED TO (NET BALANCE
BEGINNING COSTS AND BALANCES WRITE-OFFS/ AT END
OF PERIOD EXPENSES ACQUIRED RECOVERIES) OF PERIOD
---------- ---------- -------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
December 27, 1997.......................... $ 901 $ 499 $659 $ (500) $1,716
December 28, 1996.......................... $1,395 $ 211 $ -- $ (705) $ 901
December 30, 1995.......................... $1,431 $ 524 $ -- $ (560) $1,395
WARRANTY RESERVES
December 27, 1997.......................... $ 453 $ -- $ -- $ (181) $ 272
December 28, 1996.......................... $ 495 $ -- $ -- $ (42) $ 453
December 30, 1995.......................... $ 511 $ -- $ -- $ (16) $ 495
INVENTORY RESERVES
December 27, 1997.......................... $ 993 $ 698 $300 $ (624) $1,367
December 28, 1996.......................... $2,411 $ 678 $ -- $(2,096) $ 993
December 30, 1995.......................... $1,560 $1,648 $ -- $ (797) $2,411
</TABLE>
F-26
<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.
Seymour Housewares Corporation
Seymour, IN, 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 25, 1998
<PAGE> 1
Exhibit 2.6
ESCROW AGREEMENT
This Escrow Agreement (the "Agreement") is made this ____ day of December
1997 by and among Home Products International, Inc., a Delaware corporation
("HPII"), Chase Manhattan Investment Holdings, Inc. and Chase Venture Capital
Associates, L.P. (collectively the "Majority Shareholder"), the Security
Holders (as defined below) and LaSalle National Bank ("Escrow Agent").
RECITALS
A. Pursuant to an Amended and Restated Agreement dated as of December ___,
1997 (the "Amended Agreement"), HPII has agreed to purchase all of the stock of
Seymour Sales Corporation ("Sales") ("Transaction").
B. HPII has been indemnified with respect to certain indemnifiable
damages, as described in the Amended Agreement (the "Indemnification
Obligation").
C. To secure the Indemnification Obligation, 370,000 shares of HPII common
stock otherwise payable to the security holders of Sales (the "Security
Holders") are to be deposited into escrow (such shares, along with any earnings
on or proceeds thereof shall be referred to as the "Escrowed Shares"). It is
intended that the Escrowed Shares be used to satisfy the Indemnification
Obligation.
D. The parties have agreed to withhold the "Cash Escrow" (as defined in
the Amended Agreement and hereinafter referred to, along with any earnings
thereon, as the "Escrow Funds") to be paid to the Security holders in the event
any Security Holders exercise dissenter's rights in connection with the
Transaction.
<PAGE> 2
E. The parties therefore have agreed to establish such escrow under the
terms of this Agreement.
CLAUSES
In consideration of the foregoing and the mutual promises set forth below,
the parties agree as follows:
ARTICLE 1
ESTABLISHMENT OF ESCROW
1.1 Appointment of Agent. By executing this Agreement, the Majority
Shareholder, the other Security Holders and HPII appoint LaSalle National Bank
to the position of escrow agent (the "Escrow Agent") and Escrow Agent, by
executing this Agreement, accepts such appointment.
1.2 Authorized Representative. For purposes of this Agreement, the term
"Authorized Representative" shall mean:
(a) in the case of HPII, James R. Tennant or his designee, and
(b) in the case of the Security Holders, Stephen P. Murray or his
designee.
1.3 Term. The term of this Agreement shall commence on the date hereof
and shall continue until the Escrow Agent either distributes the Escrow Funds
and the Escrowed Shares in accordance with this Agreement or deposits the
Escrow Funds and the Escrowed Shares then being held by the Escrow Agent with a
"Court" as provided in section 4.3 of this Agreement, unless sooner terminated
by the joint written consent of the Authorized Representatives.
<PAGE> 3
ARTICLE 2
DEPOSITS
2.1 Deposits. On the closing date of the Transaction (the "Closing
Date"), HPII shall deposit with the Escrow Agent the following:
(a) An amount equal to the Escrow Funds. The Escrow Agent shall
have no duty to verify whether the amount received from HPII is the
correct amount required by the Amended Agreement.
(b) Stock certificates for the Escrowed Shares issued in the name of
the Escrow Agent for the benefit of the Security Holders. The deposits
referred to in Sections 2.1(a) and 2.1(b) above shall be referred to as
the "Escrow Assets."
ARTICLE 3
DISTRIBUTIONS
3.1 Claims for Indemnification.
(a) Pursuant to Section 10.5 of the Amended Agreement , HPII is
required to give written notice (the "Claims Notice") to the Majority
Shareholder of any claim for indemnification pursuant to Section 10.2 of
the Amended Agreement. Simultaneous with the giving of the Claims Notice
to the Majority Shareholder, HPII shall provide a copy of the Claims
Notice to the Escrow Agent. The Claims Notice shall clearly state the
amount of the requested indemnification ("Claim Amount") and shall include
a calculation of the value of the Escrowed Shares based on the date
preceding the date of the Claims Notice. The value of the Escrowed Shares
shall be equal to the average of the closing price for such shares on the
NASDAQ National Market System, as published in The Wall Street Journal
(Midwest Edition) for the trading day immediately preceding the date of
the Claims Notice ("Average Price"). If within thirty (30) days from the
date on which the Escrow Agent receives the Claims Notice ("Objection
Period") it does not receive from the
<PAGE> 4
Authorized Representative of the Majority Shareholder a written objection, then
Escrow Agent shall, promptly following the expiration of the Objection Period,
transfer to HPII (utilizing HPII's transfer agent and the transfer procedure
set forth on the attached "EXHIBIT A") that number of Escrowed Shares equal to
the Claim Amount, determined by dividing the Claim Amount by the Average Price.
(b) If within the Objection Period Escrow Agent receives from the
Authorized Representative of the Majority Shareholder a written objection to
the proposed indemnified claim, then Escrow Agent shall make no disbursement of
the Claim Amount from Escrowed Shares until such time as it receives:
(i) a joint written direction from the Authorized Representatives to
pay the Claim Amount or such other amount as they shall jointly
designate in the direction;
(ii) a written decision from an arbitrator with proper jurisdiction
requiring the payment of the Claim Amount or some other amount relating
to the claim; or
(iii) any final order, judgment, or decree entered by a court
directing Escrow Agent to pay the Claim Amount or some other specified
amount.
3.2 Dissenting Shareholders.
(a) If any of the Security Holders timely and properly makes a demand
for appraisal ("Dissenting Shareholder") of such Dissenting Shareholder's
shares in connection with the Transaction pursuant to the requirements of 8
Del. C. Section 262(d) then the Authorized Representatives shall notify the
Escrow Agent ("Dissenting Notice"). Any amounts to be paid to such Dissenting
Shareholder pursuant to the demand for appraisal shall be paid from the Escrow
Funds.
(b) The Escrow Agent shall disburse to a Dissenting Shareholder from
the Escrow
<PAGE> 5
Funds such amount as is authorized by:
(i) a joint written direction from the Authorized Representatives to
make a payment to a Dissenting Shareholder;
(ii) a written decision from an arbitrator with proper jurisdiction
requiring a payment to the Dissenting Shareholder; or
(iii) any final order, judgment or decree entered by a court
directing Escrow Agent to make a payment to the Dissenting Shareholder.
Any amounts required to be paid to any Dissenting Shareholder in
excess of the amount of the Escrow Funds shall be a payment obligation of
the surviving corporation in the Transaction.
3.3 Automatic Disbursement.
(a) The Escrow Agent shall disburse proportionately to the Security
Holders the remaining Escrow Funds at such time as there remains no unresolved
claim of a Dissenting Shareholder as to which a Dissenting Notice has been
given to Escrow Agent.
(b) Upon the expiration of twelve (12) months from the Closing Date (the
"Release Date"), the Escrow Agent shall cause to be delivered proportionately
to the Security Holders all remaining Escrowed Shares, unless there then
remains unresolved any claims to which Claims Notice has been given to Escrow
Agent, in which event delivery shall not be made of the amount of Escrowed
Shares equal to 110% of the Claim Amount until immediately after such claim is
satisfied.
ARTICLE 4
<PAGE> 6
ADMINISTRATION OF ESCROW ACCOUNT
4.1 Investment of Cash Escrow. The Escrow Agent shall invest the Escrow
Funds in accordance with the joint, written directions it receives from the
Authorized Representatives, or, if it receives no such joint directions, then
in certificates of deposit or money market accounts of a bank or banks located
in the downtown area of Chicago, and/or in any United States Government issued
securities, but no such investment shall have a maturity date in excess of 90
days.
4.2 Records and Annual Accounts. The Escrow Agent shall maintain such
records as it deems necessary or appropriate to account for all receipts and
disbursements from the Escrow and/or any interest or other earnings which
accrue on the Escrow Assets. The Escrow Agent shall furnish HPII and the
Majority Shareholder with a calendar quarterly accounting which itemizes
receipts, disbursements and income earned on the Escrow Assets.
4.3 Conflicting Demands. If at any time a dispute arises concerning any
of the Escrow Assets or otherwise in connection with this Agreement, or the
Escrow Agent receives any instructions from the Authorized Representatives
which the Escrow Agent, in its sole discretion, deems conflict either with any
terms or provisions of this Agreement or to the instructions the Escrow Agent
received from any other Authorized Representative, then the Escrow Agent shall
have the right to deposit, all Escrow Assets with any court situated in Cook
County, Illinois (a "Court"). Upon the Escrow Agent's deposit with a Court,
the Escrow Agent shall be relieved of all of its obligations under this
Agreement, and shall no longer be or act as an "Escrow Agent" pursuant to the
Agreement, and the parties each fully release the Escrow Agent from its
responsibilities as the Escrow Agent, whether known or not, contingent or
vested, arising at law, in equity or otherwise, effective as of the date of
such deposit.
<PAGE> 7
ARTICLE 5
ESCROW AGENT'S RIGHTS
5.1 Compensation. The Escrow Agent shall be entitled to compensation for
its services under this Agreement and shall be reimbursed for all reasonable
costs and expenses it incurs when performing its duties under this Agreement.
The Escrow Agent is entitled to Three Thousand Dollars ($3,000) as an escrow
fee ("Escrow Fee"). HPII agrees that it will pay the Escrow Fee by wire
transfer directly to the Escrow Agent, but that half of the amount of the
Escrow Fee shall be deducted from the purchase price of the Transaction.
5.2 Certain Actions. The Escrow Agent shall be protected in acting upon
any certification, statement, request, consent, Agreement or other instrument
which it in good faith believes to be genuine and to have been signed and
delivered by the proper person or persons. In addition to its rights under
Section 4.3 above, if the Escrow Agent receives any instructions that the
Escrow Agent believes conflict with either the instructions it received from
any other party or with any terms of this Agreement, then the Escrow Agent may,
in its sole discretion, refrain from taking any action other than to keep
safely such Escrow Account, until such conflict is resolved to the Escrow
Agent's sole satisfaction. If the Escrow Agent is unable to decide upon what
action to take, it shall so advise the Authorized Representatives of such
indecision, and shall withhold performance of its duties under this Agreement
until such time as either all the parties then bound by this Agreement direct
the Escrow Agent in writing to take a specific action, or a court order or
arbitrator's decision directs the Escrow Agent to take a specific action.
5.3 Limitation of Liability. The Escrow Agent shall be liable under this
Agreement only for its bad faith in the performance of its duties. If the
Escrow Agent performs any act or refuses to act pursuant to either the order of
a court of competent jurisdiction or the advice of its attorneys, then such act
or refusal to act shall be deemed conclusively to have been performed or
<PAGE> 8
omitted in good faith. The Escrow Agent's duties and responsibilities are
limited to those expressly set forth in this Agreement. The Escrow Agent shall
not be subject to, nor obligated to recognize, any other Agreement among the
parties, even though such Agreement may make specific reference to the Escrow
Agent's responsibilities. The Escrow Agent, however, may consent to such
additional responsibilities or obligations by executing a written instrument
signed by all the parties to this Agreement acknowledging the same.
5.4 Effect of Judicial Action Concerning the Escrow Account. If a court
order at any time attaches, garnishes or levies upon any funds on deposit with
the Escrow Agent or if a court stays or enjoins the assignment, conveyance,
transfer or delivery of any funds or Escrowed Shares which the Escrow Agent
holds in the Escrow Account, or if a court enters any judgment or decree which
affects all or a portion of the Escrow Assets, then the Escrow Agent is
authorized, in its sole discretion, to rely upon and comply with such order,
writ, judgment or decree. If the Escrow Agent complies with any such order,
writ, judgment or decree, the Escrow Agent shall not be liable to HPII or the
Majority Shareholder, or any successor of the aforesaid or to any other person,
entity, firm or corporation by reason of such compliance, even though such
writ, order, judgment or decree subsequently may be reversed, modified,
annulled, set aside or otherwise vacated.
5.5 Indemnification. HPII and the Majority Shareholder, and their
respective successors and assigns jointly and severally shall indemnify and
hold harmless the Escrow Agent from and against any and all liability and
reasonable expenses, including but not limited to attorneys' and accountants'
fees, investigation costs, travel costs, transcript costs, disbursements,
settlement amounts, judgments, fines or penalties, which the Escrow Agent may
incur in connection with, in settlement of or resulting from any claim, action,
suit or proceeding, whether such suit is civil, criminal, administrative or
investigative (including any associated appeals) with
<PAGE> 9
which the Escrow Agent becomes involved or is threatened, as a party or
otherwise, in connection with or in any way based upon the escrow arrangement
which this Agreement establishes.
5.6 Resignation or Termination. The Escrow Agent may resign at any time
by providing ten (10) days prior written notice to the Authorized
Representatives of its intention to resign. The Authorized Representatives may
terminate the Escrow Agent at any time by delivery to it of a written
instrument which both the Authorized Representatives have executed that
terminates its position as Escrow Agent. Upon such resignation or termination,
the Escrow Agent shall deposit the Escrow Assets with such successor as the
Authorized Representatives may designate in a written instrument. If the
Authorized Representatives fail to make such designation, the Escrow Agent, in
its sole discretion, may deposit such Escrow Assets with any bank, or other
financial institution which has experience in acting as an escrow agent or
trustee or with a Court.
5.7 Successor. If the Escrow Agent resigns or is terminated, the
Authorized Representatives shall jointly appoint a successor escrow agent by
executing a written instrument which both identifies the successor escrow agent
and contains the acceptance of such successor escrow agent evidenced by said
successor's signature. Each such successor escrow agent shall have all the
rights, powers, titles, duties, discretion and immunities of the original. No
successor escrow agent shall be liable personally for any act or failure to act
of any predecessor. A successor escrow agent shall accept the accounts
rendered and the property delivered by a predecessor escrow agent as a full and
complete discharge of such predecessor escrow agent, without incurring any
liability or responsibility for so doing.
ARTICLE 6
GENERAL
6.1 Notices. All notices concerning this Agreement shall be given in
writing, as follows: (i) by actual delivery of the notice into the hands of
the party entitled to receive it; (ii) by
<PAGE> 10
mailing such notice by registered or certified mail, return receipt requested,
in which case the notice shall be deemed to be given three days after the date
of its mailing; (iii) by Federal Express or any other overnight carrier, in
which case the notice shall be deemed to be given on the date next succeeding
the date of its transmission; or (iv) by facsimile, in which case the notice
shall be deemed given as of the date it is sent. All notices which concern
this Agreement shall be addressed as follows:
<TABLE>
<S> <C>
If to the Escrow Agent: LaSalle National Bank
135 South LaSalle Street
Chicago, Illinois 60603
Attention: Mark Rimkus
Fax No.: (312) 904-2236
If to HPII: Home Products International, Inc.
4501 West 47th Street
Chicago, Illinois 60632
Attention: James R. Tennant
Fax No.: (773) 890-1916
With a Copy to: Much, Shelist, Freed, Denenberg, Ament,
Bell & Rubenstein, P.C.
200 North LaSalle Street, Suite 2100
Chicago, Illinois 60601
Attention: Jeffrey C. Rubenstein
Fax No.: (312) 621-1750
If to the Majority Shareholder
and the other Security
Holders:
Chase Capital Partners
380 Madison Avenue
12th Floor
New York, NY 10017
Attention: Stephen P. Murray
Fax No: (212) 622-3755
With a copy to: Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Attention: William E. Curbow
Fax No.: (212) 455-2502
</TABLE>
<PAGE> 11
6.2 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties as well as their respective personal
representatives, successors and assigns.
6.3 Complete Understanding. This Agreement constitutes the complete
understanding among the parties. Except as this Agreement specifically
provides, no alteration or modification of any of its provisions shall be valid
unless made in writing and signed by all of the parties.
6.4 Applicable Law. The laws of the State of Delaware shall govern all
aspects of this Agreement, irrespective of the fact that one or more of the
parties now is or may become a resident of a different state.
6.5 Descriptive Headings. All section headings, titles and subtitles are
inserted in this Agreement for convenience of reference only, and are to be
ignored in any construction of this Agreement's provisions.
6.6 Severability. If a court of competent jurisdiction adjudicates any
one or more of this Agreement's provisions as 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 had never contained such invalid, illegal or unenforceable
provision.
6.7 Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes constitute
part of one original.
6.8 Definitions. All capitalized terms which are not defined in this
Agreement shall have the meaning ascribed to them in the Amended Agreement.
<PAGE> 12
Home Products International, Inc., a Delaware Chase Manhattan Investment
corporation Holdings, Inc.
By By:
Name: James R. Tennant Name:
Title: Chairman and CEO Title:
ESCROW AGENT
LaSalle National Bank Chase Venture Capital
Associates, L.P.
By: By:
Mark Rimkus Name:
Title: Title:
Norman R. Proulx Tom Melton
Joseph W. Deppen James McFall
Daniel R. Slattery Kevin Comini
William S. Watchman Rick Simpson
Steve Mohler Linda Krol
Kurt Tyler John Barnett,
Jr.
Janet Brumfield Terry Collins
Bruce May
<PAGE> 13
EXHIBIT A
See Attached.
<PAGE> 14
JOINT AUTHORIZATION FOR DISTRIBUTION
OF ESCROWED SHARES
Date: February 10, 1998
The undersigned are the Authorized Representatives under and as defined
in that certain Escrow Agreement made as of December 30, 1997 (the "Agreement")
between Home Products International, Inc., a Delaware Corporation ("HPII"),
Chase Venture Capital Associates, L.P. (the "Majority Shareholder") and LaSalle
National Bank (the "Escrow Agent"). The escrow was created pursuant to an
Agreement and Plan of Merger dated November 11, 1997, and Amended and Restated
Agreement made as of December 30, 1997 (the "First Amended Agreement").
Pursuant to the First Amended Agreement, HPII deposited with the Escrow
Agent 370,000 shares of HPII common stock (the "Escrowed Shares"), all of which
were newly issued. Only 328,000 newly issued shares were to have been
deposited with the Escrow Agent, with the remaining 42,000 shares to be
deposited to have been issued prior to the date of the First Amended Agreement.
To correct such error, the undersigned desire to have the Escrow Agent to
release 42,000 of the Escrowed Shares from the escrow and return them to HPII's
transfer agent (the "Transfer Agent"), for cancellation ab initio. In
connection therewith HPII will replace such 42,000 shares with a like number of
HPII shares issued prior to the date of the First Amended Agreement.
/s/ James R. Tennant /s/ Stephen P.Murray
- ------------------------------------ ----------------------------
James R. Tennant Stephen P. Murray
Purchase's Authorized Representative Security Holders' Authorized
Representative
HOME PRODUCTS INTERNATIONAL, INC
/s/ James R. Tennant
- -------------------------------------
By: James R. Tennant
Its: Chairman and CEO
<PAGE> 1
EXHIBIT 10.10
===============================================================================
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of December __, 1997
among
SELFIX, INC.,
TAMOR CORPORATION,
SHUTTERS, INC., and
SEYMOUR HOUSEWARES CORPORATION
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>
1. AMOUNT AND TERMS OF CREDIT............................................. 2
1.1. Credit Facilities................................................ 2
1.2. Letters of Credit................................................ 6
1.3. Prepayments...................................................... 7
1.4. Use of Proceeds.................................................. 9
1.5. Interest and Applicable Margins.................................. 10
1.6. Eligible Accounts................................................ 13
1.7. Eligible Inventory............................................... 15
1.8. Cash Management Systems.......................................... 16
1.9. Fees............................................................. 16
1.10. Receipt of Payments.............................................. 17
1.11. Application and Allocation of Payments........................... 17
1.12. Loan Account and Accounting...................................... 18
1.13. Indemnity........................................................ 18
1.14. Access........................................................... 19
1.15. Taxes............................................................ 19
1.16. Capital Adequacy; Increased Costs; Illegality.................... 20
1.17. Single Loan...................................................... 22
2. CONDITIONS PRECEDENT................................................... 22
2.1. Conditions to the Initial Loans.................................. 22
2.2. Further Conditions to Each Loan.................................. 23
3. REPRESENTATIONS AND WARRANTIES......................................... 24
3.1. Corporate Existence; Compliance with Law......................... 24
3.2. Executive Offices; FEIN.......................................... 24
3.3. Corporate Power, Authorization, Enforceable Obligations.......... 25
3.4. Financial Statements and Forecasts............................... 25
3.5. Material Adverse Effect.......................................... 26
3.6. Ownership of Property; Liens..................................... 26
3.7. Labor Matters.................................................... 27
3.8. Ventures, Subsidiaries and Affiliates; Outstanding Stock......... 27
3.9. Government Regulation............................................ 27
3.10. Margin Regulations............................................... 28
3.11. Taxes............................................................ 28
3.12. ERISA............................................................ 28
3.13. No Litigation.................................................... 29
3.14. Brokers.......................................................... 29
3.15. Intellectual Property............................................ 29
3.16. Full Disclosure.................................................. 29
3.17. Environmental Matters............................................ 30
3.18. Insurance........................................................ 30
3.19. Deposit and Disbursement Accounts................................ 30
3.20. Government Contracts............................................. 30
3.21. Customer and Trade Relations..................................... 31
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
3.22. Agreements and Other Documents................................... 31
3.23. Solvency......................................................... 31
3.24. Acquisition Agreement............................................ 31
3.25. Subordinated Debt................................................ 32
4. FINANCIAL STATEMENTS AND INFORMATION................................... 32
4.1. Reports and Notices.............................................. 32
4.2. Communication with Accountants................................... 32
5. AFFIRMATIVE COVENANTS.................................................. 32
5.1. Maintenance of Existence and Conduct of Business................. 32
5.2. Payment of Obligations........................................... 33
5.3. Books and Records................................................ 33
5.4. Insurance; Damage to or Destruction of Collateral................ 33
5.5. Compliance with Laws............................................. 35
5.6. Supplemental Disclosure.......................................... 35
5.7. Intellectual Property............................................ 35
5.8. Environmental Matters............................................ 35
5.9. Landlords' Agreements, Mortgagee Agreements and Bailee Letters... 36
5.10. Further Assurances............................................... 36
5.11. Acquisition Agreement............................................ 36
6. NEGATIVE COVENANTS..................................................... 37
6.1. Mergers, Subsidiaries, Etc....................................... 37
6.2. Investments; Loans and Advances.................................. 37
6.3. Indebtedness..................................................... 37
6.4. Employee Loans and Affiliate Transactions........................ 38
6.5. Capital Structure and Business................................... 39
6.6. Guaranteed Indebtedness.......................................... 39
6.7. Liens............................................................ 39
6.8. Sale of Stock and Assets......................................... 39
6.9. ERISA............................................................ 40
6.10. Financial Covenants.............................................. 40
6.11. Hazardous Materials.............................................. 40
6.12. Sale-Leasebacks.................................................. 40
6.13. Cancellation of Indebtedness..................................... 40
6.14. Restricted Payments.............................................. 40
6.15. Change of Corporate Name or Location; Change of Fiscal Year...... 40
6.16. No Impairment of Intercompany Transfers.......................... 41
6.17. No Speculative Transactions...................................... 41
6.18. Leases........................................................... 41
6.19. Changes Relating to Subordinated Debt............................ 41
6.20. Holdings......................................................... 41
7. TERM................................................................... 42
7.1. Termination...................................................... 42
7.2. Survival of Obligations Upon Termination of
Financing Arrangements........................................... 42
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
8. EVENTS OF DEFAULT: RIGHTS AND REMEDIES................................ 42
8.1. Events of Default.............................................. 42
8.2. Remedies....................................................... 44
8.3. Waivers by Credit Parties...................................... 44
9. ASSIGNMENT AND PARTICIPATIONS; APPOINTMENT OF AGENT................... 44
9.1. Assignment and Participations.................................. 45
9.2. Appointment of Agent........................................... 46
9.3. Agent's Reliance, Etc.......................................... 47
9.4. GE Capital and Affiliates...................................... 47
9.5. Lender Credit Decision......................................... 48
9.6. Indemnification................................................ 48
9.7. Successor Agent................................................ 48
9.8. Setoff and Sharing of Payments................................. 49
9.9. Advances; Payments; Non-Funding Lenders;
Information; Actions in Concert................................ 49
10. SUCCESSORS AND ASSIGNS................................................ 51
10.1. Successors and Assigns......................................... 51
11. MISCELLANEOUS......................................................... 52
11.1. Complete Agreement; Modification of Agreement.................. 52
11.2. Amendments and Waivers......................................... 52
11.3. Fees and Expenses.............................................. 54
11.4. No Waiver...................................................... 55
11.5. Remedies....................................................... 55
11.6. Severability................................................... 55
11.7. Conflict of Terms.............................................. 55
11.8. Confidentiality................................................ 55
11.9. GOVERNING LAW.................................................. 56
11.10. Notices........................................................ 56
11.11. Section Titles................................................. 57
11.12. Counterparts................................................... 57
11.13. WAIVER OF JURY TRIAL........................................... 57
11.14. Press Releases................................................. 57
11.15. Reinstatement.................................................. 58
11.16. Advice of Counsel.............................................. 58
11.17. No Strict Construction......................................... 58
12. CROSS-GUARANTY........................................................ 58
12.1. Cross-Guaranty................................................. 58
12.2. Waivers by Borrowers........................................... 59
12.3. Benefit of Guaranty............................................ 59
12.4. Subordination of Subrogation, Etc. ............................ 59
12.5. Election of Remedies........................................... 60
12.6. Limitation..................................................... 60
12.7. Contribution with Respect to Guaranty Obligations.............. 60
12.8. Liability Cumulative........................................... 61
</TABLE>
<PAGE> 5
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 1.1(b)(v) - Ratable Shares
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) - Forecasts
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 6.2 - Investments
Schedule 6.3 - Indebtedness
Schedule 6.4(a) - Transactions with Affiliates
Schedule 6.7 - Existing Liens
Schedule 11.18 - Continuing Loans
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 Forecasts -- 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
Annex J - Commitments
</TABLE>
<PAGE> 6
CREDIT AGREEMENT, dated as of December __, 1997, among SELFIX, INC., a
Delaware corporation ("Selfix"), TAMOR CORPORATION., a Massachusetts corporation
("Tamor"), SHUTTERS, INC., an Illinois corporation ("Shutters"), SEYMOUR
HOUSEWARES CORPORATION, a Delaware corporation ("Seymour" and, together with
Selfix, Tamor and Shutters, 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, GE Capital and other Lenders have outstanding loans and letter of
credit obligations to Selfix, Tamor and Shutters on the date hereof in the
aggregate principal amount of the "Continuing Loans" (as summarized on
Disclosure Schedule (11.18) hereto) pursuant to the terms of a Credit Agreement
dated as of February 27, 1997 as amended (the "Prior Credit Agreement") by and
among GE Capital, as Agent and Lender, the other Lenders party thereto, Selfix,
Tamor and Shutters, as borrowers, and Home Products International, Inc., a
Delaware corporation ("Holdings"), as an additional Credit Party (such Prior
Credit Agreement and the loan documents entered into in connection therewith
being hereinafter referred to as the "Prior Loan Documents");
WHEREAS, pursuant to the Agreement and Plan of Merger dated as of November
11, 1997 (as amended, the "Purchase Agreement") by and among Holdings, HPII
Acquisition Corp., a Delaware corporation and wholly owned subsidiary of
Holdings ("HPII"), Seymour Sales Corporation, a Delaware corporation ("Seymour
Sales"), Seymour, Chase Manhattan Investment Holdings, Inc. and Chase Venture
Capital Associates, L.P., (i) HPII issued a promissory note in favor of
Holdings in exchange for approximately $14.2 million of Holdings stock; (ii)
HPII then merged with and into Seymour Sales, with Seymour Sales as the
surviving corporation, and HPII paid to the "Sellers" (as defined in Annex A
hereto) its Holdings stock plus cash as consideration for the merger; and (iii)
Seymour Sales, in turn, was merged with and into its wholly owned subsidiary,
Seymour, with Seymour as the surviving corporation (such transaction is
referred to herein as the "Acquisition");
WHEREAS, Borrowers desire that Lenders amend and restate the Prior Credit
Agreement so that it provides that Lenders shall extend revolving and term
credit facilities to Borrowers of up to One Hundred Thirty Million Dollars
($130,000,000) in the aggregate (including the Continuing Loans), for the
purpose of funding a portion of the Acquisition and refinancing certain
indebtedness of Seymour 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;
WHEREAS, Borrowers desire to secure all of their obligations under the
"Loan Documents" (as defined in Annex A hereto) 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, including, without
limitation, the capital stock of all of Borrowers' Subsidiaries; 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
<PAGE> 7
(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") of the total Revolving Loan
Commitment. 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, taking into
account that portion of the Continuing Loans that are Revolving Credit Advances,
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 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. Those 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) The Revolving Loan Commitments of each Revolving Lender shall be
evidenced by a single Promissory Note, dated the Closing Date and substantially
in the form of Exhibit 1.1(a)(ii) (each a "Revolving Note" and, collectively,
the "Revolving Notes") and executed by all of the Borrowers. Each Revolving
Note shall represent the obligation of each Borrower to pay to the applicable
Revolving Lender the amount of such Revolving Lender's Revolving Loan Commitment
to such Borrower or, if less, such 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
2
<PAGE> 8
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.
(b) (1) Term Loan A. Subject to the terms and conditions hereof, each
Lender having a Term Loan A Commitment agrees to make (or continue to the extent
of the Continuing Loans) a term loan on the Closing Date to each Borrower (the
"Term Loan A") in the original principal amount of such Borrower's Ratable Share
of such Lender's Term Loan A Commitment. The obligations of each Term A Lender
hereunder shall be several and not joint. 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"). The Borrowers shall execute and
deliver a single Term Note A to each Term A Lender. Each Term Note A shall
represent the obligation of each Borrower to pay its Ratable Share of the amount
of Term Loan A to the applicable Lender, together with interest thereon as
prescribed in Section 1.5.
(ii) Each Borrower shall pay its Ratable Share of the principal amount
of the Term Loan A in twenty-four (24) consecutive quarterly installments on the
first day of January, April, July and October of each year, commencing April 1,
1998, as follows:
<TABLE>
<CAPTION>
Payment Installment
Date Amount (each)
------------------------------------------ -------------
<S> <C> <C>
1-4 April 1, July 1, and October 1, 1998
January 1, 1999 $1,250,000
5-8 April 1, July 1, and October 1, 1999
January 1, 2000 $1,750,000
9-12 April 1, July 1, and October 1, 2000
January 1, 2001 $2,000,000
13-24 April 1, July 1, and October 1, 2001;
January 1, April 1, July 1, and October 1,
2002; January 1, April 1, July 1, and
October 1, 2003; and January 1, 2004 $2,500,000
</TABLE>
3
<PAGE> 9
(iii) Notwithstanding the foregoing clause (ii), the aggregate
outstanding principal balance of Term Loan A shall 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 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 Term Loan A Commitment.
(b) (2) Term Loan B. (i) Subject to the terms and conditions hereof,
each Term B Lender agrees to make (or continue to the extent of the Continuing
Loans) a term loan on the Closing Date to each Borrower (the "Term Loan B") in
the principal amount of such Borrower's Ratable Share of such Lender's Term
Loan B Commitment. The obligations of each Term B Lender hereunder shall be
several and not joint. Term Loan B 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"). The Borrowers shall execute and deliver a
single Term Note B to each Term B Lender. Each Term Note B shall represent the
obligation of each Borrower to pay its Ratable Share of the amount of its Term
Loan B to the applicable Lender, together with interest thereon as prescribed
in Section 1.5.
(ii) Each Borrower shall pay its Ratable Share of the principal amount
of Term Loan B in thirty-two (32) consecutive quarterly installments on the
first day of January, April, July and October of each year, commencing April 1,
1998, as follows:
<TABLE>
<CAPTION>
Payment Installment
Date Amount (each)
------------------------------------------------- ---------------
<S> <C> <C>
1-24 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, July 1, and October 1, 2002,
January 1, April 1, July 1, and October 1, 2003,
and January 1, 2004 $150,000
25-32 April 1, July 1, and October 1, 2004
January 1, April 1, July 1, and October 1, 2005,
and January 1, 2006 $7,050,000
</TABLE>
(iii) Notwithstanding the foregoing clause (ii), the aggregate
outstanding principal balance of Term Loan B shall 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 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 Term Loan B Commitment.
4
<PAGE> 10
(v) Each Borrower shall pay its Ratable Share of each scheduled
installment of Term Loan A and Term Loan B. The Ratable Share of each Borrower
with respect to Term Loan A and Term Loan B is set forth on Disclosure Schedule
(1.1(b)(v)).
(c) Swing Line Facility. 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, but not less
frequently than weekly, shall on behalf of each 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 (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(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.
5
<PAGE> 11
(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(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.
(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 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,
6
<PAGE> 12
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 five
(5) 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 voluntarily prepay all or part of the Term
Loan A or Term Loan B; provided that 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. In addition, Borrowers may at any time on at least thirty (30)
days' 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 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 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 terminated. Each
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 Term Loan A or Term Loan B made by or on behalf of any Borrower shall be
applied to prepay the scheduled installments of such Borrower's Term Loan A or
Term Loan B, respectively, in inverse order of maturity.
(b) Mandatory Prepayments. If at any time the outstanding balance of
the aggregate Revolving Loan (taking into account the Continuing Loans that are
part of the 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.
7
<PAGE> 13
(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 1,362,700 shares of Holdings Stock to be issued
to the shareholders of Seymour Sales pursuant to Section 2.5(b) 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 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) 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
8
<PAGE> 14
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.
(d) Application of Prepayments from Insurance Proceeds. Prepayments
from insurance proceeds in accordance with Section 5.4(c) shall be applied as
follows: insurance proceeds from casualties or losses to cash or Inventory
shall be applied, first, to the Swing Line Loans and, second, to the Revolving
Credit Advances of the Borrower that incurred such casualties or losses;
insurance proceeds from casualties or losses to Equipment, Fixtures and Real
Estate shall be applied, pro rata, to scheduled installments of the Term Loans,
if any, of the Borrower that incurred such casualties or losses in inverse
order of maturity. Neither the Revolving Loan Commitment nor the Swing Line
Loan Commitment shall be permanently reduced by the amount of any such
prepayments. If the insurance proceeds received as to a particular Borrower
exceed the outstanding principal balances of the Loans to that Borrower or if
the precise amount of insurance proceeds allocable to Inventory as compared to
Equipment, Fixtures and Real Estate are not otherwise determined, the
allocation and application of those proceeds shall be determined by Agent,
subject to the approval of Requisite Lenders.
(e) 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. If the application of any mandatory
prepayment in accordance with this Section 1.3 would result in the payment of
LIBOR funding breakage costs in accordance with Section 1.13(b), the applicable
Credit Party may elect to deposit such mandatory prepayment in a cash
collateral account pledged to Agent on terms reasonably satisfactory to it.
Thereafter, such amounts will be applied to prepay the Loans upon expiration of
the relevant LIBOR Periods then in effect.
(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.
9
<PAGE> 15
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 Margins will be at Level IV 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 for the
immediately preceding four-quarter period (using actual figures for all
Borrowers for all periods), commencing on 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 ended
December, 1998. Adjustments in Applicable Margins will be determined by
reference to the following grids:
<TABLE>
<CAPTION>
Level of
If 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>
10
<PAGE> 16
<TABLE>
<CAPTION>
APPLICABLE MARGINS
-----------------------------------------------
LEVEL I LEVEL II LEVEL III LEVEL IV LEVEL V
------- -------- --------- -------- -------
<S> <C> <C> <C> <C> <C>
Applicable Revolver
Index Margin .25% .50% .75% 1.0% 1.25%
Applicable Revolver
LIBOR Margin 1.75% 2.0% 2.25% 2.5% 2.75%
Applicable Term
Loan A Index Margin .25% .50% .75% 1.0% 1.25%
Applicable Term
Loan A LIBOR Margin 1.75% 2.0% 2.25% 2.5% 2.75%
Applicable Term
Loan B Index Margin 1.25% 1.25% 1.25% 1.5% 1.75%
Applicable Term
Loan B LIBOR Margin 2.75% 2.75% 2.75% 3.0% 3.25%
</TABLE>
All adjustments in the Applicable Margins after December 31, 1998 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 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 on that 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
11
<PAGE> 17
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 $1,000,000 or in integral multiples of $100,000 in excess of
such amount, and a separate LIBOR Loan must be obtained for each of the
Revolving Credit Loan, Term Loan A and Term Loan B. 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 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).
Notwithstanding anything set forth herein to the contrary, (a) from the Closing
Date through February 1, 1998, Borrowers may not request or convert to LIBOR
Loans with LIBOR Periods in excess of one month and (b) from February 2, 1998
through March 2, 1998, no LIBOR Loans may be outstanding hereunder. Any LIBOR
Loans outstanding during the period from February 2, 1998 through March 2, 1998
shall be immediately converted to Index Rate Loans and Borrowers shall bear any
and all breakage costs as set forth herein.
(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
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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 establish Reserves 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
which have the effect of making more credit available. Eligible Accounts shall
not include any Account of any Borrower:
(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,
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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;
(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;
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(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;
(s) to the extent covered by reserves against Accounts for cash
discounts, defective items, debit memos and accrued advertising expense on the
applicable Borrower's general ledger; or
(t) 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 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 establish Reserves 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
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;
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(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) that is located in Mexico or as to which Agent's Lien, on behalf of
itself and Lenders, therein is otherwise not a first priority perfected Lien,
subject to Permitted Encumbrances;
(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;
(l) consists of chemicals, 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 December 11, 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 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 Revolving Loan Commitment. As used herein, the
term "Applicable Percentage" shall mean (x) two percent (2.0%), in the case of
a prepayment on or prior to the first anniversary of the Closing Date, and (y)
one percent (1.0%), in the case of a prepayment after the first anniversary of
the Closing Date but on or prior to the second anniversary. No prepayment fee
shall be payable upon any prepayment after the second anniversary of the
Closing Date. Notwithstanding the foregoing, no prepayment fee shall be
payable by Borrowers upon a mandatory prepayment made pursuant to Sections
1.3(b),
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1.3(d) 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. Within one hundred eighty (180) days following the Closing Date any
Borrower may voluntarily prepay all or a portion of its Ratable Share of Term
Loan A and/or Term Loan B in accordance with Section 1.3(a), without premium or
penalty (other than LIBOR breakage costs, if any); provided that (i) such
prepayments are funded solely with proceeds of investment accounts held by the
applicable Borrower(s); (ii) after giving effect to any such prepayment the
applicable Borrower(s) have no Revolving Loan balance outstanding; and (iii)
the aggregate of such prepayments shall not exceed $3,000,000.
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
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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
Loans, (b) all payments made 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
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other Loan Document or is the result of acceleration, by operation of
law or otherwise); (ii) any Borrower shall default in payment when due of the
principal amount of or interest on any LIBOR Loan; (iii) any Borrower shall
default in making any borrowing of, conversion into or continuation of LIBOR
Loans after Borrower Representative has given notice requesting the same in
accordance herewith; or (iv) any Borrower shall fail to make any prepayment of
a LIBOR Loan after Borrower Representative has given a notice thereof in
accordance herewith, 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 LIBOR 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 reasonably 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.
1.15 Taxes. 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
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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 hereunder 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
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
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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 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).
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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 the 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 Governmental Authorities, to the execution,
delivery and performance of this Agreement and the other Loan Documents and the
consummation of the Related Transactions, including, without limitation,
termination of the Hart-Scott-Rodino waiting period with respect to the
Acquisition of Seymour, 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, the
outstanding balances of the Continuing Loans as of the Closing Date 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
$11,900,000.
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(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.
(f) Equity and Indebtedness. As of the Closing Date and after giving
effect to the Related Transactions, Holdings shall have stockholders equity of
approximately $55,200,000 and Holdings and its Subsidiaries shall not have
Indebtedness outstanding in excess of $128,000,000.
(g) Consummation of Related Transactions. Agent and Lenders shall have
received fully executed copies of the Acquisition Agreement, 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) Holdings shall pay at least $14,200,000 of the consideration
for the Acquisition by the issuance of its common stock; (ii) the cash portion
of the consideration paid for the Acquisition shall not exceed $87,800,000 and
(iii) aggregate fees and closing costs for the Related Transactions will not
exceed $4,000,000.
(i) Agent and Lenders shall be reasonably satisfied that Holdings and
its Subsidiaries, including Seymour on a pro forma basis, will have
consolidated EBITDA of at least $32,000,000 for the Fiscal Year ending December
31, 1997 (excluding one-time expenses of $1.0 million for plant consolidation
costs and approximately $500,000 for writing off pension plan assets), based on
year-to-date financial statements and Forecasts provided to them by Borrowers.
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:
(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 in any material respect, 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) As reasonably determined by Requisite Revolving Lenders, 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
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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.
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.
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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 Forecasts. Except for the forecasts
referred to below, 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 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 28, 1996 and
the related consolidated statement(s) of income and cash flows of Selfix and
Shutters for the Fiscal Year then ended, certified by Arthur Andersen & Co.
(iii) The audited balance sheets of Seymour and the related statements
of income, stockholders' equity and cash flows at June 30, 1996 and June 30,
1997 and for the respective fiscal years then ended.
(iv) The unaudited balance sheets and the related statements of income,
stockholders equity and cash flow of Holdings and its Subsidiaries (other than
Seymour) on a consolidated and consolidating basis at November 29, 1997 and for
the 11 months then ending.
(v) The unaudited balance sheet and related statements of income, stock
holders equity and cash flow of Seymour at November 23, 1997 and for the 5
months then ended.
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(b) Pro Forma. The unaudited consolidated and consolidating balance
sheet of Borrowers and their Subsidiaries as of the Closing Date delivered on
or prior to the date hereof and attached hereto as Disclosure Schedule (3.4(B))
(the "Pro Forma") 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 November 29,
1997, was prepared in accordance with GAAP, with only such adjustments thereto
as would be required in accordance with GAAP and reflects stockholders equity
of at least $55.2 million.
(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
Forecasts for the Fiscal Year beginning on December 28, 1997 on a quarter by
quarter basis. Within thirty (30) days after the Closing Date Borrowers will
deliver another set of forecasts for the Fiscal Year beginning on December 28,
1997 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 fixture financial performance of Borrowers and of the other information
projected therein for the period set forth therein.
(d) Post-Closing Balance Sheet. Within ninety (90) days after the
Closing Date, Borrowers shall deliver to the Agent and Lenders a balance sheet
for Seymour as of the Closing Date certified by the Chief Financial Officer of
Holdings.
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
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
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(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 Panty'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.
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)). Holdings owns no material assets, except for the
outstanding Stock of Borrowers. Holdings is not engaged in any trade or
business.
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
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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 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.l2) 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
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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 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 Forecasts, 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.
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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
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.
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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 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 Purchase Agreement
(including all schedules, exhibits, amendments, supplements, modifications, and
assignments 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 any Credit Party 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, all requisite approvals by Governmental Authorities having
jurisdiction over all Persons referenced in the Acquisition Agreement other
than the Credit Parties, 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
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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 and
the Note Purchase Agreement (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 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. 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, Forecasts 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
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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 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) as in effect on the date
hereof or otherwise 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 reasonably 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 related thereto, shall be
payable on
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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
$1,500,000 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, so long as no Default or Event of Default shall
have occurred and be continuing and if such insurance proceeds do not exceed
$1,500,000 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, 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
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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
$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
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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
reasonably 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 reasonably 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 equal to the book value of such
Inventory 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 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. Within two (2) days following the
Closing Date, Borrowers shall 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). 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.
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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; (d) Investments, loans or advances by Seymour in or to its
Mexican Subsidiary at such times and in such amounts as are necessary to fund
the working capital requirements of that Subsidiary in the ordinary course of
business and maintenance level Capital Expenditure requirements of that
Subsidiary, provided that Seymour shall not permit cash or cash equivalents in
excess of such immediate requirements to be accumulated or held by such
Subsidiary; and (e) so long as no Event of Default shall have occurred and be
continuing and no Revolving Loan is outstanding, Borrowers may make
investments, 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.
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 (d) 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
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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 $250,000 in the case of Shutters, and $1,000,000 in the case
of Seymour, and (viii) Indebtedness secured by Liens on the real property and
fixtures located at 3016 West George Street, Louisiana, Missouri in an
aggregate principal amount of not more than $5,000,000 (provided, however, that
Agent receives a mortgagee's waiver executed by the lender in form and
substance satisfactory to Agent).
(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
voluntary or mandatory prepayments thereof permitted or required under Sections
1.3 and 6.14.
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 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
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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 one or more Qualified Public Offerings 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; provided, however that only Holdings may incur Guaranteed
Obligations with respect to the Indebtedness permitted under Subsection
6.3(viii) and such Guaranteed Obligations shall be unsecured and subordinate to
the Obligations pursuant to a subordination agreement in form and substance
satisfactory to Agent.
6.7. Liens. No Credit Party shall create, incur, assume or permit to
exist any Lien on or with respect to its Accounts or other properties or assets
(whether new owned or hereafter acquired) except for (a) Permitted
Encumbrances; (b) Liens in existence on the date hereof and summarized on
Disclosure Schedule (6.7); (c) Liens on the real property and fixtures located
at 3016 West Georgia Street, Louisiana, Missouri, involving the incurrence of
an aggregate principal amount of Indebtedness of not more than $5,000,000
outstanding at any one time (provided that such Lien attaches only to such real
property and fixtures and provided, further, that Agent receives a mortgagee's
waiver executed by the applicable lender in form and substance satisfactory to
Agent); and (d) 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 $7,500,000 outstanding at any one time for
all such Liens (provided that such Liens attach only to the assets subject to
such purchase money debt and such Indebtedness is incurred within twenty (20)
days following such purchase and does not exceed 100% of the purchase price of
the subject assets).
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 Stock or the 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 $500,000 in the aggregate in any
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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
$500,000 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. Except as set forth in Disclosure Schedule
(3.6), 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, (b) 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 public
offerings of Stock by Holdings in an amount not to exceed 50% of the net
proceeds thereof so long as Term Loan A or Term Loan B is outstanding; (g) the
principal amount of the Subordinated Notes in an amount not to exceed 25% of
the Borrowers' consolidated Excess Cash Flow for each Fiscal Year, payable
concurrently with mandatory prepayments of the Loans from Excess Cash Flow in
accordance with Section 1.3(b)(iv); provided 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
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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.
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 $3,000,000.
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; or
(e) 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. Holdings. Holdings shall not own any material assets other than
the outstanding Stock of Borrowers. Holdings shall not engage in any trade or
business.
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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
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
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of any Indebtedness (other than the Obligations) of any Credit Party in
excess of $1,000,000 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 $1,000,000 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.
(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
$1,000,000 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
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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 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.
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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 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 $2,500,000 and, after
giving effect to any such partial assignment, the assigning Lender shall have
retained Commitments in an amount at least equal to $2,500,000; 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 $2,500,000, 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.
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(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 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 Forecasts 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. (a) 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.
(b) 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
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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. Notwithstanding any provision of any Loan Document
to the contrary, 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 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.
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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 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
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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 willful 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 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
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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 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
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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 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 Lenders. Any such
purported assignment, transfer, hypothecation or other conveyance by any Credit
Party without the prior express written consent of Agent and 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.
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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, termination's or waivers
requiring the consent of any Lenders shall require the written consent of
Requisite Lenders.
(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 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
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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 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 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
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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.
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; 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
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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 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 or to any direct or indirect contractual counterparties in swap
agreements or professional advisors of such swap counterparties 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 or
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direct or indirect contractual counterparties in swap agreements or
professional advisors of such swap counterparties 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 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
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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 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
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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. Agent may provide to industry
trade organizations information necessary and customary for inclusion in league
table measurements.
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.
11.18. Effect on Prior Credit Agreement; Continuing Loans. This
Agreement amends and restates the Prior Credit Agreement in its entirety and
supersedes the terms and provisions thereof. Nevertheless, the Credit Parties
acknowledge that the Continuing Loans in the respective amounts set forth on
Disclosure Schedule (11.18) remain outstanding, and the parties agree that (i)
such Loans are continuing Obligations hereunder governed by the terms and
provisions hereof; (ii) the Liens securing payment thereof are continuing in
all respects, and (iii) this Agreement shall not be deemed to evidence a
novation, or repayment and refunding, of the Continuing Loans. All references
in the Loan Documents (entered into pursuant to the Prior Credit Agreement) to
the "Credit Agreement" or the "Agreement" shall be deemed to refer to this
Agreement, without further amendment of those Loan Documents.
12. CROSS-GUARANTY
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,
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(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 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.
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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
nonjudicial 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:
(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
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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.
(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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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: _________________________________
SEYMOUR HOUSEWARES CORPORATION
By: ____________________________________
Title: _________________________________
<PAGE> 68
GENERAL ELECTRIC CAPITAL CORPORATION,
as Agent and Lender
By:_________________________________
Title:______________________________
KEY CORPORATE CAPITAL INC., as Lender
By:_________________________________
Title:______________________________
LASALLE NATIONAL BANK, as Lender
By:_________________________________
Title:______________________________
BANK POLSKA KASA OPIEKI S.A. - PEKAO S.A.
GROUP, NEW YORK BRANCH, as Lender
By:_________________________________
Title:______________________________
KZH-ING-2 CORPORATION, as Lender
By:_________________________________
Title:______________________________
<PAGE> 69
THE ING CAPITAL SENIOR SECURED HIGH INCOME
FUND, L.P., as Lender,
By:
ING Capital Advisors, Inc.,
as Investment Advisor
By:_________________________________
Title:______________________________
ING HIGH INCOME PRINCIPAL PRESERVATION FUND
HOLDINGS, LDC, as Lender,
By:
ING Capital Advisors, Inc.,
as Investment Advisor
By:_________________________________
Title:______________________________
<PAGE> 70
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> 71
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 have the meaning assigned to it in the recitals to the
Agreement, and shall include the issuance of common stock of Holdings with a
value of at least $14.2 million as part of the consideration therefor.
"Acquisition Agreement" shall mean collectively (i) the Purchase Agreement
and (ii) 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
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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,
the Shutters Borrowing Base and the Seymour Borrowing Base.
"Agreement" shall mean the Amended and Restated 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 Marin.
"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
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.
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"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 to each Borrower, 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 the book value of such Borrower's
Eligible Accounts, less any Reserves established by Agent at such time; and
(b) fifty percent (50%) of the book value of such Borrower'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.
"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 (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.
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"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 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.
"Closing Date" shall mean December 29, 1997.
"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
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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) December __,
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).
"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 Line Commitment) and Term Loan Commitment as set forth on
Annex J 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
One Hundred Thirty Million Dollars ($130,000,000) 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.
"Continuing Loans" shall mean the Loans and Letter of Credit Obligations
under the Prior Credit Agreement existing on the Closing Date and listed on
Disclosure Schedule (11.8) to the Agreement.
"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
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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.
"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 noncash
charges (including depreciation and amortization) for such period, (v)
amortized debt discount for such period, and (vi) the
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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 .
"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.
Section 9601 et seq.) ("CERCLA"); the Hazardous Materials Transportation
Authorization Act of 1994 (49 U.S.C. Section 5101 et seq.); the Federal
Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. Section 136 et seq.); the
Solid Waste Disposal Act (42 U.S.C. Section 6901 et seq.); the Toxic Substance
Control Act (15 U.S.C. Section 2601 et seq.); the Clean Air Act (42 U.S.C.
Section 7401 et seq.); the Federal Water Pollution Control Act (33 U.S.C.
Section 1251 et seq.); the Occupational Safety and Health Act (29 U.S.C.
Section 651 et seq.); and the Safe Drinking Water Act (42 U.S.C. Section
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
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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, 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
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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, 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.
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"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 in 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 scheduled payments of principal with respect to
Indebtedness during such period or within seven (7) days thereafter.
"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 owned or hereafter acquired by any Credit Party.
"Forecasts" 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.
"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
December 11, 1997, between GE Capital and the Borrowers 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
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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 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
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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.
"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
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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 so 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.
"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 (i) EBITDA less Capital Expenditures to (ii) 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; provided, however, that "Interest Expense" shall not include (a)
any fees and expenses incurred on or prior to the Closing Date in connection
with the Related Transactions that are amortized and included in interest
expense under GAAP or (b) any success fee described on Schedule 3.2 to Note
Purchase Agreement dated as of the date hereof among Credit Parties, GE
Capital, individually and as agent for itself and the other note purchasers
that are signatories thereto, and the note purchasers that are signatory
thereto, that is accrued or paid and included in interest expense under GAAP.
"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
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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.
"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.
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"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
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
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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, 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
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in excess of (i) $3,500,000 prior to 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.
"Maximum Lawful Rate" shall have the meaning assigned to it in Section
1.5(f).
"Mexican Subsidiary" shall mean Seymour S.A. de C.V., a wholly owned
Subsidiary of Seymour.
"Mortgaged Properties" shall have the meaning assigned to it in Annex D.
"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).
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"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 or any of the other Loan Documents. Notwithstanding the foregoing,
the term "Obligations" shall exclude any portion of the Subordinated Debt.
"Overadvance" shall have the meaning assigned to it in Section
1.1(a)(iii).
"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.
"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.
"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.
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"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); (i)
Zoning restrictions, easements, licenses, or other similar restrictions on the
use of any Real Estate or other minor irregularities in title (including
leaseholding 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; (k) "silent"
second Liens securing payment of the Subordinated Debt, (l) the Lien of the
Jackson County Bank on the 5.33 acres located at South Airport Road, Seymour,
Indiana pursuant to a Mortgage dated October 8, 1997 between A&R Leasing, Inc.
and Jackson County Bank securing payment of $1,880,000 of Indebtedness; and (m)
Liens expressly permitted under clauses (b), (c) and (d) of Section 6.7 of the
Agreement.
"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, the Pledge Agreement executed and delivered
by Seymour 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 Credit Agreement" shall have the meaning assigned to it in the
recitals to the Agreement.
"Prior Lender" shall mean Jackson National Life Insurance Company.
"Prior Loan Documents" shall have the meaning assigned to it in the
recitals to the Agreement.
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"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" shall have the meaning assigned to it in Section 3.4(b).
"Pro Rata Share" shall mean with respect to all matters relating to any
Lender (a) 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, as any such
percentages may be adjusted by assignments permitted pursuant to Section 9 1;
(b) with respect to the Term Loans, 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; (c) with respect to all Loans, the
percentage obtained by dividing (i) the aggregate Commitments of that Lender by
(ii) the aggregate Commitments of all Lenders, as any such percentages may be
adjusted by assignments permitted pursuant to Section 9 1, and (d) with respect
to all Loans after the Commitment Termination Date, the percentage obtained by
dividing (i) the aggregate outstanding principal balance of the Loans held by
that Lender by the outstanding principal balance of all Loans held by all
Lenders.
"Purchase Agreement" shall have the meaning assigned to it in the recitals
to the Agreement.
"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.
"Ratable Share" means as to each Borrower that percentage of the principal
of each Term Loan for which that Borrower is primarily liable as set forth on
Disclosure Schedule
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(1.1(b)(v)) to the Agreement.
"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 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 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.
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"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).
"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 on Annex J 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).
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"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.
"Sellers" shall mean the shareholders of Seymour Sales on the Closing
Date.
"Seymour" shall mean Seymour Housewares Corporation, a Delaware
corporation.
"Seymour Sales" shall have the meaning assigned to it in the recitals to
the Agreement.
"Shutters" means Shutters, Inc., an Illinois corporation.
"Seymour Pledge Agreement" shall mean the Pledge Agreement dated as of the
Closing Date executed by Seymour in favor of Agent on behalf of itself and
Lenders, pledging all of the Stock of the Mexican Subsidiary.
"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 continent 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 the 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 3all-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 Senior Subordinated Notes
due on the ninth anniversary of the date hereof issued by Borrowers, jointly
and severally, in the original
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principal amount of $10,000,000, 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 (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).
"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
Annex J 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.
"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
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organized or any political subdivision thereof.
"Term A Lenders" shall mean those Lenders having Term Loan A Commitments.
"Term B Lenders" shall mean those Lenders having Term Loan B Commitments.
"Term Lenders" shall mean those Lenders having Term Loan Commitments.
"Term Loan A" shall have the meaning assigned to it in Section 1.1(b).
"Term Loan A Commitment" shall mean (a) as to any Lender with a Term Loan
A Commitment, the commitment of such Lender to make its Pro Rata Share of Term
Loan A as set forth on Annex J to the Agreement or in the most recent
Assignment Agreement executed by such Lender, and (b) as to all Lenders with a
Term Loan A Commitment, the aggregate commitment of all Lenders to make the
Term Loan A, which aggregate commitment shall be Fifty Million Dollars
($50,000,000) on the Closing Date.
"Term Loan B Commitment" shall mean (a) as to any Lender with a Term Loan
B Commitment, the commitment of such Lender to make its Pro Rata Share of Term
Loan B as set forth on Annex J to the Agreement or in the most recent
Assignment Agreement executed by such Lender, and (b) as to all Lenders with a
Term Loan B Commitment, the aggregate commitment of all Lenders to make Term
Loan B, which aggregate commitment shall be Sixty Million Dollars ($60,000,000)
on the Closing Date.
"Term Loan B" shall have the meaning assigned to it in Section 1.1(b)(2).
"Term Loan Commitment" shall mean, collectively, the Term Loan A
Commitment and the Term Loan B Commitment.
"Term Loans" shall mean all Term A Loans and all Term B Loans.
"Term Note A" shall have the meaning assigned to it in Section 1.1(b)(1).
"Term Note B" shall have the meaning assigned to it in Section 1.1(b)(2).
"Term Notes" shall mean all Term A Notes and all Term B Notes.
"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 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
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<PAGE> 96
of participants who are or were employed by any of them.
"Trademark License" shall mean rights under any written agreement now
owned or hereafter acquired by any Credit Party granting any right to use any
Trademark.
"Trademark Security Agreements" shall mean the Trademark Security
Agreements made in favor of Agent, on behalf of Lenders, by each applicable
Credit Party.
"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, 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
A-26
<PAGE> 97
statutes and related regulations shall include any amendments of the same and
any successor statutes and regulations. Whenever any provision in any Loan
Document refers to the knowledge (or an analogous phrase) of any Credit Party,
such words are intended to signify that such Credit Party has actual knowledge
or awareness of a particular fact or circumstance or that such Credit Party, if
it had exercised reasonable diligence, would have known or been aware of such
fact or circumstance.
A-27
<PAGE> 98
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) Fifteen
Million ($15,000,000) (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 of any other Revolving Lender to make
available such other Revolving Lender's Pro Rata Share of any such payment.
<PAGE> 99
(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 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
B-2
<PAGE> 100
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, an 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.
(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:
B-3
<PAGE> 101
(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 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
B-4
<PAGE> 102
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, covenant or indemnities made by Borrowers in favor of any L/C Issuer
in any letter of credit application, reimbursement agreement or similar
document, instrument or agreement between or among Borrowers and such L/C
Issuer.
B-5
<PAGE> 103
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 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
<PAGE> 104
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 loner 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 loner 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 ranted 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.
(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
C-2
<PAGE> 105
proceeds of the sale or other disposition of any Collateral, shall be deposited
directly into the applicable Borrower Accounts.
C-3
<PAGE> 106
ANNEX D (Section 2.1(a))
to
CREDIT AGREEMENT
SCHEDULE OF ADDITIONAL CLOSING DOCUMENTS
<PAGE> 107
ANNEX D
================================================================================
SCHEDULE OF CLOSING DOCUMENTS
$130,000,000 AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of December __, 1997
among
SELFIX, INC.,
TAMOR CORPORATION,
SHUTTERS, INC., and
SEYMOUR HOUSEWARES CORPORATION,
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
================================================================================
2
<PAGE> 108
RELEVANT PARTIES
A. Selfix, Inc. ("Selfix")
B. Tamor Corporation ("Tamor")
C. Shutters, Inc. ("Shutters")
D. Seymour Housewares Corporation ("Seymour")
E. Home Products International, Inc. ("Holdings")
F. General Electric Capital Corporation, as Agent ("GECC")
G. Seymour Sales ("Seymour Sales")
H. Key Corporate Capital, Inc. ("Key Corp..")
I. KZH-ING-2 Corporation ("KZH")
J. The ING Capital Senior Secured High Income Fund, L.P. ("ING - Senior")
K. The ING Capital High Income Principal Preservation Fund Holdings, LDC
("ING - Principal")
L. Archimedes Funding, L.L.C. ("Archimedes")
M. LaSalle National Bank ("LaSalle")
N. Bank Polska Kasa Opieki S.A. - Pekao S.A. Group ("PKO")
O. HP II Acquisition ("HPII")
2
<PAGE> 109
LAW FIRMS
A. Latham & Watkins ("L&W")
B. Much Shelist Freed Denenberg Ament Bell & Rubenstein, P.C. ("MS")
C. Simpson & Thatcher ("S&T")
<PAGE> 110
================================================================================
Responsible
Party
- --------------------------------------------------------------------------------
1. CREDIT DOCUMENTS - SENIOR SECURED FACILITY
- --------------------------------------------------------------------------------
1.1 Credit Agreement by and among the
Credit Parties and GECC L&W
- --------------------------------------------------------------------------------
1.2 Annexes to Credit Agreement
- --------------------------------------------------------------------------------
Annex A -- Definitions L&W
- --------------------------------------------------------------------------------
Annex B -- Letters of Credit L&W
- --------------------------------------------------------------------------------
Annex C -- Cash Management Systems L&W
- --------------------------------------------------------------------------------
Annex D -- Schedule of Additional
Closing Documents L&W
- --------------------------------------------------------------------------------
Annex E -- Financial Statements and
Projections - Reporting L&W
- --------------------------------------------------------------------------------
Annex F -- Collateral Reports L&W
- --------------------------------------------------------------------------------
Annex G -- Financial Covenants GECC
- --------------------------------------------------------------------------------
Annex H -- Lender's Wire Transfer GECC
Information
- --------------------------------------------------------------------------------
Annex I -- Notice Addresses L&W
- --------------------------------------------------------------------------------
Annex J -- Commitments as of Closing Date L&W
- --------------------------------------------------------------------------------
1.3 Exhibits to Credit Agreement
- --------------------------------------------------------------------------------
Exhibit 1.1(a)(i) Form of Notice of
Revolving Credit Advance L&W
- --------------------------------------------------------------------------------
Exhibit 1.1(a)(ii) Form of Revolving Note L&W
- --------------------------------------------------------------------------------
Exhibit 1.1(b)(i) Form of Term Note L&W
================================================================================
D-2
<PAGE> 111
================================================================================
Responsible
Party
- --------------------------------------------------------------------------------
Exhibit 1.1(c)(ii) Form of Swing Line L&W
Note
- --------------------------------------------------------------------------------
Exhibit 1.5(e) Form of Notice of
Conversion/Continuation L&W
- --------------------------------------------------------------------------------
Exhibit 4.1(b) Form of Borrowing Base L&W
Certificate
- --------------------------------------------------------------------------------
Exhibit 9.1(a) Form of Assignment L&W
Agreement
- --------------------------------------------------------------------------------
1.4 Schedules to Credit Agreement
- --------------------------------------------------------------------------------
Schedule 1.1 - Responsible Individual L&W
- --------------------------------------------------------------------------------
Schedule 1.1(b)(v) - Ratable Shares GECC
- --------------------------------------------------------------------------------
Schedule 1.4 - Sources and Uses; Funds Flow
Memorandum MS
- --------------------------------------------------------------------------------
Schedule 3.2 - Executive Offices; FEIN MS
- --------------------------------------------------------------------------------
Schedule 3.4(A) - Financial Statements Borrowers
- --------------------------------------------------------------------------------
Schedule 3.4(B) - Pro Forma Borrowers
- --------------------------------------------------------------------------------
Schedule 3.4(C) - Forecasts Borrowers
- --------------------------------------------------------------------------------
Schedule 3.6 - Real Estate and Leases MS
- --------------------------------------------------------------------------------
Schedule 3.7 - Labor Matters MS
- --------------------------------------------------------------------------------
Schedule 3.8 - Ventures, Subsidiaries and
Affiliates; Outstanding Stock MS
- --------------------------------------------------------------------------------
Schedule 3.11 - Tax Matters MS
- --------------------------------------------------------------------------------
Schedule 3.12 - ERISA Plans MS
- --------------------------------------------------------------------------------
Schedule 3.13 - Litigation MS
- --------------------------------------------------------------------------------
Schedule 3.15 - Intellectual Property MS
================================================================================
D-3
<PAGE> 112
================================================================================
Responsible
Party
- --------------------------------------------------------------------------------
Schedule 3.17 - Hazardous Materials MS
- --------------------------------------------------------------------------------
Schedule 3.18 - Insurance - Seymour MS
- --------------------------------------------------------------------------------
Schedule 3.19 - Deposit and Disbursement MS
Accounts
- --------------------------------------------------------------------------------
Schedule 3.20 - Government Contracts MS
- --------------------------------------------------------------------------------
Schedule 3.22 - Material Agreements MS
- --------------------------------------------------------------------------------
Schedule 5.1 - Trade Names MS
- --------------------------------------------------------------------------------
Schedule 6.2 - Investments MS
- --------------------------------------------------------------------------------
Schedule 6.3 - Indebtedness MS
- --------------------------------------------------------------------------------
Schedule 6.4(a) - Transactions with Affiliates MS
- --------------------------------------------------------------------------------
Schedule 6.7 - Existing Liens MS
- --------------------------------------------------------------------------------
Schedule 11.18 - Continuing Loans MS
- --------------------------------------------------------------------------------
1.5 Notes of Borrowers (as defined in the
Credit Agreement)
- --------------------------------------------------------------------------------
(a) Revolving Notes in favor of
- --------------------------------------------------------------------------------
(i) GECC L&W
- --------------------------------------------------------------------------------
(ii) PKO L&W
- --------------------------------------------------------------------------------
(iii) Key Corp. L&W
- --------------------------------------------------------------------------------
(iv) LaSalle L&W
- --------------------------------------------------------------------------------
(b) Term A Notes in favor of
- --------------------------------------------------------------------------------
(i) GECC L&W
- --------------------------------------------------------------------------------
(ii) PKO L&W
================================================================================
D-4
<PAGE> 113
================================================================================
Responsible
Party
- --------------------------------------------------------------------------------
(iii) KZH L&W
- --------------------------------------------------------------------------------
(iv) LaSalle L&W
- --------------------------------------------------------------------------------
(v) ING - Senior L&W
- --------------------------------------------------------------------------------
(vi) ING - Principal L&W
- --------------------------------------------------------------------------------
(vii) Key Corp. L&W
- --------------------------------------------------------------------------------
(c) Term B Notes in favor of
- --------------------------------------------------------------------------------
(i) ING - Senior L&W
- --------------------------------------------------------------------------------
(ii) ING - Principal L&W
- --------------------------------------------------------------------------------
(iii) KZH L&W
- --------------------------------------------------------------------------------
(iv) Key Corp. L&W
- --------------------------------------------------------------------------------
(v) GECC L&W
- --------------------------------------------------------------------------------
(d) Swing Line Note in favor of GECC L&W
- --------------------------------------------------------------------------------
1.6 Security Agreement of Credit Parties L&W
- --------------------------------------------------------------------------------
Schedule I - Filing Jurisdictions MS
- --------------------------------------------------------------------------------
Schedule II - Instruments MS
- --------------------------------------------------------------------------------
Schedule III-A - Office Locations of MS
Collateral and Records concerning Selfix's
Collateral
- --------------------------------------------------------------------------------
Schedule III - B - Office Locations of MS
Collateral and Records concerning Tamor's
collateral
- --------------------------------------------------------------------------------
Schedule III - C - Office Locations of MS
Collateral and Records concerning
Shutter's collateral
================================================================================
D-5
<PAGE> 114
================================================================================
Responsible
Party
- --------------------------------------------------------------------------------
Schedule III - D - Office Locations of
Collateral and Records concerning
Seymour's collateral MS
- --------------------------------------------------------------------------------
Schedule IV - Patents and Trademarks MS
- --------------------------------------------------------------------------------
Exhibit A - Power of Attorney L&W
- --------------------------------------------------------------------------------
(a) Selfix L&W
- --------------------------------------------------------------------------------
(b) Tamor L&W
- --------------------------------------------------------------------------------
(c) Shutters L&W
- --------------------------------------------------------------------------------
(d) Seymour L&W
- --------------------------------------------------------------------------------
1.7 UCC-1s in favor of GECC as listed on L&W
Schedule A hereto
- --------------------------------------------------------------------------------
(a) Search Results for Seymour L&W
- --------------------------------------------------------------------------------
1.8 UCC-3s in Termination Statements from
Jackson National Life MS
- --------------------------------------------------------------------------------
1.9 Payoff letter in favor of GECC MS
- --------------------------------------------------------------------------------
1.10 Trademark Security Agreement from Seymour L&W
- --------------------------------------------------------------------------------
1.11 Patent Security Agreement from Seymour L&W
- --------------------------------------------------------------------------------
1.12 Reaffirmation of Holdings Guaranty L&W
- --------------------------------------------------------------------------------
1.13 Acquisition Agreement MS
- --------------------------------------------------------------------------------
1.14 Initial Borrowing Base Certificate for
Tamor, Selfix, Shutters and Seymour
- --------------------------------------------------------------------------------
1.15 Initial Notice of Revolving Credit Advance MS
- --------------------------------------------------------------------------------
1.16 Letter of Direction from Selfix to GECC MS
================================================================================
D-6
<PAGE> 115
================================================================================
Responsible
Party
- --------------------------------------------------------------------------------
1.17 Lockbox Account Agreements with MS
Northern Trust
- --------------------------------------------------------------------------------
1.18 Control Agreement MS
- --------------------------------------------------------------------------------
2. CORPORATE AND ORGANIZATION
DOCUMENTS
- --------------------------------------------------------------------------------
2.1 Seymour
- --------------------------------------------------------------------------------
(a) Certificate of Good Standing (with MS
verification of tax status) in the
following states:
- --------------------------------------------------------------------------------
(i) Indiana MS
- --------------------------------------------------------------------------------
(ii) North Carolina MS
- --------------------------------------------------------------------------------
(b) Secretary's Certificate, certifying: MS
- --------------------------------------------------------------------------------
(i) Copy of Resolutions (broad MS
form) authorizing
execution and performance
of Loan Documents
- --------------------------------------------------------------------------------
(ii) Incumbency Certificate MS
- --------------------------------------------------------------------------------
(iii)Certificate of Incorporation and MS
amendments thereto
- --------------------------------------------------------------------------------
(iv) By-laws MS
- --------------------------------------------------------------------------------
(c) Certificate of Merger: Seymour MS
Sales into Seymour
- --------------------------------------------------------------------------------
(d) Officer's Certificate re: (a) no MS
required consents or approvals, (b)
no Material Adverse Effect, (c) no
material adverse change, (d) no
material Litigation, (e) no
Restricted payments and (f) no
material liabilities or decrease in
assets
================================================================================
D-7
<PAGE> 116
================================================================================
Responsible
Party
- --------------------------------------------------------------------------------
2.2 Tamor
- --------------------------------------------------------------------------------
(a) Certificate of Good Standing (with MS
verification of tax status) in the
following states
- --------------------------------------------------------------------------------
(i) Georgia MS
- --------------------------------------------------------------------------------
(b) Secretary's Certificate, certifying:
- --------------------------------------------------------------------------------
(i) Copy of Resolutions (broad MS
form) authorizing
execution and performance
of Loan Documents
- --------------------------------------------------------------------------------
(ii) Incumbency Certificate MS
- --------------------------------------------------------------------------------
(iii)No amendments to Articles or MS
By-laws since
February 27, 1997
- --------------------------------------------------------------------------------
(c) Officer's Certificate re: (a) no MS
required consents or approvals, (b)
no Material Adverse Effect, (c) no
material adverse change, (d) no
material Litigation, (e) no
Restricted payments and (f) no
material liabilities or decrease in
assets
- --------------------------------------------------------------------------------
2.3 Selfix
- --------------------------------------------------------------------------------
(a) Certificate of Good Standing (with MS
verification of tax status) in the
following states
- --------------------------------------------------------------------------------
(i) Illinois MS
- --------------------------------------------------------------------------------
(b) Secretary's Certificate, to include
================================================================================
D-8
<PAGE> 117
================================================================================
Responsible
Party
- --------------------------------------------------------------------------------
(i) Copy of Resolutions (broad MS
form) authorizing
execution and performance
of Loan Documents
- --------------------------------------------------------------------------------
(ii) Incumbency Certificate MS
- --------------------------------------------------------------------------------
(iii)No amendments to Articles MS
or By-laws since
February 27, 1997
- --------------------------------------------------------------------------------
(c) Officer's Certificate re: (a) no MS
required consents or approvals, (b)
no Material Adverse Effect, (c) no
material adverse change, (d) no
material Litigation, (e) no
Restricted payments and (f) no
material liabilities or decrease in
assets
- --------------------------------------------------------------------------------
2.4 Shutters
- --------------------------------------------------------------------------------
(a) Certificate of Good Standing (with MS
verification of tax status) in the
following states
- --------------------------------------------------------------------------------
(i) Illinois MS
- --------------------------------------------------------------------------------
(b) Secretary's Certificate, to include
- --------------------------------------------------------------------------------
(i) Copy of Resolutions (broad MS
form) authorizing
execution and performance
of Loan Documents
- --------------------------------------------------------------------------------
(ii) Incumbency Certificate MS
- --------------------------------------------------------------------------------
(iii)No amendments to Articles MS
or By-laws since
February 27, 1997
================================================================================
D-9
<PAGE> 118
================================================================================
Responsible
Party
- --------------------------------------------------------------------------------
(c) Officer's Certificate re: (a) no MS
required consents or approvals, (b)
no Material Adverse Effect, (c) no
material adverse change, (d) no
material Litigation, (e) no
Restricted payments and (f) no
material liabilities or decrease in
assets
- --------------------------------------------------------------------------------
2.5 Holdings
- --------------------------------------------------------------------------------
(a) Certificate of Good Standing (with MS
verification of tax status) in the
following states
- --------------------------------------------------------------------------------
(b) Secretary's Certificate, to include
- --------------------------------------------------------------------------------
(i) Copy of Resolutions (broad MS
form) authorizing
execution and performance
of Loan Documents
- --------------------------------------------------------------------------------
(ii) Incumbency Certificate MS
- --------------------------------------------------------------------------------
(iii)No amendments to Articles MS
or By-laws since
February 27, 1997
- --------------------------------------------------------------------------------
(c) Officer's Certificate re: (a) no MS
required consents or approvals, (b)
no Material Adverse Effect, (c) no
material adverse change, (d) no
material Litigation, (e) no
Restricted payments and (f) no
material liabilities or decrease in
assets
- --------------------------------------------------------------------------------
(d) Solvency Certificate MS
- --------------------------------------------------------------------------------
2.6 HP II Acquisition Corp.
================================================================================
D-10
<PAGE> 119
================================================================================
Responsible
Party
- --------------------------------------------------------------------------------
(a) Certificate of Good Standing (with MS
verification of tax status) in the
following states
- --------------------------------------------------------------------------------
3.0 Opinion of MS MS
- --------------------------------------------------------------------------------
4.0 Subordinated Notes in favor of L&W
- --------------------------------------------------------------------------------
(i) GECC in the amount L&W
of $5,000,000
- --------------------------------------------------------------------------------
(ii)Archimedes in the amount L&W
of $5,000,000
- --------------------------------------------------------------------------------
(a) Note Purchase Agreement L&W
- --------------------------------------------------------------------------------
Schedule 3.2 - Success Fee L&W
- --------------------------------------------------------------------------------
Schedule 5.3 - Defaults MS
- --------------------------------------------------------------------------------
Schedule 5.4(B) - MS
Capitalization
- --------------------------------------------------------------------------------
Schedule 5.7 - Audits and MS
Investigations
- --------------------------------------------------------------------------------
Schedule 5.8 - Employee MS
Matters
- --------------------------------------------------------------------------------
Schedule 5.11 - Pending MS
and Threatened Litigation
- --------------------------------------------------------------------------------
Schedule 8.6 - Transactions MS
with Affiliates
- --------------------------------------------------------------------------------
Exhibit 1.1 - Form of MS
Senior Subordinated Note
- --------------------------------------------------------------------------------
Exhibit 7.1 - Officers' MS
Certificate
- --------------------------------------------------------------------------------
(b) Subordinated Note Security MS
Agreement
================================================================================
D-11
<PAGE> 120
================================================================================
Responsible
Party
- --------------------------------------------------------------------------------
Schedule I - Filing Jurisdictions MS
- --------------------------------------------------------------------------------
Schedule IIA - Location of MS
Records and Certain Collateral
of Selfix
- --------------------------------------------------------------------------------
Schedule IIB - Location of Records MS
and Certain Collateral of Tamor
- --------------------------------------------------------------------------------
Schedule IIC - Location of Records MS
and Certain Collateral of Shutters
- --------------------------------------------------------------------------------
Schedule IID - Location of MS
Records and Certain Collateral of
Seymour
- --------------------------------------------------------------------------------
(c) UCC-1 Financing Statement in MS
favor of GE Capital as Agent for
Subordinated Lenders in each
jurisdiction listed on Schedule B
hereto
- --------------------------------------------------------------------------------
(d) Holdings Subordinated Guaranty L&W
- --------------------------------------------------------------------------------
5.0 Amendment to existing Pledge Agreement L&W
- --------------------------------------------------------------------------------
(a) Share certificates for stock of Borrowers
Seymour
- --------------------------------------------------------------------------------
(i) Stock Powers MS
- --------------------------------------------------------------------------------
5.1 Seymour Pledge Agreement in favor of L&W
GECC, as Agent
- --------------------------------------------------------------------------------
(a) Share Certificates for Common Borrowers
Stock of Seymour S.A. de C.V.
- --------------------------------------------------------------------------------
(i) Stock Powers MS
- --------------------------------------------------------------------------------
(b) Share Certificates for Common Borrowers
Stock of Rose's Holdings, Inc.
- --------------------------------------------------------------------------------
(i) Stock Powers MS
================================================================================
D-12
<PAGE> 121
================================================================================
Responsible
Party
- --------------------------------------------------------------------------------
(c) Share Certificates for Common of Borrowers
Stock Ames Department Stores,
Inc.
- --------------------------------------------------------------------------------
(i) Stock Powers MS
- --------------------------------------------------------------------------------
(d) Share Certificates for Common Borrowers
Stock of Hills Stores Company
- --------------------------------------------------------------------------------
(i) Stock Powers MS
- --------------------------------------------------------------------------------
(e) Share Certificates for Preferred Borrrowers
Stock of Hills Stores Company
- --------------------------------------------------------------------------------
(i) Stock Powers MS
- --------------------------------------------------------------------------------
(f) Share Certificates for Common Borrowers
Stock of Federated Department
Stores, Inc. (141 Shares)
- --------------------------------------------------------------------------------
(i) Stock Powers MS
- --------------------------------------------------------------------------------
(g) Share Certificates for Common Borrowers
Stock of Federated Department
Stores, Inc. (39 Shares)
- --------------------------------------------------------------------------------
(i) Stock Powers MS
- --------------------------------------------------------------------------------
(h) Share Certificates for Common Borrowers
Stock of Federated Department
Stores, Inc. (66 Shares)
- --------------------------------------------------------------------------------
(i) Stock Powers MS
- --------------------------------------------------------------------------------
(i) Stock Certificates for Common Borrowers
Stock of Best Products Co., Inc.
- --------------------------------------------------------------------------------
(i) Stock Powers MS
- --------------------------------------------------------------------------------
5.2 Intercompany Notes in favor of Seymour L&W
- --------------------------------------------------------------------------------
(a) Tamor L&W
================================================================================
D-13
<PAGE> 122
================================================================================
Responsible
Party
- --------------------------------------------------------------------------------
(b) Shutters L&W
- --------------------------------------------------------------------------------
(c) Selfix L&W
- --------------------------------------------------------------------------------
6.0 Accountants Letter L&W
- --------------------------------------------------------------------------------
7.0 Appointment of Agent for Service L&W
- --------------------------------------------------------------------------------
8.0 Fee Letter - Senior Debt L&W
- --------------------------------------------------------------------------------
8.1 Fee Letter - Subordinated Debt L&W
- --------------------------------------------------------------------------------
10.0 REAL ESTATE DOCUMENTS
- --------------------------------------------------------------------------------
10.1 Amendments to Landlord Waiver L&W
and Consent with respect to following
leaseholds
- --------------------------------------------------------------------------------
(a) West 47th Street L&W
Chicago, Illinois - Selfix
- --------------------------------------------------------------------------------
(b) 5555 South Archer Avenue L&W
Chicago, Illinois - Selfix
- --------------------------------------------------------------------------------
(c) 3016 West Georgia Street L&W
Louisiana, Missouri - Tamor
- --------------------------------------------------------------------------------
(i) Estoppel Certificate MS
- --------------------------------------------------------------------------------
(ii) Second Amendment to Lease MS
- --------------------------------------------------------------------------------
(d) 634 Crawford Street L&W
Fitchburg, Massachusetts - Tamor
- --------------------------------------------------------------------------------
(e) 12130 Route 173 L&W
Hebron, Illinois - Shutters
- --------------------------------------------------------------------------------
10.2 Landlord Waivers and Consents with respect L&W
to the following leaseholds
- --------------------------------------------------------------------------------
(a) South Airport Road L&W
Seymour, Indiana - Seymour
================================================================================
D-14
<PAGE> 123
================================================================================
Responsible
Party
- --------------------------------------------------------------------------------
(i) Landlord Certification L&W
- --------------------------------------------------------------------------------
(ii) Memorandum of Lease MS
- --------------------------------------------------------------------------------
(iii) Non-Disturbance and MS
Attornment Agreement
- --------------------------------------------------------------------------------
(b) Leominster Lease - Tamor L&W
- --------------------------------------------------------------------------------
(i) Landlord Certification L&W
- --------------------------------------------------------------------------------
10.3 Illinois Property L&W
- --------------------------------------------------------------------------------
(a) Amendment to First Leasehold L&W
Mortgage, Assignment of Rents
and Security Agreement - 47th
Street - Selfix
- --------------------------------------------------------------------------------
(i) Title Policy for First L&W
Leasehold Mortgage
- --------------------------------------------------------------------------------
(b) Amendment to First Mortgage, L&W
Assignment of Rents and Security
Agreement -Hebron - Shutters
- --------------------------------------------------------------------------------
(i) Title Policy for First Mortgage L&W
- --------------------------------------------------------------------------------
(c) Second Leasehold Mortgage, L&W
Assignment of Rents and Security
Agreement - 47th Street - Selfix
- --------------------------------------------------------------------------------
(i) Title Policy for Second L&W
Leasehold Mortgage
- --------------------------------------------------------------------------------
(ii) Release of Prior Second L&W
Mortgage
- --------------------------------------------------------------------------------
(d) Second Mortgage, Assignment of L&W
Rents and Security Agreement -
Hebron - Shutters
================================================================================
D-15
<PAGE> 124
================================================================================
Responsible
Party
- --------------------------------------------------------------------------------
(i) Title Policy for Second L&W
Mortgage
- --------------------------------------------------------------------------------
(ii) Release of Prior Second L&W
Mortgage
- --------------------------------------------------------------------------------
10.4 Missouri Property L&W
- --------------------------------------------------------------------------------
(a) Amendment to First Leasehold L&W
Deed of Trust, Assignment of
Rents and Leases and Security
Agreement -Louisiana, Missouri -
Tamor
- --------------------------------------------------------------------------------
(i) Title Policy for First Deed L&W
of Trust
- --------------------------------------------------------------------------------
(b) Second Leasehold Deed of Trust, L&W
Assignment of Rents and Leases
and Security Agreement -
Louisiana, Missouri - Tamor
- --------------------------------------------------------------------------------
(i) Title Policy for Second L&W
Deed of Trust
- --------------------------------------------------------------------------------
(ii) Release of Prior Second L&W
Deed of Trust
- --------------------------------------------------------------------------------
10.5 Massachusetts Property L&W
- --------------------------------------------------------------------------------
(a) Amendment to First Mortgage, L&W
Assignment of Rents and Leases,
Security Agreement and Fixture
Filing-Leominster, Massachusetts -
Tamor
- --------------------------------------------------------------------------------
(i) Title Policy for First L&W
Mortgage
================================================================================
D-16
<PAGE> 125
================================================================================
Responsible
Party
- --------------------------------------------------------------------------------
(b) Second Mortgage, Assignment of L&W
Rents and Leases, Security
Agreement and Fixture Filing -
Leominster, Massachusetts -
Tamor
- --------------------------------------------------------------------------------
(i) Title Policy for Second L&W
Mortgage
- --------------------------------------------------------------------------------
(ii) Release of Prior Second L&W
Mortgage
- --------------------------------------------------------------------------------
10.6 Georgia Property L&W
- --------------------------------------------------------------------------------
(a) Amendment to First Deed to L&W
Secure Debt, Assignment of Rents
and Leases and Security
Agreement - Thomasville, Georgia
- Tamor
- --------------------------------------------------------------------------------
(i) Title Policy for First L&W
Mortgage
- --------------------------------------------------------------------------------
(b) Second Deed to Secure Debt, L&W
Assignment of Rents and Leases
and Security Agreement -
Thomasville, Georgia - Tamor
- --------------------------------------------------------------------------------
(i) Title Policy for Second L&W
Mortgage
- --------------------------------------------------------------------------------
(ii) Release of Prior Second L&W
Deed
- --------------------------------------------------------------------------------
10.7 Indiana Property L&W
- --------------------------------------------------------------------------------
(a) Mortgage, Assignment of Rents L&W
and Security Agreement and
Financing Statement (Fixture
Filing) - Seymour
================================================================================
D-17
<PAGE> 126
================================================================================
Responsible
Party
- --------------------------------------------------------------------------------
(b) Signed, marked-up commitment MS
for lender's policy of title
insurance covering first priority
mortgage (including appropriate
endorsements) (final policies to be
delivered post-closing)
- --------------------------------------------------------------------------------
(c) Survey (new or recertified and Borrowers
sufficient to remove exceptions
from title commitment)
- --------------------------------------------------------------------------------
(d) Second Mortgage, Assignment of L&W
Rents and Security Agreement and
Financing Statement (Fixture
Filing) - Seymour
- --------------------------------------------------------------------------------
(e) Signed, marked-up commitment MS
for lender's policy of title
insurance covering second priority
mortgage (including appropriate
endorsements) (final policies to be
delivered post-closing)
- --------------------------------------------------------------------------------
(f) Corrective Corporate Limited MS
Warranty Deed re: South Leased
Property
- --------------------------------------------------------------------------------
10.8 North Carolina Property
- --------------------------------------------------------------------------------
(a) Deed of Trust, Assignment of L&W
Rents and Security Agreement -
Seymour
- --------------------------------------------------------------------------------
(b) Signed, marked-up commitment MS
for lender's policy of title
insurance covering first priority
mortgage (including appropriate
endorsements) in favor of GECC
as agent (final policies to be
delivered post-closing)
================================================================================
D-18
<PAGE> 127
================================================================================
Responsible
Party
- --------------------------------------------------------------------------------
(c) Survey (new or recertified and Borrowers
sufficient to remove exceptions
from title commitment)
- --------------------------------------------------------------------------------
(d) Second Deed of Trust Assignment L&W
of Rents and Security Agreement -
Seymour
- --------------------------------------------------------------------------------
(e) Signed, marked-up commitment MS
for lender's policy of title
insurance covering second priority
mortgage (including appropriate
endorsements) in favor of GECC
as agent (final policies to be
delivered post-closing)
- --------------------------------------------------------------------------------
(f) Request for Notice L&W
- --------------------------------------------------------------------------------
10.9 Environmental Reports - Phase I
- --------------------------------------------------------------------------------
(a) Seymour Borrowers
- --------------------------------------------------------------------------------
10.10 General Title Insurance Documents
- --------------------------------------------------------------------------------
(a) GAP Affidavits MS
- --------------------------------------------------------------------------------
(b) Owner's Affidavits MS
- --------------------------------------------------------------------------------
(c) Affidavits of No New MS
Improvements to Survey
- --------------------------------------------------------------------------------
11.FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
11.1 Certificate of Chief Executive Officer or L&W
Chief Financial Officer of Home Products
International, Inc.
- --------------------------------------------------------------------------------
12.OTHER DOCUMENTS
- --------------------------------------------------------------------------------
12.1 Certificates or Policies of Insurance re
Seymour MS
================================================================================
D-19
<PAGE> 128
================================================================================
Responsible
Party
- --------------------------------------------------------------------------------
12.2 Loss Payee Endorsement re Seymour's
casualty insurance L&W/Borrowers
- --------------------------------------------------------------------------------
12.3 Government Approvals
H-S-R early termination Borrowers
- --------------------------------------------------------------------------------
12.4 Evidence of $14.2 million stock issuance
in connection with the Acquisition Borrowers
- --------------------------------------------------------------------------------
12.5 Solvency opinion of Valuation Research
- --------------------------------------------------------------------------------
12.6 Bailee Letters for the following locations: MS
- --------------------------------------------------------------------------------
(a) North Carolina
- --------------------------------------------------------------------------------
(b) Virginia
- --------------------------------------------------------------------------------
12.7 Post-Closing Matters Agreement L&W
================================================================================
D-20
<PAGE> 129
SCHEDULE A
UCC FINANCING STATEMENTS FILED AGAINST SEYMOUR HOUSEWARES
CORPORATION UNDER THE AMENDED AND RESTATED CREDIT AGREEMENT
<TABLE>
<CAPTION>
DEBTOR JURISDICTION
------ ------------
<S> <C>
Seymour Housewares Corporation, a Delaware Secretary of State, Texas
corporation
885 North Chestnut Street State Corporations Commission, Virginia
Seymour, Indiana 47274
City of Richmond, Virginia
Secretary of State, North Carolina
Anson County, North Carolina
Iredell County, North Carolina
Iredell County, North Carolina (Fixtur Filing)
Lincoln County, North Carolina
Secretary of State, Indiana
Jackson County, Indiana
Jackson County, Indiana (Fixture Filing)
Secretary of State, Illinois
Secretary of State, South Carolina
Fayette County, Kentucky
Jefferson County, Kentucky
Aken County, South Carolina
Lancaster County, South Carolina
Forsythe County, North Carolina
Tamor Corporation Secretary of State, Illinois
106 Carter Street
Leominster, Massachusetts 01453
</TABLE>
D-21
<PAGE> 130
SCHEDULE B
UCC FINANCING STATEMENTS FILED AGAINST SEYMOUR HOUSEWARES
CORPORATION, SHUTTERS, INC., SELFIX, INC., AND TAMOR CORPORATION
UNDER THE NOTE PURCHASE AGREEMENT
<TABLE>
<CAPTION>
DEBTOR JURISDICTION
------ ------------
<S> <C>
Seymour Housewares Corporation, a Delaware Secretary of State, Texas
corporation
State Corporations Commission, Virginia
City of Richmond, Virginia
Secretary of State, North Carolina
Iredell County, North Carolina
Iredell County, North Carolina (Fixture Filing)
Anson County, North Carolina
Lincoln County, North Carolina
Secretary of State, Indiana
Jackson County, Indiana
Jackson County, Indiana (Fixture Filing)
Secretary of State, Illinois
Secretary of State, South Carolina
Fayette County, Kentucky
Jefferson County, Kentucky
Aken County, South Carolina
Lancaster County, South Carolina
Forsythe County, North Carolina
</TABLE>
D-22
<PAGE> 131
<TABLE>
<CAPTION>
DEBTOR JURISDICTION
------ ------------
<S> <C>
Tamor Corporation Secretary of State, Illinois
106 Carter Street
Leominster, Massachusetts 01452 Secretary of State, Missouri
Pike County, Missouri
Pike County, Missouri (Fixture Filing)
Secretary of the Commonwealth,
Massachusetts
Selfix, Inc. Secretary of State, Illinois
4501 West 47th Street
Chicago, Illinois 60632 Cook County, Illinois (Fixture Filing)
Shutters, Inc. Secretary of State, Illinois
12213 Route 173
Hebron, Illinois McHenry County, Illinois (Fixture Filing)
</TABLE>
D-23
<PAGE> 132
ANNEX E (SECTION 4.1(a))
TO
CREDIT AGREEMENT
FINANCIAL STATEMENTS AND FORECASTS 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
Forecasts 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 Forecasts 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 presents
fairly in accordance with GAAP (subject to normal yearend 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
<PAGE> 133
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 Forecasts and
Borrowing Availability Forecasts 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 Forecasts, 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 Forecasts 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 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
E-2
<PAGE> 134
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 an 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 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
E-3
<PAGE> 135
(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-4
<PAGE> 136
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 Fiscal Month as of the last day of the prior
Fiscal Month, 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; provided, however, if Agent or
Requisite Lenders request in writing that each Borrower deliver a weekly
Borrowing Base Certificate, Borrowers shall deliver to Agent and any Lender
that has requested copies thereof in writing, the Borrowing Base Certificate
and supporting detail and documentation described above on the first Business
Day of each week as of the last day of the prior week;
(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
Statement 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> 137
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.
F-2
<PAGE> 138
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 (a) shall not make Capital Expenditures in excess of
$12,000,000 during the Fiscal Year ending in December of 1998, (b) shall not
make Capital Expenditures in excess of $13,000,000 during the Fiscal Year
ending in December of 1999, and (c) shall not make Capital Expenditures in
excess of $13,500,000 during any Fiscal Year thereafter.
(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 30,1998, the
period commencing on December 28, 1997 and ending on the last day of such
Fiscal Quarter) of not less than the following:
1.15 to 1.0 for each Fiscal Quarter ending in June, 1998; September, 1998;
December, 1998; and March 1999;
1.14 to 1.0 for each Fiscal Quarter ending in June, 1999; September, 1999; and
December, 1999;
1.13 to 1.0 for each Fiscal Quarter ending in March, 2000; June, 2000;
September, 2000; December, 2000; March, 2001; June 30, 2001;
September, 2001; and December, 2001;
1.17 to 1.0 for Fiscal Quarter ending in March, 2002;
1.20 to 1.0 for each Fiscal Quarter ending in June, 2002; September, 2002;
December, 2002; March, 2003; June, 2003; September, 2003;
December, 2003; and March, 2004;
1.0 to 1.0 for each Fiscal Quarter ending in June, 2004; September, 2004;
December 2004; March, 2005; June, 2005; September, 2005; December,
2005; and March, 2006;
1.10 to 1.0 for the Fiscal Quarter ending in June, 2006; and
each Fiscal Quarter ending 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
twelve month period then ending (or with respect to the Fiscal Quarters ending
on or before September 30, 1998, the period commencing on December 28, 1997 and
ending on the last day of such Fiscal Quarter) of not less than the following:
<PAGE> 139
Period EBITA
------ -----
March of 1998 $ 5,600,000
June of 1998 $13,900,000
September of 1998 $20,800,000
December of 1998 $27,800,000
March of 1999 $28,700,000
June of 1999 $29,500,000
September of 1999 $30,300,000
December of 1999 $31,100,000
March of 2000 $32,200,000
June of 2000 $33,300,000
September of 2000 $34,400,000
December of 2000 $35,500,000
March of 2001 $35,900,000
June of 2001 $36,300,000
September of 2001 $36,800,000
December of 2001 $37,200,000
March of 2002 $37,700,000
June of 2002 $38,200,000
September of 2002 $38,600,000
December of 2002 $39,100,000
March of 2003 $39,600,000
June of 2003 $40,100,000
September of 2003 $40,600,000
G-2
<PAGE> 140
December of 2003 $41,100,000
March of 2004 $41,600,000
June of 2004 $42,100,000
September of 2004 $42,600,000
December of 2004 $43,100,000
March of 2005 $43,600,000
June of 2005 $44,200,000
September of 2005 $44,700,000
December of 2005 $45,300,000
March of 2006 $45,800,000
June of 2006 $46,400,000
September of 2006 $47,000,000
December of 2006 $47,500,000
and each Fiscal Quarter thereafter $47,500,000
(d) Minimum Net Worth. Holdings and its Subsidiaries on a consolidated
basis shall maintain at all times Net Worth equal to or greater than
$55,200,000 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 of
Holdings and its Subsidiaries on a consolidated basis 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 28, 1997 and ending on the last day of such
Fiscal Quarter) of not less than the following:
G-3
<PAGE> 141
2.0 to 1.0 for each Fiscal Quarter ending in March of 1998; June
of 1998; September of 1998; and December of 1998
2.3 to 1.0 for the Fiscal Quarter ending in March of 1999
2.5 to 1.0 for the Fiscal Quarter ending in June of 1999
2.6 to 1.0 for the Fiscal Quarter ending in September of 1999
2.7 to 1.0 for the Fiscal Quarter ending in December of 1999
2.9 to 1.0 for the Fiscal Quarter ending in March of 2000
3.1 to 1.0 for the Fiscal Quarter ending in June of 2000
3.3 to 1.0 for the Fiscal Quarter ending in September 2000
3.5 to 1.0 for the Fiscal Quarter ending in December of 2000
3.7 to 1.0 for the Fiscal Quarter ending in March of 2001
3.9 to 1.0 for the Fiscal Quarter ending in June of 2001
4.0 to 1.0 for the Fiscal Quarter ending in September of 2001
4.4 to 1.0 for the Fiscal Quarter ending in December of 2001
4.7 to 1.0 for the Fiscal Quarter ending in March of 2002
5.0 to 1.0 for the Fiscal Quarter ending in June of 2002
5.3 to 1.0 for the Fiscal Quarter ending in September of 2002
5.8 to 1.0 for the Fiscal Quarter ending in December of 2002
6.2 to 1.0 for the Fiscal Quarter ending in March of 2003
6.6 to 1.0 for the Fiscal Quarter ending in June of 2003
7.1 to 1.0 for the Fiscal Quarter ending in September of 2003
7.7 to 1.0 for the Fiscal Quarter ending in December of 2003
9.0 to 1.0 for the Fiscal Quarter ending in March of 2004
10.0 to 1.0 for the Fiscal Quarter ending in June of 2004 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 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
G-4
<PAGE> 142
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.
G-5
<PAGE> 143
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 Depositor
Reference: Selfix Inc.
Reference Number: CFC 4075
H-1
<PAGE> 144
ANNEX I (SECTION 11.10)
TO
CREDIT AGREEMENT
NOTICE ADDRESSES
(A) If to Agent or GE Capital, at
General Electric Capital Corporation
Merchant Banking Group
10 South LaSalle Street, Suite 2700
Chicago, Illinois 60603
Attention: Selfix Account Manager
Telecopier No: (312) 419-5992
Telephone No: (312) 419-0985
with copies to:
Latham & Watkins
5800 Sears Tower
Chicago, Illinois 60603
Attention: David G. Crumbaugh
Telecopier No (312) 993-9767
Telephone No: (312) 876-7660
and
General Electric Capital Corporation
201 High Ride 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> 145
with copies to:
Much, Shelist, Freed, Denenberg,
Ament, Bell & Rubenstein
200 N. LaSalle Street
Suite 2100
Chicago, Illinois 60601
Attention: Jefrey C. Rubenstein
Telecopier No: (312) 621-1750
Telephone No: (312) 346-3100
I-2
<PAGE> 146
ANNEX J
to
CREDIT AGREEMENT
COMMITMENTS
LENDER REVOLVING LOAN TERM LOAN A TERM LOAN B
- ------ -------------- ----------- -----------
General Electric Capital Corporation 4,500,000* 12,000,000 28,500,000
Key Corporate Capital, Inc. 7,000,000 14,000,000 9,000,000
KZH-ING-2 Corporation 2,500,000 7,500,000
The ING Capital Senior Secured High
Income Fund, L.P. 2,500,000 7,500,000
ING High Income Principal
Preservation Fund Holdings, LDC 2,500,000 7,500,000
LaSalle National Bank 7,000,000 13,000,000
Bank Polska Kasa Opieki S.A. -
Pekao S.A. Group, New York Branch 1,500,000 3,500,000
---------- ---------- ----------
20,000,000 50,000,000 60,000,000
*Including a Swing Line Commitment of $2,000,000
I-2
<PAGE> 1
EXHIBIT 10.11
NOTE PURCHASE AGREEMENT
This Note Purchase Agreement dated as of December ___, 1997, is by and
among Selfix, Inc., a Delaware corporation; Tamor Corporation, a Massachusetts
corporation, Shutters, Inc., an Illinois corporation, and Seymour Housewares
Corporation, a Delaware corporation ("Seymour") (the "Joint Issuers"); Home
Products International, Inc., a Delaware corporation ("Holdings"); and General
Electric Capital Corporation, a New York corporation ("GE Capital"),
individually and as agent (in such capacity, "Agent") for itself and the other
Note Purchasers that are signatories hereto (the "Note Purchasers"), and 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
Senior Subordinated Notes due December ___, 2006 (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) The Notes shall bear interest at a per
annum rate equal to the Index Rate from time to time in effect, plus three
percent (3.0%) per annum, but in no event less than eleven percent (11.0%) per
annum (collectively, the "Base Rate"). Interest shall be payable monthly on
the first day of each calendar month, commencing January 1, 1998. 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 such Event of Default continues, the Notes shall
bear interest at a per annum rate equal to the Base Rate plus 2.0% 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. 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 December ___, 2006.
(b) 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. If Term Loan A and Term Loan B under the Credit
Agreement, as the same may be amended, restated, extended,
refinanced or refunded have been paid in full in cash the Joint
Issuers shall prepay the Notes, ratably, in an amount equal to
100% of such net proceeds of equity issuances. In addition, the
Joint Issuers shall prepay the Notes in full upon payment in
full in cash of the Senior Loans and termination of the Senior
Lenders' commitment to make Senior Loans under the Credit
Agreement as in effect on the date hereof.
<PAGE> 2
(c) In addition to the mandatory prepayments required under clause (b)
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 in an amount not to exceed
25% of the Joint Issuers' Excess Cash Flow for each Fiscal Year within 100 days
following the last day of such Fiscal Year.
(d) 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 Notes. The Joint Issuers will issue and sell to
the Note Purchasers on the date hereof Notes in the aggregate principal amount
of $10,000,000 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 Latham & Watkins, Suite 5800,
Sears Tower, Chicago, Illinois 60606, at a closing (the "Closing") on December
___, 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 the Joint Issuers or their
order of immediately available funds in the amount of the principal amount of
each Note to be purchased 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 the Note Purchasers' satisfaction, all of the Note
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 (i) 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 and (ii) upon prepayment in full of the Notes, the success fee to
the Note Purchasers as
<PAGE> 3
determined in accordance with Schedule 3.2 hereto. All fees, costs and
expenses for which the Joint Issuers are responsible under this Section 3.2
shall be payable on demand (or when due in the case of the success fee) 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.
4.1.4 Credit Agreement. The Related Transactions shall have been
consummated.
4.1.5 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.
4.1.6 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.
4.1.7 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.
4.1.8 Proceedings and Documents. All corporate and other proceedings
in connection with the transactions contemplated by this Agreement and the
other Related
<PAGE> 4
Transactions Documents to be executed and delivered on the Closing Date
and all documents and instruments 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.
4.1.9 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.
4.1.10 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 Purchasers.
4.1.11 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
<PAGE> 5
waived on or before the Closing Date and are disclosed on Schedule 5.3 or
could not reasonably been 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
consummate the Related Transactions.
(B) Capitalization. The authorized and issued capital stock of Holdings
and each of the Joint Issuers is as set forth 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.
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.
<PAGE> 6
(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 28, 1996 and
the related consolidated statement(s) of income and cash flows of Selfix
and Shutters for the Fiscal Year then ended, certified by Arthur Andersen
& Co.
(iii) The audited balance sheets of Seymour and the related statements
of income, stockholders' equity and cash flows at June 30, 1996 and June
30, 1997 and for the respective fiscal years then ended.
(iv) The unaudited balance sheets and the related statements of
income, stockholders equity and cash flow of Holdings and its Subsidiaries
on a consolidated and consolidating basis at November 29, 1997 and for the
11 months then ending.
(v) The unaudited balance sheet and related statements of income,
stock holders equity and cash flow of Seymour at November 23, 1997 and
for the five months then ended.
5.6. Property. Each Joint Issuer owns, is licensed to 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
<PAGE> 7
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, except
where failure to comply would not have a Material Adverse Effect.
5.11. Pending and Threatened Litigation. Except as set forth on
Schedule 5.11 hereto, 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 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 second 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
<PAGE> 8
(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.
(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 or 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
<PAGE> 9
damages of $250,000 or more or (b) seeks injunctive relief.
(H) Other Information. With reasonable promptness, 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 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.
<PAGE> 10
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 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 from time to time 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 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 and, subject to Section 8.15, 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
<PAGE> 11
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 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.
<PAGE> 12
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 (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
<PAGE> 13
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) June 30, 2007, 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
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 or any Joint Issuer or the respective property of any of them,
(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
<PAGE> 14
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 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 promptly 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
Joint Issuers and the holder of any Notes, the obligation of Holdings and the
Joint Issuers 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 hereof 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 of the Notes shall be subrogated to all rights of
any holders of Senior Loans to receive any further payments
<PAGE> 15
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 the Joint Issuers and their respective 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.
11.2. Transfer and Exchange of Notes. Upon surrender of any Notice
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.
<PAGE> 16
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 by Holdings, etc., Deemed Not Outstanding. For
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 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
<PAGE> 17
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 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 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
<PAGE> 18
(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 the 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, 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;
then (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,
upon the acceleration of any Note, the holder of such Note 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, the 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 right, power or remedy
<PAGE> 19
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 Agreement, the following
terms have set 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.
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 doing 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.
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.
<PAGE> 20
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 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, 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.
Housewares: Houseware Sales, Inc., a Massachusetts corporation.
<PAGE> 21
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.
Index Rate: 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.
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.
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 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
<PAGE> 22
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, 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, the acquisition
by merger of Seymour by Holdings and each of the other "Related Transactions" as
defined in the Credit Agreement as in effect on the date hereof.
Related Transactions Documents: The Note Purchase Documents,
the Credit
<PAGE> 23
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, 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 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 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.
<PAGE> 24
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 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 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 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.
<PAGE> 25
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 and 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 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.
<PAGE> 26
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 determined 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.
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 on instrument. All payment obligations of Holdings and the
Joint Issuers hereunder or under the Notes shall be joint and several. All
references in any Note Purchase Documents to the Note Purchase Agreement or the
Amended and Restated Note Purchase Agreement shall be deemed to refer to this
Agreement.
22. 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. The provisions of Section 9 of the Security Agreement
are hereby incorporated herein by reference and are binding on all signatories
hereto.
[signature page follows]
<PAGE> 27
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:
SEYMOUR HOUSEWARES
CORPORATION
By:
Title:
<PAGE> 28
THE INITIAL NOTE PURCHASERS:
GENERAL ELECTRIC CAPITAL
CORPORATION
Amount: $5,000,000
By:
Name:
Its: Authorized Signature
Address: 10 South LaSalle Street,
Suite 2700
Chicago, Illinois 60603
Attn: Selfix Account Manager
Amount: $5,000,000 ARCHIMEDES FUNDING, L.L.C.,
By: ING Capital Advisors, Inc.,
as Collateral Manager
By:
Title:
Its:
Address: 333 South Grand Avenue,
Suite 4250
Los Angeles, California 90071
30
<PAGE> 29
SCHEDULE 3.2
Success Fee
The success fee payable upon payment in full of the notes issued under the
Note Purchase Agreement is as follows:
<TABLE>
<CAPTION>
Total
Date of Payment in Full Amount
----------------------- ------
<S> <C>
Prior to 2nd Anniversary $ 500,000
On or after 2nd Anniversary, but prior to
3rd Anniversary $ 750,000
On or after 3rd Anniversary, but prior to
4th Anniversary $1,200,000
On or after 4th Anniversary, but prior to
5th Anniversary $1,600,000
On or after 5th Anniversary $2,000,000
</TABLE>
1
<PAGE> 30
SCHEDULE 5.3
Defaults
None
ALL SCHEDULES TO BE UPDATED BY JOINT ISSUERS
<PAGE> 31
To be updated by Joint Issuers
SCHEDULE 5.4(B)
Capitalization
1. Selfix, Inc., a Delaware corporation
Capitalization: 1000 common shares authorized, par value $.01 Per Share,
1000 shares issued to Home Products International, Inc.
Principal Place 4501 West 47th Street
of Business; Chief Chicago, IL 60632
Executive Office:
States Qualified: Illinois
FEIN: 36-249-0451
2. Shutters, Inc., an Illinois corporation
Capitalization: 10,000 common shares authorized, par value $.01 per Share,
1000 shares issued to Home Products International, Inc.
States Qualified: Missouri, Georgia
FEIN: 04-207 3885
3. Tamor Corporation, a Massachusetts corporation
Capitalization: 1000 common shares authorized, par value $100 Per share,
38.771 issued to Home Products International, Inc.
4. Home Products International, Inc., a Delaware corporation
Capitalization: 8,000,000 shares authorized; 7,500,000 common and 500,000
preferred, par value $.01 per Share
Principal Place 4501 West 47th Street
of Business; Chief Chicago, IL 60632
Executive Office
States Qualified: Illinois
FEIN: Applied for
<PAGE> 32
SCHEDULE 5.7
Audits and Investigations
<PAGE> 33
SCHEDULE 5.8
Employee Matters
Agreement between Tamor Plastics Corp. And International Union of
Electronic, Electrical, Salaried, Machine and Furniture Workers,
AFL-CIO, and its Local 154-136B FW beginning April 1, 1996 and expiring
on March 31, 1999
Collective Bargaining Agreement between Selfix, Inc. And Plastic
Workers' Union Local #18 AFL-CIO beginning January 26, 1995 until
January 25, 1998
<PAGE> 34
SCHEDULE 5.11
Litigation
<PAGE> 35
SCHEDULE 8.6
Transactions with Affiliates
Since Tamor, Selfix and Shutters all have facilities for plastic
injection molding and because Tamor is currently molding on the
outside, we anticipate using our capacity to the fullest, extent. This
means that Selfix and Shutters will both be manufacturing Tamor
product. This will necessitate an intercompany arrangement that allows
Selfix and Shutters to manufacture and sell to Tamor and to bill and
collect accordingly.
<PAGE> 36
EXHIBIT 1.1
to
NOTE PURCHASE AGREEMENT
FORM OF
SENIOR SUBORDINATED NOTE
$10,000,000
December ___, 1997
FOR VALUE RECEIVED, the undersigned, SELFIX, INC. a Delaware
corporation; TAMOR CORPORATION, a Massachusetts corporation; SHUTTERS,
INC., an Illinois corporation; and SEYMOUR HOUSEWARES CORPORATION, a
Delaware 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 10 South LaSalle Street,
Suite 2700, Chicago, IL 60603, or at such other place as the holder of
this Senior 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 Ten Million
Dollars ($10,000,000), together with interest on the unpaid principal
amount of this Senior 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 Senior Subordinated Note is issued pursuant to that certain
Note Purchase Agreement dated as of December ___, 1997 by and among the
Joint Issuers, Home Products International, Inc., a Delaware
corporation, GE Capital and the other note purchasers from time to time
party thereto (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
holder'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 December ___, 2006, 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.
If any payment on this Senior Subordinated Note becomes due and
payable
<PAGE> 37
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 Senior
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 Senior Subordinated Note shall be paid in
the State of Illinois, and this Senior 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:
SEYMOUR HOUSEWARES CORPORATION
By:
Name:
Title:
<PAGE> 38
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.
Home Products International, Inc.
Dated:
By:
Title:
<PAGE> 1
EXHIBIT 10.12
SENIOR SUBORDINATED NOTE
$5,000,000 DECEMBER 30, 1997
FOR VALUE RECEIVED, the undersigned, SELFIX, INC. a Delaware corporation;
TAMOR CORPORATION, a Massachusetts corporation; SHUTTERS, INC., an Illinois
corporation; and SEYMOUR HOUSEWARES CORPORATION, a Delaware corporation
(individually and "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 10 South LaSalle Street, Suite 2700, Chicago, IL 60603, or at such other
place as the holder of this Senior 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 FIVE MILLION DOLLARS
($5,000,000), together with interest on the unpaid principal amount of this
Senior Subordinated Note outstanding from time to time from the date hereof, at
the rate provided in the Note Purchase Agreement (as herein after defined).
The Joint Issuers agree that they will be jointly and severally liable for the
payment of all amounts due hereunder.
This Senior Subordinated Note is issued pursuant to that certain Note
Purchase Agreement dated as of December 30, 1997 by and among the Joint
Issuers, Home Products International, Inc., a Delaware corporation, and GE
Capital and the other Note Purchasers signatory thereto (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 holder'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 December 30, 2006, 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.
If any payment on this Senior 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 Senior
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.
<PAGE> 2
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 Senior Subordinated Note shall be paid in the
State of Illinois, and this Senior 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:_________________________
SEYMOUR HOUSEWARES CORPORATION
By:____________________________
Name:__________________________
Title:_________________________
<PAGE> 1
EXHIBIT 10.13
SENIOR SUBORDINATED NOTE
$5,000,000 DECEMBER 30, 1997
FOR VALUE RECEIVED, the undersigned, SELFIX, INC. a Delaware corporation;
TAMOR CORPORATION, a Massachusetts corporation; SHUTTERS, INC., an Illinois
corporation; and SEYMOUR HOUSEWARES CORPORATION, a Delaware corporation
(individually and "Joint Issuer" and, collectively, the "Joint Issuers"),
hereby unconditionally PROMISE TO PAY to the order of ARCHIMEDES FUNDING,
L.L.C., at the office of GENERAL ELECTRIC CAPITAL CORPORATION, a New York
corporation ("GE Capital"), in its individual capacity, at 10 South LaSalle
Street, Suite 2700, Chicago, IL 60603, or at such other place as the holder
of this Senior 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 FIVE MILLION DOLLARS (5,000,000), together with
interest on the unpaid principal amount of this Senior Subordinated Note
outstanding from time to time from the date hereof, at the rate provided in
the Note Purchase Agreement (as herein after defined). The Joint Issuers
agree that they will be jointly and severally liable for the payment of all
amounts due hereunder.
This Senior Subordinated Note is issued pursuant to the certain Note
Purchase Agreement dated as of December 30, 1997 by and among the Joint
Issuers, Home Products International, Inc., a Delaware corporation, and GE
Capital and the other Note Purchasers signatory thereto (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 holder'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 indebtness evidenced hereby shall be payable
in one installment on December 30, 2006, 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.
If any payment on this Senior 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 Senior
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.
<PAGE> 2
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 Senior Subordinated Note shall be paid in the
State of Illinois, and this Senior 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:
----------------------------
SEYMOUR HOUSEWARES CORPORATION
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
<PAGE> 1
Exhibit 10.14
SUBORDINATED NOTE SECURITY AGREEMENT
SUBORDINATED NOTE SECURITY AGREEMENT, dated December __, 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"), SHUTTERS, INC., an Illinois corporation (individually,
"Shutters") and SEYMOUR HOUSEWARES CORPORATION, a Delaware corporation
(individually, "Seymour") (Selfix, Tamor, Shutters and Seymour collectively,
"Grantors"), in favor of GENERAL ELECTRIC CAPITAL CORPORATION, a New York
corporation ("GE Capital"), as agent for holders of the Senior Subordinated
Notes (the "Agent").
W I T N E S S E T H:
WHEREAS, pursuant to that certain Note Purchase Agreement, of even date
herewith, by and among 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 and certain other Note
Purchasers have agreed to purchase from Grantors senior subordinated notes (the
"Subordinated Notes") in the principal amount of $10,000,000;
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):
<PAGE> 2
"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 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 or 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 kind, now or hereafter in existence, given by an 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
2
<PAGE> 3
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 (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 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 therefore, all
substitutes for any of the foregoing, fuel therefore, 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 therefore 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
3
<PAGE> 4
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, 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 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.
4
<PAGE> 5
"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 form 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 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 become operative.
"Trademark License" shall mean rights under any written agreement now
owned or hereafter acquired by any Grantor granting any right use any
Trademark.
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"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
therefore, and the entire product lines and good will 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;
(ii) all Contracts;
(iv) all Documents;
(v) all Equipment;
(vi) all Fixtures;
(vii) all General Intangibles;
(viii) all goods;
(ix) all Instruments;
(x) all Inventory;
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(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 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 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 their 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 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
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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 party 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 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 such Contracts,
obligors of such Instruments and obligors in respect of such Chattel Paper
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<PAGE> 9
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 finish 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
party of the Collateral is on file or of record in any public office,
except such as my 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 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,
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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 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 applicable law. If
any amount payable under or
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in connection with any of the Collateral shall be or become evidenced
by any Instrument, after the Senior Loans have 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 or any obligation thereunder or arising out of any other
agreement, indebtedness or liability at any time owning to, or in favor
so, 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
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any of the Collateral or any interest therein, and (ii) such charge is
being contested in good faith, by proper proceedings, and adequate
reserves therefore have been established by each Grantor in accordance
with and to the extent required by GAAP.
(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
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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.
(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.
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(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 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.
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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 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;
(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 therefore 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
of 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 refile 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
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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
through 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
power coupled with an interest and shall be irrevocable until the Secured
Obligations are indefeasible 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 powers. Agent shall be accountable only for amounts
that it actually receives as a result of the exercise of such powers and
neither it not 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 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.
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(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 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
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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
19
<PAGE> 19
Agent, 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. (a) 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 or 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.
(b) If Agent shall request instructions from Majority Holders in
connection with any of the Note Purchase Documents, then Agent shall be
entitled to refrain from acting unless and until Agent has received
instructions from the Majority Holders, and Agent shall incur no
liability to any Person by reason of so refraining. Notwithstanding any
provision of any Note Purchase Document to the contrary, Agent shall be
fully justified in failing or refusing to take any action hereunder or
under any other Note Purchase Document (a) if such action would, in the
opinion of Agent, be contrary to law or the terms
20
<PAGE> 20
of this Agreement or any other Note Purchase 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 Note Purchase Document in accordance with
the instructions of Majority Holders, Requisite Revolving Lenders,
Supermajority Revolving Lenders or all affected Lenders, as applicable.
(c) 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 condition 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 Security Agreement or the other Note Purchase Documents or any other
instrument or document furnished pursuant hereto to 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).
(d) 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
21
<PAGE> 21
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 acts as agent for the holders of the Senior Loans. Each
Note Purchaser acknowledges the potential conflict of interest between GE
Capital as an agent and lender holding interests in the Senior Loans and
GE Capital as a holder of the Subordinated Notes pursuant to the Note
Purchase Agreement.
(e) 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.
(f) 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 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 willful 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.
(g) Successor Agent. GE Capital may resign at any time by giving
not less than twenty (20) days' prior written notice thereof to the Note
Purchasers. Upon any such
22
<PAGE> 22
resignation, the Majority Holders (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. If the Majority Holders fail to appoint a successor to
GE Capital within that twenty-day period, the holder of the largest
principal amount of the Subordinated Notes shall be the successor agent
automatically upon expiration of such twenty day period. 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 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:
23
<PAGE> 23
General Electric Capital Corporation
10 South LaSalle Street
Suite 2700
Chicago, Illinois 60603
Attention: Selfix Account Manager
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
Latham & Watkins
Suite 5800, Sears Tower
Chicago, Illinois 60606
Attention: David G. Crumbaugh
Telecopy Number: (312) 993-9767
(b) If to any Grantor, at:
Selfix, Inc.
4501 West 47th Street
Chicago, Illinois 60632
Telecopy Number: (773) 890-8901
24
<PAGE> 24
With a copy to:
Much, Shelist, Freed, Deneberg, Ament
Bell & Rubenstein PC
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 to 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
25
<PAGE> 25
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 agreements governing or instrument evidencing the Secured
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 AGENTS 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]
26
<PAGE> 26
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:
<PAGE> 27
SHUTTERS, INC.
By:
Name:
Title:
SEYMOUR
HOUSEWARES CORPORATION
By:
Name:
Title:
29
<PAGE> 28
Accepted and acknowledged by:
GENERAL ELECTRIC CAPITAL CORPORATION
By:
Name:
Title:
30
<PAGE> 29
SCHEDULE I
to
SUBORDINATED NOTE SECURITY AGREEMENT
FILING JURISDICTIONS
<TABLE>
<CAPTION>
SELFIX TAMOR SHUTTERS
- ------ ----- --------
<S> <C> <C>
Illinois Secretary
Illinois Secretary of State Illinois Secretary of State of State
Cook County McHenry County
(Real Estate Records) (Real Estate Records)
Secretary of the Commonwealth of
Massachusetts
Town Clerk Leominster,
Massachusetts
Worcester County (N.D.),
Massachusetts
(Real Estate Records)
Secretary of State of Missouri
Pike County, Missouri
Pike County, Missouri
(Real Estate Records)
Thomas County, Georgia
Thomas County, Georgia
(Real Estate Records)
</TABLE>
<PAGE> 30
SEYMOUR
- -------
Secretary of State of Indiana
Jackson County, Indiana
(Real Estate Records)
Secretary of State of North
Carolina
Iredell County, North
Carolina
Iredell County, North
Carolina
(Real Estate Records)
Anson County, North
Carolina
City of Richmond, Virginia
State Corporations
Commission, Virginia
Secretary of State of Texas
Secratary of State of South
Carolina
Hidalgo County, Texas
Jefferson County, Kentucky
Aken County, South Carolina
Lancaster County, South
Carolina
Forsythe County, North
Carolina
<PAGE> 31
SCHEDULE II-A
to
Subordinated Note Security Agreement
LOCATION OF RECORDS AND CERTAIN COLLATERAL OF SELFIX
I. Chief Executive Office and principal place of business of Selfix:
4701 West 47th Street
Chicago, Illinois 60632
II. Corporate Offices of Selfix:
4701 West 47th Street
Chicago, Illinois 60632
III. Warehouses:
5455 South Archer Avenue
Chicago, Illinois 60632
IV. Other Premises at which Collateral is Stored or Located:
Not available.
V. Locations of Records Concerning Collateral:
4701 West 47th Street
Chicago, Illinois 60632
<PAGE> 32
SCHEDULE II-B
to
Subordinated Note Security Agreement
LOCATION OF RECORDS AND CERTAIN COLLATERAL OF TAMOR
I. Chief Executive Office and principal place of business of Tamor:
106 Carter Street
Leominster, Massachusetts 01453
II. Corporate Offices of Tamor:
106 Carter Street
Leominster, Massachusetts 01453
III. Warehouse:
640 Crawford Street
Fitchburg, Massachusetts
IV. Other Premises at which Collateral is Stored or Located:
3016 West Georgia Street
Louisiana, Missouri
323 Industrial Boulevard
Thomasville, Georgia
V. Locations of Records Concerning Collateral:
106 Carter Street
Leominster, Massachusetts 01453
<PAGE> 33
SCHEDULE II-C
to
Subordinated Note Security Agreement
LOCATION OF RECORDS AND CERTAIN COLLATERAL OF SHUTTERS
I. Chief Executive Office and principal place of business of Shutters:
12213 Highway 173
Hebron, Illinois 60034
II. Corporate Offices of Shutters:
12213 Highway 173
Hebron, Illinois 60034
III. Warehouse:
290 Front Street
Harvard, Illinois 60033
12130 Route 173
Hebron, Illinois 60034
IV. Other Premises at which Collateral is Stored or Located:
Not available.
V. Locations of Records Concerning Collateral:
12213 Highway 173
Hebron, Illinois 60034
<PAGE> 34
SCHEDULE II-D
to
Subordinated Note Security Agreement
------------------------------------
LOCATION OF RECORDS AND CERTAIN COLLATERAL OF SEYMOUR
-----------------------------------------------------
I. Chief Executive Office and principal place of business of
Seymour
II. Corporate Offices of Seymour
III. Warehouses
IV. Other Premises at which Collateral is stored or located
V. Locations of Records Concerning Collateral
<PAGE> 35
SCHEDULE III-D
TO SECURITY AGREEMENT
SCHEDULE OF OFFICES, LOCATIONS OF COLLATERAL AND RECORDS CONCERNING
SEYMOUR'S COLLATERAL
<TABLE>
<S> <C>
I. Chief Executive Officer; Principal Place 855 North Chestnut Street
of Business: Seymour, IN 47274
II. Corporate Offices of Seymour: 855 North Chestnut Street
Seymour, IN 47274
III. Warehouses 1531 West Tipton
Seymour, IN 47274
5.33 acres located at S. Airport Road
Seymour, IN 47275
Bay 7, Air Cargo Facility Building
2201 Uvalde
McAllen, TX 78503
IV. Other Premises at which Collateral is 201 N. Jackson Park Drive
Stored or Located: Seymour, IN 47274
</TABLE>
<PAGE> 36
500 Brookwood Street
Mooresville, NC 28115
400 S. Airport Road
Seymour, IN 47274
Columbus Container
Indiana
Kuntry Kottage
Indiana
Metal Service and Supply Co.
Indiana
WebsterWest
Indiana
Central Kentucky Processing, Inc.
Kentucky
Tri-State Plating, Inc.
INVENTORY LOCATIONS FOR SEYMOUR HOUSEWARES CORPORATION
1. Central Kentucky Processing Inc.
2580 Palumbo Drive
Lexington, KY 40509
Fayette County
2. Tri State Plating Inc.
1125 S. 12th Street
Louisville, KY 40210
Jefferson County
3. Graniteville Company
#1 Marshall Street
Graniteville, SC 29829
Aken County
4. Velcro Laminates, Inc.
2077 Pageland Highway
Lancaster, SC 29720
Lancaster County
5. Hanes Dye & Finishing
609 Northwest Blvd.
Winston-Salem, NC 27102
221st Street Warehouse
500 E. 21st Street
Winston-Salem, NC 27102
<PAGE> 1
Exhibit 10.16
EMPLOYMENT AGREEMENT
This Employment Agreement (the "AGREEMENT"), dated as of January 5, 1998
(the "EFFECTIVE DATE"), is made between Home Products International, Inc., a
Delaware corporation ("HPII"), and Stephen R. Brian ("EMPLOYEE").
RECITALS
A. HPII, through its subsidiaries, designs, manufactures, imports, markets
and distributes bathware and houseware related products, and recently acquired
all of the equity of Seymour Sales Corporation ("SEYMOUR"). Seymour is in the
business of manufacturing and supplying laundry-management products,
specializing in ironing tables and ironing pads (HPII's business, including
that of Seymour and HPII's other subsidiaries (whether now owned or acquired
during the Term (as defined below), is collectively referred to as the
"BUSINESS").
B. Employee has been employed by Seymour as its president and chief
executive officer.
C. HPII desires for Employee to continue his employment with HPII as its
president and chief operating officer, and Employee is willing to continue such
employment.
D. Employee has had and will continue to have access to HPII's
confidential and proprietary information. To protect HPII from unfair
competition by Employee associated with his relationship with HPII, HPII's
customers and his access to HPII's confidential and proprietary information,
HPII is willing to offer Employee continued employment only if Employee agrees
and adheres to certain restrictive covenants and other terms that are set forth
in this Agreement. To induce HPII to offer continued employment to Employee,
and to protect HPII as described herein, Employee agrees to adhere to such
restrictive covenants and the other terms of his employment with HPII, as set
forth below.
CLAUSES
In consideration of the foregoing, as well as the mutual covenants and
promises set forth herein, the parties agree as follows:
ARTICLE 1
EMPLOYMENT TERMS
1.1 EMPLOYMENT. Subject to the terms and conditions contained in this
Agreement, HPII employs Employee its the president and chief operating officer
on a full-time basis to devote all his professional time and attention to the
Business, including, until otherwise directed by the CEO (as defined below),
management of Seymour's business, and Employee accepts such employment with
HPII.
1.2 TERM. Unless earlier terminated in accordance with this Agreement,
Employee's employment with HPII under this Agreement will begin on the
Effective Date and will continue for a period of three (3) years (the "INITIAL
TERM"). Employee's term of employment with HPII shall thereafter be subject to
one automatic one-year extension commencing January 5, 2001 ("RENEWAL TERM")
pursuant to the terms of this Agreement, unless one party notifies the other in
writing of its intention not to renew at least sixty (60) days prior to the
date the Renewal Term is scheduled to begin. The Employee's actual term of
employment with HPII under this Agreement, inclusive of the Initial Term and
the Renewal Term, or any shorter period, will be collectively referred to as
the "TERM".
1.3 TITLE AND RESPONSIBILITIES. Employee shall perform his duties as
President and Chief Operating Officer of HPII, which duties will include the
normal and customary duties of such office and
<PAGE> 2
such other senior executive duties for HPII as HPII's chief executive officer
("CEO") may from time to time assign to Employee, including, until otherwise
directed by the CEO, management of Seymour's business. Employee shall report
to and at all times discharge his duties in consultation with and subject to
the general direction and control of the CEO, and provide the CEO with periodic
reports upon request.
1.4 FULL TIME AND ATTENTION. Employee shall devote his exclusive and full
time attention and skills to the performance of his duties as President and
Chief Operating Officer of HPII, but nothing in this Agreement shall preclude
Employee from engaging in charitable and community affairs and (subject to the
approval of HPII's Board of Directors) serving on the board of directors of a
corporation that does not compete with the Business; provided, however, that
such activities do not interfere with the performance of his duties or
responsibilities under this Agreement.
1.5 OFFICE LOCATION. Employee agrees to perform his obligations under
this Agreement from the HPII's corporate office which is or will be located in
the Chicago metropolitan area, unless Employee otherwise consents.
1.6 COMPENSATION.
(A) BASE SALARY. During the Initial Term, Employee shall receive an
annual base salary of Two Hundred Fifty Thousand Dollars ($250,000) (the "BASE
SALARY"), payable in accordance with HPII's payroll practices for executive
employees (reduced solely by all applicable payroll and withholding taxes, and
other legal garnishments). The CEO shall undertake performance reviews of
Employee every two (2) years beginning in January, 1998 in accordance with
HPII's guidelines for executive employees, and the CEO may, in his discretion,
adjust the Base Salary to reflect Employee's performance and/or the financial
position of HPII; provided, however, that the Base Salary shall not be less
than Two Hundred Fifty Thousand Dollars ($250,000).
(B) BONUS. In addition to the Base Salary, Employee shall be eligible
to participate in HPII's senior management bonus program, as such bonus program
may be amended from time to time by HPII's Board of Directors. A copy of the
terms of HPII's senior management bonus program in effect on the Effective Date
has been provided to Employee.
1.7 VACATION. Employee shall be entitled to vacation in accordance with
HPII's vacation policy for senior executives, but in no event shall Employee be
entitled to less than three (3) weeks of vacation per year.
1.8 BENEFIT PLANS. Employee shall be entitled to participate in the
benefit plans HPII now or hereafter makes available to its senior executives
and/or other salaried employees, including without limitation, profit sharing,
retirement plans, group life insurance, hospitalization, surgical and major
medical, vacation, holidays and other fringe benefits in accordance with the
terms of such benefits or plans and subject to eligibility and vesting
requirements, in effect from time to time, provided however, that nothing
herein shall require HPII 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 HPII's senior executives and/or other
salaried employees.
1.9 EXPENSES. HPII shall reimburse Employee for all reasonable and
necessary expenses incurred by him in executing his duties for HPII, provided,
however, that such reimbursement shall be conditioned upon Employee's
compliance with all policies adopted by HPII regarding expense reimbursement,
including without limitation, policies regarding the documentation and timely
submission of such expenses. HPII shall reimburse Employee for weekly round
trip coach airfare between
<PAGE> 3
Charlotte, North Carolina and Chicago, Illinois, in accordance with the terms
of this paragraph. HPII shall provide relocation assistance to Employee,
consistent with HPII's policy for executive employees, to move Employee's
secondary residence from Sellersburg, Indiana to the Chicago metropolitan area.
1.10 CAR ALLOWANCE. During the Term, HPII shall pay Employee a car
allowance of Eight Hundred Dollars ($800) per month.
1.11 STOCK OPTIONS. HPII has granted Employee One Hundred Thousand
(100,000) options to purchase the common stock of HPII at a price per option
equal to the fair market value of a share of HPII's common stock on the closing
date of HPII's acquisition of Seymour. The grant of options and vesting
thereof is pursuant to HPII's stock option plan. A copy of HPII's stock option
plan in effect on the Effective Date has been provided to Employee. Employee
shall be eligible for additional options each year during the Term as approved
by HPII's Board of Directors.
1.12 TERMINATION.
(A) DEATH. In the event of the death of the Employee during the Term
of this Agreement, this Agreement shall thereupon immediately and automatically
terminate in its entirety, provided, however, that all amounts which accrued to
Employee prior to the date of his death in accordance with the terms of this
Agreement shall be paid to his estate in accordance with HPII's standard
payroll practice.
(B) DISABILITY. In the event that the Employee 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, HPII may, at its option and in its sole discretion, terminate the
Employee's employment by giving written notice to Employee, to be effective as
of the date set forth in such notice, which shall in no event be less than
thirty (30) days after the giving of such notice.
For purposes of this Agreement, Employee shall be deemed to have become
"DISABLED" if, because of physical or mental disability or drug or alcohol
dependency or abuse or other incapacitation, 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, Employee shall be entitled to all
compensation, benefits, rights and entitlements under this Agreement; provided,
however, that Employees compensation under Section 1.6 hereof shall be reduced
by the amount of any disability benefits which Employee receives from
HPII-sponsored disability plans, if any.
(C) TERMINATION BY HPII FOR CAUSE. HPII shall have the right to
terminate this Agreement and Employee's employment hereunder immediately "FOR
CAUSE." The term "FOR CAUSE" as used herein shall mean: (i) fraud,
embezzlement, theft of money, intangible assets or material property of HPII,
conviction of a felony or any crime involving moral turpitude, (ii) gross
dereliction or gross neglect of duties hereunder that is not corrected within
thirty (30) days following written notice thereof to Employee by HPII (such
notice to state with reasonable specificity the nature of such gross
dereliction or gross neglect); (iii) a material breach of any of the provisions
of Articles 3 or 4 of this Agreement; (iv) willful refusal to perform the
duties hereunder; or (v) willful misconduct materially and demonstrably
injurious to HPII.
(D) VOLUNTARY TERMINATION BY EMPLOYEE. Employee may terminate this
Agreement prior to the end of the Term upon ninety (90) days prior written
notice to HPII, in which event HPII shall be obligated only to pay Employee all
amounts which accrued to Employee up to the date of termination
<PAGE> 4
in accordance with the terms of this Agreement; provided, however, that this
section does not apply to a Change of Control Termination caused by Employee
(as set forth and defined in Section 2.2 hereof).
(E) TERMINATION IN THE EVENT OF BANKRUPTCY. In the event that HPII
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, the Employee shall be released from all obligations under this
Agreement. In addition, if HPII is in Chapter 11 Reorganization, Employee
shall be released from all obligations under this Agreement if his compensation
and benefits under the plan of reorganization is not substantially equivalent
to his compensation and benefits under this Agreement.
(F) SEVERANCE PAYMENT IN THE EVENT OF TERMINATION OF EMPLOYEE WITHOUT
CAUSE. In the event HPII terminates this Agreement and Employee's employment
hereunder other than For Cause, and except as provided in Section 2.2 hereof
with respect to a Change of Control Termination, HPII shall pay Employee a one
(1) time severance payment equal to one hundred percent (100%) of Employee's
yearly Base Salary then in effect, payable in twelve (12) equal monthly
installments following the date of termination. In addition, Employee shall
have the right to exercise those stock options granted to him (as described in
Section 1.11) which have vested in accordance with HPII' stock option plan up
to and including the date of termination. Employee also shall be entitled to
all compensation that would have been payable to him under this Agreement
through the Initial Term (and the Renewal Term if in effect) payable in twelve
(12) equal monthly installments following the date of termination.
ARTICLE 2
CHANGE OF CONTROL.
2.1 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
Exchange Act of 1934) becomes the beneficial owner of shares of stock in HPII
representing fifty percent (50%) or more of the total number of voting shares
that may be cast for the election of directors of HPII.
2.2 TERMINATION FOLLOWING CHANGE OF CONTROL. In the event Employee's
active full-time employment with HPII terminates within one hundred eighty
(180) days after a Change of Control (a "Change of Control Termination"), the
following provisions shall apply and Employee shall be entitled to compensation
set forth in this paragraph: (a) if Employee voluntarily causes the Change of
Control Termination, Employee shall be entitled to receive an amount equal to
one hundred percent (100%) of Employee's yearly Base Salary then in effect, and
all stock options granted by HPII to Employee shall become immediately vested
and exercisable in accordance with their terms; or (b) if HPII causes the
Change of Control Termination, Employee shall be entitled to receive an amount
equal to (i) one hundred percent (100%) of Employee's yearly Base Salary then
in effect, plus (ii) all compensation that would have been payable to him under
this Agreement through the Initial Term (and the Renewal Term, if in effect),
and, all stock options granted by HPII to Employee shall become immediately
vested and exercisable in accordance with their terms. In the case of (a) or
(b) above, all amounts payable to Employee shall be payable in twelve (12)
equal monthly installments following the date of the Change of Control
Termination.
2.3 NO DUPLICATION. Notwithstanding anything to the contrary, if the
Employee first becomes entitled to payment pursuant to Section 2.2 above, such
payment shall be in lieu of all other payments he to which he would have been
entitled pursuant to this Agreement, if any.
<PAGE> 5
ARTICLE 3
RESTRICTIVE COVENANTS
3.1 ACKNOWLEDGMENTS. Employee acknowledges that: (i) HPII would not be
willing to employ him unless Employee agreed to the covenants set forth in this
Agreement; (ii) Employee will develop considerable expertise from association
with the Business; (iii) Employee will have access to HPII's customer lists,
suppliers, internal business organization, financial data, software programs,
marketing plans, specialized requirements of HPII's customers and other highly
confidential and proprietary matters and due to the nature of its business;
(iv) HPII has expended considerable funds to establish and maintain its
business relationship with its customers and has developed a "near permanent
relationship" (as that phrase is utilized in Illinois law) with HPII's
customers (collectively the "PROTECTED CUSTOMERS"); (v) the type, identity,
internal information, quantity, orders, needs and other specific requirements
of the Protected Customers as well as the promotional/marketing programs HPII
devises for and fees HPII charges to the Protected Customers and HPII 's
financial data, employee salaries, supplier lists, whether contained in hard
copy or on disk, and overall concepts for the Business and its expansion, the
terms of this Agreement and all documents, Protected Customer lists, leads for
Protected Customers, records (however kept, whether in hard copy, magnetically,
on compact or floppy disks, electronically or otherwise) and information
concerning the same, all constitute confidential and proprietary information of
HPII provided that they are not generally known in the industry and constitute
trade secrets of HPII, within the meaning of the Illinois Trade Secrets Act
(collectively the "TRADE SECRETS"); (vi) HPII has a proprietary interest in its
Trade Secrets the useful life of which based upon general industry standards is
unlimited; (vii) HPII has invested and will continue to invest considerable
sums of money to obtain and maintain its Trade Secrets; (viii) HPII derives
substantial economic benefit due to the confidentiality of its Trade Secrets;
(ix) HPII 's competitors would obtain unfair economic advantages if the Trade
Secrets were divulged; (x) HPII has instituted procedures to maintain the
confidentiality of its Trade Secrets; (xi) HPII retains its Trade Secrets in a
segregated retention area solely limited in access to those of its employees
who have a specific need to know; and (xii) HPII 's Trade Secrets identified
in this Agreement constitute the most significant factors in HPII 's ability to
conduct the Business profitably. At the time the "Protected Customers" are
being determined for purposes of this Agreement, the term "Protected Customers"
will include all customers of HPII which made a purchase from HPII within the
prior twenty-four (24) month period.
3.2 RESTRICTIONS ON DISCLOSURE, SOLICITATION AND COMPETITION. In
recognition of the importance and sensitivity of the Trade Secrets and to
protect HPII from unfair competition, Employee agrees that during the term of
Employee's employment with HPII, and for a period of two (2) years following
the termination of such employment for any reason, or for no reason, Employee
shall not, directly or indirectly, on behalf of Employee or any corporation,
limited liability company, partnership, joint venture, individual or other
entity: (i) solicit, service or otherwise transact business with any Protected
Customer of HPII if such solicitation, service or business involves products
which HPII or any affiliate sold to such Protected Customer, or was actively
planning to sell to such Protected Customer, during the period of Employee's
employment hereunder, or (ii) solicit, hire, retain or otherwise engage or go
into business with any individual who was an employee of HPII during the period
which commenced twelve (12) months prior to the date upon which such business
relationship commences. In addition, for the term of Employee's employment
with HPII and for two (2) years following termination for any reason; or for no
reason, Employee will not, directly or indirectly, alone or in association with
others, either as a principal, agent, owner, shareholder, officer, director,
partner, employee, lender, investor, consultant, manager or in any other
capacity engage in, have a financial interest in or be in any
<PAGE> 6
way connected or affiliated with, or render advice or services to any business
which engages in the manufacture, assembly, sale or distribution of any
products which were manufactured, assembled, sold or distributed by HPII or its
affiliates, or which HPII or its affiliates were actively planning to
manufacture, assemble, sell or distribute, during the period of Employee's
employment hereunder; provided, however, that Employee may own less than five
percent (5%) of the outstanding securities of public companies which are
engaged in the same business as HPII or its affiliates. Further, for the term
of Employee's employment with HPII and for an unlimited period of time
following the termination of such employment for any reason or for no reason
whatsoever, with or without cause, Employee shall: (i) hold the Trade Secrets
in a fiduciary capacity for the sole benefit of HPII; and (ii) not directly or
indirectly sell, alienate, transfer, use, assign or divulge any Trade Secrets
or information relating to any Trade Secrets.
3.3 ADEQUATE CONSIDERATION. Employee expressly acknowledges that: (i)
Employee will be able to earn a livelihood in occupations that are both
unrelated and related to the Business, without violating the covenants set
forth in this Agreement; (ii) Employee's ability so to earn a livelihood was a
condition precedent to HPII entering into this Agreement; and (iii) the
restrictive covenants contained in this Agreement are fair and reasonable and
are necessary for the protection of the legitimate business interests of HPII
and Employee has agreed to satisfy such restrictive covenants as a specific
condition precedent to HPII being willing to employ Employee.
3.4 REASONABLE LIMIT. The parties have attempted to limit Employee's
rights to compete only to the extent necessary to protect HPII from unfair
competition. If, however, the geographic scope, time duration or
enforceability of the restrictive covenant contained in this Agreement is
disputed at any time, a court or other trier of fact shall modify and enforce
the covenant to the maximum extent reasonable under the circumstances then
existing.
ARTICLE 4
PROPERTY AND INVENTIONS
4.1 ASSIGNMENT. Employee agrees that all discoveries, inventions, ideas,
concepts, research and other information, processes, products, methods and
improvements (collectively "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
HPII. Employee therefore grants, conveys, transfers, alienates and assigns
exclusively to HPII, 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) all rights, titles and interests
(legal, equitable, use or otherwise) which Employee 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 HPII's or any other name), modifications,
improvements, derivative works and/or other work which Employee conceives
solely or jointly with others (collectively the "ASSIGNED INTELLECTUAL
PROPERTY") which: (i) are related to any Trade Secrets or other proprietary
materials of HPII; (ii) relate to work Employee performs for HPII (whether or
not done during normal working hours); or (iii) Employee develops based on
materials, equipment, facilities or information of HPII. The foregoing
assignment by Employee is under any and all foreign or domestic, federal, state
or local copyright, trade secret, trademark, intellectual property, patent or
other laws, and 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.
<PAGE> 7
4.2 NO RETAINED RIGHTS. Employee's assignment of the Assigned
Intellectual Property to HPII under this Agreement constitutes a complete,
absolute and exclusive transfer of all rights (legal, equitable, use and
otherwise) in the Assigned Intellectual Property, whether such rights are
currently existing or arise in the future. The Employee does not reserve or
retain any right, title or interest in any Assigned Intellectual Property or
any Trade Secrets or related information which concerns any Assigned
Intellectual Property. Employee acknowledges and agrees that the Assigned
Intellectual Property constitutes the sole, exclusive and confidential property
of HPII. Employee shall disclose to HPII, 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 Employee makes or assists in making either during the course of his
employment with HPII or that in any way concern, relate to or are based upon
the Trade Secrets, Assigned Intellectual Property or any other proprietary
information of HPII, and acknowledges that the same constitutes HPII's sole
property.
4.3 DUTY TO ASSIST. If at any time (during or after the Term) HPII deems
it necessary or appropriate, the Employee 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 HPII
believes are reasonably necessary either to evidence or register the assignment
of rights made by the Employee in this Agreement, or to apply for, obtain,
register or enforce any copyright, patent or trademark or otherwise protect or
enforce HPII's interests therein; provided, however, that Employee shall not be
required to warrant any intellectual property or the nature of HPII's interest
therein and, should his assistance be required subsequent to the Term, Employee
shall be reimbursed for reasonable expenses associated with such assistance.
In addition, if such assistance is required after the Term and would require
Employee to spend at least one full business day providing such assistance to
HPII, Employee shall be paid for his services at a daily rate equal to the Base
Salary as in effect on the date of termination of his employment divided by
270. HPII shall reimburse Employee as set forth herein within thirty (30) days
of presentment by Employee to HPII of his documented expenses and time, so long
as Employee has complied with the requirements of Section 1.9 of this
Agreement.
4.4 WORKS MADE FOR HIRE. HPII and Employee acknowledge that in the course
of Employee's employment with HPII, Employee may from time to time create for
HPII copyrightable works. Such works may consist of manuals, pamphlets,
instructional materials, computer programs, films, tapes, marketing plans,
facility layouts, promotional schemes, customer lists, customer prospect lists,
or other copyrightable material or portions thereof, and may be created within
or without HPII's facilities and before, during or after normal business hours.
Both Employee and HPII specifically intend that all such works which in any
way are related to or useful in the Business of HPII constitute "works made for
hire" by Employee for HPII as that phrase is understood under the Federal
Copyright Act, as amended from time to time. Employee therefore shall
cooperate fully with HPII in the protection of HPII 's copyrights in such
materials and, to the extent HPII deems the same desirable, shall assist HPII
in registering such copyrights and executing any documents associated therewith
as HPII may designate and prepare. Moreover, Employee through this instrument,
assigns to HPII, any and all such materials Employee may develop during the
term of Employee's employment with HPII.
4.5 RIGHTS TO MATERIALS AND RETURN OF DATA. All records, files,
memoranda, reports, price lists, customer lists, drawings, plans, sketches,
documents and the Trade Secrets (together with all copies or abstracts thereof,
however stored whether in electronic media, magnetic media, compact disk,
floppy disk, hard copy or otherwise) relating to the Business which Employee
uses or prepares or comes in contact with in the course of or as a result of
Employee's employment, shall remain the sole property of HPII. Upon the
termination of Employee's employment with HPII for any reason or for no reason,
or upon HPII 's demand, Employee immediately shall return to HPII all notes,
data, reference materials, memoranda, documents, instruments, records, all
other information and all abstracts thereof which in
<PAGE> 8
any way incorporate or reflect the Trade Secrets or other proprietary
information of HPII, shall not thereafter cause the removal of any such items
from the premises of HPII and shall retain no copies or abstracts of the same
in any form or media.
ARTICLE 5
REMEDIES
5.1 DAMAGES AND INJUNCTIVE RELIEF. Employee acknowledges that upon
breaching or threatening to breach the restrictive covenants contained in this
Agreement, Employee will cause damage of an irreparable and continuing nature
to HPII, for which money damages alone will not provide adequate relief.
Therefore, Employee agrees that in addition to money damages, which only
compensate HPII for harm it has suffered or lost profits it reasonably expects
to suffer, HPII also is entitled to have all Employee's obligations,
undertakings or agreements under this Agreement specifically performed, and to
have an immediate injunction (including but not limited to a temporary
restraining order) issued for the remainder of the period specified in the
restrictive covenant which Employee breached or threatened to breach. HPII
shall have the right to obtain such injunctive relief without having to post
any bond or prove any damages. The non-prevailing party in any enforcement
action taken against Employee hereunder for breach of the restrictive covenants
contained in this Agreement agrees to indemnify and reimburse the prevailing
party for any and all costs, expenses (including but not limited to reasonable
attorney's fees, whether or not a lawsuit is filed), losses and damages paid or
incurred thereunder.
5.2 CUMULATIVE REMEDIES. The remedies contained in this Agreement are in
addition to any of HPII's other remedies whether specified in this Agreement,
available at law, in equity or otherwise.
5.3 SURVIVAL OF COVENANTS. Employee's duties and obligations under this
Agreement shall survive the termination of this Agreement or any of its
provisions.
ARTICLE 6
GENERAL PROVISIONS
6.1 APPLICABLE LAW. The laws of the State of Illinois (other than those
pertaining to conflicts of law) shall govern the interpretation of this
Agreement, irrespective of the fact that one or more of the parties now is or
may become a resident of a different state. The parties shall submit all
disputes which arise under this Agreement to state or federal courts located in
the City of Chicago, Illinois for resolution. The parties acknowledge that the
aforesaid courts shall have exclusive jurisdiction over this Agreement, and
specifically waive any claims they may have which involve jurisdiction or
venue, including but not limited to forum non conveniens. If service of
process is made as aforesaid, the party served agrees that such service shall
constitute valid service, and specifically waives any objections the party
served may have for invalid service. The aforesaid method of service of
process shall be in addition to and not to the exclusion of any other method of
service of process legally available.
6.2 SEVERABILITY. If a court of competent jurisdiction holds 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 had never contained such invalid, illegal or unenforceable provision.
<PAGE> 9
6.3 NOTICES. The parties shall provide any notices which this Agreement
requires in writing as follows: (i) by actual delivery of the notice into the
hands of the party entitled to receive it, in which case the notice shall be
deemed given on the date of delivery; (ii) by mailing the notice by registered
or certified mail, return receipt requested, in which case the notice shall be
deemed given four (4) days after it is deposited in the mail; (iii) by Federal
Express or any other overnight carrier, in which case the notice shall be
deemed given the day following the date it is deposited with such carrier; or
(iv) by facsimile, telecopy or any other same day electronic or telephonic
delivery system, in which case the notice shall be deemed given on the day it
is transmitted. The parties shall address all notices as follows:
To Employee: To HPII:
Stephen R. Brian Home Products International, Inc.
7216 Seton House Lane Attn: Chief Executive Officer
Charlotte, NC 28277 4501 West 47th Street
Chicago, IL 60632
6.4 BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of Employee and HPII, as well as their respective heirs, personal
representatives, successors and assigns, provided that Employee's services
under this Agreement are personal, and therefore Employee may not assign any of
his rights or duties under this Agreement.
6.5 COMPLETE UNDERSTANDING. This Agreement constitutes the complete
understanding between the parties and supersedes any prior understanding
between the parties whether written or oral. No alteration or modification of
any of this Agreement's provisions shall be valid unless made in writing and
signed by both the parties.
6.6 WAIVER OF DEFAULT. The waiver by either party of any breach of this
Agreement by the other will not operate or be construed as a waiver of any
other breach by the other which is not specifically waived in writing.
6.7 DIRECTORS AND OFFICERS INSURANCE. HPII shall indemnify Employee to
the full extent permitted by applicable law for liabilities arising in
Employee's good faith performance of his duties hereunder. Employee shall be
covered by the Directors and Officers insurance obtained by HPII under
substantially the same terms and with substantially the same coverage as
currently provided by HPII to its senior executives.
6.8 MODIFICATION. With respect to the terms of Employee's employment,
this Agreement constitutes the full and complete understanding and agreement of
the parties, supersedes any prior understanding and agreement, and cannot be
changed or terminated except in writing signed by the parties to be bound
thereby.
6.9 ASSIGNMENT. The rights and obligations of HPII under this Agreement
shall inure to the benefit of and shall be binding upon the successors and
assigns of HPII. The rights and obligation of Employee hereunder may not be
assigned or delegated.
<PAGE> 10
6.10 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.
10.9 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.
The parties have executed this Agreement as of the Effective Date.
HOME PRODUCTS INTERNATIONAL,
EMPLOYEE INC., a Delaware corporation
By:
-------------------------------------
----------------------------------------
Its: -----------------------------------
STEPHEN R. BRIAN, individually
<PAGE> 1
EXHIBIT 23.2
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/ Grant Thornton LLP
Chicago, Illinois
March 25, 1998
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<S> <C>
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<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-START> DEC-29-1996
<PERIOD-END> DEC-27-1997
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<CASH> 583
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<RECEIVABLES> 22,518
<ALLOWANCES> 1,716
<INVENTORY> 12,797
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0
0
<COMMON> 67
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<OTHER-EXPENSES> (20)
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