<PAGE>
As filed with the Securities and Exchange Commission on October 7, 1999
Registration No. 333- 87059
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
AMENDMENT NO.1
TO FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
GRAND TOYS INTERNATIONAL, INC.
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(Exact name of registrant as specified in its charter)
Nevada
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(State or other jurisdiction of incorporation or organization)
87-0454155
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(I.R.S. Employer Identification No.)
1710 Route Transcanadienne, Dorval, Quebec, Canada H9P 1H7
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(Address of Principal Executive Offices, including zip code)
Stephen Altro Copy to:
Chairman and President Paul J. Pollock, Esq.
Grand Toys International, Inc. Piper & Marbury L.L.P.
1710 Route Transcanadienne 1251 Avenue of the Americas
Dorval, Quebec, Canada H9P 1H7 New York, NY 10020
(514) 685-2180 (212) 835-6000
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(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box: [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered in connection with dividend or interest
reinvestment plans, check the following box: [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]
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If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
========================================================================================================================
Title of Each Class of Amount to be Proposed Maximum Offering Proposed Maximum Amount of
Securities to be Registered Registered (1) Price per Share Aggregate Offering Price Registration Fee
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par value 60,000 $12.50 $ 750,000.00 $208.50
- ------------------------------------------------------------------------------------------------------------------------
112,000 (2) $12.50 $1,450,000.00 $389.20
- ------------------------------------------------------------------------------------------------------------------------
1,000 (3) $ 4.44 $ 4,440.00 $ 1.23
- ------------------------------------------------------------------------------------------------------------------------
1,000 (3) $ 4.38 $ 4,380.00 $ 1.22
- ------------------------------------------------------------------------------------------------------------------------
478 (3) $ 7.65 $ 3,656.70 $ 1.02
- ------------------------------------------------------------------------------------------------------------------------
1,000 (3) $ 3.00 $ 3,000.00 $ 0.83
- ------------------------------------------------------------------------------------------------------------------------
5,000 (3) $ 7.50 $ 37,500.00 $ 10.43
========================================================================================================================
TOTAL 180,478 $2,202,976.70 $612.43
========================================================================================================================
</TABLE>
(1) This Registration Statement also includes an indeterminable number of
shares of common stock which may be issued under the antidilution provisions of
the various agreements setting forth the rights of the holders of the
convertible securities.
(2) Reflect shares of common stock issuable upon exercise of warrants. The
Proposed Maximum Offering Price per share was calculated in accordance with Rule
457(g) of the Securities Act of 1933, as amended.
(3) Reflect shares of common stock issuable upon exercise of stock options.
The Proposed Maximum Offering Price per share was calculated in accordance with
Rule 457(h) of the Securities Act of 1933, as amended.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
ii
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PROSPECTUS
GRAND TOYS INTERNATIONAL, INC.
180,478 Shares of Common Stock
----------------
The stockholders selling the shares in this offering have the right to
determine both the numbers of shares they will offer and the time or times when
they will offer the shares. They may sell the shares at the market price at the
time of sale or at such other prices as they may negotiate.
The 180,478 shares of common stock covered by this prospectus include both
outstanding shares and shares issuable upon exercise of warrants and options
that may be offered and sold by certain stockholders named within this
prospectus. Grand will not receive any proceeds from the offering, but will
receive an aggregate of $748,851.70 if all of the warrants and options are
exercised.
The common stock is quoted on the Nasdaq SmallCap Market under the symbol
"GRIN." On October 5, 1999, the closing sale price of the common stock was
$10.188 per share.
----------------
Investment in the common stock involves a high degree of risk. See "Risk
Factors" beginning on page 4.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of the prospectus. Any representation to the contrary is a
criminal offense.
----------------
The date of this prospectus is ______________, 1999.
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents (or parts thereof) filed by Grand with the SEC are
incorporated by reference in this prospectus:
1. The Annual Report on Form 10-K for the fiscal year ended December 31,
1998;
2. The Quarterly Reports on Form 10-Q for the fiscal quarters ended March
31, 1999 and June, 30, 1999;
3. Proxy Statement, dated April 26, 1999 for the Annual Meeting of
Stockholders held on May 27, 1999;
4. All other reports filed pursuant to Section 13(a) or 15(d) of the
Exchange Act since the end of the fiscal year covered by the annual
report referred to in (1) above; and
5. The description of the common stock contained in Grand's registration
statement filed under the Exchange Act registering such common stock
under Section 12 of the Exchange Act, including any amendment or
report filed for the purpose of updating such description.
All documents filed by Grand pursuant to Sections 13(a), 13(c), 14, or 15(d) of
the Exchange Act after the date of this prospectus and prior to the filing of a
post-effective amendment indicating that all of the shares have been sold, or
deregistering all of the shares that, at the time of such post-effective
amendment, remain unsold, shall be deemed to be incorporated by reference in and
to be a part of this prospectus from the date of filing of such documents. Any
statement contained in this prospectus or in any document incorporated by
reference in this prospectus shall be deemed to be modified or superseded for
purposes of this prospectus to the extent that a statement contained in this
prospectus or in any other subsequently filed document, which also is or is
deemed to be incorporated by reference in this prospectus, modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
prospectus.
Grand shall furnish without charge to each person, including any beneficial
owner, to whom a copy of this prospectus is delivered, upon the written or oral
request of such person, a copy of any or all of the documents that are
incorporated by reference in this prospectus (other than exhibits to such
documents, unless such exhibits are specifically incorporated by reference into
such documents). Written or telephone requests for such documents should be
directed to Tanya Clarke, Controller, Grand Toys International, Inc., 1710 Route
Transcanadienne, Dorval, Quebec H9P 1H7, Canada. Grand's telephone number is
(514) 685-2180.
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RISK FACTORS
Investing in our common stock is very risky. You should carefully consider
the following factors and other information in this prospectus before deciding
to invest in the shares. If you are not in a financial position to bear a
complete loss of your investment, you should not purchase any of the shares.
Portions of this prospectus and information incorporated into this prospectus
contain certain "forward-looking" statements that involve risks and
uncertainties. Our actual results may differ significantly from the results
discussed in the forward-looking statements. Although we believe that the
assumptions underlying the forward-looking statements contained in this
prospectus and incorporated are reasonable, any of the assumptions could prove
inaccurate and cause such forward-looking statements to be inaccurate.
We may not be able to retain the key personnel we need to succeed
Our success is dependent on the expertise, experience and continued
services of Stephen Altro, our Chairman, President and a director, and David
Mars, our Vice Chairman and a director. Most decisions concerning our business
are made or significantly influenced by them. We do not maintain "key man"
insurance on the life of either of these persons. In the event of the loss of
either of Messrs. Altro or Mars, no assurances can be given that we will be able
to obtain the services of an adequate replacement.
The issuance of shares of common stock upon the exercise of options and warrants
and upon the conversion of our convertible redeemable preferred stock will cause
dilution to our current stockholders
We are authorized to issue 50,000,000 shares of common stock, of which
3,444,428 shares are outstanding. In addition:
. 59,400 shares are issuable upon the exercise of currently outstanding
options granted under our Amended and Restated 1993 Stock Option Plan
the sale of which has been registered on a registration statement on
Form S-8;
. 123,978 shares are issuable upon the exercise of options granted outside
our 1993 Stock Option Plan
. 112,000 shares are issuable upon the exercise of currently outstanding
warrants; and
. 200,000 shares are issuable upon conversion of currently outstanding
preferred stock.
If and when we issue these shares, the percentage of common stock owned by
each holder of common stock would be diluted. Moreover, the prevailing market
price for the common stock may be materially and adversely affected by the
addition of a substantial number of shares, including the shares offered by this
prospectus, into the market.
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We are also authorized to issue 5,000,000 shares of "blank check" preferred
stock, which is preferred stock that may be issued from time to time in such
classes or series and with such terms, rights and preferences as the Board of
Directors may choose. The Board of Directors has already designated and issued
200,000 shares of Series A Cumulative Convertible Redeemable Preferred Stock.
The balance of the authorized preferred stock may be issued in the discretion of
the Board, without stockholder approval, with dividend, liquidation, conversion,
voting or other rights which could negatively affect the voting power or other
rights of owners of our common stock or other series of preferred stock. In the
event of issuance, the preferred stock could be used, under certain
circumstances, as a way to discourage, delay or prevent a change in control of
Grand which, in turn, could discourage bids for us and prevent stockholders from
receiving the maximum value for their shares.
Our attempts to acquire other companies may not prove fruitful
We may, at times, become involved in discussions with companies for
acquisition. This process may take a significant amount of management time and
effort. This will likely distract our management from our day-to-day
operations. Even if we do find companies that are worth acquiring, it may be
extremely difficult to integrate their operations into our existing operations.
In addition, there is no guaranty that our acquisitions will be financially
successful. Thus, any such acquisition could have an adverse effect on our
liquidity and earnings.
The life cycle for toy products is usually very short
As a result of changing consumer preferences, many toy products are
successfully marketed for only one or two years. In the event a new product
does not receive sufficient market acceptance, we may be required to sell
inventory of such products at a substantial discount. Accordingly, our success
is dependent in large part on our ability to secure the rights to distribute new
products and to secure new character and well-known brand name licenses for
existing or new product lines, which cannot be assured. Therefore, we cannot
assume that any new products will be successful or meet with the same success as
existing products.
Certain relationships among our management and affiliates create various
potential and actual conflicts of interest
Although it is our policy that all transactions and loans with our
affiliates be made on similar terms to those that can be obtained from
unaffiliated third parties and for such transactions to be approved by a
majority of the directors who do not have an interest in the transaction,
certain restrictions may arise in the future where an interested party would be
required to vote on actions that could benefit such person and negatively impact
Grand, or vice versa.
We are subject to significant government regulation.
We are subject to the provisions of various laws, certain of which have
been enacted by the federal government of Canada, the Province of Quebec and
other Canadian provinces. The laws of Canada, to which we are subject, include
the Hazardous Products Act which empowers
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<PAGE>
the government to protect children from hazardous toys and other articles. Under
that legislation, the government has the authority to exclude from the market
those articles which are found to be hazardous. We are also subject to the
Consumer Packaging and Labeling Act enacted by the government of Canada, which
legislation prohibits the importation of prepackaged items and the sale or
importation or advertising of items which have misleading information on their
label. As a result, if any of these Canadian governmental entities should allege
that any of our products are hazardous to children or the packaging is
misleading, whether or not such items are dangerous or misleading, we could be
precluded from selling entire lines of toys until a full investigation is
completed. In such case, even if we were to prevail, a significant portion of
the value of the entire line could be lost during a time consuming investigation
because, as discussed above, the life cycle for toy products is usually very
short.
Competition in the toy distribution industry is intense
Many other companies involved in the toy distribution industry in Canada
and the United States have greater financial resources, larger sales forces,
greater name recognition, larger facilities for product development and products
that may be more competitively priced than our products. As a result, some of
our competitors may be able to obtain a greater volume of and more lucrative
distribution contracts than we can.
We do not expect to pay dividends on our stock
We have not paid any cash or other dividends on our common stock and do not
expect to declare or pay any cash dividends in the foreseeable future. In
addition, our current credit agreement with our bank restricts the payment of
any dividends without the bank's prior consent.
The failure to be Year 2000 compliant could negatively impact our business
The Year 2000 issue arose from computer programs which were written using
two digits rather than four to define the applicable year. For example, date-
sensitive software may recognize a date using "00" as the Year 1900 rather than
the Year 2000. Such misrecognition could result in system failures or
miscalculations causing disruptions of operations, including, among others, a
temporary inability to process transactions, send invoices or engage in similar
normal business activities.
We rely on our systems in operating and monitoring all aspects of our
business. We also rely on the external systems of our suppliers and resellers.
We have already identified all of our significant internal software applications
which contain source codes that may be unable to appropriately interpret the
Year 2000 and have replaced those applications. Thus, our computer system is
now Year 2000 compliant.
In addition, certain of our major suppliers and resellers have informed us
that they do not anticipate problems in their business operations due to the
Year 2000 compliance issues. However, we are currently unable to determine the
extent to which Year 2000 issues will
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affect our other suppliers and resellers, or to the extent to which we would be
vulnerable to their failure to fix any of their Year 2000 problems.
USE OF PROCEEDS
Grand will not realize any proceeds from the sale of the shares pursuant to
this prospectus but will derive proceeds of approximately $748,851.70 if all of
the warrants and options are exercised. Such proceeds will be available to
Grand for working capital and general corporate purposes. See "Selling
Stockholders" and "Plan of Distribution."
DILUTION
We are authorized to issue 50,000,000 shares of common stock. Of such
shares, 3,444,428 shares are issued and outstanding, 300,000 shares are reserved
for issuance upon the exercise of options granted under Grand's Amended and
Restated 1993 Stock Option Plan, 123,978 shares are reserved for issuance upon
the exercise of options granted outside of the plan, 112,000 are reserved for
issuance upon the exercise of warrants, and 200,000 shares are reserved for
conversion of the Series A Cumulative Convertible Redeemable Preferred
Stock.
In certain cases, the officers, directors and present stockholders of Grand
have acquired their shares at a cost substantially lower than that which
investors will pay for the common stock offered hereby. As a result, anyone
purchasing shares in this offering could incur dilution in the net tangible book
value per share.
SELLING STOCKHOLDERS
Identity of Selling Stockholders; Number of Shares Offered
- ----------------------------------------------------------
The following table sets forth:
(1) the name of each selling stockholder,
(2) the nature of any position, office, or other material relationship
which each such selling stockholder has had with Grand or any of its
affiliates within the last three years,
(3) the number of shares of common stock owned by each such selling
stockholder prior to the offering,
(4) the number of shares of common stock offered for each such selling
stockholder's account, and
(5) the number of shares of common stock and the percentage owned by each
such selling stockholder after completion of the offering.
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<PAGE>
<TABLE>
<CAPTION>
Number of
Number of Shares Number of Shares Percentage
Relationship to Owned Prior to Shares Owned After Owned After
Selling Stockholder Company Offering to be Sold Offering Offering
- ------------------- -------------------- ---------------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Ron Goldenberg Former Executive Vice President, 5,478 5,478 (1) 0 -
Chief Financial Officer and
Former Director
James Rybakoff Director 2,000 1,500 (2) 500 *
Elliot Bier Director 2,000 1,500 (2) 500 *
Lawrence Bernstein Former President, Chief 30,000 30,000 0 -
Executive Officer and
Director
Robert Finn 30,000 30,000 0 -
Akin Bay Company 110,000 110,000 (3) 0 -
LLC
Robert E. Meshel 2,000 2,000 (4) 0 -
</TABLE>
---------------------------
* Less than One (1) percent
(1) Represents currently exercisable options to purchase 5,000 shares of common
stock issued pursuant to Grand's Amended and Restated 1993 Stock Option
Plan and 478 shares of common stock issued upon exercise of options granted
outside the plan.
(2) Represents currently exercisable options to purchase 1,500 shares of common
stock issued pursuant to Grand's Amended and Restated 1993 Stock Option
Plan.
(3) Represents currently exercisable warrants to purchase 110,000 shares of
common stock granted to Akin Bay Company LLC as consideration for services
rendered. James Rybakoff is the President of that company and a director
of Grand.
(4) Represents currently exercisable warrants to purchase 2,000 shares of
common stock initially issued pursuant to that certain Warrant Agreement
dated as of May 10, 1994 to Berkeley Securities Corporation and
subsequently assigned to Robert E. Meshel, Esq. by Assignment form dated
January 9, 1995.
Ron Goldenberg was Executive Vice President and Chief Financial Officer
from July 20, 1993 until September 24, 1999. Mr. Goldenberg was also a director
from July 20, 1993 until August 9, 1999. Prior to that, he was the Vice
President of Finance and Chief Financial Officer for Grand Canada, Grand's
Principal Canadian subsidiary, for over seven years.
Elliot L. Bier has been a director of the Company since July 20, 1993. He has
been a practicing attorney in Montreal for the last 20 years. He is a senior
partner in Adessky Poulin, the Company's Canadian legal counsel.
James B. Rybakoff is the President of Akin Bay Company, an investment bank and
brokerage firm, which he co-founded in 1990. From 1992 to 1993, Mr. Rybakoff
served as an associate with Zilkha & Company, an international mergers and
acquisition investment banking and strategic planning firm.
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Lawrence Bernstein was a director of Grand from July 1998 to May 1999 and
President and Chief Executive Officer of Grand from September 1998 to May 1999.
In addition, Mr. Bernstein was President of Grand from August 1995 to September
1995. From July 1994 to July 1998, Mr. Bernstein owned and operated Rockport
Entertainment, a private company that provided consulting services to toy
distributors. From June 1989 to August 1994, Mr. Bernstein was an Executive
Vice President of Hasbro, Inc. and President of Hasbro's toy division.
Robert Finn was a consultant of Grand from March 1998 to March 1999.
Akin Bay Company LLC is an investment bank and brokerage firm, of which James
Rybakoff is President and a controlling member. Mr. Rybakoff is a director of
Grand. Akin Bay has acted as Grand's investment bank and advisor for over five
years.
PLAN OF DISTRIBUTION
Grand will receive no part of the proceeds of any sales made hereunder. See
"Use of Proceeds". Grand will pay expenses of registration incurred in
connection with this offering and in connection with the offering and sale of
the shares, other than commissions, discounts and fees of underwriters, dealers
or agents. All selling and other expenses incurred by the selling stockholders
will be borne by the selling stockholders.
The selling stockholders and any broker-dealers participating in the
distribution of the shares may be deemed to be "underwriters" within the meaning
of the 1933 Act, and any commissions or discounts given to any such
broker-dealer may be regarded as underwriting commissions or discounts under the
1933 Act.
The selling stockholders may from time to time sell all or a portion of the
shares on the Nasdaq SmallCap market or on any national securities exchange on
which the common stock may be listed or traded, in negotiated transactions or
otherwise, at prices then prevailing or related to the then current market price
or at negotiated prices. The shares will not be sold in an underwritten public
offering. The shares may be sold directly or through brokers or dealers. The
methods by which the shares may be sold include:
(1) a block trade (which may involve crosses) in which the broker or
dealer so engaged will attempt to sell the shares as agent but may
position and resell a portion of the block as principal to facilitate
the transaction;
(2) purchases by a broker or dealer as principal and resale by such broker
or dealer for its account pursuant to this prospectus;
(3) ordinary brokerage transactions and transactions in which the broker
solicits purchasers; and
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(4) privately negotiated transactions.
In effecting sales, brokers and dealers engaged by selling stockholders may
arrange for other brokers or dealers to participate. Brokers or dealers may
receive commissions or discounts from selling stockholders (or, if any such
broker-dealer acts as agent for the purchaser of such shares, from such
purchaser) in amounts to be negotiated which are not expected to exceed those
customary in the types of transactions involved. Broker-dealers may agree with
the selling stockholders to sell a specified number of such shares at a
stipulated price per share, and, to the extent such broker-dealer is unable to
do so acting as agent for a selling stockholder, to purchase as principal any
unsold shares at the price required to fulfill the broker-dealer commitment to
such selling stockholder. Broker-dealers who acquire shares as principal may
thereafter resell such shares from time to time in transactions (which may
involve crosses and block transactions and sales to and through other broker-
dealers, including transactions of the nature described above) in the over-the-
counter market or otherwise at prices and on terms then prevailing at the time
of sale, at prices then related to the then-current market price or in
negotiated transactions and, in connection with such resales, may receive from
the purchasers of such shares commissions as described above.
In connection with the distribution of the shares, the selling stockholders
may enter into hedging transactions with broker-dealers. In connection with
such transactions, broker-dealers may engage in short sales of the shares in the
course of hedging the positions they assume with the selling stockholders. The
selling stockholders may also sell the shares short and redeliver the shares to
close out the short positions. The selling stockholders may also enter into
option or other transactions with broker-dealers, which require the delivery to
the broker-dealer of the shares. The selling stockholders may also loan or
pledge the shares to a broker-dealer and the broker-dealer may sell the shares
so loaned or upon a default the broker-dealer may effect sales of the pledged
shares. In addition to the foregoing, the selling stockholders may enter into,
from time to time, other types of hedging transactions.
The selling stockholders and any broker-dealers participating in the
distributions of the shares may be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act and any profit on the sale of
shares by the selling stockholders and any commissions or discounts given to any
such broker-dealer may be deemed to be underwriting commissions or discounts
under the Securities Act.
The shares may also be sold pursuant to Rule 144 under the Securities Act
beginning one year after the shares were issued, provided such date is at least
90 days after the date of this prospectus.
INDEMNIFICATION
The rights of Grand or its stockholders to sue any director or officer of
Grand for misconduct in conducting the affairs of Grand as an officer or
director are limited by Article XII
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of Grand's Articles of Incorporation and Nevada statutory law to cases for
damages resulting from breaches of fiduciary duties involving acts or omissions
involving intentional misconduct, fraud, knowing violations of the law or the
unlawful payment of dividends. Ordinary negligence is not a ground for such a
suit. The statute does not limit the liability of directors or officers for
monetary damages under the federal securities laws. Grand also has the
obligation, pursuant to Article IX of Grand's Amended and Restated Bylaws, to
indemnify any and all of its directors or officers or former directors or
officers or any person who may have served at its request as a director or
officer of another corporation in which Grand owns shares of capital stock or of
which it is a creditor against expenses actually and necessarily incurred by any
such person in connection with the defense of any action, suit or proceeding in
which such person is made a party, by reason of being or having been a director
or officer of Grand, or of such other corporation, except in relation to matters
as to which any such person shall be adjudged in such action, suit or proceeding
to be liable for negligence or misconduct in the performance of duty.
Grand maintains a directors' and officers' liability insurance policy
covering certain liabilities that may be incurred by directors and officers in
connection with the performance of their duties. The entire premium for such
insurance is paid by Grand. Accordingly, indemnification may occur for
liabilities arising under the Securities Act. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted for directors,
officers and controlling persons of Grand pursuant to the foregoing provisions
or otherwise, Grand has been advised that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.
LEGAL MATTERS
The legality of the securities offered by this prospectus has been passed
upon for Grand by Piper & Marbury L.L.P., 1251 Avenue of the Americas, New York,
New York 10020.
EXPERTS
The consolidated financial statements and schedules of Grand for each of
the years in the three-year period ended December 31, 1998, have been
incorporated by reference in this prospectus in reliance upon the report of KPMG
LLP, Chartered Accountants, and upon the authority of said firm as experts in
accounting and auditing.
10
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth Grand's estimates (other than the Securities
and Exchange Commission registration fee and the Nasdaq SmallCap Market
additional shares listing fee) of the expenses to be incurred in connection with
the issuance and distribution of the shares of Common Stock being registered,
other than underwriting discounts and commissions:
Securities and Exchange Commission registration fee $ 612.43
-----------------
Nasdaq SmallCap Market listing fee 1,670.00
-----------------
Printing and engraving expenses 5,000.00 *
-----------------
Legal fees and expenses 25,000.00 *
-----------------
Accounting fees and expenses 5,000.00 *
-----------------
Transfer agent and registrar fees 1,875.00 *
-----------------
Miscellaneous expenses 842.57 *
-----------------
Total $ 40,000.00
=================
* estimated
Item 15. Indemnification of Directors and Officers
The rights of Grand or its stockholders to sue any director or officer of
Grand for misconduct in conducting the affairs of Grand as an officer or
director are limited by Article XII of Grand's Articles of Incorporation and
Nevada statutory law to cases for damages resulting from breaches of fiduciary
duties involving acts or omissions involving intentional misconduct, fraud,
knowing violations of the law or the unlawful payment of dividends. Ordinary
negligence is not a ground for such a suit. The statute does not limit the
liability of directors or officers for monetary damages under the federal
securities laws. Grand also has the obligation, pursuant to Article IX of
Grand's Amended and Restated Bylaws, to indemnify any and all of its directors
or officers or former directors or officers or any person who may have served at
its request as a director or officer of another corporation in which Grand owns
shares of capital stock or of which it is a creditor against expenses actually
and necessarily incurred by any such person in connection with the defense of
any action, suit or proceeding in which such person is made a party, by reason
of being or having been a director or officer of Grand, or of such other
corporation, except in relation to matters as to which any such person shall be
adjudged in such action, suit or proceeding to be liable for negligence or
misconduct in the performance of duty.
II-1
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Grand maintains a directors' and officers' liability insurance policy
covering certain liabilities that may be incurred by directors and officers in
connection with the performance of their duties. The entire premium for such
insurance is paid by Grand. Accordingly, indemnification may occur for
liabilities arising under the Securities Act. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted for directors,
officers and controlling persons of Grand pursuant to the foregoing provisions
or otherwise, Grand has been advised that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.
Item 16. Exhibits
Exhibit No. Description
- ----------- -----------
4.1 Warrant Agreement dated April 10, 1996 by and between Akin Bay Company LLC
and Grand. (4)
4.2 Warrant Certificate dated April 10, 1996 issued to Akin Bay Company LLC by
Grand (included in Exhibit 4.1).
4.3 Warrant Agreement dated as of May 10, 1994 by and between Berkeley
Securities Corporation and Grand. (4)
4.4 Warrant Certificate dated May 10, 1994 issued to Berkeley Securities
Corporation by Grand. (included in Exhibit 4.3)
4.5 Stock Option Agreement between the Company and Ron Goldenberg, dated
August 14, 1997. (2)
4.6 Grand Toys International, Inc. Amended and Restated 1993 Stock Option
Plan. (3)
4.7 Warrant to Purchase Stock of Grand Toys International, Inc. dated as of
August 13, 1999 granted to Akin Bay Company LLC. (4)
5.1 Opinion of Piper & Marbury L.L.P., as to the legality of the securities
being registered. (1)
10.14 Loan agreement dated as of August 10, 1999 by and among Grand Toys Ltd.,
Grand Concepts Inc., Grand Toys International Inc., Ark Puzzles, Inc.,
Mellon Bank Canada and Mellon Bank, N.A. (1)
23.1 Consent of Piper & Marbury L.L.P. (included in Exhibit 5.1).
23.2 Consent of KPMG LLP. (4)
24 Power of attorney (included on the signature page to this registration
statement).(1)
____________________
(1) Filed with this Amendment to the S-3 Registration Statement.
(2) Filed as an Exhibit to the S-8 Registration Statement filed with the SEC
on December 15, 1998.
(3) Filed as Appendix A to Grand's Definitive Proxy Statement for the Annual
Meeting of Shareholders held on June 6, 1995.
(4) Filed as an Exhibit to the S-3 Registration Statement filed with the
SEC on September 14, 1999
II-2
<PAGE>
Item 17. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the information required to be included in a post-effective amendment
by those paragraphs in contained in periodic reports filed by the registrant
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended, that are incorporated by reference in the registration statement.
(2) That for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange of
1934) that is incorporated by reference in the Registration Statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the
II-3
<PAGE>
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Dorval, Province of Quebec, Canada, on this 7th day
of October, 1999.
GRAND TOYS INTERNATIONAL, INC.
By: /s/ Stephen Altro
-----------------------------------------
Stephen Altro
Chairman, President and Director
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Stephen
Altro and Tanya Clarke, or either of them, each with the power of substitution,
his or her attorney-in-fact, to sign any amendments (including post-effective
amendments) to this registration statement and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorney-in-fact, or his or her substitute, may do or choose to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Stephen Altro Chairman, President and Director October 7, 1999
- --------------------
Stephen Altro
/s/ David Mars Vice Chairman and Director October 7, 1999
- --------------------
David Mars
/s/ Ken Cieply Executive Vice President and October 7, 1999
- --------------------
Ken Cieply Chief Financial Officer
/s/ Elliot L. Bier Director October 7, 1999
- --------------------
Elliot L. Bier
/s/ James B. Rybakoff Director October 7, 1999
- --------------------
James B. Rybakoff
</TABLE>
<PAGE>
EXHIBIT 5.1
PIPER & MARBURY
L.L.P.
1251 AVENUE OF THE AMERICAS
New York, New York 10020-1104
212-835-6000
FAX: 212-835-6001 BALTIMORE
WASHINGTON
PHILADELPHIA
EASTON
October 7, 1999
Grand Toys International, Inc.
1710 Route Transcandienne
Dorval, Quebec, Canada H9P 1H7
Gentlemen:
We have acted as counsel to Grand Toys International, Inc., a Nevada
corporation (the "Company"), in connection with the preparation of a
Registration Statement on Amended Form S-3 of the Company (the "Registration
Statement"), filed with the Securities and Exchange Commission (the
"Commission") on October 7, 1999, pursuant to the Securities Act of 1933, as
amended. The Registration Statement covers the sale of 60,000 shares of the
Company's Common Stock, $.001 par value (the "Common Stock"), 112,000 shares of
Common Stock issuable upon exercise of certain warrants and 8,478 shares of
Common Stock issuable upon exercise of certain options (collectively, the
"Shares").
In this capacity, we have examined the Registration Statement, the Articles
of Incorporation, as amended, and Amended and Restated Bylaws of the Company,
the records of corporate proceedings of the Company and such other statutes,
certificates, instruments and documents relating to the Company and matters of
law as we have deemed necessary to the issuance of this opinion. In such
examination, we have assumed, without independent investigation, the genuineness
of all signatures, the legal capacity of all individuals who have executed any
of the aforesaid documents, the authenticity of all documents submitted to us as
originals, the conformity with originals of all documents submitted to us as
copies (and the authenticity of the originals of such copies), and all public
records reviewed are accurate and complete. As to factual matters, we have
relied upon statements or representations of officers and other representatives
of the Company, public officials or others and have not independently verified
the matters stated therein.
Based upon the foregoing, we are of the opinion that the sale and issuance
of the Shares have been duly authorized by the Board of Directors of the
Company, and the Shares when issued and paid for, as contemplated by the
Registration Statement and as provided for in the warrant agreements, will be
validly issued, fully paid and non-assessable.
<PAGE>
PIPER & MARBURY
L.L.P.
Grand Toys International, Inc.
October 7, 1999
Page 2
We call your attention to the fact that the members of this firm who worked
on the transactions contemplated herein are not licensed to practice law in any
jurisdiction other than the State of New York. To the extent the laws of Nevada
are or may be applicable in rendering the foregoing opinion, our opinion is
based solely upon a review of the General Corporation Law of the State of
Nevada. Accordingly, except as provided in the preceding sentence, we express
no opinion with respect to the laws of any jurisdiction other than the State of
New York and the federal laws of the United States typically applicable to
transactions of the type contemplated by the Registration Statement. Without
limiting the generality of the foregoing, we also express no opinion concerning
compliance with the laws or regulations of any other jurisdiction or
jurisdictions. We assume no obligation to supplement this opinion if any
applicable laws change after the date hereof or if we become aware of any facts
that might change the opinions expressed herein after the date hereof.
The opinion expressed in this letter is solely for the use of the Company
in connection with the Registration Statement. This opinion may not be relied
on by any other person or in any other connection without our prior written
approval. The opinion expressed in this letter is limited to the matters set
forth herein, and no other opinion should be inferred beyond the matters
expressly stated.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the heading "Legal
Matters" in the Registration Statement and in the Prospectus included in the
Registration Statement.
Very truly yours,
/s/ Piper & Marbury L.L.P.
Piper & Marbury L.L.P.
- 2 -
<PAGE>
Exhibit 10.14
LOAN AGREEMENT
among
GRAND TOYS LTD.-JOUETS GRAND LTEE
as Canadian Borrower
and
GRAND CONCEPTS INC./CONCEPTS GRAND INC.
as Canadian Guarantor
and
GRAND TOYS INTERNATIONAL, INC.
as a U.S. Borrower
and
ARK PUZZLES, INC.
as a U.S. Borrower
and
MELLON BANK CANADA
as Canadian Lender
and
MELLON BANK, N.A.
as Agent and as U.S. Lender
dated as of
August 10, 1999
Meighen Demers
Agent's Counsel
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
1 DEFINITIONS................................................................................ 1
1.1 Definitions........................................................................... 1
1.2 Accounting Terms...................................................................... 1
1.3 Interpretation........................................................................ 2
1.4 References............................................................................ 2
1.5 Interest Calculations and Payments.................................................... 3
1.6 Interest Act (Canada)................................................................. 3
1.7 Equivalent Amount..................................................................... 3
2 LOANS AND LETTERS OF CREDIT................................................................ 4
2.1 Revolving Facility.................................................................... 4
2.2 Revolving Loans....................................................................... 6
2.3 Letters of Credit..................................................................... 8
2.4 Term Loan............................................................................. 14
2.5 Conversion............................................................................ 14
2.6 Rollover/Selection of Interest Periods................................................ 15
2.7 BA Equivalent Loans................................................................... 15
2.8 LIBOR Loans........................................................................... 15
3 INTEREST AND OTHER CHARGES................................................................. 16
3.1 Interest.............................................................................. 16
3.2 Default Rate.......................................................................... 16
3.3 Unused Line Fee....................................................................... 16
3.4 Maximum Interest Rate................................................................. 17
3.5 Collateral Management Fee............................................................. 17
4 PAYMENTS AND PREPAYMENTS................................................................... 17
4.1 Revolving Loans....................................................................... 17
4.2 Place and Form of Payments; Extension of Time......................................... 18
4.3 Apportionment and Application......................................................... 18
4.4 Indemnity for Returned Payments....................................................... 18
4.5 Funding Losses........................................................................ 18
4.6 Currency.............................................................................. 19
4.7 Payments as Revolving Loans........................................................... 19
4.8 Excess Resulting from Exchange Rate Change............................................ 19
4.9 Taxes................................................................................. 20
4.10 Repayment of Term Loan................................................................ 21
4.11 Credit for Funds...................................................................... 21
4.12 No Voluntary Prepayments.............................................................. 21
5 AGENT'S AND/OR LENDERS' BOOKS AND RECORDS; MONTHLY STATEMENTS.............................. 21
6 COLLATERAL................................................................................. 22
6.1 Grant of Security Interest............................................................ 22
6.2 Perfection and Protection of Security Interest........................................ 24
6.3 Location of Collateral................................................................ 25
6.4 Title to, Liens on and Sale and Use of Collateral..................................... 25
6.5 Appraisals............................................................................ 25
6.6 Access and Examination................................................................ 25
</TABLE>
<PAGE>
<TABLE>
<S> <C>
6.7 Insurance and Condemnation............................................................ 26
6.8 Collateral Reporting.................................................................. 27
6.9 Accounts.............................................................................. 28
6.10 Collection of Accounts; Payments...................................................... 30
6.11 Inventory............................................................................. 32
6.12 Equipment............................................................................. 32
6.13 Assigned Contracts.................................................................... 34
6.14 Documents, Instruments and Chattel Paper.............................................. 35
6.15 Right to Cure......................................................................... 35
6.16 Power of Attorney..................................................................... 35
6.17 Agent's Rights, Duties and Liabilities................................................ 36
7 BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES.......................................... 36
7.1 Books and Records..................................................................... 36
7.2 Financial Information................................................................. 37
7.3 Notices to Agent...................................................................... 38
8 GENERAL WARRANTIES AND REPRESENTATIONS..................................................... 41
8.1 Authorization, Validity and Enforceability of this Agreement and the Loan
Documents............................................................................. 41
8.2 Validity and Priority of Security Interest............................................ 42
8.3 Organization and Qualification........................................................ 42
8.4 Corporate Name; Prior Transactions.................................................... 42
8.5 Subsidiaries and Affiliates........................................................... 42
8.6 Financial Statements and Projections.................................................. 42
8.7 Capitalization........................................................................ 43
8.8 Solvency.............................................................................. 43
8.9 Debt.................................................................................. 43
8.10 Distributions......................................................................... 43
8.11 Title to Property..................................................................... 43
8.12 Adequate Assets....................................................................... 43
8.13 Real Property; Leases................................................................. 44
8.14 General Intangibles................................................................... 44
8.15 Trade Names........................................................................... 44
8.16 Litigation............................................................................ 44
8.17 Restrictive Agreements................................................................ 44
8.18 Labour Disputes....................................................................... 44
8.19 Environmental Laws.................................................................... 45
8.20 No Violation of Law................................................................... 46
8.21 No Default............................................................................ 46
8.22 Plans................................................................................. 46
8.23 Taxes................................................................................. 48
8.24 Event of Default...................................................................... 48
8.25 Authority to Incur Debts.............................................................. 48
8.26 No Material Adverse Change............................................................ 48
8.27 Disclosure............................................................................ 48
8.28 Workers' Compensation................................................................. 49
8.29 Real Estate........................................................................... 49
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
8.30 Investment Act........................................................................ 50
8.31 Margin Securities..................................................................... 50
9 AFFIRMATIVE AND NEGATIVE COVENANTS......................................................... 50
9.1 Taxes and Other Obligations........................................................... 50
9.2 Corporate Existence and Good Standing................................................. 51
9.3 Compliance with Law and Agreements.................................................... 51
9.4 Maintenance of Property and Insurance................................................. 51
9.5 Trademarks, Patents and Copyrights.................................................... 51
9.6 Environmental Laws.................................................................... 52
9.7 Plans................................................................................. 52
9.8 Mergers, Consolidations, Acquisitions or Sales........................................ 53
9.9 Distributions; Capital Changes........................................................ 53
9.10 Transactions Affecting Collateral or Obligations...................................... 53
9.11 Guarantees............................................................................ 54
9.12 Debt.................................................................................. 54
9.13 Prepayment............................................................................ 54
9.14 Transactions with Affiliates.......................................................... 54
9.15 Investment Banking and Finder's Fees.................................................. 54
9.16 Business Conducted.................................................................... 54
9.17 Liens................................................................................. 55
9.18 Sale and Leaseback Transactions....................................................... 55
9.19 New Subsidiaries...................................................................... 55
9.20 Restricted Investments................................................................ 55
9.21 Capital Expenditures.................................................................. 55
9.22 Minimum Tangible Net Worth............................................................ 55
9.23 Tangible Leverage..................................................................... 56
9.24 Net Income............................................................................ 56
9.25 Fixed Charge Service Ratio............................................................ 57
9.26 Year 2000 Problem..................................................................... 57
9.27 Use of Proceeds....................................................................... 57
9.28 Further Assurances.................................................................... 58
9.29 Litigation............................................................................ 58
10 CLOSING; CONDITIONS TO LENDING............................................................. 58
10.1 Representations and Warranties; Covenants; Events..................................... 58
10.2 Closing Date Conditions............................................................... 58
10.3 Release of Proceeds; Drawdown Date.................................................... 60
10.4 Termination of Liens.................................................................. 61
10.5 Pro Forma Balance Sheet............................................................... 61
10.6 Payment of Fees and Expenses.......................................................... 62
10.7 Required Approvals.................................................................... 62
10.8 Proceedings........................................................................... 62
10.9 Field Exams, etc...................................................................... 62
11 DEFAULT; REMEDIES.......................................................................... 62
11.1 Events of Default..................................................................... 62
11.2 Remedies.............................................................................. 66
12 TERM AND TERMINATION....................................................................... 68
</TABLE>
-iii-
<PAGE>
<TABLE>
<S> <C>
13 GUARANTEES.................................................................................. 69
13.1 The Guarantees........................................................................ 69
13.2 Guarantee Absolute.................................................................... 70
13.3 Consents, Waivers and Renewals........................................................ 71
13.4 Subrogation........................................................................... 71
13.5 Allocation............................................................................ 71
14 THE AGENT................................................................................... 72
14.1 Agent................................................................................. 72
14.2 Agent's Responsibility................................................................ 72
14.3 Agent's Duties........................................................................ 74
14.4 Protection of Agent................................................................... 75
14.5 Indemnification of Agent.............................................................. 76
14.6 Termination or Resignation of Agent................................................... 76
14.7 Rights of Agent....................................................................... 77
14.8 Authorized Waivers, Variations and Omissions.......................................... 77
14.9 Restrictions on Actions by Lenders; Sharing of Payments............................... 77
14.10 Capacity as Agent..................................................................... 78
14.11 Certain Rights of the Agent........................................................... 78
14.12 Collateral Matters.................................................................... 78
15 ASSIGNMENTS AND TRANSFERS................................................................... 79
15.1 Benefit of Agreement.................................................................. 79
15.2 Assignments and Transfers by the Borrowers............................................ 79
15.3 Assignments and Transfers by a Lender................................................. 79
15.4 Assignment and Assumption Agreement................................................... 79
15.5 Register and Notice................................................................... 81
15.6 Sub-Participations.................................................................... 81
15.7 Disclosure............................................................................ 82
16 MISCELLANEOUS............................................................................... 82
16.1 Cumulative Remedies; No Prior Recourse to Collateral.................................. 82
16.2 No Implied Waivers.................................................................... 82
16.3 Severability.......................................................................... 82
16.4 Governing Law......................................................................... 83
16.5 Consent to Jurisdiction and Venue; Service of Process................................. 83
16.6 Waiver of Jury Trial, Etc............................................................. 83
16.7 Survival of Representations and Warranties............................................ 83
16.8 Other Security and Guarantees......................................................... 84
16.9 Fees and Expenses..................................................................... 84
16.10 Waiver of Notices..................................................................... 85
16.11 Binding Effect; Assignment............................................................ 86
16.12 Modification.......................................................................... 86
16.13 Counterparts.......................................................................... 86
16.14 Right of Set-Off...................................................................... 86
16.15 Inability to Determine Rates.......................................................... 86
16.16 Precedence............................................................................ 87
16.17 Confidentiality....................................................................... 87
16.18 Illegality............................................................................ 87
</TABLE>
-iv-
<PAGE>
<TABLE>
<S> <C>
16.19 Increased Costs....................................................................... 88
16.20 Judgment Currency..................................................................... 90
16.21 Test Verifications.................................................................... 90
16.22 Representation by Counsel............................................................. 90
16.23 Waiver of Objection................................................................... 90
16.24 No Reliance Upon Lender............................................................... 91
16.25 Notices............................................................................... 91
</TABLE>
-v-
<PAGE>
LOAN AGREEMENT, dated as of August ____, 1999, among MELLON BANK
CANADA, a Canadian chartered bank, with offices at Royal Trust Tower, P.O. Box
320, Suite 3200, Toronto-Dominion Centre, Toronto, Ontario, Canada, M5K 1K2, as
Canadian Lender, MELLON BANK, N.A., with offices at Edison Square West, 2035
Lincoln Highway (Rt. 27), Suite 1080, Edison, New Jersey, U.S.A., 08817, for
itself as U.S. Lender and as Agent for the Lenders, GRAND TOYS LTD.-JOUETS GRAND
LTEE (the "Canadian Borrower"), as the Canadian borrower, GRAND CONCEPTS
INC./CONCEPTS GRAND INC. (the "Guarantor"), as Canadian guarantor and GRAND TOYS
INTERNATIONAL, INC. and ARK PUZZLES, INC. (each a "U.S. Borrower" and
collectively the "U.S. Borrowers" and together with the Canadian Borrower, the
"Borrowers"), each as a U.S. borrower, each having its principal office and
chief place of business as set forth, respectively in Exhibit "D";
W I T N E S S E T H
-------------------
WHEREAS the Borrowers have requested that (a) the Canadian Lender
provide (A) a revolving credit facility available by way of loans and letters of
credit in an amount not exceeding U.S.$12,000,000 or the Equivalent Amount
thereof in Cdn.$ in favour of the Canadian Borrower and (b) the U.S. Lender
provide (A) a revolving credit facility available by way of loans and letters of
credit in an amount not exceeding U.S.$5,000,000; and (B) a term loan in a
principal amount not exceeding U.S.$500,000, each (save the Term Loan made to
Ark only) in favour of the U.S. Borrowers, to provide for the repayment of the
Borrowers' debts to Congress Financial Corporation (Canada) and for the ongoing
working capital requirements of the Borrowers and to fund the initial marketing
and advertising costs related to Ark's launch of a new puzzle line.
AND WHEREAS the Lenders have agreed to grant such facilities upon and
subject to the terms hereof;
AND WHEREAS the Lenders have appointed Mellon Bank U.S. as their agent
for the limited purposes of, inter alia, receiving notices and acting as
collateral agent to hold security in the U.S. Collateral (herein defined), upon
and subject to the terms hereof;
NOW THEREFORE, in consideration of the mutual conditions and
agreements set forth in this Agreement and for good and valuable consideration,
the receipt of which is hereby acknowledged, the Borrowers, the Guarantor, the
Agent and the Lenders hereby agree as follows:
1. DEFINITIONS.
-----------
1.1 Definitions. Capitalized terms used herein and in the other Loan
-----------
Documents shall, unless otherwise provided herein or in the other Loan Documents
(as the case may be), have the meanings specified in Schedule 1 hereto (which is
hereby made a part of this Agreement).
1.2 Accounting Terms. Any accounting term used in this Agreement shall
----------------
have, unless otherwise specifically provided herein, the meaning customarily
given in accordance with GAAP, and all financial computations hereunder shall be
computed, unless otherwise
<PAGE>
specifically provided herein, in accordance with GAAP as consistently applied
and using the same method for inventory valuation as used in the preparation of
the Financial Statements.
1.3 Interpretation. In this Agreement, (a) the singular includes the
--------------
plural and vice versa, (b) "in writing" or "written" includes printing,
typewriting, or any electronic means of communication capable of being visibly
reproduced at the point of reception, including telex, telecopy and telegraph,
(c) the headings, the table of contents, the Articles and the Sections are
inserted for convenience only and are to be ignored in construing this
Agreement, (d) a document, notice, note, bill of exchange or other instrument
shall be deemed to have been validly signed and executed if it has been signed
by either an original signature or a facsimile signature or stamp, (e) all
references to amounts of money shall, unless otherwise indicated, be references
to U.S. Dollars, and (f) all references to the Agent and/or Lenders acting
"reasonably", all references to the Agent's and/or the Lenders' "reasonable"
discretion or determination and all references to not unreasonably withholding a
consent shall, unless otherwise indicated, be read as references to acting
reasonably in the Circumstances or making a determination which is reasonable in
the Circumstances or reasonably in the Circumstances withholding a consent,
where the "Circumstances" include the recognition of the credit, repayment,
security and other risks faced by the Agent and/or Lenders at the time of the
action or determination, given, inter alia, the subordinate nature of the
Security Interest in relation to certain of the Permitted Liens and the amounts
and terms of repayment of indebtedness or liabilities secured pursuant to
Permitted Liens.
1.4 References. Any reference made in this Agreement to:
----------
(a) "Agent" or "Lender" shall so be construed as to include its
successors and permitted assigns;
(b) a time of day is, unless otherwise stated, a reference to Local
Time;
(c) Sections, Articles, Exhibits or Schedules is, unless otherwise
indicated, a reference to Sections and Articles of this Agreement
and to Exhibits and Schedules to this Agreement, as the case may
be. The provisions of each Exhibit and Schedule shall constitute
provisions of this Agreement as though repeated at length herein;
(d) a "fiscal quarter" means, in relation to a Borrower, one of the
four (4) consecutive periods in each Fiscal Year each of three
(3) months in duration;
(e) The phrase "Agreement" means this Loan Agreement as it may be
amended, revised, restated or replaced from time to time and
unless otherwise expressly provided herein, (i) references to
agreements (including this Agreement) and other contractual
instruments shall be deemed to include all subsequent amendments
and other modifications thereto, but only to the extent such
amendments and other modifications
-2-
<PAGE>
are not prohibited by the terms of any Loan Document, and (ii)
references to any statute or regulation are to be construed as
including all statutory and regulatory provisions consolidating,
amending, replacing, supplementing or interpreting the statute or
regulation; and
(f) This Agreement and the other Loan Documents are the result of
negotiations among and have been reviewed by counsel to the
Agent, the Borrowers and the other parties, and are the products
of all parties. Accordingly, they shall not be construed against
the Lenders or the Agent merely because of the Agent's or
Lenders' involvement in their preparation.
1.5 Interest Calculations and Payments. Unless otherwise stated (as in
----------------------------------
the case of Base Rate Loans and LIBOR Loans, which shall be calculated at an
interest rate per annum based on a year of three hundred and sixty (360) days),
wherever in this Agreement reference is made to a rate of interest "per annum"
or a similar expression is used, such interest will be calculated on the basis
of a calendar year of three hundred and sixty-five (365) days or three hundred
and sixty-six (366) days, as the case may be. Calculations of interest shall be
made using the nominal rate method of calculation, and will not be calculated
using the effective rate method of calculation or on any other basis that gives
effect to the principle of deemed reinvestment of interest. All payments of
interest to be made hereunder will be paid both before and after maturity and
before and after default and/or judgment, if any, until payment thereof, and
interest will accrue on overdue interest, if any.
1.6 Interest Act (Canada). For the purposes of this Agreement, whenever
---------------------
interest to be paid hereunder is to be calculated on the basis of a year of
three hundred and sixty (360) days, as in the case of all Base Rate Loans and
LIBOR Loans, or any other period of time that is less than a calendar year, the
yearly rate of interest to which the rate determined pursuant to such
calculation is equivalent is the rate so determined multiplied by the actual
number of days in the calendar year in which the same is to be ascertained and
divided by either three hundred and sixty (360) or such other period of time, as
the case may be.
1.7 Equivalent Amount. For the purpose of determining compliance with
-----------------
covenant and default limitations set forth in the Agreement, amounts expressed
in U.S. Dollars shall be measured by aggregating the applicable items
denominated in U.S. Dollars with the Equivalent Amounts of such items in
Canadian Dollars.
2. LOANS AND LETTERS OF CREDIT.
---------------------------
2.1 Revolving Facility. (a) Canadian. Subject to all of the terms and
------------------ --------
conditions of this Agreement, the Canadian Lender agrees to make available for
Drawdowns by the Canadian Borrower up to a U.S.$12,000,000 or the Equivalent
Amount thereof in Cdn.$ revolving credit facility for the Canadian Borrower's
use from time to time during the term of this Agreement. The credit facility
shall consist of a revolving line of credit consisting of Canadian Revolving
Loans available in Cdn.$ or U.S.$ and Letters of Credit as described in Sections
2.2 and 2.3.
-3-
<PAGE>
(b) U.S. Subject to all of the terms and conditions of this Agreement, the
---
U.S. Lender severally agrees to make available for Drawdowns by the U.S.
Borrowers up to a U.S.$5,000,000 revolving credit facility for the U.S.
Borrowers' use from time to time during the term of this Agreement. The credit
facility shall consist of a revolving line of credit consisting of U.S.
Revolving Loans available in U.S.$, and Letters of Credit as described in
Sections 2.2 and 2.3.
(c) Solidary Interests/Civil Code of Quebec. Each of the Borrowers
---------------------------------------
confirms and agrees that:
(i) subject to Section 14.9, the rights of the Agent and each
Canadian Lender or U.S. Lender, as the case may be, from time to
time a party to this Agreement by way of assignment or otherwise
are solidary and as regards the Obligations and the Guaranteed
Obligations owing from time to time to each Lender, each of the
Agent and such Lender is entitled, when permitted pursuant to
Section 11.2, to: (i) demand repayment of the amounts of all
Canadian Revolving Loans or U.S. Revolving Loans or U.S. Term
Loan outstanding from time to time in respect of such Obligations
and Guaranteed Obligations; (ii) exact the whole performance of
such Obligations and Guaranteed Obligations from the Canadian
Borrower or the U.S. Borrowers, as the case may be; (iii) benefit
from the Security Interest and the Collateral in respect of such
Obligations and Guaranteed Obligations; (iv) give a full
acquittance of such Obligations and Guaranteed Obligations; and
(v) exercise all rights and recourses under the Loan Documents
with respect to those Obligations and Guaranteed Obligations. The
Obligations of the Canadian Borrower or U.S. Borrowers, as the
case may be, with respect to any Canadian Revolving Loans or U.S.
Revolving Loans or U.S. Term Loan, as the case may be, advanced
by or Letter of Credit issued or arranged by any of them under
the Canadian Revolving Credit Facility or U.S. Revolving Credit
Facility, as the case may be, or arising from any advance of the
Term Loan, will form part of the Obligations and Guaranteed
Obligations, will be secured by the Security Interest and the
Collateral and the Agent and such Canadian Lender or U.S. Lender,
as the case may be, will have a solidary interest therein; and
(ii) the obligations to make Revolving Loans or to advance any portion
of the U.S. Term Loan and to issue or arrange for the issuance of
Letters of Credit is several, and not joint and several or
solidary and, accordingly, each Borrower's recourse against any
Lender with respect thereto, will be limited to the amount of
such Lender's commitment in the applicable Revolving Credit
Facility or U.S. Term Loan, as the case may be.
-4-
<PAGE>
2.2 Revolving Loans.
---------------
(a)(i) Canadian Amounts. Subject to the terms and conditions of this
----------------
Agreement and relying upon each of the representations and warranties of the
Canadian Borrower set forth in each of the Loan Documents, the Canadian Lender
agrees to make Loans (denominated in Cdn.$ or U.S.$, as requested) and
participate in Letters of Credit to the Canadian Borrower, at any time and from
time to time on and after the Closing Date and until the Maturity Date (or,
after any renewal of this Agreement as herein provided, the expiry date of any
Renewal Term), in an aggregate principal amount at any time outstanding not to
exceed the lesser of (x) the Canadian Borrowing Base in effect at such time and
(y) the Maximum Canadian Revolving Credit Line, consisting of Canadian Revolving
Loans and participation in Letters of Credit as described in Sections 2.2 and
2.3 hereof, respectively (the "Canadian Revolving Credit Facility"). For
----------------------------------
greater certainty, the Canadian Borrower may borrow, prepay and reborrow Loans
under the Canadian Revolving Credit Facility, subject to the terms and
conditions hereof applicable to each type of Loan. The Canadian Lender may, in
its discretion, elect to exceed the limits of the Canadian Availability on one
or more occasions, but if it does so, the Canadian Lender shall not be deemed
thereby to have changed the limits of the Canadian Availability or to be
obligated to exceed the limits of the Canadian Availability on any other
occasion. If, at any time, the unpaid balance of the Canadian Revolving Loans
plus the Canadian L/C Reserve exceeds the Canadian Borrowing Base, or the unpaid
balance of the Canadian Revolving Loans plus the aggregate face amount of all
Letters of Credit under the Canadian Revolving Credit Facility exceeds the
Maximum Canadian Revolving Credit Line, then the Canadian Lender may refuse to
make or otherwise restrict Canadian Revolving Loans and/or Letters of Credit on
such terms as the Canadian Lender determines until such excess has been
eliminated and the Canadian Borrower shall immediately repay to the Canadian
Lender an amount equal to such excess.
(ii) U.S. Amounts. Subject to the terms and conditions of this
------------
Agreement and relying upon each of the representations and warranties of the
U.S. Borrowers set forth in each of the Loan Documents, the U.S. Lender agrees
to make Loans denominated in U.S.$ and participate in Letters of Credit to
either of the U.S. Borrowers, at any time and from time to time on and after the
Closing Date and until the Maturity Date (or, after any renewal of this
Agreement as herein provided, the expiry date of any Renewal Term), in an
aggregate principal amount for all such Loans to the U.S. Borrowers at any time
outstanding not to exceed the lesser of (x) the U.S. Borrowing Base in effect at
such time and (y) the Maximum U.S. Revolving Credit Line, consisting of U.S.
Revolving Loans and participation in Letters of Credit as described in Sections
2.2 and 2.3 hereof, respectively (the "U.S. Revolving Credit Facility"). For
------------------------------
greater certainty, a U.S. Borrower may borrow, prepay and reborrow Loans under
the U.S. Revolving Credit Facility, subject to the terms and conditions hereof
applicable to each type of Loan. The U.S. Lender may, in its discretion, elect
to exceed the limits of the U.S. Availability of a U.S. Borrower on one or more
occasions, but if it does so, the U.S. Lender shall not be deemed thereby to
have changed the limits of the U.S. Availability of such U.S. Borrower or to be
obligated to exceed the limits of the U.S. Availability of such U.S. Borrower on
any other occasion. If, at any time, the unpaid balance of the U.S. Revolving
Loans plus the U.S. L/C Reserve exceeds the U.S. Borrowing Base, and, if any
time the unpaid balance of the U.S. Revolving Loans of a U.S. Borrower plus the
U.S. L/C Reserve of such U.S. Borrower exceeds
-5-
<PAGE>
the U.S. Borrowing Base of such U.S. Borrower, or the unpaid balance of the U.S.
Revolving Loans plus the aggregate face amount of all Letters of Credit under
the U.S. Revolving Credit Facility exceeds the Maximum U.S. Revolving Credit
Line, then the U.S. Lender may refuse to make or otherwise restrict U.S.
Revolving Loans and/or Letters of Credit on such terms as the U.S. Lender
determines until such excess has been eliminated and the applicable U.S.
Borrower(s) shall immediately repay to the U.S. Lender an amount equal to such
excess.
(b) Notice of Borrowing. Whenever a Borrower desires to borrow revolving
--------------------
loans under this Section 2.2 (in the case of the Canadian Borrower, the
"Canadian Revolving Loans" and, in the case of the U.S. Borrowers, the "U.S.
- ------------------------- ----
Revolving Loans"), the applicable Borrower shall deliver to its applicable
- ---------------
Lender a written request substantially in the form of Exhibit G-5 hereto (a
"Notice of Borrowing") signed by an authorized officer of the applicable
- --------------------
Borrower, no later than, (i) 10:00 a.m. (Local Time) on the requested Drawdown
Date, in the case of requests for Prime Rate Loans or Base Rate Loans or (ii)
10:00 a.m. (Local Time) three (3) Business Days in advance of the requested
Drawdown Date, in the case of requests for BA Equivalent Loans or LIBOR Loans.
The Notice of Borrowing shall, with respect to any Loans requested, specify (i)
the requested Drawdown Date (which shall be a Business Day), (ii) the aggregate
amount of the requested Loans and the currency thereof, (iii) whether the Loans
requested are to be Prime Rate Loans, Base Rate Loans, BA Equivalent Loans or
LIBOR Loans, and (iv) if the requested Loans are to be BA Equivalent Loans or
LIBOR Loans, the requested Interest Period. In lieu of delivering the above-
described Notice of Borrowing the applicable Borrower may (if agreed with its
applicable Lender) give its applicable Lender telephonic notice of such request
by the required time; provided, however, that (if so agreed) such telephonic
-------- -------
notice shall be confirmed in writing by delivery to its applicable Lender (A)
promptly and on the same day of a telecopy of a Notice of Borrowing which has
been signed by an authorized officer of such Borrower, and (B) only if requested
by its applicable Lender, promptly of a Notice of Borrowing containing the
original signature of an authorized officer of such Borrower, mailed or
delivered by such Borrower to the Agent on the date such notice is given.
Unless otherwise agreed with its applicable Lender, in the event that the terms
of any confirmatory Notice of Borrowing referred to in the proviso contained in
the immediately preceding sentence shall conflict with the telephonic notice
with respect to which it was delivered, the terms of such telephonic notice
shall govern.
(c) Reliance upon Authority. On or prior to the Closing Date and
-----------------------
thereafter prior to any change with respect to any of the information contained
in the following clauses (i) and (ii), each Borrower shall deliver to its
applicable Lender a writing setting forth (i) the account(s) to which its
applicable Lender is authorized to transfer the proceeds of the Loans requested
by such Borrower pursuant to this Section 2.2, and (ii) the names of the
officers authorized to request Loans on behalf of such Borrower, and shall
provide its applicable Lender with a specimen signature of each such officer.
The Lender shall be entitled to rely conclusively on such officer's authority to
request Loans on behalf of such Borrower, the proceeds of which are to be
transferred to any of the accounts specified by such Borrower pursuant to the
immediately preceding sentence, until the applicable Lender receives written
notice to the contrary. The Lenders shall have no duty to verify the identity of
any individual representing himself as one of the officers authorized by such
Borrower to make such requests on its behalf.
-6-
<PAGE>
(d) No Liability. The Agent and Lenders shall not incur any liability to
-------------
any Borrower as a result of acting upon any notice referred to in Sections
2.2(b) and (c), which notice the Lender(s) believe(s) in good faith to have been
given by an officer duly authorized by such Borrower to request Loans on its
behalf or for otherwise acting in good faith under this Section 2.2, and the
crediting of Loans to a Borrower's deposit account, or transmittal to such
Person as a Borrower shall direct, shall conclusively establish the obligation
of the applicable Borrower to repay such Revolving Loans as provided herein.
(e) Notice Irrevocable. Any Notice of Borrowing (or telephonic notice in
-------------------
lieu thereof) made pursuant to Section 2.2(b) shall be irrevocable and the
applicable Borrower shall be bound to borrow the funds requested therein in
accordance therewith.
(f) Making of Loans. Promptly after receipt of a Notice of Borrowing
----------------
pursuant to Section 2.2(b), the Canadian Lender or U.S. Lender, as the case may
be, shall make the proceeds of such Loans available to the applicable Borrower
on the applicable Drawdown Date by transferring same day funds to the account of
the applicable Borrower previously designated in writing by the applicable
Borrower, provided, however, that the amount of any Revolving Loans so made on
-------- -------
any date shall in no event exceed the amount of Canadian Availability or U.S.
Availability, as the case may be, on such date.
(g) Notation; Revolving Loan Notes. Each Lender is authorized, at such
-------------------------------
Lender's option, to note the date and amount of each payment or prepayment of
principal of such Lender's Revolving Loans in its books and records, including
computer records, such books and records constituting rebuttable presumptive
evidence, absent manifest error, of the accuracy of the information contained
therein. In addition, upon request by any Lender, a Borrower shall execute and
deliver to such Lender a Revolving Credit Note in the form of Exhibit C-1 or C-
2, as applicable, in order to evidence such Lender's Revolving Loans, in a form
satisfactory to the Agent and such Lender.
2.3 Letters of Credit.
-----------------
(a) Subject to the terms and conditions of this Agreement, the Issuing
Lender shall, upon the Canadian Borrower's or a U.S. Borrower's, as the case may
be, written request to the its applicable Lender as herein provided (A) cause
Letters of Credit to be issued for the applicable Borrower's account or (B)
provide credit support or enhancement or otherwise confirm payment (any such
credit support, enhancement or payment confirmation being referred to as "Credit
------
Support") to banks other than Lenders under this Agreement, which banks are
- -------
acceptable to the Lenders in the exercise of their reasonable business judgment
and which banks shall issue Letters of Credit in accordance with this Section
2.3 from time to time during the term of this Agreement. The Issuing Lender will
not cause to be opened any Letter of Credit or provide any Credit Support if:
(i) the maximum face amount of the requested Letter of Credit or for which
Credit Support is requested, plus the aggregate undrawn face amount of all
outstanding Letters of Credit under the applicable Revolving Credit Facility,
would exceed $3,000,000 or the Equivalent Amount thereof in Cdn.$, in the case
of the Canadian Revolving Credit Facility, and U.S.$1,000,000, in the case of
the U.S. Revolving Credit Facility; (ii) the
-7-
<PAGE>
maximum face amount of the requested Letter of Credit or for which Credit
Support is requested, and all commissions, fees, and charges due from such
Borrower in connection with the opening thereof, would cause the Canadian
Availability or U.S. Availability, as the case may be, or the unpaid Revolving
Loans plus the face amount of all Letters of Credit under the Canadian Revolving
Credit Facility or under the U.S. Revolving Credit Facility, as applicable, to
exceed the Maximum Canadian Revolving Credit Line or Maximum U.S. Revolving
Credit Line, as applicable, to be exceeded at such time; or (iii) the expiration
date of the Letter of Credit would exceed the Maturity Date (or, after any
renewal of this Agreement as herein provided, the expiry date of any Renewal
Term) or be greater than twelve (12) months from the date of issuance. All
payments made and expenses incurred by the Issuing Lender and/or Lenders
pursuant to or in connection with the Letters of Credit will be charged to the
applicable Borrower's loan account as Canadian Revolving Loans or U.S. Revolving
Loans, as the case may be.
(b) Other Conditions. In addition to being subject to the satisfaction of
----------------
the applicable conditions precedent herein provided, the obligation of the
Issuing Lender to cause to be issued any Letter of Credit or to provide any
Credit Support is subject to the following conditions precedent having been
satisfied in a manner satisfactory to the Issuing Lender and its applicable
Lender:
(i) The applicable Borrower shall have delivered to the Issuing
Lender or proposed issuer of the Letter of Credit, at such times
and in such manner as the Issuing Lender may prescribe, an
application in form and substance satisfactory to the Issuing
Lender or proposed issuer of the Letter of Credit for the
issuance of the Letter of Credit and such other documents as may
be reasonably required pursuant to the terms thereof, and the
form and terms of the proposed Letter of Credit shall be
satisfactory to the Issuing Lender and any proposed issuer of the
Letter of Credit and the Agent; and
(ii) As of the date of issuance, no order of any court, arbitrator or
Public Authority shall purport by its terms to enjoin or restrain
banks generally from issuing letters of credit of the type and in
the amount of the proposed Letter of Credit, and no law, rule or
regulation applicable to banks generally and no request or
directive (whether or not having the force of law) from any
Public Authority with jurisdiction over banks generally shall
prohibit, or request that the Issuing Lender or proposed issuer
of the Letter of Credit and/or Lenders refrain from, the issuance
of letters of credit generally or the issuance of such Letters of
Credit.
(c) Issuance of Letters of Credit.
-----------------------------
(i) Request for Issuance. A Borrower shall give its applicable
--------------------
Lender (who shall promptly notify the applicable Issuing Lender
of such request) three (3) Business Days' prior written notice of
such Borrower's request for the issuance of a Letter of Credit.
Such notice shall be irrevocable and shall specify the original
face amount of the Letter of Credit requested, the
-8-
<PAGE>
effective date (which date shall be a Business Day) of issuance
of such requested Letter of Credit, whether such Letter of Credit
may be drawn in a single or in partial draws, the date on which
such requested Letter of Credit is to expire (which date shall be
a Business Day), the purpose for which such Letter of Credit is
to be issued, and the beneficiary of the requested Letter of
Credit. Such Borrower shall attach to such notice the proposed
form of the Letter of Credit that the Issuing Lender is requested
to cause to be issued.
(ii) No Extensions or Amendment. The Issuing Lender shall not be
--------------------------
obligated to cause any Letter of Credit to be extended or amended
or any Credit Support to be extended unless the requirements of
this Section 2.3 are met as though a new Letter of Credit were
being requested and issued.
(d) Payments Pursuant to Letters of Credit.
--------------------------------------
(i) Payment of Letter of Credit Obligations. The Canadian Borrower
---------------------------------------
agrees to reimburse the issuer of a Letter of Credit under the
Canadian Revolving Credit Facility and the U.S. Borrowers agree
to reimburse the issuer of a Letter of Credit under the U.S.
Revolving Credit Facility for any draw under any such Letter of
Credit immediately upon demand, and to pay the issuer the amount
of all other obligations and other amounts payable to such issuer
under or in connection with any such Letter of Credit immediately
when due, irrespective of any claim, setoff, defence or other
right which such Borrower may have at any time against Issuing
Lender and/or any other issuer and/or Lenders or any other
Person.
(ii) Revolving Loans to Satisfy Reimbursement Obligations. In the
----------------------------------------------------
event that the issuer of any Letter of Credit honours a draw
under such Letter of Credit and the applicable Borrower shall not
have repaid such amount to the issuer pursuant to Section
2.3(d)(i), the Issuing Lender shall, upon receiving notice of
such failure, notify the Canadian Lender or U.S. Lender, as the
case may be, of such failure, and the Canadian Lender or U.S.
Lender, as the case may be, shall unconditionally pay to the
Issuing Lender (or its or any other issuer's account), as and
when provided hereinbelow, an amount equal to the amount of such
payment in same day funds. Such amounts paid by the Lenders to
the Issuing Lender shall constitute Canadian Revolving Loans or
U.S. Revolving Loans, as the case may be, which shall be deemed
to have been requested by the applicable Borrower pursuant to
Section 2.2.
(e) Compensation for Letters of Credit.
----------------------------------
(i) Letter of Credit Fee. Each Borrower agrees to pay to its
--------------------
applicable Lender with respect to each Letter of Credit issued or
Credit Support at its
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<PAGE>
request, a commission (the "L/C Fee") of (A) in the case of
-------
standby Letters of Credit, two percent (2.0%) per annum and (B)
in the case of merchandise, documentary Letters of Credit (term
not to exceed 120 days or Maturity Date), one-quarter of one
percent (0.25%), on the outstanding principal amount of such
Letter of Credit, provided, however, that if any Event of Default
-------- -------
occurs, then, from and after the date of such Event of Default
occurs until it is cured, or the Letter of Credit is cancelled,
as the case may be, the L/C Fee shall be the fee otherwise
applicable plus two percent (2%) per annum. The L/C Fee will be
payable monthly, in arrears, on the first Business Day of each
month commencing in the month following the Issue Date of the
Letter of Credit.
(ii) Issuer Fees and Charges. In addition to the L/C Fee referred to
-----------------------
above, each Borrower shall, in connection with any Letter of
Credit issued at its request, pay to the issuer of any Letter of
Credit (for its own account), such customary (in accordance with
its standard fee chart from time to time) fees and other charges
as are charged for letters of credit issued by it, including,
without limitation, its standard fees for issuing, administering,
amending, renewing, paying and cancelling letters of credit and
all other fees associated with issuing or servicing letters of
credit, as and when assessed.
(f) Indemnification; Exoneration; Power of Attorney
-----------------------------------------------
(i) Indemnification. In addition to amounts payable as elsewhere
---------------
provided in this Section 2.3, each Borrower hereby agrees to
protect, indemnify, pay and save the Agent, its applicable
Issuing Lender and each of its applicable Lenders harmless from
and against any and all claims, demands, liabilities, damages,
losses, costs, charges and expenses (including reasonable
attorneys' fees) which its applicable Issuing Lender and/or its
applicable Lender may incur or be subject to as a consequence,
direct or indirect, of the issuance of any Letter of Credit or
the provision of any Credit Support in connection therewith,
provided, however, that nothing herein will protect and indemnify
-------- -------
and save the applicable Issuing Lender and the applicable Lender
harmless from the direct consequences of their own gross
negligence or wilful misconduct. Subject to the terms of any Loan
Documents (including any guarantees herein provided), the
Canadian Borrower shall have no liability hereunder with respect
to any Letter of Credit issued or Credit Support provided under
the U.S. Revolving Credit Facility and the U.S. Borrowers shall
have no liability with respect to any Letter of Credit issued or
Credit Support provided under the Canadian Revolving Credit
Facility. This agreement shall survive payments of all
Obligations and the termination of this Agreement.
-10-
<PAGE>
(ii) Assumption of Risk by the Borrowers. As among the Borrowers,
-----------------------------------
the Issuing Lender, the Lenders and the Agent, the Borrowers
assume all risks of the acts and omissions of, or misuse of any
of the Letters of Credit by, the respective beneficiaries of
such Letters of Credit. In furtherance and not in limitation of
the foregoing, neither the Issuing Lender, nor the Agent, nor
any of the Lenders shall be responsible (except as otherwise
imposed by any agreement between the Agent and/or Lenders and a
Borrower in relation to the specific Letter of Credit and except
for the direct consequence of the Issuing Lender's or any
Lender's gross negligence or wilful misconduct) for: (A) the
form, validity, sufficiency, accuracy, genuineness or legal
effect of any document submitted by any Person in connection
with the application for and issuance of and presentation of
drafts with respect to any of the Letters of Credit, even if it
should prove to be in any or all respects invalid, insufficient,
inaccurate, fraudulent or forged; (B) the validity or
sufficiency of any instrument transferring or assigning or
purporting to transfer or assign any Letter of Credit or the
rights or benefits thereunder or proceeds thereof, in whole or
in part, which duly prove to be invalid or ineffective for any
reason; (C) the failure of the beneficiary of any Letter of
Credit to comply duly with conditions required in order to draw
upon such Letter of Credit; (D) 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 writing; (E) errors in interpretation of
technical terms; (F) any loss or delay in the transmission or
otherwise of any document required in order to make a drawing
under any Letter of Credit or of the proceeds thereof; (G) the
misapplication by the beneficiary of any Letter of Credit or the
proceeds of any drawing under such Letter of Credit; or (H) any
consequences arising from causes beyond the control of the
Agent, the Issuing Lender and/or Lenders, including, without
limitation, any act or omission, whether rightful or wrongful,
of any present or future de jure or de facto Public Authority.
None of the foregoing shall affect, impair or prevent the
vesting of any rights or powers of the Agent, Issuing Lender
and/or Lenders under this Section 2.3.
(iii) Exoneration. In furtherance and extension, and not in
-----------
limitation, of the specific provisions set forth above, any
action taken or omitted by the Agent, Issuing Lender and/or
Lenders under or in connection with any of the Letters of Credit
or any related certificates, if taken or omitted in the absence
of gross negligence or wilful misconduct, shall not put the
Agent, Issuing Lender and/or Lenders under any resulting
liability to any Borrower or relieve the Borrowers of any of its
obligations hereunder to any such Person.
(iv) Power of Attorney. In connection with all Inventory financed by
-----------------
Letters of Credit or paid for and in transit, each Borrower
hereby appoints its
-11-
<PAGE>
applicable Lender, or it's designee, as its attorney, with full
power and authority: (A) to sign and/or endorse such Borrower's
name upon any warehouse or other receipts; (B) to sign such
Borrower's name on bills of lading and other negotiable and non-
negotiable documents; (C) to clear Inventory through customs in
such Lender's or such Borrower's name, and to sign and deliver to
customs officials powers of attorney in such Borrower's name for
such purpose; (D) to complete in such Borrower's or such Lender's
name, any order, sale, or transaction, obtain the necessary
documents in connection therewith, and collect the proceeds
thereof; and (E) to do such other acts and things as are
necessary in order to enable such Lender to obtain possession of
the Inventory or to obtain payment of the Obligations. Neither
of the Lenders nor its designee, as such Borrower's attorney,
will be liable for any acts or omissions, nor for any error of
judgement or mistake of fact or law except for the direct
consequence of the any Lender's gross negligence or wilful
misconduct. This power, being coupled with an interest, is
irrevocable until all Obligations have been paid and satisfied.
(v) Account Party. Each Borrower hereby authorizes and directs the
-------------
Issuing Lender or any other issuer of a Letter of Credit to name
the applicable Borrower as the "Account Party" therein and, upon
its applicable Lender's request, to deliver to its applicable
Lender all instruments, documents and other writings and property
received by the Issuing Lender or any other issuer of a Letter of
Credit pursuant to the Letter of Credit, and to accept and rely
upon its applicable Lender's instructions and agreements with
respect to all matters arising in connection with the Letter of
Credit or the application therefor.
(vi) Control of Inventory. Upon the Agent or any of the Lenders making
--------------------
a demand for payment of any Obligations payable upon demand or if
an Event of Default exists, in connection with all Inventory
financed by Letters of Credit or paid for and in transit,, the
applicable Borrower will, at its applicable Lender's request,
instruct all suppliers, carriers, forwarders, warehouses or
others receiving or holding cash, cheques, Inventory, documents
or instruments in which the Agent and/or Lenders hold a Security
Interest to deliver them to the Agent and/or subject to the
Agent's order, and if they shall come into such Borrower's
possession, to deliver them, upon request, to the Agent in their
original form. Such Borrower shall also designate the Agent or
such Person as the Agent may designate as the consignee on all
bills of lading and other negotiable and non-negotiable
documents.
(g) Supporting Letter of Credit: Cash Collateral. If, notwithstanding the
--------------------------------------------
provisions of this Section 2.3, and without limitation to any of the Agent's,
Issuing Lender's and/or Lenders' rights under Section 11.2, any Letter of Credit
is outstanding upon the termination of this
-12-
<PAGE>
Agreement, then upon such termination the applicable Borrower at whose request
the Letter of Credit was issued shall deposit with the Agent, at the Agent's
discretion, with respect to each Letter of Credit then outstanding, either (A) a
standby letter of credit (a "Supporting Letter of Credit") in form and substance
---------------------------
satisfactory to the Agent, issued by an issuer satisfactory to the Agent in an
amount equal to the greatest amount for which such Letter of Credit may be drawn
(plus fees, commissions and expenses which may be or become payable thereunder),
under which Supporting Letter of Credit the Agent is entitled to draw amounts
necessary to reimburse the Agent, Issuing Lender and/or Lenders for payments
made by the Agent, Issuing Lender and/or Lenders under such Letter of Credit or
under any Credit Support provided through the Agent, Issuing Lender and/or
Lenders with respect thereto, or (B) cash in amounts necessary to reimburse the
Agent, Issuing Lender and/or Lenders for payments made by the Agent, Issuing
Lender and/or Lenders under such Letter of Credit or under any Credit Support
provided through the Agent, Issuing Lender and/or Lenders (plus fees,
commissions and expenses which may be or become payable thereunder). Such
Supporting Letter of Credit or deposit of cash shall be held by the Agent, as
security for, and to provide for the payment of, the aggregate undrawn amount of
such Letters of Credit remaining outstanding and if cash, such cash shall be
placed in an interest bearing account and the interest earned shall be for the
account of the Borrower.
2.4 Term Loan. Subject to the terms and conditions of this Agreement,
---------
the U.S. Lender will, upon the Closing Date, make a term loan (the "U.S. Term
---------
Loan") to Ark, available by way of Base Rate Loans upon the satisfaction of the
- ----
conditions precedent set forth in Article 10 in each case as selected by Ark.
The U.S. Term Loan will be in the aggregate principal amount equal to
U.S.$500,000 and shall be evidenced by a promissory note (the "U.S. Term Note")
--------------
authorized, issued and delivered by Ark to the U.S. Lender in the form attached
as Exhibit C and made a part hereof. Amounts of the U.S. Term Loan repaid may
not be reborrowed.
2.5 Conversion. Subject to the provisions of this Agreement, the
----------
Canadian Borrower may convert:
(a) all or any part of a Prime Rate Loan into a BA Equivalent Loan at
any time;
(b) a BA Equivalent Loan into a Prime Rate Loan on the last day of
the Interest Period applicable to such Loan;
(c) all or any part of a Base Rate Loan into a LIBOR Loan at any
time; and
(d) a LIBOR Loan into a Base Rate Loan on the last day of the
Interest Period applicable to such Loan,
and a U.S. Borrower may convert:
(e) all or any part of a Base Rate Loan into a LIBOR Loan at any
time; and
-13-
<PAGE>
(f) a LIBOR Loan into a Base Rate Loan on the last day of the
Interest Period applicable to such Loan,
in each case by giving to its applicable Lender an irrevocable conversion notice
no later than 10:00 a.m. (Local Time) three (3) Business Days prior to the
Conversion Date. No BA Equivalent Loan or LIBOR Loan may be converted into
another type of Loan except upon the last day of the Interest Period applicable
to such Loan, unless the Borrower shall reimburse and hold the applicable Lender
harmless from any loss or expense which the Lender may sustain as a consequence
of such conversion.
2.6 Rollover/Selection of Interest Periods. At or before 10:00 a.m.
--------------------------------------
(Local Time) three (3) Business Days prior to the expiration of each BA
Equivalent Interest Period or LIBOR Interest Period of each BA Equivalent Loan
or LIBOR Loan, as the case may be, the applicable Borrower shall, unless it has
delivered a conversion notice pursuant to Section 2.6, deliver a written notice
of its intention to rollover the BA Equivalent Loan or LIBOR Loan, as the case
may be, to its applicable Lender selecting the next Interest Period applicable
to the Loan which new Interest Period shall commence on and include the last day
of such prior Interest Period. If the Canadian Borrower fails to deliver a
rollover notice to the Canadian Lender, a BA Equivalent Loan shall be deemed to
have been converted into a Prime Rate Loan and a LIBOR Loan shall be deemed to
have been converted into a Base Rate Loan. The Canadian Borrower may convert the
Prime Rate Loan into a BA Equivalent Loan and the Base Rate Loan into a LIBOR
Loan at any time thereafter in accordance with Section 2.6. If a U.S. Borrower
fails to deliver a rollover notice to the U.S. Lender, a LIBOR Loan shall be
deemed to have been converted into a Base Rate Loan (subject to such U.S.
Borrower's right to convert such Loan into a LIBOR Loan at any time thereafter
in accordance with Section 2.6).
2.7 BA Equivalent Loans. BA Equivalent Loans may be drawn down by the
-------------------
Canadian Borrower at any time and from time to time in a minimum principal
amount of $500,000 and for terms of one (1), two (2), three (3) or six (6)
months (or subject to availability to the Lenders and in their sole discretion
any other period from 7 days to 180 days) by irrevocable written notice of its
intention to make a Drawdown given to the Agent not later than 10:00 a.m. (Local
Time) three (3) Business Days prior to the Drawdown Date. Notwithstanding
anything to the contrary herein, at no time shall the Canadian Borrower request
or be permitted to have outstanding, more than five (5) BA Equivalent Loans and
LIBOR Loans.
2.8 LIBOR Loans. LIBOR Loans may be drawn down by the Canadian Borrower
-----------
or a U.S. Borrower at any time and from time to time in a minimum principal
amount of $500,000 and for terms of one (1), two (2), three (3) or six (6)
months, by irrevocable written notice of its intention to make a Drawdown given
to the Agent by not later than 10:00 a.m. (Local Time) three (3) Business Days
prior to the Drawdown Date. Notwithstanding anything to the contrary herein, at
no time shall the Canadian Borrower or the U.S. Borrowers, as the case may be,
request or be permitted to have outstanding more than five (5) LIBOR Loans and
BA Equivalent Loans under either Revolving Credit Facilities.
-14-
<PAGE>
3. INTEREST AND OTHER CHARGES.
--------------------------
3.1 Interest. The Canadian Borrower shall pay the Canadian Lender
--------
interest on the unpaid principal balance of the Loans at a fluctuating per annum
rate equal to:
(a) in the case of Prime Rate Loans, the Prime Rate in effect from time to
time plus the Prime Rate Margin per annum;
----
(a) in the case of Base Rate Loans, the Base Rate in effect from time to
time plus the Base Rate Margin per annum;
----
(b) in the case of BA Equivalent Loans, the BA Rate plus the BA Rate
----
Margin per annum; and
(c) in the case of LIBOR Loans under the Canadian Revolving Credit
Facility, the LIBOR Rate plus the LIBOR Rate Margin per annum.
----
The applicable U.S. Borrower shall pay to the U.S. Lender interest on the unpaid
balance of LIBOR Loans made to it at a per annum rate equal to the LIBOR Rate
plus the LIBOR Rate Margin and interest on the unpaid balance of Base Rate Loans
- ----
made to it at a per annum rate equal to the Base Rate plus the Base Rate Margin.
----
Each change in the Prime Rate or Base Rate shall be reflected in the foregoing
interest rates as of the effective date of such change. Such interest will be
payable in arrears to the applicable Lender on each Interest Payment Date for
such Loan, for the period from and including the Drawdown Date or the preceding
Conversion Date, Rollover Date or Interest Payment Date of such Loan, as the
case may be, for such Loan to but excluding such Interest Payment Date and shall
be calculated on the principal amount of the Loan outstanding during such period
and on the actual number of days elapsed.
3.2 Default Rate. If any Event of Default occurs, then, from the date
------------
such Event of Default occurs until it is cured, or until all of its Obligations
are paid and performed in full, as the case may be, each Borrower will be
obligated to pay interest on the unpaid principal balances of its Loans at a per
annum rate two percent (2%) greater than the rates of interest otherwise
specified herein and applicable thereto.
3.3 Unused Line Fee. (a) For every month during the term of this
---------------
Agreement, the Canadian Borrower shall pay the Canadian Lender a fee (the
"Canadian Unused Line Fee") in an amount equal to the one quarter of one percent
- -------------------------
(0.25%) per annum, multiplied by the amount by which (x) the Maximum Canadian
-------------
Revolving Credit Line exceeds (y) the sum of (i) the average closing daily
unpaid balance of the Canadian Revolving Loans during such month and (ii) the
face amount of Letters of Credit under the Canadian Revolving Credit Facility.
Such a fee shall be calculated on the basis of a year of 365 days and the actual
days elapsed and shall be payable to the Canadian Lender on the first Business
Day of each month with respect to the prior month.
-15-
<PAGE>
(b) For every month during the term of this Agreement, the U.S. Borrowers
shall, jointly and severally, pay the U.S. Lender a fee (the "U.S. Unused Line
----------------
Fee") in an amount equal to one quarter of one percent (0.25%) per annum,
- ---
multiplied by the amount by which (x) the Maximum U.S. Revolving Credit Line
- -------------
exceeds (y) the sum of (i) the average closing daily unpaid balance of the U.S.
Revolving Loans during such month and (ii) the face amount of Letters of Credit
under the U.S. Revolving Credit Facility. Such a fee shall be calculated on the
basis of a year of 360 days and the actual days elapsed and shall be payable to
the U.S. Lender on the first Business Day of each month with respect to the
prior month.
3.4 Maximum Interest Rate. In no event shall the interest rate and
---------------------
other charges hereunder exceed the highest rate permissible under any law which
a court of competent jurisdiction shall, in a final determination, deem
applicable hereto. In the event that a court determines that the Agent and/or
Lenders have received interest and other charges hereunder in excess of the
highest rate applicable hereto, such excess shall be deemed received on account
of, and shall automatically be applied to reduce, the Obligations, other than
interest, in the inverse order of maturity, and the provisions hereof shall be
deemed amended to provide for the highest permissible rate. If there are no
Obligations outstanding, the applicable Lender shall refund to the applicable
Borrower such excess.
3.5 Collateral Management Fee. The Canadian Borrower shall pay to the
-------------------------
Canadian Lender and the U.S. Borrowers shall, jointly and severally, pay to the
U.S. Lender an annual fee (the "Collateral Management Fee"), on the Closing Date
-------------------------
and on each anniversary of the Closing Date thereafter prior to the termination
of this Agreement, in the amount of $17,250 and $7,750, respectively, for each
year. The Collateral Management Fee shall be earned when paid and shall not be
refundable.
4. PAYMENTS AND PREPAYMENTS.
------------------------
4.1 Revolving Loans. (a) The Canadian Borrower shall repay the
---------------
outstanding principal balance of the Canadian Revolving Loans, plus all accrued
but unpaid interest thereon and all fees payable hereunder, upon the termination
of this Agreement for any reason. In addition, and without limiting the
generality of the foregoing, the Canadian Borrower shall pay to the Canadian
Lender on demand, the amount by which the unpaid principal balance of the
Canadian Revolving Loans plus the Canadian L/C Reserve at any time exceeds the
----
Canadian Borrowing Base or the unpaid balance of Canadian Revolving Loans plus
the face amount of all Letters of Credit under the Canadian Revolving Credit
Facility exceeds the Maximum Canadian Revolving Credit Line, at such time.
(b) Each U.S. Borrower shall repay the outstanding principal balance of the
U.S. Revolving Loans made to it, plus all accrued but unpaid interest thereon
and all fees payable hereunder payable by it, upon the termination of this
Agreement for any reason. In addition, and without limiting the generality of
the foregoing, each U.S. Borrower shall pay to the U.S. Lender on demand, the
amount by which the unpaid principal balance of the U.S. Revolving Loans made to
it plus the U.S. L/C Reserve applicable to it at any time exceeds the U.S.
----
Borrowing Base or the unpaid balance of U.S. Revolving Loans plus the face
amount of the Letters of Credit under
-16-
<PAGE>
the U.S. Revolving Credit Facility exceeds the Maximum U.S. Revolving Credit
Line at such time.
4.2 Place and Form of Payments; Extension of Time. All payments of
---------------------------------------------
principal, interest, premium and other sums due to the Agent and/or Lenders
shall be made at the applicable Lender's address set forth in or specified
pursuant to Section 16.25. Except for Proceeds received directly by the Agent,
all such payments shall be made in immediately available funds. If any payment
of principal, interest, premium or other sum to be made hereunder becomes due
and payable on a day other than a Business Day, the due date of such payment
shall be extended to the next succeeding Business Day and interest thereon shall
be payable at the applicable interest rate during such extension
4.3 Apportionment and Application. The Agent and the Lenders shall have
-----------------------------
the continuing and exclusive right to apply any and all proceeds and payments to
any portion of the Obligations of the Borrowers and the Agent and the Lenders
shall have the right to effectuate payment on any and all obligations due
hereunder by charging the applicable Borrower's account.
4.4 Indemnity for Returned Payments. If after receipt of any payment of
-------------------------------
or Proceeds applied to the payment of all or any part of the Obligations, the
Agent and/or any Lender is for any reason compelled to surrender such payment or
Proceeds to any Person, because such payment or Proceeds is invalidated,
declared fraudulent, set aside, determined to be void or voidable as a
preference, impermissible setoff, a diversion of trust funds or for any other
reason, then: the Obligations or part thereof intended to be satisfied shall be
revived and continue and this Agreement shall continue in full force as if such
payment or Proceeds had not been received by the Agent and/or Lenders; and the
applicable Borrower shall be liable to pay to the Agent (for the account of the
applicable Lender) and hereby does indemnify the Agent and applicable Lenders
and hold the Agent and applicable Lenders harmless for, the amount of such
payment or Proceeds surrendered. The provisions of this Section 4.4 shall be and
remain effective notwithstanding any contrary action which may have been taken
by the Agent and/or Lenders in reliance upon such payment or Proceeds, and any
such contrary action so taken shall be without prejudice to the Agent's and/or
Lenders' rights under this Agreement and shall be deemed to have been
conditioned upon such payment or Proceeds having become final and irrevocable.
The provisions of this Section 4.4 shall survive the termination of this
Agreement.
4.5 Funding Losses. Without limitation to Section 16.9, the Canadian
--------------
Borrower shall reimburse the Canadian Lender and hold the Canadian Lender
harmless from, and each U.S. Borrower shall reimburse the U.S. Lender and hold
the U.S. Lender harmless from, any loss or expense which such Lender may sustain
or incur as a consequence of:
(i) the failure of such Borrower to make on a timely basis any
payment of principal of any LIBOR Loan or BA Equivalent Loan;
-17-
<PAGE>
(ii) the failure of such Borrower to borrow, continue or convert a
LIBOR Loan or BA Equivalent Loan after such Borrower has given
(or is deemed to have given) a Notice of Borrowing or a notice of
conversion or continuation; and
(i) the prepayment or other payment (including after acceleration
thereof) of any LIBOR Loan or BA Equivalent Loan on a day that is
not the last day of the relevant Interest Period,
including any such loss or expense arising from the liquidation or re-employment
of funds obtained by it to maintain its LIBOR Loans or BA Equivalent Loans or
from fees payable to terminate the deposits from which such funds were obtained.
4.6 Currency. All Obligations shall be payable to the Agent in the
--------
currency in which they are denominated.
4.7 Payments as Revolving Loans. All payments of principal, interest,
---------------------------
reimbursement obligations in connection with Letters of Credit, fees, premiums
and other sums payable hereunder, including all reimbursement for expenses
pursuant to Section 16.9, may, at the option of the Agent or applicable Lender,
in its sole discretion, subject only to the terms of this Section 4.7, be paid
from the proceeds of, or charged to the applicable Borrower's account as,
Revolving Loans made hereunder under the Canadian Revolving Credit Facility or
U.S. Revolving Credit Facility, as the case may be, whether made following a
request by the applicable Borrower pursuant to Section 2.2 or a deemed request
as provided in this Section 4.7. Each Borrower hereby irrevocably authorizes the
applicable Lenders to make Revolving Loans, upon notice from the Agent as
described in the next succeeding sentence, for the purpose of paying principal,
interest, reimbursement obligations in connection with Letters of Credit, fees,
premiums and other sums payable hereunder, including reimbursing expenses
pursuant to Section 16.9, and agrees that all such Revolving Loans so made shall
be deemed to have been requested by it pursuant to Section 2.2, as of the date
of the aforementioned notice.
4.8 Excess Resulting from Exchange Rate Change. If at any time following
-------------------------------------------
one or more fluctuations in the exchange rate of any currency against the U.S.
Dollar, (a) the Obligations under the Canadian Revolving Credit Facility or
under the U.S. Revolving Credit Facility, as the case may be, in Canadian
Dollars exceeds the limit of the Canadian Borrowing Base, the U.S. Borrowing
Base or any other limitations hereunder or (b) any part of the Obligations
exceeds any other limit set forth herein for such Obligations, the Canadian
Borrower or applicable U.S. Borrower, as the case may be, shall within three (3)
Business Days or, if an Event of Default has occurred, immediately (i) make the
necessary payments or repayments to reduce such Obligations to an amount
necessary to eliminate such excess or (ii) maintain or cause to be maintained
with the Agent or its applicable Lender deposits in an amount equal to or
greater than the amount of such excess, such deposits to be maintained in such
form and upon such terms as are acceptable to the Agent and its applicable
Lender. Without in any way limiting the foregoing provisions, the Agent shall,
monthly or more frequently in the Agent's sole
-18-
<PAGE>
discretion, make the necessary exchange rate calculation to determine whether
any such excess exists on such date.
4.9 Taxes. (a) Any and all payments by each Borrower to each Lender or
-----
the Agent under this Agreement and any other Loan Document shall be made free
and clear of, and without deduction or withholding for any Taxes. In addition,
each Borrower (as to itself only), as applicable, shall pay all Other Taxes.
(b) Each Borrower as to itself only agrees to indemnify and hold harmless
each Lender and the Agent for the full amount of Taxes or Other Taxes
(including any Taxes or Other Taxes imposed by any jurisdiction on
amounts payable under this Section) paid by any Lender or the Agent
and any liability (including penalties, interest, additions to tax and
expenses) arising therefrom or with respect thereto, whether or not
such Taxes or Other Taxes were correctly or legally asserted. Payment
under this indemnification shall be made within thirty (30) days after
the date any Lender or the Agent makes written demand therefor.
(c) If any Borrower shall be required by law to deduct or withhold any
Taxes or Other Taxes from or in respect of any sum payable hereunder
to any Lender or the Agent, then:
(i) the sum payable shall be increased as necessary so that after
making all required deductions and withholdings (including
deductions and withholdings applicable to additional sums
payable under this Section) such Lender or the Agent, as the
case may be, receives an amount equal to the sum it would have
received had no such deductions or withholdings been made;
(ii) such Borrower shall make such deductions and withholdings;
(iii) such Borrower shall pay the full amount deducted or withheld to
the relevant taxing authority or other authority in accordance
with applicable law; and
(iv) such Borrower shall also pay to each Lender or the Agent for the
account of such Lender, at the time interest is paid, all
additional amounts which the respective Lender specifies as
necessary to preserve the after-tax yield the Lender would have
received if such Taxes or Other Taxes had not been imposed.
-19-
<PAGE>
(d) Within thirty (30) days after the date of any payment by such
Borrower of Taxes or Other Taxes, such Borrower shall furnish to the
Agent the original or a certified copy of a receipt evidencing
payment thereof, or other evidence of payment satisfactory to the
Agent.
4.10 Repayment of Term Loan. Subject to any payments required to be
----------------------
made as provided in Section 4.13, Ark shall repay the principal of the U.S. Term
Loan in thirty-six (36) consecutive monthly instalments, payable on the first
day of each month, commencing on the first day of the first month following the
Closing Date, consisting of thirty-five (35) consecutive monthly instalments of
principal of $13,888.89 and a final monthly instalment of the then outstanding
principal amount of the Term Loan.
4.11 Credit for Funds. Notwithstanding anything to the contrary herein,
----------------
the Borrowers and the Guarantor agree that all collections of Collateral and
payments received by a Lender shall be credited for the purposes of determining
Canadian Availability or U.S. Availability, as applicable, upon receipt by the
applicable Lender(s) of deposits, but shall not be credited until the second
Business Day following receipt thereof for the purposes of calculating any
interest charges hereunder.
4.12 No Voluntary Prepayments.
------------------------
(a) Ark shall not be permitted to prepay the U.S. Term Loan without the
prior written consent of the U.S. Lender and in the event any
prepayment is permitted, same shall be conditioned upon payment of a
prepayment fee on the prepaid amount at the rates and in the matter
specified in Section 12.
(b) No Borrower shall be entitled to prepay any BA Equivalent Loan or
LIBOR Loan except on the last day of the Interest Period applicable
to such Loan unless the Borrower shall reimburse and hold the
applicable Lender harmless from any loss or expense which the Lender
may sustain as a consequence of such prepayment.
(c) Mandatory Prepayments. In addition to any mandatory prepayment
---------------------
provided for elsewhere herein, the applicable Borrower obligated in respect
thereof shall repay the entire unpaid principal balance of the Term Loan, the
Revolving Loans and all other Obligations (including Guaranteed Obligations),
including all accrued but unpaid interest and any other amounts payable
hereunder, upon the earlier to occur of (i) the Maturity Date or, if the term of
this Agreement has been renewed as herein provided, the expiry date of the
Renewal Term, and (ii) the termination of this Agreement in accordance with the
terms of this Agreement.
5. AGENT'S AND/OR LENDERS' BOOKS AND RECORDS; MONTHLY STATEMENTS. The
-------------------------------------------------------------
Borrowers and the Guarantor agree that the Register and each of the Agent's and
Lenders' books and records showing the Obligations and the transactions pursuant
to this Agreement and the other Loan Documents shall be admissible in any action
or proceeding arising therefrom, and shall constitute prima facie proof thereof,
irrespective of whether any Obligation is also evidenced by a promissory note or
other instrument. The applicable Lender
-20-
<PAGE>
will provide to the applicable Borrower(s) a monthly statement of Loans,
payments and other transactions pursuant to this Agreement. Such statement shall
be deemed correct, accurate and binding on the Borrowers and as an account
stated (except for reversals and reapplications of payments made as provided in
Section 4.4 and corrections of errors discovered by the Agent and/or Lenders),
unless the Canadian Borrower, in the case of the Canadian Revolving Credit
Facility, or applicable U.S. Borrower, in the case of the U.S. Revolving Credit
Facility and U.S. Term Loan, as applicable, notifies the applicable Lender in
writing to the contrary within thirty (30) days after such statement is given to
a Borrower. In the event a timely written notice of objections is given by a
Borrower, only the items to which exception is expressly made will be considered
to be disputed by the Borrower.
6. COLLATERAL.
----------
6.1 Grant of Security Interest. (a) Without limitation to any other
--------------------------
provision hereof or the Loan Documents, as security for all Obligations of the
Canadian Borrower, the Canadian Borrower shall and, as security for all of the
Obligations of the Guarantor, the Guarantor shall, prior to or on the Closing
Date, grant to the Agent and on the date of making each subsequent Loan or
issuing any Letter of Credit on behalf of the Canadian Borrower, the Agent shall
hold, a continuing first-ranking (subject only to Permitted Liens) and perfected
and duly registered security interest in, lien on, hypothec of and assignment of
all Property of the Canadian Borrower and the Guarantor, now owned or hereafter
acquired, tangible or intangible, real or personal, moveable or immoveable
including without limitation: (i) all Receivables Collateral, Inventory,
Equipment, General Intangibles, Real Estate and Proceeds of the Canadian
Borrower and the Guarantor, wherever located and whether now existing or
hereafter arising or acquired; (ii) all moneys, securities and other property
and the Proceeds thereof, now or hereafter held or received by, or in transit
to, the Agent or Canadian Lender or any of its affiliates from or for the
Canadian Borrower or the Guarantor, whether for safekeeping, pledge, custody,
transmission, collection or otherwise, including, without limitation, all of the
Canadian Borrower's and Guarantor's deposit accounts, credits, and balances with
the Agent and/or the Canadian Lender or any of its or their affiliates and all
claims of the Canadian Borrower or the Guarantor against the Agent and/or any of
the Lenders or any of its or their affiliates at any time existing; (iii) all
books, records and other Property relating to or referring to any of the
foregoing, including, without limitation, all books, records, ledger cards, data
processing records, computer software and other property and General Intangibles
at any time evidencing or relating to the Receivables Collateral, Inventory,
Equipment, General Intangibles, Proceeds, and other property referred to above;
(iv) all shares in the capital stock of any Subsidiary of the Canadian Borrower
now owned or hereafter acquired by the Canadian Borrower and (v) all real
property and leasehold interests of the Canadian Borrower or the Guarantor (all
of the foregoing, together with any other Property of the Canadian Borrower or
the Guarantor in which the Agent and/or the Canadian Lender may at any time be
granted a Lien, including as provided in paragraph (c) below, being herein
collectively referred to as the "Canadian Collateral"). The Agent and/or the
-------------------
Canadian Lender shall have all of the rights of a secured party with respect to
the Canadian Collateral under the PPSA, Civil Code of Quebec and the other laws
----------
of Ontario and Quebec and of any other applicable jurisdiction.
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<PAGE>
(b) Without limitation to any other provision hereof or the Loan
Documents, as security for all Obligations of such U.S. Borrower, each U.S.
Borrower shall, prior to or on the Closing Date, grant to the Agent (for itself
and the Lenders) and on the date of making each subsequent Loan or issuing any
Letter of Credit on behalf of such U.S. Borrower, the Agent (for itself and the
Lenders) shall hold, a continuing first-ranking (subject only to Permitted
Liens) and perfected and duly registered security interest in, lien on and
assignment of all Property of such U.S. Borrower, now owned or hereafter
acquired, tangible or intangible, real or personal, moveable or immoveable
including without limitation: (i) all Receivables Collateral, Inventory,
Equipment, General Intangibles, Real Estate and Proceeds of such U.S. Borrower,
wherever located and whether now existing or hereafter arising or acquired; (ii)
all moneys, securities, investment property and other property and the Proceeds
thereof, now or hereafter held or received by, or in transit to, the Agent or
U.S. Lender or any of its affiliates from or for such U.S. Borrower, whether for
safekeeping, pledge, custody, transmission, collection or otherwise, including,
without limitation, all of such U.S. Borrower's deposit accounts, credits, and
balances with the Agent and/or the U.S. Lender or any of its or their affiliates
and all claims of such U.S. Borrower against the Agent and/or the U.S. Lender or
any of its or their affiliates at any time existing; (iii) all books, records
and other Property relating to or referring to any of the foregoing, including,
without limitation, all books, records, ledger cards, data processing records,
computer software and other property and General Intangibles at any time
evidencing or relating to the Receivables Collateral, Inventory, Equipment,
General Intangibles, Proceeds, and other property referred to above; (iv) all
shares in the capital stock of any Subsidiary of such U.S. Borrower now owned or
hereafter acquired by such U.S. Borrower and (v) all real property and leasehold
interests of such U.S. Borrower (all of the foregoing, together with any other
Property of such U.S. Borrower in which the Agent and/or the U.S. Lender may at
any time be granted a Lien, being herein collectively referred to as the "U.S.
---
Collateral" and together with the Canadian Collateral, collectively, the
- ----------
"Collateral"). The Agent and the Lenders shall have all of the rights of a
----------
secured party with respect to the U.S. Collateral under the Uniform Commercial
Code of each State where the U.S. Collateral may be located and all other
applicable laws.
(c) Subject to the terms of the other Loan Documents and any Liens created
thereby and any guarantees provided for therein, all Obligations of each U.S.
Borrower to the Agent and/or Canadian Lender shall be secured by a continuing
first-ranking (subject only to Permitted Liens) security interest in, lien in,
and assignment of all such U.S. Borrower's U.S. Collateral ranking pari passu
with the Liens of the Agent and the U.S. Lender.
(d) All Loans and Letters of Credit shall be coterminous, cross-defaulted
and (but only to the extent provided in Section 13 hereof and, for greater
certainty, the Canadian Borrower and Guarantor are not guarantors of the
Obligations of the U.S. Borrowers to the Agent and/or Lenders) cross-guaranteed
and cross-collateralized. Subject to the limits on each Borrower's and the
Guarantor's Obligations and Guaranteed Obligations as herein provided, all
Obligations and Guaranteed Obligations shall be secured by the Collateral and
the Agent and/or Lenders may, in its/their sole discretion, exchange, waive or
release any of the Collateral and, upon the occurrence of an Event of Default,
(i) apply Collateral and direct the order or manner of sale thereof as the Agent
and/or Lenders may determine, and (ii) settle, compromise, collect or otherwise
liquidate any Collateral in any manner, subject to compulsory provisions of law,
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<PAGE>
all without affecting the Obligations or the Agent's and/or Lenders' right to
take any other action with respect to any other Collateral.
6.2 Perfection and Protection of Security Interest. Each Borrower and
----------------------------------------------
the Guarantor shall, at its own expense, perform, do, execute and deliver all
steps, acts, things and documents as may be requested by the Agent or a Lender
at any time to register, file, signify, publish, perfect, maintain, protect and
enforce the Security Interest including, without limitation: (a) executing,
registering and recording of the Loan Documents and executing and filing
financing or continuation statements or applications for registration, and
amendments thereof, in form and substance satisfactory to the Agent and Lenders;
(b) delivering to the Agent or a Lender (as directed) the original certificates
of title for all motor vehicles titled or domiciled in the United States with
the Security Interest properly endorsed thereon if available; (c) delivering to
the Agent or a Lender (as directed) the originals of all instruments, documents,
chattel paper and all other Collateral of which the Agent or a Lender (as
directed) determines it should have physical possession in order to perfect and
protect the Security Interest therein, duly endorsed or assigned to the Agent or
a Lender (as directed) without restriction; (d) delivering to the Agent
warehouse receipts covering any portion of the Collateral located in warehouses
and for which warehouse receipts are issued; (e) after an Event of Default,
transferring Inventory to warehouses designated by the Agent or a Lender (as
directed); (f) placing notations on the Borrowers' and Guarantor's books of
account to disclose the Security Interest; (g) executing and delivering to the
Agent and/or a Lender (as directed) a hypothecation or security agreement
relating to the Reversions in form and substance satisfactory to the Agent; (h)
delivering to the Agent or, as requested, its applicable Lender all letters of
credit on which a Borrower or Guarantor is named beneficiary; and (i) taking
such other steps as are deemed necessary by the Agent or a Lender to maintain
the Security Interest and the priority thereof. To the extent permitted by
applicable law, the Agent or either of the Lenders may file, without the
Borrowers' or the Guarantor's signature, one or more financing statements
disclosing the Security Interest. Each of the Borrowers and the Guarantor agrees
that a carbon, photographic, photostatic or other reproduction of any Loan
Document or of a financing statement is sufficient as a financing statement. If
any Collateral is at any time in the possession or control of any warehouseman,
bailee or any of any Borrower's or the Guarantor's agents or processors, then
such Borrower or the Guarantor, as applicable, shall notify the Agent and its
applicable Lender thereof and shall notify such Person of the Security Interest
in such Collateral and, upon the Agent's or a Lender's (as directed) request,
instruct such Person to hold all such Collateral for the Agent's account subject
to the Agent's instructions. From time to time, each Borrower or the Guarantor,
as applicable shall, upon the Agent's request, execute and deliver confirmatory
written instruments pledging or hypothecating to the Agent or a Lender (as
directed) the Collateral, but any Borrower's or the Guarantor's failure to do so
shall not affect or limit the Security Interest or the Agent's and/or Lenders'
other rights in and to the Collateral. So long as this Agreement is in effect
and until all Obligations have been fully satisfied, the Security Interest shall
continue in full force and effect in all Collateral (whether or not deemed
eligible for the purpose of calculating the Canadian Availability or U.S.
Availability or as the basis for any advance, loan, extension of credit, or
other financial accommodation).
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6.3 Location of Collateral. Each Borrower and the Guarantor (as to
----------------------
itself only) represents and warrants to the Agent and each of the Lenders that
as at the Closing Date: Exhibit D hereto is a correct and complete list of each
Borrower's and the Guarantor's chief executive office, the location of its books
and records, the locations of the Collateral and, in the case of any Collateral
not located at premises owned by a Borrower and the Guarantor, the purpose for
which the Collateral is at such location and the locations of all of its other
places of business; and Exhibit D correctly identifies any of such facilities
and locations that are not beneficially owned by and registered in the name of a
Borrower or the Guarantor and sets forth the names of the owners and lessors or
sub-lessors of, and, to the best of such Borrower's and the Guarantor's
knowledge, the holders of any mortgages on, such facilities and locations. Each
Borrower and the Guarantor (as to itself only) covenants and agrees that it will
not (a) maintain any Collateral at any location other than those listed on
Exhibit D, (b) otherwise change or add to any of such locations, or (c) change
the location of its head office and chief place of business, unless it gives the
Agent at least thirty (30) days' prior written notice thereof and executes,
delivers, registers, signifies and publishes any and all financing statements
and other documents that the Agent reasonably requests in connection therewith.
6.4 Title to, Liens on and Sale and Use of Collateral. Each Borrower
-------------------------------------------------
and the Guarantor (as to itself only) represents and warrants to the Agent and
each of the Lenders and agrees with the Agent and each of the Lenders that: (a)
all Collateral is and will continue to be owned by the Borrowers and the
Guarantor free and clear of all Liens whatsoever, except for the Security
Interest and other Permitted Liens; (b) the Security Interest will not be
subject to any prior Lien except for Permitted Liens, if any; (c) the Borrowers
and the Guarantor will use, store, and maintain the Collateral with all
reasonable care and will use its Collateral for lawful purposes only; and (d)
none of the Borrowers or the Guarantor will, without the Agent's prior written
approval, sell or dispose of or permit the sale or disposition of any of its
Collateral, except for sales of Inventory in the ordinary course of business and
dispositions of Property as expressly permitted under Sections 6.12 and 9.7. The
inclusion of Proceeds in the Collateral shall not be deemed the Agent's and/or
Lenders' consent to any sale or other disposition of its Collateral except as
expressly permitted herein.
6.5 Appraisals. Whenever an Event of Default exists, each of the
----------
Borrowers and the Guarantor (as to itself only) shall, at its expense and upon
the Agent's request, provide the Agent with appraisals or updates thereof of any
or all of the Collateral from an appraiser, and prepared on a basis,
satisfactory to the Agent.
6.6 Access and Examination. Each Borrower and the Guarantor (as to
----------------------
itself only) shall provide to the Agent and/or any Lender access and the right
at all reasonable times and if no Event of Default has occurred upon not less
than five (5) Business Day's notice (and at any time without the need for any
prior notice when an Event of Default exists) to examine, audit, make extracts
from and inspect the Borrowers' and the Guarantor's, records, files, and books
of account and the Borrowers' Property and to discuss the Borrowers' and the
Guarantor's affairs with the Borrowers' and the Guarantor's officers and
management. Each Borrower and the Guarantor (as to itself only) will deliver to
the Agent or a Lender (as directed) any instrument necessary for the Agent or a
Lender (as directed) to obtain records from any service bureau
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maintaining records for the applicable Borrower or the Guarantor. The Agent
and/or Lenders may, at any time when an Event of Default exists, and at the
Borrowers' expense, make copies of all of the Borrowers' or the Guarantor's
books and records, or require the Borrowers and the Guarantor to deliver such
copies to the Agent. The Agent and/or Lenders may, without expense to the Agent
and/or Lenders, use such of the Borrowers' or the Guarantor's personnel,
supplies and premises as may be reasonably necessary for maintaining or
enforcing the Security Interest.
6.7 Insurance and Condemnation.
--------------------------
(a) Each Borrower and the Guarantor (but as to itself only) shall insure
all its and their Property (including the Collateral) against loss or
damage by fire with extended coverage, flood, theft, burglary,
pilferage, loss in transit, business interruption, public liability
and third party property damage, and such other hazards as the Agent
shall specify, in amounts, under policies and by insurers acceptable
to the Agent. Without limiting the foregoing, each U.S. Borrower shall
also maintain, and shall cause each of its Subsidiaries to maintain,
flood insurance, in the event of a designation of any Real Estate or
any area in which any of the Collateral is located as "special flood
hazard area" (hereinafter "SFHA") as defined by the Flood Disaster
---- --------------
Protection Act of 1973, in an amount to be reasonably determined by
--------------
the Agent, and shall comply with the additional requirements of the
National Flood Insurance Program as set forth in said Act. Each
Borrower and the Guarantor shall also maintain flood insurance for its
Inventory and Equipment which is, at any time, located in a SFHA. Each
Borrower and the Guarantor (but as to itself only) shall cause the
Agent to be named in each such policy as mortgagee and loss payee or
additional insured, in a manner acceptable to the Agent. Each policy
of insurance shall contain a clause or endorsement requiring the
insurer to give not less than thirty (30) days prior written notice to
the Agent in the event of cancellation of the policy for any reason
whatsoever and a clause or endorsement stating that the interest of
the Agent shall not be impaired or invalidated by any act or neglect
of any Borrower or the Guarantor or the owner of any premises where
Collateral is located nor by the occupation of such premises for
purposes more hazardous than are permitted by such policy. Each
Borrower and the Guarantor (as to itself) covenants and agrees to
deliver certificates of insurance for all of its policies of
insurance, containing payee and mortgagee endorsements in compliance
with the terms hereof and otherwise satisfactory to the Agent in its
discretion, on or prior to the Closing Date. All premiums for such
insurance shall be paid by the applicable Borrower or the Guarantor
when due and certificates of insurance and, if requested, photocopies
of the policies shall be delivered to the Agent. Unless the Borrowers
or the Guarantor provide the Agent with evidence of the insurance
coverage required by this Section 6.7, the Agent or any Lender may
purchase insurance at the Borrowers' or the Guarantor's expense to
protect the Agent's and Lenders' interest in the Collateral. This
insurance may, but need not, protect the Borrowers', Guarantor's or
their Subsidiaries' interests. The coverage that the Agent or the
Lenders purchase may not pay any claim that the Borrowers, the
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<PAGE>
Guarantor or their Subsidiaries may make or any claim that is made
against the Borrowers or the Guarantor in connection with the
Collateral. The Borrowers or the Guarantor may later cancel any
insurance purchased by the Agent or Lenders, but only after providing
the Agent and the Lenders with evidence that the Borrowers and the
Guarantor have obtained insurance as required by this Agreement. If
the Agent purchases insurance for the Collateral, the Borrowers and
the Guarantor will be responsible for the costs of that insurance,
including interest and any other charges that may be imposed in
connection with the placement of the insurance, until the effective
date of the cancellation or expiration of the insurance. The costs of
the insurance may be added to the Revolving Loans. The costs of the
insurance may be more than the costs of insurance the Borrowers or the
Guarantor may be able to obtain on their own. Each Borrower and the
Guarantor (but as to itself only) shall promptly notify the Agent of
any event resulting in loss, damage, or destruction to any of its or
their Property having an aggregate value in excess of $50,000, whether
or not covered by insurance. All insurance proceeds of Collateral
shall be applied in reduction of the applicable party's Obligations
(as determined by the Agent, for application, in the case of Equipment
of the U.S. Borrowers to the Term Loan, and otherwise to the Revolving
Credit Facility), or at the Agent's option may permit or may, in any
case, require the applicable Borrower or the Guarantor 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.
(b) Each Borrower and the Guarantor shall, immediately upon learning of
the institution of any proceeding for the condemnation, expropriation
or other taking of any of its Property, notify the Agent of the
pendency of such proceeding, and agrees that the Agent and/or Lenders
may participate in any such proceeding, and such Borrower or the
Guarantor from time to time will deliver to the Agent all instruments
reasonably requested by the Agent to permit such participation. The
Agent is hereby authorized to collect the proceeds of any condemnation
or expropriation claim or award relating to property that is
Collateral directly, and to apply or remit them as provided above in
the case of insurance proceeds.
6.8 Collateral Reporting. Each Borrower and the Guarantor (but as to
--------------------
itself only) will provide the Agent with the following documents at the
following times in form satisfactory to the Agent and Lenders:
(a) weekly (by the last Business Day of the next following week), the
following:
(i) sales, supported by a sales summary and the total page of the
sales journal;
(ii) cash and collections, supported by the total page of a cash
receipts journal;
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<PAGE>
(iii) credit memos, supported by a credit memo register or the total
page of the sales journal, as appropriate; and
(iv) cash reconciliation report of collections deposited to the cash
applied to receivables.
(b) monthly (by the fifteenth (15th), (except for inventory reports which
shall be delivered by such date and also be delivered on as at each
month end), the following:
(i) summary aging of accounts receivable by customer, reconciled to
the general ledger and listing ineligibles;
(ii) perpetual inventory reports at cost, by category and location,
and reconciled to the general ledger, and listing ineligibles;
(iii) summary accounts payable agings by vendor; and
(iv) GST, PST, QST and other sales and excise tax summary reports
(including copies of all GST filings and remittances in respect
thereof).
(c) promptly upon written request of the Agent, the following:
(i) copies of invoices and credit memos and shipping and delivery
evidences;
(ii) copies of customer lists;
(iii) copies of purchase orders, invoices and delivery documents for
Inventory and Equipment acquired by the applicable Borrower or
the Guarantor; and
(iv) such other reports or more frequent reporting as Agent or any
Lender shall request from time to time; and
(b) certificates of a senior officer of the Borrower or the Guarantor, as
applicable, certifying the accuracy and completeness of the foregoing.
If any of any Borrower's or the Guarantor's records or reports of Collateral are
prepared by an accounting service or other agent, such Borrower and the
Guarantor hereby authorizes such Person to deliver such records, reports and
related documents to the Agent and to the Lenders. The Agent and Lenders reserve
the right to require more frequent reporting.
6.9 Accounts. (a) Each Borrower and the Guarantor (but as to itself
--------
only) hereby represents and warrants to the Agent and each of the Lenders and
agrees with the Agent and each of the Lenders that: (i) each existing Account
represents, and each future Account will represent, a bona fide sale or lease
and delivery of goods by such Borrower or the Guarantor or rendition
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of services by such Borrower or the Guarantor in the ordinary course of such
Borrower's or the Guarantor's business; (ii) each existing Account is, and each
future Account will be, for a liquidated amount payable by the Account Debtor
thereon on the terms set forth in the invoice therefor or in the schedule
thereof delivered to the Agent, without, to the knowledge of each Borrower and
the Guarantor, offset, deduction, defence, rebate, contra claim, set-off or
counterclaim save as have been deducted for the purposes of calculating Eligible
Accounts; (iii) no payment will be received with respect to any Account, and no
credit, discount, or extension, or agreement therefor will be granted on any
Account, except as reported to the Agent in accordance with this Agreement; (iv)
each copy of an invoice delivered to the Agent by such Borrower or the Guarantor
will be a genuine copy of the original invoice sent to the Account Debtor named
therein; and (v) all goods described in each invoice will have been delivered to
the Account Debtor and all services of such Borrower or the Guarantor described
in each invoice will have been performed.
(b) No Borrower or Guarantor shall re-date any invoice or sale or make
sales on extended dating beyond that customary in such Borrower's or the
Guarantor's business as conducted prior to the Closing Date or extend or modify
any Account unless permitted by the Agent. If any Borrower or Guarantor obtains
current actual knowledge of any matter affecting any material Account in any
materially adverse manner, including information regarding the Account Debtor's
creditworthiness, such Borrower or Guarantor will promptly so advise the Agent.
(c) No Borrower or Guarantor shall accept any note or other instrument
(except a cheque for the payment of money) with respect to any Account without
the Agent's written consent. If any Borrower or Guarantor accepts, in accordance
with the preceding sentence, any note or other instrument, except a cheque
payable immediately, such note or instrument shall be considered as evidence of
the Account and not payment thereof, and such Borrower or Guarantor will
promptly upon request deliver such note or instrument to the Agent or its
applicable Lender appropriately endorsed. Regardless of the form of presentment,
demand, notice of dishonour, protest and notice of protest with respect thereto,
such Borrower or the Guarantor, as applicable, will remain liable thereon until
such note or instrument is paid in full.
(d) Each Borrower and the Guarantor (as to itself only) shall notify the
Agent promptly of all disputes and claims with Account Debtors and settle or
adjust them at no expense to the Agent and/or Lenders, but no discount, credit
or allowance shall be granted to any Account Debtor without the Agent's consent,
except for discounts, credits and allowances made or given in the ordinary
course of such Borrower's or the Guarantor's business when no Event of Default
exists hereunder. Each Borrower and the Guarantor (as to itself only) shall
notify the Agent of each credit memoranda in excess of $100,000 as soon as
issued and will provide to the Agent copies of such credit memoranda upon
request by the Agent and a list of all credit memoranda on a weekly basis (with
copies upon request by the Agent). The Agent or the Lenders may, at all times
when an Event of Default exists hereunder, settle or adjust disputes and claims
directly with customers or Account Debtors for amounts and upon terms which the
Agent or the Lenders considers advisable and, in all cases, the Lenders will
credit the applicable Borrower's loan account with only the amounts received by
the Agent in payment of any Accounts. Without
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limiting the generality of the foregoing, the Agent or the Lenders may, under
such circumstances, demand, sue for, enforce, recover and receive payment of the
Accounts and compound, compromise, grant extensions, take and give up
securities, accept compositions and grant releases and discharges with respect
thereto, the whole without notice to the Borrowers and without any liability for
any loss resulting therefrom. The Agent and the Lenders will not be obliged to
inform the Borrowers or the Guarantor of any irregularity in the payment of any
of the Accounts.
(e) If an Account Debtor returns any Inventory to any Borrower or the
Guarantor when no Event of Default exists, then such Borrower or the Guarantor
shall promptly determine the reason for such return and shall issue a credit
memorandum to the Account Debtor in the appropriate amount. Each Borrower and
the Guarantor (as to itself only) shall immediately report to the Agent any
return involving an amount in excess of $100,000. In the event any Account
Debtor returns Inventory to any Borrower or the Guarantor when an Event of
Default exists, such Borrower or the Guarantor shall: (i) hold the returned
Inventory in trust for the Agent; (ii) segregate all returned Inventory from all
of its other Property; (iii) dispose of the returned Inventory solely according
to the Agent's or its applicable Lender's written instructions; and (iv) not
issue any credits or allowances with respect thereto without the Agent's or its
applicable Lender's prior written consent. All returned Inventory shall remain
subject to the Security Interest.
6.10 Collection of Accounts; Payments.
--------------------------------
(a)(i) Each Borrower and the Guarantor, jointly and severally, agrees to
establish, on or prior to the Closing Date (or such later date as
may from time to time be consented to by the Agent, the "Deadline"),
--------
a system (the "Cash Dominion System") of depository accounts
--------------------
(together with accounts opened from time to time pursuant to clause
(ii) hereof "Payment Accounts") into which each such Borrower or the
----------------
Guarantor shall promptly deposit or cause to be deposited all cash
proceeds, collections of Accounts and other moneys whatsoever
(collectively, "Cash Proceeds") received by it or any other Person
-------------
on its behalf. Each Borrower and the Guarantor represents that on or
prior to the Closing Date it has provided to its applicable Lender a
true and complete list of all depository accounts maintained by it
with any banks or financial institutions as of the Closing Date into
which Cash Proceeds are deposited. Each Borrower and the Guarantor
further agrees if so requested by the Agent, (I) to execute and
deliver to the applicable Lender with respect to each such Payment
Account maintained by it, a blocked account agreement or lockbox
agreement in form satisfactory to the Agent (collectively, the
"Collection Account Agreements"), and (II) to use reasonable
-----------------------------
efforts, with the co-operation of the Agent, to cause the banks
("Depository Banks") with which the Payment Accounts are maintained
----------------
to execute and deliver to the Agent or its applicable Lender, as
requested, on or prior to the Deadline, a Collection Account
Agreement. In the event that, following a request by the Agent for a
Collection Account Agreement, a Depository Bank does not execute a
Collection Account Agreement with respect
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to the relevant Payment Account, such Borrower or the Guarantor
shall cease to deposit Cash Proceeds in such Payment Account unless
and until such Depository Bank executes a Collection Account
Agreement. Each Borrower and the Guarantor further agrees that all
amounts received by it from any Person (whether as a dividend, loan
or otherwise) shall be deposited directly into Payment Accounts.
(ii) Each Borrower and the Guarantor agrees that it shall not open a bank
or similar account (other than the Petty Cash Account) after the
Closing Date into which Cash Proceeds are deposited other than
through a rapid trans facility maintained by the Canadian Lender
with respect to the Canadian Revolving Facility and by overnight
courier to the Agent with respect to the U.S. Revolving Facility.
Cash proceeds received before 12 noon EST shall be credited as
received on the same day, otherwise cash proceeds shall be credited
as received the next Business Day.
(iii) All main disbursement accounts shall be maintained by the Borrowers
and the Guarantor at its applicable Lender.
(iv) Notwithstanding the establishment of the Cash Dominion System, until
the Agent or Canadian Lender notifies the Canadian Borrower or the
Guarantor to the contrary, it shall make collection of its Accounts
and other Collateral for the benefit of the Agent and Lenders and
whether or not an Event of Default has occurred, any Cash Proceeds
(including, without limitation, in payment of any Account or in
payment for any Inventory or otherwise) that are not received and
deposited directly into a Payment Account, when collected by the
Canadian Borrower or the Guarantor, shall be promptly deposited by
it in a Payment Account, in precisely the form received, except for
its endorsement when required, and until so turned over, shall be
deemed to be held by it as mandatory of and in trust for the Agent
and Lenders and as the Agent's and Lenders' property, and shall be
held separately from such Borrower's or Guarantor's other funds.
(v) The Agent, Lenders or their designee may, at any time after the
occurrence of any Event of Default, publish notice of the Security
Interest of the Agent and/or Lenders, signify Accounts or otherwise
notify obligors that the Accounts have been hypothecated or assigned
to the Agent and/or Lenders and of the Security Interest therein,
and may collect them directly and charge the reasonable collection
costs and expenses to the applicable Borrower's loan account as a
Canadian Revolving Loan or U.S. Revolving Loan, as the case may be.
At the Agent's or any Lenders request, each Borrower or the
Guarantor shall execute and deliver to the Agent and Lenders such
documents as the Agent and Lenders shall require to grant the Agent
access to any post office box in which collections of Accounts are
received.
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(vi) Without limiting the generality of the foregoing, if sales of
Inventory are made for cash, each Borrower or the Guarantor shall
immediately deliver to the applicable Lender or the Payment Account
(for the Agent and Lenders) the identical cheques, cash, or other
forms of payment which such Borrower receives.
(b) All Payments received by the Agent or a Lender on account of Accounts
or as Proceeds of other Collateral will be the Agent's and Lenders' sole
property and will be credited promptly to the applicable Borrower's loan account
(conditional upon final collection) upon receipt but subject to Section 4.11
hereof.
6.11 Inventory. Except for any Inventory which has been duly reported
---------
to the applicable Lender as obsolete or otherwise ineligible, each Borrower and
the Guarantor (as to itself only) represents and warrants to the Agent and each
of the Lenders and agrees with the Agent and each of the Lenders that all of the
Inventory is and will be held for sale or lease, or to be furnished in
connection with the rendition of services, in the ordinary course of such
Borrower's and the Guarantor's business, and is and will be fit for such
purposes. Each Borrower and the Guarantor (as to itself only) will keep the
Inventory in good and marketable condition, at its own expense. Each U.S.
Borrower agrees that, if applicable, all its Inventory will be produced in
accordance with the Federal Fair Labor Standards Act of 1938, as amended, and
all rules, regulations, and orders thereunder. Each Borrower and the Guarantor
(as to itself only) will maintain a perpetual inventory reporting system at all
times. Each Borrower and the Guarantor (as to itself only) will conduct physical
cycle counts of the Inventory at least once per Fiscal Year and at such other
times as its applicable Lender requests following and during the continuance of
an Event and shall supply the Agent and each of the Lenders with a report
setting forth in reasonable detail all variances and reporting the value of such
Inventory (valued at the lower of cost or market value). Following the
occurrence of any Event of Default, each Borrower and the Guarantor (as to
itself only) shall conduct and report on such additional physical Inventory
counts as the Agent may request. No Borrower or the Guarantor will sell any of
its Inventory on a bill-and-hold, guaranteed sale, sale and return, sale on
approval, consignment, or other repurchase or return basis.
Except as has been expressly disclosed to the Agent and Lenders prior to the
Closing Date or is hereafter disclosed in writing to the applicable Lender and
is identified as such in the reports delivered pursuant to Section 6.8, no
Borrower or the Guarantor has any Inventory acquired on, or will in the future
acquire any Inventory on approval or on a conditional sale, title retention,
consignment or similar basis, provided that a Borrower or the Guarantor may have
in its possession Inventory owned by another Borrower or the Guarantor.
6.12 Equipment. Each Borrower and the Guarantor (as to itself only)
---------
represents and warrants to the Agent and each of the Lenders and agrees with the
Agent and each of the Lenders that all of the Equipment is and will be used or
held for use in such Borrower's or the Guarantor's business, is and will be fit
for such purposes and will at all times be subject to a first-ranking, subject
to Permitted Liens, duly registered and perfected Lien in favour of the Agent
and Lenders. Each Borrower and the Guarantor (as to itself only) shall keep and
maintain
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the Equipment in good operating condition and repair (ordinary wear and tear
excepted) and shall make all necessary replacements thereof.
Each Borrower and the Guarantor (as to itself only) shall promptly
inform the Agent of any material additions to or deletions from the Equipment.
No Borrower or the Guarantor shall permit any Equipment to become a fixture to
real property or an accession to other personal property, unless the Agent has a
valid perfected, registered and first priority Lien in such real or personal
property. No Borrower will, without the Agent's prior written consent, alter or
remove any identifying symbol or number on the Equipment. No Borrower or the
Guarantor shall sell, lease as a lessor, or otherwise dispose of any of the
Equipment; provided, however, that the Borrowers or the Guarantor may dispose of
Equipment and real Property not required in such Borrower's business having a
net book value no greater than $50,000 individually and in the aggregate for all
Borrowers and the Guarantor in any Fiscal Year and the Borrowers and the
Guarantors shall be entitled to dispose of obsolete or worn out Equipment,
without the Agent's or its applicable Lender's consent, subject to the
conditions set forth below. In the event any of the Equipment or real Property
is sold, transferred or otherwise disposed of with the Agent's or its applicable
Lender's prior written consent or as otherwise permitted hereby and: (a) such
sale, transfer or disposition of Equipment (other than obsolete Equipment) is
effected without replacement of such Equipment or real Property, or such
Equipment or real Property is replaced by Equipment or real Property leased by a
Borrower or the Guarantor, or by Equipment or real Property purchased by a
Borrower or the Guarantor subject to a lien or other right constituting a
Permitted Lien, then such Borrower or the Guarantor shall deliver all of the
cash proceeds of any such sale, transfer or disposition to the Agent for
Obligations of such Person; or (b) such sale, transfer or disposition is made in
connection with the purchase by a Borrower or the Guarantor of replacement
Equipment or real Property (other than subject to a Permitted Lien), then such
Borrower or the Guarantor shall use the proceeds of such sale, transfer or
disposition to finance the purchase by such Borrower or the Guarantor of
replacement Equipment or other Property and shall deliver to the Agent written
evidence of the use of the proceeds for such purpose. All replacement Equipment
or other Property purchased by a Borrower or the Guarantor shall be free and
clear of all liens, claims and encumbrances, except for the Security Interest
and other Permitted Liens.
True and complete copies of all leases of Equipment have been
delivered to the Agent and Lenders prior to the Closing Date. The Equipment
leases are in full force and effect, unamended and no breach or default has
occurred or is alleged to have occurred thereunder. The Equipment leases will
not be amended in any material (it being acknowledged that any increase in the
scheduled payments or interest rates will be deemed to be material) respect
without the Agent's or its applicable Lender's prior written consent. The
Borrowers and the Guarantor will forthwith upon becoming aware thereof deliver
written notice to the Agent (with reasonable particulars) of any breach or
default or alleged breach or default under any of the Equipment leases. The
Borrowers and the Guarantor will not breach or fail to perform any term or
condition of the Equipment leases.
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6.13 Assigned Contracts. Each Borrower and the Guarantor (as to itself
------------------
only) shall fully perform all of its obligations under each of the Assigned
Contracts, and shall enforce all of its rights and remedies thereunder as it
deems appropriate in its business judgment. No Borrower or the Guarantor shall
take any action or fail to take any action with respect to the Assigned
Contracts that would result in a waiver or other loss of any material right or
remedy of the Borrower or the Guarantor thereunder. Without limiting the
generality of the foregoing, each Borrower and the Guarantor shall take all
action necessary or appropriate to permit and shall not take action which would
have any adverse effect upon the full enforcement of all indemnification rights
under the Assigned Contracts. No Borrower or the Guarantor shall, without the
Agent's or its applicable Lender's prior written consent, modify, amend,
supplement, compromise, satisfy, release, or discharge any of the Assigned
Contracts except in the ordinary course of business and provided same could not
reasonably be expected to give rise to any Material Adverse Effect, any
collateral securing the same, any Person liable directly or indirectly with
respect thereto, or any agreement relating to any of the Assigned Contracts or
the collateral therefor. Each Borrower and the Guarantor (as to itself only),
shall notify the Agent in writing, promptly after it becomes aware thereof, of
any event or fact which could give rise to a claim by it for indemnification
under any of the Assigned Contracts, and shall diligently pursue such right and
report to the Agent on all further developments with respect thereto. Each
Borrower and the Guarantor shall remit directly to its applicable Lender, for
application to the Obligations as provided in Section 4.3, all amounts received
by it as indemnification or otherwise pursuant to the Assigned Contracts. If an
Event of Default exists, then the Agent or Lenders may directly enforce such
right in its own or such Borrower's or the Guarantor's name and may enter into
such settlements or other agreements with respect thereto as the Agent or
Lenders determine. All amounts thereby recovered by the Agent and/or Lender
after deducting the Agent's and Lenders' reasonable costs and expenses in
connection therewith, shall be applied to the Obligations as provided in Section
4.3. In any suit, proceeding or action brought by the Agent and/or Lenders under
any Assigned Contract for any sum owing thereunder or to enforce any provision
thereof, each Borrower and the Guarantor (as to itself only) shall indemnify and
hold the Agent and the Lenders harmless from and against all expense, loss or
damage suffered by reason of any defence, setoff, counterclaim, recoupment, or
reduction of liability whatsoever of the obligor thereunder arising out of a
breach by such Borrower or the Guarantor of any obligation thereunder or arising
out of any other agreement, indebtedness or liability at any time owing from
such Borrower or the Guarantor to or in favour of such obligor or its
successors. All such obligations of each Borrower and the Guarantor, shall be
and remain enforceable only against such Borrower or the Guarantor, and shall
not be enforceable against the Agent or any of the Lenders. Notwithstanding any
provision hereof to the contrary, each Borrower and the Guarantor shall at all
times remain liable to observe and perform all of its duties and obligations
under the Assigned Contracts, and the Agent's and/or Lenders' exercise of any of
its rights with respect to the Collateral shall not release any Borrower or the
Guarantor from any of such duties and obligations. Neither the Agent nor any of
the Lenders shall be obligated to perform or fulfil any of any Borrower's or the
Guarantor's duties or obligations under the Assigned Contracts or to make any
payment thereunder, or to make any inquiry as to the nature or sufficiency of
any payment or Property received by it thereunder or the sufficiency of
performance by any party
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thereunder, or to present or file any claim, or to take any action to collect or
enforce any performance, any payment of any amounts, or any delivery of any
Property.
6.14 Documents, Instruments and Chattel Paper. Each Borrower and the
----------------------------------------
Guarantor (as to itself only) represents and warrants to the Agent and each of
the Lenders and agrees with the Agent and each of the Lenders that: (a) all
documents, instruments, and chattel paper describing, evidencing, or
constituting Collateral, and all signatures and endorsements thereon, are and
will be complete, valid, and genuine; and (b) all goods evidenced by such
documents, instruments, and chattel paper are and will be owned by such Borrower
or the Guarantor, free and clear of all Liens other than Permitted Liens. Each
Borrower and the Guarantor (as to itself only) warrants the quantities, sound
condition, grades and qualities of the goods described in such documents,
instruments and chattel paper.
6.15 Right to Cure. The Agent or its applicable Lender may, in its sole
-------------
discretion and at any time, for such Borrower's or the Guarantor's account and
expense (in which case the provisions of Section 2.2 shall apply thereto), pay
any amount or do any act required of any Borrower or the Guarantor hereunder or
requested by the Agent and/or Lenders to preserve, protect, maintain or enforce
the Obligations, the Collateral or the Security Interest, and which such
Borrower or the Guarantor fails to pay or do, including, without limitation,
payment of any judgment against such Borrower or the Guarantor any insurance
premium, any warehouse charge, any finishing or processing charge, any
landlord's or processor's claim, and any other Lien upon or with respect to the
Collateral. All payments that the Agent and/or Lenders make under this Section
and all reasonable out-of-pocket costs and expenses that the Agent and/or
Lenders pay or incur in connection with any action taken by it hereunder shall
be charged to the applicable Borrower's loan account as a Revolving Loan (in
which case the provisions of Section 2.2 shall apply thereto). Any payment made
or other action taken by the Agent and/or Lenders under this Section shall be
without prejudice to any right to assert an Event of Default hereunder and to
proceed thereafter as herein provided.
6.13 Power of Attorney. Immediately in the case of paragraphs (b) and
-----------------
(d) and otherwise upon the occurrence of an Event of Default, each Borrower and
the Guarantor (as to itself only) hereby appoints the Agent, its applicable
Lender and their designees, without further action on the part of such Borrower
or the Guarantor, as such Borrower's or the Guarantor's attorney, with full
power of substitution, with power: (a) to endorse such Borrower's or the
Guarantor's name on any cheques, notes, acceptances, money orders, or other
forms of payment or security that come into the Agent's and/or any Lenders'
possession; (b) to sign such Borrower's or the Guarantor's name on any invoice,
bill of lading, or other document of title relating to any Collateral, on drafts
against customers, on assignments of Accounts, on notices of assignment,
financing statements and other public records, and on notices to Account
Debtors; (c) to notify the post office authorities to change the address for
delivery of such Borrower's or the Guarantor's mail to an address designated by
the Agent and to receive, open and dispose of all mail addressed to such
Borrower or the Guarantor; (d) to send in such Borrower's or the Guarantor's
name requests for verification of Accounts to Account Debtors; and (e) to do all
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<PAGE>
things necessary to carry out this Agreement. Each Borrower and the Guarantor
(as to itself only) ratifies and approves all acts of such attorney taken in
good faith in accordance with the foregoing power. Neither the Agent, the
Lenders nor the attorney will be liable for any acts or omissions or for any
error of judgment or mistake of fact or law provided, however, that nothing
herein shall relieve the Agent, Lenders or attorney from the consequences of its
own gross negligence or wilful misconduct. This power, being coupled with an
interest, is irrevocable until this Agreement has been terminated and the
Obligations have been fully satisfied.
6.17 Agent's Rights, Duties and Liabilities. Prior to the enforcement
--------------------------------------
of the Agent's and/or Lenders' security and thereafter subject only to mandatory
duties on the Agent and/or Lenders at law which are not capable of being waived,
each Borrower and the Guarantor (as to itself only) assumes all responsibility
and liability arising from or relating to the use, sale, or other disposition of
the Collateral. Prior to the enforcement of the Agent's and/or Lenders'
security, and thereafter subject only to mandatory duties on the Agent and/or
Lenders at law which are not capable of being waived, neither the Agent nor any
Lender nor any of its or their officers, directors, employees and agents shall
be liable or responsible in any way for the safekeeping of any of the
Collateral, or for any act or failure to act with respect to the Collateral, or
for any loss or damage thereto, or for any diminution in the value thereof, or
for any act or default of any warehouseman, carrier, forwarding agency or other
person whomsoever, all of which shall be at the applicable Borrower's or the
Guarantor's sole risk provided, however, that nothing herein shall relieve the
-------- -------
Agent and/or any of the Lenders from liability for the direct consequences of
its gross negligence or wilful misconduct. The Obligations shall not be affected
by any failure of the Agent and/or Lenders to take any steps to perfect the
Security Interest or to collect or realize upon the Collateral, nor shall loss
of or damage to the Collateral release any Borrower or the Guarantor from any of
the Obligations or Guaranteed Obligations. After the occurrence of an Event of
Default the Agent or Lenders may (but shall not be required to), without notice
to or consent from any Borrower or the Guarantor, sue upon or otherwise collect,
extend the time for payment of, modify or amend the terms of, compromise or
settle for cash, credit, or otherwise upon any terms, grant other indulgences,
extensions, renewals, compositions, or releases, and take or omit to take any
other action with respect to the Collateral, any security therefor, any
agreement relating thereto, any insurance applicable thereto, or any Person
liable directly or indirectly in connection with any of the foregoing, without
discharging or otherwise affecting the liability of any Borrower or the
Guarantor for the Obligations or Guaranteed Obligations or under this Agreement
or any other agreement now or hereafter existing between the Agent and/or any of
the Lenders and any Borrower or the Guarantor.
7. BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES.
-------------------------------------------------
7.1 Books and Records. Each Borrower and the Guarantor (as to itself
-----------------
only) shall maintain at all times, correct and complete books, records and
accounts in which complete, correct and timely entries are made of its
transactions in accordance with GAAP consistent with those applied in the
preparation of the Financial Statements delivered prior to the Closing Date.
Each Borrower and the Guarantor shall, by means of appropriate entries, reflect
in such accounts
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<PAGE>
and in all Financial Statements adequate liabilities and reserves for all taxes
and adequate provision for depreciation and amortization of Property and bad
debts, all in accordance with GAAP. Each Borrower and the Guarantor shall
maintain at all times books and records pertaining to the Collateral in such
detail, form and scope as the Agent shall reasonably require, including, without
limitation, records of: (a) all payments received and all credits and extensions
granted with respect to the Accounts; (b) the return rejection, repossession,
stoppage in transit, loss, damage, or destruction of any Inventory; and (c) all
other dealings affecting the Collateral.
7.2 Financial Information. Each Borrower and the Guarantor shall
---------------------
promptly furnish to the Agent or its agents all such financial information as
the Agent or Lenders shall reasonably request, and notify its auditors and
accountants that the Agent and/or Lenders are authorized to obtain such
information directly from them. Without limiting the foregoing, the Borrowers
and the Guarantor will furnish to the Agent, in such detail as the Agent shall
request, the following:
(a) As soon as available, but in any event not later than ninety (90) days
after the close of each Fiscal Year (i) audited consolidated and attached
unaudited consolidating balance sheets and statements of operations, cash flows,
and consolidated stockholders' equity for the Canadian Borrower and
International and their consolidated Subsidiaries and the accompanying notes
thereto and (ii) notice to reader consolidated and attached unaudited
consolidating balance sheets and statements of operations, cash flows, and
consolidated stockholders' equity for Ark and its consolidated Subsidiaries and
the accompanying notes thereto, setting forth in each case in comparative form
figures for the previous fiscal year, all in reasonable detail, fairly
presenting the financial position and the results of operations of the Borrowers
and their consolidated Subsidiaries, each as at the date thereof and for the
fiscal year then ended, and prepared in accordance with GAAP. Such consolidated
statements shall be examined in accordance with generally accepted auditing
standards by and accompanied by a report thereon, unqualified as to scope, of
independent public accountants selected by the Borrowers, addressed to the Agent
and the Lenders satisfactory to the Agent and Lenders.
(b) As soon as available, but in any event not later than thirty (30) days
after the end of each month, consolidated and consolidating unaudited balance
sheets of the Borrowers, and their consolidated Subsidiaries as at the end of
such month, and unaudited statements of operations of the Borrowers and their
consolidated Subsidiaries for such month and for the period from the beginning
of the Fiscal Year to the end of such month, all in reasonable detail, fairly
presenting the financial position and results of operation of the Borrowers and
their consolidated Subsidiaries as at the date thereof and for such periods, and
prepared in accordance with GAAP consistent with the audited Financial
Statements required pursuant to Section 7.2(a). Such statements shall be
certified to be correct by the principal financial officer or principal
accounting officer of the Borrowers subject to normal year-end and quarterly
adjustments.
(c) With each of the annual audited and notice to reader Financial
Statements delivered pursuant to Section 7.2(a), a certificate substantially in
the form of Exhibit G-4 of the principal financial or principal accounting
officer of the Borrowers (i) setting forth in reasonable
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<PAGE>
detail the calculations required to establish that each of the Borrowers was in
compliance with its financial covenants set forth herein during the period
covered in such Financial Statements and as at the end thereof, and (ii) stating
that, except as explained in reasonable detail in such certificate, (A) all of
the representations and warranties of the Borrowers and the Guarantor contained
in this Agreement and the other Loan Documents are correct and complete as at
the date of such certificate as if made at such time, (B) each of the Borrowers
and the Guarantor is, at the date of such certificate, in compliance with all of
its covenants and agreements in this Agreement and the other Loan Documents, and
(C) no Event or Event of Default then exists or existed during the period
covered by such Financial Statements. If such certificate discloses that a
representation or warranty is not correct or complete, or that a covenant has
not been complied with, or that an Event or Event of Default existed or exists,
such certificate shall set forth what action the Borrowers and/or the Guarantor
have taken or proposes to take with respect thereto.
(d) Prior to the end of each Fiscal Year, consolidated and consolidating
projected balance sheets, statements of operations, statements of cash flows and
Canadian Availability for the Canadian Borrower and U.S. Availability for the
U.S. Borrowers and their consolidated Subsidiaries, on an annual basis, and, as
at the end of, and for each month of the next Fiscal Year.
(e) Promptly after filing with the pension commission or administrator or
other Public Authority, a copy of each annual report, or other filing or notice
filed with respect to each Plan of any Borrower or the Guarantor, or any Related
Company.
(f) Copies of all returns, proxy statements, financial statements and
material reports and documents filed with any securities commission, stock
exchange or similar Public Authority or which any Borrower makes available to
its stockholders.
(g) Promptly upon request after filing with any Public Authority
(including PBGC, the DOL, the IRS, the PCO and Revenue Canada), a copy of each
annual report or other filing, valuation or notice filed with respect to any
Plan.
(h) Contemporaneously with the filing thereof, a copy of each tax return
filed with the IRS or Revenue Canada.
(i) Such additional information as the Agent may from time to time
reasonably request regarding the financial and business affairs of any Borrower
or any of its or their Subsidiaries.
7.3 Notices to Agent. Each Borrower and the Guarantor (as to itself
----------------
only) shall notify the Agent in writing, and provide to the Agent copies of any
pertinent notices, correspondence or writings received or issued in respect
thereof, and all particulars thereof reasonably requested by the Agent or
Lenders, of the following matters at the following times:
(a) Promptly after becoming aware thereof, any Event or Event of Default.
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<PAGE>
(b) Promptly after becoming aware thereof: the assertion by the holder of
any capital stock or equity of a Borrower or of any Debt that a default exists
with respect thereto or that a Borrower is not in compliance with the terms
thereof; or the threat or commencement by such holder of any enforcement action
because of such asserted default or non-compliance.
(c) Promptly after becoming aware thereof, any pending or threatened
action, suit, proceeding, or counterclaim by any Person, or any pending or
threatened investigation by a Public Authority which could reasonably be
expected to give rise to a Material Adverse Effect.
(d) Promptly after becoming aware thereof, any other event or circumstance
which has had or could reasonably be expected to give rise to a Material Adverse
Effect.
(e) Promptly after becoming aware thereof, any pending or threatened
strike, work stoppage, material unfair labour practice claim, or other material
labour dispute affecting any Borrower or any of its or their Subsidiaries.
(f) Promptly after becoming aware thereof, any violation or alleged
violation of any law, statute, regulation, or ordinance of a Public Authority
applicable to any Borrower or any of its or their Subsidiaries, or its or their
respective Properties which could reasonably be expected to give rise to a
Material Adverse Effect.
(g) Promptly after becoming aware thereof any violation or alleged
violation by any Borrower or any of its or their Subsidiaries of Environmental
Laws which could reasonably be expected to give rise to a Material Adverse
Effect; or, promptly upon its receipt thereof, any Action Request, Violation
Notice, and any other notice that any Borrower or any of its or their
Subsidiaries receives from a Public Authority asserting that a Borrower or any
of its or their Subsidiaries is or may not be in compliance with Environmental
Laws or that its compliance is being investigated, in any case which may could
reasonably be expected to give rise to a Material Adverse Effect; or, promptly
upon becoming aware of same, any violation of any Environmental Law that any
Borrower or any of its or their Subsidiaries reports in writing or is required
to report under any Environmental Law in writing (or for which any written
report supplemental to any oral report is made) to any federal, provincial,
state or local environmental agency or other Public Authority to the extent same
could reasonably be expected to give rise to a Material Adverse Effect.
(h) Any change in any Borrower's or the Guarantor's name, Fiscal Year,
jurisdiction of incorporation or establishment, jurisdictions of operation, head
office, chief place of business or location from which Accounts are invoiced or
paid or form of organization, at least thirty (30) days prior thereto.
(i) Any Termination Event with respect to a Plan, within ten (10) days
after becoming aware thereof and any other Reportable Event, within thirty (30)
days after becoming aware thereof, accompanied by any materials required to be
filed with any Public Authority
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<PAGE>
(including the PBGC or PCO) with respect thereto; promptly after any Borrower's
or the Guarantor's receipt thereof, any notice received by any Borrower or the
Guarantor concerning the imposition of any withdrawal liability (including under
ERISA) with respect to a Plan; the establishment of any Plan not existing at the
Closing Date, or the commencement of contributions by any Borrower or the
Guarantor to any Plan to which any Borrower or the Guarantor was not
contributing at the Closing Date, within ten (10) days after such event occurs;
or promptly after becoming aware thereof, any other event or condition regarding
a Plan or any Borrower's or the Guarantor's or a Related Company's compliance
with all applicable laws (including, ERISA and the Pension Benefits Act of
--------------------
Ontario) relating to the establishment or administration of any Plan which could
reasonably be expected to give rise to a Material Adverse Effect; and, without
limitation to the foregoing, of the following matters:
(A) Within ten (10) Business Days after a U.S. Borrower or any
Related Company knows that a Reportable Event or a
prohibited transaction (as defined in Sections 406 of ERISA
and 4975 of the Code) which is reasonably likely to give
rise to liability in excess of $50,000 has occurred, and,
when known, any action taken or threatened by the IRS, the
DOL or the PBGC with respect thereto;
(B) Upon request, or, in the event that such filing reflects a
significant change with respect to the matters covered
thereby, within ten (10) Business Days after the filing
thereof with the PBGC, the DOL or the IRS, as applicable,
copies of each Schedule B to the annual report (form 5500
series) filed with the IRS, PBGC or DOL with respect to each
Plan; and within three (3) Business Days after the filing
thereof, a copy of each funding waiver request filed with
the IRS with respect to any Plan and all communications
received by a U.S. Borrower or any ERISA affiliate from the
PBGC, the DOL or the IRS with respect to such request;
(C) Upon request, (i) copies of each actuarial report or annual
report for any Plan and, provided the applicable Borrower or
the Guarantor obtains a copy thereof after the use of its
best efforts, each actuarial report and annual report for
any Plan and (ii) a copy of each other filing or notice
filed with the PBGC, the DOL, the PCO or the IRS, with
respect to each Plan of any Borrower or the Guarantor or any
ERISA affiliate; and within ten (10) Business Days after
receipt thereof by the Borrower or any ERISA affiliate,
copies of the following: (A) any notices of the PBGC's,
PCO's or any other Public Authority's intention to terminate
a Plan or to have a trustee appointed to administer such
Plan; (B) any favourable or unfavourable determination
letter from the IRS regarding the qualification of a Plan
under
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<PAGE>
Section 401(a) of the Code; or (C) any notice from a multi-
employer Plan regarding the imposition of withdrawal
liability.
Each notice given under this Section shall describe the subject matter thereof
in reasonable detail, and shall set forth the action that a Borrower or the
Guarantor has taken or proposes to take with respect thereto.
8. GENERAL WARRANTIES AND REPRESENTATIONS.
--------------------------------------
Each Borrower and the Guarantor (as to itself only) warrants and represents to
and covenants with the Agent and each of the Lenders, at the times of each
Drawdown, Conversion or Rollover and delivery of each borrowing base report, and
until all Obligations have been satisfied, that, except as hereafter disclosed
to the Agent and either (A) in the case of Sections 8.3, 8.5, 8.7 (to the extent
the change arises from a transaction permitted under Article 9), 8.13, 8.14,
8.18, 8.19, 8.22, 8.27, 8.29(a) and, provided no Event of Default has occurred
in consequence thereof, (f), not giving rise to or which could not reasonably be
expected to give rise to a Material Adverse Effect or (B) in the case of all
other Sections, accepted by the Agent in writing:
8.1 Authorization, Validity and Enforceability of this Agreement and the
--------------------------------------------------------------------
Loan Documents. Each Borrower and the Guarantor has the power and authority
- --------------
to execute, deliver, and perform this Agreement and the other Loan Documents to
which it is party, to incur the Obligations or Guaranteed Obligations (as
applicable), and to grant the Security Interest. Each Borrower and the Guarantor
has taken all necessary corporate action to authorize its execution, delivery,
and performance of this Agreement and the other Loan Documents to which it is
party. No consent, approval, or authorization of, or declaration or filing with,
any Public Authority, and no consent of any other Person, is required in
connection with any Borrower's or the Guarantor's execution, delivery, and
performance of this Agreement and the other Loan Documents to which it is party,
except for those already duly obtained. Each of this Agreement and the other
Loan Documents has been duly executed and delivered by each Borrower and the
Guarantor to the extent a party thereto, and constitutes the legal, valid and
binding obligation of each Borrower and the Guarantor enforceable against it in
accordance with its terms (subject to applicable bankruptcy, insolvency, and
similar laws affecting creditors' rights, and the discretion of courts as to the
granting of equitable remedies such as specific performance and injunction)
without defence, setoff or counterclaim. Each Borrower's and the Guarantor's
execution, delivery, and performance of this Agreement and the other Loan
Documents to which it is party do not, and will not conflict with, or constitute
a violation or breach of, or constitute a default under, or result in the
creation or imposition of any Lien upon the Property of any Borrower or the
Guarantor or any of its or their Subsidiaries (except as contemplated by this
Agreement and the other Loan Documents) by reason of the terms of (a) any
contract, hypothec, mortgage, lien, lease, agreement, indenture, or instrument
to which any Borrower or the Guarantor or any of its or their Subsidiaries is a
party or which is binding upon it, (b) any judgment, law, statute, rule or
governmental regulation applicable to any Borrower or the Guarantor or any of
its or their Subsidiaries, or (c) the certificate or articles of incorporation,
amendment, continuation or
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amalgamation, or by-laws of any Borrower or the Guarantor or any of its or their
Subsidiaries or any shareholders agreement affecting it or its Property (or
declaration having a like effect).
8.2 Validity and Priority of Security Interest. The provisions of this
------------------------------------------
Agreement and the other Loan Documents create legal and valid Liens on all the
Collateral in the Agent's favour, and when all proper filings, recordings,
registrations and other actions necessary to perfect and maintain such Liens
have been made or taken, such Liens will constitute perfected, duly registered,
and continuing Liens on all the Collateral, having priority over all other Liens
on the Collateral (except Permitted Liens), and all claims of other creditors,
securing all the Obligations and Guaranteed Obligations, and enforceable against
each Borrower, the Guarantor and all third parties.
8.3 Organization and Qualification. Each of the Borrowers and the
------------------------------
Guarantor is duly incorporated or amalgamated, as the case may be, and
organized, and validly existing and in good standing under the laws of (a)
Canada in the case of the Canadian Borrower, (b) Quebec in the case of the
Guarantor, (c) Nevada in the case of International, and (c) Delaware in the case
of Ark. Each Borrower and the Guarantor is qualified to do business, and is in
good standing in each jurisdiction in which qualification is necessary in order
for it to own or lease its Property and conduct its business, and has all
requisite power and authority to conduct its business and to own its Property.
8.4 Corporate Name; Prior Transactions. None of the Borrowers or the
----------------------------------
Guarantor has during the five years preceding the Closing Date been known by or
used any other corporate or business name, or been a party to any amalgamation,
merger or consolidation, or acquired all or substantially all of the assets of
any Person or acquired any of its or their Property out of the ordinary course
of business, except as set forth on Exhibit E.
8.5 Subsidiaries and Affiliates. Exhibit F is a correct and complete
---------------------------
list of the name and relationship to each Borrower and the Guarantor of each and
all of each Borrower's Subsidiaries and other Affiliates. Each Subsidiary is (a)
duly incorporated and organized, and validly existing in good standing under the
laws of its jurisdiction of incorporation set forth on Exhibit F, and (b)
qualified to do business, and in good standing in the jurisdictions set forth
opposite its name on Exhibit F, which are the only jurisdictions in which such
qualification is necessary in order for it to own or lease its Property and
conduct its business.
8.6 Financial Statements and Projections. (a) Each of the Borrowers and
------------------------------------
the Guarantor has delivered to the Agent and Lenders its audited consolidated
balance sheets and related statements of operations, cash flows and
stockholders' equity as at December 31, 1998 for the Fiscal Year then ended.
Such financial statements are attached hereto as Exhibit G-1. All such
financial statements have been prepared in accordance with GAAP and present
accurately and fairly the Borrowers' consolidated, financial position as at the
dates thereof, and its results of operations for the periods then ended.
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(b) The Latest Projections represent each Borrower's best estimate of
each Borrower's consolidated future financial performance for the periods set
forth therein. The Latest Projections have been prepared on the basis of the
assumptions set forth therein, which each Borrower believes are fair and
reasonable in light of current and reasonably foreseeable business conditions as
at the date of presentation. It is understood that the Latest Projections are
presented on the same basis as historical financial statements but not
necessarily prepared in accordance with GAAP.
(c) The pro forma balance sheets of all of the Borrowers and the
Guarantor as at June 30, 1999, attached hereto as Exhibit G-3, presents fairly
and accurately such Borrower's or the Guarantor's financial condition as at such
date.
8.7 Capitalization. Each Borrower's and the Guarantor's authorized and
--------------
issued capital stock, and the registered and beneficial owners thereof (except
for any public shareholders of International who own less than [5%] of the
capital stock of International) are described in Exhibit M.
8.8 Solvency. Each Borrower and the Guarantor is Solvent prior to and
--------
after giving effect to the making and incurring of each Loan and each Letter of
Credit.
8.9 Debt. None of the Borrowers or the Guarantor has any Debt except
----
(a) the Obligations, (b) Debt set forth in the most recent Financial Statements
delivered to the Agent, or the notes thereto, (c) tax obligations (including
deferred taxes), trade payables and other contractual obligations arising in the
ordinary course of business as carried on by each Borrower since the date of
such Financial Statements, and (d) Debt created in accordance with Sections 9.8
and 9.11.
8.10 Distributions. No Distribution has been declared, paid, or made
-------------
upon or in respect of any shares or other securities of or equity interests in
any Borrower or the Guarantor except as expressly permitted hereby.
8.11 Title to Property. Except for Permitted Liens, and except for
-----------------
Property which a Borrower or the Guarantor leases, each Borrower and the
Guarantor has good and marketable title in fee simple to the Premises, and good,
indefeasible, and merchantable title to all of its other Collateral including,
without limitation, the assets reflected on the most recent Financial Statements
delivered to the Agent and Lenders, except as disposed of since the date thereof
in the ordinary course of business and as expressly permitted hereby, free of
all Liens except Permitted Liens.
8.12 Adequate Assets. Each Borrower and the Guarantor individually and
---------------
in the aggregate possess adequate assets for the conduct of its and their
business.
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8.13 Real Property; Leases. Exhibit D hereto is a correct and complete
---------------------
list, of all real property owned by each Borrower and the Guarantor, all leases
and subleases of real or personal property by any Borrower or the Guarantor, as
lessee or sublessee, and all leases and subleases of real or personal property
by any Borrower or the Guarantor, as lessor or sublessor. Each of such leases
and subleases is valid and enforceable in accordance with its terms, and is in
full force and effect, and no default by any party to any such lease or sublease
exists.
8.14 General Intangibles. Exhibit B hereto is a correct and complete list
-------------------
of all of the General Intangibles. None of the General Intangibles is subject to
any licensing agreement or similar arrangement except as set forth on or
referred to in Exhibit B. Except as set forth in Exhibit B, none of the
Borrowers or the Guarantor has any licenses or similar agreements of or in
respect of any intellectual property which might reasonably be considered to be
material to its business or financial condition. To the best of each Borrower's
and the Guarantor's current actual knowledge, none of the General Intangibles
infringes on or conflicts with any other Person's Property, and no other
Person's Property infringes on or conflicts with the General Intangibles. The
General Intangibles described on Exhibit B constitutes all of the Property of
such type necessary to the current and anticipated future conduct of each
Borrower's and the Guarantor's business.
8.15 Trade Names. All trade names or styles under which any Borrower or
-----------
the Guarantor sells Inventory or create Accounts or to which instruments in
payment of Accounts may be made payable, are listed on Exhibit E hereto.
8.16 Litigation. Except as set forth on Exhibit I, to the best of any
----------
Borrower's or the Guarantor's current actual knowledge, there is no pending or
threatened action, suit, proceeding, or counterclaim by any Person, or
investigation by any Public Authority, or any basis for any of the foregoing.
To the best of the Borrowers and the Guarantor's knowledge, nothing set out in
Exhibit I could reasonably be expected to give rise to any Material Adverse
Effect.
8.17 Restrictive Agreements. None of the Borrowers or the Guarantor is a
----------------------
party to any contract or agreement, or subject to any charter or other corporate
restriction, which affects its ability to execute, deliver, and perform the Loan
Documents to which it is party, or repay the Obligations and which could
reasonably be expected to give rise to any Material Adverse Effect.
8.18 Labour Disputes. Except as set forth in Exhibit J, (a) there is no
---------------
collective bargaining agreement or other labour contract covering employees of
any Borrower or any of its Subsidiaries; (b) except as noted above, to the best
of each Borrower's and the Guarantor's (as to itself only) senior management's
current actual knowledge, no union or other labour organization is seeking to
organize, or to be recognized as, a collective bargaining unit of employees of
any Borrower, or any of its or their Subsidiaries or for any similar purpose;
and (c) to the best of each Borrower's and the Guarantor's (as to itself only)
senior management's current actual knowledge, there is no pending or threatened
strike, slowdown, work stoppage, material unfair labour practice claims, or
other material labour dispute against or affecting any
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<PAGE>
Borrower or any of its or their Subsidiaries or their respective employees; (d)
there are no outstanding claims of any kind or nature nor any outstanding
assessment against either Borrower or any of its or their Subsidiaries arising
out of The Act Respecting Industrial Accidents and Occupational Diseases
-----------------------------------------------------------------
(Worker's Compensation), The Occupational Health and Safety Act of 1970 and all
--------------------------------------
other applicable federal, state, provincial and/or local laws governing
occupational health and safety; (e) there are no known infractions by either
Borrower or any of its or their Subsidiaries under The Act Respecting
------------------
Occupational Health and Safety.
- ------------------------------
8.19 Environmental Laws. Each Borrower and each of its Subsidiaries
------------------
have complied in all material respects with all Environmental Laws applicable to
transfer, construction on, and operation of its and their Property and business
and no Borrower nor any of its Subsidiaries has any material contingent
liability with respect to non-compliance with Environmental Laws or the
generation, handling, use, storage or disposal of hazardous or toxic wastes or
substances by any of them and no Borrower nor any of its Subsidiaries has
received any Action Request, Violation Notice, summons, complaint, order or
other notice that it is not in compliance with, or that any Public Authority is
investigating its compliance with, Environmental Laws in respect of any matter
that remains outstanding. Without limiting the generality of the foregoing,
except as expressly described in Exhibit H:
(a) None of the Borrowers or the Guarantor has any current actual
knowledge that its, or any of its or their Subsidiaries' operations or
any property or assets of or occupied by it or its or their
Subsidiaries or in its or any Subsidiaries' charge, management or
control are not in compliance in all material respects with all
applicable Environmental Laws including any required permits, or that
all of its and its or their Subsidiaries' Properties and Premises are
not free:
(i) from contamination by, or threat of, a release, discharge or
emission of any hazardous substance, gas or liquid or any other
substance, gas or liquid which is prohibited, controlled or
regulated under any Environmental Law, and
(ii) of underground storage tanks containing any Material of
Environmental Concern, asbestos - containing materials,
polychlorinated biphenyls, land fills, land disposals, and dumps;
(b) None of the Borrowers or any of its or their Subsidiaries has filed
any notice under any federal, provincial or local law, including any
Environmental Law, indicating past or present treatment, storage or
disposal of a Material of Environmental Concern or reporting an actual
or threatened spill or release of a Material of Environmental Concern
into the environment;
(c) None of the Borrowers or any of its or their Subsidiaries has any
contingent liability of which it or they have current actual knowledge
in connection with any release of any Material of Environmental
Concern;
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<PAGE>
(d) None of the Borrowers or any of its or their Subsidiaries generates,
transports, treats or disposes of any Material of Environmental
Concern except in compliance in all material respects with applicable
laws;
(e) None of the Borrowers or any of its or their Subsidiaries has disposed
of any Material of Environmental Concern by placing it in or on the
ground of any of any Borrower's or any of its or their Subsidiaries'
Property or the Premises;
(f) None of the Borrowers or any of its or their Subsidiaries has entered
into any negotiations or settlement agreements with any Person
(including, without limitation, the prior owner of any of their
property) imposing material obligations or liabilities on any Borrower
or any of their Subsidiaries with respect to any remedial action in
response to release, discharge or emission of Material of
Environmental Concern or environmentally related claim;
(g) None of the products manufactured, distributed or sold by any Borrower
or any of its or their Subsidiaries contain asbestos; and
(h) No Environmental Lien has attached to the Premises or property of any
Borrower or any of its or their Subsidiaries.
8.20 No Violation of Law. None of the Borrowers or any of its or their
-------------------
Subsidiaries is in violation of any law, statute, regulation, ordinance,
judgment, order or decree applicable to it which, violation could reasonably be
expected to give rise to a Material Adverse Effect.
8.21 No Default. None of the Borrowers or any of its or their Subsidiaries
----------
is in default with respect to any Debt, Lien, note, indenture, loan agreement,
mortgage, lease, deed, security instrument or agreement or other agreement to
which it is a party or bound, which default could reasonably be expected to give
rise to a Material Adverse Effect.
8.22 Plans. (a) None of the Borrowers, any of its or their Subsidiaries,
-----
or any Related Company has any Plan other than, in the case of the Borrowers
only, those listed on Exhibit K hereto, and all monthly and other payments in
respect of such Plans which are pension plans (on account of contributions,
special contributions or unfunded liability or solvency deficiencies) or
otherwise are accurately set forth in Exhibit K; (b) no Plan has been terminated
or partially terminated or is insolvent or in reorganization, nor have any
proceedings been instituted to terminate, in whole or in part, or reorganize any
Plan; (c) none of the Borrowers, any of its or their Subsidiaries, or any
Related Company has ceased to participate (in whole or in part) as a
participating employer in any Plan which is a pension plan or has withdrawn from
any Plan in a complete or partial withdrawal, nor has a condition occurred which
if continued would result in a complete or partial withdrawal; (d) none of the
Borrowers, any of its or their Subsidiaries, or any Related Company has any
unfunded liability on windup or withdrawal liability, including
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<PAGE>
contingent withdrawal or windup liability, to any Plan (including pursuant to
Title IV of ERISA) or any solvency deficiency in respect of any Plan; (e) none
of the Borrowers, any of its or their Subsidiaries, or any Related Company has
any unfunded liability on windup or any liability in respect of any Plan
(including to the PBGC or PCO) other than for required insurance premiums or
contributions or remittances which have been paid, contributed and remitted when
due; (f) each of the Borrowers and each of its and their Subsidiaries have made
all contributions to their Plans required by law or the terms thereof to be made
by it when due, and it and they are not in arrears in the payment of any
contribution, payment, remittance or assessment or in default in filing any
reports, returns, statements, and similar documents in respect of the Plans
required to be made or paid by them pursuant to any Plan, any law, act,
regulation, directive or order or any employment, union, pension, deferred
profit sharing, benefit, bonus or other similar agreement or arrangement; (g)
none of the Borrowers or any of its or their Subsidiaries are liable or, to the
best of their knowledge, alleged to be liable, to any employee or former
employee, director or former director, officer or former officer or other Person
resulting from any violation or alleged violation of any Plan, any fiduciary
duty, any law or agreement in relation to any Plan or have any unfunded pension
or like obligations or solvency deficiency (including any past service or
experience deficiency funding liabilities), other than accrued obligations not
yet due, for which they have made full provision in their books and records; (h)
all vacation pay, bonuses, salaries and wages, to the extent accruing due, are
properly reflected in each Borrower's and/or its or their Subsidiaries' books
and records; (i) without limiting the foregoing, all of the Borrowers' and each
of its Subsidiaries' Plans are duly registered where required by, and are in
compliance and good standing in all material respects under, all applicable
laws, acts, statutes, regulations, orders, directives and agreements, including,
without limitation, the Code, ERISA, the Income Tax Act of Canada, the
--------------
Supplemental Pensions Act of Quebec and the Pension Benefits Act of Ontario, any
- ------------------------- --------------------
successor legislation thereto, and other applicable laws of any jurisdiction;
(j) no Person has made any application for a funding waiver or extension of any
amortization period in respect of any Plan; (k) there has been no prohibited
transaction or violation of any fiduciary responsibilities with respect to any
Plan; and (l) there are no outstanding or pending or threatened investigations,
claims, suits or proceedings in respect of any Plans (including to assert rights
or claims to benefits or that could give rise to any material liability).
Without limiting the generality of the foregoing, with regard to each
Plan to which Title IV of ERISA applies: (i) no Reportable Event has occurred
with respect to a Plan; (ii) no Plan has an "accumulated funding deficiency"
(whether or not waived) as defined in ERISA or in Section 412 of the Code or any
unfunded benefit liabilities as defined in Section 4001(a)(18) of ERISA; (iii)
none of the Borrowers or any of its or their Subsidiaries or any Related Company
has incurred, or reasonably expects to incur, any liability under Title IV of
ERISA with respect to any Plan (other than premiums due and not delinquent under
Section 4007 of ERISA; (iv) none of the Borrowers or any of its or their
Subsidiaries or any Related Company has incurred or is reasonably likely to
incur any liability (and no event has occurred which with the giving of the
notice under Section 4219 of ERISA, would result in such liability) under
Section 4201 or 4243 of ERISA; (v) none of the Borrowers or any of its or their
Subsidiaries or any Related Company has engaged in a transaction that could
reasonably be expected to result in liability under Section 4069 or 4212(c) of
ERISA; (vi) each Plan is in
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<PAGE>
substantial compliance with ERISA, and no Borrower or any of its or their
Subsidiaries nor any Related Company has received any notice asserting that a
Plan is not in compliance with ERISA; and (vii) none of the Borrowers, or any of
its or their Subsidiaries, or any Related Company, nor any other "party-in-
interest" or "disqualified person" has engaged in a "prohibited transaction," as
such terms are defined in Section 4975 of the Code and Title I of ERISA, in
connection with any Plan which would subject a party-in-interest or disqualified
person (after giving effect to any exemption) to the tax on prohibited
transactions imposed by Section 4975 of the Code or any other liability.
8.23 Taxes. Except as described in Exhibit N, each Borrower and its and
-----
their Subsidiaries have filed all tax returns and other reports which they were
required by law to file on or prior to the date hereof, and have paid all taxes,
assessments, fees, and other governmental charges, and penalties and interest,
if any, against them or their Property, income, or franchise, that are due and
payable save for assessments which are being contested by appropriate
proceedings and, to the extent reserves for which are required under GAAP, such
reserves have been established in its financial statements in accordance with
GAAP. Each income tax return was accurate in all material respects.
8.24 Event of Default. No Event of Default has occurred and is
----------------
continuing.
8.25 Authority to Incur Debts. None of the Borrowers or the Guarantor
------------------------
are or will be in consequence of the execution, delivery or performance of any
of the Loan Documents or the consummation of the transactions therein provided,
in breach of any regulation under any national, federal, state or provincial
law, act, statute or regulation limiting their ability to incur indebtedness for
money borrowed or to secure payment of same or to provide financial assistance,
directly or indirectly, by means of a loan, guarantee or otherwise.
8.26 No Material Adverse Change. To the best of any Borrower's or the
--------------------------
Guarantor's current actual knowledge, no change which could reasonably be
expected to give rise to a Material Adverse Effect has occurred since the date
of its last Fiscal Year end. On the basis of a review and assessment undertaken
by each of the Borrowers and the Guarantor of its computer applications, each of
the Borrowers and the Guarantor reasonably believes that the "Year 2000 problem"
(that is, the risk that principal computer applications used in connection with
its business may be unable to recognize and perform properly date sensitive
functions involving certain dates prior to and any date after December 31, 1999)
could not reasonably be expected to give rise to a Material Adverse Effect.
8.27 Disclosure. Neither this Agreement nor any document or statement
----------
prepared and furnished to the Agent and/or Lenders hereunder or in connection
herewith contains any untrue statement of a material fact or omits to state any
material fact necessary in order to make the statements contained herein or
therein not misleading. All machinery, equipment and other tangible Property
described in the appraisals delivered to the Agent or Lenders on or prior to the
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<PAGE>
Closing Date, and all equipment, machinery and tangible Property at the Premises
is legally and beneficially owned or leased by the Borrowers or the Guarantor.
8.28 Workers' Compensation. None of the Borrowers or any of its or their
---------------------
Subsidiaries has any unpaid workers' compensation or like obligations except as
are being incurred, and paid on a current basis in the ordinary course of
business, and there are no proceedings, claims, actions, orders or
investigations of any Public Authority relating to worker's compensation
outstanding, pending or, to their knowledge, threatened relating to them or any
of their employees or former employees which could reasonably be expected to
give rise to a Material Adverse Effect.
8.29 Real Estate. To the best of any Borrower's or the Guarantor's
-----------
current actual knowledge: (a) No part of the Real Estate has been condemned,
taken or expropriated by any federal, state, provincial, municipal or any other
competent authority and no alteration, repair, improvement or other work has
been ordered or directed to be done or performed to or in respect of such
property by any federal, provincial, state, municipal or any other competent
authority; (b) there are no Liens, easements, encroachments, rights of way, work
orders, licences, concession agreements, leases or tenancies affecting the Real
Estate save and except for Permitted Liens; (c) there is nothing owing in
respect of the Real Estate including any of its leasehold property (to the
extent any Borrower or the Guarantor is or may be liable for same) to any
municipality or to any corporation or commission owning or operating a public
utility for water, gas, electrical power or energy, steam or hot water or for
the use thereof or for the fittings, machines, apparatus, meters or other things
leased in respect thereof or for any work or service performed for any such
corporation or commission in connection with such public utilities, except
current charges and Permitted Liens; (d) none of the Borrowers or the Guarantor
retains any interest, beneficially or otherwise in any land abutting the Real
Estate, by way of fee or equity of redemption in, or a power or right to grant
or exercise a power of appointment with respect to, any such land abutting the
Real Estate; (e) the buildings on the Real Estate are located entirely within
the limits of such Real Estate and all present uses in respect of the Real
Estate may lawfully be continued and all permitted uses are satisfactory for
each Borrower's and the Guarantor's current and intended purposes; (f) there are
no unsatisfied judgments against any Borrower or the Guarantor and there are no
writs of execution which, in any case, would affect the Real Estate, including
any of their interests in any leasehold property; (g) all immoveable and real
property taxes including local improvement rates, have been paid prior to being
in default to date in respect of the Real Estate; (h) all accounts for work and
service performed and materials placed or furnished upon or in respect of the
Real Estate including any of its leasehold property, including any claims by any
municipal, provincial, state, federal, or other competent authority, have been
fully paid and no one is entitled to claim a lien under the Construction Lien
-----------------
Act of Ontario (or any similar law or legislation of any jurisdiction) against
- ---
such Real Estate or any part thereof; (i) the Security Interest is not being
granted with the intention of securing the financing of any alteration, addition
or repair to, or any construction, erection, demolition or installation on or in
respect of the Real Estate or any structure thereon, nor is it being taken to
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<PAGE>
repay any mortgage the proceeds of which were so used; and (j) no Inventory is
located at any leased Premises except as indicated in Exhibit D and at locations
permitted under Section 6.3.
As at the Closing Date, no Real Estate or Premises, and no other
location of Collateral, is designated a "flood prone" or "flood risk" area, as
defined in the Flood Disaster Protection Act of 1973.
-----------------------------
8.30 Investment Act. None of the Borrowers 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. The making of the Loans and other financial accommodations
hereunder by the Agent and/or Lenders, the application of the proceeds and
repayment thereof by the Borrowers and other transactions contemplated by this
Agreement and the Loan Documents do not violate any provisions of such Act or
any rule, regulation or order issued by the Securities and Exchange Commission
thereunder.
8.31 Margin Securities. None of the Borrowers owns any "margin
-----------------
security," as that term is defined in Regulations T, U or X of the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board"), and the
---------------------
proceeds of the Revolving Loans and the other financial accommodations made
pursuant to this Agreement will be used only for the purposes contemplated
hereunder. None of the Loans and the other financial accommodations hereunder
will be used, directly or indirectly, for the purpose of purchasing or carrying
any margin security, for the purpose of reducing or retiring any Debt or other
Person's indebtedness which was originally incurred to purchase or carry any
margin security, or for any other purpose which might cause any such loan or
other financial accommodation to be considered a "purpose credit" within the
meaning of Regulation T, U or X of the Federal Reserve Board. None of the
Borrowers will take or permit any agent acting on its behalf to take any action
which might cause any transaction, obligation or right created by this
Agreement, or any document or instrument delivered pursuant hereto, to violate
any regulation of the Federal Reserve Board.
---------------------
9. AFFIRMATIVE AND NEGATIVE COVENANTS. Except as may otherwise be approved
----------------------------------
by the Lenders, each Borrower and the Guarantor (as to itself only) covenants
that so long as any of the Obligations remain outstanding or this Agreement is
in effect (it being agreed that where any act or thing is to be done or not to
be done or permitted by any Subsidiary of a Borrower the applicable Borrower
shall cause such Subsidiaries to do the act or thing or not to do or permit the
act or thing, as the case may be):
9.1 Taxes and Other Obligations. Each Borrower and the Guarantor shall,
---------------------------
and shall cause each of its Subsidiaries to: (a) file when due, except as
described in Exhibit N, all tax returns and other reports which it is required
to file, pay or provide for the payment, on or prior to the time when due or
delinquent, except as described in Exhibit N, of all taxes, fees, assessments,
and other governmental charges against it or upon its Property, income and
franchises, make all required withholding and other tax deposits, and establish
adequate reserves
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<PAGE>
for the payment of all such items, and shall provide to the Agent, upon request,
satisfactory evidence of its timely compliance with the foregoing; and (b) pay
when due all Obligations and Guaranteed Obligations and, subject to any
restrictions thereof as herein provided, any other Debt or indebtedness owed by
it, and perform and discharge in a timely manner all its covenants and
obligations hereunder and under the Loan Documents and, subject to any
restrictions thereon as herein provided, all other obligations undertaken by it;
provided, however that the Borrowers, the Guarantor and its and their
- -------- -------
Subsidiaries need not pay any tax, fee, assessment, governmental charge, or
Debt, or perform or discharge any other obligation, that it has disclosed (with
all particulars required by the Agent) in writing to the Agent or its applicable
Lender and that it is contesting in good faith by appropriate proceedings
diligently pursued provided that to the extent so required under GAAP it has
established reserves in financial statements in accordance with GAAP.
9.2 Corporate Existence and Good Standing. Each Borrower and the
-------------------------------------
Guarantor shall, and shall, in the case of each Borrower, cause each of its
Subsidiaries to, maintain its corporate existence and its qualification and good
standing in all jurisdictions necessary to conduct its business and own its
Property, shall obtain and maintain, and shall cause each of its Subsidiaries to
obtain and maintain, all licenses, permits, franchises and governmental
authorizations necessary to conduct its business and own its Property, and shall
properly maintain, and shall, in the case of each Borrower, cause each of its
Subsidiaries to maintain, all of its books, records and accounts in accordance
with GAAP.
9.3 Compliance with Law and Agreements. Each Borrower and the Guarantor
----------------------------------
shall, and shall cause each of its Subsidiaries to, comply with the terms and
provisions of each judgment, law, statute, rule, and governmental regulation
applicable to it, and each hypothec, mortgage, lien, lease, indenture, order,
instrument, agreement or document to which it is or they are a party or by which
it is or they are bound, except, in each case, to the extent that non-compliance
could reasonably be expected to give rise to a Material Adverse Effect.
9.4 Maintenance of Property and Insurance. Each Borrower and the
-------------------------------------
Guarantor shall, and shall cause each of its Subsidiaries to: (a) maintain all
of its Collateral necessary and useful in its and their businesses in the
ordinary course in good operating condition and repair, ordinary wear and tear
excepted; (b) maintain credit insurance on all of its Accounts pursuant to a
policy assigned to the Agent or a Lender (as directed), all on terms and
conditions with an insurer satisfactory to the Agent and the Lenders; and (c) in
addition to the insurance required by Section 6.7, maintain with financially
sound and reputable insurers such other insurance with respect to its Collateral
and business against casualties and contingencies of such types and in such
amounts as is customary for Persons of established reputation engaged in the
same or a similar business and similarly situated, naming the Agent at its
request, as additional insured under each such policy.
9.5 Trademarks, Patents and Copyrights. If any of the Collateral
----------------------------------
consists of trademarks, patents or copyrights, each Borrower and the Guarantor
shall, and shall cause each
-50-
<PAGE>
of its Subsidiaries to: (a) comply with all applicable laws regulating the
maintenance and quality of trademarks, patents and copyrights; (b) execute such
documents and take such other actions necessary to extend the Collateral to any
newly issued trademarks, patents or copyrights; and (c) maintain the exclusive
right to use the trademarks, patents and copyrights.
9.6 Environmental Laws. Each Borrower and the Guarantor shall conduct,
------------------
and shall cause each of its Subsidiaries to conduct, its business in compliance
in all material respects with all Environmental Laws applicable to it,
including, without limitation, those relating to the Borrower's or such
Subsidiary's generation, handling, use, storage and disposal of Materials of
Environmental Concern. Each Borrower and the Guarantor shall take, and shall
cause its Subsidiaries to take, prompt and appropriate action to respond to any
non-compliance or alleged non-compliance with Environmental Laws, and shall
regularly report to the Agent on such response. Without limiting the generality
of the foregoing, whenever any Borrower or the Guarantor gives notice to the
Agent pursuant to Section 7.3(g) and the Agent so requests, such Borrower or the
Guarantor shall, at the expense of the applicable Borrower or Guarantor: (a)
cause an independent environmental engineer acceptable to the Agent and the
Lenders to conduct such tests of the site where the non-compliance or alleged
non-compliance with Environmental Laws has occurred, and prepare and deliver to
the Agent and the Lenders a report setting forth the results of such tests, a
proposed plan for responding to any environmental problems described therein,
and an estimate of the costs thereof; and (b) provide to the Agent and the
Lenders a supplemental report of such engineer whenever the scope of the
environmental problems, or such Borrower's, and any other Person's response
thereto or the estimated costs thereof, shall change. Such reports shall also be
addressed to the Agent and the Lenders and shall, as requested by the Agent, set
out the results of such engineers' review of, inter alia: (i) the internal
policies and procedures of such Borrower or any Subsidiary, as the case may be,
relating to environmental regulatory compliance to ensure that all appropriate
steps are being taken by or on behalf of such Borrower or any Subsidiary, as the
case may be, to comply with all applicable requirements of Environmental Laws;
(ii) progress of compliance satisfaction, capital expenditures required to
effect remedial steps and compliance deficiencies; (iii) all other environmental
audit reports which such Borrower or any Subsidiary, as the case may be, or any
predecessor has commissioned in the normal conduct of its business; and (iv) all
environmental reports which have been commissioned by or made available to a
Borrower or any Subsidiary, as the case may be, in connection with new
acquisitions, and the engineers' report and recommendations on results of tests
performed or samples taken by it during the course of its review, irregularities
or steps which may be taken to ensure continued compliance, as well as such
other matters as a Borrower and/or the Agent and/or the Lenders may reasonably
request from time to time.
9.7 Plans. Each Borrower and the Guarantor shall and shall cause each of
-----
its and its Subsidiaries' Plans to be duly qualified and administered in all
respects in compliance with, as applicable, ERISA, the Code, the Pension
-------
Benefits Act of Ontario and all applicable laws (including regulations, orders
- ------------
and directives), and the terms of the Plans and any agreements relating thereto.
Each Borrower and the Guarantor shall ensure that it and its and their
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Subsidiaries: (a) have no unfunded, solvency, or deficiency on windup liability
and no accumulated funding deficiency (whether or not waived) as defined in
Section 302 of ERISA or Section 412 of the Code or any amount of unfunded
benefit liabilities (including as defined in Section 4001(a)(18) of ERISA) in
respect of any Plan, including any Plan to be established and administered by it
or them; (b) all amounts required to be paid by it or them are paid when due;
(c) no liability upon it or them or Lien on any of its or their Property arises
or exists in respect of any Plan; (d) cause each Plan which is qualified under
Section 401(a) of the Code to maintain such qualification; (e) make all required
contributions to any Plan when due; (f) not engage in a prohibited transaction
or violation of the fiduciary responsibility rules with respect to any Plan that
could reasonably be expected to result in liability; and (g) not engage in a
transaction that could be reasonably expected to result in liability under
Section 4069 or 4212(c) of ERISA.
9.8 Mergers, Consolidations, Acquisitions or Sales. None of the
----------------------------------------------
Borrowers or any of its or their Subsidiaries shall, in one or a series of
transactions, carry on business with or through any other Person, enter into any
partnership, joint venture, co-venture or other combination, enter into any
transaction of amalgamation, merger, reorganization, or consolidation, or,
subject to Sections 6.4 and 6.12 hereof, transfer, sell, assign, lease or
otherwise dispose of all or any part of its Property, or, wind up, liquidate or
dissolve, or cease to carry on business or agree to do any of the foregoing,
without the prior written consent of the Agent and the Lenders.
9.9 Distributions; Capital Changes. Provided no Event or Event of
------------------------------
Default has occurred and is continuing, (A) the U.S. Borrowers may make
payments, loans, loan repayments and Distributions to the extent permitted by
applicable law to each other and (B) the Canadian Borrower and the Guarantor may
make payments, loans, loan repayments and Distributions to the extent permitted
by law to the other of them. Except as provided in clauses (A) or (B) or as may
otherwise be approved by the Lenders, none of Borrowers or the Guarantor shall
(a) directly or indirectly, declare, make or pay, or incur any liability to make
or pay, any Distribution or, subject to Section 9.13 hereof, any other payment
to any Affiliate of any Borrower, in cash or property, on account of repayments
of, indebtedness, lease or rental payments, payments for management or other
services or otherwise, or (b) make any change in its capital structure
(including by the issuance of shares, purchase, put, call, retraction,
redemption, restructuring or otherwise or by changing any terms or conditions of
any class of shares in its capital or by creating any further classes of
shares).
9.10 Transactions Affecting Collateral or Obligations. None of the
------------------------------------------------
Borrowers or any of its or their Subsidiaries shall enter into any transaction
or otherwise cause, permit or suffer to occur or exist any event or condition
which has resulted in or could reasonably be expected to give rise to a Material
Adverse Effect.
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<PAGE>
9.11 Guarantees. None of the Borrowers or any of its Subsidiaries shall
----------
make, issue, or become liable on any Guarantee, except (a) Guarantees in favour
of the Agent and/or Lenders; and (b) endorsements of instruments for deposit in
the ordinary course of business.
9.12 Debt. None of the Borrowers or any of its or their Subsidiaries
----
shall incur or maintain any Debt other than: (a) the Obligations; (b) tax
obligations not otherwise giving rise to any Event hereunder (including deferred
taxes), trade payables and contractual obligations to suppliers and customers
and other Persons incurred in the ordinary course of business as carried on the
date hereof by each of the Borrowers; (c) other Debt existing on the Closing
Date and included in the Financial Statements attached as Exhibit G-3; (d) Debt
secured by PMSIs in Equipment acquired in accordance with Section 9.20 by a
Borrower or the Guarantor; and (e) Debt in connection with loans and
Distributions permitted under Section 9.8.
9.13 Prepayment. None of the Borrowers or, any of its or their
----------
Subsidiaries shall voluntarily prepay any Debt except repayments of loans as
permitted under Section 9.8 and except the Obligations in accordance with the
terms hereof.
9.14 Transactions with Affiliates. Except (a) to the extent permitted
----------------------------
under Section 9.8, and (b) purchases of Inventory on commercially reasonable
terms not less favourable than those prevailing between arms' length Persons and
provided that no cost basis of any Property shall be increased solely in
- -------- ----
consequence of a purchase (and not as a result of improvements and processing),
none of the Borrowers or any of its Subsidiaries shall: sell, transfer,
distribute, or pay any money or Property to any Affiliate, or lend or advance
money or Property to any Affiliate or related (within the meaning of the Income
------
Tax Act of Canada) Person, or invest in (by capital contribution or otherwise)
- -------
or purchase or repurchase any equity or indebtedness, or any Property, of any
Affiliate or related (within the meaning of the Income Tax Act of Canada)
--------------
Person, or become liable on any Guarantee of the indebtedness, dividends, or
other obligations of any Affiliate or related (within the meaning of the Income
------
Tax Act of Canada) Person.
- -------
9.15 Investment Banking and Finder's Fees. Other than to Akin Bay
------------------------------------
Company LLC, none of the Borrowers or any of its or their Subsidiaries shall pay
or agree to pay any investment banking or similar or related fee, underwriter's
fee, finder's fee, or broker's fee to any Person in connection with this
Agreement. Each Borrower and the Guarantor shall defend and indemnify the Agent
and each of the Lenders against and hold it and them harmless from all claims of
any Person for any such fees, and all costs and expenses (including, without
limitation, legal fees) incurred by the Agent and/or any of the Lenders in
connection therewith.
9.16 Business Conducted. None of the Borrowers or any of its and their
------------------
Subsidiaries shall engage, directly or indirectly, in any line of business other
than the businesses in which such Borrower and its and their Subsidiaries are
engaged in on the Closing Date and businesses reasonably related or ancillary
thereto.
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9.17 Liens. None of the Borrowers or any of its or their Subsidiaries
-----
shall create, incur, assume, or permit to exist any Lien on any Collateral now
owned or hereafter acquired by any of them, except Permitted Liens.
0.1 Sale and Leaseback Transactions. None of the Borrowers or any of
-------------------------------
its or their Subsidiaries shall, directly or indirectly, enter into any
arrangement with any Person providing for such Borrower or any Subsidiary to
lease or rent Collateral that such Borrower or any Subsidiary has or will sell
or otherwise transfer to such Person.
9.18 New Subsidiaries. None of the Borrowers or any of its or their
----------------
Subsidiaries shall, directly or indirectly, organize or acquire any Subsidiary
other than those listed on Exhibit F, without the prior written consent of the
Agent and the Lenders, not to be unreasonably withheld.
9.19 Restricted Investments. None of the Borrowers or any of its
----------------------
Subsidiaries shall make any Restricted Investment except to the extent permitted
under Section 9.8, without the prior written consent of the Agent and the
Lenders, not to be unreasonably withheld.
9.20 Capital Expenditures.
--------------------
(a) The Canadian Borrower shall not make or incur any Capital
Expenditures, if after giving effect thereto, the aggregate amount of
all Capital Expenditures exceeds $400,000 in any Fiscal Year.
(b) Ark shall not make or incur any Capital Expenditures if after giving
effect thereto, the aggregate amount of all Capital Expenditures
exceeds $115,000 in any Fiscal Year.
9.22 Minimum Tangible Net Worth.
--------------------------
(a) The Canadian Borrower shall maintain Tangible Net Worth of at least
the following:
(i) as at December 31, 1999, U.S. $2,475,000;
(ii) as at December 31, 2000, U.S. $3,375,000; and
(iii) as at December 31, 2001 and as at each December 31 thereafter,
U.S. $4,600,000.
(b) Ark shall maintain Tangible Net Worth of at least the following:
(i) as at December 31, 1999, U.S. $60,000;
(ii) as at December 31, 2000, U.S. $560,000; and
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(iii) as at December 31, 2001 and as at each December 31 thereafter,
U.S. $2,990,000.
(c) International shall maintain Tangible Net Worth of at least the
following:
(i) as at December 31, 1999, U.S. $3,725,000;
(ii) as at December 31, 2000, U.S. $5,250,000; and
(iii) as at December 31, 2001 and as at each December 31 thereafter,
U.S. $9,000,000.
9.23 Tangible Leverage
-----------------
(a) The Canadian Borrower's ratio of Total Liabilities to Tangible Net
Worth shall not be greater than the following:
(i) as at December 31, 1999, 3.4 to 1;
(ii) as at December 31, 2000, 2.35 to 1; and
(iii) as at December 31, 2001 and as at each December 31 thereafter,
1.60 to 1.
(b) Ark's ratio of Total Liabilities to Tangible Net Worth shall not be
greater than the following:
(i) as at December 31, 1999, 54.6 to 1;
(ii) as at December 31, 2000, 8.35 to 1; and
(iii) as at December 31, 2001 and as at each December 31 thereafter,
1.03 to 1.
9.24 Net Income
----------
(a) The Canadian Borrower shall have Net Income of at least:
(i) for the 1999 Fiscal Year, U.S. $900,000;
(ii) for the 2000 Fiscal Year, U.S. $915,000; and
(iii) for the 2001 Fiscal Year and for each Fiscal Year thereafter,
U.S. $1,225,000.
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<PAGE>
(b) Ark's shall have Net Income of at least:
(i) for the 1999 Fiscal Year, U.S. $200,000;
(ii) for the 2000 Fiscal Year, U.S. $1,280,000; and
(iii) for the 2001 Fiscal Year and for each Fiscal Year thereafter,
U.S. $2,370,000.
(c) International shall have Net Income of at least:
(i) for the 1999 Fiscal Year, U.S. $1,225,000;
(ii) for the 2000 Fiscal Year, U.S. $2,225,000; and
(iii) for the 2001 Fiscal Year and for each Fiscal Year thereafter,
U.S. $3,625,000.
9.25 Fixed Charge Service Ratio
--------------------------
(a) The Canadian Borrower's Fixed Charge Service Coverage Ratio shall not
be less than:
(i) as at December 31, 1999, 1.15 to 1;
(ii) as at December 31, 2000, 1.2 to 1; and
(iii) as at December 31, 2001 and as at each December 31 thereafter,
1.3 to 1.
(b) Ark's Fixed Charge Service Coverage Ratio shall not be less than:
(i) as at December 31, 1999, .75 to 1;
(ii) as at December 31, 2000, .85 to 1; and
(iii) as at December 31, 2001 and as at each December 31, thereafter,
1.65 to 1.
9.26 Year 2000 Problem. The Borrowers and the Guarantor will, on a
-----------------
timely basis, take all commercially reasonable steps to address the "Year 2000
problem" referred to in Section 8.26 such that there does not occur any Material
Adverse Effect as a consequence thereof.
9.27 Use of Proceeds The proceeds of the Loans shall be used by the
---------------
Borrowers to repay existing bank indebtedness, provide working capital for the
Borrowers and to fund initial marketing and advertising costs for the launch of
Ark's new puzzle line.
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9.28 Further Assurances. Each of the Borrowers and the Guarantor shall
------------------
execute and deliver, or cause to be executed and delivered, to the Agent and
Lenders such documents and agreements, and such additional instruments of
security, and shall take or cause to be taken, or do or cause to be done, such
actions and things, as the Agent and Lenders may, from time to time, request to
carry out the terms and conditions of this Agreement and the other Loan
Documents, and in order to better register, perfect and protect the priority
over all other Liens of the Security Interest.
9.29 Litigation. Each of the Borrowers and the Guarantor shall give the
----------
Agent and the Lenders prompt notice of any pending or threatened action, suit,
proceeding, or counterclaim by any Person, or investigation by any Public
Authority, or any basis for any of the foregoing, of which any of the Borrowers
or the Guarantor have knowledge, which could reasonably be expected to give rise
to any Material Adverse Effect.
10. CLOSING; CONDITIONS TO LENDING. The Agent and Lenders will not be
------------------------------
obligated to make or continue any Loans or obtain or issue any Letters of Credit
and no Borrower shall request any Drawdown, Rollover or Conversion of any Loan
or issuance of any Letter of Credit unless the following conditions (which will,
until the Closing Date, constitute conditions precedent and, thereafter, and
whether or not any loans have been made without compliance with any of the
conditions unless the same have been expressly permanently waived, continuing
conditions) have been satisfied as determined by the Agent and Lenders:
10.1 Representations and Warranties; Covenants; Events. Each Borrower's
-------------------------------------------------
and the Guarantor's representations and warranties contained in this Agreement
and the other Loan Documents shall be correct and complete; each Borrower and
the Guarantor shall have performed and complied with all covenants, agreements,
and conditions contained herein and in the other Loan Documents which are
required to have been performed or complied with; and there shall exist no Event
or Event of Default.
10.2 Closing Date Conditions. The Agent shall have received (3 copies
-----------------------
of each) on or prior to the Closing Date, and shall continue to hold, in form
and substance satisfactory to the Agent and Lenders and Agent's counsel:
(a) this Agreement duly executed by each Borrower and the Guarantor;
(b) certified copies of the articles or certificates of
incorporation, amalgamation and amendment, if applicable, of
each Borrower and the Guarantor, its borrowing by-laws and
resolutions of its board of directors authorizing its execution,
delivery and performance of this Agreement and the Loan
Documents to be signed by it;
(c) evidence reasonably satisfactory to the Agent and Lenders and
the Agent's counsel that each of the representations and
warranties herein is true and
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accurate in all material respects, each Borrower and the
Guarantor is in compliance in all material respects with all of
its covenants and obligations herein, no Event has occurred, and
there has not occurred any change in any of the Borrowers since
its last Fiscal Year end which could reasonably be expected to
give rise to a Material Adverse Effect;
(d) a General Hypothec of Moveables of each Borrower and the
Guarantor on terms satisfactory to the Agent (collectively, the
"Hypothecs");
---------
(e) a general security agreement of each of the Canadian Borrower
and the Guarantor, on terms satisfactory to the Agent (the
"GSAs");
----
(f) except as otherwise permitted by the Agent and the Lenders,
mortgagee, warehouseman, bailee, processor and consignee waivers
and consents with respect to each location not owned by a
Borrower or the Guarantor where Inventory may be located, in
form and substance acceptable to the Agent and Agent's counsel;
(g) the Altro Support Agreement;
(h) a copy of the Ark asset purchase agreement;
(i) the U.S. Security Documents of the U.S. Borrowers, satisfactory
to the Agent;
(j) each of the other Loan Documents, including the documents listed
in Exhibit L, in form and substance satisfactory to the Agent;
(k) the favourable opinion of each Borrower's and the Guarantor's
counsel (Ontario, Quebec and local counsel as required by the
Agent and Lenders), addressed to the Agent, each of the Lenders
and Agent's counsel, such opinions to speak to the status and
formation of each Borrower and the Guarantor and its
qualification to carry on business in each jurisdiction where it
does so, the due authorization, execution, delivery and
enforceability in accordance with their terms of all Loan
Documents, and otherwise in form and scope satisfactory to the
Agent, the Lenders and Agent's counsel; and
(l) the Agent's and Lender's customary agreements and all documents,
instruments, financial statements, consents, evidences of
corporate authority, certificates, insurance certificates,
opinions of legal counsel and such other writings to confirm and
effectuate the lending transactions and the matters referred to
herein as may be required by the Agent and its
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<PAGE>
counsel, all duly executed and/or delivered by each Borrower and
the Guarantor.
10.3 Release of Proceeds; Drawdown Date. On the Closing Date, and prior
----------------------------------
to the release of any proceeds of any Loans or issuance of any Letters of
Credit, the following shall have been completed to the satisfaction of the Agent
and Lenders in its discretion:
(a) all necessary legislative, regulatory, governmental, and other
third party approvals, notices, consents and permits including
as necessary to grant and perform the Loan Documents and carry
on each Borrower's and the Guarantor's business shall have been
given and obtained by each Borrower and the Guarantor, such
approvals, notices, consents and permits not to contain any
terms or conditions which the Agent and Lenders reasonably
consider to be materially adverse to any Borrower or the
Guarantor and evidence thereof shall have been furnished to the
Agent and Lenders;
(b) each Borrower and the Guarantor shall have delivered evidence
reasonably satisfactory to the Agent and Lenders that,
immediately after the Closing Date and making of the initial
Loans and issuance of any Letter of Credit and after ensuring
that all of the Borrowers' and the Guarantor's Debts are
current, the sum of the Canadian Availability and U.S.
Availability will not be less than $1,000,000, and each Borrower
shall have sufficient availability to enable it to meet all debt
amortization requirements and to observe and perform all terms
hereof and of the other Loan Documents;
(c) all registrations and filings in respect of the Loan Documents
shall have been made in the United States, Quebec and Ontario
and otherwise as Agent's counsel shall determine to be necessary
or appropriate (at the expense of the applicable Borrower or
Guarantor), it being understood and agreed that the Agent shall
be entitled to make (at the expense of the applicable Borrower
or Guarantor) all such further registrations and filings in
respect of the Loan Documents, after the Closing Date, and until
all Obligations of the Borrowers and the Guarantor have been
paid and performed in full, as the Agent shall consider
necessary or appropriate in its discretion;
(d) the Agent and Lenders shall have reviewed and shall be satisfied
with the insurance policies maintained by each Borrower, and all
terms thereof (including risks and amounts of coverage) and the
insurers, it being understood and agreed that the Agent (for
itself and the Lenders) shall be named as loss payee as its
interest may appear and first mortgagee and
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that all such policies shall contain the standard mortgagee
endorsement clauses in favour of the Agent, certificates
(pursuant to endorsements satisfactory to the Agent in its
discretion) on each of the policies of the Borrowers;
(e) the Agent shall be satisfied with the results of all immoveable
and real and moveable and personal property and other searches
and enquiries conducted in respect of the Borrowers and the
Guarantor and their property and assets as the Agent's counsel
may require including, without limitation, under the Uniform
Commercial Code, the PPSA and the Register of Personal and
Moveable Real Rights of Quebec and estoppel letters (to confirm
the amounts secured by any existing encumbrances and the
collateral covered thereby) shall be received by the Agent as
may be required by the Agent in its discretion;
(f) the Agent and Lenders shall be satisfied that there are no
judgments outstanding, and no legal or administrative
proceedings (including in any court arbitrator or any Public
Authority) pending or threatened except as expressly permitted
hereunder which could reasonably be expected to give rise to a
Material Adverse Effect;
(g) the Borrowers and the Guarantor shall have delivered budgets for
its Capital Expenditures and cash flow and other projections,
satisfactory to the Agent and Lenders, prepared on an annualized
basis and on a month-by-month basis for the first year after the
date hereof, and on an annual basis for the second and third
years after the date hereof, and otherwise on terms and in form
satisfactory to the Agent and Lenders; and
(h) the Borrowers and the Guarantor shall maintain credit insurance
on all its and their Accounts pursuant to a policy assigned to
the Agent or a Lender (as directed), all on terms and conditions
and with an insurer satisfactory to the Agent and Lenders.
10.4 Termination of Liens. The Agent and Lenders shall have received
--------------------
duly executed financing change statements, discharges and other instruments, or
evidence thereof, in form and substance satisfactory to the Agent and Lenders,
as shall be necessary to terminate and satisfy all Liens on the Property of the
Borrowers.
10.5 Pro Forma Balance Sheet. The Agent and Lenders shall have received
-----------------------
each of the Borrower's and the Guarantor's pro forma consolidated balance sheet
as at June 30, 1999, to be attached hereto as Exhibit G-3, and shall be
satisfied that there are no material adverse (as determined by the Agent)
changes from the pro forma balance sheet(s) previously delivered to the Agent.
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10.6 Payment of Fees and Expenses. The Canadian Borrower shall have
----------------------------
paid all reasonable fees and expenses of the Agent's outside counsel, Meighen
Demers and Smith Stratton Wise Heher & Brennan, and all special local counsel
retained and all other fees and expenses of the Agent incurred in connection
with any of the Loan Documents and the transactions contemplated thereby.
10.7 Required Approvals. The Agent and Lenders shall have received
------------------
certified copies of all consents or approvals of any Public Authority or other
Person which the Agent and/or Lenders determine is required in connection with
the transactions contemplated by this Agreement.
10.8 Proceedings. All proceedings to be taken in connection with the
-----------
transactions contemplated by this Agreement and all Loan Documents and other
documents, instruments, guarantees and other assignments incident hereto or
contemplated in connection herewith (whether or not forms thereof are annexed
hereto as Exhibits), shall be satisfactory in form and substance to the Agent
and Lenders and their counsel.
10.9 Field Exams, etc. Satisfactory field examination and review of
----------------
financials and projections.
11. DEFAULT; REMEDIES.
-----------------
11.1 Events of Default. It shall constitute an event of default ("Event
----------------- -----
of Default") if any one or more of the following shall occur for any reason:
- ----------
(a) any failure to pay the principal of or interest or premium on
any of the Obligations (including upon any early or premature
termination, cancellation or unwinding thereof) when due,
whether upon demand or otherwise;
(b) any representation or warranty made by any Borrower or the
Guarantor in this Agreement, any of the other Loan Documents,
any Financial Statement, or any certificate furnished by any
Borrower or the Guarantor or any of its and their Subsidiaries
at any time to the Agent and/or Lenders shall prove to be untrue
in any material respect as of the date on which made;
(c) any breach or failure in the observance or performance by any
Borrower or the Guarantor of any of the covenants and agreements
contained in this Agreement, other than those heretofore dealt
with in Section 11.1 (a), which breach or failure is not
remedied by such Borrower or Guarantor within 30 days after
written notice to do so by the Agent or any Lender;
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provided that such breach or failure is capable of being remedied
and provided that during such 30 day period the Borrower or
Guarantor is proceeding actively and diligently in good faith to
remedy such breach or failure to the satisfaction of the Agent;
(d) this Agreement or any of the other Loan Documents shall terminate
(other than in accordance with its terms or the terms hereof or
with the written consent of the Agent and/or Lenders) or become
void or unenforceable without the written consent of the Agent
and/or Lenders;
(e) any default shall occur in the payment of any principal, interest
or premium with respect to any other Debt in an outstanding
principal amount in excess of $50,000 or under any agreement or
instrument under or pursuant to which any such Debt or
indebtedness may have been issued, created, assumed, or
guaranteed by any Borrower or the Guarantor and such default
shall continue for more than the period of grace, if any, therein
specified, or if any Debt or indebtedness shall be declared due
and payable prior to the stated maturity thereof or if any
Borrower or the Guarantor otherwise defaults in the performance
of any material term or condition relating to a Permitted Lien
securing an amount in excess of $50,000 or if any such defaults
shall occur relating to Permitted Liens securing in the aggregate
an amount in excess of $50,000;
(f) any Borrower or any of its and their Subsidiaries shall: (i) file
a voluntary petition in bankruptcy or file a voluntary petition
or an answer or file any proposal or notice of intent to file a
proposal, or file any application or otherwise commence any
action or proceeding seeking reorganization, arrangement,
consolidation or readjustment of its debts or securities, or
which seeks to stay or has the effect of staying, any creditors,
or for any other relief under the Bankruptcy and Insolvency Act
-----------------------------
of Canada, or the Companies' Creditors Arrangement Act of Canada,
------------------------------------
or the United States Bankruptcy Code, or under any other
-----------------------------
bankruptcy, insolvency, liquidation, winding up, corporate or
similar statute or law, provincial, state or federal, now or
hereafter existing, or consent to, approve of or acquiesce in,
any such petition, proposal, action or proceeding; (ii) apply for
or acquiesce in the appointment of a receiver, assignee, monitor,
liquidator, sequestrator, custodian or trustee (whether or not on
an interim or permanent basis) or similar officer for it or for
all or any part of its Property; (iii) make an assignment for the
benefit of creditors; or (iv) be unable generally to pay its
debts as they become due;
(g) an involuntary petition or proposal shall be filed or an action
or proceeding otherwise commenced seeking reorganization,
arrangement, consolidation or readjustment of any Borrower's or
any of its and their
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<PAGE>
Subsidiaries' debts or securities or for any other relief under
the Bankruptcy and Insolvency Act of Canada, the Companies'
----------------------------- ----------
Creditors Arrangement Act of Canada, the United States Bankruptcy
------------------------- ------------------------
Code, or under any other bankruptcy, insolvency, liquidation,
----
winding up, corporate or similar statute or law, provincial,
state or federal, now or hereafter existing unless (A) such
proceeding is discharged within a period of sixty (60) days, (B)
until discharged is being actively and diligently contested in
good faith, and any relief or remedies upon or against any
Borrower's Collateral have been stayed, (C) has not given rise to
any Material Adverse Effect, and (D) has not otherwise resulted
in any adjudication or declaration of bankruptcy or any of the
events referred to in paragraph (e);
(h) a receiver, assignee, liquidator, administrator, sequestrator,
custodian, trustee, monitor or similar official for any Borrower
or any of its and their Subsidiaries or for all or any part of
the Collateral shall be appointed involuntarily; or an execution,
writ of seizure and sale, sequestration or extent or any other
process of any court, shall be issued or levied against any
material part of the Collateral of any Borrower or the Guarantor
or shall otherwise be enforceable against any Borrower or the
Guarantor or a distress or analogous process is levied upon any
material part of the Collateral of any Borrower or the Guarantor;
(i) any Borrower or the Guarantor shall file a certificate of
dissolution or like process under applicable law or shall be
liquidated, dissolved or wound-up or shall commence or, if (A)
such proceeding has not been discharged within sixty (60) days or
(B) such proceeding is not being actively and diligently
contested in good faith or (C) any relief or remedies upon any
Borrower's or the Guarantor's Collateral have not been stayed or
(D) such proceeding has given rise to any Material Adverse Effect
or (E) such proceeding has resulted in any adjudication or
declaration, have commenced against it any action or proceeding
for dissolution, winding-up, administration or liquidation, or
shall take any corporate action in furtherance thereof or if any
Borrower or the Guarantor abandons all or any material part of
its Collateral or ceases or threatens to cease to carry on
business;
(j) all or any material part of the Collateral of any Borrower or the
Guarantor shall be nationalized, expropriated or condemned,
seized or otherwise appropriated, or custody or control of such
Collateral or if any Borrower or the Guarantor shall be assumed
by any Public Authority or any court of competent jurisdiction at
the instance of any Public Authority, except where contested in
good faith by proper proceedings diligently pursued
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where a stay of enforcement is in effect, which has resulted in
or could reasonably be expected to give rise to a Material
Adverse Effect;
(k) any Guarantee of the Obligations shall be terminated, revoked or
declared void or invalid;
(l) one or more final judgments for the payment of money or final
assessments (which are no longer appealable) of Revenue Canada or
the IRS aggregating in excess of $50,000 (whether or not covered
by insurance) shall be rendered against any Borrower or the
Guarantor and such judgment or assessment is not paid and
discharged within thirty (30) days (provided until discharged,
all relief or remedies have been stayed and further provided such
judgment or assessment has not given rise to a Material Adverse
Effect);
(m) any loss, theft, damage or destruction of any item or items of
Collateral occurs which has given or could reasonably be expected
to give rise to a Material Adverse Effect;
(n) if any Borrower or the Guarantor violates any Environmental Law
which results in an Action Request, Violation Notice or other
notice or control order, cancellation of any license or
certificate or approval that results in any material disruption
of any Borrower's or the Guarantor's business or that could
reasonably be expected to give rise to a Material Adverse Effect;
(o) any event or condition shall occur or exist with respect to a
Plan that could, in the Agent's judgment, subject any Borrower or
any Subsidiary to any tax, penalty or other liabilities under
ERISA, the Code, the Pension Benefits Act of Ontario or any other
--------------------
applicable laws which could reasonably give rise to a Material
Adverse Effect;
(p) if the Canadian Borrower ceases to own one hundred percent (100%)
of the issued and outstanding shares of the Guarantor, or
International ceases to own one hundred percent (100%) of the
issued and outstanding shares of the Canadian Borrower and of
Ark; or
(q) there is filed against any Borrower or the Guarantor any civil or
criminal action, suit or proceeding under any federal, provincial
or state racketeering, proceeds of crime or money laundering
statute (including, without limitation, the Racketeer Influenced
--------------------
and Corrupt Organization Act of 1970), which action, suit or
----------------------------
proceeding (1) is not dismissed within
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one hundred twenty (120) days, and (2) could reasonably be
expected to result in the confiscation or forfeiture or any
material portion of the Collateral.
(r) if both of Stephen Altro and Ronald Goldenberg cease to be
directors and shareholders of the Borrowers without successors
satisfactory to the Agent and Lenders being appointed.
11.2 Remedies. (a) Upon making any demand for payment of any
--------
Obligations payable upon demand or if an Event of Default exists, the Agent and
Lenders may in their discretion, without notice to or demand on any Borrower,
the Guarantor or any other Person, do one or more of the following at any time
or times and in any order: (i) reduce the Canadian Availability or the U.S.
Availability or one or more of the elements thereof; (ii) restrict the amount of
or refuse to make Revolving Loans, and restrict or refuse to arrange for Letters
of Credit; (iii) terminate this Agreement; (iv) declare any or all Obligations
to be immediately due and payable (provided however that upon the occurrence of
any Event of Default described in Sections 11.1(f), 11.1(g), 11.1(h) or 11.1(i),
all Obligations shall automatically become immediately due and payable) in which
case the Borrowers shall immediately (A) pay to the applicable Lender the amount
so declared to be due and payable by it (the "Amount"), and (B) without
------
relieving the Borrowers and the Guarantor from their obligations to immediately
obtain the termination and cancellation of all Letters of Credit, deposit with
the Agent or its applicable Lender as security for the due payment on their
respective expiry dates of the Letters of Credit issued and outstanding for such
Borrower's account, a sum of money equal to the principal amount of all such
Letters of Credit for such Borrower's account, and all fees and expenses payable
by such Borrower to the date of expiration of such Letters of Credit for such
Borrower's account (the "Deposit"), and the Agent and Lenders shall, upon the
-------
earlier to occur of the termination or cancellation thereof prior to maturity or
the respective expiry dates of such Letters of Credit apply (or deliver to the
Issuing Lender for application) the Deposit (or such portion thereof as shall be
necessary) to pay the principal amount of such Letters of Credit; and (v) pursue
its other rights and remedies hereunder and under the Loan Documents and
applicable law.
(b) Upon making any demand for payment of any Obligations payable upon
demand or upon the occurrence of an Event of Default: (i) the Loan Documents
shall become immediately enforceable and the Agent and/or Lenders shall have all
rights and remedies of a secured party under the PPSA, the Civil Code of Quebec,
the Uniform Commercial Code of any state where Collateral may be situate and all
applicable laws of any jurisdiction where the Collateral may be located as well
as all rights provided for in the Loan Documents and may, in its absolute
discretion, take any and all steps in order to enforce and realize upon the Loan
Documents, in whole or in part, provided that none of the Borrowers' or the
Guarantor's obligations and liabilities under this Agreement are in any way
affected or diminished, in the event of any such enforcement of or realization
upon any Security Interest; (ii) the Agent and/or Lenders shall be entitled to
cause Environmental Audits to be conducted in respect of the Borrowers and the
Guarantor and its or their Property and/or any Property in its or their
possession, charge, management or control, the cost and expense of same to be
paid by the
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applicable Borrower; (iii) the Agent may, at any time, take possession of the
Collateral and keep it on a Borrower's or the Guarantor's or Agent's premises,
at no cost to the Agent, or remove any part of it to such other place or places
as the Lenders may desire, or the Borrowers and the Guarantor shall, upon the
Agent's demand, at the applicable Borrower's cost, assemble the Collateral and
make it available to the Agent at a place reasonably convenient to the Lender;
and (iv) the Agent may sell and deliver any Collateral at public or private
sales, for cash, upon credit or otherwise, at such prices and upon such terms as
the Agent and Lenders deems advisable, in its sole discretion, and may, if the
Agent and Lenders deem it reasonable, postpone or adjourn any sale of the
Collateral by an announcement at the time and place of sale or of such postponed
or adjourned sale without giving a new notice of sale. Without in any way
requiring notice to be given in the following manner, each U.S. Borrower agrees
that any notice by the Agent or Lenders of sale, disposition or other intended
action hereunder or in connection herewith, shall constitute reasonable notice
to each U.S. Borrower if such notice is mailed by registered or certified mail,
return receipt requested, postage prepaid, or is delivered personally against
receipt at least five (5) days prior to such action to such U.S. Borrower's
address specified herein, unless notice is not required under applicable law. If
any Collateral is sold on terms other than payment in full at the time of sale,
no credit shall be given against the Obligations until the Agent and Lenders
receives payment, and if the buyer defaults in payment, the Agent and/or Lenders
may resell the Collateral without further notice. In the event the Agent and/or
Lenders seek to take possession of all or any portion of the Collateral by
judicial process, each Borrower and the Guarantor irrevocably waives: (a) the
posting of any bond, surety or security with respect thereto which might
otherwise be required; (b) any demand for possession prior to the commencement
of any suit or action to recover the Collateral; and (c) any requirement that
the Agent retain possession and not dispose of any Collateral until after trial
or final judgment. Each Borrower and the Guarantor agrees that the Agent and
Lenders have no obligation to preserve rights to the Collateral or marshall any
Collateral for the benefit of any Person. Each of the Agent and the Lenders is
hereby granted a license or other right to use, without charge, (and, at the
request of the Agent, the Borrowers and the Guarantor will execute any necessary
documents in order to transfer to the Agent and the Lenders ownership of) each
Borrower's and the Guarantor's labels, patents, copyrights, name, trade secrets,
trade names, trademarks, and advertising matter, or any similar property, in
completing production of, advertising or selling any Collateral, and each
Borrower's and the Guarantor's rights under all licenses and all franchise
agreements shall inure to the Agent's and Lenders' benefit. The proceeds of sale
shall be applied first to all expenses of sale, including attorneys' fees, and
second, in whatever order the Agent elects, to all Obligations of the Person
whose Collateral has been realized. The Lenders will return any excess to the
applicable Borrower or such other Person as shall be legally entitled thereto
and each Borrower and the Guarantor shall remain liable for any deficiency.
(c) If a demand for payment of any of the Obligations payable upon demand
is made or an Event of Default occurs, to the maximum extent legally permitted
but subject to compulsory provisions of law, each Borrower and the Guarantor
hereby waives all rights to notice and hearing prior to the exercise by the
Agent and/or Lenders of the Agent's and/or
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Lenders' rights to repossess the Collateral without judicial process or to
replevy, attach or levy upon the Collateral without notice or hearing.
(d) Upon demand or upon the termination of this Agreement following the
occurrence of any Event of Default, each Borrower shall pay its applicable
Lender, immediately upon termination, an early termination fee equal to the
early termination fee that would have been payable by it under Article 12 if
this Agreement had been terminated on that date pursuant to such Borrower's
election.
(e) Each Borrower and the Guarantor expressly agrees that the rights and
remedies of the Agent and/or Lenders under this Agreement and/or the Loan
Documents are cumulative and in addition to, and not in substitution for, any
rights or remedies provided by law; any single or partial exercise by the Agent
and/or Lenders of any right or remedy for a default or breach of any term,
covenant, condition or agreement in this Agreement does not affect its rights
and does not waive, alter, affect, or prejudice any other right or remedy to
which the Agent and/or Lenders may be lawfully entitled for the same default or
breach. Any waiver by the Agent and/or Lenders of the strict observance of,
performance of or compliance with any term, covenant, condition or agreement of
this Agreement or the Loan Documents, and any indulgence by the Agent and/or
Lenders is not a waiver of that or any subsequent default.
(f) In addition to any rights now or hereafter granted under applicable
law, and not by way of limitation of any such rights, the Agent and/or Lenders
are authorized at any time or from time to time, without notice to the
Borrowers, the Guarantor or to any other Person, any such notice being expressly
waived by the Borrowers and the Guarantor, to set-off and to appropriate and to
remit to the Agent any and all deposits, matured or unmatured, general or
special, and any other indebtedness at any time held by the Agent and/or
Lenders, as the case may be, to or for the credit of or the account of such
Borrower or Guarantor against and on account of the obligations and liabilities
of such Borrowers or Guarantor due and payable to the Agent and/or the
applicable Lenders as the case may be, under or in connection with this
Agreement, including without limitation, all claims of any nature or description
arising out of or connected with this Agreement.
12. TERM AND TERMINATION.
--------------------
Subject to any earlier demand for payment upon the occurrence of an
Event of Default, the initial term of this Agreement shall be the period from
the Closing Date to end on the Maturity Date (the "Term"). In the sole
----
unfettered discretion of the Lenders and upon a prior written request by the
Borrowers and the Guarantor and payment of such fee as the Lenders may specify,
this Agreement may be renewed for additional one (1) year periods after the
Maturity Date (each such renewal period referred to as a "Renewal Term"). The
------------
Borrowers may terminate the Revolving Credit Facilities at any time during the
Term or any Renewal Term if: (a) they give the Lenders ninety (90) days prior
written notice of termination by registered or certified mail; (b) each Borrower
pays and performs all of its Obligations on or prior to the effective date
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of termination; and (c) each Borrower pays to its applicable Lender on or before
the effective date of termination (A) if the effective date of such termination
is on or prior to the first anniversary of the Closing Date, an early
termination fee equal to two percent (2%) of, in the case of the Canadian
Borrower, the Maximum Canadian Revolving Credit Line and, in the case of the
U.S. Borrowers, the sum of the Maximum U.S. Revolving Credit Line and the
average outstanding balance of the U.S. Term Loan during the preceding twelve
(12) months (collectively the "U.S. Fee Balance"), as applicable, (B) if the
----------------
effective date of such termination is after the first anniversary of the Closing
Date and prior to the second anniversary of the Closing Date, an early
termination fee equal to one percent (1%) of the Maximum Canadian Revolving
Credit Line and the U.S. Fee Balance, as applicable, and (C) if the effective
date of such termination is on or after the second anniversary of the Closing
Date and prior to the Maturity Date or the expiry date of any Renewal Term, an
early termination fee equal to one half of one percent (0.5%) of the Maximum
Canadian Revolving Credit Line and the U.S. Fee Balance, as applicable. The
Agent and Lenders may terminate this Agreement upon an Event of Default
whereupon the foregoing fee may, in the Lenders sole discretion, be payable as
if the Borrowers had given a notice of termination effective as of the date of
termination by the Agent and Lenders. Upon the effective date of termination of
this Agreement for any reason whatsoever, all Obligations (including, without
limitation, all exposure of the Agent and/or Lenders under or in connection with
Letters of Credit outstanding) shall become immediately due and payable without
the need for any demand or observance of any other formality by the Agent and/or
Lenders. Notwithstanding the termination of this Agreement, until all
Obligations are paid and performed in full, the Agent and/or Lenders shall
retain all its rights and remedies hereunder and under the Loan Documents
(including, without limitation, in all then existing and after-arising
Collateral). Partial termination of either or both the Canadian Revolving Credit
Facility or U.S. Revolving Credit Facility is not permitted. The Revolving
Credit Facility may not be terminated unless both of such facilities and the
U.S. Term Loan are contemporaneously terminated and repaid. Ark shall not be
permitted to make any prepayment of the U.S. Term Loan unless Ark complies with
Section 4.10 and pays to the U.S. Lender a fee equal to, (A) if prepayment
occurs on or prior to the first anniversary of the Closing Date, two percent
(2%) of the amount of the prepayment, (B) if prepayment occurs after the first
anniversary but prior to the second anniversary of the Closing Date, one percent
(1%) of the prepayment and (C) if prepayment occurs on or after the second
anniversary after the Closing Date and whether during the Term or any Renewal
Term, one half of one percent (0.5%) of the prepayment.
13. GUARANTEES
----------
13.1 The Guarantees. (a) Each of the U.S. Borrowers, as primary obligor
--------------
and not as a surety merely, hereby unconditionally and irrevocably, jointly and
severally, guarantees to the Agent and the Lenders the punctual payment when due
in accordance with the terms hereof of all obligations, of whatever kind and
description, of the Canadian Borrower to the Agent and/or any of the Lenders,
now or hereafter existing, whether direct or indirect, absolute or contingent,
matured or unmatured, secured or unsecured pursuant to or arising out of or
under this Agreement, including, without limitation, all Obligations;
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(b) The Guarantor, as primary obligor and not as a surety merely, hereby
unconditionally and irrevocably, solidarily with the Borrowers, guarantees to
the Agent and the Lenders the punctual payment when due in accordance with the
terms hereof of all obligations, of whatever kind and description, of the
Canadian Borrower to the Agent and/or any of the Lenders, now or hereafter
existing, whether direct or indirect, absolute or contingent, matured or
unmatured, secured or unsecured pursuant to or arising out of or under this
Agreement, including, without limitation, all Obligations; and
(all such obligations under paragraphs (a) and (b) are referred to as
"Guaranteed Obligations")
----------------------
(c) If a U.S. Borrower's guarantee hereunder, or any indemnity or like
obligation in respect of any of the Obligations, or if any Liens securing such
guarantee, would, but for the application of this sentence, be unenforceable
under applicable law, such guarantee, indemnity or like obligation and each such
Lien shall be valid and enforceable to the maximum extent that would not cause
such guarantee, indemnity or like obligation or such Lien to be unenforceable
under applicable law, and such guarantee, indemnity or like obligations and such
Lien shall be deemed to have been automatically amended accordingly at all
relevant times.
13.2 Guarantee Absolute. Each of the U.S. Borrowers and the Guarantor
------------------
guarantees that the Guaranteed Obligations will be paid strictly in accordance
with their terms regardless of any law, regulation or order now or hereafter in
effect in any jurisdiction affecting any of such terms or the rights of the
Agent and/or Lenders with respect thereto. The liability of each of the U.S.
Borrowers and the Guarantor hereunder shall be joint and several and absolute
and unconditional irrespective of:
(a) any lack of validity or enforceability of the Obligations or the
Guaranteed Obligations or any agreement or instrument relating thereto;
(b) any change in the time, manner or place of the payment of, or in any
other term of, all or any of the Obligations or the Guaranteed Obligations, or
any amendment or modification of or any consent to departure from this Agreement
or any other Loan Document;
(c) any exchange, release or nonperfection of any Collateral or any
release or amendment to, waiver of, or consent to departure from, or any
Guarantee for, all or any part of the Obligations or the Guaranteed Obligations;
(d) any whole or partial termination of this Guarantee as to any other
Guarantor; or
(e) any other circumstance which might otherwise constitute a defence
available to, or a discharge of, any Borrower in respect of the Obligations or
the Guaranteed Obligations or a Guarantor in respect of this Guarantee or the
Guaranteed Obligations.
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This Guarantee shall continue to be effective or be reinstated, as the case
may be, if at any time any payment of any of the Obligations or the Guaranteed
Obligations are rescinded or must otherwise be returned by the Agent and/or
Lenders under applicable law, all as though such payment had not been made.
13.3 Consents, Waivers and Renewals. Each Borrower and the Guarantor
------------------------------
hereby waives promptness, diligence, notice of the acceptance hereof, notice of
intent to accelerate and notice of acceleration and any other notice with
respect to any of the Obligations or the Guaranteed Obligations and this
Agreement and any requirement that the Agent and/or Lenders protect, secure,
perfect or insure any Security Interest or Lien or any Property subject thereto
or exhaust any right or take any action against any Borrower, Guarantor or any
other Person or any Collateral before proceeding hereunder. Each Borrower or the
Guarantor agrees that the Agent and/or Lenders may at any time and from time to
time, either before or after the maturity thereof, without notice to or further
consent of any other Borrower or the Guarantor extend the time of payment of,
exchange or surrender any Collateral for, or renew any of the Obligations or the
Guaranteed Obligations, and may also make any agreements with the Borrower, the
Guarantor or with any other party to or Person liable on any of the Obligations,
or interested therein, for the extension, renewal, payment, compromise,
discharge, or release thereof, in whole or in part, or for any modification of
the terms thereof or of any agreement between the Agent and/or any Lenders and
the Borrowers or any such other party or Person, without in any way impairing or
affecting this Guarantee. Each Borrower and the Guarantor agrees to make payment
to the Agent of any of the Obligations and the Guaranteed Obligations whether or
not the Agent and/or any Lenders shall have resorted to any collateral security,
or shall have proceeded against any other obligor principally or secondarily
obligated with respect to any of the Obligations or the Guaranteed Obligations.
The Agent and/or Lenders shall be free to deal with the Borrowers and the
Guarantor as it sees fit.
13.4 Subrogation. None of the Borrowers or the Guarantor shall exercise
-----------
any rights which it may acquire by way of subrogation under this Agreement, by
any payment made hereunder or otherwise, until all of the Obligations and the
Guaranteed Obligations shall have been paid in full. If any amount shall be
paid to any Borrower or the Guarantor on account of such subrogation rights in
violation of the foregoing restriction, such amount shall be held in trust for
the benefit of the Agent (for itself and the other Lenders) and shall forthwith
be paid to the Agent (for itself and the other Lenders) to be credited and
applied to the Obligations, whether matured or unmatured, in accordance with the
terms of this Agreement.
13.5 Allocation. As between the Agent and Lenders only, (A) all amounts
----------
received from or Collateral of any U.S. Borrower shall be applied first in
-----
accordance with Section 4.3(b) and thereafter to any other Obligations or
----------
Guaranteed Obligations as provided in Section 4.3(a), and (B) all amounts
received from or Collateral of the Canadian Borrower or Guarantor shall be
applied in accordance with section 4.3(a).
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14. THE AGENT.
---------
14.1 Agent. Each Lender hereby irrevocably appoints Mellon U.S. as Agent
-----
(including any successor agent as herein provided and including any person to
whom the Agent may delegate duties or responsibilities as permitted by Section
14.2(h) or as contemplated in Section 14.15, the "Agent") to act as its agent in
connection with this Agreement, the other Loan Documents and the matters
contemplated hereunder and thereunder, and authorizes irrevocably the Agent to
exercise such rights, powers and discretions as are delegated to the Agent
pursuant to this Agreement and the other Loan Documents together with all such
rights, powers and discretions as are incidental hereto or thereto. The Agent
shall have only those duties and responsibilities which are expressly specified
in this Agreement and the other Loan Documents, and it may perform such duties
by or through its agents or employees. This Agreement shall not place the Agent
under any fiduciary duties in respect of any Lender or any other Person, and no
implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Loan Document or
otherwise exist against the Agent. Without limiting the generality of the
foregoing sentence, the use of the term "agent" in this Agreement with reference
to the Agent is not intended to connote any fiduciary or other implied (or
express) obligations arising under agency doctrine of any applicable law.
Instead, such term is used merely as a matter of market custom, and is intended
to create or reflect only an administrative relationship between independent
contracting parties. The Agent and any other Person to whom an Agent may
delegate duties or responsibilities as permitted under Section 14.2 (h) and
Section 14.5 shall enjoy the same benefits, rights and protections as those
provided to the Agent under this Article 14 mutatis mutandis. Each Lender hereby
irrevocably appoints and constitutes the Agent as its true and lawful attorney,
with full power of substitution, for the purposes of carrying out any of the
terms hereof, collecting or enforcing any of the Obligations and exercising any
of the rights and remedies of the Lenders hereunder and under the other Loan
Documents, including, without limitation, for the purposes of signing any
documents necessary to perfect, register, maintain, release or discharge the
Security Interest or any of the Loan Documents and instituting any actions or
proceedings. The Agent shall not be liable for any acts or omissions or errors
of judgment or mistakes of fact or law in its exercise of the foregoing power,
except resulting from its gross negligence or wilful misconduct.
14.2 Agent's Responsibility. The Agent may:
----------------------
(a) assume that:
(i) any representation made by any Borrower or the Guarantor in
or in connection with any of the Loan Documents, any notice
or other document, instrument or certificate is true;
(ii) no Event has occurred; and
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(iii) none of the Borrowers or the Guarantor is in breach of or
in default under its obligations under any of the Loan
Documents;
(b) unless the Agent has actual knowledge or actual notice to the
contrary, assume that each party's address is that identified
with its signature below until it has received from such party a
notice designating some other office of such party as its address
and act upon any such notice until the same is superseded by a
further such notice;
(c) engage and pay for the advice or services of any lawyers,
accountants or other experts whose advice or services may to it
seem necessary, expedient or desirable and rely upon any advice
so obtained;
(d) unless the Agent has actual knowledge or actual notice to the
contrary, rely as to matters of fact which might reasonably be
expected to be within the knowledge of a Borrower or the
Guarantor upon a statement signed by or on behalf of a Borrower
or the Guarantor;
(e) rely upon any writing, resolution, notice, consent, certificate,
affidavit, letter, fax, telex, telephone message, statement,
conversation, communication or document believed by it to be
genuine and correct and believed to have been signed, sent or
made by a proper Person;
(f) refrain from exercising any right, power or discretion vested in
it under the Loan Documents or otherwise refrain from taking any
action unless and until it first receives the advice or
concurrence of the Lenders and, if requested, it is specifically
indemnified to its satisfaction by all Lenders against any and
all liability or expense which may be incurred by it by reason of
taking or continuing to take such action. The Agent shall in all
cases be fully protected in acting, or in refraining from acting,
under this Agreement or any other Loan Document in accordance
with a request or consent of the Lenders and such request and any
action taken or failure to act pursuant thereto shall be binding
upon all the Lenders;
(g) refrain from exercising any right, power or discretion vested in
it which would or might in its opinion be contrary to any law of
any jurisdiction or any directive or otherwise render it liable
to any Person, and may do anything which is in its opinion
necessary to comply with any such law or directive;
(h) delegate (without any further consent of the Borrowers, the
Guarantor, any Lender or any other Person if to an affiliate of
the Agent or recognized appraiser and without limitation to
Section 14.15), upon five
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(5) Business Days' prior notice, to such other Person, such
duties and responsibilities as it shall determine to be
appropriate in respect of dealings with or relating to the
Borrowers, the Guarantor or any other Person or any Collateral
and such delegated Person shall be entitled to all of the
benefits and powers of the Agent relating to such delegated
functions and the Agent shall not be responsible for the
negligence or misconduct of any agent or attorney-in-fact that it
selects with reasonable care;
(i) retain for its own benefit, and without liability to account for,
any fee or other sum receivable by it for its own account; and
(j) provide any advisory or other ancillary banking services to any
party (including any Affiliate thereof) to this Agreement
provided same do not conflict with the Agent's express duties
hereunder.
14.3 Agent's Duties. The Agent shall:
--------------
(a) promptly upon receipt thereof, inform each Lender of the contents
of (and, if requested, provide a copy to such Lender of) any
notice, document, request or other information received by it in
its capacity as Agent hereunder from the Borrower, any Guarantor,
or any Lender;
(b) promptly notify each Lender of the occurrence of any Event or
Event of Default, provided, however, that the Agent shall not be
-------- -------
deemed to have knowledge or notice of the occurrence of any Event
or Event of Default, except with respect to defaults in the
payment of principal, interest and fees required to be paid to
the Agent for the account of the Lenders, unless the Agent shall
have received written notice from a Lender or a Borrower
referring to this Agreement, describing such Event or Event of
Default and stating that such notice is a "notice of default";
(c) subject to the foregoing provisions of this Article, take such
actions with respect to any Event or Event of Default as may be
requested by the Lenders, provided, however, that unless and
-------- -------
until the Agent has received any such request, the Agent may (but
shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Event or Event of
Default as it shall deem advisable or in the best interest of the
Lenders; and
(d) do and perform the things contemplated in Articles 6 and 11 in
respect of the Revolving Credit Facilities, or refrain from
exercising any right, power or discretion vested in it under the
Loan Documents or any document incidental thereto.
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14.4 Protection of Agent. Notwithstanding anything to the contrary
-------------------
expressed or implied herein, the Agent shall not:
(a) be bound to enquire as to:
(i) whether any representation made by any Borrower, the
Guarantor or any other Person in or in connection with the
Loan Documents or any document incidental thereto is true;
(ii) the occurrence or otherwise of any Event;
(iii) the performance by any Borrower, the Guarantor or any other
Person of its obligations under any of the Loan Documents
or any document incidental thereto (including any
obligations in respect of insurance);
(iv) any breach of or default by any Borrower, the Guarantor or
any other Person under the Loan Documents or any document
incidental thereto; or
(v) the use or application by any Borrower or the Guarantor of
any of the proceeds of any of the Loans;
(b) be bound to account to any Lender for any sum or the profit
element of any sum received by it for its own account as herein
provided;
(c) be bound to disclose to any Person any information relating to
any Borrower or the Guarantor if such disclosure would or might
in its opinion constitute a breach of any law or regulation or be
otherwise actionable at the suit of any Person;
(d) be under any obligation to inspect the Collateral or any other
Property, books or records of any Borrower, any Guarantor or any
of its or their Subsidiaries or Affiliates;
(e) accept any responsibility for the accuracy and/or completeness of
any information supplied in connection herewith or for the
legality, validity, effectiveness, genuineness, sufficiency,
adequacy or enforceability of the Loan Documents, any Loan, any
Letter of Credit or any document incidental hereto or thereto and
the Agent shall be under no liability to any Lender as a result
of taking or omitting to take any action in relation to the Loan
Documents, any Loan or any document incidental hereto or thereto
save in the case of gross negligence or wilful misconduct, and
each of the Lenders agrees that it will not assert or seek to
assert against
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any director, officer, employee, affiliate or agent of the Agent
any claim it might have against any of them in respect of the
matters referred to in this Section 14.4; or
(f) have any obligation whatsoever to any of the Lenders to assure
that the Collateral exists or is owned by the Borrowers or the
Guarantor or is cared for, protected or insured or has been
encumbered, or that the Agent's Liens have been properly or
sufficiently or lawfully created, perfected, protected or
enforced or are entitled to any particular priority, or to
exercise at all or in any particular manner or under any duty of
care, disclosure or fidelity, or to continue exercising, any of
the rights, authorities and powers granted or available to the
Agent pursuant to this Agreement or pursuant to any of the Loan
Documents, it being understood and agreed that in respect of the
Collateral, or any act, omission or event related thereto, the
Agent may act in any manner it may deem appropriate, in its sole
discretion, given the Agent's own interest in the Collateral in
its capacity as one of the Lenders and that the Agent shall have
no duty or liability whatsoever to any Lender as to any of the
foregoing.
14.5 Indemnification of Agent. Each Lender shall, on demand by the Agent,
------------------------
indemnify the Agent against any and all costs, claims, reasonable expenses
(including legal fees and disbursements) and liabilities which the Agent may
incur (and which have not been reimbursed by the applicable Borrower), except to
the extent determined by a court of competent jurisdiction in a final, non-
appealable judgment to have resulted solely from the gross negligence or wilful
misconduct of the Agent, in acting in its capacity as an Agent under the Loan
Documents, any Loans or any document incidental hereto or thereto. Without
limitation of the foregoing, each Lender shall reimburse the Agent upon demand
for its ratable share of any costs or out-of-pocket expenses (including legal
fees) incurred by the 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, any other Loan
Document, or any document contemplated by or referred to herein, to the extent
that the Agent is not reimbursed for such expenses by or on behalf of the
applicable Borrower. The undertaking in this Section shall survive the payment
of all Obligations hereunder and the resignation or replacement of the Agent.
For greater certainty, the term "Agent" includes each Agent to whom any rights,
powers or functions of Agent may be delegated.
14.6 Termination or Resignation of Agent. The Agent may resign as Agent,
-----------------------------------
upon 30 days' notice to the Lenders. If the Agent resigns under this Agreement,
the Lenders shall appoint from among the Lenders a successor agent for the
Lenders which successor agent shall be approved by the Borrowers. If no
successor agent is appointed prior to the effective date of the resignation of
the Agent, the Agent may appoint, after consulting with Lenders and the
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Borrowers, a successor agent from among the Lenders (it being understood that
such resignation shall not become effective until a successor has been duly
appointed and has accepted its appointment). Upon the acceptance of its
appointment as successor agent hereunder, such successor agent shall succeed to
all the rights, powers and duties of the retiring Agent and the term "Agent"
shall mean such successor agent and the retiring Agent's appointment, powers and
duties as Agent shall be terminated. After any retiring Agent's resignation
hereunder as Agent, the provisions of this Article 14 and Sections 14.5 and 16.9
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was an Agent under this Agreement.
14.7 Rights of Agent. The Agent shall have the same rights and powers
---------------
under this Agreement and any Loans as any other Lender, and it may exercise such
rights and powers as though it were not performing the duties and functions
delegated to it as an Agent hereunder, and the term "Lenders" or any other
similar term shall, unless the context otherwise requires, include the Agent in
its capacity as a Lender and the Issuing Lenders. The Lenders and its or their
affiliates may make, provided same does not conflict with any express duties
hereunder, loans to, issue letters of credit or Credit Support for the account
of, accept deposits from, acquire equity interests in and generally engage in
any kind of banking, trust, financial advisory, underwriting or other business
with the Borrowers and their Subsidiaries and affiliates as though the Lenders
were not the Agent and/or Issuing Lender hereunder and without notice to or
consent of the Lenders. The Lenders acknowledge that, pursuant to such
activities, the Lenders or its or their affiliates may receive information
regarding the Borrowers or their affiliates (including information that may be
subject to confidentiality obligations in favour of the Borrowers or such
Subsidiary) and acknowledge that the Agent, the Lenders or their affiliates
shall be under no obligation to provide such information to them.
14.8 Authorized Waivers, Variations and Omissions. If so authorized in
--------------------------------------------
writing by the Lenders, the Agent may grant waivers, consents, vary the terms of
or amend this Agreement and the other Loan Documents and do or omit to do all
such acts and things in connection herewith or therewith.
14.9 Restrictions on Actions by Lenders; Sharing of Payments. (a) Each of
-------------------------------------------------------
the Lenders agrees that it shall not, without the express consent of the Agent,
and that it shall, to the extent that it is lawfully entitled to do so, upon the
request of the Agent, set-off against the Obligations, any amounts owing by such
Lender to a Borrower or the Guarantor or any accounts of a Borrower or the
Guarantor now or hereafter maintained with such Lender. Each of the Lenders
further agrees that it shall not, unless specifically requested to do so by the
Agent, take or cause to be taken any action, including, without limitation, any
demand for payment or commencement of any legal or equitable proceedings,
against a Borrower or the Guarantor or otherwise to foreclose any Lien on, or
otherwise enforce any security interest in, any of the Collateral, the purpose
of which is, or could be, to give such Lender any preference or priority against
the other Lenders with respect to the Collateral.
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(b) If at any time or times any Lender shall receive (i) by payment,
foreclosure, set-off or otherwise, any proceeds of Collateral or any payments
with respect to the Obligations of a Borrower to such Lender arising under, or
relating to, this Agreement or the other Loan Documents, except for any such
proceeds or payments received by such Lender from the Agent pursuant to the
terms of this Agreement, or (ii) payments from the Agent in excess of such
Lender's ratable portion of all such distributions by the Agent, such Lender
shall promptly turn the same over to the Agent in kind, and with such
endorsements as may be required to negotiate the same to the Agent or in same
day funds, as applicable, for the account of the Agent and the Lenders and for
application to the Obligations in accordance with the applicable provisions of
this Agreement.
14.10 Capacity as Agent. In performing its functions and duties under this
-----------------
Agreement, the Agent shall act solely as the agent of the Lenders and shall not
assume, and shall not be deemed to have assumed, any obligation as agent or
trustee for the Borrowers, the Guarantor or any other Person. The Agent shall be
under no liability or responsibility of any kind to the Borrowers, the
Guarantor, any Guarantor, any Lender or to any other Person arising out of or in
relation to any failure or delay in performance or breach by any Lender or
Lenders or Agent, as the case may be, by the Borrowers, the Guarantor or any
other Person pursuant to or in any way in connection with this Agreement. For
greater certainty, the term "Agent" includes each Agent to whom any rights,
powers or functions of Agent may be delegated.
14.11 Certain Rights of the Agent. Without limitation to any other
---------------------------
provision hereof, the Agent may request instructions from the Lenders at any
time. If the Agent requests instructions from the Lenders with respect to any
action or inaction, the Agent shall be entitled to await instructions from the
Lenders before such action or inaction and shall be entitled to request and
obtain an indemnity of all Lenders satisfactory to the Agent against all costs,
liability and expenses which Agent may suffer or incur in connection with such
matters.
14.12 Collateral Matters. Each Lender authorizes the Agent to enter into
------------------
the Loan Documents to which it is a party, for the benefit of the Lenders. Each
Lender hereby appoints each other Lender as agent for the purpose of perfecting
the Lenders' security interest in assets which can be perfected only by
possession. Should any Lender (other than the Agent) obtain possession of any
such Collateral, such Lender shall notify the Agent thereof, and, promptly upon
the Agent's request therefor shall deliver such Collateral to the Agent or in
accordance with the Agent's instructions. Each Lender authorizes and directs the
Agent to enter into this Agreement and the other Loan Documents relating to the
Collateral, for the benefit of the Agent and the Lenders. Each Lender agrees
that any action taken by the Agent or Lenders in accordance with the terms of
this Agreement or the other Loan Documents relating to the Collateral, and the
exercise by the Agent or the Lenders of their respective powers set forth
therein or herein, together with such other powers that are reasonably
incidental thereto, shall be deemed authorized by and binding upon all of the
Lenders. Notwithstanding the provisions of this Section 14, without notice to or
consent from any Lender, the Agent may take any action
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it considers, in its sole discretion, necessary or advisable to perfect and
maintain the perfection of the Security Interest.
15. ASSIGNMENTS AND TRANSFERS
-------------------------
15.1 Benefit of Agreement. This Agreement shall be binding upon and enure
--------------------
to the benefit of each party hereto and its successors and permitted assigns.
15.2 Assignments and Transfers by the Borrowers. Except as expressly
------------------------------------------
permitted hereunder, no Borrower nor the Guarantor shall be entitled to assign
or transfer all or any of its rights, benefits and obligations hereunder.
15.3 Assignments and Transfers by a Lender. (a) Any Lender may, at its own
-------------------------------------
cost, without requiring any consent, assign or transfer to another Lender or an
affiliate of a Lender, and otherwise with the consent of the Agent and, so long
as no Event shall have occurred and be continuing, in connection with the
Canadian Revolving Credit Facility, the Canadian Borrower and, in connection
with the U.S. Revolving Credit Facility and U.S. Term Loan, the U.S. Borrowers
(which consent of a Borrower shall not in any case be unreasonably withheld or
delayed), to any other Person who carries on a business of making loans or
providing financing all or a rateable portion of all of its rights, benefits and
obligations hereunder. Any Lender requesting a Borrower's consent to a transfer
or assignment shall provide the Agent and such Borrower with all reasonable
information regarding the proposed transferee or assignee as such Borrower or
Agent requests. No Borrower shall be required to pay any amounts to an assignee
in excess of amounts that it would have been required to pay had no such
assignment been made.
(b) Where obligations of a Lender are so assigned or transferred, the
assignee or transferee shall confirm in writing to the applicable Borrower
obligated in respect of the Obligations so assigned or transferred, prior to
such assignment or transfer taking effect, that it shall be bound towards such
Borrower by the terms hereof relating to such obligations. On the assignment and
transfer being made and such written confirmation being delivered to such
Borrower, the Lender making an assignment or transfer shall be relieved of its
obligations to the extent of such assignment or transfer thereof.
15.4 Assignment and Assumption Agreement. If any Lender wishes to assign
-----------------------------------
or transfer all or any of its rights, benefits and obligations hereunder in
accordance with Section 15.3, then such assignment or transfer shall be effected
by the delivery by such Lender to the Agent for its accepting and recording in
the Register (referred to below) of an Assignment and Assumption Agreement in
form satisfactory to the Agent (the "Assignment and Assumption Agreement"). In
the event of an assignment or transfer as aforesaid (and subject to the due
execution of any amendment, variation, accession memoranda or any other
supplemental agreement or deed as may be required by the Agent as referred to
later in this Section), the following will apply, namely:
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(a) the rights and benefits so assigned or transferred shall consist
of a solidary interest of such Lender in all of its rights and
benefits hereunder and under the Security Interest, the
Collateral and the other Loan Documents, the whole to the extent
of the interest so assigned or transferred;
(b) the assignee/transferee party shall assume, to the exoneration of
such Lender, the obligations of such Lender hereunder and under
the other Loan Documents, to the extent of the interest so
assigned or transferred;
(c) such Lender shall be released from its obligations to the
Borrowers and the Guarantor hereunder and under the other Loan
Documents, to the extent of the interest so assigned or
transferred;
(d) such assignment or transfer will not result in novation of the
Obligations, the Guaranteed Obligations or any other obligations
under this Agreement, such novation being hereby expressly
disclaimed;
(e) the obligation of the assignee/transferee party to make Revolving
Loans and to issue or arrange for the issuance of Letters of
Credit will be the same obligation as that of such Lender before
the assignment or transfer and not a new obligation,
notwithstanding any release of such Lender from such obligation;
(f) the assignee/transferee party shall be a party hereto and, to the
extent provided in the Assignment and Assumption Agreement, have
the rights and obligations of a Lender hereunder with the
commitment as set forth therein, and the obligations of the
Borrowers arising from any Loan advanced by or Letter of Credit
issued or arranged by the assignee/transferee party will form
part of the Obligations and the Guaranteed Obligations, will be
secured by the Security Interest and the Collateral and the
assignee/transferee party, such Lender and the Agent will have a
solidary interest therein in the same manner as if the
assignee/transferee party had specifically been named as a Lender
thereunder;
(g) subject to Section 14.9, the rights of such Lender, the Agent and
the assignee/transferee party shall be solidary such that each of
them shall be entitled to:
(i) demand repayment of Loans outstanding from time to time in
accordance with the Loan Agreement;
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(ii) exact the whole performance of the Obligations from the
Borrowers and the Guaranteed Obligations from the
Guarantors;
(iii) benefit from the Security Interest;
(iv) give a full acquittance of the Obligations and the
Guaranteed Obligations; and
(v) exercise all rights and recourses under the Loan Documents;
the whole to the extent of the interest so assigned or
transferred;
(h) the obligation to make Loans and to issue or arrange for the
issuance of Letters of Credit as between such Lender and the
assignee/transferee party shall be several, and not joint and
several or solidary and, accordingly, the Borrowers' recourse
against such Lender and the assignee/transferee party with
respect thereto, will be limited to the amount of the respective
commitment of each Lender and the assignee/transferee party.
The Borrowers and any other Guarantor shall intervene in any
Assignment and Assumption Agreement so as to, inter alia, consent to and
unconditionally acquiesce in the subject assignment or transfer. The Borrowers
and the Guarantor and the assignee shall also execute such further documents and
confirmations including, without limitation in the case of the Borrowers and the
Guarantor, security documents and/or amendments to security documents and in the
case of the assignee, amendments to and interventions in the Loan Documents
(including the execution of any accession memorandum or other supplemental
agreement or deed), as may be requested by the Agent in connection with the
assignment or transfer.
15.5 Register and Notice. The Agent shall maintain a register of the names
-------------------
and addresses of the Lenders, the principal amounts of their Loans and their
commitments (the "Register"). The Agent shall also maintain a copy of each
--------
Assignment and Assumption Agreement delivered to and accepted by it and to
modify the Register to give effect to each Assignment and Assumption Agreement.
Upon its receipt of each Assignment and Assumption Agreement, the Agent will
give prompt notice thereof to the applicable Borrower. The Agent shall be
entitled to rely upon the Register exclusively for purposes of identifying the
Lenders hereunder. The Agent shall notify promptly the other applicable Lenders
of any Assignment and Assumption Agreement accepted by it and shall promptly
upon any request deliver a copy of such Assignment and Assumption Agreement and
a copy of the Register to any Lender .
15.6 Sub-Participations. (i) Any Lender may, at its own cost, grant one or
------------------
more sub-participations in its rights, benefits and/or obligations hereunder to
third parties, without the consent of the Borrowers or the Guarantor or any
other Person, upon such terms and conditions as such Lender shall determine,
provided that, notwithstanding any such sub-participation, such
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Lender shall remain, in so far as the other parties hereto are concerned,
entitled to its rights and benefits hereunder and bound by its obligations
hereunder and the Borrowers and the Guarantor shall not be obliged to recognize
any such third party as having the rights against any of them which it would
have if it had been a party hereto; and (ii) no sub-participant (unless and only
to the extent such sub-participant is itself a Lender) shall be entitled to
require such Lender to take or refrain from taking any action hereunder or under
any other Loan Document.
15.7 Disclosure. Each Lender is hereby authorized by each Borrower and the
----------
Guarantor to disclose to any proposed assignee, transferee or sub-participant
information in the Lenders' possession (in any capacity) relating to such
Borrower or the Guarantor provided that such proposed assignee, transferee or
sub-participant shall have executed and delivered to the Lenders a written
undertaking to keep confidential any such information which is not publicly
available.
16. MISCELLANEOUS.
-------------
16.1 Cumulative Remedies; No Prior Recourse to Collateral. The
----------------------------------------------------
enumeration herein or in the Loan Documents of the Agent's and/or Lenders'
rights and remedies is not intended to be exclusive, and such rights and
remedies are in addition to and not by way of limitation of any other rights or
remedies that the Agent and/or Lenders may have under the PPSA, the Civil Code
of Quebec or Uniform Commercial Code of each jurisdiction where any Collateral
may be located, or other applicable law or the Loan Documents. The Agent and/or
Lenders shall have the right, in its and their sole discretion, but subject to
Section 14.11, to determine which rights and remedies are to be exercised and in
which order. The exercise of one right or remedy shall not preclude the exercise
of any others, all of which shall be cumulative. The Agent and/or Lenders may,
without limitation, but subject to Section 14.11, proceed directly against any
or all Borrowers or the Guarantor to collect the Obligations or Guaranteed
Obligations without any prior recourse to the Collateral.
16.2 No Implied Waivers. No act, failure or delay by the Agent and/or
------------------
Lenders shall constitute a waiver of any of its rights and remedies. No single
or partial waiver by the Agent and/or Lenders of any provision of this Agreement
or any other Loan Document, or of breach or default hereunder or thereunder or
of any right or remedy which the Agent and/or Lenders may have, shall operate as
a waiver of any other provision, breach, default, right or remedy or of the same
provision, breach, default, right or remedy on a future occasion. No waiver by
the Agent and/or Lenders shall affect its rights to require strict performance
of this Agreement.
16.3 Severability. If any provision of this Agreement shall be prohibited
------------
or invalid under the applicable law of any jurisdiction, such prohibition or
invalidity shall not invalidate the remainder of this Agreement in such
jurisdiction or this Agreement as whole in any other jurisdiction provided
--------
however that, if the Agent and/or Lenders determine as a result of any such
- -------
prohibition or invalidity that the Agent and/or Lenders have lost any material
benefit of or right under this Agreement, then if not remedied within thirty
(30) days an Event of Default shall be
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deemed to have occurred whereupon the Agent and/or Lenders may exercise any of
its right or remedies as provided in Section 11.2 hereof (provided that no
-------- ----
termination fee under Section 12 hereof shall be payable if any termination
occurs in consequence of the foregoing).
16.4 Governing Law. This Agreement shall be deemed to have been made in
-------------
the Province of Ontario, and shall be governed by and interpreted in accordance
with the laws of such province.
16.5 Consent to Jurisdiction and Venue; Service of Process. If applicable,
-----------------------------------------------------
each Borrower and the Guarantor agrees that, in addition to any other courts
that may have jurisdiction under applicable laws or rules, any action or
proceeding to enforce or arising out of this Agreement or any of the other Loan
Documents may be commenced in the courts of the Province of Ontario, and each
Borrower and the Guarantor consents and submits in advance to such jurisdiction
and agrees that venue will be proper in such courts on any such matter. The
choice of forum set forth in this Section shall not be deemed to preclude the
enforcement of any judgment obtained in such forum or the taking of any action
under this Agreement to enforce the same, in any appropriate jurisdiction.
16.6 Waiver of Jury Trial, Etc. EACH BORROWER AND THE GUARANTOR HEREBY
-------------------------
WAIVES TRIAL BY JURY, RIGHTS OF SET-OFF, AND THE RIGHT TO IMPOSE COUNTERCLAIMS
IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH OR ARISING
OUT OF THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, THE OBLIGATIONS OR THE
COLLATERAL, OR ANY INSTRUMENT OR DOCUMENT DELIVERED PURSUANT HERETO OR THERETO,
OR ANY OTHER CLAIM OR DISPUTE HOWSOEVER ARISING, BETWEEN SUCH BORROWER AND/OR
THE GUARANTOR AND THE AGENT AND/OR ANY OF THE LENDERS. THE BORROWERS, THE
GUARANTOR, THE LENDERS AND THE AGENT EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF
ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE
FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY
JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR
OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR
ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION
HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS. EACH BORROWER AND EACH GUARANTOR HEREBY WAIVES NOTICE OF INTENT TO
ACCELERATE AND ACCELERATION. EACH BORROWER AND THE GUARANTOR CONFIRMS THAT THE
FOREGOING WAIVERS ARE INFORMED AND FREELY MADE.
16.7 Survival of Representations and Warranties. All of the Borrowers' and
------------------------------------------
the Guarantor's representations and warranties contained in this Agreement shall
survive the
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execution, delivery and acceptance thereof by the parties, notwithstanding any
investigation by the Agent and/or Lenders or its agents.
16.8 Other Security and Guarantees. The Agent and/or Lenders may, without
-----------------------------
notice or demand, and without affecting any Borrower's or the Guarantor's
obligations hereunder, from time to time: (a) take from any Person and hold
collateral (other than the Collateral) for the payment of all or any part of the
Obligations (provided in the case of a Lender that same is delivered to the
Agent to be held for the benefit of all Lenders as herein provided), and
exchange, enforce or release such collateral or any part thereof; and (b) accept
and hold any endorsement or guarantee of payment of all or any part of the
Obligations (provided in the case of a Lender that same is delivered to the
Agent to be held for the benefit of all Lenders as herein provided), and release
or substitute any such endorser or guarantor, or any Person who has given any
Lien in any other collateral as security for the payment of all or any part of
the Obligations, or any other Person in any way obligated to pay all or any part
of the Obligations.
16.9. Fees and Expenses. The Borrowers (severally and, except to the extent
-----------------
relating solely to a failure by any other Borrower to perform its obligation
hereunder in which case the payment shall be payable solely by such other
Borrower, jointly) shall pay to the Agent and Lenders on demand all costs and
expenses that the Agent or Lenders pay or incur in connection with the
negotiation, preparation, consummation, administration, enforcement, and
termination of this Agreement and the other Loan Documents, including, without
limitation: (a) reasonable lawyer's and paralegal's fees and disbursements of
counsel to the Agent, on a solicitor and his own client basis, (including,
without limitation, a reasonable estimate of the allocated cost of in-house
counsel and staff); (b) costs and expenses including reasonable lawyer's and
paralegals' fees and disbursements, on a solicitor and his own client basis
(including, without limitation, a reasonable estimate of the allocated cost of
in-house counsel and staff) for any amendment, supplement, waiver, consent,
enforcement or subsequent closing in connection with this Agreement or the Loan
Documents and the transactions contemplated hereby and thereby; (c) costs and
expenses of PPSA, Uniform Commercial Code, Lien, real Property and title
searches and enquiries; (d) taxes, fees and other charges for recording the Loan
Documents, filing financing statements and continuations, and other actions to
perfect, protect, register, signify, publish and continue the Security Interest;
(e) sums paid or incurred to pay any amount or take any action required of any
Borrower or the Guarantor under the Loan Documents that such Borrower or the
Guarantor fails to pay or take; (f) costs of appraisals, inspections, and
verifications of the Collateral, including, without limitation, travel, lodging,
and meals together with an allocated charge (such allocated charge, the "Audit
-----
Fee") of $600 per day for each auditor employed by Agent or Lenders for
- ---
inspections of the Collateral and the Borrowers' or the Guarantor's operations
by the Agent's and/or Lenders' agents, provided that the maximum Audit Fee
-------------
(exclusive of out-of-pocket expenses) shall not exceed $25,000 in any of the
successive periods of 12 months from the Closing Date in which no Event has
occurred; (g) costs and expenses of forwarding loan proceeds, collecting cheques
and other items of payment, and establishing and maintaining Payment Accounts;
(h) costs and expenses of preserving and protecting the Collateral; (i) any
claims or liabilities whatsoever which may be incurred by the
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Agent and/or any of the Lenders, including reasonable lawyer's and paralegals
fees, on a solicitor and his own client basis (including, without limitation,
the allocated cost of in-house counsel and staff), and any costs of conducting
Environmental Audits pursuant to its rights under Section 11.2 or relating to
any material violation or alleged material violation of any Environmental Laws
in respect of which a Borrower or the Guarantor has not conducted an audit or
has not complied with its obligations hereunder; and (j) costs and expenses
(including reasonable lawyer's and paralegals' fees and disbursements
(including, without limitation, the allocated cost of in-house counsel and
staff) paid or incurred to obtain payment of the Obligations, enforce the
Security Interest, sell or otherwise realize upon the Collateral, and otherwise
enforce the provisions of the Loan Documents, or to defend any claims made or
threatened against the Agent and/or any of the Lenders arising in respect of the
transactions contemplated hereby (including without limitation, preparations for
and consultations concerning any such matters) to be paid by the Borrowers or
the Guarantor hereunder. The foregoing shall not be construed to limit any other
provisions of the Loan Documents regarding costs and expenses to be paid by the
Borrowers or the Guarantor. In addition to any liability of the Borrowers or the
Guarantor to the Agent and/or any of the Lenders under any other provision
hereof, the Borrowers (severally and, except to the extent relating solely to a
failure by the other Borrower to perform its obligation hereunder which shall be
payable solely by such other Borrower, jointly) shall indemnify the Agent and
each of the Lenders and hold the Agent and each of the Lenders harmless against
any reasonable costs or expenses incurred by the Agent and/or any of the Lenders
as a result (i) of any failure by any Borrower or the Guarantor to fulfil any of
its obligations hereunder in the manner provided herein including, without
limitation, any cost or expense incurred by reason of the liquidation or re-
employment in whole or in part of deposits or other funds required by the Agent
and/or any of the Lenders to fund or maintain any Loan as a result of any
Borrower's failure to complete a Drawdown or to make any repayment or other
payment on the date required hereunder or specified by it in any notice given
hereunder, or (ii) any Borrower's or the Guarantor's failure to pay any other
amount including, without limitation, any interest or fee, due hereunder on its
due date, or (iii) the repayment of a BA Equivalent Loan or LIBOR Loan otherwise
than on the last day of its Interest Period (including, without limitation,
breakage, costs of redeploying assets and losses of anticipated profits). The
foregoing indemnities and agreements to pay shall survive until all Obligations
have been fully and finally paid. The certificate of an officer or manager of
the Agent and/or any of the Lenders setting forth the amount of any such losses,
damages, charges, claims, expenses and liabilities, including relating to any
Lender's reallocation or redeployment of funds in consequence of any repayment
of a BA Equivalent Loan or LIBOR Loan other than on the last day of its Interest
Period (with reasonable particulars thereof), shall constitute prima facie
evidence of any such amount, and the Agent shall be entitled to debit, from the
applicable Borrower's accounts, the amount stipulated in the certificate. All of
the foregoing costs and expenses shall be charged to the applicable Borrower's
loan account as Revolving Loans.
16.10 Waiver of Notices. Unless otherwise expressly provided herein, each
-----------------
Borrower and the Guarantor waives, to the maximum extent permitted by law, but
subject to compulsory provision of law, presentment, protest and notice of
demand or dishonour and protest as to any
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instrument, as well as any and all other notices to which it might otherwise be
entitled. No notice to or demand on the Borrowers or the Guarantor which the
Agent and/or Lenders may elect to give shall entitle the Borrowers or the
Guarantor to any or further notice or demand in the same, similar or other
circumstances.
16.11 Binding Effect; Assignment. The provisions of this Agreement shall be
--------------------------
binding upon and inure to the benefit of the respective representatives,
successors and assigns of the parties hereto; provided, however, that no
interest herein may be assigned by the Borrowers or the Guarantor without the
prior written consent of the Lenders. The Lenders shall have the right to assign
or participate in all or any portion of the Obligations or the Revolving Credit
Facility, Term Loan or any interest therein as hereinabove provided.
16.12 Modification. This Agreement is intended by the Borrowers, the
------------
Guarantor and the Agent and the Lenders to be the final, complete, and exclusive
expression of the agreement between them. This Agreement supersedes any and all
prior oral or written agreements relating to the subject matter hereof. No
modification, rescission, waiver, release, or amendment of any provision of this
Agreement shall be made, except by a written agreement signed by the Borrowers
or the Guarantor and a duly authorized officer of the Agent and the Lenders.
16.13 Counterparts. This Agreement may be executed in any number of
------------
counterparts, and by the Agent, the Lenders, the Borrowers and the Guarantor in
separate counterparts, each of which shall be an original, but all of which
shall together constitute one and the same agreement.
16.14 Right of Set-Off. Whenever an Event of Default exists, but subject to
----------------
Section 14.11, the Agent and/or any of the Lenders is hereby authorized at any
time, and from time to time, to the fullest extent permitted by law, to set off
and apply to such Borrower's or Guarantor's Obligations any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other indebtedness at any time owing by the Agent and/or any of the Lenders or
any affiliate of the Agent and/or any of the Lenders to or for the credit or the
account of such Borrower or the Guarantor against any and all of its
Obligations, whether or not then due and payable. The Agent and/or any such
Lender, as applicable, agrees promptly to notify the Agent and Borrower or the
Guarantor, as applicable, after any such set-off and application made by the
Agent and/or any of the Lenders, provided that the failure to give such notice
shall not affect the validity of such set-off and application.
16.15 Inability to Determine Rates. If the Agent determines that for any
----------------------------
reason adequate and reasonable means do not exist for determining the LIBOR Rate
for any requested Interest Period with respect to a proposed LIBOR Loan, or that
the LIBOR Rate for any requested Interest Period with respect to a proposed
LIBOR Loan does not adequately and fairly reflect the cost to the Lenders of
funding such Loan, the Agent or Lender will promptly so notify the affected
Borrower. Thereafter, the obligation of the Lenders to make or maintain LIBOR
Loans hereunder shall be suspended until the Agent or Lender revokes such notice
in writing.
-85-
<PAGE>
Upon receipt of such notice, the affected Borrower may revoke any Notice of
Borrowing or Notice of conversion or rollover then submitted by it. If the
Borrower does not revoke such Notice, the Lenders shall make, convert or
continue the Loans, as proposed by the Borrower, in the amount specified in the
applicable notice submitted by the Borrower, but such Loans shall be made,
converted or continued as Base Rate Loans instead of LIBOR Loans. The foregoing
provisions shall apply, mutatis mutandis, in the event that the Agent or
Canadian Lender determines that adequate and reasonable means do not exist for
determining the BA Equivalent Rate for any requested Interest Period except that
BA Equivalent Loans shall be made, converted or continued, as applicable, as
Prime Rate Loans.
16.16 Precedence. In the event that any provisions of the Loan Documents
----------
(other than this Agreement) (the "Conflicted Agreements") contradict or are
---------------------
otherwise incapable of being construed in conjunction with the provisions of
this Agreement, the provisions of this Agreement shall take precedence over
those contained in the Conflicted Agreements and, in particular, if any act of
any Borrower or the Guarantor is expressly permitted under this Agreement but is
prohibited under the Conflicted Agreements, any such act shall be permitted
under this Agreement and shall be deemed to be permitted under the Conflicted
Agreements.
16.17 Confidentiality. Except as otherwise provided herein, the Agent and
---------------
the Lenders agree to take customary and reasonable precautions to maintain the
confidentiality of all information in connection with this Agreement or other
information respecting the Borrowers or the Guarantor and/or its accounts and
business with the Agent and/or Lenders, provided to the Agent and/or Lenders by
the Borrowers or the Guarantor or otherwise known to the Agent and/or Lenders
("Customer Information"). The Borrowers and the Guarantor acknowledge and agree
--------------------
that the Agent and Lenders may to the extent necessary for the administration
and enforcement of this Agreement disclose from time to time Customer
Information to other offices and branches of the Agent and/or any of the Lenders
and to the Agent's and/or any Lender's subsidiaries and affiliates, in Canada or
anywhere outside Canada. The Borrowers and the Guarantor further consent to the
disclosure of Customer Information by the Agent and/or any of the Lenders, or
any such subsidiary or affiliate of the Agent and/or any of the Lenders (i) at
the request of any governmental, regulatory or other similar agency or authority
having jurisdiction over the Agent and/or any of the Lenders or such subsidiary
or affiliate, (ii) pursuant to subpoena or other court process or to the extent
required in connection with any litigation between the Agent and/or any of the
Lenders, and any Borrower and/or the Guarantor; (iii) when otherwise required to
do so in accordance with applicable law.
16.18 Illegality.
----------
(a) If any Lender determines that the introduction after the date
hereof of any Requirement of Law, or any change after the date
hereof in any Requirement of Law, or in the interpretation or
administration of any Requirement of Law, has made it unlawful,
or that any central bank or other Public Authority has asserted
that it is unlawful, for any Lender or
-86-
<PAGE>
its applicable lending office to make LIBOR Loans, then, on
notice thereof by the Lender to the applicable Borrower, any
obligation of that Lender to make LIBOR Loans shall be suspended
until the Lender notifies such Borrower that the circumstances
giving rise to such determination no longer exist.
(b) If a Lender determines that it is unlawful to maintain any LIBOR
Loan, the affected Borrower shall, upon its receipt of notice of
such fact and demand from such Lender (with a copy to the Agent),
prepay in full such LIBOR Loans of that Lender then outstanding,
together with interest accrued thereon and all other amounts
required hereunder, either on the last day of the Interest Period
thereof, if the Lender may lawfully continue to maintain such
LIBOR Loans to such day, or immediately, if the Lender may not
lawfully continue to maintain such LIBOR Loan. If a Borrower is
required to so prepay any LIBOR Loan, then concurrently with such
prepayment, such Borrower shall borrow from the affected Lender,
in the amount of such repayment, a Base Rate Loan.
16.19 Increased Costs. In the event (as determined by any Lender in the
---------------
exercise of its Permitted Discretion) (i) any applicable law, regulation, treaty
or official directive (whether or not having the force of law) coming into force
after the date hereof, or (ii) any change in any existing applicable law,
regulation, treaty or official directive (whether or not having the force of
law), or in the interpretation or application thereof by any court or by any
governmental or other authority or entity charged with the administration
thereof which now or hereafter (each such event being hereinafter referred to as
a "change in law"),
(a) subjects the Agent and/or any of the Lenders to any tax or
changes the basis of taxation, or increases any existing tax, on
payments of principal, interest or other amounts payable by any
Borrower to the Agent and/or any Lender under this Agreement
(except for taxes on the net income or capital of any Lender), or
(b) imposes, modifies or deems applicable any reserve, special
deposit or similar requirements against assets held by, or
deposits in or for the account of or loans by or any other
acquisition of funds by an office of any of the Lenders, or
(c) either (i) requires any of the Lenders to take into account a
greater percentage of the Loans outstanding than was the case
immediately prior to such change of law in the determination by
any of the Lenders of the amount of capital required or expected
to be maintained by it and, as a result, the amount of such
capital is increased, or (ii) will have the effect of increasing
the amount of capital required or expected to be maintained
-87-
<PAGE>
by any of the Lenders based on the existence of such Lender's
participation in the advance or its obligations hereunder, or
(d) changes the basis of taxation (other than as aforesaid) of any of
the Lenders in respect of payments or principal or interest
payable by any of the Lenders in respect of deposits from third
parties acquired to effect or maintain the Loans or any part
thereof,
and the result of any of the foregoing is to increase the cost to any of the
Lenders or reduce the income receivable by it or, reduce the effective return
realizable by any of the Lenders, in respect of the Loans to an extent which
such Lender deems to be material, then such Lender shall, within 180 days the
Lender having actual notice of the foregoing, give notice thereof to the Agent
and the Borrowers (herein called a "Notice of Amount") stating the amount of
----------------
Additional Compensation (as hereinafter defined) incurred by such Lender. The
affected Borrower shall pay to such Lender, within ten (10) days of the date of
receipt of any Notice of Amount, that amount (in this Section referred to as
"Additional Compensation") which shall compensate such Lender for such
-----------------------
additional cost or reduction in income or effective return from the earlier of
(i) the last Interest Payment Date in the case of a retroactive change of law,
and (ii) the date which is two days prior to the day on which such Lender gave
its initial Notice of Amount in the case of a change of law which is not
retroactive. The affected Lender shall provide to the affected Borrower a
photocopy of the relevant law, regulation, treaty or official directive and a
certificate of a duly authorized officer of such Lender setting forth the
Additional Compensation and the basis of calculation therefor, which shall be
prima facie evidence of the Additional Compensation absent manifest error,
provided that such Lender shall not be required to disclose any information
required to be kept confidential by the relevant authority. The affected Lender
shall endeavour in good faith to limit the incidence of any such Additional
Compensation, including seeking recovery for itself and for the account of the
affected Borrower by appealing any assessment at the request and expense of the
affected Borrower. In the event such Lender subsequently recovers all or part of
the Additional Compensation paid, it shall repay an equal amount to such
Borrower. The Lenders shall be entitled to be paid such Additional Compensation
from time to time to the extent that the provisions of this Section are then
applicable notwithstanding that any of the Lenders has previously been paid any
Additional Compensation. The provisions of this Section shall not be applicable
to a Loan to the extent that such additional cost or reduction in income or
effective return has been taken into consideration in establishing the Prime
Rate or Base Rate. In addition, the affected Borrower shall not be required to
pay any Additional Compensation pursuant to this Section in respect of such
changes which are now known or ought reasonably to have been known to the
affected Lender. In particular, without limitation of the foregoing, the
affected Borrower shall not be required to pay any Additional Compensation in
respect of (i) the BIS Guidelines in their current form or arising from the
implementation thereof, or (ii) bulletins, guidelines, orders or directives
relating to the BIS Guidelines heretofore released by the Office of the
Superintendent of Financial Institutions.
-88-
<PAGE>
16.20 Judgment Currency. If for the purpose of obtaining judgment in any
-----------------
court it is necessary to convert an amount due hereunder in the currency in
which it is due (the "Original Currency") into another currency (the "Second
----------------- ------
Currency"), the rate of exchange applied shall be that at which, in accordance
- --------
with normal banking procedures, the Agent could purchase in the New York foreign
exchange market, the Original Currency with the Second Currency on the date two
(2) Business Days preceding that on which judgment is given. Each Borrower and
each Guarantor agrees that its obligation in respect of any Original Currency
due from it hereunder shall, notwithstanding any judgment or payment in such
other currency, be discharged only to the extent that, on the Business Day
following the date the Agent receives payment of any sum so adjudged to be due
hereunder in the Second Currency, the Agent may, in accordance with normal
banking procedures, purchase, in the New York foreign exchange market, the
Original Currency with the amount of the Second Currency so paid; and if the
amount of the Original Currency so purchased or could have been so purchased is
less than the amount originally due in the Original Currency, each Borrower and
the Guarantor agrees as a separate obligation and notwithstanding any such
payment or judgment to indemnify the Agent against such loss. The term "rate of
exchange" in this Section 16.20 means the spot rate at which the Agent, in
accordance with normal practices, is able on the relevant date to purchase the
Original Currency with the Second Currency, and includes any premium and costs
of exchange payable in connection with such purchase.
16.21 Test Verifications. At all times prior to and following an Event of
------------------
Default, the Agent and the Lenders each have the right, in their Permitted
Discretion (whether or not on their own behalf or on behalf of others) to make
test verifications of any and all Accounts in any manner and through any medium
that the Agent or any Lender considers advisable, with or without the assistance
of any of the Borrowers.
16.22 Representation by Counsel. The Borrowers, the Guarantor, the Agent
-------------------------
and the Lenders acknowledge and agree that they (i) have independently reviewed
and approved each and every provision of this Agreement, including the Exhibits
and Schedules attached hereto, the Guarantee of the Guarantor, and any and all
other documents and items as they or their counsel have deemed appropriate, and
(ii) have entered into this Agreement, the Guarantee, and have executed the Loan
Documents voluntarily, without duress or coercion, and have done all of the
above with the advice of their legal counsel.
16.23 Waiver of Objection. The Borrowers, the Guarantor, the Agent and the
-------------------
Lenders acknowledge and agree that, to the extent deemed necessary by them or
their counsel, they and their counsel have independently reviewed, investigated
and/or have full knowledge of all aspects of the transaction and the basis for
the transaction contemplated by this Agreement and/or have chosen not to so
review and investigate (in which case, the Borrowers and the Guarantor
acknowledge and agree that they have knowingly and upon the advice of counsel
waived any claim or defense based on any fact or any aspect of the transaction
that any investigation would have disclosed), including without limitation: (i)
the risks and benefits of the various waivers of rights contained in this
Agreement, including but not limited to, the
-89-
<PAGE>
waiver of the right to a jury trial; and (ii) the adequacy of the consideration
being transferred under this Agreement.
16.24 No Reliance Upon Lender. The Borrowers and the Guarantor acknowledge
-----------------------
and agree that they have made their own investigation or elected not to make
such investigation as to all matters deemed material to this transaction and
have not relied on any statement of fact or opinion, disclosure or non-
disclosure of the Agent or the Lenders, and have not been induced by the Agent
or the Lenders in any way, except for the consideration recited herein, in
entering into this Agreement and executing the Loan Documents contemplated
hereby, and further acknowledge that the Lender has not made any warranties or
representations of any kind in connection with this transaction except as
specifically set forth herein or in the documents executed in conjunction with
this Agreement, and the Borrowers and the Guarantor are not relying on any such
representations or warranties.
16.25 Notices. Except as otherwise provided herein, all notices, demands
-------
and requests that any party is required or elects to give to the other shall be
in writing, shall be delivered personally against receipt, or sent by recognized
overnight courier service, or mailed by registered or certified mail, return
receipt requested, postage prepaid or by facsimile (provided a copy thereof is
forthwith delivered by mail in the manner herein specified), and shall be
addressed to the party to be notified as follows:
If to the Canadian Lender: Mellon Bank Canada
Royal Trust Tower
P.O. Box 320, Suite 3200
Toronto-Dominion Centre
Toronto, ON M5K 1K2
Attention: Ms. Wendy Bocti
---------- ---------------
Fax No.: (416) 860-2409
If to the Agent or the U.S. Lender: Mellon Bank, N.A.
Edison Square West
2035 Lincoln Highway (Rt. 27)
Suite 1080
Edison, NJ 08817
Attention: Mr. Alfred J. Joseph
---------- --------------------
Fax No.: (732) 650-0318
-90-
<PAGE>
If to any of the Borrowers
or the Guarantor: c/o Grand Toys International, Inc.
1710 Trans Canada Highway
Dorval, QC H9P 1H7
Attention: Executive Vice President, Chief
--------- -------------------------------
Financial Officer
-----------------
Fax No.: (514) 685-2825
or to such other address or fax number as each party may designate for itself by
like notice. Any such notice, demand, or request shall be deemed given when
received, if personally delivered or sent by overnight courier, or five (5)
Business Days after deposited in the mail, postage paid, if sent by registered
or certified mail or upon confirmation of receipt by fax.
The parties acknowledge that they have required that this agreement and all
related documents be prepared in English.
Les parties reconnaissent avior exige que la presente convention et tous
les documents connexes socient rediges en anglais.
-91-
<PAGE>
IN WITNESS WHEREOF, the parties have entered into this Agreement
effective as of the date first above written.
Canadian Borrower: GRAND TOYS LTD.-JOUETS GRAND LTEE
By: /s/ Stephen Altro
-----------------
Name: Stephen Altro
Title: President
By: /s/ David Mars
--------------
Name: David Mars
Title: Director
U.S. Borrowers: GRAND TOYS INTERNATIONAL, INC.
By: /s/ Stephen Altro
-----------------
Name: Stephen Altro
Title: President
By: /s/ David Mars
--------------
Name: David Mars
Title: Director
ARK PUZZLES, INC.
By: /s/ Stephen Altro
-----------------
Name: Stephen Altro
Title: President
By: /s/ David Mars
--------------
Name: David Mars
Title: Vice-President
-92-
<PAGE>
Guarantor: GRAND CONCEPTS INC./CONCEPTS GRAND INC.
By: /s/ Stephen Altro
-----------------
Name: Stephen Altro
Title: President
By: /s/ David Mars
--------------
Name: David Mars
Title: Director
Canadian Lender: MELLON BANK CANADA
By: /s/ Joseph Cavanaugh
--------------------
Name: Joseph L. Cavanaugh
Title: Vice President
Agent and U.S. MELLON BANK, N.A.
Lender:
By: /s/ Alfred J. Joseph
--------------------
Name: Alfred J. Joseph
Title: Vice President
-93-
<PAGE>
SCHEDULES AND EXHIBITS
to
LOAN AGREEMENT
dated as of August 10, 1999
among
GRAND TOYS LTD.-JOUETS GRAND LTEE
as Canadian Borrower
and
GRAND CONCEPTS INC./CONCEPTS GRAND INC.
as Canadian Guarantor
and
GRAND TOYS INTERNATIONAL, INC.
as a U.S. Borrower
and
ARK PUZZLES, INC.
as a U.S. Borrower
and
MELLON BANK CANADA
as Canadian Lender
and
MELLON BANK, N.A.
as Agent and as U.S. Lender
<PAGE>
List of Schedules and Exhibits
------------------------------
Schedule 1 Definitions
Exhibit A Permitted Liens
Exhibit B General Intangibles (patents, trademarks and copyrights)
Exhibit C U.S. Term Note
Exhibit C-1 Canadian Revolving Credit Note
Exhibit C-2 U.S. Revolving Credit Note
Exhibit D Locations
Exhibit E Names and Trade Styles
Exhibit F Subsidiaries and Affiliates and jurisdiction of incorporation
and qualification
Exhibit G Financial Statements and Projections
- Exhibit G-1 Financial Statement
- Exhibit G-2 Projections
- Exhibit G-3 Pro Forma Balance Sheet as at June 30, 1999
- Exhibit G-4 Form of Certificate
- Exhibit G-5 Notice of Borrowing
Exhibit H Environmental Matters
Exhibit I Litigation
Exhibit J Labor Disputes
Exhibit K Pension
Exhibit L Additional Documents to be Delivered
Exhibit M Capital Stock and Registered and Beneficial Ownership
Exhibit N Taxes
<PAGE>
SCHEDULE 1
----------
Definitions
-----------
"Account" has the meaning ascribed to it in the UCC and the PPSA, and
-------
includes a Borrower's or Guarantor's right to payment for a sale or lease and/or
delivery of goods or rendition of services.
"Account Debtor" means each Person obligated in any way on or in
--------------
connection with an Account.
"Action Request" means any request received by any Borrower or any of
--------------
its Subsidiaries from any governmental or regulatory body or agency under any
Environmental Law whereby such body or agency requests that it take action or
steps or do acts or things in respect of any property or assets in its charge,
management or control to remediate a matter which is not or is alleged not to be
in material compliance with all Environmental Laws.
"Additional Compensation" has the meaning specified in Section 16.19.
-----------------------
"Affiliate" means: (a) any Person which, directly or indirectly,
---------
controls, is controlled by or is under common control with any Borrower; (b) any
Person which beneficially owns or holds, directly or indirectly, ten percent or
more of any class of voting stock or equity interest (including partnership
interests) of any Borrower; (c) any Person, ten percent or more of any class of
the voting stock (or if such Person is not a corporation, ten percent or more of
the equity interest, including partnership interests) of which is beneficially
owned or held, directly or indirectly, by any Borrower or (d) any Person related
within the meaning of the Income Tax Act of Canada to any such Person and
--------------
includes any "Affiliate" within the meaning specified in the Business
--------
Corporations Act (Canada) on the date hereof. The term control (including the
- ----------------
terms "controlled by" and "under common control with"), means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of the Person in question.
"Agent" means Mellon U.S. and its assignees and Persons designated by
-----
it.
"Altro Support Agreement" means the validity guarantee and management
-----------------------
support agreement from Stephen Altro, on terms satisfactory to the Lenders.
"Applicable Margins" means, collectively, the BA Rate Margin, the
------------------
LIBOR Rate Margin, the Base Rate Margin and the Prime Rate Margin.
"Ark" means Ark Puzzles, Inc.
---
"Assigned Contracts" means, collectively, all of the Borrowers' and
------------------
Guarantor's, including rights and remedies under any, and all moneys and claims
for money due or to become due to any Borrower or the Guarantor under any,
material contracts and any and all amendments,
<PAGE>
supplements, extensions, and renewals thereof including, without limitation, all
rights and claims of any Borrower or the Guarantor now or hereafter existing:
(i) under any insurance, indemnities, warranties, and guarantees provided for or
arising out of or in connection with any of the foregoing agreements; (ii) for
any damages arising out of or for breach of or default under or in connection
with any of the foregoing agreements; (iii) to all other amounts from time to
time paid or payable under or in connection with any of the foregoing
agreements; or (iv) to exercise or enforce any and all covenants, remedies,
powers and privileges thereunder.
"Audit Fee" has the meaning specified in Section 16.9.
---------
"BA Equivalent Interest Period" means, with respect to each BA
-----------------------------
Equivalent Loan, the period selected by the Canadian Borrower hereunder and
being of one (1), three (3) or six (6) months' duration, or any other duration
of seven (7) days to one hundred and eighty (180) days subject to the
availability of funds to the Canadian Lender and in the Canadian Lender's sole
discretion, in each case commencing on the Drawdown Date, Conversion Date or
Rollover Date with respect to the Drawdown or Rollover of or Conversion into
such BA Equivalent Loan; provided that in any case the last day of each BA
Equivalent Interest Period shall also be the first day of the next Interest
Period and further provided that the last day of each BA Equivalent Interest
Period shall be a Business Day and if the last day of a BA Equivalent Interest
Period selected by the Canadian Borrower is not a Business Day, the Canadian
Borrower shall be deemed to have selected a BA Equivalent Interest Period the
last day of which is the Business Day next following the last day of the BA
Equivalent Interest Period otherwise selected, unless such next following
Business Day falls in the next calendar month in which event the Canadian
Borrower shall be deemed to have selected a BA Equivalent Interest Period the
last day of which is the Business Day next preceding the last day of the BA
Equivalent Interest Period otherwise selected and further provided that the last
BA Equivalent Interest Period hereunder shall expire on or prior to the Maturity
Date (or, after any renewal of this Agreement as herein provided, the expiry
date of any Renewal Term).
"BA Equivalent Loan" means a Loan in Canadian Dollars in a minimum
------------------
principal amount of $500,000 made by the Canadian Lender to the Canadian
Borrower hereunder pursuant to a Drawdown, Rollover or Conversion, on which
interest is payable under Section 3.1(c).
"BA Rate" means, for the Interest Period of each BA Equivalent Loan,
-------
the rate of interest per annum equal to the annual rate of interest quoted on
the Business Day which is the first day of such Interest Period by Mellon U.S.
as being its rate of interest for bankers' acceptances in Canadian dollars for a
face amount similar to the amount of the applicable BA Equivalent Loan and for a
term similar to the applicable BA Equivalent Interest Period.
"BA Rate Margin" means in the case of the Canadian Revolving Credit
--------------
Facility, two and one-half percent (2.5%).
-2-
<PAGE>
"Base Rate" means, in the case of U.S. $ Loans made by the Canadian
---------
Lender or by the U.S. Lender, the U.S. prime rate as publicly announced from
time to time by Mellon U.S. as its reference rate for loans made in U.S. Dollars
and designated as its "U.S. prime" rate. Each is a rate set by Mellon U.S.,
based upon various factors including Mellon U.S.'s, cost and desired return,
general economic conditions and other factors, and is used as a reference point
for pricing some loans. However, Mellon U.S., as the case may be, may price
loans at, above or below such announced rate and shall not be required to give
any notice to the Borrowers or the Guarantor with respect to changes to the Base
Rate.
"Base Rate Loan" means a Loan in U.S. Dollars made by the Canadian
--------------
Lender to the Canadian Borrower or by the U.S. Lender to a U.S. Borrower
hereunder pursuant to a Drawdown, Rollover or Conversion of a Loan on which
interest is payable under Section 3.1(b).
"Base Rate Margin" means in the case of Base Rate Loans, one-quarter
----------------
of one percent (0.25%) per annum.
"BIS Guidelines" means the guidelines relating to capital adequacy
--------------
proclaimed in July 1988 by the Basel Committee on Banking Regulations and
Supervisory Practices of the Bank of International Settlements, as amended to
the date hereof.
"Borrowers" has the meaning specified in the preambles and includes
---------
their successors and permitted assigns.
"Business Day" means any day that is not a Saturday, Sunday, or day on
------------
which banks in Ontario and New Jersey are required or permitted to close.
"Canadian Availability" means: (a) the lesser at any point in time
---------------------
of: (i) the Maximum Canadian Revolving Credit Line; and (ii) the sum of (A)
eighty-five percent (85%) of Eligible Canadian Accounts, plus (B) (I) between
June and November inclusive, sixty-five percent (65%), and (II) between December
and May, sixty percent (60%) multiplied by the value of Eligible Canadian
Inventory to a maximum in the case of advances and issuances of Letters of
Credit based on Eligible Canadian Inventory of (I) between June and November
inclusive, $6,000,000, and (II) between December and May, $5,500,000 (the amount
under this clause (ii) referred to as the "Canadian Formula Amount"); less (b)
----
without duplication (i) a reserve established for all amounts secured by any
Liens, choate or inchoate, which rank or are capable of ranking in priority to
the Agent's and/or Lenders' Security Interest, including without limitation, any
such amounts due and not paid for vacation pay, amounts due and not paid under
any legislation relating to workers' compensation or to unemployment insurance,
all amounts deducted or withheld and not paid and remitted under the Income Tax
----------
Act of Canada, amounts currently or past due and not paid for realty, municipal
- ---
or similar taxes and all amounts currently or past due and not contributed,
remitted or paid to any Plan or under the Canada Pension Plan, the Pension
-------
Benefits Act or any similar legislation; (ii) a reserve in an amount determined
- ------------
by the Canadian Lender from time-to-time in respect of such portion of the
Accounts as represents a
-3-
<PAGE>
sales or excise tax or goods and services tax; (iii) a reserve for all claims,
charges and Liens, including in respect of rent, storage, processing and/or
transport costs which have arisen or may arise, in respect of off-site Inventory
or Inventory at leased locations or processor sites unless a waiver and access
agreement satisfactory to the Canadian Lender shall have been received; (iv) all
other reserves which the Canadian Lender in the exercise of its Permitted
Discretion deems necessary or desirable to maintain with respect to the Canadian
Borrower or Guarantor, including, without limitation, in respect of any amounts
which the Agent and/or Lenders may be obligated to pay in the future for the
account of the Canadian Borrower or Guarantor (the foregoing amount calculated
by deducting (b) from (a) being hereinafter referred to as the "Canadian
--------
Borrowing Base"), less (c) the sum of: (i) the unpaid balance of Canadian
- -------------- ----
Revolving Loans at that time; and (ii) the Canadian L/C Reserve, provided,
--------
however, that each of the reserves under clause (b) shall be established, and
- -------
the amount thereof determined, by the Canadian Lender in the exercise of its
Permitted Discretion.
"Canadian Borrowing Base" has the meaning specified in the definition
-----------------------
of Canadian Availability.
"Canadian Collateral" has the meaning specified in Section 6.1(a).
-------------------
"Canadian Dollars" or "Cdn. Dollars" or "Cdn. $" means lawful currency
---------------- ------------ ------
of Canada.
"Canadian Formula Amount" has the meaning specified in the definition
-----------------------
of Canadian Availability.
"Canadian L/C Reserve" means a reserve established by the Canadian
--------------------
Lender in the exercise of its Permitted Discretion, from time to time, for
Letters of Credit issued on behalf of the Canadian Borrower. Such reserve shall
be, initially, and shall never exceed (a) in the case of trade, documentary
Letters of Credit issued for off-shore purchases in respect of which (i) the
Agent or Canadian Lender is named consignee on all applicable bills of lading or
other document or title, (ii) such bill or document has been delivered to the
Agent or Canadian Lender, (iii) the Inventory is covered by insurance acceptable
to the Agent or Canadian Lender (including, without limitation, cargo insurance
with satisfactory limits) and (iv) the Inventory would be Eligible Canadian
Inventory if located on the premises of a Borrower, between June and December,
thirty-five percent (35%), and otherwise forty percent (40%), and (b) in all
other cases, one hundred percent (100%), of the undrawn amount of such Letters
of Credit.
"Canadian Lender" means Mellon Canada.
---------------
"Canadian Revolving Credit Facility" has the meaning specified in
----------------------------------
Section 2.2(a)(i).
"Canadian Revolving Loans" has the meaning specified in Section
------------------------
2.2(b).
"Canadian Unused Line Fee" has the meaning specified in Section
------------------------
3.3(a).
-4-
<PAGE>
"Capital Expenditures" means all payments due or accruing due (whether
--------------------
or not paid) during a Fiscal Year in respect of the cost (including expenditures
on materials, contract labour and direct labour, but excluding expenditures
properly chargeable to repairs and maintenance in accordance with GAAP) of any
fixed asset or improvement, or replacement, substitution, or addition thereto,
which have a useful life of more than one year, including, without limitation,
those arising in connection with the direct or indirect acquisition of such
assets by way of increased product or service charges or offset items or in
connection with Capital Leases.
"Capital Lease" means any lease of Property by any Borrower or the
-------------
Guarantor that, in accordance with GAAP, should be reflected as a liability on
the consolidated balance sheet of the Borrowers.
"Cash Dominion System" has the meaning specified in Section 6.10.
--------------------
"Cash Proceeds" has the meaning specified in Section 6.10.
-------------
"Closing Date" means the date on which the first Loans are made
------------
hereunder.
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Collateral" has the meaning given to such term in Section 6.1(b).
----------
"Collateral Management Fee" has the meaning specified in Section 3.5.
-------------------------
"Collection Account Agreements" has the meaning specified in Section
-----------------------------
6.10.
"Conversion" means the conversion of a Loan pursuant to the provisions
----------
of Section 2.6.
"Conversion Date" means the date notified to the applicable Lender by
---------------
the Canadian Borrower or a U.S. Borrower, as the case may be, in accordance with
Section 2.6 as being the date on which the Canadian Borrower or a U.S. Borrower,
as the case may be, has elected to convert one type of Loan into another type of
Loan and which shall be a Business Day.
"Credit Support" has the meaning specified in Section 2.3.
--------------
"Deadline" has the meaning specified in Section 6.10.
--------
"Debt" means, without duplication, all liabilities, obligations and
----
indebtedness of any Borrower or the Guarantor to any Person, of any kind or
nature, now or hereafter owing, arising, due or payable, howsoever evidenced,
created, incurred, acquired or owing, whether primary, secondary, direct,
contingent, fixed or otherwise, and including, without in any way limiting the
generality of the foregoing: (i) any Borrower's or the Guarantor's liabilities
and obligations to trade creditors; (ii) all Obligations; (iii) all obligations
and liabilities of any Person secured by any Lien on any Borrower's or the
Guarantor's Property, even though a Borrower or
-5-
<PAGE>
the Guarantor shall not have assumed or become liable for the payment thereof;
provided, however, that if such obligations and liabilities are limited in
- -------- -------
recourse to such Property such obligations and liabilities shall be included in
Debt only to the extent of the lesser of the obligations and liabilities and the
book value of such Property as would be shown on a balance sheet of a Borrower
or the Guarantor prepared in accordance with GAAP; (iv) all obligations or
liabilities created or arising under any Capital Lease or conditional sale or
other title retention agreement with respect to Property used or acquired by a
Borrower or the Guarantor even if the rights and remedies of the lessor, seller
or lender thereunder are limited to repossession of such Property; provided,
--------
however, that all such obligations and liabilities which are limited in recourse
- -------
to such Property shall be included in Debt only to the extent of the book value
of such Property as would be shown on a consolidated balance sheet of the
Borrowers prepared in accordance with GAAP; (v) all accrued pension fund and
other employee benefit plan obligations and liabilities; (vi) all obligations
and liabilities under Guarantees; and (vii) deferred taxes.
"Depository Banks" has the meaning specified in Section 6.10.
----------------
"Distribution" means, in respect of any corporation: (a) the payment
------------
or making of any dividend or other distribution of Property (including any
purchases, retractions, redemptions or other transactions made out of its
treasury) in respect of capital stock of such corporation, other than
distributions in capital stock of the same class; or (b) the redemption or other
acquisition of any capital stock of such corporation.
"DOL" means the United States Department of Labor or any successor
---
department or agency.
"Drawdown" means the drawdown of a Loan to be made pursuant to Section
--------
2.
"Drawdown Date" means the date (being a Business Day) on which a
-------------
Drawdown is made.
"EBITDA" means, with respect to any period of the Borrowers, Net
------
Income before non-cash gains or losses and before all extraordinary gains, plus
the sum of (a) income tax expense deducted in determining net income for such
period, as determined in accordance with GAAP and reported on the Financial
Statements for such period, (b) the depreciation and amortization expense
deducted in determining net income for such period, as determined in accordance
with GAAP and reported on the Financial Statements for such year, and (c)
interest expense deducted in determining net income for such period, as
determined in accordance with GAAP and reported on the Financial Statements for
such period.]
"Eligible Canadian Accounts" means all Accounts arising in the
--------------------------
ordinary course of the Canadian Borrower's or the Guarantor's business, but
excluding interest, late charges, penalties, collection costs and other sums due
or payable in respect thereof, upon which the Security Interest constitutes a
first-ranking, duly registered and perfected lien ranking in priority to all
other Liens and that are not ineligible as the basis for Canadian Revolving
Loans and/or Letters of Credit, based on the following criteria and on such
other criteria as the Canadian Lender may from time to time establish in the
exercise of its Permitted Discretion acting reasonably. Without intending to
limit the Canadian Lender's Permitted Discretion exercised
-6-
<PAGE>
acting reasonably to establish other criteria of eligibility, Eligible Accounts
shall not include any Account:
(a) with respect to which more than one hundred and twenty (120) days have
elapsed from invoice date (except for dated accounts which are not
more than thirty (30) days past due or more than 180 days from invoice
date);
(b) with respect to which any of the representations, warranties,
covenants, and agreements contained in Article 6 are not or have
ceased to be complete and materially correct or have been breached;
(c) which represents a progress billing (as hereinafter defined) or as to
which such Borrower or the Guarantor has extended the time for payment
without the consent of the Canadian Lender; for the purposes hereof,
"progress billing" means any invoice for goods sold or leased or
services rendered under a contract or agreement pursuant to which the
Account Debtor's obligation to pay such invoice is conditioned upon
such Borrower's or the Guarantor's completion of any further
performance under the contract or agreement;
(d) as to which any one or more of the following events has occurred with
respect to the Account Debtor on such Account: death or judicial
declaration of incompetency of an Account Debtor who is an individual;
the filing by or against the Account Debtor of a request, proposal,
notice of intent to file a proposal, proceeding, action or petition
for liquidation, reorganization, arrangement, adjustment of debts,
adjudication as a bankrupt, winding-up, or other relief under the
bankruptcy, insolvency, restructuring, liquidation, winding up,
corporate or similar laws of Canada, any province or territory
thereof, or any foreign jurisdiction, now or hereafter in effect; the
making of any general assignment by the Account Debtor for the benefit
of creditors; the appointment of a receiver, trustee, monitor,
custodian, liquidator, administrator, interim receiver, monitor or
trustee or other official for the Account Debtor or for any of the
assets of the Account Debtor, including, without limitation, the
appointment of or taking possession by a "custodian" as defined in the
Bankruptcy Code of the United States or "trustee" under the Bankruptcy
--------------- ----------
and Insolvency Act of Canada; the institution by or against the
------------------
Account Debtor of any other type of insolvency, liquidation,
bankruptcy, winding up or reorganization proceeding (under the laws of
Canada, the United States or otherwise, including applicable corporate
statutes, the Bankruptcy and Insolvency Act of Canada and the
-----------------------------
Companies' Creditors Arrangement Act of Canada) or of any formal or
------------------------------------
informal proceeding for the dissolution or liquidation of, settlement
of claims against or winding up of affairs of, the Account Debtor; the
sale, assignment, or transfer of all or any material part of the
assets of the Account Debtor; the nonpayment generally by the Account
Debtor of its debts as they become due; or the cessation of the
business of the Account Debtor as a going concern;
-7-
<PAGE>
(e) the amount of an Account included in calculating Eligible Canadian
Accounts which exceeds twenty-five percent (25%) of total Eligible
Canadian Accounts at the time outstanding, except that (i) Accounts
due from Zellers Inc., The Bay, Best Value and Fields, together in the
aggregate, shall not exceed thirty-five percent (35%) of the total
Eligible Canadian Accounts at the time outstanding; (ii) Accounts due
from WalMart Canada Inc. in the aggregate shall not exceed thirty-five
percent (35%) of the total Eligble Canadian Accounts at the time
outstanding; and (iii) Accounts due from Toys R Us (Canada) Ltd. in
the aggregate, shall not exceed thirty-five percent (35%) of the total
Eligble Canadian Accounts at the time outstanding;
(f) if fifty percent (50%) or more of the aggregate dollar amount of
outstanding Accounts owed at such time by the Account Debtor thereon
is classified as ineligible under clause (a) hereof;
(a) owed by an Account Debtor if such Account Debtor: (i) does not
maintain its chief executive office in Canada or the United States of
America or its territories or protectorates, unless supported by a
letter of credit which is pledged and acceptable to the Agent and
Lenders; or (ii) is not organized under the laws of Canada or any
Province thereof or the United States of America or any State thereof;
or (iii) is the government of any country or sovereign state, or of
any state, province, municipality, or other political subdivision
thereof, or of any department, agency, public corporation, or other
instrumentality thereof, except to the extent that the Agent otherwise
determines in its discretion, acting reasonably, the Account to be
eligible on an account-by-account basis based on, among other things,
compliance with all applicable laws in order to obtain a valid and
enforceable assignment (in the case of clause (iii)) or the existence
of any letter of credit or acceptance or credit insurance and a credit
review of the Account Debtor satisfactory to the Canadian Lender in
its discretion;
(h) owed by an Account Debtor which is an employee, an Affiliate or which
is an Intercompany Account;
(i) which is owed by an Account Debtor to which the Canadian Borrower or
the Guarantor is indebted in any way, or which is subject to any right
of setoff, counterclaim, offset, discount (other than discounts in the
ordinary course of business), allowance, charge-back, rebate payable,
co-op advertising charge or contra claim by the Account Debtor, unless
the Account Debtor has entered into an agreement acceptable to the
Canadian Lender to waive all such rights; or if the Account Debtor
thereunder has disputed liability or made any claim with respect to
any other Account due from such Account Debtor; but in each such case
only to the extent of such indebtedness, setoff, charge-back,
counterclaim, offset, discount, allowance, rebate, dispute, or claim;
(j) if representing a cash sale;
-8-
<PAGE>
(k) which represents a re-billed or redated account;
(l) which represents a sale on a bill-and-hold, guaranteed sale, sale and
return, sale on approval, consignment, or other repurchase or return
basis;
(m) which is evidenced by a promissory note or other instrument or by
chattel paper;
(n) in respect of which the Canadian Borrower or the Guarantor is not the
sole payee and remittance party, with sole lawful and absolute title
thereto free and clear of any Lien (other than a Lien in favour of the
Agent and/or Lenders);
(o) which is payable in a currency other than Canadian Dollars or U.S.
Dollars;
(p) not representing a final sale;
(q) if the sale giving rise thereto was not made in compliance in all
material respects with all applicable laws;
(r) if not representing a trade receivable;
(s) if representing a sale of samples;
(t) which the Canadian Lender in the good faith exercise of its Permitted
Discretion determines to be ineligible;
(u) which arises out of an enforceable contract or order which, by its
terms, forbids, restricts or makes void or unenforceable the granting
of a Lien by such Borrower or the Guarantor to the Agent and/or
Lenders with respect to such Account; or
(v) other than with respect to WalMart Canada Inc. and Canadian Tire
Corporation, which need not be credit insured, which is not credit
insured under a policy assigned to the Agent and Lenders, with an
insurer and on terms satisfactory to the Canadian Lender.
"Eligible Canadian Inventory" means Inventory, valued on a first in
---------------------------
first out basis, in Canadian Dollars, at the lower of cost and fair market
value, of the Canadian Borrower or the Guarantor and: (a) in the Canadian
Lender's Permitted Discretion, is not obsolete, unsalable, slow moving or
unmerchantable; (b) that is located at premises owned by the Canadian Borrower
or the Guarantor or located at Premises leased by the Canadian Borrower or the
Guarantor or in transit to and from such locations provided that the Canadian
Lender has established reserves therefor satisfactory to it in its reasonable
discretion or received a consent and waiver from the landlord of such Premises
in form and substance satisfactory to the Canadian Lender or located at
warehouses, processors or third party bailees provided the Canadian Lender has
established reserves therefor satisfactory to it in its discretion or received a
waiver letter in form and substance satisfactory to the Canadian Lender; (c)
upon which the Security Interest constitutes a first-ranking, duly registered
and perfected Lien ranking in priority
-9-
<PAGE>
to all other Liens; (d) in the Canadian Lender's Permitted Discretion, is not
such Borrower's or the Guarantor's obsolete inventory reserve (without
duplication of amounts deducted in clause (a)), an unreconciled variance to the
general ledger, defective raw material to be returned to vendor, work-in-
progress, tooling, service parts, returned or damaged or defective, delivered to
Canadian Borrower or the Guarantor on consignment, packaging and shipping
materials or supplies or, in transit; (e) that the Canadian Lender otherwise
deems eligible as the basis for Revolving Loans and/or issuance of Letters of
Credit based on such other criteria as the Canadian Lender may from time to time
establish in the exercise of its Permitted Discretion acting reasonably.
"Eligible U.S. Accounts" means all Accounts arising in the ordinary
----------------------
course of a U.S. Borrower's business, but excluding interest, late charges,
penalties, collection costs and other sums due or payable in respect thereof,
upon which the Security Interest constitutes a first-ranking, duly registered
and perfected lien ranking in priority to all other Liens and that are not
ineligible as the basis for U.S. Revolving Loans and/or Letters of Credit, based
on the following criteria and on such other criteria as the U.S. Lender may from
time to time establish in the exercise of its Permitted Discretion acting
reasonably. Without intending to limit the U.S. Lender's Permitted Discretion
exercised acting reasonably to establish other criteria of eligibility, Eligible
U.S. Accounts shall not include any Account:
(a) with respect to which more than one hundred and twenty (120) days have
elapsed from invoice date (except for dated accounts which are not
more than thirty (30) days past due or more than 180 days from invoice
date);
(b) with respect to which any of the representations, warranties,
covenants, and agreements contained in Article 6 are not or have
ceased to be complete and materially correct or have been breached;
(c) which represents a progress billing (as hereinafter defined) or as to
which such Borrower has extended the time for payment without the
consent of the Agent; for the purposes hereof, "progress billing"
means any invoice for goods sold or leased or services rendered under
a contract or agreement pursuant to which the Account Debtor's
obligation to pay such invoice is conditioned upon such Borrower's
completion of any further performance under the contract or agreement;
(d) as to which any one or more of the following events has occurred with
respect to the Account Debtor on such Account: death or judicial
declaration of incompetency of an Account Debtor who is an individual;
the filing by or against the Account Debtor of a request, proposal,
notice of intent to file a proposal, proceeding, action or petition
for liquidation, reorganization, arrangement, adjustment of debts,
adjudication as a bankrupt, winding-up, or other relief under the
bankruptcy, insolvency, restructuring, liquidation, winding up,
corporate or similar laws of Canada, any province or territory
thereof, or any foreign jurisdiction, now or hereafter in effect; the
making of any general assignment by the Account Debtor for the benefit
of creditors; the appointment of a receiver, trustee, monitor,
custodian, liquidator, administrator, interim receiver, monitor
-10-
<PAGE>
or trustee or other official for the Account Debtor or for any of the
assets of the Account Debtor, including, without limitation, the
appointment of or taking possession by a "custodian" as defined in the
Bankruptcy Code or "trustee" under the Bankruptcy and Insolvency Act
--------------- -----------------------------
of Canada; the institution by or against the Account Debtor of any
other type of insolvency, liquidation, bankruptcy, winding up or
reorganization proceeding (under the laws of Canada, the United States
or otherwise, including applicable corporate statutes, the Bankruptcy
----------
and Insolvency Act of Canada and the Companies' Creditors Arrangement
------------------ --------------------------------
Act of Canada) or of any formal or informal proceeding for the
---
dissolution or liquidation of, settlement of claims against or winding
up of affairs of, the Account Debtor; the sale, assignment, or
transfer of all or any material part of the assets of the Account
Debtor; the nonpayment generally by the Account Debtor of its debts as
they become due; or the cessation of the business of the Account
Debtor as a going concern;
(e) the amount of an Account included in calculating Eligible U.S.
Accounts which exceeds twenty-five percent (25%) of total Eligible
U.S. Accounts at the time outstanding.
(f) owed by an Account Debtor if such Account Debtor: (i) does not
maintain its chief executive office in Canada or the United States of
America or its territories or protectorates; or (ii) is not organized
under the laws of Canada or any Province thereof or the United States
of America or any State thereof; or (iii) is the government of any
country or sovereign state, or of any state, province, municipality,
or other political subdivision thereof, or of any department, agency,
public corporation, or other instrumentality thereof, except to the
extent that the Agent otherwise determines in its discretion, acting
reasonably, the Account to be eligible on an account-by-account basis
based on, among other things, compliance with all applicable laws,
including the Assignment of Claims Act of 1940, as amended, in order
------------------------
to obtain a valid and enforceable assignment (in the case of clause
(iii)) or the existence of any letter of credit or acceptance or
credit insurance (and the Security Interest thereon has been
perfected) and a credit review of the Account Debtor satisfactory to
the U.S. Lender in its discretion;
(g) owed by an Account Debtor which is an employee, an Affiliate or which
is an Intercompany Account;
(h) which is owed by an Account Debtor to which such U.S. Borrower is
indebted in any way, or which is subject to any right of setoff,
counterclaim, offset, discount, allowance, charge-back, co-op
advertising charge, rebate payable or contra claim by the Account
Debtor, unless the Account Debtor has entered into an agreement
acceptable to the U.S. Lender to waive all such rights; or if the
Account Debtor thereunder has disputed liability or made any claim
with respect to any other Account due from such Account Debtor; but in
each such case only to the extent of such indebtedness, setoff,
charge-back, counterclaim, offset, discount, allowance, rebate,
dispute, or claim;
-11-
<PAGE>
(i) if representing a cash sale;
(j) which represents a re-billed or redated account;
(k) which represents a sale on a bill-and-hold, guaranteed sale, sale and
return, sale on approval, consignment, or other repurchase or return
basis;
(l) which is evidenced by a promissory note or other instrument or by
chattel paper;
(m) in respect of which such U.S. Borrower is not the sole payee and
remittance party, with sole lawful and absolute title thereto free and
clear of any Lien (other than a Lien in favour of the Agent and/or
Lenders);
(n) which is payable in a currency other than U.S. Dollars;
(o) for goods not shipped and delivered and accepted by the Account Debtor
or otherwise not representing a final sale;
(p) if the sale giving rise thereto was not made in compliance in all
material respects with all applicable laws;
(q) if not representing a trade receivable;
(r) if representing a sale of samples;
(s) which the U.S. Lender in the good faith exercise of its Permitted
Discretion determines to be ineligible;
(t) which arises out of an enforceable contract or order which, by its
terms, forbids, restricts or makes void or unenforceable the granting
of a Lien by such Borrower to the Agent with respect to such Account;
or
(u) other than with respect to WalMart Canada Inc. and Canadian Tire
Corporation, which need not be credit insured under a policy assigned
to the Agent and Lenders, with an insurer and on terms satisfactory to
the U.S. Lender.
"Eligible U.S. Inventory" means Inventory, valued, on a first in first
-----------------------
out basis, in U.S.$, at the lower of cost and fair market value, of a U.S.
Borrower and: (a) in the U.S. Lender's Permitted Discretion, is not obsolete,
unsalable, slow moving or unmerchantable; (b) that is located at premises owned
by such U.S. Borrower or located at Premises leased by such U.S. Borrower or in
transit to and from such locations provided that the U.S. Lender has established
reserves therefor satisfactory to it in its reasonable discretion or received a
consent and waiver from the landlord of such Premises in form and substance
satisfactory to the U.S. Lender or located at warehouses, processors or third
party bailees provided the U.S. Lender has established reserves therefor
satisfactory to it in its discretion or received a waiver letter in form
-12-
<PAGE>
and substance satisfactory to the U.S. Lender, (c) upon which the Security
Interest constitutes a first-ranking, duly registered and perfected Lien ranking
in priority to all other Liens; (d) in the U.S. Lender's Permitted Discretion,
is not such Borrower's obsolete inventory reserve (without duplication of
amounts deducted under clause (a)), an unreconciled variance to the general
ledger, defective raw material to be returned to vendor, work-in-progress,
tooling, service parts, returned or damaged or defective, delivered to such U.S.
Borrower on consignment, packaging and shipping materials or supplies, or in
transit; (e) that is located in Canada or the United States; and (f) that the
U.S. Lender otherwise deems eligible as the basis for Revolving Loans and/or
issuance of Letters of Credit based on such other criteria as the Agent may from
time to time establish in the exercise of its Permitted Discretion acting
reasonably.
"Environmental Audits" means a report of an independent engineer or
--------------------
firm of environmental consultants, addressed to the Agent and Lenders and
conducted at the sole cost of the applicable Borrower, setting out the
engineer's or consultants' review of the matters referred to in clauses (i) to
(iv) of Section 9.5 and the engineer's or consultants' recommendations on
results of tests performed or samples taken by it during the course of its
review, irregularities or steps which may be taken to ensure continued
compliance and on such other matters as the Agent or Lenders may request; such
audit shall be of such scope as the Agent or Lenders may require and includes
the Phase 1 and Phase 2 environmental audits conducted in respect of the
Premises owned by any Borrower or the Guarantor, copies of which were provided
to the Agent prior to the Closing Date.
"Environmental Laws" means all federal, provincial, state and local or
------------------
municipal laws, rules, regulations, ordinances, programs, permits, guidances,
orders and consent decrees relating to Materials of Environmental Concern,
pollution or protection of health, safety or the environment (including ambient
air, surface water, ground water, land surface or subsurface strata), including
without limitation, laws and regulations relating to emissions, discharges,
spills, releases or threatened releases of Materials of Environmental Concern,
or otherwise relating to the manufacturing, processing, distribution, use,
treatment, storage, removal, disposal, handling, or transport of Materials of
Environmental Concern, and includes the following legislation (or any successor
legislation) to the extent the same is applicable to any Borrower, the Guarantor
or its or their property and assets:
Canada
------
Arctic Waters Pollution Prevention Act, R.S.C. 1985,
--------------------------------------
c.A-12, as am.
Canada Water Act, R.S.C. 1985, c. C-11, as am.
----------------
Canadian Environmental Protection Act, R.S.C. 1985, c.
-------------------------------------
C-15.3, as am.
Fisheries Act, R.S.C. 1985, c. F-14, as am.
-------------
Northern Inland Waters Act, R.S.C. 1985, c. N-25, as
--------------------------
am.
Transportation of Dangerous Goods Act, S.C. 1992, c.
-------------------------------------
34.
Ontario
-------
Conservation Authorities Act, R.S.O. 1990, c. C27 as
----------------------------
am.
Environmental Protection Act, R.S.O. 1990, c. E. 19
----------------------------
as am.
Gasoline Handling Act, R.S.O. 1990, c. G.4, as am.
---------------------
-13-
<PAGE>
Quebec
------
Environment Quality Act, R.S.Q., c.Q-2
-----------------------
United States
-------------
Resource Conservation and Recovery Act, 42 U.S.C. S
---------------------------------------------------
6901 et seq., as am.
-------------------
The Comprehensive Environmental Response, Compensation
------------------------------------------------------
and Liability Act, 42 U.S.C. S 9601 et seq., as am.
--------------------------------------------------
The Toxic Substances Control Act, 15 U.S.C. S 2601 et
-----------------------------------------------------
seq., as am.
-----------
The Clean Water Act, 33 U.S.C. S 466 et seq. as am.
--------------------------------------------------
The Clean Air Act, 42 U.S.C. S 7401 et seq., as am.
--------------------------------------------------
state and federal superlien and environmental cleanup
-----------------------------------------------------
programs
--------
U.S. Department of Transportation regulations
---------------------------------------------
or any other federal, provincial, state or local law, statute, regulation,
ordinance, order, permit or decree relating to the environment.
"Environmental Lien" means a Lien in favour of any Public Authority or
------------------
any other Person for (i) any liability under any Environmental Laws, or (ii)
damages arising from, or costs incurred by such Public Authority in response to,
a release, discharge or emission or threatened release, discharge or emission of
a Material of Environmental Concern.
"Equipment" has the meaning ascribed to it in the UCC and the PPSA,
---------
and includes in relation to each Borrower and the Guarantor, all of that
Borrower's or the Guarantor's now owned and hereafter acquired machinery,
equipment, furniture, furnishings, fixtures, and other tangible personal
property (except Inventory), including, without limitation, data processing
hardware and software, motor vehicles, aircraft, dies, tools, jigs, and office
equipment, as well as all of such types of moveable and personal property leased
by that Borrower or the Guarantor and all of that Borrower's or the Guarantor's
rights and interests with respect thereto under such leases (including, without
limitation, options to purchase); together with all present and future additions
and accessions thereto, replacements therefor, component and auxiliary parts and
supplies used or to be used in connection therewith, and all substitutes for any
of the foregoing, and all manuals, drawings, instructions, warranties and rights
with respect thereto; wherever any of the foregoing is located.
"Equivalent Amount" means, on any date, the amount of U.S. $ into
-----------------
which an amount of Cdn. $ may be converted or the amount of Cdn. $ into which an
amount of U.S. $ may be converted, in either case, at Mellon U.S.'s spot buying
rate in New York as at approximately 12:00 noon (Local Time) on such date.
"ERISA" means the Employee Retirement Income Security Act of 1974., as
-----
amended, and regulations promulgated thereunder.
-14-
<PAGE>
"Event" means any event or condition which, with notice, the passage
-----
of time, the observance of any other formality, or any combination thereof,
would constitute an Event of Default and includes, for the purposes hereof, an
Event of Default.
"Event of Default" has the meaning specified in Section 11.1.
----------------
"Financial Statements" means, according to the context in which it is
--------------------
used, the financial statements of the Borrowers attached hereto as Exhibit G-1,
and the financial statements of the Borrowers as at June 30, 1999 attached
hereto as Exhibit G-3, and any other financial statements required to be given
to the Agent and Lenders pursuant to Section 7.2(a) or (c), or any combination
thereof.
"Fiscal Year" means each Borrower's and the Guarantor's fiscal year
-----------
for financial accounting purposes.
"Fixed Charge Ratio" means, for any period, the ratio of the sum of
------------------
EBITDA for such period to the sum of (i) principal payments which the Borrowers
or the Guarantor were required to make on Debt during such period, (ii) interest
paid or payable by the Borrowers or the Guarantor during such period, (iii)
Capital Lease payments during the period, (iv) cash Taxes paid or payable in
respect of the period, (v) Distributions and (vi) Capital Expenditures.
"GAAP" means at any particular time with respect to the Borrowers and
----
the Guarantor, generally accepted accounting principles as in effect at such
time in Canada or, in the case of the financial statements of the U.S.
Borrowers, or consolidated financial statement, the United States of America,
respectively, consistently applied, provided, however, that, if employment of
-------- -------
more than one principle shall be permissible at such time in respect of a
particular accounting matter, "GAAP" shall refer to the principle which is then
----
employed by the Borrowers and the Guarantor with the concurrence of its
independent public or chartered accountants, who are acceptable to the Agent
provided further that, for the purposes of determining compliance with the
- -------- ------- ----
financial covenants herein, "GAAP" means GAAP as at the date hereof.
----
"General Intangibles" has the meaning ascribed to it in the UCC and
-------------------
the PPSA, and includes all of the Borrowers' or the Guarantor's now owned and
hereafter arising or acquired: licenses, franchises, permits, patents, patent
rights, copyrights, works which are the subject matter of copyrights,
trademarks, trade names, trade styles, patent and trademark applications and
licenses and rights thereunder and all other intangibles, including without
limitation those patents, trademarks and copyrights set forth on Exhibit B
hereto, and all other rights under any of the foregoing, all extensions,
renewals, reissues, divisions, continuations, and continuations-in-part of any
of the foregoing, and all rights to sue for past, present, and future
infringement of any of the foregoing; inventions, trade secrets, formulae,
processes, compounds, drawings, designs, blueprints, surveys, reports, manuals,
and operating standards; goodwill; customer and other lists in whatever form
maintained; and trade secret rights, copyright rights, rights in works of
authorship, and contract rights relating to computer software programs, in
whatever form created or maintained.
"GSAs" has the meaning specified in Section 6.10.
----
-15-
<PAGE>
"Guarantee" by any Person means all obligations of such Person which
---------
in any manner directly or indirectly guarantee or assure, or in effect guarantee
or assure, or indemnify and/or save harmless any Person in respect of the
payment or performance of any proceeding, claim, liability, indebtedness,
dividend or other obligation of any other Person (the "guaranteed obligations"),
----------------------
or to assure or in effect assure the holder of the guaranteed obligations
against loss in respect thereof, including, without limitation, any such
obligations incurred through an agreement, contingent or otherwise: (a) to
purchase the guaranteed obligations or any Property constituting security
therefor; (b) to advance or supply funds for the purchase or payment of the
guaranteed obligations or to maintain a working capital or other balance sheet
condition; or (c) to lease Property or to purchase any debt or equity securities
or other Property or services.
"Guaranteed Obligations" has the meaning specified in Section 13.1.
----------------------
"Hypothecs" has the meaning specified in Section 10.2.
---------
"Intercompany Accounts" means all assets and liabilities, however
---------------------
arising, which are due to any Borrower or the Guarantor from, which are due from
any Borrower or the Guarantor to, or which otherwise arise from any transaction
by any Borrower or the Guarantor with, any Affiliate.
"Interest Payment Date" means, with respect to each Loan, the earlier
---------------------
of (a) the date of repayment of the principal of such Loan, (b) the Conversion
Date or Rollover Date of such Loan, (c) with respect to BA Equivalent Loans or
LIBOR Loans the last day of each applicable Interest Period and the first day of
the month beginning not later than ninety (90) days after the making of such
loan, and (d) with respect to Prime Rate Loans and Base Rate Loans, the first
day of each succeeding month after the making of such Loan.
"Interest Period" means a BA Equivalent Interest Period and/or LIBOR
---------------
Interest Period, as the context may require.
"International" means Grand Toys International, Inc. and its
-------------
successors and assigns.
"Inventory" has the meaning ascribed to it in the UCC and the PPSA,
---------
and includes in relation to each Borrower and the Guarantor, all of that
Borrower's or the Guarantor's now owned and hereafter acquired inventory, goods
and merchandise, wherever located, to be furnished under any contact of service
or held for sale or lease, finished goods, returned goods, and materials and
supplies of any kind, nature or description which are or might be used or
consumed in that Borrower's or the Guarantor's business or used in connection
with the manufacture, packing, shipping, advertising, selling or finishing of
such goods, merchandise an such other personal property, and all other documents
of title or other documents representing them.
"IRS" means the Internal Revenue Service and any Public Authority
---
succeeding to any of its principal functions under the Code.
-16-
<PAGE>
"Issue Date" means the Business Day upon which an Issuing Lender
----------
issues a Letter of Credit at the request of a Borrower.
"Issuing Lender" means (a) in the case of Letters of Credit issued
--------------
pursuant to the Canadian Revolving Credit Facility, Mellon Canada, and (b) in
the case of Letters of Credit issued pursuant to the U.S. Revolving Credit
Facility, Mellon U.S., or in either case another financial institution
designated by the Agent in its discretion with the consent of the applicable
Borrower, acting reasonably.
"Latest Projections" means: (a) on the Closing Date and thereafter
------------------
until the Agent and Lenders receive new projections pursuant to Section 7.2(e),
the projections of the Borrowers' consolidated and consolidating balance sheets,
statements of operations, and statements of cash flows on an annual basis and on
a month-by-month basis for the first year after the Closing Date and on an
annual basis for each year thereafter to and including the Maturity Date
attached hereto as Exhibit G-2; and (b) thereafter, the projections most
recently received by the Agent and Lenders pursuant to Section 7.2(e).
"L/C Fee" has the meaning specified in Section 2.3(g).
-------
"Lenders" means Mellon Canada and Mellon U.S. and the other financial
-------
institutions which are party hereto by signing and delivering this Agreement as
a "Lender" or who become party hereto by accepting and delivery to and
acceptance by the Agent of an Assignment and Assumption Agreement, and their
successors and assigns, and includes the Canadian Lender and the U.S. Lender and
"Lender" means any one of them.
------
"Letter of Credit" means a Cdn.$ or U.S.$ documentary (in conformity
----------------
with the Uniform Customs and Practice for Documentary Credits) letter of credit
having an expiry date not later than the earlier of (i) the Maturity Date (or
after a renewal of this Agreement as herein provided, the expiry date of the
Renewal Term), and (ii) one hundred and twenty (120) days from the Issue Date
thereof, or a Cdn.$ or U.S.$ standby letter of credit or letter of guarantee
having an expiry date not later than the earlier of (i) the Maturity Date (or
after a renewal of this Agreement as herein provided, the expiry date of the
Renewal Term), and (ii) three hundred and sixty (360) days from the Issue Date
thereof.
"LIBOR Interest Period" means, with respect to each LIBOR Loan, the
---------------------
period selected by the Canadian Borrower or applicable U.S. Borrower, as the
case may be, hereunder and being of any duration of one (1), two (2), three (3),
or six (6) months duration, in each case commencing on the Drawdown Date,
Conversion Date or Rollover Date with respect to the Drawdown or Rollover of or
Conversion into such LIBOR Loan; provided that in any case the last day of each
LIBOR Interest Period shall also be the first day of the next Interest Period
and further provided that the last day of each LIBOR Interest Period shall be a
Business Day and if the last day of a LIBOR Interest Period selected by the
Canadian Borrower or applicable U.S. Borrower, as the case may be, is not a
Business Day, such Borrower shall be deemed to have selected a LIBOR Interest
Period the last day of which is the Business Day next following the last day of
the LIBOR Interest Period otherwise selected, unless such next following
Business Day falls in the next calendar month in which event such Borrower shall
be deemed to have selected a LIBOR Interest Period the last day of which is the
Business Day next preceding the
-17-
<PAGE>
last day of the LIBOR Interest Period otherwise selected and further provided
that the last LIBOR Interest Period hereunder shall expire on or prior to the
Maturity Date (or, after any renewal of this Agreement as herein provided, the
expiry date of any Renewal Term).
"LIBOR Loan" means a Loan in United States Dollars in a minimum
----------
principal amount of not less than $500,000 made by the Canadian Lender to the
Canadian Borrower or by the U.S. Lender to the applicable U.S. Borrower
hereunder pursuant to a Drawdown, Rollover or Conversion, on which interest is
payable under Section 3.1.
"LIBOR Rate" means, for the Interest Period of each LIBOR Loan, the
----------
rate of interest per annum (rounded upward to the next 1/16th of 1%) determined
by Mellon U.S. and equal to the rate of interest at which U.S. dollar deposits
in the approximate amount of the applicable LIBOR Loan and for a term similar to
the applicable LIBOR Loan would be offered to major banks in the London
interbank market at their request at approximately 11:00 a.m. (London time) two
(2) business days prior to the commencement of the LIBOR Interest Period, as
such rate may be adjusted by the reserve percentage applicable during the LIBOR
Interest Period in effect (or if more than one such percentage shall be
applicable, the daily average of such percentages for those days in such LIBOR
Interest Period during which any such percentage shall be so applicable) under
regulations issued from time to time by the Board of Governors of the Federal
Reserve System (or any successor) for determining the maximum reserve
requirement (including, without limitation, any emergency, supplemental or other
marginal reserve requirement) with respect to liabilities or assets consisting
of or including "Eurocurrency Liabilities" as such term is defined in Regulation
D of the Board of Governors of the Federal Reserve System, as in effect from
time to time, having a term equal to such LIBOR Interest Period ("Eurocurrency
Reserve Requirement"). Such adjustment shall be effectuated by calculating, and
the LIBOR Rate shall be equal to, the quotient of (i) the offered rate divided
by (ii) one minus the Eurocurrency Reserve Requirement.
"LIBOR Rate Margin" means in the case of either Revolving Credit
-----------------
Facility, two and one-half percent (2.5%).
"Lien" means: (a) any interest in Property securing an obligation owed
----
to, or a claim by, a Person, whether such interest is based on the common law,
statute, or contract, and including without limitation, a security interest,
hypothec, prior claim, charge, claim, or lien arising from a mortgage, deed of
trust, encumbrance, pledge, hypothecation, assignment, deposit arrangement,
agreement, security agreement, conditional sale or trust receipt or a lease,
consignment or bailment for security purposes or from any law; and (b) to the
extent not included under clause (a), (i) any rights of repossession or similar
rights of unpaid suppliers, (ii) any reservation, exception, encroachment,
easement, right-of-way, covenant, condition, restrictment, lease or other title
exception or encumbrance affecting Property, and (iii) any other lien, charge,
privilege, secured claim, title retention, garnishment right, deemed trust,
encumbrance or other right affecting Property, choate or inchoate, whether or
not crystallized or fixed, whether or not for amounts due or accruing due,
arising by any statute or law of any jurisdiction, at common law, in equity or
by any agreement.
-18-
<PAGE>
"Loan Documents" means this Agreement, the Term Note, the Hypothecs,
--------------
the GSAs, the Collection Account Agreement, the U.S. Security Documents, Altro
Support Agreement and each of the documents listed in Exhibit M and all other
agreements, instruments and documents heretofore, now or hereafter entered into
with or granted to the Agent and/or Lenders evidencing, securing, guaranteeing
or otherwise relating to any Obligations, the Collateral, the Security Interest
or any other aspect of the transactions contemplated by this Agreement.
"Loans" means, collectively, all loans and advances provided for in
-----
Article 2.
"Local Time" means, in the case of requests and notices to or notices
----------
or advances by (a) Mellon Canada, Toronto time and (b) Mellon U.S., New Jersey
time.
"Material Adverse Effect" means any materially adverse effect on (a)
-----------------------
the prospect of repayment of any of the Obligations, (b) the Agent's or Lenders'
rights under any of the Loan Documents or (c) the Collateral of the Borrowers or
the Guarantor or the business, operations, prospects or condition (financial or
otherwise) of any of the Borrowers or the Guarantor.
"Materials of Environmental Concern" means any chemicals, pollutants,
----------------------------------
contaminants, wastes, toxic substances, hazardous substances, asbestos,
polychlorinated biphenyls, urea-formaldehyde insulation, petroleum or petroleum
products.
"Maturity Date" means ., 2002.
-------------
"Maximum Canadian Revolving Credit Line" means $12,000,000 or the
--------------------------------------
Equivalent Amount thereof in Cdn$.
"Maximum U.S. Revolving Credit Line" means $5,000,000.
----------------------------------
"Mellon U.S." means Mellon Bank, N.A., and its successors and assigns.
-----------
"Mellon Canada" means Mellon Bank Canada, and its successors and
-------------
assigns.
"Mortgages" means: (a) each other mortgage, charge, hypothec, security
---------
agreement and assignments of leases and/or rents between any Borrower or the
Guarantor and the Agent and/or Lenders and delivered now or hereafter to the
Agent including pursuant to Sections 6.1(b) and/or 10.2; and (b) all other real
property mortgages, leasehold mortgages, assignments of leases, mortgage deeds,
deeds of trust, deeds to secure debt, security agreements, hypothecations and
other instruments and documents of security now or hereafter entered into which
provide the Agent and/or Lenders a lien on or other interest in any portion of
the Premises, the Real Estate or any other Property of any Borrower or the
Guarantor or which relate to any such lien or interest.
"Net Income" means Net Income determined in accordance with GAAP.
----------
"Notice of Amount" has the meaning specified in Section 16.19.
----------------
-19-
<PAGE>
"Notice of Borrowing" has the meaning specified in Section 2.2.
-------------------
"Obligations" means all present and future loans, advances,
-----------
liabilities, obligations, covenants, duties and Debts owing by any Borrower or
the Guarantor to the Agent and/or any of the Lenders, under this Agreement or
any other Loan Document, whether or not evidenced by any note or other
instrument or document, whether arising from an extension of credit, opening of
a letter of credit, loan, guarantee, indemnification or otherwise, whether
direct or indirect, absolute, matured or contingent, due or to become due, now
existing or hereafter arising, created or incurred, primary or secondary, as
principal or guarantor and including, without limitation, all interest, charges,
expenses, fees, legal fees, filing fees and any other sums chargeable to any
Borrower or the Guarantor hereunder or under any other agreement or instrument
with the Agent. "Obligations" includes, without limitation, the principal of and
-----------
interest on all Loans, all debts, liabilities, and obligations now or hereafter
owing from any Borrower or the Guarantor to Agent and/or any of the Lenders
under or in connection with the Letters of Credit.
"Other Taxes" means any present or future stamp or documentary taxes
-----------
or any other excise or property taxes, charges or similar levies which arise
from any payment made hereunder or from the execution, delivery or registration
of, or otherwise with respect to, this Agreement or any other Loan Documents.
"Payment Accounts" has the meaning specified in Section 6.10.
----------------
"PBGC" means the Pension Benefit Guaranty Corporation or any Person
----
succeeding to the functions thereof.
"PCO" means the Pension Commission of Ontario and any Person
---
succeeding to the functions thereof and includes the Superintendent under such
statute and any other Public Authority empowered or created by the Pension
-------
Benefits Act of Ontario.
- ------------
"Permitted Discretion" means the Agent's and/or Lenders', as the case
--------------------
may be, good faith judgment based upon any factor or circumstance which it
reasonably believes in good faith (a) will or could reasonably be expected to
adversely affect the value of any Collateral, the enforceability or priority of
the Agent's and/or Lenders' Security Interest and Liens thereon or the amount
which the Agent and/or Lenders would be likely to receive (after giving
consideration to delays in payment and costs of enforcement) in the liquidation
of such Collateral, (b) could reasonably be expected to increase the likelihood
of a bankruptcy, reorganization, insolvency or a like proceeding involving any
Borrower, the Guarantor or any Subsidiary or any of the Collateral, (c) creates
or could reasonably be expected to create an Event or Event of Default or (d)
will or could reasonably be expected to give rise to a Material Adverse Effect.
In exercising such judgment, the Agent and/or Lenders may consider such factors
or circumstances already included in or tested by the definitions of Eligible
Canadian Accounts, Eligible U.S. Accounts, Eligible U.S. Inventory and Eligible
Canadian Inventory as it considers relevant, as well as any of the following:
(i) changes in collection history and dilution with respect to the Account, (ii)
changes in demand for, and pricing of, Inventory, (iii) changes in any
concentration of risk with respect to Accounts or Inventory, (iv) any other
factors or
-20-
<PAGE>
circumstances that will or could reasonably be expected to give rise to a
Material Adverse Effect, (v) audits of books and records, history of charge-
backs or other credit adjustments, (vi) any other factors that change or could
reasonably be expected to change the credit risk of lending to any Borrower, the
Guarantor on the security of the Accounts or the Inventory, and (vii) any factor
or circumstance that suggests that any collateral report or financial
information delivered to the Agent and/or Lenders by any Person on behalf of any
Borrower, the Guarantor or any Subsidiary is incomplete, inaccurate or
misleading in any material respect. The burden of establishing lack of good
faith shall be on the party asserting lack of good faith.
"Permitted Liens" means: (a) Liens for taxes not yet payable or Liens
---------------
for taxes being contested in good faith and by proper proceedings diligently
pursued, in any case ranking subordinate to the Liens of the Agent and Lenders
and provided that a reserve or other appropriate provision, if any, as shall be
required by GAAP shall have been made therefor on the applicable Financial
Statements, that a stay of enforcement of any such Lien is in effect and that no
Event of Default has occurred in consequence thereof; (b) Liens in favour of the
Agent and/or any of the Lenders; (c) PMSIs on Equipment expressly permitted to
be outstanding in accordance with Section 9.11; (d) Liens on specific equipment
leased pursuant to the Equipment Leases; and (e) Liens as described in Exhibit A
hereto.
"Person" means any individual, sole proprietorship, partnership, joint
------
venture, trust, unincorporated organization, association, corporation, Public
Authority, or any other entity.
"Petty Cash Account" means an account maintained by the Borrowers
------------------
which will at no time contain more than US $5000.00
"Plan" means any pension or other employee benefit plan (including any
----
plan subject to Title IV of ERISA) and which is: (a) a plan maintained by any
Borrower or any Related Company; (b) a plan to which any Borrower, the Guarantor
or any Related Company contributes or is required to contribute; (c) a plan to
which any Borrower, the Guarantor or any Related Company was required to make
contributions at any time during the five (5) calendar years preceding the date
of this Agreement; or (d) any other plan with respect to which any Borrower, the
Guarantor or any Related Company has incurred or may incur liability, including
contingent liability (including under Title IV of ERISA), either to such plan or
to any Person, administration or Public Authority, including the PCO and/or
PBGC.
"PMSI" means a purchase money security interest as defined in the PPSA
----
and/or the Uniform Commercial Code and/or a sale and hypothecation agreement
pursuant to Article 2954 of the Civil Code of Quebec.
--------------------
"PPSA" means the Personal Property Security Act of Ontario (or any
---- ------------------------------
successor statute) or similar legislation of any other jurisdiction the laws of
which are required by such legislation to be applied in connection with the
issue, perfection, enforcement, validity or effect of security interests.
"Premises" means the lands, together with all buildings, improvements,
--------
and fixtures thereon and all tenements, hereditament, and appurtenances
belonging or in any way
-21-
<PAGE>
appertaining thereto as described in Exhibit D, and which constitutes all of the
immoveable and real Property in which any Borrower or the Guarantor has any
interests on the Closing Date.
"Prime Rate" means the rate of interest publicly announced from time
----------
to time by Mellon Canada as its reference rate of interest for loans made in
Canadian Dollars to Canadian customers and designated as its "prime" rate. It is
a rate set by Mellon Canada based upon various factors including Mellon Canada's
costs and desired return, general economic conditions and other factors and is
used as a reference point for pricing some loans. However, Mellon Canada may
price loans at, above or below such announced rate.
"Prime Rate Loan" means a Loan in Canadian Dollars made by the
---------------
Canadian Lender to the Canadian Borrower hereunder pursuant to a Drawdown,
Rollover or Conversion, on which interest is payable under Section 3.1(a).
"Prime Rate Margin" means, in the case of Prime Rate Loans, three-
-----------------
quarters of one percent (0.75%) per annum.
"Proceeds" means all products and proceeds (as defined in the PPSA and
--------
as defined in the New Jersey Uniform Commercial Code) of any Collateral, and all
proceeds of such proceeds and products, including, without limitation, all cash
and credit balances, all payments under any indemnity, warranty, or guarantee
payable with respect to any Collateral, all awards for taking by eminent domain,
all proceeds of fire or other insurance, and all money and other Property
obtained as a result of any claims against third parties or any legal action or
proceeding with respect to Collateral.
"Property" means any interest in any kind of property or asset,
--------
whether real, personal or mixed, moveable or immoveable, tangible or intangible.
"Public Authority" means the government of any country or sovereign
----------------
state, or of any state, province, municipality, or other political subdivision
thereof, or any department, agency, public corporation, commission, tribunal,
committee, board or other instrumentality of any of the foregoing and includes,
without limitation, any pension board.
"Real Estate" means all of the present and future interests of the
-----------
Borrowers or the Guarantor, as owner, lessee, or otherwise, in the Premises,
including, without limitation, any interest arising from an option to purchase
or lease the Premises or any portion thereof.
"Receivables Collateral" means all of the Borrowers' or the
----------------------
Guarantor's now owned and hereafter arising or acquired: Accounts (whether or
not earned by performance or passage of time), including Accounts owed to any
Borrower or the Guarantor by any of its Subsidiaries or Affiliates, together
with all interest, late charges, penalties, collection fees, and other sums
which shall be due and payable in connection with any Account; proceeds of any
letters of credit naming any Borrower or the Guarantor as beneficiary; accounts
contract rights, chattel paper, instruments, documents, General Intangibles
(including without limitation chooses in action, causes of action, tax refunds,
tax refund claims, and Reversions and other amounts payable to any Borrower or
the Guarantor from or in respect of any Plan) and all forms of
-22-
<PAGE>
obligations owing to any Borrower or the Guarantor (including, without
limitation, in respect of loans, advances, and extensions of credit by any
Borrower or the Guarantor to its Subsidiaries and Affiliates); guarantees and
other security for any of the foregoing; goods represented by or the sale, lease
or delivery of which gave rise to any of the foregoing; merchandise returned to
or repossessed by any Borrower or the Guarantor and rights of stoppage in
transit, replevin and reclamation; and other rights or remedies of an unpaid
vendor, lien or secured party.
"Register" has the meaning specified in Section 15.5.
--------
"Related Company" means any corporation "related" to any Borrower or
---------------
the Guarantor within the meaning of the Income Tax Act of Canada, or any member
--------------
of any controlled group of corporations (including as defined in Section 414 of
the Code) of which any Borrower or the Guarantor is a party, or any trade or
business (whether or not incorporated) which together with any Borrower or the
Guarantor would be treated as a single employer (including for the purposes of
Section 4001 of ERISA).
"Renewal Term" has the meaning specified in Section 12.
------------
"Reportable Event" shall have the meaning assigned to that term in
----------------
Title IV of ERISA, including, without limitation, a reportable event described
in Section 4043 of ERISA or the regulations thereunder, a withdrawal from a Plan
described in Section 4063 of ERISA, or a cessation of operations described in
Section 4062(e) of ERISA.
"Requirement of Law" means, as to any Person, any law (statutory or
------------------
common), treaty, rule or regulation or determination of an arbitrator or of a
Public Authority, in each case applicable to or binding upon the Person or any
of its property or to which the Person or any of its property is subject.
"Restricted Investment" means any acquisition of Property by any
---------------------
Borrower or any of its or their Subsidiaries in exchange for cash or other
Property, whether in the form of an acquisition of stock, securities, debt
security, or other indebtedness or obligation, or the purchase or acquisition of
any other Property, or by loan, advance, capital contribution, or subscription,
except acquisitions of the following: (a) fixed assets to be used in the
business of any Borrower or the Guarantor ; (b) Inventory in the ordinary course
of business; (c) current assets arising from the sale or lease of goods or
rendition of services in the ordinary course of business of any Borrower or the
Guarantor; (d) direct obligations of Canada, Provinces of Canada, the United
States of America or obligations guaranteed by Canada, Provinces of Canada or
the United States of America provided that such obligations mature within one
year from the date of acquisition thereof; (e) certificates of deposit, term
deposits, bankers acceptances and other similar notes maturing within one year
from the date of acquisition, in each case issued by, created by, or with a bank
chartered under the laws of Canada or the United States of America having
capital and surplus aggregating at least $100,000,000; and (f) commercial paper
given the highest rating by a national credit rating agency and maturing not
more than two hundred and seventy (270) days from the date of creation thereof.
-23-
<PAGE>
"Reversions" means any funds which may become due to any Borrower in
----------
connection with the termination of any Plan or other employee benefit plan.
"Revolving Credit Facilities" means, collectively, the Canadian
---------------------------
Revolving Credit Facility and the U.S. Revolving Credit Facility.
"Revolving Loans" means, collectively, the Canadian Revolving Loans
---------------
and the U.S. Revolving Loans.
"Rollover" means a rollover of a BA Equivalent Loan or LIBOR Loan
--------
pursuant to the provisions of Section 2.7.
"Rollover Date" means the date on which a Rollover takes place, which
-------------
date shall be a Business Day.
"Security Interest" means collectively the Liens granted to the Agent
-----------------
and/or Lenders in the Collateral pursuant to this Agreement, the other Loan
Documents, or any other agreement or instrument now or hereafter granted and/or
entered into.
"SFHA" has the meaning specified in Section 6.7.
----
"Share Pledge" has the meaning specified in Section 10.1.
------------
"Solidary" as used herein shall be read and interpreted in accordance
--------
with the Civil Code of Quebec.
--------------------
"Solvent" shall mean when used with respect to any Person that: (a)
-------
the fair value of all its Property is in excess of the total amount of its debts
(including contingent liabilities); (b) it is able to pay its debts as they
generally become due; and (c) it does not have unreasonably small capital for
the business in which it is engaged or for any business or transaction in which
it is about to engage.
"Subsidiary" means any corporation of which more than fifty percent
----------
(50%) of the outstanding securities of any class or classes, the holders of
which are ordinarily, in the absence of contingencies, entitled to elect a
majority of the corporate directors (or Persons performing similar functions),
is at the time, directly or indirectly through one or more intermediaries, owned
by any Borrower and/or one or more of its or their Subsidiaries.
"Tangible Net Worth" means, with respect to the applicable entity, as
------------------
of the time of any determination thereof, the difference between (a) the sum of
(i) the par value (or value stated on the books of the entity) of the capital
stock of all classes of such entity, plus (or minus in the case of a deficit)
(ii) the amount of such entity's surplus, whether capital or earned, plus the
outstanding balance of the subordinated debt less (b) the sum of treasury stock,
unamortized
-24-
<PAGE>
debt discount and expense, good will, trademarks, trade names, patents, deferred
charges, leasehold improvements (other than improvements to the Premises) and
other intangible assets, and write-up of the value of any assets, all determined
in accordance with GAAP.
"Taxes" means any and all present or future taxes, levies, imposts,
-----
deductions, charges or withholdings, and all liabilities with respect thereto,
excluding, in the case of each Lender and the Agent, such taxes (including
income taxes or franchise taxes) as are imposed on or measured by each Lender's
net income by the jurisdiction (or any political subdivision thereof) under the
laws of which such Lender or the Agent, as the case may be, is organized or
maintains a lending office.
"Term Loan" means the U.S. Term Loan.
---------
"Term Note" means the U.S. Term Note.
---------
"Termination Event" means: (a) a Reportable Event with respect to a
-----------------
Plan described in Section 4043 of ERISA and the regulations issued thereunder
(other than a Reportable Event not subject to the provision for 30-day notice to
the PBGC under such regulations); or (b) the withdrawal of any Borrower or the
Guarantor or any Related Company from a Plan during a plan year (including under
Section 4041 of ERISA); or (c) the filing of a notice of intent to terminate a
Plan or the treatment of a Plan amendment as a termination; or (d) any issuance
of a notice of proposal to windup any Plan or notice of proposal to appoint an
administrator for any Plan; or (e) the institution of proceedings by any Public
Authority (including the PBGC and/or PCO) to terminate or have a trustee
appointed to administer a Plan; or (f) any other event or condition which might
constitute grounds (including under Section 4042 of ERISA) for the termination
of, winding up or the appointment of a trustee to administer, any Plan.
"UCC" means the Uniform Commercial Code (or any successor statute) of
---
the State of New Jersey or of any other state the laws of which are required
thereof to be applied in connection with the issue of perfection of security
interests.
"U.S. Availability" means, in respect of either U.S. Borrower: (a)
-----------------
the lesser at any point in time of: (i) the U.S. Maximum Revolving Credit Line;
and (ii) the sum of (A) eighty-five percent (85%) of Eligible U.S. Accounts of
the U.S. Borrowers, plus (B) sixty percent (60%) multiplied by the value of
Eligible U.S. Inventory of the U.S. Borrowers to a maximum in the case of
advances and issuances of Letters of Credit for both U.S. Borrowers in the
aggregate based on Eligible U.S. Inventory of $2,000,000 (the amount under this
clause (ii) referred to as the "U.S. Formula Amount"); less (b) without
----
duplication: (i) a reserve established for all amounts secured by any Liens,
choate or inchoate, which rank or are capable of ranking in priority to the
Agent's and/or Lenders' Security Interest; (ii) a reserve in an amount
determined by the U.S. Lender from time-to-time in respect of such portion of
the Accounts as represents a value-added, sales, goods and services or excise
tax; (iii) a reserve for all claims, charges and Liens, including in respect of
rent, storage, processing and/or transport costs which have arisen or may arise,
in respect of off-site Inventory or Inventory at leased locations or processor
sites
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<PAGE>
unless a waiver and access agreement satisfactory to the U.S. Lender shall have
been received; and (iv) all other reserves which the U.S. Lender in the exercise
of its Permitted Discretion deems necessary or desirable to maintain with
respect to the U.S. Borrowers, including, without limitation, in respect of any
amounts which the Agent and/or U.S. Lender may be obligated to pay in the future
for the account of the U.S. Borrowers (the foregoing amount calculated by
deducting (b) from (a) being hereinafter referred to as the "U.S. Borrowing
--------------
Base"), less (c) the sum of: (i) the unpaid balance of U.S. Revolving Loans at
- ---- ----
that time; and (ii) the U.S. L/C Reserve of the applicable U.S. Borrower,
provided, however, that each of the reserves under clause (b) shall be
- -------- -------
established, and the amount thereof determined, by the U.S. Lender in the
exercise of its Permitted Discretion.
"U.S. Borrowing Base", in respect of the U.S. Borrowers, has the
-------------------
meaning specified in the definition of U.S. Availability.
"U.S. Collateral" has the meaning specified in Section 6.1(b).
---------------
"U.S. Formula Amount", in respect of the U.S. Borrowers, has the
-------------------
meaning specified in the definition of U.S. Availability.
"U.S. L/C Reserve", in respect of either U.S. Borrower, means a
----------------
reserve established by the U.S. Lender in the exercise of its Permitted
Discretion, from time to time, for Letters of Credit issued on behalf of such
U.S. Borrower. Such reserve shall be, initially, and shall never exceed (a) in
the case of trade, documentary Letters of Credit issued for off shore purchases
in respect of which (i) the U.S. Lender or Agent is named consignee on all
applicable bills of lading and other documents of title, (ii) such bill or
document has been delivered to the U.S. Lender or Agent, (iii) the Inventory is
covered by insurance acceptable to the U.S. Lender or Agent (including, without
limitation, cargo insurance with satisfactory limits), and (iv) the Inventory
would be Eligible U.S. Inventory if located at premises of a Borrower, forty
percent (40%), and (b) in all other cases, one hundred percent (100%), of the
undrawn amount of such Letters of Credit.
"U.S. Lender" means Mellon U.S.
-----------
"U.S. Revolving Credit Facility" has the meaning specified in Section
------------------------------
2.2(a)(ii).
"U.S. Revolving Loans" has the meaning specified in Section 2.2(b).
--------------------
"U.S. Security Documents" means a security agreement from each U.S.
-----------------------
Borrower and each UCC-1 financing statement required by the Agent and/or U.S.
Lender, each in form and substance satisfactory to the Agent and U.S. Lender.
"U.S. Term Loan" has the meaning specified in Section 2.4(b).
--------------
"U.S. Term Note" has the meaning specified in Section 2.4(b).
--------------
"U.S. Unused Line Fee" has the meaning specified in Section 3.3(b).
--------------------
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<PAGE>
"U.S. Dollars" or "U.S. $" means lawful currency of the United States
------------ ------
of America.
"Violation Notice" means any notice received by any Borrower or the
----------------
Guarantor from any governmental or regulatory body or agency under any
Environmental Law that the Borrower or the Guarantor or any of its property and
assets is not in compliance with the requirements of any Environmental Law.
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