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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-11956
HEARTLAND TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-1487580
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
547 West Jackson Boulevard, Chicago, Illinois 60661
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 312/294-0497
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the Registrant's Common Stock held by non-
affiliates of the Registrant, computed by reference to the last reported sales
price of the Registrant's common stock on the American Stock Exchange as of
March 25, 1998, was approximately $25.8 million. On that date there were
1,671,238 shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
The information required by Part III (Items 10, 11, 12 and 13) is incorporated
by reference from the Registrant's definitive proxy statement, which involves
the election of directors, to be filed with the Commission pursuant to
Regulation 14A, or if such proxy statement is not filed with the Commission on
or before 120 days after the end of the fiscal year covered by this Report, such
information will be included in an amendment to this Report filed no later than
the end of such 120-day period.
Exhibit index appears on Page 35.
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PART I
Item 1. Business
Heartland Technology, Inc. (the "Company"), formerly known as Milwaukee Land
Company ("MLC"), is an electronics contract manufacturer primarily for the
computer and computer printer industries, through its subsidiary, P.G. Design
Electronics, Inc. ("PG"), and holds general partner interests in partnerships
which are engaged in real estate sales, leasing and development, as discussed
below.
History
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MLC was organized as a corporation under the laws of the State of Iowa on
September 14, 1881. Throughout most of its history, it was a subsidiary or
affiliate of the Chicago, Milwaukee, St. Paul and Pacific Railroad Company (the
"Railroad") and its predecessors. It was formed for the purpose, among other
things, of acquiring and managing land used in the Railroad's operations. In
1971, Chicago Milwaukee Corporation ("CMC") was formed as a holding company for
the Railroad. In 1977, the Railroad filed for protection under federal
bankruptcy laws. In 1985, the Railroad's Plan of Reorganization was confirmed
by the federal court and the Railroad was renamed CMC Real Estate Corporation
("CMCRE").
In March 1988, CMC, CMCRE and MLC registered with the Securities and Exchange
Commission (the "Commission") as closed-end, non-diversified management
investment companies under Section 8(a) of the Investment Company Act of 1940
(the "1940 Act"). CMCRE was liquidated into CMC on November 30, 1989, and MLC
became a wholly-owned subsidiary of CMC.
In 1990, the real estate assets held by MLC and certain other assets and
liabilities were contributed by MLC and CMC to two newly-organized partnerships
- - - Heartland Partners, L.P., a publicly-traded limited partnership of which MLC
is the general partner and holds limited partner interests ("Heartland"), and
CMC Heartland Partners, a general partnership in which MLC and Heartland are
the general partners and MLC is the managing general partner ("CMC Heartland").
In June 1993, MLC was reincorporated in the State of Delaware pursuant to a
merger transaction with a wholly-owned subsidiary. On June 30, 1993, CMC
distributed MLC's common stock to CMC's stockholders, spinning off MLC as a
separate publicly-held company. CMC has since ceased operation and was
dissolved on May 22, 1995.
Since its spin-off from CMC in 1993, MLC had been engaged in a search to acquire
one or more operating businesses and had disclosed to its shareholders that
concentrating the assets of MLC in a few operating businesses would be in the
best interests of the Company's stockholders.
In May 1997, MLC and PG Newco Corp. ("PG Newco"), a wholly-owned subsidiary of
MLC, purchased substantially all of the assets, and assumed certain liabilities
of, PG Design Electronics, Inc. ("PG Design"), a company engaged in the business
of contract design and manufacture of electronics assemblies for computer and
computer printer original equipment manufacturers ("OEMs"). PG Newco's name was
then changed to P.G. Design Electronics, Inc. ("PG").
On October 31, 1997, MLC changed its name to Heartland Technology, Inc. ("HTI").
Effective December 31, 1997, the Commission approved the deregistration of HTI
as an investment company.
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As discussed in greater detail below, the Company currently is engaged in two
lines of business: (1) manufacturing and (2) real estate. The manufacturing
business segment covers the Company's manufacture of electronics assemblies on a
contract basis primarily for the computer and computer printer industries. The
real estate business segment covers the Company's investment in real estate
partnerships. As of and for the year ended December 31, 1997, certain
information relating to the Company's business segments are set forth in the
table below:
<TABLE>
<CAPTION>
Depreciation
Income (loss) and
Identifiable Sales and before 1997 Amortization Capital
Business Segment Assets Other Income Taxes Expense Expenditures
- - ---------------- ------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Manufacturing (1) $ 21,297,000 $ 15,093,000 $ 2,885,000 $ 776,000 $ 966,000
Real estate 8,602,000 1,012,000 1,012,000 - -
Corporate 280,000 300,000 (1,149,000) - -
------------ ------------ ------------- ------------ ------------
Total Company $ 30,179,000 $ 16,405,000 $ 2,748,000 $ 776,000 $ 966,000
============ ============ ============= ============ ============
</TABLE>
(1) Represents PG Design Electronics from May 31, 1997 through December 31,
1997.
Electronics Business
- - --------------------
The Company is engaged in the electronics business through its PG subsidiary.
PG designs and manufactures electronics assemblies for computer and computer
printer applications on a contractual basis. Its primary customers are OEMs in
the computer and computer printer industry. PG provides product development,
design, manufacturing and testing services. Services are offered either on a
turnkey or consignment basis. Turnkey service involves procurement of materials
as well as product assembly, whereas the customer generally provides the
components for consignment orders.
PG uses surface mount technology ("SMT") in which the electronic devices are
soldered directly to the circuits on the surface of a printed circuit board.
PG's core products are memory modules. A memory module is a printed circuit
board containing one or more memory chips and associated electronic devices and
circuitry. While PG does produce standard memory modules of the type used in
typical desktop computers, it specializes in the design, production and testing
of "custom" memory modules for high-end workstations and for computer printers.
PG has developed and manufactures for computer printer OEMs a product which is
used in retail stores to demonstrate the capabilities of computer printers
("Printer PODs").
The product lines manufactured by PG are complex, involve low volume production
runs and require the use of modern technology, production techniques and
equipment.
Customer Base. PG's customers are major computer, printer, semiconductor and
electronics manufacturers. The majority of PG's customers are located in the
United States; however, their products are shipped internationally. Nearly 97%
of 1997 sales were generated from its top three customers, namely NEC, Hewlett
Packard and Canon. At the present time, NEC accounts for approximately 60% of
PG's business. The Company believes that it has strong relationships with its
major customers which have been established over the last seven years. However,
PG could lose one or all of these customers and the loss of one or all of them
could have a material adverse effect on PG's results. PG does not have any
long-term contractual relationships with any of its customers.
PG's marketing operations are supervised by a Vice President of Marketing.
Marketing and sales are also performed by PG senior management and technical
personnel. The Company does not use outside sales representatives.
Strategy. The Company's strategy is to focus on high margin segments of the
electronics manufacturing and printed circuit board industries. The Company
plans to diversify PG's products as well as the customers and industries to
which it sells. The Company is looking for opportunities for growth by
acquisition or by expanding its existing business. The Company
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aims to grow PG's business within its niche of technically advanced design and
manufacturing, which it believes is appropriate for PG's strengths and long-term
objectives. PG plans to expand its sales to existing customers and to add other
computer, printer and semiconductor manufacturers as customers. PG may also seek
new customers in other industries which use electronic assemblies, such as the
telecommunications industry. PG has added manufacturing capacity, is adding
testing equipment and is working on the design and prototyping of new products.
PG invested approximately $966,000 for new equipment between May 31, 1997 and
December 31, 1997.
Competition. There is significant competition in the electronics contract
manufacturing market. The Company believes that competition in the market
segments PG serves is based on product and service quality, reliability and
timely delivery to customers. PG's competitive advantage has been maintained by
its capacity to handle limited runs of a product on short notice and its ability
to perform analysis and provide design advice while working closely with the
customer using the latest technologies. The electronics contract manufacturing
industry is comprised of a large number of companies. PG faces intense
competition from established competitors. Certain competitors have greater
financial resources and manufacturing capacity than PG. PG also faces
competition from similar niche players who focus on low volume/high margin
production. PG may also face competition from current and potential customers,
including OEMs themselves, who may decide to manufacture components internally.
However, the Company believes that rather than viewing contract manufacturers as
a competitive threat, OEMs have become increasingly reliant on, and want to
align themselves with, contract manufacturers. Contract manufacturers
distinguish themselves by offering value added services -- either full service
turnkey manufacturing with test and inspection services or consignment work
offering high volume, quick turnaround manufacturing capability. During periods
of recession in the electronics industry, PG's competitive advantages in the
areas of quick-turnaround manufacturing and responsive customer service may be
of reduced importance to electronics OEMs, who may become more price sensitive.
Although PG generally does not pursue high-volume, price-sensitive business, it
may be at a competitive disadvantage with respect to price when compared to
manufacturers with lower cost structures.
Environmental Issues. Proper waste disposal is a consideration for electronics
contract manufacturers such as PG because metals and chemicals are used in the
manufacturing process. Water used in the manufacturing process must be treated
to remove metal particles and other contaminants before it can be discharged in
the municipal sanitary sewer system. Maintenance of environmental controls is
also important in the electronics assembly process. A manufacturing facility
must operate under an effluent discharge permit issued by the appropriate
government authority and renewed periodically. PG is also subject to
environmental laws relating to storage, use and disposal of chemicals, solid
waste and other hazardous materials.
PG believes that it is currently in compliance with all applicable environmental
protection requirements in all material respects. PG does not anticipate any
significant expenditures in maintaining its compliance. However, there is no
assurance that violations will not occur in the future as a result of human
error, equipment failure or other causes. The implications of such potential
failure include litigation, fines and other penalties such as the revocation of
the necessary permits. New or more stringent environmental laws may be passed in
the future which could cause PG to have to expend money for compliance and could
increase its operating costs.
Proprietary Rights. PG does not have any patents. It has developed product
innovations, such as its Printer PODs. PG has a number of trademarks, which
include: Xceed; Xceed Technology; Xceed Technology and Design; Color Fusion and
Resolutionary. On the whole, however, patents and trademarks are of relatively
marginal importance in the contract industry, since original equipment customers
contract for the manufacture of products designed to their specifications.
Although PG does not believe it infringes on the intellectual property rights of
others, there can be no assurance against claims that PG is infringing such
rights. If such a claim were brought, it could potentially adversely affect the
financial condition and operations of the Company.
Employees. HTI has no employees and reimburses CMC Heartland for salary costs
allocated to HTI. PG has approximately 150 employees.
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Raw Materials. The raw materials required for electronics contract
manufacturing, including printed circuit boards, memory integrated circuits,
electronic components such as diodes and capacitors and solder are readily
available from outside suppliers with lead times ranging from a couple of days
to fourteen weeks for some components. Chip components for the memory modules
are typically provided by the contract purchaser. PG purchases other components
from a number of outside suppliers and is not dependent on any particular
supplier. For NEC products, PG is dependent on NEC for memory chips and on two
suppliers for printed circuit boards.
Cyclical Demand. PG does not believe that its business is subject to seasonal
variations, but it may be subject to cyclical demand associated with orders
received. PG is largely dependent on its ability to deliver short runs and
quick turnarounds, requiring the maintenance of sufficient inventory to meet
these demands. PG receives monthly forecasts from its major customers of
anticipated needs through the following six months, enabling it to maintain
continuous allotments and shipments of goods from suppliers as required.
Backlog. PG has not historically tracked backlog orders. PG's orders are
subject to cancellation or postponement.
Recent Developments. In September 1997, the Company signed a letter of intent to
acquire a company ,which provides specialty services to the printed circuit
board industry, for approximately $7,250,000. Closing is contingent on the
execution of final agreements and financing.
On March 13, 1998, the Company and PG signed a letter of intent for PG to
acquire the assets of a company which owns patented technology for plating
copper circuits on a ceramic substrate. This technology may provide for circuit
densification and thermal dissipation. The price is approximately $1.6 million.
As part of its due diligence, PG and the seller agreed that PG would operate the
plant for a limited time. PG is operating the plant to determine whether cost,
operating, marketing and financial projections are realistic. PG is to receive
all revenues from products shipped by this company after January 31, 1998. On
or before March 13, 1998, PG paid $449,600 for the costs of this due diligence
operation. PG is paying stipulated amounts until the transaction is closed or
terminated. Closing of this acquisition is subject to negotiation of a final
contract.
Real Estate Development
- - -----------------------
Through Heartland and CMC Heartland (the "Partnerships"), the Company is engaged
in the business of development of real estate, including the properties formerly
owned by the Company. This real estate development business consists of the
leasing, development and sale of various commercial, residential and
recreational properties in Illinois, Georgia, Wisconsin, Montana, Minnesota and
Washington. The Company has a 1% general partnership interest in Heartland
which entitles the Company to 1% of Heartland's available cash for distribution
and allocation of taxable income and loss. The Company also has a .01% general
partnership interest in CMC Heartland which entitles the Company to .01% of CMC
Heartland's available cash for distribution and an allocation of taxable income
and loss before distributions and allocations are made by Heartland. The
Company also owns the Class B limited partnership interest in Heartland (the
"Class B Interest"). In general, the Class B Interest entitles the holder to
.5% of Heartland's available cash for distribution and allocation of taxable
income and loss. In addition, items of deduction, loss, credit and expense
attributable to the satisfaction of Plan Liabilities (described below) are
specially allocated 99% to the holder of the Class B Interest and 1% to the
Company as the general partner until the aggregate amount of all such items
allocated to the Class B Interest equals the aggregate capital contribution with
respect to the Class B Interest. If the aggregate amount of such items
specially allocated to the holder of the Class B Interest is less than the
amounts contributed by such holder to Heartland, such excess will be reflected
in the capital account of the Class B Interest. Additionally, pursuant to a
management agreement between the Company and CMC Heartland, CMC Heartland is
required to pay to the Company an annual management fee in the amount of
approximately $425,000.
The Company, by reason of its serving as the general partner of the
Partnerships, is liable and responsible to third parties for such Partnerships'
liabilities to the extent the assets of such Partnerships are insufficient to
satisfy such liabilities. In addition to liabilities incurred as a result of
their ongoing real estate businesses, in connection with the real estate
transfer the Partnerships have assumed primary responsibility and liability for
the resolution and satisfaction of most of the liabilities for claims remaining
under the plan of reorganization of the predecessor of CMC Real Estate, certain
other contingent liabilities with respect to the properties transferred to CMC
Heartland arising after the consummation of such plan, and the
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costs and expenses in resolving such plan and other contingent liabilities
(collectively, the "Plan Liabilities"). Included in the Plan Liabilities are
known environmental liabilities associated with certain of the properties
transferred to the Partnerships arising out of the activities of the Railroad or
certain lessees or other third parties. Further environmental obligations as yet
unknown in respect of these properties may become due and owing in the future. A
majority of the known environmental matters stem from the use of petroleum
products, such as motor oil and diesel fuel, in the operation of a railroad. The
Company and/or the Partnerships have been notified by government agencies of
potential liabilities in connection with certain of these real estate
properties. Descriptions of the known material environmental matters are
included in the reports filed by Heartland with the Commission pursuant to the
provisions of the Securities Exchange Act of 1934, as amended, (the "1934 Act").
On June 30, 1993, the Company assumed from CMC, its former parent corporation,
any obligations for which CMC was or might become liable (the "MLC Assumed
Liabilities") arising out of any matters existing on or occurring prior to June
30, 1993 other than (i) the Plan Liabilities, (ii) liabilities directly related
to CMC's business of investing and managing its investment securities, (iii) the
lawsuit then pending (and since resolved) against CMC relating to its preferred
stock, or (iv) any liabilities relating to federal, state, local or foreign
income or other tax matters.
FORWARD-LOOKING STATEMENTS
Certain statements discussed in Item 1 (Business) and Item 7 (Management's
Discussion and Analysis of Financial Condition and Results of Operations) and
elsewhere in this Form 10-K constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such forward-
looking statements involve known and unknown risks, uncertainties and other
important factors that could cause the actual results, performance or
achievement of results to differ materially from any future results, performance
or achievements expressed or implied by such forward-looking statements. Such
risks, uncertainties and other important factors are discussed in this Form 10-
K, and include, among others:
Electronics Business
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Inexperience. Prior to the acquisition of PG Design, the Company had no
experience or operating history in the business of designing and manufacturing
computer components.
Dependence on Key Employees and Management. PG has been dependent on its
founder, Peter VanHeusden, for management, design, product development and
customer relationships. Mr. VanHeusden is the CEO of PG. PG has hired
additional design, development, sales and management personnel. PG is
restructuring its operations so that it will not be significantly reliant on any
one individual in the future. However, loss of Mr. VanHeusden's services at
this time could have a material adverse impact on PG's financial performance.
Mr. VanHeusden has entered into a five-year employment agreement, as well as a
non-competition agreement with PG. The Company maintains a "key man" life
insurance policy on Mr. VanHeusden's life and "key man" disability insurance.
Dependence on Computer Industry. PG provides products for OEMs of computers and
computer printers. Downturns in the demand for those products could have a
material adverse effect on PG's, and in turn the Company's, financial results.
Technological Change. The markets in which PG's customers compete are
characterized by rapidly changing technology, evolving industry standards and
continuous improvements in products and services. These dynamics frequently
result in short product life cycles. PG's success in the future will depend to a
great extent on the success achieved by its customers in developing and
marketing their products. The business may be adversely affected if technologies
or standards relevant to PG's or its customers' products become obsolete or fail
to gain widespread commercial acceptance.
Management of Growth. There can be no assurance that PG's historical revenue
growth will continue. There can also be no assurance that the Company will
successfully manage the business and assets of PG. The Company may experience
difficulties managing the growth of the business of PG as it may face certain
inefficiencies as it integrates new operations, adds new customers and expands
geographically. If expenditures are made in anticipation of growth in future
sales which does not materialize, profits will be adversely affected.
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Real Estate Business
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Economic, and Other Conditions Generally. The real estate industry is highly
cyclical and is affected by changes in national, global and local economic
conditions and events, such as employment levels, availability of financing,
interest rates, consumer confidence and the demand for housing and other types
of construction. Real estate developers are subject to various risks, many of
which are outside the control of the developer, including real estate market
conditions, changing demographic conditions, adverse weather conditions and
natural disasters, such as hurricanes, tornados, delays in construction
schedules, cost overruns, changes in government regulations or requirements,
increases in real estate taxes and other local government fees and availability
and cost of land, materials and labor. The occurrence of any of the foregoing
could have a material adverse effect on the financial conditions of the
Partnerships, and in turn the Company.
Access to Financing. The real estate business is capital intensive and requires
expenditures for land and infrastructure development, housing construction and
working capital. Accordingly, the Partnerships anticipate incurring additional
indebtedness to fund their real estate development activities. As of December
31, 1997, the Partnerships' total consolidated indebtedness was $3.75 million.
There can be no assurance that the amounts available from internally generated
funds, cash on hand, the Partnerships' existing credit facilities and sale of
non-strategic assets will be sufficient to fund the Partnerships' anticipated
operations. They may be required to seek additional capital in the form of
equity or debt financing from a variety of potential sources, including
additional bank financing and sales of debt or equity securities. No assurance
can be given that such financing will be available or, if available, will be on
terms favorable to the Partnerships. If the Partnerships are not successful in
obtaining sufficient capital to fund the implementation of its business strategy
and other expenditures, development projects may be delayed or abandoned. Any
such delay or abandonment could result in a reduction in sales and would
adversely affect the Partnerships', and in turn the Company's, future results of
operations.
Period-to-Period Fluctuations. The Partnerships' real estate projects are long-
term in nature. Sales activity varies from period to period, and the ultimate
success of any development cannot always be determined from results in any
particular period or periods. Thus, the timing and amount of revenues arising
from capital expenditures are subject to considerable uncertainty. The inability
of the Partnerships to manage effectively their cash flows from operations would
have an adverse effect on their ability to service debt, and to meet working
capital requirements.
Item 2. Properties
HTI's corporate headquarters is at 547 West Jackson Boulevard, Suite 1510,
Chicago, Illinois. It shares approximately 9,000 square feet of leased office
space with Heartland. The lease provides for a base rent of $95,320 for 1998 and
an approximate 1% increase per year through the lease expiration date of
December 31, 1999, and is subject to operating expense and tax escalations.
PG's corporate and manufacturing headquarters are located at 48700 Structural
Drive, Chesterfield, Michigan. The building, which operates both as an office
and a plant, has 25,000 square feet of floor space. This facility is leased at a
monthly rate of $13,000 for a ten year term ending January 31, 2004, with an
option to purchase the building and property at the end of the term.
Item 3. Legal Proceedings
Neither the Company nor PG is involved in, nor is any of their properties the
subject of, any material legal proceeding. Descriptions of the material legal
proceedings to which Heartland is a party or to which any of its properties is
subject are included in the reports filed by Heartland with the Commission
pursuant to the provisions of the 1934 Act. The information set forth in Notes 5
(Recognition and Measurement of Environmental Liabilities) and 8 (Legal
Proceedings and Contingencies) to the Consolidated Financial Statements of
Heartland Partners, L.P. included in the Annual Report on Form 10-K for the
fiscal year ended December 31, 1997, of Heartland Partners, L.P. (File No. 1-
10520), is incorporated by reference herein.
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Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of stockholders in the quarter ended
December 31, 1997.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
HTI common stock is traded on the American Stock Exchange. The high and low
sales prices for each quarterly period of 1997 and 1996 are shown below.
<TABLE>
<CAPTION>
1997 High Low
<S> <C> <C>
First quarter 8-3/8 6-1/8
Second Quarter 10-1/4 7-3/4
Third Quarter 14-1/4 9-3/4
Fourth Quarter 17-1/2 13-3/4
1996
First Quarter 7-1/2 6-3/4
Second Quarter 7-1/4 6-1/8
Third Quarter 7 6-1/8
Fourth Quarter 6-11/16 6
</TABLE>
No dividends have been paid. See Item 7 of this Form 10-K and Note 7 to the
Notes to Consolidated Financial Statements for restrictions on payments and
retained earnings. As of December 31, 1997 there were 615 holders of record of
common stock.
Item 6. Selected Financial Data.
Operating Company
Calendar year 1997 including results of P.G. Design Electronics, Inc. from
May 31, 1997 through December 31, 1997
(Amounts in Thousands Except for Per Share Amount)
<TABLE>
<S> <C>
Net sales $15,093
Net income $ 1,975
Net income per common share (1,671 shares issued and outstanding) $ 1.18
Total assets at December 31, 1997 $30,179
Long-term obligations at December 31, 1997 $ 5,165
Stockholders' Equity $19,559
</TABLE>
The Company's financial statements for the twelve months ended December 31, 1997
reflect a completion of the transition from an investment company to an
operating company. On May 30, 1997, HTI acquired substantially all of the assets
subject to certain liabilities of PG Design Electronics, Inc. for approximately
$16 million consisting of $12.3 million in cash, two promissory notes each in
the aggregate principal amount of $1.5 million at 8% interest and $.7 million in
acquisition related costs. The Company liquidated its portfolio of securities
approximating $12.6 million at May 30, 1997 and utilized approximately $7
million to finance the transaction and borrowed approximately $5.3 million.
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The transaction was treated as a purchase and the summarized condensed pro forma
statement of operations which follows was prepared as if the transaction had
occurred January 1, 1997 (Amounts in thousands, except per share amount).
<TABLE>
<S> <C>
Net sales $28,636
=======
Net income from continuing operations $ 2,406
=======
Net income from continuing operations per common share $ 1.44
=======
</TABLE>
Item 7. Managements's Discussion and Analysis of Financial Conditions and
Results of Operations
Liquidity and Capital Resources
On December 31, 1997, the Company had available $3.2 million in cash and cash
equivalents. As a result of the Company's acquisition on May 30, 1997 of
substantially all of the assets, subject to certain liabilities, of PG Design
Electronics, Inc., a significant portion of the Company cash and marketable
securities were used to consummate the transaction. As part of the transaction,
the Company negotiated a line of credit with General Electric Capital
Corporation in the amount of $7 million with an interest rate of the 30 day
dealer placed commercial paper rate published in the Wall Street Journal plus
2.75%. On May 30, 1997 approximately $2.1 million was borrowed under this line.
At December 31, 1997, borrowing under this line had been reduced to $147,000.
Based on PG's eligible collateral, additional borrowings of approximately $2
million are available under the line of credit at December 31, 1997. The line of
credit expires on May 29, 2000.
During the year, including the May 30, 1997 acquisition, the Company acquired
approximately $5.6 million of capital equipment. Most of the new equipment
acquired since May 30, 1997 was used to increase manufacturing capacity and
improve productivity and was financed by term loans provided by General Electric
Capital Corporation. The term loans, in the aggregate original principal amount
of $4,675,000 bear interest at a rate equal to the one month LIBOR plus 3.62%
and are payable in monthly installments through June 1, 2000. At December 31,
1997, the principal amount outstanding was $3,756,000. Under the terms of the
line of credit and term loans, PG is required to maintain a minimum fixed charge
ratio and minimum tangible net worth, is limited in incurring additional
indebtedness and making capital expenditures, and is restricted from making
certain payments. Borrowings under the line of credit are collateralized by
accounts receivable and inventory and cross-collateralized with the term loans.
The term loans are secured by machinery and equipment and cross-collateralized
with the line of credit.
Cash flow for 1997 totaled $2.0 million. Management believes it will have
sufficient funds available for operating expenses, debt amortization and capital
expenditures in 1998 primarily from cash flow expected to be derived from
operations.
The Company believes that it will not have to modify or replace significant
portions of its software so that its computer systems will function properly
with respect to dates in the year 2000 and thereafter. The Company presently
believes that the Year 2000 Issue will not pose significant operational problems
for its computer systems. However, there can be no guarantee that the systems of
other companies on which the Company relies will be converted on a timely basis
and would not have an adverse effect on the Company.
Results of Operations
For the year ended December 31, 1997, net sales amounted to $15.1 million
with profit before taxes of $2.7 million. Net income after tax totaled $2.0
million, or $1.18 per common share.
Because the Company's financial statements now reflect its new status as an
operating Company, comparison between 1997 and prior years when the Company was
a closed-end non-diversified management investment company are not meaningful.
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Item 8. Financial Statements and Supplementary Data.
REPORT OF INDEPENDENT AUDITORS
To the Stockholders and Board of Directors of
Heartland Technology, Inc.
We have audited the accompanying consolidated balance sheet of Heartland
Technology, Inc. (formerly Milwaukee Land Company) and Subsidiary as of December
31, 1997, and the related consolidated statements of income, stockholders'
equity and cash flows for the year then ended. We have also audited the
accompanying statement of assets and liabilities of Heartland Technology, Inc.
as of December 31, 1996, and the related statements of operations and changes in
net assets for each of the two years in the period then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As explained in Note 1, the Company changed its basis of presentation as of
January 1, 1997, from the fair value accounting basis used by investment
companies to a historical cost basis used by operating companies. Accordingly,
the 1997 financial statements are not comparable to previous years.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Heartland Technology, Inc. and Subsidiary at December 31, 1997, and the assets
and liabilities at December 31, 1996, the consolidated results of its operations
and its cash flows for the year ended December 31, 1997, and the results of its
operations and the changes in its net assets for each of the two years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Chicago, Illinois
February 16, 1998, except for Note 14,
as to which the date is March 13, 1998
9
<PAGE>
Heartland Technology, Inc.
Consolidated Balance Sheet
(Operating Company)
December 31, 1997
(Dollars in Thousands, except share amounts)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents $ 3,232
Accounts receivable, net of allowance for doubtful accounts of $73 2,311
Due from affiliate 450
Inventories, net 1,660
Prepaid Expenses 139
-------
Total current assets 7,792
-------
Property and equipment:
Machinery and equipment 5,262
Furniture and equipment 29
Leasehold improvements 320
-------
5,611
Less accumulated depreciation 623
-------
4,988
-------
Other assets:
Deferred compensation expense 2,562
Deferred tax asset, net 262
Goodwill, net of amortization of $121 6,058
Debt issuance cost, net of amortization of $32 135
Other 230
Investment in partnerships 8,152
-------
Total assets $30,179
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 1,249
Accrued expenses and other liabilities 1,189
Line of credit 147
Current portion of long-term debt 1,591
Allowance for claims and liabilities 1,279
-------
Total current liabilities 5,455
-------
Long-term debt, less current portion 2,165
Notes payable 3,000
Stockholders' equity
Common stock, $.30 par value per share, authorized 10,000,000 shares, 1,671,238 shares
issued and outstanding 501
Additional paid-in capital 10,773
Retained earnings 8,285
-------
Total stockholders' equity 19,559
-------
Total liabilities and stockholders' equity $30,179
=======
</TABLE>
See accompanying notes.
10
<PAGE>
Heartland Technology, Inc.
Consolidated Statement of Income
(Operating Company)
Year ended December 31, 1997
(Amounts in Thousands except for per share amounts)
<TABLE>
<CAPTION>
<S> <C>
Net Sales $15,093
Cost of Sales 9,684
-------
Gross margin 5,409
Other income:
Interest income 272
Management fee from affiliate 425
Income from investment in partnerships 587
Miscellaneous, net 28
-------
Total other income 1,312
Other expenses:
Selling, general and administrative 3,119
Interest expense 416
Special compensation 438
-------
Total other expenses 3,973
-------
Income before taxes 2,748
Income taxes 773
-------
Net income $ 1,975
=======
$ 1.18
Net income per share - basic and diluted =======
Weighted average number of common shares outstanding 1,671
=======
</TABLE>
See accompanying notes.
11
<PAGE>
Heartland Technology, Inc.
Consolidated Statement of Stockholders' Equity
(Operating Company)
For the year ended December 31, 1997
(Amounts in Thousands)
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained Stockholder's
Stock Capital Earnings Equity
------ ---------- -------- -------------
<S> <C> <C> <C> <C>
Balance at January 1, 1997 $501 $10,773 $6,310 $17,584
Net income - - 1,975 1,975
---- ------- ------ -------
Balance at December 31, 1997 $501 $10,773 $8,285 $19,559
==== ======= ====== =======
</TABLE>
See accompanying notes.
12
<PAGE>
Heartland Technology, Inc.
Consolidated Statement of Cash Flows
(Operating Company)
Year ended December 31, 1997
(Amounts in Thousands)
<TABLE>
<CAPTION>
Operating activities:
<S> <C>
Net income $ 1,975
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 776
Equity income in investment in partnerships (587)
Bad debt expense 73
Reserve for inventory obsolescence 475
Realized loss on sale of investments 110
Special compensation 438
Accretion amortization of (discount) premium on securities (79)
Changes in operating assets and liabilities:
Decrease in accounts receivables 661
Decrease in due from affiliate 25
Increase in inventories, net (61)
Increase in prepaid expenses and other assets (151)
Increase in deferred tax asset, net (262)
Decrease in accounts payable and accrued expenses (332)
Payment on claims and liabilities (30)
-------
Net cash provided by operating activities 3,031
Investing activities:
Purchases of property and equipment (966)
Net proceeds from sale of securities 9,505
Acquisition of company, net of cash acquired (11,896)
--------
Net cash used in investing activities (3,357)
Financing activities:
Line of credit, net (1,223)
Proceeds from issuance of long-term debt 4,675
Principal payments on long-term debt (919)
Debt issuance costs (167)
--------
Net cash provided by financing activities 2,366
--------
Increase in cash and cash equivalents 2,040
Cash and cash equivalents at beginning of year 1,192
--------
Cash and cash equivalents at end of year $ 3,232
========
</TABLE>
See accompanying notes.
13
<PAGE>
Heartland Technology, Inc.
Consolidated Statement of Cash Flows (continued)
(Operating Company)
Year ended December 31, 1997
(Amount in Thousands)
<TABLE>
<CAPTION>
Supplemental cash flow information:
<S> <C>
Cash paid for interest $ 403
========
Cash paid for income taxes $ 1,000
========
Supplemental disclosure of noncash investing and financing activities:
Acquisition of company, net of cash acquired:
Operating assets acquired $ (9,825)
Goodwill acquired (6,179)
Deferred compensation (3,000)
Operating liabilities assumed 4,108
Notes payable issued 3,000
--------
Acquisition of company, net $(11,896)
========
</TABLE>
See accompanying notes.
14
<PAGE>
Heartland Technology, Inc.
Statement of Assets and Liabilities
(Investment Company)
December 31, 1996
(Amounts in Thousands, except per share amounts)
<TABLE>
<CAPTION>
ASSETS
Investments at Value:
<S> <C> <C>
Nonaffiliates (cost $9,477) $ 9,535
Affiliates (cost $12,261) 7,589
----------
Total Investments 17,124
Cash 1,192
Receivables:
Management fees- affiliate $ 425
Accrued interest 169
Partnership distribution 41
Other 52
--------
Total Receivables 687
Prepaid and deferred expenses and other assets 62
----------
Total assets 19,065
LIABILITIES
Directors and officers 12
Allowance for claims and liabilities 1,309
Other 160
----------
Total liabilities 1,481
----------
NET ASSETS (STOCKHOLDERS' EQUITY) $ 17,584
==========
COMMON SHARES OUTSTANDING 1,671
==========
NET ASSET VALUE PER COMMON SHARE $ 10.52
==========
</TABLE>
See accompanying notes.
15
<PAGE>
Heartland Technology, Inc.
Statements of Operations
(Investment Company)
Years ended December 31, 1996 and 1995
(Amounts in Thousands)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Investment Income:
Interest- Nonaffiliates $ 658 $ 705
Interest- Affiliates 107 -
Management fee from affiliate 425 425
Equity in Earnings - Partnership 7 -
Other 3 1
-------- --------
Total Investment Income 1,200 1,131
Expenses:
Compensation and benefits 428 288
Director's fees and expenses 28 38
Professional fees 210 359
Advisory fees 20 21
Custodian fees 6 6
Taxes 20 47
Insurance 90 60
Facility expense allocation 37 40
General and administrative expenses 236 102
-------- --------
Total Expenses 1,075 961
-------- --------
Investment income before taxes 125 170
Provision for income taxes - 47
-------- --------
Net Investment Income 125 123
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) on sales of investments 57 (73)
Net change in unrealized appreciation (depreciation) on investments:
Nonaffiliates (31) 571
Affiliates (1,536) (6,245)
-------- --------
Net change in unrealized depreciation on investments (1,567) (5,674)
-------- --------
Net realized gain (loss) and unrealized depreciation on investments before taxes (1,510) (5,747)
Income tax benefit - (1,603)
-------- --------
Net realized gain (loss) and unrealized depreciation on investments, net of tax (1,510) (4,144)
-------- --------
Net decrease in net assets resulting from operations $ (1,385) $ (4,021)
======== ========
</TABLE>
See accompanying notes.
16
<PAGE>
Heartland Technology, Inc.
Statements of Changes in Net Assets
(Investment Company)
Years ended December 31, 1996 and 1995
(Amounts in Thousands)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Operations:
Net investment income $ 125 $ 123
Net realized gain (loss) on sales of investments 57 (53)
Net change in unrealized depreciation on investments (1,567) (4,091)
------- -------
Net Decrease in Net Assets Resulting from Operations (1,385) (4,021)
Net Assets at Beginning of Year 18,969 22,990
------- -------
Net Assets at End of Year (including undistributed net
investment income of $10,334 at December 31, 1996 and
$10,207 at December 31, 1995) $17,584 $18,969
======= =======
</TABLE>
See accompanying notes.
17
<PAGE>
Heartland Technology, Inc.
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
1. Change in Operations and Basis of Presentation
Heartland Technology, Inc. (the "Company" or "HTI") (formerly known as Milwaukee
Land Company) filed an application on June 20, 1997, with the Securities and
Exchange Commission ("the Commission") to deregister as an investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"). On December 31, 1997, the Commission issued an order acknowledging that
the Company had ceased to be an investment company.
The accompanying financial statements for the years ended December 31, 1996 and
1995 reflect the Company's prior status as a non-diversified closed-end
management investment company. As the basis of presentation has changed from the
fair value accounting basis used for investment companies to a historical cost
basis for operating companies as of January 1, 1997, in accordance with general
accepted accounting principles, the 1996 and 1995 financial statements are
presented separately. Certain reclassifications have been made to certain
components of stockholders' equity as of January 1, 1997.
2. Organization
HTI was organized as a corporation under the laws of the State of Iowa on
September 14, 1881. Prior to June 30, 1993, HTI was a wholly-owned subsidiary of
Chicago Milwaukee Corporation ("CMC") or its affiliates.
In 1990, the real estate assets held by HTI and certain other assets and
liabilities were contributed by HTI and CMC to two newly-organized partnerships-
Heartland Partners, L.P., a publicly-traded limited partnership of which HTI is
the general partner and also holds limited partner interests ("Heartland"), and
CMC Heartland Partners, a general partnership in which HTI and Heartland are the
general partners and HTI is the managing general partner ("CMC Heartland"). On
June 30, 1993, CMC distributed HTI's common stock to CMC's stockholders,
spinning off HTI as a separate publicly-held company. CMC has since ceased
operation and was dissolved on May 22, 1995.
Through its partnership interests in Heartland and CMC Heartland, the Company is
engaged in the business of development of real estate, including the properties
formerly owned by the Company. This real estate development business consists of
the leasing, development and sale of various commercial, residential and
recreational properties in Illinois, Georgia, Wisconsin, Montana, Minnesota and
Washington. The investment in Heartland and CMC Heartland (the "Partnerships")
is accounted for using the equity method since the Company has significant
influence over the Partnerships' operations. The difference in the cost of the
Company's investment in the Partnerships and the underlying equity in net assets
of $2,059,000 at January 1, 1997 is being amortized as CMC Heartland's assets
are sold. For the year ended December 31, 1997, $620,000 was amortized to
income. All significant intercompany balances and transactions have been
eliminated.
Since its spin-off from CMC in 1993, HTI had been engaged in a search to acquire
one or more operating businesses and had disclosed to its shareholders that
concentrating the assets of HTI in a few operating businesses would be in the
best interests of the Company's stockholders. All significant intercompany
balances and transactions have been eliminated.
In May 1997, HTI and PG Newco Corp ("PG Newco"), a wholly-owned subsidiary of
HTI, purchased substantially all of the assets, and assumed certain liabilities
of, PG Design Electronics, Inc. for $16,048,000. PG Design Electronics, Inc. was
engaged in the business of contract design and manufacture of electronics
assemblies for computer and computer
18
<PAGE>
Heartland Technology, Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 1997, 1996 and 1995
printer original equipment manufacturers ("OEMs"). PG Newco's name was then
changed to P.G. Design Electronics, Inc. ("PG Design").
The purchase price consisted of cash paid of $12,325,000, the issuance of notes
totaling $3,000,000 and acquisition related costs of $723,000. The notes payable
of $3,000,000 were issued to the seller, PG Design Electronics, Inc. The notes
are payable $1,500,000 in September 2000 and $1,500,000 in May 2002 and bear
interest at 8% per year; however, no amounts are due in the event the president
of PG Design Electronics, Inc. voluntarily leaves the employment of PG Design
prior to the scheduled maturity of the notes. The acquisition has been accounted
for as a purchase. For financial reporting purposes, of the $9,179,000 excess of
the purchase price over the fair value of net tangible assets acquired,
$6,179,000 has been recorded as goodwill and is being amortized on a straight
line basis over forty years and $3,000,000 has been recorded as deferred
compensation of which $1.5 million is being amortized over 3 years and $1.5
million is being amortized over 5 years, on a straight line basis. The
amortization of deferred compensation amounted to $438,000 for the year ended
December 31, 1997 and is reported as Special compensation in the Company's 1997
Consolidated Statement of Income.
PG Design designs and manufactures printed circuit board products for computer
applications on a contract basis. The company uses surface mount technology in
which electronic devices are soldered directly to the circuits on the surface of
the circuit board. PG Design's core products are memory modules. PG Design
specializes in the design, production and testing of "custom" memory modules for
high-end workstations. PG Design has also developed and manufactures a product
which is used in retail stores to demonstrate the capabilities of computer
printers.
The 1997 consolidated financial statements include the accounts of HTI and PG
Design. The results of operations and cash flows include the operations of PG
Design from May 31, 1997. All significant intercompany balances and transactions
have been eliminated.
Unaudited proforma results of operations for the Company for the calendar year
ended December 31, 1997, assuming the acquisition had occurred on January 1,
1997 are as follows:
<TABLE>
<S> <C>
Net sales $28,636,000
Net income $ 2,406,000
Basic earnings per share $ 1.44
</TABLE>
Operating Company Statements (1997)
- - -----------------------------------
3. Summary of Significant Accounting Policies
(a) Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand, demand deposits in banks and
investments with original maturities of three months or less when purchased.
The Company maintains cash balances with financial institutions which at times
may be in excess of the FDIC insurance limit.
19
<PAGE>
Heartland Technology, Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 1997, 1996 and 1995
(b) Inventories
Inventories are stated at the lower of cost or market, on a first-in, first-out
basis (FIFO method).
(c) Property and Equipment
Property and equipment is stated at cost. Depreciation is computed using the
straight line method over the estimated useful lives of the assets which range
from five to seven years for equipment and ten years for leasehold improvements.
Depreciation expense was $623,000 in 1997.
(d) Debt Issuance Costs
The cost to acquire debt is being amortized on a straight-line basis over the
term of the loan (3 years).
(e) Revenue Recognition
Security transactions are accounted for on the trade date. Realized gains and
losses on investment transactions are determined on an identified cost basis.
Interest income is recorded on the accrual basis and includes amortization of
premium and accretion of discount on securities owned.
For the manufacturing segment, revenue is recognized upon shipment.
(f) Use of Estimates
In the preparation of the Companys' financial statements in conformity with
general accepted accounting principles, management makes estimates and
assumptions that affect the reported amounts in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
(g) Fair Value of Financial Instruments
Management has considered fair value information relating to its financial
instruments at December 31, 1997. For cash and cash equivalents, the carrying
amounts approximate fair value. For variable rate debt that reprices frequently,
fair values approximate carrying values. For all remaining financial
instruments, carrying value approximates fair value due to the relatively short
maturity of these instruments.
(h) Net Income Per Share
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings per Share ("Statement 128"). Statement 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. The Company has no potentially dilutive securities as of
December 31, 1997.
20
<PAGE>
Heartland Technology, Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 1997, 1996 and 1995
(i) Income Taxes
The Company accounts for income taxes in accordance with FASB Statement No. 109
"Accounting for Income Taxes". Under Statement 109, the liability method is used
in accounting for income taxes. Under this method, deferred tax assets and
liabilities are determined based on differences between financial reporting and
tax bases of assets and liabilities and are measured using the enacted tax rates
and laws that will be in effect when the differences are expected to reverse.
4. Inventories
<TABLE>
<CAPTION>
Inventories consist of the following: (Amounts in Thousands)
<S> <C>
Raw material $ 1,717
Work-in-process 201
Finished goods 217
----------
2,135
Less: reserve for obsolescence 475
----------
$ 1,660
==========
</TABLE>
5. Investment in Partnerships and Related Party Transactions
The Company has a 1% general partnership interest in Heartland which entitles
the Company to 1% of Heartland's available cash for distribution and allocation
of taxable income and loss. The Company also has a .01% general partnership
interest in CMC Heartland which entitles the Company to .01% of CMC Heartland's
available cash for the distribution and an allocation of taxable income and loss
before distributions and allocations are made by Heartland. The Company also
owns the Class B limited partnership interest in Heartland (the "Class B
Interest"). In general, the Class B Interest entitles the holder to .5% of
Heartland's available cash for distribution and allocation of taxable income and
loss. In addition, items of deduction, loss, credit and expense attributable to
the satisfaction of Plan Liabilities (see Note 11) are specially allocated 99%
to the holder of the Class B Interest and 1% to the Company as the general
partner until the aggregate amount of all such items allocated to the Class B
Interest equals the aggregate capital contribution with respect to the Class B
Interest. If the aggregate amount of such items specially allocated to the
holder of the Class B Interest is less than the amounts contributed by such
holder to Heartland, such excess will be reflected in the capital account of the
Class B Interest.
The Company has a management agreement with CMC Heartland, pursuant to which CMC
Heartland is required to pay the Company an annual management fee in the amount
of $425,000. This management fee is included in Due from affiliate at December
31, 1997.
The Company paid CMC Heartland approximately $228,000 in 1997 for staff salary
and operating expense allocations, including HTI's portion of the office lease
expense.
21
<PAGE>
Heartland Technology, Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 1997, 1996 and 1995
The condensed financial statements of Heartland as of December 31, 1997, and for
the year then ended, are as follows (amounts in thousands):
<TABLE>
<CAPTION>
Assets:
- - -------
<S> <C>
Cash and marketable securities $ 2,755
Receivables, net 254
Other assets 355
Net properties and investment in joint venture 23,474
-------
Total assets $26,838
=======
Liabilities:
- - ------------
Accounts payable, accrued expenses and other liabilities $ 3,797
Allowed for claims and liabilities 2,169
Distribution payable 1,631
Loans payable 3,750
-------
Total liabilities 11,347
Partners Capital:
- - -----------------
General partners 28
Class A partners 5,902
Class B partner 9,563
Unrealized holding loss (2)
-------
Total partners capital 15,491
-------
Total liability and partners capital $26,838
=======
</TABLE>
22
<PAGE>
Heartland Technology, Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Revenues:
- - ---------
<S> <C>
Property sales $ 7,127
Less: cost of property sales 3,407
-------
Gross profit on property sales 3,720
Rental and other income 1,452
-------
Total net revenues 5,172
-------
Expenses:
- - ---------
Selling, general and administrative 6,113
Real estate taxes 703
Management fee 425
Depreciation and amortization 94
-------
Total expenses 7,335
-------
Net income (loss) $(2,163)
=======
</TABLE>
6. Line of Credit
The Company has a line of credit with General Electric Capital Corporation
("GECC") under which it may borrow up to $7,000,000. Interest is based on a
floating index rate plus 2.75% (8.50% at December 31, 1997). Borrowings are
collateralized by accounts receivable and inventory and cross collateralized
with the equipment loan described in Note 7. Commitment fees of .375% are
charged based on the unused portion of the credit facility. Borrowings at
December 31, 1997 amounted to $147,000. The line of credit matures on May 29,
2000.
7. Long Term Debt
The Company has term loans payable to GECC in original principal amounts of
$4,000,000 and $674,500. The loans bear interest at one month LIBOR plus 3.62%
(9.34% at December 31, 1997) and requires monthly principal and interest
payments. The final balances are due June 1, 2000. The loans are secured by
machinery and equipment and cross collateralized with the line of credit
described in Note 6. The outstanding balances on these loans at December 31,
1997 totaled $3,756,000.
23
<PAGE>
Heartland Technology, Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 1997, 1996 and 1995
Maturities of long term debt subsequent to December 31, 1997 are as follows:
<TABLE>
<CAPTION>
(Amounts in Thousands)
<S> <C>
1998 $ 1,591
1999 1,539
2000 626
_______________
$ 3,756
===============
</TABLE>
Under the terms of the line of credit and term loans, PG Design is required to
maintain a minimum fixed charge ratio and minimum tangible net worth, is limited
in incurring additional indebtedness and making capital expenditures, and is
restricted from making certain payments. Retained earnings is restricted under
the terms of the agreements in the amount of $12,003,000 at December 31, 1997.
8. Leases
PG Design leases its office and plant facility under an operating lease at a
monthly rental of $13,000. The lease expires January 31, 2004 with an option to
purchase the building and property at the end of the term. In addition, the
Company is currently leasing office equipment under a non-cancelable lease
expiring in 2000.
The following is a schedule of future minimum rental payments required under the
above operating leases as of December 31, 1997:
<TABLE>
<CAPTION>
(Amounts in Thousands)
<S> <C>
1998 $ 169
1999 169
2000 163
2001 156
2002 156
Thereafter 169
---------------
$ 982
===============
</TABLE>
Rent expense for 1997 was $104,000.
24
<PAGE>
Heartland Technology, Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 1997, 1996 and 1995
9. Income Taxes
Income tax expense (benefit) attributable to income from continuing operations
differs from the amounts computed by applying the U.S. federal income tax rate
of 35 percent to pretax income from operations as a result of the following:
<TABLE>
<CAPTION>
(Amounts in Thousands)
<S> <C>
Computed "expected" tax expense $ 962
Change in valuation allowance (217)
Other, net 28
_______________
Total $ 773
===============
</TABLE>
The deferred tax effects of temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and the amounts
reported for income tax purposes at December 31, 1997, are as follows:
<TABLE>
<CAPTION>
(Amounts in Thousands)
Deferred tax assets:
<S> <C>
Basis differences in investment in partnerships $ 480
AMT credit carryforward 919
Inventory reserves 165
Reserve for discontinued operations 110
Reserve for claims, liabilities and reorganization 130
Compensation and benefits 259
Other, net 57
-------
Total deferred tax assets 2,120
Less valuation allowance (1,639)
-------
Net deferred tax assets 481
Deferred tax liabilities:
Excess depreciation over book (149)
Excess tax goodwill amortization over book (70)
-------
Total deferred tax liabilities (219)
-------
Deferred tax asset, net $ 262
=======
</TABLE>
25
<PAGE>
Heartland Technology, Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 1997, 1996, and 1995
For the year ended December 31, 1997, the Company's provision for income taxes
is $773,000 which consists of $1,035,000 current tax expense offset by a
$262,000 deferred tax benefit. Included in the Company's deferred tax assets are
AMT carryforwards of approximately $919,000 which have no expiration date.
10. Major Customers
A significant part of the Company's manufacturing business is dependent on a few
customers. During the year ended December 31, 1997 three customers, namely NEC,
Hewlett Packard and Canon, accounted for approximately 97% of net sales
including approximately 17% shipped to locations in foreign countries. The loss
of any one of these customers could have a material adverse effect on the
Company.
11. Contingent Liabilities (Operating Company and Investment Company)
The Company, by reason of its serving as the general partner of the
Partnerships, is liable and responsible to third parties for such Partnerships'
liabilities to the extent the assets of such Partnerships are insufficient to
satisfy such liabilities. In addition to liabilities incurred as a result of
their ongoing real estate businesses, in connection with the real estate
transfer the Partnerships have assumed primary responsibility and liability for
the resolution and satisfaction of most of the liabilities for claims remaining
under the plan of reorganization of the predecessor of CMC Real Estate
Corporation ("CMCRE"), certain other contingent liabilities with respect to the
properties transferred to CMC Heartland arising after the consummation of such
plan, and the costs and expenses in resolving such plan and other contingent
liabilities (collectively, the "Plan Liabilities"). Included in the Plan
Liabilities are known environmental liabilities associated with certain of the
properties transferred to the Partnerships arising out of the activities of the
Railroad or certain lessees or other third parties. Further environmental
obligations as yet unknown in respect of these properties may become due and
owing in the future. A majority of the known environmental matters stem from the
use of petroleum products, such as motor oil and diesel fuel, in the operation
of a railroad. The Company and/or the Partnerships have been notified by
government agencies of potential liabilities in connection with certain of these
real estate properties. Descriptions of the known material environmental matters
are included in the reports filed by Heartland with the Commission pursuant to
the provisions of the Securities Exchange Act of 1934, as amended (the "1934
Act").
On June 30, 1993, the Company assumed from CMC, its former parent corporation,
any obligations for which CMC was or might become liable (the "MLC Assumed
Liabilities") arising out of any matters existing on or occurring prior to June
30, 1993 other than (i) the Plan Liabilities, (ii) liabilities directly related
to CMC's business of investing and managing its investment securities, (iii) the
lawsuit then pending (and since resolved) against CMC relating to its preferred
stock, or (iv) any liabilities relating to federal, state, local or foreign
income or other tax matters.
In the opinion of management, reasonably possible losses from these matters
should not be material to the Company's results of operations or financial
condition.
12. Allowance for Claims and Liabilities
The Company assumed certain share redemption liabilities from CMCRE, then a
majority owned subsidiary of CMC. Preferred shares are redeemable at $100 per
share and common shares at $153.43. At December 31, 1997, 2,409 preferred shares
and 4,661 common shares are still outstanding for a liability of approximately
$956,000. The liability is being reduced as the minority shareholders submit
their shares for redemption.
26
<PAGE>
Heartland Technology, Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 1997, 1996 and 1995
The Company has a $323,000 liability related to workers' compensation claims
incurred while operating under Milwaukee Land Company. This liability is being
reduced as payments are being made to the insurance provider.
13. Industry Segments
The Company currently is engaged in two lines of business: (1) manufacturing and
(2) real estate. The manufacturing business segment covers the Company's
manufacture of electronics assemblies on a contract basis primarily for the
computer and computer printer industries. The real estate business segment
covers the Company's investment in real estate partnerships (see Note 5 of
Notes to the Consolidated Financial Statements). As of and for the year ended
December 31, 1997, certain information relating to the Company's business
segments are set forth in the table below:
<TABLE>
<CAPTION>
Income (loss) Depreciation
before 1997 and
Identifiable Sales and ------------ Amortization Capital
Business Segment Assets Other Income Taxes Expense Expenditures
----------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Manufacturing (1) $ 21,297,000 $ 15,093,000 $ 2,885,000 $ 776,000 $ 966,000
Real estate 8,602,000 1,012,000 1,012,000 - -
Corporate 280,000 300,000 (1,149,000) - -
------------ ------------ ------------ ------------ ------------
Total Company $ 30,179,000 $ 16,405,000 $ 2,748,000 $ 776,000 $ 966,000
============ ============ ============ ============ ============
</TABLE>
(1) Represents PG Design from May 31, 1997 through December 31, 1997.
In June 1997, the FASB issued SFAS No. 131 "Disclosure about Segments of an
Enterprise and Related Information" which is effective for fiscal years
beginning after December 15, 1997. Accordingly, the Company plans to adopt SFAS
No. 131 with the fiscal year ending December 31, 1998. SFAS No. 131 does not
have any impact on the financial results or financial condition of the Company,
but will result in certain changes in required disclosures of segment
information.
14. Potential Acquisitions
In September 1997, the Company signed a letter of intent to acquire a company,
which provides specialty services to the printed circuit board industry, for
approximately $7,250,000. Closing is contingent on the execution of final
agreements and financing.
On March 13, 1998, the Company and PG Design signed a letter of intent for PG
Design to acquire the assets of a company which owns patented technology for
plating copper circuits on a ceramic substrate. This technology may provide for
circuit densification and thermal dissipation. The price is approximately $1.6
million. As part of its due diligence, PG Design and the seller agreed that PG
Design would operate the plant for a limited time. PG Design is operating the
plant to determine whether cost, operating, marketing and financial projections
are realistic. PG Design is to receive all revenues from products shipped by
this company after January 31, 1998. On or before March 13, 1998, PG Design paid
$449,600 for the costs of this due diligence operation. PG Design is paying
stipulated amounts until the transaction is closed or terminated. Closing of
this acquisition is subject to negotiation of a final contract.
27
<PAGE>
Heartland Technology, Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 1997, 1996 and 1995
15. Subsequent Events
(a) Non-qualified Stock Option and Stock Appreciation Rights
On May 27, 1997, HTI stockholders approved the 1997 Incentive and Capital
Accumulation Plan (the "Plan"). Pursuant to the Plan, on January 2, 1998, the
compensation committee of the Board of Directors of the Company granted (i) non-
qualified stock options for 50,000 shares of common stock and stock appreciation
rights ("SAR") with respect to 25,000 shares of common stock to Peter G.
VanHeusden; (ii) non-qualified stock options for 50,000 shares of common stock
and SARs with respect to 25,000 shares of common stock to Edwin Jacobson; and
(iii) SARs with respect to 25,000 shares of common stock to Frank L. Reed. The
benefits granted to Edwin Jacobson will vest on May 30, 1998. The benefits
granted to Peter G. VanHeusden and Frank L. Reed will vest on May 30, 2002. The
exercise price of the non-qualified stock options and the SARs is $16.625 per
share.
(b) 401(k) Plan
On February 1, 1998, PG Design established a 401(k) savings plan covering
substantially all of its employees. PG Design may make contributions up to a
maximum of 2% of the employees compensation and participants fully vest in
employer contributions after 5 years. Employees are permitted to make
contributions into the plan after one year of employment.
Investment Company Statements (1996 and 1995)
16. Summary of Significant Accounting Policies
(a) Security valuation
Investments are stated at value. Securities traded on securities exchanges or on
the Nasdaq National Market are valued at the last sales price on the principal
exchange or market on which they are traded or listed or, if there has been no
sale that day, at the mean of closing bid and asked prices. Fixed-income
securities are valued at the most recent bid quotation. Short-term securities
are valued at amortized cost, which approximates market value. Other securities
for which prices are not readily available are valued at a fair value as
determined by the Board of Directors for reporting purposes under the 1940 Act.
The Company's investment in the Class B Interest of Heartland is not publicly
traded, and accordingly there are no available market quotations. On December 7,
1995, the Board of Directors of the Company changed the methodology for valuing
the Class B Interest. In making its determination of a fair value for the Class
B Interest, the Board of Directors of the Company considers an imputed value
based on the market value of the publicly traded Class A limited partnership
interest in Heartland (the "Units") and the operating results of Heartland. The
Board of Directors of the Company determined that operating losses of Heartland
could cause anomalous results in the application of the valuation method of
imputing value based on the market value of the publicly traded Units. Under the
new methodology, the percentage change in the market value of the publicly
traded Units from June 30, 1990, is applied to the initial cost of the Class B
Interest (approximately $9.6 million) to the date of valuation.
28
<PAGE>
Heartland Technology, Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 1997, 1996 and 1995
Due to the inherent uncertainty of valuation, the recorded value of the Class B
Interest and the general partnership interests in Heartland and CMC Heartland
on the Company's financial statements may differ from values that would have
been used had a ready market existed for these interests, and the difference
could be material.
The change in methodology adopted by the Board resulted in a decrease in the
value of the Class B Interest of $6.2 million in 1995 and reduced unrealized
gains $4.5 million, net of tax. The effect on the net asset value of the
Company at December 31, 1995 is a decrease of $2.69 per share.
(b) Investment transactions and investment income
Security transactions are accounted for on the trade date. Realized gains and
losses on investment transactions are determined on an identified cost basis.
Interest income is recorded on the accrual basis and includes amortization of
premium and accretion of discount on securities owned.
(c) Use of Estimates
Management is required to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from those estimates.
17. Net Assets
Net assets at December 31, 1996 consisted of the following items (dollars in
thousands, except share amounts):
<TABLE>
<CAPTION>
Common stock - $0.30 par value per share, authorized 10,000,000
<S> <C> <C>
shares, 1,671,238 shares issued and outstanding $ 501
Paid in capital 10,773
Undistributed net investment income 10,333
Undistributed net realized gains on investment transactions 590
Net unrealized depreciation on investments (4,613)
---------
Net Assets $ 17,584
=========
</TABLE>
Certain reclassifications have been made within the components of net assets as
of December 31, 1995 to conform to the 1996 presentation.
18. Investment Services
During 1996 and 1995 the Company paid advisory fees for investment advisory
services under an agreement with OFFITBANK, a nonaffiliated investment advisor.
For the services rendered by OFFITBANK under the agreement, the Company paid
OFFITBANK an annual investment advisory fee equal to .20 of 1% per annum of the
value of the portfolio under management. The agreement provided that the
advisory fee was payable quarterly in arrears based on the average month-end
value of the portfolio during such quarter.
29
<PAGE>
19. Federal Income Taxes
As of December 31, 1996, the Company has deferred tax assets consisting of tax
NOL carry forwards of approximately $146,000, AMT credit carry forwards of
approximately $919,000 and tax unrealized investment losses of approximately
$1,113,000. For financial reporting purposes, a valuation allowance had been
provided to offset the deferred tax assets.
Based on cost of investments for federal income tax purposes of $19,774,000 on
December 31, 1996, net unrealized depreciation was $2,649,000, consisting of
gross unrealized appreciation of $78,000 and gross unrealized depreciation of
$2,727,000.
20. Interests in Partnerships and Related Transactions
The Company's interests in Heartland and CMC Heartland, including the Class B
Interest in Heartland, were included in investments at a value of $7,589,000 at
December 31, 1996.
See Note 5 for additional information relating to Interests in Partnerships.
The Company has a management agreement with CMC Heartland, pursuant to which CMC
Heartland is required to pay to the Company and annual management fee in the
amount of $425,000. On December 31, 1996, the Company received $1,181,000
related to previously accrued management fees including $107,000 for interest
related to past due amounts. The 1996 accrued management fee in the amount of
$425,000 was paid on February 14, 1997.
For the year ended December 31, 1996 and 1995, the Company paid CMC Heartland
approximately $141,000 and $109,000 respectively for staff salary and operating
expense allocations.
21. Investment Transactions
Investment transactions for the year ended December 31, 1996 (excluding money
market investments) are as follows:
<TABLE>
(Amounts in Thousands)
<S> <C>
Purchases $ 3,505
Proceeds from sales and maturities $ 4,921
</TABLE>
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
None
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required to be furnished pursuant to this item with respect to
Directors and Executive Officers of the Company will be set forth under the
captions "ELECTION OF DIRECTORS" and "EXECUTIVE OFFICERS" in the Company's
definitive proxy statement, which involves the election of directors (the "Proxy
Statement"), to be filed with the Commission pursuant to Regulation 14A not
later than 120 days after the end of the fiscal year covered by this Report, and
is incorporated herein by reference, or if such Proxy Statement is not filed
with the Commission on or before 120 days after the end of the fiscal year
covered by this Report, such information will be included in an amendment to
this Report filed no later than the end of such 120-day period.
30
<PAGE>
The information required to be furnished pursuant to this item with respect to
compliance with Section 16(a) of the Securities Exchange Act of 1934 will be set
forth under the caption "Section 16(a) Beneficial Ownership Reporting
Compliance" in the Proxy Statement, and is incorporated herein by reference, or
if such Proxy Statement is not filed with the Commission on or before 120 days
after the end of the fiscal year covered by this Report, such information will
be included in an amendment to this Report filed no later than the end of such
120-day period.
Item 11. Executive Compensation
The information required to be furnished pursuant to this item will be set forth
under the captions "Director Compensation" and "EXECUTIVE COMPENSATION" in the
Proxy Statement, and is incorporated herein by reference, or if such Proxy
Statement is not filed with the Commission on or before 120 days after the end
of the fiscal year covered by this Report, such information will be included in
an amendment to this Report filed no later than the end of such 120-day period.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required to be furnished pursuant to this item will be set forth
under the caption "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT" in the Proxy Statement, and is incorporated herein by reference, or
if such Proxy Statement is not filed with the Commission on or before 120 days
after the end of the fiscal year covered by this Report, such information will
be included in an amendment to this Report filed no later than the end of such
120-day period.
Item 13. Certain Relationships and Related Transactions
The information required to be furnished pursuant to this item will be set forth
under the caption "Certain Relationships and Related Transaction" in the Proxy
Statement, and is incorporated herein by reference, or if such Proxy Statement
is not filed with the Commission on or before 120 days after the end of the
fiscal year covered by this Report, such information will be included in an
amendment to this Report filed no later than the end of such 120-day period.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed or incorporated by reference as part of
this report:
1. Financial statements
The financial statements of Heartland Technology, Inc. and Subsidiary are
included in Part II, Item 8:
<TABLE>
<CAPTION>
<S> <C> <C>
Report of Independent Auditors............................................. 9
Operating Company
Consolidated Balance Sheet at December 31, 1997........................... 10
Consolidated Statement of Income for the year ended December 31, 1997..... 11
Consolidated Statement of Stockholders' Equity for the year ended
December 31, 1997........................................................ 12
Consolidated Statement of Cash Flows year ended December 31, 1997......... 13
Investment Company
Statement of Assets and Liabilities at December 31, 1996.................. 15
Statements of Operations for the years ended December 31, 1996
and 1995................................................................. 16
Statements of Changes in Net Assets for the years ended December 31,
1996 and 1995............................................................ 17
Notes to Consolidated Financial Statements................................. 18
</TABLE>
31
<PAGE>
2. Financial statement schedules
The financial statements and financial statement schedules of Heartland
Partners, L.P. included in Item 8 of the Annual Report on Form 10-K for the
fiscal year ended December 31, 1997, of Heartland Partners, L.P. (File No. 1-
10520) are incorporated by reference herein and filed as an exhibit hereto. All
other financial statement schedules are omitted because they are not required or
not applicable, or the required information is included in the consolidated
financial statements or notes thereto.
3. Exhibits
3.1 Certificate of Incorporation of the Registrant, dated as of June 2, 1993
(filed herewith).
3.2 Certificate of Amendment of Certificate of Incorporation of the
Registrant, dated October 29, 1997 (filed herewith).
3.3 By-laws of the Registrant, incorporated by reference to Exhibit 3.2 to the
Registrant's Form 10/A (Amendment No. 1), dated June 24, 1993.
10.1 Amended and Restated Agreement of Limited Partnership of Heartland
Partners, L.P., dated as of June 27, 1990, incorporated by reference to
Exhibit 3.2 to Heartland Partners, L.P.'s Current Report on Form 8-K dated
January 5, 1998 (File No. 1-10520).
10.2 Amended and Restated Partnership Agreement of CMC Heartland Partners,
dated as of June 27, 1990, between Heartland Partners L.P. and Milwaukee
Land Company, incorporated by reference to Exhibit 10.3 to Heartland
Partners, L.P.'s Annual Report on Form 10-K for the year ended December
31, 1990 (File No. 1-10520).
10.3 Conveyance Agreement, dated as of June 27, 1990, by and among Chicago
Milwaukee Corporation, Milwaukee Land Company, CMC Heartland Partners and
Heartland Partners, L.P., incorporated by reference to Exhibit 10.1 to
Heartland Partners, L.P.'s Annual Report on Form 10-K for the year ended
December 31, 1990 (File No. 1-10520).
10.4 Conveyance Agreement, dated June 29, 1993 by and among Chicago Milwaukee
Corporation and Milwaukee Land Company (filed herewith).
10.5 Facilities Agreement, dated June 29, 1993, by and between Milwaukee Land
Company and Heartland Partners, L.P. (filed herewith).
10.6 Employment Agreement, dated June 29, 1993, between Milwaukee Land Company
and Edwin Jacobson (filed herewith).*
10.7 First Amendment, dated August 7, 1996, to Employment Agreement, dated June
29, 1993, between Milwaukee Land Company and Edwin Jacobson (filed
herewith).*
10.8 Asset Purchase Agreement, dated as of April 4, 1997, by and among
Milwaukee Land Company, PG Newco Corp., PG Design Electronics, Inc. and
named shareholder indemnitors (filed herewith).
10.9 Milwaukee Land Company 1997 Incentive and Capital Accumulation Plan (filed
herewith).*
10.10 Loan and Security Agreement, dated May 29, 1997, by and between PG Newco
Corp. and General Electric Capital Corporation (filed herewith).
10.11 Promissory Note, dated May 29, 1997, in the principal amount of
$4,000,000, and related Security Agreement by and between PG Newco Corp.
and General Electric Capital Corporation (filed herewith).
32
<PAGE>
10.12 Promissory Note, dated May 29, 1997, in the principal amount of
$674,757.27, and related Security Agreement by and between PG Newco Corp.
and General Electric Capital Corporation (filed herewith).
10.13 Employment Agreement, dated May 30, 1997, by and between PG Newco Corp.
and Peter G. VanHeusden (filed herewith).
10.14 Promissory Note, dated May 30, 1997, of Milwaukee Land Company, in the
principal amount of $1,500,000 due September 30, 2000, and payable to PG
Design Electronics, Inc. (filed herewith).
10.15 Promissory Note, dated May 30, 1997, of Milwaukee Land Company, in the
principal amount of $1,500,000 due May 30, 2002, and payable to PG Design
Electronics, Inc. (filed herewith).
10.16 Second Amendment, dated June 1, 1997, to Employment Agreement, dated June
29, 1993, between Milwaukee Land Company and Edwin Jacobson (filed
herewith).*
10.17 Stock Appreciation Right Agreement, dated January 2, 1998, between
Heartland Technology, Inc. and Edwin Jacobson (filed herewith).*
10.18 Nonqualified Stock Option Agreement, dated January 2, 1998 between
Heartland Technology, Inc. and Edwin Jacobson (filed herewith).*
21 Subsidiaries of Heartland Technology, Inc. (filed herewith).
27 Financial Data Schedule (filed herewith).
99.1 Item 8 of the Annual Report on Form 10-K for the fiscal ended December
31, 1997, of Heartland Partners, L.P. (filed herewith).
- - -----------------------------
* Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter ended December 31,
1997.
33
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
HEARTLAND TECHNOLOGY, INC.
(Registrant)
By: Edwin Jacobson
------------------------
Edwin Jacobson
President and Chief Executive Officer
(Principal Executive Officer)
By: Leon F. Fiorentino
-------------------------
Leon F. Fiorentino
Vice President-Finance, Treasurer and
Secretary
(Principal Financial and Accounting
Officer)
Date: March 31, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacity and on the dated indicated.
Robert S. Davis Edwin Jacobson
-------------------------------------- --------------------------------------
Robert S. Davis Edwin Jacobson
(Director of Heartland Technology, Inc.)(Director of Heartland Technology, Inc.)
March 31, 1998 March 31, 1998
Alan Andreini Ezra K. Zilkha
-------------------------------------- --------------------------------------
Alan Andreini Ezra K. Zilkha
(Director of Heartland Technology, Inc.)(Director of Heartland Technology, Inc.)
March 31, 1998 March 31, 1998
John R. Torell, III
- - ---------------------------------------
John R. Torell, III
(Director of Heartland Technology, Inc.)
March 31, 1998
34
<PAGE>
HEARTLAND TECHNOLOGY, INC.
INDEX TO EXHIBITS
Exhibit
Number Description
- - ------- -----------
3.1 Certificate of Incorporation of the Registrant, dated as of June 2, 1993
(filed herewith).
3.2 Certificate of Amendment of Certificate of Incorporation of the
Registrant, dated October 29, 1997 (filed herewith).
3.3 By-laws of the Registrant, incorporated by reference to Exhibit 3.2 to
the Registrant's Form 10/A (Amendment No. 1), dated June 24, 1993.
10.1 Amended and Restated Agreement of Limited Partnership of Heartland
Partners, L.P., dated as of June 27, 1990, incorporated by reference to
Exhibit 3.2 to Heartland Partners, L.P.'s Current Report on Form 8-K
dated January 5, 1998 (File No. 1-10520).
10.2 Amended and Restated Partnership Agreement of CMC Heartland Partners,
dated as of June 27, 1990, between Heartland Partners L.P. and Milwaukee
Land Company, incorporated by reference to Exhibit 10.3 to Heartland
Partners, L.P.'s Annual Report on Form 10-K for the year ended December
31, 1990 (File No. 1-10520).
10.3 Conveyance Agreement, dated as of June 27, 1990, by and among Chicago
Milwaukee Corporation, Milwaukee Land Company, CMC Heartland Partners and
Heartland Partners, L.P., incorporated by reference to Exhibit 10.1 to
Heartland Partners, L.P.'s Annual Report on Form 10-K for the year ended
December 31, 1990 (File No. 1-10520).
10.4 Conveyance Agreement, dated June 29, 1993 by and among Chicago Milwaukee
Corporation and Milwaukee Land Company (filed herewith).
10.5 Facilities Agreement, dated June 29, 1993, by and between Milwaukee Land
Company and Heartland Partners, L.P. (filed herewith).
10.6 Employment Agreement, dated June 29, 1993, between Milwaukee Land Company
and Edwin Jacobson (filed herewith).*
10.7 First Amendment, dated August 7, 1996, to Employment Agreement, dated
June 29, 1993, between Milwaukee Land Company and Edwin Jacobson (filed
herewith).*
10.8 Asset Purchase Agreement, dated as of April 4, 1997, by and among
Milwaukee Land Company, PG Newco Corp., PG Design Electronics, Inc. and
named shareholder indemnitors (filed herewith).
10.9 Milwaukee Land Company 1997 Incentive and Capital Accumulation Plan
(filed herewith).*
10.10 Loan and Security Agreement, dated May 29, 1997, by and between PG Newco
Corp. and General Electric Capital Corporation (filed herewith).
35
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF OWNERSHIP AND MERGER
OF
MILWAUKEE LAND COMPANY
INTO
MILWAUKEE LAND COMPANY I
(Under Section 253 of the General
Corporation Law of the State of Delaware)
THE UNDERSIGNED hereby certifies that:
1. Milwaukee Land Company (hereinafter sometimes referred to
as the "Corporation") is a business corporation of the State of Iowa.
2. The Corporation is the owner of all of the outstanding
shares of Milwaukee Land Company I, a business corporation of the State of
Delaware ("MLC Delaware").
3. The laws of the jurisdiction of organization of the
Corporation permit the merger of a business corporation of that jurisdiction
with a business corporation of another jurisdiction.
4. The Corporation hereby merges itself into MLC Delaware,
with MLC Delaware being the surviving corporation.
5. The following resolutions in respect of the merger of the
Corporation with and into MLC Delaware were adopted by the Board of Directors of
the Corporation on the 12th day of May, 1993:
RESOLVED, that the Board of Directors of the Corporation,
after full consideration and due deliberation, deem it in the best
interest of the Corporation for the Corporation to merge with and into
Milwaukee Land
<PAGE>
Company I, a Delaware corporation ("MLC Delaware") and a wholly-owned
subsidiary of the Corporation, pursuant to a Plan of Merger (the "Plan
of Merger") presented to the Board of Directors of the Corporation at
this meeting; and further
RESOLVED, that subject to the receipt of the requisite
stockholder approval, the Corporation be merged (the "Merger") with and
into MLC Delaware, with MLC Delaware being the surviving corporation
(the "Surviving Corporation"), and that all of the estate, property,
rights, privileges, powers, and franchises of the Corporation be vested
in and held and enjoyed by MLC Delaware as fully and entirely and
without change or diminution as the same were before held and enjoyed
by the Corporation in its name; and further
RESOLVED, that the Board of Directors hereby authorizes the
submission of the Merger to the sole stockholder of the Corporation for
the approval of such sole stockholder in accordance with the laws of
the State of Iowa and of the State of Delaware, and recommends that the
sole stockholder of the Corporation approve such Merger; and further
RESOLVED, that the appropriate officers of the Corporation
are, and each of them hereby is, authorized, in the name and on behalf
of the Corporation in its capacity as the sole stockholder of MLC
Delaware, to consent to the merger of the Corporation with and into MLC
Delaware; and further
RESOLVED, that upon the effectiveness of the Merger, each
share of the MLC Delaware Common Stock held by the Corporation shall be
canceled without any consideration being issued or paid therefor; and
further
RESOLVED, that upon the effectiveness of the Merger, each
share of the Corporation's common stock (the "MLC Iowa Common Stock),
issued and outstanding shall, by virtue of the Merger and without any
action on the part of the holder thereof, be converted into and become
334.2476 validly issued, fully paid and non-assessable shares of the
common stock, par value $0.30 per share (the "MLC Delaware Common
Stock"), of MLC Delaware; and further
RESOLVED, that upon the effectiveness of the Merger, the
Surviving Corporation shall adopt and agree to be bound by the
registration of the Corporation as a closed-end, non-diversified
management investment company
2
<PAGE>
under the Investment Company Act of 1940, as amended, and all
applications and orders in connection therewith; and further
RESOLVED, that the Board of Directors and the appropriate
officers of the Corporation are hereby authorized, empowered and
directed to execute all instruments, papers and documents which shall
be or become necessary, proper or convenient to carry out or put into
effect any of the provisions of the Merger herein provided for, the
execution of such instruments, papers and documents to be the
conclusive evidence of the authority therefor; and further
RESOLVED, that the Corporation shall cause to be filed and/or
recorded the documents prescribed by the laws of the State of Delaware
(including, without limitation, a certificate of merger), by the laws
of the State of Iowa (including, without limitation, articles of
merger, a plan of merger and any applications for certificates of
authority in any appropriate jurisdictions), and any other filings
and/or recordings required by the laws of any other appropriate
jurisdictions, and the Corporation shall cause to be performed all
necessary acts within the States of Delaware and Iowa and in any other
appropriate jurisdiction to carry out or put into effect any of the
provisions of the Merger herein provided for; and further
RESOLVED, that the appropriate officers of the Corporation are
hereby authorized to execute, deliver and perform, in the name and on
behalf of the Corporation, the Plan of Merger, the authority for the
taking of such action and the execution and delivery of the Plan of
Merger to be conclusively evidenced thereby; and further
RESOLVED, that the name of the Surviving Corporation shall be
changed to be Milwaukee Land Company and the Certificate of
Incorporation of the Surviving Corporation shall be amended by deleting
in Article FIRST the words "Milwaukee Land Company I" and replacing
them with the words "Milwaukee Land Company"; and further
RESOLVED, that at any time prior to the effectiveness of the
Merger, the Board of Directors of the Corporation may terminate and not
proceed with the Merger notwithstanding the prior approval of the
Merger by the sole shareholder of the Corporation.
3
<PAGE>
6. The proposed Merger herein certified has been adopted,
approved, certified, executed and acknowledged by the Corporation in accordance
with the laws of the State of Iowa.
7. The proposed Merger herein certified has been approved by
the sole shareholder of the Corporation.
8. Upon the effectiveness of the Merger herein provided for,
the Certificate of Incorporation of MLC Delaware shall be amended so as to read
in its entirety in the form attached hereto as Annex A.
4
<PAGE>
IN WITNESS WHEREOF, we have subscribed this Certificate on the
2nd day of June, 1993 and do hereby affirm, under penalties of perjury, that
this Certificate is the act and deed of the Corporation and the statements
stated herein are true and correct.
MILWAUKEE LAND COMPANY
By: /s/ Edwin Jacobson
-----------------------------------
Edwin Jacobson
President
ATTEST:
/s/ Leon Fiorentino
- - -------------------------------
Leon Fiorentino
Secretary
5
<PAGE>
ANNEX A
-------
CERTIFICATE OF INCORPORATION
OF
MILWAUKEE LAND COMPANY
FIRST: The name of the Corporation is MILWAUKEE LAND COMPANY.
SECOND: The address of the registered office of the
Corporation in the State of Delaware is 32 Loockerman Square, Suite L-100, City
of Dover, County of Kent, State of Delaware. The name of the registered agent of
the Corporation in the State of Delaware at such address is The Prentice-Hall
Corporation System, Inc.
THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware, as from time to time amended (the
"DGCL").
FOURTH: (a) The number of directors constituting the entire
board of directors shall be six until otherwise fixed by a majority of the
entire board of directors.
(b) The board of directors shall be divided into three
classes. The directors of each class shall be elected at the annual meeting of
stockholders held in the year in which the term for such class expires and will
serve thereafter for three years. The term of office for directors in Class I
shall expire at the annual meeting of stockholders to be held in 1994, for Class
II directors at the annual meeting of stockholders to be held in 1995 and for
Class III directors at the annual meeting of stockholders to be held in 1996.
Any vacancies in the board of directors for any reason, and any directorships
resulting from any increase in the number of directors, may be filled by the
board of directors, acting by a majority of the directors then in office,
although less than a quorum, and any directors so chosen shall hold office until
the next election of the class for which such directors shall have been chosen
and until their successors shall be elected and qualified. Subject to the
foregoing, at each annual meeting of stockholders, the successors to the
directors whose term shall then expire shall be elected to hold office for a
term expiring at the third succeeding annual meeting.
(c) Notwithstanding any other provisions of this Certificate
of Incorporation or the By-Laws of the Corporation (and notwithstanding the fact
that some lesser percentage may be specified by law, this Certificate of
Incorporation or the By-Laws of the Corporation), any director or the entire
board of directors of the Corporation may be removed at any time, but only for
cause and only by the affirmative vote of the holders of 80% or more of the
outstanding shares of capital stock of the Corporation
<PAGE>
entitled to vote generally in the election of directors, voting together as a
single class, cast at a meeting of the stockholders called for that purpose.
Notwithstanding the foregoing, and except as otherwise required by law, whenever
the holders of any one or more series of Preferred Stock shall have the right,
voting separately as a class, to elect one or more directors of the Corporation,
the provisions of section (c) of this Article shall not apply with respect to
the director or directors elected by such holders of Preferred Stock.
(d) The affirmative vote of the holders of at least 80% of the
then outstanding shares of capital stock of the Corporation entitled to vote
generally on the election of directors, voting together as a single class, is
required to amend, repeal or adopt any provision inconsistent with the
provisions of this Article Fourth.
FIFTH: The total number of shares of all classes of stock
which the Corporation shall have authority to issue is 11,000,000 shares,
consisting of (a) 1,000,000 shares of Preferred Stock, par value $1.00 per
share, and (b) 10,000,000 shares of Common Stock, par value $.30 per share.
Except as otherwise provided by law, the shares of stock of
the Corporation, regardless of class, may be issued by the Corporation from time
to time in such amounts, for such consideration and for such corporate purposes
as the Board of Directors may from time to time determine.
Shares of Preferred Stock may be issued from time to time in
one or more series of any number of shares as may be determined from time to
time by the Board of Directors, provided that the aggregate number of shares
issued and not cancelled of any and all such series shall not exceed the total
number of shares of Preferred Stock authorized by this Certificate of
Incorporation. Each series of Preferred Stock shall be distinctly designated.
The voting powers, if any, of each such series and the preferences and relative,
participating, optional and other special rights of each such series and the
qualifications, limitations and restrictions thereof, if any, may differ from
those of any and all other series at any time outstanding; and the Board of
Directors is hereby expressly granted authority to fix, in the resolution or
resolutions providing for the issue of a particular series of Preferred Stock,
the voting powers, if any, of each such series and the designations, preferences
and relative, participating, optional and other special rights of each such
series and the qualifications, limitations and restrictions thereof to the full
extent now or hereafter permitted by this Certificate of Incorporation and the
laws of the State of Delaware.
SIXTH: The name and mailing address of the incorporator are
Eric B. Jung, c/o Weil, Gotshal & Manges, 767 Fifth Avenue, New York, New York
10153.
2
<PAGE>
SEVENTH: In furtherance and not in limitation of the powers
conferred by law, subject to any limitations contained elsewhere in these
articles of incorporation, By-laws of the Corporation may be adopted, amended or
repealed by a majority of the board of directors of the Corporation, but any
by-laws adopted by the board of directors may be amended or repealed by the
stockholders entitled to vote thereon. Election of directors need not be by
written ballot.
EIGHTH: No action required or permitted to be taken by the
stockholders may be taken without a meeting, without prior notice or without a
vote of stockholders, all as provided in the By-laws of the Corporation.
NINTH: The Corporation shall indemnify, to the full extent
permitted by Section 145 of the DGCL and the By-laws of the Corporation, all
persons whom it may indemnify pursuant thereto; provided, however, that for so
long as the Corporation is registered with the Securities and Exchange
Commission as an investment company under the Investment Company Act of 1940, as
amended (the "1940"), the indemnification provided pursuant to this Article
Ninth shall not be available to any person to the extent such indemnification is
inconsistent with the provisions of the 1940 Act and the rules and regulations
thereunder.
TENTH: Subject to the last sentence of this Article Tenth, no
director of the Corporation shall be personally liable to the Corporation or any
stockholder for monetary damages for breach of fiduciary duty as a director,
except for any matter in respect of which such director shall be liable under
Section 174 of Title 8 of the Delaware Code (relating to the DGCL) or any
amendment thereto or successor provision thereto or shall be liable by reason
that, in addition to any and all other requirements for such liability, such
director (i) shall have breached the duty of loyalty to the Corporation or its
stockholders, (ii) shall not have acted in good faith or, in failing to act,
shall not have acted in good faith, (iii) shall have acted in a manner involving
intentional misconduct or a knowing violation of law or, in failing to act,
shall have acted in a manner involving intentional misconduct or a knowing
violation of law or (iv) shall have derived an improper personal benefit.
Neither the amendment nor repeal of this Article Tenth nor the adoption of any
provision of this Certificate of Incorporation inconsistent with this Article
Tenth, shall eliminate or reduce the effect of this Article Tenth in respect of
any matter occurring, or any cause of action, suit, or claim that, but, for this
Article Tenth would accrue or arise, prior to such amendment, repeal or adoption
of an inconsistent provision. Notwithstanding the foregoing, for so long as the
Corporation is registered with the Securities and Exchange Commission as an
investment company under the 1940 Act, the provisions of this Article Tenth
shall not relieve any director from any liability to the extent that such relief
would be inconsistent with the 1940 Act and the rules and regulations
thereunder.
3
<PAGE>
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
MILWAUKEE LAND COMPANY
Milwaukee Land Company, a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
FIRST: The board of directors of said corporation adopted a resolution
proposing and declaring advisable the following amendment to the Certificate of
Incorporation of said corporation:
RESOLVED, that Article FIRST of the Certificate of Incorporation of the
Corporation be, and hereby is, changed to read as follows:
"FIRST: The name of the Corporation is Hearttland Technology,
Inc."
SECOND: A majority of the stockholders approved the said amendment at the
regular annual meeting of
stockholders in accordance with the bylaws.
THIRD: The aforesaid amendment was duly adopted in accordance with the
applicable provisions of Section 242 of the General Corporation Law of the State
of Delaware.
IN WITNESS WHEREOF, said Milwaukee Land Company has caused this
certificate to be signed by Leon F. Fiorentino, its Secretary, this 29th day of
October, 1997.
MILWAUKEE LAND COMPANY, a
Delaware corporation
By: /s/ Leon F. Fiorentino
-------------------------------
Leon F. Fiorentino
Secretary
<PAGE>
MILWAUKEE LAND COMPANY, a
Delaware corporation
By: /s/ Leon F. Fiorentino
-------------------------------
Leon F. Fiorentino
Secretary
2
<PAGE>
EXHIBIT 10.4
CONVEYANCE AGREEMENT
--------------------
CONVEYANCE AGREEMENT, dated this 29th day of June, 1993, by and among
Chicago Milwaukee Corporation, a Delaware corporation ("CMC"), and Milwaukee
Land Company, a Delaware corporation ("MLC").
W I T N E S S E T H:
-------------------
WHEREAS, on May 12, 1993, the stockholders of CMC approved the conversion
(the "Conversion") of CMC from a closed-end management investment company to an
open-end management investment company under the Investment Company Act of 1940,
as amended; and
WHEREAS, CMC intends to effect the Conversion as soon as is practicable
following the redemption of all outstanding shares of its $5 Prior Preferred
Stock (which occurred on June 16, 1993) and the consummation of certain other
transactions, including the transactions contemplated hereby; and
WHEREAS, in connection with the Conversion, CMC desires to transfer certain
of its assets and rights to MLC
<PAGE>
as a capital contribution in consideration of the assumption by MLC of certain
of CMC's liabilities; and
WHEREAS, MLC desires to assume certain of CMC's contingent liabilities;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. Transfer.
(a) CMC hereby conveys, transfers, assigns, sets over and delivers to MLC
all of its respective right, title and interest in and to the following assets
and rights (collectively referred to herein as the "Assets"):
(i) CMC's Class B limited partnership interest (the "Class B
Interest") in Heartland Partners, L.P., a Delaware limited partnership
("Heartland");
(ii) CMC's rights pursuant to the Management Agreement, dated as of
June 27, 1990, by and among Heartland, CMC Heartland Partners, L.P. ("CMC
Heartland") and CMC (other than the right to fees accrued through June 22, 1993)
(the "1990 Management Agreement");
2
<PAGE>
(iii) CMC's rights (as successor to CMC Real Estate Corporation) to a
refund of taxes previously paid by CMC Real Estate Corporation pursuant to
Section 3221 of the Internal Revenue Code of 1986, as amended (and any
predecessor provisions) (and any interest thereon), pursuant to a claim for
refund filed with the Internal Revenue Service by CMC Real Estate Corporation on
April 22, 1988 (the "Refund Claim"); and
(iv) any other miscellaneous illiquid assets owned by CMC as of the
date hereof, including, without limitation, any such assets listed on Schedule I
hereto.
(b) CMC and MLC hereby covenant and agree to use their reasonable efforts
(to the extent they are able to do so without compelling or procuring the action
of any unaffiliated party and so long as CMC and MLC are authorized by
applicable law so to do) to do, execute, acknowledge and deliver all and every
such further acts, conveyances and other instruments as may be necessary more
fully to complete the conveyance to MLC of all right, title and interest of CMC
in and to the Assets hereby granted, conveyed, assigned, transferred, set over
and delivered or intended so to be, including those Assets which have not been
identified as
3
<PAGE>
such on the date hereof and which the parties hereto hereafter mutually
determine should be conveyed pursuant hereto.
(c) CMC hereby covenants and agrees to (i) take all action requested by MLC
in respect of the Refund Claim, at MLC's sole expense, (ii) employ counsel of
MLC's choice in pursuing the Refund Claim, (iii) permit MLC to participate in
any administrative or judicial proceeding relating to the Refund Claim and (iv)
remit promptly to MLC in cash the amount (if any) received, including any amount
denominated as interest, in respect of the Refund Claim.
2. NO WARRANTY. THE ASSETS ARE BEING CONVEYED, TRANSFERRED AND ASSIGNED
ON AN "AS IS, WHERE IS" BASIS AND CMC DOES NOT MAKE AND EXPRESSLY, COMPLETELY
AND ABSOLUTELY DISCLAIMS ANY REPRESENTATIONS, WARRANTIES OR AGREEMENTS OF ANY
KIND WHATSOEVER WITH RESPECT TO THE ASSETS, EXPRESS OR IMPLIED, INCLUDING
WITHOUT LIMITATION, ANY REPRESENTATIONS, WARRANTIES OR AGREEMENTS WITH RESPECT
TO THE ASSETS AS TO THE TITLE, MERCHANTABILITY, PHYSICAL CONDITION,
APPURTENANCES, DESIGN OR FITNESS FOR ANY PARTICULAR PURPOSE.
3. Assumption of Liabilities.
4
<PAGE>
(a) In consideration of CMC's capital contribution of the Assets to MLC,
MLC hereby assumes and agrees to pay, perform and discharge from and after the
date hereof, all debts, claims, liabilities and obligations of CMC (whether
known or unknown, absolute, contingent or otherwise) for which CMC is or may
become liable arising out of any matters existing on or occurring prior to the
effective date of the Conversion (the "Assumed Liabilities"); provided, however,
that such Assumed Liabilities shall not include liabilities of CMC (whether
known or unknown, absolute, contingent or otherwise) relating to (i) claims
remaining under the reorganization of Chicago Milwaukee, St. Paul & Pacific
Railroad Company, under Section 77 of the Bankruptcy Act of 1898, as amended,
and all costs and expenses incurred in connection therewith, including legal
costs and expense related thereto, (ii) claims relating to the real estate
properties transferred by CMC and MLC to Heartland and CMC Heartland pursuant to
that certain Conveyance Agreement, dated June 27, 1990, by and among CMC, MLC,
Heartland and CMC Heartland, (iii) CMC's business of investing and managing its
portfolio of investment securities, (iv) the Preferred Stock Lawsuit (as
5
<PAGE>
defined below), or (v) any liabilities for federal, state, local or foreign
income or other taxes.
For the purposes of this Agreement, the term "Preferred Stock Lawsuit"
means the lawsuit entitled Rosan v. Chicago Milwaukee Corp. et. al., commenced
on December 30, 1988 in the Delaware Court of Chancery, New Castle County,
against CMC and its present directors and certain former directors.
(b) MLC hereby covenants and agrees to use its reasonable efforts to do,
execute, acknowledge and deliver all and every such further acts, agreements,
documents and instruments as may be necessary more fully to evidence its
assumption of the Assumed Liabilities.
4. Representations and Warranties.
(a) CMC represents and warrants to MLC that (i) the execution, delivery,
and performance by CMC of this Agreement and the consummation by CMC of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of CMC and (ii) this Agreement has been duly and
validly executed and delivered by CMC and constitutes the legal, valid, and
binding obligations of CMC, enforceable against it in accordance
6
<PAGE>
with its terms, subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium, or other similar laws relating to
creditors' rights generally and subject to general principles of equity,
including principles of commercial reasonableness, good faith, and fair dealing
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
(b) MLC represents and warrants to CMC that (i) the execution, delivery,
and performance by MLC of this Agreement and the consummation by MLC of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of MLC and (ii) this Agreement has been duly and
validly executed and delivered by MLC and constitutes the legal, valid and
binding obligations of MLC, enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium, or other similar laws relating to creditors' rights
generally and subject to general principles of equity, including principles of
commercial reasonableness, good faith, and fair dealing (regardless of whether
such
7
<PAGE>
enforceability is considered in a proceeding in equity or at law).
5. Indemnity.
(a) MLC hereby agrees to indemnify CMC against, and agrees to defend
against, save and hold CMC harmless from, any and all claims, liabilities,
losses, damages, judgments, fines, settlements, costs and expenses (including
all legal costs and expenses relating thereto), arising from the Assumed
Liabilities, including from any demands, actions, suits or proceedings (civil,
criminal, administrative or investigative) in which CMC may be involved, or
threatened to be involved, as a party or otherwise, that arise out of or relate
to the Assumed Liabilities.
(b) In the event any legal proceeding shall be threatened or instituted or
any claim or demand shall be asserted by any person in respect to which payment
may be sought by CMC from under the provisions of this Section 5, CMC shall
promptly cause written notice of the assertion of any such claim of which it has
knowledge that is covered by this indemnity to be forwarded to MLC. MLC shall
have the right after the receipt of notice, at its option and at its
8
<PAGE>
own expense, to be represented by counsel of its choice and to defend against,
negotiate, settle or otherwise deal with any proceeding, claim, or demand which
relates to any loss, liability or damage indemnified against hereunder;
provided, however, that CMC may participate in any such proceeding with counsel
of its choice at its own expense. The parties hereto agree to cooperate fully
with each other in connection with the defense, negotiation, or settlement of
any such legal proceeding, claim or demand. To the extent MLC elects not to
defend such proceeding, claim or demand, and CMC defends against or otherwise
deals with any such proceeding, claim or demand, CMC may retain counsel, at the
expense of MLC, and control the defense of such proceeding. Neither CMC nor MLC
may settle any such proceeding without the consent of the other party, which may
not be unreasonably withheld. After any final judgment or award shall have been
rendered by a court, arbitration board, or administrative agency of competent
jurisdiction and the time in which to appeal therefrom has expired, or a
settlement shall have been consummated, or MLC and CMC shall arrive at a
mutually binding agreement with respect to each separate matter alleged to be
indemnified by MLC hereunder,
9
<PAGE>
CMC shall forward to MLC notice of any sums due and owing by it with respect to
such matter, and MLC shall pay all of the sums so owing to CMC by wire transfer
or certified or bank or cashier's check within thirty (30) days after the date
of such notice.
6. Notices. Any notice, request, consent or other communication required or
permitted to be given hereunder by any party hereto to any other party shall be
in writing and delivered personally or sent by registered or certified mail,
postage prepaid, as follows:
if to CMC to:
c/o Chicago Milwaukee Corporation
547 West Jackson Boulevard
Chicago, Illinois 60606
Attention: Leon F. Fiorentino, Secretary
if to MLC to:
c/o Milwaukee Land Company
547 West Jackson Boulevard
Chicago, Illinois 60606
Attention: Edwin Jacobson, President
and Chief Executive Officer
with a copy to:
Weil, Gotshal & Manges
767 Fifth Avenue
New York, New York 10153
Attention: Simeon Gold
10
<PAGE>
or at such other address for a party as shall be specified by like notice. Any
notice that is delivered personally in the matter provided herein shall be
deemed to have been duly given to the party to whom it is directed upon actual
receipt by such party (or its agent for notices hereunder). Any notice that is
addressed and mailed in the manner herein provided shall be conclusively
presumed to have been duly given to the party to which it is addressed at the
close of business, local time of the recipient, on the third day after the day
it is so placed in the mail.
7. Severability. If any provisions hereof shall be held by any court of
competent jurisdiction to be illegal, void or unenforceable, such provision
shall be of no force and effect, but the illegality or unenforceability shall
have no effect upon and shall not impair the enforceability of any other
provision of this Agreement.
8. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois.
9. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall for all
11
<PAGE>
purposes be deemed to be an original and all of which shall constitute the same
instrument.
10. Successors and Assigns. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties hereto. Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
herein.
11. Entire Agreement; Amendment. This Agreement constitutes the sole
understanding of the parties with respect to the matters provided for herein and
supersedes any previous agreements and understandings between the parties with
respect to the subject matter hereof. No amendment, modification or alternation
of the terms or provisions of this Agreement shall be binding unless the same
shall be in writing and duly executed by the parties hereto.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Conveyance
Agreement to be duly executed by an authorized representative thereof, all as of
the day and year first above written.
CHICAGO MILWAUKEE CORPORATION
By: /s/ Edwin Jacobson
-------------------------
Edwin Jacobson
President
MILWAUKEE LAND COMPANY
By: /s/ Edwin Jacobson
-------------------------
Edwin Jacobson
President
13
<PAGE>
Schedule I
----------
Miscellaneous illiquid assets (including certain liabilities) conveyed by CMC to
MLC include, but are not limited to:
The obligation to redeem any remaining outstanding Chicago, Milwaukee, St.
Paul and Pacific Railroad Company common and preferred stock;
A note receivable from Midwest Rail Recovery;
A deposit for insurance claims; and
An estimated liability for expenses of certain discontinued operations.
<PAGE>
EXHIBIT 10.5
FACILITIES AGREEMENT
--------------------
FACILITIES AGREEMENT, dated June 29, 1993 (this "Agreement"), by and
between Milwaukee Land Company ("MLC"), a Delaware corporation and a closed-end
management investment company registered under the Investment Company Act of
1940, as amended (the "1940 Act"), and Heartland Partners, L.P., a Delaware
limited partnership ("Heartland").
W I T N E S S E T H:
-------------------
WHEREAS, MLC is presently the general partner of Heartland; and
WHEREAS, as of the date hereof, all of the outstanding shares of the common
stock, par value $0.30 per share, of MLC (the "MLC Common Stock") are owned by
Chicago Milwaukee Corporation ("CMC"), a Delaware corporation and a closed-end
management investment company registered under the 1940 Act; and
WHEREAS, prior to the date hereof, Heartland has made available to MLC, for
no fee, a portion of Heartland's office space, facilities and equipment as well
as administrative personnel and certain other miscellaneous services; and
WHEREAS, on the date hereof, in connection with the pending conversion of
CMC from a closed-end management investment company to an open-end management
investment company, CMC intends to distribute to the holders of its common
stock, on a pro rata basis and without consideration, all of the outstanding
shares of MLC Common Stock (the "Distribution"); and
<PAGE>
WHEREAS, following the Distribution, MLC will operate as an independent,
publicly-held company; and
WHEREAS, the parties wish to enter into an agreement whereby Heartland
would make available to MLC certain office space, facilities and equipment as
well as administrative personnel and certain other miscellaneous services;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto hereby agree as follows:
Section 1. Provision of Office Space and Facilities.
(a) During the Term (as defined in Section 3 hereof), Heartland shall make
available to MLC for office use a portion of its current office space located at
547 W. Jackson Blvd., Chicago, Illinois, as more specifically set forth on
Schedule I hereto (the "Office Space"). Heartland shall also make available to
MLC for its use during the Term the facilities and equipment which MLC has made
use of prior to the date hereof, including the office facilities and equipment
listed on Schedule I hereto, and other office facilities and equipment as
Heartland may acquire in the future which Heartland and MLC agree shall be
subject to the terms of this Agreement (the "Office Equipment").
(b) During the Term, Heartland shall make available to MLC administrative
personnel to perform substantially the same functions as such personnel have
performed on behalf of MLC prior to the date hereof (the "Administrative
Personnel"), as more specifically set forth on Schedule II hereto. Heartland
shall also make available to MLC during the Term the miscellaneous services
performed by
2
<PAGE>
Heartland personnel and third parties on behalf of MLC prior to the date hereof,
including the services listed on Schedule II hereto, and such other services as
Heartland and MLC agree in the future shall be subject to the terms of this
Agreement (the "Other Services" and collectively with the Office Space, the
Office Equipment and the Administrative Personnel, the "Facilities").
(c) Nothing contained in this Section 1 shall be deemed to obligate
Heartland to maintain its current office space, office facilities and equipment,
administrative or other personnel or the parties currently performed on its
behalf by third parties.
Section 2. Reimbursement.
(a) MLC agrees to reimburse Heartland for the cost of all Facilities
provided by Heartland to MLC during the Term, on a monthly basis.
(b) The reimbursement of Heartland's costs to be paid by MLC to Heartland
hereunder shall be payable by check within five (5) business days after the last
day of each calendar month during the Term, commencing with the last day of the
first full calendar month immediately succeeding the date hereof (which first
payment shall be in respect of the period of time commencing on the date hereof
and ending on the last day of the first full calendar month immediately
succeeding the date hereof). The portion of the monthly reimbursement due and
owing hereunder with respect to any period of time not constituting a full
calendar month shall be calculated based on the actual number of days elapsed in
a period of thirty (30) days. Upon request, Heartland
3
<PAGE>
shall furnish MLC with records supporting the accuracy of the costs for which
Heartland requests reimbursement hereunder.
Section 3. Effective Date.
(a) This Agreement shall become effective on the date hereof and shall
continue in full force and effect until terminated pursuant to the provisions of
sub section (b) of this Section 3 (the actual term of this Agreement being
herein referred to as the "Term").
(b) This Agreement may be terminated by either party upon one hundred and
eighty (180) days written notice to the other party.
Section 4. Notices. Any notices, demands or other communications required
or permitted hereunder shall be in writing and shall be deemed given when
personally delivered. Notices shall be addressed as follows:
If to Heartland:
CMC HEARTLAND PARTNERS
547 W. Jackson Blvd.
Chicago, Il. 60661
Attn: Leon F. Fiorentino, Secretary
If to MLC:
MILWAUKEE LAND COMPANY
547 W. Jackson Blvd.
Chicago, Il. 60661
Attn: Leon F. Fiorentino, Secretary
Any party may change the address to which notices to it shall be sent by giving
written notice of such change in conformity with the foregoing.
4
<PAGE>
Section 5. Miscellaneous.
(a) This Agreement may be amended or waived only by a written instrument
signed by each party hereto.
(b) This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors, legal representatives and
permitted assigns; provided, however, that this Agreement may not be assigned
without the prior written consent of the other party, which consent may not be
arbitrarily withheld.
(c) This Agreement shall be governed by, and construed and enforced
in accordance with, the laws of the State of Illinois, without giving effect to
the provisions, policies or principles thereof respecting conflict or choice of
law.
(d) This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original but all of which taken together shall
constitute but one and the same agreement.
(e) This Agreement constitutes the entire understanding of the
parties hereto with respect to the subject matter contained herein. No
amendment, modification or alteration of the terms or provisions of this
Agreement shall be binding unless the same shall be in writing and duly executed
by the parties hereto.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
CMC HEARTLAND PARTNERS
By: /s/ Edwin Jacobson
---------------------
Edwin Jacobson
President
MILWAUKEE LAND COMPANY
By: /s/ Edwin Jacobson
----------------------
Edwin Jacobson
President
6
<PAGE>
SCHEDULE I
----------
Reimbursements to Heartland by MLC for office space and office equipment shall
include, but are not limited to:
<TABLE>
<CAPTION>
Facilities Estimated Annual Expense
------- ------------------------
<S> <C>
Approximately 1,000 square feet of $15,743
office space at 547 W. Jackson
Boulevard, Chicago, IL 60661
Approximately 10% of the office $16,266
equipment located at 547 W. Jackson
Boulevard, Chicago, IL 60661
Any other office space or office
equipment as the need arises for
its use.
</TABLE>
<PAGE>
SCHEDULE II
-----------
Reimbursements to Heartland by MLC for miscellaneous services and expenses shall
include, but are not limited to:
<TABLE>
<CAPTION>
Services and Expenses Estimated Annual Cost
--------------------- ---------------------
<S> <C>
General office expense, stationery, $94,795
office supplies, telephone, postage,
messenger, miscellaneous, dues,
memberships, subscriptions and other
services and expenses as needed.
</TABLE>
Reimbursements to Heartland by MLC for administrative personnel shall include,
but are not limited to the following employees:
<TABLE>
<CAPTION>
Employee Estimated Annual Salary
-------- -----------------------
<S> <C>
R. Michael Benton -
Daryl L. Flournoy -
Charles J. Harrison -
Peter B. Behrberg -
Debra L. Olsson -
Edward D. Patterson -
Thomas F. Redler -
Mary A. Sobczak -
Faye I. Stephenson -
Other personnel as needed. -
-------
</TABLE>
$79,339
<PAGE>
EXHIBIT 10.6
MILWAUKEE LAND COMPANY
547 West Jackson Boulevard
Chicago, Illinois 60606
June 29, 1993
Mr. Edwin Jacobson
505 N. Lake Shore Drive
Chicago, Illinois 60611
Dear Mr. Jacobson:
We are writing with respect to your employment by Milwaukee Land Company, a
Delaware corporation (the "Company"), as President and Chief Executive Officer
of the Company. The Company acknowledges and recognizes the value of your
experience and abilities and desires to continue to retain and make secure for
itself such experience and abilities on the terms hereinafter provided. If the
following is satisfactory, would you please so indicate by signing and returning
to the Company the enclosed copy of this letter whereupon this will constitute
our agreement (the "Agreement") on the subject.
1. Employment. The Company agrees to continue to employ you and you
agree to continue to be employed by
<PAGE>
Mr. Edwin Jacobson
June 29, 1993
Page 2
the Company for the period ending on the fifth anniversary of the date hereof
(unless sooner terminated as hereinafter provided in this Agreement), on the
terms and conditions set forth in this Agreement.
2. Duties.
(a) You shall continue to be employed as President and Chief Executive
Officer of the Company with general supervision over and responsibility for the
general management and operation of the Company. In the performance of your
duties, you shall be subject to the supervision and direction of the Board of
Directors of the Company and the Executive Committee of the Board of Directors
of the Company (the "Executive Committee").
(b) During the term of your employment hereunder, you shall not be
required to devote your full business time to such employment. You shall devote
an amount of time to such employment determined by the Board of Directors of the
Company or the Executive Committee to be required of you to accomplish the
business objectives of the Company. During the term of your employment
hereunder, you shall have the right to continue your employment as President and
Chief
<PAGE>
Mr. Edwin Jacobson
June 29, 1993
Page 3
Executive Officer of CMC Heartland Partners and of Chicago Milwaukee
Corporation, and, subject to the preceding sentence, you shall have the right to
pursue other employment or business activities not in competition with the
activities of the Company, provided that any such activity does not interfere
with the performance of your duties hereunder and does not otherwise violate any
provision of this Agreement. Prior to your engaging in any employment or
material business activity that you are not engaged in as of the date hereof,
you shall provide notice in reasonable detail to, and consult with, the Chairman
of the Executive Committee with respect to your intention to engage in any such
employment or activity.
3. Compensation.
(a) Base Salary. During the term of your employment hereunder, the
Company shall pay you, and you shall accept from the Company for your services,
a salary at the rate of not less than Ninety Thousand Dollars ($90,000) per year
("Base Salary"), payable in accordance with the Company's policy with respect to
the compensation of executives. During the term hereof, the Board of Directors
<PAGE>
Mr. Edwin Jacobson
June 29, 1993
Page 4
of the Company may adjust the Base Salary upwards (but not downwards). The
Company shall be entitled to withhold such amounts on account of payroll taxes
and similar matters as are required by applicable law, rule or regulation of
appropriate governmental authorities. Nothing contained herein shall preclude
you from participating in the present or future employee benefit plans of the
Company if you meet the eligibility requirements therefor. You shall also have
the right to defer receipt of some or all of the Base Salary which you are
entitled to receive hereunder by written notice to the Company, which notice
shall set forth the date to which you wish to defer receipt of such
compensation. If you elect to defer receipt of all or any portion of the Base
Salary ("Deferred Compensation"), the amount due you shall be adjusted
periodically to reflect any deemed gain or loss or interest, dividend or other
income that would be realized with respect to the Deferred Compensation had it
been invested as designated by you. No specific assets of the Company shall be
allocated or segregated with respect to the Deferred Compensation and the
foregoing shall not be construed to create a trust of any kind or a fiduciary
<PAGE>
Mr. Edwin Jacobson
June 29, 1993
Page 5
relationship between the Company and you, the executor or administrator of your
estate or any other person. Your right, or the right of your estate, to receive
the Deferred Compensation, as adjusted in accordance with this Section 3(a),
shall be no greater than the right of an unsecured general creditor of the
Company.
(b) Reimbursement of Expenses. During your employment, you will be
entitled to receive prompt reimbursement for all reasonable expenses incurred by
you in performing your services hereunder, provided that you properly account
therefor in accordance with Company policy.
4. Vacations. During your employment, you shall be entitled to
reasonable vacations from time to time in accordance with the regular procedures
of the Company governing senior executives. You shall also be entitled to all
paid holidays given by the Company to its senior executives.
5. Participation in Benefit Plans. You shall be entitled to participate
in and to receive benefits under all of the Company's employee benefit plans and
arrangements, including any pension or retirement plan, savings plan, or
<PAGE>
Mr. Edwin Jacobson
June 29, 1993
Page 6
health-and-accident plan made available by the Company in the future to its
senior executives and other key management employees, subject to and on a basis
consistent with the terms, conditions and overall administration of such plans
and arrangements.
6. Termination.
(a) Death. Your employment hereunder shall terminate upon your death.
(b) Disability. In the event of your permanent disability (as hereinafter
defined) during the term of your employment hereunder, the Company shall have
the right, upon written notice to you, to terminate your employment hereunder,
effective upon the giving of such notice. For purposes of this Section,
"permanent disability" shall mean any physical or mental disability or
incapacity which renders you incapable of fully performing the services required
of you in accordance with your obligations hereunder for a period of 90
consecutive days.
(c) Cause. The Company may terminate your employment hereunder for Cause.
For the purposes of this
<PAGE>
Mr. Edwin Jacobson
June 29, 1993
Page 7
Agreement, termination for Cause shall mean termination after:
(i) your commission of a material act of fraud against the Company
or its affiliates;
(ii) your conviction of any crime which constitutes a felony in
the jurisdiction involved; or
(iii) the willful, repeated and demonstrable failure by you
substantially to perform your duties over a period of not less than 30 days,
other than any such failure resulting from your incapacity due to physical or
mental illness, or material breach of any of your obligations under this
Agreement, and your failure to cure such failure or breach within 30 days after
receipt of written notice from the Board of Directors of the Company. No act or
failure to act on your part will be considered "willful" unless done, or omitted
to be done, by you not in good faith and without reasonable belief that your
action or omission was in the best interests of the Company and its affiliates.
(d) Termination by You. You may terminate your employment hereunder
(i) for Good Reason, or (ii) if your health should become impaired to an extent
that makes the
<PAGE>
Mr. Edwin Jacobson
June 29, 1993
Page 8
continued performance of your duties hereunder hazardous to your physical or
mental health or your life. For purposes of this Agreement, "Good Reason" shall
mean (A) any assignment to you of any duties other than those contemplated by,
or any limitation of your powers in any respect not contemplated by, Section 2
hereof, provided that you first deliver written notice thereof to the Executive
Committee and the Company shall have failed to cure such non-permitted
assignment or limitation within thirty (30) days after receipt of such written
notice, or (B) a reduction in your rate of compensation, or a reduction in your
fringe benefits or any other failure by the Company to comply with Sections 3
through 5 hereof, provided that you first deliver written notice thereof to the
Executive Committee and the Company shall have failed to cure such reduction or
failure within thirty (3) days after receipt of such written notice.
(e) Any termination by the Company pursuant to subsection (b) or (c)
above or by you pursuant to subsection (d) above shall be communicated by
written Notice of Termination to the other party hereto. For purposes of this
<PAGE>
Mr. Edwin Jacobson
June 29, 1993
Page 9
Agreement, a "Notice of Termination" shall mean a notice which shall indicate
the specific termination provision in this Agreement relied upon and shall set
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of your employment under the provision so indicated.
(f) "Date of Termination" shall mean (i) if your employment is terminated
by your death, the date of your death, and (ii) if your employment is terminated
for any other reason, the date on which a Notice of Termination is given.
(g) If within fifteen (15) days after a Notice of Termination is given to
you by the Company in connection with the termination of your employment
hereunder pursuant to subsection (b) and (c) above you notify the Company in
writing that you believe that your employment was wrongfully terminated, and you
shall have delivered such notification in good faith with a reasonable belief
that your employment was wrongfully terminated, then you shall be entitled to
continue to receive the Base Salary provided for in Section 3(a) hereof for a
period of time ending on the date six
<PAGE>
Mr. Edwin Jacobson
June 29, 1993
Page 10
months after the Date of Termination. In the event a court of competent
jurisdiction finally decides that your employment was rightfully terminated in
accordance with the provisions of this Agreement, you shall return within thirty
(30) days after the date of such final decision to the Company the amounts paid
to you pursuant to this subsection (g).
7. Compensation Upon Death, During Disability or Termination.
(a) If your employment shall be terminated by reason of your death, the
Company shall pay, to such person as you shall designate in a notice filed with
the Company or, if no such person shall be designated, to your estate, as a lump
sum death benefit, an amount equal to the amount, if any, by which $150,000
exceeds the proceeds payable to your designated beneficiary or estate pursuant
to any life insurance policy covering your life maintained by the Company. This
amount shall be exclusive of and in addition to any payments your widow,
beneficiaries or estate may be entitled to receive pursuant to any pension or
employee benefit plan maintained by the Company. Your designated
<PAGE>
Mr. Edwin Jacobson
June 29, 1993
Page 11
beneficiary or the executor of your estate, as the case may be, shall accept the
payment provided for in this subsection (a) in full discharge and release of the
Company of and from any further obligations under this Agreement.
(b) During any period that you fail to perform your duties hereunder as a
result of incapacity due to physical or mental illness, you shall continue to
receive your full Base Salary until your employment is terminated pursuant to
Section 6(b) hereof, or until you terminate your employment pursuant to Section
6(d)(ii) hereof, whichever first occurs. If your employment is terminated by the
Company pursuant to Section 6(b) or you terminate your employment pursuant to
Section 6(d)(ii), the Company shall be discharged and released of and from any
further obligations under this Agreement. During any such period and thereafter
you shall continue to bear the obligations provided for in Section 8 below in
accordance with the terms of such Section 8.
(c) If your employment shall be terminated for Cause, or you shall
terminate your employment other than for Good Reason, the Company shall pay you
your full Base Salary
<PAGE>
Mr. Edwin Jacobson
June 29, 1993
Page 12
through the Date of Termination or the date on which you terminate your
employment at the rate in effect at the time the Notice of Termination is given
or the date on which you terminate your employment. The Company shall be
discharged and released of and from any further obligations under this
Agreement. Thereafter you shall continue to have the obligations provided for in
Section 8 below in accordance with the terms of such Section 8. Nothing
contained herein shall be deemed to be a waiver by the Company of any rights
that it may have against you in respect of your actions which give rise to the
termination of your employment.
(d) If the Company shall terminate your employment other than pursuant to
Sections 6(b) or 6(c) hereof or if you shall terminate your employment for Good
Reason, then:
(i) The Company shall continue to pay you your full Base Salary
through the fifth anniversary of the date hereof at the rate in effect at the
time Notice of Termination is given in accordance with Section 3(a) hereof;
(ii) The Company shall pay all other damages to which you may be
entitled as a result of the Company's
<PAGE>
Mr. Edwin Jacobson
June 29, 1993
Page 13
termination of your employment under this Agreement, including damages for any
and all loss of benefits to you under the Company's employee benefit plans which
you would have received if the Company had not breached this Agreement and had
your employment continued for the full term provided in Section 1 hereof, and
including all reasonable legal fees and expenses incurred by you as a result of
such termination; and
(iii) The Company shall maintain in full force and effect, for your
continued benefit for the full term of this Agreement, all employee benefit
plans and programs in which you were entitled to participate immediately prior
to the Date of Termination provided that your continued participation is
possible under the general terms and provisions of such plans and programs. In
the event that your participation in any such plan or program is barred, you
shall be entitled to receive an amount equal to the annual contributions,
payments, credits or allocations made by the Company to you, to your account or
on your behalf under such plans and programs from which your continued
participation is barred.
<PAGE>
Mr. Edwin Jacobson
June 29, 1993
Page 14
8. Restrictive Covenants and Confidentiality; Injunctive Relief.
(a) You agree, as a condition to the performance by the Company of its
obligations hereunder, particularly its obligations under Section 3 hereof, that
during the term of your employment hereunder and during the further period of
one (1) year after the termination of such employment, you shall not, without
the prior written approval of the Board of Directors of the Company, directly or
indirectly through any other person, firm or corporation:
(i) Solicit, raid, entice or induce any person, firm or corporation
that presently is or at any time during the term of your employment hereunder
shall have a material business relationship with the Company, or any of its
affiliated companies, to engage in any material business transaction with any
other person, firm or corporation, and you shall not approach any such person,
firm or corporation for such purpose or authorize or knowingly approve the
taking of such actions by any other person; or
(ii) Solicit, raid, entice or induce any person that presently is or
at any time during the term of
<PAGE>
Mr. Edwin Jacobson
June 29, 1993
Page 15
your employment hereunder shall be an employee of the Company, or any of its
affiliated companies, to become employed by any person, firm or corporation, and
you shall not approach any such employee for such purpose or authorize or
knowingly approve the taking of such actions by any other person.
(b) Recognizing that the knowledge, information and relationship with
customers, suppliers, and agents, and the knowledge of the Company's and its
affiliated companies' business methods, systems, plans and policies which you
shall hereafter establish, receive or obtain as an employee of the Company or
its affiliated companies, are valuable and unique assets of the respective
businesses of the Company and its affiliated companies, you agree that, during
and after the term of your employment hereunder, you shall not (otherwise than
pursuant to your duties hereunder) disclose, without the prior written approval
of the Board of Directors of the Company, any such knowledge or information
pertaining to the Company or any of its affiliated companies, their business,
personnel or policies, to any person, firm, corporation or other entity, for any
reason or purpose
<PAGE>
Mr. Edwin Jacobson
June 29, 1993
Page 16
whatsoever. The provisions of this Section 8 shall not apply to information
which is or shall become generally known to the public or the trade (except by
reason of your breach of your obligations hereunder), information which is or
shall become available in trade or other publications, information known to you
prior to entering the employ of the Company, and information which you are
required to disclose by order of a court of competent jurisdiction.
(c) The provisions of this Section 8 shall survive the termination of
your employment hereunder, irrespective of the reason therefor.
(d) You acknowledge that the services to be rendered by you are of a
special, unique and extraordinary character and, in connection with such
services, you will have access to confidential information vital to the
Company's and its subsidiary companies' businesses. By reason of this, you
consent and agree that if you violate any of the provisions of this Agreement
with respect to diversion of the Company's or its affiliated companies' business
relationships or employees, or confidentiality, the Company and its affiliated
companies would sustain
<PAGE>
Mr. Edwin Jacobson
June 29, 1993
Page 17
irreparable harm and, therefore, in addition to any other remedies which the
Company may have under this Agreement or otherwise, the Company shall be
entitled to an injunction restraining you from committing or continuing any such
violation of this Agreement.
9. Successors; Binding Agreement.
(a) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company, by agreement in form and substance
reasonably satisfactory to you, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. Failure of the
Company to obtain such agreement prior to the effectiveness of any such
succession shall be a breach of this Agreement and shall entitle you to
compensation from the Company in the same amount and on the same terms as you
would be entitled to hereunder if you terminated your employment for Good
Reason, except that for purposes of implementing the foregoing, the date on
which
<PAGE>
Mr. Edwin Jacobson
June 29, 1993
Page 18
any such succession becomes effective shall be deemed the Date of Termination.
As used in this Agreement, "Company" shall include any successor to the
Company's business and/or assets as aforesaid which executes and delivers the
agreement provided for in this Section 9 or which otherwise becomes bound by all
the terms and provisions of this Agreement by operation of law.
(b) This Agreement and all your rights hereunder shall inure to the
benefit of and be enforceable by your personal or legal representatives,
executors, administrators, successors, heirs, distributes, devisees and
legatees. If you should die while any amounts would still be payable to you
hereunder if you had continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement to
your devisee, legatee, or other designee or, if there be no such designee, to
your estate. Your obligations hereunder may not be delegated and except as
otherwise provided herein relating to the designation of a devisee, legatee or
other designee, you may not assign, transfer, pledge, encumber, hypothecate or
otherwise dispose of this Agreement or any of
<PAGE>
Mr. Edwin Jacobson
June 29, 1993
Page 19
your rights hereunder, and any such attempted delegation or disposition shall be
null and void and without effect.
10. Notice. For the purposes of this Agreement, notices and all other
communications provided for shall be in writing and shall be deemed to have been
duly given when delivered or mailed by United States registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
If to you:
Mr. Edwin Jacobson
180 East Pearson Street
Apt. 3801
Chicago, Illinois 60611
If to the Company:
547 West Jackson Boulevard
Chicago, Illinois 60606
Attn: Chairman of the Executive Committee
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
11. Miscellaneous. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing
<PAGE>
Mr. Edwin Jacobson
June 29, 1993
Page 20
signed by you and by such officer as may be specifically designated by the Board
of Directors of the Company. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. This Agreement constitutes the complete understanding
between the parties with respect to your employment and no agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Illinois.
12. Validity. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
<PAGE>
Mr. Edwin Jacobson
June 29, 1993
Page 21
13. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
and year first above written.
MILWAUKEE LAND COMPANY
By: /s/ Leon F. Fiorentino
-----------------------
Leon F. Fiorentino
Secretary
/s/ Edwin Jacobson
--------------------
Edwin Jacobson
<PAGE>
EXHIBIT 10.7
MILWAUKEE LAND COMPANY
547 West Jackson Boulevard
Chicago, Illinois 60661
August 7, 1996
Mr. Edwin Jacobson
2575 South Bayshore Drive
Penthouse A
Coconut Grove, Florida 33133
Re: First Amendment to Employment Agreement
---------------------------------------
Dear Mr. Jacobson:
We are writing with respect to your employment by Milwaukee
Land Company (the "Company") as President and Chief Executive Officer of the
Company, pursuant to an Employment Agreement, dated June 29, 1993 (the
"Employment Agreement"), the term of which expires on June 29, 1998. The Company
acknowledges and recognizes the value of your experience and abilities to the
Company since the beginning of your employment with the Company, and desires to
continue to retain and make secure for itself such experience and abilities
through July 2, 2000. Therefore, as of the date hereof, Section 1 and Section
7(d)(i) of the Employment Agreement are hereby amended to delete the clause
"fifth anniversary of the date hereof" and substitute therefor the date "July 2,
2000". Except as amended by this letter, the Employment Agreement remains in
full force and effect in accordance with its terms.
If the foregoing is satisfactory, would you please so indicate
by signing and returning to the Company the enclosed copy of this letter
whereupon this will constitute our agreement on the subject.
MILWAUKEE LAND COMPANY
By: /s/ Clarence G. Frame
-------------------------------------
Clarence G. Frame
Chairman of the Board
ACCEPTED AND AGREED TO:
/s/ Edwin Jacobson
- - ---------------------------
Edwin Jacobson
<PAGE>
Mr. Edwin Jacobson
Page 2
ACCEPTED AND AGREED TO:
/s/ Edwin Jacobson
- - ---------------------------
Edwin Jacobson
<PAGE>
EXHIBIT 10.8
ASSET PURCHASE AGREEMENT
------------------------
ASSET PURCHASE AGREEMENT (the "Agreement"), dated as of April
4, 1997, by and among Milwaukee Land Company, a Delaware corporation ("MLC"), PG
Newco Corp., a Delaware corporation and a wholly-owned subsidiary of MLC ("PG
Newco," and together with MLC, the "Purchasers"), PG Design Electronics, Inc., a
Michigan corporation (the "Seller" or the "Company"), and each of the Seller's
shareholders listed on the signature pages hereto (individually, a "Shareholder
Indemnitor" and collectively the "Shareholder Indemnitors").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Seller is engaged in the business of designing
and manufacturing printed circuit boards, printer PODS and related services and
products (the "Business"); and
WHEREAS, the Purchasers desire to purchase, and the Seller
desires to sell, all of the assets and properties of the Seller employed in the
Business and, as part of such purchase and sale, PG Newco is willing to assume
certain obligations and liabilities of the Business, subject, in each case, to
the exceptions, terms and conditions set forth herein; and
WHEREAS, certain capitalized terms used herein are defined in
Section 14.1 hereof;
NOW, THEREFORE, in consideration of the premises and the
mutual representations, warranties, covenants and agreements hereinafter set
forth, and upon the terms and subject to the conditions hereinafter set forth,
the Purchasers, the Seller and the Shareholder Indemnitors hereby agree as
follows:
ARTICLE I
SALE AND PURCHASE OF ASSETS
1.1 Acquisition and Transfer of Assets. Upon the terms and
----------------------------------
subject to the conditions hereinafter set forth, on the Closing Date (as defined
in Section 3.1 hereof) the Seller shall sell, assign, transfer, convey and
deliver to the Purchasers, and the Purchasers shall purchase, acquire and accept
from the Seller, free and clear of all Liens,
<PAGE>
other than Permitted Exceptions, and in such allocation as set forth on Exhibit
B hereof, all of the Seller's assets, properties, rights, contracts and claims,
including the assets, properties, rights, contracts and claims employed in, or
identified on the books and records of, the Business (except as otherwise set
forth in Section 1.2 hereof), of every kind and description, wherever located,
whether tangible or intangible, real, personal or mixed, as the same shall exist
on the Closing Date (collectively, the "Assets"). The Assets shall include,
without limitation, all of the Seller's right, title and interest in and to all
assets, properties, rights, contracts and claims described in the following
paragraphs (a) through (p):
(a) all furnishings, furniture, office equipment and
supplies, vehicles, spare parts, tools, dies, machinery and equipment and other
tangible personal property;
(b) all items of inventory, including, without limitation,
raw materials, work-in-process, finished goods, supplies, spare parts and
samples (collectively, the "Inventory");
(c) all accounts receivable and all notes receivable
(whether short-term or long-term) from third parties and all deposits with third
parties, together with all unpaid interest accrued thereon from the respective
obligors and all security or collateral therefor, including recoverable deposits
(collectively, the "Accounts Receivable");
2
<PAGE>
(d) all of the leased real property set forth on Schedule
1.1(d) hereto (collectively, the "Leased Real Property"), including all
buildings and improvements located thereon, all of the fixtures attached
thereto, all prepaid rent, security deposits and options to renew or purchase in
connection therewith and all Permits relating thereto;
(e)(i) all patents and patent applications owned by the Seller
or licensed to the Seller by third parties, including, without limitation, those
listed on Schedule 1.1(e) hereto, (ii) all research, development and
manufacturing processes, trade secrets, know-how, inventions (whether or not
patentable), designs, concepts, specifications, diagrams, drawings, schematics,
blueprints, documentation, plans, proposals, financial, marketing and business
data, business and marketing plans, customer and supplier lists, and
manufacturing, engineering and other technical information, whether owned by the
Seller or licensed to the Seller by third parties, (iii) all mask works (whether
or not registered), whether embodied in semiconductor chips, layout drawings,
computer plots, masks, magnetic tape or other physical media, and registration
or application therefor, and (iv) all notebooks, records, reports and data
relating to, and any tangible embodiment of, any of the foregoing (the assets
referred to in clauses (i) through (iv) are collectively referred to herein as
the "Patent-Related Assets");
(f) all trademarks, trade names, service marks and
copyrights, all applications and registrations for any of the foregoing, and all
computer systems, computer hardware, databases and software programs, including,
without limitation, databases and software programs developed by the Seller in
the operation of the Business, object codes, source codes and user manuals, in
each case, owned by the Seller or licensed to the Seller by third parties,
listed on Schedule 1.1(f) hereto (collectively, together with the Patent-Related
Assets, the "Intangible Assets");
3
<PAGE>
(g) all catalogues, marketing brochures and materials and
other printed and written materials relating to the Business;
(h) all rights under or pursuant to all warranties,
representations and guarantees made by vendors, suppliers, manufacturers and
contractors in connection with the operation of the Business or affecting the
Assets;
(i) all Permits held by the Seller including, without
limitation, those listed on Schedule 1.1(i) hereto;
(j) all Contracts including, without limitation, those
listed on Schedule 1.1(j) hereto;
(k) all cash, bank accounts, certificates of deposit,
treasury bills, notes and marketable securities;
(l) all deferred and prepaid charges, sums and fees, and
all insurance premiums;
(m) all claims, credits, causes of action or rights of set-
off against third parties;
(n) all customer and vendor lists and all files, documents,
books, records and other data relating to the Business;
(o) all goodwill relating to the foregoing Assets; and
(p) to the extent assignable, the real and personal
property tax abatements awarded to Seller by Seller's local taxing authority.
Seller makes no warranties as to the assignability of the abatements. It shall
be the obligation of Purchasers to pursue, at their expense, the assignment of
such abatements. Seller will cooperate with Purchasers in pursuit of such
assignment.
I.2 Excluded Assets. Notwithstanding anything to the
---------------
contrary contained in Section 1.1 hereof, the Seller, the Shareholder
Indemnitors and the Purchasers expressly
4
<PAGE>
understand and agree that the Seller is not hereunder selling, assigning,
transferring, conveying or delivering to the Purchasers any of the following
assets, properties, rights, contracts and claims (collectively, the "Excluded
Assets"):
(a) pension or other funded employee benefit plan assets;
(b) Contracts that relate solely to the Excluded Assets or
the Excluded Liabilities;
(c) all prepaid charges, sums and fees pertaining to any of
the Excluded Assets or the Excluded Liabilities;
(d) except as otherwise set forth in Section 11.1(c)
hereof, any of Seller's right, title and interest under any Contracts,
agreements, licenses, Permits, exemptions, franchises, variances, waivers,
consents, approvals or other authorizations or arrangements that are not
transferrable without consent (unless such consent has been obtained);
(e) any claims for refunds or rebates of any previously
paid taxes, levies or duties and funds paid by Seller for corporate income,
state and local taxes accruing up to the Closing; and
(f) the other assets listed on Schedule 1.2(f) hereto.
I.3 Assumed Liabilities. (a) Upon the terms and subject to
-------------------
the conditions hereinafter set forth, effective as of the Closing, PG Newco
shall assume and be liable for the liabilities and obligations of the Business
reflected on the Closing Balance Sheet to the extent such liabilities and
obligations so reflected (i) are of a type which were reflected on the Initial
Balance Sheet and (ii) were incurred in the ordinary course of business since
the date of the Initial Balance Sheet, consistent with past practice in
accordance with Section 6.3 hereof, and (iii) have been
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<PAGE>
approved by PG Newco, but excluding any liability for the payment of Taxes
(collectively, the "Assumed Liabilities").
(b) Notwithstanding any provisions in this Agreement or any
other writing to the contrary, PG Newco is assuming only the Assumed Liabilities
and is not assuming any other liability or obligation of the Seller (or any
predecessor owner of all or part of the Business) of whatever nature whether in
existence on the Closing Date or arising thereafter. All such other liabilities
and obligations shall be retained by and remain obligations and liabilities of
the Seller, all such liabilities and obligations not being assumed being herein
referred to as the "Excluded Liabilities".
ARTICLE II
PURCHASE PRICE
II.1 Purchase Price and Payment. In consideration of the
--------------------------
sale of the Assets by the Seller to the Purchasers, PG Newco shall, on the
Closing Date, deliver to the Seller (i) $12,000,000 plus (ii) an amount in cash
sufficient to pay in full all of the outstanding balance of the Seller's bank
debt (currently estimated to be $1,400,000), as of the Closing Date, but in no
event more than $ 2,500,000, all in U.S. dollars by wire transfer of immediately
available funds, in the case of the payment referred to in clause (i), to the
account or accounts designated by the Seller and, in the case of the payment
referred to in clause (ii), to the account designated by the Seller's bank
lenders (the "Cash Consideration"), and MLC shall, on the Closing Date, deliver
to the Seller two promissory notes signed by MLC, each in the aggregate
principal amount of $1,500,000 (the "Notes"), which Notes shall be substantially
in the form attached hereto as Exhibit G. Payment on the Notes is subject to
certain terms and conditions, all as set forth therein. The Notes plus the Cash
Consideration shall be referred to herein as the "Purchase Price."
6
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2.2 Allocation of Purchase Price. The Purchasers and the
----------------------------
Seller hereby agree that the Purchase Price of the Assets plus the Assumed
Liabilities will be allocated as set forth on Exhibit B hereto. Subject to the
requirements of any applicable tax law, all tax returns (including amended
returns and claims for refunds) and information reports filed by the Purchasers,
the Seller and the Shareholder Indemnitors shall be prepared consistently with
such allocation and such parties shall use their reasonable best efforts to
sustain such allocation in any subsequent tax audit or tax dispute. In the event
of any adjustment to the Purchase Price hereunder, the Purchasers and the Seller
agree to adjust such allocation to reflect such adjustment and the Purchasers,
the Seller and the Shareholder Indemnitors hereby agree to file consistently any
tax returns and reports required as a result of such adjustment. Each of the
parties agrees to cooperate with the other party in the preparation and filing
of any tax returns required under any applicable law.
ARTICLE III
THE CLOSING
3.1 Closing Date. The Closing shall take place at the
------------
offices of Weil, Gotshal & Manges LLP, located at 767 Fifth Avenue, New York,
New York 10153, on the third business day following the date that the conditions
to Closing set forth herein have been satisfied or waived, or at such other
place and at such other time and date as may be mutually agreed upon by the
Purchasers and the Seller. The date of the Closing is referred to in this
Agreement as the "Closing Date."
3.2 Proceedings at Closing. All proceedings to be taken and
----------------------
all documents to be executed and delivered by the Seller in connection with the
consummation of the transactions contemplated hereby shall be reasonably
satisfactory in form and substance to the Purchasers and their counsel. All
proceedings to be taken and all documents to be executed and delivered by the
Purchasers in
7
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connection with the consummation of the transactions contemplated hereby shall
be reasonably satisfactory in form and substance to the Seller and its counsel.
All proceedings to be taken and all documents to be executed and delivered by
all parties at the Closing shall be deemed to have been taken, executed and
delivered simultaneously, and no proceedings shall be deemed taken nor any
documents executed or delivered until all have been taken, executed and
delivered.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SELLER AND THE
SHAREHOLDER INDEMNITORS
The Seller and each Shareholder Indemnitor, hereby represents
and warrants to the Purchasers as follows:
4.1 Organization, Good Standing and Corporate Records. (a)
-------------------------------------------------
The Seller is a corporation duly organized, validly existing and in good
standing under the laws of the State of Michigan and has all requisite corporate
power and authority to carry on its business as it is now being conducted. The
Seller is duly qualified or authorized to do business as a foreign corporation
and is in good standing under the laws of (a) each jurisdiction in which it owns
or leases real property and (b) each other jurisdiction in which the conduct of
its business or the ownership of its properties requires such qualification or
authorization. Schedule 4.1 sets forth a true, correct and complete list of each
jurisdiction in which the Seller is qualified or authorized to do business as a
foreign corporation.
(b) The Seller has delivered to the Purchasers true,
correct and complete copies of the certificate of incorporation (certified by
the Secretary of State or other appropriate official of the applicable
jurisdiction of organization) and by-laws (certified by the secretary, assistant
secretary or other appropriate officer) or comparable organizational documents
of the Company.
8
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(c) The minute books of the Company previously made
available to the Purchasers contain complete and accurate records of all
meetings and accurately reflect all other corporate action of the stockholders
and board of directors (including committees thereof) of the Company. The stock
certificate books and stock transfer ledgers of the Company previously made
available to the Purchasers are true, correct and complete.
4.2 Authorization of Agreement. The Seller and the
--------------------------
Shareholder Indemnitors have full power and authority to execute and deliver
this Agreement and each other agreement, document, instrument or certificate
contemplated by this Agreement or to be executed by them in connection with the
consummation of the transactions contemplated by this Agreement (all such other
agreements, documents, instruments and certificates required to be executed by
the Seller and the Shareholder Indemnitors being hereinafter referred to,
collectively, as the "Seller Documents"), and to perform fully their obligations
hereunder and thereunder. The execution, delivery and performance by the Seller
of this Agreement and each of the Seller Documents has been duly authorized by
all necessary corporate action on the part of the Seller, including the approval
of the company's shareholders. This Agreement has been, and each of the Seller
Documents will be at or prior to the Closing, duly executed and delivered by the
Seller and the Shareholder Indemnitors, and (assuming the due authorization,
execution and delivery by the other parties hereto and thereto) this Agreement
constitutes, and the Seller Documents when so executed and delivered will
constitute, legal, valid and binding obligations of the Seller and the
Shareholder Indemnitors, enforceable against them in accordance with their
respective terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally
and subject, as to enforceability, to general principles of equity (regardless
of whether enforcement is sought in a proceeding at law or in equity).
4.3 No Violations; Consents. None of the execution and
-----------------------
delivery by the Seller and the Shareholder
9
<PAGE>
Indemnitors of this Agreement and the Seller Documents, or the consummation of
the transactions contemplated hereby or thereby, or compliance by them with any
of the provisions hereof or thereof will (a) conflict with, or result in the
breach of, any provision of the articles of incorporation or by-laws of the
Seller, (b) conflict with, violate, result in the breach or termination of, or
constitute a default or give rise to any "takeback" right or right of
termination or acceleration or right to increase the obligations or otherwise
modify the terms under any Contract or Order to which the Seller is a party or
by which it or any of its properties or assets is bound or subject, (c)
constitute a violation of any Law applicable to the Seller or the Shareholder
Indemnitors, or (d) result in the creation of any Lien (other than any Lien in
favor of the Purchasers) upon the Assets. Except as set forth on Schedule 4.3,
no consent, waiver, approval, Order, Permit or authorization of, or declaration
or filing with, or notification to, any Person, including, without limitation,
any Governmental Body, is required on the part of the Seller or the Shareholder
Indemnitors in connection with the execution, delivery and performance of this
Agreement or the Seller Documents, or the compliance by the Seller or the
Shareholder Indemnitors with any of the provisions hereof or thereof.
4.4 Title to Assets Other than Leased Real Property. (a)
-----------------------------------------------
The Seller owns and has good and valid, marketable title to or, in the case of
leased properties, a valid leasehold interest in, all of the Assets other than
the Leased Real Property, including all of such Assets reflected on the Initial
Balance Sheet, except Assets disposed of in the ordinary course of business
after November 30, 1996, free and clear of all Liens, other than Permitted
Exceptions.
(b) Upon consummation of the transactions contemplated
hereby, the Purchasers will have acquired, on and as of the Closing Date, good
and valid title in and to, or a valid leasehold interest in, the Assets other
than the Leased Real Property, free and clear of all Liens, other than Permitted
Exceptions.
10
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4.5 Leased Real Property. (a) The Seller does not own or
--------------------
hold any interest in real property other than its leasehold interests in the
Leased Real Property, as described on Schedule 1.1(d).
(b) The Seller has a valid leasehold interest in all of the
Leased Real Property free and clear of all Liens, other than Permitted
Exceptions. All leases in respect of the Leased Real Property are valid, binding
and enforceable in accordance with their respective terms, and there does not
exist under any such lease any default on the part of the Seller or any event
which with notice or lapse of time or both would constitute such a default. No
such lease has been modified or amended in writing except as evidenced by the
instruments attached to Schedule 1.1(d) hereof. The Seller has not received from
any party to any such lease any written notice of, or written claim with respect
to, any breach or default thereof. The Seller has not granted any sublease,
license or other agreement granting to any person or entity any right to the use
or occupancy of the Leased Real Property or any portion thereof, or the right to
purchase such Leased Real Property or any portion thereof, and has no knowledge
of any such grant by any other Person.
(c) The plants, buildings, structures and equipment
included in the Leased Real Property are in good operating condition, free of
any material defects or deferred maintenance, and are substantially suited for
their present uses (giving due account to the age and length of use of same).
(d) No violation of any law, regulation or ordinance
(including laws, regulations or ordinances relating to zoning, city planning or
similar matters) relating to the Leased Real Property currently exists, except
for violations which would not have a Material Adverse Effect. Seller has not
received notice of any contemplated governmental actions which might reasonably
be expected to materially detract from the value of any Leased Real Property,
materially interfere with any present use of any Leased Real Property or
materially adversely affect the
11
<PAGE>
marketability of any Leased Real Property. There is no action pending or, to
Seller's knowledge, threatened to initiate a condemnation in respect of any
Leased Real Property.
(e) Upon consummation of the transactions contemplated
hereby, Purchasers will have acquired, on and as of the Closing Date, a valid
leasehold interest in the Leased Real Property, free and clear of all Liens,
other than Permitted Exceptions.
4.6 Financial Statements. As set forth on Schedule 4.6, the
--------------------
Seller has delivered to the Purchasers copies of (i) the unaudited balance
sheets of the Company as at June 30, 1995 and June 30, 1996, and the related
unaudited statements of income and of cash flows of the Company for the years
then ended and (ii) the unaudited balance sheets of the Company as at November
30, 1996 and December 31, 1996 and the related statements of income and cash
flows of the Company for the one month period then ended (such unaudited
statements, including the related notes and schedules thereto, are referred to
herein as the "Financial Statements"). In addition, Purchasers are in possession
of an audited balance sheet and related statement of income and retained
earnings prepared by Ernst & Young LLP, retained by Purchasers for purposes of
conducting such audit. Each of the Financial Statements is complete and correct
in all material respects, has been prepared in accordance with GAAP (subject to
normal year-end adjustments) and in conformity with the practices consistently
applied by the Company and consistent with the books and records of the Company,
without modification of the accounting principles used in the preparation
thereof and presents (or will present) fairly the financial position, results of
operations and cash flows of the Company as at the dates and for the periods
indicated.
4.7 Absence of Certain Developments. Since November 30,
-------------------------------
1996:
(a) The Seller has operated the Business in the ordinary
course consistent with past practice;
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<PAGE>
(b) There has not been any Material Adverse Change;
(c) There has not been any damage, destruction or loss,
whether or not covered by insurance, with respect to the Assets;
(d) Except as set forth on Schedule 4.7(d), the Seller has
not entered into any employment, deferred compensation, severance or similar
agreement (nor amended any such existing agreement) or agreed to increase the
compensation payable or to become payable by it to any of its directors,
officers, employees, agents or representatives or agreed to increase the
coverage or benefits available under any severance pay, termination pay,
vacation pay, company awards, salary continuation or disability, sick leave,
deferred compensation, bonus or other incentive compensation, insurance, pension
or other employee benefit plan, payment or arrangement made to, for or with such
directors, officers, employees, agents or representatives (other than normal
increases in the ordinary course of business consistent with past practice and
that in the aggregate have not resulted in a material increase in the benefits
or compensation expense of the Seller);
(e) Except as set forth on Schedule 4.7(e), the Seller has
not entered into any transaction or Contract (other than purchase orders with
customers of the Seller, entered into in the ordinary course of business)
having, in the aggregate, a value or requiring payments in excess of $10,000;
(f) The Seller has not failed to pay and discharge current
liabilities within 90 days, except where disputed in good faith by appropriate
proceedings (if such proceedings are necessary);
(g) The Seller has not made any loans, advances or capital
contributions to, or investments in, any Person, other than loans or advances to
employees in the ordinary course of business of the Seller and which, in the
aggregate, do not exceed $10,000;
13
<PAGE>
(h) Except as set forth on Schedule 4.7(e), the Seller has
not mortgaged, pledged or subjected to any Lien any of the Assets, or acquired
or sold, assigned, transferred, conveyed, leased or otherwise disposed of any
property, right or asset or any interest therein that otherwise would have been
included as part of the Assets, except for (i) Permitted Exceptions, and (ii)
any such properties, rights or assets or interests therein acquired or sold,
assigned, transferred, conveyed, leased or otherwise disposed of in the ordinary
course of business consistent with past practice of the Seller and which do not,
in the aggregate, have a value in excess of $10,000;
(i) The Seller has not amended, canceled, terminated,
relinquished, waived or released any Contract or right that otherwise would have
been included as part of the Assets, except for any such Contract that has
terminated in accordance with its terms due solely to the lapse of time;
(j) The Seller has not suffered any Extraordinary Loss or
Extraordinary Losses (as defined in Opinion No. 30 of the Accounting Principles
Board of the American Institute of Certified Public Accountants and any
amendments thereto);
(k) Except as set forth on Schedules 4.7(e) and 4.7(k)
hereto, the Seller has not made or committed to make any capital expenditures or
capital additions or betterments to any of the Business in excess of $35,000
individually or $175,000 in the aggregate;
(l) The Seller has not made any change in any method of
accounting or accounting practice with respect to the Business except for any
such change after the date hereof required by reason of a concurrent change in
GAAP;
(m) Except as set forth on Schedule 4.7(m) hereto, the
Seller has not paid any dividend or made any distribution or other payment, in
cash or otherwise, to the Shareholder Indemnitors; and
(n) The Seller has not agreed to do any of the foregoing.
14
<PAGE>
4.8 Material Contracts. (a) Schedule 1.1(j) hereto accurately
------------------
identifies each Contract with respect to the Assets or the Business to which the
Seller is a party, which is being assigned to the Purchasers hereunder and which
involves the payment to or from the Seller of amounts in excess of $10,000 per
year or which is otherwise material to the Business (collectively, the "Material
Contracts").
(b) All of the Material Contracts are valid, binding and
enforceable in accordance with their respective terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally and subject, as to enforceability, to
general principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity), and there does not exist under any Material
Contract any default on the part of the Seller or any event which with notice or
lapse of time or both would constitute such a default on the part of the Seller.
The Seller has not received from any other party to any Material Contract any
written notice of, and Seller has no actual knowledge of, any default on the
part of such other party or any event which with notice or lapse of time or both
would constitute such a default on the part of such other party. No Material
Contract has been modified or amended in writing except as evidenced by the
instruments attached to Schedule 1.1(j) hereto.
(c) Seller has not received any notice or communication
from any party to a Material Contract relating to such party's intent to modify,
terminate or fail to renew the arrangements and relationships set forth therein.
(d) Except as set forth on Schedule 1.1(j) hereto, Seller
is not a party to or subject to:
(i) any agency, dealer, sales representative, resale or
similar agreement;
(ii) any agreement, contract or commitment that
substantially limits the freedom of Seller to compete in any line
of business or with any Person or
15
<PAGE>
in any area, or to own, operate, sell, transfer, pledge or otherwise
dispose of or encumber any Asset or which would so limit the freedom of the
Purchasers after the Closing Date; or
(iii) any agreement, contract or commitment between the Seller
and any affiliate of the Seller.
(e) From and after the Closing, the Purchasers shall enjoy all
of the benefits of each of the Material Contracts without the necessity of any
consent, authorization or agreement from or with any Person.
4.9 Intangible Property. Schedules 1.1(e) and 1.1(f) hereto set
-------------------
forth a complete and accurate list of all patents, trademarks, trade names,
service marks and copyrights included in the Intangible Assets as well as a list
of all registrations thereof and pending applications therefor. Except as set
forth in Schedules 1.1(e) and 1.1(f), each of the Intangible Assets is owned by
the Seller, and upon the consummation of the transaction contemplated herein
will be owned by the Purchaser, free and clear of any and all Liens (other than
Permitted Exceptions) and no other Person has any claim of ownership or rights
with respect thereto. The Seller has adequate licenses or other valid rights to
use all of the Intangible Assets which it does not own and which are material to
the conduct of the Business as presently conducted. The Seller's use of the
Intangible Assets does not conflict with, infringe upon, violate or interfere
with any intellectual property rights, including, without limitation, any
patent, copyright, trademark, trade secret, moral rights, mask works rights, or
other proprietary rights of any other Person. Except as set forth in Schedules
1.1(e) and 1.1(f), Seller has not granted to any Person any license or right,
whether written or oral, in or to the Intangible Assets. No claims have been
asserted or threatened by Seller against any Person, or by any Person against
Seller, challenging the use of, or the validity or enforceability of any
Intangible Assets, and Seller is not aware of any facts that would serve as a
basis for any such claim.
16
<PAGE>
4.10 Tax and Other Returns and Reports. (a) Except as set
---------------------------------
forth in Schedule 4.10: (1) all federal Tax Returns required to be filed by
Seller have been filed on a timely basis with the appropriate governmental
agencies in all jurisdictions in which such Tax Returns are required to be filed
and all Taxes shown as due thereon have been timely paid; (2) all Taxes due from
Seller (A) have been fully and timely paid or (B) adequately provided for on the
Financial Statements and are being contested in good faith by appropriate
proceedings and are not material, individually or in the aggregate, to Seller;
(3) Seller will pay in full all Taxes which are due and payable in respect of
any taxable period ending on or prior to the date of the Closing whether or not
shown on any Tax Return; (4) no claim has been made by an authority in a
jurisdiction where Seller does not file Tax Returns that may be subject to
taxation by that jurisdiction; (5) Seller has withheld all Taxes required to
have been withheld under all applicable statutes and regulations in connection
with amounts paid or owing to any employee, independent contractor, creditor,
stockholder, or other third party and such withholdings have either been paid to
the appropriate governmental agencies as and when due in accordance with Law or
set aside in accounts for such purpose; and (6) no waivers of statutes of
limitation have been given by or requested of Seller in connection with its Tax
Returns or with respect to any Taxes payable by it. Schedule 4.10 lists all Tax
Returns of, or covering, Seller which have been examined or which are currently
under examination by the Internal Revenue Service or by other appropriate taxing
authorities, or with respect to which the applicable statute of limitations
(including all extensions and tolling periods) has not yet run and, except as
and to the extent shown on such Schedule or provided for on the Financial
Statements, all deficiencies asserted or assessments made as a result of such
examinations have been fully paid, and there are no other unpaid deficiencies
asserted or assessments made by any taxing authority against, Seller. Seller has
delivered to Purchasers correct and complete copies of all Tax Returns of Seller
or its respective operations or assets filed since June 30, 1994, all
examination reports relating to Tax Returns filed by
17
<PAGE>
Seller, and statements of deficiencies assessed against or agreed to by Seller
in respect of any Taxes of Seller.
(b) Except as set forth in Schedule 4.10, none of the Assets
of Seller is (1) "tax-exempt use property" within the meaning of Section
168(h)(1) of the Code, (2) used predominantly outside the United States within
the meaning of Prop. Reg. ? 1.168-2(g)(5), (3) "tax-exempt bond financed
property" within the meaning of Section 168(g)(5) of the Code, or (4) "limited
use property" as that term is used in Rev. Proc. 76-30. Following the Closing,
none of the Assets of Seller will be property that Purchasers will be required
to treat as being owned by any other Person pursuant to the provisions of
Section 168(f)(8) of the 1954 Code, as amended and in effect immediately before
the enactment of the Tax Reform Act of 1986.
(c) Seller is not a foreign person within the meaning of
Section 1445 of the Code; Seller is not a party to any Tax allocation or sharing
agreement or is or has been a member of an affiliated group filing a
consolidated federal income Tax Return or a combined, consolidated or unitary
group for state or local tax purposes.
(d) With respect to Leased Assets placed in service on or
before the date hereof, and except as a result of acts, errors or omissions,
including breaches of representation, by the lessee thereunder, each of the
Lease Contracts (excluding property sold on installment sales contracts) will be
treated as a "true lease" for federal income tax purposes.
(e) The transactions contemplated by this Agreement are not
subject to tax withholding pursuant to the provisions of Section 3406 or
Subchapter A of Chapter 3 of the Code or any other provision of applicable law.
(f) There are no liens as a result of any unpaid Taxes
encumbering any of the Assets.
4.11 Employees and Employee Benefits.
-------------------------------
18
<PAGE>
(a)(i) The Seller is not a party to any collective bargaining
agreement applicable to the Employees; (ii) none of the Employees is represented
by any labor organization, and (iii) there is no labor strike, work stoppage or
slowdown pending against the Seller and no pending lockout by the Seller, in
each case, with respect to the Business.
(b) Schedule 4.11(b)(i) hereto lists all employee benefit
plans as defined in Section 3(3) of ERISA of the Seller covering any employee or
former employee of the Business ("Employee Benefit Plans"). Schedule 4.11(b)(ii)
hereto lists all employment severance contracts, consulting agreements, and all
bonus or other incentive compensation, deferred compensation, salary
continuation during any absence from active employment for disability or other
reasons, severance, sick days, stock award, stock option, stock purchase,
tuition assistance, and vacation pay arrangements, all plans and arrangements
providing for termination or similar coverage and all written compensation
policies and practices maintained by the Seller covering any employee or former
employee of the Business and that is not an Employee Benefit Plan ("Benefit
Arrangements").
(c) Each Employee Benefit Plan is in compliance with the
applicable requirements of ERISA and the Code.
4.12 Litigation. Except as set forth on Schedule 4.12, there
----------
is no Legal Proceeding pending or, to the knowledge of the Seller, threatened
(a) against the Seller in connection with the operation of the Business or in
respect of any of the Assets; (b) that seeks to enjoin or obtain damages in
respect of the consummation of the transactions contemplated by this Agreement;
or (c) that questions the validity of this Agreement, any of the Seller
Documents or any action taken or to be taken by the Seller in connection with
the consummation of the transactions contemplated hereby or thereby.
4.13 Compliance with Law. (a) The Business is currently
-------------------
operating in compliance with all applicable Laws and Orders of Governmental
Bodies. The Seller has neither received, nor knows of the issuance of, any
notice of any
19
<PAGE>
violation or alleged violation of any applicable Laws and Orders of Governmental
Bodies.
(b) To Seller's knowledge, Seller is not under investigation
with respect to any violation of any Law, Order or judgment entered by any
court, arbitrator or Governmental Body, applicable to the Assets or the conduct
of the Business.
4.14 Receivables. All of the Accounts Receivable reflected on
-----------
the Initial Balance Sheet have arisen from bona fide transactions in the
ordinary course of business consistent with past practice and are properly
reflected therein in accordance with GAAP. All of the Accounts Receivable
generated since the date of the Initial Balance Sheet have arisen from bona fide
transactions in the ordinary course of business consistent with past practice.
To the Seller's knowledge, all of the Accounts Receivable are collectible in the
ordinary course of business consistent with past practice; provided, however,
-------- -------
that nothing in this Section 4.14 shall be construed as a guaranty by the Seller
or the Shareholder Indemnitors that such Accounts Receivable shall be collected
in full.
4.15 Inventory. The Inventory of the Business as of the date
---------
hereof is of a quality sufficient for its use in the ordinary course of the
Business consistent with past practice and is owned free and clear of all Liens,
other than Permitted Exceptions.
4.16 Assets Necessary to Conduct Business. The Assets
------------------------------------
comprise all of the assets used in the operation of the Business as presently
being conducted, other than the Excluded Assets.
4.17 Environmental Matters. (a) There are no pending or, to
---------------------
the best of the Seller's knowledge, threatened claims, suits or proceedings
arising out of or related to any noncompliance with any environmental law in
connection with the Business or the ownership or use of the Assets, including,
without limitation, statutes related to air quality, water quality, solid waste
management,
20
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hazardous or toxic substances or protection of health or the environment,
including, but not limited to, the Federal Insecticide, Fungicide and
Rodenticide Act (7 U.S.C. 136 et seq. as amended), the Federal Water Pollution
-- ---
Control Act (33 U.S.C. 1251 et seq. as amended), the Resource Conservation and
-- ---
Recovery Act (42 U.S.C. 6901 et seq. as amended), the Comprehensive
-- ---
Environmental Response Compensation and Liability Act ("CERCLA") (42 U.S.C. 9601
et seq. as amended), the Clean Air Act (42 U.S.C. 7401 et seq. as amended), the
- - -- --- -- ---
Toxic Substances Control Act (15 U.S.C. 2601 et seq. as amended), and any
-- ---
similar state or local laws, rules and regulations (collectively, "Environmental
Laws"). The Seller has received all Permits necessary for the operation of the
Business, including all air, water and waste Permits and Permits for emission
and/or disposal of solid, liquid and gaseous materials from manufacturing
operations, and the Business is operating in conformance with such Permits. The
Seller has kept all records and made all filings required by applicable Law with
respect to emissions into the environment (including solids, liquids and gases)
and the proper disposal of such materials (including solid waste materials).
(b) The Seller is not in violation of any Environmental Laws
with respect to the Assets or the conduct of the Business.
4.18 Brokers. Except as described on Schedule 4.18 hereof,
-------
the fees and expenses of which Person shall be borne solely by the Seller, no
other Person has acted directly or indirectly as a broker, finder or financial
advisor for the Seller or any of the Shareholder Indemnitors in connection with
the negotiations relating to or the transactions contemplated by this Agreement,
and no other Person is entitled to any fee, commission or like payment in
respect thereof based in any way on any agreement, arrangement or understanding
made by or on behalf of the Seller or any of the Shareholder Indemnitors.
4.19 Permits. Schedule 1.1(i) is a complete list of all
-------
Permits issued by any Government Body in respect of the Business. Such Permits
constitute all licenses,
21
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franchises, permits or similar authorizations required by any Law for the Seller
to own and conduct the Business, and there are no outstanding violations of any
such Permits, and no action pending or, to the knowledge of Seller threatened,
to cancel, modify or not renew any such Permit.
4.20 Ownership; Subsidiaries. (a) The authorized capital
-----------------------
stock of the Seller consists of [50,000] shares of common stock, par value $1.00
per share, of which 1,200 shares are issued and outstanding and none of which
are held by the Seller as treasury stock (the "Seller Shares"). All of the
Seller Shares are owned, beneficially and of record and free and clear of any
Liens, by each of the Shareholder Indemnitors. The Seller Shares were duly
authorized for issuance, are validly issued, fully paid and non-assessable, and
constitute 100% of the issued and outstanding shares of capital stock of the
Seller. There is no existing option, warrant, call, right, commitment or other
agreement of any character to which the Seller or any Shareholder Indemnitor is
a party requiring, and there are no securities of the Seller outstanding which
upon conversion or exchange would require, the issuance, sale or transfer of any
additional shares of capital stock or other securities of the Seller or other
securities convertible into, exchangeable for or evidencing the right to
subscribe for or purchase shares of capital stock or other securities of the
Seller. Neither the Seller nor any of the Shareholder Indemnitors is a party to
any voting trust or other voting agreement with respect to any of the Seller
Shares or to any agreement relating to the issuance, sale, redemption, transfer
or other disposition of the capital stock or other securities of the Seller.
(b) The Seller has no subsidiaries.
4.21 No Undisclosed Liabilities. Except as set forth on
--------------------------
Exhibit 4.7(e), the Company has no indebtedness, obligations or liabilities of
any kind (whether accrued, absolute, contingent or otherwise, and whether due or
to become due) other than indebtedness, obligations or liabilities, reflected
in, reserved against or otherwise described in the Initial Balance Sheet or the
notes thereto
22
<PAGE>
or incurred in the ordinary course of business consistent with past practice
since November 30, 1996.
4.22 Insurance. Schedule 4.22 sets forth a complete and
---------
accurate list of all policies of insurance of any kind or nature covering the
Company or any of its employees, properties or assets, including, without
limitation, policies of life, disability, fire, theft, workers compensation,
employee fidelity and other casualty and liability insurance. All such policies
are in full force and effect, and, to the Seller's knowledge, the Company is not
in default of any provision thereof, except for such defaults as would not,
individually or in the aggregate, have a Material Adverse Effect.
4.23 Related Party Transactions. Except as set forth on
--------------------------
Schedule 4.23, none of the Shareholder Indemnitors nor any Affiliate of any
Shareholder Indemnitor or of the Company has borrowed any moneys from or has
outstanding any indebtedness or other similar obligations to the Company. Except
as set forth in Schedule 4.23, none of the Shareholder Indemnitors nor any
Affiliate of any Shareholder Indemnitor or of the Company nor any officer or
employee of any of them (i) owns any direct or indirect interest of any kind in,
or controls or is a director, officer, employee or partner of, or consultant to,
or lender to or borrower from or has the right to participate in the profits of,
any Person which is (A) a competitor, supplier, customer, landlord, tenant,
creditor or debtor of the Company, (B) engaged in a business related to the
business of the Company, or (C) a participant in any transaction to which the
Company is a party or (ii) is a party to any Contract with the Company.
4.24 Customers and Suppliers. Schedule 4.24 sets forth a list
-----------------------
of the ten (10) largest customers and the ten (10) largest suppliers of the
Company, as measured by the dollar amount of purchases therefrom or thereby,
during each of the fiscal years ended June 30, 1995 and June 30, 1996, showing
the approximate total sales by the Company to each such customer and the
approximate total purchases by the Company from each such supplier, during such
period. Since November 30, 1996, there has not been any material adverse
23
<PAGE>
change in the business relationship of the Company with any customer or supplier
listed on Schedule 4.24.
4.25 Banks. Schedule 4.25 contains a complete and correct
-----
list of the names and locations of all banks in which Company has accounts or
safe deposit boxes and the names of all persons authorized to draw thereon or to
have access thereto. Except as set forth on Schedule 4.25, no person holds a
power of attorney to act on behalf of the Company.
4.26 No Misrepresentation. No representation or warranty of
--------------------
the Seller or any Shareholder Indemnitor contained in this Agreement or in any
schedule hereto or in any certificate or other instrument furnished by the
Seller or any Shareholder Indemnitor to the Purchasers pursuant to the terms
hereof, contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained herein or therein not
misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser hereby represents and warrants to the Seller
and the Shareholder Indemnitors that:
5.1 Organization and Good Standing. Such Purchaser is a
------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, and has all requisite corporate power and authority to
carry on its business as it is now being conducted.
5.2 Authorization of Agreement. Such Purchaser has full
--------------------------
corporate power and authority to execute and deliver this Agreement and each
other agreement, document, instrument or certificate contemplated by this
Agreement or to be executed by such Purchaser in connection with the
consummation of the transactions contemplated by this
24
<PAGE>
Agreement (all such other agreements, documents, instruments and certificates
required to be executed by the Purchasers being hereinafter referred to,
collectively, as the "Purchaser Documents") and, subject to receipt of the
approval of the stockholders and the Board of Directors of MLC, to perform fully
its obligations hereunder and thereunder. The execution, delivery and
performance by such Purchaser of this Agreement and each Purchaser Document has
been duly authorized by all necessary action on the part of such Purchaser. This
Agreement has been, and the Purchaser Documents will be at or prior to the
Closing, duly executed and delivered by such Purchaser and (assuming the due
authorization, execution and delivery by the other parties hereto and thereto)
this Agreement constitutes, and the Purchaser Documents when so executed and
delivered will constitute, legal, valid and binding obligations of such
Purchaser, enforceable against such Purchaser in accordance with their
respective terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally
and subject, as to enforceability, to general principles of equity (regardless
of whether enforcement is sought in a proceeding at law or in equity).
5.3 No Violations; Consents. None of the execution and
-----------------------
delivery by such Purchaser of this Agreement and the Purchaser Documents, or the
consummation of the transactions contemplated hereby or thereby, or compliance
by such Purchaser with any of the provisions hereof or thereof will (a) conflict
with, or result in the breach of, any provision of the certificate of
incorporation or by-laws of such Purchaser; (b) conflict with, violate, result
in the breach or termination of, or constitute a default or give rise to any
right of termination or acceleration or right to increase the obligations or
otherwise modify the terms under any Contract or Order to which such Purchaser
is a party or by which it or any of its properties or assets is bound or
subject; or (c) subject to receipt of the approval of the stockholders and the
Board of Directors of MLC, constitute a violation of any Law applicable to such
Purchaser. Subject to receipt of the approval of the stockholders and the Board
of Directors of MLC, no consent, waiver, approval, Order,
25
<PAGE>
Permit or authorization of, or declaration or filing with, or notification to,
any Person, including, without limitation, any Governmental Body, is required on
the part of such Purchaser in connection with the execution and delivery of this
Agreement or the Purchaser Documents, or the compliance by such Purchaser with
any of the provisions hereof or thereof, except, in each case, for violations,
conflicts, breaches or defaults which individually or in the aggregate would not
materially hinder or impair the transactions contemplated hereby.
5.4 Litigation. There is no Legal Proceeding pending or, to
----------
the knowledge of such Purchaser, threatened, that seeks to enjoin or obtain
damages in respect of the consummation of the transactions contemplated by this
Agreement or that questions the validity of this Agreement, the Purchaser
Documents or any action taken or to be taken by such Purchaser in connection
with the consummation of the transactions contemplated hereby or thereby.
5.5 Brokers. No Person (other than the officers and directors
-------
of such Purchaser) has acted directly or indirectly as a broker, finder or
financial advisor for such Purchaser in connection with the negotiations
relating to or the transactions contemplated by this Agreement and no Person is
entitled to any fee or commission or like payment (other than from such
Purchaser) in respect thereof based in any way on agreements, arrangements or
understandings made by or on behalf of such Purchaser.
ARTICLE VI
COVENANTS OF THE SELLER AND THE SHAREHOLDER INDEMNITORS
From and after the date hereof and until the Closing, the
Seller and the Shareholder Indemnitors hereby covenant and agree with the
Purchasers that:
6.1 Cooperation. (a) The Seller and the Shareholder
-----------
Indemnitors shall use their reasonable best efforts to cause the consummation of
the transactions
26
<PAGE>
contemplated hereby in accordance with the terms and conditions hereof.
(b) At the request of either Purchaser on a case-by-case
basis, the Seller shall execute and deliver instruments sufficient to constitute
and appoint, effective as of the Closing Date, such Purchaser and its successors
and assigns as the true and lawful attorney of Seller with full power of
substitution in the name of such Purchaser or in the name of Seller, but for the
benefit of such Purchaser (i) to collect for the account of such Purchaser any
Assets specified in such Purchaser's request and (ii) to institute and prosecute
all proceedings which such Purchaser may in its sole discretion deem proper in
order to assert or enforce any right, title or interest in, to or under the
Assets, and to defend or compromise any and all actions, suits or proceedings in
respect of such Assets or the Assumed Liabilities.
6.2 Access to the Shareholder Indemnitors' Documents;
-------------------------------------------------
Opportunity to Ask Questions. The Seller and the Shareholder Indemnitors shall
- - ----------------------------
provide either Purchaser with such information as such Purchaser from time to
time reasonably may request with respect to the Business, and shall permit such
Purchaser and any of the directors, officers, employees, counsel,
representatives, accountants and auditors (collectively, the "Purchaser
Representatives") reasonable access, during normal business hours and upon
reasonable prior notice, to the properties, corporate records and books of
accounts of the Business, as such Purchaser from time to time reasonably may
request. No investigation pursuant to this Section shall affect any
representation or warranty given by the Seller and the Shareholder Indemnitors
in this Agreement.
6.3 Conduct of Business.
-------------------
(a) Except as otherwise expressly contemplated by this
Agreement or with the prior written consent of both Purchasers, the Seller and
the Shareholder Indemnitors shall, and shall cause the Company to:
27
<PAGE>
(i) conduct the business of the Company only in the ordinary
course consistent with past practice;
(ii) use their best efforts to (A) preserve its present
business operations, organization (including, without limitation,
management and the sales force) and goodwill of the Company and (B)
preserve their present relationship with Persons having business
dealings with the Company;
(iii) maintain (A) all of the assets and properties of the
Company in their current condition, ordinary wear and tear excepted and
(B) insurance upon all of the properties and assets of the Company in
such amounts and of such kinds comparable to that in effect on the date
of this Agreement;
(iv) (A) maintain the books, accounts and records of the
Company in the ordinary course of business consistent with past
practices, (B) continue to collect accounts receivable and pay accounts
payable utilizing normal procedures and without discounting or
accelerating payment of such accounts, and (C) comply with all
contractual and other obligations applicable to the operation of the
Company; and
(v) comply in all material respects with applicable laws,
including, without limitation, Environmental Laws.
(b) Except as otherwise expressly contemplated by this
Agreement or with the prior written consent of both Purchasers, the Seller and
the Shareholder Indemnitors shall not, and shall cause the Company not to:
(i) declare, set aside, make or pay any dividend or other
distribution in respect of the capital stock of the Company or
repurchase, redeem or otherwise acquire any outstanding shares of the
capital stock or other securities of, or other ownership interests in,
the Company;
28
<PAGE>
(ii) transfer, issue, sell or dispose of any shares of
capital stock or other securities of the Company or grant options,
warrants, calls or other rights to purchase or otherwise acquire shares
of the capital stock or other securities of the Company;
(iii) effect any recapitalization, reclassification, stock
split or like change in the capitalization of the Company;
(iv) amend the certificate of incorporation or by-laws of the
Company;
(v) (A) materially increase the annual level of compensation
of any employee of the Company, (B) increase the annual level of
compensation payable or to become payable by the Company to any of its
executive officers, (C) grant any unusual or extraordinary bonus,
benefit or other direct or indirect compensation to any employee,
director or consultant, except that the Company may, immediately prior
to the Closing, grant a bonus to Peter G. VanHeusden in an amount up to
50% of the Income Before Taxes (as such term is defined in Section 14.1
hereof) of the Company, provided that, any such bonus will be paid on
an estimated basis, subject to a post-Closing adjustment following the
closing of Seller's books and review by Seller's and Purchasers'
auditors, other than in the ordinary course consistent with past
practice and in such amounts as are fully reserved against in the
Financial Statements, (D) increase the coverage or benefits available
under any (or create any new) severance pay, termination pay, vacation
pay, company awards, salary continuation for disability, sick leave,
deferred compensation, bonus or other incentive compensation,
insurance, pension or other employee benefit plan or arrangement made
to, for, or with any of the directors, officers, employees, agents or
representatives of the Company or otherwise modify or amend or
terminate any such plan or arrangement or (E) enter into any
employment, deferred compensation, severance, consulting,
non-competition or similar agreement (or amend any such agreement) to
29
<PAGE>
which the Company is a party or involving a director, officer or
employee of the Company in his or her capacity as a director, officer
or employee of the Company;
(vi) except for trade payables and for indebtedness for
borrowed money incurred in the ordinary course of business and
consistent with past practice, borrow monies for any reason or draw
down on any line of credit or debt obligation, or become the guarantor,
surety, endorser or otherwise liable for any debt, obligation or
liability (contingent or otherwise) of any other Person;
(vii) subject to any Lien (except for leases that do not
materially impair the use of the property subject thereto in their
respective businesses as presently conducted), any of the properties or
assets (whether tangible or intangible) of the Company;
(viii) acquire any material properties or assets or sell,
assign, transfer, convey, lease or otherwise dispose of any of the
material properties or assets (except for fair consideration in the
ordinary course of business consistent with past practice) of the
Company;
(ix) cancel or compromise any debt or claim or waive or
release any material right of the Company except in the ordinary course
of business consistent with past practice;
(x) enter into any commitment for capital expenditures of
the Company in excess of $35,000 for any individual commitment and
$150,000 for all commitments in the aggregate;
(xi) enter into, modify or terminate any labor or collective
bargaining agreement of the Company or, through negotiation or
otherwise, make any commitment or incur any liability to any labor
organization with respect to the Company;
30
<PAGE>
(xii) introduce any material change with respect to the
operation of the Company, including any material change in the types,
nature, composition or quality of its products or services, experience
any material change in any contribution of its product lines to its
revenues or net income, or, other than in the ordinary course of
business, make any change in product specifications or prices or terms
of distributions of such products;
(xiii) permit the Company to enter into any transaction or to
make or enter into any Contract which by reason of its size or
otherwise is not in the ordinary course of business consistent with
past practice;
(xiv) permit the Company to enter into or agree to enter into
any merger or consolidation with, any corporation or other entity, and
not engage in any new business or invest in, make a loan, advance or
capital contribution to, or otherwise acquire the securities of any
other Person;
(xv) except for transfers of cash pursuant to normal cash
management practices, permit the Company to make any investments in or
loans to, or pay any fees or expenses to, or enter into or modify any
Contract with, any Shareholder Indemnitor or any Affiliate of any
Shareholder Indemnitor; or
(xvi) agree to do anything prohibited by this Section 6.3 or
anything which would make any of the representations and warranties of
the Seller or any Shareholder Indemnitor in this Agreement or the
Seller Documents untrue or incorrect in any material respect as of any
time through and including the Closing Date.
6.4 Consents and Conditions; Assignment of Assets. The Seller
---------------------------------------------
and the Shareholder Indemnitors shall use their reasonable best efforts to
obtain all approvals, consents or waivers from all Persons, including, without
limitation, Governmental Bodies, necessary to assign to the
31
<PAGE>
Purchasers all of the Seller's interest in the Assets or any claim, right or
benefit arising thereunder or resulting therefrom (each, an "Interest") as soon
as practicable.
6.5 Notices of Certain Events. The Seller and the Shareholder
-------------------------
Indemnitors shall promptly notify the Purchasers of:
(a) any notice or other communication (i) alleging that the
consent of any person is or may be required in connection with the transactions
contemplated by this Agreement, or (ii) from any person to the effect that such
person intends not to continue to conduct business with either Purchaser (as
successor to the Business) after the Closing;
(b) any notice or other communication from any Government Body
in connection with the transactions contemplated by this Agreement; and
(c) any action, suits, claims, investigations or proceedings
to its knowledge commenced or threatened against, relating to or involving or
otherwise affecting the Seller or the Business that, if pending on the date of
this Agreement, would have been required to have been disclosed pursuant to
Section 4.12 hereof or that relate to the consummation of the transactions
contemplated by this Agreement.
6.6 Non-Competition Agreement. The Seller hereby agrees that,
-------------------------
on or prior to the Closing Date, it shall execute and deliver to the Purchasers
a Non-Competition Agreement, substantially in the form of Exhibit E hereto (the
"Non-Competition Agreement").
ARTICLE VII
COVENANTS OF THE PURCHASER
32
<PAGE>
From and after the date hereof, and until the Closing Date,
each Purchaser hereby covenants and agrees with the Seller that:
7.1 Reasonable Best Efforts. Subject to such Purchaser's
-----------------------
satisfaction, in its sole discretion, of the results of the due diligence
investigation and review referred to in Section 9.6 hereof, such Purchaser shall
use its reasonable best efforts to cause the consummation of the transactions
contemplated hereby in accordance with the terms and conditions hereof.
7.2 Consents and Conditions. Such Purchaser shall use its
-----------------------
reasonable efforts to obtain all approvals, consents or waivers from Persons,
including, without limitation, Governmental Bodies, necessary to consummate the
transactions contemplated by this Agreement.
ARTICLE VIII
COVENANTS RELATING TO EMPLOYMENT AND EMPLOYEE MATTERS
81. Offer of Employment. (a) Schedule 8.1 hereof is a
-------------------
preliminary list of all Employees as of the date hereof. Within fifteen days
prior to the Closing Date, the Seller shall deliver to the Purchasers a final
list of the employees of Seller, which list shall separately identify those
employees of the Seller (i) who are active employees as of that date (including
those on vacation, sickness, or a leave of absence of less than ninety days for
any reason, including disability) (the "Active Employees"), and (ii) who are not
actively working on such date by reason of a leave of absence of more than
ninety days (the "Inactive Employees").
(b) PG Newco shall employ, effective as of the Closing Date,
all of the Active Employees who have not retired on or prior to the Closing
Date, who have not rejected on or prior to Closing Date PG Newco's offer of
employment, and who are actually at work on the Closing Date; provided, however,
that notwithstanding the foregoing,
33
<PAGE>
any temporary or employment agency employees shall be included as Active
Employees solely at the discretion of PG Newco. For any Active Employee who has
not retired or rejected PG Newco's offer of employment on or prior to the
Closing Date but is not actually at work on the Closing Date, the offer of
employment shall continue for a ninety-day period from the Closing Date and the
date of effective employment shall be the date of return to employment within
such ninety-day period.
8.2 Health Plan Benefits. Seller and Purchasers shall take
--------------------
all necessary action and cooperate in good faith with the objective of obtaining
health plan benefits without any pre-existing condition exclusions for the
Transferred Employees effective as of the Closing Date.
ARTICLE IX
CONDITIONS PRECEDENT TO THE PURCHASERS' OBLIGATIONS
The obligation of each Purchaser to consummate the purchase of
the Assets and the assumption of the Assumed Liabilities on the Closing Date is,
at the option of such Purchaser, subject to the satisfaction of the following
conditions:
9.1 Representations, Warranties and Covenants
-----------------------------------------
(a) Each of the representations and warranties of the Seller
and the Shareholder Indemnitors contained herein shall be true and correct in
all material respects on and as of the Closing Date with the same force and
effect as though the same had been made on and as of the Closing Date.
(b) The Seller and the Shareholder Indemnitors shall have
performed and complied in all material respects with the covenants and
provisions of this Agreement required to be performed or complied with by them
at or prior to the Closing Date.
9.2 Deliveries by the Seller to the Purchasers
------------------------------------------
34
<PAGE>
At the Closing, the Seller shall deliver, or shall cause to be
delivered, to the Purchasers the following:
(a) a certificate of the Seller, dated as of the Closing Date
and signed by the President of the Seller, certifying as to the fulfillment of
the conditions set forth in Section 9.1;
(b) (i) a Bill of Sale, dated the Closing Date, substantially
in the form of Exhibit C, duly executed and delivered by the Seller, and (ii)
executed deeds, assignments, patent assignments, trademark assignments in
recordable form, certificates of title, and such other instruments and documents
as the Purchasers shall reasonably request, transferring to the Purchasers all
of the Seller's right, title and interest in and to the Assets;
(c) an employment agreement in form and substance satisfactory
to the Purchasers, executed and delivered by Peter G. VanHeusden (the
"Employment Agreement");
(d) an opinion of counsel for the Seller, dated the Closing
Date, substantially in the form attached hereto as Exhibit D;
(e) an affidavit, in a form reasonably satisfactory to the
Purchasers, of the Seller stating under penalties of perjury the Seller's United
States taxpayer identification number and that the Seller is not a foreign
person within the meaning of Section 1445(b)(2) of the Code;
(f) a receipt for the Purchase Price (including the Notes);
(g) a good standing certificate for the Seller from the
Secretary of State of the State of Michigan, dated as soon as practicable prior
to the Closing Date;
(h) a non-competition agreement, dated the Closing Date,
substantially in the form of Exhibit E, duly executed and delivered by Peter G.
VanHeusden (the "Non-Competition Agreement");
35
<PAGE>
(i) a certificate of the Secretary of the Seller as to the
resolutions adopted by the Seller's Board of Directors and shareholders relating
to the transactions contemplated hereby;
(j) copies of all documents evidencing all third party
approvals, licenses, consents, including those listed on Schedule 4.3, and
waivers of rights of first refusal and other rights, necessary on the part of
Seller to consummate the transactions contemplated hereby;
(k) if NEC Corporation ("NEC") has not been invoiced by Seller
in full for certain materials it purchased from Seller for the Midas 3 and Midas
4 Programs, in the approximate amount of $500,000, a letter from NEC (the "NEC
Letter") indicating that NEC will pay Seller for such materials by December 31,
1997, which letter will be validly assigned to PG Newco at the Closing; and
(l) all written representations and warranties of the Seller
and the Shareholder Indemnitors, as required pursuant to the Securities Act of
1933, as amended, in connection with Seller's acquisition of the Notes.
9.3 No Prohibition. No Law or Order of any court or
--------------
administrative agency shall be in effect which prohibits either Purchaser from
consummating the transactions contemplated hereby.
9.4 No Proceeding or Litigation. Except as set forth on
---------------------------
Schedule 4.12, there shall not be instituted, pending, or, to the knowledge of
either Purchaser or the Seller, threatened, any suit, action, investigation,
inquiry, or other proceeding by or before any court or administrative agency or
by any other Person which seeks to enjoin or otherwise prevent consummation of
the transactions contemplated by this Agreement.
9.5 Regulatory Approvals. All Orders, permits, and regulatory
--------------------
approvals applicable to either Purchaser or the Seller and necessary to permit
the consummation of the
36
<PAGE>
transactions contemplated by this Agreement shall have been obtained and be in
full force and effect.
9.6 Due Diligence Investigation. The Purchasers shall have
---------------------------
completed their due diligence investigation and review in respect of the Assets
and the Business with satisfactory results in its sole discretion.
9.7 MLC Stockholder Approval. MLC shall have received the
------------------------
requisite consent of its stockholders to the consummation of the transactions
contemplated by this Agreement.
9.8 MLC Board Approval. MLC shall have received the
------------------
requisite approval of its Board of Directors to the consummation of the
transactions contemplated by this Agreement.
ARTICLE X
CONDITIONS PRECEDENT TO THE SELLER'S OBLIGATIONS
The obligation of the Seller to consummate the sale, transfer
and assignment to the Purchasers of the Assets and the assignment of the Assumed
Liabilities on the Closing Date is, at the option of the Seller, subject to the
satisfaction of the following conditions.
10.1 Representations, Warranties and Covenants
-----------------------------------------
(a) Each of the representations and warranties of the
Purchasers contained herein shall be true and correct in all material respects
as of the Closing Date with the same force and effect as though the same had
been made on and as of the Closing Date.
(b) Each Purchaser shall have performed and complied in all
material respects with the covenants and provisions in this Agreement required
herein to be performed or complied with by it at or prior to the Closing Date.
37
<PAGE>
10.2 Deliveries by the Purchasers to the Seller. At the
------------------------------------------
Closing, the Purchasers shall deliver to the Seller the following:
(a) a certificate of each Purchaser, dated as of the Closing
Date and signed by an officer of such Purchaser, certifying as to the
fulfillment of the conditions set forth in Section 10.1;
(b) immediately available funds for the Cash Consideration
referred to in Section 2.1 hereof, by wire transfer as provided in Section 2.1
hereof;
(c) the two Notes signed by MLC, each in the aggregate
principal amount of $1,500,000, as described in Section 2.1 hereof;
(d) a certificate of the Secretary of each Purchaser as to the
resolutions adopted by such Purchaser's Board of Directors relating to the
transactions contemplated hereby;
(e) an assumption agreement, substantially in the form of
Exhibit F hereto (the "Assumption Agreement"), dated the Closing Date, duly
executed by PG Newco, evidencing PG Newco's assumption of the Assumed
Liabilities; and
(f) the Employment Agreement, duly executed by PG Newco.
10.3 No Prohibition. No Law or Order of any court or
--------------
administrative agency shall be in effect which prohibits the Seller from
consummating the transactions contemplated hereby.
10.4 No Proceeding or Litigation. There shall not be
---------------------------
instituted, pending, or, to the knowledge of the Seller, threatened, any suit,
action, investigation, inquiry, or other proceeding by or before any court or
administrative agency or by any other Person which seeks to enjoin or otherwise
prevent consummation of the transactions contemplated by this Agreement.
38
<PAGE>
10.5 Regulatory Approvals. All Orders, permits, and
--------------------
regulatory approvals applicable to either Purchaser or the Seller and necessary
to permit the consummation of the transactions contemplated by this Agreement
shall have been obtained and be in full force and effect.
ARTICLE XI
ADDITIONAL COVENANTS
11.1 Further Assurances
------------------
(a) From time to time after the Closing Date, the Seller and
the Shareholder Indemnitors shall, at their sole cost and expense (unless
specified otherwise in this Agreement), at the reasonable request of either
Purchaser, execute and deliver such other and further instruments of sale,
assignment, assumption, transfer and conveyance and take such other and further
action as such Purchaser may reasonably request in order to vest in such
Purchaser and put such Purchaser in possession of the Assets as of the Closing
and to transfer to such Purchaser as of the Closing any Contracts and rights of
the Seller relating to the Assets and assure to such Purchaser the benefits
thereof, and, at the reasonable request of the Seller, to give effect, as of the
Closing, to such Purchaser's assumption of the Assumed Liabilities.
(b) To the extent any of the approvals, consents or waivers
referred to in Section 6.4 hereof have not been obtained by the Seller as of the
Closing, the Seller shall use its reasonable best efforts to do the following:
(i) cooperate with the Purchasers in any reasonable and
lawful arrangements designed to provide the benefits of such Interest
to the Purchasers as long as the Purchasers promptly reimburse the
Seller for all payments, charges or other liabilities made or suffered
by the Seller in connection therewith; and
39
<PAGE>
(ii) enforce, at the request of the Purchasers and at the
expense and for the account of the Purchasers, any and all rights of
the Seller arising from such Interest against such issuer or grantor
thereof or the other party or parties thereto (including the right to
elect to terminate such Interest in accordance with the terms thereof
upon the written advice of the Purchasers).
(c) To the extent that the Seller enters into lawful
arrangements designed to provide the benefits of any Interest as set forth in
clause (b)(i) above, such Interest shall be deemed to have been assigned to the
Purchasers as of the Closing for purposes of Section 1.1 hereof.
11.2 Public Announcements. Neither the Seller (nor any of its
--------------------
affiliates) nor the Purchasers (nor any of their affiliates) shall make any
public statement, including, without limitation, any press release, with respect
to this Agreement and the transactions contemplated hereby, without the prior
written consent of the other party (which consent may not be unreasonably
withheld), except as may be required (a) by Law, and (b) in the case of MLC,
pursuant to its obligations resulting from the inclusion of its common stock in
the American Stock Exchange, in either case, as advised by counsel.
11.3 Joint Post-closing Covenant of the Seller and the
-------------------------------------------------
Purchasers. The Seller and the Purchasers jointly covenant and agree that, from
- - ----------
and after the Closing Date, the Seller and the Purchasers will cooperate with
each other in defending or prosecuting any action, suit, proceeding,
investigation or audit of the other relating to (a) the preparation and audit of
the Seller's and the Purchasers' tax returns, and (b) any audit of the
Purchasers and/or the Seller with respect to the sales, transfer and similar
taxes imposed by the laws of any state, in each of cases (a) and (b) relating to
the transactions contemplated by this Agreement, and in each such case at the
sole cost and expense of the party requesting cooperation or assistance. In
furtherance hereof, the Purchasers and the Seller further covenant and agree to
respond to all reasonable inquiries
40
<PAGE>
related to such matters and to provide, to the extent possible, substantiation
of transactions and to make available and furnish appropriate documents and
personnel in connection therewith.
11.4 Books and Records; Personnel. For a period of six years
----------------------------
after the Closing Date (or such longer period as may be required by any
Governmental Body or ongoing Legal Proceeding):
(a) The Purchasers shall not dispose of or destroy any of the
business records and files of the Business. If the Purchasers wish to dispose of
or destroy such records and files after that time, they shall first give 30
days' prior written notice to the Seller and the Seller shall have the right, at
its option and expense, upon prior written notice to the Purchasers within such
30 day period, to take possession of the records and files within 60 days after
the date of the Seller's notice to the Purchasers.
(b) The Purchasers shall allow the Seller and its
Representatives access to all business records and files of the Business which
are transferred to the Purchasers in connection herewith, during regular
business hours and upon reasonable notice at PG Newco's principal place of
business or at any location where such records are stored, and the Seller shall
have the right, at its own expense, to make copies of any such records and
files; provided, however, that any such access or copying shall be had or done
-------- -------
in such a manner so as not to interfere with the normal conduct of the
Purchasers' business or operations. To the extent commercially practicable, the
Purchasers shall send copies of such business records and files to the Seller,
at the expense of the Purchasers, by overnight courier or other delivery
service, as reasonably requested by the Seller.
(c) The Purchasers shall make available to the Seller, upon
written request and at the Seller's expense (i) the Purchasers' personnel to
assist the Seller in locating and obtaining records and files maintained by the
Purchasers and (ii) any of the Purchasers' personnel previously in the
41
<PAGE>
Seller's employ whose assistance or participation is reasonably required by the
Seller in anticipation of, or preparation for, existing or future litigation,
arbitration, administrative proceeding, tax return preparation or other matters
in which the Seller or any of its affiliates is involved and which is related to
the Business.
ARTICLE XII
INDEMNIFICATION AND RELATED MATTERS
12.1 Indemnification
---------------
(a) Irrespective of any due diligence investigation conducted
by the Purchasers or the Purchaser Representatives with regard to the
transactions contemplated hereby, the Seller and each Shareholder Indemnitor
jointly and severally agree to indemnify and hold each Purchaser harmless from
and against any and all liabilities, obligations, damages, losses, deficiencies,
costs, penalties, interest and expenses (collectively, "Losses") arising out of,
based upon, attributable to or resulting from:
(i) any and all Losses incurred or suffered by such
Purchaser resulting from or arising out of any misrepresentation or
breach of warranty made by the Seller or any of the Shareholder
Indemnitors in this Agreement or in any of the Seller Documents;
(ii) any and all Losses incurred or suffered by such
Purchaser resulting from or arising out of the failure of the Seller or
any Shareholder Indemnitor to comply with any of the covenants
contained in this Agreement or in any of the Seller Documents which are
required to be performed by Seller or any Shareholder Indemnitor;
(iii) any and all Losses incurred or suffered by such
Purchaser resulting from or arising out of Excluded Liabilities;
42
<PAGE>
(iv) any claims for any injury to person or property
attributable to any goods manufactured or services rendered by the
Seller prior to the Closing, regardless of whether such claims are
asserted prior to or after the Closing (it being understood and agreed
that Losses under this clause (iv) shall be net of any proceeds
received by such Purchaser under any policy of insurance maintained by
such Purchaser in respect of such claims);
(v) any claims for damages, compensation and/or
other employee benefits (including, but not limited to, severance pay,
disability benefits, health, workers' compensation, and death benefits)
(A) accruing at any time with respect to persons who were employed in
the Business and do not become Transferred Employees, (B) accruing
prior to the date a person becomes a Transferred Employee, and (C)
accruing with respect to employment or termination of employment with
the Seller, and related costs and liabilities, regardless of whether
such claims and related costs and liabilities are made or incurred
before, on or after the Closing Date, except wages and vacation to the
extent accrued or reflected on the Closing Balance Sheet;
(vi) any Environmental Claim or any Remedial Action
arising out of or based upon anything relating to the use of the Assets
prior to the Closing, or the operation of the Business prior to the
Closing;
(vii) any third party claims with respect to
occurrences or events which occurred on or prior to the Closing Date
and relate to the Seller and/or its Employees; and
(viii) all actions, suits, proceedings, demands,
assessments, judgments, costs, penalties and expenses, including
reasonable attorneys' fees, incident to the foregoing.
43
<PAGE>
(b) PG Newco agrees to indemnify and hold the Seller
harmless from and against any and all Losses arising out of, based upon,
attributable to or resulting from:
(i) any and all Losses incurred or suffered by the
Seller resulting from or arising out of any misrepresentation or breach
of warranty made by PG Newco in this Agreement or in any of the
Purchaser Documents;
(ii) any and all Losses incurred or suffered by the
Seller resulting from or arising out of the failure of PG Newco to
comply with any of the covenants contained in this Agreement or in any
of the Purchaser Documents which are required to be performed PG Newco;
(iii) the Assumed Liabilities;
(iv) any and all claims by Transferred Employees (A)
for compensation and vacation accrued on or prior to the Closing Date
to the extent reflected on the Closing Balance Sheet, and (B) for
damages, compensation, vacation and/or other employee benefits
(including, but not limited to, severance pay, disability benefits,
health, workers' compensation, and death benefits) as provided by PG
Newco accruing at any time after the date a person becomes a
Transferred Employee;
(v) any Environmental Claim or any Remedial Action
arising out of or based upon anything relating to the use of the Assets
after the Closing, or the operation of the Business after the Closing;
(vi) any third party claims with respect to
occurrences or events which occur after the Closing Date and relate to
the operation of the Business by PG Newco after the Closing; and
44
<PAGE>
(vii) all actions, suits, proceedings, demands,
assessments, judgments, costs, penalties and expenses, including
reasonable attorneys' fees, incident to the foregoing.
(c) If any indemnification payment under Article XII is
determined to be taxable to the party receiving such payment by any taxing
authority, the paying party shall also indemnify the party receiving such
payment for any Taxes incurred by reason of the receipt of such payment (taking
into account any actual reduction in tax liability to the receiving party) and
any related costs incurred by the party receiving such payment in connection
with such Taxes (or any asserted deficiency, claim, demand, action, suit,
proceeding, judgment or assessment, including the defense or settlement thereof,
relating to such Taxes).
(d) Notwithstanding anything to the contrary contained in
this Agreement, neither the Seller nor any Shareholder Indemnitor, on the one
hand, nor PG Newco, on the other hand, shall be liable for any Losses under this
Article XII unless the aggregate amount of Losses and expenses finally
determined to arise hereunder based upon, attributable to or resulting from the
failure of any representation or warranty to be true and correct, other than the
representations and warranties set forth in Sections 4.9, 4.10, 4.11, 4.12,
4.17, 4.18 and 4.20 hereof (with respect to which the limitations set forth in
this Section 12.1(d) shall not apply), exceeds $50,000 (the "Basket") and, in
such event, the indemnifying party shall be required to pay the entire amount of
such Losses and expenses in excess of $50,000 (the "Deductible").
12.2 Survival of Representations and Warranties. The
------------------------------------------
parties hereto hereby agree that the representations and warranties contained in
this Agreement or in any certificate, document or instrument delivered in
connection herewith, shall survive the execution and delivery of this Agreement,
and the Closing hereunder, regardless of any investigation made by the parties
hereto; provided, however, that any claims or actions with respect thereto
(other than
45
<PAGE>
claims for indemnifications with respect to the representation and warranties
contained in Sections 4.9, 4.10, 4.11, 4.12, 4.17, 4.18 and 4.20 which shall
survive for periods coterminous with any applicable statutes of limitation)
shall terminate unless within thirty-six (36) months after the Closing Date
written notice of such claims is given to the Seller and the Shareholder
Indemnitors or such actions are commenced.
12.3 Indemnification Procedures. (a) In the event that any
--------------------------
Legal Proceedings shall be instituted or that any claim or demand ("Claim")
shall be asserted by any Person in respect of which payment may be sought under
Section 12.1 hereof (regardless of the Basket or the Deductible referred to
above), the indemnified party shall reasonably and promptly cause written notice
of the assertion of any Claim of which it has knowledge which is covered by this
indemnity to be forwarded to the indemnifying party. The indemnifying party
shall have the right, at its sole option and expense, to be represented by
counsel of its choice, which must be reasonably satisfactory to the indemnified
party, and to defend against, negotiate, settle or otherwise deal with any Claim
which relates to any Losses indemnified against hereunder. If the indemnifying
party elects to defend against, negotiate, settle or otherwise deal with any
Claim which relates to any Losses indemnified against hereunder, it shall within
ten (10) days (or sooner, if the nature of the Claim so requires) notify the
indemnified party of its intent to do so. If the indemnifying party elects not
to defend against, negotiate, settle or otherwise deal with any Claim which
relates to any Losses indemnified against hereunder, fails to notify the
indemnified party of its election as herein provided or contests its obligation
to indemnify the indemnified party for such Losses under this Agreement, the
indemnified party may defend against, negotiate, settle or otherwise deal with
such Claim. If the indemnified party defends any Claim, then the indemnifying
party shall reimburse the indemnified party for the Expenses of defending such
Claim upon submission of periodic bills. If the indemnifying party shall assume
the defense of any Claim, the indemnified party may participate, at his or its
own expense, in the defense of
46
<PAGE>
such Claim; provided, however, that such indemnified party shall be entitled to
-------- -------
participate in any such defense with separate counsel at the expense of the
indemnifying party if, (i) so requested by the indemnifying party to participate
or (ii) in the reasonable opinion of counsel to the indemnified party, a
conflict or potential conflict exists between the indemnified party and the
indemnifying party that would make such separate representation advisable; and
provided, further, that the indemnifying party shall not be required to pay for
- - -------- -------
more than one such counsel for all indemnified parties in connection with any
Claim. The parties hereto agree to cooperate fully with each other in connection
with the defense, negotiation or settlement of any such Claim.
(b) After any final judgment or award shall have been rendered
by a court, arbitration board or administrative agency of competent jurisdiction
and the expiration of the time in which to appeal therefrom, or a settlement
shall have been consummated, or the indemnified party and the indemnifying party
shall have arrived at a mutually binding agreement with respect to a Claim
hereunder, the indemnified party shall forward to the indemnifying party notice
of any sums due and owing by the indemnifying party pursuant to this Agreement
with respect to such matter and the indemnifying party shall be required to pay
all of the sums so due and owing to the indemnified party by wire transfer of
immediately available funds within 10 business days after the date of such
notice.
(c) The failure of the indemnified party to give reasonably
prompt notice of any Claim shall not release, waive or otherwise affect the
indemnifying party's obligations with respect thereto except to the extent that
the indemnifying party can demonstrate actual loss and prejudice as a result of
such failure.
12.4 Tax Matters. (a) Seller and Purchasers shall cooperate
-----------
fully with each other and make available or cause to be made available to each
other in a timely fashion such tax data, prior tax returns and filings and other
information as may be reasonably required for the
47
<PAGE>
preparation by Purchasers or Seller of any tax returns, elections, consents or
certificates required to be prepared and filed by Purchasers or Seller and any
audit or other examination by any taxing authority, or judicial or
administrative proceeding relating to liability for Taxes. Purchasers and Seller
will each retain and provide to the other party all records and other
information which may be relevant to any such Tax Return, audit or examination,
proceeding or determination, and will each provide the other party with any
final determination of any such audit or examination, proceeding or
determination that affects any amount required to be shown on any Tax Return of
the other party for any period. Without limiting the generality of the
foregoing, each of the Purchasers and Seller will retain copies of all Tax
Returns, supporting work schedules and other records relating to tax periods or
portions thereof ending prior to or on the Closing Date.
(b) Seller and each Shareholder Indemnitor jointly and
severally agree to be responsible for, and indemnify and hold harmless each
Purchaser against all losses, claims, damages, liabilities (liquidated or
unliquidated, accrued, contingent, or otherwise), obligations, judgments,
settlements, reasonable out-of-pocket costs, expenses and attorneys' fees
(including such costs, expenses and attorneys' fees incurred in connection with
any investigation or in enforcing such right of indemnification against any
Indemnitor), fines and penalties, if any (collectively "Damages") attributable
to all Taxes with respect to the ownership, use or leasing of the Assets on or
prior to the Closing Date and PG Newco shall be responsible for, and shall
indemnify and hold harmless Seller, in respect of any Damages attributable to
all Taxes with respect to the ownership, use or leasing of the Assets after the
Closing Date. Seller's share of all real and personal property Taxes, state and
local ad valorem Taxes and assessments applicable to the Assets for any period
commencing on or prior to the Closing Date and ending after the Closing Date
shall be determined on a pro rata basis based on the length of such period and
when the Closing Date occurs therein. Seller and each Shareholder Indemnitor
jointly and severally agree to indemnify and hold
48
<PAGE>
harmless each Purchaser, in respect of any Damages attributable to Taxes of
Seller in respect of periods prior to the Closing (which Taxes shall be
determined on the basis of an interim closing of the books).
(c) Seller agrees to furnish either Purchaser upon request
clearance certificates or similar documents that may be required by any state,
local or other taxing authority to relieve such Purchaser of any obligations to
withhold any portion of the purchase consideration to be transferred pursuant to
Article II hereof.
ARTICLE XIII
TERMINATION
13.1 Termination. This Agreement may be terminated:
-----------
(a) by the written agreement of each Purchaser and the Seller;
(b) by either Purchaser or by the Seller if there shall be in
effect a non-appealable order of a court of competent jurisdiction permanently
prohibiting the consummation of the transactions contemplated hereby;
(c) by either Purchaser or by the Seller or the Shareholder
Indemnitors if the stockholders of MLC fail to approve the transactions to be
consummated in connection herewith at any meeting of the stockholders of MLC
called and held for such purpose; and
(d) by either Purchaser or by the Seller if the Closing shall
not have occurred on or before June 30, 1997.
13.2 Liabilities After Termination. Upon any termination of
-----------------------------
this Agreement pursuant to Section 13.1 hereof, no party hereto shall thereafter
have any further liability or obligation hereunder, but no such termination
shall relieve either party hereto of any liability to the
49
<PAGE>
other party hereto for any breach of this Agreement prior to the date of such
termination.
ARTICLE XIV
MISCELLANEOUS
14.1 Certain Defintions. As used in this Agreement, the
------------------
following terms have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"Accounts Receivable" has the meaning set forth in Section
-------------------
1.1(c) hereof.
"Active Employees" has the meaning set forth in Section 8.1(a)
----------------
hereof.
"Affiliate" means, with respect to any Person, any other
---------
Person controlling, controlled by or under common control with such Person.
"Assets" has the meaning set forth in Section 1.1 hereof.
------
"Assumed Liabilities" has the meaning set forth in Section 1.3
-------------------
hereof.
"Benefit Arrangements" has the meaning set forth in Section
--------------------
4.11(b).
"Business" has the meaning set forth in the recitals hereto.
--------
"Cash Consideration" has the meaning set forth in Section 2.1
------------------
hereof.
"Closing" means the consummation of the transactions
-------
contemplated by this Agreement.
50
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"Closing Balance Sheet" means that certain Statement of Assets
---------------------
and Assumed Liabilities for the Business as of the Closing Date, prepared by the
Purchasers and Seller as soon as practicable (but in no event later than 30
days) following the Closing Date, and delivered to Ernst & Young LLP
(Purchasers' accountant).
"Closing Date" has the meaning set forth in Section 3.1
------------
hereof.
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Contract" means any contract (including, without limitation,
--------
any resale agreement and any manufacturer authorization or medallion or sales or
distribution contract), agreement, indenture, note, bond, loan, instrument,
lease, conditional sale contract, mortgage, license, franchise, insurance
policy, commitment or other arrangement or agreement, whether written or oral.
"Employee Benefit Plan" has the meaning set forth in Section
---------------------
4.11(b) hereof.
"Employees" means all persons employed in the Business,
---------
including any persons on disability, sick leave, layoff or leave of absence from
the Business.
"Environmental Claim" means any allegation, notice of
-------------------
violation, action, claim, Lien, demand, abatement or other Order or direction
(conditional or otherwise) by any Governmental Body or any other Person for
personal injury (including sickness, disease or death), tangible or intangible
property damage, damage to the environment, nuisance, pollution, contamination
or other adverse effects on the environment, or for fines, penalties, or
restrictions resulting from or based upon (a) the existence, or the continuation
of the existence, of a Release (including, without limitation, sudden or
non-sudden accidental or non-accidental Releases) of, or exposure to, any
Hazardous Material or other substance, chemical, material, pollutant,
contaminant, odor, audible noise, or other Release in, into
51
<PAGE>
or onto the environment (including, without limitation, the air, soil, surface
or groundwater) at, in, by, from or related to any of the Leased Real Estate or
any activities conducted thereon; (b) the environmental aspects of the
transportation, storage, treatment or disposal of Hazardous Materials in
connection with the operation of any of the Business; or (iii) the violation, or
alleged violation, of any Environmental Law, Order or Permit of or from any
Governmental Body relating to environmental matters connected with the Business.
"Environmental Law" has the meaning set forth in Section
-----------------
4.17(a).
"ERISA" means the Employee Retirement Income Security Act of
-----
1974, as amended.
"Excluded Assets" has the meaning set forth in Section 1.2
---------------
hereof.
"Financial Statements" has the meaning set forth in Section
--------------------
4.6 hereof.
"GAAP" means generally accepted accounting principles in the
----
United States as in effect from time to time.
"Governmental Body" means any government or governmental or
-----------------
regulatory body thereof, or political subdivision thereof, whether federal,
state, local or foreign, or any agency or instrumentality thereof, or any court
or arbitrator (public or private).
"Hazardous Material" means any substance, material or waste,
------------------
or any constituent thereof, which is regulated by any local Governmental Body,
Governmental Body in any jurisdiction in which the Seller or any Subsidiary or
affiliate of the Seller conducts business, or the United States or other
national government, or is regulated by or forms the basis of liability under
any Environmental Law, including, without limitation, any material or substance
which is defined as a "hazardous waste," "hazardous
52
<PAGE>
material," "hazardous substance," "extremely hazardous waste" or "restricted
hazardous waste," "subject waste," "contaminants," "toxic waste" or "toxic
substance" under any provision of Law, including but not limited to, petroleum
products, asbestos and polychlorinated biphenyls.
"Inactive Employees" has the meaning set forth in Section
------------------
8.1(a) hereof.
"Income Before Taxes" shall mean that amount which is equal to
-------------------
the increase in the income before taxes of the Seller, for the period beginning
December 1, 1996 and ending on the Closing Date. For purposes of such
calculation, the income before taxes of the Seller as of December 1, 1996 are
agreed to be $1,850,212.47, as set forth on Seller's income statement for the
period from July 1, 1996 to November 30, 1996 (the "Income Statement"). For
----------------
purposes of the calculation of Income Before Taxes, such income is calculated
without regard to federal, state or local income taxes. The Income Before Taxes
shall be jointly determined by the respective accountants for Seller and
Purchasers using the same methods employed by Seller's accountants in
determining the income before taxes shown on the Income Statement. If the
respective accountants for Seller and Purchasers cannot agree on the Income
Before Taxes, they shall together select a third accounting firm to render a
binding determination, the costs of which third firm shall be shared equally by
Seller and Purchasers.
"Indemnitee" has the meaning set forth in Section 12.3(a)
----------
hereof.
"Indemnitor" has the meaning set forth in Section 12.3(a)
----------
hereof.
"Initial Balance Sheet" means the unaudited balance sheet of
---------------------
the Business at November 30, 1996, attached as part of Schedule 4.6 hereto.
"Insolvency Event" means any of the following events: (a) any
----------------
Person, pursuant to or within the meaning of any bankruptcy or insolvency law:
(i) commences a
53
<PAGE>
voluntary case; (ii) consents to the entry of an order for relief against it in
an involuntary case; (iii) consents to the appointment of a custodian of it or
for all or substantially all of its property; (iv) makes a general assignment
for the benefit of its creditors; (v) is unable or admits it is unable to pay
its debts as the same become due; (vi) commences, or has commenced against it,
any proceeding for liquidation or dissolution; or (vii) takes any steps to
accomplish any of the foregoing; or (b) a court of competent jurisdiction enters
an order or decree under any bankruptcy or insolvency law that: (i) is for
relief against such Person in an involuntary case; (ii) appoints a custodian of
such Person or for all or substantially all of its property; or (iii) orders the
liquidation or dissolution of such Person.
"Intangible Assets" has the meaning set forth in Section
-----------------
1.1(f) hereof.
"Interest" has the meaning set forth in Section 6.4 hereof.
--------
"Law" means any federal, state, local or foreign law
---
(including common law), statute, code, ordinance, rule, or regulation.
"Leased Real Property" has the meaning set forth in Section
--------------------
1.1(d) hereof.
"Legal Proceeding" means any judicial, administrative or
----------------
arbitral action, suit, proceeding (public or private), claim, investigation or
governmental proceeding.
"Lien" means any lien, pledge, mortgage, deed of trust,
----
security interest, claim, lease, charge, option, right of first refusal,
easement or other real estate declaration, covenant, condition, restriction or
servitude, transfer restriction under any shareholder or similar agreement,
encumbrance or any other restriction or right in favor of any third party.
54
<PAGE>
"Material Adverse Change" means any material adverse change
-----------------------
on, or in, any material portion of the Assets or the business, condition
(financial or otherwise), results of operations or liabilities of the Business.
"Material Adverse Effect" means an effect that results in or
-----------------------
causes, or has a reasonable likelihood of resulting in or causing, a Material
Adverse Change.
"NEC Letter" has the meaning set forth in Section 9.2(k)
----------
hereof.
"Notes" has the meaning set forth in Section 2.1 hereof.
-----
"Notice of Hearing" has the meaning set forth in Section 4.3
-----------------
hereof.
"Order" means any order, injunction, judgment, decree, ruling,
-----
writ, assessment or arbitration award.
"Patent-Related Assets" has the meaning set forth in Section
---------------------
1.1(e) hereof.
"Permit" means any written approval, authorization, consent,
------
franchise, license, permit or certificate by any Governmental Body.
"Permit Application" has the meaning set forth in Section 4.3
------------------
hereof.
"Permitted Exceptions" means (a) statutory Liens for current
--------------------
taxes, assessments or other governmental charges not yet delinquent or the
amount or validity of which is being contested in good faith by appropriate
proceedings, (b) mechanics', carriers', workers', repairers' and similar Liens
arising or incurred in the ordinary course of business that are not in the
aggregate material to the Business or the Assets, (c) zoning, entitlement and
other land use and environmental regulations by Governmental Bodies, provided
that such regulations have not been violated, and (d) purchase money Liens or
purchase money security interests
55
<PAGE>
upon or in any Inventory acquired or held by the Seller in the ordinary course
of business to secure the purchase price of such Inventory or to secure
indebtedness incurred solely for the purpose of financing the acquisition of
such Inventory, as set forth on Schedule 14.1 hereto.
"Person" means any individual, corporation, partnership, firm,
------
joint venture, association, joint-stock company, limited liability company,
trust, unincorporated organization or Governmental Body.
"Purchase Price" has the meaning set forth in Section 2.1
--------------
hereof.
"Purchasers" has the meaning set forth in the recitals hereto.
----------
"Purchaser Documents" has the meaning set forth in Section 5.2
-------------------
hereof.
"Purchaser Representatives" has the meaning set forth in
-------------------------
Section 6.2 hereof.
"Remedial Action" means any action, including, without
---------------
limitation, any capital expenditure, required or voluntarily undertaken to (a)
clean up, remove, treat, or in any other way address any Hazardous Material or
other substance in the indoor or outdoor environment, (b) prevent the Release or
threat of Release, or minimize the further Release of any Hazardous Material or
other substance so it does not migrate or endanger or threaten to endanger
public health or welfare of the indoor or outdoor environment, (c) perform
pre-remedial studies and investigations or post-remedial monitoring and care, or
(d) bring any Asset into compliance with all Environmental Laws and Permits.
"Seller" has the meaning set forth in the recitals hereto.
------
"Seller Documents" has the meaning set forth in Section 4.2
----------------
hereof.
56
<PAGE>
"Tax Returns" shall mean any report, return, information
-----------
return or other information required to be supplied to a taxing authority in
connection with Taxes.
"Taxes" means (i) all federal, state, local or foreign taxes,
-----
charges, fees, imposts, levies or other assessments, including, without
limitation, all net income, gross receipts, capital, sales, use, ad valorem,
value added, transfer, franchise, profits, inventory, capital stock, license,
withholding, payroll, employment, social security, unemployment, excise,
severance, stamp, occupation, property and estimated taxes, customs duties,
fees, assessments and charges of any kind whatsoever, (ii) all interest,
penalties, fines, additions to tax or additional amounts imposed by any taxing
authority in connection with any item described in clause (i) and (iii) any
transferee liability or liability pursuant to contract or other arrangement in
respect of any items described in clauses (i) and/or (ii).
"Transferred Employees" means all Active Employees who accept
---------------------
offers of employment from PG Newco on or after the Closing Date.
"Transferred Plans" has the meaning set forth in Section 8.2
-----------------
hereof.
14.2 Prorations. (a) PG Newco and the Seller hereby agree as
----------
follows with regard to prorations applicable to the consummation of the
transactions contemplated hereby. The parties agree that all operational
expenses incurred directly in the operation of the Business, including, without
limitation, utility bills, the expense of supplies, the expense of fuel, and the
like, shall be prorated between the parties as of the Closing Date, and as of
the Closing Date shall become the obligation and responsibility of PG Newco.
Prorations which are to be effected on the Closing Date shall be made on the
Closing Date or, if such prorations cannot reasonably be made as of the Closing
Date, as soon thereafter as possible and "as of" the Closing Date.
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(b) All personal and real property taxes and special and
general assessments relating to the Assets shall be prorated by the parties as
of the Closing Date, and all such taxes applicable to periods of time prior to
and through such date shall be the sole obligation, responsibility and expense
of the Seller, and shall be paid by the Seller. All such assessments and taxes
applicable to periods following the Closing Date shall be the sole obligation,
responsibility and expense of PG Newco.
14.3 Wavier of Compliance with Bulk Transfer Laws. The
--------------------------------------------
Purchasers hereby waive compliance by Seller with the provisions of the "bulk
sales", "bulk transfer" or similar laws of any state of the United States. The
Seller and each Shareholder Indemnitor hereby jointly and severally indemnify
the Purchasers from any Losses resulting from Seller's failure to comply with
any such "bulk sales," "bulk transfer" or similar laws.
14.4 Intentionally left blank
14.5 Entire Agreements. This Agreement (with its Schedules and
-----------------
Exhibits) contains, and is intended as, a complete statement of all of the terms
and the arrangements between the parties hereto with respect to the matters
provided for herein, and supersedes any and all previous agreements and
understandings between the parties hereto with respect to those matters.
14.6 Governing Law. This Agreement shall be construed in
-------------
accordance with and governed by the laws of the State of Delaware applicable to
agreements made and to be performed in such jurisdiction. Except as expressly
set forth in Article XII hereof, any action to enforce, which arises out of or
in any way relates to, any of the provisions of this Agreement or the
instruments, agreements and other documents contemplated hereby shall be brought
and prosecuted in the courts of the State of Delaware or of the United States
for the District of Delaware. Each party irrevocably: (a) submits to the
exclusive jurisdiction of the aforesaid courts, and (b) waives any objection
which it may have at any time to the laying of venue of any suit,
58
<PAGE>
action or proceeding ("Proceedings") brought in any such court, waives any claim
that such Proceedings have been brought in an inconvenient forum and further
waives the right to object, with respect to such Proceedings, that such court
does not have jurisdiction over such party. The parties irrevocably consent to
service of process given in the manner provided for notices in Section 14.10.
Nothing in this Agreement will affect the right of any party to serve process in
any other manner permitted by law.
14.7 Transfer and Other Taxes. The Seller shall be responsible
------------------------
for the cost of all transfer and documentary taxes and fees imposed with respect
to instruments of conveyance in the transaction contemplated hereby and shall
bear the cost of all sales, use, gains, excise and other transfer or similar
taxes applicable in respect of the transfer of the Assets contemplated
hereunder. The Seller shall execute and deliver to the Purchasers at the Closing
any certificates or other documents as the Purchasers may reasonably request to
perfect any exemption from any such transfer, documentary, sales, gains, excise
or use tax.
14.8 Expenses. Each of the parties hereto shall bear its own
--------
expenses (including, without limitation, fees and disbursements of its counsel,
accountants, investment bankers, brokers and other experts), incurred by it in
connection with the preparation, negotiation, execution, delivery and
performance of this Agreement, each of the other documents and instruments
executed in connection with or contemplated by this Agreement and the
consummation of the transactions contemplated hereby and thereby.
14.9 Table of Contents and Headings. The table of contents and
------------------------------
section headings of this Agreement are for reference purposes only and are to be
given no effect in the construction or interpretation of this Agreement.
14.10 Notices. All notices and other communications under this
-------
Agreement shall be in writing (including, without limitation, telegraphic,
telex, telecopy or cable communication) and mailed, telegraphed, telexed,
telecopied, cabled or delivered by hand or by a nationally
59
<PAGE>
recognized courier service guaranteeing overnight delivery to a party at the
following address (or to such other address as such party may have specified by
notice given to the other party pursuant to this provision):
If to the Seller or any of its stockholders, to:
Peter G. VanHeusden
c/o PG Design Electronics Inc.
48700 Structural Drive
Chesterfield, Michigan 48051
Facsimile: (810) 598-8008
With a copy to:
David J. Wellman, Esq.
Colombo & Colombo
1500 Woodward Avenue, Suite 300
P.O. Box 2028
Bloomfield Hills, Michigan 48303-2028
Facsimile: (810) 645-5418
If to either Purchaser, to:
PG Newco Corp.
c/o Milwaukee Land Company
547 West Jackson Boulevard
Suite 1510
Chicago, Illinois 60661
Attention: Edwin Jacobson
Facsimile: (312) 663-9397
60
<PAGE>
With a copy to:
Raymond O. Gietz, Esq.
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Facsimile: (212) 310-8007
All such notices and communications shall, when mailed, telegraphed, telexed,
telecopied, cabled or delivered, be effective three days after deposit in the
mails, delivered to the telegraph company, confirmed by telex answerback,
telecopied with confirmation of receipt, delivered to the cable company,
delivered by hand to the addressee or one day after delivery to the courier
service.
14.11 Severability. The invalidity or unenforceability of any
------------
provision of this Agreement shall not affect the validly or enforceability of
any other provision of this Agreement, each of which shall remain in full force
and effect.
14.12 Binding Effect; No Assignment. This Agreement shall be binding
-----------------------------
upon and inure to the benefit of the parties and their respective successors and
assigns. Nothing in this Agreement shall create or be deemed to create any third
party beneficiary rights in any person or entity not party to this Agreement. No
assignment of this Agreement or of any rights or obligations hereunder may be
made by any party (by operation of law or otherwise) without the prior written
consent of each of the other parties hereto and any attempted assignment without
such required consents shall be void.
14.13 Amendments. (a) Any provision of this Agreement may be amended
----------
or waived prior to the Closing Date if, and only if, such amendment or waiver is
in writing and signed, (i) in the case of an amendment, by both Purchasers, the
Seller, and the Shareholder Indemnitors, and (ii) in the case of a waiver, by
the party against whom the waiver is to be effective.
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(b) No failure or delay by either party in exercising any right, power
or privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or future exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
14.14 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
62
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this instrument as
of the date and year first above written.
MILWAUKEE LAND COMPANY
By: /s/ Edwin Jacobson
-----------------------------
Name: Edwin Jacobson
Title: President and Chief
Executive Officer
PG NEWCO CORP.
By: /s/ Leon F. Fiorentino
-----------------------------
Name: Leon F. Fiorentino
Title: Vice President - Finance
PG DESIGN ELECTRONICS, INC.
By: /s/ Peter G. VanHeusden
-----------------------------
Name: Peter G. VanHeusden
Title: President
/s/ Peter G. VanHeusden
-----------------------------
Peter G. VanHeusden, as
Shareholder Indemnitor
/s/ Adrian J. VanHeusden
-----------------------------
Adrian J. VanHeusden, as
Shareholder Indemnitor
/s/ Marie VanHeusden
-----------------------------
Marie VanHeusden, as
Shareholder Indemnitor
63
<PAGE>
ASSET PURCHASE AGREEMENT
AMONG
MILWAUKEE LAND COMPANY
AND
PG NEWCO CORP.
as Purchasers
AND
PG DESIGN ELECTRONICS, INC.
as Seller
AND
THE SHAREHOLDER INDEMNITORS NAMED HEREIN
Dated as of April 4, 1997
<PAGE>
Table of Contents
-----------------
Page
----
ARTICLE I
SALE AND PURCHASE OF ASSETS
1.1 Acquisition and Transfer of Assets............................. 1
1.2 Excluded Assets................................................ 4
1.3 Assumed Liabilities............................................ 5
ARTICLE II
PURCHASE PRICE
2.1 Purchase Price and Payment..................................... 5
2.2 Allocation of Purchase Price................................... 6
ARTICLE III
THE CLOSING
3.1 Closing Date................................................... 6
3.2 Proceedings at Closing......................................... 6
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SELLER AND THE
SHAREHOLDER INDEMNITORS
4.1 Organization, Good Standing and Corporate Records.............. 7
4.2 Authorization of Agreement..................................... 8
4.3 No Violations; Consents........................................ 8
4.4 Title to Assets Other than Leased Real Property................ 9
4.5 Leased Real Property........................................... 9
4.6 Financial Statements........................................... 10
4.7 Absence of Certain Developments................................ 11
4.8 Material Contracts............................................. 13
4.9 Intangible Property............................................ 14
4.10 Tax and Other Returns and Reports............................. 14
4.11 Employees and Employee Benefits............................... 16
4.12 Litigation.................................................... 17
4.13 Compliance with Law........................................... 17
(i)
<PAGE>
Page
----
4.14 Receivables................................................... 17
4.15 Inventory..................................................... 18
4.16 Assets Necessary to Conduct Business.......................... 18
4.17 Environmental Matters......................................... 18
4.18 Brokers....................................................... 18
4.19 Permits....................................................... 19
4.20 Ownership; Subsidiaries....................................... 19
4.21 No Undisclosed Liabilities.................................... 20
4.22 Insurance..................................................... 20
4.23 Related Party Transactions.................................... 20
4.24 Customers and Suppliers....................................... 20
4.25 Banks......................................................... 21
4.26 No Misrepresentation.......................................... 21
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
5.1 Organization and Good Standing................................. 21
5.2 Authorization of Agreement..................................... 21
5.3 No Violations; Consents........................................ 22
5.4 Litigation..................................................... 23
5.5 Brokers........................................................ 23
ARTICLE VI
COVENANTS OF THE SELLER AND THE SHAREHOLDER INDEMNITORS
6.1 Cooperation.................................................... 23
6.2 Access to the Shareholder Indemnitors'
Documents; Opportunity to Ask Questions..................... 24
6.3 Conduct of Business............................................ 24
6.4 Consents and Conditions; Assignment of Assets.................. 27
6.5 Notices of Certain Events...................................... 28
6.6 Non-Competition Agreement...................................... 28
ARTICLE VII
COVENANTS OF THE PURCHASER
7.1 Reasonable Best Efforts........................................ 29
7.2 Consents and Conditions........................................ 29
ARTICLE VIII
COVENANTS RELATING TO EMPLOYMENT AND EMPLOYEE MATTERS
(ii)
<PAGE>
Page
----
8.1 Offer of Employment............................................ 29
8.2 Health Plan Benefits........................................... 30
ARTICLE IX
CONDITIONS PRECEDENT TO THE PURCHASERS' OBLIGATIONS
9.1 Representations, Warranties and Covenants...................... 30
9.2 Deliveries by the Seller to the Purchasers..................... 30
9.3 No Prohibition................................................. 32
9.4 No Proceeding or Litigation.................................... 32
9.5 Regulatory Approvals........................................... 32
9.6 Due Diligence Investigation.................................... 32
9.7 MLC Stockholder Approval....................................... 32
9.8 MLC Board Approval............................................. 32
ARTICLE X
CONDITIONS PRECEDENT TO THE SELLER'S OBLIGATIONS
10.1 Representations, Warranties and Covenants..................... 33
10.2 Deliveries by the Purchasers to the Seller.................... 33
10.3 No Prohibition................................................ 33
10.4 No Proceeding or Litigation................................... 34
10.5 Regulatory Approvals.......................................... 34
ARTICLE XI
ADDITIONAL COVENANTS
11.1 Further Assurances............................................. 34
11.2 Public Announcements........................................... 35
11.3 Joint Post-Closing Covenant of the Seller and
the Purchasers............................................. 35
11.4 Books and Records; Personnel................................... 36
ARTICLE XII
INDEMNIFICATION AND RELATED MATTERS
12.1 Indemnification............................................... 37
12.2 Survival of Representations and Warranties.................... 40
12.3 Indemnification Procedures.................................... 40
12.4 Tax Matters................................................... 41
ARTICLE XIII
(iii)
<PAGE>
Page
----
TERMINATION
13.1 Termination................................................... 43
13.2 Liabilities After Termination................................. 43
ARTICLE XIV
MISCELLANEOUS
14.1 Certain Definitions........................................... 43
14.2 Prorations.................................................... 50
14.3 Waiver of Compliance with Bulk Transfer Laws.................. 51
14.4 Intentionally left blank...................................... 51
14.5 Entire Agreement.............................................. 51
14.6 Governing Law................................................. 51
14.7 Transfer and Other Taxes...................................... 51
14.8 Expenses...................................................... 52
14.9 Table of Contents and Headings................................ 52
14.10 Notices...................................................... 52
14.11 Severability................................................. 53
14.12 Binding Effect; No Assignment................................ 53
14.13 Amendments................................................... 53
14.14 Counterparts................................................. 54
SCHEDULES AND EXHIBITS
Schedule 1.1(d) -- Leased Real Property
Schedule 1.1(e) -- Patents and Patent Applications
Schedule 1.1(f) -- Intangible Assets
Schedule 1.1(i) -- Permits
Schedule 1.1(j) -- Included Contracts
Schedule 1.2(b) -- Excluded Contracts
Schedule 1.2(f) -- Excluded Assets
Schedule 4.1 -- Foreign Qualifications
Schedule 4.3 -- Consents
Schedule 4.6 -- Financial Statements
Schedule 4.7(d) -- Severance Agreement
Schedule 4.7(e) -- Contracts for Equipment
Schedule 4.7(k) -- Capital Expenditures
Schedule 4.7(m) -- Certain Distributions
Schedule 4.10 -- Tax Returns and Other Reports
Schedule 4.11(b)(i) -- Employee Benefit Plans
(iv)
<PAGE>
Schedule 4.11(b)(ii) -- Employment and Severance Contracts
Schedule 4.12 -- Litigation
Schedule 4.18 -- Brokers
Schedule 4.22 -- Insurance Policies
Schedule 4.23 -- Related Party Transactions
Schedule 4.24 -- Customers and Suppliers
Schedule 4.25 -- Banks
Schedule 6.3(b)(viii) -- Material Properties and Assets
Schedule 8.1 -- Certain Employees
Schedule 14.1 -- Purchase Money Liens
Exhibit A -- Form of Employment Agreement
Exhibit B -- Purchase Price Allocation
Exhibit C -- Form of Bill of Sale
Exhibit D -- Form of Opinion of Seller's Counsel
Exhibit E -- Form of Non-Competition Agreement
Exhibit F -- Form of Assumption Agreement
Exhibit G -- Form of Notes
(v)
<PAGE>
EXHIBIT 10.9
MILWAUKEE LAND COMPANY
1997 INCENTIVE AND CAPITAL ACCUMULATION PLAN
1. Purpose. The Milwaukee Land Company 1997 Incentive and Capital
Accumulation Plan (the "Plan") is intended to provide incentives which will
attract, retain and motivate highly competent persons as key employees of
Milwaukee Land Company (the "Company") and of any subsidiary corporation now
existing or hereafter formed or acquired, by providing them opportunities to
acquire shares of the common stock, par value $0.30 per share, of the Company
("Common Stock") or to receive monetary payments based on the value of such
shares pursuant to the Benefits (as defined below) described herein.
Furthermore, the Plan is intended to assist in aligning the interests of the
Company's key employees to those of its stockholders.
2. Administration.
(a) The Plan will be administered by a committee of the Board of
Directors of the Company (the "Board") or a subcommittee of a committee of the
Board (which may be the Company's Compensation Committee), appointed by the
Board from among its members (the "Committee"), and shall be comprised solely of
not less than two members who shall be (i) "Non-Employee Directors" within the
meaning of Rule 16b-3(b)(3) (or any successor rule) promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and (ii) unless
otherwise determined by the Board of Directors, "outside directors" within the
meaning of Treasury Regulation Section 1.162-27(e)(3) under Section 162(m) of
the Internal Revenue Code of 1986, as amended (the "Code"). The Committee is
authorized, subject to the provisions of the Plan, to establish such rules and
regulations as it deems necessary for the proper administration of the Plan and
to make such determinations and interpretations and to take such action in
connection with the Plan and any Benefits (as defined below) granted hereunder
as it deems necessary or advisable. All determinations and interpretations made
by the Committee shall be binding and conclusive on all participants and their
legal representatives. No member of the Board of Directors, no member of the
Committee and no employee of the Company shall be liable for any act or failure
to act hereunder, except in circumstances involving his or her bad faith, gross
negligence or willful misconduct, or for any act or failure to act hereunder by
any other member or employee or by any agent to whom duties in connection with
the administration of this Plan have been delegated. The Company shall indemnify
members of the Committee and any agent of the Committee who is an employee of
the Company, against any and all liabilities or expenses to which they may be
subjected by reason of any act or failure to act with respect to their duties on
behalf of the Plan, except in circumstances involving such person's bad faith,
gross negligence or willful misconduct.
(b) The Committee may delegate to one or more of its members, or to one
or more agents, such administrative duties as it may deem advisable, and the
Committee, or any person to whom it has delegated duties as aforesaid, may
employ one or more persons to render advice with respect to any responsibility
the Committee or such person may have under the Plan. The Committee may employ
such legal or other counsel, consultants and agents as it may deem desirable for
the administration of the Plan and may rely upon any opinion or computation
received from any such counsel, consultant or agent. Expenses incurred by the
Committee in the engagement of such counsel, consultant or agent shall be paid
by the Company, or the subsidiary or affiliate whose employees have benefitted
from the Plan, as determined by the Committee.
<PAGE>
3. Participants. Participants will consist of such key employees of
the Company and any subsidiary corporation of the Company as the Committee in
its sole discretion determines to be in a position to impact the success and
future growth and profitability of the Company and whom the Committee may
designate from time to time to receive Benefits under the Plan. Designation of a
participant in any year shall not require the Committee to designate such person
to receive a Benefit in any other year or, once designated, to receive the same
type or amount of Benefit as granted to the participant in any other year. The
Committee shall consider such factors as it deems pertinent in selecting
participants and in determining the type and amount of their respective
Benefits.
4. Type of Benefits. Benefits under the Plan may be granted in any one
or a combination of (a) Stock Options, (b) Stock Appreciation Rights, (c) Stock
Awards, (d) Performance Awards, and (e) Stock Units (each as described below,
and collectively, the "Benefits"). Stock Awards, Performance Awards, and Stock
Units may, as determined by the Committee in its discretion, constitute
Performance-Based Awards, as described in Section 11 below. Benefits shall be
evidenced by agreements (which need not be identical) in such forms as the
Committee may from time to time approve; provided, however, that in the event of
any conflict between the provisions of the Plan and any such agreements, the
provisions of the Plan shall prevail.
5. Common Stock Available Under the Plan. The aggregate number of
shares of Common Stock that may be subject to Benefits, including Stock Options,
granted under this Plan shall be 175,000 shares of Common Stock, which may be
authorized and unissued or treasury shares, subject to any adjustments made in
accordance with Section 12 hereof. The maximum number of shares of Common Stock
with respect to which Benefits may be granted or measured to any individual
participant under the Plan during the term of the Plan shall not exceed 175,000,
provided, however, that the maximum number of shares of Common Stock with
respect to which Stock Options and Stock Appreciation Rights may be granted to
an individual participant under the Plan during the term of the Plan shall not
exceed 175,000 (in each case, subject to adjustments made in accordance with
Section 12 hereof). Other than those shares of Common Stock subject to Benefits
that are cancelled or terminated as a result of the Committee's exercise of its
discretion with respect to Performance-Based Awards as provided for in Section
11, any shares of Common Stock subject to a Stock Option or Stock Appreciation
Right which for any reason is cancelled or terminated without having been
exercised, any shares subject to Stock Awards, Performance Awards or Stock Units
which are forfeited, any shares subject to Performance Awards settled in cash or
any shares delivered to the Company as part or full payment for the exercise of
a Stock Option or Stock Appreciation Right shall again be available for Benefits
under the Plan. The preceding sentence shall apply only for purposes of
determining the aggregate number of shares of Common Stock subject to Benefits
but shall not apply for purposes of determining the maximum number of shares of
Common Stock with respect to which Benefits (including the maximum number of
shares of Common Stock subject to Stock Options and Stock Appreciation Rights)
that may be granted to any individual participant under the Plan.
6. Stock Options. Stock Options will consist of awards from the
Company that will enable the holder to purchase a specific number of shares of
Common Stock, at set terms and at a fixed purchase price. Stock Options may be
"incentive stock options" ("Incentive Stock Options"), within the meaning of
Section 422 of the Code, or Stock Options which do not constitute Incentive
Stock Options ("Nonqualified Stock Options"). The Committee will have the
authority to grant to any participant one or more Incentive Stock Options,
Nonqualified Stock Options, or both types of Stock Options (in each case with or
without Stock
2
<PAGE>
Appreciation Rights). Each Stock Option shall be subject to such terms and
conditions consistent with the Plan as the Committee may impose from time to
time, subject to the following limitations:
(a) Exercise Price. Each Stock Option granted hereunder shall have
such per-share exercise price as the Committee may determine at the
date of grant; provided, however, subject to subsection (d) below, that
the per-share exercise price shall not be less than 100% of the Fair
Market Value (as defined below) of the Common Stock on the date the
option is granted.
(b) Payment of Exercise Price. The option exercise price may be
paid in cash or, in the discretion of the Committee determined at the
date of grant, by the delivery of shares of Common Stock of the Company
then owned by the participant, by the withholding of shares of Common
Stock for which a Stock Option is exercisable, by delivering to the
Company an executed promissory note (or such other form of
indebtedness) on such terms and conditions as the Committee shall
determine in its sole discretion at the date of grant, or by a
combination of these methods. In the discretion of the Committee
determined at the date of grant, payment may also be made by delivering
a properly executed exercise notice to the Company together with a copy
of irrevocable instructions to a broker to deliver promptly to the
Company the amount of sale or loan proceeds to pay the exercise price.
To facilitate the foregoing, the Company may enter into agreements for
coordinated procedures with one or more brokerage firms. The Committee
may prescribe any other method of paying the exercise price that it
determines to be consistent with applicable law and the purpose of the
Plan, including, without limitation, in lieu of the exercise of a Stock
Option by delivery of shares of Common Stock of the Company then owned
by a participant, providing the Company with a notarized statement
attesting to the number of shares owned, where, upon verification by
the Company, the Company would issue to the participant only the number
of incremental shares to which the participant is entitled upon
exercise of the Stock Option. In determining which methods a
participant may utilize to pay the exercise price, the Committee may
consider such factors as it determines are appropriate.
(c) Exercise Period. Stock Options granted under the Plan shall be
exercisable at such time or times and subject to such terms and
conditions as shall be determined by the Committee; provided, however,
that no Stock Option shall be exercisable later than ten years after
the date it is granted. All Stock Options shall terminate at such
earlier times and upon such conditions or circumstances as the
Committee shall in its discretion set forth in such option agreement at
the date of grant.
(d) Limitations on Incentive Stock Options. Incentive Stock
Options may be granted only to participants who are employees of the
Company or subsidiary corporation of the Company at the date of grant.
The aggregate market value (determined as of the time the option is
granted) of the Common Stock with respect to which Incentive Stock
Options are exercisable for the first time by a participant during any
calendar year (under all option plans of the Company) shall not exceed
$100,000. For purposes of the preceding sentence, (i) Incentive Stock
Options will be taken into account in the order in which they are
granted and (ii) Incentive Stock Options granted before 1987 shall not
be taken into account. Incentive Stock Options may not be granted to
any participant who, at the time of grant, owns stock possessing (after
the application of the attribution rules of Section 424(d) of the Code)
more than 10% of the total combined voting power of all outstanding
classes of
3
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stock of the Company or any subsidiary corporation of the Company,
unless the option price is fixed at not less than 110% of the Fair
Market Value of the Common Stock on the date of grant and the exercise
of such option is prohibited by its terms after the expiration of five
years from the date of grant of such option. Notwithstanding anything
to the contrary contained herein, no Incentive Stock Option may be
exercised later than ten years after the date it is granted. In
addition, no Incentive Stock Option shall be issued to a participant in
tandem with a Nonqualified Stock Option.
7. Stock Appreciation Rights. The Committee may, in its discretion,
grant Stock Appreciation Rights to the holders of any Stock Options granted
hereunder. In addition, Stock Appreciation Rights may be granted independently
of, and without relation to, options. A Stock Appreciation Right means a right
to receive a payment, in cash, Common Stock or a combination thereof, in an
amount equal to the excess of (x) the Fair Market Value, or other specified
valuation, of a specified number of shares of Common Stock on the date the right
is exercised over (y) the Fair Market Value, or other specified valuation (which
shall be no less than the Fair Market Value), of such shares of Common Stock on
the date the right is granted, all as determined by the Committee; provided,
however, that if a Stock Appreciation Right is granted retroactively in tandem
with or in substitution for a Stock Option, the designated Fair Market Value in
the award agreement may be the Fair Market Value on the date such Stock Option
was granted. Each Stock Appreciation Right shall be subject to such terms and
conditions as the Committee shall impose from time to time.
8. Stock Awards. The Committee may, in its discretion, grant Stock
Awards (which may include mandatory payment of bonus incentive compensation in
stock) consisting of Common Stock issued or transferred to participants with or
without other payments therefor as additional compensation for services to the
Company. Stock Awards may be subject to such terms and conditions as the
Committee determines appropriate, including, without limitation, restrictions on
the sale or other disposition of such shares, the right of the Company to
reacquire such shares for no consideration upon termination of the participant's
employment within specified periods, and may constitute Performance-Based
Awards, as described below. The Committee may require the participant to deliver
a duly signed stock power, endorsed in blank, relating to the Common Stock
covered by such an Award. The Committee may also require that the stock
certificates evidencing such shares be held in custody or bear restrictive
legends until the restrictions thereon shall have lapsed. The Stock Award shall
specify whether the participant shall have, with respect to the shares of Common
Stock subject to a Stock Award, all of the rights of a holder of shares of
Common Stock of the Company, including the right to receive dividends and to
vote the shares.
9. Performance Awards.
(a) Performance Awards may be granted to participants at any time and
from time to time, as shall be determined by the Committee. Performance Awards
may, as determined by the Committee in its sole discretion, constitute
Performance-Based Awards. The Committee shall have complete discretion in
determining the number, amount and timing of awards granted to each participant.
Such Performance Awards may be in the form of shares of Common Stock or Stock
Units. Performance Awards may be awarded as short-term or long-term incentives.
With respect to those Performance Awards that are intended to constitute
Performance-Based Awards, the Committee shall set performance targets at its
discretion which, depending on the extent to which they are met, will determine
the number and/or value of
4
<PAGE>
Performance Awards that will be paid out to the participants, and may attach to
such Performance Awards one or more restrictions. Performance targets may be
based upon, without limitation, Company-wide, divisional and/or individual
performance.
(b) With respect to those Performance Awards that are not intended to
constitute Performance-Based Awards, the Committee shall have the authority at
any time to make adjustments to performance targets for any outstanding
Performance Awards which the Committee deems necessary or desirable unless at
the time of establishment of goals the Committee shall have precluded its
authority to make such adjustments.
(c) Payment of earned Performance Awards shall be made in accordance
with terms and conditions prescribed or authorized by the Committee. The
participant may elect to defer, or the Committee may require or permit the
deferral of, the receipt of Performance Awards upon such terms as the Committee
deems appropriate.
10. Stock Units.
(a) The Committee may, in its discretion, grant Stock Units to
participants hereunder. Stock Units may, as determined by the Committee in its
sole discretion, constitute Performance-Based Awards. The Committee shall
determine the criteria for the vesting of Stock Units. A Stock Unit granted by
the Committee shall provide payment in shares of Common Stock at such time as
the award agreement shall specify. Shares of Common Stock issued pursuant to
this Section 10 may be issued with or without other payments therefor as may be
required by applicable law or such other consideration as may be determined by
the Committee. The Committee shall determine whether a participant granted a
Stock Unit shall be entitled to a Dividend Equivalent Right (as defined below).
(b) Upon vesting of a Stock Unit, unless the Committee has determined
to defer payment with respect to such unit or a Participant has elected to defer
payment under subsection (c) below, shares of Common Stock representing the
Stock Units shall be distributed to the participant unless the Committee, with
the consent of the participant, provides for the payment of the Stock Units in
cash or partly in cash and partly in shares of Common Stock equal to the value
of the shares of Common Stock which would otherwise be distributed to the
participant.
(c) Prior to the year with respect to which a Stock Unit may vest, the
participant may elect not to receive Common Stock upon the vesting of such Stock
Unit and for the Company to continue to maintain the Stock Unit on its books of
account. In such event, the value of a Stock Unit shall be payable in shares of
Common Stock pursuant to the agreement of deferral.
(d) A "Stock Unit" means a notational account representing one share of
Common Stock. A "Dividend Equivalent Right" means the right to receive the
amount of any dividend paid on the share of Common Stock underlying a Stock
Unit, which shall be payable in cash or in the form of additional Stock Units.
5
<PAGE>
11. Performance-Based Awards. Certain Benefits granted under the Plan
may be granted in a manner such that the Benefits qualify for the
performance-based compensation exemption of Section 162(m) of the Code
("Performance-Based Awards"). As determined by the Committee in its sole
discretion, either the granting or vesting of such Performance-Based Awards are
to be based upon one or more of the following factors: net sales, pretax income
before allocation of corporate overhead and bonus, budget, earnings per share,
net income, division, group or corporate financial goals, return on
stockholders' equity, return on assets, attainment of strategic and operational
initiatives, appreciation in and/or maintenance of the price of the Common Stock
or any other publicly-traded securities of the Company, market share, gross
profits, earnings before interest and taxes, earnings before interest, taxes,
dividends and amortization, economic value-added models and comparisons with
various stock market indices, reductions in costs or any combination of the
foregoing. With respect to Performance-Based Awards, (i) the Committee shall
establish in writing (x) the objective performance-based goals applicable to a
given period and (y) the individual employees or class of employees to which
such performance-based goals apply no later than 90 days after the commencement
of such period (but in no event after 25% of such period has elapsed) and (ii)
no Performance-Based Awards shall be payable to or vest with respect to, as the
case may be, any participant for a given period until the Committee certifies in
writing that the objective performance goals (and any other material terms)
applicable to such period have been satisfied. With respect to any Benefits
intended to qualify as Performance-Based Awards, after establishment of a
performance goal, the Committee shall not revise such performance goal or
increase the amount of compensation payable thereunder (as determined in
accordance with Section 162(m) of the Code) upon the attainment of such
performance goal. Notwithstanding the preceding sentence, the Committee may
reduce or eliminate the number of shares of Common Stock or cash granted or the
number of shares of Common Stock vested upon the attainment of such performance
goal.
12. Adjustment Provisions; Change in Control.
(a) If there shall be any change in the Common Stock of the Company,
through merger, consolidation, reorganization, recapitalization, stock dividend,
stock split, reverse stock split, split up, spinoff, combination of shares,
exchange of shares, dividend in kind or other like change in capital structure
or distribution (other than normal cash dividends) to stockholders of the
Company, an adjustment shall be made to each outstanding Stock Option and Stock
Appreciation Right such that each such Stock Option and Stock Appreciation Right
shall thereafter be exercisable for such securities, cash and/or other property
as would have been received in respect of the Common Stock subject to such Stock
Option or Stock Appreciation Right had such Stock Option or Stock Appreciation
Right been exercised in full immediately prior to such change or distribution,
and such an adjustment shall be made successively each time any such change
shall occur. In addition, in the event of any such change or distribution, in
order to prevent dilution or enlargement of participants' rights under the Plan,
the Committee will have authority to adjust, in an equitable manner, the number
and kind of shares that may be issued under the Plan, the exercisability and
vesting pensions of such Benefits, the number and kind of shares subject to
outstanding Benefits, the exercise price applicable to outstanding Benefits, and
the Fair Market Value of the Common Stock and other value determinations
applicable to outstanding Benefits. Appropriate adjustments may also be made by
the Committee in the terms of any Benefits under the Plan to reflect such
changes or distributions and to modify any other terms of outstanding Benefits
on an equitable basis, including modifications of performance targets and
changes in the length of performance periods. In addition, other than with
respect to Stock
6
<PAGE>
Options, Stock Appreciation Rights and other awards intended to constitute
Performance-Based Awards, the Committee is authorized to make adjustments to the
terms and conditions of, and the criteria included in, Benefits in recognition
of unusual or nonrecurring events affecting the Company or the financial
statements of the Company, or in response to changes in applicable laws,
regulations, or accounting principles. Notwithstanding the foregoing, (i) any
adjustment with respect to an Incentive Stock Option shall comply with the rules
of Section 424(a) of the Code, and (ii) in no event shall any adjustment be made
which would render any Incentive Stock Option granted hereunder other than an
incentive stock option for purposes of Section 422 of the Code.
(b) In the event of a Change in Control (as defined below), the
Committee, in its discretion, may take such actions as it deems appropriate with
respect to outstanding Benefits, including, without limitation, accelerating the
exercisability or vesting of such Benefits.
The Committee, in its discretion, may determine that, upon the
occurrence of a Change in Control of the Company, each Stock Option and Stock
Appreciation Right outstanding hereunder shall terminate within a specified
number of days after notice to the holder, and such holder shall receive, with
respect to each share of Common Stock subject to such Stock Option or Stock
Appreciation Right, an amount equal to the excess of the Fair Market Value of
such shares of Common Stock immediately prior to the occurrence of such Change
in Control over the exercise price per share of such Stock Option or Stock
Appreciation Right; such amount to be payable in cash, in one or more kinds of
property (including the property, if any, payable in the transaction) or in a
combination thereof, as the Committee, in its discretion, shall determine.
For purposes of this Section 12(b), a "Change in Control" of the
Company shall be deemed to have occurred upon any of the following events:
(A) A person or entity or group of persons or entities, acting in
concert, shall become the direct or indirect beneficial owner (within
the meaning of Rule 13d-3 of the Exchange Act) of securities of the
Company representing fifty-one percent (51%) or more of the combined
voting power of the issued and outstanding common stock of the Company
(a "Significant Owner"), unless such shares are originally issued to
such Significant Owner by the Company; or
(B) The majority of the Company's Board of Directors is no longer
comprised of the incumbent directors who constitute the Board of
Directors on the Effective Date (as hereinafter defined) and any other
individual(s) who becomes a director subsequent to the Effective Date
whose initial election or nomination for election as a director, as the
case may be, was approved by at least a majority of the directors who
comprised the incumbent directors as of the date of such election or
nomination; or
(C) A sale of all or substantially all of the assets of the
Company; or
(D) The Board of Directors shall approve any merger,
consolidation, or like business combination or reorganization of the
Company, the consummation of which would result in the occurrence of
any event described in clause (C) above, and such transaction shall
have been consummated.
7
<PAGE>
13. Transferability. Each Benefit granted under the Plan to a
participant shall not be transferable otherwise than by will or the laws of
descent and distribution, and shall be exercisable, during the participant's
lifetime, only by the participant. In the event of the death of a participant,
each Stock Option or Stock Appreciation Right theretofore granted to him or her
shall be exercisable during such period after his or her death as the Committee
shall in its discretion set forth in such option or right at the date of grant
and then only by the executor or administrator of the estate of the deceased
participant or the person or persons to whom the deceased participant's rights
under the Stock Option or Stock Appreciation Right shall pass by will or the
laws of descent and distribution. Notwithstanding the foregoing, at the
discretion of the Committee, an award of a Benefit other than an Incentive Stock
Option may permit the transferability of a Benefit by a participant solely to
the participant's spouse, siblings, parents, children and grandchildren or
trusts for the benefit of such persons or partnerships, corporations, limited
liability companies or other entities owned solely by such persons, including
trusts for such persons, subject to any restriction included in the award of the
Benefit.
14. Other Provisions. The award of any Benefit under the Plan may also
be subject to such other provisions (whether or not applicable to the Benefit
awarded to any other participant) as the Committee determines, at the date of
grant, appropriate, including, without limitation, for the installment purchase
of Common Stock under Stock Options, for the installment exercise of Stock
Appreciation Rights, to assist the participant in financing the acquisition of
Common Stock, for the forfeiture of, or restrictions on resale or other
disposition of, Common Stock acquired under any form of Benefit, for the
acceleration of exercisability or vesting of Benefits in the event of a change
in control of the Company, for the payment of the value of Benefits to
participants in the event of a change in control of the Company, or to comply
with federal and state securities laws, or understandings or conditions as to
the participant's employment in addition to those specifically provided for
under the Plan.
15. Fair Market Value. For purposes of this Plan and any Benefits
awarded hereunder, Fair Market Value shall be the closing price of the Company's
Common Stock on the date of calculation (or on the last preceding trading date
if Common Stock was not traded on such date) if the Company's Common Stock is
readily tradeable on a national securities exchange or other market system, and
if the Company's Common Stock is not readily tradeable, Fair Market Value shall
mean the amount determined in good faith by the Committee as the fair market
value of the Common Stock of the Company.
16. Withholding. All payments or distributions of Benefits made
pursuant to the Plan shall be net of any amounts required to be withheld
pursuant to applicable federal, state and local tax withholding requirements. If
the Company proposes or is required to distribute Common Stock pursuant to the
Plan, it may require the recipient to remit to it or to the corporation that
employs such recipient an amount sufficient to satisfy such tax withholding
requirements prior to the delivery of any certificates for such Common Stock. In
lieu thereof, the Company or the employing corporation shall have the right to
withhold the amount of such taxes from any other sums due or to become due from
such corporation to the recipient as the Committee shall prescribe. The
Committee may, in its discretion and subject to such rules as it may adopt
(including any as may be required to satisfy applicable tax and/or non-tax
regulatory requirements), permit an optionee or award or right holder to pay all
or a portion of the federal, state and local withholding taxes arising in
connection with any Benefit consisting of shares of Common Stock by electing to
have the
8
<PAGE>
Company withhold shares of Common Stock having a Fair Market Value equal to the
amount of tax to be withheld, such tax calculated at rates required by statute
or regulation.
17. Tenure. A participant's right, if any, to continue to serve the
Company as a director, officer, employee, or otherwise, shall not be enlarged or
otherwise affected by his or her designation as a participant under the Plan.
18. Unfunded Plan. Participants shall have no right, title, or interest
whatsoever in or to any investments which the Company may make to aid it in
meeting its obligations under the Plan. Nothing contained in the Plan, and no
action taken pursuant to its provisions, shall create or be construed to create
a trust of any kind, or a fiduciary relationship between the Company and any
participant, beneficiary, legal representative or any other person. To the
extent that any person acquires a right to receive payments from the Company
under the Plan, such right shall be no greater than the right of an unsecured
general creditor of the Company. All payments to be made hereunder shall be paid
from the general funds of the Company and no special or separate fund shall be
established and no segregation of assets shall be made to assure payment of such
amounts except as expressly set forth in the Plan. The Plan is not intended to
be subject to the Employee Retirement Income Security Act of 1974, as amended.
19. No Fractional Shares. No fractional shares of Common Stock shall be
issued or delivered pursuant to the Plan or any Benefit. The Committee shall
determine whether cash, or Benefits, or other property shall be issued or paid
in lieu of fractional shares or whether such fractional shares or any rights
thereto shall be forfeited or otherwise eliminated.
20. Duration, Amendment and Termination. No Benefit shall be granted
more than ten years after the Effective Date; provided, however, that the terms
and conditions applicable to any Benefit granted prior to such date may
thereafter be amended or modified by mutual agreement between the Company and
the participant or such other persons as may then have an interest therein. The
Committee may amend the Plan from time to time or suspend or terminate the Plan
at any time. However, no action authorized by this Section 20 shall reduce the
amount of any existing Benefit or change the terms and conditions thereof
without the participant's consent. No amendment of the Plan shall, without
approval of the stockholders of the Company, (i) increase the total number of
shares which may be issued under the Plan or the maximum number of shares with
respect to Stock Options, Stock Appreciation Rights and other Benefits that may
be granted to any individual under the Plan or (ii) modify the requirements as
to eligibility for Benefits under the Plan; provided, however, that no amendment
may be made without approval of the stockholders of the Company if the amendment
will disqualify any Incentive Stock Options granted hereunder.
21. Governing Law. This Plan, Benefits granted hereunder and actions
taken in connection herewith shall be governed and construed in accordance with
the laws of the State of Delaware (regardless of the law that might otherwise
govern under applicable Delaware principles of conflict of laws).
22. Effective Date. (a) The Plan shall be effective as of April 4,
1997, the date on which the Plan was adopted by the Committee (the "Effective
Date"), provided that the Plan is approved by the stockholders of the Company at
an annual meeting or any special meeting of stockholders of the Company within
12 months of the Effective Date, and such approval of stockholders shall be a
condition to the right
9
<PAGE>
of each participant to receive any Benefits hereunder. Any Benefits granted
under the Plan prior to such approval of stockholders shall be effective as of
the date of grant (unless, with respect to any Benefit, the Committee specifies
otherwise at the time of grant), but no such Benefit may be exercised or settled
and no restrictions relating to any Benefit may lapse prior to such stockholder
approval, and if stockholders fail to approve the Plan as specified hereunder,
any such Benefit shall be cancelled.
(b) This Plan shall terminate on April 3, 2007 (unless sooner
terminated by the Committee).
10
<PAGE>
EXHIBIT 10.10
GE Capital Commercial Finance
This LOAN AND SECURITY AGREEMENT is dated as of May 29, 1997, and agreed
to by and between PG Newco Corp., a Delaware corporation ("Borrower"), and
GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation ("Lender").
RECITALS
A. The purpose of this Agreement is to provide to Borrower a revolving
credit loan (including a subfacility for letters of credit) (collectively, the
"Loans") having the following general description:
- - --------------------------------------------------------------------------------
TRANSACTION SUMMARY
REVOLVING CREDIT LOAN
Maximum Amount: $7,000,000
--------------
Term: 3 years
----
Revolving Credit Rate: Index Rate plus 2.75%
---------------------
Letter of Credit Subfacility: $500,000
----------------------------
Borrowing Base: 85% (or such lesser percentage as may be
-------------- specified by Lender from time to time by
written notice to Borrower) of the value
(as determined by Lender) of Borrower's
Eligible Accounts; plus the lesser of (a)
----
$3,000,000 or (b) the sum of (i) 50% (or
such lesser percentage as may be specified
by Lender from time to time by written
notice to Borrower) of the value of
Borrower's Eligible Inventory consisting of
raw material, and (ii) the lesser of (A)
$500,000, and (B) the WIP Advance Rate (or
such lesser percentage as may be specified
by Lender from time to time by written
notice to Borrower) multiplied by the value
of Borrower's Eligible Inventory consisting
of work in process, valued on a first-in,
first-out basis (at the lower of cost or
market). On and after May 31, 1998, work in
process shall not be included in the
Borrowing Base. Finished goods shall not at
any time be included in the Borrowing Base.
Collection Days: 0 Business Days
---------------
FEES
Closing Fee: $30,000
-----------
Collateral Monitoring Fee: $500 per month
-------------------------
Unused Line Fee: .375% per annum
---------------
Letter of Credit Fee: 1.50% per annum
--------------------
Prepayment Fee: 3.0% in year one; 2.0% in year two; and
-------------- 1.0% in year three.
The Loans described generally here are established and governed by the terms and
conditions set forth below in this Agreement and the other Loan Documents, and
if there is any conflict between this general description and the express terms
and conditions below or elsewhere in the Loan Documents, such other express
terms and conditions shall control.
- - --------------------------------------------------------------------------------
B. Borrower desires to obtain the Loans and other financial accommodations
from Lender and Lender is willing to provide the Loans and accommodations all in
accordance with the terms of this Agreement.
C. Capitalized terms used herein shall have the meanings assigned to them
in Schedule A and, for purposes of this Agreement and the other Loan Documents,
----------
the rules of construction set forth in Schedule A shall govern. All Schedules,
----------
Disclosure Schedules, Attachments and Exhibits (collectively, "Appendices")
hereto, or expressly identified to this Agreement, are incorporated herein by
reference, and taken together, constitute but a single agreement. Unless
otherwise expressly set forth herein, or in a written amendment referring to
such Appendices, all Appendices referred to herein shall mean the Appendices as
in effect on the Closing Date. These Recitals shall be construed as part of this
Agreement.
<PAGE>
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter contained, the parties hereto agree as follows:
1. AMOUNT AND TERMS OF CREDIT
1.1. Loans.
-----
(a) Subject to the terms and conditions of this Agreement,
from the Closing Date and until the Commitment Termination Date (i) Lender
agrees (A) to make available advances (each, a "Revolving Credit Advance") and
(B) to incur Letter of Credit Obligations, in an aggregate outstanding amount
not to exceed the Borrowing Availability, and (ii) Borrower may at its request
from time to time borrow, repay and reborrow Revolving Credit Advances, and may
cause Lender to incur Letter of Credit Obligations, under this Section 1.1.
(b) Borrower shall request each Revolving Credit Advance by
notice given in writing (by telecopy, hand delivery, or United States mail) to
Lender's representative responsible for Borrower's account as identified in
Schedule 1.1 given no later than 11:00 A.M. (New York City time) on the Business
- - ------------
Day of the proposed Revolving Credit Advance. Each such notice (a "Notice of
Revolving Credit Advance") shall be substantially in the form of Exhibit A.
---------
Lender shall be fully protected under this Agreement in relying upon, and shall
be entitled to rely upon, (i) any Notice of Revolving Credit Advance believed by
Lender to be genuine, and (ii) the assumption that the Persons making electronic
requests or executing and delivering a Notice of Revolving Credit Advance were
duly authorized, unless the responsible individual acting thereon for Lender
shall have actual knowledge to the contrary.
(c) To evidence the Revolving Credit Loan Borrower shall
execute and deliver to Lender the Revolving Credit Note, which shall represent
the Obligation of Borrower to pay the Revolving Credit Loan. The date and amount
of each Revolving Credit Advance and each payment of principal with respect
thereto shall be recorded on the books of Lender, which books shall be presumed
to correctly and accurately record the transactions between Borrower and Lender
and shall, absent manifest error, be conclusive and binding upon Borrower. The
entire unpaid balance of the Revolving Credit Loan, together with all other
outstanding and non-contingent Obligations, shall be immediately due and payable
on the Commitment Maturity Date.
(d) Borrower agrees that Lender, in making any Revolving
Credit Advance or incurring any other Obligation hereunder, shall be entitled to
rely upon the most recent Borrowing Base Certificate delivered to Lender by
Borrower. Borrower further agrees that Lender shall be under no obligation to
make any further Revolving Credit Advance or incur any other Obligation if
Borrower shall have failed to deliver a Borrowing Base Certificate to Lender by
the time specified in Section 4.1(d).
(e) Letters of Credit. Subject to the terms and conditions of
-----------------
this Agreement, including Schedule C, Borrower shall have the right to request,
----------
and Lender agrees to incur, the Letter of Credit Obligations for the account of
Borrower in accordance with Schedule C.
----------
-2-
<PAGE>
1.2. Term and Prepayment.
-------------------
(a) The obligation of Lender to make Revolving Credit
Advances and extend other financial accommodations shall be in effect from the
Closing Date until the Commitment Termination Date. Upon the Commitment Maturity
Date Borrower shall pay to Lender in full, in cash: (i) all outstanding
Revolving Credit Advances and all interest earned, but unpaid, thereon; (ii) an
amount sufficient to enable Lender to hold cash collateral as specified in
Schedule C; and (iii) all other non-contingent Obligations due to or incurred by
- - ----------
Lender. Prior to repayment of all Obligations to Lender in full, in cash on the
Commitment Maturity Date:
(b) If the Revolving Credit Loan shall at any time exceed the
Borrowing Availability, then Borrower shall immediately repay the Revolving
Credit Loan in the amount of such excess; such excess balance shall nevertheless
constitute Obligations that are evidenced by the Revolving Credit Note, secured
by the Collateral and entitled to all of the benefits of the Loan Documents.
(c) Subject to the following sentence, Borrower shall have
the right, at any time upon thirty (30) days
-3-
<PAGE>
prior written notice to Lender, (i) to terminate voluntarily Borrower's right to
receive or benefit from, and Lender's obligation to make and to incur, Revolving
Credit Advances and Letter of Credit Obligations, and (ii) to prepay all of the
Obligations, and the effective date of termination of the Revolving Credit Loan
specified in such notice shall be the Commitment Maturity Date. If Borrower
exercises such right of termination and prepayment, or if Borrower's right to
receive or benefit from, and Lender's obligation to make or to incur, Revolving
Credit Advances and Letter of Credit Obligations is terminated for any reason
prior to May 29, 2000 (including, without limitation, as a result of the
occurrence of an Event of Default), Borrower shall pay to Lender the applicable
Prepayment Fee.
1.3. Use of Proceeds. Borrower shall use the proceeds of the Loans
---------------
as follows:
(i) finance a portion of the purchase price to be paid by PG Newco
Corp. for its acquisition of all of the assets of Seller, (ii) pay
certain liabilities of Seller being assumed by Borrower, and (iii) for
its working capital needs.
1.4. Single Loan. The Loans and all of the other Obligations of
-----------
Borrower to Lender shall constitute one general obligation of Borrower secured
by all of the Collateral.
1.5. Interest.
--------
(a) Borrower shall pay interest to Lender on the aggregate
outstanding Revolving Credit Advances at a floating rate equal to the Index Rate
plus two and seventy five hundredths percent (2.75%) per annum (the "Revolving
Credit Rate").
(b) Interest shall be payable on the outstanding Revolving
Credit Advances (i) in arrears for the preceding calendar month on the first day
of each calendar month, commencing on June 1, 1997, (ii) on the Commitment
Maturity Date, and (iii) if any interest accrues or remains payable after the
Commitment Maturity Date, upon demand by Lender.
(c) All computations of interest, and all calculations of the
Letter of Credit Fee, shall be made by Lender on the basis of a three hundred
and sixty (360) day year, in each case for the actual number of days occurring
in the period for which such interest or fee is payable. The Index Rate shall be
determined (i) on the first Business Day immediately prior to the Closing Date
and (ii) thereafter, on the last Business Day of each calendar month for
calculation of interest for the following month. Each determination by Lender of
an interest rate hereunder shall be conclusive and binding for all purposes,
absent manifest error.
(d) Effective upon the occurrence of any Default and for so
long as any Default shall be continuing, the Revolving Credit Rate, and the
Letter of Credit Fee shall, upon notice by Lender to Borrower, be increased by
two percentage points (2.00%) per annum (the "Default Rate"), and all
outstanding Obligations, including unpaid interest and Letter of Credit Fees,
shall continue to accrue interest from the date of such Default at the Default
Rate applicable to such Obligations.
(e) If any interest or other payment (including Unused Line
Fees, Letter of Credit Fees and Collateral Monitoring Fees) to Lender under this
Agreement becomes due and payable on a day other than a Business Day, such
payment shall be payable on the next succeeding Business Day provided, however,
that for purposes hereof, including calculating interest due the Lender, such
payment shall be deemed to be due and charged to the Revolving Credit Loan as of
the first day of each calendar month.
(f) In no event will Lender charge interest at a rate that
exceeds the highest rate of interest permissible under any law that a court of
competent jurisdiction shall, in a final determination, deem applicable. Amounts
paid or to be collected by Lender in excess of interest calculated at the
highest rate permitted by law will be applied by Lender as provided for in
Section 1.11.
1.6. Eligible Accounts. Based on the most recent Borrowing Base
-----------------
Certificate delivered by Borrower to Lender and on other information available
to Lender, Lender shall determine which Accounts shall be deemed to be "Eligible
Accounts" for purposes of determining the credit to be extended to Borrower. In
determining whether any particular Account constitutes an Eligible Account (and
without limiting Lender's right to determine eligibility or ineligibility of any
item of Collateral or its inclusion in the Borrowing Base), Lender shall not
include any Account that meets any of the criteria set forth in Schedule 1.6.
------------
-4-
<PAGE>
1.7. Eligible Inventory. Based on the most recent Borrowing Base
------------------
Certificate delivered by Borrower to Lender and on other information available
to Lender, Lender shall determine which Inventory shall be deemed to be
"Eligible Inventory" for purposes of determining the credit to be extended to
Borrower. In determining whether any particular Inventory constitutes Eligible
Inventory (and without limiting Lender's right to determine eligibility or
ineligibility of any item of Collateral or its inclusion in the Borrowing Base),
Lender shall not include Inventory that meets any of the criteria set forth in
Schedule 1.7.
- - ------------
1.8. Cash Management System. On or prior to the Closing Date and until
----------------------
the Termination Date, Borrower will establish and maintain the cash management
system described in Schedule D.
----------
1.9. Fees. As compensation for Lender's costs, skills and efforts
----
incurred and expended in entering into this Agreement and in consideration of
Lender's making the Loans available to Borrower, Borrower agrees to pay to
Lender the Fees set forth in Schedule E.
----------
1.10. Receipt of Payments. Borrower shall make each payment under this
-------------------
Agreement (not otherwise made pursuant to Section 1.11) not later than 12:00
P.M. (New York City time) on the day when due in lawful money of the United-
States of America in immediately available funds to the Collection Account. For
purposes of computing interest and fees, all payments shall be deemed received
by Lender on the Business Day of receipt of good funds in the Collection
Account. For purposes of determining the Borrowing Availability, payments shall
be deemed received by Lender upon receipt of good funds in the Collection
Account.
1.11. Application and Allocation of Payments. Borrower irrevocably
--------------------------------------
agrees that Lender shall have the continuing and exclusive right to apply any
and all payments against the then due and payable Obligations, as Lender may
deem advisable. In the absence of a specific determination by Lender with
respect thereto, the same shall be applied in the following order: (a) then due
and payable Fees and expenses; (b) then due and payable interest payments; (c)
then due and payable Obligations other than Fees, expenses and interest and
principal payments; and (d) then due and payable principal payments on the
Revolving Credit Loan. Lender is authorized to, and at its option may (without
notice or precondition and at any time or times), but shall not be obligated to,
make or cause to be made Revolving Credit Advances on behalf of Borrower for:
(x) payment of all Fees, expenses, indemnities, charges, costs, principal,
interest, or other Obligations owing by Borrower under this Agreement or any of
the other Loan Documents, (y) the payment, performance or satisfaction of any of
Borrower's obligations with respect to preservation of the Collateral or
otherwise under this Agreement, or (z) any premium in whole or in part required
in respect of any of the policies of insurance required by this Agreement, even
if the making of any such Revolving Credit Advance causes the outstanding
balance of the Revolving Credit Loan to exceed the Borrowing Availability, and
Borrower agrees to repay immediately, in cash, any amount by which the Revolving
Credit Loan exceeds the Borrowing Availability.
1.12. Accounting. Lender will provide a monthly accounting of
----------
transactions under the Revolving Credit Loan to Borrower. Borrower shall, within
forty-five (45) days after the date any such accounting is rendered, notify
Lender in writing of any objection that Borrower may have to any such
accounting, describing the basis for such objection with specificity. Unless so
objected to, each and every such accounting shall (absent manifest error) be
deemed final, binding and conclusive upon Borrower in all respects. Only those
items expressly objected to in such notice shall be deemed to be disputed by
Borrower. Lender shall review any item objected to within forty-five (45) days
following Borrower's timely objection, and Lender's determination, based upon
the facts available, of any item so objected to in such notice shall (absent
manifest error) likewise be final, binding and conclusive on Borrower.
1.13. Indemnity.
---------
(a) Borrower indemnifies and holds Lender and Lender's
Affiliates, and their respective employees, attorneys and agents (each, an
"Indemnified Person"), harmless from and against any Claim which may be
instituted or asserted against or incurred by any such Indemnified Person as the
result of credit having been extended or not extended under this Agreement and
the other Loan Documents or otherwise in connection with or arising out of the
transactions contemplated hereunder or thereunder, including any Claim for
Environmental Liabilities and Costs and legal costs and expenses of disputes
between the parties to this Agreement; provided, that Borrower shall not be
--------
liable for indemnification of an Indemnified Person to the extent that any such
Claim is finally determined by a court of competent jurisdiction to have
resulted solely from such Indemnified Person's gross negligence or willful
misconduct. NO INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY OTHER
PARTY TO ANY LOAN DOCUMENT, ANY
-5-
<PAGE>
SUCCESSOR, ASSIGNEE OR THIRD PARTY BENEFICIARY OR ANY OTHER PERSON ASSERTING
CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR
CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF CREDIT HAVING BEEN
EXTENDED OR NOT EXTENDED UNDER THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR AS A
RESULT OF ANY OTHER TRANSACTION CONTEMPLATED HEREUNDER OR THEREUNDER.
(b) In any suit, proceeding or action brought by Lender relating
to any item of Collateral or any sum owing hereunder, or to enforce any
provision of any item of Collateral, Borrower saves, indemnifies and keeps
Lender harmless from and against all expense, loss or damage suffered by reason
of such action or any defense, setoff, or counterclaim asserted for any reason
by the other party or parties to such litigation and however arising. All
obligations of Borrower, any other Credit Party or MLC with respect to any item
of Collateral shall be and remain enforceable against, and only against,
Borrower, such other Credit Party or MLC, as the case may be, and shall not be
enforceable against Lender.
1.14. Taxes.
-----
(a) All payments to Lender under any Loan Document shall be made
free and clear of, and without deduction for, any Taxes. In order to protect
Lender's economic returns, if Borrower shall be required by law to deduct any
Taxes from any payment to Lender under any Loan Document, then the amount
payable to Lender shall be increased so that, after making all required
deductions (including deductions applicable to additional sums payable under
this Section 1.14), Lender receives an amount equal to that which it would have
received had no such deductions been made. Borrower shall then make the required
deduction, pay the full amount deducted to the relevant taxing authority, and
promptly furnish to Lender tax receipts evidencing such payment.
(b) Borrower indemnifies Lender for, and shall pay within ten
(10) days of demand therefor, the full amount of Taxes (including any Taxes
imposed by any jurisdiction on amounts payable under Section 1.13) paid by
Lender and any liability (including penalties, interest and expenses) arising
therefrom or with respect thereto, whether or not such Taxes were correctly or
legally asserted.
2. CONDITIONS PRECEDENT
2.1. Conditions to the Initial Revolving Credit Advance and Initial
--------------------------------------------------------------
Letter of Credit Obligation. Lender shall not be obligated to make any of the
- - ---------------------------
Loans, or to take, fulfill, or perform any other action hereunder, until the
following conditions have been satisfied to Lender's complete satisfaction:
(a) the Loan Documents to be delivered on or before the Closing
Date shall have been duly executed and delivered by the appropriate parties, all
as set forth in the Schedule of Documents;
(b) Lender shall have received evidence satisfactory to it that:
(i) all of the obligations of Seller to Comerica Bank under its loan agreement
as in effect immediately prior to the Closing Date will be performed and paid in
full from the proceeds of the initial Revolving Credit Advance; and (ii) all
Liens upon any of the property of Borrower in favor of Comerica Bank shall have
been terminated immediately upon such payment;
(c) Lender shall have received evidence satisfactory to it that
each Credit Party and MLC have obtained all consents and acknowledgments of all
Persons and Governmental Authorities whose consents or acknowledgments may be
required pursuant to the terms of, or prior to the execution and delivery of,
this Agreement and the other Loan Documents and the consummation of the
transactions contemplated hereby and thereby and such consents or
acknowledgments have not been rescinded and remain in full force and effect;
(d) Lender shall have received evidence satisfactory to it that
the insurance policies provided for in Section 3.18 and the Disclosure Schedule
-------------------
(3.18) are in full force and effect, together with appropriate evidence showing
- - -----
loss payable or additional insured clauses or endorsements, as appropriate, in
favor of Lender and in form and substance satisfactory to Lender;
(e) all of the assets supporting the initial Revolving Credit
Advance to be made, the initial Letter of Credit Obligations to be incurred, and
the amount, if any, of the reserves to be established on the Closing Date, shall
be sufficient in value, as determined by Lender, to provide Borrower with Net
Borrowing Availability of not less than $500,000 (after
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<PAGE>
giving effect to such initial Revolving Credit Advance and Letter of Credit
Obligations), without increase in Borrower's other current liabilities above the
average of those reflected on Seller's balance sheet for the three (3) months
preceding the Closing Date, and Lender shall have confirmed to its satisfaction
the outstanding balance owing by NEC to Borrower;
(f) payment by Borrower of the Closing Fee and all other fees,
costs, and expenses of closing (including fees of consultants and counsel to
Lender presented as of the Closing Date);
(g) no action, proceeding, investigation, regulation or
legislation shall have been instituted, threatened or proposed before any court,
Governmental Authority or legislative body to enjoin, restrain or prohibit, or
to obtain damages in respect of, or which is related to or arises out of, this
Agreement or any other Loan Document or the consummation of the transactions
contemplated hereby or thereby and which, in Lender's sole judgment, would make
it inadvisable to consummate the transactions contemplated by this Agreement or
any other Loan Document;
(h) since the date of Seller's most recent annual audited
financial statements delivered to Lender prior to the Closing Date, no event has
occurred which has had, or could reasonably be expected to have, a Material
Adverse Effect;
(i) Lender shall have received evidence satisfactory to it that
the purchase price payable by Borrower in connection with the Acquisition
(excluding the amount of assumed liabilities) shall not exceed $15,000,000 and
the aggregate fees, expenses and closing costs in connection with the
Acquisition and related transactions (including those payable to Lender and Term
Lender) shall not exceed $675,000 ($450,000 of which shall have been paid by MLC
prior to closing and for which Borrower is not obligated to reimburse MLC);
(j) the Acquisition and the transfer of title to the assets being
purchased thereby free and clear of all Liens and encumbrances in connection
therewith and the documentation relating thereto (including the Acquisition
Documents) shall be in form and substance satisfactory to Lender (which shall
include the receipt of any necessary consents for the transfer of all material
contracts of Seller);
(k) Lender shall have received evidence satisfactory to it that
on or prior to the Closing Date Borrower has received at least $7,000,000 of net
cash proceeds from an additional equity contribution from MLC on terms
satisfactory to Lender;
(l) evidence satisfactory to Lender that the transactions
contemplated by the Acquisition Documents will be consummated on the Closing
Date in accordance with the Acquisition Documents; and
(m) Lender shall have received in form and substance satisfactory
to it a pro forma balance sheet of Borrower which balance sheet shall give
effect to the Acquisition and the incurrence of the Obligations;
(n) at least $3,000,000 of the purchase price for the Acquisition
shall be paid in the form of two unsecured, non-amortizing notes (the "Seller
Notes") issued by MLC and payable to Seller (i) one of which shall mature on
September __, 2000, and the other of which shall mature on September __, 2002,
and (ii) each of which shall be otherwise acceptable to Lender;
(o) liabilities of Seller to be assumed and/or paid by Borrower
as part of the Acquisition shall not exceed $5,400,000 and only Indebtedness of
no more than $1,700,000 owing to Comerica Bank shall be paid on or before the
Closing Date;
(p) Peter G. VanHeusden has entered into an employment agreement
and a non-compete agreement in each case with Borrower on terms acceptable to
Lender and for a minimum term of five (5) years;
(q) no later than simultaneously with the making of the initial
Loan hereunder, Term Lender (or those for whom Term Lender is acting as agent)
shall have made term loans of up to $4,700,000 in the aggregate to Borrower on
terms acceptable to Lender (the "Term Loans");
(r) Borrower shall have provided Lender with a satisfactory
capital budget;
-7-
<PAGE>
(s) after giving effect to the Acquisition, Borrower's corporate
and capital structure and Borrower's material contracts (including any mandatory
take-back agreements) are in form and substance satisfactory to Lender;
(t) Borrower shall have obtained all necessary or appropriate
waivers and consents of governmental entities and third parties; and
(u) Borrower and Lender shall have received an indemnity from MLC
in form and substance satisfactory to Lender with respect to any applicable bulk
sales or similar la ws.
If any other term of any Loan Document should conflict, or appear to
conflict, with this Section 2.1, the terms of this Section 2.1 shall control,
and Borrower shall have no rights under this Agreement or any other Loan
Document until each of the conditions of this Section 2.1 has been complied with
to Lender's satisfaction or specifically waived in a writing by Lender
identifying by section number the condition to be waived and the specific
circumstance with respect to which the condition is waived.
2.2. Further Conditions to the Loans. It shall be a further condition
-------------------------------
to the funding of any Loan (including the incurrence of any Letter of Credit
Obligations) that the following statements shall be true on the date of each
such funding, advance or incurrence, as the case may be:
(a) all of each Credit Party's and MLC's representations and
warranties contained herein or in any of the other Loan Documents shall have
been true and correct on and as of the Closing Date;
(b) no event shall have occurred and be continuing, or would
result from the funding of any Revolving Credit Advance or the incurrence of any
Letter of Credit Obligation, which constitutes or would constitute a Default or
an Event of Default;
(c) after giving effect to such Revolving Credit Advance, or the
incurrence of such Letter of Credit Obligation, the Revolving Credit Loan shall
not exceed the Borrowing Availability; and
(d) each of the conditions set forth in Section 2.1(c), (d), (g)
and (h) shall continue to be satisfied as of such date.
The request and acceptance by Borrower of the proceeds of any Revolving
Credit Advance, and the request by Borrower for the incurrence by Lender of any
Letter of Credit Obligations, as the case may be, shall be deemed to constitute,
as of the date of such request or acceptance, (i) a representation and warranty
by Borrower that the conditions in this Section 2.2 have been satisfied and (ii)
a confirmation by Borrower of the granting and continuance of Lender's Liens
pursuant to the Collateral Documents.
3. REPRESENTATIONS, WARRANTIES AND AFFIRMATIVE COVENANTS
To induce Lender to enter into this Agreement and to make the Loans,
Borrower represents and warrants to Lender, and promises to and agrees with
Lender (each of which representations and warranties shall be true and correct
on the Closing Date (after giving effect to the Acquisition) and shall survive
the execution and delivery of this Agreement, and each of which covenants and
agreements shall continue to be kept, honored and maintained at all times from
the Closing Date until the Termination Date) as follows:
3.1. Corporate Existence; Compliance with Law. Each Credit Party: (a)
----------------------------------------
is, as of the Closing Date, and will continue to be (i) a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, (ii) duly qualified to do business and in
good standing in each other jurisdiction where its ownership or lease of
property or the conduct of its business requires such qualification, (iii) in
compliance with its charter and by-laws, and (iv) in compliance in all material
respects with all applicable provisions of law and regulations; and (b) has and
will continue to have (i) the requisite corporate power and authority and the
legal right to own, pledge, mortgage or otherwise encumber and operate its
properties, to lease the property it operates under lease, to consummate the
Acquisition, and to conduct its business as now, heretofore or proposed to be
conducted, (ii) all licenses, permits, franchises, rights, powers, consents or
approvals from or by all Persons or Governmental Authorities having jurisdiction
over such Credit Party which are necessary or appropriate for the conduct of its
business and (iii) all licenses, permits, franchises, rights, powers, consents,
-8-
<PAGE>
or approvals from or by all Persons or Governmental Authorities having
jurisdiction over such Credit Party which are necessary or appropriate for the
consummation of the Acquisition. As of the Closing Date, each Credit Party has
made and will continue to make all filings with any Governmental Authority that
are necessary or appropriate for the conduct of its business and has given and
will continue to give all notices to the extent required for the ownership,
operation and conduct of its property and business.
3.2. Executive Offices; Corporate or Other Names; Conduct of Business.
----------------------------------------------------------------
The locations of each Credit Party's executive offices, principal place of
business, corporate offices, warehouses, other locations of Collateral and
locations where records with respect to Collateral are kept are as set forth in
Disclosure Schedule (3.2) and, except as set forth in such Disclosure Schedule,
- - -------------------------
such locations have not changed during the preceding twelve (12) months. As of
the Closing Date, during the prior five (5) years, except as set forth in
Disclosure Schedule (3.2), no Credit Party has been known as or conducted
- - -------------------------
business in any other name. No Credit Party shall change its (a) name, (b) chief
executive office, (c) principal place of business, (d) corporate offices, (e)
warehouses or other Collateral locations, or (f) location of its records
concerning the Collateral, or acquire, lease or use any real estate after the
Closing Date without such Person, in each instance, giving thirty (30) days
prior written notice thereof to Lender and taking all actions deemed necessary
or appropriate by Lender to continuously protect and perfect Lender's Liens upon
the Collateral.
3.3. Corporate Power; Authorization; Enforceable Obligations. The
-------------------------------------------------------
execution, delivery and performance by each Credit Party of the Loan Documents
and the Acquisition Documents to which it is a party, the consummation of the
Acquisition, and the creation of all Liens provided for herein and therein: (a)
are and will continue to be within such Person's corporate power; (b) have been
and will continue to be duly authorized by all necessary or proper corporate and
shareholder action; (c) are not and will not be in contravention of any
provision of such Person's charter or by-laws; (d) do not and will not violate
any law or regulation, or any order or decree of any court or Governmental
Authority; (e) do not and will not conflict with or result in the breach or
termination of, constitute a default under or accelerate any performance
required by, any indenture, mortgage, deed of trust, lease, agreement or other
instrument to which such Person is a party or by which such Person or any of its
property is bound; (f) do not and will not result in the creation or imposition
of any Lien (other than Permitted Encumbrances) upon any of the Collateral; and
(g) do not and will not require the consent or approval of any Governmental
Authority or any other Person, except those referred to in Section 2.1(c) (all
of which will have been duly obtained, made or complied with on or before the
Closing Date). As of the Closing Date, each Loan Document and Acquisition
Document shall have been duly executed and delivered for the benefit of or on
behalf of each Credit Party, and each such Loan Document and Acquisition
Document shall then be and will continue to be a legal, valid and binding
obligation of such Person, to the extent it is a party thereto, enforceable
against it in accordance with its terms.
3.4. Financial Statements and Projections; Books and Records.
-------------------------------------------------------
(a) Borrower has delivered as of the Closing Date (i) the
Financial Statements for Seller's most recently ended Fiscal Year and Fiscal
Month, which Financial Statements are true, correct and complete and reflect
fairly and accurately the financial condition of Seller as of the date of each
of such Financial Statement, and (ii) the Projections, which Projections have
been prepared in good faith, with care and diligence and use assumptions that
are reasonable under the circumstances and disclosed in the Projections.
(b) Borrower promises that Borrower and each other Credit Party
shall keep adequate Books and Records with respect to the Collateral and such
Person's business activities, in which proper entries, reflecting all
consolidated and consolidating financial transactions, and payments received on
any and all credits granted to, and all other dealings with, the Collateral, are
made in accordance with GAAP and on a basis consistent with the Financial
Statements.
3.5. Material Adverse Change. Between the date of Seller's most
-----------------------
recently audited Financial Statements delivered to Lender and the Closing Date:
(a) Borrower has not incurred any obligations, contingent or non-contingent
liabilities, or liabilities for Charges, long-term leases or unusual forward or
long-term commitments which are not reflected in the pro forma balance sheet of
Borrower and which could, alone or in the aggregate, reasonably be expected to
have a Material Adverse Effect; (b) there has been no material deviation from
the Projections delivered at or prior to the Closing Date; (c) no contract,
lease, agreement or other instrument to which any Credit Party has become a
party or by which it or any of its properties or assets is bound or affected,
and no provision of applicable law or governmental regulation has had or could
reasonably be expected to have a Material Adverse Effect; (d) no Credit Party is
in default, and to such Credit Party's knowledge no third party is in default
under or with respect to any material contract, agreement, lease or other
instrument to which it is a party (including, without limitation, any
Acquisition Document), which alone or in the aggregate could
-9-
<PAGE>
reasonably be expected to have a Material Adverse Effect; and (e) no event has
occurred, and such Credit Party will not permit or suffer to occur any event or
events, which alone or in the aggregate could reasonably be expected to have a
Material Adverse Effect.
3.6. Ownership of Property; Liens. As of the Closing Date, the real
----------------------------
estate listed in Disclosure Schedule (3.6) constitutes all of the real property
------------------------
owned, leased, or used in its business by each Credit Party, and such Credit
Party will not execute any material agreement or contract in respect of such
real estate after the Closing Date without giving Lender prompt written notice
thereof. Each Credit Party holds and will continue to hold good and marketable
fee simple title to all of its owned real estate, and good and marketable title
to all of its other properties and assets, and valid and marketable leasehold
interests in all of its leases (both as lessor and lessee, sublessee or
assignee), and none of the properties and assets of each Credit Party are or
will be subject to any Liens, except Permitted Encumbrances. Each Credit Party
has received and will continue to obtain all deeds, agreements, and other
documents affecting real estate, and has duly effected and will duly effect all
recordings and filings and take other actions necessary, in each circumstance to
establish, protect and perfect its and Lender's right, title and interest in and
to all real property constituting Collateral. All permits required to allow the
real property owned or leased by each Credit Party to be lawfully occupied and
used, for all of the purposes for which they are occupied and used on the
Closing Date, have been lawfully issued and are in full force and effect, and
that all such permits will be obtained and maintained. With respect to each of
the premises identified in Disclosure Schedule (3.2) on the Closing Date a
-------------------------
landlord or mortgagee agreement acceptable to Lender has been obtained, and such
Credit Party will obtain a landlord's or mortgagee's agreement in form
acceptable to Lender from the lessor or mortgagee of any new leased or acquired
premises after the Closing Date.
3.7. Labor Matters. As of the Closing Date, there are no strikes or
-------------
other labor disputes against any Credit Party that are pending or, to any Credit
Party's knowledge, threatened. All payments due from any Credit Party on account
of employee health and welfare insurance have been and will continue to be paid
or accrued as a liability on the books of such Credit Party. Disclosure Schedule
------------------
(3.7) identifies each collective bargaining agreement, management agreement with
- - -----
an executive officer, or any other material employment agreement to which any
Credit Party is a party in effect as of the Closing Date, and a copy of each
such agreement has been made available to Lender. Promptly upon the execution of
any such agreement or incurrence of such obligation after the Closing Date and
until the Termination Date, each Credit Party shall provide to Lender prompt
written notice of such event and a copy of such agreement. As of the Closing
Date, (a) there is no organizing activity involving any Credit Party pending or,
to any Credit Party's knowledge, threatened by any labor union or group of
employees, (b) there are no representation proceedings pending or, to any Credit
Party's knowledge, threatened with the National Labor Relations Board, and (c)
no labor organization or group of employees of any Credit Party has pending any
demand for recognition, and such Credit Party shall give to Lender prompt
written notice of any of the foregoing occurring after the Closing Date.
3.8. Ventures, Subsidiaries and Affiliates; Outstanding Stock and
------------------------------------------------------------
Indebtedness. As of the Closing Date, all outstanding Stock and Indebtedness of
- - ------------
each Credit Party, and the holders (including group or affiliated holders known
to any Credit Party) of ten percent (10%) or more of the Stock of each Credit
Party and MLC is as described in Disclosure Schedule (3.8). After the Closing
-------------------------
Date each Credit Party will give Lender prompt notice of (a) each issuance of
Stock or change in ownership representing ten percent (10%) or more of the
ownership of any of its or MLC's Stock, (b) any issuance or transfer of its
Stock that is intended to be an item of Collateral, and (c) each Change of
Control of such Credit Party.
3.9. Government Regulation. No Credit Party is or will be subject to or
---------------------
be regulated under the Investment Company Act of 1940, the Public Utility
Holding Company Act of 1935, the Federal Power Act or any other Federal or state
statute, rule or regulation that restricts or limits such Person's ability to
incur Indebtedness, pledge its assets, or to perform its obligations under the
Loan Documents or the Acquisition Documents, except to the extent Borrower is
subject to the Investment Company Act of 1940 as a result of being controlled by
MLC (provided, being subject to the Investment Company Act in such manner does
not and shall not restrict or limit Borrower's ability to incur Indebtedness,
pledge its assets, or to perform its obligations under the Loan Documents or the
Acquisition Documents). The making of the Loans, the application of the proceeds
and repayment thereof by Borrower or any other Credit Party, and the
consummation of the transactions contemplated by the Loan Documents and the
Acquisition Documents do not and will not violate any provision of any such
statute or any rule, regulation or order issued by the Securities and Exchange
Commission.
3.10. Margin Regulations. No Credit Party owns or will own any "margin
------------------
security," as that term is defined in Regulations G and U of the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board"), and none
of the proceeds of the Loans will be used directly or indirectly for (a)
purchasing or carrying any margin security, (b) reducing
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<PAGE>
or retiring any indebtedness which was originally incurred to purchase or carry
any margin security, or (c) any purpose which might cause any of the Loans or
this Agreement to be considered a "purpose credit" within the meaning of
Regulation G, T, U or X of the Federal Reserve Board. No Credit Party will take
or permit to be taken any action which might cause any Loan Document to violate
any regulation of the Federal Reserve Board.
3.11. Taxes.
-----
(a) All tax returns, reports and statements required by any
Governmental Authority to be filed by Borrower, any other Credit Party and, to
the best of Borrower's knowledge, Seller have, as of the Closing Date, been
filed and (other than with respect to Seller) will, until the Termination Date,
be filed with the appropriate Governmental Authority, and all Charges and other
impositions shown thereon have been and will be paid when due. Proper and
accurate amounts have been and will be withheld by Borrower and each other
Credit Party (and to the best of Borrower's knowledge, by Seller with respect to
the period prior to the Closing Date) from their respective employees for all
periods in full and complete compliance with the tax, social security and
unemployment withholding provisions of all applicable law, and such withholdings
have and will be timely paid to the respective Governmental Authorities.
Borrower and each other Credit Party executing this Agreement represents and
promises that none of Borrower, any other Credit Party or, to the best of
Borrower's knowledge, Seller: (i) has executed or filed, or will execute or
file, with any Governmental Authority, any agreement or other document
extending, or having the effect of extending, the period for assessment or
collection of any Charges; (ii) has agreed or been requested to make any
adjustment in accounting method; (iii) is a party to any tax sharing agreement;
or (iv) is currently being audited by any Governmental Authority. There are no
assessments or threatened assessments outstanding against any Credit Party.
(b) Each Credit Party may contest, by proper legal actions or
proceedings, the validity or amount of any Charges; provided, that at the time
--------
of commencement of any such action or proceeding: (i) no Default or Event of
Default shall have occurred; (ii) adequate reserves with respect thereto are
established on the books of the contesting Person in accordance with GAAP; (iii)
such contest operates to suspend collection of the contested Charges and is
maintained and prosecuted continuously with diligence; (iv) none of the
Collateral would be subject to forfeiture or loss of Lien thereby; (v) no Lien
shall be imposed or be attempted to be imposed by any Governmental Authority for
such Charges or claims during such action or proceeding; (vi) the contesting
Person shall promptly pay or discharge any contested Charge and shall deliver to
Lender evidence acceptable to Lender of such compliance, payment or discharge,
if such contest is terminated or discontinued adversely; and (vii) Lender has
not advised any Credit Party in writing that Lender reasonably believes that
nonpayment or nondischarge thereof could reasonably be expected to have a
Material Adverse Effect.
3.12. ERISA.
------
(a) As of the Closing Date, Disclosure Schedule (3.12) lists all
--------------------------
Plans. Borrower shall give Lender prior written notice of the establishment of
any Plan. Each Credit Party is and will remain in compliance with all
requirements of each Plan, and each Plan complies with and is operated, and will
continue to be operated, in compliance with all applicable provisions of law in
all respects. Each Qualified Plan and each related trust has been determined by
the IRS to qualify and will continue to qualify under, and be exempt from tax
under, the IRC. Nothing has occurred or will be permitted to occur which would
cause the loss of such qualification or tax-exempt status. All required
contributions have been and will be made in accordance with the provisions of
each Plan, and with respect to any Credit Party or any ERISA Affiliate, there
are and will be no Unfunded Pension Liabilities or Withdrawal Liabilities. No
Credit Party has engaged or will engage in a prohibited transaction, as defined
in Section 4975 of the IRC or Section 406 of ERISA.
(b) No ERISA Event has occurred or will be permitted to occur. No
Retiree Welfare Plan exists or will be adopted (except as may be required by
law). No liability under any Title IV Plan has been or will be funded, nor has
such obligation been (nor will it be) satisfied with, the purchase of a contract
from an insurance company that is not rated AAA by Standard & Poor's and the
equivalent by each other nationally recognized rating agency.
3.13. Litigation. As of the Closing Date, except as disclosed in Disclosure
---------- ----------
Schedule (3.13) no Claim is pending or threatened against any Credit Party which
- - ---------------
(a) challenges any such Person's right, power, or competence to enter into or
perform any of its obligations under the Loan Documents or the Acquisition
Documents, the validity or enforceability of any Loan Document or Acquisition
Document or any action taken thereunder, or (b) whether or not determined
adversely, could reasonably be expected to have a Material Adverse Effect. Each
Credit Party shall notify Lender in writing promptly upon learning of the
existence or commencement of any Claim commenced or threatened against any
Credit Party that: (x) may
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<PAGE>
involve an amount in excess of $10,000; (y) could reasonably be expected to have
a Material Adverse Effect whether or not determined adversely; or (z) regardless
of amount (i) is asserted or instituted, against any Plan, its fiduciaries or
its assets, or against any Credit Party or any ERISA Affiliate in connection
with any Plan, (ii) includes any demand for injunctive relief, (iii) alleges
criminal misconduct by any Credit Party, or (iv) alleges the violation of any
law regarding, or seeks remedies in connection with, any Environmental
Liabilities and Costs.
3.14. Brokers. No broker or finder acting on behalf of any Credit Party or
-------
MLC brought about the obtaining, making or closing of the Loans or the
transactions contemplated by the Loan Documents, and no Credit Party nor MLC has
any obligation to any Person in respect of any finder's or brokerage fees in
connection therewith.
3.15. Intellectual Property. As of the Closing Date, each Credit Party owns
---------------------
or has the right to use and will own or have the right to use all Intellectual
Property necessary to continue to conduct its business as now or heretofore
conducted by it or proposed to be conducted by it in the most recent Projections
delivered to Lender, and each such item (that is registrable) of Intellectual
Property is listed, together with application or registration numbers, where
applicable, in Disclosure Schedule (3.15). Each Credit Party will give Lender
--------------------------
prompt written notice of any change in the status of any of its Intellectual
Property. Each Credit Party conducts and will continue to conduct its affairs
and business without infringement of or interference with any Intellectual
Property of any other Person. Each Credit Party shall notify Lender immediately
if it knows or discovers that any of any Credit Party's Intellectual Property is
or may become infringed upon, misappropriated or abandoned, or of any other
adverse determination or development.
3.16. Full Disclosure. No information contained in the Loan Documents, the
---------------
Financial Statements or any written statement furnished by or on behalf of any
Credit Party or MLC under this Agreement, or to induce Lender to execute the
Loan Documents, contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements contained herein or
therein not misleading in light of the circumstances under which they were made.
As of the Closing Date, each Credit Party and MLC has provided Lender and will
continue to provide Lender with a true, complete and correct copy of each
material contract (including, without limitation, each Acquisition Document and
each material contract being acquired in the Acquisition) executed by any Credit
Party.
3.17. Hazardous Materials.
-------------------
(a) As of the Closing Date, each real property location owned,
leased or occupied by each Credit Party (the "Subject Property") is and will
continue to be maintained free of contamination from any Hazardous Material.
Each Credit Party: (i) shall comply with all applicable Environmental Laws and
Environmental Permits; (ii) shall notify Lender in writing within seven (7) days
if and when it becomes aware of any incident or ongoing case of non-compliance
or Release (regardless of when such Release may have occurred) upon any Subject
Property; and (iii) shall promptly forward to Lender a copy of any order,
notice, permit, application, or any communication or report received by it or
any other Credit Party in connection with any such Release or any other matter
relating to the Environmental Laws that may affect Borrower or any other Credit
Party. As of the Closing Date, Disclosure Schedule (3.17) discloses existing or
--------------------------
potential environmental liabilities of each Credit Party that could result in
Environmental Liabilities and Costs, and each Credit Party will promptly notify
Lender in writing of any such liabilities arising after the Closing Date. As of
the Closing Date, no Credit Party has caused, permitted or suffered, or will
cause, permit or suffer to occur any Release (including any such occurrence
prior to the Acquisition) at, under, above or within any Subject Property, or
the presence, use, generation, manufacture, installation, or storage of any
Hazardous Materials on, under, in or about any Subject Property or the
transportation of any Hazardous Materials to or from any Subject Property except
to the extent such use, generation, manufacture, installation, storage or
transportation is conducted in compliance with all Environmental Laws and
Environmental Permits. Neither Borrower nor any other Credit Party is or will
become involved in operations that could lead to the imposition of Environmental
Liabilities or Costs, and no sub-tenant of any Credit Party is permitted, or
will be permitted, to engage in any such activity.
(b) Borrower acknowledges and agrees that Lender (i) is not now, and has not
ever been, in control of any of the Subject Property or the affairs of Borrower
or any other Credit Party, and (ii) does not have the capacity through the
provisions of the Loan Documents to influence Borrower's or any other Credit
Party's conduct with respect to the ownership, operation or management of any of
the Subject Property.
3.18. Insurance. As of the Closing Date, Disclosure Schedule (3.18) lists
--------- --------------------------
all insurance of any nature maintained for current occurrences by Borrower and
each other Credit Party, as well as a summary of the terms of such insurance.
Borrower shall deliver to Lender endorsements to all of its and those of its
Subsidiaries' (a) "All Risk" and business interruption
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<PAGE>
insurance policies naming Lender loss payee, and (b) general liability and other
liability policies naming Lender as an additional insured. All policies of
insurance on real and personal property will contain an endorsement, in form and
substance acceptable to Lender, showing loss payable to Lender (Form 438 BFU or
equivalent) and extra expense and business interruption endorsements. All
insurance policies shall provide by endorsement, or an independent instrument
furnished to Lender, that the insurance companies will give Lender at least
thirty (30) days prior written notice before any such policy or policies of
insurance shall be altered or canceled and that no act or default of Borrower or
any other Person shall affect the right of Lender to recover under such policy
or policies of insurance in case of loss or damage. Borrower hereby directs all
present and future insurers under its "All Risk" policies of insurance to pay
all proceeds payable thereunder directly to Lender. Lender reserves the right at
any time, upon review of each Credit Party's risk profile, to require additional
forms and limits of insurance to adequately protect Lender's interests in
accordance with Lender's normal practice for similarly situated borrowers, and
if the circumstances are unusual, in Lender's sole opinion. Each Credit Party
executing this Agreement shall, on each anniversary of the Closing Date and from
time to time at Lender's request, deliver to Lender a report by a reputable
insurance broker, satisfactory to Lender, with respect to such Person's
insurance policies.
3.19. Deposit and Disbursement Accounts. As of the Closing Date, Disclosure
--------------------------------- ----------
Schedule (3.19) lists all banks and other financial institutions at which
- - ---------------
Borrower maintains deposits and/or other accounts, including the Disbursement
Account, and such Disclosure Schedule correctly identifies the name, address and
telephone number of each such depository, the name in which the account is held,
a description of the purpose of the account, and the complete account number.
Borrower will not establish any other depository or other bank account with any
financial institution of any kind. All payments to Borrower shall be made to or
paid into the accounts specified by Lender in Schedule D.
----------
3.20. Accounts. Borrower promises to perform and comply with all
--------
obligations in respect of each item of Collateral. Borrower represents and
promises that, as of the date of each Borrowing Base Certificate delivered to
Lender, each Account shown on such Borrowing Base Certificate is an Eligible
Account. Borrower has not agreed and will not agree: (a) with any Account Debtor
for any deduction from any Account except a discount or allowance allowed by
Borrower in the ordinary course of its business for prompt payment; (b) to any
extension of the time of payment of any Eligible Account; (c) to compromise or
settle any Eligible Account for less than the full amount thereof; or (d) to
release, in whole or in part, any Person liable for the payment of any Account;
provided, that Borrower may permit deductions, extensions, compromises,
- - --------
settlements and releases of the Accounts described in clauses (b) through (d)
which, in the aggregate during any Fiscal Quarter will not exceed $10,000.
3.21. Inventory. Borrower represents and promises that, as of the date of
---------
each Borrowing Base Certificate delivered to Lender, each item of Inventory
shown on such Borrowing Base Certificate is Eligible Inventory.
3.22. Payment of Obligations. Each Credit Party: (a) will pay and discharge
----------------------
or cause to be paid and discharged all Obligations in a timely manner; and (b)
prior to an Event of Default, (i) will pay and discharge, or cause to be paid
and discharged, its Indebtedness (other than the Obligations) in the ordinary
course of business, (ii) subject to Section 3.11(b), will pay and discharge, or
cause to be paid and discharged promptly, all Charges, and (iii) will pay all
lawful claims for labor, materials, supplies and services or otherwise, before
any thereof shall become in default.
3.23. Confidentiality and Press Releases. Lender and each Credit Party
----------------------------------
executing this Agreement agree that the terms and conditions of this Agreement
are confidential. No Credit Party executing this Agreement nor MLC shall use the
name of or refer to General Electric Capital Corporation (or any Affiliate
thereof) or "GE Capital," or issue any press release regarding or make other
public disclosure of the existence of this Agreement or its terms, without the
prior written consent of Lender, except as may be required by law; provided,
--------
that to the extent required by law, Borrower, any other Credit Party or MLC may
make such disclosures, but only if Borrower shall first have afforded Lender a
reasonable opportunity to review and comment upon any such legally required
disclosure, press release, or use of such name; provided, further no such prior
-------- -------
review shall be required with respect to any such disclosures contained in
reports filed with the Securities Exchange Commission on Forms 10-K or 10-Q.
3.24. Conduct of Business. Each Credit Party (a) shall conduct its business
-------------------
substantially as now conducted or as otherwise permitted hereunder, and (b)
shall at all times maintain, preserve and protect all of the Collateral and such
Credit Party's other property, in use or useful in the conduct of its business
and keep the same in good repair, working order and condition (taking into
consideration ordinary wear and tear) and from time to time make, or cause to be
made, all necessary or appropriate repairs, replacements and improvements
thereto consistent with industry practices, so that the business carried on in
connection therewith may be properly and advantageously conducted at all times.
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<PAGE>
3.25. Further Assurances; Disclosure Schedule Supplements. At any time and
---------------------------------------------------
from time to time, upon the written request of Lender and at the sole expense of
Borrower, Borrower and each other Credit Party shall promptly and duly execute
and deliver any and all such further instruments and documents and take such
further action as Lender may reasonably deem desirable (a) to obtain the full
benefits of this Agreement, (b) to protect, preserve and maintain Lender's
rights in the Collateral, or any of it, and under this Agreement, or (c) to
enable Lender to exercise all or any of the rights and powers herein granted. On
each anniversary of the Closing Date (or as often as Lender may require upon the
occurrence and continuation of a Default or Event of Default), Borrower will
supplement each Disclosure Schedule with respect to any matter hereafter arising
that, if existing or occurring as of the Closing Date, would have been required
to be set forth or described in such Disclosure Schedule; provided, that such
--------
supplement shall not be deemed to be an amendment thereof unless expressly
consented to in writing by Lender.
3.26. Acquisition Documents. Lender has received a complete and correct
---------------------
copy of each of the Acquisition Documents (including all exhibits, schedules and
disclosure letters referred to therein or delivered pursuant thereto, if any)
and all amendments thereto, waivers relating thereto and other side letters or
agreements affecting the terms thereof. Each of the Acquisition Documents has
been duly executed and delivered by the appropriate party thereto and is in full
force and effect.
3.27. Customer Contracts. Borrower has not entered into, or assumed, and
------------------
will not enter into or assume, any contracts or agreements with any of its
customers, other than standard purchase orders in the form of Disclosure
Schedule 3.27.
- - -------------
3.28. Hart-Scott-Rodino. Neither Borrower or Seller is required to file any
-----------------
notification under 7A of the Clayton Act (Title II of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act)) or the rules and
regulations promulgated thereunder and no waiting period is applicable to the
Acquisition under the HSR Act.
3.29. Pledge Agreement. Within twenty (20) days of the date that the
----------------
Securities Exchange Commission enters an order declaring MLC is no longer an
investment company under the Investment Company Act of 1940, Borrower shall
cause MLC to execute and deliver the Pledge Agreement pursuant to which MLC will
pledge to Lender all of the outstanding stock of Borrower (together with
certificates evidencing such stock, undated stock powers executed in blank and
such UCC financing statements, secretary's certificates and opinions of counsel
in connection therewith as Lender may request).
3.30. MLC Loans. Borrower shall cause MLC to make such loans to it as shall
---------
be necessary for no more than forty percent (40%) of the value of MLC's assets
be investment securities (as defined in the Investment Company Act of 1940).
4. FINANCIAL MATTERS; REPORTS
4.1. Reports and Notices. Borrower represents, agrees and promises that
-------------------
from and after the Closing Date until the Termination Date, Borrower shall
deliver to Lender:
(a) on each Business Day a Daily Collateral Activity Report in the
form of Exhibit B;
---------
(b) on Tuesday following the end of each week, an aged trial
balance with respect to NEC, accompanied by such supporting detail and
documentation as Lender may request;
(c) within fifteen (15) days following the end of each Fiscal
Month, an aged trial balance by Account Debtor and as soon as available but in
no event later than thirty (30) days following the end of each Fiscal Month, a
reconciliation of the aged trail balance to Borrower's general ledger and from
the general ledger to the Financial Statements for such Fiscal Month,
accompanied by supporting detail and documentation as Lender may request;
(d) as frequently as Lender may request and in any event no later
than fifteen (15) days following the end of each Fiscal Month, a Borrowing Base
Certificate in the form of Exhibit C as of the last day of the previous Fiscal
---------
Month detailing ineligible Accounts and Inventory for adjustment to the
Borrowing Base;
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<PAGE>
(e) within fifteen (15) days following the end of each Fiscal
Month, an Accounts Payable Analysis in the form of Exhibit D accompanied by an
---------
accounts payable aging and reconciliation of the aged trial balance to
Borrower's general ledger and from the general ledger to the Financial
Statements for such Fiscal Month, accompanied by supporting detail and
documentation as the Lender may request;
(f) within fifteen (15) days following the end of each Fiscal
Month, an Accounts Receivable Roll Forward Analysis in the form of Exhibit E;
---------
(g) within fifteen (15) days following the end of each Fiscal
Month, an excess inventory report and a perpetual inventory report separately
setting forth raw materials, work in process and finished goods and a
reconciliation of such report to the general ledger, accompanied by supporting
detail and documentation as Lender may request;
(h) within thirty (30) days following the end of each Fiscal
Month, the Financial Statements for such Fiscal Month, which Financial
Statements shall provide comparisons to budget and actual results for the
corresponding period during the prior Fiscal Year, both on a monthly and
year-to-date basis, and accompanied by a certification, in the form of Exhibit
-------
I, by the Chief Executive Officer or Chief Financial Officer of Borrower that
- - -
such Financial Statements are complete and correct, that there was no Default or
Event of Default (or specifying those Defaults or Events of Default that he or
she was aware), and showing in reasonable detail the calculations used in
determining compliance with the financial covenants hereunder;
(i) within ninety (90) days following the close of each Fiscal
Year, the Financial Statements for such Fiscal Year certified without
qualification by an independent certified accounting firm acceptable to Lender,
which Financial Statements shall provide comparisons to budget and actual
results for the prior Fiscal Year, both on a monthly and annual basis, and shall
be accompanied by (i) a statement in reasonable detail showing the calculations
used in determining compliance with the financial covenants hereunder, (ii) a
report from Borrower's accountants to the effect that in connection with their
audit examination nothing has come to their attention to cause them to believe
that a Default or Event of Default has occurred or specifying those Defaults or
Events of Default of which they are aware, and (iii) any management letter that
may be issued;
(j) not less than thirty (30) days prior to the close of each
Fiscal Year, an annual operating plan and the Projections, which Projections
will be prepared by Borrower in good faith, with care and diligence, and using
assumptions which are reasonable under the circumstances and disclosed in the
Projections when delivered;
(k) within thirty (30) days of the Closing Date, a closing balance
sheet in form and substance satisfactory to Lender prepared by Borrower and
accompanied by a letter of Ernst & Young LLP satisfactory to Lender as to the
scope of their review which balance sheet shall definitively reflect all
adjustments to Borrower's financial condition relating to the consummation of
the Acquisition and the incurrence of the Obligations and provide comparisons to
the pro forma balance sheet referred to in Section 2.1(m);
(l) such other information respecting the business, financial
condition, prospects or projections of Borrower or any Affiliate thereof as
Lender reasonably may request from time to time; and
(m) within fifteen (15) days following the end of each Fiscal
Month, a rolling six (6) month forecast of Borrower's Receivables and orders
from NEC.
4.2. Financial Covenants. Borrower shall not breach any of the financial
-------------------
covenants set forth in Schedule G.
4.3. Other Reports. Borrower shall notify Lender promptly of any
-------------
occurrence causing a material loss or decline in value of any Collateral and the
estimated (or actual, if available) amount of such loss or decline. Borrower
shall, upon the request of Lender, furnish to Lender such other reports in
connection with the affairs, business, financial condition, operations,
prospects or management of Borrower or any other Credit Party or the Collateral
as Lender may request, all in reasonable detail, and Borrower shall advise
Lender promptly, in reasonable detail, of: (a) any Lien, other than Permitted
Encumbrances, attaching to or asserted against any of the Collateral; (b) any
material change in the composition of the Collateral; and (c) the occurrence of
any other event which could reasonably be expected to have a Material Adverse
Effect.
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<PAGE>
4.4. MLC Report. Borrower shall cause MLC to deliver to Lender within
----------
fifteen (15) days following the end of each Fiscal Month, a certificate in form
and substance satisfactory to Lender setting forth as of the end of such month
the calculation of the percentage of MLC's assets that are investment securities
as defined in the Investment Company Act of 1940.
5. NEGATIVE COVENANTS
Borrower covenants and agrees (for itself and each other Credit Party)
that, without Lender's prior written consent, from the Closing Date until the
Termination Date, neither Borrower nor any other Credit Party shall, directly or
indirectly, by operation of law or otherwise:
(a) other than pursuant to the Acquisition, merge with,
consolidate with, acquire all or substantially all of the assets or capital
stock of, or otherwise combine with, any Person or form any Subsidiary, except
that any Subsidiary of Borrower may merge or consolidate with Borrower or
another Subsidiary of Borrower (so long as Borrower is the surviving corporation
from any such transaction if it is involved therein) and Borrower or any
Subsidiary of Borrower may acquire all or substantially all of the assets of
capital Stock of another Subsidiary of Borrower;
(b) except as otherwise permitted in this Section 5 below, make
any investment in, or make or accrue loans or advances of money to, any Person;
(c) create, incur, assume or permit to exist any Indebtedness,
except: (i) the Obligations; (ii) Indebtedness (including Purchase Money
Indebtedness) other than the Obligations in an aggregate outstanding amount not
exceeding $25,000; (iii) deferred taxes; (iv) the Term Loans; (v) the MLC Loan;
and (vi) other Indebtedness set forth in Disclosure Schedule 5(c));
-------------------------
(d) enter into any lending, borrowing or other commercial
transaction with any of its employees, directors, Affiliates, any other Credit
Party or MLC (including upstreaming and downstreaming of cash and intercompany
advances) other than the MLC Loan.
(e) make any changes in any of its business objectives, purposes,
or operations which could have or reasonably be expected to have a Material
Adverse Effect;
(f) amend its charter or by-laws;
(g) incur any Guaranteed Indebtedness except (i) by endorsement of
instruments or items of payment for deposit to the general account of Borrower,
and (ii) for Guaranteed Indebtedness incurred for the benefit of Borrower if the
primary obligation is permitted by this Agreement;
(h) create or permit any Lien on any of its properties or assets,
except for Permitted Encumbrances;
(i) sell, transfer, convey, assign or otherwise dispose of any its
assets or properties, including its Accounts (provided, that the foregoing shall
--------
not prohibit the sale of Inventory or obsolete or unnecessary Equipment or real
estate in the ordinary course of its business);
(j) take any action or omit to take any action, which act or
omission would constitute a material default or an event of default pursuant to,
or noncompliance with, any contract, lease, mortgage, deed of trust or
instrument to which it is a party or by which it or any of its property is
bound, or any document creating a Lien;
(k) cancel any debt owing to it, except for reasonable
consideration and in the ordinary course of its business or as otherwise
permitted in Section 3.20;
(l) make or permit any Restricted Payment; or
(m) engage in any business other than that presently engaged in or
proposed to be engaged in the Projections delivered to Lender on the Closing
Date.
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<PAGE>
6. SECURITY INTEREST
6.1. Grant of Security Interest.
--------------------------
(a) To secure the prompt and complete payment, performance and
observance of all of the Obligations, and to induce Lender to enter into the
Loan Documents and to make the Loans provided for herein, Borrower hereby grants
to Lender a security interest in and Lien upon all of its right, title and
interest in the Collateral.
(b) Borrower and Lender agree that this Agreement creates, and is
intended to create, valid and continuing Liens upon the Collateral in favor of
Lender. Borrower represents, warrants and promises to Lender that: (i) upon and
as a result of the filing of appropriate financing statements in the
jurisdictions listed in Disclosure Schedule (6.1), such Liens are and will be
-------------------------
fully perfected Liens on and in all Collateral, which Liens are and will, until
the Termination Date, be enforceable as first priority, fully perfected Liens as
against all other creditors of, and purchasers from, Borrower and any other
Credit Party granting a Lien in Collateral (other than purchasers of Inventory
in the ordinary course of business); (ii) all action necessary or desirable to
protect and perfect such Liens in favor of Lender in all of the Collateral has
been duly taken; (iii) except for Permitted Encumbrances, Borrower (and any
other Credit Party granting a Lien in Collateral) is and will be the sole owner
of each such item of the Collateral in which a Lien is granted under the Loan
Documents (other than consigned goods specifically identified in Disclosure
----------
Schedule (6.1)), and has and will have good and marketable title to such
- - ---------------
Collateral free and clear of any and all other Liens, and (iv) no effective
security agreement, financing statement, equivalent security or Lien instrument
or continuation statement covering all or any part of the Collateral is or will
be on file or of record in any public office, except those filed by Borrower
(and any other Credit Party granting a Lien to Lender in Collateral) in favor of
Lender pursuant to the Loan Documents, and those relating to other Permitted
Encumbrances.
(c) Borrower promises to defend the right, title and interest of
Lender in and to the Collateral against the claims and demands of all Persons
whomsoever, and shall take such actions, including (i) the prompt delivery of
all original Instruments, Chattel Paper and certificated Stock owned by Borrower
to Lender, (ii) notification of Lender's interest in Collateral at Lender's
request, or (iii) the institution of litigation against third parties as shall
be prudent in order to protect and preserve Borrower's and Lender's respective
and several interests in the Collateral. Borrower (and any other Credit Party
granting a Lien in Collateral) shall mark its Books and Records pertaining to
the Collateral to evidence the Loan Documents and the Liens granted under the
Loan Documents. All Chattel Paper shall be marked with the following legend:
"This writing and the obligations evidenced or secured hereby are subject to the
security interest of General Electric Capital Corporation."
6.2. Lender's Rights.
---------------
(a) Lender may, (i) at any time in Lender's own name or in the
name of Borrower, communicate with Account Debtors, parties to Contracts, and
obligors in respect of Instruments, Chattel Paper or other Collateral to verify
to Lender's satisfaction, the existence, amount and terms of any such Accounts,
Contracts, Instruments or Chattel Paper or other Collateral, and (ii) at any
time and without prior notice to Borrower, notify Account Debtors, parties to
Contracts, and obligors in respect of Chattel Paper, Instruments, or other
Collateral that the Collateral has been assigned to Lender and that payments
shall be made directly to Lender. Upon the request of Lender, Borrower shall so
notify such Account Debtors, parties to Contracts, and obligors in respect of
Instruments, Chattel Paper or other Collateral.
(b) It is expressly agreed by Borrower that, notwithstanding
anything herein to the contrary, Borrower shall remain liable under each
Contract and License to observe and perform all the conditions and obligations
to be observed and performed by it thereunder, and Lender shall have no
obligation or liability whatsoever to any Person under any Contract or License
(between Borrower or any other Credit Party and any Person other than Lender) by
reason of or arising out of the execution, delivery or performance of this
Agreement, and Lender shall not be required or obligated in any manner (i) to
perform or fulfill any of the obligations of Borrower, (ii) to make any payment
or inquiry, or (iii) to take any action of any kind to collect or enforce any
performance or the payment of any amounts which may have been assigned to it or
to which it may be entitled at any time or times under or pursuant to any
Contract or License.
(c) Borrower shall, with respect to each property or facility
owned, leased, or controlled by Borrower, during normal business hours and upon
reasonable advance notice (unless a Default shall have occurred and be
continuing, in which event no notice shall be required and Lender shall have
access at any and all times): (i) provide access to such facility or property to
Lender and any of its officers, employees and agents, as frequently as Lender
determines to be
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<PAGE>
appropriate; (ii) permit Lender and any of its officers, employees and agents to
inspect, audit and make extracts from all of Borrower's and each other Credit
Party's Books and Records; and (iii) permit Lender to inspect, review, evaluate
and make physical verifications and appraisals of the Inventory and other
Collateral in any manner and through any medium that Lender considers advisable,
and Borrower agrees to render to Lender, at Borrower's cost and expense, such
clerical and other assistance as may be reasonably requested with regard
thereto. Borrower shall make available to Lender and its counsel, as quickly as
practicable under the circumstances, originals or copies of all Borrower's and
each other Credit Party's Books and Records and any other instruments and
documents which Lender may request. Borrower shall deliver any document or
instrument reasonably necessary for Lender, as it may from time to time request,
to obtain records from any service bureau or other Person which maintains
records for Borrower or any other Credit Party.
(d) Upon the occurrence and continuation of a Default or Event of
Default, Borrower, at its own expense, shall cause the certified public
accountant then engaged by Borrower to prepare and deliver to Lender at any time
and from time to time, promptly upon Lender's request, the following reports:
(i) a reconciliation of all Accounts; (ii) an aging of all Accounts; (iii) trial
balances; and (iv) test verifications of such Accounts as Lender may request.
Borrower, at its own expense, shall cause its certified independent public
accountants to deliver to Lender the results of any physical verifications of
all or any portion of the Inventory made or observed by such accountants when
and if such verification is conducted. Lender shall be permitted to observe and
consult with Borrower's accountants in the performance of these tasks.
6.3. Lender's Appointment as Attorney-in-fact. On the Closing Date
----------------------------------------
Borrower shall execute and deliver the Power of Attorney in the form attached as
Exhibit H. The power of attorney granted pursuant to the Power of Attorney is a
- - ---------
power coupled with an interest and shall be irrevocable until the Termination
Date. The powers conferred on Lender under the Power of Attorney are solely to
protect Lender's interests in the Collateral and shall not impose any duty upon
it to exercise any such powers. Lender agrees and promises that (a) it shall not
exercise any power or authority granted under the Power of Attorney unless an
Event of Default has occurred and is continuing (provided that regardless of
whether an Event of Default has occurred and is continuing Lender may execute
UCC financing statements on behalf of Borrower that it deems advisable to
perfect its Liens under any Loan Document), (b) Lender shall only exercise the
powers granted under the Power of Attorney in respect of Collateral, and (c)
upon request of Borrower, Lender shall account for any moneys received by Lender
in respect of any foreclosure on or disposition of Collateral pursuant to use of
the Power of Attorney; provided, that Lender shall not have any other duty as to
--------
any Collateral, and Lender shall be accountable only for amounts that it
actually receives as a result of the exercise of such powers. NONE OF LENDER OR
ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR REPRESENTATIVES SHALL BE
RESPONSIBLE TO BORROWER FOR ANY ACT OR FAILURE TO ACT PURSUANT TO THE POWERS
GRANTED UNDER THE POWER OF ATTORNEY OR OTHERWISE, EXCEPT FOR ITS OR THEIR OWN
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, NOR FOR ANY PUNITIVE, EXEMPLARY,
INDIRECT OR CONSEQUENTIAL DAMAGES. Borrower also hereby authorizes Lender to
file any financing or continuation statement without the signature of Borrower
to the extent permitted by applicable law.
6.4. Grant of License to Use Intellectual Property Collateral. For the
--------------------------------------------------------
purpose of enabling Lender to exercise its rights and remedies under the Loan
Documents, Borrower hereby grants to Lender an irrevocable, non-exclusive
license (exercisable upon the occurrence of an Event of Default without payment
of royalty or other compensation to Borrower) to use, transfer, license or
sublicense any Intellectual Property now owned, licensed to, or hereafter
acquired by Borrower, and wherever the same may be located, and including in
such license access to all media in which any of the licensed items may be
recorded or stored and to all computer and automatic machinery software and
programs used for the compilation or printout thereof, and represents, promises
and agrees that any such license or sublicense is not and will not be in
conflict with the contractual or commercial rights of any third person;
provided, that such license will terminate on the Termination Date.
- - --------
6.5. Reinstatement. The provisions of this Section 6 shall remain in full
-------------
force and effect and continue to be effective even if: (a) any petition is filed
by or against Borrower for liquidation or reorganization; (b) Borrower becomes
insolvent or makes an assignment for the benefit of creditors; (c) a receiver or
trustee is appointed for all or any significant part of Borrower's assets; or
(d) at any time payment and performance of the Obligations, or any part thereof,
is, pursuant to applicable law, rescinded or reduced in amount, or must
otherwise be restored or returned by any obligee of the Obligations, whether as
a "voidable preference," "fraudulent transfer" or otherwise, all as though such
payment or performance had not been made. In the event that any payment, or any
part thereof, is rescinded, reduced, restored or returned, the Obligations and
Lender's Liens in the Collateral shall be reinstated and deemed reduced only by
any amount paid and not so rescinded, reduced, restored or returned.
7. EVENTS OF DEFAULT, RIGHTS AND REMEDIES
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<PAGE>
7.1. Events of Default. The occurrence of any one or more of the following
-----------------
events (regardless of the reason therefor) shall constitute an "Event of
Default" hereunder:
(a) Borrower shall fail to make any payment in respect of any
Obligations when due and payable or declared due and payable; or
(b) Borrower, any other Credit Party or MLC shall fail or neglect
to perform, keep or observe any of the covenants, promises, agreements,
requirements, conditions or other terms or provisions contained in this
Agreement or any of the other Loan Documents, regardless of whether such breach
involves a covenant, promise, agreement, condition, requirement, term or
provision with respect to a Credit Party that has not signed this Agreement or
MLC; provided, that a breach of any covenant in Sections 3.1(a)(iv), 3.1(b)(ii),
--------
3.11 or 3.12 shall not constitute an Event of Default unless such breach is not
cured within ten (10) days of the date such breach occurred; or
(c) an event of default shall occur (and the grace and cure
periods applicable thereto (if any) shall have expired without cure) under any
other material agreement, document or instrument to which Borrower, any other
Credit Party is a party (including, without limitation, any agreement,
instrument or document executed in connection with the Term Loans or the Seller
Notes), or by which any such Person or its property is bound, and such event of
default (i) involves the failure to make any payment, whether of principal,
interest or otherwise, and whether due by scheduled maturity, required
prepayment, acceleration, demand or otherwise, in respect of any Indebtedness
(other than the Obligations) of such Person in an aggregate amount exceeding the
Minimum Actionable Amount, or (ii) causes (or permits any holder of such
Indebtedness or a trustee to cause) such Indebtedness, or a portion thereof in
an aggregate amount exceeding the Minimum Actionable Amount to become due prior
to its stated maturity or prior to its regularly scheduled dates of payment; or
(d) any representation or warranty in this Agreement or any other
Loan Document, or in any written statement pursuant hereto or thereto, or in any
report, financial statement or certificate made or delivered to Lender by
Borrower, any other Credit Party or MLC shall be untrue or incorrect as of the
date when made in any material respect, regardless of whether such breach
involves a representation or warranty with respect to a Credit Party that has
not signed this Agreement or MLC; or
(e) any of the assets of Borrower, any other Credit Party or MLC
shall be attached, seized, levied upon or subjected to a writ or distress
warrant; or come within the possession of any receiver, trustee, custodian or
assignee for the benefit of creditors of such Person, and shall remain unstayed
or undismissed for sixty (60) consecutive days; or any Person other than
Borrower shall apply for the appointment of a receiver, trustee or custodian for
any of Borrower's assets (or those of any other Credit Party or MLC) and shall
remain unstayed or undismissed for sixty (60) consecutive days; or Borrower, any
other Credit Party or MLC shall have concealed, removed or permitted to be
concealed or removed, any part of its property with intent to hinder, delay or
defraud its creditors or any of them or made or suffered a transfer of any of
its property or the incurring of an obligation which may be fraudulent under any
bankruptcy, fraudulent transfer or other similar law; provided, it is agreed
--------
that this clause (e) shall not apply to the assets of any Subsidiary of MLC
other than Borrower; or
(f) a case or proceeding shall have been commenced involuntarily
in a court having competent jurisdiction seeking a decree or order: (i) against
Borrower, any other Credit Party or MLC under the United States Bankruptcy Code
or any other applicable Federal, state or foreign bankruptcy or other similar
law, and seeking either (a) the appointment of a custodian, receiver,
liquidator, assignee, trustee or sequestrator (or similar official) of such
Person or of any substantial part of its properties, or (b) the reorganization
or winding up or liquidation of the affairs of any such Person and such case or
proceeding shall remain undismissed or unstayed for sixty (60) consecutive days
or such court shall enter a decree or order granting the relief sought in such
case or proceeding; or (ii) invalidating or denying (a) any Person's right,
power, or competence to enter into or perform any of its obligations under any
Loan Document, or (b) the validity or enforceability of this Agreement or any
other Loan Document or any action taken hereunder or thereunder; or
(g) Borrower, any other Credit Party or MLC shall (i) file a
petition under the United States Bankruptcy Code or any other applicable
Federal, state or foreign bankruptcy or other similar law, (ii) consent to the
institution of proceedings thereunder or to the filing of any such petition or
to the appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee or sequestrator (or similar official) of any such Person or of
any substantial part of its
-19-
<PAGE>
properties, (iii) fail generally to pay (or admit in writing its inability to
pay) its debts as such debts become due, or (iv) take any corporate action in
furtherance of any such action; or
(h) final judgment or judgments (after the expiration of all times
to appeal therefrom) for the payment of money in excess of the Minimum
Actionable Amount in the aggregate shall be rendered against Borrower or any
other Credit Party, unless the same shall be (i) fully covered by insurance and
the issuer(s) of the applicable policies shall have acknowledged full coverage
in writing within fifteen (15) days of judgment, or (ii) vacated, stayed,
bonded, paid or discharged within a period of fifteen (15) days from the date of
such judgment; or
(i) any other event shall have occurred which could reasonably be
expected to have a Material Adverse Effect and Lender shall have given Borrower
notice thereof; or
(j) any Lien or any provision of any Loan Document shall for any
reason cease to be valid, binding and enforceable in accordance with its terms,
or any Lien granted, or intended by the Loan Documents to be granted, to Lender
shall cease to be a valid and perfected Lien having the first priority (or a
lesser priority if expressly permitted in the Loan Documents) in any of the
Collateral covered or purported to be covered thereby; or
(k) any Change of Control shall occur with respect to Borrower or
MLC; or
(l) within two hundred (200) days of the Closing Date the
Securities Exchange Commission shall not have issued an order declaring that MLC
is no longer an investment company under the Investment Company Act of 1940.
7.2. Remedies.
--------
(a) If any Default or Event of Default shall have occurred and be
continuing, then Lender may exercise one or more of the following remedies: (i)
upon notice to Borrower from Lender, increase the rate of interest applicable to
the Loans and the Letter of Credit Fee to the Default Rate, as provided in
Section 1.5(d), effective as of the date of the initial Default; or (ii)
terminate or suspend its obligation to make further Revolving Credit Advances
and to incur additional Letter of Credit Obligations. In addition, if any Event
of Default shall have occurred and be continuing, Lender may, without notice,
take any one or more of the following actions: (1) declare all or any portion of
the Obligations to be forthwith due and payable, including contingent
liabilities with respect to Letter of Credit Obligations, whereupon such
Obligations shall become and be due and payable; (2) require that all Letter of
Credit Obligations be fully cash collateralized pursuant to Schedule C; or (3)
----------
exercise any rights and remedies provided to Lender under the Loan Documents or
at law or equity, including all remedies provided under the Code; provided, that
--------
upon the occurrence of an Event of Default specified in Sections 7.1(e), (f) or
(g), the Obligations shall become immediately due and payable (and any
obligation of Lender to make further Loans, if not previously terminated, shall
immediately be terminated) without declaration, notice or demand by Lender.
(b) Without limiting the generality of the foregoing, Borrower
expressly agrees that upon the occurrence of any Event of Default, Lender may
collect, receive, assemble, process, appropriate and realize upon the
Collateral, or any part thereof, and may forthwith sell, lease, assign, give an
option or options to purchase or otherwise dispose of and deliver said
Collateral (or contract to do so), or any part thereof, in one or more parcels
at public or private sale or sales, at any exchange at such prices as it may
deem best, for cash or on credit or for future delivery without assumption of
any credit risk. Lender shall have the right upon any such public sale or sales
and, to the extent permitted by law, upon any such private sale or sales, to
purchase for the benefit of Lender the whole or any part of said Collateral so
sold, free of any right or equity of redemption, which equity of redemption
Borrower hereby releases. Such sales may be adjourned, or continued from time to
time with or without notice. Lender shall have the right to conduct such sales
on Borrower's premises or elsewhere and shall have the right to use Borrower's
premises without rent or other charge for such sales or other action with
respect to the Collateral for such time or times as Lender deems necessary or
advisable.
(c) Borrower further agrees, upon the occurrence of an Event of
Default and at Lender's request, to assemble the Collateral and make it
available to Lender at places which Lender shall reasonably select, whether at
Borrower's premises or elsewhere. Until Lender is able to effect a sale, lease,
or other disposition of the Collateral, Lender shall have the right to complete,
assemble, use or operate the Collateral or any part thereof, to the extent that
Lender deems appropriate, for the purpose of preserving such Collateral or its
value or for any other purpose. Lender shall have no obligation to Borrower to
maintain or preserve the rights of Borrower as against third parties with
respect to any Collateral while such
-20-
<PAGE>
Collateral is in the possession of Lender. Lender may, if it so elects, seek the
appointment of a receiver or keeper to take possession of any Collateral and to
enforce any of Lender's remedies with respect to such appointment without prior
notice or hearing. To the maximum extent permitted by applicable law, Borrower
waives all claims, damages, and demands against Lender, its Affiliates, agents,
and the officers and employees of any of them arising out of the repossession,
retention or sale of any Collateral except such as are determined in a final
judgment by a court of competent jurisdiction to have arisen solely out of the
gross negligence or willful misconduct of such Person. Borrower agrees that ten
(10) days prior notice by Lender to Borrower of the time and place of any public
sale or of the time after which a private sale may take place is reasonable
notification of such matters. Borrower shall remain liable for any deficiency if
the proceeds of any sale or disposition of the Collateral are insufficient to
pay all amounts to which Lender is entitled.
(d) Lender's rights and remedies under this Agreement shall be
cumulative and nonexclusive of any other rights and remedies which Lender may
have under any Loan Document or at law or in equity. Recourse to the Collateral
shall not be required. All rights, remedies and powers provided in this
Agreement may be exercised only to the extent that the exercise thereof does not
violate any applicable provision of law, and all provisions of this Agreement
are intended to be subject to all applicable mandatory provisions of law that
may be controlling and to be limited, to the extent necessary, so that they do
not render this Agreement invalid, unenforceable, in whole or in part.
7.3. Waivers by Borrower. Except as otherwise provided for in this
-------------------
Agreement and to the fullest extent permitted by applicable law, Borrower
waives: (a) presentment, demand and protest, and notice of presentment,
dishonor, intent to accelerate, acceleration, protest, default, nonpayment,
maturity, release, compromise, settlement, extension or renewal of any or all
Loan Documents, the Note or any other notes, commercial paper, Accounts,
Contracts, Documents, Instruments, Chattel Paper and guaranties at any time held
by Lender on which Borrower may in any way be liable, and hereby ratifies and
confirms whatever Lender may do in this regard; (b) all rights to notice and a
hearing prior to Lender's taking possession or control of, or to Lender's
replevy, attachment or levy upon, any Collateral or any bond or security which
might be required by any court prior to allowing Lender to exercise any of its
remedies; and (c) the benefit of all valuation, appraisal and exemption laws.
Borrower acknowledges that it has been advised by counsel of its choices and
decisions with respect to this Agreement, the other Loan Documents and the
transactions evidenced hereby and thereby.
7.4. Proceeds. The Proceeds of any sale, disposition or other
--------
realization upon any Collateral shall be applied by Lender upon receipt, in the
following order of priorities: first, to reimburse or pay in full the actual and
-----
reasonable expenses of Lender incurred in connection with such sale, disposition
or other realization, including all other expenses, liabilities and advances
incurred or made by Lender in connection therewith; second, to Lender as
------
specified in Section 1.11; third, to cash collateralize any outstanding Letter
-----
of Credit Obligations pursuant to Schedule C; and finally, after payment and
---------- -------
satisfaction in full in cash of all of the Obligations, and after the payment by
Lender of any other amount required by any provision of law, including Section
9-504(1)(c) of the Code (but only after Lender has received what Lender
considers reasonable proof of a subordinate party's security interest), the
surplus, if any, to Borrower or its representatives or to whomsoever may be
lawfully entitled to receive the same, or as a court of competent jurisdiction
may direct.
8. Successors and Assigns
Each Loan Document shall be binding on and shall inure to the benefit of
Borrower and each other Credit Party executing such Loan Document, Lender, and
their respective successors and assigns, except as otherwise provided herein or
therein. Neither Borrower nor any other Credit Party may assign, transfer,
hypothecate or otherwise convey its rights, benefits, obligations or duties
under any Loan Document without the prior express written consent of Lender.
Any such purported assignment, transfer, hypothecation or other conveyance by
Borrower or such Credit Party without the prior express written consent of
Lender shall be void. The terms and provisions of this Agreement and the other
Loan Documents are for the purpose of defining the relative rights and
obligations of Borrower the other Credit Parties and Lender with respect to the
transactions contemplated hereby and thereby, and there shall be no third party
beneficiaries of any of the terms and provisions of any of the Loan Documents.
Lender reserves the right at any time to create and sell a participation in the
Loans and the Loan Documents and to sell, transfer or assign any or all of its
rights in the Loans and under the Loan Documents.
9. Miscellaneous
9.1. Complete Agreement; Modification of Agreement. The Loan Documents
---------------------------------------------
constitute the complete agreement between the parties with respect to the
subject matter hereof and thereof, supersede all prior agreements, commitments,
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<PAGE>
understandings or inducements (oral or written, expressed or implied), and may
not be modified, altered or amended except by a written agreement signed by
Lender, Borrower, any other Credit Party executing this Agreement or any other
Loan Document and MLC. Borrower, each other Credit Party executing this
Agreement or any other Loan Document and MLC shall have all of its respective
duties and obligations under this Agreement and such other Loan Document from
the date of its execution and delivery, regardless of whether the initial Loan
has been funded at that time.
9.2. Expenses. Borrower shall reimburse Lender for all reasonable
--------
out-of-pocket expenses as set forth in Schedule E.
----------
9.3. No Waiver. Neither Lender's failure, at any time or times, to require
---------
strict performance by Borrower, any other Credit Party or MLC of any provision
of any Loan Document, nor Lender's failure to exercise, nor any delay in
exercising, any right, power or privilege hereunder, (a) shall waive, affect or
diminish any right of Lender thereafter to demand strict compliance and
performance therewith, or (b) shall operate as a waiver thereof. No single or
partial exercise of any right, power or privilege hereunder shall preclude any
other or future exercise thereof or the exercise of any other right, power or
privilege. Any suspension or waiver of a Default, Event of Default, or other
provision under the Loan Documents shall not suspend, waive or affect any other
Default or Event of Default under any Loan Document, whether the same is prior
or subsequent thereto and whether of the same or of a different type, and shall
not be construed as a bar to any right or remedy which Lender would otherwise
have had on any future occasion. None of the undertakings, indemnities,
agreements, warranties, covenants and representations of Borrower, any other
Credit Party or MLC to Lender contained in any Loan Document and no Default or
Event of Default by Borrower, any other Credit Party or MLC under any Loan
Document shall be deemed to have been suspended or waived by Lender, unless such
waiver or suspension is by an instrument in writing signed by an officer or
other authorized employee of Lender and directed to Borrower specifying such
suspension or waiver (and then such waiver shall be effective only to the extent
therein set forth), and Lender shall not, by any act (other than execution of a
formal written waiver), delay, omission or otherwise, be deemed to have waived
any of its rights or remedies hereunder.
9.4. Severability. Wherever possible, each provision of the Loan Documents
------------
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of any Loan Document shall be prohibited by
or invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement. Except as
otherwise expressly provided for in the Loan Documents, no termination or
cancellation (regardless of cause or procedure) of any financing arrangement
under the Loan Documents shall in any way affect or impair the Obligations,
duties, indemnities, and liabilities of Borrower, any other Credit Party or MLC
or the rights of Lender relating to any unpaid Obligation, due or not due,
liquidated, contingent or unliquidated, or any transaction or event occurring
prior to such termination, or any transaction or event, the performance of which
is not required until after the Commitment Maturity Date. Except as otherwise
expressly provided herein or in any other Loan Document, all undertakings,
agreements, covenants, warranties and representations of or binding upon
Borrower, any other Credit Party or MLC and all rights of Lender, all as
contained in the Loan Documents, shall not terminate or expire, but rather shall
survive such termination or cancellation and shall continue in full force and
effect until the Termination Date; provided, that the indemnity obligations of
--------
the Credit Parties and MLC under the Loan Documents shall survive the
Termination Date.
9.5. Conflict of Terms. Except as otherwise provided in any Loan
-----------------
Document by specific reference to the applicable provisions of this Agreement,
if any provision contained in this Agreement is in conflict with, or
inconsistent with, any provision in any other Loan Document, the provision
contained in this Agreement shall govern and control.
9.6. Authorized Signature. Until Lender shall be notified by Borrower, any
--------------------
other Credit Party or MLC to the contrary, the signature upon any document or
instrument delivered pursuant hereto and believed by Lender or any of Lender's
officers, agents, or employees to be that of an officer of Borrower, such other
Credit Party or MLC listed in the Secretarial Certificate in the form of Exhibit
-------
G or Exhibit J, as applicable, shall bind Borrower, such other Credit Party and
- - - ---------
MLC and be deemed to be the act of Borrower, such other Credit Party or MLC
affixed pursuant to and in accordance with resolutions duly adopted by
Borrower's, such other Credit Party's or MLC's Board of Directors, and Lender
shall be entitled to assume the authority of each signature and authority of the
person whose signature it is or appears to be unless the person acting in
reliance of such signature shall have actual knowledge of the fact that such
signature is false or the person whose signature or purported signature is
presented is without authority.
22
<PAGE>
9.7. Notices. Except as otherwise provided herein, whenever any notice,
-------
demand, request, consent, approval, declaration or other communication shall or
may be given to or served upon any party by any other party, or whenever any
party desires to give or serve upon any other party any communication with
respect to this Agreement, each such notice, demand, request, consent, approval,
declaration or other communication shall be in writing and shall be deemed to
have been validly served, given or delivered (a) upon the earlier of actual
receipt and three (3) days after deposit in the United States Mail, registered
or certified mail, return receipt requested, with proper postage prepaid, (b)
upon transmission, when sent by telecopy or other similar facsimile transmission
(with such telecopy or facsimile promptly confirmed by delivery of a copy by
personal delivery or United States Mail as otherwise provided in this Section
9.7), (c) one (1) Business Day after deposit with a reputable overnight courier
with all charges prepaid or (d) when hand-delivered, all of which shall be
addressed to the party to be notified and sent to the address or facsimile
number indicated in Schedule 1.1 or to such other address (or facsimile number)
------------
as may be substituted by notice given as herein provided. The giving of any
notice required hereunder may be waived in writing by the party entitled to
receive such notice. Failure or delay in delivering copies of any notice,
demand, request, consent, approval, declaration or other communication to any
Person (other than Borrower or Lender) designated in Schedule 1.1 to receive
------------
copies shall in no way adversely affect the effectiveness of such notice,
demand, request, consent, approval, declaration or other communication.
9.8. Section Titles. The Section titles and Table of Contents contained
--------------
in any Loan Document are and shall be without substantive meaning or content of
any kind whatsoever and are not a part of the agreement between the parties
hereto.
9.9. Counterparts. Any Loan Document may be executed in any number of
------------
identical counterparts, which shall constitute an original and collectively and
separately constitute a single instrument or agreement.
9.10. Time of the Essence. Time is of the essence for performance of the
-------------------
Obligations under the Loan Documents.
9.11. GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF
-------------
THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION,
VALIDITY AND PERFORMANCE, THE LOAN DOCUMENTS AND THE OBLIGATIONS ARISING UNDER
THE LOAN DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS APPLICABLE TO CONTRACTS MADE
AND PERFORMED IN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES THEREOF REGARDING
CONFLICTS OF LAWS, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.
BORROWER HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN
ILLINOIS SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR
DISPUTES BETWEEN BORROWER AND LENDER PERTAINING TO THIS AGREEMENT OR ANY OF THE
OTHER LOAN DOCUMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS; PROVIDED, THAT LENDER AND BORROWER
--------
ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT
LOCATED OUTSIDE OF ILLINOIS ; AND FURTHER PROVIDED, THAT NOTHING IN THIS
--- ------- --------
AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE LENDER FROM BRINGING SUIT OR
TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO COLLECT THE OBLIGATIONS,
TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO
ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF LENDER. BORROWER EXPRESSLY
SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT
COMMENCED IN ANY SUCH COURT, AND BORROWER HEREBY WAIVES ANY OBJECTION WHICH IT
MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON
----- ---
CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF
AS IS DEEMED APPROPRIATE BY SUCH COURT. BORROWER HEREBY WAIVES PERSONAL SERVICE
OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT
AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE
MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO BORROWER AT THE ADDRESS SET
FORTH IN SCHEDULE 1.1 OF THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED
------------
COMPLETED UPON THE EARLIER OF BORROWER'S ACTUAL RECEIPT THEREOF OR THREE (3)
DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID.
9.12. WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION WITH
--------------------
COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN
EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL
LAWS TO APPLY
-23-
<PAGE>
(RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE
RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE
BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE
PARTIES HERETO WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, OR
PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER ARISING IN CONTRACT, TORT, OR
OTHERWISE BETWEEN LENDER, BORROWER, ANY CREDIT PARTY AND MLC ARISING OUT OF,
CONNECTED WITH, RELATED OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN
THEM IN CONNECTION WITH THE LOAN DOCUMENTS OR THE TRANSACTIONS RELATED THERETO.
24
<PAGE>
IN WITNESS WHEREOF, this Loan and Security Agreement has been duly executed
as of the date first written above.
PG NEWCO CORP.
By.................................
Name: Leon F. Fiorentino
Title: Vice President - Finance
GENERAL ELECTRIC CAPITAL CORPORATION
By.................................
Name: Steven E. Friedlander
Title: Duly Authorized Signatory
-25-
<PAGE>
<TABLE>
<CAPTION>
Index of Exhibits and Schedules
<S> <C>
Schedule A......................................... - Definitions
Schedule B......................................... - Disclosure Schedules (3.2, 3.6, 3.7, 3.8,
3.12, 3.13, 3.15, 3.17, 3.18, 3.19, 3.27,
5(c) and 6.1)
Schedule C......................................... - Letters of Credit
Schedule D......................................... - Cash Management System
Schedule E......................................... - Fees and Expenses
Schedule F......................................... - Schedule of Documents
Schedule G......................................... - Financial Covenants
Schedule H......................................... - Supplemental Description of Collateral
Schedule I......................................... - Schedule of Acquired Assets
Schedule 1.1....................................... - Lender's and Borrower's Representatives for
Notices; Addresses
Schedule 1.6....................................... - Eligible Accounts
Schedule 1.7....................................... - Eligible Inventory
Exhibit A.......................................... - Form of Notice of Revolving Credit Advance
Exhibit B.......................................... - Form of Daily Collateral Activity Report
Exhibit C.......................................... - Form of Borrowing Base Certificate
Exhibit D.......................................... - Form of Accounts Payable Analysis
Exhibit E.......................................... - Form of Accounts Receivable Roll Forward
Analysis
Exhibit F.......................................... - Form of Revolving Credit Note
Exhibit G.......................................... - Form of Secretarial Certificate (Borrower)
Exhibit H.......................................... - Form of Power of Attorney
Exhibit I.......................................... - Form of Certificate of Compliance
Exhibit J.......................................... - Form of Secretarial Certificate (MLC)
Also attached, as applicable
................................................... Lockbox Account Agreement
................................................... Pledged Account Agreement
................................................... Landlord's Waiver and Consent
</TABLE>
<PAGE>
Schedule A
Definitions
In addition to the defined terms appearing below, capitalized terms used in
the Agreement and the other Loan Documents shall have (unless otherwise provided
elsewhere in the Agreement or in the other Loan Documents) the following
respective meanings:
"Account Debtor" shall mean any Person who may become obligated with
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respect to, or on account of, an Account.
"Accounts" shall mean all "accounts," as such term is defined in the Code,
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now owned or hereafter acquired by any Person, including: (i) all accounts
receivable, other receivables, book debts and other forms of obligations (other
than forms of obligations evidenced by Chattel Paper, Documents or Instruments),
whether arising out of goods sold or services rendered or from any other
transaction (including any such obligations which may be characterized as an
account or contract right under the Code); (ii) all of such Person's rights in,
to and under all purchase orders or receipts for goods or services; (iii) all of
such Person's rights to any goods represented by any of the foregoing (including
unpaid sellers' rights of rescission, replevin, reclamation and stoppage in
transit and rights to returned, reclaimed or repossessed goods); (iv) all moneys
due or to become due to such Person under all purchase orders and contracts for
the sale of goods or the performance of services or both or in connection with
any other transaction (whether or not yet earned by performance), including the
right to receive the proceeds of said purchase orders and contracts; and (v) all
collateral security and guarantees of any kind given by any other Person with
respected to any of the foregoing.
"Accounts Payable Analysis" shall mean a certificate in the form of Exhibit
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D.
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"Accounts Receivable Roll Forward Analysis" shall mean a certificate in the
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form of Exhibit E.
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"Acquisition" shall mean the acquisition by Borrower pursuant to the
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Acquisition Documents of substantially all of the assets of Seller more
specifically described in Schedule I hereto ("Schedule of Acquired Assets").
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"Acquisition Documents" shall mean the Asset Purchase Agreement, dated as
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of April 4, 1997, by and among MLC, Borrower, Seller and the Shareholder
Indemnitors listed on the signature pages thereto and any other documents or
instruments entered into in connection with the Acquisition.
"Affiliate" shall mean, with respect to any Person: (i) each Person that,
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directly or indirectly, owns or controls, whether beneficially, or as a trustee,
guardian or other fiduciary, five percent (5%) or more of the Stock having
ordinary voting power in the election of directors of such Person; (ii) each
Person that controls, is controlled by or is under common control with such
Person or any Affiliate of such Person; or (iii) each of such Person's officers,
directors, joint venturers and partners. For the purpose of this definition,
"control" of a Person shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of its management or policies, whether
through the ownership of voting securities, by contract or otherwise.
"Agreement" shall mean the Loan and Security Agreement to which this
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Schedule A is attached or otherwise identified, including all Appendices
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attached or otherwise identified thereto, restatements and modifications and
supplements thereto, and any appendices, exhibits or schedules to any of the
foregoing, and shall refer to the Agreement as the same may be in effect at the
time such reference becomes operative; provided, that except as specifically set
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forth in the Agreement, any reference to the Disclosure Schedules to the
Agreement shall be deemed a reference to the Disclosure Schedules as in effect
on the Closing Date or in a written amendment thereto executed by Borrower and
Lender in accordance with Section 3.25.
"Appendices" shall have the meaning assigned to it in the Recitals of the
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Agreement.
Schedule A -1-
<PAGE>
"Books and Records" shall mean all books, records, board minutes,
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contracts, licenses, insurance policies, environmental audits, business plans,
files, accounting books and records, financial statements (actual and pro
forma), and filings with Governmental Authorities.
"Borrower" shall mean the Person identified in the Recitals of the
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Agreement.
"Borrowing Availability" shall mean, at any time, the lesser of (i) the
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Maximum Amount or (ii) the Borrowing Base, in each case less reserves
established by Lender from time to time.
"Borrowing Base" shall mean at any time an amount equal to the sum at such
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time of:
Eighty five percent (85%) (or such lesser percentage as may be
specified by Lender from time to time by written notice to Borrower)
of the value (as determined by Lender) of Borrower's Eligible Accounts
provided, however, the Lender (without limiting its rights to
otherwise reduce the advance rate) shall reduce such advance rate by
one (1) percentage point for each percentage point that the dilution
(calculated as the average dilution taken from the Accounts Receivable
Roll Forward Analysis) over the most recent three (3) months exceeds
five percent (5%); plus
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The lesser of (a) $3,000,000 or (b) the sum of (i) fifty percent
(50%) (or such lesser percentage as may be specified by Lender from
time to time by written notice to Borrower) of the value of Borrower's
Eligible Inventory consisting of raw material and (ii) the lesser of
(A) $500,000, and (B) the WIP Advance Rate (or such lesser percentage
as may be specified by Lender from time to time by written notice to
Borrower) multiplied by the value of Borrower's Eligible Inventory
consisting of work in process, valued on a first-in, first-out basis
(at the lower of cost or market).
On and after May 31, 1998, work in process shall not be included in
the Borrowing Base. Finished goods shall not at any time be included
in the Borrowing Base.
"Borrowing Base Certificate" shall mean a certificate in the form of
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Exhibit C and shall include the Schedule of Accounts and Schedule of Inventory.
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"Business Day" shall mean any day that is not a Saturday, a Sunday or a day
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on which banks are required or permitted to be closed in the State of Illinois
or in the State of New York.
"Capital Expenditures" shall mean all payments or accruals (including
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Capital Lease Obligations) for any fixed assets or improvements or for
replacements, substitutions or additions thereto, that have a useful life of
more than one (1) year and that are required to be capitalized under GAAP.
"Capital Lease" shall mean, with respect to any Person, any lease of any
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property (whether real, personal or mixed) by such Person as lessee that, in
accordance with GAAP, either would be required to be classified and accounted
for as a capital lease on a balance sheet of such Person or otherwise would be
disclosed as such in a note to such balance sheet, other than, in the case of
Borrower, any such lease under which Borrower is the lessor.
"Capital Lease Obligation" shall mean, with respect to any Capital Lease,
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the amount of the obligation of the lessee thereunder that, in accordance with
GAAP, would appear on a balance sheet of such lessee in respect of such Capital
Lease or otherwise be disclosed in a note to such balance sheet.
"Change of Control" shall mean MLC shall cease to own one hundred percent
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(100%) of the capital stock of Borrower free and clear of all Liens other than
the Lien of Lender.
"Charges" shall mean all Federal, state, county, city, municipal, local,
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foreign or other governmental taxes (including taxes owed to PBGC at the time
due and payable), levies, assessments, charges, liens, and all additional
charges, interest, penalties, expenses, claims or encumbrances upon or relating
to (i) the Collateral, (ii) the Obligations, (iii) the employees, payroll,
income or gross receipts of any Credit
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Schedule A -2-
<PAGE>
Party, (iv) the ownership or use of any assets by any Credit Party, or (v) any
other aspect of any Credit Party's business.
"Chattel Paper" shall mean all "chattel paper," as such term is defined in
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the Code, now owned or hereafter acquired by any Person, wherever located.
"Claim" shall mean any and all: suits, actions, or proceedings in any court
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or forum, at law, in equity or otherwise; any costs, fines, deficiencies, or
penalties; any asserted claims or demands by any Person; any arbitration
demands, proceedings or awards; any damages, losses, liabilities and expenses
(including reasonable attorneys' fees and disbursements and other costs of
collection, defense or appeal); any enforcement of rights and remedies; or any
criminal, civil or regulatory investigations.
"Closing Date" shall mean the Business Day on which the conditions
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precedent set forth in Section 2 have been satisfied or specifically waived in
writing by Lender, and the initial Loan has been made.
"Closing Fee" shall have the meaning assigned to it in Schedule E.
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"Code" shall mean the Uniform Commercial Code as the same may, from time to
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time, be in effect in the State of Illinois; provided, that in the event that,
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by reason of mandatory provisions of law, any or all of the attachment,
perfection or priority of Lender's security interest in any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of Illinois, the term "Code" shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions of
the Agreement relating to such attachment, perfection or priority and for
purposes of definitions related to such provisions.
"Collateral" shall mean the property, now existing or hereafter acquired or
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existing, real or personal, tangible or intangible, and whether owned by,
consigned to, or held by, or under the care, custody or control of Borrower or
any other Credit Party, that at any time hereafter becomes subject to a pledge,
security interest or Lien in favor of Lender to secure the Obligations,
including all cash, cash equivalents, Accounts, bank and deposit accounts and
deposits, investment property, commodity contracts, Inventory, Equipment, Goods,
Chattel Paper, Documents, Instruments, Books and Records, real property
interests, General Intangibles (including all Intellectual Property, Stock,
Claims, contract rights, and choses in action), and all of Borrower's or such
Credit Party's other interests in property of every kind and description, and
the products, profits, rents of, dividends or distributions on, accessions to,
and all Proceeds (including insurance proceeds) of any of the foregoing,
regardless of whether the Collateral, or any of it, is property as to which the
Code provides for the perfection of a security interest, and all rights and
remedies applicable to such property, and including all other property described
in Schedule H, but excluding in all events Hazardous Materials; provided,
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however, so long as all of the proceeds of the MLC Loan are kept in a deposit
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account in which no other funds are deposited, the proceeds of the MLC Loan
shall not be Collateral.
"Collection Account" shall mean that certain account of Lender, account
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number 50-232-854 in the name of GECC-CAF Depository at Bankers Trust Company, 1
Bankers Trust Plaza, New York, New York, ABA number 021-001-033.
"Commitment Maturity Date" shall mean the earliest of (i) May 29, 2000,
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(ii) the date Lender's obligation to advance funds is terminated and the
Obligations are declared to be due and payable pursuant to Section 7.2, and
(iii) the date of prepayment in full by Borrower of the Obligations in
accordance with the provisions of Section 1.2(c).
"Commitment Termination Date" shall mean the earliest of (i) May 29, 2000,
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(ii) the date of termination of Lender's obligation to advance funds pursuant to
Section 7.2, and (iii) the date of prepayment in full by Borrower of the
Obligations in accordance with the provisions of Section 1.2(c).
"Contracts" shall mean all the contracts, undertakings, or agreements
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(other than rights evidenced by Chattel Paper, Documents or Instruments) in or
under which any Person may now or hereafter have any right, title or interest,
including any agreement relating to the terms of payment or the terms of
performance of any Account.
Schedule A -3-
<PAGE>
"Copyright License" shall mean rights under any written agreement now owned
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or hereafter acquired by any Person granting the right to use any Copyright or
Copyright registration.
"Copyrights" shall mean all of the following now owned or hereafter
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acquired by any Person: (i) all copyrights in any original work of authorship
fixed in any tangible medium of expression, now known or later developed, all
registrations and applications for registration of any such copyrights in the
United States or any other country, including registrations, recordings and
applications, and supplemental registrations, recordings, and applications in
the United States Copyright Office; and (ii) all Proceeds of the foregoing,
including license royalties and proceeds of infringement suits, the right to sue
for past, present and future infringements, all rights corresponding thereto
throughout the world and all renewals and extensions thereof.
"Credit Party" shall mean Borrower, each of its Subsidiaries, and each
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Guarantor who has incurred obligations under or in respect of the Agreement or
granted Lender a Lien on Collateral in support of the Obligations with or
without direct liability, and each co-Borrower or other Person, other than
Lender and Borrower, who has executed the Agreement or any other Loan Document;
provided, however, that notwithstanding anything to the contrary contained in
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this Agreement, it is understood and agreed that MLC and CMC Heartland Partners
are not Credit Parties.
"Daily Collateral Activity Report" shall mean a certificate in the form of
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Exhibit B.
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"Default" shall mean any event which, with the passage of time or notice or
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both, would, unless cured or waived, become an Event of Default.
"Default Rate" shall have the meaning assigned to it in Section 1.5(d).
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"Disbursement Account" shall have the meaning assigned to it in Schedule D.
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"DOL" shall mean the United States Department of Labor or any successor
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thereto.
"Documents" shall mean all "documents," as such term is defined in the
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Code, now owned or hereafter acquired by any Person, wherever located, including
all bills of lading, dock warrants, dock receipts, warehouse receipts, and other
documents of title, whether negotiable or non-negotiable.
"Eligible Accounts" shall have the meaning assigned to it in Schedule 1.6.
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"Eligible Inventory" shall have the meaning assigned to it in Schedule 1.7.
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"Environmental Laws" shall mean all Federal, state and local laws,
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statutes, ordinances and regulations, now or hereafter in effect, and in each
case as amended or supplemented from time to time, and any applicable judicial
or administrative interpretation thereof relating to the regulation and
protection of human health, safety, the environment and natural resources
(including ambient air, surface water, groundwater, wetlands, land surface or
subsurface strata, wildlife, aquatic species and vegetation). Environmental
Laws include the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 (42 U.S.C. (S)(S) 9601 et seq.) ("CERCLA"); the Hazardous
Material Transportation Act (49 U.S.C. (S)(S) 1801 et seq.); the Federal
Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. (S)(S) 136 et seq.); the
Resource Conservation and Recovery Act (42 U.S.C. (S)(S) 6901 et seq.) ("RCRA");
the Toxic Substance Control Act (15 U.S.C. (S)(S) 2601 et seq.); the Clean Air
Act (42 U.S.C. (S)(S) 740 et seq.); the Federal Water Pollution Control Act (33
U.S.C. (S)(S) 1251 et seq.); the Occupational Safety and Health Act (29 U.S.C.
(S)(S) 651 et seq.) ("OSHA"); and the Safe Drinking Water Act (42 U.S.C. (S)(S)
300(f) et seq.), and any and all regulations promulgated thereunder, and all
analogous state and local counterparts or equivalents and any transfer of
ownership notification or approval statutes.
"Environmental Liabilities and Costs" shall mean all liabilities,
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obligations, responsibilities, remedial actions, removal costs, losses, damages,
punitive damages, consequential damages, treble damages, costs and
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Schedule A -4-
<PAGE>
expenses (including all reasonable fees, disbursements and expenses of counsel,
experts and consultants and costs of investigation and feasibility studies),
fines, penalties, sanctions and interest incurred as a result of any claim,
suit, action or demand by any Person, whether based in contract, tort, implied
or express warranty, strict liability, criminal or civil statute or common law
(including any thereof arising under any Environmental Law, permit, order or
agreement with any Governmental Authority) and which relate to any health or
safety condition regulated under any Environmental Law or in connection with any
other environmental matter or Release, threatened Release, or the presence of a
Hazardous Material.
"Environmental Permits" shall mean all permits, licenses, administrative
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orders, consent orders, consent decrees, governmental agency agreements or other
written documents detailing required environmental performance expected of
Borrower or any other Credit Party by any Governmental Authority.
"Equipment" shall mean all "equipment" as such term is defined in the Code,
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now owned or hereafter acquired by any Person, wherever located, including any
and all machinery, apparatus, equipment, fittings, furniture, fixtures, motor
vehicles and other tangible personal property (other than Inventory) of every
kind and description which may be now or hereafter used in such Person's
operations or which are owned by such Person or in which such Person may have an
interest, and all parts, accessories and accessions thereto and substitutions
and replacements therefor.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974 (or
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any successor legislation thereto), and any regulations promulgated thereunder.
"ERISA Affiliate" shall mean any trade or business (whether or not
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incorporated) which is a member of a "controlled group of corporations," a group
of trades or businesses under "common control," or an "affiliated service
group," which includes Borrower or any Credit Party, within the meaning of
Sections 414(b), (c), (m) or (o) of the IRC.
"ERISA Event" shall mean: (i) any of the events described in Section
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4043(c) of ERISA with respect to a Title IV Plan or a Multiemployer Plan with
respect to which the thirty (30) day notice requirement has not been waived by
regulation; (ii) the withdrawal of Borrower, any other Credit Party or any ERISA
Affiliate from a Title IV Plan subject to Section 4063 of ERISA during a plan
year in which it was a "substantial employer," as defined in Section 4001(a)(2)
of ERISA; (iii) the complete or partial withdrawal of Borrower, any other Credit
Party or any ERISA Affiliate from any Multiemployer Plan; (iv) the filing of a
notice of intent to terminate a Title IV Plan or the treatment of a plan
amendment as a termination under Section 4041 of ERISA; (v) the institution of
proceedings to terminate a Title IV Plan or Multiemployer Plan by PBGC; (vi) a
transfer, within the preceding five (5) years which resulted or will result in a
Title IV Plan with Unfunded Liabilities being transferred outside of the
"controlled group" (within the meaning of Section 4001(a)(14) of ERISA) of
Borrower or any other Credit Party; or (vii) any other event or condition which
might reasonably be expected to constitute grounds under Section 4042 of ERISA
for the termination of, or the appointment of a trustee to administer, any Title
IV Plan or Multiemployer Plan, or which results in the reorganization of or
insolvency of a Multiemployer Plan under Section 4241 or 4245 of ERISA, or the
imposition of any liability under Title IV of ERISA, other than PBGC premiums
due but not delinquent under Section 4007 of ERISA.
"Event of Default" shall have the meaning assigned to it in Section 7.1.
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"Federal Reserve Board" shall have the meaning assigned to it in Section
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3.10.
"Fees" shall mean the fees due to Lender as set forth in Schedule E.
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"Financial Statements" shall mean the consolidated and consolidating income
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statement, balance sheet and statement of cash flows of Borrower and its
Subsidiaries, internally prepared for each Fiscal Month, and audited for each
Fiscal Year, prepared in accordance with GAAP.
"Fiscal Month" shall mean any of the monthly accounting periods of
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Borrower.
"Fiscal Quarter" shall mean any of the quarterly accounting periods of
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Borrower.
Schedule A -5-
<PAGE>
"Fiscal Year" shall mean the twelve (12) month period of Borrower ending
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December 31 of each year. Subsequent changes of the fiscal year of Borrower
shall not change the term "Fiscal Year" unless Lender shall consent in writing
to such change.
"GAAP" shall mean generally accepted accounting principles in the United
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States of America as in effect from time to time, consistently applied.
"GE Capital" shall mean General Electric Capital Corporation, a New York
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corporation, and its successors and assigns.
"General Intangibles" shall mean all "general intangibles," as such term is
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defined in the Code, now owned or hereafter acquired by any Person, including
all right, title and interest which such Person may now or hereafter have in or
under any Contract, Intellectual Property, interests in partnerships, joint
ventures and other business associations, permits, proprietary or confidential
information, inventions (whether or not patented or patentable), technical
information, procedures, designs, knowledge, know-how, software, data bases,
data, skill, expertise, experience, processes, models, drawings, materials,
Books and Records, Goodwill (including the Goodwill associated with any
Intellectual Property), all rights and claims in or under insurance policies
(including insurance for fire, damage, loss, and casualty, whether covering
personal property, real property, tangible rights or intangible rights, all
liability, life, key-person, and business interruption insurance, and all
unearned premiums), uncertificated securities, choses in action, deposit
accounts, rights to receive tax refunds and other payments and rights of
indemnification.
"Goods" shall mean all "goods," as such term is defined in the Code, now
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owned or hereafter acquired by any Person, wherever located, including movables,
fixtures, equipment, inventory, or other tangible personal property.
"Goodwill" shall mean all goodwill, trade secrets, proprietary or
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confidential information, technical information, procedures, formulae, quality
control standards, designs, operating and training manuals, customer lists, and
distribution agreements now owned or hereafter acquired by any Person.
"Governmental Authority" shall mean any nation or government, any state or
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other political subdivision thereof, and any agency, department or other entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"Guaranteed Indebtedness" shall mean, as to any Person, any obligation of
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such Person guaranteeing any indebtedness, lease, dividend, or other obligation
("primary obligations") of any other Person (the "primary obligor") in any
manner, including any obligation or arrangement of such Person: (i) to purchase
or repurchase any such primary obligation; (ii) to advance or supply funds (a)
for the purchase or payment of any such primary obligation or (b) to maintain
working capital or equity capital of the primary obligor or otherwise to
maintain the net worth or solvency or any balance sheet condition of the primary
obligor; (iii) to purchase property, securities or services primarily for the
purpose of assuring the owner of any such primary obligation of the ability of
the primary obligor to make payment of such primary obligation; or (iv) to
indemnify the owner of such primary obligation against loss in respect thereof.
"Guarantor" shall mean each Person which executes a guaranty or a support,
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put or other similar agreement in favor of Lender in connection with the
transactions contemplated by the Agreement.
"Guaranty" shall mean any agreement to perform all or any portion of the
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Obligations on behalf of Borrower or any other Credit Party, in favor of, and in
form and substance satisfactory to, Lender, together with all amendments,
modifications and supplements thereto, and shall refer to such Guaranty as the
same may be in effect at the time such reference becomes operative.
"Hazardous Material" shall mean any substance, material or waste, the
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generation, handling, storage, treatment or disposal of which is regulated by
any Governmental Authority, or forms the bases of liability now or hereafter
under, any Environmental Law in any jurisdiction in which Borrower, Seller or
any
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Schedule A -6-
<PAGE>
other Credit Party has owned, leased, or operated real property or disposed
of hazardous materials, including any material or substance which (i) is defined
as a "solid waste," "hazardous waste," "hazardous material," "hazardous
substance," "extremely hazardous waste" or "restricted hazardous waste" or other
similar term or phrase under any Environmental Laws, or (ii) constitutes
petroleum or any fraction or by-product thereof, asbestos, polychlorinated
biphenyls, radioactive substances, volatile hydrocarbons or industrial solvents.
"Indebtedness" of any Person shall mean: (i) all indebtedness of such
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Person for borrowed money or for the deferred purchase price of property or
services (including reimbursement and all other obligations with respect to
surety bonds, letters of credit and bankers' acceptances, whether or not
matured, but not including obligations to trade creditors incurred in the
ordinary course of business); (ii) all obligations evidenced by notes, bonds,
debentures or similar instruments; (iii) all indebtedness created or arising
under any conditional sale or other title retention agreements with respect to
property acquired by such Person (even though the rights and remedies of the
seller or lender under such agreement in the event of default are limited to
repossession or sale of such property); (iv) all Capital Lease Obligations; (v)
all Guaranteed Indebtedness; (vi) all Indebtedness referred to in clauses (i),
(ii), (iii), (iv) or (v) above secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien upon or in property (including accounts and contract rights) owned by
such Person, even though such Person has not assumed or become liable for the
payment of such Indebtedness; (vii) the Obligations; and (viii) all liabilities
under Title IV of ERISA.
"Indemnified Person" shall have the meaning assigned to it in Section
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1.13(a).
"Index Rate" shall mean the latest rate for thirty (30) day dealer placed
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commercial paper which normally is published in the "Money Rates" section of The
Wall Street Journal (or if such rate ceases to be so published, as quoted from
such other generally available and recognizable source as Lender may select).
"Instruments" shall mean all "instruments," as such term is defined in the
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Code, now owned or hereafter acquired by any Person, wherever located, including
all certificated securities and all notes and other evidences of indebtedness,
other than instruments that constitute, or are a part of a group of writings
that constitute, Chattel Paper.
"Intellectual Property" shall mean any and all Licenses, Patents,
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Copyrights and Trademarks.
"Intercreditor Agreement" shall mean the Intercreditor Agreement between
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Lender and Term Lender in form and substance satisfactory to Lender, together
with all amendments, modifications and supplements thereto.
"Inventory" shall mean all "inventory," as such term is defined in the
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Code, now or hereafter owned or acquired by any Person, wherever located,
including all inventory, merchandise, goods and other personal property which
are held by or on behalf of such Person for sale or lease or are furnished or
are to be furnished under a contract of service or which constitute raw
materials, work in process or materials used or consumed or to be used or
consumed in such Person's business or in the processing, production, packaging,
promotion, delivery or shipping of the same, including other supplies.
"IRC" shall mean the Internal Revenue Code of 1986, and any successor
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thereto.
"IRS" shall mean the Internal Revenue Service, or any successor thereto.
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"Lender" shall mean GE Capital and, if at any time GE Capital shall decide
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to assign or syndicate all or any of the Obligations, such term shall include
such assignee or such other members of the syndicate.
"Letters of Credit" shall mean any and all commercial or standby letters of
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credit issued at the request and for the account of Borrower for which Lender
has incurred Letter of Credit Obligations.
"Letter of Credit Fee" shall have the meaning assigned to it in Schedule E.
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Schedule A -7-
<PAGE>
"Letter of Credit Obligations" shall mean all outstanding obligations
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incurred by Lender at the request of Borrower, whether direct or indirect,
contingent or otherwise, due or not due, in connection with the issuance or
guarantee, by Lender or another, of Letters of Credit, all as further set forth
in Schedule C. The amount of such Letter of Credit Obligations at any time
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shall equal the maximum amount which may be payable by Lender thereupon or
pursuant thereto at such time.
"License" shall mean any Copyright License, Patent License, Trademark
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License or other license of rights or interests now held or hereafter acquired
by any Person.
"Lien" shall mean any mortgage, security deed or deed of trust, pledge,
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hypothecation, assignment, deposit arrangement, lien, charge, claim, security
interest, security title, easement or encumbrance, or preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever (including any lease or title retention agreement, any financing
lease having substantially the same economic effect as any of the foregoing, and
the filing of, or agreement to give, any financing statement perfecting a
security interest under the Code or comparable law of any jurisdiction).
"Loan Documents" shall mean the Agreement, the Notes, the Financial
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Statements, each Guaranty, the Power of Attorney, the Intercreditor Agreement,
the patent and trademark assignment, and the other documents and instruments
listed in Schedule F, and all documents, instruments, certificates, and notices
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at any time delivered by and between Lender and any Credit Party in connection
with any of the foregoing (including at all times after the execution and
delivery thereof, the Pledge Agreement).
"Loans" shall mean the Revolving Credit Loan, including the Letter of
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Credit Obligations.
"Lock Box Account" shall have the meaning assigned to it in Schedule D.
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"Material Adverse Effect" shall mean: (i) a material adverse effect on (a)
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the business, assets, operations, prospects or financial or other condition of
Borrower (or with respect to any time prior to the Acquisition, Seller) or any
other Credit Party or the industry within which Borrower (or with respect to any
time prior to the Acquisition, Seller) or any other Credit Party operates, (b)
Borrower's or any other Credit Party's ability to pay or perform the Obligations
under the Loan Documents to which such Credit Party is a party in accordance
with the terms thereof, (c) the Collateral or Lender's Liens on the Collateral
or the priority of any such Lien, or (d) Lender's rights and remedies under the
Agreement and the other Loan Documents; or (ii) the incurrence by Borrower (or
with respect to any time prior to the Acquisition, Seller) of any liability,
contingent or liquidated, which has an actual or estimated incurrence of
liability, or dollar exposure or loss, greater than $25,000 to Borrower (or with
respect to any time prior to the Acquisition, Seller).
"Maximum Amount" shall mean the maximum amount of credit to be provided by
--------------
Lender to or for the benefit of Borrower for aggregate Revolving Credit Advances
and Letter of Credit Obligations outstanding at any time, without regard to the
Borrowing Base or reserves, which amount, for purposes of the Agreement, is
$7,000,000.
"Minimum Actionable Amount" shall mean $25,000.
-------------------------
"MLC" shall mean Milwaukee Land Company, a Delaware corporation.
---
"MLC Loan" shall mean the loan of [$2,000,000] made by MLC to Borrower on
--------
or prior to the Closing Date which loan is in addition to the $7,000,000 equity
contribution required by Section 2.1(k) and any additional loans made by MLC to
Borrower pursuant to Section 3.30.
"Multiemployer Plan" shall mean a "multiemployer plan," as defined in
------------------
Section 4001(a) (3) of ERISA, to which Borrower, any other Credit Party or any
ERISA Affiliate is making, is obligated to make, has made or been obligated to
make, contributions on behalf of participants who are or were employed by any of
them.
8
Schedule A -8-
<PAGE>
"Net Borrowing Availability" shall mean at any time the Borrowing
--------------------------
Availability less the Revolving Credit Loan.
"Note" shall mean the Revolving Credit Note.
----
"Notice of Revolving Credit Advance" shall have the meaning assigned to it
----------------------------------
in Section 1.1(b).
"Obligations" shall mean all loans, advances, debts, expense reimbursement,
-----------
fees, liabilities, and obligations, for the performance of covenants, tasks or
duties or for payment of monetary amounts (whether or not such performance is
then required or contingent, or amounts are liquidated or determinable) owing by
Borrower, any other Credit Party and MLC to Lender, of any kind or nature,
present or future, whether or not evidenced by any note, agreement or other
instrument, whether arising under any of the Loan Documents or under any other
agreement between Borrower, such Credit Party, MLC and Lender, and all covenants
and duties regarding such amounts; provided, that the Obligations shall not
--------
include the Term Loans. This term includes all principal, interest (including
interest which accrues after the commencement of any case or proceeding in
bankruptcy, or for the reorganization of Borrower), Fees, Charges, expenses,
attorneys' fees and any other sum chargeable to Borrower under any of the Loan
Documents, and all principal and interest due in respect of the Loans.
"Patent License" shall mean rights under any written agreement now owned or
--------------
hereafter acquired by any Person granting any right with respect to any
invention on which a Patent is in existence.
"Patents" shall mean all of the following in which any Person now holds or
-------
hereafter acquires any interest: (i) all letters patent of the United States or
any other country, all registrations and recordings thereof, and all
applications for letters patent of the United States or any other country,
including registrations, recordings and applications in the United States Patent
and Trademark Office or in any similar office or agency of the United States,
any State or Territory thereof, or any other country or any political
subdivision thereof; and (ii) all reissues, continuations, continuations-in-part
or extensions thereof.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any successor
----
thereto.
"Permitted Encumbrances" shall mean the following encumbrances: (i) Liens
----------------------
for taxes or assessments or other governmental Charges or levies, either not yet
due and payable or to the extent that nonpayment thereof is permitted by the
terms of Section 3.11(b); (ii) pledges or deposits securing obligations under
worker's compensation, unemployment insurance, social security or public
liability laws or similar legislation; (iii) pledges or deposits securing bids,
tenders, contracts (other than contracts for the payment of money) or leases to
which Borrower is a party as lessee made in the ordinary course of business;
(iv) deposits securing public or statutory obligations of Borrower; (v) inchoate
and unperfected workers', mechanics', suppliers' or similar liens arising in the
ordinary course of business; (vi) carriers', warehousing or other similar
possessory liens arising in the ordinary course of business and securing
indebtedness not yet due and payable in an outstanding aggregate amount not in
excess of $25,000 at any time; (vii) deposits securing, or in lieu of, surety,
appeal or customs bonds in proceedings to which Borrower is a party; (viii) any
attachment or judgment lien, unless the judgment it secures shall not, within
thirty (30) days after the entry thereof, have been discharged or execution
thereof stayed pending appeal, or shall not have been discharged within thirty
(30) days after the expiration of any such stay; (ix) zoning restrictions,
easements, licenses, or other restrictions on the use of real property or other
minor irregularities in title (including leasehold title) thereto, so long as
the same do not materially impair the use, value, or marketability of such real
property, leases or leasehold estates; (x) Purchase Money Liens securing
Purchase Money Indebtedness to the extent permitted under Section 5(c)(ii) of
the Agreement; (xi) Liens disclosed in the Disclosure Schedule on the Closing
Date and approved by Lender; (xii) Liens in favor of Lender securing the
Obligations; and (xiii) Liens in favor of Term Lender securing the Term Loans
subject to the Intercreditor Agreement.
"Person" shall mean any individual, sole proprietorship, partnership,
------
limited liability partnership, joint venture, trust, unincorporated
organization, association, corporation, limited liability company, institution,
public benefit corporation, entity or government (whether Federal, state,
county, city, municipal or otherwise, including any instrumentality, division,
agency, body or department thereof), and shall include such Person's successors
and assigns.
Schedule A -9-
<PAGE>
"Plan" shall mean, with respect to Borrower or any other Credit Party, at
----
any time, an employee benefit plan, as defined in Section 3(3) of ERISA, which
Borrower or any other Credit Party maintains, contributes to or has an
obligation to contribute to on behalf of participants who are or were employed
by any of them.
"Pledge Agreement" shall mean the Pledge Agreement by MLC in favor of
----------------
Lender in form and substance satisfactory to Lender, together with all
amendments, modifications and supplements thereto.
"Prepayment Fee" shall mean the fee payable for termination by Borrower
--------------
pursuant to Section 1.2(c) of Lender's obligation to make Revolving Credit
Advances or to incur Letter of Credit Obligations, all in the amount(s)
specified in Schedule E.
----------
"Proceeds" shall mean "proceeds," as such term is defined in the Code and,
--------
in any event, shall include: (i) any and all proceeds of any insurance,
indemnity, warranty or guaranty payable to Borrower or any other Credit Party
from time to time with respect to any Collateral; (ii) any and all payments (in
any form whatsoever) made or due and payable to Borrower or any other Credit
Party from time to time in connection with any requisition, confiscation,
condemnation, seizure or forfeiture of any Collateral by any governmental body,
authority, bureau or agency (or any person acting under color of governmental
authority); (iii) any claim of Borrower or any other Credit Party against third
parties (a) for past, present or future infringement of any Intellectual
Property or (b) for past, present or future infringement or dilution of any
Trademark or Trademark License or for injury to the goodwill associated with any
Trademark, Trademark registration or Trademark licensed under any Trademark
License; (iv) any recoveries by Borrower or any other Credit Party against third
parties with respect to any litigation or dispute concerning any Collateral; and
(v) any and all other amounts from time to time paid or payable under or in
connection with any Collateral, upon disposition or otherwise.
"Projections" shall mean as of any date the consolidated and consolidating
-----------
balance sheet, statements of income and cash flow for Borrower and its
Subsidiaries (including forecasted Capital Expenditures and Net Borrowing
Availability) (i) by month for the next Fiscal Year, and (ii) by year for the
following three Fiscal Years, in each case prepared in a manner consistent with
GAAP and accompanied by senior management's discussion and analysis of such
plan.
"Purchase Money Indebtedness" shall mean (i) any Indebtedness incurred for
---------------------------
the payment of all or any part of the purchase price of any fixed asset, (ii)
any Indebtedness incurred for the sole purpose of financing or refinancing all
or any part of the purchase price of any fixed asset, and (iii) any renewals,
extensions or refinancings thereof (but not any increases in the principal
amounts thereof outstanding at that time).
"Purchase Money Lien" shall mean any Lien upon any fixed assets which
-------------------
secures the Purchase Money Indebtedness related thereto but only if such Lien
shall at all times be confined solely to the asset the purchase price of which
was financed or refinanced through the incurrence of the Purchase Money
Indebtedness secured by such Lien and only if such Lien secures such Purchase
Money Indebtedness.
"Qualified Plan" shall mean a Plan which is intended to be tax-qualified
--------------
under Section 401(a) of the IRC.
"Release" shall mean, as to any Person, any release, spill, emission,
-------
leaking, pumping, injection, deposit, disposal, discharge, dispersal, dumping,
leaching or migration of Hazardous Materials in the indoor or outdoor
environment by such Person, including the movement of Hazardous Materials
through or in the air, soil, surface water, ground water or property.
"Restricted Payment" shall mean: (i) the declaration or payment of any
------------------
dividend or the occurrence of any liability to make any other payment or
distribution of cash or other property or assets on or in respect of Borrower's
or any other Credit Party's Stock; (ii) any payment on account of the purchase,
redemption, defeasance or other retirement of Borrower's or any other Credit
Party's Stock or Indebtedness other than
10
Schedule A -10-
<PAGE>
(a) that arising under the Agreement or (b) interest and principal, when due,
under Indebtedness described in Disclosure Schedule (3.8) or otherwise permitted
under Section 5(c) of the Agreement, without acceleration or modification of the
amortization as in effect on the Closing Date, or any other payment or
distribution made in respect thereof, either directly or indirectly; or (iii)
any payment, loan, contribution, or other transfer of funds or other property to
any Stockholder of such Person which is not expressly and specifically permitted
in the Agreement; provided, that (x) no payment to Lender shall constitute a
--------
Restricted Payment, and (y) no payment of the MLC Loan shall constitute a
Restricted Payment; provided, further, until the Securities Exchange Commission
-------- -------
has entered an order declaring that MLC is no longer an investment company under
the Investment Company Act of 1940, repayments in respect of the MLC Loan shall
be Restricted Payments to the extent such repayments would reduce the balance of
the MLC Loan below $500,000.
"Retiree Welfare Plan" shall refer to any Plan which is a "welfare plan,"
--------------------
as defined in Section 3(1) of ERISA, providing for continuing coverage or
benefits for any participant or any beneficiary of a participant after such
participant's termination of employment, other than continuation coverage
provided pursuant to Section 4980B of the IRC and at the sole expense of the
participant or the beneficiary of the participant.
"Revolving Credit Advance" shall have the meaning assigned to it in Section
------------------------
1.1(a).
"Revolving Credit Loan" shall mean at any time the sum of (i) the aggregate
---------------------
amount of Revolving Credit Advances then outstanding, plus (ii) the total Letter
of Credit Obligations incurred by Lender and outstanding at such time, plus the
amount of earned and accrued, but unpaid, interest thereon and Letter of Credit
Fees with respect thereto.
"Revolving Credit Note" shall mean the promissory note of Borrower dated
---------------------
the Closing Date, substantially in the form of Exhibit F.
---------
"Revolving Credit Rate" shall have the meaning assigned to it in Section
---------------------
1.5(a).
"Schedule of Accounts" shall mean a schedule of all Accounts to be
--------------------
delivered by Borrower to Lender pursuant to Section 1.6.
"Schedule of Documents" shall mean the schedule, including all appendices,
---------------------
exhibits or schedules thereto, listing certain documents and information to be
delivered in connection with the Loan Documents and the transactions
contemplated thereunder, substantially in the form of Schedule F.
----------
"Schedule of Inventory" shall mean the schedules of inventory to be
---------------------
delivered by Borrower to Lender pursuant to Section 1.7, including Borrower's
internal reports classifying and valuing Inventory.
"Seller" shall mean P.G. Design Electronics, Inc., a Michigan corporation.
------
"Seller Notes" shall have the meaning assigned to it in Section 2.1(n).
------------
"Stock" shall mean all certificated and uncertificated shares, options,
-----
warrants, general or limited partnership interests, participations or other
equivalents (regardless of how designated) of or in a corporation, partnership,
limited liability company or other entity whether voting or nonvoting, including
common stock, preferred stock, or any other "equity security" (as such term is
defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of 1934).
"Stockholder" shall mean each holder of Stock of Borrower or any other
-----------
Credit Party.
"Subject Property" shall have the meaning assigned to it in Section
----------------
3.17(a).
"Subsidiary" shall mean, with respect to any Person, (i) any corporation of
----------
which an aggregate of more than fifty percent (50%) of the outstanding Stock
having ordinary voting power to elect a majority of the board of directors of
such corporation (irrespective of whether, at the time, Stock of any other class
or classes of such corporation shall have or might have voting power by reason
of the happening of any
Schedule A -11-
<PAGE>
contingency) is at the time, directly or indirectly, owned legally or
beneficially by such Person and/or one or more Subsidiaries of such Person, or
with respect to which any such Person has the right to vote or designate the
vote of fifty percent (50%) or more of such Stock whether by proxy, agreement,
operation of law or otherwise, and (ii) any partnership or limited liability
company in which such Person or one or more Subsidiaries of such Person has an
interest (whether in the form of voting or participation in profits or capital
contribution) of more than fifty percent (50%) or of which any such Person is a
general partner or may exercise the powers of a general partner.
"Taxes" shall mean taxes, levies, imposts, deductions, Charges or
-----
withholdings, and all liabilities with respect thereto, excluding taxes imposed
on or measured by the net income of Lender.
"Term Lender" shall mean General Electric Capital Corporation in its
-----------
capacity as agent for itself and certain participants under a Master Security
Agreement of even date herewith with Borrower.
"Term Loans" shall have the meaning assigned to it in Section 2.1(q).
----------
"Termination Date" shall mean the date on which the Revolving Credit Loan
----------------
and any other Obligations under the Agreement are indefeasibly paid in full, in
cash (other than amounts in respect of Letter of Credit Obligations if any, then
outstanding, provided that Borrower shall have funded such amounts in cash as
required under Schedule C), and Borrower shall have no further right to borrow
----------
any moneys or obtain other credit extensions or financial accommodations under
the Agreement.
"Title IV Plan" shall mean an "employee pension benefit plan," as defined
-------------
in Section 3(2) of ERISA (other than a Multiemployer Plan), which is covered by
Title IV of ERISA, and which Borrower, any other Credit Party or any ERISA
Affiliate maintains, contributes to or has an obligation to contribute to on
behalf of participants who are or were employed by any of them.
"Trademark License" shall mean rights under any written agreement now owned
-----------------
or hereafter acquired by any Person granting any right to use any Trademark or
Trademark registration.
"Trademarks" shall mean all of the following now owned or hereafter
----------
acquired by any Person: (i) all trademarks, trade names, corporate names,
business names, trade styles, service marks, logos, other source or business
identifiers, prints and labels on which any of the foregoing have appeared or
appear, designs and general intangibles of like nature, now existing or
hereafter adopted or acquired, all registrations and recordings thereof, and all
applications in connection therewith, including all registrations, recordings
and applications in the United States Patent and Trademark Office or in any
similar office or agency of the United States, any State or Territory thereof,
or any other country or any political subdivision thereof, and (ii) all
reissues, extensions or renewals thereof.
"Transaction Summary" shall mean the Transaction Summary set forth in the
-------------------
Recitals to the Agreement.
"Unfunded Pension Liability" shall mean, at any time, the aggregate amount,
--------------------------
if any, of the sum of (i) the amount by which the present value of all accrued
benefits under each Title IV Plan exceeds the fair market value of all assets of
such Title IV Plan allocable to such benefits in accordance with Title IV of
ERISA, all determined as of the most recent valuation date for such Title IV
Plan determined on the basis of a shutdown of the employees thereunder and using
the actuarial assumptions in effect for funding purposes under such Title IV
Plan, and (ii) for a period of five (5) years following a transaction which
could be covered by Section 4069 of ERISA, the liabilities (whether or not
accrued) that could be avoided by Borrower, any other Credit Party or any ERISA
Affiliate as a result of such transaction.
"Unused Line Fee" shall have the meaning assigned to it in Schedule E.
--------------- ----------
"WIP Advance Rate" means an amount equal to (a) fifty percent (50%) during
----------------
the period commencing on the Closing Date and ending August 31, 1997, (b)
thirty-eight percent (38%) during the period commencing on September 1, 1997 and
ending November 30, 1997, (c) twenty-six percent (26%) during the period
commencing
12
Schedule A -12-
<PAGE>
on December 1, 1997 and ending February 28, 1998, (d) fourteen percent (14%)
during the period commencing on March 1, 1998 and ending May 31, 1998, and (e)
zero percent (0%) at all times on and after June 1, 1998.
"Withdrawal Liability" shall mean, at any time, the aggregate amount of the
--------------------
liabilities, if any, pursuant to Section 4201 of ERISA, and any increase in
contributions pursuant to Section 4243 of ERISA with respect to all
Multiemployer Plans.
Any accounting term used in the Agreement or the other Loan Documents shall
have, unless otherwise specifically provided therein, the meaning customarily
given such term in accordance with GAAP, and all financial computations
thereunder shall be computed, unless otherwise specifically provided therein, in
accordance with GAAP consistently applied; provided, that all financial
--------
covenants and calculations in the Loan Documents shall be made in accordance
with GAAP as in effect on the Closing Date unless Borrower and Lender shall
otherwise specifically agree in writing. That certain items or computations are
explicitly modified by the phrase "in accordance with GAAP" shall in no way be
construed to limit the foregoing. All other undefined terms contained in the
Agreement or the other Loan Documents shall, unless the context indicates
otherwise, have the meanings provided for by the Code. The words "herein,"
"hereof" and "hereunder" or other words of similar import refer to the Agreement
as a whole, including the exhibits and schedules thereto, as the same may from
time to time be amended, modified or supplemented, and not to any particular
section, subsection or clause contained in this Agreement.
For purposes of this Agreement and the other Loan Documents, the following
additional rules of construction shall apply, unless specifically indicated to
the contrary: (a) wherever from the context it appears appropriate, each term
stated in either the singular or plural shall include the singular and the
plural, and pronouns stated in the masculine, feminine or neuter gender shall
include the masculine, the feminine and the neuter; (b) the term "or" is not
exclusive; (c) the term "including" (or any form thereof) shall not be limiting
or exclusive; (d) all references to statutes and related regulations shall
include any amendments of same and any successor statutes and regulations; (e)
all references in the Agreement or in the Schedules to the Agreement to
sections, schedules, disclosure schedules, exhibits, and attachments shall refer
to the corresponding sections, schedules, disclosure schedules, exhibits, and
attachments of or to the Agreement; and (f) all references to any instruments or
agreements, including references to any of the Loan Documents, shall include any
and all modifications or amendments thereto and any and all extensions or
renewals thereof.
Schedule A -13-
<PAGE>
Schedule B
Schedule Of Disclosure Documents
See Attached
Schedule B -1-
<PAGE>
Schedule C
Letters Of Credit
A) Lender agrees, subject to the terms and conditions hereinafter set
forth, to incur Letter of Credit Obligations in respect of the issuance of
Letters of Credit issued by a bank on terms acceptable to Lender and supporting
obligations of Borrower incurred in the ordinary course of Borrower's business,
in order to support the payment of Borrower's inventory purchase obligations,
insurance premiums, or utility or other operating expenses and obligations, as
Borrower shall request by written notice to Lender that is received by Lender
not less than five (5) Business Days prior to the requested date of issuance of
any such Letter of Credit; provided, that: (a) that the aggregate amount of all
--------
Letter of Credit Obligations at any one time outstanding (whether or not then
due and payable) shall not exceed the lesser of (i) $500,000 or (ii) the
Borrowing Availability at such time; (b) no Letter of Credit shall have an
expiry date which is later than one (1) year following the date of issuance
thereof; and (c) Lender shall be under no obligation to incur Letter of Credit
Obligations in respect of any Letter of Credit having an expiry date that is
later than May 29, 2000. The maximum amount payable in respect of each Letter of
Credit requested by Borrower will be guaranteed by Lender in favor of the
issuing bank under terms of a separate agreement between Lender and the issuing
bank. Borrower will enter into an application and agreement for such Letter of
Credit with the issuing bank selected by Lender. The bank that issues any Letter
of Credit pursuant to the Agreement shall be determined by Lender in its sole
discretion.
B) The notice to be provided to Lender requesting that Lender incur
Letter of Credit Obligations shall be in the form of a Letter of Credit
application in the form customarily employed by the issuing bank, together with
a written request by Borrower and the bank that Lender approve Borrower's
application. Upon receipt of such notice Lender shall establish a reserve
against the Borrowing Availability in the amount of one hundred percent (100%)
of the face amount of the Letter of Credit requested. Approval by Lender in the
written form agreed upon between Lender and the issuing bank (a) will authorize
the bank to issue the requested Letter of Credit, and (b) will conclusively
establish the existence of the Letter of Credit Obligation as of the date of
such approval.
C) In the event that Lender shall make any payment on or pursuant to any
Letter of Credit Obligation, Borrower shall be unconditionally obligated to
reimburse Lender therefor, and such payment shall then be deemed to constitute a
Revolving Credit Advance. For purposes of computing interest under Section 1.5
of the Agreement, a Revolving Credit Advance made in satisfaction of a Letter of
Credit Obligation shall be deemed to have been made as of the date on which the
issuer or endorser makes the related payment under the underlying Letter of
Credit.
D) In the event that any Letter of Credit Obligations, whether or not
then due or payable, shall for any reason be outstanding on the Commitment
Maturity Date, Borrower will either (a) cause the underlying Letter of Credit to
be returned and canceled and each corresponding Letter of Credit Obligation to
be terminated, or (b) pay to Lender, in immediately available funds, an amount
equal to one hundred five percent (105%) of the maximum amount then available to
be drawn under all Letters of Credit not so returned and canceled (the "Cash
Collateral"). After the payment in full and expiration of all Obligations any
remaining Cash Collateral shall be returned to Borrower.
E) In the event that Lender shall incur any Letter of Credit Obligations,
Borrower agrees to pay the Letter of Credit Fee to Lender as compensation to
Lender for incurring such Letter of Credit Obligations. In addition, Borrower
shall reimburse Lender for all fees and charges paid by Lender on account of any
such Letters of Credit or Letter of Credit Obligations to the issuing bank.
F) Borrower's Obligations to Lender with respect to any Letter of Credit
Obligation shall be evidenced by Lender's records and, in the absence of
manifest error, shall be absolute, unconditional and irrevocable and shall not
be affected, modified or impaired by (i) any lack of validity or enforceability
of the transactions contemplated by or related to such Letter of Credit or
Letter of Credit Obligation; (ii) any amendment or waiver of or consent to
depart from all or any of the terms of the transactions contemplated by or
related to such Letter of Credit or Letter of Credit Obligation that has not
been consented to in writing by Lender; (iii) the existence of any claim, set-
off, defense or other right which Borrower or any other Credit Party may have
against Lender, the issuer or beneficiary of such Letter of Credit, or any other
Person,
Schedule C -1-
<PAGE>
whether in connection with the Agreement or the transactions contemplated
therein or such Letter of Credit or the transactions contemplated thereby or any
unrelated transactions; or (iv) the fact that any draft, affidavit, letter,
certificate, invoice, bill of lading or other document presented under or
delivered in connection with such Letter of Credit or any other Letter of Credit
proves to have been forged, fraudulent, invalid or insufficient in any respect
or any statement therein proves to have been untrue or incorrect in any respect
(provided this clause (iv) shall not affect the Borrower's rights against the
-------- ------
Person that presented or delivered any such document).
G) In addition to any other indemnity obligations which Borrower may have
to Lender under the Agreement and without limiting such other indemnification
provisions, Borrower hereby agrees to indemnify Lender from and to hold Lender
harmless against any and all claims, liabilities, losses, costs and expenses
(including, attorneys' fees and expenses) which Lender may (other than as a
result of its own gross negligence or willful misconduct) incur or be subject to
as a consequence, directly or indirectly, of (i) the issuance of or payment of
or failure to pay under any Letter of Credit or Letter of Credit Obligation or
(ii) any suit, investigation or proceeding as to which Lender is or may become a
party as a consequence, directly or indirectly, of the issuance of any Letter of
Credit, the incurring of any Letter of Credit Obligation or any payment of or
failure to pay under any Letter of Credit or Letter of Credit Obligation. The
obligations of Borrower under this paragraph shall survive any termination of
the Agreement.
H) Borrower hereby assumes all risks of the acts, omissions or misuse of
each Letter of Credit by the beneficiary or issuer thereof and, in connection
therewith, Lender shall not be responsible (i) for the validity, sufficiency,
genuineness or legal effect of any document submitted in connection with any
drawing under any Letter of Credit even if it should in fact prove in any
respect to be invalid, insufficient, inaccurate, untrue, fraudulent or forged;
(ii) for the validity or sufficiency of any instrument transferring or assigning
or purporting to transfer or assign any Letter of Credit or any rights or
benefits thereunder or any proceeds thereof, in whole or in part, even if it
should prove to be invalid or ineffective for any reason; (iii) for the failure
of any issuer or beneficiary of any Letter of Credit to comply fully with the
terms thereof, including the conditions required in order to effect or pay a
drawing thereunder; (iv) for any errors, omissions, interruptions or delays in
transmission or delivery of any messages, by mail, telecopy, telex or otherwise;
(v) for any loss or delay in the transmission or otherwise of any document or
draft required in order to make a drawing under any Letter of Credit; or (vi)
for any consequences arising from causes beyond the control of Lender.
2
Schedule C -2-
<PAGE>
Schedule D
Cash Management
Borrower agrees to establish, and to maintain, until the Termination Date,
the cash management system described below:
A) Borrower: (i) shall not (and shall not permit any of its Subsidiaries
to) open or maintain any deposit, checking, operating or other bank account, or
similar money handling account, with any bank or other financial institution
except for those accounts identified in Disclosure Schedule (3.19) (to include a
--------------------------
petty cash account not to exceed $5,000 during any Fiscal Month, and a payroll
account not to exceed an amount equal to one regular payroll at any time) and
Attachment I hereto; and (ii) shall not close or permit to be closed any of the
- - ------------
accounts listed in Attachment I hereto, in each case without Lender's prior
------------
written consent, and then only after Borrower has implemented agreements with
such bank or financial institution and Lender acceptable to Lender.
B) Commencing on the Closing Date and until the Termination Date,
Borrower shall deposit or, if directed by Lender, cause to be deposited
directly, in either case on the date of receipt thereof, all cash, checks,
notes, drafts or other similar items relating to or constituting proceeds of or
payments made in respect of any and all Collateral and all other receipts into
lock boxes or lock box accounts in Borrower's or Lender's name (collectively,
the "Lock Box Accounts") at the banks set forth in Attachment I hereto.
------------
C) On or before the Closing Date, each bank at which the Lock Box
Accounts are held shall have entered into tri-party lock box agreements (the
"Lock Box Account Agreements") with Lender and Borrower, in form and substance
acceptable to Lender. Each such Lock Box Account Agreement shall provide, among
other things, that (a) such bank executing such agreement has no rights of
setoff or recoupment or any other claim against such Lock Box Account, other
than for payment of its service fees and other charges directly related to the
administration of such account, and (b) such bank agrees to sweep on a daily
basis all amounts in the Lock Box Account to the Collection Account.
D) On the Closing Date, (a) the lock box account arrangements shall
immediately become operative at the banks at which the Lock Box Accounts are
maintained, and (b) amounts outstanding under the Revolving Credit Loan (for
purposes of the Borrowing Availability) shall be reduced through daily sweeps,
by wire transfer, of the Lock Box Accounts into the Collection Account.
Borrower acknowledges that it shall have no right to gain access to any of the
moneys in the Lock Box Accounts until after the Termination Date.
E) Borrower may maintain, in its name, accounts (the "Disbursement
Accounts") at a bank or banks acceptable to Lender into which Lender shall, from
time to time, deposit proceeds of Revolving Credit Advances made pursuant to
Section 1.1 for use solely in accordance with the provisions of Section 1.3. All
of the Disbursement Accounts as of the Closing Date are listed in Attachment I
------------
hereto. On or before the Closing Date, the banks at which the Disbursement
Accounts are maintained shall have entered into the pledged account agreements
with Lender.
F) All amounts deposited in the Collection Account shall be deemed
received by Lender in accordance with the terms of Section 1.10 and shall be
applied (and allocated) by Lender in accordance with the terms of Section 1.11.
G) Upon the request of Lender, Borrower shall forward to Lender, on a
daily basis, evidence of the deposit of all items of payment received by
Borrower into the Lock Box Accounts and copies of all such checks and other
items, together with a statement showing the application of those items relating
to payments on Accounts to outstanding Accounts and a collection report with
regard thereto in form and substance satisfactory to Lender.
Schedule D -1-
<PAGE>
Attachment I to Schedule D
LIST OF LOCK BOX ACCOUNTS AND DISBURSEMENT ACCOUNTS
1. Lock Box Accounts.
-----------------
Comerica Bank
188 North Woodward Avenue
Birmingham, Michigan 48009
Account Number: 1850-718394
Lockbox Number: 641206
2. Disbursement Accounts.
---------------------
Comerica Bank
188 North Woodward Avenue
Birmingham, Michigan 48009
Account Number: 1091002269 (Demand Deposit)
Account Number: 3191008436 (Demand Deposit)
2
Schedule D -2-
<PAGE>
Schedule E
Fees
A) Fees at Closing:
---------------
Closing Fee: $60,000
Credit for Previously Paid
Commitment Fee: $30,000
Net Closing Fee Payment at
Closing:
$30,000
1. Unused Line Fee: For each day from the Closing Date, and through but
---------------
including the Termination Date, an amount equal to the Maximum Amount less the
outstanding Revolving Credit Loan at the end of such day, multiplied by three
hundred seventy-five thousandths percent (.375%), the product of which is then
divided by 360. Subject to Section 1.5(e), the Unused Line Fee for each month
(except for the month in which the Termination Date occurs) is payable on the
first day of each calendar month following the month in which the Closing Date
occurs; the final monthly installment of the Unused Line Fee is payable on the
Termination Date. Notwithstanding the foregoing, any Unused Line Fee is
immediately due and payable on the Commitment Maturity Date.
2. Letter of Credit Fee: For each day for which Lender maintains Letter
--------------------
of Credit Obligations outstanding, an amount equal to the amount of the Letter
of Credit Obligations outstanding on such day, multiplied by one and fifty-one
hundredths percent (1.50%), the product of which is then divided by 360. The
Letter of Credit Fee incurred for each month is payable at the same time each
payment of the Unused Line Fee is due. Notwithstanding the foregoing, any unpaid
Letter of Credit Fee is immediately due and payable on the Commitment Maturity
Date.
3. Collateral Monitoring Fee: $500 for each month, payable in advance on
-------------------------
the Closing Date and on the first day of each month following the Closing Date
and on the Commitment Maturity Date.
4. Prepayment Fee: For the Revolving Credit Loan, an amount equal to the
--------------
Maximum Amount multiplied by:
Three percent (3.0%) if Lender's obligation to make or incur Revolving
Credit Advances or Letter of Credit Obligations is terminated by Borrower on or
after the Closing Date and on or before the first anniversary of the Closing
Date, payable on the Commitment Maturity Date;
Two percent (2.0%) if Lender's obligation to make or incur Revolving Credit
Advances or Letter of Credit Obligations is terminated by Borrower after the
first anniversary of the Closing Date and on or before the second anniversary of
the Closing Date, payable on the Commitment Maturity Date; or
One percent (1.0%) if Lender's obligation to make or incur Revolving Credit
Advances or Letter of Credit Obligations is terminated by Borrower after the
second anniversary of the Closing Date and on or before the third anniversary of
the Closing Date, payable on the Commitment Maturity Date.
Borrower acknowledges and agrees that (a) it would be difficult or impractical
to calculate Lender's actual damages from Borrower's early termination of
Lender's Revolving Credit Loan obligations pursuant to Section 1.2(c) of the
Agreement, (b) the Prepayment Fees provided above are intended to be fair and
reasonable approximations of such damages, and (c) the Prepayment Fees are not
intended to be penalties.
1. Audit Fees: Borrower will reimburse Lender at the rate of $650 per
----------
person per day, plus out of pocket expenses, for the audit reviews, field
examinations and collateral examinations conducted by Lender's own personnel.
Schedule E -1-
<PAGE>
2. Expenses: Borrower will pay to Lender on demand all costs incurred in
--------
connection with: (a) the preparation, negotiation, execution, delivery,
performance and enforcement of the Loan Documents; (b) collection (including the
fees and expenses of all special counsel, advisors, consultants (including
environmental and management consultants) and auditors retained in connection
therewith), including deficiency collections; (c) the forwarding to Borrower or
any other Person on behalf of Borrower by Lender of the proceeds of any Loan
(including by wire transfer); (d) any amendment, extension, modification or
waiver of, or consent with respect to any Loan Document or advice in connection
with the administration of the Loans or the rights thereunder; (e) any
litigation, contest, dispute, suit, proceeding or action (whether instituted by
or between any combination of Lender, Borrower or any other Person or Persons),
and an appeal or review thereof, in any way relating to the Collateral, any Loan
Document, or any action taken or any other agreements to be executed or
delivered in connection therewith, whether as a party, witness or otherwise; and
(f) any effort (i) to monitor the Loans, (ii) to evaluate, observe or assess
Borrower or any other Credit Party or the affairs of such Person, and (iii) to
verify, protect, evaluate, assess, appraise, collect, sell, liquidate or
otherwise dispose of the Collateral, including with respect to all of the
foregoing: the fees, costs and expenses of attorneys, accountants,
environmental advisors, appraisers, investment bankers, management and other
consultants, and paralegals; court costs and expenses; photocopying and
duplicating expenses; court reporter fees, costs and expenses; long distance
telephone charges; air express charges; telegram charges; secretarial overtime
charges; and expenses for travel, lodging and food paid or incurred in
connection with the performance of such legal or other advisory services.
2
Schedule E -2-
<PAGE>
Schedule F
Schedule of Documents
The obligation of Lender to make the initial Revolving Credit Advances and
to incur any Letter of Credit Obligations is subject to satisfaction of the
condition precedent that Lender shall have received the following, each, unless
otherwise specified below or the context otherwise requires, dated the Closing
Date, in form and substance satisfactory to Lender and its counsel, unless the
context otherwise requires or as otherwise specified below:
PRINCIPAL LOAN DOCUMENTS
1. Agreement. The Loan and Security Agreement duly executed by Borrower.
----------
2. Revolving Credit Note. A duly executed Revolving Credit Note to the order of
---------------------
Lender.
3. Borrowing Base Certificate. An original Borrowing Base Certificate duly
--------------------------
executed by a responsible officer of Borrower.
4. Notice of Revolving Credit Advance. An original Notice of Revolving Credit
----------------------------------
Advance duly executed by a responsible officer of Borrower.
COLLATERAL DOCUMENTS.
1. Acknowledgment Copies of Financing Statements. Acknowledgment copies of
---------------------------------------------
proper Financing Statements (Form UCC-l) (the "Financing Statements")
duly filed under the Code, or chattel mortgages duly filed under other
applicable law, of all jurisdictions as may be necessary or, in the
opinion of Lender, desirable to perfect Lender's Lien created on the
Collateral.
2. Other Evidence of Filing and Perfection. Certified copies of Requests for
---------------------------------------
Information (Form UCC-11), or other evidence satisfactory to Lender,
listing all effective financing statements or chattel mortgages which
name Borrower or Seller (under each of their respective present names,
any previous names or any trade or doing business names) and which are
filed in the jurisdictions referred to in paragraph (a) above, together
with copies of such other financing statements (none of which shall cover
the Collateral).
3. Intellectual Property Documents. Agreements relating to the granting to
-------------------------------
Lender of a security interest in Intellectual Property of Borrower to the
extent applicable in a form suitable for filing with the appropriate
Federal or State filing office.
4. Other Recordings and Filings. Evidence of the completion of all other
----------------------------
recordings and filings (including UCC-3 termination statements and other
Lien release documentation) as may be necessary or, in the opinion of and
at the request of Lender, desirable to perfect Lender's Lien on the
Collateral.
5. Power of Attorney. The Power of Attorney duly executed by Borrower.
-----------------
6. MLC Indemnification for Bulk Sales. An agreement of MLC in form and
----------------------------------
substance satisfactory to Lender indemnifying Lender with respect to the
Michigan bulk sales law and similar laws.
SCHEDULE F-1-
<PAGE>
THIRD PARTY AGREEMENTS.
1. Landlord Consents. Unless otherwise agreed to in writing by Lender, duly
-----------------
executed landlord waivers and consents from the landlords of all of
Borrower's leased locations where Collateral is held, in each case, in
form and substance satisfactory to Lender.
2. Cash Management System. Duly executed Lock Box Account Agreements and
----------------------
pledged account agreements in respect of the Disbursement Accounts as
contemplated by Schedule D.
----------
3. Instruction Letter. A letter from Borrower to Seller pursuant to which
------------------
Borrower irrevocably instructs Seller to forward any items of payment
which Seller may receive in respect of Borrower's Accounts to Borrower's
Lock Box Account.
SCHEDULE F-2-
<PAGE>
4. Intercreditor Agreement. The Intercreditor Agreement duly executed by Term
-----------------------
Lender.
5. Assignment of Acquisition Documents. An assignment of Borrower's rights
-----------------------------------
under the Acquisition Documents acknowledged by Seller and each other
party to the Acquisition Documents, in form and substance satisfactory to
Lender.
6. Payoff Letter. A payoff letter from Comerica Bank addressed to Lender, in
-------------
form and substance satisfactory to Lender.
7. MLC Letter Agreement. A letter agreement from MLC with respect to its
--------------------
rights under the Acquisition Documents.
DOCUMENTS DELIVERED BY BORROWER.
1. Secretarial Certificates. A Secretarial Certificate in the form of Exhibit G
------------------------ ---------
to the Agreement duly completed and executed by the Secretary of
Borrower, together with all attachments thereto. A Secretarial
Certificate in the form of Exhibit J to the Agreement duly executed by
---------
the Secretary of MLC, together with all attachments thereto.
2. Environmental Audit. Copies of all existing environmental reviews and audits
-------------------
and other information pertaining to actual or potential environmental
claims relating to the Collateral (including the assets being purchased
pursuant to the Acquisition) and Borrower as Lender may require.
3. Financial Statements and Projections. Copies of the Financial Statements and
-------------------------------------
Projections, which Projections shall include a capital expenditures
budget for Borrower in form and substance satisfactory to Lender.
4. Insurance Policies. Copies of insurance policies described in Section 3.18
------------------
together with evidence showing loss payable and/or additional insured
clauses or endorsements in favor of Lender as applicable and an
assignment of proceeds with respect to business interruption insurance.
5. Existing Lease Agreements; Indebtedness. Copies of any existing real
---------------------------------------
property leases and equipment leases to which Borrower is, or upon
consummation of the Acquisition will be, a party and any other document
or instrument evidencing or relating to existing Indebtedness of
Borrower, together with all certificates, opinions, instruments, security
documents and other documents relating thereto, all of which shall be
satisfactory in form and substance to Lender, certified by an authorized
officer of Borrower as true, correct and complete copies thereof.
6. Acquisition Documents and Equity Documents. Executed copies of each of the
------------------------------------------
Acquisition Documents (including all exhibits, schedules, disclosure
letters and opinions referred to therein or delivered pursuant thereto),
and any stockholders' agreement, voting trust agreement, stock redemption
agreement or any other agreement with shareholders of Borrower in each
case as and in effect on the Closing Date in form and substance
satisfactory to Lender, certified by an authorized officer of Borrower as
true, correct and complete copies thereof.
7. Acquisition. A certificate from the chief financial officer of Borrower to
-----------
the effect that (i) the aggregate amount of proceeds received by Borrower
from the Loans made under this Agreement, the Term Loans and the
$7,000,000 equity infusion from MLC are sufficient to pay the purchase
price and all other costs of the Acquisition, (ii) upon payment of the
purchase price, the Acquisition shall have been consummated in accordance
with the Acquisition Documents, (iii) the representations and warranties
of the Borrower in the Acquisition Documents are true, complete and
correct in all material respects on and as of the Closing Date (or, if
any such representation or warranty is expressly stated to have been made
as of a specific date, as of such specific date) and (iv) to the best
knowledge of Borrower, no Person party to any Acquisition Document is in
default in the performance or compliance with any of the material terms
or provisions of any Acquisition Document.
SCHEDULE F-3-
<PAGE>
8. Solvency. An officer's certificate of Borrower as to Borrower's solvency on
--------
the Closing Date after giving effect to the Acquisition and the related
transactions (including the Loans hereunder on the Closing Date and the
Term Loans).
9. Pro Forma Balance Sheet. A pro forma balance sheet for Borrower on the
-----------------------
Closing Date after given effect to the Acquisition and the related
transactions (including the Loans hereunder on the Closing Date and the
Term Loans showing stockholders common equity of at least $7,000,000).
10. Hewlett Packard Payoff. Payoff letter from Hewlett Packard.
----------------------
LEGAL OPINION.
1. Legal Opinions. Opinions of Lawrence Adelson, Weil, Gotshal and Manges and
--------------
Jenner & Block, counsel to Borrower and MLC in form and substance
satisfactory to Lender. An opinion of Bell, Boyd and Lloyd, counsel to
Borrower and MLC as to certain Investment Company Act matters, in form
and substance satisfactory to Lender.
SCHEDULE F-4-
<PAGE>
Schedule G
Financial Covenants
1. Fixed Charge Coverage Ratio. Borrower shall maintain a Fixed Charge
---------------------------
Coverage Ratio of not less than 1.20 for every four Fiscal Quarter period ending
at the end of each Fiscal Quarter commencing with the Fiscal Quarter ending
September 30, 1997 (provided that with respect to any Fiscal Quarter ending on
or prior to March 31, 1998, the Fixed Charge Coverage Ratio shall be calculated
from the date of the Acquisition through the end of such Fiscal Quarter).
For the purpose of this covenant in Schedule G the following terms shall
----------
have the meanings set forth below:
"EBITDA" shall mean, for any period, the Net Income (Loss) of Borrower for
------
such period, plus interest expense, tax expense, amortization expense,
----
depreciation expense and extraordinary losses and minus extraordinary gains, in
-----
each case, of Borrower for such period determined in accordance with GAAP to the
extent included in the determination of such Net Income (Loss).
"Fixed Charge Coverage Ratio" shall mean, for any period, the ratio of the
---------------------------
following for Borrower determined in accordance with GAAP: (a) EBITDA for such
period less Capital Expenditures for such period which are not financed through
----
the incurrence of any Indebtedness (excluding the Revolving Credit Loan) to (b)
the sum of (i) interest expense paid or deemed paid in respect of any
Indebtedness during such period, plus (ii) taxes to the extent accrued or
----
otherwise payable with respect to such period plus (iii) regularly scheduled
----
payments of principal paid or deemed paid on Funded Debt (excluding the
Revolving Credit Loan) during such period.
"Funded Debt" shall mean, for any Person, all of such Person's Indebtedness
-----------
which by the terms of the agreement governing or instrument evidencing such
Indebtedness matures more than one (1) year from, or is directly or indirectly
renewable or extendible at the option of such Person under a revolving credit or
similar agreement obligating the lender or lenders to extend credit over a
period of more than one (1) year from, the date of creation thereof, including
current maturities of long-term debt, revolving credit, and short-term debt
extendible beyond one (1) year at the option of such Person.
"Net Income (Loss)" shall mean with respect to any Person and for any
-----------------
period, the aggregate net income (or loss) after taxes of such Person for such
period, determined in accordance with GAAP.
2. Minimum Tangible Net Worth. Borrower shall maintain, as at the end of
--------------------------
each Fiscal Quarter, Tangible Net Worth of Borrower for such Fiscal Quarter of
not less than the amount for such Fiscal Quarter set forth below:
As of the Fiscal Quarter Ending: Minimum Tangible Net Worth
------------------------------- --------------------------
6/30/97 2,100,000
9/30/97 2,526,000
12/31/97 2,989,000
3/31/98 3,612,000
6/30/98 4,237,000
9/30/98 4,861,000
12/31/98 5,485,000
3/31/99 6,247,000
6/30/99 7,009,000
9/30/99 7,770,000
12/31/99 8,533,000
3/31/00 9,000,000
SCHEDULE G-1-
<PAGE>
For purpose of this covenant in Schedule G the following terms shall have
----------
the meanings set forth below:
"Tangible Net Worth" shall mean, with respect to any Person, at any date,
------------------
the total assets of such Person (excluding (i) any assets attributable to any
issuances by such Person of any Stock after the Closing Date, (ii) amounts due
from Affiliates, and (iii) goodwill and other intangible assets) minus (b) the
total liabilities, in each case, of such Person at such date determined in
accordance with GAAP.
3. Capital Expenditures. Borrower shall not make aggregate Capital
--------------------
Expenditures (other than Capital Expenditures financed through the incurrence of
Indebtedness permitted under this Agreement (excluding the Revolving Credit
Loan)) in any Fiscal Year in excess of $500,000.
SCHEDULE G-2-
<PAGE>
Schedule H
Supplemental Description Of Collateral
None
SCHEDULE H-1-
<PAGE>
Schedule I
Schedule of Acquired Assets
All Acquired Assets as defined in the Asset Purchase Agreement, dated
as of April 4, 1997, by and among MLC, Borrower, Seller and the Shareholder
Indemnitors listed on the signature pages thereto, including, without
limitation, the equipment listed on Attachment 1 hereto.
SCHEDULE I-1-
<PAGE>
Schedule 1.1
Lender's And Borrowers Representatives
For Notices, Addresses
Lender's Representative:
Name: Kevin Podwika
Title: PG Newco Corp. - Account Manager
General Electric Capital Corporation
Address: 105 W. Madison Street Suite 1600
Chicago, IL 60602
Telephone: 312/419-5565
Facsimile: 312/419-5973
Borrower's Representative:
Name: Leon F. Fiorentino
Title: Vice President - Finance
PG Newco Corp.
Address: 48700 Structural Drive
Chesterfield, MI 48051
Telephone: 810/598-8000
Facsimile: 810/598-8008
SCHEDULE I-1-1-
<PAGE>
Schedule 1.6
Eligible Accounts
The Accounts constituting Eligible Accounts shall not include any Account:
(a) that does not arise from the sale of goods or the
performance of services by Borrower in the ordinary course of
Borrower's business (or prior to the Acquisition, by Seller in
Seller's ordinary course of business);
(b) upon which (i) Borrower's right to receive payment is not
absolute or is contingent upon the fulfillment of any condition
whatsoever or (ii) Borrower is not able to bring suit or otherwise
enforce its remedies against the Account Debtor through judicial
process;
(c) (i) against which any defense, counterclaim or setoff,
whether well-founded or otherwise, is asserted against such Account or
(ii) which is a "contra" Account.
(d) that is not a true and correct statement of a bona fide
indebtedness incurred in the amount of the Account for merchandise
sold or services performed and accepted by the Account Debtor
obligated upon such Account;
(e) with respect to which an invoice, acceptable to Lender in
form and substance, has not been sent;
(f) that is not owned by Borrower or is subject to any right,
claim, or interest of another Person, other than the Lien in favor of
Lender;
(g) that arises from a sale to or performance of services for
an employee, Affiliate, Subsidiary or Stockholder of Borrower, or an
entity which has common officers or directors with Borrower;
(h) that is the obligation of an Account Debtor that is the
Federal government or a political subdivision thereof, unless Lender
has agreed to the contrary in writing and Borrower has complied with
the Federal Assignment of Claims Act of 1940 with respect to such
obligation;
(i) that is the obligation of an Account Debtor located in a
foreign country unless such Account is supported by a letter of credit
acceptable to Lender or such Account Debtor is a wholly-owned
subsidiary of a U.S. corporation;
(j) that is the obligation of an Account Debtor to whom
Borrower is or may become liable for goods sold or services rendered
by the Account Debtor to Borrower, to the extent of Borrower's
liability to such Account Debtor;
(k) that arises with respect to goods which are delivered on a
cash-on-delivery basis or placed on consignment, guaranteed sale or
other terms by reason of which the payment by the Account Debtor may
be conditional;
(l) that is an obligation for which the total unpaid Accounts
of the Account Debtor exceed thirty-five percent (35%) (or with
respect to NEC, eighty percent (80%) until nine (9) months after the
Closing Date, seventy percent (70%) on and after the nine (9) month
anniversary of the Closing Date until the one (1) year anniversary of
the Closing Date and fifty-five percent (55%) on and after the one (1)
year anniversary of the Closing Date) of the aggregate of all
Accounts, to the extent of such excess;
(m) that is in default; provided, that an Account shall be
--------
deemed in default upon the occurrence of any of the following:
Schedule 1.6 -1-
<PAGE>
(i) the Account is not paid within thirty (30)
days from its due date or ninety (90) (or with
respect to NEC, sixty (60)) days from its invoice
date;
(ii) the Account Debtor obligated on such Account
suspends business, makes a general assignment for the
benefit of creditors, or fails to pay its debts
generally as they come due; or
(iii) a petition is filed by or against any Account
Debtor obligated upon such Account under any
bankruptcy law or any other national, state or
provincial receivership, insolvency relief or other
law or laws for the relief of debtors;
(n) that is the obligation of an Account Debtor that is
in default (as defined in subparagraph (m) above) on fifty
percent (50%) or more of the Accounts upon which such
Account Debtor is obligated;
(o) that arises from any bill-and-hold or other sale of
goods which remain in Borrower's possession or under
Borrower's control;
(p) as to which Lender's interest therein is not a first
priority perfected security interest;
(q) to the extent that such Account exceeds any credit
limit established by Lender in Lender's sole discretion;
(r) as to which any of Borrower's representations or
warranties pertaining to Accounts are untrue;
(s) that represents interest payments or service charges
owing to Borrower; or
(t) that is not otherwise acceptable in the good faith
discretion of Lender,
provided, that Lender shall have the right to create and adjust eligibility
- - --------
standards and related reserves from time to time in its good faith judgment.
2
Schedule 1.6 -2-
<PAGE>
Schedule 1.7
Eligible Inventory
Inventory constituting Eligible Inventory shall not include Inventory that:
(a) is not owned by Borrower free and clear of all Liens and
rights of others, except first priority Liens in favor of Lender;
(b) is not located on premises owned or operated by Borrower
and referenced in Disclosure Schedule 3.2,
-----------------------
(c) is located on premises with respect to which Lender has not
received a landlord or mortgagee letter acceptable in form and
substance to Lender;
(d) is in transit;
(e) is covered by a negotiable document of title, unless such
document and evidence of acceptable insurance covering such Inventory
has been delivered to Lender;
(f) in Lender's reasonable credit judgment, is obsolete,
unsalable, shopworn, damaged, unfit for further processing, is of
substandard quality or is not of good and merchantable quality, free
from any defects;
(g) does not consist of raw materials or work in process;
(h) consists of
(1) discontinued items,
(2) slow-moving or excess items held in
inventory, or
(3) used items held for resale;
(j) does not meet all standards imposed by any Governmental
Authority, including with respect to its production, acquisition or
importation (as the case may be);
(k) is placed by Borrower on consignment or held by Borrower on
consignment from another Person;
(l) is held for rental or lease by or on behalf of Borrower;
(m) is produced in violation of the Fair Labor Standards Act
and subject to the "hot goods" provisions contained in 29 U.S.C.
(S) 215 or any successor statute or section;
(n) in any way fails to meet or violates any warranty,
representation or covenant contained in this Agreement or any other
Loan Document;
(o) is subject to any licensing, patent, royalty, trademark,
trade name or copyright agreement with any third parties (unless
Lender shall have received such assignments, consents and other
agreements with respect thereto as Lender requests);
(p) requires the consent of any Person for the completion of
manufacture, sale or other disposition of such Inventory by Lender
following an Event of Default and such completion, manufacture or sale
constitutes a breach or default under any contract or agreement to
which Borrower is a party or to which such Inventory is or may become
subject;
Schedule 1.7 -1-
<PAGE>
(q) is finished goods;
(r) is DRAM Inventory; or
(s) is not otherwise acceptable in the good faith discretion of
Lender,
provided, that Lender shall have the right to create and adjust eligibility
- - --------
standards and related reserves from time to time in its good faith judgment.
2
Schedule 1.7 -2-
<PAGE>
Exhibit A
Notice of Revolving Credit Advance
COMPANY NAME:
DATE:
PREVIOUSLY FAXED: Yes No (circle one)
CERTIFICATE NUMBER: NCRA-
<TABLE>
<C> <S> <C>
1. Gross accounts receivable availability balance from Line 7A of latest Daily Collateral Activity $___________
Report dated __________
2. Gross inventory availability from Line 10A of latest Daily Collateral Activity Report dated __________ $___________
3. Reserves (as determined by Lender) against availability at 100% $___________
4. Gross Borrowing Availability (the lesser of the total of Lines 1 and 2 minus Line 3 and the Maximum $___________
Amount of $__________
5. Letter of Credit Obligations $___________
6. Beginning Revolving Credit Advance balance (Line 11 of previous Notice of Revolving Credit Advance $___________
dated __________
7. REVOLVING CREDIT ADVANCE REQUESTED $___________
8. Other loan reductions or additions (I.e., monthly fees, and interest) $___________
9. Total net accounts receivable cash collections since last Notice of Revolving Credit Advance $___________
dated __________ (Daily Collateral Activity Reports dated __________)
10. Non accounts receivable cash since last Notice of Revolving Credit Advance dated __________ $___________
11. Ending Revolving Credit Advance balance (sum of Line 6, Line 7 and Line 8, minus Line 9 and Line 10) $___________
12. Net Borrowing Availability: (Line 4 minus Line 5 and Line 11) $___________
The undersigned hereby certifies that all of the statements contained in Section 2.2 of the LOAN AND
SECURITY AGREEMENT dated as of May 29, 1997 between PG Newco Corp. and General Electric Capital Corporation
and the other parties thereto, if any (as from time to time amended, supplemented, restated or otherwise
modified, the "LOAN AGREEMENT") are true and correct on date hereof, and will be true and correct on the
date of the requested REVOLVING CREDIT ADVANCE, before and after giving effect thereto and the application
of the proceeds therefrom.
By: ...............................
Title: ............................
</TABLE>
Exhibit A -1-
<PAGE>
Exhibit B
Daily Collateral Activity Report
COMPANY NAME:........................
DATE:................................
PREVIOUSLY FAXED:.................... Yes No (circle one)
CERTIFICATE NUMBER:........... DCRA-
<TABLE>
<CAPTION>
GROSS ELIGIBLE INELIGIBLE
ACCOUNTS
<C> <S> <C> <C> <C>
1. Prior day balance (from the previous DCAR Line 7) $______ $______ $______
2. Today's sales (per attached sales journal) $______ $______ $______
3. Net accounts receivable collections (amount sent to GECC from $______ $______ $______
Bankers Trust)
4. Discounts (per attached cash receipts journal) $______ $______ $______
5. Credit memos (per attached journal) $______ $______ $______
6. Other accounts receivable adjustments (per attached) $______ $______ $______
7. End of day accounts receivable balance (the sum of Lines 1 and 2 $______ $______ $______
minus Lines 3, 4, 5 +/- Line 6)
7A. Gross accounts receivable availability (eligible accounts
receivable from Line 7 x advance rate __________) $______________
INVENTORY
8. Prior day balance (from the previous DCAR Line 10) $______ $______ $______
9. Adjustments (per attached) $______ $______ $______
10. End of day inventory balance (the sum of Lines 8 and 9) $______ $______ $______
10A. Gross Inventory availability (eligible Inventory from Line
10 x advance rate __________) $_______________
COLLATERAL / OTHER
11. Prior day balance (from previous DCAR Line 13) $______ $______ $______
12. Adjustments (per attached) $______ $______ $______
13. End of day other balance (the sum of Lines 11 and 12)
13A. Gross other availability
(eligible other from Line 13 x advance rate __________) $_______________
14. Total gross availability (the sum of Line 7A, 10A and 13A) $_______________
The undersigned certifies that (a) all of the foregoing information regarding the Accounts Receivable is true and correct on
the date hereof and relates solely to the Accounts within the meaning given such term in the Loan and Security Agreement
dated as of May 29, 1997 between PG Newco Corp., General Electric Capital Corporation and the other parties thereto, if any
(as from time to time amended, supplemented, restated to otherwise modified, the "Loan Agreement"), (b) all of the foregoing
information regarding the Inventory is true and correct on the date hereof and relates solely to the Inventory within the
meaning given such term in the Loan Agreement, and (c) all the foregoing information regarding the Collateral is true and
correct on the date hereof and relates solely to the Collateral within the meaning given such term in the Loan Agreement.
By:_____________________________________
Title____________________________________
</TABLE>
Exhibit B -1-
<PAGE>
Exhibit C
Borrowing Base Certificate
COMPANY NAME:.....................
DATE:.............................
PREVIOUSLY FAXED:................. Yes No (circle one)
BCC NUMBER:.......................
<TABLE>
<C> <S> <C> <C>
1. Period end accounts receivable as of: ____________________ $__________
2. Ineligible accounts as of: ____________________
Accounts over days from due / invoice date (circle one) $__________
Intercompany accounts $__________
Government accounts $__________
Contra accounts $__________
Foreign accounts (other than accounts supported by a letter of credit
acceptable to Lender or for which the Account Debtor is a wholly-owned
subsidiary of a U.S. corporation) $__________
Credits in prior $__________
50% cross aging exclusion $__________
Other $__________
Total ineligibles $__________
3. Eligible accounts (Line 1 minus Line 2) $__________
4. Eligible accounts advance rate 85%
5. Eligible accounts availability (Line 3 multiplied by Line 4) $__________
6. Eligible inventory as of: __________________ Source: __________________ $__________
Total inventory available $__________
7. Borrowing Availability (the lesser of the total of Lines 5 and 6 or the Maximum Amount) $__________
8. Revolving Credit Advance balance $__________
9. Letter of Credit Obligations $__________
10. Other reserves $__________
11. Net Borrowing Availability (Line 7 minus the total of Lines 8, 9 and 10) $__________
</TABLE>
The undersigned hereby certifies that (a) all of the foregoing
information regarding the Eligible Accounts is true and correct on the
date hereof and relates solely to the Eligible Accounts within the
meaning given such term in the Loan and Security Agreement dated as of
May 29, 1997 between PG Newco Corp., General Electric Capital Corporation
and the other parties thereto, if any (as from time to time amended,
supplemented, restated to otherwise modified, the "Loan Agreement"), and
(b) all of the foregoing information regarding the Eligible Inventory is
true and correct on the date hereof and relates solely to the Eligible
Inventory within the meaning given such term in the Loan Agreement.
Prepared by: ___________________________________
By:__________________________________
Title:_________________________________
Exhibit C-1-
<PAGE>
Exhibit D
Accounts Payable Analysis
COMPANY NAME:..................
DATE:..........................
PREVIOUSLY FAXED:.............. Yes No (circle one)
<TABLE>
<C> <S> <C>
1. BEGINNING OF THE MONTH ACCOUNTS RECEIVABLE BALANCE $___________________
2. Purchases $___________________
3. Disbursements $___________________
4. Other adjustments $___________________
5. ENDING ACCOUNTS RECEIVABLE BALANCE PER CLIENT AGING $___________________
6. Book overdraft $___________________
7. Adjusted end of month accounts payable balance $___________________
8. Accounts payable per financial statements (reconciliation per attached) $___________________
</TABLE>
The undersigned hereby certifies that all of the information shown
above is true and correct on the date hereof.
Signed:________________________________
Exhibit D-1-
<PAGE>
Exhibit E
Accounts Receivables Roll Forward Analysis
COMPANY NAME:..................
DATE:..........................
PREVIOUSLY FAXED:.............. Yes No (circle one)
<TABLE>
<C> <S> <C> <C>
1. BEGINNING OF THE MONTH ACCOUNTS RECEIVABLE BALANCE $__________
2. Gross sales amount (DCAR # _______ to _______) $__________
3. Net collections (DCAR # _______ to _______) $__________
4. Discounts (DCAR # _______ to _______) $__________
5. Credit memos (DCAR # _______ to _______) $__________
6. Other adjustments (DCAR # _______ to _______) $__________
7. ENDING ACCOUNTS RECEIVABLE BALANCE PER CLIENT AGING
8. Monthly dilution (gross sales divided by discounts, credit memos and other
non-cash reductions to accounts receivable) %__________
</TABLE>
The undersigned hereby certifies that all of the
information shown above is true and correct on
the date hereof.
Signed:.....................................
Dated:......................................
Exhibit E-1-
<PAGE>
Exhibit F
Form Of Revolving Credit Note
$7,000,000 Chicago, IL
May 29, 1997
For value received, the receipt and sufficiency of which are hereby
acknowledged, PG Newco Corp., a Delaware Corporation ("Borrower"), hereby
promises to pay to the order of GENERAL ELECTRIC CAPITAL CORPORATION, a New York
corporation ("Lender"), the sum of $7,000,000 (the "Maximum Amount") or such
greater or lesser amount as shall be advanced by Lender from time to time,
together with interest on the unpaid balance of such amount from the date of the
initial Revolving Credit Advance. This Note is the Revolving Credit Note issued
under the Loan and Security Agreement between Borrower and Lender of even date
herewith (said agreement, as the same may be amended, restated or supplemented
from time to time, being herein called the "Agreement") to which a reference is
made for a statement of all of the terms and conditions of the Loan evidenced
hereby. Capitalized terms not defined in this Note shall have the respective
meanings assigned to them in the Agreement. This Note is secured by the
Agreement, the other Loan Documents and the Collateral, and is entitled to the
benefit of the rights and security provided thereby.
Interest on the outstanding principal balance under this Note is payable at
the Revolving Credit Rate, or, under the circumstances contemplated by the
Agreement, at the Default Rate, in immediately available United States Dollars
at the time and in the manner specified in the Agreement. The outstanding
principal and interest under this Note shall be immediately due and payable on
the Commitment Maturity Date. Payments received by Lender shall be applied
against principal and interest as provided for in the Agreement. Borrower
acknowledges that (a) Lender is authorized under the Agreement to charge to the
Revolving Credit Loan unpaid Obligations of Borrower to Lender, (b) the
principal amount of the Revolving Credit Loan will be increased by such amounts,
and (c) the principal, as so increased, will bear interest as provided for
herein and in the Agreement.
To the fullest extent permitted by applicable law, Borrower waives: (a)
presentment, demand and protest, and notice of presentment, dishonor, intent to
accelerate, acceleration, protest, default, nonpayment, maturity, release,
compromise, settlement, extension or renewal of any or all Loan Documents or
this Note; (b) all rights to notice and a hearing prior to Lender's taking
possession or control of, or to Lender's replevy, attachment or levy upon, the
Collateral or any bond or security that might be required by any court prior to
allowing Lender to exercise any of its remedies; and (c) the benefit of all
valuation, appraisal and exemption laws.
Borrower acknowledges that this Note is executed as part of a commercial
transaction and that the proceeds of this Note will not be used for any personal
or consumer purpose.
Borrower agrees to pay to Lender all Fees and expenses described in
Schedules C and E to the Agreement.
- - ----------- -
Exhibit F-1-
<PAGE>
BORROWER ACKNOWLEDGES THAT BORROWER HAS WAIVED THE RIGHT TO TRIAL BY JURY
IN ANY ACTION OR PROCEEDING ON THIS NOTE. THIS NOTE IS GOVERNED BY THE LAW OF
THE STATE OF ILLINOIS.
PG NEWCO CORP.
By..................................
Name: Leon F. Fiorentino
Title: Vice President - Finance
2
Exhibit F -2-
<PAGE>
Exhibit G
Secretarial Certificate
The undersigned hereby certifies that he or she is the duly elected and
acting Secretary or Assistant Secretary of PG Newco Corp., a Delaware
Corporation ("Borrower"), and as such is the custodian of Borrower's Books and
Records and is authorized to execute and deliver this Certificate in connection
with the Loans being made to Borrower by General Electric Capital Corporation,
as Lender under the Loan and Security Agreement ("Agreement") dated as of May
29, 1997. Capitalized terms not defined in this Certificate shall have the
meanings ascribed to them in the Agreement. In order to induce General Electric
Capital Corporation to execute the Agreement and make the Loans, the undersigned
certifies (in his or her secretarial capacity, and on behalf of Borrower) as
follows:
1. Attached as Attachment 1 hereto is a full, complete, and correct copy of
Borrower's articles or certificate of incorporation or other creating
instrument ("Charter") as filed and recorded with the Secretary of State of
Delaware, which Charter has not been rescinded or amended and remains in
full force and effect in its entirety.
2. Attached as Attachment 2 is a copy of a written confirmation from the
Secretary of State of Delaware, dated _____________________, confirming
that the Charter of Borrower in the form of Attachment 1 remains on file
and that Borrower is a Corporation in good standing in the State of
Delaware.
3. Attached as Attachment 3 is a copy of the By-Laws of Borrower, and as of
the Closing Date the By-Laws are in full force and effect and have not been
amended or rescinded.
4. Attached as Attachment 4 are copies of good standing certificates dated not
more than thirty (30) days prior to the Closing Date for each state or
jurisdiction in which Borrower does business confirming that Borrower is
qualified to engage in business in such jurisdiction and such qualification
is in good standing.
5. Attached as Attachment 5 are copies of the Resolutions of the Board of
------------
Directors of Borrower duly adopted by Borrower's Board of Directors in a meeting
duly called upon proper notice, or by written consent in conformity with the
corporate and other laws of the State of Delaware and with Borrower's Charter
and By-Laws, which Resolutions authorize (a) Borrower to execute and deliver the
Loan Documents and to borrow the funds intended to be borrowed thereunder, and
(b) the officers of Borrower to execute and deliver the Loan Documents. There is
no provision of Borrower's Charter or By-Laws limiting or contravening the
Resolutions attached as Attachment 5, which Resolutions are fully in conformity
------------
with Borrower's Charter and By-Laws and the proper proceedings of its Board of
Directors.
6. The undersigned officers and employees of Borrower have been elected to the
positions set opposite their respective names below, are qualified to act in
such capacities and to execute and deliver the Loan Documents on behalf of
Borrower, and the signature set opposite each name is the authentic signature of
such officer or employee:
NAME OFFICE SIGNATURE
Leon F. Fiorentino Vice President - Finance _______________________
Peter G. VanHeusden Chief Executive Officer _______________________
_________________________ _______________________ _______________________
The individual identified by Borrower as Borrower's Representative in Schedule
--------
1.1 is Leon F. Fiorentino, whose signature appears above.
- - ---
Exhibit G - 1 -
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Certificate on May
__, 1997.
...............................
Leon F. Fiorentino
Secretary of PG Newco Corp.
The Undersigned, the Chief Executive Officer of Borrower, hereby certifies
that Leon F. Fiorentino is the Secretary of Borrower and is authorized to
execute and deliver this Certificate.
...............................
Name: Peter G. VanHeusden
Date: May __, 1997
<PAGE>
EXHIBIT H
POWER OF ATTORNEY
THIS POWER OF ATTORNEY IS EXECUTED AND DELIVERED BY PG NEWCO CORP., AS
BORROWER, TO GENERAL ELECTRIC CAPITAL CORPORATION (HEREINAFTER REFERRED TO AS
"ATTORNEY"), AS LENDER, UNDER A LOAN AND SECURITY AGREEMENT DATED AS OF MAY 29,
1997, AND OTHER DOCUMENTS (THE "LOAN DOCUMENTS"). NO PERSON TO WHOM THIS POWER
OF ATTORNEY IS PRESENTED, AS AUTHORITY FOR ATTORNEY TO TAKE ANY ACTION OR
ACTIONS CONTEMPLATED HEREBY, SHALL INQUIRE INTO OR SEEK CONFIRMATION FROM
BORROWER AS TO THE AUTHORITY OF ATTORNEY TO TAKE ANY ACTION DESCRIBED BELOW, OR
AS TO THE EXISTENCE OF OR FULFILLMENT OF ANY CONDITION TO THIS POWER OF
ATTORNEY, WHICH IS INTENDED TO GRANT TO ATTORNEY UNCONDITIONALLY THE AUTHORITY
TO TAKE AND PERFORM THE ACTIONS CONTEMPLATED HEREIN, AND BORROWER IRREVOCABLY
WAIVES ANY RIGHT TO COMMENCE ANY SUIT OR ACTION, IN LAW OR EQUITY, AGAINST ANY
PERSON OR ENTITY WHICH ACTS IN RELIANCE UPON OR ACKNOWLEDGES THE AUTHORITY
GRANTED UNDER THIS POWER OF ATTORNEY. tHE POWER OF ATTORNEY GRANTED HEREBY IS
COUPLED WITH AN INTEREST, AND MAY NOT BE REVOKED OR CANCELED BY BORROWER WITHOUT
ATTORNEY'S WRITTEN CONSENT UPON PAYMENT IN FULL OF ALL OBLIGATIONS DUE TO
ATTORNEY UNDER THE LOAN DOCUMENTS.
BORROWER HEREBY IRREVOCABLY CONSTITUTES AND APPOINTS ATTORNEY (AND ALL
OFFICERS, EMPLOYEES OR AGENTS DESIGNATED BY ATTORNEY), WITH FULL POWER OF
SUBSTITUTION, AS BORROWER'S TRUE AND LAWFUL ATTORNEY-IN-FACT WITH FULL
IRREVOCABLE POWER AND AUTHORITY IN THE PLACE AND STEAD OF BORROWER AND IN THE
NAME OF BORROWER OR IN ITS OWN NAME, FROM TIME TO TIME IN ATTORNEY'S DISCRETION,
TO TAKE ANY AND ALL APPROPRIATE ACTION AND TO EXECUTE AND DELIVER ANY AND ALL
DOCUMENTS AND INSTRUMENTS WHICH MAY BE NECESSARY OR DESIRABLE TO ACCOMPLISH THE
PURPOSES OF THE LOAN DOCUMENTS AND, WITHOUT LIMITING THE GENERALITY OF THE
FOREGOING, BORROWER HEREBY GRANTS TO ATTORNEY THE POWER AND RIGHT, ON BEHALF OF
BORROWER, WITHOUT NOTICE TO OR ASSENT BY BORROWER, AND AT ANY TIME, TO DO THE
FOLLOWING: (A) OPEN MAIL FOR BORROWER, AND ASK, DEMAND, COLLECT, GIVE
ACQUITTANCES AND RECEIPTS FOR, TAKE POSSESSION OF, ENDORSE AND RECEIVE PAYMENT
OF, ANY CHECKS, DRAFTS, NOTES, ACCEPTANCES, OR OTHER INSTRUMENTS FOR THE PAYMENT
OF MONEYS DUE, AND SIGN AND ENDORSE ANY INVOICES, FREIGHT OR EXPRESS BILLS,
BILLS OF LADING, STORAGE OR WAREHOUSE RECEIPTS, DRAFTS AGAINST DEBTORS,
ASSIGNMENTS, VERIFICATIONS, AND NOTICES IN CONNECTION WITH ANY PROPERTY OF
BORROWER; (B) EFFECT ANY REPAIRS TO ANY ASSET OF BORROWER, OR CONTINUE OR OBTAIN
ANY INSURANCE AND PAY ALL OR ANY PART OF THE PREMIUMS THEREFOR AND COSTS
THEREOF, AND MAKE, SETTLE AND ADJUST ALL CLAIMS UNDER SUCH POLICIES OF
INSURANCE, AND MAKE ALL DETERMINATIONS AND DECISIONS WITH RESPECT TO SUCH
POLICIES; (C) PAY OR DISCHARGE ANY TAXES, LIENS, SECURITY INTERESTS, OR OTHER
ENCUMBRANCES LEVIED OR PLACED ON OR THREATENED AGAINST BORROWER OR ITS PROPERTY;
(D) DEFEND ANY SUIT, ACTION OR PROCEEDING BROUGHT AGAINST BORROWER IF BORROWER
DOES NOT DEFEND SUCH SUIT, ACTION OR PROCEEDING OR IF ATTORNEY BELIEVES THAT
BORROWER IS NOT PURSUING SUCH DEFENSE IN A MANNER THAT WILL MAXIMIZE THE
RECOVERY TO ATTORNEY, AND SETTLE, COMPROMISE OR ADJUST ANY SUIT, ACTION, OR
PROCEEDING DESCRIBED ABOVE AND, IN CONNECTION THEREWITH, GIVE SUCH DISCHARGES OR
RELEASES AS ATTORNEY MAY DEEM APPROPRIATE; (E) FILE OR PROSECUTE ANY CLAIM,
LITIGATION, SUIT OR PROCEEDING IN ANY COURT OF COMPETENT JURISDICTION OR BEFORE
ANY ARBITRATOR, OR TAKE ANY OTHER ACTION OTHERWISE DEEMED APPROPRIATE BY
ATTORNEY FOR THE PURPOSE OF COLLECTING ANY AND ALL SUCH MONEYS DUE TO BORROWER
WHENEVER PAYABLE AND TO ENFORCE ANY OTHER RIGHT IN RESPECT OF BORROWER'S
PROPERTY; (F) SELL, TRANSFER, PLEDGE, MAKE ANY AGREEMENT WITH RESPECT TO, OR
OTHERWISE DEAL WITH ANY PROPERTY OF BORROWER, AND EXECUTE, IN CONNECTION WITH
SUCH SALE OR ACTION, ANY ENDORSEMENTS, ASSIGNMENTS OR OTHER INSTRUMENTS OF
CONVEYANCE OR TRANSFER IN CONNECTION THEREWITH; AND (G) CAUSE THE CERTIFIED
PUBLIC ACCOUNTANTS THEN ENGAGED BY BORROWER TO PREPARE AND DELIVER TO ATTORNEY
AT ANY TIME AND FROM TIME TO TIME, PROMPTLY UPON ATTORNEY'S REQUEST, THE
FOLLOWING REPORTS: (1) A RECONCILIATION OF ALL ACCOUNTS; (2) AN AGING OF ALL
ACCOUNTS; (3) TRIAL BALANCES; (4) TEST VERIFICATIONS OF SUCH ACCOUNTS AS
ATTORNEY MAY REQUEST, AND (5) THE RESULTS OF EACH PHYSICAL VERIFICATION OF
INVENTORY, ALL AS THOUGH ATTORNEY WERE THE ABSOLUTE OWNER OF THE PROPERTY OF
---
BORROWER FOR ALL PURPOSES, AND TO DO, AT ATTORNEY'S OPTION AND BORROWER'S
EXPENSE, AT ANY TIME OR FROM TIME TO TIME, ALL ACTS AND OTHER THINGS THAT
ATTORNEY REASONABLY DEEMS NECESSARY TO PERFECT, PRESERVE, OR REALIZE UPON
BORROWER'S PROPERTY OR ASSETS AND ATTORNEY'S LIENS THEREON, ALL AS FULLY AND
EFFECTIVELY AS BORROWER MIGHT DO. BORROWER HEREBY RATIFIES, TO THE EXTENT
PERMITTED BY LAW, ALL THAT SAID ATTORNEYS SHALL LAWFULLY DO OR CAUSE TO BE DONE
BY VIRTUE HEREOF.
Exhibit H-1-
<PAGE>
LENDER SHALL NOT BE EMPOWERED PURSUANT TO THIS POWER OF ATTORNEY TO TAKE
ANY ACTION UNLESS AN EVENT OF DEFAULT HAS OCCURRED AND IS CONTINUING EXCEPT THAT
REGARDLESS OF WHETHER AN EVENT OF DEFAULT HAS OCCURRED AND IS CONTINUING LENDER
MAY EXECUTE UCC FINANCING STATEMENTS ON BEHALF OF BORROWER THAT IT DEEMS
ADVISABLE TO PERFECT ITS LIENS UNDER ANY LOAN DOCUMENT.
IN WITNESS WHEREOF, THIS POWER OF ATTORNEY IS EXECUTED BY BORROWER, AND
BORROWER HAS CAUSED ITS SEAL TO BE AFFIXED PURSUANT! TO THE AUTHORITY OF ITS
BOARD OF DIRECTORS ON MAY __, 1997.
PG NEWCO CORP. ATTEST:.............................
By....................................
Name: PETER G. VANHEUSDEN (SEAL)
Title: CHIEF EXECUTIVE OFFICER
SIGNED, SEALED AND DELIVERED IN THE PRESCENCE OF:
...............................................
...............................................
(ACKNOWLEDGEMENT)
2
Exhibit H-2-
<PAGE>
EXHIBIT I
FORM OF CERTIFICATE OF COMPLIANCE
[USE BORROWER LETTERHEAD WITH THIS FORM]
[DATE]
TO:GENERAL ELECTRIC CAPITAL - COMMERCIAL FINANCE ACCOUNT MANAGER FOR PG NEWCO
CORP. THIS IS TO CERTIFY THAT IN ACCORDANCE WITH SECTION 4.1 (H) OF THE LOAN AND
SECURITY AGREEMENT DATED MAY 29, 1997 THAT THE ATTACHED FINANCIAL STATEMENTS ARE
COMPLETE AND TRUE AND HAVE BEEN PREPARED IN CONFORMANCE WITH GAAP. IN ADDITION
THERE ARE NO DEFAULTS OR EVENTS OF DEFAULT OTHER THAN THOSE SPECIFIED BELOW
CONTINUING AS OF SUCH DATE.
ALSO ATTACHED ARE THE COVENANT CALCULATIONS USED IN DETERMINING COMPLIANCE WITH
THE FINANCIAL COVENANTS CONTAINED IN SCHEDULE G.
----------
VERY TRULY YOURS,
PG NEWCO CORP.
By:.......................................
NAME: LEON F. FIORENTINO
Title: VICE PRESIDENT - FINANCE
Exhibit F -1-
<PAGE>
Exhibit J
Secretarial Certificate
The undersigned hereby certifies that he or she is the duly elected and
acting Secretary or Assistant Secretary of Milwaukee Land Company, a Delaware
Corporation ("MLC"), and as such is the custodian of MLC's Books and Records and
is authorized to execute and deliver this Certificate in connection with the
Loans being made to PG Newco Corp. ("Borrower") by General Electric Capital
Corporation, as Lender under the Loan and Security Agreement ("Agreement") dated
as of May 29, 1997. Capitalized terms not defined in this Certificate shall
have the meanings ascribed to them in the Agreement. In order to induce General
Electric Capital Corporation to execute the Agreement and make the Loans, the
undersigned certifies (in his or her secretarial capacity, and on behalf of MLC)
as follows:
1. Attached as Attachment 1 hereto is a full, complete, and correct copy of
MLC's articles or certificate of incorporation or other creating instrument
("Charter") as filed and recorded with the Secretary of State of Delaware,
which Charter has not been rescinded or amended and remains in full force
and effect in its entirety.
2. Attached as Attachment 2 is a copy of a written confirmation from the
Secretary of State of Delaware, dated _____________________, confirming
that the Charter of MLC in the form of Attachment 1 remains on file and
that MLC is a Corporation in good standing in the State of Delaware.
3. Attached as Attachment 3 is a copy of the By-Laws of MLC, and as of the
Closing Date the By-Laws are in full force and effect and have not been
amended or rescinded.
4. Attached as Attachment 4 are copies of good standing certificates dated not
more than thirty (30) days prior to the Closing Date for each state or
jurisdiction in which MLC does business confirming that MLC is qualified to
engage in business in such jurisdiction and such qualification is in good
standing.
5. Attached as Attachment 5 are copies of the Resolutions of the Board of
------------
Directors of MLC duly adopted by MLC's Board of Directors in a meeting duly
called upon proper notice, or by written consent in conformity with the
corporate and other laws of the State of Delaware and with MLC's Charter and By-
Laws, which Resolutions authorize the officers of MLC to execute and deliver the
Stock Pledge Agreement, the Bulk Sales Indemnity and such other agreements,
instruments and documents related thereto. There is no provision of MLC's
Charter or By-Laws limiting or contravening the Resolutions attached as
Attachment 5, which Resolutions are fully in conformity with MLC's Charter and
- - ------------
By-Laws and the proper proceedings of its Board of Directors.
6. The undersigned officers and employees of MLC have been elected to the
positions set opposite their respective names below, are qualified to act in
such capacities and to execute and deliver the Loan Documents on behalf of MLC,
and the signature set opposite each name is the authentic signature of such
officer or employee:
NAME OFFICE SIGNATURE
Leon F. Fiorentino ______________ ________________
_________________________ ______________ ________________
_________________________ ______________ ________________
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Certificate on May
__, 1997.
_______________________
Secretary of Milwaukee Land Company
The Undersigned, the Chief Executive Officer of MLC, hereby certifies that
___________________ is the Secretary of MLC and is authorized to execute and
deliver this Certificate.
Name: _______________________
Date: May __, 1997
<PAGE>
EXHIBIT 10.11
PROMISSORY NOTE
May 29, 1997
(Date)
- - --------------------------------------------------------------------------------
(Address of Maker)
FOR VALUE RECEIVED, PG Newco Corp. ("Maker") promises, jointly and severally if
more than one, to pay to the order of General Electric Credit Corporation, as
agent for itself and certain participants or any subsequent holder hereof (each,
a "Payee") at its office located at 4 North Park Suite 500 Hunt Valley, MD 21030
or at such other place as Payee or the holder hereof may designate, the
principal sum of Four Million and 00/100 Dollars ($4,000,000.00), with interest
thereon, from the date hereof through and including dates of payment, at a
floating per annum simple interest rate ("Contract Rate") as hereinafter
calculated.
The Contract Rate for a given period (the "Effective Period") shall be equal to
the sum of (i) three and 62/100 percent (3/62%) per annum plus (ii) a variable
per annum interest rate which shall be equal to the one month London Interbank
Offered Rate (LIBOR) as indicated in the "Money Rates" column of The Wall Street
Journal, Eastern Edition (or, in the event such rate is not so published, in
such other nationally recognized publication as Payee may specify), published on
the first Business Day of the calendar month preceding the month in which the
Effective Period Ends. The first Effective Period shall begin on the date
hereof, and shall continue through and including and end on the date on which
the first Periodic Installment is due. Each subsequent Effective Period shall
begin on the day after the last day of the previous Effective Period and shall
continue through and including and end on.the date on which the next Periodic
Installment is due after the beginning of the current Effective Period. As used
herein, the term "Business Day" shall mean and include any calendar day other
than a day on which all commercial banks in the City of New York, New York are
required or authorized to be closed.
Subject to the other provisions hereof, the principal and interest on this Note
is payable in lawful money of the United States in thirty six (36) consecutive
monthly principal installments the first 24 of which are equal to one hundred
fourteen thousand five hundred eighty three and 34/100 Dollars ($114,583.34)
each, followed by 11 equal principal installments of one hundred four thousand
one hundred sixty six and 67/100 Dollars ($104,166.67)) each, plus interest on
the unpaid principal balance at the Contract Rate ("Periodic Installment") and a
final installment which shall be in the amount of the total outstanding unpaid
principal and interest. The first Periodic Installment shall be due and payable
on July 1, 1997 and the following Periodic Installments shall be due and payable
on the first day of each succeeding calendar month. (each, a "Payment Date").
All payments shall be applied first to interest and then to principal. The
acceptance by Payee of any payment which is less than payment in full of all
amounts due and owing at such time shall not constitute a waiver of Payee's
right to receive payment in full at such time or at any prior or subsequent
time. Interest shall be calculated on the basis of a 365 day year (366 day leap
year) and will be charged at the Contract Rate for each calendar day on which
any principal is outstanding.
The Maker hereby expressly authorizes the Payee to insert the date value is
actually given in the blank space on the face hereof and on all related
documents pertaining hereto.
This Note may be secured by a security agreement, chattel mortgage, pledge
agreement or like instrument (each of which is hereinafter called a "Security
Agreement").
Time is of the essence hereof. If any installment or any other sum due under
this Note or any Security Agreement is not received within fifteen (15) days
after its due date, the Maker agrees to pay, in addition to the amount of each
such installment or other sum, a late payment charge of three percent (3%) of
said installment or other sum, but not exceeding any lawful maximum. If (i)
Maker fails to make payment of any amount due hereunder within fifteen (15) days
after the same becomes due and payable; or (ii) Maker is in default, or fails to
perform, under any term or condition contained in any Security Agreement, then
the entire principal sum remaining unpaid, together with all interest thereon
and any other sum payable under this Note or the Security Agreement, at the
election of Payee, shall immediately become due and payable, with interest
thereon at the lesser of the Prime rate (as determined by Chase Manhattan Bank)
plus four percent (4%) (but at least twelve percent (12%)) or the highest rate
not prohibited by applicable law from the date of such accelerated maturity
until paid (both before and after any judgment).
-1-
<PAGE>
The Maker may prepay in full, but not in part, its entire indebtedness hereunder
upon payment of an additional sum as a premium equal to the following
percentages of the original principal balance for the indicated period:
<TABLE>
<S> <C>
Prior to the first annual anniversary date of this Note: three percent (3%)
Thereafter and prior to the second annual anniversary date of this Note: two percent (2%)
Thereafter and prior to the third annual anniversary date of this Note: one percent (1%)
and zero percent (0%) thereafter, plus all other sums due hereunder or under any Security Agreement.
</TABLE>
It is the intention of the parties hereto to comply with the applicable usury
laws; accordingly, it is agreed that, notwithstanding any provision to the
contrary in this Note or any Security Agreement, in no event shall this Note or
any Security Agreement require the payment or permit the collection of interest
in excess of the maximum amount permitted by applicable law. If any such excess
interest is contracted for, charged or received under this Note or any Security
Agreement, or if all of the principal balance shall be prepaid, so that under
any of such circumstances the amount of interest contracted for, charged or
received under this Note or the Security Agreement on the principal balance
shall exceed the maximum amount of interest permitted by applicable law, then in
such event (a) the provisions of this paragraph shall govern and control, (b)
neither Maker nor any other person or entity now or hereafter liable for the
payment hereof shall be obligated to pay the amount of such interest to the
extent that it is in excess of the maximum amount of interest permitted by
applicable law, (c) any such excess which may have been collected shall be
either applied as a credit against the then unpaid principal balance or refunded
to Maker, at the option of the Payee, and (d) the effective rate of interest
shall be automatically reduced to the maximum lawful contract rate allowed under
applicable law as now or hereafter construed by the courts having jurisdiction
thereof. It is further agreed that without limitation of the foregoing, all
calculations of the rate of interest contracted for, charged or received under
this Note or the Security Agreement which are made for the purpose of
determining whether such rate exceeds the maximum lawful contract rate, shall be
made, to the extent permitted by applicable law, by amortizing, prorating,
allocating and spreading in equal parts during the period of the full stated
term of the indebtedness evidenced hereby, all interest at any time contracted
for, charged or received from Maker or otherwise by Payee in connection with
such indebtedness; provided, however, that if any applicable state law is
amended or the law of the United States of America preempts any applicable state
law, so that it becomes lawful for the Payee to receive a greater interest per
annum rate than is presently allowed, the Maker agrees that, on the effective
date of such amendment or preemption, as the case may be, the lawful maximum
hereunder shall be increased to the maximum interest per annum rate allowed by
the amended state law or the law of the United States of America.
The Maker and all sureties, endorsers, guarantors or any others (each such
person, other than the Maker, an "Obligor") who may at any time become liable
for the payment hereof jointly and severally consent hereby to any and all
extensions of time, renewals, waivers or modifications of, and all substitutions
or releases of, security or of any party primarily or secondarily liable on this
Note or any Security Agreement or any term and provision of either, which may be
made, granted or consented to by Payee, and agree that suit may be brought and
maintained against any one or more of them, at the election of Payee without
joinder of any other as a party thereto, and that Payee shall not be required
first to foreclose, proceed against, or exhaust any security hereof in order to
enforce payment of this Note. The Maker and each Obligor hereby waive
presentment, demand for payment, notice of nonpayment, protest, notice of
protest, notice of dishonor, and all other notices in connection herewith, as
well as filing of suit (if permitted by law) and diligence in collecting this
Note or enforcing any of the security hereof, and agree to pay (if permitted by
law) all expenses incurred in collection, including Payee's actual attorneys'
fees.
THE MAKER HEREBY UNCONDITIONALLY WAIVES ITS RIGHT TO A JURY TRIAL OF ANY CLAIM
OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR INDIRECTLY, THIS
NOTE, ANY OF THE RELATED DOCUMENTS, ANY DEALINGS BETWEEN MAKER AND PAYEE
RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS,
AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN MAKER AND PAYEE. THE
SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES
THAT MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS,
TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY
CLAIMS). THIS WAIVER IS IRREVOCABLE MEANING THAT IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR
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<PAGE>
MODIFICATIONS TO THIS NOTE, ANY RELATED DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR
AGREEMENTS RELATING TO THIS TRANSACTION OR ANY RELATED TRANSACTION. IN THE EVENT
OF LITIGATION, THIS NOTE MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE
COURT.
This Note, any Security Agreement and related Collateral Schedules constitute
the entire agreement of the Maker and Payee with respect to the subject matter
hereof and supersedes all prior understandings, agreements and representations,
express or implied.
No variation or modification of this Note, or any waiver of any of its
provisions or conditions, shall be valid unless in writing and signed by an
authorized representative of Maker and Payee. Any such waiver, consent,
modification or change shall be effective only in the specific instance and for
the specific purpose given.
Any provision in this Note or any Security Agreement which is in conflict with
any statute, law or applicable rule shall be deemed omitted, modified or altered
to conform thereto.
PG Newco Corp.
/s/ Lawrence Adelson By: /s/ L.F. Fiorentino (L.S.)
- - ---------------------------------- ----------------------------------
(Witness) (Signature)
Lawrence Adelson L.F. Fiorentino
- - ---------------------------------- -------------------------------------
(Print name) Print name (and title, if applicable)
547 W. Jackson Blvd.
Chicago, IL 60661 364148939
- - ---------------------------------- -------------------------------------
(Address) (Federal tax identification number)
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<PAGE>
MASTER SECURITY AGREEMENT
THIS MASTER SECURITY AGREEMENT, made as of May 29, 1997 ("Agreement"),
by and between General Electric Capital Corporation, a New York corporation with
an address at 4 North Park Drive Suite 500, Hunt Valley, MD, as agent for itself
and certain participants ("Secured Party"), and PG Newco Corp., a corporation
organized and existing under the laws of the State of Delaware with its chief
executive offices located at 48700 Structural Drive, Chesterfield, MI
48051("Debtor").
In consideration of the promises herein contained and of certain other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Debtor and Secured Party hereby agree as follows:
1. CREATION OF SECURITY INTEREST.
Debtor hereby gives, grants and assigns to Secured Party, its
successors and assigns forever, a security interest in and against any and all
property listed on any collateral schedule now or hereafter annexed hereto or
made a part hereof ("Collateral Schedule"), and in and against any and all
additions, attachments, accessories and accessions thereto, any and all
substitutions, replacements or exchanges therefor, and any and all insurance
and/or other proceeds thereof (all of the foregoing being hereinafter
individually and collectively referred to as the "Collateral"). The foregoing
security interest is given to secure the payment and performance of any and all
debts, obligations and liabilities of any kind, nature or description whatsoever
(whether primary, secondary, direct, contingent, sole, joint or several, or
otherwise, and whether due or to become due) of Debtor to Secured Party, now
existing or hereafter arising under this Agreement, including but not limited to
the payment and performance of certain Promissory Notes from time to time
identified on any Collateral Schedule (collectively "Notes" and each a "Note"),
and any renewals, extensions and modifications of such debts, obligations and
liabilities (all of the foregoing being hereinafter referred to as the
"Indebtedness"). Notwithstanding the foregoing, and notwithstanding anything to
the contrary contained elsewhere in this Agreement, to the extent that Secured
Party asserts a purchase money security interest in any items of Collateral
("PMSI Collateral"): (i) the PMSI Collateral shall secure only that portion of
the Indebtedness which has been advanced by Secured Party to enable Debtor to
purchase, or acquire rights in or the use of such PMSI Collateral (the "PMSI
Indebtedness"), and (ii) no other Collateral shall secure the PMSI Indebtedness.
2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF DEBTOR.
Debtor hereby represents, warrants and covenants as of the date hereof
and as of the date of execution of each Collateral Schedule hereto that:
(a) Debtor is, and will remain, duly organized, existing and in good
standing under the laws of the State set forth in the first paragraph of this
Agreement, has its chief executive offices at the location set forth in such
paragraph, and is, and will remain, duly qualified and licensed in every
jurisdiction wherever necessary to carry on its business and operations;
(b) Debtor has adequate power and capacity to enter into, and to
perform its obligations, under this Agreement, each Note and any other documents
evidencing, or given in connection with, any of the Indebtedness (all of the
foregoing being hereinafter referred to as the "Debt Documents");
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<PAGE>
(c) This Agreement and the other Debt Documents have been duly
authorized, executed and delivered by Debtor and constitute legal, valid and
binding agreements enforceable under all applicable laws in accordance with
their terms, except to the extent that the enforcement of remedies may be
limited under applicable bankruptcy and insolvency laws;
(d) No approval, consent or withholding of objections is required
from any governmental authority or instrumentality with respect to the entry
into, or performance by, Debtor of any of the Debt Documents, except such as may
have already been obtained;
(e) The entry into, and performance by, Debtor of the Debt Documents
will not (i) violate any of the organizational documents of Debtor or any
judgment, order, law or regulation applicable to Debtor, or (ii) result in any
breach of, constitute a default under, or result in the creation of any lien,
claim or encumbrance on any of Debtor's property (except for liens in favor of
Secured Party) pursuant to, any indenture mortgage, deed of trust, bank loan,
credit agreement, or other agreement or instrument to which Debtor is a party;
(f) There are no suits or proceedings pending or threatened in court
or before any commission, board or other administrative agency against or
affecting Debtor which could, in the aggregate, have a material adverse effect
on Debtor, its business or operations, or its ability to perform its obligations
under the Debt Documents;
(g) All financial statements delivered to Secured Party in connection
with the Indebtedness have been prepared in accordance with generally accepted
accounting principles, and since the date of the most recent financial
statement, there has been no material adverse change;
(h) The Collateral is not, and will not be, used by Debtor for
personal, family or household purposes;
(i) The Collateral is, and will remain, in good condition and repair
and Debtor will not be negligent in the care and use thereof;
(j) Debtor is, and will remain, the sole and lawful owner, and in
possession of, the Collateral, and has the sole right and lawful authority to
grant the security interest described in this Agreement; and
(k) The Collateral is, and will remain, free and clear of all liens,
claims and encumbrances of every kind, nature and description, except for (i)
liens in favor of Secured Party, (ii) liens for taxes not yet due or for taxes
being contested in good faith and which do not involve, in the reasonable
judgment of Secured Party, any risk of the sale, forfeiture or loss of any of
the Collateral, (iii) liens in favor of General Electric Capital Corporation
under the Loan and Security Agreement with Debtor dated May 29, 1997 and (iv)
inchoate materialmen's, mechanic's, repairmen's and similar liens arising by
operation of law in the normal course of business for amounts which are not
delinquent (all of such permitted liens being hereinafter referred to as
"Permitted Liens").
(l) Fixed Charge Coverage Ratio. Debtor shall maintain a Fixed Charge
---------------------------
Coverage Ratio of not less than 1.2:1 for every four Fiscal Quarter period
ending at the end of each Fiscal Quarter commencing with the Fiscal Quarter
ending September 30, 1997.
For the purpose of this covenant, the following terms shall have the
meanings set forth below:
"EBITDA" shall mean, for any period, the Net Income (Loss) of Debtor
------
for such period, plus interest expense, tax expenses, amortization expense,
depreciation expense, and extraordinary losses and
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<PAGE>
minus extraordinary gains, in each case, of Debtor for such period determined in
- - -----
accordance with GAAP to the extent included in the determination of such Net
Income (Loss).
"Fixed Charge Coverage Ratio" shall mean, for any period, the ratio of
---------------------------
the following for Debtor determined in accordance with GAAP: (a) EBITDA for such
period less Capital Expenditures for such period which are not financed through
----
the incurrence of any Indebtedness (excluding the Revolving Credit Loan) to (b)
the sum of (i) interest expense paid or deemed paid in respect of any
Indebtedness during such period, plus (ii) taxes to the extent accrued or
----
otherwise payable with respect to such period plus (iii) regularly scheduled
----
payments of principal paid or deemed paid on Funded Debt (excluding the
Revolving Credit Loan) during such period.
"Funded Debt" shall mean, for any Person, all of such Person's
-----------
Indebtedness which by the terms of the agreement governing or instrument
evidencing such Indebtedness matures more than one (1) year from, or is directly
or indirectly renewable or extendible at the option of such Person under a
revolving credit or similar agreement obligating the lender or lenders to extend
credit over a period of more than one (1) year from the date of creation
thereof, including current maturities of long-term debt, revolving credit, and
short-term debt extendible beyond one (1) year at the option of such Person.
"Net Income (Loss)" shall mean, with respect to any Person and for any
-----------------
period, the aggregate net income (or loss) after taxes of such Person for such
period, determined in accordance with GAAP.
(m) Minimum Tangible Net Worth. Debtor shall maintain, as at the end
--------------------------
of each Fiscal Quarter, Tangible Net Worth of Debtor for such Fiscal Quarter of
not less than the amount for such Fiscal Quarter set forth below:
As of the Fiscal Quarter Ending: Minimum Tangible Net Worth
------------------------------- --------------------------
06/30/97 2,100,000
09/30/97 2,526,000
12/31/97 2,989,000
03/31/98 3,612,000
06/30/98 4,237,000
09/30/98 4,861,000
12/31/98 5,485,000
03/31/99 6,247,000
06/30/99 7,009,000
09/30/99 7,770,000
12/31/99 8,533,000
03/31/00 9,000,000
For purpose of this covenant, the following terms shall have the
meanings set forth below:
"Tangible Net Worth" shall mean, with respect to any Person, at any
------------------
date, the total assets (excluding (i) any assets attributable to any issuances
by such Person of any Stock after the Closing Date (ii) amounts due from
Affiliates, and (iii) goodwill and other intangible assets) minus the total
liabilities, in each case, of such Person at such date determined in accordance
with GAAP.
(n) Capital Expenditures. Debtor shall not make aggregate Capital
--------------------
Expenditures (other than Capital Expenditures financed through the
incurrence of Indebtedness permitted under this Agreement
(excluding the Revolving Credit Loan)) in any Fiscal Year in excess
of $500,000.
For purposes of this Section 2, all terms not defined herein shall have the
meaning ascribed to them in the Loan and Security Agreement between General
Electric Capital Corporation and the Debtor dated May 29, 1997.
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<PAGE>
3. COLLATERAL.
(a) Until the declaration of any default hereunder, Debtor shall
remain in possession of the Collateral; provided, however, that Secured Party
shall have the right to possess (i) any chattel paper or instrument that
constitutes a part of the Collateral, and (ii) any other Collateral which
because of its nature may require that Secured Party's security interest therein
be perfected by possession. Secured Party, its successors and assigns, and their
respective agents, shall have the right to examine and inspect any of the
Collateral at any time during normal business hours. Upon any request from
Secured Party, Debtor shall provide Secured Party with notice of the then
current location of the Collateral.
(b) Debtor shall (i) use the Collateral only in its trade or
business, (ii) maintain all of the Collateral in good condition and working
order, (iii) use and maintain the Collateral only in compliance with all
applicable laws, and (iv) keep all of the Collateral free and clear of all
liens, claims and encumbrances (except for Permitted Liens).
(c) Debtor shall not, without the prior written consent of Secured
Party, (i) part with possession of any of the Collateral (except to Secured
Party or for maintenance and repair), (ii) remove any of the Collateral from the
continental United States, or (iii) sell, rent, lease, mortgage, grant a
security interest in or otherwise transfer or encumber (except for Permitted
Liens) any of the Collateral.
(d) Debtor shall pay promptly when due all taxes, license fees,
assessments and public and private charges levied or assessed on any of the
Collateral, on the use thereof, or on this Agreement or any of the other Debt
Documents. At its option, Secured Party may discharge taxes, liens, security
interests or other encumbrances at any time levied or placed on the Collateral
and may pay for the maintenance, insurance and preservation of the Collateral or
to effect compliance with the terms of this Agreement or any of the other Debt
Documents. Debtor shall reimburse Secured Party, on demand, for any and all
costs and expenses incurred by Secured Party in connection therewith and agrees
that such reimbursement obligation shall be secured hereby.
(e) Debtor shall, at all times, keep accurate and complete records of
the Collateral, and Secured Party, its successors and assigns, and their
respective agents, shall have the right to examine, inspect, and make extracts
from all of Debtor's books and records relating to the Collateral at any time
during normal business hours.
(f) If agreed by the parties, Secured Party may, but shall in no
event be obligated to, accept substitutions and exchanges of property for
property, and additions to the property, constituting all or any part of the
Collateral. Such substitutions, exchanges and additions shall be accomplished at
any time and from time to time, by the substitution of a revised Collateral
Schedule for the Collateral Schedule now or hereafter annexed. Any property
which may be substituted, exchanged or added as aforesaid shall constitute a
portion of the Collateral and shall be subject to the security interest granted
herein. Additions to, reductions or exchanges of, or substitutions for, the
Collateral, payments on account of any obligation or liability secured hereby,
increases in the obligations and liabilities secured hereby, or the creation of
additional obligations and liabilities secured hereby, may from time to time be
made or occur without affecting the provisions of this Agreement or the
provisions of any obligation or liability which this Agreement secures.
(g) Any third person at any time and from time to time holding all or
any portion of the Collateral shall be deemed to, and shall, hold the Collateral
as the agent of, and as pledge holder for, Secured Party. At any time and from
time to time, Secured Party may give notice to any third person holding all or
any portion of the Collateral that such third person is holding the Collateral
as the agent of, and as pledge holder for, the Secured Party.
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<PAGE>
4. INSURANCE.
The Collateral shall at all times be held at Debtor's risk, and Debtor
shall keep it insured against loss or damage by fire and extended coverage
perils, theft, burglary, and for any or all Collateral which are vehicles, for
risk of loss by collision, and where requested by Secured Party, against other
risks as required thereby, for the full replacement value thereof, with
companies, in amounts and under policies acceptable to Secured Party. Debtor
shall, if Secured Party so requires, deliver to Secured Party policies or
certificates of insurance evidencing such coverage. Each policy shall name
Secured Party as loss payee thereunder, shall provide for coverage to Secured
Party regardless of the breach by Debtor of any warranty or representation made
therein, shall not be subject to co-insurance, and shall provide for thirty (30)
days written notice to Secured Party of the cancellation or material
modification thereof. Debtor hereby appoints Secured Party as its attorney in
fact to make proof of loss, claim for insurance and adjustments with insurers,
and to execute or endorse all documents, checks or drafts in connection with
payments made as a result of any such insurance policies. Proceeds of insurance
shall be applied, at the option of Debtor (provided Debtor is not in default and
if so at Secured Party's option), to repair or replace the Collateral or to
reduce any of the Indebtedness secured hereby.
5. REPORTS.
(a) Debtor shall promptly notify Secured Party in the event of (i)
any change in the name of Debtor, (ii) any relocation of its chief executive
offices, (iii) any relocation of any of the Collateral, (iv) any of the
Collateral being lost, stolen, missing, destroyed, materially damaged or worn
out, or (v) any lien, claim or encumbrance attaching or being made against any
of the Collateral other than Permitted Liens.
(b) Debtor shall deliver to Secured Party (i) within thirty-five (35)
days after the end of each fiscal quarter, consolidated and consolidating
balance sheets and statements of income of Debtor for such quarter, prepared in
accordance with GAAP and certified by and officer of Debtor in a manner
acceptable to Secured Party, (ii) within one hundred (100) days after the end of
each fiscal year, consolidated and consolidating balance sheets and statements
of income and cash flows of Debtor for such fiscal year, prepared in accordance
with GAAP, audited (as to the consolidated statement only) by independent
certified public accountants acceptable to Secured Party, and certified by an
officer of Debtor in a manner acceptable to Secured Party (each such quarterly
or annual certificate to include without limitation a calculation showing
compliance with the financial covenants in Section 2(1) and 2(m) and a statement
that no Event of Default has occurred and is continuing hereunder) and (iii)
such other information relating to the Equipment and Debtor's financial
condition and other matters as Secured Party shall required from time to time.
6. FURTHER ASSURANCES.
(a) Debtor shall, upon request of Secured Party, furnish to Secured
Party such further information, execute and deliver to Secured Party such
documents and instruments (including, without limitation, Uniform Commercial
Code financing statements) and do such other acts and things, as Secured Party
may at any time reasonably request relating to the perfection or protection of
the security interest created by this Agreement or for the purpose of carrying
out the intent of this Agreement. Without limiting the foregoing, Debtor shall
cooperate and do all acts deemed necessary or advisable by Secured Party to
continue in Secured Party a perfected first security interest in the Collateral,
and shall obtain and furnish to Secured Party any subordinations, releases,
landlord, lessor, or mortgagee waivers,
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<PAGE>
and similar documents as may be from time to time requested by, and which are in
form and substance satisfactory to, Secured Party.
(b) Debtor hereby grants to Secured Party the power to sign Debtor's
name and generally to act on behalf of Debtor to execute and file applications
for title, transfers of title, financing statements, notices of lien and other
documents pertaining to any or all of the Collateral. Debtor shall, if any
certificate of title be required or permitted by law for any of the Collateral,
obtain such certificate showing the lien hereof with respect to the Collateral
and promptly deliver same to Secured Party.
(c) Debtor shall indemnify and defend the Secured Party, its
successors and assigns, and their respective directors, officers and employees,
from and against any and all claims, actions and suits (including, without
limitation, related attorneys' fees) of any kind, nature or description
whatsoever arising, directly or indirectly, in connection with any of the
Collateral, except to the extent such claims, actions or suit are caused by
Secured Party's gross negligence or willful misconduct.
7. EVENTS OF DEFAULT.
Debtor shall be in default under this Agreement and each of the other
Debt Documents upon the occurrence of any of the following "Event(s) of
Default":
(a) Debtor fails to pay any installment or other amount due or coming
due under any of the Debt Documents within fifteen (15) days after its due date;
(b) Any attempt by Debtor, without the prior written consent of
Secured Party, to sell, rent, lease, mortgage, grant a security interest in, or
otherwise transfer or encumber (except for Permitted Liens) any of the
Collateral;
(c) Debtor fails to procure, or maintain in effect at all times, any
of the insurance on the Collateral in accordance with Section 4 of this
Agreement;
(d) Debtor breaches any of its other obligations under any of the
Debt Documents and fails to cure the same within thirty (30) days after written
notice thereof;
(e) Any warranty, representation or statement made by Debtor in any
of the Debt Documents or otherwise in connection with any of the Indebtedness
shall be false or misleading in any material respect;
(f) Any of the Collateral being subjected to attachment, execution,
levy, seizure or confiscation in any legal proceeding or otherwise;
(g) Any default by Debtor under any other agreement between Debtor
and Secured Party;
(h) Any dissolution, termination of existence, merger, consolidation,
change in controlling ownership, insolvency, or business failure of Debtor or
any guarantor or other obligor for any of the Indebtedness (collectively
"Guarantor"), or if Debtor or any Guarantor is a natural person, any death or
incompetency of Debtor or such Guarantor;
(i) The appointment of a receiver for all or of any part of the
property of Debtor or any Guarantor, or any assignment for the benefit of
creditors by Debtor or any Guarantor; or
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<PAGE>
(j) The filing of a petition by Debtor or any Guarantor under any
bankruptcy, insolvency or similar law, or the filing of any such petition
against Debtor or any Guarantor if the same is not dismissed within thirty (30)
days of such filing.
(k) Debtor shall be in default under any material obligation (i) for
borrowed money in excess of $100,000, (ii) for the deferred purchase of property
where the amount outstanding exceeds $100,000 or (iii) any lease agreement where
the amount outstanding exceeds $100,000.
8. REMEDIES ON DEFAULT.
(a) Upon the occurrence of an Event of Default under this Agreement,
the Secured Party, at its option, may declare any or all of the Indebtedness,
including without limitation the Notes, to be immediately due and payable,
without demand or notice to Debtor or any Guarantor. The obligations and
liabilities accelerated thereby shall bear interest (both before and after any
judgment) until paid in full at the lower of the Prime rate (as determined by
Chase Manhattan Bank) plus four percent (4%) (but at least twelve percent (12%))
or the maximum rate not prohibited by applicable law.
(b) Upon such declaration of default, Secured Party shall have all of
the rights and remedies of a Secured Party under the Uniform Commercial Code,
and under any other applicable law. Without limiting the foregoing, Secured
Party shall have the right to (i) notify any account debtor of Debtor or any
obligor on any instrument which constitutes part of the Collateral to make
payment to the Secured Party, (ii) with or without legal process, enter any
premises where the Collateral may be and take possession and/or remove said
Collateral from said premises, (iii) sell the Collateral at public or private
sale, in whole or in part, and have the right to bid and purchase at said sale,
and/or (iv) lease or otherwise dispose of all or part of the Collateral,
applying proceeds therefrom to the obligations then in default. If requested by
Secured Party, Debtor shall promptly assemble the Collateral and make it
available to Secured Party at a place to be designated by Secured Party which is
reasonably convenient to both parties. Secured Party may also render any or all
of the Collateral unusable at the Debtor's premises and may dispose of such
Collateral on such premises without liability for rent or costs. Any notice
which Secured Party is required to give to Debtor under the Uniform Commercial
Code of the time and place of any public sale or the time after which any
private sale or other intended disposition of the Collateral is to be made shall
be deemed to constitute reasonable notice if such notice is given to the last
known address of Debtor at least ten (10) days prior to such action.
(c) Proceeds from any sale or lease or other disposition shall be
applied: first, to all costs of repossession, storage, and disposition including
without limitation attorneys', appraisers', and auctioneers' fees; second, to
discharge the obligations then in default; third, to discharge any other
Indebtedness of Debtor to Secured Party, whether as obligor, endorsor,
guarantor, surety or indemnitor; fourth, to expenses incurred in paying or
settling liens and claims against the Collateral; and lastly, to Debtor, if
there exists any surplus. Debtor shall remain fully liable for any deficiency.
(d) In the event this Agreement, any Note or any other Debt Documents
are placed in the hands of an attorney for collection of money due or to become
due or to obtain performance of any provision hereof, Debtor agrees to pay all
reasonable attorneys' fees incurred by Secured Party, and further agrees that
payment of such fees is secured hereunder.
(e) Secured Party's rights and remedies hereunder or otherwise
arising are cumulative and may be exercised singularly or concurrently. Neither
the failure nor any delay on the part of the Secured Party to exercise any
right, power or privilege hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any right, power or privilege preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. Secured Party shall not be deemed to have waived any of its rights
hereunder or under any other agreement, instrument or paper signed by Debtor
unless such
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<PAGE>
waiver be in writing and signed by Secured Party. A waiver on any one occasion
shall not be construed as a bar to or waiver of any right or remedy on any
future occasion.
(f) DEBTOR HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY TRIAL
OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR
INDIRECTLY, THIS AGREEMENT, ANY OF THE OTHER DEBT DOCUMENTS, ANY OF THE
INDEBTEDNESS SECURED HEREBY, ANY DEALINGS BETWEEN DEBTOR AND SECURED PARTY
RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS,
AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN DEBTOR AND SECURED
PARTY. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND
ALL DISPUTES THAT MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION,
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW
AND STATUTORY CLAIMS). THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE
MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT,
ANY OTHER DEBT DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO
THIS TRANSACTION OR ANY RELATED TRANSACTION. IN THE EVENT OF LITIGATION, THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
9. MISCELLANEOUS.
(a) This Agreement, any Note and/or any of the other Debt Documents
may be assigned, in whole or in part, by Secured Party without notice to Debtor,
and Debtor hereby waives any defense, counterclaim or cross-complaint by Debtor
against any assignee, agreeing that Secured Party shall be solely responsible
therefor.
(b) All notices to be given in connection with this Agreement shall
be in writing, shall be addressed to the parties at their respective addresses
set forth hereinabove (unless and until a different address may be specified in
a written notice to the other party), and shall be deemed given (i) on the date
of receipt if delivered in hand or by facsimile transmission, (ii) on the next
business day after being sent by express mail, and (iii) on the fourth business
day after being sent by regular, registered or certified mail. As used herein,
the term "business day" shall mean and include any day other than Saturdays,
Sundays, or other days on which commercial banks in New York, New York are
required or authorized to be closed.
(c) Secured Party may correct patent errors herein and fill in all
blanks herein or in any Collateral Schedule consistent with the agreement of the
parties.
(d) Time is of the essence hereof. This Agreement shall be binding,
jointly and severally, upon all parties described as the "Debtor" and their
respective heirs, executors, representatives, successors and assigns, and shall
inure to the benefit of Secured Party, its successors and assigns.
(e) This Agreement, its Collateral Schedules and any Notes constitute
the entire agreement between the parties with respect to the subject matter
hereof and supercede all prior understandings (whether written, verbal or
implied) with respect thereto. This Agreement and its Collateral Schedules shall
not be changed or terminated orally or by course of conduct, but only by a
writing signed by both parties hereto. Section headings contained in this
Agreement have been included for convenience only, and shall not affect the
construction or interpretation hereof.
(f) This Agreement shall continue in full force and effect until all
of the Indebtedness has been indefeasibly paid in full to Secured Party. The
surrender, upon payment or otherwise, of any Note or
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any of the other documents evidencing any of the Indebtedness shall not affect
the right of Secured Party to retain the Collateral for such other Indebtedness
as may then exist or as it may be reasonably contemplated will exist in the
future. This Agreement shall automatically be reinstated in the event that
Secured Party is ever required to return or restore the payment of all or any
portion of the Indebtedness (all as though such payment had never been made).
(g) The Debtor acknowledges that it has been advised that Secured
Party is acting hereunder for itself and as agent for certain third parties
(each being herein referred to as a "Participant" and, collectively, as the
"Participants"); that the interest of Secured Party in this Agreement, the other
Debt Documents and any other related instruments and documents may be conveyed
to, in whole or in part, and may be used as security for financing obtained
from, one or more third parties without the consent of the Debtor (the
"Syndication"). The Debtor agrees reasonably to cooperate with Secured Party in
connection with the Syndication, including the execution and delivery of such
other documents, instruments, notices, opinions, certificates and
acknowledgments as reasonably may be required by Secured Party or such
Participant; provided, however, in no event shall the Debtor be required to
consent to any change that would adversely affect any of the economic terms of
the transactions contemplated herein.
IN WITNESS WHEREOF, Debtor and Secured Party, intending to be legally
bound hereby, have duly executed this Agreement in one or more counterparts,
each of which shall be deemed to be an original, as of the day and year first
aforesaid.
SECURED PARTY: DEBTOR:
General Electric Capital Corporation, PG Newco Corp.
as agent for itself and certain participants
By: [SIGNATURE APPEARS HERE] By: [SIGNATURE APPEARS HERE]
--------------------------------- -------------------------------
Title: Title:
------------------------------ ----------------------------
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COLLATERAL SCHEDULE NO. 1
THIS COLLATERAL SCHEDULE NO. 1 is annexed to and made a part of that
certain Master Security Agreement dated as of May 29, 1997 between General
Electric Capital Corporation, as agent for itself and certain participants as
Secured Party and PG Newco Corp. as Debtor and describes collateral in which
Debtor has granted Secured Party a security interest in connection with the
indebtedness (as defined in the Security Agreement) including without limitation
that certain Promissory Note dated May 29, 1997 in the original principal amount
of $4,000,000.00.
Description Year/Model Serial Number Location
SEE ATTACHED ANNEX A
SECURED PARTY: DEBTOR:
General Electric Capital Corporation, as agent PG Newco Corp.
for itself and certain participants
By: [SIGNATURE APPEARS HERE] By: [SIGNATURE APPEARS HERE]
----------------------------- ----------------------------
Title: Title:
-------------------------- -------------------------
Date: 5/29/97 Date: 5/29/97
--------------------------- --------------------------
<PAGE>
CORPORATE GUARANTY
Date: May 29, 1997
General Electric Capital Corporation
4 North Park Drive Suite 500
Hunt Valley, MD 21030
To induce you to enter into a Master Security Agreement dated May 29.
1997, the ("Master Security Agreement"), and to accept any Collateral Schedules,
Promissory Notes and/or any other documents or instruments evidencing, or
relating to the indebtedness secured by such Master Security Agreement
(collectively "Account Documents" and each an "Account Document") with PG Newco
Corp., a corporation organized and existing under the laws of the State of
Delaware ("Customer"), but without in any way binding you to do so, the
undersigned, for good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, does hereby guarantee to you, your participants,
successors and assigns, the due regular and punctual payment of any sum or sums
of money which the Customer may owe to you now or at any time hereafter,
evidenced by an Account Document whether it represents principal, interest, late
charges, indemnities, an original balance, an accelerated balance, liquidated
damages, a balance reduced by partial payment, a deficiency after sale or other
disposition of any collateral or security, or any other type of sum of any kind
whatsoever that the Customer may owe to you now or at any time hereafter under
the Account Documents, and does hereby further guarantee to you, your successors
and assigns, the due, regular and punctual performance of any other duty or
obligation of any kind or character whatsoever that the Customer may owe to you
now or at any time hereafter under the Account Documents (all such payment and
performance obligations being collectively referred to as "Obligations").
Notwithstanding anything stated herein to the contrary, the undersigned's
obligation to pay the Obligations shall not exceed $3,200,000. Undersigned does
hereby further guarantee to pay upon demand all losses, costs, attorneys' fees
and expenses which may be suffered by you by reason of Customer's default under
the Account Documents or default of the undersigned.
This Guaranty is a guaranty of prompt payment and performance (and not
merely a guaranty of collection). Nothing herein shall require you to first seek
or exhaust any remedy against the Customer, its successors and assigns, or any
other person obligated with respect to the Obligations, or to first foreclose,
exhaust or otherwise proceed against any leased equipment, collateral or
security which may be given in connection with the Obligations. It is agreed
that you may, upon any breach or default of the Customer, or at any time
thereafter, make demand upon the undersigned and receive payment and performance
of the Obligations, with or without notice or demand for payment or performance
by the Customer, its successors or assigns, or any other person. Suit may be
brought and maintained against the undersigned, at your election, without
joinder of the Customer or any other person as parties thereto. The obligations
of each signatory to this Guaranty shall be joint and several.
The undersigned agrees to furnish its annual and quarterly financial
statements and such interim statements as you may require in form satisfactory
to you. The annual report(s) shall be furnished within 100 days of year end
close and the quarterly report(s) shall be furnished within 40 days of quarterly
close. Any and all financial statements submitted and to be submitted to you
have and will have been prepared on a basis of generally accepted accounting
principles, and are and will be complete and correct and fairly present
undersigned's financial condition as at the date thereof. You may at any
reasonable time examine the books and records of the undersigned and make copies
thereof.
The undersigned agrees that its obligations under this Guaranty shall
be primary, absolute, continuing and unconditional, irrespective of and
unaffected by any of the following actions or circumstances (regardless of any
notice to or consent of the undersigned): (a) the genuineness, validity,
regularity and enforceability of the Account Documents or any other document;
(b) any extension, renewal, amendment, change, waiver or other modification of
the Account Documents or any other document; (c) the absence of, or delay in,
any
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<PAGE>
action to enforce the Account Documents, this Guaranty or any other
document; (d) your failure or delay in obtaining any other guaranty of the
Obligations (including, without limitation, your failure to obtain the signature
of any other guarantor hereunder); (e) the release of, extension of time for
payment or performance by, or any other indulgence granted to the Customer or
any other person with respect to the Obligations by operation of law or
otherwise; (f) the existence, value, condition, loss, subordination or release
(with or without substitution) of, or failure to have title to or perfect and
maintain a security interest in, or the time, place and manner of any sale or
other disposition of any leased equipment, collateral or security given in
connection with the Obligations, or any other impairment (whether intentional or
negligent, by operation of law or otherwise) of the rights of the undersigned;
(g) the Customer's voluntary or involuntary bankruptcy, assignment for the
benefit of creditors, reorganization, or similar proceedings affecting the
Customer or any of its assets; or (h) any other action or circumstances which
might otherwise constitute a legal or equitable discharge or defense of a surety
or guarantor.
This Guaranty may be terminated upon delivery to you (at your address
shown above) of a written termination notice from the undersigned. However, as
to all Obligations (whether matured, unmatured, absolute, contingent or
otherwise) incurred by the Customer prior to your receipt of such written
termination notice (and regardless of any subsequent amendment, extension or
other modification which may be made with respect to such Obligations), this
Guaranty shall nevertheless continue and remain undischarged until all such
Obligations are indefeasibly paid and performed in full.
The undersigned agrees that this Guaranty shall remain in full force
and effect or be reinstated (as the case may be) if at any time payment or
performance of any of the Obligations (or any part thereof) is rescinded,
reduced or must otherwise be restored or returned by you, all as though such
payment or performance had not been made. If, by reason of any bankruptcy,
insolvency or similar laws effecting the rights of creditors, you shall be
prohibited from exercising any of your rights or remedies against the Customer
or any other person or against any property, then, as between you and the
undersigned, such prohibition shall be of no force and effect, and you shall
have the right to make demand upon, and receive payment from, the undersigned of
all amounts and other sums that would be due to you upon a default with respect
to the Obligations.
Notice of acceptance of this Guaranty and of any default by the
Customer or any other person is hereby waived. Presentment, protest demand, and
notice of protest, demand and dishonor of any of the Obligations, and the
exercise of possessory, collection or other remedies for the Obligations, are
hereby waived. The undersigned warrants that it has adequate means to obtain
from the Customer on a continuing basis financial data and other information
regarding the Customer and is not relying upon you to provide any such data or
other information. Without limiting the foregoing, notice of adverse change in
the Customer's financial condition or of any other fact which might materially
increase the risk of the undersigned is also waived. All settlements,
compromises, accounts stated and agreed balances made in good faith between the
Customer, its successors or assigns, and you shall be binding upon and shall not
affect the liability of the undersigned.
The undersigned hereby irrevocably and unconditionally waives and
relinquishes all statutory, contractual, common law, equitable and all other
claims against the Customer, any other obligor for any of the Obligations, any
collateral therefor, or any other assets of the Customer or any such other
obligor, for subrogation, reimbursement, exoneration, contribution,
indemnification, setoff or other recourse in respect of sums paid or payable to
you by the undersigned hereunder, and the undersigned hereby further irrevocably
and unconditionally waives and relinquishes any and all other benefits which it
might otherwise directly or indirectly receive or be entitled to receive by
reason of any amounts paid by, or collected or due from, it, the Customer or any
other obligor for any of the Obligations, or realized from any of their
respective assets.
THE UNDERSIGNED HEREBY UNCONDITIONALLY WAIVES ITS RIGHT TO A JURY TRIAL
OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR
INDIRECTLY, THIS GUARANTY, THE OBLIGATIONS GUARANTEED HEREBY, ANY OF THE RELATED
DOCUMENTS, ANY DEALINGS BETWEEN US RELATING TO THE SUBJECT MATTER HEREOF OR
THEREOF, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN US. THE SCOPE
OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT
MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT
CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS).
THIS WAIVER IS IRREVOCABLE MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR
IN WRITING, AND SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS
OR MODIFICATIONS TO THIS GUARANTY, THE OBLIGATIONS GUARANTEED HEREBY, OR ANY
RELATED DOCUMENTS. IN THE EVENT OF LITIGATION, THIS GUARANTY MAY BE FILED AS A
WRITTEN CONSENT TO A TRIAL BY THE COURT.
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As used in this Guaranty, the word "person" shall include any
individual, corporation, partnership, joint venture, association, joint-stock
company, trust, unincorporated organization, or any government or any political
subdivision thereof.
This Guaranty is intended by the parties as a final expression of the
guaranty of the undersigned and is also intended as a complete and exclusive
statement of the terms thereof. No course of dealing, course of performance or
trade usage, nor any paid evidence of any kind, shall be used to supplement or
modify any of the terms hereof. Nor are there any conditions to the full
effectiveness of this Guaranty. This Guaranty and each of its provisions may
only be waived, modified, varied, released, terminated or surrendered, in whole
or in part, by a duly authorized written instrument signed by you. No failure by
you to exercise your rights hereunder shall give rise to any estoppel against
you, or excuse the undersigned from performing hereunder. Your waiver of any
right to demand performance hereunder shall not be a waiver of any subsequent or
other right to demand performance hereunder.
This Guaranty shall bind the undersigned's successors and assigns and
the benefits thereof shall extend to and include your participants, successors
and assigns. In the event of default hereunder, you may at any time inspect
undersigned's records, or at your option, undersigned shall furnish you with a
current independent audit report.
If any provisions of this Guaranty are in conflict with any applicable
statute, rule or law, then such provisions shall be deemed null and void to the
extent that they may conflict therewith, but without invalidating any other
provisions hereof.
Each signatory on behalf of a corporate guarantor warrants that he had
authority to sign on behalf of such corporation and by so signing, to bind said
guarantor corporation hereunder.
IN WITNESS WHEREOF, this Guaranty is executed the day and year above
written.
Milwaukee Land Company
By: [SIGNATURE APPEARS HERE]
----------------------------------
(Signature)
Title:
-------------------------------
(Officer's Title)
ATTEST: [SIGNATURE APPEARS HERE]
------------------------------
Assistant Secretary
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EXHIBIT 10.12
PROMISSORY NOTE
May 29, 1997
(Date)
- - --------------------------------------------------------------------------------
(Address of Maker)
FOR VALUE RECEIVED, PG Newco Corp. ("Maker") promises, jointly and severally if
more than one, to pay to the order of General Electric Credit Corporation, as
agent for itself and certain participants or any subsequent holder hereof (each,
a "Payee") at its office located at 4 North Park Suite 500 Hunt Valley, MD 21030
or at such other place as Payee or the holder hereof may designate, the
principal sum of Six Hundred Seventy Four Thousand Seven Hundred Fifty Seven and
27/100 ($674,757.27 with interest thereon, from the date hereof through and
including dates of payment, at a floating per annum simple interest rate
("Contract Rate") as hereinafter calculated.
The Contract Rate for a given period (the "Effective Period") shall be equal to
the sum of (i) three and 62/100 percent (3.62%) per annum plus (ii) a variable
per annum interest rate which shall be equal to the one month London Interbank
Offered Rate (LIBOR) as indicated in the "Money Rates" column of The Wall Street
Journal, Eastern Edition (or, in the event such rate is not so published, in
such other nationally recognized publication as Payee may specify), published on
the first Business Day of the calendar month preceding the month in which the
Effective Period Ends. The first Effective Period shall begin on the date
hereof, and shall continue through and including and end on the date on which
the first Periodic Installment is due. Each subsequent Effective Period shall
begin on the day after the last day of the previous Effective Period and shall
continue through and including and end on the date on which the next Periodic
Installment is due after the beginning of the current Effective Period. As used
herein, the term "Business Day" shall mean and include any calendar day other
than a day on which all commercial banks in the City of New York, New York are
required or authorized to be closed.
Subject to the other provisions hereof, the principal and interest on this Note
is payable in lawful money of the United States in thirty six (36) consecutive
monthly principal installments, eighteen thousand seven hundred forty three and
26/100 Dollars ($18,743.26) each, plus interest on the unpaid principal balance
at the Contract Rate ("Periodic Installment") and a final installment which
shall be in the amount of the total outstanding unpaid principal and interest.
The first Periodic Installment shall be due and payable on July 1, 1997 and the
following Periodic Installments shall be due and payable on the first day of
each succeeding calendar month. (each, a "Payment Date"). All payments shall be
applied first to interest and then to principal. The acceptance by Payee of any
payment which is less than payment in full of all amounts due and owing at such
time shall not constitute a waiver of Payee's right to receive payment in full
at such time or at any prior or subsequent time. Interest shall be calculated on
the basis of a 365 day year (366 day leap year) and will be charged at the
Contract Rate for each calendar day on which any principal is outstanding.
The Maker hereby expressly authorizes the Payee to insert the date value is
actually given in the blank space on the face hereof and on all related
documents pertaining hereto.
This Note may be secured by a security agreement, chattel mortgage, pledge
agreement or like instrument (each of which is hereinafter called a "Security
Agreement").
Time is of the essence hereof. If any installment or any other sum due under
this Note or any Security Agreement is not received within fifteen (15) days
after its due date, the Maker agrees to pay, in addition to the amount of each
such installment or other sum, a late payment charge of three percent (3%) of
said installment or other sum, but not exceeding any lawful maximum. If (i)
Maker fails to make payment of any amount due hereunder within fifteen (15) days
after the same becomes due and payable; or (ii) Maker is in default, or fails to
perform, under any term or condition contained in any Security Agreement, then
the entire principal sum remaining unpaid, together with all interest thereon
and any other sum payable under this Note or the Security
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Agreement, at the election of Payee, shall immediately become due and payable,
with interest thereon at the lesser of the Prime rate (as determined by Chase
Manhattan Bank) plus four percent (4%) (but at least twelve percent (12%)) or
the highest rate not prohibited by applicable law from the date of such
accelerated maturity until paid (both before and after any judgment).
The Maker may prepay in full, but not in part, its entire indebtedness hereunder
upon payment of an additional sum as a premium equal to the following
percentages of the original principal balance for the indicated period:
Prior to the first annual anniversary date of this Note: three percent (3%)
Thereafter and prior to the second annual anniversary
date of this Note: two percent (2%)
Thereafter and prior to the third annual anniversary
date of this Note: one percent (1%)
and zero percent (0%) thereafter, plus all other sums due hereunder or
under any Security Agreement.
It is the intention of the parties hereto to comply with the applicable usury
laws; accordingly, it is agreed that, notwithstanding any provision to the
contrary in this Note or any Security Agreement, in no event shall this Note or
any Security Agreement require the payment or permit the collection of interest
in excess of the maximum amount permitted by applicable law. If any such excess
interest is contracted for, charged or received under this Note or any Security
Agreement, or if all of the principal balance shall be prepaid, so that under
any of such circumstances the amount of interest contracted for, charged or
received under this Note or the Security Agreement on the principal balance
shall exceed the maximum amount of interest permitted by applicable law, then in
such event (a) the provisions of this paragraph shall govern and control, (b)
neither Maker nor any other person or entity now or hereafter liable for the
payment hereof shall be obligated to pay the amount of such interest to the
extent that it is in excess of the maximum amount of interest permitted by
applicable law, (c) any such excess which may have been collected shall be
either applied as a credit against the then unpaid principal balance or refunded
to Maker, at the option of the Payee, and (d) the effective rate of interest
shall be automatically reduced to the maximum lawful contract rate allowed under
applicable law as now or hereafter construed by the courts having jurisdiction
thereof. It is further agreed that without limitation of the foregoing, all
calculations of the rate of interest contracted for, charged or received under
this Note or the Security Agreement which are made for the purpose of
determining whether such rate exceeds the maximum lawful contract rate, shall be
made, to the extent permitted by applicable law, by amortizing, prorating,
allocating and spreading in equal parts during the period of the full stated
term of the indebtedness evidenced hereby, all interest at any time contracted
for, charged or received from Maker or otherwise by Payee in connection with
such indebtedness; provided, however, that if any applicable state law is
amended or the law of the United States of America preempts any applicable state
law, so that it becomes lawful for the Payee to receive a greater interest per
annum rate than is presently allowed, the Maker agrees that, on the effective
date of such amendment or preemption, as the case may be, the lawful maximum
hereunder shall be increased to the maximum interest per annum rate allowed by
the amended state law or the law of the United States of America.
The Maker and all sureties, endorsers, guarantors or any others (each such
person, other than the Maker, an "Obligor") who may at any time become liable
for the payment hereof jointly and severally consent hereby to any and all
extensions of time, renewals, waivers or modifications of, and all substitutions
or releases of, security or of any party primarily or secondarily liable on this
Note or any Security Agreement or any term and provision of either, which may be
made, granted or consented to by Payee, and agree that suit may be brought and
maintained against any one or more of them, at the election of Payee without
joinder of any other as a party thereto, and that Payee shall not be required
first to foreclose, proceed against, or exhaust any security hereof in order to
enforce payment of this Note. The Maker and each Obligor hereby waive
presentment, demand for payment, notice of nonpayment, protest, notice of
protest, notice of dishonor, and all other notices in connection herewith, as
well as filing of suit (if permitted by law) and diligence in collecting this
Note or enforcing any of the security hereof, and agree to pay (if permitted by
law) all expenses incurred in collection, including Payee's actual attorneys'
fees.
THE MAKER HEREBY UNCONDITIONALLY WAIVES ITS RIGHT TO A JURY TRIAL OF ANY CLAIM
OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR INDIRECTLY, THIS
NOTE, ANY OF THE RELATED DOCUMENTS, ANY DEALINGS BETWEEN MAKER AND PAYEE
RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS,
AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN MAKER AND PAYEE. THE
SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES
THAT MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS,
TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY
CLAIMS). THIS WAIVER IS IRREVOCABLE MEANING THAT IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS NOTE, ANY RELATED DOCUMENTS, OR
TO ANY OTHER DOCUMENTS OR
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AGREEMENTS RELATING TO THIS TRANSACTION OR ANY RELATED TRANSACTION. IN THE EVENT
OF LITIGATION, THIS NOTE MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE
COURT.
This Note, any Security Agreement and related Collateral Schedules constitute
the entire agreement of the Maker and Payee with respect to the subject matter
hereof and supersedes all prior understandings, agreements and representations,
express or implied.
No variation or modification of this Note, or any waiver of any of its
provisions or conditions, shall be valid unless in writing and signed by an
authorized representative of Maker and Payee. Any such waiver, consent,
modification or change shall be effective only in the specific instance and for
the specific purpose given.
Any provision in this Note or any Security Agreement which is in conflict with
any statute, law or applicable rule shall be deemed omitted, modified or altered
to conform thereto.
PG Newco Corp.
/s/ Lawrence Adelson By: /s/ L.F. Fioreatino (L.S.)
- - -------------------------------- ----------------------------------
(Witness) (Signature)
Lawrence Adelson L.F. Fioreatino
- - -------------------------------- -------------------------------------
(Print name) Print name (and title, if applicable)
547 W. Jackson Blvd. #1510
Chicago. IL 60661 364148939
- - -------------------------------- -------------------------------------
(Address) (Federal tax identification number)
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MASTER SECURITY AGREEMENT
THIS MASTER SECURITY AGREEMENT, made as of May 29, 1997 ("Agreement"),
by and between General Electric Capital Corporation, a New York corporation with
an address at 4 North Park Drive Suite 500, Hunt Valley, MD, as agent for itself
and certain participants ("Secured Party"), and PG Newco Corp., a corporation
organized and existing under the laws of the State of Delaware with its chief
executive offices located at 48700 Structural Drive, Chesterfield, MI
48051 ("Debtor").
In consideration of the promises herein contained and of certain other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Debtor and Secured Party hereby agree as follows:
1. CREATION OF SECURITY INTEREST.
Debtor hereby gives, grants and assigns to Secured Party, its
successors and assigns forever, a security interest in and against any and all
property listed on any collateral schedule now or hereafter annexed hereto or
made a part hereof ("Collateral Schedule"), and in and against any and all
additions, attachments, accessories and accessions thereto, any and all
substitutions, replacements or exchanges therefor, and any and all insurance
and/or other proceeds thereof (all of the foregoing being hereinafter
individually and collectively referred to as the "Collateral"). The foregoing
security interest is given to secure the payment and performance of any and all
debts, obligations and liabilities of any kind, nature or description whatsoever
(whether primary, secondary, direct, contingent, sole, joint or several, or
otherwise, and whether due or to become due) of Debtor to Secured Party, now
existing or hereafter arising under this Agreement, including but not limited to
the payment and performance of certain Promissory Notes from time to time
identified on any Collateral Schedule (collectively "Notes" and each a "Note"),
and any renewals, extensions and modifications of such debts, obligations and
liabilities (all of the foregoing being hereinafter referred to as the
"Indebtedness"). Notwithstanding the foregoing, and notwithstanding anything to
the contrary contained elsewhere in this Agreement, to the extent that Secured
Party asserts a purchase money security interest in any items of Collateral
("PMSI Collateral"): (i) the PMSI Collateral shall secure only that portion of
the Indebtedness which has been advanced by Secured Party to enable Debtor to
purchase, or acquire rights in or the use of such PMSI Collateral (the "PMSI
Indebtedness"), and (ii) no other Collateral shall secure the PMSI Indebtedness.
2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF DEBTOR.
Debtor hereby represents, warrants and covenants as of the date hereof
and as of the date of execution of each Collateral Schedule hereto that:
(a) Debtor is, and will remain, duly organized, existing and in good
standing under the laws of the State set forth in the first paragraph of this
Agreement, has its chief executive offices at the location set forth in such
paragraph, and is, and will remain, duly qualified and licensed in every
jurisdiction wherever necessary to carry on its business and operations;
(b) Debtor has adequate power and capacity to enter into, and to
perform its obligations, under this Agreement, each Note and any other documents
evidencing, or given in connection with, any of the Indebtedness (all of the
foregoing being hereinafter referred to as the "Debt Documents");
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(c) This Agreement and the other Debt Documents have been duly
authorized, executed and delivered by Debtor and constitute legal, valid and
binding agreements enforceable under all applicable laws in accordance with
their terms, except to the extent that the enforcement of remedies may be
limited under applicable bankruptcy and insolvency laws;
(d) No approval, consent or withholding of objections is required
from any governmental authority or instrumentality with respect to the entry
into, or performance by, Debtor of any of the Debt Documents, except such as may
have already been obtained;
(e) The entry into, and performance by, Debtor of the Debt Documents
will not (i) violate any of the organizational documents of Debtor or any
judgment, order, law or regulation applicable to Debtor, or (ii) result in any
breach of, constitute a default under, or result in the creation of any lien,
claim or encumbrance on any of Debtor's property (except for liens in favor of
Secured Party) pursuant to, any indenture mortgage, deed of trust, bank loan,
credit agreement, or other agreement or instrument to which Debtor is a party;
(f) There are no suits or proceedings pending or threatened in court
or before any commission, board or other administrative agency against or
affecting Debtor which could, in the aggregate, have a material adverse effect
on Debtor, its business or operations, or its ability to perform its obligations
under the Debt Documents;
(g) All financial statements delivered to Secured Party in connection
with the Indebtedness have been prepared in accordance with generally accepted
accounting principles, and since the date of the most recent financial
statement, there has been no material adverse change;
(h) The Collateral is not, and will not be, used by Debtor for
personal, family or household purposes;
(i) The Collateral is, and will remain, in good condition and repair
and Debtor will not be negligent in the care and use thereof;
(j) Debtor is, and will remain, the sole and lawful owner, and in
possession of, the Collateral, and has the sole right and lawful authority to
grant the security interest described in this Agreement; and
(k) The Collateral is, and will remain, free and clear of all liens,
claims and encumbrances of every kind, nature and description, except for (i)
liens in favor of Secured Party, (ii) liens for taxes not yet due or for taxes
being contested in good faith and which do not involve, in the reasonable
judgment of Secured Party, any risk of the sale, forfeiture or loss of any of
the Collateral, (iii) liens in favor of General Electric Capital Corporation
under the Loan and Security Agreement with Debtor dated May 29, 1997 and (iv)
inchoate materialmen's, mechanic's, repairmen's and similar liens arising by
operation of law in the normal course of business for amounts which are not
delinquent (all of such permitted liens being hereinafter referred to as
"Permitted Liens").
(l) Fixed Charge Coverage Ratio. Debtor shall maintain a Fixed Charge
---------------------------
Coverage Ratio of not less than 1.2:1 for every four Fiscal Quarter period
ending at the end of each Fiscal Quarter commencing with the Fiscal Quarter
ending September 30, 1997.
For the purpose of this covenant, the following terms shall have the
meanings set forth below:
"EBITDA" shall mean, for any period, the Net Income (Loss) of Debtor
------
for such period, plus interest expense, tax expenses, amortization expense,
----
depreciation expense, and extraordinary losses and
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minus extraordinary gains, in each case, of Debtor for such period determined in
- - -----
accordance with GAAP to the extent included in the determination of such Net
Income (Loss).
"Fixed Charge Coverage Ratio" shall mean, for any period, the ratio of
---------------------------
the following for Debtor determined in accordance with GAAP: (a) EBITDA for such
period less Capital Expenditures for such period which are not financed through
----
the incurrence of any Indebtedness (excluding the Revolving Credit Loan) to (b)
the sum of (i) interest expense paid or deemed paid in respect of any
Indebtedness during such period, plus (ii) taxes to the extent accrued or
----
otherwise payable with respect to such period plus (iii) regularly scheduled
payments of principal paid or deemed paid on Funded Debt (excluding the
Revolving Credit Loan) during such period.
"Funded Debt" shall mean, for any Person, all of such Person's
-----------
Indebtedness which by the terms of the agreement governing or instrument
evidencing such Indebtedness matures more than one (1) year from, or is directly
or indirectly renewable or extendible at the option of such Person under a
revolving credit or similar agreement obligating the lender or lenders to extend
credit over a period of more than one (1) year from the date of creation
thereof, including current maturities of long-term debt, revolving credit, and
short-term debt extendible beyond one (1) year at the option of such Person.
"Net Income (Loss)" shall mean, with respect to any Person and for any
-----------------
period, the aggregate net income (or loss) after taxes of such Person for such
period, determined in accordance with GAAP.
(m) Minimum Tangible Net Worth. Debtor shall maintain, as at the end
--------------------------
of each Fiscal Quarter, Tangible Net Worth of Debtor for such Fiscal Quarter of
not less than the amount for such Fiscal Quarter set forth below:
As of the Fiscal Quarter Ending: Minimum Tangible Net Worth
------------------------------- --------------------------
06/30/97 2,100,000
09/30/97 2,526,000
12/31/97 2,989,000
03/31/98 3,612,000
06/30/98 4,237,000
09/30/98 4,861,000
12/31/98 5,485,000
03/31/99 6,247,000
06/30/99 7,009,000
09/30/99 7,770,000
12/31/99 8,533,000
03/31/00 9,000,000
For purpose of this covenant, the following terms shall have the
meanings set forth below:
"Tangible Net Worth" shall mean, with respect to any Person, at any
---------
date, the total assets (excluding (i) any assets attributable to any issuances
by such Person of any Stock after the Closing Date (ii) amounts due from
Affiliates, and (iii) goodwill and other intangible assets) minus the total
liabilities, in each case, of such Person at such date determined in accordance
with GAAP.
(n) Capital Expenditures. Debtor shall not make aggregate Capital
--------------------
Expenditures (other than Capital Expenditures financed through
the incurrence of Indebtedness permitted under this Agreement
(excluding the Revolving Credit Loan)) in any Fiscal Year in
excess of $500,000.
For purposes of this Section 2, all terms not defined herein shall have the
meaning ascribed to them in the Loan and Security Agreement between General
Electric Capital Corporation and the Debtor dated May 29, 1997.
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3. COLLATERAL.
(a) Until the declaration of any default hereunder, Debtor shall
remain in possession of the Collateral; provided, however, that Secured Party
shall have the right to possess (i) any chattel paper or instrument that
constitutes a part of the Collateral, and (ii) any other Collateral which
because of its nature may require that Secured Party's security interest therein
be perfected by possession. Secured Party, its successors and assigns, and their
respective agents, shall have the right to examine and inspect any of the
Collateral at any time during normal business hours. Upon any request from
Secured Party, Debtor shall provide Secured Party with notice of the then
current location of the Collateral.
(b) Debtor shall (i) use the Collateral only in its trade or
business, (ii) maintain all of the Collateral in good condition and working
order, (iii) use and maintain the Collateral only in compliance with all
applicable laws, and (iv) keep all of the Collateral free and clear of all
liens, claims and encumbrances (except for Permitted Liens).
(c) Debtor shall not, without the prior written consent of Secured
Party, (i) part with possession of any of the Collateral (except to Secured
Party or for maintenance and repair), (ii) remove any of the Collateral from the
continental United States, or (iii) sell, rent, lease, mortgage, grant a
security interest in or otherwise transfer or encumber (except for Permitted
Liens) any of the Collateral.
(d) Debtor shall pay promptly when due all taxes, license fees,
assessments and public and private charges levied or assessed on any of the
Collateral, on the use thereof, or on this Agreement or any of the other Debt
Documents. At its option, Secured Party may discharge taxes, liens, security
interests or other encumbrances at any time levied or placed on the Collateral
and may pay for the maintenance, insurance and preservation of the Collateral or
to effect compliance with the terms of this Agreement or any of the other Debt
Documents. Debtor shall reimburse Secured Party, on demand, for any and all
costs and expenses incurred by Secured Party in connection therewith and agrees
that such reimbursement obligation shall be secured hereby.
(e) Debtor shall, at all times, keep accurate and complete records of
the Collateral, and Secured Party, its successors and assigns, and their
respective agents, shall have the right to examine, inspect, and make extracts
from all of Debtor's books and records relating to the Collateral at any time
during normal business hours.
(f) If agreed by the parties, Secured Party may, but shall in no
event be obligated to, accept substitutions and exchanges of property for
property, and additions to the property, constituting all or any part of the
Collateral. Such substitutions, exchanges and additions shall be accomplished at
any time and from time to time, by the substitution of a revised Collateral
Schedule for the Collateral Schedule now or hereafter annexed. Any property
which may be substituted, exchanged or added as aforesaid shall constitute a
portion of the Collateral and shall be subject to the security interest granted
herein. Additions to, reductions or exchanges of, or substitutions for, the
Collateral, payments on account of any obligation or liability secured hereby,
increases in the obligations and liabilities secured hereby, or the creation of
additional obligations and liabilities secured hereby, may from time to time be
made or occur without affecting the provisions of this Agreement or the
provisions of any obligation or liability which this Agreement secures.
(g) Any third person at any time and from time to time holding all or
any portion of the Collateral shall be deemed to, and shall, hold the Collateral
as the agent of, and as pledge holder for, Secured Party. At any time and from
time to time, Secured Party may give notice to any third person holding all or
any portion of the Collateral that such third person is holding the Collateral
as the agent of, and as pledge holder for, the Secured Party.
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4. INSURANCE.
The Collateral shall at all times be held at Debtor's risk, and Debtor
shall keep it insured against loss or damage by fire and extended coverage
perils, theft, burglary, and for any or all Collateral which are vehicles, for
risk of loss by collision, and where requested by Secured Party, against other
risks as required thereby, for the full replacement value thereof, with
companies, in amounts and under policies acceptable to Secured Party. Debtor
shall, if Secured Party so requires, deliver to Secured Party policies or
certificates of insurance evidencing such coverage. Each policy shall name
Secured Party as loss payee thereunder, shall provide for coverage to Secured
Party regardless of the breach by Debtor of any warranty or representation made
therein, shall not be subject to co-insurance, and shall provide for thirty (30)
days written notice to Secured Party of the cancellation or material
modification thereof. Debtor hereby appoints Secured Party as its attorney in
fact to make proof of loss, claim for insurance and adjustments with insurers,
and to execute or endorse all documents, checks or drafts in connection with
payments made as a result of any such insurance policies. Proceeds of insurance
shall be applied, at the option of Debtor (provided Debtor is not in default and
if so at Secured Party's option), to repair or replace the Collateral or to
reduce any of the Indebtedness secured hereby.
5. REPORTS.
(a) Debtor shall promptly notify Secured Party in the event of (i)
any change in the name of Debtor, (ii) any relocation of its chief executive
offices, (iii) any relocation of any of the Collateral, (iv) any of the
Collateral being lost, stolen, missing, destroyed, materially damaged or worn
out, or (v) any lien, claim or encumbrance attaching or being made against any
of the Collateral other than Permitted Liens.
(b) Debtor shall deliver to Secured Party (i) within thirty-five (35)
days after the end of each fiscal quarter, consolidated and consolidating
balance sheets and statements of income of Debtor for such quarter, prepared in
accordance with GAAP and certified by and officer of Debtor in a manner
acceptable to Secured Party, (ii) within one hundred (100) days after the end of
each fiscal year, consolidated and consolidating balance sheets and statements
of income and cash flows of Debtor for such fiscal year, prepared in accordance
with GAAP, audited (as to the consolidated statement only) by independent
certified public accountants acceptable to Secured Party, and certified by an
officer of Debtor in a manner acceptable to Secured Party (each such quarterly
or annual certificate to include without limitation a calculation showing
compliance with the financial covenants in Section 2(1) and 2(m) and a statement
that no Event of Default has occurred and is continuing hereunder) and (iii)
such other information relating to the Equipment and Debtor's financial
condition and other matters as Secured Party shall required from time to time.
6. FURTHER ASSURANCES.
(a) Debtor shall, upon request of Secured Party, furnish to Secured
Party such further information, execute and deliver to Secured Party such
documents and instruments (including, without limitation, Uniform Commercial
Code financing statements) and do such other acts and things, as Secured Party
may at any time reasonably request relating to the perfection or protection of
the security interest created by this Agreement or for the purpose of carrying
out the intent of this Agreement. Without limiting the foregoing, Debtor shall
cooperate and do all acts deemed necessary or advisable by Secured Party to
continue in Secured Party a perfected first security interest in the Collateral,
and shall obtain and furnish to Secured Party any subordinations, releases,
landlord, lessor, or mortgagee waivers,
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<PAGE>
and similar documents as may be from time to time requested by, and which are in
form and substance satisfactory to, Secured Party.
(b) Debtor hereby grants to Secured Party the power to sign Debtor's
name and generally to act on behalf of Debtor to execute and file applications
for title, transfers of title, financing statements, notices of lien and other
documents pertaining to any or all of the Collateral. Debtor shall, if any
certificate of title be required or permitted by law for any of the Collateral,
obtain such certificate showing the lien hereof with respect to the Collateral
and promptly deliver same to Secured Party.
(c) Debtor shall indemnify and defend the Secured Party, its
successors and assigns, and their respective directors, officers and employees,
from and against any and all claims, actions and suits (including, without
limitation, related attorneys' fees) of any kind, nature or description
whatsoever arising, directly or indirectly, in connection with any of the
Collateral, except to the extent such claims, actions or suit are caused by
Secured Party's gross negligence or willful misconduct.
7. EVENTS OF DEFAULT.
Debtor shall be in default under this Agreement and each of the other
Debt Documents upon the occurrence of any of the following "Event(s) of
Default":
(a) Debtor fails to pay any installment or other amount due or coming
due under any of the Debt Documents within fifteen (15) days after its due date;
(b) Any attempt by Debtor, without the prior written consent of
Secured Party, to sell, rent, lease, mortgage, grant a security interest in, or
otherwise transfer or encumber (except for Permitted Liens) any of the
Collateral;
(c) Debtor fails to procure, or maintain in effect at all times, any
of the insurance on the Collateral in accordance with Section 4 of this
Agreement;
(d) Debtor breaches any of its other obligations under any of the
Debt Documents and fails to cure the same within thirty (30) days after written
notice thereof;
(e) Any warranty, representation or statement made by Debtor in any
of the Debt Documents or otherwise in connection with any of the Indebtedness
shall be false or misleading in any material respect;
(f) Any of the Collateral being subjected to attachment, execution,
levy, seizure or confiscation in any legal proceeding or otherwise;
(g) Any default by Debtor under any other agreement between Debtor
and Secured Party;
(h) Any dissolution, termination of existence, merger, consolidation,
change in controlling ownership, insolvency, or business failure of Debtor or
any guarantor or other obligor for any of the Indebtedness (collectively
"Guarantor"), or if Debtor or any Guarantor is a natural person, any death or
incompetency of Debtor or such Guarantor;
(i) The appointment of a receiver for all or of any part of the
property of Debtor or any Guarantor, or any assignment for the benefit of
creditors by Debtor or any Guarantor; or
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<PAGE>
(j) The filing of a petition by Debtor or any Guarantor under any
bankruptcy, insolvency or similar law, or the filing of any such petition
against Debtor or any Guarantor if the same is not dismissed within thirty (30)
days of such filing.
(k) Debtor shall be in default under any material obligation (i) for
borrowed money in excess of $100,000, (ii) for the deferred purchase of property
where the amount outstanding exceeds $100,000 or (iii) any lease agreement where
the amount outstanding exceeds $100,000.
8. REMEDIES ON DEFAULT.
(a) Upon the occurrence of an Event of Default under this Agreement,
the Secured Party, at its option, may declare any or all of the Indebtedness,
including without limitation the Notes, to be immediately due and payable,
without demand or notice to Debtor or any Guarantor. The obligations and
liabilities accelerated thereby shall bear interest (both before and after any
judgment) until paid in full at the lower of the Prime rate (as determined by
Chase Manhattan Bank) plus four percent (4%) (but at least twelve percent (12%))
or the maximum rate not prohibited by applicable law.
(b) Upon such declaration of default, Secured Party shall have all of
the rights and remedies of a Secured Party under the Uniform Commercial Code,
and under any other applicable law. Without limiting the foregoing, Secured
Party shall have the right to (i) notify any account debtor of Debtor or any
obligor on any instrument which constitutes part of the Collateral to make
payment to the Secured Party, (ii) with or without legal process, enter any
premises where the Collateral may be and take possession and/or remove said
Collateral from said premises, (iii) sell the Collateral at public or private
sale, in whole or in part, and have the right to bid and purchase at said sale,
and/or (iv) lease or otherwise dispose of all or part of the Collateral,
applying proceeds therefrom to the obligations then in default. If requested by
Secured Party, Debtor shall promptly assemble the Collateral and make it
available to Secured Party at a place to be designated by Secured Party which is
reasonably convenient to both parties. Secured Party may also render any or all
of the Collateral unusable at the Debtor's premises and may dispose of such
Collateral on such premises without liability for rent or costs. Any notice
which Secured Party is required to give to Debtor under the Uniform Commercial
Code of the time and place of any public sale or the time after which any
private sale or other intended disposition of the Collateral is to be made shall
be deemed to constitute reasonable notice if such notice is given to the last
known address of Debtor at least ten (10) days prior to such action.
(c) Proceeds from any sale or lease or other disposition shall be
applied: first, to all costs of repossession, storage, and disposition including
without limitation attorneys', appraisers', and auctioneers' fees; second, to
discharge the obligations then in default; third, to discharge any other
Indebtedness of Debtor to Secured Party, whether as obligor, endorsor,
guarantor, surety or indemnitor; fourth, to expenses incurred in paying or
settling liens and claims against the Collateral; and lastly, to Debtor, if
there exists any surplus. Debtor shall remain fully liable for any deficiency.
(d) In the event this Agreement, any Note or any other Debt Documents
are placed in the hands of an attorney for collection of money due or to become
due or to obtain performance of any provision hereof, Debtor agrees to pay all
reasonable attorneys' fees incurred by Secured Party, and further agrees that
payment of such fees is secured hereunder.
(e) Secured Party's rights and remedies hereunder or otherwise
arising are cumulative and may be exercised singularly or concurrently. Neither
the failure nor any delay on the part of the Secured Party to exercise any
right, power or privilege hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any right, power or privilege preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. Secured Party shall not be deemed to have waived any of its rights
hereunder or under any other agreement, instrument or paper signed by Debtor
unless such
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<PAGE>
waiver be in writing and signed by Secured Party. A waiver on any one occasion
shall not be construed as a bar to or waiver of any right or remedy on any
future occasion.
(f) DEBTOR HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY TRIAL
OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR
INDIRECTLY, THIS AGREEMENT, ANY OF THE OTHER DEBT DOCUMENTS, ANY OF THE
INDEBTEDNESS SECURED HEREBY, ANY DEALINGS BETWEEN DEBTOR AND SECURED PARTY
RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS,
AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN DEBTOR AND SECURED
PARTY. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND
ALL DISPUTES THAT MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION,
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW
AND STATUTORY CLAIMS). THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE
MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT,
ANY OTHER DEBT DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO
THIS TRANSACTION OR ANY RELATED TRANSACTION. IN THE EVENT OF LITIGATION, THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
9. MISCELLANEOUS.
(a) This Agreement, any Note and/or any of the other Debt Documents
may be assigned, in whole or in part, by Secured Party without notice to Debtor,
and Debtor hereby waives any defense, counterclaim or cross-complaint by Debtor
against any assignee, agreeing that Secured Party shall be solely responsible
therefor.
(b) All notices to be given in connection with this Agreement shall
be in writing, shall be addressed to the parties at their respective addresses
set forth hereinabove (unless and until a different address may be specified in
a written notice to the other party), and shall be deemed given (i) on the date
of receipt if delivered in hand or by facsimile transmission, (ii) on the next
business day after being sent by express mail, and (iii) on the fourth business
day after being sent by regular, registered or certified mail. As used herein,
the term "business day" shall mean and include any day other than Saturdays,
Sundays, or other days on which commercial banks in New York, New York are
required or authorized to be closed.
(c) Secured Party may correct patent errors herein and fill in all
blanks herein or in any Collateral Schedule consistent with the agreement of the
parties.
(d) Time is of the essence hereof. This Agreement shall be binding,
jointly and severally, upon all parties described as the "Debtor" and their
respective heirs, executors, representatives, successors and assigns, and shall
inure to the benefit of Secured Party, its successors and assigns.
(e) This Agreement, its Collateral Schedules and any Notes constitute
the entire agreement between the parties with respect to the subject matter
hereof and supercede all prior understandings (whether written, verbal or
implied) with respect thereto. This Agreement and its Collateral Schedules shall
not be changed or terminated orally or by course of conduct, but only by a
writing signed by both parties hereto. Section headings contained in this
Agreement have been included for convenience only, and shall not affect the
construction or interpretation hereof.
(f) This Agreement shall continue in full force and effect until all
of the Indebtedness has been indefeasibly paid in full to Secured Party. The
surrender, upon payment or otherwise, of any Note or
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any of the other documents evidencing any of the Indebtedness shall not affect
the right of Secured Party to retain the Collateral for such other Indebtedness
as may then exist or as it may be reasonably contemplated will exist in the
future. This Agreement shall automatically be reinstated in the event that
Secured Party is ever required to return or restore the payment of all or any
portion of the Indebtedness (all as though such payment had never been made).
(g) The Debtor acknowledges that it has been advised that Secured
Party is acting hereunder for itself and as agent for certain third parties
(each being herein referred to as a "Participant" and, collectively, as the
"Participants"); that the interest of Secured Party in this Agreement, the other
Debt Documents and any other related instruments and documents may be conveyed
to, in whole or in part, and may be used as security for financing obtained
from, one or more third parties without the consent of the Debtor (the
"Syndication"). The Debtor agrees reasonably to cooperate with Secured Party in
connection with the Syndication, including the execution and delivery of such
other documents, instruments, notices, opinions, certificates and
acknowledgments as reasonably may be required by Secured Party or such
Participant; provided, however, in no event shall the Debtor be required to
consent to any change that would adversely affect any of the economic terms of
the transactions contemplated herein.
IN WITNESS WHEREOF, Debtor and Secured Party, intending to be legally
bound hereby, have duly executed this Agreement in one or more counterparts,
each of which shall be deemed to be an original, as of the day and year first
aforesaid .
SECURED PARTY: DEBTOR:
General Electric Capital Corporation, PG Newco Corp.
as agent for itself and certain participants
By:--------------------------------- By:--------------------------
Title:------------------------------ Title:-----------------------
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<PAGE>
CORPORATE GUARANTY
Date: May 29, 1997
General Electric Capital Corporation
4 North Park Drive Suite 500
Hunt Valley, MD 21030
To induce you to enter into a Master Security Agreement dated May 29.
1997, the ("Master Security Agreement"), and to accept any Collateral Schedules,
Promissory Notes and/or any other documents or instruments evidencing, or
relating to the indebtedness secured by such Master Security Agreement
(collectively "Account Documents" and each an "Account Document") with PG Newco
Corp., a corporation organized and existing under the laws of the State of
Delaware ("Customer"), but without in any way binding you to do so, the
undersigned, for good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, does hereby guarantee to you, your participants,
successors and assigns, the due regular and punctual payment of any sum or sums
of money which the Customer may owe to you now or at any time hereafter,
evidenced by an Account Document whether it represents principal, interest, late
charges, indemnities, an original balance, an accelerated balance, liquidated
damages, a balance reduced by partial payment, a deficiency after sale or other
disposition of any collateral or security, or any other type of sum of any kind
whatsoever that the Customer may owe to you now or at any time hereafter under
the Account Documents, and does hereby further guarantee to you, your successors
and assigns, the due, regular and punctual performance of any other duty or
obligation of any kind or character whatsoever that the Customer may owe to you
now or at any time hereafter under the Account Documents (all such payment and
performance obligations being collectively referred to as "Obligations").
Notwithstanding anything stated herein to the contrary, the undersigned's
obligation to pay the Obligations shall not exceed $3,200,000. Undersigned does
hereby further guarantee to pay upon demand all losses, costs, attorneys' fees
and expenses which may be suffered by you by reason of Customer's default under
the Account Documents or default of the undersigned.
This Guaranty is a guaranty of prompt payment and performance (and not
merely a guaranty of collection). Nothing herein shall require you to first seek
or exhaust any remedy against the Customer, its successors and assigns, or any
other person obligated with respect to the Obligations, or to first foreclose,
exhaust or otherwise proceed against any leased equipment, collateral or
security which may be given in connection with the Obligations. It is agreed
that you may, upon any breach or default of the Customer, or at any time
thereafter, make demand upon the undersigned and receive payment and performance
of the Obligations, with or without notice or demand for payment or performance
by the Customer, its successors or assigns, or any other person. Suit may be
brought and maintained against the undersigned, at your election, without
joinder of the Customer or any other person as parties thereto. The obligations
of each signatory to this Guaranty shall be joint and several.
The undersigned agrees to furnish its annual and quarterly financial
statements and such interim statements as you may require in form satisfactory
to you. The annual report(s) shall be furnished within 100 days of year end
close and the quarterly report(s) shall be furnished within 40 days of quarterly
close. Any and all financial statements submitted and to be submitted to you
have and will have been prepared on a basis of generally accepted accounting
principles, and are and will be complete and correct and fairly present
undersigned's financial condition as at the date thereof. You may at any
reasonable time examine the books and records of the undersigned and make copies
thereof.
The undersigned agrees that its obligations under this Guaranty shall
be primary, absolute, continuing and unconditional, irrespective of and
unaffected by any of the following actions or circumstances (regardless of any
notice to or consent of the undersigned): (a) the genuineness, validity,
regularity and enforceability of the Account Documents or any other document;
(b) any extension, renewal, amendment, change, waiver or other modification of
the Account Documents or any other document; (c) the absence of, or delay in,
any
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action to enforce the Account Documents, this Guaranty or any other document;
(d) your failure or delay in obtaining any other guaranty of the Obligations
(including, without limitation, your failure to obtain the signature of any
other guarantor hereunder); (e) the release of, extension of time for payment or
performance by, or any other indulgence granted to the Customer or any other
person with respect to the Obligations by operation of law or otherwise; (f) the
existence, value, condition, loss, subordination or release (with or without
substitution) of, or failure to have title to or perfect and maintain a security
interest in, or the time, place and manner of any sale or other disposition of
any leased equipment, collateral or security given in connection with the
Obligations, or any other impairment (whether intentional or negligent, by
operation of law or otherwise) of the rights of the undersigned; (g) the
Customer's voluntary or involuntary bankruptcy, assignment for the benefit of
creditors, reorganization, or similar proceedings affecting the Customer or any
of its assets; or (h) any other action or circumstances which might otherwise
constitute a legal or equitable discharge or defense of a surety or guarantor.
This Guaranty may be terminated upon delivery to you (at your address
shown above) of a written termination notice from the undersigned. However, as
to all Obligations (whether matured, unmatured, absolute, contingent or
otherwise) incurred by the Customer prior to your receipt of such written
termination notice (and regardless of any subsequent amendment, extension or
other modification which may be made with respect to such Obligations), this
Guaranty shall nevertheless continue and remain undischarged until all such
Obligations are indefeasibly paid and performed in full.
The undersigned agrees that this Guaranty shall remain in full force
and effect or be reinstated (as the case may be) if at any time payment or
performance of any of the Obligations (or any part thereof) is rescinded,
reduced or must otherwise be restored or returned by you, all as though such
payment or performance had not been made. If, by reason of any bankruptcy,
insolvency or similar laws effecting the rights of creditors, you shall be
prohibited from exercising any of your rights or remedies against the Customer
or any other person or against any property, then, as between you and the
undersigned, such prohibition shall be of no force and effect, and you shall
have the right to make demand upon, and receive payment from, the undersigned of
all amounts and other sums that would be due to you upon a default with respect
to the Obligations.
Notice of acceptance of this Guaranty and of any default by the
Customer or any other person is hereby waived. Presentment, protest demand, and
notice of protest, demand and dishonor of any of the Obligations, and the
exercise of possessory, collection or other remedies for the Obligations, are
hereby waived. The undersigned warrants that it has adequate means to obtain
from the Customer on a continuing basis financial data and other information
regarding the Customer and is not relying upon you to provide any such data or
other information. Without limiting the foregoing, notice of adverse change in
the Customer's financial condition or of any other fact which might materially
increase the risk of the undersigned is also waived. All settlements,
compromises, accounts stated and agreed balances made in good faith between the
Customer, its successors or assigns, and you shall be binding upon and shall not
affect the liability of the undersigned.
The undersigned hereby irrevocably and unconditionally waives and
relinquishes all statutory, contractual, common law, equitable and all other
claims against the Customer, any other obligor for any of the Obligations, any
collateral therefor, or any other assets of the Customer or any such other
obligor, for subrogation, reimbursement, exoneration, contribution,
indemnification, setoff or other recourse in respect of sums paid or payable to
you by the undersigned hereunder, and the undersigned hereby further irrevocably
and unconditionally waives and relinquishes any and all other benefits which it
might otherwise directly or indirectly receive or be entitled to receive by
reason of any amounts paid by, or collected or due from, it, the Customer or any
other obligor for any of the Obligations, or realized from any of their
respective assets.
THE UNDERSIGNED HEREBY UNCONDITIONALLY WAIVES ITS RIGHT TO A JURY TRIAL
OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR
INDIRECTLY, THIS GUARANTY, THE OBLIGATIONS GUARANTEED HEREBY, ANY OF THE RELATED
DOCUMENTS, ANY DEALINGS BETWEEN US RELATING TO THE SUBJECT MATTER HEREOF OR
THEREOF, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN US. THE SCOPE
OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT
MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT
CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS).
THIS WAIVER IS IRREVOCABLE MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR
IN WRITING, AND SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS
OR MODIFICATIONS TO THIS GUARANTY, THE OBLIGATIONS GUARANTEED HEREBY, OR ANY
RELATED DOCUMENTS. IN THE EVENT OF LITIGATION, THIS GUARANTY MAY BE FILED AS A
WRITTEN CONSENT TO A TRIAL BY THE COURT.
-2-
<PAGE>
As used in this Guaranty, the word "person" shall include any
individual, corporation, partnership, joint venture, association, joint-stock
company, trust, unincorporated organization, or any government or any political
subdivision thereof.
This Guaranty is intended by the parties as a final expression of the
guaranty of the undersigned and is also intended as a complete and exclusive
statement of the terms thereof. No course of dealing, course of performance or
trade usage, nor any paid evidence of any kind, shall be used to supplement or
modify any of the terms hereof. Nor are there any conditions to the full
effectiveness of this Guaranty. This Guaranty and each of its provisions may
only be waived, modified, varied, released, terminated or surrendered, in whole
or in part, by a duly authorized written instrument signed by you. No failure by
you to exercise your rights hereunder shall give rise to any estoppel against
you, or excuse the undersigned from performing hereunder. Your waiver of any
right to demand performance hereunder shall not be a waiver of any subsequent or
other right to demand performance hereunder.
This Guaranty shall bind the undersigned's successors and assigns and
the benefits thereof shall extend to and include your participants, successors
and assigns. In the event of default hereunder, you may at any time inspect
undersigned's records, or at your option, undersigned shall furnish you with a
current independent audit report.
If any provisions of this Guaranty are in conflict with any applicable
statute, rule or law, then such provisions shall be deemed null and void to the
extent that they may conflict therewith, but without invalidating any other
provisions hereof.
Each signatory on behalf of a corporate guarantor warrants that he had
authority to sign on behalf of such corporation and by so signing, to bind said
guarantor corporation hereunder.
IN WITNESS WHEREOF, this Guaranty is executed the day and year above
written.
Milwaukee Land Company
By: --------------------------
(Signature)
Title: -------------------------
(Officer's Title)
ATTEST: -----------------------------------
Secretary/Assistant Secretary
-3-
<PAGE>
EXHIBIT 10.13
EMPLOYMENT AGREEMENT
--------------------
Agreement, made this 30th day of May, 1997, by and between PG NEWCO
CORP., a Delaware corporation with its principal offices located in
Chesterfield, Michigan (the "Company), a wholly owned subsidiary of Milwaukee
Land Company, a Delaware corporation ("MLC"), and Peter G. VanHeusden, with his
residence located in Rochester Hills, Michigan ("VanHeusden").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Board of Directors of the Company desires to employ
VanHeusden and VanHeusden desires to furnish services to the Company on the
terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements hereinafter contained, the parties hereby agree as
follows:
1. Employment. The Company shall employ VanHeusden, and VanHeusden
----------
shall serve the Company, upon the terms and conditions hereinafter set forth.
2. Term. The employment of VanHeusden by the Company hereunder,
----
unless sooner terminated on an earlier date in accordance with the provisions
hereinafter provided, shall terminate on May 30, 2002. The period ending on May
30, 2002, or such earlier or later date to which the
<PAGE>
date in accordance with the provisions hereinafter provided, shall terminate on
May 30, 2002. The period ending on May 30, 2002, or such earlier or later date
to which the term of VanHeusden's employment hereunder may be shortened or
extended as provided in this Agreement is referred to herein as the "Employment
Term".
3. Duties. During the Employment Term, VanHeusden shall:
------
(a) Serve as President and Chief Executive Officer and a
director of the Company, faithfully and to the best of his ability,
subject to the direction and supervision of the Chairman of the Board
of the Company (the "Chairman of the Board") and the Board of
Directors of the Company (the "Board of Directors"); and
(b) Devote his full business time, energy and skill to such
employment and shall not, without the prior written approval of the
Board of Directors, directly or indirectly, engage or participate in,
or become employed by, or become a director, officer or partner of, or
render
2
<PAGE>
advisory services to or provide other services in connection with, any
business activity other than that of the Company or any of its
subsidiaries or affiliates as provided above; provided, however, that
-------- -------
VanHeusden shall be permitted to personally invest in any publicly-
traded corporation, partnership or other entity, so long as any such
investment does not require or involve the active participation of
VanHeusden in the management of the business of any such corporation,
partnership or other entity, does not interfere with the execution of
VanHeusden's duties hereunder and does not otherwise violate any
provision of this Agreement.
4. Compensation. (a) During the term of this Agreement, the
------------
Company shall pay to VanHeusden a salary for his services (the "Base Salary") at
the rate of $225,000 per year, payable in accordance with the regular payroll
practices of the Company.
(b) Subject to the entry on or before March 31, 1998 of an order by
the Securities and Exchange Commission
3
<PAGE>
("SEC") pursuant to section 8(f) of the Investment Company Act of 1940, as
amended (the "1940 Act") declaring that MLC has ceased to be an investment
company (the "Deregistration Order"), the Company will recommend to the
Compensation Committee that VanHeusden be granted, on the first business day
following the entry of a Deregistration Order, certain stock options ("Options")
and stock appreciation rights ("SARs") with respect to the common stock of MLC,
as more fully set forth below (the "Incentive Compensation"). The definitive
terms of the Options and SARs shall be set forth in a separate grant letter,
provided, however, that the Company will recommend to the Compensation Committee
- - -------- -------
that the Options shall entitle VanHeusden to purchase, after five years, up to
50,000 shares of MLC's common stock, $0.30 par value per share ("MLC Stock"), at
a price equal to the market price of such shares on the date of grant (the
"Strike Price"), and that the SARs shall entitle VanHeusden to receive, after
five years, an amount equal to the amount by which the market value of 25,000
shares of MLC Stock exceeds the aggregate Strike Price of such shares. The
Company's obligations under this paragraph 4(b) shall not
4
<PAGE>
arise unless and until a Deregistration Order has been entered. If no such Order
has been entered at March 31, 1998, the Company shall have no obligation under
this paragraph 4(b).
(c) If the Deregistration Order has not been entered by the SEC on or
before March 31, 1998, the Company agrees to use its best efforts to obtain from
the SEC an order (the "Exemptive Order") granting to PG Newco and the Company an
exemption from Section 17(d) of the 1940 Act and Rule 17d-1 thereunder to permit
PG Newco and the Company to adopt a stock option plan that would permit the
Compensation Committee to grant to VanHeusden the Incentive Compensation
described in paragraph 4(b). Subject to (i) the entry of the Exemptive Order and
(ii) the approval by the stockholders of MLC of a stock option plan pursuant to
which the Incentive Compensation would be granted, and which stockholder
approval is given subsequent to the entry of the Exemptive Order, the Company
will recommend to the Compensation Committee that VanHeusden be granted on the
first business day following satisfaction of the conditions described in clauses
(i) and (ii) of this paragraph 4(c),
5
<PAGE>
the Incentive Compensation having the terms described in paragraph 4(b).
5. Expenses. It is contemplated that, in connection with his
--------
employment hereunder, VanHeusden may be required to incur reasonable and
necessary travel, business entertainment and other business expenses. The
Company agrees to reimburse VanHeusden or pay for all reasonable and necessary
travel, business entertainment and other business expenses incurred or expended
by him incident to the performance of his duties hereunder, upon submission by
VanHeusden to the Company of vouchers or expense statements (i) satisfactorily
evidencing the incurrence of such expenses and (ii) that would enable the
Company to deduct such expenses from its income under applicable tax laws.
6. Employee Benefits, Vacation. (a) VanHeusden shall be fully vested
---------------------------
and entitled to participate in any and all life insurance, medical insurance,
disability insurance, pension, incentive and savings and other employee benefit
plans which are made available by the Company during the Employment Term to
executives of the Company of VanHeusden's
6
<PAGE>
rank, to the extent that VanHeusden qualifies under the eligibility provisions
of such plans.
(b) VanHeusden shall be entitled to vacations (taken consecutively or
in segments), aggregating four (4) weeks each calendar year during the
Employment Term, to be taken at times consistent with the effective discharge of
VanHeusden's duties. Unused vacation time shall not accumulate from year to year
and, in the event any such unused vacation time is remaining at the end of the
year, VanHeusden shall not be entitled to be paid for any such remaining time.
(c) The Company agrees to use its best efforts to obtain and maintain
director and officer liability insurance for VanHeusden in connection with his
employment hereunder, in such amounts and on such terms as the Company may
obtain and maintain for its other directors and senior executives.
7. Car Allowance. During the Employment Term, the Company shall make
-------------
all scheduled lease payments on behalf of VanHeusden on the lease of
VanHeusden's current car (or its economic equivalent), as well as pay for all
regular insurance and maintenance charges on such vehicle,
7
<PAGE>
and shall provide VanHeusden with a gasoline credit card to be used for business
purposes during the Employment Term.
8. Permanent Disability. In the event of the Permanent Disability
--------------------
(as defined below) of VanHeusden during the Employment Term, the Company shall
have the right, upon written notice to VanHeusden (the "Disability Notice"), to
terminate his employment hereunder, effective upon the giving of such Disability
Notice. Notwithstanding the foregoing, VanHeusden shall have the continuing
obligations provided for in Paragraph 11 hereof. Disability benefits, if any,
due under applicable plans and programs of the Company shall be determined under
the provisions of such plans and programs. For purposes of this Paragraph 8,
"Permanent Disability" shall have the meaning ascribed to such term in the
Company's disability plans and programs.
9. Death. In the event of the death of VanHeusden during the
-----
Employment Term, the Base Salary to which VanHeusden is entitled pursuant to
Paragraph 4 hereof shall continue to be paid through the date of death.
VanHeusden's designated beneficiary or personal representative, as the case may
be, shall accept the
8
<PAGE>
payments provided for in this Paragraph 9 in full discharge and release of the
Company of and from any further obligations under this Agreement. Any other
benefits due under applicable plans and programs of the Company shall be
determined under the provisions of such plans and programs.
10. Termination.
-----------
(i) VanHeusden's employment hereunder may be terminated by the
Company for "cause" at any time if VanHeusden shall commit any of the following
Acts of Default:
(a) VanHeusden shall have failed to perform any of his
material obligations as set forth herein and shall have failed to
cure such failure within thirty (30) days after receiving written
notice thereof from the Chairman of the Board or the Board of
Directors; or
(b) The Company shall reasonably believe that VanHeusden
has committed an act of fraud, theft or dishonesty against the
Company, including, without limitation,
9
<PAGE>
misappropriation of trade secrets or other assets of the Company
and its subsidiaries; or
(c) VanHeusden shall be convicted of (or plead nolo
----
contendere to) any felony or any misdemeanor involving moral
----------
turpitude or which might, in the reasonable opinion of the
Company, cause harm to the Company.
In the event the Company elects to terminate the employment of VanHeusden for
"cause" pursuant to this Paragraph 10(a), the Company shall send written notice
to VanHeusden (the "Termination Notice") terminating such employment and
describing the action of VanHeusden constituting the Act of Default, and
thereupon the Company shall have no further obligations under this Agreement,
but VanHeusden shall have the continuing obligations provided for in Paragraph
11 hereof.
(b) The Company may terminate VanHeusden's employment hereunder at
any time during the Employment Term for any reason other than "cause", as
defined in Paragraph
10
<PAGE>
10(a) hereof, by giving VanHeusden written notice of such termination.
(c) If the Company terminates the employment of VanHeusden during the
term of this Agreement other than for "cause", then VanHeusden shall be entitled
to receive continuation of the Base Salary and the health benefits described in
Paragraph 6(a) hereof for the remainder of the Employment Term (the "Severance
Period"). All payments and benefits paid under this Paragraph 10(c) shall be
made in periodic installments in accordance with the Company's then-current
standard policies and practices. Appropriate and required withholding and
deductions for social security, federal and state and local income taxes,
together with any other deductions authorized by VanHeusden or required by law
or court order shall be made and will reduce any gross amounts to be paid under
this Agreement. VanHeusden shall accept the payments and benefits provided for
in this Paragraph 10(c) in full discharge and release of the Company of and from
any further obligations under this Agreement, but VanHeusden shall have the
continuing obligations provided for in Paragraph 11 hereof.
11
<PAGE>
11. Restrictive Covenants and Confidentiality;
Injunctive Relief. VanHeusden agrees, as a condition to the
-----------------
performance by the Company of its obligations hereunder, that VanHeusden shall
abide in all respects by the terms of that certain Non-Competition Agreement
entered into by and between the Company and VanHeusden in connection with the
Asset Purchase Agreement, the terms of which Non-Competition Agreement are
ratified and incorporated herein by this reference.
12. Disclosure and Ownership of Inventions. VanHeusden shall fully
--------------------------------------
and promptly disclose in writing to the Company, or any persons designated by
it, all conceptions, discoveries, improvements, inventions (whether or not
patentable), formulas, ideas, processes, techniques, know-how, software, works
of authorship, designs, trademarks, service marks, logos, data and information
made, conceived, contemplated, reduced to practice or learned by VanHeusden,
whether alone or jointly with others, during the Employment Term (collectively,
the "Inventions"): (i) using, in any way, any equipment, supplies, facilities,
trade secrets or confidential or proprietary information of the Company; (ii)
during the performance of his duties for
12
<PAGE>
the Company; or (iii) which either: (1) relates to the business of the Company,
or its actual or anticipated research and development; or (2) results from work
performed by VanHeusden for the Company. The Inventions shall be the sole
property of the Company and its successors and assigns, and VanHeusden agrees
that the Company and its successors and assigns shall be the sole owner of all
patents, copyrights, trademarks, trade secrets, mask works rights and other
rights in connection with such Inventions. VanHeusden hereby assigns to the
Company any rights that VanHeusden may have or acquire in such Inventions.
VanHeusden further agrees as to all such Inventions to assist the Company in
every proper way (but at the Company's expense) to obtain, and from time to time
enforce, patents, copyrights, trademarks, trade secrets and other rights in such
Inventions in any and all countries, and to that end VanHeusden will execute all
requisite and necessary documents for use in applying for and obtaining
protection for such Invention and enforcing the same, as the Company may desire,
together with any assignments thereof to the Company or persons designated by
it. VanHeusden's
13
<PAGE>
obligation to assist the Company in obtaining and enforcing patents, copyrights
or other rights for such Inventions in any and all countries shall continue
beyond the Employment Term, but the Company shall compensate VanHeusden at a
reasonable rate after such termination for time actually spent by VanHeusden at
the Company's request of such assistance. In the event that the Company is
unable for any reason whatsoever to secure VanHeusden's signature to any lawful
and necessary document required to apply for or execute any patent, copyright,
trademark or other applications with respect to such Inventions (including
renewals, extensions, continuations, divisions or continuations in part
thereof), VanHeusden hereby irrevocably designates and appoints the Company and
its duly authorized officers and agents, as his agents and attorneys-in-fact to
act for and in his behalf and instead of VanHeusden, to execute and file any
such application and to do all other lawfully permitted acts to further the
prosecution and issuance of patents, copyrights, trademark or other rights
thereon with the same legal force and effect as if executed by VanHeusden.
14
<PAGE>
13. Deductions and Withholding. VanHeusden agrees that the Company
--------------------------
shall withhold from any and all payments required to be made to VanHeusden
pursuant to this Agreement, all federal, state, local and/or other taxes which
the Company determines are required to be withheld in accordance with applicable
statutes and/or regulations from time to time in effect.
14. Medical Exams. VanHeusden agrees to cooperate fully with the
-------------
Company in its efforts to obtain "key man" insurance coverage with respect to
VanHeusden, and agrees to submit to any medical exams which may be necessary in
connection therewith.
15. No Conflicting Agreements. VanHeusden represents and warrants to
-------------------------
the Company that his engagement hereunder does not conflict with and will not be
constrained by any prior business relationship or agreement remaining in effect
and that he does not possess confidential information arising out of any prior
business relationship which would be utilized in connection with the performance
of his services hereunder.
15
<PAGE>
16. Notices. All notices or other documents to be given hereunder by
-------
either party hereto to the other shall be in writing and delivered personally or
sent postage prepaid by registered or certified mail, return receipt requested.
Notices shall be deemed to have been received on the date of personal delivery,
or if sent by certified or registered mail, return receipt requested, shall be
deemed to be delivered on the third business day after the date of mailing. The
postal receipt specifying a mailing date shall be sufficient proof of the date
of notice. Notices shall be sent to the following addresses until a notice of
change of address by like notice has been duly provided:
To VanHeusden: Peter G. VanHeusden
- - ------------- 1149 Sugar Creek
Rochester Hills, Michigan
48304
To the Company: PG Newco Corp.
- - -------------- c/o Milwaukee Land Company
547 West Jackson Boulevard
Suite 1510
Chicago, Illinois 60661
Attention: Edwin Jacobson
Facsimile: (312) 663-9397
16
<PAGE>
17. Assignability, Binding Effect and Survival. This Agreement shall
------------------------------------------
inure to the benefit of and shall be binding upon the heirs, executors,
administrators, successors and legal representatives of VanHeusden, and shall
inure to the benefit of and be binding upon the Company and its successors and
assigns. Notwithstanding the foregoing, the obligations of VanHeusden may not be
delegated and, except as expressly provided in Paragraph 9 hereof relating to
the designation of beneficiaries, VanHeusden may not assign, transfer, pledge,
encumber, hypothecate or otherwise dispose of this Agreement, or any of his
rights hereunder, and any such attempted delegation or disposition shall be null
and void and without effect. The provisions of Paragraphs 8, 9, 10 and 11 hereof
shall survive termination of this Agreement.
18. Complete Understanding; Amendment. This Agreement constitutes the
---------------------------------
complete understanding between the parties with respect to the employment of
VanHeusden hereunder, and supersedes all prior agreements, promises, covenants,
arrangements, communications, representations or warranties, whether oral or
written, by any officer,
17
<PAGE>
employee or representative of any party hereto. This Agreement shall not be
altered, modified, amended or terminated except by written instrument signed by
each of the parties hereto. Waiver by either party hereto of any breach
hereunder by the other party shall not operate as a waiver of any other breach,
whether similar to or different from the breach waived.
19. Governing Law. This Agreement shall be governed by the laws of
-------------
the state of Michigan.
20. Paragraph Headings. The paragraph headings contained in this
------------------
Agreement are for reference purposes only and shall not effect in any way the
meaning or interpretation of this Agreement.
21. Severability. If any provision of this Agreement or the
------------
application of any such provision to any party or circumstances shall be
determined by any court of competent jurisdiction to be invalid and
unenforceable to any extent, the remainder of this Agreement or the application
of such provision to such person or circumstances other than those to which it
is so determined to be invalid and unenforceable, shall not be affected
18
<PAGE>
thereby, and each provision hereof shall be validated and shall be enforced to
the fullest extent permitted by law.
19
<PAGE>
IN WITNESS WHEREOF, the parties hereto set their hands as of the day
and year first above written.
PG Newco Corp.
By: /s/ Edwin Jacobson
----------------------------
Name: Edwin Jacobson
Title: Chairman of the Board
/s/ Peter G. VanHeusden
-------------------------------
Peter G. VanHeusden
20
<PAGE>
EXHIBIT 10.14
NOTE
----
U.S. $1,500,000 Dated: May 30, 1997
FOR VALUE RECEIVED, the undersigned, Milwaukee Land Company, a
Delaware corporation (the "Obligor"), HEREBY PROMISES TO PAY to PG Design
Electronics, Inc. (the "Obligee") the principal sum of One Million Five Hundred
Thousand United States Dollars ($1,500,000), on September 30, 2000, subject to
the terms and conditions set forth below.
The Obligor promises to pay interest quarterly on the unpaid
principal amount owing hereunder at a rate of interest equal to 8% per annum
(calculated on the basis of a 365-day year), payable on the last business day of
each calendar quarter, commencing June 30, 1997.
Both principal and interest are payable in lawful money of the
United States of America to Obligor, at the account designated by Obligor, in
immediately available funds.
This Note is one of the two Notes referred to in, and is
entitled to the benefits of, the Asset Purchase Agreement, dated as of April 4,
1997 (the "Purchase Agreement"), among the Obligor, PG Newco Corp. ("PG Newco"),
a wholly-owned subsidiary of the Obligor, the Obligee and certain Shareholder
Indemnitors signatory thereto.
Demand, presentment, protest and notice of non-payment and
protest are hereby waived by the Obligor.
For so long as any payments remain due and owing under this
Note, the Obligor shall not use any of its available free cash for any purpose
other than (i) to fund its corporate operations and obligations or (ii) to
support the growth of PG Newco through investment in PG Newco or through
acquisitions of assets or businesses related to or complementary to the business
of PG Newco, unless, and to the extent that, the Obligor's available free cash
------ ----------------------
exceeds the aggregate principal amount outstanding under this Note, in which
--------
case, the Obligor shall be free to use such excess available free cash for any
- - ----
purpose, including, but not limited to, the payment of dividends to its
shareholders and acquisitions or investments not related to the business of PG
Newco.
<PAGE>
This Note shall cease to be of any legal force or effect, and
any and all remaining payment obligations of Obligor hereunder, whether for
payment of principal or interest, shall automatically and immediately and
forever cease to exist, if, at any time during the term of this Note, Peter G.
VanHeusden ("VanHeusden") shall cease to be employed by PG Newco as a result of
his voluntary action. For purposes of this paragraph, VanHeusden's death,
disability, or discharge by PG Newco shall not constitute "voluntary action."
This Note is non-transferable and any attempted assignment or
transfer of this Note shall be null and void, provided that, upon the
-------- ----
dissolution of Obligee, this Note shall be transferable to the stockholders of
Obligee as of the date hereof.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED ("THE SECURITIES ACT") OR ANY STATE SECURITIES LAW. THIS
SECURITY HAS BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
HYPOTHECATED, SOLD OR TRANSFERRED, NOR WILL ANY ASSIGNEE OR TRANSFEREE THEREOF
BE RECOGNIZED BY THE COMPANY AS HAVING ANY INTEREST IN SUCH SECURITY, IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT WITH RESPECT TO THE SECURITY
UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAW, OR AN OPINION
OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
This Note shall be governed by, and construed and interpreted
in accordance with, the law of the State of Delaware.
2
<PAGE>
MILWAUKEE LAND COMPANY
By: /s/ Edwin Jacobson
---------------------
Name: Edwin Jacobson
Title: President and Chief
Executive Officer
3
<PAGE>
EXHIBIT 10.15
NOTE
----
U.S. $1,500,000 Dated: May 30, 1997
FOR VALUE RECEIVED, the undersigned, Milwaukee Land Company, a
Delaware corporation (the "Obligor"), HEREBY PROMISES TO PAY to PG Design
Electronics, Inc. (the "Obligee") the principal sum of One Million Five Hundred
Thousand United States Dollars ($1,500,000), on May 30, 2002, subject to the
terms and conditions set forth below.
The Obligor promises to pay interest quarterly on the unpaid
principal amount owing hereunder at a rate of interest equal to 8% per annum
(calculated on the basis of a 365-day year), payable on the last business day of
each calendar quarter, commencing June 30, 1997.
Both principal and interest are payable in lawful money of the
United States of America to Obligor, at the account designated by Obligor, in
immediately available funds.
This Note is one of the two Notes referred to in, and is
entitled to the benefits of, the Asset Purchase Agreement, dated as of April 4,
1997 (the "Purchase Agreement"), among the Obligor, PG Newco Corp. ("PG Newco"),
a wholly-owned subsidiary of the Obligor, the Obligee and certain Shareholder
Indemnitors signatory thereto.
Demand, presentment, protest and notice of non-payment and
protest are hereby waived by the Obligor.
For so long as any payments remain due and owing under this
Note, the Obligor shall not use any of its available free cash for any purpose
other than (i) to fund its corporate operations and obligations or (ii) to
support the growth of PG Newco through investment in PG Newco or through
acquisitions of assets or businesses related to or complementary to the business
of PG Newco, unless, and to the extent that, the Obligor's available free cash
------ ----------------------
exceeds the aggregate principal amount outstanding under this Note, in which
--------
case, the Obligor shall be free to use such excess available free cash for any
- - ----
purpose, including, but not limited to, the payment of dividends to its
shareholders and acquisitions or investments not related to the business of PG
Newco.
<PAGE>
This Note shall cease to be of any legal force or effect, and
any and all remaining payment obligations of Obligor hereunder, whether for
payment of principal or interest, shall automatically and immediately and
forever cease to exist, if, at any time during the term of this Note, Peter G.
VanHeusden ("VanHeusden") shall cease to be employed by PG Newco as a result of
his voluntary action. For purposes of this paragraph, VanHeusden's death,
disability, or discharge by PG Newco shall not constitute "voluntary action."
This Note is non-transferable and any attempted assignment or
transfer of this Note shall be null and void, provided that, upon the
-------- ----
dissolution of Obligee, this Note shall be transferable to the stockholders of
Obligee as of the date hereof.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED ("THE SECURITIES ACT") OR ANY STATE SECURITIES LAW. THIS
SECURITY HAS BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
HYPOTHECATED, SOLD OR TRANSFERRED, NOR WILL ANY ASSIGNEE OR TRANSFEREE THEREOF
BE RECOGNIZED BY THE COMPANY AS HAVING ANY INTEREST IN SUCH SECURITY, IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT WITH RESPECT TO THE SECURITY
UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAW, OR AN OPINION
OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
This Note shall be governed by, and construed and interpreted
in accordance with, the law of the State of Delaware.
MILWAUKEE LAND COMPANY
2
<PAGE>
By: /s/ Edwin Jacobson
---------------------
Name: Edwin Jacobson
Title: President and Chief
Executive Officer
3
<PAGE>
EXHIBIT 10.16
MILWAUKEE LAND COMPANY
547 West Jackson Boulevard
Chicago, Illinois 60661
June 1, 1997
Mr. Edwin Jacobson
2575 South Bayshore Drive
Penthouse A
Coconut Grove, Florida 33133
Re: Second Amendment to Employment Agreement
----------------------------------------
Dear Mr. Jacobson:
We are writing with respect to your employment by Milwaukee
Land Company (the "Company") as President and Chief Executive Officer of the
Company, pursuant to an Employment Agreement, dated June 29, 1993 and amended
August 7, 1996 (as so amended, the "Employment Agreement"), the term of which
expires on July 2, 2000. The Company acknowledges and recognizes the value of
your experience and abilities to the Company since the beginning of your
employment with the Company, as well as your increased responsibilities in
connection with the Company's acquisition of substantially all of the assets of
PG Design Electronics, Inc., and the Company desires to continue to retain and
make secure for itself such experience and abilities through May 30, 2002 and to
increase your annual base salary, effective May 30, 1997, to $175,000.
Therefore, as of the date hereof, (i) Section 1 and Section 7(d)(i) of the
Employment Agreement are hereby amended to delete the date "July 2, 2000" and
substitute therefor the date "May 30, 2002" and (ii) Section 3(a) of the
Employment Agreement is hereby amended to delete the sum of "Ninety Thousand
Dollars ($90,000)" and substitute therefor the sum of "One Hundred Seventy-Five
Thousand Dollars ($175,000)." Except as amended by this letter, the Employment
Agreement remains in full force and effect in accordance with its terms.
If the foregoing is satisfactory, would you please so indicate
by signing and returning to the Company the enclosed copy of this letter
whereupon this will constitute our agreement on the subject.
MILWAUKEE LAND COMPANY
By: /s/ Ezra K. Zilkha
-----------------------------------
Ezra K. Zilkha
Chairman, Executive Committee
ACCEPTED AND AGREED TO:
<PAGE>
Mr. Edwin Jacobson
Page 2
ACCEPTED AND AGREED TO:
/s/ Edwin Jacobson
- - ----------------------------
Edwin Jacobson
<PAGE>
Reference: SAR 98-1
EXHIBIT 10.17
STOCK APPRECIATION RIGHT AGREEMENT
GRANTED TO: Edwin Jacobson
DATE OF GRANT: January 2, 1998
GRANTED PURSUANT TO: Heartland Technology, Inc. 1997 Incentive and Capital
Accumulation Plan
NUMBER OF UNDERLYING 25,000 shares
SHARES OF COMMON
STOCK:
EXERCISE PRICE: $16.625 per share
VESTING SCHEDULE: 100% at May 30, 1998
1. This Stock Appreciation Right Agreement (the "Agreement") is made
and entered into as of January 2, 1998, between Heartland Technology, Inc., a
Delaware corporation (the "Company"), and Edwin Jacobson ("Employee").
2. Employee is granted a stock appreciation right by the Compensation
Committee of the Company's Board of Directors (the "Committee") relating to
25,000 shares of Common Stock (the "Right") pursuant to the Company's 1997
Incentive and Capital Accumulation Plan (the "Plan"). Capitalized terms not
defined herein shall have the meanings ascribed thereto in the Plan. The Right
granted hereunder is a matter of separate inducement and is not in lieu of
salary or other compensation for Employee's services.
3. The Right's exercise price is $16.625 per share, such exercise price
being in the judgment of the Committee not less than one hundred percent (100%)
of the Fair Market Value of a share of Common Stock on the date of grant.
4. Subject to the terms of the Plan and this Agreement, the Right
entitles Employee to receive from the Company an amount in cash equal to the
product of (X) the amount, if any, by which the Fair Market Value of a share of
Common Stock on the date of exercise exceeds the exercise price per share
specified in Paragraph 3 hereof and (Y) the number of shares with respect to
which such Right shall have been exercised.
<PAGE>
5. Subject to Paragraphs 6, 7 and 8 below, the Right shall become fully
exercisable on May 30, 1998 (the "Vesting Date").
6. Subject to Paragraphs 7 and 8 below, the unexercised portion of the
Right, unless sooner terminated, shall expire on January 2, 2008 (the
"Expiration Date") and, notwithstanding anything contained herein to the
contrary, no portion of the Right may be exercised after such date.
7. If prior to the Expiration Date, Employee's employment with the
Company or any subsidiary corporation terminates, the Right will terminate on
the applicable date as described below, provided, however, that none of the
-------- -------
events described below shall extend the period of exercisability beyond the
Expiration Date:
(a) If the employment of Employee is terminated by reason of
Employee's death while in the employ of the Company or any subsidiary
corporation, the Right shall immediately become fully exercisable and remain
exercisable for twelve (12) months after Employee's death and shall be
exercisable by the executor or administrator of the estate of the deceased
Employee or the person or persons to whom the deceased Employee's rights under
the Right shall pass by will or the laws of descent or distribution;
(b) If the employment of Employee is terminated by the Company or
any subsidiary corporation for reason of Employee's "permanent disability" (as
defined below), the Right shall immediately become fully exercisable on the date
of such termination and shall remain exercisable for six (6) months after such
date; provided, however, that if Employee dies during the six month period
-------- -------
following such date and Employee has not exercised the Right, the Right shall
remain exercisable for an additional twelve (12) months after Employee's death
and shall be exercisable by the executor or administrator of the estate of the
deceased Employee or the person or persons to whom the deceased Employee's
rights under the Right shall pass by will or the laws of descent or
distribution;
(c) If the employment of Employee is terminated by the Company or
any subsidiary corporation for "Cause" (as defined below), the Right shall, to
the extent not theretofore exercised, immediately become null and void on the
date of such termination;
(d) If the employment of Employee is terminated (i) by the Company
or any subsidiary corporation other than (X) for "Cause" or (Y) for reason of
Employee's death or "permanent disability" or (ii) by the Employee for "Good
Reason" (as defined below), the Right to the extent not theretofore exercised
shall immediately become fully exercisable on the date of such termination and
shall remain exercisable for six (6) months after such date;
2
<PAGE>
(e) If the employment of Employee is terminated by the Employee
prior to the Vesting Date for other than "Good Reason", the Right shall, to the
extent not theretofore exercised, immediately become null and void on the date
of such termination; or
(f) If the employment of Employee is terminated by the Employee on
or after the Vesting Date, the Right shall remain exercisable for six (6) months
after the date of such termination.
For purposes of this Agreement, the terms "permanent disability",
"Cause" and "Good Reason" shall have the meanings ascribed to such terms in the
Employee's employment agreement with the Company (f/k/a Milwaukee Land Company),
dated June 29, 1993, as amended from time to time (the "Employment Agreement"),
or any successor agreement.
8. Upon the occurrence of a "Change in Control" (as defined below), the
Right shall immediately become fully exercisable and shall terminate thirty (30)
days after the occurrence of the Change in Control. Upon such termination,
Employee shall receive, with respect to the unexercised portion of the Right, an
amount in cash equal to the product of (X) the amount, if any, by which the Fair
Market Value of a share of Common Stock immediately prior to the occurrence of
such Change in Control exceeds the exercise price per share specified in
Paragraph 3 hereof and (Y) the number of shares with respect to which such Right
had not been theretofore exercised on the date of such termination. For purposes
of this Agreement, the term "Change in Control" shall have the meaning ascribed
to such term in the Plan.
9. Employee may exercise the Right regardless of whether any other
Stock Appreciation Right that Employee has been granted by the Company remains
unexercised. In no event may Employee exercise the Right for a fraction of a
share or for less than 100 shares unless such number is the remaining balance
for which the Right is then exercisable.
10. The Company may withhold from sums due or to become due to Employee
from the Company an amount necessary to satisfy its obligation to withhold taxes
incurred by reason of the exercise of the Right, or may require Employee to
reimburse the Company in such amount.
11. Employee shall not have any of the rights of a shareholder with
respect to the shares of Common Stock underlying the Right.
12. Any exercise of this Right shall be in writing addressed to the
Corporate Secretary of the Company at the principal place of business of the
Company, specifying the number of Rights being exercised and the exercise price
of such Rights.
3
<PAGE>
13. This Right shall not be transferable otherwise than by will or the
laws of descent and distribution, and shall be exercisable, during Employee's
lifetime, only by Employee. Notwithstanding the foregoing, this Right may be
transferred by Employee solely to Employee's spouse, siblings, parents, children
and grandchildren or trusts for the benefit of such persons, subject to any
restriction included in this Agreement.
14. This Agreement is subject to all terms, conditions, limitations and
restrictions contained in the Plan, which shall be controlling in the event of
any conflicting or inconsistent provisions.
15. This Agreement is not a contract of employment and the terms of
Employee's employment shall not be affected hereby or by any agreement referred
to herein except to the extent specifically so provided herein or therein.
Nothing herein shall be construed to impose any obligation on the Company to
continue Employee's employment, and it shall not impose any obligation on
Employee's part to remain in the employ of the Company.
16. Employee acknowledges and agrees that neither the Company, its
shareholders nor its directors and officers, has any duty or obligation to
disclose to the Employee any material information regarding the business of the
Company or affecting the value of the Common Stock before or at the time of a
termination of the employment of Employee by the Company, including, without
limitation, any information concerning plans for the Company to make a public
offering of its securities or to be acquired by or merged with or into another
firm or entity.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.
HEARTLAND TECHNOLOGY, INC.
By: /s/ Leon F. Fiorentino
-----------------------
Name: Leon F. Fiorentino
Title: Vice President - Finance
ACCEPTED:
/s/ Edwin Jacobson
- - -------------------
Edwin Jacobson
4
<PAGE>
Reference: NQSO 98-1
EXHIBIT 10.18
NONQUALIFIED STOCK OPTION AGREEMENT
GRANTED TO: Edwin Jacobson
DATE OF GRANT: January 2, 1998
GRANTED PURSUANT TO: Heartland Technology, Inc. 1997 Incentive and Capital
Accumulation Plan
NUMBER OF UNDERLYING 50,000 shares
SHARES OF COMMON
STOCK:
EXERCISE PRICE: $16.625 per share
VESTING SCHEDULE: 100% at May 30, 1998
1. This Nonqualified Stock Option Agreement (the "Agreement") is made
and entered into as of January 2, 1998, between Heartland Technology, Inc., a
Delaware corporation (the "Company"), and Edwin Jacobson ("Employee"). It is the
intent of the Company and Employee that the Option (as defined in Paragraph 2
below) will not qualify as an "incentive stock option" under Section 422 of the
Internal Revenue Code of 1986, as amended from time to time (the "Code").
2. Employee is granted an option by the Compensation Committee of the
Company's Board of Directors (the "Committee") to purchase 50,000 shares of
Common Stock (the "Option") pursuant to the Company's 1997 Incentive and Capital
Accumulation Plan (the "Plan"). Capitalized terms not defined herein shall have
the meanings ascribed thereto in the Plan. The Option granted hereunder is a
matter of separate inducement and is not in lieu of salary or other compensation
for Employee's services.
3. The Option's exercise price is $16.625 per share, such exercise
price being in the judgment of the Committee not less than one hundred percent
(100%) of the Fair Market Value of a share of Common Stock on the date of grant.
4. Subject to Paragraphs 5, 6 and 7 below, the Option shall become
fully exercisable on May 30, 1998 (the "Vesting Date").
<PAGE>
5. Subject to Paragraphs 6 and 7 below, the unexercised portion of the
Option, unless sooner terminated, shall expire on January 2, 2008 (the
"Expiration Date") and, notwithstanding anything contained herein to the
contrary, no portion of the Option may be exercised after such date.
6. If prior to the Expiration Date, Employee's employment with the
Company or any subsidiary corporation terminates, the Option will terminate on
the applicable date as described below, provided, however, that none of the
-------- -------
events described below shall extend the period of exercisability beyond the
Expiration Date:
(a) If the employment of Employee is terminated by reason of
Employee's death while in the employ of the Company or any subsidiary
corporation, the Option shall immediately become fully exercisable and remain
exercisable for twelve (12) months after Employee's death and shall be
exercisable by the executor or administrator of the estate of the deceased
Employee or the person or persons to whom the deceased Employee's rights under
the Option shall pass by will or the laws of descent or distribution;
(b) If the employment of Employee is terminated by the Company or
any subsidiary corporation for reason of Employee's "permanent disability" (as
defined below), the Option shall immediately become fully exercisable on the
date of such termination and shall remain exercisable for six (6) months after
such date; provided, however, that if Employee dies during the six month period
-------- -------
following such date and Employee has not exercised the Option, the Option shall
remain exercisable for an additional twelve (12) months after Employee's death
and shall be exercisable by the executor or administrator of the estate of the
deceased Employee or the person or persons to whom the deceased Employee's
rights under the Option shall pass by will or the laws of descent or
distribution;
(c) If the employment of Employee is terminated by the Company or
any subsidiary corporation for "Cause" (as defined below), the Option shall, to
the extent not theretofore exercised, immediately become null and void on the
date of such termination;
(d) If the employment of Employee is terminated (i) by the Company
or any subsidiary corporation other than (X) for "Cause" or (Y) for reason of
Employee's death or "permanent disability" or (ii) by the Employee for "Good
Reason" (as defined below), the Option to the extent not theretofore exercised
shall immediately become fully exercisable on the date of such termination and
shall remain exercisable for six (6) months after such date;
2
<PAGE>
(e) If the employment of Employee is terminated by the Employee
prior to the Vesting Date for other than "Good Reason", the Option shall, to the
extent not theretofore exercised, immediately become null and void on the date
of such termination; or
(f) If the employment of Employee is terminated by the Employee on
or after the Vesting Date, the Option shall remain exercisable for six (6)
months after the date of such termination.
For purposes of this Agreement, the terms "permanent disability",
"Cause" and "Good Reason" shall have the meanings ascribed to such terms in the
Employee's employment agreement with the Company (f/k/a Milwaukee Land Company),
dated June 29, 1993, as amended from time to time (the "Employment Agreement"),
or any successor agreement.
7. Upon the occurrence of a "Change in Control" (as defined below), the
Option shall immediately become fully exercisable and shall terminate thirty
(30) days after the occurrence of the Change in Control. Upon such termination,
Employee shall receive, with respect to the unexercised portion of the Option,
an amount in cash equal to the product of (X) the amount, if any, by which the
Fair Market Value of a share of Common Stock immediately prior to the occurrence
of such Change in Control exceeds the exercise price per share specified in
Paragraph 3 hereof and (Y) the number of shares with respect to which the Option
remained exercisable on the date of such termination. For purposes of this
Agreement, the term "Change in Control" shall have the meaning ascribed to such
term in the Plan.
8. Employee may exercise the Option regardless of whether any other
option that Employee has been granted by the Company remains unexercised. In no
event may Employee exercise the Option for a fraction of a share or for less
than 100 shares unless the number purchased is the remaining balance for which
the Option is then exercisable.
9. The Option's exercise price shall be paid by Employee on the date
the Option is exercised, in full in cash or shares of Common Stock or, in the
sole discretion of the Committee, any other method that the Committee shall
prescribe, including, without limitation, by the withholding of shares or the
delivery of an executed promissory note to the Company on such terms and
conditions as the Committee shall determine in its sole discretion.
10. The Company may withhold from sums due or to become due to Employee
from the Company an amount necessary to satisfy its obligation to withhold taxes
incurred by reason of the issuance or disposition of shares pursuant to the
Option, or may require Employee to reimburse the Company in such amount.
3
<PAGE>
11. Employee shall not have any of the rights of a shareholder with
respect to the shares of Common Stock underlying the Option while the Option is
unexercised.
12. Any exercise of this Option shall be in writing addressed to the
Corporate Secretary of the Company at the principal place of business of the
Company, specifying the Option being exercised and the number of shares to be
purchased, accompanied by payment therefor.
13. This Option shall not be transferable otherwise than by will or the
laws of descent and distribution, and shall be exercisable, during Employee's
lifetime, only by Employee. Notwithstanding the foregoing, this Option may be
transferred by Employee solely to Employee's spouse, siblings, parents, children
and grandchildren or trusts for the benefit of such persons, subject to any
restriction included in this Agreement.
14. If the Company, in its sole discretion, shall determine that it is
necessary, to comply with applicable securities laws, the certificate or
certificates representing the shares purchased pursuant to the exercise of the
Option shall bear an appropriate legend in form and substance, as determined by
the Company, giving notice of applicable restrictions on transfer under or in
respect of such laws.
15. The Company agrees that at the time of exercise of the Option it
will use reasonable efforts in good faith to have an effective Registration
Statement on Form S-8 under the Securities Act of 1933, as amended (the "Act"),
which includes a prospectus that is current with respect to the shares subject
to the Option. Employee covenants and agrees with the Company that if, at the
time of exercise of the Option, there does not exist a Registration Statement on
an appropriate form under the Act, which Registration Statement shall have
become effective and shall include a prospectus that is current with respect to
the shares subject to the Option, (i) that he or she is purchasing the shares
for his or her own account and not with a view to the resale or distribution
thereof, (ii) that any subsequent offer for sale or sale of any such shares
shall be made either pursuant to (x) a Registration Statement on an appropriate
form under the Act, which Registration Statement shall have become effective and
shall be current with respect to the shares being offered and sold, or (y) a
specific exemption from the registration requirements of the Act and applicable
state securities laws, but in claiming such exemption, Employee shall, prior to
any offer for sale or sale of such shares, obtain a favorable written opinion
from counsel for or approved by the Company as to the applicability of such
exemption and (iii) that Employee agrees that the certificates evidencing such
shares shall bear a legend to the effect of the foregoing.
4
<PAGE>
16. This Agreement is subject to all terms, conditions, limitations and
restrictions contained in the Plan, which shall be controlling in the event of
any conflicting or inconsistent provisions.
17. This Agreement is not a contract of employment and the terms of
Employee's employment shall not be affected hereby or by any agreement referred
to herein except to the extent specifically so provided herein or therein.
Nothing herein shall be construed to impose any obligation on the Company to
continue Employee's employment, and it shall not impose any obligation on
Employee's part to remain in the employ of the Company.
18. Employee acknowledges and agrees that neither the Company, its
shareholders nor its directors and officers, has any duty or obligation to
disclose to the Employee any material information regarding the business of the
Company or affecting the value of the Common Stock before or at the time of a
termination of the employment of Employee by the Company, including, without
limitation, any information concerning plans for the Company to make a public
offering of its securities or to be acquired by or merged with or into another
firm or entity.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.
HEARTLAND TECHNOLOGY, INC.
By: /s/ Leon F. Fiorentino
-------------------------
Name: Leon F. Fiorentino
Title: Vice President - Finance
ACCEPTED:
/s/ Edwin Jacobson
- - -------------------
Edwin Jacobson
5
<PAGE>
EXHIBIT 21
Subsidiaries of Heartland Technology, Inc.
The following is a list of all of the registrant's direct and indirect
subsidiaries, state of incorporation or organization and the percentage of
ownership of each.
<TABLE>
<CAPTION>
Name of Subsidiary State Ownership
- - ------------------ ----- ---------
<S> <C> <C>
P.G. Design Electronics, Inc. Delaware 100%
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from the
financial statements contained in the body of the accompanying Form 10-K and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,232
<SECURITIES> 0
<RECEIVABLES> 2,384
<ALLOWANCES> (73)
<INVENTORY> 1,660
<CURRENT-ASSETS> 7,792
<PP&E> 5,611
<DEPRECIATION> (623)
<TOTAL-ASSETS> 30,179
<CURRENT-LIABILITIES> 5,455
<BONDS> 5,165
0
0
<COMMON> 501
<OTHER-SE> 19,058
<TOTAL-LIABILITY-AND-EQUITY> 30,179
<SALES> 15,093
<TOTAL-REVENUES> 15,093
<CGS> 9,684
<TOTAL-COSTS> 9,684
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 416
<INCOME-PRETAX> 2,748
<INCOME-TAX> 773
<INCOME-CONTINUING> 1,975
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,975
<EPS-PRIMARY> 1.18
<EPS-DILUTED> 1.18
</TABLE>
<PAGE>
EXHIBIT 99.1
Item 8. Financial Statement and Supplementary Data
REPORT OF INDEPENDENT AUDITORS
To the Partners and Unitholders of Heartland Partners, L.P.
We have audited the accompanying consolidated balance sheets of Heartland
Partners, L.P. (the "Partnership") as of December 31, 1997 and 1996 and the
related consolidated statements of operations, partners' capital and cash flows
for each of the three years in the period ended December 31, 1997. Our audits
also included the financial statement schedules listed in the Index at Item
14(a). These financial statements and schedules are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Heartland Partners, L.P. at December 31, 1997 and 1996, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedules,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
Ernst & Young LLP
Chicago, Illinois
February 24, 1998
<PAGE>
HEARTLAND PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
(amounts in thousands)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
ASSETS:
- - -------
Cash........................................................................... $ 1,890 $ 931
Restricted cash................................................................ 724 300
Marketable securities (amortized cost of $143 in 1997 and $4,761 in 1996)...... 141 4,759
Accounts receivable (net of allowance of $205 in 1997 and $107 in 1996)........ 251 530
Accrued interest receivable.................................................... 3 13
Prepaid and other assets....................................................... 355 456
Investment in joint venture.................................................... 278 --
-------- --------
Total.................................................................. 3,642 6,989
-------- --------
Property:
Buildings and other............................................................ 2,003 1,633
Less accumulated depreciation............................................... 807 853
-------- --------
Net buildings and other........................................................ 1,196 780
Land held for sale............................................................. 1,163 1,286
Housing inventories............................................................ 4,092 848
Land held for development...................................................... 8,829 8,987
Capitalized predevelopment costs............................................... 7,916 9,150
-------- --------
Net Properties.............................................................. 23,196 21,051
-------- --------
Total Assets................................................................... $ 26,838 $ 28,040
======== ========
LIABILITIES:
- - -----------
Notes payable.................................................................. $ 3,750 $ 737
Accounts payable and accrued expenses.......................................... 724 248
Management fee due affiliate................................................... 425 425
Accrued real estate taxes...................................................... 1,092 1,334
Allowance for claims and liabilities........................................... 2,169 2,660
Unearned rents and deferred income............................................. 1,200 536
Distribution payable........................................................... 1,631 2,719
Other liabilities.............................................................. 356 96
-------- --------
Total Liabilities.............................................................. 11,347 8,755
-------- --------
PARTNERS' CAPITAL:
- - -----------------
General Partner................................................................ 28 66
Class A Limited Partners - 2,142
units authorized, issued and outstanding.................................... 5,902 9,639
Class B Limited Partner........................................................ 9,563 9,582
Unrealized holding (loss) gain on marketable securities........................ (2) (2)
-------- --------
Total Partners' Capital........................................................ 15,491 19,285
-------- --------
Total Liabilities and Partners' Capital........................................ $ 26,838 $ 28,040
======== ========
</TABLE>
See accompanying notes to Consolidated Financial Statements
<PAGE>
HEARTLAND PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
For the Years Ended December 31, 1997, 1996, and 1995
(amounts in thousands)
<TABLE>
<CAPTION>
Unrealized
Holding Gain
Class A Class B (Loss) on
General Limited Limited Marketable
Partner Partners Partner Securities Total
------- -------- ------- ---------- -----
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1995.......................... $129 $15,921 $9,615 $(352) $25,313
Net Loss............................................. (40) (3,986) (21) --- (4,047)
Marketable securities fair value adjustment.......... --- --- --- 394 394
---- ------- ------ ----- -------
Balances at December 31, 1995........................ 89 11,935 9,594 42 21,660
Net Income........................................... 4 382 2 --- 388
Distribution......................................... (27) (2,678) (14) --- (2,719)
Marketable securities fair value adjustment.......... --- --- --- (44) (44)
---- ------- ------ ----- -------
Balances at December 31, 1996........................ 66 9,639 9,582 (2) 19,285
Net Loss............................................. (22) (2,130) (11) --- $(2,163)
Distribution......................................... (16) (1,607) (8) --- $(1,631)
---- ------- ------ ----- -------
Balances at December 31, 1997........................ $ 28 $ 5,902 $9,563 $ (2) $15,491
==== ======= ====== ===== =======
</TABLE>
See accompanying notes to Consolidated Financial Statements
<PAGE>
HEARTLAND PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1997, 1996 and 1995
(amounts in thousands, except for per unit data)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenues:
- - ---------
Property sales..................................................... $ 7,127 $6,918 $ 2,316
Less: cost of property sales....................................... 3,407 1,674 716
------- ------ -------
Gross profit on property sales.................................. 3,720 5,244 1,600
Rental income...................................................... 1,104 1,039 1,331
Portfolio income................................................... 62 419 583
Miscellaneous income............................................... 286 223 11
------- ------ -------
Total Net Revenues.......................................... 5,172 6,925 3,525
------- ------ -------
Expenses:
- - ---------
Selling............................................................ 1,903 501 523
Real estate taxes.................................................. 703 984 1,156
General and administrative......................................... 4,210 4,496 5,343
Management fee..................................................... 425 425 425
Depreciation and amortization...................................... 94 131 125
------- ------ -------
Total Expenses.................................................. 7,335 6,537 7,572
------- ------ -------
Net Income (Loss)............................................... $(2,163) $ 388 $(4,047)
======= ====== =======
Net income (loss) allocated to General Partner.................. $ (22) $ 4 $ (40)
======= ====== =======
Net income (loss) allocated to Class B limited partner.......... $ (11) $ 2 $ (21)
======= ====== =======
Net income (loss) allocated to Class A limited partners......... $(2,130) $ 382 $(3,986)
======= ====== =======
Net income (loss) per Class A limited partnership unit.......... $ (.99) $ .18 $ (1.86)
======= ====== =======
Average number of Class A limited partnership units outstanding. 2,142 2,142 2,142
======= ====== =======
Distributions declared per Class A limited partnership unit..... $ .75 $ 1.25 $ ---
======= ====== =======
</TABLE>
See accompanying notes to Consolidated Financial Statements
<PAGE>
HEARTLAND PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1997, 1996, and 1995
(amounts in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash Flow from Operating Activities:
- - -----------------------------------
Net income (loss).............................................................. $(2,163) $ 388 $(4,047)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization.................................................. 94 131 125
Gain on sales of properties.................................................... (3,720) (5,244) (1,600)
(Accretion) amortization of (discount) premium on securities................... (21) (78) (8)
(Gain) Loss on sale of securities.............................................. 3 (79) ---
Net change in allowance for claims and liabilities............................. (491) 168 597
Net change in assets and liabilities:
Decrease (increase) in accounts and accrued interest receivable............... 289 345 (256)
(Decrease) increase in accounts payable and accrued liabilities............... 234 (392) 267
(Decrease) increase in management fee due affiliate........................... -- -- (223)
Net change in other assets and liabilities.................................... 1,025 (209) (33)
------- -------- -------
Net cash Used in Operating Activities.......................................... (4,750) (4,970) (5,178)
------- -------- -------
Cash Flow from Investing Activities:
Proceeds from sales of properties.............................................. 7,127 6,918 2,316
Capital expenditures for inventories........................................... (3,909) --- ---
Capital expenditures including land and development costs...................... (2,015) (2,109) (1,010)
Repayment of notes receivable.................................................. --- --- 80
Purchases of marketable securities............................................. (4,379) (25,979) (8,325)
Sales and maturities of marketable securities.................................. 9,015 27,238 10,438
Distribution paid to unitholders............................................... (2,719) --- ---
------- -------- -------
Net cash provided by investing activities...................................... 3,120 6,068 3,499
------- -------- -------
Cash Flow From Financing Activities:
- - -----------------------------------
(Repayment of) proceeds from note payable to Milwaukee Land Company............ --- (648) 648
Advances on notes payable...................................................... 3,013 737 ---
Increase in restricted cash.................................................... (424) (300) ---
------- -------- -------
Net cash provided by (used in) financing activities........................... 2,589 (211) 648
------- -------- -------
Increase (decrease) in cash.................................................... 959 887 (1,031)
Cash at beginning of year...................................................... 931 44 1,075
------- -------- -------
Cash at end of year............................................................ $ 1,890 $ 931 $ 44
======= ======== =======
</TABLE>
See accompanying notes to Consolidated Financial Statements
<PAGE>
Heartland Partners, L.P.
Notes to Consolidated Financial Statements
For the years ended December 31, 1997, 1996 and 1995
1. Organization
Heartland Partners, L.P. ("Heartland" or the "Company"), a Delaware limited
partnership, was formed on October 6, 1988. Heartland's existence will continue
until December 31, 2065, unless extended or dissolved pursuant to the provisions
of Heartland's partnership agreement.
Heartland was organized to engage in the ownership, purchasing, development,
leasing, marketing, construction and sale of real estate properties. CMC
Heartland Partners ("CMC") is an operating general partnership owned 99.99% by
Heartland and .01% by Heartland Technology, Inc. ("HTI"), formerly known as
Milwaukee Land Company ("MLC"). HTI is the general partner of Heartland (in
such capacity, the "General Partner"). In July 1993, Heartland Development
Corporation ("HDC"), a Delaware corporation, wholly-owned by Heartland and CMC
formed CMC Heartland Partners I, Limited Partnership ("CMCI"), a Delaware
limited partnership, to undertake a planned housing development in Minnesota.
CMC has a 100% membership interest in CMC Heartland Partners II ("CMCII"), CMC
Heartland Partners III ("CMCIII") and CMC Heartland Partners V ("CMCV"). CMCII
was formed to participate in the Goose Island Industrial park joint venture.
CMCIII was formed in 1997 to develop a portion of the Kinzie Station property in
Chicago, IL. CMCV was formed in 1996 to construct houses in a master-planned
residential community in St. Marys, GA. CMC also owns 100% of the common stock
of Lifestyle Communities, Ltd. ("LCL") which serves as the exclusive sales agent
as well as the general contractor in the St. Marys development. Except as
otherwise noted herein, references herein to "Heartland" or the "Company"
include CMC, HDC, CMCI, CMCII, CMCIII, CMCV, and LCL.
The partnership agreement provides generally that Heartland's net income (loss)
will be allocated 1% to the General Partner, 98.5% to the Class A limited
partners (the "Unitholders") and 0.5% to the Class B limited partner. In
addition, the partnership agreement provides that certain items of deduction,
loss, income and gain may be specially allocated to the Class A Unitholders or
to the holder of the Class B Interest or the General Partner.
When available, the General Partner expects to cause Heartland to make quarterly
distributions of Heartland's available cash in an amount equal to 98.5% to the
Unitholders, 0.5% to the holder of the Class B Interest and 1% to the General
Partner, although there can be no assurance as to the amount or timing of
Heartland's cash distributions or whether the General Partner will cause
Heartland to make a cash distribution if cash is available. On December 4,
1997, Heartland's Partnership agreement was amended to allow the General Partner
in its discretion to establish a record date for distributions of the last day
of any calendar month. On November 24, 1997, Heartland declared a cash
distribution in the amount of $1.6 million to Unitholders and Partners of record
on December 29, 1997, payable on January 7, 1998.
At December 31, 1997, real estate holdings consisted of approximately 17,153
acres of scattered land parcels. States in which large land holdings are
located are Georgia, Illinois, Iowa, Minnesota, Montana, North Dakota, South
Dakota, Washington, and Wisconsin. The remaining acreage is located in Idaho,
Indiana, Michigan and Missouri.
Most of the properties are former railroad rights-of-way, located in rural
areas, comprised of long strips of
<PAGE>
Heartland Partners, L.P.
Notes to Consolidated Financial Statements - (Continued)
land approximately 100 feet in width. Also included are former station
grounds and rail yards. Certain air rights and fiber optics development rights
are also owned.
The land is typically unimproved. Some of the properties are improved with
structures (such as grain elevators and sheds) erected and owned by lessees.
Other properties are improved with Heartland-owned buildings that are of little
or no value.
Improved properties of value to Heartland include a three-story office building
with 60,000 square feet of space in Milwaukee, Wisconsin, a two-story
warehouse/office building in northwestern Chicago used for the storage of
partnership records, and several small, old warehouse buildings in Milwaukee
which are leased to third parties for warehouse use.
2. Summary of Significant Accounting Policies
Consolidation
- - -------------
The consolidated financial statements include the accounts of Heartland; CMC,
its 99.99% owned operating partnership; HDC, 100% owned by Heartland; CMCI, 1%
general partnership interest owned by HDC and 99% owned by CMC; CMC II, CMC III,
CMCV and LCL, each 100% owned by CMC. All intercompany transactions have been
eliminated in consolidation.
Revenue Recognition
- - -------------------
Revenues from housing and land sales are recognized in the period in which title
passes and cash is received.
Use of Estimates
- - ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Marketable Securities
- - ---------------------
Management determines the appropriate classification of debt securities at the
time of purchase and re-evaluates such classification as of each balance sheet
date. Debt securities that the Company does not have the positive intent or
ability to hold to maturity, and all marketable equity securities are classified
as available-for-sale and are carried at fair value. All of Heartland's
marketable securities held at December 31, 1997 and 1996 are classified as
available-for-sale. Unrealized holding gains and losses on securities classified
as available-for-sale are reported as a separate component of partner's capital.
Partners' capital included an unrealized holding loss on marketable securities
classified as available for sale of $2,000 at December 31, 1997 and 1996.
Realized gains and losses, and declines in value judged to be other than
temporary, are included in net securities gains (losses). Premiums and discounts
on marketable securities are amortized on a straight-line basis using the
maturity date of the security to determine the amortization period and such
amortization is included in interest income. The cost of securities sold is
based on the specific identification method.
<PAGE>
Heartland Partners L. P.
Notes to Consolidated Financial Statements - (continued)
Properties
- - ----------
Properties are carried at their historical cost. Expenditures which
significantly improve the values or extend useful lives of the properties are
capitalized. Predevelopment costs including interest, financing fees, and real
estate taxes that are directly identified with a specific development project
are capitalized. Repairs and maintenance are charged to expense as incurred.
Depreciation is provided for financial statement purposes over the estimated
useful life of the respective assets ranging from 7 years for office equipment
and fixtures to 40 years for building and improvements primarily using the
straight-line method. Depreciation expense for the years ended December 31,
1997, 1996, and 1995 was $94,000, $131,000, $99,000, respectively.
Properties held for development, including capitalized predevelopment costs, are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of the particular development property may not be
recoverable. If these events or changes in circumstances are present, the
Company estimates the sum of the expected future cash flows (undiscounted) to
result from the development operations and eventual disposition of the
particular development property, and if less than the carrying amount of the
development property, the Company will recognize an impairment loss. Upon
recognition of any impairment loss the Company measures that loss based on the
amount by which the carrying amount of the property exceeds the estimated fair
value of the property.
For properties held for sale, an impairment loss is recognized when the fair
value of the property, less the estimated cost to sell, is less than the
carrying amount of the property. Property is reported at the lower of its
carrying amount or its estimated fair value, less its cost to sell.
Housing inventories, (including completed model homes), consisting of land, land
development, direct and indirect construction costs and related interest, are
recorded at cost which is not in excess of fair value. Land, land development,
and indirect costs are allocated to cost of sales on the basis of units sold in
relation to the total anticipated units in the related development project; such
allocation approximates the relatives sales value method. Direct construction
costs are allocated to the specific units sold for purposes of determining costs
of sales. Selling and marketing costs, not including those costs incurred
related to furnishing and developing the models and sales office, are expensed
in the period incurred. Costs incurred in the construction of the model units
and related furnishings are capitalized at cost. The Company intends to offer
these units for sale at the completion of a project and, accordingly, no
amortization of direct construction costs is provided.
Interest, financing fees, and real estate taxes relating to land and
construction in progress are capitalized and, accordingly, are included in the
aggregate cost of housing inventories. These costs are amortized to cost of
sales on a per unit basis in relationship to the total units of the related
development based upon the total estimated budget to be incurred for the
development. This accounting treatment approximates the relative sales value
method. Additionally, the Company provides each home purchaser with a one-year
warranty covering the major components of the unit. The costs associated with
these warranties are immaterial and therefore, expensed as incurred.
Fair Value of Financial Instruments
- - -----------------------------------
Management has considered fair value information relating to its financial
instruments at December 31, 1997. For cash and marketable securities, the
carrying amounts approximate fair value. For variable rate debt that reprices
frequently, fair values approximate carrying values. For all remaining financial
instruments, carrying value approximates fair value due to the relatively short
maturity of these instruments.
Income Taxes
- - ------------
A publicly-traded partnership generally is not liable for Federal income taxes,
provided that for each taxable year at least 90% of its gross income consists of
certain passive types of income. In such case, each partner includes its
proportionate share of partnership income or loss in its own tax return.
Accordingly, no provision for income taxes is reflected in Heartland's financial
statements.
Heartland's assets are carried at historical cost. At December 31, 1997, the
tax basis of the properties and improvements for Federal income tax purposes was
greater than their carrying value for financial reporting purposes.
Reclassification
- - ----------------
Certain reclassifications have been made to the previously reported 1996 and
1995 statements in order to provide comparability with the 1997 statements.
These reclassifications have not changed the 1996 and 1995 results.
<PAGE>
Heartland Partners L. P.
Notes to Consolidated Financial Statements - (continued)
3. Restricted Cash
On May 14, 1997, CMC established a line of credit agreement in the amount of $5
million with LaSalle National Bank ("LNB") pursuant to which CMC pledged cash in
the amount of $500,000 as an interest reserve (See Note 4). On December 30,
1997, CMCV renewed a line of credit agreement in the amount of $3 million with
NationsBank ("NB") pursuant to which CMCV pledged cash in the amount of $100,000
as an interest reserve (see Note 4). Restricted cash also includes purchasers'
earnest money escrow deposits of $114,000 and a $10,000 construction improvement
bond held by the Osprey Cove Homeowners Association.
4. Notes Payable
Advances against the LNB line of credit as described in Note 3 bear interest at
the prime rate of LNB plus 1.0% (9.50% at December 31, 1997). This loan is
collateralized by certain parcels of land in Chicago, IL which have a carrying
value of $6,407,000 as of December 31, 1997. The agreement terminates on May 1,
1998. Under the terms of the agreement, CMC is required to maintain a minimum
net worth in excess of $15 million, liquid assets in excess of $1 million, is
limited in incurring additional indebtedness and restricted from making certain
distributions. At December 31, 1997, $2,000,000 had been advanced to CMC by LNB
against the line of credit. The Company is currently in negotiations with LNB to
extend the maturity of the loan, modify certain existing financial covenants,
and increase the amount of the credit facility. While the Company has no reason
to believe that the extension, modification of terms, and increased capacity of
the credit facility will not be granted, there can be no assurance that the
contemplated transaction will be approved by LNB. No adjustments related to this
uncertainty have been made in the accompanying financial statements.
On December 30, 1996, CMCV signed a revolving line of credit agreement in the
amount of $3 million with NationsBank ("NB") to acquire lots and construct
houses in the Osprey Cove subdivision, St. Marys, Georgia, pursuant to which CMC
granted a first mortgage to NB on specific lots in said subdivision with a
carrying value of $4,092,000 at December 31, 1997. Advances against the
revolving line of credit bear interest at the prime rate of NB plus 1.0% (9.50%
at December 31, 1997). The agreement was modified to extend its original
maturity date of December 30, 1997 to December 30, 1998. At that time, all
outstanding advances and any accrued interest must be paid. In the event the
loan is not renewed, it will be extended for a period of six months to allow for
the completion of homes then under construction, but no new construction shall
be commenced. Under the terms of the agreement, CMCV is required to maintain a
minimum net worth of $500,000 and a minimum leverage ratio not to exceed of 4:1.
At December 31, 1997, $1,750,000 had been advanced to CMCV by NB against the
revolving line of credit. During the year ended December 31, 1997, the Company
incurred and paid interest on loans in the amount of $189,387 of which $125,976
was capitalized. In 1996 and 1995, interest paid amounted to $108,248 and $382
respectively; all such interest was charged to expense in those respective
years.
5. Recognition and Measurement of Environmental Liabilities
It is Heartland's practice to evaluate environmental liabilities associated with
its properties on a regular basis. An allowance is provided with regard to
potential environmental liabilities, including remediation, legal and consulting
fees, when it is probable that a liability has been incurred and the amount of
the liability can be reasonably estimated. The amount of any liability is
evaluated independently from any claim for recovery. If the amount of the
liability cannot be reasonably estimated but management is able to determine
that the amount of the liability is likely to fall within a range, and no amount
within that range can be determined to be the better estimate, then an allowance
in the minimum amount of the range is established. Environmental costs which
are incurred in connection with Heartland's development activities are expensed
or capitalized as appropriate.
<PAGE>
Heartland Partners L.P.
Notes to Consolidated Financial Statements - (continued)
Estimates which are used as the basis for allowances for the remediation of a
particular site are taken from evaluations of the range of potential costs for
that site made by independent consultants. These evaluations are estimates
based on professional experience but necessarily rely on certain significant
assumptions including the specific remediation standards and technologies which
may be required by an environmental agency as well as the availability and cost
of subcontractors and disposal alternatives.
There is not sufficient information to reasonably estimate all the environmental
liabilities of which management is aware. Accordingly, management is unable to
determine whether environmental liabilities which management is unable to
reasonably estimate will or will not have a material effect on Heartland's
results of operations or financial condition.
6. Related Party Transactions
CMC has a management agreement with HTI, pursuant to which CMC is required to
pay HTI an annual management fee in the amount of $425,000. On December 29,
1995, HTI advanced CMC approximately $648,000 and on February 14, 1996 HTI
advanced an additional $425,000 for past due management fees. Each advance was
in the form of a note payable on demand and bore interest at the prime rate plus
2.5% (10.75% at December 31, 1996). Interest expense on the note was
approximately $107,000 for 1996 and $400 for 1995. On December 31, 1996, CMC
paid HTI $1,180,400 related to previously accrued management fees including
$107,400 for interest related to the past due amounts. At December 31, 1997,
the management fee accrued and unpaid was approximately $425,000 representing
deferred management fees for the year ended December 31, 1997.
Under a management services agreement, HTI reimbursed Heartland for reasonable
and necessary costs and expenses for services totaling $227,850 for the year
ended December 31, 1997, $180,000 for 1996 and $109,000 for 1995.
7. Leases
Heartland is a lessor under numerous property lease arrangements with varying
lease terms. The majority of the leases are cancelable by either party upon
thirty to sixty days notice and provide nominal rental income to Heartland. The
leases generally require the lessee to construct, maintain and remove any
improvements, pay property taxes, maintain insurance and maintain the condition
of the property. Heartland has several major leases on buildings and land in
Chicago, Illinois, Milwaukee, Wisconsin and Minneapolis, Minnesota which account
for over half of Heartland's annual rental income.
Future minimum annual lease income under noncancellable operating leases with
lease terms in excess of one year as of December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998.................................. $ 47,889
1999.................................. 59,000
2000.................................. 59,000
</TABLE>
<PAGE>
Heartland Partners L. P.
Notes to Consolidated Financial Statements - (continued)
<TABLE>
<S> <C>
2001.................................. 59,000
2002.................................. 59,000
Thereafter............................ 282,443
--------
Total minimum lease income $566,332
========
</TABLE>
Heartland leases its office premises and certain equipment under various
operating leases. Future minimum lease commitments under non-cancelable
operating leases are as follows:
<TABLE>
<S> <C>
1998.................................. $112,219
1999.................................. 105,472
2000.................................. 5,242
--------
Total.............................. $222,933
========
</TABLE>
Rent expense for the years ended December 31, 1997, 1996, and 1995 was $133,000,
$132,000 and $120,000, respectively.
8. Legal Proceedings and Contingencies
At December 31, 1997, Heartland's allowance for claims and liabilities was
approximately $2.2 million. During the year ended December 31, 1997, a $78,000
provision was recorded in respect to environmental matters. At December 31,
1996, Heartland's allowance for claims and liabilities was approximately $2.7
million. During the year ended 1996, a $1,141,000 provision was recorded in
respect of environmental matters. Significant legal matters are discussed
below.
Soo Line Matters
- - ----------------
The Soo Line Railroad Company (the "Soo") has asserted that the Company is
liable for certain occupational injury claims filed after the consummation of
an Asset Purchase Agreement and related agreements ("APA") by former employees
now employed by the Soo. The Company has denied liability for each of these
claims based on a prior settlement with the Soo. The Soo has also asserted that
the Company is liable for the remediation of releases of petroleum or other
regulated materials at six different sites acquired from the Company located in
Iowa, Minnesota and Wisconsin. The Company has denied liability based on the
APA.
The occupational and environmental claims are all currently being handled by the
Soo, and the Company understands the Soo has paid settlements on many of these
claims. As a result of Soo's exclusive handling of these matters, the Company
has made no determination as to the merits of the claims and is unable to
determine the materiality of these claims.
Tacoma, Washington
- - ------------------
In June 1997, the Port of Tacoma ("Port") filed a complaint in the United
States District Court for the Western District of Washington alleging that the
Company was liable under Washington state law for the cost of the Port's
remediation of a railyard sold in 1980 by the bankruptcy trustee for the
Company's predecessor to the Port's predecessor in interest.
Between 1991 and 1997, the Company, the Port and the Port's predecessor in
interest, litigated the
<PAGE>
Heartland Partners L. P.
Notes to Consolidated Financial Statements - (continued)
Company's motion to bar liability arising out of the sale of the railyard due to
the reorganization of the Company's predecessor before the United States
District Court for the Northern District of Illinois, which served as the
reorganization court for the company's predecessor. On February 28, 1996, the
United States Court of Appeals for the Seventh Circuit ruled that claims under
certain Washington state environmental laws were not barred by the
reorganization of the Company's predecessor. The United States Supreme Court
subsequently denied a petition for Writ of Certiorari.
A draft feasibility study dated November 1994, submitted to the Washington
Department of Ecology on behalf of the Port estimates that the selected remedial
alternative for a portion of the site may cost approximately $3.65 million.
Management is not able to reasonably predict the outcome of this matter or, in
the event of an adverse outcome, to reasonably estimate the amount of the
Company's liability. Accordingly, management has only recorded a reserve in the
amount of estimated attorney fees of $250,000. Management believes it has
meritorious defenses in this matter and intends to pursue them vigorously.
At December 31, 1997, Heartland's allowance for claims and liabilities for this
site was approximately $290,000.
Wheeler Pit, Janesville, Wisconsin
- - ----------------------------------
In November 1995 the Company agreed to settle a claim with respect to the
Wheeler Pit site near Janesville, Wisconsin. The settlement calls for the
Company to pay General Motors $800,000 at $200,000 annually for four years, 32%
of the monitoring costs for twenty-five years beginning in 1997 and 32% of
governmental oversite costs; not to exceed $50,000. Payments of $200,000 were
made in 1995, 1996 and 1997.
At December 31, 1997, Heartland's allowance for claims and liabilities for this
site was approximately $408,000, of which $358,000 represents the annual
payments discounted at a rate of 6.07%.
Miscellaneous Environmental Matters
- - -----------------------------------
The Company has known environmental liabilities associated with certain of its
properties arising out of the activities of its predecessor or certain of its
predecessor's lessees and may have further material environmental liabilities as
yet unknown. The majority of the Company's known environmental liabilities stem
from the use of petroleum products, such as motor oil and diesel fuel, in the
operation of a railroad or in operations conducted by its predecessor's lessees.
The following is a summary of material known environmental matters, in addition
to those described above.
The Montana Department of Environmental Quality ("DEQ") has asserted that the
Company is responsible for some or all of the liability to remediate certain
properties in Montana sold by its predecessor's reorganization trustee prior to
the consummation of its predecessor's reorganization. The Company has raised
issues to its liability on grounds similar, but not identical, to the grounds
on which the Company denied liability in the litigation with the Port of Tacoma
set forth above. Following the Supreme Court's denial of the Company's petition
for Writ of Certiorari in January 1997, counsel for DEQ indicated DEQ's
intention to file suit to resolve these issues. The Company's potential
liability for the investigation and remediation of these sites was discussed in
detail at a meeting with ADEA in April 1997. While MDEQ has not formally
charged its position, MDEQ has not elected to file suit. Management is not able
to express an opinion at this time whether the cost of the defense of this
liability or the environmental exposure in the event of the Company's liability
will or will not be material.
<PAGE>
Heartland Partners L.P.
Notes to Consolidated Financial Statements - (continued)
At twelve separate sites, the Company has been notified that releases arising
out of the operations of a lessee, former lessee or other third party have been
reported to government agencies. At each of these sites, the third party is
voluntarily cooperating with the appropriate agency by investigating the extent
of any such contamination and performing the appropriate remediation, if any.
The Company has petroleum groundwater remediation projects or long term
monitoring programs at Austin, Minnesota, Farmington, Minnesota, Miles City,
Montana, and Milwaukee, Wisconsin.
At December 31, 1997 Heartland's aggregate allowance for claims and liabilities
for these sites was approximately $187,000.
In December 1989, the Minnesota Pollution Control Agency ("MPCA") added a site
which includes the Company's Pig's Eye Yard site in St. Paul, Minnesota to its
Permanent List of Priorities based on historical records and an initial
investigation of soil and groundwater conditions adjacent to Pig's Eye Yard.
Portions of this site had been leased to the City of St. Paul for a landfill and
to the Metropolitan Waste Control Commission for disposal of incinerator ash.
The site, which includes portions of the adjacent municipal waste water
treatment plant, was placed on the Superfund Accelerated Clean Up Model list in
1993. No potentially responsible parties ("PRPs") have been formally named at
this site.
The Company has an interest in property at Moses Lake, Washington previously
owned and used by the United States government as an Air Force base. Sampling
by the Army Corps of Engineers has indicated the presence of various regulated
materials, primarily in the groundwater, which were most likely released as a
result of military or other third party operations. A portion of the Company's
property is located over a well field which was placed on the national priority
list in October 1992. The Company has not been named as a PRP.
The Company is voluntarily investigating the environmental condition of a
property in Minneapolis, Minnesota in connection with a contract to sell the
property. The investigation has indicated certain metal impacts in the soil and
groundwater. The Company's best estimate at this time is that the remediation
construction may cost between $425,000 and $881,000. The contract sale price is
$730,000.
At December 31, 1997 Heartland's aggregate allowance for claims and liabilities
for these sites was approximately $472,000.
In addition to the environmental matters set forth above, there may be other
properties, i), with environmental liabilities not yet known to the Company, or
ii), with potential environmental liabilities for which the Company has no
reasonable basis to estimate or, iii), which the Company believes the Company is
not reasonably likely to ultimately bear the liability, but the investigation or
remediation of which may require future expenditures. Management is not able to
express an opinion at this time whether the environmental expenditures for these
properties will or will not be material.
The Company has given notice to its insurers of certain of the Company's
environmental liabilities. Due to the high deductibles on these policies, the
Company has not yet demanded that any insurer indemnify or defend the Company.
Consequently, management has not formed an opinion regarding the legal
sufficiency of the Company's claims for insurance coverage.
The Company is also subject to other suits and claims which have arisen in the
ordinary course of business. In the opinion of management, reasonably possible
losses from these matters should not be material to the
<PAGE>
Heartland Partners L.P.
Notes to Consolidated Financial Statements - (continued)
Company's results of operations or financial condition.
9. Compensation and Benefits
An employment agreement with the President and Chief Executive Officer of CMC
provided for a base salary of $350,000 per year through July 1, 1995, all or a
portion of which could be deferred at the officer's election. On July 2, 1995,
CMC entered into a new employment agreement with the President and Chief
Executive Officer, which provided for an annual base salary of $350,000 through
August 15, 1995 and $275,000 from August 16, 1995 through July 2, 2000, all or a
portion of which may be deferred at the officer's election. On January 2, 1998,
the term of Mr. Jacobson's agreement was extended until May 30, 2002. The
contract provides incentive compensation equal to 10% of the value of all
amounts distributed to Unitholders and the holder of the Class B Interest in
excess of the "Capital Amount" as defined. The Capital Amount approximates the
average market value of the Units for the first 30 trading days after the
Distribution Date, subject to adjustment as set forth in the contract. During or
after the term of employment, incentive payments will be made with respect to
distributions by Heartland during Heartland's term of existence, and if
distributions are made subsequent to such officer's death, payments will be made
to his designee or estate. The contract also provides that in the event of a
"change of control of Heartland" during or after the term of employment, the
officer shall receive a lump sum payment of $1,250,000.
Heartland sponsors a Group Savings Plan, which is a salary reduction plan
qualified under Sections 401(a) and 401(k) of the Internal Revenue Code of 1986.
All full-time permanent employees of Heartland are eligible to participate in
the plan. A participating employee can authorize contributions to the plan in
the form of salary reductions of up to the maximum allowed by the Internal
Revenue Code in any plan year. Heartland makes matching contributions of 50% of
each participant's contribution to the plan. Employees are fully vested with
respect to salary reduction and Heartland's contributions. Benefits are
normally distributed upon retirement (on or after age 65), death or termination
of employment, but may be distributed prior to termination of employment upon
showing of financial hardship. Heartland contributed to the plan approximately
$60,000 in 1997, $65,000 in 1996, and $66,000 in 1995 on behalf of all
employees.
10. Marketable Securities
The following is a summary of marketable securities:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
(in thousands)
<S> <C> <C> <C> <C>
December 31, 1997
U.S. Treasury securities an obligations of U.S.
government agencies........................ $ 143 $ --- $(2) $ 141
------ ------ ---- ------
Total marketable securities, December 31, 1997.. $ 143 $ --- $(2) $ 141
====== ====== ==== ======
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
December 31, 1996
U.S. Treasury securities and obligations of U.S.
government agencies........................ $4,761 $ --- $(2) $4,759
------ ------ ---- ------
Total marketable securities, December 31, 1996.. $4,761 $ --- $(2) $4,759
====== ====== ==== ======
</TABLE>
At December 31, 1997 and 1996 all marketable securities were classified as
available-for-sale. Proceeds from sale and maturities of debt securities during
1997, 1996, and 1995, were $9,015,000, $27,238,000 and $10,438,000,
respectively. The gain on sale of securities in 1997 was approximately $3,000.
Proceeds from sales in 1996 and 1995 approximated cost for all securities at the
date of sale. The net adjustment to unrealized holding gains (losses) on
marketable securities included as a separate component of partners' capital was
$0, $(44,000) and $394,000 for the years ended December 31, 1997, 1996, and
1995, respectively.
The cost and estimated fair value of debt securities at December 31, 1997, by
contractual maturity are shown below. Actual maturities may differ from
contractual maturities because the issuers of the securities may have the right
to prepay obligations without prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
--------- ---------
(in thousands) (in thousands)
<S> <C> <C>
Due in one year or less.................. $143 $141
Due after one year through three years... --- ---
Due after three years.................... --- ---
---- ----
Total............................... $143 $141
==== ====
</TABLE>
<PAGE>
SCHEDULE II
HEARTLAND PARTNERS, L.P.
VALUATION AND QUALIFYING ACCOUNTS
For The Years Ended December 31, 1997, 1996 AND 1995
(amounts in thousands)
<TABLE>
<CAPTION>
Additions
Description Balance at charged to Deductions Balance
beginning costs and at end
of year expenses of year
- - ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1997:
Allowance for claims and liabilities... $2,660 $ 78 $ (569))(a) $2,169
====== ====== ============= ======
Year Ended December 31, 1996:
Allowance for claims and liabilities... $2,492 $1,141 $ (973)(a) $2,660
====== ====== ============= ======
Year Ended December 31, 1995:
Allowance for claims and liabilities... $1,895 $1,860 $ (1,263)(a) $2,492
====== ====== ============= ======
</TABLE>
Note: (a) Payments
<PAGE>
SCHEDULE III
HEARTLAND PARTNERS, L.P.
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1997
(amounts in thousands)
<TABLE>
<CAPTION>
Gross Amount at Which
Cost Capitalized Carried
Initial Cost to Subsequent at Close of Period
Heartland to Acquisition (1)
---------------------- ------------------------- ---------------------------------
Building,
Buildings & Carrying Improvement and
Description Land Improvements Improvements(3) Costs(4) Land and Carrying Costs Total
- - ----------- -------- ------------ --------------- -------- ------- ------------------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Developable Sites
Chicago, IL....................(7) $ 4,434 $ 1 $ 2,111(6) $ 1,685 $ 4,434 $ 3,797 $ 8,231
Milwaukee, WI.................. 803 939 1,299(6) 971 803 3,209 4,012
Fife, WA....................... 2,573 -- 198 232 2,573 430 3,003
Rosemount, MN.................. 956 -- 865 407 956 1,272 2,228
Osprey.........................(8) 1,342 -- 2,750 -- 1,342 2,750 4,092
Other developable properties
less than 5% of total.......... 63 -- 142 38 63 180 243
-------- ------- ---------- -------- ------- ----------- -------
Total developable
properties..................... 10,171 940(5) 7,365 3,333 10,171 11,638 21,809
-------- ------- ---------- -------- ------- ----------- -------
Sale Properties................ 1,163 -- 10(5) 1,163 10 1,173
-------- ------- ---------- -------- ------- ----------- -------
TOTAL $ 11,334 $ 940 $ 7,375 $ 3,333 $11,334 $ 11,648 $22,982
======== ======= ========== ======== ======= =========== =======
<CAPTION>
Life On
Which
Depreciation
In Latest
Date of Income
Accumulated Completion of Date Statement
Depreciation Construction Acquired Is Computed
-------------- --------------- ---------- --------------
<S> <C> <C> <C> <C>
Developable Sites
Chicago, IL....................(7) $ 15 Various Various (2)
Milwaukee, WI.................. 423 Various Various (2)
Fife, WA....................... -- Various Various
Rosemount, MN.................. -- N/A Various
Osprey.........................(8) -- N/A Various
Other developable properties
less than 5% of total.......... -- N/A Various
----------
Total developable
properties..................... 438
----------
Sale Properties................ 2 Various Various
----------
TOTAL $ 440
==========
</TABLE>
(1) See Attachment A to Schedule III for reconciliation of beginning of period
total to total at end of period.
(2) Reference is made to Note 2 to the Consolidated Financial Statements for
information related to depreciation.
(3) Improvements include all costs which increase the net realizable value of
the property except carrying costs.
(4) Carrying costs consists primarily of legal fees and real estate taxes.
(5) These amounts are included in Buildings and other on the Consolidated
Balance Sheet. Also included in the amount shown on the Consolidated
Balance Sheet for Buildings and other is furniture and equipment of $1,021,
with related accumulated depreciation of $367.
(6) These amounts include a total of $32 that is included in Buildings and
other on the Consolidated Balance Sheet.
(7) Includes certain parcels of land encumbered by a $2,000,000 short-term loan
(See Note 4 to the Consolidated Financial Statements).
(8) Includes parcels of land encumbered by a $1,750,000 short-term loan (See
Note 4 to the Consolidated Financial Statements).
<PAGE>
HEARTLAND PARTNERS, L.P.
ATTACHMENT A TO SCHEDULE III
RECONCILIATION OF COST OF REAL ESTATE AT BEGINNING
OF YEAR WITH TOTAL AT END OF YEAR
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Balance at January 1......... $21,280 $20,903 $20,700
------- ------- -------
Additions during year:
Other acquisitions......... 1,125 663 ---
Improvements................. 3,987 1,388 919
------- ------- -------
Total Additions............. 5,112 2,051 919
------- ------- -------
Deductions during year:
Cost of real estate sold... 3,410 1,674 716
------- ------- -------
Total deductions......... 3,410 1,674 716
------- ------- -------
Balance at December 31....... $22,982 $21,280 $20,903
======= ======= =======
</TABLE>
Reconciliation Of Real Estate Accumulated Depreciation
At Beginning of Year with Total At End of Year
(In Thousands)
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Balance at January 1........ $ 382 $ 323 $ 264
----- ----- -----
Additions during year:
Charged to Expense........ 61 59 59
----- ----- -----
Total Additions......... 61 59 59
----- ----- -----
Deductions during year:
Cost of real estate sold.. 3 --- ---
----- ----- -----
Total deductions........ 3 --- ---
----- ----- -----
Balance at December 31...... $ 440 $ 382 $ 323
===== ===== =====
</TABLE>
