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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 10, 2000
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Heartland Technology, Inc.
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(Exact name of registrant as specified in its charter)
Delaware
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(State or other jurisdiction of incorporation or organization)
1-11956 36-1487580
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(Commission File Number) (I.R.S. Employer Identification No.)
547 West Jackson Boulevard, Chicago, Illinois 60661
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (312) 294-0497
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Item 2. Acquisition or Disposition of Assets
On May 10, 2000, Heartland Technology, Inc. ("Company") issued a press release
announcing the formation of Zecal Technology, LLC. A copy of the press release
is enclosed as Exhibit 99.01 and is incorporated herein.
Item 7. Financial Statements and Exhibits
(c) Exhibits
Exhibit No. Description
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99.01 Press release of Heartland Technology, Inc. dated May 10, 2000
99.02 Form of Collateral Pledge Agreement between HTI Z Corp (formerly
known as Zecal Corp.) and Wells Fargo Business Credit, Inc. filed
herewith.
99.03 Form of Fifth Amendment to Credit and Security Agreement between
P.G. Design Electronics, Inc. and Wells Fargo Business Credit,
Inc. filed herewith.
99.04 Form of Asset Purchase Placement among Heartland Technology,
Inc., Zecal Corp. and Zecal Technology, LLC filed herewith.
99.05 Form of Limited Liability Company Agreement between Zecal Corp.
and LZ Partners, LLC filed herewith.
99.06 Form of Members Agreement between Zecal Technology, LLC and each
of the members listed on the Schedule of Members filed herewith.
99.07 Form of Management Services Agreement between Heartland
Technology, Inc. and Zecal Technology, LLC filed herewith.
99.08 Form of Registration Agreement among Zecal Technology, LLC; LZ
Partners, LLC; and Zecal Corp. filed herewith.
99.09 Form of Replacement Guarantee by Corporation by HTI Z Corp. for
the benefit of Wells Fargo Business Credit, Inc. filed herewith.
99.10 Form of Replacement Security Agreement between HTI Z Corp.
(formerly know as Zecal Corp.) and Wells Fargo Business Credit,
Inc. filed herewith.
99.11 Form of By-laws of Zecal Technology, LLC filed herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
HEARTLAND TECHNOLOGY, INC.
Date: May 24, 2000 By: /s/ Richard P. Brandstatter
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Richard P. Brandstatter
Vice President - Finance
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EXHIBIT INDEX
Exhibit No. Description
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99.01 Press release of Heartland Technology, Inc. dated May 10, 2000
99.02 Form of Collateral Pledge Agreement between HTI Z Corp (formerly
known as Zecal Corp.) and Wells Fargo Business Credit, Inc. filed
herewith.
99.03 Form of Fifth Amendment to Credit and Security Agreement between
P.G. Design Electronics, Inc. and Wells Fargo Business Credit,
Inc. filed herewith.
99.04 Form of Asset Purchase Placement among Heartland Technology,
Inc., Zecal Corp. and Zecal Technology, LLC filed herewith.
99.05 Form of Limited Liability Company Agreement between Zecal Corp.
and LZ Partners, LLC filed herewith.
99.06 Form of Members Agreement between Zecal Technology, LLC and each
of the members listed on the Schedule of Members filed herewith.
99.07 Form of Management Services Agreement between Heartland
Technology, Inc. and Zecal Technology, LLC filed herewith.
99.08 Form of Registration Agreement among Zecal Technology, LLC; LZ
Partners, LLC; and Zecal Corp. filed herewith.
99.09 Form of Replacement Guarantee by Corporation by HTI Z Corp. for
the benefit of Wells Fargo Business Credit, Inc. filed herewith.
99.10 Form of Replacement Security Agreement between HTI Z Corp.
(formerly know as Zecal Corp.) and Wells Fargo Business Credit,
Inc. filed herewith.
99.11 Form of By-laws of Zecal Technology, LLC filed herewith.
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Exhibit 99.01
Heartland Technology and LZ Partners Form Zecal Technology
CHICAGO, May 10 -- Edwin Jacobson, President and CEO of Heartland Technology,
Inc. and Neil G. Bluhm, managing partner of LZ Partners, announced today the
formation of Zecal Technology, LLC. HTI is contributing the assets of its Zecal
Corp. subsidiary, including its proprietary Z-Strate(R) technology. LZ Partners
is contributing $4 Million cash to Zecal Technology. HTI and LZ Partners will
each own 50% of Zecal Technology.
Strengthening Zecal's Balance Sheet
"Our program of marketing Z-Strate(R) to original equipment manufacturers for
cellular telephones, cable television equipment, and chip scale packaging uses
in addition to its more traditional industrial markets is on track," said
Jacobson. "One of our goals has been to strengthen Zecal's balance sheet so that
we can meet customer needs as Zecal grows. With LZ Partners' investment, we have
accomplished this. We are pleased to have them as a partner."
Creating An Industry Leader
"We are convinced that Z-Strate(R) technology can meet the needs of advanced
electronics manufacturers for signal integrity, power consumption, density,
reliability and price," said Bluhm. "We look forward to building the industry
leader in the design and supply of ceramic substrates."
Z-Strate(R) is a proprietary process for plating pure copper circuits on a
ceramic substrate. The Z-Strate(R) process achieves a very strong bond between
the circuit and the substrate. The resulting product features very fine lines
and spaces, and excellent thermal and RF properties. The end products are
receiving great acceptance in the electronics industry.
Building Strong Customer Base
Zecal's production customers include Texas Instruments Power Trends Products,
Danfoss, Artesyn Technologies, a broadband power amplifier manufacturer, and a
semiconductor manufacturer for which Zecal is making a chip scale package. Zecal
has introduced refinements to the Z-Strate(R) process to improve its application
in the radio frequency ("RF") wireless and broadband telecommunications markets.
RF applications include wireless communications products such as cellular
telephone handsets, cellular phone base stations, satellite phones and coaxial
and fiber-optic cable television ("CATV") distribution systems. The company,
located in Churchville, N.Y., is also seeking to exploit the potential market
for Z-Strate(R) in applications involving extreme environments such as "down
hole" electronics for the oil well drilling industry and under-hood automotive
electronics.
Prototypes and prototype customers include a semiconductor package for a major
telecom manufacturer, a down hole (oil drilling) equipment manufacturer, a
manufacturer of RF semiconductor devices for use in cell tower radios, a
manufacturer of SAW filter devices for cell phones, a manufacturer of cell phone
911 GPS modules, a RF ball grid array for telecommunications application and a
high power amplifier substrate for cell tower application for use in CDMA
systems.
Jack Smith, formerly VP-Strategic Development of Heartland Technology and Chief
Operating Officer of Zecal Corp., has been appointed President and CEO of Zecal
Technology LLC. Mr. Smith holds a BS degree from MIT and a PhD in solid state
physics from the University of
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Illinois. Prior to joining Heartland Technology he held technology management
positions with IBM and Data General Corp.
LZ Partners is an investment partnership comprised of the Bluhm family, founding
partners in the JMB and Walton Street real estate firms, Talon Asset Management,
an investment management, and venture capital firm based in Chicago, and several
high net-worth individuals.
Heartland Technology, Inc., primarily through its subsidiaries PG Design
Electronics, Inc., Solder Station-One, Inc. and Zecal Corp., designs and
manufactures electronics assemblies primarily for computer and computer printer
manufacturers; manufactures circuit boards using patented Z-Strate(R) technology
primarily for telecommunications, industrial and automotive manufacturers; and
provides services to printed circuit board manufacturers.
The Company's strategy is to focus on high margin segments of the electronics
manufacturing and printed circuit board industries. Heartland Technology also
holds general partner interests in real estate partnerships including and
related to Heartland Partnership L.P.
Management's discussion and analysis of financial condition and results of
operations in the press release contain certain statements which may 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.
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EXHIBIT 99.02
COLLATERAL PLEDGE AGREEMENT
Date: May _____, 2000
DEBTOR: HTI Z Corp.
547 West Jackson Boulevard
Suite 1510
Chicago, Illinois 60661
Facsimile No. 312/663-9397
Attention: Lawrence S. Adelson
SECURED PARTY: Wells Fargo Business Credit, Inc.
100 East Wisconsin Avenue, Suite 1400
MAC N9811-143
Milwaukee, Wisconsin 53202
Facsimile: 414/224-7439
1. Security Interest and Collateral. To secure the payment and
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performance of each and every debt, liability and obligation of every type and
description which the Debtor may now or at any time hereafter owe to the Secured
Party pursuant to its guaranty of the obligations of P. G. Design Electronics,
Inc. (the "Borrower") to the Secured Party as evidenced by its Replacement
Guaranty by Corporation dated as of the date hereof (whether such debt,
liability or obligation now exists or is hereafter created or incurred, and
whether it is or may be direct or indirect, due or to become due, absolute or
contingent, primary or secondary, liquidated or unliquidated, or joint, several
or joint and several; all such debts, liabilities and obligations being herein
collectively referred to as the "Obligations"), the Debtor hereby grants the
Secured Party a security interest (herein called the "Security Interest") in all
of the ownership interests of the Debtor in Zecal Technology, LLC ("New Zecal"),
including, without limitation, the Common Company Interests of the Debtor in New
Zecal, together with all rights in connection with such property and all
substitutions and replacements for any of the foregoing, and together with
proceeds of any and all of the foregoing (herein called the "Collateral").
2. Representations, Warranties and Covenants. The Debtor represents,
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warrants and covenants that:
(a) The Debtor will duly endorse, in blank, each and every instrument
constituting Collateral by signing on said instrument or by signing a
separate document of assignment or transfer, if required by the Secured
Party.
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(b) The Debtor is the owner of the Collateral free and clear of all
liens, encumbrances, security interests and restrictions, except the
Security Interest, any restrictive legend appearing on any instrument
constituting Collateral and rights, if any, of parties under existing
technology agreements transferred by Debtor to New Zecal.
(c) The Debtor will keep the Collateral free and clear of all liens,
encumbrances and security interests, except the Security Interest.
(d) The Debtor will pay, when due, all taxes and other governmental
charges levied or assessed upon or against any Collateral.
(e) At any time, upon request by the Secured Party, the Debtor will
deliver to the Secured Party all notices, financial statements, reports or
other communications received by the Debtor as an owner or holder of the
Collateral.
(f) The Debtor will upon receipt deliver to the Secured Party in
pledge as additional Collateral all securities distributed on account of
the Collateral (or substitute Collateral) such as stock dividends and
securities resulting from stock splits, reorganizations and
recapitalizations.
3. Rights of the Secured Party. The Debtor agrees that the Secured Party
---------------------------
may at any time, whether before or after the occurrence of an Event of Default
and without notice or demand of any kind, (i) notify the obligor on or issuer of
any Collateral to make payment to the Secured Party of any amounts due or
distributable thereon, (ii) in the Debtor's name or the Secured Party's name
enforce collection of any Collateral by suit or otherwise, or surrender, release
or exchange all or any part of it, or compromise, extend or renew for any period
any obligation evidenced by the Collateral, (iii) receive all proceeds of the
Collateral, and (iv) hold any increase or profits received from the Collateral
as additional security for the Obligations, except that any money received from
the Collateral shall, at the Secured Party's option, be applied in reduction of
the Obligations, in such order of application as the Secured Party may
determine, or be remitted to the Debtor.
4. Events of Default. Each of the following occurrences shall constitute
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an event of default under this Agreement (herein called "Event of Default"): (i)
the Debtor shall fail to observe or perform any covenant or agreement herein
binding on it; (ii) any representation or warranty by the Debtor set forth in
this Agreement or made to the Secured Party in any financial statements or
reports submitted to the Secured Party by or on behalf of the Debtor shall prove
materially false or misleading; (iii) an Event of Default, as defined in that
certain Credit and Security Agreement dated December 31, 1998, as amended,
between the Secured Party and the Borrower, shall occur.
5. Remedies upon Event of Default. Upon the occurrence of an Event of
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Default and at any time thereafter during the continuation thereof, the Secured
Party may exercise any one or more of the following rights or remedies: (i)
declare all unmatured Obligations to
2.
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be immediately due and payable, and the same shall thereupon be immediately due
and payable, without presentment or other notice or demand; (ii) exercise all
voting and other rights as a holder of the Collateral; (iii) exercise and
enforce any or all rights and remedies available upon default to a secured party
under the Uniform Commercial Code as in effect from time to time in the State of
Wisconsin, including the right to offer and sell the Collateral privately to
purchasers who will agree to take the Collateral for investment and not with a
view to distribution and who will agree to the imposition of restrictive legends
on the certificates representing the Collateral, and the right to arrange for a
sale which would otherwise qualify as exempt from registration under the
Securities Act of 1933; and if notice to the Debtor of any intended disposition
of the Collateral or any other intended action is required by law in a
particular instance, such notice shall be deemed commercially reasonable if
given at least ten (10) calendar days prior to the date of intended disposition
or other action; (iv) exercise or enforce any or all other rights or remedies
available to the Secured Party by law or agreement against the Collateral,
against the Debtor or against any other person or property.
6. Release of Collateral. Upon repayment in full of all of the
---------------------
Obligations, this Agreement shall terminate and the Secured Party, at the
request and expense of the Debtor, will promptly execute and deliver to the
Debtor a proper instrument or instruments (including Uniform Commercial Code
termination statements on form UCC-3) acknowledging the satisfaction and
termination of this Agreement, and will duly assign, transfer and deliver to the
Debtor (without recourse and without representation and warranty) such of the
Collateral as may be in the possession of the Secured Party and has not
theretofore been sold or otherwise applied or released pursuant to this
Agreement.
7. Miscellaneous. Any disposition of the Collateral in the manner
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provided in Section 5 shall be deemed commercially reasonable. This Agreement
can be waived, modified, amended, terminated or discharged, and the Security
Interest can be released, only explicitly in a writing signed by the Secured
Party. A waiver signed by the Secured Party shall be effective only in the
specific instance and for the specific purpose given. Mere delay or failure to
act shall not preclude the exercise or enforcement of any of the Secured Party's
rights or remedies. All rights and remedies of the Secured Party shall be
cumulative and may be exercised singularly or concurrently, at the Secured
Party's option, and the exercise or enforcement of any one such right or remedy
shall neither be a condition to nor bar the exercise or enforcement of any
other. All notices to be given to the Debtor shall be deemed sufficiently given
if delivered or mailed by registered or certified mail, postage prepaid, or by
facsimile to the Debtor at its address or facsimile number, as the case may be,
set forth above or at the most recent address or facsimile number shown on the
Secured Party's records. The Secured Party's duty of care with respect to
Collateral in its possession (as imposed by law) shall be deemed fulfilled if
the Secured Party exercises reasonable care in physically safekeeping such
Collateral or, in the case of Collateral in the custody or possession of a
bailee or other third person, exercises reasonable care in the selection of the
bailee or other third person, and the Secured Party need not otherwise preserve,
protect, insure or care for any Collateral. The Secured Party shall not be
obligated to preserve any rights the Debtor may have against prior parties, to
exercise at all or in any particular manner any voting rights
3.
<PAGE>
which may be available with respect to any Collateral, to realize on the
Collateral at all or in any particular manner or order, or to apply any cash
proceeds of Collateral in any particular order of application. The Debtor will
reimburse the Secured Party for all expenses (including reasonable attorneys'
fees and legal expenses) incurred by the Secured Party in the protection,
defense or enforcement of the Security Interest, including expenses incurred in
any litigation or bankruptcy or insolvency proceedings. This Agreement shall be
binding upon and inure to the benefit of the Debtor and the Secured Party and
their respective heirs, representatives, successors and assigns and shall take
effect when signed by the Debtor and delivered to the Secured Party, and the
Debtor waives notice of the Secured Party's acceptance hereof. If any provision
or application of this Agreement is held unlawful or unenforceable in any
respect, such illegality or unenforceability shall not affect other provisions
or applications which can be given effect, and this Agreement shall be construed
as if the unlawful or unenforceable provision or application had never been
contained herein or prescribed hereby. All representations and warranties
contained in this Agreement shall survive the execution, delivery and
performance of this Agreement and the creation and payment of the Obligations.
If this Agreement is signed by more than one person as the Debtor, the term
"Debtor" shall refer to each of them separately and to both or all of them
jointly; all such persons shall be bound both severally and jointly with the
other(s); and the Obligations shall include all debts, liabilities and
obligations owed to the Secured Party by any Debtor solely or by both or several
or all Debtors jointly or jointly and severally, and all property described in
Section 1 shall be included as part Collateral, whether it is owned jointly by
both or all Debtors or is owned in whole or in part by one (or more) of them.
This Agreement shall be governed by the internal laws (other than conflict laws)
of the State of Wisconsin and, unless the context otherwise requires, all terms
used herein which are defined in Articles 1, 8 and 9 of the Uniform Commercial
Code, as in effect in Wisconsin, shall have the meanings therein stated. Each
party consents to the personal jurisdiction of the state and federal courts
located in the State of Wisconsin in connection with any controversy related to
this Agreement, waives any argument that venue in any such forum is not
convenient, and agrees that any litigation initiated by any of them in
connection with this Agreement shall be venued in either the Circuit Court of
Milwaukee County, Wisconsin, or the United States District Court, East District
of Wisconsin.
THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING
BASED ON OR PERTAINING TO THIS AGREEMENT.
HTI Z CORP.
By: _______________________________
Its: President
4.
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EXHIBIT 99.03
FIFTH AMENDMENT TO CREDIT AND
SECURITY AGREEMENT
THIS FIFTH AMENDMENT TO CREDIT AND SECURITY AGREEMENT ("Amendment"),
dated as of May __, 2000, is made by and between P.G. DESIGN ELECTRONICS, INC.,
a Delaware corporation (the "Borrower") and WELLS FARGO BUSINESS CREDIT, INC., a
Minnesota corporation formerly known as NORWEST BUSINESS CREDIT, INC. (the
"Lender").
RECITALS:
The Borrower and Lender have entered into a Credit and Security
Agreement dated as of December 31, 1998, as amended (the "Credit Agreement").
Capitalized terms used in this Amendment have the meanings given to them in the
Credit Agreement unless otherwise specified.
The Borrower has requested certain amendments be made to the Credit
Agreement, which the Lender is willing to make pursuant to the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and mutual covenants
and agreements herein contained, it is agreed as follows:
1. Definition of Security Documents. The definition of "Security
--------------------------------
Documents" in the Credit Agreement is hereby amended and restated as follows:
"Security Documents" means this Agreement, the Collateral
Account Agreement, the Lockbox Agreement, the Newco
Guaranty, the Newco Security Agreement, the Old Zecal Pledge
Agreement, the Replacement Security Documents, and any other
document delivered to the Lender from time to time to secure
the Obligations, as the same may hereafter be amended,
supplemented or restated from time to time.
2. Proposed Zecal Reorganization. Reference is made to Section 7.6
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of the Credit Agreement. Borrower has given Lender prior notice of the planned
transactions (the "Proposed Zecal Reorganization") whereby Zecal shall sell all
of its assets to Zecal Technology, LLC ("Newco") in return for (i) common
ownership interests of Newco initially representing 50% of Newco's total
ownership interests and (ii) Newco's execution and delivery of that certain
Letter Agreement attached hereto as Exhibit A (the "Letter Agreement"), by and
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between Newco and Lender pursuant to which, among other matters, Newco will
guaranty (the "Newco Guaranty") the lesser of (a) $1,450,000 of Borrower's
Obligations pursuant to the Credit Agreement or (b) the remaining balance of
Borrower's Obligations pursuant to the Credit Agreement, which guaranty
obligation shall in either case be reduced on a dollar for dollar basis to the
extent of any proceeds
<PAGE>
paid to Lender pursuant to Section 6.14 of the Credit Agreement, as amended
hereby. In addition, pursuant to the Letter Agreement, Newco and Lender shall
enter into a security agreement (the "Newco Security Agreement") pursuant to
which, to secure Newco's obligations under the Newco Guaranty, Newco shall grant
to Lender a first priority security interest in all equipment conveyed by Zecal
to Newco pursuant to the Proposed Zecal Reorganization. Contemporaneously with
the consummation of the Proposed Zecal Reorganization, Zecal shall change its
name to "HTI Z Corp".
3. Amendment of Section 6.14. Section 6.14 of the Credit Agreement
-------------------------
is amended and restated as follows:
"Section 6.14. Receipt of Proceeds on Zecal's Investment in
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Newco. In the event Zecal receives any cash proceeds on account
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of its ownership interest in Newco (whether by sale, distribution
or otherwise), the Borrower shall cause to be paid to Lender for
application to the Obligations, in any order or manner of
application satisfactory to the Lender, the lesser of (i) the
amount of the proceeds received up to $1,450,000 or (ii) the
remaining balance of the Obligations."
4. Agreements Regarding Section 7.6. Lender acknowledges and agrees
--------------------------------
that, prior to giving any effect to the amendment of Section 7.6 effected
hereby:
(a) the consummation of the Proposed Zecal Reorganization shall be
deemed to be a transfer of property for present receipt of full and adequate
consideration, as required by Section 7.6 of the Credit Agreement;
(b) the consummation of the Proposed Zecal Reorganization as
described in Section 2 of this Amendment satisfies the requirements of Section
7.6(a) of the Credit Agreement;
(c) the conditions of Section 7.6(b)(i) and Section 7.6(b)(iv) of the
Credit Agreement have been satisfied; and
(d) the conditions of Section 7.6(b)(ii) of the Credit Agreement
shall be deemed satisfied solely by (i) the pledge of 100% of Zecal's ownership
interests in Newco (as evidenced by the Pledge Agreement executed and delivered
by Zecal in favor of Lender on or about the date hereof, and referred to as the
"Old Zecal Pledge Agreement"), (ii) Newco's execution and delivery of the Newco
Guaranty and (iii) Newco's execution and delivery of the Newco Security
Agreement, and, except to the extent described in the Newco Guaranty and the
Newco Security Agreement, Lender shall have no rights or interests in any of the
assets of Newco and no rights or interests in any ownership interests of any
other owner of Newco other than Zecal.
5. Amendment of Section 7.6. Section 7.6 of the Credit Agreement
------------------------
shall be amended as follows:
(a) except to the extent described in the Newco Guaranty and the
Newco Security Agreement, Section 7.6(b)(iii) of the Credit Agreement shall be
deleted and of no further force and
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<PAGE>
effect, and Newco shall have no obligation to assume (i) Zecal's obligations to
the Borrower for amounts lent to Zecal by the Borrower or (ii) Zecal's
obligations to Lender pursuant to Zecal's guaranty in favor of Lender; and
(b) Section 7.6(v) of the Credit Agreement shall be deleted in its
entirety and replaced with the following: "in the event Zecal receives any cash
proceeds on account of its ownership interest in Newco (whether by sale,
distribution or otherwise), the Borrower shall pay over such proceeds in
accordance with Section 6.14 hereof.".
6. Termination of Certain Security Interests; Transfer of Assets
-------------------------------------------------------------
Free of Zecal Liens. Except for the pledge of Zecal's ownership interests in
- -------------------
Newco pursuant to the Old Zecal Pledge Agreement, upon the effectiveness of this
Amendment, Lender hereby terminates and releases all of its security interests
in Zecal's assets which are being transferred to Newco, including, without
limitation, any security interests granted or evidenced by: (i) that certain
Security Agreement dated as of December 31, 1998, as amended, between Zecal and
Lender, (ii) any financing statement executed by Zecal in favor of Lender,
including, without limitation, those financing statements set forth on Annex 1
attached hereto, (iii) that certain Collateral Account Agreement dated as of
December 31, 1998, as amended, among Zecal, Lender and Norwest Bank Wisconsin,
National Association, (iv) that certain Agreement As To Lockbox Service, dated
as of December 31, 1998, as amended, among Zecal, Lender and Norwest Bank
Wisconsin, National Association and (v) that certain Waiver and Consent dated
August 24, 1998, as amended, by and between County of Monroe Industrial
Development Agency, Empire State Development Corporation, Zecal and General
Electric Capital Corporation, as assigned to Lender pursuant to that certain
undated Assignment of Waiver and Consent, between General Electric Capital
Corporation and Lender (any of the security interests described in this sentence
referred to herein as the "Zecal Security Interests"). Upon the effectiveness of
this Amendment, Lender shall deliver to Newco executed UCC termination
statements and such other documents as may be necessary to terminate and release
all of the Zecal Security Interests.
As a result of the aforementioned security interest termination, as part of
the Proposed Zecal Reorganization, Zecal may transfer all of its assets to
Newco, free and clear of any and all liens or encumbrances of any kind or nature
granted by Zecal to Lender on or prior to the date hereof, including, without
limitation, (i) any assets previously subject to any of the Zecal Security
Interests and (ii) the equipment described in the Newco Security Agreement.
7. Replacement Guaranty and Security Agreement. In connection with
-------------------------------------------
Zecal's change of corporate name to "HTI Z Corp." and the termination of the
Zecal Security Interests, Zecal and Lender shall contemporaneously herewith
enter into replacement security documents and a replacement guaranty (the
"Replacement Security Documents"), and such Replacement Security Documents shall
constitute "Security Documents" under the Credit Agreement.
8. No Other Changes. Except as explicitly amended by this Amendment,
----------------
all of the terms and conditions of the Credit Agreement shall remain in full
force and effect and shall apply to any advance or letter of credit thereunder.
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<PAGE>
9. Conditions Precedent. This Amendment shall be effective when the
--------------------
Lender shall have received an executed original hereof, together with each of
the following, each in form and substance satisfactory to Lender:
(a) The Letter Agreement.
(b) The Newco Guaranty.
(c) The Newco Security Agreement and evidence of insurance of the
collateral required therein.
(d) Certificate of Secretary of Limited Liability Company Guarantor
and all attachments thereto.
(e) Evidence that Lender's security interest in Newco's equipment
granted pursuant to the Newco Security Agreement has been perfected.
(f) The Old Zecal Pledge Agreement and the Replacement Security
Documents and evidence that Lender's security interests in Old Zecal's assets
has been perfected.
(g) The Acknowledgment and Agreement of Guarantors set forth at the
end of this Amendment, duly executed by each Guarantor.
(h) Executed copies of (i) the definitive asset purchase agreement
evidencing the Proposed Zecal Reorganization (the "Asset Purchase Agreement")
and the bill of sale delivered in connection therewith, (ii) the Members
Agreement delivered in connection with the Asset Purchase Agreement, (iii) the
Limited Liability Company Agreement delivered in connection with the Asset
Purchase Agreement and (iv) evidence of the change in Zecal's corporate name to
"HTI Z Corp."
Upon satisfaction of each of the conditions precedent to the
effectiveness of this Amendment, Lender shall deliver written notice thereof to
Borrower and to Newco.
10. Representations and Warranties. The Borrower hereby represents
------------------------------
and warrants to the Lender as follows:
(a) The Borrower has all requisite power and authority to execute
this Amendment and to perform all of its obligations hereunder, and this
Amendment has been duly executed and delivered by the Borrower and constitutes
the legal, valid and binding obligation of the Borrower, enforceable in
accordance with its terms.
(b) The execution, delivery and performance by the Borrower of this
Amendment has been duly authorized by all necessary corporate action and does
not (i) require any authorization, consent or approval by any governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, (ii) violate any provision of any law, rule or regulation or of any
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<PAGE>
order, writ, injunction or decree presently in effect, having applicability to
the Borrower, or the certificate of incorporation or bylaws of the Borrower, or
(iii) result in a breach of or constitute a default under any indenture or loan
or credit agreement or any other agreement, lease or instrument to which the
Borrower is a party or by which it or its properties may be bound or affected.
(c) All of the representations and warranties contained in Article V
of the Credit Agreement are correct on and as of the date hereof as though made
on and as of such date, except to the extent that such representations and
warranties relate solely to an earlier date.
11. References. All references in the Credit Agreement to "this
----------
Agreement" shall be deemed to refer to the Credit Agreement as amended hereby;
and any and all references in the Security Documents to the Credit Agreement
shall be deemed to refer to the Credit Agreement as amended hereby.
12. No Waiver. The execution of this Amendment and acceptance of any
---------
documents related hereto shall not be deemed to be a waiver of any Default or
Event of Default under the Credit Agreement or breach, default or event of
default under any Security Document or other document held by the Lender,
whether or not known to the Lender and whether or not existing on the date of
this Amendment.
13. Release. The Borrower, and each Guarantor by signing the
-------
Acknowledgment and Agreement of Guarantors set forth below, each hereby
absolutely and unconditionally releases and forever discharges the Lender, and
any and all participants, parent corporations, subsidiary corporations,
affiliated corporations, insurers, indemnitors, successors and assigns thereof,
together with all of the present and former directors, officers, agents and
employees of any of the foregoing, from any and all claims, demands or causes of
action of any kind, nature or description, whether arising in law or equity or
upon contract or tort or under any state or federal law or otherwise, which the
Borrower or such Guarantor has had, now has or has made claim to have against
any such person for or by reason of any act, omission, matter, cause or thing
whatsoever arising from the beginning of time to and including the date of this
Amendment, whether such claims, demands and causes of action are matured or
unmatured or known or unknown.
14. Costs and Expenses. The Borrower hereby reaffirms its agreement
------------------
under the Credit Agreement to pay or reimburse the Lender on demand for all
costs and expenses incurred by the Lender in connection with the Credit
Agreement, the Security Documents and all other documents contemplated thereby,
including without limitation all reasonable fees and disbursements of legal
counsel. Without limiting the generality of the foregoing, the Borrower
specifically agrees to pay all fees and disbursements of counsel to the Lender
for the services performed by such counsel in connection with the preparation of
this Amendment and the documents and instruments incidental hereto (including,
without limitation, the Letter Agreement, the Newco Guaranty and the Newco
Security Agreement). The Borrower hereby agrees that the Lender may, at any time
or from time to time in its sole discretion and without further authorization by
the Borrower, make a loan to the Borrower under the Credit Agreement, or apply
the proceeds of any loan, for the purpose of paying any such fees,
disbursements, costs and expenses.
-5-
<PAGE>
15. Miscellaneous. This Amendment and the Acknowledgment and
-------------
Agreement of Guarantors may be executed in any number of counterparts, each of
which when so executed and delivered shall be deemed an original and all of
which counterparts, taken together, shall constitute one and the same
instrument.
16. Third Party Beneficiary. Each of the parties hereto acknowledges
-----------------------
and agrees that Zecal Technology, LLC shall be a third party beneficiary of this
Amendment and shall be entitled to enforce its rights and benefits conferred
hereunder.
* * * * * *
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed as of the date first written above.
WELLS FARGO BUSINESS CREDIT, INC. P.G. DESIGN ELECTRONICS, INC.
By: _______________________________ By: _____________________________
Its: _______________________________ Its: _____________________________
<PAGE>
ACKNOWLEDGMENT AND AGREEMENT OF GUARANTORS
The undersigned, each a guarantor of the indebtedness of P.G. Design
Electronics, Inc. (the "Borrower") to Wells Fargo Business Credit, Inc.,
formerly known as Norwest Business Credit, Inc. (the "Lender") pursuant to a
separate Guaranty (in the case of Heartland Technology, Inc., dated December 31,
1998 and, in the case of HTI Z Corp., dated on or about May __, 2000) (each a
"Guaranty"), hereby (i) acknowledges receipt of the foregoing Amendment; (ii)
consents to the terms (including without limitation the release set forth in
paragraph 13 of the Amendment) and execution thereof; (iii) reaffirms its
obligations to the Lender pursuant to the terms of its Guaranty; and (iv)
acknowledges that the Lender may amend, restate, extend, renew or otherwise
modify the Credit Agreement and any indebtedness or agreement of the Borrower,
or enter into any agreement or extend additional or other credit accommodations,
without notifying or obtaining the consent of the undersigned and without
impairing the liability of the undersigned, under its Guaranty for all of the
Borrower's present and future indebtedness to the Lender.
HEARTLAND TECHNOLOGY, INC.
By: _______________________________
Its: _______________________________
HTI Z CORP., formerly known as ZECAL CORP.
By: _______________________________
Its: _______________________________
<PAGE>
ANNEX 1
FINANCING STATEMENTS TO BE TERMINATED
See attached.
-9-
<PAGE>
EXHIBIT 99.04
================================================================================
ASSET PURCHASE AGREEMENT
BY AND AMONG
HEARTLAND TECHNOLOGY, INC.,
ZECAL CORP.,
AND
ZECAL TECHNOLOGY, LLC
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Section 1. Purchase and Sale of Assets................................ 1
1.1 Basic Transaction; Purchased Assets........................ 1
1.2 Excluded Assets............................................ 3
1.3 Assumed Liabilities........................................ 3
1.4 Excluded Liabilities....................................... 4
Section 2. Consideration.............................................. 6
2.1 Total Consideration........................................ 6
2.2 Working Capital Adjustment................................. 6
2.3 Allocation................................................. 7
Section 3. The Closing................................................ 7
3.1 Closing.................................................... 7
3.2 Closing Transactions....................................... 8
Section 4. Conditions to LLC's Obligations............................ 8
Section 5. Conditions to the HTI Companies' Obligation................ 10
Section 6. Covenants Prior to Closing................................. 12
6.1 Affirmative Covenants of Parent and Zecal.................. 12
6.2 Negative Covenants of Parent and Zecal..................... 13
6.3 Covenants of LLC........................................... 13
Section 7. Representations and Warranties of Parent and Zecal......... 14
7.1 Organization and Corporate Power........................... 14
7.2 Subsidiaries; Investments.................................. 14
7.3 Authorization; No Breach................................... 14
7.4 Projections................................................ 15
7.5 Financial Statements....................................... 15
7.6 Absence of Undisclosed Liabilities......................... 15
7.7 No Material Adverse Effect................................. 15
7.8 Absence of Certain Developments............................ 16
7.9 Assets..................................................... 17
7.10 Real Property.............................................. 17
7.11 Tax Matters................................................ 18
7.12 Contracts and Commitments.................................. 18
7.13 Intellectual Property Rights............................... 20
7.14 Government Licenses and Permits............................ 21
7.15 Litigation, etc............................................ 22
7.16 Brokerage.................................................. 22
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
7.17 Employees............................................. 22
7.18 ERISA................................................. 22
7.19 Compliance with Laws.................................. 24
7.20 Environmental and Safety Matters...................... 24
7.21 Affiliated Transactions............................... 25
7.22 Suppliers and Customers............................... 25
7.23 Names and Locations................................... 25
7.24 Accounts Receivable................................... 25
7.25 Inventory............................................. 26
7.26 Product Warranty...................................... 26
7.27 Year 2000............................................. 26
7.28 Disclosure............................................ 26
7.29 Closing Date.......................................... 26
7.30 Fraudulent Conveyance and Related Matters............. 26
Section 8. Representations and Warranties of LLC................. 27
8.1 Organization; Power and Authority..................... 27
8.2 Authorization; No Breach.............................. 27
8.3 Brokerage............................................. 28
8.4 Prior Activities...................................... 28
8.5 Disclosure............................................ 28
8.6 Closing Date.......................................... 28
Section 9. Survival; Indemnification............................. 28
9.1 Survival of Representations and Warranties............ 28
9.2 Indemnification....................................... 28
9.3 Arbitration Procedure................................. 32
Section 10. Termination Provisions................................ 34
10.1 Termination........................................... 34
10.2 Effect of Termination................................. 34
Section 11. INTENTIONALLY DELETED................................. 34
Section 12. Tax Matters. ........................................ 34
Section 13. Employees and Employee Benefit Matters................ 35
13.1 Employment............................................ 35
13.2 Benefit Plans......................................... 35
Section 14. Additional Agreements................................. 36
14.1 Press Releases and Announcements...................... 36
14.2 Further Transfers..................................... 36
14.3 Specific Performance.................................. 37
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
14.4 Waiver of Compliance with Bulk Sales Laws............... 37
14.5 Transition Assistance................................... 37
14.6 Confidentiality......................................... 37
14.7 Expenses................................................ 38
14.8 Access to Records....................................... 38
14.9 Undertaking of Parent................................... 38
Section 15. Definitions............................................. 38
Section 16. Miscellaneous........................................... 41
16.1 Remedies................................................ 41
16.2 Consent to Amendments................................... 41
16.3 Successors and Assigns.................................. 42
16.4 Agreement to Change Zecal's Name........................ 42
16.5 Counterparts............................................ 42
16.6 Descriptive Headings; Interpretation.................... 42
16.7 Governing Law........................................... 42
16.8 Notices................................................. 43
16.9 No Strict Construction.................................. 44
16.10 Entire Agreement........................................ 44
16.11 Severability............................................ 44
16.12 No Third-Party Beneficiaries............................ 44
16.13 Schedules............................................... 45
</TABLE>
iii
<PAGE>
EXHIBITS AND SCHEDULES
----------------------
EXHIBITS
- --------
Exhibit A - Allocation
Exhibit B - LLC Interest Purchase Agreement
Exhibit C - Intentionally Deleted
Exhibit D - Intentionally Deleted
Exhibit E - Guaranty
Exhibit F - Fifth Amendment to Credit and Security Agreement
SCHEDULES
- ---------
Transferred Intellectual Property Rights Schedule
Contracts Schedule
Real Property Schedule
Assumed Liabilities Schedule
Permits Schedule
Financial Statements Schedule
Liabilities Schedule
Developments Schedule
Assets Schedule
Taxes Schedule
Employees Schedule
Employee Benefits Schedule
Litigation Schedule
Compliance Schedule
Environmental Schedule
Affiliated Transactions Schedule
Suppliers and Customers Schedule
Names and Locations Schedule
Accounts Receivable Schedule
Non-Assignable Warranties Schedule
iv
<PAGE>
ASSET PURCHASE AGREEMENT
------------------------
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made as of May
---------
___, 2000, by and among Heartland Technology, Inc., a Delaware corporation
("Parent"), Zecal Corp., a Delaware corporation ("Zecal" and, together with
------ -----
Parent, the "HTI Companies") and Zecal Technology, LLC, a Delaware limited
-------------
liability company ("LLC"). Parent, Zecal and LLC are referred to herein
---
collectively as the "Parties" and individually as a "Party." Except as otherwise
------- -----
indicated herein, capitalized terms used herein are defined in Section 15
----------
hereof.
Subject to the terms and conditions set forth herein, LLC desires to
purchase from Zecal and Zecal desires to sell to LLC all of Zecal's assets
(subject to certain of Zecal's liabilities as specifically provided herein),
except for certain excluded assets as specifically provided herein.
NOW, THEREFORE, the Parties agree as follows:
Section 1. Purchase and Sale of Assets.
---------------------------
1.1 Basic Transaction; Purchased Assets. On and subject to the terms and
-----------------------------------
conditions set forth in this Agreement, LLC hereby agrees to purchase from
Zecal, and Zecal hereby agrees to sell, convey, assign, transfer, and deliver on
the Closing Date (as defined in Section 3.1) to LLC, free and clear of all Liens
-----------
of any kind or nature (other than Permitted Liens), all properties, assets, and
rights of any kind, whether tangible or intangible, real or personal, owned,
held, used or leased by Zecal (the "Purchased Assets") including, without
----------------
limitation, the following (but excluding all Excluded Assets as defined below):
(a) All cash and cash equivalents, notes and accounts receivable
(whether current or non-current);
(b) Subject to the rights of third parties expressly described in the
three separate license agreements disclosed on the Transferred Intellectual
------------------------
Property Rights Schedule and marked with an asterisk (*) and subject to rights
- ------------------------
of third parties under licenses granted to Zecal, all of the Intellectual
Property Rights owned or used by, issued to or licensed to Zecal, together with
all income, royalties, damages and payments due or payable as of the Closing or
thereafter (including, without limitation, damages and payments for past,
present or future infringements or misappropriations thereof), the right to sue
and recover for past infringements or misappropriations thereof and any and all
corresponding rights that, now or hereafter, may be secured throughout the
world, including, but not limited to, the items set forth on the attached
Transferred Intellectual Property Rights Schedule (collectively, the
- -------------------------------------------------
"Transferred Intellectual Property Rights");
----------------------------------------
(c) All rights of Zecal existing under leases, subleases,
concessions, contracts, licenses, permits, distribution arrangements, sales and
purchase agreements, other agreements and business arrangements, including,
without limitation, all contracts and agreements described on the Contracts
----------
Schedule attached hereto (it being agreed that neither of the HTI Companies
- --------
makes any
<PAGE>
representation or warranty as to the assignability or transferability of any
such contract which is not a material contract (i.e., any such contract which is
not required to be disclosed pursuant to Section 7.12 hereof));
(d) All rights of Zecal in all real property occupied by Zecal
described on the Real Property Schedule attached hereto, and all plants,
----------------------
fixtures, buildings and other improvements located on such property, and all
easements, licenses, concessions and other agreements, rights of way, permits
and all appurtenances to such property, whether or not vacated, and used in the
operation of the business of Zecal (collectively, the "Real Estate");
-----------
(e) All tangible personal property, such as machinery, equipment
(including all transportation and office equipment and all production
equipment), inventories of raw materials and supplies, goods in process and
finished goods, fixtures, trade fixtures, tools, dies and furniture owned or
used by Zecal wherever located, including, without limitation, all such items
which are located in any building, warehouse, office or other space leased,
owned or occupied by Zecal and all of Zecal's interest in all leasehold
improvements, including, without limitation, all buildings, improvements and
fixtures;
(f) All office supplies, production supplies, spare parts, other
miscellaneous supplies, and other tangible property of any kind wherever
located, including, without limitation, all property of any kind located in any
building, office or other space leased, owned or occupied by Zecal or in any
warehouse where any of Zecal's properties and assets may be situated;
(g) All prepayments, prepaid expenses, deposits, bank accounts, and
all security deposits and other prepaid assets;
(h) All claims, causes of action, choses in action, rights of
recovery and rights of set-off of any kind;
(i) The right to receive and retain mail, accounts receivable
payments and other communications;
(j) The right to bill and receive payment for products shipped or
delivered and/or services performed but unbilled or unpaid as of the Closing (as
defined in Section 3.1);
-----------
(k) All lists, records and other information pertaining to accounts,
personnel, referral sources and suppliers and customers; and all books, ledgers,
files and business records of every kind; in each case whether evidenced in
writing, electronically (including, without limitation, by computer) or
otherwise;
(l) All advertising, marketing and promotional materials and all
other printed or written materials;
2
<PAGE>
(m) All permits, licenses, certificates of occupancy, franchises,
certifications and approvals from all permitting, licensing, accrediting and
certifying agencies or third parties, and the rights to all data and records
held by such permitting, licensing and certifying agencies or third parties;
(n) All goodwill as a going concern and all other intangible
properties; and
(o) All other property, assets, rights and interests of every kind
and nature, whether tangible or intangible, and wherever located and by whomever
possessed which are owned, leased or used by Zecal, or in which Zecal has an
interest, on the Closing Date.
1.2 Excluded Assets. Notwithstanding the foregoing, the following assets
---------------
(the "Excluded Assets") are expressly excluded from the purchase and sale
---------------
contemplated hereby and, as such, are not included in the Purchased Assets:
(a) The right to receive mail and other communications addressed to
Zecal relating solely to any of the Excluded Assets or the Excluded Liabilities;
(b) Any and all rights of Zecal with respect to the claims, refunds,
causes of action, choses in action, rights of recovery, rights of set-off and
all other rights and assets of every kind and nature to the extent related to
the Excluded Liabilities;
(c) All securities to be received by Zecal from LLC and all other
rights of Zecal under this Agreement;
(d) All pension, profit sharing, cash or deferred Section 401(k)
plans and trusts and the assets thereof, and any other employee benefit plan or
arrangement and the assets thereof, if any, maintained by or on behalf of Zecal;
and
(e) The minute books and tax records of Zecal.
1.3 Assumed Liabilities. On and subject to the terms and conditions
-------------------
specified in this Agreement, as a portion of the Purchase Consideration (as
defined in Section 2.1 below), on the Closing Date, LLC will assume and agree to
-----------
pay, defend, discharge and perform as and when due only the following specified
liabilities and obligations of Zecal (the "Assumed Liabilities"):
-------------------
(a) Except for any liability or obligation to Parent or any of its
Affiliates (all of which Parent and Zecal agree shall be contributed to Zecal's
capital effective as of the Closing Date), all of Zecal's trade payables and
other current accrued liabilities (including, without limitation, real estate
taxes and any accrued rent of Zecal arising in connection with the real property
described in Section 7.10(a) hereof), to the extent that such items are properly
---------------
recorded as current liabilities on the Latest Balance Sheet (as defined in
Section 7.5 below) (but not including any liabilities set forth in the notes
- -----------
thereto, if any) or incurred in the ordinary course of business by Zecal after
the date of the Latest Balance Sheet;
3
<PAGE>
(b) the obligation to reimburse Zecal in the amounts, and on the
payment dates indicated on the Assumed Liabilities Schedule, upon Zecal's
----------------------------
presentation of customary documentation to LLC on or prior to each such
scheduled payment date evidencing that Zecal has paid a corresponding amount of
Indebtedness for Borrowed Money owed by Zecal to Zecal, Inc. (an Affiliate of
Lucas Varity Corporation), it being agreed by each of the Parties that the
promissory note evidencing Zecal's indebtedness to Zecal, Inc. is not
transferable pursuant to its terms and accordingly, all such Indebtedness for
Borrowed Money shall be retained by Zecal and shall remain the obligation solely
of Zecal;
(c) upon proper assignment thereof, Zecal's obligations under the
Zsamboky Technology Agreement, as described on the Assumed Liabilities Schedule;
----------------------------
(d) those employment contracts, severance payment obligations and
deferred compensation obligations expressly described on the Assumed Liabilities
-------------------
Schedule; and
- --------
(e) Except for any liability or obligation arising out of or in
connection with any breach thereof arising out of facts, events or circumstances
occurring prior to the Closing Date, Zecal's liabilities and obligations for
both payment and performance under the agreements, leases, contracts and
commitments listed on the Contracts Schedule and under written or oral
------------------
agreements, leases, contracts and commitments entered into in the ordinary
course of business which are not required by the terms of this Agreement to be
listed on the Contracts Schedule in existence on the date of the Latest Balance
------------------
Sheet or entered into in the ordinary course of business by Zecal after the date
of the Latest Balance Sheet, but only to the extent that such agreements,
leases, contracts and commitments constitute Purchased Assets.
1.4 Excluded Liabilities. Notwithstanding anything to the contrary
--------------------
contained in this Agreement and regardless of whether such liability or
obligation is disclosed herein or in any Schedule or Exhibit hereto, LLC will
not assume or be liable for any of the following liabilities or obligations of
Zecal (the "Excluded Liabilities") and none of the following liabilities or
--------------------
obligations will be "Assumed Liabilities" for purposes of this Agreement:
(a) any of Zecal's liabilities or obligations under this Agreement;
(b) except as otherwise provided herein, any of Zecal's liabilities
or obligations for expenses, Taxes or fees incident to or arising out of the
negotiation, preparation, approval or authorization of this Agreement or the
consummation (or preparation for the consummation) of the transactions
contemplated hereby (including, without limitation, all attorneys' and
accountants' fees and recording and transfer Taxes);
(c) except with respect to the real estate taxes described in Section
-------
1.3(a), any liability or obligation of Zecal in respect of any Taxes, and
- ------
specifically (but without limitation), LLC will not assume or be liable for any
liabilities or obligations for Taxes imposed by reason of the sale or conveyance
of the Purchased Assets to LLC (all of which shall be satisfied solely by
Zecal); it being
4
<PAGE>
understood and agreed that LLC shall not be deemed to be Zecal's transferee or
successor with respect to any Taxes (except as specified in Section 1.3(a) with
--------------
respect to real estate taxes);
(d) any liability or obligation of Zecal (other than as set forth in
Section 1.3(a)) arising as a result of or in connection with the failure of
- --------------
Zecal to comply with any bulk sales or bulk transfer laws;
(e) any of Zecal's liabilities or obligations (i) arising by reason
of any violation or alleged violation of any federal, state, local or foreign
law or any requirement of any governmental authority (including, without
limitation, liabilities or obligations arising out of civil litigation brought
by any Person), (ii) arising by reason of any breach or alleged breach by Zecal
of any agreement, con tract, lease, commitment, instrument, judgment, order or
decree (regardless of when any such violation or breach is asserted), (iii)
arising by reason of any actual or alleged infringement, misappropriation or
conflict with the Intellectual Property Rights of any third party by Zecal or
(iv) otherwise arising by reason of any active, pending, threatened or potential
litigation;
(f) any liability or obligation owing to any stockholders of Zecal or
any of their Affiliates (including, without limitation, any intercompany
indebtedness or trade payables or rights of setoff existing in favor of Parent
or any its Affiliates);
(g) any liability related to the Excluded Assets;
(h) any obligation or liability related to any environmental, health
or safety matter (contingent or otherwise and including liability for response
costs, personal injury, property damage or natural resource damage);
(i) except as forth in Section 1.3 hereof or with respect to the
-----------
Guaranty (as defined in Section 2.1), any liability or obligation of Zecal
-----------
relating to Indebtedness for Borrowed Money, guarantees of indebtedness or
obligation for dividends (whether or not accrued);
(j) except as expressly set forth on the Assumed Liabilities
-------------------
Schedule, any liability or obligation of Zecal relating to any employment
- --------
contracts, severance payment obligations or deferred compensation obligations;
(k) to the extent applicable, any interest, penalties or premium
related to any Excluded Liabilities;
(l) any liabilities, obligations or responsibilities relating to or
arising under any "employee benefit plan" (as defined in Section 3(3) of ERISA),
or any other employee benefit plan, program or arrangement, at any time
maintained or contributed to by Zecal or any trade or business (whether or not
incorporated) which is or has ever been under common control or treated as a
single employer with Zecal under Section 414 of the Code (an "ERISA Affiliate"),
---------------
or with respect to which Zecal or any ERISA Affiliate have any liability or
potential liability, or any liabilities, obligations
5
<PAGE>
or responsibilities relating to the compensation of Zecal employees for all
periods of employment through the Closing Date; or
(m) any other liability or obligation of Zecal not expressly assumed
by LLC under Section 1.3 above (including, without limitation, any liabilities
-----------
or obligations arising out of transactions entered into at or prior to the
Closing, any action or inaction at or prior to the Closing or any state of fact
existing at or prior to the Closing, regardless of when asserted).
Zecal will retain, pay, satisfy and discharge the Excluded Liabilities
in accordance with the terms thereof.
Section 2. Consideration.
-------------
2.1 Total Consideration. The total consideration to be paid to Zecal for
-------------------
the sale of the Purchased Assets (the "Purchase Consideration") shall be the
----------------------
assumption by LLC of the Assumed Liabilities, the issuance by LLC of Common
Company Interests (as defined in that certain Limited Liability Agreement of the
LLC dated as of the date hereof (the "LLC Agreement")) representing 50% of the
-------------
entire Company Interest of the LLC as of the date hereof (the "Zecal Interest")
--------------
and the guaranty of up to $1.45 million of P.G. Design's Indebtedness for
Borrowed Money pursuant to the form of guaranty attached hereto as Exhibit E
---------
(the "Guaranty"). The Purchase Consideration shall be adjusted pursuant to
--------
Section 2.2 hereof.
- -----------
2.2 Working Capital Adjustment.
--------------------------
(a) Promptly, but in any event within thirty (30) days after the
Closing Date, Zecal shall prepare and deliver to LZ Partners, LLC (as defined in
the Members Agreement) an audited balance sheet of Zecal as of the Closing Date
(the "Closing Balance Sheet") which will reflect Zecal's determination of the
---------------------
Net Working Capital as of the Closing Date (the "Closing Working Capital"). "Net
----------------------- ---
Working Capital" shall be equal to the excess of the Purchased Assets which are
- ---------------
current assets over the Assumed Liabilities which are current liabilities
determined in accordance with GAAP. If any item on (or which should be
reflected on) the Latest Balance Sheet is not reflected in accordance with GAAP
in effect as of the Closing Date (based upon authoritative accounting
pronouncements and literature), the Closing Balance Sheet and Net Working
Capital will nonetheless be prepared and computed in accordance with GAAP in
effect as of the Closing Date. In preparing the Closing Balance Sheet and
computing the Net Working Capital, all accounting entries (including all
liabilities and accruals) will be taken into account regardless of their amount
and all errors and omissions will be corrected and all proper adjustments will
be made.
(b) Unless, within the thirty (30) day period following Zecal's
delivery of the Closing Balance Sheet, LZ Partners, LLC tenders written notice
to Zecal (the "Dispute Notice") setting forth any and all items of disagreement
--------------
related to the Closing Balance Sheet (each, an "Item of Dispute"), the Closing
---------------
Balance Sheet and Zecal's determination of the Closing Working Capital shall be
conclusive and binding upon LZ Partners, LLC and upon each of the parties
hereto. If LZ Partners, LLC delivers a Dispute Notice to Zecal within such
thirty (30) day period, Zecal and LZ Partners,
6
<PAGE>
LLC shall use reasonable efforts to resolve their differences concerning the
Items of Dispute, and if any Item of Dispute is so resolved the Closing Balance
Sheet and the Closing Working Capital shall be modified as necessary to reflect
such resolution. If any Item of Dispute remains unresolved twenty (20) after
receipt of the Dispute Notice by Zecal, then Zecal and LZ Partners, LLC shall
jointly retain a mutually agreeable independent accounting firm of recognized
national standing which has not previously audited the Parent (the "Accounting
----------
Firm") to resolve such remaining disagreement. If Zecal and LZ Partners, LLC are
- ----
unable to agree on the choice of the Accounting Firm, then the Accounting Firm
will be a "Big-Five" accounting firm selected by lot (after excluding one firm
designated by Zecal and one firm designated by LZ Partners, LLC). Zecal and LZ
Partners, LLC shall instruct the Accounting Firm to render a determination as to
each unresolved Item of Dispute within thirty (30) days after its retention, and
Zecal and LZ Partners, LLC shall cooperate fully with the Accounting Firm so as
to enable it to make such determination as promptly as practicable. The
Accounting Firm's determination as to each Item of Dispute submitted to it shall
be in writing, shall conform with this Section 2.2, and shall be conclusive and
-----------
binding upon each of the parties hereto and LZ Partners, LLC, and the Closing
Balance Sheet and the Closing Working Capital shall be modified as necessary to
reflect such determination. The costs and expenses of the Accounting Firm shall
be borne equally by LLC and Zecal.
(c) If the sum of (x) the Closing Working Capital (as finally
determined pursuant to Section 2.2(b) hereof) and (y) $344,000 results in a
--------------
negative number, then (i) Zecal and Parent shall, no later than December 31,
2001, deliver to LLC by wire transfer of immediately available funds an amount
equal to such deficiency (i.e., the difference between (i) the sum of (A) the
Closing Working Capital and (B) $344,000 and (ii) zero) or (ii) on January 1,
2002, Zecal's relevant percentage of the Company Interests (as defined in the
LLC Agreement) shall be immediately reduced as if LLC made a capital
distribution to Zecal equal to the amount of such deficiency, and such
distribution shall be treated in the same manner as the deemed distribution
described in Section 4.1(d)(ii)(B) of the LLC Agreement (i.e., Zecal's relevant
ownership percentage of the Company shall be adjusted as described in Section
4.1(d)(ii)(B) of the LLC Agreement). For purposes of this Section 2.3(c),
obligations for Indebtedness for Borrowed Money guarantied by LLC pursuant to
the Guaranty shall not be included as a liability in the calculation of Closing
Working Capital.
(d) All amounts owed pursuant to this Section 2.2 shall include
-----------
interest charges, from the Closing Date to the date of payment or distribution,
at 10% per annum, compounded monthly, calculated on the basis of a 365-day year.
2.3 Allocation. The Purchase Consideration shall be allocated in
----------
accordance with Exhibit A hereof.
---------
Section 3. The Closing.
-----------
3.1 Closing. The closing of the transactions contemplated by this
-------
Agreement (the "Closing") shall take place at the offices of Jenner & Block, One
-------
IBM Plaza, Chicago, Illinois 60611, commencing at 10:00 a.m. on a date which is
three business days after all of the conditions specified in Sections 4 and 5
---------- -
hereof have been satisfied or waived by the Party entitled to waive such
7
<PAGE>
conditions, or on such other date as may be mutually agreeable to the Parties
hereto (the "Closing Date").
------------
3.2 Closing Transactions. Subject to the conditions set forth in this
--------------------
Agreement, the Parties shall consummate the following transactions (the "Closing
-------
Transactions") on the Closing Date:
- ------------
(a) Zecal will convey to LLC good and marketable title to all of the
Purchased Assets, free and clear of all Liens (other than Permitted Liens), and
deliver to LLC, bills of sale, assignments of leases and contracts, documents
acceptable for recordation in the United States Patent and Trademark Office, the
United States Copyright Office and any other similar office, department or
agency and all other instruments of conveyance which are necessary or desirable
to effect transfer of the Purchased Assets (collectively, "Conveyance
----------
Documents");
- ---------
(b) LLC will deliver to Zecal such instruments of assumption and
guaranty as are required in order for LLC to assume the Assumed Liabilities;
(c) LLC shall deliver to Zecal a fully executed copy of the LLC
Agreement, evidencing ownership of the Zecal Interest;
(d) LLC shall execute and deliver the Guaranty; and
(e) Parent and Zecal shall deliver the opinions, certificates and
other documents and instruments required to be delivered by or on behalf of such
Party under the terms hereof.
Section 4. Conditions to LLC's Obligations. The obligation of LLC to
-------------------------------
consummate the transactions contemplated by this Agreement is subject to the
satisfaction (or written waiver by LLC) of the following conditions as of the
Closing Date:
4.1 The representations and warranties set forth in Section 7 hereof shall
---------
be true and correct in all material respects at and as of the Closing Date as
though then made and as though the Closing Date were substituted for the date of
this Agreement throughout such representations and warranties (without taking
into account any disclosures made by Parent or Zecal to LLC pursuant to Section
-------
6.1(f) hereof);
- ------
4.2 Parent and Zecal shall have performed and complied in all material
respects with all of the covenants and agreements required to be performed by
each of them under this Agreement and the agreements contemplated hereby on or
prior to the Closing;
4.3 All consents by third parties that are required for the consummation
of the transactions contemplated hereby shall have been obtained, and release of
any and all Liens (except for Permitted Liens) or other security interests held
by third parties on the Purchased Assets shall have been obtained, all on terms
satisfactory to LLC;
8
<PAGE>
4.4 All governmental filings, authorizations and approvals that are
required for the consummation of the transactions contemplated hereby shall have
been duly made and obtained on terms reasonably satisfactory to LLC;
4.5 No action, suit or proceeding shall be pending or threatened before
any court or quasi-judicial or administrative agency of any federal, state,
local, or foreign jurisdiction or before any arbitrator wherein an unfavorable
judgment, decree, injunction, order or ruling would prevent the performance of
this Agreement or any of the transactions contemplated hereby, declare unlawful
the transactions contemplated by this Agreement, cause such transactions to be
rescinded or adversely affect the right of LLC to lease, use, occupy, own,
operate or control the Purchased Assets, and no judgment, decree, injunction,
order or ruling shall have been entered which has any of the foregoing effects;
4.6 LLC shall have received an opinion, dated the Closing Date, of
Lawrence Adelson, counsel to the HTI Companies, in form and substance
satisfactory to LLC;
4.7 The acquisition of the Purchased Assets by LLC shall not be prohibited
by any applicable law or governmental regulation, shall not subject LLC to any
penalty, liability or other ongoing conditions under or pursuant to any
applicable law or governmental regulation, and shall be permitted by laws and
regulations of the jurisdictions to which the acquisition is subject;
4.8 On or prior to the Closing Date, Parent and/or Zecal, as applicable,
shall have delivered to LLC each of the following:
(a) a certificate from Parent and/or Zecal, as applicable, in a form
reasonably satisfactory to LLC, dated the Closing Date, stating that the
conditions specified in this Section 4 have been satisfied;
---------
(b) copies of all third party and governmental consents, approvals,
authorizations, notifications, filings, releases and terminations required to be
obtained by Parent and/or Zecal in connection with the consummation of the
transactions contemplated herein;
(c) certified copies of the resolutions of the boards of directors of
each of the HTI Companies and the stockholders of Zecal approving the
transactions contemplated by this Agreement and the other agreements
contemplated hereby to which each is a party;
(d) certificates of the Secretary of State of Delaware and any other
state where Zecal is qualified to do business certifying that Zecal is in good
standing in such state;
(e) a certificate of the Secretary of State of Delaware certifying
that Parent is in good standing in Delaware;
(f) an affidavit dated as of the Closing Date and sworn under penalty
of perjury, setting forth the name, address and federal tax identification
number of Zecal stating that Zecal is not a "foreign person" pursuant to Section
1445 of the Code;
9
<PAGE>
(g) a written fairness opinion from Houlihan Smith & Company Inc.,
dated as of the date hereof and addressed to the HTI Companies and LLC and its
members, to the effect that, as of such date, the transactions contemplated by
this Agreement and each of the other transactions contemplated hereby are fair,
from a financial point of view, to the HTI Companies and their respective
stockholders;
(h) an executed copy of the Fifth Amendment to Credit and Security
Agreement, between P.G. Design and Wells Fargo Business Credit, Inc., in the
form of Exhibit F hereto, and the Parties shall have received written
---------
notification from Wells Fargo Business Credit, Inc. that such amendment is
effective; and
(i) such other documents or instruments as LLC may reasonably request
to effect the transactions contemplated hereby.
4.9 All corporate proceedings to be taken by Parent or Zecal in connection
with the consummation of the Closing Transactions and the other transactions
contemplated hereby and all certificates, opinions, instruments and other
documents required to be delivered by Parent or Zecal to effect the transactions
contemplated hereby reasonably requested by LLC shall be reasonably satisfactory
in form and substance to LLC.
Any condition in this Section 4 may be waived by LLC; provided that no such
---------
waiver will be effective unless it is set forth in writing.
Section 5. Conditions to the HTI Companies' Obligation. The obligation of
-------------------------------------------
the HTI Companies to consummate the transactions contemplated by this Agreement
is subject to the satisfaction (or written waiver by Parent and Zecal) of the
following conditions as of the Closing Date:
5.1 The representations and warranties set forth in Section 8 hereof shall
---------
be true and correct in all material respects at and as of the Closing Date as
though then made and as though the Closing Date were substituted for the date of
this Agreement throughout such representations and warranties (without taking
into account any disclosures made by LLC to the HTI Companies pursuant to
Section 6.3(a));
- --------------
5.2 LLC shall have performed and complied in all material respects with
all of the covenants and agreements required to be performed by it under this
Agreement and the agreements contemplated hereby on or prior to the Closing;
5.3 All governmental filings, authorizations and approvals that are
required for the consummation of the transactions contemplated hereby shall have
been duly made and obtained on terms reasonably satisfactory to the HTI
Companies;
5.4 The sale of the Purchased Assets by Zecal shall not be prohibited by
any applicable law or governmental regulation, shall not subject any of the HTI
Companies to any penalty, liability or
10
<PAGE>
other ongoing conditions under or pursuant to any applicable law or governmental
regulation, and shall be permitted by laws and regulations of the jurisdictions
to which the sale is subject;
5.5 Concurrently with the execution of this Agreement, LZ Partners, LLC
and LLC shall have entered into and delivered the LLC Interest Purchase
Agreement, in the form attached hereto as Exhibit B, and LLC Interest Purchase
---------
Agreement shall be in full force and effect and the transactions contemplated
thereby (i.e., the funding contemplated therein) shall have been consummated;
5.6 On or prior to the Closing Date, LLC shall have delivered to Zecal
each of the following:
(a) a certificate from LLC in a form reasonably satisfactory to the
HTI Companies, dated the Closing Date, stating that the conditions specified in
Sections 5.1 and 5.2 have been satisfied;
- ------------ ---
(b) a certificate of the secretary of state of the State of Delaware
certifying that LLC is in good standing in Delaware; and
(c) certified copies of the resolutions of LLC's Board (as that term
is defined in the LLC Agreement) approving the transactions contemplated by this
Agreement and all other agreements contemplated herein to which LLC is a party.
5.7 All corporate proceedings to be taken by LLC in connection with the
consummation of the Closing Transactions and the other transactions contemplated
hereby and all certificates, instruments and other documents required to be
delivered by LLC to effect the transactions contemplated hereby reasonably
requested by the HTI Companies shall be reasonably satisfactory in form and
substance to the HTI Companies.
5.8 On or prior to the Closing Date, Zecal shall have received each of the
following:
(a) a written fairness opinion from Houlihan Smith & Company Inc.,
dated as of the date hereof and addressed to the HTI Companies and LLC and its
members, to the effect that, as of such date, the transactions contemplated by
this Agreement and each of the other transactions contemplated hereby are fair,
from a financial point of view, to the HTI Companies and their respective
stockholders; and
(b) an executed copy of the Fifth Amendment to Credit and Security
Agreement, between P.G. Design and Wells Fargo Business Credit, Inc., in the
form of Exhibit F hereto, and the Parties shall have received written
---------
notification from Wells Fargo Business Credit, Inc. that such amendment is
effective.
Any condition specified in this Section 5 may be waived by the HTI Companies,
---------
provided that no such waiver will be effective unless it is set forth in a
writing executed by Parent and Zecal.
11
<PAGE>
Section 6. Covenants Prior to Closing.
--------------------------
6.1 Affirmative Covenants of Parent and Zecal. Prior to the Closing,
-----------------------------------------
unless LLC otherwise agrees in writing and except as expressly contemplated by
this Agreement, Parent and/or Zecal, as applicable, covenant and agree to use
their best commercial efforts to:
(a) conduct the business and operations of Zecal only in the usual
and ordinary course of business consistent with past practice and use reasonable
efforts to keep Zecal's business organization and properties intact, including
its present business operations, physical facilities, working conditions and
employees and its present relationships with lessors, licensors, suppliers and
customers and others having business relations with it;
(b) keep in full force and effect Zecal's corporate existence and all
rights, franchises and Transferred Intellectual Property Rights and all
governmental licenses, permits, approvals and other authorizations relating or
pertaining to its business and use their best efforts to cause Zecal's current
insurance (or reinsurance) policies not to be canceled or terminated or any of
the coverage thereunder to lapse;
(c) maintain the Purchased Assets in good repair, order and condition
(normal wear and tear excepted) consistent with current needs, replace in
accordance with past practices its inoperable, worn out or obsolete assets with
assets of good quality consistent with past practices and, in the event of a
casualty, loss or damage to any of such assets or properties prior to the
Closing Date, either repair or replace such damaged property or use the proceeds
of such insurance in such other manner as mutually agreed upon by all of the
Parties hereto;
(d) encourage employees of Zecal to accept their employment with LLC
after the Closing and provide prompt notice to LLC of any employee or group of
employees of Zecal which has given notice to Parent or Zecal of his, her or
their intention to terminate employment with Zecal;
(e) maintain the books, accounts and records of Zecal in accordance
with past custom and practice;
(f) promptly (once Parent or Zecal obtains knowledge thereof) inform
LLC in writing of any variances from the representations and warranties
contained herein or any breach of any covenant hereunder by Parent or Zecal;
(g) cooperate with LLC and use best efforts to cause the conditions
to LLC's obligations to close to be satisfied (including, without limitation,
the execution and delivery of all agreements contemplated hereunder to be so
executed and delivered and the making and obtaining of all third party and
governmental notices, filings, authorizations, approvals, consents, releases and
terminations necessary or desirable to consummate the transactions contemplated
hereby); and
(h) comply with all applicable laws, ordinances, and regulations in
the operation of the business of Zecal.
12
<PAGE>
6.2 Negative Covenants of Parent and Zecal. Prior to the Closing, unless
--------------------------------------
LLC otherwise agrees in writing and except as expressly contemplated by this
Agreement, Zecal shall not and, in the case of clause (i), Parent shall not and
shall not permit any of its Subsidiaries to:
(a) make any loans, enter into any insider transactions with or make
or grant any increase in any employee's or officer's compensation or make or
grant any increase in any employee benefit plan, incentive arrangement or other
benefit covering any of the employees of Zecal, except in the case of any
increase in any employee's compensation, in the ordinary course of business
consistent with past practice;
(b) establish, amend, terminate, or, except in the ordinary course of
business consistent with past practice, contribute to any Plan (as defined in
Section 7.18(a) hereof) covering the employees of Zecal;
- ---------------
(c) enter into any contract, agreement or transaction, other than in
the ordinary course of business consistent with past practice and at arm's
length with unaffiliated Persons;
(d) amend, extend or renew any leases for any of its Real Estate or
enter into any new lease, sublease, license, concession or other agreement for
the use or occupancy of real property;
(e) change in any material respect any accounting practices,
including those relating to the timing of transactions (e.g., the acceleration
of delivery of products or services, the recognition of revenue or expenses,
delay the payment of accounts payable or accrued expenses or accelerate the
collection of accounts receivable);
(f) buy, sell, lease, license or otherwise dispose of any Purchased
Assets or permit, allow or suffer any Purchased Assets to be subjected to any
Lien;
(g) terminate, amend or modify any contract, agreement or commitment
required to be listed on the Contracts Schedule or any governmental license,
------------------
permit or other authorization required to be listed on the Permits Schedule;
----------------
(h) take any action or omit to take any action which act or omission
could reasonably be anticipated to have a Material Adverse Effect; or
(i) make, declare or resolve to make any distribution of all or any
portion of Zecal's capital stock.
6.3 Covenants of LLC. Prior to the Closing, LLC shall:
----------------
(a) promptly (once it obtains knowledge thereof) inform the HTI
Companies in writing of any variances from the representations and warranties of
LLC contained herein or any breach of any covenant hereunder by LLC; and
13
<PAGE>
(b) cooperate with the HTI Companies and use best efforts to cause
the conditions to the HTI Companies' obligations to close to be satisfied
(including, without limitation, the execution and delivery of all agreements
contemplated hereunder to be so executed and delivered and the making and
obtaining of all third party and governmental filings, notices, authorizations,
approvals, consents, releases and terminations necessary or desirable to
consummate the transactions contemplated by this Agreement).
Section 7. Representations and Warranties of Parent and Zecal. As a
--------------------------------------------------
material inducement to LLC to enter into this Agreement, Zecal and Parent hereby
jointly and severally represent and warrant to LLC that:
7.1 Organization and Corporate Power. Each HTI Company is a corporation
--------------------------------
duly organized, validly existing and in good standing under the laws of the
State of Delaware. Zecal is qualified to do business as a foreign corporation
and is in good standing in each jurisdiction in which the ownership of its
properties or the conduct of its business requires Zecal to be so qualified.
Zecal possesses all requisite corporate power and authority necessary to own and
operate its properties and to carry on its businesses as now conducted. Each of
Zecal and Parent possess all requisite corporate power and authority necessary
to carry out the transactions contemplated by this Agreement. The copies of
Zecal's certificate of incorporation and bylaws which have been furnished to
LLC's counsel reflect all amendments made thereto at any time prior to the date
of this Agreement and are correct and complete. No HTI Company is in default
under or in violation of any provision of its certificate of incorporation or
bylaws.
7.2 Subsidiaries; Investments. Zecal does not own or control (directly or
-------------------------
indirectly), hold or have any rights or options to subscribe for, purchase or
acquire any shares of stock, partnership interest, joint venture interest,
equity participation or any other security or interest in any other Person.
7.3 Authorization; No Breach. The execution, delivery and performance by
------------------------
each HTI Company of this Agreement, the other agreements contemplated hereby to
which it is a party and each of the transactions contemplated hereby or thereby,
have been duly and validly authorized by such HTI Company and no other corporate
act or proceeding on the part of such HTI Company, its board of directors or its
stockholders is necessary to authorize the execution, delivery or performance by
such HTI Company of this Agreement or any other agreement contemplated hereby to
which it is a party or the consummation of any of the transactions contemplated
hereby or thereby. This Agreement has been duly executed and delivered by each
HTI Company and this Agreement constitutes, and the other agreements
contemplated hereby to which such HTI Company is a party, upon execution and
delivery by such HTI Company in accordance with the terms hereof will each
constitute, a valid and binding obligation of such HTI Company, enforceable
against it in accordance with its terms. The execution and delivery by each HTI
Company of this Agreement and all other agreements contemplated hereby to which
such HTI Company is a party, and the fulfillment of and compliance with the
respective terms thereof by such HTI Company does not and shall not (i) conflict
with or result in a breach of the terms, conditions or provisions of, (ii)
constitute a default under (whether with or without the giving of notice, the
passage of time or both), (iii) result in the creation of any Lien upon the
Purchased Assets, (iv) give any third party the right to modify,
14
<PAGE>
terminate or accelerate any obligation under, (v) result in a violation of or
(vi) require any permit, authorization, consent, approval, exemption or other
action by or notice or declaration to, or filing with, any court or
administrative or governmental body or agency pursuant to, the certificate of
incorporation or bylaws of any HTI Company, or any law, statute, rule or
regulation to which such HTI Company is subject, or any instrument, contract,
lease, license, order, judgment, decree or other agreement to which such HTI
Company is subject.
7.4 Projections. Certain sales projections for Zecal's business (together
-----------
with certain estimates of customer orders and other revenue and profit forecasts
for Zecal's business previously delivered to LZ Partners, LLC, the
"Projections"), which Projections are based on good faith estimates and
-----------
assumptions made by the HTI Companies, have been initialed by an officer of
Zecal and delivered to LZ Partners, LLC prior to the date hereof. To the best of
its Knowledge, each of the HTI Companies believes that the Projections are
reasonable and attainable, it being recognized by LLC, however, that projections
as to future events are not to be viewed as facts and that the actual results
during the period or periods covered by the Projections may differ from the
projected results. To the best of its Knowledge, none of the HTI Companies is
aware of any existing fact which could reasonably be expected to have a Material
Adverse Effect, which has not been disclosed herein or in the schedules hereto.
7.5 Financial Statements. Attached hereto as the Financial Statements
-------------------- --------------------
Schedule are Zecal's unaudited balance sheet (the "Latest Balance Sheet") as of
- -------- --------------------
December 31, 1999 and the related statements of income and cash flows for the
12-month period then ended. Each of the aforementioned financial statements
(including in all cases the notes thereto, if any) is accurate and complete, is
consistent with the books and records of Zecal (which, in turn, are accurate and
complete), has been prepared in accordance with Zecal's past practice
consistently applied throughout the periods covered thereby and presents fairly
the financial condition, results of operations, shareholders' equity and cash
flows of Zecal as of the times and for the periods referred to therein in
accordance with Zecal's past practice.
7.6 Absence of Undisclosed Liabilities. Except as set forth on the
----------------------------------
attached Liabilities Schedule, Zecal does not have any obligation or liability
--------------------
(whether accrued, absolute, contingent, unliquidated or otherwise, whether or
not known to Zecal, whether due or to become due and regardless of when
asserted) arising out of transactions entered into at or prior to the date
hereof, or any action or inaction at or prior to the date hereof, or any state
of facts existing at or prior to the date hereof, other than: (i) liabilities
set forth on the face of the Latest Balance Sheet, (ii) liabilities and
obligations which have arisen after the date of the Latest Balance Sheet in the
ordinary course of business (none of which is a liability resulting from
noncompliance with any applicable laws, breach of contract, breach of warranty,
tort, infringement, claim, lawsuit or environmental matter) and (iii)
liabilities under executory contracts or commitments which are listed on the
Contracts Schedule or under executory contracts and commitments which are not
- ------------------
required to be listed thereon (but not liabilities for actual or alleged
breaches thereof).
7.7 No Material Adverse Effect. Since the date of the Latest Balance
--------------------------
Sheet, there has occurred no fact, event or circumstance which has had, or could
reasonably be expected to have, a
15
<PAGE>
Material Adverse Effect. Since the date of the Latest Balance Sheet, Zecal has
conducted its business consistent with past practice.
7.8 Absence of Certain Developments. Except as expressly contemplated by
-------------------------------
this Agreement or as set forth on the attached Developments Schedule, since the
---------------------
date of the Latest Balance Sheet, Zecal has not:
(a) mortgaged, pledged or encumbered any Purchased Assets (including,
without limitation, any Intellectual Property Rights) or subjected any of them
to any Lien, except for any Permitted Liens;
(b) sold, leased, assigned, licensed or transferred (including,
without limitation, transfers to stockholders or any employees or Affiliates of
any of the HTI Companies) any of the Purchased Assets (including, without
limitation, any Intellectual Property Rights) except in the ordinary course of
its business or canceled any material debts or claims owing to or held by it;
(c) disclosed any material proprietary confidential information to
any Person or abandoned or permitted to lapse any Intellectual Property Rights
or other intangible asset;
(d) made capital expenditures or commitments that aggregate in excess
of $25,000;
(e) suffered any damage, destruction or casualty loss exceeding in
the aggregate $25,000 to tangible assets constituting part of the Purchased
Assets, whether or not covered by insurance;
(f) made any change in any method of accounting or accounting
policies;
(g) entered into any written or oral employment or consulting
contract (other than any contract for employment at will) or made or granted any
increase in any employee benefit plan or arrangement, or amended or terminated
any existing employee benefit plan, incentive arrangement or other benefit
covering any of the employees of Zecal or adopted any new employee benefit plan,
incentive arrangement or other benefit covering any of the employees of Zecal
or, except in the ordinary course of business consistent with past custom and
practice, changed the employment terms for any employee or agent or made or
granted any bonus or any wage, salary or compensation increase to any director,
officer, employee or sales representative, group of employees or consultant;
(h) entered into any contract, agreement or arrangement out of the
ordinary course of business or prohibiting or restricting it from freely
engaging in any business or otherwise restricting the conduct of its business;
(i) bought or sold any assets (tangible or intangible) other than in
the ordinary course of business consistent with past practice;
16
<PAGE>
(j) entered into any other transaction, other than in the ordinary
course of business, or entered into any other material transaction, whether or
not in the ordinary course of business or materially changed any business
practice;
(k) made or resolved to make any distribution of all or any portion
of Zecal's capital stock; or
(l) agreed, whether orally or in writing, to do any of the foregoing.
7.9 Assets.
------
(a) Except as set forth on the Assets Schedule attached hereto, Zecal
---------------
has good and marketable title, free and clear of all Liens (other than Permitted
Liens), to the Purchased Assets which are shown on the Latest Balance Sheet or
acquired thereafter or located on Zecal's premises or used by Zecal.
(b) The buildings, machinery, equipment, vehicles and other tangible
assets of Zecal are in good operating condition and (ordinary wear and tear
excepted) repair and are usable in the ordinary course of business. Except for
the real property described in Section 7.10(a) below, Zecal owns or leases under
---------------
valid leases, and the Purchased Assets constitute, all buildings, machinery,
equipment and other tangible assets used in the conduct of Zecal's business as
presently conducted. Except with respect to the real property described in
Section 7.10(a) below, the Purchased Assets and the include all of those assets
- ---------------
(real, personal, tangible and intangible) necessary to conduct Zecal's business
in the same manner as presently conducted and will enable LLC to operate such
business in the same manner as operated by Zecal prior to and as of the Closing
Date.
7.10 Real Property.
-------------
(a) Leased Properties. Zecal currently occupies a building located
-----------------
at 456 North Sanford Road, Churchville, New York (the "New York Facility")
-----------------
pursuant to an arrangement with the County of Monroe Industrial Development
Agency ("COMIDA") and the Empire State Development Corporation ("ESDC"). Zecal
------ ----
understands that a proceeding has been filed by the Empire State Development
Corporation to foreclose on the title to the New York Facility. Zecal believes
that arrangements can be made for the continued use by Zecal and its assignees
of the New York Facility.
(b) Owned Real Property. Zecal does not own any real property.
-------------------
(c) Current Use. No damage or destruction has occurred with respect
-----------
to any portion of the New York Facility that, individually or in the aggregate,
has had or resulted in, or will have or result in, an adverse effect on the
operation of the business of Zecal. No current use by Zecal of the New York
Facility is dependent on a nonconforming use or other approval from a
governmental authority (other than COMIDA and ESDC), the absence of which would
significantly limit the use of any of the properties or assets in the operation
of the business.
17
<PAGE>
(d) Condition and Operation of Improvements. All buildings and all
---------------------------------------
components of all buildings, fixtures, structures and other improvements
included within the New York Facility (the "Improvements") are in good condition
------------
and repair (ordinary wear and tear excepted) and adequate to operate such
facilities as currently used. All utilities and other utility services or
similar systems serving the New York Facility are installed and operating and
are sufficient to enable the New York Facility to continue to be used and
operated in the manner currently being used and operated.
7.11 Tax Matters. Except as set forth on the attached Taxes Schedule:
----------- --------------
(a) Zecal has filed all Tax Returns which it is required to file
under applicable laws and regulations and all such Tax Returns are complete and
correct and have been prepared in compliance with all applicable laws and
regulations; Zecal has paid all Taxes due and owing by it (whether or not such
Taxes are shown or required to be shown on a Tax Return) and has withheld and
paid over to the appropriate taxing authority all Taxes which it is required to
withhold from amounts paid or owing to any employee, shareholder, creditor or
other third party; and
(b) Zecal has not received from any federal, state or local taxing
authority (including, but not limited to, jurisdictions where Zecal has filed
Tax Returns) any (a) notice indicating an intent to open an audit or other
review; (b) request for information related to Tax matters; (c) notice of
deficiency or proposed adjustment for any amount of Tax proposed, asserted or
assessed by any taxing authority or (d) any request or demand that Zecal file a
Tax Return or pay Taxes in any such jurisdiction. Zecal has no pending federal,
state or local Tax audits or administrative or judicial proceedings and neither
Zecal nor any director or officer of Zecal or person responsible for Tax matters
of Zecal expects any authority to assess any additional Taxes for any period or
partial periods prior to the Closing Date; and Zecal is not subject to any Tax
lien.
(c) There are no Liens for Taxes (other than for current taxes not
yet due and payable) upon any of the Purchased Assets.
(d) For purposes of this Section 7.11, any references to "Zecal"
------------
shall be deemed to include a reference to Parent, to the extent Zecal files a
consolidated, combined or unitary Tax Return with Parent with respect to any
such Taxes.
7.12 Contracts and Commitments.
-------------------------
(a) Except for this Agreement and the other agreements contemplated
hereby or as set forth on the attached Contracts Schedule, the attached
------------------
Transferred Intellectual Property Rights Schedule, the attached Employee
- ------------------------------------------------- --------
Schedule, or the attached Employee Benefits Schedule, Zecal is not a party to or
- -------- --------------------------
bound by any written or oral:
(i) pension, profit sharing, stock option, employee stock purchase
or other plan or arrangement providing for deferred or other compensation
to employees or any other employee benefit plan, arrangement or practice,
or severance agreements, programs, policies or arrangements, in each case,
whether formal or informal;
18
<PAGE>
(ii) collective bargaining agreement or any other contract with
any labor union;
(iii) management agreement, contract for the employment of any
officer, individual, employee or other Person on a full-time, part-time,
consulting or other basis or providing for the payment of any cash or other
compensation or benefits upon the consummation of the transactions
contemplated hereby;
(iv) contract under which it has advanced or loaned monies to any
other Person or otherwise agreed to advance, loan or invest any funds;
(v) agreement or indenture relating to the mortgaging, pledging
or otherwise placing a Lien on any of its assets or stock;
(vi) lease or agreement under which Zecal is lessee of or holds or
operates any personal property owned by any other Person, except for any
lease of personal property under which the aggregate annual rental payments
do not exceed $25,000;
(vii) lease or agreement under which Zecal is lessor of or permits
any third party to hold or operate any property, real or personal, owned or
controlled by Zecal;
(viii) with respect to the Transferred Intellectual Property Rights,
any nondisclosure or confidentiality agreements;
(ix) contract or group of related contracts with the same party or
group of affiliated parties for the purchase or sale of equipment,
Transferred Intellectual Property Rights or other property (other than
inventory in the ordinary course of business);
(x) contract or group of related contracts with the same party or
group of affiliated parties continuing over a period of more than six
months from the date or dates thereof, not terminable by Zecal upon thirty
(30) days' or less notice without payment of any penalty or other amount;
(xi) material contract relating to the marketing, sale,
advertising or promotion of its products or services;
(xii) warranty agreement with respect to products sold or services
provided or indemnity agreement with any supplier under which it is
obligated to indemnify such supplier against product liability claims
(other than Zecal's standard warranty terms, if any, a true and complete
copy of which is attached to the Contracts Schedule);
------------------
(xiii) agreements relating to the ownership of or investments in any
business or enterprise, including investments in joint ventures;
(xiv) assignment, license, royalty, indemnification or other
agreement with respect to any intangible property (including any
Transferred Intellectual Property Rights);
19
<PAGE>
(xv) broker, agent, sales representative, sales or distribution
agreement or agreement relating to the export and/or import of any goods or
equipment;
(xvi) contract or agreement prohibiting it from freely engaging
in any business or competing anywhere in the world; or
(xvii) other agreement which is material to its operations or
business prospects, whether or not in the ordinary course of business.
(b) All of the contracts, agreements and instruments set forth or
required to be set forth on the Contracts Schedule, the Transferred Intellectual
------------------ ------------------------
Property Rights Schedule, the Employees Schedule and the Employee Benefits
- ------------------------ ------------------ -----------------
Schedule are legal, valid, binding and enforceable in accordance with their
- --------
respective terms and shall be in full force and effect without penalty in
accordance with their terms upon consummation of the transactions contemplated
hereby, except that neither of the HTI Companies makes any representation or
warranty as to the assignability or transferability of any such contract which
is not a material contract (i.e., any such contract which is not required to be
delivered pursuant to this Section 7.12). Except as expressly described in the
Contracts Schedule, Zecal has performed all obligations required to be performed
- ------------------
by it under such contracts, agreements and instruments and is not in default
under or in breach of nor in receipt of any claim of default or breach under any
such contract, agreement or instrument; no event has occurred which it is
foreseeable with the passage of time or the giving of notice or both would
result in a default, breach or event of noncompliance by Zecal under any such
contract, agreement or instrument; Zecal does not have any present expectation
or intention of not fully performing all such obligations on a timely basis;
Zecal has no knowledge of any breach or anticipated breach by the other parties
to any such contract, agreement or instrument; and Zecal is not a party to any
contract or commitment that might reasonably be expected to have a Material
Adverse Effect.
(c) LLC's counsel has been supplied with a true and correct copy of
each of the written instruments, plans, contracts and agreements and an accurate
written description of each of the oral arrangements, contracts and agreements
which are required to be disclosed on the Contracts Schedule, the Transferred
------------------ -----------
Intellectual Property Rights Schedule, the Employees Schedule and the Employee
- ------------------------------------- ------------------ --------
Benefits Schedule together with all amendments, waivers or other changes
- -----------------
thereto.
7.13 Intellectual Property Rights.
----------------------------
(a) The attached Transferred Intellectual Property Rights Schedule
-------------------------------------------------
contains a complete and accurate list of all (i) patented or registered
Transferred Intellectual Property Rights, (ii) pending patent applications and
applications for registrations of other Transferred Intellectual Property Rights
and (iii) material unregistered Transferred Intellectual Property Rights,
including but not limited to trademarks, service marks, logos, slogans, trade
names, corporate names and copyrights. Except for shrink-wrap software licenses,
and other standard software license agreements for readily available office
service and accounting software, the Transferred Intellectual Property Rights
----------------------------------------
Schedule also contains a complete and accurate list of all licenses and similar
- --------
agreements or arrangements covering any Intellectual Property Rights to which
Zecal is a party, either as licensee or licensor, or named third-party
beneficiary, in each case identifying the subject
20
<PAGE>
Intellectual Property Rights. Except for shrink-wrap software licenses, and
other standard software license agreements for readily available office service
and accounting software, the Transferred Intellectual Property Rights comprise
all of the Intellectual Property Rights used by Zecal for the operation of the
respective businesses of Zecal as presently conducted and as presently proposed
to be conducted. Zecal owns all right, title and interest to, free and clear of
all Liens, or has the right to use pursuant to a valid and enforceable license,
all Transferred Intellectual Property Rights. Without limiting the generality of
the foregoing, Zecal owns and possesses all right, title and interest in and to
all Transferred Intellectual Property Rights that were created or developed by
or under the direction or supervision of Zecal and that relate to the businesses
of Zecal or to the actual or anticipated research or development conducted by
Zecal. To the knowledge of Zecal, it is not and will not be necessary to utilize
any Intellectual Property Rights developed, invented or made by any of its
employees prior to their employment by Zecal except for any such Intellectual
Property Rights that have previously been indefeasibly assigned to Zecal. All
Transferred Intellectual Property Rights are valid and enforceable, and none of
such rights has been misused. Except as set forth on the Transferred
-----------
Intellectual Property Rights Schedule, no loss or expiration of any Transferred
- -------------------------------------
Intellectual Property Right is pending, threatened, or reasonably anticipated.
Zecal has taken all necessary and desirable actions to maintain and protect the
Intellectual Property Rights that it owns or uses and shall continue to maintain
and protect those rights prior to and as of the Closing. To Zecal's knowledge,
the owners of any Transferred Intellectual Property Rights licensed to Zecal
have taken commercially reasonable action to maintain and protect the
Intellectual Property Rights that are subject to such licenses. The Transferred
Intellectual Property Rights include all Intellectual Property Rights necessary
to conduct Zecal's business in the same manner as presently conducted and will
enable LLC to operate such business in the same manner as operated by Zecal
prior to the Closing Date.
(b) Except as set forth on the Transferred Intellectual Property
---------------------------------
Rights Schedule, (i) there have been no claims by any Person contesting the
- ---------------
validity, use, enforceability, or ownership of any Transferred Intellectual
Property Rights, and, to the best of Zecal's knowledge, there are no grounds for
the same, (ii) Zecal has not infringed, misappropriated or otherwise conflicted
with, and the operation of its business as currently conducted or as currently
proposed to be conducted, will not infringe, misappropriate or otherwise
conflict with, any Intellectual Property Rights of any Person; Zecal is not
aware of any facts that indicate a likelihood of any of the foregoing; and Zecal
has not received any notices regarding any of the foregoing (including, without
limitation, any demand or request that Zecal license any rights from any Person)
and (iii) to the best of Zecal's knowledge, the Transferred Intellectual
Property Rights have not been infringed, misappropriated or conflicted by any
Person. All Transferred Intellectual Property Rights are or shall be properly
assigned to Zecal at the time Zecal assigns such rights to LLC. Immediately
subsequent to the Closing, all of the Transferred Intellectual Property Rights
will be owned by or available for use by LLC on terms and conditions identical
to those under which Zecal owned or used such Intellectual Property Rights
immediately prior to the Closing. The transactions contemplated by this
Agreement shall not adversely effect any of the Transferred Intellectual
Property Rights.
7.14 Government Licenses and Permits. The attached Permits Schedule
------------------------------- ----------------
contains a complete listing of all permits, licenses, franchises, certificates,
approvals and other authorizations of foreign, federal, state and local
governments or agencies or other similar rights owned, possessed or used by
21
<PAGE>
Zecal in the conduct of its business and the ownership of its properties
(collectively, the "Permits"). Zecal owns or possesses all right, title and
-------
interest in and to all of the Permits and the Permits constitute all permits,
licenses, franchises, certificates, approvals and other authorizations necessary
for the conduct of Zecal's business. Zecal is in compliance with the terms and
conditions of the Permits applicable to its business and has received no notices
that it is in violation of any of the terms or conditions of such Permits or
alleging the failure to hold or obtain any permit, license, franchise,
certificate, approval or authorization. Zecal has taken all necessary action to
maintain such Permits. No loss or expiration of any Permit is pending or, to
Zecal's knowledge, threatened, other than expiration in accordance with the
terms thereof.
7.15 Litigation, etc. Except as set forth on the attached Litigation
--------------- ----------
Schedule, there are no actions, suits, proceedings (including any arbitration
- --------
proceedings), orders, investigations or claims pending or, to the best of
Zecal's knowledge, threatened against or affecting Zecal or any of its assets
(or to the best of Zecal's knowledge, pending or threatened against or affecting
any of the officers, directors, members, partners, managers or employees of
Zecal with respect to his, her or its businesses or proposed business
activities), or pending or threatened by Zecal against any third party, at law
or in equity, or before or by any governmental department, commission, board,
bureau, agency or instrumentality; Zecal is not subject to any arbitration
proceedings under collective bargaining agreements or otherwise or, to the best
of Zecal's knowledge, any governmental investigations or inquiries with regard
thereto; and, to the best of Zecal's knowledge, there is no basis for any of the
foregoing. The foregoing includes, without limitation, actions pending or
threatened involving the prior employment of any of Zecal's employees, their use
in connection with Zecal's business of any information or techniques allegedly
proprietary to any of their former employers or their obligations under any
agreements with prior employers.
7.16 Brokerage. There are no claims for brokerage commissions, finders'
---------
fees or similar compensation in connection with the transactions contemplated by
this Agreement based on any arrangement or agreement binding upon any of the HTI
Companies. The HTI Companies shall pay, and hold LLC harmless against, any
liability, loss or expense (including, without limitation, reasonable attorneys'
fees and out-of-pocket expenses) arising in connection with any such claim.
7.17 Employees. To Zecal's knowledge, no executive, key employee or group
---------
of employees of Zecal has any plans to terminate his, her or its employment with
Zecal; Zecal has complied with all applicable laws relating to the employment of
personnel and labor, including provisions thereof relating to wages, hours,
equal opportunity, collective bargaining and the payment of social security and
other taxes and the Immigration Reform and Control Act of 1986; and Zecal has
not experienced any strikes, grievances, unfair labor practices claims or other
material employee disputes and its labor relations are satisfactory.
7.18 ERISA.
-----
(a) Except for the plans designated on the attached Employee Benefits
-----------------
Schedule (the "Plans"), Zecal does not maintain, contribute to, or have any
- -------- -----
liability with respect to any "employee benefit plan" as such term is defined in
Section 3(3) of ERISA or any other employee benefit plan, program or
arrangement.
22
<PAGE>
(b) Zecal does not maintain, contribute to, or have any obligation to
contribute to (or any other liability, including current or potential withdrawal
liability, with respect to) any "multiemployer plan" (as defined in Section
3(37) of ERISA).
(c) Zecal does not maintain, contribute to or have any actual or
potential liability under (or with respect to) any employee benefit plan which
is a "defined benefit plan" (as defined in Section 3(35) of ERISA), whether or
not terminated.
(d) Each Plan which is intended to be qualified under Section 401(a)
of the Code has received a determination from the Internal Revenue Service that
such plan is so qualified, and nothing has occurred since the date of such
determination that could adversely affect the qualified status of any such Plan.
(e) The Plans and all related trusts, insurance contracts and funds
have been maintained, funded and administered in compliance with their terms and
with the applicable provisions of ERISA, the Code and other applicable laws.
Zecal has timely complied with all reporting and disclosure obligations as they
apply to the Plans. Neither Zecal nor any trustee or administrator of any Plan
has engaged in any transaction with respect to the Plans which would subject
Zecal or any trustee or administrator of the Plans, or any party dealing with
any such Plan, nor do the transactions contemplated by this Agreement constitute
transactions which would subject any such party, to either a civil penalty
assessed pursuant to Section 502(i) of ERISA, or the tax or penalty on
prohibited transactions imposed by Section 4975 of the Code or any other penalty
or excise tax. No actions, suits or claims with respect to the Plans (other
than routine claims for benefits) are pending or, to Zecal's knowledge,
threatened which could result in or subject Zecal to any liability and there are
no circumstances which would give rise to or be expected to give rise to any
such actions, suits or claims. None of Zecal's assets is subject to any lien
under Title IV of ERISA or the Code.
(f) Zecal has complied with the health care continuation requirements
of Part 6 of Subtitle B of Title I of ERISA and Section 4980B of the Code
("COBRA"); and Zecal has no obligation under any Plan or otherwise to provide
post employment health or life insurance benefits to current or former employees
of Zecal or to any other person, except as specifically required by COBRA.
(g) Zecal has no liability (potential or otherwise) with respect to
any "employee benefit plan" (as defined in Section 3(3) of ERISA) solely by
reason of being treated as a single employer under Section 414 of the Code with
any other entity.
(h) With respect each Plan, all required or recommended (in
accordance with historical practices) payments, premiums, contributions,
reimbursements or accruals for all periods (or partial periods) ending prior to
or as of the Closing Date shall have been made or properly accrued on the Latest
Balance Sheet. None of the Plans has any unfunded liabilities which are not
reflected on the Latest Balance Sheet.
23
<PAGE>
7.19 Compliance with Laws. Except as set forth on the attached Compliance
-------------------- ----------
Schedule, Zecal has not violated any law, ordinance, code, rule or any
- --------
governmental regulation or requirements (other than Environmental and Safety
Requirements, which are covered by Section 7.20) relating to the operation of
------------
its business and the maintenance and operation of its properties and assets and
has not received any notice of and no claims have been filed alleging any such
violation.
7.20 Environmental and Safety Matters. Except as set forth on the
--------------------------------
attached Environmental Schedule:
----------------------
(a) Zecal and each of its Affiliates has complied and is in
compliance with all Environmental and Safety Requirements.
(b) Neither Zecal nor any of its Affiliates has received any
notice, report or other information indicating of any violation of, or liability
(contingent or otherwise) under any Environmental and Safety Requirements.
(c) There are no underground storage tanks, asbestos-containing
materials, equipment containing polychlorinated biphenyls, or landfills, surface
impoundments or other disposal areas at any of the properties currently or
formerly owned, leased or operated by Zecal or any of its Affiliates or, to the
best Knowledge of the HTI Companies, any of Zecal's predecessors.
(d) Neither Zecal nor any of its Affiliates (nor, to the best
Knowledge of the HTI Companies, any of Zecal's predecessors) has treated,
stored, disposed of, arranged for or permitted the disposal of, transported,
handled or released any substance, or owned or operated any facility or property
(and no such facility or property is contaminated with any such substance), so
as to give rise to any liabilities or investigatory, corrective or remedial
obligations under CERCLA or other Environmental and Safety Requirements.
(e) Neither this Agreement nor the consummation of the transaction
that is the subject of this Agreement will result in any obligations for site
investigation or cleanup, or notification to or consent of government agencies
or third parties, pursuant to any of the so-called "transaction-triggered" or
"responsible property transfer" Environmental and Safety Requirements.
(f) Neither Zecal nor any of its Affiliates (nor, to the best
Knowledge of the HTI Companies, any of Zecal's predecessors) has, either
expressly or by operation of law, assumed or undertaken any liability,
including, without limitation, any obligation for corrective or remedial action,
of any other Person relating to Environmental and Safety Requirements.
(g) Without limiting the foregoing, no other facts, events or
conditions relating to the past or present facilities, properties or operations
of Zecal or any of its Affiliates (or, to the best Knowledge of the HTI
Companies, any of Zecal's predecessors) will prevent, hinder or limit continued
compliance with Environmental and Safety Requirements, give rise to any
investigatory, remedial or corrective obligations pursuant to Environmental and
Safety Requirements or give rise to any other liabilities (whether accrued,
absolute, contingent, unliquidated or otherwise) pursuant to Environmental and
Safety Requirements, including, without limitation, any relating to onsite or
24
<PAGE>
offsite releases or threatened releases of hazardous materials, substances or
wastes, personal injury, property damage or natural resources damage.
(h) Zecal has furnished to LLC all material environmental audits,
reports and other material environmental documents relating to Zecal's, its
predecessors' or Affiliates' past or current properties, facilities or
operations which are in its possession or under its reasonable control.
7.21 Affiliated Transactions. Except as set forth on the attached
-----------------------
Affiliated Transactions Schedule, no officer, director or shareholder of Zecal
- --------------------------------
or any of its Affiliates or, to the best Knowledge of the HTI Companies, any
employee of Zecal or any of its Affiliates or any individual related by blood,
marriage or adoption to any such Person or any entity in which any such Person
owns any beneficial interest, is a party to any agreement, contract, commitment
or transaction with Zecal or has any interests in any property used by Zecal.
7.22 Suppliers and Customers. Except as set forth in the Suppliers and
----------------------- -------------
Customers Schedule, no sole-source or other critical supplier, vendor or service
- ------------------
provider of Zecal has given Zecal notice that it shall stop, or materially
decrease the rate of, or materially and adversely change the terms (whether
related to payment, price or otherwise) with respect to supplying materials,
products or services to Zecal (whether as a result of the transaction
contemplated hereby or otherwise). No material customer of Zecal has given
Zecal notice that it shall stop, or materially decrease the rate of, buying
products or services from Zecal (whether as a result of the transaction
contemplated hereby or otherwise).
7.23 Names and Locations. Except as set forth on the attached Names and
------------------- ---------
Locations Schedule, since April 1998, Zecal has not used any name or names under
- ------------------
which it has invoiced account debtors, maintained records concerning its assets,
entered into contracts with any Person, represented itself to the public or to
any Person or otherwise conducted business. All of the tangible assets and
properties of Zecal are located at the locations set forth on the Names and
---------
Locations Schedule.
- ------------------
7.24 Accounts Receivable.
-------------------
(a) Except as set forth on the attached Accounts Receivable Schedule,
----------------------------
all of the accounts receivable reflected on the Latest Balance Sheet are, and
all of the accounts receivable to be reflected on the books and records of Zecal
as of the Closing Date will be, good and valid receivables arising in the
ordinary course of business (subject to no counterclaims or offset). Except as
set forth on the attached Accounts Receivable Schedule, Zecal has no individual
----------------------------
accounts receivable in excess of $25,000 which are over sixty (60) days past
due.
(b) As of the date hereof, no Person has, and as of the Closing Date,
no Person will have, any Lien on such receivables or any part thereof, and no
agreement for deduction, free services or goods, discount or other deferred
price or quantity adjustment will have been made with respect to any such
receivables.
25
<PAGE>
7.25 Inventory. Except for not more than $20,000 of inventory, the
---------
inventory of Zecal reflected on the Latest Balance Sheet is, and the inventory
reflected in Zecal's books and records as of the Closing Date will be, in usable
and saleable condition in the ordinary course of business and is not damaged,
defective, slow-moving or obsolete, and is merchantable and fit for its purpose.
7.26 Product Warranty. Except as set forth in the Non-Assignable
---------------- --------------
Warranties Schedule, Zecal may freely assign the benefit of all guarantees,
- -------------------
warranties or other indemnities offered by manufacturers of all material
products and equipment included in the Purchased Assets delivered by Zecal to
LLC.
7.27 Year 2000. The computer software, computer firmware, computer
---------
hardware (whether general or special purpose), and other similar or related
items of automated, computerized or software systems that are owned, leased,
licensed or otherwise under the control of Zecal and are used by Zecal in the
conduct of its business have not and will not malfunction, cease to function,
generate incorrect data or produce incorrect results when processing, providing
or receiving (i) date-related data from, into and between the twentieth and
twenty-first centuries and (ii) date-related data in connection with any valid
date in the twentieth and twenty-first centuries.
7.28 Disclosure. To the knowledge of each of Parent and Zecal, neither
----------
this Agreement nor any of the exhibits, schedules, attachments, written
statements, documents, certificates or other items prepared and supplied to LLC
by or on behalf of Zecal or Parent with respect to the transactions contemplated
hereby contain any untrue statement of a material fact or omit a material fact
necessary to make such statement contained herein or therein not misleading.
There is no fact known to Parent or Zecal which Parent or Zecal have not
disclosed to LLC and of which any of Parent, Zecal, their respective officers,
directors or executive employees is aware which has had or would reasonably be
expected to have a Material Adverse Effect.
7.29 Closing Date. The representations and warranties of each of the HTI
------------
Companies contained in this Section 7 and elsewhere in this Agreement and all
---------
information contained in any exhibit, schedule or attachment hereto or in any
certificate or other writing delivered by, or on behalf of, any of the HTI
Companies to LLC pursuant to this Agreement shall be true and correct on the
Closing Date as though then made and as though the Closing Date was substituted
for the date of this Agreement throughout such representations and warranties.
7.30 Fraudulent Conveyance and Related Matters.
-----------------------------------------
(a) In connection with the transactions contemplated hereby, neither
Parent nor any of its Subsidiaries has made or will make any transfer of an
interest in any of their property, or has incurred or will incur any obligation
with intent (actual or otherwise) to hinder, delay, or defraud any Person to
which Parent or any such Subsidiary was or will become, on or after the date
that any such transfer was or will be made or any such obligation was or will be
incurred, indebted.
(b) Parent has received the opinion of Houlihan Smith & Company Inc.
(addressed to the board of directors of Parent and the board of managers of LLC)
on or prior to the date of this Agreement to the effect that the consideration
to be received by Parent and its
26
<PAGE>
Subsidiaries in connection with the transactions contemplated hereby is fair to
Parent and its shareholders from a financial point of view and Parent has
delivered a true, complete and correct copy of such opinion to LLC. Parent's
board of directors, and the board of directors of each of P.G. Design and Zecal,
has reviewed and approved this Agreement and the transactions contemplated
hereby and has concluded that the consideration to be received by Parent, P.G.
Design and Zecal pursuant to this Agreement represents at least reasonably
equivalent value in exchange for the transfer of the interests in their
respective property, and the obligations to be incurred by each of them in
connection with the transactions contemplated hereby.
(c) Neither Parent nor any of its Subsidiaries has (i) admitted in
writing an inability to pay its debts as they mature, (ii) made an assignment
for the benefit of creditors, (iii) applied for, consented to or been subjected
to the appointment of any receiver, trustee, or similar officer for it or for
all or any substantial part of its property, (iv) instituted or had instituted
against it (by petition, application, answer, consent or otherwise) any
bankruptcy, insolvency, reorganization, arrangement, readjustment of debt,
dissolution, liquidation or similar proceeding relating to it under the laws of
any jurisdiction, or (v) had any judgment, writ, warrant of attachment or
execution or similar process issued or levied against a substantial part of its
property.
Section 8. Representations and Warranties of LLC. As a material inducement
-------------------------------------
to the HTI Companies to enter into this Agreement, LLC hereby represents and
warrants that:
8.1 Organization; Power and Authority. LLC is a limited liability company
---------------------------------
duly organized, validly existing and in good standing under the laws of
Delaware. LLC possesses all requisite power and authority necessary to carry
out the transactions contemplated by this Agreement.
8.2 Authorization; No Breach. The execution, delivery and performance of
------------------------
this Agreement and the other agreements contemplated hereby to which LLC is a
party have been duly authorized by LLC and no other limited liability company
act or proceeding on the part of LLC, its board of managers or members is
necessary to authorize the execution, delivery or performance by LLC of this
Agreement or any other agreement contemplated hereby to which it is a party or
the consummation of the transactions contemplated hereby or thereby. This
Agreement has been duly executed and delivered by LLC and this Agreement
constitutes, and each of the other agreements contemplated hereby to which LLC
is a party, when executed and delivered in accordance with the terms thereof,
will constitute, a valid and binding obligation of LLC, enforceable in
accordance with its terms. The execution and delivery by LLC of this Agreement
and all other agreements contemplated hereby to which LLC is a party, and the
fulfillment of and compliance with the respective terms thereof by LLC does not
and shall not (i) conflict with or result in a breach of the terms, conditions
or provisions of, (ii) constitute a default under (whether with or without the
giving of notice, the passage of time or both), (iii) result in the creation of
any Lien upon LLC's assets pursuant to, (iv) give any third party the right to
modify, terminate or accelerate any obligation under, (v) result in a violation
of or (vi) require any authorization, consent, approval, exemption or other
action by or notice or declaration to, or filing with, any court or
administrative or governmental body or agency pursuant to, the organizational
documents of LLC, or any law, statute, rule or regulation
27
<PAGE>
to which LLC is subject, or any agreement, instrument, order, judgment or decree
to which LLC is subject.
8.3 Brokerage. There are no claims for brokerage commissions, finders'
---------
fees or similar compensation in connection with the transactions contemplated by
this Agreement based on any arrangement or agreement binding upon LLC. LLC
shall pay, and hold the HTI Companies harmless against, any liability, loss or
expense (including, without limitation, reasonable attorneys' fees and out-of-
pocket expenses) arising in connection with any such claim.
8.4 Prior Activities. LLC was formed solely for the purpose of engaging
----------------
in the transactions contemplated by this Agreement. LLC has not conducted, and
will not prior to the Closing Date conduct, any business.
8.5 Disclosure. To the knowledge of LLC, neither this Agreement nor any
----------
of the exhibits, schedules, attachments, written statements, documents,
certificates or other items prepared and supplied to Zecal or Parent by or on
behalf of LLC with respect to the transactions contemplated hereby contain any
untrue statement of a material fact or omit a material fact necessary to make
such statement contained herein or therein not misleading.
8.6 Closing Date. The representations and warranties of LLC contained in
------------
this Section 8 and elsewhere in this Agreement and all information contained in
---------
any exhibit, schedule or attachment hereto or in any certificate or other
writing delivered by, or on behalf of, LLC to Zecal or Parent pursuant to this
Agreement shall be true and correct on the Closing Date as though then made and
as though the Closing Date was substituted for the date of this Agreement
throughout such representations and warranties.
Section 9. Survival; Indemnification.
-------------------------
9.1 Survival of Representations and Warranties. All of the
------------------------------------------
representations and warranties set forth in this Agreement or in any writing
delivered by LLC, Parent or Zecal in connection with this Agreement shall
survive the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby (regardless of any investigation, inquiry or
examination made by or on behalf of or any knowledge of any Party or on its
behalf or the acceptance by any Party of a certificate or opinion) for the
periods specified in Section 9.2. Notwithstanding anything to the contrary
-----------
contained in this Section 9, the covenants and agreements of each of the Parties
---------
set forth in this Agreement shall survive indefinitely.
9.2 Indemnification.
---------------
(a) Indemnification of LLC. Subject to the limitations set forth in
----------------------
Sections 9.2(b) and (c), each of Zecal and Parent agrees to and shall, jointly
- --------------- ---
and severally, indemnify LLC and its officers, board of managers, members,
employees, agents, representatives, successors and assigns (each, an
"Indemnitee"), and save and hold each of them harmless from and against and pay
----------
on behalf of or reimburse any Indemnitee as and when incurred for the entirety
of any Losses including,
28
<PAGE>
but not limited to, advancement of the cost of defense which any Indemnitee may
suffer, sustain or become subject to, as a result of, in connection with,
relating or incidental to or by virtue of:
(i) any misrepresentation or breach of representation or
warranty on the part of Zecal or Parent in this Agreement (including the
schedules and exhibits attached hereto), including any such matter arising
as a result of a third party claim with respect thereto;
(ii) any nonfulfillment or breach of the covenants on the part
of any of Parent or Zecal under this Agreement, including any such matter
arising as a result of a third party claim with respect thereto; and
(iii) the assertion or recovery against LLC of any liability or
obligation of Zecal or any of its Affiliates not to be assumed or performed
by LLC hereunder (including the Excluded Liabilities), including any such
matter arising as a result of a third party claim with respect thereto.
(b) Survival Date. The HTI Companies will not be liable with respect
-------------
to any claim for the breach of any representation or warranty contained in
Section 7 unless written notice of a possible claim for indemnification with
- ---------
respect to such breach is given by an Indemnitee to the HTI Companies:
(i) on or before the date which is 90 days after the expiration
of the applicable statute of limitations (including any extension or
waivers thereof) with respect to claims arising under Sections 7.1, 7.3,
--------
7.9(a), 7.11, 7.13, 7.18 or 7.30, including, in each case, the remaking of
------------------------ ----
the statements in such provisions as of the Closing Date pursuant to
Section 7.29; and
------------
(ii) on or before the date which is eighteen months after the
Closing Date with respect to claims arising under any other provision of
Section 7 (such date with respect to each such Section, its "Survival
--------- --------
Date");
----
it being understood that so long as such written notice is given on or prior to
the Survival Date with respect to such claim, the HTI Companies shall be
required to indemnify the Indemnitees for all Losses that the Indemnitees may
suffer with respect to such claim through the date of the claim, the end of the
survival period, and beyond.
(c) Limitations. With respect to any claim for the breach of any
-----------
representation or warranty contained in Section 7 made by an Indemnitee pursuant
---------
to this Agreement, the HTI Companies shall not have any obligation to indemnify
any Indemnitee from and against any Losses by reason of any such breach (or
alleged breach) unless the Indemnitees collectively shall have suffered in the
aggregate Losses by reason of all such breaches (or alleged breaches) in excess
of $80,000 (and then only to the extent that such Losses exceed such amount)
(the "Deductible"). The aggregate amount of all payments made by the HTI
----------
Companies in satisfaction of claims made by Indemnities pursuant to this
Agreement for Losses arising from breaches of any representation or
29
<PAGE>
warranty contained in Section 7 (other than Sections 7.9(a) or 7.30, including,
--------- --------------- ----
in each case, the remaking of the statements in such provisions as of the
Closing Date pursuant to Section 7.29) shall not exceed $4,000,000 in the
------------
aggregate (the "Cap").
---
(d) Indemnification Obligations of LLC. LLC shall indemnify and hold
----------------------------------
harmless the HTI Companies from and against the entirety of any Losses which the
HTI Companies may suffer, sustain, or become subject to as the result of (i) the
breach by LLC of any representation, warranty, covenant or agreement made by LLC
contained in this Agreement and (ii) the assertion or recovery against any of
the HTI Companies of any Assumed Liability.
(e) Defense of Claims. If any Party seeks indemnification under this
-----------------
Section 9.2 (the "Indemnified Party"), such Party shall give written notice to
- ----------- -----------------
the indemnifying Party (the "Indemnifying Party") of the facts and circumstances
------------------
giving rise to the claim. In that regard, if any suit, action, claim, liability
or obligation (a "Proceeding") shall be brought or asserted by any third party
----------
(a "Third Party Proceeding") which would entitle the Indemnified Party to
----------------------
indemnity pursuant to this Section 9.2, the Indemnified Party shall within 30
-----------
days notify the Indemnifying Party of the same in writing, specifying the basis
of such claim and the facts pertaining thereto and attaching a copy of any
summons, complaint or other pleading served upon the Indemnified Party; provided
that the failure to so notify an Indemnifying Party shall not relieve the
Indemnifying Party of its obligations hereunder except to the extent such
failure shall have materially prejudiced the Indemnifying Party. The
Indemnifying Party may, in its discretion and at its sole expense, elect to
assume and control the defense of such Third Party Proceeding, provided that:
(i) the Indemnifying Party must acknowledge that it has an
obligation to indemnify the Indemnified Party with respect to all Losses
arising out of the Third Party Proceeding;
(ii) the Indemnifying Party must consult with the Indemnified
Party with respect to the handling of such Third Party Proceeding and the
Indemnifying Party must employ counsel reasonably satisfactory to the
Indemnified Party;
(iii) the Indemnifying Party must furnish the Indemnified Party
with evidence to the Indemnified Party's reasonable satisfaction that the
Indemnifying Party is and will be able to satisfy any such liability;
(iv) the Indemnifying Party must not settle or compromise any
claim or action without the express written consent of the Indemnified
Party, which consent may not be unreasonably withheld unless such
settlement involves the issuance of injunctive or other forms of non-
monetary relief, binding upon the Indemnified Party, or a plea of guilty,
or nolo contendre on the part of any Indemnified Party in any criminal or
---- ---------
quasi-criminal Proceeding or which involves any admission of liability,
responsibility, culpability or guilt on the part of the Indemnified Party
or which has any collateral estoppel effect on the Indemnified Party, in
which case such consent may be withheld for any reason or no reason;
30
<PAGE>
(v) the Indemnifying Party shall not settle or compromise any
claim or action relating to Taxes without the express written consent of
the Indemnified Party if such settlement or compromise would have an
adverse impact on LLC's liability (or its members' liability) for Taxes for
any period or partial period beginning after the Closing Date;
(vi) the Indemnifying Party shall not be entitled to assume
control of any Third Party Proceeding and shall pay the fees and expenses
of counsel retained by the Indemnified Party if (A) the Third Party
Proceeding relates to or arises in connection with any criminal proceeding,
action, indictment, allegation or investigation, (B) the Indemnified Party
reasonably believes an adverse determination with respect to the action,
lawsuit, investigation, proceeding or other claim giving rise to such claim
for indemnification would be detrimental in any material respect to or
injure in any material respect the Indemnified Party's reputation or future
business prospects, (C) the claim seeks an injunction or equitable relief
against the Indemnified Party, (D) the claim relates to the intellectual
property rights of the Indemnified Party or (E) the claim involves one of
Zecal's ten largest customers or vendors or any Affiliates of any such
customer or vendor. With respect to the actions, lawsuits, investigations,
proceedings and other claims that are the subject of this paragraph (vi),
the Indemnifying Party shall have the right to retain its own counsel (but
the expenses of such counsel shall be at the expense of the Indemnifying
Party) and participate therein, and no Indemnifying Party shall be liable
for any settlement of any such action, proceeding or claim without its
written consent (which consent shall not be unreasonably withheld);
(vii) in the event any Third Party Proceeding shall be brought
or asserted which, if adversely determined, would not entitle the
Indemnified Party to full indemnity pursuant to this Section 9.2, the
-----------
Indemnified Party may elect to participate in a joint defense of such Third
Party Proceeding (a "Joint Defense Proceeding") for which the expenses of
------------------------
such joint defense will be shared equally by such parties and the
employment of counsel shall be reasonably satisfactory to both parties; and
(viii) if, to the extent permitted by this Section 9.2(c), the
--------------
Indemnifying Party elects to assume and control the defense of a Third
Party Proceeding, it will provide notice thereof within 30 days after the
Indemnified Party has given notice of the matter and if such Proceeding is
not a Joint Defense Proceeding, the Indemnified Party shall have the right
to employ counsel separate from counsel employed by the Indemnifying Party
in any such action and to participate in the defense thereof, but the fees
and expenses of such counsel employed by the Indemnified Party shall be at
the expense of the Indemnified Party unless (A) the employment thereof has
been specifically authorized by the Indemnifying Party in writing or (B)
the Indemnifying Party has failed to assume the defense and employ counsel.
The Indemnifying Party shall not be liable for any settlement of any
Proceeding, the defense of which it has elected to assume, which settlement
is effected without the written consent of the Indemnifying Party; provided
that no settlement of a Joint Defense Proceeding may be effected without
the written consent of both Parties. If there shall be a settlement to
which the Indemnifying Party consents or a final judgment for the plaintiff
in any Proceeding, the defense of which the Indemnifying Party has elected
to assume, the Indemnifying Party shall indemnify the Indemnified Party
with respect to the settlement or
31
<PAGE>
judgment. If the Indemnifying Party elects to assume and control the
defense or in the event of a Joint Defense Proceeding, the Indemnified
Party shall take all reasonable efforts necessary to assist the
Indemnifying Party in such defense.
(f) Payments. Any payment pursuant to a claim for indemnification
--------
shall be made not later than 30 days after receipt by the Indemnifying Party of
written notice from the Indemnified Party stating the amount of the claim,
unless (i) the claim is subject to defense as provided in Section 9.2(e) above,
--------------
in which case payment shall be made not later than 30 days after the amount of
the claim is finally determined or (ii) the claim is subject to the arbitration
procedure set forth in Section 9.3, in which case payment shall be made not
-----------
later than thirty days after the date of any Final Determination (as defined in
Section 9.3(e)). Any payment required under this Section 9.2 which is not made
- -------------- -----------
when due shall bear interest at 12% per annum or, if less, the maximum rate
permitted by applicable usury laws. Interest on any such unpaid amount shall be
compounded monthly, computed on the basis of a 365-day year and shall be payable
on demand. In addition, such Party shall reimburse the other Party for any and
all costs or expenses of any nature or kind whatsoever (including, but not
limited to, all attorneys' fees) incurred in seeking to collect such Losses.
Any payment required under this Section 9.2 (together with interest thereon (if
-----------
any) and all costs and expenses related thereto) shall be payable in cash, by
wire transfer of immediately available funds to an account designated by the
Indemnified Party or Parties.
(g) Set-off; Recoupment. In addition to any other remedies, the
-------------------
Indemnified Party shall be entitled to set-off or recoup any liquidated amounts
due or payable to the Indemnified Party by any Indemnifying Party pursuant to,
under or in connection with Section 9 of this Agreement (it being agreed that
any such amounts due or payable to the Indemnified Party shall be a liquidated
claim if resolved in accordance with the procedures set forth in this Section 9
(including, without limitation, an agreement between the Indemnified Party and
the Indemnifying Party or a decision pursuant to the arbitration provisions
hereof)) if such liquidated amount shall remain unpaid for 30 days after the
liquidation of such amount, against any amount otherwise payable (or, in the
case of securities of LLC, otherwise representing a debt or equity interest of
LLC) by the Indemnified Party to such Indemnifying Party. Any Losses which are
recovered pursuant to the set-off or recoupment set forth in this Section 9.2(g)
shall be at the fair market value of any such property (which property may
include, without limitation, any securities of LLC) which is subject to any such
set-off or recoupment, as determined pursuant to Section 13.2 of the LLC
Agreement.
9.3 Arbitration Procedure.
---------------------
(a) LLC and each of the HTI Companies agree that the arbitration
procedure set forth below shall be the sole and exclusive method for resolving
and remedying claims for money damages arising out of the provisions of Section
-------
9.2 (the "Disputes"). Nothing in this Section 9.3 shall prohibit a Party from
- --- -------- -----------
instituting litigation to enforce any Final Determination or availing itself of
any other remedies which may be available to it. The Parties hereby agree and
acknowledge that, except as otherwise provided in this Section 9.3 or in the
-----------
Commercial Arbitration Rules of the American Arbitration Association as in
effect from time to time, the arbitration procedures and any Final Determination
hereunder shall be governed by, and shall be enforced pursuant to the Uniform
Arbitration Act and applicable provisions of Illinois law.
32
<PAGE>
(b) In the event that any Party asserts that there exists a Dispute,
such Party shall deliver a written notice to each other Party involved therein
specifying the nature of the asserted Dispute and requesting a meeting to
attempt to resolve the same. If no such resolution is reached within ten days
after such delivery of such notice, the Party delivering such notice of Dispute
(the "Disputing Person") may, within 45 days after delivery of such notice,
----------------
commence arbitration hereunder by delivering to each other Party involved
therein a notice of arbitration (a "Notice of Arbitration") and by filing a copy
---------------------
of such Notice of Arbitration with the Chicago office of the American
Arbitration Association. Such Notice of Arbitration shall specify the matters
as to which arbitration is sought, the nature of any Dispute, the claims of each
Party to the arbitration and shall specify the amount and nature of any damages,
if any, sought to be recovered as a result of any alleged claim, and any other
matters required by the Commercial Arbitration Rules of the American Arbitration
Association as in effect from time to time to be included therein, if any.
(c) The HTI Companies, on the one hand, and LLC, on the other, each
shall select one independent arbitrator expert in the subject matter of the
Dispute (the arbitrators so selected shall be referred to herein as the "HTI
---
Arbitrator" and the "LLC Arbitrator," respectively). In the event that either
- ---------- --------------
the HTI Companies or LLC fails to select an independent arbitrator as set forth
herein within 20 days from delivery of a Notice of Arbitration, then the matter
shall be resolved by the arbitrator selected by the other Party. The HTI
Arbitrator and the LLC Arbitrator shall select a third independent arbitrator
expert in the subject matter of the dispute, and the three arbitrators so
selected shall resolve the matter according to the procedures set forth in this
Section 9.3. If the HTI Arbitrator and the LLC Arbitrator are unable to agree
- -----------
on a third arbitrator within 20 days after their selection, the HTI Arbitrator
and the LLC Arbitrator shall each prepare a list of three independent
arbitrators. The HTI Arbitrator and the LLC Arbitrator shall each have the
opportunity to designate as objectionable and eliminate one arbitrator from the
other arbitrator's list within seven days after submission thereof, and the
third arbitrator shall then be selected by lot from the arbitrators remaining on
the lists submitted by the HTI Arbitrator and LLC Arbitrator.
(d) The arbitrator(s) selected pursuant to Section 9.3(c) will
--------------
determine the allocation of the costs and expenses of arbitration based upon the
percentage which the portion of the contested amount not awarded to each Party
bears to the amount actually contested by such Party. For example, if LLC
submits a claim for $1,000, and if the HTI Companies contest only $500 of the
amount claimed by LLC, and if the arbitrator ultimately resolves the dispute by
awarding LLC $300 of the $500 contested, then the costs and expenses of
arbitration will be allocated 60% (i.e. $300/$500) to the HTI Companies and 40%
(i.e. $200/$500) to LLC.
(e) The arbitration shall be conducted under the Commercial
Arbitration Rules of the American Arbitration Association as in effect from time
to time, except as otherwise set forth herein or as modified by the agreement of
all of the Parties. The arbitration shall be conducted in Chicago, Illinois.
The arbitrators shall so conduct the arbitration that a final result,
determination, finding, judgment and/or award (the "Final Determination") is
-------------------
made or rendered as soon as practicable, but in no event later than 90 days
after the delivery of the Notice of Arbitration nor later than ten days
following completion of the arbitration. The Final Determination must be agreed
upon and signed by the sole arbitrator or by at least two of the three
arbitrators (as the case may be). The
33
<PAGE>
Final Determination shall be final and binding on all Parties and there shall be
no appeal from or reexamination of the Final Determination, except for fraud,
perjury, evident partiality or misconduct by an arbitrator prejudicing the
rights of any Party and to correct manifest clerical errors.
(f) LLC and the HTI Companies may enforce any Final Determination in
any state or federal court having jurisdiction over the Dispute. For the
purpose of any action or proceeding instituted with respect to any Final
Determination, each Party hereby irrevocably submits to the jurisdiction of such
courts, irrevocably consents to the service of process by registered mail or
personal service and hereby irrevocably waives, to the fullest extent permitted
by law, any objection which it may have or hereafter have as to personal
jurisdiction, the laying of the venue of any such action or proceeding brought
in any such court and any claim that any such action or proceeding brought in
such court has been brought in an inconvenient forum.
Section 10. Termination Provisions.
----------------------
10.1 Termination. This Agreement may be terminated at any time prior to
-----------
the Closing:
(a) by mutual written consent of the Parties hereto;
(b) by the HTI Companies or LLC if there has been a material
misrepresentation or breach on the part of the other Party of the
representations, warranties or covenants set forth in this Agreement or the
schedules and exhibits hereto or if events have occurred which have made it
impossible to satisfy a condition precedent to the terminating Party's
obligations to consummate the transactions contemplated hereby unless such
terminating Party's breach of this Agreement has caused the condition to be
unsatisfied; or
(c) by the HTI Companies or LLC if the Closing has not occurred on or
prior to May ___, 2000; provided, that neither LLC nor the HTI Companies shall
be entitled to terminate this Agreement pursuant to this Section 10.1(c) if such
---------------
Party's breach of this Agreement has prevented the consummation of the
transactions contemplated hereby at or prior to such time.
10.2 Effect of Termination. In the event of termination of this Agreement
---------------------
by either the HTI Companies or LLC as provided in Section 10.1, this Agreement
------------
shall forthwith become void and there shall be no liability on the part of any
Party to any other Party under this Agreement, except that the provisions of
Sections 14.1, 14.7 and 16 (excluding Section 16.4) shall continue in full force
- ------------------- -- ------------
and effect and except that nothing herein shall relieve any Party from liability
for any breach of this Agreement prior to such termination.
Section 11. INTENTIONALLY DELETED.
---------------------
Section 12. Tax Matters. The following provisions shall govern the
-----------
allocation of responsibility as between LLC and Zecal for certain tax matters
following the Closing Date:
12.1 Except as provided in Section 1.3(a), all real and personal property
taxes and assessments with respect to any Purchased Assets consisting of real
property shall be prorated on the
34
<PAGE>
basis of the number of days of the relevant tax year or period which have
elapsed prior to the Closing Date determined without reference to any change of
ownership occasioned by the consummation of the transactions contemplated hereby
based on final tax bills, when available.
12.2 All documentary, stamp, registration transfer, recordation, sales and
use taxes and other such Taxes and fees (including any penalties and interest)
incurred in connection with this Agreement shall be paid by Zecal when due, and
Zecal will, at its own expense, file all necessary Tax Returns and other
documentation with respect to all such documentary, stamp, registration and
other Taxes and fees, and, if required by applicable law, LLC will join in the
execution of any such Tax Returns and other documentation.
12.3 Zecal and LLC shall cooperate fully, as and to the extent reasonably
requested by the other party, in connection with any audit, litigation or other
proceeding with respect to Taxes. Such cooperation shall include the retention
and (upon the other party's request) the provision of records and information
which are reasonably relevant to any such audit, litigation or other proceeding
and making employees available on a mutually convenient basis to provide
additional information and explanation of any material provided hereunder. LLC
and Zecal agree (A) to retain all books and records with respect to Tax matters
pertinent to Zecal relating to any taxable period beginning before the Closing
Date until the expiration of the statute of limitations (and, to the extent
notified by the other party, any extensions thereof) of the respective taxable
periods, and to abide by all record retention agreements entered into with any
taxing authority and (B) to give the other party reasonable written notice prior
to transferring, destroying or discarding any such books and records and, if the
other party so requests, LLC or Zecal, as the case may be, shall allow the other
party to take possession of such books and records. In the event of the taking
of possession of such books and records by LLC or Zecal, such party taking
possession shall return the books and records promptly following completion of
the use requiring possession and shall allow the other party access thereto
during such possession.
Section 13. Employees and Employee Benefit Matters.
--------------------------------------
13.1 Employment. Effective as of the Closing Date, LLC shall offer to
----------
employ (i) all employees of Zecal and (ii) Jack Smith. Nothing in this
Agreement shall limit the ability of LLC to terminate the employment of any
employee of LLC at any time and for any reason, including without cause. Zecal
(or Parent, in the case of Jack Smith) shall retain all liability for the
payment of any severance obligations to employees of Zecal (or Parent, in the
case of Jack Smith) and for any other amounts payable by Zecal (or Parent, in
the case of Jack Smith) to such employees as the result of their termination of
employment with Zecal (or Parent, in the case of Jack Smith) on or before the
Closing Date, as well as any special compensation arrangements implemented by
Zecal (or Parent, in the case of Jack Smith) in respect of the transactions
contemplated hereby (e.g., closing bonuses, stay-pay bonuses and the like).
13.2 Benefit Plans. Those employees who accept LLC's offer of employment
-------------
pursuant to Section 13.1 hereof shall be referred to herein as "Transferred
------------ -----------
Employees." Effective as of the Closing Date, the Transferred Employees will
- ---------
participate in employee benefit plans implemented by LLC effective as of the
Closing Date. Notwithstanding the foregoing, in the event Jack Smith
35
<PAGE>
remains on Parent's payroll system for a transition period to be mutually agreed
upon by Parent and LLC, LLC shall reimburse Parent for all out-of-pocket costs
incurred by Parent associated with such transition assistance. Nothing contained
in this Section 13.2 shall require LLC to offer any employee benefit similar to
------------
that offered by HTI or any of its Subsidiaries prior to the Closing Date, and no
provision of this Section 13.2 shall limit or impair LLC's ability to modify or
------------
change its employee benefit plans in any manner. Except as specifically set
forth in this Section 13.2, HTI and its Subsidiaries shall be responsible for
------------
all liabilities in connection with claims incurred on or prior to the Closing
Date by Transferred Employees under the employee welfare benefit plans (as
defined in Section 3(1) of ERISA) of HTI and its Subsidiaries. LLC shall be
responsible for all liabilities in connection with claims incurred on or after
the Closing Date by Transferred Employees under any of LLC's employee welfare
benefit plans (as defined in Section 3(1) of ERISA). For purposes of this
Section, a claim shall be considered incurred on the date treatment is rendered
or a service is performed. Worker's compensation claims of any Transferred
Employee shall be the responsibility and liability of HTI and its Subsidiaries
if the event giving rise to such claims occurred prior to the Closing Date and
shall be the responsibility and liability of LLC if the event giving rise to the
claim occurs after the Closing Date.
Each of the HTI Companies shall indemnify LLC for any liabilities
arising out of any claim by or through a Transferred Employee that is based upon
LLC not extending post-retirement welfare benefits to any Transferred Employee.
LLC shall provide vacation entitlements to the Transferred Employees
which are substantially equivalent to the vacation entitlements of the
Transferred Employees under the vacation policy of Zecal or Parent, as
applicable. Zecal or Parent, as applicable, shall transfer the unused portion
of each Transferred Employee's vacation entitlement which is accrued under such
company's vacation policy as of the Closing Date to LLC, and such liability
shall be an Assumed Liability for purposes of this Agreement.
Section 14. Additional Agreements.
---------------------
14.1 Press Releases and Announcements. Press releases related to this
--------------------------------
Agreement or the transactions contemplated hereby, or other announcements to the
employees, customers, suppliers, vendors or service providers of Zecal may be
issued solely by LLC following the Closing. Notwithstanding the foregoing,
nothing herein shall restrict Parent from making any of its required filings
with the Securities and Exchange Commission, announcements or any press releases
that Parent deems necessary or advisable in connection with the HTI Companies'
interest in LLC; provided that Parent shall consult with LLC and provide LLC
with reasonable opportunity to review and comment upon the content of any such
filings, announcements or press releases prior to their issuance.
14.2 Further Transfers. Each of the HTI Companies will execute and
-----------------
deliver such further instruments of conveyance and transfer and take such
additional action as LLC may reasonably request to effect, consummate, confirm
or evidence the transactions contemplated hereby. Each of the HTI Companies will
execute such documents as may be necessary to assist LLC in preserving or
perfecting its rights in the Purchased Assets. Each of the HTI Companies and LLC
will also do
36
<PAGE>
such acts as are necessary to perform their representations, warranties,
covenants and agreements herein.
14.3 Specific Performance. Each of the HTI Companies acknowledges that
--------------------
Zecal's business and the Purchased Assets are unique and recognizes and affirms
that in the event of a breach of this Agreement by any HTI Company, money
damages may be inadequate and LLC may have no adequate remedy at law.
Accordingly, each of the HTI Companies agrees that LLC shall have the right, in
addition to any other rights and remedies existing in its favor, to enforce its
rights and the HTI Companies' obligations hereunder not only by an action or
actions for damages but also by an action or actions for specific performance,
injunctive and/or other equitable relief.
14.4 Waiver of Compliance with Bulk Sales Laws. LLC hereby waives
-----------------------------------------
compliance by Zecal with the requirements of any bulk sales or transfer laws of
any jurisdiction in connection with the transfer of the Purchased Assets to LLC
(if and to the extent such laws are applicable to such sale); provided that such
waiver shall not affect the HTI Companies' obligation under the indemnification
provisions contained herein to indemnify LLC and hold LLC harmless from and
against any Losses which LLC may suffer, sustain or become subject to as a
result of the assertion or recovery against LLC of the Excluded Liability set
forth in Section 1.4(d) hereof.
--------------
14.5 Transition Assistance. None of the HTI Companies will in any manner
---------------------
take any action which is designed, intended, or might be reasonably anticipated
to have the effect of discouraging customers, suppliers, vendors, service
providers, lessors, licensors and other business associates from maintaining the
same business relationships with LLC after the date of this Agreement as were
maintained with Zecal prior to and at the date of this Agreement.
14.6 Confidentiality.
---------------
(a) Except as expressly permitted under Section 14.1 hereof, each HTI
------------
Company agrees to use its respective best efforts to maintain the
confidentiality of all proprietary and other non-public information regarding
the business of Zecal, except as required to file tax returns and as required by
law. In the event of the breach of any of the provisions of this Section
-------
14.6(a), LLC, in addition and supplementary to other rights and remedies
- -------
existing in its favor, may apply to any court of law or equity of competent
jurisdiction for specific performance and/or injunctive or other relief in order
to enforce or prevent any violations of the provisions hereof.
(b) In the event that any Party reasonably believes after
consultation with counsel that it is required by law to disclose any
confidential information described in this Section 14.6, the disclosing Party
------------
will (i) provide the other Party with prompt notice before such disclosure in
order that such other Party may attempt to obtain a protective order or other
assurance that confidential treatment will be accorded such confidential
information and (ii) cooperate with the other Party in attempting to obtain such
order or assurance. The provisions of this Section 14.6 shall not apply to any
------------
information, documents or materials which are, as shown by appropriate written
evidence, in the public domain or, as shown by appropriate written evidence,
shall come into the public domain, other than by reason of default by the
applicable Party bound hereunder or its Affiliates.
37
<PAGE>
14.7 Expenses. Except as otherwise provided herein, upon the consummation
--------
of the transactions contemplated hereby, LLC will pay all out-of-pocket expenses
(including, without limitation, fees, costs and expenses of outside legal
counsel, investment bankers, brokers or other representatives and consultants
and appraisal fees, costs and expenses, but excluding any internal salaries or
other allocated expenses) incurred by it, the HTI Companies and LZ Partners, LLC
in connection with the negotiation of this Agreement and the other agreements
contemplated hereby or the other agreements executed contemporaneously with the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby and the performance of its or their obligations hereunder
and thereunder, and the consummation of the transactions contemplated hereby and
thereby; provided, that such expenses of LZ Partners, LLC contemplated by this
Section 14.7 shall not exceed $250,000 in the aggregate; and, provided further,
- ------------
that such expenses of the HTI Companies shall not in the aggregate exceed the
actual expenses of LZ Partners, LLC paid by LLC. None of the liabilities of LLC
arising as a consequence of this Section 14.7 shall be included in any
------------
determination of Net Working Capital pursuant to Section 2.2 hereof.
14.8 Access to Records. After the Closing, LLC agrees to provide the HTI
-----------------
Companies with reasonable access to the historical accounting and tax records of
Zecal and any other documents transferred to LLC pursuant to this Agreement.
14.9 Undertaking of Parent. Parent agrees that it shall guarantee each
---------------------
and every one of Zecal's obligations under this Agreement and the other
agreements and transactions contemplated herein.
Section 15. Definitions. For the purposes of this Agreement, the
-----------
following terms have the meanings set forth below:
"Affiliate" of any particular Person means any other Person
---------
controlling, controlled by or under common control with such particular Person,
where "control" means the possession, directly or indirectly, of the power to
direct the management and policies of a Person whether through the ownership of
voting securities, contract or otherwise.
"Affiliated Group" means any affiliated group as defined in Code
----------------
Section 1504 that has filed a consolidated return for federal income tax
purposes (or any similar group under state, local or foreign law) for a period
during which Zecal or any of Parent's Subsidiaries was a member.
"CERCLA" means the federal Comprehensive Environmental Response,
------
Compensation, and Liability Act, as it may be amended from time to time.
"Code" means the Internal Revenue Code of 1986, as amended, and any
----
reference to any particular Code section shall be interpreted to include any
revision of or successor to that section regardless of how numbered or
classified.
"Environmental and Safety Requirements" means all federal, state,
-------------------------------------
local and foreign statutes, regulations, ordinances and other provisions having
the force or effect of law, all judicial and administrative orders and
determinations, all contractual obligations and all common law
38
<PAGE>
concerning occupational health and safety and the pollution or protection of the
environment, as the foregoing are in effect prior to, on or after the Closing
Date.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended.
"GAAP" means United States generally accepted accounting principles.
----
"Indebtedness for Borrowed Money" means at a particular time, without
-------------------------------
duplication, (i) any indebtedness for borrowed money or issued in substitution
for or exchange of indebtedness for borrowed money, (ii) any indebtedness
evidenced by any note, bond, debenture or other debt security, (iii) any
indebtedness for the deferred purchase price of property or services with
respect to which a Person is liable, contingently or otherwise, as obligor or
otherwise (other than trade payables and other current liabilities incurred in
the ordinary course of business which are not past due), (iv) any commitment by
which a Person assures a creditor against loss (including, without limitation,
contingent reimbursement obligations with respect to letters of credit), (v) any
indebtedness guaranteed in any manner by a Person (including, without
limitation, guarantees in the form of an agreement to repurchase or reimburse),
(vi) any obligations under capitalized leases with respect to which a Person is
liable, contingently or otherwise, as obligor, guarantor or otherwise, or with
respect to which obligations a Person assures a creditor against loss, (vii) any
indebtedness secured by a Lien on a Person's assets and (viii) accrued interest
in respect of any of the obligations described in the foregoing clauses (i)
through (vii) of this definition and all premiums, penalties, charges, fees,
expenses and other amounts due in connection with the payment and satisfaction
in full of such obligations.
"Insider" means any officer, director, stockholder, partner or
-------
Affiliate, as applicable, of any of the HTI Companies or any individual related
by blood, marriage or adoption to any such Person or any entity in which any
such Person owns any beneficial interest.
"Intellectual Property Rights" means all (i) patents, patent
----------------------------
applications and patent disclosures, (ii) trademarks, service marks, trade
dress, trade names, Internet domain names and Web sites, logos and corporate
names and registrations, renewals and applications for registration thereof
together with all of the goodwill associated therewith, (iii) copyrights and
copyrightable works and registrations and applications for registration thereof,
(iv) mask works and registrations and applications for registration thereof, (v)
computer software and software systems, data, databases and documentation
thereof, (vi) trade secrets and other confidential information (including,
without limitation, ideas, formulas, compositions, inventions (whether
patentable or unpatentable and whether or not reduced to practice), know-how,
manufacturing and production processes and techniques, research and development
information, drawings, specifications, designs, plans, proposals, technical
data, financial and marketing plans and customer and supplier lists and
information), (vii) other intellectual property rights, (viii) copies and
tangible embodiments thereof (in whatever form or medium) and (ix) all licenses,
agreements or other permissions to or from third parties regarding the foregoing
anywhere throughout the world.
"Investment" as applied to any Person means (i) any direct or indirect
----------
purchase or other acquisition by such Person of any notes, obligations,
instruments, stock, securities or
39
<PAGE>
ownership interest (including partnership interests and joint venture interests)
of any other Person and (ii) any capital contribution by such Person to any
other Person.
"Knowledge" means, with respect to any HTI Company, after reasonable
---------
inquiry and diligence, the actual knowledge of Edwin Jacobson, Jack Smith,
Richard Brandstatter or Lawrence Adelson.
"Lien" or "Liens" means any mortgage, pledge, security interest,
---- -----
encumbrance, lien or charge of any kind (including, without limitation, any
conditional sale or other title retention agreement or lease in the nature
thereof, any sale of receivables with recourse against such Person, any of its
Subsidiaries or any Affiliate, any filing or agreement to file a financing
statement as debtor under the Uniform Commercial Code or any similar statute
other than to reflect ownership by a third party of property leased to such
Person under a lease which is not in the nature of a conditional sale or title
retention agreement or any subordination arrangement in favor of another
Person).
"LLC Interest Purchase Agreement" means that certain LLC Interest
-------------------------------
Purchase Agreement, dated as of the date hereof, between LLC and LZ Partners,
LLC.
"Loss" or "Losses" means all actions, suits, proceedings, hearings,
---- ------
investigations, charges, complaints, claims, demands, injunctions, orders,
decrees, rulings, damages, dues, penalties, fines, costs, amounts paid in
settlement, liabilities, obligations, Taxes, liens, losses, expenses and fees,
including court costs and reasonable attorneys' fees and expenses.
"Material Adverse Effect" means any material adverse effect upon the
-----------------------
business, operations, financial condition, operating results, earnings, assets,
customer, supplier, employee and sales representative relations or business
prospects of Zecal.
"Permitted Liens" means (i) Tax Liens with respect to Taxes not yet
---------------
due and payable or which are being contested in good faith by appropriate
proceedings and for which appropriate reserves have been established in
accordance with GAAP; (ii) deposits or pledges made in connection with, or to
secure payment of, utilities or similar services, workers' compensation,
unemployment insurance, old age pensions or other social security obligations;
(iii) interests or title of a lessor under any of the Leases; (iv) mechanics',
materialmens' or contractors' Liens or encumbrances or any similar statutory
Lien or restriction for amounts not yet due and payable; (v) easements, rights-
of-way, restrictions and other similar charges and encumbrances not interfering
with the ordinary conduct of Zecal's business or detracting from the value of
the asset subject thereto; (vi) rights of COMIDA or ESDC as regards the real
property described at Section 7.10(a) hereof; and (vii) Liens under the Newco
---------------
Security Agreement.
"Person" means an individual, a partnership, a corporation, a limited
------
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"P.G. Design" means P.G. Design Electronics, Inc., a Delaware
-----------
corporation which is a wholly-owned Subsidiary of HTI and which is the parent
corporation of Zecal.
40
<PAGE>
"Members Agreement" means that certain Members Agreement, dated as of
-----------------
the date hereof, by and among LLC and the other parties thereto.
"Newco Security Agreement" means that certain Security Agreement,
------------------------
dated as of the date hereof, between Wells Fargo Business Credit, Inc. and LLC.
"Subsidiary" means, with respect to any Person, any corporation,
----------
limited liability company, partnership, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof or (ii) if a limited
liability company, partnership, association or other business entity, a majority
of the partnership or other similar ownership interest thereof is at the time
owned or controlled, directly or indirectly, by that Person or one or more
Subsidiaries of that Person or a combination thereof. For purposes hereof, a
Person or Persons shall be deemed to have a majority ownership interest in a
limited liability company, partnership, association or other business entity if
such Person or Persons shall be allocated a majority of limited liability
company, partnership, association or other business entity gains or losses or
shall be or control any managing director or general partner of such limited
liability company, partnership, association or other business entity.
"Tax" or "Taxes" means any federal, state, county, local, foreign or
--- -----
other income, gross receipts, ad valorem, franchise, profits, sales or use,
transfer, registration, excise, utility, environmental, communications, real or
personal property, capital stock, license, payroll, wage or other withholding,
payroll, employment, unemployment, social security (or similar), severance,
stamp, occupation, alternative or add-on minimum, estimated and other taxes of
any kind whatsoever (including, without limitation, deficiencies, penalties,
additions to tax, and interest attributable thereto) whether disputed or not.
"Tax Return" means any return, declaration, claim for refund or
----------
information report or filing with respect to Taxes, including any schedules
attached thereto and including any amendment thereof.
Section 16. Miscellaneous.
--------------
16.1 Remedies. LLC and each HTI Company shall have all rights and
--------
remedies set forth in this Agreement and all rights and remedies which such
Parties have been granted at any time under any other agreement or contract and
all of the rights which such Parties have under any law. Any Person having any
rights under any provision of this Agreement shall be entitled to enforce such
rights specifically (without posting a bond or other security), to recover
damages by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law.
16.2 Consent to Amendments. Except as otherwise expressly provided
---------------------
herein, the provisions of this Agreement may be amended only with the written
consent of LLC and the HTI Companies. No course of dealing between or among any
Persons having any interest in this Agree-
41
<PAGE>
ment will be deemed effective to modify, amend or discharge any part of this
Agreement or any rights or obligations of any Person under or by reason of this
Agreement. No waiver of any of the provisions of this Agreement shall be deemed
or shall constitute, a waiver of any other provisions, whether or not similar,
nor shall any waiver constitute a continuing waiver.
16.3 Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, all covenants and agreements contained in this Agreement by or on behalf
of any of the Parties shall bind and inure to the benefit of the respective
successors and assigns of the Parties whether so expressed or not. LLC may
assign its rights and duties under this Agreement (including its right to
indemnification) at its sole discretion, in whole or in part, to a wholly owned
Subsidiary, to one or more of its Affiliates, to any subsequent purchaser of LLC
or any material portion of its assets (whether such sale is structured as a sale
of stock, a sale of assets, a merger or otherwise) and, for collateral security
purposes, to any of its lenders providing financing to LLC and all extensions,
renewals, replacements, refinancings and refundings thereof in whole or in part.
Neither this Agreement nor any of the rights, interests or obligations hereunder
may be assigned by any of the HTI Companies without the prior written consent of
LLC or by LLC without the prior written consent of the HTI Companies.
16.4 Agreement to Change Zecal's Name. Concurrently with the Closing,
--------------------------------
Zecal will prepare and promptly file immediately thereafter the documents
necessary to change its corporate name to a name substantially dissimilar to
"Zecal" and at all times thereafter, none of the HTI Companies shall use, or
permit any of their Affiliates (excluding, for avoidance of doubt, LLC) to use,
the name "Zecal" or any name including the name "Zecal," or any names or titles
confusingly similar to such name.
16.5 Counterparts. This Agreement may be executed simultaneously in
------------
counterparts (including by means of telecopied signature pages), any one of
which need not contain the signatures of more than one Party, but all such
counterparts taken together shall constitute one and the same Agreement.
16.6 Descriptive Headings; Interpretation. The descriptive headings of
------------------------------------
this Agreement and the table of contents are inserted for convenience only and
do not constitute a substantive part of this Agreement and shall not affect in
any way the meaning or interpretation of this Agreement. The use of the word
"including" in this Agreement shall be by way of example rather than by
limitation. The Parties intend that each representation, warranty and covenant
contained herein shall have independent significance. If any Party has breached
any representation, warranty or covenant contained herein in any respect, the
fact that there exists another representation, warranty or covenant relating to
the same subject matter (regardless of the relative levels of specificity) which
the Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty or covenant.
16.7 Governing Law. All other issues and questions concerning the
-------------
construction, validity, enforcement and interpretation of this Agreement and the
exhibits and schedules hereto shall be governed by, and construed in accordance
with, the laws of the State of Illinois, without giving effect to any choice of
law or conflict of law rules or provisions (whether of the State of Illinois or
any
42
<PAGE>
other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Illinois. In furtherance of the foregoing,
the internal law of the State of Illinois shall control the interpretation and
construction of this Agreement (and all schedules and exhibits hereto), even
though under that jurisdiction's choice of law or conflict of law analysis, the
substantive law of some other jurisdiction would ordinarily apply.
16.8 Notices. All notices, demands or other communications to be given or
-------
delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when delivered personally or
telecopied to the recipient, one day after being sent to the recipient by
reputable overnight courier service (charges prepaid) or five days after being
mailed to the recipient by certified or registered mail, return receipt
requested and postage prepaid. Such notices, demands and other communications
shall be sent to each of the Parties hereto at the addresses indicated below or
to such other address or to the attention of such other person as the recipient
party has specified by prior written notice to the sending party:
To the HTI Companies:
--------------------
547 West Jackson Boulevard
Suite 1510
Chicago, Illinois 60661
Telecopy No.: (312) 663-9397
Attn: Edwin Jacobson
with a copy to:
--------------
(which shall not constitute notice to the HTI Companies)
Heartland Technology, Inc.
547 West Jackson Boulevard
Suite 1510
Chicago, Illinois 60661
Telecopy No.: (312) 663-9397
Attn: Lawrence Adelson, Esq.
To LLC:
------
Zecal Technology, LLC
c/o Lamb Partners
900 N. Michigan Avenue
Chicago, IL 60611
Telecopy No.: (312) 915-1037
Attn: Neil G. Bluhm
43
<PAGE>
with a copy to:
--------------
(which shall not constitute notice to LLC)
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Telecopy No.: (312) 861-2200
Attn: Gary M. Holihan, Esq.
and:
Heartland Technology, Inc.
547 West Jackson Boulevard
Suite 1510
Chicago, Illinois 60661
Telecopy No.: (312) 663-9397
Attn: Lawrence Adelson, Esq.
16.9 No Strict Construction. The Parties have participated jointly in
----------------------
the negotiation and drafting of this Agreement and the other agreements
contemplated hereby. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the Parties, and no presumption or burden of proof shall arise favoring or
disfavoring any Party by virtue of the authorship of any of the provisions of
this Agreement.
16.10 Entire Agreement. This Agreement and the agreements and documents
----------------
referred to herein contain the entire agreement and understanding between the
Parties with respect to the subject matter hereof and supersede any prior
understanding, agreements or representations by or between the Parties, written
or oral, which may have related to the subject matter hereof in any way.
16.11 Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement or the application of any
such provision to any Person or circumstance is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, and this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
16.12 No Third-Party Beneficiaries. With the exception of LZ Partners,
----------------------------
LLC, which shall be an intended third-party beneficiary of this Agreement
(including, without limitation, with respect to the specific rights enumerated
in Section 2.2 hereof), and in furtherance thereof, the LZ Directors (as defined
-----------
in the Members Agreement) shall have the rights enumerated in Section 1(c) of
the Members Agreement, this Agreement is for the sole benefit of the Parties and
their permitted successors and assigns and nothing herein expressed or implied
shall give or be construed to give any Person, other than the Parties and such
permitted successors and assigns, any legal or equitable rights hereunder.
44
<PAGE>
16.13 Schedules. Nothing in any schedule attached hereto shall be
---------
adequate to disclose an exception to a representation or warranty made in this
Agreement unless such schedule identifies the exception with particularity and
describes the relevant facts in reasonable detail. Without limiting the
generality of the foregoing, the mere listing (or inclusion of a copy) of a
document or other item shall not be adequate to disclose an exception to a
representation or warranty made in this Agreement, unless the representation or
warranty has to do with the existence of the document or other item itself. No
exceptions to any representations or warranties disclosed on one schedule shall
constitute an exception to any other representations or warranties made in this
Agreement unless the substance of such exception is disclosed as provided herein
on each such other applicable schedule or a specific cross-reference to a
disclosure on another schedule is made. All schedules and exhibits attached
hereto or referred to herein are hereby incorporated in and made a part of this
Agreement as if set forth in full herein.
* * * * *
45
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Asset Purchase
Agreement on the date first written above.
HEARTLAND TECHNOLOGY, INC.
By:_____________________________________
Name:________________________________
Title:_______________________________
ZECAL CORP.
By:_____________________________________
Name:________________________________
Title:_______________________________
ZECAL TECHNOLOGY, LLC
By:_____________________________________
Name:________________________________
Title:_______________________________
[Signature Page to the Asset Purchase Agreement]
<PAGE>
EXHIBIT 99.05
_______________________________________________________________________________
_______________________________________________________________________________
___________________________________
ZECAL TECHNOLOGY, LLC
___________________________________
LIMITED LIABILITY COMPANY AGREEMENT
Dated as of May ___, 2000
THE COMPANY INTERESTS REPRESENTED BY THIS LIMITED LIABILITY COMPANY AGREEMENT
HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS
AMENDED OR UNDER ANY OTHER APPLICABLE SECURITIES LAWS. SUCH INTERESTS MAY NOT BE
SOLD, ASSIGNED, PLEDGED OR OTHERWISE DISPOSED OF AT ANY TIME WITHOUT EFFECTIVE
REGISTRATION UNDER SUCH ACT AND LAWS OR EXEMPTION THEREFROM, AND COMPLIANCE WITH
THE OTHER SUBSTANTIAL RESTRICTIONS ON TRANSFERABILITY SET FORTH HEREIN.
THE COMPANY INTERESTS REPRESENTED BY THIS LIMITED LIABILITY COMPANY AGREEMENT
ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER SPECIFIED IN THAT
CERTAIN MEMBERS AGREEMENT, DATED AS OF MAY __, 2000, AS AMENDED OR MODIFIED FROM
TIME TO TIME, AMONG THE ISSUER (THE "COMPANY") AND CERTAIN INVESTORS, AND THE
COMPANY RESERVES THE RIGHT TO REFUSE THE TRANSFER OF SUCH INTERESTS UNTIL SUCH
CONDITIONS HAVE BEEN FULFILLED WITH RESPECT TO ANY TRANSFER. A COPY OF SUCH
CONDITIONS SHALL BE FURNISHED BY THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN
REQUEST AND WITHOUT CHARGE.
_______________________________________________________________________________
_______________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I DEFINITIONS..................................................... 1
ARTICLE II ORGANIZATIONAL MATTERS.......................................... 7
2.1 Formation of Company........................................... 7
2.2 Limited Liability Company Agreement............................ 7
2.3 Name........................................................... 7
2.4 Purpose........................................................ 7
2.5 Principal Office; Registered Office............................ 7
2.6 Term........................................................... 8
2.7 No State-Law Partnership....................................... 8
ARTICLE III CAPITAL ACCOUNTS............................................... 8
3.1 Holders........................................................ 8
3.2 Capital Accounts............................................... 8
3.3 Negative Capital Accounts...................................... 9
3.4 No Withdrawal.................................................. 9
3.5 Loans From Holders............................................. 10
3.6 Preferred Company Interests.................................... 10
3.7 Common Company Interests....................................... 14
ARTICLE IV DISTRIBUTIONS AND ALLOCATIONS................................... 15
4.1 Distributions.................................................. 15
4.2 Allocations.................................................... 17
4.3 Special Allocations............................................ 18
4.4 Tax Allocations................................................ 19
4.5 Curative Allocations........................................... 19
4.6 Indemnification and Reimbursement for Payments on Behalf of a
Holder......................................................... 20
ARTICLE V MANAGEMENT....................................................... 20
5.1 Authority of Board............................................. 20
5.2 Actions of the Board........................................... 21
5.3 Composition.................................................... 21
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
5.4 Proxies....................................................... 21
5.5 Meetings, etc................................................. 22
5.6 Delegation of Authority....................................... 23
5.7 Purchase of Company Interests................................. 24
5.8 Limitation of Liability....................................... 24
ARTICLE VI RIGHTS AND OBLIGATIONS OF HOLDERS.............................. 25
6.1 Limitation of Liability....................................... 25
6.2 Lack of Authority............................................. 25
6.3 No Right of Partition......................................... 25
6.4 Indemnification............................................... 25
6.5 Members Right to Act.......................................... 26
6.6 Conflicts of Interest......................................... 27
ARTICLE VII BOOKS, RECORDS, ACCOUNTING AND REPORTS........................ 28
7.1 Records and Accounting........................................ 28
7.2 Fiscal Year................................................... 28
7.3 Reports....................................................... 28
7.4 Transmission of Communications................................ 29
ARTICLE VIII TAX MATTERS.................................................. 29
8.1 Preparation of Tax Returns.................................... 29
8.2 Tax Elections................................................. 29
8.3 Tax Controversies............................................. 29
ARTICLE IX TRANSFER OF COMPANY INTERESTS.................................. 30
9.1 Transfer In General........................................... 30
9.2 Assignee's Rights............................................. 30
9.3 Assignor's Rights and Obligations............................. 30
ARTICLE X ADMISSION OF MEMBERS............................................ 31
10.1 Substituted Members........................................... 31
10.2 Additional Members............................................ 31
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
ARTICLE XI WITHDRAWAL AND RESIGNATION OF HOLDERS.......................... 32
11.1 Withdrawal and Resignation of Holders......................... 32
ARTICLE XII DISSOLUTION AND LIQUIDATION................................... 32
12.1 Dissolution................................................... 32
12.2 Liquidation and Termination................................... 32
12.3 Deferment; Distribution in Kind............................... 33
12.4 Cancellation of Certificate................................... 34
12.5 Reasonable Time for Winding Up................................ 34
12.6 Return of Capital............................................. 34
12.7 Liquidity Event or IPO........................................ 34
ARTICLE XIII VALUATION.................................................... 34
13.1 Determination................................................. 34
13.2 Determination of Fair Market Value............................ 34
ARTICLE XIV GENERAL PROVISIONS............................................ 35
14.1 Power of Attorney............................................. 35
14.2 Amendments.................................................... 36
14.3 Title to Company Assets....................................... 36
14.4 Addresses and Notices......................................... 37
14.5 Binding Effect................................................ 37
14.6 Creditors..................................................... 37
14.7 Waiver........................................................ 37
14.8 Counterparts.................................................. 37
14.9 Applicable Law................................................ 37
14.10 Severability.................................................. 38
14.11 Further Action................................................ 38
14.12 Expenses...................................................... 38
14.13 Delivery by Facsimile......................................... 38
14.14 Offset........................................................ 38
14.15 Entire Agreement.............................................. 39
14.16 Remedies...................................................... 39
14.17 Descriptive Headings; Interpretation.......................... 39
14.18 Notice to Holder of Provisions................................ 39
14.19 Consent to Jurisdiction....................................... 39
14.20 Survival...................................................... 40
</TABLE>
-iii-
<PAGE>
ZECAL TECHNOLOGY, LLC
LIMITED LIABILITY COMPANY AGREEMENT
This LIMITED LIABILITY COMPANY AGREEMENT, dated as of May ___, 2000,
is entered into by and among the Members.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto, intending to be legally
bound, hereby agree as follows:
ARTICLE I
DEFINITIONS
The following definitions shall be applied to the terms used in this
Agreement for all purposes, unless otherwise clearly indicated to the contrary.
"Additional Member" means a Person admitted to the Company as a Member
-----------------
pursuant to Section 10.2.
"Adjusted Capital Account Deficit" means with respect to any Capital
--------------------------------
Account as of the end of any Taxable Year, the amount by which the balance in
such Capital Account is less than zero. For this purpose, such Person's Capital
Account balance shall be
(i) reduced for any items described in Treasury Regulation Section
1.704-1(b)(2)(ii)(d)(4), (5), and (6), and
(ii) increased for any amount such Person is obligated to contribute
or is treated as being obligated to contribute to the Company
pursuant to Treasury Regulation Section 1.704-1(b)(2)(ii)(c)
(relating to partner liabilities to a partnership) or 1.704-
2(g)(1) and 1.704-2(i) (relating to minimum gain).
"Adjusted EBITDA" is defined in the Members Agreement.
---------------
"Admission Date" is defined in Section 9.3.
--------------
"Affiliate" of any Person means any Person that directly or indirectly
---------
controls, is controlled by, or is under common control with the Person in
question.
"Agreement" means this Limited Liability Company Agreement of Zecal
---------
Technology, LLC.
-1-
<PAGE>
"Asset Purchase Agreement" means that certain Asset Purchase
------------------------
Agreement, dated as of the date hereof, by and among the Company, HTI and Zecal,
as the same may be amended or modified from time to time.
"Assignee" means a Person to whom a Company Interest has been
--------
transferred in accordance with the terms of the Members Agreement, but who has
not become a Member pursuant to Article X.
"Base Rate" means, on any date, a variable rate per annum equal to the
---------
rate of interest most recently published by The Wall Street Journal as the
-----------------------
"prime rate" at large U.S. money center banks.
"Board" means the Board of Managers.
-----
"Book Value" means, with respect to any Company property, the
----------
Company's adjusted basis for federal income tax purposes, adjusted from time to
time to reflect the adjustments required or permitted by Treasury Regulation
Section 1.704-1(b)(2)(iv)(d)-(g).
"Capital Account" means the capital account maintained for a Member
---------------
pursuant to Section 3.2.
"Capital Contribution" means any cash, cash equivalents, promissory
--------------------
obligations or the Fair Market Value of other property which a Holder
contributes to the Company pursuant to Section 3.1 or 5.1.
"Certificate" means the Company's Certificate of Formation as filed
-----------
with the Secretary of State of Delaware.
"Chairman" is defined in Section 5.3(b).
--------
"Change in Control" is defined in Section 3.6(b)(ii).
-----------------
"Code" means the United States Internal Revenue Code of 1986, as
----
amended through the date hereof. Such term shall, at the Board's sole
discretion, be deemed to include any future amendments to the Code and any
corresponding provisions of succeeding Code provisions (whether or not such
amendments and corresponding provisions are mandatory or discretionary).
"Commitment" means, with respect to each Holder, the aggregate amount
----------
of Capital Contributions made or agreed to be made by such Holder as specified
in Schedule I attached hereto as the same may be modified from time to time
under the terms of this Agreement; provided that notwithstanding any other
provision in this Agreement to the contrary, no Holder shall be under any
obligation to make any additional Capital Contributions other than as originally
set forth in Schedule I, unless such Holder shall otherwise agree in writing.
-2-
<PAGE>
"Common Company Interests" means a fractional part of the Company
------------------------
Interests of the Holders and having the rights and obligations specified with
respect to Common Company Interests in this Agreement.
"Common Holder" means a holder of Common Company Interests.
-------------
"Company" means Zecal Technology, LLC, a Delaware limited liability
-------
company, established in accordance with this Agreement, as such limited
liability company may be from time to time constituted, and including its
successors.
"Company Interest" means the interest of a Holder in Profits, Losses
----------------
and Distributions, expressed as a percentage the interest of a Holder bears to
the total interests of all Holders; the initial percentage interest of Zecal is
50% and the initial percentage interest of LZ is 50%.
"Delaware Act" means the Delaware Limited Liability Company Act, 6
------------
Del.L. (S) 18-101, et seq., as it may be amended from time to time, and any
-------
successor to the Delaware Act.
"Distribution" means each distribution made by the Company to a
------------
Holder, whether in cash, property or securities of the Company and whether by
liquidating distribution or otherwise; provided that none of the following shall
-------- ----
be a Distribution: (a) any redemption or repurchase by the Company or any
Investor of any interests, (b) any recapitalization or exchange of interests of
the Company, (c) any distribution made by the Company pursuant to Section 4.1(b)
hereof (i.e., tax distributions) or (d) any fees or expenses that are required
to be and are paid to any Investor.
"Equity Interests" means (i) interests in the Company (including other
----------------
classes or groups thereof having such relative rights, powers and duties as may
from time to time be established by the Board, including rights, powers and/or
duties senior to existing classes and groups of Company Interests and other
equity interests in the Company), (ii) obligations, evidences of indebtedness or
other securities or interests convertible or exchangeable into Company Interests
or other equity interests in the Company and (iii) warrants, options or other
rights to purchase or otherwise acquire Company Interests or other equity
interests in the Company.
"Event of Withdrawal" means the death, retirement, resignation,
-------------------
expulsion, bankruptcy or dissolution of a Member or the occurrence of any other
event that terminates the continued membership of a Member in the Company.
"Fair Market Value" means, with respect to any asset or equity
-----------------
interest, its fair market value determined according to Article XIII.
"Fiscal Period" means any interim accounting period within a Taxable
-------------
Year established by the Board and which is permitted or required by Code Section
706.
"Fiscal Year" means the Company's annual accounting period established
-----------
pursuant to Section 7.2.
-3-
<PAGE>
"Fundamental Change" is defined in Section 3.6(b)(ii).
------------------
"GAAP" means United States generally accepted accounting principles,
----
as promulgated by all relevant United States accounting authorities.
"Guaranty" means the guaranty issued by the Company pursuant to the
--------
Asset Purchase Agreement and the Letter Agreement, which guaranty is secured by
that certain security agreement, dated as of the date hereof, between Wells
Fargo Business Credit, Inc. and the Company; and for purposes of this Agreement,
all references to the "Guaranty" shall include the aforementioned security
agreement.
"Governmental Entity" means the United States of America or any other
-------------------
nation, any state or other political subdivision thereof, or any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of government.
"Holder" means any owner of any Company Interest as reflected in the
------
Company's books and records.
"Holder Group" is defined in Section 6.6(a).
------------
"HTI" means Heartland Technology, Inc., a Delaware corporation.
---
"Indebtedness for Borrowed Money" shall have the meaning assigned
-------------------------------
thereto in the Asset Purchase Agreement.
"Indemnified Person" is defined in Section 6.4(a).
------------------
"Invested Capital" means, as of any date, the aggregate amount of all
----------------
Capital Contributions made by any particular Holder, less the amount of all
deemed distributions to such Holder pursuant to Section 4.1(d) or 4.1(e) hereof
or Section 2.2 of the Asset Purchase Agreement.
"Investors" means LZ, Zecal, their Affiliates and successors and their
---------
Permitted Transferees (as defined in the Members Agreement).
"IPO" means the initial sale pursuant to a registration statement
---
filed under the Securities Act of any equity interests of the Company, whether
by the Company or any holder of equity interests of the Company.
"Junior Interests" means any Company Interests, except for the
----------------
Preferred Company Interests.
"Letter Agreement" means that certain Letter Agreement, dated as of
----------------
the date hereof, between Wells Fargo Business Credit, Inc. and the Company.
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<PAGE>
"Liens" means any mortgage, pledge, security interest, encumbrance,
-----
lien or charge of any kind (including, without limitation, any conditional sale
or other title retention agreement or lease in the nature thereof), any sale of
receivables with recourse against the Company, any Subsidiary or any Affiliate,
any filing or agreement to file a financing statement as debtor under the
Uniform Commercial Code or any similar statute other than to reflect ownership
by a third party of property leased to the Company or any Subsidiaries under a
lease which is not in the nature of a conditional sale or title retention
agreement, or any subordination arrangement in favor of another Person (other
than any subordination arising in the ordinary course of business).
"Liquidation Value" of any Preferred Company Interest as of any
-----------------
particular date shall be equal to the purchase price paid to the Company
therefor (as the same may be finally determined from time to time).
"Liquidity Event" means (a) any sale of all or substantially all (as
---------------
defined in the Model Business Corporation Act) of the assets of the Company and
its Subsidiaries on a consolidated basis in one transaction or series of related
transactions, (b) any sale of all or substantially all of the Company Interests
in one transaction or series of related transactions (but excluding any sales to
Affiliates and any sales of Company Interests in a Public Sale) or (c) a merger
or consolidation or other transaction which accomplishes one of the foregoing.
"Losses" means items of Company loss and deduction determined
------
according to Section 3.2.
"LZ" means LZ Partners, LLC.
--
"Member" means each of the members named on Schedule I attached hereto
------ ----------
and any Person admitted to the Company as a Substituted Member or Additional
Member; but only so long as such Person is shown on the Company's books and
records as the owner of one or more Company Interests.
"Members Agreement" means that certain Members Agreement, dated as of
-----------------
the date hereof, by and among the Company and its Members, as the same may be
amended from time to time.
"Minimum Gain" means the partnership minimum gain determined pursuant
------------
to Treasury Regulation Section 1.704-2(d).
"Organic Change" shall have the meaning set forth in Section 3.6(e).
--------------
"Person" means an individual or a corporation, partnership, limited
------
liability company, trust, unincorporated organization, association or other
entity.
"Preference Amount" shall have the meaning set forth in Section
-----------------
3.6(b)(i) hereof.
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<PAGE>
"Preferred Company Interest" means a fractional part of the Company
--------------------------
Interests of the Holders and having the rights and obligations specified with
respect to the Preferred Company Interests in this Agreement.
"Preferred Holder" means a holder of Preferred Company Interest.
----------------
"Profits" means items of Company income and gain determined according
-------
to Section 3.2.
"Public Offering" means any offering by the Company of its Equity
---------------
Interests to the public pursuant to an effective registration statement under
the Securities Act.
"Public Sale" means any sale of equity interests of the Company (other
-----------
than rights to acquire equity interests of the Company) to the public pursuant
to an offering registered under the Securities Act or to the public through a
broker, dealer or market maker pursuant to the provisions of Rule 144 adopted
under the Securities Act.
"Representative" is defined in Section 5.3(a).
--------------
"Securities Act" means the Securities Act of 1933, as amended, and
--------------
applicable rules and regulations thereunder, and any successor to such statute,
rules or regulations. Any reference herein to a specific section, rule or
regulation of the Securities Act shall be deemed to include any corresponding
provisions of future law.
"Subsidiary" means, with respect to any Person, any corporation,
----------
limited liability company, partnership, association or business entity of which
(i) if a corporation, a majority of the total voting power of shares of stock
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof or (ii) if a limited
liability company, partnership, association or other business entity (other than
a corporation), a majority of partnership or other similar ownership interest
thereof is at the time owned or controlled, directly or indirectly, by any
Person or one or more Subsidiaries of that Person or a combination thereof. For
purposes hereof, a Person or Persons shall be deemed to have a majority
ownership interest in a limited liability company, partnership, association or
other business entity (other than a corporation) if such Person or Persons shall
be allocated a majority of limited liability company, partnership, association
or other business entity gains or losses or shall be or control any managing
director or general partner of such limited liability company, partnership,
association or other business entity. For purposes hereof, references to a
"Subsidiary" of the Company shall be given effect only at such times that the
Company has one or more Subsidiaries, and, unless otherwise indicated, the term
"Subsidiary" refers to a Subsidiary of the Company.
"Substituted Member" means a Person that is admitted as a Member to
------------------
the Company pursuant to Section 10.1.
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<PAGE>
"Tax Matters Partner" has the meaning given to such term in Section
-------------------
6231 of the Code.
"Taxable Year" means the Company's accounting period for federal
------------
income tax purposes determined pursuant to Section 7.2.
"Treasury Regulations" means the income tax regulations promulgated
--------------------
under the Code and effective as of the date hereof. Such term shall, at the
Board's sole discretion, be deemed to include any future amendments to such
regulations and any corresponding provisions of succeeding regulations (whether
or not such amendments and corresponding provisions are mandatory or
discretionary).
"Zecal" means Zecal Corp., a Delaware corporation.
-----
ARTICLE II
ORGANIZATIONAL MATTERS
2.1 Formation of Company. The Company was formed on February 3, 2000
pursuant to the provisions of the Delaware Act.
2.2 Limited Liability Company Agreement. The Members hereby execute
this Agreement for the purpose of establishing the affairs of the Company and
the conduct of its business in accordance with the provisions of the Delaware
Act. The Members hereby agree that during the term of the Company set forth in
Section 2.6, the rights and obligations of the Holders with respect to the
Company will be determined in accordance with the terms and conditions of this
Agreement; provided that where the Delaware Act provides that such rights and
obligations specified in the Delaware Act shall apply "unless otherwise provided
in a limited liability company agreement" or words of similar effect, such
rights and obligations specified in the Delaware Act are considered set forth in
this Agreement; provided further, that notwithstanding the foregoing, Section
18-210 of the Delaware Act shall not apply or be incorporated into this
Agreement.
2.3 Name. The name of the Company shall be Zecal Technology, LLC.
The Board in its sole discretion may change the name of the Company at any time
and from time to time. Notification of any such change shall be given to all
Holders. The Company's business may be conducted under its name and/or any
other name or names deemed advisable by the Board.
2.4 Purpose. The purpose and business of the Company shall be any
business which may lawfully be conducted by a limited liability company formed
pursuant to the Delaware Act.
2.5 Principal Office; Registered Office. The principal office of the
Company shall be at 456 North Sanford Road, Churchill, New York, or such other
place as the Board may from time to time designate. The Company may maintain
offices at such other place or places as the Board deems advisable. Notification
of any such change shall be given to all Holders. The registered
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<PAGE>
office of the Company required by the Delaware Act to be maintained in the State
of Delaware shall be the office of the initial registered agent named in the
Certificate or such other office (which need not be a place of business of the
Company) as the Board may designate from time to time in the manner provided by
law. The registered agent of the Company in the State of Delaware shall be the
initial registered agent named in the Certificate or such other Person or
Persons as the Board may designate from time to time in the manner provided by
law.
2.6 Term. The term of the Company commenced upon the filing of the
Certificate in accordance with the Delaware Act and shall continue in existence
until termination and dissolution thereof in accordance with the provisions of
Article XII.
2.7 No State-Law Partnership. The Holders intend that the Company
not be a partnership (including, without limitation, a limited partnership) or
joint venture, and that no Holder be a partner or joint venturer of any other
Holder by virtue of this Agreement, for any purposes other than as set forth in
the last sentence of this Section 2.7, and neither this Agreement nor any other
document entered into by the Company or any Holder relating to the subject
matter hereof shall be construed to suggest otherwise. The Holders intend that
the Company shall be treated as a partnership for federal and, if applicable,
state or local income tax purposes, and that each Holder and the Company shall
file all tax returns and shall otherwise take all tax and financial reporting
positions in a manner consistent with such treatment.
ARTICLE III
CAPITAL ACCOUNTS
3.1 Holders.
(a) Each Holder named on Schedule I attached hereto has made Capital
----------
Contributions to the Company as set forth on Schedule I in exchange for the
----------
Company Interest specified thereon.
(b) Each Holder who is issued Company Interests by the Company
pursuant to the authority of the Board pursuant to Section 5.1 shall make the
Capital Contributions to the Company determined by the Board pursuant to the
authority of the Board pursuant to Section 5.1 in exchange for such Company
Interests.
3.2 Capital Accounts.
(a) The Company shall maintain a separate Capital Account for each
Holder according to the rules of Treasury Regulation Section 1.704-1(b)(2)(iv).
For this purpose, the Company shall, upon the occurrence of the events specified
in Treasury Regulation Section 1.704-1(b)(2)(iv)(f), increase or decrease the
Capital Accounts in accordance with the rules of such regulation and Treasury
Regulation Section 1.704-1(b)(2)(iv)(g) to reflect a revaluation of Company
property.
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<PAGE>
(b) For purposes of computing the amount of any item of Company
income, gain, loss or deduction to be allocated pursuant to Article IV and to be
reflected in the Capital Accounts, the determination, recognition and
classification of any such item shall be the same as its determination,
recognition and classification for federal income tax purposes (including any
method of depreciation, cost recovery or amortization used for this purpose);
provided that:
(i) The computation of all items of income, gain, loss and
deduction shall include those items described in Code
Section 705(a)(l)(B) or Code Section 705(a)(2)(B) and
Treasury Regulation Section 1.704-1(b)(2)(iv)(i), without
regard to the fact that such items are not includable in
gross income or are not deductible for federal income tax
purposes.
(ii) If the Book Value of any Company property is adjusted
pursuant to Treasury Regulation Section 1.704-
1(b)(2)(iv)(f), the amount of such adjustment shall be
taken into account as gain or loss from the disposition of
such property.
(iii) Items of income, gain, loss or deduction attributable to
the disposition of Company property having a Book Value
that differs from its adjusted basis for tax purposes shall
be computed by reference to the Book Value of such
property.
(iv) Items of depreciation, amortization and other cost recovery
deductions with respect to Company property having a Book
Value that differs from its adjusted basis for tax purposes
shall be computed by reference to the property's Book Value
in accordance with Treasury Regulation Section 1.704-
1(b)(2)(iv)(g).
(v) To the extent an adjustment to the adjusted tax basis of
any Company asset pursuant to Code Sections 732(d), 734(b)
or 743(b) is required, pursuant to Treasury Regulation
Section 1.704-1(b)(2)(iv)(m), to be taken into account in
determining Capital Accounts, the amount of such adjustment
to the Capital Accounts shall be treated as an item of gain
(if the adjustment increases the basis of the asset) or
loss (if the adjustment decreases such basis).
3.3 Negative Capital Accounts. No Holder shall be required to pay to
any other Holder or the Company any deficit or negative balance which may exist
from time to time in such Holder's Capital Account (including upon and after
dissolution of the Company).
3.4 No Withdrawal. No Person shall be entitled to withdraw any part
of such Person's Capital Contribution or Capital Account or to receive any
Distribution from the Company, except as expressly provided herein or in the
Members Agreement.
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<PAGE>
3.5 Loans From Holders. Loans by Holders to the Company shall not be
considered Capital Contributions. If any Holder shall advance funds to the
Company in excess of the amounts required hereunder to be contributed by such
Holder to the capital of the Company, the making of such advances shall not
result in any increase in the amount of the Capital Account of such Holder. The
amount of any such advances shall be a debt of the Company to such Holder and
shall be payable or collectible in accordance with the terms and conditions upon
which such advances are made.
3.6 Preferred Company Interests. The Preferred Company Interests
shall have the following rights, preferences and privileges, subject to the
following restrictions, limitations and qualifications.
(a) Participating Distributions. In the event that the Company
---------------------------
declares or pays any Distributions upon the Common Company Interests (whether
payable in cash, securities or other property), the Company shall also declare
and pay to the Preferred Holders at the same time that it declares and pays such
Distributions to the Common Holders, the Distributions which would have been
declared and paid with respect to the Common Company Interests issuable upon
conversion of the Preferred Company Interests had all of the outstanding
Preferred Company Interests been converted immediately prior to the record date
for such Distribution, or if no record date is fixed, the date as of which the
Holders entitled to such Distributions are to be determined.
(b) Liquidation.
-----------
(i) Upon any liquidation, dissolution or winding up of the
Company (whether voluntary or involuntary), each Preferred
Holder shall be entitled to be paid, before any Distribution
or payment is made upon any Junior Interests, an amount (the
"Preference Amount") in cash equal to the greater of either
-----------------
(i) the aggregate Liquidation Value of all Preferred Company
Interests held by such Holder (plus all declared and unpaid
participating Distributions thereon pursuant to Section
3.6(a)) or (ii) such Holder's pro rata share (based upon the
aggregate amount of Preferred Company Interests outstanding)
of all liquidation proceeds payable to the Common Holders
assuming all outstanding Preferred Company Interests had
been converted into Common Company Interests immediately
prior to any such liquidation, dissolution or winding up,
and the Preferred Holders shall not be entitled to any
further payment. If upon any such liquidation, dissolution
or winding up of the Company, the Company's assets to be
distributed among the Preferred Holders are insufficient to
permit payment to such Holders of the aggregate amount which
they are entitled to be paid under this Section 3.6(b), then
the entire assets available to be distributed to the
Preferred Holders shall be distributed pro rata among such
Holders based upon the aggregate Preference Amount of the
Preferred Company Interests held by each such Holder. Not
less than 60 days prior to the payment date stated
-10-
<PAGE>
therein, the Company shall mail written notice of any such
liquidation, dissolution or winding up to each Preferred
Holder, setting forth in reasonable detail the amount of
proceeds to be paid with respect to each Preferred Company
Interest and each Common Company Interest in connection
with such liquidation, dissolution or winding up.
(ii) Upon the election of any Preferred Holder delivered to the
Company within 45 days after receipt of the Company's
notice to the Preferred Holders under this Section 3.6, any
consolidation or merger of the Company with or into another
entity or entities (whether or not the Company is the
surviving entity) or any sale or transfer by the Company of
all or substantially all of its assets (determined either
for the Company alone or with its Subsidiaries on a
consolidated basis) (any of the foregoing, a "Fundamental
-----------
Change") or any sale, transfer or issuance or series of
------
sales, transfers and/or issuances of the Company's Equity
Interests by the Company or the holders thereof as a result
of which the holders of the Company's outstanding Equity
Interests possessing the voting power (under ordinary
circumstances) to elect a majority of the Board immediately
prior to such sale or issuance cease to own the Company's
outstanding Equity Interests possessing the voting power
(under ordinary circumstances) to elect a majority of the
Board (any of the foregoing, a "Change in Control"), shall
-----------------
be deemed to be a liquidation, dissolution and winding up
of the Corporation for purposes of this Section 3.6(b), and
the Preferred Holders shall be entitled to receive payment
from the Company of the amounts payable with respect to the
Preferred Company Interests upon a liquidation, dissolution
or winding up of the Company under this Section 3.6(b) upon
the consummation of any such transaction. Each Preferred
Holder shall have the right to elect the benefits of either
this Section 3.6(b) or Section 3.6(e) hereof in connection
with any such merger, consolidation or sale of assets.
(c) Priority of Preferred Company Interests. So long as any
---------------------------------------
Preferred Company Interests remain outstanding, without the prior written
consent of the holders of not less than a majority of the Preferred Company
Interest then outstanding, the Company shall not, nor shall it permit any
Subsidiary to, redeem, purchase or otherwise acquire directly or indirectly any
Junior Interests, nor shall the Company directly or indirectly pay, declare or
make any Distribution upon any Junior Interests.
(d) Conversion.
----------
(i) Conversion Procedure.
--------------------
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<PAGE>
(A) At any time and from time to time, any Preferred Holder may
convert all or any portion of the Preferred Company
Interests held by such holder into Common Company Interests
representing an equivalent percentage of the aggregate
Company Interest then represented by such Preferred Company
Interests to be converted.
(B) Except as otherwise provided herein, each conversion of
Preferred Company Interests shall be deemed to have been
effected as of the close of business on the date on which
the holder or holders of such Company Interest delivers
notice of such conversion to the principal office of the
Company. At the time any such conversion has been effected,
the rights of the Preferred Holder as a holder of Preferred
Company Interests shall cease and the Person or Persons in
whose name or names any Common Company Interests are to be
reflected in the Company's books and records upon such
conversion shall be deemed to have become the holder or
holders of record of the Common Company Interests
represented thereby.
(C) Notwithstanding any other provision hereof, if a conversion
of Preferred Company Interests is to be made in connection
with a Public Offering, a Change in Control, a Fundamental
Change or other transaction affecting the Company, the
conversion of any Preferred Company Interests may, at the
election of the holder thereof, be conditioned upon the
consummation of such transaction, in which case such
conversion shall not be deemed to be effective until such
transaction has been consummated.
(D) As soon as possible after a conversion has been effected
(but in any event within five business days in the case of
subparagraph (I) below), the Company shall deliver to the
converting holder:
(I) a written confirmation signed by the president and
secretary of the Company confirming the issuance of the
Common Company Interests issuable by reason of such
conversion in such name or names and such amounts as
the converting holder has specified; and
(II) the amount of all Distributions declared pursuant to
Section 3.6(a) remaining unpaid with respect to the
Preferred Company Interests to be converted.
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<PAGE>
(E) The issuance of Common Company Interests upon
conversion of Preferred Company Interests shall be made
without charge to the Preferred Holders for any
issuance tax in respect thereof or other cost incurred
by the Company in connection with such conversion and
the related recording of the Common Company Interests.
Upon conversion of each Preferred Company Interest, the
Company shall take all such actions as are necessary in
order to insure that the Common Company Interests
issuable with respect to such conversion shall be
validly issued, fully paid and nonassessable, free and
clear of all taxes, liens, charges and encumbrances
with respect to the issuance thereof.
(F) The Company shall not close its books against the
transfer of Preferred Company Interests or of Common
Company Interests issued or issuable upon conversion of
Preferred Company Interests in any manner which
interferes with the timely conversion of Preferred
Company Interests. The Company shall assist and
cooperate with any Holder required to make any
governmental filings or obtain any governmental
approval prior to or in connection with any conversion
of Preferred Company Interests hereunder (including,
without limitation, making any filings required to be
made by the Company).
(G) The Company shall take all such actions as may be
necessary to assure that all Common Company Interests
may be issued without violation of any applicable law
or governmental regulation.
(e) Reorganization, Reclassification, Consolidation, Merger or Sale.
---------------------------------------------------------------
Any recapitalization, reorganization, reclassification, consolidation, merger,
sale of all or substantially all of the Company's assets or other transaction,
in each case which is effected in such a manner that the holders of Common
Company Interests are entitled to receive (either directly or upon subsequent
liquidation) stock, securities or assets with respect to or in exchange for
Common Company Interests, is referred to herein as an "Organic Change." Prior
--------------
to the consummation of any Organic Change, the Company shall make appropriate
provisions (in form and substance satisfactory to the holders of not less than a
majority of the Preferred Company Interests then outstanding) to insure that
each of the Preferred Holders shall thereafter have the right to acquire and
receive, in lieu of or in addition to (as the case may be) the Common Company
Interests immediately theretofore acquirable and receivable upon the conversion
of such holder's Preferred Company Interests, such shares of stock, securities
or assets as such holder would have received in connection with such Organic
Change if such holder had converted its Preferred Company Interests immediately
prior to such Organic Change. In each such case, the Company shall also make
appropriate provisions (in form and substance satisfactory to the holders of not
less than a majority of the Preferred Company
-13-
<PAGE>
Interests then outstanding) to insure that the provisions of this Section 3.6
shall thereafter be applicable to the Preferred Company Interests. The Company
shall not effect any such consolidation, merger or sale, unless prior to the
consummation thereof, the successor entity (if other than the Company) resulting
from any such consolidation or merger or the entity purchasing such assets
assumes by written instrument (in form and substance satisfactory to the holders
of not less than a majority of the Preferred Company Interests then
outstanding), the obligation to deliver to each such holder such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such holder may be entitled to acquire.
(f) Notices. The Company shall give written notice to all Preferred
-------
Holders at least 20 days prior to the date on which the Company closes its books
or takes a record (a) with respect to any Distribution upon Common Company
Interests, (b) with respect to any pro rata subscription offer to holders of
Common Company Interests or (c) for determining rights to vote with respect to
any Organic Change, dissolution or liquidation. The Company shall also give
written notice to the Preferred Holders at least 20 days prior to the date on
which any Organic Change shall take place.
(g) Mandatory Conversion. The Company may at any time require the
--------------------
conversion of all of the outstanding Preferred Company Interests if the Company
is at such time effecting a firm commitment underwritten Public Offering of its
Common Company Interests in which the aggregate market capitalization of the
Company, based upon the price paid by the public for such interests, is at least
$150 million. Any such mandatory conversion shall only be effected at the time
of and subject to the closing of the sale of such interests pursuant to such
Public Offering and upon written notice of such mandatory conversion delivered
to all Preferred Holders at least seven days prior to such closing.
(h) Amendment and Waiver. No amendment, modification or waiver shall
--------------------
be binding or effective with respect to any provision of this Section 3.6 hereof
without the prior written consent of the holders of not less than a majority of
the Preferred Company Interests outstanding at the time such action is taken;
provided that no change in the terms hereof may be accomplished by merger or
consolidation of the Company with another corporation or entity unless the
Company has obtained the prior written consent of the holders of the applicable
percentage of the Preferred Company Interests then outstanding.
3.7 Common Company Interests.
(a) Distributions. Subject to the terms and conditions of the
-------------
Preferred Company Interests, as and when Distributions are declared or paid with
respect to Common Company Interests, whether in cash, property or securities of
the Company, the holders of Common Company Interests shall be entitled to
receive such Distributions pro rata based on the percentage of Company Interests
then held by each such holder.
(b) Liquidation. Subject to the terms and conditions of the
-----------
Preferred Company Interests, the Common Holders shall be entitled to
participate, pro rata based on the percentage of
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<PAGE>
Company Interests then held by each such holder, in all Distributions to the
Common Holders in any liquidation, dissolution or winding up of the Company.
ARTICLE IV
DISTRIBUTIONS AND ALLOCATIONS
4.1 Distributions.
(a) Distributions in General. The Board may in its sole discretion
------------------------
make Distributions at any time and from time to time. Except as otherwise set
forth in this Section 4.1, each Distribution shall be made in the order and
priority specified in Sections 3.6 and 3.7 of this Agreement.
(b) Tax Distributions. The Company shall, subject to (i) any
-----------------
restrictions contained in the financing agreements to which the Company or any
its Subsidiaries is a party and (ii) having available cash (after setting aside
appropriate reserves), distribute to each Holder (pro rata according to their
respective Company Interests as of the end of such Taxable Year) within 75 days
after the close of each Taxable Year (or at such earlier times and in such
amounts as determined in good faith by the Board to be appropriate to enable the
Holders to pay estimated income tax liabilities) an amount equal to 46% (or, at
the Board's sole discretion, such greater or lesser percentage as the Board may
determine in good faith from time to time, to represent the sum of the maximum
marginal federal, state and local income tax rates applicable to the members of
LZ or to Zecal, whichever rate is higher) of the amount determined by dividing:
(i) Profits for such Fiscal Year allocated to the Designated Holder (as defined
below) pursuant to Sections 4.2 and 4.3, reduced by the Losses for such Fiscal
Year allocated to the Designated Holder pursuant to Sections 4.2 and 4.3, by
(ii) the Designated Holder's percentage of the aggregate Company Interest as of
the close of such Taxable Year. "Designated Holder" means whichever Holder is
-----------------
allocated the greatest amount of (i) Profits for such Fiscal Year allocated
pursuant to Sections 4.2 and 4.3, less (ii) the Losses for such Fiscal Year
allocated pursuant to Sections 4.2 and 4.3.
(c) Payment of Distributions. Each Distribution pursuant to Section
------------------------
4.1(a) and each distribution pursuant to Section 4.1(b) shall be made to the
Persons shown on the Company's books and records as Holders as of the date of
such distribution; provided that any transferor and transferee of Company
Interests may mutually agree as to which of them should receive payment of any
distribution under Section 4.1(b).
(d) Distributions Regarding the Guaranty.
------------------------------------
(i) Pursuant to the terms and conditions of the Asset Purchase
Agreement and the Letter Agreement, the Company has issued the Guaranty. HTI
agrees, on behalf of itself and each of its Affiliates (excluding, for the
avoidance of doubt, the Company), that (A) they shall be the primary obligor
with respect to the Indebtedness for Borrowed Money guaranteed by the Guaranty,
and neither the Company nor LZ shall have any obligation or liability with
respect to such Indebtedness for Borrowed Money, except as set forth in the
Guaranty and (B) they shall service the
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<PAGE>
Indebtedness for Borrowed Money guaranteed by the Guaranty in accordance with
the current scheduled maturities of such indebtedness (or, at their election,
such indebtedness may be repaid in advance of any such scheduled maturities).
(ii) In the event that the Company pays any amount in connection
with the Guaranty, then either (A) Zecal shall immediately (and in no event
later than five business days after Zecal receives written notice from the
Company that the Company has made any payment in connection with the Guaranty)
make a cash contribution to the Company (which contribution shall have no effect
on Zecal's Invested Capital or Capital Account, and shall not be deemed to be a
Capital Contribution), by wire transfer of immediately available funds, in an
amount equal to the amount paid by the Company in connection with the Guaranty
(the "Debt Service Amount") or (B) if the Debt Service Amount is not so paid by
-------------------
Zecal, Zecal's Invested Capital shall immediately be reduced (by way of a deemed
capital Distribution to Zecal) by an amount equal to the Debt Service Amount
(and, without duplication, Zecal's Capital Account shall also be reduced by such
amount). If Zecal's Invested Capital is reduced pursuant to clause (B) of the
preceding sentence, each Holder's resultant ownership percentage in the Company
(i.e., each Holder's relevant percentage of Company Interests) shall be adjusted
and recalculated based upon each Holder's percentage of the Company's aggregate
Invested Capital immediately following any such Distribution.
(e) Ratchet Distributions.
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(i) The Company's projected aggregate cumulative net sales for
the years ended December 31, 2000 and December 31, 2001 are $45.3 million (the
"Target"), as set forth in the Customer List (as defined in Section 4.1(e)(ii)).
If the Company's actual net sales (as determined pursuant to the audited
financial statements required to be delivered pursuant to Section 8 of the
Members Agreement and the provisions of this Section 4.1(e)) for the years ended
December 31, 2000 and December 31, 2001 ("Actual Net Sales") are less than 90%
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of the Target, then Zecal's Invested Capital shall immediately be reduced (by
way of a deemed capital Distribution to Zecal) by the percentage determined by
multiplying (i) 0.75, by (ii) the percentage shortfall in Actual Net Sales as
compared to the Target (e.g., if Actual Net Sales were $40 million, such
shortfall would result in a 9.1% reduction in Zecal's Invested Capital) (and,
without duplication, Zecal's Capital Account shall also be reduced by such
amount). If Zecal's Invested Capital is reduced pursuant to the preceding
sentence, each Holder's resultant ownership percentage in the Company (i.e.,
each Holder's relevant percentage of Company Interests) shall be adjusted and
recalculated based upon each Holder's percentage of the Company's aggregate
Invested Capital immediately following any such Distribution. Notwithstanding
anything to the contrary in this Section 4.1(e)(i), if (x) the Company's Actual
Net Sales are not less than 85% of the Target and (y) the Company's actual
Adjusted EBITDA is not less than 85% of the Adjusted EBITDA targets set forth on
the Customer List (calculated in the aggregate for the years ended December 31,
2000 and December 31, 2001), then Zecal's Invested Capital shall not be reduced
pursuant to the terms of this Section 4.1(e)(i).
(ii) For purposes of calculating Actual Net Sales and Adjusted
EBITDA under this Section 4.1(e): (w) all sales of Z-Strate shall be included,
(x) all outside assembly sales shall be excluded, (y) net sales of inside
assembly to any customer not identified on a list delivered at the closing of
the transactions contemplated by the Asset Purchase Agreement by signature of an
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officer of Zecal and countersigned by a LZ Director (as defined in the Members
Agreement) (the "Customer List") will be included in the calculation of Actual
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Net Sales and Adjusted EBITDA only to the extent that such inside assembly sales
comprise not more than 23.3% of the total sales to any such customer and (z) net
sales of inside assembly to any customer listed on the Customer List which are
in excess of the dollar amounts of such inside assembly sales currently
specified thereon with respect to such customer will be included in the
calculation of Actual Net Sales and Adjusted EBITDA only to the extent that such
excess inside assembly sales comprise not more than 23.3% of the total excess
sales to such customer (i.e., sales which are in excess of the amounts currently
specified on the Customer List with respect to such customer); provided that for
the purposes of this Section 4.1(e), determinations of the percentage of inside
assembly sales to total sales shall in no case include outside assembly sales
(i.e., shall include only inside assembly sales and Z-Strate sales).
(f) Special Distributions With Respect to Disposals of Equipment.
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(i) If the Company sells, for cash, any of the equipment listed
on a list delivered at the Closing of the transactions contemplated by the Asset
Purchase Agreement by signature of an officer of Zecal and countersigned by a LZ
Director, the Company shall, subject to any restrictions contained in the
financing agreements to which the Company or any of its Subsidiaries is a party,
(i) first, apply the net proceeds (i.e., after deducting costs of sale) from any
such disposition of such equipment to repayment of the obligations under the
Guaranty and (ii) second, distribute to Zecal the remaining net proceeds (i.e.,
after deducting costs of sale) from any such disposition of such equipment;
provided that no distribution pursuant to this Section 4.1(f) shall affect the
percentage of Company Interests held by any Holder; provided further that if
restrictions under financing agreements preclude distribution of any remaining
net proceeds to Zecal, then in the event of a Call Notice (as defined in the
Members Agreement), the amount of such net proceeds not distributed to Zecal
shall be deemed additional financing funded by Zecal upon the closing of the
financing described in such Call Notice.
(ii) Notwithstanding anything to the contrary contained herein,
the provisions of this Section 4.1(f) shall not apply in connection with a
Liquidity Event.
(iii) The provisions of this Section 4.1(f) shall terminate upon
the first to occur of (A) the consummation of a Liquidity Event and (B) the
consummation of an IPO.
4.2 Allocations.
(a) Except as otherwise provided in Section 4.3, Profits and Losses
for any Fiscal Year shall be allocated among the Holders in such a manner that,
as of the end of such Fiscal Year, the sum of (i) the Capital Account of each
Holder, (ii) such Holder's share of Minimum Gain (as determined according to
Treasury Regulation Section 1.704-2(g)) and (iii) such Holder's partner
nonrecourse debt minimum gain (as defined in Treasury Regulation Section 1.704-
2(i)(3)) shall be equal to the respective net amounts, positive or negative,
which would be distributed to them or for which they would be liable to the
Company under this Agreement, determined as if the Company were to (i) liquidate
the assets of the Company for an amount equal to their Book Value and (ii)
distribute the proceeds of liquidation pursuant to Section 12.2.
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(b) For purposes of this Section 4.2, if Profits exceed Losses for a
Fiscal Year, (i) Losses shall first be allocated to Holders whose Capital
Accounts are reduced as a result of the allocations under Section 4.2(a), in an
amount equal to the amount by which such Capital Accounts have been reduced and
(ii) Profits and any remaining Losses shall be allocated to Holders whose
Capital Accounts are increased as a result of the allocations under Section
4.2(a), in the proportion that the amount of the increase in such Holder's
Capital Accounts as a result of the allocations under Section 4.2(a) bears to
the aggregate amount of the increase in all such Holders' Capital Accounts as a
result of the allocations under Section 4.2(a).
(c) For purposes of this Section 4.2, if Losses exceed Profits for a
Fiscal Year, (i) Profits shall first be allocated to Holders whose Capital
Accounts are increased as a result of the allocations under Section 4.2(a), in
an amount equal to the amount by which such Capital Accounts have been increased
and (b) Losses and any remaining Profits shall be allocated to Holders whose
Capital Accounts are reduced as a result of the allocations under Section
4.2(a), in the proportion that the amount of the reduction in such Holder's
Capital Accounts as a result of the allocations under Section 4.2(a) bears to
the aggregate amount of the reduction in all such Holders' Capital Accounts as a
result of the allocations under Section 4.2(a).
4.3 Special Allocations.
(a) Losses attributable to partner nonrecourse debt (as defined in
Treasury Regulation Section 1.704-2(b)(4)) shall be allocated in the manner
required by Treasury Regulation Section 1.704-2(i). If there is a net decrease
during a Taxable Year in partner nonrecourse debt minimum gain (as defined in
Treasury Regulation Section 1.704-2(i)(3)), Profits for such Taxable Year (and,
if necessary, for subsequent Taxable Years) shall be allocated to the Holders in
the amounts and of such character as determined according to Treasury Regulation
Section 1.704-2(i)(4).
(b) Nonrecourse deductions (as determined according to Treasury
Regulation Section 1.704-2(b)(1)) for any Taxable Year shall be allocated to
each Holder, ratably among such Holders based upon the aggregate percentage of
Company Interest outstanding held by each such Holder immediately prior to such
allocation. Except as otherwise provided in Section 4.3(a), if there is a net
decrease in the Minimum Gain during any Taxable Year, each Holder shall be
allocated Profits for such Taxable Year (and, if necessary, for subsequent
Taxable Years) in the amounts and of such character as determined according to
Treasury Regulation Section 1.704-2(f). This Section 4.3(b) is intended to be a
minimum gain chargeback provision that complies with the requirements of
Treasury Regulation Section 1.704-2(f), and shall be interpreted in a manner
consistent therewith.
(c) If any Holder that unexpectedly receives an adjustment,
allocation or distribution described in Treasury Regulation Section 1.704-
1(b)(2)(ii)(d)(4), (5) and (6) has an Adjusted Capital Account Deficit as of the
end of any Taxable Year, computed after the application of Sections 4.3(a) and
4.3(b) but before the application of any other provision of this Article IV,
then Profits for such Taxable Year shall be allocated to such Holder in
proportion to, and to the extent of, such Adjusted Capital Account Deficit. This
Section 4.3(c) is intended to be a qualified income offset provision as
described in Treasury Regulation Section 1.704-1(b)(2)(ii)(d) and shall be
interpreted in a manner consistent therewith.
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(d) Profits and Losses described in Section 3.2(b)(v) shall be
allocated in a manner consistent with the manner that the adjustments to the
Capital Accounts are required to be made pursuant to Treasury Regulation Section
1.704-1(b)(2)(iv)(j), (k) and (m).
(e) If, and to the extent that, any Holder is deemed to recognize any
item of income, gain, loss, deduction or credit as a result of any transaction
between such Holder and the Company pursuant to Code Sections 1272-1274, 7872,
483, 482 or any similar provision now or hereafter in effect, and the Board
determines that any corresponding Profit or Loss of the Company should be
allocated to the Holder who recognized such item in order to reflect the
Holder's economic interests in the Company, then the Board may so allocate such
Profit or Loss.
4.4 Tax Allocations.
(a) The income, gains, losses, deductions and credits of the Company
will be allocated, for federal, state and local income tax purposes, among the
Holders in accordance with the allocation of such income, gains, losses,
deductions and credits among the Holders for computing their Capital Accounts;
except that if any such allocation is not permitted by the Code or other
applicable law, the Company's subsequent income, gains, losses, deductions and
credits will be allocated among the Holders so as to reflect as nearly as
possible the allocation set forth herein in computing their Capital Accounts.
(b) Items of Company taxable income, gain, loss and deduction with
respect to any property contributed to the capital of the Company shall be
allocated among the Holders in accordance with Code Section 704(c) so as to take
account of any variation between the adjusted basis of such property to the
Company for federal income tax purposes and its fair market value at the time of
contribution under the remedial allocation method described in Treas. Reg.
(S)1.704-3(d).
(c) If the Book Value of any Company asset is adjusted pursuant to
Section 3.2(b), subsequent allocations of items of taxable income, gain, loss
and deduction with respect to such asset shall take account of any variation
between the adjusted basis of such asset for federal income tax purposes and its
Book Value in the same manner as under Code Section 704(c).
(d) Allocations of tax credits, tax credit recapture, and any items
related thereto shall be allocated to the Holders according to their interests
in such items as determined by the Board taking into account the principles of
Treasury Regulation Section 1.704-1(b)(4)(ii).
(e) Allocations pursuant to this Section 4.4 are solely for purposes
of federal, state and local taxes and shall not affect, or in any way be taken
into account in computing, any Holder's Capital Account or share of Profits,
Losses, Distributions or other Company items pursuant to any provision of this
Agreement.
4.5 Curative Allocations. The allocations set forth in Section 4.3 (the
"Regulatory Allocations") are intended to comply with certain requirements of
----------------------
Sections 1.704-1(b) and 1.704-2 of the Treasury Regulations. The Regulatory
Allocations may not be consistent with the manner in which the Holders intend to
allocate Profit and Loss of the Company or make Company
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distributions. Accordingly, notwithstanding the other provisions of this Article
IV, but subject to the Regulatory Allocations, income, gain, deduction, and loss
shall be reallocated among the Holders so as to eliminate the effect of the
Regulatory Allocations and thereby cause the respective Capital Accounts of the
Holders to be in the amounts (or as close thereto as possible) they would have
been if Profit and Loss (and such other items of income, gain, deduction and
loss) had been allocated without reference to the Regulatory Allocations. In
general, the Holders anticipate that this will be accomplished by specially
allocating other Profit and Loss (and such other items of income, gain,
deduction and loss) among the Holders so that the net amount of the Regulatory
Allocations and such special allocations to each such Holder is zero. In
addition, if in any Fiscal Year or Fiscal Period there is a decrease in
partnership minimum gain, or in partner nonrecourse debt minimum gain, and
application of the minimum gain chargeback requirements set forth in Section
4.3(a) or Section 4.3(b) would cause a distortion in the economic arrangement
among the Holders, the Holders may, if they do not expect that the Company will
have sufficient other income to correct such distortion, request the Internal
Revenue Service to waive either or both of such minimum gain chargeback
requirements. If such request is granted, this Agreement shall be applied in
such instance as if it did not contain such minimum gain chargeback requirement.
4.6 Indemnification and Reimbursement for Payments on Behalf of a Holder.
Except as otherwise provided in Section 14.12, if the Company is obligated to
pay any amount to a Governmental Entity (or otherwise makes a payment to a
Governmental Entity) that is specifically attributable to a Holder or a Holder's
status as such (including federal withholding taxes, state personal property
taxes, and state unincorporated business taxes), then such Person shall
indemnify the Company in full for the entire amount paid (including interest,
penalties and related expenses). The Board may offset Distributions to which a
Person is otherwise entitled under this Agreement against such Person's
obligation to indemnify the Company under this Section 4.6. A Holder's
obligation to make contributions to the Company under this Section 4.6 shall
survive the termination, dissolution, liquidation and winding up of the Company,
and for purposes of this Section 4.6, the Company shall be treated as continuing
in existence. The Company may pursue and enforce all rights and remedies it may
have against each Holder under this Section 4.6, including instituting a lawsuit
to collect such contribution with interest calculated at a rate equal to the
Base Rate plus three percentage points per annum (but not in excess of the
highest rate per annum permitted by law).
ARTICLE V
MANAGEMENT
5.1 Authority of Board. Except for situations in which the approval of the
Members is specifically required by this Agreement, but subject to any
applicable provisions of the Members Agreement and subject to the provisions of
Section 5.5(b) with respect to any matter upon which the Board or any committee
thereof is deadlocked, (i) the Board shall conduct, direct and exercise full
control over all activities of the Company and (ii) all management powers over
the business and affairs of the Company shall be exclusively vested in the
Board. Without limiting the generality of the foregoing, subject to the Members
Agreement and subject to the provisions of Section 5.5(b) with respect to any
matter upon which the Board or any committee thereof is deadlocked, (x) the
Board shall have sole and complete discretion in determining whether to issue
Equity Interests, the
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amount or percentage of Equity Interests to be issued at any particular time,
the Capital Contribution or purchase price for any Equity Interests issued, and
all other terms and conditions governing the issuance of Equity Interests and
(y) the Board may in its sole and complete discretion enter into, approve, and
consummate any merger, consolidation, sale of all or any part of its assets,
Liquidity Event or other extraordinary transaction, and execute and deliver on
behalf of the Company or the Holders any agreement, document and instrument in
connection therewith (including amendments, if any, to this Agreement or
adoptions of new constituent documents) without the approval or consent of any
Holder. No Representative shall have the authority to bind the Company, unless
such authority has been granted to such Representative by the Board (or the
holders of not less than a majority of the Company Interest, pursuant to Section
5.5(b)).
5.2 Actions of the Board. The Board may act (i) through meetings and
written consents pursuant to Section 5.5 and (ii) through any Person or Persons
to whom authority and duties have been delegated pursuant Section 5.6.
5.3 Composition.
(a) The Board shall be composed of such persons appointed in
accordance with the terms and conditions of the Members Agreement and applicable
law. Each member of the Board so appointed is referred to herein as a
"Representative," it being agreed and understood that the Company's chief
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executive officer, in his or her capacity as a non-voting member of the Board
pursuant to Section 1(a)(i)(C) of the Members Agreement, shall not be a
"Representative" for purposes of this Agreement.
(b) A "Chairman" of the Board shall be elected by the Board for one
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or more one-year terms, but such "Chairman" of the Board may be removed by the
Board at any time (with or without cause) and replaced with another "Chairman"
of the Board. Edwin Jacobson shall be the initial Chairman. The "Chairman" shall
have only those powers as set out in those certain bylaws of the Company of even
date herewith or as affirmatively granted in writing by not less than a majority
of the Board.
(c) Notwithstanding any provision in this Section 5.3, in the event
of any conflict between the terms and conditions of this Section 5.3 and the
terms and conditions of the Members Agreement, the terms and conditions of the
Members Agreement shall control the resolution of any such conflict.
5.4 Proxies. A Representative may vote at a meeting of the Board or any
committee thereof either in person or by proxy executed in writing by such
Representative. A telegram, telex, cablegram or similar transmission by the
Representative, or a photographic, photostatic, facsimile or similar
reproduction of a writing executed by the Representative shall (if stated
thereon) be treated as a proxy executed in writing for purposes of this Section
5.4. Proxies for use at any meeting of the Board or any committee thereof or in
connection with the taking of any action by written consent shall be filed with
the Board, before or at the time of the meeting or execution of the written
consent as the case may be. All proxies shall be received and taken charge of
and all ballots shall be received and canvassed by the majority of the Board who
shall decide all questions concerning the
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qualification of voters, the validity of the proxies and the acceptance or
rejection of votes. No proxy shall be valid after eleven months from the date of
its execution unless otherwise provided in the proxy. A proxy shall be revocable
unless the proxy form conspicuously states that the proxy is irrevocable and
that the proxy is coupled with an interest. Should a proxy designate two or more
Persons to act as proxies, unless that instrument shall provide to the contrary,
a majority of such Persons present at any meeting at which their powers
thereunder are to be exercised shall have and may exercise all the powers of
voting or giving consents thereby conferred, or if only one be present, then
such powers may be exercised by that one; or, if an even number attend and a
majority do not agree on any particular issue, the Company shall not be required
to recognize such proxy with respect to such issue if such proxy does not
specify how the votes that are the subject of such proxy are to be voted with
respect to such issue.
5.5 Meetings, etc.
(a) Meetings of the Board and any committee thereof shall be held at
the principal office of the Company or at such other place as may be determined
by the Board or such committee. Regular meetings of the Board shall be held on
such dates and at such times as shall be determined by the Board; provided that
for the balance of the year ended December 31, 2000, such Board meetings shall
be held at least every two months commencing after the date of this Agreement.
Special meetings of the Board or any committee may be called by any one
Representative (or, in the case of a special meeting of any committee of the
Board, by any member thereof) on at least five days' prior written notice to the
other Representatives, which notice shall state the purpose or purposes for
which such meeting is being called. The actions taken by the Board or any
committee at any meeting (as opposed to by written consent), however called and
noticed, shall be as valid as though taken at a meeting duly held after regular
call and notice if (but not until), either before, at or after the meeting, the
Representative as to whom it was improperly held signs a written waiver of
notice or a consent to the holding of such meeting or an approval of the minutes
thereof. The actions by the Board or any committee thereof may be taken by vote
of the Board or any committee at a meeting of the Representatives thereof or by
written consent (without a meeting, without notice and without a vote) so long
as such consent is signed by at least the minimum number of Representatives that
would be necessary to authorize or take such action at a meeting of the Board or
such committee in which all members thereof were present. Prompt notice of the
action so taken without a meeting shall be given to those Representatives who
have not consented in writing. A meeting of the Board or any committee may be
held by conference telephone or similar communications equipment by means of
which all individuals participating in the meeting can be heard.
(b) Each Representative shall have one vote on all matters submitted
to the Board or any committee thereof (whether the consideration of such matter
is taken at a meeting, by written consent or otherwise), excluding, for the
avoidance of doubt, the Company's chief executive officer, in his or her
capacity as a non-voting member of the Board pursuant to Section 1(a)(i)(C) of
the Members Agreement. The affirmative vote (whether by proxy or otherwise) of
members of the Board holding a majority of the votes of all members of the Board
shall be the act of the Board, it being agreed and understood that in the event
of a Board deadlock on any matter before the Board or any committee thereof, the
affirmative vote of the holders of not less than a majority of the
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Company Interest shall be the act of the Company; provided that if such deadlock
occurs following the delivery of a Put Notice (as defined in the Members
Agreement) but prior to the consummation of the Put (as defined in the Members
Agreement), so long as Zecal has provided LZ unconditional financing commitments
or other evidence satisfactory to LZ in its reasonable discretion of Zecal's
ability to consummate the Put, the affirmative vote of the Company Interests
held by Zecal shall be the act of the Company, it being understood and agreed
that if Zecal fails to consummate the Put, the terms and conditions of this
proviso shall be of no further force and effect. Notwithstanding any provision
contained herein or in the Members Agreement to the contrary, only the LZ
Directors (as defined in the Members Agreement) (or the board members appointed
by LZ, in the event the Voting Agreement contained in Section 1 of the Members
Agreement is terminated pursuant to its terms), as a separate group as permitted
by Section 18-404(b) of the Delaware Act, shall be entitled to consider and vote
upon (i) the Company's exercise of any of its rights or remedies (including,
without limitation, any exercise of any right to indemnification) or the
performance of any of its obligations pursuant to the Asset Purchase Agreement
or (ii) any prepayment or repayment of the Guaranty in advance of the scheduled
maturity or required payment of such guaranty obligations, but, in the case of
this clause (ii), only after (A) the occurrence of any Insolvency Event (as
defined in the Members Agreement), (B) any demand for payment of the Guaranty by
Wells Fargo (as defined in the Members Agreement) or any exercise by Wells Fargo
or attempt by Wells Fargo to exercise any of its rights or remedies under the
Guaranty or (C) if necessary or desirable for the Company to obtain other
financing which the LZ Directors reasonably believe to be in the best interests
of the Company. Except as otherwise provided by the Board when establishing any
committee, the affirmative vote (whether by proxy or otherwise) of members of
such committee holding a majority of the votes of all members of such committee
shall be the act of such committee, it being agreed and understood that in the
event of a committee deadlock on any matter before any such Board committee, the
affirmative vote of the holders of not less than a majority of the Company
Interest shall be the act of the Company.
(c) The Company shall pay the reasonable out-of-pocket expenses
incurred by each Representative in connection with attending the meetings of the
Board and any committee thereof (unless such expenses shall have been paid or
are required to be paid by any other Person). Except as otherwise provided in
the immediately preceding sentence or elsewhere in this Agreement, the
Representatives shall not be compensated for their services as members of the
Board.
5.6 Delegation of Authority. The Board may, from time to time, delegate
to one or more Persons (including any Representative or officer of the Company
and including through the creation and establishment of one or more committees)
such authority and duties as the Board may deem advisable. In addition, the
Board may assign titles (including, without limitation, managing director,
chairman, chief executive officer, president, principal, vice president,
secretary, assistant secretary, treasurer, or assistant treasurer) and delegate
certain authority and duties to such persons, including, without limitation,
pursuant to those certain bylaws of the Company of even date herewith, as the
same may be amended, restated or otherwise modified from time to time. Any
number of titles may be held by the same Representative or other individual. The
salaries or other compensation, if any, of the officers and agents of the
Company shall be fixed from time to time by the Board. Any delegation pursuant
to this Section 5.6 may be revoked at any time by the Board in its sole
discretion. Notwithstanding any provision in this Section 5.6, in the event of
any conflict
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between the terms and conditions of this Agreement and the terms and conditions
of the Company's bylaws, the terms and conditions of this Agreement shall
control the resolution of any such conflict.
5.7 Purchase of Company Interests. The Board may cause the Company to
purchase or otherwise acquire Company Interests, or may purchase or otherwise
acquire Company Interests on behalf of the Company. As long as such Company
Interests are owned by or on behalf of the Company such Company Interests will
not be considered outstanding for any purpose.
5.8 Limitation of Liability.
(a) Except as otherwise provided herein or in an agreement entered
into by such Person and the Company, no Representative or any of such
Representative's Affiliates shall be liable to the Company or to any Holder for
any act or omission performed or omitted by such Representative in its capacity
as a member of the Board pursuant to authority granted to such Person by this
Agreement; provided that except as otherwise provided herein, such limitation of
liability shall not apply to the extent the act or omission was attributable to
such Person's gross negligence, willful misconduct or knowing violation of law
or for any present or future breaches of any representations, warranties or
covenants by such Person or its Affiliates contained herein or in the other
agreements with the Company. The Board may exercise any of the powers granted to
it by this Agreement and perform any of the duties imposed upon it hereunder
either directly or by or through its agents, and no Representative or any of
such Representative's Affiliates shall be responsible for any misconduct or
negligence on the part of any such agent appointed by the Board (so long as such
agent was selected in good faith and with reasonable care). The Board shall be
entitled to rely upon the advice of legal counsel, independent public
accountants and other experts, including financial advisors, and any act of or
failure to act by the Board in good faith reliance on such advice shall in no
event subject the Board or any Representative thereof to liability to the
Company or any Holder.
(b) Whenever this Agreement or any other agreement contemplated
herein provides that the Board shall act in a manner which is, or provide terms
which are, "fair and reasonable" to the Company or any Holder, the Board shall
determine such appropriate action or provide such terms considering, in each
case, the relative interests of each party to such agreement, transaction or
situation and the benefits and burdens relating to such interests, any customary
or accepted industry practices, and any applicable United States generally
accepted accounting practices or principles.
(c) Whenever in this Agreement or any other agreement contemplated
herein, the Board is permitted or required to take any action or to make a
decision in its "sole discretion" or "discretion," with "complete discretion" or
under a grant of similar authority or latitude, the Board shall be entitled to
consider such interests and factors as it desires, provided that the Board shall
act in good faith.
(d) Whenever in this Agreement the Board is permitted or required to
take any action or to make a decision in its "good faith" or under another
express standard, the Board shall act under such express standard and, to the
extent permitted by applicable law, shall not be subject to any other or
different standards imposed by this Agreement or any other agreement
contemplated
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herein, and, notwithstanding anything contained herein to the contrary, so long
as the Board acts in good faith, the resolution, action or terms so made, taken
or provided by the Board shall not constitute a breach of this Agreement or any
other agreement contemplated herein or impose liability upon the Board, any
Representative thereof or any of such Representative's Affiliates.
ARTICLE VI
RIGHTS AND OBLIGATIONS OF HOLDERS
6.1 Limitation of Liability. Except as provided in this Agreement or
in the Delaware Act, the debts, obligations and liabilities of the Company,
whether arising in contract, tort or otherwise, shall be solely the debts,
obligations and liabilities of the Company and no Holder or Representative shall
be obligated personally for any such debts, obligation or liability solely by
reason of being a Holder or acting as a Representative of the Company. Except
as otherwise provided in this Agreement, a Holder's liability (in its capacity
as such) for Company liabilities and Losses shall be limited to the Company's
assets; provided that a Holder shall be required to return to the Company any
distribution made to it in clear and manifest accounting or similar error. The
immediately preceding sentence shall constitute a compromise to which all
Holders have consented within the meaning of the Delaware Act. Notwithstanding
anything contained herein to the contrary, the failure of the Company to observe
any formalities or requirements relating to the exercise of its powers or
management of its business and affairs under this Agreement or the Delaware Act
shall not be grounds for imposing personal liability on the Holders for
liabilities of the Company.
6.2 Lack of Authority. Except as otherwise provided in Section 5.5(b)
hereof, no Holder in its capacity as such (other than through its Representative
or as a Representative) has the authority or power to act for or on behalf of
the Company, to do any act that would be binding on the Company or to make any
expenditures on behalf of the Company. Except as otherwise provided in Section
5.5(b) hereof, the Holders hereby consent to the exercise by the Board and the
Representatives of the powers conferred on them by law and this Agreement.
6.3 No Right of Partition. No Holder shall have the right to seek or
obtain partition by court decree or operation of law of any Company property, or
the right to own or use particular or individual assets of the Company.
6.4 Indemnification.
(a) Subject to Section 4.6, the Company hereby agrees to indemnify
and hold harmless any Person (each an "Indemnified Person") to the fullest
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extent permitted under the Delaware Act, as the same now exists or may hereafter
be amended, substituted or replaced (but, in the case of any such amendment,
substitution or replacement only to the extent that such amendment, substitution
or replacement permits the Company to provide broader indemnification rights
than the Company is providing immediately prior to such amendment), against all
expenses, liabilities and losses (including attorneys' fees, judgments, fines,
excise taxes or penalties) reasonably incurred or suffered by such Person (or
one or more of such Person's Affiliates) by reason of the fact that such
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Person is or was a Holder or is or was serving as a Representative, officer,
director, principal, member, employee or agent of the Company or is or was
serving at the request of the Company as a Representative, officer, director,
principal, member, employee or agent of another corporation, partnership, joint
venture, limited liability company, trust or other enterprise; provided that
(unless the Board otherwise consents) no Indemnified Person shall be indemnified
for any expenses, liabilities and losses suffered that are attributable to such
Indemnified Person's or its Affiliates' gross negligence, willful misconduct or
knowing violation of law or for any present or future breaches of any
representations, warranties or covenants by such Indemnified Person or its
Affiliates contained herein or in the other agreements with the Company.
Expenses, including attorneys' fees, incurred by any such Indemnified Person in
defending a proceeding shall be paid by the Company in advance of the final
disposition of such proceeding, including any appeal therefrom, upon receipt of
an undertaking by or on behalf of such Indemnified Person to repay such amount
if it shall ultimately be determined that such Indemnified Person is not
entitled to be indemnified by the Company.
(b) The right to indemnification and the advancement of expenses
conferred in this Section 6.4 shall not be exclusive of any other right which
any Person may have or hereafter acquire under any statute, agreement, by-law,
vote of Representatives or otherwise.
(c) The Company may maintain insurance, at its expense, to protect
any Indemnified Person against any expense, liability or loss described in
Section 6.4(a) above whether or not the Company would have the power to
indemnify such Indemnified Person against such expense, liability or loss under
the provisions of this Section 6.4.
(d) Notwithstanding anything contained herein to the contrary
(including in this Section 6.4), any indemnity by the Company relating to the
matters covered in this Section 6.4 shall be provided out of and to the extent
of Company assets only and no Holder (unless such Holder otherwise agrees in
writing or is found in a final decision by a court of competent jurisdiction to
have personal liability on account thereof) shall have personal liability on
account thereof or shall be required to make additional Capital Contributions to
help satisfy such indemnity of the Company.
(e) If this Section 6.4 or any portion hereof shall be invalidated on
any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify and hold harmless each Indemnified Person pursuant to
this Section 6.4 to the fullest extent permitted by any applicable portion of
this Section 6.4 that shall not have been invalidated and to the fullest extent
permitted by applicable law.
6.5 Members Right to Act. For situations which the approval of the
Members (rather than the approval of the Board on behalf of the Members) is
required, the Members shall act through meetings and written consents as
described in paragraphs (a) and (b) below:
(a) Except as otherwise provided by this Agreement, acts by the
Members holding not less than a majority of the Company Interest shall be the
act of the Members. Any Member entitled to vote at a meeting of Members or to
express consent or dissent to Company action in writing without a meeting may
authorize another person or persons to act for it by proxy. A telegram, telex,
cablegram or similar transmission by the Member, or a photographic, photostatic,
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facsimile or similar reproduction of a writing executed by the Member shall (if
stated thereon) be treated as a proxy executed in writing for purposes of this
Section 6.5(a). No proxy shall be voted or acted upon after eleven months from
the date thereof, unless the proxy provides for a longer period. A proxy shall
be revocable unless the proxy form conspicuously states that the proxy is
irrevocable and that the proxy is coupled with an interest. Should a proxy
designate two or more Persons to act as proxies, unless that instrument shall
provide to the contrary, a majority of such Persons present at any meeting at
which their powers thereunder are to be exercised shall have and may exercise
all the powers of voting or giving consents thereby conferred, or, if only one
be present, then such powers may be exercised by that one; or, if an even number
attend and a majority do not agree on any particular issue, the Company shall
not be required to recognize such proxy with respect to such issue if such proxy
does not specify how the votes that are the subject of such proxy are to be
voted with respect to such issue.
(b) The actions by the Members permitted hereunder may be taken at a
meeting called by Members holding at least 20% of the Company Interest on at
least five days' prior written notice to the other Members entitled to vote,
which notice shall state the purpose or purposes for which such meeting is being
called. The actions taken by the Members entitled to vote or consent at any
meeting (as opposed to by written consent), however called and noticed, shall be
as valid as though taken at a meeting duly held after regular call and notice if
(but not until), either before, at or after the meeting, the Members entitled to
vote or consent as to whom it was improperly held signs a written waiver of
notice or a consent to the holding of such meeting or an approval of the minutes
thereof. The actions by the Members entitled to vote or consent may be taken by
vote of the Members entitled to vote or consent at a meeting or by written
consent (without a meeting, without notice and without a vote) so long as such
consent is signed by the Members having not less than the minimum amount of
Company Interest that would be necessary to authorize or take such action at a
meeting at which all Members entitled to vote thereon were present and voted.
Prompt notice of the action so taken without a meeting shall be given to those
Members entitled to vote or consent who have not consented in writing. Any
action taken pursuant to such written consent of the Members shall have the same
force and effect as if taken by the Members at a meeting thereof.
(c) Except as specifically provided in this Agreement to the
contrary, Preferred Holders shall be entitled to notice of all meetings of the
Members in accordance with this Agreement and the Company's bylaws, and the
Preferred Holders shall be entitled to vote on all matters submitted to the
Members for a vote together with the Common Holders, all voting together as a
single group, with each such Member entitled to a number of votes (or fractions
thereof) equal to such Member's percentage interest of all of the Company
Interests.
6.6 Conflicts of Interest.
(a) A Holder, its Affiliates and each of their respective
stockholders, Representatives, directors, officers, controlling persons,
partners and employees (collectively, the "Holder Group") may have business
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interests and engage in business activities in addition to those relating to the
Company and its Subsidiaries, except as any such Person may have otherwise
agreed with the Company in writing. Neither the Company nor any of the other
Holders shall have any rights by virtue of this Agreement in any business
ventures of any such Person, except for any
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business interests or activities which any such Person has agreed in writing
with the Company to not pursue or consummate (whether directly or indirectly),
in which case all of such Person's direct and indirect interest in such business
interests or activities shall, at the election of the Board, become an asset of
the Company and the Company shall be entitled to all rights in such business
interests or activities and to all income or profits derived therefrom.
(b) No member of a Holder Group shall be obligated to present any
particular investment or business opportunity to the Company even if the
opportunity is of a character which, if presented to the Company, could be
undertaken by the Company or any of its Subsidiaries, except as otherwise agreed
by any such Person with the Company in writing. Each member of a Holder Group
shall have the right to undertake any such opportunity for itself for its own
account or on behalf of another or to recommend any such opportunity to other
Persons, except as otherwise agreed by any such Person with the Company in
writing, in which case all of such Person's direct and indirect interest in such
business interests or activities shall, at the election of the Board, become an
asset of the Company and the Company shall be entitled to all rights in such
business interests or activities and to all income or profits derived therefrom.
ARTICLE VII
BOOKS, RECORDS, ACCOUNTING AND REPORTS
7.1 Records and Accounting. The Company shall keep, or cause to be kept,
appropriate books and records with respect to the Company's business, including
all books and records necessary to provide any information, lists and copies of
documents required to be provided pursuant to Section 7.3 or pursuant to
applicable laws. All matters concerning (i) the determination of the relative
amount of allocations and distributions among the Holders pursuant to Articles
III and IV and (ii) accounting procedures and determinations, and other
determinations not specifically and expressly provided for by the terms of this
Agreement, shall be determined by the Board, whose determination shall be final
and conclusive as to all of the Holders absent manifest clerical error.
7.2 Fiscal Year. The Fiscal Year of the Company shall end on December
31 of each year or such other annual accounting period as may be established by
the Board.
7.3 Reports.
(a) The Company shall deliver or cause to be delivered to each
Holder, within 90 days after the end of each Fiscal Year, an annual report
containing the following:
(i) consolidated statements of income and cash flows of the
Company and its Subsidiaries for such Fiscal Year, and a
consolidated balance sheet of the Company and its
Subsidiaries as of the end of such Fiscal Year, all
prepared in accordance with generally accepted accounting
principles, consistently applied, and audited by an
independent accounting firm of recognized national standing
and a copy of such
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firm's annual management letter regarding internal controls
and other matters to the Board;
(ii) a statement of changes in the Holder's equity and the
Holder's Capital Account balance for such Fiscal Year; and
(iii) a general description of the Company's activities during
such Fiscal Year.
(b) The Company shall, to the extent required by the Delaware Act,
deliver or cause to be delivered to each Holder with reasonable promptness, such
other information and financial data concerning the Company and its Subsidiaries
as any Holder shall from time to time reasonably request; provided that
furnishing such information shall not be financially burdensome on the Board,
the Company or its Subsidiaries or unreasonably time consuming for the Board or
the employees of the Company or its Subsidiaries.
(c) The Company shall use reasonable efforts to deliver or cause to
be delivered, within 75 days after the end of each Fiscal Year, to each Person
who was a Holder at any time during such Fiscal Year all information necessary
for the preparation of such Person's United States federal and state income tax
returns.
7.4 Transmission of Communications. Each Person that owns or controls
Company Interests on behalf of, or for the benefit of, another Person or Persons
shall be responsible for conveying any report, notice or other communication
received from the Board to such other Person or Persons.
ARTICLE VIII
TAX MATTERS
8.1 Preparation of Tax Returns. The Company shall arrange for the
preparation and timely filing of all returns required to be filed by the
Company.
8.2 Tax Elections. The Taxable Year shall be the Fiscal Year set
forth in Section 7.2, unless the Board shall determine otherwise in its sole
discretion and in compliance with applicable laws. The Board shall, in its sole
discretion, determine whether to make or revoke any available election pursuant
to the Code. Each Holder will upon request supply any information necessary to
give proper effect to such election.
8.3 Tax Controversies. LZ is hereby designated the Tax Matters Partner
and is authorized and required to represent the Company (at the Company's
expense) in connection with all examinations of the Company's affairs by tax
authorities, including resulting administrative and judicial proceedings, and to
expend Company funds for professional services and reasonably incurred in
connection therewith. Each Holder agrees to cooperate with the Company and to do
or refrain from doing any or all things reasonably requested by the Company with
respect to the conduct
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of such proceedings. The Tax Matters Partners shall keep all Holders fully
informed of the progress of any examinations, audits or other proceedings, and
all Holders shall have the right to participate at their expense in any such
examinations, audits or other proceedings. Notwithstanding the foregoing, the
Tax Matters Partners shall not settle or otherwise compromise any issue in any
such examination, audit or other proceeding without first obtaining approval of
the Board. In addition, the Tax Matters Partner shall not structure any such
settlement or compromise in a manner which inappropriately benefits any Holder
or Holders to the detriment of any other Holder or Holders.
ARTICLE IX
TRANSFER OF COMPANY INTERESTS
9.1 Transfer In General. THE TRANSFER OF ANY INTEREST IN THE COMPANY
IS SUBJECT TO THE RESTRICTIONS ON TRANSFER CONTAINED IN THE MEMBERS AGREEMENT,
WHICH RESTRICTIONS ARE INCORPORATED HEREIN BY REFERENCE. IN ADDITION, NO HOLDER
MAY TRANSFER ALL OR ANY PORTION OF SUCH HOLDER'S INTEREST IN THE COMPANY WITHOUT
THE PRIOR WRITTEN CONSENT OF THE BOARD IF SUCH TRANSFER WOULD (A) CAUSE THE
COMPANY TO HAVE MORE THAN 100 PARTNERS WITHIN THE MEANING OF TREASURY REGULATION
SECTION 1.7704-1(H) OR (B) CAUSE THE COMPANY TO HAVE MORE THAN 100 BENEFICIAL
OWNERS OF ITS SECURITIES FOR PURPOSES OF THE INVESTMENT COMPANY ACT OF 1940, AS
AMENDED.
9.2 Assignee's Rights.
(a) A permitted transfer of a Company Interest shall be effective as
of the date of assignment and compliance with the conditions to such transfer
and such transfer shall be shown on the books and records of the Company.
Profits, Losses and other Company items shall be allocated between the
transferor and the Assignee according to Code Section 706. Distributions made
before the effective date of such transfer shall be paid to the transferor, and
distributions made after such date shall be paid to the Assignee.
(b) Unless and until an Assignee becomes a Member pursuant to Article
X, the Assignee shall not be entitled to any of the rights granted to a Member
hereunder or under applicable law, other than the rights granted specifically to
Assignees pursuant to this Agreement; provided that without relieving the
transferring Holder from any such limitations or obligations as more fully
described in Section 9.3, such Assignee shall be bound by any limitations and
obligations of a Holder contained herein that a Member would be bound on account
of the Assignee's Company Interest (including the obligation to make Capital
Contributions on account of such Company Interest).
9.3 Assignor's Rights and Obligations. Any Member who shall transfer
any Company Interest or other interest in the Company shall cease to be a Holder
with respect to such Company Interest or other interest and shall no longer have
any rights or privileges, or, except as set forth in this Section 9.3, duties,
liabilities or obligations, of a Holder with respect to such Company Interest or
other interest (it being understood, however, that the applicable provisions of
Sections 5.8 and 6.4
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shall continue to inure to such Person's benefit), except that unless and until
the Assignee is admitted as a substituted Member in accordance with the
provisions of Article X (the "Admission Date"), (i) such assigning Holder shall
retain all of the duties, liabilities and obligations of a Holder with respect
to such Company Interest or other interest, including, without limitation, the
obligation (together with its Assignee pursuant to Section 9.2(b)) to make and
return Capital Contributions on account of such Company Interest or other
interest pursuant to the terms of this Agreement and (ii) the Board may, in its
sole discretion, reinstate all or any portion of the rights and privileges of
such Holder with respect to such Company Interest or other interest for any
period of time prior to the Admission Date. Nothing contained herein shall
relieve any Holder who Transfers any Company Interest or other interest in the
Company from any liability of such Holder to the Company with respect to such
Company Interest or other interest that may exist on the Admission Date or that
is otherwise specified in the Delaware Act and incorporated into this Agreement
or for any liability to the Company or any other Person for any materially false
statement made by such Holder (in its capacity as such) in the Members Agreement
or for any present or future breaches of any representations, warranties or
covenants by such Holder (in its capacity as such) contained herein or in the
other agreements with the Company.
ARTICLE X
ADMISSION OF MEMBERS
10.1 Substituted Members. Subject to the provisions of Section 9.1
hereof, in connection with the permitted transfer of a Company Interest of a
Holder, the transferee shall become a Substituted Member on the effective date
of such transfer, which effective date shall not be earlier than the date of
compliance with the conditions to such transfer (without any Board or Member
consent unless one of the conditions to such transfer is that Board or Member
consent is required for the admission of such transferee, in which case such
consent must first be obtained), and such admission shall be shown on the books
and records of the Company.
10.2 Additional Members. Subject to the provisions of Section 9.1 hereof,
a Person may be admitted to the Company as an Additional Member only upon
furnishing to the Board (a) a letter of acceptance, in form satisfactory to the
Board, of all the terms and conditions of this Agreement, including the power of
attorney granted in Section 14.1 and (b) such other documents or instruments as
may be necessary or appropriate to effect such Person's admission as a Member
(including entering into the Members Agreement and such other documents as the
Board may deem appropriate in its sole discretion). Such admission shall become
effective on the date on which the Board determines in its sole discretion that
such conditions have been satisfied, each of the conditions contained in the
Members Agreement to the issuance of Company Interests to such Member have been
satisfied, and when any such admission is shown on the books and records of the
Company.
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ARTICLE XI
WITHDRAWAL AND RESIGNATION OF HOLDERS
11.1 Withdrawal and Resignation of Holders. No Holder shall have the
power or right to withdraw or otherwise resign from the Company prior to the
dissolution and winding up of the Company pursuant to Article XII without the
prior written consent of the Board, except as otherwise expressly permitted by
this Agreement. Any Holder, however, that withdraws or otherwise resigns from
the Company without the prior written consent of the Board upon or following the
dissolution and winding up of the Company pursuant to Article XII but prior to
such Holder receiving the full amount of distributions from the Company to which
such Holder is entitled pursuant to Article XII shall be liable to the Company
for all damages (including all lost profits and special, indirect and
consequential damages) directly or indirectly caused by the withdrawal or
resignation of such Holder, and such Holder shall be entitled to receive the
fair value of his equity interest in the Company as of the date of its
resignation (or, if less, the amount that such Holder would have received on
account of such equity interest had such Holder not resigned or otherwise
withdrew from the Company), as conclusively determined by the Board, on the
sixth month anniversary date (or such earlier date determined by the Board)
following the completion of the distribution of Company assets as provided in
Article XII to all other Holders. Upon a transfer of all of a Holder's Company
Interest in a transfer permitted by the Members Agreement and this Agreement,
subject to the provisions of Section 9.3, such Holder shall cease to be a
Holder.
ARTICLE XII
DISSOLUTION AND LIQUIDATION
12.1 Dissolution. The Company shall not be dissolved by the admission
of Additional Members or Substituted Members. The Company shall dissolve, and
its affairs shall be wound up, upon:
(a) the vote of the Board holding at least a majority of the votes
of all members of the Board; or
(b) the entry of a decree of judicial dissolution or administrative
dissolution of the Company under the Delaware Act.
Except as otherwise set forth in this Article XII, the Company is
intended to have perpetual existence. An Event of Withdrawal shall not cause a
dissolution of the Company and the Company shall continue in existence subject
to the terms and conditions of this Agreement.
12.2 Liquidation and Termination. On dissolution of the Company, the
Board shall act as liquidator or may appoint one or more Representatives or
Members as liquidator. The liquidators shall proceed diligently to wind up the
affairs of the Company and make final distributions as provided herein and in
the Delaware Act. The costs of liquidation shall be borne as a Company
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expense. Until final distribution, the liquidators shall continue to operate the
Company properties with all of the power and authority of the Board. The steps
to be accomplished by the liquidators are as follows:
(a) as promptly as possible after dissolution and again after final
liquidation, the liquidators shall cause a proper accounting to be made by a
recognized firm of certified public accountants of the Company's assets,
liabilities and operations through the last day of the calendar month in which
the dissolution occurs or the final liquidation is completed, as applicable;
(b) the liquidators shall cause the notice described in the Delaware
Act to be mailed to each known creditor of and claimant against the Company in
the manner described thereunder;
(c) the liquidators shall pay, satisfy or discharge from Company
funds all of the debts, liabilities and obligations of the Company (including,
without limitation, all expenses incurred in liquidation) or otherwise make
adequate provision for payment and discharge thereof (including, without
limitation, the establishment of a cash fund for contingent liabilities in such
amount and for such term as the liquidators may reasonably determine); and
(d) all remaining assets of the Company shall be distributed to the
Holders in accordance with Section 4.1(a) by the end of the taxable year of the
Company during which the liquidation of the Company occurs (or, if later, by 90
days after the date of the liquidation).
The distribution of cash and/or property to a Holder in accordance with the
provisions of this Section 12.2 and Section 12.3 constitutes a complete return
to the Holder of its Capital Contributions and a complete distribution to the
Holder of its interest in the Company and all the Company's property and
constitutes a compromise to which all Holders have consented within the meaning
of the Delaware Act. To the extent that a Holder returns funds to the Company,
it has no claim against any other Holder for those funds. In connection with
any liquidation of the Company, any Holder may in its sole discretion offer to
purchase all or any portion of the assets of the Company, including, without
limitation, any intellectual property rights.
12.3 Deferment; Distribution in Kind. Notwithstanding the provisions
of Section 12.2, but subject to the order of priorities set forth therein, if
upon dissolution of the Company the liquidators determine that an immediate sale
of part or all of the Company's assets would be impractical or would cause undue
loss (or would otherwise not be beneficial) to the Holders, the liquidators may,
in their sole discretion, defer for a reasonable time the liquidation of any
assets except those necessary to satisfy Company liabilities (other than loans
to the Company by Holders) and reserves. Subject to the order of priorities set
forth in Section 12.2, the liquidators may, in their sole discretion, distribute
to the Holders, in lieu of cash, either (i) all or any portion of such remaining
Company assets in-kind in accordance with the provisions of Section 12.2(d),
(ii) as tenants in common and in accordance with the provisions of Section
12.2(d), undivided interests in all or any portion of such Company assets or
(iii) a combination of the foregoing. Any such distributions in kind shall be
subject to (x) such conditions relating to the disposition and management of
such assets as the liquidators deem reasonable and equitable and (y) the terms
and
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conditions of any agreements governing the such assets (or the operation
thereof or the holders thereof) at such time. Any Company assets distributed in
kind will first be written up or down to their Fair Market Value, thus creating
Profit or Loss (if any), which shall be allocated in accordance with Sections
4.2 and 4.3. The liquidators shall determine the Fair Market Value of any
property distributed in accordance with the valuation procedures set forth in
Article XIII.
12.4 Cancellation of Certificate. On completion of the distribution of
Company assets as provided herein, the Company is terminated (and the Company
shall not be terminated prior to such time), and the Board (or such other Person
or Persons as the Delaware Act may require or permit) shall file a certificate
of cancellation with the Secretary of State of Delaware, cancel any other
filings made pursuant to this Agreement that are or should be canceled and take
such other actions as may be necessary to terminate the Company. The Company
shall be deemed to continue in existence for all purposes of this Agreement
until it is terminated pursuant to this Section 12.4.
12.5 Reasonable Time for Winding Up. A reasonable time shall be allowed
for the orderly winding up of the business and affairs of the Company and the
liquidation of its assets pursuant to Sections 12.2 and 12.3 in order to
minimize any losses otherwise attendant upon such winding up.
12.6 Return of Capital. The liquidators shall not be personally liable
for the return of Capital Contributions or any portion thereof to the Holders
(it being understood that any such return shall be made solely from Company
assets).
12.7 Liquidity Event or IPO. In the event that the Board approves a
Liquidity Event or IPO, the Company and each of its Holders will cooperate to
structure such Liquidity Event or IPO to maximize the after-tax return of the
Holders, but only to the extent that such structure is not materially
detrimental to the Company or any other Holder.
ARTICLE XIII
VALUATION
13.1 Determination. The Fair Market Value of the assets of the Company or
of a Company Interest in the Company will be determined by the Board (or, if
pursuant to Section 12.3, the liquidators) in its good faith judgment in such
manner as it deems reasonable and using all factors, information and data deemed
to be pertinent.
13.2 Determination of Fair Market Value. "Fair Market Value" of (i) a
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specific Company asset will mean the amount which the Company would receive in
an all-cash sale of such asset in an arms-length transaction with an
unaffiliated third party consummated on the day immediately preceding the date
on which the event occurred which necessitated the determination of the Fair
Market Value (and after giving effect to any transfer taxes payable in
connection with such sale); and (ii) the Company will mean the amount which the
Company would receive in an all-cash sale of all of its assets and businesses as
a going concern in an arms-length transaction with an unaffiliated third party
consummated on the day immediately preceding the date on which the event
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occurred which necessitated the determination of the Fair Market Value (assuming
that such sale was accomplished pursuant to a Liquidity Event of the type
referred to in Section 12.7 above and all of the proceeds from such sale were
paid directly to the Company other than an amount of such proceeds necessary to
pay transfer taxes payable in connection with such sale, which amount will not
be deemed received by the Company). After a determination of the Fair Market
Value of the Company is made as provided above, the Fair Market Value of a
Company Interest will be determined by making a calculation reflecting the cash
distributions which would be made to the Holders in accordance with this
Agreement if the Company were deemed to have received such Fair Market Value in
cash and then distributed the same to the Holders in accordance with the terms
of this Agreement pursuant to Section 12.2 and assuming that all of the
convertible debt and other convertible securities, if any, were repaid or
converted (whichever yields more cash to the holders of such convertible
securities). Except as otherwise provided herein or in any agreement, document
or instrument contemplated hereby, any amount to be paid under this Agreement by
reference to the Fair Market Value shall be paid in full in cash, and any
Company Interest being transferred in exchange therefor will be transferred free
and clear of all Liens.
ARTICLE XIV
GENERAL PROVISIONS
14.1 Power of Attorney.
(a) Each Holder hereby constitutes and appoints each member of the
Board and the liquidators, with full power of substitution, as his true and
lawful agent and attorney-in-fact, with full power and authority in his or its
name, place and stead, to:
(i) execute, swear to, acknowledge, deliver, file and record in
the appropriate public offices (A) this Agreement, all
certificates and other instruments and all amendments
thereof which the Board deems appropriate or necessary to
form, qualify, or continue the qualification of, the Company
as a limited liability company in the State of Delaware and
in all other jurisdictions in which the Company may conduct
business or own property; (B) all instruments which the
Board deems appropriate or necessary to reflect any
amendment, change, modification or restatement of this
Agreement in accordance with its terms; (C) all conveyances
and other instruments or documents which the Board deems
appropriate or necessary to reflect the dissolution and
liquidation of the Company pursuant to the terms of this
Agreement, including a certificate of cancellation; and (D)
all instruments relating to the admission, withdrawal or
substitution of any Holder pursuant to Article X or XI; and
(ii) sign, execute, swear to and acknowledge all ballots,
consents, approvals, waivers, certificates and other
instruments appropriate or
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necessary, in the reasonable judgment of the Board, to
evidence, confirm or ratify any vote, consent, approval,
agreement or other action which is made or given by the
Members hereunder or is consistent with the terms of this
Agreement and/or appropriate or necessary (and not
inconsistent with the terms of this Agreement), in the
reasonable judgment of the Board, to effectuate the terms of
this Agreement.
(b) The foregoing power of attorney is irrevocable and coupled with
an interest, and shall survive the death, disability, incapacity, dissolution,
bankruptcy, insolvency or termination of any Holder and the transfer of all or
any portion of his or its Company Interest and shall extend to such Holder's
heirs, successors, assigns and personal representatives.
14.2 Amendments. (a) The Representatives holding a majority of the
votes of all Representatives (pursuant to its powers of attorney from the
Holders as provided in Section 14.1), without the consent of any Holder, may
amend any provision of this Agreement and execute, swear to, acknowledge,
deliver, file and record whatever documents may be required in connection
therewith, to reflect:
(i) a change in the name of the Company or the location of the
principal place of business of the Company;
(ii) admission, substitution, removal or withdrawal of Members or
Assignees in accordance with this Agreement;
(iii) a change that does not adversely affect any Holder in any
material respect in its capacity as an owner of Company
Interests and is necessary or desirable to satisfy any
requirements, conditions or guidelines contained in any opinion,
directive, order, ruling or regulation of any United States
federal or state agency or judicial authority or contained in
any United States federal or state statute; or
(iv) a change that does not adversely affect any Holder in any
material respect in its capacity as an owner of Company
Interests and cures any ambiguity.
(b) In all other cases this Agreement may be amended or modified
upon the written consent of the holders of not less than a majority of the
Company Interest. Notwithstanding the foregoing, no amendment or modification to
any of the terms and conditions of this Agreement which terms and conditions
expressly require the approval or action of certain Persons (e.g., the Board or
the holders of a specified percentage of the Preferred Company Interests) may be
made without obtaining the consent of the requisite number or specified
percentage of such Persons who are entitled to approve or take action on such
matter.
14.3 Title to Company Assets. Company assets shall be deemed to be
owned by the Company as an entity, and no Holder, individually or collectively,
shall have any ownership interest
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<PAGE>
in such Company assets or any portion thereof. Legal title to any or all Company
assets may be held in the name of the Company, the Board or one or more
nominees, as the Board may determine. The Board hereby declares and warrants
that any Company assets for which legal title is held in its name or the name of
any nominee shall be held in trust by the Board or such nominee for the use and
benefit of the Company in accordance with the provisions of this Agreement. All
Company assets shall be recorded as the property of the Company on its books and
records, irrespective of the name in which legal title to such Company assets is
held.
14.4 Addresses and Notices. All notices, demands, or other communications
to be given or delivered under or by reason of the provisions of this Agreement
shall be in writing and shall be deemed to have been given or made when (a)
delivered personally to the recipient, (b) telecopied to the recipient (with
hard copy sent to the recipient by reputable overnight courier service (charges
prepaid) that same day) if telecopied before 5:00 p.m. Chicago, Illinois time on
a business day, and otherwise on the next business day, or (c) one business day
after being sent to the recipient by reputable overnight courier service
(charges prepaid). Such notices, demands, and other communications shall be sent
to the address for such recipient set forth in the Company's books and records,
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party. Any
notice to the Board or the Company shall be deemed given if sent to the Board at
the principal office of the Company as designated in this Agreement. The Company
shall promptly forward any such notice to the members of the Board.
14.5 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their heirs, executors, administrators,
successors, legal representatives and permitted assigns.
14.6 Creditors. None of the provisions of this Agreement shall be for
the benefit of or enforceable by any creditors of the Company or any of its
Affiliates, and no creditor who makes a loan to the Company or any of its
Affiliates may have or acquire (except pursuant to the terms of a separate
agreement executed by the Company in favor of such creditor) at any time as a
result of making the loan any direct or indirect interest in Company Profits,
Losses, Distributions, capital or property other than as a secured creditor.
14.7 Waiver. No failure by any party to insist upon the strict
performance of any covenant, duty, agreement or condition of this Agreement or
to exercise any right or remedy consequent upon a breach thereof shall
constitute a waiver of any such breach or any other covenant, duty, agreement or
condition.
14.8 Counterparts. This Agreement may be executed in separate
counterparts, each of which will be an original and all of which together shall
constitute one and the same agreement binding on all the parties hereto.
14.9 Applicable Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Delaware, without giving effect to
any choice of law or conflict of law rules or provisions (whether of the State
of Delaware or any other
-37-
<PAGE>
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of Delaware.
14.10 Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or the effectiveness or validity of any provision in any
other jurisdiction, and this Agreement will be reformed, construed and enforced
in such jurisdiction as if such invalid, illegal or unenforceable provision had
never been contained herein.
14.11 Further Action. The parties shall execute and deliver all
documents, provide all information and take or refrain from taking such actions
as may be necessary or appropriate to achieve the purposes of this Agreement.
14.12 Expenses. The Company shall pay, and hold the Investors and each
of their respective Affiliates harmless against liability for the payment of (i)
subject to Section 14.7 of the Asset Purchase Agreement, their out-of-pocket
fees and expenses incurred in connection with this Agreement and the
transactions related hereto and contemplated hereby (including legal expenses
relating to this Agreement and the documents related hereto); (ii) the
reasonable fees and expenses incurred in connection with an investment or
acquisition by the Company or any of its Subsidiaries; (iii) the fees and
expenses incurred with respect to any amendments or waivers (whether or not the
same become effective) under or in respect of any of this Agreement or the
agreements referred to herein or contemplated hereby or thereby (including in
connection with any proposed merger, sale or recapitalization of the Company or
any of its Subsidiaries); (iv) stamp and other taxes which may be payable in
respect of the execution and delivery of this Agreement or the issuance,
delivery or acquisition of any Company Interests; and (v) the reasonable fees
and expenses incurred by each such Person in any filing with any Governmental
Entity with respect to its investment in the Company which mentions such Person
(other than any tax returns).
14.13 Delivery by Facsimile. This Agreement and any signed agreement or
instrument entered into in connection with this Agreement or contemplated
hereby, and any amendments hereto or thereto, to the extent signed and delivered
by means of a facsimile machine, shall be treated in all manner and respects as
an original agreement or instrument and shall be considered to have the same
binding legal effect as if it were the original signed version thereof delivered
in person. At the request of any party hereto or to any such agreement or
instrument, each other party hereto or thereto shall re-execute original forms
thereof and deliver them to all other parties. No party hereto or to any such
agreement or instrument shall raise the use of a facsimile machine to deliver a
signature or the fact that any signature or agreement or instrument was
transmitted or communicated through the use of a facsimile machine as a defense
to the formation of a contract and each such party forever waives any such
defense.
14.14 Offset. Whenever the Company is to pay any sum to any Holder or
any Affiliate or related person thereof, any amounts that such Holder or such
Affiliate or related person owes to the
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<PAGE>
Company which are not the subject of a good faith dispute may be deducted from
that sum before payment.
14.15 Entire Agreement. This Agreement, those documents expressly
referred to herein and other documents of even date herewith embody the complete
agreement and understanding among the parties and supersede and preempt any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
14.16 Remedies. Each Holder shall have all rights and remedies set
forth in this Agreement and all rights and remedies which such Person has been
granted at any time under any other agreement or contract and all of the rights
which such Person has under any law. Any Person having any rights under any
provision of this Agreement or any other agreements contemplated hereby shall be
entitled to enforce such rights specifically (without posting a bond or other
security), to recover damages by reason of any breach of any provision of this
Agreement and to exercise all other rights granted by law.
14.17 Descriptive Headings; Interpretation. The descriptive headings of
this Agreement are inserted for convenience only and do not constitute a
substantive part of this Agreement. Whenever required by the context, any
pronoun used in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns, pronouns and verbs
shall include the plural and vice versa. The use of the word "including" in
this Agreement shall be by way of example rather than by limitation. Reference
to any agreement, document or instrument means such agreement, document or
instrument as amended or otherwise modified from time to time in accordance with
the terms thereof, and if applicable hereof. Without limiting the generality of
the immediately preceding sentence, no amendment or other modification to any
agreement, document or instrument that requires the consent of any Person
pursuant to the terms of this Agreement or any other agreement will be given
effect hereunder unless such Person has consented in writing to such amendment
or modification. Wherever required by the context, references to a Fiscal Year
shall refer to a portion thereof. The use of the words "or," "either" and "any"
shall not be exclusive. The parties hereto have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties hereto, and no presumption or burden of
proof shall arise favoring or disfavoring any party by virtue of the authorship
of any of the provisions of this Agreement. Wherever a conflict exists between
this Agreement and any other agreement, this Agreement shall control but solely
to the extent of such conflict; provided that if a conflict exists between this
Agreement and the Members Agreement, the Members Agreement shall control but
solely to the extent of such conflict.
14.18 Notice to Holder of Provisions. By executing this Agreement, each
Holder acknowledges that it has actual notice of (a) all of the provisions
hereof (including the restrictions on the transfer set forth herein) and (b) all
of the provisions of the Certificate.
14.19 Consent to Jurisdiction. Each Holder irrevocably submits to the
nonexclusive jurisdiction of the United States District Court for the State of
Delaware and the state courts of the
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<PAGE>
State of Delaware for the purposes of any suit, action or other proceeding
arising out of this Agreement or any transaction contemplated hereby. Each
Holder further agrees that service of any process, summons, notice or document
by United States certified or registered mail to such Holder's respective
address set forth in the Company's books and records or such other address or to
the attention of such other person as the recipient party has specified by prior
written notice to the sending party shall be effective service of process in any
action, suit or proceeding in Delaware with respect to any matters to which it
has submitted to jurisdiction as set forth above in the immediately preceding
sentence. Each Holder irrevocably and unconditionally waives any objection to
the laying of venue of any action, suit or proceeding arising out of this
Agreement or the transactions contemplated hereby in the United States District
Court for the State of Delaware or the state courts of the State of Delaware and
hereby irrevocably and unconditionally waives and agrees not to plead or claim
in any such court that any such action, suit or proceeding brought in such court
has been brought in an inconvenient forum.
14.20 Survival. Sections 4.6, 5.8, 6.1 and 6.4 shall survive and continue
in full force in accordance with their respective terms notwithstanding any
termination of this Agreement or the dissolution of the Company.
* * * * *
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed or caused to be
executed on their behalf this Limited Liability Company Agreement as of the date
first written above.
LZ PARTNERS, LLC
By:___________________________________
Its:__________________________________
ZECAL CORP.
By:___________________________________
Its:__________________________________
<PAGE>
SCHEDULE I
----------
<TABLE>
<CAPTION>
Capital Percent of
Contributions Total Type of
Pursuant to Company Company
Holder Section 3.1(a) Interest Interest
- ------ -------------- -------- --------
<S> <C> <C> <C>
LZ $4,000,000.00 50% Preferred
Zecal $4,000,000.00* 50% Common
------------- ---
$8,000,000.00 100%
============= ===
</TABLE>
*Pursuant to the resolution of the Company's board of managers dated as of the
date hereof, the Board approved the purchase of the assets and liabilities of
Zecal specified in the Asset Purchase Agreement, in exchange for the Common
Company Interests issued to Zecal per this Schedule I.
<PAGE>
EXHIBIT 99.06
MEMBERS AGREEMENT
-----------------
THIS MEMBERS AGREEMENT (this "Agreement") is made as of May __, 2000,
---------
between Zecal Technology, LLC, a Delaware limited liability company (the
"Company"), each of the Members listed on the Schedule of Members attached
------- -------------------
hereto and, solely for purposes of agreeing to Sections 9, 10 and 24 hereof,
Heartland Technology, Inc., a Delaware corporation ("HTI"). Capitalized terms
---
used but not otherwise defined herein are defined in Section 7 hereof or in the
LLC Agreement referred to below.
The Company and the Members desire to enter into this Agreement for
the purposes of, among others, inducing the Members to enter into the Company's
Limited Liability Company Agreement dated as of the date hereof (the "LLC
---
Agreement"), to establish the composition of the Company's Board and to restrict
- ---------
the sale, assignment, transfer, encumbrance or other disposition of the Company
Interests.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Board of Managers.
-----------------
(a) From and after the date hereof and until the provisions of this
Section 1 cease to be effective, each Member shall vote all of its Company
Interests and any other voting interests of the Company over which such
Member has voting control and shall take all other necessary or desirable
actions within its control (whether in its capacity as a Member, manager,
member of a committee of the board or officer of the Company or otherwise
and including, without limitation, attendance at meetings in person or by
proxy for purposes of obtaining a quorum and execution of written consents
in lieu of meetings) and the Company shall take all necessary or desirable
actions within its control (including, without limitation, calling special
Board and Member meetings), in order to cause:
(i) the election to the Board of:
(A) two representatives (the "LZ Directors") designated by
------------
LZ Partners, LLC ("LZ");
--
(B) two representatives (the "Zecal Directors") designated
---------------
by Zecal Corp. ("Zecal"); and
-----
(C) the Company's chief executive officer (as such person
may be appointed by the Board from time to time), as a
non-voting member of the Board.
<PAGE>
(ii) the appointment of each member of the Board to each
committee of the Board and to the board of directors (or equivalent) and each
committee of each Subsidiary of the Company.
(b) In the event that any representative designated hereunder by LZ
or Zecal for any reason ceases to serve as a member of the Board during his
term of office (including by reason of the removal of any such
representative (with or without cause) by the Person entitled to appoint
such representative), the resulting vacancy on the Board shall be filled by
a representative designated by LZ or Zecal, as the case may be, as provided
in Section 1(a) above.
(c) Notwithstanding any provision contained herein or in the
Company's LLC Agreement to the contrary, only the LZ Directors (or, the
board members appointed by LZ, in the event the provisions of this Section
1 have otherwise been terminated), as a separate group as permitted by
Section 18-404(b) of the Delaware Limited Liability Company Act, shall be
entitled to consider and vote upon (i) the Company's exercise of any of its
rights or remedies (including, without limitation, any exercise of any
right to indemnification) or the performance of any of its obligations
pursuant to the Asset Purchase Agreement or (ii) any prepayment or
repayment of the Guaranty in advance of the scheduled maturity or required
payment of such guaranty obligations, but, in the case of this clause (ii),
only after (A) the occurrence of any Insolvency Event (as defined below),
(B) any demand for payment of the Guaranty by Wells Fargo (as defined
below) or any exercise by Wells Fargo or attempt by Wells Fargo to exercise
any of its rights or remedies under the Guaranty or (C) if necessary or
desirable for the Company to obtain other financing which the LZ Directors
reasonably believe to be in the best interests of the Company.
Each Board representative shall have one vote on all matters
submitted to the Board (whether the consideration of such matter is taken
at a meeting, by written consent or otherwise), excluding, for the
avoidance of doubt, the Company's chief executive officer, in his or her
capacity as a non-voting member of the Board pursuant to Section 1(a)(i)(C)
hereof. The affirmative vote (whether by proxy or otherwise) of members of
the Board holding a majority of the votes of all members of the Board shall
be the act of the Board, it being agreed and understood that (subject to
the terms of Section 5.5(b) of the LLC Agreement) in the event of a Board
deadlock on any matter before the Board, the affirmative vote of the
holders of not less than a majority of the Company Interest shall be the
act of the Company.
(d) The provisions of this Section 1 (other than Section 1(c)) shall
terminate upon the first to occur of (i) any of Zecal, HTI or P.G. Design
shall be or become insolvent, or admit in writing its inability to pay its
debts as they mature, or make an assignment for the benefit of creditors;
or any of Zecal, HTI or P.G. Design shall apply for or consent to the
appointment of any receiver, trustee, or similar officer for it or for all
or any substantial part of its property; or such receiver, trustee or
similar officer shall be appointed without the application or consent of
any of Zecal, HTI or P.G. Design, as the case may be; or any of
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<PAGE>
Zecal, HTI or P.G. Design shall institute (by petition, application,
answer, consent or otherwise) any bankruptcy, insolvency, reorganization,
arrangement, readjustment of debt, dissolution, liquidation or similar
proceeding relating to it under the laws of any jurisdiction; or any such
proceeding shall be instituted (by petition, application or otherwise)
against any of Zecal, HTI or P.G. Design (except for, and only so long as,
any such proceeding in which Zecal, HTI or P.G. Design is the "debtor in
possession," as defined in (S)1101(1) of the U.S. Bankruptcy Code, unless
not less than a majority of the LZ Directors, acting in good faith,
determine that any such "debtor in possession" proceeding has or could
reasonably be expected to result in the loss of 10% or more of the
Company's annual net sales or EBITDA or has or could reasonably be expected
to result in the loss of any third party financing which would otherwise be
available to the Company or has or could reasonably be expected to
jeopardize an important business relationship or business order); or any
judgment, writ, warrant of attachment or execution or similar process shall
be issued or levied against a substantial part of the property of any of
Zecal, HTI or P.G. Design (any of the foregoing, an "Insolvency Event"),
----------------
(ii) a foreclosure by Wells Fargo Business Credit, Inc. ("Wells Fargo")
-----------
pursuant to which Wells Fargo or any successor-in-interest thereto acquires
all or any portion of the Company Interest currently held by Zecal (a "Bank
----
Acquisition Event"), (iii) HTI's or Zecal's failure to consummate the Put
-----------------
transactions required by Section 9 hereof, (iv) Zecal's failure to fulfill
its obligations under the buy-sell arrangements in Section 10 hereof to
consummate a purchase or sale of Company Interests when obligated to do so,
(v) the consummation of a Liquidity Event or (vi) the consummation of an
IPO. Upon any such termination of this Section 1, the members of the
Company's Board shall be appointed in accordance with the Delaware Act (as
defined in the LLC Agreement) and, for purposes of clarification, the
holders of not less than a majority of the Company Interest shall be
entitled to appoint each member of the Company's Board upon any termination
of this Section 1.
2. Restrictions on Transfer of Company Interests.
---------------------------------------------
(a) Transfer of Company Interests. No holder of Company Interests
-----------------------------
shall sell, transfer, assign, pledge or otherwise dispose of (whether with
or without consideration and whether voluntarily or involuntarily or by
operation of law) any interest in (a "Transfer") such holder's Company
--------
Interests, except pursuant to (i) Section 2(b) hereof, (ii) a Public Sale,
(iii) a Liquidity Event pursuant to Section 6 or (iv) Section 9 or 10
hereof; provided that the applicable requirements of Sections 3 and 4 (if
any) are also satisfied. Notwithstanding anything to the contrary contained
herein, the Members agree and acknowledge that Zecal shall be permitted to
pledge the Company Interest held by it to Wells Fargo in support of Zecal's
obligations pursuant to that certain Credit Agreement dated as of December
31, 1998, as amended, by and between Wells Fargo and P.G. Design and that
nothing herein shall preclude Wells Fargo from foreclosing upon, and
acquiring, all or any portion of such Company Interest.
(b) Permitted Transfers. The restrictions contained in this Section 2
-------------------
shall not apply with respect to any Transfer of Company Interests in the
case of any Person (i) pursuant to applicable laws of descent and
distribution or among such Person's Family
-3-
<PAGE>
Group,(ii) in the case of LZ, among its Affiliates or (iii) in the case of
Zecal, among HTI or any of its wholly-owned Subsidiaries (transferees
permitted pursuant to clauses (i),(ii) and (iii) above and the last
sentence of Section 2(a) above are collectively referred to herein as
"Permitted Transferees"); provided that the restrictions contained in this
---------------------
Section 2 shall continue to be applicable to such Company Interests after
any such Transfer; and provided further that the applicable requirements
specified in Sections 3 and 4 in connection with such Transfer shall have
been satisfied. A Person's "Family Group" means such Person's (or if such
------------
Person is not an individual then such Person shall refer to the ultimate
individual beneficial owners of such Person) spouse and descendants
(whether natural or adopted) and any trust or other vehicle formed solely
for the benefit of such Person and/or any of such Person's spouse and/or
descendants.
(c) Termination of Restrictions. The restrictions set forth in this
---------------------------
Section 2 shall continue with respect to all Company Interests until the
earlier of (i) the consummation of a Liquidity Event pursuant to Section 6
or (ii) the consummation of an IPO. If the consummation of a Transfer
pursuant to this Section 2 would cause a Liquidity Event to occur, the
provisions of Section 6 (as opposed to this Section 2) shall control such
Transfer.
3. Additional Restrictions on Transfer.
-----------------------------------
(a) Restrictive Legend. The Company Interests have not been
------------------
registered under the Securities Act and, therefore, in addition to the
other restrictions on Transfer contained in this Agreement, cannot be sold
unless subsequently registered under the Securities Act or an exemption
from such registration is then available. The LLC Agreement will contain a
restrictive legend describing the transfer restrictions set forth in this
Agreement.
(b) Opinion of Counsel. No holder of Company Interests may Transfer
------------------
any Company Interests (except pursuant to an effective registration
statement under the Securities Act, pursuant to Section 5 or 6 hereof or to
an Affiliate) without first delivering to the Company (unless waived by the
Board) an opinion of counsel (reasonably acceptable in form and substance
to the Board) that neither registration nor qualification under the
Securities Act and applicable state securities laws is required in
connection with such Transfer.
(c) Transfers to HTI's Shareholders. Notwithstanding any provision in
-------------------------------
this Agreement to the contrary, Zecal shall not be permitted to Transfer
all or any portion of the Company Interest held by it to HTI's shareholders
except in accordance with this Section 3(c). At any time not less than 180
days after an IPO or any other registered public offering on behalf of the
Company or any of its securityholders, Zecal shall be permitted to
distribute, as a stock dividend to HTI's shareholders, all or any portion
of its Company Interest. In order to ensure an orderly distribution of and
market for such securities, as a condition to any such dividend to HTI's
shareholders, 50% of such securities may not be resold or otherwise
transferred (including pursuant to Rule 144) by HTI's shareholders until
180 days after any such distribution by Zecal or HTI. Zecal shall notify
the Company not less than ten business days prior to any distribution, so
that the Company can issue
-4-
<PAGE>
appropriate instructions to its transfer agent implementing the
restrictions described in this Section 3(c).
4. Transfer. Prior to Transferring any Company Interests (other
--------
than pursuant to Section 3(c), a Liquidity Event pursuant to Section 6, a Public
Sale or an IPO), the Transferring holder of Company Interests shall cause the
prospective Transferee to be bound by this Agreement, the LLC Agreement (if the
prospective Transferee is admitted as a substituted member pursuant to the LLC
Agreement), the Registration Agreement, the Asset Purchase Agreement (in the
case of Zecal), and any other agreements executed by holders of Company
Interests relating to such Company Interests in the aggregate (collectively, the
"Other Agreements"), and to execute and deliver to the Company and the other
----------------
holders of Company Interests counterparts of this Agreement, the LLC Agreement
(if the prospective Transferee is admitted as a substituted member pursuant to
the LLC Agreement), the Registration Agreement, the Asset Purchase Agreement (in
the case of Zecal) and the applicable Other Agreements. Any Transfer or
attempted Transfer of any Company Interests in violation of any provision of
this Agreement shall be void, and the Company shall not record such Transfer on
its books or treat any purported Transferee of such Company Interests as the
owner of such securities for any purpose.
5. Public Offering.
---------------
(a) If (i) at any time the Board approves a public offering of any of
the Company Interests to be registered under the Securities Act, (ii) the
holders of not less than a majority of the Company Interests (the
"Requisite Holders") otherwise request the Company to make a public
-----------------
offering of equity interests of the Company pursuant to the Registration
Agreement or (iii) the holders of not less than 30% of the Company
Interests (the "Minority Holders") request the Company to make a public
----------------
offering of equity interests of the Company and the following conditions
exist (or would exist upon the consummation of such public offering): (A)
the aggregate market capitalization of the Company, based upon the price
per share to be paid by the public for such interests, would be at least
$300,000,000; (B) the offering price per share to be paid by the public for
such interests in such public offering implies a fifteen times (15.0x)
multiple of projected EBITDA for the twelve month period immediately
following such public offering and (C) such public offering shall be
underwritten by any one or more of Goldman Sachs, Morgan Stanley, Merrill
Lynch or another top tier, New York-based investment bank, then the Members
and the Company will take all necessary or desirable actions in connection
with the consummation of such registered offering approved by the Board
and, to the extent not inconsistent therewith, the Requisite Holders or the
Minority Holders, as the case may be. It is the intent of the parties
hereto that immediately prior to the initial registered offering of Company
Interests, whether or not pursuant to the immediately preceding sentence
and whether pursuant to a sale by the Company or by any Member, (i) a
Delaware corporation will be incorporated (the "Entity"), (ii) the Company
------
Interests will be recapitalized or reorganized (whether by merger,
exchange, contribution, a combination of the foregoing or otherwise) at the
Board's election into (A) a single class of common stock of the Entity or
(B) classes of capital stock of the Entity, in either case which have the
same relative rights and preferences as such Company Interests and (iii)
each
-5-
<PAGE>
Member hereby agrees that it will consent to and vote for a
recapitalization, reorganization or exchange of the existing Company
Interests into capital stock of the Entity that the Board finds acceptable
(consistent with the requirements of clause (ii) above) and will take all
necessary or desirable actions in connection with the consummation of the
recapitalization, reorganization or exchange. Without limiting the
generality of the foregoing, each holder of Company Interests hereby waives
any dissenters rights, appraisal rights or similar rights in connection
with such recapitalization, reorganization or exchange. The securities to
be so held by the Members will be allocated among the Members (or
additional securities will be issued to one or more Members) so that,
immediately after such recapitalization, reorganization or exchange, each
Member holds securities having an aggregate value equal to the amount which
such Member would have received if, immediately prior to such
recapitalization, reorganization or exchange, the Company had distributed
to its Members an aggregate amount equal to the aggregate value of the
securities which are to be held by all Members immediately after such
recapitalization, reorganization or exchange in a complete liquidation
pursuant to the rights and preferences set forth in the Company's LLC
Agreement immediately prior to such recapitalization, reorganization or
exchange, with each share of such securities, if any, offered to the public
as part of such offering having a "value" for such purposes equal to the
price per share of sales to the public as part of such offering.
(b) Notwithstanding the foregoing, any such recapitalization,
reorganization or exchange will be structured and implemented in the manner
contemplated by Section 12.7 of the LLC Agreement.
6. Liquidity Event.
---------------
(a) The Company shall seek to effectuate a Liquidity Event upon the
request of Members holding not less than a majority of the Company
Interests (the "Majority Holder").
---------------
(b) From and after the time (if any) when the Board or the Majority
Holder have informed each of the Members that it desires to effectuate a
Liquidity Event, the Company and each holder of Company Interests shall (i)
cooperate in good faith to effectuate such Liquidity Event and (ii) consent
to and raise no objections against, and take all necessary or desirable
actions in connection with, the consummation of such Liquidity Event,
including those reasonably requested by the Seller (as defined below).
Without limiting the generality of the foregoing, subject to the terms set
forth in this Section 6, (i) each holder of Company Interests hereby waives
any dissenters rights, appraisal rights or similar rights in connection
with such Liquidity Event and (ii) if all or any portion of any such
Liquidity Event is structured as a sale of interests, each holder of
Company Interests shall agree to sell any or all of his or its interests
and rights to acquire interests on the terms and conditions approved by the
Seller. The Person seeking to effectuate such Liquidity Event (i.e., the
Board or the Majority Holder) is referred to herein as the "Seller."
------
(c) In connection with any Liquidity Event (whether by sale, merger,
recapitalization, reorganization, consolidation, combination or otherwise)
pursuant to this
-6-
<PAGE>
Section 6, each holder of Company Interests who holds Company Interests
immediately prior to such Liquidity Event shall receive the same form of
consideration and the same portion of the aggregate consideration that such
holder of Company Interests would have received if the aggregate
consideration paid by the Buyer in connection with closing such Liquidity
Event (the "Aggregate Consideration") had been paid directly to the Company
-----------------------
and then distributed by the Company (i) pursuant to Section 4.1(a) of the
LLC Agreement (and after giving effect to any transfer taxes payable in
connection with such Liquidity Event, the amount of which will be paid
directly to the persons owing such taxes), if such Liquidity Event is
structured in the manner contemplated by Section 12.7 of the LLC Agreement
or otherwise as a sale of equity interests or similar transaction or (ii)
in all other cases in a complete liquidation pursuant to the terms of the
LLC Agreement as in effect immediately prior to such Liquidity Event (but
without the Company paying any amounts in such liquidation with respect to
any obligations that are being assumed by the Buyer in connection with such
Liquidity Event, and after giving effect to any transfer taxes payable in
connection with such Liquidity Event, the amount of which will be paid
directly to the persons owing such taxes). Each holder of Company Interests
shall take all necessary or desirable actions in connection with the
receipt of the Aggregate Consideration from such Liquidity Event as is
requested by the Seller to effectuate the foregoing.
(d) The Company will pay the costs of any sale of Company Interests
pursuant to a Liquidity Event to the extent such costs are incurred for the
benefit of all holders of Company Interests and are not otherwise paid by
the acquiring party, but including in any event the reasonable fees and
disbursements of one counsel chosen by the Majority Holder. Costs incurred
by any holder of Company Interests on its own behalf will not be considered
costs of the transaction under this Section 6.
(e) The provisions of this Section 6 shall terminate upon the
consummation of the first to occur of an IPO or a Liquidity Event.
(f) Notwithstanding the foregoing, any such Liquidity Event will be
structured and implemented in the manner contemplated by Section 12.7 of
the LLC Agreement.
7. Certain Definitions.
-------------------
"Affiliate" is defined in the LLC Agreement.
---------
"Asset Purchase Agreement" means that certain Asset Purchase
------------------------
Agreement, dated as of the date hereof, by and among the Company, HTI and Zecal
Corp., as the same may be amended or modified from time to time.
"Board" is defined in the LLC Agreement.
-----
"Buyer" is the person or persons purchasing the Company.
-----
-7-
<PAGE>
"Company Interest" is defined in the LLC Agreement.
----------------
"Equity Interests" is defined in the LLC Agreement.
----------------
"GAAP" is defined in the LLC Agreement.
----
"Guaranty" is defined in the LLC Agreement.
--------
"Invested Capital" is defined in the LLC Agreement.
----------------
"IPO" is defined in the LLC Agreement.
---
"Letter Agreement" means that certain Letter Agreement, dated as of
----------------
the date hereof, between Wells Fargo Business Credit, Inc. and the Company.
"Liquidity Event" is defined in the LLC Agreement.
---------------
"LLC Interest Purchase Agreement" means that certain LLC Interest
-------------------------------
Purchase Agreement, dated as of the date hereof, between the Company and LZ.
"Member" is defined in the LLC Agreement.
------
"Person" is defined in the LLC Agreement.
------
"P.G. Design" means P.G. Design Electronics, Inc., a Delaware
-----------
corporation.
"Preferred Company Interests" is defined in the LLC Agreement.
---------------------------
"Public Sale" is defined in the LLC Agreement.
-----------
"Registration Agreement" means that certain Registration Agreement,
----------------------
dated as of the date hereof, between the Company and its Members.
"Securities Act" means the Securities Act of 1933, as amended, and
--------------
applicable rules and regulations thereunder, and any successor to such statute,
rules or regulations. Any reference herein to a specific section, rule or
regulation of the Securities Act shall be deemed to include any corresponding
provisions of future law.
"Subsidiary" is defined in the LLC Agreement.
----------
8. Financial Statements. At any time prior to the consummation of an
--------------------
IPO or a Liquidity Event, the Company will deliver to each holder of Company
Interests:
-8-
<PAGE>
(a) no later than thirty (30) days after the end of each monthly
accounting period of the Company in each fiscal year, unaudited
consolidated statements of income and cash flows of the Company and its
Subsidiaries for such monthly period and for the period from the beginning
of the fiscal year to the end of such month, and unaudited consolidated
balance sheets of the Company and its Subsidiaries as of the end of such
monthly period, setting forth in each case comparisons to the Company's
annual budget, and to the corresponding period in the preceding fiscal year
(all of which statements shall be prepared in accordance with GAAP);
(b) no later than forty-five (45) days after the end of each
quarterly accounting period of the Company in each fiscal year, unaudited
consolidated statements of income and cash flows of the Company and its
Subsidiaries for such quarterly period and for the period from the
beginning of the fiscal year to the end of such quarter, and unaudited
consolidated balance sheets of the Company and its Subsidiaries as of the
end of such quarterly period, setting forth in each case comparisons to the
Company's annual budget, and to the corresponding period in the preceding
fiscal year (all of which statements shall be prepared in accordance with
GAAP);
(c) no later than forty-five (45) days after the end of each
quarterly accounting period of the Company in each fiscal year, a revised
copy of the annual budget of the Company and its Subsidiaries, updated to
reflect the Company's actual operating results to date and other data
impacting the assumptions used to prepare the Company's annual budget; and
(d) no later than ninety (90) days after the end of each fiscal year
of the Company, consolidated statements of income and cash flows of the
Company for such fiscal year, and consolidated balance sheets of the
Company as of the end of such fiscal year, setting forth in each case
comparisons to the Company's annual budget, and to the preceding fiscal
year, and a calculation of Adjusted EBITDA (as defined in Section 9(a)),
all prepared in accordance with GAAP, and accompanied by an unqualified
opinion of such independent accounting firm of recognized national standing
approved by the Board.
9. Put Arrangements.
----------------
(a) At any time during each Put Exercise Period (as defined below),
if the Company's actual Adjusted EBITDA is less than 80% of the Adjusted
EBITDA targets set forth in a separate writing delivered at the closing of
the Asset Purchase Agreement by signature of an officer of Zecal and
countersigned by a LZ Director (for either the year ended December 31,
2001, the year ended December 31, 2002 or the two year period ended
December 31, 2002), the holders of Preferred Company Interests (other than
HTI or any of its Affiliates) shall have the right (but not the obligation)
to require HTI to repurchase all or any portion of such holder's Preferred
Company Interests at the Put Price (the "Put") by delivering a written
---
notice to HTI specifying the amount of Preferred Company Interests to be
purchased (the "Put Notice"). Each "Put Exercise Period" shall be the 90-
---------- -------------------
day period
-9-
<PAGE>
following the delivery of the Company's annual audited consolidated
financial statements to the Members for each fiscal year of the Company
commencing with the year ended December 31, 2001 and ending with the year
ended December 31, 2002, but in any event each Put Exercise Period shall
begin no later than 90 days after the end of each such fiscal year.
"Adjusted EBITDA" means (i) the Company's consolidated pretax income for
---------------
the relevant accounting period, plus the amount of interest expense for
such period, plus the amount of the provision for depreciation and
amortization for such period, all determined on a consolidated basis in
accordance with GAAP, consistently applied minus (ii) the Company's net
-----
change in Working Capital for the relevant accounting period, determined on
a consolidated basis in accordance with GAAP, consistently applied.
"Working Capital" means the Company's consolidated current assets minus its
---------------
consolidated current liabilities (excluding the effects of cash and cash
equivalents and the current portion of Indebtedness for Borrowed Money (as
defined in the Asset Purchase Agreement)), determined in accordance with
GAAP, consistently applied.
(b) Subject to the provisions hereof, no later than 120 days after
delivery of the Put Notice, HTI shall purchase and the holders of Preferred
Company Interests electing to Put such interests (the "Electing Holders")
----------------
shall sell the amount of such holders' Preferred Company Interests
specified in the Put Notice at a mutually agreeable time and place (the
"Put Closing").
-----------
(c) At the Put Closing, the Electing Holders shall deliver to HTI
duly executed instruments of assignment conveying title to such Electing
Holder's interests to be purchased by HTI, free and clear of all liens, and
HTI shall deliver each such Electing Holder the Put Price by wire transfer
of immediately available funds to an account designated by each such
Electing Holder. In the event HTI fails to consummate the Put transactions
required by this Section 9, Zecal shall lose its right to appoint directors
to the Board pursuant to Section 1 of this Agreement, and the election of
such directors shall be accomplished in accordance with the Delaware Act
(as defined in the LLC Agreement).
(d) The "Put Price" of each Electing Holder's Preferred Company
---------
Interests shall mean the purchase price paid therefor plus interest
thereon, at a rate of 10% per annum, compounded monthly, from the date such
interests were purchased to (but not including) the date HTI actually makes
payment for such interests.
(e) Notwithstanding any other provision in this Section 9, the right
of the holders of the Preferred Company Interests to exercise the Put
hereunder shall terminate upon the consummation of the first to occur of a
Liquidity Event or an IPO.
10. Buy-Sell Arrangements.
---------------------
(a) At any time on or after January 1, 2001 (or at any time after the
date hereof, in the event of an Insolvency Event or Bank Acquisition Event,
as defined in Section 1(d) hereof), either LZ or Zecal (the "Proposed
--------
Seller") may offer (any such offer shall specify
------
-10-
<PAGE>
that it is pursuant to this Section 10(a)), in writing (the "Offer"), to
-----
sell all or any portion of its Company Interests to the other group (Zecal
or LZ, as the case may be, and hereinafter referred to as the "Proposed
--------
Buyer"), specifying the aggregate price therefor, and the price for each 1%
-----
interest in the Company (the price of each 1% interest in the Company
hereinafter referred to as the "Target Price"). The Proposed Buyer must
------------
accept or reject the Offer no later than thirty (30) days after receipt of
the Offer. If the Proposed Buyer accepts the Offer, it shall deliver the
Proposed Seller an irrevocable acceptance notice (the "Acceptance Notice")
-----------------
stating that the Proposed Buyer agrees to purchase all (but not less than
all) of the Proposed Seller's offered Company Interests at the aggregate
Target Price therefor (in cash, payable in immediately available funds,
denominated in U.S. dollars) on a date which shall not be later than 90
days after receipt of the Offer, and such purchase of all (but not less
than all) of the Proposed Seller's offered Company Interests shall be
consummated no later than 90 days after receipt of the Offer. If the
Proposed Buyer rejects the Offer (and such rejection shall be deemed to
occur on the 30th day after receipt of the Offer, if no written acceptance
or rejection of the Offer is delivered by the Proposed Buyer on or prior to
such date), then the Proposed Seller must purchase all (but not less than
all) of the Proposed Buyer's Company Interests at the aggregate Target
Price therefor (in cash, payable in immediately available funds,
denominated in U.S. dollars) on a date which shall not be later than 90
days after receipt of the Offer, and such purchase of all (but not less
than all) of the Proposed Buyer's Company Interests shall be consummated no
later than 90 days after receipt of the Offer. In the event Zecal fails to
fulfill its obligations under this Section 10 to consummate a purchase or
sale of Company Interests when obligated to do so, Zecal shall lose the
right to appoint directors to the Board pursuant to Section 1 of this
Agreement, and the election of directors shall be accomplished in
accordance with the Delaware Act. HTI unconditionally guarantees Zecal's
obligations pursuant to this Section 10, it being understood that HTI's
guarantee is a guarantee of payment.
(b) Notwithstanding any other provision in this Section 10, at any
time, either party may offer (any such offer shall specify that it is
pursuant to this Section 10(b)), in writing, to sell any portion of its
Company Interests to the other party, and in such event, the parties may
(but shall not be obligated to) negotiate mutually agreeable terms for the
purchase and sale of any such offered Company Interests.
(c) Notwithstanding any other provision in this Section 10, each
party's rights and obligations under this Section 10 shall terminate upon
the consummation of the first to occur of a Liquidity Event or an IPO.
11. Additional Financing.
--------------------
(a) If, at any time prior to the first to occur of a Liquidity Event
or an IPO, the Company is deemed, in accordance with the terms of this
Section 11, to require additional financing and the Board, as of the date
of such Call Notice (as defined below), has not consummated a third party
financing, any Member holding more than 25% of the aggregate Company
Interest may issue a written request to each of the Members for additional
funds
-11-
<PAGE>
for the Company, by delivery of written notice to each such Member at the
address for such Person in the Company's books and records (the "Call
----
Notice"), which notice shall describe the proposed amount of the additional
------
financing, the proposed closing date of the additional financing (which
shall be no later than 15 business days after the delivery of the Call
Notice) and, as provided in paragraph 11(c) hereof, the proposed type of
financing (i.e., equity or debt financing). Within 15 business days after
the delivery of the Call Notice, each Member shall have the preemptive
right (but not the obligation) to provide all, but not less than all, of
such Member's pro rata share of such financing, according to their
respective Company Interests, in accordance with this Section 11.
(b) The Company shall be deemed to require additional financing upon
a Board finding thereof and, notwithstanding any Board finding to the
contrary, if any one of the following conditions exists at the time a Call
Notice is delivered: (i) the Company's cash balance is less than $500,000,
(ii) the Company has failed or is likely to fail to pay its debts or
obligations as they have or will become due and payable or (iii) the cash
flow projections in the budget prepared by the Company (as such projections
may be adjusted from time to time) reasonably indicate a need for
additional financing during any succeeding six-month period (excluding, for
purposes hereof, any discretionary, rather than required capital
expenditures).
(c) Any such financing provided to the Company by the Members
pursuant to this Section 11 shall, if each Member is providing a pro rata
percentage (according to their respective Company Interests) of such
funding, be in the form of additional Preferred Company Interests
representing a percentage of all of the Company Interests equal to a
fraction, the numerator of which shall be the dollar amount of Preferred
Company Interests purchased pursuant hereto and the denominator of which
shall be the aggregate dollar amount of the Company's Invested Capital
immediately following the purchase of such additional Preferred Company
Interests (the "Derived Percentage") or, if any Member declines to provide
------------------
all of its pro rata percentage of such funding, in the form of either (at
the election of each funding Member): (i) a first priority senior secured
loan bearing interest at the rate of 20% per annum (or such lesser rate as
may be permitted under applicable usury law), compounded monthly and
containing such other terms and conditions mutually agreed to by the
Company and such funding Member or (ii) additional Preferred Company
Interests representing a percentage of all of the Company Interests equal
to the Derived Percentage. If any Member declines to provide all of its pro
rata percentage of any funding described in this Section 11, each Member
providing any such funding shall receive warrants exercisable for a dollar
amount of additional Preferred Company Interests equal to two times (2.0x)
the dollar amount of the financing provided by such funding Member pursuant
to the preceding sentence of this Section 11 (the "Warrants"); provided
--------
that this provision for Warrants shall not apply with respect to up to
$1.45 million of financing used to satisfy the Company's obligations under
the Guaranty provided solely by LZ or solely by Zecal. Such Warrants shall
be exercisable for a period of five years from the date such financing is
consummated pursuant to this Section 11 and the exercise price of such
Warrants shall be equal to the dollar amount thereof. Such Warrants shall
be exercisable for a percentage of the Company
-12-
<PAGE>
Interests equal to the dollar amount of such Warrants divided by the total
dollar amount of the Company's Invested Capital from time to time (assuming
exercise of such Warrants).
(d) After receiving a Call Notice, a Member wishing to exercise the
preemptive rights granted by this Section 11 must give written notice to
the Company and the Member issuing the Call Notice, within five (5)
business days after delivery of the Call Notice (the "Election Period"),
---------------
that such Member irrevocably agrees to subscribe for all (but not less than
all) of its pro rata portion of the additional financing described in the
Call Notice. As soon as practicable, but in any event within three (3)
business days after the expiration of the Election Period, the Company and
the Member issuing the Call Notice will, if necessary, notify the Members
exercising their preemptive rights to provide additional financing of any
unsubscribed additional financing which Members have elected not to provide
and each of the electing Members will be entitled (but not obligated) to
subscribe for the remaining additional financing described in the Call
Notice (the "Second Call Notice"); provided that if in the aggregate such
------------------
Members elect to subscribe for more than the remaining additional
financing, such remaining additional financing subscribed for by each such
Member will be reduced on a pro rata basis based upon the respective
Company Interests then held by such Members. Each Member may elect to
subscribe for any of the remaining additional financing available to such
Member by delivering written notice to the Company and the Member issuing
the Call Notice within two (2) business days after the delivery of the
Second Call Notice (with such two (2) business day period referred to
herein as the "Second Election Period").
----------------------
(e) As soon as practicable but in any event within two (2) business
days after the expiration of the Election Period or the Second Election
Period (if any), the Company and the Member issuing the Call Notice will
provide written notice (the "Closing Notice") to the electing Members as to
--------------
the total amount of additional financing to be provided to the Company by
such Member and the time and place of the closing of the transaction (which
will in any event be no later than 15 business days after the issuance of
the Call Notice).
(f) The closing of the transactions contemplated by this Section 11
will take place on the date designated in the Closing Notice. The Members
electing to provide such additional financing shall provide such funds by
delivery of a certified check or bank check or by wire transfer of
immediately available funds. The Company and the electing Members will
enter into definitive financing documentation customary for financing
transactions of the type described in this Section 11 and each electing
Member shall receive customary representations, warranties, covenants and
indemnities from the Company in connection with such financing.
Notwithstanding anything to the contrary contained in this Agreement, the
rights and obligations set forth in this Section 11 shall not be
transferable by either party and may only be performed or exercised by such
party.
12. Monitoring Expenses. The Company shall reimburse each of LZ and
-------------------
Zecal for their respective reasonably incurred actual out-of-pocket third party
expenses incurred by either LZ or Zecal in monitoring their respective
investments in the Company (which shall not, in any
-13-
<PAGE>
event, include any internal expenses, including, without limitation, any
salaries or expenses of any officer, director or employee of either such party
or its Affiliates). This Section 12 shall terminate upon the first to occur of
(i) the consummation of a Liquidity Event or an IPO or (ii) as to any particular
party, upon the first date such party ceases to hold 10% or more of the
aggregate Company Interest.
13. Amendment and Waiver. Except as otherwise provided herein, no
--------------------
modification, amendment or waiver of any provision of this Agreement shall be
effective against the Company or the Members unless such modification, amendment
or waiver is approved in writing by Members holding not less than a majority of
the Company Interests. No failure by any party to insist upon the strict
performance of any covenant, duty, agreement or condition of this Agreement or
to exercise any right or remedy consequent upon a breach thereof shall
constitute a waiver of any such breach or any other covenant, duty, agreement or
condition.
14. Severability. Whenever possible, each provision of this
------------
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or the effectiveness or validity of any provision in any
other jurisdiction, and this Agreement will be reformed, construed and enforced
in such jurisdiction as if such invalid, illegal or unenforceable provision had
never been contained herein.
15. Entire Agreement. This Agreement, those documents expressly
----------------
referred to herein and other documents of even date herewith embody the complete
agreement and understanding among the parties and supersede and preempt any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
16. Successors and Assigns. Except as otherwise provided herein, this
----------------------
Agreement shall bind and inure to the benefit of and be enforceable by the
Company and its successors and permitted assigns and the Members and any
subsequent holders of Company Interests and the respective successors and
permitted assigns of each of them, so long as they hold Company Interests.
Notwithstanding any provision in this Agreement to the contrary, Company
Interests shall cease to be Company Interests for purposes of this Agreement
when they have been disposed of in a Public Sale or repurchased by the Company
or any Subsidiary.
17. Counterparts. This Agreement may be executed in separate
------------
counterparts each of which will be an original and all of which taken together
will constitute one and the same agreement.
18. Remedies. Any Person having rights under any provision of this
--------
Agreement shall be entitled to enforce such rights specifically to recover
damages caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any
-14-
<PAGE>
breach of the provisions of this Agreement and that any party may in its sole
discretion apply to any court of law or equity of competent jurisdiction
(without posting any bond or other security) for specific performance and for
other injunctive relief in order to enforce or prevent violation of the
provisions of this Agreement. Nothing contained in this Agreement will be
construed to confer upon any Person who is not a signatory hereto any rights or
benefits, as a third party beneficiary or otherwise.
19. Notices. Any notice provided for in this Agreement will be in
-------
writing and will be either personally delivered, or received by certified mail,
return receipt requested, or sent by reputable overnight courier service
(charges prepaid) to the Company at the address set forth below and to any other
recipient and to any subsequent holder of Company Interests subject to this
Agreement at such address as indicated by the Company's records, or at such
address or to the attention of such other person as the recipient party has
specified by prior written notice to the sending party. Notices will be deemed
to have been given hereunder when delivered personally, three days after deposit
in the U.S. mail and one day after deposit with a reputable overnight courier
service. The Company's address is:
To the Company:
--------------
Zecal Technology, LLC
c/o Lamb Partners
900 N. Michigan Avenue
Chicago, IL 60611
Telecopy No.: (312) 915-1037
Attention: Neil G. Bluhm
With a copy to:
Kirkland & Ellis
200 E. Randolph Drive
Chicago, IL 60601
Telecopy No.: (312) 861-2200
Attention: Gary M. Holihan, Esq.
and to:
Heartland Technology, Inc.
547 West Jackson Boulevard, Suite 1510
Chicago, IL 60661
Attention: Lawrence Adelson, Esq.
20. Governing Law. This Agreement shall be governed by, and
-------------
construed in accordance with, the laws of the State of Delaware, without giving
effect to any choice of law or conflict of law rules or provisions (whether of
the State of Delaware or any other
-15-
<PAGE>
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of Delaware. Any dispute relating hereto shall be heard in
the state or federal courts of Delaware, and the parties agree to jurisdiction
and venue therein.
21. Descriptive Headings; Interpretation. The descriptive headings
------------------------------------
of this Agreement are inserted for convenience only and do not constitute a
substantive part of this Agreement. Whenever required by the context, any
pronoun used in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns, pronouns and verbs
shall include the plural and vice versa. The use of the word "including" in this
Agreement shall be by way of example rather than by limitation. Reference to any
agreement, document or instrument means such agreement, document or instrument
as amended or otherwise modified from time to time in accordance with the terms
thereof, and, if applicable, hereof. Without limiting the generality of the
immediately preceding sentence, no amendment or other modification to any
agreement, document or instrument that requires the consent of any Person
pursuant to the terms of this Agreement or any other agreement (including the
LLC Agreement) will be given effect hereunder unless such Person has consented
in writing to such amendment or modification. The use of the words "or,"
"either" and "any" shall not be exclusive.
22. Delivery by Facsimile. This Agreement and any signed agreement or
---------------------
instrument entered into in connection with this Agreement or contemplated
hereby, and any amendments hereto or thereto, to the extent signed and delivered
by means of a facsimile machine, shall be treated in all manner and respects as
an original agreement or instrument and shall be considered to have the same
binding legal effect as if it were the original signed version thereof delivered
in person. At the request of any party hereto or to any such agreement or
instrument, each other party hereto or thereto shall re-execute original forms
thereof and deliver them to all other parties. No party hereto or to any such
agreement or instrument shall raise the use of a facsimile machine to deliver a
signature or the fact that any signature or agreement or instrument was
transmitted or communicated through the use of a facsimile machine as a defense
to the formation of a contract and each such party forever waives any such
defense.
23. No Strict Construction. The parties hereto have participated
----------------------
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties hereto, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Agreement.
24. Undertaking of HTI. HTI agrees that it shall guarantee each and
------------------
every one of the Zecal's obligations under this Agreement and the other
agreements and transactions contemplated herein.
* * * * *
-16-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Members
Agreement on the day and year first above written.
ZECAL TECHNOLOGY, LLC
By:_______________________________
Its:______________________________
ZECAL CORP.
By:_______________________________
Its:______________________________
LZ PARTNERS, LLC
By:_______________________________
Its:______________________________
SOLELY FOR PURPOSES OF AGREEING TO BE BOUND BY
SECTIONS 9, 10 and 24 HEREOF:
HEARTLAND TECHNOLOGY, INC.
By:_______________________________
Its:______________________________
<PAGE>
SCHEDULE OF MEMBERS
-------------------
Zecal Corp.
c/o Heartland Technology, Inc.
547 W. Jackson Boulevard, Suite 1510
Chicago, Illinois 60661
Attention: Edwin Jacobson
LZ Partners, LLC
c/o Lamb Partners
900 N. Michigan
Chicago, Illinois 60611
Attention: Neil G. Bluhm
-18-
<PAGE>
EXHIBIT 99.07
MANAGEMENT SERVICES AGREEMENT
-----------------------------
This Management Services Agreement (this "Agreement") is made and
---------
entered into as of May __, 2000, by and between Heartland Technology, Inc., a
Delaware corporation ("HTI") and Zecal Technology, LLC, a Delaware limited
---
liability company ("LLC"). Capitalized terms used and not defined herein shall
---
have the meanings ascribed thereto in that certain Members Agreement, dated as
of the date hereof, by and among LLC and its members (the "Members Agreement").
-----------------
WHEREAS, LLC desires to retain HTI, and HTI desires to perform certain
services for LLC;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties agree as follows:
1. Term. This Agreement shall be in effect for an initial term
----
commencing as of the date hereof and ending immediately upon the first to occur
of (i) a consummation of a Liquidity Event or an IPO (as each such term is
defined in the Members Agreement), (ii) any date after January 1, 2003, at the
election of either LLC or HTI upon written notice delivered to the other party
or (iii) nonpayment of the fees described herein.
2. Services. HTI shall perform or cause to be performed such
--------
services for LLC as directed by LLC, which may include, without limitation, the
following:
(a) executive and management services, including, without limitation,
management services performed by Edwin Jacobson, whether in his capacity as
Chairman of LLC or otherwise;
(b) support and analysis of LLC's initial financing alternatives;
(c) legal services provided by HTI's internal counsel, to the extent
such counsel may provide such services to LLC in compliance with applicable
requirements of legal ethics; and
(d) other services for LLC upon which LLC and HTI agree.
The services provided pursuant to this Agreement are advisory only and LLC is
free to accept or reject the advice offered by representatives of HTI pursuant
to this Agreement.
3. Management Services Fee. Commencing January 1, 2001, payment for
-----------------------
services rendered by HTI in connection with the performance of services pursuant
to this Agreement shall not exceed $10,000 per month, payable by LLC on a
monthly basis in arrears, as long as HTI is providing services requested by LLC
and such payment is not prohibited by any financing agreement to which LLC is a
party; provided that notwithstanding any such prohibition prohibiting
<PAGE>
such payment, such fees shall continue to accrue for services performed and
shall be paid as soon as no such prohibition exists. The aforementioned
management services fee shall be in full and complete satisfaction of any and
all fees or internally generated or allocated costs or expenses incurred by HTI
in the performance of its obligations pursuant to this Agreement (including,
without limitation, all fees and internal or allocated costs and expenses
related to any services performed by Edwin Jacobson pursuant to this Agreement
(whether in his capacity as Chairman of LLC or otherwise) or any legal services
provided by HTI or its employees pursuant to this Agreement), but not actually
incurred third party out-of-pocket fees and expenses requested to be incurred by
LLC in connection with HTI's performance of services pursuant to this Agreement,
which shall be reimbursed by LLC. Notwithstanding any provision in this Section
3 to the contrary, commencing January 1, 2003, the aforementioned management
services fee shall be reviewed annually by the parties hereto with a view to
reducing or eliminating it as soon as reasonably practicable.
4. Personnel. HTI shall provide and devote to the performance of
---------
this Agreement such officers, employees and agents of HTI as HTI shall deem
appropriate to the furnishing of the services required.
5. HTI an Independent Contractor. HTI and LLC agree that HTI shall
-----------------------------
perform services hereunder as an independent contractor, and that LLC shall
retain control over and responsibility for its own operations and personnel.
Neither HTI nor its representatives shall be considered employees or agents of
LLC as a result of this Agreement nor shall any of them have authority under
this Agreement to contract in the name of or bind LLC, except as expressly
agreed to in writing by LLC.
6. Notices. All notices hereunder shall be in writing and shall be
-------
delivered personally or mailed by United States mail, postage prepaid, addressed
to the parties as follows:
To HTI:
------
Heartland Technology, Inc.
547 West Jackson Boulevard
Suite 1510
Chicago, Illinois 60661
Telecopy No.: (312) 663-9397
Attn: Edwin Jacobson
To LLC:
------
Zecal Technology, LLC
c/o Lamb Partners
900 N. Michigan Avenue
Chicago, IL 60611
Telecopy No.: (312) 915-1037
Attn: Neil G. Bluhm
-2-
<PAGE>
7. Assignment. Neither party may assign any rights or delegate any
----------
obligations hereunder without the prior written consent of the other.
8. Successors. This Agreement and all the obligations and benefits
----------
hereunder shall inure to the permitted successors and assigns of the parties.
9. Counterparts. This Agreement may be executed and delivered by
------------
each party hereto in separate counterparts, each of which when so executed and
delivered shall be deemed an original and all of which taken together shall
constitute but one and the same agreement.
10. Entire Agreement; Modification; Governing Law. The terms and
---------------------------------------------
conditions hereof constitute the entire agreement between the parties hereto
with respect to the subject matter of this Agreement and supersede all previous
communications, either oral or written, representations or warranties of any
kind whatsoever, except as expressly set forth herein. No modifications of this
Agreement nor waiver of the terms or conditions thereof shall be binding upon
either party unless approved in writing by an authorized representative of such
party. All issues concerning this agreement shall be governed by and construed
in accordance with the laws of the State of Illinois, without giving effect to
any choice of law or conflict of law provision or rule (whether of the State of
Illinois or any other jurisdiction) that would cause the application of the law
of any jurisdiction other than the State of Illinois.
* * * * *
-3-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Management Services
Agreement as of the date first written above.
ZECAL TECHNOLOGY, LLC.
By:__________________________________
Its:_________________________________
HEARTLAND TECHNOLOGY, INC.
By:__________________________________
Its:_________________________________
-4-
<PAGE>
EXHIBIT 99.08
REGISTRATION AGREEMENT
----------------------
THIS REGISTRATION AGREEMENT (this "Agreement") is made as of May __, 2000,
---------
by and among Zecal Technology, LLC, a Delaware limited liability company
(together with its successors and permitted assigns, the "Company"), LZ
-------
Partners, LLC, a Delaware limited liability company ("LZ"), Zecal Corp., a
--
Delaware corporation ("HTI") and each of the other Persons who becomes a party
---
to this Agreement after the date hereof pursuant to paragraphs 10(e) or 10(f)
below. Certain capitalized terms used herein are defined in paragraph 9 below.
The Company and LZ are parties to a LLC Interest Purchase Agreement of even
date herewith (the "LLC Interest Purchase Agreement"). The Company, HTI and
-------------------------------
Heartland Technology, Inc. are parties to an Asset Purchase Agreement of even
date herewith (the "Purchase Agreement"). In connection with the LLC Interest
------------------
Purchase Agreement and the Purchase Agreement, the Company has agreed to provide
the registration rights set forth in this Agreement.
The parties to this Agreement, intending to be legally bound, hereby agree
as follows:
1. Demand Registrations.
--------------------
(a) Requests for Registration. At any time after an IPO and subject to the
-------------------------
other limitations set forth in this Section 1, either the holders of a majority
of the LZ Registrable Securities or the holders of a majority of the HTI
Registrable Securities may request registration under the Securities Act of
1933, as amended (the "Securities Act") of (x) all or any portion of their
--------------
respective Registrable Securities on Form S-1 or any similar long-form
registration ("Long-Form Registrations") or (y) all or any portion of their
-----------------------
respective Registrable Securities on Form S-2 or S-3 (including pursuant to Rule
415 under the Securities Act) or any similar short-form registration ("Short-
-----
Form Registrations"), if available. All registrations requested pursuant to
- ------------------
this paragraph 1(a) are referred to herein as "Demand Registrations." Each
--------------------
request for a Demand Registration shall specify the approximate number of
Registrable Securities requested to be registered and the anticipated per share
price range for such offering. Within 10 days after receipt of any such
request, the Company shall give written notice of such requested registration to
all other holders of Registrable Securities and, subject to paragraph 1(d)
below, shall include in such registration all Registrable Securities with
respect to which the Company has received written requests for inclusion therein
within 15 days after the receipt of the Company's notice.
(b) Long-Form Registrations. At any time after an IPO, (i) the holders of
-----------------------
a majority of the LZ Registrable Securities shall be entitled to request up to
two Long-Form Registrations in which the Company shall pay all Registration
Expenses and (ii) the holders of a majority of the HTI Registrable Securities
shall be entitled to request up to two Long-Form Registrations in which the
Company shall pay all Registration Expenses. A registration shall not count as
one of the permitted Long-Form Registrations until it has become effective. The
Company shall pay all Registration Expenses in connection with any registration
initiated as a Long-Form
<PAGE>
Registration whether or not it has become effective. All Long-Form Registrations
shall be underwritten registrations.
(c) Short-Form Registrations. In addition to the Long-Form Registrations
------------------------
provided pursuant to paragraph 1(b), both (i) the holders of a majority of the
LZ Registrable Securities shall be entitled to request an unlimited number of
Short-Form Registrations in which the Company shall pay all Registration
Expenses and (ii) the holders of a majority of the HTI Registrable Securities
shall be entitled to request an unlimited number of Short-Form Registrations in
which the Company shall pay all Registration Expenses. Notwithstanding anything
contained herein to the contrary, Demand Registrations shall be Short-Form
Registrations whenever the Company is permitted to use any applicable short
form. After the Company has become subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Company
------------
shall use its best efforts to make Short-Form Registrations on Form S-3
available for the sale of Registrable Securities. If the Company is qualified
to and, pursuant to the request of the holders of a majority of the Registrable
Securities initiating such request for registration pursuant to Section 1(a),
has filed with the Securities and Exchange Commission a registration statement
under the Securities Act on Form S-3 pursuant to Rule 415 under the Securities
Act (the "Required Registration"), the Company shall use its best efforts to
---------------------
cause the Required Registration to be declared effective under the Securities
Act as soon as practical after filing, and once effective, the Company shall
cause such Required Registration to remain effective for a period ending on the
earlier of (i) the date on which all Registrable Securities have been sold
pursuant to the Required Registration or (ii) the date as of which the holders
of Registrable Securities initiating such request for registration pursuant to
Section 1(a) are able to sell all of their Registrable Securities then held by
them within the three month period immediately succeeding such date in
compliance with Rule 144 under the Securities Act (the "Effective Period").
----------------
(d) Priority on Demand Registrations. The Company shall not include in any
--------------------------------
Demand Registration any securities which are not Registrable Securities without
the prior written consent of the holders of not less than a majority of the
Registrable Securities initiating such request for registration pursuant to
Section 1(a). If a Demand Registration is an underwritten offering and the
managing underwriters advise the Company in writing that in their opinion the
number of Registrable Securities and, if permitted hereunder, other securities
requested to be included in such offering exceeds the number of Registrable
Securities and other securities, if any, which can be sold without adversely
affecting the marketability of the offering, the Company shall include in such
registration prior to the inclusion of any securities which are not Registrable
Securities the number of Registrable Securities requested to be included which
in the opinion of such underwriters can be sold without adversely affecting the
marketability of the offering, pro rata among the respective holders of
Registrable Securities on the basis of the amount of Registrable Securities
owned by each such holder and then to the extent that any securities which are
not Registrable Securities can still be included, pro rata among the respective
holders thereof on the basis of the amount of such securities owned by each such
holder. Any Persons other than holders of Registrable Securities who participate
in Demand Registrations which are not at the Company's expense must pay their
share of the Registration Expenses as provided in paragraph 5 hereof.
2
<PAGE>
(e) Restrictions on Demand Registrations. The Company shall not be
------------------------------------
obligated to effect any Demand Registration within 180 days after the effective
date of a previous Demand Registration or an IPO. The Company shall be entitled
to postpone, for up to 180 days, the filing or the effectiveness of a
registration statement for a Demand Registration if the Company and the holders
of not less than a majority of the Registrable Securities agree that such Demand
Registration would be reasonably expected to have an adverse effect on any
proposal or plan by the Company or any of its Subsidiaries to engage in any
acquisition of assets (other than in the ordinary course of business) or any
merger, consolidation, tender offer or similar transaction; provided that in
such event, the Company will pay all Registration Expenses in connection with
such registration.
(f) Selection of Underwriters. The holders of a majority of the
-------------------------
Registrable Securities included in any Demand Registration will have the right
to select the investment banker(s) and manager(s) to administer the offering,
subject to the Company's approval, which will not be unreasonably withheld.
(g) Other Registration Rights. Except as provided in this Agreement, the
-------------------------
Company shall not grant to any Persons the right to request the Company to
register any equity securities of the Company, or any securities convertible or
exchangeable into or exercisable for such securities, without the prior written
consent of the holders of not less than a majority of the Registrable
Securities.
2. Piggyback Registrations.
-----------------------
(a) Right to Piggyback. Whenever the Company proposes to register any of
------------------
its equity securities (including any proposed registration of the Company's
securities by any third party) under the Securities Act (other than pursuant to
a Demand Registration or a registration on Form S-4 or S-8 or any successor or
similar forms) and the registration form to be used may be used for the
registration of Registrable Securities (a "Piggyback Registration"), whether or
----------------------
not for sale for its own account, the Company shall give prompt written notice
to all holders of Registrable Securities of its intention to effect such a
registration and shall include in such registration all Registrable Securities
with respect to which the Company has received written requests for inclusion
therein within 15 days after the receipt of the Company's notice.
(b) Piggyback Expenses. The Registration Expenses of the holders of
------------------
Registrable Securities shall be paid by the Company in all Piggyback
Registrations.
(c) Priority on Primary Registrations. If a Piggyback Registration is an
---------------------------------
underwritten primary registration on behalf of the Company, and the managing
underwriters advise the Company in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number
which can be sold in such offering without adversely affecting the marketability
of such offering, the Company shall include in such registration (i) first, the
securities the Company proposes to sell, (ii) second, the Registrable Securities
requested to be included in such registration, pro rata among the holders of
such Registrable Securities on the basis
3
<PAGE>
of the amount of such securities owned by each such holder and (iii) third, the
other securities requested to be included in such registration.
(d) Priority on Secondary Registrations. If a Piggyback Registration is an
-----------------------------------
underwritten secondary registration on behalf of holders of the Company's
securities (and is not a Demand Registration), and the managing underwriters
advise the Company in writing that in their opinion the number of securities
requested to be included in such registration exceeds the number which can be
sold without adversely affecting the marketability of the offering, the Company
shall include in such registration (i) first, the securities requested to be
included therein by the holders requesting such registration, (ii) second, the
Registrable Securities requested to be included in such registration, pro rata
among the holders of such Registrable Securities on the basis of the amount of
such securities owned by each such holder and (iii) third, other securities
requested to be included in such registration pro rata among the holders of such
securities on the basis of the amount of such securities owned by each such
holder.
(e) Selection of Underwriters. If any Piggyback Registration is an
-------------------------
underwritten offering, the selection of investment banker(s) and manager(s) for
the offering must be approved by the holders of a majority of the Registrable
Securities included in such Piggyback Registration. Such approval shall not be
unreasonably withheld or delayed.
(f) Other Registrations. If the Company has previously filed a
-------------------
registration statement with respect to Registrable Securities pursuant to
paragraph 1 or pursuant to this paragraph 2, and if such previous registration
has not been withdrawn or abandoned, the Company shall not file or cause to be
effected any other registration of any of its equity securities or securities
convertible or exchangeable into or exercisable for its equity securities under
the Securities Act (except on Form S-4 or S-8 or any successor form), whether on
its own behalf or at the request of any holder or holders of such securities,
until a period of at least 180 days has elapsed from the effective date of such
previous registration.
3. Holdback Agreements.
-------------------
(a) To the extent not inconsistent with applicable law, each holder of
Registrable Securities shall not effect any public sale or distribution of its
equity securities, or any securities, options or rights convertible into or
exchangeable or exercisable for such securities (except as part of an
underwritten registration or pursuant to registrations on Form S-4 or Form S-8
or any successor form), during the ten days prior to and during the 90-day
period beginning on the effective date of any (x) underwritten Demand
Registration, (y) underwritten Piggyback Registration or (z) post-effective
amendment of a Required Registration pursuant to which an underwritten offering
is to be effected, unless (in any such case) the underwriter managing the
registered public offering otherwise agrees.
(b) The Company agrees (except as part of an underwritten registration or
pursuant to registrations on Form S-4 or Form S-8 or any successor form) (i) not
to effect any public sale or distribution of its equity securities, or any
securities, options or rights convertible into or
4
<PAGE>
exchangeable or exercisable for such securities, during the ten days prior to
and during the 90-day period beginning on the effective date of any (x)
underwritten Demand Registration, (y) underwritten Piggyback Registration or (z)
post-effective amendment of a Required Registration pursuant to which an
underwritten offering is to be effected, unless (in any such case) the
underwriter managing the registered public offering otherwise agrees, and (ii)
to use its best efforts to cause, to the extent not inconsistent with applicable
law, each holder of its equity securities, or any securities, options or rights
convertible into or exchangeable or exercisable for equity securities purchased
from the Company at any time after the date of this Agreement (other than in a
registered public offering) to agree not to effect any public sale or
distribution (including sales pursuant to Rule 144) of any such securities
during such period (except as part of such underwritten registration, if
otherwise permitted), unless the underwriters managing the registered public
offering otherwise agree.
4. Registration Procedures. Whenever the holders of Registrable
-----------------------
Securities have requested that any Registrable Securities be registered pursuant
to this Agreement, the Company shall use its best efforts to effect the
registration and the sale of such Registrable Securities in accordance with the
intended method of disposition thereof, and pursuant thereto the Company shall
as expeditiously as possible:
(a) prepare and (within 60 days after the end of the period within which
requests for registration may be given to the Company) file with the Securities
and Exchange Commission a registration statement with respect to such
Registrable Securities and use its best efforts to cause such registration
statement to become effective (provided that before filing a registration
statement or prospectus or any amendments or supplements thereto, the Company
shall furnish to the counsel selected by the holders of not less than a majority
of the Registrable Securities covered by such registration statement copies of
all such documents proposed to be filed, which documents shall be subject to the
review and comment of such counsel);
(b) notify in writing each holder of Registrable Securities of the
effectiveness of each registration statement filed hereunder and prepare and
file with the Securities and Exchange Commission such amendments and supplements
to such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective for a period
of either (i) not less than 180 days (subject to extension pursuant to paragraph
7(b)) or, if such registration statement relates to an underwritten offering,
such longer period as in the opinion of counsel for the underwriters a
prospectus is required by law to be delivered in connection with sales of
Registrable Securities by an underwriter or dealer or (ii) such shorter period
as will terminate when all of the securities covered by such registration
statement have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof set forth in such registration
statement (but in any event not before the expiration of any longer period
required under the Securities Act), and to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement until such time as all of such securities have been
disposed of in accordance with the intended methods of disposition by the seller
or sellers thereof set forth in such registration statement;
5
<PAGE>
(c) furnish to each seller of Registrable Securities such number of copies
of such registration statement, each amendment and supplement thereto, the
prospectus included in such registration statement (including each preliminary
prospectus) and such other documents as such seller may reasonably request in
order to facilitate the disposition of the Registrable Securities owned by such
seller;
(d) use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such jurisdictions as
any seller reasonably requests and do any and all other acts and things which
may be reasonably necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of the Registrable Securities owned by such
seller (provided that the Company shall not be required to (i) qualify generally
to do business in any jurisdiction where it would not otherwise be required to
qualify but for this subparagraph (d), (ii) subject itself to taxation in any
such jurisdiction where it would not otherwise be required to subject itself but
for this subparagraph (d) or (iii) consent to general service of process in any
such jurisdiction where it would not otherwise be required to consent but for
this subparagraph (d));
(e) notify each seller of such Registrable Securities, at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, upon discovery that, or upon the discovery of the happening of any event as
a result of which, the prospectus included in such registration statement
contains an untrue statement of a material fact or omits any fact necessary to
make the statements therein not misleading in the light of the circumstances
under which they were made, and, at the request of any such seller, the Company
shall prepare and furnish to such seller a reasonable number of copies of a
supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of such Registrable Securities, such prospectus shall not contain
an untrue statement of a material fact or omit to state any fact necessary to
make the statements therein not misleading in the light of the circumstances
under which they were made;
(f) cause all such Registrable Securities to be listed on each securities
exchange on which similar securities issued by the Company are then listed or on
the NASD automated quotation system;
(g) provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such registration statement;
(h) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the holders of
not less than a majority of the Registrable Securities being sold or the
underwriters, if any, reasonably request in order to expedite or facilitate the
disposition of such Registrable Securities (including, without limitation,
effecting a stock split or a combination of shares);
(i) make available for inspection by any seller of Registrable Securities,
any underwriter participating in any disposition pursuant to such registration
statement and any attorney, accountant or other agent retained by any such
seller or underwriter, all financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company's officers,
6
<PAGE>
directors, employees and independent accountants to supply all information
reasonably requested by any such seller, underwriter, attorney, accountant or
agent in connection with such registration statement;
(j) otherwise use its best efforts to comply with all applicable rules and
regulations of the Securities and Exchange Commission, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months beginning with the first day of
the Company's first full calendar quarter after the effective date of the
registration statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act and Rule 158 thereunder;
(k) permit any holder of Registrable Securities which holder, in its sole
and exclusive judgment, might be deemed to be an underwriter or a controlling
person of the Company, to participate in the preparation of such registration or
comparable statement and to require the insertion therein of material, furnished
to the Company in writing, which in the reasonable judgment of such holder and
its counsel should be included;
(l) in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any securities included in such registration statement for sale in any
jurisdiction, use its best efforts promptly to obtain the withdrawal of such
order;
(m) use its best efforts to cause such Registrable Securities covered by
such registration statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the sellers
thereof to consummate the disposition of such Registrable Securities;
(n) obtain one or more comfort letters, dated the effective date of such
registration statement (and, if such registration includes an underwritten
public offering, dated the date of the closing under the underwriting
agreement), from the Company's independent public accountants in customary form
and covering such matters of the type customarily covered by comfort letters as
the holders of not less than a majority of the Registrable Securities being sold
reasonably request (provided that such Registrable Securities constitute at
least 10% of the securities covered by such registration statement);
(o) provide a legal opinion of the Company's outside counsel, dated the
effective date of such registration statement (and, if such registration
includes an underwritten public offering, dated the date of the closing under
the underwriting agreement), with respect to the registration statement, each
amendment and supplement thereto, the prospectus included therein (including the
preliminary prospectus) and such other documents relating thereto in customary
form and covering such matters of the type customarily covered by legal opinions
of such nature; and
7
<PAGE>
(p) use reasonable efforts to cause certificates for the Registrable
Securities covered by such registration statement to be delivered by the holders
thereof to the underwriters in such denominations and registered in such names
as the underwriters may request.
5. Registration Expenses.
---------------------
(a) All expenses incident to the Company's performance of or compliance
with this Agreement, including, without limitation, all registration and filing
fees, fees and expenses of compliance with securities or blue sky laws, printing
expenses, travel expenses, filing expenses, messenger and delivery expenses,
fees and disbursements of custodians, fees and disbursements of counsel for the
Company and fees and disbursements of all independent certified public
accountants, underwriters (excluding discounts and commissions) and other
Persons retained by the Company or the holders of not less than a majority of
the Registrable Securities participating in any registration (all such expenses
being herein called "Registration Expenses"), shall be borne by the Company,
---------------------
except as otherwise expressly provided in this Agreement, except that the
Company shall, in any event, pay its internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), the expense of any annual audit or quarterly
review, the expense of any liability insurance and the expenses and fees for
listing the securities to be registered on each securities exchange on which
similar securities issued by the Company are then listed or on the NASD
automated quotation system (or any successor or similar system).
(b) In connection with each Demand Registration and each Piggyback
Registration, the Company shall reimburse the holders of Registrable Securities
included in such registration for the reasonable fees and disbursements of one
counsel (in addition to local counsel) chosen by the holders of a majority of
the Registrable Securities included in such registration and for the reasonable
fees and disbursements of each additional counsel retained by any holder of
Registrable Securities for the purpose of rendering a legal opinion on behalf of
such holder in connection with any underwritten Demand Registration or Piggyback
Registration.
(c) To the extent Registration Expenses are not required to be paid by the
Company, each holder of securities included in any registration hereunder shall
pay those Registration Expenses allocable to the registration of such holder's
securities so included, and any Registration Expenses not so allocable shall be
borne by all sellers of securities included in such registration in proportion
to the aggregate selling price of the securities to be so registered.
6. Indemnification.
---------------
(a) The Company agrees to indemnify and hold harmless, to the fullest
extent permitted by law, each holder of Registrable Securities, its officers,
directors, managers, agents, and employees and each Person who controls such
holder (within the meaning of the Securities Act) against any losses, claims,
damages, liabilities, joint or several, together with reasonable costs and
expenses (including reasonable attorneys' fees), to which such indemnified party
may become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are
8
<PAGE>
based upon (i) any breach of this Agreement, (ii) any untrue or alleged untrue
statement of material fact contained (A) in any registration statement,
prospectus or preliminary prospectus or any amendment thereof or supplement
thereto or (B) in any application or other document or communication (in this
paragraph 6 collectively called an "application") executed by or on behalf of
the Company or based upon written information furnished by or on behalf of the
Company filed in any jurisdiction in order to qualify any securities covered by
such registration statement under the "blue sky" or securities laws thereof or
(iii) any omission or alleged omission of a material fact required to be stated
therein or necessary to make the statements therein not misleading, and the
Company will reimburse such holder and each such director, officer and
controlling Person for any legal or any other expenses incurred by them in
connection with investigating or defending any such loss, claim, liability,
action or proceeding; provided that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage, liability (or action or
proceeding in respect thereof) or expense arises out of or is based upon an
untrue statement or alleged untrue statement, or omission or alleged omission,
made in such registration statement, any such prospectus or preliminary
prospectus or any amendment or supplement thereto, or in any application, in
reliance upon, and in conformity with, written information prepared and
furnished to the Company by such holder expressly for use therein or by such
holder's failure to deliver a copy of the registration statement or prospectus
or any amendments or supplements thereto after the Company has furnished such
holder with a sufficient number of copies of the same. In connection with an
underwritten offering, the Company will indemnify such underwriters, their
officers and directors and each Person who controls such underwriters (within
the meaning of the Securities Act) to the same extent as provided above with
respect to the indemnification of the holders of Registrable Securities.
(b) In connection with any registration statement in which a holder of
Registrable Securities is participating, each such holder will furnish to the
Company in writing such information and affidavits as the Company reasonably
requests (and which are customarily provided by selling stockholders) for use in
connection with any such registration statement or prospectus and, to the
fullest extent permitted by law, will indemnify and hold harmless the Company,
and its respective directors, officers, agents and employees and each other
Person who controls the Company (within the meaning of the Securities Act)
against any losses, claims, damages, liabilities, joint or several, together
with reasonable costs and expenses (including reasonable attorneys' fees), to
which such indemnified party may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon (i) any breach of this Agreement, (ii) any untrue or alleged
untrue statement of material fact contained in the registration statement,
prospectus or preliminary prospectus or any amendment thereof or supplement
thereto or in any application or (iii) any omission or alleged omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading, but only to the extent that such untrue statement or
omission is made in such registration statement, any such prospectus or
preliminary prospectus or any amendment or supplement thereto, or in any
application, in reliance upon and in conformity with written information
prepared and furnished to the Company by such holder expressly for use therein,
and such holder will reimburse the Company and each such other indemnified party
for any legal or any other expenses incurred by them in connection with
investigating or defending any such loss, claim, liability, action or
proceeding; provided that the obligation to indemnify will be individual
9
<PAGE>
to each holder and will be limited to the net amount of proceeds received by
such holder from the sale of Registrable Securities pursuant to such
registration statement.
(c) Any person entitled to indemnification under this Agreement shall
notify promptly the indemnifying party in writing of the commencement of any
action or proceeding with respect to which a claim for indemnification may be
made pursuant to this paragraph 6, but the failure of any indemnified party to
provide such notice shall not relieve the indemnifying party of its obligations
under the preceding subparagraphs of this paragraph 6, except to the extent the
indemnifying party is materially prejudiced thereby and shall not relieve the
indemnifying party from any liability which it may have to any indemnified party
otherwise than under this paragraph 6. In case any action or proceeding is
brought against an indemnified party and it shall notify the indemnifying party
of the commencement thereof, the indemnifying party shall be entitled to
participate therein and, unless in the reasonable opinion of outside counsel to
the indemnified party a conflict of interest between such indemnified and
indemnifying parties may exist in respect of such claim, to assume the defense
thereof jointly with any other indemnifying party similarly notified, to the
extent that it chooses, with counsel reasonably satisfactory to such indemnified
party, and after notice from the indemnifying party to such indemnified party
that it so chooses, the indemnifying party shall not be liable to such
indemnified party for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation; provided that (i) if the indemnifying party fails to
take reasonable steps necessary to defend diligently the action or proceeding
within 20 days after receiving notice from such indemnified party that the
indemnified party believes it has failed to do so; or (ii) if such indemnified
party who is a defendant in any action or proceeding which is also brought
against the indemnifying party reasonably shall have concluded that there may be
one or more legal defenses available to such indemnified party which are not
available to the indemnifying party; or (iii) if representation of both parties
by the same counsel is otherwise inappropriate under applicable standards of
professional conduct, then, in any such case, the indemnified party shall have
the right to assume or continue its own defense as set forth above (but with no
more than one firm of counsel for all indemnified parties in each jurisdiction,
except to the extent any indemnified party or parties reasonably shall have
concluded that there may be legal defenses available to such party or parties
which are not available to the other indemnified parties or to the extent
representation of all indemnified parties by the same counsel is otherwise
inappropriate under applicable standards of professional conduct) and the
indemnifying party shall be liable for any expenses therefor.
(d) No indemnifying party shall, without the written consent of each
indemnified party, effect the settlement or compromise of, or consent to the
entry of any judgment with respect to, any pending or threatened action or claim
in respect of which indemnification or contribution may be sought hereunder
(whether or not the indemnified party is an actual or potential party to such
action or claim) unless such settlement, compromise or judgment (A) includes an
unconditional release of the indemnified party from all liability arising out of
such action or claim without any payment or consideration provided or obligation
incurred by any indemnified party and (B) does not include a statement as to or
an admission of fault, culpability or a failure to act, by or on behalf of any
indemnified party.
10
<PAGE>
(e) If the indemnification provided for in this paragraph 6 is unavailable
to or is insufficient to hold harmless an indemnified party under the provisions
above in respect to any losses, claims, damages or liabilities referred to
therein, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
fault of the Company on the one hand and the sellers of Registrable Securities
and any other sellers participating in the registration statement on the other
hand or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative fault referred to in clause (i) above but also the relative benefit of
the Company on the one hand and of the sellers of Registrable Securities and any
other sellers participating in the registration statement on the other in
connection with the statement or omissions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the sellers of Registrable Securities and any other sellers participating in
the registration statement on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) to the Company bear to the total net proceeds from the offering
(before deducting expenses) to the sellers of Registrable Securities and any
other sellers participating in the registration statement. The relative fault of
the Company on the one hand and of the sellers of Registrable Securities and any
other sellers participating in the registration statement on the other shall be
determined by reference to, among other things, whether the untrue or alleged
omission to state a material fact relates to information supplied by the Company
or by the sellers of Registrable Securities or other sellers participating in
the registration statement and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission.
The Company and the sellers of Registrable Securities agree that it would
not be just and equitable if contribution pursuant to this paragraph 6 were
determined by pro rata allocation (even if the sellers of Registrable Securities
were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations referred
to in the immediately preceding paragraph. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages and liabilities
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
paragraph 6, no seller of Registrable Securities shall be required to contribute
pursuant to this paragraph 6 any amount in excess of the net proceeds received
by such Seller from the sale of Registrable Securities covered by the
registration statement filed pursuant hereto. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
(f) The indemnification and contribution by any such party provided for
under this Agreement shall be in addition to any other rights to indemnification
or contribution which any indemnified party may have pursuant to law or contract
and will remain in full force and effect regardless of any investigation made or
omitted by or on behalf of the indemnified party or any
11
<PAGE>
officer, director or controlling Person of such indemnified party and will
survive the transfer of securities.
(g) The indemnification and contribution required by this paragraph 6
shall be made by periodic payments of the amount thereof during the course of
the investigation or defense, as and when bills are received or expense, loss,
damage or liability is incurred.
7. Participation in Underwritten Registrations.
-------------------------------------------
(a) No Person may participate in any registration hereunder which is
underwritten unless such Person (i) agrees to sell such Person's securities on
the basis provided in any underwriting arrangements approved by the Person or
Persons entitled hereunder to approve such arrangements (including, without
limitation, pursuant to the terms of any over-allotment or "green shoe" option
requested by the managing underwriters), provided that no holder of Registrable
Securities will be required to sell more than the number of Registrable
Securities that such holder has requested the Company to include in any
registration and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwriting arrangements; provided that no holder of
Registrable Securities included in any underwritten registration shall be
required to make any representations or warranties to the Company or the
underwriters (other than representations and warranties regarding such holder
and such holder's intended method of distribution) or to undertake any
indemnification obligations to the Company or the underwriters with respect
thereto, except as otherwise provided in paragraph 6 hereof.
(b) Each Person that is participating in any registration hereunder agrees
that, upon receipt of any notice from the Company of the happening of any event
of the kind described in paragraph 4(e) above, such Person will forthwith
discontinue the disposition of its Registrable Securities pursuant to the
registration statement until such Person's receipt of the copies of a
supplemented or amended prospectus as contemplated by such paragraph 4(e). In
the event the Company shall give any such notice, the applicable time period
mentioned in paragraph 4(b) during which a Registration Statement is to remain
effective shall be extended by the number of days during the period from and
including the date of the giving of such notice pursuant to this paragraph to
and including the date when each seller of a Registrable Security covered by
such registration statement shall have received the copies of the supplemented
or amended prospectus contemplated by paragraph 4(e).
8. Rule 144 Reporting. With a view to making available the benefits of
------------------
certain rules and regulations of the Securities and Exchange Commission that may
permit the sale of Registrable Securities to the public without registration,
the Company agrees at all times after the Company has filed a registration
statement with the Securities and Exchange Commission pursuant to the
requirements of either the Securities Act or the Exchange Act to use its best
efforts to:
(a) make and keep public information regarding the Company available as
those terms are understood and defined in Rule 144 under the Securities Act;
12
<PAGE>
(b) file with the Securities and Exchange Commission in a timely manner
all reports and other documents required of the Company under the Securities Act
and the Exchange Act at any time after it has become subject to such reporting
requirements; and
(c) so long as a holder owns any Registrable Securities, furnish to the
holder forthwith upon written request a written statement by the Company as to
its compliance with the reporting requirements of Rule 144, and of the
Securities Act and the Exchange Act, a copy of the most recent annual or
quarterly report of the Company, and such other reports and documents so filed
as a holder may reasonably request in availing itself of any rule or regulation
of the Securities and Exchange Commission allowing a holder to sell any such
securities without registration.
9. Definitions.
-----------
"HTI Registrable Securities" means (i) any Company Interest (as such term
--------------------------
is defined in the LLC Agreement) issued to HTI pursuant to the Purchase
Agreement or otherwise acquired by HTI, (ii) any securities issued or issuable
directly or indirectly with respect to the securities referred to in clause (i)
above by way of distribution or split or in connection with a combination of
securities, recapitalization, merger, consolidation or other reorganization,
including a recapitalization or exchange; provided that in the event that
pursuant to such recapitalization or exchange, equity securities are issued
which do not participate in the residual equity of the Company ("Non-
---
Participating Securities"), such Non-Participating Securities will not be HTI
- ------------------------
Registrable Securities. As to any particular securities constituting HTI
Registrable Securities, such securities will cease to be HTI Registrable
Securities when they have been (x) effectively registered under the Securities
Act and disposed of in accordance with the registration statement covering them,
(y) sold to the public through a broker, dealer or market maker pursuant to Rule
144 (or by similar provision then in force) under the Securities Act or (z)
distributed to any shareholder of Heartland Technologies, Inc., the parent
company of Zecal Corp.
"IPO" means the initial sale pursuant to a registration statement filed
---
under the Securities Act of any equity securities of the Company, whether by the
Company or any holder of equity securities of the Company.
"LLC Agreement" means that certain Limited Liability Company Agreement of
-------------
even date herewith by and among the Company and the members party thereto.
"LZ Registrable Securities" means (i) any Company Interest (as such term is
-------------------------
defined in the LLC Agreement) issued to LZ pursuant to the LLC Interest Purchase
Agreement or otherwise acquired by LZ, (ii) any securities issued or issuable
directly or indirectly with respect to the securities referred to in clause (i)
above by way of distribution or split or in connection with a combination of
securities, recapitalization, merger, consolidation or other reorganization,
including a recapitalization or exchange; provided that in the event that
pursuant to such recapitalization or exchange, Non-Participating Securities are
issued, such Non-Participating Securities will not be LZ Registrable Securities.
As to any particular securities constituting LZ Registrable Securities, such
securities will cease to be LZ Registrable Securities when they have been (x)
effectively registered
13
<PAGE>
under the Securities Act and disposed of in accordance with the registration
statement covering them, (y) sold to the public through a broker, dealer or
market maker pursuant to Rule 144 (or by similar provision then in force) under
the Securities Act or (z) distributed to any partner, shareholder or member of
any holder of LZ Registrable Securities.
"Person" means an individual, a partnership, a corporation, a limited
------
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Registrable Securities" means collectively the HTI Registrable Securities
----------------------
and the LZ Registrable Securities. For purposes of this Agreement, a Person
shall be deemed to be a holder of Registrable Securities whenever such Person
has the right to acquire such Registrable Securities (upon conversion or
exercise in connection with a transfer of securities or otherwise, but
disregarding any restrictions or limitations upon the exercise of such right),
whether or not such acquisition has actually been effected, and such Person
shall be entitled to exercise the rights of a holder of Registrable Securities
hereunder.
"Subsidiary" is defined in the LLC Agreement.
----------
10. Miscellaneous.
-------------
(a) No Inconsistent Agreements. The Company shall not hereafter enter into
--------------------------
any agreement with respect to its securities which is inconsistent with or
violates the rights granted to the holders of Registrable Securities in this
Agreement.
(b) Adjustments Affecting Registrable Securities. Except as otherwise
--------------------------------------------
permitted herein or by the Other Agreements (as defined in that certain Members
Agreement dated as of the date hereof between the Company and its members), the
Company shall not take any action, or permit any change to occur, with respect
to its securities which would adversely affect the ability of the holders of
Registrable Securities to include such Registrable Securities in a registration
undertaken pursuant to this Agreement or which would adversely affect the
marketability of such Registrable Securities in any such registration
(including, without limitation, effecting a stock split or a combination of
shares).
(c) Remedies. Any Person having rights under any provision of this
--------
Agreement shall be entitled to enforce such rights specifically to recover
damages caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this Agreement and that any party may in its sole discretion
apply to any court of law or equity of competent jurisdiction (without posting
any bond or other security) for specific performance and for other injunctive
relief in order to enforce or prevent violation of the provisions of this
Agreement. Nothing contained in this Agreement will be construed to confer upon
any Person who is not a signatory hereto any rights or benefits, as a third
party beneficiary or otherwise.
14
<PAGE>
(d) Amendments and Waivers. Except as otherwise provided herein, no
----------------------
modification, amendment or waiver of any provision of this Agreement shall be
effective against the Company or the holders of Registrable Securities unless
such modification, amendment or waiver is approved in writing by the holders of
not less than a majority of the Registrable Securities then in existence. No
failure by any party to insist upon the strict performance of any covenant,
duty, agreement or condition of this Agreement or to exercise any right or
remedy consequent upon a breach thereof shall constitute a waiver of any such
breach or any other covenant, duty, agreement or condition.
(e) Additional Parties. The governing body of the Company shall be
------------------
entitled, but not obligated, with the consent of Persons holding not less than a
majority of the Registrable Securities, to allow any purchaser of equity
securities (or securities or rights convertible or exercisable into equity
securities), of the same type and class of the Registrable Securities, to
execute a counterpart to this Agreement and become a party hereto (each, an
"Additional Party"). Except as set forth in this paragraph 10(e) and in
----------------
paragraph 1(g), the Company will not grant to any other Persons any registration
rights.
(f) Successors and Assigns. All covenants and agreements in this Agreement
----------------------
by or on behalf of any of the parties hereto shall bind and inure to the benefit
of the respective successors and assigns of the parties hereto whether so
expressed or not. In addition, whether or not any express assignment has been
made, the provisions of this Agreement which are for the benefit of the
purchasers or holders of any type of Registrable Securities are, except as
otherwise described herein, also for the benefit of, and enforceable by, any
subsequent holder of Registrable Securities. Notwithstanding the foregoing, in
order to obtain the benefit of this Agreement, any subsequent holder of
Registrable Securities must execute a counterpart to this Agreement, thereby
agreeing to be bound the terms hereof and, in connection with any such
assignment described in this paragraph 10(f) (whether by operation of law or
otherwise), such subsequent holder of Registrable Securities must also first
comply with the terms and conditions (if any) contained in the LLC Agreement and
the Members Agreement (as defined in the LLC Agreement) in effect at the time of
such assignment.
(g) Determinations. At all such times that the interest of holders of
--------------
Registrable Securities in the Company are represented by a percentage interest
in the Company, each holder of Registrable Securities shall be deemed to hold
one share of Registrable Securities for each dollar of Invested Capital (as such
term is defined in the LLC Agreement) held by such holder or its predecessor in
interest.
(h) Severability. Whenever possible, each provision of this Agreement will
------------
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or the effectiveness or validity of any provision in any
other jurisdiction, and this Agreement will be reformed, construed and enforced
in such jurisdiction as if such invalid, illegal or unenforceable provision had
never been contained herein.
15
<PAGE>
(i) Counterparts. This Agreement may be executed in separate counterparts
------------
each of which will be an original and all of which taken together will
constitute one and the same agreement.
(j) Descriptive Headings; Interpretation. The descriptive headings of this
------------------------------------
Agreement are inserted for convenience only and do not constitute a substantive
part of this Agreement. Whenever required by the context, any pronoun used in
this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular form of nouns, pronouns and verbs shall include the
plural and vice versa. The use of the word "including" in this Agreement shall
be by way of example rather than by limitation. Reference to any agreement,
document or instrument means such agreement, document or instrument as amended
or otherwise modified from time to time in accordance with the terms thereof,
and if applicable, hereof. Without limiting the generality of the immediately
preceding sentence, no amendment or other modification to any agreement,
document or instrument that requires the consent of any Person pursuant to the
terms of this Agreement or any other agreement (including the LLC Agreement)
will be given effect hereunder unless such Person has consented in writing to
such amendment or modification. The use of the words "or," "either" and "any"
shall not be exclusive.
(k) Governing Law. This Agreement shall be governed by, and construed in
-------------
accordance with, the laws of the State of Delaware, without giving effect to any
choice of law or conflict of law rules or provisions (whether of the State of
Delaware or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of Delaware. Any dispute relating
hereto shall be heard in the state or federal courts of Delaware, and the
parties agree to jurisdiction and venue therein.
(l) Notices. Any notice provided for in this Agreement will be in writing
-------
and will be either personally delivered, or received by certified mail, return
receipt requested, or sent by reputable overnight courier service (charges
prepaid) to the Company at the address set forth below and to any other
recipient and to any subsequent holder of Registrable Securities subject to this
Agreement at such address as indicated by the Company's records, or at such
address or to the attention of such other person as the recipient party has
specified by prior written notice to the sending party. Notices will be deemed
to have been given hereunder when delivered personally, three days after deposit
in the U.S. mail and one day after deposit with a reputable overnight courier
service. The Company's address is:
To the Company:
--------------
Zecal Technology, LLC
c/o Lamb Partners
900 North Michigan Avenue
Chicago, IL 60611
Telecopy Number: (312) 915-1037
Attention: Neil G. Bluhm
16
<PAGE>
With a copy to:
--------------
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Telecopy Number: (312) 861-2200
Attention: Gary M. Holihan, Esq.
and to:
------
Heartland Technology, Inc.
547 West Jackson Boulevard
Suite 1510
Chicago, IL 60661
Telecopy Number: (312) 663-9397
Attention: Lawrence Adelson, Esq.
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
(m) Delivery by Facsimile. This Agreement and any signed agreement or
---------------------
instrument entered into in connection with this Agreement or contemplated
hereby, and any amendments hereto or thereto, to the extent signed and delivered
by means of a facsimile machine, shall be treated in all manner and respects as
an original agreement or instrument and shall be considered to have the same
binding legal effect as if it were the original signed version thereof delivered
in person. At the request of any party hereto or to any such agreement or
instrument, each other party hereto or thereto shall re-execute original forms
thereof and deliver them to all other parties. No party hereto or to any such
agreement or instrument shall raise the use of a facsimile machine to deliver a
signature or the fact that any signature or agreement or instrument was
transmitted or communicated through the use of a facsimile machine as a defense
to the formation of a contract and each such party forever waives any such
defense.
(n) No Strict Construction. The parties hereto have participated jointly
----------------------
in the negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties hereto, and no presumption or burden of
proof shall arise favoring or disfavoring any party by virtue of the authorship
of any of the provisions of this Agreement.
* * * * *
17
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Registration Agreement
as of the day and year first above written.
ZECAL TECHNOLOGY, LLC
By:________________________________
Its:_______________________________
LZ PARTNERS, LLC
By:________________________________
Its:_______________________________
ZECAL CORP.
By:________________________________
Its:_______________________________
<PAGE>
EXHIBIT 99.09
REPLACEMENT GUARANTY BY CORPORATION
This Replacement Guaranty by Corporation dated as of May _____, 2000, is
made by HTI Z CORP., a Delaware corporation formerly known as Zecal Corp. (the
"Guarantor"), for the benefit of WELLS FARGO BUSINESS CREDIT, INC., a Minnesota
corporation formerly known as Norwest Business Credit, Inc. (with its
participants, successors and assigns, the "Lender").
The Lender and P. G. DESIGN ELECTRONICS, INC., a Delaware corporation (the
"Borrower"), are parties to a Credit and Security Agreement dated December 31,
1998, as amended, pursuant to which the Lender may make advances and extend
other financial accommodations to the Borrower. The Guarantor has delivered to
the Lender its Guaranty by Corporation dated December 31, 1998 (the "Old
Guaranty"), pursuant to which it guarantied the obligations of the Borrower to
the Lender, which Old Guaranty was secured by an interest in substantially all
of the assets of the Guarantor.
On or about the date of this Guaranty, the Guarantor sold substantially all
of its assets to Zecal Technology, LLC, a Delaware limited liability company
("New Zecal") in exchange for an ownership interest in New Zecal, at which time
the Guarantor also changed to its current corporate name as set forth above and
Lender terminated all of its security interests in those assets transferred by
Guarantor to New Zecal. This Guaranty amends, restates and replaces the Old
Guaranty.
As a condition to it consent of the foregoing, the Lender has required,
among other things, the execution and delivery of this Guaranty.
ACCORDINGLY, the Guarantor, in consideration of the premises and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, hereby agrees as follows:
1. Definitions. All terms defined in the Credit Agreement that are not
-----------
otherwise defined herein shall have the meanings given them in the Credit
Agreement.
2. Indebtedness Guaranteed. The Guarantor hereby absolutely and
-----------------------
unconditionally guarantees to the Lender the full and prompt payment when due,
whether at maturity or earlier by reason of acceleration or otherwise, of (i)
the Obligations and (ii) each and every other sum now or hereafter owing to the
Lender by the Borrower, including but not limited to, debts, liabilities and
obligations arising out of loans, credit transactions, financial accommodations,
discounts, purchases of property or other transactions with the Borrower or for
the Borrower's account or out of any other transaction or event, owed to the
Lender or owed to others by reason of participations granted to or interests
acquired or created for or sold to them by the Lender, in each case whether now
existing or hereafter arising, whether
<PAGE>
arising directly in a transaction or event involving the Lender or acquired by
the Lender from another by purchase or assignment or as collateral security,
whether owed by the Borrower as drawer, maker, endorser, accommodation party,
guarantor, principal, surety or as a member of any partnership, syndicate,
association or group or in any other capacity, whether absolute or contingent,
direct or indirect, primary or secondary, sole, joint, several or joint and
several, secured or unsecured, due or not due, contractual, tortious or
statutory, liquidated or unliquidated, arising by agreement or imposed by law or
otherwise (all of said sums being hereinafter called the "Indebtedness").
3. Guarantor's Representations and Warranties. The Guarantor represents
------------------------------------------
and warrants to the Lender that (i) the Guarantor is a corporation, duly
organized and existing in good standing and has full power and authority to make
and deliver this Guaranty; (ii) the execution, delivery and performance of this
Guaranty by the Guarantor have been duly authorized by all necessary action of
its directors and stockholders and do not and will not violate the provisions
of, or constitute a default under, any presently applicable law or its articles
of incorporation or bylaws or any agreement presently binding on it; (iii) this
Guaranty has been duly executed and delivered by the authorized officers of the
Guarantor and constitutes its lawful, binding and legally enforceable
obligation; and (iv) the authorization, execution, delivery and performance of
this Guaranty do not require notification to, registration with, or consent or
approval by, any federal, state or local regulatory body or administrative
agency. The Guarantor represents and warrants to the Lender that the Guarantor
has a direct and substantial economic interest in the Borrower and expects to
derive substantial benefits therefrom and from any loans, credit transactions,
financial accommodations, discounts, purchases of property and other
transactions and events resulting in the creation of the Indebtedness guarantied
hereby, and that this Guaranty is given for a corporate purpose. The Guarantor
agrees to rely exclusively on the right to revoke this Guaranty prospectively as
to future transactions, in accordance with Paragraph 4, if at any time, in the
opinion of the directors or officers, the benefits then being received by the
Guarantor in connection with this Guaranty are not sufficient to warrant the
continuance of this Guaranty as to the future Indebtedness of the Borrower.
Accordingly, so long as this Guaranty is not revoked prospectively in accordance
with Paragraph 4, the Lender may rely conclusively on a continuing warranty,
hereby made, that the Guarantor continues to be benefited by this Guaranty and
the Lender shall have no duty to inquire into or confirm the receipt of any such
benefits, and this Guaranty shall be effective and enforceable by the Lender
without regard to the receipt, nature or value of any such benefits.
4. Unconditional Nature. No act or thing need occur to establish the
--------------------
Guarantor's liability hereunder, and no act or thing, except full payment and
discharge of all of the Indebtedness, shall in any way exonerate the Guarantor
hereunder or modify, reduce, limit or release the Guarantor's liability
hereunder. This is an absolute, unconditional and continuing guaranty of payment
of the Indebtedness and shall continue to be in force and be binding upon the
Guarantor, whether or not all of the Indebtedness is paid in full, until this
Guaranty is revoked prospectively as to future transactions, by written notice
actually received by the Lender, and such revocation shall not be effective as
to the amount of Indebtedness existing
2
<PAGE>
or committed for at the time of actual receipt of such notice by the Lender, or
as to any renewals, extensions, refinancings or refundings thereof.
5. Dissolution or Insolvency of Guarantor. The dissolution or
--------------------------------------
adjudication of bankruptcy of the Guarantor shall not revoke this Guaranty,
except upon actual receipt of written notice thereof by the Lender and only
prospectively, as to future transactions, as herein set forth. If the Guarantor
shall be dissolved or shall be or become insolvent (however defined), then the
Lender shall have the right to declare immediately due and payable, and the
Guarantor will forthwith pay to the Lender, the full amount of all of the
Indebtedness whether due and payable or unmatured. If the Guarantor voluntarily
commences or there is commenced involuntarily against the Guarantor a case under
the United States Bankruptcy Code, the full amount of all Indebtedness, whether
due and payable or unmatured, shall be immediately due and payable without
demand or notice thereof.
6. Subrogation. The Guarantor will not exercise or enforce any right of
-----------
contribution, reimbursement, recourse or subrogation available to the Guarantor
as to any of the Indebtedness, or against any person liable therefor, or as to
any collateral security therefor, unless and until all of the Indebtedness shall
have been fully paid and discharged.
7. Enforcement Expenses. The Guarantor will pay or reimburse the Lender
--------------------
for all costs, expenses and attorneys' fees paid or incurred by the Lender in
endeavoring to collect and enforce the Indebtedness and in enforcing this
Guaranty.
8. Lender's Rights. The Lender shall not be obligated by reason of its
---------------
acceptance of this Guaranty to engage in any transactions with or for the
Borrower. Whether or not any existing relationship between the Guarantor and the
Borrower has been changed or ended and whether or not this Guaranty has been
revoked, the Lender may enter into transactions resulting in the creation or
continuance of the Indebtedness and may otherwise agree, consent to or suffer
the creation or continuance of any of the Indebtedness, without any consent or
approval by the Guarantor and without any prior or subsequent notice to the
Guarantor. The Guarantor's liability shall not be affected or impaired by any of
the following acts or things (which the Lender is expressly authorized to do,
omit or suffer from time to time, both before and after revocation of this
Guaranty, without consent or approval by or notice to the Guarantor): (i) any
acceptance of collateral security, guarantors, accommodation parties or sureties
for any or all of the Indebtedness; (ii) one or more extensions or renewals of
the Indebtedness (whether or not for longer than the original period) or any
modification of the interest rates, maturities, if any, or other contractual
terms applicable to any of the Indebtedness or any amendment or modification of
any of the terms or provisions of any loan agreement or other agreement under
which the Indebtedness or any part thereof arose; (iii) any waiver or indulgence
granted to the Borrower, any delay or lack of diligence in the enforcement of
the Indebtedness or any failure to institute proceedings, file a claim, give any
required notices or otherwise protect any of the Indebtedness; (iv) any full or
partial release of, compromise or settlement with, or agreement not to sue, the
Borrower or any guarantor or other person liable in respect of any of the
Indebtedness; (v) any release, surrender,
3
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cancellation or other discharge of any evidence of the Indebtedness or the
acceptance of any instrument in renewal or substitution therefor; (vi) any
failure to obtain collateral security (including rights of setoff) for the
Indebtedness, or to see to the proper or sufficient creation and perfection
thereof, or to establish the priority thereof, or to preserve, protect, insure,
care for, exercise or enforce any collateral security; or any modification,
alteration, substitution, exchange, surrender, cancellation, termination,
release or other change, impairment, limitation, loss or discharge of any
collateral security; (vii) any collection, sale, lease or disposition of, or any
other foreclosure or enforcement of or realization on, any collateral security;
(viii) any assignment, pledge or other transfer of any of the Indebtedness or
any evidence thereof; (ix) any manner, order or method of application of any
payments or credits upon the Indebtedness; and (x) any election by the Lender
under Section 1111(b) of the United States Bankruptcy Code. The Guarantor waives
any and all defenses and discharges available to a surety, guarantor or
accommodation co-obligor.
9. Waivers by Guarantor. The Guarantor waives any and all defenses,
--------------------
claims, setoffs and discharges of the Borrower, or any other obligor, pertaining
to the Indebtedness, except the defense of discharge by payment in full. Without
limiting the generality of the foregoing, the Guarantor will not assert, plead
or enforce against the Lender any defense of waiver, release, discharge or
disallowance in bankruptcy, statute of limitations, resjudicata, statute of
frauds, anti-deficiency statute, fraud, incapacity, minority, usury, illegality
or unenforceability which may be available to the Borrower or any other person
liable in respect of any of the Indebtedness, or any setoff available against
the Lender to the Borrower or any other such person, whether or not on account
of a related transaction. The Guarantor expressly agrees that the Guarantor
shall be and remain liable for any deficiency remaining after foreclosure of any
mortgage or security interest securing the Indebtedness, whether or not the
liability of the Borrower or any other obligor for such deficiency is discharged
pursuant to statute or judicial decision. The liability of the Guarantor shall
not be affected or impaired by any voluntary or involuntary liquidation,
dissolution, sale or other disposition of all or substantially all of the
assets, marshalling of assets and liabilities, receivership, insolvency,
bankruptcy, assignment for the benefit of creditors, reorganization,
arrangement, composition or readjustment of, or other similar event or
proceeding affecting, the Borrower or any of its assets. The Guarantor will not
assert, plead or enforce against the Lender any claim, defense or setoff
available to the Guarantor against the Borrower. The Guarantor waives
presentment, demand for payment, notice of dishonor or nonpayment and protest of
any instrument evidencing the Indebtedness. The Lender shall not be required
first to resort for payment of the Indebtedness to the Borrower or other
persons, or their properties, or first to enforce, realize upon or exhaust any
collateral security for the Indebtedness, before enforcing this Guaranty.
10. If Payments Set Aside, etc. If any payment applied by the Lender to
--------------------------
the Indebtedness is thereafter set aside, recovered, rescinded or required to be
returned for any reason (including, without limitation, the bankruptcy,
insolvency or reorganization of the Borrower or any other obligor), the
Indebtedness to which such payment was applied shall for the purpose of this
Guaranty be deemed to have continued in existence, notwithstanding
4
<PAGE>
such application, and this Guaranty shall be enforceable as to such Indebtedness
as fully as if such application had never been made.
11. Additional Obligation of Guarantor. The Guarantor's liability under
----------------------------------
this Guaranty is in addition to and shall be cumulative with all other
liabilities of the Guarantor to the Lender as guarantor, surety, endorser,
accommodation co-obligor or otherwise of any of the Indebtedness or obligation
of the Borrower, without any limitation as to amount, unless the instrument or
agreement evidencing or creating such other liability specifically provides to
the contrary.
12. No Duties Owed by Lender. The Guarantor acknowledges and agrees that
------------------------
the Lender (i) has not made any representations or warranties with respect to,
(ii) does not assume any responsibility to the Guarantor for, and (iii) has no
duty to provide information to the Guarantor regarding, the enforceability of
any of the Indebtedness or the financial condition of the Borrower or any
guarantor. The Guarantor has independently determined the creditworthiness of
the Borrower and the enforceability of the Indebtedness and until the
Indebtedness is paid in full will independently and without reliance on the
Lender continue to make such determinations.
13. Miscellaneous. This Guaranty shall be effective upon delivery to the
-------------
Lender, without further act, condition or acceptance by the Lender, shall be
binding upon the Guarantor and the successors and assigns of the Guarantor and
shall inure to the benefit of the Lender and its participants, successors and
assigns. Any invalidity or unenforceability of any provision or application of
this Guaranty shall not affect other lawful provisions and application thereof,
and to this end the provisions of this Guaranty are declared to be severable.
This Guaranty may not be waived, modified, amended, terminated, released or
otherwise changed except by a writing signed by the Guarantor and the Lender.
This Guaranty shall be governed by and construed in accordance with the
substantive laws (other than conflict laws) of the State of Wisconsin. The
Guarantor hereby (i) consents to the personal jurisdiction of the state and
federal courts located in the State of Wisconsin in connection with any
controversy related to this Guaranty; (ii) waives any argument that venue in any
such forum is not convenient, (iii) agrees that any litigation initiated by the
Lender or the Guarantor in connection with this Guaranty shall be venued in
either the Circuit Court of Milwaukee County, Wisconsin, or the United States
District Court, Eastern District of Wisconsin; and (iv) agrees that a final
judgment in any such suit, action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law.
14. Secured Guaranty. The Guarantor's obligations hereunder will be
----------------
secured pursuant to the terms of a Replacement Security Agreement and a
Collateral Pledge Agreement, each dated as of the date hereof between the
Guarantor and the Lender.
15. Waiver of Jury Trial. THE GUARANTOR HEREBY IRREVOCABLY WAIVES ALL
--------------------
RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
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COUNTERCLAIM ARISING OUT OF, BASED ON OR PERTAINING TO THIS GUARANTY.
IN WITNESS WHEREOF, this Replacement Guaranty by Corporation has been duly
executed by the Guarantor the date first written above.
HTI Z CORP.
By: ______________________________
Its: _____________________________
Address: 547 West Jackson Boulevard
Chicago, Illinois 60661
STATE OF ________________)
)
COUNTY OF _______________)
The foregoing instrument was acknowledged before me this _______ day of May
2000, by ______________________________, the _______________________ of HTI Z
Corp., a Delaware corporation, on behalf of the corporation.
_________________________________
Notary Public
My commission____________________
6
<PAGE>
EXHIBIT 99.10
REPLACEMENT SECURITY AGREEMENT
Dated as of May _____, 2000
This Replacement Security Agreement is made and entered into between HTI Z
CORP., a Delaware corporation formerly known as Zecal Corp.(the "Debtor") and
WELLS FARGO BUSINESS CREDIT, INC., a Minnesota corporation formerly known as
Norwest Business Credit, Inc. (the "Lender"), who hereby agree as follows: This
Replacement Security Agreement replaces that certain Security Agreement dated
December 31, 1998, which has been terminated as of the date hereof in connection
with Debtor's sale of substantially all of its assets.
SECTION 1
DEFINITIONS
1.1. Definitions For all purposes of this Agreement, except as otherwise
-----------
expressly provided or unless the context otherwise requires the terms defined in
this Section have the meanings assigned to them in this Section, and include the
plural as well as the singular.
"Agreement" means this Security Agreement.
"Borrower" means P. G. Design Electronics, Inc., a Delaware
corporation.
"Collateral" means all of the Equipment, General Intangibles,
Inventory, Investment Property, Receivables, together with all
substitutions and replacements for and products of any of the foregoing
Collateral and together with proceeds of any and all of the foregoing
Collateral and, in the case of all tangible Collateral, together with all
accessions and together with (i) all accessories, attachments, parts,
equipment and repairs now or hereafter attached or affixed to or used in
connection with any such goods, and (ii) all warehouse receipts, bills of
lading and other documents of title now or hereafter covering such goods,
but shall exclude any and all assets transferred by Debtor to Zecal
Technology, LLC, a Delaware limited liability company, on or about the date
hereof.
"Credit Agreement" means that certain Credit and Security Agreement
dated as of December 31, 1998, as amended, between the Lender and the
Borrower, as the same may be further amended from time to time.
"Equipment" means all of the Debtor's equipment, as such term is
defined in the UCC, whether now owned or hereafter acquired, including but
not limited to, all present and future machinery, vehicles, furniture,
fixtures, manufacturing equipment, shop equipment, office and recordkeeping
equipment, parts, tools, supplies, and the
<PAGE>
goods described in any equipment schedule or list herewith or hereafter
furnished to the Lender by the Debtor.
"Event of Default" has the meaning specified in Section 6.1, hereof.
"General Intangibles" means all of the Debtor's general intangibles,
as such term is defined in the UCC, whether now owned or hereafter
acquired, including (without limitation) all present and future patents,
patent applications, copyrights, trademarks, trade names, trade secrets,
customer or supplier lists and contracts, manuals, operating instructions,
permits, franchises, the right to use the Debtor's name, and the goodwill
of the Debtor's business.
"Guaranty" means the Replacement Guaranty by Corporation executed by
Debtor in favor of the Lender dated as of May _____, 2000, pursuant to
which Debtor has guaranteed the Borrower's obligations to the Lender.
"Inventory" means all of the Debtor's inventory, as such term is
defined in the UCC, whether now owned or hereafter acquired, whether
consisting of whole goods, spare parts or components, supplies or
materials, whether acquired, held or furnished for sale, for lease or under
service contracts or for manufacture or processing, and wherever located.
"Investment Property" means all of the Debtor's investment property,
as such term is defined in the UCC, whether now owned or hereafter
acquired, including, but not limited to, all securities, securities
entitlements, securities accounts, commodity contracts, commodity accounts,
stock, bonds, mutual fund shares, money market shares and United States of
America Government securities.
"Obligations" has the meaning specified in Section 2.1, hereof.
"Premises" means all premises where the Debtor conducts its business
and has any rights of possession, including, without limitation, the
premises located at 547 West Jackson Boulevard, Chicago, Illinois.
"Receivables" means each and every right of the Debtor to the payment
of money, whether such right to payment now exists or hereafter arises,
whether such right to payment arises out of a sale, lease or other
disposition of goods or other property, out of a rendering of services, out
of a loan, out of the overpayment of taxes or other liabilities, or
otherwise arises under any contract or agreement, whether such right to
payment is created, generated or earned by the Debtor or by some other
person who subsequently transfers such person's interest to the Debtor,
whether such right to payment is or is not already earned by performance,
and howsoever such right to payment may be evidenced, together with all
other rights and interests (including all liens and security interests)
which the Debtor may at any time have by law or
2
<PAGE>
agreement against any account debtor or other obligor obligated to make any
such payment or against any property of such account debtor or other
obligor; including, but not limited to, all present and future accounts,
contract rights, loans and obligations receivable, chattel papers, bonds,
notes and other debt instruments, tax refunds and rights to payment in the
nature of general intangibles.
"Security Interest" has the meaning specified in Section 2.1, hereof.
"UCC" means the Uniform Commercial Code as in effect from time to
time in the State of Wisconsin or, with respect to Collateral located
outside of Wisconsin, the state(s) in which such Collateral is located.
SECTION 2
SECURITY INTEREST
2.1. Grant of Security Interest. The Debtor hereby assigns and grants to
--------------------------
the Lender a security interest (the "Security Interest") in the Collateral, as
security for the payment and performance of each and every debt, liability and
obligation of every type and description which the Debtor may now or at any time
hereafter owe to the Lender (whether such debt, liability or obligation now
exists or is hereafter created or incurred, whether it arises in a transaction
involving the Lender alone or in a transaction involving other creditors of the
Debtor, and whether it is direct or indirect, due or to become due, absolute or
contingent, primary or secondary, liquidated or unliquidated, or sole, joint,
several or joint and several, and including specifically, but not limited to,
all indebtedness of the Debtor arising under the Guaranty, this Agreement or any
other agreement between the Debtor and the Lender, whether now in effect or
hereafter entered into; all such debts, liabilities and obligations are herein
collectively referred to as the "Obligations").
2.2. Notification of Account Debtors and Other Obligors. The Lender may at
--------------------------------------------------
any time notify any account debtor or any other obligor to pay an amount due
that such right to payment has been assigned or transferred to the Lender for
security and shall be paid directly to the Lender. The Debtor will join in
giving such notice if the Lender so requests. At any time after the Debtor or
the Lender gives such notice to an account debtor or other obligor, the Lender
may, but need not, in the Lender's name or in the Debtor's name, (a) demand, sue
for, collect or receive any money or property at any time payable or receivable
on account of, or securing, any such right to payment, or grant any extension
to, make any reasonable compromise or settlement with or otherwise reasonably
agree to waive, modify, amend or change the obligations (including collateral
obligations) of any such account debtor or other obligor; and (b) as agent and
attorney in fact of the Debtor, notify the United States Postal Service to
change the address for delivery of the Debtor's mail to any address designated
by the Lender, otherwise intercept the Debtor's mail, and receive and open the
Debtor's mail, applying all Collateral as permitted under this Agreement and
holding all other mail for the Debtor's account or forwarding such mail to the
Debtor's last known address.
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<PAGE>
2.3. Assignment of Insurance. As additional security for the payment and
-----------------------
performance of the Obligations, the Debtor hereby assigns to the Lender any and
all monies (including, without limitation, proceeds of insurance and refunds of
unearned premiums) due or to become due under, and all other rights of the
Debtor with respect to, any and all policies of insurance now or at any time
hereafter covering the Collateral or any evidence thereof or any business
records or valuable papers pertaining thereto, and the Debtor hereby directs the
issuer of any such policy to pay all such monies directly to the Lender. At any
time, whether before or after the occurrence of any Event of Default, the Lender
may (but need not), in the Lender's name or in the Debtor's name, execute and
deliver proofs of claim, receive all such monies, endorse checks and other
instruments representing payment of such monies, and adjust, litigate,
compromise or release any claim against the issuer of any such policy.
2.4. Occupancy. The Debtor hereby irrevocably grants to the Lender the
---------
right to take possession of the Premises at any time after the payment of the
Obligations has been accelerated. The Lender may use the Premises only to hold,
process, manufacture, sell, use, store, liquidate, realize upon or otherwise
dispose of goods that are Collateral and for other purposes that the Lender may
in good faith deem to be related or incidental purposes. The right of the
Lender to hold the Premises shall cease and terminate upon the earlier of (i)
payment in full and discharge of all Obligations, and (ii) final sale or
disposition of all goods constituting Collateral and delivery of all such goods
to purchasers. The Lender shall not be obligated to pay or account for any rent
or other compensation for the possession, occupancy or use of any of the
Premises; provided, however, in the event that the Lender does pay or account
for any rent or other compensation for the possession, occupancy or use of any
of the Premises, the Debtor shall reimburse the Lender promptly for the full
amount thereof. In addition, the Debtor will pay, or reimburse the Lender for,
all taxes, fees, duties, imposts, charges and expenses at any time incurred by
or imposed upon the Lender by reason of the execution, delivery, existence,
recordation, performance or enforcement of this Agreement or the provisions of
this Section 2.4.
2.5. License. The Debtor hereby grants to the Lender a non-exclusive
-------
worldwide and royalty-free license to use or otherwise exploit all trademarks,
franchises, trade names, copyrights and patents of the Debtor for the purpose of
selling, leasing or otherwise disposing of any or all Collateral after the
occurrence and during the continuance of an Event of Default.
2.6. Financing Statement. A carbon, photographic or other reproduction of
-------------------
this Agreement or of any financing statements signed by the Debtor is sufficient
as a financing statement and may be filed as a financing statement in any state
to perfect the security interests granted hereby. For this purpose, the
following information is set forth:
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<PAGE>
Name and address of Debtor:
HTI Z Corp.
547 West Jackson Boulevard
Suite 1510
Chicago, Illinois 60661
Federal Tax Identification No. _______________
Name and address of Lender:
Wells Fargo Business Credit, Inc.
100 East Wisconsin Avenue, Suite 1400
MAC N9811-143
Milwaukee, Wisconsin 53202
Federal Tax Identification No. 41-1237652
2.7. Setoff. The Debtor agrees that the Lender may at any time or from
------
time to time, at its sole discretion and without demand but with notice to
Debtor at such time, setoff any liability owed to the Debtor by the Lender,
whether or not due, against any Obligation, whether or not due. In addition,
each other Person holding a participating interest in any Obligations shall have
the right to appropriate or setoff any deposit or other liability then owed by
such Person to the Debtor, whether or not due, and apply the same to the payment
of said participating interest, as fully as if such Person had lent directly to
the Debtor the amount of such participating interest.
SECTION 3
REPRESENTATIONS AND WARRANTIES
The Debtor represents and warrants to the Lender as follows:
3.1. Corporate Existence and Power; Name; Chief Executive Office;
------------------------------------------------------------
Inventory and Equipment Locations. The Debtor is a corporation duly
- ---------------------------------
incorporated, validly existing and in good standing under the laws of the State
of Delaware. Debtor is not required to be licensed or qualified to transact
business in any other jurisdiction where the character of the property owned or
leased or the nature of the business transacted by it makes such licensing or
qualification necessary and where the failure to so qualify could have a
material adverse effect on the Debtor. The Debtor has all requisite power and
authority, corporate and otherwise, to conduct its business, to own its
properties, to execute and deliver, and to perform all of its obligations under,
the Guaranty and this Agreement. During the five (5) years prior to the date of
this Agreement, the Debtor has done business solely under the name Zecal Corp.
The chief executive office and principal place of business of the Debtor is
located at the address set forth in Section 2 hereof, and all of the Debtor's
records relating to
5
<PAGE>
its business and the Collateral are kept at such location. All Collateral is
located at such location.
3.2. Authorization; No Conflict as to Law or Agreements. The execution,
--------------------------------------------------
delivery and performance by the Debtor of the Guaranty and this Agreement have
been duly authorized by all necessary corporate action and do not and will not
(a) require any consent or approval of the stockholders of the Debtor, (b)
require any authorization, consent or approval by, or registration, declaration
or filing with, or notice to, any governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, or any third party,
except such authorization, consent, approval, registration, declaration, filing
or notice as has been obtained, accomplished or given prior to the date hereof,
(c) violate any provision of any law, rule or regulation (including, without
limitation, Regulation X of the Board of Governors of the Federal Reserve
System) or of any order, writ, injunction or decree presently in effect having
applicability to the Debtor or of the Articles of Incorporation or Bylaws of the
Debtor, (d) result in a breach of or constitute a default under any indenture or
loan or credit agreement or any other material agreement, lease or instrument to
which the Debtor is a party or by it or its properties may be bound or affected,
or (e) result in, or require, the creation or imposition of any mortgage, deed
of trust, pledge, lien, security interest or other charge or encumbrance of any
nature (other than the Security Interest) upon or with respect to any of the
properties now owned or hereafter acquired by the Debtor.
3.3. Legal Agreements. This Agreement constitutes and, upon due execution
----------------
by the Debtor, the Guaranty will constitute, the legal, valid and binding
obligations of the Debtor, enforceable against the Debtor in accordance with
their respective terms.
3.4. Titles and Liens. The Debtor has good and absolute title to all
----------------
Collateral and all proceeds thereof, free and clear of all mortgages, security
interests, liens and encumbrances, except for the Security Interest. No
financing statement naming the Debtor as debtor is on file in any office except
to perfect the Security Interest.
3.5. Submissions to Lender. All information provided to the Lender by or
---------------------
on behalf of the Debtor is true and correct in all material respects.
3.6. Financing Statements. The Debtor has provided to the Lender signed
--------------------
financing statements sufficient when filed to perfect the Security Interest.
When such financing statements are filed in the offices noted therein, the
Lender will have a valid and perfected security interest in all Collateral which
is capable of being perfected by filing financing statements. None of the
Collateral is or will become a fixture on real estate, unless a sufficient
fixture filing is in effect with respect thereto.
3.7. Rights to Payment. Each right to payment and each instrument,
-----------------
document, chattel paper and other agreement constituting or evidencing
Collateral is (or, in the case of all future Collateral, will be when arising or
issued) the valid, genuine and legally
6
<PAGE>
enforceable obligation, subject to no defense, setoff or counterclaim (except as
set forth in periodic collateral reports provided by the Debtor to the Lender),
of the account debtor or other obligor named therein or in the Debtor's records
pertaining thereto as being obligated to pay such obligation.
SECTION 4
AFFIRMATIVE COVENANTS OF THE DEBTOR
So long as the Guaranty remains outstanding or any Obligation remains
unpaid, the Debtor will comply with the following requirements, unless the
Lender shall otherwise consent in writing:
4.1. Reporting Requirements. The Debtor will deliver, or cause to be
----------------------
delivered, to the Lender each of the following, which shall be in form and
detail acceptable to the Lender:
(a) as soon as practicable after the commencement thereof, notice in
writing of all litigation and of all proceedings before any governmental or
regulatory agency affecting the Debtor or the Collateral;
(b) promptly upon knowledge thereof, notice of any loss of or
material damage to any Collateral, or of any substantial adverse change in
any Collateral or the prospect of payment thereof; and
(c) promptly upon knowledge thereof, notice of the violation by the
Debtor of any law, rule or regulation, the non-compliance with which could
materially and adversely affect any Collateral.
4.2. Books and Records; Inspection and Examination. The Debtor will keep
---------------------------------------------
accurate books of record and account for itself pertaining to the Collateral and
pertaining to the Debtor's business and financial condition and, upon request of
the Lender, will permit any officer, employee, attorney or accountant for the
Lender to review such books, to send and discuss with account debtors and other
obligors requests for verification of amounts owed to the Debtor, and to discuss
the affairs of the Debtor with any of its directors, officers, employees or
agents. Upon reasonable prior notice from Lender, the Debtor will permit the
Lender, or its employees, accountants, attorneys or agents, to examine and
inspect any Collateral.
4.3. Account Verification. The Lender may at any time and from time to
--------------------
time send or require the Debtor to send requests for verification of accounts or
notices of assignment to account debtors and other obligors. The Lender may
also at any time and from time to time telephone account debtors and other
obligors to verify accounts.
4.4. Compliance with Laws. The Debtor will (i) comply with the
--------------------
requirements of applicable laws and regulations, the non-compliance with which
would materially and
7
<PAGE>
adversely affect its business or its financial condition and (ii) use and keep
the Collateral, and require that others use and keep the Collateral, only for
lawful purposes, without violation of any federal, state or local law, statute
or ordinance.
4.5. Payment of Taxes and Other Claims. The Debtor will pay or discharge,
---------------------------------
when due, (i) all taxes, assessments and governmental charges levied or imposed
upon it or upon its income or profits, upon any properties belonging to it
(including, without limitation, the Collateral) or upon or against the creation,
perfection or continuance of the Security Interest, prior to the date on which
penalties attach thereto, (ii) all federal, state and local taxes required to be
withheld by it, and (iii) all lawful claims for labor, materials and supplies
which, if unpaid, might by law become a lien or charge upon any properties of
the Debtor; provided, that the Debtor shall not be required to pay any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate proceedings and for which proper reserves
have been made.
4.6. Maintenance of Properties.
-------------------------
(a) The Debtor will keep and maintain the Collateral in good
condition, repair and working order (normal wear and tear excepted) and
will from time to time replace or repair any worn, defective or broken
parts.
(b) The Debtor will defend the Collateral against all claims or
demands of all persons (other than the Lender) claiming the Collateral or
any interest therein.
(c) The Debtor will keep all Collateral free and clear of all
security interests, liens and encumbrances except the Security Interest.
4.7. Insurance. The Debtor will obtain and at all times maintain
---------
insurance with insurers believed by the Debtor to be responsible and reputable,
in such amounts and against such risks as may from time to time be required by
the Lender, but in all events in such amounts and against such risks as is
usually carried by companies engaged in similar business and owning similar
properties in the same general areas in which the Debtor operates. All policies
of property insurance shall contain a lender's loss payable endorsement for the
Lender's benefit acceptable to the Lender. All policies of liability insurance
required hereunder shall name the Lender as an additional insured.
4.8. Preservation of Existence. The Debtor will preserve and maintain
-------------------------
its existence and all of its rights, privileges and franchises necessary or
desirable in the normal conduct of its business and shall conduct its business
in an orderly, efficient and regular manner.
4.9. Delivery of Instruments, etc. The Debtor will promptly deliver to the
----------------------------
Lender in pledge all instruments, documents and chattel papers constituting
Collateral, duly endorsed or assigned by the Debtor.
8
<PAGE>
4.10. Performance by the Lender. If the Debtor at any time fails to
-------------------------
perform or observe any of the foregoing covenants contained in this Section 4 or
elsewhere herein, and if such failure shall continue for a period of ten (10)
calendar days after the Lender gives the Debtor written notice thereof (or in
the case of the agreements contained in Sections 4.5 and 4.7 hereof, immediately
upon the occurrence of such failure, without notice or lapse of time), the
Lender may, but need not, perform or observe such covenant on behalf and in the
name, place and stead of the Debtor (or, at the Lender's option, in the Lender's
name) and may, but need not, take any and all other actions which the Lender may
reasonably deem necessary to cure or correct such failure (including, without
limitation, the payment of taxes, the satisfaction of security interests, liens
or encumbrances, the performance of obligations owed to account debtors or other
obligors, the procurement and maintenance of insurance, the execution of
assignments, security agreements and financing statements, and the endorsement
of instruments); and the Debtor shall thereupon pay to the Lender on demand the
amount of all monies expended and all costs and expenses (including reasonable
attorneys' fees and legal expenses) incurred by the Lender in connection with or
as a result of the performance or observance of such agreements or the taking of
such action by the Lender, together with interest thereon from the date expended
or incurred at the Floating Rate (as defined in the Credit Agreement). To
facilitate the performance or observance by the Lender of such covenants of the
Debtor, the Debtor hereby irrevocably appoints the Lender, or the delegate of
the Lender, acting alone, as the attorney in fact of the Debtor (which
appointment is coupled with an interest) with the right (but not the duty) from
time to time to create, prepare, complete, execute, deliver, endorse or file in
the name and on behalf of the Debtor any and all instruments, documents,
assignments, security agreements, financing statements, applications for
insurance and other agreements and writings required to be obtained, executed,
delivered or endorsed by the Debtor under this Section 4.11.
SECTION 5
NEGATIVE COVENANTS
So long as the Guaranty remains outstanding or any Obligation remains
unpaid, the Debtor agrees and will be required to ensure that, without the prior
written consent of the Lender:
5.1. Liens. The Debtor will not create, incur or suffer to exist any
-----
mortgage, deed of trust, pledge, lien, security interest, assignment or transfer
upon or of any of its assets, now owned or hereafter acquired, to secure any
indebtedness, except the Security Interest.
5.2. Indebtedness. The Debtor will not incur, create, assume or permit to
------------
exist any indebtedness or liability on account of deposits or advances, or
indebtedness for borrowed money or for the purchase price of capital items, or
capitalized lease obligations, or other indebtedness or liabilities evidenced by
notes, bonds, debentures or similar instruments.
9
<PAGE>
5.3. Guaranties. The Debtor will not assume, guarantee, endorse or
----------
otherwise become directly or contingently liable in connection with any
obligations of any other Person, except:
(a) the endorsement of negotiable instruments by the Debtor for
deposit or collection or similar transactions in the ordinary course of
business; and
(b) the Guaranty.
5.4. Sale or Transfer of Assets; Suspension of Business Operations.
-------------------------------------------------------------
(a) The Debtor will not sell, lease, assign, transfer or otherwise
dispose of any Collateral or any interest therein (whether in one
transaction or in a series of transactions) to any other Person;
(b) The Debtor will not liquidate or dissolve; and
(c) The Debtor will not in any manner transfer any property without
prior or present receipt of full and adequate consideration.
5.5. Place of Business; Name. The Debtor will not transfer its chief
-----------------------
executive office or principal place of business, or move, relocate, close or
sell any business location. The Debtor will not permit any tangible Collateral
or any records pertaining to the Collateral to be located in any state or area
in which, in the event of such location, a financing statement covering such
Collateral would be required to be, but has not in fact been, filed in order to
perfect the Security Interest. The Debtor will not change its name.
SECTION 6
EVENTS OF DEFAULT; RIGHTS AND REMEDIES
6.1. Events of Default. "Event of Default", wherever used herein, means
-----------------
any one of the following events:
(a) The Debtor shall fail to pay any amount when due under, or fail
to perform, or breach, any covenant or agreement of the Debtor contained
in, the Guaranty or this Agreement; or
(b) The Debtor shall be or become insolvent, or admit in writing its
inability to pay its debts as they mature, or make an assignment for the
benefit of creditors; or the Debtor shall apply for or consent to the
appointment of any receiver, trustee, or similar officer for it or for all
or any substantial part of its property; or such receiver, trustee or
similar officer shall be appointed without the application or consent of
the Debtor; or the Debtor shall institute (by petition, application,
answer, consent or otherwise) any bankruptcy, insolvency, reorganization,
arrangement, readjustment of debt, dissolution, liquidation or similar
proceeding relating to it under the laws of any
10
<PAGE>
jurisdiction; or any such proceeding shall be instituted (by petition,
application or otherwise) against the Debtor; or any judgment, writ,
warrant of attachment, garnishment or execution or similar process shall be
issued or levied against a substantial part of the property of the Debtor;
or
(c) A petition shall be filed by or against the Debtor under the
United States Bankruptcy Code, or any successor statute, naming the Debtor
as debtor; or
(d) Any representation or warranty made by the Debtor in the
Guaranty or this Agreement, or by the Debtor (or any of its officers) in
any agreement, certificate, instrument or financial statement or other
statement contemplated by or made or delivered pursuant to or in connection
with the Guaranty or this Agreement shall prove to have been incorrect in
any material respect when deemed to be effective; or
(e) The rendering against the Debtor of a final judgment, decree or
order for the payment of money in excess of Twenty Five Thousand Dollars
($25,000) and the continuance of such judgment, decree or order unsatisfied
and in effect for any period of thirty (30) consecutive days without a stay
of execution; or
(f) Default in the payment of any amount owed by the Debtor to the
Lender other than any indebtedness arising hereunder; or
(g) The Debtor or its successor or assign shall repudiate, purport
to revoke or fail to perform its obligations under Guaranty.
6.2. Rights and Remedies. Upon the occurrence of an Event of Default or
-------------------
at any time thereafter, the Lender may exercise any or all of the following
rights and remedies:
(a) The Lender may, without notice to the Debtor and without further
action, apply any and all money owing by the Lender to the Debtor to the
payment of the Obligations, including interest accrued thereon, and of all
other sums then owing by the Debtor hereunder;
(b) The Lender may exercise and enforce any and all rights and
remedies available upon default to a secured party under the UCC,
including, without limitation, the right to take possession of Collateral,
or any evidence thereof, proceeding without judicial process or by judicial
process (without a prior hearing or notice thereof, which the Debtor hereby
expressly waives) and the right to sell, lease or otherwise dispose of any
or all of the Collateral, and, in connection therewith, the Debtor will on
demand assemble the Collateral and make it available to the Lender at a
place to be designated by the Lender which is reasonably convenient to both
parties;
(c) The Lender may exercise and enforce its rights and remedies
under the Guaranty; and
11
<PAGE>
(d) The Lender may exercise any other rights and remedies available
to it by law or agreement.
Notwithstanding the foregoing, upon the occurrence of an Event of Default
described in Section 6.1(c) hereof, all amounts payable under this Agreement and
any other Obligations shall be immediately due and payable automatically without
presentment, demand, protest or notice of any kind.
6.3. Certain Notices. If notice to the Debtor of any intended disposition
---------------
of Collateral or any other intended action is required by law in a particular
instance, such notice shall be deemed commercially reasonable if given (in the
manner specified in Section 7.3) at least ten (10) calendar days prior to the
date of intended disposition or other action.
SECTION 7
MISCELLANEOUS
7.1. No Waiver; Cumulative Remedies. No failure or delay on the part of
------------------------------
the Lender in exercising any right, power or remedy under the Loan Documents
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy under the Loan Documents.
The remedies provided in the Loan Documents are cumulative and not exclusive of
any remedies provided by law.
7.2. Amendments, Etc. No amendment, modification, termination or waiver of
---------------
any provision of any Loan Document or consent to any departure by the Debtor
therefrom or any release of the Security Interest shall be effective unless the
same shall be in writing and signed by the Lender, and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given. No notice to or demand on the Debtor in any case shall
entitle the Debtor to any other or further notice or demand in similar or other
circumstances.
7.3. Addresses for Notices, Etc. Except as otherwise expressly provided
--------------------------
herein, all notices, requests, demands and other communications provided for
under the Loan Documents shall be in writing and shall be (a) personally
delivered, (b) sent by first class, certified or registered, United States mail,
(c) sent by overnight courier of national reputation, or (d) transmitted by
facsimile, in each case addressed to the party to whom notice is being given at
its address as set forth below and, if facsimiled, transmitted to that party at
its facsimile number set forth below:
12
<PAGE>
If to the Debtor:
HTI Z Corp.
547 West Jackson Boulevard
Suite 1510
Chicago, Illinois 60661
Facsimile: 312/663-9397
Attention: Lawrence S. Adelson
If to the Lender:
Wells Fargo Business Credit, Inc.
100 East Wisconsin Avenue, Suite 1400
MAC N9811-143
Milwaukee, Wisconsin 53202
Facsimile: 414/224-7439
Attention: Thomas J. Zak
or, as to each party, at such other address or facsimile number as may hereafter
be designated by such party in a written notice to the other party complying as
to delivery with the terms of this Section. All such notices, requests, demands
and other communications shall be deemed to have been given on (a) the date
received if personally delivered, (b) three (3) days after deposited in the mail
if delivered by mail, (c) the date sent if sent by overnight courier, or (d) the
date of transmission if delivered by facsimile, except that notices or requests
to the Lender pursuant to any of the provisions of Section 6 hereof shall not be
effective until received by the Lender.
7.4. Financing Statement. A carbon, photographic or other reproduction of
-------------------
this Agreement or of any financing statements signed by the Debtor is sufficient
as a financing statement and may be filed as a financing statement in any state
to perfect the security interests granted hereby.
7.5. Further Documents. The Debtor will from time to time execute and
-----------------
deliver or endorse any and all instruments, documents, conveyances, assignments,
security agreements, financing statements and other agreements and writings that
the Lender may reasonably request in order to secure, protect, perfect or
enforce the Security Interest or the rights of the Lender under this Agreement
(but any failure to request or assure that the Debtor executes, delivers or
endorses any such item shall not affect or impair the validity, sufficiency or
enforceability of this Agreement and the Security Interest, regardless of
whether any such item was or was not executed, delivered or endorsed in a
similar context or on a prior occasion).
7.6. Collateral. This Agreement does not contemplate a sale of accounts,
----------
contract rights or chattel paper, and, as provided by law, the Debtor is
entitled to any surplus and shall remain liable for any deficiency. The
Lender's duty of care with respect to Collateral in its
13
<PAGE>
possession (as imposed by law) shall be deemed fulfilled if it exercises
reasonable care in physically keeping such Collateral, or in the case of
Collateral in the custody or possession of a bailee or other third person,
exercises reasonable care in the selection of the bailee or other third person,
and the Lender need not otherwise preserve, protect, insure or care for any
Collateral. The Lender shall not be obligated to preserve any rights the Debtor
may have against prior parties, to realize on the Collateral at all or in any
particular manner or order or to apply any cash proceeds of the Collateral in
any particular order of application.
7.7. Costs and Expenses. The Debtor agrees to pay on demand all
------------------
reasonable costs and expenses, including (without limitation) attorneys' fees,
incurred by the Lender in connection with the Obligations, this Agreement, the
Guaranty and any other document or agreement related hereto or thereto, and the
transactions contemplated hereby, including without limitation all such
reasonable costs, expenses and fees incurred in connection with the negotiation,
preparation, execution, amendment, administration, performance, collection and
enforcement of the Obligations and all such documents and agreements and the
creation, perfection, protection, satisfaction, foreclosure or enforcement of
the Security Interest.
7.8. Indemnity. In addition to the payment of expenses pursuant to
---------
Section 7.7, the Debtor agrees to indemnify, defend and hold harmless the
Lender, and any of its participants, parent corporations, subsidiary
corporations, affiliated corporations, successor corporations, and all present
and future officers, directors, employees, attorneys and agents of the foregoing
(the "Indemnitees") from and against any of the following (collectively,
"Indemnified Liabilities"):
(i) any and all transfer taxes, documentary taxes, assessments or
charges made by any governmental authority by reason of the execution and
delivery of this Agreement or the Guaranty; and
(ii) any and all other liabilities, losses, damages, penalties,
judgments, suits, claims, costs and expenses of any kind or nature
whatsoever (including, without limitation, the reasonable fees and
disbursements of counsel) (collectively, "Losses") in connection with the
foregoing and any other investigative, administrative or judicial
proceedings, whether or not such Indemnitee shall be designated a party
thereto, which may be imposed on, incurred by or asserted against any such
Indemnitee, in any manner related to or arising out of or in connection
with this Agreement or the Guaranty, except for any Losses caused by the
gross negligence or willful misconduct of such Indemnitee.
If any investigative, judicial or administrative proceeding arising from any of
the foregoing is brought against any Indemnitee, upon such Indemnitee's request,
the Debtor, or counsel designated by the Debtor and satisfactory to the
Indemnitee, will resist and defend such action, suit or proceeding to the extent
and in the manner directed by the Indemnitee, at the
14
<PAGE>
Debtor's sole costs and expense. Each Indemnitee will use its best efforts to
cooperate in the defense of any such action, suit or proceeding. If the
foregoing undertaking to indemnify, defend and hold harmless may be held to be
unenforceable because it violates any law or public policy, the Debtor shall
nevertheless make the maximum contribution to the payment and satisfaction of
each of the Indemnified Liabilities which is permissible under applicable law.
The Debtor's obligation under this Section 7.8 shall survive the termination of
this Agreement and the discharge of the Debtor's other obligations hereunder.
7.9. Execution in Counterparts. This Agreement may be executed in any
-------------------------
number of counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which counterparts, taken together, shall
constitute but one and the same instrument.
7.10. Binding Effect; Assignment; Complete Agreement. This Agreement
----------------------------------------------
shall be binding upon and inure to the benefit of the Debtor and the Lender and
their respective successors and assigns, except that the Debtor shall not have
the right to assign its rights thereunder or any interest therein without the
prior written consent of the Lender. This Agreement, together with the
Guaranty, comprises the complete and integrated agreement of the parties on the
subject matter hereof and supersedes all prior agreements, written or oral, on
the subject matter hereof.
7.11. Governing Law; Jurisdiction, Venue; Waiver of Jury Trial. The Loan
--------------------------------------------------------
Documents shall be governed by and construed in accordance with the substantive
laws (other than conflict laws) of the State of Wisconsin. Each party consents
to the personal jurisdiction of the state and federal courts located in the
State of Wisconsin in connection with any controversy related to this Agreement,
waives any argument that venue in any such forum is not convenient.
THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING
BASED ON OR PERTAINING TO THIS AGREEMENT.
7.12. Severability of Provisions. Any provision of this Agreement which
--------------------------
is prohibited or unenforceable shall be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions
hereof.
7.13. Headings. Article and Section headings in this Agreement are
--------
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
IN WITNESS WHEREOF, the parties hereto have caused this Replacement
Security Agreement to be executed by their respective officers thereunto duly
authorized as of the date first above written.
DEBTOR:
15
<PAGE>
HTI Z CORP.
By: ___________________________________
Its: ___________________________________
LENDER:
WELLS FARGO BUSINESS CREDIT, INC.
By: ___________________________________
Thomas J. Zak, Vice President
16
<PAGE>
EXHIBIT 99.11
BY-LAWS
OF
ZECAL TECHNOLOGY, LLC
A Delaware limited liability company
ARTICLE I
---------
OFFICES
-------
Section 1. Registered Office. The registered office of the company in the
--------- -----------------
State of Delaware shall be located at 9 East Loockerman Street, Dover, DE 19901.
The name of the company's registered agent at such address shall be National
Registered Agents, Inc. The registered office and/or registered agent of the
company may be changed from time to time by action of the board of managers.
Section 2. Other Offices. The company may also have offices at such other
--------- -------------
places, both within and without the State of Delaware, as the board of managers
may from time to time determine or the business of the company may require.
ARTICLE II
----------
OFFICERS
--------
Section 1. Number. The officers of the company shall be elected by the
--------- ------
board of managers and shall consist of a chairman, a president and chief
executive officer, one or more vice-presidents, a secretary, a treasurer, and
such other officers and assistant officers as may be deemed necessary or
desirable by the board of managers. Any number of offices may be held by the
same person. In its discretion, the board of managers may choose not to fill
any office for any period as it may deem advisable, except that the offices of
president and chief executive officer and secretary shall be filled as
expeditiously as possible.
Section 2. Election and Term of Office. The officers of the company shall
--------- ---------------------------
be elected annually by the board of managers. Vacancies may be filled or new
offices created and filled at any meeting of the board of managers. Each
officer shall hold office until a successor is duly elected and qualified or
until his or her earlier death, resignation or removal as hereinafter provided.
Section 3. Removal. Any officer or agent elected by the board of managers
--------- -------
may be removed by the board of managers whenever in its judgment the best
interests of the
<PAGE>
company would be served thereby, but such removal shall be without prejudice to
the contract rights, if any, of the person so removed.
Section 4. Vacancies. Any vacancy occurring in any office because of
--------- ---------
death, resignation, removal, disqualification or otherwise, may be filled by the
board of managers for the unexpired portion of the term by the board of managers
then in office.
Section 5. Compensation. Compensation of all officers shall be fixed by
--------- ------------
the board of managers, and no officer shall be prevented from receiving such
compensation by virtue of his or her also being a member of the board of
managers of the company.
Section 6. The Chairman. The president and chief executive officer shall
--------- ------------
report to the chairman on the conduct of the Company's business as carried out
by the president and chief executive officer. No compensation of any kind shall
be paid to the chairman in connection with his duties as chairman unless such
compensation has been affirmatively granted in writing by not less than a
majority of the board of managers.
Section 7. The President and Chief Executive Officer. The president and
--------- -----------------------------------------
chief executive officer shall be the chief executive officer of the company;
subject to the powers of the board of managers and his duty to report to the
chairman as provided in Section 6, shall have general charge of the business,
affairs and property of the company, and control over its officers, agents and
employees; and shall see that all orders and resolutions of the board of
managers are carried into effect. The president and chief executive officer
shall execute bonds, mortgages and other contracts requiring a seal, under the
seal of the company, except where required or permitted by law to be otherwise
signed and executed and except where the signing and execution thereof shall be
expressly delegated by the board of managers to some other officer or agent of
the company. The president and chief executive officer shall have such other
powers and perform such other duties as may be prescribed by the board of
managers or as may be provided in these by-laws.
Section 8. Vice-presidents. The vice-president, or if there shall be more
--------- ---------------
than one, the vice-presidents in the order determined by the board of managers
or by the president and chief executive officer, shall, in the absence or
disability of the president and chief executive officer, act with all of the
powers and be subject to all the restrictions of the president and chief
executive officer. The vice-presidents shall also perform such other duties and
have such other powers as the board of managers, the president and chief
executive officer or these by-laws may, from time to time, prescribe.
Section 9. The Secretary and Assistant Secretaries. The secretary shall
--------- ---------------------------------------
attend all meetings of the board of managers, all meetings of the committees
thereof and record all the proceedings of the meetings in a book or books to be
kept for that purpose. Under the president and chief executive officer's
supervision, the secretary shall give, or cause to be given, all notices
required to be given by the limited liability company agreement, these by-laws
or by law; shall have such powers and perform such duties as the board of
managers, the president and chief executive officer or these by-laws may, from
time to time, prescribe. The assistant secretary, or if there be more than one,
the assistant secretaries in the order determined by the board of managers,
shall, in the absence or disability of the secretary,
-2-
<PAGE>
perform the duties and exercise the powers of the secretary and shall perform
such other duties and have such other powers as the board of managers, the
president and chief executive officer, or secretary may, from time to time,
prescribe.
Section 10. The Treasurer and Assistant Treasurer. The treasurer shall
---------- -------------------------------------
have the custody of the corporate funds and securities; shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
company; shall deposit all monies and other valuable effects in the name and to
the credit of the company as may be ordered by the board of managers; shall
cause the funds of the company to be disbursed when such disbursements have been
duly authorized, taking proper vouchers for such disbursements; and shall render
to the president and chief executive officer and the board of managers, at its
regular meeting or when the board of managers so requires, an account of the
company; shall have such powers and perform such duties as the board of
managers, the president and chief executive officer or these by-laws may, from
time to time, prescribe. If required by the board of managers, the treasurer
shall give the company a bond (which shall be rendered every six (6) years) in
such sums and with such surety or sureties as shall be satisfactory to the board
of managers for the faithful performance of the duties of the office of
treasurer and for the restoration to the company, in case of death, resignation,
retirement, or removal from office, of all books, papers, vouchers, money, and
other property of whatever kind in the possession or under the control of the
treasurer belonging to the company. The assistant treasurer, or if there shall
be more than one, the assistant treasurers in the order determined by the board
of managers, shall in the absence or disability of the treasurer, perform the
duties and exercise the powers of the treasurer. The assistant treasurers shall
perform such other duties and have such other powers as the board of managers,
the president and chief executive officer or treasurer may, from time to time,
prescribe.
Section 11. Other Officers, Assistant Officers and Agents. Officers,
---------- ---------------------------------------------
assistant officers and agents, if any, other than those whose duties are
provided for in these by-laws, shall have such authority and perform such duties
as may from time to time be prescribed by resolution of the board of managers.
Section 12. Absence or Disability of Officers. In the case of the absence
---------- ---------------------------------
or disability of any officer of the company and of any person hereby authorized
to act in such officer's place during such officer's absence or disability, the
board of managers may by resolution delegate the powers and duties of such
officer to any other officer or to any director, or to any other person whom it
may select.
ARTICLE III
-----------
INDEMNIFICATION OF OFFICERS AND OTHERS
--------------------------------------
Section 1. Nature of Indemnity. Each person who was or is made a party or
--------- -------------------
is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he, or a person of whom
he is the legal representative, is or was an officer, of the
-3-
<PAGE>
company or is or was serving at the request of the company as an officer,
employee, fiduciary, or agent of another company or of a partnership, joint
venture, trust or other enterprise, shall be indemnified and held harmless by
the company to the fullest extent which it is empowered to do so unless
prohibited from doing so by the Limited Liability Company Act of the State of
Delaware, as the same exists or may hereafter be amended (but, in the case of
any such amendment, only to the extent that such amendment permits the company
to provide broader indemnification rights than said law permitted the company to
provide prior to such amendment) against all expense, liability and loss
(including attorneys' fees actually and reasonably incurred by such person in
connection with such proceeding) and such indemnification shall inure to the
benefit of his heirs, executors and administrators; provided, however, that,
except as provided in Section 2 hereof, the company shall indemnify any such
person seeking indemnification in connection with a proceeding initiated by such
person only if such proceeding was authorized by the board of managers of the
company. The right to indemnification conferred in this Article III shall be a
contract right and, subject to Sections 2 and 5 hereof, shall include the right
to be paid by the company the expenses incurred in defending any such proceeding
in advance of its final disposition. The company may, by action of its board of
managers, provide indemnification to employees and agents of the company with
the same scope and effect as the foregoing indemnification of officers.
Section 2. Procedure for Indemnification of Officers. Any indemnification
--------- -----------------------------------------
of an officer of the company under Section 1 of this Article III or advance of
expenses under Section 5 of this Article III shall be made promptly, and in any
event within thirty (30) days, upon the written request of an officer. If a
determination by the company that the officer is entitled to indemnification
pursuant to this Article III is required, and the company fails to respond
within sixty (60) days to a written request for indemnity, the company shall be
deemed to have approved the request. If the company denies a written request
for indemnification or advancing of expenses, in whole or in part, or if payment
in full pursuant to such request is not made within thirty (30) days, the right
to indemnification or advances as granted by this Article III shall be
enforceable by an officer in any court of competent jurisdiction. Such person's
costs and expenses incurred in connection with successfully establishing his
right to indemnification, in whole or in part, in any such action shall also be
indemnified by the company. It shall be a defense to any such action (other
than an action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any, has been tendered to the company) that the claimant has not met the
standards of conduct which make it permissible under the Limited Liability
Company Act of the State of Delaware for the company to indemnify the claimant
for the amount claimed, but the burden of such defense shall be on the company.
Neither the failure of the company (including its board of managers or its
independent legal counsel) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he has met the applicable standard of conduct set
forth in the Limited Liability Company Act of the State of Delaware, nor an
actual determination by the company (including its board of managers or its
independent legal counsel) that the claimant has not met such applicable
standard of conduct, shall be a defense to the action or create a presumption
that the claimant has not met the applicable standard of conduct.
-4-
<PAGE>
Section 3. Article Not Exclusive. The rights to indemnification and the
--------- ---------------------
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Article III shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute,
provision of the limited liability company agreement, by-law, agreement, or
otherwise.
Section 4. Insurance. The company may purchase and maintain insurance on
--------- ---------
its own behalf and on behalf of any person who is or was an officer, employee,
fiduciary, or agent of the company or was serving at the request of the company
as an officer, employee or agent of another company, partnership, joint venture,
trust or other enterprise against any liability asserted against him or her and
incurred by him or her in any such capacity, whether or not the company would
have the power to indemnify such person against such liability under this
Article III.
Section 5. Expenses. Expenses incurred by any person described in Section
--------- --------
1 of this Article III in defending a proceeding shall be paid by the company in
advance of such proceeding's final disposition unless otherwise determined by
the board of managers in the specific case upon receipt of an undertaking by or
on behalf of an officer to repay such amount if it shall ultimately be
determined that he or she is not entitled to be indemnified by the company.
Such expenses incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the board of managers deems appropriate.
Section 6. Employees and Agents. Persons who are not covered by the
--------- --------------------
foregoing provisions of this Article III and who are or were employees or agents
of the company, or who are or were serving at the request of the company as
employees or agents of another company, partnership, joint venture, trust or
other enterprise, may be indemnified to the extent authorized at any time or
from time to time by the board of managers.
Section 7. Contract Rights. The provisions of this Article III shall be
--------- ---------------
deemed to be a contract right between the company and each officer who serves in
any such capacity at any time while this Article III and the relevant provisions
of the Limited Liability Company Act of the State of Delaware or other
applicable law are in effect, and any repeal or modification of this Article III
or any such law shall not affect any rights or obligations then existing with
respect to any state of facts or proceeding then existing.
Section 8. Merger or Consolidation. For purposes of this Article III,
--------- -----------------------
references to "the company" shall include, in addition to the resulting company,
any constituent company (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its officers, and employees or agents,
so that any person who is or was an officer, employee or agent of such
constituent company, or is or was serving at the request of such constituent
company as an officer, employee or agent of another company, partnership, joint
venture, trust or other enterprise, shall stand in the same position under this
Article III with respect to the resulting or surviving company as he or she
would have with respect to such constituent company if its separate existence
had continued.
-5-
<PAGE>
ARTICLE IV
----------
GENERAL PROVISIONS
------------------
Section 1. Checks, Drafts or Orders. All checks, drafts, or other orders
--------- ------------------------
for the payment of money by or to the company and all notes and other evidences
of indebtedness issued in the name of the company shall be signed by such
officer or officers, agent or agents of the company, and in such manner, as
shall be determined by resolution of the board of managers or a duly authorized
committee thereof.
Section 2. Contracts. The board of managers may authorize any officer or
--------- ---------
officers, or any agent or agents, of the company to enter into any contract or
to execute and deliver any instrument in the name of and on behalf of the
company, and such authority may be general or confined to specific instances.
Section 3. Loans. The company may lend money to, or guarantee any
--------- -----
obligation of, or otherwise assist any officer or other employee of the company
or of its subsidiary, including any officer or employee who is a director of the
company or its subsidiary, whenever, in the judgment of the board of managers,
such loan, guaranty or assistance may reasonably be expected to benefit the
company. The loan, guaranty or other assistance may be with or without
interest, and may be unsecured, or secured in such manner as the board of
managers shall approve, including, without limitation, a pledge of the ownership
interests of the company. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the company at
common law or under any statute.
Section 4. Fiscal Year. The fiscal year of the company shall be fixed by
--------- -----------
resolution of the board of managers in accordance with the terms of the limited
liability company agreement.
Section 5. Voting Securities Owned By Company. Voting securities in any
--------- ----------------------------------
other company or corporation held by the company shall be voted by the board of
managers, unless the board of managers specifically confers authority to vote
with respect thereto, which authority may be general or confined to specific
instances, upon some other person or officer. Any person authorized to vote
securities shall have the power to appoint proxies, with general power of
substitution.
Section 6. Section Headings. Section headings in these by-laws are for
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convenience of reference only and shall not be given any substantive effect in
limiting or otherwise construing any provision herein.
Section 7. Inconsistent Provisions. In the event that any provision of
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these by-laws is or becomes inconsistent with any provision of the certificate
of formation, the limited liability company agreement, the Limited Liability
Company Act of the State of Delaware or any other applicable law, the provision
of these by-laws shall not be given any effect to the extent of such
inconsistency but shall otherwise be given full force and effect.
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<PAGE>
ARTICLE V
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AMENDMENTS
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These by-laws may be amended, altered, or repealed and new by-laws adopted
at any meeting of the board of managers or the members of the company.
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