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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
Commission file number 0-24690
CLARION TECHNOLOGIES, INC.
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(Name of small business issuer in its charter)
Delaware 91-1407411
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(State of incorporation) (I.R.S. Employer Identification No.)
235 Central Avenue, Holland, Michigan 49423
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (616) 494-8885
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.001 PAR VALUE
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(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. [X] Yes [ ] No
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
The registrant's revenue for the year ended December 31, 1999 was $28,059,000
As of March 15, 2000, the aggregate market value of voting stock held by non-
affiliates of the registrant, based upon the closing sales price for the
registrant's common stock, as reported on the NASDAQ Small Cap Market, was
$78,532,943.
The number of shares outstanding of registrant's common stock was 20,534,504 as
of March 15, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents (or parts thereof) are incorporated by reference into
the following parts of this Form 10-KSB: Information required in Part III of
this Form 10-KSB is incorporated from the registrant's Proxy Statement for its
2000 Annual Meeting of Shareholders.
Transitional Small Business Disclosure Format (check one): Yes No X
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CAUTIONARY STATEMENTS FOR FORWARD-LOOKING INFORMATION
The statements contained in this document or incorporated by reference that
are not historical facts are forward-looking statements within the meaning
of the "safe harbor" provisions of the Private Securities Litigation Reform
Act of 1995. The forward-looking statements are based on management's
current expectations or beliefs and are subject to a number of risks and
uncertainties. In particular, any statement contained herein regarding the
consummation and benefits of future acquisitions, as well as expectations
with respect to future sales, operating efficiencies, and product expansion
are subject to known and unknown risks, uncertainties and contingencies,
many of which are beyond the control of the Company, which may cause actual
results, performance or achievements to differ materially from those
described in the forward looking statements. Factors which may cause
actual results to differ materially from those contemplated by the forward-
looking statements, include, among other things: overall economic and
business conditions; the demand for the Company's goods and services;
competitive factors in the industries in which the Company competes;
increases in production or material costs that cannot be recouped in
product pricing; changes in government regulations; changes in tax
requirements (including tax rate changes, new tax laws and revised tax law
interpretations); interest rate fluctuations and other capital market
conditions; the ability to achieve anticipated synergies and other cost
savings in connection with acquisitions; and the timing, impact and other
uncertainties of future acquisitions. The Company undertakes no obligation
to update publicly any forward-looking statements, whether as a result of
new information, future events or otherwise.
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
BUSINESS DEVELOPMENT
Clarion Technologies, Inc. and its subsidiaries (collectively referred to
as "Clarion" or the "Company") is a full-service custom injection molder to
the automotive, heavy truck, office furniture and consumer goods
industries.
Clarion was originally incorporated in Nevada as Kar Ventures on March 17,
1988. The name was changed to Clarion House, Inc. in 1991 when the Company
acquired a publishing business by that name which consisted of book
distribution, primarily through direct sales, to the public using mailings
and other advertising. The Company's publishing activities never
progressed beyond the development stage, and active operations ceased in
1992. In 1993, Clarion acquired a business that was licensed to use an
insecticidal coating technology and the Insecta(R) trademark. The Company
distributed Insecta(R) products to consumer, industrial and agricultural
markets; however, sufficient revenues were not achieved to support
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operations and those activities ceased in 1995. The Company had no active
operations during 1996 and 1997. On October 2, 1998, the Company changed
its name to Clarion Technologies, Inc. and changed its state of
incorporation from Nevada to Delaware.
After discontinuing its Insecta(R) business, the Company began to develop a
strategy that focused on the highly fragmented plastic injection-molding
industry with the intent of creating, primarily through acquisitions, a
significant full-service custom injection molder to the automotive, heavy
truck, office furniture, and consumer goods industries.
The Company began to execute its strategy on December 31, 1997 when it
acquired Triangle Plastics, Inc., located in Montpelier, Ohio. This unit
has been designated as the Company's large-tonnage operation, and in 1999
was moved into a newly constructed $17.3 million, 168,000 square foot
facility equipped with injection molding machines that range in size from
950 to 5,000 tons of clamping force.
On April 29, 1999, the Company acquired Mito Plastics, Inc. ("Mito"), which
is located in Jenison, Michigan, a suburb of Grand Rapids. Mito is an
award winning, full-service product development company providing program
management, industrial design, engineering, prototyping and tooling from
concept through delivery of complete assemblies all under one roof. This
operation serves as the Company's technology center and has become the
Company's hub for all product development activities.
On August 31, 1999, the Company acquired Wamar Products, Inc, ("Wamar
Products"), and Wamar Tool & Machine Co. ("Wamar Tool"), both of which are
located in Caledonia, Michigan, a suburb of Grand Rapids. Wamar Products
is a plastic injection molder and assembler of plastic component and
finished products. Wamar Tool is a fully equipped mold making and mold
repair firm that serves the plastic injection molding industry.
On October 1, 1999, the Company acquired Double "J" Molding, Inc. ("Double
J"), which is located in South Haven, Michigan. Double J is a tier two
automotive supplier of plastic injection molded parts. In a related
transaction, the Company also acquired the real estate owned by a
partnership controlled by the former Double J shareholders.
Effective February 1, 2000, the Company acquired the assets of Drake
Products Corporation ("Drake"), a full-service plastic injection molding
firm with two plants in Greenville, Michigan and one in Anderson, South
Carolina. Drake posted sales in excess of $50 million for 1999,
approximately two-thirds of which were to the home appliance industry.
These acquisitions along with the new large-tonnage manufacturing facility
have become the platform for the Company to build on to meet its objective
of becoming one of the largest, most preferred full-service custom
injection molders.
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BUSINESS OF THE ISSUER
General
The Company is a full-service custom injection molder, providing rapid
prototyping and design models, mold design and engineering services, mold
manufacturing, injection molding, and post-molding assembly to a diverse
base of customers in the automotive, heavy truck, office furniture, and
consumer goods industries. Clarion produces injection molded plastic
products for its customers on a contract basis and does not sell
proprietary products to the general marketplace.
Business Strategy
Clarion's business strategy is to create, through acquisitions and internal
growth, one of the largest full-service custom injection molding business
in the highly fragmented plastic injection-molding industry to serve
customers in the Company's target markets. The Company seeks to make
acquisitions of high-quality companies that (i) service the Company's
chosen industries; (ii) provides additional products, manufacturing, and
technical capabilities; (iii) can improve the Company's geographic delivery
capabilities; and (iv) can grow and increase the Company's presence in a
region. The Company intends to seek future acquisitions that will
strengthen the Company's ability to supply its products to its chosen
industries. The Company believes that internal growth will be obtained by
expanding sales and increasing throughput in its current injection molding
plants.
Products and Services
The Company manufactures, and in certain instances, assembles a broad range
of custom plastic injection-molded components that are used by
manufacturers in the automotive, heavy truck, office furniture, and
consumer goods industries. These components include, but are not limited
to; automotive interior and exterior trim parts, wheel covers, grilles,
door panels, heavy truck grilles and motor baffle covers, office chair
components, waste receptacles and home appliance parts. The Company also
provides program management, industrial design, engineering, prototyping
and tooling from concept through delivery of complete assemblies. In
addition, the Company has a fully equipped mold making and mold repair
company that serves the plastic injection molding industry.
The Company designs, engineers and constructs molds used to produce plastic
components at its Technology Center in Jenison, Michigan. It also produces
concept models, appearance models, engineering prototypes and
pre-production samples at this location. This facility is equipped with
modern design and machining equipment, including CAD/CAM systems,
translators and plotters, electrical discharge machining equipment and
miscellaneous support equipment.
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The Technology Center also conducts prototype and development projects,
frequently in conjunction with resin suppliers and customers' engineers.
Through the many projects undertaken at its Technology Center, the Company
has gained experience with nearly all resins currently in use for injection
molding. This expertise combined with the Company's injection molding
production experience enables the Company to provide innovative solutions
for its customers.
As of March 15, 2000, the Company had six full-service custom injection
molding facilities. These facilities collectively house 155 horizontal
injection-molding machines with capacities ranging from 55 tons to 5,000
tons of clamping force. The injection molding process is supported by
automated systems for raw material drying, conveying and regrinding. All
of the Company's plants have received QS 9000 certification.
The Company also offers value added post-molding secondary services to its
customers, including assembly and on-line packaging.
The Company maintains an in-house sales and engineering staff which assists
in the design of products to customer specifications, designs molds to
produce those products and oversees the construction of necessary molds.
Clarion's "program management" concept promotes early involvement with
customers' engineers to assist with product and tooling design and the
establishment of acceptable quality standards.
The Company's customers generally place orders for goods based on their
production requirements for the following three to four months, with a
non-binding estimate of requirements over six to twelve months. Management
believes that the relatively long production cycles for its customers make
these estimates reliable.
Company personnel generate the majority of sales. A very limited amount of
sales are made through outside sales representatives. The Company plans to
continue to aggressively pursue manufacturers in the industries that it has
chosen to operate in.
Customers
Approximately 50% of the Company's 1999 sales were automotive and heavy
truck products. Johnson Controls, Inc., a tier 1 automotive supplier,
accounted for approximately 18% of the Company's total net sales. Because
of the importance of new vehicle and truck sales by the major automotive
and truck manufacturers to the Company's operations, the business is
affected by general business conditions in those industries. The remaining
sales were generated from the Company's other target industries, with no
other single customer accounting for more than 10% of the Company's total
net sales. During the first quarter of 2000 the Company acquired
substantially all the assets of Drake Products Corporation. Drake posted
sales in excess of $50 million in 1999; approximately two-thirds of Drake's
sales were to Frigidare.
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Competition
The plastic injection-molded industry is highly fragmented and
characterized by intense competition. The Company's competitive market,
however, is regional due to the significant impact of freight costs.
Within the region where the Company operates, there are many suppliers of
plastic injection molded components. The Company believes that none of its
competitors has a dominant position in the market, although some of them
have, or may have, greater financial and other resources than the Company.
The Company believes that its ability to compete depends primarily upon its
customer service, including timely delivery and engineering/design
capabilities; product quality and durability; and competitive pricing.
The Company believes that its primary competitive strengths include its
ability to provide technologically advanced design and manufacturing
services, to hire and retain experienced product managers and a skilled
manufacturing work force, to maintain superior product quality and to
deliver finished products on a just-in-time or scheduled lead time basis.
Suppliers and Raw Materials
The primary raw materials used to produce the majority of the Company's
products are plastic resins, primarily polycarbonate, polyethylene and
polystyrene. The Company selects its suppliers primarily on the basis of
quality, price, technical support and service. However, in many instances,
the customer specifies the suppliers that the Company must use. Virtually
all of the plastic resins used in the Company's operations are manufactured
within the United States. Although the plastics industry has from time to
time experienced shortages of plastic resins, to date the Company has not
experienced any difficulties with shortages. Management believes that
there are adequate vendors' sources available to meet its raw material
needs.
The Company's financial performance is dependent to a substantial extent on
the plastic resin market. The primary plastic resins used by the Company
are produced from petrochemical feedstock mostly derived from natural gas
liquids. Supply and demand cycles in the petrochemical industry, which are
often impacted by OPEC policies, can cause substantial price fluctuations.
Consequently, plastic resin prices may increase as a result of changes in
natural gas liquid prices and the capacity, supply and demand for resin and
petrochemical feedstock from which they are produced.
The Company is not a significant purchaser of plastic resin in the United
States and, therefore, is not able to achieve significant discounts from
market prices for volume purchases. However, a common arrangement with
some of the Company's largest customers is to purchase raw materials under
contracts with terms that have been negotiated by the customer.
In many instances the Company has been able to pass through changes in the
cost of its raw materials to customers in the form of price increases.
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However, there is no assurance that the Company will be able to continue
such pass throughs, or that the timing of such pass throughs will coincide
with the Company's increased costs. To the extent that increases in the
cost of plastic resin cannot be passed on to customers, or that the
duration of time lags associated with a pass through becomes significant,
such increases may have an adverse impact on gross profit margins and the
overall profitability of the Company.
Environmental and Safety Matters
The Company's operations are subject to certain federal, state and local
environmental laws and regulations that impose limitations on the discharge
of pollutants into the air and water and establish standards for the
treatment, storage and disposal of solid and hazardous wastes. While
historically the Company has not had to make significant capital
expenditures for environmental compliance, the Company cannot predict with
any certainty its future capital expenditures for environmental compliance
because of continually changing compliance standards and technology.
The Company routinely monitors environmental compliance at its
manufacturing facilities. The cost of such compliance has not been
significant. The Company is not currently subject to any environmental
proceedings. During 1999, the Company did not make any material capital
expenditures for environmental control facilities, nor does it anticipate
any such expenditures in the near future. Actions by federal, state and
local governmental agencies concerning environmental matters could result
in laws or regulation that could increase the cost of producing the
products manufactured by the Company or otherwise adversely affect the
demand for its products.
The Company does not have insurance coverage for environmental liabilities
and does not anticipate obtaining such coverage in the future.
Employees
As of March 15, 2000, the Company had approximately 900 full-time
employees. None of the Company's employees are represented by a union.
The Company believes that its future success will depend on its ability to
continue recruiting, retaining and motivating qualified personnel at all
levels of the Company. The Company considers its relations with employees
to be good.
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ITEM 2. DESCRIPTION OF PROPERTY.
The following table provides information regarding Clarion's principle
facilities at March 15, 2000.
Square Leased
Location Footage /Owned Description of Use
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Caledonia, Michigan 86,000 Leased Manufacturing and tool
making
Greenville, Michigan 190,000 Owned Manufacturing
Holland, Michigan 1,000 Leased Executive office
Jenison, Michigan 23,000 Leased Engineering, design,
sales and tool making
South Haven, Michigan 110,000 Owned Manufacturing
Montpelier, Ohio 164,000 Owned Manufacturing
Anderson, South Carolina 131,000 Owned Manufacturing
The Company's buildings, machinery and equipment have been well maintained,
are in good operating condition, and are adequate for current production
requirements.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not currently involved in any material lawsuits. The
Company is subject to claims and litigation in the ordinary course of its
business, but does not believe that any such claim or litigation will have
a material adverse effect on its consolidated financial position, results
of operations or cash flow.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None during the fourth quarter of the fiscal year covered by this report.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
During 1999, the Company's Common Stock was quoted on the OTC Bulletin
Board under the symbol CLTC. On February 29, 2000 the Company received
approval from The NASDAQ-Amex Market Group for listing of its Common Stock
on the NASDAQ SmallCap Market effective March 2, 2000 under the symbol
CLAR.
The Company considers its Common Stock to be thinly traded, therefore, any
reported bid or sale price may not reflect a true market-based valuation.
The following table sets forth the range of high and low bid prices for the
Company's common stock for the periods indicated:
High Low
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1998
First Quarter $ 0.375 $ 0.375
Second Quarter 2.000 0.250
Third Quarter 2.000 0.437
Fourth Quarter 4.875 1.625
1999
First Quarter 8.062 2.687
Second Quarter 8.250 4.250
Third Quarter 7.375 5.750
Fourth Quarter 6.812 1.750
The foregoing quotations represent inter-dealer prices without retail mark-
up, mark-down or commission and may not represent actual transactions.
The Company has never declared or paid any cash dividends on it Common
Stock. The Company currently intends to retain its earnings to finance
operations and future growth and, therefore, does not anticipate paying any
cash dividends on its Common Stock in the foreseeable future. The Company
does pay cash dividends on its preferred stock.
As of March 15, 2000, the approximate number of stockholders of record of
Common Stock was 400.
Sales of Unregistered Securities:
During the fiscal year ended December 31, 1999, the Company sold
unregistered shares of its Common Stock in the following transactions:
In February, the Company issued 51,209 shares of Common Stock as
consideration for consulting services rendered to the Company. The
securities were issued at an agreed value of $2.00 per share pursuant to
Section 4(2) of the Securities Act of 1933, as amended (the "Act"). There
were no underwriters involved in the transaction.
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In February, the Company sold 2,887,490 shares of Common Stock at $2.00 per
share. The offering was conducted pursuant to Section 4(2) of the Act.
There were no underwriters involved in the transaction.
In March, the Company issued 20,000 shares of Common Stock to an employee
of the Company in connection with an employment agreement. The securities
were issued at an agreed value of $1.00 per share and were issued pursuant
to Section 4(2) of the Act. There were no underwriters involved in the
transaction.
In March, the Company issued 25,000 shares of Common Stock as consideration
for services rendered to the Company. The securities were issued at an
agreed value of $3.25 per share pursuant to Section 4(2) of the Act. There
were no underwriters involved in the transaction.
In April, the Company sold 100,000 shares of Common Stock at $3.50 per
share. The offering was conducted pursuant to Section 4(2) of the Act.
There were no underwriters involved in the transaction.
In April, the Company issued 13,495 shares of Common Stock as consideration
for equipment and services received by the Company. The securities were
issued at an agreed value of $2.00 per share pursuant to Section 4(2) of
the Act. There were no underwriters involved in the transaction.
In April, the Company issued 71,000 shares of Common Stock as consideration
for consulting services rendered to the Company. The securities were
issued at an agreed value of $2.00 per share pursuant to Section 4(2) of
the Act. There were no underwriters involved in the transaction.
In April, the Company issued 310,000 shares of Common Stock as
consideration for the Company's acquisition of Mito Plastics, Inc. The
securities were issued pursuant to Section 4(2) of the Act. There were no
underwriters involved in the transaction.
In May, a holder of outstanding options exercised their rights to purchase
75,000 shares of Common Stock at a price of $1.00 per share. The
securities were issued pursuant to Section 4(2) of the Act. There were no
underwriters involved in the transaction.
In May, the Company issued 25,000 shares of Common Stock to an employee of
the Company in connection with an employment agreement. The securities
were issued at an agreed value of $2.00 per share and were issued pursuant
to Section 4(2) of the Act. There were no underwriters involved in the
transaction.
In June, the Company sold 107,693 shares of Common Stock at $3.25 per
share. The offering was conducted pursuant to Section 4(2) of the Act.
There were no underwriters involved in the transaction.
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In June, a holder of outstanding options exercised their rights to purchase
30,000 shares of Common Stock at an exercise price of $1.00 per share. The
securities were issued pursuant to Section 4(2) of the Securities Act.
There were no underwriters involved in the transaction.
In July, the Company sold 30,770 shares of Common Stock at $3.25 per share.
The offering was conducted pursuant to Section 4(2) of the Act. There were
no underwriters involved in the transaction.
In August, the Company issued 193,704 shares of Common Stock as
consideration for services rendered to the Company. The securities were
issued at an agreed value of $3.50 per share pursuant to Section 4(2) of
the Act. There were no underwriters involved in the transaction.
In August, the Company issued 200,000 shares of Common Stock as
consideration for the Company's acquisition of Wamar Tool & Machine Co.
The securities were issued pursuant to Section 4(2) of the Act. There were
no underwriters involved in the transaction.
In August, the Company issued 200,000 shares of Common Stock as
consideration for the Company's acquisition of Wamar Products, Inc. The
securities were issued pursuant to Section 4(2) of the Act. There were no
underwriters involved in the transaction.
In September, the Company issued 7,250 shares of Common Stock as
consideration for consulting services rendered to the Company. The
securities were issued at an agreed value of $4.84 per share pursuant to
Section 4(2) of the Act. There were no underwriters involved in the
transaction.
In September, the Company issued 850,000 shares of Common Stock as
consideration for the Company's acquisition of Double "J" Molding, Inc.
The securities were issued pursuant to Section 4(2) of the Act. There were
no underwriters involved in the transaction.
In November, the Company issued 8,000 shares of Common Stock as
consideration for consulting services rendered to the Company. The
securities were issued at an agreed value of $3.50 per share pursuant to
Section 4(2) of the Act. There were no underwriters involved in the
transaction.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
OVERVIEW
This Management's Discussion and Analysis or Plan of Operation should be
read in conjunction with the Company's Consolidated Financial Statements,
Notes to Consolidated Financial Statements, and the Cautionary Statement
for Forward-Looking Information included elsewhere in this annual report.
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The Company is a full-service custom injection molder, providing rapid
prototyping and design models, mold design and engineering services, mold
manufacturing, injection molding and post-molding assembly to a diverse
base of customers in the automotive, heavy truck, office furniture and
consumer goods industries.
As described in Note 2 of the Notes to Consolidated Financial Statements,
the Company entered into two business combinations during 1999 that were
accounted for as poolings of interests. In April, the Company acquired
Mito Plastics, Inc. a full-service product development company providing
program management, industrial design, engineering, prototyping and tooling
from concept through delivery of complete assemblies all under one roof.
In August, the Company acquired Wamar Tool & Machine Co., a fully equipped
mold making and mold repair firm that serves the plastic injection molding
industry. Accordingly, all financial data in the Management's Discussion
and Analysis or Plan of Operation is reported as though these companies
have always been one entity.
The Company also made two other acquisitions in 1999 that were accounted
for under the purchase method of accounting, as described in Note 2 of the
Notes to Consolidated Financial Statements, that impact the comparability
of results between the years presented. In August, the Company acquired
Wamar Products, Inc. a plastic injection molder and assembler of plastic
component and finished products. In September, the Company acquired Double
"J" Molding, Inc., a tier two automotive supplier of plastic injection
molded parts.
RESULTS OF OPERATIONS
The table below outlines the components of the Company's Statement of
Income as a percentage of net sales:
YEAR ENDED DECEMBER 31,
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1999 1998
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Net sales 100.0% 100.0%
Cost of sales 96.7% 92.6%
-------- --------
Gross profit 3.3% 7.4%
Selling, general and
administrative expenses 48.8% 51.3%
-------- --------
Operating loss (45.5%) (43.9%)
Other income(expense) (5.3%) (2.6%)
-------- --------
Loss before income taxes (50.8%) (46.5%)
Provision for income taxes .4% (.6%)
-------- --------
Net loss (51.2%) (45.9%)
======== ========
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Net sales
Net sales for 1999 were $28.1 million, an increase of $18.1 million, or
181.5%, over net sales of $10.0 million for 1998. Of this increase, $11.8
million was due to the acquisition of Wamar Products in August 1999 and
Double J in September 1999. The remaining sales increase was primarily
attributable to higher sales volume due to increased manufacturing capacity
at the new Montpelier, Ohio facility. No significant price increases
occurred during 1999.
Gross profit
Gross profit as a percentage of net sales in 1999 was 3.3% compared to 7.4%
in 1998. Overall gross profit margins did not reach levels consistent with
the injection molding industry due to the under absorption of overhead
costs at the new Montpelier facility. That location is still operating
below practical capacity, however, business booked for mid 2000 and beyond
should bring that facility closer to normal operating levels within the
next three to six months. Manufacturing overhead at that facility is being
minimized where possible, however, the fixed costs there are now being
fully recognized as operations are now completely on line. The Montpelier
start-up expenses were partially offset by gross profits recorded by Wamar
Products and Double J during the last four months and three months of the
year, respectively.
The decline in gross profit percentage was also impacted by an increase in
outsourced mold manufacturing, which generates lower profit margins. More
molds were sold in 1999 that exceeded the Company's internal production
capabilities. The Company can produce plastic injection molds requiring up
to 300 tons of clamping force; molds in excess of that size are outsourced
to other vendors.
Selling, general and administrative expenses
Selling, general and administrative expenses increased 168.6% from $5.1
million in 1998 to $13.7 million in 1999, but decreased as a percentage of
net sales to 48.8% in 1999 compared to 51.3% in 1998. The primary reason
for the increase in absolute dollars reflected the ongoing investment being
made, primarily for technical talent, in order to support the Company's
long-term strategy of growth through acquisitions. Sales, engineering, and
management personnel have been added in order to sustain and grow the base
of business that is booked for 2000. The Company anticipates that the
level of selling, general and administrative expenses will continue to
increase in order to support continued growth and expansion, however,
management believes that selling, general and administrative expenses will
continue to decrease as a percentage of net sales.
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Other income (expense)
Other expense, net increased $1.2 million to $1.5 million in 1999 compared
to $0.3 million in 1998. Interest expense increased $0.7 million to $1.0
million in 1999 due to higher debt levels for financing the new Montpelier
facility, certain acquisition funding and general working capital needs.
The Company also recognized a $0.2 million loss on the sale of the assets
of Clarion Specialty Products and a loss of $0.3 million on the disposal of
other property and equipment. Partially offsetting those expenses was $0.1
million of interest income.
Income taxes
The Company's 1999 effective income tax rate differed from the applicable
statutory rate primarily due to nondeductible goodwill amortization, the
effect of Michigan Single Business tax, and fully reserving future federal
income tax benefits, which were comprised primarily of net operating loss
carryforwards. The 1998 effective income tax rate differed from the
applicable statutory rate primarily due to nondeductible goodwill
amortization and partially reserving future tax benefits, which were
primarily comprised of net operating loss carryforwards.
Net Loss
Net loss for 1999 increased to $14.4 million, or $0.88 per basic share,
compared to $4.6 million, or $0.53 per basic share, for 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a total cash balance of $6,560,000 at December 31, 1999.
The Company's primary cash requirements are for ongoing operating costs,
working capital needs, capital expenditure requirements, business
acquisitions, debt service obligations and preferred stock dividends.
These cash requirements have increased due to the growth of the Company and
are expected to continue to increase as a result of future anticipated
growth. Historically, the Company's main sources of cash have been from
the sale of equity securities and bank borrowings. The Company believes
that cash generated from operations, together with amounts available under
its revolving credit facility and any other available financing source,
will be adequate to permit the Company to meet its cash requirements,
although no assurance can be given in this regard. Changes in the
Company's economic condition or other unforeseen circumstances could cause
these funds to not be available to meet its cash requirements. In
addition, the Company intends to pursue, as part of its business strategy,
future growth through acquisitions that may involve the expenditure of
significant funds. Depending upon the nature, size and timing of future
acquisitions, the Company may be required to obtain additional debt or
equity financing in connection with such transactions. There can be no
assurance, however, that additional financing will be available to the
Company, when and if needed, on acceptable terms or at all.
-14-
Net cash used by operating activities increased to $14.0 million in 1999
from $3.6 million in 1998. The increase in cash used by operations was
primarily attributable to the operations at the Company's new Montpelier,
Ohio facility and the ongoing investment being made, primarily for
technical talent, in order to support the Company's long-term strategy of
growth through acquisitions. The increase in cash used by operations was
partially offset by positive operating cash generated from Wamar Products
and Double J subsequent to their effective acquisition dates. Working
capital at December 31, 1999 was $5.7 million, compared with a negative
$3.2 million at December 31, 1998. The increase reflected the positive
working capital of companies acquired during 1999 and the effect of
converting short-term construction obligations at December 31, 1998 for the
new Montpelier facility to long-term debt.
During 1999, the Company used cash of $14.0 million for capital
expenditures, $6.2 million, net of cash acquired, for acquisitions and
$145,000 to pay dividends to preferred shareholders.
The most significant capital expenditures during 1999 consisted of $11.3
million for the building and equipment at the Company's newly constructed
Montpelier facility, and $1.9 million for land and buildings associated
with the acquisition of Double J. The Company anticipates that capital
expenditures for 2000 will be approximately $3.9 million, primarily for
machinery and equipment.
In May of 1999, the Company sold the assets of its Clarion Specialty
Products subsidiary after determining that business was not consistent with
the Company's strategic growth plan. The Company received $107,500 in cash
and the buyer also assumed certain of the operation's liabilities. The
Company also received $102,000 in cash from the sale of other assets.
During the third quarter the Company acquired all the outstanding stock of
Wamar Products, Inc. for approximately $6.8 million in cash and 200,000
shares of Clarion common stock. In addition, a $200,000 holdback liability
was been recorded that was paid in cash to an escrow fund during the first
quarter of 2000. Cash in the escrow fund will be paid to the seller's one
year after the closing date, less any adjustments to the acquisition price
as agreed to by Clarion and the sellers. The real property where Wamar
Products currently conducts its business was retained by an affiliate of
the sellers and is being leased to Clarion. The Company and the affiliate
have entered into an option and put agreement for the real property whereby
Clarion may exercise an option to purchase the real property and the
sellers may exercise an option to sell the real property to Clarion. The
cash purchase price, which ranges from $3.3 million to $3.7 million, is
determined by the date the option or put is exercised, in accordance with a
pre-defined schedule of terms.
On October 1, 1999 the Company acquired all the outstanding capital stock
of Double "J" Molding, Inc. (Double J) in exchange for 850,000 shares of
-15-
Clarion common stock. In a related transaction, the Company also acquired
the real property owned by a partnership controlled by the former Double J
shareholders, and used by Double J, for approximately $2 million in cash
and the assumption of $1.3 million in debt. Of the 850,000 Clarion shares
issued for the acquisition, 425,000 shares ("Put Shares") are subject to
the terms of stock put agreements ("Put Agreements") which require the
Company to purchase some or all of the Put Shares from the holders at a
price of $6.00 per share. The maximum potential repurchase obligation of
the Company is $2,550,000. The outstanding put options expire on November
15, 2000 and are exercisable between October 1, 2000 and November 14, 2000.
The Put Shares have been reclassified on the December 31, 1999 balance
sheet to a temporary equity account entitled "Value of Shares Subject to
Redemption." Concurrent with the issuance of these stock put options, the
Company entered into a stock put agreement with a Clarion shareholder which
requires that shareholder to purchase a number of shares of Clarion common
stock equal to the product of: (i) the aggregate purchase price paid by
Clarion for the Put Shares, divided by the lesser of (ii) the closing price
of the common stock quoted on NASDAQ on the date Clarion receives notice of
its obligation to perform under the Put Agreements, or (iii) $6.00. The
Company's put option expires on November 25, 2000 and is exercisable
between October 1, 2000 and November 14, 2000. In exchange for that put
agreement, the Director received 200,000 warrants to purchase Clarion
common stock at an exercise price of $5.00 per share. The warrants expire
on September 30, 2002.
At December 31, 1999, the Company's total debt was $23.8 million, of which
$22.8 million represented bank debt. This is in comparison to the $1.9
million in total debt at December 31, 1998, of which $1.6 million
represented bank debt. The increase in total debt resulted principally
from new long-term bank borrowings of $20.3 million and debt acquired with
the Wamar Products and Double J acquisitions, offset by the repayments
totaling $5.9 million. The bank debt outstanding at December 31, 1999 was
replaced by a new revolving credit facility and term loans in February
2000.
Effective February 1, 2000, the Company acquired substantially all the
assets of Drake Products Corporation, a full-service plastic injection
molding firm based in Greenville, Michigan. Consideration for the
acquisition included 2 million shares of Clarion common stock,
approximately $25 million in cash, a $5 million subordinated promissory
note and the assumption of approximately $6.5 million of liabilities. To
fund the cash portion of the transaction, the Company entered into a
$26,000,000 term loan agreement with a variable interest rate of LIBOR plus
3.50% or prime rate plus 1.00%, at the option of the Company. The loan
requires monthly principal payments of $250,000 through February 2001,
$333,333 through February 2002, and $416,667 through January 2003, plus
interest. A final principal payment of $14.4 million plus interest is due
in February 2003. Borrowings are collateralized by all tangible and
intangible assets. In a related transaction, the Company also acquired the
real property used by Drake for $2,200,000 in cash and the issuance of a
$1,000,000 promissory note.
-16-
On February 29, 2000, the Company entered into a new revolving credit
agreement that provides for up to $15.0 million in borrowings through
February 2003. The Company borrowed $11.8 million under the new credit
facility and used the proceeds to pay existing bank debt. At the option of
the Company, interest is payable based on LIBOR plus 3.50% or the bank's
prime rate plus 1.00%. In February 2001, interest will be variable based
on the Company's leverage ratio and will range between LIBOR plus 1.75% to
3.00% or prime rate, to prime rate plus 1.00%, at the option of the
Company. In addition, a commitment fee is payable on the unused portion of
the credit line. At February 29, 2000, the Company did not have any unused
borrowing capacity under the credit agreement's most restrictive debt
covenant. Borrowings are collateralized by all tangible and intangible
assets.
Concurrent with the revolving credit agreement, the Company entered into a
$12.0 million term loan agreement that requires a lump sum payment of
principal and interest in February 2003. Proceeds were used to pay
existing bank debt. At the option of the Company, interest is payable
based on LIBOR plus 1.00% or the bank's prime rate. Borrowings are
collateralized by all tangible and intangible assets, in addition to
certain personal guarantees. Two members of Clarion's Board of Directors
and a Clarion executive officer have guaranteed $3 million of the term debt
by each providing $1 million in standby letters of credit. Two other
individuals not related to the Company have guaranteed the remaining $9
million; one by providing a standby letter of credit for $3 million, the
other by making a $6 million cash deposit with the lending bank. The
Company has agreed to pay, on behalf of the guarantors providing standby
letters of credit, the 1% annual fees due under the letters of credit plus
1% per month on the guaranteed amount. The Company is paying the guarantor
providing the cash deposit a 2% fee per month.
Debt covenants covering the new credit facilities require the Company to
maintain certain fixed charge coverage and leverage ratios. Other
provisions establish minimum tangible net worth and EBITDA targets, and
limit capital expenditures and Company indebtedness. There are also
restrictions on the payment of certain dividends.
During 1999, the Company sold, pursuant to various private offerings,
3,125,953 shares of its common stock at prices ranging from $2.00 per share
to $3.50 per share for total proceeds of approximately $6.6 million.
During 1999, the Company authorized 3,000,000 shares of convertible
cumulative preferred stock with a par value of $0.001 per share. In
conjunction with the Wamar Products acquisition, and to fund general
working capital needs, the Company issued 1,490,000 shares of preferred
stock at a private offering price of $7.99 per share. The Company issued
an additional 468,750 shares of preferred stock at a private offering price
of $7.99 per share in December 1999. Annual cumulative dividends of $1.12
per share accruing from the date of issuance are payable in cash quarterly
-17-
commencing on September 30, 1999. The preferred stock is convertible at
the option of the holder at any time, unless previously redeemed, into
shares of common stock of the Company at an initial conversion rate of 2
shares of common stock for each share of preferred stock, subject to
adjustment in certain events. After December 31, 2000, the conversion rate
is subject to adjustment in accordance with a pre-defined formula. The
Company may at any time redeem all or any portion of the convertible
preferred stock for $10 per share plus all accrued and unpaid dividends
thereon.
TAX CONSIDERATIONS
The Company has net operating loss ("NOL") carryforwards for tax purposes
that are available to offset future taxable income. However, there are
federal tax laws that restrict or eliminate NOL carryforwards when certain
changes of control occur. A 50% change of control, which is calculated
over a rolling three-year period, may cause the Company to lose some or all
of its NOL carryforward benefits. Due to the significant number of equity
transactions that have occurred in recent years the Company believes there
have been changes in control, however, the Company also believes there are
currently no restrictions that would eliminate the future cash benefits
from utilizing its NOL carryforwards. As the Company executes it strategy
of growth through acquisitions, there are likely to be more transactions in
the future involving private or public sales of equity securities. The
Company cannot make any assurances that such transactions will not result
in the loss of NOL carryforward benefits in the future due to changes in
control.
INFLATION
The Company does not believe that sales of its products are affected
materially by inflation, although there can be no assurance that inflation
will not affect sales in the future. The Company does believe that its
financial performance could be adversely affected by inflation in the
plastic resin market. The primary plastic resins used by the Company are
produced from petrochemical feedstock mostly derived from natural gas
liquids. Supply and demand cycles in the petrochemical industry, which are
often impacted by OPEC policies, can cause substantial price fluctuations.
Consequently, plastic resin prices may increase as a result of changes in
natural gas liquid prices and the capacity, supply and demand for resin and
petrochemical feedstock from which they are produced.
In many instances the Company has been able to pass through changes in the
cost of its raw materials to customers in the form of price increases.
However, there is no assurance that the Company will be able to continue
such pass throughs, or that the timing of such pass throughs will coincide
with the Company's increased costs. To the extent that increases in the
-18-
cost of plastic resin cannot be passed on to customers, or that the
duration of time lags associated with a pass through becomes significant,
such increases may have an adverse impact on gross profit margins and the
overall profitability of the Company.
YEAR 2000 READINESS DISCLOSURE
Many computer systems and software products were designed to accept only
two digits in date code fields which could result in recognizing the entry
"00" as the year 1900 rather than the year 2000. Consequently, such
computer systems and software products need to be upgraded to comply with
Year 2000 ("Y2K") requirements. Clarion had actively taken steps prior to
December 31, 1999 to insure that information technology systems, embedded
technology and material third parties were all prepared to process date-
related information in the Year 200 without disruption.
As of the date of this filing, the Company has not experienced any Y2K-
related problems and is unaware of any future potential interruptions that
could result from Y2K readiness issues. The Company continues to monitor
its operations and transactions with customers and vendors for possible Y2K
issues.
ITEM 7. FINANCIAL STATEMENTS
The following report, financial statements and notes are included with this
report:
Independent Auditors' Report
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
-19-
Independent Auditors' Report
----------------------------
To the Board of Directors
Clarion Technologies, Inc. and Subsidiaries
Holland, Michigan
We have audited the accompanying consolidated balance sheets of Clarion
Technologies, Inc. and Subsidiaries as of December 31, 1999 and 1998, and
the related consolidated statements of income, changes in shareholders'
equity, and cash flows for the years then ended. These consolidated
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Clarion
Technologies, Inc. and Subsidiaries as of December 31, 1999 and 1998, and
the results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
PERRIN, FORDREE & COMPANY, P.C.
/s/ Perrin, Fordree & Company, P.C.
March 11, 2000
Troy, Michigan
-20-
CLARION TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
-------------------------
1999 1998
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 6,560,000 $ 3,973,000
Accounts receivable, net of allowances
of $883,000 in 1999 and $55,000 in 1998 9,543,000 1,951,000
Inventories 3,752,000 1,013,000
Prepaid expenses and other current assets 706,000 339,000
----------- -----------
Total current assets 20,561,000 7,276,000
Property, plant and equipment:
Land 315,000 188,000
Buildings and improvements 13,930,000 102,000
Machinery and equipment 30,343,000 5,714,000
Furniture and office equipment 4,098,000 1,556,000
Construction in progress 53,000 6,379,000
----------- -----------
48,739,000 13,939,000
Less accumulated depreciation (15,145,000) (3,235,000)
----------- -----------
33,594,000 10,704,000
Other assets:
Costs in excess of net assets acquired,
net of accumulated amortization of
$212,000 in 1999 and $79,000 in 1998 5,567,000 1,102,000
Deferred tax assets - 68,000
Other assets 592,000 20,000
----------- -----------
6,159,000 1,190,000
----------- -----------
$60,314,000 $19,170,000
=========== ===========
See accompanying notes to consolidated financial statements.
-21-
CLARION TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
-------------------------
1999 1998
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 87,000 $ 600,000
Current portion of long-term debt 463,000 426,000
Accounts payable 8,395,000 4,145,000
Accrued construction costs - 4,430,000
Accrued payroll and benefits 2,641,000 208,000
Accrued dividends 426,000 -
Other current liabilities 2,818,000 674,000
----------- -----------
Total current liabilities 14,830,000 10,483,000
Long-term debt, net of current portion 23,204,000 863,000
Deferred tax liability 197,000 -
Other liabilities 540,000 -
----------- -----------
Total liabilities 38,771,000 11,346,000
Value of shares subject to redemption 2,550,000 -
Shareholders' equity:
Preferred stock, $0.001 par value,
3,000,000 shares authorized; 1,958,750
shares issued and outstanding in 1999,
stated at liquidation value of $8.00
per share 15,670,000 -
Common stock, $0.001 par value in 1999,
$0.01 par value in 1998, 40,000,000
shares authorized; 18,534,504 and
13,978,893 issued and outstanding
in 1999 and 1998, respectively 19,000 140,000
Additional paid-in capital 23,820,000 13,257,000
Accumulated deficit (20,516,000) (5,573,000)
----------- -----------
Total shareholders' equity 18,993,000 7,824,000
----------- -----------
$60,314,000 $19,170,000
=========== ===========
See accompanying notes to consolidated financial statements.
-22-
CLARION TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31,
--------------------------
1999 1998
------------ -----------
Net sales $ 28,059,000 $ 9,966,000
Cost of sales 27,139,000 9,224,000
------------ -----------
Gross profit 920,000 742,000
Selling, general and
administrative expenses 13,685,000 5,117,000
------------ -----------
Operating loss (12,765,000) (4,375,000)
Other income (expense):
Interest expense (1,010,000) (258,000)
Interest income 81,000 2,000
Loss on sale of business (222,000) -
Loss on sale of equipment (330,000) (2,000)
------------ -----------
(1,481,000) (258,000)
------------ -----------
Loss before income taxes (14,246,000) (4,633,000)
Provision for income taxes 126,000 (55,000)
------------ -----------
Net loss $(14,372,000) $(4,578,000)
============ ===========
Loss designated to common shareholders $(14,943,000) $(4,578,000)
============ ===========
Loss per share:
Basic $(.88) $(.53)
===== =====
Diluted $(.88) $(.53)
===== =====
See accompanying notes to consolidated financial statements.
-23-
CLARION TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
ADDITIONAL
PREFERRED COMMON PAID-IN ACCUMULATED
STOCK STOCK CAPITAL DEFICIT TOTAL
----------- -------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Previously reported
balances at
December 31, 1997 $ - $ 52,000 $ 1,513,000 $ (1,511,000) $ 54,000
Adjustment for pooling of
interest, Mito - 3,000 (3,000) 203,000 203,000
Adjustment for pooling of
interest, Wamar Tool - 2,000 8,000 313,000 323,000
----------- -------- ----------- ------------ -----------
Restated balances at
December 31, 1997 - 57,000 1,518,000 (995,000) 580,000
Net loss - - - (4,578,000) (4,578,000)
Issuance of common stock
for services rendered - 3,000 336,000 - 339,000
Issuance of common stock
relating to employment
agreements - 2,000 147,000 - 149,000
Common stock issued with
acquisition - 10,000 940,000 - 950,000
Issuance of common stock - 68,000 10,316,000 - 10,384,000
----------- -------- ----------- ------------ -----------
Balances at
December 31, 1998 - 140,000 13,257,000 (5,573,000) 7,824,000
Net loss - - - (14,372,000) (14,372,000)
Change in par value of
common stock from
$.01 to $.001 - (125,000) 125,000 - -
Issuance of common stock
for services rendered - - 1,093,000 - 1,093,000
Net issuance of common
stock relating to
employment agreements - - 4,000 - 4,000
Common stock issued for
acquisitions - 1,000 4,199,000 - 4,200,000
Issuance of common stock
for cash - 3,000 6,586,000 - 6,589,000
Issuance of preferred
stock for cash 15,670,000 - (19,000) - 15,651,000
Reclassification of shares
subject to redemption - - (2,550,000) - (2,550,000)
Stock-based compensation - - 1,125,000 - 1,125,000
Preferred dividends
declared - - - (571,000) (571,000)
----------- -------- ----------- ------------ -----------
Balances at
December 31, 1999 $15,670,000 $ 19,000 $23,820,000 $(20,516,000) $18,993,000
=========== ======== =========== ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
-24-
CLARION TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
---------------------------
1999 1998
------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(14,372,000) $(4,578,000)
Adjustments to reconcile net income to net
cash provided by operations
Depreciation and amortization 1,948,000 768,000
Deferred income taxes - (43,000)
Allowance for doubtful accounts 532,000 -
Loss on sale of equipment 330,000 2,000
Loss on sale of business 222,000 -
Stock-based compensation expense 1,125,000 -
Changes in operating assets and liabilities:
Accounts receivables (1,085,000) (567,000)
Inventories (847,000) (584,000)
Prepaid expenses and other assets 230,000 (233,000)
Accounts payable (4,871,000) 1,299,000
Accruals and other liabilities 2,780,000 295,000
------------ -----------
Cash used in operating activities (14,008,000) (3,641,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (14,003,000) (2,950,000)
Proceeds from sale of equipment 102,000 3,000
Proceeds from sale of business 107,000 -
Proceeds from notes receivable - 25,000
Acquisitions, net of cash acquired (6,245,000) (871,000)
------------ -----------
Cash used in investing activities (20,039,000) (3,793,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in short-term debt 487,000 220,000
Proceeds from borrowings 20,253,000 211,000
Repayments of long-term debt (5,920,000) (658,000)
Capital lease payments (281,000) (17,000)
Net proceeds from issuance of preferred stock 15,651,000 -
Net proceeds from issuance of common stock 6,589,000 11,725,000
Preferred stock dividends paid (145,000) -
------------ -----------
Cash provided by financing activities 36,634,000 11,481,000
------------ -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,587,000 4,047,000
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 3,973,000 (74,000)
------------ -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 6,560,000 $ 3,973,000
============ ===========
See accompanying notes to consolidated financial statements.
-25-
CLARION TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following summary of significant accounting policies of Clarion
Technologies, Inc. is presented to assist the reader in evaluating the
financial statements. Certain amounts in 1998 have been reclassified to
conform with the 1999 presentation.
PRINCIPLES OF CONSOLIDATION
- ---------------------------
The consolidated financial statements include the accounts of Clarion
Technologies, Inc. and subsidiaries (collectively, the "Company" or
"Clarion"). All significant intercompany accounts and transactions have
been eliminated.
USE OF ESTIMATES
- ----------------
The preparation of these financial statements in conformity with generally
accepted accounting principles requires management to make estimates,
including estimates related to assumptions, that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements. Such estimates and
assumptions also affect the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates and assumptions.
CASH AND CASH EQUIVALENTS
- -------------------------
The company considers all highly liquid instruments with a maturity of
three months or less when purchased to be cash equivalents. The carrying
amount reported in the balance sheet for cash and cash equivalents
approximates fair value.
INVENTORIES
- -----------
Inventories are stated at the lower of cost, determined on a first-in,
first-out basis, or market. Components of inventories are summarized as
follows:
DECEMBER 31,
------------------------
1999 1998
---------- ----------
Raw materials $1,626,000 $ 447,000
Work in process 1,331,000 277,000
Finished goods 795,000 289,000
---------- ----------
$3,752,000 $1,013,000
========== ==========
-26-
CLARION TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION
- ----------------------------------------------
Property, plant and equipment are recorded at cost. Expenditures for
significant renewals and improvements are capitalized. Repairs and
maintenance costs are charged to expense as incurred. Depreciation is
recognized over the estimated useful lives of the assets using primarily
the straight-line method. The estimated useful lives used ranges from 5 to
40 years for buildings and improvements, 3 to 12 years for machinery and
equipment, and 2 to 10 furniture and office equipment. Leasehold
improvements are amortized over the shorter of the lives of the leases or
estimated service lives.
COSTS IN EXCESS OF NET ASSETS ACQUIRED AND OTHER LONG-LIVED ASSETS
- ---------------------------------------------------------------------
Costs in excess of net assets acquired represent the excess of purchase
price and related costs over the value assigned to net tangible assets of
businesses acquired. These intangible assets are being amortized on a
straight-line basis over the period estimated to be benefitted, not
exceeding 40 years.
The Company continually reviews the recoverability of its long-lived assets
by determining whether unamortized balances can be recovered through
undiscounted future operating cash flows over the remaining lives of the
assets in accordance with the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 121. If the sum of the expected future
cash flows is less than the carrying value of the assets, an impairment
loss is recognized for the excess of the carrying value over the fair
value. The estimated fair value is determined by discounting the expected
future cash flows at a rate that would be similar for an investment with
like risks.
REVENUE RECOGNITION
- -------------------
Sales are recorded when products are shipped or a service is performed.
RESEARCH AND DEVELOPMENT
- ------------------------
Research and development expenditures are expensed when incurred.
INCOME TAXES
- ------------
The provision for income taxes is based on income reported in the financial
statements. Deferred income taxes are recognized for all temporary
differences between the tax and financial reporting bases of assets and
liabilities.
-27-
CLARION TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
EARNINGS PER SHARE
- ------------------
Basic earnings per share ("EPS") is computed by dividing net income by the
weighted-average number of common shares outstanding in each year. Diluted
EPS is computed by dividing net income by the weighted-average number of
common shares outstanding plus all shares that would have been outstanding
if every potentially dilutive common share had been issued. The following
table reconciles the numerators and denominators used in the calculation of
basic and diluted EPS.
1999 1998
------------ -----------
Numerators:
Net loss $(14,372,000) $(4,578,000)
Preferred stock dividends declared (571,000) -
------------ -----------
Loss designated to common shareholders
for basic and diluted EPS $(14,943,000) $(4,578,000)
============ ===========
Denominators:
Weighted-average shares outstanding
for basic and diluted EPS 16,930,770 8,662,711
========== =========
Diluted EPS was the same as basic EPS in 1999 and 1998. The diluted share
base excluded all common stock equivalents because of the anti-dilutive
effect caused by the Company's operating losses during each of those years.
RELATED PARTY TRANSACTION
- --------------------------
In January 1999, the Company entered into an agreement with a firm owned by
a Director of the Company to provide consulting services for strategic
initiatives. Terms of the agreement provide for monthly payments of
$15,000 through December 2002.
CONCENTRATIONS OF CREDIT RISK
- -----------------------------
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash equivalents and trade receivables.
The Company maintains its cash accounts with various major financial
institutions. The Company performs periodic evaluations of the relative
credit standing of these financial institutions and limits the amount of
credit exposure with any one institution.
-28-
CLARION TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The Company sells its products directly to other manufacturers. No single
customer accounted for more than 10% of consolidated revenue in 1998. For
the year ended December 31, 1999, the Company had one customer that
accounted for approximately 18% of consolidated net sales and approximately
28% of trade accounts receivable. The Company routinely assesses the
financial strength of its customers in order to manage its concentration of
credit risk.
NOTE 2. BUSINESS COMBINATIONS
Purchase Transactions:
On September 30, 1999 the Company acquired all the outstanding stock of
Double "J" Molding, Inc. ("Double J") in exchange for 850,000 shares of
Clarion common stock. Double J is a tier-two automotive supplier of
plastic injection molded parts. The transaction was accounted for under
the purchase method of accounting, therefore, assets and liabilities were
recorded based on their fair values at the date of acquisition. Operating
results have been included in the Company's consolidated statements of
income from the date of acquisition. The Company recorded $1.4 million of
costs in excess of net assets acquired, which are being amortized over 40
years.
In a related transaction, the Company also acquired the real property where
Double J conducts it business from a partnership controlled by the former
Double J shareholders. The Company paid approximately $2 million in cash
and assumed $1.3 million in debt for the property.
On August 31, 1999, the Company acquired Wamar Products, Inc. ("Wamar
Products"), a plastic injection molder and assembler of plastic component
and finished products. The Company purchased all the outstanding stock of
Wamar Products for approximately $6.8 million in cash and 200,000 shares of
Clarion common stock. In addition, a $200,000 holdback liability has been
recorded that was paid into an escrow fund during the first quarter of
2000. Cash in the escrow fund will be paid to the seller's one year after
the closing date, less any adjustments to the acquisition price as agreed
to by Clarion and the sellers. The transaction was accounted for under the
purchase method of accounting, therefore, assets and liabilities were
recorded based upon their fair values at the date of acquisition.
Operating results have been included in the Company's consolidated
statements of income from the date of acquisition. The Company recorded
$3.2 million of costs in excess of net assets acquired, which are being
amortized over 40 years.
-29-
CLARION TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. BUSINESS COMBINATIONS (continued)
The real property where Wamar Products currently conducts its business was
retained by an affiliate of the sellers and is being leased to Clarion.
The Company and the affiliate have entered into an option and put agreement
for the real property whereby Clarion may exercise an option to purchase
the real property at anytime until August 31, 2004. The sellers may
exercise an option to sell the real property to Clarion beginning
September 1, 2000 until August 31, 2001. The cash purchase price, which
ranges from $3.3 million to $3.7 million, is determined by the date the
option or put is exercised, in accordance with a pre-defined schedule of
terms.
On June 15, 1998 the Company acquired all the outstanding stock of Rose and
Associates, Inc. ("Rose") in exchange for 950,000 shares of Clarion common
stock. Rose is a sales and marketing firm specializing in plastic
injection molded parts. The transaction was accounted for under the
purchase method of accounting, therefore, assets and liabilities were
recorded based upon their fair values at the date of acquisition.
Operating results have been included in the Company's consolidated
statements of income from the date of acquisition. The Company recorded
$950,000 of costs in excess of net assets acquired, which are being
amortized over 7 years.
The following unaudited pro forma consolidated results of operations are
presented as if the acquisitions of Wamar Products and Double J had been
made at the beginning of the periods presented. The effects of the Rose
acquisition on the consolidated financial statements was not significant
and has been excluded from the pro forma presentation.
YEAR ENDED DECEMBER 31,
---------------------------
1999 1998
----------- -----------
Net sales $56,087,000 $51,051,000
Net loss (16,142,000) (3,896,000)
Loss per share:
Basic (0.91) (0.40)
Diluted (0.91) (0.40)
The unaudited pro forma information is not necessarily indicative of the
results of operations that would have occurred had the purchases been made
at the beginning of the periods presented or of the future results of the
combined operations.
-30-
CLARION TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. BUSINESS COMBINATIONS (continued)
Pooling Transactions:
On April 29, 1999 the Company acquired Mito Plastics, Inc. ("Mito") by
exchanging 310,000 shares of Clarion common stock for all the outstanding
stock of Mito. Mito is a full-service product development company
providing program management, industrial design, engineering, prototyping
and tooling from concept through delivery of complete assemblies all under
one roof. The acquisition has been accounted for as a pooling of interests
and accordingly all prior period consolidated financial statements have
been restated to include the combined results of operations, financial
position and cash flows of Mito.
On August 31, 1999 the Company completed the acquisition of Wamar Tool &
Machine Co. ("Wamar Tool") by exchanging 200,000 shares of Clarion common
stock for all the outstanding stock of Wamar Tool. Wamar Tool is a fully
equipped mold making and mold repair firm that serves the plastic injection
molding industry. The acquisition has been accounted for as a pooling of
interests and accordingly all prior period consolidated financial
statements have been restated to include the combined results of
operations, financial position and cash flows of Wamar Tool.
Net sales and net income of the separate companies for the period preceding
the acquisitions and the combined amounts presented in the accompanying
consolidated financial statements are presented below:
1998
-----------
Net sales:
Clarion Technologies, Inc. $ 3,401,000
Mito 4,978,000
Wamar Tool 1,587,000
-----------
Combined $ 9,966,000
===========
Net earnings (loss):
Clarion Technologies, Inc. $(4,397,000)
Mito (260,000)
Wamar Tool 79,000
-----------
Combined $(4,578,000)
===========
-31-
CLARION TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. BUSINESS COMBINATIONS (continued)
Divestiture:
On April 26, 1999 the Company sold substantially all the assets of its
Clarion Specialty Products subsidiary, for $107,000 and recorded a non-cash
book loss of approximately $222,000. The business had net sales of
$227,000 and a net loss of $357,000 in 1998. Net sales of $163,000 and a
net loss of $485,000 were included in the Company's results of operations
for 1999.
NOTE 3. SHORT-TERM AND LONG-TERM DEBT
At December 31, 1999 and 1998, short-term debt outstanding was $3,587,000
and $600,000, respectively, which consisted of bank lines of credit that
provided for secured borrowings of up to $3,600,000 and $1,125,000,
respectively. The weighted average interest rates for short-term debt
outstanding was 8.5% in 1999 and 8.75% in 1998. Short-term borrowings of
the Company are collateralized by all tangible and intangible assets.
Short-term debt of $3,500,000 at December 31, 1999 was consolidated into a
new credit facility on February 29, 2000 as described further in Note 9.
Accordingly, that short-term obligation has been excluded from the
Company's current liabilities.
Long-term debt consisted of the following:
DECEMBER 31,
-------------------------
1999 1998
----------- ----------
Line of credit refinanced (See Note 9) $ 3,500,000 $ -
Revolving credit agreements 5,575,000 -
Term debt 13,752,000 914,000
Promissory notes - 115,000
Capital lease obligations 840,000 260,000
----------- ----------
23,667,000 1,289,000
Less current portion 463,000 426,000
----------- ----------
$23,204,000 $ 863,000
=========== ==========
-32-
CLARION TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. SHORT-TERM AND LONG-TERM DEBT (continued)
The Company had several secured revolving credit agreements with a single
bank providing up to $7,150,000 in borrowings with expiration dates in
February and March of 2002. Interest rates varied depending on the
agreement, and ranged from the Bank's prime rate to prime rate plus 1.25%,
and LIBOR plus 2.25% to LIBOR plus 2.75%. Actual rates of interest in
effect at December 31, 1999 ranged from 8.5% to 9.5%. All of the Company's
revolving credit agreements were consolidated into a new credit facility on
February 29, 2000 as described further in Note 9.
Term debt consisted of mortgages and equipment loans at fixed and variable
interest rates, ranging from 5.5% to 9.75%, with required periodic
principal payments through 2006. Substantially all of the Company's term
debt was consolidated into a new credit facility on February 29, 2000 as
described further in Note 9.
Long-term borrowings of the Company are collateralized by all tangible and
intangible assets.
Maturities of long-term debt are as follows:
At December 31, 1999:
2000 $ 463,000
2001 215,000
2002 164,000
2003 22,762,000
2004 63,000
-----------
$23,667,000
===========
Credit agreements require the Company to comply with certain restrictive
covenants, which, among other things, include maintaining certain financial
ratios and a minimum level of tangible net worth. At December 31, 1999 the
Company was in compliance with these restrictive covenants, except for
covenants requiring minimum fixed charge and interest coverage ratios.
Waivers for these covenant violations were not obtained since the Company
entered into a new agreement with the lending bank to consolidate all
outstanding debt subject to the covenants into a new credit facility on
February 29, 2000, as described further in Note 9.
Interest paid on short-term and long-term debt was $1,134,000 and $163,000
in 1999 and 1998, respectively. Deferred financing costs are amortized
over the lives of the related debt agreements.
The carrying amount of the Company's debt instruments approximates fair
value. Fair value is estimated based on discounted cash flows, as well as
other valuation techniques.
-33-
CLARION TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. LEASES
The Company leases certain office and production facilities and equipment
under agreements expiring from 2000 to 2007. New equipment acquired under
capital lease obligations totaled $780,000 and $0 in 1999 and 1998,
respectively. Assets under capital leases were as follows:
DECEMBER 31,
-----------------------
1999 1998
---------- ---------
Equipment $1,244,000 $ 439,000
Less accumulated depreciation (330,000) (239,000)
---------- ---------
Net assets under capital leases $ 914,000 $ 200,000
========== =========
The following is a schedule of future minimum rental payments required
under capital and operating leases that have initial or remaining
noncancellable lease terms in excess of one year as of December 31, 1999:
Capital Operating
-------- ----------
At December 31, 1999:
2000 $313,000 $ 540,000
2001 228,000 503,000
2002 191,000 484,000
2003 191,000 479,000
2004 64,000 392,000
Thereafter - 728,000
-------- ----------
Total minimum lease payments 987,000 $3,126,000
==========
Amount representing interest 147,000
--------
Present value of minimum lease payments $840,000
========
Rent expense for all operating leases was $658,000 and $371,000 for the
years ended December 31, 1999 and 1998, respectively.
-34-
CLARION TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. INCOME TAXES
Losses before provisions for income taxes were derived entirely from
domestic operations. The following is a summary of the components of
income tax provisions:
YEAR ENDED DECEMBER 31,
------------------------
1999 1998
---------- ----------
Current:
Federal $ - $ (13,000)
State and local 126,000 -
Deferred:
Federal - (42,000)
---------- ----------
$ 126,000 $ (55,000)
========== ==========
The following table reconciles the U.S. statutory rate to the Company's
effective tax rate:
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998
---------- ----------
Statutory rate (34.0)% (34.0)%
State income tax 0.9 -
Other items, net (1.9) 1.3
Valuation allowances 35.9 31.5
---------- ----------
Effective tax rate 0.9 % (1.2)%
========== ==========
-35-
CLARION TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. INCOME TAXES (continued)
The primary components of the Company's deferred tax assets and liabilities
and the related valuation allowances were as follows:
DECEMBER 31,
------------------------
1999 1998
---------- ----------
Assets:
Net operating loss carryforwards $5,763,000 $2,019,000
Accounts receivable reserves 300,000 19,000
Inventory reserves 390,000 -
Employee benefits 919,000 34,000
Other accrued liabilities 437,000 -
Valuation allowances (6,958,000) (1,839,000)
---------- ----------
851,000 233,000
Liabilities:
Depreciation (1,048,000) (165,000)
---------- ----------
(1,048,000) (165,000)
---------- ----------
Net deferred tax asset (liability) $ (197,000) $ 68,000
========== ==========
At December 31, 1999, the Company had $16.5 million of available net
operating loss ("NOL") carryforwards for income tax purposes, which expire
2006 through 2019. The Company established valuation allowances in 1999
and 1998, primarily for NOL carryforwards, due to the uncertainty of future
profitability and changes in shareholder control. Federal tax laws
restrict or eliminate NOL carryforwards when certain changes of control
occur. A 50% change of control, which is calculated over a rolling three-
year period, may cause the Company to lose some or all of its NOL
carryforward benefits. Due to the significant number of equity
transactions that have occurred in recent years the Company believes there
have been changes in control, however, the Company also believes there are
currently no restrictions that would eliminate the future cash benefits
from utilizing its NOL carryforwards. As the Company executes it strategy
of growth through acquisitions, there are likely to be more transactions in
the future involving private or public sales of equity securities. The
Company cannot make any assurances that such transactions will not result
in the loss of NOL carryforward benefits in the future due to changes in
control.
The Company made income tax payments, net of refunds, of $95,000 in 1999
and had refunds, net of income tax payments, of $9,000 in 1998.
-36-
CLARION TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. EMPLOYEE BENEFIT AND STOCK OPTIONS PLANS
The Company maintains 401(k) retirement savings plans for the benefit of
substantially all full-time employees. Participant contributions are
matched by the Company based on applicable matching formulas. The
Company's matching expense for the plan was $66,000 and $42,000 in 1999 and
1998, respectively.
The Company has two stock option plans covering 1,750,000 shares of Clarion
common stock. The plans permit options to be granted to officers,
directors and other key employees. Options granted may either be incentive
stock options or nonqualified stock options. Incentive stock options
awarded under the plans may not be granted at a price less than the fair
market value on the date of grant. Nonqualified options awarded under the
plans may not be granted at a price less than eighty-five percent (85%) of
the fair market value on the date of grant. Conditions of vesting are
determined at the time of grant. The maximum option term may not exceed
ten years from the date of grant.
At December 31, 1999, 1,180,000 shares were available for future grants
under the Company's two stock option plans. The following table summarizes
stock option activity since December 31, 1997:
Weighted
Average
Exercise
Shares Prices
---------- --------
Outstanding at December 31, 1997 670,000 $1.95
Granted 3,099,500 1.02
Exercised (3,242,704) .96
----------
Outstanding at December 31, 1998 526,796 2.56
Granted 1,735,000 3.28
Exercised (105,000) 1.00
Expired or canceled (151,796) 1.13
----------
Outstanding at December 31, 1999 2,005,000 3.38
==========
-37-
CLARION TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. EMPLOYEE BENEFIT AND STOCK OPTIONS PLANS (continued)
The following table summarizes information about outstanding and
exercisable options at December 31, 1999:
Outstanding Exercisable
------------------------------------------------- -------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Contractual Exercise Exercise
Prices Shares Life in Years Prices Shares Prices
-------------- --------- ------------- -------- -------- --------
$1.00 - $ 2.00 610,000 3.8 $ 1.18 562,000 $ 1.11
3.25 - 3.75 890,000 3.2 3.31 590,000 3.33
5.00 - 6.88 430,000 2.9 5.30 325,000 5.03
9.00 - 12.00 75,000 2.7 11.00 - -
--------- ---------
2,005,000 3.3 3.38 1,477,000 2.86
========= =========
The Company accounts for its stock option plans in accordance with the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," ("APB 25") and related interpretations.
Accordingly, compensation expense is recorded on the date of grant only if
the current market price of the underlying stock exceeds the exercise
price. During 1999, the Company recorded non-cash compensation expense of
$1,125,000 in accordance with APB 25. If compensation costs had been
computed under the provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company would have recognized additional after-tax
expense of $2,888,000 in 1999 and $0 in 1998. The loss per share (basic
and diluted) in 1999 and 1998 would have increased by $.17 and $0,
respectively.
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes model with the following assumptions:
1999 1998
------------- -----------
Dividend yield 0% 0%
Volatility 62% 20%
Risk-free interest rates 4.57% - 5.78% 5.0%
Expected life of options 3 - 5 years 1 - 4 years
Black-Scholes is a widely accepted stock option pricing model, however, the
ultimate value of stock options granted will be determined by the actual
length of time options are held and the future price levels of the
Company's common stock.
-38-
CLARION TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. SHAREHOLDERS' EQUITY
During 1998, the Company sold, pursuant to various private offerings,
3,556,000 shares of its common stock at prices ranging from $1.00 per share
to $2.00 per share. The proceeds from these offerings were used to fund
general working capital needs and capital expenditures.
During 1999, the Company's shareholders approved a change of the par value
of the Company's Common Stock from $0.01 par value to $0.001 par value.
Also, the shareholders approved an increase in the number of authorized
common shares from 20 million to 40 million.
During 1999, the Company sold, pursuant to various private offering,
3,125,953 shares of its common stock at prices ranging from $2.00 per share
to $3.50 per share. The proceeds of these offerings were used to fund
general working capital needs and capital expenditures. The Company also
issued to certain individuals and vendors, as payment for services
rendered, 369,658 shares of Clarion common stock at agreed upon prices
ranging from $2.00 per share to $4.84 per share.
As described in Note 2, the Company issued 850,000 shares of Clarion common
stock in connection with the acquisition of Double J. Of the 850,000
Clarion shares issued for the acquisition, 425,000 shares ("Put Shares")
are subject to the terms of stock put agreements ("Put Agreements") which
require the Company to purchase some or all of the Put Shares from the
holders at a price of $6.00 per share. The maximum potential repurchase
obligation of the Company is $2,550,000. The outstanding put options
expire on November 15, 2000 and are exercisable between October 1, 2000 and
November 14, 2000. The Put Shares have been reclassified on the December
31, 1999 balance sheet to a temporary equity account entitled "Value of
Shares Subject to Redemption." Concurrent with the issuance of these stock
put options, the Company entered into a stock put agreement with a member
of the Board of Directors which requires that Director to purchase a number
of shares of Clarion common stock equal to the product of: (i) the
aggregate purchase price paid by Clarion for the Put Shares, divided by the
lesser of (ii) the closing price of the common stock quoted on NASDAQ on
the date Clarion receives notice of its obligation to perform under the Put
Agreements, or (iii) $6.00. The Company's put option expires on November
25, 2000 and is exercisable between October 1, 2000 and November 14, 2000.
In exchange for that put agreement, the Director received 200,000 warrants
to purchase Clarion common stock at an exercise price of $5.00 per share.
The warrants expire on September 30, 2002.
-39-
CLARION TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. SHAREHOLDERS' EQUITY (continued)
During 1999, the Company authorized 3,000,000 shares of convertible
cumulative preferred stock with a par value of $0.001 per share. In
conjunction with the Wamar Products acquisition, and to fund general
working capital needs, the Company issued 1,490,000 shares of preferred
stock at a private offering price of $7.99 per share. The Company issued
an additional 468,750 shares of preferred stock at a private offering price
of $7.99 per share in December 1999. Annual cumulative dividends of $1.12
per share accruing from the date of issuance are payable in cash quarterly
commencing on September 30, 1999. The preferred stock is convertible at
the option of the holder at any time, unless previously redeemed, into
shares of common stock of the Company at an initial conversion rate of 2
shares of common stock for each share of preferred stock, subject to
adjustment in certain events. After December 31, 2000, the conversion rate
is subject to adjustment in accordance with a pre-defined formula. The
Company may at any time redeem all or any portion of the convertible
preferred stock for $10 per share plus all accrued and unpaid dividends
thereon. Holders of the convertible preferred stock have voting rights and
preference over common stockholders in dividends and liquidation rights.
NOTE 8. GEOGRAPHIC AND SEGMENT DATA
The Company operates in a single geographic location, North America, and in
a single reportable business segment, plastic injection molding.
NOTE 9. SUBSEQUENT EVENTS
Effective February 1, 2000, the Company acquired substantially all the
assets of Drake Products Corporation, a full-service plastic injection
molding firm based in Greenville, Michigan. Consideration for the
acquisition included 2 million shares of Clarion common stock,
approximately $25 million in cash, a $5 million subordinated promissory
note and the assumption of approximately $6.5 million of liabilities. To
fund the cash portion of the transaction, the Company entered into a
$26,000,000 term loan agreement with a variable interest rate of LIBOR plus
3.50% or prime rate plus 1.00%, at the option of the Company. The loan
requires monthly principal payments of $250,000 through February 2001,
$333,333 through February 2002, and $416,667 through January 2003, plus
interest. A final principal payment of $14.4 million plus interest is due
in February 2003. Borrowings are collateralized by all tangible and
intangible assets. In a related transaction, the Company also acquired the
real property used by Drake for $2,200,000 in cash and the issuance of a
$1,000,000 promissory note.
-40-
CLARION TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. SUBSEQUENT EVENTS (continued)
On February 29, 2000, the Company entered into a new revolving credit
agreement that provides for up to $15.0 million in borrowings through
February 2003. The Company borrowed $11.8 million under the new credit
facility and used the proceeds to pay existing bank debt. At the option of
the Company, interest is payable based on LIBOR plus 3.50% or the bank's
prime rate plus 1.00%. In February 2001, interest will be variable based
on the Company's leverage ratio and will range between LIBOR plus 1.75% to
3.00% or prime rate, to prime rate plus 1.00%, at the option of the
Company. In addition, a commitment fee is payable on the unused portion of
the credit line. At February 29, 2000, the Company did not have any unused
borrowing capacity under the credit agreement's most restrictive debt
covenant. Borrowings are collateralized by all tangible and intangible
assets.
Concurrent with the revolving credit agreement, the Company entered into a
$12.0 million term loan agreement that requires a lump sum payment of
principal and interest in February 2003. Proceeds were used to pay
existing bank debt. At the option of the Company, interest is payable
based on LIBOR plus 1.00% or the bank's prime rate. Borrowings are
collateralized by all tangible and intangible assets, in addition to
certain personal guarantees. Two members of Clarion's Board of Directors
and a Clarion executive officer have guaranteed $3 million of the term debt
by each providing $1 million in standby letters of credit. Two other
individuals not related to the Company have guaranteed the remaining $9
million; one by providing a standby letter of credit for $3 million, the
other by making a $6 million cash deposit with the lending bank. The
Company has agreed to pay, on behalf of the guarantors providing standby
letters of credit, the 1% annual fees due under the letters of credit plus
1% per month on the guaranteed amount. The Company is paying the guarantor
providing the cash deposit a 2% fee per month.
-41-
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Information required to be furnished by Items 401 and 405 of Regulation S-B
is included in the Company's definitive Proxy Statement for its 2000 annual
meeting of shareholders filed with the Commission (the "2000 Proxy
Statement") and is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION.
Information required to be furnished by Item 402 of Regulation S-B is
included in the Company's 2000 Proxy Statement and is incorporated herein
by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information required to be furnished by Item 403 of Regulation S-B is
included in the Company's 2000 Proxy Statement and is incorporated herein
by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information required to be furnished by Item 404 of Regulation S-B is
included in the Company's 2000 Proxy Statement and is incorporated herein
by reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) See Exhibit Index located on page 45.
(b) The Company filed the following three reports on Form 8-K during
the three months ended December 31, 1999:
October 13, 1999; pursuant to Item 2, the Company reported the
acquisition of all the outstanding stock of Double "J" Molding,
Inc.
-42-
November 15, 1999; pursuant to Item 7, the Company amended its
current report previously filed related to the acquisitions of
Wamar Products, Inc. and Wamar Tool & Machine Co. The amended
report included audited financial statements for both of the
acquired companies and proforma financial information.
December 13, 1999; pursuant to Item 7, the Company amended its
current report previously filed related to the acquisition of
Double "J" Molding, Inc. The amended report included audited
financial statements for Double "J" Molding, Inc. and proforma
financial information.
-43-
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
CLARION TECHNOLOGIES, INC.
Date: March 14, 2000 /s/ Jack Rutherford
-----------------------------------------
Jack D. Rutherford, Chairman of the Board
In accordance with the Securities Exchange Act of 1934, this report has
been signed below on this 14th day of March 2000, by the following persons
on behalf of the Registrant and in the capacities indicated. Each Director
of the Registrant whose signature appears below hereby appoints David W.
Selvius as his attorney-in-fact to sign in his name and on his behalf, and
to file with the Commission any and all amendments to this report on Form
10-K to the same extent and with the same effect as if done personally.
/s/ William Beckman /s/ David W. Selvius
- ---------------------------------- -----------------------------------
William Beckman, President David W. Selvius, Chief Financial
(Principal Executive Officer) Officer and Secretary (Principal
Financial and Accounting Officer)
/s/ Jack D. Rutherford /s/ Harrington Bischof
- ---------------------------------- -----------------------------------
Jack D. Rutherford, Director Harrington Bischof, Director
/s/ Bryan C. Cressey
- ---------------------------------- -----------------------------------
Bryan C. Cressey, Director Terence M. Graunke, Director
/s/ Fred Sotok /s/ Frank T. Steck
- ---------------------------------- -----------------------------------
Fred Sotok, Director Frank T. Steck, Director
/s/ Craig Wierda /s/ Troy D. Wiseman
- ---------------------------------- -----------------------------------
Craig Wierda, Director Troy D. Wiseman, Director
-44-
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ------- --------------------------------------------------------- ------
2(a) Agreement of Merger (Reincorporation in Delaware) dated n/a
June 5, 1998, by and between Clarion House, Inc., a
Nevada corporation and Clarion Technologies, Inc., a
Delaware corporation (filed as exhibit to Form 8-K dated
October 20, 1998 (Commission File No. 0-24690) and
incorporated herein by reference)
2(b) Agreement and Plan of Reorganization by and between n/a
Clarion Technologies, Inc., R. Townley Rose, Jr. and
Rose & Associates, Inc., dated June 3, 1998 (filed as
exhibit to Form 10-KSB for the year ended December 31,
1998 (Commission File No. 0-24690) and incorporated
herein by reference)
2(c) Agreement by and between Clarion Technologies, Inc. and n/a
R. Townley Rose, Jr., dated March 31, 1999 (filed as
exhibit to Form 10-KSB for the year ended December 31,
1998 (Commission File No. 0-24690) and incorporated
herein by reference)
2(d) Stock Purchase Agreement dated March 26, 1999 between n/a
Clarion Technologies, Inc. and Michael Muller and Thomas
Boerema (filed as exhibit to Form 8-K dated May 13, 1999
(Commission File No. 0-24690) and incorporated herein by
reference)
2(e) Stock Purchase Agreement dated June 29, 1999 and First n/a
Amendment to Stock Purchase Agreement between Clarion
Plastics Technologies, Inc. and the shareholders of
Wamar Products, Inc. (filed as exhibit to Form 8-K dated
September 14, 1999 (Commission File No. 0-24690) and
incorporated herein by reference)
2(f) Stock Purchase Agreement dated June 29, 1999 and First n/a
Amendment to Stock Purchase Agreement between Clarion
Plastics Technologies, Inc. and the shareholder of Wamar
Tool & Machine Inc. (filed as exhibit to Form 8-K dated
September 14, 1999 (Commission File No. 0-24690) and
incorporated herein by reference)
2(g) Merger and Plan of Reorganization dated April 23, 1999 n/a
by and among Clarion Technologies, Inc., Newco, Inc.,
William Maatman, Edward Rycenga, and Larry Pratt
regarding the stock of Double "J" Molding, Inc. (filed
as exhibit to Form 8-K dated October 12, 1999
(Commission File No. 0-24690) and incorporated herein
by reference)
-45-
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ------- --------------------------------------------------------- ------
2(h) Asset Purchase Agreement dated January 27, 2000 by and n/a
among Clarion Technologies, Inc., Clarion-Drake
Acquisition, Inc., and Drake Products Corporation,
Jeffrey W. Anonick, and Michael C. Miller (filed as
exhibit to Form 8-K dated March 15, 2000 (Commission
File No. 0-24690) and incorporated herein by reference)
3(a) Certificate of Incorporation (filed as exhibit to Form n/a
8-K dated October 20, 1998 (Commission File No. 0-24690)
and incorporated herein by reference)
3(b) Certificate of Amendment of Certificate of Incorporation 48
amending Article IV
3(c) Bylaws of the Company (filed as exhibit to Form 8-K n/a
dated October 27, 1998 (Commission File No. 0-24690) and
incorporated herein by reference)
4(a) Specimen of Common Stock Certificate (filed as exhibit n/a
to Form 10-SB dated August 12, 1994 (Commission File No.
0-24690) and incorporated herein by reference)
4(b) Certificate of Designations of Clarion Technologies, 50
Inc. designating 2,500,000 shares of preferred stock as
convertible preferred stock
10(a) Credit Agreement dated February 29, 2000 by and among 66
Clarion Technologies, Inc. and its subsidiaries, LaSalle
Bank National Association, and Bank One Michigan
The following material contracts identified with "*" preceding the exhibit
number are agreements or compensation plans with or relating to executive
officers, directors or related parties.
*10(b) Clarion House, Inc. 1998 Stock Option Plan (filed as n/a
exhibit to Form 10-KSB for the year ended December 31,
1998 (Commission File No. 0-24690) and incorporated
herein by reference)
*10(c) Clarion Technologies, Inc. 1999 Stock Incentive Plan 180
*10(d) Employment Agreement, dated April 1, 1998, between the n/a
Company and R. Townley Rose, Jr. (filed as exhibit to
Form 10-KSB for the year ended December 31, 1998
(Commission File No. 0-24690) and incorporated herein by
reference)
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EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ------- --------------------------------------------------------- ------
*10(e) Amendment No. 1 to Employment Agreement, dated March 31, n/a
1999, between the Company and R. Townley Rose, Jr.
(filed as exhibit to Form 10-KSB for the year ended
December 31, 1998 (Commission File No. 0-24690) and
incorporated herein by reference)
*10(f) Amendment No. 2 to Employment Agreement dated May 14, n/a
1999 between the Company and R. Townley Rose, Jr. (filed
as exhibit to Form 10-QSB for the quarter ended September
30, 1999 (Commission File No. 0-24690) and incorporated
herein by reference)
*10(g) Settlement Agreement and Mutual Release dated August 23, n/a
1999 between the Company and R. Townley Rose, Jr. (filed
as exhibit to Form 10-QSB for the quarter ended September
30, 1999 (Commission File No. 0-24690) and incorporated
herein by reference)
*10(h) Employment Agreement, dated October 29, 1998, between n/a
the Company and Robert W. Martin (filed as exhibit to
Form 10-KSB for the year ended December 31, 1998
(Commission File No. 0-24690) and incorporated herein by
reference)
*10(i) Employment Agreement, dated January 1, 1999, between the n/a
Company and Jack D. Rutherford (filed as exhibit to Form
10-KSB for the year ended December 31, 1998 (Commission
File No. 0-24690) and incorporated herein by reference)
*10(j) Employment Agreement, dated March 1, 1999, between 197
Clarion Plastics Technologies, Inc., Clarion
Technologies, Inc. and William Beckman
21 Subsidiaries of the Registrant 208
27 Financial Data Schedule n/a
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<PAGE>
<EX-3>
EXHIBIT 3(b)
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
CLARION TECHNOLOGIES, INC.
Clarion Technologies, Inc., a corporation duly organized and existing
under the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify that:
I. The amendment to the Corporation's Certificate of Incorporation
set forth below was duly adopted in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware by
written consent of the Board of Directors and consented to in writing by
the majority stockholders of the Corporation, in accordance with Section
228 of the General Corporation Law of the State of Delaware.
II. Article IV of the Corporation's Certificate of Incorporation is
amended to read in its entirety as follows:
"ARTICLE IV
Authorized Capital Stock
This corporation is authorized to issue two classes of shares
designated respectively "Common Stock" and "Preferred Stock" and
referred to herein as Common Stock or Common Shares and Preferred
Stock or Preferred Shares, respectively. The total number of
shares of Common Stock this corporation is authorized to issue is
40,000,000 and each such share shall have a par value of $.001,
and the total number of shares of Preferred Stock this corporation
is authorized to issue is 3,000,000 and each such share shall have
a par value of $.001. The Preferred Shares may be issued from
time to time in one or more series. The Board of Directors is
authorized to fix the number of shares of any series of Preferred
Shares and to determine the designation of any such series.
The Board of Directors is also authorized to determine or alter
the rights, preferences, privileges and restrictions granted to or
imposed upon any wholly unissued series of Preferred Shares and,
within the limits and restrictions stated in any resolution or
resolutions of the Board of Directors originally fixing the number
of shares constituting any series, to increase or decrease (but
not below the number of shares of any such series then
outstanding) the number of shares of any series subsequent to the
issue of shares of that series."
-48-
IN WITNESS WHEREOF, the undersigned hereby duly executes this
Certificate of Amendment hereby declaring and certifying under penalty of
perjury that this is the act and deed of the Corporation and the facts
herein stated are true, this 10th day of February, 2000.
CLARION TECHNOLOGIES, INC.
By: /s/ David W. Selvius
-----------------------------------------
David W. Selvius, Chief Financial Officer
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<PAGE>
<EX-4>
EXHIBIT 4(b)
CERTIFICATE OF DESIGNATIONS
OF
CLARION TECHNOLOGIES, INC.
A Delaware Corporation
The undersigned, William Beckman and David W. Selvius, hereby certify
that:
1. They are the duly elected and acting President and Secretary,
respectively, of Clarion Technologies, Inc., a Delaware corporation (the
"Corporation").
2. The Corporation, in its Certificate of Incorporation, has
authorized 3,000,000 shares of preferred stock. By resolution, the Board
of Directors of the Corporation has designated 2,500,000 shares of
preferred stock authorized by the Certificate of Incorporation as
Convertible Preferred Stock. No shares of Convertible Preferred Stock have
been issued.
3. Pursuant to authority given by the Corporation's Certificate of
Incorporation, the Board of Directors of the Corporation has duly adopted
substantially the following recital and resolution:
WHEREAS, Article IV of the Certificate of Incorporation of
the Corporation authorizes this Corporation to issue 3,000,000 shares of
preferred stock, $.001 par value per share, issuable from time to time in
one or more series (the "Preferred Stock").
RESOLVED, the Board of Directors hereby determines that it
is in the best interests of this Corporation to designate 2,500,000 shares
of Convertible Preferred Stock upon the following terms and conditions:
Section 1. Dividends.
1A. General Obligation. When and as declared by the
Corporation's Board of Directors and to the extent permitted under the
General Corporation Law of Delaware, the Corporation shall pay preferential
dividends in cash to the holders of the Convertible Preferred Stock (the
"Convertible Preferred") as provided in this Section 1. Dividends on each
share of the Convertible Preferred (a "Share") shall accrue on a daily
basis at the rate of 14% per annum of the sum of the Liquidation Value
thereof plus all accumulated and unpaid dividends thereon from and
including the date of issuance of such Share to and including the first to
occur of (i) the date on which the Liquidation Value of such Share (plus
all accrued and unpaid dividends thereon) is paid to the holder thereof in
connection with the liquidation of the Corporation or the redemption of
such Share by the Corporation, (ii) the date on which such Share is
converted into shares of Conversion Stock hereunder or (iii) the date on
which such share is otherwise acquired by the Corporation. Such dividends
shall accrue whether or not they have been declared and whether or not
there are profits, surplus or other funds of the Corporation legally
-50-
available for the payment of dividends, and such dividends shall be
cumulative such that all accrued and unpaid dividends shall be fully paid
or declared with funds irrevocably set apart for payment before any
dividends, distributions, redemptions or other payments may be made with
respect to any Junior Securities. The date on which the Corporation
initially issues any Share shall be deemed to be its "date of issuance"
regardless of the number of times transfer of such Share is made on the
stock records maintained by or for the Corporation and regardless of the
number of certificates which may be issued to evidence such Share.
1B. Dividend Reference Dates. To the extent not paid on March
31, June 30, September 30 and December 31 of each year, beginning September
30, 1999 (the "Dividend Reference Dates"), all dividends which have accrued
on each Share outstanding during the three-month period (or other period in
the case of the initial Dividend Reference Date) ending upon each such
Dividend Reference Date shall be accumulated and shall remain accumulated
dividends with respect to such Share until paid to the holder thereof.
1C. Distribution of Partial Dividend Payments. Except as
otherwise provided herein, if at any time the Corporation pays less than
the total amount of dividends then accrued with respect to the Convertible
Preferred, such payment shall be distributed pro rata among the holders
thereof based upon the aggregate accrued but unpaid dividends on the Shares
held by each such holder.
1D. Participating Dividends. In the event that the Corporation
declares or pays any dividends upon the Common Stock (whether payable in
cash, securities or other property) other than dividends payable solely in
shares of Common Stock, the Corporation shall also declare and pay to the
holders of the Convertible Preferred at the same time that it declares and
pays such dividends to the holders of the Common Stock, the dividends which
would have been declared and paid with respect to the Common Stock issuable
upon conversion of the Convertible Preferred had all of the outstanding
Convertible Preferred been converted immediately prior to the record date
for such dividend, or if no record date is fixed, the date as of which the
record holders of Common Stock entitled to such dividends are to be
determined.
Section 2. Liquidation.
Upon any liquidation, dissolution or winding up of the
Corporation (whether voluntary or involuntary), each holder of Convertible
Preferred shall be entitled to be paid, before any distribution or payment
is made upon any Junior Securities, an amount in cash equal to the greater
of (i) aggregate Redemption Price of all Shares held by such holder (plus
all accrued and unpaid dividends thereon), and (ii) the amount which would
be distributable to such holder if such holder, along with all other
holders of Convertible Preferred, converted all Shares of Convertible
Preferred into Common Stock in accordance with paragraph 6A immediately
prior to such liquidation, dissolution or winding up, and the holders of
-51-
Convertible Preferred shall not be entitled to any further payment. If
upon any such liquidation, dissolution or winding up of the Corporation the
Corporation's assets to be distributed among the holders of the Convertible
Preferred are insufficient to permit payment to such holders of the
aggregate amount which they are entitled to be paid under this Section 2,
then the entire assets available to be distributed to the Corporation's
stockholders shall be distributed pro rata among such holders based upon
the aggregate Redemption Price (plus all accrued and unpaid dividends) of
the Convertible Preferred held by each such holder. Not less than 30 days
prior to the payment date stated therein, the Corporation shall mail
written notice of any such liquidation, dissolution or winding up to each
record holder of Convertible Preferred, setting forth in reasonable detail
the amount of proceeds to be paid with respect to each Share and each share
of Common Stock in connection with such liquidation, dissolution or winding
up. Neither the consolidation or merger of the Corporation into or with
any other entity or entities (whether or not the Corporation is the
surviving entity), nor the sale or transfer by the Corporation of all or
any part of its assets, nor the reduction of the capital stock of the
Corporation nor any other form of recapitalization or reorganization
affecting the Corporation shall be deemed to be a liquidation, dissolution
or winding up of the Corporation within the meaning of this Section 2.
Nothing herein shall limit or restrict each holder of Convertible
Preferred's right to convert such holder's Shares into Common Stock
pursuant to paragraph 6A prior to any such event.
Section 3. Priority of Convertible Preferred on Dividends and
Redemptions.
So long as any Convertible Preferred remains outstanding, without
the prior written consent of the holders of a majority of the outstanding
shares of Convertible Preferred, the Corporation shall not, nor shall it
permit any Subsidiary to, redeem, purchase or otherwise acquire directly or
indirectly any Junior Securities, nor shall the Corporation directly or
indirectly pay or declare any dividend or make any distribution upon any
Junior Securities; provided that the Corporation may repurchase shares of
Common Stock from present or former employees of the Corporation and its
Subsidiaries so long as no Event of Noncompliance is in existence at the
time of or immediately after such repurchase or would be caused by such
repurchase.
Section 4. Redemptions.
4A. Optional Redemptions. The Corporation may at any time and
from time to time redeem all or any portion of the Shares of Convertible
Preferred then outstanding. Upon any such redemption, the Corporation
shall pay a price per Share equal to the Redemption Price thereof (plus all
accrued and unpaid dividends thereon). The Corporation shall use its
reasonable best efforts to redeem the Convertible Preferred as soon as
possible consistent with prudent business judgment.
-52-
4B. Redemption With Equity Proceeds. The Corporation shall
apply all net cash proceeds from any issuances of equity securities to the
extent such net proceeds exceed $20,000,000 in the aggregate following the
first issuance of Convertible Preferred remaining after deduction of all
discounts, underwriters' commissions and other reasonable expenses to
redeem Shares of Convertible Preferred at a price per Share equal to the
Redemption Price thereof (plus all accrued and unpaid dividends thereon).
Such redemption shall take place on a date fixed by the Corporation by
written notice to the holders of Convertible Preferred not less than 30
days prior to the effective date of such redemption, which date shall be
not more than ten days after the Corporation's receipt of such proceeds.
4C. Redemption Payments. For each Share which is to be redeemed
hereunder, the Corporation shall be obligated on the Redemption Date to pay
to the holder thereof (upon surrender by such holder at the Corporation's
principal office of the certificate representing such Share) an amount in
cash equal to the Redemption Price of such Share (plus all accrued and
unpaid dividends thereon. If the funds of the Corporation legally
available for redemption of Shares on any Redemption Date are insufficient
to redeem the total number of Shares to be redeemed on such date, those
funds which are legally available shall be used to redeem the maximum
possible number of Shares pro rata among the holders of the Shares to be
redeemed based upon the aggregate Redemption Price of such Shares held by
each such holder (plus all accrued and unpaid dividends thereon). At any
time thereafter when additional funds of the Corporation are legally
available for the redemption of Shares, such funds shall immediately be
used to redeem the balance of the Shares which the Corporation has become
obligated to redeem on any Redemption Date but which it has not redeemed.
4D. Notice of Redemption. Except as otherwise provided herein,
the Corporation shall mail written notice of each redemption of any
Convertible Preferred (other than a redemption at the request of a holder
or holders of Convertible Preferred) to each record holder thereof not more
than 60 nor less than 30 days prior to the date on which such redemption is
to be made. Upon mailing any notice of redemption which relates to a
redemption at the Corporation's option, the Corporation shall become
obligated to redeem the total number of Shares specified in such notice at
the time of redemption specified therein. In case fewer than the total
number of Shares represented by any certificate are redeemed, a new
certificate representing the number of unredeemed Shares shall be issued to
the holder thereof without cost to such holder within five business days
after surrender of the certificate representing the redeemed Shares.
4E. Determination of the Number of Each Holder's Shares to be
Redeemed. Subject to the rights of the holders of Convertible Preferred
set forth in paragraph 4I below, the number of Shares of Convertible
Preferred to be redeemed from each holder thereof in redemptions by the
Corporation under this Section 4 shall be the number of Shares determined
by multiplying the total number of Shares of Convertible Preferred to be
-53-
redeemed times a fraction, the numerator of which shall be the total number
of Shares and Offset Shares (as defined below) then held by such holder and
the denominator of which shall be the total number of Shares and Offset
Shares then outstanding. If the application of this paragraph 4E has
caused the number of Shares to be redeemed from any holder to exceed the
number of Shares then held by such holder, such holder shall be deemed
(solely for purposes of this paragraph) to have applied a number of Offset
Shares equal to such excess to reduce the number of Shares to be redeemed
from such holder.
4F. Dividends After Redemption Date. No Share shall be entitled
to any dividends accruing after the date on which the Redemption Price of
such Share (plus all accrued and unpaid dividends thereon) is paid to the
holder of such Share. On such date, all rights of the holder of such Share
shall cease, and such Share shall no longer be deemed to be issued and
outstanding.
4G. Redeemed or Otherwise Acquired Shares. Any Shares which are
redeemed or otherwise acquired by the Corporation shall be canceled and
retired to authorized but unissued shares and shall not be reissued, sold
or transferred.
4H. Other Redemptions or Acquisitions. The Corporation shall
not, nor shall it permit any Subsidiary to, redeem or otherwise acquire any
Shares of Convertible Preferred, except as expressly authorized herein or
pursuant to a purchase offer made pro rata to all holders of Convertible
Preferred on the basis of the number of Shares owned by each such holder.
4I. Right of Offset.
(i) Upon the receipt of any notice of redemption under this
Section 4, any holder of Convertible Preferred shall have the right
(exercisable by notifying the Corporation in writing prior to the date
specified for redemption in the redemption notice) to reduce the number of
Shares to be redeemed from such holder at such time by a number of Shares
not exceeding the number of Offset Shares (as defined below) held by such
holder at the time of such redemption. If any holder of Convertible
Preferred has converted Shares of Convertible Preferred after receipt of
any notice of redemption under this Section 4 but on or prior to the
Redemption Date for such redemption, such holder shall be deemed to have
elected (and shall not be required to deliver notice of such election) to
reduce the number of Shares to be redeemed from such holder in such
redemption by the number of Shares so converted.
(ii) A holder of Convertible Preferred shall be deemed to
hold one Offset Share for each Share converted by such holder pursuant to
Section 6 hereof at any time prior to such Share's Scheduled Redemption
Date and for each Share otherwise acquired by the Corporation from such
holder other than in a Scheduled Redemption, and an Offset Share shall
-54-
cease to be an Offset Share when it has been applied to reduce the number
of Shares to be redeemed in any redemption. When any holder transfers any
portion of such holder's outstanding Shares to any other Person, the
transferor shall be deemed to have transferred to the transferee a pro rata
portion of the transferor's Offset Shares based upon the number of Shares
transferred to such holder, unless the parties to such transaction
otherwise agree in a writing delivered to the secretary of the Corporation
in connection with such transfer.
4J. Special Redemptions. If a Change in Ownership has occurred
or the Corporation obtains knowledge that a Change in Ownership is proposed
to occur, the Corporation shall give prompt written notice of such Change
in Ownership describing in reasonable detail the material terms and date of
consummation thereof to each holder of Convertible Preferred, but in any
event such notice shall not be given later than five days after the
occurrence of such Change in Ownership, and the Corporation shall give each
holder of Convertible Preferred prompt written notice of any material
change in the terms or timing of such transaction. Any holder of
Convertible Preferred may require the Corporation to redeem all or any
portion of the Convertible Preferred owned by such holder at a price per
Share equal to the Redemption Price thereof (plus all accrued and unpaid
dividends thereon) by giving written notice to the Corporation of such
election prior to the later of (a) 21 days after receipt of the
Corporation's notice and (b) five days prior to the consummation of the
Change in Ownership (the "Expiration Date"). The Corporation shall give
prompt written notice of any such election to all other holders of
Convertible Preferred within five days after the receipt thereof, and each
such holder shall have until the later of (a) the Expiration Date or (b)
ten days after receipt of such second notice to request redemption
hereunder (by giving written notice to the Corporation) of all or any
portion of the Convertible Preferred owned by such holder.
Upon receipt of such election(s), the Corporation shall be
obligated to redeem the aggregate number of Shares specified therein on the
later of (a) the occurrence of the Change in Ownership or (b) five days
after the Corporation's receipt of such election(s). If any proposed
Change in Ownership does not occur, all requests for redemption in
connection therewith shall be automatically rescinded, or if there has been
a material change in the terms or the timing of the transaction, any holder
of Convertible Preferred may rescind such holder's request for redemption
by giving written notice of such rescission to the Corporation.
The term "Change in Ownership" means any sale, transfer or
issuance or series of sales, transfers and/or issuances of Common Stock by
the Corporation or any holders thereof which results in any Person or group
of Persons (as the term "group" is used under the Securities Exchange Act
of 1934), other than the holders of Common Stock and Convertible Preferred
as of the date of the Purchase Agreement, owning more than 50% of the
Common Stock outstanding at the time of such sale, transfer or issuance or
series of sales, transfers and/or issuances.
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(i) If a Fundamental Change is proposed to occur, the
Corporation shall give written notice of such Fundamental Change describing
in reasonable detail the material terms and date of consummation thereof to
each holder of Convertible Preferred not more than 45 days nor less than 20
days prior to the consummation of such Fundamental Change, and the
Corporation shall give each holder of Convertible Preferred prompt written
notice of any material change in the terms or timing of such transaction.
Any holder of Convertible Preferred may require the Corporation to redeem
all or any portion of the Convertible Preferred owned by such holder at a
price per Share equal to the Redemption Price thereof (plus all accrued and
unpaid dividends thereon) by giving written notice to the Corporation of
such election prior to the later of (a) ten days prior to the consummation
of the Fundamental Change or (b) ten days after receipt of notice from the
Corporation. The Corporation shall give prompt written notice of such
election to all other holders of Convertible Preferred (but in any event
within five days prior to the consummation of the Fundamental Change), and
each such holder shall have until two days after the receipt of such notice
to request redemption (by written notice given to the Corporation) of all
or any portion of the Convertible Preferred owned by such holder.
Upon receipt of such election(s), the Corporation shall be
obligated to redeem the aggregate number of Shares specified therein upon
the consummation of such Fundamental Change. If any proposed Fundamental
Change does not occur, all requests for redemption in connection therewith
shall be automatically rescinded, or if there has been a material change in
the terms or the timing of the transaction, any holder of Convertible
Preferred may rescind such holder's request for redemption by delivering
written notice thereof to the Corporation prior to the consummation of the
transaction.
The term "Fundamental Change" means (a) any sale or transfer of
more than 50% of the assets of the Corporation and its Subsidiaries on a
consolidated basis (measured either by book value in accordance with
generally accepted accounting principles consistently applied or by fair
market value determined in the reasonable good faith judgment of the
Corporation's Board of Directors) in any transaction or series of
transactions (other than sales in the ordinary course of business) and
(b) any merger or consolidation to which the Corporation is a party, except
for a merger in which the Corporation is the surviving corporation, the
terms of the Convertible Preferred are not changed and the Convertible
Preferred is not exchanged for cash, securities or other property, and
after giving effect to such merger, the holders of the Corporation's
outstanding capital stock possessing a majority of the voting power (under
ordinary circumstances) to elect a majority of the Corporation's Board of
Directors immediately prior to the merger shall continue to own the
Corporation's outstanding capital stock possessing the voting power (under
ordinary circumstances) to elect a majority of the Corporation's Board of
Directors.
-56-
Section 5. Voting Rights. The holders of the Convertible
Preferred shall be entitled to notice of all stockholders meetings in
accordance with the Corporation's bylaws, and the holders of the
Convertible Preferred shall be entitled to vote on all matters submitted to
the stockholders for a vote together with the holders of the Common Stock
voting together as a single class with each share of Common Stock entitled
to one vote per share and each Share of Convertible Preferred entitled to
one vote for each share of Common Stock issuable upon conversion of the
Convertible Preferred as of the record date for such vote or, if no record
date is specified, as of the date of such vote.
Section 6. Conversion.
6A.Conversion Procedure.
(i) At any time and from time to time, any holder of Convertible
Preferred may convert all or any portion of the Convertible Preferred
(including any fraction of a Share) held by such holder into a number of
shares of Conversion Stock computed by multiplying the number of Shares to
be converted by $8.00 and dividing the result by the Conversion Price then
in effect.
(ii) Except as otherwise provided herein, each conversion of
Convertible Preferred shall be deemed to have been effected as of the close
of business on the date on which the certificate or certificates
representing the Convertible Preferred to be converted have been
surrendered for conversion at the principal office of the Corporation. At
the time any such conversion has been effected, the rights of the holder of
the Shares converted as a holder of Convertible Preferred shall cease and
the Person or Persons in whose name or names any certificate or
certificates for shares of Conversion Stock are to be issued upon such
conversion shall be deemed to have become the holder or holders of record
of the shares of Conversion Stock represented thereby.
(iii) The conversion rights of any Share subject to redemption
hereunder shall terminate on the Redemption Date for such Share unless the
Corporation has failed to pay to the holder thereof the Redemption Price
for such Share (plus all accrued and unpaid dividends thereon and any
premium payable with respect thereto).
(iv) Notwithstanding any other provision hereof, if a conversion
of Convertible Preferred is to be made in connection with a Public
Offering, a Change in Ownership, a Fundamental Change or other transaction
affecting the Corporation, the conversion of any Shares of Convertible
Preferred 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.
-57-
(v) As soon as possible after a conversion has been effected (but
in any event within five business days in the case of subparagraph (a)
below), the Corporation shall deliver to the converting holder:
(a) a certificate or certificates representing the number of
shares of Conversion Stock issuable by reason of such conversion in such
name or names and such denomination or denominations as the converting
holder has specified;
(b) payment in an amount equal to all accrued dividends with
respect to each Share converted which have not been paid prior thereto; and
(c) a certificate representing any Shares of Convertible
Preferred which were represented by the certificate or certificates
delivered to the Corporation in connection with such conversion but which
were not converted.
(vi) The Corporation shall declare the payment of all dividends
payable under subparagraph (v)(b) above. If the Corporation is not
permitted under applicable law to pay any portion of the accrued and unpaid
dividends on the Convertible Preferred being converted, the Corporation
shall pay such dividends to the converting holder as soon thereafter as
funds of the Corporation are legally available for such payment. At the
request of any such converting holder, the Corporation shall provide such
holder with written evidence of its obligation to such holder.
Notwithstanding the foregoing, for any reason the Corporation is unable to
pay any portion of the accrued and unpaid dividends on Convertible
Preferred being converted, such dividends may, at the converting holder's
option, be converted into an additional number of shares of Conversion
Stock determined by dividing the amount of the unpaid dividends to be
applied for such purpose, by the Conversion Price then in effect.
(vii) The issuance of certificates for shares of Conversion Stock
upon conversion of Convertible Preferred shall be made without charge to
the holders of such Convertible Preferred for any issuance tax in respect
thereof or other cost incurred by the Corporation in connection with such
conversion and the related issuance of shares of Conversion Stock. Upon
conversion of each Share of Convertible Preferred, the Corporation shall
take all such actions as are necessary in order to insure that the
Conversion Stock 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.
(viii) The Corporation shall not close its books against the
transfer of Convertible Preferred or of Conversion Stock issued or issuable
upon conversion of Convertible Preferred in any manner which interferes
with the timely conversion of Convertible Preferred. The Corporation shall
assist and cooperate with any holder of Shares required to make any
governmental filings or obtain any governmental approval prior to or in
connection with any conversion of Shares hereunder (including, without
limitation, making any filings required to be made by the Corporation).
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(ix) The Corporation shall at all times reserve and keep
available out of its authorized but unissued shares of Conversion Stock,
solely for the purpose of issuance upon the conversion of the Convertible
Preferred, such number of shares of Conversion Stock issuable upon the
conversion of all outstanding Convertible Preferred. All shares of
Conversion Stock which are so issuable shall, when issued, be duly and
validly issued, fully paid and nonassessable and free from all taxes, liens
and charges. The Corporation shall take all such actions as may be
necessary to assure that all such shares of Conversion Stock may be so
issued without violation of any applicable law or governmental regulation
or any requirements of any domestic securities exchange upon which shares
of Conversion Stock may be listed (except for official notice of issuance
which shall be immediately delivered by the Corporation upon each such
issuance). The Corporation shall not take any action which would cause the
number of authorized but unissued shares of Conversion Stock to be less
than the number of such shares required to be reserved hereunder for
issuance upon conversion of the Convertible Preferred.
6B. Conversion Price.
The initial Conversion Price shall be $4.00. The Conversion
Price shall be subject to adjustment from time to time pursuant to this
paragraph 6B, and shall be subject to the special adjustment provision of
paragraph 6E.
6C. Subdivision or Combination of Common Stock. If the
Corporation at any time subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding
shares of Common Stock into a greater number of shares, the Conversion
Price in effect immediately prior to such subdivision shall be
proportionately reduced, and if the Corporation at any time combines (by
reverse stock split or otherwise) one or more classes of its outstanding
shares of Common Stock into a smaller number of shares, the Conversion
Price in effect immediately prior to such combination shall be
proportionately increased.
6D. Reorganization, Reclassification, Consolidation, Merger or Sale.
Any recapitalization, reorganization, reclassification, consolidation,
merger, sale of all or substantially all of the Corporation's assets or
other transaction, in each case which is effected in such a manner that the
holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock, is referred to herein as an "Organic Change".
Prior to the consummation of any Organic Change, the Corporation shall make
appropriate provisions (in form and substance satisfactory to the holders
of a majority of the Convertible Preferred then outstanding) to insure that
each of the holders of Convertible Preferred shall thereafter have the
right to acquire and receive, in lieu of or in addition to (as the case may
be) the shares of Conversion Stock immediately theretofore acquirable and
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receivable upon the conversion of such holder's Convertible Preferred, 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
Convertible Preferred immediately prior to such Organic Change. In each
such case, the Corporation shall also make appropriate provisions (in form
and substance satisfactory to the holders of a majority of the Convertible
Preferred then outstanding) to insure that the provisions of this Section 6
and Sections 7 and 8 hereof shall thereafter be applicable to the
Convertible Preferred (including, in the case of any such consolidation,
merger or sale in which the successor entity or purchasing entity is other
than the Corporation, an immediate adjustment of the Conversion Price to
the value for the Common Stock reflected by the terms of such
consolidation, merger or sale, and a corresponding immediate adjustment in
the number of shares of Conversion Stock acquirable and receivable upon
conversion of Convertible Preferred, if the value so reflected is less than
the Conversion Price in effect immediately prior to such consolidation,
merger or sale). The Corporation shall not effect any such consolidation,
merger or sale, unless prior to the consummation thereof, the successor
entity (if other than the Corporation) resulting from consolidation or
merger or the entity purchasing such assets assumes by written instrument
(in form and substance satisfactory to the holders of a majority of the
Convertible Preferred 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.
6E. Special Adjustment to Conversion Price. If, as of the end of
the Corporation's 2000 fiscal year, any Convertible Stock remains
outstanding, then as part of the preparation of the Corporation's audited
financial statements for such fiscal year after eliminating the effects of
any gain or loss from divestitures or sales or from write-downs or write-
offs outside the ordinary course of business, the Corporation shall cause
its independent accounts to determine the Corporation's earnings before
interest, taxes, depreciation and amortization for such fiscal year ("Year
2000 EBITDA") and an alternative Conversion Price (the "Alternative
Conversion Price"). The Corporation shall cause copies of such audited
financial statements and such determinations to be delivered to each holder
of Convertible Preferred promptly following receipt thereof, but in any
event no later than 100 days following the end of such fiscal year.
(i) The Alternative Conversion Price shall be determined in
accordance with the following formula:
(A x B) - C + D
---------------
E
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where:
A = the "Multiplier" (as defined below)
B = Year 2000 EBITDA
C = the aggregate amount of all indebtedness for borrowed money,
together with all accrued and unpaid interest thereon.
D = the exercise price for all options and warrants exercisable for
Common Stock.
E = the number of shares of Common Stock outstanding on a fully-
diluted basis.
(ii) The "Multiplier" shall equal 4 if Year 2000 EBITDA equals or
exceeds $12,000,000, and shall equal 2.5 if Year 2000 EBITDA is below
$12,000,000.
(iii) In the event that the Alternative Conversion Price is less
than the Conversion Price then in effect, then the Alternative Conversion
Price shall be thereafter be the Conversion Price for all purposes herein.
6F. Notices.
(i) Immediately upon any adjustment of the Conversion Price, the
Corporation shall give written notice thereof to all holders of Convertible
Preferred, setting forth in reasonable detail and certifying the
calculation of such adjustment.
(ii) The Corporation shall give written notice to all holders of
Convertible Preferred at least 20 days prior to the date on which the
Corporation closes its books or takes a record (a) with respect to any
dividend or distribution upon Common Stock, (b) with respect to any pro
rata subscription offer to holders of Common Stock or (c) for determining
rights to vote with respect to any Fundamental Change, Change in Ownership,
dissolution or liquidation.
(iii) The Corporation shall also give written notice to the
holders of Convertible Preferred at least 20 days prior to the date on
which any Fundamental Change or Change in Ownership shall take place.
Section 7. Purchase Rights.
If at any time the Corporation grants, issues or sells any
Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
Common Stock (the "Purchase Rights"), then each holder of Convertible
Preferred shall be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which such holder could have
acquired if such holder had held the number of shares of Conversion Stock
acquirable upon conversion of such holder's Convertible Preferred
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immediately before the date on which a record is taken for the grant,
issuance or sale of such Purchase Rights, or if no such record is taken,
the date as of which the record holders of Common Stock are to be
determined for the grant, issue or sale of such Purchase Rights.
Section 8. Registration of Transfer.
The Corporation shall keep at its principal office a register for
the registration of Convertible Preferred. Upon the surrender of any
certificate representing Convertible Preferred at such place, the
Corporation shall, at the request of the record holder of such certificate,
execute and deliver (at the Corporation's expense) a new certificate or
certificates in exchange therefor representing in the aggregate the number
of Shares represented by the surrendered certificate. Each such new
certificate shall be registered in such name and shall represent such
number of Shares as is requested by the holder of the surrendered
certificate and shall be substantially identical in form to the surrendered
certificate, and dividends shall accrue on the Convertible Preferred
represented by such new certificate from the date to which dividends have
been fully paid on such Convertible Preferred represented by the
surrendered certificate.
Section 9. Replacement.
Upon receipt of evidence reasonably satisfactory to the
Corporation (an affidavit of the registered holder shall be satisfactory)
of the ownership and the loss, theft, destruction or mutilation of any
certificate evidencing Shares of Convertible Preferred, and in the case of
any such loss, theft or destruction, upon receipt of indemnity reasonably
satisfactory to the Corporation (provided that if the holder is a financial
institution or other institutional investor its own agreement shall be
satisfactory), or, in the case of any such mutilation upon surrender of
such certificate, the Corporation shall (at its expense) execute and
deliver in lieu of such certificate a new certificate of like kind
representing the number of Shares of such class represented by such lost,
stolen, destroyed or mutilated certificate and dated the date of such lost,
stolen, destroyed or mutilated certificate, and dividends shall accrue on
the Convertible Preferred represented by such new certificate from the date
to which dividends have been fully paid on such lost, stolen, destroyed or
mutilated certificate.
Section 10. Definitions.
"Change in Ownership" has the meaning set forth in paragraph 4J
hereof.
"Common Stock" means, collectively, the Corporation's Common
Stock and any capital stock of any class of the Corporation hereafter
authorized which is not limited to a fixed sum or percentage of par or
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stated value in respect to the rights of the holders thereof to participate
in dividends or in the distribution of assets upon any liquidation,
dissolution or winding up of the Corporation.
"Conversion Stock" means shares of the Corporation's Common Stock
par value; provided that if there is a change such that the securities
issuable upon conversion of the Convertible Preferred are issued by an
entity other than the Corporation or there is a change in the type or class
of securities so issuable, then the term "Conversion Stock" shall mean one
share of the security issuable upon conversion of the Convertible Preferred
if such security is issuable in shares, or shall mean the smallest unit in
which such security is issuable if such security is not issuable in shares.
"Convertible Securities" means any stock or securities directly
or indirectly convertible into or exchangeable for Common Stock.
"Fundamental Change" has the meaning set forth in paragraph 4J
hereof.
"Junior Securities" means any capital stock or other equity
securities of the Corporation, except for the Convertible Preferred.
"Liquidation Value" of any Share as of any particular date shall
be equal to $8.00.
"Options" means any rights, warrants or options to subscribe for
or purchase Common Stock or Convertible Securities.
"Person" means an individual, a partnership, a corporation, a
limited liability company, a limited liability, 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.
"Public Offering" means any offering by the Corporation of its
capital stock or equity securities to the public pursuant to an effective
registration statement under the Securities Act of 1933, as then in effect,
or any comparable statement under any similar federal statute then in
force.
"Purchase Agreement" means the Purchase Agreement, dated as of
August 31, 1999 by and among the Corporation and certain investors, as such
agreement may from time to time be amended in accordance with its terms.
"Redemption Price" means $10.00 per Share, plus all accrued and
unpaid dividends thereon.
"Redemption Date" as to any Share means the date specified in the
notice of any redemption at the Corporation's option or at the holder's
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option or the applicable date specified herein in the case of any other
redemption; provided that no such date shall be a Redemption Date unless
the Redemption Price of such Share (plus all accrued and unpaid dividends
thereon and any required premium with respect thereto) is actually paid in
full on such date, and if not so paid in full, the Redemption Date shall be
the date on which such amount is fully paid.
"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
interests, limited liability company units or interests 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 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 the managing general partner, managing member, manager or
similar controlling Person of such limited liability company, partnership,
association or other business entity.
Section 11. Amendment and Waiver.
No amendment, modification or waiver shall be binding or
effective with respect to any provision of Sections 1 to 12 hereof without
the prior written consent of the holders of a majority of the Convertible
Preferred outstanding at the time such action is taken; provided that no
such action shall change (a) the rate at which or the manner in which
dividends on the Convertible Preferred accrue or the times at which such
dividends become payable or the amount payable on redemption of the
Convertible Preferred or the times at which redemption of Convertible
Preferred is to occur, without the prior written consent of the holders of
at least 80% of the Convertible Preferred then outstanding, (b) the
Conversion Price of the Convertible Preferred or the number of shares or
class of stock into which the Convertible Preferred is convertible, without
the prior written consent of the holder of at least 80% of the Convertible
Preferred then outstanding or (c) the percentage required to approve any
change described in clauses (a) and (b) above, without the prior written
consent of the holders of at least 80% of the Convertible Preferred then
outstanding; and provided further that no change in the terms hereof may be
accomplished by merger or consolidation of the Corporation with another
corporation or entity unless the Corporation has obtained the prior written
consent of the holders of the applicable percentage of the Convertible
Preferred then outstanding.
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Section 12. Notices.
Except as otherwise expressly provided hereunder, all notices
referred to herein shall be in writing and shall be delivered by registered
or certified mail, return receipt requested and postage prepaid, or by
reputable overnight courier service, charges prepaid, and shall be deemed
to have been given when so mailed or sent (i) to the Corporation, at its
principal executive offices and (ii) to any stockholder, at such holder's
address as it appears in the stock records of the Corporation (unless
otherwise indicated by any such holder).
The undersigned, William Beckman and David W. Selvius, President
and Secretary of Clarion Technologies, Inc., respectively, hereby declare
and certify under penalty of perjury that the foregoing Certificate is the
act and deed of the Corporation and that the facts herein stated are true.
Executed at Holland, Michigan on February 10, 2000.
/s/ William Beckman
----------------------------
WILLIAM BECKMAN
President
/s/ David Selvius
----------------------------
DAVID W. SELVIUS
Secretary
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<PAGE>
<EX-10>
EXHIBIT 10(a)
CREDIT AGREEMENT
dated as of February 29, 2000
among
CLARION TECHNOLOGIES, INC. AND ITS SUBSIDIARIES,
jointly and severally,
VARIOUS FINANCIAL INSTITUTIONS,
BANK ONE MICHIGAN (as "Co-Agent")
and
LASALLE BANK NATIONAL ASSOCIATION (as "Agent")
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TABLE OF CONTENTS
SECTION 1 DEFINITIONS..................................................1
1.1 Definitions......................................................1
1.2 Other Interpretive Provisions...................................17
SECTION 2 COMMITMENTS OF THE BANKS; BORROWING, CONVERSION AND
LETTER OF CREDIT PROCEDURES.................................18
2.1 Commitments.....................................................18
2.1.1 Revolving Loan Commitment............................18
2.1.2 Term Loan A Commitment...............................18
2.1.3 Term Loan B Commitment...............................19
2.1.4 L/C Commitment.......................................19
2.2 Loan Procedures.................................................19
2.2.1 Various Types of Loans...............................19
2.2.2 Borrowing Procedures.................................20
2.2.3 Conversion and Continuation Procedures...............20
2.3 Letter of Credit Procedures.....................................21
2.3.1 L/C Applications.....................................21
2.3.2 Participations in Letters of Credit..................21
2.3.3 Reimbursement Obligations............................22
2.3.4 Limitation on Obligations of Issuing Bank............22
2.3.5 Funding by Banks to Issuing Bank.....................22
2.4 Commitments Several.............................................23
2.5 Certain Conditions..............................................23
SECTION 3 NOTES EVIDENCING LOANS......................................23
3.1 Revolving Notes.................................................23
3.2 Term Notes......................................................23
3.2.1 Term Note A..........................................23
3.2.2 Term Note B..........................................23
3.3 Recordkeeping...................................................24
SECTION 4 INTEREST....................................................24
4.1 Interest Rates..................................................24
4.2 Interest Payment Dates..........................................24
4.3 Setting and Notice of LIBOR Rates...............................24
4.4 Computation of Interest.........................................25
SECTION 5 FEES AND LOCK-BOX...........................................25
5.1 Non-Use Fee.....................................................25
5.2 Letter of Credit Fees...........................................25
5.3 Upfront Fees....................................................25
5.4 Agent's Fees....................................................25
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SECTION 6 REDUCTION OR TERMINATION OF THE REVOLVING
COMMITMENT AMOUNT; PREPAYMENTS..............................26
6.1 Reduction or Termination of the Revolving Commitment Amount.....26
6.1.1 Voluntary Reduction or Termination of the
Revolving Commitment Amount..........................26
6.1.2 Mandatory Reductions of Revolving Commitment Amount..26
6.1.3 All Reductions of the Revolving Commitment Amount....27
6.2 Prepayments.....................................................27
6.2.1 Voluntary Prepayments of Term Loan A.................27
6.2.2 Mandatory Prepayments................................27
6.3 All Prepayments.................................................28
SECTION 7 MAKING AND PRORATION OF PAYMENTS; SETOFF; TAXES.............28
7.1 Making of Payments..............................................28
7.2 Application of Certain Payments.................................28
7.3 Due Date Extension..............................................29
7.4 Setoff..........................................................29
7.5 Proration of Payments...........................................29
7.6 Taxes...........................................................29
7.7 Automatic Debit.................................................30
SECTION 8 INCREASED COSTS; SPECIAL PROVISIONS FOR LIBOR LOANS.........30
8.1 Increased Costs.................................................30
8.2 Basis for Determining Interest Rate Inadequate or Unfair........31
8.3 Changes in Law Rendering LIBOR Loans Unlawful...................32
8.4 Funding Losses..................................................32
8.5 Right of Banks to Fund through Other Offices....................33
8.6 Discretion of Banks as to Manner of Funding.....................33
8.7 Mitigation of Circumstances; Replacement of Banks...............33
8.8 Conclusiveness of Statements; Survival of Provisions............34
SECTION 9 REPRESENTATIONS AND WARRANTIES..............................34
9.1 Organization....................................................34
9.2 Authorization; No Conflict......................................34
9.3 Validity and Binding Nature.....................................34
9.4 Financial Condition.............................................34
9.5 No Material Adverse Change......................................35
9.6 Litigation and Contingent Liabilities...........................35
9.7 Ownership of Properties; Liens..................................35
9.8 Subsidiaries....................................................35
9.9 Pension Plans...................................................35
9.10 Investment Company Act.........................................36
9.11 Public Utility Holding Company Act.............................36
9.12 Regulation U...................................................36
9.13 Taxes..........................................................36
9.14 Solvency, etc..................................................36
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9.15 Environmental Matters..........................................36
9.16 Reserved.......................................................37
9.17 Insurance......................................................37
9.18 Real Property..................................................38
9.19 Information....................................................38
9.20 Intellectual Property..........................................38
9.21 Burdensome Obligations.........................................38
9.22 Labor Matters..................................................38
9.23 No Default.....................................................38
9.24 Purchase Agreement, etc........................................38
SECTION 10 COVENANTS...................................................39
10.1 Reports, Certificates and Other Information....................40
10.1.1 Annual Report.......................................40
10.1.2 Interim Reports.....................................40
10.1.3 Compliance Certificates.............................41
10.1.4 Reports to the SEC and to Shareholders..............41
10.1.5 Notice of Default, Litigation and ERISA Matters.....41
10.1.6 Borrowing Base Certificates.........................42
10.1.7 Management Reports..................................42
10.1.8 Projections.........................................42
10.1.9 Subordinated Debt Notices...........................42
10.1.10 Other Information..................................42
10.2 Books, Records and Inspections.................................43
10.3 Maintenance of Property; Insurance.............................43
10.4 Compliance with Laws; Payment of Taxes and Liabilities.........44
10.5 Maintenance of Existence, etc..................................44
10.6 Financial Covenants............................................44
10.6.1 Fixed Charge Coverage Ratio.........................44
10.6.2 Leverage Ratio......................................45
10.6.3 Tangible Net Worth..................................45
10.6.4 EBITDA..............................................45
10.6.5 Capital Expenditures................................45
10.7 Limitations on Debt............................................45
10.8 Liens..........................................................46
10.9 Operating Leases...............................................47
10.10 Restricted Payments...........................................47
10.11 Mergers, Consolidations, Sales................................47
10.12 Modification of Organizational Documents......................48
10.13 Use of Proceeds...............................................48
10.14 Further Assurances............................................48
10.15 Transactions with Affiliates..................................48
10.16 Employee Benefit Plans........................................48
10.17 Environmental Matters.........................................48
10.18 Unconditional Purchase Obligations............................48
10.19 Inconsistent Agreements.......................................49
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10.20 Business Activities...........................................49
10.21 Investments...................................................49
10.22 Restriction of Amendments to Certain Documents................50
10.23 Fiscal Year...................................................50
10.24 Cancellation of Debt..........................................50
SECTION 11 EFFECTIVENESS; CONDITIONS OF LENDING, ETC...................50
11.1 Initial Credit Extension.......................................50
11.1.1 Notes...............................................50
11.1.2 Resolutions.........................................50
11.1.3 Consents, etc.......................................51
11.1.4 Incumbency and Signature Certificates...............51
11.1.5 Guaranty and Supporting Letter of Credit............51
11.1.6 Pledge of Certificate of Deposit....................51
11.1.7 Security Agreement..................................51
11.1.8 Pledge Agreement....................................51
11.1.9 Real Estate Documents...............................51
11.1.10 Purchase Agreement Assignment......................52
11.1.11 Subordination Agreements...........................52
11.1.12 Opinions of Counsel................................52
11.1.13 Insurance..........................................52
11.1.14 Copies of Purchase Documents.......................52
11.1.15 Payment of Fees....................................52
11.1.16 Solvency Certificate...............................53
11.1.17 Pro Forma..........................................53
11.1.18 Search Results; Lien Terminations..................53
11.1.19 Filings, Registrations and Recordings..............53
11.1.20 Closing Certificate................................53
11.1.21 Borrowing Base Certificate.........................53
11.1.22 Purchase Certificate, Consents and Permits.........53
11.1.23 Other..............................................54
11.2 Conditions.....................................................54
11.2.1 Compliance with Warranties, No Default, etc.........54
11.2.2 Confirmatory Certificate............................54
SECTION 12 EVENTS OF DEFAULT AND THEIR EFFECT..........................54
12.1 Events of Default..............................................54
12.1.1 Non-Payment of the Loans, etc.......................54
12.1.2 Non-Payment of Other Debt...........................54
12.1.3 Other Material Obligations..........................55
12.1.4 Bankruptcy, Insolvency, etc.........................55
12.1.5 Non-Compliance with Loan Documents..................55
12.1.6 Warranties..........................................55
12.1.7 Pension Plans.......................................55
12.1.8 Judgments...........................................56
12.1.9 Invalidity of Guaranty, etc.........................56
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12.1.10 Invalidity of Collateral Documents, etc............56
12.1.11 Invalidity of Subordination Provisions, etc........56
12.1.12 Change of Control..................................56
12.1.13 Material Adverse Effect............................56
12.2 Effect of Event of Default.....................................56
SECTION 13 THE AGENT...................................................57
13.1 Appointment and Authorization..................................57
13.2 Delegation of Duties...........................................57
13.3 Liability of Agent.............................................58
13.4 Reliance by Agent..............................................58
13.5 Notice of Default..............................................58
13.6 Credit Decision................................................58
13.7 Indemnification................................................59
13.8 Agent in Individual Capacity...................................59
13.9 Successor Agent................................................60
13.10 Collateral Matters............................................60
SECTION 14 GENERAL.....................................................60
14.1 Waiver; Amendments.............................................60
14.2 Confirmations..................................................61
14.3 Notices........................................................61
14.4 Computations...................................................61
14.5 Regulation U...................................................61
14.6 Costs, Expenses and Taxes......................................62
14.7 Subsidiary References..........................................62
14.8 Captions.......................................................62
14.9 Assignments; Participations....................................62
14.9.1 Assignments.........................................62
14.9.2 Participations......................................64
14.10 Governing Law.................................................64
14.11 Counterparts..................................................64
14.12 Successors and Assigns........................................64
14.13 Indemnification by the Loan Parties...........................64
14.14 Nonliability of Lenders.......................................65
14.15 FORUM SELECTION AND CONSENT TO JURISDICTION...................65
14.16 WAIVER OF JURY TRIAL..........................................66
14.17 Reimbursement Among Loan Parties..............................66
14.18 Guaranty......................................................66
14.19 Joint and Several Liability...................................67
14.20 Interrelationship Among the Loan Parties......................67
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SCHEDULES
SCHEDULE 1.1 Montpelier Equipment
SCHEDULE 2.1 Banks and Pro Rata Shares
SCHEDULE 3.1 Term Loan Installments
SCHEDULE 9.6 Litigation and Contingent Liabilities
SCHEDULE 9.8 Subsidiaries
SCHEDULE 9.15 Environmental Matters
SCHEDULE 9.17 Insurance
SCHEDULE 9.18 Real Property
SCHEDULE 9.22 Labor Matters
SCHEDULE 10.7 Existing Debt
SCHEDULE 10.8 Existing Liens
SCHEDULE 10.21 Investments
SCHEDULE 11.1 Debt to be Repaid
SCHEDULE 11.1.8 Mortgaged Real Property
SCHEDULE 12.1.12 Key Executives
SCHEDULE 14.3 Addresses for Notices
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EXHIBITS
EXHIBIT A Pricing Schedule
EXHIBIT B Form of Revolving Note
EXHIBIT C Form of Term Note A
EXHIBIT D Form of Term Note B
EXHIBIT E Form of Compliance Certificate
EXHIBIT F Form of Borrowing Base Certificate
EXHIBIT G Form of Assignment Agreement
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CREDIT AGREEMENT
THIS CREDIT AGREEMENT dated as of February 29, 2000 (this "Agreement") is
entered into by and among CLARION TECHNOLOGIES, INC., a Delaware corporation
(the "Company"), and its subsidiaries party hereto (the Company and its
subsidiaries are collectively referred to as the "Loan Parties"), jointly and
severally, the financial institutions that are or may from time to time become
parties hereto (together with their respective successors and assigns, the
"Banks"), LASALLE BANK NATIONAL ASSOCIATION, a national banking association (in
its individual capacity, "LaSalle"), as agent on behalf of the Banks (in such
capacity, the "Agent"), and BANK ONE MICHIGAN, a Michigan banking corporation
(in its individual capacity, "Bank One"), as co- agent for the Banks (in such
capacity, the "Co-Agent").
WHEREAS, the Banks have agreed to make available to the Loan Parties term
loans and a revolving credit facility (which includes letters of credit) upon
the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual agreements herein contained,
the parties hereto agree as follows:
SECTION 1 DEFINITIONS.
1.1 Definitions. When used herein the following terms shall have the
following meanings:
Account Debtor means any Person who is obligated to any Loan Party under an
Account Receivable.
Account Receivable means, with respect to any Person, any right of such
Person to payment for goods sold or leased or for services rendered, whether or
not evidenced by an instrument or chattel paper and whether or not yet earned by
performance.
Adjusted Working Capital means the remainder of:
(a) (i) the consolidated current assets of the Loan Parties less (ii)
the amount of cash and cash equivalents included in such consolidated
current assets;
minus
(b) (i) consolidated current liabilities of the Loan Parties less (ii)
the amount of short-term Debt (including current maturities of long-term
Debt) of the Company and its Subsidiaries included in such consolidated
current liabilities.
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Affected Loan - see Section 8.3.
Affiliate of any Person means (i) any other Person which, directly or
indirectly, controls or is controlled by or is under common control with such
Person and (ii) any officer or director of such Person. A Person shall be deemed
to be "controlled by" any other Person if such Person possesses, directly or
indirectly, power to vote 10% or more of the securities (on a fully diluted
basis) having ordinary voting power for the election of directors or managers or
power to direct or cause the direction of the management and policies of such
Person whether by contract or otherwise.
Agent means LaSalle in its capacity as agent for the Banks hereunder and
any successor thereto in such capacity.
Agreement - see the Preamble.
Asset Sale means the sale, lease, assignment or other transfer for value
(each a "Disposition") by any Loan Party to any Person (other than any other
Loan Party) of any asset or right of any Loan Party other than (a) the
Disposition of any asset which is to be replaced, and is in fact replaced,
within 30 days with another asset performing the same or a similar function, (b)
the sale or lease of inventory in the ordinary course of business.
Assignment Agreement - see Section 14.9.1.
Attorney Costs means, with respect to any Person, all reasonable fees and
charges of any counsel to such Person, including, but not limited to, all
reasonable disbursements of internal legal counsel and all court costs and
similar legal expenses.
Available Cash - see Section 10.1.6.
Bank - see the Preamble. References to the "Banks" shall include the
Issuing Bank; for purposes of clarification only, to the extent that LaSalle (or
any successor Issuing Bank) may have any rights or obligations in addition to
those of the other Banks due to its status as Issuing Bank, its status as such
will be specifically referenced.
Bank One - see the Preamble.
Base Rate means at any time the greater of (a) the Federal Funds Rate plus
0.5% and (b) the Prime Rate.
Base Rate Loan means any Loan which bears interest at or by reference to
the Base Rate.
Base Rate Margin - see the Pricing Schedule attached hereto as Exhibit A.
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Borrowing Base means an amount equal to the lesser of the total of (a)
eighty percent (80%) of the unpaid amount (net of such reserves and allowances
as the Agent deems necessary in its reasonable discretion) of all Eligible
Accounts Receivable plus (b) fifty percent (50%) of the value of all Eligible
Inventory valued at the lower of cost or market (net of such reserves and
allowances as the Agent deems necessary in its reasonable discretion) plus (c)
thirty-five percent (35%) of the value of Eligible Work in Progress Inventory;
provided, however, that the aggregate amount of advances for (i) Eligible
Inventory shall not exceed Four Million Dollars ($4,000,000) at any time, (ii)
Tooling Receivables shall not exceed Five Million Dollars ($5,000,000) at any
time and (iii) Eligible Work in Progress Inventory shall not exceed Five Hundred
Thousand Dollars ($500,000) at any time.
Borrowing Base Certificate means a certificate substantially in the form of
Exhibit F.
Business Day means any day on which Agent is open for commercial banking
business in Chicago, Illinois and, in the case of a Business Day which relates
to a LIBOR Loan, on which dealings are carried on in the London interbank
eurodollar market.
Capital Expenditures means all expenditures which, in accordance with GAAP,
would be required to be capitalized and shown on the consolidated balance sheet
of the Loan Parties, but excluding expenditures made in connection with the
replacement, substitution or restoration of assets to the extent financed (i)
from insurance proceeds (or other similar recoveries) paid on account of the
loss of or damage to the assets being replaced or restored or (ii) with awards
of compensation arising from the taking by eminent domain or condemnation of the
assets being replaced.
Capital Lease means, with respect to any Person, any lease of (or other
agreement conveying the right to use) any real or personal property by such
Person that, in conformity with GAAP, is accounted for as a capital lease on the
balance sheet of such Person.
Cash Collateralize means to deliver cash collateral to the Agent, to be
held as cash collateral for outstanding Letters of Credit, pursuant to
documentation satisfactory to the Agent. Derivatives of such term have
corresponding meanings.
Cash Equivalent Investment means, at any time, (a) any evidence of Debt,
maturing not more than one year after such time, issued or guaranteed by the
United States Government or any agency thereof, (b) commercial paper, maturing
not more than one year from the date of issue, or corporate demand notes, in
each case (unless issued by a Bank or its holding company) rated at least A-l by
Standard & Poor's Ratings Group or P-l by Moody's Investors Service, Inc., (c)
any certificate of deposit (or time deposits represented by such certificates of
deposit) or banker's acceptance, maturing not more than one year after such
time, or overnight Federal Funds transactions that are issued or sold by any
Bank or its holding company or by a commercial banking institution that is a
member of the Federal Reserve System and has a combined capital and surplus and
undivided profits of not less than $500,000,000 and (d) any repurchase
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agreement entered into with any Bank (or other commercial banking institution of
the stature referred to in clause (c)) which (i) is secured by a fully perfected
security interest in any obligation of the type described in any of clauses (a)
through (c) and (ii) has a market value at the time such repurchase agreement is
entered into of not less than 100% of the repurchase obligation of such Bank (or
other commercial banking institution) thereunder.
CERCLA - see Section 9.15.
Clarion-Drake Acquisition means Clarion-Drake Acquisition, Inc., a Michigan
corporation.
Closing Date - see Section 11.1.
Co-Agent means Bank One Michigan in its capacity as Co-Agent for the Banks.
Code means the Internal Revenue Code of 1986.
Collateral means each of the items of a collateral set forth in each
Collateral Document.
Collateral Access Agreement means an agreement in form and substance
reasonably satisfactory to the Agent pursuant to which a mortgagee or lessor of
real property on which collateral is stored or otherwise located, or a
warehouseman, processor or other bailee of Inventory, acknowledges the Liens of
the Agent and waives any Liens held by such Person on such property, and, in the
case of any such agreement with a mortgagee or lessor, permits the Agent access
to and use of such real property for a reasonable amount of time following the
occurrence and during the continuance of an Event of Default to assemble,
complete and sell any collateral stored or otherwise located thereon.
Collateral Documents means the Security Agreement, the Purchase Agreement
Assignment, each Mortgage, each Pledge Agreement, each Guaranty, each
Subordination Agreement, each Collateral Access Agreement and any other
agreement or instrument pursuant to which any Loan Party or any other Person
grants collateral to the Agent for the benefit of the Banks.
Commitment means, as to any Bank, such Bank's commitment to make Loans, and
to issue or participate in Letters of Credit, under this Agreement. The initial
amount of each Bank's Pro Rata Share of the Revolving Commitment Amount and of
the aggregate amount of the Term Loans is set forth on Schedule 2.1.
Company - see the Preamble.
Computation Period means each period of four consecutive Fiscal Quarters
ending on the last day of a Fiscal Quarter.
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Consolidated Net Income means, with respect to Loan Parties for any period,
the net income (or loss) of the Loan Parties for such period, excluding any
gains from Asset Sales, any extraordinary gains and any gains from discontinued
operations.
Controlled Group means all members of a controlled group of corporations
and all members of a controlled group of trades or businesses (whether or not
incorporated) under common control which, together with the Company, are treated
as a single employer under Section 414 of the Code or Section 4001 of ERISA.
Debt of any Person means, without duplication, (a) all indebtedness of such
Person for borrowed money, whether or not evidenced by bonds, debentures, notes
or similar instruments, (b) all obligations of such Person as lessee under
Capital Leases which have been or should be recorded as liabilities on a balance
sheet of such Person in accordance with GAAP, (c) all obligations of such Person
to pay the deferred purchase price of property or services (excluding trade
accounts payable in the ordinary course of business), (d) all indebtedness
secured by a Lien on the property of such Person, whether or not such
indebtedness shall have been assumed by such Person, (e) all obligations,
contingent or otherwise, with respect to the face amount of all letters of
credit (whether or not drawn) and banker's acceptances issued for the account of
such Person (including the Letters of Credit), (f) all Hedging Obligations of
such Person and (g) all Suretyship Liabilities of such Person, (h) all Debt of
any partnership of which such Person is a general partner.
Debt Service Coverage Ratio means as of any date of determination, the
ratio of (i) principal and interest payments on all Debt to (ii) quarterly
EBITDA as determined in accordance with GAAP.
Debt to be Repaid means Debt listed on Schedule 11.1.
Default Rate see the Pricing Schedule attached hereto as Exhibit A.
Designated Proceeds - see Section 6.2.2(a).
Disposal - see the definition of "Release".
Dollar and the sign "$" mean lawful money of the United States of America.
Drake Products means Drake Products Corporation, a Michigan corporation.
EBITDA means, for any period, Consolidated Net Income for such period plus,
to the extent deducted in determining such Consolidated Net Income, Interest
Expense, income tax expense, depreciation and amortization for such period.
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Eligible Account Receivable means an Account Receivable owing to any Loan
Party which meets each of the following requirements:
(1) it arises from the sale of goods or the rendering of services by
the applicable Loan Party; and if it arises from the sale of goods, (i)
such goods comply with such Account Debtor's specifications (if any) and
have been delivered to such Account Debtor and (ii) the applicable Loan
Party has possession of, or if requested by the Agent has delivered to the
Agent, delivery receipts evidencing such delivery;
(2) it (a) is subject to a perfected Lien in favor of the Agent and
(b) is not subject to any other assignment, claim or Lien;
(3) it is a valid, legally enforceable and unconditional obligation of
the Account Debtor with respect thereto, and is not subject to any off-set,
counterclaim, credit, allowance, discount, rebate or adjustment by the
Account Debtor with respect thereto, or to any claim by such Account Debtor
denying liability thereunder in whole or in part (provided, that in the
event any off-set, counterclaim, credit, allowance, rebate or adjustment is
asserted, or discount is granted, the Account Receivable shall only be
ineligible pursuant to this clause (3) to the extent of the same);
(4) there is no bankruptcy, insolvency or liquidation proceeding by or
against the Account Debtor with respect thereto;
(5) the Account Debtor with respect thereto is a resident or citizen
of, and is located within, the United States ("U.S. Account"), unless the
sale of goods or services giving rise to such Account Receivable is on
letter of credit, banker's acceptance or other credit support terms
reasonably satisfactory to the Agent; provided, however, for purposes of
determining Eligible Accounts hereunder, Accounts Receivable of the
Canadian Subsidiaries of Lear Corporation, Johnson Controls Inc., Delphi
Automotive Systems Corporation, Magna International, Inc. and such other
Accounts Receivable approved in writing by Agent and Co-Agent shall be
deemed U.S. Accounts;
(6) it is not an Account Receivable arising from a "sale on approval,"
"sale or return," "consignment" or "bill and hold" or subject to any other
repurchase or return agreement;
(7) it is not an Account Receivable with respect to which possession
and/or control of the goods sold giving rise thereto is held, maintained or
retained by any Loan Party (or by any agent or custodian of any Loan Party)
for the account of or subject to further and/or future direction from the
Account Debtor with respect thereto;
(8) it arises in the ordinary course of business of the Loan Parties;
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(9) if the Account Debtor is the United States or any department,
agency or instrumentality thereof, the applicable Loan Party has assigned
its right to payment of such Account Receivable to the Agent pursuant to
the Assignment of Claims Act of 1940;
(10) if such Loan Party maintains a credit limit for an Account
Debtor, the aggregate dollar amount of Accounts Receivable due from such
Account Debtor, including such Account Receivable, does not exceed such
credit limit;
(11) if the Account Receivable is evidenced by chattel paper or an
instrument, the originals of such chattel paper or instrument shall have
been endorsed and/or assigned and delivered to the Agent in a manner
satisfactory to the Agent;
(12) such Account Receivable is not more than 90 days past the
original invoice date thereof, according to the original terms of sale;
(13) it is not an Account Receivable with respect to an Account Debtor
that is located in any jurisdiction which has adopted a statute or other
requirement with respect to which any Person that obtains business from
within such jurisdiction must file a notice of business activities report
or make any other required filings in a timely manner in order to enforce
its claims in such jurisdiction's courts unless such notice of business
activities report has been duly and timely filed or such Loan Party is
exempt from filing such report and has provided the Agent with satisfactory
evidence of such exemption;
(14) the Account Debtor with respect thereto is not a Loan Party or an
Affiliate of a Loan Party;
(15) it is not owed by an Account Debtor with respect to which 25% or
more of the aggregate amount of outstanding Accounts Receivable owed at
such time by such Account Debtor is classified as ineligible under clause
(12) of this definition; and
(16) if the aggregate amount of all Accounts Receivable owed by the
Account Debtor thereon exceeds 35% of the aggregate amount of all Accounts
Receivable at such time, then all Accounts Receivable owed by such Account
Debtor in excess of such amount shall be deemed ineligible.
An Account Receivable which is at any time an Eligible Account Receivable, but
which subsequently fails to meet any of the foregoing requirements, shall
forthwith cease to be an Eligible Account Receivable. Further, with respect to
any Account Receivable, if the Agent or the Required Banks at any time hereafter
determine in their discretion that the prospect of payment or performance by the
Account Debtor with respect thereto is materially impaired for any reason
whatsoever, such Account Receivable shall cease to be an Eligible Account
Receivable after notice of such determination is given to the Representative.
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Eligible Inventory means all raw materials and finished goods Inventory of
each Loan Party which meets each of the following requirements:
(1) it (a) is subject to a perfected Lien in favor of the Agent and
(b) is not subject to any other assignment, claim or Lien;
(2) it is salable;
(3) it is in the possession and control of the Loan Parties and it is
stored and held in facilities owned by the Loan Parties or, if such
facilities are not so owned, the Agent is in possession of a Collateral
Access Agreement with respect thereto;
(4) it is not Inventory produced in violation of the Fair Labor
Standards Act and subject to the "hot goods" provisions contained in Title
29 U.S.C. ss.215;
(5) it is not subject to any agreement which would restrict the
Agent's ability to sell or otherwise dispose of such Inventory;
(6) it is located in the United States or in any territory or
possession of the United States that has adopted Article 9 of the Uniform
Commercial Code;
(7) it is not "in transit" to any Loan Party or held by any Loan Party
on consignment; and
(8) the Agent shall not have determined in its discretion that it is
unacceptable due to age, type, category, quality, quantity and/or any other
reason whatsoever.
Inventory which is at any time Eligible Inventory but which subsequently fails
to meet any of the foregoing requirements shall forthwith cease to be Eligible
Inventory.
Eligible Work in Progress Inventory means all Work in Progress which
otherwise meets all of the requirements of Eligible Inventory set forth in the
definition of Eligible Inventory.
Elsa Prince Trust means the Elsa D. Prince Living Trust Dated 1/27/76, the
trustee of which is Elsa D. Prince.
Environmental Claims means all claims, however asserted, by any
governmental, regulatory or judicial authority or other Person alleging
potential liability or responsibility for violation of any Environmental Law, or
for release or injury to the environment.
Environmental Laws means all present or future federal, state or local
laws, statutes, common law duties, rules, regulations, ordinances and codes,
together with all administrative
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orders, directed duties, requests, licenses, authorizations and permits of, and
agreements with, any governmental authority, in each case relating to
Environmental Matters.
Environmental Matters means any matter arising out of or relating to health
and safety, or pollution or protection of the environment or workplace,
including any of the foregoing relating to the presence, use, production,
generation, handling, transport, treatment, storage, disposal, distribution,
discharge, release, control or cleanup of any Hazardous Substance.
ERISA means the Employee Retirement Income Security Act of 1974.
Eurocurrency Reserve Percentage means, with respect to any LIBOR Loan for
any Interest Period, a percentage (expressed as a decimal) equal to the daily
average during such Interest Period of the percentage in effect on each day of
such Interest Period, as prescribed by the FRB, for determining the aggregate
maximum reserve requirements applicable to "Eurocurrency Liabilities" pursuant
to Regulation D or any other then applicable regulation of the FRB which
prescribes reserve requirements applicable to "Eurocurrency Liabilities" as
presently defined in Regulation D.
Event of Default means any of the events described in Section 12.1.
Excess Cash Flow means, for any period, the remainder of
(a) EBITDA for such period,
less
(b) the sum, without duplication, of
(i) scheduled repayments of principal of Term Loans made during
such period,
plus
(ii) voluntary prepayments of the Term Loans pursuant to Section
6.2.1 during such period,
plus
(iii) cash payments made in such period with respect to Capital
Expenditures,
plus
(iv) all federal, state, local and foreign income taxes paid in
cash by the Company and its Subsidiaries during such period,
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plus
(v) cash Interest Expense of the Loan Parties during such period,
plus
(vi) any net increase in Adjusted Working Capital during such
period,
plus
(vii) all dividend payments on the Preferred Stock.
Federal Funds Rate means, for any day, the rate set forth in the weekly
statistical release designated as H.15(519), or any successor publication,
published by the Federal Reserve Bank of New York (including any such successor
publication, "H.15(519)") on the preceding Business Day opposite the caption
"Federal Funds (Effective)"; or, if for any relevant day such rate is not so
published on any such preceding Business Day, the rate for such day will be the
arithmetic mean as determined by the Agent of the rates for the last transaction
in overnight Federal funds arranged prior to 9:00 A.M. (New York City time) on
that day by each of three leading brokers of Federal funds transactions in New
York City selected by the Agent.
Fiscal Quarter means a fiscal quarter of a Fiscal Year.
Fiscal Year means the fiscal year of the Loan Parties, which period shall
be the 12-month period ending on December 31 of each year. References to a
Fiscal Year with a number corresponding to any calendar year (e.g., "Fiscal Year
2000") refer to the Fiscal Year ending on December 31 of such calendar year.
Fixed Charge Coverage Ratio means, as of any date of determination,
measured on a rolling twelve-month basis, the ratio of (a) the total for such
period of Rolling Twelve Month EBITDA minus the sum of all income taxes paid by
the Loan Parties and all Capital Expenditures to (b) the sum for such period of
(i) Interest Expense plus (ii) required payments of principal of Funded Debt
(including the Term Loans but excluding the Revolving Loans) plus (iii) all
dividend payments on the Preferred Stock.
FRB means the Board of Governors of the Federal Reserve System or any
successor thereto.
Funded Debt means, as to any Person, all Debt of such Person that matures
more than one year from the date of its creation (or is renewable or extendible,
at the option of such Person, to a date more than one year from such date).
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GAAP means generally accepted accounting principles set forth from time to
time in the opinions and pronouncements of the Accounting Principles Board and
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board (or agencies with
similar functions of comparable stature and authority within the U.S. accounting
profession), which are applicable to the circumstances as of the date of
determination.
Group - see Section 2.2.1.
Guarantor Distributions - see Section 10.10.
Guarantors means each of James R. Workman, Jack D. Rutherford, Craig and
Emilie Wierda, William Beckman and the Elsa Prince Trust.
Guaranty means each guaranty of even date herewith executed by each of the
Guarantors in favor of Agent, as amended, modified or restated from time to
time.
Hazardous Substances - see Section 9.15.
Hedging Agreement means any interest rate, currency or commodity swap
agreement, cap agreement or collar agreement, and any other agreement or
arrangement designed to protect any Loan Party against fluctuations in interest
rates, currency exchange rates or commodity prices, which agreements shall (to
the extent entered into with a Bank), be secured by the collateral granted to
the Banks under the Collateral Documents.
Hedging Obligation means, with respect to any Loan Party, any liability of
such Loan Party under any Hedging Agreement.
Interest Expense means for any period the consolidated interest expense of
the Loan Parties for such period (including all imputed interest on Capital
Leases).
Interest Period means, as to any LIBOR Loan, the period commencing on
the date such Loan is borrowed or continued as, or converted into, a LIBOR Loan
and ending on the date one, two, three or six months thereafter as selected by
the Representative pursuant to Section 2.2.2 or 2.2.3, as the case may be;
provided that:
(i) if any Interest Period would otherwise end on a day that is not a
Business Day, such Interest Period shall be extended to the following
Business Day unless the result of such extension would be to carry such
Interest Period into another calendar month, in which event such Interest
Period shall end on the preceding Business Day;
(ii) any Interest Period that begins on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period shall end on the last Business Day of the calendar month at
the end of such Interest Period;
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(iii) the Representative may not select any Interest Period for a
Revolving Loan which would extend beyond the scheduled Termination Date;
and
(iv) the Representative may not select any Interest Period for any
Term Loan if, after giving effect to such selection, the aggregate
principal amount of all Term Loans having Interest Periods ending after any
date on which an installment of the Term Loans is scheduled to be repaid
would exceed the aggregate principal amount of the Term Loans scheduled to
be outstanding after giving effect to such repayment.
Inventory has the meaning assigned to such term in the Uniform Commercial
Code as in effect in the State of Illinois on the date hereof.
Investment means, relative to any Person, any investment in another Person,
whether by acquisition of any debt or equity security, by making any loan or
advance or by becoming obligated with respect to a Suretyship Liability in
respect of obligations of such other Person (other than travel and similar
advances to employees in the ordinary course of business).
Issuing Bank means Agent in its capacity as the issuer of Letters of Credit
hereunder and its successors and assigns in such capacity.
LaSalle - see the Preamble.
L/C Application means, with respect to any request for the issuance of a
Letter of Credit, a letter of credit application in the form being used by the
Issuing Bank at the time of such request for the type of letter of credit
requested.
L/C Fee Rate - see the Pricing Schedule attached hereto as Exhibit A.
Letter of Credit - see Section 2.1.3.
Leverage Ratio means, as of the last day of any month, the ratio of (i)
Senior Debt as of such day to (ii) Rolling Twelve Month EBITDA for the month
ending on such day.
LIBOR Loan means any Loan which bears interest at a rate determined by
reference to the LIBOR Rate (Reserve Adjusted).
LIBOR Margin - see the Pricing Schedule attached hereto as Exhibit A.
LIBOR Office means with respect to any Bank the office or offices of such
Bank which shall be making or maintaining the LIBOR Loans of such Bank
hereunder. A LIBOR Office of any Bank may be, at the option of such Bank, either
a domestic or foreign office.
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LIBOR Rate means, with respect to any LIBOR Loan for any Interest Period, a
rate per annum equal to the offered rate for deposits in Dollars for a period
equal or comparable to such Interest Period which appears on Telerate page 3750
as of 11:00 A.M. (London time) two Business Days prior to the first day of such
Interest Period. "Telerate Page 3750 " means the display designated as "Page
3750" on the Telerate Service (or such other page as may replace page 3750 on
that service or such other service as may be nominated by the British Bankers'
Association as the information vendor for the purpose of displaying British
Bankers' Association Interest Settlement Rates for Dollar deposits).
LIBOR Rate (Reserve Adjusted) means, with respect to any LIBOR Loan for any
Interest Period, a rate per annum (rounded upwards, if necessary, to the nearest
1/16th of 1%) determined pursuant to the following formula:
LIBOR Rat= LIBOR Rate
(Reserve Adjusted) 1-Eurocurrency
Reserve Percentage
Lien means, with respect to any Person, any interest granted by such Person
in any real or personal property, asset or other right owned or being purchased
or acquired by such Person which secures payment or performance of any
obligation and shall include any mortgage, lien, encumbrance, charge or other
security interest of any kind, whether arising by contract, as a matter of law,
by judicial process or otherwise.
Loan Documents means this Agreement, the Notes, the Guaranties, the L/C
Applications and the Collateral Documents.
Loan Party means the Company and each Subsidiary thereof.
Loans means, collectively, the Revolving Loans and the Term Loans.
Mandatory Prepayment Event - see Section 6.2.2(a).
Margin Stock means any "margin stock" as defined in Regulation U.
Material Adverse Effect means (a) a material adverse change in, or a
material adverse effect upon, the financial condition, operations, assets,
business, properties or prospects of the Loan Parties taken as a whole, (b) a
material impairment of the ability of the Loan Parties to perform any of its
obligations under any Loan Document or (c) a material adverse effect upon any
substantial portion of the collateral under the Collateral Documents or upon the
legality, validity, binding effect or enforceability against any Loan Party of
any Loan Document.
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Montpelier Equipment means all Equipment of the Loan Parties located at the
Montpelier, Ohio facility set forth on Schedule 1.1 hereto.
Mortgage means a mortgage, deed of trust, leasehold mortgage or similar
instrument granting the Agent a Lien on real property of any Loan Party, as the
same may be amended, modified or restated from time to time.
Multiemployer Pension Plan means a multiemployer plan, as defined in
Section 4001(a)(3) of ERISA, to which any Loan Party or any member of the
Controlled Group may have any liability.
Net Cash Proceeds means:
(a) with respect to any Asset Sale the aggregate cash proceeds
(including cash proceeds received by way of deferred payment of principal
pursuant to a note, installment receivable or otherwise, but only as and
when received) received by any Loan Party pursuant to such Asset Sale net
of (i) the direct costs relating to such sale, transfer or other
disposition (including sales commissions and legal, accounting and
investment banking fees), (ii) taxes paid or reasonably estimated by any
Loan Party to be payable as a result thereof (after taking into account any
available tax credits or deductions and any tax sharing arrangements) and
(iii) amounts required to be applied to the repayment of any Debt secured
by a Lien on the asset subject to such Asset Sale (other than the Loans);
and
(b) with respect to any issuance of equity securities, the aggregate
cash proceeds received by any Loan Party pursuant to such issuance, net of
the direct costs relating to such issuance (including sales and
underwriter's commission); and
(c) with respect to any issuance of Debt, the aggregate cash proceeds
received by any Loan Party pursuant to such issuance, net of the direct
costs of such issuance (including up-front fees and placement fees).
Non-Use Fee Rate - see the Pricing Schedule attached hereto as Exhibit A.
Notes means, collectively, the Revolving Notes, Term Note A and Term Note
B.
Operating Lease means any lease of (or other agreement conveying the right
to use) any real or personal property by the Company or any Subsidiary, as
lessee, other than any Capital Lease.
PBGC means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
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Pension Plan means a "pension plan", as such term is defined in Section
3(2) of ERISA, which is subject to Title IV of ERISA (other than a Multiemployer
Pension Plan), and to which the Company or any member of the Controlled Group
may have any liability, including any liability by reason of having been a
substantial employer within the meaning of Section 4063 of ERISA at any time
during the preceding five years, or by reason of being deemed to be a
contributing sponsor under Section 4069 of ERISA.
Person means any natural person, corporation, partnership, trust, limited
liability company, association, governmental authority or unit, or any other
entity, whether acting in an individual, fiduciary or other capacity.
Pledge Agreement means the Pledge Agreement of even date herewith executed
by the Company in favor of Agent, as the same may be amended, modified or
restated from time to time.
Preferred Stock means that certain Preferred Stock, $.001 par value per
share, of the Company.
Pro Rata Share means, with respect to any Bank, the percentage specified
opposite such Bank's name on Schedule 2.1 hereto, as adjusted from time to time
in accordance with the terms hereof.
Prime Rate means, for any day, the rate of interest in effect for such day
as publicly announced from time to time by LaSalle as its prime rate (whether or
not such rate is actually charged by LaSalle). Any change in the Prime Rate
announced by LaSalle shall take effect at the opening of business on the day
specified in the public announcement of such change.
Purchase means the purchase of substantially all of the assets of Drake
Products by the Company pursuant to the terms of the Purchase Agreement.
Purchase Agreement means that certain Asset Purchase Agreement dated as of
January 27, 2000, as amended, among the Company, Clarion-Drake Acquisition,
Drake Products and the Selling Shareholders.
Purchase Agreement Assignment means that certain Purchase Agreement
Assignment of even date herewith executed by the Company in favor of Agent, as
amended, modified or restated from time to time.
RCRA - see Section 9.15.
Regulation D means Regulation D of the FRB.
Regulation U means Regulation U of the FRB.
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Release has the meaning specified in CERCLA and the term "Disposal" (or
"Disposed") has the meaning specified in RCRA; provided that in the event either
CERCLA or RCRA is amended so as to broaden the meaning of any term defined
thereby, such broader meaning shall apply as of the effective date of such
amendment; and provided, further, that to the extent that the laws of a state
wherein any affected property lies establish a meaning for "Release" or
"Disposal" which is broader than is specified in either CERCLA or RCRA, such
broader meaning shall apply.
Release Price means $4,063,400 representing the aggregate amount of the
release price and all of the Montpelier Equipment set forth on Schedule 1.1
hereto.
Representative - see Section 2.1.5.
Required Banks means Banks having Pro Rata Shares aggregating 51% or more.
Revolving Commitment Amount means Fifteen Million Dollars ($15,000,000), as
reduced from time to time pursuant to Section 6.1.
Revolving Credit Commitment - See Section 2.1.1.
Revolving Loans - see Section 2.1.1.
Revolving Note - see Section 3.1.
Revolving Outstandings means, at any time, the sum of (a) the aggregate
principal amount of all outstanding Revolving Loans, plus (b) the Stated Amount
of all Letters of Credit.
Rolling Twelve Month EBITDA means, as of any date, EBITDA measured on a
rolling twelve (12) month basis, taking into account the month just ended and
the prior eleven (11) months.
SEC means the Securities and Exchange Commission or any other governmental
authority succeeding to any of the principal functions thereof.
Security Agreement means the Security Agreement of even date herewith
executed by each Loan Party in favor of the Agent, as amended, modified or
restated from time to time.
Seller Notes means (i) that certain Subordinated Promissory Note dated as
of February 29, 2000 payable by each of the Company and Clarion-Drake
Acquisition to Drake Products in the original principal amount of $5,000,000,
(ii) that certain Subordinated Promissory Note dated as of February 29, 2000
payable by each of the Company and Clarion-Drake Acquisition to Drake Products
in the original principal amount of $135,000, and (iii) that certain
Subordinated Promissory Note dated as of February 29, 2000 payable by each of
the Company and Clarion-Drake Acquisition to Ruth Ann Drake in the original
principal amount of $1,000,000, each as may be amended, modified or restated
from time to time.
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Selling Shareholders means each of Jeffrey W. Anonick and Michael C.
Miller.
Senior Debt means all Debt of the Loan Parties other than Subordinated
Debt.
Stated Amount means, with respect to any Letter of Credit at any date of
determination, (a) the maximum aggregate amount available for drawing thereunder
under any and all circumstances plus (b) the aggregate amount of all
unreimbursed payments and disbursements under such Letter of Credit.
Subordination Agreements means each Subordination Agreement executed by
each holder of Subordinated Debt, in each case in form and substance acceptable
to the Agent.
Subordinated Debt means (i) each of the Seller Notes and (ii) any other
unsecured Debt of the Loan Parties which has subordination terms, covenants,
pricing and other terms which have been approved in writing by the Required
Banks.
Subsidiary means, with respect to any Person, a corporation, partnership,
limited liability company or other entity which such Person and/or its other
Subsidiaries own, directly or indirectly, such number of outstanding shares or
other ownership interests as have more than 50% of the ordinary voting power for
the election of directors or other managers of such corporation, partnership,
limited liability company or other entity. Unless the context otherwise
requires, each reference to Subsidiaries herein shall be a reference to
Subsidiaries of each Loan Party.
Suretyship Liability means any agreement, undertaking or arrangement by
which any Person guarantees, endorses or otherwise becomes or is contingently
liable upon (by direct or indirect agreement, contingent or otherwise, to
provide funds for payment, to supply funds to or otherwise to invest in a
debtor, or otherwise to assure a creditor against loss) any indebtedness,
obligation or other liability of any other Person (other than by endorsements of
instruments in the course of collection), or guarantees the payment of dividends
or other distributions upon the shares of any other Person. The amount of any
Person's obligation in respect of any Suretyship Liability shall (subject to any
limitation set forth therein) be deemed to be the principal amount of the debt,
obligation or other liability supported thereby.
Tangible Net Worth means, at any time, net worth determined in accordance
with GAAP plus Subordinated Debt after subtracting therefrom the amount of any
General Intangibles (as defined in the UCC), amounts due from Affiliates,
pre-paid expenses, pre-paid Tooling expenses, deferred taxes, deferred charges,
advances from shareholders, and the amount of other assets classified as
intangible by Agent in the exercise of its reasonable discretion.
Term Loan A - see Section 2.1.2.
Term Loan A Commitment - see Section 2.1.2.
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Term Loan B - see Section 2.1.3.
Term Loan B Commitment - see Section 2.1.3.
Term Loans means, collectively, Term Loan A and Term Loan B.
Termination Date means the earlier to occur of (a) February 28, 2003 or (b)
such other date on which the Commitments terminate pursuant to Section 6 or 12.
Term Note A - see Section 3.2.1.
Term Note B - see Section 3.2.2.
Tooling Receivables means all Eligible Account Receivables of Borrowers
which arise from the sale of tooling.
Total Debt means all Debt of the Loan Parties, determined on a consolidated
basis, excluding (i) contingent obligations in respect of Suretyship Liabilities
(except to the extent constituting Suretyship Liabilities in respect of Debt of
a Person other than a Loan Party), (ii) Hedging Obligations of the Loan Parties,
(iii) Debt of any Loan Party to another Loan Party, and (iv) contingent
obligations in respect of undrawn letters of credit.
Type of Loan or Borrowing - see Section 2.2.1. The types of Loans or
borrowings under this Agreement are as follows: Base Rate Loans or borrowings
and LIBOR Loans or borrowings.
Unmatured Event of Default means any event that, if it continues uncured,
will, with lapse of time or notice or both, constitute an Event of Default.
Work In Progress means all tooling Inventory located at one or more of the
Loan Parties' facilities.
1.2 Other Interpretive Provisions.
(a) The meanings of defined terms are equally applicable to the
singular and plural forms of the defined terms.
(b) Section, Schedule and Exhibit references are to this Agreement
unless otherwise specified.
(c) The term "including" is not limiting and means "including without
limitation."
(d) In the computation of periods of time from a specified date to a
later specified date, the word "from" means "from and including"; the words
"to" and "until" each mean "to but excluding", and the word "through" means
"to and including."
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(e) Unless otherwise expressly provided herein, (i) references to
agreements (including this Agreement) and other contractual instruments
shall be deemed to include all subsequent amendments and other
modifications thereto, but only to the extent such amendments and other
modifications are not prohibited by the terms of any Loan Document, and
(ii) references to any statute or regulation shall be construed as
including all statutory and regulatory provisions amending, replacing,
supplementing or interpreting such statute or regulation.
(f) This Agreement and the other Loan Documents may use several
different limitations, tests or measurements to regulate the same or
similar matters. All such limitations, tests and measurements are
cumulative and each shall be performed in accordance with its terms.
(g) This Agreement and the other Loan Documents are the result of
negotiations among and have been reviewed by counsel to the Agent, the Loan
Parties, the Banks and the other parties thereto and are the products of
all parties. Accordingly, they shall not be construed against the Agent or
the Banks merely because of the Agent's or Banks' involvement in their
preparation.
1.3 Revised Article 9. It is the intention of the parties hereto that the
priorities and agreements herein contained continue to apply after the enactment
by the various States of Revised Article 9 --Secured Transactions (with
conforming amendments to Articles 1, 2, 2a, 4, 5, 6, 7 and 8) to the UCC as
approved by The American Law Institute in 1998 and approved and recommended for
enactment in all the States by the National Conference of Commissioners for
Uniform State Laws in 1998 ("Revised Article 9") and the effectiveness of
Revised Article 9 in any State. After the effectiveness of Revised Article 9 in
any State governing perfection and the effect of perfection or non-perfection of
a security interest in any collateral, as to such State and such collateral, (i)
all section references herein to, and all defined terms used herein defined in,
Article 9 of the UCC as currently in effect shall be deemed to be to any
corresponding Section or definition of Revised Article 9, and (ii) if any
definition used herein by reference to Revised Article 9 is broader than the
corresponding definition used in current Article 9 of the UCC, such broader
definition will apply herein.
SECTION 2 COMMITMENTS OF THE BANKS; BORROWING, CONVERSION AND
LETTER OF CREDIT PROCEDURES.
2.1 Commitments. On and subject to the terms and conditions of this
Agreement, each of the Banks, severally and for itself alone, agrees to make
loans to, and to issue or participate in letters of credit for the account of,
the Loan Parties as follows:
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2.1.1 Revolving Loan Commitment. Each Bank will make loans on a revolving
basis ("Revolving Loans") from time to time until the Termination Date in such
Bank's Pro Rata Share of such aggregate amounts as the Representative may
request from all Banks on behalf of the Loan Parties; provided that the
Revolving Outstandings will not at any time exceed the lesser of (x) the
Revolving Commitment Amount and (y) the Borrowing Base (the "Revolving Credit
Commitment").
2.1.2 Term Loan A Commitment. Each Bank agrees to make a term loan to the
Loan Parties (each such loan, a "Term Loan A") on the Closing Date in such
Bank's Pro Rata Share of Twenty Six Million Dollars ($26,000,000) (the "Term
Loan A Commitment"). The commitments of the Banks to make Term Loan A shall
expire concurrently with the making of Term Loan A on the Closing Date.
2.1.3 Term Loan B Commitment. Each Bank agrees to make a term loan to the
Loan Parties (each such loan, a "Term Loan B") on the Closing Date in such
Bank's Pro Rata Share of Twelve Million Dollars ($12,000,000) (the "Term Loan B
Commitment"). The commitments of the Banks to make Term Loan B shall expire
concurrently with the making of Term Loan B on the Closing Date.
2.1.4 L/C Commitment. (a) The Issuing Bank will issue standby letters of
credit under the Revolving Credit Commitment, in each case containing such terms
and conditions as are permitted by this Agreement and are reasonably
satisfactory to the Issuing Bank (each a "Letter of Credit"), at the request of
and for the account of the Loan Parties from time to time before the date which
is 30 days prior to the Termination Date and (b) as more fully set forth in
Section 2.3.2, each Bank agrees to purchase a participation in each such Letter
of Credit; provided that (i) the aggregate Stated Amount of all Letters of
Credit shall not at any time exceed the lesser of (i) One Million Dollars
($1,000,000) and (ii) the aggregate amount available for borrowing under the
Revolving Credit Commitment.
2.1.5 Representative. Notwithstanding anything contained in this Agreement
to the contrary, the Loan Parties hereby appoint the Company (the
"Representative") to act as their sole and exclusive representative under this
Agreement for all purposes, including, without limitation, to receive funds
advanced hereunder, to receive notices and other communications from the Agent
or Co-Agent hereunder, to make requests for advances of funds hereunder and to
amend, modify or supplement this Agreement on behalf of each Loan Party. Neither
the Agent nor Co-Agent shall have (i) any obligation to communicate with any
Loan Party other than the Representative concerning this Agreement, any note or
any other matter related to the obligations of the Loan Parties and (ii) any
responsibility with respect to the allocation among Loan Parties of the funds
advanced hereunder. It is understood and agreed that all of the Loan Parties
have obtained all necessary corporate approvals to effectuate the provisions of
this Section 2.1.5.
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2.2 Loan Procedures.
2.2.1 Various Types of Loans. Each Revolving Loan shall be, and each Term
Loan may be divided into tranches which are either a Base Rate Loan or a LIBOR
Loan (each a "type" of Loan), as the Representative shall specify in the related
notice of borrowing or conversion pursuant to Section 2.2.2 or 2.2.3. LIBOR
Loans having the same Interest Period are sometimes called a "Group" or
collectively "Groups". Base Rate Loans and LIBOR Loans may be outstanding at the
same time, provided that not more than three (3) different Groups of LIBOR Loans
shall be outstanding at any one time. All borrowings, conversions and repayments
of Revolving Loans shall be effected so that each Bank will have a pro rata
share (according to its Pro Rata Share) of all types and Groups of Loans.
Notwithstanding the foregoing or any other provision of this Agreement, the
Company may not select any Interest Period for a LIBOR Loan which is longer than
one month prior to the earlier of (x) 60 days after the Closing Date and (y) the
date that the Agent notifies the Company that it has completed its primary
syndication of the Loans and the Commitments.
2.2.2 Borrowing Procedures. The Representative shall give written notice or
telephonic notice (followed immediately by written confirmation thereof) to the
Agent of each proposed borrowing not later than (a) in the case of a Base Rate
borrowing, 11:00 A.M., Chicago time, on the proposed date of such borrowing, and
(b) in the case of a LIBOR borrowing, 11:00 A.M., Chicago time, at least three
Business Days prior to the proposed date of such borrowing. Each such notice
shall be effective upon receipt by the Agent, shall be irrevocable, and shall
specify the date, amount and type of borrowing and, in the case of a LIBOR
borrowing, the initial Interest Period therefor. Each written notice of each
borrowing shall be accompanied by a current Borrowing Base Certificate in
accordance with the terms of Section 10.1.6. Promptly upon receipt of such
notice, the Agent shall advise each Bank thereof. Not later than 1:00 P.M.,
Chicago time, on the date of a proposed borrowing, each Bank shall provide the
Agent at the office specified by the Agent with immediately available funds
covering such Bank's Pro Rata Share of such borrowing and, so long as the Agent
has not received written notice that the conditions precedent set forth in
Section 11 with respect to such borrowing have not been satisfied, the Agent
shall pay over the funds received by the Agent to the Representative on the
requested borrowing date. Each borrowing shall be on a Business Day. Each LIBOR
borrowing shall be in an aggregate amount of at least Five Million Dollars
($5,000,000) and an integral multiple of at least Five Hundred Thousand Dollars
($500,000).
2.2.3 Conversion and Continuation Procedures.
(a) Subject to Section 2.2.1, the Representative may, upon irrevocable
written notice to the Agent in accordance with clause (b) below:
(i) elect, as of any Business Day, to convert any Loans (or any
part thereof in an aggregate amount not less than $5,000,000 or any
higher integral multiple of $500,000) into Loans of the other type; or
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(ii) elect, as of the last day of the applicable Interest Period,
to continue any LIBOR Loans having Interest Periods expiring on such
day (or any part thereof in an aggregate amount not less than
$5,000,000 or a higher integral multiple of $500,000) for a new
Interest Period;
provided that after giving effect to any prepayment, conversion or continuation,
the aggregate principal amount of each Group of LIBOR Loans shall be at least
$5,000,000 and an integral multiple of $500,000.
(b) The Representative shall give written or telephonic (followed
immediately by written confirmation thereof) notice to the Agent of each
proposed conversion or continuation not later than (i) in the case of
conversion into Base Rate Loans, 11:00 A.M., Chicago time, on the proposed
date of such conversion and (ii) in the case of conversion into or
continuation of LIBOR Loans, 11:00 A.M., Chicago time, at least three
Business Days prior to the proposed date of such conversion or
continuation, specifying in each case:
(i) the proposed date of conversion or continuation;
(ii) the aggregate amount of Loans to be converted or continued;
(iii) the type of Loans resulting from the proposed conversion or
continuation; and
(iv) in the case of conversion into, or continuation of, LIBOR
Loans, the duration of the requested Interest Period therefor.
(c) If upon the expiration of any Interest Period applicable to LIBOR
Loans, the Representative has failed to select timely a new Interest Period
to be applicable to such LIBOR Loans, the Representative shall be deemed to
have elected to convert such LIBOR Loans into Base Rate Loans effective on
the last day of such Interest Period.
(d) The Agent will promptly notify each Bank of its receipt of a
notice of conversion or continuation pursuant to this Section 2.2.3 or, if
no timely notice is provided by the Representative, of the details of any
automatic conversion.
(e) Any conversion of a LIBOR Loan on a day other than the last day of
an Interest Period therefor shall be subject to Section 8.4.
2.3 Letter of Credit Procedures.
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2.3.1 L/C Applications. The Representative shall give notice to the Agent
and the Issuing Bank of the proposed issuance of each Letter of Credit on a
Business Day which is at least three Business Days (or such lesser number of
days as the Agent and the Issuing Bank shall agree in any particular instance in
their sole discretion) prior to the proposed date of issuance of such Letter of
Credit. Each such notice shall be accompanied by an L/C Application, duly
executed by the Representative and in all respects satisfactory to the Agent and
the Issuing Bank, together with such other documentation as the Agent or the
Issuing Bank may request in support thereof, it being understood that each L/C
Application shall specify, among other things, the date on which the proposed
Letter of Credit is to be issued, the expiration date of such Letter of Credit
(which shall not be later than the earlier to occur of (x) one year after the
date of issuance thereof and (y) thirty days prior to the scheduled Termination
Date) and whether such Letter of Credit is to be transferable in whole or in
part. Upon approval of the Issuing Bank and satisfaction of each of the
conditions precedent set forth in Section 11 with respect to the issuance of
such Letter of Credit, the Issuing Bank shall issue such Letter of Credit on the
requested issuance date. The Issuing Bank shall promptly advise the Agent of the
issuance of each Letter of Credit and of any amendment thereto, extension
thereof or event or circumstance changing the amount available for drawing
thereunder. In the event of any inconsistency between the terms of any L/C
Application and the terms of this Agreement, the terms of this Agreement shall
control.
2.3.2 Participations in Letters of Credit. Concurrently with the issuance
of each Letter of Credit, the Issuing Bank shall be deemed to have sold and
transferred to each other Bank, and each other Bank shall be deemed irrevocably
and unconditionally to have purchased and received from the Issuing Bank,
without recourse or warranty, an undivided interest and participation, to the
extent of such other Bank's Pro Rata Share, in such Letter of Credit and the
applicable Loan Party's reimbursement obligations with respect thereto. For the
purposes of this Agreement, the unparticipated portion of each Letter of Credit
shall be deemed to be the Issuing Bank's "participation" therein. The Issuing
Bank hereby agrees, upon request of the Agent or any Bank, to deliver to the
Agent or such Bank a list of all outstanding Letters of Credit issued by the
Issuing Bank, together with such information related thereto as the Agent or
such Bank may reasonably request.
2.3.3 Reimbursement Obligations. The Loan Parties hereby unconditionally
and irrevocably agree to reimburse the Issuing Bank for each payment or
disbursement made by the Issuing Bank under any Letter of Credit honoring any
demand for payment made by the beneficiary thereunder, in each case on the date
that such payment or disbursement is made. Any amount not reimbursed on the date
of such payment or disbursement shall bear interest from the date of such
payment or disbursement to the date that the Issuing Bank is reimbursed by the
Loan Parties therefor, payable on demand, at a rate per annum equal to the Base
Rate from time to time in effect plus the Base Rate Margin from time to time in
effect plus, beginning on the third Business Day after receipt of notice from
the Issuing Bank of such payment or disbursement, 3%. The Issuing Bank shall
notify the Representative and the Agent whenever any demand for payment is made
under any Letter of Credit by the beneficiary thereunder; provided that the
failure of the Issuing Bank to so notify the Representative shall not affect the
rights of the Issuing Bank or the Banks in any manner whatsoever.
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2.3.4 Limitation on Obligations of Issuing Bank. In determining whether to
pay under any Letter of Credit, the Issuing Bank shall not have any obligation
to any Loan Party or any Bank other than to confirm that any documents required
to be delivered under such Letter of Credit appear to have been delivered and
appear to comply on their face with the requirements of such Letter of Credit.
Any action taken or omitted to be taken by the Issuing Bank under or in
connection with any Letter of Credit, if taken or omitted in the absence of
gross negligence or willful misconduct, shall not impose upon the Issuing Bank
any liability to any Loan Party or any Bank and shall not reduce or impair any
Loan Party's reimbursement obligations set forth in Section 2.3.3 or the
obligations of the Banks pursuant to Section 2.3.5.
2.3.5 Funding by Banks to Issuing Bank. If the Issuing Bank makes any
payment or disbursement under any Letter of Credit and the Loan Parties have not
reimbursed the Issuing Bank in full for such payment or disbursement by 11:00
A.M., Chicago time, on the date of such payment or disbursement, or if any
reimbursement received by the Issuing Bank from the Loan Parties are or must be
returned or rescinded upon or during any bankruptcy or reorganization of any
Loan Party or otherwise, each other Bank shall be obligated to pay to the Agent
for the account of the Issuing Bank, in full or partial payment of the purchase
price of its participation in such Letter of Credit, its Pro Rata Share of such
payment or disbursement (but no such payment shall diminish the obligations of
the Loan Parties under Section 2.3.3), and, upon notice from the Issuing Bank,
the Agent shall promptly notify each other Bank thereof. Each other Bank
irrevocably and unconditionally agrees to so pay to the Agent in immediately
available funds for the Issuing Bank's account the amount of such other Bank's
Percentage of such payment or disbursement. If and to the extent any Bank shall
not have made such amount available to the Agent by 2:00 P.M., Chicago time, on
the Business Day on which such Bank receives notice from the Agent of such
payment or disbursement (it being understood that any such notice received after
noon, Chicago time, on any Business Day shall be deemed to have been received on
the next following Business Day), such Bank agrees to pay interest on such
amount to the Agent for the Issuing Bank's account forthwith on demand, for each
day from the date such amount was to have been delivered to the Agent to the
date such amount is paid, at a rate per annum equal to (a) for the first three
days after demand, the Federal Funds Rate from time to time in effect and (b)
thereafter, the Base Rate from time to time in effect. Any Bank's failure to
make available to the Agent its Pro Rata Share of any such payment or
disbursement shall not relieve any other Bank of its obligation hereunder to
make available to the Agent such other Bank's Pro Rata Share of such payment,
but no Bank shall be responsible for the failure of any other Bank to make
available to the Agent such other Bank's Pro Rata Share of any such payment or
disbursement.
2.4 Commitments Several. The failure of any Bank to make a requested Loan
on any date shall not relieve any other Bank of its obligation (if any) to make
a Loan on such date, but no Bank shall be responsible for the failure of any
other Bank to make any Loan to be made by such other Bank.
2.5 Certain Conditions. Notwithstanding any other provision of this
Agreement, no Bank shall have an obligation to make any Loan, or to permit the
continuation of or any conversion into any LIBOR Loan, and the Issuing Bank
shall not have any obligation to issue any Letter of Credit, if an Event of
Default or Unmatured Event of Default exists.
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SECTION 3 NOTES EVIDENCING LOANS.
3.1 Revolving Notes. The Revolving Loans made by each Bank under the
Revolving Credit Commitment shall be evidenced by the Revolving Notes
substantially in the form set forth in Exhibit B, with appropriate insertions,
dated the date hereof, payable to the order of each such Bank in a principal
amount not to exceed each such Bank's Pro Rata Share of the Revolving Credit
Commitment. The unpaid principal amount of the Revolving Loans shall bear
interest and be due and payable as provided in this Agreement and the Revolving
Notes. Payments to be made by the Loan Parties under the Revolving Notes shall
be made at the time, in the amounts and upon the terms set forth herein and
therein.
3.2 Term Notes.
3.2.1 Term Note A. Term Loan A made by each Bank under the Term Loan A
Credit Commitment shall be evidenced by the Term Note A substantially in the
form set forth in Exhibit C, with appropriate insertions, dated the date hereof,
payable to the order of each such Bank in a principal amount not to exceed each
such Bank's Pro Rata Share of the Term Loan A Commitment. The unpaid principal
amount of Term Loan A shall bear interest and be due and payable as provided in
this Agreement and each Term Note A. Payments to be made by the Loan Parties
under each Term Note A shall be made at the time, in the amounts and upon the
terms set forth herein and therein.
3.2.2 Term Note B. Term Loan B made by each Bank under the Term Loan B
Commitment shall be evidenced by Term Note B substantially in the form set forth
in Exhibit D, with appropriate insertions, dated the date hereof, payable to the
order of each such Bank in a principal amount not to exceed each such Bank's Pro
Rata Share of the Term Note B Commitment. The unpaid principal amount of each
Term Note B shall bear interest and be due and payable as provided in this
Agreement and each Term Note B. Payments to be made by the Loan Parties under
each Term Note B shall be made at the time, in the amounts and upon the terms
set forth herein and therein.
3.3 Recordkeeping. Each Bank shall record in its records, or at its option
on any schedule attached to its Note, the date and amount of each Loan made by
such Bank, each repayment or conversion thereof and, in the case of each LIBOR
Loan, the dates on which each Interest Period for such Loan shall begin and end.
The aggregate unpaid principal amount so recorded shall be rebuttable
presumptive evidence of the principal amount owing and unpaid on such Note. The
failure to so record any such amount or any error in so recording any such
amount shall not, however, limit or otherwise affect the obligations of the Loan
Parties hereunder or under any Note to repay the principal amount of the Loans
evidenced by such Note together with all interest accruing thereon.
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SECTION 4 INTEREST.
4.1 Interest Rates. The Loan Parties promise to pay interest on the unpaid
principal amount of each Loan for the period commencing on the date of such Loan
until such Loan is paid in full as follows:
(a) at all times while such Loan is a Base Rate Loan, at a rate per
annum equal to the sum of the Base Rate from time to time in effect plus
the Base Rate Margin from time to time in effect; and
(b) at all times while such Loan is a LIBOR Loan, at a rate per annum
equal to the sum of the LIBOR Rate (Reserve Adjusted) applicable to each
Interest Period for such Loan plus the LIBOR Margin from time to time in
effect;
provided that at any time an Event of Default exists, if requested by the
Required Banks, the interest rate applicable to each Loan shall be increased by
3% per annum.
4.2 Interest Payment Dates. Accrued interest on each Base Rate Loan shall
be payable in arrears on the last day of each calendar month and at maturity.
Accrued interest on each LIBOR Loan shall be payable on the last day of each
Interest Period relating to such Loan (and, in the case of a LIBOR Loan with a
six-month Interest Period, on the three-month anniversary of the first day of
such Interest Period) and at maturity. After maturity, accrued interest on all
Loans shall be payable on demand.
4.3 Setting and Notice of LIBOR Rates. The applicable LIBOR Rate for each
Interest Period shall be determined by the Agent, and notice thereof shall be
given by the Agent promptly to the Representative and each Bank. Each
determination of the applicable LIBOR Rate by the Agent shall be conclusive and
binding upon the parties hereto, in the absence of demonstrable error. The Agent
shall, upon written request of Representative or any Bank, deliver to
Representative or such Bank a statement showing the computations used by the
Agent in determining any applicable LIBOR Rate hereunder.
4.4 Computation of Interest. Interest shall be computed for the actual
number of days elapsed on the basis of a year of 360 days. The applicable
interest rate for each Base Rate Loan shall change simultaneously with each
change in the Base Rate.
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SECTION 5 FEES AND LOCK-BOX.
5.1 Non-Use Fee. The Loan Parties agree to pay to the Agent for the account
of each Bank a non-use fee, for the period from the Closing Date to the
Termination Date, at the Non-Use Fee Rate in effect from time to time of such
Bank's Pro Rata Share (as adjusted from time to time) of the unused amount of
the Revolving Commitment Amount. For purposes of calculating usage under this
Section, the Revolving Commitment Amount shall be deemed used to the extent of
the aggregate principal amount of all outstanding Revolving Loans plus the
Stated Amount of all Letters of Credit. Such non-use fee shall be payable in
arrears on the last day of each calendar quarter and on the Termination Date for
any period then ending for which such non-use fee shall not have previously been
paid. The non-use fee shall be computed for the actual number of days elapsed on
the basis of a year of 360 days.
5.2 Letter of Credit Fees.
(a) The Loan Parties agree to pay to the Agent for the account of each
Bank a letter of credit fee for each Letter of Credit equal to the L/C Fee
Rate in effect from time to time of such Bank's Pro Rata Share (as adjusted
from time to time) of the undrawn amount of each Letter of Credit (computed
for the actual number of days elapsed on the basis of a year of 360 days);
provided that, if requested by the Required Banks, the rate applicable to
each Letter of Credit shall be increased by 3% at any time that an Event of
Default exists. Such letter of credit fee shall be payable annually in
advance within five (5) days of the first Business Day of each calendar
year for the period from the date of the issuance of each Letter of Credit
(or the last day on which the letter of credit fee was paid with respect
thereto) to the date such payment is due or, if earlier, the date on which
such Letter of Credit expired or was terminated.
(b) In addition, with respect to each Letter of Credit, the Loan
Parties agree to pay to the Issuing Bank, for its own account, (i) such
fees and expenses as the Issuing Bank customarily requires in connection
with the issuance, negotiation, processing and/or administration of letters
of credit in similar situations and (ii) a letter of credit fronting fee in
the amount of 0.125% on the face amount of each Letter of Credit.
5.3 Upfront Fees. The Loan Parties agree to pay to the Agent for the
account of each Bank on the Closing Date an upfront fee in the amount previously
agreed to between the Representative and the Agent (and the Agent agrees to
promptly forward to each Bank a portion of such upfront fee in the amount
previously agreed to between the Agent and such Bank).
5.4 Agent's Fees. The Loan Parties agree to pay to Agent such agent's fees
as are mutually agreed to from time to time by the Representative and Agent.
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5.5 Lock-Box and Blocked Account. Each Loan Party shall establish a lock
box and cash collateral depository account (collectively, the "Blocked Account")
in such Loan Party's name with Agent and/or Co-Agent to which all Account
Debtors shall directly remit all payments on Accounts Receivable and collateral
and in which each Loan Party will immediately deposit all payments made for
services rendered or other payments constituting proceeds of collateral in the
identical form in which such payment was made, whether by cash or check. All
payments made to the Blocked Account shall be the sole and exclusive property of
Agent and/or Co-Agent (for the account of the Banks) and no persons shall have a
right to setoff against the Blocked Account. Agent and/or Co- Agent, as
applicable, will apply against the Commitments two (2) Business Days after the
date of receipt, if received in the Blocked Account and by Agent's or
Co-Agent's, as applicable, commercial note teller prior to 2:00 p.m., Chicago
time, all payments received thereon, including cash, solvent credits,
collections of Accounts Receivable, proceeds of collateral and any other
amounts; provided that (a) Agent or Co-Agent, as applicable, shall charge back
to the Loan Parties any payments that may be required to be returned to the
entity making such payment and the Loan Parties shall continue to pay interest
on the amount charged back from the date that such payment was applied against
the Commitments; and (b) Agent or Co-Agent, as applicable, shall have the
exclusive right to determine how, when and in what amounts application of such
payments and such credits shall be made on the Commitments, and such
determination shall be conclusive upon Banks and the Loan Parties.
SECTION 6 REDUCTION OR TERMINATION OF THE REVOLVING COMMITMENT
AMOUNT; PREPAYMENTS.
6.1 Reduction or Termination of the Revolving Commitment Amount.
6.1.1 Voluntary Reduction or Termination of the Revolving Commitment
Amount. The Loan Parties may from time to time on at least five Business Days'
prior written notice received by the Agent (which shall promptly advise each
Bank thereof) permanently reduce the Revolving Commitment Amount to an amount
not less than the Revolving Outstandings. Any such reduction shall be in an
amount not less than $1,000,000 or a higher integral multiple of $1,000,000.
Concurrently with any reduction of the Revolving Commitment Amount to zero, the
Loan Parties shall pay all interest on the Revolving Loans, all non-use fees and
all letter of credit fees and shall Cash Collateralize in full all obligations
arising with respect to the Letters of Credit.
6.1.2 Mandatory Reductions of Revolving Commitment Amount. On the date of
any Mandatory Prepayment Event, the Revolving Commitment Amount shall be
permanently reduced by an amount (if any) equal to the Designated Proceeds of
such Mandatory Prepayment Event over the amount (if any) applied to prepay Term
Loans pursuant to Section 6.2.2.
6.1.3 All Reductions of the Revolving Commitment Amount. All reductions of
the Revolving Commitment Amount shall reduce the Commitments pro rata among the
Banks according to their respective Pro Rata Shares.
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6.2 Prepayments.
6.2.1 Voluntary Prepayments of Term Loan A. The Loan Parties may from time
to time prepay Term Loan A in whole or in part; provided that the Company shall
give the Agent (which shall promptly advise each Bank) notice thereof not later
than 11:00 A.M., Chicago time, on the day of such prepayment (which shall be a
Business Day), specifying the Loans to be prepaid and the date and amount of
prepayment. Any such partial prepayment shall be in an amount equal to
$1,000,000 or a higher integral multiple of $1,000,000.
6.2.2 Mandatory Prepayments.
(a) The Loan Parties shall make a prepayment of the Loans upon the
occurrence of any of the following (each a "Mandatory Prepayment Event") at
the following times and in the following amounts (such applicable amounts
being referred to as "Designated Proceeds"):
(i) Concurrently with the receipt by any Loan Party of any Net
Cash Proceeds from any Asset Sale, in an amount equal to 100% of such
Net Cash Proceeds.
(ii) Concurrently with the receipt by any Loan Party of any Net
Cash Proceeds from any issuance of equity securities of any Loan Party
(excluding (x) any issuance of shares of capital stock pursuant to any
employee or director stock option program, benefit plan or
compensation program and (y) any issuance by a Loan Party to another
Loan Party), in an amount equal to 100% of such Net Cash Proceeds.
(iii) Concurrently with the receipt by any Loan Party of any Net
Cash Proceeds from any issuance of any Debt of any Loan Party
(excluding Debt permitted by clauses (a) through (g) of Section 10.7),
in an amount equal to 100% of such Net Cash Proceeds.
(iv) Within ninety (90) days after the end of each Fiscal Year
(commencing with Fiscal Year 2000), in an amount equal to 100% of
Excess Cash Flow for such Fiscal Year.
(b) If on any day the Revolving Outstandings exceed the Borrowing
Base, the Loan Parties shall immediately prepay Revolving Loans and/or Cash
Collateralize the outstanding Letters of Credit, or do a combination of the
foregoing, in an amount sufficient to eliminate such excess.
(c) If on any day on which the Revolving Commitment Amount is reduced
pursuant to Section 6.1.2 the Revolving Outstandings exceed the Revolving
Commitment Amount, the Loan Parties shall immediately prepay Revolving
Loans or Cash Collateralize the outstanding Letters of Credit, or do a
combination of the foregoing, in an amount sufficient to eliminate such
excess.
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(d) All Mandatory Prepayments shall be applied as follows:
(i) to the extent any Loan Party enters into any
sale-leaseback transaction involving the
Montpelier Equipment, the aggregate amount of the
proceeds received by the Loan Parties, up to the
amount of the Release Price, shall be applied to
reduce Term Loan A and the remainder of such
proceeds, if any, shall be used to reduce Term
Loan B;
(ii) to the extent any Loan Party raises any proceeds
from the issuance of any equity or Debt (other
than a sale-leaseback of the Montpelier Equipment
detailed above), the first $6,000,000 of the
proceeds of any such issuance will be applied
to Term Loan B, with the remainder applied to
Term Loan A. Following repayment of Term Loan A,
all remaining proceeds will be applied to the
Revolving Credit Commitment until paid in full,
with the remaining proceeds, if any, applied to
the principal amount of Term Loan B; and
(iii) all other Mandatory Prepayments shall be applied
as follows:
(A) first to the outstanding amount of principal
and interest under Term Loan A;
(B) second to the outstanding amount of
principal and interest under the Revolving
Credit Commitment; and
(C) third to the remaining outstanding principal
amount of Term Loan B.
6.3 All Prepayments. Each voluntary partial prepayment of the Revolving
Credit Commitment and Term Loan A shall be in a principal amount of $1,000,000
or a higher integral multiple of $1,000,000. Any partial prepayment of a Group
of LIBOR Loans shall be subject to the proviso to Section 2.2.3(a). Any
prepayment of a LIBOR Loan on a day other than the last day of an Interest
Period therefor shall include interest on the principal amount being repaid and
shall be subject to Section 8.4. All prepayments of Term Loan A shall be applied
pro rata in the inverse order of maturity to the remaining installments thereof.
Notwithstanding the foregoing, Term Loan B may not be voluntarily prepaid
without the prior written consent of the Banks.
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SECTION 7 MAKING AND PRORATION OF PAYMENTS; SETOFF; TAXES.
7.1 Making of Payments. All payments of principal of or interest on the
Notes, and of all fees, shall be made by the Loan Parties to the Agent in
immediately available funds at the office specified by the Agent not later than
noon, Chicago time, on the date due; and funds received after that hour shall be
deemed to have been received by the Agent on the following Business Day. The
Agent shall promptly remit to each Bank its share of all such payments received
in collected funds by the Agent for the account of such Bank. All payments under
Section 8.1 shall be made by the Loan Parties directly to the Bank entitled
thereto.
7.2 Application of Certain Payments. Each payment of principal shall be
applied to such Loans as the Representative shall direct by notice to be
received by the Agent on or before the date of such payment or, in the absence
of such notice, as the Agent shall determine in its discretion. Concurrently
with each remittance to any Bank of its share of any such payment, the Agent
shall advise such Bank as to the application of such payment.
7.3 Due Date Extension. If any payment of principal or interest with
respect to any of the Loans, or of any fees, falls due on a day which is not a
Business Day, then such due date shall be extended to the immediately following
Business Day and, in the case of principal, additional interest shall accrue and
be payable for the period of any such extension.
7.4 Setoff. The Loan Parties agree that the Agent and each Bank have all
rights of set-off and bankers' lien provided by applicable law, and in addition
thereto, the Loan Parties agree that at any time any Event of Default exists,
the Agent and each Bank may apply to the payment of any obligations of the Loan
Parties hereunder, whether or not then due, any and all balances, credits,
deposits, accounts or moneys of the Loan Parties then or thereafter with Agent
or such Bank.
7.5 Proration of Payments. If any Bank shall obtain any payment or other
recovery (whether voluntary, involuntary, by application of offset or otherwise,
but excluding any payment pursuant to Section 8.7 or 14.9 and payments of
interest on any Affected Loan) on account of principal of or interest on any
Loan (or on account of its participation in any Letter of Credit) in excess of
its pro rata share of payments and other recoveries obtained by all Banks on
account of principal of and interest on the Loans (or such participation) then
held by them, such Bank shall purchase from the other Banks such participations
in the Loans (or sub-participations in Letters of Credit) held by them as shall
be necessary to cause such purchasing Bank to share the excess payment or other
recovery ratably with each of them; provided that if all or any portion of the
excess payment or other recovery is thereafter recovered from such purchasing
Bank, the purchase shall be rescinded and the purchase price restored to the
extent of such recovery.
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7.6 Taxes. All payments of principal of, and interest on, the Loans and all
other amounts payable hereunder shall be made free and clear of and without
deduction for any present or future income, excise, stamp or franchise taxes and
other taxes, fees, duties, withholdings or other charges of any nature
whatsoever imposed by any taxing authority, excluding franchise taxes and taxes
imposed on or measured by any Bank's net income or receipts (all non-excluded
items being called "Taxes"), unless required by any law, rule or regulation. If
any withholding or deduction from any payment to be made by any Loan Party
hereunder is required in respect of any Taxes pursuant to any applicable law,
rule or regulation, then the Loan Parties will:
(a) pay directly to the relevant authority the full amount required to
be so withheld or deducted;
(b) promptly forward to the Agent an official receipt or other
documentation satisfactory to the Agent evidencing such payment to such
authority; and
(c) pay to the Agent for the account of the Banks such additional
amount or amounts as is necessary to ensure that the net amount actually
received by each Bank will equal the full amount such Bank would have
received had no such withholding or deduction been required.
Moreover, if any Taxes are directly asserted against the Agent or any Bank with
respect to any payment received by the Agent or such Bank hereunder, the Agent
or such Bank may pay such Taxes and the Loan Parties will promptly pay such
additional amounts (including any penalty, interest or expense) as is necessary
in order that the net amount received by such Person after the payment of such
Taxes (including any Taxes on such additional amount) shall equal the amount
such Person would have received had such Taxes not been asserted.
If the Loan Parties fail to pay any Taxes when due to the appropriate
taxing authority or fails to remit to the Agent, for the account of the
respective Banks, the required receipts or other required documentary evidence,
the Loan Parties shall indemnify the Banks for any incremental Taxes, interest
or penalties that may become payable by any Bank as a result of any such
failure. For purposes of this Section 7.6, a distribution hereunder by the Agent
or any Bank to or for the account of any Bank shall be deemed a payment by the
Loan Parties.
Each Bank that (a) is organized under the laws of a jurisdiction other than
the United States of America and (b)(i) is a party hereto on the Closing Date or
(ii) becomes an assignee of an interest under this Agreement under Section
14.9.1 after the Closing Date (unless such Bank was already a Bank hereunder
immediately prior to such assignment) shall execute and deliver to the Loan
Parties and the Agent one or more (as the Loan Parties or the Agent may
reasonably request) United States Internal Revenue Service Forms 4224 or Forms
1001 or such other forms or documents, appropriately completed, as may be
applicable to establish that such Bank is exempt from withholding or deduction
of Taxes. The Loan Parties shall not be required to pay additional amounts to
any Bank pursuant to this Section 7.6 to the extent that the obligation to pay
such additional amounts would not have arisen but for the failure of such Bank
to comply with this paragraph.
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7.7 Automatic Debit. In order to cause timely payment to be made to Agent
of all of the Loan Parties' obligations hereunder as and when due, each Loan
Party hereby authorizes and directs the Agent to debit the amount of such Loan
Parties' obligations hereunder to any ordinary deposit account of the Loan
Parties (including, without limitation, by increasing the principal balance due
under the Revolving Credit Commitment).
SECTION 8 INCREASED COSTS; SPECIAL PROVISIONS FOR LIBOR LOANS.
8.1 Increased Costs.
(a) If, after the date hereof, the adoption of, or any change in, any
applicable law, rule or regulation, or any change in the interpretation or
administration of any applicable law, rule or regulation by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Bank (or any
LIBOR Office of such Bank) with any request or directive (whether or not
having the force of law) of any such authority, central bank or comparable
agency
(i) shall subject any Bank (or any LIBOR Office of such Bank) to
any tax, duty or other charge with respect to its LIBOR Loans, any
Note or its obligation to make LIBOR Loans, or shall change the basis
of taxation of payments to any Bank of the principal of or interest on
its LIBOR Loans or any other amounts due under this Agreement in
respect of its LIBOR Loans or its obligation to make LIBOR Loans
(except for changes in the rate of tax on the overall net income of
such Bank or its LIBOR Office imposed by the jurisdiction in which
such Bank's principal executive office or LIBOR Office is located);
(ii) shall impose, modify or deem applicable any reserve
(including any reserve imposed by the FRB, but excluding any reserve
included in the determination of interest rates pursuant to Section
4), special deposit or similar requirement against assets of, deposits
with or for the account of, or credit extended by any Bank (or any
LIBOR Office of such Bank); or
(iii) shall impose on any Bank (or its LIBOR Office) any other
condition affecting its LIBOR Loans, any Note or its obligation to
make LIBOR Loans;
and the result of any of the foregoing is to increase the cost to (or to impose
a cost on) such Bank (or any LIBOR Office of such Bank) of making or maintaining
any LIBOR Loan, or to reduce the amount of any sum received or receivable by
such Bank (or its LIBOR Office) under this Agreement or under any Note with
respect thereto, then upon demand by such Bank (which demand shall be
accompanied by a statement setting forth the basis for such demand and a
calculation of the amount thereof in reasonable detail, a copy of which shall be
furnished to the Agent), the Loan Parties shall pay directly to such Bank such
additional amount as will compensate such Bank for such increased cost or such
reduction.
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(b) If any Bank shall reasonably determine that any change in, the
adoption or phase-in of, any applicable law, rule or regulation regarding
capital adequacy, or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency
charged with the interpretation or administration thereof, or compliance by
any Bank or any Person controlling such Bank with any request or directive
regarding capital adequacy (whether or not having the force of law) of any
such authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on such Bank's or such controlling
Person's capital as a consequence of such Bank's obligations hereunder or
under any Letter of Credit to a level below that which such Bank or such
controlling Person could have achieved but for such change, adoption,
phase-in or compliance (taking into consideration such Bank's or such
controlling Person's policies with respect to capital adequacy) by an
amount deemed by such Bank or such controlling Person to be material, then
from time to time, upon demand by such Bank (which demand shall be
accompanied by a statement setting forth the basis for such demand and a
calculation of the amount thereof in reasonable detail, a copy of which
shall be furnished to the Agent), the Loan Parties shall pay to such Bank
such additional amount as will compensate such Bank or such controlling
Person for such reduction.
8.2 Basis for Determining Interest Rate Inadequate or Unfair. If, with
respect to any Interest Period,:
(a) deposits in Dollars (in the applicable amounts) are not being
offered to the Agent in the interbank eurodollar market for such Interest
Period, or the Agent otherwise reasonably determines that by reason of
circumstances affecting the interbank eurodollar market adequate and
reasonable means do not exist for ascertaining the applicable LIBOR Rate;
or
(b) Banks having aggregate Pro Rata Shares of 25% or more advise the
Agent that the LIBOR Rate (Reserve Adjusted) as determined by the Agent
will not adequately and fairly reflect the cost to such Banks of
maintaining or funding LIBOR Loans for such Interest Period (taking into
account any amount to which such Banks may be entitled under Section 8.1)
or that the making or funding of LIBOR Loans has become impracticable as a
result of an event occurring after the date of this Agreement which in the
opinion of such Banks materially affects such Loans;
then the Agent shall promptly notify the other parties thereof and, so long as
such circumstances shall continue, (i) no Bank shall be under any obligation to
make or convert into LIBOR Loans and (ii) on the last day of the current
Interest Period for each LIBOR Loan, such Loan shall, unless then repaid in
full, automatically convert to a Base Rate Loan.
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8.3 Changes in Law Rendering LIBOR Loans Unlawful. If any change in, or the
adoption of any new, law or regulation, or any change in the interpretation of
any applicable law or regulation by any governmental or other regulatory body
charged with the administration thereof, should make it (or in the good faith
judgment of any Bank cause a substantial question as to whether it is) unlawful
for any Bank to make, maintain or fund LIBOR Loans, then such Bank shall
promptly notify each of the other parties hereto and, so long as such
circumstances shall continue, (a) such Bank shall have no obligation to make or
convert into LIBOR Loans (but shall make Base Rate Loans concurrently with the
making of or conversion into LIBOR Loans by the Banks which are not so affected,
in each case in an amount equal to the amount of LIBOR Loans which would be made
or converted into by such Bank at such time in the absence of such
circumstances) and (b) on the last day of the current Interest Period for each
LIBOR Loan of such Bank (or, in any event, on such earlier date as may be
required by the relevant law, regulation or interpretation), such LIBOR Loan
shall, unless then repaid in full, automatically convert to a Base Rate Loan.
Each Base Rate Loan made by a Bank which, but for the circumstances described in
the foregoing sentence, would be a LIBOR Loan (an "Affected Loan") shall remain
outstanding for the same period as the Group of LIBOR Loans of which such
Affected Loan would be a part absent such circumstances.
8.4 Funding Losses. The Loan Parties hereby agree that upon demand by any
Bank (which demand shall be accompanied by a statement setting forth the basis
for the amount being claimed, a copy of which shall be furnished to Agent), the
Loan Parties will indemnify such Bank against any net loss or expense which such
Bank may sustain or incur (including any net loss or expense incurred by reason
of the liquidation or reemployment of deposits or other funds acquired by such
Bank to fund or maintain any LIBOR Loan), as reasonably determined by such Bank,
as a result of (a) any payment, prepayment or conversion of any LIBOR Loan of
such Bank on a date other than the last day of an Interest Period for such Loan
(including any conversion pursuant to Section 8.3) or (b) any failure of the
Loan Parties to borrow, convert or continue any Loan on a date specified
therefor in a notice of borrowing, conversion or continuation pursuant to this
Agreement. For this purpose, all notices to the Agent pursuant to this Agreement
shall be deemed to be irrevocable.
8.5 Right of Banks to Fund through Other Offices. Each Bank may, if it so
elects, fulfill its commitment as to any LIBOR Loan by causing a foreign branch
or Affiliate of such Bank to make such Loan; provided that in such event for the
purposes of this Agreement such Loan shall be deemed to have been made by such
Bank and the obligation of the Loan Parties to repay such Loan shall
nevertheless be to such Bank and shall be deemed held by it, to the extent of
such Loan, for the account of such branch or Affiliate.
8.6 Discretion of Banks as to Manner of Funding. Notwithstanding any
provision of this Agreement to the contrary, each Bank shall be entitled to fund
and maintain its funding of all or any part of its Loans in any manner it sees
fit in accordance with the terms of this Agreement, it being understood,
however, that for the purposes of this Agreement all determinations hereunder
shall be made as if such Bank had actually funded and maintained each LIBOR Loan
during each Interest Period for such Loan through the purchase of deposits
having a maturity corresponding to such Interest Period and bearing an interest
rate equal to the LIBOR Rate for such Interest Period.
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8.7 Mitigation of Circumstances; Replacement of Banks.
(a) Each Bank shall promptly notify the Representative and the Agent
of any event of which it has knowledge which will result in, and will use
reasonable commercial efforts available to it (and not, in such Bank's sole
judgment, otherwise disadvantageous to such Bank) to mitigate or avoid, (i)
any obligation by the Loan Parties to pay any amount pursuant to Section
7.6 or 8.1 or (ii) the occurrence of any circumstances described in Section
8.2 or 8.3 (and, if any Bank has given notice of any such event described
in clause (i) or (ii) above and thereafter such event ceases to exist, such
Bank shall promptly so notify the Loan Parties and Agent). Without limiting
the foregoing, each Bank will designate a different funding office if such
designation will avoid (or reduce the cost to the Loan Parties of) any
event described in clause (i) or (ii) of the preceding sentence and such
designation will not, in such Bank's sole judgment, be otherwise
disadvantageous to such Bank.
(b) If the Loan Parties become obligated to pay additional amounts to
any Bank pursuant to Section 7.6 or 8.1, or any Bank gives notice of the
occurrence of any circumstances described in Section 8.2 or 8.3, the
Representative may designate another bank which is acceptable to the Agent
and the Issuing Bank in their reasonable discretion (such other bank being
called a "Replacement Bank") to purchase the Loans of such Bank and such
Bank's rights hereunder, without recourse to or warranty by, or expense to,
such Bank, for a purchase price equal to the outstanding principal amount
of the Loans payable to such Bank plus any accrued but unpaid interest on
such Loans and all accrued but unpaid fees owed to such Bank and any other
amounts payable to such Bank under this Agreement, and to assume all the
obligations of such Bank hereunder, and, upon such purchase and assumption
(pursuant to an Assignment Agreement), such Bank shall no longer be a party
hereto or have any rights hereunder (other than rights with respect to
indemnities and similar rights applicable to such Bank prior to the date of
such purchase and assumption) and shall be relieved from all obligations to
the Loan Parties hereunder, and the Replacement Bank shall succeed to the
rights and obligations of such Bank hereunder.
8.8 Conclusiveness of Statements; Survival of Provisions. Determinations
and statements of any Bank pursuant to Section 8.1, 8.2, 8.3 or 8.4 shall be
conclusive absent demonstrable error. Banks may use reasonable averaging and
attribution methods in determining compensation under Sections 8.1 and 8.4, and
the provisions of such Sections shall survive repayment of the Loans,
cancellation of the Notes, expiration or termination of the Letters of Credit
and termination of this Agreement.
SECTION 9 REPRESENTATIONS AND WARRANTIES.
To induce the Agent and the Banks to enter into this Agreement and to
induce the Banks to make Loans and issue and participate in Letters of Credit
hereunder, the Loan Parties, jointly and severally, represent and warrant to
Agent, Co-Agent and the Banks as follows, after giving effect to the Purchase:
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9.1 Organization. Each Loan Party is a corporation or limited liability
company validly existing and in good standing under the laws of the state of its
incorporation or formation, as applicable; each Subsidiary is validly existing
and in good standing under the laws of the jurisdiction of its organization; and
each Loan Party and each Subsidiary is duly qualified to do business in each
jurisdiction where, because of the nature of its activities or properties, such
qualification is required, except for such jurisdictions where the failure to so
qualify would not have a Material Adverse Effect.
9.2 Authorization; No Conflict. Each Loan Party is duly authorized to
execute and deliver each Loan Document to which it is a party, each Loan Party
is duly authorized to borrow monies hereunder and each Loan Party is duly
authorized to perform its obligations under each Loan Document to which it is a
party. The execution, delivery and performance by each Loan Party of this
Agreement and each Loan Document to which it is a party, and the borrowings by
the Loan Parties hereunder, do not and will not (a) require any consent or
approval of any governmental agency or authority (other than any consent or
approval which has been obtained and is in full force and effect), (b) conflict
with (i) any provision of law, (ii) the charter, by-laws, certification of
formation, operating agreement or other organizational documents of any Loan
Party or (iii) any agreement, indenture, instrument or other document, or any
judgment, order or decree, which is binding upon any Loan Party or any of their
respective properties or (c) require, or result in, the creation or imposition
of any Lien on any asset of any Loan Party (other than Liens in favor of the
Agent created pursuant to the Collateral Documents).
9.3 Validity and Binding Nature. Each of this Agreement and each other Loan
Document to which any Loan Party is a party is the legal, valid and binding
obligation of such Person, enforceable against such Person in accordance with
its terms, subject to bankruptcy, insolvency and similar laws affecting the
enforceability of creditors' rights generally and to general principles of
equity.
9.4 Financial Condition. The audited consolidated financial statements of
the Loan Parties as at December 31, 1998, the unaudited consolidated financial
statements of the Loan Parties as at December 31, 1999 and the unaudited
consolidated financial statements of Drake Products as at December 31, 1999,
copies of each of which have been delivered to each Bank, were prepared in
accordance with GAAP (subject, in the case of such unaudited statements, to the
absence of footnotes and to normal year-end adjustments) and present fairly the
consolidated financial condition of the Loan Parties as at such dates and the
results of their operations for the periods then ended.
9.5 No Material Adverse Change. Since December 31, 1998, there has been no
material adverse change in the financial condition, operations, assets,
business, properties or prospects of the Loan Parties taken as a whole, other
than as set forth in unaudited consolidated financial statements of the Loan
Parties as at December 31, 1999.
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9.6 Litigation and Contingent Liabilities. No litigation (including
derivative actions), arbitration proceeding or governmental investigation or
proceeding is pending or, to any Loan Party's knowledge, threatened against any
Loan Party which might reasonably be expected to have a Material Adverse Effect,
except as set forth in Schedule 9.6. Other than any liability incident to such
litigation or proceedings, no Loan Party has any material contingent liabilities
not listed on Schedule 9.6 or permitted by Section 10.7.
9.7 Ownership of Properties; Liens. Each Loan Party owns good and, in the
case of real property, marketable title to all of its properties and assets,
real and personal, tangible and intangible, of any nature whatsoever (including
patents, trademarks, trade names, service marks and copyrights), free and clear
of all Liens, charges and claims (including infringement claims with respect to
patents, trademarks, service marks, copyrights and the like) except as permitted
by Section 10.8.
9.8 Subsidiaries. As of the Closing Date, no Loan Party has any
Subsidiaries other than those listed on Schedule 9.8. Neither of Clarion
Specialty Products, Inc., an Ohio corporation, Clarion Sourcing, Inc., an
Illinois corporation, or Rose & Associates, Inc., a Delaware corporation
(collectively, the "Dormant Subsidiaries"), conducts business of any kind or
owns any assets. The Loan Parties agree to notify the Agent immediately in the
event any Dormant Subsidiary begins conducting business of any kind.
9.9 Pension Plans.
(a) During the twelve-consecutive-month period prior to the date of
the execution and delivery of this Agreement or the making of any Loan or
the issuance of any Letter of Credit, (i) no steps have been taken to
terminate any Pension Plan and (ii) no contribution failure has occurred
with respect to any Pension Plan sufficient to give rise to a Lien under
Section 302(f) of ERISA. No condition exists or event or transaction has
occurred with respect to any Pension Plan which could result in the
incurrence by any Loan Party of any material liability, fine or penalty.
(b) All contributions (if any) have been made to any Multiemployer
Pension Plan that are required to be made by each Loan Party or any other
member of the Controlled Group under the terms of the plan or of any
collective bargaining agreement or by applicable law; no Loan Party nor any
member of the Controlled Group has withdrawn or partially withdrawn from
any Multiemployer Pension Plan, incurred any withdrawal liability with
respect to any such plan or received notice of any claim or demand for
withdrawal liability or partial withdrawal liability from any such plan,
and no condition has occurred which, if continued, might result in a
withdrawal or partial withdrawal from any such plan; and no Loan Party nor
any member of the Controlled Group has received any notice that any
Multiemployer Pension Plan is in reorganization, that increased
contributions may be required to avoid a reduction in plan benefits or the
imposition of any excise tax, that any such plan is or has been funded at a
rate less than that required under Section 412 of the Code, that any such
plan is or may be terminated, or that any such plan is or may become
insolvent.
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9.10 Investment Company Act. No Loan Party is an "investment company" or a
company "controlled" by an "investment company," within the meaning of the
Investment Company Act of 1940.
9.11 Public Utility Holding Company Act. No Loan Party is a "holding
company", or a "subsidiary company" of a "holding company," or an "affiliate" of
a "holding company" or of a "subsidiary company" of a "holding company," within
the meaning of the Public Utility Holding Company Act of 1935.
9.12 Regulation U. No Loan Party is engaged principally, or as one of its
important activities, in the business of extending credit for the purpose of
purchasing or carrying Margin Stock.
9.13 Taxes. Each Loan Party has filed all tax returns and reports required
by law to have been filed by it and has paid all taxes and governmental charges
thereby shown to be owing, except any such taxes or charges which are being
diligently contested in good faith by appropriate proceedings and for which
adequate reserves in accordance with GAAP shall have been set aside on its
books.
9.14 Solvency, etc. On the Closing Date, and immediately prior to and after
giving effect to the issuance of each Letter of Credit and each borrowing
hereunder and the use of the proceeds thereof, (a) each Loan Party's assets will
exceed its liabilities and (b) each Loan Party will be solvent, will be able to
pay its debts as they mature, will own property with fair saleable value greater
than the amount required to pay its debts and will have capital sufficient to
carry on its business as then constituted.
9.15 Environmental Matters.
(a) No Violations. Except as set forth on Schedule 9.15, no Loan
Party, nor any operator of any Loan Party's properties, is in violation, or
alleged violation, of any judgment, decree, order, law, permit, license,
rule or regulation pertaining to environmental matters, including those
arising under the Resource Conservation and Recovery Act ("RCRA"), the
Comprehensive Environmental Response, Compensation and Liability Act of
1980 ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986
or any other Environmental Law which individually or in the aggregate
otherwise might reasonably be expected to have a Material Adverse Effect.
(b) Notices. Except as set forth on Schedule 9.15 and for matters
arising after the Closing Date, in each case none of which could singly or
in the aggregate be expected to have a Material Adverse Effect, no Loan
Party has received notice from any third party, including any Federal,
state or local governmental authority: (a) that any one of them has been
identified by the U.S. Environmental Protection Agency as a potentially
responsible party under CERCLA with respect to a site listed on the
National Priorities List, 40 C.F.R. Part 300 Appendix B; (b) that any
hazardous waste, as defined by 42 U.S.C. ss.6903(5), any hazardous
substance as defined by 42 U.S.C. ss.9601(14), any pollutant or contaminant
as defined by 42 U.S.C. ss.9601(33) or any toxic substance, oil or
hazardous material or other chemical or substance regulated by any
Environmental Law (all of the foregoing, "Hazardous Substances") which any
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one of them has generated, transported or disposed of has been found at any
site at which a Federal, state or local agency or other third party has
conducted a remedial investigation, removal or other response action
pursuant to any Environmental Law; (c) that any Loan Party must conduct a
remedial investigation, removal, response action or other activity pursuant
to any Environmental Law; or (d) of any Environmental Claim.
(c) Handling of Hazardous Substances. Except as set forth on Schedule
9.15, (i) no portion of the real property or other assets of any Loan Party
has been used for the handling, processing, storage or disposal of
Hazardous Substances except in accordance in all material respects with
applicable Environmental Laws; and no underground tank or other underground
storage receptacle for Hazardous Substances is located on such properties;
(ii) in the course of any activities conducted by any Loan Party or the
operators of any real property of any Loan Party, no Hazardous Substances
have been generated or are being used on such properties except in
accordance in all material respects with applicable Environmental Laws;
(iii) there have been no Releases or threatened Releases of Hazardous
Substances on, upon, into or from any real property or other assets of any
Loan Party, which Releases singly or in the aggregate might reasonably
be expected to have a material adverse effect on the value of such real
property or assets; (iv) there have been no Releases on, upon, from
or into any real property in the vicinity of the real property or other
assets of any Loan Party which, through soil or groundwater contamination,
may have come to be located on, and which might reasonably be expected to
have a Material Adverse Effect on the value of, the real property or other
assets of any Loan Party; and (v)any Hazardous Substances generated by any
Loan Party have been transported offsite only by properly licensed carriers
and delivered only to treatment or disposal facilities maintaining valid
permits as required under applicable Environmental Laws, which transporters
and facilities have been and are operating in compliance in all material
respects with such permits and applicable Environmental Laws.
9.16 Reserved.
9.17 Insurance. Set forth on Schedule 9.17 is a complete and accurate
summary of the property and casualty insurance program of each Loan Party as of
the Closing Date (including the names of all insurers, policy numbers,
expiration dates, amounts and types of coverage, annual premiums, exclusions,
deductibles, self-insured retention, and a description in reasonable detail of
any self-insurance program, retrospective rating plan, fronting arrangement or
other risk assumption arrangement involving each Loan Party).
9.18 Real Property. Set forth on Schedule 9.18 is a complete and accurate
list, as of the Closing Date, of the address of all real property owned or
leased by the Loan Parties, together with, in the case of leased property, the
name and mailing address of the lessor of such property.
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9.19 Information. All information heretofore or contemporaneously herewith
furnished in writing by each Loan Party or any other Loan Party to the Agent or
any Bank for purposes of or in connection with this Agreement and the
transactions contemplated hereby is, and all written information hereafter
furnished by or on behalf of any Loan Party to the Agent or any Bank pursuant
hereto or in connection herewith will be, true and accurate in every material
respect on the date as of which such information is dated or certified, and none
of such information is or will be incomplete by omitting to state any material
fact necessary to make such information not misleading in light of the
circumstances under which made (it being recognized by the Agent and the Banks
that any projections and forecasts provided by the Loan Parties are based on
good faith estimates and assumptions believed by the Loan Parties to be
reasonable as of the date of the applicable projections or assumptions and that
actual results during the period or periods covered by any such projections and
forecasts may differ from projected or forecasted results).
9.20 Intellectual Property. The Loan Parties own and possess or have a
license or other right to use all patents, patent rights, trademarks, trademark
rights, trade names, trade name rights, service marks, service mark rights and
copyrights as are necessary for the conduct of the business of the Loan Parties,
without any infringement upon rights of others which could reasonably be
expected to have a Material Adverse Effect.
9.21 Burdensome Obligations. No Loan Party is a party to any agreement or
contract or subject to any corporate or partnership restriction which might
reasonably be expected to have a Material Adverse Effect.
9.22 Labor Matters. Except as set forth on Schedule 9.22, no Loan Party is
subject to any labor or collective bargaining agreement. There are no existing
or threatened strikes, lockouts or other labor disputes involving any Loan Party
that singly or in the aggregate could reasonably be expected to have a Material
Adverse Effect. Hours worked by and payment made to employees of the Loan
Parties are not in violation of the Fair Labor Standards Act or any other
applicable law, rule or regulation dealing with such matters.
9.23 No Default. No Event of Default or Unmatured Event of Default exists
or would result from the incurring by any Loan Party of any Debt hereunder or
under any other Loan Document.
9.24 Purchase Agreement, etc.
(a) The Loan Parties have heretofore furnished the Agent a true and
correct copy of the Purchase Agreement.
(b) Clarion-Drake Acquisition and, to each Loan Parties' knowledge
(such knowledge based on the representations, warranties and covenants of
Drake Products and each of the Selling Shareholders contained in the
Purchase Agreement), each other party to the Purchase Agreement, has duly
taken all necessary corporate, partnership or other organizational action
to authorize the execution, delivery and performance of the Purchase
Agreement and the consummation of transactions contemplated thereby.
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(c) The Purchase will comply with all applicable legal requirements,
and all necessary governmental, regulatory, creditor, shareholder, partner
and other material consents, approvals and exemptions required to be
obtained by Clarion-Drake Acquisition and, to each Loan Parties' knowledge
(such knowledge based on the representations, warranties and covenants of
Drake Products and each of the Selling Shareholders contained in the
Purchase Agreement), each other party to the Purchase Agreement in
connection with the Purchase will be, prior to consummation of the
Purchase, duly obtained and will be in full force and effect. As of the
date of the Purchase Agreement, all applicable waiting periods with respect
to the Purchase will have expired without any action being taken by any
competent governmental authority which restrains, prevents or imposes
material adverse conditions upon the consummation of the Purchase.
(d) The execution and delivery of the Purchase Agreement did not, and
the consummation of the Purchase will not, violate any statute or
regulation of the United States (including any securities law) or of any
state or other applicable jurisdiction, or any order, judgment or decree of
any court or governmental body binding on Clarion-Drake Acquisition or, to
each Loan Parties' knowledge (such knowledge based on the representations,
warranties and covenants of Drake Products and each of the Selling
Shareholders contained in the Purchase Agreement), any other party to the
Purchase Agreement, or result in a breach of, or constitute a default
under, any material agreement, indenture, instrument or other document, or
any judgment, order or decree, to which Clarion-Drake Acquisition is a
party or by which the Clarion-Drake Acquisition is bound or, to each Loan
Parties' knowledge, to which any other party to the Purchase Agreement is a
party or by which any such party is bound.
(e) No statement or representation made in the Purchase Agreement by
Clarion- Drake Acquisition or, to each Loan Parties' knowledge (such
knowledge based on the representations, warranties and covenants of Drake
Products and each of the Selling Shareholders contained in the Purchase
Agreement), any other Person, contains any untrue statement of a material
fact or omits to state any material fact required to be stated therein or
necessary in order to make the statements made therein, in light of the
circumstances under which they are made, not misleading.
SECTION 10 COVENANTS.
Until the expiration or termination of the Commitments and thereafter until
all obligations of the Loan Parties hereunder and under the other Loan Documents
are paid in full and all Letters of Credit have been terminated, each Loan Party
agrees that, unless at any time the Required Banks shall otherwise expressly
consent in writing, it will:
10.1 Reports, Certificates and Other Information. Furnish to the Agent,
Co-Agent and each Bank:
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10.1.1 Annual Report. As soon as available, copies of the Form 10-K Annual
Report or comparable successor report filed by the Company and its Subsidiaries
with the Securities and Exchange Commission or any successor agency; provided,
that if such report is not made available within ninety (90) days after the end
of each fiscal year of the Company, a consolidated and consolidating balance
sheet and the related statements of consolidated and consolidating net earnings
and stockholders' equity and consolidated and consolidating statements of cash
flows of the Company and its Subsidiaries as of the end of such fiscal year,
fairly and accurately presenting the financial condition of the Company and its
Subsidiaries as at such date and the results of operations of the Company and
its Subsidiaries for such fiscal year and setting forth in each case in
comparative form the corresponding figures for the corresponding period of the
preceding fiscal year, all in reasonable detail, prepared in accordance with
GAAP consistently applied, and audited by independent certified public
accountants acceptable to the Required Banks, together with a written statement
from such accountants to the effect that in making the examination necessary for
the signing of such annual audit report by such accountants, nothing came to
their attention that caused them to believe that the Company was not in
compliance with any provision of Section 10.6, 10.7, 10.9 or 10.10 of this
Agreement insofar as such provision relates to accounting matters or, if
something has come to their attention that caused them to believe that the
Company was not in compliance with any such provision, describing such
non-compliance in reasonable detail.
10.1.2 Interim Reports. (a) as soon as available, copies of the periodic
Form 10-Q quarterly report or comparable successor report filed by the Company
with the Securities and Exchange Commission or any successor agency; provided,
that if such report is not made available within forty-five (45) days after the
end of each of the first three quarterly accounting periods in each fiscal year
of the Company beginning with the quarter ending March 31, 2000, the Company
shall immediately deliver to each Bank an internally-prepared balance sheet of
the Company and its Subsidiaries on a consolidated and consolidating basis as at
the end of such quarter and the related statements of operations and statements
of cash flows of the Company and its Subsidiaries on a consolidated and
consolidating basis for such quarter and for the portion of the fiscal year
ended at the end of such quarter, setting forth in each case in comparative form
the figures for the corresponding quarter and the corresponding portion of the
previous fiscal year, all in reasonable detail and certified (subject to normal
year-end adjustments) as to fairness of presentation, in accordance with GAAP
(other than footnotes thereto), by a Chief Financial Officer or Controller (if
such Controller is a corporate officer) of the Company; and (b) promptly when
available and in any event within 30 days after the end of each month,
consolidated and consolidating balance sheets of the Company and its
Subsidiaries as of the end of such month, together with consolidated and
consolidating statements of earnings and a consolidated statement of cash flows
for such month and for the period beginning with the first day of such Fiscal
Year and ending on the last day of such month, together with a comparison with
the corresponding period of the previous Fiscal Year and a comparison with the
budget for such period of the current Fiscal Year, certified by the Chief
Financial Officer or the Controller (if such Controller is an executive officer)
of the Company.
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10.1.3 Compliance Certificates. Contemporaneously with the furnishing of a
copy of each annual audit report pursuant to Section 10.1.1 and each set of
monthly and quarterly statements pursuant to Section 10.1.2, a duly completed
compliance certificate in the form of Exhibit E, with appropriate insertions,
dated the date of such annual report or such monthly statements and signed by
the Chief Financial Officer or the Controller (if such Controller is an
executive officer) of the Company, containing (i) a computation of each of the
financial ratios and restrictions set forth in Section 10.6 and to the effect
that such officer has not become aware of any Event of Default or Unmatured
Event of Default that has occurred and is continuing or, if there is any such
event, describing it and the steps, if any, being taken to cure it and (ii) a
written statement of the Company's management setting forth a discussion of the
Loan Parties' financial condition, changes in financial condition and results of
operations.
10.1.4 Reports to the SEC and to Shareholders. Promptly upon the filing or
sending thereof, copies of all other regular, periodic or special reports of the
Loan Parties filed with the SEC; copies of all registration statements of the
Loan Parties filed with the SEC (other than on Form S-8); and copies of all
proxy statements or other communications made to security holders generally.
10.1.5 Notice of Default, Litigation and ERISA Matters. Promptly upon
becoming aware of any of the following, written notice describing the same and
the steps being taken by the Loan Parties affected thereby with respect thereto:
(a) the occurrence of an Event of Default or an Unmatured Event of
Default;
(b) any litigation, arbitration or governmental investigation or
proceeding not previously disclosed by the Loan Parties to the Banks which
has been instituted or, to the knowledge of the Loan Parties, is threatened
against any Loan Party or to which any of the properties of any thereof is
subject which might reasonably be expected to have a Material Adverse
Effect;
(c) the institution of any steps by any member of the Controlled Group
or any other Person to terminate any Pension Plan, or the failure of any
member of the Controlled Group to make a required contribution to any
Pension Plan (if such failure is sufficient to give rise to a Lien under
Section 302(f) of ERISA) or to any Multiemployer Pension Plan, or the
taking of any action with respect to a Pension Plan which could result in
the requirement that any Loan Party furnish a bond or other security to the
PBGC or such Pension Plan, or the occurrence of any event with respect to
any Pension Plan or Multiemployer Pension Plan which could result in the
incurrence by any member of the Controlled Group of any material liability,
fine or penalty (including any claim or demand for withdrawal liability or
partial withdrawal from any Multiemployer Pension Plan), or any material
increase in the contingent liability of any Loan Party with respect to any
post-retirement welfare plan benefit, or any notice that any Multiemployer
Pension Plan is in reorganization, that increased contributions may be
required to avoid a reduction in plan benefits or the imposition of an
excise tax, that any such plan is or has been funded at a rate less than
that required under Section 412 of the Code, that any such plan is or may
be terminated, or that any such plan is or may become insolvent;
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(d) any cancellation or material change in any insurance maintained by
any Loan Party; or
(e) any other event (including (i) any violation of any Environmental
Law or the assertion of any Environmental Claim or (ii) the enactment or
effectiveness of any law, rule or regulation) which might reasonably be
expected to have a Material Adverse Effect.
10.1.6 Borrowing Base Certificates. Within 30 days of the end of each
month, a Borrowing Base Certificate dated as of the end of such month executed
by the Chief Financial Officer or the Controller (if such Controller is an
executive officer) of the Loan Parties on behalf of the Loan Parties (provided
that Agent may require the Loan Parties to deliver Borrowing Base Certificates
more frequently at Agent's discretion); together with a supporting Inventory and
Accounts Receivable aging report, in each case in form and substance acceptable
to the Required Banks. Notwithstanding the foregoing, in the event the Loan
Parties' available cash (including all cash reserves and excess borrowing
availability under the Revolving Credit Commitment pursuant to the Borrowing
Base) ("Available Cash") is less than $2,500,000, such Borrowing Base
Certificates will be delivered to Agent on a weekly basis within three (3)
Business Days of the end of each week until such times as Available Cash exceeds
$2,500,000 for four (4) consecutive weeks. In the event that the Loan Parties'
Available Cash is less than $1,000,000 at any time, such Borrowing Base
Certificates shall be delivered on a daily basis until such time as Agent shall
require, in its sole discretion.
10.1.7 Management Reports. Promptly upon the request of the Agent or any
Bank, copies of all detailed financial and management reports submitted to any
Loan Party by independent auditors in connection with each annual or interim
audit made by such auditors of the books of any Loan Party.
10.1.8 Projections. As soon as practicable, and in any event within 30 days
prior to the commencement of each Fiscal Year, (a) a business plan for such
Fiscal Year (in form and substance acceptable to Agent) and (b) financial
projections for the Loan Parties for such Fiscal Year (including an operating
budget and a cash flow budget) prepared in a manner consistent with the
projections delivered by the Loan Parties to the Banks prior to the Closing Date
or otherwise in a manner reasonably satisfactory to the Agent, accompanied by a
certificate of the Chief Financial Officer or the Controller (if such Controller
is an executive officer) of the Representative on behalf of the Loan Parties to
the effect that (i) such projections were prepared by the Loan Parties in good
faith, (ii) the Loan Parties have a reasonable basis for the assumptions
contained in such projections and (iii) such projections have been prepared in
accordance with such assumptions.
10.1.9 Subordinated Debt Notices. Promptly from time to time, copies of any
notices (including notices of default or acceleration) received from any holder
or trustee of, under or with respect to any Subordinated Debt.
10.1.10 Other Information. Promptly from time to time, such other
information concerning the Loan Parties as any Bank, the Agent or Co-Agent may
reasonably request.
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10.2 Books, Records and Inspections. Keep its books and records in
accordance with sound business practices sufficient to allow the preparation of
financial statements in accordance with GAAP; permit any Bank, the Agent,
Co-Agent or any representative thereof to inspect the properties and operations
of each Loan Party; and permit at any reasonable time and with reasonable notice
(or at any time without notice if an Event of Default exists), any Bank, the
Agent, Co-Agent or any representative thereof to visit any or all of its
offices, to discuss its financial matters with its officers and its independent
auditors (and each Loan Party hereby authorizes such independent auditors to
discuss such financial matters with any Bank, the Agent, Co-Agent or any
representative thereof), and to examine (and, at the expense of the Loan
Parties, photocopy extracts from) any of its books or other records; and permit
the Agent, Co-Agent and their representatives to inspect the Inventory and other
tangible assets of the Loan Parties, to perform appraisals of the equipment of
each Loan Party, and to inspect, audit, check and make copies of and extracts
from the books, records, computer data, computer programs, journals, orders,
receipts, correspondence and other data relating to Inventory, Accounts
Receivable and any other collateral. All such inspections or audits by the Agent
or Co-Agent shall be at the Loan Parties' expense, provided that so long as no
Event of Default or Unmatured Event of Default exists, the Agent and Co-Agent
shall not conduct field audits of any Loan Party more frequently than once each
Fiscal Year.
10.3 Maintenance of Property; Insurance.
(a) Keep, and cause each Subsidiary to keep, all property useful and
necessary in the business of the Loan Parties in good working order and
condition, ordinary wear and tear excepted.
(b) Maintain with responsible insurance companies, such insurance as
may be required by any law or governmental regulation or court decree or
order applicable to it and such other insurance, to such extent and against
such hazards and liabilities, as is customarily maintained by companies
similarly situated, but which shall insure against all risks and
liabilities of the type identified on Schedule 9.17 and shall have insured
amounts no less than, and deductibles no higher than, those set forth on
such schedule; and, upon request of the Agent or any Bank, furnish to the
Agent or such Bank a certificate setting forth in reasonable detail the
nature and extent of all insurance maintained by the Loan Parties. The Loan
Parties shall cause each issuer of an insurance policy to provide the Agent
with an endorsement (i) showing loss payable to the Agent with respect to
each policy of property or casualty insurance and naming the Agent and each
Bank as an additional insured with respect to each policy of insurance for
liability for personal injury or property damage, (ii) providing that 30
days' notice will be given to the Agent prior to any cancellation of,
material reduction or change in coverage provided by or other material
modification to such policy and (iii) reasonably acceptable in all other
respects to the Agent.
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(c) UNLESS THE LOAN PARTIES PROVIDE THE AGENT WITH EVIDENCE OF THE
INSURANCE COVERAGE REQUIRED BY THIS AGREEMENT, THE AGENT MAY PURCHASE
INSURANCE AT THE LOAN PARTIES' EXPENSE TO PROTECT THE AGENT'S AND THE
BANKS' INTERESTS IN THE COLLATERAL. THIS INSURANCE MAY, BUT NEED NOT,
PROTECT THE LOAN PARTIES' INTERESTS. THE COVERAGE THAT THE AGENT PURCHASES
MAY NOT PAY ANY CLAIM THAT IS MADE AGAINST THE LOAN PARTIES IN CONNECTION
WITH THE COLLATERAL. THE LOAN PARTIES MAY LATER CANCEL ANY INSURANCE
PURCHASED BY THE AGENT, BUT ONLY AFTER PROVIDING THE AGENT WITH EVIDENCE
THAT THE LOAN PARTIES HAVE OBTAINED INSURANCE AS REQUIRED BY THIS
AGREEMENT. IF THE AGENT PURCHASES INSURANCE FOR THE COLLATERAL, THE LOAN
PARTIES WILL BE RESPONSIBLE FOR THE COSTS OF THAT INSURANCE, INCLUDING
INTEREST AND ANY OTHER CHARGES THAT MAY BE IMPOSED WITH THE PLACEMENT OF
THE INSURANCE, UNTIL THE EFFECTIVE DATE OF THE CANCELLATION OR EXPIRATION
OF THE INSURANCE. THE COSTS OF THE INSURANCE MAY BE ADDED TO THE PRINCIPAL
AMOUNT OF THE LOANS OWING HEREUNDER. THE COSTS OF THE INSURANCE MAY BE MORE
THAN THE COST OF THE INSURANCE THE LOAN PARTIES MAY BE ABLE TO OBTAIN ON
THEIR OWN.
10.4 Compliance with Laws; Payment of Taxes and Liabilities. (a) Comply in
all material respects with all applicable laws, rules, regulations, decrees,
orders, judgments, licenses and permits, except where failure to comply would
not have a Material Adverse Effect; and (b) pay prior to delinquency, all taxes
and other governmental charges against it or any of its property, as well as
claims of any kind which, if unpaid, might become a Lien on any of its property;
provided that the foregoing shall not require any Loan Party to pay any such tax
or charge so long as it shall contest the validity thereof in good faith by
appropriate proceedings and shall set aside on its books adequate reserves with
respect thereto in accordance with GAAP.
10.5 Maintenance of Existence, etc. Maintain and preserve, (a) its
existence and good standing in the jurisdiction of its organization and (b) its
qualification to do business and good standing in each jurisdiction where the
nature of its business makes such qualification necessary (except in those
instances in which the failure to be qualified or in good standing does not have
a Material Adverse Effect).
10.6 Financial Covenants.
10.6.1 Fixed Charge Coverage Ratio. Not permit the Fixed Charge Coverage
Ratio for any month to be less than the applicable ratio during the periods set
forth below, as determined in accordance with GAAP:
Fixed Charge
Period Coverage Ratio
------ --------------
December 31, 2000 - June 30, 2001 1.05x
July 1, 2001 - December 31, 2001 1.10x
January 1, 2002 and thereafter 1.25x
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10.6.2 Leverage Ratio. Not permit the Leverage Ratio as of the last day of
each month to exceed the applicable ratio set forth below during the periods set
forth below, as determined in accordance with GAAP:
Senior Debt to
Period EBITDA Ratio
------ ------------
December 31, 2000 - June 30, 2001 4.0x
July 1, 2001 - December 31, 2001 3.75x
January 1, 2002 and thereafter 3.50x
10.6.3 Tangible Net Worth. Not permit the Tangible Net Worth to be less
than the amounts set forth below at any time for the periods set forth below:
Period Tangible Net Worth
------ ------------------
Closing Date - July 31, 2000 $1,500,000
August 1, 2000 - November 30, 2000 $2,000,000
December 1, 2000 - December 31, 2001 $3,000,000
January 1, 2002 and thereafter $5,000,000
10.6.4 EBITDA. Not permit quarterly EBITDA to be less than the applicable
amount set forth below for each quarter set forth below:
Period Ending EBITDA
------------- ------
March 31, 2000 $1,500,000
June 30, 2000 $3,000,000
September 30, 2000 $3,000,000
10.6.5 Capital Expenditures. Not permit the aggregate amount of all Capital
Expenditures made by the Loan Parties in any Fiscal Year to exceed $4,000,000.
10.7 Limitations on Debt. Not create incur, assume or suffer to exist any
Debt, except:
(a) obligations under this Agreement and the other Loan Documents;
(b) Debt secured by Liens permitted by Section 10.8(d), and
extensions, renewals and refinancings thereof; provided that the aggregate
amount of all such Debt at any time outstanding shall not exceed
$1,000,000;
(c) unsecured inter-company Debt between one or more Loan Parties;
(d) Subordinated Debt;
(e) Hedging Obligations incurred for bona fide hedging purposes and
not for speculation;
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(f) Debt described on Schedule 10.7 and any extension, renewal or
refinancing thereof so long as the principal amount thereof is not
increased; and
(g) the Debt to be Repaid (so long as such Debt is repaid on the
Closing Date with the proceeds of the initial Loans hereunder).
10.8 Liens. Not create or permit to exist any Lien on any of its real or
personal properties, assets or rights of whatsoever nature (whether now owned or
hereafter acquired), except:
(a) Liens for taxes or other governmental charges not at the time
delinquent or thereafter payable without penalty or being contested in good
faith by appropriate proceedings and, in each case, for which it maintains
adequate reserves;
(b) Liens arising in the ordinary course of business (such as (i)
Liens of carriers, warehousemen, mechanics and materialmen and other
similar Liens imposed by law and (ii) Liens incurred in connection with
worker's compensation, unemployment compensation and other types of social
security (excluding Liens arising under ERISA) or in connection with surety
bonds, bids, performance bonds and similar obligations) for sums not
overdue or being contested in good faith by appropriate proceedings and not
involving any deposits or advances or borrowed money or the deferred
purchase price of property or services and, in each case, for which it
maintains adequate reserves);
(c) Liens described on Schedule 10.8;
(d) subject to the limitation set forth in Section 10.7(b), (i) Liens
arising in connection with Capital Leases (and attaching only to the
property being leased), (ii) Liens existing on property at the time of the
acquisition thereof by any Loan Party (and not created in contemplation of
such acquisition) and (iii) Liens that constitute purchase money security
interests on any property securing debt incurred for the purpose of
financing all or any part of the cost of acquiring such property, provided
that any such Lien attaches to such property within 60 days of the
acquisition thereof and attaches solely to the property so acquired;
(e) attachments, appeal bonds, judgments and other similar Liens, for
sums not exceeding $100,000 arising in connection with court proceedings,
provided the execution or other enforcement of such Liens is effectively
stayed and the claims secured thereby are being actively contested in good
faith and by appropriate proceedings;
(f) easements, rights of way, restrictions, minor defects or
irregularities in title and other similar Liens not interfering in any
material respect with the ordinary conduct of the business of the Loan
Parties; and
(g) Liens arising under the Loan Documents.
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10.9 Operating Leases. Not permit the aggregate amount of all rental
payments under Operating Leases made (or scheduled to be made) by the Loan
Parties (on a consolidated basis) to exceed $3,000,000 in any Fiscal Year.
10.10 Restricted Payments. Not, and not permit any Subsidiary to, (a) make
any distribution or pay any dividends of any kind to any of its stockholders,
except for certain distributions to (i) James R. Workman not to exceed $20,000
on a monthly basis; (ii) each of Jack D. Rutherford, Craig and Emilie Wierda and
William Beckman in an aggregate amount not to exceed one percent (1%) on a
monthly basis of the aggregate amount of each of the foregoing Guarantor's
liability under each Guarantor's respective Guaranty; and (iii) the Elsa Prince
Trust in an aggregate amount not to exceed two percent (2%) on a monthly basis
of the maximum aggregate amount of the liability of the Elsa Prince Trust
outstanding at the time of each distribution under its Guaranty (collectively,
the "Guarantor Distributions"), which distributions (A) shall be subject to
Subordination Agreements at all times in form and substance acceptable to the
Agent, and (B) shall terminate upon the termination of each Guarantor's
respective Guaranty, (b) purchase or redeem any of its capital stock or other
equity interests or any warrants, options or other rights in respect thereof,
(c) pay any management fees or similar fees to any of its stockholders or any
Affiliate thereof, (d) make any payment, redemption, defeasance or repurchase of
any Subordinated Debt (except in accordance with the terms and conditions of a
subordination agreement in form and substance acceptable to Agent) or (e) set
aside funds for any of the foregoing. Notwithstanding the foregoing, (i) any
Loan Party (other than the Company) may pay dividends or make other
distributions to the Company and (ii) the Company may make quarterly dividend
payments to the holders of its Preferred Stock, in accordance with the terms of
that certain Certificate of Designations of Clarion Technologies, Inc. dated as
of February 10, 2000 in an amount not to exceed $2,300,000 in any Fiscal Year of
the Company so long as (a) no Event of Default or Unmatured Event of Default
exists immediately prior to such dividend payment, and (b) no Event of Default
or Unmatured Event of Default would be caused by such dividend payment and (c)
the Company's Debt Service Coverage Ratio is not less than 1.25:1.0 for the
quarter immediately preceding each dividend payment; provided, however, that the
Company may make the quarterly dividend payment on the Preferred Stock thru
April 1, 2000 regardless of the level of the Company's Debt Service Coverage
Ratio provided (a) no Event of Default or Unmatured Event of Default exists
immediately prior to such dividend payment, and (b) no Event of Default or
Unmatured Event of Default would be caused by such dividend payment.
10.11 Mergers, Consolidations, Sales. Not be a party to any merger or
consolidation, or purchase or otherwise acquire all or substantially all of the
assets or any stock of any class of, or any partnership or joint venture
interest in, any other Person, or, except in the ordinary course of its
business, sell, transfer, convey or lease all or any substantial part of its
assets, or sell or assign with or without recourse any receivables, except for
(a) any such merger, consolidation, sale, transfer, conveyance, lease or
assignment of or by any Loan Party (other than the Company) into another Loan
Party; (b) any such purchase or other acquisition by any Loan Party of the
assets or stock of any other Loan Party (other than the Company); and (c) sales
and dispositions of assets for at least fair market value (as determined by the
Board of Directors of the Loan Party) so long as the net book value of all
assets sold or otherwise disposed of in any Fiscal Year does not exceed
$1,000,000.
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10.12 Modification of Organizational Documents. Not permit the Certificate
or Articles of Incorporation, By-Laws, Operating Agreement or other
organizational documents of any Loan Party to be amended or modified in any way
which is expected to materially adversely affect the interests of the Banks.
10.13 Use of Proceeds. Use the proceeds of the Loans, and the Letters of
Credit, solely to finance the Purchase, for working capital, for Capital
Expenditures and for other general corporate purposes; and not use or permit any
proceeds of any Loan to be used, either directly or indirectly, for the purpose,
whether immediate, incidental or ultimate, of "purchasing or carrying" any
Margin Stock.
10.14 Further Assurances. Take such actions as are necessary or as the
Agent or the Required Banks may reasonably request from time to time (including
the execution and delivery of guaranties, security agreements, pledge
agreements, mortgages, deeds of trust, financing statements and other documents,
the filing or recording of any of the foregoing, and the delivery of stock
certificates and other collateral with respect to which perfection is obtained
by possession) to ensure that the obligations of the Loan Parties hereunder and
under the other Loan Documents are secured by substantially all of the assets of
the Loan Parties (including, promptly upon the acquisition or creation thereof,
any Subsidiary of any Loan Party acquired or created after the date hereof) .
10.15 Transactions with Affiliates. Not enter into, or cause, suffer or
permit to exist any transaction, arrangement or contract with any of its other
Affiliates (other than the Loan Parties) which is on terms which are less
favorable than are obtainable from any Person which is not one of its
Affiliates.
10.16 Employee Benefit Plans. Maintain each Pension Plan in substantial
compliance with all applicable requirements of law and regulations.
10.17 Environmental Matters.
(a) If any Release or Disposal of Hazardous Substances shall occur or
shall have occurred on any real property or any other assets of any Loan
Party, such Loan Party shall, or shall cause the applicable Subsidiary to,
cause the prompt containment and removal of such Hazardous Substances and
the remediation of such real property or other assets as necessary to
comply with all Environmental Laws and to preserve the value of such real
property or other assets. Without limiting the generality of the foregoing,
each Loan Party shall, and shall cause each Subsidiary to, comply with any
valid Federal or state judicial or administrative order requiring the
performance at any real property of each Loan Party or any Subsidiary of
activities in response to the Release or threatened Release of a Hazardous
Substance.
(b) To the extent that the transportation of "hazardous waste" as
defined by RCRA is permitted by this Agreement, the Loan Parties shall, and
shall cause their Subsidiaries to, dispose of such hazardous waste only at
licensed disposal facilities operating in compliance with Environmental
Laws.
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10.18 Unconditional Purchase Obligations. Not enter into or be a party to
any contract for the purchase of materials, supplies or other property or
services if such contract requires that payment be made by it regardless of
whether delivery is ever made of such materials, supplies or other property or
services.
10.19 Inconsistent Agreements. Not enter into any agreement containing any
provision which would (a) be violated or breached by any borrowing by any Loan
Party hereunder or by the performance by any Loan Party or any Subsidiary of any
of its obligations hereunder or under any other Loan Document, (b) prohibit any
Loan Party or any Subsidiary from granting to the Agent, for the benefit of the
Banks, a Lien on any of its assets or (c) create or permit to exist or become
effective any encumbrance or restriction on the ability of any Loan Party or
Subsidiary to (i) pay dividends or make other distributions to the Company or
any other applicable Subsidiary, or pay any Debt owed to any Loan Party or any
other Subsidiary (other than as set forth in this Agreement), (ii) make loans or
advances to any Loan Party or (iii) transfer any of its assets or properties to
the Company.
10.20 Business Activities. Not, and not permit any Subsidiary to, engage in
any line of business other than the businesses engaged in on the date hereof and
businesses reasonably related thereto.
10.21 Investments. Not make or permit to exist any Investment in any other
Person, except (without duplication) the following:
(a) contributions by the Company to the capital of any of its
Subsidiaries, or by any such Subsidiary to the capital of any of its
Subsidiaries;
(b) in the ordinary course of business, Investments by the Company in
any Subsidiary or by any Subsidiary in the Company, by way of intercompany
loans, advances or guaranties, all to the extent permitted by Section 10.7;
(c) Suretyship Liabilities permitted by Section 10.7;
(d) Cash Equivalent Investments;
(e) bank deposits in with any bank other than Agent or Co-Agent;
(f) Investments in securities of account debtors received pursuant to
any plan of reorganization or similar arrangement upon the bankruptcy or
insolvency of such account debtors.
provided that (x) any Investment which when made complies with the requirements
of the definition of the term "Cash Equivalent Investment" may continue to be
held notwithstanding that such Investment if made thereafter would not comply
with such requirements; (y) no Investment otherwise permitted by clause (b) or
(c), shall be permitted to be made if, immediately before or after giving effect
thereto, any Event of Default or Unmatured Event of Default exists.
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10.22 Restriction of Amendments to Certain Documents. Not amend or
otherwise modify, or waive any rights under, (i) any document, instrument or
agreement evidencing or executed in connection with any Subordinated Debt or
(ii) any terms of the Preferred Stock if, in any case, such amendment,
modification or waiver could be adverse to the interests of the Banks.
10.23 Fiscal Year. Not change its Fiscal Year.
10.24 Cancellation of Debt. Not cancel any claim or debt owing to it,
except for reasonable consideration or in the ordinary course of business.
10.25 Minimum Hedging Obligation. Hedge at least $20,000,000 of the
principal amount of the Loans then outstanding at all times pursuant to Hedging
Agreements in form and substance acceptable to the Agent, provided such Hedging
Agreements are executed within sixty (60) days of the Closing Date.
SECTION 11 EFFECTIVENESS; CONDITIONS OF LENDING, ETC.
The obligation of each Bank to make its Loans and of the Issuing Bank to
issue Letters of Credit is subject to the following conditions precedent:
11.1 Initial Credit Extension. The obligation of the Banks to make the
initial Loans and the obligation of the Issuing Bank to issue its initial Letter
of Credit (whichever first occurs) is, in addition to the conditions precedent
specified in Section 11.2, subject to the conditions precedent that (1) all Debt
to be Repaid has been (or concurrently with the initial borrowing will be) paid
in full, and that all agreements and instruments governing the Debt to be Repaid
and that all Liens securing such Debt to be Repaid have been (or concurrently
with the initial borrowing will be) terminated and (2) the Agent shall have
received (a) evidence, reasonably satisfactory to the Agent, that the Loan
Parties have completed, or concurrently with the initial credit extension
hereunder will complete, the Purchase in accordance with the terms of the
Purchase Agreement (without any amendment thereto or waiver thereunder unless
consented to by the Required Banks); and (b) all of the following, each duly
executed and dated the Closing Date (or such earlier date as shall be
satisfactory to the Agent), in form and substance satisfactory to the Agent (and
the date on which all such conditions precedent have been satisfied or waived in
writing by the Agent and the Required Banks is called the "Closing Date"):
11.1.1 Notes. Executed originals of each of the Notes.
11.1.2 Resolutions. Certified copies of resolutions of the Board of
Directors of the Loan Parties authorizing the execution, delivery and
performance by each Loan Party of this Agreement, the Notes and the other Loan
Documents to which each Loan Party is a party; and certified copies of
resolutions of the Board of Directors of each other Loan Party authorizing the
execution, delivery and performance by such Loan Party of each Loan Document to
which such entity is a party.
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11.1.3 Consents, etc. Certified copies of all documents evidencing any
necessary corporate or limited liability company action, consents and
governmental approvals (if any) required for the execution, delivery and
performance by each Loan Party of the documents referred to in this Section 11.
11.1.4 Incumbency and Signature Certificates. A certificate of the
Secretary or an Assistant Secretary (or other appropriate representative) of
each Loan Party certifying the names of the officer or officers of such entity
authorized to sign the Loan Documents to which such entity is a party, together
with a sample of the true signature of each such officer (it being understood
that the Agent and each Bank may conclusively rely on each such certificate
until formally advised by a like certificate of any changes therein).
11.1.5 Guaranty and Supporting Letter of Credit. A counterpart of the
Guaranty executed by (i) James R. Workman in the amount of $3,000,000; (ii) Jack
D. Rutherford in the amount of $1,000,000; (iii) William Beckman in the amount
of $1,000,000; (iv) Craig and Emilie Wierda in the amount of $1,000,000; and (v)
The Elsa Prince Trust in the amount of $6,000,000, together with a letter of
credit (in form and substance acceptable to Agent) which secures each
Guarantor's obligations under each Guaranty (other than the Elsa Prince Trust).
11.1.6 Pledge of Certificate of Deposit. A Pledge Agreement in favor of
Agent with respect to the $6,000,000 Certificate of Deposit held at LaSalle in
the name of the Elsa Prince Trust.
11.1.7 Security Agreement. A counterpart of the Security Agreement executed
by each Loan Party.
11.1.8 Pledge Agreement. Pledge Agreement executed by the Company pledging
100% of the capital stock of each Subsidiary, together with all items required
to be delivered in connection therewith.
11.1.9 Real Estate Documents. With respect to each parcel of real property
owned by each Loan Party as set forth on Schedule 11.1.9 (other than 201 Lovejoy
Street, South Haven, Michigan), a duly executed Mortgage providing for a fully
perfected Lien, in favor of the Agent, in all right, title and interest of each
Loan Party in such real property, together with:
(a) an ALTA Loan Title Insurance Policy, issued by an insurer
acceptable to the Agent, insuring the Agent's Lien on such real property
and containing such endorsements as the Agent may reasonably require (it
being understood that the amount of coverage, exceptions to coverage and
status of title set forth in such policy shall be acceptable to the Agent);
(b) copies of all documents of record concerning such real property as
shown on the commitment for the ALTA Loan Title Insurance Policy referred
to above;
(c) original or certified copies of all insurance policies required to
be maintained with respect to such real property by this Agreement, the
applicable Mortgage or any other Loan Document;
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(d) an ALTA survey certified to the Agent meeting such standards as
the Agent may reasonably establish and otherwise reasonably satisfactory to
the Agent;
(e) a flood insurance policy concerning such real property, reasonably
satisfactory to the Agent, if required by the Flood Disaster Protection Act
of 1973; and
(f) an appraisal, satisfactory to the Agent, prepared by an
independent appraiser engaged directly by the Agent or Co-Agent, of such
parcel of real property or interest in real property, in form and substance
acceptable to Agent.
Additionally, in the case of any leased real property, a consent, in form
and substance satisfactory to the Agent, from the owner waiving any landlord's
Lien in respect of personal property kept at the premises subject to such lease.
11.1.10 Purchase Agreement Assignment. A Purchase Agreement Assignment
executed by the Loan Parties and each of the Selling Shareholders.
11.1.11 Subordination Agreements. Subordination Agreement executed by (i)
Drake Products and the Selling Shareholders with respect to the Seller Notes and
(ii) the Guarantors with respect to the Guarantor Distributions.
11.1.12 Opinions of Counsel. (a) The opinions of (1) Loan Parties' counsel
and (2) local counsel with respect to each jurisdiction where each parcel of
real property subject to each Mortgage is located, and (b) all opinions
delivered in connection with the closing of the Purchase Agreement (which
opinions shall state, or be accompanied by letters which state, that the Agent,
Co-Agent and the Banks may rely thereon).
11.1.13 Insurance. Evidence satisfactory to the Agent of the existence of
insurance required to be maintained pursuant to Section 10.3(b), together with
evidence that the Agent has been named as a lender's loss payee and an
additional insured on all related insurance policies.
11.1.14 Copies of Purchase Documents. Copies, certified by the Secretary of
the Company of a true and correct copy of the Purchase Agreement.
11.1.15 Payment of Fees. Evidence of payment by the Loan Parties of all
accrued and unpaid fees, costs and expenses to the extent then due and payable
on the Closing Date, together with all Attorney Costs of the Agent and Co-Agent
to the extent invoiced prior to the Closing Date, plus such additional amounts
of Attorney Costs as shall constitute the Agent's and Co-Agent's reasonable
estimate of Attorney Costs incurred or to be incurred by the Agent and Co-Agent
through the closing proceedings (provided that such estimate shall not
thereafter preclude final settling of accounts between the Loan Parties and the
Agent and Co-Agent).
11.1.16 Solvency Certificate. A solvency certificate executed by the Chief
Financial Officer of the Loan Parties.
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11.1.17 Pro Forma. A consolidated pro forma balance sheet of the Loan
Parties as at the Closing Date, adjusted to give effect to the consummation of
the Purchase and the financings contemplated hereby as if such transactions had
occurred on such date, consistent in all material respects with the sources and
uses of cash as previously described to the Banks and the forecasts previously
provided to the Banks.
11.1.18 Search Results; Lien Terminations. Certified copies of Uniform
Commercial Code Requests for Information or Copies (Form UCC-11), or a similar
search report certified by a party acceptable to the Agent, dated a date
reasonably near to the Closing Date, listing all effective financing statements
which name the Loan Parties (under their present names and any previous names)
as debtors and which are filed in the jurisdictions in which filings are to be
made pursuant to the Collateral Documents, together with (i) copies of such
financing statements, (ii) executed copies of proper Uniform Commercial Code
Form UCC-3 termination statements, if any, necessary to release all Liens and
other rights of any Person in any collateral described in the Collateral
Documents previously granted by any Person (other than Liens permitted by
Section 10.8) and (iii) such other Uniform Commercial Code Form UCC-3
termination statements as the Agent may reasonably request.
11.1.19 Filings, Registrations and Recordings. The Agent shall have
received each document (including Uniform Commercial Code financing statements)
required by the Collateral Documents or under law or reasonably requested by the
Agent to be filed, registered or recorded in order to create in favor of the
Agent, for the benefit of the Banks, a perfected Lien on the collateral
described therein, prior and superior to any other Person, in proper form for
filing, registration or recording.
11.1.20 Closing Certificate. A certificate signed by an executive officer
of each Loan Party dated as of the Closing Date, affirming the matters set forth
in Section 11.2.1 as of the Closing Date.
11.1.21 Borrowing Base Certificate. A Borrowing Base Certificate dated as
of the Closing Date showing Available Cash of no less than $2,500,000.
11.1.22 Purchase Certificate, Consents and Permits. A certificate executed
by an executive officer of the Company on behalf of the Loan Parties certifying
the occurrence of the closing of the Purchase and that such closing has been
consummated in accordance with the terms of the Purchase Agreement without
waiver of any material condition thereof; together with evidence satisfactory to
the Agent that (i) all necessary governmental, regulatory, creditor,
shareholder, partner and other material consents, approvals and exemptions
required to be obtained by the Loan Parties in connection with the Purchase have
been duly obtained and are in full force and effect and (ii) all material
permits necessary for the operation of the acquired business have been obtained.
11.1.23 Other. Such other documents as the Agent, Co-Agent or any Bank may
reasonably request.
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11.2 Conditions. The obligation (a) of each Bank to make each Loan and (b)
of the Issuing Bank to issue each Letter of Credit is subject to the following
further conditions precedent that:
11.2.1 Compliance with Warranties, No Default, etc. Both before and after
giving effect to any borrowing and the issuance of any Letter of Credit, the
following statements shall be true and correct:
(a) the representations and warranties of each Loan Party set forth in
this Agreement and the other Loan Documents shall be true and correct in
all material respects with the same effect as if then made (except to the
extent stated to relate to a specific earlier date, in which case such
representations and warranties shall be true and correct as of such earlier
date); and
(b) no Event of Default or Unmatured Event of Default shall have then
occurred and be continuing.
11.2.2 Confirmatory Certificate. If requested by the Agent, Co-Agent or any
Bank, the Agent shall have received (in sufficient counterparts to provide one
to each Bank) a certificate dated the date of such requested Loan or Letter of
Credit and signed by a duly authorized representative of the Representative as
to the matters set out in Section 11.2.1 (it being understood that each request
by the Representative for the making of a Loan or the issuance of a Letter of
Credit shall be deemed to constitute a warranty by the Loan Parties that the
conditions precedent set forth in Section 11.2.1 will be satisfied at the time
of the making of such Loan or the issuance of such Letter of Credit), together
with such other documents as the Agent, Co-Agent or any Bank may reasonably
request in support thereof.
SECTION 12 EVENTS OF DEFAULT AND THEIR EFFECT.
12.1 Events of Default. Each of the following shall constitute an Event of
Default under this Agreement:
12.1.1 Non-Payment of the Loans, etc. Default in the payment when due of
the principal of any Loan; or default, and continuance thereof for five days, in
the payment when due of any interest, fee, reimbursement obligation with respect
to any Letter of Credit or other amount payable by the Loan Parties hereunder or
under any other Loan Document.
12.1.2 Non-Payment of Other Debt. Any default shall occur under the terms
applicable to any Debt of the Loan Parties or any Subsidiary in an aggregate
amount (for all such Debt so affected) exceeding $50,000 and such default shall
(a) consist of the failure to pay such Debt when due, whether by acceleration or
otherwise, or (b) accelerate the maturity of such Debt or permit the holder or
holders thereof, or any trustee or agent for such holder or holders, to cause
such Debt to become due and payable (or require the Loan Parties or any
Subsidiary to purchase or redeem such Debt) prior to its expressed maturity.
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12.1.3 Other Material Obligations. Default in the payment when due, or in
the performance or observance of, any material obligation of, or condition
agreed to by, the Loan Parties or any Subsidiary with respect to any material
purchase or lease of goods or services where such default, singly or in the
aggregate with all other such defaults, has a Material Adverse Effect.
12.1.4 Bankruptcy, Insolvency, etc. Any Loan Party or any Guarantor becomes
insolvent or generally fails to pay, or admits in writing its inability or
refusal to pay, debts as they become due; or any Loan Party or any Guarantor
applies for, consents to, or acquiesces in the appointment of a trustee,
receiver or other custodian for any Loan Party or any Guarantor or any property
thereof, or makes a general assignment for the benefit of creditors; or, in the
absence of such application, consent or acquiescence, a trustee, receiver or
other custodian is appointed for any Loan Party or any Guarantor or for a
substantial part of the property of any thereof and is not discharged within
sixty (60) days; or any bankruptcy, reorganization, debt arrangement, or other
case or proceeding under any bankruptcy or insolvency law, or any dissolution or
liquidation proceeding, is commenced in respect of any Loan Party or any
Guarantor, and if such case or proceeding is not commenced by the Loan Parties
or any Guarantor, it is consented to or acquiesced in by any Loan Party or any
Guarantor, or remains for forty-five (45) days undismissed; or any Loan Party or
any Guarantor takes any action to authorize, or in furtherance of, any of the
foregoing.
12.1.5 Non-Compliance with Loan Documents. (a) Failure by any Loan Party to
comply with or to perform any covenant set forth in Sections 10.1.5(a), 10.5
through 10.15, and 10.20 through 10.22; or (b) failure by any Loan Party to
comply with or to perform any other provision of this Agreement or any other
Loan Document (and not constituting an Event of Default under any other
provision of this Section 12) and continuance of such failure described in this
clause (b) for fifteen (15) days.
12.1.6 Warranties. Any warranty made by any Loan Party herein or any other
Loan Document is breached or is false or misleading in any material respect, or
any schedule, certificate, financial statement, report, notice or other writing
furnished by any Loan Party to the Agent, Co- Agent or any Bank in connection
herewith is false or misleading in any material respect on the date as of which
the facts therein set forth are stated or certified.
12.1.7 Pension Plans. (i) Institution of any steps by any Loan Party or any
other Person to terminate a Pension Plan if as a result of such termination any
Loan Party could be required to make a contribution to such Pension Plan, or
could incur a liability or obligation to such Pension Plan, in excess of
$500,000; (ii) a contribution failure occurs with respect to any Pension Plan
sufficient to give rise to a Lien under Section 302(f) of ERISA; or (iii) there
shall occur any withdrawal or partial withdrawal from a Multiemployer Pension
Plan and the withdrawal liability (without unaccrued interest) to Multiemployer
Pension Plans as a result of such withdrawal (including any outstanding
withdrawal liability that any Loan Party and the Controlled Group have incurred
on the date of such withdrawal) exceeds $500,000.
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12.1.8 Judgments. Final judgments which exceed an aggregate of $250,000
shall be rendered against any Loan Party and shall not have been paid,
discharged or vacated or had execution thereof stayed pending appeal within 30
days after entry or filing of such judgments.
12.1.9 Invalidity of Guaranty, etc. Any Guaranty shall cease to be in full
force and effect with respect to any Guarantor; or any Guarantor (or any Person
by, through or on behalf of such Guarantor) shall contest in any manner the
validity, binding nature or enforceability of any Guaranty with respect to such
Guarantor.
12.1.10 Invalidity of Collateral Documents, etc. Any Collateral Document
shall cease to be in full force and effect; or any Loan Party (or any Person by,
through or on behalf of any Loan Party or any Subsidiary) shall contest in any
manner the validity, binding nature or enforceability of any Collateral
Document.
12.1.11 Invalidity of Subordination Provisions, etc. Any subordination
provision in any document or instrument governing Subordinated Debt, shall cease
to be in full force and effect, or any Loan Party or any other Person (including
the holder of any applicable Subordinated Debt) shall contest in any manner the
validity, binding nature or enforceability of any such provision.
12.1.12 Change of Control. (a) Any Person or group of Persons (within the
meaning of Section 13 or 14 of the Securities Exchange Act of 1934, but
excluding any Specified Person (as defined below)) shall acquire beneficial
ownership (within the meaning of Rule 13d-3 promulgated under such Act) of more
than 20% (or, if greater, the percentage owned by the Specified Persons of the
outstanding securities (on a fully diluted basis and taking into account any
securities or contract rights exercisable, exchangeable or convertible into
equity securities) of the Company having voting rights in the election of
directors under normal circumstances; or (b) a period of 30 consecutive days
shall have elapsed during which any two of the individuals named in Schedule
12.1.12 shall have ceased to hold executive offices with the Company at least
equal in seniority and responsibility to such individual's present office[s], as
set out in such Schedule 12.1.12, excluding any such individual who has been
replaced by another individual or individuals reasonably satisfactory to the
Required Banks (it being understood that any such replacement individual shall
be deemed added to Schedule 12.1.12 on the date of approval thereof by the
Required Banks). For purposes hereof, "Specified Person" means Emilie Wierda,
Craig Wierda, Elsa Prince, Bryan Cressey, Terry Graunke, Troy Wiseman and Jack
Rutherford.
12.1.13 Material Adverse Effect. The occurrence of any event having a
Material Adverse Effect.
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12.2 Effect of Event of Default. If any Event of Default described in
Section 12.1.4 shall occur, the Commitments (if they have not theretofore
terminated) shall immediately terminate and the Loans and all other obligations
hereunder shall become immediately due and payable and the Loan Parties shall
become immediately obligated to Cash Collateralize all Letters of Credit, all
without presentment, demand, protest or notice of any kind; and, if any other
Event of Default shall occur and be continuing, the Agent (upon written request
of the Required Banks) shall declare the Commitments (if they have not
theretofore terminated) to be terminated and/or declare all Loans and all other
obligations hereunder to be due and payable and/or demand that the Loan Parties
immediately Cash Collateralize all Letters of Credit, whereupon the Commitments
(if they have not theretofore terminated) shall immediately terminate and/or all
Loans and all other obligations hereunder shall become immediately due and
payable and/or the Loan Parties shall immediately become obligated to Cash
Collateralize all Letters of Credit, all without presentment, demand, protest or
notice of any kind. The Agent shall promptly advise the Representative of any
such declaration, but failure to do so shall not impair the effect of such
declaration. Notwithstanding the foregoing, the effect as an Event of Default of
any event described in Section 12.1.1 or Section 12.1.4 may be waived by the
written concurrence of all of the Banks, and the effect as an Event of Default
of any other event described in this Section 12 may be waived by the written
concurrence of the Required Banks. Any cash collateral delivered hereunder shall
be held by the Agent (without liability for interest thereon) and applied to
obligations arising in connection with any drawing under a Letter of Credit.
After the expiration or termination of all Letters of Credit, such cash
collateral shall be applied by the Agent to any remaining obligations hereunder
and any excess shall be delivered to the Loan Parties or as a court of competent
jurisdiction may elect.
SECTION 13 THE AGENT.
13.1 Appointment and Authorization.
(a) Each Bank hereby irrevocably (subject to Section 13.9) appoints,
designates and authorizes the Agent to take such action on its behalf under
the provisions of this Agreement and each other Loan Document and to
exercise such powers and perform such duties as are expressly delegated to
it by the terms of this Agreement or any other Loan Document, together with
such powers as are reasonably incidental thereto. Notwithstanding any
provision to the contrary contained elsewhere in this Agreement or in any
other Loan Document, the Agent shall not have any duty or responsibility
except those expressly set forth herein, nor shall the Agent have or be
deemed to have any fiduciary relationship with any Bank, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities
shall be read into this Agreement or any other Loan Document or otherwise
exist against the Agent. The Co-Agent shall have no duties or liabilities
in acting in such capacity hereunder.
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(b) The Issuing Bank shall act on behalf of the Banks with respect to
any Letters of Credit issued by it and the documents associated therewith.
The Issuing Bank shall have all of the benefits and immunities (i) provided
to the Agent in this Section 13 with respect to any acts taken or omissions
suffered by the Issuing Bank in connection with Letters of Credit issued by
it or proposed to be issued by it and the applications and agreements for
letters of credit pertaining to such Letters of Credit as fully as if the
term "Agent", as used in this Section 13, included the Issuing Bank with
respect to such acts or omissions and (ii) as additionally provided in this
Agreement with respect to the Issuing Bank.
13.2 Delegation of Duties. The Agent may execute any of its duties under
this Agreement or any other Loan Document by or through agents, employees or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agent or attorney-in-fact that it selects with
reasonable care.
13.3 Liability of Agent. None of the Agent nor any of its directors,
officers, employees or agents shall (i) be liable for any action taken or
omitted to be taken by any of them under or in connection with this Agreement or
any other Loan Document or the transactions contemplated hereby (except for its
own gross negligence or willful misconduct), or (ii) be responsible in any
manner to any of the Banks for any recital, statement, representation or
warranty made by any Loan Party, or any officer thereof, contained in this
Agreement or in any other Loan Document, or in any certificate, report,
statement or other document referred to or provided for in, or received by the
Agent under or in connection with, this Agreement or any other Loan Document, or
the validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement or any other Loan Document, or for any failure of any Loan Party or
any other party to any Loan Document to perform its obligations hereunder or
thereunder. The Agent shall not be under any obligation to any Bank to ascertain
or to inquire as to the observance or performance of any of the agreements
contained in, or conditions of, this Agreement or any other Loan Document, or to
inspect the properties, books or records of each Loan Party or any of the Loan
Parties' Subsidiaries or Affiliates.
13.4 Reliance by Agent. The Agent shall be entitled to rely, and shall be
fully protected in relying, upon any writing, resolution, notice, consent,
certificate, affidavit, letter, telegram, facsimile, telex or telephone message,
statement or other document or conversation believed by it to be genuine and
correct and to have been signed, sent or made by the proper Person or Persons,
and upon advice and statements of legal counsel (including counsel to the Loan
Parties), independent accountants and other experts selected by the Agent. The
Agent shall be fully justified in failing or refusing to take any action under
this Agreement or any other Loan Document unless it shall first receive such
advice or concurrence of the Required Banks as it deems appropriate and, if it
so requests, confirmation from the Banks of their obligation to indemnify the
Agent against any and all liability and expense which may be incurred by it by
reason of taking or continuing to take any such action. The Agent shall in all
cases be fully protected in acting, or in refraining from acting, under this
Agreement or any other Loan Document in accordance with a request or consent of
the Required Banks and such request and any action taken or failure to act
pursuant thereto shall be binding upon all of the Banks.
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13.5 Notice of Default. The Agent shall not be deemed to have knowledge or
notice of the occurrence of any Event of Default or Unmatured Event of Default
except with respect to defaults in the payment of principal, interest and fees
required to be paid to the Agent for the account of the Banks, unless the Agent
shall have received written notice from a Bank or the Loan Parties referring to
this Agreement, describing such Event of Default or Unmatured Event of Default
and stating that such notice is a "notice of default". The Agent will notify the
Banks of its receipt of any such notice. The Agent shall take such action with
respect to such Event of Default or Unmatured Event of Default as may be
requested by the Required Banks in accordance with Section 12; provided that
unless and until the Agent has received any such request, the Agent may (but
shall not be obligated to) take such action, or refrain from taking such action,
with respect to such Event of Default or Unmatured Event of Default as it shall
deem advisable or in the best interest of the Banks.
13.6 Credit Decision. Each Bank acknowledges that the Agent has not made
any representation or warranty to it, and that no act by the Agent hereafter
taken, including any review of the affairs of any Loan Party, shall be deemed to
constitute any representation or warranty by the Agent to any Bank. Each Bank
represents to the Agent that it has, independently and without reliance upon the
Agent and based on such documents and information as it has deemed appropriate,
made its own appraisal of and investigation into the business, prospects,
operations, property, financial and other condition and creditworthiness of each
Loan Party, and made its own decision to enter into this Agreement and to extend
credit to the Loan Parties hereunder. Each Bank also represents that it will,
independently and without reliance upon the Agent and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own credit analysis, appraisals and decisions in taking or not taking action
under this Agreement and the other Loan Documents, and to make such
investigations as it deems necessary to inform itself as to the business,
prospects, operations, property, financial and other condition and
creditworthiness of each Loan Party. Except for notices, reports and other
documents expressly herein required to be furnished to the Banks by the Agent,
the Agent shall not have any duty or responsibility to provide any Bank with any
credit or other information concerning the business, prospects, operations,
property, financial or other condition or creditworthiness of each Loan Party
which may come into the possession of the Agent.
13.7 Indemnification. Whether or not the transactions contemplated hereby
are consummated, the Banks shall indemnify upon demand the Agent and its
directors, officers, employees and agents (to the extent not reimbursed by or on
behalf of the Loan Parties and without limiting the obligation of any Loan Party
to do so), pro rata, from and against any and all Indemnified Liabilities;
provided that no Bank shall be liable for any payment to any such Person of any
portion of the Indemnified Liabilities resulting from such Person's gross
negligence or willful misconduct. Without limitation of the foregoing, each Bank
shall reimburse the Agent upon demand for its ratable share of any costs or
out-of-pocket expenses (including Attorney Costs) incurred by the Agent in
connection with the preparation, execution, delivery, administration,
modification, amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
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responsibilities under, this Agreement, any other Loan Document, or any document
contemplated by or referred to herein, to the extent that the Agent is not
reimbursed for such expenses by or on behalf of the Loan Parties. The
undertaking in this Section shall survive repayment of the Loans, cancellation
of the Notes, expiration or termination of the Letters of Credit, any
foreclosure under, or modification, release or discharge of, any or all of the
Collateral Documents, termination of this Agreement and the resignation or
replacement of the Agent.
13.8 Agent in Individual Capacity. LaSalle and its Affiliates may make
loans to, issue letters of credit for the account of, accept deposits from,
acquire equity interests in and generally engage in any kind of banking, trust,
financial advisory, underwriting or other business with each Loan Party and its
Subsidiaries and Affiliates as though LaSalle were not the Agent or the Issuing
Bank hereunder and without notice to or consent of the Banks. The Banks
acknowledge that, pursuant to such activities, LaSalle or its Affiliates may
receive information regarding the Loan Parties or its Affiliates (including
information that may be subject to confidentiality obligations in favor of the
Loan Parties or such Affiliate) and acknowledge that the Agent shall be under no
obligation to provide such information to them. With respect to their Loans (if
any), LaSalle and its Affiliates shall have the same rights and powers under
this Agreement as any other Bank and may exercise the same as though LaSalle
were not the Agent and the Issuing Bank, and the terms "Bank" and "Banks"
include LaSalle and its Affiliates, to the extent applicable, in their
individual capacities.
13.9 Successor Agent. The Agent may resign as Agent upon 30 days' notice to
the Banks. If the Agent resigns under this Agreement, the Co-Agent shall assume
the role as successor Agent. To the extent Co-Agent declines such role, the
Required Banks shall, with (so long as no Event of Default exists) the consent
of the Loan Parties (which shall not be unreasonably withheld or delayed),
appoint from among the Banks a successor agent for the Banks. If Co-Agent
declines to act as successor Agent and no successor agent is appointed prior to
the effective date of the resignation of the Agent, the Agent may appoint, after
consulting with the Banks and the Loan Parties, a successor agent from among the
Banks. Upon the acceptance of its appointment as successor agent hereunder, such
successor agent shall succeed to all the rights, powers and duties of the
retiring Agent and the term "Agent" shall mean such successor agent, and the
retiring Agent's appointment, powers and duties as Agent shall be terminated.
After any retiring Agent's resignation hereunder as Agent, the provisions of
this Section 13 and Sections 14.6 and 14.13 shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent under this
Agreement. If no successor agent has accepted appointment as Agent by the date
which is 30 days following a retiring Agent's notice of resignation, the
retiring Agent's resignation shall nevertheless thereupon become effective and
the Banks shall perform all of the duties of the Agent hereunder until such
time, if any, as the Required Banks appoint a successor agent as provided for
above.
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13.10 Collateral Matters. The Banks irrevocably authorize the Agent, at its
option and in its discretion, (a) to release any Lien granted to or held by the
Agent under any Collateral Document (i) upon termination of the Commitments and
payment in full of all Loans and all other obligations of the Loan Parties
hereunder and the expiration or termination of all Letters of Credit; (ii)
constituting property sold or to be sold or disposed of as part of or in
connection with any disposition permitted hereunder; or (iii) subject to Section
14.1, if approved, authorized or ratified in writing by the Required Banks; or
(b) to subordinate its interest in any collateral to any holder of a Lien on
such collateral which is permitted by clause (d)(i) or (d)(iii) of Section 10.8
(it being understood that the Agent may conclusively rely on a certificate from
the Representative in determining whether the Debt secured by any such Lien is
permitted by Section 10.7(b)). Upon request by the Agent at any time, the Banks
will confirm in writing the Agent's authority to release, or subordinate its
interest in, particular types or items of collateral pursuant to this Section
13.10.
SECTION 14 GENERAL.
14.1 Waiver; Amendments. No delay on the part of the Agent or any Bank in
the exercise of any right, power or remedy shall operate as a waiver thereof,
nor shall any single or partial exercise by any of them of any right, power or
remedy preclude other or further exercise thereof, or the exercise of any other
right, power or remedy. No amendment, modification or waiver of, or consent with
respect to, any provision of this Agreement or the Notes shall in any event be
effective unless the same shall be in writing and signed and delivered by Banks
having an aggregate Pro Rata Share of not less than the aggregate Pro Rata Share
expressly designated herein with respect thereto or, in the absence of such
designation as to any provision of this Agreement or the Notes, by the Required
Banks, and then any such amendment, modification, waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given. No amendment, modification, waiver or consent shall change the Pro Rata
Share of any Bank without the consent of such Bank. No amendment, modification,
waiver or consent shall (i) increase the Revolving Commitment Amount, (ii)
extend the date for payment of any principal of or interest on the Loans or any
fees payable hereunder, (iii) reduce the principal amount of any Loan, the rate
of interest thereon or any fees payable hereunder, (iv) release any Guaranty or
all or any substantial part of the collateral granted under the Collateral
Documents or (v) reduce the aggregate Pro Rata Share required to effect an
amendment, modification, waiver or consent without, in each case, the consent of
all Banks. No provision of Section 13 or other provision of this Agreement
affecting the Agent in its capacity as such shall be amended, modified or waived
without the consent of Agent. No provision of this Agreement relating to the
rights or duties of the Issuing Bank in its capacity as such shall be amended,
modified or waived without the consent of the Issuing Bank.
14.2 Confirmations. The Loan Parties and each holder of a Note agree from
time to time, upon written request received by it from the other, to confirm to
the other in writing (with a copy of each such confirmation to the Agent) the
aggregate unpaid principal amount of the Loans then outstanding under such Note.
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14.3 Notices. Except as otherwise provided in Sections 2.2.2 and 2.2.3, all
notices hereunder shall be in writing (including facsimile transmission) and
shall be sent to the applicable party at its address shown on Schedule 14.3 or
at such other address as such party may, by written notice received by the other
parties, have designated as its address for such purpose. Notices sent by
facsimile transmission shall be deemed to have been given when sent; notices
sent by mail shall be deemed to have been given three Business Days after the
date when sent by registered or certified mail, postage prepaid; and notices
sent by hand delivery or overnight courier service shall be deemed to have been
given when received. For purposes of Sections 2.2.2 and 2.2.3, the Agent shall
be entitled to rely on telephonic instructions from any person that the Agent in
good faith believes is an authorized officer or employee of the Representative,
and the Loan Parties shall hold the Agent and each other Bank harmless from any
loss, cost or expense resulting from any such reliance.
14.4 Computations. Where the character or amount of any asset or liability
or item of income or expense is required to be determined, or any consolidation
or other accounting computation is required to be made, for the purpose of this
Agreement, such determination or calculation shall, to the extent applicable and
except as otherwise specified in this Agreement, be made in accordance with
GAAP, consistently applied; provided that if the Representative notifies the
Agent that the Representative wishes to amend any covenant in Section 10 to
eliminate or to take into account the effect of any change in GAAP on the
operation of such covenant (or if the Agent notifies the Representative that the
Required Banks wish to amend Section 10 for such purpose), then the Loan
Parties' compliance with such covenant shall be determined on the basis of GAAP
in effect immediately before the relevant change in GAAP became effective, until
either such notice is withdrawn or such covenant is amended in a manner
satisfactory to the Loan Parties and the Required Banks.
14.5 Regulation U. Each Bank represents that it in good faith is not
relying, either directly or indirectly, upon any Margin Stock as collateral
security for the extension or maintenance by it of any credit provided for in
this Agreement.
14.6 Costs, Expenses and Taxes. The Loan Parties agree to pay on demand all
reasonable out-of-pocket costs and expenses of the Agent and Co-Agent (including
Attorney Costs) in connection with the preparation, execution, syndication,
delivery and administration of this Agreement, the other Loan Documents and all
other documents provided for herein or delivered or to be delivered hereunder or
in connection herewith (including any amendment, supplement or waiver to any
Loan Document), and all reasonable out-of-pocket costs and expenses (including
Attorney Costs) incurred by the Agent, Co-Agent and each Bank after an Event of
Default in connection with the enforcement of this Agreement, the other Loan
Documents or any such other documents. In addition, the Loan Parties agrees to
pay, and to save the Agent, Co-Agent and the Banks harmless from all liability
for, (a) any stamp or other taxes (excluding income taxes and franchise taxes
based on net income) which may be payable in connection with the execution and
delivery of this Agreement, the borrowings hereunder, the issuance of the Notes
or the execution and delivery of any other Loan Document or any other document
provided for herein or delivered or to be delivered hereunder or in connection
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herewith and (b) any fees of the Loan Parties' auditors in connection with any
reasonable exercise by the Agent, Co-Agent and the Banks of their rights
pursuant to Section 10.2. All obligations provided for in this Section 14.6
shall survive repayment of the Loans, cancellation of the Notes, expiration or
termination of the Letters of Credit and termination of this Agreement. In order
to cause timely payment to be made by the Loan Parties of all costs and expenses
incurred hereunder by Agent and Co-Agent, as the case may be, the Loan Parties
hereby authorize and direct Agent to debit such amount due to any ordinary
deposit account of the Loan Parties, or increase the principal balance due under
the Revolving Loans.
14.7 Subsidiary References. The provisions of this Agreement relating to
Subsidiaries shall apply only during such times as the Loan Parties have one or
more Subsidiaries.
14.8 Captions. Section captions used in this Agreement are for convenience
only and shall not affect the construction of this Agreement.
14.9 Assignments; Participations.
14.9.1 Assignments. Any Bank may, with the prior written consent of the
Issuing Bank, Agent, Co-Agent and (so long as no Event of Default exists) the
Loan Parties (which consents shall not be unreasonably delayed or withheld and,
in any event, shall not be required for an assignment by a Bank to one of its
Affiliates), at any time assign and delegate to one or more commercial banks or
other Persons (any Person to whom such an assignment and delegation is to be
made being herein called an "Assignee") all or any fraction of such Bank's Loans
and Commitment (which assignment and delegation shall be of a constant, and not
a varying, percentage of all the assigning Bank's Loans and Commitment) in a
minimum aggregate amount equal to the lesser of (i) the amount of the assigning
Bank's Pro Rata Share of the Revolving Commitment Amount plus the unpaid amount
of such Bank's Term Loans and (ii) $5,000,000; provided that (a) no assignment
and delegation may be made to any Person if, at the time of such assignment and
delegation, the Loan Parties would be obligated to pay any greater amount under
Section 7.6 or Section 8 to the Assignee than the Loan Parties are then
obligated to pay to the assigning Bank under such Sections (and if any
assignment is made in violation of the foregoing, the Loan Parties will not be
required to pay the incremental amounts) and (b) the Representative and the
Agent shall be entitled to continue to deal solely and directly with such Bank
in connection with the interests so assigned and delegated to an Assignee until
the date when all of the following conditions shall have been met:
(x) five Business Days (or such lesser period of time as the Agent and
the assigning Bank shall agree) shall have passed after written notice of
such assignment and delegation, together with payment instructions,
addresses and related information with respect to such Assignee, shall have
been given to the Representative and the Agent by such assigning Bank and
the Assignee,
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(y) the assigning Bank and the Assignee shall have executed and
delivered to the Loan Parties and the Agent an assignment agreement
substantially in the form of Exhibit G (an "Assignment Agreement"),
together with any documents required to be delivered thereunder, which
Assignment Agreement shall have been accepted by the Agent, and
(z) except in the case of an assignment by a Bank to one of its
Affiliates, the assigning Bank or the Assignee shall have paid the Agent a
processing fee of $3,500.
From and after the date on which the conditions described above have been met,
(x) such Assignee shall be deemed automatically to have become a party hereto
and, to the extent that rights and obligations hereunder have been assigned and
delegated to such Assignee pursuant to such Assignment Agreement, shall have the
rights and obligations of a Bank hereunder and (y) the assigning Bank, to the
extent that rights and obligations hereunder have been assigned and delegated by
it pursuant to such Assignment Agreement, shall be released from its obligations
hereunder. Within five Business Days after effectiveness of any assignment and
delegation, the Loan Parties shall execute and deliver to the Agent (for
delivery to the Assignee and the Assignor, as applicable) a new Note in the
principal amount of the Assignee's Pro Rata Share of the Revolving Commitment
Amount plus the principal amount of the Assignee's Term Loans, as applicable, if
the assigning Bank has retained a Commitment hereunder, a replacement Note in
the principal amount of the Pro Rata Share of the Revolving Commitment Amount
retained by the assigning Bank plus the principal amount of such Term Loan
retained by the assigning Bank (such Note to be in exchange for, but not in
payment of, the predecessor Note held by such assigning Bank). Each such Note
shall be dated the effective date of such assignment. The assigning Bank shall
mark the predecessor Note "exchanged" and deliver it to the Loan Parties.
Accrued interest on that part of the predecessor Note being assigned shall be
paid as provided in the Assignment Agreement. Accrued interest and fees on that
part of the predecessor Note not being assigned shall be paid to the assigning
Bank. Accrued interest and accrued fees shall be paid at the same time or times
provided in the predecessor Note and in this Agreement. Any attempted assignment
and delegation not made in accordance with this Section 14.9.1 shall be null and
void.
Notwithstanding the foregoing provisions of this Section 14.9.1 or any
other provision of this Agreement, any Bank may at any time assign all or any
portion of its Loans and its Notes to a Federal Reserve Bank (but no such
assignment shall release any Bank from any of its obligations hereunder).
14.9.2 Participations. Any Bank may at any time sell to one or more
commercial banks or other Persons participating interests in any Loan owing to
such Bank, the Note held by such Bank, the Commitment of such Bank, the direct
or participation interest of such Bank in any Letter of Credit or any other
interest of such Bank hereunder (any Person purchasing any such participating
interest being herein called a "Participant"). In the event of a sale by a Bank
of a participating interest to a Participant, (x) such Bank shall remain the
holder of its Notes for all purposes of this Agreement, (y) the Loan Parties and
the Agent shall continue to deal solely and directly with such Bank in
connection with such Bank's rights and obligations hereunder and (z) all amounts
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payable by the Loan Parties shall be determined as if such Bank had not sold
such participation and shall be paid directly to such Bank. No Participant shall
have any direct or indirect voting rights hereunder except with respect to any
of the events described in the fourth sentence of Section 14.1. Each Bank agrees
to incorporate the requirements of the preceding sentence into each
participation agreement which such Bank enters into with any Participant. The
Loan Parties agree that if amounts outstanding under this Agreement and the
Notes are due and payable (as a result of acceleration or otherwise), each
Participant shall be deemed to have the right of setoff in respect of its
participating interest in amounts owing under this Agreement, any Note and with
respect to any Letter of Credit to the same extent as if the amount of its
participating interest were owing directly to it as a Bank under this Agreement
or such Note; provided that such right of setoff shall be subject to the
obligation of each Participant to share with the Banks, and the Banks agree to
share with each Participant, as provided in Section 7.5. The Loan Parties also
agree that each Participant shall be entitled to the benefits of Section 7.6 and
Section 8 as if it were a Bank (provided that no Participant shall receive any
greater compensation pursuant to Section 7.6 or Section 8 than would have been
paid to the participating Bank if no participation had been sold).
14.10 Governing Law. This Agreement and each Note shall be a contract made
under and governed by the internal laws of the State of Illinois applicable to
contracts made and to be performed entirely within such State. 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
shall be prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement. All obligations of the Loan Parties and rights of the Agent and the
Banks expressed herein or in any other Loan Document shall be in addition to and
not in limitation of those provided by applicable law.
14.11 Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts and
each such counterpart shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same Agreement.
14.12 Successors and Assigns. This Agreement shall be binding upon each
Loan Party, the Banks and the Agent and their respective successors and assigns,
and shall inure to the benefit of each Loan Party, the Banks and the Agent and
the successors and assigns of the Banks and the Agent.
14.13 Indemnification by the Loan Parties. In consideration of the
execution and delivery of this Agreement by the Agent and the Banks and the
agreement to extend the Commitments provided hereunder, the Loan Parties hereby
agree to indemnify, exonerate and hold the Agent, each Bank and each of the
officers, directors, employees, Affiliates and agents of the Agent and each Bank
(each a "Bank Party") free and harmless from and against any and all actions,
causes of action, suits, losses, liabilities, damages and expenses, including
Attorney Costs (collectively, the "Indemnified Liabilities"), incurred by the
Bank Parties or any of them as a result of, or arising out of, or relating to
(i) any tender offer, merger, purchase of stock, purchase of assets (including
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the Purchase) or other similar transaction financed or proposed to be financed
in whole or in part, directly or indirectly, with the proceeds of any of the
Loans, (ii) the use, handling, release, emission, discharge, transportation,
storage, treatment or disposal of any hazardous substance at any property owned
or leased by any Loan Party or any Subsidiary, (iii) any violation of any
Environmental Laws with respect to conditions at any property owned or leased by
any Loan Party or any Subsidiary or the operations conducted thereon, (iv) the
investigation, cleanup or remediation of offsite locations at which any Loan
Party or any Subsidiary or their respective predecessors are alleged to have
directly or indirectly disposed of hazardous substances or (v) the execution,
delivery, performance or enforcement of this Agreement or any other Loan
Document by any of the Bank Parties, except for any such Indemnified Liabilities
arising on account of the applicable Bank Party's gross negligence or willful
misconduct. If and to the extent that the foregoing undertaking may be
unenforceable for any reason, the Loan Parties hereby agree to make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. All obligations provided
for in this Section 14.13 shall survive repayment of the Loans, cancellation of
the Notes, expiration or termination of the Letters of Credit, any foreclosure
under, or any modification, release or discharge of, any or all of the
Collateral Documents and termination of this Agreement.
14.14 Nonliability of Lenders. The relationship between the Loan Parties on
the one hand and the Banks and the Agent on the other hand shall be solely that
of borrower and lender. Neither the Agent nor any Bank shall have any fiduciary
responsibility to any Loan Party. Neither the Agent nor any Bank undertakes any
responsibility to the Loan Parties to review or inform the Loan Parties or any
matter in connection with any phase of the Loan Parties' business or operations.
The Loan Parties agree that neither the Agent nor any Bank shall have liability
to the Loan Parties (whether sounding in tort, contract or otherwise) for losses
suffered by any Loan Party in connection with, arising out of, or in any way
related to the transactions contemplated and the relationship established by the
Loan Documents, or any act, omission or event occurring in connection therewith,
unless it is determined in a final non-appealable judgment by a court of
competent jurisdiction that such losses resulted from the gross negligence or
willful misconduct of the party from which recovery is sought. Neither the Agent
nor any Bank shall have any liability with respect to, and the Loan Parties
hereby waive, release and agree not to sue for, any special, indirect or
consequential damages suffered by any Loan Party in connection with, arising out
of, or in any way related to the Loan Documents or the transactions contemplated
thereby.
14.15 FORUM SELECTION AND CONSENT TO JURISDICTION. ANY LITIGATION BASED
HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT, SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS
OF THE STATE OF ILLINOIS OR IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN
DISTRICT OF ILLINOIS; PROVIDED THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY
COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE AGENT'S OPTION, IN THE
COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND.
EACH LOAN PARTY HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF
THE COURTS OF THE STATE OF ILLINOIS AND OF THE UNITED STATES DISTRICT COURT FOR
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THE NORTHERN DISTRICT OF ILLINOIS FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET
FORTH ABOVE. EACH LOAN PARTY FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF
PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR
WITHOUT THE STATE OF ILLINOIS. EACH LOAN PARTY HEREBY EXPRESSLY AND IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW
OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY
SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM.
14.16 WAIVER OF JURY TRIAL. EACH LOAN PARTY, THE AGENT, CO-AGENT AND EACH
BANK HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT, ANY NOTE, ANY OTHER LOAN
DOCUMENT AND ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH
MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING
FROM ANY BANKING RELATIONSHIP EXISTING IN CONNECTION WITH ANY OF THE FOREGOING,
AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND
NOT BEFORE A JURY.
14.17 Reimbursement Among Loan Parties. To the extent that any Loan Party
shall be required to pay a portion of the obligations created under this
Agreement of any other Loan Party which shall exceed the amount of loans,
advances or other extensions of credit received by any such Loan Party and all
interest, costs, fees and expenses attributable to such loans, advances or other
extensions of credit, then such Loan Party shall be reimbursed by the other Loan
Parties for the amount of such excess pro rata, based on their respective net
worths as of the date hereof. This Section 14.17 is intended only to define the
relative rights of the Loan Parties among the Loan Parties and nothing set forth
in this Section 14.17 is intended to or shall impair the obligations of Loan
Parties, jointly and severally, to pay the obligations of the Loan Parties to
the Banks as and when the same shall become due and payable in accordance with
the terms hereof.
14.18 Guaranty. The effect of the joint and several obligations of Loan
Parties hereunder is that each Loan Party hereby unconditionally and absolutely
guarantees to the Banks, irrespective of the validity, regularity or
enforceability of this Agreement or any other agreement, the full and prompt
payment in full to the Lenders at maturity of all the obligations of the Loan
Parties. The guaranty set forth in this Section 14.18 shall in all respects be
continuing, absolute and unconditional, and shall remain in full force and
effect until the obligations of the Loan Parties have been fully repaid. The
guaranty set forth in this Section 14.18 is an absolute and unconditional
guaranty of payment and not of collectibility. THE GUARANTY OBLIGATION SET FORTH
IN THIS SECTION 14.18 SHALL IN ALL RESPECTS BE IN FURTHERANCE, AND SHALL IN NO
EVENT BE DEEMED IN LIMITATION, OF THE OBLIGATIONS OF EACH LOAN PARTY UNDER THIS
AGREEMENT.
14.19 Joint and Several Liability. Except as specifically set forth herein,
the liability of each Loan Party under this Agreement and the other agreements
in general shall be joint and several, and each reference herein to the Loan
Parties shall be deemed to refer to each such Loan Party. In furtherance and not
in limitation of each Bank's rights and remedies hereunder or at law, the Banks
-143-
may proceed under this Agreement and the other agreements against any one or
more of the Loan Parties in their absolute and sole discretion for any of the
obligations of the Loan Parties or any other liability or obligation of the Loan
Parties arising hereunder.
14.20 Interrelationship Among the Loan Parties. Each Loan Party
acknowledges that (a) the business operations of each Loan Party are
interrelated and compliment one another, and that such entities have a common
business purpose; (b) to permit their uninterrupted and continuous operations
and consummation of the Purchase, such entities now require various funds and
other credit accommodations from the Banks; and (c) certain funds obtained by
the Loan Parties under this Agreement will be used by the Company and
Clarion-Drake Acquisition for the Purchase.
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[SIGNATURES FOLLOW]
(Signature Page to Credit Agreement (cont.))
(Signature Page to Credit Agreement)
IN WITNESS WHEREOF, each of the undersigned has executed and delivered this
Credit Agreement at Chicago, Illinois, as of the day and year first above
written.
CLARION TECHNOLOGIES, INC.
By: __________________________
Its: _____________________
CLARION PLASTICS TECHNOLOGIES, INC.
By: __________________________
Its: ____________________
CLARION REAL ESTATE, LLC
By: CLARION TECHNOLOGIES, INC.,
its Member
By: _______________________
Its: ________________
DOUBLE "J" MOLDING, INC.
By: _________________________
Its:___________________
CLARION-DRAKE ACQUISITION, INC.
By: _________________________
Its: __________________
MITO PLASTICS, INC.
By: _________________________
Its:__________________
-145-
(Signature Page to Credit Agreement (cont.))
WAMAR PRODUCTS, INC.
By: ________________________
Its: _________________
WAMAR TOOL & MACHINE CO.
By: ________________________
Its:__________________
LASALLE BANK NATIONAL
ASSOCIATION, for itself and as Agent
By: ________________________
Its:__________________
BANK ONE MICHIGAN, for itself and as
Co-Agent
By: _________________________
Its: __________________
-146-
EXHIBIT A
to
Credit Agreement
PRICING SCHEDULE
The LIBOR Margin, the Base Rate Margin, the Non-Use Fee Rate and the L/C
Fee Rate for each Loan shall be determined as set forth below.
A. Term Loan B. The Applicable interest rate for Term Loan B shall be, at the
Loan Parties option, (a) the Base Rate or (b) the LIBOR Rate plus 1.00%.
B. Term Loan A and Revolving Loans.
(i) Before February 28, 2001. Prior to February 28, 2001, for all
Revolving Loans and Term Loan A, the LIBOR Margin shall be
3.50% per annum, the Base Rate Margin shall be 1.00% per
annum, the Non-Use Fee Rate shall be 0.50% per annum and the
L/C Fee Rate shall be 3.00% per annum.
(ii) February 28, 2001 and Thereafter.
(a) Revolving Loans. On and after February 28, 2001, the LIBOR Margin,
the Base Rate Margin, the Non-Use Fee Rate and the L/C Fee Rate for all
Revolving Loans shall be equal to the applicable rate per annum set forth
in the table below opposite the applicable Leverage Ratio:
LIBOR Base Rate Non-Use L/C Fee
Leverage Ratio Margin Margin Fee Rate Rate
- ----------------------------------------------------------------------------
Greater than or equal to 4.00x 3.00% 1.00% 0.50% 3.00%
Greater than or equal to 3.25
but less than 4.00x 2.75% 0.75% 0.40% 2.75%
Greater than or equal to 2.75x
but less than 3.25x 2.25% 0.50% 0.30% 2.25%
Less than 2.75x 1.75% 0% 0.25% 1.75%
(b) Term Loan A. On or after February 28, 2001, the corresponding
LIBOR Margin and Base Rate Margin for Term Loan A shall be set at 0.50%
above each of the respective levels in the table set forth above.
-147-
The LIBOR Margin, the Base Rate Margin, the Non-Use Fee Rate and the L/C Fee
Rate shall be adjusted, to the extent applicable, on the 45th day after the end
of each quarter based on the Leverage Ratio as of the last day of such quarter;
it being understood that if the Loan Parties fail to deliver the financial
statements required by Section 10.1.1 or 10.1.2, as applicable, and the related
Compliance Certificate, required by Section 10.1.3 by the 45th day after each
calendar quarter or 90th day after each Fiscal Year End, as applicable, the
LIBOR Margin shall be 3.00%, the Base Rate Margin shall be 1.00%, the Non-Use
Fee Rate shall be 0.50% and the L/C Fee Rate shall be 3.00% until such financial
statements and Compliance Certificate are delivered. Notwithstanding the
foregoing, no reduction to the foregoing interest rate margins or fee rates
shall become effective at any time when an Event of Default or Unmatured Event
of Default has occurred and is continuing. Upon an Event of Default, all
interest rate margins and fee rates shall automatically convert to the highest
levels set forth in the table above, plus 3% (the "Default Rate").
-148-
EXHIBIT B
to
Credit Agreement
FORM OF REVOLVING NOTE
$___________ Chicago, Illinois
February 29, 2000
FOR VALUE RECEIVED, on or before February 28, 2003 (or, if such day is not
a Business Day, on the next following Business Day), the undersigned, CLARION
TECHNOLOGIES, INC., a Delaware corporation (the "Company"), and the subsidiaries
of the Company signatory hereto (herein, together with their successors and
assigns, called the "Loan Parties"), jointly and severally, promise to pay to
the order of ________________________, a national banking association (herein,
together with its successors and assigns, called the "Bank"), the maximum
principal sum available of _____________________________and 00/100 Dollars
($__________) or, if less, the aggregate unpaid principal amount of all
Revolving Loans made by the Bank to the undersigned pursuant to that certain
Credit Agreement of even date herewith between the Loan Parties, Banks, Co-Agent
and Agent (herein, as the same may be amended, modified or supplemented from
time to time, called the "Credit Agreement") as shown in the Bank's records.
The Loan Parties further promise to pay to the order of the Bank interest
on the aggregate unpaid principal amount hereof from time to time outstanding
from the date hereof until paid in full at such rates and at such times as shall
be determined in accordance with the provisions of the Credit Agreement. Accrued
interest shall be payable on the dates specified in the Credit Agreement.
Payments of both principal and interest are to be made in the lawful money
of the United States of America in immediately available funds at the Agent's
principal office at 135 South LaSalle Street, Chicago, Illinois, 60603, or at
such other place as may be designated by the Bank to the Loan Parties in
writing.
This Note is a Revolving Note referred to in, evidences indebtedness
incurred under, and is subject to the terms and provisions of, the Credit
Agreement. The Credit Agreement, to which reference is hereby made, sets forth
said terms and provisions, including, but not limited to, those under which this
Note may or must be paid prior to its due date, may have the principal amount of
the commitment reduced or may have its due date accelerated. Terms used but not
otherwise defined herein are used herein as defined in the Credit Agreement.
This Note is secured by the personal property described in and pursuant to the
Credit Agreement and various other Loan Documents referred to therein, and
reference is made thereto for a statement of terms and provisions of such
collateral security, a description of collateral and the rights of the Bank in
respect thereof.
-149-
In addition to, and not in limitation of, the foregoing and the provisions
of the Credit Agreement hereinabove referred to, the Loan Parties further agree,
subject only to any limitation imposed by applicable law and to the extent
provided in the Credit Agreement, to pay all expenses, including reasonable
attorneys' fees and expenses, incurred by the holder of this Note in seeking to
collect any amounts payable hereunder which are not paid when due, whether by
acceleration or otherwise.
All parties hereto, whether as makers, endorsers or otherwise, severally
waive presentment, demand, protest and notice of dishonor in connection with
this Note.
The liability of each Loan Party under this Note in general shall be joint
and several, and each reference herein to the Loan Parties shall be deemed to
refer to each such Loan Party. In furtherance and not in limitation of Bank's
rights and remedies hereunder or at law, Bank may proceed under this Note
against any one or more of the Loan Parties in its absolute and sole discretion
for any Loan Parties' obligations under the Credit Agreement or any other
liability or obligation of the Loan Parties arising hereunder.
This Note is binding upon the undersigned and its successors and assigns,
and shall inure to the benefit of the Bank and its successors and assigns. This
Note is made under and governed by the laws of the State of Illinois without
regard to conflict of laws principles.
[SIGNATURES ON NEXT PAGE]
-150-
(Signature Page to Revolving Note)
IN WITNESS WHEREOF, the Loan Parties have executed this Note as of the day
and year first above written.
CLARION TECHNOLOGIES, INC.
By: ______________________
Its: ________________
CLARION PLASTICS TECHNOLOGIES, INC.
By: _______________________
Its: ________________
CLARION REAL ESTATE, LLC
By: _______________________
Its: ________________
DOUBLE "J" MOLDING, INC.
By: _______________________
Its: ________________
CLARION-DRAKE ACQUISITION, INC.
By: _______________________
Its: ________________
MITO PLASTICS, INC.
By: ______________________
Its: ________________
WAMAR PRODUCTS, INC.
By: ______________________
Its: _______________
WAMAR TOOL & MACHINE CO.
By: _____________________
Its: ______________
-151-
EXHIBIT C
to
Credit Agreement
FORM OF TERM NOTE A
$_________ Chicago, Illinois
February 29, 2000
FOR VALUE RECEIVED, the undersigned, CLARION TECHNOLOGIES, INC., a Delaware
corporation (the "Company"), and the subsidiaries of the Company signatory
hereto (herein, together with their successors and assigns, the "Loan Parties"),
jointly and severally, promise to pay to the order of ________________, a
national banking association (herein, together with its successors and assigns,
called the "Bank"), the principal sum of ________ MILLION and 00/100 DOLLARS
($__________), payable in monthly principal installments on the last Business
Day of each month commencing March 31, 2000, in the amounts and on the dates set
forth on Schedule I attached hereto and incorporated by reference herein through
January 31, 2003, plus interest, with a final payment of the entire principal
balance outstanding, plus accrued and unpaid interest, hereunder due on February
28, 2003. This Note is made pursuant to that certain Credit Agreement of even
date herewith among the Loan Parties, Agent, Co-Agent and the Banks party
thereto (herein, as the same may be amended, modified or supplemented from time
to time, called the "Credit Agreement").
The Loan Parties further promise to pay to the order of Bank interest on
the aggregate unpaid principal amount hereof from time to time outstanding from
the date hereof until paid in full at such rates and at such times as shall be
determined in accordance with the provisions of the Credit Agreement. Accrued
interest shall be payable on the dates specified in the Credit Agreement.
Payments of both principal and interest are to be made in the lawful money
of the United States of America in immediately available funds at Agent's
principal office at 135 South LaSalle Street, Chicago, Illinois 60603, or at
such other place as may be designated by Bank to the Loan Parties in writing.
This Note is the Term Note A referred to in, evidences indebtedness
incurred under, and is subject to the terms and provisions of, the Credit
Agreement. The Credit Agreement, to which reference is hereby made, sets forth
said terms and provisions, including, but not limited to, those under which this
Note may or must be paid prior to its due date or may have its due date
accelerated. Terms used but not otherwise defined herein are used herein as
defined in the Credit Agreement. This Note is secured by the personal property
described in and pursuant to the Credit Agreement and various other Loan
Documents referred to therein, and reference is made thereto for a statement of
terms and provisions of such collateral security, a description of collateral
and the rights of Bank in respect thereof.
-152-
In addition to, and not in limitation of, the foregoing and the provisions
of the Credit Agreement hereinabove referred to, the Loan Parties further agree,
subject only to any limitation imposed by applicable law, to pay all expenses,
including attorneys' fees and expenses, incurred by the holder of this Note in
seeking to collect any amounts payable hereunder which are not paid when due,
whether by acceleration or otherwise.
All parties hereto, whether as makers, endorsers or otherwise, severally
waive presentment, demand, protest and notice of dishonor in connection with
this Note.
The liability of each Loan Party under this Note in general shall be joint
and several, and each reference herein to the Loan Parties shall be deemed to
refer to each such Loan Party. In furtherance and not in limitation of Bank's
rights and remedies hereunder or at law, Bank may proceed under this Note
against any one or more of the Loan Parties in its absolute and sole discretion
for any Loan Parties' obligations under the Credit Agreement or any other
liability or obligation of the Loan Parties arising hereunder.
This Note is binding upon each Loan Party and its successors and assigns,
and shall inure to the benefit of Bank and its successors and assigns. This Note
is made under and governed by the laws of the State of Illinois without regard
to conflict of laws principles.
[SIGNATURES ON NEXT PAGE]
-153-
(Signature Page to Term Note)
IN WITNESS WHEREOF, the Loan Parties have executed this Term Note as of the
day and year first above written.
CLARION TECHNOLOGIES, INC.
By: ________________________
Its: _________________
CLARION PLASTICS TECHNOLOGIES, INC.
By: ________________________
Its: _________________
CLARION REAL ESTATE, LLC
By: ________________________
Its: _________________
DOUBLE "J" MOLDING, INC.
By: ________________________
Its: _________________
CLARION-DRAKE ACQUISITION, INC.
By: ________________________
Its: ________________
MITO PLASTICS, INC.
By: ________________________
Its: _________________
WAMAR PRODUCTS, INC.
By: ________________________
Its: _________________
WAMAR TOOL & MACHINE CO.
By: ________________________
Its: __________________
-154-
Schedule I to Term Note A
Monthly Principal Payments for Term Loan A Commitment to be allocated among the
Banks
Period Monthly Payments Total Payment
------ ---------------- -------------
March 31, 2000 - $250,000.00 $3,000,000.00
February 28, 2001
(12-month period)
March 1, 2001 - $333,333.33 $4,000,000.00
February 28, 2002
(12-month period)
March 1, 2002 - $416,666.67 $4,583,333.37
January 31, 2003
(11-month period)
Termination Date --- $14,416,666.63
--------------
Total $26,000,000.00
==============
-155-
EXHIBIT D
to
Credit Agreement
FORM OF TERM NOTE B
$____________ Chicago, Illinois
February 29, 2000
FOR VALUE RECEIVED, the undersigned, CLARION TECHNOLOGIES, INC., a Delaware
corporation (the "Company"), and the Subsidiaries of the Company signatory
hereto (herein, together with their successors and assigns, the "Loan Parties"),
jointly and severally, promise to pay to the order of ________________, a
national banking association (herein, together with its successors and assigns,
called the "Bank"), the principal sum of ____________ and 00/100 DOLLARS
($_______________), plus interest, with the entire principal amount plus accrued
interest due on February 28, 2003, pursuant to that certain Credit Agreement of
even date herewith among the Loan Parties, Agent, Co-Agent and the Banks party
thereto (herein, as the same may be amended, modified or supplemented from time
to time, called the "Credit Agreement").
The Loan Parties further promise to pay to the order of Bank interest on
the aggregate unpaid principal amount hereof from time to time outstanding from
the date hereof until paid in full at such rates and at such times as shall be
determined in accordance with the provisions of the Credit Agreement. Accrued
interest shall be payable on the dates specified in the Credit Agreement.
Payments of both principal and interest are to be made in the lawful money
of the United States of America in immediately available funds at Agent's
principal office at [135 South LaSalle Street, Chicago, Illinois 60603], or at
such other place as may be designated by Bank to the Loan Parties in writing.
This Note is the Term Note B referred to in, evidences indebtedness
incurred under, and is subject to the terms and provisions of, the Credit
Agreement. The Credit Agreement, to which reference is hereby made, sets forth
said terms and provisions, including, but not limited to, those under which this
Note may or must be paid prior to its due date or may have its due date
accelerated. Terms used but not otherwise defined herein are used herein as
defined in the Credit Agreement. This Note is secured by the personal property
described in and pursuant to the Credit Agreement and various other Loan
Documents referred to therein, and reference is made thereto for a statement of
terms and provisions of such collateral security, a description of collateral
and the rights of Bank in respect thereof.
-156-
In addition to, and not in limitation of, the foregoing and the provisions
of the Credit Agreement hereinabove referred to, the Loan Parties further agree,
subject only to any limitation imposed by applicable law, to pay all expenses,
including attorneys' fees and expenses, incurred by the holder of this Note in
seeking to collect any amounts payable hereunder which are not paid when due,
whether by acceleration or otherwise.
All parties hereto, whether as makers, endorsers or otherwise, severally
waive presentment, demand, protest and notice of dishonor in connection with
this Note.
The liability of each Loan Party under this Note in general shall be joint
and several, and each reference herein to the Loan Parties shall be deemed to
refer to each such Loan Party. In furtherance and not in limitation of Bank's
rights and remedies hereunder or at law, Bank may proceed under this Note
against any one or more of the Loan Parties in its absolute and sole discretion
for any Loan Parties' obligations under the Credit Agreement or any other
liability or obligation of the Loan Parties arising hereunder.
This Note is binding upon each Loan Party and its successors and assigns,
and shall inure to the benefit of Bank and its successors and assigns. This Note
is made under and governed by the laws of the State of Illinois without regard
to conflict of laws principles.
[SIGNATURES ON NEXT PAGE]
-157-
(Signature Page to Form of Term Note)
IN WITNESS WHEREOF, the Loan Parties have executed this Term Note as of the
day and year first above written.
CLARION TECHNOLOGIES, INC.
By: ________________________
Its: _________________
CLARION PLASTICS TECHNOLOGIES, INC.
By: ________________________
Its: _________________
CLARION REAL ESTATE, LLC
By: ________________________
Its: _________________
DOUBLE "J" MOLDING, INC.
By:_________________________
Its:__________________
CLARION-DRAKE ACQUISITION, INC.
By: ________________________
Its:__________________
MITO PLASTICS, INC.
By:_________________________
Its:__________________
WAMAR PRODUCTS, INC.
By: ________________________
Its:__________________
WAMAR TOOL & MACHINE CO.
By: ________________________
Its:__________________
-158-
EXHIBIT E
to
Credit Agreement
FORM OF COMPLIANCE CERTIFICATE
To: LaSalle Bank National Association, as Agent
Please refer to the Credit Agreement dated as of February 29, 2000 (as
amended or otherwise modified from time to time, the "Credit Agreement") among
Clarion Technologies, Inc. (the "Company"), the subsidiaries of the Company
party thereto, various financial institutions and each of LaSalle Bank National
Association, as agent, and Bank One Michigan, as co-agent. Terms used but not
otherwise defined herein are used herein as defined in the Credit Agreement.
I. Reports. Enclosed herewith is a copy of the [annual
audited/quarterly/monthly] report of the Loan Parties as at
_____________, ____ (the "Computation Date"), which report fairly
presents in all material respects the financial condition and results
of operations [(subject to the absence of footnotes and to normal
year-end adjustments)] of the Loan Parties as of the Computation Date
and has been prepared in accordance with GAAP consistently applied.
II. Financial Tests. The Loan Parties hereby certify and warrant to you
that the following is a true and correct computation as at the
Computation Date of the following ratios and/or financial restrictions
contained in the Credit Agreement:
A. Section 10.6.1 - Minimum Fixed Charge Coverage Ratio
1. Consolidated Net Income $
2. Plus: Interest Expense $
income tax expense $
depreciation $
amortization $
3. Total (EBITDA) $
4. Income taxes paid $
5. Capital Expenditures $
6. Sum of (4) and (5) $
7. Remainder of (3) minus (6) $
8. Interest Expense $
9. Required payments of principal of Funded Debt
(including Term Loans but excluding Revolving
Loans) $
-159-
10. Sum of (8) and (9) $
11. Ratio of (7) to (10) _____ to 1
12. Minimum Required _____ to 1
B. Section 10.6.2 - Leverage Ratio
1. Senior Debt $
2. Rolling Twelve Month EBITDA (from Item A(3)
above) $
3. Ratio of (1) to (2) _____ to 1
4. Maximum allowed _____ to 1
C. Section 10.6.3 - Tangible Net Worth
1. Net Worth $
2. Subordinated Debt $
3. Less: $
4. Tangible Net Worth $
5. Minimum Required $
D. Section 10.6.4 - Minimum EBITDA
1. EBITDA (for Quarter Ended _____) $
2. Minimum required
E. Section 10.6.5 - Capital Expenditures
1. Capital Expenditures for the Fiscal Year $
2. Maximum Permitted Capital Expenditures $
F. Debt Service Coverage Ratio
1. Principal and Interest on all Debt $
2. Quarterly EBITDA $
3. Ratio of (1) to (2) _____ to 1
-160-
The Loan Parties further certify to you that no Event of Default or
Unmatured Event of Default has occurred and is continuing.
IN WITNESS WHEREOF, the undersigned have caused this Certificate to be
executed and delivered by its duly authorized officer on _________, ____.
CLARION TECHNOLOGIES, INC., as
Representative of, and intending to legally
bind, each of the Loan Parties
By: _____________________________________
Title: __________________________________
-161-
EXHIBIT F
to
Credit Agreement
FORM OF BORROWING BASE CERTIFICATE
To: LaSalle Bank National Association, as Agent
135 South LaSalle Street
Chicago, Illinois 60603
Attention: Bernardo Lacayo
Ladies and Gentlemen:
Please refer to the Credit Agreement dated as of February 29, 2000 (as
amended or otherwise modified from time to time, the "Credit Agreement") among
Clarion Technologies, Inc. and its Subsidiaries (collectively, the "Loan
Parties"), various financial institutions, LaSalle Bank National Association (as
"Agent") and Bank One Michigan (as "Co-Agent"). This certificate (this
"Certificate"), together with supporting calculations attached hereto, is
delivered to you pursuant to the terms of the Credit Agreement. Capitalized
terms used but not otherwise defined herein shall have the same meanings herein
as in the Credit Agreement.
The Loan Parties hereby certify and warrant to the Agent and the Banks that
at the close of business on ______________, ____ (the "Calculation Date"), the
Borrowing Base was $_____________, computed as set forth on the schedule
attached hereto.
IN WITNESS WHEREOF, the Loan Parties have caused this Certificate to be
executed and delivered by its officer thereunto duly authorized on ___________,
______.
CLARION TECHNOLOGIES, INC., as
Representative of, and intending to legally
bind, each of the Loan Parties
By: ____________________________________
Title:__________________________________
-162-
SCHEDULE TO BORROWING BASE CERTIFICATE
Dated as of [_________________]
A. Accounts Receivable
1. Gross Accounts Receivable (excluding
Tooling Receivables) $
2. Less Ineligibles
- Agent's Lien Not Perfected $
- Subject to other Lien $
- Subject to Offset, etc. $
- Account Debtor not in U.S. $
- Sale on Approval, Sale or Return,
Bill and Hold or Consignment $
- Over 90 days past invoice date $
- Affiliate Receivables $
- Other $
- Total $
3. Eligible Accounts Receivable [Item 1
minus Item 2] $
4. Item 3 times 80% $
5. Tooling Receivables $
6. Item A.5 x 80% $
7. Lesser of Item A.6 and Tooling Cap
($5,000,000) $
-163-
B. Inventory
1. Gross Inventory $
2. Less Ineligibles
- Agent's Lien Not Perfected $
- Subject to other Lien $
- Not Salable $
- Located off-site and no Collateral
Access Agreement $
- Not located in U.S. $
- Other $
- Total $
3. Eligible Inventory [Item 1 minus Item 2] $
4. Item 3 times 50% $
5. Lesser of Item B.4 and the Inventory
Cap ($4,000,000) $
6. Work in Progress $
7. Less Ineligibles:
8. Eligible Work in Progress [Item 6 minus
Item 7] $
9. Item 8 times 35% $
10. Lesser of Item B.9 and Work in Progress
Cap ($500,000) $
C. Availability
1. Borrowing Base [Item A.4 plus Item A.7
plus Item B.5 plus Item B.10] $
2. Lesser of Item C.1 and the Revolving
Commitment Amount ($15,000,000) $
3. Revolving Outstandings (plus all Letters
of Credit) $
4. Net Availability
[Excess of Item C.2 over Item C.3] $
5. Required Prepayment $
[Excess of Item C.3 over Item C.2]
-164-
EXHIBIT G
to
Credit Agreement
FORM OF ASSIGNMENT AGREEMENT
This Assignment Agreement (this "Assignment Agreement") between _________
(the Assignor) and _______________ (the "Assignee") is dated as of
_____________, _____. The parties hereto agree as follows:
SECTION 15 PRELIMINARY STATEMENT. The Assignor is a party to a Credit Agreement
(which, as it may be amended, modified, renewed or extended from time
to time is herein called the "Credit Agreement") described in Item 1
of Schedule 1 attached hereto ("Schedule 1"). Capitalized terms used
herein and not otherwise defined herein shall have the meanings
attributed to them in the Credit Agreement.
SECTION 16 ASSIGNMENT AND ASSUMPTION. The Assignor hereby sells and assigns to
the Assignee, and the Assignee hereby purchases and assumes from the
Assignor, an interest in and to the Assignor's rights and obligations
under the Credit Agreement such that after giving effect to such
assignment the Assignee shall have purchased pursuant to this
Assignment Agreement the percentage interest specified in Item 3 of
Schedule 1 of all outstanding rights and obligations under the Credit
Agreement relating to the facilities listed in Item 3 of Schedule 1
and the other Loan Documents. The aggregate Commitment (or Loans, if
the applicable Commitment has been terminated) purchased by the
Assignee hereunder is set forth in Item 4 of Schedule 1.
SECTION 17 EFFECTIVE DATE. The effective date of this Assignment Agreement (the
"Effective Date") shall be the later of the date specified in Item 5
of Schedule 1 or two Business Days (or such shorter period agreed to
by the Agent) after a Notice of Assignment substantially in the form
of Appendix I (attached hereto) has been delivered to the Agent. Such
Notice of Assignment must include the consents, if any, required to be
delivered to the Agent and the Loan Parties by Section 14.9 of the
Credit Agreement. In no event will the Effective Date occur if the
payments required to be made by the Assignee to the Assignor on the
Effective Date under Sections 4 and 5 hereof are not made on the
proposed Effective Date. The Assignor will notify the Assignee of the
proposed Effective Date no later than the Business Day prior to the
proposed Effective Date. As of the Effective Date, (i) the Assignee
shall have the rights and obligations of a Bank under the Loan
Documents with respect to the rights and obligations assigned to the
Assignee hereunder and (ii) the Assignor shall relinquish its rights
and be released from its corresponding obligations under the Loan
Documents with respect to the rights and obligations assigned to the
Assignee hereunder.
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SECTION 18 PAYMENTS OBLIGATIONS. On and after the Effective Date, the Assignee
shall be entitled to receive from the Agent all payments of principal,
interest and fees with respect to the interest assigned hereby. The
Assignee shall advance funds directly to the Agent with respect to all
Loans and reimbursement payments made on or after the Effective Date
with respect to the interest assigned hereby. [In consideration for
the sale and assignment of Loans hereunder, (i) the Assignee shall pay
the Assignor, on the Effective Date, an amount equal to the principal
amount of the portion of all Base Rate Loans assigned to the Assignee
hereunder and (ii) with respect to each LIBOR Loan made by the
Assignor and assigned to the Assignee hereunder which is outstanding
on the Effective Date, (a) on the last day of the Interest Period
therefor or (b) on such earlier date agreed to by the Assignor and the
Assignee or (c) on the date on which any such LIBOR Loan either
becomes due (by acceleration or otherwise) or is prepaid (the date as
described in the foregoing clauses (a), (b) or (c) being hereinafter
referred to as the "Payment Date"), the Assignee shall pay the
Assignor an amount equal to the principal amount of the portion of
such LIBOR Loan assigned to the Assignee which is outstanding on the
Payment Date. If the Assignor and the Assignee agree that the Payment
Date for such LIBOR Loan shall be the Effective Date, they shall agree
to the interest rate applicable to the portion of such Loan assigned
hereunder for the period from the Effective Date to the end of the
existing Interest Period applicable to such LIBOR Loan (the "Agreed
Interest Rate") and any interest received by the Assignee in excess of
the Agreed Interest Rate shall be remitted to the Assignor. In the
event interest for the period from the Effective Date to but not
including the Payment Date is not paid by the applicable Loan Party
with respect to any LIBOR Loan sold by the Assignor to the Assignee
hereunder, the Assignee shall pay to the Assignor interest for such
period on the portion of such LIBOR Loan sold by the Assignor to the
Assignee hereunder at the applicable rate provided by the Credit
Agreement. In the event a prepayment of any LIBOR Loan which is
existing on the Payment Date and assigned by the Assignor to the
Assignee hereunder occurs after the Payment Date but before the end of
the Interest Period applicable to such LIBOR Loan, the Assignee shall
remit to the Assignor the excess of the prepayment penalty paid with
respect to the portion of such LIBOR Loan assigned to the Assignee
hereunder over the amount which would have been paid if such
prepayment penalty was calculated based on the Agreed Interest Rate.
The Assignee will also promptly remit to the Assignor (i) any
principal payments received from the Agent with respect to LIBOR
Loans, prior to the Payment Date and (ii) any amounts of interest on
Loans and fees received from the Agent which relate to the portion of
the Loans assigned to the Assignee hereunder for periods prior to the
Effective Date, in the case of Base Rate Loans or fees, or the Payment
Date, in the case of LIBOR Loans, and not previously paid by the
Assignee to the Assignor.1 In the event that either party hereto
receives any payment to which
__________________________
1 Each Assignor may insert its standard payment provisions in lieu of
the payment terms included in this Exhibit.
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the other party hereto is entitled under this Assignment Agreement,
then the party receiving such amount shall promptly remit it to the
other party hereto.
SECTION 19 FEES PAYABLE BY THE ASSIGNEE. The [Assignee shall pay to the Assignor
a fee on each day on which a payment of interest or commitment fees is
made under the Credit Agreement with respect to the amounts assigned
to the Assignee hereunder (other than a payment of interest or
commitment fees for the period prior to the Effective Date or, in the
case of LIBOR Loans, the Payment Date, which the Assignee is obligated
to deliver to the Assignor pursuant to Section 4 hereof). The amount
of such fee shall be the difference between (i) the interest or fee,
as applicable, paid with respect to the amounts assigned to the
Assignee hereunder and (ii) the interest or fee, as applicable, which
would have been paid with respect to the amounts assigned to the
Assignee hereunder if each interest rate was ___ of 1% less than the
interest rate paid by any Loan Party or if the commitment fee was of
___ 1% less than the commitment fee paid by any Loan Party, as
applicable. In addition, the] [Assignee] [Assignor] agrees to pay a
$3,500 processing fee required to be paid to the Agent in connection
with this Assignment Agreement.2
SECTION 20 REPRESENTATIONS OF THE ASSIGNOR; LIMITATIONS ON THE ASSIGNOR'S
LIABILITY. The Assignor represents and warrants that it is the legal
and beneficial owner of the interest being assigned by it hereunder
and that such interest is free and clear of any adverse claim created
by the Assignor. It is understood and agreed that the assignment and
assumption hereunder are made without recourse to the Assignor and
that the Assignor makes no other representation or warranty of any
kind to the Assignee. Neither the Assignor, the Agent, nor any other
Bank, nor any of its officers, directors, employees, agents or
attorneys shall be responsible for (i) the due execution, legality,
validity, enforceability, genuineness, sufficiency or collectibility
of any Loan Document, including without limitation, documents granting
the Assignor, Agent and the other Banks a security interest in assets
of any Loan Party, (ii) any representation, warranty or statement made
in or in connection with any of the Loan Documents, (iii) the
financial condition or creditworthiness of any Loan Party, (iv) the
performance of or compliance with any of the terms or provisions of
any of the Loan Documents, (v) inspecting any of the property, books
or records of any Loan Party, (vi) the validity, enforceability,
perfection, priority, condition, value or sufficiency of any
collateral securing or purporting to secure the Loans or (vii) any
mistake, error of judgment, or action taken or omitted to be taken in
connection with the Loans or the Loan Documents.
__________________________
2 Assignor and Assignee to insert applicable payment terms.
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SECTION 21 REPRESENTATIONS OF THE ASSIGNEE. The Assignee (i) confirms that it
has received a copy of the Credit Agreement, together with copies of
the financial statements requested by the Assignee and such other
documents and information as it has deemed appropriate to make its own
credit analysis and decision to enter into this Assignment Agreement,
(ii) agrees that it will, independently and without reliance upon the
Agent, the Assignor or any other Bank and based on such documents and
information at it shall deem appropriate at the time, continue to make
its own credit decisions in taking or not taking action under the Loan
Documents, (iii) appoints and authorizes the Agent to take such action
as agent on its behalf and to exercise such powers under the Loan
Documents as are delegated to the Agent by the terms thereof, together
with such powers as are reasonably incidental thereto, (iv) agrees
that it will perform in accordance with their terms all of the
obligations which by the terms of the Loan Documents are required to
be performed by it as a Bank, (v) agrees that its payment instructions
and notice instructions are as set forth in the attachment to Schedule
1, (vi) confirms that none of the funds, monies, assets or other
consideration being used to make the purchase and assumption hereunder
are "plan assets" as defined under ERISA and that its rights, benefits
and interests in and under the Loan Documents will not be "plan
assets" under ERISA, [and (vii) attaches the forms prescribed by the
Internal Revenue Service of the United States certifying that the
Assignee is entitled to receive payments under the Loan Documents
without deduction or withholding of any United States federal income
taxes].3
SECTION 22 INDEMNITY. The Assignee agrees to indemnify and hold the Assignor
harmless against any and all losses, costs and expenses (including,
without limitation, reasonable attorneys' fees) and liabilities
incurred by the Assignor in connection with or arising in any manner
from the Assignee's non-performance of the obligations assumed under
this Assignment Agreement.
SECTION 23 SUBSEQUENT ASSIGNMENTS. After the Effective Date, the Assignee shall
have the right pursuant to Section 14.9 of the Credit Agreement to
assign the rights which are assigned to the Assignee hereunder to any
entity or person, provided that (i) any such subsequent assignment
does not violate any of the terms and conditions of the Loan Documents
or any law, rule, regulation, order, writ, judgment, injunction or
decree and that any consent required under the terms of the Loan
Documents has been obtained and (ii) unless the prior written consent
of the Assignor is obtained, the Assignee is not thereby released from
its obligations to the Assignor hereunder, if any remain unsatisfied,
including, without limitation, its obligations under Section 4, 5 and
8 hereof.
__________________________
3 To be inserted if the Assignee is not incorporated under the laws of
the United States, or a state thereof.
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SECTION 24 REDUCTIONS OF AGGREGATE COMMITMENT. If any reduction in the aggregate
Commitment occurs between the date of this Assignment Agreement and
the Effective Date, the percentage interest specified in Item 3 of
Schedule 1 shall remain the same, but the dollar amount purchased
shall be recalculated based on the reduced aggregate Commitment.
SECTION 25 ENTIRE AGREEMENT. This Assignment Agreement and the attached Notice
of Assignment embody the entire agreement and understanding between
the parties hereto and supersede all prior agreements and
understandings between the parties hereto relating to the subject
matter hereof.
SECTION 26 GOVERNING LAW. This Assignment Agreement shall be governed by and
interpreted and enforced in accordance with the internal laws (without
regard to conflicts of law provisions) of the State of Illinois.
SECTION 27 NOTICES. Notices shall be given under this Assignment Agreement in
the manner set forth in the Credit Agreement. For the purpose hereof,
the addresses of the parties hereto (until notice of a change
is delivered) shall be the address set forth in the attachment
to Schedule 1.
[SIGNATURES FOLLOW]
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IN WITNESS WHEREOF, the parties hereto have executed this Assignment
Agreement by their duly authorized officers as of the date first above written.
[NAME OF ASSIGNOR]
By: _____________________________
Name: _______________________
Title: ______________________
[NAME OF ASSIGNEE]
By: _____________________________
Name: _______________________
Title: ______________________
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SCHEDULE 1
to Assignment Agreement
1. Description and Date of Credit Agreement:
Credit Agreement dated as of February 29, 2000 by and among Clarion
Technologies, Inc., a Delaware corporation, its subsidiaries party
thereto (collectively, the "Loan Parties"), the financial institutions
that are or may from time to time become party thereto ("Banks"),
LaSalle Bank National Association, as Agent and Bank One Michigan as
Co-Agent.
2. Date of Assignment Agreement: ______________, ___
3. Amounts to be Assigned (As of Date of Item 2 above):
Term Loan Term Loan L/C
Revolving A B Commitment
Loan Facility Facility Facility Facility
- ------------------------------------------------------------------------------
Total of Commitments
(Loans) Under the
Credit Agreement $_______ $_______ $_______ $_______
Assignees Percentage of
Each Facility Purchased
under the Assignment
Agreement ___% ___% ___% ___%
Amount of Assigned Share
Each Facility Under the
Assignment Agreement $_______ $_______ $_______ $_______
==============================================================================
4. Assignee's Aggregate (Loan Amount)**
Commitment Amount Purchased Hereunder: $_______
5. Proposed Effective Date: _____________ ___, _______
Accepted and Agreed:
[NAME OF ASSIGNOR] [NAME OF ASSIGNEE]
By: _______________________ By: ______________________
Name:_________________ Name: ________________
Title:________________ Title: _______________
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Attachment to SCHEDULE 1 to ASSIGNMENT AGREEMENT
Attach Assignor's Administrative Information Sheet, which must
include notice address for the Assignor and the Assignee
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APPENDIX I
to Assignment Agreement
NOTICE
OF ASSIGNMENT
________________________, ___________
To: LaSalle Bank National Association, as Agent
135 South LaSalle Street, Suite 306
Chicago, Illinois 60603
Attention: Bernardo Lacayo, Assistant Vice President
Telephone: (312) 904-2786
Facsimile: (312) 904-6225
LOAN PARTIES
c/o Clarion Technologies, Inc.
235 Central Avenue
Holland, Michigan 49423
Attention: David Selvius
Telephone: (616) 494-8885
Facsimile: (616) 494-8888
With a copy to:
Oppenheimer, Wolff & Donnelly, LLP
500 Newport Center Drive, Suite 700
Newport Beach, California 92660
Attention: Marc Indeglia, Esq.
Telephone: (949) 823-6047
Facsimile: (949) 823-6100
From: [NAME OF ASSIGNOR] (the "Assignor")
[NAME OF ASSIGNEE] (the "Assignee")
1. We refer to that Credit Agreement (the "Credit Agreement") described in
Item 1 of Schedule 1 attached hereto ("Schedule 1"). Capitalized terms used
herein and not otherwise defined herein shall have the meanings attributed to
them in the Credit Agreement.
2. This Notice of Assignment (this "Notice") is given and delivered to the
Loan Parties and the Agent pursuant to Section 14.9 of the Credit Agreement.
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3. The Assignor and the Assignee have entered into an Assignment Agreement,
dated as of ____________, ____ (the "Assignment"), pursuant to which, among
other things, the Assignor has sold, assigned, delegated and transferred to the
Assignee, and the Assignee has purchased, accepted and assumed from the Assignor
the percentage interest specified in Item 3 of Schedule 1 of all outstandings,
rights and obligations under the Credit Agreement relating to the facilities
listed in Item 3 of Schedule 1. The Effective Date of the Assignment shall be
the later of the date specified in Item 5 of Schedule 1 or two Business Days (or
such shorter period as agreed to by the Agent) after this Notice of Assignment
and any consents and fees required by Section 14.9 of the Credit Agreement have
been delivered to the Agent, provided that the Effective Date shall not occur if
any condition precedent agreed to by the Assignor and the Assignee has not been
satisfied.
4. The Assignor and the Assignee hereby give to the Loan Parties and the
Agent notice of the assignment and delegation referred to herein. The Assignor
will confer with the Agent before the date specified in Item 5 of Schedule 1 to
determine if the Assignment Agreement will become effective on such date
pursuant to Section 3 hereof, and will confer with the Agent to determine the
Effective Date pursuant to Section 3 hereof if it occurs thereafter. The
Assignor shall notify the Agent if the Assignment Agreement does not become
effective on any proposed Effective Date as a result of the failure to satisfy
the conditions precedent agreed to by the Assignor and the Assignee. At the
request of the Agent, the Assignor will give the Agent written confirmation of
the satisfaction of the conditions precedent.
5. The Assignor or the Assignee shall pay to the Agent on or before the
Effective Date the processing fee of $3,500 required by Section 14.9 of the
Credit Agreement.
6. If Notes are outstanding on the Effective Date, the Assignor and the
Assignee request and direct that the Agent prepare and cause the applicable Loan
Parties to execute and deliver new Notes or, as appropriate, replacements notes,
to the Assignor and the Assignee. The Assignor and, if applicable, the Assignee
each agree to deliver to the Agent the original Note received by it from such
Loan Parties upon its receipt of a new Note in the appropriate amount.
7. The Assignee advises the Agent that notice and payment instructions are
set forth in the attachment to Schedule 1.
8. The Assignee hereby represents and warrants that none of the funds,
monies, assets or other consideration being used to make the purchase pursuant
to the Assignment are "plan assets" as defined under ERISA and that its rights,
benefits, and interests in and under the Loan Documents will not be "plan
assets" under ERISA.
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9. The Assignee authorizes the Agent to act as its agent under the Loan
Documents in accordance with the terms thereof. The Assignee acknowledges that
the Agent has no duty to supply information with respect to any Loan Party or
the Loan Documents to the Assignee until the Assignee becomes a party to the
Credit Agreement.
[NAME OF ASSIGNOR] [NAME OF ASSIGNEE]
By: ________________________ By: _________________________
Name: ______________________ Name: _______________________
Title: _____________________ Title: ______________________
ACKNOWLEDGED AND CONSENTED TO:
LASALLE BANK NATIONAL ASSOCIATION, As Agent
By: _______________________________
Name: ________________________
Title: _______________________
CLARION TECHNOLOGIES, INC.
By: ____________________________
Its: ______________________
CLARION PLASTICS TECHNOLOGIES, INC.
By: ____________________________
Its: ______________________
CLARION REAL ESTATE, LLC
By: _____________________________
Its: _______________________
DOUBLE "J" MOLDING, INC.
By: _____________________________
Its: _______________________
CLARION-DRAKE ACQUISITION, INC.
By: _____________________________
Its: _______________________
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MITO PLASTICS, INC.
By: _____________________________
Its: _______________________
WAMAR PRODUCTS, INC.
By: _____________________________
Its: _______________________
WAMAR TOOL & MACHINE CO.
By: _____________________________
Its: _______________________
[Attach photocopy of Schedule 1 to Assignment]
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SCHEDULE 1.1
MONTPELIER EQUIPMENT
-177-
SCHEDULE 2.1
BANKS AND PRO RATA SHARES
Pro Rata Share
of Revolving Amount of Amount of Pro Rata
Bank Commitment Amount Term Loan A Term Loan B Share
- ----- ----------------- ----------- ----------- --------
LaSalle Bank
National Association $7,500,000 $13,000,000 $6,000,000 50.0%
Bank One Michigan $7,500,000 $13,000,000 $6,000,000 50.0%
TOTALS $15,000,000 $26,000,000 $12,000,000 100%
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SCHEDULE 14.3
ADDRESSES FOR NOTICES
LOAN PARTIES
c/o Clarion Technologies, Inc.
235 Central Avenue
Holland, Michigan 49423
Attention: David Selvius
Telephone: (616) 494-8885
Facsimile: (616) 494-8888
With a copy to:
Oppenheimer, Wolff & Donnelly, LLP
500 Newport Center Drive, Suite 700
Newport Beach, California 92660
Attention: Marc Indeglia, Esq.
Telephone: (949) 823-6000
Facsimile: (949) 823-6100
LASALLE BANK NATIONAL ASSOCIATION, as Agent, Issuing Bank and a Bank
Notices of Borrowing, Conversion, Continuation and Letter of Credit Issuance
135 South LaSalle Street
Chicago, Illinois 60603
Attention: Rennee Deluzen,
Commercial Loan Syndications
Telephone: (312) 904-9004
Facsimile: (312) 904-4448
All Other Notices:
135 South LaSalle Street
Chicago, Illinois 60603
Attention: Mr. Bernardo Lacayo
Telephone: (312) 904-2786
Facsimile: (312) 904-6225
With a copy to:
Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street, Suite 2600
Chicago, Illinois 60601
Attention: Michael A. Nemeroff, Esq.
Telephone: (312) 609-7858
Facsimile: (312) 609-5005
Bank One Michigan, as Co-Agent and a Bank
Bank One Michigan
200 Ottawa Avenue N.W.
Grand Rapids, Michigan 49503-2468
Attention: Mr. Kevin M. Paul
Telephone: (616) 771-7231
Facsimile: (616) 771-7440
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<EX-10>
EXHIBIT 10(c)
CLARION TECHNOLOGIES, INC.
1999 STOCK INCENTIVE PLAN
1. Purpose of Plan.
The purpose of the Clarion Technologies, Inc. 1999 Stock Incentive
Plan (the "Plan") is to advance the interests of Clarion Technologies, Inc.
(the "Company") and its shareholders by enabling the Company and its
Subsidiaries to attract and retain persons of ability to perform services
for the Company and its Subsidiaries by providing an incentive to such
individuals through equity participation in the Company and by rewarding
such individuals who contribute to the achievement by the Company of its
economic objectives.
2. Definitions.
The following terms will have the meanings set forth below, unless the
context clearly otherwise requires:
2.1 "Board" means the Board of Directors of the Company.
2.2 "Broker Exercise Notice" means a written notice pursuant to which
a Participant, upon exercise of an Option, irrevocably instructs a broker
or dealer to sell a sufficient number of shares or loan a sufficient amount
of money to pay all or a portion of the exercise price of the Option and/or
any related withholding tax obligations and remit such sums to the Company
and directs the Company to deliver stock certificates to be issued upon
such exercise directly to such broker or dealer.
2.3 "Change in Control" means an event described in Section 13.1 of
the Plan.
2.4 "Code" means the Internal Revenue Code of 1986, as amended.
2.5 "Committee" means the group of individuals administering the
Plan, as provided in Section 3 of the Plan.
2.6 "Common Stock" means the common stock of the Company, $.001 par
value, or the number and kind of shares of stock or other securities into
which such common stock may be changed in accordance with Section 4.3 of
the Plan.
2.7 "Disability" means the disability of the Participant such as
would entitle the Participant to receive disability income benefits
pursuant to the long-term disability plan of the Company or Subsidiary then
covering the Participant or, if no such plan exists or is applicable to the
Participant, the permanent and total disability of the Participant within
the meaning of Section 22(e)(3) of the Code.
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2.8 "Eligible Recipients" means all employees of the Company or any
Subsidiary and any non-employee directors, consultants and independent
contractors of the Company or any Subsidiary.
2.9 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
2.10 "Fair Market Value" means, with respect to the Common Stock, as
of any date (or, if no shares were traded or quoted on such date, as of the
next preceding date on which there was such a trade or quote) (a) the
average between the reported high and low sale prices of the Common Stock
if the Common Stock is listed, admitted to unlisted trading privileges or
reported on any foreign or national securities exchange or on the NASDAQ
National Market or an equivalent foreign market on which sale prices are
reported; (b) if the Common Stock is not so listed, admitted to unlisted
trading privileges or reported, the closing bid price as reported by the
NASDAQ SmallCap Market, OTC Bulletin Board or the National Quotation
Bureau, Inc. or other comparable service; or (c) if the Common Stock is not
so listed or reported, such price as the Committee determines in good faith
in the exercise of its reasonable discretion.
2.11 "Incentive Award" means an Option, Stock Appreciation Right,
Restricted Stock Award, Performance Unit or Stock Bonus granted to an
Eligible Recipient pursuant to the Plan.
2.12 "Incentive Stock Option" means a right to purchase Common Stock
granted to an Eligible Recipient pursuant to Section 6 of the Plan that
qualifies as an "incentive stock option" within the meaning of Section 422
of the Code.
2.13 "Non-Statutory Stock Option" means a right to purchase Common
Stock granted to an Eligible Recipient pursuant to Section 6 of the Plan
that does not qualify as an Incentive Stock Option.
2.14 "Option" means an Incentive Stock Option or a Non-Statutory Stock
Option.
2.15 "Participant" means an Eligible Recipient who receives one or
more Incentive Awards under the Plan.
2.16 "Performance Unit" means a right granted to an Eligible Recipient
pursuant to Section 9 of the Plan to receive a payment from the Company, in
the form of stock, cash or a combination of both, upon the achievement of
established employment, service, performance or other goals.
2.17 "Previously Acquired Shares" means shares of Common Stock that
are already owned by the Participant or, with respect to any Incentive
Award, that are to be issued upon the grant, exercise or vesting of such
Incentive Award.
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2.18 "Restricted Stock Award" means an award of Common Stock granted
to an Eligible Recipient pursuant to Section 8 of the Plan that is subject
to the restrictions on transferability and the risk of forfeiture imposed
by the provisions of such Section 8.
2.19 "Retirement" means termination of employment or service pursuant
to and in accordance with the regular (or, if approved by the Board for
purposes of the Plan, early) retirement/pension plan or practice of the
Company or Subsidiary then covering the Participant, provided that if the
Participant is not covered by any such plan or practice, the Participant
will be deemed to be covered by the Company's plan or practice for purposes
of this determination.
2.20 "Securities Act" means the Securities Act of 1933, as amended.
2.21 "Stock Appreciation Right" means a right granted to an Eligible
Recipient pursuant to Section 7 of the Plan to receive a payment from the
Company, in the form of stock, cash or a combination of both, equal to the
difference between the Fair Market Value of one or more shares of Common
Stock and the exercise price of such shares under the terms of such Stock
Appreciation Right.
2.22 "Stock Bonus" means an award of Common Stock granted to an
Eligible Recipient pursuant to Section 10 of the Plan.
2.23 "Subsidiary" means any entity that is directly or indirectly
controlled by the Company or any entity in which the Company has a
significant equity interest, as determined by the Committee.
2.24 "Tax Date" means the date any withholding tax obligation arises
under the Code or other applicable tax statute for a Participant with
respect to an Incentive Award.
3. Plan Administration.
3.1 The Committee. The Plan will be administered by the Board or by
a committee of the Board. So long as the Company has a class of its equity
securities registered under Section 12 of the Exchange Act, any committee
administering the Plan will consist solely of two or more members of the
Board who are "non-employee directors" within the meaning of Rule 16b-3
under the Exchange Act and, if the Board so determines in its sole
discretion, who are "outside directors" within the meaning of Section
162(m) of the Code. Such a committee, if established, will act by majority
approval of the members (but may also take action with the written consent
of all of the members of such committee), and a majority of the members of
such a committee will constitute a quorum. As used in the Plan,
"Committee" will refer to the Board or to such a committee, if established.
To the extent consistent with corporate law, the Committee may delegate to
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any officers of the Company the duties, power and authority of the
Committee under the Plan pursuant to such conditions or limitations as the
Committee may establish; provided, however, that only the Committee may
exercise such duties, power and authority with respect to Eligible
Recipients who are subject to Section 16 of the Exchange Act. The
Committee may exercise its duties, power and authority under the Plan in
its sole and absolute discretion without the consent of any Participant or
other party, unless the Plan specifically provides otherwise. Each
determination, interpretation or other action made or taken by the
Committee pursuant to the provisions of the Plan will be final, conclusive
and binding for all purposes and on all persons, including, without
limitation, the Company, the shareholders of the Company, the participants
and their respective successors-in-interest. No member of the Committee
will be liable for any action or determination made in good faith with
respect to the Plan or any Incentive Award granted under the Plan.
3.2 Authority of the Committee.
(a) In accordance with and subject to the provisions of the
Plan, the Committee will have the authority to determine all provisions of
Incentive Awards as the Committee may deem necessary or desirable and as
consistent with the terms of the Plan, including, without limitation, the
following: (i) the Eligible Recipients to be selected as Participants; (ii)
the nature and extent of the Incentive Awards to be made to each
Participant (including the number of shares of Common Stock to be subject
to each Incentive Award, any exercise price, the manner in which Incentive
Awards will vest or become exercisable and whether Incentive Awards will be
granted in tandem with other Incentive Awards) and the form of written
agreement, if any, evidencing such Incentive Award; (iii) the time or times
when Incentive Awards will be granted; (iv) the duration of each Incentive
Award; and (v) the restrictions and other conditions to which the payment
or vesting of Incentive Awards may be subject. In addition, the Committee
will have the authority under the Plan in its sole discretion to pay the
economic value of any Incentive Award in the form of cash, Common Stock or
any combination of both.
(b) The Committee will have the authority under the Plan to amend or
modify the terms of any outstanding Incentive Award in any manner,
including, without limitation, the authority to modify the number of shares
or other terms and conditions of an Incentive Award, extend the term of an
Incentive Award, accelerate the exercisability or vesting or otherwise
terminate any restrictions relating to an Incentive Award, accept the
surrender of any outstanding Incentive Award or, to the extent not
previously exercised or vested, authorize the grant of new Incentive Awards
in substitution for surrendered Incentive Awards; provided, however that
the amended or modified terms are permitted by the Plan as then in effect
and that any Participant adversely affected by such amended or modified
terms has consented to such amendment or modification. No amendment or
modification to an Incentive Award, however, whether pursuant to this
Section 3.2 or any other provisions of the Plan, will be deemed to be a re-
grant of such Incentive Award for purposes of this Plan.
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(c) In the event of (i) any reorganization, merger, consolidation,
recapitalization, liquidation, reclassification, stock dividend, stock
split, combination of shares, rights offering, extraordinary dividend or
divestiture (including a spin-off) or any other change in corporate
structure or shares, (ii) any purchase, acquisition, sale or disposition of
a significant amount of assets or a significant business, (iii) any change
in accounting principles or practices, or (iv) any other similar change, in
each case with respect to the Company or any other entity whose performance
is relevant to the grant or vesting of an Incentive Award, the Committee
(or, if the Company is not the surviving corporation in any such
transaction, the board of directors of the surviving corporation) may,
without the consent of any affected Participant, amend or modify the
vesting criteria of any outstanding Incentive Award that is based in whole
or in part on the financial performance of the Company (or any Subsidiary
or division thereof) or such other entity so as equitably to reflect such
event, with the desired result that the criteria for evaluating such
financial performance of the Company or such other entity will be
substantially the same (in the sole discretion of the Committee or the
board of directors of the surviving corporation) following such event as
prior to such event; provided, however, that the amended or modified terms
are permitted by the Plan as then in effect.
4. Shares Available for Issuance.
4.1 Maximum Number of Shares Available. Subject to adjustment as
provided in Section 4.3 of the Plan, the maximum number of shares of Common
Stock that will be available for issuance under the Plan will be 1,000,000
shares of Common Stock, plus any shares of Common Stock which, as of the
date the Plan is approved by the shareholders of the Company, are reserved
for issuance under the Company's 1998 Stock Option Plan and which are not
thereafter issued or which have been issued but are subsequently forfeited
and which would otherwise have been available for further issuance under
such plan. Notwithstanding any other provisions of the Plan to the
contrary, no Participant in the Plan may be granted, during the term of the
Plan, any Options or Stock Appreciation Rights, or any other Incentive
Awards with a value based solely on an increase in the value of the Common
Stock after the date of grant, relating to more than 100,000 shares of
Common Stock (subject to adjustment as provided in Section 4.3 of the
Plan); provided, however, that a Participant who, during the term of the
Plan, is first appointed or elected as an officer, hired as an employee or
retained as a consultant by the Company or who receives a promotion that
results in an increase in responsibilities or duties may be granted, during
the term of the Plan, Options or Stock Appreciation Rights, or such other
Incentive Awards, relating to up to 200,000 shares of Common Stock (subject
to adjustment as provided in Section 4.3 of the Plan).
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4.2 Accounting for Incentive Awards. Shares of Common Stock that are
issued under the Plan or that are subject to outstanding Incentive Awards
will be applied to reduce the maximum number of shares of Common Stock
remaining available for issuance under the Plan. Any shares of Common
Stock that are subject to an Incentive Award that lapses, expires, is
forfeited or for any reason is terminated unexercised or unvested and any
shares of Common Stock that are subject to an Incentive Award that is
settled or paid in cash or any form other than shares of Common Stock will
automatically again become available for issuance under the Plan. Any
shares of Common Stock that constitute the forfeited portion of a
Restricted Stock Award, however, will not become available for further
issuance under the Plan.
4.3 Adjustments to Shares and Incentive Awards. In the event of any
reorganization, merger, consolidation, recapitalization, liquidation,
reclassification, stock dividend, stock split, combination of shares,
rights offering, divestiture or extraordinary dividend (including a spin-
off) or any other change in the corporate structure or shares of the
Company, the Committee (or, if the Company is not the surviving corporation
in any such transaction, the board of directors of the surviving
corporation) will make appropriate adjustment (which determination will be
conclusive) as to the number and kind of securities or other property
(including cash) available for issuance or payment under the Plan and, in
order to prevent dilution or enlargement of the rights of Participants, (a)
the number and kind of securities or other property (including cash)
subject to outstanding Options, and (b) the exercise price of outstanding
Options.
5. Participation.
Participants in the Plan will be those Eligible Recipients who, in the
judgment of the Committee, have contributed, are contributing or are
expected to contribute to the achievement of economic objectives of the
Company or its Subsidiaries. Eligible Recipients may be granted from time
to time one or more Incentive Awards, singly or in combination or in tandem
with other Incentive Awards, as may be determined by the Committee in its
sole discretion. Incentive Awards will be deemed to be granted as of the
date specified in the grant resolution of the Committee, which date will be
the date of any related agreement with the Participant.
6. Options.
6.1 Grant. An Eligible Recipient may be granted one or more Options
under the Plan, and such Options will be subject to such terms and
conditions, consistent with the other provisions of the Plan, as may be
determined by the Committee in its sole discretion. The Committee may
designate whether an Option is to be considered an Incentive Stock Option
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or a Non-Statutory Stock Option. To the extent that any Incentive Stock
Option granted under the Plan ceases for any reason to qualify as an
"incentive stock option" for purposes of Section 422 of the Code, such
Incentive Stock Option will continue to be outstanding for purposes of the
Plan but will thereafter be deemed to be a Non-Statutory Stock Option.
6.2 Exercise Price. The per share price to be paid by a Participant
upon exercise of an Option will be determined by the Committee in its
discretion at the time of the Option grant; provided, however, that (a)
such price will not be less than 100% of the Fair Market Value of one share
of Common Stock on the date of grant with respect to an Incentive Stock
Option (110% of the Fair Market Value if, at the time the Incentive Stock
Option is granted, the Participant owns, directly or indirectly, more than
10% of the total combined voting power of all classes of stock of the
Company or any parent or subsidiary corporation of the Company), and (b)
such price will not be less than 85% of the Fair Market Value of one share
of Common Stock on the date of grant with respect to a Non-Statutory Stock
Option.
6.3 Exercisability and Duration. An Option will become exercisable
at such times and in such installments as may be determined by the
Committee in its sole discretion at the time of grant; provided, however,
that no Option may be exercisable prior to six months from its date of
grant (other than in connection with a Participant's death or Disability)
and no Incentive Stock Option may be exercisable after ten years from its
date of grant (five years from its date of grant if, at the time the
Incentive Stock Option is granted, the Participant owns, directly or
indirectly, more than 10% of the total combined voting power of all classes
of stock of the Company or any parent or subsidiary corporation of the
Company).
6.4 Payment of Exercise Price. The total purchase price of the
shares to be purchased upon exercise of an Option will be paid entirely in
cash (including check, bank draft or money order); provided, however, that
the Committee, in its sole discretion and upon terms and conditions
established by the Committee, may allow such payments to be made, in whole
or in part, by tender of a Broker Exercise Notice, Previously Acquired
Shares, a promissory note (on terms acceptable to the Committee in its sole
discretion) or by a combination of such methods.
6.5 Manner of Exercise. An Option may be exercised by a Participant
in whole or in part from time to time, subject to the conditions contained
in the Plan and in the agreement evidencing such Option, by delivery in
person, by facsimile or electronic transmission or through the mail of
written notice of exercise to the Company at its principal executive office
in Schaumburg, Illinois and by paying in full the total exercise price for
the shares of Common Stock to be purchased in accordance with Section 6.4
of the Plan.
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6.6 Aggregate Limitation of Stock Subject to Incentive Stock Options.
To the extent that the aggregate Fair Market Value (determined as of the
date an Incentive Stock Option is granted) of the shares of Common Stock
with respect to which incentive stock options (within the meaning of
Section 422 of the Code) are exercisable for the first time by a
Participant during any calendar year (under the Plan and any other
incentive stock option plans of the Company or any subsidiary or parent
corporation of the Company (within the meaning of the Code)) exceeds
$100,000 (or such other amount as may be prescribed by the Code from time
to time), such excess Options will be treated as Non-Statutory Stock
Options. The determination will be made by taking incentive stock options
into account in the order in which they were granted. If such excess only
applies to a portion of an Incentive Stock Option, the Committee, in its
discretion, will designate which shares will be treated as shares to be
acquired upon exercise of an Incentive Stock Option.
7. Stock Appreciation Rights.
7.1 Grant. An Eligible Recipient may be granted one or more Stock
Appreciation Rights under the Plan, and such Stock Appreciation Rights will
be subject to such terms and conditions, consistent with the other
provisions of the Plan, as may be determined by the Committee in its sole
discretion. The Committee will have the sole discretion to determine the
form in which payment of the economic value of Stock Appreciation Rights
will be made to a Participant (i.e., cash, Common Stock or any combination
thereof) or to consent to or disapprove the election by a Participant of
the form of such payment.
7.2 Exercise Price. The exercise price of a Stock Appreciation Right
will be determined by the Committee, in its discretion, at the date of
grant but may not be less than 100% of the Fair Market Value of one share
of Common Stock on the date of grant.
7.3 Exercisability and Duration. A Stock Appreciation Right will
become exercisable at such time and in such installments as may be
determined by the Committee in its sole discretion at the time of grant;
provided, however, that no Stock Appreciation Right may be exercisable
prior to six months from its date of grant (other than in connection with a
Participant's death or Disability) or after ten years from its date of
grant. A Stock Appreciation Right will be exercised by giving notice in
the same manner as for Options, as set forth in Section 6.5 of the Plan.
8. Restricted Stock Awards.
8.1 Grant. An Eligible Recipient may be granted one or more
Restricted Stock Awards under the Plan, and such Restricted Stock Awards
will be subject to such terms and conditions, consistent with the other
provisions of the Plan, as may be determined by the Committee in its sole
discretion. The Committee may impose such restrictions or conditions, not
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inconsistent with the provisions of the Plan, to the vesting of such
Restricted Stock Awards as it deems appropriate, including, without
limitation, that the Participant remain in the continuous employ or service
of the Company or a Subsidiary for a certain period or that the Participant
or the Company (or any Subsidiary or division thereof) satisfy certain
performance goals or criteria; provided, however, that no Restricted Stock
Award may vest prior to six months from its date of grant other than in
connection with a Participant's death or Disability.
8.2 Rights as a Stockholder; Transferability. Except as provided in
Sections 8.1, 8.3 and 14.3 of the Plan, a Participant will have all voting,
dividend, liquidation and other rights with respect to shares of Common
Stock issued to the Participant as a Restricted Stock Award under this
Section 8 upon the Participant becoming the holder of record of such shares
as if such Participant were a holder of record of shares of unrestricted
Common Stock.
8.3 Dividends and Distributions. Unless the Committee determines
otherwise in its sole discretion (either in the agreement evidencing the
Restricted Stock Award at the time of grant or at any time after the grant
of the Restricted Stock Award), any dividends or distributions (including
regular quarterly cash dividends) paid with respect to shares of Common
Stock subject to the unvested portion of a Restricted Stock Award will be
subject to the same restrictions as the shares to which such dividends or
distributions relate. In the event the Committee determines not to pay
dividends or distributions currently, the Committee will determine in its
sole discretion whether any interest will be paid on such dividends or
distributions. In addition, the Committee in its sole discretion may
require such dividends and distributions to be reinvested (and in such case
the Participant consents to such reinvestment) in shares of Common Stock
that will be subject to the same restrictions as the shares to which such
dividends or distributions relate.
8.4 Enforcement of Restrictions. To enforce the restrictions
referred to in this Section 8, the Committee may place a legend on the
stock certificates referring to such restrictions and may require the
Participant, until the restrictions have lapsed, to keep the stock
certificates, together with duly endorsed stock powers, in the custody of
the Company or its transfer agent or to maintain evidence of stock
ownership, together with duly endorsed stock powers, in a certificateless
book-entry stock account with the Company's transfer agent.
9. Performance Units.
An Eligible Recipient may be granted one or more Performance Units
under the Plan, and such Performance Units will be subject to such terms
and conditions, consistent with the other provisions of the Plan, as may be
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determined by the Committee in its sole discretion. The Committee may
impose such restrictions or conditions, not inconsistent with the
provisions of the Plan, to the vesting of such Performance Units as it
deems appropriate, including, without limitation, that the Participant
remain in the continuous employ or service of the Company or any Subsidiary
for a certain period or that the Participant or the Company (or any
Subsidiary or division thereof) satisfy certain performance goals or
criteria; provided, however, that no Performance Unit may vest prior to six
months from its date of grant other than in connection with a Participant's
death or Disability. The Committee will have the sole discretion to
determine the form in which payment of the economic value of Performance
Units will be made to a Participant (i.e., cash, Common Stock or any
combination thereof) or to consent to or disapprove the election by a
Participant of the form of such payment.
10. Stock Bonuses.
An Eligible Recipient may be granted one or more Stock Bonuses under
the Plan, and such Stock Bonuses will be subject to such terms and
conditions, consistent with the other provisions of the Plan, as may be
determined by the Committee. The Participant will have all voting,
dividend, liquidation and other rights with respect to the shares of Common
Stock issued to a Participant as a Stock Bonus under this Section 10 upon
the Participant becoming the holder of record of such shares; provided,
however, that the Committee may impose such restrictions on the assignment
or transfer of a Stock Bonus as it deems appropriate.
11. Effect of Termination of Employment or Other Service.
11.1 Termination Due to Death, Disability or Retirement. Unless
otherwise provided by the Committee in its sole discretion in the agreement
evidencing an Incentive Award:
(a) In the event a Participant's employment or other service
with the Company and all Subsidiaries is terminated by reason of death or
Disability:
(i) All outstanding Options and Stock Appreciation Rights
then held by the Participant will remain exercisable, to the
extent exercisable as of the date of such termination, for a
period of three (3) months after such termination (but in no
event after the expiration date of any such Option or Stock
Appreciation Right);
(ii) All Restricted Stock Awards then held by the
Participant will become fully vested; and
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(iii) All Performance Units and Stock Bonuses then held by
the Participant will vest and/or continue to vest in the manner
determined by the Committee and set forth in the agreement
evidencing such Performance Units or Stock Bonuses.
(b) In the event a Participant's employment or other service
with the Company and all Subsidiaries is terminated by reason of
Retirement:
(i) All outstanding Options and Stock Appreciation Rights
then held by the Participant will remain exercisable, to the
extent exercisable as of the date of such termination, for a
period of one (1) year after such termination (but in no event
after the expiration date of any such Option or Stock
Appreciation Right);
(ii) All Restricted Stock Awards then held by the
Participant will become fully vested; and
(iii) All Performance Units and Stock Bonuses then held by
the Participant will vest and/or continue to vest in the manner
determined by the Committee and set forth in the agreement
evidencing such Performance Units or Stock Bonuses.
11.2 Termination for Reasons Other than Death, Disability or
Retirement.
(a) Unless otherwise provided by the Committee in its sole
discretion in the agreement evidencing an Incentive Award, in the event a
Participant's employment or other service is terminated with the Company
and all Subsidiaries for any reason other than death, Disability or
Retirement, or a Participant is in the employ or service of a Subsidiary
and the Subsidiary ceases to be a Subsidiary of the Company (unless the
Participant continues in the employ or service of the Company or another
Subsidiary), all rights of the Participant under the Plan and any
agreements evidencing an Incentive Award will immediately terminate without
notice of any kind, and no Options or Stock Appreciation Rights then held
by the Participant will thereafter be exercisable, all Restricted Stock
Awards then held by the Participant that have not vested will be terminated
and forfeited, and all Performance Units and Stock Bonuses then held by the
Participant will vest and/or continue to vest in the manner determined by
the Committee and set forth in the agreement evidencing such Performance
Units or Stock Bonuses; provided, however, that if such termination is due
to any reason other than voluntary termination by the Participant or
termination by the Company or any Subsidiary for "cause," all outstanding
Options and Stock Appreciation Rights then held by such Participant will
remain exercisable, to the extent exercisable as of such termination, for a
period of thirty (30) days after such termination (but in no event after
the expiration date of any such Option or Stock Appreciation Right).
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(b) For purposes of this Section 11.2, "cause" (as determined by the
Committee) will be as defined in any employment or other agreement or
policy applicable to the Participant or, if no such agreement or policy
exists, will mean (i) dishonesty, fraud, misrepresentation, embezzlement or
deliberate injury or attempted injury, in each case related to the Company
or any Subsidiary, (ii) any unlawful or criminal activity of a serious
nature, (iii) any intentional and deliberate breach of a duty or duties
that, individually or in the aggregate, are material in relation to the
Participant's overall duties, or (iv) any material breach of any
employment, service, confidentiality or non-compete agreement entered into
with the Company or any Subsidiary.
11.3 Modification of Rights Upon Termination. Notwithstanding the
other provisions of this Section 11, upon a Participant's termination of
employment or other service with the Company and all Subsidiaries, the
Committee may, in its sole discretion (which may be exercised at any time
on or after the date of grant, including following such termination), cause
Options and Stock Appreciation Rights (or any part thereof) then held by
such Participant to become or continue to become exercisable and/or remain
exercisable following such termination of employment or service and
Restricted Stock Awards, Performance Units and Stock Bonuses then held by
such Participant to vest and/or continue to vest or become free of transfer
restrictions, as the case may be, following such termination of employment
or service, in each case in the manner determined by the Committee;
provided, however, that no Incentive Award may become exercisable or vest
prior to six months from its date of grant (other than in connection with a
Participant's death or Disability) or remain exercisable or continue to
vest beyond its expiration date.
11.4 Exercise of Incentive Stock Options Following Termination. Any
Incentive Stock Option that remains unexercised more than one year
following termination of employment by reason of Disability or more than
three months following termination for any reason other than death or
Disability will thereafter be deemed to be a Non-Statutory Stock Option.
11.5 Date of Termination of Employment or Other Service. Unless the
Committee otherwise determines in its sole discretion, a Participant's
employment or other service will, for purposes of the Plan, be deemed to
have terminated on the date recorded on the personnel or other records of
the Company or the Subsidiary for which the Participant provides employment
or other service, as determined by the Committee in its sole discretion
based upon such records.
12. Payment of Withholding Taxes.
12.1 General Rules. The Company is entitled to (a) withhold and
deduct from future wages of the Participant (or from other amounts that may
be due and owing to the Participant from the Company or a Subsidiary), or
make other arrangements for the collection of, all legally required amounts
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necessary to satisfy any and all foreign, federal, state and local
withholding and employment-related tax requirements attributable to an
Incentive Award, including, without limitation, the grant, exercise or
vesting of, or payment of dividends with respect to, an Incentive Award or
a disqualifying disposition of stock received upon exercise of an Incentive
Stock Option, or (b) require the Participant promptly to remit the amount
of such withholding to the Company before taking any action, including
issuing any shares of Common Stock, with respect to an Incentive Award.
12.2 Special Rules. The Committee may, in its sole discretion and
upon terms and conditions established by the Committee, permit or require a
Participant to satisfy, in whole or in part, any withholding or employment-
related tax obligation described in Section 12.1 of the Plan by electing to
tender Previously Acquired Shares, a Broker Exercise Notice or a promissory
note (on terms acceptable to the Committee in its sole discretion), or by a
combination of such methods.
13. Change in Control.
13.1 Change in Control. For purposes of this Section 13, a "Change in
Control" of the Company will mean the following:
(a) the sale, lease, exchange or other transfer, directly or
indirectly, of substantially all of the assets of the Company (in one
transaction or in a series of related transactions) to a person or entity
that is not controlled by the Company;
(b) the approval by the shareholders of the Company of any plan
or proposal for the liquidation or dissolution of the Company;
(c) any person becomes after the effective date of the Plan the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of (i) 20% or more, but not 50% or more, of the
combined voting power of the Company's outstanding securities ordinarily
having the right to vote at elections of directors, unless the transaction
resulting in such ownership has been approved in advance by the Continuity
Directors (as defined in Section 13.2 below), or (ii) 50% or more of the
combined voting power of the Company's outstanding securities ordinarily
having the right to vote at elections of directors (regardless of any
approval by the Continuity Directors);
(d) a merger or consolidation to which the Company is a party if
the shareholders of the Company immediately prior to the effective date of
such merger or consolidation have "beneficial ownership" (as defined in
Rule 13d-3 under the Exchange Act), immediately following the effective
date of such merger or consolidation, of securities of the surviving
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corporation representing (i) more than 50%, but less than 80%, of the
combined voting power of the surviving corporation's then outstanding
securities ordinarily having the right to vote at elections of directors,
unless such merger or consolidation has been approved in advance by the
Continuity Directors, or (ii) 50% or less of the combined voting power of
the surviving corporation's then outstanding securities ordinarily having
the right to vote at elections of directors (regardless of any approval by
the Continuity Directors);
(e) the Continuity Directors cease for any reason to constitute
at least a majority of the Board; or
(f) any other change in control of the Company of a nature that
would be required to be reported pursuant to Section 13 or 15(d) of the
Exchange Act, whether or not the Company is then subject to such reporting
requirement.
13.2 Continuity Directors. For purposes of this Section 13,
"Continuity Directors" of the Company will mean any individuals who are
members of the Board on the effective date of the Plan and any individual
who subsequently becomes a member of the Board whose election, or
nomination for election by the Company's shareholders, was approved by a
vote of at least a majority of the Continuity Directors (either by specific
vote or by approval of the Company's proxy statement in which such
individual is named as a nominee for director without objection to such
nomination).
13.3 Acceleration of Vesting. Without limiting the authority of the
Committee under Sections 3.2 and 4.3 of the Plan, if a Change in Control of
the Company occurs, then, unless otherwise provided by the Committee in its
sole discretion either in the agreement evidencing an Incentive Award at
the time of grant or at any time after the grant of an Incentive Award, (a)
all Options and Stock Appreciation Rights that have been outstanding for at
least six months will become immediately exercisable in full and will
remain exercisable for the remainder of their terms, regardless of whether
the Participant to whom such Options or Stock Appreciation Rights have been
granted remains in the employ or service of the Company or any Subsidiary;
(b) all Restricted Stock Awards and Performance Units that have been
outstanding for at least six months will become immediately fully vested
and non-forfeitable; and (c) all outstanding Stock Bonuses then held by the
Participant will vest and/or continue to vest in the manner determined by
the Committee and set forth in the agreement evidencing such Stock Bonuses.
13.4 Cash Payment for Options. If a Change in Control of the Company
occurs, then the Committee, if approved by the Committee in its sole
discretion either in an agreement evidencing an Incentive Award at the time
of grant or at any time after the grant of an Incentive Award, and without
the consent of any Participant effected thereby, may determine that some or
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all Participants holding outstanding Options will receive, with respect to
some or all of the shares of Common Stock subject to such Options, as of
the effective date of any such Change in Control of the Company, cash in an
amount equal to the excess of the Fair Market Value of such shares
immediately prior to the effective date of such Change in Control of the
Company over the exercise price per share of such Options.
13.5 Limitation on Change in Control Payments. Notwithstanding
anything in Section 13.3 or 13.4 of the Plan to the contrary, if, with
respect to a Participant, the acceleration of the vesting of an Incentive
Award as provided in Section 13.3 or the payment of cash in exchange for
all or part of an Incentive Award as provided in Section 13.4 (which
acceleration or payment could be deemed a "payment" within the meaning of
Section 280G(b)(2) of the Code), together with any other "payments" that
such Participant has the right to receive from the Company or any
corporation that is a member of an "affiliated group" (as defined in
Section 1504(a) of the Code without regard to Section 1504(b) of the Code)
of which the Company is a member, would constitute a "parachute payment"
(as defined in Section 280G(b)(2) of the Code), then the "payments" to such
Participant pursuant to Section 13.3 or 13.4 of the Plan will be reduced to
the largest amount as will result in no portion of such "payments" being
subject to the excise tax imposed by Section 4999 of the Code; provided,
however, that if a Participant is subject to a separate agreement with the
Company or a Subsidiary that expressly addresses the potential application
of Sections 280G or 4999 of the Code (including, without limitation, that
"payments" under such agreement or otherwise will be reduced, that the
Participant will have the discretion to determine which "payments" will be
reduced, that such "payments" will not be reduced or that such "payments"
will be "grossed up" for tax purposes), then this Section 13.5 will not
apply, and any "payments" to a Participant pursuant to Section 13.3 or 13.4
of the Plan will be treated as "payments" arising under such separate
agreement.
14. Rights of Eligible Recipients and Participants; Transferability.
14.1 Employment or Service. Nothing in the Plan will interfere with
or limit in any way the right of the Company or any Subsidiary to terminate
the employment or service of any Eligible Recipient or Participant at any
time, nor confer upon any Eligible Recipient or Participant any right to
continue in the employ or service of the Company or any Subsidiary.
14.2 Rights as a Shareholder. As a holder of Incentive Awards (other
than Restricted Stock Awards and Stock Bonuses), a Participant will have no
rights as a stockholder unless and until such Incentive Awards are
exercised for, or paid in the form of, shares of Common Stock and the
Participant becomes the holder of record of such shares. Except as
otherwise provided in the Plan, no adjustment will be made for dividends or
distributions with respect to such Incentive Awards as to which there is a
record date preceding the date the Participant becomes the holder of record
of such shares, except as the Committee may determine in its discretion.
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14.3 Restrictions on Transfer. Except pursuant to testamentary will
or the laws of descent and distribution or as otherwise expressly permitted
by the Plan, unless approved by the Committee in its sole discretion, no
right or interest of any Participant in an Incentive Award prior to the
exercise or vesting of such Incentive Award will be assignable or
transferable, or subjected to any lien, during the lifetime of the
Participant, either voluntarily or involuntarily, directly or indirectly,
by operation of law or otherwise. A Participant will, however, be entitled
to designate a beneficiary to receive an Incentive Award upon such
Participant's death, and in the event of a Participant's death, payment of
any amounts due under the Plan will be made to, and exercise of any Options
(to the extent permitted pursuant to Section 11 of the Plan) may be made
by, the Participant's legal representatives, heirs and legatees.
14.4 Breach of Confidentiality or Non-Compete Agreements.
Notwithstanding anything in the Plan to the contrary, in the event that a
Participant materially breaches the terms of any confidentiality or non-
compete agreement entered into with the Company or any Subsidiary, whether
such breach occurs before or after termination of such Participant's
employment or other service with the Company or any Subsidiary, the
Committee in its sole discretion may immediately terminate all rights of
the Participant under the Plan and any agreements evidencing an Incentive
Award then held by the Participant without notice of any kind.
14.5 Non-Exclusivity of the Plan. Nothing contained in the Plan is
intended to modify or rescind any previously approved compensation plans or
programs of the Company or create any limitations on the power or authority
of the Board to adopt such additional or other compensation arrangements as
the Board may deem necessary or desirable.
15. Securities Law and Other Restrictions.
Notwithstanding any other provision of the Plan or any agreements
entered into pursuant to the Plan, the Company will not be required to
issue any shares of Common Stock under this Plan, and a Participant may not
sell, assign, transfer or otherwise dispose of shares of Common Stock
issued pursuant to Incentive Awards granted under the Plan, unless
(a) there is in effect with respect to such shares a registration statement
under the Securities Act and any applicable state or foreign securities
laws or an exemption from such registration under the Securities Act and
applicable state or foreign securities laws, and (b) there has been
obtained any other consent, approval or permit from any other regulatory
body which the Committee, in its sole discretion, deems necessary or
advisable. The Company may condition such issuance, sale or transfer upon
the receipt of any representations or agreements from the parties involved,
and the placement of any legends on certificates representing shares of
Common Stock, as may be deemed necessary or advisable by the Company in
order to comply with such securities law or other restrictions.
-195-
16. Plan Amendment, Modification and Termination.
The Board may suspend or terminate the Plan or any portion thereof at
any time, and may amend the Plan from time to time in such respects as the
Board may deem advisable in order that Incentive Awards under the Plan will
conform to any change in applicable laws or regulations or in any other
respect the Board may deem to be in the best interests of the Company;
provided, however, that no amendments to the Plan will be effective without
approval of the shareholders of the Company if stockholder approval of the
amendment is then required pursuant to Section 422 of the Code or the rules
of any stock exchange or NASDAQ or similar regulatory body. No
termination, suspension or amendment of the Plan may adversely affect any
outstanding Incentive Award without the consent of the affected
Participant; provided, however, that this sentence will not impair the
right of the Committee to take whatever action it deems appropriate under
Sections 3.2, 4.3 and 13 of the Plan.
17. Effective Date and Duration of the Plan.
The Plan is effective as of May 24, 1999, the date it was adopted by
the Board. The Plan will terminate at midnight on May 23, 2009, and may be
terminated prior to such time to by Board action, and no Incentive Award
will be granted after such termination. Incentive Awards outstanding upon
termination of the Plan may continue to be exercised, or become free of
restrictions, in accordance with their terms.
18. Miscellaneous.
18.1 Governing Law. The validity, construction, interpretation,
administration and effect of the Plan and any rules, regulations and
actions relating to the Plan will be governed by and construed exclusively
in accordance with the laws of the State of Delaware, notwithstanding the
conflicts of laws principles of any jurisdictions.
18.2 Successors and Assigns. The Plan will be binding upon and inure
to the benefit of the successors and permitted assigns of the Company and
the Participants.
-196-
<EX-10>
EXHIBIT 10(j)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into
as of this 1st day of March, 1999, by and between CLARION PLASTICS
TECHNOLOGIES, INC., an Ohio corporation ("Company") and WILLIAM BECKMAN
("Employee"). CLARION TECHNOLOGIES, INC., a Delaware corporation
("Clarion"), the parent company of the Company, joins as an additional
party to this Agreement for purposes of the stock compensation provided in
Section 4 hereof.
RECITALS
A. The Company is engaged in the business of custom injection
molding, assembly, tooling, product design, advanced engineering and
program management (the "Business").
B. The Company wishes to employ Employee, and Employee agrees to
serve, as Chief Executive Officer of the Company subject to the terms and
conditions set forth below.
C. The Company is a wholly-owned subsidiary of Clarion.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth below, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, it is hereby
agreed as follows:
1. Recitals. The recitals set forth above shall constitute and shall be
deemed to be an integral part of this Agreement.
2. Duties. Employee shall serve in the capacity of Chief Executive
Officer of the Company. Employee's principal duties and responsibilities
shall consist of prin1ary responsibility for: (i) identifying potential
sources of new business or new customers for the Company and coordinating
and supervising all activities reasonably necessary for the initiation and
continuation of sales of product by the Company to such new customers; (ii)
subject to criteria from time to time established by Clarion or the
Company's Board of Directors, identifying potential acquisition
opportunities and coordinating and supervising all activities reasonably
necessary in order to further the Company's best interests in connection
therewith; and (iii) coordinating and supervising all activities reasonably
necessary for the establishment by the Company of improved financial and
operating control systems. Employee shall perform such other services and
duties as may from time to time be assigned to Employee by the Company's
Board of Directors provided that such other services and duties are not
inconsistent with any other term of this Agreement. Except during vacation
periods or in accordance with the Company's personnel policies covering
-197-
executive leaves and reasonable periods of illness or other incapacitation,
Employee shall devote his services to the Company's Business and interests
in a manner consistent with Employee's title and office and the Company's
needs for his services. Employee agrees to perform his duties pursuant to
this Agreement in good faith and in a manner which he honestly believes to
be in the best interests of the Company, and with such care, including
reasonable inquiry, as an ordinary prudent person in a like position would
use under similar circumstances. Employee agrees to observe a duty of
loyalty to the Company placing the interests of the Company ahead of his
own. Such duties shall be rendered at such place or places as the Company
shall require in accordance with the best interests, needs, business and
opportunities of the Company. However, in no event, shall the Company
require Employee to move his principal residence. Employee shall at all
times be subject to and shall observe and carry out such reasonable rules,
regulations, policies, directions and restrictions as may be established
from time to time by the Company.
3. Limitations on Other Employment. Throughout the Term (as defined
below) of Employee's employment under this Agreement, Employee shall not
enter into the services of or be employed in any capacity or for any
purposes whatsoever, whether directly or indirectly, by any person, firm,
corporation or entity other than the Company, and will not, during said
period of time, be engaged in any business, enterprise or undertaking other
than employment by the Company except for such other activities that do not
detract from the full discharge of Employee's duties hereunder or as
otherwise consented to in writing by the Company.
4. Compensation and Benefits.
4.1 Base Salary. Subject to adjustment as hereinafter provided, in
consideration of Employee's performance of all of his duties and
responsibilities hereunder and his observance of all of the covenants,
conditions and restrictions contained herein, Employee shall be entitled to
receive a base salary of One Hundred Fifty Thousand Dollars ($150,000) per
annum for the first Contract Year and Two Hundred Fifty Thousand Dollars
($250,000) per annum for the second Contract Year, payable in periodic
insta11ments in accordance with the Company's payroll procedures in effect
from time to time. The base salary has been expressed in terms of a gross
amount, and the Company is or may be required to withhold from such gross
amount deductions in respect of federal, state or local income taxes, FICA
and the like. The term "Contract Year" shall mean the twelve month periods
commencing on the first day of the term hereof and on each succeeding
yearly anniversary date thereof.
4.2 Bonus Provisions.
A. As used herein, the term "New Sales" shall mean all
automotive industry sales procured solely or substantially through the
efforts of Employee during the Term of this Agreement.
-198-
B. Company shall pay Employee a one-time bonus in the amount of
One Hundred Thousand Dollars ($100,000) if during the first Contract Year
hereunder Employee (i) procures New Sales in an amount equal to or greater
than Ten Million Dol1ars ($10,000,000) and (ii) the net operating profit
margin on such New Sales (inclusive of all compensation to Employee),
determined in accordance with the Company's established accounting
principles, equals or exceeds five percent (5%).
C. Company shall pay Employee an additional one-time bonus in
the amount of One Hundred Thousand Dollars ($100,000) if during the first
Contract Year hereunder Employee (i) procures New Sales in an amount equal
to or greater than Twenty Million Dollars ($20,000,000) and (ii) the net
operating profit margin on such New Sales (inclusive of all compensation to
Employee) determined in accordance with the Company's established
accounting principles, equals or exceeds five percent (5%).
4.3 Compensation Review. Prior to commencement of the second
Contract Year with respect to bonus compensation and prior to commencement
of the third Contract Year and each Contract Year thereafter with respect
to base salary and bonus compensation, the Company's Board of Directors, in
consultation with Clarion's Compensation Committee, shall review Employee's
compensation hereunder and shall make such modifications in Employee's
compensation as the Board of Directors determines, in its sole and absolute
discretion, to be appropriate. Any modification of compensation shall
become effective on the later of the first day the next Contract Year or
thirty (30) days after notice to Employee of a modification of his
compensation.
4.4 Options. Upon the commencement of Employee's employment Term,
Employee shall be granted options to purchase an aggregate of Four Hundred
Fifty Thousand (450,000) shares of Clarion's $.001 par value common stock
("Common Stock"), at an exercise price of Three Dollars and Twenty Five
Cents ($3.25) per share (the "Options") vesting in accordance with the
following schedule: (i) Options to purchase One Hundred Fifty Thousand
(150,000) shares of Common Stock shall vest immediately upon commencement
of the Term hereof; and (ii) Options to purchase an additional Sixty
Thousand (60,000) shares of Common Stock shall vest on the first day of
each of the next five (5) Contract Years hereunder. The Options shall
expire on the earlier of five (5) years from the date of vesting or ten
(10) years from the date of grant. The Options shall be issued as
incentive stock options pursuant to the Clarion's 1998 Stock Option Plan
and shall be subject to termination upon the termination of Employee's
Employment with the Company in accordance with the terms thereof.
4.5 Medical and Dental Insurance, Vacation. Throughout the term of
Employee's employment under this Agreement, Employee shall be entitled to
receive Company paid medical insurance and dental insurance. Employee
shall be entitled to three weeks per Contract Year of paid vacation (to be
taken at such time or times as is reasonably convenient to the Company).
-199-
4.6 Expenses. Employee may incur reasonable expenses in performing
his services hereunder which shall be reimbursed by the Company, in
accordance with the Company's standard expense reimbursement policies for
approved expenses, upon presentation by Employee of supporting
documentation (e.g., receipts and vouchers) for such expenditures which
meet IRS guidelines.
4.7 Life and Disability Insurance and 401(k) Plan. Employee shall
also be entitled to Short Term Disability, Long Term Disability and Life
Insurance and a 401(k) plan in accordance with policies from time to time
established by the Company and subject to the review and approval of the
Board of Directors.
4.8 Other Fringe Benefits. Employee shall also be entitled to all
other employee benefits generally provided by the Company.
5. Term of Employment. The Company hereby employs Employee, and Employee
hereby accepts employment with the Company, for a period of six (6) years
commencing February 1, 1999 ("Term"); provided that this Agreement shall be
automatically renewed for successive one (1) year terms unless either party
elects not to renew this Agreement by delivering written notice of its
election to the other party no later than sixty (60) days prior to the end
of the current term. Notwithstanding anything in this Section 5 to the
contrary, this Agreement may be terminated at any time in accordance with
Section 6.
6. Termination.
6.1 By the Company for Cause. Employee's employment under this
Agreement may be terminated immediately by the Company upon the occurrence
of one or more of the following causes:
A. Employee's conviction of any criminal act involving moral
turpitude or which otherwise tends to bring disrepute upon the Company;
B. The commission by Employee of any act of dishonesty in
connection with the performance of any of Employee's duties hereunder
(including, but not limited to falsification of Company records, making
false statements of material facts to third parties regarding the Company's
Business, fraud and misappropriation or embezzlement against the Company or
any of its customers or suppliers);
C. Any willful material breach by Employee of any of the
covenants, conditions or restrictions set forth in this Agreement,
including, but not limited to, the restrictions set forth in Sections 7, 8
or 9 of this Agreement;
-200-
D. The material failure to perform Employee's duties, and/or to
observe the written rules, regulations, policies, directions or
restrictions adopted by the Company from time to time to the extent such
rules, regulations, policies, directions or restrictions are not
inconsistent with the terms of this Agreement, provided that such failure
shall not have been cured within ten (10) days after Employee is given
specific notice and an opportunity to cure such failure;
E. If Employee dies or becomes disabled (Employee shall be
deemed "disabled" for purposes of this Agreement if he is unable, by reason
of illness, accident, or other physical or mental incapacity, to perform
substantially all of his regular duties for a continuous period of one
hundred twenty (120) days); and
F. Repeated abuse of alcohol or illegal narcotics which results
in the failure of Employee to perform his duties hereunder.
6.2 By the Company Without Cause. The Company may terminate
Employee's employment hereunder on sixty (60) days written notice to
Employee.
6.3 By Employee Upon Breach by the Company. Upon a breach by the
Company of the terms of this Agreement, Employee shall have the right to
terminate his employment hereunder, provided that the Company has first
been afforded thirty (30) days written notice and an opportunity to cure
such breach.
6.4 By Employee Without Cause. Employee may voluntarily terminate
his employment hereunder on sixty (60) days written notice to the Company.
6.5 Effect of Termination. Upon termination of Employee's employment
by the Company under Section 6.1, except for a termination resulting from
the disability of Employee, or by Employee under Section 6.4, Employee
shall be entitled to all compensation accrued but unpaid to the date of
termination, but Employee shall have no further rights to any base salary,
benefits or other compensation of any kind or nature.
Upon termination of Employee's employment by the Company under
Section 6.2, by the Company under Section 6.1 as a result of the disability
of Employee or by Employee under Section 6.3, Employee shall be entitled to
continue to receive all base salary for a period of two (2) months
following termination and an amount each month equal to the amount which
the Company is then paying for health insurance for Employee on the same
dates that he would have received such base salary had such termination of
employment not occurred, less any sums which Employee receives from
disability insurance maintained by the Company.
-201-
Upon any termination of Employee's employment pursuant to Section
6.1, 6.2, 6.3 or 6.4, Employee shall be entitled to compensation for any
accrued and unused vacation hours as provided by applicable law and to any
rights under COBRA or other comparable rights as provided by law.
7. Disclosure or Use of Confidential Information.
7.1 Confidentiality and Appropriation of Confidential Information.
During the term of Employee's employment under this Agreement and
thereafter, Employee will keep confidential and will not directly or
indirectly reveal, divulge or make known in any manner to any person or
entity (except as required by applicable 1aw or in connection with the
performance of his duties and responsibilities as an employee hereunder)
nor use or otherwise appropriate for Employee's own benefit, or on behalf
of any other person or entity by whom Employee might subsequently be
employed or otherwise associated or affiliated with, all Confidential
Information (as hereinafter defined). Confidential Information shall
include information (not readily compiled from publicly available sources)
which is made available to Employee or obtained by Employee during the
course of his employment relating or pertaining to the Company's business
and franchise operations, including trade secrets, business and financial
information, operations information, projects, products, customers,
supplier names, addresses and pricing policies, company pricing policies,
computer programs and software or unpublished know-how, whether patented or
unpatented. Employee agrees to cooperate with the Company to maintain the
secrecy of and limit the use of such Confidential Information. Employee
further agrees that he is under no obligation to any former employer which
is in any way inconsistent with this Agreement or which imposes any
restriction on the Company.
7.2 Prevention of Unauthorized Release of Company Information.
Employee agrees to promptly advise the Company of any knowledge which he
may have of any unauthorized release or use of any Confidential
Information, and shall take reasonable measures to prevent unauthorized
persons or entities from having access to, obtaining or being furnished
with any Confidential Information.
7.3 Restrictive Covenants.
A. The Company and the Employee acknowledge and agree that the
Employee's duties are of a special and unique character which have a unique
value to the Company, the loss of which cannot be adequately compensated by
damages in an action at law and, if used in competition with the Company,
could cause serious and irreparable harm to the Company. Accordingly, the
Employee covenants that during the course of the Employee's employment and
for a period of two (2) years thereafter (except in the event of
termination pursuant to Section 6.2 or 6.3, the Employee shall not directly
or indirectly solicit, divert or appropriate or attempt to solicit, divert
-202-
or appropriate any clients, vendors, customers, or accounts of the Company
which are or were active clients, vendors, customers, or any customers or
accounts or persons or entities which were clients, vendors, customers or
accounts of the Company during the two year period preceding the Employee's
termination of employment, for himself or on behalf of any person,
corporation, partnership or other business entity which, engages in
business activities which are competitive with the Business of the Company.
In addition, for a two (2) year period following termination of this
Agreement for any reason (except in the event of termination pursuant to
Section 6.2 or 6.3, the Employee shall not be employed by or affiliated in
any way with any person or entity engaged in a business which is
competitive with the Business of the Company in the geographical area in
which the Company conducts its business. The Employee acknowledges that
the Company is or shall be engaged in business on a national as well as
international basis and that, accordingly, geographical limitations on the
aforesaid restrictive covenant other than those set forth herein are
neither practical nor reasonable.
B. The Employee shall not, on his own behalf or on behalf of
others, solicit, divert or hire away, or attempt to solicit, divert or hire
away, any person employed by the Company, whether or not such employee is a
full-time employee or a temporary employee of the Company and whether or
not such employment is pursuant to a written agreement or is at will, at
any time during the term hereof and for a period of two (2) years after the
Employee ceases to be employed by the Company.
C. Compliance with the restrictive covenants of this Agreement
is a condition precedent to the Company's obligation to make any payments
of any nature to the Employee whether under this Agreement or otherwise.
Nothing in this Agreement shall be construed as prohibiting the Company
from pursuing any other remedies available to it for a breach or threatened
breach of this Agreement.
D. As used in this Section 7.3, "clients", "vendors",
"customers" or "accounts" shall include any person or entity that directly
or indirectly, through one or more intermediaries, controls or is
controlled by or is under common control with any such "clients",
"vendors", "customers" or "accounts".
E. The Employee agrees that each of such covenants is separate,
distinct and severable not only from the other of such covenants but also
from the remaining provisions of this Agreement; that the unenforceability
of any such covenant or agreement shall not affect the validity or
enforceability of any other such covenant or agreements or any other
provision or provisions of this Agreement; and that, in the event any court
of competent jurisdiction determines, rules or holds that any such
provision, covenant or agreement hereof is overly broad or against the
public policy of the state, then said court is specifically authorized to
reform and narrow said provision, covenant or agreement to the extent
necessary to make it valid and enforceable.
-203-
8. Proprietary Rights and Materials. All documents, memoranda, reports,
notebooks, correspondence, files, lists and other records, and the like,
designs, drawings, specifications, computer software and computer
equipment, computer printouts, computer disks, arid all photocopies or
other reproductions thereof, affecting or relating to the business of the
Company, which Employee shall prepare, use, construct, observe, posses or
control ("Company Materials"), shall be and remain the sole property of the
Company. Upon termination of this Agreement, Employee shall deliver
promptly to the Company all such Company Materials.
9. Inventions and Discoveries. Employee hereby assigns to the Company
all of Employee's rights, title and interest in and to all inventions,
discoveries, processes, standards, procedures, designs and other
intellectual property related to the business of the Company hereinafter
collectively referred to as the "Inventions", and all improvements on
existing Inventions made or discovered by Employee during the Term of
Employee's employment hereunder. Promptly upon the making of any such
Invention or improvement thereon, Employee shall disclose the same to
Company and shall execute and deliver to Company such reasonable documents
as Company may request to confirm the assignment of Employee's rights
therein and, if requested by Company, shall assist Company in applying for
and prosecuting any patents which may be available in respect thereof.
Inventions originated by Employee shall be considered by the Board of
Directors in determining compensation modifications hereunder.
10. Remedies.
10.1 Injunctive Relief. The Company and Employee recognize and
acknowledge that Employee is employed under this Agreement as an employee
in a position where Employee will be rendering personal services of a
special, unique, unusual and extraordinary character requiring
extraordinary ingenuity and effort by Employee. Employee hereby
acknowledges that compliance with the provisions of Sections 7,8 and 9 of
this Agreement (which shall survive the termination of this Agreement in
all respects) is necessary to protect the goodwill and other proprietary
interests of the Company and that the Company would suffer continuing and
irreparable injury which injury is not adequately compensable in monetary
damages or at law. Accordingly, Employee agrees that the Company, its
successors and assigns may obtain injunctive relief against the breach or
threatened breach of the foregoing provisions, in addition to any other
legal remedies which may be available to it under this Agreement (including
money damages), and that any such breach or threatened breach may be
preliminarily enjoined by the Company without bond.
-204-
10.2 Other Remedies. No remedy conferred by any of the specific
provisions of this Agreement is intended to be exclusive of any other
remedy, and each and every remedy shall be cumulative and shall be in
addition to every other remedy given hereunder or now or hereafter existing
at law or in equity or by statute or otherwise. The election of anyone or
more remedies by the Company shall not constitute a waiver of the right to
pursue other available remedies.
10.3 Accounting for Profits. Employee covenants and agrees that if he
violates the provisions of Sections 7, 8 or 9, the Company shall be
entitled to an accounting and repayment of all profits, compensation,
commissions, remuneration or other benefits that Employee has realized and
may realize as a result of or in connection with any such violation. These
remedies shall be in addition and not in limitation of any injunctive
relief or other rights or remedies to which the Company is or may be
entitled at law, in equity or under this Agreement.
10.4 Attorneys' Fees. If litigation arises under this Agreement
between Company and Employee, the prevailing party in such litigation shall
be entitled to recover its reasonable attorneys' and paralegal's fees,
court costs and out-of-pocket litigation expenses from the non-prevailing
party.
10.5 Arbitration. Any controversy or claim arising out of, or
relating to this Agreement, except Sections 7, 8 and 9, shall be resolved
by arbitration in accordance with the Commercial Rules of the American
Arbitration Association then in effect. The decision of the arbitrator
shall be final and binding upon the parties hereto, and judgment upon the
award rendered by the arbitrator maybe entered in any court of competent
jurisdiction. There shall be a single arbitrator, the situs of the
arbitration shall be in the County of Williams, State of Ohio, and the
prevailing party (or parties) shall also recover from the losing party (or
parties) reasonable attorneys' fees and the costs of arbitration as part of
the judgment rendered.
10.6 Cumulative Remedies. The remedies described in this Section 10
are in addition to and not in substitution for any other remedies available
under the law.
11. Severability. It is the desire of the parties that the provisions and
restrictions of this Agreement be enforced to the fullest extent
permissible under the laws and public policies in each jurisdiction in
which enforcement might be sought. Thus, whenever possible, each provision
or restriction of this Agreement shall be interpreted in such manner as to
be effective under applicable law. If any section or portion of this
Agreement or the application thereof to any party or circumstance shall be
prohibited by or invalid under applicable law, the invalidity or
unenforceability of that section or portion of this Agreement shall not
-205-
invalidate any other section or portion, nor sha11 it affect the
application of such section or portion to other parties or other
circumstances. If in any judicial proceeding, a court sha11 refuse to
enforce this Agreement, whether because the time limit is too long or
because the restrictions contained herein are more extensive (whether as to
geographic area, scope of business or otherwise) than is necessary to
protect the business and goodwill of the Company, it is expressly
understood and agreed between the parties hereto that this Agreement is
deemed modified to the extent necessary to permit this Agreement to be
enforced in any such proceedings.
12. Continuing Obligations. Employee's obligations pursuant to Sections
7, 8 and 9 of this Agreement and the rights and remedies of the Company
hereunder shall continue in effect beyond the term of this Agreement.
13. Waiver or Modification. No waiver or modification of this Agreement
or of any covenant, condition, or limitation herein contained shall be
valid unless in writing and duly executed by the party to be charged
therewith. Furthermore, no evidence of any modification or waiver shall be
offered or received as evidence in any litigation between the parties
arising out of or affecting this Agreement or the rights or obligations of
any party hereunder, unless such waiver or modification is in writing, duly
executed as aforesaid. The provisions of this Section may not be waived
except as herein set forth.
14. Entire Agreement. This written Agreement contains the sole and entire
agreement between the parties as to the matters contained herein, and
supersedes any and all other agreements between them. The parties
acknowledge and agree that neither of them has made any representation with
respect to such matters of this Agreement or any representations except as
are specifically set forth herein, and each party acknowledges that he or
it has relied on his or its own judgment in entering into this Agreement
The parties further acknowledge that statements or representations that may
have been heretofore made by either of them to the other are void and of no
effect and that neither of them has relied thereon in connection with his
or its dealing with the other.
15. Choice of Law. This Agreement and the performance hereunder and all
suits arid special proceedings hereunder sha11 be construed in accordance
with the laws of the State of Illinois.
16. Binding Effect of Agreement; Assignment; Merger; Dissolution. This
Agreement shall be binding upon and inure to the benefit of the parties
hereto and their heirs, successors, assigns and legal representatives.
This Agreement shall be construed as a contract for personal services by
Employee to the Company and shall not be assignable by Employee. In the
event of the sale, merger or consolidation of the Company, Employee agrees
that the Company may assign its rights and obligations hereunder to its
successor or purchaser.
-206-
17. Notices. All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and shall be deemed to
have been duly given when delivered by hand or when mailed by certified
registered mail, return receipt requested, with postage prepaid to their
current address or to such other address as they request in writing.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
the day and year first written above.
"Company"
CLARION PLASTICS TECHNOLOGIES, INC.,
an Ohio corporation
By: /s/ Robert W. Martin
----------------------------------
Robert W. Martin,
Chief Financial Officer
"Employee"
/s/ William Beckman
-------------------------------------
WILLIAM BECKMAN
"Clarion"
CLARION TECHNOLOGIES, INC.,
a Delaware corporation
By:
----------------------------------
Jack D. Rutherford,
Chairman & Chief Executive Officer
-207-
<EX-21>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
State of
Name Incorporation
----------------------------------- -------------
Clarion Plastics Technologies, Inc. Ohio
Clarion Specialty Products, Inc. Ohio
Clarion Sourcing, Inc. Illinois
Rose & Associates Delaware
Mito Plastics, Inc. Michigan
Wamar Products, Inc. Michigan
Wamar Tool & Machine Co. Michigan
Double "J" Molding, Inc. Michigan
Clarion Real Estate LLC Michigan
201 Lovejoy LLC Michigan
Clarion-Drake Acquisition, Inc. Michigan
-208-
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 6,650,000
<SECURITIES> 0
<RECEIVABLES> 10,426,000
<ALLOWANCES> 883,000
<INVENTORY> 3,752,000
<CURRENT-ASSETS> 20,561,000
<PP&E> 48,739,000
<DEPRECIATION> 15,145,000
<TOTAL-ASSETS> 60,314,000
<CURRENT-LIABILITIES> 14,830,000
<BONDS> 0
0
15,670,000
<COMMON> 19,000
<OTHER-SE> 3,304,000
<TOTAL-LIABILITY-AND-EQUITY> 60,314,000
<SALES> 28,059,000
<TOTAL-REVENUES> 28,059,000
<CGS> 27,139,000
<TOTAL-COSTS> 27,139,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 532,000
<INTEREST-EXPENSE> 1,010,000
<INCOME-PRETAX> (14,246,000)
<INCOME-TAX> 126,000
<INCOME-CONTINUING> (14,372,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,372,000)
<EPS-BASIC> (.88)
<EPS-DILUTED> (.88)
</TABLE>
