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United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the year ended December 31, 1999 Commission File No. 0-12361
Richton International Corporation
(Exact name of registrant as specified in its charter)
Delaware 05-0122205
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
767 Fifth Avenue, New York, New York 10153
(Address of principal executive offices) (Zip Code)
Issuer's telephone number .......................................(212) 751-1445
Securities registered under Name of Exchange on which Registered:
Section 12(b) of the Exchange Act:
Common Stock, par value $.10 American Stock Exchange
Securities registered under Section 12(g) of the Exchange Act:
Series A Preferred Stock, par value $1.00. Purchase Right
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
State the aggregate market value of the voting stock held by non-affiliates of
the Registrant.
Aggregate market value at March 1, 2000 amounted to $20,400,000
Indicate the number of shares outstanding of each of the Registrant's classes of
Common Stock, as of the latest practicable date.
Common Stock, par value $.10, 3,003,000 shares at March 1, 2000
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual stockholders report for the year ended December 31, 1999
are incorporated by reference into Parts I and II.
Portions of the proxy statement for the annual stockholders meeting to be held
April 26, 2000 are incorporated by reference into Part III.
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<PAGE>
TABLE OF CONTENTS
Page
----
PART 1
Item 1 Business ...................................................... 1
Item 2 Properties .................................................... 4
Item 3 Legal Proceedings ............................................. 4
Item 4 Submission of Matters to a Vote of Security Holders ........... 4
PART II
Item 5 Market for Registrant's Common Equity and Related Stockholder
Matters ....................................................... 5
Item 6 Selected Consolidated Financial Data .......................... 5
Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations ......................................... 6
Item 7a Quantitative & Qualitative Disclosures about Market Risk ...... 8
Item 8 Financial Statements and Index to Financial Statements ........ 8
Item 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure .......................................... 8
PART III
Item 10 Directors and Executive Officers of Registrant ................ 9
Item 11 Executive Compensation ........................................ 9
Item 12 Security Ownership of Certain Beneficial Owners and Management. 9
Item 13 Certain Relationships and Related Transactions ................ 9
PART IV
Item 14 Exhibits, Financial Statements and Reports on Form 8-K ........ 9
Signatures ................................................................ 13
<PAGE>
PART I
Item 1. Business
Richton International Corporation (the "Company" or "Richton") is a
diversified service company with three operating subsidiaries, Century Supply
Corp. ("Century"), CBE Technologies, Inc. ("CBE") and Creative Business
Concepts, Inc. ("CBC").
Century is a leading full-service wholesale distributor of sprinkler
irrigation systems, outdoor lighting and decorative fountain equipment,
headquartered in Madison Heights, Michigan. Its branches serve customers in 33
States, mostly in the eastern half of the country and in Ontario, Canada. During
1999, Century acquired several distributors in New York, Michigan, Oregon,
Kentucky, Missouri and South Carolina and opened several branches in existing
markets. Irrigation products have historically been sold by manufacturers
primarily through wholesale distributors and Century is a leading distributor of
irrigation equipment in the geographic areas it serves. Century is currently a
distributor for the principal original equipment manufacturers ("OEM") of turf
irrigation equipment in the United States.
Century's primary customers are irrigation and landscape contractors who
install irrigation systems for commercial, residential and golf course watering
systems. Approximately 93% of revenues are derived from irrigation products,
with the remaining 7% from lighting and fountains. Century represents more than
60 suppliers and provides a complete product line to approximately 19,500
customers through 128 branches.
Century is organized into six geographical regions, each with a regional
team that manages branches within a specific geographic area. Purchasing,
accounts receivable, accounting and cash management are centralized functions.
Close control is maintained over receivables, inventory and other key factors
through a centralized order entry management information system. All branches
are linked to the on-line system, and substantially all of Century's business is
conducted in a real time order entry environment.
Century's operations constitute a material portion of Richton's business.
Although Century has a history of operating profitably, its business is impacted
by both the economic and climatic conditions in the geographic areas where its
branches are located. Since irrigation and landscape contractors are Century's
primary customers, business is best when commercial and residential construction
is strong and general economic conditions and consumer confidence are favorable.
Weather is also a significant non-controllable element affecting Century's
business. Business is better during warm dry periods, especially in spring and
early summer months and when general construction is strong. Climatic factors
that can adversely affect Century principally relate to above-average rainfall
during the primary selling season or other unusual weather-related conditions.
Century's geographic diversity makes it much less susceptible to weather than
many of its competitors who operate in a more limited geographic area. Century
has mitigated some of the impact of both economic and climatic conditions by
pursuing an aggressive growth program. By opening or acquiring branches (see
Competition) in new areas and continuing to grow its business in existing
markets, Century has created both geographic diversity and consistent growth.
Even so, seasonality causes a significant disparity in quarterly sales and
results.
CBE is headquartered in Boston, Massachusetts with offices in New York and
Portland, Maine and is a systems integrator providing network consulting,
design, and installation; network management and related support; technical
services outsourcing; comprehensive hardware maintenance; and equipment sales.
CBE is accredited as Cisco Premier, as a Microsoft Channel partner and has
been certified, by Novell, as a Platinum reseller, an official Training Center
and an authorized Service Center.
Physical resources include a fully integrated network lab with a
functioning model of most computer operating systems; a network management lab
to support remote management; and training labs at both the Boston and Portland
sites to support in-house training programs.
CBE is also an authorized service and warranty center for most of the
leading Personal Computer ("PC") manufacturers including IBM, Compaq, Hewlett
Packard, Apple, and AST and services most every other make of PC and printer.
The field staff is supported by a fully automated call control and dispatch
center; a parts depot with an extensive inventory; and a complete
diagnostic/repair lab for PC's, printers and monitors.
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CBE's business is impacted by technological changes in both software and
hardware. There can be no assurance that CBE can (a) continue to maintain a
level of highly qualified and experienced technicians and engineers, and (b)
that those technicians will continue to remain technically proficient in an
environment in which technological changes occur regularly.
CBC is headquartered in Irvine, California and was acquired by Richton in
February, 1999. CBE's Costa Mesa, California branch was merged into CBC in
March, 1999. CBC essentially performs the same services for its customers that
CBE does for theirs.
Suppliers
Century maintains a broad base of suppliers that enables the Company to
offer a wide range of irrigation equipment. Products are obtained from more than
60 suppliers with no one supplier comprising more than 30% of annual purchases.
Century has master distributor agreements in place with Rain Bird, Hunter,
Irritrol Systems and Hunter Golf as well as with other OEM suppliers that
authorize Century as a distributor of their products for specific geographic
areas. These agreements are renewable annually, and there is no assurance that
these agreements will be renewed. Therefore, Century's business is subject to
change if these distribution agreements with manufacturers terminate or if
manufacturers pursue alternate channels of distribution. However, it should be
noted that Century maintains excellent vendor relations with these suppliers and
management believes the wholesale distribution channel will continue to be the
dominant professional channel for the irrigation industry.
CBE and CBC acquire their products from OEM suppliers as well as
wholesalers and distributors such as Tech Data Corporation, Ingrim Micro and
Gates Arrow Electronics.
Competition
Historically, irrigation distribution, like the wholesale distribution
industry in general, has been fragmented with many small distributorships
serving specific geographic markets. The more recent trend in distribution has
been one of consolidation, where larger wholesaler chains have been created as a
result of mergers and acquisitions with distributors moving into new territories
to expand market share and achieve economies of scale. Within the irrigation
industry, Century has been a leader in the trend toward consolidation.
During the period of Richton ownership, Century has grown from $43 million
in sales in 1993 to more than $175 million in sales in 1999. Since Century has a
sophisticated computer system supporting its branch operations and most of its
administrative functions are centralized, Century has been able to achieve
significant benefits as a result of consolidation and growth.
This growth has resulted in Century facing a variety of competitors in
almost every market it serves. Century competes with these other distributors by
providing local warehousing linked to a centralized computer system that enables
Century customers to get product when they need it, and by providing value-added
services, such as design assistance, training seminars, incentive programs and
sales leads to its customers. Century also competes against large discount
stores and plumbing supply companies that sell irrigation products, sometimes
doing so at lower prices, but without the range of services that Century offers.
While some of its competitors in specific markets are larger than the
corresponding Century operations, it is management's belief that none are larger
when only the irrigation business is considered.
CBE and CBC compete in maintenance service with many companies, both
larger and smaller than themselves. Larger companies generally are OEM suppliers
that also provide network installation and maintenance services and offer a
broader line of product and services than do CBE and CBC.
Employee Relations
At December 31, 1999, the Company employed approximately 700 full-time
employees. None of these employees is covered by a collective bargaining
agreement.
The Company considers its people to be one of its greatest assets and
provides training courses on sales, product features and benefits, management
skills, and communication. This has created an effective, knowledgeable and
self-motivated work force with a strong focus on customer service.
2
<PAGE>
Working Capital
Century's business is seasonal principally due to the fact that irrigation
systems are normally installed during warm weather and a majority of Century's
branches are located in the Eastern half of the United States. As a result,
Century's monthly and quarterly sales, operating results and working capital
requirements fluctuate significantly. Century relies on short-term borrowing to
finance its working capital needs. Century seeks to maintain a level of
borrowing of approximately $25 million which is normally achieved during the
latter part of December through much of the first quarter. Beginning in April,
borrowing requirements expand. By July, short-term borrowings will increase to
approximately $40 million, consistent with working capital growth and operating
requirements. Subsequent to then, receivable balances are liquidated, releasing
substantial amounts of cash that may be used to reduce short-term borrowing.
(See Note 7 of Notes to Consolidated Financial Statements for a description of
the Company's Revolving Credit facility.)
At December 31, 1999 working capital increased approximately $3.3 million
to $9.8 million from $6.5 million in the prior year. This increase was
attributed primarily to higher inventories and receivables resulting from
increased sales and acquisitions.
Business Acquisitions
On March 29, 1995 the Company, through its wholly owned subsidiary,
Century, acquired all the operating assets and business of CBE for $5.0 million,
plus assumption of certain liabilities, which were financed by bank borrowings
of $3.0 million, a $1.0 million unsecured promissory note to the former owners
and a $1.0 million note to the Chairman of Richton. The note to the Chairman was
subject to a fairness opinion of an independent advisor chosen by Richton's
Board of Directors. The note to the former owners, which is guaranteed by both
Century and Richton, is to be paid over the next year.
During 1999, Century acquired, for $2.6 million, seven different
distributor operations in six different markets: New York, Michigan, Oregon,
Kentucky, Missouri and South Carolina. The purchases were made for cash
generated from its working capital line and subordinated debt. These
acquisitions were accounted for as purchases and the Company recognized $1.6
million of goodwill and other intangibles in these transactions. Century also
opened seventeen new branches in existing and new markets.
On February 25, 1999, the Company acquired, for $2.2 million, 100% of the
common stock of CBC of Irvine, California, a leading computer networking
integrator. CBC was consolidated with the Costa Mesa office of Richton's CBE
subsidiary. The acquisition was accounted for as a purchase. The Company
recognized approximately $2.3 million of goodwill in this transaction.
On October 18, 1999, the Company acquired, for $1.4 million all of the
operating assets and certain of the liabilities of Corporate Access, Inc.
("CAI"). CAI, which has been assimilated into CBE is a value added reseller of
networking and computer equipment. This acquisition was accounted for as a
purchase and the Company recognized approximately $1.0 million of goodwill in
this transaction.
Liquidity
The net worth as of December 31, 1999 has increased to $19.0 million from
$11.9 at December 31, 1998. During 1999, the Company negotiated a new $67.5
million, five year Revolving Credit, Term Loan and Security Agreement
("Agreement") with PNC Business Credit ("PNC"). The Agreement provides for a
$60.0 million Revolving Credit facility (increased from $40.0 million) and a
$7.5 million five year Term Loan. Loans under this agreement are secured by
Accounts Receivable, Inventory and fixed assets of Century and CBE. The higher
balances are to provide for increased working capital requirements necessitated
by the Company's growth and for acquisitions completed during the year. The
Revolving Credit loans carry an interest rate based upon LIBOR plus 250 basis
points if the Company's leverage ratio is in excess of 2.5 times trailing twelve
month EBITDA, as defined, or LIBOR plus 225 basis points if the leverage ratio
is lower than 2.5 times trailing twelve month EBITDA, as defined. The Company
also has a prime rate option. At December 31, 1999, the interest rate was 8.4%,
or LIBOR plus 250 basis points. The proceeds of this line of credit were
utilized to repay the line of credit from Michigan National Bank. Of the balance
of the outstanding long-term debt, $0.15 million is owed to Fred R. Sullivan,
Chairman and Chief Executive Officer
3
<PAGE>
of Richton, which is payable through April, 2000. Notes issued to Mr. Sullivan
were subject to a fairness opinion issued by an independent advisor chosen by
Richton's Board of Directors.
Although the Company believes it will continue to generate cash and have
sufficient credit available to liquidate its term and subordinated debt as it
becomes due, and make acquisitions, there is no assurance, given the high degree
of leverage, the seasonality of its principal business and the strong
construction economy that existed in 1999, that it can continue to do so in the
future.
ITEM 2. Properties
Richton's executive offices at 767 Fifth Avenue, New York, New York, are
subject to a five-year lease which expires in 2003. Century's principal offices
are in Madison Heights, Michigan, under a lease that expires in October, 2000.
In addition, Century leases warehouse and sales space in its other branches. The
aggregate of such leased space is approximately 512,000 square feet. Expiration
dates extend to December, 2009. Seven of these facilities are leased from the
former owner of Century under a lease agreement which approximates current
market value. These leases expire beginning in October 2000. One facility is
leased from a partnership which includes the President of Century. The lease,
which is currently on an annual basis, approximates current market value. In
addition, during 1997 Century acquired a 10,000 square foot facility in
Sarasota, Florida which it had previously leased. In 1998, Century acquired a
3000 square foot facility in Saginaw, Michigan which it had previously leased.
CBE's principal offices are located in Boston, Massachusetts. This office is
leased under an agreement, which expires in June 2001. CBE leases approximately
10,000 square feet of additional office space at its other locations. CBC leases
approximately 25,000 square feet of office space in Irvine, California. This
lease expires in February, 2002. Richton believes that its properties are
adequately equipped, maintained and suited to the purposes for which they are
used.
ITEM 3. Legal Proceedings
In the opinion of management there are no material pending legal
proceedings to which the company is a party.
ITEM 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during the fourth
quarter of fiscal 1999.
EXECUTIVE OFFICERS OF THE REGISTRANT
For the information about the executive officers of Richton required to be
included in this Part I, see "Directors and Executive Officers of Registrant" in
Part III below, which is incorporated into Part I by reference.
4
<PAGE>
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters
(a) Market information:
The Company's Common Stock trades on the American Stock Exchange under the
symbol "RHT". The following table sets forth the high and low sales prices for
the Common Stock. The quotations shown are as reported by the American Stock
Exchange.
<TABLE>
<CAPTION>
1999 1998
--------------- ---------------
Calendar Quarter High Low High Low
---------------- ---- --- ---- ----
<S> <C> <C> <C> <C>
First ............................... $14 13/16 $ 8 5/8 $ 6 15/16 $5 5/8
Second .............................. 14 11 1/2 10 1/4 6 1/2
Third ............................... 17 1/4 12 1/4 11 1/8 7 7/8
Fourth .............................. 17 5/16 12 11/16 9 1/8 7 1/2
</TABLE>
(b) Approximate Number of Equity Stockholders:
<TABLE>
<CAPTION>
Approximate Number
of Record Holders
Title of Class at February 29, 2000
-------------- --------------------
<S> <C>
Common Stock, $ .10 par value 584
</TABLE>
(c) Dividends:
The Company paid no cash dividends in 1999, 1998 or 1997 as noted under
"Liquidity". The Company's financing arrangements preclude the distribution of
dividends.
ITEM 6. Selected Consolidated Financial Data
The following data has been derived from the Consolidated Financial
Statements of the Company and should be read in conjunction with those
statements, and the notes related thereto, which are included in this report.
<TABLE>
<CAPTION>
SUMMARY OF OPERATIONS
(In thousands, except percentages and per share amounts)
December 31
----------------------------------------------------------------
1999(a) 1998 1997 1996 1995(a)
--------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Net Sales .............................. $218,176 $147,899 $106,523 $87,750 $66,659
Gross Profit percentage ................ 29% 28% 28% 28% 28%
Income from Operations. ................ 14,238 7,582 5,505 3,832 3,466
Interest expense, net .................. 2,313 1,604 1,334 1,216 1,092
Net Income ............................. 7,155 3,532 2,290 1,766 1,365
Net Income per diluted share ........... $ 2.12 $ 1.06 $ 0.68 $ 0.54 $ 0.43
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL POSITION
(In thousands, except ratios)
December 31
----------------------------------------------------------------
1999(a) 1998 1997 1996 1995(a)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Total Assets ............................ $75,392 $57,493 $41,632 $32,374 $26,114
Long-term Debt .......................... 5,020 4,639 5,591 6,986 7,150
Working Capital ......................... 9,831 6,535 7,372 5,610 3,029
Current ratio ........................... 1.19 to 1 1.16 to 1 1.27 to 1 1.31 to 1 1.22 to 1
</TABLE>
See notes to Selected Consolidated Financial Data:
Note (a) --The Registrant acquired CBE effective March 29, 1995; CBC
effective January 1, 1999; CAI effective October 15, 1999.
5
<PAGE>
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following information should be read along with the Consolidated
Financial Statements and Notes thereto on pages F-2 through F-13.
This report contains forward-looking statements. The matters expressed in
such statements are subject to numerous uncertainties and risks including, but
not limited to, general economic and climatic conditions in the markets in which
Richton and its subsidiaries operate, fluctuation in demand for the products and
services offered by these subsidiaries, and current expectations of the Company
or its management. Should one or more of those uncertainties or risks
materialize, or should the underlying assumptions prove incorrect, actual
results may vary materially from those described as forward-looking statements.
The Company does not intend to update those forward-looking statements.
RESULTS OF OPERATIONS
1999 Compared with 1998
Sales for the year ended December 31, 1999 were $218.2 million, an
increase of $70.3 million or approximately 47.5% over the 1998 amount of $147.9
million. Century contributed $50.3 million of this increase due largely to
favorable economic and weather conditions in most of its market areas and due to
geographical expansion relating to acquisitions made during 1998, the
acquisitions made in early 1999 and continued growth from past acquisitions and
branch openings. Presently, Century has more than 128 branches. Richton's
Technology group, has increased sales by 87.3%, to $42.9 million from the $22.9
million represented solely by CBE in 1998. This Group currently includes CBE,
CAI (purchased in October, 1999) and CBC (acquired effective January, 1999 with
1999 sales of $15.5 million).
Gross profit for the year ended December 31, 1999 was $63.8 million, an
increase of $23 million or approximately 56.4% over the 1998 amount of $40.8
million. This increase is due primarily to the higher sales noted above. The
overall gross profit percentage increased slightly to 29.2 % from 27.6% in 1998
due to product mix and improved competitive conditions, principally in the
geographically diverse markets served by Century.
Selling, general and administrative expenses for the year ended December
31, 1999 increased $16.4 million or 49.4% to $49.6 million from $33.2 million
for the year ended December 31, 1998. As a percentage of sales, these costs are
22.7% and 22.4% of sales in 1999 and 1998, respectively. The full year effect of
the geographical expansion resulting from acquisitions made during 1998 and 1999
noted above accounted for a major portion of this increase.
Interest expense, net for the year ended December 31, 1999 increased $.7
million to $2.3 million. This increase reflects the increased borrowings under
the line of credit incurred to support the higher working capital requirements.
In addition, higher interest rates due principally to the tightening credit
markets for short term borrowings contributed to this increased cost.
For the year ended December 31, 1999, the federal, state and foreign
income tax provision was $4.8 million, and 40% of pre-tax income, compared to
$2.4 million and 41%, respectively for 1998, an increase of approximately $2.4
million from last year. The higher taxes are due to higher pretax income in 1999
as compared to 1998. The slightly lower tax rate was attributed to lower state
taxes in 1999.
As a result of the foregoing, net income for the year ended December 31,
1999 was $7.16 million, or $2.12 per share-diluted. This compares with $3.53
million or $1.06 per share-diluted reported for the year ended December 31,
1998. The higher net income is due principally to increased sales levels as a
result of both acquisitions and internal growth.
1998 Compared with 1997
Sales for the year ended December 31, 1998 were $147.9 million, an
increase of $41.4 million or approximately 38.9% over the 1997 amount of $106.5
million. Century contributed $38.1 million of this increase due largely to
favorable economic and weather conditions in most of its market areas and due to
geographical expansion relating to acquisitions made in the fourth quarter of
1997. Presently, Century has more than 100 branches. CBE's sales in 1998 have
increased more than 16.0% over 1997 levels principally due to market growth.
6
<PAGE>
Gross profit for the year ended December 31, 1998 was $40.8 million, an
increase of $10.6 million or approximately 35.1% over the 1997 amount of $30.2
million. This increase is due primarily to the higher sales noted above. The
overall gross profit percentage declined slightly to 27.6% due in part to the
overall competitive conditions in the irrigation market.
Selling, general and administrative expenses for the year ended December
31, 1998 increased $8.5 million or 34.4% to $33.2 million from $24.7 million for
the year ended December 31, 1997. The full year effect of the geographical
expansion resulting from acquisitions made during 1997 at Century noted above
accounted for a major portion of this increase.
Interest expense, net for the year ended December 31, 1998 increased $.3
million to $1.6 million. This increase reflects the increased borrowings under
the line of credit facility incurred to support the higher working capital
requirements.
The federal, state and foreign income tax provision for the year ended
December 31, 1998 was $2.4 million, an increase of approximately $.6 million
from last year. The higher taxes are due to higher pretax income in 1998 as
compared to 1997.
As a result of the foregoing, net income for the year ended December 31,
1998 was $3.53 million, or $1.06 per share-diluted. This compares with $2.29
million or $.68 per share-diluted reported for the year ended December 31, 1997.
The higher net income is due principally to increased sales levels as a result
of both internal growth and a full years net income for the Century branches
acquired in the fourth quarter of 1997.
Liquidity and Capital Resources
The Company's financial condition continues to improve. Net worth as of
December 31, 1999 has increased to $19.0 million from $11.9 at December 31,
1998. The Company's long term debt -- including the current portion was $8.3
million at December 31, 1999, a increase of $1.8 million from December 31, 1998.
In addition, amounts due under lines of credit totaled $29.0 million as of
December 31, 1999 compared to $26.0 million as of December 31, 1998. The
increases in borrowings are primarily due to the acquisition activity in 1999.
Cash Flow from Operations was $3.4 million in 1999, which compares with $1.3
million and $1.8 million of negative Cash Flow from Operations for 1998 and
1997, respectively. The Company was thus, able to make the $6.2 million of
acquisitions (See Item 1 -- Business Acquisitions) by increasing its debt by
only $4.8 million, while internally generating the funds needed to support
expansion of its existing operations. The increase in Cash Flow from Operations
was attributed to improved operating profits -- before interest and taxes --
which increased to $14.2 million from $7.6 million last year and to increased
focus on improving inventory turns and tighter control over receivables.
The Company continues to rely on short-term borrowings to finance its
working capital. During the first quarter of each year, Century's working
capital requirements are at a low point with short-term borrowings of $25.0.
During the second quarter, working capital requirements begin to expand and by
July of each year the amount necessary to carry the working capital expands to
approximately $40.0 million. From July through the remainder of the year,
receivable balances are liquidated, releasing substantial amounts of cash that
may be used to reduce short-term debt. By December 31, 1999 working capital
increased approximately $3.3 million to $9.8 million from $6.5 million in 1998.
This increase was attributed primarily to lower debt relative to the working
capital partially offset by costs associated with the acquisitions. Net worth to
total capitalization improved to 34% at December 31, 1999 from 27% as of a year
earlier.
It is expected that the Company will continue to rely on short-term
borrowings to fund its future growth, which may increase the Company's leverage.
It should be noted that the amount of debt will grow at a slower rate since the
Company expects to reinvest its available funds and to keep focused on improving
inventory utilization and maintaining tight controls on receivables. At January
1, 2000, the Company has sufficient credit facilities and cash flow to meet its
obligations as they come due.
While the Company has continued to generate sufficient cash to liquidate
its term and subordinated debt as it becomes due, and make acquisitions
necessary for its growth, there is no assurance, given the high degree of
leverage, the seasonality of its principal business and the strong construction
economy that existed in 1999, that it can continue to do so in the future.
7
<PAGE>
Year 2000
The year 2000 issue exists because many computer systems and applications,
including those embedded in equipment and facilities, use two digit rather than
four digit date fields to designate an applicable year. As a result, the systems
and applications may not properly recognize the year 2000 or process data which
includes it, potentially causing data miscalculations or inaccuracies or
operational malfunctions or failures. As of March 1, 2000 the Company's computer
systems are year 2000 compliant in all material respects and there have been no
operational malfunctions or failures due to year 2000 conversion.
ITEM 7a. Quantitative & Qualitative Disclosures about Market Risk
The Company's market risk sensitive instruments do not subject the Company
to material market risk exposures.
ITEM 8. Financial Statements and Index to Financial Statements
The financial statements required by this Item, are set forth below:
<TABLE>
<CAPTION>
Page
Description Number
---------- -------
<S> <C>
Report of Independent Public Accountants ............................................ F-1
Consolidated Balance Sheets at December 31, 1999
and December 31, 1998 ............................................................. F-2
Consolidated Statements of Income for the three years ended
December 31, 1999 ................................................................. F-3
Consolidated Statements of Stockholders' Equity for the three years ended
December 31, 1999 ................................................................. F-4
Consolidated Statements of Cash Flows for the three years ended
December 31, 1999 ................................................................. F-5
Notes to Consolidated Financial Statements .......................................... F-6
Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts for years ended
December 1999, 1998, 1997 ......................................................... S-1
</TABLE>
Richton International Corporation
Quarterly analysis of sales, operating margin, net income and earnings per share
<TABLE>
<CAPTION>
Gross Pre-tax Net Earnings (loss)
Sales Profit $ Profit (Loss) Income (Loss) Per Share-diluted
----------- ----------- ------------- ------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
1st Qtr. 1999 $29,385,000 $ 7,576,000 $(2,322,000) $(1,442,000) $(0.43)
1998 16,955,000 4,313,000 (1,955,000) (1,184,000) (0.35)
2nd Qtr. 1999 75,182,000 22,298,000 7,427,000 4,574,000 1.34
1998 50,274,000 14,101,000 4,979,000 3,000,000 0.89
3rd Qtr. 1999 65,748,000 19,357,000 5,578,000 3,418,000 1.00
1998 48,241,000 13,519,000 2,907,000 1,747,000 0.53
4th Qtr. 1999 47,861,000 14,578,000 1,242,000 605,000 .18
1998 32,429,000 8,828,000 47,000 (31,000) (0.01)
----------- ----------- ----------- ------------ -------
Year 1999 218,176,000 63,809,000 11,925,000 7,155,000 2.12
1998 $147,899,000 $40,761,000 $ 5,978,000 $ 3,532,000 $ 1.06
</TABLE>
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
8
<PAGE>
PART III
ITEM 10. Directors and Executive Officers of Registrant
Identification of the executive officers:
<TABLE>
<CAPTION>
Name Age Positions and Offices Officer Since
---- --- --------------------- -------------
<S> <C> <C> <C>
Fred R. Sullivan ............... 85 Director, Chairman of the Board 1989
& President
Cornelius F. Griffin ........... 60 Vice President & Chief 1985
Financial Officer
Marshall E. Bernstein .......... 62 Secretary 1985
</TABLE>
There is no family relationship among any of the executive officers and
directors of the Company. Each executive officer holds office for one year or
until a respective successor is chosen, except that each officer may be removed
from office, with or without cause, at any time by the Board of Directors.
The business experience of the executive officers is:
Fred R. Sullivan -- Director, Chairman of the Board, Chief Executive
Officer and President for more than five years.
Cornelius F. Griffin -- Vice President & Chief Financial Officer for more
than five years.
Marshall E. Bernstein-- For more than five years a Member of the law firm
of Robinson, Brog, Leinwand, Greene, Genovese & Gluck P.C. and predecessor.
ITEM 11. Executive Compensation
The information required by Item 11 is incorporated by reference to the
Company's definitive proxy statement to be filed with the Securities and
Exchange Commission not later than April 30, 1999.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
The information required by Item 12 is incorporated by reference to the
Company's definitive proxy statement to be filed with the Securities and
Exchange Commission not later than April 30, 1999.
ITEM 13. Certain Relationships and Related Transactions
The information required by Item 13 is incorporated by reference to the
Company's definitive proxy statement to be filed with the Securities and
Exchange Commission not later than April 30, 1999.
PART IV
ITEM 14. Exhibits, Financial Statements and Reports on Form 8-K
(a) (1) (2) The list of financial statements and financial statement
schedules by this item are included in Item 8 on page 8.
(a) Exhibits:
(2) Exhibits
2.1 -- Stock Purchase Agreement dated as of July 31, 1993 and
amendment thereto dated August 27, 1993 and among Ernest
Hodas as trustee of the Ernest Hodas Revocable Trust, The
Hodas Family Limited Partnership, Ernest Hodas, Century
Supply Corp., Century Acquisition Corporation and Richton
International Corporation
Incorporated by reference to Exhibit 2.1 to Registrant's
Current report on Form 8 for January 5, 1994
9
<PAGE>
2.2 -- Agreement for the Purchase of Assets dated March 29,
1995 by and among CBE Acquisition Corp., (the "Buyer"),
Century Supply Corp., Richton International Corporation
and CBE Technologies, Inc. (the "Seller")
Incorporated by reference to Exhibit 2.1 to Registrant's
Current report on Form 8-K for April 5, 1995
2.3 -- Stock Purchase Agreement dated as of February 24, 1999
among J. Richard Shafer, Creative Business Concepts, Inc
and Richton International Corporation
2.4 -- Agreement for the Purchase of Assets dated October 27,
1999 by and among CBE Technologies, Inc. (the "Buyer"),
Corporate Access Inc., and Condor Technology Solutions,
Inc. (the "Seller")
(3) Exhibits
3.1 -- Restated Certificate of Incorporation of Richton
International Corporation
Incorporated by reference to Exhibit 3.2 to Registrant's
Annual Report on Form 10-K for the year ended December 31,
1997
3.2 -- By laws of Richton International Corporation
Incorporated by reference to Exhibit 99.1 to Registrant's
Annual Report on Form 10-K for the year ended December 31,
1995
(4) Exhibits
4.1 -- Stock Certificate (Specimen)
Incorporated by reference to Exhibit 4.1 to Registrant's
Annual Report on Form 10-K for the year ended December 31,
1997
(10) Exhibits -- Material contracts
10.1 -- 1990 Long-Term Incentive Plan
Incorporated by reference to Exhibit (b) to Registrant's
Annual Report on Form 10-K for the fiscal year ended April
30, 1990
10.2 -- Amendment to the 1990 Long Term Incentive Plan providing
for additional 150,000 shares for issuance under the Plan
Incorporated by reference to Exhibit 10(b) to Registrant's
Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1994 Incorporated
10.3 -- Amendment to the 1990 Long-Term Incentive Plan providing
for additional 140,000 shares for issuance under the Plan
Incorporated by reference to Exhibit 10(b) to Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 Incorporated
10.4 -- Revolving Credit, Term Loan and Security Agreement dated
as of May 17, 1999 among RICHTON INTERNATIONAL
CORPORATION, CENTURY SUPPLY CORP., CBE TECHNOLOGIES, INC.,
the financial institutions which are now or which
hereafter become a party hereto and PNC BANK NATIONAL
ASSOCIATION.
10.5 -- AMENDMENT TO REVOLVING CREDIT, TERM LOAN AND SECURITY
AGREEMENT is made as of July 9, 1999 among RICHTON
INTERNATIONAL CORPORATION, CENTURY SUPPLY CORP., AND CBE
TECHNOLOGIES, INC., and PNC BANK, NATIONAL ASSOCIATION
10
<PAGE>
10.6 -- SECOND AMENDMENT TO REVOLVING CREDIT, TERM LOAN AND
SECURITY AGREEMENT is made as of October 27, 1999, among
RICHTON INTERNATIONAL CORPORATION, CENTURY SUPPLY CORP.,
and CBE TECHNOLOGIES, INC., and PNC BANK, NATIONAL
ASSOCIATION
10.7 -- GUARANTY dated as of May 17, 1999 this "Guaranty" made
by RICHTON HOLDING CORP., in favor of PNC BANK, NATIONAL
ASSOCIATION, as Agent for the Lenders (as defined below),
and the Lender
10.11 -- Non-Competition and Non-Disclosure Agreement dated October
27, 1993 by and between Ernest Hodas and Century Supply
Corp.
Incorporated by reference to Exhibit 2.3 to Registrant's
Current report on Form 8K for January 5, 1994
10.12 -- Consulting Agreement dated October 27, 1993 by and between
Century Supply Corp. and Ernest Hodas
Incorporated by reference to Exhibit 2.4 to Registrant's
Current report on Form 8K for January 5, 1994
10.13 -- Guaranty dated October 27, 1993 by Richton International
Corporation in favor of the Hodas Family Limited
Partnership and Ernest Hodas, as Trustee of the Ernest
Hodas Revocable Trust and Ernest Hodas
Incorporated by reference to Exhibit 2.6 to Registrant's
Current report on Form 8K for January 5, 1994
10.14 -- Subordination Agreement dated October 27, 1993 between
Michigan National Bank, Century Supply Corp. (the
"borrower"), Ernest Hodas, as Trustee of the Ernest Hodas
Revocable Trust and the Hodas Family Limited Partnership
and Ernest Hodas (collectively referred to as
"Subordinating creditor")
Incorporated by reference to Exhibit 28.6 to Registrant's
Current report on Form 8K for January 5, 1994
10.15 -- Series A Warrant to Purchase 236,250 shares of Common
Stock of Richton International Corporation
Incorporated by reference to Exhibit 28.9 to Registrant's
Current report on Form 8K for January 5, 1994
10.16 -- Subordinated Note issued by Richton International Corp.
dated October 26, 1993 to Mr. Fred R. Sullivan in the
principal amount of $1,181,250
Incorporated by reference to Exhibit 28.10 to Registrant's
Current report on Form 8K for January 5, 1994
10.17 -- Subordinated Promissory Note for $1.0 million dated March
29, 1995 between CBE Acquisition Corp. and CBE Liquidating
Corp.
Incorporated by reference to Exhibit 2.2 to Registrant's
Current report on Form 8K for April 5, 1995
10.18 -- Subordinated Promissory Note for $1.0 million dated March
29, 1995 between Richton International Corporation and
Fred R. Sullivan
Incorporated by reference to Exhibit 2.3 to Registrant's
Current report on Form 8K for April 5, 1995
11
<PAGE>
10.19 -- Guaranty dated March 29, 1995 by Richton International
Corp. in favor of the CBE Liquidating Corp.
Incorporated by reference to Exhibit 2.4 to Registrant's
Current report on Form 8K for April 5, 1995
10.20 -- Guaranty dated March 29, 1995 by Century Supply Corp. in
favor of the CBE Liquidating Corp.
Incorporated by reference to Exhibit 2.5 to Registrant's
Current report on Form 8K for April 5, 1995
(11) Exhibit
11.1 -- Calculation of earnings per share
Incorporated by reference to Footnote 11 to Notes to
Consolidated Financial Statements of Registrant's Annual
Report on Form 10-K for the year ended December 31, 1998
(21) Exhibits -- Subsidiaries of the Registrant
(99) Exhibits -- Other
99.1 -- Fairness Opinion received from Quirk, Carson & Pettit
relating to the $1.0 million promissory note agreement
between F.R. Sullivan and the Registrant
Incorporated by reference to Exhibit 99.1 to Registrant's
Annual Report on Form 10-K for the year ended December 31,
1995
99.2 -- Fairness Opinion received from Quirk, Carson & Pettit
relating to the $1.0 million promissory note agreement
between F.R. Sullivan and the Registrant
Incorporated by reference to Exhibit 99.1 to Registrant's
Annual Report on Form 10-K for the year ended December 31,
1995
(b) Reports on Form 8-K
None.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
RICHTON INTERNATIONAL CORPORATION
(Registrant)
By: /s/ FRED R. SULLIVAN
----------------------
Fred R. Sullivan
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Date: March 23, 2000
By: /s/ CORNELIUS F. GRIFFIN
-------------------------
Cornelius F. Griffin
Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ FRED R. SULLIVAN Chairman of the Board and March 21, 2000
-------------------------------- Chief Executive Officer
Fred R. Sullivan (Principal Executive Officer)
/s/ CORNELIUS F. GRIFFIN Vice President and Chief March 21, 2000
-------------------------------- Financial Officer (Principal
Cornelius F. Griffin Financial and Accounting Officer)
/s/ NORMAN E. ALEXANDER Director March 21, 2000
--------------------------------
Norman E. Alexander
/s/ DONALD A. MCMAHON Director March 21, 2000
--------------------------------
Donald A. McMahon
/s/ THOMAS J. HILB Director March 21, 2000
--------------------------------
Thomas J. Hilb
/s/ STANLEY J. LEIFER Director March 21, 2000
--------------------------------
Stanley J. Leifer
/s/ DAVID R. FICCA Director March 21, 2000
--------------------------------
David R. Ficca
</TABLE>
13
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Richton International Corporation:
We have audited the accompanying consolidated balance sheets of Richton
International Corporation (a Delaware corporation) and subsidiaries as of
December 31, 1999 and 1998, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1999. These consolidated financial statements and the
schedule referred to below are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Richton
International Corporation and subsidiaries, as of December 31, 1999 and 1998,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1999 in conformity with accounting
principles generally accepted in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule appearing on page S-1 of
this Form 10-K is presented for the purpose of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in our
audits of the basic financial statements and, in our opinion, fairly states in
all material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
/s/ Arthur Andersen LLP
Roseland, New Jersey
February 7, 2000
F-1
<PAGE>
RICHTON INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents ................................................. $ 1,071,000 $ 995,000
Notes and Accounts Receivable, net of allowance for doubtful
accounts of $2,264,000 in 1999 and $1,250,000 in 1998 ................... 33,312,000 24,486,000
Inventories, net .......................................................... 24,012,000 20,419,000
Prepaid Expenses and Other Current Assets ................................. 1,413,000 736,000
Deferred Taxes ............................................................ 1,389,000 844,000
----------- -----------
Total Current Assets .................................................. 61,197,000 47,480,000
Property, Plant and Equipment ............................................. 4,908,000 3,566,000
Less: Accumulated Depreciation and Amortization ........................... (2,018,000) (1,411,000)
----------- -----------
2,890,000 2,155,000
Other Assets:
Deferred Taxes ............................................................ 869,000 1,001,000
Goodwill .................................................................. 7,793,000 4,515,000
Other Intangibles ......................................................... 2,301,000 2,025,000
Other ..................................................................... 342,000 317,000
----------- -----------
TOTAL ASSETS .................................................................. $75,392,000 $57,493,000
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Current Portion of Long-Term Debt ......................................... $ 3,252,000 $ 1,832,000
Revolving Credit .......................................................... 29,008,000 25,960,000
Accounts Payable .......................................................... 10,056,000 5,999,000
Accrued Liabilities ....................................................... 6,346,000 4,769,000
Deferred Income ........................................................... 2,704,000 2,385,000
----------- -----------
Total Current Liabilities ............................................. 51,366,000 40,945,000
Noncurrent Liabilities
Long-Term Debt ............................................................ 5,020,000 4,639,000
Stockholders' Equity
Preferred Stock, $1.00 par value; authorized
500,000 shares; none issued ............................................. -- --
Common Stock, $.10 par value; authorized
6,000,000 shares; issued 3,303,692 shares at December 31, 1999
and 3,216,692 shares at December 31, 1998 ............................... 331,000 322,000
Additional Paid-In Capital ................................................ 18,430,000 18,013,000
Retained Earnings (Deficit) ............................................... 2,459,000 (4,696,000)
Treasury Stock (297,000 and 267,000 shares at cost, respectively) ......... (1,925,000) (1,430,000)
Cumulative Translation Adjustment ......................................... 11,000 (130,000)
Unearned Compensation ..................................................... (300,000) (170,000)
----------- -----------
Total Stockholders' Equity ............................................. 19,006,000 11,909,000
----------- -----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY ...................................... $75,392,000 $57,493,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-2
<PAGE>
RICHTON INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net Sales .................................... $ 218,176,000 $ 147,899,000 $ 106,523,000
Cost of Sales ................................ 154,367,000 107,138,000 76,334,000
------------- ------------- -------------
Gross profit ........................... 63,809,000 40,761,000 30,189,000
Selling, general & administrative expenses ... 49,571,000 33,179,000 24,684,000
------------- ------------- -------------
Income from operations ................. 14,238,000 7,582,000 5,505,000
Interest income .............................. (1,115,000) (659,000) (519,000)
Interest expense ............................. 3,428,000 2,263,000 1,853,000
------------- ------------- -------------
Income before provision for income taxes 11,925,000 5,978,000 4,171,000
Provision for income taxes ................... 4,770,000 2,446,000 1,881,000
------------- ------------- -------------
Net income ............................. $ 7,155,000 $ 3,532,000 $ 2,290,000
============= ============= =============
Net Income per common share:
Basic .................................. $ 2.39 $ 1.22 $ 0.78
============= ============= =============
Diluted ................................ $ 2.12 $ 1.06 $ 0.68
============= ============= =============
Weighted Average Common Shares outstanding:
Basic .................................. 2,997,000 2,905,000 2,948,000
============= ============= =============
Diluted ................................ 3,378,000 3,318,000 3,372,000
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
RICHTON INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Additional Retained Cumulative
Common Common Paid-in Earnings Treasury Translation
shares stock Capital (Deficit) Stock Adjustment
---------- --------- ----------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1996 .... 3,088,247 $309,000 $ 17,661,000 $(10,518,000) $ (415,000) $ --
Net Income .............. -- -- -- 2,290,000 -- --
Purchase of 1,555
Common Shares ........ (1,555) -- (7,000) -- -- --
--------- -------- ------------ ------------ ----------- ----------
Balance at
December 31, 1997 .... 3,086,692 309,000 17,654,000 (8,228,000) (415,000) --
Net Income .............. -- -- -- 3,532,000 -- --
Issuance of restricted
Common Stock -
Unearned
Compensation ........ 20,000 2,000 168,000 -- -- --
Purchase of 127,000
Common Shares ........ -- -- -- -- (1,015,000) --
Exercise of Stock
Options .............. 110,000 11,000 191,000 -- -- --
Translation
Adjustment ........... -- -- -- -- -- (130,000)
--------- -------- ------------ ------------ ----------- -----------
Balance at
December 31, 1998 .... 3,216,692 322,000 18,013,000 (4,696,000) (1,430,000) (130,000)
Net Income .............. -- -- -- 7,155,000 -- --
Issuance of restricted
Common Stock -
Unearned
Compensation ........ 20,000 2,000 278,000 -- -- --
Amortization of
Unearned Compensation . -- -- -- -- -- --
Purchase of 30,000
Common Shares ......... -- -- -- -- (495,000) --
Exercise of Stock Options 67,000 7,000 139,000 -- -- --
Translation Adjustment .. -- -- -- -- -- 141,000
--------- -------- ------------ ------------ ----------- ----------
Balance at
December 31, 1999 .... 3,303,692 $331,000 $ 18,430,000 $ 2,459,000 $(1,925,000) $ 11,000
========= ======== ============ ============ =========== ==========
<CAPTION>
Total
Unearned Stockholders'
Compensation Equity
------------ -------------
<S> <C> <C>
Balance at
December 31, 1996 .... $ -- $ 7,037,000
Net Income .............. -- 2,290,000
Purchase of 1,555
Common Shares ........ -- (7,000)
---------- ------------
Balance at
December 31, 1997 .... -- 9,320,000
Net Income .............. -- 3,532,000
Issuance of restricted
Common Stock -
Unearned
Compensation ........ (170,000) --
Purchase of 127,000
Common Shares ........ -- (1,015,000)
Exercise of Stock
Options .............. -- 202,000
Translation
Adjustment ........... -- (130,000)
---------- ------------
Balance at
December 31, 1998 .... (170,000) 11,909,000
Net Income .............. -- 7,155,000
Issuance of restricted
Common Stock -
Unearned
Compensation ........ (280,000) --
Amortization of
Unearned Compensation . 150,000 150,000
Purchase of 30,000
Common Shares ......... -- (495,000)
Exercise of Stock Options -- 146,000
Translation Adjustment .. -- 141,000
---------- ------------
Balance at
December 31, 1999 .... $ (300,000) $ 19,006,000
========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
RICHTON INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income ................................................ $ 7,155,000 $ 3,532,000 $ 2,290,000
Reconciliation of net income to net cash provided
by (used in) operating activities:
Depreciation and Amortization ....................... 2,021,000 1,100,000 1,350,000
Deferred Taxes ...................................... (413,000) (636,000) 1,583,000
Amortization of Unearned Compensation ............... 150,000 -- --
Changes in Operating Assets and Liabilities
Net of Effects from Acquisitions:
Deferred Income ..................................... (592,000) 46,000 179,000
Other Working Capital Items, Assets ................. (7,103,000) (8,093,000) (8,229,000)
Other Working Capital Items, Liabilities ............ 2,164,000 2,963,000 1,002,000
Other Assets ........................................ (14,000) (181,000) (7,000)
------------ ------------ ------------
Net Cash Provided by (used in) Operating Activities 3,368,000 (1,269,000) (1,832,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures ...................................... (870,000) (445,000) (135,000)
Cash Paid for Acquisitions, Net of Cash Acquired .......... (5,159,000) (6,421,000) (3,318,000)
------------ ------------ ------------
Net Cash Used in Investing Activities ............. (6,029,000) (6,866,000) (3,453,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Long-Term Debt .............................. 7,656,000 -- --
Repayment of Long-Term Debt ............................... (6,841,000) (1,226,000) (1,794,000)
Proceeds from Lines of Credit, net ........................ 2,130,000 10,825,000 7,188,000
Exercise of Stock Options ................................. 146,000 202,000 --
Purchase of Common Shares ................................. (495,000) (1,015,000) (7,000)
------------ ------------ ------------
Net Cash Provided by Financing Activities ......... 2,596,000 8,786,000 5,387,000
Effect of Exchange Rate on Cash Balances .................. 141,000 (130,000) --
------------ ------------ ------------
Increase in Cash and Cash Equivalents ..................... 76,000 521,000 102,000
Cash and Cash Equivalents, Beginning of Year .............. 995,000 474,000 372,000
------------ ------------ ------------
Cash and Cash Equivalents, End of Year .................... $ 1,071,000 $ 995,000 $ 474,000
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash Paid for Interest ................................. $ 3,428,000 $ 2,161,000 $ 1,728,000
============ ============ ============
Cash Paid for Income Taxes ............................. $ 4,597,000 $ 1,863,000 $ 247,000
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
RICHTON INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business:
Richton International Corporation ("Richton") is a diversified service
company with three operating subsidiaries, Century Supply Corp. ("Century"), CBE
Technologies, Inc. ("CBE") and Creative Business Concepts, Inc. ("CBC"),
collectively the "Company". Century is a leading full-service wholesale
distributor of sprinkler irrigation systems, outdoor lighting and decorative
fountain equipment. Branches serve customers in 33 states mostly in the eastern
half of United States and in Ontario, Canada. Irrigation products have
historically been sold by manufacturers primarily through wholesale
distributors. Century is a major distributor in the United States for all of the
leading original equipment manufacturers ("OEM") in the irrigation systems
field.
CBE is headquartered in Boston, Massachusetts with offices located in New
York and Portland, Maine. CBE is a systems integrator providing network
consulting, design, and installation; network management and related support;
technical services outsourcing; comprehensive hardware maintenance; and
equipment sales. CBE's technical certifications include; Novell Platinum
reseller, Microsoft Channel partner, Banyan Enterprise/Network dealer, Novell
authorized Training Center and a Novell Authorized Service Center. CBC is
headquartered in Irvine, California and provides essentially the same services
to west coast customers that CBE does on the east coast.
2. Summary of Significant Accounting Policies:
Principles of Consolidation--The accompanying consolidated financial
statements include the accounts of Richton and all wholly-owned subsidiaries.
All significant intercompany accounts and transactions have been eliminated in
consolidation.
Use of Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents--Cash and cash equivalents include highly liquid
investments purchased with maturities of three months or less.
Allowance For Doubtful Accounts--The Company provides an allowance for
doubtful accounts based upon a specific review of certain outstanding amounts
and historical experience.
Inventories--Inventory, which consists entirely of purchased finished
goods, is valued at the lower of cost or market, using the first-in first-out
("FIFO") method of accounting.
Goodwill--Goodwill at December 31, 1999 and 1998 relates to acquisitions
completed during the last five years. Goodwill is being amortized on a
straight-line basis over 5 to 15 years.
Other Intangibles--Other intangibles consist principally of amounts paid
to sellers of businesses acquired subject to non-compete agreements and are
being amortized over periods of 1-5 years. Cost allocated primarily to
non-compete agreements were $2.3 million and $2.0 million at December 31, 1999
and 1998, respectively. Amortization for the years ended December 31, 1999 and
1998 was $.65 million and $.35 million, respectively.
Long-Lived Assets--The provisions of Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long--Lived Assets and
Long-Lived Assets to be Disposed Of" ("SFAS 121") requires, among other things,
that an entity review its long-lived assets and certain related intangibles for
impairment whenever changes in circumstances indicate that the carrying amount
of an asset may not be fully recoverable. The Company does not believe that any
such changes have occurred.
Revenue Recognition--Revenue from sales and services is recorded at the
time the product is shipped to the customer or the service has been provided.
F-6
<PAGE>
RICHTON INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
Deferred Income--Deferred income represents cash received from customers
relating to service contracts that extend for specified periods of time, less
than one year. Income is recognized proportionally over the life of the
contract.
Income Taxes--The provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS 109") requires the
Company to recognize deferred tax assets and liabilities for the expected future
tax consequences of events that have been recognized in the Company's financial
statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial
statement carrying amounts and the tax basis of assets and liabilities.
Accounting for Stock Based Compensation--The Company has elected to
account for stock-based compensation using the intrinsic value method prescribed
in Accounting Principles Board Opinion No. 25, "Accounting for Stock issued to
Employees," and related interpretations. The Company has provided pro forma
disclosure of the fair value of stock options in accordance with the
disclosure-only provisions of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123"). Compensation cost
for stock grants is measured as the excess, if any, of the quoted market price
of the Company's stock at the date of grant over the amount the employee must
pay to acquire the stock.
Comprehensive Income--The provisions of Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130") establishes
standards for reporting and display of comprehensive income and its components
in a full set of financial statements. Comprehensive income consists of
translation adjustments of $141,000, ($130,000) and $0 for the years ended
December 31, 1999, 1998 and 1997, respectively. Total comprehensive income has
not been presented on the accompanying consolidated financial statements as the
impact is not material to the consolidated financial statements.
Derivative Instruments--The provisions of Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133") establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities. SFAS 133 is effective for all fiscal
years beginning after June 15, 2000 and will not require retroactive restatement
of prior period financial statements. The Company does not presently use
derivative instruments.
Reclassification--Certain prior year amounts have been reclassified to
conform with current year presentations.
3. Acquisitions:
During 1999, Century acquired seven different distributor operations in
six different markets: New York, Michigan, Oregon, Kentucky, Missouri and South
Carolina. The aggregate purchase price of these acquisitions was $2.6 million.
As a result of these acquisitions, the Company recorded goodwill and intangible
assets of $.7 million and $.9 million, respectively, which is being amortized
over 5-15 years. Century also opened seventeen new branches in existing and new
markets.
On February 25, 1999, the Company acquired 100% of the common stock of CBC
of Irvine, California, a computer networking integrator. CBC was consolidated
with the Costa Mesa office of Richton's CBE subsidiary. On October 18, 1999, the
Company acquired all of the operating assets and certain of the liabilities of
Corporate Access, Inc. ("CAI"). CAI, which has been assimilated into CBE, is a
value added reseller of networking and computer equipment. The aggregate
purchase price of these acquisitions was $3.6 million, plus assumed liabilities.
In addition, certain contingent payments may be made based upon future results
from CBC. As a result of these acquisitions, the Company recorded goodwill of
$3.3 million, which is being amortized over 15 years.
Operating results from these acquired entities, which are included in the
accompanying statement of income from the date of acquisition, were not material
to the results of operations for the year ended December 31, 1999.
F-7
<PAGE>
RICHTON INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
During 1998, Century acquired five different distributor operations in
four different markets: Northern New Jersey, Idaho, Utah and Florida for an
aggregate purchase price of $6.4 million. As a result of these acquisitions, the
Company recorded goodwill and intangible assets of $.9 million and $1.26
million, respectively, which is being amortized over 5-15 years. Operating
results of these acquired entities, which are included in the accompanying
statement of income from the date of acquisition, were not material to the
results of operations for the year ended December 31, 1998.
4. Property, Plant and Equipment:
<TABLE>
<CAPTION>
December 31,
-------------------------
1999 1998
--------- ----------
<S> <C> <C>
Land .................................................................... $ 201,000 $ 108,000
Buildings and Leasehold Improvements .................................... 1,276,000 1,234,000
Autos and Trucks ........................................................ 578,000 357,000
Machinery and Equipment ................................................. 1,911,000 1,125,000
Furniture and Fixtures .................................................. 942,000 742,000
---------- ----------
4,908,000 3,566,000
Less: Accumulated depreciation and amortization ......................... 2,018,000 1,411,000
---------- ----------
$2,890,000 $2,155,000
========== ==========
</TABLE>
Fixed assets are currently depreciated over five years except Buildings
and Leasehold improvements. Leasehold improvements are amortized over the
respective lease terms which are from 2 to 10 years or the life of the assets,
whichever is shorter. Buildings are being amortized over 31 years.
5. Income Taxes:
The provision for income taxes for the three years ended December 31, 1999
consists of the following:
1999 1998 1997
----------- ----------- -----------
Federal
Current ...................... $4,358,000 $2,668,000 $ 160,000
Deferred ..................... (413,000) (636,000) 1,399,000
State & Local ................. 700,000 448,000 322,000
Other ......................... 125,000 (34,000) --
---------- ---------- ----------
$4,770,000 $2,446,000 $1,881,000
========== ========== ==========
A reconciliation of the provision for Federal income taxes at the
statutory rate to the actual provision rate for income taxes for the three years
ended December 31, 1999, is as follows:
1999 1998 1997
------ ------ ------
Federal .......................... 34% 34% 34%
State & Local .................... 4 7 8
Other ............................ 2 -- 3
--- --- ---
40% 41% 45%
=== === ===
Significant components of the deferred tax assets (liabilities) related to
differences in tax and financial accounting bases as follows:
1999 1998
---------- ----------
Current:
Allowance for doubtful accounts .............. $ 770,000 $ 425,000
Inventory reserves ........................... 411,000 258,000
Other ........................................ 208,000 161,000
----------- ---------
$1,389,000 $ 844,000
=========== =========
F-8
<PAGE>
RICHTON INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
1999 1998
---------- -----------
Long Term:
Amortization ............................. $ 937,000 $ 921,000
Depreciation ............................. 26,000 30,000
Other .................................... (94,000) 50,000
---------- ----------
$ 869,000 $1,001,000
========== ==========
6. Statement of Cash Flows:
The components of other working capital items included in the Consolidated
Statements of Cash Flows are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1999 1998 1997
------------ ----------- ------------
<S> <C> <C> <C>
Receivables .......................................... $(4,287,000) $(6,738,000) $(2,471,000)
Inventories .......................................... (2,234 ,000) (1,235,000) (5,623,000)
Prepaid Expenses and Other Current Assets ............ (582,000) (120,000) (135,000)
----------- ----------- -----------
Increase in Other Working Capital Items, Assets ...... $(7,103,000) $(8,093,000) $(8,229,000)
=========== =========== ===========
Accounts Payable ..................................... $ 1,677,000 $ 795,000 $ 1,226,000
Accrued Liabilities .................................. 487,000 2,168,000 (224,000)
----------- ----------- -----------
Increase in Other Working Capital Items, Liabilities . $ 2,164,000 $ 2,963,000 $ 1,002,000
=========== =========== ===========
7. Debt:
The Company has the following debt as of December 31,
1999 1998
----------- -----------
Revolving Credit-- PNC Bank (a) ...................... $26,888,000 $ 0
Revolving Credit-- Michigan National Bank (a) ........ 0 25,960,000
Revolving Credit-- Deutsche Financial Services (b) ... 2,120,000 0
----------- -----------
Total Revolving Credit ..................................... $29,008,000 $25,960,000
=========== ===========
Long-Term Debt
Term Note Payable-PNC Bank (c) ....................... $ 6,750,000 $ 0
Term note payable-Michigan National Bank (c) ......... 0 4,475,000
Other (d, e) ......................................... 1,522,000 1,996,000
----------- -----------
Total .......................................... 8,272,000 6,471,000
Current Portion of Long-Term Debt .................... 3,252,000 1,832,000
----------- -----------
Long-Term Debt ....................................... $ 5,020,000 $ 4,639,000
=========== ===========
</TABLE>
- -----------
(a) During 1999, the Company negotiated a new $67.5 million, five year
Revolving Credit, Term Loan and Security Agreement ("Agreement") with PNC
Business Credit ("PNC"). The Agreement provides for a $60.0 million
Revolving Credit facility (increased from $40.0 million) and a $7.5
million five year Term Loan. Loans under this agreement are secured by
Accounts Receivable, Inventory and fixed assets of Century and CBE. The
higher balances are to provide for increased working capital requirements
necessitated by the Company's growth and for acquisitions completed during
the year. The Revolving Credit loans carry an interest rate based upon
LIBOR plus 250 basis points if the Company's leverage ratio is in excess
of 2.5 times trailing twelve month EBITDA, as defined, or LIBOR plus 225
basis points if the leverage ratio is lower than 2.5 times trailing twelve
month EBITDA, as defined. The Company also has a prime rate option. At
December 31, 1999, the interest rate was 8.4%, or LIBOR plus 250 basis
points. The proceeds of this line of credit were utilized to repay the
line of credit from Michigan National Bank.
(b) The financing arrangements with Duetsche Financial Services ("DFS") relate
to financing product purchases by CBE and CBC from its existing vendors.
This arrangement supports the Company's sales program by offering CBC and
CBE the opportunity to acquire products through DFS at lower cost and
extends the payment terms by as much as 45 days interest free. PNC supports
this program by offering to DFS a $1.5 million irrevocable letter of credit
on purchases made through CBE. This letter of credit carries an interest
rate of 1.75% and expires May 31, 2000.
F-9
<PAGE>
RICHTON INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(c) PNC Term Loan is secured by accounts receivable, inventory, furniture and
equipment, with interest at LIBOR plus 300 points (8.9% as of December 31,
1999), payable in monthly installments of $125,000, final payment due June
30, 2004. The Term Loan is part of the agreement described in (a) and the
proceeds of this loan were utilized to repay a term loan from Michigan
National Bank.
(d) Includes $341,000 as of December 31, 1998 payable to a related party,
unsecured and subordinated to the Term Loan, in connection therewith the
Company issued 236,250 warrants to acquire 236,250 shares of the common
stock of Richton at $1 3/8 per share. The warrants were valued at $143,000
which represented the fair market value at the date of grant.
(e) Includes $150,000 and $362,000 as of December 31, 1999 and 1998,
respectively, payable to a related party, unsecured and subordinated to the
Term Loan, in connection therewith the Company issued 100,000 warrants to
acquire 100,000 shares of the common stock of Richton at $3.00 per share
which represented the fair market value at the time of issuance.
The scheduled future maturities of debt at December 31, 1999 are as
follows:
2000 ....................................... $32,260,000
2001 ....................................... 1,854,000
2002 ....................................... 1,663,000
2003 ....................................... 1,424,000
2004 ....................................... 79,000
-----------
$37,280,000
The above agreements contain various covenants that among other things
require the Company to maintain certain financial ratios and operating metrics.
In addition, the PNC agreement provides for the Company to make an additional
payment to PNC should the Company generate "excess cash balances," as defined.
This provision is capped at $1.0 million per year. Pursuant to this provision,
at December 31, 1999, the Company has reclassified an additional $1.0 million of
its Term Loan as current.
8. Retirement Plans:
Century and CBE have tax deferred savings plans under Section 401 (k) (the
"Plans") of the Internal Revenue Code. The Plans allow employees to defer up to
15% of eligible compensation on a pre-tax basis through contributions to the
Plans. Under the provisions of the Plans, Century has elected to contribute, for
every dollar the employee contributes, 50 % of the employee's amount, up to 4 %
of compensation, as defined. Century may also make discretionary contributions.
The charge to income for employer contributions to the Century Plan was
approximately $492,000, $361,000 and $285,000, for the years ended December 31,
1999, 1998 and 1997, respectively. CBE has elected to not contribute to its
Plan. CBC does not have any retirement plan.
9. Stock Options:
The Company accounts for it's stock option plan (the "Option Plan")
following the provisions of APB Opinion No. 25, under which no compensation cost
is recognized. Had compensation cost for the Option Plan been determined in
accordance with the provisions of SFAS 123, net income and earnings per share
would have been as follows:
1997
-----
Net Income:
As reported ............................................. $2,290,000
Pro Forma ............................................... 2,266,000
Earnings per share:
As reported --basic ..................................... $.78
--diluted ................................... .68
Pro Forma --basic ..................................... $.77
--diluted ................................... .67
F-10
<PAGE>
RICHTON INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
The Company may grant options for up to 415,000 shares under the Option
Plan. The Company has granted options for 315,000 shares through December 31,
1999. Options are granted over terms not to exceed ten years. Under the Option
Plan, the option exercise price must equal the stock's market price on the date
of the grant except for options granted the Chairman of the Board, for which the
exercise price is at 110% of the current market price.
A summary of the status of the Option Plan at December 31, 1999, 1998 and
1997 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------- --------------------- ---------------------
Wtd Avg Wtd Avg Wtd Avg
Shares ex price Shares ex price Shares ex price
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year ..... 205,000 $3.03 315,000 $2.59 275,000 $2.20
Granted .............................. -- -- -- -- 40,000 5.24
Exercised ............................ 67,000 2.17 110,000 1.84 -- --
Cancelled ............................ -- -- -- -- -- --
Outstanding at end of year ........... 138,000 $3.45 205,000 $3.03 315,000 $2.59
Exercisable at end of year ........... 138,000 3.45 205,000 3.03 315,000 2.59
</TABLE>
The Company has issued warrants to purchase 236,250 shares of common stock
at $13/8 per share and warrants to purchase 100,000 shares of common stock at
$3.00 per share in connection with two debt agreements (see Note 7). These
warrants are currently exercisable and will expire in 2002.
In 1998 and 1999, the Company issued stock to the Chairman of the Board
for 20,000 shares, respectively, subject to certain restrictions, as defined. At
the time of the grants the market price of the Company's common stock was $8.50
and $13.85 per share, respectively. The unamortized value of these shares which
were recorded at market value at the grant date is included as a separate
component of stockholders' equity and a related compensation charge is being
recorded over the vesting period of three years.
10. Net Income Per Share:
Diluted net income per common share was calculated on the basis of
3,378,000, 3,318,000, and 3,372,000, weighted average common shares outstanding
in the years ending December 31, 1999, 1998, and 1997, respectively.
<TABLE>
<CAPTION>
Net Income
Income Shares Per share
------ ------ ---------
For the year ended December 31, 1999
------------------------------------
<S> <C> <C> <C>
Basic .................................................. $7,155,000 2,997,000 $2.39
Effect of dilutive options and warrants ................ -- 381,000 --
Diluted ................................................ $7,155,000 3,378,000 $2.12
For the year ended December 31, 1999
------------------------------------
Basic .................................................. $3,532,000 2,905,000 $1.22
Effect of dilutive options and warrants ................ -- 413,000 --
Diluted ................................................ $3,532,000 3,318,000 $1.06
For the year ended December 31, 1999
------------------------------------
Basic .................................................. $2,290,000 2,948,000 $ .78
Effect of dilutive options and warrants ................ -- 424,000 --
Diluted ................................................ $2,290,000 3,372,000 $ .68
</TABLE>
Basic net income per common share was computed by dividing net income by
the weighted average number of shares of common stock outstanding during the
year. Diluted net income per common share included the effect of dilutive
options and warrants computed under the treasury stock method. These are no
options which would be antidilutive as of December 31, 1999, 1998 and 1997.
F-11
<PAGE>
RICHTON INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
11. Long-term Leases and other Commitments:
The Company leases its corporate offices, distribution facilities and data
processing equipment under agreements which expire at varying dates through
2009. Minimum annual rental commitments at December 31, 1999, are as follows:
2000 ......................................... 3,474,000
2001 ......................................... 2,498,000
2002 ......................................... 1,438,000
2003 ......................................... 1,080,000
Thereafter ................................... 382,000
Rent expense under the Company's various operating leases was $3,400,000,
$2,431,000 and $1,795,000 for the years ended December 31, 1999, 1998, and 1997,
respectively.
12. Segment Data:
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information," ("SFAS 131") established
standards for reporting information about operating segments in annual financial
statements and requires selected information about operating segments in interim
financial reports issued to stockholders. It also established standards for
related disclosure about products and services and geographic areas. Operating
segments are defined as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker, or decision making group in deciding how to allocate
resources and in assessing performance.
The Company operates in two industry segments, wholesale distribution and
computer and networking services. See Note 1 for description of businesses.
There are no inter-segment sales and all sales occur in North America. Income
(loss) from operations by industry segment consists of net sales less related
cost and expenses. In computing pre-tax income (loss) by segment, cost of
borrowed funds for working capital have been included. Corporate includes the
general and corporate expenses. Corporate operating expenses directly related to
industry segments, have been allocated to those segments. Amortization of
goodwill is considered segment related and accordingly charged to the related
industry segment. Identifiable assets by industry segment are those assets that
are used in each industry segment. General corporate assets consist primarily of
cash, deferred taxes, and corporate property.
F-12
<PAGE>
RICHTON INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
A summary of the Company's segment information for the years ending
December 31, 1999, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
Wholesale Computer
Distribution Services Corporate Total
----------- -------- --------- ------
<S> <C> <C> <C> <C>
December 31, 1999
Net Sales ............................... $175.3 $42.9 $ 0 $218.2
====== ===== ===== ======
Interest Expense ........................ 2.6 0.8 0.0 3.4
====== ===== ===== ======
Depreciation and Amortization ........... 1.3 0.7 0 2.0
====== ===== ===== ======
Pre-tax Income .......................... 11.5 0.8 (0.4) 11.9
====== ===== ===== ======
Provision for Income Taxes .............. 4.6 0.4 (0.2) 4.8
====== ===== ===== ======
Identifiable Assets ..................... $ 55.8 $15.3 $4.3 $ 75.4
====== ===== ===== ======
December 31, 1998
Net Sales ............................... $125.0 $22.9 $ 0 $147.9
====== ===== ===== ======
Interest Expense ........................ 1.7 0.6 0.0 2.3
====== ===== ===== ======
Depreciation and Amortization ........... 0.7 0.4 0 1.1
====== ===== ===== ======
Pre-tax Income .......................... 7.0 (0.5) (0.5) 6.0
====== ===== ===== ======
Provision for Income Taxes .............. 2.9 (0.2) (0.3) 2.4
====== ===== ===== ======
Identifiable Assets ..................... $ 43.6 $ 9.2 $ 4.7 $ 57.5
====== ===== ===== ======
December 31, 1997
Net Sales ............................... $ 86.9 $19.6 $ 0 $106.5
====== ===== ===== ======
Interest Expense ........................ 1.2 0.6 0.1 1.9
====== ===== ===== ======
Depreciation and Amortization ............ 0.2 1.1 0 1.3
====== ===== ===== ======
Pre-tax Income .......................... 5.9 (0.9) (0.8) 4.2
====== ===== ===== ======
Provision for Income Taxes .............. 2.3 (0.3) (0.1) 1.9
====== ===== ===== ======
Identifiable Assets ..................... $ 33.2 $ 6.2 $2.2 $ 41.6
====== ===== ===== ======
</TABLE>
F-13
<PAGE>
Schedule II
RICHTON INTERNATIONAL CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- ---------------------------------------------------------------------------------------------------------------------------
Additions Deductions
----------------------------- ----------
Balance at Charged Charged Balance
Beginning to Costs to Other at End of
Description of Period and Expenses Accts - describe - describe Period
- ---------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Receivables:
1999 ............................. $1,271,000 $1,731,000 $ 0 $738,000 $2,263,000
1998 ............................. 711,000 986,000 $ 0 426,000 1,271,000
1997 ............................. 721,000 313,000 $ 0 323,000 711,000
Inventory:
1999 ............................. $ 528,000 $ 928,000 $ 0 $528,000 $ 928,000
1998 ............................. 538,000 538,000 $ 0 538,000 538,000
1997 ............................. 552,000 538,000 $ 0 552,000 538,000
</TABLE>
S-1
<PAGE>
[LOGO]
EXHIBIT 2.3
STOCK PURCHASE AGREEMENT
by and among
RICHTON INTERNATIONAL CORPORATION,
HT ACQUISITION CORPORATION
and
J. RICHARD SHAFER
Dated as of February 24, 1999
<PAGE>
TABLE OF CONTENTS
Page
----
I. DEFINITIONS.................................................................1
II. PURCHASE AND SALE..........................................................6
Section 2.1 Purchase and Sale of Shares........................6
Section 2.2 Closing............................................7
Section 2.3 Deliveries.........................................8
III. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER..........................8
Section 3.1 Representations and Warranties Accurate............8
Section 3.2 Performance by Seller..............................9
Section 3.3 Opinion of Counsel for Seller and
the Company......................................9
Section 3.4 Legal Prohibition..................................9
Section 3.5 Consents, Permits, Licenses, Etc...................9
Section 3.6 No Material Adverse Change.........................9
Section 3.7 Pre-Closing Certificate............................9
IV. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER.............................10
Section 4.1 Representations and Warranties Accurate...........10
Section 4.2 Performance by Parent and Purchaser...............10
Section 4.3 Legal Prohibition.................................10
Section 4.4 Closing Matters...................................10
V. INDEMNIFICATION............................................................10
Section 5.1 Survival of Representations and Warranties........10
Section 5.2 Seller's Indemnity................................11
Section 5.3 Parent and Purchaser's Indemnity..................11
Section 5.4 Release...........................................11
Section 5.5 Notice and Defense of Claims......................12
Section 5.6 Reimbursement.....................................12
Section 5.7 Limitations.......................................13
Section 5.8 Insurance Recoveries; Tax Benefits................13
Section 5.9 Tax Gross-Up......................................14
Section 5.10 Exclusivity.......................................14
VI. REPRESENTATIONS AND WARRANTIES OF SELLER..................................14
Section 6.1 Organization and Qualification....................14
Section 6.2 No Subsidiaries...................................14
Section 6.3 Due Authorization.................................14
-i-
<PAGE>
Page
----
Section 6.4 No Conflict.......................................14
Section 6.5 Capitalization....................................15
Section 6.6 Ownership of Shares...............................15
Section 6.7 Title to and Condition of Assets..................15
Section 6.8 Environmental Matters.............................16
Section 6.9 Financial Information.............................17
Section 6.10 Taxes.............................................19
Section 6.11 Events Subsequent to the Interim
Balance Sheet Date..............................21
Section 6.12 Contracts, Obligations and Commitments. .........22
Section 6.13 Litigation........................................24
Section 6.14 Compliance with Law...............................24
Section 6.15 Licenses; Registrations; Permits; Etc.............24
Section 6.16 Brokers...........................................24
Section 6.17 Intellectual Property.............................24
Section 6.18 Insurance.........................................25
Section 6.19 Plans and Agreements Relating to Employees........25
Section 6.20 No Illegal or Improper Transactions...............28
Section 6.21 Related Transactions..............................28
Section 6.22 No Product Liabilities; Product Warranties........28
Section 6.23 Suppliers and Customers...........................29
Section 6.24 Powers of Attorney................................29
Section 6.25 Year 2000 Compliance. ...........................29
Section 6.26 Availability of Documents.........................30
Section 6.27 Disclosure........................................30
VII. REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER...................30
Section 7.1 Organization......................................30
Section 7.2 Due Authorization.................................30
Section 7.3 No Conflict.......................................31
Section 7.4 Brokers...........................................31
Section 7.5 Securities Act Matters............................31
Section 7.6 Parent Financial Information......................32
Section 7.7 No Material Adverse Change........................32
Section 7.8 Disclosure........................................32
VIII. CERTAIN ACTIONS AFTER THE CLOSING.......................................32
Section 8.1 Maintenance of Books and Records..................32
Section 8.2 Salaries and Benefits.............................33
Section 8.3 Tax Matters.......................................33
Section 8.4 Assignment of Accounts Receivable.................34
Section 8.5 Further Assurances................................34
-ii-
<PAGE>
Page
----
IX. MISCELLANEOUS.............................................................35
Section 9.1 Expenses..........................................35
Section 9.2 Amendments and Waivers............................35
Section 9.3 Entire Agreement..................................35
Section 9.4 Headings..........................................35
Section 9.5 Notices...........................................35
Section 9.6 Severability......................................36
Section 9.7 Assignment. .....................................37
Section 9.8 Counterparts......................................37
Section 9.9 Governing Law.....................................37
Section 9.10 Third Parties.....................................37
Section 9.11 Construction......................................37
-iii-
<PAGE>
Page
----
-iv-
<PAGE>
EXHIBITS
--------
Exhibit 1.1 Form of Accounts Receivable Note
Exhibit 2.3(b) Form of Release
Exhibit 2.3(c) Form of Employment Agreement
Exhibit 2.3(d) Form of Non-Competition Agreement
Exhibit 3.3 Form of Opinion of Counsel for Seller and the Company
SCHEDULES
---------
Schedule 6.4 Conflicts
Schedule 6.7(a) Liens
Schedule 6.7(b) Vehicles
Schedule 6.7(c) Equipment
Schedule 6.7(e) Leased Real Property
Schedule 6.9(g) Bank Accounts
Schedule 6.10 Taxes
Schedule 6.11 Certain Events
Schedule 6.12 Contracts
Schedule 6.13 Litigation
Schedule 6.15 Permits
Schedule 6.17 Intellectual Property
Schedule 6.18 Insurance
Schedule 6.19(a) Employee Plans
Schedule 6.19(i) Certain Officers, Employees, Independent Contractors and
Consultants
Schedule 6.19(j) Employees
Schedule 6.21 Related Transactions
Schedule 6.22 Warranties and Guarantees
Schedule 6.23 Suppliers and Customers
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STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of February 24, 1999, by and among
Richton International Corporation, a Delaware corporation ("Parent"), HT
Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary of
Richton Holding Corporation (a Delaware corporation and a wholly-owned
subsidiary of Parent) ("Purchaser"), and J. Richard Shafer, an individual
("Seller").
WHEREAS, Seller owns all of the outstanding capital stock of Creative
Business Concepts, Inc., a California corporation (the "Company");
WHEREAS, Purchaser desires to purchase, and Seller desires to sell, such
shares, upon the terms and subject to the conditions hereinafter set forth;
NOW, THEREFORE, in reliance upon the covenants and agreements set forth
herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. DEFINITIONS
The following terms shall have the following respective meanings for all
purposes of this Agreement:
"Accounts Receivable Note" means the promissory note of Purchaser,
substantially in the form of Exhibit 1.1 hereto, in a principal amount equal to
the amount of the Past Due Accounts Receivable.
"Affiliate" or "affiliate" means, with respect to any Person, any other
Person that, directly or indirectly, controls or is controlled by or is under
common control with such Person. As used in this definition of "Affiliate," the
term "control" and any derivatives thereof mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through ownership of voting securities, by
contract, or otherwise.
"Affiliated Group" means any affiliated group within the meaning of
Section 1504 of the Code or any similar group defined under a similar provision
of state, local or foreign law, including, but not limited to, any combined,
consolidated or unitary group.
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"Agreement" means this Stock Purchase Agreement, as it may be from time to
time amended, including the Schedules and Exhibits hereto.
"Business" means the business conducted by the Company relating to network
integration.
"Closing" means the completion of the purchase and sale of the Shares
pursuant to this Agreement.
"Closing Date" means the date on which the Closing takes place.
"Closing Payment" means an aggregate of $2,200,000, less the amount of the
Past Due Accounts Receivable.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means the common stock, no par value, of the Company.
"Company" means Creative Business Concepts, Inc., a California
corporation.
"Contaminated Site List" means any list, registry or other compilation
established by any governmental entity of sites that require or potentially
require investigation, removal actions, remedial actions or any other response
under any Environmental Laws or treaty covering environmental matters.
"Contracts" has the meaning set forth in Section 6.12.
"Earn-out" means the amount, if any, determined pursuant to Section 2.1(b)
and paid to Seller as partial payment for the Shares.
"Employee Plan" has the meaning set forth in Section 6.19(a).
"Environmental Conditions" means any pollution, contamination,
degradation, damage or injury caused by, related to or arising from or in
connection with the generation, handling, use, treatment, storage,
transportation, disposal, discharge, release or emission of any Hazardous
Materials.
"Environmental Laws" means all laws, rules, regulations, statutes,
ordinances, decrees or orders of any federal, state, local or foreign
governmental entity or any agency or division thereof relating to (a) the
control of any potential pollutant or protection of the air, water or land, (b)
solid, gaseous or liquid waste generation, handling, treatment, storage,
disposal or transportation, or (c)
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exposure to hazardous, toxic or other substances alleged to be harmful, and
includes without limitation final and binding requirements related to the
foregoing imposed by (i) the terms and conditions of any license, permit,
approval or other authorization by any governmental entity, and (ii) applicable
judicial, administrative or other regulatory decrees, judgments and orders of
any such governmental entity. The term "Environmental Laws" shall include, but
not be limited to, the following statutes and the regulations promulgated
thereunder, as currently in effect or as subsequently amended: the Clean Air
Act, 42 U.S.C. ss. 7401 et seq.; the Clean Water Act, 33 U.S.C. ss. 1251 et
seq.; the Resource Conservation Recovery Act, 42 U.S.C. ss. 6901 et seq.; the
Superfund Amendments and Reauthorization Act, 42 U.S.C. ss. 11011 et seq.; the
Toxic Substances Control Act, 15 U.S.C. ss. 2601 et seq.; the Water Pollution
Control Act, 33 U.S.C. ss. 1251, et seq.; the Safe Drinking Water Act, 42 U.S.C.
ss. 300f et seq.; the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. ss. 9601 et seq.; and any similar state, federal,
foreign or local statute or ordinance.
"Environmental Remediation Costs" means all costs and expenses of actions
or activities to (a) clean up or remove Hazardous Materials from the
environment, (b) prevent or minimize the movement, leaching or migration of
Hazardous Materials into the environment, (c) prevent, minimize or mitigate the
Release or threatened Release of Hazardous Materials into the environment, or
injury or damage from such Release, or (d) comply with the requirements of any
Environmental Laws. Environmental Remediation Costs include, without limitation,
costs and expenses payable in connection with the foregoing for reasonable
legal, engineering or other consultant services, for investigation, testing,
sampling and monitoring, for boring, excavation and construction, for removal,
modification or replacement of equipment or facilities, for labor and material,
and for proper storage, treatment and disposal of Hazardous Materials.
"ERISA" means the Employee Retirement Income Security Act of 1974, as it
now exists and may hereafter be amended.
"ERISA Affiliate" means any person, firm or entity (whether or not
incorporated) which, by reason of its relationship with the Company, is required
to be aggregated with the Company under Sections 414(b), 414(c) or 414(m) of the
Code, or which, together with the Company, is a member of a controlled group
within the meaning of Section 4001(a) of ERISA.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"Financial Statements" has the meaning set forth in Section 6.9(a).
"Hazardous Materials" means any (a) toxic or hazardous materials or
substances; (b) solid wastes, including asbestos, buried contaminants,
chemicals, flammable or explosive materials; (c) radioactive materials; (d)
petroleum wastes and spills or Releases of petroleum products; and (e) any
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other chemical, pollutant, contaminant, substance or waste that is regulated by
any governmental entity under any Environmental Law.
"Indemnified Party" has the meaning set forth in Section 5.5.
"Indemnifying Party" has the meaning set forth in Section 5.5.
"Indemnity Claim" has the meaning set forth in Section 5.6
"Intellectual Property" means all intellectual property rights, including
without limitation (a) all inventions (whether patentable or unpatentable and
whether or not reduced to practice), all improvements thereto, and all patents,
patent applications, and patent disclosures, together with all reissuances,
continuations, continuations-in-part, revisions, extensions, and reexaminations
thereof, (b) all trademarks, service marks, trade dress, logos, trade names, and
corporate names, together with all translations, adaptations, derivations, and
combinations thereof and including all goodwill associated therewith, and all
applications, registrations, and renewals in connection therewith, (c) all
copyrightable works, all copyrights, and all applications, registrations, and
renewals in connection therewith, (d) all mask works and all applications,
registrations, and renewals in connection therewith, (e) all trade secrets and
confidential business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes,
technologies and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information, and business and
marketing plans, strategies and proposals), (f) all computer software (including
data and related documentation and all source codes and object codes), (g) all
other proprietary rights, and (h) all copies and tangible embodiments thereof
(in whatever form or medium).
"Interim Balance Sheet" has the meaning set forth in Section 6.9(a).
"Interim Balance Sheet Date" has the meaning set forth in Section 6.9(a).
"Interim Earn-out" means the amount, if any, determined pursuant to
Section 2.1(c).
"Leased Real Property" has the meaning set forth in Section 6.7(e).
"Material Adverse Change" means an occurrence or event which has had a
material adverse effect on the business, operations, assets, liabilities,
properties or condition (financial or otherwise) of the Company, except as to
matters affecting the economy or the network integration industry generally. In
determining whether an occurrence or event has had a material adverse effect,
such occurrence or event shall be considered individually and in the aggregate
with all similar or related occurrences or events.
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"Net Worth" means total assets less total liabilities of the Company, as
set forth on the Interim Balance Sheet and determined in accordance with
generally accepted accounting principles on a basis consistent with that of the
Financial Statements.
"Parent Financial Statements" has the meaning set forth in Section 7.6.
"Past Due Accounts Receivable" shall mean the accounts receivable
reflected on the Interim Balance Sheet which are more than 90 days past due as
of the Interim Balance Sheet Date, less the amount of all accounts receivable
paid to the Company between the Interim Balance Sheet Date and the date of the
Pre-Closing Certificate.
"Permits" has the meaning set forth in Section 6.15.
"Person" means an individual, partnership, corporation, joint venture,
unincorporated organization, limited liability company, cooperative or other
business organization or a governmental entity or agency thereof.
"Pre-Closing Certificate" has the meaning set forth in Section 3.7.
"Product Liability" has the meaning set forth in Section 6.22(a).
"Purchase Price" means the aggregate price to be paid for the Shares,
which shall consist of the Closing Payment, the Accounts Receivable Note, the
Earn-out and the Seller's Note Payment.
"Purchaser Indemnified Parties" has the meaning set forth in Section 5.2.
"Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping or disposing into
the environment.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Seller" shall mean Mr. J. Richard Shafer.
"Seller's Note" means the promissory note made by Seller in favor of the
Company in the amount of $135,477, which amount consists of $112,000 in
principal and $23,477 in interest.
"Seller's Note Payment" has the meaning set forth in Section 2.1(e).
"Shares" means the 1,000 shares of Common Stock issued and outstanding and
owned of record and beneficially by Seller.
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"Tax" or "Taxes" shall mean any and all federal, state, local, foreign and
other taxes, levies, fees, imposts, duties and charges of whatever kind
(including any interest, penalties or additions to the tax imposed in connection
therewith or with respect thereto), including, without limitation, taxes imposed
on, or measured by, income, franchise, profits, or gross receipts, and also ad
valorem, value added, sales, use, service, real or personal property, capital
stock, license, payroll, withholding, employment, social security, workers'
compensation, unemployment compensation, utility, severance, production, excise,
stamp, occupation, premium, windfall profits, transfer and gains taxes and
custom duties.
"Tax Refund" has the meaning set forth in Section 2.1(e).
"Tax Return" shall mean any return, report, information statement, and
other documentation (including any additional or supporting material) filed or
maintained, or required to be filed or maintained, in connection with the
calculation, determination, assessment or collection of any Tax.
"Unassumed Liabilities" means: (a) to the extent not accrued on any of the
Financial Statements, any obligation of the Company or Seller for Taxes
(including without limitation FICA and other employee withholding Taxes relating
to employees or independent contractors) with respect to all Taxable periods
ending on or prior to the Closing Date and with respect to the portion of any
Taxable period beginning prior to but ending after the Closing Date to the
extent such Taxes are allocated to Seller pursuant to Section 8.3; (b) all
recordation, stamp, transfer, filing, documentary or similar fees or Taxes
relating to the transactions contemplated by this Agreement; (c) any and all
costs, fees and expenses incurred by Seller or the Company in connection with
the negotiation of this Agreement and the consummation of the transactions
contemplated hereby; and (d) any liability or obligation arising out of the
conduct of the Business or the ownership of the Shares on or prior to the
Closing Date except to the extent accrued or reserved for on the Interim Balance
Sheet.
"Year 2000 Compliant" with respect to any computer systems, components or
products means that such computer systems, components or products (a) are
capable of recognizing, storing, recording, processing, managing, representing,
interpreting, and manipulating correctly date related data for dates earlier and
later than January 1, 2000, including, but not limited to, calculating,
comparing, sorting, storing, tagging and sequencing, without resulting in or
causing logical or mathematical errors or inconsistencies in any user-interface
functionalities or otherwise, including data input and retrieval, data storage,
data fields, calculations, reports, processing, or any other input or output,
(b) have the ability to provide data recognition for any data element without
limitation (including, but not limited to, date-related data represented without
a century designation, date-related data whose year is represented by only two
digits and date fields assigned special values), (c) have the ability to
automatically function into and beyond the year 2000 without human intervention
and without any change in operations associated with the advent of the year
2000, (d) have the ability to correctly interpret data, dates and time into and
beyond the year 2000, (e) have the ability not to produce noncompliance in
existing information, nor otherwise corrupt such data
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into and beyond the year 2000, (f) have the ability to correctly process after
January 1, 2000 data containing dates before that date, and (g) have the ability
to recognize all "leap years," including February 29, 2000.
2. PURCHASE AND SALE
Section .1 Purchase and Sale of Shares. (a) At the Closing and upon the
terms and subject to the conditions of this Agreement, Seller shall sell,
transfer and deliver to Purchaser, and Purchaser shall purchase and acquire from
Seller, all of Seller's right, title and interest in and to the Shares, free and
clear of all liens, charges, security interests, rights or claims of others,
restrictions on transfer or other encumbrances. In consideration for the Shares,
Purchaser shall, on the Closing Date (i) make the Closing Payment by wire
transfer of immediately available funds to the accounts specified by Seller at
least two (2) business days prior to the Closing Date and (ii) deliver the
Accounts Receivable Note to Seller.
(b) On or before April 15, 2001, Purchaser will pay, or will cause
the Company to pay, the Earn-out to Seller. The Earn-out shall be payable by
wire transfer of immediately available funds to the account specified by Seller.
The amount of the Earn-out shall be equal to the amount of the Company's
earnings before income taxes for the two-year period ending December 31, 2000
(which shall be calculated based upon Parent's audited financial statements for
such period), divided by two, which amount shall be (x) reduced by $440,000, (y)
multiplied by 5.5 and (z) further reduced by the aggregate amount of any Interim
Earn-out payments made by Purchaser or the Company pursuant to Section 2.1(c)
below.
(c) In the event the Company's earnings before income taxes in 1999
are in excess of $440,000, Purchaser will pay, or will cause the Company to pay,
the Interim Earn-out to Seller. The Interim Earn-out shall be payable by wire
transfer of immediately available funds to the account specified by Seller in
two (2) equal installments on June 15, 2000 and September 15, 2000. The
aggregate amount of the Interim Earn-out shall be equal to the amount of the
Company's earnings before income taxes for the one-year period ending December
31, 1999 (which shall be calculated based upon Parent's audited financial
statements for such period), which amount shall be (y) reduced by $440,000 and
(z) multiplied by 2.75. Notwithstanding the foregoing, if at the end of any
month in the year 2000 prior to September 2000, the Company's average monthly
earnings before income taxes from January 1, 1999 to date are less than $36,667,
no Interim Earn-out shall be paid (or no further Interim Earn-out shall be paid
in the event the first installment has already been paid) to Seller.
(d) In the event Seller is paid one or both installments of the
Interim Earn-out in accordance with Section 2.1(c) above, but the Company's
earnings before income taxes in 1999 and 2000 do not, in the aggregate, exceed
$880,000, Seller shall repay to Purchaser, on or before April
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15, 2001, the entire amount of such paid installment(s) of the Interim Earn-out,
by certified check or wire transfer of immediately available funds to the
account specified by Purchaser.
(e) In the event the Company receives a federal and/or state tax
refund for its fiscal year ended September 30, 1998 (collectively, the "Tax
Refund"), the Company shall, within fifteen (15) days of receipt of each
component of such Tax Refund, pay to Seller, by certified check or wire transfer
of immediately available funds to the account specified by Seller, the lesser of
(i) the total amount of the Tax Refund or (ii) $190,277 (the "Seller's Note
Payment"). Immediately following receipt of the Seller's Note Payment, Seller
shall allocate such amount to the payment in full of the Seller's Note and any
taxes thereon. If the Seller's Note Payment is less than the amount of the
Seller's Note, Seller shall apply the full amount of the Seller's Note Payment
to the payment of the Seller's Note, and shall immediately pay the remainder of
the Seller's Note before the payment of any taxes thereon.
(f) In calculating the Company's earnings before income taxes for
the purposes of this Section 2.1, (i) no allocation shall be made for the
corporate overhead of Purchaser, Parent or any other Affiliate; (ii) the term
"the Company" shall include the operations of the Costa Mesa office of CBE
Technologies, Inc. and such other entities as shall be agreed upon by both
Purchaser and Seller; and (iii) the Company's earnings before income taxes shall
be determined in accordance with generally accepted accounting principles, and,
to the extent possible, consistently with the past practices of the Company.
Section .2 Closing. The Closing shall take place at the offices of
Fulbright & Jaworski L.L.P., 865 South Figueroa Street, 29th Floor, Los Angeles,
California 90017, subject to satisfaction or waiver of the conditions set forth
in Articles III and IV hereof, at the opening of business on February 24, 1999,
or at such other date, time and place as the parties may agree. Each party
hereto agrees to use its reasonable efforts to satisfy promptly the conditions
to the obligations of the respective parties hereto in order to expedite the
Closing.
Section .3 Deliveries. On the Closing Date:
(1) Seller shall deliver to Purchaser certificates representing the
Shares, accompanied by stock powers duly executed in blank.
(2) Seller shall deliver to Purchaser a release, substantially in
the form attached as Exhibit 2.3(b) hereto.
(3) Seller and Purchaser shall deliver an executed employment
agreement, executed by both Seller and Purchaser and substantially in the form
attached as Exhibit 2.3(c) hereto.
(4) Seller and Purchaser shall deliver an executed non-competition
agreement, executed by both Seller and Purchaser and substantially in the form
attached as Exhibit 2.3(d) hereto.
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(5) Seller shall deliver to Purchaser resignations of each director
and officer of the Company.
(6) Each of Seller, Parent and Purchaser shall deliver all
certificates, opinions and other documents required to be delivered pursuant to
Articles III and IV hereof.
(7) Purchaser shall pay the Closing Payment to Seller by wire
transfer of immediately available funds to the accounts specified by Seller at
least two (2) business days prior to the Closing Date and shall deliver the
Accounts Receivable Note to Seller.
(8) Seller shall deliver to Purchaser the minute book, stock book
and corporate seal of the Company.
3. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER
The obligations of Purchaser under this Agreement to consummate the
transactions contemplated hereby at the Closing shall be subject to the
satisfaction, at or prior to the Closing, of all of the following conditions, to
the reasonable satisfaction of Purchaser (any of which may be waived in whole or
in part by Purchaser):
Section 3.1 Representations and Warranties Accurate. All representations
and warranties of Seller contained in this Agreement (including the Schedules
and Exhibits hereto) shall be true and correct in all material respects on and
as of the Closing Date with the same force and effect as though such
representations and warranties were made on and as of the Closing Date.
Section 3.2 Performance by Seller. Seller shall have performed and
complied in all material respects with all agreements, covenants and conditions
required by this Agreement to be performed and complied with by him prior to or
on the Closing Date.
Section .4 Opinion of Counsel for Seller and the Company. Purchaser shall
have received from White & McDermott, P.C., counsel to Seller and the Company, a
written opinion, dated the Closing Date, substantially in the form attached
hereto as Exhibit 3.3.
Section 3.3 Legal Prohibition. On the Closing Date, no injunction or order
shall be in effect prohibiting consummation of the transactions contemplated
hereby or which would make the consummation of such transactions unlawful and no
action or proceeding shall have been instituted and remain pending before a
court, governmental body or regulatory authority to restrain or prohibit the
transactions contemplated by this Agreement which constitutes, or could be
reasonably anticipated to constitute, a Material Adverse Change. On the Closing
Date, no adverse decision shall
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have been made by any such court, governmental body or regulatory authority
which constitutes, or could be reasonably anticipated to constitute, a Material
Adverse Change. Between the date hereof and the Closing Date, no federal, state
or local statute, rule or regulation shall have been enacted the effect of which
would be to prohibit, restrict, impair or delay the consummation of the
transactions contemplated hereby or materially restrict or impair the ability of
Parent or Purchaser to own or conduct the Business.
Section 3.4 Consents, Permits, Licenses, Etc. All authorizations,
consents, waivers, approvals, orders, registrations, qualifications,
designations, declarations, filings or other action required with or from any
federal, state or local governmental or other regulatory authority or third
party (including without limitation all parties to each of the Contracts) in
connection with the execution, delivery and performance of this Agreement, the
consummation of the transactions contemplated hereby and the conduct of the
Business by Purchaser after the Closing Date shall have been duly obtained and
shall be reasonably satisfactory to Purchaser and its counsel, and copies
thereof shall be delivered to Purchaser at or prior to the Closing, except where
the failure to so obtain would not cause a Material Adverse Change.
Section 3.5 No Material Adverse Change. There shall have been no Material
Adverse Change from the Interim Balance Sheet Date to the Closing Date which has
not been consented to by Purchaser.
Section 3.6 Pre-Closing Certificate. On the date which is two (2) business
days prior to the Closing Date, Seller shall have delivered to Purchaser a
certificate executed by Seller (the "Pre-Closing Certificate") certifying (i)
the amount of the Company's Net Worth as reflected on the Interim Balance Sheet,
which amount shall be not less than $550,000 and (ii) the amount of the Past Due
Accounts Receivable on the date of the Pre-Closing Certificate.
Section 3.7 Closing Matters. All proceedings to be taken by Seller and the
Company in connection with the consummation of the transactions contemplated
hereby and all certificates, opinions, instruments and other documents required
to effect the transactions contemplated hereby shall be reasonably satisfactory
in form and substance to Purchaser and its counsel. Section 1.1
I. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
The obligations of Seller under this Agreement to consummate the
transactions contemplated hereby at the Closing shall be subject to the
satisfaction, at or prior to the Closing, of all of the following conditions, to
the reasonable satisfaction of Seller (any of which may be waived in whole or in
part by Seller):
Section 3.8 Representations and Warranties Accurate. All representations
and warranties of Parent and Purchaser contained in this Agreement shall be true
and correct in all material respects
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on and as of the Closing Date, with the same force and effect as though such
representations and warranties were made on and as of the Closing Date.
Section 3.9 Performance by Parent and Purchaser. Parent and Purchaser
shall have performed and complied in all material respects with all agreements,
covenants and conditions required by this Agreement to be performed and complied
with by them prior to or on the Closing Date.
Section 3.10 Legal Prohibition. On the Closing Date, no injunction or
order shall be in effect prohibiting consummation of the transactions
contemplated hereby or which would make the consummation of such transactions
unlawful and no action or proceeding shall have been instituted and remain
pending before a court, governmental body or regulatory authority to restrain or
prohibit the transactions contemplated by this Agreement.
Section 3.11 Closing Matters. All proceedings to be taken by Parent or
Purchaser in connection with the consummation of the transactions contemplated
hereby and all certificates, instruments and other documents required to effect
the transactions contemplated hereby shall be reasonably satisfactory in form
and substance to Seller and his counsel.
4. INDEMNIFICATION
Section 4.1 Survival of Representations and Warranties. All
representations and warranties contained in this Agreement and the right of
indemnification with respect to breaches thereof shall survive the Closing,
regardless of any investigation made by Purchaser or Seller or on their behalf,
and shall remain in full force and effect as follows: (a) all representations
and warranties (other than those with respect to environmental matters, labor
and ERISA matters, Taxes, brokers' fees, organization and due authorization of
any Person, capitalization of the Company and ownership of the Shares) and the
right of indemnification with respect to breaches thereof shall remain in full
force and effect until March 31, 2001; (b) all representations and warranties
and the right of indemnification with respect to breaches thereof relating to
environmental matters, labor and ERISA matters and Taxes shall remain in full
force and effect until the expiration of the applicable statute of limitations,
except as to any matters with respect to which a claim shall have been made
before such date, in which event survival shall continue (but only with respect
to, and to the extent of, such claim) until the final resolution of such claim,
including all applicable periods for appeal; and (c) all representations and
warranties and the right of indemnification with respect to breaches thereof
relating to brokers' fees, organization and due authorization of any Person,
capitalization of the Company and ownership of the Shares (including their
status as free and clear of all liens, charges, security interests, rights or
claims of others, restrictions on transfer or other encumbrances) shall survive
forever (subject to any applicable statute of limitations), except as to any
matters with respect to which a claim shall have been made before such date, in
which event survival shall continue (but only with respect to, and to the extent
of, such claim) until the final resolution of such claim, including all
applicable periods for appeal.
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Section 4.2 Seller's Indemnity. Subject to the limitations of Sections 5.1
and 5.7, Seller shall indemnify and hold harmless Parent, Purchaser, the Company
and their respective directors, officers, shareholders, employees, Affiliates,
successors and assigns (collectively, the "Purchaser Indemnified Parties") at
all times after the Closing Date against and in respect of:
(1) any damage, loss, cost, expense or liability (including amounts
paid in investigation or settlement and reasonable attorneys' fees) resulting to
any of them from any breach of any representation, warranty or nonfulfillment of
any agreement, covenant or condition on the part of Seller under this Agreement;
(2) all Unassumed Liabilities; and
(3) all claims, actions, suits, proceedings, demands, assessments,
judgments, costs and expenses incident to any of the foregoing.
Section 4.3 Parent and Purchaser's Indemnity. Subject to the limitations
of Sections 5.1 and 5.7, Parent and Purchaser, jointly and severally, shall
indemnify and hold harmless Seller at all times after the Closing Date against
and in respect of:
(1) any damage, loss, cost, expense or liability (including amounts
paid in investigation or settlement and reasonable attorneys' fees) resulting to
any of them from any false, misleading or inaccurate representation, breach of
warranty or nonfulfillment of any agreement, covenant or condition on the part
of Parent or Purchaser under this Agreement; and
(2) all claims, actions, suits, proceedings, demands, assessments,
judgments, costs and expenses incident to any of the foregoing.
Section 4.4 Release. Seller hereby agrees that he will not make any claim
for indemnification against the Company or any of its Affiliates by reason of
the fact that he was a director, officer, shareholder, employee, or agent of the
Company or any of its Affiliates or was serving at the request of the Company or
any of its Affiliates as a partner, trustee, director, officer, shareholder,
employee or agent of another entity (whether such claim is for judgments,
damages, penalties, fines, costs, amounts paid in settlement, losses, expenses,
attorneys' fees or otherwise and whether such claim is pursuant to any statute,
charter document, bylaw, agreement, or otherwise) with respect to any action,
suit, proceeding, complaint, claim, or demand brought pursuant to Section 5.2
hereunder (whether such action, suit, proceeding, complaint, claim, or demand is
pursuant to this Agreement, applicable law, or otherwise).
Section 4.5 Notice and Defense of Claims. Seller and any Purchaser
Indemnified Party entitled to indemnification under this Article V (each, an
"Indemnified Party") shall give notice to each party required to provide
indemnification (each, an "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be sought, and
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shall permit the Indemnifying Party, at the Indemnifying Party's expense, to
assume the defense of any such claim or any litigation resulting therefrom,
provided that counsel for the Indemnifying Party, who shall conduct the defense
of such claim or any litigation resulting therefrom, shall be approved by the
Indemnified Party (whose approval shall not unreasonably be withheld or
delayed), and the Indemnified Party may participate in such defense at such
Indemnified Party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Article V unless and only to
the extent such failure to give notice materially prejudices the Indemnifying
Party's ability to defend such claim. The Indemnifying Party, in the defense of
any such claim or litigation, shall not, except with the consent of the
Indemnified Party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to the Indemnified Party of a release from all liability
in respect of such claim or litigation. The Indemnified Party shall furnish such
information regarding itself or the claim in question as the Indemnifying Party
may reasonably request in writing and as shall be reasonably required in
connection with the defense of such claim and litigation resulting therefrom.
This section shall not apply to tax proceedings, which are covered by Section
8.3(d) hereof.
Section 4.6 Reimbursement. At the time that the Indemnified Party shall
suffer a loss because of a breach of any warranty, representation or covenant by
the Indemnifying Party or at the time the amount of any liability on the part of
the Indemnifying Party under this Article V is determined (which in the case of
payment to third persons shall be the earlier of (i) the date of such payment or
(ii) the date that a court of competent jurisdiction shall enter a final
judgment, order or decree (after exhaustion of appeal rights) establishing such
liability) (such loss or amount being hereinafter referred to as the "Indemnity
Claim"), the Indemnifying Party shall forthwith, upon notice from the
Indemnified Party, pay to the Indemnified Party the amount of the Indemnity
Claim. Notwithstanding anything herein to the contrary and in addition to any
other remedy Purchaser may have, Purchaser may, at its option, provided the
Indemnity Claim is not in dispute as described below, set off the amount of any
Indemnity Claim against the amount due under the Earn-out, the Accounts
Receivable Note or the Seller's Note Payment, as follows: (A) first, the amount
due to Seller shall be reduced by the amount of such Indemnity Claim and (B) if
the amount due to Seller shall be reduced to zero, then in any manner in which
Purchaser shall see fit. In the event Seller notifies Purchaser, within seven
(7) business days from the date of notice that any Indemnity Claim is due, that
Seller is disputing such Indemnity Claim, Purchaser shall not have the option to
set off the amount of such Indemnity Claim but shall instead deposit any amounts
due Seller under the Earn-out, the Accounts Receivable Note or the Seller's Note
Payment, up to the amount of such Indemnity Claim, in an interest-bearing escrow
account with a commercial bank having a combined capital, surplus and undivided
profits of at least $100,000,000, as escrow agent. Following final resolution of
such dispute, the escrow agent shall disburse all funds in the escrow account as
provided in such resolution. If the amount of any Indemnity Claim is not paid
forthwith (or, at Purchaser's option, set off), then the Indemnified Party may,
at its option, take legal action against the Indemnifying Party for
reimbursement in the amount of its Indemnity Claim. For purposes hereof the
Indemnity Claim shall include the amounts so paid, or determined to be owing, by
the Indemnified Party together with costs and reasonable attorneys' fees and
interest on the foregoing
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items at the rate of seven and one-half percent (7.5%) per annum from the date
of notice that the Indemnity Claim is due from the Indemnifying Party to the
Indemnified Party as hereinabove provided, until the Indemnity Claim shall be
paid.
In addition to its other obligations under this Section 5.6, each
Indemnifying Party agrees that, as an interim measure during the pendency of any
claim, action, investigation, inquiry or other proceeding for which
indemnification may be required pursuant to this Article V, it will, if it does
not assume the defense thereof, reimburse the Indemnified Party on a monthly
basis for all reasonable legal fees or other out-of-pocket expenses reasonably
incurred in connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the
Indemnifying Party's obligation to indemnify the Indemnified Party for such
expenses and the possibility that such payments might later be held to have been
improper by a court of competent jurisdiction. To the extent that any such
interim reimbursement payment is so held to have been improper, the Indemnified
Party shall promptly return it to the Indemnifying Party, together with interest
at the rate of seven and one-half percent (7.5%) per annum. Any such interim
reimbursement payments which are not made to the Indemnified Party within 30
days of a request for reimbursement shall be subject to set-off as set forth in
the preceding paragraph and shall bear interest at the rate of seven and
one-half percent (7.5%) per annum from the date of such request.
Section 4.7 Limitations. (a) Notwithstanding anything to the contrary
contained herein, neither the Purchaser Indemnified Parties, on the one hand, or
Seller, on the other hand, shall be entitled to indemnification from the other
until the aggregate losses suffered by the Purchaser Indemnified Parties, or
Seller, as applicable, and for which indemnification is available hereunder
exceed $40,000, whereupon the Purchaser Indemnified Parties, or Seller, as
applicable, shall be entitled to claim indemnification for all losses suffered
in excess of $40,000 and for which indemnification is available hereunder;
provided, however, that the limitations of this Section 5.7 shall not apply to
(i) any claim for indemnity relating to Taxes, (ii) any misrepresentation with
respect to the amount of the Company's Net Worth (other than as a result of a
breach of another representation or warranty that affects the Company's Net
Worth) and (iii) the obligation of any party to pay any amount of the Purchase
Price.
(1) The liability of any Indemnifying Party under this Article V
shall be limited in the aggregate to the Earn-out plus $1,000,000.
Section 4.8 Insurance Recoveries; Tax Benefits. The amounts for which an
Indemnifying Party shall be liable under this Article V shall be net of any tax
benefit realized or to be realized by the Indemnified Party as a result of the
facts and circumstances giving rise to the liability of the Indemnifying Party
and/or the making and receipt of an indemnity payment; and shall also be net of
any insurance proceeds actually received by the Indemnified Party in connection
with the facts giving rise to the right of indemnification.
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Section I.5 Tax Gross-Up. If any indemnification payment is determined to
be taxable to the party receiving such payment by any taxing authority, the
paying party shall also indemnify the party receiving such payment for any Taxes
incurred by reason of the receipt of such payment (taking into account any
actual reduction in tax liability to the receiving party).
Section I.6 Exclusivity. Following the Closing, the provisions of this
Article V shall be the exclusive remedy for the matters covered hereby, provided
that nothing herein shall relieve any party from any liability for fraud.
5. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Parent and Purchaser that:
Section 5.1 Organization and Qualification. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California, with the requisite corporate power and authority to carry
on its business as presently conducted and to own, lease and operate the
properties and assets used in connection therewith. The Company is in good
standing as a foreign corporation and licensed or qualified to transact business
in each jurisdiction in which the conduct of its business or its ownership,
leasing or operation of properties and assets requires it to be so licensed or
qualified, except where the failure to be so licensed or qualified would not
cause a Material Adverse Change. The Company is not in default under or in
violation of any provision of its articles of incorporation or by-laws.
Section 5.2 No Subsidiaries. The Company has no direct or indirect
subsidiaries, whether or not consolidated, and neither the Company nor Seller
has any direct or indirect interests or investments in any other Person involved
in the Business.
Section 5.3 Due Authorization. Seller has all requisite power and
authority to execute and deliver this Agreement and the other documents required
to be executed and delivered by him hereunder, to perform fully his obligations
hereunder and thereunder and to consummate the transactions contemplated hereby
and thereby (including without limitation the sale of the Shares). This
Agreement has been duly executed and delivered by Seller. This Agreement is, and
each other agreement contemplated hereby to which Seller will be a party will
be, upon execution and delivery thereof by Seller, a legal, valid and binding
obligation of Seller, enforceable against him in accordance with its terms
(except as enforceability may be limited by any applicable bankruptcy,
insolvency or other laws affecting creditors' rights generally or by general
principles of equity, regardless of whether such enforceability is considered in
equity or at law).
Section 5.4 No Conflict. Except as set forth on Schedule 6.4 and except
for matters that would not result in a Material Adverse Change, neither the
execution and delivery of this Agreement or any of the other documents
contemplated hereby nor the consummation of the transactions contemplated hereby
or thereby by Seller will (a) conflict with, result in a breach or violation of
or
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constitute (or with notice or lapse of time or both constitute) a default under
(i) the articles of incorporation or by-laws of the Company, (ii) any law,
statute, regulation, order, judgment or decree or (iii) any instrument, contract
or other agreement to which Seller or the Company is a party or by which Seller
or the Company (or any of their respective properties or assets) is subject or
bound; (b) result in the creation of, or give any party the right to create, any
lien, charge, option, security interest or other encumbrance upon the Shares or
the assets or properties of the Company; (c) terminate or modify, or give any
third party the right to terminate or modify, the provisions or terms of any
instrument, contract or other agreement to which the Company is a party or by
which the Company (or any of its properties or assets) is subject or bound; (d)
require the Company to obtain any authorization, consent, approval or waiver
from, to give any notification to, or to make any filing with, any governmental
body or authority or to obtain the approval or consent of any other Person; or
(e) result in any suspension, revocation, impairment, forfeiture or nonrenewal
of any Permit, license, qualification, authorization or approval applicable to
the Company.
Section 5.5 Capitalization. The authorized capital stock of the Company
consists of 10,000 shares of Common Stock, of which the Shares constitute the
only issued and outstanding shares. The Shares are owned, of record and
beneficially, by Seller. The Shares have been duly authorized and validly issued
and are fully paid and non-assessable. The Shares were issued in compliance with
all applicable federal and state securities laws. The Shares were not issued in
violation of any pre-emptive rights, rights of first refusal or similar rights.
There are no outstanding options, warrants, convertible securities, calls,
rights, commitments, preemptive rights, agreements, instruments or
understandings of any character to which the Company or Seller is a party or by
which the Company or Seller is bound, obligating the Company to issue, deliver
or sell, or cause to be issued, delivered or sold, contingently or otherwise,
additional shares of the Company's capital stock or any securities or
obligations convertible into or exchangeable for such shares or to grant, extend
or enter into any such option, warrant, convertible security, call, right,
commitment, preemptive right or agreement. There are no outstanding obligations,
contingent or otherwise, to which the Company or Seller is a party or by which
the Company or Seller is bound, obligating the Company to purchase, redeem or
otherwise acquire any of its capital stock. Neither the Company nor Seller is a
party to any voting trust agreement or other contract, agreement, arrangement,
commitment, plan or understanding restricting transfer or otherwise relating to
voting, dividend or other rights with respect to the capital stock of the
Company.
Section 5.6 Ownership of Shares. Seller is the legal and beneficial owner
of the Shares. Seller owns the Shares free and clear of all claims, charges,
equities, liens (including Tax liens), security interests, pledges, mortgages or
encumbrances whatsoever. Upon consummation of the transactions contemplated
hereby, assuming that Purchaser purchases the Shares in good faith without
notice of any adverse claims (as defined in Section 8-303 of the Uniform
Commercial Code as in effect in the State of California on the date hereof),
Purchaser will have acquired all the rights of Seller in the Shares free of any
adverse claim, any lien created by Seller or any restrictions on transfer.
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Section 5.7 Title to and Condition of Assets. (a) The Company has good and
marketable title to, or valid and subsisting leasehold interests in or valid
licenses to use, all of its assets, free and clear of any liens, charges,
options, security interests or other encumbrances of any nature, options to
purchase or lease, easements, restrictions, covenants, conditions, or
imperfections of title, whether existing or proposed, except the lien of current
Taxes not yet due and payable and except as set forth on Schedule 6.7(a).
(b) Schedule 6.7(b) contains a true, correct and complete list of
all automobiles and vehicles owned, leased or used by the Company, indicating
whether each such automobile or vehicle is leased.
(c) Schedule 6.7(c) contains a true, correct and complete list of
all machinery, equipment, computers and computer hardware, tools, supplies,
leasehold improvements, construction in progress, furniture, fixtures, and other
tangible personal property (other than vehicles and automobiles) owned, leased
or used by the Company and, based on original asset costs less accumulated
depreciation and amortization associated with each asset, having a value of
greater than $1,000, indicating with respect to all such listed property whether
such property is leased.
(d) The Company owns no real property.
(e) Schedule 6.7(e) contains a true, correct and complete list of
all leases of real property under which the Company is a lessee (collectively,
the "Leased Real Property"). The Company enjoys peaceful and undisturbed
possession under all such leases and all such leases are valid and enforceable
in accordance with their respective terms, are in full force and effect, and
there is not under any such lease any default by the Company or, to the
knowledge of Seller and the Company, by any other party to any such lease, or
any condition, event or act which, with the giving of notice or lapse of time,
or both, would constitute such a default. The consummation of the transactions
contemplated by this Agreement will not require notification to or the consent
or approval of any lessor or any of the Leased Real Property.
Section 5.8 Environmental Matters. (a) (i) All licenses, permits, consents
or other approvals required to be obtained by the Company under Environmental
Laws that are necessary to the operations of the Business ("Environmental
Permits") have been obtained and are in full force and effect, and Seller and
the Company are unaware of any reasonable basis for revocation or suspension of
any such Environmental Permits; (ii) no Environmental Laws impose any obligation
upon Purchaser, as a result of any transaction contemplated hereby, requiring
prior notification to any governmental entity of the transfer of any
Environmental Permit; and (iii) the Business has at all times been operated in
full compliance with such Environmental Permits, and within the production
levels or emission levels specified in such Environmental Permits.
(b) The Company has at all times operated the Business in compliance
in all material respects with all applicable limitations, restrictions,
conditions, standards, prohibitions, requirements and obligations of
Environmental Laws.
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(c) There are no existing, pending or, to the knowledge of Seller
and the Company, threatened actions, suits, claims, investigations, inquiries or
proceedings by or before any court or any other governmental entity directed
against the Company which pertain or relate to (i) any remedial obligations
under any applicable Environmental Law, (ii) violations of any Environmental
Law, (iii) personal injury or property damage claims relating to a Release of
chemicals or Hazardous Materials, or (iv) response, removal, or remedial costs
under any Environmental Law.
(d) No portion of the Leased Real Property is listed on any
Contaminated Site List.
(e) To the best knowledge of Seller, there has been no Release of
any Hazardous Materials on or underlying the Leased Real Property.
(f) To the best knowledge of Seller, no asbestos-containing
materials or polychlorinated biphenyls are present on or underlying the Leased
Real Property.
(g) To the best knowledge of Seller, there are no underground
storage tanks for Hazardous Materials, active or abandoned, at any of the Leased
Real Property or any real property previously owned or leased by the Company.
(h) Purchaser has been provided with all engineering, geologic,
environmental reports and other documents in the possession of the Company or
Seller relating to the Leased Real Property, including without limitation, those
relating to (i) any Environmental Conditions existing on the Leased Real
Property and (ii) any violations of any Environmental Laws.
(i) All Hazardous Materials generated, used, stored or transported
by the Company have been generated, used, stored, transported, treated and
disposed of in accordance with all applicable Environmental Laws.
(j) To the best knowledge of Seller, neither the Company nor Seller
has any current liability, nor is there any liability which may be reasonably
anticipated, for Environmental Remediation Costs.
Section 5.9 Financial Information. (a) Seller has delivered to Purchaser
(i) true, correct and complete copies, in all material respects, of the
Company's unaudited balance sheets as of September 30, 1996, 1997 and 1998 and
the related statements of operations and cash flows for each of the years in the
three year period ended September 30, 1998, together with notes to such
financial statements, and (ii) true, correct and complete copies, in all
material respects, of the Company's unaudited balance sheets as at December 31,
1998 and 1997 and the related statements of operations and cash flows for the
3-month periods then ended (collectively, the "Financial Statements"). The
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unaudited balance sheet of the Company at December 31, 1998 is herein referred
to as the "Interim Balance Sheet," and December 31, 1998 is herein referred to
as the "Interim Balance Sheet Date."
(b) Except as otherwise noted, the Financial Statements are in
accordance with the books and records of the Company and have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods covered thereby. The balance sheets included in the
Financial Statements present fairly in all material respects as of their
respective dates the financial condition of the Company (subject, in the case of
the unaudited Financial Statements, to year end adjustments that may be required
upon audit, which adjustments will not have a material adverse effect on such
financial statements). All liabilities and obligations of the Company, whether
absolute, accrued, contingent or otherwise, whether direct or indirect, and
whether due or to become due, which existed at the date of such Financial
Statements have been disclosed on the balance sheets included in the Financial
Statements or in notes to the Financial Statements to the extent such
liabilities were required, under generally accepted accounting principles, to be
so disclosed. The statements of operations and cash flows included in the
Financial Statements present fairly in all material respects the results of
operations and cash flows of the Company for the periods indicated (subject, in
the case of the unaudited Financial Statements, to year end adjustments that may
be required upon audit, which adjustments will not have a material adverse
effect on such financial statements), and the notes included in the Financial
Statements present fairly the information purported to be shown thereby. The
statements of operations included in the Financial Statements do not contain any
items of special or non-recurring income material to the Company or other income
not earned in the ordinary course of business except as expressly specified
therein.
(c) The accounts receivable of the Company set forth on the Interim
Balance Sheet or arising since the date thereof are valid and genuine; have
arisen solely out of bona fide sales and deliveries of goods, performance of
services and other business transactions in the ordinary course of business
consistent with past practice; are not subject to valid defenses, set-offs or
counterclaims; and, except for the Past Due Accounts Receivable, are collectible
at the full recorded amount thereof within 90 days of the invoice date (by use
of the Company's normal collection methods without resort to litigation or
reference to a collection agency).
(d) All inventory of the Company, including without limitation raw
materials, work-in process and finished goods, reflected on the Interim Balance
Sheet or acquired since the date thereof was acquired and has been maintained in
the ordinary course of business; consists substantially of a quality, quantity
and condition usable, leasable or saleable in the ordinary course of business;
is valued at the lower of cost or market in accordance with generally accepted
accounting principles and consistent with the Financial Statements in all
material respects; and is not subject to any write-down or write-off. The
Company is not under any liability or obligation with respect to the return of
inventory in the possession of wholesalers, retailers or other customers.
(e) The Company has no material liabilities of any kind whatsoever,
whether or not accrued and whether or not contingent or absolute, determined or
determinable or otherwise,
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including without limitation documentary or standby letters of credit, bid or
performance bonds, or customer or third party guarantees, and no existing
condition, situation or set of circumstances that could reasonably result in
such a liability, other than liabilities set forth on the Interim Balance Sheet
or on the Schedules hereto.
(f) The books, records and accounts of the Company accurately and
fairly reflect the transactions undertaken by and the assets and liabilities of
the Company.
(g) Schedule 6.9(g) lists the name and address of every bank and
other financial institution in which the Company maintains an account (whether
checking, savings or otherwise), lock box or safe deposit box, and the account
numbers and names of persons having signing authority or other access thereto.
(h) Since the Interim Balance Sheet Date there has been no Material
Adverse Change, whether as a result of any legislative or regulatory change,
revocation of any license or right to do business, fire, explosion, accident,
casualty, labor trouble, flood, drought, riot, storm, condemnation or act of God
or otherwise; and, to the best knowledge of Seller and the Company, no fact or
condition exists or is contemplated or threatened which could reasonably be
anticipated to cause such a change in the future.
Section 5.10 Taxes. (a) Except as set forth on Schedule 6.10:
(a) All Tax Returns required to be filed by or on behalf of the
Company and any Affiliated Group of which the Company was a member have been
properly prepared and duly and timely filed with the appropriate taxing
authorities in all jurisdictions in which such Tax Returns are required to be
filed (after giving effect to any valid extensions of time in which to make such
filings), and all such Tax Returns were true, complete and correct in all
material respects.
(b) All Taxes payable by or on behalf of the Company and any
Affiliated Group of which the Company was a member, or in respect of their
income, assets or operations (including interest and penalties) have been fully
and timely paid, and adequate reserves or accruals for Taxes have been provided
in the Financial Statements with respect to any period for which Tax Returns
have not yet been filed or for which Taxes are not yet due and owing. The
Company has made all required estimated tax payments for its 1997 and 1998 Tax
years to avoid any underpayment penalty.
(c) The Company has not executed or filed with any taxing authority
any agreement, waiver or other document or arrangement extending or having the
effect of extending the period for assessment or collection of Taxes (including,
but not limited to, any applicable statute of limitation), and no power of
attorney with respect to any Tax matter is currently in force.
(d) The Company has complied in all material respects with all
applicable laws, rules and regulations relating to the payment and withholding
of Taxes and has duly and timely withheld from employee salaries, wages and
other compensation and has paid over to the appropriate
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taxing authorities all amounts required to be so withheld and paid over for all
periods under all applicable laws.
(e) Parent has received complete copies of (i) all U.S. federal and
foreign income or franchise Tax Returns of the Company relating to the taxable
periods since September 30, 1994 and (ii) any audit report issued within the
last three years relating to Taxes due from or with respect to the Company or
its income, assets or operations. All income and franchise Tax Returns filed by
or on behalf of the Company for the taxable years ended on the respective dates
set forth on Schedule 6.10 have been examined by the relevant taxing authority
or the statute of limitations with respect to such Tax Returns have expired.
(f) Schedule 6.10 lists all material types of Taxes paid and
material types of Tax Returns filed by or on behalf of the Company and indicates
those Taxes with respect to which the Company is or has been a member of an
Affiliated Group for any Tax purpose. No claim has been made by a taxing
authority in a jurisdiction where the Company does not file Tax Returns such
that it is or may be subject to taxation by that jurisdiction.
(g) All deficiencies asserted or assessments made as a result of
examinations by any taxing authority of the Tax Returns of or covering or
including the Company have been fully paid, and there are no other audits or
investigations by any taxing authority or proceedings in progress, nor has
Seller or the Company received any notice from any taxing authority that it
intends to conduct such an audit or investigation. No issue has been raised by a
U.S. federal, state, local or foreign taxing authority in any current or prior
examination which, by application of the same or similar principles, could
reasonably be expected to result in a proposed deficiency for any subsequent
taxable period. The results of any settlement and the necessary adjustments
resulting therefrom are properly reflected in the Financial Statements.
(h) Neither the Company nor any other Person (including Seller) on
behalf of the Company has (i) filed a consent pursuant to Section 341(f) of the
Code or agreed to have Section 341(f)(2) of the Code apply to any disposition of
a subsection (f) asset (as such term is defined in Section 341(f)(4) of the
Code) owned by the Company, (ii) agreed to or is required to make any
adjustments pursuant to Section 481(a) of the Code or any similar provision of
state, local or foreign law by reason of a change in accounting method initiated
by the Company or has any knowledge that the Internal Revenue Service has
proposed any such adjustment or change in accounting method, or has any
application pending with any taxing authority requesting permission for any
changes in accounting methods that relate to the business or operations of the
Company, or has otherwise taken any action that would have the effect of
deferring any liability for Taxes from any taxable period ending on or before
the Closing to any taxable period ending thereafter, (iii) executed or entered
into closing agreement pursuant to Section 7121 of the Code or any predecessor
provision thereof or any similar provision of state, local or foreign law with
respect to the Company, or (iv) requested any extension of time within which to
file any Tax Return, which Tax Return has since not been filed.
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(i) No property owned by the Company (i) is property required to be
treated as being owned by another Person pursuant to the provisions of Section
168(f)(8) of the Internal Revenue Code of 1954, as amended and in effect
immediately prior to the enactment of the Tax Reform Act of 1986, (ii)
constitutes "tax-exempt use property" within the meaning of Section 168(h)(1) of
the Code or (iii) is "tax-exempt bond financed property" within the meaning of
Section 168(g) of the Code.
(j) The Company is not a party to any tax sharing or similar
agreement or arrangement (whether or not written) pursuant to which it will have
any obligation to make any payments after the Closing.
(k) There is no contract, agreement, plan or arrangement covering
any person that, individually or collectively, could give rise to the payment of
any amount that would not be deductible by Parent or any of its Affiliates by
reason of Section 280G of the Code, or would constitute compensation in excess
of the limitation set forth in Section 162(m) of the Code.
(l) The Company has substantial authority for the treatment of or
has disclosed (in accordance with Section 6662(d)(2)(B)(ii) of the Code) on its
federal income Tax Returns all positions taken therein that could give rise to a
substantial understatement of federal income tax within the meaning of Section
6662(d) of the Code.
(m) The Company is not subject to any private letter ruling of the
Internal Revenue Service or comparable rulings of other taxing authorities.
(n) There are no liens as a result of any unpaid Taxes upon any of
the assets of the Company.
(o) All material Tax elections of the Company are clearly set forth
in the Tax Returns described in Section 6.10(e). The Company does not have
elections in effect for U.S. federal income tax purposes under Sections 108,
168, 338, 441, 463, 472, 1017, 1033 or 4977 of the Code.
(p) The Company has never been a member of any Affiliated Group of
corporations for any Tax purposes. The Company has no liability for Taxes of any
person (other than the Company) under section 1.1502-6 of the Treasury
regulations under the Code (or any similar provision of state, local or foreign
law), as a transferee or successor or otherwise. The Company does not own any
interest in any entity that is treated as a partnership for U.S. federal income
tax purposes or would be treated as a pass-through or transparent entity for any
tax purpose.
(q) Seller is not a foreign person within the meaning of Section
1445 of the Code.
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(r) The Company has not filed an election pursuant to Revenue
Procedure 95-11, 1995-1 C.B. 505 or under Treasury regulation Section
1.1502-75(c) or any similar provision of foreign, national, international, state
or local law.
Section 5.11 Events Subsequent to the Interim Balance Sheet Date. Except
as set forth on Schedule 6.11 and except for events that would not result in a
Material Adverse Change, since the Interim Balance Sheet Date, the Company has
not (a) borrowed any amount or incurred or become subject to any liability
(absolute, accrued or contingent), except current liabilities, liabilities under
contracts entered into, borrowings under banking facilities disclosed in the
Schedules hereto and liabilities in respect of letters of credit issued under
such banking facilities, all of which were in the ordinary course of business;
(b) discharged or satisfied any lien or paid any obligation or liability
(absolute, accrued or contingent) other than current liabilities shown on the
Interim Balance Sheet (including without limitation regularly scheduled payments
(but not prepayments) of long-term debt) and current liabilities incurred since
the Interim Balance Sheet Date in the ordinary course of business; (c) failed to
pay or discharge when due its liabilities or obligations in accordance with past
practices; (d) other than liens pursuant to purchase money security interests in
an aggregate amount of less than $20,000, mortgaged, pledged or subjected to
lien any of its assets, tangible or intangible, other than liens of current real
property Taxes not yet due and payable; (e) sold, assigned or transferred any of
its tangible assets except for the sale of inventory in the ordinary course of
business, canceled any debt or claim, or waived any right of substantial value
whether or not in the ordinary course of business; (f) sold, assigned,
transferred or granted any license with respect to any Intellectual Property;
(g) suffered any damage or destruction, whether or not covered by insurance; (h)
made commitments or agreements for capital expenditures or capital additions or
betterments exceeding in the aggregate $20,000; (i) received notice or had
knowledge of any actual or threatened labor trouble, strike or other occurrence,
event or condition of any similar character which has had or could reasonably be
expected to have an adverse effect on its business, operations, assets,
properties, prospects or condition (financial or otherwise); (j) suffered any
material adverse change in its relations with, or any loss or threatened loss
of, any of its suppliers or customers disclosed pursuant to Section 6.23; (k)
(1) granted any severance or termination pay to any of its directors, officers,
employees, independent contractors or consultants, (2) entered into any
employment, deferred compensation or other similar agreement (or any amendment
to any such existing agreement) or arrangement with any of its directors,
officers, employees, independent contractors or consultants, (3) increased any
benefits payable under any existing severance or termination pay policies or
agreements with directors, officers, employees, independent contractors or
consultants, (4) increased the compensation, bonus or other benefits payable to
any of its directors, officers, employees, independent contractors or
consultants except in the ordinary course of business, or (5) made any loan to,
or entered into any other transaction with, any of its directors, officers,
employees, independent contractors or consultants except in the ordinary course
of business; (l) made any material change in the manner of its business or
operations; (m) made any material change in any method of accounting or
accounting practice; (n) declared, set aside or paid any dividend or made any
distribution on any shares of its capital stock (whether in cash or in kind), or
redeemed, purchased, or otherwise acquired any shares of its capital stock; (o)
entered into any transaction
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except in the ordinary course of business or as otherwise contemplated hereby;
or (p) entered into any commitment (contingent or otherwise) to do any of the
foregoing.
Section 5.12 Contracts, Obligations and Commitments. The Company does not
have any existing contract, obligation or commitment (written or oral) of any
nature (other than obligations involving annual payments of less than $25,000
individually or $50,000 in the aggregate), including without limitation the
following, except as set forth on Schedule 6.12:
(a) Employment, bonus, severance, independent contractor or
consulting agreements, retirement, stock bonus, stock option, or similar plans;
(b) Loan or other agreements, notes, indentures or instruments
relating to or evidencing indebtedness for borrowed money or mortgaging,
pledging, granting or creating a lien or security interest or other encumbrance
on any of its assets or any agreement or instrument evidencing any guaranty of
payment or performance by any other Person;
(c) Agreements with any labor union or collective bargaining
organization or other labor agreements;
(d) Any contract or series of contracts with the same Person for the
furnishing or purchase of equipment, goods or services;
(e) Any joint venture contract or arrangement or other agreement
involving a sharing of profits or expenses;
(f) Agreements which would, after the Closing Date limit the freedom
of the Company or Purchaser to compete in any line of business or in any
geographic area or with any Person;
(g) Agreements providing for the disposition of any material amount
of its properties or assets or any shares of its capital stock;
(h) Any distribution, dealer, representative or sales agency
agreement, contract or commitment;
(i) Any commitment or agreement for capital expenditures or
leasehold improvements;
(j) Any license, franchise, distributorship or other agreement which
relates in whole or in part to any Intellectual Property, with the exception of
any non-material confidentiality agreement designed to protect the Company's
confidential information;
(k) Any contract, commitment or arrangement not made in the ordinary
course of business; or
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(l) Agreements with the federal government or any state or local
government or any agency thereof.
Each contract, agreement, arrangement, plan, lease, license or similar
instrument to which the Company is a party, whether or not set forth on the
Schedules hereto (collectively, the "Contracts"), is a valid and binding
obligation of the Company, and, to the best of Seller's and the Company's
knowledge, the other parties thereto, enforceable in accordance with its terms
(except as the enforceability thereof may be limited by any applicable
bankruptcy, insolvency or other laws affecting creditors' rights generally or by
general principles of equity, regardless of whether such enforceability is
considered in equity or at law), and is in full force and effect, and neither
the Company nor, to the best of Seller's and the Company's knowledge, any other
party thereto has breached any material provision of, nor is in default in any
material respect under the terms of (and, to the best of Seller's and the
Company's knowledge, no condition exists which, with the passage of time, the
giving of notice, or both, would result in a default under the terms of), any of
the Contracts. To the best of Seller's and the Company's knowledge, no Contract
contains any contractual business requirement with which there is a reasonable
likelihood that the Company will be unable to comply, except where any failure
to so comply would not result in a Material Adverse Change. Each Contract (other
than those which expire in accordance with the terms thereof) will continue to
be legal, valid, binding, enforceable and in full force and effect on identical
terms immediately following the consummation of the transactions contemplated
hereby.
Section 5.13 Litigation. Except as set forth on Schedule 6.13, neither the
Company nor any Affiliate of the Company, nor any of their respective directors,
officers, employees or agents (in their capacity as such) is a party to any
pending or, to Seller's and the Company's best knowledge, threatened action,
suit, proceeding or investigation, at law or in equity or otherwise in, before
or by any court or governmental board, commission, agency, department or office,
or private arbitration tribunal, nor does Seller or the Company know, after due
inquiry, of any basis therefor, (a) arising in connection with the conduct of
business by the Company, (b) to restrain, prohibit or invalidate, or to obtain
damages or other relief from the Company or any of its Affiliates, or any of
their respective directors or officers, or equitable or other relief in respect
of this Agreement or the transactions contemplated hereby, (c) which arises out
of any contract, agreement, letter of intent or arrangement alleged to have been
entered into or agreed to by Seller or the Company and which conflicts with this
Agreement or the transactions contemplated hereby, or gives rise to a claim or
right of any kind of any Person as a result of the execution of this Agreement
or the consummation of the transactions contemplated hereby, (d) which, if
successful, could adversely affect the right of Purchaser after the Closing Date
to own the Company or to conduct the Business, or (e) to suspend, revoke, annul,
limit, terminate, amend or modify any Permit. Neither the Company nor Seller is
a party or is subject to any order, ruling, judgment, decree or stipulation
which affects the Business or which would prevent the transactions contemplated
by this Agreement.
Section 5.14 Compliance with Law. Except where the failure to so comply
would not result in a Material Adverse Change, the Company has been and is in
compliance with all applicable
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laws, rules, regulations and court or administrative orders and processes
(including, without limitation, any that relate to transportation, zoning,
communications, environmental regulation, consumer protection, health and
safety, products and services, proprietary rights, anti-competitive practices,
collective bargaining, ERISA, equal opportunity, and improper payments). The
Company has not received any written notice from any governmental authority, and
to the best of Seller's and the Company's knowledge, no oral notice has been
given and no notice of any kind is threatened, alleging that the Company has
violated, or not complied with, any of the above.
Section 5.15 Licenses; Registrations; Permits; Etc. The Company and each
of its officers, directors, employees and independent contractors possess all
governmental registrations, licenses, permits, authorizations and approvals
(collectively referred to herein as "Permits") necessary to operate the Business
as currently conducted, which necessary Permits are set forth on Schedule 6.15.
All such Permits are in full force and effect and no such party is in default
under any of such Permits and no event has occurred and no condition exists
which, with the giving of notice, the passage of time, or both, would constitute
a default thereunder.
Section 5.16 Brokers. Except for a broker's fee to Ross Crossland Weston &
Co., the payment of which is the responsibility of Seller pursuant to Section
9.1, neither Seller, the Company nor any of the Company's Affiliates has paid or
become obligated to pay any fee or commission to any broker, finder, investment
banker or other intermediary in connection with the transactions contemplated by
this Agreement.
Section 5.17 Intellectual Property. Schedule 6.17 contains a true and
complete list of all patents, trademarks and servicemarks (either registered,
common law or registration applied for), trade names, copyrights and third party
licenses which are owned, used, registered in the name of or licensed by the
Company, or in which the Company otherwise has an interest, together with a
brief statement as to any filing, registration or issuance thereof, as to any
licenses, sublicenses, covenants or agreements entered into or granted by or to
the Company with respect thereto and as to any pending or threatened disputes or
adverse claims with respect thereto. The Company owns or is licensed or
otherwise has the right to use all the Intellectual Property necessary to carry
on the Business as currently conducted. All licenses, if any, of the Company to
use Intellectual Property necessary to carry on the Business as currently
conducted are in full force and effect and neither the Company nor, to the best
of Seller's and the Company's knowledge, any of the other parties to such
licenses is in material breach of any provision of, or in material default under
any of the terms of, such licenses. The Company has not granted any Person any
exclusive license or other right to use any of the Intellectual Property
necessary to carry on the Business as currently conducted, whether requiring the
payment of royalties or not. The Company does not infringe upon or unlawfully or
wrongfully use any Intellectual Property owned or claimed by another, and to the
best of Seller's and the Company's knowledge, no Person is infringing upon, or
is in violation of, any Intellectual Property or rights thereto of the Company.
Subsequent to the Closing, no current or former director, officer, stockholder
or employee of the Company shall own, have an interest in or have the right to
use any Intellectual Property which is being, or was at any time since January
1, 1994, utilized in the Business. There is no pending or, to the best of
Seller's and the Company's knowledge,
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threatened claim or litigation against the Company contesting its right to use
Intellectual Property, asserting the misappropriation or misuse of any
Intellectual Property or asserting that the Company has violated or infringed
the Intellectual Property of another party. This Agreement and the consummation
of the transactions contemplated hereby will not in any manner affect the
Company's rights after the Closing with respect to, or their ability to use, the
Intellectual Property necessary to carry on the Business as currently conducted
immediately subsequent to the Closing. Since January 1, 1994, the Company has
not conducted business under any corporate, trade or fictitious name other than
the names listed on Schedule 6.17.
Section 5.18 Insurance. Schedule 6.18 sets forth all insurance agreements
and policies maintained by the Company or under which the Company is listed as a
beneficiary or additional insured (including any self-insurance arrangements)
and the type and amounts of coverage thereunder, which coverage reflects all
insurance which is required by Law to be maintained by the Company. During the
past three years, the Company has not been refused insurance, nor has its
coverage been limited, nor has any claim in excess of $25,000 individually or
$50,000 in the aggregate been made in respect of any such insurance. All of such
policies, agreements and arrangements are in full force and effect, the Company
is not delinquent with respect to any premium payments thereon, no notice of
cancellation has been received, and there is no existing default or event which,
with the giving of notice or lapse of time or both, would constitute a default
thereunder. The Company maintains the type and amount of insurance which is
adequate to protect it and its financial condition against the risks involved in
the conduct of the Business. The Company has no performance bonds or letters of
credit which are required by law or any agreement, contract or commitment,
including the Contracts, to be maintained or entered into by the Company.
Section 5.19 Plans and Agreements Relating to Employees. (a) Schedule
6.19(a) lists each of the following plans, contracts, policies and arrangements
which is or, within six years prior to the Closing Date, was sponsored,
maintained or contributed to by, or otherwise binding upon the Company or, in
the case of an "employee pension plan" (as defined in Section 3(2) of ERISA), an
ERISA Affiliate for the benefit of any current or former employee, director or
other personnel (including any such plan, contract, policy or arrangement
approved or adopted before, but effective on or after, the date of this
Agreement): (i) any "employee benefit plan," as such term is defined in Section
3(3) of ERISA, whether or not subject to the provisions of ERISA, (ii) any
written personnel policy, and (iii) any other employment, consulting, collective
bargaining, stock option, stock bonus, stock purchase, phantom stock, incentive,
bonus, deferred compensation, retirement, severance, vacation, dependent care,
employee assistance, fringe benefit, medical, dental, sick leave, death benefit,
golden parachute or other compensatory plan, contract, policy or arrangement
which is not an employee benefit plan as defined in Section 3(3) of ERISA (each
such plan, contract, policy and arrangement described in (i), (ii) or (iii)
above being herein referred to as an "Employee Plan").
(b) With respect to each Employee Plan, Seller has delivered to
Purchaser true and complete copies of (1) each contract, plan document, policy
statement, summary plan description and other written material governing or
describing the Employee Plan and/or any related funding arrangements (including,
without limitation, any related trust agreement or insurance
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company contract) or, if there are no such written materials, a summary
description of the Employee Plan; and (2), where applicable, (A) the last two
annual reports (5500 series) filed with the Internal Revenue Service or the
Department of Labor; (B) the most recent balance sheet and financial statement;
(C) the most recent actuarial report or valuation statement; and (D) the most
recent determination letter issued by the Internal Revenue Service, as well as
any other determination letter, private letter ruling, opinion letter or
prohibited transaction exemption issued by the Internal Revenue Service or the
Department of Labor within the last six years and any application therefor which
is currently pending.
(c) Each Employee Plan has been maintained and administered in
accordance with its terms and in compliance with the provisions of applicable
law, including, without limitation, applicable disclosure, reporting, funding
and fiduciary requirements imposed by ERISA and/or the Code. All contributions,
insurance premiums, benefits and other payments required to be made to or under
each Employee Plan have been made timely and in accordance with the governing
documents and applicable law. With respect to each Employee Plan, (1) no
application, proceeding or other matter is pending before the Internal Revenue
Service, the Department of Labor or any other governmental agency; (2) no
action, suit, proceeding or claim (other than routine claims for benefits) is
pending or threatened; and (3) to the knowledge of Seller and the Company, no
facts exist which could give rise to an action, suit, proceeding or claim which,
if asserted, could result in a material liability or expense to the Company or
the plan assets.
(d) With respect to each Employee Plan which is an "employee benefit
plan" within the meaning of Section 3(3) of ERISA or which is a "plan" within
the meaning of Section 4975(e) of the Code, there has occurred no transaction
which is prohibited by Section 406 of ERISA or which constitutes a "prohibited
transaction" under Section 4975(c) of the Code and with respect to which a
prohibited transaction exemption has not been granted and is not currently in
effect.
(e) With respect to each funded Employee Plan which is an employee
pension plan within the meaning of Section 3(2) of ERISA, (1) the Employee Plan
is a qualified plan under Section 401(a) of the Code, and its related trust is
exempt from federal income taxation under Section 501(a) of the Code; (2) a
favorable IRS determination letter is currently in effect and, since the date of
the last determination letter, the Employee Plan has not been amended or
operated in a manner which would adversely affect its qualified status and no
event has occurred which has caused or could cause the loss of such status; and
(3) there has been no termination or partial termination within the meaning of
Section 411(d)(3) of the Code.
(f) No Employee Plan is or was a multiemployer plan within the
meaning of Section 3(37) of ERISA, a plan covered by Section 302(a)(2) of ERISA
or Section 412 of the Code, or a plan covered by Title IV of ERISA. Neither the
Company nor any ERISA Affiliate has incurred or expects to incur any withdrawal
liability under Title IV of ERISA (either as a contributing employer or as part
of a controlled group which includes a contributing employer) in connection with
a complete or partial withdrawal from a multiemployer plan, and no ERISA
Affiliate has received notice from any such multiemployer plan that the plan is
in reorganization or insolvency pursuant
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to Sections 4241 or 4245 or ERISA or that the plan is intended to terminate or
has terminated under Sections 4041A or 4042 of ERISA.
(g) The Company and its ERISA Affiliates have complied in all
respects with the provisions of Section 4980B of the Code with respect to any
Employee Plan which is a group health plan within the meaning of Section
5001(b)(1) of the Code. The Company does not maintain, contribute to, and is not
obligated under any plan, contract, policy or arrangement providing health or
death benefits (whether or not insured) to current or former employees or other
personnel beyond the termination of their employment or other services. Except
as set forth on Schedule 6.19(a), each Employee Plan may be unilaterally
terminated and/or amended by the Company at any time.
(h) The consummation of the transactions contemplated by this
Agreement will not (either alone or in conjunction with another event, such as a
termination of employment or other services) entitle any employee or other
person to receive severance or other compensation which would not otherwise be
payable absent the consummation of the transactions contemplated by this
Agreement or cause the acceleration of the time of payment or vesting of any
award or entitlement under any Employee Plan.
(i) Schedule 6.19(i) sets forth a complete and accurate list showing
the names, the rate of compensation (and the portions thereof attributable to
salary and bonuses, respectively) and location of all current officers,
employees and independent contractors of and consultants to the Company that
received total compensation in excess of $75,000 for the year ended December 31,
1998, or are expected to receive a salary in excess of $75,000 for the year
ending December 31, 1999. There are no covenants, agreements or restrictions to
which the Company is a party or bound, including but not limited to employee
non-compete agreements, prohibiting, limiting or in any way restricting any
officer or employee listed on Schedule 6.19(i) from engaging in any type of
business activity in any location. To the best knowledge of Seller and the
Company, no officer or employee listed on Schedule 6.19(i), has any plans to
terminate their employment. There has not been, and Seller does not anticipate,
any adverse change in relations with employees as a result of the announcement
of the transactions contemplated by this Agreement. The Company has not
instituted any "freeze" of, or delayed or deferred the grant of, any
cost-of-living or other salary adjustments for any of its employees, independent
contractors or consultants.
(j) Schedule 6.19(j) sets forth by number and employment
classification the approximate numbers of employees, independent contractors and
consultants of the Company as of the date of this Agreement, and, except as set
forth therein, none of said individuals are subject to union or collective
bargaining agreements. There have been no audits of the equal employment
opportunity practices of the Company and, to the best knowledge of Seller and
the Company, no basis for such an audit exists. There is no unfair labor
practice charge or complaint against the Company pending before the National
Labor Relations Board and none has occurred since January 1, 1994. No
representation question exists respecting the employees of the Company, nor is
any grievance procedure or arbitration proceeding pending under any collective
bargaining agreement and no claim therefor has been asserted. The Company has
not received notice from any union or
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employees setting forth demands for representation, elections or for present or
future changes in wages, terms of employment or working conditions.
Section 5.20 No Illegal or Improper Transactions. Neither the Company nor
any officer, director, employee, agent or Affiliate of any of them has offered,
paid or agreed to pay to any Person (including any governmental official) or
solicited, received or agreed to receive from any Person, directly or
indirectly, any money or thing of value for the purpose or with the intent of
(a) obtaining or maintaining business for the Company, (b) facilitating the
purchase or sale of any product or service, or (c) avoiding the imposition of
any fine or penalty, in any such case in any manner which is in violation of any
applicable ordinance, regulation or law; and there have been no false or
fictitious entries made in the books or records of the Company.
Section 5.21 Related Transactions. Except as set forth on Schedule 6.21,
no current or former director, officer, employee, independent contractor,
consultant or Affiliate of the Company or any relative of Seller is presently,
or during the last three fiscal years has been, (a) a party to any material
transaction with the Company (including, but not limited to, any contract,
agreement or other arrangement providing for the furnishing of services by, or
rental of real or personal property from, or otherwise requiring payments to,
any such director, officer, employee, independent contractor, consultant,
Affiliate or relative), or (b) to the best knowledge of Seller, the direct or
indirect owner of an interest in any corporation, firm, association or business
organization which is a present (or potential) competitor, supplier or customer
of the Company, except for less than one percent (1%) holdings for investment
purposes in securities of publicly held and traded companies.
Section 5.22 No Product Liabilities; Product Warranties. (a) The Company
has not, since January 1, 1995, incurred, nor does Seller or the Company know of
or have any reason to believe there is any reasonable basis for alleging, any
liability, damage, loss, cost or expense as a result of any defect or other
deficiency (whether of design, materials, workmanship, labeling, instructions or
otherwise) ("Product Liability") with respect to any product sold or service
rendered by the Company, whether such Product Liability is incurred by reason of
any express or implied warranty (including, without limitation, any warranty of
merchantability or fitness), any doctrine of common law (tort, contract or
other), any statutory provision or otherwise and irrespective of whether such
Product Liability is covered by insurance. Section 1.1
(b) Seller has furnished Purchaser with all forms of warranties or
guarantees of products and services that are in effect or proposed to be used by
the Company. There are no pending or, to the best knowledge of Seller and the
Company, threatened claims against the Company under any warranty or guaranty.
Schedule 6.22 lists all payments or settlements made in respect of any such
warranty or guaranty since January 1, 1996, indicating the name of each
customer, the amount of each payment and a brief description of the facts
relating thereto.
Section 5.23 Suppliers and Customers. (a) Schedule 6.23 lists (i) all
suppliers to which the Company made payments during the year ended September 30,
1998, or expect to make payments during the year ending December 31, 1999, in
excess of five percent (5%) of the cost of
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sales as reflected on the Company's statement of operations for the year ended
September 30, 1998 and (ii) all customers that paid the Company during the year
ended September 30, 1998 or that Seller expects will pay to the Company during
the year ending December 31, 1999, more than five percent (5%) of the Company's
sales revenues as reflected on its statement of operations for the year ended
September 30, 1998.
(b) Seller and the Company have no information which might
reasonably indicate that any of the customers or suppliers listed on Schedule
6.23 intend to cease purchasing from, selling to, or dealing with, the Company,
nor has any information been brought to their attention which might reasonably
lead them to believe any such customer or supplier intends to alter in any
material respect the amount of such purchases, sales or the extent of dealings
with the Company or would alter in any material respect such purchases, sales or
dealings in the event of the consummation of the transactions contemplated by
this Agreement. Seller and the Company have no information which might
reasonably indicate, nor has any information been brought to their attention
which might reasonably lead them to believe that, (i) any supplier will not be
able to fulfill outstanding or currently anticipated purchase orders placed by
the Company, or (ii) any customer will cancel outstanding or currently
anticipated purchase orders placed with the Company.
Section I.7 Powers of Attorney. There are no outstanding powers of
attorney executed on behalf of the Company.
Section I.8 Year 2000 Compliance. Except for non-customized, commercially
available software, the computer systems of the Company (including without
limitation all software, hardware, workstations and related components,
semiconductor chips, microprocessors, embedded microcontrollers, automated
devices, embedded chips and other date sensitive equipment such as security
systems, alarms, elevators and HVAC systems) and all computer systems,
components or products used or installed by the Company in connection with the
Business (i) are Year 2000 Compliant and (ii) have the ability to properly
interface and will continue to properly interface with internal and external
applications and systems of third parties with whom the Company exchanges data
electronically (including without limitation customers, clients, suppliers,
service providers, subcontractors, processors, converters, shippers,
warehousemen, outsources, data processors, regulatory agencies and banks)
whether or not the applications and systems of such third parties are Year 2000
Compliant. The Company has inquired of all such third parties, and all such
third parties have represented that their respective computer systems are Year
2000 Compliant.
Section 5.24 Availability of Documents. Seller has made available to
Purchaser copies of all documents, including without limitation all agreements,
Contracts, commitments, insurance policies, leases, plans, instruments,
undertakings, authorizations, Permits and Intellectual Property listed in the
Schedules hereto or referred to herein. Such copies are true and complete and
include all amendments, supplements and modifications thereto or waivers
currently in effect thereunder.
Section 5.25 Disclosure. No information furnished by or on behalf of
Seller to Parent or Purchaser contains any untrue statement of a material fact
or omits to state a material fact necessary
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to make such information, in the light of the circumstances under which it was
furnished, not misleading.
6. REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
Parent and Purchaser, jointly and severally, hereby represent and warrant
to Seller that:
Section 6.1 Organization. Parent and Purchaser are corporations duly
organized, validly existing and in good standing under the laws of the State of
Delaware, with the requisite corporate power and authority to carry on their
respective businesses as presently conducted and to own, lease and operate the
properties and assets used in connection therewith. Parent and Purchaser are in
good standing as foreign corporations and licensed or qualified to transact
business in each jurisdiction in which the conduct of their respective business
or their ownership, leasing or operation of properties and assets requires them
to be so licensed or qualified, except where the failure to be so licensed or
qualified would not have a material adverse effect on the business of Parent and
its subsidiaries taken as a whole. Neither Parent nor Purchaser is in default
under or in violation of any provisions of its certificate of incorporation or
by-laws.
Section 6.2 Due Authorization. Each of Parent and Purchaser has all
requisite corporate power and authority to execute and deliver this Agreement
and the other documents required to be executed and delivered by it hereunder,
to perform fully its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby. The execution and delivery by
Parent and Purchaser of this Agreement and the other documents required to be
executed and delivered by each of them hereunder, the performance by each of
them of their respective obligations hereunder and thereunder, and the
consummation by each of them of the transactions contemplated hereby and thereby
have been duly and validly authorized by all necessary corporate action on the
part of Parent and Purchaser. This Agreement has been duly executed by each of
Parent and Purchaser. This Agreement is, and each other agreement contemplated
hereby to which Parent or Purchaser will be a party will be, upon execution and
delivery by Parent and/or Purchaser, as applicable, a legal, valid and binding
obligation of Parent or Purchaser, as applicable, enforceable against such party
in accordance with its terms (except as enforceability may be limited by any
applicable bankruptcy, insolvency or other laws affecting creditors' rights
generally or by general principles of equity, regardless of whether such
enforceability is considered in equity or at law).
Section I.9 No Conflict. Except for matters that would not have a material
adverse effect on the business of Parent and its subsidiaries taken as a whole,
neither the execution and delivery by Parent and Purchaser of this Agreement or
any of the other documents contemplated hereby nor the consummation of the
transactions contemplated hereby or thereby by Parent or Purchaser will (a)
conflict with, result in a breach or violation of or constitute (or with notice
or lapse of time or both constitute) a default under, (i) the certificate of
incorporation or by-laws of Parent or Purchaser, (ii) any law, statute,
regulation, order, judgment or decree or (iii) any instrument, contract or other
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agreement to which Parent or Purchaser is a party or by which either of them (or
any of their respective properties or assets) is subject or bound; (b) result in
the creation of, or give any party the right to create, any lien, charge,
option, security interest or other encumbrance upon the assets or properties of
Parent or Purchaser; (c) terminate or modify, or give any third party the right
to terminate or modify, the provisions or terms of any agreement or commitment
to which Parent or Purchaser is a party or by which either of them (or any of
their respective properties or assets) is subject or bound; (d) except as
required by the Exchange Act, require Parent or Purchaser to obtain any
authorization, consent, approval or waiver from, to give any notification to, or
to make any filing with, any governmental body or authority or to obtain the
approval or consent of any other Person; or (e) result in any suspension,
revocation, impairment, forfeiture or nonrenewal of any permit, license,
qualification, authorization or approval applicable to Parent or Purchaser
Section 6.3 Brokers. Neither Parent, Purchaser nor any of Parent's
Affiliates has paid or become obligated to pay any fee or commission to any
broker, finder, investment banker or other intermediary in connection with the
transactions contemplated by this Agreement.
Section 6.4 Securities Act Matters. (a) Purchaser acknowledges that its
representations and warranties contained in this Section 7.5 are being relied
upon by Seller as a basis for the exemption of the transfer of the Shares
hereunder from the registration requirements of the Securities Act and any
applicable state securities laws.
(b) Purchaser understands that (i) the Shares have not been
registered under the Securities Act or any state securities laws and (ii) the
Shares must be held indefinitely unless a subsequent disposition thereof is
registered under the Securities Act and applicable state securities laws or is
exempt from such registration.
(c) Purchaser is acquiring the Shares for its own account and not
with a view to, or for sale in connection with, directly or indirectly, any
distribution thereof that would require registration under the Securities Act or
applicable state securities laws or would otherwise violate the Securities Act
or such state securities laws.
(d) Purchaser and its attorneys, accountants, investment and
financial advisors, if any, have had the opportunity to review the books and
records of the Company and have been provided with access to such information as
it or its advisors, if any, have requested.
(e) Purchaser is an "accredited investor" pursuant to Rule 501 under
the Securities Act.
Section I.10 Parent Financial Information. (a) Parent has delivered to
Seller (i) true, correct and complete copies, in all material respects, of the
Company's consolidated audited balance sheets as of December 31, 1996 and 1997
and the related statements of operations and cash flows (together with the
auditors' reports thereon) for each of the years in the two-year period ended
December 31, 1997, together with notes to such financial statements, and (ii)
true, correct and
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complete copies, in all material respects, of the Company's unaudited balance
sheets as at September 30, 1998 and 1997 and the related statements of
operations and cash flows for the 3-month periods then ended (collectively, the
"Parent Financial Statements").
(b) Except as otherwise noted, the Parent Financial Statements are
in accordance with the books and records of the Company and have been prepared
in accordance with generally accepted accounting principles consistently applied
throughout the periods covered thereby. The balance sheets included in the
Parent Financial Statements present fairly in all material respects as of their
respective dates the financial condition of the Company (subject, in the case of
the unaudited Parent Financial Statements, to year end adjustments that may be
required upon audit, which adjustments will not have a material adverse effect
on such financial statements).
Section I.11 No Material Adverse Change. Between September 30, 1998 and
the date of this Agreement, there has been no material adverse change affecting
the business or operations of Parent or Purchaser which has not been consented
to by Seller.
Section I.12 Disclosure. No information furnished by or on behalf of
Parent or Purchaser to Seller contains any untrue statement of a material fact
or omits to state a material fact necessary to make such information, in the
light of the circumstances under which it was furnished, not misleading.
7. CERTAIN ACTIONS AFTER THE CLOSING
Section 7.1 Maintenance of Books and Records. Each party hereto shall
preserve until the seventh anniversary of the Closing Date all records possessed
or to be possessed by such party relating to any of the assets, liabilities or
business of the Company prior to the Closing Date. After the Closing Date, where
there is a legitimate purpose, such party shall provide any other party with
access, upon prior reasonable written request specifying the need therefor,
during regular business hours, to (i) the officers and employees of such party
and (ii) the books of account and records of such party, but, in each case, only
to the extent relating to the assets, liabilities or business of the Company
prior to the Closing Date, and the other party and its representatives shall
have the right to make copies of such books and records; provided, however, that
the foregoing right of access shall not be exercisable in such a manner as to
interfere unreasonably with the normal operations and business of such party;
and further, provided, that, as to so much of such information as constitutes
trade secrets or confidential business information of such party, the requesting
party and its officers, directors and representatives will use due care not to
disclose such information except (1) as required by law, (2) with the prior
written consent of such party, or (3) where such information becomes available
to the public generally, or becomes generally known to competitors of such
party, through sources other than the requesting party, its Affiliates or its
officers, directors or representatives.
Section I.13 Salaries and Benefits. Between the Closing Date and December
31, 2000, Purchaser will not cause the salaries or benefits of the Company's
employees to be decreased, or terminate any of the Company's employees, without
the consent of Seller.
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Section 7.2 Tax Matters. The following provisions shall govern the
allocation of responsibility as between Purchaser and Seller for certain tax
matters following the Closing Date:
(a) Tax Periods Ending on or Before the Closing Date. Purchaser
shall prepare or cause to be prepared and file or cause to be filed all Tax
Returns for the Company for all periods ending on or prior to the Closing Date
which are filed after the Closing Date. Purchaser shall permit Seller to review
and comment on each such Tax Return prior to filing. To the extent not accrued
or reserved for on the Interim Balance Sheet, Seller shall pay Purchaser for
Taxes of the Company with respect to such periods no later than fifteen (15)
days prior to the date payment for such Taxes is due.
(b) Tax Periods Beginning Before and Ending After the Closing Date.
Purchaser shall prepare or cause to be prepared and file or cause to be filed
any Tax Returns of the Company for Tax periods which begin before the Closing
Date and end after the Closing Date. To the extent not accrued or reserved for
on the Interim Balance Sheet, Seller shall pay to Purchaser no later than
fifteen (15) days prior to the date on which payment for such Taxes is due an
amount equal to the portion of such Taxes which relates to the portion of such
Taxable period ending on the Closing Date. For purposes of this Section, in the
case of any Taxes that are imposed on a periodic basis and are payable for a
Taxable period that includes (but does not end on) the Closing Date, the portion
of such Tax which relates to the portion of such Taxable period ending on the
Closing Date shall (x) in the case of any Taxes other than Taxes based upon or
related to income or receipts, be deemed to be the amount of such Tax for the
entire Taxable period multiplied by a fraction the numerator of which is the
number of days in the Taxable period ending on the Closing Date and the
denominator of which is the number of days in the entire Taxable period, and (y)
in the case of any Tax based upon or related to income or receipts be deemed
equal to the amount which would be payable if the relevant Taxable period ended
on the Closing Date. Any credits relating to a Taxable period that begins before
and ends after the Closing Date shall be taken into account as though the
relevant Taxable period ended on the Closing Date. All determinations necessary
to give effect to the foregoing allocations shall be made in a manner consistent
with prior practice of the Company.
(c) Cooperation on Tax Matters.
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(1) Each party hereto shall cooperate fully, as and to the extent
reasonably requested by any other party, in connection with the filing of
Tax Returns pursuant to this Section and any audit, litigation or other
proceeding with respect to Taxes. Such cooperation shall include the
retention and (upon any other party's request) the provision of records
and information which are reasonably relevant to any such audit,
litigation or other proceeding and making employees available on a
mutually convenient basis to provide additional information and
explanation of any material provided hereunder. Seller agrees to cause the
Company (A) to retain all books and records with respect to Tax matters
pertinent to the Company relating to any Taxable period beginning before
the Closing Date until the expiration of the statute of limitations (and,
to the extent notified by Purchaser, any extensions thereof) of the
respective Taxable periods, and to abide by all record retention
agreements entered into with any Taxing authority, and (B) to give
Purchaser reasonable written notice prior to transferring, destroying or
discarding any such books and records and, if Purchaser so requests,
Seller shall allow Purchaser to take possession of such books and records.
(2) Seller further agrees, upon request, to use his best efforts to
obtain any certificate or other document from any governmental authority
or any other Person as may be necessary to mitigate, reduce or eliminate
any Tax that could be imposed (including, but not limited to, with respect
to the transactions contemplated hereby).
(3) Seller further agrees, upon request, to provide Purchaser with
all information that either party may be required to report pursuant to
Section 6043 of the Code and all Treasury Department regulations
promulgated thereunder.
(d) Tax Audits. Notwithstanding Section 5.5 hereof, Seller and
Purchaser shall promptly notify each other in writing upon receipt by Seller,
Parent or Purchaser, as the case may be, of any notice of any tax audits,
assessments or administrative or court proceedings (a "tax proceeding") against
the Company for taxable periods of such Person ending on or before, or
including, the Closing Date. The failure of one party promptly to notify the
other party of any such tax proceeding shall not relieve either party of its
indemnification obligations under Article V, except and only to the extent that
such failure prejudices the defense of such tax proceeding. Seller shall have
the sole right to represent the Company's interests in any tax proceeding
relating to taxable periods of the Company ended on or prior to the Closing Date
and to employ counsel of his choice at his own expense; provided, however, that
Purchaser shall have the right to consult with Seller regarding such tax
proceedings and that any settlement or other disposition of any such tax
proceeding may only be made with the consent of Purchaser, which consent shall
not be unreasonably withheld. Purchaser shall have the sole right to represent
the Company's interests in any tax proceeding relating to taxable periods ending
after the Closing Date and to employ counsel of its choice at its expense.
Purchaser shall keep Seller informed of all material developments and events
relating to such tax proceeding. Seller and Purchaser each agree to cooperate
fully with the
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other and its or their respective counsel in the defense against or compromise
of any claim in any tax proceeding
Section I.14 Assignment of Accounts Receivable. Immediately following the
June 15, 1999 payment to Seller pursuant to the Accounts Receivable Note,
Purchaser shall assign to Seller all Past Due Accounts Receivable that have not
been collected by the Company as of June 1, 1999. On the date of any Indemnity
Claim relating to Section 6.9(c) of this Agreement, Purchaser shall assign to
Seller all accounts receivable comprising such Indemnity Claim.
Section 7.3 Further Assurances. Seller from time to time after the
Closing, at Purchaser's request, will execute, acknowledge and deliver to
Purchaser such other instruments of conveyance and transfer and will take such
other actions and execute and deliver such other documents, certifications and
further assurances as Purchaser may reasonably require in order to vest more
effectively in Purchaser, or to put Purchaser more fully in possession of, the
Shares or any of the assets or properties of the Company. Each of the parties
hereto will cooperate with each other party hereto and execute and deliver to
each other party hereto such other instruments and documents and take such other
actions as may be reasonably requested from time to time by such other party as
necessary to carry out, evidence and confirm the intended purposes of this
Agreement.
8. MISCELLANEOUS
Section I.1 Expenses. Parent and Purchaser, on the one hand, and Seller,
on the other, shall pay all accounting, consulting, finders, investment banking,
legal and similar fees and expenses incurred by them relating to this Agreement,
the negotiations leading up to this Agreement and the consummation of the
transactions contemplated hereby. Seller shall pay all such fees and expenses
incurred by the Company.
Section 8.1 Amendments and Waivers. This Agreement shall not be amended or
modified except by a writing duly executed by Parent and Seller. Waiver of any
term or condition of this Agreement by any party shall only be effective if in
writing. No waiver by any party of any default, misrepresentation, or breach of
warranty or covenant hereunder, whether intentional or not, shall be deemed to
extend to any prior or subsequent default, misrepresentation, or breach of
warranty or covenant hereunder or affect in any way any rights arising by virtue
of any prior or subsequent occurrence.
Section 8.2 Entire Agreement. This Agreement, including the Exhibits and
Schedules hereto and the other instruments, agreements and documents delivered
at the Closing in connection with the transactions contemplated by this
Agreement, contains all of the terms, conditions and representations and
warranties agreed upon by the parties relating to the subject matter of this
Agreement and supersedes all prior agreements, negotiations, correspondence,
undertakings and communications of the parties, oral or written, respecting such
subject matter, including without limitation that certain letter of intent,
dated as of January 12, 1999, by and between Parent and Seller.
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<PAGE>
No party shall be deemed to make any representation, warranty or covenant to any
other party with respect to this Agreement or the transactions contemplated
hereby except for the representations, warranties and covenants contained herein
(including the Schedules and Exhibits hereto and any documents delivered
pursuant hereto).
Section 8.3 Headings. The headings contained in this Agreement are
intended solely for convenience and shall not affect the rights of the parties
to this Agreement.
Section 8.4 Notices. All notices, requests, demands and other
communications made in connection with this Agreement shall be in writing and
shall be deemed to have been duly given (a) on the date of delivery, if
delivered to the persons identified below, (b) seven calendar days after mailing
if mailed, with proper postage, by certified or registered first-class mail,
postage prepaid, return receipt requested, addressed as follows:
If to Seller: Mr. J. Richard Shafer
Creative Business Concepts, Inc.
One Technology Drive, Building H
Irvine, California 92618
Telecopy: (949) 727-2403
With a copy to: White & McDermott, P.C.
65 William Street
Wellesley, Massachusetts 02481
Telecopy: (781) 237-8120
Attention: David White, Esq.
If to Parent or Richton International Corporation
Purchaser: 767 Fifth Avenue
New York, New York 10153
Telecopy: (212) 751-0397
Attention: Neal Griffin,
Chief Financial Officer
and
HT Acquisition Corporation
[address]
Telecopy:
Attention: Neal Griffin,
Chief Financial Officer
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<PAGE>
With a copy to: Fulbright & Jaworski L.L.P.
666 Fifth Avenue
New York, New York 10103
Telecopy: (212) 752-5958
Attention: William Bush, Esq.
(c) on the date of receipt if sent by telecopy, and confirmed in writing in the
manner set forth in (b) on or before the next day after the sending of the
telecopy or (d) one business day after delivery to a nationally recognized
overnight courier service marked for overnight delivery. Such addresses and
numbers may be changed, from time to time, by means of a notice given in the
manner provided in this Section.
Section I.2 Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
Section I.3 Assignment. This Agreement may not be assigned by any party
without the prior written consent of the other parties.
Section I.4 Counterparts. This Agreement may be signed in two or more
counterparts with the same effect as if the signatures to each counterpart were
upon a single instrument, and all such counterparts together shall be deemed an
original of this Agreement. For purposes of this Agreement, a facsimile copy of
a party's signature shall be sufficient to bind such party.
Section 8.5 Governing Law. This Agreement shall be governed by and
construed in accordance with the law of the State of New York, without regard to
the conflicts of laws principles thereof.
Section 8.6 Third Parties. Except as specifically set forth or referred to
herein, nothing herein expressed or implied is intended or shall be construed to
confer upon or give to any person other than the parties hereto and their
successors or assigns any rights or remedies under or by reason of this
Agreement.
Section 8.7 Construction. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law
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<PAGE>
shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise. The word "including" shall
mean "including without limitation." The parties intend that each
representation, warranty, and covenant contained herein shall have independent
significance. If any party has breached any representation, warranty, or
covenant contained herein in any respect, the fact that there exists another
representation, warranty, or covenant relating to the same subject matter
(regardless of the relative levels of specificity) which the party has not
breached shall not detract from or mitigate the fact that the party is in breach
of the first representation, warranty, or covenant. Section 1.1
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<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as
of the date set forth above.
RICHTON INTERNATIONAL CORPORATION
By:_________________________________________
Fred R. Sullivan
Chairman and Chief Executive Officer
HT ACQUISITION CORPORATION
By:_________________________________________
Fred R. Sullivan
Chairman and Chief Executive Officer
SELLER
____________________________________________
J. Richard Shafer
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EXHIBIT 2.4
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered into
this 19th day of October, 1999, by and between CORPORATE ACCESS, INC., a
Massachusetts corporation ("Seller"), CONDOR TECHNOLOGY SOLUTIONS, INC., a
Delaware corporation ("Parent"), RICHTON INTERNATIONAL CORPORATION, a Delaware
corporation ("Richton"), and CBE TECHNOLOGIES, INC., a Delaware corporation
("Purchaser").
WHEREAS, Purchaser desires to purchase, and Seller desires to sell,
certain assets of Seller, including the goodwill and all assets necessary for
the operation of Seller's business, on the terms and conditions set forth in
this Agreement; and
WHEREAS, Seller is a wholly-owned subsidiary of Parent and Purchaser is an
indirect wholly-owned subsidiary of Richton; and
WHEREAS, unless the context otherwise requires, capitalized terms used in
this Agreement or in any schedule or exhibit attached hereto and not otherwise
defined herein shall have the following meanings for all purposes of this
Agreement:
"Balance Sheet Date" means July 31, 1999.
"Business" means the business of Seller, including its value added
computer hardware sales business, including all incidents of such business.
"Closing" means the consummation of the transactions contemplated by this
Agreement on the Closing Date.
"Closing Date" has the meaning set forth in Section 1.7.
"Code" means the Internal Revenue Code of 1986, as amended.
"Copyright" means the legal right provided by the Copyright Act of 1976,
as amended, to the expression contained in any work of authorship fixed in any
tangible medium of expression.
"Expiration Date" has the meaning set forth in Section 2.
"GAAP" means generally accepted accounting principles of the United
States.
"Governmental Authority" means any governmental, regulatory or
administrative body, agency, subdivision or authority, any court or judicial
authority, or any public, private or industry regulatory authority, whether
national, federal, state, local or otherwise.
<PAGE>
"Hazardous Substance" means substances that are defined or listed in, or
otherwise classified pursuant to, any applicable Federal, state or local laws as
hazardous substances, hazardous materials, hazardous wastes or toxic substances,
or any other formulation intended to define, list or classify substances by
reason of deleterious properties such as ignitability, corrosivity, reactivity,
radioactivity, carcinogenicity, reproductive toxicity, and petroleum and
drilling fluids, produced waters and other wastes associated with ownership and
operation of the Business or the other operations of Seller.
"Interim Balance Sheet" means the unaudited balance sheet which presents
Seller's financial condition, assets and liabilities and stockholders' equity as
of September 30, 1999.
"Knowledge," "knowledge," "the best knowledge of," "known to" or words of
similar import used herein shall mean the actual knowledge of the managers of
Seller after reasonable inquiry by such managers of key employees of Seller. The
managers of Seller shall mean: Richard Marino, Jeffrey Porter and William J.
Caragol.
"Laws" has the meaning set forth in Section 2.10.
"Material Adverse Effect" means, with respect to Seller, any event or
occurrence which would have a material adverse effect on Seller's business,
condition (financial or other), properties, financial results, or to the
knowledge of Seller, business prospects.
" Material Contract" means any lease, instrument or agreement set forth on
Schedule 2.8.
"Past Practice" means a lawful practice followed or observed by Seller in
its operation of the Business during the 12-month period ended September 30,
1999.
"Patent" means any patent granted by the U.S. Patent and Trademark Office,
or by the comparable agency of any other country, and any renewal thereof, and
any rights arising under any patent application filed with the U.S. Patent and
Trademark Office or the comparable agency of any other country and any rights
which may exist to file any such application.
"Person" means any natural person, corporation, limited liability company,
partnership, proprietorship, other business organization, trust, union,
association or Governmental Authority.
"Plan" means any "employee welfare benefit plan" (as defined in Section
3(1) of ERISA) or any "employee pension benefit plan" (as defined in Section
3(2) of ERISA and not exempted under Section 4(b) or 201 of ERISA), including
any "multi-employer pension plan" (as defined in Section 3(37) of ERISA).
"Proprietary Rights" means that intangible personal property used,
generated or created in the operation of the Business, comprised of all
know-how, trade secrets, telephone numbers, trade names, trademarks, copyrights,
patents or trade styles (whether or not registered).
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"Proprietary Software" has the meaning set forth under the definition of
"Software."
"Purchased Assets" means the assets of Seller described in Section 1.1.
"Schedule" means each Schedule attached hereto, which shall reference the
relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties and
covenants.
"Software" means:
(a) every computer software program that Seller uses in connection with
the operation of the Business, including without limitation computer
software programs purchased or licensed from third parties, but not
including commercially available software subject to a "shrinkwrap"
license ("Shrinkwrap Software");
(b) every computer software program or portion thereof that is embedded
within any telecommunications or other equipment that Seller uses in
connection with the Business or that Seller markets or proposes to
market to third parties in connection with the Business and that is
necessary, in either case, for the proper operation of the
equipment;
(c) every computer software program or portion thereof (including
compiled object code, source code and firmware embedded in any
equipment, but not including Shrinkwrap Software) that Seller has
sold, leased, licensed or otherwise distributed or marketed to third
parties during the last three (3) years, or presently offers to
sell, lease, license or otherwise distribute to third parties,
including computer software programs purchased or licensed by Seller
from third parties;
(d) every computer software program that Seller (including its employees
and independent contractors) has designed or created, is in the
process of designing or creating or proposes to design or create,
including without limitation any modifications, enhancements and
derivative works of any of the computer software programs described
above;
(e) all written materials that explain any computer software program
described above or were used in the development of any such computer
software program or represent an interim step in the development of
any such computer software program, including without limitation
logic diagrams, flowcharts, procedural diagrams and algorithms; and
(f) all written materials used by Seller or provided to any customer in
connection with the installation, customization or use of any of the
computer software programs described above.
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That portion of the Software that is owned by Seller is referred to herein as
the '"Proprietary Software," and that portion of the Software that is owned by
any Person other than Seller is referred to herein as the "Third-Party
Software."
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. SALE AND TRANSFER OF SELLER ASSETS; CLOSING
1.1 The Purchased Assets. At the Closing, Seller will sell, convey,
transfer and deliver to Purchaser, free and clear of all liens and encumbrances,
and Purchaser will purchase and receive from Seller, all of those assets,
rights, and tangible and intangible property of Seller owned by Seller and used
or useful in the Business (the Purchased Assets"). A list of the Purchased
Assets which are set forth on Schedule 1.1 hereto and on Schedule A to the Bill
of Sale attached hereto as Exhibit 1.1 (the "Bill of Sale").
1.2 Purchase Price. Subject to the "Net Asset Value Adjustment" described
in Section 1.4 below, the purchase price (the "Purchase Price") for the
Purchased Assets shall be equal to (a) One Million Four Hundred Thousand Dollars
($1,400,000) (the "Closing Price"), plus (b) the amount of liabilities assumed
by Purchaser, all of which are set forth on Schedule 1.2 hereto and shall be
assumed pursuant to the Assignment and Assumption Agreement attached hereto as
Exhibit 1.2(a) (the "Assumption Agreement"). The consideration described in this
Section 1.2 shall be allocated among the Purchased Assets and the Restrictive
Covenant set forth in Section 9.3 in a manner to be set forth in a Schedule
1.2(b) reasonably acceptable to the parties and to be appended hereto as soon
after the Closing as practicable.
1.3 Excluded Liabilities. Except as expressly set forth in Section 1.2,
Purchaser shall not assume or become liable for the payment or performance of
any liabilities or alleged liabilities of Seller of any nature whatsoever,
whether accrued or unaccrued, known or unknown, fixed or contingent. Seller
shall be responsible for all Taxes arising from the operation of the Business
prior to the Closing Date and all Taxes incurred by Seller in connection with
this Agreement and the transactions contemplated hereby.
1.4 Procedures for Assets Not Transferrable. If any of the agreements or
any other property or rights included in the Purchased Assets are not assignable
or transferable without the consent of some other party (the "Required
Consents"), Seller shall use all reasonable efforts to obtain such consents
prior to the Closing Date and shall notify Purchaser on or prior to the Closing
Date of any consents not so obtained. A list of the Required Consents is set
forth on Schedule 1.4 hereto. If any such consents cannot be obtained prior to
the Closing Date, Purchaser may, in its sole discretion, waive such requirement
as a condition to the Closing and, in such event, this Agreement
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<PAGE>
and the related instruments of transfer shall not constitute an assignment or
transfer thereof and Purchaser shall not assume Seller's obligations with
respect thereto until such time as the Required Consent related thereto shall
have been obtained. Following the Closing, Seller shall use all reasonable
efforts to obtain any Required Consents not previously obtained as soon as
possible following the Closing Date, or otherwise obtain for Purchaser the
practical benefits of such property or rights.
1.5 Payment of the Closing Price. The Closing Price shall be paid to
Seller at Closing by cashier's or certified check or electronic funds transfer
to an account designed by Seller prior to Closing.
1.6 Net Asset Value Adjustment. For the purposes hereof, the "Net Asset
Value Adjustment" shall be determined as follows:
(a) If "Closing Date Net Asset Value" (defined below) of Seller
shown on the Closing Date Balance Sheet (defined below) is greater than Four
Hundred Thousand Dollars ($400,000), the Net Asset Value Adjustment shall be an
increase in the Purchase Price equal to the amount by which Closing Date Net
Asset Value of Seller exceeds $400,000.
(b) If Closing Date Net Asset Value of Seller shown on the Closing
Date Balance Sheet is less than $400,000, the Net Asset Value Adjustment shall
be a decrease in the Purchase Price equal to the amount by which Closing Date
Net Asset Value of Seller is less than $400,000.
(c) For the purposes hereof, Closing Date Net Asset Value of Seller
as of the Closing Date shall be based upon the balance sheet of Seller prepared
as of October 18, 1999 (the "Closing Date Balance Sheet"), and shall be equal to
the amount by which Seller's assets exceed Seller's liabilities as of the
Closing Date, excluding intercompany receivables or payables, as determined in
accordance with GAAP consistently applied. The Closing Date Balance Sheet shall
be prepared at the direction of the Purchaser (with Seller's full cooperation)
on or before December 7, 1999 and shall be subject to review and audit by Seller
or its representatives if there are any questions which cannot be resolved
directly between Seller and Purchaser management personnel.
(i) If the parties' representatives are unable to resolve any
issues pertaining to the Closing Date Balance Sheet (a "Dispute"), such Dispute,
at the written request of either party (the "arbitration initiator"), shall be
finally determined and settled pursuant to arbitration in New York City, by
three arbitrators, one to be appointed by the arbitration initiator, one by the
other party (the "non-initiator"), and a neutral arbitrator to be appointed by
the two arbitrators appointed by the parties. The neutral arbitrator shall act
as chairman. Should (x) either party fail to appoint an arbitrator as
hereinabove contemplated within ten (10) days after the non-initiator has
received the written request initiating arbitration, or (y) the two arbitrators
appointed by or on behalf of the parties as contemplated in this Section
1.6(c)(i) fail to appoint a neutral arbitrator as hereinabove contemplated
within ten (10) days after the date of the appointment of the last arbitrator
appointed
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<PAGE>
by or on behalf of the parties, then the Assignment Judge of the Supreme Court,
New York County, upon application of the arbitration initiator or of the
non-initiator, shall appoint an arbitrator to fill such position with the same
force and effect as though such arbitrator had been appointed as hereinabove
contemplated.
(ii) The arbitration proceeding shall be conducted in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association. A determination, award or other action shall be considered the
valid action of the arbitrators if supported by the affirmative vote of two or
three of the three arbitrators. The costs of arbitration (exclusive of attending
the arbitration, and of the fees and expenses of legal counsel to each party,
all of which shall be borne by each party itself) shall be shared equally by the
arbitration initiator and the non-initiator. The arbitration award shall be
final and conclusive and shall receive recognition, and judgment upon such award
may be entered and enforced in any court of competent jurisdiction.
(d) Any amount due as an increase in the Purchase Price resulting
from a Net Asset Value Adjustment shall be paid by Purchaser to Seller on or
before January 24, 2000, provided, however, that if any Dispute with respect to
the Closing Date Balance Sheet shall then be pending before an arbitration panel
as provided in Section 1.6(c), Purchaser shall pay Seller only that amount not
in dispute, and Purchaser shall pay Seller any additional amount found by the
arbitrators to be due within ten (10) days after the determination by the
arbitrators. Any amount due as a decrease in the Purchase Price resulting from a
Net Asset Value Adjustment shall be paid by Seller to Purchaser on or before
January 24, 2000, provided, however, that if any Dispute with respect to the
Closing Date Balance Sheet shall then be pending before an arbitration panel as
provided in Section 1.6(c), Seller shall pay Purchaser only that amount not in
dispute, and Seller shall pay Purchaser any additional amount found by the
arbitrators to be due within ten (10) days after the determination by the
arbitrators. Parent hereby guarantees the payment by Seller of any decrease in
the Purchase Price found to be due hereunder.
1.7 Closing. The purchase and sale (the "Closing") provided for in this
Agreement shall take place at the offices of Robinson Brog Leinwand Greene
Genovese & Gluck P.C., counsel to Purchaser, 1345 Avenue of the Americas, New
York, New York 10105, on or about October 25, 1999 (the "Closing Date"), or at
such other time or place as Seller and Purchaser may mutually agree.
1.8 Closing Obligations. At the Closing:
(a) Seller shall deliver or cause to be delivered to Purchaser the
following:
(i) The Bill of Sale;
(ii) The Assumption Agreement;
(iii) Assignment of Lease, signed by Seller's landlord, in the
form of Exhibit 1.8(a)(iii) attached hereto (the "Lease Assignment");
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(iv) A Certificate of Good Standing for Seller as of a recent
date from the Secretary of State of Massachusetts;
(v) An opinion of counsel for Seller and Parent addressed to
Purchaser, dated the Closing Date, in the form annexed hereto as Exhibit
1.8(a)(v);
(vi) All Required Consents;
(vii) All other instruments of transfer, agreements,
certificates and other documents as Purchaser shall reasonably request; and
(viii) UCC-3 termination statements or similar instruments
releasing all filed liens affecting any of the Purchased Assets.
(b) Purchaser shall deliver or cause to be delivered to
Seller the following:
(i) The Closing Price;
(ii) The Assumption Agreement and Lease Assignment, if
required by Seller's landlord; and
(iii) A good standing certificate for Purchaser from the State
of Delaware.
(c) Purchaser and Seller shall also deliver such other documents,
instruments, certificates, and opinions as may be required by this Agreement or
as otherwise necessary to consummate the transactions contemplated hereby.
2. REPRESENTATIONS AND WARRANTIES
OF SELLER AND PARENT
Seller and Parent jointly and severally represent and warrant to Purchaser
that all of the following representations and warranties in this Section 2 are
true and correct at the date of this Agreement. The parties agree that such
representations and warranties shall survive the Closing Date for a period of
eighteen (18) months (the last day of such period being the "Expiration Date"),
except that the representations and warranties of Seller and Parent set forth in
Sections 2.3, 2.12, 2.13, 2.17, 2.19, and 2.20 shall surviving the Closing Date
for the period of time represented by three months following the expiration of
the applicable statute of limitations for claims concerning such matters.
2.1 Organization. Seller is a corporation duly incorporated, validly
existing and in good standing under the laws of the Commonwealth of
Massachusetts, and has the power and
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authority to own all of its properties and assets and to carry on the business
as it is now being conducted.
2.2 Authority Relative to Agreement. Seller has the corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Seller and is a valid and binding agreement of Seller, enforceable
in accordance with its terms. The execution, delivery and performance by Seller
of this Agreement and each other agreement, document, certificate or instrument
contemplated hereby, and the consummation of the transactions contemplated
hereby, have been duly authorized by all necessary action on the part of the
Board of Directors of Seller and by the Board of Directors of Parent. Parent is
the sole shareholder of Seller.
2.3 Title to Purchased Assets. Except for leased property (in which it
holds a valid leasehold interest which will be assigned hereunder to Purchaser),
and except as set forth on Schedule 2.3, Seller owns good and marketable title,
free and clear of all liens and encumbrances, to all of the Purchased Assets,
except for such imperfections of title and encumbrances, if any, as are not
substantial in character, amount or extent and do not detract from the value, or
interfere with the present use, of the property subject thereto, or otherwise
impair its business operations.
2.4 Financial Statements. Seller has delivered to Purchaser, or will
deliver to Purchaser, copies of the following financial statements: Audited
balance sheets, profit and loss statements and statements of cash flow as at and
for the twelve (12) months ended June 30, 1997 and the seven (7) months ended
January 31, 1998; unaudited (internally-prepared) balance sheet and profit and
loss statement as at and for the eleven (11) month period ended December 31,
1998; and unaudited (internally-prepared) balance sheet as at and for the eight
(8) month period ended September 30, 1999, in each case prepared by or on behalf
of Seller (the "Seller Financial Statements"). Each of the Seller Financial
Statements is consistent with the books and records of Seller (which, in turn,
are accurate and complete in all material respects) and fairly presents Seller's
financial condition, assets and liabilities as of their respective dates and the
results of operations and cash flows for the periods related thereto in
compliance with GAAP, consistently applied.
2.5 Undisclosed Liabilities. Except to the extent reflected, referred to
or reserved against in the Seller Financial Statements, Seller did not have, as
of the dates thereof, any material liabilities or obligations of any nature,
whether accrued, absolute, contingent or otherwise, whether due or to become
due. Except as set forth in the Seller Financial Statements, to the knowledge of
Seller no basis exists for assertion against Seller of any material claim or
liability of any nature in any amount not fully reflected or reserved against in
the Seller Financial Statements or any other claim or liability of any nature
arising since the date of the Seller Financial Statements, other than
liabilities that had been incurred in the ordinary course of business in
accordance with Past Practice and that are not material individually or in the
aggregate to the Business.
2.6 Inventory. The inventory of Seller consists of items usable and
saleable in the ordinary course of the Business that conform to the requirements
of the Business as currently conducted, and all applicable laws and governmental
regulations. The items of inventory were
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acquired in the ordinary and usual course of business of Seller from parties
unaffiliated with Seller in accordance with Past Practice.
2.7 Accounts Receivable. Except as set forth on Schedule 2.7, each of the
accounts receivable as set forth on the Closing Date Balance Sheet or arising
since the date thereof (the "Accounts Receivable") represents an indebtedness of
the account payor named therein for merchandise shipped or delivered or services
provided by Seller and, in either case, documented in the ordinary course of its
business consistent with Past Practice. To Seller's Knowledge, all of the
Accounts Receivable will be collected in the ordinary course of business. All
Seller's documents pertaining to the Accounts Receivable have been, to the best
of Seller's knowledge, preserved by Seller and will be transferred to Buyer at
the Closing. Seller is the lawful owner of all Accounts Receivable and has good
right and title to the same, and none of the Accounts Receivable has been sold,
assigned or transferred to any other person, firm or corporation or is in any
way encumbered. Set forth on Schedule 2.7 is the status of the Accounts
Receivable existing at July 31, 1999, including all billed Accounts Receivable,
an estimate of all Accounts Receivable remaining to be billed, and all cash
received but not recorded against specific Accounts Receivable.
2.8 Licenses and Permits. Seller has delivered to Purchaser a list (which
is set forth on Schedule 2.8) of all material governmental licenses, franchises,
permits and other governmental authorizations, including material permits,
titles, licenses, franchises and certificates. The licenses, franchises, permits
and other governmental authorizations listed on Schedule 2.8 are valid, and
Seller has not received any notice that any Governmental Authority intends to
cancel, terminate or not renew any such license, franchise, permit or other
governmental authorization, except for such cancellation, terminations or
failures to renew as would not have a Material Adverse Effect.
2.9 Personal Property. Seller has delivered to Purchaser a list (which is
set forth on Schedule 2.9) of (a) all personal property which is included in
"furniture, fixtures and equipment" (or similarly named line item) on the
balance sheet of Seller as of the Balance Sheet Date, (b) all other personal
property owned by Seller (i) as of the Balance Sheet Date and (ii) acquired
since the Balance Sheet Date, and (c) all leases and agreements in respect of
personal property. Except as set forth on Schedule 2.9, (i) all personal
property with a value individually in excess of $5,000 used by Seller in its
business is either owned by Seller or leased by Seller pursuant to a lease
included on Schedule 2.9 (which will be assigned to Purchaser hereunder), (ii)
all of the personal property listed on Schedule 2.9 is in good working order and
condition, ordinary wear and tear excepted, other than such property, the
condition of which would not have a Material Adverse Effect, and (iii) all
leases and agreements included on Schedule 2.9 are in full force and effect and
constitute valid and binding agreements of Seller, and to Seller's knowledge, of
the other parties (and their successors) thereto in accordance with their
respective terms, except such agreements the invalidity of which would not have
a Material Adverse Effect.
2.10 Significant Customers; Material Contracts and Commitments. Seller has
delivered to Purchaser a list (which is set forth on Schedule 2.10) of all of
its significant customers, it being understood and agreed that a "significant
customer," for purposes of this Section 2.10, means
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a customer (or Person or entity) representing 5% or more of Seller's annual
revenues as of the Balance Sheet Date. Except to the extent set forth on
Schedule 2.10, none of Seller's significant customers has canceled or
substantially reduced or, to the knowledge of Seller, is currently attempting or
threatening to cancel, a contract or substantially reduce utilization of the
services provided by Seller nor is any of Seller's significant customers subject
to a preferential policy or treatment or an individually tailored sales or
service policy. Except as listed or described on Schedule 2.10, as of or on the
date hereof, Seller is not a party to or bound by, nor do there exist, any
material contracts relating to or in any way affecting the operation or
ownership of the Business, including, without limitation:
(a) any contract, written or otherwise, for the purchase,
maintenance, or acquisition of services materials, supplies, merchandise,
machinery, equipment, parts or other property which requires aggregate future
payments by Seller of greater than $5,000;
(b) any contract, written or otherwise, for the sale or furnishing
of services, materials, supplies, merchandise, machinery, equipment, parts or
other property which entitles Seller to receive payments of greater than $5,000;
(c) any contract relating to the borrowing of money, or the guaranty
of another Person's borrowing of money, including, without limitation, all
notes, mortgages, indentures and other obligations, agreements and other
instruments for or relating to any lending or borrowing, including assumed
indebtedness;
(d) any contract granting any Person a lien on any of the assets of
Seller, in whole or in part;
(e) any contract granting to any Person a first-refusal, first-offer
or similar preferential right to purchase or acquire any of the assets of
Seller's business other than in the ordinary course of business;
(f) any contract under which Seller is (i) a lessee or sublessee of
any machinery, equipment, vehicle or other tangible personal property or real
property, or (ii) a lessor or lessee of any real property or tangible personal
property owned by Seller, in either case having an original value in excess of
$5,000;
(g) any joint venture or partnership contract; and
(h) any contract or commitment for capital expenditures or the
acquisition or construction of fixed assets in excess of $15,000 in the
aggregate.
Each of the foregoing agreements or contracts shall be referred to herein as a
"Material Contract."
Seller has provided Purchaser with a true and complete copy of each
written Material Contract, including all amendments or other modifications
thereto. Except as set forth on
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Schedule 2.10 or as would not have a Material Adverse Effect, each Material
Contract is a valid and binding obligation of Seller, enforceable against Seller
in accordance with its terms, and is in full force and effect. Except as set
forth on Schedule 2.10, neither Seller nor, to the knowledge of Seller, any
other party to any Material Contract, are (with or without the lapse of time or
the giving of notice or both) in breach or default in any material respect
thereunder; and there exists no condition which, to the knowledge of Seller,
would constitute a breach or default thereunder. Seller has not been notified
and has no reason to believe that any party to any Material Contract intends to
cancel or terminate any Material Contract.
2.11 Real Property. Seller owns no real property.
2.12 Conformity with Law; Litigation. Except as set forth on Schedule
2.12, or as would not have a Material Adverse Effect, Seller has complied with
all laws, rules, regulations, writs, injunctions, decrees, and orders applicable
to it or to the operation of its business (collectively, "Laws") and has not
received any notice of any alleged claim or threatened claim, violation of,
liability or potential responsibility under, any such Law which has not
heretofore been cured and for which there is no remaining liability other than,
in each case, those not having a Material Adverse Effect on Seller. Except to
the extent set forth on Schedule 2.12:
(a) There is no suit, action, proceeding, claim, order or, to
Seller's knowledge, investigation pending or, to Seller's knowledge, threatened
against Seller or Parent or, to the knowledge of Seller, pending or threatened
against any of the officers, directors or employees of Seller or Parent (in
their capacities as such) with respect to the Business or proposed business
activities or to which Seller or Parent is otherwise a party, which would have a
Material Adverse Effect on Seller, before any court, or before any Governmental
Authority (collectively, "Claims"); nor, to Seller's knowledge, is there any
basis for any such Claims.
(b) Seller is not subject to any judgment, order or decree of any
court or Governmental Authority; Seller has not received any opinion or
memorandum from legal counsel to the effect that it is exposed, from a legal
standpoint, to any liability or disadvantage which may be material to the
Business. Seller is not engaged in any legal action to recover monies due it or
for damages sustained by it.
2.13 Taxes. All tax returns and related information required to be filed
by or on behalf of the Seller prior to the date hereof have been prepared and
filed in accordance with applicable law, and such returns accurately reflect all
tax liabilities of the Seller for the periods covered thereby. All taxes,
interest, penalties, assessments or deficiencies that have become due pursuant
to such returns or any assessments or otherwise have been paid in full. All such
returns are true and correct in all material respects. There is no material
unresolved claim concerning the Seller' federal, state and local tax
liabilities. All monies required to be withheld by Seller from employees for
income taxes, social security and unemployment insurance taxes have been
collected or withheld and either paid to the respective governmental agencies or
set aside in accounts for such purpose, or accrued, reserved against, and
entered upon the books of Seller in the ordinary course of the Business in
accordance with Past Practice.
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2.14 No Violations. Except as set forth on Schedule 2.14, and subject to
obtaining any Required Consent, (a) the rights and benefits of Seller under the
Material Contracts will not be adversely affected by the transactions
contemplated hereby, and (b) the execution of this Agreement and the performance
by Seller of its obligations hereunder and the consummation by Seller of the
transactions contemplated hereby will not (i) result in any violation or breach
of, or constitute a default under, any of the terms or provisions of the
Material Contracts, or (ii) require the consent, approval, waiver of any
acceleration, termination or other right or remedy or action of or by, or make
any filing with or give any notice to, any Governmental Authority or other
party.
2.15 Business Conduct. Except as set forth on Schedule 2.15, since the
Balance Sheet Date, Seller has conducted its business only in the ordinary
course consistent with Past Practice and has incurred no liabilities other than
in the ordinary course of business consistent with Past Practice. Except as
forth on Schedule 2.15, since the Balance Sheet Date, there has not been any:
(a) material adverse change in Seller's operations, condition
(financial or otherwise), operating results, assets, liabilities, employee,
customer or supplier relations or, to Seller's knowledge, business prospects;
(b) damage, destruction or loss of any property owned by Seller and
used in the operation of the Business, whether or not covered by insurance,
having a replacement cost or fair market value in excess of $5,000;
(c) voluntary or involuntary sale, transfer, surrender, abandonment
or other disposition of any kind by Seller of any assets or property rights
(tangible or intangible), having a replacement cost or fair market value in
excess of $5,000, except in each case the sale of inventory and collection of
accounts in the ordinary course of business consistent with Past Practice;
(d) any declaration, setting aside, or payment of any dividend or
other distribution in respect to Seller's capital stock or ownership interests,
any direct or indirect redemption, purchase, or other acquisition of such stock,
or the payment of principal or interest on any note, bond, debt instrument or
debt to Parent;
(e) incurrence of debts, liabilities or obligations except current
liabilities incurred in connection with or for services rendered or goods
supplied in the ordinary course of business consistent with Past Practice,
except liabilities on account of taxes and governmental charges but not
penalties, interest or fines in respect thereof, and obligations or liabilities
incurred by virtue of the execution of this Agreement;
(f) issuance by Seller of any notes, bonds, or other debt securities
or any equity securities or securities convertible into or exchangeable for any
equity securities;
(g) cancellation, waiver or release by Seller of any material debts,
rights or claims, except in each case in the ordinary course of business
consistent with Past Practice;
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(h) amendment or termination of any Material Contract, other than
expiration of such contract in accordance with its terms;
(i) sale or assignment by Seller of any material tangible assets
other than in the ordinary course of business;
(j) capital expenditures or commitments therefor by Seller, other
than in the ordinary course of business, in excess of $5,000 in the aggregate;
or
(k) mortgage, pledge or other encumbrance of any asset of Seller
other than in the ordinary course of business.
2.16 Labor Matters.
(a) Except as set forth on Schedule 2.16, there are no unfair labor
practice, equal employment opportunity or wage and hour complaints against
Seller pending or threatened before any court, arbitrator or the National Labor
Relations Board or any other governmental or regulatory board or agency
performing functions relating to employee rights or benefits. There is no labor
strike, walkout, dispute, slowdown, disturbance or stoppage pending or
threatened against or involving Seller. There is no pending or threatened
representation question or organizational activities concerning the employees of
Seller.
(b) There is no collective bargaining agreement affecting Seller and
there is no union representing the interests of any of the employees of Seller.
Except as set forth on Schedule 2.16, there are no pending suits, actions,
administrative proceedings, arbitration or other proceedings between Seller and
any of its employees. To the best of its knowledge, except as set forth in
Schedule 2.16, Seller has complied in all material respects with all laws
relating to the employment of labor, including any provisions thereof relating
to wages, hours, collective bargaining and the payment of social security and
similar taxes, and Seller is not liable for any arrears of wages or any taxes or
penalties for failure to comply with any of the foregoing.
2.17 Compliance with ERISA. Except as set forth on Schedule 2.17, Seller
does not maintain, or make contributions to, any Plan.
2.18 Insurance. Seller maintains no insurance coverage except as same may
be provided under Parent's comprehensive coverage.
2.19 Proprietary Rights.
(a) Seller has no Proprietary Software.
(b) All Third-Party Software is either: (i) listed in Schedule 2.19;
(ii) object code versions of generally commercially available software programs
that are used by Seller for word processing, accounting, internal communications
or other similar internal administrative functions;
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or (iii) custom software developed by Seller exclusively for Seller's customers,
which software is owned by such customers and is not otherwise used, distributed
or marketed in the Business. Except for Third-Party Software described in clause
(iii) of the previous sentence, Seller has licenses to all Third-Party Software
material to the operation of Business as now conducted. Seller has the legal
right to use, copy, modify, sublicense, distribute or otherwise market all such
Third-Party Software to the full extent that such Third-Party Software is
currently being used, copied, modified, sublicensed, distributed or otherwise
marketed in the Business, all without infringing on the rights of any Person and
without the payment of any additional royalties or other fees or payments, now
or in the future, to any other Person, other than annual maintenance or upgrade
fees in accordance with normal industry practices and other than the amount paid
by Seller for the equipment in which such Software is embedded or included by
the manufacturer or distributor thereof. Seller has no obligation to make any
payment by way of royalties or otherwise to any person in connection with the
Third-Party Software.
(c) The present and projected use by Seller of all its Software and
Proprietary Rights does not, and Buyer's use of all Software and Proprietary
Rights transferred to Buyer pursuant to this Agreement (to the extent such
transferred Software and Proprietary Rights are employed by Buyer in a manner
consistent with the operation of the Business by Seller) will not, infringe the
rights of any other Person. To the knowledge of Seller, no claim has been
asserted by any Person: (i) that such Person has any right, title or interest in
or to any of Seller's Proprietary Rights; (ii) to the effect that any past,
present or projected act or omission by Seller infringes on any Proprietary
Rights of such Person; (iii) that such Person has the right to use any of
Seller's Trademarks or trade names; or (iv) that challenges Seller's right to
use any of its Proprietary Rights or Know-how or that seeks to deny, modify or
revoke any registration or application therefor or renewal thereof. To the
knowledge of Seller, no facts or circumstances exist that, with or without the
passing of time or the giving of notice or both, might reasonably serve as the
basis for any such claim.
(d) Seller has relied on the warranties of manufacturers and
distributors for the purpose of determining whether Software will: (i) include
year 2000 date conversion capabilities including without limitation (A) date
data century recognition, (B) calculations that accommodate same
century/multi-century formulas and date values and (C) correct sort ordering and
date data interface values that reflect the century; (ii) automatically
compensate for and manage and manipulate data involving dates, including
single-century formulas and multi-century formulas, and not cause an abnormal
event or abort within the application or result in the generation of incorrect
values or invalid outputs involving such dates; (iii) provide that all date
related user interface functionalities and data fields include the indication of
the correct century; and (iv) provide that all date related system to system or
application to application data interface functionalities will include the
indication of the correct century. Seller has no knowledge that any Software
does not comply with the foregoing requirements.
(e) Seller has taken efforts that are reasonable under the
circumstances to prevent the unauthorized disclosure to other Persons of such
portions of Seller's trade secrets as would enable any such other Person to
compete with Seller within the scope of any of its Business as now conducted and
as presently proposed to be conducted. No current or former employee of
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Seller has executed a confidentiality agreement obligating that person not to
use any Trade Secrets of Seller relating to the Business except in performing
employment duties for Seller and not to disclose any such Trade Secrets to any
other Person.
2.20 Environmental Matters.
(a) Seller has obtained all permits, licenses and other
authorizations required in connection with the conduct of the Business and the
Purchased Assets under regulations relating to pollution or protection of the
environment, including regulations relating to emissions, discharges, releases
or threatened releases of pollutants, contaminants, chemicals, or industrial,
toxic or Hazardous Substances into the environment (including without limitation
ambient air, surface water, groundwater or land), or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pharmaceutical supplies and needles used in home
infusion therapy, pollutants, contaminants, chemicals, or industrial, toxic or
Hazardous Substances.
(b) Seller is in full compliance in the conduct of the Business with
all terms and conditions of permits, licenses and authorizations required by
law, and also in full compliance with all other limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules and
timetables contained in those laws or contained in any regulation, plan, order,
decree, judgment, injunction, notice or demand letter issued, entered,
promulgated or approved thereunder.
(c) Seller has not received notice of any past, present or future
events, conditions, circumstances, activities, practices, incidents, actions or
plans that may interfere with or prevent compliance or continued compliance with
such laws or any regulations, plan, order, decree, judgment, injunction, notice
or demand letter issued, entered, promulgated or approved thereunder, or that
may give rise to any common law or legal liability, or otherwise form the basis
of any claim, action, demand, suit, proceeding, hearing, study or investigation,
based on or related to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling, or the emission,
discharge, release or threatened release into the environment, of any
pharmaceutical supplies or needles used in home infusion therapy, pollutant,
contaminant, chemical, or industrial, toxic or Hazardous Substance or waste.
(d) There is no civil, criminal or administrative action, suit,
demand, claim, hearing, notice or demand letter, notice of violation,
investigation, or proceeding pending or threatened against Seller in connection
with the conduct of the Business or Purchased Assets relating in any way to
those laws or any regulation, plan, order, decree, judgment, injunction, notice
or demand letter issued, entered, promulgated or approved thereunder.
2.21 Misrepresentation. None of the representations and warranties set
forth in this Agreement contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements contained herein or
therein not misleading. Any disclosure on any Schedule attached hereto may be
deemed to be incorporated and disclosed on any other Schedule unless such
additional disclosure could not reasonably be concluded from the context of the
actual disclosure. No disclosure of any matter on any Schedule shall constitute
a representation or admission by Seller that such matter is "material" or would
have a Material Adverse Effect.
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3. REPRESENTATIONS OF PURCHASER AND RICHTON
Purchaser and Richton, jointly and severally, represent and warrant to
Seller that all of the following representations and warranties in this Section
3 are true and correct at the date of this Agreement, and that such
representations and warranties shall survive the Closing Date for a period of
twenty-four (24) months.
3.1 Organization. Purchaser is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware and has
the power and authority to own all of its properties and assets and to carry on
its business as it is now being conducted.
3.2 Authority Relative to Agreement. Purchaser has the corporate power and
authority, to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Purchaser and is a valid and binding agreement of Purchaser,
enforceable in accordance with its terms.
3.3 Transaction Not a Breach. Neither the execution and delivery of this
Agreement by Purchaser nor its performance will violate, conflict with, or
result in a breach of any provision of any law, rule, regulation, order, permit,
judgment, injunction, decree or other decision of any court or other tribunal or
any Governmental Authority binding on Purchaser or conflict with or result in
the breach of any of the terms, conditions or provisions of the Certificate of
Incorporation or the By-Laws of Purchaser or of any contract, agreement,
mortgage or other instrument or obligation of any nature to which Purchaser is a
party or by which Purchaser is bound, except that this Agreement and the
transactions contemplated hereby require the prior consent of the institutional
lenders to Richton.
3.4 No Violations. Except as set forth on Schedule 3.4, the execution of
this Agreement and the performance by Purchaser of its obligations hereunder and
the consummation by Purchaser of the transactions contemplated hereby will not
require the consent, approval, waiver of any acceleration, termination or other
right or remedy or action of or by, or make any filing with or give any notice
to, any Governmental Authority or other party.
3.5 Misrepresentation. None of the representations and warranties set
forth in this Agreement or in any of the certificates, schedules, exhibits,
lists, documents, exhibits, or other instruments delivered, or to be delivered,
to Purchaser as contemplated by any provision hereof, contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements contained herein or therein not misleading.
4. COVENANTS PRIOR TO CLOSING
4.1 Access and Cooperation; Due Diligence. Between the date of this
Agreement and the Closing Date, Seller will afford to the officers and
authorized representatives of Purchaser access during business hours upon
reasonable prior notice to all of Seller's sites, properties, books
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and records and will furnish Purchaser with such additional financial and
operating data and other information as to the business and properties of Seller
as Purchaser may from time to time reasonably request. Seller will cooperate
with Purchaser and its representatives, including Purchaser's auditors and
counsel, in the preparation of any documents or other materials which may be
required in connection with the transactions contemplated by this Agreement.
4.2 Conduct of the Business Pending Closing. Between the date of this
Agreement and the Closing Date, Seller will:
(a) carry on its business in the ordinary course substantially as
conducted heretofore and not introduce any new method of management, operation
or accounting;
(b) maintain its properties and facilities, including those held
under leases, in as good working order and condition as at present, ordinary
wear and tear excepted;
(c) perform in all material respects its obligations under
agreements relating to or affecting its assets, properties or rights;
(d) keep in full force and effect present insurance policies or
other comparable insurance coverage;
(e) maintain and preserve its respective business organizations
intact and use its best efforts to retain present key employees and
relationships with suppliers, customers and others having business relations
with Seller;
(f) maintain compliance with all permits, laws, rules and
regulations, consent orders, and all other orders of applicable courts,
regulatory agencies and similar Governmental Authorities;
(g) not increase the compensation or rate of compensation payable to
any key employee or manager of Seller or pay any bonus or other extraordinary
compensation to any person;
(h) not create any lien or encumbrance on any of the Purchased
Assets; and
(i) not enter into any transaction or take any other action that, if
effected or taken prior to the date hereof, would constitute a breach of the
representations, warranties or agreements of Seller set forth herein.
4.3 Conduct of Purchaser's Business Pending Closing. Between the date of
this Agreement and the Closing Date, Purchaser will carry on its business in the
ordinary course substantially as conducted heretofore.
4.4 Prohibited Activities. Between the date hereof and the Closing Date,
except as specifically contemplated hereby, Seller will not, without the prior
written consent of Purchaser:
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(a) Declare or pay any dividend, or make any distribution, whether
now or hereafter outstanding, or purchase, redeem or otherwise acquire or retire
for value any of the Seller's stock;
(b) enter into any contract or commitment or incur or agree to incur
any liability or make any capital expenditure, except if it is in the ordinary
course of business (consistent with Past Practice) and involves an amount not in
excess of $5,000;
(c) create, assume or permit to exist any new mortgage, pledge or
other lien or encumbrance upon any assets or properties whether now owned or
hereafter acquired, except with respect to purchase money liens incurred in
connection with the acquisition of equipment or inventory with an aggregate cost
not in excess of $5,000 necessary or desirable for the conduct of the Business;
(d) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the ordinary course of business;
(e) merge or consolidate or agree to merge or consolidate with or
into any other entity;
(f) waive any material right or claim of Seller, provided that
Seller may negotiate and adjust bills in the course of good faith disputes with
customers in a manner consistent with Past Practice;
(g) commit a material breach under, materially amend or terminate
any Material Contract; or
(h) except as specifically contemplated by this Agreement, enter
into any other transaction outside the ordinary course of its business or
prohibited hereunder.
4.5 No Shop. In consideration of the substantial expenditure of time,
effort and expense undertaken by Purchaser in connection with its due diligence
review and the preparation and execution of this Agreement, Seller and Parent
agree that neither of them nor their respective representatives, agents,
employees or affiliates will, after the execution of this Agreement until the
earlier of (a) the termination of this Agreement, or (b) the Closing, directly
or indirectly, solicit, encourage, negotiate or discuss with any third party
(including by way of furnishing any information concerning Seller) any
acquisition proposal relating to or affecting Seller or any part of it, or any
direct or indirect interests in Seller, whether by purchase of assets or stock,
purchase of interests, merger or other transaction, and that Seller will
promptly advise Purchaser of the terms of any communications Seller may receive
or become aware of relating to any bid for all or any part of Seller.
4.6 Amendment of Schedules. Each party hereto agrees that, with respect to
the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until the Closing Date to
supplement or amend promptly the Schedules hereto with respect to any matter
hereafter arising or discovered which, if existing or known at the date of this
Agreement, would have been required to be set forth or described in the
Schedules. Unless agreed in writing, no supplement or amendment to a Schedule
shall be deemed to cure any breach of any representation and warranty by either
party made in this Agreement, provided that if the party
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to whom a supplemental or amending disclosure was made proceeds to Closing, that
party shall be deemed to have waived such breach of representation or warranty
and any remedies which might have been available with respect thereto.
4.7 Further Assurances. The parties hereto agree to execute and deliver,
or cause to be executed and delivered, such further instruments or documents or
take such other action as may be reasonably necessary or convenient to carry out
the transactions contemplated hereby.
5. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
The obligations of Seller with respect to actions to be taken on the
Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the conditions set forth in this Section 5. As of the
Closing Date, all conditions not satisfied as to which Seller has notice
delivered by Purchaser shall be deemed to have been waived by Seller unless
Seller has objected by notifying Purchaser in writing of such objection on or
before the consummation of the transactions on the Closing Date.
5.1 Representations and Warranties. All representations and warranties of
Purchaser contained in this Agreement shall be true and correct in all material
respects as of the Closing Date as though such representations and warranties
had been made on and as of that date.
5.2 Performance of Obligations. All of the terms, covenants and conditions
of this Agreement to be complied with and performed by Purchaser on or before
the Closing Date shall have been duly complied with and performed in all
material respects on or before the Closing Date.
5.3 No Litigation. No action or proceeding before a court or any other
Governmental Authority or body shall have been instituted or threatened to
restrain or prohibit the performance of this Agreement or the consummation of
the transactions contemplated herein.
5.4 Consents and Approvals. All necessary consents of and filings required
to be obtained or made by Purchaser with any Governmental Authority or third
party relating to the consummation of the transactions contemplated herein shall
have been obtained and made.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER
The obligations of Purchaser with respect to actions to be taken on the
Closing Date, are subject to the satisfaction or waiver on or prior to the
Closing Date, as the case may be, of all of the conditions set forth in this
Section 6. As of the Closing Date all conditions not satisfied as to which
Purchaser has notice delivered by Seller shall be deemed to have been waived by
Purchaser unless it has objected by notifying Purchaser in writing of such
objection on or before the consummation of the transactions on the Closing Date.
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6.1 Representations and Warranties. All the representations and warranties
of Seller and Parent contained in this Agreement shall be true and correct in
all material respects as of the Closing Date as though such representations and
warranties had been made on and as of that date.
6.2 Performance of Obligations. All of the terms, covenants and conditions
of this Agreement to be complied with or performed by Seller on or before the
Closing Date shall have been duly performed or complied with in all material
respects on or before the Closing Date.
6.3 No Litigation. No action or proceeding before a court or any other
Governmental Authority or body shall have been instituted or threatened to
restrain or prohibit the performance of this Agreement or the consummation of
the transactions contemplated herein.
6.4 No Material Adverse Change. As of the Closing Date, no event or
circumstance shall have occurred with respect to Seller which would constitute a
Material Adverse Effect on Seller, and Seller shall not have suffered any
material loss or damages to any of its properties or assets, whether or not
covered by insurance, which change, loss or damage materially affects or impairs
the ability of Seller to conduct its business.
6.5 Consents and Approvals. All Required Consents and all other necessary
consents of and filings with any Governmental Authority or third party relating
to the consummation of the transactions contemplated herein shall have been
obtained and made and all necessary consents and approvals of third parties
shall have been obtained.
6.6 Seller Financial Statements. Seller shall have delivered to Purchaser
the Seller Financial Statements.
6.7 Corporate Action. All corporate action required to be taken by Seller
and Parent in connection with the transactions contemplated by this Agreement
shall have been taken, and Purchaser shall have received such originals or
copies of such documents as it may reasonably request.
6.8 Removal of Liens. All liens, security interests and encumbrances
affecting the Purchased Assets shall have been removed of record pursuant to
documentation reasonably satisfactory in substance and form to Purchaser,
provided Purchaser shall have substituted reasonably acceptable security for
Deutsche Financial Services Corporation ("DFSC") for a release of its liens on
the Purchased Assets.
6.9 Financing and Lender Consent. Purchaser shall have received financing
from (i) its institutional lenders with respect to the transactions contemplated
by this Agreement in such amount as Purchaser, in its sole discretion, shall
deem to be adequate, and such institutional lenders shall have delivered to
Purchaser all consents required by such lenders pursuant to the applicable
agreements between such lenders and Richton and (ii) DFSC with respect to
financing the operations of the Business in such amount and form as Purchaser in
its sole discretion shall deem to be adequate.
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6.10 Due Diligence. Purchaser shall have completed its due diligence
review of the Seller and the Business and shall have been satisfied with the
results thereof in its sole discretion.
7. INDEMNIFICATION
Purchaser and Seller agree as follows:
7.1 General Indemnification by Seller and Parent. Seller and Parent
covenant and agree that each will jointly and severally indemnify, defend,
protect and hold harmless Purchaser and Richton and each of their respective
directors, officers, employees and agents, at all times from and after the date
of this Agreement, from and against all claims, damages, actions, suits,
proceedings, demands, assessments, adjustments, costs and expenses (including
specifically, but without limitation, reasonable attorneys' fees and reasonable
expenses of investigation) incurred by such party as a result of or arising from
or relating to:
(a) any breach of the representations and warranties of Seller and
Parent set forth herein or on the schedules or certificates delivered in
connection herewith;
(b) any breach of any agreement on the part of Seller under this
Agreement, it being understood and agreed that the Expiration Date for a claim
of breach of any such agreement shall be twelve (12) months after the date
performance was due;
(c) any debt, liability or obligation of Seller or Parent
(including, without limitation, any claim against Purchaser or Richton arising
from any litigation now pending or hereafter commenced against or involving
Seller or Parent, whether known or unknown, absolute or contingent) not assumed
by Purchaser under the Assumption Agreement;
(d) the failure of Purchaser to collect any Account Receivable, it
being understood (i) that an Account Receivable shall be deemed to be
non-collectible if not paid within 90 days after the date such Account
Receivable was billed, and (ii) Purchaser shall not be required to take any
action to cause the collection of any delinquent Account Receivable, provided,
however, that Seller shall not be obligated to indemnify Purchaser for
uncollected Accounts Receivable to the extent of any reserve for bad debts set
forth on the Closing Date Balance Sheet. In the event Seller provides indemnity
for any uncollected Account Receivable, Purchaser shall assign such uncollected
Account Receivable back to Seller, which shall have the right to pursue
collection thereof. Notwithstanding any provision herein or in any restrictive
covenant to the contrary, Seller's collection efforts shall not be deemed a
breach of any such restrictive covenant; and
(e) the refund by Purchaser to any account debtor of all or a
portion of any Account Receivable previously collected by Purchaser as a result
of a warranty claim by such account debtor with respect to the Software
component of the sale giving rise to the Account Receivable (even if, and to the
extent that, such claim results in a refund of the entire sale), provided that:
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(i) Purchaser shall, upon receipt of Seller's indemnity
payment, assign to Seller all of Purchaser's rights, if any, to
pursue the warranty claim against the manufacturer, designer or
manufacturer's agent of the Software giving rise to such claim;
(ii) Seller shall not be obligated to indemnify Purchaser
pursuant to this subparagraph (e) to the extent of any reserve for
bad debts on the Closing Date Balance Sheet not applied in
connection with uncollected Accounts Receivable pursuant to
subparagraph (d) of this Section 7.1; and
(iii) Purchaser shall not grant any refund in excess of $6,000
without the prior written consent of Seller, which consent shall not
be unreasonably withheld, delayed or conditioned.
7.2 Indemnification by Purchaser and Richton. Purchaser and Richton
covenant and agree that each will jointly and severally indemnify, defend,
protect and hold harmless Seller and Parent and each of their respective
directors, officers, employees and agents, at all times from and after the date
of this Agreement, from and against all claims, damages, actions, suits,
proceedings, demands, assessments, adjustments, costs and expenses (including
specifically, but without limitation, reasonable attorneys' fees and expenses of
investigation) incurred by Seller as a result of or arising from (a) any breach
by Purchaser and Richton of its representations and warranties set forth herein
or on the schedules or certificates delivered in connection herewith, (b) any
breach of any agreement on the part of Purchaser or Richton under this
Agreement, it being understood and agreed that the Expiration Date for a claim
of breach of any such agreement shall be twelve (12) months after the date
performance was due, and (c) any debt, liability or obligation of Seller assumed
by Purchaser under the Assumption Agreement.
7.3 Third Person Claims. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has knowledge of any claim by a
third person or of the commencement of any action or proceeding by a Person not
a party to this Agreement (a "Third Person"), the Indemnified Party shall, in
connection with a claim with respect thereto being made against any party
obligated to provide indemnification pursuant to Section 7.1 or 7.2 hereof
(hereinafter the "Indemnifying Party"), give the Indemnifying Party written
notice of such claim or the commencement of such action or proceeding. Such
notice shall state the nature and the basis of such claim and a reasonable
estimate of the amount thereof. The Indemnifying Party shall have the right to
defend and settle, at its own expense and by its own counsel, any such matter so
long as the Indemnifying Party pursues the same in good faith and diligently,
provided that the Indemnifying Party shall not settle any criminal proceeding
without the written consent of the Indemnified Party, such consent not to be
unreasonably withheld or delayed. If the Indemnifying Party undertakes to defend
or settle, it shall promptly notify the Indemnified Party of its intention to do
so, and the Indemnified Party shall cooperate, at the Indemnifying Party's
expense, with the Indemnifying Party and its counsel in the defense thereof and
in any settlement thereof. Such cooperation shall include, but shall not be
limited to, furnishing the Indemnifying Party with any books, records or
information reasonably requested by the Indemnifying Party that are in the
Indemnified Party's possession or control. All Indemnified Parties shall
endeavor to use the same counsel, which shall be the counsel
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selected by the Indemnifying Party, provided that if counsel to the Indemnifying
Party shall have a conflict of interest in the opinion of such counsel that
prevents counsel for the Indemnifying Party from representing the Indemnified
Party, the Indemnified Party shall have the right to participate in such matter
through counsel of its own choosing and the Indemnifying Party will reimburse
the Indemnified Party for the reasonable expenses of its counsel. After the
Indemnifying Party has notified the Indemnified Party of its intention to
undertake to defend or settle any such asserted liability, and for so long as
the Indemnifying Party diligently pursues such defense, the Indemnifying Party
shall not be liable for any additional legal expenses incurred by the
Indemnified Party in connection with any defense or settlement of such asserted
liability, except (i) as set forth in the preceding sentence and (ii) to the
extent such participation is requested by the Indemnifying Party, in which event
the Indemnified Party shall be reimbursed by the Indemnifying Party for
reasonable additional legal expenses and out-of-pocket expenses. If the
Indemnifying Party desires to accept a final and complete settlement of any such
Third Person claim and the Indemnified Party refuses to consent to such
settlement, then the Indemnifying Party's liability under this Section with
respect to such Third Person claim shall be limited to the amount so offered in
settlement to said Third Person, plus all indemnifiable costs and expenses
incurred to date, the Indemnifying Party shall be relieved of its duty to defend
and shall tender the Third Person claim back to the Indemnified Party, who shall
thereafter, at its own expense, be responsible for the defense and negotiation
of such Third Person claim. If the Indemnifying Party does not undertake to
defend such matter to which the Indemnified Party is entitled to indemnification
hereunder, or fails diligently to pursue such defense, the Indemnified Party may
undertake such defense through counsel of its choice, at the cost and expense of
the Indemnifying Party, and the Indemnified Party may settle such matter, and
the Indemnifying Party shall reimburse the Indemnified Party for the amount paid
in such settlement and any other liabilities or expenses incurred by the
Indemnified Party in connection therewith. All settlements hereunder shall
effect a complete release of the Indemnified Party, unless the Indemnified Party
otherwise agrees in writing. The parties hereto will make appropriate
adjustments for any tax benefits, tax detriments or insurance proceeds in
determining the amount of any indemnification obligation under this Section,
provided that no Indemnifying or Indemnified Party shall be obligated to seek
any payment pursuant to the terms of any insurance policy.
7.4 Limitations and Conditions on Indemnification. Except as otherwise
specifically provided in this Agreement:
(a) Purchaser and the other Persons or entities indemnified pursuant
to Section 7.1, subparagraphs (a), (b) and (c) shall not assert any claim for
indemnification under such subparagraphs against Seller until such time as, and
with respect to any individual claim, unless and until such claim or claims,
individually or in the aggregate, exceed Twenty Thousand Dollars ($20,000).
Except for claims for payment of Purchase Price, for which there shall be no
minimum claim, Seller shall not assert any claim for indemnification hereunder
against Purchaser until such time as, and solely to the extent that, the
aggregate of all claims which Seller may have against Purchaser exceeds Twenty
Thousand Dollars ($20,000).
(b) Notwithstanding any other term of this Agreement, Seller shall
not be liable under this Section 7 for an amount which exceeds, in the
aggregate, the Purchase Price.
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(c) Except as specifically set forth in this Agreement, no party
shall be entitled to indemnity for claims or conditions which have been waived,
or deemed to be waived, by such party.
(d) No party shall be entitled to indemnity hereunder for punitive
or consequential damages.
(e) Notwithstanding any provision herein to the contrary, no
Indemnified Party shall be entitled to make any claim for indemnification
hereunder pursuant to Section 7.1(a) or Section 7.2(a) after the appropriate
expiration date of the applicable representation and warranty, provided,
however, that if prior to the close of business on the applicable expiration
date an Indemnifying Party shall have been notified of a claim for indemnity
hereunder and such claim shall not have been finally resolved or disposed of at
such date, the basis for such claim shall continue to survive with respect to
such claim and shall remain a basis for indemnity hereunder with respect to such
claim until such claim is finally resolved or disposed of in accordance with the
terms hereof.
(f) Upon making a full payment for indemnification, the Indemnifying
Party shall be subrogated, to the extent of such payment, to any rights that the
Indemnified Party may have against any other parties with respect to the subject
matter underlying such indemnified claim.
(g) Failure of an Indemnified Party to give reasonably prompt notice
of any claim or claims shall not release, waive or otherwise affect an
Indemnifying Party's obligations with respect thereto, except to the extent that
the Indemnifying Party can demonstrate actual loss and prejudice as a result of
such failure.
7.5 Additional Provisions Relating to Indemnification.
(a) If an Indemnified Party shall make claim for indemnification
other than a third-party claim, it shall give notice thereof to the Indemnifying
Party and the Indemnifying Party shall, within 30 days after receipt of such
notice, pay to the Indemnified Party the amount of such loss.
(b) Purchaser shall have the right to set off against any amounts
due by Purchaser to Seller pursuant to Section 1.6(d) an amount equal to any and
all amounts for which Seller and Parent are required to indemnify hereunder.
(c) The indemnification rights of the parties under this Article 7
shall be the sole remedy for any misrepresentation, breach of warranty or
failure to fulfill any agreement or covenant hereunder on the part of any party
hereto, provided that Article 7 shall not be deemed to limit a party's right to
seek equitable relief, including, without limitation, the right to seek specific
performance, rescission or restitution, none of which rights or remedies shall
be affected or diminished hereby.
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8. TERMINATION OF AGREEMENT
8.1 Termination. This Agreement may be terminated at any time prior to the
Closing Date solely:
(a) by mutual consent of Purchaser and Seller;
(b) by Purchaser or Seller if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated by
October 30, 1999, unless the failure of such transactions to be consummated is
due to the willful failure of the party seeking to terminate this Agreement to
perform any of its obligations under this Agreement to the extent required to be
performed by it prior to or on the Closing Date; or
(c) by Purchaser or Seller if a material breach or default shall be
made by the other party in the observance or in the due and timely performance
of any of the covenants, agreements or conditions contained herein, and the
curing of such default shall not have been made on or before the Closing Date.
8.2 Liabilities in Event of Termination. The termination of this Agreement
will in no way limit any obligation or liability of any party based on or
arising from a breach or default by such party with respect to any of its
representations, warranties, covenants or agreements contained in this
Agreement, including, but not limited to, legal and audit costs and out of
pocket expenses.
9. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION;
RESTRICTIVE COVENANT
9.1 Confidentiality. The parties recognize and acknowledge that they have
in the past, currently have, and in the future may have, access to certain
confidential information of the other. Accordingly, Parent, Seller, Purchaser
and Richton agree that they will not disclose such confidential information to
any Person, firm, corporation, association or other entity for any purpose or
reason whatsoever, except (a) to authorized representatives of each of them who
need to know information in connection with the transactions contemplated
hereby, who have been informed of the confidential nature of such information
and who have agreed to keep such information confidential as provided hereby,
and (b) to counsel and other advisers, provided that the receiving party shall
be responsible for its advisor's breach of this Section 9, unless (i) such
information becomes known to the public generally through no fault of the
receiving party, (ii) disclosure is required by law or the order of any
Governmental Authority under color of law; provided, that prior to disclosing
any information pursuant to this clause (ii), the receiving party shall, if
possible, give prior written notice thereof to the disclosing party and provide
the disclosing party with the opportunity to contest such disclosure, or (iii)
the disclosing party reasonably believes that such disclosure is required in
connection with the defense of a lawsuit against the disclosing party. Neither
Richton, Purchaser, Seller nor Parent, nor any agent or affiliate of any of
them, shall make any public statements, including, without limitation, any press
releases or other public disclosure, with respect to this
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Agreement and the transactions contemplated hereby without the prior written
consent of the other parties to this Agreement, except as required by law.
9.2 Damages. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 9.1, and because of
the immediate and irreparable damage that would be caused for which they would
have no other adequate remedy, the parties hereto agree that, in the event of a
breach by any of them of the foregoing covenants, the covenant may be enforced
against the other parties by injunctions and restraining orders. Nothing herein
shall be construed as prohibiting a party hereto from pursuing any other
available remedy for such breach or threatened breach of Section 9.1, including
the recovery of damages.
9.3 Restrictive Covenants.
(a) For a period of five (5) years commencing as of the Closing
Date, neither Parent nor Seller shall, directly or indirectly, alone or as
principal, partner, joint venturer, officer, director, employee, consultant,
agent, independent contractor or stockholder, or in any other capacity
whatsoever, engage in any business of value-added reselling of computer hardware
in the Boston Metropolitan area and as far west as the City of Worcester and the
States of New Hampshire and Maine.
(b) For a period of five (5) years commencing as of the Closing
Date, neither Seller nor Parent shall solicit, directly or indirectly, alone or
as principal, partner, joint venturer, officer, director, employee, consultant,
agent, independent contractor or stockholder, or in any other capacity
whatsoever, employ, retain, or enter into any employment, agency, consulting or
other similar arrangement with, any person who became an employee of Purchaser
and who was at the time of Closing an employee of Seller, or induce or attempt
to induce such person to terminate his employment with Purchaser.
(c) Notwithstanding any provision to the contrary in Section 9.3(a)
above, neither Parent nor any of its subsidiaries shall be deemed to be in
breach of said provisions if Parent or any of its subsidiaries, other than
Seller, engages in any business similar to the business in which they are
currently engaged.
10. GENERAL
10.1 Cooperation. Purchaser and Seller shall each deliver or cause to be
delivered to the other on the Closing Date, and at such other times and places
as shall be reasonably agreed to, such additional instruments as the other may
reasonably request for the purpose of carrying out this Agreement.
10.2 Successors and Assigns. This Agreement and the rights of the parties
hereunder may not be assigned (including by operation of law) without the
consent of the other party
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and shall be binding upon and shall inure to the benefit of the parties hereto,
and their successors and permitted assigns.
10.3 Entire Agreement. This Agreement (including the Schedules, exhibits
and annexes attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among the parties hereto and
supersede any prior agreement and understanding relating to the subject matter
of this Agreement. This Agreement, upon execution, constitutes a valid and
binding agreement of the parties hereto enforceable in accordance with its terms
and may be modified or amended only by a written instrument executed by the
parties hereto.
10.4 Counterparts; Facsimile Signatures. This Agreement may be executed
simultaneously in two (2) or more counterparts, each of which shall be deemed an
original and all of which together shall constitute one and the same instrument.
Signatures may be exchanged by telecopy, and each party agrees that it will be
bound by its telecopied signature and that it accepts the telecopied signatures
of the other parties to this Agreement.
10.5 Brokers and Agents. Each party represents and warrants that, except
as specifically contemplated by this Agreement and as set forth on Schedule
10.5, it employed no broker or agent in connection with this transaction and
agrees to indemnify the other parties hereto against all loss, cost, damages or
expense arising out of claims for fees or commissions of brokers employed or
alleged to have been employed by such indemnifying party. The Seller shall pay
all fees and expenses of the broker identified on Schedule 10.5.
10.6 Expenses. Except as specifically set forth in this Agreement, each
party shall each bear its own expenses incurred in connection with the
transactions contemplated by this Agreement.
10.7 Notices. All notices or communications required or permitted
hereunder shall be in writing and shall be deemed to have been given when
personally delivered or upon receipt if sent by first class certified mail,
return receipt requested or the next business day if sent by telecopier (receipt
confirmed and followed up by one of the other delivery methods discussed herein
as well), or upon delivery if sent by express mail, in each case postage prepaid
and addressed as follows:
(a) If to Seller:
c/o Condor Technology Solutions, Inc.
Annapolis Office Plaza
170 Jennifer Road
Suite 325
Annapolis, Maryland 21401
Attention: John F. McCabe, Esquire
Telecopier No.: (410) 266-8400
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with copies to:
Whiteford, Taylor & Preston L.L.P.
Seven Saint Paul Street
Baltimore, Maryland 21202
Attention: William M. Davidow, Jr., Esq.
Telecopier No.: (410) 347-9478
(b) If to Purchaser:
CBE Technologies, Inc.
50 Redfield Street
Boston, Massachusetts 02122
Attention: Mr. Andrew Lally
Telecopier No.: (617) 265-8254
Richton International Corporation
767 Fifth Avenue, 6th Fl.
New York, New York 10153
Attention: Mr. Cornelius F. Griffin
Telecopier No.: (212) 751-0397
with copies to:
Robinson Brog Leinwand Greene Genovese & Gluck P.C.
1345 Avenue of the Americas
New York, New York 10105
Attention: Marshall E. Bernstein, Esq.
Telecopier No.: (212) 956-2164
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 10.7 from time to time.
10.8 Governing Law. This Agreement shall be construed in accordance with
the laws of the State of Delaware, including the General Corporation Law, in
each case without reference to conflicts of laws principles.
10.9 Exercise of Rights and Remedies. Except as otherwise provided herein,
no delay of or omission in the exercise of any right, power or remedy accruing
to any party as a result of any breach or default by any other party under this
Agreement shall impair any such right, power or remedy, nor shall it be
construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
- 28 -
<PAGE>
10.10 Reformation and Severability. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
10.11 Remedies Cumulative. No right, remedy or election given by any term
of this Agreement shall be deemed exclusive but each shall be cumulative with
all other rights, remedies and elections available at law or in equity.
Notwithstanding the foregoing, each party's rights under Section 7 hereof (as
specifically limited thereby) shall be the exclusive means by which such party
shall seek money damages against another party in connection with the
transactions contemplated hereby.
10.12 Captions. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
10.13 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of Purchaser or Seller. Any amendment or waiver effected in
accordance with this Section 10.13 shall be binding upon each of the parties
hereto and their successors or assigns.
10.14 Sales Taxes. Any sales, use, transfer, recordation or other taxes
arising as a result of the transactions contemplated hereby shall be borne
equally by Seller and Purchaser.
10.15 Access to Books and Records. After the Closing, Purchaser shall
afford Seller and its representatives with reasonable access to Seller's books
and records (as they relate to periods prior to the Closing) for the purpose of
completing tax returns, responding to IRS audits or handling other inquiries,
and satisfying other legal and regulatory requirements.
[EXECUTION PAGE FOLLOWS]
- 29 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
CORPORATE ACCESS, INC.
By: /s/ John F. McCabe
-------------------------------
Name: John F. McCabe
Office: Vice President
CONDOR TECHNOLOGY SOLUTIONS, INC.
By: /s/ Kennard F. Hill
-------------------------------
Name: Kennard F. Hill
Office: President
RICHTON INTERNATIONAL CORPORATION
By: /s/ Fred R. Sullivan
-------------------------------
Name: Fred R. Sullivan
Office: Chairman
CBE TECHNOLOGIES, INC.
By: /s/ Fred R. Sullivan
--------------------------------
Name: Fred R. Sullivan
Office: Chairman
- 30 -
EXHIBIT 10.4
REVOLVING CREDIT, TERM LOAN
AND
SECURITY AGREEMENT
PNC BANK, NATIONAL ASSOCIATION
(AS LENDER AND AS AGENT)
WITH
RICHTON INTERNATIONAL CORPORATION,
CENTURY SUPPLY CORP.,
AND
CBE TECHNOLOGIES, INC.
(BORROWERS)
May 17, 1999
<PAGE>
TABLE OF CONTENTS
-----------------
I. DEFINITIONS............................................................-1-
1.1. Accounting Terms.............................................-1-
1.2. General Terms................................................-1-
1.3. Uniform Commercial Code Terms...............................-17-
1.4. Certain Matters of Construction.............................-17-
II. ADVANCES, PAYMENTS....................................................-17-
2.1. (a) Revolving Advances..................................-17-
(b) Discretionary Rights................................-18-
2.2. Procedure for Revolving Advances Borrowing..................-18-
2.3. Term Loan...................................................-18-
2.4. Maximum Advances............................................-19-
2.5. Disbursement of Advance Proceeds............................-19-
2.6. Repayment of Advances.......................................-19-
2.7. Statement of Account........................................-20-
2.8. Additional Payments.........................................-20-
2.9. Manner of Borrowing and Payment.............................-20-
2.12. Use of Proceeds.............................................-23-
2.13. Defaulting Lender...........................................-23-
III. INTEREST AND FEES.....................................................-25-
3.1. Interest....................................................-25-
3.2. Eurodollar Rate Loans.......................................-25-
Facility Fee................................................-26-
3.5. (a) Collateral Management Fee...........................-27-
(b) Field Examination Expenses..........................-27-
3.6. Computation of Interest and Fees............................-27-
3.7. Maximum Charges.............................................-27-
3.8. Increased Costs.............................................-27-
3.9. Basis For Determining Interest Rate Inadequate
or Unfair.................................................-28-
3.10. Capital Adequacy............................................-29-
IV. COLLATERAL: GENERAL TERMS............................................-29-
4.1. Security Interest in the Collateral.........................-29-
4.2. Perfection of Security Interest.............................-29-
4.3. Disposition of Collateral...................................-30-
4.4. Preservation of Collateral..................................-30-
4.5. Ownership of Collateral.....................................-31-
4.6. Defense of Agent's and Lenders' Interests...................-31-
4.7. Books and Records...........................................-31-
4.8. Financial Disclosure........................................-31-
4.9. Compliance with Laws........................................-32-
4.10. Inspection of Premises......................................-32-
i
<PAGE>
4.11. Insurance...................................................-32-
4.12. Failure to Pay Insurance....................................-33-
4.13. Payment of Taxes............................................-33-
4.14. Payment of Leasehold Obligations............................-34-
4.15. Receivables.................................................-34-
(a) Nature of Receivables...............................-34-
(b) Solvency of Customers...............................-34-
(c) Locations of Borrowers..............................-34-
(d) Collection of Receivables...........................-34-
(e) Notification of Assignment of Receivables...........-35-
(f) Power of Agent to Act on Borrowers' Behalf..........-35-
(g) No Liability........................................-35-
(i) Adjustments.........................................-36-
4.16. Inventory...................................................-36-
4.17. Maintenance of Equipment....................................-36-
4.18. Exculpation of Liability....................................-36-
4.19. Environmental Matters.......................................-37-
4.20. Financing Statements........................................-38-
V. REPRESENTATIONS AND WARRANTIES........................................-38-
5.1. Authority...................................................-38-
5.2. Formation and Qualification.................................-39-
5.3. Survival of Representations and Warranties..................-39-
5.4. Tax Returns.................................................-39-
5.5. Financial Statements........................................-39-
5.6. Corporate Name..............................................-40-
5.7. OSHA and Environmental Compliance...........................-40-
5.8. Solvency; No Litigation, Violation, Indebtedness
or Default................................................-41-
5.9. Patents, Trademarks, Copyrights and Licenses................-42-
5.10. Licenses and Permits........................................-42-
5.12. No Default..................................................-43-
5.13. No Burdensome Restrictions..................................-43-
5.14. No Labor Disputes...........................................-43-
5.15. Margin Regulations..........................................-43-
5.16. Investment Company Act......................................-43-
5.17. Disclosure..................................................-43-
5.18. Swaps.......................................................-43-
5.19. Conflicting Agreements......................................-43-
5.20. Application of Certain Laws and Regulations.................-44-
5.21. Business and Property of Borrowers and Guarantor............-44-
5.22. RHC; HTAC...................................................-44-
5.23. Year 2000...................................................-44-
VI. AFFIRMATIVE COVENANTS.................................................-44-
6.1. Payment of Fees.............................................-44-
6.2. Conduct of Business and Maintenance of Existence and Assets.-44-
6.3. Violations..................................................-45-
ii
<PAGE>
6.4. Government Receivables......................................-45-
6.5. Execution of Supplemental Instruments.......................-45-
6.6. Payment of Indebtedness.....................................-45-
6.7. Standards of Financial Statements...........................-45-
6.8. Interest Rate Protection Agreement..........................-45-
6.9. Real Property Leases........................................-46-
VII. NEGATIVE COVENANTS....................................................-46-
7.1. Merger, Consolidation, Acquisition and Sale
of Assets.................................................-46-
7.2. Creation of Liens...........................................-46-
7.3. Guarantees..................................................-46-
7.4. Investments.................................................-47-
7.5. Loans.......................................................-47-
7.6. Capital Expenditures........................................-47-
7.7. Dividends...................................................-47-
7.8. Indebtedness................................................-48-
7.9. Nature of Business..........................................-48-
7.10. Transactions with Affiliates................................-48-
7.11. Leases......................................................-48-
7.12. Subsidiaries................................................-48-
7.13. Fiscal Year and Accounting Changes..........................-48-
7.14. Pledge of Credit............................................-48-
7.15. Amendment of Articles of Incorporation, By-Laws.............-49-
7.16. Compliance with ERISA.......................................-49-
7.17. Prepayment of Indebtedness..................................-49-
VIII. CONDITIONS PRECEDENT..................................................-49-
8.1. Conditions to Initial Advances..............................-49-
(a) Notes...............................................-49-
(b) Filings, Registrations and Recordings...............-49-
(c) Corporate Proceedings...............................-50-
(d) Incumbency Certificates.............................-50-
(e) Certificates........................................-50-
(f) Good Standing Certificates..........................-50-
(g) Legal Opinions......................................-50-
(h) No Litigation.......................................-50-
(i) Financial Condition Certificate.....................-51-
(j) Collateral Examination..............................-51-
(k) Fees................................................-51-
(l) Pro Forma Financial Statements......................-51-
(m) Insurance...........................................-51-
(n) Certain Other Documents.............................-51-
(q) Notice of Borrowing and Payment Instructions........-51-
(s) Consents............................................-51-
(t) No Adverse Material Change..........................-52-
(u) Leasehold Agreements................................-52-
(v) Contract Review.....................................-52-
iii
<PAGE>
(x) Borrowing Base Certificate..........................-52-
(y) Undrawn Availability................................-52-
(z) Capitalized Indebtedness............................-52-
(aa) Other...............................................-52-
8.2. Conditions to Each Advance..................................-52-
(a) Representations and Warranties......................-53-
(b) No Event of Default.................................-53-
(c) Maximum Advances....................................-53-
IX. INFORMATION AS TO BORROWERS...........................................-53-
9.1. Disclosure of Material Matters..............................-53-
9.2. Schedules...................................................-53-
9.3. Environmental Reports.......................................-54-
9.4. Litigation..................................................-54-
9.5. Material Occurrences........................................-54-
9.6. Government Receivables......................................-54-
9.7. Annual Financial Statements.................................-54-
9.8. Quarterly Financial Statements..............................-55-
9.9. Monthly Financial Statements................................-55-
9.10. Borrowing Base Certificates.................................-55-
9.11. Other Reports...............................................-56-
9.12. Additional Information......................................-56-
9.13. Projected Operating Budget..................................-56-
9.14. Notice of Suits, Adverse Events.............................-56-
9.15. ERISA Notices and Requests..................................-56-
9.16. Additional Documents........................................-57-
X. EVENTS OF DEFAULT.....................................................-57-
XI. LENDERS' RIGHTS AND REMEDIES AFTER DEFAULT............................-59-
11.1. Rights and Remedies.........................................-59-
11.2. Agent's Discretion..........................................-60-
11.3. Setoff......................................................-60-
11.4. Rights and Remedies not Exclusive...........................-61-
XII. WAIVERS AND JUDICIAL PROCEEDINGS......................................-61-
12.1. Waiver of Notice............................................-61-
12.2. Delay.......................................................-61-
12.3. Jury Waiver.................................................-61-
XIII. EFFECTIVE DATE AND TERMINATION........................................-61-
13.1. Term........................................................-61-
13.2. Termination.................................................-62-
XIV. REGARDING AGENT.......................................................-62-
14.1. Appointment.................................................-62-
14.2. Nature of Duties............................................-63-
iv
<PAGE>
14.3. Lack of Reliance on Agent and Resignation...................-63-
14.4. Certain Rights of Agent.....................................-64-
14.5. Reliance....................................................-64-
14.6. Notice of Default...........................................-64-
14.7. Indemnification.............................................-64-
14.8. Agent in its Individual Capacity............................-64-
14.9. Delivery of Documents.......................................-65-
XV. MISCELLANEOUS.........................................................-65-
15.1. Governing Law...............................................-65-
15.2. Entire Understanding........................................-65-
15.3. Successors and Assigns; Participations; New Lenders.........-67-
15.4. Application of Payments.....................................-68-
15.5. Indemnity...................................................-68-
15.6. Notice......................................................-69-
15.7. Survival....................................................-70-
15.8. Severability................................................-70-
15.9. Expenses....................................................-70-
15.10. Injunctive Relief...........................................-70-
15.11. Consequential Damages.......................................-70-
15.12. Captions....................................................-71-
15.13. Counterparts; Telecopied Signatures.........................-71-
15.14. Construction................................................-71-
15.15. Confidentiality; Sharing Information........................-71-
15.16. Publicity...................................................-72-
15.17. Borrowing Agent; Obligations Joint and Several..............-72-
v
<PAGE>
REVOLVING CREDIT, TERM LOAN
AND
SECURITY AGREEMENT
---------------------------
Revolving Credit, Term Loan and Security Agreement dated as of May 17,
1999 among RICHTON INTERNATIONAL CORPORATION, a Delaware corporation
("Richton"), CENTURY SUPPLY CORP., a Michigan corporation ("Century"), and CBE
TECHNOLOGIES, INC., a Delaware corporation ("CBE") (collectively, the
"Borrowers"and individually a "Borrower"), the financial institutions which are
now or which hereafter become a party hereto (collectively, the "Lenders" and
individually a "Lender") and PNC BANK, NATIONAL ASSOCIATION, a national banking
association ("PNC"), as agent for Lenders (in such capacity, the "Agent").
IN CONSIDERATION of the mutual covenants and undertakings herein
contained, Borrowers, Lenders and Agent hereby agree as follows:
I. DEFINITIONS.
1.1. Accounting Terms. As used in this Agreement, any Other Document
(including, without limitation, the Notes), or any certificate, report or other
document made or delivered pursuant to this Agreement, accounting terms not
defined in Section 1.2 hereof or elsewhere in this Agreement and accounting
terms partly defined in Section 1.2 hereof to the extent not defined, shall have
the respective meanings given to them under GAAP; provided, however, whenever
such accounting terms are used for the purposes of determining compliance with
financial covenants in this Agreement, such accounting terms shall be defined in
accordance with GAAP as applied in preparation of the audited financial
statements of Borrowers for the fiscal year ended December 31, 1998.
1.2. General Terms. For purposes of this Agreement the following terms
shall have the following meanings:
"Accountants" shall have the meaning set forth in Section 9.7
hereof.
"Advance Rates" shall mean the Receivables Advance Rate and the
Inventory Advance Rate.
"Advances" shall mean and include the Revolving Advances and the
Term Loan.
"Advance Rates" shall have the meaning set forth in Section 2.1(a)
hereof.
"Affiliate" of any Person shall mean (a) any Person (other than a
Subsidiary) which, directly or indirectly, is in control of, is controlled by,
or is under common control with such Person, or (b) any Person who is a director
or officer (i) of such Person, (ii) of any Subsidiary of such Person or (iii) of
any Person described in clause (a) above. For purposes of this definition,
control of a Person shall mean the power, direct or indirect, (x) to vote five
percent (5%) or more of the securities having ordinary voting power for the
election of directors of such Person, or (y) to direct or cause the direction of
the management and policies of such Person whether by contract or otherwise.
<PAGE>
"Agent" shall have the meaning set forth in the preamble to this
Agreement and shall include its successors and assigns.
"Aggregate Formula Amount" shall have the meaning set forth in
Section 2.1(a) hereof.
"Applicable Margin" shall mean with respect to the unpaid balance of
Advances that are Eurodollar Rate Loans, the applicable percentages set forth
below:
<TABLE>
<CAPTION>
Applicable Margin Applicable Margin for
Leverage Ratio for the Term Loan Revolving Advances
-------------- ----------------- ---------------------
<S> <C> <C>
greater than or equal to 2.5:1.0 3.00% 2.50%
less than 2.5:1.0 2.75% 2.25%
</TABLE>
"Authority" shall have the meaning set forth in Section 4.19(d)
hereof.
"Base Rate" shall mean the base commercial lending rate of PNC as
publicly announced to be in effect from time to time, such rate to be adjusted
automatically, without notice, on the effective date of any change in such rate.
This rate of interest is determined from time to time by PNC as a means of
pricing some loans to its customers and is neither tied to any external rate of
interest or index nor does it necessarily reflect the lowest rate of interest
actually charged by PNC to any particular class or category of customers of PNC.
"Blocked Accounts" shall have the meaning set forth in Section
4.15(h) hereof.
"Borrowers" shall have the meaning set forth in the preamble to this
Agreement and shall include the successors and permitted assigns of such
Persons.
"Borrowers' Account" shall have the meaning set forth in Section 2.7
hereof.
"Borrowing Agent" shall mean Richton.
"Borrowing Base Certificates" shall mean the certificates delivered
by Borrowers pursuant to Sections 8.1(x), 8.1(y) and 9.10 hereof, in the form
attached hereto as Exhibit 9.10, or such other form as may be reasonably
acceptable to Agent.
"Business Day" shall mean with respect to Eurodollar Rate Loans, any
day on which commercial banks are open for domestic and international business,
including dealings in Dollar deposits in London, England and New York, New York
and with respect to all other matters, any day other than a day on which
commercial banks in New Jersey are authorized or required by law to close.
"Calculation Period" shall have the meaning set forth in Section
2.10(b) hereof.
"Capital Lease" shall mean (a) any lease of property, real or
personal, the obligations under which are capitalized on a consolidated balance
sheet of Richton and its Subsidiaries, and (b) any
-2-
<PAGE>
other such lease to the extent that the then present value of the minimum rental
commitment thereunder should, in accordance with GAAP, be capitalized on a
balance sheet of the lessee.
"CBC" shall mean Creative Business Concepts, Inc., a California
corporation, and its successors and permitted assigns.
"CBE" shall have the meaning set forth in the preamble to this
Agreement and shall include its successors and permitted assigns.
"CBE Formula Amount" shall mean, at any time, an amount equal to the
sum of (i) the Receivables Advance Rate at such time times the Eligible
Receivables of CBE at such time, plus (ii) the lesser of (A) the Inventory
Advance Rate at such time times the value of the Eligible Inventory of CBE at
such time, or (B) one million dollars ($1,000,000), minus (iii) such reserves
with respect to CBE as Agent may reasonably and in good faith deem proper and
necessary from time to time.
"Century" shall have the meaning set forth in the preamble to this
Agreement and shall include its successors and permitted assigns.
"Century Formula Amount" shall mean, at any time, an amount equal to
the sum of (i) the Receivables Advance Rate at such time times the aggregate
Eligible Receivables of Century at such time, plus (ii) the lesser of (A) the
Inventory Advance Rate at such time times the aggregate value of the Eligible
Inventory of Century at such time, or (B) the difference between (1) twenty
million dollars ($20,000,000) and (2) the applicable amount at such time under
clause (ii) of the definition of "CBE Formula Amount" in this Section 1.2 (up to
a maximum of one million dollars ($1,000,000)), plus (iii) solely during the
Seasonal Advance Period, an additional amount equal to the Maximum Seasonal
Advance Amount, minus (iv) such reserves with respect to Century as Agent may
reasonably and in good faith deem proper and necessary from time to time.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 42 U.S.C. Section 9601 et seq.
"Change of Control" shall mean (a) the occurrence of any event
(whether in one or more transactions) which results in a transfer of control of
Richton to any Person or group of Persons (within the meaning of Sections 13(d)
or 14(a) of the Securities Exchange Act of 1934, as amended), other than to a
member of the Sullivan Group, (b) the Board of Directors of Richton shall cease
to consist of a majority of Continuing Directors, or (c) any merger or
consolidation of or with any Borrower or Guarantor or sale of all or
substantially all of the property or assets of any Borrower or Guarantor, other
than a merger which constitutes a Permitted Acquisition in accordance with
Section 7.1 hereof, a merger of a Borrower with and into another Borrower or a
merger of Guarantor with and into a Borrower. For purposes of this definition,
"control of Richton" shall mean the power, direct or indirect, to (i) vote (x)
thirty percent (30%) or more of the securities having ordinary voting power for
the election of directors of Richton on a fully diluted basis.
"Charges" shall mean all taxes, charges, fees, imposts, levies or
other assessments, including, without limitation, all net income, gross income,
gross receipts, sales, use, ad valorem, value added, transfer, franchise,
profits, inventory, capital stock, license, withholding, payroll, employment,
social security, unemployment, excise, severance, stamp, occupation and property
taxes, custom duties, fees, assessments, liens, claims and charges of any kind
whatsoever, together with any interest and any penalties,
-3-
<PAGE>
additions to tax or additional amounts, imposed by any taxing or other
authority, domestic or foreign (including, without limitation, the Pension
Benefit Guaranty Corporation or any environmental agency or superfund), upon the
Collateral, any Guarantor Collateral any Borrower or Guarantor.
"Closing Date" shall mean May 17, 1999 or such other date as may be
agreed to by Agent and Borrowing Agent.
"Code" shall mean the Internal Revenue Code of 1986 and the
regulations promulgated thereunder.
"Collateral" shall mean and include:
(a) all Receivables;
(b) all Equipment;
(c) all General Intangibles;
(d) all Inventory; and
(e) all of Borrowers' right, title and interest in and to (i) goods
and other property including, but not limited to, all merchandise returned or
rejected by Customers, relating to or securing any of the Receivables; (ii) all
of Borrowers' rights as a consignor, a consignee, an unpaid vendor, mechanic,
artisan, or other lienor, including stoppage in transit, setoff, detinue,
replevin, reclamation and repurchase; (iii) all additional amounts due to any
Borrower from any Customer relating to the Receivables; (iv) other property,
including warranty claims, relating to any goods securing this Agreement; (v)
all of Borrowers' contract rights, rights of payment which have been earned
under a contract right, instruments, documents, chattel paper, warehouse
receipts, deposit accounts, money, securities and investment property,
including, without limitation, promissory notes evidencing loans from each
Borrower to another Borrower, Guarantor or any other Person; (vi) if and when
obtained by any Borrower, all property of third parties in which such Borrower
has been granted a lien or security interest as security for the payment or
enforcement of Receivables; and (vii) any other goods or personal property now
owned or hereafter acquired in which any Borrower has expressly granted a
security interest or may in the future grant a security interest to Agent
hereunder, or in any amendment or supplement hereto or thereto;
(f) all of Borrowers' files, correspondence, records, books of
account, business papers, computers, computer software (owned by Borrower or in
which it has an interest), computer programs, tapes, disks and documents
relating to (a), (b), (c), (d) or (e) above; and
(g) all proceeds and products of (a), (b), (c), (d), (e) and (f)
above in whatever form, including, but not limited to: cash, deposit accounts
(whether or not comprised solely of proceeds), certificates of deposit,
insurance proceeds (including hazard, flood and credit insurance), negotiable
instruments and other instruments for the payment of money, chattel paper,
security agreements, documents, eminent domain proceeds, condemnation proceeds
and tort claim proceeds.
-4-
<PAGE>
"Commitment Percentage" of any Lender shall mean the percentage set
forth below such Lender's name on the signature page hereof as same may be
adjusted upon any assignment by a Lender pursuant to Section 15.3(b) hereof.
"Commitment Transfer Supplement" shall mean a document in the form
of Exhibit 15.3 hereto, properly completed and otherwise in form and substance
reasonably satisfactory to Agent by which the Purchasing Lender purchases and
assumes a portion of the obligation of Lenders to make Advances under this
Agreement.
"Consents" shall mean all filings and all licenses, permits,
consents, approvals, authorizations, qualifications and orders of governmental
authorities and other third parties, domestic or foreign, necessary to carry on
any Borrower's or Guarantor's business, including, without limitation, any
Consents required under all applicable federal, state or other applicable law.
"Consideration" shall mean with respect to any Permitted
Acquisition, the aggregate, without duplication, of (a) the cash paid by Century
or CBE, directly or indirectly, to the seller in connection therewith, (b) the
Indebtedness incurred or assumed by Century or CBE in connection therewith,
whether in favor of the seller or otherwise and whether fixed or contingent, (c)
any guaranty given or incurred by Century or CBE in connection therewith, and
(d) any other consideration given or obligation incurred by Century or CBE in
connection therewith.
"Continuing Directors" shall mean the directors of Richton on the
Closing Date and each other director if such director's nomination for election
to the Board of Directors of Richton is recommended by a majority of the then
Continuing Directors.
"Contract Rate" shall have the meaning set forth in Section 3.1
hereof.
"Controlled Group" shall mean all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with any Borrower or Guarantor, are treated as a
single employer under Section 414 of the Code.
"Counterparty" shall mean PNC Bank, National Association, as
counterparty under the Interest Rate Protection Agreement with Borrowers.
"Cure Advance" shall have the meaning set forth in Section 2.13(b)
hereof.
"Customer" shall mean and include the account debtor with respect to
any Receivable and/or the prospective purchaser of goods, services or both with
respect to any contract or contract right, and/or any party who enters into any
contract or other arrangement with any Borrower, pursuant to which such Borrower
is to deliver any personal property or perform any services.
"Default" shall mean an event which, with the giving of notice or
passage of time or both, would constitute an Event of Default.
"Default Rate" shall have the meaning set forth in Section 3.1
hereof.
"Defaulting Lender" shall have the meaning set forth in Section
2.13(a) hereof.
-5-
<PAGE>
"Dollar" and the sign "$" shall mean lawful money of the United
States of America.
"Domestic Rate Loan" shall mean any Advance that bears interest
based upon the Base Rate.
"Early Termination Date" shall have the meaning set forth in Section
13.1 hereof.
"Earnings Before Interest and Taxes" shall mean for any period the
sum of (i) the net income (or loss) of Richton and its Subsidiaries on a
consolidated basis for such period, plus (ii) the interest expense of Richton
and its Subsidiaries on a consolidated basis for such period, plus (iii) the
charges against income of Richton and its Subsidiaries on a consolidated basis
for such period for federal, state and local taxes actually paid and/or accrued.
"EBITDA" shall mean for any period the sum of (i) Earnings Before
Interest and Taxes for such period plus (ii) the depreciation expenses of
Richton and its Subsidiaries on a consolidated basis for such period, plus (iii)
the amortization expenses of Richton and its Subsidiaries on a consolidated
basis for such period.
"Eligible Inventory" shall mean and include finished goods Inventory
(i.e. excluding raw materials and work in process) of each Borrower valued at
the lower of cost or market value, determined on a first-in-first-out basis,
which is not, in Agent's reasonable opinion, obsolete, slow moving or
unmerchantable and which Agent, in its reasonable discretion, shall not deem
ineligible Inventory, based on such considerations as Agent may from time to
time deem appropriate including, without limitation, whether the Inventory is
subject to a perfected, first priority security interest in favor of Agent
(subject to Permitted Encumbrances) and whether the Inventory conforms to all
standards imposed by any governmental agency, division or department thereof
which has regulatory authority over such goods or the use or sale thereof.
Eligible Inventory shall include all Inventory in- transit for which title has
passed to a Borrower, which is insured to the full value thereof and for which
Agent shall have in its possession (a) all negotiable bills of lading properly
endorsed and (b) all non-negotiable bills of lading issued in Agent's name.
"Eligible Receivables" shall mean and include with respect to a
Borrower, each Receivable of such Borrower arising in the ordinary course of
Borrowers' business and which Agent, in its reasonable judgment, shall deem to
be an Eligible Receivable, based on such considerations as Agent may from time
to time deem appropriate. A Receivable shall not be deemed eligible unless such
Receivable is subject to Agent's first priority perfected security interest and
no other Lien (other than Permitted Encumbrances), and is evidenced by an
invoice or other documentary evidence reasonably satisfactory to Agent. In
addition, no Receivable shall be an Eligible Receivable if:
(a) it arises out of a sale made by any Borrower to an Affiliate of
any Borrower or to a Person controlled by an Affiliate of any Borrower;
(b) it is due or unpaid more than ninety (90) days after the due
date thereof or more than one hundred thirty (130) days after the original
invoice date thereof;
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(c) fifty percent (50%) or more of the Receivables from such
Customer are not deemed Eligible Receivables hereunder (if this clause (c) is
violated, none of the Receivables owing from such Customer shall be Eligible
Receivables);
(d) any covenant, representation or warranty contained in Article IV
(other than Section 4.19) or V, or Section 6.4, 9.2 or 9.6 of this Agreement
with respect to such Receivable has been breached;
(e) the Customer shall (i) apply for, suffer, or consent to the
appointment of, or the taking of possession by, a receiver, custodian, trustee
or liquidator of itself or of all or a substantial part of its property or call
a meeting of its creditors, (ii) admit in writing its inability, or be generally
unable, to pay its debts as they become due or cease operations of its present
business, (iii) make a general assignment for the benefit of creditors, (iv)
commence a voluntary case under any state or federal bankruptcy laws (as now or
hereafter in effect), (v) be adjudicated a bankrupt or insolvent, (vi) file a
petition seeking to take advantage of any other law providing for the relief of
debtors, (vii) acquiesce to, or fail to have dismissed, any petition which is
filed against it in any involuntary case under such bankruptcy laws, or (viii)
take any action for the purpose of effecting any of the foregoing;
(f) the sale is to a Customer outside the continental United States
of America, unless the sale is on letter of credit, guaranty or acceptance
terms, in each case acceptable to Agent in its reasonable discretion, and such
letter of credit, guaranty or acceptance has been assigned to Agent, for the
ratable benefit of Lenders, in a manner reasonably acceptable to Agent;
(g) the sale to the Customer is on a bill-and-hold, guaranteed sale,
sale-and-return, sale on approval, consignment or any other repurchase or return
basis or is evidenced by chattel paper;
(h) Agent believes, in its reasonable judgment, that collection of
such Receivable is insecure or that such Receivable may not be paid by reason of
the Customer's financial inability to pay;
(i) the Customer is the United States of America, any state or any
department, agency or instrumentality of any of them, unless the appropriate
Borrower assigns its right to payment of such Receivable to Agent pursuant to
the Assignment of Claims Act of 1940, as amended (31 U.S.C. Sub-Section 3727 et
seq. and 41 U.S.C. Sub-Section 15 et seq.) or has otherwise complied with other
similar applicable statutes or ordinances;
(j) the goods giving rise to such Receivable have not been shipped
and delivered to and accepted by the Customer or the services giving rise to
such Receivable have not been performed by a Borrower and accepted by the
Customer (except, in the case of Receivables of CBE arising under maintenance
contracts or similar arrangements, to the extent that such Receivables have been
earned by a Borrower in accordance with GAAP) or the Receivable otherwise does
not represent a final sale;
(k) the aggregate Receivables from any Customer exceed twenty
percent (20%) of all Eligible Receivables of a Borrower, to the extent such
Receivables exceed such limit;
(l) the Receivable is subject to any offset, deduction, defense,
dispute or counterclaim (but only to the extent of such offset, deduction,
defense, dispute or counterclaim), the
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Customer is also a creditor or supplier of any Borrower (unless such Customer
has executed a no offset letter reasonably satisfactory to Agent) or the
Receivable is contingent in any respect or for any reason;
(m) any Borrower has made any agreement with the Customer for any
deduction therefrom, except for discounts or allowances made in the ordinary
course of business for prompt payment, all of which discounts or allowances are
reflected in the calculation of the face value of each respective invoice
related thereto;
(n) any return, rejection or repossession of the merchandise
relating to the Receivable has occurred;
(o) the Receivable is not payable to a Borrower; or
(p) the Receivable is not otherwise satisfactory to Agent as
determined in good faith by Agent in the exercise of its discretion in a
reasonable manner.
"Environmental Complaint" shall have the meaning set forth in
Section 4.19(d) hereof.
"Environmental Laws" shall mean all federal, state and local
environmental, land use, zoning, health, chemical use, safety and sanitation
laws, statutes, ordinances and codes relating to the protection of the
environment and/or governing the use, storage, treatment, generation,
transportation, processing, handling, production or disposal of Hazardous
Substances and the rules, regulations, policies, guidelines, interpretations,
decisions, orders and directives of federal, state and local governmental
agencies and authorities with respect thereto.
"Equipment" shall mean and include all of Borrowers' goods (other
than Inventory) including, without limitation, all equipment, machinery,
apparatus, motor vehicles, fittings, furniture, furnishings, fixtures, parts,
accessories and all replacements and substitutions therefor or accessions
thereto.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, and the rules and regulations promulgated thereunder.
"Eurodollar Rate" shall mean for any Eurodollar Rate Loan for the
then current Interest Period relating thereto, the interest rate per annum
determined by PNC by dividing (the resulting quotient rounded upwards, if
necessary, to the nearest 1/100th of 1% per annum) (i) the rate of interest
determined by PNC in accordance with its usual procedures (which determination
shall be conclusive absent manifest error) to be the eurodollar rate two (2)
Business Days prior to the first day of such Interest Period for an amount
comparable to such Eurodollar Rate Loan and having a borrowing date and a
maturity comparable to such Interest Period by (ii) a number equal to 1.00 minus
the Reserve Percentage.
"Eurodollar Rate Loan" shall mean an Advance at any time that bears
interest based on the Eurodollar Rate.
"Event of Default" shall have the meaning set forth in Article X
hereof.
"Excess Cash Flow" shall mean and include, with respect to any
fiscal period, EBITDA during such period, minus (i) actual capital expenditures
made by Richton and its Subsidiaries on a
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consolidated basis during such period which were not financed, (ii) cash
payments of federal, state and local income taxes and the Michigan Single Use
Business Tax made by Richton and its Subsidiaries on a consolidated basis during
such period, (iii) the interest expense of Richton and its Subsidiaries on a
consolidated basis during such period, and (iv) scheduled principal payments
with respect to Indebtedness for borrowed money and capitalized leases made by
Richton and its Subsidiaries on a consolidated basis during such period.
"Federal Funds Rate" shall mean, for any day, the weighted average
of the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published for such day (or
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or if such rate is not so published for any
day which is a Business Day, the average of quotations for such day on such
transactions received by PNC from three Federal funds brokers of recognized
standing selected by PNC.
"Fee Letter" shall mean the letter dated April 27, 1999, among
Borrowers and PNC.
"Fixed Charge Coverage Ratio" shall mean and include, with respect
to any fiscal period, the ratio of (a) EBITDA during such period, minus (i)
actual capital expenditures made by Richton and its Subsidiaries on a
consolidated basis during such period which were not financed, and (ii) cash
payments of federal, state and local income taxes made by Richton and its
Subsidiaries on a consolidated basis during such period, to (b) the sum of (i)
the interest expense of Richton and its Subsidiaries on a consolidated basis
during such period, and (ii) scheduled principal payments with respect to
Indebtedness for borrowed money and capitalized leases made by Richton and its
Subsidiaries on a consolidated basis during such period.
"GAAP" shall mean generally accepted accounting principles in the
United States of America in effect from time to time.
"General Intangibles" shall mean and include all of Borrowers'
general intangibles including, without limitation, all choses in action, causes
of action, corporate or other business records, inventions, designs, equipment
formulations, manufacturing procedures, quality control procedures, patents or
applications therefor, trademarks or applications therefor, service marks or
applications therefor, copyrights or applications therefor, trade secrets,
goodwill, design rights, registrations, licenses, franchises, customer lists,
tax refunds, tax refund claims, computer programs, all claims under guaranties,
security interests or other security held by or granted to any Borrower to
secure payment of any of the Receivables by a Customer, all rights of
indemnification and all other intangible property of every kind and nature
(other than Receivables).
"Governmental Body" shall mean any nation or government, any state
or other political subdivision thereof or any entity exercising the legislative,
judicial, regulatory or administrative functions of or pertaining to a
government.
"Guarantor Collateral" shall mean "Collateral," as defined in the
Guarantor Security Agreement.
"Guarantor" shall mean RHC.
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"Guarantor Security Agreement" shall mean the Guarantor Security
Agreement among Guarantor and Agent substantially in the form attached hereto as
Exhibit 8.1(p)(ii), as amended, supplemented or modified from time to time.
"Guaranty" shall mean the Guaranty made by Guarantor in favor of
Agent and Lenders substantially in the form attached hereto as Exhibit
8.1(p)(i), as amended, supplemented or modified from time to time.
"Hazardous Discharge" shall have the meaning set forth in Section
4.19(d) hereof.
"Hazardous Substance" shall mean, without limitation, any flammable
explosives, radon, radioactive materials, asbestos, urea formaldehyde foam
insulation, polychlorinated biphenyls, petroleum and petroleum products,
methane, hazardous materials, Hazardous Wastes, hazardous or Toxic Substances or
related materials as defined in CERCLA, the Hazardous Materials Transportation
Act, as amended (49 U.S.C. Sections 1801, et seq.), RCRA, or any other
applicable Environmental Law and in the regulations adopted pursuant thereto.
"Hazardous Wastes" shall mean all waste materials regulated under
CERCLA, RCRA or applicable state law, and any other applicable Federal and state
laws now in force or hereafter enacted relating to hazardous waste disposal.
"HTAC" shall mean HT Acquisition Corp., a Delaware corporation, and
its successors and permitted assigns.
"Indebtedness" of a Person at a particular date shall mean all
obligations of such Person which in accordance with GAAP would be classified
upon a balance sheet as liabilities (except capital stock and surplus earned or
otherwise) and in any event, without limitation by reason of enumeration, shall
include all indebtedness, debt and other similar monetary obligations of such
Person whether direct or guaranteed, and all premiums, if any, due at the
required prepayment dates of such indebtedness, and all indebtedness secured by
a Lien on assets owned by such Person, whether or not such indebtedness actually
shall have been created, assumed or incurred by such Person. Any indebtedness of
such Person resulting from the acquisition by such Person of any assets subject
to any Lien shall be deemed, for the purposes hereof, to be the equivalent of
the creation, assumption and incurring of the indebtedness secured thereby,
whether or not actually so created, assumed or incurred.
"Interest Period" shall mean the interest period applicable to any
Eurodollar Rate Loan determined in accordance with Sections 2.2 and 3.2 hereof.
"Interest Rate Protection Agreement" shall mean an interest rate
swap agreement, cap agreement or collar agreement or similar arrangement entered
into by Borrowers and a Counterparty covering the Term Loan and having a minimum
term of five (5) years, having the effect of fixing Borrowers' cost of borrowing
the Term Loan at a rate reasonably acceptable to Borrowers and Agent, in form
and substance reasonably satisfactory to Agent, as amended, supplemented or
modified from time to time.
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"Inventory" shall mean and include all of Borrowers' goods,
merchandise and other personal property, wherever located, to be furnished under
any contract of service or held for sale or lease, all raw materials, work in
process, finished goods and materials and supplies of any kind, nature or
description which are or might be used or consumed in Borrowers' business or
used in selling or furnishing such goods, merchandise and other personal
property, and all documents of title or other documents representing them.
"Inventory Advance Rate" shall have the meaning set forth in Section
2.1(a)(y)(ii) hereof.
"Lender" and "Lenders" shall have the meaning ascribed to such term
in the preamble to this Agreement and shall include each Person which becomes a
transferee, successor or assignee of any Lender.
"Leverage Ratio" shall mean and include, as of the end of each
fiscal quarter of Borrowers, the ratio of (a) the average outstanding principal
amount of all Advances during the fiscal quarter of Borrowers then ended, to (b)
EBITDA for the period of four (4) consecutive fiscal quarters of Borrowers then
ended.
"Lien" shall mean any mortgage, deed of trust, pledge,
hypothecation, assignment, security interest, lien (whether statutory or
otherwise) or encumbrance, or preference, priority or other security agreement
or preferential arrangement held or asserted in respect of any asset of any kind
or nature whatsoever including, without limitation, any conditional sale or
other title retention agreement, any lease having substantially the same
economic effect as any of the foregoing, and the filing of, or agreement to
give, any financing statement under the Uniform Commercial Code or comparable
law of any jurisdiction.
"Material Adverse Effect" shall mean a material adverse effect on
(a) the condition (financial or otherwise), operations, assets or business of
(i) Century or (ii) Borrowers taken as a whole, (b) Borrowers' ability to pay
the Obligations in accordance with the terms thereof, (c) the value of the
Collateral and the Guarantor Collateral, taken as a whole, Agent's Liens on the
Collateral and the Guarantor Collateral, taken as a whole, or the priority of
any such Lien, or (d) the practical realization of the benefits of Agent's and
each Lender's rights and remedies under this Agreement and the Other Documents.
"Maximum Loan Amount" shall mean sixty-seven million five hundred
thousand dollars ($67,500,000), less repayments of the Term Loan.
"Maximum Revolving Advance Amount" shall mean sixty million dollars
($60,000,000).
"Maximum Seasonal Advance Amount" shall mean five million dollars
($5,000,000).
"Monthly Advances" shall have the meaning set forth in Section 3.1
hereof.
"Multiemployer Plan" shall mean a "multiemployer plan" as defined in
Sections 3(37) and 4001(a)(3) of ERISA.
"Non-Pro Rata Advance" shall have the meaning set forth in Section
2.13(b) hereof.
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"Notes" shall mean collectively, the Term Note and the Revolving
Credit Note.
"Obligations" shall mean and include any and all of Borrowers'
obligations and/or liabilities to Agent or Lenders of every kind, nature and
description, direct or indirect, secured or unsecured, joint, several, joint and
several, absolute or contingent, due or to become due, now existing or hereafter
arising, contractual or tortious, liquidated or unliquidated, whether direct or
indirect (including, without limitation, any interest accruing thereon after
maturity, or after the filing of any petition in bankruptcy, or the commencement
of any insolvency, reorganization or like proceeding relating to any Borrower,
whether or not a claim for post-petition or post-filing interest is allowed in
such proceeding), whether arising out of overdrafts on deposit or other accounts
or electronic funds transfers (whether through automated clearinghouses or
otherwise) or out of Agent's or any Lender's non-receipt of or inability to
collect funds or otherwise not being made whole in connection with depository
transfer check or other similar arrangements, in any case arising under this
Agreement or any Other Document, including, without limitation, those arising
under the Interest Rate Protection Agreement or any other present or future
interest, currency or equity swap, future, option or other similar agreement or
arrangement.
"Other Documents" shall mean the Notes, the Subordination Agreement,
the Guaranty, the Guarantor Security Agreement, the Interest Rate Protection
Agreement, any other present or future interest, currency or equity swap,
future, option or other similar agreement or arrangement, any lock-box, blocked
account or similar agreement relating to the Blocked Accounts, and any and all
other agreements, instruments and documents, including, without limitation,
guaranties, pledges, powers of attorney, consents, and all other documents or
agreements heretofore, now or hereafter executed by any Borrower or Guarantor
and/or delivered to Agent or any Lender in respect of the Transactions.
"Parent" of any Person shall mean a corporation or other entity
owning, directly or indirectly at least fifty percent (50%) of the shares of
stock or other ownership interests having ordinary voting power to elect a
majority of the directors of the Person, or other Persons performing similar
functions for any such Person.
"Participant" shall mean each Person who shall be granted the right
by any Lender to participate in any of the Advances and who shall have entered
into a participation agreement in form and substance satisfactory to such
Lender.
"Payment Office" shall mean initially Two Tower Center Boulevard,
East Brunswick, New Jersey 08816; thereafter, such other office of Agent, if
any, which Agent may designate by notice to Borrowing Agent and to each Lender
to be the Payment Office.
"PBGC" shall mean the Pension Benefit Guaranty Corporation and any
successor agency.
"Permitted Acquisition" shall mean an acquisition by Century or CBE,
by purchase or by merger, of (1) all of the equity interests of another Person
or (2) substantially all of the assets of another Person or of a business or
division of another Person; provided that each of the following requirements is
met:
(a) if Century or CBE is acquiring all of the equity interests in
such Person, the acquired Person shall execute a guaranty in favor of Agent and
Lenders, substantially in the form attached
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hereto as Exhibit 8.1(p)(i), and the acquired Person shall grant and cause to be
perfected, first priority Liens (subject to Permitted Encumbrances) in favor of
Agent for the ratable benefit of Lenders, in the assets of such Person (other
than the real property and any property determined by Agent, in its sole
discretion, to be immaterial) on or before the date of such Permitted
Acquisition or, with the consent of the Required Lenders which may be withheld
in its sole discretion, within thirty (30) days following the date of such
Permitted Acquisition;
(b) if Century or CBE is acquiring substantially all of assets of
such Person or of a business or division of such Person, such Borrower shall
grant and cause to be perfected, first priority Liens (subject to Permitted
Encumbrances) on the assets acquired from such Person (other than the real
property and any property determined by the Agent, in its sole discretion, to be
immaterial) in favor of Agent, for the ratable benefit of Lenders, on or before
the date of such Permitted Acquisition or, with the consent of the Agent which
may be withheld in its sole discretion, within thirty (30) days following the
date of such Permitted Acquisition;
(c) the board of directors or other equivalent governing body of
such Person shall have approved such Permitted Acquisition and, if Century or
CBE shall use any portion of the Advances to fund such Permitted Acquisition,
Century or CBE, as the case may be, also shall have delivered to the Agent
written evidence of the approval of the board of directors (or equivalent body)
of such Person for such Permitted Acquisition;
(d) the business acquired, or the business conducted by the Person
whose ownership interests are being acquired, as applicable, shall be
substantially the same as one or more line or lines of business conducted by
Century or CBE, as the case may be, and shall have a positive operating profit
and positive net worth (e.g. assets less liabilities);
(e) no Default or Event of Default shall exist immediately prior to
and after giving effect to such Permitted Acquisition; and
(f) Century or CBE, as the case may be, shall deliver to Agent at
least five (5) Business Days before such Permitted Acquisition copies of any
agreements entered into or proposed to be entered into by any Borrower in
connection with such Permitted Acquisition and shall deliver to Agent such other
information about such Person or its assets as Agent may reasonably request.
"Permitted Encumbrances" shall mean (a) Liens in favor of Agent for
the benefit of Agent and Lenders; (b) Liens for taxes, assessments or other
governmental charges not delinquent or being contested in good faith by a
Borrower or Guarantor and by appropriate proceedings and with respect to which
proper reserves have been taken by such Borrower or by Guarantor in accordance
with GAAP; (c) deposits or pledges to secure obligations under worker's
compensation, social security or similar laws, or under unemployment insurance;
(d) deposits or pledges to secure bids, tenders, contracts (other than contracts
for the payment of money), leases, statutory obligations, surety and appeal
bonds and other obligations of like nature arising in the ordinary course of a
Borrower's or Guarantor's business; (e) judgment Liens that have been stayed or
bonded and mechanics', workers', materialmen's or other like Liens arising in
the ordinary course of a Borrower's or Guarantor's business with respect to
obligations which are not due or which are being contested by a Borrower or
Guarantor in good faith and by appropriate proceedings and with respect to which
proper reserves have been taken by such Borrower or by Guarantor in accordance
with GAAP; (f) Liens placed upon fixed assets hereafter acquired by a Borrower
or Guarantor to
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secure a portion of the purchase price thereof, provided that (x) any such Lien
shall not encumber any other property of such Borrower or of Guarantor and (y)
the aggregate amount of Indebtedness secured by such Liens incurred as a result
of such purchases during any fiscal year shall not exceed the amount provided
for in Section 7.6 hereof; and (g) Liens disclosed on Schedule 1.2.
"Person" shall mean any individual, sole proprietorship,
partnership, corporation, business trust, joint stock company, trust,
unincorporated organization, association, limited liability company,
institution, public benefit corporation, joint venture, entity or government
(whether Federal, state, county, city, municipal or otherwise, including any
instrumentality, division, agency, body or department thereof).
"Plan" shall mean any employee benefit plan within the meaning of
Section 3(2) of ERISA, maintained for employees of any Borrower or any member of
the Controlled Group or any such Plan to which Borrower or any member of the
Controlled Group is required to contribute on behalf of any of its employees.
"Pro Forma Balance Sheets" shall have the meaning set forth in
Section 5.5(a) hereof.
"Pro Forma Financial Statements" shall have the meaning set forth in
Section 5.5(b) hereof.
"Projections" shall have the meaning set forth in Section 5.5(b)
hereof.
"Purchasing Lender" shall have the meaning set forth in Section
15.3(c) hereof.
"RCRA" shall mean the Resource Conservation and Recovery Act, 42
U.S.C. Section 6901 et seq.
"Real Property" shall mean all of Borrowers' and Guarantor's right,
title and interest in and to all now or hereafter owned or leased premises,
including, without limitation, the owned or leased premises identified on
Schedule 4.19 hereto.
"Receivables" shall mean and include all of Borrowers' accounts,
contract rights, instruments (including those evidencing indebtedness owed to
any Borrower by its Affiliates), documents, chattel paper, general intangibles
relating to accounts, drafts and acceptances, and all other forms of obligations
owing to any Borrower arising out of or in connection with the sale or lease of
Inventory or the rendition of services, all guarantees and other security
therefor, whether secured or unsecured and whether or not specifically sold or
assigned to Agent hereunder.
"Receivables Advance Rate" shall have the meaning set forth in
Section 2.1(a)(y)(i) hereof.
"Release" shall have the meaning set forth in Section 5.7(c)(i)
hereof.
"Reportable Event" shall mean a reportable event described in
Section 4043(b) of ERISA or the regulations promulgated thereunder (other than
an event for which the thirty (30) day notice requirement has been waived).
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"Required Lenders" shall mean, at any time, Lenders holding at least
sixty-six and two-thirds percent (66-2/3%) of the Advances at such time and, if
no Advances are outstanding, shall mean Lenders holding sixty-six and two-thirds
percent (66-2/3%) of the Commitment Percentages at such time.
"Reserve Percentage" shall mean the maximum effective percentage in
effect on any day as prescribed by the Board of Governors of the Federal Reserve
System (or any successor) for determining the reserve requirements (including,
without limitation, supplemental, marginal and emergency reserve requirements)
with respect to eurocurrency funding.
"Revolving Advances" shall mean Advances made other than the Term
Loan.
"Revolving Credit Note" shall mean, collectively, the promissory
notes referred to in Section 2.1(a) hereof.
"Revolving Interest Rate" shall mean an interest rate per annum
equal to (a) the Base Rate with respect to Domestic Rate Loans, or (b) the sum
of the Eurodollar Rate plus the Applicable Margin with respect to Eurodollar
Rate Loans, as applicable.
"RHC" shall mean Richton Holding Corp., a Delaware corporation, and
its successors and permitted assigns.
"Richton" shall have the meaning set forth in the preamble to this
Agreement and shall include its successors and permitted assigns.
"Seasonal Advance Period" shall mean the period each year commencing
not later than January 1 of such year and ending one hundred eighty (180) days
thereafter, but in no event later than July 31 of such year. Subject to the
foregoing, the Seasonal Advance Period shall commence on the date the Borrowing
Agent, on behalf of Century, requests a Revolving Advance pursuant to Section
2.2 hereof which consists, in part, of the amount referred to in Section
2.1(a)(y)(iii) hereof.
"Settlement Date" shall mean the Closing Date and thereafter
Wednesday of each week unless such day is not a Business Day in which case it
shall be the next succeeding Business Day.
"Subordination Agreement" shall mean the Subordination Agreement
made by Sullivan in favor of Agent and Lenders substantially in the form
attached hereto as Exhibit 8.1(o), as amended, supplemented or modified from
time to time.
"Subsidiary" shall mean a corporation or other entity of whose
shares of stock or other ownership interests having ordinary voting power (other
than stock or other ownership interests having such power only by reason of the
happening of a contingency) to elect a majority of the directors of such
corporation, or other Persons performing similar functions for such entity, are
owned, directly or indirectly, by such Person.
"Sullivan" shall mean Fred R. Sullivan.
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"Sullivan Group" shall mean (a) Sullivan, (b) any immediate family
member of Sullivan, and (c) any Person as to which Sullivan and/or any immediate
family member of Sullivan is/are the sole trustee(s) or has/have the sole power
to manage the business and affairs of such Person.
"Term" shall have the meaning set forth in Section 13.1 hereof.
"Term Loan" shall mean the Advance made pursuant to Section 2.3
hereof.
"Term Loan Rate" shall mean an interest rate per annum equal to (a)
the sum of the Base Rate plus one-half of one percent (1/2 of 1%) with respect
to Domestic Rate Loans, or (b) the sum of the Eurodollar Rate plus the
Applicable Margin with respect to Eurodollar Rate Loans, as applicable.
"Term Note" shall mean the promissory notes described in Section 2.3
hereof.
"Termination Event" shall mean (a) a Reportable Event with respect
to any Plan or Multiemployer Plan; (b) the withdrawal of a Borrower, Guarantor
or any member of the Controlled Group from a Plan or Multiemployer Plan during a
plan year in which such entity was a "substantial employer" as defined in
Section 4001(a)(2) of ERISA; (c) the providing of notice of intent to terminate
a Plan in a distress termination described in Section 4041(c) of ERISA; (d) the
institution by the PBGC of proceedings to terminate a Plan or Multiemployer
Plan; (e) any event or condition (i) that might constitute grounds under Section
4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any Plan or Multiemployer Plan, or (ii) that might result in
termination of a Multiemployer Plan pursuant to Section 4041A of ERISA; or (f)
the partial or complete withdrawal within the meaning of Sections 4203 and 4205
of ERISA, of a Borrower, Guarantor or any member of the Controlled Group from a
Multiemployer Plan.
"Toxic Substance" shall mean and include any material present on the
Real Property which has been shown to have significant adverse effect on human
health or which is subject to regulation under the Toxic Substances Control Act
(TSCA), 15 U.S.C. Section 2601 et seq., applicable state law, or any other
applicable Federal or state laws now in force or hereafter enacted relating to
toxic substances. "Toxic Substance" includes but is not limited to asbestos,
polychlorinated biphenyls (PCBs) and lead-based paints.
"Transactions" shall mean the transactions contemplated by this
Agreement.
"Transferee" shall have the meaning set forth in Section 15.3(b)
hereof.
"Undrawn Availability" at the date of the initial Advance hereunder
shall mean an amount equal to (a) the lesser of (i) the Aggregate Formula Amount
at such date or (ii) the Maximum Revolving Advance Amount, minus (b) the sum of
(i) the outstanding amount of Revolving Advances, plus (ii) all amounts due and
owing to Borrowers' trade creditors which are unpaid for more than sixty (60)
days after the original due date, plus (iii) fees and expenses to Agent and
Lenders for which Borrowers are liable but which have not been paid or charged
to Borrowers' Account.
"Week" shall mean the time period commencing with the opening of
business on a Wednesday and ending on the end of business the following Tuesday.
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1.3. Uniform Commercial Code Terms. All terms used herein and defined in
the Uniform Commercial Code as adopted in the State of New York shall have the
meaning given therein unless otherwise defined herein.
1.4. Certain Matters of Construction. The terms "herein", "hereof" and
"hereunder" and other words of similar import refer to this Agreement as a whole
and not to any particular section, paragraph or subdivision. Any pronoun used
shall be deemed to cover all genders. Wherever appropriate in the context, terms
used herein in the singular also include the plural and vice versa. All
references to statutes and related regulations shall include any amendments of
same and any successor statutes and regulations. Unless otherwise provided, all
references to any instruments or agreements, including, without limitation,
references to any of the Other Documents, shall include any and all
modifications or amendments thereto and any and all extensions or renewals
thereof.
II. ADVANCES, PAYMENTS.
2.1. (a) Revolving Advances. Subject to the terms and conditions set forth
in this Agreement, each Lender, severally and not jointly, will make Revolving
Advances to Borrowers in aggregate amounts outstanding at any time equal to such
Lender's Commitment Percentage of the lesser of (x) the Maximum Revolving
Advance Amount or (y) an amount equal to the sum of:
(i) up to eighty-five percent (85%), subject to the provisions of
Section 2.1(b) hereof ("Receivables Advance Rate"), of Eligible
Receivables of all Borrowers at such time, plus
(ii) up to the lesser of (A) sixty percent (60%), subject to the
provisions of Section 2.1(b) hereof ("Inventory Advance Rate"), of
the value of the Eligible Inventory of all Borrowers at such time or
(B) twenty million dollars ($20,000,000) in the aggregate at any one
time, plus
(iii) solely during the Seasonal Advance Period, an additional
amount equal to the Maximum Seasonal Advance Amount (provided that
the amount referred to in this Section 2.1(a)(y)(iii) (A) may only
be advanced to Century and (B) may not be advanced at the beginning
of any Seasonal Advance Period prior to receipt by Agent of the
preliminary monthly unaudited financial statements for December of
the prior fiscal year of Borrowers to enable Agent to preliminarily
determine compliance with Sections 6.10 and 6.11 hereof), minus
(iv) such reserves as Agent may reasonably and in good faith deem
proper and necessary from time to time.
The amount derived from the sum of (x) Sections 2.1(a)(y)(i), (ii)
and (iii) hereof , minus (y) Section 2.1(a)(y)(iv) hereof at any time and from
time to time shall be referred to as the "Aggregate Formula Amount". The
Revolving Advances shall be evidenced by the promissory note ("Revolving Credit
Note") substantially in the form attached hereto as Exhibit 2.1(a).
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Notwithstanding the foregoing, in no event shall the Aggregate
balance of outstanding Revolving Advances to any Borrower exceed the amount set
forth in Section 2.4 hereof.
(b) Discretionary Rights. The Advance Rates may be increased or
decreased by Agent at any time and from time to time in good faith and in the
exercise of its reasonable discretion. Each Borrower consents to any such
increases or decreases and acknowledges that decreasing the Advance Rates or
increasing the reserves may limit or restrict Advances requested by Borrowing
Agent. Agent shall give Borrowing Agent five (5) days prior written notice of
its intention to decrease the Advance Rates.
2.2. Procedure for Revolving Advances Borrowing.
(a) During the Term, Borrowing Agent, on behalf of Century or CBE,
may notify Agent in writing (or by telephone and promptly confirmed in writing)
prior to 11:00 a.m. (New Jersey time) on a Business Day of Borrowing Agent's
request to incur, on that day, a Revolving Advance hereunder. Borrowing Agent
may not request Revolving Advances on behalf of Richton. Should any amount
required to be paid as interest hereunder, or as fees or other charges under
this Agreement or any Other Document, or with respect to any other Obligation,
become due, same shall be deemed a request for a Revolving Advance as of the
date such payment is due, in the amount required to pay in full such interest,
fee, charge or Obligation, and such request shall be irrevocable. No Revolving
Advance shall be made available to Borrowers during the continuance of an Event
of Default.
(b) Notwithstanding the provisions of (a) above, in the event any
Borrower desires to obtain a Eurodollar Rate Loan, Borrowing Agent, on behalf of
such Borrower, shall give Agent at least three (3) Business Days' prior written
notice (or telephonic notice promptly confirmed in writing), specifying (i) the
date of the proposed borrowing (which shall be a Business Day), (ii) the type of
borrowing and the amount on the date of such Revolving Advance to be borrowed,
which amount shall be an integral multiple of one million dollars ($1,000,000),
and (iii) the duration of the first Interest Period therefor.
2.3. Term Loan. Subject to the terms and conditions of this Agreement,
each Lender, severally and not jointly, will make a Term Loan to Borrowers in
the sum equal to such Lender's Commitment Percentage of seven million five
hundred thousand dollars ($7,500,000). The Term Loan shall (a) be advanced on
the Closing Date, (b) with respect to principal, be payable in fifty-nine (59)
consecutive monthly installments of one hundred twenty-five thousand dollars
($125,000) each, and a final payment on the last day of the Term of the entire
unpaid principal balance thereof, subject to acceleration upon the occurrence of
an Event of Default under this Agreement or termination of this Agreement, and
(c) be evidenced by the promissory note ("Term Note") in substantially the form
attached hereto as Exhibit 2.3. Each payment of principal with respect to the
Term Loan shall be made on the first Business Day of each month commencing on
July 1, 1999. Each Eurodollar Rate Loan that constitutes a portion of the Term
Loan shall be an integral multiple of one million dollars ($1,000,000).
2.4. Maximum Advances. The aggregate balance of Advances outstanding at
any time shall not exceed Maximum Loan Amount. The aggregate balance of
Revolving Advances outstanding to all Borrowers at any time shall not exceed the
lesser of (a) the Aggregate Formula Amount at such time, or (b) the Maximum
Revolving Advance Amount. The aggregate balance of Revolving Advances
outstanding to (i) Century at any time shall not exceed the Century Formula
Amount at such time, and (ii) CBE at any time shall not exceed the CBE Formula
Amount at such time.
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2.5. Disbursement of Advance Proceeds. All Advances shall be disbursed
from whichever office or other place Agent may designate from time to time.
During the Term, Borrowers may use the Revolving Advances by borrowing,
prepaying or repaying and reborrowing, all in accordance with the terms and
conditions hereof. The Term Loan may not be reborrowed once repaid or prepaid,
except and to the extent requested by Borrowing Agent and agreed by each Lender,
in its sole discretion. The proceeds of each Revolving Advance requested by
Borrowing Agent or deemed to have been requested under Section 2.2(a) hereof
shall, with respect to requested Revolving Advances to the extent Lenders make
such Revolving Advances, be made available to Borrowers on the day so requested
by way of credit to Borrowers' operating account at PNC, or such other bank as
Borrowing Agent may designate following notification to Agent, in immediately
available federal funds or other immediately available funds or, with respect to
Revolving Advances deemed to have been requested, be disbursed to Agent to be
applied to the outstanding Obligations giving rise to such deemed request.
2.6. Repayment of Advances.
(a) The Revolving Advances shall be due and payable in full on the
last day of the Term, subject to earlier prepayment as herein provided. The Term
Loan shall be due and payable as provided in Section 2.3 hereof and in the Term
Note.
(b) Borrowers recognize that the amounts evidenced by checks, notes,
drafts or any other items of payment relating to and/or proceeds of Collateral
may not be collectible by Agent on the date received. In consideration of
Agent's agreement to conditionally credit Borrowers' Account as of the Business
Day on which Agent receives those items of payment, Borrowers agree that, in
computing the charges under this Agreement, all items of payment shall be deemed
applied by Agent on account of the Obligations one (1) Business Day after the
Business Day Agent receives such payments via wire transfer or electronic
depository check. Agent is not, however, required to credit Borrowers' Account
for the amount of any item of payment which is unsatisfactory to Agent and Agent
may charge Borrowers' Account for the amount of any item of payment which is
returned to Agent unpaid.
(c) All payments of principal, interest and other amounts payable
hereunder, or under any of the related agreements shall be made to Agent at the
Payment Office not later than 1:00 p.m. (New Jersey time) on the due date
therefor in Dollars in federal funds or other funds immediately available to
Agent. Agent shall have the right to effectuate payment on any and all
Obligations due and owing hereunder by charging Borrowers' Account or by making
Advances as provided in Section 2.2 hereof.
(d) Borrowers shall pay principal, interest, and all other amounts
payable hereunder, or under any Other Document, without any deduction
whatsoever, including, but not limited to, any deduction for any setoff or
counterclaim. In addition, any and all payments made by Borrowers hereunder or
under any Other Document shall be made free and clear and without deduction for
any present or future taxes, levies, imposts, charges or withholdings, and all
liabilities with respect thereto, excluding taxes imposed on Agent's or any
Lender's income or profits (all such non-excluded taxes, levies, imposts,
charges or withholdings and liabilities being hereinafter referred to as
"Taxes"). If Borrowers shall be required by law to withhold or deduct any Taxes
from or in respect of any sum payable by Borrowers hereunder or under any Other
Document to Agent or any Lender, (i) such sum payable shall be increased as may
be necessary so that after making all required withholdings or deductions, Agent
or such Lender, as the case may be, receives an amount equal to the sum it would
have received had no such withholdings or deductions been made, (ii) Borrowers
shall make such withholdings or deductions, and (iii) Borrowers shall
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pay the full amount withheld or deducted to the relevant Governmental Body in
accordance with applicable law. Borrowers will indemnify Agent and each Lender,
and reimburse each on demand and certification for the full amount of all Taxes
incurred or paid by Agent or such Lender, as the case may be, and any liability
arising therefrom or with respect thereto, whether or not such Taxes were
correctly or lawfully payable. A certificate of Agent or such Lender setting
forth the amount payable under this Section 2.6(d) shall be delivered to
Borrowing Agent and shall be conclusive absent manifest error.
2.7. Statement of Account. Agent shall maintain, in accordance with its
customary procedures, a loan account ("Borrowers' Account") in the name of
Borrowers in which shall be recorded the date and amount of each Advance made by
Agent and the date and amount of each payment in respect thereof; provided,
however, the failure by Agent to record the date and amount of any Advance shall
not adversely affect Agent or any Lender. Each month, Agent shall send to
Borrowing Agent a statement showing the accounting for the Advances made,
payments made or credited in respect thereof, and other transactions between
Agent and Borrowers during such month. The monthly statements shall be deemed
correct and binding upon Borrowers in the absence of manifest error and shall
constitute an account stated between Lenders and Borrowers unless Agent receives
a written statement of Borrowing Agent's specific exceptions thereto within
thirty (30) days after such statement is received by Borrowers. The records of
Agent with respect to the loan account shall be conclusive evidence absent
manifest error of the amounts of Advances and other charges thereto and of
payments applicable thereto.
2.8. Additional Payments. Any sums expended by Agent or any Lender due to
any Borrower's or Guarantor's failure to perform or comply with its obligations
under this Agreement or any Other Document including, without limitation,
Borrowers' obligations under Sections 4.2, 4.4, 4.12, 4.13, 4.14 and 6.1 hereof,
may be charged to Borrowers' Account as a Revolving Advance and added to the
Obligations.
2.9. Manner of Borrowing and Payment.
(a) Each borrowing of Revolving Advances and the Term Loan shall be
advanced according to the applicable Commitment Percentages of Lenders.
(b) Each payment (including each prepayment) by Borrowers on account
of the principal of and interest on the Revolving Advances, shall be applied to
the Revolving Advances pro rata according to the applicable Commitment
Percentages of Lenders. Each payment (including each prepayment) by Borrowers on
account of the principal of and interest on the Term Loan, shall be applied to
the Term Loan pro rata according to the Commitment Percentages of Lenders.
(c) (i) Notwithstanding anything to the contrary contained in
Sections 2.9(a) and (b) hereof, commencing with the first Business Day following
the Closing Date, each borrowing of Revolving Advances shall be advanced by
Agent and each payment by Borrowers on account of Revolving Advances shall be
applied first to those Revolving Advances advanced by Agent. On or before 1:00
p.m. (New Jersey time), on each Settlement Date commencing with the first
Settlement Date following the Closing Date, Agent and Lenders shall make certain
payments as follows: (A) if the aggregate amount of new Revolving Advances made
by Agent during the preceding Week (if any) exceeds the aggregate amount of
repayments applied to outstanding Revolving Advances during such preceding Week,
then each Lender shall provide Agent with funds in an amount equal to its
applicable Commitment Percentage of the difference between (w) such Revolving
Advances and (x) such repayments and (B) if the aggregate amount
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of repayments applied to outstanding Revolving Advances during such Week exceeds
the aggregate amount of new Revolving Advances made during such Week, then Agent
shall provide each Lender with funds in an amount equal to its applicable
Commitment Percentage of the difference between (y) such repayments and (z) such
Revolving Advances. Promptly following each Settlement Date, Agent shall submit
to each Lender a certificate with respect to payments received and Revolving
Advances made during the Week immediately preceding such Settlement Date. Such
certificate of Agent shall be conclusive in the absence of manifest error.
(ii) Each Lender shall be entitled to earn interest at the
applicable Contract Rate on outstanding Advances which it has funded.
(d) If any Lender or Participant (a "benefitted Lender") shall at
any time receive any payment of all or part of its Advances, or interest
thereon, or receive any Collateral or Guarantor Collateral in respect thereof
(whether voluntarily or involuntarily or by set-off) in a greater proportion
than any such payment to and Collateral or Guarantor Collateral received by any
other Lender, if any, in respect of such other Lender's Advances, or interest
thereon, and such greater proportionate payment or receipt of Collateral or
Guarantor Collateral is not expressly permitted hereunder, such benefitted
Lender shall purchase for cash from the other Lenders a participation in such
portion of each such other Lender's Advances, or shall provide such other Lender
with the benefits of any such Collateral or Guarantor Collateral, or the
proceeds thereof, as shall be necessary to cause such benefitted Lender to share
the excess payment or benefits of such Collateral or Guarantor Collateral or
proceeds ratably with each Lender; provided, however, that if all or any portion
of such excess payment or benefits is thereafter recovered from such benefitted
Lender, such purchase shall be rescinded, and the purchase price and benefits
returned, to the extent of such recovery, but without interest. Each Lender so
purchasing a portion of another Lender's Advances may exercise all rights of
payment (including, without limitation, rights of set-off) with respect to such
portion as fully as if such Lender were the direct holder of such portion.
(e) Unless Agent shall have been notified by telephone, confirmed in
writing, by any Lender that such Lender will not make the amount which would
constitute its applicable Commitment Percentage of the Revolving Advances
available to Agent, Agent may (but shall not be obligated to) assume that such
Lender shall make such amount available to Agent (in immediately available
funds) on the next Settlement Date, and, in reliance upon such assumption, make
available to Borrower a corresponding amount. Agent will promptly notify
Borrowing Agent of its receipt of any such notice from a Lender. If such amount
is made available to Agent on a date after such next Settlement Date, such
Lender shall pay to Agent on demand an amount equal to the product of (i) the
daily average Federal Funds Rate (computed on the basis of a year of 360 days)
during such period as quoted by Agent, times (ii) such amount, times (iii) the
number of days from and including such Settlement Date to the date on which such
amount becomes immediately available to Agent. A certificate of Agent submitted
to any Lender with respect to any amounts owing under this Section 2.9(e) shall
be conclusive, in the absence of manifest error. If such amount is not in fact
made available to Agent by such Lender within three (3) Business Days after such
Settlement Date, Agent shall be entitled to recover such an amount, with
interest thereon at the rate per annum then applicable to such Revolving Advance
hereunder, from Borrowers on demand made to Borrowing Agent; provided, however,
that Agent's right to such recovery shall not prejudice or otherwise adversely
affect Borrowers' rights (if any) against such Lender.
2.10. Mandatory Prepayment.
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(a) In the event that the aggregate balance of Revolving Advances
outstanding at any time exceeds the lesser of (a) the Aggregate Formula Amount
at such time, or (b) the Maximum Revolving Advance Amount, the excess amount of
Revolving Advances shall be immediately due and payable as a mandatory
prepayment without the necessity of any demand, at the Payment Office, whether
or not a Default or Event of Default has occurred. In the Event that the
aggregate balance of Revolving Advances outstanding to (i) Century at any time
exceeds the Century Formula Amount at such time, or (ii) CBE at any time exceeds
the CBE Formula Amount at such time, the excess amount of Revolving Advances
shall be immediately due and payable by the appropriate Borrower(s) as a
mandatory prepayment without the necessity of any demand, at the Payment Office,
whether or not a Default or Event of Default has occurred.
(b) Borrowers shall prepay the outstanding amount of the Advances in
an amount equal to fifty percent (50%) of Excess Cash Flow for each fiscal year
of Borrowers (up to a maximum of one million dollars ($1,000,000) for any such
fiscal year) commencing with the fiscal year of Borrowers ending on December 31,
1999, payable in two (2) equal installments on June 30 and August 31 of the
following fiscal year (i.e. the first payment shall be due on June 30, 2000).
Such prepayments shall be applied first, to the outstanding principal
installments of the Term Loan in the inverse order of the maturities thereof
and, second, to the remaining Advances in such order as Agent may determine
subject to Borrowers' ability to reborrow Revolving Advances in accordance with
the terms hereof. The Excess Cash Flow for each fiscal year of Borrowers shall
be determined based upon the financial statements relating to such fiscal year
delivered pursuant to Section 9.7 hereof. In the event that such financial
statements with respect to any fiscal year of Borrowers are not delivered on or
prior to the date that any prepayment is due hereunder with respect to such
fiscal year of Borrowers, then a calculation based upon estimated amounts shall
be made by Agent upon which calculation Borrowers shall make the prepayment
required by this Section 2.10(b), subject to adjustment when such financial
statements are delivered. The calculation made by Agent shall not be deemed a
waiver of any rights Agent or Lenders may have as a result of the failure by
Borrowers to deliver such financial statements. Notwithstanding the foregoing,
Borrowers shall not be required to make mandatory prepayments under this Section
2.10(b) at any time after the Term Loan has been repaid in full.
(c) All prepayments shall be accompanied by accrued interest on the
principal being prepaid to the date of such prepayment. In the event that any
prepayment of a Eurodollar Rate Loan is made on a date other than the last
Business Day of the then current Interest Period with respect thereto, Borrowers
shall indemnify Agent and Lenders therefor in accordance with Section 3.2(e)
hereof.
2.11. Optional Prepayment. At their option and upon three (3) Business
Days' prior written notice from Borrowing Agent, Borrowers may prepay the Term
Loan in whole at any time or in part from time to time, without premium or
penalty (except as provided in Section 13.1 hereof), but with accrued interest
on the principal being prepaid to the date of such prepayment. Borrowing Agent
shall specify the date of prepayment of the Term Loan and the amount of such
prepayment. Optional prepayments of the Term Loan shall each be in an aggregate
principal amount of one hundred thousand dollars ($100,000) or a whole multiple
of one hundred thousand dollars ($100,000) in excess thereof (or such lesser
principal amount as may be outstanding with respect to the Term Loan). In the
event that any prepayment of a Eurodollar Rate Loan is required or permitted on
a date other than the last Business Day of the then current Interest Period with
respect thereto, Borrowers shall indemnify Agent and Lenders therefor in
accordance with Section 3.2(e) hereof.
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2.12. Use of Proceeds. Borrowers shall apply the proceeds of (a) Revolving
Advances to (i) repay existing indebtedness owed to Michigan National Bank, (ii)
pay fees and expenses relating to this transaction, (iii) finance Permitted
Acquisitions, and (iv) provide for its working capital needs, including for
general corporate purposes, and (b) the Term Loan to provide for its working
capital needs, including for general corporate purposes.
2.13. Defaulting Lender.
(a) Notwithstanding anything to the contrary contained herein, in
the event any Lender (x) has refused (which refusal constitutes a breach by such
Lender of its obligations under this Agreement) to make available its portion of
any Advance or (y) notifies either Agent or Borrowing Agent that it does not
intend to make available its portion of any Advance (if the actual refusal would
constitute a breach by such Lender of its obligations under this Agreement)
(each, a "Lender Default"), all rights and obligations hereunder of such Lender
(a "Defaulting Lender") as to which a Lender Default is in effect and of the
other parties hereto shall be modified to the extent of the express provisions
of this Section 2.13 while such Lender Default remains in effect.
(b) A Defaulting Lender shall not be entitled to give instructions
to Agent or to approve, disapprove, consent to or vote on any matters relating
to this Agreement and the Other Documents. All amendments, waivers and other
modifications of this Agreement (except for amendments, waivers or modifications
relating to the matters referred to in paragraphs (i), (ii) or (iii) of Section
15.2(b) hereof) and the Other Documents may be made without regard to a
Defaulting Lender and, for purposes of the definition of "Required Lenders", a
Defaulting Lender shall be deemed not to be a Lender and not to have Advances
outstanding. The proceeds of all amounts repaid to Agent by Borrowers after any
Lender Default, to the extent otherwise required to be applied to a Defaulting
Lender's share of all other Obligations pursuant to the terms hereof and
provided that no Event of Default has occurred and is continuing, shall be
advanced to Borrowers by Agent on behalf of such Defaulting Lender to the extent
necessary to cure, in full or in part, such Lender Default by such Defaulting
Lender, but shall nevertheless be deemed to have been paid to such Defaulting
Lender in satisfaction of such other Obligations; provided, that in no event
shall the Commitment Percentage of any Lender or any pro rata share of any
Advances required to be advanced by any Lender be increased as a result of any
Lender Default. Notwithstanding anything contained herein to the contrary:
(i) the foregoing provisions of this Section 2.13(b) shall
apply only with respect to payments of Obligations;
(ii) a Defaulting Lender shall be deemed to have cured its
failure to make available its applicable Commitment Percentage of any
Revolving Advance at such time as an amount equal to such Defaulting
Lender's applicable Commitment Percentage of such Revolving Advance is
fully funded to Borrowers, whether made by such Defaulting Lender itself
or by operation of the terms of this Section 2.13(b), and whether or not
the portion of such Advance which was timely funded by the other Lender(s)
in accordance with the terms hereof (each such timely funded portion being
a "Non-Pro Rata Advance") has been repaid;
(iii) amounts advanced to Borrowers to cure, in full or in
part, any Lender Default ("Cure Advances") shall bear interest from and
after the date made available to Borrowers
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at the rate applicable to the Non-Pro Rata Advance and shall be treated as
a Revolving Advance for all purposes herein;
(iv) regardless of whether or not an Event of Default has
occurred or is continuing, and notwithstanding the instructions of
Borrowers or Borrowing Agent as to their desired application, all
repayments of principal which, in accordance with the other terms of this
Section 2.13, would be applied to the outstanding Revolving Advances shall
be applied first, ratably to all Revolving Advances constituting Non-Pro
Rata Advances, second, ratably to Revolving Advances other than those
constituting Non-Pro Rata Advances or Cure Advances and, third, ratably to
Revolving Advances constituting Cure Advances.
(c) Other than as expressly set forth in this Section 2.13, the
rights and obligations of a Defaulting Lender (including, without limitation,
the obligation to indemnify Agent) and the other parties hereto shall remain
unchanged. Except as provided in Section 2.13(e) hereof, nothing in this Section
2.13 shall be deemed to release any Defaulting Lender from its obligations under
this Agreement and the Other Documents, shall alter such obligations, shall
operate as a waiver of any default by such Defaulting Lender hereunder, or shall
prejudice any rights which any Borrower, Agent or any other Lender may have
against any Defaulting Lender as a result of any default by such Defaulting
Lender hereunder.
(d) In the event a Defaulting Lender cures to the satisfaction of
Agent the breach which caused such Lender to become a Defaulting Lender, such
Defaulting Lender shall no longer be a Defaulting Lender and shall be treated as
a Lender under this Agreement.
(e) In the event and for so long as a Defaulting Lender fails to
cure to the reasonable satisfaction of Borrower the breach which caused such
Lender to become a Defaulting Lender, upon the request of Borrowing Agent, Agent
shall use its reasonable good faith efforts to locate a Purchasing Lender
reasonably acceptable to Agent to acquire all of such Defaulting Lender's rights
and interests under this Agreement (including, without limitation, all of such
Defaulting Lender's outstanding Advances and commitments to make additional
Advances) upon the terms set forth in Section 15.3(c) hereof; provided that such
Defaulting Lender shall be obligated to pay the fee set forth in Section 15.3(d)
hereof.
III. INTEREST AND FEES.
3.1. Interest. Interest on Advances shall be payable in arrears on the
first Business Day of each month, with respect to Domestic Rate Loans and at the
end of each Interest Period, with respect to Eurodollar Rate Loans. Interest
charges shall be computed on the actual principal amount of Advances outstanding
during the month (the "Monthly Advances") at a rate per annum equal to (a) with
respect to Revolving Advances, the applicable Revolving Interest Rate, and (b)
with respect to the Term Loan, the applicable Term Loan Rate (as applicable, the
"Contract Rate"). Whenever, subsequent to the date of this Agreement, the Base
Rate is increased or decreased, the applicable Contract Rate for Domestic Rate
Loans shall be similarly changed without notice or demand of any kind by an
amount equal to the amount of such change in the Base Rate during the time such
change or changes remain in effect. The Eurodollar Rate shall be adjusted with
respect to Eurodollar Rate Loans without notice or demand of any kind on the
effective date of any change in the Reserve Percentage as of such effective
date. Upon and after the occurrence and
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during the continuance of an Event of Default, each Advance shall bear interest,
payable on demand, at a rate equal to two percent (2%) per annum in excess of
the rate otherwise applicable to such Advance (the "Default Rate").
3.2. Eurodollar Rate Loans.
(a) Interest Periods for Eurodollar Rate Loans shall be for one (1),
two (2) or three (3) months; provided, that if an Interest Period would end on a
day that is not a Business Day, it shall end on the next succeeding Business Day
unless such day falls in the next succeeding calendar month in which case the
Interest Period shall end on the next preceding Business Day.
(b) Each Interest Period of a Eurodollar Rate Loan shall commence on
the date such Eurodollar Rate Loan is made and shall end on such date as
Borrower may elect as set forth in accordance with the terms of this Agreement;
provided that the exact length of each Interest Period shall be determined in
accordance with the practice of the interbank market for offshore Dollar
deposits and no Interest Period shall end after the last day of the Term.
(c) Borrowing Agent, on behalf of Borrowers, shall elect the initial
Interest Period applicable to a Eurodollar Rate Loan (i) by its notice of
borrowing given to Agent pursuant to Section 2.2(b) hereof, (ii) by its notice
of conversion given to Agent pursuant to Section 3.2(d) hereof, or (iii) in the
case of any portion of the Term Loan that is a Eurodollar Rate Loan, by its
notice given to Agent at least three (3) Business Days prior to the Closing
Date, as the case may be. Borrowing Agent, on behalf of Borrowers, shall elect
the duration of each succeeding Interest Period by giving irrevocable written
notice (or telephonic notice promptly confirmed in writing) to Agent of such
duration not less than three (3) Business Days prior to the last day of the then
current Interest Period applicable to such Eurodollar Rate Loan. If Agent does
not receive timely notice of the Interest Period elected by Borrowing Agent, on
behalf of Borrowers, Borrowing Agent, on behalf of Borrowers, shall be deemed to
have elected to convert to a Domestic Rate Loan subject to Section 3.2(d)
hereof.
(d) Provided that no Event of Default shall have occurred and be
continuing, Borrowing Agent, on behalf of Borrowers, may, on the last Business
Day of the then current Interest Period applicable to any outstanding Eurodollar
Rate Loan, or on any Business Day with respect to Domestic Rate Loans, convert
any such loan into a loan of another type in the same aggregate principal amount
provided that any conversion of a Eurodollar Rate Loan shall be made only on the
last Business Day of the then current Interest Period applicable to such
Eurodollar Rate Loan. If Borrowing Agent, on behalf of Borrowers, desires to
convert a loan, Borrowing Agent, on behalf of Borrowers, shall give Agent not
less than three (3) Business Days' prior written notice (or telephonic notice
promptly confirmed in writing) to convert from a Domestic Rate Loan to a
Eurodollar Rate Loan or one (1) Business Day's prior written notice (or
telephonic notice promptly confirmed in writing) to convert from a Eurodollar
Rate Loan to a Domestic Rate Loan, specifying the date of such conversion, the
loans to be converted and if the conversion is from a Domestic Rate Loan to a
Eurodollar Rate Loan, the duration of the first Interest Period therefor.
(e) Borrowers shall indemnify Agent and Lenders and hold Agent and
Lenders harmless from and against any and all losses or expenses that Agent and
Lenders may sustain or incur as a consequence of any prepayment, conversion of
or any default by Borrowers in the payment of the principal of or interest on
any Eurodollar Rate Loan or failure by Borrowers to complete a borrowing of, a
prepayment of or conversion of or to a Eurodollar Rate Loan after notice thereof
has been given, including,
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but not limited to, any interest payable by Agent or Lenders to lenders of funds
obtained by it in order to make or maintain its Eurodollar Rate Loans hereunder.
A certificate as to any additional amounts payable pursuant to the foregoing
sentence submitted by Agent or any Lender to Borrowing Agent shall be conclusive
absent manifest error.
(f) Notwithstanding any other provision hereof, if any applicable
law, treaty, regulation or directive, or any change therein or in the
interpretation or application thereof, shall make it unlawful for any Lender
(for purposes of this Section 3.2(f), the term "Lender" shall include any Lender
and the office or branch where any Lender or any corporation or bank controlling
such Lender makes or maintains any Eurodollar Rate Loans) to make or maintain
its Eurodollar Rate Loans, the obligation of Lenders to make Eurodollar Rate
Loans hereunder shall forthwith be canceled and Borrowers shall, if any affected
Eurodollar Rate Loans are then outstanding, promptly upon request from Agent to
Borrowing Agent, either pay all such affected Eurodollar Rate Loans or convert
such affected Eurodollar Rate Loans into loans of another type. If any such
payment or conversion of any Eurodollar Rate Loan is made on a day that is not
the last day of the Interest Period applicable to such Eurodollar Rate Loan,
Borrowers shall pay Agent, upon Agent's request, such amount or amounts as may
be necessary to compensate Lenders for any loss or expense sustained or incurred
by Lenders in respect of such Eurodollar Rate Loan as a result of such payment
or conversion, including, but not limited to, any interest or other amounts
payable by Lenders to lenders of funds obtained by Lenders in order to make or
maintain such Eurodollar Rate Loan. A certificate as to any additional amounts
payable pursuant to the foregoing sentence submitted by any Lender to Borrowing
Agent shall be conclusive absent manifest error.
3.3. Facility Fee. If, for any month during the Term, the average daily
unpaid balance of the Revolving Advances for each day of such month does not
equal the Maximum Revolving Advance Amount, then Borrowers shall pay to Agent,
for the ratable benefit of Lenders, a fee at a rate equal to three-eights of one
percent (3/8 of 1%) per annum on the amount of by which the Maximum Revolving
Advance Amount exceeds such average daily unpaid balance of the Revolving
Advances. Such fee shall be payable to Agent in arrears on the last day of each
month.
3.4. Additional Fees. Borrowers shall pay to Agent all fees specified in
the Fee Letter in the amounts and at the times specified therein.
3.5. (a) Collateral Management Fee. Borrowers shall pay Agent a collateral
management fee equal to two thousand dollars ($2,000) per month commencing on
the first day of the month following the Closing Date and on the first day of
each month thereafter during the Term. The collateral evaluation fee shall be
deemed earned in full on the date when same is due and payable hereunder and
shall not be subject to rebate or proration upon termination of this Agreement
for any reason.
(b) Field Examination Expenses. In connection with each field
examination conducted by Agent with respect to Borrowers and Guarantor or their
facilities, Borrowers shall pay Agent (i) the amount of six hundred seventy-five
dollars ($675) per day for each person (whether or not Agent's personnel)
employed or used by Agent to perform such field examination; provided, that
unless an Event of Default has occurred and is continuing, no more than four (4)
field examinations (each of which may encompass one or more locations of
Borrowers and/or Guarantor) shall be conducted by Agent in any calendar year,
and (ii) all other costs and disbursements incurred by Agent in the performance
of such field examination. The foregoing amounts shall be deemed earned in full
on the date when same is due and
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payable hereunder and shall not be subject to rebate or proration upon
termination of this Agreement for any reason.
3.6. Computation of Interest and Fees. Interest and fees hereunder shall
be computed on the basis of a year of 360 days and for the actual number of days
elapsed. If any payment to be made hereunder becomes due and payable on a day
other than a Business Day, the due date thereof shall be extended to the next
succeeding Business Day and interest thereon shall be payable at the Revolving
Interest Rate for Domestic Rate Loans during such extension.
3.7. Maximum Charges. In no event whatsoever shall interest and other
charges charged hereunder exceed the highest rate permitted under law. In the
event interest and other charges as computed hereunder would otherwise exceed
the highest rate permitted under law, such excess amount shall be first applied
to any unpaid principal balance owed by Borrowers, and if the then remaining
excess amount is greater than the previously unpaid principal balance, Lenders
shall promptly refund such excess amount to Borrowers and the provisions hereof
shall be deemed amended to provide for such permissible rate.
3.8. Increased Costs. In the event that any applicable law, treaty or
governmental regulation, or any change therein or in the interpretation or
application thereof, or compliance by any Lender (for purposes of this Section
3.8, the term "Lender" shall include Agent or any Lender and any corporation or
bank controlling Agent or any Lender) and the office or branch where Agent or
any Lender (as so defined) makes or maintains any Eurodollar Rate Loans with any
request or directive (whether or not having the force of law) from any central
bank or other financial, monetary or other authority, shall:
(a) subject Agent or any Lender to any tax of any kind whatsoever
with respect to this Agreement or any Other Document or change the basis of
taxation of payments to Agent or any Lender of principal, fees, interest or any
other amount payable hereunder or under any Other Documents (except for changes
in the rate of tax on the overall net income of Agent or any Lender by the
jurisdiction in which it maintains its principal office); or
(b) impose, modify or hold applicable any reserve, special deposit,
assessment or similar requirement against assets held by, or deposits in or for
the account of, advances or loans by, or other credit extended by, any office of
Agent or any Lender, including (without limitation) pursuant to Regulation D of
the Board of Governors of the Federal Reserve System; or
(c) impose on Agent or any Lender or the London interbank Eurodollar
market any other condition with respect to this Agreement or any Other Document;
and the result of any of the foregoing is to increase the cost to Agent or any
Lender of making, renewing or maintaining its Advances hereunder by an amount
that Agent or such Lender deems to be material or to reduce the amount of any
payment (whether of principal, interest or otherwise) in respect of any of the
Advances by an amount that Agent or such Lender deems to be material, then, in
any such case Borrowers shall promptly pay Agent or such Lender, upon its demand
upon Borrowing Agent, such additional amount as will compensate Agent or such
Lender for such additional cost or such reduction, as the case may be; provided
that the foregoing shall not apply to increased costs which are reflected in the
Eurodollar Rate. Agent or such Lender shall certify in writing the amount of
such additional cost or reduced amount to Borrowing Agent, and such
certification shall be conclusive absent manifest error.
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3.9. Basis For Determining Interest Rate Inadequate or Unfair. In the
event that Agent or any Lender shall have determined that:
(a) reasonable means do not exist for ascertaining the Eurodollar
Rate for any Interest Period; or
(b) Dollar deposits in the relevant amount and for the relevant
maturity are not available in the London interbank Eurodollar market, with
respect to an outstanding Eurodollar Rate Loan, a proposed Eurodollar Rate Loan,
or a proposed conversion of a Domestic Rate Loan into a Eurodollar Rate Loan ;
then Agent shall give Borrowing Agent prompt written, telephonic or facsimile
notice of such determination. If such notice is given, (i) any such requested
Eurodollar Rate Loan shall be made as a Domestic Rate Loan, unless Borrowing
Agent shall notify Agent no later than 10:00 a.m. (New Jersey time) two (2)
Business Days prior to the date of such proposed borrowing, that its request for
such borrowing shall be canceled or made as an unaffected type of Eurodollar
Rate Loan, (ii) any Domestic Rate Loan or Eurodollar Rate Loan which was to have
been converted to an affected type of Eurodollar Rate Loan shall be continued as
or converted into a Domestic Rate Loan, or, if Borrowing Agent, on behalf of
Borrowers, shall notify Agent, no later than 10:00 a.m. (New Jersey time) two
(2) Business Days prior to the proposed conversion, shall be maintained as an
unaffected type of Eurodollar Rate Loan, and (iii) any outstanding affected
Eurodollar Rate Loans shall be converted into a Domestic Rate Loan, or, if
Borrowing Agent, on behalf of Borrowers, shall notify Agent, no later than 10:00
a.m. (New Jersey time) two (2) Business Days prior to the last Business Day of
the then current Interest Period applicable to such affected Eurodollar Rate
Loan, shall be converted into an unaffected type of Eurodollar Rate Loan, on the
last Business Day of the then current Interest Period for such affected
Eurodollar Rate Loan. Until such notice has been withdrawn, Lenders shall have
no obligation to make an affected type of Eurodollar Rate Loan or maintain
outstanding affected Eurodollar Rate Loans and Borrowers shall not have the
right to convert a Domestic Rate Loan or an unaffected type of Eurodollar Rate
Loan into an affected type of Eurodollar Rate Loan.
3.10. Capital Adequacy.
(a) In the event that Agent or any Lender shall have determined that
the adoption or implementation of, or any change in, any applicable law, rule,
regulation or guideline regarding capital adequacy, or any change therein, 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 Agent or any Lender (for purposes of
this Section 3.10, the term "Lender" shall include Agent or any Lender and any
corporation or bank controlling Agent or any Lender) and the office or branch
where Agent or any Lender (as so defined) makes or maintains any Eurodollar Rate
Loans 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 Agent or
any Lender's capital as a consequence of its obligations hereunder to a level
below that which Agent or such Lender could have achieved but for such adoption,
change or compliance (taking into consideration Agent's and each Lender's
policies with respect to capital adequacy) by an amount deemed by Agent or any
Lender to be material, then, from time to time, Borrowers shall pay to Agent or
such Lender, upon demand from Borrowing Agent, such additional amount or amounts
as will compensate Agent or such Lender for such reduction. In determining such
amount or amounts, Agent or such Lender may use any reasonable averaging or
attribution methods. The protection of this Section 3.10 shall be available to
Agent
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and each Lender regardless of any possible contention of invalidity or
inapplicability with respect to the applicable law, regulation or condition.
(b) A certificate of Agent or such Lender setting forth such amount
or amounts as shall be necessary to compensate Agent or such Lender with respect
to Section 3.10(a) hereof when delivered to Borrowing Agent shall be conclusive
absent manifest error.
IV. COLLATERAL: GENERAL TERMS
4.1. Security Interest in the Collateral. To secure the prompt payment and
performance to Agent and each Lender of the Obligations, each Borrower hereby
assigns, pledges and grants to Agent for the ratable benefit of each Lender a
continuing security interest in and to all of its Collateral, whether now owned
or existing or hereafter acquired or arising and wheresoever located. Each
Borrower shall mark its books and records as may be necessary or appropriate to
evidence, protect and perfect Agent's security interest and shall cause its
financial statements to reflect such security interest (either in the footnotes
thereto or otherwise).
4.2. Perfection of Security Interest. Borrowers shall take all action that
may be necessary or reasonably desirable, or that Agent may reasonably request,
so as at all times to maintain the validity, perfection, enforceability and
priority of Agent's security interest in the Collateral or to enable Agent to
protect, exercise or enforce its rights hereunder and in the Collateral,
including, but not limited to, (i) immediately discharging all Liens other than
Permitted Encumbrances, (ii) obtaining landlords' or mortgagees' lien waivers to
the extent required by Agent (if reasonably obtainable), (iii) delivering to
Agent, endorsed or accompanied by such instruments of assignment as Agent may
specify, and stamping or marking, in such manner as Agent may specify, any and
all chattel paper, instruments (including, without limitation, promissory notes
evidencing loans from each Borrower to another Borrower, Guarantor or any other
Person, letters of credits and advices thereof and documents evidencing or
forming a part of the Collateral, (iv) entering into warehousing, lockbox and
other custodial arrangements reasonably satisfactory to Agent, and (v) executing
and delivering financing statements, instruments of pledge, notices and
assignments, in each case in form and substance satisfactory to Agent, relating
to the creation, validity, perfection, maintenance or continuation of Agent's
security interest under the Uniform Commercial Code as adopted in the State of
New York or other applicable law. Agent is hereby authorized to file financing
statements signed by Agent instead of a Borrower in accordance with Section
9-402(2) of Uniform Commercial Code as adopted in the State of New York if a
Default or Event of Default has occurred and is continuing, or at any other time
if Agent has requested that such Borrower sign such financing statement and such
Borrower has failed to do so within three (3) Business Days. All charges,
expenses and fees Agent may incur in doing any of the foregoing, and any local
taxes relating thereto, shall be charged to Borrowers' Account as a Revolving
Advance of a Domestic Rate Loan and added to the Obligations, or, at Agent's
option, shall be paid to Agent for the ratable benefit of Lenders upon demand.
4.3. Disposition of Collateral. Borrowers will safeguard and protect all
Collateral for Agent's general account and make no disposition thereof whether
by sale, lease or otherwise except (a) the sale of Inventory in the ordinary
course of business and (b) the disposition or transfer of obsolete and worn-out
Equipment and Equipment no longer used, in each case in the ordinary course of
business, during any fiscal year having an aggregate fair market value for all
Borrowers of not more than two hundred fifty thousand dollars ($250,000) and
only to the extent that (i) the proceeds of any such disposition are used to
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acquire Equipment which is subject to Agent's first priority security interest
or (ii) the proceeds of which are remitted to Agent as a prepayment on the Term
Loan.
4.4. Preservation of Collateral. Following the occurrence and during the
continuance of an Event of Default, in addition to the rights and remedies set
forth in Section 11.1 hereof, Agent: (a) may at any time take such steps as
Agent reasonably deems necessary to protect Agent's interest in and to preserve
the Collateral, including the hiring of such security guards or the placing of
other security protection measures as Agent may deem appropriate; (b) may employ
and maintain at any of Borrowers' premises a custodian who shall have full
authority to do all acts necessary to protect Agent's interests in the
Collateral; (c) may lease warehouse facilities to which Agent may move all or
part of the Collateral; (d) may use Borrowers' owned or leased lifts, hoists,
trucks and other facilities or equipment for handling or removing the
Collateral; and (e) shall have, and is hereby granted, a right of ingress and
egress to the places where the Collateral is located, and may proceed over and
through any of Borrowers' owned or leased property. Borrowers shall cooperate
fully with all of Agent's efforts to preserve the Collateral and will take such
reasonable actions to preserve the Collateral as Agent may direct. All of
Agent's expenses of preserving the Collateral, including any expenses relating
to the bonding of a custodian, shall be charged to Borrowers' Account as a
Revolving Advance of a Domestic Rate Loan and added to the Obligations, or, at
Agent's option, shall be paid to Agent for the ratable benefit of Lenders upon
demand.
4.5. Ownership of Collateral. With respect to the Collateral, at the time
the Collateral becomes subject to Agent's security interest: (a) a Borrower
shall be the sole owner of and fully authorized and able to sell, transfer,
pledge and/or grant a first priority security interest (subject to Permitted
Encumbrances) in each and every item of the Collateral to Agent; (b) each
document and agreement executed by a Borrower or delivered to Agent or any
Lender in connection with this Agreement shall be true and correct in all
material respects; (c) all signatures and endorsements of a Borrower that appear
on such documents and agreements shall be genuine and such Borrower shall have
full capacity to execute same; and (d) the Equipment and Inventory of each
Borrower shall be located at one of such Borrower's locations set forth on
Schedule 4.5 and shall not be removed from such location(s) (other than another
location of such Borrower listed on such Schedule) without the prior written
consent of Agent, except to the extent permitted in Section 4.3 hereof.
4.6. Defense of Agent's and Lenders' Interests. Until (a) payment and
performance in full of all of the Obligations and (b) termination of this
Agreement, Agent's and Lenders' interests in the Collateral shall continue in
full force and effect. During such period Borrowers shall not, without Agent's
prior written consent, pledge, sell (except to the extent permitted in Section
4.3 hereof), assign, transfer, create or suffer to exist a Lien upon or encumber
or allow or suffer to be encumbered in any way except for Permitted
Encumbrances, any part of the Collateral. Borrowers shall defend Agent's
interests in the Collateral against any and all Persons whatsoever. At any time
after the occurrence and during the continuance of an Event of Default, Agent
shall have the right to take possession of the indicia of the Collateral and the
Collateral in whatever physical form contained, including without limitation:
labels, stationery, documents, instruments and advertising materials. If Agent
exercises this right to take possession of the Collateral, Borrowers shall, upon
demand, assemble it in the best manner possible and make it available to Agent
at a place reasonably convenient to Agent. In addition, with respect to all
Collateral, Agent and Lenders shall be entitled to all of the rights and
remedies set forth herein and further provided by the Uniform Commercial Code as
adopted in the State of New York or other applicable law. At any time after the
occurrence and during the continuance of an Event of Default, Borrowers shall,
and Agent may, at its option, instruct all suppliers, carriers, forwarders,
warehouses or others receiving or holding cash, checks, Inventory, documents or
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instruments in which Agent holds a security interest to deliver same to Agent
and/or subject to Agent's order and if they shall come into any Borrower's
possession, they, and each of them, shall be held by such Borrower in trust for
the benefit of Agent and Lenders, and such Borrower will immediately deliver
them to Agent in their original form together with any necessary endorsement.
4.7. Books and Records. Each Borrower shall (a) keep proper books of
record and account in which full, true and correct (in all material respects)
entries will be made of all dealings or transactions of or in relation to its
business and affairs; (b) set up on its books accruals with respect to all
taxes, assessments, charges, levies and claims; and (c) on a reasonably current
basis set up on its books, from its earnings, allowances against doubtful
Receivables, advances and investments and all other proper accruals (including
without limitation by reason of enumeration, accruals for premiums, if any, due
on required payments and accruals for depreciation, obsolescence, or
amortization of properties), which should be set aside from such earnings in
connection with its business. All determinations pursuant to this Section 4.7
shall be made in accordance with, or as required by, GAAP consistently applied.
4.8. Financial Disclosure. Each Borrower hereby irrevocably authorizes and
directs all accountants and auditors employed by such Borrower at any time
during the Term to exhibit and deliver to Agent and each Lender copies of any of
such Borrower's financial statements, trial balances or other accounting records
of any sort in the accountant's or auditor's possession, and to disclose to
Agent and each Lender any information such accountants may have concerning such
Borrower's financial status and business operations. Unless and Event of Default
has occurred and is continuing, Agent and each Lender will obtain the consent of
Borrowing Agent (which consent will not be unreasonably withheld or delayed)
prior to obtaining such information or materials from such accountants.
4.9. Compliance with Laws. Each Borrower shall comply in all material
respects with all acts, rules, regulations and orders of any legislative,
administrative or judicial body or official applicable to its respective
Collateral or any part thereof or to the operation of such Borrower's business
the non-compliance with which could reasonably be expected to have a Material
Adverse Effect. Each Borrower may, however, contest or dispute any acts, rules,
regulations, orders and directions of those bodies or officials in any
reasonable manner; provided that any related Lien is inchoate or stayed and
sufficient reserves are established to the reasonable satisfaction of Agent to
protect Agent's Lien on and security interest in the Collateral. The Collateral
at all times shall be maintained in accordance with the requirements of all
insurance carriers which provide insurance with respect to the Collateral so
that such insurance shall remain in full force and effect.
4.10. Inspection of Premises. At all reasonable times and, provided that
no Event of Default has occurred and is continuing, upon reasonable advanced
notice, Agent and each Lender shall have full access to and the right to audit,
check, inspect and make abstracts and copies from Borrowers' books, records,
audits, correspondence and all other papers relating to the Collateral and the
operation of Borrowers' businesses. Agent, any Lender and their agents may at
all reasonable times and, provided that no Event of Default has occurred and is
continuing, upon reasonable advanced notice, enter upon any of Borrowers'
premises at any time during business hours and at any other reasonable time, and
from time to time, for the purpose of inspecting the Collateral and any and all
records pertaining thereto and the operation of Borrowers' business.
4.11. Insurance. Borrowers shall bear the full risk of any loss of any
nature whatsoever with respect to the Collateral. At each Borrower's own cost
and expense in amounts and with such Borrower's
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current carriers or with other financially sound and reputable carriers, such
Borrower shall (a) keep all of its insurable properties and properties in which
such Borrower has an interest insured against the hazards of fire, flood,
sprinkler leakage, those hazards covered by extended coverage insurance and such
other hazards, and for such amounts, as is customary in the case of companies
engaged in businesses similar to such Borrower's including, without limitation,
business interruption insurance; (b) maintain insurance or a bond in such
amounts as is customary in the case of companies engaged in businesses similar
to such Borrower's insuring against larceny, embezzlement or other criminal
misappropriation of insured's officers and employees who may either singly or
jointly with others at any time have access to the assets or funds of such
Borrower either directly or through authority to draw upon such funds or to
direct generally the disposition of such assets; (c) maintain public and product
liability insurance against claims for personal injury, death or property damage
suffered by others; (d) maintain all such worker's compensation or similar
insurance as may be required under the laws of any state or jurisdiction in
which such Borrower is engaged in business; (e) furnish Agent with (i) copies of
all policies, if requested, and evidence of the maintenance of such policies by
the renewal thereof at least thirty (30) days before any expiration date, and
(ii) appropriate loss payable endorsements in form and substance reasonably
satisfactory to Agent, naming Agent as an additional insured and loss payee as
its interests may appear with respect to all insurance coverage referred to in
clauses (a) and (c) above, and providing (A) that all proceeds thereunder shall
be payable to Agent, (B) no such insurance shall be affected by any act or
neglect of the insured or owner of the property described in such policy, and
(C) that such policy and loss payable clauses may not be canceled, amended or
terminated unless at least thirty (30) days' prior written notice is given to
Agent. In the event of any loss thereunder, the carriers named therein hereby
are directed by Agent and Borrowers to make payment for such loss to Agent and
not to such Borrower and Agent jointly. If any insurance losses are paid by
check, draft or other instrument payable to a Borrower and Agent jointly, Agent
may endorse such Borrower's name thereon and do such other things as Agent may
deem advisable to reduce the same to cash. Upon the occurrence and during the
continuance of an Event of Default, Agent is hereby authorized to adjust and
compromise claims under insurance coverage referred to in clauses (a), and (b)
above. All recoveries received by Agent upon any such insurance relating to
losses of Inventory shall be applied to the Revolving Advances. Except as
otherwise provided below, all other loss recoveries received by Agent upon any
such insurance may be applied to the Obligations, in such order as Agent in its
sole discretion shall determine. Any surplus shall be paid by Agent to Borrowers
or applied as may be otherwise required by law. Any deficiency thereon shall be
paid by Borrowers to Agent, on demand. Anything hereinabove to the contrary
notwithstanding, and subject to the fulfillment of the conditions set forth
below, Agent shall remit to Borrowers insurance proceeds received by Agent
during any calendar year under insurance policies procured and maintained by
Borrowers which insure Borrowers' insurable properties (other than Inventory) to
the extent such insurance proceeds do not exceed five hundred thousand dollars
($500,000) in the aggregate for all Borrowers during such calendar year or three
hundred fifty thousand dollars ($350,000) per occurrence. In the event the
amount of insurance proceeds received by Agent for any occurrence exceeds such
amounts, then Agent may, in its sole discretion, either remit the insurance
proceeds to Borrowers upon Borrowers providing Agent with evidence reasonably
satisfactory to Agent that the insurance proceeds will be used by Borrowers to
repair, replace or restore the insured property which was the subject of the
insurable loss, or apply the proceeds to the Obligations, in such order as
Agent, in its sole discretion shall determine. The agreement of Agent to remit
insurance proceeds in the manner above provided shall be subject in each
instance to satisfaction of each of the following conditions: (x) no Event of
Default shall then have occurred and be continuing, and (y) Borrowers shall use
such insurance proceeds to repair, replace or restore the insurable property
which was the subject of the insurable loss (to the extent not already repaired,
replaced or restored).
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4.12. Failure to Pay Insurance. If any Borrower fails to obtain insurance
as hereinabove provided, or to keep the same in force, Agent, if Agent so
elects, may obtain such insurance and pay the premium therefor on behalf of such
Borrower, and charge Borrowers' Account therefor as a Revolving Advance of a
Domestic Rate Loan and such expenses so paid shall be part of the Obligations.
4.13. Payment of Taxes. Each Borrower will pay, when due, all taxes,
assessments and other Charges lawfully levied or assessed upon such Borrower or
any of its Collateral including, without limitation, real and personal property
taxes, assessments and charges and all franchise, income, employment, social
security benefits, withholding, and sales taxes, in each case except to the
extent being contested in good faith and by appropriate proceedings and with
respect to which proper reserves have been taken by such Borrower in accordance
with GAAP.
4.14. Payment of Leasehold Obligations. Each Borrower shall at all times
pay, when and as due, its rental obligations under all leases under which it is
a tenant, and shall otherwise comply, in all material respects, with all other
terms of such leases and keep them in full force and effect and, at Agent's
request will provide evidence of having done so, except, in any such case where
the failure to pay such obligations or comply with such terms or to keep such
leases in full force and effect would not reasonably be expected to have a
Material Adverse Effect.
4.15. Receivables.
(a) Nature of Receivables. Each of the Receivables shall be a bona
fide and valid account representing a bona fide indebtedness incurred by the
Customer therein named, for a fixed sum as set forth in the invoice or other
documentary evidence relating thereto (provided immaterial or unintentional
invoice errors shall not be deemed to be a breach hereof) with respect to the
sale or lease and delivery of goods upon stated terms of such Borrower, or work,
labor or services theretofore rendered by such Borrower as of the date each
Receivable is created. Same shall be due and owing in accordance with such
Borrower's customary terms of sale without dispute, claimed setoff or
counterclaim except as may be stated on the accounts receivable schedules
delivered by Borrowers to Agent.
(b) Solvency of Customers. Each Customer of each Borrower, to the
best of such Borrower's knowledge, as of the date each Receivable is created, is
and will be solvent and able to pay all Receivables on which such Customer is
obligated in full when due or with respect to such Customers of such Borrower
who are not solvent, such Borrower has set up on its books and in its financial
records bad debt reserves adequate to cover such Receivables.
(c) Locations of Borrowers. Each Borrower's chief executive office
is located at the address set forth on Schedule 4.15(c) hereto. No Borrower will
move its chief executive office except to such new location as such Borrower may
establish in accordance with this Section 4.15(c). The originals of all
documents evidencing all Receivables and the only original books of account and
records of each Borrower relating thereto are, and will continue to be, kept at
such chief executive office or at such new chief executive office as such
Borrower may establish in accordance with this Section 4.15(c). No Borrower will
establish a new location for such office unless (i) it shall have given to Agent
written notice at least thirty (30) days prior to such relocation, clearly
describing such new location and providing such other information in connection
therewith as Agent may reasonably request and (ii) with respect to such new
location, it shall have taken all action, reasonably satisfactory to Agent, to
maintain the security interest of Agent (and the priority thereof) in the
Collateral intended to be granted hereby at all times fully perfected
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and in full force and effect. No Borrower will change its corporate name or
conduct business under any other name except as set forth on Schedule 5.6
hereto.
(d) Collection of Receivables. Each Borrower shall, at such
Borrower's sole cost and expense, deliver to Agent, and instruct its Customers
to deliver to Agent, or forward to a Blocked Account maintained with Agent, in
original form and on the date of receipt thereof, all checks, drafts, notes,
money orders, acceptances, cash and other evidences of Indebtedness relating to
such Borrower's Receivables. All such amounts received by such Borrower shall be
received on Agent's and Lenders' behalf and for Agent's and Lenders' account, as
Agent's and Lenders' property and in trust for Agent and Lenders, and such
Borrower shall not commingle such amounts with such Borrower's funds or use the
same except to pay Obligations.
(e) Notification of Assignment of Receivables. At any time following
the occurrence and during the continuance of an Event of Default, Agent shall
have the right to send notice of the assignment of, and Agent's security
interest in, the Receivables to any and all Customers or any third party holding
or otherwise concerned with any of the Collateral. Thereafter, Agent shall have
the sole right to collect the Receivables, if not already doing so, take
possession of the Collateral, or both. Agent's actual collection expenses,
including, but not limited to, stationery and postage, telephone and telegraph,
secretarial and clerical expenses and the salaries of any collection personnel
used for collection, may be charged to Borrowers' Account and added to the
Obligations.
(f) Power of Agent to Act on Borrowers' Behalf. Agent shall have the
right to receive, endorse, assign and/or deliver in the name of Agent or any
Borrower any and all checks, drafts and other instruments for the payment of
money relating to the Receivables, and each Borrower hereby waives notice of
presentment, protest and non-payment of any instrument so endorsed. Each
Borrower hereby constitutes Agent or Agent's designee as such Borrower's
attorney with power, following the occurrence and during the continuance of an
Event of Default, (i) without limiting the generality of the immediately
preceding sentence, to endorse such Borrower's name upon any notes, acceptances,
checks, drafts, money orders or other evidences of payment or Collateral; (ii)
to sign such Borrower's name on any invoice or bill of lading relating to any of
the Receivables, drafts against Customers, assignments and verifications of
Receivables; (iii) without limiting the generality of Section 9.2 hereof, to
send verifications of Receivables to any Customer; (iv) to sign such Borrower's
name on all financing statements or any other documents or instruments deemed
necessary or appropriate by Agent to preserve, protect, or perfect Agent's
interest in the Collateral and to file same; (v) to demand payment of the
Receivables; (vi) to enforce payment of the Receivables by legal proceedings or
otherwise; (vii) to exercise all of such Borrower's rights and remedies with
respect to the collection of the Receivables and any other Collateral; (viii) to
settle, adjust, compromise, extend or renew the Receivables; (ix) to settle,
adjust or compromise any legal proceedings brought to collect Receivables; (x)
to prepare, file and sign such Borrower's name on a proof of claim in bankruptcy
or similar document against any Customer; (xi) to prepare, file and sign such
Borrower's name on any notice of Lien, assignment or satisfaction of Lien or
similar document in connection with the Receivables; and (xii) to do all other
acts and things reasonably necessary to carry out this Agreement. All acts of
said attorney or designee are hereby ratified and approved, and said attorney or
designee shall not be liable for any acts of omission or commission nor for any
error of judgment or mistake of fact or of law, except to the extent such act,
error or mistake constitutes gross negligence or willful misconduct; this power
being coupled with an interest is irrevocable while any of the Obligations
remain unpaid. Agent shall have the right at any time following the occurrence
and during the continuance of an Event of Default, to change
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the address for delivery of mail addressed to any Borrower to such address as
Agent may designate and to receive, open and dispose of all mail addressed to
any Borrower.
(g) No Liability. Neither Agent nor any Lender shall, under any
circumstances or in any event whatsoever, have any liability for any error or
omission or delay of any kind occurring in the settlement, collection or payment
of any of the Receivables or any instrument received in payment thereof, or for
any damage resulting therefrom, except to the extent caused by the gross
negligence or willful misconduct of Agent or such Lender. Following the
occurrence and during the continuance of an Event of Default, Agent may, without
notice or consent from any Borrower, sue upon or otherwise collect, extend the
time of payment of, compromise or settle for cash, credit or upon any terms any
of the Receivables or any other securities, instruments or insurance applicable
thereto and/or release any obligor thereof. Agent is authorized and empowered to
accept, following the occurrence and during the continuance of an Event of
Default, the return of the goods represented by any of the Receivables, without
notice to or consent by any Borrower, all without discharging or in any way
affecting Borrowers' liability hereunder.
(h) Establishment of a Lockbox Account, Dominion Account.
Notwithstanding anything to the contrary contained herein or in any Other
Document, all proceeds of Collateral shall be deposited by each Borrower into a
lockbox account, dominion account or such other "blocked account" ("Blocked
Accounts") as Agent may require pursuant to an arrangement with such banks as
may be selected by Borrowing Agent and be reasonably acceptable to Agent. Each
appropriate Borrower shall issue to each such bank at which a Blocked Account is
maintained, an irrevocable letter of instruction directing said bank to transfer
such funds so deposited to Agent, either to any account maintained by Agent at
said bank or by wire transfer to appropriate account(s) of Agent. All funds
deposited in such Blocked Accounts shall immediately become the property of
Agent and each appropriate Borrower shall obtain the agreement by such bank to
waive any offset rights against the funds so deposited. Agent assumes no
responsibility for any Blocked Account arrangements, including, without
limitation, any claim of accord and satisfaction or release with respect to
deposits accepted by any bank thereunder. Alternatively, Agent may establish
depository accounts ("Depository Accounts") in the name of Agent at a bank or
banks for the deposit of such funds and each Borrower shall deposit all proceeds
of Collateral or cause same to be deposited, in kind, in such Depository
Accounts of Agent in lieu of depositing same to the Blocked Accounts.
(i) Adjustments. No Borrower will, without Agent's consent,
compromise or adjust any material amount of the Receivables (or extend the time
for payment thereof) or accept any material returns of merchandise or grant any
additional discounts, allowances or credits thereon except for those
compromises, adjustments, returns, discounts, credits and allowances as have
been heretofore customary in the business of such Borrower.
4.16. Inventory. To the extent Inventory held for sale or lease has been
produced by a Borrower, it has been and will be produced by such Borrower in
accordance with the Federal Fair Labor Standards Act of 1938, as amended, and
all rules, regulations and orders thereunder.
4.17. Maintenance of Equipment. The Equipment shall be maintained in good
operating condition and repair (reasonable wear and tear excepted) and all
necessary replacements of and repairs thereto shall be made so that the value
and operating efficiency of the Equipment shall be maintained and preserved in
accordance with Borrowers' normal business practices. No Borrower shall use or
operate its Equipment in violation of any law, statute, ordinance, code, rule or
regulation, except for violations which
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individually or in the aggregate could not reasonably be expected to have a
Material Adverse Effect. Each Borrower shall have the right to sell its
Equipment to the extent set forth in Section 4.3 hereof.
4.18. Exculpation of Liability. Nothing herein contained shall be
construed to constitute Agent or any Lender as Borrowers' agent for any purpose
whatsoever, nor shall Agent or any Lender be responsible or liable for any
shortage, discrepancy, damage, loss or destruction of any part of the Collateral
wherever the same may be located and regardless of the cause thereof, except to
the extent resulting from the gross negligence or willful misconduct of Agent or
any Lender. Neither Agent nor any Lender, whether by anything herein or in any
assignment or otherwise, shall assume any Borrower's obligations under any
contract or agreement assigned to Agent or such Lender, and neither Agent nor
any Lender shall be responsible in any way for the performance by any Borrower
of any of the terms and conditions thereof.
4.19. Environmental Matters.
(a) Each Borrower will operate the Real Property owned or leased by
it in compliance with all Environmental Laws, except for such non-compliance
which would not reasonably be expected to have a Material Adverse Effect.
(b) Each Borrower will maintain its current procedures pursuant to
which such Borrower represents, assures and monitors continued compliance with
all Environmental Laws.
(c) Each Borrower shall dispose of any and all Hazardous Waste
generated at the Real Property owned or leased by it in compliance with all
Environmental Laws, except for such non-compliance which would not reasonably be
expected to have a Material Adverse Effect. Without limiting the generality of
the foregoing, each Borrower shall use its best efforts to obtain certificates
of disposal, such as hazardous waste manifest receipts, from all treatment,
transport, storage or disposal facilities or operators employed by such Borrower
in connection with the transport or disposal of any Hazardous Waste generated at
the Real Property owned or leased by it.
(d) In the event any Borrower obtains, gives or receives notice of
any Release or threat of Release of a reportable quantity of any Hazardous
Substances at the Real Property owned or leased by it (each such event being
hereinafter referred to as a "Hazardous Discharge") or receives any notice of
violation or notification that it is potentially responsible for investigation
or cleanup of environmental conditions at the Real Property owned or leased by
it, demand letter or complaint, order, citation, or other written notice with
regard to any Hazardous Discharge or violation of Environmental Laws affecting
the Real Property owned or leased by it or such Borrower's interest therein
(each of the foregoing is referred to herein as an "Environmental Complaint")
from any Person, including any state agency responsible in whole or in part for
environmental matters in the state in which the Real Property owned or leased by
it is located or the United States Environmental Protection Agency (any such
person or entity hereinafter the "Authority"), then such Borrower shall, within
five (5) Business Days, give written notice of same to Agent, and within thirty
(30) days thereafter give a further written notice of same to Agent, in each
case detailing facts and circumstances of which such Borrower is aware giving
rise to the Hazardous Discharge or Environmental Complaint. Such information is
to be provided to allow Agent to protect its security interest in the Collateral
and is not intended to create nor shall it create any obligation upon Agent or
any Lender with respect thereto.
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(e) Each Borrower shall promptly forward to Agent copies of any
notification of potential liability, demand letter relating to potential
responsibility with respect to the investigation or cleanup of Hazardous
Substances at any other site owned, operated or used by such Borrower to dispose
of Hazardous Substances and shall continue to forward copies of correspondence
between such Borrower and the Authority regarding such claims to Agent until the
claim is settled. Each Borrower shall promptly forward to Agent copies of all
documents and reports concerning a Hazardous Discharge at the Real Property that
such Borrower is required to file under any Environmental Laws. Such information
is to be provided solely to allow Agent to protect Agent's security interest in
the Collateral.
(f) Each Borrower shall respond promptly to any Hazardous Discharge
or Environmental Complaint and take all necessary action in order to safeguard
the health of any Person, including, without limitation, undertaking, at its
expense, any clean up, removal, remedial or other action required under
applicable Environmental Laws to remove and clean up any Hazardous Discharge.
(g) Each Borrower shall defend and indemnify Agent and Lenders and
hold Agent, Lenders and their respective employees, agents, directors and
officers harmless from and against all loss, liability, damage and expense,
claims, costs, fines and penalties, including attorney's fees, suffered or
incurred by Agent or Lenders under or on account of any Environmental Laws,
including, without limitation, the assertion of any Lien thereunder, with
respect to any Hazardous Discharge, the presence of any Hazardous Substances
affecting the Real Property owned or leased by it, whether or not the same
originates or emerges from the Real Property owned or leased by it or from any
contiguous real estate, except to the extent such loss, liability, damage and
expense is attributable to any Hazardous Discharge resulting from actions on the
part of Agent or any Lender. Each Borrower's obligations under this Section 4.19
shall arise upon the discovery of the presence of any Hazardous Substances at
the Real Property owned or leased by it, whether or not any federal, state, or
local environmental agency has taken or threatened any action in connection with
the presence of any Hazardous Substances.
4.20. Financing Statements. Except as respects the financing statements
filed by Agent and any financing statements described on Schedule 1.2, no
financing statement covering any of the Collateral or any proceeds thereof is on
file in any public office.
V. REPRESENTATIONS AND WARRANTIES.
Borrowers represent and warrant as follows:
5.1. Authority. (a) Each Borrower has full power, authority and legal
right to enter into this Agreement and the Other Documents to which it is a
party and to perform all its obligations hereunder and thereunder. The
execution, delivery and performance of this Agreement and of the Other Documents
to which it is a party (i) are within each Borrower's corporate powers, have
been duly authorized, are not in contravention of law or the terms of any
Borrower's by-laws, certificate of incorporation or other applicable documents
relating to any Borrower's formation or to the conduct of any Borrower's
business or of any material agreement or undertaking to which each Borrower is a
party or by which any Borrower is bound, and (ii) will not conflict with nor
result in any breach in any of the provisions of or constitute a default under
or result in the creation of any Lien (except Permitted Encumbrances) upon any
asset of any Borrower under the provisions of any agreement, charter document,
instrument, by-law, or other instrument to which any Borrower or its property is
a party or by which it may be bound.
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(b) Guarantor has full power, authority and legal right to enter
into each Other Documents to which it is a party and to perform all its
obligations thereunder. The execution, delivery and performance of each Other
Document to which it is a party (i) are within Guarantor's corporate powers,
have been duly authorized, are not in contravention of law or the terms of
Guarantor's by-laws, certificate of incorporation or other applicable documents
relating to Guarantor's formation or to the conduct of Guarantor's business or
of any material agreement or undertaking to which Guarantor is a party or by
which Guarantor is bound, and (ii) will not conflict with nor result in any
breach in any of the provisions of or constitute a default under or result in
the creation of any Lien (except Permitted Encumbrances) upon any asset of
Guarantor under the provisions of any agreement, charter document, instrument,
by-law, or other instrument to which Guarantor or its property is a party or by
which it may be bound.
5.2. Formation and Qualification. (a) Each Borrower and Guarantor is duly
incorporated and in good standing under the laws of the State of its
incorporation and is qualified to do business and is in good standing in the
states listed on Schedule 5.2(a) which constitute all states in which
qualification and good standing are necessary for such Borrower or Guarantor, as
the case may be, to conduct its business and own its property and where the
failure to so qualify could reasonably be expected to have a Material Adverse
Effect. Each Borrower and Guarantor has delivered to Agent true and complete
copies of its certificate of incorporation and by-laws and Borrowing Agent will
promptly notify Agent of any amendment or changes thereto.
(b) None of Borrowers nor Guarantor has any Subsidiaries except that
(i) RHC is a direct wholly-owned Subsidiary of Richton, (ii) Century, HTAC and
CBE are direct wholly-owned Subsidiaries of RHC, (iii) CBC is a direct
wholly-owned Subsidiary of HTAC, and (iv) Century Supply Corp. of Canada, Ltd.
is a direct wholly-owned Subsidiary of Century.
5.3. Survival of Representations and Warranties. All representations and
warranties of each Borrower and of Guarantor contained in this Agreement and the
Other Documents to which it is a party are true at the time of such Borrower's
or of Guarantor's, as the case may be, execution of this Agreement and the Other
Documents to which it is a party, and shall survive the execution, delivery and
acceptance thereof by the parties thereto and the closing of the transactions
described therein or related thereto.
5.4. Tax Returns. Each Borrower's and Guarantor's federal tax
identification number is set forth on Schedule 5.4. Each Borrower and Guarantor
has filed or obtained appropriate extensions for filing all federal, state and
local tax returns and other reports each is required by law to file and has paid
all taxes, assessments, fees and other governmental charges that are due and
payable and that are not being contested in good faith and by appropriate
proceedings in connection with which such Borrower or Guarantor shall have
provided appropriate reserves in accordance with GAAP. Federal income tax
returns of Century have been examined and reported upon by the Internal Revenue
Service for all fiscal years prior to and including its fiscal year ending
September 30, 1993. There are no agreements or waivers extending the statutory
period of limitations applicable to any federal, state or local income tax
return of any Borrower or any Subsidiary of any Borrower for any period. The
provision for taxes on the books of each Borrower and Guarantor are adequate for
all years not closed by applicable statutes, and for its current fiscal year,
and no Borrower has any knowledge of any deficiency or additional assessment in
connection therewith not provided for on its or Guarantor's books.
5.5. Financial Statements.
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(a) The pro forma consolidated balance sheet of Richton and its
Subsidiaries as of March 31, 1999 (collectively, the "Pro Forma Balance Sheets")
furnished to Agent on or prior to the Closing Date reflects the consummation of
the Transactions and, assuming that the Transactions had closed on or prior to
such date, fairly presents the financial condition of Richton and its
Subsidiaries as of such date after giving effect to the Transactions. The Pro
Forma Balance Sheet has been certified as fairly presenting the financial
condition of Richton and its Subsidiaries by the Chief Financial Officer of
Richton, on behalf of Borrowers. The Pro Forma Balance Sheets, including the
related schedules and notes thereto, if any, have been prepared, in accordance
with GAAP, consistently applied, except as may be disclosed therein.
(b) The forty-eight (48) month cash flow projections of Richton and
its Subsidiaries, a copy of which are attached hereto as Exhibit 5.5(b) (the
"Projections"), were prepared by the Chief Financial Officer of Richton, are
based on underlying assumptions which provide a reasonable basis for the
projections contained therein and reflect Richton's judgment based on present
circumstances of the most likely set of conditions and course of action for the
projected period. The cash flow Projections together with the Pro Forma Balance
Sheets, are referred to as the "Pro Forma Financial Statements". Notwithstanding
the foregoing, actual results may vary and the Projections are subject to
numerous uncertainties and risks, including, without limitation, general
economic and climatic conditions in the markets in which Richton and its
Subsidiaries operate and fluctuation in the demand for their products and
services.
(c) The consolidated balance sheet of Richton and its Subsidiaries
as of December 31, 1998, and the related consolidated statements of income,
changes in stockholder's equity, and changes in cash flow for the period ended
on such date, all accompanied by reports thereon containing opinions without
qualification by independent certified public accountants, copies of which have
been delivered to Agent, have been prepared in accordance with GAAP,
consistently applied and present fairly the financial position of Borrowers at
such date and the results of their operations for such period. The (i) unaudited
consolidating balance sheets of Richton and its Subsidiaries as of December 31,
1998 and the related consolidating statements of income for the period ended on
such date and (ii) unaudited consolidated and consolidating balance sheets of
Richton and its Subsidiaries as of March 31, 1999 and the related consolidated
and consolidating statements of income for the period ended on such date, copies
of which have been delivered to Agent, have been prepared in accordance with
GAAP, consistently applied (subject to normal year end adjustments and the
absence of financial statement footnotes) and present fairly the financial
position of Richton and its Subsidiaries at such date and the results of their
operations for such period. Since March 31, 1999, there has been no material
adverse change in the condition, operations, assets, business or prospects of
Richton or any of its Subsidiaries.
5.6. Corporate Name. None of Borrowers nor Guarantor has been known by any
other corporate name in the past five years and does not sell Inventory under
any other name except as set forth on Schedule 5.6, nor has any Borrower or
Guarantor been the surviving corporation of a merger or consolidation or
acquired all or substantially all of the assets of any Person during the
preceding five (5) years except as set forth on Schedule 5.6.
5.7. OSHA and Environmental Compliance. Except as set forth on Schedule
5.7:
(a) (i) to the best knowledge of each Borrower, such Borrower and
RHC has duly complied with, and its facilities, business, assets, property,
leaseholds and equipment are in compliance in all material respects with, the
provisions of the Federal Occupational Safety and Health Act, the
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Environmental Protection Act, RCRA and all other Environmental Laws; and (ii)
there have been no outstanding citations, notices or orders of non-compliance
issued to any Borrower or Guarantor or relating to its business, assets,
property, leaseholds or equipment under any such laws, rules or regulations.
(b) Each Borrower and RHC has been issued all required federal,
state and local licenses, certificates or permits relating to all applicable
Environmental Laws, except where the failure to obtain such licenses,
certificates or permits could not, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect.
(c) To the best knowledge of Borrowers, (i) there are no visible
signs of releases, spills, discharges, leaks or disposal (collectively referred
to as "Releases") of Hazardous Substances at, upon, under or within any Real
Property; (ii) there are no underground storage tanks or polychlorinated
biphenyls on any Real Property; (iii) no Real Property has never been used as a
treatment, storage or disposal facility of Hazardous Waste; and (iv) no
Hazardous Substances are present on any Real Property, excepting such quantities
as are handled in accordance with all applicable manufacturer's instructions and
governmental regulations and in proper storage containers and as are necessary
for the operation of the commercial business of a Borrower or Guarantor or of
its tenants.
5.8. Solvency; No Litigation, Violation, Indebtedness or Default.
(a) After giving effect to the Transactions, each Borrower and
Guarantor will be solvent, able to pay its debts as they mature, have capital
sufficient to carry on its business and all businesses in which it is about to
engage, and (i) as of the Closing Date, the fair present saleable value of its
assets, calculated on a going concern basis, is in excess of the amount of its
liabilities and (ii) subsequent to the Closing Date, the fair saleable value of
its assets (calculated on a going concern basis) will be in excess of the amount
of its liabilities.
(b) Except as disclosed in Schedule 5.8(b), none of Borrowers or RHC
has (i) any pending or threatened litigation, arbitration, action or proceeding
which could reasonably be expected to have a Material Adverse Effect, or (ii)
any Indebtedness for borrowed money other than the Obligations.
(c) No Borrower is, and RHC is not, in violation of any applicable
statute, regulation or ordinance, or of any order, writ, junction or decree of
any court, Governmental Body or arbitration board or tribunal, in each case in
any respect which could reasonably be expected to have a Material Adverse
Effect.
(d) No Borrower or member of the Controlled Group maintains or
contributes to any Plan other than those listed on Schedule 5.8(d). Except as
set forth in Schedule 5.8(d), (i) no Plan has incurred any "accumulated funding
deficiency," as defined in Section 302(a)(2) of ERISA and Section 412(a) of the
Code, whether or not waived, and Borrowers and members of the Controlled Group
have met all applicable minimum funding requirements under Section 302 of ERISA
in respect of each Plan, (ii) each Plan which is intended to be a qualified plan
under Section 401(a) of the Code as currently in effect has been determined by
the Internal Revenue Service to be qualified under Section 401(a) of the Code
and the trust related thereto is exempt from federal income tax under Section
501(a) of the Code, (iii) no Borrower or member of the Controlled Group has
incurred any liability to the PBGC other than for the payment of premiums, and
there are no premium payments which have become due which are unpaid, (iv) no
Plan has been terminated by the plan administrator thereof nor by the PBGC, and
there is no occurrence which would
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cause the PBGC to institute proceedings under Title IV of ERISA to terminate any
Plan, (v) at this time, the current value of the assets of each Plan exceeds the
present value of the accrued benefits and other liabilities of such Plan and no
Borrower or member of the Controlled Group knows of any facts or circumstances
which would materially change the value of such assets and accrued benefits and
other liabilities, (vi) no Borrower or member of the Controlled Group has
breached any of the responsibilities, obligations or duties imposed on it by
ERISA with respect to any Plan, (vii) no Borrower or member of the Controlled
Group has incurred any liability for any excise tax arising under Section 4972
or 4980B of the Code, and, to Borrowers' knowledge, no fact exists which could
give rise to any such liability, (viii) no Borrower or member of the Controlled
Group, nor any fiduciary of, nor any trustee to, any Plan, has, engaged in a
non-exempt "prohibited transaction" described in Section 406 of the ERISA or
Section 4975 of the Code or taken any action which would constitute or result in
a Termination Event with respect to any such Plan which is subject to ERISA,
(ix) Borrowers and each member of the Controlled Group have made all
contributions due and payable with respect to each Plan, (x) no Reportable Event
has occurred and is continuing with respect to any Plan, (xi) no Borrower or
member of the Controlled Group has any fiduciary responsibility for investments
with respect to any plan existing for the benefit of persons other than
employees or former employees of a Borrower or member of the Controlled Group,
and (xii) no Borrower or member of the Controlled Group has withdrawn,
completely or partially, from any Multiemployer Plan so as to incur liability
under the Multiemployer Pension Plan Amendments Act of 1980.
5.9. Patents, Trademarks, Copyrights and Licenses. All patents, patent
applications, trademarks, trademark applications, service marks, service mark
applications, copyrights, copyright applications, design rights, trade names,
assumed names, trade secrets and licenses owned or utilized by any Borrower or
RHC are set forth on Schedule 5.9, and constitute all of the intellectual
property rights which are necessary for the operation of the business of any
Borrower or RHC. All such patents, patent applications, trademarks, trademark
applications, service marks, service mark applications, copyrights, copyright
applications, design rights, trade names, assumed names, trade secrets and
licenses which are owned by a Borrower or RHC are valid and have been duly
registered or filed with all appropriate governmental authorities set forth on
Schedule 5.9. There is no objection to or pending challenge to the validity of
any such material owned (or, to the knowledge of Borrowers, licensed) patent,
trademark, copyright, design right, trade name, trade secret or license and
Borrowers are not aware of any grounds for any challenge, except as set forth in
Schedule 5.9.
5.10. Licenses and Permits. Except as set forth in Schedule 5.10, each
Borrower and RHC (a) is in compliance with and (b) has procured and is now in
possession of, all material licenses or permits required by any applicable
federal, state or local law or regulation for the operation of its business in
each jurisdiction wherein it is now conducting or proposes to conduct business
and where the failure to procure or be in compliance with such licenses or
permits could not reasonably be expected to have a Material Adverse Effect.
5.11. Default of Indebtedness. No Borrower is, and RHC is not, in default
in the payment of the principal of or interest on any Indebtedness or under any
instrument or agreement under or subject to which any Indebtedness has been
issued, which default could reasonably be expected to have a Material Adverse
Effect, and no event has occurred under the provisions of any such instrument or
agreement which with or without the lapse of time or the giving of notice, or
both, constitutes or would constitute an event of default thereunder, which
event of default could reasonably be expected to have a Material Adverse Effect.
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5.12. No Default. No Borrower is, and RHC is not, in default in the
payment or performance of any of its contractual obligations, which default
could reasonably be expected to have a Material Adverse Effect, and no Default
or Event of Default has occurred and is continuing.
5.13. No Burdensome Restrictions. None of Borrowers nor Guarantor is a
party to any contract or agreement the performance of which could reasonably be
expected to have a Material Adverse Effect. None of Borrowers nor Guarantor has
agreed or consented to cause or permit in the future (upon the happening of a
contingency or otherwise) any of its property, whether now owned or hereafter
acquired, to be subject to a Lien which is not a Permitted Encumbrance.
5.14. No Labor Disputes. None of Borrowers or Guarantor is involved in any
labor dispute; there are no strikes or walkouts or union organization of any
Borrower's or of Guarantor's employees threatened or in existence and no labor
contract is scheduled to expire during the Term other than as set forth on
Schedule 5.14 hereto.
5.15. Margin Regulations. None of Borrowers nor Guarantor is engaged, nor
will it engage, principally or as one of its important activities, in the
business of extending credit for the purpose of "purchasing" or "carrying" any
"margin stock" within the respective meanings of each of the quoted terms under
Regulation U or Regulation G of the Board of Governors of the Federal Reserve
System as now and from time to time hereafter in effect. No part of the proceeds
of any Advance will be used for "purchasing" or "carrying" "margin stock" as
defined in Regulation U of such Board of Governors.
5.16. Investment Company Act. None of Borrowers nor Guarantor is an
"investment company" registered or required to be registered under the
Investment Company Act of 1940, as amended, nor is it controlled by such a
company.
5.17. Disclosure. No representation or warranty made by Richton or any of
its Subsidiaries in this Agreement or in any financial statement, report,
certificate or any other document furnished in connection herewith contains any
untrue statement of a material fact or omits to state any material fact
necessary to make the statements herein or therein not misleading. There is no
fact known to any Borrower which such Borrower has not disclosed to Agent in
writing with respect to the transactions contemplated by this Agreement which
could reasonably be expected to have a Material Adverse Effect.
5.18. Swaps. Other than the Interest Rate Protection Agreement, none of
Borrowers nor Guarantor is a party to, nor will it be a party to, any swap
agreement whereby a Borrower or Guarantor has agreed or will agree to swap
interest rates or currencies unless same provides that damages upon termination
following an event of default thereunder are payable on an unlimited "two-way
basis" without regard to fault on the part of either party.
5.19. Conflicting Agreements. No provision of any material mortgage,
indenture, contract, agreement, judgment, decree or order binding on a Borrower
or on Guarantor or affecting the Collateral or the Guarantor Collateral
conflicts with, or requires any Consent which has not already been obtained to,
or would in any way prevent the execution, delivery or performance of, the terms
of this Agreement or the Other Documents.
5.20. Application of Certain Laws and Regulations. None of Borrowers,
Guarantor nor any of their Affiliates is subject to any statute, rule or
regulation which regulates the incurrence of any
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Indebtedness, including without limitation, statutes or regulations relative to
common or interstate carriers or to the sale of electricity, gas, steam, water,
telephone, telegraph or other public utility services.
5.21. Business and Property of Borrowers and Guarantor. Each Borrower and
Guarantor owns or leases all the property and possess all of the rights and
Consents necessary for the conduct of the business of such Borrower or of
Guarantor, as the case may be, as currently conducted (other than rights and
Consents the failure to obtain which would reasonably be expected to have a
Material Adverse Effect), and such property is not subject to any Liens (other
than Permitted Encumbrances).
5.22. RHC; HTAC. RHC is a holding company whose sole assets are all of the
issued and outstanding shares of capital stock of Century, HTAC and CBE. HTAC is
a holding company whose sole asset is all of the issued and outstanding shares
of capital stock of CBC.
5.23. Year 2000. Each Borrower and Guarantor has reviewed the areas within
its business and operations which could be adversely affected by, and has
developed or is developing a course of action to address on a timely basis, the
risk that certain computer applications used by such Borrower or by Guarantor
may be unable to recognize and perform properly date-sensitive functions
involving dates prior to and after December 31, 1999 (the "Year 2000 Problem").
None of Borrowers nor Guarantor believes that any of its material suppliers,
customers or vendors will not address the Year 2000 Problem on a timely basis.
The Year 2000 Problem is not reasonably expected to result in any Material
Adverse Effect.
VI. AFFIRMATIVE COVENANTS.
Each Borrower (or, in the case of Sections 6.10 and 6.11, Borrowers)
shall, and, except for Section 6.1 hereof, Richton shall cause Guarantor to,
until payment in full of the Obligations and termination of this Agreement:
6.1. Payment of Fees. In addition to other fees to be paid by Borrowers
hereunder, pay to Agent on demand all usual and customary fees and expenses
which Agent incurs in connection with (a) the forwarding of Advance proceeds and
(b) the establishment and maintenance of any Blocked Accounts and Depository
Accounts as provided for in Section 4.15(h) hereof. Agent may, without making
demand, charge Borrowers' Account for all such fees and expenses.
6.2. Conduct of Business and Maintenance of Existence and Assets. (a)
Conduct continuously and operate actively its business according to good
business practices and maintain all of its properties useful or necessary in its
business in good working order and condition (reasonable wear and tear excepted
and except as may be disposed of in accordance with the terms of this
Agreement), including, without limitation, all licenses, patents, copyrights,
design rights, trade names, trade secrets and trademarks and take all actions
necessary to enforce and protect the validity of any intellectual property right
or other right useful or necessary in its business; (b) keep in full force and
effect its existence and comply in all material respects with the laws and
regulations governing the conduct of its business where the failure to do so
could reasonably be expected to have a Material Adverse Effect; and (c) make all
such reports and pay all such franchise and other taxes and license fees and do
all such other acts and things as may be lawfully required to maintain its
rights, licenses, leases, powers and franchises under the laws of the United
States or any political subdivision thereof where the failure to do so could
reasonably be expected to have a Material Adverse Effect.
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6.3. Violations. Promptly notify Agent in writing of any violation of any
law, statute, regulation or ordinance of any Governmental Body, or of any agency
thereof, applicable to such Borrower or any Guarantor which could reasonably be
expected to have a Material Adverse Effect.
6.4. Government Receivables. Take all steps reasonably requested by Agent
which are necessary to protect Agent's interest in the Collateral and the
Guarantor Collateral under the Federal Assignment of Claims Act or other
applicable state or local statutes or ordinances relating to Receivables arising
out of contracts between such Borrower (or accounts receivable arising out of
contracts between Guarantor) and the United States, any state or any department,
agency or instrumentality of any of them, and deliver to Agent appropriately
endorsed, any instrument or chattel paper connected with any Receivable arising
out of contracts between such Borrower (or accounts receivable arising out of
contracts between Guarantor) and the United States, any state or any department,
agency or instrumentality of any of them.
6.5. Execution of Supplemental Instruments. Execute and deliver to Agent
from time to time, upon demand, such supplemental agreements, statements,
assignments and transfers, or instructions or documents relating to the
Collateral or the Guarantor Collateral, and such other instruments as Agent may
reasonably request, in order that the full intent of this Agreement and the
Other Documents may be carried into effect.
6.6. Payment of Indebtedness. Pay, discharge or otherwise satisfy at or
before maturity (subject, where applicable, to specified grace periods and, in
the case of the trade payables, to normal payment practices) all its obligations
and liabilities of whatever nature, except when the failure to do so could not
reasonably be expected to have a Material Adverse Effect or when the amount or
validity thereof is currently being contested in good faith and by appropriate
proceedings and with respect to which proper reserves have been taken by such
Borrower or by Guarantor in accordance with GAAP, subject at all times to any
applicable subordination arrangement in favor of Agent and Lenders.
6.7. Standards of Financial Statements. Cause all financial statements
referred to in Sections 9.7, 9.8, 9.9, 9.12 and 9.13 hereof as to which GAAP is
applicable to fairly present (subject, in the case of interim financial
statements, to normal year-end audit adjustments and, other than with respect to
financial statements referred to in Section 9.7 hereof, the absence of financial
statement footnotes) the financial condition(s) of the Person(s) to which it
relates and to be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein (except as
concurred in by the reporting accountants or officer, as the case may be, and
disclosed therein).
6.8. Interest Rate Protection Agreement. In the case of Borrowers, enter
into the Interest Rate Protection Agreement within ninety (90) days after the
Closing Date.
6.9. Real Property Leases. Cause (a)(i) the rent due under each lease
relating to all or any portion of any Real Property leased by such Borrower or
by Guarantor to be payable to the landlord under such lease monthly in advance,
and (ii) to be delivered to and maintained by the landlord under each such lease
a security deposit in an amount equal to at least one month's rent under such
lease, or (b) the landlord of such property to enter into a landlord's lien
waiver in favor of Agent and the Lenders in the form attached hereto as Exhibit
7.11, or (c) to be established a reserve in a manner reasonably acceptable to
Agent in an amount equal to at least two (2) months' rent.
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6.10. Fixed Charge Coverage Ratio. Maintain a Fixed Charge Coverage Ratio
of not less than 1.10 to 1.00 at the end of each fiscal quarter of Borrowers
(commencing with the fiscal quarter of Borrowers ending on September 30, 1999)
for the period of four (4) consecutive fiscal quarters of Borrowers then ending.
6.11. Leverage Ratio. Commencing with the fiscal quarter of Borrowers
ending on September 30, 1999, maintain a Leverage Ratio of not greater than (a)
5.25 to 1.00 as of the end of the first fiscal quarter of each fiscal year of
Borrowers, (b) 4.50 to 1.00 as of the end of each of the second and third fiscal
quarters of each fiscal year of Borrowers, and (c) 3.50 to 1.00 as of the end of
the fourth fiscal quarter of each fiscal year of Borrowers.
VII. NEGATIVE COVENANTS.
No Borrower shall, and Richton shall cause Guarantor not to, until
satisfaction in full of the Obligations and termination of this Agreement:
7.1. Merger, Consolidation, Acquisition and Sale of Assets.
(a) Enter into any merger, consolidation or other reorganization
with or into any other Person or permit any other Person to consolidate with or
merge with it (in each case other than a merger of one Borrower or of Guarantor
with and into another Borrower) or acquire all or a substantial portion of the
assets of any Person, except that Century and CBE may make Permitted
Acquisitions provided that (i) the aggregate Consideration for each such
Permitted Acquisition shall not exceed one million dollars ($1,000,000), and
(ii) the aggregate Consideration for all such Permitted Acquisitions shall not
exceed two million dollars ($2,000,000) during any fiscal year of Borrowers.
(b) Sell, lease, transfer or otherwise dispose of any Collateral
(except as permitted under Section 4.3 hereof) or, in the case of Guarantor,
Guarantor Collateral (except as permitted under the Guarantor Security
Agreement), or all or substantially all of its properties or assets.
7.2. Creation of Liens. Create or suffer to exist any Lien or transfer
upon or against any of its property or assets now owned or hereafter acquired,
except Permitted Encumbrances.
7.3. Guarantees. Become liable upon the obligations of any Person by
assumption, endorsement or guaranty thereof or otherwise (other than to Lenders)
except (a) as disclosed on Schedule 7.3, and (b) the endorsement of checks in
the ordinary course of business.
7.4. Investments. Purchase or acquire obligations or stock of, or any
other interest in, any Person, except (a) obligations issued or guaranteed by
the United States of America or any agency thereof, (b) commercial paper with
maturities of not more than 180 days and a published rating of not less than A-1
or P-1 (or the equivalent rating), (c) certificates of time deposit and bankers'
acceptances having maturities of not more than 180 days and repurchase
agreements backed by United States government securities of a commercial bank if
(i) such bank has a combined capital and surplus of at least five hundred
million dollars ($500,000,000), or (ii) its debt obligations, or those of a
holding company of which it is a Subsidiary, are rated not less than A (or the
equivalent rating) by a nationally recognized investment rating agency, (d) U.S.
money market funds that invest solely in obligations issued or guaranteed by the
United States of America
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or an agency thereof, and (e) Century and CBE may make Permitted Acquisitions to
the extent permitted by Section 7.1 hereof.
7.5. Loans. Make advances, loans or extensions of credit to any Person,
including without limitation, any Parent or Affiliate of any Borrower except
with respect to (a) the extension of commercial trade credit in connection with
the sale of Inventory or the performance of services in the ordinary course of
its business, (b) loans to its employees in the ordinary course of business not
to exceed one hundred thousand dollars ($100,000) in the aggregate for all
Borrowers and for Guarantor at any time outstanding, (c) loans from Richton to
CBE or Century, (d) a loan in the amount of two million two hundred thousand
dollars ($2,200,000) outstanding on the date hereof from Richton to CBC (which
may not be reloaned to CBC once repaid except to the extent permitted under
clause (e) below), (e) additional loans from Richton to CBC not to exceed five
hundred thousand dollars ($500,000) in the aggregate at any time outstanding
(provided that no Default or Event of Default has occurred and is continuing or
would result therefrom), and (f) loans from Century to Richton, provided, that
each loan referred to in clauses (c), (d), (e) and (f) above shall be evidenced
by a promissory note in form and substance reasonably satisfactory to Agent and
each such promissory note shall be pledged to Agent and delivered to Agent (duly
endorsed in blank) to be held as Collateral pursuant hereto.
7.6. Capital Expenditures. Contract for, purchase or make any expenditure
or commitments for fixed or capital assets (including Capital Leases) in an
aggregate amount in excess of seven hundred fifty thousand dollars ($750,000)
for all Borrowers and for Guarantor during any fiscal year of Borrowers.
7.7. Dividends. Declare, pay or make any dividend or distribution on any
shares of the common stock or preferred stock of any Borrower or of Guarantor
(other than dividends or distributions payable in its stock, or split-ups or
reclassifications of its stock) or apply any of its funds, property or assets to
the purchase, redemption or other retirement of any common or preferred stock,
or of any options to purchase or acquire any such shares of common or preferred
stock of any Borrower or of Guarantor, except that so long as no Default or
Event of Default has occurred and is continuing or would result therefrom, (a)
Century may pay to RHC dividends which were declared and accrued prior to the
date hereof up to the aggregate amount of two million five hundred thousand
dollars ($2,500,000), the proceeds of which shall be used by RHC to pay
dividends to Richton, (b) the Subsidiaries of RHC may pay other cash dividends
to RHC in an aggregate amount not to exceed one million dollars ($1,000,000) in
any fiscal year of Borrowers, the proceeds of which shall be used by RHC to pay
dividends to Richton, and (c) Richton may repurchase outstanding shares of its
common stock, provided (1) the purchase price for such shares is no greater than
the price quoted for such shares on the American Stock Exchange at the time of
such purchase, and (2) the aggregate purchase price for such shares paid in any
fiscal year of Borrowers does not exceed five hundred thousand dollars
($500,000). Richton shall use the proceeds of all dividends paid to it for
general corporate purposes and for other purposes permitted under this
Agreement.
7.8. Indebtedness. Create, incur, assume or suffer to exist any
Indebtedness for borrowed money (exclusive of trade debt) except in respect of
(a) Indebtedness to Lenders, (b) Indebtedness incurred for capital expenditures
permitted under Section 7.6 hereof, (c) Indebtedness for borrowed money to the
extent permitted under Section 7.5 hereof, and (d) existing Indebtedness set
forth on Schedule 7.8.
7.9. Nature of Business. Substantially change the nature of the business
in which it is presently engaged, or, except as specifically permitted hereby,
purchase or invest, directly or indirectly, in
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any assets or property other than in the ordinary course of business for assets
or property which are useful in, necessary for and are to be used in its
business as presently conducted.
7.10. Transactions with Affiliates. Directly or indirectly, purchase,
acquire or lease any property from, or sell, transfer or lease any property to,
or otherwise deal with, any Affiliate of any Borrower or of Guarantor, except
transactions incurred in the ordinary course of business, on an arm's-length
basis on terms no less favorable than terms which would have been obtainable
from a Person other than an Affiliate of a Borrower or of Guarantor. Nothing
contained herein shall be deemed to restrict Century or CBE from paying a
management fee to Richton during any fiscal year of Borrowers up to the amount
set forth on Schedule 7.10.
7.11. Leases. Enter as lessee into any lease arrangement for real or
personal property (other than Capital Leases permitted under Section 7.6 hereof)
if after giving effect thereto, annual rental payments (excluding amounts paid
for taxes and other expenses passed through to the lessee under such leases) for
all leased property would exceed three million five hundred thousand dollars
($3,500,000) in the aggregate for all Borrowers and for Guarantor in any one
fiscal year of Borrowers; provided, that the Borrower or Guarantor entering into
such lease shall comply with the provisions of Section 6.9 hereof.
7.12. Subsidiaries.
(a) Form or acquire any Subsidiary other any Subsidiaries acquired
in connection with a Permitted Acquisition.
(b) Enter into any partnership, joint venture or similar
arrangement; provided, that the foregoing shall not be deemed to prohibit
marketing or sales arrangements entered into by any Borrower with any other
Person which would not otherwise be restricted by any provision hereof.
7.13. Fiscal Year and Accounting Changes. Change its fiscal year end from
December 31or make any significant change (i) in accounting treatment and
reporting practices except as required by GAAP or (ii) in tax reporting
treatment except as required by law.
7.14. Pledge of Credit. Now or hereafter pledge Agent's or any Lender's
credit on any purchases or for any purpose whatsoever or use any portion of any
Advance in or for any business other than such Borrower's or Guarantor's, as the
case may be, business as conducted on the date of this Agreement.
7.15. Amendment of Articles of Incorporation, By-Laws. Amend, modify or
waive any term or material provision of its Articles of Incorporation or By-Laws
unless at least five (5) Business Days prior written notice thereof is provided
to Agent.
7.16. Compliance with ERISA. (i) engage, or permit any member of the
Controlled Group to engage, in any non-exempt "prohibited transaction", as that
term is defined in Section 406 of ERISA and Section 4975 of the Code, (ii)
incur, or permit any member of the Controlled Group to incur, any "accumulated
funding deficiency", as that term is defined in Section 302 of ERISA or Section
412 of the Code, (iii) terminate, or permit any member of the Controlled Group
to terminate, any Plan where such event could result in any liability of
Borrower, Guarantor or any member of the Controlled Group or the imposition of a
Lien on the property of any Borrower, Guarantor or any member of the Controlled
Group
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pursuant to Section 4068 of ERISA, (iv) assume, or permit any member of the
Controlled Group to assume, any material obligation to contribute to any
Multiemployer Plan not disclosed on Schedule 5.8(d), (v) incur, or permit any
member of the Controlled Group to incur, any withdrawal liability to any
Multiemployer Plan; (vi) fail promptly to notify Agent of the occurrence of any
Termination Event, (vii) fail to comply, or permit a member of the Controlled
Group to fail to comply, in any material respect, with the requirements of ERISA
or the Code or other applicable laws in respect of any Plan, or (viii) fail to
meet, or permit any member of the Controlled Group to fail to meet, all minimum
funding requirements under ERISA or the Code or postpone or delay or allow any
member of the Controlled Group to postpone or delay any funding requirement with
respect of any Plan.
7.17. Prepayment of Indebtedness. At any time, directly or indirectly
prepay any Indebtedness for borrowed money (other than to Lenders), or
repurchase, redeem, retire or otherwise acquire any Indebtedness of any Borrower
or of Guarantor, except that any Borrower or Guarantor may prepay Indebtedness
for borrowed money owed to any other Borrower or to Guarantor, provided that no
Default or Event of Default has occurred and is continuing at such time or would
result from such prepayment.
VIII. CONDITIONS PRECEDENT.
8.1. Conditions to Initial Advances. The agreement of Lenders to make the
initial Advances requested to be made on the Closing Date is subject to the
satisfaction, or waiver by Lenders, immediately prior to or concurrently with
the making of such Advances, of the following conditions precedent:
(a) Notes. Agent shall have received the Notes duly executed and
delivered by an authorized officer of each Borrower;
(b) Filings, Registrations and Recordings. Each document (including,
without limitation, any Uniform Commercial Code financing statement) required by
this Agreement, any Other Document or under law or reasonably requested by the
Agent to be filed, registered or recorded in order to create, in favor of Agent,
a perfected security interest in or lien upon the Collateral and the Guarantor
Collateral shall have been properly filed, registered or recorded in each
jurisdiction in which the filing, registration or recordation thereof is so
required or requested, and Agent shall have received an acknowledgment copy, or
other evidence satisfactory to it, of each such filing, registration or
recordation and satisfactory evidence of the payment of any necessary fee, tax
or expense relating thereto;
(c) Corporate Proceedings. Agent shall have received a copy of the
resolutions in form and substance reasonably satisfactory to Agent, of the Board
of Directors of each Borrower and of Guarantor authorizing (i) the execution,
delivery and performance of this Agreement and the Other Documents to which such
Borrower or Guarantor, as the case may be, is a party; and (ii) the granting by
such Borrower or by Guarantor, as the case may be, of the security interests in
and liens upon the Collateral or Guarantor Collateral, as the case may be, in
each case certified by the Secretary or an Assistant Secretary of such Borrower
or Guarantor, as the case may be, as of the Closing Date; and, such certificate
shall state that the resolutions thereby certified have not been amended,
modified, revoked or rescinded as of the date of such certificate;
(d) Incumbency Certificates. Agent shall have received a certificate
of the Secretary or an Assistant Secretary of each Borrower and of Guarantor,
dated the Closing Date, as to
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the incumbency and signature of the officers of such Borrower or of Guarantor,
as the case may be, executing this Agreement and any Other Document to which
such Borrower or Guarantor, as the case may be, is a party, together with
evidence of the incumbency of such Secretary or Assistant Secretary;
(e) Certificates. Agent shall have received a copy of the
Certificate of Incorporation of each Borrower and of Guarantor, and all
amendments thereto, certified by the Secretary of State of its jurisdiction of
incorporation together with copies of the By-Laws of each Borrower and of
Guarantor certified as accurate and complete by the Secretary of such Borrower
or of Guarantor, as the case may be;
(f) Good Standing Certificates. Agent shall have received good
standing certificates for each Borrower and for Guarantor dated not more than 30
days prior to the Closing Date, issued by the Secretary of State or other
appropriate official of each Borrower's or of Guarantor's, as the case may be,
jurisdiction of incorporation and each jurisdiction where the conduct of such
Borrower's or of Guarantor's, as the case may be, business activities or the
ownership of its properties necessitates qualification;
(g) Legal Opinions. Agent shall have received the executed legal
opinion of (i) Robinson Brog Leinwand Greene Genovese & Gluck P.C. (with respect
to New York law), and (ii) Evans & Luptak, P.L.C. (with respect to Michigan and
Florida law), White & McDermott, P.C. (with respect to Massachusetts law), and
Altheimer & Gray (with respect to Illinois law) counsel to one or more Borrowers
and/or to Guarantor, in form and substance reasonably satisfactory to Agent,
which shall cover such matters incident to the transactions contemplated by this
Agreement and the Other Documents as Agent may reasonably require and each
Borrower hereby authorizes and directs such counsel to deliver such opinions to
Agent and Lenders;
(h) No Litigation. (i) No litigation, investigation or proceeding
before or by any arbitrator or Governmental Body shall be continuing or
threatened against any Borrower or by Guarantor, or against the officers or
directors of any Borrower or of Guarantor in connection with this Agreement or
any Other Document or any of the transactions contemplated hereby or thereby and
which, in the reasonable opinion of Agent, is material or could have a Material
Adverse Effect; and (ii) no injunction, writ, restraining order or other order
of any nature materially adverse to any Borrower or to Guarantor, or the conduct
of its business or inconsistent with the due consummation of the Transactions
shall have been issued by any Governmental Body;
(i) Financial Condition Certificate. Agent shall have received an
executed Financial Condition Certificate in the form attached hereto as Exhibit
8.1(i);
(j) Collateral Examination. Agent shall have completed Collateral
and Guarantor Collateral examinations and received appraisals, the results of
which shall be satisfactory in form and substance to Lenders, of the
Receivables, Inventory, General Intangibles and Equipment of each Borrower, of
all Guarantor Collateral, and all books and records in connection therewith;
(k) Fees. Agent shall have received all fees payable to Agent and
Lenders on or prior to the Closing Date pursuant to Article III hereof;
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(l) Pro Forma Financial Statements. Agent shall have received a copy
of the Pro Forma Financial Statements which shall be satisfactory in all
respects to Lenders;
(m) Insurance. Agent shall have received evidence of compliance with
the provisions of Section 4.11 hereof and the Guarantor Security Agreement
(including, without limitation, insurance certificates), in form and substance
reasonably satisfactory to Agent;
(n) Certain Other Documents. Agent shall have received true and
complete copies of (i) the Subordinated Note dated October 26, 1993, executed by
Richton in favor of Sullivan, in the principal amount of $1,181,250, (ii) the
Subordinated Note dated March 29, 1995, executed by Richton in favor of
Sullivan, in the principal amount of $1,000,000, and (iii) all other documents
relating thereto as may be reasonably requested by Agent.
(o) Subordination Agreement. Agent shall have received the
Subordination Agreement, duly executed and delivered by Sullivan and an
authorized officer of Richton.
(p) Guaranty; Guarantor Security Agreement. Agent shall have
received the Guaranty and the Guarantor Security Agreement, duly executed by an
authorized officer of Guarantor.
(q) Notice of Borrowing and Payment Instructions. Agent shall have
received from Borrowing Agent a written notice of borrowing requesting, and
written instructions directing the application of proceeds of, the initial
Advances made pursuant to this Agreement;
(r) Blocked Account. Agent shall have received (i) duly executed
agreements establishing a Blocked Account with Lender for the collection or
servicing of the Receivables and the proceeds of the other Collateral, and (ii)
evidence that each Borrower has instructed all of its Customers to remit all
payments on account of such Borrower's Receivables to such Blocked Account;
(s) Consents. Agent shall have received any and all Consents
necessary to permit the effectuation of the Transactions; and Agent shall have
received such Consents and waivers of such third parties as might assert claims
with respect to the Collateral and the Guarantor Collateral, as Agent and its
counsel shall reasonably deem necessary;
(t) No Adverse Material Change. (i) Since December 31, 1998, there
shall not have occurred any event, condition or state of facts which could
reasonably be expected to have a Material Adverse Effect, and (ii) no
representations made or information supplied to Agent by or on behalf of any
Borrower or Guarantor shall have been proven to be inaccurate or misleading in
any material respect;
(u) Leasehold Agreements. Agent shall have received landlord's lien
waivers in favor of Agent and the Lenders in the form attached hereto as Exhibit
7.11 with respect to each Real Property leased by a Borrower or by Guarantor set
forth on Schedule 8.1;
(v) Contract Review. Agent shall have reviewed all material
contracts of each Borrower including, without limitation, leases, union
contracts, labor contracts, vendor supply contracts, license agreements and
distributorship agreements and such contracts and agreements shall be
satisfactory in all respects to Agent;
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(w) Closing Certificate. Agent shall have received a closing
certificate signed by the Chief Financial Officer of Richton dated as of the
date hereof, stating that (i) all representations and warranties of each
Borrower and of Guarantor set forth in this Agreement and the Other Documents to
which it is a party are true and correct in all material respects on and as of
such date, (ii) each Borrower and Guarantor is on such date in compliance with
all the terms and provisions set forth in this Agreement and the Other Documents
to which it is a party, and (iii) on such date no Default or Event of Default
has occurred or is continuing;
(x) Borrowing Base Certificate. Agent shall have received a
Borrowing Base Certificate evidencing that the aggregate amount of Eligible
Receivables and Eligible Inventory of each Borrower is sufficient in value and
amount to support Revolving Advances in the amount requested by Borrowing Agent
on the Closing Date;
(y) Undrawn Availability. After giving effect to the initial
Advances hereunder, Borrowers shall have Undrawn Availability of at least three
million dollars ($3,000,000), as evidenced by a Borrowing Base Certificate;
(z) Capitalized Indebtedness. Agent shall have received evidence
reasonably satisfactory to it that three million dollars ($3,000,000) of the
Indebtedness for borrowed money owed by CBE to Richton, as reflected on the
consolidated balance sheet of Richton and its Subsidiaries dated December 31,
1998, has been capitalized; and
(aa) Other. All corporate and other proceedings, and all documents,
instruments and other legal matters in connection with the Transactions shall be
satisfactory in form and substance to Agent and its counsel.
8.2. Conditions to Each Advance. The agreement of Lenders to make any
Advance requested to be made on any date (including, without limitation, the
initial Advances), is subject to the satisfaction of the following conditions
precedent as of the date such Advance is made:
(a) Representations and Warranties. Each of the representations and
warranties made by each Borrower or by Guarantor in or pursuant to this
Agreement and any Other Document to which it is a party, and each of the
representations and warranties contained in any certificate, document or
financial or other statement furnished at any time under or in connection with
this Agreement or any Other Document to which it is a party shall be true and
correct in all material respects on and as of such date as if made on and as of
such date;
(b) No Event of Default. No Event of Default shall have occurred and
be continuing on such date, or would exist after giving effect to the Advances
requested to be made on such date; provided, however, that Lenders, in their
sole discretion, may continue to make Advances notwithstanding the existence of
an Event of Default and that any Advances so made shall not be deemed a waiver
of any such Event of Default; and
(c) Maximum Advances. In the case of any Advances requested to be
made, after giving effect thereto, the aggregate Advances shall not exceed the
maximum amount of Advances permitted under any provision of this Agreement.
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Each request for an Advance by Borrowing Agent hereunder shall constitute a
representation and warranty by each Borrower as of the date of such Advance that
the conditions contained in this Section 8.2 shall have been satisfied.
IX. INFORMATION AS TO BORROWERS.
Each Borrower shall (and Richton shall cause Guarantor to), until
satisfaction in full of the Obligations and the termination of this Agreement:
9.1. Disclosure of Material Matters. Immediately upon learning thereof,
report to Agent all matters materially affecting the value, enforceability or
collectibility of any portion of its Collateral or Guarantor Collateral,
including, without limitation, such Borrower's or Guarantor's reclamation or
repossession of, or the return to such Borrower or to Guarantor of, a material
amount of goods or claims or disputes asserted by any customer of such Borrower
or of Guarantor or other obligor.
9.2. Schedules. Deliver to Agent (a) on or before the fifteenth (15th) day
of each month as and for the prior month (1) accounts receivable ageings, and
(2) accounts payable aging summaries, and (b) promptly upon the request of
Agent, inventory reports. In addition, each Borrower and Guarantor will deliver
to Agent at such intervals as Agent may require: (i) confirmatory assignment
schedules, (ii) copies of customer's invoices, (iii) evidence of shipment or
delivery, and (iv) such further schedules, documents and/or information
regarding the Collateral or the Guarantor Collateral as Agent may reasonably
require including, without limitation, trial balances and test verifications.
Agent shall have the right to confirm and verify all Receivables by any manner
and through any medium it considers advisable and do whatever it may deem
reasonably necessary to protect its interests hereunder. The items to be
provided under this Section 9.2 are to be in form reasonably satisfactory to
Agent and executed by such Borrower or by Guarantor, as the case may be, and
delivered to Agent from time to time solely for Agent's convenience in
maintaining records of the Collateral and the Guarantor Collateral, and any
failure to deliver any of such items to Agent shall not affect, terminate,
modify or otherwise limit Agent's Lien with respect to the Collateral.
9.3. Environmental Reports. Furnish Agent, promptly after receipt thereof
by such Borrower, with copies of all environmental reports performed by or on
behalf of such Borrower or Guarantor with regard to any Real Property owned or
leased by such Borrower or by Guarantor.
9.4. Litigation. Promptly notify Agent in writing of any litigation, suit
or administrative proceeding affecting such Borrower or Guarantor, whether or
not the claim is covered by insurance, and of any suit or administrative
proceeding, which in any such case could reasonably be expected to have a
Material Adverse Effect.
9.5. Material Occurrences. Promptly notify Agent in writing upon the
occurrence of (a) any Event of Default or Default; (b) any event, development or
circumstance whereby any financial statements or other reports furnished to
Agent fail in any material respect to present fairly, in accordance with GAAP
consistently applied, the financial condition or operating results of Richton or
any of its Subsidiaries as of the date of such statements; (c) any accumulated
retirement plan funding deficiency which, if such deficiency continued for two
plan years and was not corrected as provided in Section 4971 of the Code, could
subject any Borrower or Guarantor to a tax imposed by Section 4971 of the Code;
(d) each and every
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default by such Borrower or by Guarantor which might result in the acceleration
of the maturity of any Indebtedness in excess of seven hundred fifty thousand
dollars ($750,000), including the names and addresses of the holders of such
Indebtedness with respect to which there is a default existing or with respect
to which the maturity has been or could be accelerated, and the amount of such
Indebtedness; (e) any other development in the business or affairs of such
Borrower or of Guarantor which could reasonably be expected to have a Material
Adverse Effect; and (f) any development in the business or affairs of CBC which
could reasonably be expected to have a material adverse effect on the condition
(financial or otherwise), operations, assets or business of CBC, in each case
describing the nature thereof and the action such Borrower, Guarantor or CBC, as
the case may be, proposes to take with respect thereto.
9.6. Government Receivables. Notify Agent immediately if any of its
Receivables (or accounts receivable, in the case of Guarantor) arise out of
contracts between such Borrower (or Guarantor) and the United States, any state,
or any department, agency or instrumentality of any of them.
9.7. Annual Financial Statements. Furnish Agent within ninety (90) days
after the end of each fiscal year of Borrowers, a consolidated and consolidating
balance sheet of Richton and its Subsidiaries as of the end of such fiscal year,
and the related statements of income, change in stockholder's equity and cash
flow for the period ended on such date, all prepared in accordance with GAAP
applied on a basis consistent with prior practices, and in reasonable detail
and, with respect to all such consolidated financial statements, reported upon
without qualification by an independent certified public accounting firm
selected by Borrowing Agent and reasonably satisfactory to Agent (the
"Accountants"). The report of the Accountants shall be accompanied by a
statement of the Accountants certifying that (i) they have read this Agreement,
(ii) in making the examination upon which such report was based either no
information came to their attention which to their knowledge constituted a
Default or an Event of Default under this Agreement, or, if such information
came to their attention, specifying any such Default or Event of Default, its
nature, when it occurred and whether it is continuing, and such report shall
contain or have appended thereto calculations which set forth Borrowers'
compliance with the requirements or restrictions imposed by Sections 6.10, 6.11
and 7.11 hereof. In addition, the reports shall be accompanied by a certificate
of each Borrower's Chief Financial Officer which shall state that, to the best
of his knowledge, no Default or Event of Default exists, or, if such is not the
case, specifying such Default or Event of Default, its nature, when it occurred,
whether it is continuing and the steps being taken by Borrowers with respect to
such Default or Event of Default, and such certificate shall have appended
thereto calculations which set forth Borrowers' compliance with the requirements
or restrictions imposed by Sections 6.10, 6.11 and 7.11 hereof.
9.8. Quarterly Financial Statements. Furnish Agent (a) within forty-five
(45) days after the end of each fiscal quarter of Borrowers (other than the last
fiscal quarter), the consolidated balance sheet of Richton and its Subsidiaries
as of the end of such fiscal quarter, and the related consolidated statements of
income, change in stockholder's equity and cash flow for the fiscal quarter and
the year-to-date period ended on such date, and (b) within sixty (60) days after
the end of each fiscal quarter of Borrowers (other than the last fiscal
quarter), the consolidating balance sheet of Richton and its Subsidiaries as of
the end of such fiscal quarter, and the related consolidating statements of
income, change in stockholder's equity and cash flow for the fiscal quarter and
the year-to-date period ended on such date, in each case prepared in accordance
with GAAP applied on a basis consistent with prior practices, subject to normal
year end adjustments and the absence of financial statement footnotes (except to
the extent required to be included in Richton's Form 10-Q). The reports shall be
accompanied by a certificate signed by each Borrower's Chief Financial Officer
which shall state that to the best of his knowledge, no Default or Event of
Default exists, or, if such is not the case, specifying such Default or Event of
Default, its nature, when it occurred, whether
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it is continuing and the steps being taken by Borrowers with respect to such
Default or Event of Default and, such certificate shall have appended thereto
calculations which set forth Borrowers' compliance with the requirements or
restrictions imposed by Sections 6.10, 6.11 and 7.11 hereof.
9.9. Monthly Financial Statements. Furnish Agent within twenty (20) days
after the end of each month, an unaudited consolidated balance sheet of Century
and its Subsidiary as of the end of such month, and the related consolidated
statements of income, change in stockholder's equity and cash flow for the month
and the year-to-date period ended on such date, in each case prepared on a basis
consistent with prior practices and complete and correct in all material
respects, subject to normal year end adjustments and the absence of financial
statement footnotes. The reports shall be accompanied by a certificate of the
Chief Financial Officer of Richton, which shall state that to the best of his
knowledge, no Default or Event of Default exists, or, if such is not the case,
specifying such Default or Event of Default, its nature, when it occurred,
whether it is continuing and the steps being taken by Borrowers with respect to
such Default or Event of Default.
9.10. Borrowing Base Certificates. Furnish Agent (a) within twenty (20)
days after the end of each month, a Borrowing Base Certificate for (i) Century
and CBE, as of the last Business Day of such month, (b) at any time within three
(3) Business Days after requested by Agent, a Borrowing Base Certificate for
Century and CBE, as of the most recent date that such Borrowing Base Certificate
may be calculated, (c) during each Seasonal Advance Period, on each Business
Day, a sales report from Century indicating the net sales of Century for the
prior business day, and (d) on the first Business Day of each week (or more
frequently if reasonably required by Agent), a sales report from CBE and, if not
during the Seasonal Advance Period, Century, indicating the net sales of such
Borrower(s) for the prior week.
9.11. Other Reports. Furnish Agent as soon as available, but in any event
within ten (10) days after the issuance thereof, (i) with copies of such
financial statements, reports and returns as such Borrower or Guarantor shall
send to its stockholders, (ii) copies of all notices or reports which such
Borrower or Guarantor may now or hereafter be required to file with the
Securities and Exchange Commission, or any other Governmental Body succeeding to
the functions thereof, and (iii) all reports, if any, submitted to Richton or
any of its Subsidiaries by the Accountants in connection with each audit of the
books of Richton and its Subsidiaries made by the Accountants, including,
without limitation, any management letter commenting on the internal controls of
Richton or any of its Subsidiaries submitted by the Accountants to management in
connection with their audit.
9.12. Additional Information. Furnish Agent with such additional
information as Agent shall reasonably request in order to enable Agent to
determine whether the terms, covenants, provisions and conditions of this
Agreement and the Other Documents have been complied with by such Borrower or by
Guarantor, including, without limitation and without the necessity of any
request by Agent, (a) at least thirty (30) days prior thereto, notice of such
Borrower's or of Guarantor's opening of any new office or place of business or
such Borrower's or Guarantor's closing of any existing office or place of
business, and (b) promptly upon such Borrower's or Guarantor's learning thereof,
notice of any labor dispute to which such Borrower or Guarantor may become a
party, any strikes or walkouts relating to any of its plants or other
facilities, and the expiration of any labor contract to which such Borrower or
Guarantor is a party or by which such Borrower or Guarantor is bound.
9.13. Projected Operating Budget. Furnish Agent, no later than thirty (30)
days prior to the beginning of each fiscal year of Borrowers', commencing with
fiscal year 2000, a quarter by quarter
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projected operating budget and cash flow of Richton and its Subsidiaries on a
consolidated and consolidating basis for such fiscal year (including an income
statement for each quarter and a balance sheet as at the end of each fiscal
quarter), together with (a) in the case of each consolidated operating budget
and each consolidating operating budget for Richton, a certificate signed by the
Chief Financial Officer of Richton, and (b) in the case of each consolidating
operating budget for Century and CBE, a certificate signed by the Controller of
Century or CBE, as the case may be, in each case to the effect that such
operating budget has been prepared on the basis of sound financial planning
practice consistent with past budgets and financial statements and that such
officer has no reason to question the reasonableness of any material assumptions
on which such projections were prepared.
9.14. Notice of Suits, Adverse Events. Furnish Agent with prompt notice of
(i) any lapse or other termination of any Consent issued to any Borrower or to
Guarantor by any Governmental Body or any other Person that is material to the
operation of such Borrower's or Guarantor's business, (ii) any refusal by any
Governmental Body or any other Person to renew or extend any such Consent; and
(iii) copies of any periodic or special reports filed by such Borrower or by
Guarantor with any Governmental Body or Person, if such reports indicate any
material change in the business, operations, affairs or condition of any
Borrower or of Guarantor, or if copies thereof are requested by Agent, and (iv)
copies of any material notices and other communications from any Governmental
Body or Person which specifically relate to any Borrower or to Guarantor.
9.15. ERISA Notices and Requests. Furnish Agent with prompt written notice
in the event that (i) any Borrower or member of the Controlled Group knows or
has reason to know that a Termination Event has occurred, together with a
written statement describing such Termination Event and the action, if any,
which any Borrower or member of the Controlled Group has taken, is taking, or
proposes to take with respect thereto and, when known, any action taken or
threatened by the Internal Revenue Service, Department of Labor or PBGC with
respect thereto, (ii) any Borrower or member of the Controlled Group knows or
has reason to know that a prohibited transaction (as defined in Sections 406 of
ERISA and 4975 of the Code) has occurred together with a written statement
describing such transaction and the action which any Borrower or member of the
Controlled Group has taken, is taking or proposes to take with respect thereto,
(iii) a funding waiver request has been filed with respect to any Plan together
with all communications received by any Borrower or member of the Controlled
Group with respect to such request, (iv) any increase in the benefits of any
existing Plan or the establishment of any new Plan or the commencement of
contributions to any Plan to which any Borrower or member of the Controlled
Group was not previously contributing shall occur, (v) any Borrower or member of
the Controlled Group shall receive from the PBGC a notice of intention to
terminate a Plan or to have a trustee appointed to administer a Plan, together
with copies of each such notice, (vi) any Borrower or member of the Controlled
Group shall receive any favorable or unfavorable determination letter from the
Internal Revenue Service regarding the qualification of a Plan under Section
401(a) of the Code, together with copies of each such letter; (vii) any Borrower
or member of the Controlled Group shall receive a notice regarding the
imposition of withdrawal liability, together with copies of each such notice;
(viii) any Borrower or member of the Controlled Group shall fail to make a
required installment or any other required payment under Section 412 of the Code
on or before the due date for such installment or payment; (ix) any Borrower or
member of the Controlled Group knows that (a) a Multiemployer Plan has been
terminated, (b) the administrator or plan sponsor of a Multiemployer Plan
intends to terminate a Multiemployer Plan, or (c) the PBGC has instituted or
will institute proceedings under Section 4042 of ERISA to terminate a
Multiemployer Plan.
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9.16. Additional Documents. Execute and deliver to Agent, upon request,
such documents and agreements as Agent may, from time to time, reasonably
request to carry out the purposes, terms or conditions of this Agreement or any
Other Document.
X. EVENTS OF DEFAULT.
The occurrence of any one or more of the following events shall constitute
an "Event of Default" hereunder:
10.1. failure by Borrowers to pay to Agent and/or any Lender, as
appropriate, (a) any principal or interest on the Obligations or any facility
fee due under Section 3.3 hereof when due, whether at maturity or by reason of
acceleration pursuant to the terms of this Agreement, or by required prepayment,
or (b) any other liabilities or make any other payment, fee or charge provided
for herein or in any Other Document within five (5) days of when due;
10.2. any representation or warranty made (or deemed made under Section
8.2 hereof) by any Borrower or by Guarantor in this Agreement, in any Other
Document or in any financial or other statement furnished at any time in
connection herewith or therewith shall prove to have been misleading in any
material respect on the date when made (or deemed to have been made);
10.3. failure by any Borrower to (i) furnish a Borrowing Base Certificate
when required under Section 9.10 hereof, (ii) furnish financial information
required hereunder within five (5) days of when due or when requested, or (iii)
permit the inspection of its books or records;
10.4. issuance of a notice of Lien (other than with respect to a Permitted
Encumbrance), levy, assessment, injunction or attachment in excess of two
hundred fifty thousand dollars ($250,000) in the aggregate against the property
of one or more Borrowers and/or Guarantor which is not stayed or lifted within
thirty (30) days, unless contested in good faith and by appropriate proceedings
and with respect to which reserves have been taken by such Borrower(s) and/or by
Guarantor which are satisfactory to Agent;
10.5. except as otherwise provided for in Sections 10.1 and 10.3 hereof,
failure or neglect of any Borrower or of Guarantor to perform, keep or observe
any term, provision, condition, covenant contained herein, in any Other Document
or in any other agreement or arrangement, now or hereafter entered into between
any Borrower or Guarantor, on the one hand, and Agent or any Lender on the other
hand, except for a failure or neglect of any Borrower or of Guarantor to
perform, keep or observe any term, provision, condition or covenant, contained
in Sections 4.6, 4.7, 4.9, 4.11, 4.19, 6.3, 6.4, 6.5, 6.6, 9.3, 9.4, 9.6,
9.12(b) or 9.16 hereof which is cured within thirty (30) days from the
occurrence of such failure or neglect;
10.6. any judgment or judgments are rendered or judgment liens filed
against one or more Borrowers and/or Guarantor for an aggregate amount for all
Borrowers and Guarantor in excess of two hundred fifty thousand dollars
($250,000) which within thirty (30) days of such rendering or filing is not
either satisfied, stayed or discharged of record, unless contested in good faith
and by appropriate proceedings and with respect to which reserves have been
taken by Borrowers and/or Guarantor which are satisfactory to Agent;
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10.7. any Borrower or Guarantor shall (i) apply for, consent to or suffer
the appointment of, or the taking of possession by, a receiver, custodian,
trustee, liquidator or similar fiduciary of itself or of all or a substantial
part of its property, (ii) make a general assignment for the benefit of
creditors, (iii) commence a voluntary case under any state or federal bankruptcy
laws (as now or hereafter in effect), (iv) be adjudicated a bankrupt or
insolvent, (v) file a petition seeking to take advantage of any other law
providing for the relief of debtors, (vi) acquiesce to, or fail to have
dismissed, within sixty (60) days, any petition filed against it in any
involuntary case under such bankruptcy laws, or (vii) take any action for the
purpose of effecting any of the foregoing;
10.8. any Borrower or Guarantor shall admit in writing its inability, or
be generally unable, to pay its debts as they become due or shall cease
operations of its business;
10.9. any Lien created hereunder or under any Other Document or provided
for hereby or thereby relating to Collateral and/or Guarantor Collateral with a
fair market value, individually or in the aggregate, of three hundred thousand
dollars ($300,000) or more for any reason ceases to be or is not a valid and
perfected Lien having a first priority interest (subject to Permitted
Encumbrances);
10.10. a default of the obligations of any Borrower or of RHC under any
other agreement to which it is a party shall occur which materially and
adversely affects its condition, affairs (financial or otherwise) which default
is not cured within any applicable grace period;
10.11. any Change of Control shall occur;
10.12. any material provision of this Agreement shall, for any reason,
cease to be valid and binding on any Borrower, or any Borrower shall so claim in
writing to Agent;
10.13. termination of the Guaranty, or if Guarantor attempts to terminate,
challenges the validity of, or its liability under, the Guaranty;
10.14. (i) any Governmental Body shall (A) revoke, terminate, suspend or
adversely modify any license, permit, patent, trademark or trade name of any
Borrower or Guarantor, the continuation of which is material to the continuation
of such Borrower's or of Guarantor's business, or (B) commence proceedings to
suspend, revoke, terminate or adversely modify any such license, permit,
trademark, trade name or patent and such proceedings shall not be dismissed or
discharged within sixty (60) days, or (c) schedule or conduct a hearing on the
renewal of any license, permit, trademark, trade name or patent necessary for
the continuation of such Borrower's or of Guarantor's business and the staff of
such Governmental Body issues a report recommending the termination, revocation,
suspension or material, adverse modification of such license, permit, trademark,
trade name or patent; (ii) any agreement which is necessary or material to the
operation of any Borrower's or of Guarantor's business shall be revoked or
terminated and not replaced by a substitute acceptable to Agent within thirty
(30) days after the date of such revocation or termination, and such revocation
or termination and non-replacement would, in the reasonable judgment of Agent,
have a Material Adverse Effect;
10.15. any material portion of the Collateral or the Guarantor Collateral
shall be seized or taken by a Governmental Body, or the title and rights of any
Borrower or of Guarantor in or to any material portion of the Collateral or the
Guarantor Collateral, as the case may be, shall have become the subject matter
of litigation which would, in the reasonable judgment of Agent, have a Material
Adverse Effect; or
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10.16. an event or condition specified in Sections 7.16 or 9.15 hereof
shall occur or exist with respect to any Plan and, as a result of such event or
condition, together with all other such events or conditions, any Borrower or
any member of the Controlled Group shall incur, or in the opinion of Agent be
reasonably likely to incur, a liability to a Plan or the PBGC (or both) which,
in the reasonable judgment of Agent, would have a Material Adverse Effect.
XI. LENDERS' RIGHTS AND REMEDIES AFTER DEFAULT.
11.1. Rights and Remedies. Upon the occurrence and during the continuance
of (i) an Event of Default pursuant to Section 10.7 hereof, all Obligations
shall be immediately due and payable and this Agreement and the obligation of
Lenders to make Advances shall be deemed terminated; and, (ii) any of the other
Events of Default and at any time thereafter (such default not having previously
been cured), at the option of the Required Lenders all Obligations shall be
immediately due and payable and Lenders shall have the right to terminate this
Agreement and to terminate the obligation of Lenders to make Advances, and (iii)
a filing of a petition against any Borrower in any involuntary case under any
state or federal bankruptcy laws, the obligation of Lenders to make Advances
hereunder shall be terminated other than as may be required by an appropriate
order of the bankruptcy court having jurisdiction over such Borrower. Upon the
occurrence and during the continuance of any Event of Default, Agent shall, at
the request of the Required Lenders, or may, with the consent of the Required
Lenders, (a) exercise any and all other rights and remedies provided for herein,
under the Uniform Commercial Code and at law or equity generally, including,
without limitation, the right to foreclose the security interests granted herein
and to realize upon any Collateral by any available judicial procedure and/or to
take possession of and sell any or all of the Collateral with or without
judicial process; (b) enter any of Borrowers' premises or other premises without
legal process and without incurring liability to Borrowers therefor, and Agent
may thereupon, or at any time thereafter, in its discretion without notice or
demand, take the Collateral and remove the same to such place as Agent may deem
advisable and Agent may require Borrowers to make the Collateral available to
Agent at a place convenient to Agent; (c) with or without having the Collateral
at the time or place of sale, sell the Collateral, or any part thereof, at
public or private sale, at any time or place, in one or more sales, at such
price or prices, and upon such terms, either for cash, credit or future
delivery, as Agent may elect; and/or (d) withdraw all monies, securities, and
instruments in the Blocked Account (or in any other account under Agent's or any
Lender's control) for application to the Obligations as set forth below. Except
as to that part of the Collateral which is perishable or threatens to decline
speedily in value or is of a type customarily sold on a recognized market, if
any, Agent shall give Borrowers reasonable notification of such sale or sales,
it being agreed that in all events written notice mailed to Borrowing Agent at
least seven (7) days prior to such sale or sales is reasonable notification. At
any public sale Agent or any Lender may bid for and become the purchaser, and
Agent, any Lender or any other purchaser at any such sale thereafter shall hold
the Collateral sold absolutely free from any claim or right of whatsoever kind
(other than, in the case of Agent, the duty to account for surplus proceeds),
including any equity of redemption and such right and equity are hereby
expressly waived and released by Borrowers. In connection with the exercise of
the foregoing remedies, Agent is granted permission to use all of Borrowers'
trademarks, trade styles, trade names, patents, patent applications, licenses,
franchises and other proprietary rights which are used in connection with (a)
Inventory for the purpose of disposing of such Inventory and (b) Equipment for
the purpose of completing the manufacture of unfinished goods. Afer the
occurrence and during the continuance of an Event of Default, the proceeds
realized from the sale or disposition of any Collateral and all payments in
respect of any Obligations shall be applied as follows: first, to the reasonable
costs, expenses and attorneys' fees and expenses incurred by Agent for
collection and for acquisition, completion, protection, removal, storage, sale
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and delivery of the Collateral and the Guarantor Collateral; second, to interest
due upon any of the Obligations and any fees payable under this Agreement and
the Other Documents; third, to the principal of the Obligations; fourth, to the
payment of any other Obligations then remaining unpaid; and fifth, the surplus,
if any, shall be paid to Borrowers or to whomsoever may be lawfully entitled to
receive the same . If any deficiency shall arise, Borrowers shall remain liable
to Agent and Lenders therefor.
11.2. Agent's Discretion. Agent shall have the right in its sole
discretion (subject to any requirement herein to obtain the consent of the
Required Lenders) to determine which rights, Liens, security interests or
remedies Agent may at any time pursue, relinquish, subordinate, or modify or to
take any other action with respect thereto and such determination will not in
any way modify or affect any of Agent's or Lenders' rights hereunder.
11.3. Setoff. In addition to any other rights which Agent or any Lender
may have under applicable law, upon the occurrence and during the continuance of
an Event of Default hereunder, Agent and each Lender shall have a right to apply
Borrowers' property held by Agent and such Lender to reduce the Obligations.
11.4. Rights and Remedies not Exclusive. The enumeration of the foregoing
rights and remedies is not intended to be exhaustive and the exercise of any
right or remedy shall not preclude the exercise of any other right or remedies
provided for herein or otherwise provided by law, all of which shall be
cumulative and not alternative.
XII. WAIVERS AND JUDICIAL PROCEEDINGS.
12.1. Waiver of Notice. Each Borrower hereby waives notice of non-payment
of any of the Receivables, demand, presentment, protest and notice thereof with
respect to any and all instruments, notice of acceptance hereof, notice of loans
or advances made, credit extended, Collateral or Guarantor Collateral received
or delivered, or any other action taken in reliance hereon, and all other
demands and notices of any description in connection with the Transactions,
except such as are expressly provided for herein.
12.2. Delay. No delay or omission on Agent's or any Lender's part in
exercising any right, remedy or option shall operate as a waiver of such or any
other right, remedy or option or of any Default or Event of Default.
12.3. Jury Waiver. EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES
ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (A)
ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT
EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (B) IN ANY WAY CONNECTED WITH
OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM
WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT
EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO
OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER
SOUNDING IN CONTRACT OR TORT OR OTHERWISE AND EACH PARTY HEREBY CONSENTS THAT
ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT
TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN
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ORIGINAL COUNTERPART OR A COPY OF THIS SECTION 12.3 WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENTS OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO
TRIAL BY JURY.
XIII. EFFECTIVE DATE AND TERMINATION.
13.1. Term. This Agreement shall become effective on the date hereof and
shall continue in full force and effect until the fifth (5th) anniversary of the
Closing Date (the "Term") unless sooner terminated as herein provided. Borrowing
Agent, on behalf of Borrowers, may terminate this Agreement (but only in its
entirety) at any time upon sixty (60) days' prior written notice upon payment in
full of the Obligations. In the event the Obligations are prepaid in full prior
to the last day of the Term, whether voluntarily, due to an acceleration hereof,
or otherwise (the date of such prepayment hereinafter referred to as the "Early
Termination Date"), Borrowers shall pay to Agent for the benefit of Lenders an
early termination fee in an amount equal to (a) two million twenty-five thousand
dollars ($2,025,000), if the Early Termination Date occurs on or after the
Closing Date to and including the date immediately preceding the first
anniversary of the Closing Date, (b) one million three hundred fifty thousand
dollars ($1,350,000), if the Early Termination Date occurs on or after the first
anniversary of the Closing Date to and including the date immediately preceding
the second anniversary of the Closing Date, and (c) six hundred seventy-five
thousand dollars ($675,000), if the Early Termination Date occurs on or after
the second anniversary of the Closing Date to and including the date immediately
preceding the third anniversary of the Closing Date; provided, that in the event
the Obligations are voluntarily prepaid in full prior to the last day of the
Term contemporaneously with a transaction involving the sale of all or
substantially all of the assets or stock of Century or Richton (other than to an
affiliate of Richton), the early termination fee referred to above shall be
reduced by one-half (1/2).
13.2. Termination. Subject to Section 15.7 hereof, the termination of the
Agreement shall not affect any Borrower's, Agent's or any Lender's rights, or
any of the Obligations having their inception prior to the effective date of
such termination, and the provisions hereof shall continue to be fully operative
until all transactions entered into, rights or interests created or Obligations
have been fully disposed of, concluded or liquidated. The security interests,
Liens and rights granted to Agent and Lenders hereunder and the financing
statements filed hereunder shall continue in full force and effect,
notwithstanding the termination of this Agreement or the fact that Borrowers'
Account may from time to time be temporarily in a zero or credit position, until
all of the Obligations of Borrower have been paid or performed in full after the
termination of this Agreement or Borrowers have furnished Agent and Lenders with
an indemnification satisfactory to Agent and Lenders with respect thereto.
Accordingly, Borrowers waive any rights which they may have under Section
9-404(1) of the Uniform Commercial Code as in effect in the State of New York to
demand the filing of termination statements with respect to the Collateral, and
Agent shall not be required to send such termination statements to Borrower, or
to file them with any filing office, unless and until this Agreement shall have
been terminated in accordance with its terms and all Obligations paid in full in
immediately available funds. All representations, warranties, covenants, waivers
and agreements contained herein shall survive termination hereof until all
Obligations are paid or performed in full.
XIV. REGARDING AGENT.
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14.1. Appointment. Each Lender hereby designates PNC to act as Agent for
such Lender under this Agreement and the Other Documents. Each Lender hereby
irrevocably authorizes Agent to take such action on its behalf under the
provisions of this Agreement and the Other Documents and to exercise such powers
and to perform such duties hereunder and thereunder as are specifically
delegated to or required of Agent by the terms hereof and thereof and such other
powers as are reasonably incidental thereto and Agent shall hold all Collateral,
Guarantor Collateral, payments of principal and interest, fees (except the fees
set forth in the Fee Letter and in Section 3.5 hereof), charges and collections
(without giving effect to any collection days) received pursuant to this
Agreement or any Other Document, for the ratable benefit of Lenders. Agent may
perform any of its duties hereunder by or through its agents or employees. As to
any matters not expressly provided for by this Agreement (including without
limitation, collection of the Notes) Agent shall not be required to exercise any
discretion or take any action, but shall be required to act or to refrain from
acting (and shall be fully protected in so acting or refraining from acting)
upon the instructions of the Required Lenders, and such instructions shall be
binding; provided, however, that Agent shall not be required to take any action
which exposes Agent to liability or which is contrary to this Agreement or the
Other Documents or applicable law unless Agent is furnished with an
indemnification reasonably satisfactory to Agent with respect thereto.
14.2. Nature of Duties. Agent shall have no duties or responsibilities
except those expressly set forth in this Agreement and the Other Documents.
Neither Agent nor any of its officers, directors, employees or agents shall be
(i) liable for any action taken or omitted by them as such hereunder or under
any Other Document, or in connection herewith or therewith, unless caused by
their gross negligence or willful misconduct, or (ii) responsible in any manner
for any recitals, statements, representations or warranties made by any Borrower
or by Guarantor or any officer thereof contained in this Agreement, or in any of
the Other Documents or in any certificate, report, statement or other document
referred to or provided for in, or received by Agent under or in connection
with, this Agreement or any of the Other Documents or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement, or
any of the Other Documents or for any failure of any Borrower or of Guarantor to
perform its obligations hereunder or under any Other Document. Agent shall not
be under any obligation to any Lender 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 of the Other Documents, or to inspect the properties,
books or records of any Borrower or of Guarantor. The duties of Agent as
respects the Advances to Borrowers shall be mechanical and administrative in
nature; Agent shall not have by reason of this Agreement a fiduciary
relationship in respect of any Lender; and nothing in this Agreement or any
Other Document, expressed or implied, is intended to or shall be so construed as
to impose upon Agent any obligations in respect of this Agreement except as
expressly set forth herein or therein.
14.3. Lack of Reliance on Agent and Resignation. Independently and without
reliance upon Agent or any other Lender, each Lender has made and shall continue
to make (i) its own independent investigation of the financial condition and
affairs of Borrowers and of Guarantor in connection with the making and the
continuance of the Advances hereunder and the taking or not taking of any action
in connection herewith, and (ii) its own appraisal of the creditworthiness of
Borrowers and of Guarantor. Agent shall have no duty or responsibility, either
initially or on a continuing basis, to provide any Lender with any credit or
other information with respect thereto, whether coming into its possession
before making of the Advances or at any time or times thereafter except as shall
be provided by Borrowers or by Guarantor pursuant to the terms hereof. Agent
shall not be responsible to any Lender for any recitals, statements,
information, representations or warranties herein or in any agreement, document,
certificate or a statement delivered in connection with or for the execution,
effectiveness, genuineness, validity, enforceability,
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collectibility or sufficiency of this Agreement or any Other Document, or of the
financial condition of any Borrower or of Guarantor, or be required to make any
inquiry concerning either the performance or observance of any of the terms,
provisions or conditions of this Agreement or the Other Documents, or the
financial condition of any Borrower or of Guarantor, or the existence of any
Default or any Event of Default.
Agent may resign on sixty (60) days' written notice to each Lender and
Borrowing Agent and upon such resignation, the Required Lenders will promptly
designate a successor Agent reasonably satisfactory to Borrowing Agent. Any such
successor Agent shall succeed to the rights, powers and duties of Agent, and the
term "Agent" shall mean such successor agent effective upon its appointment, and
the former Agent's rights, powers and duties as Agent shall be terminated,
without any other or further act or deed on the part of such former Agent. After
any Agent's resignation as Agent, the provisions of this Article XIV shall inure
to its benefit as to any actions taken or omitted to be taken by it while it was
Agent under this Agreement.
14.4. Certain Rights of Agent. If Agent shall request instructions from
Lenders with respect to any act or action (including failure to act) in
connection with this Agreement or any Other Document, Agent shall be entitled to
refrain from such act or taking such action unless and until Agent shall have
received instructions from the Required Lenders; and Agent shall not incur
liability to any Person by reason of so refraining. Without limiting the
foregoing, Lenders shall not have any right of action whatsoever against Agent
as a result of its acting or refraining from acting hereunder in accordance with
the instructions of the Required Lenders.
14.5. Reliance. Agent shall be entitled to rely, and shall be fully
protected in relying, upon any note, writing, resolution, notice, statement,
certificate, telex, teletype or telecopier message, cablegram, order or other
document or telephone message believed by it to be genuine and correct and to
have been signed, sent or made by the proper person or entity, and, with respect
to all legal matters pertaining to this Agreement and the Other Documents and
its duties hereunder, upon advice of counsel selected by it. Agent may employ
agents and attorneys-in-fact and shall not be liable for the default or
misconduct of any such agents or attorneys-in-fact selected by Agent with
reasonable care.
14.6. Notice of Default. Agent shall not be deemed to have knowledge or
notice of the occurrence of any Default or Event of Default hereunder or under
the Other Documents, unless Agent has received notice from a Lender or a
Borrower referring to this Agreement or the Other Documents, describing such
Default or Event of Default and stating that such notice is a "notice of
default". In the event that Agent receives such a notice, Agent shall give
notice thereof to Lenders. Agent shall take such action with respect to such
Default or Event of Default as shall be reasonably directed by the Required
Lenders; provided, that unless and until Agent shall have received such
directions, Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable in the best interests of Lenders.
14.7. Indemnification. To the extent Agent is not reimbursed and
indemnified by Borrowers, each Lender will reimburse and indemnify Agent in
proportion to its respective portion of the Advances (or, if no Advances are
outstanding, according to its Commitment Percentage), from and against any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever which
may be imposed on, incurred by or asserted against Agent in performing its
duties hereunder, or in any way relating to or arising out of this Agreement or
any
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Other Document; provided, that Lenders shall not be liable for any portion of
such liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting from Agent's gross negligence
or willful misconduct.
14.8. Agent in its Individual Capacity. With respect to the obligation of
Agent to lend under this Agreement, the Advances made by it shall have the same
rights and powers hereunder as any other Lender and as if it were not performing
the duties as Agent specified herein; and the term "Lender" or any similar term
shall, unless the context clearly otherwise indicates, include Agent in its
individual capacity as a Lender. Agent may engage in business with any Borrower
or Guarantor as if it were not performing the duties specified herein, and may
accept fees and other consideration from any Borrower or Guarantor for services
in connection with this Agreement or otherwise without having to account for the
same to Lenders.
14.9. Delivery of Documents. To the extent Agent receives financial
statements required under Sections 9.7, 9.8, 9.9 and 9.11 hereof, Agent will
promptly furnish such documents and information to Lenders.
XV. MISCELLANEOUS.
15.1. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applied to contracts to be
performed wholly within the State of New York, without giving effect to the
principles of conflicts of law. Any judicial proceeding brought by or against
any Borrower with respect to any of the Obligations, this Agreement or any
related agreement may be brought in the Supreme Court of the State of New York
located in the County of New York or in the United States District Court for the
Southern District of New York and, by execution and delivery of this Agreement,
each Borrower accepts for itself and in connection with its properties,
generally and unconditionally, the non-exclusive jurisdiction of the aforesaid
courts, and irrevocably agrees to be bound by any judgment rendered thereby in
connection with this Agreement or any Other Document. Each Borrower hereby
waives personal service of any and all process upon it and consents that all
such service of process may be made by registered mail (return receipt
requested) directed to Borrowing Agent (which each Borrower irrevocably appoints
as such Borrower's agent for the purpose of accepting service) at its address
set forth in Section 15.6 hereof and service so made shall be deemed completed
five (5) days after the same shall have been so deposited in the mails of the
United States of America. Nothing herein shall affect the right to serve process
in any manner permitted by law or shall limit the right of Agent or any Lender
to bring proceedings against any Borrower in the courts of any other
jurisdiction. Each Borrower waives any objection to jurisdiction and venue of
any action instituted hereunder in any court referred to above and shall not
assert any defense based on lack of jurisdiction or venue or based upon forum
non conveniens. Any judicial proceeding by any Borrower against Agent or any
Lender involving, directly or indirectly, any matter or claim in any way arising
out of, related to or connected with this Agreement or any related agreement,
shall be brought only in the Supreme Court of the State of New York located in
the County of New York or in the United States District Court for the Southern
District of New York.
15.2. Entire Understanding.
(a) This Agreement and the Other Documents contain the entire
understanding between Borrowers, Agent and Lenders and supersedes all prior
agreements and understandings, if any, relating to the subject matter hereof.
Any promises, representations, warranties or guarantees not herein
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contained and hereinafter made shall have no force and effect unless in writing,
signed by Borrowers', Agent's and each Lender's respective officers. Neither
this Agreement nor any portion or provisions hereof may be changed, modified,
amended, waived, supplemented, discharged, canceled or terminated orally or by
any course of dealing, or in any manner other than by an agreement in writing,
signed by the party to be charged. Each Borrower acknowledges that it has been
advised by counsel in connection with the execution of this Agreement and the
Other Documents to which such Borrower is a party and is not relying upon oral
representations or statements inconsistent with the terms and provisions of this
Agreement or such Other Documents.
(b) The Required Lenders, Agent with the written consent of the
Required Lenders, and Borrowers may, subject to the provisions of this Section
15.2 (b), from time to time enter into written supplemental agreements to this
Agreement or the Other Documents for the purpose of adding or deleting any
provisions or otherwise changing, varying or waiving in any manner the rights of
Lenders, Agent or any Borrower thereunder or the conditions, provisions or terms
thereof of waiving any Event of Default thereunder, but only to the extent
specified in such written agreements; provided, however, that no such
supplemental agreement shall, without the consent of all Lenders:
(i) increase the Commitment Percentage of any Lender;
(ii) extend the maturity of any Note or the due date for any
amount payable
hereunder, or decrease the rate of interest or reduce any fee
payable by Borrowers to Lenders pursuant to this Agreement;
(iii) alter the definition of the term Required Lenders or
alter, amend or modify this Section 15.2(b);
(iv) release any Collateral or Guarantor Collateral during any
calendar year (other than in accordance with the provisions of this Agreement)
having an aggregate value in excess of two hundred fifty thousand dollars
($250,000);
(v) change the rights and duties of Agent;
(vi) permit any Revolving Advance to be made if after giving
effect thereto the total of Advances outstanding hereunder would exceed the
Aggregate Formula Amount for more than thirty (30) consecutive Business Days or
exceed one hundred ten percent (110%) of the Aggregate Formula Amount; or
(vii) increase the Advance Rates above the Advance Rates in
effect on the Closing Date.
Any such supplemental agreement shall apply equally to each Lender and
shall be binding upon Borrowers, Lenders and Agent and all future holders of the
Obligations. In the case of any waiver, Borrowers, Agent and Lenders shall be
restored to their former positions and rights, and any Event of Default waived
shall be deemed to be cured and not continuing, but no waiver of a specific
Event of Default shall extend to any subsequent Event of Default (whether or not
the subsequent Event of Default is the same as the Event of Default which was
waived), or impair any right consequent thereon.
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In the event that Agent requests the consent of a Lender pursuant to this
Section 15.2 and such Lender shall not respond or reply to Agent in writing
within ten (10) days of delivery of such request, such Lender shall be deemed to
have consented to matter that was the subject of the request. In the event that
Agent requests the consent of a Lender pursuant to this Section 15.2 and such
consent is denied, then PNC may, at its option, require such Lender to assign
its interest in the Advances to PNC or to another Lender or to any other Person
designated by Agent (the "Designated Lender"), for a price equal to the then
outstanding principal amount thereof plus accrued and unpaid interest and fees
due such Lender, which interest and fees shall be paid when collected from
Borrowers. In the event PNC elects to require any Lender to assign its interest
to PNC or to the Designated Lender, PNC will so notify such Lender in writing
within forty-five (45) days following such Lender's denial, and such Lender will
assign its interest to PNC or the Designated Lender no later than five (5) days
following receipt of such notice pursuant to a Commitment Transfer Supplement
executed by such Lender, PNC or the Designated Lender, as appropriate, and
Agent.
15.3. Successors and Assigns; Participations; New Lenders.
(a) This Agreement shall be binding upon and inure to the benefit of
Borrowers, Agent, each Lender, all future holders of the Obligations and their
respective successors and assigns, except that no Borrower may assign or
transfer any of its rights or obligations under this Agreement without the prior
written consent of Agent and each Lender.
(b) Each Borrower acknowledges that in the regular course of
commercial banking business one or more Lenders may at any time and from time to
time sell participating interests in the Advances to other financial
institutions (each such transferee or purchaser of a participating interest, a
"Transferee"). Each Transferee may exercise all rights of payment (including
without limitation rights of set-off) with respect to the portion of such
Advances held by it or other Obligations payable hereunder as fully as if such
Transferee were the direct holder thereof; provided that no Borrower shall be
required to pay to any Transferee more than the amount which it would have been
required to pay to the Lender which granted an interest in its Advances or other
Obligations payable hereunder to such Transferee had such Lender retained such
interest in the Advances hereunder or other Obligations payable hereunder and in
no event shall any Borrower be required to pay any such amount arising from the
same circumstances and with respect to the same Advances or other Obligations
payable hereunder to both such Lender and such Transferee. In addition, each
Transferee shall be entitled to the benefits of Sections 2.6(d), 3.2(e), 3.8,
3.9 and 3.10 hereof with respect to its participation in any Commitment
Percentage, Eurodollar Rate Loan and Letter of Credit. Each Borrower hereby
grants to each Transferee a continuing security interest in any deposits, moneys
or other property actually or constructively held by such Transferee as security
for such Transferee's interest in the Advances. Each Lender agrees to promptly
notify Agent and Borrowing Agent of any such participation; provided, that the
failure to give such notice shall not affect the validity of such participation.
(c) Any Lender may, with the consent of Agent which shall not be
unreasonably withheld or delayed, sell, assign or transfer all or any part of
its rights under this Agreement and the Other Documents to one or more
additional banks or financial institutions and one or more additional banks or
financial institutions may commit to make Advances hereunder (each a "Purchasing
Lender"), in minimum amounts of not less than five million dollars ($5,000,000),
pursuant to a Commitment Transfer Supplement, executed by a Purchasing Lender,
the transferor Lender, and Agent and delivered to Agent for recording; provided,
that any Lender may sell, assign or transfer all or any part of its rights under
this Agreement and the Other Documents to any of its Affiliates without notice
to or consent of Agent, without being subject to
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the conditions contained in this Section 15.3(c) and without paying the fee set
forth in Section 15.3(d) hereof. Upon such execution, delivery, acceptance and
recording, from and after the transfer effective date determined pursuant to
such Commitment Transfer Supplement, (i) Purchasing Lender thereunder shall be a
party hereto and, to the extent provided in such Commitment Transfer Supplement,
have the rights and obligations of a Lender thereunder with a Commitment
Percentage as set forth therein, and (ii) the transferor Lender thereunder
shall, to the extent provided in such Commitment Transfer Supplement, be
released from its obligations under this Agreement, the Commitment Transfer
Supplement creating a novation for that purpose. Such Commitment Transfer
Supplement shall be deemed to amend this Agreement to the extent, and only to
the extent, necessary to reflect the addition of such Purchasing Lender and the
resulting adjustment of the Commitment Percentages arising from the purchase by
such Purchasing Lender of all or a portion of the rights and obligations of such
transferor Lender under this Agreement and the Other Documents. Each Borrower
hereby consents to the addition of such Purchasing Lender and the resulting
adjustment of the Commitment Percentages arising from the purchase by such
Purchasing Lender of all or a portion of the rights and obligations of such
transferor Lender under this Agreement and the Other Documents. Each Borrower
shall execute and deliver such further documents and do such further acts and
things reasonably necessary to effectuate the foregoing and all reasonable costs
of Borrowers in connection therewith shall be paid by the Lender transferring
its interest to the Purchasing Lender.
(d) Agent shall maintain at its address a copy of each Commitment
Transfer Supplement delivered to it and a register (the "Register") for the
recordation of the names and addresses of each Lender and the Advances owing to
each Lender from time to time. The entries in the Register shall be conclusive,
in the absence of manifest error, and Borrowers, Agent and Lenders may treat
each Person whose name is recorded in the Register as the owner of the Advance
recorded therein for the purposes of this Agreement. The Register shall be
available for inspection by any Borrower or any Lender at any reasonable time
and from time to time upon reasonable prior notice. Agent shall receive a fee in
the amount of two thousand five hundred dollars ($2,500) payable by the
applicable Purchasing Lender upon the effective date of each transfer or
assignment to such Purchasing Lender.
(e) Each Borrower authorizes each Lender to disclose to any
Transferee or Purchasing Lender and any prospective Transferee or Purchasing
Lender any and all financial information in such Lender's possession concerning
such Borrower which has been delivered to such Lender by or on behalf of such
Borrower pursuant to this Agreement or in connection with such Lender's credit
evaluation of such Borrower.
15.4. Application of Payments. Agent shall have the continuing and
exclusive right to apply or reverse and re-apply any payment and any and all
proceeds of Collateral and the Guarantor Collateral to any portion of the
Obligations. To the extent that any Borrower makes a payment or Agent or any
Lender receives any payment or proceeds of the Collateral or the Guarantor
Collateral for any Borrower's or for Guarantor's benefit, which are subsequently
invalidated, declared to be fraudulent or preferential, set aside or required to
be repaid to a trustee, debtor in possession, receiver, custodian or any other
party under any bankruptcy law, common law or equitable cause, then, to such
extent, the Obligations or part thereof intended to be satisfied shall be
revived and continue as if such payment or proceeds had not been received by
Agent or such Lender.
15.5. Indemnity.
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(a) Borrowers shall indemnify Agent, each Lender and each of their
respective officers, directors, Affiliates, employees and agents (each an
"Indemnitee") from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses and disbursements
of any kind or nature whatsoever (including, without limitation, fees and
disbursements of counsel) which may be imposed on, incurred by, or asserted
against any Indemnitee in any litigation, proceeding or investigation instituted
or conducted by any governmental agency or instrumentality or any other Person
with respect to any aspect of, or any transaction contemplated by, or referred
to in, or any matter related to, this Agreement or the Other Documents, whether
or not such Indemnitee is a party thereto, except to the extent that any of the
foregoing arises out of the gross negligence or willful misconduct of the party
being indemnified.
(b) Each Borrower represents that it has not retained any broker or
finder in connection with the transactions contemplated hereby. Borrowers shall
indemnify Agent and each Lender, and hold them harmless from and against any
claims of any broker or finder arising out of the transactions contemplated
hereby. Each Lender on the Closing Date represents that it has not retained any
broker or finder in connection with the transactions contemplated hereby.
(c) If and to the extent that any indemnification obligations of
Borrowers hereunder (whether under this Section 15.5 or otherwise) are
unenforceable for any reason, each Borrower hereby agrees to make the maximum
contribution to the payment and satisfaction of such obligations which is
permissible under applicable law. Any amounts paid by any Person as to which
such Person has the right to reimbursement under any indemnity hereunder
(whether under this Section 15.5 or otherwise) shall constitute Obligations
secured by the Collateral.
15.6. Notice. Any notice or request hereunder may be given to Borrowers,
Borrowing Agent, Agent or any Lender at their respective addresses set forth
below or at such other address as may hereafter be specified in a notice
designated as a notice of change of address under this Section 15.6. Any notice
or request hereunder shall be given by (a) hand delivery, (b) overnight courier,
(c) registered or certified mail, return receipt requested, or (d) telecopy to
the number set out below (or such other number as may hereafter be specified in
a notice designated as a notice of change of address) with electronic
confirmation of its receipt. Any notice or other communication required or
permitted pursuant to this Agreement shall be deemed given (i) when personally
delivered to any officer of the party to whom it is addressed, (ii) on the
earlier of actual receipt thereof or three (3) days following posting thereof by
certified or registered mail, postage prepaid, or (iii) upon actual receipt
thereof when sent by a recognized overnight delivery service or (iv) upon actual
receipt thereof when sent by telecopier to the number set forth below with
electronic confirmation of its receipt, in each case addressed to each party at
its address set forth below or at such other address as has been furnished in
writing by a party to the other by like notice:
(A) If to Agent or PNC: PNC Bank, National Association
Two Tower Center Boulevard
East Brunswick, New Jersey 08816
Attention: Mr. Ryan Peak, V.P.
Telephone: (732) 220-4315
Telecopier: (732) 220-4393
with a copy to: Sills, Cummis, Radin,
Tischman, Epstein & Gross, P.A.
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One Riverfront Plaza
Newark, New Jersey 07102-5400
Attention: Frederic M. Tudor, Esq.
Telephone: (973) 643-7000
Telecopier: (973) 643-6500
(B) If to a Lender other than Agent, as specified on the signature pages
hereof.
(C) If to any Borrower
or Borrowing Agent:Richton International Corporation
767 Fifth Avenue
New York, New York 10153
Attention: Mr. Fred R. Sullivan,
Chief Executive Officer
Telephone: (212) 751-1445
Telecopier: (212) 751-0397
with a copy to: Robinson Brog Leinwand Greene Genovese & Gluck P.C.
1345 Avenue of the Americas
New York, New York 10105-0143
Attention: Marshall E. Bernstein, Esq.
Telephone: (212) 586-4050
Telecopier: (212) 956-2164
15.7. Survival. The obligations under Sections 2.6(d), 3.2(e), 3.8, 3.9,
3.10, 4.19(g), 14.7, 15.5, 15.9 and 15.17 hereof shall survive termination of
this Agreement and the Other Documents and payment in full of the Obligations.
15.8. Severability. If any part of this Agreement is contrary to,
prohibited by, or deemed invalid under applicable laws or regulations, such
provision shall be inapplicable and deemed omitted to the extent so contrary,
prohibited or invalid, but the remainder hereof shall not be invalidated thereby
and shall be given effect so far as possible.
15.9. Expenses. All costs and expenses including, without limitation,
reasonable attorneys' fees (including the allocated costs of in-house counsel)
and disbursements incurred by Agent, Agent on behalf of Lenders, and, upon the
occurrence and during the continuance of an Event of Default, Lenders (a) in all
efforts made to enforce payment of any Obligation or effect collection of any
Collateral or Guarantor Collateral, or (b) in connection with the entering into,
modification, amendment, administration and enforcement of this Agreement and
the Other Documents or any consents or waivers hereunder and all related
agreements, documents and instruments, or (c) in instituting, maintaining,
preserving, enforcing and foreclosing on Agent's security interest in or Lien on
any of the Collateral or Guarantor Collateral, whether through judicial
proceedings or otherwise, or (d) in defending or prosecuting any actions or
proceedings arising out of or relating to Agent's or any Lender's transactions
with any Borrower or with Guarantor, shall be paid by Borrowers and may be
charged to Borrowers' Account and shall be part of the Obligations.
15.10. Injunctive Relief. Each Borrower recognizes that, in the event such
Borrower fails to perform, observe or discharge any of its obligations or
liabilities under this Agreement, any remedy at law may prove to be inadequate
relief to Lenders; therefore, Agent, if Agent so requests, shall be entitled to
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temporary and permanent injunctive relief in any such case without the necessity
of proving that actual damages are not an adequate remedy.
15.11. Consequential Damages. Neither Agent nor any Lender, nor any agent
or attorney for any of them, shall be liable to any Borrower for consequential
damages arising from any breach of contract, tort or other wrong relating to the
establishment, administration or collection of the Obligations.
15.12. Captions. The captions at various places in this Agreement are
intended for convenience only and do not constitute and shall not be interpreted
as part of this Agreement.
15.13. Counterparts; Telecopied Signatures. This Agreement may be executed
in any number of and by different parties hereto on separate counterparts, all
of which, when so executed, shall be deemed an original, but all such
counterparts shall constitute one and the same agreement. Any signature
delivered by a party by facsimile transmission shall be deemed to be an original
signature hereto.
15.14. Construction. The parties acknowledge that each party and its
counsel have reviewed this Agreement and that the normal rule of construction to
the effect that any ambiguities are to be resolved against the drafting party
shall not be employed in the interpretation of this Agreement or any amendments,
schedules or exhibits thereto. Each covenant herein shall be construed (absent
an express contrary provision herein) of being independent of each other
covenant contained herein, and compliance with any one covenant shall not
(absent such an express contrary provision) be deemed to excuse compliance with
one or more other covenants.
15.15. Confidentiality; Sharing Information.
(a) Agent, each Lender and each Transferee shall hold all non-public
information obtained by Agent, such Lender or such Transferee pursuant to the
requirements of this Agreement in accordance with Agent's, such Lender's and
such Transferee's customary procedures for handling confidential information of
this nature; provided, however, Agent, each Lender and each Transferee may
disclose such confidential information (i) to its examiners, affiliates, outside
auditors, counsel and other professional advisors, (ii) to Agent, any Lender or
to any prospective Transferees and Purchasing Lenders, and (iii) as required or
requested by any Governmental Body or representative thereof or pursuant to
legal process; provided, further, that (1) unless specifically prohibited by
applicable law or court order, Agent, each Lender and each Transferee shall use
its best efforts prior to disclosure thereof, to notify Borrowing Agent of the
applicable request for disclosure of such non-public information (A) by a
Governmental Body or representative thereof (other than any such request in
connection with an examination of the financial condition of a Lender or a
Transferee by such Governmental Body) or (B) pursuant to legal process and (2)
in no event shall Agent, any Lender or any Transferee be obligated to return any
materials furnished by Richton or any of its Subsidiaries other than those
documents and instruments in possession of Agent or any Lender in order to
perfect its Lien on the Collateral or the Guarantor Collateral once the
Obligations have been paid in full and this Agreement has been terminated.
(b) Each Borrower acknowledges that from time to time financial
advisory, investment banking and other services may be offered or provided to a
Borrower or one or more of its Affiliates (in connection with this Agreement or
otherwise) by any Lender or by one or more Affiliates of such Lender and each
Borrower hereby authorizes each Lender to share any information delivered to
such Lender by such Borrower and its Subsidiaries pursuant to this Agreement, or
in connection with the decision
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<PAGE>
of such Lender to enter into this Agreement, to any such Affiliate of such
Lender, it being understood that any such Affiliate of any Lender receiving such
information shall be bound by the provision of Section 15.15(a) hereof as if it
were a Lender hereunder. Such authorization shall survive the termination of
this Agreement and the Other Documents and the payment in full of the
Obligations.
15.16. Publicity. Each Borrower and each Lender hereby authorizes Agent to
make appropriate announcements of the financial arrangement entered into among
Borrower, Agent and Lenders, including, without limitation, announcements which
are commonly known as tombstones, in such publications and to such selected
parties as Agent shall in its sole and absolute discretion deem appropriate.
15.17. Borrowing Agent; Obligations Joint and Several.
(a) Each Borrower hereby irrevocably designates, appoints and
authorizes Borrowing Agent to act as Borrowing Agent for such Borrower under
this Agreement and to be its attorney and agent and in such capacity to borrow,
sign and endorse notes, and execute and deliver all instruments, documents,
writings and further assurances now or hereafter required hereunder, on behalf
of such Borrower, and hereby authorizes Agent to pay over or credit all Advance
proceeds hereunder in accordance with the request of Borrowing Agent. Richton
agrees to act as the Borrowing Agent on behalf of Borrowers. The handling of
this credit facility as a co-borrowing facility with a Borrowing Agent in the
manner set forth in this Agreement is solely as an accommodation to Borrowers
and at their request. Neither Agent nor any Lender shall incur liability to
Borrowers as a result thereof. To induce Agent and Lenders to do so and in
consideration thereof, each Borrower hereby indemnifies Agent and each Lender
and holds the Agent and each Lender harmless from and against any and all
liabilities, expenses, losses, damages and claims of damage or injury asserted
against Agent or any Lender by any Person arising from or incurred by reason of
the handling of the financing arrangements of Borrowers as provided herein,
reliance by Agent or any Lender on any request or instruction from Borrowing
Agent or any other action taken by Agent or any Lender with respect to this
Section 15.7, except due to the indemnified party's gross negligence or willful
misconduct.
(b) All Obligations shall be joint and several, and each Borrower
shall make payment upon the maturity of the Obligations by acceleration or
otherwise, and such obligation and liability on the part of each Borrower shall
in no way be affected by any extensions, renewals and forbearance granted by
Agent or any Lender to any Borrower or to Guarantor, failure of Agent or any
Lender to give any Borrower or Guarantor notice of borrowing or any other
notice, any failure of Agent or any Lender to pursue or preserve its rights
against any Borrower or Guarantor, the release by Agent of any Collateral or
Guarantor Collateral now or hereafter acquired from any Borrower or from
Guarantor, and such agreement by each Borrower to pay upon any notice issued
pursuant hereto is unconditional and unaffected by prior recourse by Agent or
any Lender to the other Borrowers or Guarantor or any Collateral or Guarantor
Collateral for such Borrower's Obligations or the lack thereof. Notwithstanding
the foregoing, it is the intention of the parties hereto that this Agreement not
constitute a fraudulent transfer or conveyance for purposes of the United States
Bankruptcy Code or any similar Federal, state, provincial or foreign law for the
relief of debtors, to the extent applicable hereto. To effectuate the foregoing
intention, the parties hereto hereby agree that the Obligations of each Borrower
hereunder and under the Other Documents shall be limited to the maximum amount
as will, after giving effect to such maximum amount and all other contingent and
fixed liabilities of such Borrower that are relevant under such laws, and after
giving effect to any collections from, rights to receive contribution from any
other Borrower or any other Person and payments made by or on behalf of any
other Borrower in respect of the Obligations of such other Borrower
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<PAGE>
hereunder or under any Other Document, result in the Obligations of such
Borrower hereunder not constituting a fraudulent transfer or conveyance. Each
Borrower expressly waives any and all rights of subrogation, reimbursement,
indemnity, exoneration, contribution of any other claim which such Borrower may
now or hereafter have against the other Borrowers, Guarantor or other Person
directly or contingently liable for the Obligations hereunder, or against or
with respect to the other Borrowers' property (including, without limitation,
any property which is Collateral for the Obligations), arising from the
existence or performance of this Agreement, until termination of this Agreement
and repayment in full of the Obligations.
Each of the parties has signed this Agreement as of the day and year first
above written.
ATTEST: RICHTON INTERNATIONAL CORPORATION
_____________________ By:________________________
______________
Name:______________________
______________
Title:_____________________
ATTEST: CENTURY SUPPLY CORP.
_____________________ By:________________________
______________
Name:______________________
______________
Title:_____________________
ATTEST: CBE TECHNOLOGIES, INC.
_____________________ By:________________________
______________
Name:______________________
______________
Title:_____________________
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<PAGE>
PNC BANK, NATIONAL ASSOCIATION,
as Lender and as Agent
By:________________________
______________
Name: Peter J. Mardaga
Title: Vice President
Commitment Percentage: 100%
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<PAGE>
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
On this 17th day of May, 1999, before me personally came , to me known,
who, being by me duly sworn, did depose and say that he is the
__________________ of RICHTON INTERNATIONAL CORPORATION, the corporation
described in and which executed the foregoing instrument; that he knows the seal
of said corporation; that the seal affixed to said instrument is such corporate
seal; that it was so affixed by order of the board of directors of said
corporation, and that he signed his name thereto by like order.
___________________________
NOTARY PUBLIC
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
On this 17 day of May, 1999, before me personally came , to me known, who,
being by me duly sworn, did depose and say that he is the __________________ of
CENTURY SUPPLY CORP., the corporation described in and which executed the
foregoing instrument; that he knows the seal of said corporation; that the seal
affixed to said instrument is such corporate seal; that it was so affixed by
order of the board of directors of said corporation, and that he signed his name
thereto by like order.
___________________________
NOTARY PUBLIC
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<PAGE>
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
On this 17th day of May, 1999, before me personally came , to me known,
who, being by me duly sworn, did depose and say that he is the
__________________ of CBE TECHNOLOGIES, INC., the corporation described in and
which executed the foregoing instrument; that he knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by order of the board of directors of said corporation,
and that he signed his name thereto by like order.
___________________________
NOTARY PUBLIC
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EXHIBIT 10.5
AMENDMENT TO REVOLVING CREDIT,
TERM LOAN AND SECURITY AGREEMENT
--------------------------------
THIS AMENDMENT TO REVOLVING CREDIT, TERM LOAN AND SECURITY AGREEMENT (this
"Amendment") is made as of July 9, 1999, among RICHTON INTERNATIONAL
CORPORATION, a Delaware corporation ("Richton"), CENTURY SUPPLY CORP., a
Michigan corporation ("Century"), and CBE TECHNOLOGIES, INC., a Delaware
corporation ("CBE") (collectively, the "Borrowers" and individually a
"Borrower"), and PNC BANK, NATIONAL ASSOCIATION, a national banking association
("PNC"), as a Lender and as agent for the Lenders (in such capacity, the
"Agent").
W I T N E S S E T H:
--------------------
A. Pursuant to the Revolving Credit, Term Loan and Security Agreement
dated as of May 17, 1999 (as amended, supplemented or modified from time to
time, the "Credit Agreement"), by and among the Borrowers, the financial
institutions and insurance companies which are now or which hereafter become a
party thereto (collectively, the "Lenders" and individually a "Lender") and the
Agent, as agent for the Lenders, the Lenders agreed to make revolving credit and
term loans to the Borrowers upon the terms and conditions set forth therein.
B. PNC is currently the sole Lender.
C. The Borrowers and the Lender have agreed to amend the Credit Agreement
upon the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Borrowers, the Lender and the Agent agree as follows:
1. Capitalized terms used in this Amendment shall have the same meanings
given them in the Credit Agreement, unless otherwise defined herein.
2. The definition of "Applicable Margin" in Section 1.2 of the Credit
Agreement is hereby amended to add the following at the end thereof:
"Solely for purposes of calculating the Applicable Margin, (i) for
all periods prior to receipt by the Agent of the financial statements of
the Borrowers for the fiscal year ending on December 31, 1999, the
Leverage Ratio shall be deemed to be greater than or equal to 2.5:1.0, and
(ii) commencing on the date of receipt of such fiscal 1999 financial
statements and for all periods thereafter, the Leverage Ratio shall be
calculated on a quarterly basis upon receipt by the Agent of the
Borrowers' financial statements as of the end of each fiscal quarter."
<PAGE>
3. Section 6.10 of the Credit Agreement is hereby amended to read in its
entirety as follows:
"6.10 Fixed Charge Coverage Ratio. Maintain a Fixed Charge Coverage
Ratio of not less than 1.10 to 1.00 at the end of each fiscal quarter of
Borrowers (commencing with the fiscal quarter of Borrowers ending on
September 30, 1999) for the period of four (4) consecutive fiscal quarters
of Borrowers then ending, provided that for purposes of calculating the
Borrowers' compliance with this Section 6.10, the following items shall be
excluded: (i) any EBITDA of CBC for the period of determination in excess
of one million dollars ($1,000,000), (b) any interest expense of CBC to
Deutsche Financial Services Corporation for such period, and (c) any
scheduled principal payments of CBC to Deutsche Financial Services
Corporation for such period with respect to Indebtedness for borrowed
money."
4. Section 6.11 of the Credit Agreement is hereby amended to read in its
entirety as follows:
"6.11 Leverage Ratio. Commencing with the fiscal quarter of
Borrowers ending on September 30, 1999, maintain a Leverage Ratio of not
greater than (a) 5.25 to 1.00 as of the end of the first fiscal quarter of
each fiscal year of Borrowers, (b) 4.50 to 1.00 as of the end of each of
the second and third fiscal quarters of each fiscal year of Borrowers, and
(c) 3.50 to 1.00 as of the end of the fourth fiscal quarter of each fiscal
year of Borrowers, provided that for purposes of calculating the
Borrowers' compliance with this Section 6.11, any EBITDA of CBC for the
period of determination in excess of one million dollars ($1,000,000)
shall be excluded."
5. In order to induce the Lender and the Agent to enter into this
Amendment, the Borrowers hereby represent and warrant that:
(a) no Default or Event of Default has occurred and is continuing;
(b) this Amendment has been duly authorized, executed and delivered
by each Borrower and constitutes its legal, valid and binding obligation,
enforceable in accordance with its terms;
(c) the Credit Agreement and each of the Other Documents, after
giving effect to this Amendment and the transactions contemplated hereby,
continue to be in full force and effect and to constitute the legal, valid
and binding obligations of each Borrower that is a party thereto,
enforceable against each such Borrower in accordance with their respective
terms; and
(d) the representations and warranties made by each Borrower in or
pursuant to the Credit Agreement or any Other Document, or which are
contained in any certificate, document or financial or other statement
furnished at any time under or in connection herewith or therewith, are
each true and correct in all material respects on and as of the date
hereof, as though made on and as of such date.
6. This Amendment shall become effective as of the date above upon receipt
by the Agent of (a) two (2) copies of this Amendment executed by each Borrower,
and (b) two (2) copies of the Consent of Guarantor, in the form attached hereto
as Exhibit A, executed by the Guarantor.
7. The Borrowers hereby confirm that all liens granted on the Collateral
and the Guarantor Collateral shall continue unimpaired and in full force and
effect.
2
<PAGE>
8. This Amendment may be executed in several counterparts, each of which,
when executed and delivered, shall be deemed an original, and all of which
together shall constitute one agreement. Any signature delivered by a party by
facsimile transmission shall be deemed to be an original signature hereto.
9. This Amendment shall be governed by and construed in accordance with
the laws of the State of New York applied to contracts to be performed wholly
within the State of New York, without giving effect to the principles of
conflicts of law. This Amendment shall be binding upon and inure to the benefit
of Borrowers, the Lender and the Agent, and their respective successors and
permitted assigns.
10. From and after the effectiveness hereof, all references to the Credit
Agreement in the Other Documents shall mean the Credit Agreement as amended and
modified by this Amendment.
11. Except as amended and otherwise modified by this Amendment, the Credit
Agreement and the Other Documents shall remain in full force and effect in
accordance with their respective terms. Except as expressly provided herein,
this Amendment shall not constitute an amendment, waiver, consent or release
with respect to any provision of the Credit Agreement or any Other Document, a
waiver of any Default or Event of Default thereunder, or a waiver or release of
any of the Agent's or any Lender's rights or remedies (all of which are hereby
reserved). The Borrowers expressly ratify and confirm the waiver of jury trial
and other provisions of Section 12.3 of the Credit Agreement.
[The remainder of this page is intentionally left blank. The next page is a
signature page.]
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
ATTEST: RICHTON INTERNATIONAL CORPORATION
By:
- -------------------------------- -----------------------------
Marshall E. Bernstein, Secretary Name: Cornelius F. Griffin
Title: Chief Financial Officer
ATTEST: CENTURY SUPPLY CORP.
By:
- -------------------------------- -----------------------------
Marshall E. Bernstein, Secretary Name: Cornelius F. Griffin
Title: Vice President
ATTEST: CBE TECHNOLOGIES, INC.
By:
- -------------------------------- -----------------------------
Marshall E. Bernstein, Secretary Name: Cornelius F. Griffin
Title: Vice President
PNC BANK, NATIONAL ASSOCIATION,
as Lender and as Agent
By:
-----------------------------
Name: Ryan Peak
Title: Vice President
EXHIBIT 10.6
SECOND AMENDMENT TO REVOLVING CREDIT,
TERM LOAN AND SECURITY AGREEMENT
-------------------------------------
THIS SECOND AMENDMENT TO REVOLVING CREDIT, TERM LOAN AND SECURITY
AGREEMENT (this "Amendment") is made as of October ___, 1999, among RICHTON
INTERNATIONAL CORPORATION, a Delaware corporation ("Richton"), CENTURY SUPPLY
CORP., a Michigan corporation ("Century"), and CBE TECHNOLOGIES, INC., a
Delaware corporation ("CBE") (collectively, the "Borrowers" and individually a
"Borrower"), Required Lenders (as defined in the Credit Agreement described
below) and PNC BANK, NATIONAL ASSOCIATION, a national banking association
("PNC"), as a Lender (as defined below) and as agent for the Lenders (in such
capacity, the "Agent").
W I T N E S S E T H:
--------------------
A. Pursuant to the Revolving Credit, Term Loan and Security Agreement
dated as of May 17, 1999, as amended by the Amendment to Revolving Credit, Term
Loan and Security Agreement dated as of July 9, 1999 (as further amended,
supplemented or modified from time to time, the "Credit Agreement"), by and
among Borrowers, the financial institutions which are now or which hereafter
become a party thereto (collectively, the "Lenders" and individually a "Lender")
and Agent, as agent for the Lenders, the Lenders agreed to make revolving credit
and term loans to Borrowers upon the terms and conditions set forth therein.
B. CBE desires to acquire substantially all of the assets of Corporate
Access, Inc. in a Permitted Acquisition (as defined in the Credit Agreement),
and has requested that Required Lenders permit such acquisition even though the
purchase price thereof exceeds the maximum amount for a single Permitted
Acquisition as set forth in the Credit Agreement.
C. Borrowers have requested that a $2,000,000 letter of credit subfacility
(the "LC Subfacility") be established as part of the existing revolving credit
facility pursuant to which Agent will issue or cause to be issued standby
letters of credit for their benefit.
D. CBE has requested that it be permitted to establish a $1,500,000
wholesale financing facility (the "Deutsche Facility") with Deutsche Financial
Services Corporation, secured only by a stand-by letter of credit, to finance
its acquisition of Inventory (as defined in the Credit Agreement) acquired from
certain vendors approved by Deutsche Financial Services Corporation.
E. Agent and Required Lenders have agreed to permit (1) the acquisition of
substantially all of the assets of Corporate Access, Inc. by CBE even though the
purchase price thereof exceeds the maximum amount for a single Permitted
Acquisition as set forth in the Credit Agreement, provided that such acquisition
otherwise meets the requirements for a Permitted Acquisition, (2) the
establishment of the LC Subfacility as part of the existing revolving credit
facility, and (3) the establishment of the Deutsche Facility, all upon the terms
and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Borrowers, Agent and Required Lenders agree as follows:
1. Capitalized terms used in this Amendment shall have the same meanings
given them in the Credit Agreement, unless otherwise defined herein.
<PAGE>
2. The following definitions in Section 1.2 of the Credit Agreement are
hereby amended to read as follows:
"'Advances' shall mean and include the Revolving Advances, the Term
Loan and Letters of Credit."
"'CBE Formula Amount' shall mean, at any time, an amount equal to
the sum of (i) the Receivables Advance Rate at such time times the
Eligible Receivables of CBE at such time, plus (ii) the lesser of (A) the
Inventory Advance Rate at such time times the value of the Eligible
Inventory of CBE at such time, or (B) one million dollars ($1,000,000),
minus (iii) the aggregate amount of outstanding Letters of Credit issued
for the account of CBE at such time, minus (iv) such reserves with respect
to CBE as Agent may reasonably and in good faith deem proper and necessary
from time to time."
"'Century Formula Amount' shall mean, at any time, an amount equal
to the sum of (i) the Receivables Advance Rate at such time times the
aggregate Eligible Receivables of Century at such time, plus (ii) the
lesser of (A) the Inventory Advance Rate at such time times the aggregate
value of the Eligible Inventory of Century at such time, or (B) the
difference between (1) twenty million dollars ($20,000,000) and (2) the
applicable amount at such time under clause (ii) of the definition of "CBE
Formula Amount" in this Section 1.2 (up to a maximum of one million
dollars ($1,000,000)), plus (iii) solely during the Seasonal Advance
Period, an additional amount equal to the Maximum Seasonal Advance Amount,
minus (iv) the aggregate amount of outstanding Letters of Credit issued
for the account of Century at such time, minus (v) such reserves with
respect to Century as Agent may reasonably and in good faith deem proper
and necessary from time to time."
"'Earnings Before Interest and Taxes' shall mean for any period the
sum of (i) the net income (or loss) of Richton and its Subsidiaries on a
consolidated basis for such period, plus (ii) the interest expense of, and
Letter of Credit Fees paid by, Richton and its Subsidiaries on a
consolidated basis for such period, plus (iii) the charges against income
of Richton and its Subsidiaries on a consolidated basis for such period
for federal, state and local taxes actually paid and/or accrued."
"'Leverage Ratio' shall mean and include, as of the end of each
fiscal quarter of Borrowers, the ratio of (a) the average outstanding
principal amount of all Advances (excluding the undrawn face amount of
outstanding Letters of Credit) during the fiscal quarter of Borrowers then
ended, to (b) EBITDA for the period of four (4) consecutive fiscal
quarters of Borrowers then ended."
"'Obligations' shall mean and include any and all of Borrowers'
obligations and/or liabilities to Agent or Lenders of every kind, nature
and description, direct or indirect, secured or unsecured, joint, several,
joint and several, absolute or contingent, due or to become due, now
existing or hereafter arising, contractual or tortious, liquidated or
unliquidated, whether direct or indirect (including, without limitation,
any interest accruing thereon after maturity, or after the filing of any
petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding relating to any Borrower, whether or not
a claim for post-petition or post-filing interest is allowed in such
proceeding), whether arising out of Letters of Credit, out of overdrafts
on deposit or other accounts or electronic funds transfers (whether
through automated clearinghouses or otherwise) or out of Agent's or any
Lender's non-receipt
2
<PAGE>
of or inability to collect funds or otherwise not being made whole in
connection with depository transfer check or other similar arrangements,
in any case arising under this Agreement or any Other Document, including,
without limitation, those arising under the Interest Rate Protection
Agreement or any other present or future interest, currency or equity
swap, future, option or other similar agreement or arrangement."
"'Other Documents' shall mean the Notes, the Subordination
Agreement, the Guaranty, the Guarantor Security Agreement, the Letters of
Credit, the Letter of Credit Applications, the Interest Rate Protection
Agreement, any other present or future interest, currency or equity swap,
future, option or other similar agreement or arrangement, any lock-box,
blocked account or similar agreement relating to the Blocked Accounts, and
any and all other agreements, instruments and documents, including,
without limitation, guaranties, pledges, powers of attorney, consents, and
all other documents or agreements heretofore, now or hereafter executed by
any Borrower or Guarantor and/or delivered to Agent or any Lender in
respect of the Transactions."
"'Revolving Advances' shall mean Advances made other than the Term
Loan and Letters of Credit."
3. Section 1.2 of the Credit Agreement is hereby amended to add the
following new definitions:
"'CAI Agreement' shall mean the Asset Purchase Agreement dated
October ___, 1999, among Corporate Access, Inc., Condor Technology
Solutions, Inc., Richton and CBE."
"'Deutsche Agreement' shall mean the Agreement for Wholesale
Financing dated as of October ___, 1999, between Deutsche Financial
Services Corporation and CBE."
"'Issuer' shall mean any Person who issues a Letter of Credit
pursuant to the terms hereof."
"'Letter of Credit Application' shall have the meaning set forth in
Section 2.15 hereof."
"'Letter of Credit Fees' shall have the meaning set forth in Section
3.11 hereof."
"'Letters of Credit' shall have the meaning set forth in Section
2.14 hereof."
4. Section 2.1(a) of the Credit Agreement is hereby amended to read in its
entirety as follows:
2.1 (a) Revolving Advances. Subject to the terms and conditions set
forth in this Agreement, each Lender, severally and not jointly, will make
Revolving Advances to Borrowers in aggregate amounts outstanding at any
time equal to such Lender's Commitment Percentage of the lesser of (x) the
Maximum Revolving Advance Amount less the aggregate amount of outstanding
Letters of Credit and all unreimbursed payments or disbursements made by
Issuer under all Letters of Credit, or (y) an amount equal to the sum of:
(i) up to eighty-five percent (85%), subject to the provisions
of Section 2.1(b) hereof ("Receivables Advance Rate"), of Eligible
Receivables of all Borrowers at such time, plus
3
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(ii) up to the lesser of (A) sixty percent (60%), subject to
the provisions of Section 2.1(b) hereof ("Inventory Advance Rate"),
of the value of the Eligible Inventory of all Borrowers at such time
or (B) twenty million dollars ($20,000,000) in the aggregate at any
one time, plus
(iii) solely during the Seasonal Advance Period, an additional
amount equal to the Maximum Seasonal Advance Amount (provided that
the amount referred to in this Section 2.1(a)(y)(iii) (A) may only
be advanced to Century and (B) may not be advanced at the beginning
of any Seasonal Advance Period prior to receipt by Agent of the
preliminary monthly unaudited financial statements for December of
the prior fiscal year of Borrowers to enable Agent to preliminarily
determine compliance with Sections 6.10 and 6.11 hereof), minus
(iv) the aggregate amount of outstanding Letters of Credit,
minus
(v) such reserves as Agent may reasonably and in good faith
deem proper and necessary from time to time.
The amount derived from the sum of (x) Sections 2.1(a)(y)(i), (ii) and
(iii) hereof, minus (y) Sections 2.1(a)(y)(iv) and (v) hereof at any time and
from time to time shall be referred to as the "Aggregate Formula Amount". The
Revolving Advances shall be evidenced by the promissory note ("Revolving Credit
Note") substantially in the form attached hereto as Exhibit 2.1(a).
Notwithstanding the foregoing, in no event shall the aggregate balance of
outstanding Revolving Advances to any Borrower exceed the amount set forth in
Section 2.4 hereof.
5. Section 2.10(a) of the Credit Agreement is hereby amended to read in
its entirety as follows:
"(a) In the event that the aggregate balance of Revolving Advances
outstanding at any time exceeds the lesser of (a) the Aggregate Formula
Amount at such time, or (b) the Maximum Revolving Advance Amount, less the
aggregate amount of outstanding Letters of Credit and all unreimbursed
payments or disbursements made by Issuer under all Letters of Credit at
such time, the excess amount of Revolving Advances shall be immediately
due and payable as a mandatory prepayment without the necessity of any
demand, at the Payment Office, whether or not a Default or Event of
Default has occurred. In the Event that the aggregate balance of Revolving
Advances outstanding to (i) Century at any time exceeds the Century
Formula Amount at such time, or (ii) CBE at any time exceeds the CBE
Formula Amount at such time, the excess amount of Revolving Advances shall
be immediately due and payable by the appropriate Borrower(s) as a
mandatory prepayment without the necessity of any demand, at the Payment
Office, whether or not a Default or Event of Default has occurred. In the
event there is an excess amount as described above, any Borrower required
to make a prepayment may, to the extent there are outstanding Letters of
Credit issued for its account at such time, reduce such excess by (1)
replacing such outstanding Letters of Credit, and/or (2) depositing cash
in a cash collateral account with Agent on terms and conditions
satisfactory to Agent as cash collateral for the liability of Issuer and
Lenders (whether direct or contingent) under such outstanding Letters of
Credit."
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6. New Sections 2.14, 2.15 and 2.16 are hereby added to the Credit
Agreement to read in their entireties as follows:
"2.14 Letters of Credit. Subject to the terms and conditions hereof,
Agent shall issue or cause the issuance, for the account of a Borrower, of
irrevocable standby letters of credit denominated in Dollars issued to
support obligations of such Borrower in the ordinary course of its
business (the "Letters of Credit"); provided, however, that Agent will not
be required to issue or cause to be issued any Letter of Credit to the
extent that the issuance of such Letter of Credit would result in a breach
of Section 2.4 hereof or a requirement for a mandatory prepayment under
Section 2.10(a) hereof. The maximum amount of all outstanding Letters of
Credit shall not exceed two million dollars ($2,000,000) in the aggregate
at any time. All disbursements or payments related to Letters of Credit
shall be deemed to be Domestic Rate Loans consisting of Revolving Advances
and shall bear interest at the Revolving Interest Rate for Domestic Rate
Loans. Letters of Credit that have not been drawn upon shall not bear
interest (although they will be subject to the fees set forth in Section
3.11 hereof)."
"2.15 Issuance of Letters of Credit.
(a) Borrowing Agent, on behalf of a Borrower, may request Agent to
issue or cause the issuance of a Letter of Credit for the account of such
Borrower by delivering to Agent at the Payment Office, Issuer's form of
Letter of Credit Application (the "Letter of Credit Application")
completed to the satisfaction of Issuer, and such other certificates,
documents and other papers and information as Agent may reasonably
request.
(b) Each Letter of Credit shall, among other things, (i) be in a
form customarily used by Issuer or in such other form as has been approved
by Issuer, and (ii) have an expiry date not later than one (1) year after
such Letter of Credit's date of issuance and in no event later than one
(1) month prior to the last day of the Term. Each Letter of Credit shall
be subject to the Uniform Customs and Practice for Documentary Credits
(1993 Revision), International Chamber of Commerce Publication No. 500,
and any amendments or revision thereof adhered to by Issuer and, to the
extent not inconsistent therewith, the laws of the State of New York.
(c) Agent shall use its reasonable efforts to notify Lenders of the
request by Borrowing Agent for a Letter of Credit hereunder."
"2.16 Requirements For Issuance of Letters of Credit.
(a) In connection with the issuance of any Letter of Credit,
Borrowers shall jointly and severally indemnify, save and hold Agent and
each Lender and each Issuer harmless from any loss, cost, expense or
liability, including, without limitation, payments made by Agent or any
Lender, and expenses and reasonable attorneys' fees incurred by Agent or
any Lender arising out of, or in connection with, any Letter of Credit to
be issued for a Borrower, except to the extent due to Agent's, a Lenders
or an Issuer's gross negligence or willful misconduct. Borrowers shall be
bound by Agent's or any Issuer's policies and good faith interpretations
of any Letter of Credit issued for the account of a Borrower, although
this interpretation may be different from their own; and, neither Agent,
nor any Lender, nor any Issuer nor any of their correspondents shall be
liable for any error, negligence, or mistakes, whether of omission or
commission, in following a Borrower's instructions or those contained in
any Letter of Credit
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<PAGE>
or of any modifications, amendments or supplements thereto or in issuing
or paying any Letter of Credit, except for Agent's, any Lender's, any
Issuer's or such correspondents' gross negligence or willful misconduct.
(b) Borrowing Agent, on behalf of a Borrower, shall authorize and
direct any Issuer to name Century or CBE, as the case may be, as the
"Applicant" or "Account Party" of each Letter of Credit. If Agent is not
the Issuer of any Letter of Credit, Borrowing Agent, on behalf of a
Borrower, shall authorize and direct Issuer to deliver to Agent all
instruments, documents, and other writings and property received by Issuer
pursuant to the Letter of Credit and to accept and rely upon Agent's
instructions and agreements with respect to all matters arising in
connection with the Letter of Credit, the application therefor or any
acceptance thereof.
(c) In connection with all Letters of Credit issued or caused to be
issued by Agent under this Agreement, each Borrower hereby appoints Agent,
or its designee, as its attorney, with full power and authority if an
Event of Default shall have occurred and be continuing, (i) to sign and/or
endorse such Borrower's name upon any warehouse or other receipts, letter
of credit applications and acceptances; (ii) to sign such Borrower's name
on bills of lading; (iii) to clear Inventory through the United States of
America Customs Department ("Customs") in the name of such Borrower or
Agent or Agent's designee, and to sign and deliver to Customs officials
powers of attorney in the name of such Borrower for such purpose; and (iv)
to complete in such Borrower's name or Agent's, or in the name of Agent's
designee, any order, sale or transaction, obtain the necessary documents
in connection therewith, and collect the proceeds thereof. Neither Agent
nor its attorneys will be liable for any acts or omissions nor for any
error of judgment or mistakes of fact or law, except for Agent's or its
attorney's gross negligence or willful misconduct. This power, being
coupled with an interest, is irrevocable as long as any Letters of Credit
remain outstanding.
(d) Without limiting the generality of Section 2.16(a) hereof,
Borrowers jointly and severally agree to reimburse Issuer as provided in
this Section 2.16(d), through Agent, in Dollars and in immediately
available funds, for the amount disbursed or paid by Issuer in connection
with any drawing under any Letter of Credit and any costs and expenses
relating to such disbursement or payment. Agent shall have the right to
effectuate payment of any such amount by charging Borrowers' Account or by
making Revolving Advances as provided in Section 2.2 hereof. Issuer shall
promptly notify Agent and Borrowing Agent in the event of any request for
drawing under any Letter of Credit; provided, that Issuer's failure to
give such notice shall not impair or diminish Borrowers' obligations under
this Section 2.16(d). Each Lender shall to the extent of the percentage
amount equal to the product of such Lender's Commitment Percentage times
the aggregate amount of all unreimbursed reimbursement obligations arising
from disbursements made or obligations incurred with respect to the
Letters of Credit be deemed to have irrevocably purchased an undivided
participation in each such unreimbursed reimbursement obligation. In the
event that any disbursement is made by Issuer under a Letter of Credit and
not reimbursed (whether directly, by charging Borrowers' Account or by
making Revolving Advances as provided in Section 2.2 hereof) within two
(2) Business Days, Agent shall promptly notify each Lender and upon
Agent's demand each Lender shall pay to Agent such Lender's proportionate
share of such unreimbursed disbursement together with such Lender's
proportionate share of Agent's unreimbursed costs and expenses relating to
such unreimbursed disbursement. Upon receipt by Agent of a repayment from
a Borrower of any amount disbursed by Agent for which Agent had already
been reimbursed by Lenders,
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<PAGE>
Agent shall deliver to each Lender that Lender's pro rata share of such
repayment. Each Lender's participation commitment shall continue until the
last to occur of any of the following events: (A) Agent ceases to be
obligated to issue or cause to be issued Letters of Credit hereunder; (B)
no Letter of Credit issued hereunder remains outstanding and unconcealed
or (C) all Persons (other than Borrowers) have been fully reimbursed for
all payments made under or relating to Letters of Credit.
(e) To the extent that any provision of any Letter of Credit
Application is inconsistent with the provisions of this Agreement,
including, without limitation, the provisions of Sections 2.14 or 2.15
hereof, or of this Section 2.16, the provisions of this Agreement shall
control."
7. Section 2.13(e) of the Credit Agreement is hereby amended to read in
its entirety as follows:
(i) "In the event and for so long as a Defaulting Lender fails to
cure to the reasonable satisfaction of Borrowing Agent the breach which
caused such Lender to become a Defaulting Lender, upon the request of
Borrowing Agent, Agent shall use its reasonable good faith efforts to
locate a Purchasing Lender reasonably acceptable to Agent to acquire all
of such Defaulting Lender's rights and interests under this Agreement
(including, without limitation, all of such Defaulting Lender's
outstanding Advances, commitments to make additional Advances and
participating interests in Letters of Credit) upon the terms set forth in
Section 15.3(c) hereof; provided that such Defaulting Lender shall be
obligated to pay the fee set forth in Section 15.3(d) hereof."
8. A new Section 3.11 is hereby added to the Credit Agreement to read in
its entirety as follows:
"3.11 Letter of Credit Fees. Borrowers shall pay (a) to Agent, for
the benefit of Lenders, fees for each outstanding Letter of Credit for the
period from and excluding the date of issuance of same to and including
the date of expiration or termination, equal to the average daily face
amount of such Letter of Credit multiplied by one and three-quarters
percent (1-3/4%) per annum, and (b) to Issuer, any and all fees and
expenses as agreed upon by Issuer and Borrowing Agent in connection with
any Letter of Credit, including, without limitation, in connection with
the opening, amendment or renewal of any such Letter of Credit and shall
reimburse Agent for any and all fees and expenses, if any, paid by Agent
to Issuer (all of the foregoing fees, the "Letter of Credit Fees"). All
Letter of Credit Fees payable hereunder shall be deemed earned in full on
the date when the same are due and payable hereunder and shall not be
subject to rebate or proration upon the termination of this Agreement for
any reason."
9. Section 7.1(a) of the Credit Agreement is hereby amended to read in its
entirety as follows:
"(a) Enter into any merger, consolidation or other reorganization
with or into any other Person or permit any other Person to consolidate
with or merge with it (in each case other than a merger of one Borrower or
of Guarantor with and into another Borrower) or acquire all or a
substantial portion of the assets of any Person, except that Century and
CBE may make Permitted Acquisitions provided that (i) the aggregate
Consideration for each such Permitted Acquisition shall not exceed one
million dollars ($1,000,000) or, in the case of the acquisition described
in the CAI Agreement (as delivered to Agent prior to the date hereof),
provided that such acquisition otherwise qualifies as a Permitted
Acquisition, the aggregate Consideration for such acquisition shall not
exceed the amount set forth in the CAI Agreement, and (ii) the
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<PAGE>
aggregate Consideration for all such Permitted Acquisitions (including,
without limitation, the acquisition described in the CAI Agreement (as
delivered to Agent prior to the date hereof), provided that such
acquisition otherwise qualifies as a Permitted Acquisition) shall not
exceed two million dollars ($2,000,000) during any fiscal year of
Borrowers."
10. Section 7.3 of the Credit Agreement is hereby amended to read in its
entirety as follows:
"7.3 Guarantees. Become liable upon the obligations of any Person by
assumption, endorsement or guaranty thereof or otherwise (other than to
Lenders) except (a) as disclosed on Schedule 7.3, (b) the endorsement of
checks in the ordinary course of business, and (c) that Richton may
support the indemnification obligations of CBE under the CAI Agreement (as
delivered to Agent prior to the date hereof)."
11. Section 7.8 of the Credit Agreement is hereby amended to read in its
entirety as follows:
"7.8 Indebtedness. Create, incur, assume or suffer to exist any
Indebtedness for borrowed money (exclusive of trade debt) except in
respect of (a) Indebtedness to Lenders, (b) Indebtedness incurred for
capital expenditures permitted under Section 7.6 hereof, (c) Indebtedness
for borrowed money to the extent permitted under Section 7.5 hereof, (d)
existing Indebtedness set forth on Schedule 7.8, and (e) Indebtedness of
CBE for borrowed money under the Deutsche Agreement in an aggregate
principal amount not to exceed one million five hundred thousand dollars
($1,500,000) at any time outstanding."
12. Section 11.1 of the Credit Agreement is hereby amended to add the
following after the first sentence thereof:
"Upon the occurrence and during the continuance of any Event of Default,
Agent shall, at the request of the Required Lenders, or may, with the
consent of the Required Lenders, (i) direct Borrowers to pay (and
Borrowers agree to pay upon the receipt of such notice, or upon the
occurrence of any Event of Default specified in Section 10.7 hereof,
Borrowers agree to pay without receipt of any notice) to Agent such
additional amount of cash equal to the maximum aggregate amount available
to be drawn under all Letters of Credit then outstanding, which amount
shall be held as security for Borrowers' reimbursement obligations in
respect of Letters of Credit then outstanding."
13. Section 15.7 of the Credit Agreement is hereby amended to read in its
entirety as follows:
"15.7 Survival. The obligations under Sections 2.6(d), 2.16(a),
3.2(e), 3.8, 3.9, 3.10, 4.19(g), 14.7, 15.5, 15.9 and 15.17 hereof shall
survive termination of this Agreement and the Other Documents and payment
in full of the Obligations."
14. In order to induce Required Lenders and Agent to enter into this
Amendment, Borrowers hereby represent, warrant and covenant that:
(a) no Default or Event of Default has occurred and is continuing or
will occur after giving effect to the transactions contemplated by this
Amendment, the CAI Agreement or the Deutsche Agreement;
8
<PAGE>
(b) this Amendment has been duly authorized, executed and delivered
by each Borrower and constitutes its legal, valid and binding obligation,
enforceable in accordance with its terms;
(c) the Credit Agreement and each of the Other Documents, after
giving effect to this Amendment and the transactions contemplated hereby,
continue to be in full force and effect and to constitute the legal, valid
and binding obligations of each Borrower that is a party thereto,
enforceable against each such Borrower in accordance with their respective
terms;
(d) the representations and warranties made by each Borrower or
Guarantor in or pursuant to the Credit Agreement or any Other Document, or
which are contained in any certificate, document or financial or other
statement furnished at any time under or in connection herewith or
therewith, are each true and correct in all material respects on and as of
the date hereof, as though made on and as of such date;
(e) the acquisition described in the CAI Agreement constitutes a
Permitted Acquisition;
(f) CBE will not conduct business under the name Corporate Access,
Inc., or any similar name unless it has given Agent thirty (30) days prior
written notice thereof and has taken all actions reasonably requested by
Agent (including, without limitation, executing additional UCC-1 financing
statements) to maintain the perfection and priority of the liens granted
to Agent, for the ratable benefit of Lenders, under the Credit Agreement;
(g) CBE will not (i) finance more than $1,500,000 of Inventory at
any one time pursuant to the Deutsche Agreement, (ii) secure its
obligations under the Deutsche Agreement, other than by a Letter of Credit
in the face amount of up to $1,500,000, or (iii) amend the Deutsche
Agreement in any material respect without the prior written consent of the
Required Lenders; and
(h) prior to the date hereof, CBE has delivered to Agent true and
correct copies of (i) the CAI Agreement (including the schedules thereto),
all UCC and other searches conducted with respect to Corporate Access,
Inc. in connection therewith, and all other documents relating thereto as
have been requested by Agent, and (ii) the Deutsche Agreement, and all
other documents relating thereto as have been requested by Agent.
15. Borrowers acknowledge that no Inventory of CBE financed pursuant to
the Deutsche Agreement shall constitute Eligible Inventory.
16. This Amendment shall become effective as of the date above upon
receipt by Agent of (a) six (6) copies of this Amendment executed by Borrower
and one copy of this Amendment executed by the Required Lenders, (b) six (6)
copies of the Consent of Guarantor, in the form attached hereto as Exhibit A,
executed by Guarantor, (c) one (1) copy of the fully executed CAI Agreement, and
all other documents relating thereto as have been requested by Agent, (d) one
(1) copy of the fully executed Deutsche Agreement, and all other documents
relating thereto as have been requested by Agent, (e) all documents and
instruments (including, without limitation, UCC-1 financing statements and the
other items described in the definition of "Permitted Acquisition" contained in
Section 1.2 of the Credit Agreement) necessary or desired by Agent to confirm
that the acquisition described in the CAI Agreement qualifies as a Permitted
Acquisition, (f) such other documents, instruments and certificates as Agent may
reasonably request, in form and substance reasonably satisfactory to Agent, and
(g) payment by Borrowers of all costs, expenses and disbursements incurred by
Agent in connection herewith as required under Section 15.9 of the Credit
Agreement.
17. Borrowers hereby confirm that all liens granted on the Collateral and
the Guarantor Collateral shall continue unimpaired and in full force and effect.
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<PAGE>
18. This Amendment may be executed in several counterparts, each of which,
when executed and delivered, shall be deemed an original, and all of which
together shall constitute one agreement. Any signature delivered by a party by
facsimile transmission shall be deemed to be an original signature hereto.
19. This Amendment shall be governed by and construed in accordance with
the laws of the State of New York applied to contracts to be performed wholly
within the State of New York, without giving effect to the principles of
conflicts of law. This Amendment shall be binding upon and inure to the benefit
of Borrowers, Lenders, Issuer and Agent, and their respective successors and
permitted assigns.
20. From and after the effectiveness hereof, all references to the Credit
Agreement in the Other Documents shall mean the Credit Agreement as amended and
modified by this Amendment.
21. Except as amended and otherwise modified by this Amendment, the Credit
Agreement and the Other Documents shall remain in full force and effect in
accordance with their respective terms. Except as expressly provided herein,
this Amendment shall not constitute an amendment, waiver, consent or release
with respect to any provision of the Credit Agreement or any Other Document, a
waiver of any Default or Event of Default thereunder, or a waiver or release of
any of Agent's or any Lender's rights or remedies (all of which are hereby
reserved). Borrowers expressly ratify and confirm the waiver of jury trial and
other provisions of Section 12.3 of the Credit Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
ATTEST: RICHTON INTERNATIONAL CORPORATION
By:
- -------------------------------- -------------------------------
Marshall E. Bernstein, Secretary Name: Cornelius F. Griffin
Title: Chief Financial Officer
ATTEST: CENTURY SUPPLY CORP.
By:
- -------------------------------- -------------------------------
Marshall E. Bernstein, Secretary Name: Cornelius F. Griffin
Title: Vice President
ATTEST: CBE TECHNOLOGIES, INC.
By:
- -------------------------------- -------------------------------
Marshall E. Bernstein, Secretary Name: Cornelius F. Griffin
Title: Vice President
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PNC BANK, NATIONAL ASSOCIATION,
as Lender and as Agent
By:
-------------------------------
Name: Ryan Peak
Title: Vice President
FLEET CAPITAL CORPORATION,
as Lender
By:
-------------------------------
Name:
Title:
FIRSTAR BANK, N.A.,
as Lender
By:
-------------------------------
Name:
Title:
IBJ WHITEHALL BUSINESS CREDIT
CORPORATION, as Lender
By:
-------------------------------
Name:
Title:
EXHIBIT 10.7
GUARANTY
--------
GUARANTY dated as of May 17, 1999 (as amended, supplemented or modified
from time to time, this "Guaranty") made by RICHTON HOLDING CORP., a Delaware
corporation (the "Guarantor"), in favor of PNC BANK, NATIONAL ASSOCIATION, as
Agent (in such capacity, together with any successor agent, the "Agent") for the
Lenders (as defined below), and the Lenders.
W I T N E S E T H:
------------------
WHEREAS, Richton International Corporation, a Delaware corporation,
Century Supply Corp., a Michigan corporation , and CBE Technologies, Inc., a
Delaware corporation (collectively, the "Borrowers"and individually a
"Borrower"), the lenders from time to time party thereto (the "Lenders"), and
the Agent, as agent for the Lenders, have entered into a Revolving Credit, Term
Loan and Security Agreement dated as of the date hereof (as amended,
supplemented or modified from time to time, the "Credit Agreement"), providing
for the making of Advances (as defined therein) to the Borrowers as contemplated
therein;
WHEREAS, the obligation of the Lenders to make Advances (as defined in the
Credit Agreement) under the Credit Agreement are conditioned upon, among other
things, the execution and delivery by the Guarantor of this Guaranty and the
Guarantor Security Agreement (as defined in the Credit Agreement) to be executed
simultaneously with the execution of this Guaranty, pursuant to which, as
collateral security for the performance of its obligations hereunder, the
Guarantor pledges to the Agent, for the ratable benefit of the Lenders, all of
its right, title and interest in and to the collateral described therein;
WHEREAS, the guarantor is a wholly-owned subsidiary of Richton and owns
all of the issued and outstanding capital stock of the other Borrowers; and
WHEREAS, the Borrowers and the Guarantor are members of the same
consolidated group of companies and the Guarantor will obtain benefits from the
Advances made under the Credit Agreement, and, accordingly, desires to execute
this Guaranty in order to satisfy the conditions described in the preceding
paragraph and to induce the Lenders to make the Advances to the Borrowers;
NOW, THEREFORE, in consideration of the benefits accruing to the
Guarantor, the receipt and sufficiency of which are hereby acknowledged, the
Guarantor hereby makes the following representations and warranties to the Agent
and hereby covenants and agrees with the Agent as follows:
1. As used in this Guaranty, terms defined in the Credit Agreement are
used herein as therein defined, and the following terms shall have the following
meanings:
2. "Bankruptcy Code" shall mean the United States Bankruptcy Code, being
Title 11 of the United States Code, as the same exists or may from time to time
hereafter be amended, modified, recodified or supplemented, together with all
rules, regulations and interpretations thereunder or related thereto.
<PAGE>
"Material Adverse Effect" shall mean a material adverse effect on
the condition (financial or otherwise), operations, assets, business or
prospects of the Guarantor.
"Maximum Guaranteed Amount" for the Guarantor shall mean an amount
equal to 95% of the amount by which (i) the present fair saleable value of
the Guarantor's assets exceeds (ii) the amount reasonably expected to come
due in respect of all liabilities (including, without limitation,
contingent liabilities) other than contingent liabilities of the Guarantor
hereunder, determined on the day that the initial advances are made under
the Credit Agreement or on the day any demand is made under this Guaranty,
whichever date results in a higher Maximum Guaranteed Amount.
(a) The Guarantor hereby unconditionally and irrevocably guarantees
to the Agent, the Lenders and their respective successors, indorsees,
transferees and assigns, the prompt and complete payment by the Borrowers
when due (whether at the stated maturity, by acceleration or otherwise) of
all Obligations, including, without limitation, the principal of and
interest on the Notes issued by, and the Advances made to, the Borrowers
under the Credit Agreement, as well as Obligations which, but for the
automatic stay under Section 362(a) of the Bankruptcy Code, would become
due, and the Guarantor further agrees to pay any and all reasonable
expenses (including, without limitation, all reasonable fees and
disbursements of counsel) which may be paid or incurred by the Agent or
any Lender in enforcing, or obtaining advice of counsel in respect of, any
rights with respect to, or collecting, any or all of the Obligations
and/or enforcing any rights with respect to, or collecting against, the
Guarantor under this Guaranty; provided, however, that the maximum
liability of the Guarantor hereunder shall in no event exceed the
Guarantor's Maximum Guaranteed Amount.
(b) Additionally, the Guarantor hereby unconditionally and
irrevocably guarantees the payment of any and all Obligations of the
Borrowers to the Agent and the Lenders whether or not due or payable by
the Borrowers upon the occurrence in respect of any Borrower of any of the
events specified in Section 10.7 of the Credit Agreement, and
unconditionally and irrevocably promises to pay such Obligations to the
Agent and the Lenders, on demand, in lawful money of the United States.
3. The Guarantor agrees that payments hereunder will be made on the same
basis as payments by the Borrowers under Section 2.6(d) of the Credit Agreement.
4. The liability of the Guarantor hereunder is exclusive and independent
of any security for or other guaranty of the Obligations of the Borrowers
whether executed by the Guarantor, any other guarantor or by any other party,
and the liability of the Guarantor hereunder shall not be affected or impaired
by (a) any direction as to application of payment by any Borrower or by any
other party, (b) any other continuing or other guaranty, undertaking or maximum
liability of a guarantor or of any other party as to the Obligations of the
Borrowers, (c) any payment on or in reduction of any such other guaranty or
undertaking, (d) any dissolution, termination or increase, decrease or change in
personnel by any Borrower or (e) any payment made to the Agent or any Lender on
the Obligations which any such Person repays to any Borrower pursuant to court
order in any bankruptcy, reorganization, arrangement, moratorium or other debtor
relief proceeding, and the Guarantor waives any right to the deferral or
modification of its obligations hereunder by reason of any such proceeding. This
is a guaranty of payment and not of collection.
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5. The obligations of the Guarantor hereunder are independent of the
obligations of any other guarantor of any of the Obligations, or the Borrowers
and a separate action or actions may be brought and prosecuted against the
Guarantor whether or not action is brought against any other guarantor of any of
the Obligations or any Borrower and whether or not any other guarantor of any of
the Obligations or any Borrower be joined in any such action or actions. The
Guarantor waives, to the fullest extent permitted by law, the benefit of any
statute of limitations affecting its liability hereunder or the enforcement
thereof. Any payment by the Borrower or other circumstance which operates to
toll any statute of limitations as to the Borrowers shall operate to toll the
statute of limitations as to the Guarantor.
6. The Guarantor hereby waives (to the fullest extent permitted by
applicable law) notice of acceptance of this Guaranty and notice of any
liability to which it may apply (including notice of the existence, creation or
incurrence of new or additional indebtedness), and waives promptness, diligence,
presentment, demand of payment, protest, notice of dishonor or nonpayment of any
such liabilities, suit or taking of other action by the Agent or any Lender
against, and any other notice to, any party liable thereon (including the
Guarantor or any other guarantor of any of the Obligations).
7. The Agent or any Lender may (except as shall be required by applicable
statute and cannot be waived) at any time and from time to time without the
consent of, or notice to, the Guarantor, without incurring responsibility to the
Guarantor, without impairing or releasing the obligations of the Guarantor
hereunder, upon any terms or conditions and in whole or in part:
(a) change the manner, place or terms of payment of, and/or change
or extend the time of payment of, renew, increase, accelerate or alter,
any of the Obligations, any security therefor, or any liability incurred
directly or indirectly in respect thereof, in each case in accordance with
the terms of the Credit Agreement and the Other Documents, and the
guaranty herein made shall apply to the Obligations as so changed,
extended, renewed or altered;
(b) sell, exchange, release, surrender, realize upon or otherwise
deal with in any manner and in any order any property by whomsoever at any
time pledged or mortgaged to secure, or howsoever securing, the
Obligations or any liabilities (including any of those hereunder) incurred
directly or indirectly in respect thereof or hereof, and/or any offset
thereagainst;
(c) exercise or refrain from exercising any rights against any
Borrower or others or otherwise act or refrain from acting;
(d) settle or compromise any of the Obligations, any security
therefor or any liability (including any of those hereunder) incurred
directly or indirectly in respect thereof or hereof, and may subordinate
the payment of all or any part thereof to the payment of any liability
(whether due or not) of any Borrower to creditors of such Borrower;
(e) apply any sums by whomsoever paid or howsoever realized to any
liability or liabilities of the Borrowers to the Agent or any Lender
regardless of what liabilities of the Borrowers remain unpaid;
(f) consent to or waive any breach of, or any act, omission or
default under, the Credit Agreement, any Other Document or any of the
instruments or agreements referred to therein, or
3
<PAGE>
otherwise amend, modify or supplement the Credit Agreement, any Other
Document or any of such other instruments or agreements; and/or
(g) act or fail to act in any manner referred to in this Guaranty
which may deprive the Guarantor of its right to subrogation against any
Borrower to recover full indemnity for any payments made pursuant to this
Guaranty.
8. No invalidity, irregularity or unenforceability of all or any part of
the Obligations or of any security therefor shall affect, impair or be a defense
to this Guaranty, and (except to the extent, if any, as shall be required by
applicable statute and cannot be waived) this Guaranty shall be primary,
absolute and unconditional notwithstanding the occurrence of any event or the
existence of any other circumstances which might constitute a legal or equitable
discharge of a surety or guarantor, except payment in full of the Obligations.
No provision of this Guaranty shall be deemed to be a waiver by the Guarantor of
its right to assert that the Obligations have been paid in full.
9. This Guaranty is a continuing one and all liabilities to which it
applies or may apply under the terms hereof shall be conclusively presumed to
have been created in reliance hereon. No failure or delay on the part of the
Agent or any Lender in exercising any right, power or privilege hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein expressly specified are cumulative and not exclusive of any
rights or remedies which the Agent and the Lenders would otherwise have. No
notice to or demand on the Guarantor in any case shall entitle the Guarantor to
any other further notice or demand in similar or other circumstances or
constitute a waiver of the rights of the Agent or any Lender to any other or
further action in any circumstances without notice or demand. It is not
necessary for the Agent or any Lender to inquire into the capacity or powers of
any Borrower or the officers, directors, partners or agents acting or purporting
to act on its behalf, and any indebtedness made or created in reliance upon the
professed exercise of such powers shall be guaranteed hereunder.
10. Any indebtedness of any Borrower now or hereafter held by the
Guarantor is hereby subordinated to the indebtedness of such Borrower to the
Agent or any Lender; and such indebtedness of such Borrower to the Guarantor, if
the Agent, after an Event of Default has occurred and is continuing, so
requests, shall be collected, enforced and received by the Guarantor as trustee
for the Agent and the Lenders and be paid over to the Agent, for the benefit of
the Lenders, on account of the indebtedness of such Borrower to the Agent and
the Lenders, but without affecting or impairing in any manner the liability of
the Guarantor under the other provisions of this Guaranty. Prior to the transfer
by the Guarantor of any note or negotiable instrument evidencing any
indebtedness of any Borrower to the Guarantor, the Guarantor shall mark such
note or negotiable instrument with a legend that the same is subject to this
subordination. Without limiting the generality of the foregoing, the Guarantor
hereby agrees with the Agent and the Lenders that it will not exercise any right
of subrogation which it may at any time otherwise have as a result of this
Guaranty (whether contractual, under Section 509 of the Bankruptcy Code or
otherwise) until all Obligations have been irrevocably paid in full in cash.
4
<PAGE>
(a) The Guarantor waives any right (except as shall be required by
applicable statute or law and cannot be waived) to require the Agent and
the Lenders to: (i) proceed against any Borrower, any other guarantor of
any of the Obligations or any other party; (ii) proceed against or exhaust
any security held from any Borrower, any other guarantor of any of the
Obligations or any other party; or (iii) pursue any other remedy in the
Agent's or any Lender's power whatsoever. The Guarantor waives (to the
fullest extent permitted by applicable law) any defense based on or
arising out of any defense of the Borrowers, any other guarantor of any of
the Obligations or any other party other than payment in full of the
Obligations, including, without limitation, any defense based on or
arising out of the disability of any Borrower, any other guarantor of any
of the Obligations or any other party, or the unenforceability of the
Obligations or any part thereof from any cause, or the cessation from any
cause of the liability of any Borrower other than payment in full of the
Obligations. The Agent and the Lenders may, at their election, foreclose
on any security held by the Agent or any Lender by one or more judicial or
nonjudicial sales, or exercise any other right or remedy the Agent or any
Lender may have against the Borrowers or any other party, or any security,
without affecting or impairing in any way the liability of the Guarantor
hereunder except to the extent the Obligations have been paid in full. The
Guarantor waives any defense arising out of any such election by the Agent
and the Lenders, even though such election operates to impair or
extinguish any right of reimbursement or subrogation or other right or
remedy of the Guarantor against the Borrowers or any other party or any
security.
(b) The Guarantor assumes all responsibility for being and keeping
itself informed of each Borrower's financial condition and assets, and of
all other circumstances bearing upon the risk of nonpayment of the
Obligations and the nature, scope and extent of the risks which the
Guarantor assumes and incurs hereunder, and agrees that the Agent and the
Lenders shall have no duty to advise the Guarantor of information known to
them regarding such circumstances or risks.
11. The Agent and the Lenders agree that this Guaranty may be enforced
only by the action of the Agent and that no Lender shall have any right
individually to seek to enforce or to enforce this Guaranty or to realize upon
the security to be granted by the Guarantor Security Agreement, it being
understood and agreed that such rights and remedies may be exercised solely by
the Agent for the benefit of the Lenders upon the terms of this Guaranty and the
Guarantor Security Agreement.
12. In order to induce the Lenders to make the Advances pursuant to the
Credit Agreement, the Guarantor represents, warrants and covenants that:
(a) the Guarantor (i) is duly incorporated, validly existing and in
good standing under the laws of the jurisdiction of its incorporation,
(ii) has the corporate power and authority to own and operate its
property, to lease the property it operates and to conduct the business in
which it is currently engaged, (iii) is duly qualified as a foreign
corporation and in good standing under the laws of each jurisdiction where
its ownership, lease or operation of property or the conduct of its
business requires such qualification and where the failure to be so
qualified and in good standing could reasonably be expected to have a
Material Adverse Effect, (iv) is not in violation of any applicable law,
statute, rule, regulation or ordinance in any respect which could
reasonably be expected to have a Material Adverse Effect, and (v) is not
in violation of any order of any court, governmental authority or
arbitration board or tribunal;
(b) the Guarantor has the corporate power and authority to execute,
deliver and perform each of the Other Documents to which it is a party
(including, without limitation, this Guaranty) and
5
<PAGE>
has taken all necessary corporate action to authorize the execution,
delivery and performance of each of the Other Documents to which it is a
party (including, without limitation, this Guaranty);
(c) no consent of any other Person and no consent or authorization
of, filing with or other act by or in respect of, any Governmental Body or
any other Person is required in connection with the execution, delivery or
performance by the Guarantor, or the validity or enforceability of, the
Other Documents to which the Guarantor is a party (including, without
limitation, this Guaranty), except for consents, authorizations, filings
or acts which have been made or obtained, as the case may be, and are in
full force and effect;
(d) the Other Document to which the Guarantor is a party (including,
without limitation, this Guaranty) have been duly executed and delivered
on behalf of the Guarantor and constitute the legal, valid and binding
obligations of the Guarantor enforceable against the Guarantor in
accordance with their respective terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting the enforcement of creditors' rights generally
and by general equitable principles (whether enforcement is sought by
proceedings in equity or at law);
(e) the execution, delivery and performance by the Guarantor of the
Other Documents to which the Guarantor is a party (including, without
limitation, this Guaranty) will not (i) violate any law, statute, rule,
regulation or ordinance or any order, writ, junction or decree of any
court, Governmental Body or arbitration board or tribunal, (ii) conflict
or be inconsistent with or result in any breach of, any of the terms,
covenants, conditions or provisions of, or constitute a default under, or
(other than pursuant to the Credit Agreement or the Other Documents)
result in the creation or imposition of (or the obligation to create or
impose) any Lien upon any of the property or assets of the Guarantor
pursuant to the terms of any indenture, mortgage, deed of trust, loan
agreement, credit agreement or other material agreement or other
instrument to which the Guarantor is a party or by which it or any of its
property or assets is bound or to which it may be subject or (iii) violate
any provision of the certificate of incorporation or by-laws of the
Guarantor; and
(f) except as disclosed in Schedule 5.8(b) to the Credit Agreement, there
are no pending or threatened litigations, arbitrations, actions or
proceedings relating to of affecting the Guarantor which could reasonably
be expected to have a Material Adverse Effect.
13. The Guarantor covenants and agrees that on and after the date hereof
and until the Obligations (other than indemnities in the Credit Agreement and
analogous provisions in the Other Documents which are not then due and payable)
have been paid in full, and the Credit Agreement has been terminated, the
Guarantor shall take, or will refrain from taking, as the case may be, all
actions that are necessary to be taken or not taken so that no violation of any
provision, covenant or agreement contained in Article VI or VII of the Credit
Agreement, and so that no Default or Event of Default, is caused by the actions
of the Guarantor or any of its Subsidiaries.
14. The Guarantor hereby agrees to pay all costs and expenses of the Agent
and each Lender in connection with the enforcement of this Guaranty and any
amendment, waiver or consent relating hereto (including, without limitation, the
reasonable fees and disbursements of counsel employed by the Agent or any
Lender).
6
<PAGE>
15. This Guaranty shall be binding upon the Guarantor and its successors
and assigns and shall inure to the benefit of the Agent and the Lenders and
their respective successors and assigns.
16. None of the terms or provisions of this Guaranty may be amended,
supplemented or otherwise modified except by a written instrument executed by
the Guarantor and the Agent, provided that any provision of this Pledge
Agreement may be waived by the Agent in a letter or agreement executed by the
Agent or by telex or facsimile transmission from the Agent.
17. The Guarantor acknowledges that an executed (or conformed) copy of the
Credit Agreement and each Other Document has been made available to its
executive officers and such officers are familiar with the contents thereof.
18. In addition to any rights now or hereafter granted under applicable
law (including, without limitation, Section 151 of the New York Debtor and
Creditor Law) and not by way of limitation of any such rights, upon the
occurrence and during the continuance of an Event of Default, the Agent and the
Lenders are hereby authorized at any time or from time to time, without notice
to the Guarantor or to any other Person, any such notice being expressly waived,
to set off and to appropriate and apply any and all deposits (general or
special) and any other indebtedness at any time held or owing by the Agent or
such Lender, as the case may be, to or for the credit or the account of the
Guarantor, against and on account of the obligations and liabilities of the
Guarantor to the Agent or such Lender, as the case may be, under any Other
Document (including, without limitation, under this Guaranty), irrespective of
whether or not the Agent or such Lender shall have made any demand hereunder and
although said obligations, liabilities, deposits or claims, or any of them,
shall be contingent or unmatured.
19. Any notice or request hereunder may be given to the Guarantor at its
address (including telecopy number) set forth under its signature below or to
the Agent or any Lender at the address (including telecopy number) provided for
such party in Section 15.6 of the Credit Agreement or, in each case at such
other address as may hereafter be specified in a notice designated as a notice
of change of address under this Paragraph 20. Any notice or request hereunder
shall be given by (a) hand delivery, (b) overnight courier, (c) registered or
certified mail, return receipt requested, (d) telex or telegram, subsequently
confirmed by registered or certified mail, or (e) telecopy with electronic
confirmation of its receipt. Any notice or other communication required or
permitted pursuant to this Guaranty shall be deemed given (i) when personally
delivered to any officer of the party to whom it is addressed, (ii) on the
earlier of actual receipt thereof or three (3) days following posting thereof by
certified or registered mail, postage prepaid, (iii) upon actual receipt thereof
when sent by a recognized overnight delivery service or (iv) upon actual receipt
thereof when sent by telecopier with electronic confirmation of its receipt.
20. If claim is ever made upon the Agent or any Lender for repayment or
recovery of any amount or amounts received in payment or on account of any of
the Obligations and any of the aforesaid payees repays all or part of said
amount by reason of (i) any judgment, decree or order of any court or
administrative body having jurisdiction over such payee or any of its property
or (ii) any settlement or compromise of any such claim effected by such payee
with any such claimant (including any Borrower), then and in such event the
Guarantor agrees that any such judgment, decree, order, settlement or compromise
shall be binding upon the Guarantor, notwithstanding any revocation hereof or
other instrument evidencing any liability of any Borrower, and the Guarantor
shall be and remain
7
<PAGE>
liable to the aforesaid payees hereunder for the amount so repaid or recovered
to the same extent as if such amount had never originally been received by any
such payee.
21. This Guaranty shall be governed by and construed in accordance with
the laws of the State of New York applied to contracts to be performed wholly
within the State of New York, without giving effect to the principles of
conflicts of law. Any judicial proceeding brought by or against the Guarantor
with respect to this Guaranty or any related agreement may be brought in the
Supreme Court of the State of New York located in the County of New York or in
the United States District Court for the Southern District of New York and, by
execution and delivery of this Guaranty, the Guarantor accepts for itself and in
connection with its properties, generally and unconditionally, the non-exclusive
jurisdiction of the aforesaid courts, and irrevocably agrees to be bound by any
judgment rendered thereby in connection with this Guaranty. The Guarantor hereby
waives personal service of any and all process upon it and consents that all
such service of process may be made by registered mail (return receipt
requested) directed to the Guarantor at its address set forth under its
signature below and service so made shall be deemed completed five (5) days
after the same shall have been so deposited in the mails of the United States of
America. Nothing herein shall affect the right to serve process in any manner
permitted by law or shall limit the right of Agent or any Lender to bring
proceedings against the Guarantor in the courts of any other jurisdiction. The
Guarantor waives any objection to jurisdiction and venue of any action
instituted hereunder in any court referred to above and shall not assert any
defense based on lack of jurisdiction or venue or based upon forum non
conveniens. Any judicial proceeding by the Guarantor against Agent or any Lender
involving, directly or indirectly, any matter or claim in any way arising out
of, related to or connected with this Guaranty or any related agreement, shall
be brought only in the Supreme Court of the State of New York located in the
County of New York or in the United States District Court for the Southern
District of New York.
22. EACH PARTY TO THIS GUARANTY HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL
BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING UNDER THIS
GUARANTY OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN
CONNECTION HEREWITH, OR (B) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL
TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS
GUARANTY OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN
CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE
WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR
TORT OR OTHERWISE AND EACH PARTY HEREBY CONSENTS THAT ANY SUCH CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND
THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF
THIS PARAGRAPH WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENTS OF THE PARTIES
HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
23. This Guaranty may be executed in any number of counterparts and by the
different parties hereto on separate counterparts, each of which when so
executed and delivered shall be an original, but all of which shall together
constitute one and the same instrument. A set of counterparts executed by all
the parties hereto shall be lodged with the Guarantor and the Agent.
8
<PAGE>
24. All payments made by the Guarantor hereunder will be made without
setoff, counterclaim or other defense; provided, however, that this Section 25
shall not preclude the right of the Guarantor to make a claim in a separate
action that Guarantor has paid amounts of principal, interest or other charges
to the Lenders or the Agent in respect of the Advances in excess of the amounts
required to be paid by reason of an error in calculation by the Agent or the
Lenders (after applying the standard of manifest error when applicable to the
Borrowers).
25. If any part of this Guaranty is contrary to, prohibited by, or deemed
invalid under applicable laws or regulations, such provision shall be
inapplicable and deemed omitted to the extent so contrary, prohibited or
invalid, but the remainder hereof shall not be invalidated thereby and shall be
given effect so far as possible.
26. The Guarantor acknowledges that the rights and responsibilities of the
Agent under this Guaranty with respect to any action taken by the Agent or the
exercise or non-exercise by the Agent of any option, right, request, judgment or
other right or remedy provided for herein or resulting or arising out of this
Guaranty shall, as among the Agent and the Lenders, be governed by the Credit
Agreement and such other agreements with respect thereto as may exist from time
to time among them but, as between the Agent and the Guarantor, the Agent shall
be conclusively presumed to be acting as agent for the Lenders with full and
valid authority so to act or refrain from acting, and neither the Guarantor nor
the Borrowers shall not be under any obligation or entitlement to make any
inquiry respecting such authority.
27. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered by their duly authorized officers as of the day and
year first above written.
ATTEST: RICHTON HOLDING CORP.
By:
- --------------------------- -------------------------------
Name: Name: Cornelius F. Griffin
Title: Title: Chief Financial Officer
Address for Notices to the Guarantor:
767 Fifth Avenue
New York, New York 10153
Attn: Chief Executive Officer
Telephone: (212) 751-4050
Telecopier: (212) 956-2164
9
EXHIBIT 21
RICHTON INTERNATIONAL CORPORATION
---------------------------------
SUBSIDIARIES OF REGISTRANTS:
----------------------------
1. Richton Holding Company
2. Century Supply Corp.
3. Century Supply Corp of Canada Ltd.
4. CBE Technologies, Inc.
5. Creative Business Concepts, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,071
<SECURITIES> 0
<RECEIVABLES> 35,576
<ALLOWANCES> 2,264
<INVENTORY> 24,012
<CURRENT-ASSETS> 61,197
<PP&E> 4,908
<DEPRECIATION> 2,018
<TOTAL-ASSETS> 75,392
<CURRENT-LIABILITIES> 51,366
<BONDS> 5,020
331
0
<COMMON> 0
<OTHER-SE> 18,675
<TOTAL-LIABILITY-AND-EQUITY> 75,392
<SALES> 218,176
<TOTAL-REVENUES> 218,176
<CGS> 154,367
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 49,571
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,313
<INCOME-PRETAX> 11,925
<INCOME-TAX> 4,770
<INCOME-CONTINUING> 7,155
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,155
<EPS-BASIC> 2.39
<EPS-DILUTED> 2.12
</TABLE>
