<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) April 1, 1998
MATTHEWS STUDIO EQUIPMENT GROUP
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(Exact name of registrant as specified in its charter)
CALIFORNIA
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(State or other jurisdiction of incorporation)
0-18102 95-1447751
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(Commission file number) (I.R.S. Employer
Identification No.)
3111 NORTH KENWOOD STREET, BURBANK, CA 91505
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(Address of principal executive offices) (Zip Code)
(818) 525-5200
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal
year, if changed since last report)
<PAGE>
Item 2. Acquisition or Disposition of Assets
On April 1, 1998, Matthews Studio Equipment Group ("Matthews" or "the Company")
acquired Four Star Lighting, Inc. ("Four Star"), pursuant to a stock purchase
agreement dated as of March 20, 1998, among the shareholders of Four Star
Holding, Inc. ( a holding company which owns 100% of Four Star), Four Star
Holding, Inc., Four Star and the Company. Pursuant to the stock purchase
agreement, in exchange for all of the capital stock of Four Star Holding, Inc.,
the Company paid $18,421,000 in cash to the shareholders of Four Star Holding,
Inc., and $9,104,000 in cash to reduce Four Star's long-term debt. The amount of
consideration paid to the Four Star shareholders was reached through arms-length
negotiations and was funded through the Company's credit facility discussed in
Item 5 below. The amount paid to Four Star creditors was funded through the same
credit facility.
Prior to the acquisition, the ownership in Four Star was held by Four Star
Associates, L.P., Stonebridge Partners Equity Fund, L.P., Bill L. Aishman,
Anthony P. Cancellieri and Darren DeVerna. Four Star has operations in New
York, New York and Los Angeles, California. Four Star provides rentals of
lighting and other equipment for use in theatrical productions. Four Star will
continue its business and operations as a wholly-owned subsidiary of the
Company.
Four Star's revenues for its fiscal year ended December 31, 1997 were
approximately $11.7 million and the total liabilities as of that date were $13.9
million. Of the $27,525,000 cash paid on April 1, 1998, $9,104,000 was used to
pay off certain liabilities of Four Star.
A copy of the press release of the Company in respect of the acquisition of Four
Star is attached hereto as Exhibit 3.
Item 5. Other Events
On April 1, 1998, Matthews and its principal subsidiaries amended its senior
secured revolving credit facility (the "Amended Chase Facility") with The Chase
Manhattan Bank as agent for a syndicate of lenders ("Bank").
The Amended Chase Facility provides for revolving credit loans of up to
$64,000,000 and a term loan of $16,000,000, with an aggregate principal amount
not in excess of $80.0 million at any time outstanding. The term loan requires
principal payments beginning December 31, 1998. The proceeds of the Amended
Chase Facility may be used, 1) to finance the Four Star acquisition, including
fees and expenses incurred in connection with the Four Star acquisition, within
the limits specified in the stock purchase agreement, 2) for general working
capital purposes, 3) for the financing of future acquisitions of businesses with
$10.0 million designated for such activities, 4) to finance the repayment of
certain capitalized lease obligations, 5) to finance capital expenditures,
within the limits specified in the agreement, and 6) to repay certain
subordinated debt.
Interest on outstanding borrowings under the Amended Chase Facility at the
Company's choice is at LIBOR plus a maximum of 2.75% or the greater of (i) Chase
Manhattan Bank's Prime Rate plus a maximum of 0.75%, (ii) the Base CD Rate (as
determined by the Bank) plus a maximum of 1.75% or (iii) the Federal Funds
Effective Rate plus a maximum of 1.25%. In each case, the interest margin
charged on outstanding loans may be reduced if specified ratios are achieved by
the Company. In addition, the Company pays from three-eights of one percent to
one-half of one percent on the unused credit commitment.
<PAGE>
The Amended Chase Facility matures August 14, 2002. The Amended Chase Facility
requires the Company to maintain certain levels of net worth and, on a quarterly
basis, certain levels of EBITDA (earnings before interest, taxes, depreciation
and amortization), and to meet several financial ratios including interest
coverage, leverage and debt service coverage ratios. In addition, the Company
must maintain limits on annual rent expenses.
The Amended Chase Facility provides for annual capital expenditure limits of
$12.75 million in fiscal 1998 and $11.5 million for each fiscal year thereafter.
Amounts (up to $2.0 million) permitted to be expended in a given fiscal year may
be carried over (if not spent) and expended in the succeeding fiscal year. In
addition, the annual limits will be increased by 25% in years when specified
financial ratios have been achieved.
Borrowings under the Amended Chase Facility by the Company and its subsidiaries
are cross collateralized pursuant to a security agreement in which the Company
and its subsidiaries has granted the Bank a first priority lien in all of their
respective assets.
A copy of the press release of the Company in respect of the Amended Chase
Credit Facility is attached hereto as Exhibit 3.
<PAGE>
Item 7. Financial Statements and Exhibits
As of the date of this report, the financial statements and pro forma data
required by this item are not available. It is the Company's intention that
such financial statements and pro forma data will be filed within 60 days of the
due date of this report, as required under applicable regulations of the
Securities and Exchange Commission.
<PAGE>
(2) (c) Exhibits
EXHIBIT INDEX
Exhibit Document Description
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1. Sale Agreement dated as of March 20, 1998, among Matthews Studio
Equipment Group, Four Star Associates, L.P., Stonebridge Partners
Equity Fund, L.P., Bill L. Aishman, Anthony P. Cancellieri,
Darren DeVerna, Four Star Lighting, Inc. and Four Star Holding,
Inc., without the schedules and exhibits thereto, other than as
listed below:
i. Employment Agreement dated as of April 1, 1998, between
Darren DeVerna and Four Star Lighting, Inc.
2. Amended and Restated Credit Agreement (without schedules or
exhibits)
3. Press release of the Company in respect of the acquisition of
Four Star Lighting, Inc. and the amended Chase credit facility,
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report on Form 8-K, to be signed on its behalf
by the undersigned hereunto duly authorized.
MATTHEWS STUDIO EQUIPMENT GROUP
(Registrant)
Date: April 13, 1998 By: /s/ Carlos DeMattos
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Carlos De Mattos
Chairman of the Board, Chief Executive Officer,
President & Chief Financial Officer
By: /s/ Gary S. Borman
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Gary S. Borman
Vice President, Corporate Controller
& Principal Accounting Officer
<PAGE>
EXHIBIT 1
EXECUTION COPY
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FOUR STAR HOLDING, INC.
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SALE AGREEMENT
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This SALE AGREEMENT (this "Agreement"), dated as of March 20, 1998, is
made and entered into by and among Four Star Holding, Inc., a Delaware
corporation (the "Company"), Four Star Lighting, Inc, a New York corporation
("Lighting" or "Four Star"), each of Four Star Associates, L.P., Stonebridge
Partners Equity Fund, L.P., Bill L. Aishman, Anthony P. Cancellieri and Darren
DeVerna (individually, a "Selling Shareholder," and collectively the "Selling
Shareholders"), and Matthews Studio Equipment Group, a California corporation
("Buyer").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Selling Shareholders own all of the issued and
outstanding capital stock (the "Capital Stock") of the Company and the Company
owns all of the Capital Stock of Lighting; and
WHEREAS, Buyer and the Selling Shareholders desire to transfer the
ownership of the Capital Stock of the Company to Buyer for the consideration
specified herein;
NOW THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants, agreements, terms and conditions
contained herein, and in order to set forth the terms and conditions of the
sale, the parties hereto do hereby agree as follows:
ARTICLE I
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CLOSING
1.1 The Closing. The closing (the "Closing") of the transactions
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provided for in this Agreement shall be held at the offices of Whitman Breed
Abbott & Morgan LLP, 200 Park Avenue, New York, New York 10166 (unless the
parties hereto otherwise agree in writing) on the Closing Date (as defined in
Section 1.2).
1.2 Closing Date. The "Closing Date" shall mean April 1, 1998,
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provided, however, that if any of the conditions provided for in Article IV
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shall not have been waived or met by March 30, 1998, then either Buyer in the
case of conditions provided in Section 4.1 or the Selling Shareholders in the
case of conditions provided in Section 4.2 shall be entitled to postpone the
Closing Date by written notice to the other party until three (3) business days
after such condition or conditions have been met or waived. The Closing Date
shall not be later than April 30, 1998
<PAGE>
unless mutually agreed upon by Buyer and the Selling Shareholders.
1.3 Consideration. On and subject to the terms and conditions of
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this Agreement, Buyer agrees to purchase from the Selling Shareholders all of
the shares of Capital Stock of the Company for aggregate consideration in cash
equal to $26,500,000, plus the excess of the Net Asset Amount (as defined below)
over $8,900,000 or minus the excess of $8,900,000 over the Net Asset Amount (the
"Purchase Price").
1.4 Deliveries at the Closing.
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(a) Payment to the Selling Shareholders. At the Closing, Buyer
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will pay to the Selling Shareholders pro rata, to an account or accounts
designated by the Shareholders' Representative (as defined in Section 1.6), by
wire transfer of immediately available funds, an amount in cash equal to (i)
$26,500,000, (ii) plus the excess, if any, of the Estimated Net Asset Amount
over $8,900,000 or minus the excess, if any, of $8,900,000 over the Estimated
Net Asset Amount (as defined below), (iii) less the Indebtedness Payment (as
defined in Section 1.5(a)), which is paid by Buyer as provided in Section 1.5.,
and (iv) less the Escrow Payment (as defined in Section 1.4(b)).
Not later than 3 days before the Closing, the Shareholders'
Representative will provide Buyer in writing with a good faith estimate of (i)
the Net Asset Amount (as defined in Section 1.6), using the format shown on
Schedule 1.6 (the "Estimated Net Asset Amount"), and (ii) the Indebtedness
Payment.
(b) Escrow Payment. At the Closing, Buyer will pay to Bank of
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America Illinois, as escrow agent (the "Escrow Agent"), $1,000,000 (the "Escrow
Payment"), all to be held pursuant to the terms of the Escrow Agreement (as
defined in Section 4.1(h)).
(c) Deliveries by the Selling Shareholders. At the Closing, the
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Selling Shareholders will deliver, or cause to be delivered, to Buyer:
(i) the stock certificates representing all (and not less than
all) of the Capital Stock of the Company (the "Shares"), accompanied
by stock powers duly executed in blank or duly executed stock transfer
forms or instruments of transfer, with any applicable transfer stamps
affixed, which validly transfer title to the Shares to Buyer free and
clear of any Liens (as defined in Section 2.2(b));
(ii) the resignations, effective as of the Closing Date, of all
members of the Board of Directors of the
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Company and Four Star and of such officers of the Company and Four
Star as Buyer shall specify;
(iii) the stock books, ledger books and corporate seals of the
Company and Four Star, together with the original stock certificate or
certificates representing all of (A) the Preferred Stock (as defined
in Section 1.5(a)) held by the Selling Shareholders and (B) the
Capital Stock of Four Star held by the Company;
(iv) the certificate of the Shareholders' Representative
referred to in Section 4.1(i);
(v) a certificate of the Selling Shareholders' non-foreign
status which complies with the requirements of Section 1445 of the
Internal Revenue Code of 1986 as amended (the "Code") and the Treasury
Regulations promulgated thereunder; and
(vi) all other documents, instruments and writings to be
delivered by the Selling Shareholders at or prior to the Closing
pursuant to this Agreement.
1.5 Indebtedness Payment.
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(a) Definitions. For purposes of this Agreement, the following terms
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shall have the following meaning:
(i) "Indebtedness Payment" shall mean an amount equal to, as
of the Closing Date, the then outstanding principal of, accrued and
unpaid interest on, any prepayment penalties or premiums on, and any
other amounts payable (including any success fee) with respect to, (A)
all indebtedness of Four Star under that certain loan and security
agreement (the "Loan Agreement") with Bank of America Illinois ("Bank
of America"), dated as of September 8, 1995, as amended (the "Bank
Indebtedness Payment"), (B) all indebtedness of the Company under
certain subordinated notes (the "Subordinated Notes") held by Four
Star Associates, L.P. and Stonebridge Partners Equity Fund, L.P. (the
"Subordinated Notes Indebtedness Payment"), and (C) the redemption
value of the cumulative redeemable preferred stock, par value $.01, of
the Company (the "Preferred Stock") plus accrued but unpaid dividends
thereon (the " Preferred Stock Indebtedness Payment").
(b) Indebtedness Payment. At the Closing, Buyer will pay to accounts
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designated by the Shareholders' Representative, by wire transfer of immediately
available funds, a portion of the Purchase Price equal to the Indebtedness
Payment as follows: (i) to Bank of America (for the benefit of the financial
institutions party to the Loan Agreement) an amount in cash equal
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<PAGE>
to the Bank Indebtedness Payment; (ii) to the holders of the Subordinated Notes
an amount in cash equal to the Subordinated Notes Indebtedness Payment; and
(iii) to the holders of the Preferred Stock an amount in cash equal to the
Preferred Stock Indebtedness Payment.
At the Closing, the Shareholders' Representative shall deliver to
Buyer written statements from Bank of America, the holders of the Subordinated
Notes (or their representatives) and the holders of the Preferred Stock stating
the amounts due, as of the Closing Date, for the Bank Indebtedness Payment, the
Subordinated Notes Indebtedness Payment and the Preferred Stock Indebtedness
Payment, respectively.
1.6 Purchase Price Adjustment.
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(a) Definitions. For purposes of this Agreement, the following terms
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shall have the following meanings:
(i) "Final Net Asset Statement" shall mean the Net Asset
Statement (as defined in Section 1.6(b)) which has become conclusive
and binding upon the parties pursuant to this Section 1.6.
(ii) "Net Asset Amount" shall mean the Company's Included
Current Assets (as shown on Schedule 1.6), plus the Historical Net
Book Value of Rental Equipment (as shown on Schedule 1.6) minus the
Company's Included Current Liabilities (as shown on Schedule 1.6), all
of which shall have been calculated on the basis of consolidation of
the accounts of the Company and Lighting as of the close of business
on the day immediately preceding the Closing Date, as finally
determined on the Final Net Asset Statement.
(b) Net Asset Statement. Within 60 days following the Closing Date,
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David A. Zackrison and/or Michael S. Bruno acting as representative of all
Selling Shareholders (the "Shareholders' Representative") shall prepare (or
cause to be prepared), issue and deliver to Buyer a statement of the Net Asset
Amount (the "Net Asset Statement") and the computation of the Consideration
Adjustment (as defined in Section 1.6(d)). The Net Asset Statement shall be
prepared as set forth on Schedule 1.6 using the same accounting methods,
policies, practices, principles and procedures (the "Methods"), with consistent
classifications, judgments, and valuation and estimation methodologies (the
"Methodologies"), that were used in the preparation of the December Balance
Sheet (as defined in Section 2.2(f)) except as otherwise provided on Schedule
1.6.
(c) Dispute Procedures. The Net Asset Statement delivered by the
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Shareholders' Representative to Buyer and the computation of the Net Asset
Amount and the Consideration
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<PAGE>
Adjustment indicated thereon shall be conclusive and binding upon the parties
unless Buyer, within 30 days after delivery to Buyer of the Net Asset Statement,
notifies the Shareholders' Representative in writing that Buyer disputes any of
the amounts set forth therein, specifying the nature of the dispute and the
basis therefor. The parties shall in good faith attempt to resolve any dispute,
in which event the Net Asset Statement and the computation of the Net Asset
Amount and the Consideration Adjustment, as amended to the extent necessary to
reflect the resolution of the dispute, shall be conclusive and binding on the
parties. If the parties do not reach agreement resolving the dispute within 10
days after notice is given by Buyer to the Shareholders' Representative pursuant
to the second preceding sentence, the parties shall submit the dispute to a
partner at the accounting firm of Price Waterhouse LLP, or, if no partner of
such firm will act, to a partner at such other nationally recognized independent
accounting firm mutually agreeable to the parties, which shall not have a
material relationship with the Selling Shareholders, the Shareholders'
Representative or Buyer or any of their respective affiliates within two years
preceding the appointment (the "Arbiter"), for resolution. If the Parties
cannot agree on the selection of a partner at such an independent accounting
firm to act as Arbiter, the parties shall request the American Arbitration
Association to appoint such a partner, and such appointment shall be conclusive
and binding on the parties. Promptly, but no later than 20 days after its
acceptance of his or her appointment as Arbiter, the Arbiter shall determine,
based solely on presentations by the Shareholders' Representative and Buyer, and
not by independent review, only those issues in dispute and shall render a
report as to the dispute and the resulting computation of the Net Asset Amount
and the Consideration Adjustment, if any, which shall be conclusive and binding
upon the parties. All proceedings conducted by the Arbiter shall take place in
the City of New York. In resolving any disputed item, the Arbiter (x) shall be
bound by the provisions of Section 1.6 and Schedule 1.6 and (y) may not assign a
value to any item greater than the greatest value for such item claimed by
either party or less than the smallest value for such item claimed by either
party. The fees, costs and expenses of the Arbiter (i) shall be borne by Buyer
in the proportion that the aggregate dollar amount of such disputed items so
submitted that are unsuccessfully disputed by Buyer (as finally determined by
the Arbiter) bears to the aggregate dollar amount of such disputed items so
submitted and (ii) shall be borne by the Selling Shareholders in the proportion
that the aggregate dollar amount of such disputed items so submitted that are
successfully disputed by Buyer (as finally determined by the Arbiter) bears to
the aggregate dollar amount of such disputed items so submitted. Whether any
dispute is resolved by agreement among the parties or by the Arbiter, changes to
the Net Asset Statement shall be made hereunder only for items as to which Buyer
has taken exception as provided herein.
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<PAGE>
(d) Consideration Adjustment. The difference, if any, between the
------------------------
Net Asset Amount and the Estimated Net Asset Amount, whether a positive or a
negative number, is herein referred to as the "Consideration Adjustment." If the
Net Asset Amount exceeds the Estimated Net Asset Amount, the dollar amount of
the Consideration Adjustment shall be paid by Buyer to the Shareholders'
Representative, for the benefit of the Selling Shareholders, in accordance with
the provisions of Section 1.6(e). If the Net Asset Amount is less than the
Estimated Net Asset Amount, the dollar amount of the Consideration Adjustment
shall be paid by the Shareholders' Representative, on behalf of Selling
Shareholders pro rata, to Buyer in accordance with the provisions of Section
1.6(e).
(e) Payment. Any amount payable as Consideration Adjustment shall be
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paid by wire transfer of immediately available funds to an account designated in
writing by the Shareholders' Representative or Buyer, as the case may be. Such
payment shall be made on the third business day following the earliest of (i)
the last day on which Buyer may, pursuant to the first sentence of Section
1.6(c), notify the Shareholders' Representative that it disputes any of the
amounts set forth in the Net Asset Statement, if Buyer shall not notify the
Shareholders' Representative of any dispute, or such earlier date as Buyer shall
advise the Shareholders' Representative of the absence of any dispute, or (ii)
the date mutual agreement is reached as to the amount of the Consideration
Adjustment, if any, in the event of a dispute that is settled by the parties
without resort to the Arbiter, or (iii) the date of receipt of the report of the
Arbiter in the event of a dispute which is settled by the Arbiter.
(f) Access. Buyer shall provide the Shareholders' Representative and
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its accountants full access to all relevant books and records and to employees
of the Company and Four Star to the extent necessary for the Shareholders'
Representative to prepare the Net Asset Statement and in connection with any
dispute with respect to the Net Asset Statement.
ARTICLE II
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REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties by Buyer. Buyer represents and
---------------------------------------
warrants to, and agrees with, the Selling Shareholders as follows:
(a) Organization, etc. Buyer is a corporation, validly existing and
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in good standing under the laws of the State of California, with full power and
authority to own all of its property and assets and to carry on its business as
it is now being conducted. Buyer is duly qualified or licensed to do business
and is in good standing in each jurisdiction in which
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<PAGE>
the nature of its business or the character of its property makes such
qualification necessary.
(b) Authority Relative to Agreement. Buyer has the corporate power
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and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery by Buyer of this
Agreement and the consummation by Buyer of the transactions contemplated hereby
have been, or prior to the Closing will be, duly authorized by all necessary
action or proceedings. This Agreement has been duly executed and delivered by
Buyer and constitutes a valid and binding agreement of Buyer, enforceable in
accordance with its terms.
(c) Non-Contravention. The execution and delivery of this Agreement
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by Buyer does not, and the consummation by Buyer of the transactions
contemplated hereby will not, violate any provision of its Certificate of
Incorporation or Bylaws, or violate, or result with the giving of notice or the
lapse of time or both in a violation of, any provision of any mortgage, lien,
lease, agreement, license, instrument, law, ordinance, regulation, order,
arbitration award, judgment or decree to which Buyer or any of its properties or
assets (real, personal or mixed, tangible or intangible) are bound.
(d) Consents, etc. As of the Closing Date, Buyer shall have obtained
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all licenses, permits, consents, authorizations, orders or approvals of any
governmental commission, board or regulatory body necessary for the execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby.
(e) Purchase for Investment; Investor Sophistication.
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(1) Buyer has sufficient knowledge and experience in financial
and business matters to enable it to evaluate the merits and risks of the
transactions contemplated by the terms and conditions of this Agreement.
(2) Buyer at the Closing Date will have been given access to
information regarding the Company and Four Star, including the opportunity
to ask questions of it and receive answers from the officers of the Company
and Four Star concerning the present and proposed activities of the Company
and Four Star, and to obtain information which Buyer deems necessary in
order to evaluate the merits of the transactions contemplated by this
Agreement; provided, that no such inquiry, investigation or information
--------
shall affect the representations and warranties of the Selling Shareholders
contained herein.
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<PAGE>
(3) Buyer is purchasing the Shares solely for its own account,
for investment purposes, and not with a view to resale or distribution of
all or any part of the Shares. Buyer understands that the Shares have not
been registered under the Securities Act, or applicable state securities
laws, on the grounds that the Shares were issued in a transaction, not
involving any public offering, and are now being sold in a transaction
involving a person other than an issuer, underwriter or dealer, to a
knowledgeable investor that is familiar with the affairs and proposed
operations of the Company and that consequently such transaction is exempt
from registration under the Securities Act of 1933, as amended, and
applicable state laws.
2.2 Representation and Warranties by the Company, Four Star and the
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Selling Shareholders. The Company, Four Star and the Selling Shareholders,
- --------------------
jointly and severally, represent and warrant to, and agree with, Buyer as
follows:
(a) Organization. Each of the Company and Lighting is a corporation
------------
duly organized, validly existing and in good standing under the laws of its
state of incorporation, with full corporate power and authority to own all of
its properties and assets and to carry on its business as it is now being
conducted. Each of the Company and Lighting is duly qualified or licensed to do
business and is in good standing in the states in which it has facilities and
each other jurisdiction in which the nature of its business or the character of
its properties requires such qualification. The copies of the Certificate of
Incorporation and By-laws, as amended, of the Company and Lighting, which have
been delivered to Buyer, are complete and correct, and such instruments are in
full force and effect. The Company has no other subsidiary than Lighting.
(b) Capital Stock and Securities. The authorized capital stock of
----------------------------
the Company consists of Seven Hundred and Fifty Thousand (750,000) shares of
"Common Stock" (par value $.01) and Three Hundred and Fifty (350,000) shares of
"Preferred Stock" (par value $.01). On the date hereof and on the Closing Date,
Seven Hundred Twelve Thousand Five Hundred (712,500) shares of the Common Stock
are issued and outstanding and One Hundred and Fifty Thousand (150,000) shares
of the Preferred Stock are issued and outstanding, all of which are owned,
beneficially and of record, by the Selling Shareholders in the amounts set forth
on Schedule 2.2(b) attached hereto. Each share of Capital Stock of the Company
shall on the Closing Date be owned by the Selling Shareholders free and clear of
any and all liens, charges, claims, pledges, security interests, title
imperfections or other encumbrances of any kind ("Liens"). Upon transfer by the
Selling Shareholders to Buyer of the Certificates evidencing the Shares, the
Selling Shareholders will have transferred to Buyer good and valid title to the
Shares free and clear of all Liens, other than Liens which become applicable as
a result of any acts or
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<PAGE>
omissions of Buyer. The authorized capital stock of Four Star consists of One
Thousand (1,000) shares of common stock with a par value of one dollar ($1.00).
On the date hereof and on the Closing Date, One Thousand (1,000) shares of the
common stock of Four Star are issued and outstanding, all of which are owned,
beneficially and of record, by the Company free and clear of any and all Liens.
Each outstanding share of Capital Stock of the Company and Four Star is on the
date hereof, and shall on the Closing Date, be duly authorized, validly issued,
fully paid and nonassessable. Neither the Company nor Four Star has any
outstanding commitments to issue or sell any shares of its Capital Stock, or any
securities or obligations convertible into or exchangeable for, or giving any
person any right to subscribe for, or acquire from the Company or Four Star any
shares of its Capital Stock, and no securities or obligations evidencing any
such right are outstanding. Neither the Company nor Four Star has outstanding
any other debt or equity securities other than the Preferred Stock, Common Stock
and existing indebtedness, which, including the terms thereof, are fully
described in the disclosure schedule dated as of the date hereof prepared by the
Company and the Selling Shareholders and made a part hereof (the "Disclosure
Schedule").
(c) Authority Relative to Agreement. Each Selling Shareholder has
-------------------------------
the power and authority to execute and deliver this Agreement and to consummate
the transactions contemplated hereby. The execution and delivery by each
Selling Shareholder of this Agreement and the consummation by the Selling
Shareholders of the transactions contemplated hereby have been duly authorized
by all necessary action or proceeding. No other action or proceeding on the
part of any Selling Shareholder, or the Company or Lighting, is necessary, and
no vote or consent by the shareholders of the Company or Lighting is necessary,
to authorize the execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby. This Agreement has been duly executed
and delivered by each Selling Shareholder and constitutes a valid and binding
agreement of each Selling Shareholder, enforceable in accordance with its terms.
(d) Non-Contravention. The consummation of the transactions
-----------------
contemplated hereby will not violate any provision of the Company's or Four
Star's Certificate of Incorporation or By-Laws, or the charter documents of any
Selling shareholder, as applicable, or violate, or result with the giving of
notice or the lapse of time or both in a violation of, any material provision of
any mortgage, lien, lease, agreement, license, instrument, law, ordinance,
regulation, order, arbitration award, judgment or decree to which the Company,
Four Star, or any Selling Shareholder, or any of its or his properties or assets
(real, personal or mixed, tangible or intangible) are bound.
(e) Consents, etc. As of the Closing Date, the Company, Lighting and
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the Selling Shareholders shall have
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<PAGE>
obtained all licenses, permits, consents, authorizations, orders or approvals of
any governmental commission, board or regulatory body, or any other third party,
if any, necessary for the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby.
(f) Financial Statements. The Selling Shareholders have heretofore
--------------------
delivered to Buyer, or will deliver prior to Closing, the audited consolidated
financial statements of the Company and Lighting for the fiscal years ended
December 31, 1997 and 1996 and for the period from September 5, 1995 to December
31, 1995 (the "Audited Financial Statements") and the unaudited consolidated
financial statements of the Company and Lighting for the fiscal year ended
December 31, 1997 (the "December 97 Financial Statements;" and collectively with
the Audited Financial Statements, the "Financial Statements"). The consolidated
balance sheet included in the December 97 Financial Statements is referred to as
the "December Balance Sheet." Except as noted therein or as set forth in the
Disclosure Schedule, the Financial Statements have been prepared from the books
and records of the Company and Lighting, and present fairly in all material
respects the consolidated financial condition, results of operations, and cash
flows of the Company and Lighting as of the statement dates and for the periods
indicated in accordance with generally accepted accounting principles
consistently applied throughout the periods covered thereby, except, in the case
of the December 97 Financial Statements, footnotes are not included and such
statements are subject to year-end adjustments consistent with past practice.
(g) Government Authorizations and Compliance with Laws, etc.. Except
--------------------------------------------------------
as set forth in the Disclosure Schedule, the business of the Company and
Lighting has been operated in compliance with all laws, ordinances, regulations,
judgments, decrees, injunctions,rulings, awards and orders, of all governmental
entities, courts and arbitrators, domestic or foreign. Each of the Company and
Lighting has all permits, certificates, licenses, approvals and other
authorizations required in connection with the operation of its business.
Except as set forth in the Disclosure Schedule, no notice has been received by
the Company or Lighting and, to the best of the Company's and Selling
Shareholders' knowledge, no investigation or review is pending or threatened by
any governmental entity with respect to (i) any alleged violation by the Company
or Lighting of any law, ordinance, regulation, judgment, decree, injunction,
ruling, award, order, policy or guideline of any governmental entity, court or
arbitrator, domestic or foreign, or (ii) any alleged failure to have all
permits, certificates, licenses, approvals and other authorizations required in
connection with the operation of the business of the Company or Lighting.
-10-
<PAGE>
(h) Tax Matters. All federal, state, local and foreign tax returns
-----------
and tax reports required to be filed by or with respect to the Company or
Lighting have been duly filed. The Company has paid, caused to be paid, or made
adequate provision for payment of all taxes (including interest and penalties)
due or to become due from or with respect to the Company or Lighting in respect
of all periods through and including the Closing Date and neither the Company
nor Lighting will be liable for any tax as a result of operations on or before
the Closing Date or the transfers made hereby, except as shown on the Final Net
Asset Statement or as set forth in the Disclosure Schedule. No issues have been
raised, either orally or in writing (and are currently pending), by any foreign,
federal, state or local taxing authority in connection with any of the returns
or reports referred to in this Section 2.2(h). No waivers of statutes of
limitations as to any tax matters are currently in effect with respect to the
Company or Lighting. Except as set forth in the Disclosure Schedule, neither
the Company nor Lighting is a party to a tax sharing or similar agreement and
neither the Company nor Lighting has filed consolidated returns or combined
returns or reports which include the income, loss or assets of any entity other
than the Company and Lighting.
For the purpose of this Agreement, any federal, state, local or
foreign income, sales, use, transfer, payroll, unemployment, Social Security,
personal property, occupancy or other tax, levy, impost, fee, imposition,
assessment or similar charge, together with any related addition to tax,
interest or penalty thereon, is referred to as a "tax" or "taxes."
(i) Title to Properties; Absence of Liens. Each of the Company and
-------------------------------------
Lighting has good and marketable title to all of the properties and other assets
(real, personal and mixed, tangible and intangible) reflected in the December
31, 1997 Financial Statements or acquired after the date thereof (except for
properties and assets sold or otherwise disposed of since December 31, 1997 in
the ordinary course of business), free and clear of any and all Liens, except as
shown on the Disclosure Schedule. Except for those properties or assets
acquired since December 31, 1997, all properties and assets (real, personal and
mixed, tangible and intangible) used in the business of the Company and Lighting
are reflected in the Financial Statements in the manner and to the extent
required by generally accepted accounting principles.
(j) Material Agreements. The Disclosure Schedule lists every
-------------------
material agreement to which the Company or Lighting is a party or by which it or
any of its properties or assets (real, personal or mixed, tangible or
intangible) is bound which is to be performed in whole or in part after the
Closing Date. Solely for the purpose of this Section 2.2(j), the term "material
agreement" shall mean any single agreement or lease, including
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<PAGE>
agreements with respect to notes receivable and purchase orders issued in the
ordinary course of business, pursuant to which any party thereto is obligated
after the date hereof to make payments aggregating more than $25,000
individually. The Disclosure Schedule also indicates the aggregate amount of
all such contracts to the extent such aggregate exceeds $250,000 to any
individual vendor. There is no default, nor will any default occur hereafter,
as a result of the consummation of the transactions contemplated hereby or
otherwise, in any obligation to be performed by any party to any agreement to
which the Company or Lighting is a party or by which it or any of its properties
or assets (real, personal or mixed, tangible or intangible) is bound. Other
than this Agreement, there are no agreements or options to sell or lease any of
the properties or assets (real, personal or mixed, tangible or intangible) of
the Company or Lighting except in the ordinary course of its business.
(k) Litigation. Except as set forth in the Disclosure Statement:
----------
(i) there is no claim, action, suit or proceeding pending or threatened against
the Company or Lighting or any of their properties or assets (real, personal or
mixed, tangible or intangible) or which seeks to prohibit, restrict or delay
consummation of the transactions contemplated by this Agreement or any of the
conditions to consummation of the transactions contemplated by this Agreement,
nor is there any judgment, decree, injunctions, ruling, award or order of any
court, governmental department, commission, agency or instrumentality or
arbitrator outstanding against the Company, Lighting or any of their properties
or assets (real, personal or mixed, tangible or intangible); (ii) neither the
Company, Lighting nor any of their officers or employees is currently charged
with, or is currently under investigation with respect to, any violation of any
provision of any federal, state, local, foreign or other applicable law,
ordinance or regulation in respect of the business of the Company or Lighting;
and (iii) neither the Company nor Lighting is a party to and is not bound by any
judgment, decree, injunction, ruling, award or order of any court, governmental
department, commission, agency or instrumentality, arbitrator or any other
person.
(l) Employee Benefit Plans. The Disclosure Schedule contains a
----------------------
complete list of "Plans" consisting of each:
(i) "employee welfare benefit plan", as defined in Section
3(1) of the Employee Retirement Income Security Act of 1974
("ERISA"), to which the Company or Lighting (or any entity which
is a member of a "controlled group of corporations" with or is
under "common control" with the Company or Lighting as defined in
Section 414(b) or (c) of the Code ("Common Control Entity"))
contributes or is required to contribute, including each multi-
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<PAGE>
employer welfare plan ("Welfare Plan"), and sets forth the amount
of any liability of the Company or Lighting for payments more
than thirty days past due with respect to each Welfare Plan as of
the Closing Date;
(ii) "multi-employer pension plan," as defined in Section
3(37) of ERISA, to which the Company or Lighting (or any Common
Control Entity) has contributed or been obligated to contribute
at any time after September 25, 1980 ("Multi-employer Plan");
(iii) "employee pension benefit plan," as defined in
Section 3(2) of ERISA, (other than a Multi-employer Plan) to
which the Company or Lighting (or any Common Control Entity)
contributes or is required to contribute ("Pension Plan"); and
(iv) deferred compensation plan, bonus plan, stock option
plan, employee stock purchase plan and any other employee benefit
plan, agreement, arrangement or commitment, other than normal
payroll practices and policies concerning holidays, vacations and
salary continuation during short absences for illness or other
reasons, maintained by the Company or Lighting.
(m) Pension Plans. The funding method used in connection with each
-------------
Pension Plan which is subject to the minimum funding requirements of ERISA is in
accordance with ERISA and the Code and the actuarial assumptions used in
connection with funding of each such plan are reasonable. The assets of each
Pension Plan are sufficient to discharge all liabilities under such plan, on an
ongoing basis and on a termination basis, and there is no "accumulated funding
deficiency," as defined in Section 302(a)(2) of ERISA, with respect to any plan
year of any such plan. There are no unpaid contributions with respect to any
Pension Plan which are not accrued for on the financial statements of the
Company or Lighting (or any Common Control Entity) as of the Closing Date.
(i) Each Pension Plan and each related trust agreement,
annuity contract or other funding instrument is qualified and
tax-exempt under the provisions of Code Sections 401(a) (or
403(a) as appropriate) and 501(a).
(ii) Each Pension Plan and each related trust agreement,
annuity contract or other funding instrument complies currently,
and has complied at all times in the past, both as to form and in
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<PAGE>
operation, with the provisions of applicable Federal law,
including the Code and ERISA.
(iii) The Company and Lighting have paid all premiums (and
interest charges and penalties for late payment, if applicable)
due the Pension Benefit Guaranty Corporation ("PBGC") with
respect to each Pension Plan for each plan year thereof for which
such premiums are required. There has been no "reportable event"
(as defined in Section 4043(b) of ERISA and the PBGC regulations
under such Section) with respect to any Pension Plan. No
liability to the PBGC has been incurred by the Company, Lighting
or any Common Control Entity on account of the termination of any
Pension Plan. No filing has been made by the Company, Lighting
or any Common Control Entity with PBGC, and no proceeding has
been commenced by the PBGC, to terminate any Pension Plan.
Neither the Company, Lighting nor any Common Control Entity has,
at any time, (a) ceased operations at a facility so as to become
subject to the provisions of Section 4062(e) of ERISA, (b)
withdrawn as a substantial employer so as to become subject to
the provisions of Section 4063 of ERISA, or (c) ceased making
contributions on or before the Closing Date to any Pension Plan
subject to Section 4064(a) of ERISA to which the Company,
Lighting or any Common Control Entity made contributions during
the five years prior to the Closing Date.
(n) Multi-employer Plans. Neither the Company, Lighting nor any
--------------------
Common Control Entity has, at any time, withdrawn from a Multi-employer Plan in
a "complete withdrawal" or a "partial withdrawal" as defined in ERISA Sections
4203 and 4205, respectively.
(o) Prohibited Transactions. Neither the Company, Lighting nor, to
-----------------------
the knowledge of the Company, any plan fiduciary of any Welfare Plan or Pension
Plan has engaged in any transaction in violation of Section 406(a) or (b) of
ERISA or any "prohibited transaction," as defined in Section 4975(c)(1) of the
Code, for which no exemption exists under Section 4975(c)(2) or 4975(d) of the
Code.
(p) Copies of Relevant Plan Documents. True and complete copies of
---------------------------------
each of the following documents have been delivered by the Company to Buyer: (i)
each Welfare Plan, Multi-employer Plan and Pension Plan, related trust
agreements, annuity contracts or other funding instruments, (ii) each plan,
agreement, arrangement and commitment referred to in Sections 2.2(l) and (m),
and complete descriptions of any such plan which is not in writing, (iii) the
most recent determination
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<PAGE>
letter issued by the Internal Revenue Service with respect to each Pension Plan,
(iv) Annual Reports on Form 5500 Series required to be filed with any
governmental agency for each Welfare Plan, Multi-employer Plan and Pension Plan
for the two most recent plan years and (v) all actuarial reports prepared for
the last three years for each Pension Plan and Multi-employer Plan.
(q) Validity and Enforceability of Plans. Each Welfare Plan, Pension
------------------------------------
Plan, related trust agreement, annuity contract or other funding instrument and
each plan, agreement, arrangement and commitment referred to in Section 2.2(l)
and (m) is legally valid and binding and in full force and effect.
(r) Payments to Retirees. Except as described on the Disclosure
--------------------
Schedule, neither the Company, Lighting nor any Welfare Plan has any obligation
to make any payment to or with respect to any former or current employee of the
Company, Lighting, or any predecessor in interest thereof pursuant to any
retiree medical benefit or other Welfare Plan.
(s) Litigation Under Plans. Neither the Company, Lighting nor any
----------------------
Plan is a party to any litigation relating to, or seeking benefits under, any
Plan.
(t) Employment Agreements. Neither the Company nor Lighting is a
---------------------
party to any employment, severance or similar agreements, except as shown on the
Disclosure Schedule.
(u) Change in Control Provisions. Neither the Company nor Lighting
----------------------------
is a party to any agreement which contains any provision pursuant to which the
Company or Lighting will be obligated to make any payment as a result of the
transactions contemplated hereby, except as set forth on the Disclosure
Schedule.
(v) Labor and Employment Law Matters. There are no controversies
--------------------------------
pending, or, to the knowledge of the Selling Shareholders, threatened between
the Company or Lighting and any of their employees or officers, including
without limitation any strikes, work stoppages, work slowdowns, unfair labor
practice charges or complaints, grievances or arbitrations, or any other pending
or threatened charges, complaints, actions or proceedings with respect to any
aspect of employment, application for employment, or the termination of
employment, including without limitation any charges, complaints or actions
alleging employment discrimination, unlawful retaliation, breach of contract,
wrongful discharge, breach of a duty of good faith and fair dealing, defamation,
breach of privacy or any federal, state or local laws, ordinances or regulations
with respect to employment standards, wage and hours, payment of wages, safety
and health, immigration or labor practices. Neither the Company nor Lighting is
subject to any collective agreements, or any side letters or
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<PAGE>
memoranda of agreement pertaining thereto, other than shown on the Disclosure
Schedule. There are no pending labor negotiations with respect to the Company
or Lighting. No union or other labor organization is seeking to organize or be
recognized as a collective bargaining representative for any employee of the
Company or Lighting, and there are no representation proceedings or petitions
pending or threatened.
(w) Employees. The Disclosure Schedule contains a true and complete
---------
list of all employees of the Company and Lighting, pay levels and length of
service with the Company or Lighting. Except for the employment agreements
disclosed on the Disclosure Schedule, neither the Company nor Lighting has made
any legally enforceable commitment to any such employees with respect to the
duration of, or which restricts or limits the ability of the Company or Lighting
to terminate, such employee's employment. Neither the Company nor Lighting has
knowledge of any plans by any such employee to terminate employment with the
Company or Lighting. There are no pending claims for workers' compensation,
unemployment insurance or disability benefits under federal, state or local law.
(x) Absence of Certain Changes or Events. Except as set forth in the
------------------------------------
Disclosure Schedule, since December 31, 1997 there has not been (i) any material
change which has had a material adverse effect on the financial condition,
business or operations of the Company; (ii) any damage, destruction or other
loss with respect to property owned by the Company or Lighting, whether or not
covered by insurance, or any strike, work stoppage or slowdown or other labor
trouble involving the Company or Lighting; (iii) any direct or indirect
redemption, purchase or other acquisition by the Company or Lighting of any
shares of its capital stock; (iv) any declaration, setting aside or payment of
any dividend or distribution (whether in cash, capital stock or property) other
than shown in the Disclosure Statement; or (v) the entry by the Company or
Lighting into any commitment or transaction which is not in the ordinary course
of business; (vi) any change in the method of accounting used by the Company or
Lighting other than with prior written consent of Buyer or (vii) any increase in
the salaries or other compensation, or of any advances (excluding advances for
ordinary and necessary business expenses) or loan to, any of its employees or
any increase in, or any addition to, other benefits to which any of its
employees may be entitled, other than with the prior written consent of Buyer.
(y) Absence of Undisclosed Liabilities and Agreements. Except as
-------------------------------------------------
disclosed in the Disclosure Schedule or as specifically provided for or
disclosed in the Financial Statements and except for items not required to be
provided for or disclosed in accordance with generally accepted accounting
principles neither the Company nor Lighting (i) had, as of December 31, 1997,
any material debts, liabilities or obligations, whether accrued, absolute,
contingent or otherwise
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<PAGE>
and whether due or to become due (including, without limitation, any liabilities
resulting from the failure to comply with any law applicable to the Company or
Lighting, or to the conduct of its business), (ii) has not incurred, since
December 31, 1997, any such debts, liabilities or obligations other than in the
ordinary course of its business, or (iii) except in connection with the
transactions contemplated in this Agreement, has not, since December 31, 1997,
conducted its business otherwise than in the ordinary course.
(z) Insurance. The Company and Lighting have insurance policies in
---------
full force and effect which provide for coverages which are adequate for the
business of the Company and Lighting as to both amount and scope. The Company's
and Lighting's current insurance coverage is as described in the Disclosure
Schedule.
(aa) Payments. Neither the Company nor Lighting has directly or
--------
indirectly, paid or delivered any fees, commissions or other sums of money or
items of property however characterized to any finders, agents, customers,
government officials or other parties, in the United States or in any other
country, which in any manner are related to the business or operations of the
Company or Lighting, and which have been illegal under any federal, state or
local laws of the United States or any other country or territory having
jurisdiction over the Company or Lighting. Neither the Company nor Lighting has
participated, directly or indirectly, in any boycotts or similar practices.
(bb) Proprietary Rights. The proprietary rights listed in the
------------------
Disclosure Schedule are all those used in the business of the Company or
Lighting. The Company's and Lighting's use of such proprietary rights is not
infringing upon or otherwise violating the rights of any third party in or to
such proprietary rights, and no proceedings have been instituted against or
notices received by the Company or Lighting that are presently outstanding
alleging that the Company's or Lighting's use of such proprietary rights
infringes upon or otherwise violates any rights of a third party in or to such
proprietary rights.
(cc) Books of Account. The books of account of the Company and
----------------
Lighting adequately reflect all of their respective items of income and expense
and all of their assets, liabilities and accruals, in order to permit financial
statements to be prepared in accordance with generally accepted accounting
principles.
(dd) Purchase Commitments and Outstanding Bids. No outstanding
-----------------------------------------
purchase or outstanding lease commitment of the Company or Lighting presently is
in excess of the normal, ordinary and usual requirements of its business or
contains terms
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<PAGE>
and conditions more onerous than those usual and customary in the Company's or
Lighting's business.
(ee) Customers and Suppliers. The Disclosure Schedule contains a
-----------------------
complete and accurate list of (i) the 10 largest customers of the Company and
Lighting in terms of revenues during the Company's and Lighting's last fiscal
year, showing the approximate total sales by the Company or Lighting to each
such customer during such fiscal year; (ii) the 10 largest suppliers of the
Company and Lighting in terms of purchases during the Company's and Lighting's
last fiscal year, showing the approximate total purchases by the Company and
Lighting from each such supplier during such fiscal year. Since December 31,
1996, to the knowledge of the Selling Shareholders, there has been no material
adverse change in the business relationship of the Company or Lighting with any
customer or supplier named in the Disclosure Schedule or with any other material
customer or supplier.
(ff) Permits. The Disclosure Schedule contains a complete and
-------
accurate list of all permits held by the Company or Lighting or for which the
Company or Lighting has applied, which are the only permits necessary for or
used by the Company or Lighting to carry on its business as presently conducted.
(gg) Compliance with Legislation Regulating Environmental Quality.
------------------------------------------------------------
There are no toxic wastes or other toxic or hazardous substances or materials
being used, stored or otherwise held on, under or about any portion of the
facilities occupied by the Company or Lighting except as set forth in the
Disclosure Schedule. Each facility occupied by the Company or Lighting has been
maintained, used and operated by the Company and Lighting in compliance with all
federal, state and local environmental protection, occupational, health and
safety or similar laws, ordinances, restrictions, licenses and regulations
("Environmental Law"). Neither the Company nor Four Star has received written
notice of, or, to the knowledge of the Selling Shareholders, is the subject of,
any actions, claims, investigations, demands, or notices by any person alleging
liability under or non-compliance with any Environmental Law.
(hh) Transactions with Certain Persons. Except as set forth in the
---------------------------------
Disclosure Schedule, neither any officer, director, shareholder or employee of
the Company or Lighting nor any member of any such person's immediate family is
presently a party to any material transaction with the Company or Lighting
relating to the Company's or Lighting's business, including without limitation,
any contract, agreement or other arrangement (i) providing for the furnishing of
material services by, (ii) providing for the rental of material real or personal
property from, or (iii) otherwise requiring material payments to (other than for
services as officers, directors or employees of the Company or Lighting) any
such person or corporation, partnership,
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<PAGE>
trust or other entity in which any such person has a substantial interest as a
shareholder, officer, director, trustee or partner.
(ii) Availability of Documents. The Company and Lighting have made
-------------------------
available to Buyer copies of all documents, including, without limitation, all
agreements, contracts, commitments, insurance policies, leases, plans,
instruments, undertakings, authorizations, permits, licenses, patents,
trademarks, tradenames, service marks, copyrights and applications therefor
listed in the Disclosure Schedule hereto or referred to herein. All such
copies are true and complete and include all amendments, supplements and
modifications thereto or waivers currently in effect thereunder.
(kk) Accounts. The accounts receivable of Lighting reflected in the
--------
Financial Statements were incurred in the ordinary course of business and
reflect bonafide sales or lease transactions.
(ll) Disclosure. Neither this Agreement nor the Disclosure Statement
----------
contains or will contain any untrue statement of a material fact or omits or
will omit to state a material fact necessary to make the statements made, in
light of the circumstances under which they were or are made, not misleading.
ARTICLE III
-----------
ADDITIONAL COVENANTS AND AGREEMENTS
3.1 Conduct of the Company and Lighting. During the period from the
-----------------------------------
date hereof to the Closing Date:
(a) Operation in the Ordinary Course of Business. Except as
--------------------------------------------
contemplated by this Agreement, the Selling Shareholders shall cause the Company
and Lighting to conduct their business operations according to the ordinary and
usual course of business and will use their best efforts, subject to the
foregoing, (i) to preserve intact their business organization; (ii) to maintain
their books and records in accordance with past practices; (iii) to keep
available the services of their officers and employees; and (iv) to maintain
satisfactory relationships with licensors, suppliers, distributors, customers
and others having business relationships with them. The Selling Shareholders
shall confer with Buyer or its representatives to keep it informed with respect
to operational matters of a material nature and to report the general status of
the ongoing operations of the business of the Company and Lighting.
(b) Forbearances by the Company. Except as contemplated by this
---------------------------
Agreement, the Selling Shareholders will not
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<PAGE>
permit the Company or Lighting, after the date hereof, without the prior written
consent of Buyer, to:
(i) incur any new debt, liability or obligation, direct
or indirect, whether accrued, absolute, contingent or otherwise,
other than in the ordinary course of its business;
(ii) assume, guarantee, endorse or otherwise become
responsible for the obligations of, or make any loans or advances
to, any other individual, firm or corporation;
(iii) make any direct or indirect redemption, purchase or
other acquisition of any shares of its Capital Stock or declare,
set aside or pay any dividend or distribution (whether in cash,
capital stock or property);
(iv) mortgage, pledge or otherwise encumber any of its
properties or assets;
(v) sell, lease, transfer or dispose of any of its
properties or assets, waive or release any rights of material
value, or cancel, compromise, release or assign any indebtedness
owed to it or any claims held by it except in the ordinary and
usual course of business;
(vi) except in the ordinary course of business make any
investment or expenditure of a capital nature either by purchase
of stock or securities, contributions to capital, property
transfers or otherwise, or by the purchase of any property or
assets of any other individual, firm or corporation;
(vii) enter into any transaction other than in the ordinary
course of business;
(viii) except in the ordinary course of business enter into
or terminate any agreement, plan or lease, or make any change in
any of its agreements, plans or leases;
(ix) permit any insurance policy naming it as a
beneficiary or a loss payable payee to be canceled or terminated
or any of the coverage thereunder to lapse;
(x) enter into, terminate or make any changes in any
collective bargaining agreements;
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<PAGE>
(xi) increase in any manner the compensation, remuneration
or fringe benefits of any of its officers or employees or pay or
agree to pay any pension, retirement allowance, or other benefit
not required by any existing employee benefit plan to any such
officers or employees, commit itself to any employment agreement
or employee benefit plan with or for the benefit of any of its
officers or employees or any other person or alter, amend,
terminate in whole or in part, or curtail or permanently
discontinue distributions to, any pension plan or any other
employee benefit plan;
(xii) issue any shares of capital stock or issue any
warrants, options, calls, subscriptions, or other agreements or
commitments obligating it to issue shares of capital stock;
(xiii) make any distributions, directly or indirectly to the
Selling Shareholders;
(xiv) make any unscheduled repayment of bank or similar
debt, except for advances under or repayments of its revolving
loan with Bank of America other than in the ordinary course of
business; or
(xv) enter into an agreement to do any of the things
described in clauses (i) through (xiv) of this Section 3.1 (b).
3.2 Regulatory Consents, Authorizations, etc. Each party hereto will
-----------------------------------------
use its best efforts to obtain all consents, authorizations, orders and
approvals of, and make all filings and registrations with, any governmental
commission, board or other regulatory body or any other person required for or
in connection with the consummation of the transactions contemplated hereby and
will cooperate fully with the other parties in assisting them to obtain such
approvals and to make such filings and registrations. No party hereto will take
or omit to take any action for the purpose of delaying, impairing or impeding
the receipt of any required consent, authorization, order or approval or the
making of any required filing or registration.
3.3 Investigation By Buyer. Prior to the Closing Date, upon
----------------------
reasonable prior notice, Selling Shareholders agree to permit Buyer
Representatives and their authorized representatives, as specifically approved
by Sellers' Representative in writing, or cause them to be permitted, to have
full access to the premises, books and records, officers, employees, and
independent accountants (including the independent accountant's workpapers,
subject to the execution of a customary
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<PAGE>
workpaper access letter) of the Company and Lighting at reasonable hours, and
prior to the Closing Date the officers of the Company and Lighting shall furnish
Buyer with such financial and operating data and other information with respect
to the business, properties and assets of the Company and Lighting as Buyer
shall from time to time reasonably request. No investigation by Buyer heretofore
or hereafter made shall affect the representations and warranties of the Selling
Shareholders contained herein. Prior to the Closing Date, Buyer shall not use
any information relating to the Company and Lighting obtained by it from the
Selling Shareholders, the Company and Lighting pursuant to this Section 3.3,
which is not otherwise publicly available, for any purpose unrelated to the
consummation of the transactions contemplated hereby, and prior to the Closing
Date or in the event this Agreement is terminated, Buyer will not disclose any
such information to any person, unless and until such time as such information
is otherwise publicly available or as Buyer is advised by counsel that such
information is required by law to be disclosed. In the event this Agreement is
terminated, Buyer agrees to keep confidential all information it has obtained
concerning the Company and Lighting under the terms of this Agreement for a two-
year period and to return promptly, if so requested by the Selling Shareholders,
every document furnished to Buyer by the Selling Shareholders, the Company and
Lighting, in connection with the transactions contemplated hereby, and any
copies thereof Buyer may have made, and to use its best efforts to cause its
representatives to whom such documents were furnished promptly to return such
documents, and any copies thereof any of them may have made.
3.4 Expenses. Each party agrees to pay all of its own fees, costs
--------
and expenses (including, without limitation, those of advisors, financial
advisors, lawyers or accountants) incurred by it in connection with the
negotiation, preparation, execution, delivery and performance of this Agreement
and the transactions contemplated hereby. The Selling Shareholders shall be
solely responsible and shall hold Buyer harmless from any claim for any broker's
success or similar fee payable to Harris Williams & Co. with respect to the
transaction contemplated by this Agreement.
3.5 Negotiations With Others. During the period from the date of
------------------------
this Agreement to the Closing Date, or until this Agreement is terminated in
accordance with the provisions of Article V, if it is so terminated, the
Selling Shareholders and/or their agents shall not, directly or indirectly,
without the prior written consent of Buyer, solicit or initiate discussions or
engage in negotiations with, or provide any information other than publicly
available information to, or authorize any financial advisor or other person to
solicit or initiate discussions or engage in negotiations with, or provide any
information to, any corporation, partnership, person or other entity or group
(other than Buyer) concerning any possible proposal regarding a sale of shares
of capital stock of, or a
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<PAGE>
merger, consolidation, sale of assets or other similar transaction involving the
Company or Four Star, and the Selling Shareholders and/or their agents will
promptly notify Buyer if any such discussions or negotiations are sought to be
initiated with, any such information is requested from, or any such proposal or
possible proposal is received by the Company, Lighting, the Selling Shareholders
and/or their agents.
3.6 Publicity. Until the Closing Date, each party hereto agrees not
---------
to issue any press release or any public statement with respect to the
transactions contemplated hereby, except as may be required by law, in which
event such press release or public statement shall be made only after
consultation with the Company or Buyer, as the case may be; then and thereafter
no such public announcement, press release or any public statement (outside of
ordinary course marketing efforts and government filings) shall be made without
the consent, which shall not be unreasonably withheld, of the Selling
Shareholders (in the case of releases or statements issued or made by Buyer) or
Buyer (in the case of releases or statements issued or made by the Selling
Shareholders).
3.7 General Release. In consideration of the consummation of the
---------------
Sale and receipt by the Shareholders' Representative of each Selling
Shareholder's due portion of the Purchase Price, on the Closing Date each
Selling Shareholder does remise, release and discharge the Company and Four
Star, its successors and assigns, its directors, officers and shareholders, from
any and all Claims (as defined in Section 6.2(a)) through the Closing Date,
including all Claims related to the Selling Shareholder's relationship with the
Company or Four Star as an officer, director or shareholder, but excluding all
Claims related to the Selling Shareholder's relationship with the Company or
Four Star as an employee.
3.8 PRG Litigation. Prior to and after the Closing Date, the Selling
--------------
Shareholders shall, and shall cause the Shareholders' Representative to,
vigorously defend the PRG Litigation (as defined in Section 4.1(d)) and shall
not settle such litigation with any negative effect on the ownership of the
Shares or resulting liability to Buyer, the Company or Four Star, without prior
consent of Buyer.
3.9 Additional Agreements. Subject to the terms and conditions
---------------------
herein provided, each of the parties hereto agrees to use its best efforts to
take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations, and
as may be requested by Buyer's lenders, or such lenders' counsel, to consummate
and make effective the transactions contemplated hereby as soon as reasonably
practicable hereinafter.
-23-
<PAGE>
ARTICLE IV
----------
CONDITIONS TO THE CLOSING
4.1 Conditions to the Closing Relating to Buyer. Consummation of the
-------------------------------------------
transaction contemplated hereby is subject to the fulfillment to the reasonable
satisfaction of Buyer, prior to or at the Closing Date, of each of the following
conditions:
(a) Regulatory Consents, Authorizations, etc.. All consents,
-----------------------------------------
authorizations, orders and approvals of, and filings and registrations with any
governmental commission, board or other regulatory body or any other person
which are required, prior to the Closing Date, for or in connection with the
execution and delivery of this Agreement and the consummation by each party
hereto and the Company of the transactions contemplated hereby, or which are
required in order to avoid violation or termination of any agreement listed in
the Disclosure Schedule, shall have been obtained or made.
(b) Representations and Warranties. The representations and
------------------------------
warranties of the Selling Shareholders contained in this Agreement shall be true
and correct in all material respects at the date hereof and as of the Closing
Date, except for changes contemplated by this Agreement, with the same force and
effect as if made at and as of the Closing Date; and the Selling Shareholders
and the Company shall have performed or complied in all material aspects with
all agreements and covenants required by this Agreement to be performed or
complied with by them at or prior to the Closing Date.
(c) Litigation; Other Events. Except for the PRG Litigation, no
------------------------
action, suit or proceeding shall have been instituted by any person which seeks
to prohibit, restrict or delay consummation of the transactions contemplated
under this Agreement (the "Sale") or any of the conditions to the Sale, or seeks
damages as a result of the consummation of the Sale.
(d) PRG Litigation. The litigation commenced by Production Resource
--------------
Group, L.L.C. against the Selling Shareholders and the Shareholders'
Representative (the "PRG Litigation") shall not be in a posture that, in the
reasonable opinion of Buyer and Buyers' counsel, may be expected to, (i)
prohibit Buyer's ownership of the Shares or operation of all or a material
portion of the Company's and Four Star's business or assets, or compel Buyer to
dispose of or hold separate all or a material portion of the Company's and Four
Star's business or assets after consummation of the Sale, (ii) render Buyer
unable to purchase the Shares or to consummate the Sale, (iii) impose material
limitations on the ability of Buyer effectively to exercise full rights of
ownership of the Shares or the Company's and Four Star's business or assets, or
(iv) result in any material liability of Buyer, the Company or Four Star (giving
-24-
<PAGE>
effect to the escrow provided hereunder) after consummation of the Sale.
(e) Existing Indebtedness. The holders of any outstanding
---------------------
indebtedness for borrowed money of the Company and/or Four Star, including, but
not limited to, Bank of America and the holders of the Subordinated Notes, shall
have released and discharged the same and the Liens securing the same, including
any collateral assignment of Four Star's rental contracts and any guaranty of
Four Star's obligations by the Company, and shall have delivered (i) the
original promissory notes evidencing such indebtedness marked canceled and (ii)
the appropriate Uniform Commercial Code termination statements in recordable
form and otherwise in form acceptable to Buyer's counsel, against payment by the
Company and/or Four Star of the outstanding balance of such indebtedness.
(f) Employment. Darren DeVerna shall have executed and delivered an
----------
employment and non-competition agreement with Buyer or Four Star in form and
substance satisfactory to Buyer.
(g) Keyman Life Insurance. Buyer shall have obtained a commitment
---------------------
from a reputable insurance carrier, reasonably acceptable to Buyer's lenders,
for keyman life insurance on Darren DeVerna in an amount of not less than
$2,000,000.
(h) Escrow Agreement. The Selling Shareholders and the Escrow Agent
----------------
shall have executed and delivered to Buyer an escrow agreement, substantially in
the form of Exhibit A hereto (the "Escrow Agreement").
(i) Resignations. Buyer shall have received the resignations,
------------
effective as of the Closing Date, of all directors of the Company and Four Star
and those officers of the Company and Four Star which Buyer shall request prior
to the Closing Date.
(j) Closing Certificate. The Shareholders' Representative shall have
-------------------
delivered to Buyer a certificate as to the satisfaction of the conditions set
forth in Section 4.1(b) and (c), dated as of the Closing Date.
(k) Stock Certificates. Buyer shall have received (A) the stock
------------------
certificates evidencing the Shares, (B) the stock certificates evidencing all of
the Preferred Stock, and (C) a stock certificate evidencing all of the Common
Stock of Four Star.
(l) Opinion of Counsel. Buyer shall have received the opinion, dated
------------------
the Closing Date, of Simpson Thacher
-25-
<PAGE>
& Bartlett, special counsel for the Selling Shareholders, in the form attached
hereto as Exhibit B.
(m) Material Adverse Event. The business, operations, assets,
----------------------
financial condition or properties of the Company and Lighting shall not have
been materially adversely affected in any way as a result of any event or
occurrence.
(n) Deliveries. Buyer shall have received all documents required to
----------
be delivered to Buyer by the Selling Shareholders at the Closing as provided
herein, including, but not limited to, any documents requested by Buyer's
lenders, or such lenders' counsel. All such documents shall be in form and
substance satisfactory to Buyer and its counsel.
4.2 Conditions to the Closing Related to the Selling Shareholders.
-------------------------------------------------------------
Consummation of the transaction contemplated hereby is subject to the
fulfillment to the reasonable satisfaction of the Selling Shareholders, prior to
or at the Closing Date, of each of the following conditions:
(a) Representations and Warranties. The representations and
------------------------------
warranties of Buyer contained in this Agreement shall be true and correct in all
material respects at the date hereof and as of the Closing Date, except for
changes contemplated by this Agreement, with the same force and effect as if
made at and as of the Closing Date; and Buyer shall have performed or complied
in all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it at or prior to the Closing
Date.
(b) No Injunctions. No injunctions, waiting periods or restraining
--------------
order shall be in effect prohibiting the Sale and all required approvals shall
have been obtained.
(c) Payment. Buyer shall have paid the Purchase Price.
-------
(d) Escrow Agreement. Buyer shall have executed and delivered
----------------
the Escrow Agreement.
(e) Opinion of Counsel. The Shareholders' Representative shall have
------------------
received the opinion, dated the Closing Date, of Whitman Breed Abbott & Morgan
LLP, counsel for Buyer, in the form attached hereto as Exhibit C.
ARTICLE V
---------
TERMINATION
5.1 Termination. This Agreement may be terminated:
-----------
-26-
<PAGE>
(i) By mutual action of the Selling Shareholders and
Buyer;
(ii) By either the Selling Shareholders or Buyer, if there
has been a material breach hereof on the part of the other party
hereto, provided such party fails to cure such breach within five
(5) days following notification thereof;
(iii) By the Selling Shareholders, if any of the conditions
set forth in Section 4.2 shall not have been complied with or
performed and such noncompliance or nonperformance shall not have
been cured or eliminated (or by its nature cannot be cured or
eliminated) by Buyer on or before April 30, 1998; or
(iv) By Buyer, if any of the conditions set forth in
Section 4.1 shall not have been complied with or performed and
such noncompliance or nonperformance shall not have been cured or
eliminated (or by its nature cannot be cured or eliminated) by
Selling Shareholders on or before April 30, 1998.
5.2 Effects of Termination. In the event of the termination of this
----------------------
Agreement, this Agreement shall thereafter become void and have no effect, and
no party hereto shall have any liability to the other parties hereto or their
respective stockholders or directors or officers in respect thereof, except for
the obligations of the parties hereto set forth in the last two sentences of
Section 3.3 and in Section 3.4, and except that nothing herein will relieve any
party from liability for any breach of this Agreement prior to such termination.
ARTICLE VI
----------
INDEMNITY
6.1 Survival of Representations and Warranties Indemnity. The
----------------------------------------------------
representations, warranties and covenants by the Selling Shareholders shall
survive the Closing until fifteen (15) months following the Closing Date, except
that the representations and warranties set forth in Section 2.2(h) shall
survive the Closing until thirty six (36) months following the Closing Date,
and, further, except as provided in Section 6.2(b). Any Claim against the
Selling Shareholders of which notice has been given by Buyer pursuant to Section
6.3 at or prior to the expiration of the related period shall continue to be
subject to indemnification provided for in Section 6.2(a) notwithstanding the
expiration of such period.
-27-
<PAGE>
6.2 Indemnity.
---------
(a) General Indemnification by Selling Shareholders. The
-----------------------------------------------
Selling Shareholders agree to indemnify, jointly and severally, Buyer, the
Company and/or Four Star, and their respective officers, directors, employees
and agents (individually, a "Buyer Indemnified Party" and collectively, the
"Buyer Indemnified Parties"), for any and all claims, demands, losses, costs,
charges, expenses, obligations, liabilities, actions, suits, damages, judgments
and deficiencies, including interest and penalties, reasonable counsels' fees
and all reasonable amounts paid in settlement of any claim, action, or suit
(collectively referred to as "Claims") which may be sustained, suffered or
incurred by a Buyer Indemnified Party and arising out of or by reason of any
breach of any representation, warranty, covenant or undertaking made by the
Selling Shareholders pursuant to this Agreement; provided, however, that except
-------- -------
in the case of fraud the Selling Shareholders shall not have any obligation for
any of the foregoing until the Buyer Indemnified Parties have suffered an
aggregate of all Claims in excess of $250,000, after which point the Selling
Shareholders will be obligated only to indemnify the Buyer Indemnified Parties
from such further Claims in excess of $250,000, and provided further, that the
-------- -------
Selling Shareholders shall not be obligated to indemnify the Buyer Indemnified
Parties in excess of $1,000,000.
(b) Special Indemnification by Selling Shareholders. The
-----------------------------------------------
foregoing notwithstanding, the Selling Shareholders agree to indemnify, jointly
and severally, without any limitations as to the time and the amount of the
Claims, the Buyer Indemnified Parties for any and all Claims which may be
sustained, suffered or incurred by a Buyer Indemnified Party and arising out of
or by reason of (i) the PRG Litigation and (ii) any failure by Four Star to
comply with the terms of or obligations under the collective bargaining
agreement with Local No. 33 of the International Alliance of Theatrical Stage
Employees, including any and all obligations with respect to Multi-employer
Plans, for all periods ending on or prior to the Closing Date (the "Local 33
Agreement").
(c) Special Indemnification by Buyer. Buyer agrees to
---------------------------------
indemnify the Selling Shareholders, and their respective officers, directors,
employees and agents (individually, a "Seller Indemnified Party"), for any and
all Claims which may be sustained, suffered or incurred by a Seller Indemnified
Party and arising out of or by reason of any failure by Buyer and/or Four Star
to comply with the terms of or obligations under the Local 33 Agreement, for all
periods beginning after the Closing Date.
6.3 Cooperation. The term "Claims" as used in this Article is not
-----------
limited to matters asserted by third parties against a Buyer Indemnified Party
or a Seller Indemnified Party
-28-
<PAGE>
(each an "Indemnified Party"), but does not include any losses or expenses
resulting from the management and operation of the Company after the Closing.
Claims does not include any damages to the extent the Company receives insurance
reimbursement therefor. In the event a Claim is asserted by any third party
against an Indemnified Party, it shall notify the other party (the "Indemnifying
Party") of such Claim by giving to the Indemnifying Party prompt written notice,
and shall give the Indemnifying Party and its counsel access to any and all such
files, records and other documents as may be necessary to enable the
Indemnifying Party to investigate or participate in the defense against such
Claim (but at the cost and expense of the Indemnifying Party) and the
Indemnified Party shall otherwise cooperate in connection therewith and shall
not unreasonably assume a position contrary to that of the Indemnifying Party
with respect to all such third party Claims.
ARTICLE VII
-----------
MISCELLANEOUS
7.1 Notices. Any notice or other communication required or
-------
permitted hereunder shall be sufficiently given if delivered personally or sent
by telex or telecopy or by registered or certified mail, postage prepaid,
addressed, in the case of the Selling Shareholders, the Company or Lighting, to
it care of Stonebridge Partners, Westchester Financial Center, 50 Main Street,
White Plains, New York 10606, Attention: David A. Zackrison, Telecopy No.:
(914) 682-0834, with copies to Richard C. Weisberg, Esq., 425 Lexington Avenue,
New York, New York 10017, Telecopy No.: (212) 455-2502, or in the case of the
Buyer to Matthews Studio Equipment Group, 3111 North Kenwood Street, Burbank,
California 91505, Attention: Carlos D. DeMattos, Telecopy No.: (818) 525-5216,
with copies to Francis W. Costello, Esq., Whitman Breed Abbott & Morgan LLP, 633
West Fifth Street, Los Angeles, California 90071, Telecopy No.: (213) 896-2450,
with copies to such other person or address as shall be furnished in writing by
any party to the other parties prior to the giving of the applicable notice or
communication, and such notice or communication shall be deemed to have been
given ten (10) days after mailed, or in the case of personal delivery or
telecopy, upon receipt of transmission.
7.2 Financial Advisors and Brokers. Except as disclosed in the
------------------------------
Disclosure Schedule, the Selling Shareholders represent and warrant, jointly and
severally, that no investment banker, broker or finder is entitled to any
financial advisory, brokerage or finder's fee or other similar payment from the
Company based on agreements, arrangements or undertakings made by it or any of
its respective directors, officers or employees in connection with the
transactions contemplated hereby. Buyer shall be solely responsible for the
fees of any investment banker, broker or finder employed by it.
-29-
<PAGE>
Buyer represents and warrants that no investment banker, broker or
finder is entitled to any financial advisory, brokerage or finder's fee or other
similar payment from the Company based on agreements, arrangements or
undertakings made by Buyer or any of its respective directors, officers or
employees in connection with the transactions contemplated hereby.
7.3 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.4 Disclosure Schedule. The Disclosure Schedule is an integral part
-------------------
of this Agreement.
7.5 Headings. The headings herein are for convenience only, do not
--------
constitute a part of this Agreement, and shall not be deemed to limit or affect
any of the provisions hereof.
7.6 Exhibits. The attached Exhibits are an integral part of this
--------
Agreement.
7.7 Miscellaneous. This Agreement (including the Exhibits hereto and
-------------
the Disclosure Schedule) (a) constitutes the entire agreement and understanding
and supersedes all prior agreements and understandings, both written and oral,
among the parties hereto with respect to the subject matter hereof, (b) is not
intended to confer upon any other person any rights or remedies hereunder, (c)
shall not be assigned, by operation of law or otherwise, except that Buyer may
at its sole option and without the consent of the Selling Shareholders assign
this Agreement and its rights and obligations hereunder to an a wholly owned
subsidiary of Buyer, and (d) shall be governed in all respects, including
validity, interpretation and effect, by the internal laws of the State of New
York.
7.8 Arbitration. For matters other than those provided for in
-----------
Section 1.6(c), any party shall have the right to submit any dispute,
controversy or claim arising out of this Agreement to neutral binding
arbitration in New York, New York. The matter shall be heard and settled by one
arbitrator, in accordance with the Commercial Arbitration Rules of the American
Arbitration Association (the "Rules"). The arbitrator shall be appointed in
accordance with the Rules. Any party requesting arbitration shall give notice
to the other party stating the issue to be resolved. The arbitrator shall be
bound by the terms and conditions of this Agreement and shall have no power, in
rendering the award, to alter or depart from any express provision of this
Agreement. The decision of the arbitrator shall be based solely upon written
submissions to the arbitrator and shall be final and binding on both parties,
with each party or parties bearing its own costs and expenses with respect to
the dispute. Each party hereby consents to the entry of a judgment
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<PAGE>
in any court of competent jurisdiction enforcing any arbitration decision made
in accordance herewith.
7.9 Power of Attorney. Each of the undersigned Selling Shareholders
-----------------
hereby irrevocably makes, constitutes and appoints Michael S. Bruno, Jr. and/or
David A. Zackrison as his/their or her attorney-in-fact with full power to act,
as Shareholders' Representative, in his/their or her place and stead to
compromise any claim or take any other action, including without limitation
pursuant to Section 6.3, with respect to this Agreement. Each Selling
Shareholder agrees that payment by Buyer to a Shareholders' Representative shall
satisfy Buyer's obligation to each Selling Shareholder.
-31-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written:
FOUR STAR HOLDING, INC.
Attest_______________________ By /s/ Bill L. Aishman
----------------------------------
President
FOUR STAR LIGHTING, INC.
Attest_______________________ By /s/ Bill L. Aishman
----------------------------------
President
FOUR STAR ASSOCIATES, L.P.,
a Delaware Limited Partnership
By: Stonebridge Partners Management,
L.P., General Partner
Attest_______________________ By /s/ Michael S. Bruno
---------------------------------
Its General Partner
---------------------------------
STONEBRIDGE PARTNERS
EQUITY FUND, L.P.
a Delaware Limited Partnership
By: Stonebridge Partners Management,
L.P., General Partner
Attest_______________________ By /s/ Michael S. Bruno
---------------------------------
Its General Partner
---------------------------------
/s/ Bill L. Aishman
_________________________________________
BILL L. AISHMAN
/s/ Anthony P. Cancellieri
_________________________________________
ANTHONY P. CANCELLIERI
/s/ Darren DeVerna
_________________________________________
DARREN DEVERNA
<PAGE>
MATTHEWS STUDIO EQUIPMENT GROUP
Attest /s/ Christian H. Mittweg By /s/ Carlos D. DeMattos
------------------------ ---------------------------
Chairman of the Board and
Chief Executive Officer
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement is made and entered into this 1st day of
April, 1998, by and between Four Star Lighting, Inc. (the "Company" or "Four
Star"), a New York corporation, and Mr. Darren DeVerna, an individual
("Executive").
W I T N E S S E T H:
WHEREAS, the Company is engaged in the business of renting lighting
equipment to theatrical production companies in the United States;
WHEREAS, the Executive has superior and unique skill, talent and
ability to promote the business and affairs of the Company;
WHEREAS, the Company desires to be assured of the association and
services of Executive for the Company's operations; and
WHEREAS, Executive is willing and desires to be employed by the
Company, and the Company is willing to employ Executive, upon the terms,
covenants and conditions hereinafter set forth:
NOW, THEREFORE, in consideration of the mutual terms, covenants and
conditions hereinafter set forth, the parties hereto do hereby agree as follows:
1. Employment. The Company hereby employs Executive as the
----------
President of the Company, reporting to the Company's Chief Executive Officer and
Chairman of the Board in conjunction with the Company's Board of Directors.
2. Location and Travel. Executive shall perform his duties for the
-------------------
Company from the Company's facilities located in Mount Vernon, New York.
Executive shall travel as is required or appropriate to carry out his duties.
3. Term. The period of employment hereunder shall be from April 1,
----
1998 through March 31, 2001 subject to extension or termination as hereinafter
provided (the "Initial Period of Employment"). As of the last day of the
Initial Period of Employment, and each anniversary thereafter, the period of
employment shall be automatically extended by one additional year (the "Extended
Period of Employment"; the Initial Period of Employment and, if so extended, the
Extended Period of Employment, together the "Period of Employment") unless at
least three months prior to such date, the Company shall deliver to the
Executive or the Executive shall deliver to the Company written notice that the
Period of Employment will not be extended, in which case the Period of
Employment will end at its then scheduled expiration date and shall not be
further extended except by written agreement of the Company and the Executive.
<PAGE>
4. Compensation. (a) For all services rendered by Executive under
------------
this Agreement, the Company shall pay Executive a base salary of One Hundred
Fifty Thousand Dollars ($150,000) per annum ("Base Salary"), payable weekly in
equal installments. The Base Salary may be increased from time to time at the
discretion of the Company's Chief Executive Officer, provided that such increase
shall not in any event exceed ten percent (10%) for any twelve-month period.
(b) In addition to the Base Salary, Executive shall be paid such
bonus as is provided for in Section 5 below.
(c) Executive shall be reimbursed for all reasonable "out-of-pocket"
business expenses for business travel (other than travel related expenses
covered by the car allowance described below) and business entertainment
incurred in connection with the performance of his duties under this Agreement.
Such reimbursement shall be upon periodic presentation to the Company of valid
receipts and other appropriate documentation and upon approval by the Company of
such receipts and documentation; provided, however, any individual expense
greater than One Thousand Dollars ($1,000.00) shall not be incurred without
prior approval of the Chief Executive Officer.
(d) Executive shall be entitled to a car allowance of Eight Hundred
Dollars ($800.00) per month (which includes automobile leasing, insurance and
mileage expenses).
(e) Executive shall also be entitled to such other employee benefits
(such as vacation, and medical, disability and life insurance coverage) as are
available pursuant to the Company's general employment practices.
5. Performance Bonus. (a) In addition to the Base Salary, the
-----------------
Company shall pay Executive a bonus which shall be determined according to the
formula set forth in this Section 5:
(i) For the period commencing on April 1, 1998 and ending on September 30,
1998, the bonus shall be an amount equal to (i) twenty percent (20%)
of Base Salary paid to Executive during such (April 1 through
September 30, 1998) period if "EBIT" (as defined below) for the
Company for such period exceeds Two Million Two Hundred Thousand
Dollars ($2,200,000), or (ii) thirty percent (30%) of Base Salary if
"EBIT" for the Company for such period exceeds Two Million Four
Hundred Fifty Thousand Dollars ($2,450,000) or (iii) forty percent
(40%) of Base Salary if "EBIT" for the Company for such period exceeds
Two Million Seven Hundred Thousand Dollars ($2,700,000).
(ii) For the fiscal year (i.e. twelve month period) ending on September 30,
1999 the bonus shall be an amount equal to (i) twenty percent (20%) of
Base Salary for such fiscal year if "EBIT" for the Company for such
fiscal year exceeds Four Million Four Hundred Thousand Dollars
($4,400,000), or (ii) thirty percent (30%) of Base Salary if "EBIT"
for the Company for such fiscal year exceeds Four Million Nine Hundred
Thousand Dollars ($4,900,000) or (iii)
-2-
<PAGE>
forty percent (40%) of Base Salary if "EBIT" for the Company for such
fiscal year exceeds Five Million Four Hundred Thousand Dollars
($5,400,000). Thereafter, the bonus for each fiscal year shall be in
an amount to be determined by the Chief Executive Officer of the
Company in conjunction with the Company's Board of Directors.
(b) Notwithstanding anything contained herein to the contrary,
Executive shall only be entitled to receive a bonus if he remains employed by
the Company, and continues to render services on a full-time basis to the
Company, through the last day of the third month of the calendar year following
the fiscal year in which the bonus is earned. Payment of any bonus earned by
Executive shall be made by no later than the last day of the sixth month of the
calendar year following the fiscal year in which the bonus is earned. No bonus
shall be payable to Executive in respect of any fiscal period unless the "EBIT"
levels specified above shall have been reached for that fiscal period.
(c) In determining the Company's earnings before interest and taxes
("EBIT") for a relevant period, "EBIT" shall be calculated in accordance with
generally accepted accounting principles (including the recognition of
appropriate acquisition related accounting entries, e.g., goodwill
amortization), provided that "EBIT" shall be calculated on the basis of the
results of the same lines of business the Company was engaged in prior to the
date of this Agreement. The attached schedule shows the calculation of EBIT for
the first 12 months based on the Company's forecast.
6. Stock Options. As soon as practicable, Executive shall be issued
-------------
options to purchase One Hundred Fifty Thousand (150,000) shares of the common
stock of Matthews Studio Equipment Group ("Group") under Group's 1994 Stock
Option Plan (for employees)(the "ESOP"). The options shall vest over a five
year period in five equal installments (30,000 per installment) on the first,
second, third, fourth and fifth anniversary of the date of this Agreement, and
shall have an exercise price equal to the fair market value (as defined in the
ESOP) of Group's common stock on the date of this Agreement. Such options shall
have such other terms specified by the ESOP as may be required for such options
to qualify, to the extent permitted under the Internal Revenue Code, as amended,
as "incentive stock options" and shall otherwise be in compliance with the
ESOP's generally applicable requirements. Group shall execute this Agreement to
evidence its agreement and obligations under this Section 6.
7. Scope of Duties. (a) Executive shall have responsibility for
---------------
directing the Company's business efforts, including (1) promotion of all Company
products and resources, (2) achieving other business goals of the Company, (3)
achievement of profit plan and other such operational matters relating to the
operations of the Company, and (4) staffing, organization and other such matters
relating to the operations and structure of the Company. Such duties shall be
exercised subject to the control and supervision of the Chief Executive Officer
and the Board of Directors of the Company.
(b) Executive shall have such other duties as may be assigned to him
from time to time by the Company's Chief Executive Officer and the Board of
Directors
-3-
<PAGE>
commensurate with his experience and responsibilities in the position for which
he is employed pursuant to Section 1 above. Such duties shall be exercised
subject to the control and supervision of the Chief Executive Officer and the
Board of Directors of the Company.
(c) Executive hereby agrees to devote his full time, abilities and
energy to the faithful performance of duties assigned to him and to the
promotion and forwarding of the business affairs of the Company. Executive also
agrees not to divert any business opportunities from the Company to himself or
to any other person or business entity.
(d) Executive shall not, during the term of this Agreement, be
engaged in any other employment or business activity without the prior consent
of the Chief Executive Officer and the Board of Directors of the Company;
provided, however, that this restriction shall not be construed as preventing
Executive from investing his personal assets in passive investments in business
activities that are not in competition with the Company or any other entity
affiliated with the Company.
(e) Executive hereby agrees to promote and develop all business
opportunities that come to his attention relating to current or anticipated
future business of the Company or any affiliated entity, in general, in a manner
consistent with the best interests of the Company, or its affiliates, as
applicable, and with his duties under this Agreement.
8. Other Duties of Executive During and After the Period of
--------------------------------------------------------
Employment. (a) Both during and after the Period of Employment, other than in
- ----------
the performance of his duties hereunder, Executive hereby agrees not to
disclose, divulge or otherwise disseminate either during the term of his
employment by the Company or at any time thereafter, to any person, firm or
corporation, any information concerning the business affairs, the trade secrets,
the customer lists or similar proprietary information of the Company or of any
affiliated entity. Any technique, method, process or technology used by the
Company or an affiliated entity in the manufacture, sale or distribution of any
product or in the providing of any service shall be considered a "trade secret"
for purposes of this Agreement.
(b) Both during and after the Period of Employment, Executive hereby
agrees that all patents, patent applications, know-how, documents, reports,
plans, proposals, marketing and sales plans, client lists, client files and
materials made by him, the Company, or any affiliated entity are the property of
the Company or such affiliated entity and shall not be used by him in any way
adverse to the Company's or the affiliated entity's interests either during the
Period of Employment or at any time thereafter. Executive shall not deliver,
reproduce or in any way allow such documents or things to be delivered or used
by any third party without the prior written direction or consent of the
Company's Chief Executive Officer or the Board of Directors. Upon termination
of this Agreement, Executive shall surrender to the Company all items in his
possession which are the property of the Company. Executive hereby assigns to
the Company any rights which he may have in any such trade secret or proprietary
information.
(c) During the Period of Employment and for a period of two (2) years
thereafter, Executive shall not at any time:
-4-
<PAGE>
(i) directly or indirectly anywhere in the United States (the "Territory")
own, manage, operate, control, or be connected in any manner, directly
or indirectly, with the ownership, management, operation or control of
(including, without limitation, through (i) serving as an employee,
consultant, partner, officer, independent contractor of, (ii) having
any substantial investment in or (iii) directly or indirectly
contributing services or information to) any person or entity that is
engaged in a business competitive with, or similar to, any line of
business conducted by the Company, Matthews Studio Equipment Group or
any other affiliated entity in the Territory as of the end of the
Period of Employment; and
(ii) directly or indirectly solicit any of the customers of the Company or
any affiliated entity with the purpose of obtaining them as customers
for a business competitive with, or similar to, the Company's business
as a whole or any of the Company's lines of business.
9. Term and Termination. (a) This Agreement shall automatically
--------------------
terminate on the death of Executive.
(b) The Company shall have the right to terminate Executive's
employment "with cause" at any time without prior notice, if any of the
following, which shall be deemed "cause" by the Company, shall occur:
1. Any willful breach of duty or habitual neglect of duty;
2. Subject to applicable law, including, but not limited to, the Family
and Medical Leave Act of 1993, the continued incapacity of Executive
for a period of more than sixty (60) consecutive days;
3. Any material breach of Executive's obligations to the Company under
this Agreement and, to the extent such breach can be cured, the
failure of Executive to cure such breach within ten (10) days
following receipt of written notice from the Company, if such breach
can be cured by the payment of money, or a period of thirty (30) days
following receipt of written notice from the Company, if such breach
can be cured by other than the payment of money;
4. Any material acts or events which result in Executive being prevented
from fully performing his responsibilities to the Company in good
faith, such as (i) drug or alcohol abuse, or (ii) acts of dishonesty,
gross carelessness or gross misconduct; or
5. Executive shall be convicted of a felony criminal offense or any other
criminal offense involving Executive's lack of honesty or Executive's
moral turpitude.
-5-
<PAGE>
(c) Executive may terminate this Agreement if there shall be a
breach by the Company of a material obligation hereunder and, to the extent such
breach can be cured, such breach remains uncured for a period of ten (10) days
following receipt by the Company's Board of Directors of written notice thereof
from Executive, if such breach can be cured by the payment of money, or a period
of thirty (30) days following receipt by the Company's Board of Directors of
written notice thereof from Executive, if such breach can be cured by other than
the payment of money.
(d) In the event of termination of Executive's employment "with
cause", as of the date of termination, Executive shall be entitled to no further
compensation or employee benefits, except for those salary amounts and employee
benefits accrued and unpaid as of the date of termination and except for any
bonus due under Section 5 above. In the event of termination of Executive's
employment "without cause", Executive shall be entitled to receive the Base
Salary and employee benefits for the period during which he is prohibited from
competing with the Company as provided in Section 8.(c).
10. Insurance. Executive hereby acknowledges and agrees that the
---------
Company or the Group shall have the right to procure insurance up to an amount
of Ten Million Dollars ($10,000,000), to insure against the risk of death or
disability of Executive during the term of this Agreement. If the Company or
the Group so elects to purchase such additional insurance, such additional
insurance shall (i) name the Company as the beneficiary of ninety percent (90%)
of the policy amount and (ii) name Executive's heirs or distributees as the
beneficiaries of ten percent (10%) of the policy amount, in the event of
Executive's death or disability. Executive hereby agrees to cooperate with the
Company or the Group in connection with the procurement and maintenance of such
insurance.
11. Injunctive Relief. The Company and Executive hereby acknowledge
-----------------
and agree that any default under Section 8 above will cause irreparable damage
to the Company in an amount difficult to ascertain. Accordingly, in addition to
any other relief to which the Company may be entitled, the Company shall be
entitled to such injunctive relief as may be ordered by any court of competent
jurisdiction including, but not limited to, an injunction restraining any
violation of Section 8 above and without the proof of actual damages.
12. Arbitration. (a) Except as provided in this Agreement, any
-----------
dispute, controversy or claim arising out of or relating to this Agreement or
breach thereof, shall be settled by binding arbitration heard by one arbitrator,
in accordance with, at the election of Executive, either the Commercial
Arbitration Rules of the American Arbitration Association or the Rules of the
Federal Mediation Service (the "Rules"). The parties hereto agree that the
venue of such arbitration shall be New York City, New York. The party intending
to arbitrate shall serve a written notice of intention to commence arbitration
on the other party. The arbitrator shall be appointed in accordance with the
Rules.
(b) The arbitrator shall be bound by the terms and conditions of this
Agreement and shall have no power, in rendering the award, to alter or depart
from any express provision of this Agreement, and his failure to observe this
limitation shall constitute grounds for vacating the award. Any award of the
arbitrator shall be final and binding upon
-6-
<PAGE>
the parties and judgment may be entered in any court of competent jurisdiction,
including, without limitation, the courts of the State of New York or any
Federal court in New York or any court of competent jurisdiction in the United
States. The award and judgment thereon shall include interest at the legal rate
from the date that the sum awarded to the prevailing party was originally due
and payable.
(c) All provisional remedies shall be the exclusive jurisdiction of
the courts. The parties may seek and obtain provisional remedies prior to or
contemporaneously with arbitration.
(d) If any legal action or dispute arises under this Agreement,
arises by reason of any asserted breach of it, or arises between the parties and
is related in any way to the subject matter of the Agreement, the prevailing
party shall be entitled to recover all costs and expenses, including reasonable
attorneys' fees, arbitration costs, investigative costs, reasonable accounting
fees and charges for experts. Attorneys' fees and expenses incurred in
enforcing any judgment are recoverable as a separate item and shall be severable
from other provisions of this Agreement, shall survive any judgment and shall
not be merged into such judgment.
(e) Except as otherwise provided in this Agreement, each of the
parties consents and submits to the exclusive jurisdiction and venue of the
State of New York for the adjudication of any dispute between the parties
pertaining to this Agreement or the alleged breach of any provision hereof.
13. Severability. Nothing contained herein shall be construed to
------------
require the commission of any act contrary to law. Should there be any conflict
between any provision hereof and any present or future statute, law, ordinance,
regulation, or other pronouncement having the force of law, the latter shall
prevail, but the provision of this Agreement affected thereby shall be curtailed
and limited only to the extent necessary to bring it within the requirements of
the law, and the remaining provisions of this Agreement shall remain in full
force and effect.
14. Governing Law. This Agreement is made under and shall be
-------------
construed pursuant to the laws of the State of New York.
15. Counterparts. This Agreement may be executed in counterparts and
------------
all documents so executed shall constitute one agreement, binding on all of the
parties hereto, notwithstanding that all of the parties did not sign the
original or the same counterparts.
16. Entire Agreement. This Agreement constitutes the entire
----------------
agreement and understanding of the parties with respect to the subject matter
hereof and supersedes all prior oral or written agreements, arrangements, and
understandings with respect thereto. No representation, promise, inducement,
statement or intention has been made by any party hereto that is not embodied
herein, and no party shall be bound by or liable for any alleged representation,
promise, inducement, or statement not so set forth herein.
-7-
<PAGE>
17. Modification. This Agreement may be modified, amended,
------------
superseded, or canceled, and any of the terms, covenants, representations,
warranties or conditions hereof may be waived, only by a written instrument
executed by the parties hereto.
18. Waiver. The waiver by either of the parties, express or implied,
------
of any right under this Agreement or any failure to perform under this Agreement
by the other party, shall not constitute or be deemed as a waiver of any other
right under this Agreement or of any other failure to perform under this
Agreement by the other party, whether of a similar or dissimilar nature.
19. Cumulative Remedies. Each and all of the several rights and
-------------------
remedies provided in this Agreement, or by law or in equity, shall be
cumulative, and no one of them shall be exclusive of any other right or remedy,
and the exercise of any one or such rights or remedies shall not be deemed a
waiver of, or an election to exercise, any other such right or remedy.
20. Headings. The section and other headings contained in this
--------
Agreement are for reference purposes only and shall not in any way affect the
meaning and interpretation of this Agreement.
21. Notices. All notices, requests, demands and other
-------
communications required or permitted hereunder shall be in writing and shall be
deemed to have been given immediately when delivered by hand or by confirmed
facsimile transmission, or three (3) days after being mailed, certified mail
with postage prepaid, to:
(a) if to Executive: Darren DeVerna
378 Packman Avenue
Fleetwood, NY 10552
(b) if to the Company: Four Star Lighting, Inc.
30 Warren Place
P.O. Box 350
Mount Vernon, New York 10550
Attention: Mr. Carlos D. DeMattos,
Chief Executive Officer
with copy to:
Matthews Studio Equipment Group
3111 North Kenwood Street
Burbank, CA 91505
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first set forth above.
"Executive" /s/ Darren DeVerna
______________________________________
DARREN DEVERNA
"Company" FOUR STAR LIGHTING, INC.
By: /s/ Carlos D. DeMattos
----------------------------------
Name: Carlos D. DeMattos
Title: Chief Executive Officer
By its signature below, Matthews Studio Equipment Group, a California
corporation, agrees to and acknowledges the obligation to issue the options to
purchase 150,000 shares of its common stock described in Section 6 above. The
individual signing below on behalf of Matthews Studio Equipment Group represents
and warrants to Executive that he has the requisite power and authorization to
bind Matthews Studio Equipment Group.
MATTHEWS STUDIO EQUIPMENT GROUP
By: /s/ Carlos D. DeMattos
-------------------------
Name: Carlos D. DeMattos
Title: Chairman of the Board,
Chief Executive Officer
-9-
<PAGE>
EXHIBIT 2
Execution Copy
================================================================================
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of April 1, 1998
Among
MATTHEWS STUDIO EQUIPMENT GROUP,
MATTHEWS STUDIO EQUIPMENT, INC.,
HOLLYWOOD RENTAL CO., INC.,
MATTHEWS STUDIO ELECTRONICS, INC.,
MATTHEWS ACCEPTANCE CORPORATION,
DUKE CITY VIDEO, INC.,
HDI HOLDINGS, INC.,
FOUR STAR LIGHTING, INC.,
THE GUARANTORS NAMED HEREIN,
THE LENDERS NAMED HEREIN,
and
THE CHASE MANHATTAN BANK, AS AGENT
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
I. DEFINITIONS..................................................................................... 1
SECTION 1.01. Certain Defined Terms.......................................................... 1
SECTION 1.02. Accounting Terms............................................................... 29
II. THE LOANS....................................................................................... 30
SECTION 2.01. Term Loan Commitments and Revolving Credit
Commitments.................................................................... 30
SECTION 2.02. Loans.......................................................................... 31
SECTION 2.03. Notice of Loans................................................................ 33
SECTION 2.04. Notes; Repayment of Loans...................................................... 33
SECTION 2.05. Interest on Loans.............................................................. 35
SECTION 2.06. Fees........................................................................... 36
SECTION 2.07. Termination and Reduction of Revolving Credit
Commitments.................................................................... 36
SECTION 2.08. Interest on Overdue Amounts; Alternate Rate of
Interest....................................................................... 37
SECTION 2.09. Prepayment of Loans............................................................ 38
SECTION 2.10. Reserve Requirements; Change in Circumstances.................................. 42
SECTION 2.11. Change in Legality............................................................. 44
SECTION 2.12. Indemnity...................................................................... 45
SECTION 2.13. Pro Rata Treatment............................................................. 46
SECTION 2.14. Sharing of Setoffs............................................................. 48
SECTION 2.15. Taxes.......................................................................... 49
SECTION 2.16. Payments and Computations...................................................... 51
SECTION 2.17. Issuance of Letters of Credit.................................................. 53
SECTION 2.18. Payment of Letters of Credit; Reimbursement.................................... 53
SECTION 2.19. Agent's Actions with respect to Letters of Credit.............................. 55
SECTION 2.20. Letter of Credit Fees.......................................................... 55
III. COLLATERAL SECURITY............................................................................. 56
SECTION 3.01. Security Documents............................................................. 56
SECTION 3.02. Filing and Recording........................................................... 56
IV. REPRESENTATIONS AND WARRANTIES.................................................................. 57
SECTION 4.01. Organization, Legal Existence.................................................. 57
SECTION 4.02. Authorization.................................................................. 57
SECTION 4.03. Governmental Approvals......................................................... 57
SECTION 4.04. Binding Effect................................................................. 58
SECTION 4.05. Material Adverse Change........................................................ 58
SECTION 4.06. Litigation; Compliance with Laws; etc.......................................... 58
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SECTION 4.07. Financial Statements........................................................... 58
SECTION 4.08. Federal Reserve Regulations.................................................... 59
SECTION 4.09. Taxes.......................................................................... 60
SECTION 4.10. Employee Benefit Plans......................................................... 60
SECTION 4.11. No Material Misstatements...................................................... 62
SECTION 4.12. Investment Company Act; Public Utility Holding
Company Act.................................................................... 62
SECTION 4.13. Security Interest.............................................................. 62
SECTION 4.14. Use of Proceeds................................................................ 62
SECTION 4.15. Subsidiaries................................................................... 63
SECTION 4.16. Title to Properties; Possession Under Leases;
Trademarks..................................................................... 63
SECTION 4.17. Solvency....................................................................... 64
SECTION 4.18. Permits, etc................................................................... 64
SECTION 4.19. Compliance with Environmental Laws............................................. 65
SECTION 4.20. No Change in Credit Criteria or Collection Policies............................ 65
SECTION 4.21. Four Star Acquisition.......................................................... 65
SECTION 4.22. Year 2000...................................................................... 66
V. CONDITIONS OF CREDIT EVENTS..................................................................... 66
SECTION 5.01. All Credit Events.............................................................. 66
SECTION 5.02. First Borrowing................................................................ 67
VI. AFFIRMATIVE COVENANTS........................................................................... 72
SECTION 6.01. Legal Existence................................................................ 72
SECTION 6.02. Businesses and Properties...................................................... 72
SECTION 6.03. Insurance...................................................................... 73
SECTION 6.04. Taxes.......................................................................... 73
SECTION 6.05. Financial Statements, Reports, etc............................................. 74
SECTION 6.06. Litigation and Other Notices................................................... 77
SECTION 6.07. ERISA.......................................................................... 78
SECTION 6.08. Maintaining Records; Access to Properties and
Inspections; Right to Audit; Appraisals........................................ 79
SECTION 6.09. Use of Proceeds................................................................ 79
SECTION 6.10. Fiscal Year-End................................................................ 79
SECTION 6.11. Further Assurances............................................................. 80
SECTION 6.12. Additional Grantors and Guarantors............................................. 80
SECTION 6.13. Environmental Laws............................................................. 80
SECTION 6.14. Pay Obligations to Lenders and Perform Other
Covenants...................................................................... 82
SECTION 6.15. Maintain Operating Accounts.................................................... 82
SECTION 6.16. Warehousemen's and Landlord's Liens............................................ 82
SECTION 6.17. Life Insurance................................................................. 82
</TABLE>
ii
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<TABLE>
<S> <C>
SECTION 6.18. Collateral Subject to Certificate of Title..................................... 83
SECTION 6.19. Year 2000...................................................................... 83
VII. NEGATIVE COVENANTS.............................................................................. 83
SECTION 7.01. Liens.......................................................................... 83
SECTION 7.02. Sale and Lease-Back Transactions............................................... 85
SECTION 7.03. Indebtedness................................................................... 85
SECTION 7.04. Dividends, Distributions and Payments.......................................... 85
SECTION 7.05. Consolidations, Mergers and Sales of Assets.................................... 86
SECTION 7.06. Investments.................................................................... 86
SECTION 7.07. Capital Expenditures........................................................... 87
SECTION 7.08. Net Worth...................................................................... 87
SECTION 7.09. Debt Service Coverage Ratio.................................................... 88
SECTION 7.10. Rental Obligations............................................................. 88
SECTION 7.11. Interest Coverage Ratio........................................................ 88
SECTION 7.12. Leverage Ratio................................................................. 88
SECTION 7.13. EBITDA......................................................................... 88
SECTION 7.14. Business....................................................................... 89
SECTION 7.15. Sales of Receivables........................................................... 89
SECTION 7.16. Use of Proceeds................................................................ 89
SECTION 7.17. ERISA.......................................................................... 89
SECTION 7.18. Accounting Changes; Fiscal Year................................................ 89
SECTION 7.19. Prepayment or Modification of Indebtedness;
Modification of Charter Documents.............................................. 90
SECTION 7.20. Transactions with Affiliates................................................... 90
SECTION 7.21. Consulting Fees................................................................ 91
SECTION 7.22. Negative Pledges, Etc.......................................................... 91
VIII. EVENTS OF DEFAULT............................................................................... 91
IX. AGENT........................................................................................... 95
X. MANAGEMENT, COLLECTION AND STATUS OF RECEIVABLES AND
OTHER COLLATERAL................................................................................ 99
SECTION 10.01. Collection of Receivables; Management of Collateral............................ 99
SECTION 10.02. Receivables Documentation...................................................... 102
SECTION 10.03. Status of Receivables and Other Collateral..................................... 102
SECTION 10.04. Monthly Statement of Account................................................... 103
SECTION 10.05. Collateral Custodian........................................................... 103
XI. GUARANTEES...................................................................................... 104
</TABLE>
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<S> <C>
XII. MISCELLANEOUS................................................................................... 105
SECTION 12.01. Notices........................................................................ 105
SECTION 12.02. Survival of Agreement.......................................................... 106
SECTION 12.03. Successors and Assigns; Participations......................................... 106
SECTION 12.04. Expenses; Indemnity............................................................ 109
SECTION 12.05. Applicable Law................................................................. 111
SECTION 12.06. Right of Setoff................................................................ 111
SECTION 12.07. Payments on Business Days...................................................... 111
SECTION 12.08. Waivers; Amendments............................................................ 112
SECTION 12.09. Severability................................................................... 113
SECTION 12.10. Entire Agreement; Waiver of Jury Trial, etc.................................... 113
SECTION 12.11. Confidentiality................................................................ 114
SECTION 12.12. Submission to Jurisdiction..................................................... 114
SECTION 12.13. Counterparts; Facsimile Signature.............................................. 115
SECTION 12.14. Headings....................................................................... 115
XIII. CONFIRMATION OF SECURITY DOCUMENTS.............................................................. 115
</TABLE>
iv
<PAGE>
EXHIBITS
EXHIBIT A Form of Term Note
EXHIBIT B Form of Amended and Restated Revolving Credit Note
EXHIBIT C Form of Opinion of Counsel
EXHIBIT D Form of Amended and Restated Security Agreement
EXHIBIT E Form of Assignment and Acceptance
EXHIBIT F Form of Amended and Restated Security Agreement - Patents
and Trademarks
EXHIBIT G Form of Assignment of Life Insurance
EXHIBIT H Form of Amended and Restated Pledge Agreement
EXHIBIT I Form of Certificate of Delivery and Acceptance
EXHIBIT J Form of MAC Lease
EXHIBIT K Form of MSE Lease
SCHEDULES
SCHEDULE 2.01(a) Term Loan Commitments
SCHEDULE 2.01(b) Revolving Credit Commitments
SCHEDULE 2.02 Domestic Lending Offices
SCHEDULE 2.03 Eurodollar Lending Offices
SCHEDULE 4.01 Qualified Jurisdictions
SCHEDULE 4.02 Violation of Agreements Due to Credit Agreement
SCHEDULE 4.05 Material Adverse Change
SCHEDULE 4.06(a) Litigation
SCHEDULE 4.06(b) Compliance with Laws
SCHEDULE 4.07(d) GAAP Accounting
SCHEDULE 4.09 Taxes
SCHEDULE 4.10 Employee Benefit Plans
SCHEDULE 4.15 Subsidiaries
SCHEDULE 4.19 Environmental Laws
SCHEDULE 6.05(g) Inventory Designations
SCHEDULE 6.05(h) Capital Expenditures for Rental Assets
SCHEDULE 6.05(k) Borrowing Base Certificate
SCHEDULE 6.13 Environmental Matters
SCHEDULE 7.01(a) Existing Liens
SCHEDULE 7.01(b) UCC Filings to be Amended or Released
SCHEDULE 7.03 Existing Indebtedness
SCHEDULE 7.20 Transactions with Affiliates
SCHEDULE 8.01 Existing Breaches under other Agreements
v
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT dated as of April 1, 1998, among
Matthews Studio Equipment Group, a California corporation ("Parent"),
------
Matthews Studio Equipment, Inc., a California corporation ("MSEI"),
----
Hollywood Rental Co., Inc., a California corporation ("HRCI"), Matthews
----
Studio Electronics, Inc., a California corporation ("MSE"), Matthews
---
Acceptance Corporation, a California corporation ("MAC"), Duke City Video,
---
Inc., a New Mexico corporation ("Duke"), HDI Holdings, Inc., a Kentucky
----
corporation ("HDI"), Four Star Lighting, Inc., a New York corporation
---
("Four Star", and collectively with Parent, MSEI, HRCI, MSE, MAC, Duke and
-----------
HDI, each a "Borrower" and collectively, the "Borrowers"), the Guarantors
-------- ---------
named herein, the lenders named in Schedules 2.01(a) and 2.01(b) annexed
----------------- -------
hereto (collectively, the "Lenders"), and THE CHASE MANHATTAN BANK, as
-------
agent for the Lenders (in such capacity, the "Agent").
-----
The Borrowers have applied to the Lenders for Loans (such term and all
other capitalized terms used in this paragraph having the respective meanings
ascribed to such terms above or hereinafter) up to an aggregate principal amount
of $80,000,000 in the form of (a) a Term Loan to the Borrowers in an aggregate
principal amount not in excess of $16,000,000 outstanding and (b) Revolving
Credit Loans to the Borrowers at any time and from time to time prior to the
Revolving Credit Termination Date in an aggregate principal amount not in excess
of $64,000,000 at any time outstanding. The proceeds of the Term Loan and, in
part, the Revolving Credit Loans shall be used to finance the acquisition of
Four Star Holding, Inc., a Delaware corporation ("Four Star Holding") (including
-----------------
fees and expenses) pursuant to the Acquisition Agreement. The proceeds of the
Revolving Credit Loans shall also be used (i) for the repayment of the
Subordinated Note owed by the Borrowers, (ii) for general working capital
purposes, (iii) to finance the repayment of certain Capitalized Lease
Obligations, (iv) for the financing of Permitted Acquisitions within the limits
permitted under this Agreement, and (v) to finance Capital Expenditures within
the limits permitted under this Agreement. The Grantors will provide Collateral
in accordance with the provisions of this Agreement and the Security Documents.
The Lenders are severally, and not jointly, willing to extend such Loans to the
Borrowers subject to the terms and conditions hereinafter set forth.
Accordingly, the Borrowers, the Lenders and the Agent hereby agree as follows:
I. DEFINITIONS
SECTION 1.01. Certain Defined Terms. For purposes hereof, the
---------------------
following terms shall have the meanings specified below:
"Acquisition Agreement" shall mean the Sale Agreement dated as of
---------------------
March 20, 1998 among Four Star Holding, Four Star, Four Star Associates, L.P.,
1
<PAGE>
Stonebridge Partners Equity Fund, L.P., Bill L. Aishman, Anthony P. Cancellieri,
Darren DeVerna and Parent.
"Acquisition Documents" shall mean the Acquisition Agreement and all
---------------------
agreements, documents and instruments executed and delivered pursuant thereto or
in connection therewith, in each case as in effect on the Closing Date.
"Adjusted LIBO Rate" shall mean, with respect to any Eurodollar Loan
------------------
for any Interest Period, an interest rate per annum (rounded upwards, if
necessary, to the next 1/16 of 1%) equal to the product of (i) the LIBO Rate in
effect for such Interest Period and (ii) Statutory Reserves. For purposes
hereof, "Statutory Reserves" shall mean a fraction (expressed as a decimal), the
------------------
numerator of which is the number one and the denominator of which is the number
one minus the aggregate of the maximum reserve percentages (including, without
limitation, any marginal, special, emergency, or supplemental reserves)
expressed as a decimal established by the Board and any other banking authority
to which any Lender is subject with respect to the Adjusted LIBO Rate for
Eurocurrency Liabilities (as defined in Regulation D). Such reserve percentages
shall include, without limitation, those imposed under Regulation D. Eurodollar
Loans shall be deemed to constitute Eurocurrency Liabilities and as such shall
be deemed to be subject to such reserve requirements without benefit of or
credit for proration, exceptions or offsets which may be available from time to
time to any Lender under Regulation D. Statutory Reserves shall be adjusted
automatically on and as of the effective date of any change in any reserve
percentage.
"Affiliate" of any person shall mean any other person which, directly
---------
or indirectly, controls or is controlled by or is under common control with such
person and, without limiting the generality of the foregoing, includes (i) any
person which beneficially owns or holds 5% or more of any class of voting
securities of such person or 5% or more of the equity interest in such person,
(ii) any person of which such person beneficially owns or holds 5% or more of
any class of voting securities or in which such person beneficially owns or
holds 5% or more of the equity interest in such person and (iii) any director,
officer or employee of such person. For the purposes of this definition, the
term "control" (including, with correlative meanings, the terms "controlled by"
and "under common control with"), as used with respect to any person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such person, whether through the
ownership of voting securities or by contract or otherwise.
"Agent" shall have the meaning assigned to such term in the preamble
-----
to this Agreement.
"Alternate Base Loan" shall mean a Loan based on the Alternate Base
-------------------
Rate in accordance with Article II hereof.
2
<PAGE>
"Alternate Base Rate" shall mean, for any day, a rate per annum
-------------------
(rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greatest of
(a) the Prime Rate in effect on such day, (b) the Base CD Rate in effect on such
day plus 1%, and (c) the Federal Funds Effective Rate in effect on such day plus
1/2 of 1%. "Prime Rate" shall mean the rate of interest per annum publicly
----------
announced from time to time by the Agent at its principal office in New York
City as its prime rate in effect at such time. "Base CD Rate" shall mean the sum
------------
of (a) the product of (i) the Three-Month Secondary CD Rate and (ii) Statutory
Reserves and (b) the Assessment Rate. "Three-Month Secondary CD Rate" shall
-----------------------------
mean, for any day, the secondary market rate for three-month certificates of
deposit reported as being in effect on such day (or, if such day shall not be a
Business Day, the next preceding Business Day) by the Board through the public
information telephone line of the Federal Reserve Bank of New York (which rate
will, under the current practices of the Board, be published in Federal Reserve
Statistical Release H.15(519) during the week following such day), or, if such
rate shall not be so reported on such day or such next preceding Business Day,
the average of the secondary market quotations for three-month certificates of
deposit of major money center banks in New York City received at approximately
10:00 a.m., New York City time, on such day (or, if such day shall not be a
Business Day, on the next preceding Business Day) by the Agent from three New
York City negotiable certificate of deposit dealers of recognized standing
selected by it. "Statutory Reserves" shall mean a fraction (expressed as a
------------------
decimal), the numerator of which is the number one and the denominator of which
is the number one minus the maximum reserve percentage (including any marginal,
special, emergency or supplemental reserves) expressed as a decimal, established
by the Board and any other banking authority to which the Agent is subject with
respect to the Base CD Rate, for new negotiable nonpersonal time deposits in
dollars of over $100,000 with maturities approximately equal to three months.
Statutory Reserves shall be adjusted automatically on and as of the effective
date of any change in any reserve percentage. "Assessment Rate" shall mean the
---------------
annual assessment rate (net of refunds and rounded upwards, if necessary, to the
next 1/16 of 1%) estimated by the Agent (in good faith, but in no event in
excess of statutory or regulatory maximums) to be payable by the Agent to the
Federal Deposit Insurance Corporation (or any successor) for insurance by such
Corporation (or such successor) of time deposits made in dollars at the Agent's
domestic offices during the current calendar year. "Federal Funds Effective
-----------------------
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 on the next succeeding 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 the quotations for the day of
such transactions received by the Agent from three Federal funds brokers of
recognized standing selected by it. If for any reason the Agent shall have
determined (which determination shall be conclusive absent manifest error) that
it is unable to ascertain the Base CD Rate or the Federal Funds Effective Rate,
or both, for any reason, including, the inability or failure of the Agent to
obtain sufficient quotations in accordance with the terms hereof, the Alternate
3
<PAGE>
Base Rate shall be determined without regard to clause (b) or (c), or both, of
the first sentence of this definition, as appropriate, until the circumstances
giving rise to such inability no longer exist. Any change in the Alternate Base
Rate due to a change in the Prime Rate, the Three-Month Secondary CD Rate or the
Federal Funds Effective Rate shall be effective on the effective date of such
change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds
Effective Rate, respectively.
"Applicable Lending Office" shall mean, with respect to each Lender,
-------------------------
such Lender's Domestic Lending Office in the case of an Alternate Base Loan and
such Lender's Eurodollar Lending Office in the case of a Eurodollar Loan.
"Assignment and Acceptance" shall mean an assignment and acceptance
-------------------------
entered into by a Lender and an assignee and accepted by the Agent, in
substantially the form of Exhibit E annexed hereto.
---------
"Assignment of Life Insurance" shall mean collectively, the
----------------------------
Assignments of Life Insurance, between the Borrowers and the Agent, for the
benefit of the Lenders, substantially in the form of Exhibit G annexed hereto,
---------
as amended, modified or supplemented from time to time.
"Availability" shall mean at any time (i) the lesser at such time of
------------
(x) the Total Revolving Credit Commitment and (y) the Borrowing Base, minus (ii)
the sum at such time of (w) the unpaid principal balance of, and accrued
interest and fees on, the Revolving Credit Loans, (x) the Letter of Credit
Usage, (y) the unpaid principal balance of Capitalized Lease Obligations and (z)
such reserves for other Indebtedness as the Agent may establish from time to
time in its reasonable discretion.
"Board" shall mean the Board of Governors of the Federal Reserve
-----
System of the United States.
"Borrowers" shall have the meaning assigned to such term in the
---------
preamble to this Agreement.
"Borrowing Base" shall have the meaning assigned to such term in
--------------
Section 2.01(b) hereof.
"Business Day" shall mean any day, other than a Saturday, Sunday or
------------
legal holiday in the State of New York or the State of California, on which
banks are open for substantially all their banking business in New York City
except that, if any determination of a "Business Day" shall relate to a
Eurodollar Loan, the term "Business Day" shall in addition exclude any day on
which banks are not open for dealings in dollar deposits in the London interbank
market.
4
<PAGE>
"Capital Expenditures" shall mean in any Fiscal Year the cost of any
--------------------
fixed asset or improvement, or replacement, substitution, or addition thereto,
having a useful life of one year or more, including as a cost the aggregate
amount of expenses, charges, goods exchanged or services rendered or payments
due or arising in connection with the direct or indirect acquisition of such
assets or improvements, replacements, substitutions or additions by way of
increased product or service charges or offset items or barter exchange or in
connection with Capital Leases, and the principal payment amount of any
Indebtedness assumed or incurred in connection therewith.
"Capital Lease" shall mean any lease of any property (whether real,
-------------
personal or mixed) by any Borrower as lessee which, in conformity with generally
accepted accounting principles consistently applied, is, or is required to be,
accounted for as a capital lease on the balance sheet of the Borrowers.
"Capitalized Lease Obligation" shall mean an obligation to pay rent or
----------------------------
other amounts under any Capital Lease, and for purposes hereof the amount of
such obligation shall be the capitalized amount thereof determined in accordance
with generally accepted accounting principles.
"Cash Interest Expense" shall mean, with respect to any person for any
---------------------
period, the Interest Expense of such person for such period less all non-cash
----
items constituting Interest Expense during such period (including, without
limitation, amortization of debt discounts and payments of interest on
Indebtedness by issuance of Indebtedness).
"Certificate of Delivery and Acceptance" shall mean a certificate
--------------------------------------
executed and delivered by a Paper Customer to MAC or MSE in substantially the
form of Exhibit I hereto.
---------
"Change of Control" shall mean:
-----------------
(a) the sale, lease or transfer of all or substantially all the
assets of Parent or any of its subsidiaries to any Person or group (as
such term is defined in Section 13(d)(3) of the Exchange Act) other
than the Investment Parties;
(b) the liquidation or dissolution of (or the adoption of a plan
of liquidation by) the Parent or any of its subsidiaries;
(c) the acquisition by any Person or group (as such term is
defined in Section 13(d)(3) of the Exchange Act) (other than one or
more of the Investment Parties) of a direct or indirect majority in
interest (more
5
<PAGE>
than 50%) of the Voting Stock of the Parent by way of merger or
consolidation or otherwise;
(d) Carlos D. DeMattos shall no longer serve as a senior
executive officer of the Parent, unless a replacement satisfactory to
the Required Lenders is found within 180 days of such event;
(e) the Parent at any time, legally or beneficially (and free of
any Liens), owns less than 100% of the outstanding capital stock of
the subsidiaries; or
(f) the Management Stockholders at any time, legally or
beneficially (and free of any Liens), own less than 10% of the
outstanding Voting Stock of the Parent.
"Chattel Paper" shall mean all "chattel paper," as such term is
-------------
defined in the Uniform Commercial Code as adopted in the State of New York, now
owned or hereafter acquired by any Person, wherever located.
"Closing Date" shall mean April 1, 1998.
------------
"Code" shall mean the Internal Revenue Code of 1986, as amended from
----
time to time.
"Collateral" shall mean all collateral and security as described in
----------
the Security Documents.
"Commitment" shall mean, with respect to each Lender, the sum of the
----------
Term Loan Commitment of such Lender as set forth in Schedule 2.01(a), and the
----------------
Revolving Credit Commitment of such Lender as set forth in Schedule 2.01(b), as
----------------
each may be adjusted from time to time pursuant to this Agreement including,
without limitation, Section 2.07 hereof.
"Consolidated" shall mean, in respect of any person, as applied to any
------------
financial or accounting term, such term determined on a consolidated basis in
accordance with GAAP (except as otherwise required herein) for the person and
all consolidated subsidiaries thereof.
"Contaminant" shall mean all Hazardous Materials and all those
-----------
substances which are regulated by or form the basis of liability under Federal,
state or local environmental, health and safety statutes or regulations
including, without limitation, asbestos, polychlorinated biphenyls ("PCBs"), and
radioactive substances, or any other material or substance which constitutes a
material health, safety or environmental hazard to any person or property.
6
<PAGE>
"Credit Event" shall mean each borrowing and each issuance of a Letter
------------
of Credit hereunder.
"Credits" shall mean the borrowings made and Letters of Credit issued
-------
hereunder.
"Cure Loans" shall have the meaning assigned to such term in Section
----------
2.13(d) hereof.
"Current Assets" shall mean, with respect to any person at any date,
--------------
the aggregate amount of all assets of such person which would be classified as
current assets at such date, computed and calculated in accordance with GAAP.
"Current Liabilities" shall mean, with respect to any person at any
-------------------
date, the aggregate amount of all liabilities of such person (including tax and
other proper accruals) which would be classified as current liabilities at such
date, computed and calculated in accordance with GAAP, but in any event shall
exclude the current portion of long-term Indebtedness.
"Customer" shall mean and include the account debtor or obligor with
--------
respect to any Receivable.
"Debt Service Coverage Ratio" shall mean, with respect to any person
---------------------------
for any four quarter period, the ratio of (i) the sum of (x) Net Income plus (y)
----
depreciation and amortization minus (z) Capital Expenditures other than those
-----
paid for with proceeds of Revolving Credit Loans to (ii) the aggregate Debt
Service Expense of such person for the four most recent consecutive fiscal
quarters ending on or prior to the date of determination.
"Debt Service Expense" shall mean, with respect to any person for any
--------------------
period, the aggregate of regularly scheduled principal payments of all long-term
Indebtedness (including, without limitation, Subordinated Indebtedness and the
principal component of Capitalized Lease Obligations) made or to be made by such
person during such period on a Consolidated basis in accordance with GAAP.
"Default" shall mean any condition, act or event which, with notice or
-------
lapse of time or both, would constitute an Event of Default.
"dollars" or the symbol "$" shall mean dollars in lawful currency of
-------
the United States of America.
"Domestic Lending Office" shall mean, with respect to any Lender, the
-----------------------
office of such Lender specified as its "Domestic Lending Office" opposite its
name in
7
<PAGE>
Schedule 2.02 annexed hereto, or such other office of such Lender as such
- -------------
Lender may from time to time specify to the Borrowers and the Agent.
"EBITDA" shall mean, with respect to any person for any period, the
------
sum of (i) Net Income, (ii) Interest Expense, (iii) depreciation and
amortization of intangible assets and (iv) federal, state and local income
taxes, in each case of such person for such period, computed and calculated in
accordance with GAAP.
"Eligible Inventory" shall mean inventory of the Inventory Grantors
------------------
comprised solely of raw materials and finished goods which is, in the opinion of
the Agent exercised in its reasonable discretion, not obsolete, slow-moving,
unmerchantable, in-transit, returned or damaged and is and at all times shall
continue to be acceptable to the Agent in all respects in its reasonable
discretion; provided, however, that Eligible Inventory shall in no event include
inventory which (i) is not located at one of the addresses for locations of
Collateral set forth on Schedule I to the Security Agreement; (ii) is damaged
inventory or custom-made inventory that has been returned or rejected by a
Customer; (iii) is subject to any lease, rental or similar arrangement entered
into by any Inventory Grantor as lessor; (iv) discontinued or used finished
goods; (v) consigned inventory; (vi) materials and supplies; (vii) is not owned
by such Inventory Grantor free and clear of all Liens and rights of others,
except first priority Liens in favor of Agent; (viii) is not located on premises
where the aggregate amount of all Inventory (valued at cost) located thereon is
greater than $50,000; (ix) is covered by a negotiable document of title, unless
such document and evidence of acceptable insurance covering such Inventory has
been delivered to Agent; (x) is Inventory produced in violation of the Fair
Labor Standards Act and subject to the "hot goods" provisions contained in 29
U.S.C. (S) 215 or any successor statute or section; or (xi) is Inventory which
in any way fails to meet or violates any warranty, representation or covenant
contained in this Agreement or any other Loan Document. Standards of
eligibility may be fixed and revised from time to time solely by the Agent in
the Agent's reasonable discretion. In determining eligibility, the Agent may,
but need not, rely on reports and schedules furnished by the Inventory Grantors,
but reliance by the Agent thereon from time to time shall not be deemed to limit
the right of the Agent to revise standards of eligibility at any time as to both
present and future inventory of the Inventory Grantors. The Agent may, in its
reasonable discretion, institute reserves from time to time against Eligible
Inventory, including, without limitation, reserves for the Inventory Grantors'
write-downs of inventory and for capitalization costs.
"Eligible Paper" shall mean Paper of MAC and MSE created by MAC and
--------------
MSE in the ordinary course of business and arising out of the sale or lease of
goods, which are and at all times shall continue to be acceptable to the Agent
in all respects in its reasonable discretion. Standards of eligibility may be
fixed and revised from time to time solely by the Agent in the Agent's
reasonable discretion. In general, without limiting the foregoing, Paper shall
in no event be deemed to be Eligible Paper unless:
8
<PAGE>
(a) MAC or MSE is the owner of the Rental Inventory described in the
Paper or has a perfected first priority security interest, lien, and encumbrance
therein, except for the rights of the Paper Customer under the Paper, and MAC or
MSE has accomplished any filing, recordation or any other action (including
registration on a certificate of title, if applicable) which is required to
perfect a first priority security interest in the Rental Inventory;
(b) The Paper is the only Chattel Paper with respect to the Rental
Inventory described therein;
(c) The Paper is and will continue to be free from defenses, setoffs
and counterclaims of any kind and no suit or any legal action or proceeding,
administrative, judicial or otherwise has been brought by or against the Parent
or any of its subsidiaries in connection therewith;
(d) All signatures, names, addresses, amounts and other statements of
fact contained in the Paper are, to the best knowledge of MAC or MSE, as
appropriate, true and correct;
(e) The Rental Inventory has been delivered (where applicable) to the
Paper Customer and has been unconditionally accepted by and is presently in the
actual possession of or being used by the Paper Customer in its respective
business operations, a Certificate of Delivery and Acceptance executed by the
Paper Customer has been delivered to either MAC or MSE, as appropriate, and the
Rental Inventory is in good operating condition, and neither MAC nor MSE has
knowledge of any denial of liability or the assertion of any claim of invalidity
or other defense by the Paper Customer on the Paper;
(f) Any discounts or adjustments to the pricing on the Eligible Paper
to which either MAC or MSE has agreed with the Paper Customer are written and
apparent on the face of the Paper;
(g) The Paper conforms to all applicable laws and regulations;
(h) The Paper has not been sold, assigned or encumbered, or, to the
best knowledge of MAC or MSE, as appropriate, the Rental Inventory covered
thereby, to others and no act to impair the validity or enforceability of the
Paper has occurred;
(i) The substance and form of any document used by either MAC or MSE,
as appropriate, in connection with the transaction giving rise to the Paper is
and will be legally sufficient and enforceable and in full compliance with any
and all applicable Federal, state or local laws, regulations and rules;
9
<PAGE>
(j) As to any Paper which constitutes an equipment lease under which
MAC is the lessor, MAC and the Paper Customer have entered into a written lease
agreement substantially in the form of Exhibit J;
---------
(k) As to any Paper which constitutes an equipment lease under which
MSE is the lessor, MSE and the Paper Customer have entered into a written lease
agreement substantially in the form of Exhibit K;
---------
(l) The transaction giving rise to the Paper and the sale and delivery
of the Rental Inventory to the Paper Customer conform with all applicable laws,
rules or regulations;
(m) Neither the Paper Customer nor any endorser or guarantor of the
Paper is the subject of any bankruptcy or insolvency proceeding;
(n) The Rental Inventory described in the Paper is adequately covered
by enforceable casualty insurance;
(o) The Paper Customer is in full compliance with its obligations
under the Paper and is not in default thereunder other than a payment default,
unless such payment obligation remains uncollected for more than sixty (60) days
from the date such payment is due;
(p) The Paper Customer is not (i) affiliated with any one or more of
Borrowers, such as an owner, parent, subsidiary, officer, director, agent or
employee of any Borrower, or (ii) a Borrower under this Agreement;
(q) The payment obligations of the Paper Customer under the Paper are
not contingent;
(r) The Paper Customer is located in the United States of America or
the Provinces of Ontario, Manitoba, Saskatchewan, Alberta, and British Columbia
in Canada;
(s) The Paper Customer is not a national, Federal, state, county or
municipal government, including any instrumentality, division, agency, body or
department thereof;
(t) The Paper Customer is not the Paper Customer under Paper which, in
the aggregate, exceeds twenty-five percent (25%) of the aggregate amount of the
net investment income (exclusive of unearned income) of all Eligible Paper;
(u) The Paper Customer is not the Paper Customer under any Paper which
is more than sixty (60) days delinquent on any payment;
10
<PAGE>
(v) Neither MAC nor MSE, as appropriate, has (i) modified, released,
discharged or otherwise altered the terms of the Paper, unless the terms of such
modification, release, discharge or alteration have been consented to by Agent
in its reasonable credit judgment, or (ii) released any of the underlying Rental
Inventory;
(w) The Rental Inventory was not, prior to entering into the Paper,
owned by the Paper Customer or any affiliate thereof;
(x) The Paper Customer's obligations to MAC or MSE, as appropriate,
under the Paper are not secured by any real property;
(y) The Rental Inventory described in the Paper was at no time the
subject of a Receivable of such Borrower;
(z) MAC or MSE, as appropriate, has satisfied all Eligible Paper
Delivery Requirements with respect to such Paper; and
(aa) The Agent may, in its reasonable discretion, institute reserves
against Eligible Paper.
"Eligible Paper Delivery Requirements" shall mean the delivery by
------------------------------------
either MAC or MSE as appropriate, to Agent of the following items, in each case
satisfactory to Agent:
(i) The fully executed lease agreement or other documents executed
in connection with the Paper and copies of all documents executed in
connection therewith, including any promissory note, security agreement,
guaranty or deed of trust;
(ii) A copy of the Certificate of Delivery and Acceptance executed
by the Paper Customer, acknowledging the acceptance date of the equipment;
(iii) A fully executed Assignment of Lease, substantially in the form
of Exhibit J or Exhibit K;
----------------------
(iv) A copy of all Uniform Commercial Code financing statements (or
the Canadian equivalent) filed against the Paper Customer covering the
equipment which is described in the Paper, duly assigned to Agent, together
with evidence satisfactory to Agent that the financing statements have been
duly filed in all jurisdictions in which filing is required to perfect a
security interest in the equipment and that
11
<PAGE>
such financing statements were filed within ten (10) days of the Paper
Customer taking possession of the equipment;
(v) Evidence satisfactory to Agent that security interests and
liens in favor of MAC or MSE, as appropriate, in the equipment, are valid,
enforceable, and prior to all other rights and interests in the equipment,
including a Uniform Commercial Code search (or the Canadian equivalent) to
reflect a first priority perfected security interest in the equipment in
favor of either MAC or MSE, as appropriate;
(vi) Evidence of insurance coverage on the equipment;
(vii) An amortization schedule for payments under the Paper; and
(viii) Such other documents and instruments as Agent may reasonably
request to ensure that the Paper qualifies as Eligible Paper.
"Eligible Receivables" shall mean Receivables created by the
--------------------
Receivables Grantors in the ordinary course of business arising out of the sale
or lease of goods or rendition of services by the Receivables Grantors, which
are and at all times shall continue to be acceptable to the Agent in all
respects in its reasonable discretion. Standards of eligibility may be fixed and
revised from time to time solely by the Agent in the Agent's reasonable
discretion. In general, without limiting the foregoing, a Receivable shall in
no event be deemed to be an Eligible Receivable unless: (a) all payments due on
the Receivable have been invoiced and shipped; (b) the payment due on the
Receivable is not more than 120 days past the invoice date and not more than 90
days past due date; (c) the payments due on more than 50% of all Receivables
from the same Customer are less than 120 days past the invoice date and are less
than 90 days past due date; (d) the Receivable arose from a completed, outright
and lawful sale of goods, to which title has passed to the Customer, by or on
behalf of a Receivables Grantor or a completed and lawful true lease of goods by
a Receivables Grantor to the Customer or a completed and lawful rendition of
services by a Receivables Grantor to a Customer; (e) the Receivable is in full
conformity with the representations and warranties made by the Receivables
Grantors to the Agent and the Lenders with respect thereto and is free and clear
of all rights, interests, security interests and Liens of any nature whatsoever
other than any security interest deemed to be held by a Receivables Grantor or
any security interest created pursuant to the Security Documents or permitted by
Section 7.01 hereof; (f) the Receivable constitutes an "account" within the
meaning of the Uniform Commercial Code of the state in which the Receivable is
located and such Receivable does not constitute chattel paper or an instrument
within the meaning of the applicable Uniform Commercial Code (except as provided
in clause (p) below with respect to HRCI equipment leases); (g) the Customer has
not asserted that the Receivable, and such Receivables Grantor is not aware that
12
<PAGE>
the Receivable, arises out of a bill and hold, consignment or progress billing
arrangement or is subject to any setoff, contras, net-out contract, offset,
deduction, dispute, credit, counterclaim or other defense arising out of the
transactions represented by the Receivables or independently thereof and the
Customer has finally accepted the goods from the sale or lease out of which the
Receivable arose and has not objected to its liability thereon or returned,
rejected or repossessed any of such goods, except for complaints made or goods
returned in the ordinary course of business for which, in the case of goods
returned, goods of equal or greater value have been shipped in return; (h) the
Receivable arose in the ordinary course of business of a Receivables Grantor;
(i) the Customer is not (x) the United States government or the government of
any state or political subdivision thereof or therein, or any agency or
department of any thereof (unless such Receivables Grantor shall have complied
to the reasonable satisfaction of the Agent with the Federal Assignment of
Claims Act of 1994 or a similar statute, in which case the amount of such
Receivables shall be no greater than $100,000 at any time) or (y) an Affiliate
of a Receivables Grantor or any subsidiary of any thereof; (j) the Receivable
complies with all material requirements of all applicable laws and regulations,
whether Federal, state or local (including, without limitation, usury laws and
laws, rules and regulations relating to truth in lending, fair credit billing,
fair credit reporting, equal credit opportunity, fair debt collection practices
and privacy); (k) to the knowledge of the Receivables Grantor, the Receivable is
in full force and effect and constitutes a legal, valid and binding obligation
of the Customer enforceable in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency, moratorium and
other similar laws affecting the enforcement of creditors' rights generally and
by general equity principles; (l) the Receivable is denominated in and provides
for payment by the Customer in dollars; (m) the Receivable has not been and is
not required to be charged off or written off as uncollectible in accordance
with GAAP or the customary business practices of the Receivables Grantor; (n)
the Agent on behalf of the Lenders possesses a valid, perfected first priority
security interest in such Receivable as security for payment of the Obligations;
(o) the Receivables Grantor's right to receive payment is absolute or is not
contingent upon the fulfillment of any condition whatsoever, and the Receivables
Grantor is able to bring suit or otherwise enforce its remedies against the
Customer through judicial process; (p) such Receivable is not evidenced by
Chattel Paper other than lease agreements with a term of one year or less
relating to HRCI equipment leases entered into in the ordinary course of
business; a promissory note, a negotiable instrument or any other instrument of
any kind; (q) the Receivable is not the obligation of a Customer located outside
of the United States or outside of the Provinces of Ontario, Manitoba,
Saskatchewan, Alberta, or British Columbia in Canada, except to the extent that
either (i) (to a maximum of $250,000 outstanding at any time) such Receivable is
covered by foreign credit insurance reasonably satisfactory to the Agent, or
(ii) such Receivable is fully supported by an irrevocable letter of credit in
form, substance and issued by a bank acceptable to Agent, in its reasonable
discretion; (r) such Receivable is not the obligation of a Customer to whom such
Receivables Grantor is or may become liable for goods sold or services rendered
by the Customer to such
13
<PAGE>
Receivables Grantor, to the extent of such Receivables Grantor's liability to
such Customer; (s) the Receivable does not represent interest payments or
service charges owing to such Receivables Grantor; and (t) the Agent is
satisfied (in its reasonable discretion) with the credit standing of the
Customer in relation to the amount of credit extended. The Agent may, in its
reasonable discretion, institute reserves from time to time against Eligible
Receivables.
"Environmental Claim" shall mean any written notice of violation,
-------------------
claim, demand, abatement or other order by any governmental authority or any
person for personal injury (including sickness, disease or death), tangible or
intangible property damage, damage to the environment, nuisance, pollution,
contamination or other adverse effects on the environment, or for fines,
penalties or deed or use restrictions, resulting from or based upon (i) the
existence, or the continuation of the existence, of a Release (including,
without limitation, sudden or non-sudden, accidental or nonaccidental Releases),
of, or exposure to, any Contaminant at, in, by or from any of the properties of
the Borrowers or their subsidiaries, (ii) the environmental aspects of the
transportation, storage, treatment or disposal of Contaminants in connection
with the operation of any of the properties of the Borrowers or their
subsidiaries or (iii) the violation, or alleged violation by Borrowers or any of
their subsidiaries, of any statutes, ordinances, orders, rules, regulations,
Permits or licenses of or from any governmental authority, agency or court
relating to environmental matters connected with any of the properties of the
Borrowers or their subsidiaries, under any applicable Environmental Law.
"Environmental Laws" shall mean the Comprehensive Environmental
------------------
Response, Compensation, and Liability Act (42 U.S.C. (S) 9601 et seq.), the
-- ---
Hazardous Material Transportation Act (49 U.S.C. (S) 1801 et seq.), the Resource
-- ---
Conservation and Recovery Act (42 U.S.C. (S) 6901 et seq.), the Federal Water
-- ---
Pollution Control Act (33 U.S.C. (S) 1251 et seq.), the Oil Pollution Act of
-- ---
1990 (33 U.S.C. (S) 2701 et. seq.), the Safe Drinking Water Act (42 U.S.C. (S)
-- ---
300(f), et seq.), the Clear Air Act (42 U.S.C. (S) 7401 et seq.), the Toxic
-- --- -- ---
Substances Control Act, as amended (15 U.S.C. (S) 2601 et seq.), the Federal
-- ---
Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. (S) 136 et seq.), and the
-- ---
Occupational Safety and Health Act (29 U.S.C. (S) 651 et seq.), as such laws
-- ---
have been and hereafter may be amended or supplemented, and any related or
analogous present or future Federal, state or local, statutes, rules,
regulations, ordinances, licenses, permits and interpretations and orders of
regulatory and administrative bodies.
"ERISA" shall mean the Employee Retirement Income Security Act of
-----
1974, as amended, and the rules and regulations promulgated thereunder, each as
in effect and modified from time to time.
"ERISA Affiliate" shall mean any trade or business (whether or not
---------------
incorporated) which together with any of the Borrowers or any subsidiary of any
thereof
14
<PAGE>
would be treated as a single employer under the provisions of Title I or Title
IV of ERISA.
"Eurodollar Lending Office" shall mean, with respect to any Lender,
-------------------------
the office of such Lender specified as its "Eurodollar Lending Office" opposite
its name in Schedule 2.03 annexed hereto (or, if no such office is specified,
-------------
its Domestic Lending Office), or such other office of such Lender as such Lender
may from time to time specify to the Borrowers and the Agent.
"Eurodollar Loan" shall mean a Loan based on the Adjusted LIBO Rate in
---------------
accordance with Article II hereof.
"Event of Default" shall have the meaning assigned to such term in
----------------
Article VIII hereof.
"Excess Cash Flow" shall mean, with respect to any person for any
----------------
period, the amount, if any, by which Net Cash Flow of such person and its
subsidiaries on a Consolidated basis for such period exceeds the Debt Service
Expense of such person and its subsidiaries on a Consolidated basis for such
period.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Fee Letter" shall mean that certain letter dated February 11, 1998
----------
from The Chase Manhattan Bank to the Parent and accepted by the Parent on its
behalf and on behalf of the Borrowers.
"Final Maturity Date" shall mean August 14, 2002.
-------------------
"Financial Officer" shall mean, with respect to any person, the chief
-----------------
financial officer or a group vice-president of such person.
"FIRREA" shall mean the Financial Institutions Reform, Recovery and
------
Enforcement Act of 1989, as amended from time to time.
"Fiscal Year" shall mean the fiscal year of each of the Borrowers for
-----------
accounting purposes which in each case ends on September 30 of each year.
"Four Star Acquisition" shall mean the acquisition of Four Star
---------------------
Holding by the Parent pursuant to the Acquisition Agreement.
"Funded Indebtedness" shall mean, with respect to any person, the
-------------------
Obligations and all other Indebtedness (including, without limitation,
Capitalized Lease Obligations) which matures more than one year from the date of
determination or
15
<PAGE>
matures within one year from such date but is renewable or extendible, at the
option of the debtor, to a date more than one year from such date or arises
under a revolving credit or similar agreement which obligates the lender or
lenders to extend credit during a period of more than one year from such date
including, without limitation, all Subordinated Indebtedness and all amounts of
Funded Indebtedness required to be paid or prepaid within one year from the date
of determination.
"GAAP" shall have the meaning assigned to such term in Section 1.02
----
hereof.
"Grantor" shall mean any Grantor, Pledgor or Debtor, as such terms are
-------
defined in any of the Security Documents.
"Guarantee" shall mean any obligation, contingent or otherwise, of any
---------
person guaranteeing or having the economic effect of guaranteeing any
Indebtedness or obligation of any other person in any manner, whether directly
or indirectly, and shall in any event include the Guarantee of the Guarantors
hereunder, and shall include, without limitation, any obligation of such person,
direct or indirect, to (i) purchase or pay (or advance or supply funds for the
purchase or payment of) such Indebtedness or obligation or to purchase (or to
advance or supply funds for the purchase of) any security for the payment of
such Indebtedness or obligation, (ii) purchase property, securities or services
for the purpose of assuring the owner of such Indebtedness or obligation of the
payment of such Indebtedness or obligation, or (iii) maintain working capital,
equity capital, available cash or other financial condition of the primary
obligor so as to enable the primary obligor to pay such Indebtedness or
obligation; provided, however, that the term Guarantee shall not include
-------- -------
endorsements for collection or collections for deposit, in either case in the
ordinary course of business.
"Guarantor" shall mean, collectively, each person who is identified as
---------
a "Guarantor" on the signature pages of this Agreement (including each Borrower
with respect to the Obligations of the other Borrowers) or any subsidiary of any
of the Borrowers which becomes a guarantor of the Obligations after the date
hereof.
"Hazardous Material" shall mean any pollutant, contaminant, chemical,
------------------
or industrial or hazardous, toxic or dangerous waste, substance or material,
defined or regulated as such in (or for purposes of) any Environmental Law and
any other toxic, reactive, or flammable chemicals, including (without
limitation) any asbestos, any petroleum (including crude oil or any fraction),
any radioactive substance and any polychlorinated biphenyls; provided, in the
--------
event that any Environmental Law is amended so as to broaden the meaning of any
term defined thereby, such broader meaning shall apply subsequent to the
effective date of such amendment; and provided, further, to the extent that the
-------- -------
applicable laws of any state establish a meaning for "hazardous material,"
"hazardous substance," "hazardous waste," "solid waste" or
16
<PAGE>
"toxic substance" which is broader than that specified in any Environmental Law,
such broader meaning shall apply.
"Indebtedness" shall mean, with respect to any person, (a) all
------------
obligations of such person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such person evidenced by bonds,
debentures, notes or other similar instruments or upon which interest charges
are customarily paid, (c) all obligations of such person for the deferred
purchase price of property or services, except current accounts payable arising
in the ordinary course of business and not overdue beyond such period as is
commercially reasonable for such person's business, (d) all obligations of such
person under conditional sale or other title retention agreements relating to
property purchased by such person and all Capitalized Lease Obligations, (e) all
payment obligations of such person with respect to interest rate, currency
protection, "cap," "collar" or other such hedging agreement, (f) all obligations
of such person as an account party under any letter of credit or in respect of
bankers' acceptances, (g) all obligations of any third party secured by property
or assets of such person (regardless of whether or not such person is liable for
repayment of such obligations), (h) all Guarantees of such person, (i) the
redemption price of all redeemable preferred stock of such person, but only to
the extent that such stock is redeemable at the option of the holder or requires
sinking fund or similar payments at any time prior to the Final Maturity Date,
(j) all obligations, liabilities and indebtedness in respect of equity or debt
commitments or to pay liquidated damages under any contract, Guarantee, support
or maintenance agreement or "take-or-pay" agreement or otherwise (without
duplication with clause (h)), and (k) all obligations, liabilities and
indebtedness for liabilities in respect of unfunded vested benefits under plans
covered by Title IV of ERISA.
"Indemnitees" shall have the meaning assigned to such term in Section
-----------
11.04(c) hereof.
"Information" shall have the meaning assigned to such term in Section
-----------
11.11 hereof.
"ING" shall mean ING Equity Partners, L.P. I, a Delaware limited
---
partnership.
"ING Documents" shall mean the ING Warrant, the ING Stockholders'
-------------
Agreement, the ING Registration Rights Agreement and all other agreements,
documents and instruments executed by the Parent or any of its subsidiaries in
favor of ING or any Affiliate thereof in connection with the equity investment
of ING in the Parent on July 27, 1995.
17
<PAGE>
"ING Registration Rights Agreement" shall mean Registration Rights
---------------------------------
Agreement dated July 27, 1995, as amended between the Parent and ING Equity
Partners.
"ING Stockholders' Agreement" shall mean the Stockholders Agreement,
---------------------------
dated July 27, 1995, as amended, by and among the Parent, the Management
Stockholders and ING.
"ING Warrant" shall mean the Warrant dated July 27, 1995 in favor of
-----------
ING with respect to the purchase of 2,322,464 shares of the common stock of the
Parent.
"Interest Coverage Ratio" shall mean, with respect to any person for
-----------------------
any four-quarter period, the ratio of (i) the sum of (x) EBITDA less (y) Capital
----
Expenditures (including, without limitation, Capitalized Lease Obligations) for
the four most recent consecutive fiscal quarters ending on or prior to the date
of determination, to (ii) the Cash Interest Expense of such person for such
four-quarter period.
"Interest Expense" shall mean, with respect to any person for any
----------------
period, the interest expense of such person during such period determined on a
Consolidated basis in accordance with GAAP, and shall in any event include,
without limitation, (i) the amortization of debt discounts, (ii) the
amortization of all fees payable in connection with the incurrence of
Indebtedness to the extent included in interest expense, (iii) the portion of
any Capitalized Lease Obligation allocable to interest expense, (iv) all fixed
and all calculable dividend payments on preferred stock, and (v) payments of
interest expense in kind.
"Interest Margin" shall mean (x) from the Closing Date through the
---------------
First Adjustment Date, .50% with respect to any Alternate Base Loan and 2.50%
with respect to any Eurodollar Loan and (y) on and after each Adjustment Date,
the amount set forth below which corresponds to the Leverage Ratio as at such
Adjustment Date:
<TABLE>
<CAPTION>
Alternate Base Rate LIBO Rate
Leverage Ratio Interest Margin Interest Margin
- -------------- ------------------- ---------------
<S> <C> <C>
0 - 2.00 to 1.00 0% 1.50%
2.01 - 2.50 to 1.00 0% 1.75%
2.51 - 3.00 to 1.00 0% 2.00%
3.01 - 3.50 to 1.00 0.25% 2.25%
3.51 - 4.00 to 1.00 0.50% 2.50%
4.01 or greater to 1.00 0.75% 2.75%
</TABLE>
18
<PAGE>
For purposes of this definition of Interest Margin, "First Adjustment Date"
---------------------
shall mean the first day of the fiscal quarter, commencing after the date of
delivery to the Agent of the financial statements for the fiscal period ended
March 31, 1998 as required pursuant to Section 6.05(b), and the corresponding
compliance certificates required pursuant to Section 6.05(e), together with a
management prepared schedule demonstrating the calculation of the Leverage Ratio
to the satisfaction of the Agent; and "Adjustment Date" shall mean, after the
---------------
occurrence of the First Adjustment Date, the first day of the fiscal month
commencing after the date of delivery to the Agent of the quarterly financial
statements required pursuant to Section 6.05(b) and/or audited Fiscal Year end
financial statements required pursuant to Section 6.05(a), as the case may be,
and the corresponding compliance certificates required pursuant to Section
6.05(e), together with a management prepared schedule demonstrating the
calculation of the Leverage Ratio to the satisfaction of the Agent.
Notwithstanding the foregoing, if the Borrowers shall fail to timely deliver any
of the foregoing financial statements and certificates, then the highest
Interest Margin provided for herein shall be applicable until the financial
statements and certificates shall be so delivered; and so long as any Default or
Event of Default is in existence, the highest Interest Margin provided for
herein shall be applicable.
"Interest Payment Date" shall mean (i) as to each Alternate Base Loan,
---------------------
the first Business Day of each month, commencing April 1, 1998 (which shall
cover the period from March 1, 1998 for Loans outstanding under the Original
Credit Agreement and which are being continued and extended under this
Agreement), and (ii) with respect to any Eurodollar Loan (which shall include
those outstanding under the Original Credit Agreement and which are being
continued and extended under this Agreement), the last day of the Interest
Period applicable thereto, and, in addition, in respect of any Eurodollar Loan
of more than three (3) months' duration, the day which is three (3) months after
the first day of such Interest Period and the last day of such Interest Period.
"Interest Period" shall mean, as to any Eurodollar Loan, the period
---------------
commencing on the date of such Eurodollar Loan and ending on the numerically
corresponding day (or, if there is no numerically corresponding day, on the last
day) in the calendar month that is one (1), two (2), three (3) or six (6) months
thereafter, as the Borrowers may elect with respect to its Eurodollar Loans;
provided, however, that (x) if an Interest Period would end on a day that is not
- -------- -------
a Business Day, such Interest Period shall be extended to the next succeeding
Business Day unless, with respect to Eurodollar Loans, such next succeeding
Business Day would fall in the next calendar month, in which case such Interest
Period shall end on the next preceding Business Day, (y) no Interest Period
shall end later than the Final Maturity Date and (z) interest shall accrue from
and including the first day of an Interest Period to but excluding the last day
of such Interest Period.
19
<PAGE>
"Inventory Grantors" shall mean each of the Borrowers plus, commencing
------------------
with the first day of the fiscal quarter following compliance, any hereafter
established subsidiary which after the date hereof complies with the provisions
of Section 6.12 hereof to the satisfaction of the Agent, subject to a field
examination conducted by the Agent in its discretion to determine standards of
eligibility (but in no event at an advance rate exceeding that set forth in the
Borrowing Base).
"Investment Party" shall mean Carlos D. DeMattos, Edward Phillips, and
----------------
their Affiliates (other than the Parent and its subsidiaries) and ING and, with
respect to each of the foregoing,
(a) each general partner, each limited partner and employee
thereof or any Affiliate thereof as of July 27, 1995;
(b) any 50% (or more) owned subsidiary of any one (or jointly of
more than one of any) person specified in clause (a); and
----------
(c) the spouse or any immediate family member of any person
specified in clause (a) or any trust solely for the benefit of any
----------
such person or the spouse or any immediate family member of such
person.
"Lender" shall have the meaning assigned to such term in the preamble
------
to this Agreement.
"Letter of Credit" shall have the meaning assigned such term in
----------------
Section 2.17 hereof.
"Letter of Credit Usage" shall mean at any time, (i) the aggregate
----------------------
undrawn amount of all outstanding Letters of Credit at such time plus (ii) the
unreimbursed drawings at such time under all such Letters of Credit.
"Leverage Ratio" with respect to any person at the end of any fiscal
--------------
quarter shall mean the ratio of (i) total Funded Indebtedness of such person as
at the date of determination to (ii) EBITDA (adjusted to include the trailing
EBITDA of any person acquired by such person as a Permitted Acquisition (and for
purposes of this EBITDA calculation, the acquisition of Duke, HDI and Four Star
Holding and of the assets of Entertainment Resources, Inc. shall be deemed
Permitted Acquisitions) on a basis satisfactory to the Agent) of such person for
the four most recent consecutive fiscal quarters ending on or prior to the date
of determination.
"LIBO Rate" shall mean, with respect to any Eurodollar Loan for any
---------
Interest Period, an interest rate per annum (rounded upwards, if necessary, to
the next 1/16 of 1%) equal to the rate at which dollar deposits approximately
equal in principal amount to the Eurodollar Loan of the Agent and for a maturity
equal to the applicable
20
<PAGE>
Interest Period are offered in immediately available funds to the London branch
of the Agent by leading banks in the London interbank market for Eurodollars at
approximately 11:00 A.M., London time, two (2) Business Days prior to the first
day of such Interest Period.
"Lien" shall mean, with respect to any asset, (i) any mortgage, lien,
----
pledge, encumbrance, charge or security interest in or on such asset, (ii) the
interest of a vendor or a lessor under any conditional sale agreement, capital
lease or other title retention agreement relating to such asset, (iii) in the
case of securities, any purchase option, call or similar right of a third party
with respect to such securities or (iv) any other right of or arrangement with
any creditor to have such creditor's claim satisfied out of such assets, or the
proceeds therefrom, prior to the general creditors of the owner thereof.
"Loan" shall mean the Term Loan or any Revolving Credit Loan.
----
"Loan Documents" shall mean this Agreement, each Security Document,
--------------
each Guarantee executed and delivered at any time with respect to the
Obligations, the Notes and each other document, instrument, or agreement now or
hereafter delivered to the Agent or any Lender in connection herewith or
therewith.
"Loan Party" shall mean the Borrowers, each Grantor, each Guarantor,
----------
and each subsidiary thereof.
"M&E Availability" shall mean (i) $52,000,000 on the Closing Date
----------------
reducing each April 20, July 20, October 20 and January 20 thereafter,
commencing April 20, 1998, by $1,950,000 plus (ii) up to 85% of orderly
liquidation value, based on appraisals in form and substance satisfactory to the
Agent, of hereafter acquired machinery and equipment not subject to any Liens
except in favor of the Agent through Permitted Acquisitions, provided there is
compliance with Section 6.12, commencing with the first day of the fiscal
quarter following acquisition and delivery of satisfactory appraisals, such
additional availability to reduce on the twentieth day of each subsequent fiscal
quarter by 3.75% of initial availability.
"Mandatory Prepayment" shall mean an amount equal to twenty-five
--------------------
percent (25%) of Excess Cash Flow, if any, of the Borrowers and their
subsidiaries for the Fiscal Year then ended.
"Management Stockholder" shall mean each of Carlos D. DeMattos and
----------------------
Edward Phillips.
"Margin Stock" shall have the meaning assigned to such term in
------------
Regulation U.
21
<PAGE>
"Material Adverse Effect" shall mean a material adverse effect on (i)
-----------------------
the business, assets, prospects, operations or financial or other condition of
any person or its subsidiaries (with respect to the Parent and its subsidiaries,
on the Parent and the subsidiaries taken as a whole), (ii) the ability of any
Loan Party to perform or pay the Obligations in accordance with the terms hereof
or of any other Loan Document, (iii) the rights of, or benefits available to,
the Lenders or the Agent under any Loan Document or (iv) the Agent's Lien on any
material portion of the Collateral or the priority of such Lien.
"Multiemployer Plan" shall mean a "multiemployer plan" as defined in
------------------
Section 4001(a)(3) of ERISA.
"Net Amount of Eligible Inventory" shall mean, at any time, the
--------------------------------
aggregate value, computed at the lower of cost (on a FIFO basis) and current
market value, of Eligible Inventory of the Inventory Grantors, less a reserve
instituted by the Agent in its reasonable discretion with respect to all
Eligible Inventory which is located on leased premises for which no landlord's
waiver has been furnished to Agent, such reserve to be equal to the greater of
(i) two month's rent and (ii) the amount of unpaid rent with respect to such
leased premises.
"Net Amount of Eligible Receivables" shall mean and include at any
----------------------------------
time, without duplication, the gross amount of Eligible Receivables at such time
less (i) sales, excise or similar taxes and (ii) returns, discounts, claims,
credits and allowances of any nature at any time issued, owing, granted,
outstanding, available or claimed.
"Net Amount of Eligible Paper" shall mean and include at any time,
----------------------------
without duplication, the amount of rental payments due under such Eligible Paper
within two years of the date of determination less (i) sales, excise or similar
taxes, and (ii) returns, discounts, claims, credits and allowances of any nature
at any time issued, owing, granted, outstanding, available or claimed.
"Net Cash Flow" shall mean, with respect to any person for any period,
-------------
without duplication of addition or subtraction of items, (A) the sum for such
period of (i) Net Income plus (ii) depreciation and amortization plus (iii)
---- ----
other noncash items properly deducted in arriving at Net Income plus (iv) the
----
"change in net working accounts" during such period minus (B) all Capital
-----
Expenditures during such period other than those paid for with proceeds of
Revolving Credit Loans. For purposes hereof, "change in net working accounts"
------------------------------
shall mean the change (expressed as a negative number in the event of an
increase or a positive number in the event of a decrease), if any, in the excess
of Current Assets (excluding cash and cash equivalents) as of the end of the
applicable period over Current Liabilities (excluding the current portion of
long-term Indebtedness) as of the end of such period as compared with the
beginning of such period.
22
<PAGE>
"Net Income" shall mean, with respect to any person and its
----------
subsidiaries, on a Consolidated basis, for any period, the aggregate income (or
loss) of such person for such period which shall be an amount equal to net
revenues and other proper items of income for such person less the aggregate for
----
such person of any and all items that are treated as expenses under GAAP, and
less Federal, state and local income taxes, but excluding any extraordinary
- ----
gains or losses or any gains or losses from the sale or disposition of assets
other than in the ordinary course of business, all computed and calculated in
accordance with GAAP applied on a consistent basis.
"Net Worth" shall mean, with respect to any person at any time, (i)
---------
the sum of such person's capital stock, capital in excess of par or stated value
of shares of its capital stock, retained earnings and any other account which,
in accordance with GAAP, constitutes stockholders' equity, less (ii) treasury
----
stock, and excluding any adjustments by reason of the application of purchase
accounting in accordance with GAAP.
"Non Pro Rata Loans" shall have the meaning assigned to such term in
------------------
Section 2.13(d) hereof.
"Notes" shall mean the Term Notes and the Revolving Credit Notes.
-----
"Obligations" shall mean all obligations, liabilities and Indebtedness
-----------
of the Borrowers to the Lenders and the Agent, whether now existing or hereafter
created, direct or indirect, due or not, whether created directly or acquired by
assignment, participation or otherwise, including without limitation all
obligations, liabilities and Indebtedness of the Borrowers with respect to
interest swap, cap, collar and other interest rate agreements (so long as The
Chase Manhattan Bank shall be party thereto), the Security Documents and other
Loan Documents, the principal of and interest on the Revolving Credit Loans and
the payment or performance of all other obligations, liabilities, and
Indebtedness of the Borrowers and/or the Guarantors to the Lenders and the Agent
hereunder, under the Letters of Credit or under any one or more of the other
Loan Documents (including the payment of amounts that would become due but for
the operation of the automatic stay under Section 362(a) of the Bankruptcy Code,
and interest that, but for the filing of a petition in bankruptcy with respect
to any Borrower, would accrue on such obligations, whether or not a claim is
allowed against such Borrower for such interest in the related bankruptcy
proceeding), including without limitation all fees, costs, expenses and
indemnity obligations hereunder and thereunder.
"Original Credit Agreement" shall mean the Credit Agreement dated as
-------------------------
of July 27, 1995, as amended and restated as of August 14, 1997, among the
Parent, MSEI, HRCI, MSE, MAC and Duke, the lenders and the guarantors named
therein, and the Agent.
23
<PAGE>
"Other Taxes" shall have the meaning assigned to such term in Section
-----------
2.15(b) hereof.
"Paper" shall mean any Chattel Paper now existing or hereafter arising
-----
out of the sale or lease by either MAC or MSE of any equipment to any Paper
Customer, including equipment leases, conditional sale contracts and loan and
security agreements.
"Paper Customer" shall mean any lessee or debtor, as the case may be,
--------------
under any Paper.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
----
"Pension Plan" shall mean any Plan which is subject to the provisions
------------
of Title IV of ERISA.
"Permits" shall have the meaning assigned to such term in Section 4.18
-------
hereof.
"Permitted Acquisitions" shall mean the acquisition of businesses
----------------------
which are substantially related to that of the Borrowers pursuant to terms that
are reasonably satisfactory to the Agent; provided, further, that outstanding
-------- -------
Revolving Credit Loans the proceeds of which were utilized for Permitted
Acquisitions shall not exceed $10,000,000 at any one time outstanding; and
provided, further, that (i) the cash purchase price of any single acquisition
- -------- -------
shall not exceed $5,000,000; (ii) pro forma Availability after giving effect to
--- -----
the proposed Permitted Acquisition (including all borrowings in connection
therewith) exceeds $4,000,000; (iii) pro forma (a) total Funded Indebtedness of
--- -----
the Parent and its Consolidated subsidiaries to (b) EBITDA of the Parent and its
Consolidated subsidiaries (adjusted for the EBITDA of the acquiree and Four Star
Holding) for the twelve month period ending on the last day of the month
immediately preceding such proposed Permitted Acquisition shall be no greater
than 4.00:1.00; (iv) any seller financing is subordinated to the Obligations in
form and substance satisfactory to the Agent; and (v) both before and
immediately after giving effect to such proposed Permitted Acquisition, no
Default or Event of Default has or will occur or be continuing (including any
Default or Event of Default arising from a default under the ING Documents).
The Borrowers shall give the Agent thirty (30) days' prior written notice,
including a copy of the term sheet, if any, or a summary of the terms, of each
proposed Permitted Acquisition. In addition, at least five (5) days prior to
the closing date of each Permitted Acquisition, the Borrowers shall deliver to
the Agent the most recent draft of the acquisition documents. Together with the
30 days' prior written notice and also on the date of such proposed Permitted
Acquisition, the Borrowers shall furnish the Agent with a certificate of the
Borrower regarding compliance with the terms of this definition of "Permitted
Acquisition" and such other evidence of compliance with this definition of
"Permitted Acquisition" as the Agent shall reasonably request and the
24
<PAGE>
Borrowers shall certify to the Agent on the date of such proposed Permitted
Acquisition that the material terms of the executed acquisition documents are
substantially similar to those contained in the previously delivered draft
documents.
"person" shall mean any natural person, corporation, business trust,
------
limited liability company, association, company, joint venture, limited
liability partnership, partnership or government or any agency or political
subdivision thereof.
"Plan" shall mean any employee benefit plan within the meaning of
----
Section 3(3) of ERISA and which is maintained (in whole or in part) for
employees of the Borrowers, any subsidiary or any ERISA Affiliate.
"Pledge Agreement" shall mean the Amended and Restated Pledge
----------------
Agreement between the Grantor(s) and the Agent, for the benefit of the Lenders,
in substantially the form of Exhibit H annexed hereto, as amended, modified or
---------
supplemented from time to time.
"Pledged Stock" shall have the meaning assigned to such term in the
-------------
Pledge Agreement.
"Receivables" shall mean and include all of the Borrowers' accounts,
-----------
instruments, documents, chattel paper and general intangibles, whether secured
or unsecured, whether now existing or hereafter created or arising, and whether
or not specifically assigned to the Agent for the ratable benefit of the
Lenders.
"Receivables Grantors" shall mean each of the Borrowers plus any
--------------------
subsidiary which after the date hereof complies with the provisions of Section
6.12 hereof to the satisfaction of the Agent, subject to an audit conducted by
the Agent in its discretion to determine standards of eligibility (but in no
event at an advance rate exceeding that set forth in the Borrowing Base).
"Register" shall have the meaning assigned to such term in Section
--------
11.03(e) hereof.
"Regulation D" shall mean Regulation D of the Board, as the same is
------------
from time to time in effect, and all official rulings and interpretations
thereunder or thereof.
"Regulation G" shall mean Regulation G of the Board, as the same is
------------
from time to time in effect, and all official rulings and interpretations
thereunder or thereof.
"Regulation T" shall mean Regulation T of the Board, as the same is
------------
from time to time in effect, and all official rulings and interpretations
thereunder or thereof.
25
<PAGE>
"Regulation U" shall mean Regulation U of the Board, as the same is
------------
from time to time in effect, and all official rulings and interpretations
thereunder or thereof.
"Regulation X" shall mean Regulation X of the Board, as the same is
------------
from time to time in effect, and all official rulings and interpretations
thereunder or thereof.
"Release" shall mean any releasing, spilling, leaking, seepage,
-------
pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, disposing or dumping, in each case as defined in Environmental Law,
and shall include any "Threatened Release," as defined in Environmental Law.
"Remedial Work" shall mean any investigation, site monitoring,
-------------
containment, cleanup, removal, restoration or other remedial work of any kind or
nature with respect to any property of the Borrowers or their subsidiaries
(whether such property is owned, leased, subleased or used), including, without
limitation, with respect to Contaminants and the Release thereof required in
order to comply with Environmental Laws.
"Rental Assets" shall mean assets consisting of machinery and
-------------
equipment that is held for rental or lease by any Borrower.
"Rental Equipment Availability" shall mean up to 75% of the amount
-----------------------------
(subject to verification of amounts exceeding $10,000 satisfactory to the Agent
following delivery of relevant invoices to the Agent) of Capital Expenditures
made after the Closing Date for the purchase of Rental Assets (excluding Rental
Assets acquired through Permitted Acquisitions to the extent already included in
M&E Availability) not subject to any Lien except in favor of the Agent,
commencing with the twentieth day of the fiscal quarter following such
Expenditure and verification, such availability to reduce on the twentieth day
of each subsequent fiscal quarter by 3.75% of initial availability.
"Repayment Date" shall have the meaning assigned to such term in
--------------
Section 2.04(c) hereof.
"Reportable Event" shall mean a Reportable Event as defined in Section
----------------
4043(c) of ERISA.
"Required Lenders" shall mean Lenders having 66% of the Total
----------------
Commitment.
"Responsible Officer" shall mean, with respect to any person, any vice
-------------------
president or president, or the chief financial officer or controller, of such
person.
"Revolving Credit Alternate Base Loan" shall mean a Revolving Credit
------------------------------------
Loan that is an Alternate Base Loan.
26
<PAGE>
"Revolving Credit Commitment" shall mean, with respect to any Lender,
---------------------------
the Revolving Credit Commitment of such Lender as set forth in Schedule 2.01(b)
----------------
annexed hereto, as the same may be reduced from time to time pursuant to this
Agreement, including, without limitation, Section 2.07 hereof.
"Revolving Credit Commitment Fee" shall have the meaning set forth in
-------------------------------
Section 2.06(a) hereof.
"Revolving Credit Eurodollar Loan" shall mean a Revolving Credit Loan
--------------------------------
that is a Eurodollar Loan.
"Revolving Credit Loan" shall mean a Revolving Credit Loan made
---------------------
pursuant to Sections 2.01 and 2.02 hereof.
"Revolving Credit Notes" shall mean the Amended and Restated Revolving
----------------------
Credit Notes of the Borrowers, executed and delivered as provided in Section
2.04 hereof, in substantially the form of Exhibit B annexed hereto, as amended,
---------
modified or supplemented from time to time.
"Revolving Credit Termination Date" shall mean the earlier to occur of
---------------------------------
(i) the Final Maturity Date and (ii) such date as the Revolving Credit Loans
shall otherwise be payable in full and the Revolving Credit Commitment shall
terminate, expire or be canceled in accordance with the terms of this Agreement.
"Security Agreement" shall mean the Amended and Restated Security
------------------
Agreement, between the Grantor(s) and the Agent, for the benefit of the Lenders,
substantially in the form of Exhibit D annexed hereto, as amended, modified or
---------
supplemented from time to time.
"Security Agreement - Patents and Trademarks" shall mean the Amended
-------------------------------------------
and Restated Security Agreement and Mortgage - Patents and Trademarks between
the Debtor(s), as such term is defined therein, and the Agent, for the benefit
of the Lenders, substantially in the form of Exhibit F annexed hereto, as
---------
amended, modified or supplemented from time to time.
"Security Documents" shall mean the Pledge Agreement, the Security
------------------
Agreement, the Security Agreement - Patents and Trademarks, the Assignment of
Life Insurance, and each other agreement now existing or hereafter created
providing collateral security for the payment or performance of any Obligations.
"Settlement Date" shall have the meaning assigned to such term in
---------------
Section 2.16(c) hereof.
27
<PAGE>
"Subordinated Guaranty" shall mean each Subordinated Obligations
---------------------
Guaranty (as defined in the Subordinated Loan Agreement).
"Subordinated Indebtedness" shall mean, with respect to any of the
-------------------------
Borrowers, Indebtedness subordinated in right of payment to such person's
monetary obligations under this Agreement upon terms satisfactory to and
approved in writing by the Agent, to the extent it does not by its terms mature
or become subject to any mandatory prepayment or amortization of principal prior
to the Final Maturity Date, and shall in any event include the Indebtedness of
one or more of the Borrowers pursuant to the Subordinated Loan Documents, the
promissory note of Duke dated May 2, 1997 to the order of Harold J. Lefkovitz in
the original principal amount of $585,561.15 due May 1, 2000 and the promissory
note of MSEI dated October 31, 1997 to the order of Entertainment Resources,
Inc. in the original principal amount of $450,000.
"Subordinated Loan Agreement" shall mean Purchase Agreement dated as
---------------------------
of July 27, 1995, as amended between the Parent and ING.
"Subordinated Loan Documents" shall mean the Subordinated Loan
---------------------------
Agreement, the Subordinated Guaranty, the Subordinated Note and all agreements,
instruments and documents executed by the Parent in favor of ING in connection
with the $5,000,000 subordinated debt investment of ING in Parent which occurred
on July 27, 1995. The term Subordinated Loan Documents does not mean or include
the ING Documents.
"Subordinated Note" shall mean the promissory note of the Parent to
-----------------
the order of ING, dated July 27, 1995, in the original principal amount of
$100,000.
"subsidiary" shall mean, with respect to any person, any corporation,
----------
association or other business entity of which securities or other ownership
interests representing more than 50% of the ordinary voting power are, at the
time as of which any determination is being made, owned or controlled, directly
or indirectly, by the parent of such person or one or more subsidiaries of the
parent of such person.
"Taxes" shall have the meaning assigned to such term in Section
-----
2.15(a) hereof.
"Term Alternate Base Loan" shall mean a Term Loan that is an Alternate
------------------------
Base Loan.
"Term Eurodollar Loan" shall mean a Term Loan that is a Eurodollar
--------------------
Loan.
"Term Loan" shall mean the Term Loan made pursuant to Sections 2.01
---------
and 2.02 hereof.
28
<PAGE>
"Term Loan Commitment" shall mean, with respect to any Lender, the
--------------------
Term Loan Commitment of such Lender as set forth in Schedule 2.01(a).
"Term Notes" shall mean the Term Notes of the Borrowers, executed and
----------
delivered as provided in Section 2.04 hereof, in substantially the form of
Exhibit A hereto, as amended, modified or supplemented from time to time.
- ---------
"Total Commitment" shall mean the sum of the Lenders' Total Term Loan
----------------
Commitments and Total Revolving Credit Commitments, as the same may be reduced
from time to time pursuant to this Agreement including, without limitation,
Section 2.07 hereof.
"Total Revolving Credit Commitment" shall mean the sum of the Lenders'
---------------------------------
Revolving Credit Commitments, as the same may be reduced from time to time
pursuant to this Agreement including, without limitation, Section 2.07 hereof.
"Total Term Loan Commitment" shall mean the sum of the Lenders' Term
--------------------------
Loan Commitments, as the same may be reduced from time to time pursuant to this
Agreement including, without limitation, Section 2.07 hereof.
"Transactions" shall have the meaning assigned to such term in Section
------------
4.02 hereof.
"Voting Stock" shall mean, relative to any person, stock or similar
------------
equity interests of such person, pursuant to which the holders thereof have, at
the time of determination, the general voting power under ordinary circumstances
to vote for the election of directors (or persons performing similar functions),
manager, trustees or general partners of such person (irrespective of whether or
not at the time any other class or classes will have or might have voting power
by reason of the happening of any contingency).
SECTION 1.02. Accounting Terms. Unless otherwise expressly provided
----------------
herein, each accounting term used herein shall have the meaning given it under
generally accepted accounting principles in effect from time to time in the
United States applied on a basis consistent with those used in preparing the
financial statements referred to in Section 6.05 hereof ("GAAP"); provided,
---- --------
however, that each reference in Article VII hereof, or in the definition of any
- -------
term used in Article VII hereof, to GAAP shall mean GAAP as in effect on the
date hereof.
29
<PAGE>
II. THE LOANS
SECTION 2.01. Term Loan Commitments and Revolving Credit Commitments.
-------------------------------------------------------
(a) Subject to the terms and conditions and relying upon the representations and
warranties herein set forth, each Lender, severally and not jointly, agrees to
make a Term Loan to the Borrowers on the Closing Date, in a principal amount not
to exceed the amount of such Lender's Term Loan Commitment set forth opposite
its name in Schedule 2.01(a) hereto.
----------------
(b) Subject to the terms and conditions and relying upon the
representations and warranties herein set forth, each Lender, severally and not
jointly, agrees to make Revolving Credit Loans to the Borrowers, at any time and
from time to time from the date hereof to the Revolving Credit Termination Date,
in an aggregate principal amount at any time outstanding not to exceed the
amount of such Lender's Revolving Credit Commitment set forth opposite its name
in Schedule 2.01(b) annexed hereto, as such Revolving Credit Commitment may be
----------------
reduced from time to time in accordance with the provisions of this Agreement,
including, without limitation, Section 2.07 hereof. Notwithstanding the
foregoing, the aggregate principal amount of Revolving Credit Loans outstanding
at any time to the Borrowers shall not exceed (1) the lesser of (A) the Total
Revolving Credit Commitment (as such amount may be reduced pursuant to Section
2.07 hereof) and (B) an amount equal to the sum of (i) up to eighty-five percent
---
(85%) of the Net Amount of Eligible Receivables, and (ii) up to eighty-five
percent (85%) of the Net Amount of Eligible Paper (not to exceed $750,000 at any
time), plus (iii) up to fifty percent (50%) of the Net Amount of Eligible
----
Inventory (not to exceed $5,000,000 at any time), plus (iv) the M&E Availability
----
at the date of determination, plus (v) the Rental Equipment Availability at the
----
date of determination (this clause (1)(B) referred to herein as the "Borrowing
---------
Base") minus (2) the sum of (w) the Letter of Credit Usage (not to exceed
- ---- -----
$2,000,000 at any time) plus (x) the unpaid principal balance of Capitalized
----
Lease Obligations at such time plus (y) interest and fees accrued hereunder or
----
under any of the Loan Documents plus (z) such reserves for other Indebtedness as
----
the Agent may establish from time to time in its reasonable discretion. The
Borrowing Base will be adjusted as often as daily on the basis of the reports
furnished pursuant to Section 6.05(k) and a compliance certificate from a
Responsible Officer of the Borrowers presenting its computation will be
delivered to the Agent in accordance with Section 6.05 hereof.
Subject to the foregoing and within the foregoing limits, the
Borrowers may borrow, repay (or, subject to the provisions of Section 2.09
hereof, prepay) and reborrow Revolving Credit Loans, on and after the date
hereof and prior to the Revolving Credit Termination Date, subject to the terms,
provisions and limitations set forth herein, including, without limitation, the
requirement that no Revolving Credit Loan shall be made hereunder if the amount
thereof exceeds the Availability outstanding at such time.
30
<PAGE>
SECTION 2.02. Loans. (a) The Revolving Credit Loans made by the
-----
Lenders on any date shall be in integral multiples of $1.00; provided, however,
-------- -------
that the Eurodollar Loans made on any date shall be in a minimum aggregate
principal amount equal to the product of $500,000 times the number of Lenders on
such date and $100,000 increments in excess thereof.
(b) Loans shall be made ratably by the Lenders in accordance with
their respective Term Loan Commitments or Revolving Credit Commitments, as the
case may be; provided, however, that the failure of any Lender to make any Loan
-------- -------
shall not in itself relieve any other Lender of its obligation to lend
hereunder. The Term Loan to be made on the Closing Date shall be made by the
Lenders on the Closing Date against delivery of Term Notes, payable to the order
of the Lenders, as referred to in Section 2.04 hereof. The initial Revolving
Credit Loans shall be made by the Lenders against delivery of Revolving Credit
Notes, payable to the order of the Lenders, as referred to in Section 2.04
hereof.
(c) Each Loan shall be either an Alternate Base Loan or a Eurodollar
Loan as the Borrowers may request pursuant to Section 2.03 hereof. Each Lender
may fulfill its obligations under this Agreement by causing its Applicable
Lending Office to make such Loan; provided, however, that the exercise of such
-------- -------
option shall not affect the obligation of the Borrowers to repay such Loan in
accordance with the term of the applicable Note. Not more than three (3)
Eurodollar Loans may be outstanding at any one time.
(d) Subject to the provisions of paragraph (e) below, each Lender
shall make its Term Loan on the Closing Date and Revolving Credit Loans on the
proposed dates thereof by paying the amount required to the Agent in New York,
New York in immediately available funds not later than 12:00 noon, New York City
time, and the Agent shall as soon as practicable, but in no event later than
3:00 p.m., New York City time, credit the amounts so received to the general
deposit account of the Borrowers with the Agent in immediately available funds
or, if Loans are not to be made on such date because any condition precedent to
a borrowing herein specified is not met, return the amounts so received to the
respective Lenders.
(e) The Borrowers shall have the right at any time upon prior
irrevocable written, telex or facsimile notice (promptly confirmed in writing)
to the Agent given in the manner and at the times specified in Section 2.03 with
respect to the Loans into which conversion or continuation is to be made, to
convert all or any portion of Eurodollar Loans into Alternate Base Loans, to
convert all or any portion of Alternate Base Loans into Eurodollar Loans
(specifying the Interest Period to be applicable thereto), to convert the
Interest Period with respect to all or any portion of any Eurodollar Loans to
another permissible Interest Period, and to continue all or any portion of any
Loans into a subsequent Interest Period of the same duration, subject to
31
<PAGE>
the terms and conditions of this Agreement (including the last sentence of
Section 2.02(c) hereof) and to the following:
(i) in the case of a conversion or continuation of fewer than all
the Loans, the aggregate principal amount of Loans converted or continued
shall not be less than $1.00 in the case of Alternate Base Loans or
$1,000,000 in the case of Eurodollar Loans and shall be an integral
multiple of $100,000;
(ii) accrued interest on a Loan (or portion thereof) being converted
or continued shall be paid by the Borrowers at the time of conversion or
continuation;
(iii) if any Eurodollar Loan is converted at any time other than the
end of an Interest Period applicable thereto, the Borrowers shall make such
payments associated therewith as are required pursuant to Section 2.12;
(iv) any portion of a Revolving Credit Loan which is subject to an
Interest Period ending on a date that is less than one (1) month prior to
the Revolving Credit Termination Date may not be converted into, or
continued as, a Eurodollar Loan and shall be automatically converted at the
end of such Interest Period into an Alternate Base Loan;
(v) any portion of a Term Eurodollar Loan required to be paid on any
Repayment Date occurring less than one (1) month after the end of the then
current Interest Period applicable to such Loan may not be converted into,
or continued as, a Term Eurodollar Loan and shall be automatically
converted at the end of such Interest Period into a Term Alternate Base
Loan; and
(vi) no Event of Default shall have occurred and be continuing.
The Interest Period applicable to any Eurodollar Loan resulting from a
conversion shall be specified by the Borrowers in the irrevocable notice of
conversion delivered pursuant to this Section; provided, however, that if no
-------- -------
such Interest Period shall be specified, the Borrowers shall be deemed to have
selected an Interest Period of one (1) month's duration; and, provided, further,
-------- -------
that no Eurodollar Loans may be requested for the period commencing on the
Closing Date and ending on the earlier to occur of (x) the 60th day following
the Closing Date and (y) the completion to the satisfaction of The Chase
Manhattan Bank of the syndication of its portion of the Total Commitment and the
Loans and other Credits thereunder. If the Borrowers shall not have given
timely notice to continue any Eurodollar Loan into a subsequent Interest Period
(and shall not otherwise have given notice to convert such Loan), such Loan
32
<PAGE>
(unless repaid or required to be repaid pursuant to the terms hereof) shall,
subject to (iv) above, automatically be converted into an Alternate Base Loan.
The Agent shall promptly advise the Lenders of any notice given pursuant to this
Section and of each Lender's portion of the continuation or conversion
hereunder.
SECTION 2.03. Notice of Loans. The Borrowers shall, through a
---------------
Responsible Officer of any of the Borrowers, give the Agent irrevocable written,
telex or facsimile notice (promptly confirmed in writing) of each borrowing
(including, without limitation, a conversion as permitted by Section 2.02(e)
hereof) not later than 11:00 A.M., New York City time, (i) three (3) Business
Days before a proposed Eurodollar Loan borrowing or conversion and (ii) one
Business Day before an Alternate Base Loan borrowing or conversion. Such notice
shall specify (w) whether the Loans then being requested are to be Alternate
Base Loans or Eurodollar Loans (subject to the restriction set forth in the last
paragraph of Section 2.02), (x) the date of such borrowing (which shall be a
Business Day) and amount thereof and (y) if such Loans are to be Eurodollar
Loans, the Interest Period with respect thereto. If no election as to the type
of Loan is specified in any such notice, all such Loans shall be Alternate Base
Loans. If no Interest Period with respect to any Eurodollar Loan is specified
in any such notice, then an Interest Period of one month's duration shall be
deemed to have been selected. The Agent shall promptly advise the Lenders of any
notice given pursuant to this Section 2.03 and of each Lender's portion of the
requested borrowing.
SECTION 2.04. Notes; Repayment of Loans. (a) The Term Loan made by
-------------------------
a Lender on the Closing Date to the Borrowers shall be evidenced by a single
Term Note, duly executed on behalf of the Borrowers, dated the Closing Date, in
substantially the form of Exhibit A annexed hereto, delivered and payable to
---------
such Lender in a principal amount equal to its Term Loan Commitment on such
date. All Revolving Credit Loans made by a Lender to the Borrowers shall be
evidenced by a single Revolving Credit Note, duly executed on behalf of the
Borrowers, dated the Closing Date, in substantially the form of Exhibit B
---------
annexed hereto, delivered and payable to such Lender in a principal amount equal
to its Revolving Credit Commitment in respect of the Borrowers on such date.
The outstanding balance of each Revolving Credit Loan, as evidenced by any such
Revolving Credit Note, shall mature and be due and payable on the Revolving
Credit Termination Date.
(b) Each Revolving Credit Note shall bear interest from its date on
the outstanding principal balance thereof, as provided in Section 2.05 hereof.
(c) The aggregate principal amount of the Term Loan, as evidenced by
the Term Notes, shall be payable in fifteen consecutive quarterly installments
(the date of each such installment, a "Repayment Date"), commencing December 31,
--------------
1998 in the amounts set forth below with the balance payable on the Final
Maturity Date, and such payments shall be distributed ratably among the Lenders,
in accordance with their respective Term Loan Commitments:
33
<PAGE>
<TABLE>
<CAPTION>
Term Loan
Date Payment
- ------------------------------------ ---------
<S> <C>
December 31, 1998, March 31, 1999, $ 500,000
June 30, 1999 and September 30, 1999
December 31, 1999, March 31, 2000, $ 750,000
June 30, 2000 and September 30, 2000
December 31, 2000, March 31, 2001, $ 750,000
June 30, 2001 and September 30, 2001
December 31, 2001, March 31, 2002 $1,000,000
and June 30, 2002
Final Maturity Date $5,000,000
</TABLE>
To the extent not previously paid, the Term Loan shall be due and payable on the
Final Maturity Date. Each Term Note shall bear interest from its date on the
outstanding principal balance thereof, as provided in Section 2.05. All
principal payments in respect of the Term Loan shall be accompanied by accrued
interest on the principal amount being repaid to the date of payment. No
scheduled payment of principal in respect of the Term Loan shall be made to the
extent that a lesser principal payment would result in the payment in full of
the outstanding amount of the Term Loan, and such lesser amount is paid.
(d) Each Lender, or the Agent on its behalf, shall, and is hereby
authorized by the Borrowers to, endorse on the schedule attached to the Term
Note or Revolving Credit Note, as applicable, of such Lender (or on a
continuation of such schedule attached to such Note and made a part thereof) an
appropriate notation evidencing the date and amount of each Loan to the
Borrowers from such Lender, as well as the date and amount of each payment and
prepayment with respect thereto; provided, however, that the failure of any
-------- -------
person to make such a notation on a Note shall not affect any obligations of the
Borrowers under such Note. Any such notation shall be conclusive and binding as
to the date and amount of such Loan or portion thereof, or payment or prepayment
of principal or interest thereon, absent manifest error.
(e) Each of the Borrowers shall be jointly and severally liable with
the other Borrower(s) for the Obligations, and each of the Obligations shall be
secured by all of the Collateral. Each of the Borrowers acknowledges that it is
a co-borrower hereunder and is jointly and severally liable under this Agreement
and the other Loan Documents. All Credits extended to any of the Borrowers or
requested by any of the Borrowers shall be deemed to be Credits extended for
each of the Borrowers, and each of the Borrowers hereby authorizes each other of
the Borrowers to effectuate Credits on its behalf. Notwithstanding anything to
the contrary contained in this Agreement or any
34
<PAGE>
of the other Loan Documents, the Agent and the Lenders shall be entitled to rely
upon any request, notice or other communication received by them from any of the
Borrowers on behalf of all Borrowers, and shall be entitled to treat their
giving of any notice hereunder to any of the Borrowers as notice to each and all
Borrowers.
Each of the Borrowers agrees that the joint and several liability of
the Borrowers provided for in this subsection (e) shall not be impaired or
affected by any modification, supplement, extension or amendment or any contract
or agreement to which the other Borrower(s) may hereafter agree (other than an
agreement signed by the Agent and the Lenders specifically releasing such
liability), nor by any delay, extension of time, renewal, compromise or other
indulgence granted by the Agent or any Lender with respect to any of the
Obligations, nor by any other agreements or arrangements whatsoever with the
other Borrower(s) or with any other person, each of the Borrowers hereby waiving
all notice of such delay, extension, release, substitution, renewal, compromise
or other indulgence, and hereby consenting to be bound thereby as fully and
effectually as if it had expressly agreed thereto in advance. The liability of
each of the Borrowers is direct and unconditional as to all of the Obligations,
and may be enforced without requiring the Agent or any Lender first to resort to
any other right, remedy or security. Each of the Borrowers hereby expressly
waives promptness, diligence, notice of acceptance and any other notice with
respect to any of the Obligations, the Notes, this Agreement or any other Loan
Document and any requirement that the Agent or any Lender protect, secure,
perfect or insure any Lien or any property subject thereto or exhaust any right
or take any action against any of the other Borrowers or any other person or any
collateral.
Each of the Borrowers hereby irrevocably waives and releases each
other of the Borrowers from all "claims" ( as defined in Section 101(5) of the
Bankruptcy Code) to which such Borrowers are or would be entitled by virtue of
the provisions of the first paragraph of this subsection (e) or the performance
of such Borrower's obligations thereunder including, without limitation, any
right of subrogation (whether contractual, under Section 509 of the Bankruptcy
Code or otherwise), reimbursement, contribution, exoneration or similar right,
or indemnity, or any right of recourse to security for any of the Obligations.
SECTION 2.05. Interest on Loans. (a) Subject to the provisions of
-----------------
Section 2.05(c) and Section 2.08 hereof, each Alternate Base Loan shall bear
interest at a rate per annum equal to the Alternate Base Rate plus the Interest
Margin.
(b) Subject to the provisions of Section 2.05(c) and Section 2.08
hereof, each Eurodollar Loan shall bear interest at a rate per annum equal to
the Adjusted LIBO Rate plus the Interest Margin.
(c) Interest on each Loan shall be payable in arrears on each
applicable Interest Payment Date and on the Final Maturity Date. Interest on
each
35
<PAGE>
Alternate Base Loan and Eurodollar Loan shall be computed based on the number of
days elapsed in a year of 360 days. The Agent shall determine each interest rate
applicable to the Loans and shall promptly advise the Borrowers and the Lenders
of the interest rate so determined.
SECTION 2.06. Fees. (a) The Borrowers shall pay each Lender,
----
through the Agent, in arrears, (i) on the first Business Day of each April,
July, October and January commencing April 1, 1998, (ii) on the date of any
reduction of the Revolving Credit Commitments pursuant to Section 2.07 hereof
and (iii) on the Revolving Credit Termination Date, in immediately available
funds, a commitment fee (the "Revolving Credit Commitment Fee") of three-eights
-------------------------------
percent (of 1%) from the Closing Date until the second anniversary thereof and
thereafter one-half percent (1/2 of 1%) per annum on the average daily unused
amount of the Revolving Credit Commitment of such Lender, during the quarter (or
shorter period commencing with the date hereof or ending with the Revolving
Credit Termination Date or the period January 1, 1998 to the Closing Date at
of 1% with respect to the unused "Revolving Credit Commitment" under the
Original Credit Agreement) ending on such date. The Revolving Credit Commitment
Fee due to each Lender under this Section 2.06 shall commence to accrue on the
date hereof and cease to accrue on the earlier of (i) the Revolving Credit
Termination Date and (ii) the termination of the Revolving Credit Commitment of
such Lender pursuant to Section 2.07 hereof. The Revolving Credit Commitment
Fee shall be calculated on the basis of the actual number of days elapsed in a
year of 360 days.
(b) In addition, in the event of any termination or partial reduction
of the Total Commitment prior to March 31, 1999, the Borrowers shall pay to the
Agent, for the account of each Lender, on the date of such termination or
reduction, a commitment reduction fee (the "Commitment Reduction Fee") in an
------------------------
amount equal to (i) five hundred thousand dollars ($500,000) in the event of a
termination of the Total Commitment and (ii) one percent (1%) of the amount by
which the Total Revolving Credit Commitment is reduced below $50,000,000;
provided, however, in no event shall the aggregate Commitment Reduction Fee paid
- -------- -------
by the Borrowers be more than $500,000. No Commitment Reduction Fee shall be
payable in the event of a termination or reduction on or after April 1, 1999.
(c) The Borrowers shall also pay the Agent the fees referenced in the
Fee Letter as and when due pursuant to the terms thereof.
SECTION 2.07. Termination and Reduction of Revolving Credit
---------------------------------------------
Commitments (a) Upon at least three (3) Business Days' prior irrevocable
- -----------
written notice (or facsimile notice promptly confirmed in writing) to the Agent,
the Borrowers may at any time in whole permanently terminate, or from time to
time in part permanently reduce, the Total Revolving Credit Commitment, ratably
among the Lenders in accordance with the amounts of their Revolving Credit
Commitments;
36
<PAGE>
provided, however, that the Total Revolving Credit Commitment shall not be
- -------- -------
reduced at any time to an amount less than the Revolving Credit Loans
outstanding under the Revolving Credit Commitments and the Letter of Credit
Usage at such time. Each partial reduction of the Total Revolving Credit
Commitment shall be in a minimum of $500,000 and an integral multiple of
$100,000.
(b) Simultaneously with any termination or reduction of the Total
Revolving Credit Commitment pursuant to paragraph (a) of this Section 2.07, the
Borrowers shall pay to each Lender, through the Agent, the Revolving Credit
Commitment Fee due and owing through and including the date of such termination
or reduction on the amount of the Revolving Credit Commitment of such Lender so
terminated or reduced.
(c) In accordance with the provisions of Section 2.09(f), following
the permanent reduction of the Total Term Loan Commitment, the Total Revolving
Credit Commitment (and to the extent applicable, M&E Availability and Rental
Equipment Availability in relation to the Borrowing Base) shall be permanently
reduced on each date that a prepayment of principal of the Revolving Credit
Loans is required pursuant to Section 2.09(d) or 2.09(e) hereof by the amount of
each such required prepayment. In any event, the Revolving Credit Commitment of
each Lender shall automatically and permanently terminate on the Revolving
Credit Termination Date, and all Revolving Credit Loans still outstanding on
such date shall be due and payable in full together with accrued interest
thereon.
(d) The Total Term Loan Commitment shall be permanently reduced by the
amount of any repayment or prepayment of the outstanding principal amount of the
Term Loans on the date of any such repayment or prepayment. In any event, all
amounts due and owing under the Total Term Loan Commitment shall be due and
payable on the Final Maturity Date.
SECTION 2.08. Interest on Overdue Amounts; Alternate Rate of
----------------------------------------------
Interest. (a) Upon an Event of Default with respect to the payment of the
principal of or interest on any Loan or any other amount becoming due hereunder,
by acceleration or otherwise, the Borrowers shall on demand from time to time
pay interest, to the extent permitted by law, on all Obligations outstanding up
to the date of actual payment of such defaulted amount (after as well as before
judgment) at a rate per annum equal to two percent (2%) in excess of the rates
otherwise applicable to the defaulted amount.
(b) In the event, and on each occasion, that on the day two (2)
Business Days prior to the commencement of any Interest Period for a Eurodollar
Loan the Agent shall have determined that dollar deposits in the amount of each
Eurodollar Loan are not generally available in the London interbank market, or
that the rate at which dollar deposits are being offered will not reflect
adequately and fairly the cost to any Lender of making or maintaining such
Eurodollar Loan during such Interest
37
<PAGE>
Period, or that reasonable means do not exist for ascertaining the Adjusted LIBO
Rate, the Agent shall as soon as practicable thereafter give written notice (or
facsimile notice promptly confirmed in writing) of such determination to the
Borrowers and the Lenders, and any request by the Borrowers for the making of a
Eurodollar Loan pursuant to Section 2.03 hereof or conversion or continuation of
any Loan into a Eurodollar Loan pursuant to Section 2.02 hereof shall, until the
circumstances giving rise to such notice no longer exist, be deemed to be a
request for an Alternate Base Loan. Each determination by the Agent made
hereunder shall be conclusive absent manifest error.
SECTION 2.0 Prepayment of Loans. (a) Subject to the terms and
-------------------
conditions contained in this Section 2.09 and elsewhere in this Agreement, the
Borrowers shall have the right to prepay any Loan at any time in whole or from
time to time in part (except in the case of a Eurodollar Loan only on the last
day of an Interest Period) without penalty (except as otherwise provided for
herein); provided, however, that each such partial prepayment of a Loan shall be
-------- -------
in an integral multiple of $100,000.
(b) On the date of any termination or reduction of the Total Revolving
Credit Commitment pursuant to Section 2.07(a) hereof or elsewhere in this
Agreement, the Borrowers shall pay or prepay so much of the Revolving Credit
Loans as shall be necessary in order that the Availability equals or exceeds
zero following such termination or reduction. Any prepayments required by this
paragraph (b) shall be applied to outstanding Revolving Credit Alternate Base
Loans up to the full amount thereof before they are applied to outstanding
Revolving Credit Eurodollar Loans; provided, however, that the Borrowers shall
-------- -------
not be required to make any prepayment of any Eurodollar Loan pursuant to this
Section until the last day of the Interest Period with respect thereto so long
-- ----
as an amount equal to such prepayment is deposited by the Borrowers in an
- --
interest-bearing cash collateral account with the Agent to be held in such
account on terms satisfactory to the Agent.
(c) The Borrowers shall make prepayments of the Revolving Credit Loans
from time to time such that the Availability equals or exceeds zero at all
times. Any prepayments required by this paragraph (c) shall be applied to
outstanding Revolving Credit Alternate Base Loans up to the full amount thereof
before they are applied to outstanding Revolving Credit Eurodollar Loans;
provided, however, that the Borrowers shall not be required to make any
- -------- -------
prepayment of any Eurodollar Loan pursuant to this Section until the last day of
the Interest Period with respect thereto so long as an amount equal to such
-- ---- --
prepayment is deposited by the Borrowers in an interest-bearing cash collateral
account with the Agent to be held in such account on terms satisfactory to the
Agent.
(d) (i) Within five (5) days of the receipt of the cash proceeds of
any sale of any assets of any of the Borrowers (excluding sales of assets in the
ordinary course of business and excluding Permitted Sales (as defined in Section
7.05 hereof), the Borrowers shall make a mandatory prepayment of the Loans in an
amount equal to
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100% of the proceeds received (net of taxes due and any reasonable expenses of
sale), or (ii) within five (5) days of the consummation of the issuance (whether
public or private) of any equity or debt securities of any of the Borrowers, the
Borrowers shall make a mandatory prepayment of the Loans in an amount equal to
100% until the Term Loans have been paid in full, and thereafter 50% to be
applied to Revolving Credit Loans, of the proceeds received (net of taxes due
and any reasonable expenses of sale) or (iii) within five (5) days of the
receipt by the Borrowers of any amount pursuant to any downward adjustment of
the purchase price paid pursuant to the Acquisition Agreement, the Borrowers
shall make a mandatory prepayment of the Term Loans in an amount equal to 100%
of such adjustment. All proceeds to be applied to the Loans shall be applied as
set forth in paragraph (f) below. Nothing contained in this paragraph (d) shall
be or be deemed to be a consent to the sale of any assets or stock or the
issuance of any equity or debt securities.
(e) (i) Except as provided in clause (ii) below, promptly and
in any event not more than five (5) days following the receipt by
the Agent or any Borrower or any subsidiary of any Borrower (x)
of any net proceeds of any insurance required to be maintained
pursuant to Section 6.03 hereof on account of each separate loss,
damage or injury in excess of $100,000 (or, if there shall be
continuing a Default or an Event of Default, of any amount of net
proceeds) to any asset of such Borrower or such subsidiary
(including, without limitation, any Collateral), or (y) any
business interruption insurance required to be maintained
pursuant to Section 6.03 hereof in excess of $250,000 (or, if
there shall be continuing a Default or Event of Default, the full
amount of net proceeds), such Borrower or subsidiary shall notify
the Agent of such receipt in writing or by telephone promptly
confirmed in writing, and not later than the day following
receipt by the Agent or such Borrower or subsidiary of any such
proceeds, there shall become due and payable a prepayment of the
Loans in an amount equal to 100% of such proceeds. Prepayments
from such net proceeds shall be applied as set forth in paragraph
(f) below.
(ii) In the case of the receipt of net proceeds described
in clause (i) above with respect to the loss, damage or injury to
any asset of a Borrower or any subsidiary of a Borrower (other
than net proceeds of any business interruption insurance), the
Borrowers may elect, by written notice delivered to the Agent not
later than the day on which a prepayment would otherwise be
required under clause (i), to apply all or a portion of such net
proceeds for the purpose of replacing, repairing, restoring or
rebuilding the relevant tangible property, and, in such event,
any required prepayment under clause (i) above shall be reduced
dollar for dollar by the amount of such election. An election
under this clause (ii) shall not be effective unless: (x) at the
time of such election there is continuing no Default or Event of
Default; (y) the Borrowers shall have
39
<PAGE>
certified to the Agent that: (1) the net proceeds of the
insurance adjustment for such loss, damage or injury, together
with other funds available to the Borrowers shall be sufficient
to complete such replacement, repair, restoration or rebuilding
in accordance with all applicable laws, regulations and
ordinances; and (2) to the best knowledge of the Borrowers, no
Default or Event of Default has arisen or will arise as a result
of such loss, damage, injury, replacement, repair or rebuilding;
and (z) if the amount of net proceeds in question exceeds
$100,000, the Borrowers shall have obtained the written consent
of the Required Lenders to such election.
(iii) In the event of an election under clause (ii) above,
pending application of the net proceeds to the required
replacement, repairs, restoration or rebuilding, the Borrowers
shall not later than the time at which prepayment would have
been, in the absence of such election, required under clause (i)
above, apply such net proceeds to the prepayment of the
outstanding principal balance, if any, of the Revolving Credit
Loans (not in permanent reduction of the Revolving Credit
Commitment), and deposit (the "Special Deposit") with the
---------------
Agent, the balance, if any, of such net proceeds remaining after
such application, pursuant to agreements in form, scope and
substance reasonably satisfactory to the Agent. The Special
Deposit, together with all earnings on such Special Deposit,
shall be available to the Borrowers solely for the replacement,
repair, rebuilding or restoration of the tangible property
suffering the injury, loss or damage in respect of which such
prepayment and Special Deposit were made or to such other purpose
as to which the Required Lenders may consent in writing;
provided, however, that at such time as a Default or Event of
-------- -------
Default shall occur, the balance of the Special Deposit and
earnings thereon may be applied by Agent to repay the Obligations
in such order as the Agent shall elect. The Agent shall be
entitled to require proof, as a condition to the making of any
withdrawal from the Special Deposit, that the proceeds of such
withdrawal are being applied for the purposes permitted
hereunder.
(iv) Notwithstanding anything to the contrary in this
paragraph (e), on the date one hundred and twenty (120) days
following the receipt by the Agent or any Borrower of any net
proceeds of any insurance referred to in Section 6.17 hereof,
there shall become due and payable a prepayment of principal in
respect of the Obligations in an amount equal to 100% of such net
proceeds. All prepayment made pursuant to this clause (iv) shall
be applied in the manner set forth in paragraph (f) below.
(f) When making a prepayment, whether mandatory or otherwise,
pursuant to paragraph (a), (b), (c), (d) or (e) above or paragraph (i) below,
the
40
<PAGE>
Borrowers shall furnish to the Agent, not later than 11:00 a.m. (New York City
time) (i) three (3) Business Days prior to the date of such prepayment of
Alternate Base Loans and (ii) five (5) Business Days prior to the date of such
prepayment of Eurodollar Loans, written, telex or facsimile notice (promptly
confirmed in writing) of prepayment which shall specify the prepayment date and
the principal amount of each Loan (or portion thereof) to be prepaid, which
notice shall be irrevocable and shall commit the Borrowers to prepay such Loan
by the amount stated therein on the date stated therein. All prepayments shall
be accompanied by accrued interest on the principal amount being prepaid to the
date of prepayment. Prepayments made pursuant to paragraph (d) or (e) above
shall be applied as follows: (A) first, to outstanding Term Alternate Base Loans
up to the full amount thereof and then to outstanding Term Eurodollar Loans up
to the full amount thereof and (B) second, to outstanding Revolving Credit
Alternate Base Loans up to the full amount thereof and then to Revolving Credit
Eurodollar Loans up to the full amount thereof; provided, however, that if at
-------- -------
the time of the making of any prepayment in accordance with Clause (B), there
are undrawn Letters of Credit outstanding, then in the discretion of the Agent,
all or a portion of any such prepayment (not to exceed an amount equal to the
aggregate undrawn amount of all such outstanding Letters of Credit) shall be
deposited by the Borrowers in an interest-bearing cash collateral account to be
held by the Agent for the benefit of the Lenders for application by the Agent to
the payment of any drawing made under any such Letters of Credit; and, provided,
--------
however, that the Borrowers shall not be required to make any prepayment of any
- -------
Term or Revolving Credit Eurodollar Loan required pursuant to this Section
2.09(f) until the last day of the Interest Period with respect thereto so long
-- ----
as an amount equal to such prepayment is deposited by the Borrowers into a cash
- --
collateral account with the Agent to be held in such account pursuant to terms
satisfactory to the Agent. All prepayments under Sections 2.09(d) or 2.09(e) of
this Agreement that are applied to Revolving Credit Loans pursuant to this
paragraph (f) shall be in permanent reduction of the Total Revolving Credit
Commitment and the M&E Availability or Rental Equipment Availability in relation
to the Borrowing Base as applicable. All such permanent reductions of the Total
Revolving Credit Commitment and M&E Availability or Rental Equipment
Availability, as applicable, shall be in addition to all scheduled reductions
under this Agreement.
(g) All prepayments under this Section 2.09 shall be subject to
Section 2.12 hereof.
(h) Except as otherwise expressly provided in this Section 2.09,
payments with respect to any paragraph of this Section 2.09 are in addition to
payments made or required to be made under any other paragraph of this Section
2.09.
(i) Within 107 days of the end of each Fiscal Year of the Borrowers,
commencing with the Fiscal Year ending September 30, 1999, the Borrowers shall
make a mandatory prepayment of the Loans in an amount equal to the Mandatory
41
<PAGE>
Prepayment for the Fiscal Year then ended, such prepayment to be applied as set
forth in paragraph (f) above.
(j) All prepayments of the Term Loan under this Section 2.09 shall
be applied in the inverse order of the Repayment Dates. The amount of the Term
Loan prepaid may not be reborrowed.
SECTION 2.10. Reserve Requirements; Change in Circumstances. (a)
---------------------------------------------
Notwithstanding any other provision herein, if after the date of this Agreement
(or in the case of any assignee of any Lender, the date of assignment) any
change in applicable law or regulation or in the interpretation or
administration thereof by any governmental authority charged with the
interpretation or administration thereof (whether or not having the force of
law), or any change in GAAP or regulatory accounting principles applicable to
the Agent or any Lender, shall: (i) subject the Agent or any Lender (which shall
for the purpose of this Section 2.10 include any assignee or lending office of
the Agent or any Lender) to any charge, fee deduction or withholding of any kind
or to any tax with respect to any amount paid or to be paid by either the Agent
or any Lender with respect to any Eurodollar Loans made by a Lender to the
Borrowers or with respect to the obligations of any Lender under Sections 2.17
through 2.20 hereof or under any Letter of Credit (other than (x) taxes imposed
on the overall net income of the Agent or such Lender and (y) franchise taxes
imposed on the Agent or such Lender, in either case by the jurisdiction in which
such Lender or the Agent has its principal office or its lending office with
respect to such Eurodollar Loan or any political subdivision or taxing authority
of either thereof); (ii) change the basis of taxation of payments to any Lender
or the Agent of the principal of or interest on any Eurodollar Loan or any other
fees or amounts payable with respect to any Letter of Credit or otherwise
hereunder (other than taxes imposed on the overall net income of such Lender or
the Agent by the jurisdiction in which such Lender or the Agent has its
principal office or by any political subdivision or taxing authority therein);
(iii) impose, modify or deem applicable any reserve, special deposit or similar
requirement against assets of, deposits with or for the account of, or loans or
loan commitments extended by, or Letters of Credit issued and maintained by,
such Lender; or (iv) impose on any Lender or, with respect to Eurodollar Loans,
the London interbank market, any other condition affecting this Agreement,
Letters of Credit issued and maintained by or Eurodollar Loans made by such
Lender; and the result of any of the foregoing shall be to increase the cost to
any such Lender of making or maintaining any Eurodollar Loan or Letter of
Credit, or to reduce the amount of any payment (whether of principal, interest,
fee, compensation or otherwise) receivable by such Lender or to require such
Lender to make any payment in respect of any Eurodollar Loan or Letter of
Credit, then the Borrowers shall pay to such Lender or the Agent, as the case
may be, upon such Lender's or the Agent's demand, such additional amount or
amounts as will compensate such Lender or the Agent for such additional costs or
reduction. The Agent and each Lender agree to give notice to the Borrowers of
any such change in law, regulation, interpretation or administration with
reasonable promptness after
42
<PAGE>
becoming actually aware thereof and of the applicability thereof to the
Transactions. Notwithstanding anything contained herein to the contrary, nothing
in clause (i) or (ii) of this Section 2.10(a) shall be deemed to (x) permit the
Agent or any Lender to recover any amount thereunder which would not be
recoverable under Section 2.15 hereof or (y) require the Borrowers to make any
payment of any amount to the extent that such payment would duplicate any
payment made by the Borrowers pursuant to Section 2.15 hereof.
(b) If at any time and from time to time after the date of this
Agreement, any Lender shall determine that the adoption of any applicable law,
rule, regulation or guideline regarding capital adequacy, or any change in any
applicable law, rule, regulation or guideline regarding capital adequacy,
including, without limitation, the July 1988 report of the Basle Committee on
Banking Regulations and Supervisory Practices entitled "International
Convergence of Capital Measurement and Capital Standards", or any change in the
interpretation or administration of any thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by such Lender (or its lending office)
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 will have the effect of reducing the rate of return on such Lender's capital
or on the capital of such Lender's holding company, if any, as a consequence of
its obligations hereunder to a level below that which such Lender could have
achieved but for such adoption, change or compliance (taking into consideration
such Lender's policies and the policies of such Lender's holding company with
respect to capital adequacy), then from time to time the Borrowers shall pay to
such Lender such additional amount or amounts as will compensate such Lender for
such reduction. Each Lender agrees to give notice to the Borrowers of any
adoption of, change in, or change in interpretation or administration of, any
such law, rule, regulation or guideline with reasonable promptness after
becoming actually aware thereof and of the applicability thereof to the
Transactions.
(c) A statement of any Lender or the Agent setting forth such amount
or amounts, supported by calculations in reasonable detail, as shall be
necessary to compensate such Lender (or the Agent) as specified in paragraphs
(a) and (b) above shall be delivered to the Borrowers and shall be conclusive
absent manifest error. The Borrowers shall pay each Lender or the Agent the
amount shown as due on any such statement within ten (10) Business Days after
its receipt of the same.
(d) Failure on the part of any Lender or the Agent to demand
compensation for any increased costs, reduction in amounts received or
receivable with respect to any Interest Period or any Letter of Credit or
reduction in the rate of return earned on such Lender's capital, shall not
constitute a waiver of such Lender's or the Agent's rights to demand
compensation for any increased costs or reduction in amounts received or
receivable or reduction in rate of return in such Interest Period or in any
43
<PAGE>
other Interest Period or with respect to such Letter of Credit. The protection
under this Section 2.10 shall be available to each Lender and the Agent
regardless of any possible contention of the invalidity or inapplicability of
any law, regulation or other condition which shall give rise to any demand by
such Lender or the Agent for compensation. In the event that any Borrower pays
any amounts to the Agent or any Lender under this Section 2.10 and the Agent
and/or such Lender receives a refund from any governmental agency with respect
thereto, the Agent or such Lender, as the case may be, shall refund the amount
paid by the Borrower, without interest.
(e) Any Lender claiming any additional amounts payable pursuant to
this Section 2.10 agrees to use reasonable efforts (consistent with legal and
regulatory restrictions) to designate a different Applicable Lending Office if
the making of such a designation would avoid the need for, or reduce the amount
of, any such additional amounts and would not, in the reasonable judgment of
such Lender, be otherwise disadvantageous to such Lender.
SECTION 2.11. Change in Legality. (a) Notwithstanding anything to
------------------
the contrary herein contained, if any change in any law or regulation or in the
interpretation thereof by any governmental authority charged with the
administration or interpretation thereof shall make it unlawful for any Lender
to make or maintain any Eurodollar Loan or to give effect to its obligations to
make Eurodollar Loans as contemplated hereby, then, by written notice to
Borrowers and to the Agent, such Lender may:
(i) declare that Eurodollar Loans will not thereafter be made by
such Lender hereunder, whereupon the Borrowers shall be prohibited
from requesting Eurodollar Loans from such Lender hereunder unless
such declaration is subsequently withdrawn; and
(ii) require that all outstanding Eurodollar Loans, as the case
may be, made by it be converted to Alternate Base Loans, in which
event (A) all such Eurodollar Loans shall be automatically converted
to Alternate Base Loans as of the effective date of such notice as
provided in paragraph (b) below and (B) all payments of principal
which would otherwise have been applied to repay the converted
Eurodollar Loans shall instead be applied to repay the Alternate Base
Loans resulting from the conversion of such Eurodollar Loans.
(b) For purposes of Section 2.11(a) hereof, a notice to the Borrowers
by any Lender shall be effective, if lawful, on the last day of the then current
Interest Period or, if there are then two or more current Interest Periods, on
the last day of each such Interest Period, respectively; otherwise, such notice
shall be effective with respect to the Borrowers on the date of receipt by the
Borrowers.
44
<PAGE>
SECTION 2.12. Indemnity. The Borrowers shall indemnify the Agent and
---------
each Lender against any loss or reasonable expense (including, but not limited
to, any loss or reasonable expense sustained or incurred or to be sustained or
incurred by reason of or in connection with the execution and delivery or
assignment of, or payment under, any Letter of Credit, or in liquidating or
employing deposits from third parties acquired to affect or maintain any Loan or
part thereof as a Eurodollar Loan) which the Agent or such Lender may sustain or
incur as a consequence of the following events (regardless of whether such
events occur as a result of the occurrence of an Event of Default or the
exercise of any right or remedy of the Agent or the Lenders under this Agreement
or any other agreement, or at law): any failure of the Borrowers to fulfill on
the date of any Credit Event the applicable conditions set forth in Article V
hereof applicable to it; any failure of the Borrowers to borrow hereunder after
irrevocable notice of borrowing pursuant to Section 2.03 hereof has been given;
any payment, prepayment or conversion of a Eurodollar Loan on a date other than
the last day of the relevant Interest Period; any default in payment or
prepayment of the principal amount of any Loan or any part thereof or interest
accrued thereon, or with respect to any Letter of Credit, in each case as and
when due and payable (at the due date thereof, by irrevocable notice of
prepayment or otherwise); or the occurrence of an Event of Default. Without
limiting the foregoing, the Borrowers further agree to indemnify and hold
harmless the Agent, each Lender as well as their respective officers and
directors, each person who controls the Agent or Lender within the meaning of
Section 15 of the Securities Act of 1933 or any applicable state securities law
and their respective successors, from and against any and all claims, damages,
losses, liabilities, costs or expenses, joint or several, to which they or any
of them may become subject under any Federal or state securities law, rule or
regulation, at common law or otherwise, insofar as such claims, damages, losses,
liabilities, costs or expenses arise out of or are based upon the execution and
delivery by the Agent or any Lender of any Letter of Credit or the execution and
delivery of any other document in connection therewith. Such loss or reasonable
expense shall include, without limitation, an amount equal to the excess, if
any, of (i) the amount of interest which would have accrued on the principal or
other amount so paid, prepaid or converted or not borrowed for the period from
the date of such payment, prepayment or conversion or failure to borrow to, in
the case of a Loan, the last day of the Interest Period for such Loan (or, in
the case of a failure to borrow, the Interest Period for such Loan which would
have commenced on the date of such failure to borrow), at the applicable rate of
interest for such Loan provided for herein over (ii) the amount of interest (as
reasonably determined by such Lender) that would be realized by such Lender in
reemploying the funds so paid, prepaid or converted or not borrowed in United
States Treasury obligations with comparable maturities for comparable periods.
Any such Lender shall provide to the Borrowers a statement, signed by an officer
of such Lender, explaining any loss or expense and setting forth, if applicable,
the computation pursuant to the preceding sentence, and such statement shall be
conclusive absent manifest error. The Borrowers shall pay such Lender the
amount shown as due on any such statement within ten (10) days after the receipt
of
45
<PAGE>
the same. The indemnities contained herein shall survive the expiration or
termination of this Agreement and of the Letters of Credit.
SECTION 2.13. Pro Rata Treatment. (a) Except as permitted under
------------------
Sections 2.10, 2.11, 2.15 and 2.16(c) hereof, or as described in subsection (d)
below, each borrowing, each payment or prepayment of principal of the Notes,
each payment of interest on the Notes, each payment of any fee or other amount
payable hereunder and each reduction of the Total Revolving Credit Commitment
and Total Term Loan Commitment shall be made pro rata among the Lenders in the
proportions that their Revolving Credit Commitments bear to the Total Revolving
Credit Commitment or that their Term Loan Commitments bears to the Total Term
Loan Commitment, as the case may be.
(b) Notwithstanding the occurrence or continuance of a Default or
Event of Default or other failure of any condition to the making of Loans or
occurrence of other Credit Events hereunder subsequent to the Credit Events on
the Closing Date, unless the Agent shall have been notified in writing by any
Lender in accordance with the provisions of paragraph (c) below prior to the
date of a proposed Credit Event that such Lender will not make the amount that
would constitute its pro rata share of the applicable Credits on such date
available to the Agent, the Agent may assume that such Lender has made such
amount available to the Agent on such date, and the Agent may, in reliance upon
such assumption, make available to the Borrowers a corresponding amount. If
such amount is made available to the Agent on a date after such Credit Event
date (or Settlement Date, if the procedures set forth in Section 2.16(c) are in
effect), such Lender shall pay to the Agent on demand an amount equal to the
product of (i) the daily average Federal funds rate during such period as quoted
by the Agent, times (ii) the amount of such Lender's pro rata share of such
Credits, times (iii) a fraction the numerator of which is the number of days
that elapse from and including such Credit Event date to the date on which such
Lender's pro rata share of such Credits shall have become immediately available
to the Agent and the denominator of which is 360. A certificate of the Agent
submitted to any Lender with respect to any amounts owing under this subsection
shall be conclusive in the absence of manifest error. If such Lender's pro rata
share of such Credits is not in fact made available to the Agent by such Lender
within three Business Days of such Credit Event date, the Agent shall be
entitled to recover such amount with interest thereon at the rate per annum
applicable to the Loans hereunder, on demand, from the Borrowers.
(c) Unless and until the Agent shall have received notice from the
Required Lenders as to the existence of a Default, an Event of Default or some
other circumstance which would relieve the Lenders of their respective
obligations to extend Credits hereunder, which notice shall be in writing and
shall be signed by the Required Lenders and shall expressly state that the
Required Lenders do not intend to make available to the Agent such Lenders'
ratable share of Credits extended after the effective date of such notice, the
Agent shall be entitled to continue to make the assumptions described in Section
2.13(b) above. After receipt of the notice described in the preceding sentence,
which shall become effective on the third Business Day after receipt of such
notice by the Agent (unless otherwise agreed by the Agent), the Agent shall be
entitled to make the
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<PAGE>
assumptions described in Section 2.13(b) above as to any Credits as to which it
has not received a written notice to the contrary prior to 11:00 A.M. (New York
time) on the Business Day next preceding the day on which such Credits are to be
extended. The Agent shall not be required to extend any Credits as to which it
shall have received notice by a Lender of such Lender's intention not to make
its ratable portion of such Credits available to the Agent. Any withdrawal of
authorization as described under this Section 2.13(c) shall not affect the
validity of any Credits extended prior to the effectiveness thereof.
(d) In the event that any Lender fails to fund its ratable portion
(based on its Revolving Credit Commitment) of any Revolving Credit Loan which
such Lender is obligated to fund under the terms of this Agreement (the funded
portion of such borrowing being hereinafter referred to as a "Non Pro Rata
------------
Loan"), until the earlier of such Lender's cure of such failure or the
- ----
termination of the Total Revolving Credit Commitment, in the Agent's sole
discretion, the proceeds of all amounts thereafter repaid to Agent by Borrowers
and otherwise required to be applied to such Lender's share of all other
Obligations pursuant to the terms of this Agreement, may be advanced to
Borrowers by Agent on behalf of such Lender to cure, in full or in part, such
failure by such Lender, but shall nevertheless be deemed to have been paid to
such Lender in satisfaction of such other Obligations. Notwithstanding anything
in this Agreement to the contrary:
(i) the foregoing provisions to this subsection (d) shall apply only
with respect to the proceeds of payments of Obligations and shall not
affect the conversion or continuation of Loans pursuant to Section 2.02;
(ii) any such Lender shall be deemed to have cured its failure to
fund at such time as an amount equal to such Lender's ratable portion
(based on its applicable Revolving Credit Commitment) of the requested
principal portion of such Revolving Credit Loan is fully funded to
Borrowers whether made by such Lender itself or by operation of the terms
of this subsection (d) and whether or not the Non Pro Rata Loan with
respect thereto has been converted or continued;
(iii) amounts advanced to Borrowers to cure, in full or in part, any
such Lender's failure to fund its Revolving Credit Loans ("Cure Loans")
shall bear interest at the rate applicable to Alternate Base Loans under
Section 2.05 in effect from time to time, and for all other purposes of
this Agreement shall be treated as if they were Alternate Base Loans;
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(iv) Regardless of whether or not an Event of Default has occurred
and is continuing, and notwithstanding the instructions of Borrowers as to
their desired application, all repayments of principal which would be
applied to the outstanding Revolving Credit Alternate Base Loans shall be
applied first, ratably to Revolving Credit Alternate Base Loans
-----
constituting Non Pro Rata Loans, second, ratably to Revolving Credit
------
Alternate Base Loans other than those constituting Non Pro Rata or Cure
Loans and, third, ratably to Revolving Credit Alternate Base Loans
-----
constituting Cure Loans;
(v) for so long as, and until the earlier of any such Lender's cure
of the failure to fund its ratable portion (based on its applicable
Revolving Credit Commitment) of any Revolving Credit Loan and the
termination of the Total Revolving Credit Commitment, the term "Required
Lenders" for all purposes of this Agreement shall exclude all Lenders whose
failure to fund their ratable portion (based on their respective applicable
Revolving Credit Commitments) of any Revolving Credit Loan have not been
cured; and
(vi) for so long as, and until any such Lender's failure to fund its
ratable portion (based on its applicable Revolving Credit Commitment) of
any Revolving Credit Loan is cured in accordance with this subsection (d),
such Lender shall not be entitled to any Revolving Credit Commitment Fee
with respect to its Revolving Credit Commitment.
SECTION 2.14. Sharing of Setoffs. Each Lender agrees that if it
------------------
shall, through the exercise of a right of banker's lien, setoff or counterclaim
against the Borrowers, including, but not limited to, a secured claim under
Section 506 of Title 11 of the United States Code or other security or interest
arising from, or in lieu of, such secured claim, received by such Lender under
any applicable bankruptcy, insolvency or other similar law or otherwise, obtain
payment (voluntary or involuntary) in respect of a Note and exposure under the
Letter of Credit held by it as a result of which the unpaid principal portion of
the Notes and exposure under the Letter of Credit held by it shall be
proportionately less than the unpaid principal portion of the Notes and exposure
under the Letter of Credit held by any other Lender, it shall be deemed to have
simultaneously purchased from such other Lender a participation in the Notes and
exposure under the Letter of Credit held by such other Lender, so that the
aggregate unpaid principal amount of the Notes and exposure under the Letter of
Credit and participations in Notes or exposure under the Letter of Credit Usage
held by it shall be in the same proportion to the aggregate unpaid principal
amount of all Notes or exposure under the Letter of Credit Usage then
outstanding as the principal amount of the Notes or exposure under the Letter of
Credit Usage held by it prior to such exercise of banker's lien, setoff or
counterclaim was to the principal amount of all Notes or exposure under the
Letter of Credit Usage outstanding prior to such exercise of banker's lien,
setoff or counterclaim;
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provided, however, that if any such purchase or purchases or adjustments
- -------- -------
shall be made pursuant to this Section 2.14 and the payment giving rise thereto
shall thereafter be recovered, such purchase or purchases or adjustments shall
be rescinded to the extent of such recovery and the purchase price or prices or
adjustments restored without interest. The Borrowers expressly consent to the
foregoing arrangements and agree that any Lender holding a participation in a
Note and exposure under the Letter of Credit deemed to have been so purchased
may exercise any and all rights of banker's lien, setoff or counterclaim with
respect to any and all moneys owing by the Borrowers to such Lender as fully as
if such Lender held a Note and exposure under the Letter of Credit in the amount
of such participation.
SECTION 2.15. Taxes. (a) Any and all payments by the Borrowers
-----
hereunder shall be made, in accordance with Section 2.16 hereof, free and clear
of and without deduction for any and all present or future taxes, levies,
imposts, deductions, charges or withholdings in any such case imposed by the
United States or any political subdivision thereof, excluding:
(i) in the case of the Agent and each Lender, taxes imposed or based
on its net income, and franchise or capital taxes imposed on it, (A) if the
Agent or such Lender is organized under the laws of the United States or
any political subdivision thereof and (B) if the Agent or such Lender is
not organized under the laws of the United States or any political
subdivision thereof, and its principal office or Applicable Lending Office
is located in the United States, and in the case of both (A) and (B),
withholding taxes payable with respect to payments to the Agent or such
Lender at its principal office or Applicable Lending Office under laws
(including, without limitation, any treaty, ruling, determination or
regulation in effect on the date hereof, but not any increase in
withholding tax resulting from any subsequent change in such laws (other
than withholding with respect to taxes imposed or based on its net income
or with respect to franchise or capital taxes), and
(ii) taxes (including withholding taxes) imposed by reason of the
failure of the Agent or any Lender, in either case that is organized
outside the United States, to comply with Section 2.15(f) hereof (or the
inaccuracy at any time of the certificates, documents and other evidence
delivered thereunder)
(all such nonexcluded taxes, levies, imposts, deductions, charges, withholdings
and liabilities being hereinafter referred to as "Taxes"). If the Borrowers
-----
shall be required by law to deduct any Taxes from or in respect of any sum
payable hereunder to the Lenders or the Agent, (x) the sum payable shall be
increased by the amount necessary so that after making all required deductions
(including without limitation deductions applicable to additional sums payable
under this Section 2.15) such Lender or the
49
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Agent (as the case may be) receives an amount equal to the sum it would have
received had no such deductions been made, (y) the Borrowers shall make such
deductions and (z) the Borrowers shall pay the full amount deducted to the
relevant tax authority or other authority in accordance with applicable law.
(b) In addition, the Borrowers agree to pay any present or future
stamp or documentary taxes or any other excise or property taxes, charges or
similar levies which arise from any payment made hereunder or from the
execution, delivery or registration of, or otherwise with respect to, this
Agreement (hereinafter referred to as "Other Taxes").
-----------
(c) The Borrowers will indemnify each Lender and the Agent for the
full amount of Taxes or Other Taxes (including, without limitation, any Taxes or
Other Taxes imposed by any jurisdiction (except as specified in clauses (a)(i)
and (ii)) on amounts payable under this Section 2.15) paid by such Lender or the
Agent (as the case may be) and any liability (including penalties, interest and
expenses) arising therefrom or with respect thereto. This indemnification shall
be made within 30 days from the date such Lender or the Agent (as the case may
be) makes written demand therefor. If any Lender receives a refund in respect
of any Taxes or Other Taxes for which such Lender has received payment from the
Borrowers hereunder, such Lender shall promptly notify the Borrowers of such
refund and such Lender shall, within 30 days of receipt of a request by the
Borrowers, repay such refund to the Borrowers, provided that the Borrowers, upon
the request of such Lender, agrees to return such refund (plus any penalties,
interest or other charges) to such Lender in the event such Lender is required
to repay such refund.
(d) Within 30 days after the date of any payment of Taxes or Other
Taxes withheld by the Borrowers in respect of any payment to any Lender, the
Borrowers will furnish to the Agent, at its address referred to in Section 11.01
hereof, such certificates, receipts and other documents as may be reasonably
required to evidence payment thereof.
(e) Without prejudice to the survival of any other agreement
hereunder, the agreements and obligations contained in this Section 2.15 shall
survive the payment in full of principal and interest hereunder.
(f) Each Lender that is organized outside of the United States shall
deliver to the Borrowers on the date hereof (or, in the case of an assignee, on
the date of the assignment) and from time to time as required for renewal under
applicable law duly completed copies of United States Internal Revenue Service
Form 1001 or 4224 (or any successor or additional forms), as appropriate,
indicating in each case that such Lender is entitled to receive payments under
this Agreement without any deduction or withholding of any United States federal
income taxes. The Agent (if the Agent is an entity organized outside the United
States) and each Lender that is organized outside
50
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the United States shall promptly notify the Borrowers and the Agent of any
change in its Applicable Lending Office and upon written request of the
Borrowers such Lender shall, prior to the immediately following due date of any
payment by the Borrowers or any Guarantor hereunder or under any other Loan
Document, deliver to the Borrowers or such Guarantor, as the case may be (with
copies to the Agent), such certificates, documents or other evidence, as
required by the Code or Treasury Regulations issued pursuant thereto, including
without limitation Internal Revenue Service Form 4224, Form 1001 and any other
certificate or statement of exemption required by Treasury Regulation Section
1.1441-4(a) or Section 1.1441-6(c) or any subsequent version thereof, properly
completed and duly executed by such Lender establishing that such payment is (i)
not subject to withholding under the Code because such payment is effectively
connected with the conduct by such Lender of a trade or business in the United
States or (ii) totally exempt from United States tax under a provision of an
applicable tax treaty. The Borrowers shall be entitled to rely on such forms in
their possession until receipt of any revised or successor form pursuant to this
Section 2.15(f). If the Agent or a Lender fails to provide a certificate,
document or other evidence required pursuant to this Section 2.15(f), then (i)
the Borrowers shall be entitled to deduct or withhold on payments to the Agent
or such Lender as a result of such failure, as required by law, and (ii) the
Borrowers shall not be required to make payments of additional amounts with
respect to such withheld Taxes pursuant to clause (x) of Section 2.15(a) to the
extent such withholding is required solely by reason of the failure of the Agent
or such Lender to provide the necessary certificate, document or other evidence.
(g) Each Lender and the Agent shall use reasonable efforts to avoid or
minimize any amounts which might otherwise be payable pursuant to this
subsection 2.15 (including seeking refunds of any amounts that are reasonably
believed not to have been correctly or legally asserted); provided, however,
-------- -------
that such efforts shall not include the taking of any actions by such Lender or
the Agent that would result in any tax, costs or other expense to such Lender or
the Agent (other than a tax, cost or other expense for which such Lender or the
Agent shall have been reimbursed or indemnified by the Borrowers pursuant to
this Agreement or otherwise) or any action which would or might in the
reasonable opinion of such Lender or the Agent have an adverse effect upon its
business, operations or financial condition or otherwise be disadvantageous to
such Lender or the Agent.
SECTION 2.16. Payments and Computations. (a) Except as specified
-------------------------
in Section 10.01, the Borrowers shall make each payment hereunder and under any
instrument delivered hereunder not later than 12:00 noon (New York City time) on
the day when due in lawful money of the United States (in freely transferable
dollars) to the Agent at its offices at 633 Third Avenue, New York, New York
10017-6764 for the account of the Lenders, in immediately available funds. The
Agent may charge, when due and payable, the Borrowers' account with the Agent
for all interest, principal and commitment fees or other fees owing to the Agent
or the Lenders on or
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with respect to this Agreement and/or the Loans and other Loan Documents. If at
any time there is not sufficient availability to cover any of the payments
referred to in the prior sentence, and in any event upon the occurrence of any
Default, the Borrowers shall make any such payments upon demand.
(b) If Agent pays an amount to a Lender under this Agreement in the
belief or expectation that a related payment has been or will be received by
Agent from Borrowers and such related payment is not received by Agent, then
Agent will be entitled to recover such amount from such Lender without setoff,
counterclaim or deduction of any kind. If Agent determines at any time that any
amount received by Agent under this Agreement must be returned to Borrowers or
paid to any other person pursuant to any solvency law or otherwise, then,
notwithstanding any other term or condition of this Agreement, Agent will not be
required to distribute any portion thereof to any Lender. In addition, each
Lender will repay to Agent on demand any portion of such amount that Agent has
distributed to such Lender, together with interest at such rate, if any, as
Agent is required to pay to Borrowers or such other person, without setoff,
counterclaim or deduction of any kind.
(c) The outstanding principal balance of Revolving Credit Loans may
fluctuate from day to day, through Agent's disbursement of funds to, and receipt
of funds from, Borrowers. In order to minimize the frequency of transfers of
funds between Agent and each Lender, Revolving Credit Loans and payments may be
settled according to the following procedures. On the third Business Day of
each week, or more frequently (including daily), if Agent so elects (each such
day being a "Settlement Date"), Agent will advise each Lender by telephone,
---------------
telex or telecopy of the amount of each such Lender's actual dollar investment
and its ratable portion (based on its applicable Revolving Credit Commitment) of
the outstanding principal balance of Revolving Credit Loans as of the close of
business on the third Business Day immediately preceding the Settlement Date.
In the event that payments are necessary to adjust the amount of such Lender's
actual dollar investment in the outstanding principal balance of Revolving
Credit Loans to such Lender's ratable portion (based on its applicable Revolving
Credit Commitment) of the outstanding principal balance of Revolving Credit
Loans as of any Settlement Date, the party from which such payment is due will
pay the other, in immediately available funds, by wire transfer to the other's
account not later than 2:00 p.m. (New York time) on the Business Day immediately
following the Settlement Date. Notwithstanding the foregoing, if Agent so
elects, Agent may require that each Lender make its ratable portion (based on
its applicable Revolving Credit Commitment) of any requested Revolving Credit
Loan available to Agent for disbursement on the date of funding applicable to
such Revolving Credit Loan in accordance with Section 2.03 hereof.
Notwithstanding these procedures, each Lender's obligation to fund its portion
of each Revolving Credit Loan made by Agent to Borrower will commence on the
date such advance is made by Agent.
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<PAGE>
SECTION 2.17. Issuance of Letters of Credit. Upon the request of the
-----------------------------
Borrowers, and subject to the conditions set forth in Article V hereof and such
other conditions to the opening of Letters of Credit as the Agent requires of
its customers generally, the Agent shall from time to time open commercial and
standby letters of credit (each, a "Letter of Credit") for the account of the
----------------
Borrowers, the aggregate undrawn amount of all outstanding Letters of Credit not
at any time to exceed $2,000,000; provided, however, that the Borrowers may not
-------- -------
request the Agent to open a Letter of Credit if after giving effect thereto
(measured by the face amount of such Letter of Credit) Availability would be
less than zero. The issuance of each Letter of Credit shall be made on at least
three (3) Business Days' prior written notice from the Borrowers to the Agent,
at its Domestic Lending Office, which written notice shall be an application for
a Letter of Credit on the Agent's customary form completed to the satisfaction
of the Agent, together with the proposed form of the Letter of Credit (which
shall be satisfactory to the Agent) and such other certificates, documents and
other papers and information as the Agent may reasonably request. The Agent
shall not at any time be obligated to issue any Letter of Credit if such
issuance would conflict with, or cause the Agent or any Lender to exceed any
limits imposed by, any applicable requirements of law. The expiration date of
any (i) commercial Letter of Credit shall not be later than 90 days from the
date of issuance thereof and (ii) any standby Letter of Credit shall not be
later than 360 days from the date of issuance thereof and, in any event, no
Letter of Credit shall have an expiration date later than 30 days prior to the
Revolving Credit Termination Date. The Letters of Credit shall be issued with
respect of transactions occurring in the ordinary course of business of the
Borrowers.
SECTION 2.18. Payment of Letters of Credit; Reimbursement. Upon the
-------------------------------------------
issuance of any Letter of Credit, the Agent shall notify each Lender of the
principal amount, the number, and the expiration date thereof and the amount of
such Lender's participation therein. By the issuance of a Letter of Credit
hereunder and without further action on the part of the Agent or the Lenders,
each Lender hereby accepts from the Agent a participation (which participation
shall be nonrecourse to the Agent) in such Letter of Credit equal to such
Lender's pro rata (based on its Revolving Credit Commitment) share of such
Letter of Credit, effective upon the issuance of such Letter of Credit. Each
Lender hereby absolutely and unconditionally assumes, as primary obligor and not
as a surety, and agrees to pay and discharge, and to indemnify and hold the
Agent harmless from liability in respect of, such Lender's pro rata share of the
amount of any drawing under a Letter of Credit. Each Lender acknowledges and
agrees that its obligation to acquire participations in each Letter of Credit
issued by the Agent and its obligation to make the payments specified herein,
and the right of the Agent to receive the same, in the manner specified herein,
are absolute and unconditional and shall not be affected by any circumstance
whatsoever, including, without limitation, the occurrence and continuance of a
Default or an Event of Default hereunder, and that each such payment shall be
made without any offset, abatement, withholding or reduction whatsoever. The
Agent shall review, on behalf of the Lenders, each draft and any accompanying
documents presented under a Letter of Credit and
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<PAGE>
shall notify each Lender of any such presentment. Promptly after it shall have
ascertained that any draft and any accompanying documents presented under such
Letter of Credit appear on their face to be in substantial conformity with the
terms and conditions of the Letter of Credit, the Agent shall give telephonic or
facsimile notice to the Lenders and the Borrowers of the receipt and amount of
such draft and the date on which payment thereon will be made, and the Lenders
shall, by 11:00 A.M., New York City time on the date such payment is to be made,
pay the amounts required to the Agent in New York, New York in immediately
available funds, and the Agent, not later than 3:00 p.m. on such day, shall make
the appropriate payment to the beneficiary of such Letter of Credit. If the
Lenders shall pay any draft presented under a Letter of Credit, then the Agent,
on behalf of the Lenders, shall charge the general deposit account of the
Borrowers with the Agent for the amount thereof, together with the Agent's
customary overdraft fee in the event the funds available in such account shall
not be sufficient to reimburse the Lenders for such payment and the Borrowers
shall not otherwise have discharged such reimbursement obligation by 11:00 a.m.,
New York City time, on the date of such payment. If the Lenders have not been
reimbursed with respect to such drawing as provided above, the Borrowers shall
pay to the Agent, for the account of the Lenders, the amount of the drawing
together with interest on such amount at a rate per annum (computed on the basis
of the actual number of days elapsed over a year of 360 days) equal to the
Alternate Base Rate plus two percent (2%), payable on demand. The obligations of
the Borrowers under this Section 2.18 to reimburse the Lenders and the Agent for
all drawings under Letters of Credit shall be joint and several, absolute,
unconditional and irrevocable and shall be satisfied strictly in accordance with
their terms, irrespective of:
(a) any lack of validity or enforceability of any Letter of
Credit;
(b) the existence of any claim, setoff, defense or other right
which the Borrowers or any other person may at any time have against
the beneficiary under any Letter of Credit, the Agent or any Lender
(other than the defense of payment in accordance with the terms of
this Agreement or a defense based on the gross negligence or willful
misconduct of the Agent or any Lender) or any other person in
connection with this Agreement or any other transaction;
(c) any draft or other document presented under any Letter of
Credit proving to be forged, fraudulent, invalid or insufficient in
any respect or any statement therein being untrue or inaccurate in any
respect;
(d) payment by the Agent or any Lender under any Letter of Credit
against presentation of a draft or other document which does not
comply with the terms of such Letter of Credit; and
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(e) any other circumstance or event whatsoever, whether or not
similar to any of the foregoing.
It is understood that in making any payment under any Letter of Credit
(x) the Agent's and any Lender's exclusive reliance on the documents presented
to it under such Letter of Credit as to any and all matters set forth therein,
including, without limitation, reliance on the amount of any draft presented
under such Letter of Credit, whether or not the amount due to the beneficiary
equals the amount of such draft and whether or not any document presented
pursuant to such Letter of Credit proves to be insufficient in any respect, if
such document on its face appears to be in order, and whether or not any other
statement or any other document presented pursuant to such Letter of Credit
proves to be forged or invalid or any statement therein proves to be inaccurate
or untrue in any respect whatsoever and (y) any noncompliance in any immaterial
respect of the documents presented under such Letter of Credit with the terms
thereof shall, in each case, not be deemed willful misconduct or gross
negligence of the Agent or any Lender.
SECTION 2.19. Agent's Actions with respect to Letters of Credit. Any
-------------------------------------------------
Letter of Credit may, in the discretion of the Agent or its correspondents, be
interpreted by them (to the extent not inconsistent with such Letter of Credit)
in accordance with the Uniform Customs and Practice for Documentary Credits of
the International Chamber of Commerce, as adopted or amended from time to time,
or any other rules, regulations and customs prevailing at the place where any
Letter of Credit is available or the drafts are drawn or negotiated. The Agent
and its correspondents may accept and act upon the name, signature, or act of
any party purporting to be the executor, administrator, receiver, trustee in
bankruptcy, or other legal representative of any party designated in any Letter
of Credit in the place of the name, signature, or act of such party.
SECTION 2.20. Letter of Credit Fees. The Borrowers agree to pay to
---------------------
the Agent with respect to each Letter of Credit, (i) for the ratable benefit of
the Lenders, a letter of credit fee equal to (x) in the case of a commercial
Letter of Credit expiring within 90 days, 1/2 of 1% of the face amount thereof,
payable upon issuance, (y) in the case of a commercial Letter of Credit with a
stated expiration date of more than 90 days, 2% of the face amount thereof,
multiplied by a fraction, the numerator of which is the number of days from the
date of issuance to stated expiration and the denominator of which is 360,
payable upon issuance and (z) in the case of a standby Letter of Credit, 2% per
annum of the face amount thereof, payable quarterly in advance, in each case
payable to the Agent at its Domestic Lending Office in immediately available
funds, plus (ii) usual and customary issuance and processing fees charged by the
Agent for transactions of this nature payable to the Agent at its Domestic
Lending Office on the date of issuance of such Letter of Credit in immediately
available funds. In addition, the Borrowers shall pay to the Agent at its
Domestic Lending Office with respect to any amendment to a Letter of Credit a
usual and customary fee charged by the Agent for transactions of this nature.
The Agent shall disburse to each Lender such Lender's pro
---
55
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rata share of any payment of the Letter of Credit fees referred to in clause
- ----
(i) of the first sentence of this paragraph in immediately available funds
within two (2) Business Days of the Agent's receipt of such payment.
III. COLLATERAL SECURITY
SECTION 3.01. Security Documents. The Obligations shall be secured
------------------
by the Collateral described in the Security Documents and are entitled to the
benefits thereof. The Borrowers shall duly execute and deliver the Security
Documents, all consents of third parties necessary to permit the effective
granting of the Liens created in such agreements, financing statements pursuant
to the Uniform Commercial Code and other documents, all in form and substance
satisfactory to the Agent, as may be reasonably required by the Agent to grant
to the Lenders a valid, perfected and enforceable first priority Lien on and
security interest in (subject only to the Liens permitted under Section 7.01
hereof) the Collateral. In connection with the acquisition of Four Star
Holding, in the event that the real property being acquired in Los Angeles is
not disposed of within nine months of the Closing Date, Borrowers, if requested
by the Agent, shall provide the Agent with a real property mortgage on such
property, in form and substance satisfactory to the Agent.
SECTION 3.02. Filing and Recording. The Borrowers shall, at their
--------------------
sole cost and expense, cause all instruments and documents given as evidence of
security pursuant to this Agreement to be duly recorded and/or filed or
otherwise perfected in all places necessary, in the opinion of the Agent, and
take such other actions as the Agent may reasonably request, in order to perfect
and protect the Liens of the Agent and Lenders in the Collateral. The
Borrowers, to the extent permitted by law, hereby authorize the Agent to file
any financing statement in respect of any Lien created pursuant to the Security
Documents which may at any time be required or which, in the opinion of the
Agent, may at any time be desirable although the same may have been executed
only by the Agent or, at the option of the Agent, to sign such financing
statement on behalf of the Borrowers and file the same, and the Borrowers hereby
irrevocably designate the Agent, its agents, representatives and designees as
its agent and attorney-in-fact for this purpose. In the event that any re-
recording or refiling thereof (or the filing of any statements of continuation
or assignment of any financing statement) is required to protect and preserve
such Lien, the Borrowers shall, at the Borrowers' cost and expense, cause the
same to be recorded and/or refiled at the time and in the manner requested by
the Agent.
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IV. REPRESENTATIONS AND WARRANTIES
Each of the Borrowers and each of the Guarantors jointly and severally
represents and warrants to each of the Lenders that both before and on the
Closing Date, after giving effect to the consummation of the Transactions
(including without limitation, under the Acquisition Documents):
SECTION 4.01. Organization, Legal Existence. Each of the Parent and
-----------------------------
its subsidiaries is a legal entity duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization, has the
requisite power and authority to own its property and assets and to carry on its
business as now conducted and as currently proposed to be conducted and is
qualified to do business in every jurisdiction where such qualification is
required, except for such failure as shall not result in a Material Adverse
Effect (all such jurisdictions in which the Parent and its subsidiaries have
qualified to do business being listed in Schedule 4.01 annexed hereto). Each of
-------------
the Parent and its subsidiaries, as applicable, has the power to execute,
deliver and perform its obligations under this Agreement and the other Loan
Documents to which it is a party, and to borrow hereunder and to execute and
deliver the Notes.
SECTION 4.02. Authorization. The execution, delivery and performance
-------------
by the Parent and each of its subsidiaries of this Agreement and each of the
other Loan Documents to which it is a party, the borrowings hereunder by the
Borrowers, the execution and delivery by the Borrowers of the Notes, the grant
of security interests in the Collateral created by the Security Documents and
the transactions contemplated to occur under or in connection with the
Acquisition Documents (collectively, the "Transactions") (a) have been duly
------------
authorized by all requisite corporate and, if required, stockholder action and
(b) will not (i) violate (A) any provision of law, statute, rule or regulation
or the certificate or articles of incorporation or other applicable constitutive
documents or the by-laws of the Parent, or its subsidiaries, as the case may be,
(B) any order of any court, or any rule, regulation or order of any other agency
of government binding upon the Parent, or its subsidiaries, or (C) any
provisions of any material indenture, agreement or other instrument to which the
Parent, or its subsidiaries, or any of its properties or assets are or may be
bound, (ii) except as set forth in Schedule 4.02 be in conflict with, result in
--------------
a breach of or constitute (alone or with notice or lapse of time or both) a
default under any material indenture, agreement or other instrument referred to
in (b)(i)(C) above or (iii) result in the creation or imposition of any Lien of
any nature whatsoever (other than in favor of the Agent, for the benefit of the
Lenders, as contemplated by this Agreement and the Security Documents) upon any
property or assets of the Parent, or its subsidiaries.
SECTION 4.03. Governmental Approvals. No registration or filing
----------------------
(other than the filings necessary to perfect the Liens created by the Security
Documents) with, consent or approval of, or other action by, any Federal, state
or other
57
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governmental agency, authority or regulatory body is or will be required in
connection with the Transactions, other than any which have been made or
obtained and other than the filing of Forms 8-K with the Securities and Exchange
Commission.
SECTION 4.04. Binding Effect. This Agreement and each of the other
--------------
Loan Documents to which it is a party constitutes, and each of the Notes when
duly executed and delivered will constitute, a legal, valid and binding
obligation of the Parent and its subsidiaries enforceable in accordance with its
terms.
SECTION 4.05. Material Adverse Change. Except as set forth in
-----------------------
Schedule 4.05 annexed hereto, there has been no material adverse change in the
- -------------
business, assets, operations or financial condition of the Parent or any of the
subsidiaries since September 30, 1997.
SECTION 4.06. Litigation; Compliance with Laws; etc. (a) Except as
-------------------------------------
set forth in Schedule 4.06(a) annexed hereto, there are not any actions, suits
----------------
or proceedings at law or in equity or by or before any governmental
instrumentality or other agency or regulatory authority now pending or, to the
knowledge of any Responsible Officer of the Parent or any of its subsidiaries,
threatened against or affecting the Parent or any of its subsidiaries or the
businesses, assets or rights of any Borrower or any of its subsidiaries (i)
which involve any of the Transactions or (ii) as to which it is probable (within
the meaning of Statement of Financial Accounting Standards No. 5) that there
will be an adverse determination and which, if adversely determined, would,
individually or in the aggregate, materially impair the ability of the Parent or
any of its subsidiaries to conduct business substantially as now conducted, or
have a Material Adverse Effect.
(b) Except as set forth in Schedule 4.06(b) annexed hereto, neither
----------------
the Parent nor any subsidiary thereof is in violation of any law, or in default
with respect to any judgment, writ, injunction, decree, rule or regulation of
any court or governmental agency or instrumentality which (i) involve any of the
Transactions or (ii) would materially impair the ability of the Parent or any of
its subsidiaries to conduct business substantially as now conducted or (iii) has
a Material Adverse Effect.
SECTION 4.07. Financial Statements. (a) The Borrowers have
--------------------
heretofore furnished to the Agent (i) the unaudited Consolidated balance sheets
and statements of income and cash flows of the Parent and its subsidiaries dated
as of December 31, 1997, (ii) the audited balance sheets and statements of
income and cash flow of the Parent and its subsidiaries for the fiscal year
ending September 30, 1997, and (iii) the audited balance sheets and statements
of income and cash flows of Four Star Holding dated as of December 31, 1996 and
December 31, 1997. Such balance sheets and statements of income and cash flows
present fairly the financial condition and results of operations of the Parent
and its subsidiaries or, to Borrowers' knowledge based on a review of the audit
reports, Four Star Holding and its subsidiaries, as the
58
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case may be, as of the dates and for the periods indicated, and such balance
sheets and the notes thereto disclose all material liabilities, direct or
contingent, of the Borrowers and their subsidiaries, as of the dates thereof.
(b) The Borrowers have heretofore furnished to the Agent annual
projected income statements, balance sheets and cash flows of the Parent and its
subsidiaries on a Consolidated basis through the Final Maturity Date, together
with a schedule confirming the ability of the Parent and its subsidiaries to
consummate the Transactions and demonstrating prospective compliance with all
financial covenants contained in this Agreement, such projections disclosing all
material assumptions made by the Parent and the Borrowers in formulating such
projections and giving effect to the Transactions. The projections are based
upon reasonable estimates and assumptions, all of which are reasonable in light
of the conditions which existed at the time the projections were made, have been
prepared on the basis of the assumptions stated therein, and reflect as of the
Closing Date the reasonable estimate of the Parent and the Borrowers of the
results of operations and other information projected therein. The Agent and
the Lenders recognize that the projections as to future events are not
guarantees and that actual results during the period or periods covered by any
such projections may differ from the projected results and that such differences
may be material.
(c) The Borrowers have heretofore furnished to the Agent a
Consolidated pro forma balance sheet of the Borrowers which sets forth
information before and after giving effect to the Transactions.
(d) Except as set forth on Schedule 4.07(d) hereto, the financial
----------------
statements referred to in this Section 4.07 have been prepared in accordance
with GAAP.
SECTION 4.08. Federal Reserve Regulations. (a) None of the Parent
---------------------------
or any of its subsidiaries is engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of purchasing or
carrying Margin Stock.
(b) No part of the proceeds of the Loans will be used, whether
directly or indirectly, and whether immediately, incidentally or ultimately, (i)
to purchase or carry Margin Stock or to extend credit to others for the purpose
of purchasing or carrying Margin Stock or to refund indebtedness originally
incurred for such purpose, or (ii) for any purpose which entails a violation of,
or which is inconsistent with, the provisions of the Regulations of the Board,
including, without limitation, Regulation G, T, U or X thereof. If requested by
any Lender, the Borrowers or any subsidiary of any thereof shall furnish to such
Lender a statement on Federal Reserve Form U-1 referred to in said Regulation U.
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SECTION 4.09. Taxes. Except for the failure to file certain non-
-----
material tax returns as disclosed in Schedule 4.09, each of the Parent and its
-------------
subsidiaries has filed or caused to be filed all Federal, state, local and
foreign tax returns which are required to be filed by it, on or prior to the
date hereof, other than tax returns in respect of taxes that (x) are not
franchise, capital or income taxes, (y) in the aggregate are not material and
(z) would not, if unpaid, result in the imposition of any material Lien on any
property or assets of any Borrower or any of its subsidiaries. Each of the
Parent and its subsidiaries has paid or caused to be paid all taxes shown to be
due and payable on such filed returns or on any assessments received by it,
other than (i) any taxes or assessments the validity of which such Borrower or
such subsidiary is contesting in good faith by appropriate proceedings, and with
respect to which the Borrower or such subsidiary shall, to the extent required
by GAAP have set aside on its books adequate reserves and (ii) taxes other than
income, capital or franchise taxes that in the aggregate are not material and
which would not, if unpaid, result in the imposition of any material Lien on any
property or assets of the Parent or any of its subsidiaries. No Federal income
tax returns of the Parent or any of its subsidiaries have been audited by the
United States Internal Revenue Service and none of the Parent or its
subsidiaries has as of the date hereof requested or been granted any extension
of time to file any Federal, state, local or foreign tax return. None of the
Parent or its subsidiaries are party to or have any obligation under any tax
sharing agreement.
SECTION 4.10. Employee Benefit Plans. With respect to the provisions
----------------------
of ERISA, except as set forth on Schedule 4.10 annexed hereto (including,
-------------
without limitation, the Multiemployer Plan to which Four Star is a party):
(i) No Reportable Event has occurred or, to our knowledge, is
continuing with respect to any Pension Plan.
(ii) To our knowledge, no prohibited transaction (within the meaning
of Section 406 of ERISA or Section 4975 of the Code) has occurred with
respect to any Plan subject to Part 4 of Subtitle B of Title I of ERISA.
(iii) None of the Parent or any ERISA Affiliate is now, or has been
during the preceding five years, obligated to contribute to a Pension Plan
or a Multiemployer Plan. None of the Parent or any ERISA Affiliate has (A)
ceased operations at a facility so as to become subject to the provisions
of Section 4062(e) of ERISA, (B) withdrawn as a substantial employer so as
to become subject to the provisions of Section 4063 of ERISA, (C) ceased
making contributions to any Pension Plan subject to the provisions of
Section 4064(a) of ERISA to which the Parent, any subsidiary or any ERISA
Affiliate made contributions, (D) incurred or caused to occur a "complete
withdrawal"
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(within the meaning of Section 4203 of ERISA) or a "partial withdrawal"
(within the meaning of Section 4205 of ERISA) from a Multiemployer Plan
that is a Pension Plan so as to incur withdrawal liability under Section
4201 of ERISA (without regard to subsequent reduction or waiver of such
liability under Section 4207 or 4208 of ERISA), or (E) been a party to any
transaction or agreement under which the provisions of Section 4204 of
ERISA were applicable.
(iv) No notice of intent to terminate a Pension Plan has been
filed, nor has any Plan been terminated pursuant to the provisions of
Section 4041(e) of ERISA.
(v) The PBGC has not instituted proceedings to terminate (or
appoint a trustee to administer) a Pension Plan and no event has occurred
or condition exists which might constitute grounds under the provisions of
Section 4042 of ERISA for the termination of (or the appointment of a
trustee to administer) any such Plan.
(vi) With respect to each Pension Plan that is subject to the
provisions of Title I, Subtitle B, Part 3 of ERISA, the funding method used
in connection with such Plan is acceptable under ERISA, and the actuarial
assumptions and methods used in connection with funding such Pension Plan
satisfy the requirements of Section 302 of ERISA. The assets of each such
Pension Plan (other than the Multiemployer Plans) are at least equal to the
present value of the greater of (i) accrued benefits (both vested and non-
vested) under such Plan, or (ii) "benefit liabilities" (within the meaning
of Section 4001(a)(16) of ERISA) under such Plan, in each case as of the
latest actuarial valuation date for such Plan (determined in accordance
with the same actuarial assumptions and methods as those used by the Plan's
actuary in its valuation of such Plan as of such valuation date). No such
Pension Plan has incurred any "accumulated funding deficiency" (as defined
in Section 412 of the Code), whether or not waived.
(vii) There are no actions, suits or claims pending (other than
routine claims for benefits) or, to the knowledge of the Parent, any
subsidiary or any ERISA Affiliate, which could reasonably be expected to be
asserted, against any Plan or the assets of any such Plan. No civil or
criminal action brought pursuant to the provisions of Title I, Subtitle B,
Part 5 of ERISA is pending or threatened against any fiduciary or any Plan.
None of the Plans or any fiduciary thereof (in its capacity as such) has
been the direct or indirect subject of any audit, investigation or
examination by any governmental or quasi-governmental agency.
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(viii) In all material respects, all of the Plans comply currently,
and have complied in the past, both as to form and operation, with their
terms and with the provisions of ERISA and the Code, and all other
applicable laws, rules and regulations; all necessary governmental
approvals for the Plans have been obtained and a favorable determination as
to the qualification under Section 401(a) of the Code of each of the Plans
which is an employee pension benefit plan (within the meaning of Section
3(2) of ERISA) has been made by the Internal Revenue Service and a
recognition of exemption from federal income taxation under Section 501(c)
of the Code of each of the funded employee welfare benefit plans (within
the meaning of Section 3(1) of ERISA) has been made by the Internal Revenue
Service, and nothing has occurred since the date of each such determination
or recognition letter that would adversely affect such qualification.
SECTION 4.11. No Material Misstatements. No information, report,
-------------------------
financial statement, exhibit or schedule prepared or furnished by or on behalf
of the Parent or its subsidiaries to the Agent or any Lender in connection with
any of the Transactions or this Agreement, the Security Documents, the Notes or
any other Loan Documents or included therein contained or contains any material
misstatement of fact or omitted or omits to state any material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
SECTION 4.12. Investment Company Act; Public Utility Holding Company
------------------------------------------------------
Act. Neither the Parent nor any subsidiary thereof is an "investment company"
- ---
as defined in, or is otherwise subject to regulation under, the Investment
Company Act of 1940. Neither the Parent nor any subsidiary thereof is a
"holding company" as that term is defined in or is otherwise subject to
regulation under, the Public Utility Holding Company Act of 1935.
SECTION 4.13. Security Interest. Each of the Security Documents
-----------------
creates and grants to the Agent, for the benefit of the Lenders, a legal, valid
and perfected first (except as permitted pursuant to Section 7.01 hereof)
priority security interest in the collateral identified therein. Such
collateral or property is not subject to any other Liens whatsoever, except
Liens permitted by Section 7.01 hereof.
SECTION 4.14. Use of Proceeds. (a) All proceeds of the borrowing
---------------
under the Total Term Loan Commitment shall be used to partially finance the
consideration required under the Acquisition Agreement and fees and expenses
incurred in connection with the Four Star Acquisition.
(b) All proceeds of each borrowing under the Revolving Credit
Commitment on the Closing Date, if any, shall be used (i) to partially finance
the
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consideration required under the Acquisition Agreement and fees and expenses
incurred in connection with the Four Star Acquisition, and (ii) to provide for
general corporate purposes of the Borrowers. Except as set forth in the
preceding sentence, all proceeds of each subsequent borrowing under the
Revolving Credit Commitment after the Closing Date shall be used to provide for
working capital requirements, to repay the Subordinated Note, to fund Permitted
Acquisitions (within the limits defined therein), to finance the repayment of
certain Capitalized Lease Obligations, to finance Capital Expenditures (within
the limits permitted under this Agreement) and for general corporate purposes of
the Borrowers.
SECTION 4.15. Subsidiaries. As of the Closing Date, Schedule 4.15
------------ -------------
annexed hereto sets forth each subsidiary of the Parent, its jurisdiction of
incorporation, its capitalization and ownership of capital stock of each such
subsidiary. Matthews Medical Equipment, Inc., Duke City Holdings, Inc., Four
Star Holding, Keylite Holdings, Inc., Reel Wheels, Inc. and Keylite Production
Services, Inc. are each non-operating subsidiaries which, except as described on
Schedule 4.15, own no assets and have no liabilities.
- -------------
SECTION 4.16. Title to Properties; Possession Under Leases;
----------------------------------------------
Trademarks. (a) Each of the Parent and its subsidiaries has good and
- ----------
marketable title to, or valid leasehold interest in, all of its respective
properties and assets shown on the most recent balance sheet referred to in
Section 4.07(a) hereof and all assets and properties acquired since the date of
such balance sheet, except for such properties as are no longer used or useful
in the conduct of its business or as have been disposed of in the ordinary
course of business, and except for minor defects in title that do not interfere
with the ability of the Parent or any subsidiary thereof to conduct its business
as now conducted. All such assets and properties are free and clear of all Liens
other than those permitted by Section 7.01 hereof.
(b) Each of the Parent and its subsidiaries has complied with all
material obligations under all leases to which it is a party and under which it
is in occupancy, and all such leases are in full force and effect and the Parent
and each of its subsidiaries enjoys peaceful and undisturbed possession under
all such leases.
(c) Each of the Parent and its subsidiaries owns or controls all
material trademarks, trademark rights, trade names, trade name rights,
copyrights, patents, patent rights and licenses which are necessary for the
conduct of the business of the Parent and such subsidiary. Neither the Parent
nor any subsidiary thereof is infringing upon or otherwise acting adversely to
any of such trademarks, trademark rights, trade names, trade name rights,
copyrights, patent rights or licenses owned by any other person or persons.
There is no claim or action by any such other person pending, or to the
knowledge of any Responsible Officer of the Parent or any subsidiary thereof,
threatened, against the Parent or any subsidiary thereof with respect to any of
the rights or property referred to in this Section 4.16(c).
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SECTION 4.17. Solvency. (a) The fair salable value of the assets of
--------
the Parent and its Consolidated subsidiaries is not less than the amount that
will be required to be paid on or in respect of the probable liability on the
existing debts and other liabilities (including contingent liabilities) of the
Parent and its Consolidated subsidiaries, as they become absolute and mature.
(b) The assets of the Parent and its Consolidated subsidiaries do not
constitute unreasonably small capital for the Parent and its Consolidated
subsidiaries to carry out their business as now conducted and as proposed to be
conducted including the capital needs of the Parent and its Consolidated
subsidiaries, taking into account the particular capital requirements of the
business conducted by the Parent and its Consolidated subsidiaries and projected
capital requirements and capital availability thereof.
(c) Neither the Parent nor any subsidiary thereof intends to incur
debts beyond its ability to pay such debts as they mature (taking into account
the timing and amounts of cash to be received by the Parent and such subsidiary,
and of amounts to be payable on or in respect of debt of the Parent and such
subsidiary). The cash flow of the Parent and its Consolidated subsidiaries,
after taking into account all anticipated uses of the cash of the Parent and its
Consolidated subsidiaries, will at all times be sufficient to pay all such
amounts on or in respect of debt of the Parent and its Consolidated subsidiaries
when such amounts are required to be paid.
(d) Neither the Parent nor any subsidiary thereof believes that final
judgments against it in actions for money damages presently pending will be
rendered at a time when, or in an amount such that, it will be unable to satisfy
any such judgments promptly in accordance with their terms (taking into account
the maximum reasonable amount of such judgments in any such actions and the
earliest reasonable time at which such judgments might be rendered). The cash
flow of the Parent and its Consolidated subsidiaries, after taking into account
all other anticipated uses of the cash of the Parent and its Consolidated
subsidiaries (including the payments on or in respect of debt referred to in
paragraph (c) of this Section), will at all times be sufficient to pay all such
judgments promptly in accordance with their terms.
SECTION 4.18. Permits, etc. Each of the Parent and its subsidiaries
------------
possesses all licenses, permits, approvals and consents, including, without
limitation, all environmental, health and safety licenses, permits, approvals
and consents material to the business of the Parent or applicable subsidiary
(collectively, "Permits") of all Federal, state and local governmental
-------
authorities as required to conduct properly its business, each such Permit is
and will be in full force and effect, the Parent and each subsidiary is in
compliance in all material respects with all such Permits, and no event
(including, without limitation, any violation of any law, rule or regulation)
has occurred which allows the revocation or termination of any such Permit or
any restriction thereon.
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SECTION 4.19. Compliance with Environmental Laws. Except as disclosed
----------------------------------
in Schedule 4.19 hereto (i) the operations of the Parent and its subsidiaries
-------------
comply in all material respects with all applicable Environmental Laws; (ii) the
Parent and its subsidiaries and all of their present facilities or operations,
as well as to the knowledge of the Parent and its subsidiaries their past
facilities or operations, are not subject to any judicial proceeding or
administrative proceeding or any outstanding written order or agreement with any
governmental authority or private party respecting (a) any Environmental Law,
(b) any Remedial Work, or (c) any Environmental Claims arising from the Release
of a Contaminant into the environment; (iii) to the best of the knowledge of the
Parent and its subsidiaries, none of their operations is the subject of any
Federal or state investigation evaluating whether any Remedial Work is needed to
respond to a Release of any Contaminant into the environment; (iv) neither the
Parent nor any subsidiaries of the Parent nor any predecessor of any Parent or
any subsidiary thereof has filed any notice under any Environmental Law
indicating past or present treatment, storage, or disposal of a Hazardous
Material or reporting a spill or Release of a Contaminant into the environment;
(v) to the best of the knowledge of the Parent and its subsidiaries, neither the
Parent nor its subsidiaries has any contingent liability in connection with any
Release of any Contaminant into the environment; (vi) none of the operations of
the Parent or its subsidiaries involve the generation, transportation, treatment
or disposal of Hazardous Materials; (vii) neither the Parent nor its
subsidiaries have disposed of any Contaminant by placing it in or on the ground
or waters of any premises owned, leased or used by any of them and to the
knowledge of the Parent and its subsidiaries neither has any lessee, prior
owner, or other person; (viii) no underground storage tanks or surface
impoundments are on any property of the Borrowers and their subsidiaries; and
(ix) no Lien in favor of any governmental authority for (A) any liability under
any Environmental Law or regulations, or (B) damages arising from or costs
incurred by such governmental authority in response to a Release of a
Contaminant into the environment, has been filed or attached to the property of
the Borrowers and their subsidiaries.
SECTION 4.20. No Change in Credit Criteria or Collection Policies.
---------------------------------------------------
There has been no material change in credit criteria or collection policies
concerning account receivables of any of the Borrowers since [September 30,
1997]. Without duplication, all Eligible Receivables and Eligible Paper of the
Borrowers are valid, binding and enforceable obligations of account debtors and
are not subject to any good faith claims, defenses or setoffs. All account
receivables (other than Eligible Receivables and Eligible Paper) are valid,
binding and enforceable obligations of account debtors.
SECTION 4.21. Four Star Acquisition. (a)(i) The execution, delivery
---------------------
and performance by the parties to the Acquisition Documents have been duly
authorized by all necessary action on the part of such parties, (ii) the
Acquisition Documents constitute the valid, binding and enforceable obligation
of each party
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thereto, subject to the effect of any applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally, and are in full force and effect without default or waiver of any of
the conditions thereunder and (iii) there are no governmental consents, filings,
approvals or notices required to be made or obtained in connection with the
execution, delivery and performance of the Acquisition Documents except such as
have been duly made, obtained or delivered and except for the forms 8-K filings
to be made with the Securities and Exchange Commission.
(b) Each of the representations and warranties made in the Acquisition
Documents, to the best of the knowledge of the Borrowers is true and correct in
all material respects.
SECTION 4.22. Year 2000. The cost to the Borrowers of reprogramming
---------
and testing of the Borrowers' computer systems and related equipment to permit
proper functioning in and following the year 2000 and of the reasonably
foreseeable consequences of year 2000 to the Borrowers (including, without
limitation, reprogramming errors and the failure of others' systems or
equipment) will not result in a Default or have a Material Adverse Effect.
V. CONDITIONS OF CREDIT EVENTS
The obligation of each Lender to make Loans and extend Letters of
Credit hereunder shall be subject to the following conditions precedent:
SECTION 5.01. All Credit Events. On each date on which a Credit
-----------------
Event is to occur:
(a) The Agent shall have received a notice of borrowing or a request
for the issuance of a Letter of Credit pursuant to Section 2.17 hereof as
required by Section 2.03 hereof.
(b) The representations and warranties set forth in Article IV hereof
and in any documents delivered herewith, including, without limitation, the
Loan Documents, shall be true and correct in all material respects with the
same effect as though made on and as of such date (except insofar as such
representations and warranties relate expressly to an earlier date).
(c) Each Borrower shall be in compliance with all the terms and
provisions contained herein on its part to be observed or performed, and at
the time of and immediately after such Credit Event, no Default or Event of
Default shall have occurred and be continuing.
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(d) The Agent shall have received a certificate signed by the
Financial Officer of each Borrower (i) as to the compliance with (b) and
(c) above and (ii) with respect to each Revolving Credit Loan and each
Letter of Credit, certifying that after giving effect thereto the
Availability is zero or greater and the Borrowers are in compliance with
the Borrowing Base.
SECTION 5.02. First Borrowing. The obligations of the Lenders in
---------------
respect of the first Credit Event hereunder is subject to the following
additional conditions precedent:
(a) The Lenders shall have received the favorable written opinions of
counsel for the Borrowers and each of the Guarantors and Grantors,
substantially in the form of Exhibit C hereto, dated the Closing Date,
---------
addressed to the Lenders and satisfactory to the Agent.
(b) The Lenders shall have received (i) a copy of the certificate or
articles of incorporation or constitutive or charter documents, in each case
as amended to date, of each of the Borrowers, the Grantors and the Guarantors,
certified as of a recent date by the Secretary of State or other appropriate
official of the state of its organization, and a certificate as to the good
standing of each from such Secretary of State or other official and from the
Secretary of State or other official in each other jurisdiction where such
person is qualified to do business, in each case dated as of a recent date;
(ii) a certificate of the Secretary of each Borrower, Grantor and Guarantor,
dated the Closing Date and certifying (A) that attached thereto is a true and
complete copy of such person's By-laws as in effect on the date of such
certificate and at all times since a date prior to the date of the resolution
described in item (B) below, (B) that attached thereto is a true and complete
copy of a resolution adopted by such person's Board of Directors authorizing
the execution, delivery and performance of this Agreement, the Security
Documents, the Notes, the other Loan Documents and the Credit Events
hereunder, as applicable, and that such resolution has not been modified,
rescinded or amended and is in full force and effect, (C) that such person's
certificate or articles of incorporation or constitutive documents has not
been amended since the date of the last amendment thereto shown on the
certificate of good standing furnished pursuant to (i) above, and (D) as to
the incumbency and specimen signature of each of such person's officers
executing this Agreement, the Notes, each Security Document or any other Loan
Document delivered in connection herewith or therewith, as applicable; (iii) a
certificate of another of such person's officers as to incumbency and
signature of its Secretary; and (iv) such other documents as the Agent or any
Lender may reasonably request.
(c) The Agent shall have received a certificate, dated the Closing Date
and signed by the Financial Officer of each Borrower, confirming compliance
with
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the conditions precedent set forth in paragraphs (b) and (c) of Section 5.01
hereof and the conditions set forth in this Section 5.02.
(d) Each Lender shall have received its Revolving Credit Note and Term Note
duly executed by the Borrowers, payable to its order and otherwise complying
with the provisions of Section 2.04 hereof.
(e) The Agent shall have received the Security Documents (including,
without limitation, certificates evidencing the Pledged Stock, together with
undated stock powers executed in blank, each duly executed by the applicable
Grantors and the Assignment of Life Insurance for an amount not less than
$2,000,000 with respect to the keyman life insurance on Darren DeVerna).
(f) The Agent shall have received certified copies of requests for copies
or information on Form UCC-11 or certificates satisfactory to the Lenders of a
UCC Reporter Service, listing all effective financing statements which name as
debtor, any Borrower or any Grantor and which are filed in the appropriate
offices in the States in which are located the chief executive office and
other operating offices of such person, together with copies of such financing
statements. With respect to any Liens not permitted pursuant to Section 7.01
hereof, the Agent shall, have received termination statements in form and
substance satisfactory to it.
(g) Each document (including, without limitation, each Uniform Commercial
Code financing statement and each duly notated certificate of title) required
by law or requested by the Agent to be filed, registered or recorded in order
to create in favor of the Agent for the benefit of the Lenders a first
priority perfected security interest in the Collateral shall, in the sole
discretion of the Agent, be delivered in a form such that it can be, or shall
previously have been properly filed, registered or recorded in each
jurisdiction in which the filing, registration or recordation thereof is so
required or requested. The Agent shall have received an acknowledgment copy,
or other evidence satisfactory to it, of each such filing, registration or
recordation.
(h) The Agent shall have received the results of a search of tax and other
Liens, and judgments and of the Uniform Commercial Code filings made with
respect to each Borrower and each Grantor in the jurisdictions in which the
Borrower is doing business and/or in which any Collateral is located, and in
which Uniform Commercial Code filings have been made against each Borrower,
each Guarantor and each Grantor pursuant to paragraph (g) above.
(i) The Lenders and the Agent shall have received and determined to be in
form and substance satisfactory to them:
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(i) the most recent (dated within ten (10) days of the Closing
Date) schedule and aging of Receivables and inventory designations of the
Borrowers;
(ii) evidence that after giving effect to the Transactions
Borrowers have Availability of no less than $5,000,000;
(iii) a copy of a field examination of the books and records of
Four Star;
(iv) evidence of the compliance by the Borrowers with Section 6.03
hereof;
(v) the financial statements described in Section 4.07 hereof;
(vi) evidence that the Transactions are in compliance with all
applicable laws and regulations;
(vii) the results of all environmental audits and other
investigations conducted by or on the behalf of the Borrowers with respect
to the Borrowers' and subsidiaries' properties;
(viii) evidence of payment of all fees owed to the Agent and the
Lenders by the Borrowers under this Agreement, the Fee Letter or otherwise;
(ix) evidence that all requisite third party consents (including,
without limitation, consents with respect to each of the Borrowers and each
of the Grantors and Guarantors) to the Transactions have been received;
(x) the results of appraisals of the machinery and equipment
acquired by the Borrowers (i) pursuant to the Four Star Acquisition and
(ii) pursuant to the Asset Purchase Agreement dated as of October 31, 1997
between MSEI, Marjorie G. Romans and Entertainment Resources, Inc. by a
person satisfactory to the Agent, such appraisals, when combined with the
appraisal of the Borrowers previously delivered to the Agent, shall, in the
aggregate, reflect an orderly liquidation value of greater than or equal to
$61,500,000, which appraisals have been delivered in form and substance
satisfactory to the Agent and the Lenders;
(xi) copies of all major customer contracts (including major lease
contracts) and major supplier contracts with respect to each Borrower;
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(xii) evidence that there has been no material adverse change in
the business, assets, operations or financial condition of the Borrowers
and subsidiaries since September 30, 1997;
(xiii) evidence that there are no actions, suits or proceedings at
law or in equity or by or before any governmental instrumentality or other
agency or regulatory authority now pending or threatened against or
affecting any Borrower or any subsidiary thereof or any of their respective
businesses, assets or rights which involve any of the Transactions;
(xiv) copies of all material amendments to any shareholders'
agreements; and
(xv) evidence of compliance with Section 6.17 hereof.
(j) The Agent and the Lenders shall have had the opportunity, if they so
choose, to make customer checkings, examine auditor's management letters
issued within the three (3) years prior to the Closing Date, the books of
account and other records and files of the Borrowers, subsidiaries, the
Grantors and the Guarantors and to make copies thereof, and to conduct a pre-
closing audit which shall include, without limitation, verification of
Eligible Receivables, payment of payroll taxes and accounts payable and
formulation of an opening Borrowing Base, and the results of such checkings,
examination and audit shall have been satisfactory to the Agent and Lenders in
all respects.
(k) The Agent shall have received and had the opportunity to review and
determine to be in form and substance satisfactory to it:
(i) copies of all lease agreements, management agreements and
consulting agreements entered into by any of the Borrowers and their
subsidiaries;
(ii) copies of all loan agreements, notes and other documentation
evidencing Indebtedness for borrowed money of any of the Borrowers, their
subsidiaries, Grantors or Guarantors and schedules of all liens,
encumbrances, litigation and contingent liabilities of any of the
Borrowers; and
(iii) a schedule of Borrowers' Liens, litigations and contingent
liabilities.
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(l) Messrs. Kaye, Scholer, Fierman, Hays & Handler, LLP, counsel to the
Agent, shall have received payment in full for all legal fees charged, and all
costs and expenses incurred, by such counsel through the Closing Date in
connection with the transactions contemplated under this Agreement, the
Security Documents, and the other Loan Documents and instruments in connection
herewith and therewith.
(m) The organizational structure and capitalization of the Parent and its
subsidiaries shall be satisfactory to the Lenders in all respects.
(n) All legal matters in connection with the Transactions shall be
satisfactory to the Agent, the Lenders and their respective counsel in their
sole discretion.
(o) The Borrowers shall have executed and delivered to the Agent a
disbursement authorization letter with respect to the disbursement of the
proceeds of the Credit Events made on the Closing Date, in form and substance
satisfactory to the Agent.
(p) The Agent shall have received a Borrowing Base Certificate as of the
Closing Date based on the most currently available information (to be
promptly followed by a final reconciled Certificate), evidencing $5,000,000 or
more in Availability, in the form of Schedule 6.05(p) (such Borrowing Base
----------------
Certificate to give effect to all Credit Events to be consummated on the
Closing Date).
(q) The Borrowers and the Agent (or another financial institution
acceptable to the Agent) shall have entered into cash management arrangements
pursuant to documentation satisfactory in form and substance to the Agent,
except that MSE may continue to maintain its present arrangements with Bank of
America (subject to the execution and delivery of a blocked account agreement)
and the Borrowers may maintain other accounts where the aggregate cash
balances do not exceed $25,000 at any time.
(r) The Agent shall have:
(i) received copies of each of the Acquisition Documents, including
all amendments and schedules thereto, each certified by a Responsible
Officer of the Borrowers;
(ii) received evidence that such documents are in full force and
effect and all consents, filings and approvals required by applicable law
in connection therewith shall have been obtained and made;
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(iii) received evidence that simultaneously with the occurrence of the
Credit Events on the Closing Date, the acquisition shall have been duly and
validly consummated, without modification, amendment or waiver (except for
such as shall have been approved in writing by the Agent), in accordance
with the terms, conditions and provisions thereof;
(iv) determined that the terms and provisions of all agreements and
documents in connection therewith are satisfactory in form and substance
and the Agent shall have received such legal opinions, collateral
assignments of indemnities, certificates and copies of necessary
governmental filings and consents as the Agent shall have requested in
connection therewith, and shall have determined to its satisfaction that
the consummation of such acquisition is in compliance with all applicable
laws and regulations; and
(v) have received evidence that (x) the total purchase price for the
Four Star Acquisition does not exceed $26,500,000 in cash (subject to a
one-time working capital adjustment in accordance with the provisions of
the Acquisition Agreement) and (y) the fees incurred in connection with the
Four Star Acquisition do not, in the aggregate, exceed $1,000,000.
(s) The Agent shall have received such other documents as the Lenders or
the Agent or Agent's counsel shall reasonably deem necessary.
VI. AFFIRMATIVE COVENANTS
Each of the Borrowers, Guarantors and Grantors covenants and agrees
with each Lender that, so long as this Agreement shall remain in effect or the
principal of or interest on any Note, any amount under any Letter of Credit or
any fee, expense or other Obligation payable hereunder or in connection with any
Loan Document shall be unpaid, it will, and will cause each of its subsidiaries
and, with respect to Section 6.07 hereof, each ERISA Affiliate, to:
SECTION 6.01. Legal Existence. Do or cause to be done all things
---------------
necessary to preserve, renew and keep in full force and effect its legal
existence.
SECTION 6.02. Businesses and Properties. At all times do or cause to
-------------------------
be done all things necessary to preserve, renew and keep in full force and
effect the rights, licenses, Permits, franchises, patents, copyrights,
trademarks and trade names material to the conduct of its businesses; maintain
and operate such businesses in the same general manner in which they are
presently conducted and operated; comply with all laws, rules, regulations and
governmental orders (whether Federal, state or local) applicable to the
operation of such businesses whether now in effect or hereafter
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enacted (including, without limitation, all applicable laws, rules, regulations
and governmental orders relating to public and employee health and safety and
all Environmental Laws) and with any and all other applicable laws, rules,
regulations and governmental orders, the lack of compliance with which would
have a Material Adverse Effect; take all actions which may be required to
obtain, preserve, renew and extend all Permits and other authorizations which
are material to the operation of such businesses; and at all times maintain,
preserve and protect all property material to the conduct of such businesses and
keep such property in good repair, working order and condition and from time to
time make, or cause to be made, all needful and proper repairs, renewals,
additions, improvements and replacements thereto necessary in order that the
business carried on in connection therewith may be properly conducted at all
times.
SECTION 6.03. Insurance. (a) Keep its insurable properties
---------
adequately insured at all times by financially sound and reputable insurers, (b)
maintain such other insurance, to such extent, in such amount, and against such
risks, including fire, theft, fraud, product liability, business interruption
and other risks insured against by extended coverage, as is customary with
companies similarly situated and in the same or similar businesses, provided,
--------
however, that such insurance shall insure the property of the Borrowers against
- -------
all risk of physical damage, including, without limitation, loss by fire,
explosion, theft, fraud and such other casualties as may be reasonably
satisfactory to the Agent, but in no event at any time in an amount less than
the greater of (i) the Obligations and (ii) the replacement value of the
Collateral (other than Receivables, chattel paper, instruments and other general
intangibles of the Grantors), (c) maintain in full force and effect public
liability insurance against claims for personal injury or death or property
damage occurring upon, in, about or in connection with the use of any properties
owned, occupied or controlled by any Borrower or any of its subsidiaries, in
such amount as the Agent shall reasonably deem necessary, and (d) maintain such
other insurance as may be required by law or as may be reasonably requested by
the Agent for purposes of assuring compliance with this Section 6.03. All
insurance covering tangible personal property subject to a Lien in favor of the
Agent for the benefit of the Lenders granted pursuant to the Security Documents
shall provide that, in the case of each separate loss the full amount of
insurance proceeds shall be payable to the Agent and shall further provide for
at least 30 days' prior written notice to the Agent of the cancellation or
substantial modification thereof.
SECTION 6.04. Taxes. Pay and discharge promptly when due all taxes,
-----
assessments and governmental charges or levies imposed upon it or upon its
income or profits or in respect of its property before the same shall become
delinquent or in default, as well as all lawful claims for labor, materials and
supplies or otherwise, which, if unpaid, might give rise to Liens upon such
properties or any part thereof in excess of $200,000 in the aggregate, unless
such payment shall be diligently contested by the Borrowers in good faith and
appropriate reserves therefore shall have been instituted.
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SECTION 6.05. Financial Statements, Reports, etc. Furnish to the
----------------------------------
Agent, with copies for each of the Lenders:
(a) within ninety (90) days after the end of each Fiscal Year, (i) Con
solidated and consolidating balance sheets and Consolidated and consolidating
income statements showing the financial condition of the Parent and its
subsidiaries as of the close of such Fiscal Year and the results of their
operations during such year, and (ii) a Consolidated and consolidating
statement of shareholders' equity and a Consolidated and consolidating
statement of cash flow, as of the close of such Fiscal Year, comparing such
financial condition and results of operations to such financial condition and
results of operations for the comparable period during the immediately
preceding Fiscal Year (except that the Parent shall only be required to make
best efforts to furnish consolidating cash flow), all the foregoing
Consolidated financial statements to be audited by independent public
accountants acceptable to the Agent (which report shall not contain any
qualification except with respect to new accounting principles mandated by the
Financial Accounting Standards Board) and all consolidating financial
statements to be prepared and certified by the Financial Officer of the Parent
and its subsidiaries as presenting fairly the financial condition and results
of operations of the Parent and its subsidiaries and as having been prepared
in accordance with GAAP, and each to be in form and substance acceptable to
the Agent;
(b) within forty-five (45) days after the end of each of the first three
(3) fiscal quarters of the Parent, (i) unaudited Consolidated and
consolidating balance sheets and Consolidated and consolidating income
statements showing the financial condition and results of operations of the
Parent and its subsidiaries as of the end of each such quarter, (ii) a
Consolidated and consolidating statement of shareholders' equity and (iii) a
Consolidated and consolidating statement of cash flow, in each case for the
fiscal quarter just ended and for the period commencing at the end of the
immediately preceding Fiscal Year and ending with the last day of such
quarter, and comparing such financial condition and results of operations to
the projections for the applicable period provided under paragraph (i) below
and to the results for the comparable period during the immediately preceding
Fiscal Year (except that the Parent shall only be required to make best
efforts to furnish consolidating cash flows), in each case prepared and
certified by the Financial Officer of the Parent as presenting fairly the
financial condition and results of operations of the Parent and its
subsidiaries and as having been prepared in accordance with GAAP, in each case
subject to normal year-end audit adjustments;
(c) within thirty (30) days after the end of each month (i) unaudited
Consolidated and consolidating balance sheets and income statements showing
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the financial condition and results of operations of the Parent and its
subsidiaries as of the end of each such month, and (ii) a Consolidated
statement of shareholders' equity and statement of cash flow, in each case for
the month just ended and for the period commencing at the end of the
immediately preceding Fiscal Year and ending with the last day of such month,
and comparing such financial condition and results of operations to the
projections for the applicable period provided under paragraph (i) below and
to the results for the comparable period during the immediately preceding
Fiscal Year, prepared and certified by the Financial Officer of the Parent as
presenting fairly the financial condition and results of operations of the
Parent and its subsidiaries and as having been prepared in accordance with
GAAP, in each case subject to normal year-end audit adjustments and
adjustments necessary to comply with GAAP accounting regarding the filing of
the Parent's quarterly reports (Form 10Q);
(d) promptly after the same become publicly available, copies of such
registration statements, annual, periodic and other reports, and such proxy
statements and other information, if any, as shall be filed by the Borrowers
or any subsidiaries with the Securities and Exchange Commission pursuant to
the requirements of the Securities Act of 1933 or the Securities Exchange Act
of 1934;
(e) (i) concurrently with any delivery under (a), (b) or (c) above, a
certificate of the firm or person referred to therein (x) which certificate
shall, in the case of the certificate of the Financial Officer of the Parent,
certify that to the best of his or her knowledge no Default or Event of
Default has occurred (including calculations demonstrating compliance, as of
the dates of the financial statements being furnished, with the covenants set
forth in Sections 7.04, 7.07, 7.08, 7.11, 7.12 and 7.13 hereof) and, if such a
Default or Event of Default has occurred, specifying the nature and extent
thereof and any corrective action taken or proposed to be taken with respect
thereto and (y) which report, in the case of the report furnished by the
independent public accountants referred in paragraph (a) above, may be limited
to accounting matters and disclaim responsibility for legal interpretations,
but shall in any event state that nothing came to the account's attention that
caused them to believe, as of the dates of the financial statements being
furnished, that the Parent failed to comply with any of the covenants set
forth in Sections 7.04, 7.07, 7.08, 7.11, 7.12 and 7.13 hereof (such letter to
include calculations demonstrating compliance with such covenants); provided,
--------
however, that any letter delivered by the independent public accountants
-------
concurrently with (a) above shall be signed by the Financial Officer of the
Parent and shall also be accompanied by a certificate of the Financial Officer
covering the matters described in clause (i) of this paragraph (e);
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(f) Within five (5) days of receipt by the Borrower thereof, a management
letter prepared by the independent public accountants who reported on the
financial statements delivered under (a) above, with respect to the internal
audit and financial controls of the Parent and its subsidiaries;
(g) within twenty (20) days of the end of each fiscal month, an aging
schedule of the Receivables in the form of the January 31, 1998 aging schedule
of Receivables previously furnished to the Agent and a certificate,
substantially in the form of Schedule 6.05(g) hereto, executed by the
----------------
Financial Officer of the Borrowers, respectively with respect to inventory
designations;
(h) (i) within twenty (20) days of the end of each fiscal month, an aging
schedule of the payables, executed by the Financial Officer of the Borrowers,
respectively and (ii) within twenty (20) days of the end of each fiscal
quarter, a schedule of Capital Expenditures for Rental Assets, substantially
in the form of Schedule 6.05(h) hereto, executed by the Financial Officer of
----------------
the Borrowers;
(i) within thirty (30) days prior to the beginning of each Fiscal Year, a
summary of business plans and financial operation projections (including,
without limitation, with respect to Capital Expenditures for the Borrowers and
their respective subsidiaries) for the Parent and its subsidiaries for such
Fiscal Year (including monthly balance sheets, statements of income and of
Consolidated cash flow) and annual projections through the Final Maturity Date
prepared by management and in form, substance and detail (including, without
limitation, principal assumptions) satisfactory to the Agent;
(j) as soon as practicable, copies of all reports, forms, filings, loan
documents and financial information submitted to governmental agencies and/or
its shareholders;
(k) within twenty (20) days of the end of each fiscal month, a certificate,
substantially in the form of Schedule 6.05(k) hereto, executed by the
----------------
Financial Officer of the Borrowers setting forth the Borrowing Base, and the
Availability each as of the end of such month, provided, however, that such
-------- -------
borrowing base certificate shall be prepared on a daily basis if requested by
the Agent on any day or days on which Availability is less than $2,500,000 or
there shall have occurred and be continuing an Event of Default; provided,
--------
further, that each of the foregoing borrowing base certificates shall set
-------
forth all information on a Borrower-by-Borrower basis;
(l) immediately upon becoming aware thereof, notice to the Agent of the
breach by any party of any material agreement with any of the Borrowers;
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(m) (i) if requested by the Agent upon the occurrence and continuance of
an Event of Default or on any day or days on which Availability is less than
$2,500,000, a report, setting forth (A) the aggregate dollar amount of sales
made by the Borrowers, as adjusted to account for any credits, chargebacks and
other adjustments to sales that are required in order to be consistent in all
material respects with the adjustments to sales made in the Borrowers
September 30, 1997 financial statements delivered pursuant to clause (a) of
Section 4.07 and (B) the aggregate amount of deposits in and other transfers
to each lockbox account during such day; and (ii) within ten (10) days of
receipt thereof, a copy of the bank statement with respect to any lockbox
account;
(n) promptly when available and in any event when furnished by any Borrower
pursuant to any of the ING Documents, copies of all financial statements,
certificates, audit and other reports, filings, projections, management
letters and other information, if and to the extent not being furnished
pursuant to the Agent under the other provisions of this Agreement; and
(o) such other information as the Agent or any Lender may reasonably
request.
SECTION 6.06. Litigation and Other Notices. Give the Agent prompt
----------------------------
written notice of the following:
(a) the issuance by any court or governmental agency or authority of any
injunction, order, proceeding, investigation, audit by federal, state or city
taxing authorities, decision or other restraint prohibiting, or having the
effect of prohibiting, the making of the Loans or occurrence of other Credit
Events, or invalidating, or having the effect of invalidating, any provision
of this Agreement, the Notes or the other Loan Documents, or the initiation of
any litigation or similar proceeding seeking any such injunction, order,
decision or other restraint;
(b) the filing or commencement of any action, suit or proceeding against
the Parent or any of its subsidiaries, whether at law or in equity or by or
before any court or any Federal, state, municipal or other governmental agency
or authority, (i) which is material and is brought by or on behalf of any
governmental agency or authority, or in which injunctive or other equitable
relief is sought or (ii) as to which it is probable (within the meaning of
Statement of Financial Accounting Standards No. 5) that there will be an
adverse determination and which, if adversely determined, would (A) reasonably
be expected to result in liability of one or more Borrowers or a subsidiary
thereof in an aggregate amount of $200,000 or more, not reimbursable by
insurance, or (B) materially impair the right of the Parent or any of its
subsidiaries thereof to perform its obligations under this Agreement, any Note
or any other Loan Document to which it is a party;
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(c) any Default or Event of Default, specifying the nature and extent
thereof and the action (if any) which is proposed to be taken with respect
thereto; and
(d) any development in the business, affairs or business development of the
Parent or any of its subsidiaries which has had or which is likely, in the
reasonable judgment of any Responsible Officer of such Borrower, to have, a
Material Adverse Effect,
SECTION 6.07. ERISA. (a) Pay and discharge promptly any liability
-----
imposed upon it pursuant to the provisions of Title IV of ERISA; provided,
--------
however, that neither the Parent, any subsidiary, nor any ERISA Affiliate shall
- -------
be required to pay any such liability if (1) the amount, applicability or
validity thereof shall be diligently contested in good faith by appropriate
proceedings, and (2) such person shall have set aside on its books reserves
which, in the opinion of the independent certified public accountants of such
person, are adequate with respect thereto.
(b) Deliver to the Agent, promptly, and in any event within 30 days,
after (i) the occurrence of any Reportable Event, a copy of the materials that
are filed with the PBGC, or the materials that would have been required to be
filed if the 30-day notice requirement to the PBGC was not waived, (ii) the
Parent, any subsidiary or any ERISA Affiliate or an administrator of any Pension
Plan files with participants, beneficiaries or the PBGC a notice of intent to
terminate any such Plan, a copy of any such notice, (iii) the receipt of notice
by the Parent or any ERISA Affiliate or an administrator of any Pension Plan
from the PBGC of the PBGC's intention to terminate any Pension Plan or to
appoint a trustee to administer any such Plan, a copy of such notice, (iv) the
filing thereof with the Internal Revenue Service, copies of each annual report
that is filed on Treasury Form 5500 with respect to any Plan, together with
certified financial statements (if any) for the Plan and any actuarial
statements on Schedule B to such Form 5500, (v) the Parent or any ERISA
Affiliate knows or has reason to know of any event or condition which might
constitute grounds under the provisions of Section 4042 of ERISA for the
termination of (or the appointment of a trustee to administer) any Pension Plan,
an explanation of such event or condition, (vi) the receipt by the Parent or any
ERISA Affiliate of an assessment of withdrawal liability under Section 4201 of
ERISA from a Multiemployer Plan, a copy of such assessment, (vii) the Parent or
any ERISA Affiliate knows or has reason to know of any event or condition which
might cause any one of them to incur a liability under Section 4062, 4063, 4064
or 4069 of ERISA or Section 412(n) or 4971 of the Code, an explanation of such
event or condition, and (viii) the Parent or any ERISA Affiliate knows or has
reason to know that an application is to be, or has been, made to the Secretary
of the Treasury for a waiver of the minimum funding standard under the
provisions of Section 412 of the Code, a copy of such application, and in each
case described in clauses (i) through (iii) and (v) through (vii) together with
a statement signed by the Financial
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Officer setting forth details as to such Reportable Event, notice, event or
condition and the action which such Borrower or such ERISA Affiliate proposes to
take with respect thereto.
SECTION 6.08. Maintaining Records; Access to Properties and
---------------------------------------------
Inspections; Right to Audit; Appraisals. Maintain financial records in
- ---------------------------------------
accordance with accepted financial practices and, upon reasonable notice (which
may be telephonic), at all reasonable times and as often as any Lender may
request (but, prior to a Default, no more than four (4) times in any Fiscal
Year), permit any authorized representative designated by such Lender to visit
and inspect the properties and financial records of the Parent and its
subsidiaries and to make extracts from such financial records at such Lender's
expense, and permit any authorized representative designated by such Lender to
discuss the affairs, finances and condition of the Parent and its subsidiaries
with the appropriate Financial Officer and such other officers as the Parent
shall deem appropriate and the Parent's independent public accountants, as
applicable. The Agent agrees that it shall give notice to the Parent with
respect to any such meeting and that the independent public accountants may
disclose to the Agent and the Lenders any and all financial statements, work
paper and other information of any kind that they may have with respect to the
Parent or any of its subsidiaries. Upon the Agent's request, the Parent shall
deliver a letter addressed to such independent public accountants instructing
them to comply with the provisions of this Section 6.08. The Borrowers shall
pay all independent public accountants' fees, costs and other charges incurred
pursuant to the accountant's compliance with this Section 6.08. At the Lenders'
or Agent's (or Borrowers' upon the occurrence of a Default) expense, the Agent
shall have the right to audit, as often as it may request (but prior to a
Default, no more often than one (1) time in any Fiscal Year), the existence and
condition of the accounts receivables, inventory, books and records of the
Parent and its subsidiaries and to review its compliance with the terms and
conditions of this Agreement and the other Loan Documents. If the Borrowers
wish to include in the Borrowing Base the assets of a business acquired pursuant
to a Permitted Acquisition, the Borrowers shall request a field examination
and/or deliver to the Agent, at the Borrowers' sole cost, an appraisal of such
assets based on a valuation method and furnished by an appraisal firm
satisfactory to the Agent. Further, following the occurrence of a Default, at
the Agent's request, the Borrowers shall promptly deliver to the Agent, at the
Borrowers' sole cost (provided that Borrowers shall be obligated to pay for only
one such appraisal in each Fiscal Year), a new or updated appraisal of the
machinery and equipment and rental property of the Borrowers, such appraisal to
be based upon a valuation method and to be furnished by an appraisal firm
satisfactory to the Agent.
SECTION 6.09. Use of Proceeds. Use the proceeds of the Credit Events
---------------
only for the purposes set forth in Section 4.14 hereof.
SECTION 6.10. Fiscal Year-End. Cause its Fiscal Year to end on
---------------
September 30, in each year.
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SECTION 6.11. Further Assurances. Execute any and all further
------------------
documents and take all further actions which may be required under applicable
law, or which the Agent may reasonably request, to grant, preserve, protect and
perfect the first priority security interest created by the Security Documents
in the Collateral.
SECTION 6.12. Additional Grantors and Guarantors. Promptly inform the
----------------------------------
Agent of the creation or acquisition of any direct or indirect subsidiary of the
Parent or any of its existing subsidiaries (subject to the provisions of Section
7.06 hereof) and cause each direct or indirect subsidiary not in existence on
the date hereof to enter into a Guarantee in form and substance satisfactory to
the Agent, and to execute the Security Documents, as applicable, as a Grantor,
and cause the direct parent of each such subsidiary to pledge all of the capital
stock of such subsidiary pursuant to the Pledge Agreement and cause each such
subsidiary to pledge its accounts receivable and all other assets, inventory and
general intangibles pursuant to the Security Agreement.
SECTION 6.13. Environmental Laws. (a) Comply, and cause each of their
------------------
subsidiaries to comply, in all material respects with the provisions of all
Environmental Laws, and shall keep their properties and the properties of their
subsidiaries free of any Lien imposed pursuant to any Environmental Law. The
Parent shall not cause or suffer or permit, and shall not suffer or permit any
of its subsidiaries to cause or suffer or permit, the property of the Parent or
its subsidiaries to be used for the generation, production, processing,
handling, storage, transporting or disposal of any Hazardous Material, except
for Hazardous Materials used in the ordinary course of business of the Borrowers
and disclosed in Schedule 6.13 hereto in which case such Hazardous Materials
-------------
shall be used, stored, generated, treated and disposed of only in material
compliance with Environmental Law.
(b) Supply to the Agent, with respect to material conditions, copies
of all submissions by the Parent or any of its subsidiaries to any governmental
body and of the reports of all environmental audits and of all other
environmental tests, studies or assessments (including the data derived from any
sampling or survey of asbestos, soil, or subsurface or other materials or
conditions) that may be conducted or performed (by or on behalf of the Parent or
any of its subsidiaries) on or regarding the properties owned, operated, leased
or occupied by the Parent or any of its subsidiaries or regarding any conditions
that might have been affected by Hazardous Materials on or Released or removed
from such properties. The Parent shall also permit and authorize, and shall
cause its subsidiaries to permit and authorize, the consultants, attorneys or
other persons that prepare such submissions or reports or perform such audits,
tests, studies or assessments to discuss such submissions, reports or audits
with the Agent and the Lenders.
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(c) Promptly (and in no event more than fifteen (15) Business Days
after the Parent becomes aware or is otherwise informed of such event) provide
oral and written notice to the Agent upon the happening of any of the following:
(i) the Parent, any of its subsidiaries, or any tenant or other
occupant of any property of such Borrower or such subsidiary receives
notice of material claim, complaint or notice of a violation or potential
violation of any Environmental Law;
(ii) there has been a spill or other Release of Hazardous Materials
upon, under or about or affecting any of the properties owned, operated,
leased or occupied by the Parent or any of its subsidiaries, or Hazardous
Materials at levels or in amounts that may have to be reported, remedied or
responded to under Environmental Law are detected on or in the soil or
groundwater of any such property;
(iii) the Parent or any of its subsidiaries is or may be liable for
the costs of cleaning up or otherwise responding to a material Release of
Hazardous Materials;
(iv) any part of the properties owned, operated, leased or occupied
by the Parent or any of its subsidiaries is or may be subject to a Lien
under any Environmental Law; or
(v) the Parent or any of its subsidiaries undertakes any Remedial Work
with respect to any Hazardous Materials.
(d) Timely undertake and complete any Remedial Work required by any
Environmental Law.
(e) Without in any way limiting the scope of Section 11.04(c) and in
addition to any obligations thereunder, each Borrower hereby indemnifies and
agrees to hold the Agent and the Lenders harmless from and against any
liability, loss, damage, suit, action or proceeding arising out of its business
or the business of its subsidiaries pertaining to Hazardous Materials,
including, but not limited to, claims of any govern-mental body or any third
person arising under any Environmental Law or under tort, contract or common
law. To the extent laws of the United States or any state or local jurisdiction
in which property owned, operated, leased or occupied by the Parent or any
subsidiary thereof is located provided that a Lien upon such property of such
Borrower or such subsidiary may be obtained for the removal of Hazardous
Materials which have been or may be Released on such property, no later than
sixty days after notice is given by the Agent to the Parent or such subsidiary,
the Parent or such subsidiary shall deliver to the Agent a report issued by a
qualified third party engineer providing an assessment of any Hazardous
Materials located upon or beneath the specified
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property. To the extent any Hazardous Materials located therein or thereunder
either subject the property to Lien or require removal under any applicable
Environmental Law, the removal thereof shall be an affirmative covenant of the
Parent and its subsidiaries hereunder.
(f) In the event that any Remedial Work is required to be performed by
the Parent or any subsidiary thereof under any applicable Environmental Law, any
judicial order not under appeal, or by any governmental entity, the Parent or
such subsidiary shall commence all such Remedial Work at or prior to the time
required therefor under such Environmental Law or applicable judicial orders and
thereafter diligently prosecute to completion all such Remedial Work in
accordance with and within the time allowed under such applicable Environmental
Laws or final and non-appealable judicial orders.
SECTION 6.14. Pay Obligations to Lenders and Perform Other Covenants.
------------------------------------------------------
(a) Make full and timely payment of the Obligations, whether now existing or
hereafter arising, (b) subject to any applicable grace periods, duly comply with
all the terms and covenants contained in this Agreement (including, without
limitation, the borrowing limitations and mandatory prepayments in accordance
with Article II hereof) in each of the other Loan Documents, all at the times
and places and in the manner set forth therein, and (c) except for the filing of
continuation statements and the making of other filings by the Agent as secured
party or assignee, at all times take all actions necessary to maintain the Liens
and security interests provided for under or pursuant to this Agreement and the
Security Documents as valid and perfected first Liens on the property intended
to be covered thereby (subject only to Liens expressly permitted hereunder) and
supply all information to the Agent necessary for such maintenance.
SECTION 6.15. Maintain Operating Accounts. Maintain all of its
---------------------------
operating accounts and cash management arrangements (other than payroll
accounts) with the Agent or pursuant to arrangements consented to in writing by
the Agent.
SECTION 6.16. Warehousemen's and Landlord's Liens. Make reasonable
-----------------------------------
good faith efforts to cause warehousemen liens and landlord's liens (or similar
such liens on Eligible Inventory) to be waived in favor of the Liens created by
this Agreement or any other Loan Document.
SECTION 6.17. Life Insurance. At all times maintain in full force
--------------
and effect, key man life insurance on Carlos DeMattos and on Darren DeVerna, in
each case in an amount of not less than Two Million Dollars ($2,000,000), with
one or more of the Borrowers as beneficiary under such policy. The Borrowers
shall assign to the Agent for the benefit of the Lenders as security for the
Obligations all monies payable under or in respect of such insurance policy
pursuant to an Assignment of Life Insurance.
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SECTION 6.18. Collateral Subject to Certificate of Title. Promptly
------------------------------------------
execute any and all further documents and promptly take all further actions
which may be required under applicable law, or which the Agent may reasonably
request, to duly perfect the Lien of the Agent with respect to any Collateral
valued at $30,000 or more which is subject to a certificate of title or similar
statute.
SECTION 6.19. Year 2000. Take all actions necessary to complete by
---------
October 31, 1999 any reprogramming required to permit the proper functioning, in
and following the year 2000, of (i) the Borrowers' computer systems and (ii)
equipment containing embedded microchips (including systems and equipment
supplied by others or with which Borrowers' systems interface) and the testing
of all such systems and equipment, as so programmed.
VII. NEGATIVE COVENANTS
Each of the Borrowers, Grantors and Guarantors, jointly and severally,
covenants and agrees with each Lender that, so long as this Agreement shall
remain in effect or the principal of or interest on any Note, any amount under
any Letter of Credit, or any fee, expense or other Obligation payable hereunder
or in connection with any of the Loan Documents shall be unpaid, it will not and
will not cause or permit any of its subsidiaries and, in the case of Section
7.17 hereof, any ERISA Affiliate to, either directly or indirectly:
SECTION 7.01. Liens. Incur, create, assume or permit to exist any
-----
Lien on any of its property or assets (including the stock of any direct or
indirect subsidiary), whether owned at the date hereof or hereafter acquired, or
assign or convey any rights to or security interests in any future revenues,
except:
(a) Liens incurred and pledges and deposits made in the ordinary
course of business in connection with workers' compensation, unemployment
insurance, old-age pensions and other social security benefits (not
including any lien described in Section 412(m) of the Code);
(b) Liens imposed by law, such as carriers', warehousemen's,
mechanics', materialmen's and vendors' liens and other similar liens,
incurred in good faith in the ordinary course of business and securing
obligations which are not overdue for a period of more than 15 days or
which are being contested in good faith by appropriate proceedings (and
such contest operates to suspend collection of the contested tax,
assessment or charge and enforcement of a Lien) as to which any Borrower
or any of its subsidiaries, as the case may be, shall, to the extent
required by GAAP, have set aside on its books adequate reserves; provided,
--------
however, that the Borrowers shall pay any obligations immediately upon
-------
commencement to foreclose said Lien unless the foreclosure shall be
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<PAGE>
stayed or a surety bond, which is satisfactory to the Agent, is delivered
to the Agent;
(c) Liens securing the payment of taxes, assessments and governmental
charges or levies in a maximum aggregate amount of $200,000, that are not
delinquent or are being diligently contested in good faith by appro priate
proceedings (and such contest operates to suspend collection of the
contested tax, assessment or change and enforcement of a Lien) and as to
which adequate reserves have been established in accordance with GAAP;
provided, however, that in no event shall the aggregate amount of such
-------- -------
reserves be less than the aggregate amount secured by such Liens;
(d) zoning restrictions, easements, licenses, reservations,
provisions, covenants, conditions, waivers, restrictions on the use of
property or minor irregularities of title which do not in the aggregate
materially detract from the value of its property or assets or materially
impair the use thereof in the operation of its business;
(e) Liens upon any equipment acquired through the purchase or lease
by any Borrower or any of its subsidiaries which are created or incurred
contemporaneously with such acquisition to secure or provide for the
payment of any part of the purchase price of, or lease payments on, such
equipment (but no other amounts and not in excess of the purchase price or
lease payments); provided, however, that any such Lien shall not apply to
-------- -------
any other property of the Borrowers or any of their subsidiaries;
provided, further, that after giving effect to such purchase or lease,
-------- -------
compliance is maintained with Section 7.07 hereof and all other provisions
of this Agreement; and provided, further, that the Liens permitted under
-------- -------
this clause (e) shall not secure more than $1,000,000 in the aggregate in
any Fiscal Year;
(f) Liens existing on the date of this Agreement and set forth in
Schedule 7.01(a) annexed hereto but not the extension, renewal or
----------------
refunding of the Indebtedness secured thereby; provided, further, that the
-------- -------
Indebtedness with respect to such existing Lien shall not exceed the
amount corresponding to such Lien set forth in Schedule 7.01(a); and
provided, further, that with respect to the UCC filings listed on Schedule
-------- ------- --------
7.01(b) annexed hereto, the Borrowers shall use reasonable efforts to
-------
obtain such amendments and releases as the Agent may reasonably request;
(g) Liens created in favor of the Agent for the benefit of the
Lenders;
(h) Liens securing the performance of bids, tenders, leases,
contracts (other than for the repayment of borrowed money), statutory
obligations, surety,
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customs and appeal bonds and other obligations of like nature, incurred as
an incident to and in the ordinary course of business; or
(i) Liens securing judgments that do not (either individually or in
the aggregate) result in a default under Section 8(k) of this Agreement,
securing judgments in an aggregate amount that, together with the amounts
secured by Liens permitted under clause (c) above, does not exceed
$200,000; provided, however, that such Liens shall be permitted under this
-------- -------
clause (i) only if the judgments are being diligently contested in good
faith by appropriate proceedings and if adequate reserves have been
established in accordance with GAAP; provided, further, that the aggregate
-------- -------
amount of such reserves shall in no event be less than the aggregate
amount secured by such Liens.
SECTION 7.02. Sale and Lease-Back Transactions. Enter into any
--------------------------------
arrangement, directly or indirectly, with any person whereby any Borrower or any
of its subsidiaries shall sell or transfer any property, real or personal, and
used or useful in its business, whether now owned or hereafter acquired, and
thereafter rent or lease such property or other property which such Borrower or
such subsidiary intends to use for substantially the same purpose or purposes as
the property being sold or transferred.
SECTION 7.03. Indebtedness. Incur, create, assume or permit to exist
------------
any Indebtedness other than (i) Indebtedness secured by Liens permitted under
Section 7.01, (ii) Indebtedness (including, without limitation, Guarantees)
existing on the date hereof and listed in Schedule 7.03 annexed hereto, but not
-------------
the extension, increase, renewal or refunding thereof, (iii) Indebtedness
incurred hereunder, (iv) Indebtedness to trade creditors incurred in the
ordinary course of business, (v) Guarantees constituting the endorsement of
negotiable instruments for deposit or collection in the ordinary course of
business, (vi) Guarantees of the Obligations, (vii) purchase money Indebtedness
to the extent permitted by Sections 7.01(e) and 7.07 hereof, (viii) Subordinated
Indebtedness (including, without limitation, that permitted pursuant to a
Permitted Acquisition) and (ix) Guarantees of Indebtedness and real estate lease
obligations of another Borrower or Guarantor, so long as the Indebtedness or
real estate lease obligations being guaranteed is permitted hereunder.
SECTION 7.04. Dividends, Distributions and Payments. Declare or pay,
-------------------------------------
directly and indirectly, any cash dividends or make any other distribution,
whether in cash, property, securities or a combination thereof, with respect to
(whether by reduc tion of capital or otherwise) any shares of its capital stock
or warrants or directly or indirectly redeem, purchase, retire or otherwise
acquire for value (or permit any subsidiary to purchase or acquire) any shares
of any class of its capital stock or warrants or set aside any amount for any
such purpose except that after the Term Loan has been paid in full and all Term
Loan Commitments have been terminated, the Parent shall be permitted to make
cash distributions to shareholders, in an amount not to exceed 50% of Net Income
of the Parent and its Consolidated subsidiaries accrued
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after such date, or 50% of the proceeds of public offerings of debt or equity
securities described in Section 2.09(d)(x)(ii); provided, however, that both
-------- -------
before and after giving effect to the distributions contemplated above, no
Default or Event of Default shall have occurred and be continuing.
SECTION 7.05. Consolidations, Mergers and Sales of Assets. Other than
-------------------------------------------
(i) Permitted Acquisitions and (ii) the sales ("Permitted Sales") of assets by
---------------
the Borrowers outside of the ordinary course of business (not to exceed $100,000
in the aggregate for all Borrowers in any Fiscal Year), consolidate with or
merge into any other person, or sell, lease, transfer or assign to any persons
or otherwise dispose of (whether in one transaction or a series of transactions)
any portion of its assets (whether now owned or hereafter acquired), or sell any
of its inventory other than in the normal course of business, or permit another
person to merge into it, or acquire all or substantially all the capital stock
or assets of any other person.
SECTION 7.06. Investments. Own, purchase or acquire any stock,
-----------
obligations, assets or securities of, or any interest in, or make any capital
contribution or loan or advance to, any other person, or make any other
investments, except:
(a) certificates of deposit in dollars of any commercial banks
registered to do business in any state of the United States (i) having
capital and surplus in excess of $1,000,000,000 and (ii) whose long-term
debt rating is at least investment grade as determined by either Standard
& Poor's Ratings Group or Moody's Investors Service, Inc.;
(b) readily marketable direct obligations of the United States
government or any agency thereof which are backed by the full faith and
credit of the United States;
(c) commercial paper at the time of acquisition having the highest
rating obtainable from either Standard & Poor's Ratings Group or Moody's
Investors Service, Inc.;
(d) federally tax exempt securities rated A or better by either
Standard & Poor's Ratings Group or Moody's Investors Service, Inc.;
(e) investments in the stock of any subsidiary existing on the
Closing Date, but not any additional investments therein; and
(f) Permitted Acquisitions; and
(g) investments in money market mutual funds having assets in excess
of $2,000,000,000;
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provided that, in each case mentioned in (a), (b), (c) and (d) above, such
- --------
obligations shall mature not more than one year from the date of acquisition
thereof.
SECTION 7.07. Capital Expenditures. Permit the aggregate amount of
--------------------
payments made for Capital Expenditures, including Capitalized Lease Obligations
and Indebtedness secured by Liens permitted under Section 7.01(e) hereof, in
each of the periods indicated below to exceed the following amounts for the
Parent and its Consolidated subsidiaries:
Period Maximum Amount
------ --------------
Fiscal Year ending September 30, 1998 $12,750,000
Fiscal Year ending September 30, 1999 $11,500,000
Fiscal Year ending September 30, 2000 $11,500,000
Fiscal Year ending September 30, 2001 $11,500,000
Fiscal Year ending September 30, 2002 $11,500,000
provided, however, the maximum amount permitted in any Fiscal Year shall be
- -------- -------
increased by 25% of such amount if in the immediately preceding Fiscal Year the
ratio of total Funded Indebtedness to EBITDA (adjusted to include EBITDA of
Permitted Acquisitions during such year) for the Parent and its Consolidated
subsidiaries was less than 3.50:1.00; and provided further that $2,000,000 of
the amount permitted to be expended with respect to the Fiscal Year ended
September 30, 1998 or any Fiscal Year thereafter (as set forth above) may be
carried over and may be expended in the immediately succeeding Fiscal Year (but
not in any other Fiscal Year).
SECTION 7.08. Net Worth. Permit the Net Worth of the Parent and its
---------
Consolidated subsidiaries at any time to be less than the respective amounts set
forth below for the periods indicated:
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
9/30/98 through and
including 9/29/99 $11,000,000
9/30/99 through and
including 9/29/2000 $12,500,000
9/30/2000 through and
including 9/29/2001 $16,000,000
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
9/30/2001 through and
including the Final
Maturity Date $19,000,000
</TABLE>
SECTION 7.09. Debt Service Coverage Ratio. Permit the Debt Service
Coverage Ratio of the Parent and its Consolidated subsidiaries at the end of the
fiscal quarter ending June 30, 1998 to be less than 1.25:1.00, thereafter at the
end of each fiscal quarter commencing September 30, 1998 through March 31, 2000
to be less than 1.50:1.00 and thereafter at the end of each fiscal quarter to be
less than 1.75:1.00.
SECTION 7.10. Rental Obligations. Incur, create, assume or permit to
------------------
exist, in respect of leases of real and personal property (other than finance
leases and subrentals of Rental Assets), rental obligations or other commitments
thereunder to make any direct or indirect payment, whether as rent or otherwise,
for fixed or minimum rentals, percentage rentals, in an aggregate amount for the
borrowers and their subsidiaries which shall exceed $3,000,000 in any Fiscal
Year.
SECTION 7.11. Interest Coverage Ratio. Permit the Interest Coverage
-----------------------
Ratio of the Parent and its Consolidated subsidiaries at the end of any fiscal
quarter to be less than the respective amounts set forth below for the periods
indicated:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
3/31/99 through and
including 9/29/99 1.50:1.00
9/30/99 through and
including 9/29/2000 1.75:1.00
9/30/2000 through and
including 9/29/2001 2.00:1.00
9/30/2001 through and
including the Final
Maturity Date 2.25:1.00
</TABLE>
SECTION 7.12. Leverage Ratio. Permit the Leverage Ratio of the
--------------
Parent and its Consolidated subsidiaries for the four most recent consecutive
fiscal quarters ending on or prior to the date of determination to be greater
than 4.50:1.00 at the end of any fiscal quarter.
SECTION 7.13. EBITDA. Permit EBITDA of the Parent and its
------
Consolidated subsidiaries to be less than (i) $5,700,000 for the period July 1,
1997
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<PAGE>
through December 31, 1997, (ii) $10,800,000 for the period July 1, 1997 through
June 30, 1998, (iii) $13,800,000 for the period October 1, 1997 through
September 30, 1998 and (iv) $3,500,000 for the period October 1, 1998 through
December 31, 1998.
SECTION 7.14. Business. Alter the nature of its business as operated
--------
on the date of this Agreement in any material respect, other than pursuant to a
Permitted Acquisition.
SECTION 7.15. Sales of Receivables. Sell, assign, discount,
--------------------
transfer, or otherwise dispose of any accounts receivable, chattel paper,
promissory notes, drafts or trade acceptances or other rights to receive payment
held by it, with or without recourse, except (i) for the purpose of collection
or settlement in the ordinary course of business or (ii) the sale of any such
accounts to The Chase Manhattan Bank.
SECTION 7.16. Use of Proceeds. Permit the proceeds of any Credit
---------------
Event to be used for any purpose which entails a violation of, or is
inconsistent with, Regulation G, T, U or X of the Board, or for any purpose
other than those set forth in Section 4.14 hereof.
SECTION 7.17. ERISA. (a) Engage in any transaction in connection
-----
with which the Parent, any subsidiary or any ERISA Affiliate could be subject to
either a material civil penalty assessed pursuant to the provisions of Section
502 of ERISA or a material tax imposed under the provisions of Section 4975 of
the Code.
(b) Terminate any Pension Plan in a "distress termination" under
Section 4041 of ERISA, or take any other action which could result in a material
liability of the Parent, any subsidiary or any ERISA Affiliate to the PBGC.
(c) Fail to make payment when due of all amounts which, under the
provisions of any Plan, the Parent, subsidiary or any ERISA Affiliate is
required to pay as contributions thereto, or, with respect to any Pension Plan,
permit to exist any material "accumulated funding deficiency" (within the
meaning of Section 302 of ERISA and Section 412 of the Code), whether or not
waived, with respect thereto.
(d) Adopt an amendment to any Pension Plan requiring the provision of
security under Section 307 of ERISA or Section 401(a)(29) of the Code.
SECTION 7.18. Accounting Changes; Fiscal Year. Make, or permit any
-------------------------------
subsidiary to make, any change (i) in their accounting treatment or financial
reporting practices except as required or permitted by GAAP, or (ii) in their
fiscal year end of September 30 (except for such change in the fiscal year end
of businesses acquired pursuant to Permitted Acquisitions to have their fiscal
year end on September 30).
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SECTION 7.19. Prepayment or Modification of Indebtedness;
-------------------------------------------
Modification of Charter Documents. (a) Except as expressly permitted
- ---------------------------------
hereunder, directly or indirectly prepay, redeem, purchase or retire any
Indebtedness, including, without limitation, any Subordinated Indebtedness,
other than Indebtedness incurred hereunder.
(b) Except as expressly permitted hereunder, modify, amend or
otherwise alter the terms and provisions of any Subordinated Indebtedness, other
than to conform the covenants in the ING Documents to those in this Agreement.
(c) Modify, amend or alter their certificates or articles of
incorporation or other constitutive charter document or any of the ING Documents
in a manner which is either (i) material and adverse to the Agent or the Lenders
or (ii) adversely affects the ability of the Borrowers or any Guarantors to
repay the Obligations hereunder or which adversely affects the Lien of the Agent
on any Collateral or the priority of such Lien.
(d) Modify or amend any certificate of designations or warrant
certificate for the issuance of common or preferred stock or rights thereto if
such modification or amendment would have a Material Adverse Effect.
SECTION 7.20. Transactions with Affiliates. The Parent will not, and
----------------------------
will not permit any Subsidiary to, enter into, or cause, suffer or permit to
exist:
(a) any arrangement or contract with any of its other Affiliates
of a nature customarily entered into by persons which are Affiliates
of each other (including management or similar contracts or
arrangements relating to the allocation of revenues, taxes and
expenses or otherwise) requiring any payments to be made by the Parent
or any Subsidiary to any affiliate unless such arrangement is fair and
equitable to the Parent or such Subsidiary; or
(b) any other transaction, arrangements or contract with any of
its other Affiliates or any of the Parent's stockholders or agents
which would not be entered into by a prudent person in the position of
the Parent or such Subsidiary with, or which is on terms which are
less favorable than are obtainable from, any person which is not one
of its Affiliates or one of the Parent's stockholders or agents.
The transactions under the ING Documents shall not be subject to this
Section 7.20. The transactions described in Schedule 7.20 shall also not be
-------------
subject to this Section 7.20.
Without any implication that the foregoing shall restrict payment of
any of the following:
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(c) The Parent may from time to time make payment to officers
and directors for compensation for services in such capacity not
exceeding $100,000 in the aggregate in any Fiscal Year, and the Parent
may make payments pursuant to the terms of the promissory note of Duke
dated May 2, 1997 to the order of Harold Jay Lefkovitz in the original
principal amount of $585,561.15 due May 1, 2000.
in each case at any time when due by the terms of such arrangement, but, in the
case of any such payment permitted by clause (c), only if and to the extent
that, after giving effect thereto, in the good faith determination of the Board
of Directors of the Parent evidenced by a duly adopted resolution of such Board,
and
(d) no Default shall have occurred and be continuing (or be
likely to occur within the next 190 days).
SECTION 7.21. Consulting Fees. Pay any management, consulting or
---------------
other fees of any kind to the Parent, any subsidiary thereof or to any Affiliate
of the Parent.
SECTION 7.22. Negative Pledges, Etc. Enter into any agreement (other
---------------------
than this Agreement, any other Loan Document or any Subordinated Loan Document
as in effect on the Closing Date) which (a) prohibits the creation or assumption
of any Lien upon any of the Collateral, including, without limitation, any
hereafter acquired property, or (b) specifically prohibits the amendment or
other modification of this Agreement or any other Loan Document.
VII. EVENTS OF DEFAULT
In case of the happening of any of the following events (herein called
"Events of Default"):
-----------------
(a) any representation or warranty made or deemed made in or in
connection with this Agreement, any of the Security Documents, the Notes or
other Loan Documents or any Credit Events hereunder, shall prove to have
been incorrect in any material respect when made or deemed to be made;
(b) default shall be made in the payment of any principal of any Note
when and as the same shall become due and payable, whether at the due date
thereof or at a date fixed for prepayment thereof or by acceleration
thereof or otherwise;
(c) default shall be made in the payment of any interest on any Note,
or any fee or any other amount payable hereunder, under the Fee Letter, or
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under the Notes, Letters of Credit or any other Loan Document or in
connection with any other Credit Event or the Transactions when and as the
same shall become due and payable;
(d) default shall be made in the due observance or performance of any
covenant, condition or agreement to be observed or performed on the part of
any Loan Party pursuant to the terms of Section 6.01, Section 6.02, Section
6.03, Section 6.05, Section 6.06, Section 6.08, Section 6.09, Section 6.10,
Section 6.12, Section 6.13, Section 6.14, Section 6.15, Section 6.17,
Section 6.18 or in Article VII of this Agreement;
(e) default shall be made in the due observance or performance of any
covenant, condition or agreement to be observed or performed on the part of
any Loan Party pursuant to the terms of this Agreement, any of the Notes,
any of the Security Documents or any other Loan Documents (other than those
defaults specified in (a), (b), (c) or (d) above) and such default shall
continue unremedied for a period of twenty-five (25) days after notice
thereof from the Agent or any Lender to any Borrower;
(f) any Loan Party shall (i) voluntarily commence any proceeding or
file any petition seeking relief under Title 11 of the United States Code
or any other Federal, state or foreign bankruptcy, insolvency, liquidation
or similar law, (ii) consent to the institution of, or fail to contravene
in a timely and appropriate manner, any such proceeding or the filing of
any such petition, (iii) apply for or consent to the appointment of a
receiver, trustee, custodian, sequestrator or similar official for any Loan
Party or for a substantial part of its property or assets, (iv) file an
answer admitting the material allegations of a petition filed against it in
any such proceeding, (v) make a general assignment for the benefit of
creditors, (vi) become unable, admit in writing its inability or fail
generally to pay its debts as they become due or (vii) take corporate
action for the purpose of effecting any of the foregoing;
(g) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed in a court of competent jurisdiction seeking (i)
relief in respect of any Loan Party, or of a substantial part of the
property or assets of any Loan Party, under Title 11 of the United States
Code or any other Federal state or foreign bankruptcy, insolvency,
receivership or similar law, (ii) the appointment of a receiver, trustee,
custodian, sequestrator or similar official for any Loan Party or for a
substantial part of the property of any Loan Party, or (iii) the winding-up
or liquidation of any Loan Party; and such proceeding or petition shall
continue undismissed for 45 days or an order or decree approving or
ordering any of the foregoing shall continue unstayed and in effect for 45
days;
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(h) except for the events described on Schedule 8.01, default shall
be made with respect to any Indebtedness (including, without limitation,
any Indebtedness under the Subordinated Loan Documents or any other
Subordinated Indebtedness) or obligations under a capitalized lease of any
Loan Party (excluding Indebtedness outstanding hereunder, excluding those
obligations set forth on Schedule 4.02, and excluding trade payables
-------------
created by the Borrowers in the ordinary course of business) with respect
to Indebtedness or obligations of $600,000 or more (either individually or
in the aggregate), if the effect of any such default shall be to
accelerate, or to permit the holder or obligee of any such Indebtedness or
obligations under a capitalized lease (or any trustee on behalf of such
holder or obligee) at its option to accelerate, the maturity of such
Indebtedness or obligations under a capitalized lease;
(i) (i) a Reportable Event shall have occurred with respect to a
Pension Plan, (ii) the filing by any Loan Party, any ERISA Affiliate, or an
administrator of any Plan of a notice of intent to terminate such a Plan in
a "distress termination" under the provisions of Section 4041 of ERISA,
(iii) the receipt of notice by any Loan Party, any ERISA Affiliate, or an
administrator of a Plan that the PBGC has instituted proceedings to
terminate (or appoint a trustee to administer) such a Pension Plan, (iv)
any other event or condition exists which might, in the opinion of the
Agent, constitute grounds under the provisions of Section 4042 of ERISA for
the termination of (or the appointment of a trustee to administer) any
Pension Plan by the PBGC, (v) a Pension Plan shall fail to maintain the
minimum funding standard required by Section 412 of the Code for any plan
year or a waiver of such standard is sought or granted under the provisions
of Section 412(d) of the Code, (vi) any Loan Party or any ERISA Affiliate
has incurred, or is likely to incur, a liability under the provisions of
Section 4062, 4063, 4064 or 4201 of ERISA, (vii) any Loan Party or any
ERISA Affiliate fails to pay the full amount of an installment required
under Section 412(m) of the Code, (viii) the occurrence of any other event
or condition with respect to any Plan which would constitute an event of
default under any other agreement entered into by any Loan Party or any
ERISA Affiliate, and in each case in clauses (i) through (viii) of this
subsection (h), such event or condition, together with all other such
events or conditions, if any, could subject any Loan Party or any ERISA
Affiliate to any taxes, penalties or other liabilities which, in the
opinion of the Agent, could have a Material Adverse Effect on the financial
condition of any Loan Party or any ERISA Affiliate;
(j) any Loan Party or any ERISA Affiliate (i) shall have been
notified by the sponsor of a Multiemployer Plan that it has incurred any
material with drawal liability to such Multiemployer Plan, and (ii) does
not have reasonable grounds for contesting such withdrawal liability and is
not in fact contesting such withdrawal liability in a timely and
appropriate manner;
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(k) a judgment (not reimbursed by insurance policies of any Loan
Party) or decree for the payment of money, a fine or penalty which when
taken together with all other such judgments, decrees, fines and penalties
shall exceed $200,000 shall be rendered by a court or other tribunal
against any Loan Party and (i) shall remain undischarged or unbonded for a
period of 30 consecutive days during which the execution of such judgment,
decree, fine or penalty shall not have been stayed effectively or (ii) any
judgment creditor or other person shall legally commence actions to collect
on or enforce such judgment, decree, fine or penalty;
(l) this Agreement, any Note, any of the Security Documents, any
Guarantee or other Loan Documents shall for any reason cease to be, or
shall be asserted by any Loan Party not to be, a legal, valid and binding
obligation of any Loan Party, enforceable in accordance with its terms, or
the security interest or Lien purported to be created by any of the
Security Documents shall for any reason cease to be, or be asserted by any
Loan Party not to be, a valid, first priority perfected security interest
in any Collateral (except to the extent otherwise permitted under this
Agreement or any of the Security Documents);
(m) a Change of Control shall occur; or
(n) a Lien arising from unpaid federal, state or local taxes (which
when taken together with all other such Liens shall exceed $200,000) and
which shall no longer be permitted pursuant to Section 7.01(c)) shall be
filed against any Borrower's, Grantor's or Guarantor's properties or
assets;
then, and in any such event (other than an event described in paragraph (f) or
(g) above), and at any time thereafter during the continuance of such event, the
Agent may, and upon the written request of the Required Lenders shall, by
written notice (or facsimile notice promptly confirmed in writing) to the
Borrowers, take any or all of the following actions at the same or different
times: (i) terminate forthwith all or any portion of the Total Commitment and
the obligations of the Lenders to issue Letters of Credit hereunder; (ii) demand
that the Borrowers provide to the Lenders, and the Borrowers upon such demand
agree to provide, cash collateral in an amount equal to the aggregate undrawn
amount of all outstanding Letters of Credit plus the aggregate amount of all
drawings under Letters of Credit for which the Lenders shall not have been
reimbursed as provided in Section 2.18 hereof, such cash collateral to be
deposited in a cash collateral account to be held by the Agent for the benefit
of the Lenders; and (iii) declare the Notes and any amounts then owing to the
Lenders on account of drawings under any Letters of Credit to be forthwith due
and payable, whereupon the principal of such Notes, together with accrued
interest and fees thereon and any amounts then owing to the Lenders on account
of drawings under any Letters of Credit and other liabilities of the Borrowers
accrued hereunder, shall become forthwith due and payable both as to principal
and interest, without presentment,
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demand, protest or any other notice of any kind, all of which are hereby
expressly waived by the Borrowers, anything contained herein or in the Notes to
the contrary notwithstanding; provided, however, that with respect to a default
-------- -------
described in paragraph (f) or (g) above, the Total Commitment and the obligation
of the Lenders to issue Letters of Credit shall automatically terminate and the
principal of the Notes, together with accrued interest and fees thereon and any
amounts then owing to the Lenders on account of drawings under any Letters of
Credit and any other liabilities of the Borrowers accrued hereunder shall
automatically become due and payable, both as to principal and interest, without
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived by the Borrowers, anything contained herein or in the
Notes to the contrary notwithstanding.
IX. AGENT
In order to expedite the transactions contemplated by this Agreement,
The Chase Manhattan Bank is hereby appointed to act as Agent on behalf of the
Lenders. Each of the Lenders and each subsequent holder of any Note or issuer of
any Letter of Credit by its acceptance thereof, irrevocably authorizes the Agent
to take such action on its behalf and to exercise such powers hereunder and
under the Security Documents and other Loan Documents as are specifically
delegated to or required of the Agent by the terms hereof and the terms thereof
together with such powers as are reasonably incidental thereto. Neither the
Agent nor any of its directors, officers, employees or agents shall be liable as
such for any action taken or omitted to be taken by it or them hereunder or
under any of the Security Documents and other Loan Documents or in connection
herewith or therewith (a) at the request or with the approval of the Required
Lenders (or, if otherwise specifically required hereunder or thereunder, the
consent of all the Lenders) or (b) in the absence of its or their own gross
negligence or willful misconduct.
The Agent is hereby expressly authorized on behalf of the Lenders,
without hereby limiting any implied authority, (a) to receive on behalf of each
of the Lenders any payment of principal of or interest on the Notes outstanding
hereunder and all other amounts accrued hereunder paid to the Agent, and
promptly to distribute to each Lender its proper share of all payments so
received, (b) to distribute to each Lender copies of all notices, agreements and
other material as provided for in this Agreement or in the Security Documents
and other Loan Documents as received by such Agent and (c) to take all actions
with respect to this Agreement and the Security Documents and other Loan
Documents as are specifically delegated to the Agent.
In the event that (a) any Borrower fails to pay when due the principal
of or interest on any Note, any amount payable under any Letter of Credit, or
any fee payable hereunder or (b) the Agent receives written notice of the
occurrence of a Default or an Event of Default, the Agent within a reasonable
time shall give written
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notice thereof to the Lenders, and shall take such action with respect to such
Event of Default or other condition or event as it shall be directed to take by
the Required Lenders; provided, however, that, unless and until the Agent shall
-------- -------
have received such directions, the Agent may take such action or refrain from
taking such action hereunder or under the Security Documents or other Loan
Documents with respect to a Default or Event of Default as it shall deem
advisable in the best interests of the Lenders.
The Agent shall not be responsible in any manner to any of the Lenders
for the effectiveness, enforceability, perfection, value, genuineness, validity
or due execution of this Agreement, the Notes or any of the other Loan Documents
or Collateral or any other agreements or certificates, requests, financial
statements, notices or opinions of counsel or for any recitals, statements,
warranties or representations contained herein or in any such instrument or be
under any obligation to ascertain or inquire as to the performance or observance
of any of the terms, provisions, covenants, conditions, agreements or
obligations of this Agreement or any of the other Loan Documents or any other
agreements on the part of the Borrowers and, without limiting the generality of
the foregoing, the Agent shall, in the absence of knowledge to the contrary, be
entitled to accept any certificate furnished pursuant to this Agreement or any
of the other Loan Documents as conclusive evidence of the facts stated therein
and shall be entitled to rely on any note, notice, consent, certificate,
affidavit, letter, telegram, teletype message, statement, order or other
document which it believes in good faith to be genuine and correct and to have
been signed or sent by the proper person or persons. It is understood and
agreed that the Agent may exercise its rights and powers under other agreements
and instruments to which it is or may be a party, and engage in other
transactions with the Borrowers, as though it were not Agent of the Lenders
hereunder.
The Agent shall promptly give notice to the Lenders of the receipt or
sending of any notice, schedule, report, projection, financial statement or
other document or information pursuant to this Agreement or any of the other
Loan Documents and shall promptly forward a copy thereof to each Lender.
Neither the Agent nor any of its directors, officers, employees or
agents shall have any responsibility to the Borrowers on account of the failure
or delay in performance or breach by any Lender other than the Agent of any of
its obligations hereunder or to any Lender on account of the failure of or delay
in performance or breach by any other Lender or the Borrowers of any of their
respective obligations hereunder or in connection herewith.
The Agent may consult with legal counsel selected by it in connection
with matters arising under this Agreement or any of the other Loan Documents and
any action taken or suffered in good faith by it in accordance with the opinion
of such counsel shall be full justification and protection to it. The Agent may
exercise any of its
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powers and rights and perform any duty under this Agreement or any of the other
Loan Documents through agents or attorneys.
The Agent and the Borrowers may deem and treat the payee of any Note
as the holder thereof until written notice of transfer shall have been delivered
as provided herein by such payee to the Agent and the Borrowers.
With respect to the Loans made hereunder, the Notes issued to it and
any other Credit Event applicable to it, the Agent in its individual capacity
and not as an Agent shall have the same rights, powers and duties hereunder and
under any other agreement executed in connection herewith as any other Lender
and may exercise the same as though it were not the Agent, and the Agent and its
affiliates may accept deposits from, lend money to and generally engage in any
kind of business with the Borrowers or other affiliate thereof as if it were not
the Agent.
Each Lender agrees (i) to reimburse the Agent in the amount of such
Lender's pro rata share (based on its Total Commitment hereunder) of any
expenses incurred for the benefit of the Lenders by the Agent, including counsel
fees and compensation of agents and employees paid for services rendered on
behalf of the Lenders, not reimbursed by the Borrowers and (ii) to indemnify and
hold harmless the Agent and any of its directors, officers, employees or agents,
on demand, in the amount of its pro rata share, 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 it in its capacity as the Agent or
any of them in any way relating to or arising out of this Agreement or any of
the other Loan Documents or any action taken or omitted by it or any of them
under this Agreement or any of the other Loan Documents, to the extent not
reimbursed by the Borrowers; provided, however, that no Lender shall be liable
-------- -------
to the Agent for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgment, suits, costs, expenses or disbursements resulting
from the gross negligence or willful misconduct of the Agent or any of its
directors, officers, employees or agents.
Each Lender acknowledges that it has, independently and without
reliance upon the Agent or any other Lender and based on such documents and
information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement and any other Loan Document to which such
Lender is party. Each Lender also acknowledges that it will, independently and
without reliance upon the Agent or any other Lender and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own decisions in taking or not taking action under or based upon this Agreement,
any other Loan Document, any related agreement or any document furnished
hereunder.
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Subject to the appointment and acceptance of a successor Agent as
provided below, the Agent may resign at any time by notifying the Lenders and
the Borrowers. Upon any such resignation, the Lenders shall have the right to
appoint a successor Agent. If no successor Agent shall have been so appointed
by such Lenders and shall have accepted such appointment within 30 days after
the retiring Agent gives notice of its resignation, then the retiring Agent may,
on behalf of the Lenders, appoint a successor Agent which shall be a bank with
an office (or an affiliate with an office) in New York, New York, having a
combined capital and surplus of at least $500,000,000. Upon the acceptance of
any appointment as Agent hereunder by a successor bank, such successor shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Agent and the retiring Agent shall be discharged from
its duties and obligations hereunder and under each of the other Loan Documents.
After any Agent's resignation hereunder, the provisions of this Article shall
continue in effect for its benefit in respect of any actions taken or omitted to
be taken by it while it was acting as Agent.
With respect to the release of Collateral, Lenders hereby irrevocably
authorize the Agent, at its option and in its discretion, to release any Lien
granted to or held by the Agent upon any property covered by this Agreement or
the other Loan Documents (i) upon termination of the Total Commitments and
payment and satisfaction of all Obligations; (ii) constituting property being
sold or disposed of in compliance with the provisions of this Agreement (and the
Agent may rely in good faith conclusively on any such certificate, without
further inquiry); or (iii) constituting property leased to Borrowers or any
subsidiary under a lease which has expired or been terminated in a transaction
permitted under this Agreement or is about to expire and which has not been, and
is not intended by Borrowers or such subsidiary to be, renewed or extended;
provided, however, that (x) the Agent shall not be required to execute any
- -------- -------
release on terms which, in the Agent's opinion, would expose the Agent to
liability or create any obligation or entail any consequence other than the
release of such Liens without recourse or warranty, and (y) such release shall
not in any manner discharge, affect or impair the Obligations or any Liens upon
(or obligations of any Loan Party, in respect of), all interests retained by any
Loan Party, including (without limitation) the proceeds of any sale, all of
which shall continue to constitute part of the property covered by this
Agreement or the Loan Documents.
With respect to perfecting Lenders' security interest in Collateral
which, in accordance with Article 9 of the Uniform Commercial Code in any
applicable jurisdiction, can be perfected only by possession, each Lender hereby
appoints each other Lender for the purpose of perfecting such interest. Should
any Lender (other than the Agent) obtain possession of any such Collateral, such
Lender shall notify the Agent, and, promptly upon the Agent's request, shall
deliver such Collateral to the Agent or in accordance with the Agent's
instructions. Each Lender agrees that it will not have any right individually
to enforce or seek to enforce this Agreement or any Loan Document or
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to realize upon any Collateral for the Loans, it being understood and agreed
that such rights and remedies may be exercised only by the Agent.
In the event that a petition seeking relief under Title 11 of the
United States Code or any other Federal, state or foreign bankruptcy,
insolvency, liquidation or similar law is filed by or against any Loan Party,
the Agent is authorized to file a proof of claim on behalf of itself and the
Lenders in such proceeding for the total amount of Obligations owed by such Loan
Party. With respect to any such proof of claim which the Agent may file, each
Lender acknowledges that without reliance on such proof of claim, such Lender
shall make its own evaluation as to whether an individual proof of claim must be
filed in respect of such Obligations owed to such Lender and, if so, take the
steps necessary to prepare and timely file such individual claim.
The Lenders hereby acknowledge that the Agent shall be under no duty
to take any discretionary action permitted to be taken by the Agent pursuant to
the provisions of this Agreement or any of the other Loan Documents unless it
shall be requested in writing to do so by the Required Lenders. The Lenders
further hereby acknowledge that the Agent is not acting as the fiduciary of, or
the trustee for, any of the Lenders and except as expressly set forth herein,
the Agent shall not have any duty to disclose, and shall not be liable for the
failure to disclose, any information communicated to the Agent by or relating to
the Borrower or any of their respective subsidiaries.
X. MANAGEMENT, COLLECTION AND STATUS OF RECEIVABLES AND OTHER COLLATERAL
SECTION 10.01. Collection of Receivables; Management of Collateral.
---------------------------------------------------
(a) The Borrowers will, at their own cost and expense, (i) at the request of
the Agent upon the occurrence and continuance of an Event of Default, arrange
for remittances on Receivables to be made directly to lockboxes designated by
the Agent or in such other manner as the Agent may direct, and (ii) promptly (or
within 90 days following a Permitted Acquisition) deposit all payments received
by the Borrowers on account of Receivables, whether in the form of cash, checks,
notes, drafts, bills of exchange, money orders or otherwise, in one or more
accounts designated by the Agent in precisely the form received (but with any
endorsements of the Borrowers necessary for deposit or collection), subject to
withdrawal by the Agent only, as hereinafter provided, and until such payments
are deposited, such payments shall be deemed to be held in trust by the
Borrowers for and as the Lenders' property and shall not be commingled with the
Borrowers' other funds. All remittances and payments that are deposited in
accordance with the foregoing will be immediately applied by the Agent to reduce
the outstanding balance of the Revolving Credit Loans, subject to the continued
accrual of interest on such remittances and payments for two (2) Business Days
(or three (3) Business Days in the case of remittances and payments received
after 12:00 noon
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(New York time)) and in any event subject to final collection in cash of the
item deposited.
So long as the procedures set forth in the preceding paragraph remain
in effect, the arrangements between the Agent and the Lenders with respect to
making of Revolving Credit Loans shall be handled on the following basis: On a
weekly basis the Agent will provide each Lender with a statement showing for the
period since the last statement the aggregate principal amount of new Revolving
Credit Loans made to the Borrowers, the amount of remittances and payments
actually collected and applied by the Agent to reduce the outstanding principal
balance of the Revolving Credit Loans during such period and the outstanding
principal balance of the Revolving Credit Loans at the end of such period. If a
Lender's pro rata share (based on such Lender's Revolving Credit Commitment) of
Revolving Credit Loans made during such period exceeds such Lender's pro rata
share of remittances and payments applied to reduce the Revolving Credit Loans
during such period, the difference will be paid in same day funds by such Lender
to the Agent, and if such Lender's pro rata share of remittances and payments
applied to reduce the Revolving Credit Loans during such period exceeds such
Lender's pro rata share of Revolving Credit Loans made during such period, the
difference will be paid in same day funds by the Agent to such Lender.
Upon the occurrence and continuance of an Event of Default, the Agent
may send a notice of assignment and/or notice of the Agent's security interest
to any and all Customers or any third party holding or otherwise concerned with
any of the Collateral, and thereafter the Agent shall have the sole right to
collect the Receivables and/or take possession of the Collateral and the books
and records relating thereto and to exercise all rights included in the
Collateral. All amounts collected on Receivables when received by the Agent
shall be credited to the Borrowers' account, after adding two Business Days for
collection, clearance and transfer of remittances, conditional upon final
payment to the Agent. Upon the occurrence and during the continuance of an
Event of Default, all amounts collected on Receivables may be applied to reduce
the Loans in the Agent's sole discretion. The Borrowers shall not, without the
Agent's prior written consent, grant any extension of the time of payment of any
Receivable, compromise or settle any Receivable for less than the full amount
thereof, release, in whole or in part, any person or property liable for the
payment thereof, or allow any credit or discount whatsoever thereon except,
prior to the occurrence and continuance of an Event of Default, as permitted by
Section 10.03 hereof.
(b) (i) Each of the Borrowers hereby constitutes the Agent or the
Agent's designee as such Borrower's attorney-in-fact with power to endorse such
Borrower's name upon any notes, acceptances, checks, drafts, money orders or
other evidences of payment or Collateral that may come into its possession; to
sign such Borrower's name on any invoice or bill of lading relating to any
Receivables, drafts against Customers, assignments and verifications of
Receivables and notices to Customers; to send verifications of Receivables; upon
the occurrence of an Event of
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Default, to notify the Postal Service authorities to change the address for
delivery of mail addressed to such Borrower to such address as the Agent may
designate; and to do all other acts and things 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, for any error of judgment or for any mistake of fact or
law, provided that the Agent or its designee shall not be relieved of liability
to the extent it is determined by a final judicial decision that its act, error
or mistake constituted gross negligence or willful misconduct. This power of
attorney being coupled with an interest is irrevocable until all of the
Obligations are paid in full and this Agreement and the Total Commitment is
terminated.
(ii) The Agent, without notice to or consent of the Borrowers,
upon the occurrence and during the continuance of an Event of Default, (A) may
sue upon or otherwise collect, extend the time of payment of, or compromise or
settle for cash, credit or otherwise upon any terms, any of the Receivables or
any securities, instruments or insurance applicable thereto and/or release the
obligor thereon; (B) is authorized and empowered to accept the return of the
goods represented by any of the Receivables; and (C) shall have the right to
receive, endorse, assign and/or deliver in its name or the name of any of the
Borrowers 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.
(c) Nothing herein contained shall be construed to constitute any
Borrower as agent of the Agent for any purpose whatsoever, and the Agent shall
not 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 it is determined by a
final judicial decision that the Agent's or a Lender's act or omission
constituted gross negligence or willful misconduct). The Agent and the Lenders
shall not, 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 it is determined by a final judicial decision that the Agent's or such
Lender's error, omission or delay constituted gross negligence or willful
misconduct). The Agent and the Lenders do not, by anything herein or in any
assignment or otherwise, assume any of the Borrowers' obligations under any
contract or agreement assigned to the Agent or the Lenders, and the Agent and
the Lenders shall not be responsible in any way for the performance by the
Borrowers of any of the terms and conditions thereof.
(d) If any of the Receivables includes a charge for any tax payable
to any governmental tax authority, the Agent is hereby authorized (but in no
event obligated) in its discretion to pay the amount thereof to the proper
taxing authority for the account of the applicable Borrower and to charge the
Borrowers' account therefor.
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The Borrowers shall notify the Agent if any Receivables include any tax due to
any such taxing authority and, in the absence of such notice, the Agent shall
have the right to retain the full proceeds of such Receivables and shall not be
liable for any taxes that may be due from any Borrower by reason of the sale and
delivery creating such Receivables.
SECTION 10.02. Receivables Documentation. The Borrowers will, in
-------------------------
addition to the monthly Receivables agings delivered pursuant to this Agreement,
at such intervals as the Agent may require, furnish such further schedules
and/or information as the Agent may require relating to the Receivables,
including, without limitation, sales invoices. In addition, the Borrowers shall
notify the Agent of any non-compliance in respect of the representations,
warranties and covenants contained in Section 10.03 hereof. The items to be
provided under this Section 10.02 are to be in form satisfactory to the Agent
and are to be executed and delivered to the Agent from time to time solely for
its convenience in maintaining records of the Collateral; the Borrowers' failure
to give any of such items to the Agent shall not affect, terminate, modify or
otherwise limit the Agent's Lien or security interest in the Collateral.
SECTION 10.03. Status of Receivables and Other Collateral. Each
------------------------------------------
Borrower covenants, represents and warrants that: (a) it shall be the sole
owner, free and clear of all Liens except in favor of the Agent or otherwise
permitted hereunder, of and fully authorized to sell, transfer, pledge and/or
grant a security interest in each and every item of said Collateral owned by it;
(b) each Receivable shall be a good and valid account representing a bona fide
indebtedness incurred or an amount owed by the Customer therein named, for a
fixed sum as set forth in the invoice relating thereto with respect to an
absolute sale and delivery upon the specified terms of goods sold or leased by a
Borrower, or work, labor and/or services theretofore rendered by a Borrower; (c)
no Receivable is or shall be subject to any good faith defense, offset,
counterclaim, discount or allowance (as of the time of its creation) except as
may be stated in the invoice relating thereto or discounts and allowances as may
be customary in such Borrower's business; (d) none of the transactions
underlying or giving rise to any Receivable shall violate any applicable state
or federal laws or regulations, and all documents relating to any Receivable
shall be legally sufficient under such laws or regulations and shall be legally
enforceable in accordance with their terms; (e) to the best of its knowledge,
each Customer, guarantor or endorser with respect to any Receivable is solvent
and will continue to be fully able to pay all Receivables on which it is
obligated in full when due; (f) to Borrower's knowledge, all documents and
agreements relating to Receivables shall be true and correct and in all respects
what they purport to be; (g) to its knowledge, all signatures and endorsements
that appear on all documents and agreements relating to Receivables shall be
genuine and all signatories and endorsers with respect thereto shall have full
capacity to contract; (h) it shall maintain books and records pertaining to the
Collateral in such detail, form and scope as the Agent shall require in its
reasonable discretion; (i) it will immediately notify the Agent if any accounts
arise out of contracts with the United States or any
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department, agency or instrumentality thereof, and will execute any instruments
and take any steps required by the Agent in order that all monies due or to
become due under any such contract shall be assigned to the Agent and notice
thereof given to the United States Government under the Federal Assignment of
Claims Act; (j) it will, immediately upon learning thereof, report to the Agent
any material loss or destruction of, or substantial damage to, any of the
Collateral, and any other matters affecting the value, enforceability or
collectability of any of the Collateral; (k) if any amount payable under or in
connection with any Receivable is evidenced by a promissory note or other
instrument, as such terms are defined in the Uniform Commercial Code, such
promissory note or instrument shall be promptly pledged, endorsed, assigned and
delivered to the Agent as additional collateral; (l) if any Receivable
constitutes chattel paper under the UCC, promptly upon the request of the Agent,
the Borrowers will deliver all documents evidencing such chattel paper to the
Agent to be held as Collateral, together with any endorsements reasonably
requested by the Agent; (m) it shall not re-date any invoice or sale or make
sales on extended dating beyond that customary in the industry; (n) it shall
conduct a physical count of its inventory at such intervals as the Agent may
request (provided, however, that if no Event of Default shall be in existence
-------- -------
and a perpetual inventory system reasonably satisfactory to the Agent shall be
in effect, Borrowers shall be obligated to compensate the Agent for only one
such physical inventory in each Fiscal Year) and promptly supply the Agent with
a copy of such counts accompanied by a report of the value (based on the lower
of cost (on a FIFO basis) or market value) of such inventory; and (o) it is not
nor shall it be entitled to pledge the Lenders' credit on any purchases or for
any purpose whatsoever.
SECTION 10.04. Monthly Statement of Account. The Agent shall render
----------------------------
to the Borrowers each month a statement of the Borrowers' account, which shall
constitute an account stated and shall be deemed to be correct and accepted by
and be binding upon the Borrowers unless the Agent receives a written statement
of the Borrowers' exceptions within 30 days after such statement was rendered to
the Borrowers.
SECTION 10.05. Collateral Custodian. Upon the occurrence and
--------------------
continuance of an Event of Default, the Agent may at any time and from time to
time employ and maintain in the premises of the Borrowers a custodian selected
by the Agent who shall have full authority to do all acts necessary to protect
the Agent's and Lenders' interests and to report to the Agent thereon. The
Borrowers hereby agree to cooperate with any such custodian and to do whatever
the Agent may reasonably request to preserve the Collateral. All costs and
expenses incurred by the Agent by reason of the employment of the custodian
shall be charged to the Borrowers' account and added to the Obligations.
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XI. GUARANTEES
Each Guarantor unconditionally guarantees, as a primary obligor and
not merely as a surety, jointly and severally with each other Guarantor, the due
and punctual payment of the principal of and interest on each of the Notes, when
and as due, whether at maturity, by acceleration, by notice of prepayment or
otherwise, and the due and punctual performance of all other Obligations. Each
Guarantor further agrees that the Obligations may be extended and renewed, in
whole or in part, without notice to or further assent from it, and that it will
remain bound upon its guarantee notwithstanding any extension or renewal of any
Obligations.
Each Guarantor waives presentment to, demand of payment from and
protest to the Borrowers of any of the Obligations, and also waives notice of
acceptance of its guarantee and notice of protest for nonpayment. The
obligations of a Guarantor hereunder shall not be affected by (a) the failure of
any Lender or the Agent to assert any claim or demand or to enforce any right or
remedy against the Borrowers or any other Guarantor under the provisions of this
Agreement, the Notes or any of the other Loan Documents or otherwise; (b) any
rescission, waiver, amendment or modification of any of the terms or provisions
of this Agreement, the Notes, any of the other Loan Documents, any guarantee or
any other agreement; (c) the release of any security held by the Agent for the
Obligations or any of them; or (d) the failure of any Lender to exercise any
right or remedy against any other Guarantor of the Obligations.
Each Guarantor further agrees that its guarantee constitutes a
guarantee of payment when due and not of collection, and waives any right to
require that any resort be had by any Lender to any security (including, without
limitation, any Collateral) held for payment of the Obligations or to any
balance of any deposit account or credit on the books of any Lender in favor of
any Borrower or any other person.
The obligations of each Guarantor hereunder shall not be subject to
any reduction, limitation, impairment or termination for any reason, including,
without limitation, any claim of waiver, release, surrender, alteration or
compromise, and shall not be subject to any defense or setoff, counterclaim,
recoupment or termination whatsoever by reason of the invalidity, illegality or
unenforceability of the Obligations or otherwise. Without limiting the
generality of the foregoing, the obligations of each Guarantor hereunder shall
not be discharged or impaired or otherwise affected by the failure of the Agent
or any Lender to assert any claim or demand or to enforce any remedy under this
Agreement, the Notes or under any other Loan Document, any guarantee or any
other agreement, by any waiver or modification of any provision thereof, by any
default, failure or delay, willful or otherwise, in the performance of the
Obligations, or by any other act or omission which may or might in any manner or
to any extent vary the risk of such Guarantor or otherwise operate as a
discharge of such Guarantor as a matter of law or equity.
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Each Guarantor further agrees that its guarantee shall continue to be
effective or be reinstated, as the case may be, if at any time payment, or any
part thereof, of principal of or interest on any Obligation is rescinded or must
otherwise be returned by the Agent or any Lender upon the bankruptcy or
reorganization of any Borrower or otherwise.
Each Guarantor hereby waives and releases all rights of subrogation
against each Borrower and its property and all rights of indemnification,
contribution and reimbursement from each Borrower and its property, in each case
in connection with this guarantee and any payments made hereunder, and
regardless of whether such rights arise by operation of law, pursuant to
contract or otherwise.
XII. MISCELLANEOUS
SECTION 12.01. Notices. Notices, consents and other communications
-------
provided for herein shall be in writing and shall be delivered or mailed (or in
the case of telex or facsimile communication, delivered by telex, graphic
scanning, telecopier or other telecommunications equipment, with receipt
confirmed) addressed,
if to all or any of the Borrowers, Guarantors, or Grantors:
3111 North Kenwood Street
Burbank, California 91505
with a copy to:
Whitman Breed Abbott & Morgan, LLP
633 West 5th Street, 21st Floor
Los Angeles, California 90071
Attention: Francis Costello, Esq.
if to Agent:
The Chase Manhattan Bank
Structured Finance Division
600 Fifth Avenue, 4th Floor
New York, NY 10020
Attention: Relationship Manager - Matthews
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with a copy to:
Kaye, Scholer, Fierman, Hays & Handler, LLP
425 Park Avenue
New York, New York 10022
Attention: Jeffrey M. Epstein, Esq.
and
if to any Lender, at the address set forth below its name in
Schedule 2.01 annexed hereto.
-------------
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement shall be deemed to have been given on the
date of receipt if hand delivered or three days after being sent by registered
or certified mail, postage prepaid, return receipt requested, if by mail, or
upon receipt if by any telex, facsimile or other telecommunications equipment,
in each case addressed to such party as provided in this Section 12.01 or in
accordance with the latest unrevoked direction from such party.
SECTION 12.02. Survival of Agreement. All covenants, agreements,
---------------------
representations and warranties made by any Borrower or any subsidiary thereof
herein and in the certificates or other instruments prepared or delivered in
connection with this Agreement, any of the Security Documents, any Guarantee or
any other Loan Document, shall be considered to have been relied upon by the
Lenders and shall survive the making by the Lenders of the Loans and the
execution and delivery to the Lenders of the Notes and occurrence of any other
Credit Event and shall continue in full force and effect as long as the
principal of or any accrued interest on the Notes or any other fee or amount
payable under the Notes or this Agreement or any other Loan Document is
outstanding and unpaid and so long as the Total Commitment has not been
terminated.
SECTION 12.03. Successors and Assigns; Participations. (a) Whenever
--------------------------------------
in this Agreement any of the parties hereto is referred to, such reference shall
be deemed to include the successors and assigns of such party; and all
covenants, promises and agreements by or on behalf of any Borrower, any
Guarantor, any Grantor, any ERISA Affiliate, any subsidiary of any thereof, the
Agent or the Lenders, that are contained in this Agreement shall bind and inure
to the benefit of their respective successors and assigns. Without limiting the
generality of the foregoing, the Borrowers specifically confirm that any Lender
may at any time and from time to time pledge or otherwise grant a security
interest in any Loan or any Note (or any part thereof) to any Federal Reserve
Bank. No Borrower may assign or transfer any of its rights or obligations
hereunder without the written consent of all the Lenders.
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(b) Each Lender, without the consent of the Borrowers, may sell
participations to one or more banks or other entities in all or a portion of its
rights and obligations under this Agreement (including, without limitation, all
or a portion of its Revolving Credit Commitment and Term Loan Commitment) and
the Loans owing to it and undrawn Letters of Credit and the Notes held by it);
provided, however, that (i) such Lender's obligations under this Agreement
- -------- -------
(including, without limitation, its Revolving Credit Commitment and Term Loan
Commitment) shall remain unchanged, (ii) such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations,
(iii) the banks or other entities buying participations shall be entitled to the
cost protection provisions contained in Sections 2.10(a) (except to the extent
that application of such Section 2.10(a) to such banks and entities would cause
the Borrowers to make duplicate payments thereunder), 2.11 and 2.12 hereof, but
only to the extent any of such Sections would be available to the Lender which
sold such participation, and (iv) the Borrowers, the Agent and the other Lenders
shall continue to deal solely and directly with such Lender in connection with
such Lender's rights and obligations under this Agreement; provided, further,
-------- -------
however, that each Lender shall retain the sole right and responsibility to
- -------
enforce the obligations of the Borrowers, Grantors and the Guarantors relating
to the Loans, including, without limitation, the right to approve any amendment,
modification or waiver of any provision of this Agreement, other than
amendments, modifications or waivers with respect to any fees payable hereunder
or the amount of principal or the rate of interest payable on, or the dates
fixed for any payment of principal of or interest on, the Loans or the release
of all Collateral.
(c) Each Lender may assign by novation, to any one or more banks or
other entities without the prior written consent of the Borrowers but with the
prior written consent of the Agent, all or a portion of its interests, rights
and obligations under this Agreement and the other Loan Documents (including,
without limitation, all or a portion of its Revolving Credit Commitment and Term
Loan Commitment and the same portion of the Loans and undrawn Letters of Credit
at the time owing to it and the Note or Notes held by it), provided, however,
-------- -------
that (i) each such assignment shall be of a constant, and not a varying,
percentage of all of the assigning Lender's rights and obligations under this
Agreement, which shall include the same percentage interest in the Loans,
Letters of Credit and Notes, (ii) the amount of the Revolving Credit Commitment
and Term Loan Commitment of the assigning Lender being assigned pursuant to each
such assignment (determined as of the date the Assignment and Acceptance with
respect to such assignment is delivered to the Agent) shall be in a minimum
principal amount of $5,000,000 in the aggregate for the Revolving Credit
Commitment and Term Loan Commitment of such Lender, and (iii) the parties to
each such assignment shall execute and deliver to the Agent, for its acceptance
and recording in the Register (as defined below), an Assignment and Acceptance,
together with any Note subject to such assignment and a processing and
recordation fee of $5,000. Upon such execution, delivery, acceptance and
recording and after receipt of the written consent of the Agent, from and after
the effective date specified in each Assignment and Acceptance, which
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effective date shall be at least five (5) Business Days after the execution
thereof, (x) the assignee thereunder shall be a party hereto and, to the extent
provided in such Assignment and Acceptance, have the rights and obligations of a
Lender hereunder and under the other Loan Documents and (y) the Lender which is
assignor thereunder shall, to the extent provided in such Assignment and
Acceptance, be released from its obligations under this Agreement (and, in the
case of an Assignment and Acceptance covering all or the remaining portion of an
assigning Lender's rights and obligations under this Agreement, such Lender
shall cease to be a party hereto).
(d) By executing and delivering an Assignment and Acceptance, the
Lender which is assignor thereunder and the assignee thereunder confirm to, and
agree with, each other and the other parties hereto as follows: (i) other than
the representation and warranty that it is the legal and beneficial owner of the
interest being assigned thereunder free and clear of any adverse claim, such
Lender makes no representation or warranty and assumes no responsibility with
respect to any statements, warranties or representations made in or in
connection with this Agreement or the execution, legality, validity,
enforceability, perfection, genuineness, sufficiency or value of this Agreement,
the other Loan Documents or any Collateral with respect thereto or any other
instrument or document furnished pursuant hereto or thereto; (ii) such Lender
makes no representation or warranty and assumes no responsibility with respect
to the financial condition of any Borrower, or any Grantor or Guarantor or the
performance or observance by any Borrower, Grantor or the Guarantor of any of
their respective obligations under this Agreement, any Guarantees or any of the
other Loan Documents or any other instrument or document furnished pursuant
hereto or thereto; (iii) such assignee confirms that it has received a copy of
this Agreement, any Guarantees and of the other Loan Documents, together with
copies of financial statements and such other documents and information as it
has deemed appropriate to make its own credit analysis and decision to enter
into such Assignment and Acceptance; (iv) such assignee will, independently and
without reliance upon the Agent, such Lender or any other Lender and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
this Agreement; (v) such assignee appoints and authorizes the Agent to take such
action as the Agent on its behalf and to exercise such powers under this
Agreement as are delegated to the Agent by the terms hereof, together with such
powers as are reasonably incidental thereto; and (vi) such assignee agrees that
it will perform in accordance with their terms all of the obligations which by
the terms of this Agreement are required to be performed by it as a Lender.
(e) The Agent shall maintain at its address referred to in Section
12.01 hereof a copy of each Assignment and Acceptance delivered to it and a
register for the recordation of the names and addresses of the Lenders and the
Revolving Credit Commitment and the Term Loan Commitment, of, and principal
amount of the Loans owing to, each Lender from time to time (the "Register").
--------
The entries in the Register shall be conclusive, in the absence of manifest
error, and the Borrowers, the Agent and
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the Lenders may treat each person whose name is recorded in the Register as a
Lender hereunder for all purposes of this Agreement. The Register shall be
available for inspection by the Borrowers or any Lender at any reasonable time
and from time to time upon reasonable prior notice.
(f) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an assignee together with any Note or Notes subject to such
assignment and the written consent to such assignment, the Agent shall, if such
Assignment and Acceptance has been completed and is precisely in the form of
Exhibit E annexed hereto, (i) accept such Assignment and Acceptance, (ii) record
- ---------
the information contained therein in the Register and (iii) give prompt notice
thereof to the Lenders and the Borrowers. Within five (5) Business Days after
receipt of such notice, the Borrowers, at their own expense, shall execute and
deliver to the Agent in exchange for each surrendered Note or Notes a new Note
or Notes to the order of such assignee in an amount equal to its portion of the
Term Loan Commitment and Revolving Credit Commitment, assumed by it pursuant to
such Assignment and Acceptance and, if the assigning Lender has retained any
Term Loan Commitment and any Revolving Credit Commitment hereunder, a new Note
or Notes to the order of the assigning Lender in an amount equal to the Term
Loan Commitment and Revolving Credit Commitment, as the case may be, retained by
it hereunder. Such new Note or Notes shall be in an aggregate principal amount
equal to the aggregate principal amount of such surrendered Note or Notes, or,
with respect to the Term Notes, the principal amount of the Term Notes
outstanding at such time as evidenced by the Term Note or Notes, shall be dated
the effective date of such Assignment and Acceptance and shall otherwise be in
substantially the form of Exhibit A and Exhibit B. Notes surrendered to the
--------- ---------
Borrowers shall be canceled by the Borrowers.
(g) Notwithstanding any other provision herein, any Lender may, in
connection with any assignment or participation or proposed assignment or
participation pursuant to this Section 12.03, disclose to the assignee or
participant or proposed assignee or participant, any information, including,
without limitation, any Information, relating to the Borrowers furnished to such
Lender by or on behalf of the Borrowers in connection with this Agreement;
provided, however, that prior to any such disclosure, each such assignee or
- -------- -------
participant or proposed assignee or participant shall agree to preserve the
confidentiality of any confidential Information relating to the Borrowers
received from such Lender.
SECTION 12.04. Expenses; Indemnity. (a) Each Borrower agrees to pay
-------------------
all reasonable out-of-pocket expenses incurred by the Agent in connection with
the preparation of this Agreement and the other Loan Documents or with any
amendments, modifications, waivers, extensions, renewals, renegotiations or
"workouts" of the provisions hereof or thereof (whether or not the transactions
hereby contemplated shall be consummated) or incurred by the Agent or any of the
Lenders in connection with the enforcement or protection of its rights in
connection with this Agreement or any of the
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other Loan Documents or with the Loans made or the Notes or Letters of Credit
issued hereunder, or in connection with any pending or threatened action,
proceeding, or investigation relating to the foregoing, including but not
limited to the reasonable fees and disbursements of counsel for the Agent and
only upon the occurrence and continuance of an Event of Default field
examination expenses and charges (provided, however, that so long as no Event of
-------- -------
Default shall be in existence, the Agent shall not conduct more than one field
examination in any Fiscal Year which shall be at the Agent's expense) and, in
connection with such enforcement or protection, the reasonable fees and
disbursements of counsel for the Lenders. The Borrowers shall not be obligated
to reimburse Agent or any Lender with respect to the syndication of the Loans,
other than in connection with amendments which increase the Total Commitment or
result in additional Loans being available to any Borrower). The Borrower
further indemnifies the Lenders from and agrees to hold them harmless against
any documentary taxes, assessments or charges made by any governmental authority
by reason of the execution and delivery of this Agreement or the Notes.
(b) Each Borrower indemnifies the Agent and each Lender and their
respective directors, officers, employees and agents against, and agrees to hold
the Agent, each Lender and each such person harmless from, any and all losses,
claims, damages, liabilities and related expenses, including reasonable counsel
fees and expenses, incurred by or asserted against the Lender or any such person
arising out of, in any way connected with, or as a result of (i) the use of any
of the proceeds of the Loans, (ii) this Agreement, the Guarantees, any of the
Security Documents, ING Documents, Acquisition Documents or the other documents
contemplated hereby or thereby, (iii) the performance by the parties hereto and
thereto of their respective obligations hereunder and thereunder (including but
not limited to the making of the Total Commitment) and consummation of the
transactions contemplated hereby and thereby, (iv) breach of any representation
or warranty, or (v) any claim, litigation, investigation or proceedings relating
to any of the foregoing, whether or not the Agent, any Lender or any such person
is a party thereto; provided, however, that (i) any claims made by any Lender
-------- -------
against another Lender or any claims made by a Lender agent the Agent) or (ii)
such indemnity shall not, as to the Agent or any Lender, apply to any such
losses, claims, damages, liabilities or related expenses to the extent that they
result from the gross negligence or willful misconduct of the Agent or any
Lender.
(c) Each Borrower indemnifies, and agrees to defend and hold harmless
the Agent and the Lenders and their respective officers, directors,
shareholders, agents and employees (collectively, the "Indemnitees") from and
-----------
against any loss, cost, damage, liability, lien, deficiency, fine, penalty or
expense (including, without limitation, reasonable attorneys' fees and
reasonable expenses for investigation, removal, cleanup and remedial costs and
modification costs incurred to permit, continue or resume normal operations of
any property or assets or business of the Borrowers or any subsidiary thereof)
arising from a violation of, or failure to comply with any Environmental Law and
to remove any Lien arising therefrom except to the extent
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caused by the gross negligence or willful misconduct of any Indemnitee, which
any of the Indemnitees may incur or which may be claimed or recorded against any
of the Indemnitees by any person.
(d) The provisions of this Section 12.04 shall remain operative and
in full force and effect regardless of the expiration of the term of this
Agreement, the consummation of the transactions contemplated hereby, the
repayment of any of the Loans, the invalidity or unenforceability of any term or
provision of this Agreement or the Notes, or any investigation made by or on
behalf of the Agent or any Lender. All amounts due under this Section 12.04
shall be payable on written demand therefor.
SECTION 12.05. APPLICABLE LAW. THIS AGREEMENT AND THE NOTES SHALL BE
--------------
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK
(OTHER THAN THE CONFLICTS OF LAWS PRINCIPLES THEREOF).
SECTION 12.06. Right of Setoff. If an Event of Default shall have
---------------
occurred and be continuing, upon the request of the Required Lenders each Lender
shall and is hereby authorized at any time and from time to time, to the fullest
extent permitted by law, to set off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held and other
indebtedness at any time owing by such Lender to or for the credit or the
account of any Borrower against any and all of the obligations of the Borrowers
now or hereafter existing under this Agreement and the Notes held by such
Lender, irrespective of whether or not such Lender shall have made any demand
under this Agreement or the Notes and although such obligations may be
unmatured. Each Lender agrees to notify promptly the Agent and the Borrowers
after any such setoff and application made by such Lender, but the failure to
give such notice shall not affect the validity of such setoff and application.
The rights of each Lender under this Section are in addition to other rights and
remedies (including, without limitation, other rights of setoff) which may be
available to such Lender.
SECTION 12.07. Payments on Business Days. (a) Should the principal of
-------------------------
or interest on the Notes or any fee or other amount payable hereunder become due
and payable on other than a Business Day, payment in respect thereof may be made
on the next succeeding Business Day (except as otherwise specified in the
definition of "Interest Period"), and such extension of time shall in such case
be included in computing interest, if any, in connection with such payment.
(b) All payments by any Borrower hereunder and all Loans made by the
Lenders hereunder shall be made in lawful money of the United States of America
in immediately available funds at the office of the Agent set forth in Section
11.01 hereof.
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SECTION 12.08. Waivers; Amendments. (a) No failure or delay of any
-------------------
Lender in exercising any power or right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or power, or
any abandonment or discontinuance of steps to enforce such right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the Lenders hereunder are cumulative
and not exclusive of any rights or remedies which they may otherwise have. No
waiver of any provision of this Agreement or the Notes nor consent to any
departure by any Borrower therefrom shall in any event be effective unless the
same shall be authorized as provided in paragraph (b) below, and then such
waiver or consent shall be effective only in the specific instance and for the
purpose for which given. No notice to or demand on any Borrower in any case
shall entitle it to any other or further notice or demand in similar or other
circumstances. Each holder of any of the Notes shall be bound by any amendment,
modification, waiver or consent authorized as provided herein, whether or not
such Note shall have been marked to indicate such amendment, modification,
waiver or consent.
(b) Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to an agreement or agreements in writing
entered into by the Borrowers and the Required Lenders; provided, however, that
-------- -------
no such agreement shall (i) change the principal amount of, or extend or advance
the maturity of or the dates for the payment of principal of or interest on, any
Note, or fees payable under the Loan Documents or reduce the rate of interest on
any Note, (ii) change the Revolving Credit Commitment or Term Loan Commitment of
any Lender or amend or modify the provisions of this Section, Section 2.06,
Section 2.13, Section 4.14 or Section 12.04 hereof or the definition of
"Required Lenders," or (iii) release any material portion of Collateral or any
Guarantee or increase the advance rates set forth in the Borrowing Base, in each
case without the prior written consent of each Lender affected thereby and
provided, further, however, that no such agreement shall amend, modify or
- -------- ------- -------
otherwise affect the rights or duties of the Agent under this Agreement or the
other Loan Documents without the written consent of the Agent. Each Lender and
holder of any Note shall be bound by any modification or amendment authorized by
this Section regardless of whether its Notes shall be marked to make reference
thereto, and any consent by any Lender or holder of a Note pursuant to this
Section shall bind any person subsequently acquiring a Note from it, whether or
not such Note shall be so marked.
(c) In the event that the Borrowers request, with respect to this
Agreement or any other Loan Document, an amendment, modification or waiver and
such amendment, modification or waiver would require the unanimous consent of
all of the Lenders in accordance with Section 12.08(b) above, and such
amendment, modification or waiver is agreed to in writing by the Borrowers and
the Required Lenders but not by all of the Lenders, then notwithstanding
anything to the contrary in Section 12.08(b) above, with the written consent of
the Borrowers and such Required
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Lenders, the Borrowers and Required Lenders may, but shall not be obligated to,
amend this Agreement without the consent of the Lender or Lenders who did not
agree to the proposed amendment, modification or waiver (the "Minority Lenders")
----------------
solely to provide for (i) the termination of the Revolving Credit Commitment and
Term Loan Commitment of each Minority Lender, (ii) the assignment in accordance
with Section 12.03 hereof to one or more persons of each Minority Lender's
interests, rights and obligations under this Agreement (including, without
limitation, all of such Minority Lender's Revolving Credit Commitment and Term
Loan Commitment as well as its portion of all outstanding Loans and the Note or
Notes held by such Minority Lender) and the other Loan Documents and/or an
increase in the Revolving Credit Commitment and Term Loan Commitment of one or
more Required Lenders, in each case so that after giving effect thereto the
Total Revolving Credit Commitment and Total Term Loan Commitment shall be in the
same amounts as prior to the events described in this paragraph, (iii) the
repayment to the Minority Lenders in full of all Loans outstanding and accrued
interest thereon at the time of the assignment and/or increase in Commitments
described in clause (ii) above with the proceeds of Loans made by such persons
who are to become Lenders by assignment or with the proceeds of Loans made by
Required Lenders who have agreed to increase their Revolving Credit Commitment
and/or Term Loan Commitment, (iv) the payment to the Minority Lenders by the
Borrowers of all fees and other compensation due and owing such Minority Lenders
under the terms of this Agreement and the other Loan Documents and (v) such
other modifications as the Required Lenders and Borrower shall deem necessary in
order to effect the changes specified in clauses (i) through (iv) hereof.
SECTION 12.09. Severability. In the event any one or more of the
------------
provisions contained in this Agreement or in the Notes should be held invalid,
illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein or therein shall not
in any way be affected or impaired thereby.
SECTION 12.10. Entire Agreement; Waiver of Jury Trial, etc. (a) This
-------------------------------------------
Agreement, the Notes and the other Loan Documents constitute the entire contract
between the parties hereto relative to the subject matter hereof. Any previous
agreement (other than the Fee Letter) among the parties hereto with respect to
the Transactions is superseded by this Agreement, the Notes and the other Loan
Documents. Except as expressly provided herein or in the Notes or the Loan
Documents (other than this Agreement), nothing in this Agreement, the Notes or
in the other Loan Documents, expressed or implied, is intended to confer upon
any party, other than the parties hereto, any rights, remedies, obligations or
liabilities under or by reason of this Agreement, the Notes or the other Loan
Documents.
(b) Except as prohibited by law, each party hereto hereby waives any
right it may have to a trial by jury in respect of any litigation directly or
indirectly arising
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out of, under or in connection with this Agreement, the Notes, any of the other
Loan Documents or the Transactions.
(c) Except as prohibited by law, each party hereto hereby waives any
right it may have to claim or recover in any litigation referred to in paragraph
(b) of this Section 11.10 any special, exemplary, punitive or consequential
damages or any damages other than, or in addition to, actual damages.
(d) Each party hereto (i) certifies that no representative, agent or
attorney of any Lender has represented, expressly or otherwise, that such Lender
would not, in the event of litigation, seek to enforce the foregoing waivers and
(ii) acknowledges that it has been induced to enter into this Agreement, the
Notes or the other Loan Documents, as applicable, by, among other things, the
mutual waivers and certifications herein.
SECTION 12.11. Confidentiality. The Agent and the Lenders agree to
---------------
keep confidential (and to cause their respective officers, directors, employees,
agents and representatives to keep confidential) all information, materials and
documents furnished to the Agent or any Lender (the "Information").
-----------
Notwithstanding the foregoing, the Agent and each Lender shall be permitted to
disclose Information (i) to such of its officers, directors, employees, agents
and representatives as need to know such Information in connection with its
participation in any of the Transactions or the administration of this Agreement
or the other Loan Documents (provided that the Agent or the respective Lender
shall take all reasonable actions to require such officers, directors,
employees, agents and representatives to keep the Information confidential
pursuant to the terms of this Section 12.11); (ii) to the extent required by
applicable laws and regulations or by any subpoena or similar legal process, or
requested by any governmental agency or authority; (iii) to the extent such
Information (A) becomes publicly available other than as a result of a breach of
this Agreement, (B) becomes available to the Agent or such Lender on a non-
confidential basis from a source other than any Borrower, any Guarantor, any
Grantor or any of their respective subsidiaries or (C) was available to the
Agent or such Lender on a non-confidential basis prior to its disclosure to the
Agent or such Lender by any Borrower, any Guarantor, any Grantor or any of their
respective subsidiaries; (iv) to the extent any Borrowers, any Guarantor or any
of their respective subsidiaries shall have consented to such disclosure in
writing; (v) in connection with the sale of any Collateral pursuant to the
provisions of any of the other Loan Documents; or (vi) pursuant to Section
12.03(g) hereof.
SECTION 12.12. Submission to Jurisdiction. (a) Any legal action or
--------------------------
proceeding with respect to this Agreement or the Notes or any other Loan
Document may be brought in the courts of the State of New York or of the United
States of America for the Southern District of New York, and, by execution and
delivery of this Agreement, each of the Borrowers, the Parent and the other
Guarantors hereby
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accepts for itself and in respect of its property, generally and
unconditionally, the jurisdiction of the aforesaid courts.
(b) Each of the Borrowers, the Parent and the other Guarantors hereby
irrevocably waive, in connection with any such action or proceeding, any
objection, including, without limitation, any objection to the laying of venue
or based on the grounds of forum non conveniens, which it may now or hereafter
have to the bringing of any such action or proceeding in such respective
jurisdictions.
(c) Each of the Borrowers, the Parent and the other Guarantors hereby
irrevocably consents to the service of process of any of the aforementioned
courts in any such action or proceeding by the mailing of copies thereof by
registered or certified mail, postage prepaid, to each such person, as the case
may be, at its address set forth in Section 12.01 hereof.
(d) Nothing herein shall affect the right of the Agent or any Lender
to serve process in any other manner permitted by law or to commence legal
proceedings or otherwise proceed against any Borrower or any Guarantor in any
other jurisdiction.
SECTION 12.13. Counterparts; Facsimile Signature. This Agreement may
---------------------------------
be executed in counterparts, each of which shall constitute an original but all
of which when taken together shall constitute but one contract, and shall become
effective when copies hereof which, when taken together, bear the signatures of
each of the parties hereto shall be delivered to the Agent. Delivery of an
executed counterpart of a signature page to this Agreement by telecopier shall
be effective as delivery of a manually executed signature page hereto.
SECTION 12.14. Headings. Article and Section headings and the Table
--------
of Contents used herein are for convenience of reference only and are not to
affect the construction of, or to be taken into consideration in interpreting,
this Agreement.
XIII. CONFIRMATION OF SECURITY DOCUMENTS
Each of the Loan Parties hereby irrevocably and unconditionally
confirm in favors of the Agent that it consents to the terms and conditions of
this Agreement as it has been amended and restated as of the date hereof, and
that each Security Document to which such Loan Party is a party shall continue
in full force and effect and is and shall continue to be applicable to all of
the Obligations and to this Agreement.
[Remainder of this page deliberately left blank]
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IN WITNESS WHEREOF, the Borrowers, the Guarantors, the Agent and the
Lenders have caused this Agreement to be duly executed by their respective
authorized officers as of the day and year first above written.
MATTHEWS STUDIO EQUIPMENT GROUP,
as a Borrower and as a Guarantor
By: /s/ Carlos D. DeMattos
--------------------------------
Title: President
MATTHEWS STUDIO EQUIPMENT, INC., as
a Borrower and as a Guarantor
By: /s/ Carlos D. DeMattos
--------------------------------
Title: Executive Vice President/
Chief Financial Officer
HOLLYWOOD RENTAL CO., INC., as a
Borrower and as a Guarantor
By: /s/ Carlos D. DeMattos
--------------------------------
Title: Chief Financial Officer
MATTHEWS STUDIO ELECTRONICS, INC.,
as a Borrower and as a Guarantor
By: /s/ Carlos D. DeMattos
--------------------------------
Title: Chief Executive Officer
MATTHEWS ACCEPTANCE CORPORATION,
as a Borrower and as a Guarantor
By: /s/ Carlos D. DeMattos
--------------------------------
Title: President
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DUKE CITY VIDEO, INC., as a
Borrower and as a Guarantor
By: /s/ Carlos D. DeMattos
---------------------------------
Title: Chairman of the Board
HDI HOLDINGS, INC.,
as a Borrower and as a Guarantor
By: /s/ Carlos D. DeMattos
---------------------------------
Title: Chairman of the Board
FOUR STAR LIGHTING, INC.,
as a Borrower and as a Guarantor
By: /s/ Carlos D. DeMattos
--------------------------------
Title: Chief Executive Officer
MATTHEWS MEDICAL EQUIPMENT, INC.,
as a Guarantor
By: /s/ Carlos D. DeMattos
--------------------------------
Title: Chief Financial Officer
KEYLITE HOLDINGS, INC., as a Guarantor
By: /s/ Carlos D. DeMattos
--------------------------------
Title: Chief Financial Officer
REEL WHEELS, INC., as a Guarantor
By: /s/ Carlos D. DeMattos
--------------------------------
Title: Chief Financial Officer
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KEYLITE PRODUCTION SERVICES, INC.,
as a Guarantor
By: /s/ Carlos D. DeMattos
--------------------------------
Title: Chief Financial Officer
DUKE CITY HOLDINGS, INC.,
as a Guarantor
By: /s/ Carlos D. DeMattos
--------------------------------
Title: Chief Executive Officer
FOUR STAR HOLDING, INC.,
as a Guarantor
By: /s/ Carlos D. DeMattos
--------------------------------
Title: President
THE CHASE MANHATTAN BANK, as Agent
By: /s/ Donna M. DiForio
--------------------------------
Title: Vice President
THE CHASE MANHATTAN BANK, as Lender
By: /s/ Donna M. DiForio
--------------------------------
Title: Vice President
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PNC BANK, NATIONAL ASSOCIATION,
as Lender
By: /s/ Michael D. Shover
--------------------------------
Title: Bank Officer
WELLS FARGO BANK, N.A., as Lender
By: /s/ Jonathan David
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Title: Assistant Vice President
CIBC, INC., as Lender
By: /s/ Colleen Risorto
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Title: Executive Director
119
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EXHIBIT 3
NEWS RELEASE
FOR RELEASE 4/3/98 at 4:00 PM (EST)
- -----------------------------------
Contact: Robert M. Johnston, Vice President, or
Kenneth W. Kramer, Vice President, Development & Operations, or
Gary S. Borman, Vice President/Corporate Controller
Matthews Studio Group
(818) 525-5200
MATTHEWS ANNOUNCES ITS ACQUISITION OF
FOUR STAR HOLDING, INC.,
AND EXPANDS ITS CREDIT FACILITY TO $80 MILLION
BURBANK, CA (April 3, 1998) . . . Matthews Studio Equipment Group (NASDAQ
NM:MATT), a Burbank-based single source supplier of lighting and grip equipment,
video and film cameras, and related supplies to the live entertainment, motion
picture production, corporate and commercial photography industries, today
announced the consummation of its acquisition of privately-held Four Star
Holding, Inc., and its wholly-owned subsidiary Four Star Stage Lighting, Inc.
(collectively "Four Star"), of New York, New York. The acquisition expands
Matthews' rental operations in New York and adjacent markets, provides strategic
access to New York theatrical and other East coast theatrical rental markets,
and complements Matthews' theatrical equipment rental and related equipment and
expendable sales operations currently based in Hollywood, California.
Concurrent with this transaction, Matthews expanded its credit facility from $50
million to $80 million.
<PAGE>
This transaction, which is structured as a stock purchase, is valued at
approximately $29 million, payable in cash and assumption of certain long-term
liabilities. Four Star's Darren DeVerna will be appointed President of Four
Star Stage Lighting, Inc., with headquarters to remain in New York. The
balance of the Four Star management team will also remain in place.
According to Mr. Carlos D. DeMattos, Chief Executive Officer and Chairman of
Matthews, "Four Star, the largest supplier of lighting equipment to Broadway
productions and related road shows, will enhance Matthews' expansion on the
East coast. Our goal is to have Four Star continue to provide quality
service and equipment to (i) Broadway stages, (ii) the add-on road shows (or
tours) that often take a Broadway show to other major cities, and (iii) the
production companies that produce these shows. Further, Four Star's
expertise in equipment rental to theatrical markets outside of its current
expertise of Broadway productions and follow-on road shows will enhance
Matthews' current network of equipment rental operations. The addition of
Four Star's theatrical rental business to Matthews will also complement our
current theatrical equipment rental business and our equipment and expendable
sales business based in Los Angeles, and the additional technical expertise
and marketing knowledge currently within Four Star should provide benefit to
the entire Matthews group. In addition, the expanded credit facility with
The Chase Manhattan Bank will better position the Company to (i) attain its
goals and objectives, (ii) continue its strategic expansion and
diversification strategy, and (iii) provide flexibility in funding growing
working capital requirements, purchasing new equipment and paying-off other
debt."
Mr. DeMattos added, "This transaction is Matthews' largest and most
significant acquisition. It provides diversification and expansion in the
strategically important New York market and offers additional growth
opportunities for other Matthews product lines, including grip and lighting
equipment rentals and sales, video and film camera rentals, and expendable
sales."
Matthews Studio Equipment Group rents, sells, designs and manufactures grip
and lighting support equipment, video and film cameras, and related supplies for
the film, television, corporate, commercial photography and theatrical
production industries worldwide.
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