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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996 Commission file number 0-19596
SLM INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 13-36-32297
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
C/O MASKA U.S., INC., 77 ROUTE 25, PIERSON INDUSTRIAL PARK, BRADFORD VT 05033
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (518) 773-4401
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK,
PAR VALUE $.01
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days: YES _X_ No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of April 14, 1997 was $1,168,908.
As of April 14, 1997, 6,500,000 shares of the Registrant's Common Stock, $.01
par value per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Items 10, 11, 12 and 13 are incorporated by reference to the SLM International,
Inc. Proxy Statement for the 1997 Annual Meeting of Stockholders to be held on
June 18, 1997 into Part III of this Form 10-K. (A definitive proxy statement
will be filed with the Securities and Exchange Commission within 120 days after
the close of the fiscal year covered by this Form 10-K.)
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<PAGE>
TABLE OF CONTENTS
PAGE
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PART I
Item 1. Business .......................................................... 1
Item 2. Properties ........................................................ 9
Item 3. Legal Proceedings ................................................. 10
Item 4. Submission of Matters to a Vote of Security Holders ............... 11
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters ........................................................... 11
Item 6. Selected Financial Data ........................................... 13
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations ............................................. 14
Item 8. Financial Statements and Supplementary Data ....................... 19
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure .............................................. 53
PART III
Item 10. Directors and Executive Officers of the Registrant ................ 53
Item 11. Executive Compensation ............................................ 53
Item 12. Security Ownership of Certain Beneficial Owners and Management .... 53
Item 13. Certain Relationships and Related Transactions .................... 53
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ... 54
<PAGE>
PART I
ITEM 1. BUSINESS
OVERVIEW
The continuing operations of SLM International, Inc. ("SLM") and its
subsidiaries (collectively, the "Company") include the design, development,
manufacturing and marketing of a wide range of sporting goods products. The
Company is a leading manufacturer of hockey and inline skating products marketed
under the CCM brand name, and licensed sports apparel under the CCM and #1
Apparel names. The Company maintains a diversified mix of products to avoid
dependence upon the success of a single product, product category, theme or fad.
The Company has expanded its business since its inception in 1976 through
internal new product development, strategic acquisitions and licensing
arrangements.
The Company believes that it is one of the world's leading manufacturers of
hockey and hockey related products, including hockey uniforms, protective
equipment, hockey, figure and inline skates, street hockey products and licensed
sports apparel.
The Company sells its products to more than 4,000 customers in North America,
including mass merchandisers, department stores, warehouse clubs, catalogue
retailers, wholesalers, cooperative buying groups, sporting goods shops and
specialty retailers. Outside North America, the Company sells its products in
approximately 30 countries worldwide through a network of international
distributors.
The Company's growth has included acquisitions of stock or certain assets of
companies, often with recognized trademarks, including those of CCM Inc.,
acquired in 1983 (hockey skates and equipment), St. Lawrence Manufacturing
Company Inc., acquired in 1985 (ice skate blades), and #1 Apparel, Inc. and #1
Apparel Canada ("#1 Apparel"), acquired in 1994 (licensed sports apparel).
REORGANIZATION CASE
SLM and six of its subsidiaries (collectively, the "Debtors") filed voluntary
petitions for relief under Chapter 11 of the United States Bankruptcy Code (the
"Filing") in the United States Bankruptcy Court for the District of Delaware
(the "Bankruptcy Court") on October 24, 1995 (the "Petition Date"). Since the
Filing, the Debtors operated their businesses in the ordinary course as
debtors-in-possession subject to the jurisdiction of the Bankruptcy Court. The
Bankruptcy Court entered an order authorizing the joint administration of the
Debtors' Chapter 11 cases (the "Chapter 11 Cases"). On September 12, 1996, the
Debtors filed a Chapter 11 Plan of Reorganization and on November 13, 1996, the
Debtors filed a First Amended Chapter 11 Plan of Reorganization as amended from
time to time (the "Reorganization Plan") with the Bankruptcy Court. On January
23, 1997, the Bankruptcy Court confirmed the Reorganization Plan which became
effective on April 11, 1997 (the "Effective Date").
In the Chapter 11 Cases, substantially all liabilities as of the Petition Date
are subject to resolution under the Reorganization Plan which was voted upon by
the Company's creditors and stockholders and confirmed by the Bankruptcy Court.
Schedules have been filed by the Company with the Bankruptcy Court setting forth
its assets and liabilities as of the Petition Date as shown by its accounting
records. Creditors holding pre-petition date claims ("Pre-petition Claims")
against the Company were required to file proofs of claim on or before a date
fixed by the Bankruptcy Court (the "Bar Date"). Differences between amounts
shown by the Company and claims filed by its creditors, including claims in
excess of what the Company has previously accrued, have been or will be
investigated and resolved consensually or by order of the Bankruptcy Court. The
ultimate amount and settlement terms for such liabilities are subject to the
Reorganization Plan.
Under the Bankruptcy Code pursuant to the Reorganization Plan, the Company has
elected to assume or reject leases, employment contracts, service contracts and
other executory pre-Petition Date contracts, with Bankruptcy Court approval. The
Company has estimated the ultimate liability which may result from the filing of
claims for any rejected contracts, and provisions have been made for these items
upon the Effective Date of the Reorganization Plan.
Since October 1, 1994, the Company has not been in compliance with certain
financial and other covenants in its principal financing agreements, including
those with its banks and with the holders of the Company's 6.76% senior notes
(the "Senior Noteholders") which would have allowed these lenders to accelerate
repayment of these loans.
The Bankrupcty Court authorized the Company to use the cash generated by its
operations to continue to fund its business obligations, and to pay pre-Petition
Date wages, salaries, sales commissions, employee benefits and customs duties,
honor manufacturer's warranties and pay certain non-U.S. pre-Petition Date
liabilities. These various Bankruptcy Court authorizations provided the Company
with cash and liquidity so that it could conduct its operations. Until a
reorganization plan was effective, the Company funded its working capital and
capital expenditure requirements through cash generated by its operations. The
reorganized company (the "Reorganized
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Company") expects to meet its working capital and capital expenditure
requirements through secured credit facilities from The Chase Manhattan Bank and
The Chase Manhattan Bank of Canada.
On June 26, 1996, the Debtors announced that they entered into an agreement with
representatives of the Debtors' Senior Noteholders and trade and other unsecured
creditors (the "Unsecured Creditors Committee") on a term sheet (the "Term
Sheet") setting forth the material provisions of a Reorganization Plan.
Thereafter, the Debtors and Unsecured Creditors Committee reached an agreement
in principle with assignees of the Debtors' former lenders (the "Secured
Creditor Group") on the terms of the Reorganization Plan. On September 12, 1996,
the Debtors filed with the Bankruptcy Court a proposed Chapter 11 Plan of
Reorganization (the "Proposed Plan"). On September 19, 1996, the Debtors filed
with the Bankruptcy Court a Disclosure Statement Pursuant to Section 1125 of the
Bankruptcy Code incident to the Proposed Plan. After further negotiations and
term modifications among the Debtors and their creditor constituencies, on
November 13, 1996, the Debtors filed with the Court the Reorganization Plan and
the First Amended Disclosure Statement Pursuant to Section 1125 of the
Bankrupcty Code incident to the Reorganization Plan. On November 19, 1996, the
Bankruptcy Court approved the adequacy of the First Amended Disclosure Statement
as modified in open court (the "Disclosure Statement"). On January 23, 1997, the
Bankruptcy Court entered an order confirming the Reorganization Plan as
modified, the effectiveness of which was contingent upon, among other things,
the completion of a secured credit facility. The Reorganization Plan represents
the culmination of management analyses and negotiation amongst representatives
of principal parties in interest regarding the best means to maximize and to
allocate value to the Debtors' creditors and stockholders in accordance with
their legal and contractual rights and priorities with due regard to the
potential causes of action and claims that could be asserted against and by
certain creditors. Upon the satisfaction of all conditions precedent to the
occurrence of the Effective Date, the Reorganization Plan was declared effective
on April 11, 1997.
Under the Reorganization Plan, among other things:
o The Debtors' secured creditors received $44.2 million in cash, $29.5
million principal in new senior notes (the "New Senior Notes") and
2,470,000 shares of new common stock (the "New Common Stock") of the
Reorganized Company, in exchange for approximately $108.0 million of
secured and unsecured indebtedness (which amount includes the secured
creditors estimate of post-filing interest and expenses). The 2,470,000
shares of New Common Stock represented (before dilution) 38.0% of the
ownership of the Reorganized Company. The lenders sold such shares to
Wellspring Associates L.L.C. on the Effective Date. The New Senior Notes
have a term of seven years with principal payments beginning in the fifth
year. Interest thereon is due and payable semi-annually at 14.0% (including
4.0% payable in kind ("PIK"), with such PIK interest reduced permanently if
the Company achieves certain earnings levels established in the
Reorganization Plan). The New Senior Notes are pre-payable at 101% of
principal plus accrued interest, are collateralized by a lien on
substantially all of the Reorganized Company's assets, subordinate only to
the Company's new secured credit facilities, and have covenants,
representations and other terms customary in instruments of this nature.
o The Debtors' unsecured creditors received: 4,030,000 shares of New Common
Stock representing, at the time of issuance, 62.0% of the distributed
equity in the Reorganized Company, subject to dilution upon the exercise of
warrants distributed to equity security holders and stock options which may
be issued to the Company's officers and key personnel (up to 15.0% of the
New Common Stock at varying exercise prices), in exchange for approximately
$120.0 million of unsecured indebtedness. For purposes of the
Reorganization Plan, the New Common Stock was valued at approximately
$10.16 per share.
o The Company's equity security holders (who held 18,859,679 shares of Common
Stock plus the 1,000,000 shares to have been issued pursuant to the
settlement of a securities litigation lawsuit) received a total of 300,000
5-year warrants to purchase an aggregate of 300,000 shares of New Common
Stock at an exercise price of $16.92 per share. In addition, the warrant
holders have the option to receive an aggregate payment of $0.5 million
upon cancellation of such warrants in connection with a sale of the
Reorganized Company for more than $140.0 million.
The Reorganization Plan also provides for other terms including: structured
settlements with Fleet Credit Corporation (in connection with its claims arising
from equipment financing), NHL Enterprises, Inc. and its affiliates (in
connection with their claims arising from royalty obligations under licenses
with the Company and alleged infringement of their property) and with the
lessors under certain leases of real property (which lessors were former
officers and directors of the Company); and the incorporated consent decree
entered in Vermont Superior Court by agreement with Maska U.S., Inc. ("Maska");
and an overall structured settlement among and between all of the creditor
classes which results in, among other things, the recoveries described above for
the secured creditors and unsecured creditors collectively as well as an
intra-creditor structured recovery resulting (depending on the ultimate
resolution of disputed claims) in the Company's former Senior Noteholders
realizing approximately
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40.9% on their claims, Maska's unsecured creditors realizing approximately 56.6%
on their claims and the unsecured creditors of the other Debtors realizing
approximately 31.9% on their claims.
FRESH-START ACCOUNTING (UNAUDITED)
The Company's financial statements following its emergence from bankruptcy will
not be comparable to the historical financial statements presented herein, which
do not reflect the Reorganization Plan. The Company has set forth below
unaudited pro forma condensed consolidated financial statements that reflect the
Reorganization Plan as if it has occurred on the dates specified therein.
The Company's unaudited pro forma condensed consolidated financial statements
have been prepared in accordance with the requirements of Statement of Position
90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy
Code ("SOP 90-7"). Following emergence from bankruptcy, the Reorganized Company
will apply fresh-start reporting in accordance with SOP 90-7.
When the Reorganized Company implements fresh-start reporting, the value of the
Reorganized Company will be allocated to the entity's net assets in conformity
with the procedures specified by Accounting Principles Board Opinion No. 16
Business Combinations. As a result, it is anticipated that adjustments to the
carrying values of the Company's assets and liabilities will be required to
reflect the terms of the Reorganization Plan. SOP 90-7 requires a determination
of the Company's reorganizational value, which represents the fair value of all
of the Company's assets and liabilities, and an allocation of such values to the
assets and liabilities (excluding deferred taxes) based on their relative fair
values with the excess in reorganizational value over market values recorded as
an intangible asset. The application of SOP 90-7 results in the creation of a
new reporting entity having no retained earnings or accumulated deficit. The
Company will implement fresh-start reporting as of April 11, 1997. Accordingly,
the estimated effects of fresh-start reporting reflected in the unaudited pro
forma information are subject to change.
For the purpose of the Reorganization Plan, the reorganizational equity value
was estimated to be $65.6 million, based in part on management's estimates of
future operating results. Reorganizational value necessarily assumes that the
Reorganized Company will achieve its estimated future operating results in all
material respects. If such results are not achieved, the value of the
Reorganized Company could be materially different.
The unaudited pro forma condensed consolidated financial information and
accompanying notes should be read in conjunction with the Company's historical
financial statements and the notes thereto apearing elsewhere herein. The
unaudited pro forma condensed consolidated financial statements are presented
for informational purposes only and do not purport to represent what the
Reorganized Company's financial position or results of operations would actually
have been if the consummation of the Reorganization Plan had occurred on such
dates, or to project the Reorganized Company's financial position or results of
operations at any future date or for any future period. The unaudited pro forma
condensed consolidated financial statements contain, in the opinion of
management, all adjustments necessary for a fair presentation thereof.
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<PAGE>
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
December 31, 1996
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
ASSETS ACTUAL ADJUSTMENTS PRO FORMA
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<S> <C> <C> <C>
Cash $ 35,589 $(34,949) a $ 640
Other current assets 76,438 144 b 76,582
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Total current assets 112,027 (34,805) 77,222
Property, plant and equipment 12,817 (1,924) c 10,893
Intangible and other assets, net 81 41,804 d 41,885
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Total assets $124,925 $ 5,075 $130,000
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Short term debt $ $ 5,100 e $ 5,100
Accounts payable and accrued liabilities 15,945 8,246 f 24,191
Long term debt, current portion 369 1,127 g 1,496
Current portion of liabilities subject to
compromise under reorganization
proceedings 45,035 (45,035) h
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Total current liabilities 61,349 (30,562) 30,787
Long-term debt 33,010 g 33,010
Other liabilities 601 601
Liabilities subject to compromise
under reorganization proceedings 160,164 (160,164) h
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Total liabilities 222,114 (157,716) 64,398
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Stockholders' equity (deficit) (97,189) 162,791 i 65,602
------------------------------------------
Total liabilities and
stockholders' equity (deficit) $124,925 $ 5,075 $130,000
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</TABLE>
The accompanying notes are an integral part of the unaudited pro forma condensed
consolidated financial statements.
The following is a brief description of the adjustments made in preparing the
Pro Forma Condensed Consolidated Balance Sheet (unaudited).
a. To reflect $44,049 paid out in accordance with the Reorganization Plan, net
of $9,100 borrowed under new credit facilities.
b. To reflect primarily the distribution of Net assets of discontinued
operations pursuant to the Reorganization Plan.
c. To reflect decrease resulting from facility reorganizations.
d. To record excess of identifiable asset value as a result of fresh-start
reporting, including principally a valuation associated with the Company's
trademarks.
e. To record borrowings under new credit facilities.
f. To record accounts payable and accrued liabilities incurred pursuant to the
Reorganization Plan.
g. To record current portion of long-term debt under new credit facilities, New
Senior Notes and other long-term debt incurred pursuant to the Reorganization
Plan.
h. To eliminate liabilities in accordance with the Reorganization Plan. The
Reorganization Plan will result in an extraordinary gain on debt forgiveness of
approximately $57,000.
i. To reflect fresh-start reporting and the new equity structure of the
Reorganized Company pursuant to the Reorganization Plan.
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<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended December 31, 1996
(Unaudited)
(In thousands, except share data)
<TABLE>
<CAPTION>
ACTUAL ADJUSTMENTS PRO FORMA
------------------------------------------
<S> <C> <C> <C>
Net sales $ 140,321 $ $ 140,321
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Operating (loss) income (2,156) 1,533 a (623)
Debt related fees 7,432 (7,432) b
Other expense (income), net 27 27
Interest expense 9,555 (3,825) c 5,730
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(Loss) income from continuing operations
before income taxes (19,170) 12,790 (6,380)
Income taxes (448) 299 (149)
Net (loss) from continuing operations $ (18,722) $ 12,491 $ (6,231)
==========================================
Net (loss) per share from continuing
operations $ (0.99) $ (0.96)
==========================================
Weighted average common and common
equivalent shares outstanding 18,859,679 6,500,000 d
==========================================
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma condensed
consolidated financial statements.
The Pro Forma Condensed Consolidated Statement of Operations (unaudited)
adjustments have been computed assuming the Effective Date was January 1, 1996
and includes adjustments which give effect to the events that are directly
attributable and expected to have a continuing impact on the Reorganized
Company.
The following is a brief description of the adjustments made in preparing the
Pro Forma Condensed Consolidated Statement of Operations (unaudited).
a. To reflect amortization of the intangibles associated with fresh-start
reporting of $2,633, net of $4,166 of costs related to restructuring.
b. To reflect adjustments for costs incurred by the Company outside of its
continuing operations.
c. To reflect incremental interest expense associated with the Company's new
credit facilities and New Senior Notes of $5,730, offset in part by reduced
interest resulting from the debt forgiveness in accordance with the
Reorganization Plan.
d. To reflect the equity structure of the Reorganized Company pursuant to the
Reorganization Plan.
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DISCONTINUED OPERATIONS
In December 1994, the Company determined that it would hold its investments in
its toy and fitness businesses operated primarily by its Buddy L Inc. and Buddy
L Canada Inc. subsidiaries (collectively "Buddy L") for sale. Accordingly, the
results of operations of these businesses have been accounted for as
discontinued operations for all periods in the accompanying consolidated
financial statements. On March 2, 1995, Buddy L Inc., a wholly-owned subsidiary
of the Company, filed for reorganization under Chapter 11 of the U.S. Bankruptcy
Code in the U.S. Bankruptcy Court for the District of Delaware. On May 9, 1995,
the Company accepted the bid to sell certain assets and liabilities of the Buddy
L toy business to Empire of Carolina, Inc. The bid was approved by the
Bankruptcy Court on May 19, 1995 and the transaction closed on July 7, 1995. The
Bankruptcy Court also approved the sale of Buddy L's fitness business which was
completed on June 30, 1995. At December 31, 1994, the Company recorded a loss of
$11.3 million, net of income taxes, for the disposition of its discontinued
operations, including the estimated 1995 operating loss through the disposition
date. As a result of the finalization of the sale of the Buddy L toy and fitness
businesses, the terms of which changed substantially from those previously
proposed; a change in the anticipated allocation of the sale proceeds amongst
the various creditors (see Settlement Agreement below) and the liquidation of
the remaining Buddy L assets (primarily accounts receivable and real property);
and an increase in estimated phase out costs, an additional loss from
disposition of discontinued operations of $25.6 million was recorded during the
year ended December 31, 1995.
On December 19, 1995, the Bankruptcy Court approved a settlement agreement (the
"Settlement Agreement") in the Smedley Industries, Inc. (f/k/a Buddy L Inc.)
("Smedley") Chapter 11 case among the Company, Smedley, its creditors and the
Company's banks and Senior Noteholders, resolving the allocation of the proceeds
and expenses from the disposition of the Buddy L toy and fitness businesses. A
Chapter 11 plan and a disclosure statement for Smedley were filed and
subsequently amended with the Bankruptcy Court embodying the terms of the
Settlement Agreement. The Chapter 11 plan, as amended, was confirmed by the
Bankruptcy Court on October 3, 1996 and became effective on October 17, 1996.
CONTINUING OPERATIONS
Industry Background
In its annual survey of sports participation, the National Sporting Goods
Association ("NSGA") included among the Top 10 Growth Sports (by percentage
increase) in the U.S. for 1994, inline skating (57.2%) as No. 1, roller hockey
(50.3%) as No. 2 and ice hockey (14.5%) as No. 10. In 1995, inline skating had
grown by 22.6% to 23.9 million participants (No. 3), roller hockey had grown by
43.0% to 3.2 million participants (No. 1), and ice hockey had grown by 29.2% to
2.5 million participants (No. 2). For 1996, although the relevent information is
not yet available, the Company believes that these trends will continue for both
ice and roller hockey, while inline skating will grow at a more moderate rate.
In Canada, a mature hockey market, the World Federation of Sporting Goods
International ("WFSGI") has identified the top 10 growth sports for 1996 - youth
hockey was ranked 8th and old timer hockey 9th.
The Company estimates the worldwide market for ice hockey products at
approximately $750 million in 1996. The Company believes that the popularity of
ice hockey will grow as the National Hockey League ("NHL") continues to expand
into new markets in the U.S., with recent expansions in both California and
Florida and the relocation of existing teams to Texas, Colorado and Arizona. The
U.S. Team victory at the 1996 World Cup Championship and the participation of
NHL players at the 1998 Winter Olympics (for the first time in history) will
also influence the growth of hockey in North America and around the world.
The Sports Marketing Research Group, Inc., an independent market research
company, estimates the worldwide inline, street and roller hockey markets at
approximately $2.0 billion in 1996. This rapidly growing segment is expected to
continue to grow because (i) inline roller skates have a strong appeal to health
and fitness conscious consumers who use the product for physical conditioning
and recreation; (ii) hockey players and alpine and cross-country skiers are
increasingly using the product for off-season training; and (iii) sports such as
inline roller and street hockey as well as long distance and inline speed racing
are becoming increasingly popular.
The Team Licensing Business Organization estimates the licensed sports products
market in the U.S. and Canada at approximately $10.9 billion in 1996. The market
is divided primarily among five sports leagues: the National Football League
("NFL") ($3.3 billion), Major League Baseball ("MLB") ($1.8 billion), the
National Basketball Association ("NBA") ($2.7 billion), the National Collegiate
Athletic Association ("NCAA") ($2.1 billion) and the NHL ($1 billion).
Strategy
The Company's strategy with respect to hockey products is to maximize the
visibility of the CCM trademark in the NHL and other professional and amateur
hockey leagues. This strategy is based upon the Company's belief that the high
visibility of the CCM trademark leads to greater retail sales of its hockey
products. The CCM trademark
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<PAGE>
appears on players' helmets, jerseys, pants, gloves and skates. Unlike some of
its competitors, the Company has not generally pursued a strategy of multiple
player endorsements, but rather has concentrated on enhancing its relationships
with the major hockey leagues. The Company has licenses for certain hockey
jerseys with the NHL, the American and Canadian Hockey Leagues and most major
NCAA hockey teams. To complement this strategy, the Company provides both
professional and amateur hockey players with a high level of service and
attention.
The Company's existing sourcing and manufacturing capabilities has allowed it to
launch in January 1997 products such as the new 952 Tacks hockey skates. The 952
Tacks hockey skate features technology such as the new Dynamic Sidewall
Technology outsole which incorporates forefoot and heel wrapping to provide
unmatched support and stability. In addition, the Company has introduced
materials such as Kevlar reinforced nylon, developed with Dupont, new moulded
graphic applications in conjunction with Flex Systems USA and lightweight
composite reinforcement plates with the help of bio mechanical composites. These
partnerships are only a small example of the Company's capabilities to develop
and market the most advanced products.
Hockey and Figure Skates
The Company markets a range of hockey and figure skates from professional
caliber premium hockey skates to popular priced figure and recreational hockey
skates. All of these products, including the Tacks line of premium hockey
skates, are sold under the CCM trademark. The Company estimates that during the
1996-1997 season, approximately 38% of NHL players wore its skates. The Company
also manufactures private label skates using specific retailers' brand names, as
well as the CCM trademark. The Company believes that it was the second largest
manufacturer of hockey and figure skates in North America in 1996, based on
units sold. The Company also markets premium hockey skates incorporating
Reebok's Instapump fitting system and technology which is sold using the CCM,
Tacks, Reebok and Instapump trademarks. This technology consists of an air
bladder strategically placed inside the skates which, when inflated, provides a
customized fit.
The Company believes that it is one of the world's largest manufacturers of
hockey and figure skate blades (based on units sold) with sales of more than one
million pairs per year. The Company's hockey skate blades, which are sold under
the SLM and CCM trademarks, are used by players of all skill levels from novice
to professional. Using its MK trademark the Company manufactures premium quality
figure skate blades, including skate blades for many of the world's most
prominent Olympic and professional figure skaters.
Hockey Equipment
The Company manufactures and markets a complete range of hockey helmets, pants,
shin pads, shoulder pads, elbow pads and gloves. All of the Company's protective
equipment is marketed under the CCM trademark. Sub-brands Supra, Ultra and
Powerline, which accompany the CCM trademark, differentiate the product by
quality and price point. The Company estimates that during the 1996-1997 hockey
season approximately 50% of NHL players used its hockey pants, gloves or
helmets.
Sports Apparel
Hockey Apparel. Using the CCM trademark, the Company markets a
broad range of hockey apparel, including authentic and replica NHL hockey
jerseys which are sold pursuant to certain license agreements with the NHL. The
Company also manufactures the authentic jerseys that are used by all of the
players in the Canadian Hockey League and most major NCAA hockey teams, as well
as many amateur hockey teams in North America. These authentic and replica
jerseys are sold primarily through retailers. The Company believes that it is
among the world's largest manufacturer of hockey jerseys (authentic, replica and
amateur gamewear) based on total dollars and units sold.
#1 Apparel. In January 1994, the Company acquired #1 Apparel, the licensed
sports apparel division of K-Products, Inc., an Iowa-based apparel manufacturer.
#1 Apparel manufactures a high quality line of baseball style caps and jackets
using its own unique designs and graphics under licenses from the MLB, NHL,
major colleges and universities and the NCAA. The acquisition included a
manufacturing facility in Ontario, Canada, and all rights to the #1 Apparel
name, trademarks, copyrights and designs.
Sales and Marketing
The Company's sporting goods products are sold throughout the world. In North
America, the Company sells to more than 4,000 customers, including independent
sporting goods stores, cooperative buying groups, mass merchandisers, sporting
goods chains, department stores and wholesalers. Internationally, the Company
has exclusive distributors in 30 countries in Europe, South America, Central
America, Africa, Australia and the Far East. Sporting goods products are sold to
certain large customers by the Company's in-house sales staff, while other
accounts are serviced by an extensive network of approximately 55 independent
sales representatives. In 1996, no single account represented more than 10% of
the Company's consolidated net sales of sporting goods. The Company distributes
its sporting goods products from distribution centers in the United States and
Canada.
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<PAGE>
Retail sales of hockey products are seasonal, with the majority of retail sales
occurring in the third and fourth calendar quarters. The Company believes that
first and second quarter sales of inline roller skate products and #1 Apparel
licensed products reduces the Company's reliance on third and fourth quarter
sales of hockey products.
GENERAL
Backlog
The timing of orders is largely influenced by the degree of consumer demand for
product lines, inventory levels of retailers, marketing strategies, seasonality
and overall economic conditions. The Company's consolidated order backlog for
continuing operations at December 31, 1996 decreased 40% to approximately $11.9
million as compared to December 31, 1995. Product shortages, cancellations,
returns and allowances may reduce the amount of sales ultimately realized from
the fulfillment of backlog orders.
Trademarks, Patents and Licenses
The principal trademarks used by the Company are listed in the table set forth
below. All are owned by the Company except for the "CCM" trademarks which are
owned by CCM Holdings (1983) Inc., which in turn is 50% owned by the Company
through certain of its subsidiaries, the remaining 50% is owned by an
unaffiliated Canadian bicycle manufacturer. All of the trademarks, including the
"CCM" trademarks, are exclusive and perpetual for the product categories
indicated. All of the trademarks, excluding the "CCM" trademarks, are also
royalty free; the "CCM" trademarks carry a nominal annual fixed fee due to CCM
Holdings (1983) Inc. which is not based on sales.
------------------------------------------------------------------------
Trademarks Category
------------------------------------------------------------------------
CCM Hockey apparel, hockey equipment, hockey,
figure and inline skates and roller hockey
equipment
Tacks, VAKUTACKS Hockey and inline skates
Supra, Ultra, Powerline Hockey pants and protective equipment
Ultrafil, Airknit, Hockey apparel
Suprafil
# 1 Apparel Apparel
------------------------------------------------------------------------
The Company's principal license agreements are listed in the table set forth
below. In general, the license agreements have terms of one to five years and
the Company has usually been able to renew its licenses upon expiration. License
fees and royalties typically range from 5% to 11% of net sales of the licensed
product.
The Company's hockey jersey license with the NHL expires on June 30, 1999. Under
this agreement, the Company has exclusivity for authentic game jerseys for
thirteen teams through June 30, 1997 and for ten teams for the remainder of the
license. The Company is also required to provide to each NHL team a certain
quantity of jerseys free of charge. The cost of these goods, approximately $0.6
million in 1996, is expensed by the Company and recorded in selling, general and
administrative expenses. In addition, the Company has an exclusive license with
the NHL for authentic All Star Game jerseys and authentic and replica practice
jerseys, and non-exclusive licenses for replica jerseys for all teams through
the entire term of the agreement.
The Company has entered into a non-exclusive license agreement with the National
Hockey League Players Association under which the Company may sell authentic
game and replica hockey jerseys bearing the names and numbers of NHL players.
- --------------------------------------------------------------------------------
Licensor Subject of License Categories
- --------------------------------------------------------------------------------
National Hockey NHL team logos and names Hockey jerseys and
League Enterprises headwear
NHL Players Players' names and numbers Hockey jerseys
Association
- --------------------------------------------------------------------------------
Manufacturing and Sourcing
North America. The Company manufactures and distributes most of its products in
nine facilities located in Vermont, New Hampshire, Ontario, Quebec and Europe.
Collectively these facilities have capabilities for knitting, cutting, sewing,
embroidery, silk screening, injection and vacuum molding, metal stamping and
plating, and skate and equipment manufacturing.
During 1997 the Company intends to shut down two of its manufacturing facilities
as part of its on-going effort to streamline manufacturing and distribution
operations. In addition, the Company intends to relocate its U.S. distribution
operations to the Burlington, Vermont area. A disruption resulting in the
shutdown or impairment of
8
<PAGE>
any of the Company's other manufacturing facilities could adversely affect the
Company. The Company maintains insurance coverage which might mitigate any such
adverse effect.
Foreign. The Company sources products from China, Hong Kong, Korea, Taiwan,
Thailand and the Philippines. The Company's manufacturing facility in Slough,
England manufactures its premium MK figure skate blades.
No single supplier is responsible for products representing more than 10% of the
Company's consolidated net sales.
Research and Product Development
The majority of the Company's sporting goods products are conceived of and
developed at its own facilities, or are developed jointly with third party
inventors. The Company operates research and development facilities in Quebec.
The employees at these facilities include designers, engineers and model makers.
These facilities include woodworking, spray painting, molding and sculpting
capabilities, and have creative services departments which are responsible for
apparel, packaging and catalog design and development.
Competition
The sporting goods industry is highly fragmented. The Company competes with
numerous companies in team related sporting goods, equipment and sports apparel.
While the Company is renowned for its high quality and innovative products and
provides high levels of service to its customers, some of its competitors may
have greater financial resources. The Company's major competitors include (i)
with respect to licensed apparel, Russell Corporation, Champion Products Inc.,
VF Corp., Nike, Inc. and Starter Inc., (ii) with respect to hockey equipment,
Bauer Inc. (acquired by Nike Inc. in February 1995) and Karhu Corp., (iii) with
respect to hockey and figure skates, Bauer and Nike, and (iv) with respect to
the inline roller skates market, Rollerblade Inc., First Team Sports Inc.,
Bauer, Variflex Inc. K2, Mission and Nike.
Employees
As of December 31, 1996, the Company's continuing operations employed
approximately 1,190 persons. Approximately 995 are employed in Canada, 150 are
employed in the United States and the balance are employed abroad. None of the
Company's employees in the United States are unionized, while approximately 269
of its employees in Canada are unionized. The Company's current three year
collective bargaining agreement with the union at its St. Jean, Quebec plant
expires in late 1997 and the collective bargaining agreement with the union at
the Company's skate blade manufacturing plant in Beauport, Quebec expires in
April 2000. The Company maintains good relations with these unions.
ITEM 2. PROPERTIES
The Company believes that its existing manufacturing and distribution facilities
have sufficient capacity to support the Company's business without the need for
significant additional or upgraded equipment or capital expenditures. The
following table summarizes each of the Company's principal facilities for its
operations.
<TABLE>
<CAPTION>
=====================================================================================
APPROXIMATE LEASE/
LOCATION USE SQUARE OWN
FEET
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
UNITED STATES
Bradford, Vermont Hockey jersey finishing and 55,000 Own
Peterborough, New distribution
Hampshire* U.S. distribution center and 144,000 Lease
administrative offices
CANADA
Beauport, Quebec* Skate blade manufacturing 155,000 Lease
St. Jean, Quebec Hockey equipment and skate manufacturing 138,000 Lease
St. Jean, Quebec Helmet manufacturing 53,000 Lease
St. Hyacinthe, Quebec Hockey apparel knitting 78,000 Lease
St. Hyacinthe, Quebec Canadian distribution center and
administrative offices 180,000 Lease
St. Hyacinthe, Quebec* Hockey socks knitting 12,000 Lease
Cap de la Madeleine,
Quebec Hockey apparel sewing 12,000 Lease
Montreal, Quebec Executive and marketing offices and
showroom 8,000 Lease
Mt. Forest, Ontario Apparel manufacturing 115,200 Own
EUROPE
Slough, England Premium figure skate blade 20,000 Lease
manufacturing and distribution
Paris, France European sales office 2,000 Lease
=====================================================================================
</TABLE>
* During 1997 the Company intends to shutdown these facilities as part of its
on-going effort to streamline manufacturing and distribution operations.
9
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
A. ENVIRONMENTAL LITIGATION:
In 1991, the Vermont Department of Environmental Conservation ("VTDEC") notified
the Company that the Bradford, Vermont property operated by its wholly-owned
subsidiary, Maska U.S., Inc. ("Maska"), had been included on the U.S.
Environmental Protection Agency's Comprehensive Environmental Response,
Compensation and Liability Information System and the Vermont Hazardous Sites
List was being evaluated for possible remedial action. Under relevant
environmental laws, Maska, as an owner of the property, was potentially liable
for the entire cost of investigating and remediating the contamination allegedly
emanating from its Bradford property and certain civil penalties.
Maska undertook its own investigation to determine the extent of contamination,
the rate of movement and the concentration of the contaminants, the appropriate
action required for site remediation and the identification of other parties who
should bear a share of the costs of remediation. The Company is seeking recovery
against the former owners and affiliates of the Bradford property and facility
and the owner of an adjacent parcel for the costs of such investigation and
remediation and are currently in negotiations to settle these claims. During
April 1996, Maska and the State of Vermont entered into a consent decree (the
"Consent Decree") setting forth the terms under which Maska has agreed to
remediate specified hazardous materials if, and to the extent, found on the
contaminated property or caused by Maska. The Consent Decree was approved by the
Bankruptcy Court on May 14, 1996 and approved and entered in Vermont Superior
Court on June 20, 1996. The Consent Decree is subject to several conditions,
including ongoing payment by the Company of certain State of Vermont oversight
fees up to a maximum of $0.06 million per year. In addition, the Company paid to
the State of Vermont a civil fine stipulated penalty of $0.25 million. While the
total cost of investigation and remediation cannot be determined until the
investigation required by VTDEC is complete and the extent of the Company's
remedial obligations have been determined, the Company believes that the
remaining costs will be approximately $1.4 million in the aggregate, payable
over the next several years.
Maska commenced an action in the United States District Court for the District
of Vermont (the "Vermont District Court") entitled Maska U.S. Inc. V. Kansa, et
al., Doc. No. 5:93-CV-309 (the "Insurance Litigation") against nine of its
liability insurers seeking coverage for environmental cleanup costs arising out
of claims brought by the State of Vermont and an adjoining landowner for their
failure to defend or to indemnify Maska with respect to these claims.
On September 30, 1996, United States Magistrate Judge Jerome J. Neidermeier
issued that certain Magistrate Judge's Report and Recommendation (the
"Magistrate Report"), which analyzes legal issues and recommends that the
Vermont District Court grant Maska's motion for partial summary judgment on the
issue of the duty to defend. The report also recommends that all the insurers'
motions for summary judgment be denied, except for two on certain individual
policies which Maska conceded provide no coverage for its claims. On December 2,
1996, Chief Judge J. Garvin Murtha adopted the Magistrate Report in its
entirety. Various motions for reconsideration of that order and for
certification of the issue for immediate appeal have since been denied. After
the completion of limited pre-trial discovery, the case will be scheduled for
trial.
Two holders of Maska's unsecured claims have asserted an equitable lien on
Maska's recovery, if any, in the Insurance Litigation and also have commenced an
independent action against the defendant insurance companies pursuant to
Vermont's direct action statute. The Company believes that the asserted
equitable lien is without merit and that the independent direct action violated
the automatic stay pursuant to Section 362 of the Bankruptcy Code. The Company
currently is evaluating its options for legal recourse in these matters.
In 1992, the owner of a property adjacent to Maska's manufacturing facility in
Bradford, Vermont, filed an action in Vermont Superior Court alleging that its
property has been contaminated as a result of the Company's manufacturing
activities and seeking compensatory and punitive damages under the Vermont
Groundwater Protection Law and various common law theories. During June 1995,
Maska reached a settlement of all claims with the adjacent landowner consisting
of $1.0 million cash (which was paid during July 1995) and a $6.0 million note
bearing interest at 10% payable over five years based on a twenty year
amortization with the balance of principal payable in June 2000. The Company
recorded a provision of $7.0 million for this settlement during the year ended
December 31, 1995.
B. SECURITIES LITIGATION:
On February 14, 1996, the Company, together with certain of its former officers
and directors, reached a settlement with the plaintiffs in a class action
securities litigation. The settlement provides for the cash payment by the
Company's insurer of $8.8 million on behalf of certain former officers and
directors of the Company who are defendants. In addition, the Company agreed to
issue 1,000,000 shares of its Common Stock which was converted into warrants in
the Reorganization Plan. As a result of the settlement, the Company recorded a
provision of approximately $1.6 million (the market value of 1,000,000 shares of
common stock on the date the
10
<PAGE>
settlement was agreed to) in the year ended December 31, 1995. During July 1996,
the settlement was approved by the Bankruptcy Court and the U.S. District Court
for the Southern District of New York. Additionally, during August 1996 certain
of the Company's creditors filed an appeal with the Bankruptcy Court with
respect to the Bankruptcy Court's approval of the settlement which has not yet
been resolved but will be dismissed with prejudice in connection with the
Reorganization Plan.
C. PRODUCT LIABILITY LITIGATION:
A pre-petition personal injury claim involving a spinal injury which was filed
in 1989 has been asserted against the Company for which the Company did not have
sufficient insurance coverage. That claim and its attendant litigation has been
settled and is being submitted to the Bankruptcy Court for approval. The claim
will be treated under the Reorganization Plan pursuant to the terms of the
settlement. The Company is unaware of any other personal injury claims for which
there is not adequate insurance coverage.
In connection with the claim, American Home Assurance Company ("American Home"),
has commenced a declaratory judgment action against the Company in Massachusetts
District Court in respect of its duty to defend and to indemnify the Company and
an action in Montreal Superior Court in Quebec, Canada to recover defense costs.
The Company filed a response to the declaratory judgment action and a
counterclaim in Montreal Superior Court alleging American Home failed to fulfill
its duty to defend the Company. American Home has alleged that it is entitled to
payment in full for any amounts it recovers against the Company. The Company
believes that American Home's claims and contentions are without merit and, in
any event, would be treated under the Reorganization Plan. In the event that the
Company is required to make such a payment, it anticipates having funds
sufficient to meet any Court-ordered obligation. American Home's
misrepresentation claim against the Company is in the amount of approximately
$0.6 million.
Other than certain legal proceedings arising from the ordinary course of
business, which the Company believes will not have a material adverse impact on
the financial position, results of operations, or cash flows, there is no other
litigation pending or threatened against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(A) PRICE RANGE OF COMMON STOCK
Between May 24, 1995 and April 11, 1997, the Company's old common stock ("Old
Common Stock") traded on the NASD Exchange Bulletin Board ("EBB") under the
symbol "SLMI" (through October 1996) and "SLMIQ" (thereafter), respectively.
Prior to that date, the Company's Old Common Stock was traded on the NASDAQ
Stock Market ("NASDAQ"). The following chart sets forth, for the calendar
periods indicated, the range of closing prices for the Old Common Stock as
reported on NASDAQ and EBB:
HIGH LOW
---- ---
1995 First Quarter $ 6.50 $ 2.75
Second Quarter $ 3.88 $ 0.94
Third Quarter $ 3.75 $ 1.69
Fourth Quarter $ 3.63 $ 1.00
1996 First Quarter $ 2.13 $ 1.06
Second Quarter $ 1.81 $ 0.50
Third Quarter $ 0.88 $ 0.20
Fourth Quarter $ 0.43 $ 0.11
1997 First Quarter $ 0.47 $ 0.11
On April 11, 1997, the Effective Date of the Company's Plan of Reorganization,
the Company's Old Common Stock was extinguished and the holders of the Old
Common Stock received a total of 300,000 five year warrants (the "Warrants") to
purchase an aggregate of 300,000 shares of new common stock ("New Common Stock")
at an exercise price of $16.92 per share (subject to adjustments for stock
splits, stock dividends, recapitalization and similar transactions). Each holder
of 67 shares of Common Stock received one Warrant to purchase, for cash, one
share of New Common Stock , with no fractional Warrants issued. On the Effective
Date, the Company issued an aggregate of 6,500,000 shares of newly authorized
common stock, $0.01 par value (as adjusted to take
11
<PAGE>
account of fractional interest pursuant to the Plan). The Company does not
intend to list the New Common Stock or the Warrants on NASDAQ or a stock
exchange.
(B) APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS
The approximate number of record holders of the Company's Old Common Stock as of
March 31, 1997 was 450. The Company expects that there will be approximately 20
to 30 holders of New Common Stock once all claims have been settled. The Company
did not pay dividends on its Old Common Stock and has no current plans to pay
cash dividends on its New Common Stock in the foreseeable future.
12
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data presented below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and related
notes thereto included elsewhere in this Form 10-K. The selected consolidated
financial data as of and for the years ended December 31, 1996, 1995, 1994, 1993
and 1992 are derived from the consolidated financial statements of the Company.
The Company's financial statements following its emergence from bankruptcy will
not be comparable to the historical financial statements contained herein, which
do not reflect the Reorganization Plan. Following emergence from bankruptcy the
Company will apply fresh-start reporting in accordance with Statement of
Position 90-7, Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code (" SOP 90-7").
In December 1994, the Company determined that it would hold its investment in
its toy and fitness businesses operated by its Buddy L Inc. and Buddy L Canada
Inc. subsidiaries for sale. Accordingly, these businesses have been reported as
discontinued operations for all income statement data presented below. However,
balance sheet data prior to December 31, 1994 has not been restated for these
discontinued operations.
SLM INTERNATIONAL, INC.
(DEBTOR-IN-POSSESSION(1))
YEARS ENDED DECEMBER 31,
(in thousands, except per share data)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales $140,321 $160,973 $180,806 $126,034 $ 88,569
Cost of goods sold 92,613 107,266 113,577 75,104 53,481
----------------------------------------------------
Gross profit 47,708 53,707 67,229 50,930 35,088
Gross profit margin (%) 34.0% 33.4% 37.2% 40.4% 39.6%
Selling, general and
administrative expenses 45,831 59,753 67,031 38,600 25,456
Unusual charges 4,033 15,471
----------------------------------------------------
Operating (loss) income (2,156) (21,517) 198 12,330 9,632
Debt related fees 7,432 11,195
Other expense (income), net 27 1,484 (260) (499) (450)
Interest expense 9,555 17,078 6,713 3,356 1,854
----------------------------------------------------
(Loss) income from continuing
operations before income
taxes (19,170) (51,274) (6,255) 9,473 8,228
Income taxes (448) 605 (11) 3,779 2,760
----------------------------------------------------
(Loss) income from continuing
operations $(18,722) $(51,879) $ (6,244) $ 5,694 $ 5,468
====================================================
(Loss) income per share from
continuing operations(2) $ (0.99) $ (2.75) $ (0.33) $ 0.30 $ 0.32
====================================================
BALANCE SHEET DATA:
Working capital (deficit) $50,678 $110,088 $(38,360) $ 78,623 $ 83,568
Total assets 124,925 138,028 192,838 254,283 173,625
Short-term debt, including
current portion, long-term
debt and current portion of
liabilities subject to
compromise under
reorganization proceedings 45,404 702 173,471 79,700 32,376
Long-term debt 16,113 19,452
Liabilities subject to
compromise under
reorganization proceedings 160,164 201,814
Stockholders' (deficit) equity (97,189) (78,642) (6,284) 106,878 97,643
Total shares outstanding at
year end(2) 18,860 18,860 18,860 18,805 18,545
</TABLE>
13
<PAGE>
(1) On October 24, 1995, SLM International, Inc. and six of its subsidiaries
filed for relief under Chapter 11 of the United States Bankruptcy Code in
the United States Bankruptcy Court for the District of Delaware. On January
23, 1997, the Bankruptcy Court confirmed the Reorganization Plan and the
Reorganization Plan became effective on April 11, 1997.
(2) Adjusted for the effect of a three for two stock split in December 1993.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
On October 24, 1995, SLM International, Inc. and six of its subsidiaries filed
for relief under Chapter 11 of the United States Bankruptcy Code in the United
States Bankruptcy Court for the District of Delaware. The Company and those
subsidiaries chose to seek court protection from creditors in order to conduct
their operations while preparing a reorganization plan. Since the filing, the
Company and those subsidiaries operated their businesses in the ordinary course
as debtors-in-possession subject to the jurisdiction of the Bankruptcy Court.
The Bankruptcy Court also entered an order authorizing the joint administration
of the Debtors' Chapter 11 Cases. On September 12, 1996 the Debtors filed a
Chapter 11 Plan of Reorganization and on November 13, 1996, the Debtors filed a
First Amended Chapter 11 Plan of Reorganization, as amended from time to time
(the "Reorganization Plan"), with the Bankruptcy Court. On January 23, 1997, the
Bankruptcy Court confirmed the Reorganization Plan and the Plan became effective
on April 11, 1997. Disruptions that occurred prior to and which may have been or
may be caused by the Filing will affect the Company's operating performance for
a given period and could continue to affect the Company's results in 1997.
As a result of significant operating losses in its toy and fitness businesses
during 1994, the Company decided in December 1994 that it would hold its
investment in Buddy L for sale. Consequently, these businesses have been
accounted for as discontinued operations. On March 2, 1995, the Company's
wholly-owned subsidiary Buddy L Inc. filed for reorganization under Chapter 11
of the United States Bankruptcy Code. On May 9, 1995, the Company accepted the
bid to sell certain assets and liabilities of the Buddy L toy business to Empire
of Carolina, Inc. The bid was approved by the Bankruptcy Court on May 19, 1995
and the transaction closed on July 7, 1995. The court approved sale of the
fitness business was completed on June 30, 1995. For further information
concerning discontinued operations, see Note 5 to the Consolidated Financial
Statements presented elsewhere herein.
The following discussion provides an assessment of the Company's results of
continuing operations, financial condition and liquidity and capital resources,
and should be read in conjunction with the Consolidated Financial Statements of
the Company and Notes thereto included elsewhere herein. (All references to
"Note(s)" refer to the Notes to the Consolidated Financial Statements.)
RESULTS OF OPERATIONS
CONTINUING OPERATIONS
The Company's results of operations as a percentage of net sales for the periods
indicated were as follows:
1996 1995 1994
------------------------------------
Net Sales 100.0% 100.0% 100.0%
Gross profit 34.0% 33.4% 37.2%
Selling, general and 32.7% 37.1% 37.1%
administrative expenses
Unusual charges 2.9% 9.6%
Operating (loss) income (1.6%) (13.3%) 0.1%
Debt related fees 5.3% 7.0%
Other expense (income), net 0.9% (0.1%)
Interest expense 6.8% 10.6% 3.7%
(Loss) from continuing operations
before income taxes (13.7%) (31.8%) (3.5%)
Income taxes (0.4%) 0.4% 0.0%
(Loss) from continuing operations (13.3%) (32.2%) (3.5%)
1996 COMPARED TO 1995
Net sales decreased 12.8% to $140.3 million for the year ended December 31, 1996
as compared to $161.0 million in the year ended December 31, 1995. The decline
in sales included decreases of 36.2% in inline roller skates, 11.6% in hockey
and figure skates, 6.0% in licensed sports apparel and 3.5% in protective
equipment. Compared to 1995, sales in 1996 were negatively affected by the
Company's Chapter 11 status, a generally weak retail environment in the sports
and leisure products industry, particularly in the recreational inline skate
market, increased amounts of deeply discounted merchandise offered by other
manufacturers and poor weather in the U.S. and Canada. Furthermore, the Company
has reduced the levels of business it conducts with certain
14
<PAGE>
specialty retailers and mass merchandisers to whom previous sales were made at
low margins and high credit risk, and has reduced or eliminated certain
incentives to customers.
Gross profit was $47.7 million in 1996 compared to $53.7 million in 1995, a
decrease of 11.2%. Measured as a percentage of net sales, gross profit margins
increased to 34.0% in 1996 from 33.4% in 1995. These higher gross profit margins
are principally a result of favorable customer and product mixes as compared to
1995. In addition, 1995 was adversely affected by aggressive sales of excess,
obsolete and slow moving inventories to generate cash needed to support the
Company's operations during the period of its financial difficulties.
For the year ended December 31, 1996, selling, general and administrative
expenses decreased 23.3% to $45.8 million compared to $59.8 million in the prior
year period. Measured as a percentage of net sales, these expenses were 32.7% in
1996 versus 37.1% in 1995. Expenses decreased as a result of generally lower
operating expenses due to the Company's continued efforts to aggressively reduce
costs, reduced variable selling costs, principally royalties and commissions,
decreased bad debt expense, and lower administrative expenses including legal
expenses associated with certain cases that were either settled or delayed due
to the Company's financial difficulties.
During 1996, the Company recorded significant unusual charges in continuing
operations totaling $4.0 million to reflect the impact of strategically
reorganizing management to position itself for a definitive restructuring plan.
These costs consist primarily of severance pay ($3.4 million), including that of
the Company's former Chief Executive and Chief Financial Officers, and the
impairment of long lived assets ($0.7 million), primarily machinery and
equipment at one of its Canadian facilities. During 1995, the Company recorded
significant unusual charges in continuing operations totaling $15.5 million due
principally to litigation settlements ($8.8 million) and reassessment, during
the fourth quarter of 1995, of the intangible assets associated with the
acquisition of #1 Apparel ($6.4 million). Litigation settlements include
settlements of environmental litigation ($7.0 million, recorded in the second
quarter and $0.25 million, recorded in the fourth quarter 1995) and securities
litigation ($1.6 million recorded in the fourth quarter 1995). The unusual
charges represent 21.5% and 29.8% of the Company's loss from continuing
operations for the years ended December 31, 1996 and 1995, respectively.
Excluding the unusual charges, operating income for the year ended December 31,
1996 was $1.9 million compared to an operating loss of $6.0 million in 1995. The
1996 operating income was primarily the result of increased gross profit margins
and lower selling, general and administrative expenses discussed above.
Including the unusual charges, the operating loss for 1996 was $2.2 million and
$21.5 million for 1995.
As a result of the Company's significant losses in the year ended December 31,
1994, the resultant non-compliance with covenants in its various financing
agreements, the involuntary bankruptcy action initiated by its senior
noteholders, the Standstill Agreements with its lenders and the Filing, the
Company's continuing operations incurred significant legal and professional fees
totaling $7.4 million and $11.2 million for the years ended December 31, 1996
and 1995, respectively. These fees include the cost of the Company's legal
counselors, financial advisors and consultants, as well as those of its bankers,
senior noteholders and creditors and, additionally, 1995 included certain
payments made directly to these lenders. The debt related fees for the year
ended December 31, 1996 is net of $0.7 million of interest earned on accumulated
cash resulting from the Filing. These costs are included as Debt Related Fees in
the Consolidated Statement of Operations for the periods then ended.
Interest expense approximated $9.6 million and $17.1 million for 1996 and 1995,
respectively. During the reorganization proceedings the Company was generally
not permitted to pay interest. Therefore, the Company recorded interest expense
only to the extent paid or earned during the proceedings and to the extent it
was probable that the Bankruptcy Court would allow interest on pre-Petition Date
debt as a priority, secured or unsecured claim. Interest expense in 1995
resulted from working capital borrowings at higher short-term interest rates as
well as default interest rates being charged on the Company's bank debt and
Senior Notes due to defaults, offset in part by the allocation of interest
expense to discontinued operations.
The Company's loss from continuing operations for the year ended December 31,
1996 was $18.7 million ($0.99 per share) compared to a loss of $51.9 million in
the year ended December 31, 1995 ($2.75 per share). Excluding unusual charges,
and debt related fees, the Company's net loss was $7.3 million and $25.2 million
for 1996 and 1995, respectively. The unusual charges and debt related fees
represented 61.2% and 51.4% of the Company's losses from continuing operations
for the year ended December 31, 1996 and 1995, respectively.
For the year ended December 31, 1995, the Company recognized a loss on
discontinued operations of $25.6 million ($1.36 per share) due to the
finalization of the terms of sale of these operations.
15
<PAGE>
1995 COMPARED TO 1994
Net sales of the Company's continuing operations decreased 11.0% to $161.0
million in the year ended December 31, 1995 as compared to $180.8 million in the
year ended December 31, 1994. The decline in sales included decreases of 10.1%
in protective equipment and 30.0% in licensed sports apparel, offset in part by
increases of 6.8% in hockey, figure and inline roller skates. Sales were
adversely affected by inadequate cash availability resulting in inventory
shortages versus customer orders. The sales growth in inline roller skates
resulted primarily from new and expanded product offerings in the inline roller
skate category in response to the continued growth in popularity of both
recreational skating and roller hockey. The decline in sales of licensed sports
apparel in 1995 from 1994 was due to the lingering effects of the NHL and MLB
labor problems which resulted in canceled orders, lost sales, product returns
and high retailer and manufacturer inventory levels.
Gross profit was $53.7 million in 1995 compared to $67.2 million in 1994, a
decrease of 20.1%. Measured as a percentage of net sales, gross profit margins
decreased to 33.4% in 1995 from 37.2% in 1994. Gross profit margin was adversely
affected by sales of excess, obsolete and slow moving inventories caused by
streamlining of product lines and more aggressive disposal of such items in
order to generate cash needed to support the Company's operations during the
period of its financial difficulties (see "Liquidity and Capital Resources"
below). These sales generated low profit margins as provisions for these excess,
obsolete and slow moving inventories were recorded to reduce them to net
realizable value. Provisions for excess, obsolete and slow moving inventories in
1995 were $5.7 million compared to $4.3 million in 1994.
Selling, general and administrative expenses in the year ended December 31, 1995
were $59.8 million compared to $67.0 million in the prior year, a decrease of
10.9%. Measured as a percentage of net sales, these expenses were 37.1% in 1995
and 1994. Expenses decreased primarily as a result of reduced variable selling
and distribution costs and certain legal and professional expenses, offset in
part by an increase in bad debt expense. Legal and professional fees related to
certain of the Company's environmental and product liability matters decreased
during 1995, as these cases were either settled or delayed due to the Company's
financial difficulties. Bad debt expense increased to $4.6 million in 1995 from
$3.4 million in 1994 due primarily to the financial difficulties of several
large U.S. and Canadian sporting goods and discount chain customers.
During 1995, the Company recorded significant unusual charges in continuing
operations totaling $15.5 million (see Note 6) due principally to litigation
settlements totaling $8.8 million and reassessment of the intangible assets
associated with the acquisition of #1 Apparel of $6.4 million.
Excluding the unusual charges, the operating loss for the year ended December
31, 1995 was $6.0 million compared to income of $0.2 million in 1994. Including
the unusual charges, the operating loss for 1995 was $21.5 million.
As a result of the Company's significant losses in the year ended December 31,
1994, the resultant non-compliance with covenants in its various financing
agreements, the involuntary bankruptcy action initiated by its Senior
Noteholders, the Standstill Agreements with its lenders and the Chapter 11
Cases, the Company's continuing operations incurred significant legal and
professional fees totaling $11.2 million for the year ended December 31, 1995.
These fees include the cost of the Company's legal counselors, financial
advisors and consultants, as well as those of its bankers and Senior Noteholders
and certain payments made directly to these lenders. In addition, the Company
recorded $0.8 million for the intrinsic value of warrants provided to these
lenders. These costs are included as Debt Related Fees in the Consolidated
Statements of Operations. It is anticipated that additional significant
reorganization related fees will be incurred in future periods.
Interest expense increased in 1995 to $17.1 million from $6.7 million in 1994 as
a result of both increased working capital borrowings and higher interest rates
due to the Company's defaults under its financing agreements. These default
interest rates resulted in incremental interest expense of $5.7 million for the
year ended December 31, 1995. Of the 1995 interest expense, $10.1 million was
paid and $7.0 million was accrued and is still due.
The Company's loss from continuing operations for the year ended December 31,
1995 was $51.9 million ($2.75 per share) compared to a loss of $6.2 million in
the year ended December 31, 1994 ($0.33 per share). Excluding unusual charges,
default interest and debt related fees, the Company's 1995 net loss was $19.5
million. The unusual charges, default interest and debt related fees represented
62.2% of the Company's losses from continuing operations for the year ended
December 31, 1995.
For the year ended December 31, 1995, the Company recognized a loss on
discontinued operations of $25.6 million ($1.36 per share) due to the
finalization of the terms of sale of these operations. In 1994, discontinued
operations incurred a loss of $105.7 million ($5.61 per share).
16
<PAGE>
INCOME TAXES
The Company's income tax provision is comprised of both United States and
foreign tax components. Due to changes in the relative contribution of income or
loss by country, differences in the effective tax rates between countries
(principally the U.S., Canada and Hong Kong) and permanent differences in
effective tax rates between income for financial statement purposes, the
consolidated effective tax rates may vary significantly from period to period.
The Company and its U.S. subsidiaries consolidate their income for U.S. federal
income tax purposes. However, gains and losses of certain subsidiaries may not
be available to other subsidiaries for tax purposes.
Deferred income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each year-end based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. A full valuation
allowance was provided in 1995 and 1996.
LIQUIDITY AND CAPITAL RESOURCES
On October 24, 1995, SLM International, Inc. and six of its subsidiaries filed
for relief under Chapter 11 of the United States Bankruptcy Code in the United
States Bankruptcy Court for the District of Delaware. Since the filing, the
Company and those subsidiaries operated their businesses in the ordinary course
as debtors-in-possession subject to the jurisdiction of the Bankruptcy Court.
The Bankruptcy Court entered an order authorizing the joint administration of
the Debtors' Chapter 11 Cases. On September 12, 1996 the Debtors filed a Chapter
11 Plan of Reorganization and on November 13, 1996, the Debtors filed a First
Amended Chapter 11 Plan of Reorganization, as amended from time to time (the
"Reorganization Plan"), with the Bankruptcy Court. On January 23, 1997, the
Bankruptcy Court confirmed the Reorganization Plan and the Plan became effective
on April 11, 1997 (the "Effective Date").
The Filing enabled the Company to stabilize its liquidity position because the
cash requirements for the payment of accrued interest, accounts payable and
other liabilities, which arose prior to the Filing, were in most cases deferred
until the Reorganization Plan was approved by the Bankruptcy Court.
Management expects to finance the Company's short-term working capital and
capital expenditures requirements through cash generated by its operations and
through its new credit facilities. On the Effective Date of the Reorganization
Plan, the Company and two of its U.S. subsidiaries, Maska U.S., Inc. and #1
Apparel, Inc., entered into a Credit Agreement (the "US Credit Agreement") with
the lenders referred to therein (the "Lenders") and The Chase Manhattan Bank, as
Agent ("Chase"). Simultaneously, one of the Company's Canadian subsidiaries,
Sport Maska Inc., entered into a Credit Agreement (the "Canadian Credit
Agreement" and, together with the US Credit Agreement, the "Credit Agreements")
with The Chase Manhattan Bank of Canada ("Chase Canada"). The maximum amount of
loans and letters of credit that may be outstanding under the Credit Agreements
is $74.0 million, consisting of $35.0 million revolving credit loans under the
US Credit Agreement, $35.0 million of revolving credit loans under the Canadian
Credit Agreement and a $4.0 million term loan under the US Credit Agreement.
Borrowings under the Credit Agreements are guaranteed by certain subsidiaries
and are secured by substantially all of the assets (including, without
limitation, accounts receivable, inventory and the stock of certain
subsidiaries) of the Company. Total amounts outstanding under the Credit
Agreements were $14.2 million at April 14, 1997.
Borrowings under the US Credit Agreement bear interest at the alternate base
rate plus 1% per annum or at an interest rate based on LIBOR plus 2 3/4% per
annum. Borrowings under the Canadian Credit Agreement bear interest at Chase
Canada's prime rate. In addition, the Company is charged a quarterly commitment
fee of 3/8 of 1% on the unused portion of the revolving credit facilities under
the Credit Agreements and certain other fees.
The Credit Agreements include customary affirmative and negative covenants,
including those relating to capital expenditures, interest coverage and the
incurrence of additional indebtedness.
On April 11, 1997 the Company issued $29.5 million principal amount of 14%
Senior Secured Notes due April 1, 2004 (the "New Senior Notes"), pursuant to an
Indenture with The Bank of New York, as trustee. The New Senior Notes were
issued by the Company under the Reorganization Plan as partial satisfaction of
the Company's obligations to its former senior lenders under a Loan and Security
Agreement ("Bank Agreement") with a syndicate of banks led by Fleet Credit
Corporation. Under the Plan, the lenders under the Bank Agreement also received
(i) $44.2 million in cash; and (ii) 2,470,000 shares of New Common Stock,
representing approximately 38.0% of the outstanding New Common Stock. The
lenders sold such shares to Wellspring Associates L.L.C. on the Effective Date.
Interest is payable on the New Senior Notes semi-annually at the rate of 14% per
annum, with such interest rate being permanently reduced if the Company meets
certain earnings tests. Further, of the initial 14% interest rate,
17
<PAGE>
10% is payable in cash and 4% is payable by the issuance of additional New
Senior Notes. The New Senior Notes have a term of seven years with principal
payments beginning in the fifth year.
The New Senior Notes are guaranteed by certain subsidiaries and are
collateralized by substantially all of the assets (including, without
limitation, accounts receivable, inventory and the stock of certain
subsidiaries) of the Company, the two U.S. Subsidiaries referred to above and
the Company's other subsidiaries which are guarantors. The lien of the trustee
for the benefit of itself and the New Senior Noteholders is junior to the liens
of Chase and Chase Canada. The Indenture also includes customary affirmative and
negative covenants.
The Company's financing requirements for long-term growth, future capital
expenditures and debt service are expected to be met through cash generated by
its operations and through its new credit facilities. During the year ended
December 31, 1996, the Company's continuing operations provided $18.9 million of
cash from its operations as compared to the use of $3.7 million from its
operations and discontinued operations use of $4.9 million, in the year ended
December 31, 1995. The Company's continuing operations incurred a loss of $18.7
million compared to a loss of $51.9 million in 1995, however, the 1995 cash
impact was mitigated due to non-cash charges for receivables, inventory,
intangibles and litigation.
Cash flows provided by investing activities during 1996 of $3.5 million,
included $5.9 million from the proceeds from the disposal of discontinued
operations, offset by $2.8 million of purchases of fixed assets. Cash provided
by investing activities of $15.6 million during 1995 consisted primarily of
$18.8 million from the disposal of discontinued operations, offset by $3.4
million of fixed asset purchases.
Net cash flows (used in) provided by financing activities during 1996 and 1995
were approximately $(5.4) million and $3.1 million, respectively. The use of
cash during 1996 consisted primarily of cash from discontinued operations for
principal payments on the Company's secured debt as allowed by the Bankruptcy
Court. Net cash flows provided by financing activities during 1995 resulted
primarily from the proceeds of short-term bank borrowings.
The Company follows the customary practice in the sporting goods industry of
offering extended payment terms to credit worthy customers on qualified orders.
The Company's working capital requirements generally peak in the third and
fourth quarters as it builds inventory and makes shipments under these extended
payment terms.
18
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
- --------------------------------------------------------------------------------
Reports of Independent Accountants
Coopers & Lybrand L.L.P. 20
Raymond, Chabot, Martin, Pare 21
Consolidated Financial Statements
Consolidated Balance Sheets at December 31, 1996 and 1995 30
Consolidated Statements of Operations
for the years ended December 31, 1996, 1995 and 1994 31
Consolidated Statements of Stockholders' (Deficit) Equity
for the years ended December 31, 1996, 1995 and 1994 32
Consolidated Statements of Cash Flows
for the years ended December 31, 1996, 1995 and 1994 33
Notes to Consolidated Financial Statements 34
19
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
SLM International, Inc.
We have audited the accompanying consolidated balance sheets of SLM
International, Inc. and subsidiaries as of December 31, 1996 and 1995 and the
related consolidated statements of operations, stockholders' (deficit) equity
and cash flows for each of the the three years in the period ended December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audit. We did not
audit the 1996, 1995 and 1994 financial statements of certain companies, whose
financial statements include total assets of $70,147,000 and $71,570,000 as of
December 31, 1996 and 1995, respectively, and total net sales of $67,182,000,
$68,101,000 and $70,645,000 for the years ended December 31, 1996, 1995 and
1994, respectively. Those statements were audited by other auditors whose
reports have been furnished to us, and our opinion, insofar as it related to the
amounts included for those companies, is based solely on the reports of the
other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of other auditors provide a
reasonable basis for our opinion.
As discussed in Note 1, SLM International, Inc. and certain of its subsidiaries
filed for relief under Chapter 11 of the United States Bankruptcy Code in the
United States Bankruptcy Court on October 24, 1995. On April 11, 1997, the First
Amended, as amended, Plan of Reorganization (the "Reorganization") was declared
effective for the subsidiaries by the Bankruptcy Court. The Reorganization
significantly altered, compromised or modified the Company's historical capital
structure as reflected in the accompanying consolidated balance sheet as of
December 31, 1996. The Company will account for the Reorganization on April 11,
1997 and will, at that date, adopt fresh-start reporting as described in Note 4.
No effects of accounting for the Reorganization are reflected in the
accompanying consolidated financial statements.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of SLM International, Inc. and Subsidiaries
as of December 31, 1996 and 1995, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Albany, New York
April 14, 1997
20
<PAGE>
AUDITORS' REPORT
To the Shareholder of
#1 Apparel Canada Inc.
We have audited the balance sheet of #1 Apparel Canada Inc. as at December 31,
1996 and the statements of earnings and deficit and changes in cash resources
for the year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards
in Canada. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 1996 and the
results of its operations and the changes in its financial position for the year
then ended in accordance with generally accepted accounting principles in
Canada.
As discussed in Note 3, the Company filed for relief under Chapter 11 of the
United States Bankruptcy Code in the United States Bankruptcy Court on October
24, 1995. On April 11, 1997, the First Amended, as amended, Plan of
Reorganization (the "Reorganization") was declared to be effective for the
Company by the Bankruptcy Court. The Reorganization significantly altered,
compromised, or modified the Company's historical capital structure as reflected
in the accompanying balance sheet as of December 31, 1996.
/s/ Raymond, Chabot, Martin, Pare
Chartered Accountants
Montreal, Canada
April 14, 1997
21
<PAGE>
AUDITORS' REPORT
To the Shareholder of
Sport Maska Inc.
We have audited the consolidated balance sheet of Sport Maska Inc. as at
December 31, 1996 and the consolidated statements of earnings and deficit and
changes in cash resources for the year then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards
in Canada. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 1996
and the results of its operations and the changes in its financial position for
the year then ended in accordance with generally accepted accounting principles
in Canada.
As discussed in Note 3, the Company filed for relief under Chapter 11 of the
United States Bankruptcy Code in the United States Bankruptcy Court on October
24, 1995. On April 11, 1997, the First Amended, as amended, Plan of
Reorganization (the "Reorganization") was declared to be effective for the
Company by the Bankruptcy Court. The Reorganization significantly altered,
compromised, or modified the Company's historical capital structure as reflected
in the accompanying consolidated balance sheet as of December 31, 1996. The
Company will account for the Reorganization on April 11, 1997 and will, at that
date, adopt fresh-start reporting as described in Note 4. No effects of
accounting for the Reorganization are reflected in the accompanying consolidated
financial statements.
/s/ Raymond, Chabot, Martin, Pare
Chartered Accountants
Montreal, Canada
April 14, 1997
22
<PAGE>
AUDITORS' REPORT
To the Shareholder of
St. Lawrence Manufacturing Canada Inc.
We have audited the balance sheet of St. Lawrence Manufacturing Canada Inc. as
at December 31, 1996 and the statements of earnings and deficit and changes in
cash resources for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards
in Canada. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 1996
and the results of its operations and the changes in its financial position for
the year then ended in accordance with generally accepted accounting principles
in Canada.
As discussed in Note 3, the Company filed for relief under Chapter 11 of the
United States Bankruptcy Code in the United States Bankruptcy Court on October
24, 1995. On April 11, 1997, the First Amended, as amended, Plan of
Reorganization (the "Reorganization") was declared to be effective for the
Company by the Bankruptcy Court. The Reorganization significantly altered,
compromised, or modified the Company's historical capital structure as reflected
in the accompanying consolidated balance sheet as of December 31, 1996.
/s/ Raymond, Chabot, Martin, Pare
Chartered Accountants
Montreal, Canada
April 14, 1997
23
<PAGE>
AUDITORS' REPORT
To the Shareholder of
#1 Apparel Canada Inc.
We have audited the balance sheet of #1 Apparel Canada Inc. as at December 31,
1995 and the statements of earnings and deficit and changes in cash resources
for the year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards
in Canada. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 1995 and the
results of its operations and the changes in its financial position for the year
then ended in accordance with generally accepted accounting principles in
Canada.
/s/ Raymond, Chabot, Martin, Pare
Chartered Accountants
Montreal, Canada
April 25, 1996
COMMENTS BY INDEPENDENT AUDITORS FOR UNITED STATES READERS
ON CANADA - UNITED STATES REPORTING DIFFERENCES
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by going concern considerations as described in Note 2
of the financial statements as at December 31, 1995. Our report to the
shareholder dated April 25, 1996 is expressed in accordance with Canadian
reporting standards which do not permit a reference to such considerations in
the auditors' report when the going concern considerations are adequately
disclosed in the financial statements.
/s/ Raymond, Chabot, Martin, Pare
Chartered Accountants
Montreal, Canada
April 25, 1996
24
<PAGE>
AUDITORS' REPORT
To the Shareholder of
St. Lawrence Manufacturing Canada Inc.
We have audited the balance sheet of St. Lawrence Manufacturing Canada Inc. as
at December 31, 1995 and the statements of earnings and deficit and changes in
cash resources for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards
in Canada. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 1995 and the
results of its operations and the changes in its financial position for the year
then ended in accordance with generally accepted accounting principles in
Canada.
/s/ Raymond, Chabot, Martin, Pare
Chartered Accountants
Montreal, Canada
April 25, 1996
COMMENTS BY INDEPENDENT AUDITORS FOR UNITED STATES READERS
ON CANADA - UNITED STATES REPORTING DIFFERENCES
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by going concern considerations as described in Note 2
of the financial statements as at December 31, 1995. Our report to the
shareholder dated April 25, 1996 is expressed in accordance with Canadian
reporting standards which do not permit a reference to such considerations in
the auditors' report when the going concern considerations are adequately
disclosed in the financial statements.
/s/ Raymond, Chabot, Martin, Pare
Chartered Accountants
Montreal, Canada
April 25, 1996
25
<PAGE>
AUDITORS' REPORT
To the Shareholder of
Sport Maska Inc.
We have audited the consolidated balance sheet of Sport Maska Inc. as at
December 31, 1995 and the consolidated statements of earnings and retained
earnings and changes in cash resources for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards
in Canada. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 1995
and the results of its operations and the changes in its financial position for
the year then ended in accordance with generally accepted accounting principles
in Canada.
/s/ Raymond, Chabot, Martin, Pare
Chartered Accountants
Montreal, Canada
April 25, 1996
COMMENTS BY INDEPENDENT AUDITORS FOR UNITED STATES READERS
ON CANADA - UNITED STATES REPORTING DIFFERENCES
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by going concern considerations as described in Note 2
of the financial statements as at December 31, 1995. Our report to the
shareholder dated April 25, 1996 is expressed in accordance with Canadian
reporting standards which do not permit a reference to such considerations in
the auditors' report when the going concern considerations are adequately
disclosed in the financial statements.
/s/ Raymond, Chabot, Martin, Pare
Chartered Accountants
Montreal, Canada
April 25, 1996
26
<PAGE>
AUDITORS' REPORT
To the Shareholder of
#1 Apparel Canada Inc.
We have audited the balance sheet of #1 Apparel Canada Inc. as at December 31,
1994 and the statements of earnings and deficit and changes in cash resources
for the initial year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards
in Canada. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 1994 and the
results of its operations and the changes in its financial position for the year
then ended in accordance with generally accepted accounting principles in
Canada.
/s/ Raymond, Chabot, Martin, Pare
Chartered Accountants
Montreal, Canada
April 14, 1995
COMMENTS BY INDEPENDENT AUDITORS FOR UNITED STATES READERS
ON CANADA - UNITED STATES REPORTING DIFFERENCES
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by going concern considerations as described in Note 2
of the financial statements as at December 31, 1994. Our report to the
shareholder dated April 14, 1995 is expressed in accordance with Canadian
reporting standards which do not permit a reference to such considerations in
the auditors' report when the going concern considerations are adequately
disclosed in the financial statements.
/s/ Raymond, Chabot, Martin, Pare
Chartered Accountants
Montreal, Canada
April 14, 1995
27
<PAGE>
AUDITORS' REPORT
To the Shareholder of
Buddy L Canada Inc.
We have audited the balance sheet of Buddy L Canada Inc. as at December 31, 1994
and the statements of earnings and deficit and changes in cash resources for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards
in Canada. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 1994 and the
results of its operations and the changes in its financial position for the year
then ended in accordance with generally accepted accounting principles in
Canada.
/s/ Raymond, Chabot, Martin, Pare
Chartered Accountants
Montreal, Canada
April 14, 1995
COMMENTS BY INDEPENDENT AUDITORS FOR UNITED STATES READERS
ON CANADA - UNITED STATES REPORTING DIFFERENCES
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by going concern considerations as described in Note 2
of the financial statements as at December 31, 1994. Our report to the
shareholder dated April 14, 1995 is expressed in accordance with Canadian
reporting standards which do not permit a reference to such considerations in
the auditors' report when the going concern considerations are adequately
disclosed in the financial statements.
/s/ Raymond, Chabot, Martin, Pare
Chartered Accountants
Montreal, Canada
April 14, 1995
28
<PAGE>
AUDITORS' REPORT
To the Shareholder of
Sport Maska Inc.
We have audited the consolidated balance sheet of Sport Maska Inc. as at
December 31, 1994 and the consolidated statements of earnings and retained
earnings and changes in cash resources for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards
in Canada. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 1994 and the
results of its operations and the changes in its financial position for the year
then ended in accordance with generally accepted accounting principles in
Canada.
/s/ Raymond, Chabot, Martin, Pare
Chartered Accountants
Montreal, Canada
April 14, 1995
COMMENTS BY INDEPENDENT AUDITORS FOR UNITED STATES READERS
ON CANADA - UNITED STATES REPORTING DIFFERENCES
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by going concern considerations as described in Note 2
of the financial statements as at December 31, 1994. Our report to the
shareholder dated April 14, 1995 is expressed in accordance with Canadian
reporting standards which do not permit a reference to such considerations in
the auditors' report when the going concern considerations are adequately
disclosed in the financial statements.
/s/ Raymond, Chabot, Martin, Pare
Chartered Accountants
Montreal, Canada
April 14, 1995
29
<PAGE>
SLM INTERNATIONAL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
(In thousands, except share data)
ASSETS 1996 1995
-------------------------
Current assets
Cash and cash equivalents $ 35,589 $ 18,605
Accounts receivable, net 33,313 41,346
Inventories 37,179 50,898
Prepaid expenses 4,069 1,918
Income taxes receivable 418 256
Net assets of discontinued operations 189 9,856
Other receivables 1,270 1,530
-------------------------
Total current assets 112,027 124,409
Property, plant and equipment, net 12,817 13,496
Intangible and other assets, net 81 123
-------------------------
Total assets $ 124,925 $138,028
=========================
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Liabilities
Accounts payable $ 2,938 $ 3,690
Accrued liabilities 9,499 7,328
Accrued professional fees 2,860 2,065
Long-term debt, current portion 369 702
Income taxes payable 648 536
Current portion of liabilities subject to
compromise under reorganization proceedings 45,035
-------------------------
Total current liabilities 61,349 14,321
Deferred income taxes 601 535
Liabilities subject to compromise under
reorganization proceedings 160,164 201,814
-------------------------
Total liabilities 222,114 216,670
--------------------------
Commitments and contingencies
Stockholders' (deficit)
Preferred stock, no par, 100,000 shares authorized,
none issued or outstanding
Common stock, par value $0.01 per share, 50,000,000
shares authorized, 18,859,679 shares issued and
outstanding at December 31, 1996 and 1995 189 189
Additional paid-in capital 88,564 88,564
Retained (deficit) (182,291) (163,569)
Foreign currency translation adjustments (3,651) (3,826)
-------------------------
Total stockholders' (deficit) (97,189) (78,642)
-------------------------
Total liabilities and stockholders'(deficit) $ 124,925 $138,028
=========================
The accompanying notes are an integral part
of the consolidated financial statements.
30
<PAGE>
SLM INTERNATIONAL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 1996, 1995 and 1994
(In thousands, except share data)
<TABLE>
<CAPTION>
1996 1995 1994
----------------------------------------
<S> <C> <C> <C>
Net sales $ 140,321 $ 160,973 $ 180,806
Cost of goods sold 92,613 107,266 113,577
----------------------------------------
Gross profit 47,708 53,707 67,229
Selling, general and administrative expenses 45,831 59,753 67,031
Unusual charges (see Note 6) 4,033 15,471
----------------------------------------
Operating (loss) income (2,156) (21,517) 198
Debt related fees (see Note 7) 7,432 11,195
Other expense (income), net 27 1,484 (260)
Interest expense (see Note 7) 9,555 17,078 6,713
----------------------------------------
(Loss) from continuing operations before
income taxes (19,170) (51,274) (6,255)
Income taxes (448) 605 (11)
----------------------------------------
(Loss) from continuing operations (18,722) (51,879) (6,244)
(Loss) from discontinued operations, net of
income taxes (94,390)
(Loss) from disposition of discontinued
operations, net of income taxes (25,569) (11,335)
----------------------------------------
Net (loss) $ (18,722) $ (77,448) $(111,969)
========================================
(Loss) per share from continuing operations $ (0.99) $ (2.75) $ (0.33)
(Loss) per share from discontinued
operations (5.01)
(Loss) per share from disposition of
discontinued operations (1.36) (0.60)
----------------------------------------
Net (loss) per share $ (0.99) $ (4.11) $ (5.94)
========================================
Weighted average common and common
equivalent shares outstanding 18,859,679 18,859,679 18,844,097
========================================
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
31
<PAGE>
SLM INTERNATIONAL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
For the years ended December 31, 1996, 1995 and 1994
(In thousands)
<TABLE>
<CAPTION>
Additional Retained Currency
Common Stock Paid-in (Deficit) Translation
# of Shares Amount Capital Earnings Adjustments Total
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 18,805 $ 188 $ 87,259 $ 25,848 $ (6,417) $106,878
Net (loss) (111,969) (111,969)
Exercise of stock options 55 1 403 404
Tax benefit from exercise of
stock options 102 102
Foreign currency translation
adjustments (1,699) (1,699)
-----------------------------------------------------------------------------
Balance at December 31, 1994 18,860 189 87,764 (86,121) (8,116) (6,284)
Net (loss) (77,448) (77,448)
Issuance of stock warrants 800 800
Foreign currency translation
adjustments 4,290 4,290
-----------------------------------------------------------------------------
Balance at December 31, 1995 18,860 189 88,564 (163,569) (3,826) (78,642)
Net (loss) (18,722) (18,722)
Foreign currency translation
adjustments 175 175
-----------------------------------------------------------------------------
Balance at December 31, 1996 18,860 $ 189 $ 88,564 $(182,291) $ (3,651) $(97,189)
=============================================================================
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
32
<PAGE>
SLM INTERNATIONAL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1996, 1995 and 1994
(In thousands)
<TABLE>
<CAPTION>
1996 1995 1994
----------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net (loss) $ (18,722) $ (77,448) $(111,969)
Adjustments to reconcile net (loss) to net cash provided by
(used in) operating activities:
Loss from discontinued operations, including loss on
disposal 25,569 105,725
Loss on impairment of long-lived and intangible assets 662 6,416
Litigation settlements 7,813
Stock warrants 800
Depreciation and amortization 2,565 2,870 3,134
Provisions for inventory, doubtful accounts and other
deductions 13,969 22,726 21,576
Deferred income taxes 66 496 1,143
(Gain) loss on sale and disposal of fixed assets (45) 266 113
Loss on foreign exchange 222 1,029 286
Change in operating assets and liabilities:
Accounts receivable (1,552) (4,073) (30,265)
Inventories 9,303 2,447 (20,810)
Prepaid expenses (2,137) (257) 665
Income taxes receivable (162) 1,365 3,028
Other receivables 256 24 2,228
Accounts payable and accrued liabilities 5,002 1,473 10,340
Interest payable 9,408 4,402 2,139
Income taxes payable 112 549 (1,819)
Other 1 (136) (69)
Net effect of discontinued operations (4,902) (41,177)
----------------------------------------
Net cash provided by (used in) operating activities 18,948 (8,571) (55,732)
----------------------------------------
INVESTING ACTIVITIES:
Purchase of businesses, net of cash acquired (15,150)
Purchases of fixed assets (2,776) (3,354) (6,053)
Additions to deferred costs (228)
Proceeds from sales of fixed assets 307 119 86
Proceeds from disposal of discontinued operations 5,947 18,841
----------------------------------------
Net cash provided by (used in) investing activities 3,478 15,606 (21,345)
----------------------------------------
FINANCING ACTIVITIES:
Proceeds from borrowings 323 4,168 92,880
Principal payments of debt (5,737) (1,061) (10,321)
Exercise of stock options 404
----------------------------------------
Net cash (used in) provided by financing activities (5,414) 3,107 82,963
----------------------------------------
Effects of foreign exchange rate changes on cash and cash
equivalents (28) 119 (122)
----------------------------------------
Increase in cash 16,984 10,261 5,764
Cash and cash equivalents at beginning of period 18,605 8,344 2,580
----------------------------------------
Cash and cash equivalents at end of period $ 35,589 $ 18,605 $ 8,344
========================================
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
33
<PAGE>
SLM INTERNATIONAL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. PRINCIPLES OF CONSOLIDATION:
SLM International, Inc. ("SLM") was incorporated in September 1991. The
consolidated financial statements include the accounts of SLM and its
wholly-owned subsidiaries (collectively, the "Company"). All significant
intercompany transactions and accounts are eliminated. The Company's investment
in its toy and fitness businesses are classified as discontinued operations (see
Note 5).
B. BASIS OF PRESENTATION:
SLM and six of its subsidiaries (collectively, the "Debtors") filed voluntary
petitions for relief under Chapter 11 of the United States Bankruptcy Code (the
"Filing") in the United States Bankruptcy Court for the District of Delaware
(the "Bankruptcy Court") on October 24, 1995 (the "Petition Date"). Since the
Filing, the Debtors operated their businesses in the ordinary course as
debtors-in-possession subject to the jurisdiction of the Bankruptcy Court. The
Bankruptcy Court entered an order authorizing the joint administration of the
Debtors' Chapter 11 cases (the "Chapter 11 Cases"). On September 12, 1996, the
Debtors filed a Chapter 11 Plan of Reorganization and on November 13, 1996, the
Debtors filed a First Amended Chapter 11 Plan of Reorganization as amended from
time to time (the "Reorganization Plan") with the Bankruptcy Court. On January
23, 1997, the Bankruptcy Court confirmed the Reorganization Plan which became
effective on April 11, 1997 (the "Effective Date") (see Notes 2 and 4).
The Reorganization Plan has a significant impact on the financial statements of
the reorganized Company (the "Reorganized Company"). The Company is required to
account for such Reorganization Plan using "fresh-start" reporting (see Note 4).
Certain prior-year amounts have been reclassified to conform to the 1996
presentation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
C. CASH AND CASH EQUIVALENTS:
Cash and cash equivalents consists of cash and highly liquid short-term
investments with original maturities of three months or less. The Company
invests excess funds in reverse-repurchase agreements with Fleet Credit
Corporation ("Fleet") and in U.S. Treasury bills. At December 31, 1996, the
Company had $5,425 invested in U.S. Government backed securities under
agreements to resell on dates through January 23, 1997. Due to the short-term
nature of these investments, the Company did not take physical possession of the
securities, which were instead held in Fleet's safe keeping account at the
Federal Reserve, the Trust Department or vault. Also, included in cash
equivalents at December 31, 1996 is $18,241 in U.S. Treasury bills. The Company
believes it is not exposed to any significant credit risk on cash equivalents.
D. CONCENTRATION OF CREDIT RISK:
Financial instruments that potentially subject the Company to concentration of
credit risk consist primarily of temporary cash investments and accounts
receivable. The Company restricts its cash investments to temporary investments
in institutions with high credit standing and to short-term securities backed by
the full faith and credit of the United States Government. The Company sells its
products principally to retailers and distributors and, in accordance with
industry practice, grants extended payment terms to qualified customers.
Concentration of accounts receivable credit risk is mitigated due to the
performance of credit reviews which are considered in determining credit
policies and allowances for doubtful accounts. The Company provides allowances
for expected sales returns, net of related inventory cost recoveries, discounts,
rebates and cooperative advertising. The Company does not collateralize its
receivables.
E. REVENUE RECOGNITION:
Revenue is recognized when products are shipped to customers.
F. INVENTORIES:
Inventories are stated at the lower of cost or market. Cost is determined using
the first-in, first-out method. The Company provides allowances for excess,
obsolete and slow moving inventories.
34
<PAGE>
SLM INTERNATIONAL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
G. RESEARCH & DEVELOPMENT EXPENSES:
Costs for new product research and development as well as changes to existing
products are expensed as incurred and totaled $1,410, $1,692, and $1,738 for the
years ended December 31, 1996, 1995 and 1994, respectively.
H. PREPAID EXPENSES:
The Company expenses advertising and promotion costs in the first fiscal year in
which the advertising takes place. Royalty payments are deferred to the extent
that the related sales have not yet been recorded. Such costs are included in
prepaid expenses.
I. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are stated at cost. Depreciation and amortization
are provided for in amounts sufficient to relate the cost of depreciable assets
to operations over their estimated service lives using principally the
straight-line method of depreciation.
The estimated service lives of the respective assets are as follows:
Years
--------------------------------------------
Buildings and improvements 5- 40
Machinery and equipment 3- 10
Tools, dies and molds 3 - 5
Office furniture and equipment 3- 10
--------------------------------------------
Accelerated methods of depreciation are used where permitted for tax reporting
purposes. Significant additions or major improvements are capitalized, while
normal maintenance and repair costs are expensed. When assets are sold, retired
or otherwise disposed of, the applicable costs and accumulated depreciation are
removed from the accounts, and the resulting gain or loss is recognized.
The Company periodically reviews property, plant and equipment for impairment
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. When such circumstances occur, the Company estimates
future cash flows expected to result from the use and eventual disposition of
the assets. If the expected future cash flows are less than the carrying amount,
the Company recognizes an impairment loss (see Note 6).
J. INCOME TAXES:
Deferred income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each year-end based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. Income tax expense
consists of both the tax payable for the period and the change during the period
in deferred tax assets and liabilities.
The Company does not provide for deferred income taxes on the undistributed
earnings of its non-U.S. subsidiaries, since such earnings are not expected to
be remitted to the Company in the foreseeable future.
K. FOREIGN CURRENCY TRANSLATION:
The balance sheets of the Company's non-U.S. subsidiaries are translated into
U.S. dollars at the exchange rates in effect at the end of each year. Revenues,
expenses and cash flows are translated at weighted average rates of exchange.
Gains or losses resulting from foreign currency transactions are included in
earnings, while those resulting from translation of financial statements are
shown as a separate component of stockholders' equity.
L. INTANGIBLE ASSETS:
Intangible assets are recorded at cost and are amortized on a straight-line
basis. These amounts include the excess purchase prices over fair values
assigned to net assets acquired (which are amortized on a straight-line basis
over periods from three to twenty years), and costs related to obtaining patents
and trademarks (which are amortized on a straight-line basis over three years).
The Company periodically reviews intangible assets for impairment whenever
events or changes in circumstances indicate that the carrying amount may not be
recoverable. When such circumstances occur, the Company estimates future cash
flows expected to result from the use and eventual disposition of the
intangibles. If the expected future cash flows are less than the carrying
amount, the Company recognizes an impairment loss (see Note 6).
35
<PAGE>
SLM INTERNATIONAL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
Certain costs related to packaging for products that will be introduced
subsequent to year end are deferred and amortized over a three- or five-year
period. Provisions are made to write these costs off when the products are no
longer sold.
Accumulated amortization of intangible assets was $61 and $142 at December 31,
1996 and 1995, respectively.
M. EARNINGS PER SHARE:
Earnings per share of common stock are computed based on the average number of
shares of common stock assumed to be outstanding during each year. Common stock
equivalents are included when material and dilutive (See Notes 2, 8 and 18).
2. REORGANIZATION CASE
In the Chapter 11 Cases, substantially all liabilities as of the Petition Date
are subject to resolution under the Reorganization Plan which was voted upon by
the Company's creditors and stockholders and confirmed by the Bankruptcy Court.
Schedules have been filed by the Company with the Bankruptcy Court setting forth
its assets and liabilities as of the Petition Date as shown by its accounting
records. Creditors holding pre-petition date claims ("Pre-petition Claims")
against the Company were required to file proofs of claim on or before a date
fixed by the Bankruptcy Court (the "Bar Date"). Differences between amounts
shown by the Company and claims filed by its creditors, including claims in
excess of what the Company has previously accrued, have been or will be
investigated and resolved consensually or by order of the Bankruptcy Court. The
ultimate amount and settlement terms for such liabilities are subject to the
Reorganization Plan.
Under the Bankruptcy Code pursuant to the Reorganization Plan, the Company has
elected to assume or reject leases, employment contracts, service contracts and
other executory pre-Petition Date contracts, with Bankruptcy Court approval. The
Company has estimated the ultimate liability which may result from the filing of
claims for any rejected contracts, and provisions have been made for these items
upon the Effective Date of the Reorganization Plan (see Note 4).
Since October 1, 1994, the Company has not been in compliance with certain
financial and other covenants in its principal financing agreements, including
those with its banks and with the holders of the Company's 6.76% senior notes
(the "Senior Noteholders") which would have allowed these lenders to accelerate
repayment of these loans.
The Bankrupcty Court authorized the Company to use the cash generated by its
operations to continue to fund its business obligations, and to pay pre-Petition
Date wages, salaries, sales commissions, employee benefits and customs duties,
honor manufacturer's warranties and pay certain non-U.S. pre-Petition Date
liabilities. These various Bankruptcy Court authorizations provided the Company
with cash and liquidity so that it could conduct its operations. Until a
reorganization plan was effective, the Company funded its working capital and
capital expenditure requirements through cash generated by its operations. The
Reorganized Company expects to meet its working capital and capital expenditure
requirements through secured credit facilities from The Chase Manhattan Bank and
The Chase Manhattan Bank of Canada (see Note 13).
On June 26, 1996, the Debtors announced that they entered into an agreement with
representatives of the Debtors' Noteholders and trade and other unsecured
creditors (the "Unsecured Creditors Committee") on a term sheet (the "Term
Sheet") setting forth the material provisions of a Reorganization Plan.
Thereafter, the Debtors and Unsecured Creditors Committee reached an agreement
in principle with assignees of the Debtors' former lenders (the "Secured
Creditor Group") on the terms of the Reorganization Plan. On September 12, 1996,
the Debtors filed with the Bankruptcy Court a proposed Chapter 11 Plan of
Reorganization (the "Proposed Plan"). On September 19, 1996, the Debtors filed
with the Bankruptcy Court a Disclosure Statement Pursuant to Section 1125 of the
Bankruptcy Code incident to the Proposed Plan. After further negotiations and
term modifications among the Debtors and their creditor constituencies, on
November 13, 1996, the Debtors filed with the Court the Reorganization Plan and
the First Amended Disclosure Statement Pursuant to Section 1125 of the
Bankrupcty Code incident to the Reorganization Plan. On November 19, 1996, the
Bankruptcy Court approved the adequacy of the First Amended Disclosure Statement
as modified in open court (the "Disclosure Statement"). On January 23, 1997, the
Bankruptcy Court entered an order confirming the Reorganization Plan as
modified, the effectiveness of which was contingent upon, among other things,
the completion of a secured credit facility. The Reorganization Plan represents
the culmination of management analyses and negotiation amongst representatives
of principal parties in interest regarding the best means to maximize and to
allocate value to the Debtors' creditors and stockholders in accordance with
their legal and contractual rights and priorities with due regard to the
potential causes of action and claims that could be asserted against and by
certain creditors. Upon
36
<PAGE>
SLM INTERNATIONAL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
the satisfaction of all conditions precedent to the occurrence of the Effective
Date, the Reorganization Plan was declared effective on April 11, 1997.
Under the Reorganization Plan, among other things:
o The Debtors' secured creditors received $44,213 in cash, $29,500 principal
in new senior notes (the "New Senior Notes") and 2,470,000 shares of new
common stock (the "New Common Stock") of the Reorganized Company, in
exchange for approximately $108,000 of secured and unsecured indebtedness
(which amount includes the secured creditors estimate of post-filing
interest and expenses). The 2,470,000 shares of New Common Stock
represented (before dilution) 38.0% of the ownership of the Reorganized
Company. The lenders sold such shares to Wellspring Associates L.L.C. on
the Effective Date. The New Senior Notes have a term of seven years with
principal payments beginning in the fifth year. Interest thereon is due and
payable semi-annually at 14.0% (including 4.0% payable in kind ("PIK"),
with such PIK interest reduced permanently if the Company achieves certain
earnings levels established in the Reorganization Plan). The New Senior
Notes are pre-payable at 101% of principal plus accrued interest, are
secured by a lien on substantially all of the Reorganized Company's assets,
subordinate only to the Company's new secured credit facilities, and have
covenants, representations and other terms customary in instruments of this
nature.
o The Debtors' unsecured creditors received: 4,030,000 shares of New Common
Stock representing, at the time of issuance, 62.0% of the distributed
equity in the Reorganized Company, subject to dilution upon the exercise of
warrants distributed to equity security holders and stock options which may
be issued to the Company's officers and key personnel (up to 15.0% of the
New Common Stock at varying exercise prices), in exchange for approximately
$120,000 of unsecured indebtedness. For purposes of the Reorganization
Plan, the New Common Stock was valued at approximately $10.16 per share.
o The Company's equity security holders (who held 18,859,679 shares of Common
Stock plus the 1,000,000 shares to have been issued pursuant to the
settlement of a securities litigation lawsuit (see Note 19)) received a
total of 300,000 5-year warrants to purchase an aggregate of 300,000 shares
of New Common Stock at an exercise price of $16.92 per share. In addition,
the warrant holders have the option to receive an aggregate payment of $500
upon cancellation of such warrants in connection with a sale of the
Reorganized Company for more than $140,000.
The Reorganization Plan also provides for other terms including: structured
settlements with Fleet Credit Corporation (in connection with its claims arising
from equipment financing), NHL Enterprises, Inc. and its affiliates (in
connection with their claims arising from royalty obligations under licenses
with the Company and alleged infringement of their property) and with the
lessors under certain leases of real property (which lessors were former
officers and directors of the Company); the incorporated Consent Decree entered
in Vermont Superior Court by agreement with Maska U.S., Inc. ("Maska); and an
overall structured settlement among and between all of the creditor classes
which results in, among other things, the recoveries described above for the
secured creditors and unsecured creditors collectively as well as an
intra-creditor structured recovery resulting (depending on the ultimate
resolution of disputed claims) in the Company's former Senior Noteholders
realizing approximately 40.9% on their claims, Maska's unsecured creditors
realizing approximately 56.6% on their claims and the unsecured creditors of the
other Debtors realizing approximately 31.9% on their claims.
3. LIABILITIES SUBJECT TO COMPROMISE UNDER REORGANIZATION PROCEEDINGS
Substantially all the Company's liabilities as of the Petition Date are subject
to settlement under a plan of reorganization, except as otherwise provided by
order of the Bankruptcy Court. The Company was not permitted to make payments
with respect to its pre-Petition Date liabilities (except as noted in Note 2)
until a plan of reorganization was confirmed by the Bankruptcy Court and
consummated.
Liabilities subject to compromise under reorganization proceedings consisted of:
1996 1995
---- ----
Priority Claims $ 661 $ 605
Secured Debt
Principal 92,045 100,876
Interest 12,838 3,513
General Unsecured Claims 14,990 12,155
Unsecured Debt, Principal and
Interest 84,665 84,665
------------------------------------------------------------
$ 205,199 $ 201,814
============================================================
Priority claims, the repayment of which the Company is required to prioritize
under bankruptcy law, are comprised principally of income and property tax
claims. Unsecured debt includes amounts which may ultimately be deemed
37
<PAGE>
SLM INTERNATIONAL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
secured. It is not practicable to estimate the fair value of the Company's
liabilities subject to compromise under Reorganization cases until all of the
pre-petition claims have been resolved.
The Company has recorded interest expense only to the extent paid or earned
during the proceedings and to the extent it is probable that the Bankruptcy
Court will allow interest on pre-Petition Date debt as a priority, secured or
unsecured claim. The excess contractual interest expense over recorded interest
expense for the years ended December 31, 1996 and 1995 was approximately $18,134
and $2,100 respectively.
4. FRESH-START ACCOUNTING (UNAUDITED)
The Company's financial statements following its emergence from bankruptcy will
not be comparable to the historical financial statements presented herein, which
do not reflect the Reorganization Plan. The Company has set forth below
unaudited pro forma condensed consolidated financial statements that reflect the
Reorganization Plan as if it has occurred on the dates specified therein.
The Company's unaudited pro forma condensed consolidated financial statements
have been prepared in accordance with the requirements of Statement of Position
90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy
Code ("SOP 90-7"). Following emergence from bankruptcy, the Reorganized Company
will apply fresh-start reporting in accordance with SOP 90-7.
When the Reorganized Company implements fresh-start reporting, the value of the
Reorganized Company will be allocated to the entity's net assets in conformity
with the procedures specified by Accounting Principles Board Opinion No. 16
Business Combinations. As a result, it is anticipated that adjustments to the
carrying values of the Company's assets and liabilities will be required to
reflect the terms of the Reorganization Plan. SOP 90-7 requires a determination
of the Company's reorganizational value, which represents the fair value of all
of the Company's assets and liabilities, and an allocation of such values to the
assets and liabilities (excluding deferred taxes) based on their relative fair
values with the excess in reorganizational value over market values recorded as
an intangible asset. The application of SOP 90-7 results in the creation of a
new reporting entity having no retained earnings or accumulated deficit. The
Company will implement fresh-start reporting as of April 11, 1997. Accordingly,
the estimated effects of fresh-start reporting reflected in the unaudited pro
forma information are subject to change.
For the purpose of the Reorganization Plan, the reorganizational equity value
was estimated to be $65,602, based in part on management's estimates of future
operating results. Reorganizational value necessarily assumes that the
Reorganized Company will achieve its estimated future operating results in all
material respects. If such results are not achieved, the value of the
Reorganized Company could be materially different.
The unaudited pro forma condensed consolidated financial information and
accompanying notes should be read in conjunction with the Company's historical
financial statements and the notes thereto appearing elsewhere herein. The
unaudited pro forma condensed consolidated financial statements are presented
for informational purposes only and do not purport to represent what the
Reorganized Company's financial position or results of operations would actually
have been if the consummation of the Reorganization Plan had occurred on such
dates, or to project the Reorganized Company's financial position or results of
operations at any future date or for any future period. The unaudited pro forma
condensed consolidated financial statements contain, in the opinion of
management, all adjustments necessary for a fair presentation thereof.
38
<PAGE>
SLM INTERNATIONAL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
December 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
ASSETS ACTUAL ADJUSTMENTS PRO FORMA
--------------------------------------------
<S> <C> <C> <C>
Cash $ 35,589 $ (34,949) a $ 640
Other current assets 76,438 144 b 76,582
--------------------------------------------
Total current assets 112,027 (34,805) 77,222
Property, plant and equipment 12,817 (1,924) c 10,893
Intangible and other assets, net 81 41,804 d 41,885
--------------------------------------------
Total assets $124,925 $ 5,075 $130,000
============================================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Short term debt $ $ 5,100 e $ 5,100
Accounts payable and accrued liabilities 15,945 8,246 f 24,191
Long term debt, current portion 369 1,127 g 1,496
Current portion of liabilities subject to
compromise under reorganization
proceedings 45,035 (45,035) h
--------------------------------------------
Total current liabilities 61,349 (30,562) 30,787
Long-term debt 33,010 g 33,010
Other liabilities 601 601
Liabilities subject to compromise
under reorganization
proceedings 160,164 (160,164) h
--------------------------------------------
Total liabilities 222,114 (157,716) 64,398
--------------------------------------------
Stockholders' equity (deficit) (97,189) 162,791 i 65,602
--------------------------------------------
Total liabilities and
stockholders' equity (deficit) $124,925 $ 5,075 $130,000
============================================
</TABLE>
The accompanying notes are an integral part of
the unaudited pro forma condensed consolidated financial statements.
The following is a brief description of the adjustments made in preparing the
Pro Forma Condensed Consolidated Balance Sheet (unaudited).
a. To reflect $44,049 paid out in accordance with the Reorganization Plan, net
of $9,100 borrowed under new credit facilities.
b. To reflect primarily the distribution of Net assets of discontinued
operations pursuant to the Reorganization Plan.
c. To reflect decrease resulting from facility reorganizations.
d. To record excess of identifiable asset value as a result of fresh-start
reporting, including principally a valuation associated with the Company's
trademarks.
e. To record borrowings under new credit facilities.
f. To record accounts payable and accrued liabilities incurred pursuant to the
Reorganization Plan.
g. To record current portion of long-term debt under new credit facilities, New
Senior Notes and other long-term debt incurred pursuant to the Reorganization
Plan.
h. To eliminate liabilities in accordance with the Reorganization Plan. The
Reorganization Plan will result in an extraordinary gain on debt forgiveness of
approximately $57,000.
i. To reflect fresh-start reporting and the new equity structure of the
Reorganized Company pursuant to the Reorganization Plan.
39
<PAGE>
SLM INTERNATIONAL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended December 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
ACTUAL ADJUSTMENTS PRO FORMA
------------------------------------------
<S> <C> <C>
Net sales $ 140,321 $ $ 140,321
------------------------------------------
Operating (loss) income (2,156) 1,533 a (623)
Debt related fees 7,432 (7,432) b
Other expense (income), net 27 27
Interest expense 9,555 (3,825) c 5,730
------------------------------------------
(Loss) income from continuing operations
before income taxes (19,170) 12,790 (6,380)
Income taxes (448) 299 (149)
Net (loss) from continuing operations $ (18,722) $ 12,491 $ (6,231)
==========================================
Net (loss) per share from continuing
operations $ (0.99) $ (0.96)
==========================================
Weighted average common and common
equivalent shares outstanding 18,859,679 6,500,000 d
==========================================
</TABLE>
The accompanying notes are an integral part of
the unaudited pro forma condensed consolidated financial statements.
The Pro Forma Condensed Consolidated Statement of Operations (unaudited)
adjustments have been computed assuming the Effective Date was January 1, 1996
and includes adjustments which give effect to the events that are directly
attributable and expected to have a continuing impact on the Reorganized
Company.
The following is a brief description of the adjustments made in preparing the
Pro Forma Condensed Consolidated Statement of Operations (unaudited).
a. To reflect amortization of the intangibles associated with fresh-start
reporting of $2,633, net of $4,166 of costs related to restructuring.
b. To reflect adjustments for costs incurred by the Company outside of its
continuing operations.
c. To reflect incremental interest expense associated with the Company's new
credit facilities and New Senior Notes of $5,730, offset in part by reduced
interest resulting from the debt forgiveness in accordance with the
Reorganization Plan.
d. To reflect the equity structure of the Reorganized Company pursuant to the
Reorganization Plan.
5. DISCONTINUED OPERATIONS
During the quarter ended October 1, 1994, the Company initiated significant
management changes in its toy and fitness businesses operated primarily by its
Buddy L Inc. and Buddy L Canada Inc. subsidiaries (collectively, "Buddy L")
and, as a result, began evaluating Buddy L's strategic direction and cost
structure. The initial phase of this evaluation included changes in management
responsibility, re-focused attention on established products and product lines,
minimizing the use of television and infomercial advertising and the assessment
of potential productivity improvements.
40
<PAGE>
SLM INTERNATIONAL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
In connection with this strategic and cost evaluation, the Company recorded
charges totaling $44,055 in the third quarter and nine months ended October 1,
1994. The charges included provisions for product returns and markdown
allowances ($5,342), certain inventory valuation adjustments ($3,353), the
reassessment of the carrying values of tooling ($4,201) and excess and obsolete
inventories ($12,600) due to the strategic decision not to continue support of
certain products, deferred product development costs ($4,600), television
commercial and infomercial production costs ($1,455) and prepaid barter credits
($2,974) related to the decision to no longer support certain products and
minimize the use of advertising. Charges were also provided for defective
product allowances ($2,607), minimum royalty guarantees ($2,926), allowances for
uncollectible multi-installment receivables due from consumers on infomercial
generated sales ($1,300), employee severance expenses ($1,672), office and
showroom lease termination costs ($605) and other miscellaneous items ($420).
During the fourth quarter of 1994, the Company recorded additional charges
totaling $24,548. The charges included provisions for product returns and
markdown allowances ($1,777), certain inventory valuation adjustments ($7,101),
the reassessment of the carrying values of tooling ($2,135) and excess and
obsolete inventories ($5,140), deferred product development costs ($821),
prepaid barter credits ($1,007), defective product allowances ($1,392), employee
severance expenses ($1,377), fixed asset write-offs ($1,575) and other
miscellaneous items ($2,223).
In December 1994, the Company determined that it would hold its investments in
its Buddy L toy and fitness businesses for sale. Accordingly, the results of
operations of these businesses have been accounted for as discontinued
operations for all periods in the accompanying consolidated financial
statements. On March 2, 1995, Buddy L Inc. filed for reorganization under
Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the
District of Delaware. On May 9, 1995, the Company accepted the bid to sell
certain assets and liabilities of the Buddy L toy business to Empire of
Carolina, Inc. The bid was approved by the Bankruptcy Court on May 19, 1995 and
the transaction closed on July 7, 1995. The Bankruptcy Court also approved the
sale of the fitness business which was completed on June 30, 1995. At December
31, 1994, the Company recorded a loss of $11,335, net of income taxes, for the
disposition of its discontinued operations, including the estimated 1995
operating loss through the disposition date. As a result of the finalization of
the sale of the Buddy L toy and fitness businesses, the terms of which changed
substantially from those previously proposed; a change in the anticipated
distribution of the sale proceeds amongst the various creditors and the
liquidation of the remaining Buddy L assets (primarily accounts receivable and
real property); and an increase in estimated phase out costs, an additional loss
from disposition of discontinued operations of $25,569 was recorded during the
year ended December 31, 1995.
On December 19, 1995, the Bankruptcy Court approved a settlement agreement (the
"Settlement Agreement") in the Smedley Industries, Inc. (f/k/a Buddy L Inc.)
("Smedley") Chapter 11 case among the Company, Smedley, its creditors and the
Company's banks and Senior Noteholders, resolving the allocation of the proceeds
and expenses from the disposition of the Buddy L toy and fitness businesses. A
Chapter 11 plan and a disclosure statement for Smedley were filed and
subsequently amended with the Bankruptcy Court embodying the terms of the
Settlement Agreement. The Chapter 11 plan, as amended, was confirmed by the
Court on October 3, 1996 and became effective on October 17, 1996.
Net sales of discontinued operations were $181,514 for the year ended December
31, 1994. One customer aggregated more than 10% of net sales for the year. The
(loss) from discontinued operations for the year ended December 31, 1994
included income tax expense of $309. The Company allocated interest expense to
discontinued operations based upon interest on debt of the discontinued
operation estimated to be assumed by the buyer plus that portion of interest not
directly attributable to other operations allocated based upon a ratio of net
assets discontinued to total consolidated net assets plus debt other than debt
of the discontinued operation to be assumed and debt that can be directly
attributable to other operations. Interest allocated in determining the (loss)
from discontinued operations in 1994 was $5,547 and the interest in the 1994
loss from the disposition of discontinued operations was $4,300. Net assets of
discontinued operations of $9,856 at December 31, 1995, consisted primarily of
accounts receivable and real property.
6. UNUSUAL CHARGES
During 1996, the Company recorded significant unusual charges in continuing
operations totaling $4,033 to reflect the impact of strategically reorganizing
management to position itself for a definitive restructuring plan. These costs
consist primarily of severance pay ($3,371), including that of the Company's
former Chief Executive and Chief Financial Officers, and the impairment of long
lived assets ($662), primarily machinery and equipment at one of its Canadian
facilities.
41
<PAGE>
SLM INTERNATIONAL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
During 1995, the Company recorded significant unusual charges in continuing
operations totaling $15,471 due principally to litigation settlements ($8,813)
and reassessment, during the fourth quarter of 1995, of the intangible assets
associated with the acquisition of #1 Apparel (see Note 9) ($6,416). Litigation
settlements (see Note 19) include settlements of environmental litigation
($7,000, recorded in the second quarter and $250, recorded in the fourth quarter
of 1995) and securities litigation ($1,563 recorded in the fourth quarter of
1995). The unusual charges represent 21.5% and 29.8% of the Company's loss from
continuing operations for the years ended December 31, 1996 and 1995,
respectively.
7. DEBT RELATED FEES AND DEFAULT INTEREST
As a result of the Company's significant losses in the year ended December 31,
1994, the resultant non-compliance with covenants in its various financing
agreements, the involuntary bankruptcy action initiated by its senior
noteholders, the Standstill Agreements with its lenders and the Filing, the
Company's continuing operations incurred significant legal and professional fees
totaling $7,432 and $11,195 for the years ended December 31, 1996 and 1995,
respectively. These fees include the cost of the Company's legal counselors,
financial advisors and consultants, as well as those of its bankers, senior
noteholders and creditors and, additionally, 1995 included certain payments made
directly to these lenders. The debt related fees for the year ended December 31,
1996 is net of $705 of interest earned on accumulated cash resulting from the
Filing. These costs are included as Debt Related Fees in the Consolidated
Statement of Operations for the periods then ended.
Additionally, as a result of the Company's defaults under its financing
agreements, its financial condition and the terms of the Standstill Agreements,
since February 1995 the Company was charged an additional 3.0% interest on its
bank debt and the interest rate on its 6.76% senior notes was increased to 15%.
These higher interest rates resulted in incremental interest expense of $2,350
and $5,679 for the years ended December 31, 1996 and 1995, respectively, which
is included in interest expense in the Consolidated Statements of Operations.
The debt related fees and default interest costs represent 52.2% and 32.5% of
the Company's loss from continuing operations for the years ended December 31,
1996 and 1995.
8. EQUITY TRANSACTIONS
In January 1995, the Board of Directors of the Company declared a dividend
distribution of one Right for each outstanding share of common stock of the
Company to stockholders of record at the close of business on March 1, 1995.
Each Right entitled the registered holder to purchase from the Company a unit
consisting of one one-thousandth of a share of the Series A Junior Participating
Preferred Shares, par value $0.01 per share, of the Company, at a purchase price
of $32.00 per Unit, subject to adjustment. The Rights were not exercisable until
the Distribution Date, as defined, and no longer exist under the Reorganized
Company.
9. ACQUISITION
In January 1994, the Company acquired the licensed sports apparel division of
K-Products, Inc., a premium apparel manufacturer, through newly created
subsidiaries #1 Apparel, Inc. and #1 Apparel Canada Inc. ("#1 Apparel"). #1
Apparel manufactures a high quality line of baseball style caps and jackets
using its own unique designs and graphics under licenses from various
professional and college sports leagues and teams. The acquisition included a
manufacturing facility in Ontario, Canada, and all rights to the #1 Apparel
name, trademarks, copyrights and designs, as well as accounts receivable and
inventory. The price paid by the Company for this acquisition was $15,150 in
cash. This acquisition was accounted for using the purchase method of
accounting. The operating results of #1 Apparel are recorded in the Company's
consolidated financial statements from the date of acquisition.
10. ACCOUNTS RECEIVABLE
Net accounts receivable include:
1996 1995
------------------------------------------------------------------------
Allowance for doubtful accounts $ 3,596 $ 5,337
Allowance for returns, discounts, rebates
and cooperative advertising 5,112 7,301
------------------------------------------------------------------------
$ 8,708 $12,638
========================================================================
Bad debt expense for the years ended December 31, 1996, 1995 and 1994 was $621,
$4,679, and $3,403, respectively.
42
<PAGE>
SLM INTERNATIONAL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
11. INVENTORIES
Net inventories consist of:
1996 1995
------------------------------------------------------------------------
Finished products $26,592 $38,948
Work in process 2,669 4,143
Raw materials and supplies 7,918 7,807
------------------------------------------------------------------------
$37,179 $50,898
========================================================================
Allowances for excess, obsolete and slow moving inventories were $4,791 and
$6,536 at December 31, 1996 and 1995, respectively.
12. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of:
1996 1995
------------------------------------------------------------------------
Land and improvements $ 79 $ 79
Buildings and improvements 5,418 5,543
Machinery and equipment 14,352 14,280
Tools, dies and molds 2,958 2,568
Office furniture and equipment 7,182 6,037
------------------------------------------------------------------------
29,989 28,507
Less accumulated depreciation and
amortization 17,172 15,011
------------------------------------------------------------------------
$12,817 $13,496
========================================================================
Property, plant and equipment under capital leases, primarily machinery and
equipment, included above totaled $2,020 and $2,493 at December 31, 1996 and
1995, respectively. Accumulated amortization for the same periods was $1,200 and
$1,277, respectively.
Depreciation and amortization expense for the years ended December 31, 1996,
1995 and 1994 was $2,524, $2,407, and $1,811, respectively.
13. INDEBTEDNESS
A. NEW INDEBTEDNESS
(1.) BANK AGREEMENTS
On the Effective Date of the Reorganization Plan, the Company and two of its
U.S. subsidiaries, Maska U.S., Inc. and #1 Apparel, Inc. (the "U.S.
subsidiaries"), entered into a Credit Agreement (the "US Credit Agreement") with
the lenders referred to therein (the "Lenders") and The Chase Manhattan Bank, as
Agent ("Chase"). Simultaneously, one of the Company's Canadian subsidiaries,
Sport Maska Inc., entered into a Credit Agreement (the "Canadian Credit
Agreement" and, together with the US Credit Agreement, the "Credit Agreements")
with The Chase Manhattan Bank of Canada ("Chase Canada"). The maximum amount of
loans and letters of credit that may be outstanding under the Credit Agreements
is $74,000, consisting of $35,000 revolving credit loans under the US Credit
Agreement, $35,000 of revolving credit loans under the Canadian Credit Agreement
and a $4,000 term loan under the US Credit Agreement. Borrowings under the
Credit Agreements are guaranteed by certain subsidiaries and are secured by
substantially all of the assets (including, without limitation, accounts
receivable, inventory and the stock of certain subsidiaries) of the Company, the
two U.S. Subsidiaries referred to above and the Company's other subsidiaries
which are guarantors. Total amounts outstanding under the Credit Agreements were
$14,200 at April 14, 1997.
Borrowings under the US Credit Agreement bear interest at the alternate base
rate plus 1% per annum or at an interest rate based on LIBOR plus 2 3/4% per
annum. Borrowings under the Canadian Credit Agreement bear interest at Chase
Canada's prime rate. In addition, the Company is charged a quarterly commitment
fee of 3/8 of 1% on the unused portion of the revolving credit facilities under
the Credit Agreements and certain other fees.
The Credit Agreements include customary affirmative and negative covenants,
including those relating to capital expenditures, interest coverage and the
incurrence of additional indebtedness.
(2.) NEW SENIOR NOTES
On April 11, 1997 the Company issued $29,500 principal amount of 14% Senior
Secured Notes due April 1, 2004 (the "New Senior Notes"), pursuant to an
Indenture with The Bank of New York, as trustee. The New Senior
43
<PAGE>
SLM INTERNATIONAL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
Notes were issued by the Company under the Reorganization Plan as partial
satisfaction of the Company's obligations to its former secured lenders under
the Bank Agreement referred to below.
Interest is payable on the New Senior Notes semi-annually at the rate of 14% per
annum, with such interest rate being permanently reduced if the Company meets
certain earnings tests. Further, of the initial 14% interest rate, 10% is
payable in cash and 4% is payable by the issuance of additional New Senior
Notes.
The New Senior Notes are guaranteed by certain subsidiaries and are
collateralized by substantially all of the assets of the Company (including,
without limitation, accounts receivable, inventory and the stock of certain
subsidiaries) of the Company. The lien of the trustee for the benefit of itself
and the New Senior Noteholders is junior to the liens of Chase and Chase Canada.
The Indenture also includes customary affirmative and negative covenants.
B. OLD INDEBTEDNESS
As a result of the Filing, certain of the Company's indebtedness has been
classified as liabilities subject to compromise under reorganization
proceedings, at December 31, 1996 and 1995. The Reorganization Plan
substantially altered the rights of most pre-petition unsecured creditors by
liquidating their allowed claims at less than 100% of their face value (see Note
2). Since October 1, 1994, the Company has not been in compliance with certain
financial and other covenants in its principal financing agreements, including
those with its banks and Senior Noteholders. On June 5, 1995, the Company and
its bank lenders and Senior Noteholders entered into Standstill Agreements that
provided a period of continued financing of the Company by its lenders, a
sharing of collateral by its bank lenders and Senior Noteholders and provided
the Company with a period in which to restructure its debt without further
judicial proceedings. Under the terms of the Standstill Agreements, the interest
rate on the 6.76% Senior Notes was increased to 15% effective February 15, 1995
and, subject to certain adjustments, would have increased to a maximum of 19%
during the agreement period and the interest was payable at 9% with the
remaining interest payable at the end of the Standstill Agreement period. The
Standstill Agreements provided the Company's lenders with warrants for an
aggregate of 2,000,000 shares of the Company's common stock, with an exercise
price of $2.45 per share and 500,000 shares with an exercise price of $2.27 per
share.
(1.) BANK AGREEMENTS
In December 1992, the Company entered into a Loan and Security Agreement ("Bank
Agreement") with a syndicate of banks led by Fleet Credit Corporation.
Borrowings under the Bank Agreement were collateralized by certain of the
Company's accounts receivable and inventory, and the common stock of certain
subsidiaries and were cross collateralized and guaranteed by such subsidiaries.
Total amounts outstanding under the Bank Agreement were $91,219 and $96,330 at
December 31, 1996 and 1995, respectively. As a result of the Filing, the amounts
are classified as liabilities subject to compromise under reorganization
proceedings.
Borrowings under the Bank Agreement bear interest at the bank's U.S. prime rate
(8.25% at December 31, 1996 and 8.5% at December 31, 1995) plus 1.0% payable
monthly. In addition, the Company was charged a monthly commitment fee of 0.25%
to 0.375% of the unused portion of the facility. However, since February 23,
1995, the Company has been charged a default rate of interest at the U.S. prime
rate plus 4.0% payable monthly. The weighted average interest rate on short term
debt outstanding at December 31, 1996 and 1995 was 10.1% and 13.0%,
respectively.
Under the Plan, the lenders under the Bank Agreement received (i) $44,178 in
cash; (ii) $29,500 principal in New Senior Notes; and (iii) 2,470,000 shares of
New Common Stock, representing approximately 38.0% of the outstanding New Common
Stock. The lenders sold such shares to Wellspring Associates L.L.C. on the
Effective Date.
44
<PAGE>
SLM INTERNATIONAL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(2.) LONG-TERM DEBT
The Company's long-term debt is as follows:
1996 1995
------------------------------------------------------------------------
6.76% Senior Notes (see Note (3.)) $75,000 $75,000
Note payable (see Note (4.)) 6,000 6,000
Industrial Development Revenue Bonds (see
Note (5.)) 3,720
Capital leases 369 702
Other long-term debt 826 826
------------------------------------------------------------------------
82,195 86,248
Less amounts contractually due within one
year (1,277) (1,285)
------------------------------------------------------------------------
Total long-term debt, excluding current
portion $80,918 $84,963
========================================================================
(3.) In March 1994, the Company completed a private placement of $75,000 of its
6.76% Senior Notes due February 15, 2004 ("Senior Notes") with a group of eight
insurance companies.
Under the Reorganization Plan, the holders of the Senior Notes received a
distribution of 3,173,414 shares of the Company's New Common Stock (see Note 2).
(4.) During June 1995, the Company entered into an agreement to settle certain
litigation for $7,000, including a note in the principal amount of $6,000
bearing interest at 10% payable over five years based on a twenty year
amortization with the balance of principal payable in June 2000.
(5.) During 1992, Smedley borrowed $4,000 under a bond indenture agreement with
Fulton County, New York to purchase a building, land and machinery and
equipment. The bonds consisted of a $2,000 tax-exempt issue and a $2,000 taxable
issue with variable interest. The principal balance at December 31, 1995
was $3,720. Interest was payable quarterly and principal payable in annual
installments through 2012. The bonds are collateralized by the building, land
and machinery and equipment. The bonds were further collateralized by letters of
credit amounting to $3,775 at December 31, 1995, under which the Company, in
addition to Smedley, was a direct obligor. Accordingly, the amounts outstanding
under these bonds are classified as an obligation of the Company's continuing
operations. As a result of Smedley's Chapter 11 Plan effectiveness in October
1996 the mortgagor is to receive title to the land and building in full
satisfaction of amounts due.
(6.) Capital leases on molds, machinery and equipment, with variable interest
rates to 14% and maturing on various dates through 1998. By authorization of the
Bankruptcy Court, the Company may continue to pay these, therefore these are
classified as current at December 31, 1996 and 1995.
(7.) Cash payments for interest were $109, $17,337, and $9,465 for the years
ended December 31, 1996, 1995 and 1994, respectively. During the reorganization
proceedings the Company was generally not permitted to pay interest. During such
time, the Company recorded interest expense only to the extent paid or earned
during the proceedings and to the extent that it was probable that the
Bankruptcy Court would allow interest on pre-Petition Date debt as a priority,
secured or unsecured claim. The excess of contractual interest expense over
recorded interest expense for the years ended December 31, 1996 and 1995 was
approximately $18,134 and $2,100, respectively.
14. RELATED PARTY TRANSACTIONS
The Company (including discontinued operations) leases property from companies
controlled by certain former officers and directors of the Company. Related
party rent expense for the years ended December 31, 1996, 1995 and 1994 was
$2,160, $1,791, and $1,095, respectively.
The Company was charged $350 in management fees by companies controlled by
certain former officers and directors of the Company for the years ended
December 31, 1995 and 1994.
Additionally, during 1994, the Company was charged $1,053 for construction
project management at certain of the Company's facilities (of which $950 related
to discontinued operations) by a company controlled by certain former officers
and directors of the Company.
15. LEASES
Certain of the Company's subsidiaries lease office and warehouse facilities and
equipment under operating lease agreements. Some lease agreements provide for
annual rent increases based upon certain factors including the consumer price
index.
45
<PAGE>
SLM INTERNATIONAL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
As Debtors-in-Possession, the Company had the right, subject to Bankruptcy Court
approval, to assume or reject executory contracts and unexpired leases. In this
context, "assumption" means that the Company agrees to perform its obligations
and cure all existing defaults under the contract or lease agreement, and
"rejection" means that the Company is relieved from its obligations to perform
further under the contract or lease, but is subject to a claim of damages for
the breach thereof.
As of March 31, 1997, the Company determined which executory contracts and
unexpired leases to assume (in modified form) or reject (see Note 2).
The following is a schedule of future minimum lease payments under continuing
noncancelable operating leases with initial terms in excess of one year at
December 31, 1996:
Operating Leases
---------------------------------------------
1997 $ 2,577
1998 1,985
1999 1,704
2000 1,665
2001 1,631
Thereafter 4,100
---------------------------------------------
$13,662
=============================================
Rental payments, including those to related parties, for the years ended
December 31, 1996, 1995 and 1994 were approximately $4,188, $7,686, and $6,477,
respectively.
16. ROYALTIES
Certain of the Company's subsidiaries have entered into agreements which call
for royalty payments generally based on net sales of certain products and
product lines. These agreements were executory contracts under the Bankruptcy
Code. Certain agreements require guaranteed minimum payments over the royalty
term. As Debtors-in-Possession, the Company had the right, subject to Bankruptcy
Court approval, to assume or reject executory contracts and unexpired leases
(see Note 15). As of March 31, 1997, the Company determined which executory
contracts and unexpired leases to assume or reject (see Notes 2 and 15). Future
minimum payments under the agreements which have been assumed, for the years
ended December 31, are as follows:
Royalties
---------------------------------------------
1997 $ 3,315
1998 3,531
1999 3,527
2000 0
2001 0
Thereafter 0
---------------------------------------------
$10,373
=============================================
Royalty expense for the years ended December 31, 1996, 1995 and 1994, including
guaranteed minimum payments, was approximately $3,878, $4,190, and $7,532,
respectively.
46
<PAGE>
SLM INTERNATIONAL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
17. INCOME TAXES
The components of income taxes are:
1996 1995 1994
------------------------------------------------------------------------
Current: U.S. $ 151 $ 205 $(1,872)
Non-U.S. (665) (96) 446
------------------------------------------------------------------------
(514) 109 (1,426)
------------------------------------------------------------------------
Deferred: U.S. 0 0 1,765
Non-U.S. 66 496 (622)
------------------------------------------------------------------------
66 496 1,143
------------------------------------------------------------------------
$ (448) $ 605 $ (283)
========================================================================
The income tax (benefit) expense is reflected in the accompanying Consolidated
Statements of Operations as follows:
1996 1995 1994
------------------------------------------------------------------------
Continuing operations $ (448) $ 605 $ (11)
Discontinued operations 0 0 (272)
------------------------------------------------------------------------
$ (448) $ 605 $ (283)
========================================================================
U.S. (loss) before taxes from continuing operations was $(11,518), $(47,401),
and $(7,100) for the years ended December 31, 1996, 1995 and 1994, respectively.
The Company's effective income tax rate from continuing operations differed from
the federal statutory rate as follows:
1996 1995 1994
------------------------------------------------------------------------
Income taxes based on U.S.
federal tax rate 34% 34% 34%
Non-U.S. and state tax rates (1%) (1%) 1%
Valuation Allowance (29%) (33%) (33%)
Other, net (2%) (1%) (2%)
------------------------------------------------------------------------
Effective income tax rate 2% (1%) 0%
========================================================================
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities at December 31, 1996 and 1995 are as
follows:
<TABLE>
<CAPTION>
1996 1995
U.S. Non-U.S. U.S. Non-U.S.
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Disposal of discontinued operations $ 0 $ 0 $ 3,570 $ 0
Accounts receivable, principally due to
allowance for doubtful accounts 1,539 0 2,350 0
Inventories, principally due to
additional costs inventoried for tax
purposes 1,156 0 2,092 0
Other, net 401 0 (58) 0
- -----------------------------------------------------------------------------------------------
3,096 0 7,954 0
Valuation allowance (3,096) 0 (7,954) 0
- -----------------------------------------------------------------------------------------------
Total current deferred tax assets
(liabilities) $ 0 $ 0 $ 0 $ 0
===============================================================================================
Net operating loss carryforwards $ 49,709 $ 3,152 $ 42,747 $ 1,833
Plant, equipment and depreciation (180) (900) (156) (882)
Other, net 7,850 1,020 5,495 1,327
- -----------------------------------------------------------------------------------------------
57,379 3,272 48,086 2,278
Valuation allowance (57,379) (3,873) (48,086) (2,813)
- -----------------------------------------------------------------------------------------------
Total non-current deferred tax assets
(liabilities) $ 0 $ (601) $ 0 $ (535)
===============================================================================================
</TABLE>
During the year ended December 31, 1996, the valuation allowance increased by
$5,495.
47
<PAGE>
SLM INTERNATIONAL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
Net cash payments (refunds) for income taxes for the years ended December 31,
1996, 1995 and 1994 were $389, $(2,726), and $(1,838), respectively.
Undistributed earnings from continuing operations of subsidiaries outside the
U.S., for which no provision for U.S. taxes has been made, amounted to
approximately $1,640 at December 31, 1996. In the event earnings of these
subsidiaries are remitted, foreign tax credits may be available to offset U.S.
taxes.
At December 31, 1996, the Company has net operating loss carryforwards related
to U.S. operations for income tax purposes of approximately $125,000, and net
operating loss carryforwards related to foreign operations for income tax
purposes of approximately $8,500. These carryforwards, arising primarily from
discontinued operations, begin to expire in 2001 and have been fully reserved by
a valuation allowance. These carryforwards may be substantially reduced as a
result of debt forgiveness in connection with the Reorganization Plan. The
Company's ability to use remaining carryforwards after reduction may be limited
in use on an annual basis as a result of a change in control of the Company on
April 11, 1997 in connection with the Reorganization Plan.
18. STOCK OPTION PLAN
As a result of the Reorganization Plan, all outstanding shares of Common Stock
on the Effective Date were converted into warrants to purchase shares of New
Common Stock. Therefore, stock options not exercised prior to the Effective Date
may no longer be exercised.
During 1996 the Company granted, phantom stock options to purchase 840,000
shares of New Common Stock in the Company at a weighted average exercise price
of $11.55, to certain key employees. The exercise price of the phantom stock
options are not less than the estimated fair market value of the shares at the
time the options were granted. Generally, these phantom stock options become
exercisable over a five-year vesting period and expire 10 years from the date of
the grant.
The fair value of each phantom option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1996: dividend yields of zero percent;
weighted-average expected volatility of 61.39 percent; weighted-average risk
free interest rate of 6.65 percent and weighted-average expected lives of 3.5
years. The weighted-average fair value of phantom options granted was $4.44 for
the year ended December 31, 1996. Phantom stock options granted during 1996 and
outstanding at December 31, 1996 were 840,000 shares with weighted-average
exercise price of $11.55, ($10.00 - $16.00 range of exercise prices)
weighted-average remaining contractual life of 9.8 years and none exercisable at
December 31, 1996.
The Company applies APB Opinion No. 25 and related Interpretations in accounting
for stock options. Accordingly, no compensation cost has been recognized. Had
compensation cost for the stock options been determined based on the fair value
at the grant dates for awards, consistent with the alternative method set forth
under Statement of Financial Accounting Standards No. 123 ("SFAS 123"),
Accounting for Stock-Based Compensation, the Company's net loss and net loss per
share would have been reduced. The initial impact of SFAS 123 may not be
representative of the effect on income in the future years because options vest
over several years and additional option grants may be made each year.
The pro forma amounts are indicated below:
Year Ended December 31, 1996 1995
---------------------------------------------------
Net Loss
As reported $ (18,722) $ (77,448)
Pro forma $ (19,186) $ (77,448)
Net Loss per share
As reported $ (0.99) $ (4.11)
Pro forma $ (1.01) $ (4.11)
48
<PAGE>
SLM INTERNATIONAL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
19. CONTINGENCIES AND LITIGATION
A. ENVIRONMENTAL LITIGATION:
In 1991, the Vermont Department of Environmental Conservation ("VTDEC") notified
the Company that the Bradford, Vermont property operated by its wholly-owned
subsidiary, Maska U.S., Inc. ("Maska"), had been included on the U.S.
Environmental Protection Agency's Comprehensive Environmental Response,
Compensation and Liability Information System and the Vermont Hazardous Sites
List was being evaluated for possible remedial action. Under relevant
environmental laws, Maska, as an owner of the property, was potentially liable
for the entire cost of investigating and remediating the contamination allegedly
emanating from its Bradford property and certain civil penalties.
Maska undertook its own investigation to determine the extent of contamination,
the rate of movement and the concentration of the contaminants, the appropriate
action required for site remediation and the identification of other parties who
should bear a share of the costs of remediation. The Company is seeking recovery
against the former owners and affiliates of the Bradford property and facility
and the owner of an adjacent parcel for the costs of such investigation and
remediation and are currently in negotiations to settle these claims. During
April 1996, Maska and the State of Vermont entered into a consent decree
("Consent Decree") setting forth the terms under which Maska has agreed to
remediate specified hazardous materials if, and to the extent, found on the
contaminated property or caused by Maska. The Consent Decree was approved by the
Bankruptcy Court on May 14, 1996 and approved and entered in Vermont Superior
Court on June 20, 1996. The Consent Decree is subject to several conditions,
including ongoing payment by the Company of certain State of Vermont oversight
fees up to a maximum of $60 per year. In addition, the Company paid to Vermont a
civil fine stipulated penalty of $250. While the total cost of investigation and
remediation cannot be determined until the investigation required by VTDEC is
complete and the extent of the Company's remedial obligations have been
determined, the Company believes that the remaining costs will be approximately
$1,400 in the aggregate, payable over the next several years.
Maska commenced an action in the United States District Court for the District
of Vermont (the "Vermont District Court") entitled Maska U.S. Inc. V. Kansa, et
al., Doc. No. 5:93-CV-309 (the "Insurance Litigation") against nine of its
liability insurers seeking coverage for environmental cleanup costs arising out
of claims brought by the State of Vermont and an adjoining landowner for their
failure to defend or to indemnify Maska with respect to these claims.
On September 30, 1996, United States Magistrate Judge Jerome J. Neidermeier
issued that certain Magistrate Judge's Report and Recommendation (the
"Magistrate Report"), which analyzes legal issues and recommends that the
Vermont District Court grant Maska's motion for partial summary judgment on the
issue of the duty to defend. The report also recommends that all the insurers'
motions for summary judgment be denied, except for two on certain individual
policies which Maska conceded provide no coverage for its claims. On December 2,
1996, Chief Judge J. Garvin Murtha adopted the Magistrate Report in its
entirety. Various motions for reconsideration of that order and for
certification of the issue for immediate appeal have since been denied. After
the completion of limited pre-trial discovery, the case will be scheduled for
trial.
Two holders of Maska's unsecured claims have asserted an equitable lien on
Maska's recovery, if any, in the Insurance Litigation and also have commenced an
independent action against the defendant insurance companies pursuant to
Vermont's direct action statute. The Company believes that the asserted
equitable lien is without merit and that the independent direct action violated
the automatic stay pursuant to Section 362 of the Bankruptcy Code. The Company
currently is evaluating its options for legal recourse in these matters.
In 1992, the owner of a property adjacent to Maska's manufacturing facility in
Bradford, Vermont, filed an action in Vermont Superior Court alleging that its
property has been contaminated as a result of the Company's manufacturing
activities and seeking compensatory and punitive damages under the Vermont
Groundwater Protection Law and various common law theories. During June 1995,
Maska reached a settlement of all claims with the adjacent landowner consisting
of $1,000 cash (which was paid during July 1995) and a $6,000 note bearing
interest at 10% payable over five years based on a twenty year amortization with
the balance of principal payable in June 2000. The Company recorded a provision
of $7,000 for this settlement during the year ended December 31, 1995.
49
<PAGE>
SLM INTERNATIONAL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
B. SECURITIES LITIGATION:
On February 14, 1996, the Company, together with certain of its former officers
and directors, reached a settlement with the plaintiffs in a class action
securities litigation. The settlement provides for the cash payment by the
Company's insurer of $8,750, on behalf of certain former officers and directors
of the Company who are defendants. In addition, the Company agreed to issue
1,000,000 shares of its Common Stock which was converted into warrants in the
Reorganization Plan. As a result of the settlement, the Company recorded a
provision of approximately $1,563 (the market value of 1,000,000 shares of
Common Stock on the date the settlement was agreed to) in the year ended
December 31, 1995. During July 1996, the settlement was approved by the
Bankruptcy Court and the U.S. District Court for the Southern District of New
York. Additionally, during August 1996 certain of the Company's creditors filed
an appeal with the Bankruptcy Court with respect to the Bankruptcy Court's
approval of the settlement which has not yet been resolved but which will be
dismissed with prejudice in connection with the Reorganization Plan.
C. PRODUCT LIABILITY LITIGATION:
A pre-petition personal injury claim involving a spinal injury which was filed
in 1989 has been asserted against the Company for which the Company did not have
sufficient insurance coverage. That claim and its attendant litigation has been
settled and is being submitted to the Bankruptcy Court for approval. The claim
will be treated under the Reorganization Plan pursuant to the terms of the
settlement. The Company is unaware of any other personal injury claims for which
there is not adequate insurance coverage.
In connection with the claim, American Home Assurance Company ("American Home"),
has commenced a declaratory judgment action against the Company in Massachusetts
District Court in respect of its duty to defend and to indemnify the Company and
an action in Montreal Superior Court in Quebec, Canada to recover defense costs.
The Company filed a response to the declaratory judgment action and a
counterclaim in Montreal Superior Court alleging American Home failed to fulfill
its duty to defend the Company. American Home has alleged that it is entitled to
payment in full for any amounts it recovers against the Company. The Company
believes that American Home's claims and contentions are without merit and, in
any event, would be treated under the Reorganization Plan. In the event that the
Company is required to make such a payment, it anticipates having funds
sufficient to meet any Court-ordered obligation. American Home's claim in
respect of the recovery of defense costs against the Company is in the amount of
approximately $575.
Other than certain legal proceedings arising from the ordinary course of
business, which the Company believes will not have a material adverse impact on
the financial position, results of operations, or cash flows, there is no other
litigation pending or threatened against the Company.
50
<PAGE>
SLM INTERNATIONAL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
20. GEOGRAPHICAL INFORMATION
The Company designs, develops, manufactures and markets a broad range of
sporting goods. The Company manufactures hockey and hockey related products,
including hockey uniforms, protective equipment, hockey figure and inline skates
and inline skates and street hockey products, marketing under the CCM brand
name, and private label brands and licensed sports apparel under the CCM and #1
Apparel names. The Company sells its products worldwide, primarily in North
America, to a diverse customer base consisting of mass merchandisers, retailers,
wholesalers, sporting goods shops and international distributors. The Company
manufactures and distributes most of its products at facilities in North America
and sources products internationally.
The following table shows data by geographic area for the periods noted below:
1996 1995 1994
-----------------------------------------------------------------------
Net sales to unaffiliated customers
from operations within:
United States $ 70,269 $ 89,631 $106,911
Canada 67,183 68,101 70,645
Other (A) 2,869 3,241 3,250
------------------------------------------------------------------------
140,321 160,973 180,806
Intercompany sales to other geographic
areas from operations within:
United States 2,155 3,123 26
Canada 22,136 30,141 34,435
Intercompany transfers between
geographic areas (24,291) (33,264) (34,461)
------------------------------------------------------------------------
Net sales $140,321 $160,973 $180,806
========================================================================
Operating (loss) income within:
United States $ (17) $(23,415) $ (1,232)
Canada (1,772) 219 1,147
Other (A) 187 490 463
Intercompany adjustments (554) 1,189 (180)
------------------------------------------------------------------------
Operating (loss) income $(2,156) $(21,517) $ 198
========================================================================
Identifiable assets at year end:
United States $242,441 $235,213 $351,295
Canada 72,589 71,570 81,317
Other (A) (B) 3,062 12,273 61,563
Intercompany balances (193,167) (181,028) (301,337)
------------------------------------------------------------------------
Identifiable assets $124,925 $138,028 $192,838
========================================================================
(A) Other includes Hong Kong and the United Kingdom.
(B) Other identifiable assets include net assets of discontinued operations.
Foreign currency transaction (losses) amounted to $(222), $(1,029) and $(286)
for the years ended December 31, 1996, 1995 and 1994, respectively.
21. NEW ACCOUNTING PRONOUNCEMENTS
Effective December 31, 1997 the Company will be required to implement Statement
of Financial Accounting Standard No. 128 (SFAS 128) "Earnings Per Share" (EPS).
SFAS 128 replaces the presentation of primarily earning per share with a
presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement and requires a reconciliation of
the numerator and denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation. Management has not yet made a
determination of the impact that the adoption of EPS, if any, would have on the
financial statements.
51
<PAGE>
Schedule II
SLM INTERNATIONAL, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Years ended December 31, 1996, 1995, and 1994
(In thousands)
<TABLE>
<CAPTION>
ADDITIONS
------------------- BALANCE
BALANCE AT CHARGED TO CHARGED AT
DECEMBER COSTS AND TO OTHER TRANSLATION DECEMBER
DESCRIPTION 31, 1995 EXPENSES ACCOUNTS ADJUSTMENTS DEDUCTIONS 31, 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Allowance for doubtful $5,337 621 0 (6) 2,356 $3,596
accounts (A)
Allowance for returns, $7,301 8,968 0 (7) 11,150 $5,112
discounts, rebates and (B)
cooperative advertising
Allowance for excess, $6,536 4,380 0 (11) 6,114 $4,791
obsolete and slow
moving inventories
<CAPTION>
ADDITIONS
------------------- BALANCE
BALANCE AT CHARGED TO CHARGED AT
DECEMBER COSTS AND TO OTHER TRANSLATION DECEMBER
DESCRIPTION 31, 1994 EXPENSES ACCOUNTS ADJUSTMENTS DEDUCTIONS 31, 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Allowance for doubtful $3,398 4,679 0 7 2,747 $5,337
accounts (A)
Allowance for returns, $5,438 12,301 0 41 10,479 $7,301
discounts, rebates and (B)
cooperative advertising
Allowance for excess, $5,226 5,746 47 57 4,540 $6,536
obsolete and slow
moving inventories
<CAPTION>
ADDITIONS
------------------- BALANCE
BALANCE AT CHARGED TO CHARGED AT
DECEMBER COSTS AND TO OTHER TRANSLATION DECEMBER
DESCRIPTION 31, 1993 EXPENSES ACCOUNTS ADJUSTMENTS DEDUCTIONS 31, 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Allowance for doubtful $2,275 3,403 15 (26) 2,269 $3,398
accounts (A)(C)
Allowance for returns, $5,495 13,893 100 (79) 13,971 $5,438
discounts, rebates and (B)(C)
cooperative advertising
Allowance for excess, $1,507 4,280 240 (92) 709 $5,226
obsolete and slow (C)
moving inventories
</TABLE>
- ----------
(A) Accounts written off as uncollectible
(B) Deductions taken by customers.
(C) Deductions for discontinued operations.
52
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NONE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by Item 10 will be set forth under "Election of Directors"
in the Company's 1997 Proxy Statement, which is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
Information required by Item 11 will be set forth under "Executive Compensation"
in the Company's 1997 Proxy Statement, which is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by Item 12 will be set forth under "Security Ownership of
Beneficial Holders" in the Company's 1997 Proxy Statement, which is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by Item 13 will be set forth under "Certain Transactions"
in the Company's 1997 Proxy Statement, which is incorporated herein by
reference.
53
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements required by Item 14 are included and indexed in
Part II, Item 8.
(a)(2) The financial statement schedules filed as part of this report include
the following:
SCHEDULE PAGE
-------- ----
II Valuation and Qualifying Accounts and Reserves 52
(a)(3) The following is a list of all Exhibits filed as part of this Report:
The exhibits designated by an asterisk will be filed by amendment.
Exhibit No. Description
- ----------- -----------
2.1 First Amended Joint Chapter 11 Plan, dated November 12, 1996, filed
with the United States Bankruptcy Court for the District of
Delaware. Filed as Exhibit 1 to the Company's Current Report on
Form 8-K dated December 6, 1996, incorporated herein by reference.
2.2 First Modification to First Amended Joint Chapter 11 Plan (filed
herewith).
2.3 Second Modification to First Amended Joint Chapter 11 Plan (filed
herewith).
2.4 Third Modification to First Amended Joint Chapter 11 Plan (filed
herewith).
3.1 Amended and Restated Certificate of Incorporation of the Company
dated March 31, 1997 (filed herewith).
3.2 Amended and Restated By-Laws of the Company (filed herewith).
4.1 Form of Senior Secured Note Indenture, dated as of April 1, 1997,
among the Company, as Issuer, the Guarantors named therein and The
Bank of New York, as Trustee (filed herewith).
10.1 Cash Option Agreement, dated January 6, 1997, between the Company
and Wellspring Associates L.L.C. (filed herewith).
10.2 Amendment to Cash Option Agreement, dated April 8, 1997, between
the Company and Wellspring Associates L.L.C. (filed herewith).
10.3 Stockholders Agreement, dated as of April 11, 1997, between the
Company and the persons set forth on Schedule A thereto (filed
herewith).
10.4 Warrant Agreement, dated as of April 11, 1997, between the Company
and American Stock Transfer & Trust Company, as Warrant Agent
(filed herewith).
10.5 Form of Credit Agreement, dated as of April 1, 1997, among the
Company, Maska U.S., Inc., #1 Apparel, Inc., the Lenders referred
to therein and The Chase Manhattan Bank, as Agent (filed herewith).
10.6 Credit Agreement, dated April 1, 1997, between Sport Maska Inc. and
The Chase Manhattan Bank of Canada (filed herewith).
10.7 Form of Security Agreement, dated as of April 1, 1997, among the
Company, certain subsidiaries of the Company and The Chase
Manhattan Bank, as Agent (filed herewith).
10.8 Form of Security Agreement and Mortgage - Trademarks and Patents,
dated as of April 1, 1997, among the Company, certain subsidiaries
of the Company and The Chase Manhattan Bank, as Agent (filed
herewith).
10.9 Security Agreement (Intellectual Property), dated as of April 1,
1997, between the Company and The Chase Manhattan Bank, as Agent.*
10.10 Form of Pledge Agreement and Irrevocable Proxy, dated as of
April 1, 1997, among the Company, certain subsidiaries of the
Company and The Chase Manhattan Bank, as Agent (filed herewith).
10.11 Form of Charge Over Shares and Irrevocable Proxy, dated as of
April 1, 1997, among the Company and The Chase Manhattan Bank, as
Agent (filed herewith).
54
<PAGE>
10.12 Quebec Pledge Agreement, dated April 1, 1997, between SLM
Trademark Acquisition Canada Corporation and The Chase Manhattan
Bank, as Agent.*
10.13 Form of U.S. Guaranty, dated as of April 1, 1997, from SLM
Trademark Acquisition Corporation.*
10.14 Form of Canadian Guaranty, dated April 1, 1997, from each Canadian
subsidiary of the Company.*
10.15 Form of Debenture, dated April 1, 1997, between each of the
Company, Maska U.S., Inc., #1 Apparel, Inc., SLM Trademark
Acquisition Corporation, Sport Maska Inc., #1 Apparel Canada Inc.,
and SLM Trademark Acquisition Canada Corporation and The Chase
Manhattan Bank.*
10.16 Form of Deed of Hypothec, dated as of April 1, 1997, between each
of the Company, Maska U.S., Inc., #1 Apparel, Inc., SLM Trademark
Acquisition Corporation, Sport Maska Inc., #1 Apparel Canada Inc.,
and SLM Trademark Acquisition Canada Corporation and The Chase
Manhattan Bank, as Agent.*
10.17 Form of Debenture, dated as of April 1, 1997, between each of Sport
Maska Inc., #1 Apparel Canada Inc. and SLM Trademark Acquisition
Canada Corporation and The Chase Manhattan Bank of Canada.*
10.18 Form of Deed of Hypothec, dated as of April 1, 1997, between each
of Sport Maska Inc., #1 Apparel Canada Inc. and SLM Trademark
Acquisition Canada Corporation and The Chase Manhattan Bank of
Canada.*
10.19 Form of Mortgage, Security Agreement, and Assignment of Leases and
Rents, dated as of April 1, 1997, from Maska U.S., Inc. to The
Chase Manhattan Bank, as Agent (filed herewith).
10.20 Form of Inter-Creditor Agreement, dated as of April 1, 1997, among
The Chase Manhattan Bank, The Chase Manhattan Bank of Canada and
The Bank of New York (filed herewith).
10.21 Form of Senior Secured Note (filed herewith).
10.22 Form of Security Agreement, dated as of April 1, 1997, among the
Company, certain subsidiaries of the Company and The Bank of New
York, as Trustee (filed herewith).
10.23 Form of Security Agreement and Mortgage - Trademarks and Patents,
dated as of April 1, 1997, among the Company, certain subsidiaries
of the Company and The Bank of New York, as Trustee (filed
herewith).
10.24 Form of Pledge Agreement and Irrevocable Proxy, dated as of April
1, 1997, among the Company, certain subsidiaries of the Company and
The Bank of New York, as Trustee (filed herewith).
10.25 Form of Charge Over Shares and Irrevocable Proxy, dated as of April
1, 1997, between the Company and The Bank of New York, as Trustee
(filed herewith).
10.26 Quebec Pledge Agreement, dated April 1, 1997, between SLM
Trademark Acquisition Canada Corporation and The Bank of New York,
as Trustee.*
10.27 Form of Deed of Hypothec, dated as of April 1, 1997, between each
of SLM Trademark Acquisition Canada Corporation and Maska U.S.,
Inc., #1 Apparel, Inc., Sport Maska Inc., #1 Apparel Canada Inc.,
and Mitchel & King Skates Limited and The Bank of New York, as
Trustee (filed herewith).
10.28 Form of Security Agreement (Intellectual Property), dated as of
April 1, 1997, between each of Sport Maska Inc., #1 Apparel Canada
Inc. and SLM Trademark Acquisition Canada Corporation and The Bank
of New York, as Trustee (filed herewith).
10.29 Form of Debenture, dated as of April 1, 1997, between each of SLM
Trademark Acquisition Canada Corporation and Maska U.S., Inc., #1
Apparel, Inc., Sport Maska Inc., #1 Apparel Canada Inc. and Mitchel
& King Skates Limited and The Bank of New York (filed herewith).
10.30 Form of Mortgage, Security Agreement, and Assignment of Leases and
Rents, dated as of April 1, 1997, from Maska U.S., Inc. to The Bank
of New York, as Trustee (filed herewith).
10.31 Debenture, dated as of April 1, 1997, between the Company and
The Bank of New York (filed herewith).
10.32 Deed of Hypothec, dated as of April 1, 1997, between the Company
and The Bank of New York (filed herewith).
10.33 Retail License Agreement, dated March 8, 1995, between Maska U.S.
Inc. and NHL Enterprises Inc. Filed as Exhibit 10.30 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1994 and incorporated herein by reference.
10.34 Retail License Agreement, dated March 8, 1995, between Sport Maska,
Inc. and NHL Enterprises Canada Inc. Filed as Exhibit 10.31 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1994 and incorporated herein by reference.
55
<PAGE>
10.35 Retail License Agreement, dated October 6, 1995, between NHL
Enterprises and Maska U.S., Inc. Filed as Exhibit 10.31 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1995 and incorporated herein by reference.
10.36 Retail License Agreement, dated October 6, 1995, between NHL
Enterprises and Sport Maska Inc. Filed as Exhibit 10.32 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1995 and incorporated herein by reference.
10.37 Lease, dated January 18, 1994, between Secretariat Realty Corp. and
Maska U.S., Inc. Filed as Exhibit 10.34 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995 and
incorporated herein by reference.
10.38 Deed of Lease, dated April 11, 1997, between ZMD Sports Investments
Inc. and Sport Maska Inc.*
10.39 Deed of Lease, dated January 27, 1995, between Doulka Investments
Inc. and Buddy L Canada Inc. Filed as Exhibit 10.36 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1995 and incorporated herein by reference.
10.40 Deed of Lease, dated April 11, 1997, between ZMD Sports Investments
Inc. and Sport Maska Inc.*
10.41 Deed of Lease, dated April 11, 1997, between ZMD Sports Investments
Inc. and Sport Maska Inc.*
10.42 Deed of Lease, dated April 11, 1997, between 2938201 Canada Inc.
and Sport Maska Inc.*
10.43 Settlement Agreement, dated November 21, 1995, among the Company,
certain subsidiaries, the Buddy L Creditors Committee and certain
Lenders. Filed as Exhibit 10.40 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995 and incorporated
herein by reference.
21 Subsidiaries of the Company.*
23.1 Consent of Coopers & Lybrand L.L.P. (filed herewith).
23.2 Consent of Raymond, Chabot, Martin Pare (filed herewith).
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
1. On March 19, 1996, the Company filed a current report on Form 8-K. This
report was filed in compliance with Items 5 and 7 of Form 8-K.
2. On June 27, 1996, the Company filed a current report on Form 8-K. This
report was filed in compliance with Items 5 and 7 of Form 8-K.
3. On October 1, 1996, the Company filed a current report on Form 8-K.
This report was filed in compliance with Item 5 of Form 8-K.
4. On December 6, 1996, the Company filed a current report on Form 8-K.
This report was filed in compliance with Items 5 and 7 of Form 8-K.
5. On March 5, 1997, the Company filed a current report on Form 8-K. This
report was filed in compliance with Items 5 and 7 of Form 8-K.
56
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the Registrant has duly caused this Form 10-K to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Bradford, State of
Vermont, on the 14th day of April, 1997.
SLM INTERNATIONAL, INC.
By: /s/ RUSSELL J. DAVID
-----------------------------
Name: Russell J. David
Title: Vice President, Finance
Pursuant to the requirements of the Securities Act of 1934, this Form 10-K has
been signed by the following persons in the capacities and on the dates
indicated. Each person whose signature to this Form 10-K appears below hereby
appoints Russell J. David as his attorney-in-fact to sign on his behalf
individually and in the capacity stated below and to file all amendments and
post-effective amendments to this Form 10-K, and any and all instruments or
documents filed as part of or in connection with this Form 10-K or the
amendments thereto, and any such attorney-in-fact may make such changes and
additions in this Form 10-K as such attorney-in-fact may deem necessary or
appropriate.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ GERALD B. WASSERMAN Chief Executive Officer, Chairman of the Board, April 14, 1997
- --------------------------- and Director (Principal Executive Officer)
Gerald B. Wasserman
/s/ RUSSELL J. DAVID Vice President , Finance April 14, 1997
- --------------------------- (Principal Financial and Accounting Officer)
Russell J. David
Director April , 1997
- ---------------------------
Paul M. Chute
/s/ MARTIN S. DAVIS Director April 14, 1997
- ---------------------------
Martin S. Davis
/s/ DOUGLAS W. ROTATORI Director April 14, 1997
- ---------------------------
Douglas W. Rotatori
/s/ JAMES C. PENDERGAST Director April 14, 1997
- ---------------------------
James C. Pendergast
</TABLE>
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re ) Chapter 11
)
SLM INTERNATIONAL, INC. ) Case No. 95-1313 (HSB)
)
and ) and
)
SPORT MASKA INC., ) Case No. 95-1314 (HSB)
)
and ) and
)
MASKA U.S., INC., ) Case No. 95-1315 (HSB)
)
and ) and
)
#1 APPAREL, INC., ) Case No. 95-1316 (HSB)
)
and ) and
)
#1 APPAREL CANADA INC. ) Case No. 95-1317 (HSB)
)
and ) and
)
ST. LAWRENCE MANUFACTURING ) Case No. 95-1318 (HSB)
CANADA INC., )
) and
and )
) Case No. 95-1319 (HSB)
MITCHEL & KING SKATES LIMITED, )
)
Debtors. )
FIRST MODIFICATION TO
FIRST AMENDED JOINT CHAPTER 11 PLAN (AS MODIFIED)
Dated as of November 12, 1996
KASOWITZ, BENSON, TORRES & YOUNG, CONAWAY, STARGATT
FRIEDMAN LLP & TAYLOR
David M. Friedman Laura Davis Jones
David S. Rosner Robert S. Brady
Adam L. Shiff Rodney Square North
1301 Avenue of the Americas P.O. Box 391
New York, New York 10019 Wilmington, Delaware 19899
(212) 506-1700 (302) 571-6600
CO-COUNSEL FOR DEBTORS AND DEBTORS-IN-POSSESSION
<PAGE>
SLM International, Inc., Sport Maska Inc., Maska U.S., Inc., #1
Apparel Inc., #1 Apparel Canada Inc., St. Lawrence Manufacturing Canada Inc. and
Mitchel & King Skates Limited, the above-captioned debtors and
debtors-in-possession by and through their undersigned counsel, pursuant to
section 1127 of the Bankruptcy Code and Bankruptcy Rule 3019, hereby submit the
following modifications to the First Amended Joint Plan of Reorganization (As
Modified):
I. Section 4.D.1 of the Plan is deleted in its entirety and replaced
with the following language:
4.D.1 CLASS 4. FLEET CLAIMS
1. Classification: Class 4 consists of all Fleet Claims.
2. Treatment: In full satisfaction, payment and discharge of the Fleet
Claims, the holder of the Allowed Fleet Claim shall receive the treatment set
forth in that certain Stipulation and Order Providing For Assumption of Master
Equipment Lease and Fixing Claims With Respect Thereto entered on September 24,
1996 (the "Fleet Stipulation"). Each of the provisions of the Fleet Stipulation
is incorporated as part of the Plan as if set forth in full herein. Class 4 is
impaired and the holder of the Fleet Claims is entitled to vote to accept or to
reject the Plan.
II. The last sentence of Section 8.A. of the Plan is deleted in its
entirety and replaced with the following language:
Notwithstanding the foregoing, (i) the Debtors are and shall remain
from and after the Effective Date separate legal entities under applicable
non-bankruptcy law, (ii) Reorganized SLMI shall continue to own 100% of the
authorized, issued and outstanding capital stock of each Reorganized Subsidiary,
(iii) within the discretion of Reorganized SLMI, any intercompany debt
(including intercompany debt owed by Apparel Canada, SLM Canada and Sport Maska
(the "Canadian Subsidiaries") shall remain outstanding, and (iv) as a result of
the distributions to be made to holders of the Allowed Non-Maska Unsecured
Claims against the Canadian Subsidiaries, Reorganized SLMI shall acquire, in
place of such holders, the claims that constituted the Allowed Non-Maska
Unsecured
- 2 -
<PAGE>
Claims against the Canadian Subsidiaries, which claims shall remain outstanding
and owed by such Canadian Subsidiaries to Reorganized SLMI.
Dated: January 16, 1997
YOUNG, CONAWAY, STARGATT & TAYLOR
--------------------------------------
Laura Davis Jones (No. 2436)
Robert S. Brady (No. 2867)
11th Floor, Rodney Square North
P.O. Box 391
Wilmington, Delaware 19899
(302) 571-6600
KASOWITZ, BENSON, TORRES &
FRIEDMAN LLP
David M. Friedman
David S. Rosner
Adam L. Shiff
1301 Avenue of the Americas
New York, New York 10019
CO-COUNSEL FOR DEBTORS
AND DEBTORS-IN-POSSESSION
- 3 -
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re ) Chapter 11
)
SLM INTERNATIONAL, INC., ) Case No. 95-1313 (HSB)
)
and ) and
)
SPORT MASKA INC., ) Case No. 95-1314 (HSB)
)
and ) and
)
MASKA U.S., INC., ) Case No. 95-1315 (HSB)
)
and ) and
)
#1 APPAREL, INC., ) Case No. 95-1316 (HSB)
)
and ) and
)
#1 APPAREL CANADA INC., ) Case No. 95-1317 (HSB)
)
and ) and
)
ST. LAWRENCE MANUFACTURING )
CANADA INC., ) Case No. 95-1318 (HSB)
)
and ) and
)
MITCHEL & KING SKATES LIMITED, ) Case No. 95-1319 (HSB)
)
Debtors. )
SECOND MODIFICATION TO FIRST AMENDED
JOINT CHAPTER 11 PLAN (AS MODIFIED)
Dated as of November 12, 1996
KASOWITZ, BENSON, TORRES YOUNG, CONAWAY, STARGATT
& FRIEDMAN LLP & TAYLOR
David M. Friedman Laura Davis Jones
David S. Rosner Robert S. Brady
Adam L. Shiff Rodney Square North
1301 Avenue of the Americas P.O. Box 391
New York, New York 10019 Wilmington, Delaware 19899
(212) 506-1700 (302) 571-6600
CO-COUNSEL FOR DEBTORS AND DEBTORS-IN-POSSESSION
<PAGE>
SLM International, Inc., Sport Maska Inc., Maska U.S., Inc., #1 Apparel
Inc., #1 Apparel Canada Inc., St. Lawrence Manufacturing Canada Inc. and Mitchel
& King Skates Limited, the above-captioned debtors and debtors-in-possession by
and through their undersigned counsel, pursuant to section 1127 of the
Bankruptcy Code and Bankruptcy Rule 3019, hereby submit the following
modifications to the First Amended Joint Plan of Reorganization (As Modified):
I. The following language is added as Section 12.J. of the Plan:
12.J. CLAIMS AGAINST INSURERS: The Confirmation of the Plan and the discharge,
release and injunction provisions set forth in the Plan in Sections 12.B., 12.C.
and 12.D., respectively, shall in no way (i) release or discharge any of the
Debtors' providers of insurance from liability, if any, for claims by any party,
including, without limitation, the Debtors or any Claimant, which have been
previously asserted, are pending, or may be asserted in the future (each an
"Insurance Claim"), or (ii) enjoin any party, including without limitation, the
Debtors or any Claimant, from asserting or otherwise pursuing or collecting on
an Insurance Claim.
-2-
<PAGE>
II. Section 12.D. of the Plan is amended by adding the following language
after the words "Debtors" and "Reorganized Debtors" on the fifth line thereof:
(as a personal liability thereof)
Dated: January 22, 1997
YOUNG, CONAWAY, STARGATT &
TAYLOR
-------------------------------
Laura Davis Jones (No. 2436)
Robert S. Brady (No. 2867)
Rodney Square North
11th Floor
Wilmington, Delaware 19899
KASOWITZ, BENSON, TORRES &
FRIEDMAN LLP
David M. Friedman
David S. Rosner
Adam L. Shiff
1301 Avenue of the Americas
New York, New York 10019
CO-COUNSEL FOR DEBTORS
AND DEBTORS-IN-POSSESSION
-3-
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re ) Chapter 11
)
SLM INTERNATIONAL, INC. ) Case No. 95-1313 (HSB)
)
and ) and
)
SPORT MASKA INC., ) Case No. 95-1314 (HSB)
)
and ) and
)
MASKA U.S., INC., ) Case No. 95-1315 (HSB)
)
and ) and
)
#1 APPAREL, INC., ) Case No. 95-1316 (HSB)
)
and ) and
)
#1 APPAREL CANADA INC. ) Case No. 95-1317 (HSB)
)
and ) and
)
ST. LAWRENCE MANUFACTURING ) Case No. 95-1318 (HSB)
CANADA INC., )
) and
and )
) Case No. 95-1319 (HSB)
MITCHEL & KING SKATES LIMITED, )
)
Debtors. )
THIRD MODIFICATION TO
FIRST AMENDED JOINT CHAPTER 11 PLAN (AS MODIFIED)
Dated as of November 12, 1996
I. The following language is added to the last line of Section 1.B.47. after
the words "Final Order":
or which is listed on the "Claims to be Reviewed List" (which list shall
be filed with the Bankruptcy Court on or before the Effective Date).
1
<PAGE>
II. The last paragraph of Sections 4.G.3. and 4.H.3. are deleted in their
entirety and replaced, in both Sections, with the following language:
The Cash Option shall apply solely to Issued New Common Stock to be
distributed (i) on the Effective Date to the holders of Allowed NHLE
Claims (except as otherwise provided in Section 4.D.2. of the Plan),
Allowed Maska U.S. Unsecured Claims and Allowed Non-Maska Unsecured Claims
which elect or are deemed to have elected the Cash Option pursuant to
Sections 4.D.2, 4.G.3., 4.H.3. or 6.C.3. or (ii) on any Subsequent
Distribution Date which occurs no later than 6 months after the Effective
Date to the holders of Allowed Maska U.S. Unsecured Claims or Allowed
Non-Maska Unsecured Claims who elect or are deemed to have elected the
Cash Option pursuant to Section 6.C.3. The Cash Option shall not apply to
any shares of Issued New Common Stock to be distributed on any Subsequent
Distribution Date which occurs more than 6 months after the Effective
Date.
III. The clause in Section 6.A., beginning on the fifth line with the words
"provided that" and ending with the word "Date" on the seventh line, is
hereby deleted in its entirety and replaced with the following language:
provided that subject to further extension by the Bankruptcy Court with or
without notice, (i) all objections to the allowance of Claims set forth on
the Claims to be Reviewed List shall be filed with the Bankruptcy Court on
or before 60 days after the Effective Date and (ii) all objections to the
allowance of any other Claims shall be filed with the Bankruptcy Court on
or before the Effective Date.
IV. In Section 6.A, the word "and" in the first line shall be deleted and
replaced with a "," and the following language shall be added on the
second line of such Section after the words "Reorganized Debtors":
and the Committee
V. The following language is added to Section 6.A. on the seventh line after
the words "Reorganized Debtors":
(upon consultation with the Committee)
VI. The following Sections are added to the Plan:
6.C.3 CASH OPTION ELECTION.
(a) Holders of Disputed Claims as of the Effective Date: Within ten (10)
business days after the Effective Date, the Reorganized Debtors shall send
by first class mail to each holder of a Disputed Claim a Cash Option
Election
2
<PAGE>
Form pursuant to which such holder may elect the Cash Option with respect
to any Reserved Shares that may be distributed to such holder pursuant to
Section 6.C.2. (on all Subsequent Distribution Date(s) which occur no
later than six (6) months after the Effective Date) if such holder's Claim
is ultimately allowed, by returning to the Reorganized Debtors, no later
than the earlier of (a) 30 days after the Effective Date.
(b) Holders of Allowed Claims as of the Effective Date who Elected or Were
Deemed to Have Elected the Cash Option: Within ten (10) business days
after the Effective Date, the Reorganized Debtors shall send by first
class mail to each holder of an Allowed Maska U.S. Unsecured Claim and
Allowed Non- Maska Unsecured Claim who elected or was deemed to have
elected the Cash Option pursuant to Sections 4.G.3. or 4.H.3., a notice
that such holder shall be deemed to have elected the Cash Option with
respect to any Reserved Shares that may be distributed to such holder
pursuant to Section 6.C.2. on any Subsequent Distribution Date that occurs
no later than six (6) months after the Effective Date unless such holder
returns to the Reorganized Debtors, no later than 30 days after the
Effective Date, a Stock Election Form, executed by such holder, declaring
that such holder requests a distribution of Issued New Common Stock and
not cash if any shares are to be distributed to such holder pursuant to
Section 6.C.2. Any such holder who does not timely return a Stock Election
Form will receive cash in respect of all Issued New Common Stock such
holder would otherwise receive pursuant to Section 6.C.2. on any
Subsequent Distribution Date which occurs no later than six (6) months
after the Effective Date.
(c) Holders of Allowed Claims as of the Effective Date who Did Not
Previously Elect the Cash Option: On or before the Effective Date, the
Debtors shall send by first class mail to each holder of an Allowed Maska
U.S. Unsecured Claim and Non-Maska Unsecured Claim who did not previously
elect the Cash Option, a Cash Option Election Form pursuant to which such
holder may elect the Cash Option with respect to (a) any Issued New Common
Stock that would have been distributable to such holder on the Effective
Date pursuant to Sections 4.G.2. or 4.H.2. of this Plan absent such
election and (b) any Reserved Shares that may be distributed to such
holder pursuant to 6.C.2. on a Subsequent Distribution Date that occurs no
later than six (6) months after the Effective Date, by delivering to the
Reorganized Debtors a Cash Option Election Form, executed by such holder,
no later than 30 days after the Effective Date, provided, however, no
shares shall be issued to such holders 35 days after the Effective Date.
Any such holder who does not timely return a Cash Option Election Form
will receive a distribution of Issued New Common Stock in respect of its
Allowed Claim and not cash.
6.C.4 CASH OPTION AMOUNT In lieu of receiving such holder's Pro
Rata share of Reserved Shares pursuant to Section 6.C.2. of this Plan,
each holder of (i) a Disputed Claim that becomes an Allowed Maska U.S.
Unsecured Claim or Allowed Non-Maska Unsecured Claim after the Effective
3
<PAGE>
Date or (ii) an Allowed Maska U.S. Unsecured Claim or Allowed Non-Maska
Claim (each, as of the Effective Date), who elects or is deemed to have
elected the Cash Option pursuant to Section 6.C.3. of this Plan, shall
receive on any Subsequent Distribution Date which occurs no later than six
(6) months after the Effective Date, cash in an amount equal to the
product of (x) $8.50 per share multiplied by (y) the number of Reserved
Shares that such holder would have received on such Subsequent
Distribution Date pursuant to Section 6.C.2. had such holder not elected
the Cash Option.
VII. The last sentence of Section 8.A. (including the language set forth in the
First Modification To First Amended Chapter 11 Plan (As Modified)) is
deleted in its entirety and replaced with the following language:
Notwithstanding the foregoing, (i) the Debtors are and shall remain from
and after the Effective Date separate legal entities under applicable
non-bankruptcy law, provided, however, one Business Day prior to the
Effective Date, SLMI may contribute the stock of Apparel Canada or SLM
Canada to Sport Maska with the effect that Apparel Canada or SLM Canada
may become wholly-owned subsidiaries of Sport Maska and immediately
thereafter Apparel Canada or SLM Canada may be wound up into Sport Maska,
all under applicable Canadian law, (ii) Reorganized SLMI shall continue to
own 100% of the authorized, issued and outstanding capital stock of each
Reorganized Subsidiary (after giving effect to the transactions
contemplated by the preceding proviso), (iii) within the discretion of
Reorganized SLMI, any intercompany debt (including intercompany debt owed
by Sport Maska (for itself or as successor to Apparel Canada or SLM
Canada)) shall remain outstanding, and (iv) as a result of the
distributions to be made to holders of the Allowed Non-Maska Unsecured
Claims against Sport Maska (for itself or as successor to Apparel Canada
or SLM Canada), Reorganized SLMI shall acquire, in place of such holders,
the claims that constituted the Allowed Non- Maska Unsecured Claims
against Sport Maska (for itself or as successor to Apparel Canada or SLM
Canada), which claims shall remain outstanding and owed by Sport Maska to
Reorganized SLMI.
VIII. In Section 15.C., the first "and" shall be deleted and replaced with a ","
and the following language shall be added after the words "Reorganized
Debtors":
and the Committee
IX. In Section 15.D., on the third line, the word "Committee's" shall be
deleted and replaced with the following language:
Committee and its
4
<PAGE>
X. In Section 15.D., the word "and" which precedes "(ii)" shall be deleted
and replaced with a "," and the following language shall be added in place
of the period at the end of the Section":
and (iii) to prosecute on its own or in conjunction with the Reorganized
Debtors, objections to and/or proceedings to estimate any Claim.
Dated: March 14, 1997
YOUNG, CONAWAY, STARGATT DUANE, MORRIS & HECKSHER
& TAYLOR
Laura Davis Jones Teresa K.D. Currier
Robert S. Brady 1201 Market Street
Rodney Square North, 11th Floor Wilmington, Delaware 19801
Wilmington, Delaware 19899 (302) 571-5550
(302) 571-6600
KASOWITZ, BENSON, TORRES KRAMER, LEVIN, NAFTALIS
& FRIEDMAN LLP & FRANKEL
David M. Friedman Kenneth H. Eckstein
David S. Rosner David M. Feldman
Lorie R. Beers 919 Third Avenue
Adam L. Shiff New York, New York 10022
1301 Avenue of the Americas (212) 715-9100
New York, New York 10019
(212) 506-1700
CO-COUNSEL FOR THE DEBTORS CO-COUNSEL FOR THE
OFFICIAL
AND DEBTORS-IN-POSSESSION COMMITTEE OF UNSECURED
CREDITORS
5
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
SLM INTERNATIONAL, INC.
I. The name of the Corporation is
SLM INTERNATIONAL, INC.
The date of filing of the Corporation's original certificate of incorporation
with the Secretary of State of the State of Delaware was September 24, 1991.
II. Pursuant to Sections 242, 245 and 303 of the General Corporation Law of
the State of Delaware, this amended and restated certificate of incorporation
includes an amendment of Article FOURTH, omits former Article FIFTH, renumbers
the remaining Articles SIXTH through NINTH as Articles FIFTH through EIGHTH, and
includes a new Article NINTH.
III. This amended and restated certificate of incorporation was duly
adopted in accordance with the provisions of Section 303 of the General
Corporation Law of the State of Delaware, and pursuant to the First Amended
Joint Chapter 11 Plan, as modified (the "Plan"), dated as of November 12, 1996
and confirmed by order of the United States Bankruptcy Court for the District of
Delaware on January 23, 1997. Provision for the making of this amended and
restated certificate of incorporation is contained in such order.
1
<PAGE>
V. The amended and restated certificate of incorporation of the corporation
shall read as follows:
FIRST: The name of the Corporation is
SLM INTERNATIONAL, INC.
SECOND: The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle.
The name of its registered agent at such address is The Corporation Trust
Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is fifteen million (15,000,000) shares
of Common Stock, par value $.01 per share (the "Common Stock"). The Corporation
shall not issue any non-voting equity securities; this provision is included in
this Amended and Restated Certificate of Incorporation in compliance with
section 1123(a)(6) of Title 11 of the United States Code (11 U.S.C. ss. 101 et.
seq.), and shall have no force or effect except to the extent and so long as
such section is applicable to the Corporation.
FIFTH: Elections of directors need not be by ballot unless the By-Laws of
the Corporation shall so provide.
2
<PAGE>
SIXTH: The Board of Directors of the Corporation may make By-Laws and from
time to time may alter, amend or repeal By-Laws.
SEVENTH: No director of the Corporation shall be liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv)
for any transaction from which the director derived an improper personal
benefit.
EIGHTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or security of any creditor or stockholder thereof or on
the application of any receiver or receivers appointed for this Corporation
under the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and
3
<PAGE>
to any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
NINTH: The Corporation expressly elects not to be governed by Section 203
of the General Corporation Law of the State of Delaware.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
4
<PAGE>
IN WITNESS WHEREOF, said SLM International, Inc. has caused this amended
and restated certificate of incorporation to be signed by its Vice President,
Finance and attested to by its Secretary this 31st day of March, 1997.
SLM INTERNATIONAL, INC.
By: /s/ RUSSELL J. DAVID
----------------------------------
Name: Russell J. David
Title: Vice President, Finance
ATTEST:
By: /s/ D. BRUCE RANDALL
----------------------------------
Name: D. Bruce Randall
Title: Secretary
5
EXHIBIT 3.2
AMENDED AND RESTATED
BY-LAWS
OF
SLM INTERNATIONAL, INC.
ARTICLE I
STOCKHOLDERS
SECTION 1. Annual Meeting. The annual meeting of the stockholders of the
Corporation shall be held on such date, at such time and at such place within or
without the State of Delaware as may be designated by the Board of Directors,
for the purpose of electing Directors and for the transaction of such other
business as may be properly brought before the meeting.
SECTION 2. Special Meetings. Except as otherwise provided in the
Certificate of Incorporation, a special meeting of the stockholders of the
Corporation may be called at any time by the Board of Directors or the Chief
Executive Officer and shall be called by the Chief Executive Officer upon the
written request of holder(s) of at least 20% of the shares of common stock then
outstanding. Any special meeting of the stockholders shall be held on such date,
at such time and at such place within or without the State of Delaware as the
Board of Directors or the officer calling the meeting may designate. At a
special meeting of the stockholders, no business shall be transacted and no
corporate action shall be taken other than that stated in the notice of the
meeting unless all
-1-
<PAGE>
of the stockholders are present in person or by proxy, in which case any and all
business may be transacted at the meeting even though the meeting is held
without notice.
SECTION 3. Notice of Meetings. Except as otherwise provided in these
By-Laws or by law, a written notice of each meeting of the stockholders shall be
given not less than ten (10) nor more than sixty (60) days before the date of
the meeting to each stockholder of the Corporation entitled to vote at such
meeting at his or her address as it appears on the records of the Corporation.
The notice shall state the place, date and hour of the meeting and, in the case
of a special meeting, the purpose or purposes for which the meeting is called.
SECTION 4. Quorum. At any meeting of the stockholders, the holders of a
majority in number of the total outstanding shares of stock of the Corporation
entitled to vote at such meeting, present in person or represented by proxy,
shall constitute a quorum of the stockholders for all purposes, unless the
representation of a larger number of shares shall be required by law, by the
Certificate of Incorporation or by these By-Laws, in which case the
representation of the number of shares so required shall constitute a quorum;
provided that at any meeting of the stockholders at which the holders of any
class of stock of the Corporation shall be entitled to vote separately as a
class, the holders of a majority in number of the total outstanding shares of
such class, present in person or represented by proxy, shall constitute a quorum
for purposes of such class vote unless the representation of a larger number of
shares of such class shall be required by law, by the Certificate of
Incorporation or by these By-Laws.
-2-
<PAGE>
SECTION 5. Adjourned Meetings. Whether or not a quorum shall be present in
person or represented at any meeting of the stockholders, the holders of a
majority in number of the shares of stock of the Corporation present in person
or represented by proxy and entitled to vote at such meeting may adjourn from
time to time; provided, however, that if the holders of any class of stock of
the Corporation are entitled to vote separately as a class upon any matter at
such meeting, any adjournment of the meeting in respect of action by such class
upon such matter shall be determined by the holders of a majority of the shares
of such class present in person or represented by proxy and entitled to vote at
such meeting. When a meeting is adjourned to another time or place, notice need
not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the adjourned
meeting the stockholders, or the holder of any class of stock entitled to vote
separately as a class, as the case may be, may transact any business which might
have been transacted by them at the original meeting. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the adjourned meeting.
SECTION 6. Organization. The Chief Executive Officer or, in the absence of
the Chief Executive Officer, a Vice President shall call all meetings of the
stockholders to order, and shall act as Chairman of such meetings. In the
absence of the Chief Executive Officer and all of the Vice Presidents, the
holders of a majority in number of the shares of stock of the Corporation
present in person or represented by proxy and entitled to vote at such meeting
shall elect a Chairman.
-3-
<PAGE>
The Secretary of the Corporation shall act as Secretary of all meetings of
the stockholders; but in the absence of the Secretary, the Chairman may appoint
any person to act as Secretary of the meeting. It shall be the duty of the
Secretary to prepare and make, at least ten days before every meeting of
stockholders, a complete list of stockholders entitled to vote at such meeting,
arranged in alphabetical order and showing the address of each stockholder and
the number of shares registered in the name of each stockholder. Such list shall
be open, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting or, if not so
specified, at the place where the meeting is to be held, for the ten days next
preceding the meeting, to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, and shall be produced
and kept at the time and place of the meeting during the whole time thereof and
subject to the inspection of any stockholder who may be present.
SECTION 7. Voting. Except as otherwise provided in the Certificate of
Incorporation or by law, each stockholder shall be entitled to one vote for each
share of the capital stock of the Corporation registered in the name of such
stockholder upon the books of the Corporation. Each stockholder entitled to vote
at a meeting of stockholders or to express consent or dissent to corporate
action in writing without a meeting may authorize another person or persons to
act for him or her by proxy, but no such proxy shall be voted or acted upon
after three years from its date, unless the proxy provides for a longer period.
When directed by the presiding officer or upon the demand of any stockholder,
the vote upon any matter before a meeting of stockholders shall be by ballot.
Except as otherwise provided by law or by the Certificate of Incorporation,
Directors shall be elected by a plurality of the votes cast at a meeting of
stockholders by the stockholders entitled to vote in
-4-
<PAGE>
the election and, whenever any corporate action, other than the election of
Directors is to be taken, it shall be authorized by a majority of the votes cast
at a meeting of stockholders by the stockholders entitled to vote thereon.
Shares of the capital stock of the Corporation belonging to the Corporation
or to another corporation, if a majority of the shares entitled to vote in the
election of directors of such other corporation is held, directly or indirectly,
by the Corporation, shall neither be entitled to vote nor be counted for quorum
purposes.
SECTION 8. Inspectors. When required by law or directed by the presiding
officer or upon the demand of any stockholder entitled to vote, but not
otherwise, the polls shall be opened and closed, the proxies and ballots shall
be received and taken in charge, and all questions touching the qualification of
voters, the validity of proxies and the acceptance or rejection of votes shall
be decided at any meeting of the stockholders by two or more Inspectors who may
be appointed by the Board of Directors before the meeting, or if not so
appointed, shall be appointed by the presiding officer at the meeting. If any
person so appointed fails to appear or act, the vacancy may be filled by
appointment in like manner.
SECTION 9. Consent of Stockholders in Lieu of Meeting. Unless otherwise
provided in the Certificate of Incorporation, any action required to be taken or
which may be taken at any annual or special meeting of the stockholders of the
Corporation, may be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action so taken, shall
-5-
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be signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of any such corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
SECTION 10. Stockholders' Agreement. Nothing in the Amended and Restated
Certificate of Incorporation of the Corporation (as the same has been amended or
may be amended from time to time) or these Amended and Restated By-Laws shall be
deemed or interpreted to prohibit the Corporation from entering into or
otherwise impair the ability of the Corporation to enter into a Stockholders'
Agreement regarding the election of Directors and/or the corporate governance of
the Corporation and its subsidiaries, including, without limitation, any
Stockholders' Agreement that requires a greater number or percentage of
stockholders or directors for the taking of any corporate action than that
required by such Amended and Restated Certificate of Incorporation or these
Amended and Restated By-Laws, and any such Agreement shall be binding on the
Corporation notwithstanding anything contained in such Amended and Restated
Certificate of Incorporation or these Amended and Restated By-Laws.
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ARTICLE II
BOARD OF DIRECTORS
SECTION 1. Number and Term of Office. The business and affairs of the
Corporation shall be managed by or under the direction of a Board of Directors,
none of whom need be stockholders of the Corporation. The number of Directors
constituting the Board of Directors shall be fixed from time to time by
resolution passed by a majority of the Board of Directors. The Directors shall,
except as hereinafter otherwise provided for filling vacancies, be elected at
the annual meeting of stockholders, and shall hold office until their respective
successors are elected and qualified or until their earlier resignation or
removal.
SECTION 2. Removal, Vacancies and Additional Directors. The stockholders
may, at any special meeting the notice of which shall state that it is called
for that purpose, remove, with or without cause, any Director and fill the
vacancy; provided that whenever any Director shall have been elected by the
holders of any class of stock of the Corporation voting separately as a class
under the provisions of the Certificate of Incorporation, such Director may be
removed and the vacancy filled only by the holders of that class of stock voting
separately as a class. Vacancies caused by any such removal and not filled by
the stockholders at the meeting at which such removal shall have been made, or
any vacancy caused by the death or resignation of any Director or for any other
reason, and any newly created directorship resulting from any increase in the
authorized number of Directors, may be filled by the affirmative vote of a
majority of the Directors then in office, although less than a quorum, and any
Director so elected to fill any such vacancy or newly created directorship shall
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hold office until his or her successor is elected and qualified or until his or
her earlier resignation or removal.
When one or more Directors shall resign effective at a future date, a
majority of the Directors then in office, including those who have so resigned,
shall have power to fill such vacancy or vacancies, the vote thereon to take
effect when such resignation or resignations shall become effective, and each
Director so chosen shall hold office as herein provided in connection with the
filling of other vacancies.
SECTION 3. Place of Meeting. The Board of Directors may hold its meetings
in such place or places in the State of Delaware or outside the State of
Delaware as the Board from time to time shall determine.
SECTION 4. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such times and places as the Board from time to time by
resolution shall determine. No notice shall be required for any regular meeting
of the Board of Directors; but a copy of every resolution fixing or changing the
time or place of regular meetings shall be mailed to every Director at least
five days before the first meeting held in pursuance thereof.
SECTION 5. Special Meetings. Special meetings of the Board of Directors
shall be held whenever called by direction of the Chief Executive Officer or by
any two of the Directors then in office.
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Notice of the day, hour and place of holding of each special meeting shall
be given by mailing the same at least two days before the meeting or by causing
the same to be transmitted by facsimile, telegram or telephone at least one day
before the meeting to each Director. Unless otherwise indicated in the notice
thereof, any and all business other than an amendment of these ByLaws may be
transacted at any special meeting, and an amendment of these By-Laws may be
acted upon if the notice of the meeting shall have stated that the amendment of
these By-Laws is one of the purposes of the meeting. At any meeting at which
every Director shall be present, even though without any notice, any business
may be transacted, including the amendment of these By-Laws.
SECTION 6. Quorum. Subject to the provisions of Section 2 of this Article
II, a majority of the members of the Board of Directors in office (but in no
case less than one-third of the total number of Directors nor less than two
Directors) shall constitute a quorum for the transaction of business and the
vote of the majority of the Directors present at any meeting of the Board of
Directors at which a quorum is present shall be the act of the Board of
Directors. If at any meeting of the Board there is less than a quorum present, a
majority of those present may adjourn the meeting from time to time.
SECTION 7. Organization. The Board of Directors shall elect a Chairman, who
may or may not be the Chief Executive Officer, from among the members of the
Board of Directors. The Chairman shall preside at all meetings of the Board of
Directors. In the absence of the Chairman, a Chairman shall be elected from the
Directors present. The Secretary of the Corporation shall act
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as Secretary of all meetings of the Directors; but in the absence of the
Secretary, the Chairman may appoint any person to act as Secretary of the
meeting.
SECTION 8. Committees. The Board of Directors may designate one or more
committees, each committee to consist of one or more of the Directors of the
Corporation. The Board may designate one or more Directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of a member of a
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board, shall have and
may exercise all the powers and authority of the Board of Directors in the
management of the business and the affairs of the Corporation, and may authorize
the seal of the Corporation to be affixed to all papers which may require it;
but no such committee shall have the power or authority in reference to
approving or adopting, or recommending to the stockholders, any action or matter
expressly required by law to be submitted to stockholders for approval, or
adopting, amending or repealing these By-laws.
SECTION 9. Conference Telephone Meetings. Unless otherwise restricted by
the Certificate of Incorporation or by these By-Laws, the members of the Board
of Directors or any committee designated by the Board, may participate in a
meeting of the Board or such committee, as the case may be, by means of
conference telephone or similar communications equipment by
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means of which all persons participating in the meeting can hear each other, and
such participation shall constitute presence in person at such meeting.
SECTION 10. Consent of Directors or Committee in Lieu of Meeting. Unless
otherwise restricted by the Certificate of Incorporation or by these By-Laws,
any action required or permitted to be taken at any meeting of the Board
Directors, or of any committee thereof, may be taken without a meeting if all
members of the Board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the Board or committee, as the case may be.
ARTICLE III
OFFICERS
SECTION 1. Officers. The officers of the Corporation shall be a Chief
Executive Officer, one or more Vice Presidents, a Secretary and a Treasurer, and
such additional officers, if any, as shall be elected by the Board of Directors
pursuant to the provisions of Section 6 of this Article III. The Chief Executive
Officer, one or more Vice Presidents, the Secretary and the Treasurer shall be
elected by the Board of Directors at its first meeting after each annual meeting
of the stockholders. The failure to hold such election shall not of itself
terminate the term of office of any officer. All officers shall hold office at
the pleasure of the Board of Directors. Any officer may resign at any time upon
written notice to the Corporation. Officers may, but need not, be Directors. Any
number of offices may be held by the same person.
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All officers, agents and employees shall be subject to removal, with or
without cause, at any time by the Board of Directors. The removal of an officer
without cause shall be without prejudice to his or her contract rights, if any.
The election or appointment of an officer shall not of itself create contract
rights. All agents and employees other than officers elected by the Board of
Directors shall also be subject to removal, with or without cause, at any time
by the officers appointing them.
Any vacancy caused by the death, resignation or removal of any officer, or
otherwise, may be filled by the Board of Directors, and any officer so elected
shall hold office at the pleasure of the Board of Directors.
In addition to the powers and duties of the officers of the Corporation as
set forth in these By-Laws, the officers shall have such authority and shall
perform such duties as from time to time may be determined by the Board of
Directors.
SECTION 2. Powers and Duties of the Chief Executive Officer. The Chief
Executive Officer shall be the chief executive officer of the Corporation and,
subject to the control of the Board of Directors, shall have general charge and
control of all its business and affairs and shall have all powers and shall
perform all duties incident to the office of Chief Executive Officer. The Chief
Executive Officer shall preside at all meetings of the stockholders and shall
have such other powers and perform such other duties as may from time to time be
assigned by these By-Laws or by the Board of Directors.
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SECTION 3. Powers and Duties of the Vice Presidents. Each Vice President
shall have all powers and shall perform all duties incident to the office of
Vice President and shall have such other powers and perform such other duties as
may from time to time be assigned by these By-Laws or by the Board of Directors
or the Chief Executive Officer.
SECTION 4. Powers and Duties of the Secretary. The Secretary shall keep the
minutes of all meetings of the Board of Directors and the minutes of all
meetings of the stockholders in books provided for that purpose. The Secretary
shall attend to the giving or serving of all notices of the Corporation; shall
have custody of the corporate seal of the Corporation and shall affix the same
to such documents and other papers as the Board of Directors or the Chief
Executive Officer shall authorize and direct; shall have charge of the stock
certificate books, transfer books and stock ledgers and such other books and
papers as the Board of Directors or the Chief Executive Officer shall direct,
all of which shall at all reasonable times be open to the examination of any
Director, upon application, at the office of the Corporation during business
hours. The Secretary shall have all powers and shall perform all duties incident
to the office of Secretary and shall also have such other powers and shall
perform such other duties as may from time to time be assigned by these By-Laws
or by the Board of Directors or the Chief Executive Officer.
SECTION 5. Powers and Duties of the Treasurer. The Treasurer shall have
custody of, and when proper shall pay out, disburse or otherwise dispose of, all
funds and securities of the Corporation. The Treasurer may endorse on behalf of
the Corporation for collection checks, notes and other obligations and shall
deposit the same to the credit of the Corporation in such bank or
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banks or depositary or depositaries as the Board of Directors may designate;
shall sign all receipts and vouchers for payments made to the Corporation; shall
enter or cause to be entered regularly in the books of the Corporation kept for
the purpose full and accurate accounts of all moneys received or paid or
otherwise disposed of and whenever required by the Board of Directors or the
Chief Executive Officer shall render statements of such accounts; The Treasurer
shall, at all reasonable times, exhibit the books and accounts to any Director
of the Corporation upon application at the office of the Corporation during
business hours; and shall have all powers and shall perform all duties incident
of the office of Treasurer and shall also have such other powers and shall
perform such other duties as may from time to time be assigned by these By-Laws
or by the Board of Directors or the Chief Executive Officer.
SECTION 6. Additional Officers. The Board of Directors may from time to
time elect such other officers (who may but need not be Directors), including a
Controller, Assistant Treasurers, Assistant Secretaries and Assistant
Controllers, as the Board may deem advisable and such officers shall have such
authority and shall perform such duties as may from time to time be assigned by
the Board of Directors or the Chief Executive Officer.
The Board of Directors may from time to time by resolution delegate to any
Assistant Treasurer or Assistant Treasurers any of the powers or duties herein
assigned to the Treasurer; and may similarly delegate to any Assistant Secretary
or Assistant Secretaries any of the powers or duties herein assigned to the
Secretary.
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SECTION 7. Giving of Bond by Officers. All officers of the Corporation, if
required to do so by the Board of Directors, shall furnish bonds to the
Corporation for the faithful performance of their duties, in such penalties and
with such conditions and security as the Board shall require.
SECTION 8. Voting Upon Stocks. Unless otherwise ordered by the Board of
Directors, the Chief Executive Officer or any Vice President shall have full
power and authority on behalf of the Corporation to attend and to act and to
vote, or in the name of the Corporation to execute proxies to vote, at any
meeting of stockholders of any corporation in which the Corporation may hold
stock, and at any such meeting shall possess and may exercise, in person or by
proxy, any and all rights, powers and privileges incident to the ownership of
such stock. The Board of Directors may from time to time, by resolution, confer
like powers upon any other person or persons.
SECTION 9. Compensation of Officers. The officers of the Corporation shall
be entitled to receive such compensation for their services as shall from time
to time be determined by the Board of Directors.
ARTICLE IV
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1. Nature of Indemnity. The Corporation shall to the fullest extent
permitted by Delaware law, as in effect from time to time (but, in the case of
any amendment of the General Corporation Law of the State of Delaware only to
the extent that such amendment permits broader
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indemnification rights than said law permitted the Corporation to provide prior
to such amendment), indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that he or she is or was or has agreed to become a Director or
officer of the Corporation or any of its subsidiaries, or is or was serving or
has agreed to serve at the request of the Corporation as a Director or officer
of another corporation, limited liability company, partnership, joint venture,
trust or other enterprise, or by reason of any action alleged to have been taken
or omitted in such capacity, and may indemnify any person who was or is a party
or is threatened to be made a party to such an action, suit or proceeding by
reason of the fact that he or she is or was or has agreed to become an employee
or agent of the Corporation, or is or was serving or has agreed to serve at the
request of the Corporation as an employee or agent of another corporation,
limited liability company, partnership, joint venture, trust or other
enterprise, against all losses, liabilities, expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person or on his or her behalf in connection with such action,
suit or proceeding and any appeal therefrom, if the person acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful;
except that in the case of an action or suit by or in the right of the
Corporation to procure a judgment in its favor (1) such indemnification shall be
limited to expenses (including attorneys' fees) actually and reasonably incurred
by such person in the defense or settlement of such action or suit, and (2) no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the
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extent that the Delaware Court of Chancery or the court in which such action or
suit was brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Delaware
Court of Chancery or such other court shall deem proper.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he or she reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his or her
conduct was unlawful.
Section 2. Successful Defense. To the extent that a Director, officer,
employee or agent of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in Section 1
of this Article IV or in defense of any claim, issue or matter therein, he or
she shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him or her in connection therewith.
Section 3. Determination that Indemnification is Proper. Any
indemnification of a Director or officer of the Corporation under Section 1 of
this Article IV (unless ordered by a court) shall be made by the Corporation
unless a determination is made that indemnification of the Director or officer
is not proper in the circumstances because he or she has not met the applicable
standard of conduct set forth in Section 1. Any indemnification of an employee
or agent of the Corporation
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under Section 1 (unless ordered by a court) may be made by the Corporation upon
a determination that indemnification of the employee or agent is proper in the
circumstances because he or she has met the applicable standard of conduct set
forth in Section 1. Any such determination shall be made (1) by a majority vote
of the Directors who are not parties to such action, suit or proceeding, even
though less than a quorum, or (2) if there are no such directors, or if such
directors so direct, by independent legal counsel in a written opinion, or (3)
by the stockholders.
Section 4. Advance Payment of Expenses. Unless the Board of Directors
otherwise determines in a specific case, expenses incurred by a Director or
officer in investigating or in defending a civil or criminal action, suit or
proceeding shall be paid by the Corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of the Director or officer to repay such amount if it shall ultimately be
determined that he or she is not entitled to be indemnified by the Corporation
as authorized in this Article IV. Such expenses incurred by other employees and
agents may be so paid upon such terms and conditions, if any, as the Board of
Directors deems appropriate. The Board of Directors may authorize the
Corporation's legal counsel to represent such Director, officer, employee or
agent in any action, suit or proceeding, whether or not the Corporation is a
party to such action, suit or proceeding.
Section 5. Survival; Preservation of Other Rights. The foregoing
indemnification provisions shall be deemed to be a contract between the
Corporation and each Director, officer, employee and agent who serves in any
such capacity at any time while these provisions as well as the relevant
provisions of the Delaware General Corporation Law are in effect and any repeal
or
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modification thereof shall not affect any right or obligation then existing with
respect to any state of facts then or previously existing or any action, suit,
or proceeding previously or thereafter brought or threatened based in whole or
in part upon any such state of facts. Such a contract right may not be modified
retroactively without the consent of such Director, officer, employee or agent.
The indemnification provided by this Article IV shall not be deemed
exclusive of any other rights to which a person indemnified may be entitled
under any by-law, agreement, vote of stockholders or disinterested Directors or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a Director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person. The
Corporation may enter into an agreement with any of its Directors, officers,
employees or agents providing for indemnification and advancement of expenses,
including attorneys fees, that may change, enhance, qualify or limit any right
to indemnification or advancement of expenses created by this Article IV.
Section 6. Severability. If this Article IV or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Director or officer and may
indemnify each employee or agent of the Corporation as to losses, liabilities,
costs, charges and expenses (including attorneys' fees), judgment, fines and
amounts paid in settlement with respect to any action, suit or proceeding,
whether civil, criminal, administrative or investigative, including an action by
or in the right of the Corporation, to the fullest extent
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permitted by any applicable portion of this Article IV that shall not have been
invalidated and to the fullest extent permitted by applicable law.
Section 7. Subrogation. In the event of payment of indemnification to a
person described in Section 1 of this Article IV, the Corporation shall be
subrogated to the extent of such payment to any right of recovery such person
may have and such person, as a condition of receiving indemnification from the
Corporation, shall execute all documents and do all things that the Corporation
may reasonably deem necessary or desirable to perfect such right of recovery,
including the execution of such documents necessary to enable the Corporation
effectively to enforce any such recovery.
Section 8. No Duplication of Payments. The Corporation shall not be liable
under this Article IV to make any payment in connection with any claim made
against a person described in Section 1 of this Article IV to the extent such
person has otherwise received payment (under any insurance policy, by-law or
otherwise) of the amounts otherwise payable as indemnity hereunder.
ARTICLE V
STOCK-SEAL-FISCAL YEAR
SECTION 1. Certificates For Shares of Stock. The certificates for shares of
stock of the Corporation shall be in such form, not inconsistent with the
Certificate of Incorporation, as shall be approved by the Board of Directors.
All certificates shall be signed by the Chief Executive Officer
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or a Vice President and by the Secretary or an Assistant Secretary or the
Treasurer or an Assistant Treasurer, and shall not be valid unless so signed.
In case any officer or officers who shall have signed any such certificate
or certificates shall cease to be such officer or officers of the Corporation,
whether because of death, resignation or otherwise, before such certificate or
certificates shall have been delivered by the Corporation, such certificate or
certificates may nevertheless be issued and delivered as though the person or
persons who signed such certificate or certificates had not ceased to be such
officer or officers of the Corporation.
All certificates for shares of stock shall be consecutively numbered as the
same are issued. The name of the person owning the shares represented thereby
with the number of such shares and the date of issue thereof shall be entered on
the books of the Corporation.
Except as hereinafter provided, all certificates surrendered to the
Corporation for transfer shall be canceled, and no new certificates shall be
issued until former certificates for the same number of shares have been
surrendered and canceled.
SECTION 2. Lost, Stolen or Destroyed Certificates. Whenever a person owning
a certificate for shares of stock of the Corporation alleges that it has been
lost, stolen or destroyed, he or she shall file in the office of the Corporation
an affidavit setting forth, to the best of his or her knowledge and belief, the
time, place and circumstances of the loss, theft or destruction, and, if
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required by the Board of Directors, a bond of indemnity or other indemnification
sufficient in the opinion of the Board of Directors to indemnify the Corporation
and its agents against any claim that may be made against it or them on account
of the alleged loss, theft or destruction of any such certificate or the
issuance of a new certificate in replacement therefor. Thereupon the Corporation
may cause to be issued to such person a new certificate in replacement for the
certificate alleged to have been lost, stolen or destroyed. Upon the stub of
every new certificate so issued shall be noted the fact of such issue and the
number, date and the name of the registered owner of the lost, stolen or
destroyed certificate in lieu of which the new certificate is issued.
SECTION 3. Transfer of Shares. Shares of stock of the Corporation shall be
transferred on the books of the Corporation by the holder thereof, in person or
by his or her attorney duly authorized in writing, upon surrender and
cancellation of certificates for the number of shares of stock to be
transferred, except as provided in Section 2 of this Article IV.
SECTION 4. Regulations. The Board of Directors shall have power and
authority to make such rules and regulations as it may deem expedient concerning
the issue, transfer and registration of certificates for shares of stock of the
Corporation.
SECTION 5. Record Date. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting or to receive payment of any dividend or other distribution or
allotment of any rights, or to exercise any rights in respect of any
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change, conversion or exchange of stock or for the purpose of any other lawful
action, as the case may be, the Board of Directors may fix, in advance, a record
date, which shall not be (i) more than sixty (60) nor less than ten (10) days
before the date of such meeting, or (ii) in the case of corporate action to be
taken by consent in writing without a meeting, prior to, or more than ten (10)
days after, the date upon which the resolution fixing the record date is adopted
by the Board of Directors, or (iii) more than sixty (60) days prior to any other
action.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the day next preceding the day
on which the meeting is held; the record date for determining stockholders
entitled to express consent to corporate action in writing without a meeting,
when no prior action by the Board of Directors is necessary, shall be the day on
which the first written consent is delivered to the Corporation; and the record
date for determining stockholders for any other purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating thereto. A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
SECTION 6. Dividends. Subject to the provisions of the Certificate of
Incorporation, the Board of Directors shall have power to declare and pay
dividends upon shares of stock of the Corporation, but only out of funds
available for the payment of dividends as provided by law.
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Subject to the provisions of the Certificate of Incorporation, any
dividends declared upon the stock of the Corporation shall be payable on such
date or dates as the Board of Directors shall determine. If the date fixed for
the payment of any dividend shall in any year fall upon a legal holiday, then
the dividend payable on such date shall be paid on the next day not a legal
holiday.
SECTION 7. Corporate Seal. The Board of Directors shall provide a suitable
seal, containing the name of the Corporation, which seal shall be kept in the
custody of the Secretary. A duplicate of the seal may be kept and be used by any
officer of the Corporation designated by the Board of Directors or the Chief
Executive Officer.
SECTION 8. Fiscal Year. The fiscal year of the Corporation shall be such
fiscal year as the Board of Directors from time to time by resolution shall
determine.
ARTICLE VI
MISCELLANEOUS PROVISIONS.
SECTION 1. Checks, Notes, Etc. All checks, drafts, bills of exchange,
acceptances, notes or other obligations or orders for the payment of money shall
be signed and, if so required by the Board of Directors, countersigned by such
officers of the Corporation and/or other persons as the Board of Directors from
time to time shall designate.
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Checks, drafts, bills of exchange, acceptances, notes, obligations and
orders for the payment of money made payable to the Corporation may be endorsed
for deposit to the credit of the Corporation with a duly authorized depository
by the Treasurer and/or such other officers or persons as the Board of Directors
from time to time may designate.
SECTION 2. Loans. No loans and no renewals of any loans shall be contracted
on behalf of the Corporation except as authorized by the Board of Directors.
When authorized to do so, any officer or agent of the Corporation may effect
loans and advances for the Corporation from any bank, trust company or other
institution or from any firm, corporation or individual, and for such loans and
advances may make, execute and deliver promissory notes, bonds or other
evidences of indebtedness of the Corporation. When authorized so to do, any
officer or agent of the Corporation may pledge, hypothecate or transfer, as
security for the payment of any and all loans, advances, indebtedness and
liabilities of the Corporation, any and all stocks, securities and other
personal property at any time held by the Corporation, and to that end may
endorse, assign and deliver the same. Such authority may be general or confined
to specific instances.
SECTION 3. Contracts. Except as otherwise provided in these By-Laws or by
law or as otherwise directed by the Board of Directors, the Chief Executive
Officer or any Vice President shall be authorized to execute and deliver, in the
name and on behalf of the Corporation, all agreements, bonds, contracts, deeds,
mortgages, and other instruments, either for the Corporation's own account or in
a fiduciary or other capacity, and the seal of the Corporation, if appropriate,
shall be affixed thereto by any of such officers or the Secretary or an
Assistant Secretary. The Board of Directors,
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the Chief Executive Officer or any Vice President designated by the Board of
Directors may authorize any other officer, employee or agent to execute and
deliver, in the name and on behalf of the Corporation, agreements, bonds,
contracts, deeds, mortgages, and other instruments, either for the Corporation's
own account or in a fiduciary or other capacity, and, if appropriate, to affix
the seal of the Corporation thereto. The grant of such authority by the Board or
any such officer may be general or confined to specific instances.
SECTION 4. Waivers of Notice. Whenever any notice whatever is required to
be given by law, by the Certificate of Incorporation or by these By-Laws to any
person or persons, a waiver thereof in writing, signed by the person or persons
entitled to the notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
SECTION 5. Offices Outside of Delaware. Except as otherwise required by the
laws of the State of Delaware, the Corporation may have an office or offices and
keep its books, documents and papers outside of the State of Delaware at such
place or places as from time to time may be determined by the Board of Directors
or the Chief Executive Officer.
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<PAGE>
ARTICLE VII
AMENDMENTS
These By-Laws and any amendment thereof may be altered, amended or
repealed, or new By-Laws may be adopted, by the Board of Directors at any
regular or special meeting by the affirmative vote of a majority of all of the
members of the Board, provided in the case of any special meeting at which all
of the members of the Board are not present, that the notice of such meeting
shall have stated that the amendment of these By-Laws was one of the purposes of
the meeting; but these By-Laws and any amendment thereof may be altered, amended
or repealed or new By-Laws may be adopted by the holders of a majority of the
total outstanding stock of the Corporation entitled to vote at any annual
meeting or at any special meeting, provided, in the case of any special meeting,
that notice of such proposed alteration, amendment, repeal or adoption is
included in the notice of the meeting.
-27-
EXECUTION
SLM INTERNATIONAL, INC.,
as Issuer,
THE GUARANTORS NAMED HEREIN,
as Guarantors,
and
THE BANK OF NEW YORK,
as Trustee
---------------------------
SENIOR SECURED NOTE
INDENTURE
Dated as of April 1, 1997
$29,500,000
14% Senior Secured Notes due April 1, 2004
NY1-463085 EXECUTION
<PAGE>
SLM INTERNATIONAL, INC.
================================================================================
Reconciliation and tie between Trust Indenture Act of 1939, as in effect at the
date hereof, and Indenture dated as of April 1, 1997.
Section of Trust Indenture Act Section of Indenture
- ------------------------------ --------------------
310(a)(1) and (2)...................................... 608
310(a)(3).............................................. 613
310(a)(4).............................................. Inapplicable
310(a)(5).............................................. 608
310(b)................................................. 608, 609
310(c)................................................. Inapplicable
311(a)................................................. 612
311(b)................................................. 612
311(b)(2).............................................. 612, 703(a)
311(c)................................................. Inapplicable
312(a)................................................. 701, 702(a)
312(b)................................................. 702(b)
312(c)................................................. 702(c)
313(a)................................................. 703(a)
313(b)................................................. 703(a), 703(b)
313(c)................................................. 703(a)
313(d)................................................. 703(c)
314(a)................................................. 704, 705
314(b)................................................. 1104
314(c)(1) and (2)...................................... 102
314(c)(3).............................................. Inapplicable
314(d)................................................. 1104
314(e)................................................. 102
315(a)................................................. 601(a), 601(c)
315(b)................................................. 602
315(c)................................................. 601(b)
315(d)................................................. 601(c)
315(d)(1).............................................. 601(a), 601(c)(1)
315(d)(2).............................................. 601(c)(2)
315(d)(3).............................................. 601(c)(3)
315(e)................................................. 514
316(a)................................................. 101
316(a)(1)(A)........................................... 512
316(a)(1)(B)........................................... 513
316(a)(2).............................................. Inapplicable
316(b)................................................. 508
316(c)................................................. 307, 104
317(a)(1).............................................. 503
317(a)(2).............................................. 504
317(b)................................................. 403
318(a)................................................. 107
================================================================================
NOTE: This reconciliation and tie shall not, for any purpose, be deemed to be
part of this Indenture.
NY1-463085 EXECUTION
i
<PAGE>
SLM INTERNATIONAL, INC.
SENIOR SECURED NOTE INDENTURE
TABLE OF CONTENTS*
PAGE
----
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 101. Definitions.............................................. 2
Section 102. Compliance Certificates and Opinions..................... 15
Section 103. Form of Documents Delivered to Trustee................... 16
Section 104. Acts of Holders.......................................... 16
Section 105. Notices to Trustee and Company........................... 17
Section 106. Notice to Holders; Waiver................................ 18
Section 107. Conflict with Trust Indenture Act........................ 18
Section 108. Effect of Headings and Table of Contents................. 19
Section 109. Successors and Assigns................................... 19
Section 110. Separability Clause...................................... 19
Section 111. Benefits of Indenture.................................... 19
Section 112. Governing Laws........................................... 19
Section 113. Legal Holidays........................................... 19
Section 114. Conflict with Collateral Documents....................... 19
ARTICLE TWO
SECURITY FORMS
Section 201. Forms Generally.......................................... 20
Section 202. Forms of Securities and Certificate of Authentication.... 20
ARTICLE THREE
THE SECURITIES
Section 301. Title and Terms.......................................... 20
Section 302. Denominations............................................ 22
Section 303. Execution, Authentication, Delivery and Dating........... 22
Section 304. Registration, Registration of Transfer and Exchange...... 23
Section 305. Mutilated, Destroyed, Lost and Stolen Securities......... 24
Section 306. Persons Deemed Owners.................................... 25
- --------
*This Table of Contents shall not, for any purpose, be deemed to be a part of
this Indenture.
NY1-463085 EXECUTION
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<PAGE>
Section 307. Payment of Principal and Interest; Preservation of
Rights................................................... 25
Section 308. Cancellation............................................. 28
Section 309. Computation of Interest.................................. 28
Section 310. CUSIP Numbers............................................ 28
ARTICLE FOUR
COVENANTS
Section 401. Payment of Principal and Interest........................ 28
Section 402. Maintenance of Office or Agency.......................... 28
Section 403. Money for Security Payments to be Held in Trust.......... 29
Section 404. Maintenance of Existence; Compliance with Laws........... 30
Section 405. Payment of Taxes and Other Claims........................ 30
Section 406. Limitation on Indebtedness............................... 30
Section 407. Limitation on Dividends, Distributions and Certain
Payments................................................. 31
Section 408. Limitation on Restrictions Affecting Subsidiaries........ 32
Section 409. Guaranty and Security Agreements......................... 32
Section 410. Reserved................................................. 32
Section 411. Financial Statements and Other Reports................... 32
Section 412. Limitation on Liens; Negative Pledge..................... 33
Section 413. Restrictions on Acquisition of Subsidiaries.............. 35
Section 414. Inspection............................................... 35
Section 415. Maintenance of Properties and Insurance.................. 36
Section 416. Transactions with Affiliates............................. 36
Section 417. Dissolution of Certain Subsidiaries...................... 36
Section 418. Waiver of Stay, Extension or Usury Laws.................. 36
Section 419. Limitation on Investments, Loans and Advances............ 37
Section 420. Additional Pledge........................................ 37
Section 421. Companies May Consolidate, etc., Only on Certain Terms... 37
Section 422. Conduct of Business...................................... 39
Section 423. Offers to Redeem Upon the Sale of Assets or Sale of
Equity................................................... 39
Section 424. Reserved................................................. 43
Section 425. Mandatory Redemption Upon Change of Control.............. 43
ARTICLE FIVE
DEFAULTS AND REMEDIES
Section 501. Events of Default........................................ 45
Section 502. Acceleration of Maturity; Rescission and Annulment....... 48
Section 503. Collection of Indebtedness and Suits for Enforcement by
Trustee.................................................. 49
Section 504. Trustee May File Proofs of Claim......................... 50
Section 505. Trustee May Enforce Claims Without Possession of
Securities............................................... 50
Section 506. Application of Money Collected........................... 51
NY1-463085 EXECUTION
iii
<PAGE>
Section 507. Limitation on Suits...................................... 51
Section 508. Unconditional Right of Holders to Receive Principal and
Interest................................................. 52
Section 509. Restoration of Rights and Remedies....................... 52
Section 510. Rights and Remedies Cumulative........................... 52
Section 511. Delay or Omission Not Waiver............................. 53
Section 512. Control by Holders....................................... 53
Section 513. Waiver of Past Defaults.................................. 53
Section 514. Undertaking for Costs.................................... 54
Section 515. Remedies................................................. 54
Section 516. Action on Securities..................................... 55
ARTICLE SIX
THE TRUSTEE
Section 601. Certain Duties and Responsibilities...................... 55
Section 602. Notice of Defaults....................................... 56
Section 603. Certain Rights of Trustee................................ 56
Section 604. Not Responsible for Recitals or Issuance of Securities... 58
Section 605. May Hold Securities...................................... 58
Section 606. Money Held in Trust...................................... 58
Section 607. Compensation and Reimbursement........................... 58
Section 608. Eligibility; Disqualification............................ 59
Section 609. Resignation and Removal; Appointment of Successor........ 59
Section 610. Acceptance of Appointment by Successor................... 61
Section 611. Merger, Conversion, Consolidation or Succession to
Business................................................. 61
Section 612. Preferential Collection of Claims Against Company........ 61
Section 613. Co-Trustees and Separate Trustee......................... 62
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE
Section 701. Company to Furnish Trustee Names and Addresses of
Holders.................................................. 63
Section 702. Preservation of Information; Communications to Holders... 63
Section 703. Reports by Trustee....................................... 65
Section 704. Reports by Company....................................... 66
Section 705. Statement as to Compliance............................... 66
ARTICLE EIGHT
SUPPLEMENTAL INDENTURES
Section 801. Supplemental Indentures without Consent of Holders....... 67
Section 802. Supplemental Indentures with Consent of Holders.......... 67
Section 803. Execution of Supplemental Indentures..................... 69
Section 804. Effect of Supplemental Indentures........................ 69
NY1-463085 EXECUTION
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<PAGE>
Section 805. Conformity with Trust Indenture Act...................... 69
Section 806. Reference in Securities to Supplemental Indentures....... 69
ARTICLE NINE
REDEMPTION OF SECURITIES
Section 901. Voluntary Redemption..................................... 69
Section 902. Applicability of Article................................. 70
Section 903. Election to Redeem; Notice to Trustee.................... 70
Section 904. Selection by Trustee of Securities to be Redeemed........ 70
Section 905. Notice of Redemption..................................... 70
Section 906. Deposit of Redemption Price.............................. 71
Section 907. Securities Payable on Redemption Date.................... 71
Section 908. Securities Redeemed in Part.............................. 72
ARTICLE TEN
GUARANTY OF SECURITIES
Section 1001. Guaranty................................................. 72
Section 1002. Obligations Joint and Several............................ 73
Section 1003. Validity Subject to Authentication....................... 73
Section 1004. Guaranties Not Fraudulent Transfers or Conveyances....... 73
Section 1005. Obligations of the Guarantors Unconditional.............. 73
Section 1006. Release of a Guarantor................................... 74
Section 1007. Execution of Guaranties.................................. 74
Section 1008. Guarantors May Consolidate, Etc., on Certain Terms....... 74
Section 1009. Contribution............................................. 75
Section 1010. Subrogation Rights of the Guarantors..................... 75
ARTICLE ELEVEN
COLLATERAL AND SECURITY AGREEMENTS
Section 1101. Collateral Documents..................................... 75
Section 1102. Recording and Opinions................................... 76
Section 1103. Release of Collateral.................................... 76
Section 1104. Certificates of the Issuer............................... 77
Section 1105. Authorization of Actions to be Taken by
the Trustee Under the Collateral Documents............... 77
Section 1106. Authorization of Receipt of Funds by the
Trustee Under the Collateral Documents
and the Intercreditor Agreement.......................... 78
SIGNATURES
NY1-463085 EXECUTION
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<PAGE>
EXHIBIT A Form of Senior Secured Note Due April 1, 2004
NY1-463085 EXECUTION
vi
<PAGE>
This SENIOR SECURED NOTE INDENTURE (this "Indenture"), dated as of April 1,
1997, between SLM International, Inc., a Delaware corporation (the "Company"),
as Issuer, Sport Maska Inc., Maska U.S., Inc., #1 Apparel, Inc., #1 Apparel
Canada Inc., SLM Trademark Acquisition Corp. and SLM Trademark Acquisition
Canada Corporation (each a "Guarantor" and collectively, the "Guarantors"), and,
The Bank of New York, a banking corporation organized and existing under the
laws of the State of New York, as trustee (the "Trustee").
PRELIMINARY STATEMENT
The Company has duly authorized the creation of an issue of its Senior
Secured Notes (as hereinafter defined) of substantially the tenor and amount
hereinafter set forth, and to provide therefor, the Company has duly authorized
the execution and delivery of this Indenture. All things necessary have been
done to make the Securities (as hereinafter defined), when executed by the
Company and authenticated and delivered hereunder and duly issued by the
Company, the valid obligations of the Company and to make this Indenture a valid
agreement of the Company, in accordance with their and its terms. All covenants
and agreements made by the Company herein are for the equal and proportionate
benefit and security of the Holders (as hereinafter defined) of Securities. The
Company is entering into this Indenture and the Trustee is accepting the trusts
created hereby, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged.
The Company has simultaneously herewith granted to the Trustee, for the
benefit of the Holders, a security interest in and lien upon substantially all
of the Company's property (real, personal and mixed), as more fully described in
the Collateral Documents (as hereinafter defined).
Also in connection herewith, each of the Guarantors has authorized the
execution and delivery of a guaranty of all of the Company's obligations
evidenced by the Securities and due and owing pursuant hereto, which guaranty is
set forth in Article Ten of this Indenture. In order to secure its obligations
under such guaranty, each Guarantor has granted to the Trustee, for the benefit
of the Holders, a security interest in and lien upon substantially all of its
property (real, personal and mixed), all as more fully described in the
Collateral Documents.
The security interests in and liens upon the Collateral granted to the
Trustee, for the benefit of the Holders, are subject to the terms and conditions
of the Intercreditor Agreement (as hereinafter defined). Certain rights of the
Trustee hereunder to institute proceedings or otherwise exercise remedies after
an Event of Default (as hereinafter defined) are also subject to the terms and
conditions of the Intercreditor Agreement.
NY1-463085 EXECUTION
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<PAGE>
The Securities issued by the Company pursuant hereto will be distributed to
the Lender Agent (as defined in the Reorganization Plan) for distribution by the
Lender Agent to the initial Holders as a partial repayment of the Company's
obligations to such Holders under the Credit Agreement (as defined in the
Reorganization Plan).
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 101. Definitions.
For all purposes of this Indenture, except as otherwise expressly provided
or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;
(b) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(c) except as otherwise expressly provided in this Indenture, all
accounting terms not otherwise defined herein shall have the meanings
assigned to them in conformity with GAAP; financial statements and other
financial information required to be delivered by the Company to the
Trustee and the Holders pursuant to this Indenture shall be prepared in
accordance with GAAP as in effect at the time of such preparation; and
(d) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
Certain terms, used principally in Articles Three, Four and Six, are
defined in those Articles.
"Act" when used with respect to any Holder has the meaning specified in
Section 104(a).
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
NY1-463085 EXECUTION
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<PAGE>
"Agent" means The Chase Manhattan Bank, as Agent for itself and the other
lenders under that certain Credit Agreement, dated as of April 1, 1997, among
the Company and certain of its Subsidiaries, as borrowers, the lenders referred
to therein and The Chase Manhattan Bank, as agent (as such Credit Agreement may
be amended, supplemented or otherwise modified from time to time in accordance
with its terms) or any successor agent appointed thereunder, or the agent or
representative of the lenders under any other Credit Agreement.
"Aggregate Outstanding Amount" means the aggregate principal amount of all
the Securities Outstanding at the date of determination.
"Asset Sale" means the sale, lease, assignment or other transfer for value
by the Company or any of its Subsidiaries to any Person other than the Company
or any of its direct or indirect Subsidiaries who are Guarantors hereunder,
whether in a single transaction or a series of related transactions, of (a) any
securities issued by the Company's Subsidiaries, (b) all or substantially all of
(i) the assets of the Company or any of its Subsidiaries, or (ii) any division
or line of business of the Company or any of its Subsidiaries, or (c) any other
assets of the Company or any of its Subsidiaries outside the ordinary course of
business of the Company or such Subsidiary, as the case may be.
"Asset Sale Redemption Proceeds" means, in the case of any Asset Sale, the
Net Cash Proceeds of Asset Sale minus the amount of such Proceeds applied
pursuant to Sections 423(a)(i), (ii)(x) and (ii)(y) hereof.
"Asset/Stock Sale Redemption" shall have the meaning set forth in Section
423(c) hereof.
"Asset/Stock Sale Redemption Date" shall have the meaning set forth in
Section 423(c) hereof.
"Authorized Officer" means, (i) with respect to the Company or any
Subsidiary, any president, vice president, secretary, treasurer, chief financial
officer, controller, assistant vice president, assistant secretary or assistant
treasurer of the Company or such Subsidiary, as the case may be, and (ii) with
respect to the Trustee or any other bank or trust company acting as trustee of
an express trust or as custodian, a Responsible Officer.
"Authorized Newspapers" means, collectively (i) with respect to the United
States, the national edition of the New York Times or the Wall Street Journal,
or any other newspaper of general circulation, printed in the English language
and customarily published on each Business Day, whether or not published on
Saturdays, Sundays or holidays, and (ii) with respect to Canada, any newspaper
of general circulation, printed in the English language and customarily
published on each Business Day, whether or not published on Saturdays, Sundays
or holidays.
NY1-463085 EXECUTION
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<PAGE>
"Available Redemption Proceeds" means the aggregate amount of (i) Asset
Sale Redemption Proceeds, (ii) Insurance Redemption Proceeds and (iii) Stock
Sale Redemption Proceeds.
"Bankruptcy Default" means any default under Section 501(e) or (f).
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York or the city in
which the Corporate Trust Office is located are authorized or obligated by law
or executive order to close.
"Canadian Credit Agreement" means that certain Credit Agreement, dated as
of April 1, 1997, between Sport Maska Inc. and The Chase Manhattan Bank of
Canada, as such Credit Agreement may be amended, supplemented or otherwise
modified from time to time in accordance with its terms, and any renewals,
extensions, refundings, replacements or refinancings thereof, to the extent the
indebtedness provided thereunder complies with the terms of the proviso set
forth in the definition of "Credit Facility Indebtedness."
"Canadian Guarantors" means, collectively, Sport Maska Inc., #1 Apparel
Canada Inc. and SLM Trademark Acquisition Canada Corporation, and any other
Person who may hereafter become a Subsidiary of the Company and whose internal
affairs are governed by the laws of Canada.
"Canadian Pension Plan" shall mean any pension plan established by a
Subsidiary of the Company under Canadian federal or provincial law for the
benefit of employees of the Subsidiary.
"Canadian Security Documents" means (i) the Debenture and Delivery
Agreements executed by the Company and each of the Guarantors, (ii) the Deeds of
Hypothec executed by the Company and each of the Guarantors, (iii) the Security
Agreement (Intellectual Property) executed by #1 Apparel Canada Inc., (iv) the
Mortgage on the Mount Vernon, Ontario property executed by #1 Apparel Canada
Inc., and each other agreement now existing or hereafter created providing
collateral security in Canada for the payment or performance of any of the
obligations under the Securities and this Indenture.
"Capital Lease," as applied to any Person, means any lease of any property
(whether real, personal or mixed) by that Person as lessee which would, in
conformity with GAAP, be accounted for as a capital lease on the balance sheet
of that Person.
"Cash Equivalents" means (i) certificates of deposit, time deposits and
money market accounts in dollars of any commercial banks registered to do
business in any state of the United States (a) having capital and surplus in
excess of $250,000,000 and (b) whose long-term debt rating is at least
investment grade as determined by either Standard & Poor's Rating Group or
Moody's Investors Service, Inc. and certificates of deposit in dollars offered
by money market mutual funds meeting the criteria in clause (iii) below; (ii)
readily marketable direct obligations
NY1-463085 EXECUTION
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<PAGE>
of the United States government or any agency thereof which are backed by the
full faith and credit of the United States; (iii) investments in money market
mutual funds having assets in excess of $2,000,000,000; (iv) 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.; and (v)
federally tax exempt securities rated A or better by either Standard & Poor's
Ratings Group or Moody's Investors Service, Inc.
"Change of Control" shall mean (i) Wellspring Associates L.L.C. and/or its
Affiliates shall cease to maintain the number of seats on the Board of Directors
of the Company to which Wellspring Associates L.L.C. and/or its Affiliates is
entitled pursuant to the Shareholders' Agreement in effect on the date hereof or
(ii) Wellspring Associates L.L.C. and/or its Affiliates shall cease to own stock
of the Company representing at least 20% of the aggregate ordinary voting power
represented by the issued and outstanding capital stock of the Company. "Voting
power" as used herein shall mean direct voting power, or the ability to vote by
virtue of contract, voting trust or other agreements.
"Change of Control Redemption Date" shall have the meaning set forth in
Section 425 hereof.
"Closing Date" means the date of the initial issuance of the Securities.
"Code" shall mean the Internal Revenue Code of 1986 and the rules and
regulations promulgated thereunder, as amended from time to time.
"Collateral" means, collectively, the Company Collateral and the Guarantor
Collateral of all Guarantors.
"Collateral Documents" means the Canadian Security Documents, the Pledge
Agreement, the UK Pledge Agreement, the Security Agreement, the Security
Agreement--Patents and Trademarks, the Mortgages and each other agreement now
existing or hereafter created providing collateral security for the payment or
performance of any of the obligations under the Securities and this Indenture,
and the financing statements under the UCC and Personal Property Security Law
related thereto.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, or if at any time after the
execution of this instrument such Commission is not existing or performing the
duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
"Company" means the Person named as the "Company" in the first paragraph of
this instrument, until a successor Person shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor Person.
NY1-463085 EXECUTION
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<PAGE>
"Company Collateral" means all of the property (real, personal and mixed)
of the Company securing the obligations owing under this Indenture and the
Securities.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by two Authorized Officers of the Company.
"Consolidated EBITDA" means, for any period, the sum (without duplication)
of (i) Consolidated Net Income plus (ii) Consolidated Interest Expense plus
(iii) Federal, state, provincial and local income taxes plus (iv) to the extent
Consolidated Net Income has been reduced thereby, amortization expense and
depreciation expense, all as determined on a consolidated basis for the Company
and its Subsidiaries in conformity with GAAP.
"Consolidated Interest Expense" means, for any period, the aggregate
interest expense of the Company and its Subsidiaries during the relevant period
determined on a consolidated basis in conformity 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 obligations with respect to Capital Leases allocable to interest expense,
(iv) all fixed and all calculable dividend payments on preferred stock, (v)
payments of interest expense in kind and (vi) all letter of credit fees (but
excluding any commitment fees relating thereto) payable with respect to any
letter of credit issued pursuant to the Credit Agreement to support the
obligations under the Canadian Credit Agreement.
"Consolidated Net Income" means, for any period, the aggregate income (or
loss) of the Company and its Subsidiaries on a consolidated basis, consolidated
in conformity with GAAP for such period taken as a single accounting period,
which shall be an amount equal to net revenues and other proper items of income
less the aggregate of any and all items that are treated as expenses under GAAP,
and less Federal, state, provincial 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; provided that there shall be
excluded (i) the income (or loss) of any Person accrued prior to the date it
becomes a Subsidiary of the Company or is merged into or consolidated with
Company or any of its Subsidiaries or that Person's assets are acquired by the
Company or any of its Subsidiaries, (ii) the income (or loss) related to (x) any
merger, consolidation, liquidation, winding up or dissolving of the Company or
any of its Subsidiaries or (y) any conveyance, sale, lease, sub lease, transfer
or other disposition of all or any substantial part of the Company's or any
Subsidiary's business or rights related thereto, property (whether leased or
owned in fee or fixed assets outside the ordinary course of business), and (iii)
the income of any Subsidiary of the Company to the extent that the declaration
or payment of dividends or similar distributions by that Subsidiary of that
income is not at the time permitted by operation of the terms of its charter or
any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Subsidiary.
NY1-463085 EXECUTION
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<PAGE>
"Consolidated Net Worth" shall mean the aggregate amount of stockholders'
equity (including without limitation any part of stockholders' equity
attributable to preferred stock) of the Company and its Subsidiaries determined
on a consolidated basis in accordance with GAAP.
"Contingent Obligation," as applied to any Person, means any direct or
indirect obligation, contingent or otherwise, of that Person with respect to any
indebtedness, lease, dividend, letter of credit or other monetary obligation of
another Person, including, without limitation, any such obligation directly or
indirectly guarantied, endorsed (otherwise than for collection or deposit in the
ordinary course of business), co-made or sold on a recourse basis by that
Person, or in respect of which that Person is otherwise directly or indirectly
liable, including, without limitation, any such obligation for which that Person
is in effect liable through any agreement (contingent or otherwise) to purchase,
repurchase or otherwise acquire such obligation or any security therefor, or to
provide funds for the payment or discharge of such obligation, (whether in the
form of loans, advances, stock purchases, capital contributions or otherwise),
or to maintain the solvency or any balance sheet item, level of income or other
financial condition of the obligor of such obligation, or to make payment for
any products, materials or supplies or for any transportation, services or lease
regardless of the non-delivery or non-furnishing thereof, or to provide
collateral to secure payment of such obligation, in any such case if the purpose
or intent of such agreement is to provide assurance that such obligation will be
paid or discharged or that the holders of such obligation will be protected (in
whole or in part) against any monetary loss in respect thereof. The amount of
any Contingent Obligation shall be equal to the lower of (i) an amount equal to
the stated or determinable amount of the primary obligation in respect of which
such Contingent Obligation is incurred and (ii) the maximum amount for which the
Person incurring the Contingent Obligation may be liable pursuant to the terms
of the instrument embodying such Contingent Obligation, unless such primary
obligation and the maximum amount for which such Person may be liable are not
stated or determinable, in which case the amount of such Contingent Obligation
shall be such Person's maximum reasonably anticipated liability in respect
thereof.
"Corporate Trust Office" means the office of the Trustee at which at any
particular time its corporate trust business shall be principally administered,
which office at the date of execution of this Indenture is located at 101
Barclay Street, 21 West, New York, New York 10286, Attention: Corporate Trust
Administrator.
"Credit Agreement" means that certain Credit Agreement, dated as of April
1, 1997, among the Company and certain of its Subsidiaries, as borrowers, the
lenders referred to therein and The Chase Manhattan Bank, as agent, as such
Credit Agreement may be amended, supplemented or otherwise modified from time to
time in accordance with its terms, and any renewals, extensions, refundings,
replacements or refinancings thereof, to the extent the indebtedness provided
thereunder complies with the terms of the proviso set forth in the definition of
"Credit Facility Indebtedness."
"Credit Facility Indebtedness" means (i) the principal of, and interest on,
all unreimbursed drawings under letters of credit issued or amended (or deemed
issued or amended),
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and other extensions of credit, under the Credit Agreement and the Canadian
Credit Agreement and all commitment, commission, facility and other fees payable
under the Credit Agreement and the Canadian Credit Agreement and all expenses,
reimbursements, indemnities and other amounts payable by the Company or any
other obligor under the Credit Agreement and the Canadian Credit Agreement and
the commitment letter relating to any of the foregoing, and (ii) any refundings,
replacements, refinancings, renewals or extensions of any indebtedness or other
obligation described in clause (i) above relating to the Credit Agreement or the
Canadian Credit Agreement; provided that any such refundings, replacements,
refinancings, renewals or extensions shall be based on commercially reasonably
terms and conditions, shall not contain any terms or conditions that, taken as a
whole, are more restrictive with respect to payment of principal or interest on
the Senior Secured Notes or are less favorable to the Holders than the Credit
Agreement, the Canadian Credit Agreement and documents related thereto as in
effect on the date hereof, and the maximum amount of indebtedness that may be
outstanding thereunder at any time shall be limited to 85% of the aggregate net
book value of the current assets of the Company and its Subsidiaries, as
determined in accordance with GAAP and without duplication for any letter of
credit issued under the Credit Agreement or the Canadian Credit Agreement to
support obligations under the other credit agreement.
"Defaulted Interest" has the meaning specified in Section 307(e).
"Depository Institution" means a depository institution as that term is
defined at 12 U.S.C. ss. 461(b)(1)(A), as amended, or any successor provision.
"Environmental Laws" shall mean the Comprehensive Environmental Response,
Compensation, and Liability Act (42 U.S.C. ss. 9601 et seq.), the Hazardous
Material Transportation Act (49 U.S.C. ss. 1801 et seq.), the Resource
Conservation and Recovery Act (42 U.S.C. ss. 6901 et seq.), the Federal Water
Pollution Control Act (33 U.S.C. ss. 1251 et seq.), the Oil Pollution Act of
1990 (33 U.S.C. ss. 2701 et seq.), the Safe Drinking Water Act (42 U.S.C. ss.
300f et seq.), the Clear Air Act (42 U.S.C. ss. 7401 et seq.), the Toxic
Substances Control Act, as amended (15 U.S.C. ss. 2601 et seq.), the Federal
Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. ss. 136 et seq.), and the
Occupational Safety and Health Act (29 U.S.C. ss. 651 et seq.), their Canadian
equivalent, including, without limitation, the Environmental Protection Act of
Ontario, the Environmental Quality Act of Quebec, the Canadian Environmental
Protection Act and the Canadian Transportation of Dangerous Goods Act, as such
laws have been and hereafter may be amended or supplemented, and any related or
analogous present or future Federal, state, provincial or local, statutes, rules
having the force of law, regulations, ordinances, licenses, permits and
interpretations having the force of law 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, as in effect from
time to time.
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"ERISA Affiliate" shall mean any trade or business (whether or not
incorporated) which together with the Company or any Subsidiary of any thereof
would be treated as a single employer under the provisions of Title I or Title
IV of ERISA.
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended
from time to time, and any successor statute and the rules and regulations
promulgated thereunder.
"Exempted Subsidiaries" shall have the meaning set forth in Section 413
hereof.
"FASB" means Statements of the Financial Accounting Standards Board.
"GAAP" means generally accepted accounting principles in the United States
as in effect from time to time.
"Governmental Authorization" means any permit, license, authorization,
plan, directive, consent order or consent decree of or from any federal, state
or local governmental authority, agency or court.
"Guarantor Collateral" means, with respect to each Guarantor, all of the
property (real, personal and mixed) of such Guarantor securing the obligations
of such Guarantor under this Indenture, the Securities, and the Collateral
Documents.
"Guarantors" means the Persons named as the "Guarantors" in the first
paragraph of this instrument and all other Persons who may hereafter become
Guarantors in accordance with the provisions hereof.
"Guaranty" means, with respect to each Guarantor, the guaranty provided by
such Guarantor pursuant to Article Ten of this Indenture.
"Holder" means a Person in whose name a Security is registered in the
Security Register.
"Inactive Subsidiaries" means Buddy L. International Ltd., Buddy L. St.
Thomas, Inc., Consumer InfoMarketing, Inc., Maska H.K. Limited, Smedley (Hong
Kong) Limited (f/k/a Buddy L. (Hong Kong) Limited), Smedley Industries, Inc.
(f/k/a Buddy L., Inc.), The Toy Factory, Inc. and St. Lawrence Manufacturing
Canada Inc.
"Indebtedness" means with respect to any Person, without duplication (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 (excluding trade accounts payable and accrued expenses
arising in the ordinary course of business in accordance with customary
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trade terms), (c) all obligations of such Person for the deferred purchase price
of property or services (excluding trade accounts payable and accrued expenses
arising in the ordinary course of business in accordance with customary trade
terms), (d) all obligations of such Person under conditional sale or other title
retention agreements relating to property purchased by such Person and that
portion of obligations with respect to Capital Leases, (e) all payment
obligations of such Person with respect to interest rate or currency protection
agreements, (f) all obligations of such Person as an account party under any
letter of credit or in respect of bankers' acceptances, (g) all Indebtedness 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 Indebtedness
provided, however, that the amount of Indebtedness of such Person shall be the
lesser of (i) the fair market value of such property or assets and (ii) the
amount of such Indebtedness), (h) all Contingent Obligations of such Person and
(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 payment in
full of all principal and interest under the Securities.
"Indenture" means this instrument as originally executed and as it may from
time to time be supplemented or amended by one or more indentures supplemental
hereto entered into pursuant to the applicable provisions hereof.
"Insurance Redemption Proceeds" means, in the case of any the Net Insurance
Proceeds received by the Company or any of its Subsidiaries, such Net Insurance
Proceeds minus the amount of such Proceeds applied pursuant to Sections
423(a)(i), (ii)(x) and (ii)(y) hereof.
"Intercreditor Agreement" means that certain Inter-Creditor Agreement,
dated as of April 1, 1997, between and among Agent, The Chase Manhattan Bank of
Canada and the Trustee.
"Interest Accrual Period" means with respect to any Interest Payment Date,
the period commencing on the immediately preceding Interest Payment Date (or
commencing on the Closing Date in the case of the first Interest Payment Date)
and ending on the day immediately preceding such Interest Payment Date.
"Interest Payment Date" means April 1 and October 1, as the case may be, of
each year, commencing on the first such date to occur which is at least ninety
days after the Closing Date.
"Interest Rate" means the annual rate at which interest accrues on the
Securities, as specified in Section 301 and in the terms of the Senior Secured
Notes.
"Lien" means with respect to any asset, (i) any mortgage, hypothec, 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
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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.
"Material Adverse Effect" means a material adverse effect on (i) the
business, assets, prospects, operations or financial or other condition of the
Company and its Subsidiaries taken as a whole, (ii) the ability of the Company
or any of the Guarantors to perform their respective obligations under the terms
hereof or of any Collateral Document, (iii) the rights of, or remedies available
to, the Trustee or the Holders under this Indenture or any Collateral Document
or (iv) the Trustee's Lien on any material portion of the Collateral or the
priority of such Lien.
"Maturity," when used with respect to any Security, means the date on which
the principal of such Security becomes due and payable as therein or herein
provided, whether pursuant to Section 307, at the Stated Maturity thereof or by
declaration of acceleration, call for redemption or otherwise.
"Mortgages" means the real property mortgages dated as of the date hereof
and executed by the Company or a Guarantor (as the case may be) in favor of the
Trustee, for the benefit of the Holders, as amended, modified or supplemented
from time to time.
"Multiemployer Plan" shall mean a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA.
"Net Cash Proceeds of Asset Sale" means, in the case of any Asset Sale, the
sum of (a) the gross cash proceeds received from such Asset Sale plus (b)
without duplication, all cash proceeds as and when received subsequent to such
Asset Sale representing any deferred portion of the purchase price, less (c) the
sum of (i) the amount, if any, of all taxes (other than income taxes) payable
plus the good-faith best estimate of the amount of all income taxes payable (to
the extent such amount shall have been set aside) in connection with the
applicable transaction, (ii) the amount, if any, applied to repay any
Indebtedness (other than the Credit Facility Indebtedness or Indebtedness in
respect of the Senior Secured Notes) including, without limitation, any premium,
penalty, interest or other amount in connection with such Indebtedness to the
extent such Indebtedness is required by its terms or by applicable law to be
repaid, (iii) reasonable and customary fees, discounts, commissions and expenses
and other costs paid (other than those paid to any Affiliate of the Company) in
connection with the applicable transaction, (iv) reserves, if any, in connection
with indemnification or similar obligations and (v) amounts held in escrow, if
any, in each case to the extent not already deducted in arriving at the amount
referred to in clause (a) or (b), all as reflected in an Officers' Certificate
delivered to the Trustee.
"Net Insurance Proceeds" means, the net proceeds received by the Company or
any of its Subsidiaries from any casualty insurance maintained in respect of any
asset of the Company or any of its Subsidiaries.
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"Notice of Election" shall have the meaning set forth in Section 423
hereof.
"Officers' Certificate" means a certificate signed on behalf of the Company
by two Authorized Officers.
"Opinion of Counsel" means a written opinion of counsel, who may be counsel
for the Company, and who shall be reasonably acceptable to the Trustee.
"Outstanding," when used with respect to Securities, means, as of the date
of determination, all Securities theretofore authenticated and delivered under
this Indenture, except:
(a) Securities theretofore cancelled by the Trustee or delivered to
the Trustee for cancellation; and
(b) Securities, or portions thereof, for whose payment or redemption
money (other than Available Redemption Proceeds) in the necessary amount
has been theretofore irrevocably deposited with the Trustee or any Paying
Agent in trust for the Holders of such Securities; provided that notice of
such redemption has been duly given pursuant to this Indenture or provision
therefor satisfactory to the Trustee has been made; and
(c) Securities in exchange for or in lieu of which other Securities
have been authenticated and delivered pursuant to this Indenture, other
than any such Securities in respect of which there shall have been
presented to the Trustee proof satisfactory to it that such Securities are
held by a bona fide purchaser in whose hands the Securities are valid
obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Securities owned
by the Company or any Guarantor or any Affiliate of the Company or Guarantor
shall be disregarded and deemed not to be Outstanding, except that, in
determining whether the Trustee shall be protected in relying upon any such
request, demand, authorization, direction, notice, consent or waiver, only
Securities which the Trustee knows to be so owned shall be so disregarded.
Securities so owned which have been pledged in good faith may be regarded as
Outstanding if the pledgee establishes to the satisfaction of the Trustee that
(i) the pledgee has a right to so act with respect to such Securities, and (ii)
the pledgee is not the Company or any Guarantor or any Affiliate of the Company
or Guarantor.
"Paying Agent" means any Person (other than the Company or any Affiliate or
Subsidiary of the Company) authorized by the Company to pay the principal of or
interest on any Securities on behalf of the Company.
"Payment Default" means any default under Section 501(a).
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
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"Pension Plan" shall mean any Plan which is subject to the provisions of
Title IV of ERISA.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"Personal Property Security Law" shall mean the Personal Property Security
Act or other statue or statutory provisions in effect from time to time in
Canada and its provinces which deals with the perfection and priority of Liens
on Collateral.
"Plan" shall mean any employee benefit plan within the meaning of Section
3(3) of ERISA and subject thereto and which is maintained (in whole or in part)
for employees of the Company, any Subsidiary thereof or any ERISA Affiliate.
"Pledge Agreement" means that certain Pledge Agreement, dated as of the
date hereof, between the Company and each Guarantor and the Trustee, for the
benefit of the Holders, as amended, modified or supplemented from time to time.
"Potential Event of Default" means a condition or event which, after notice
or lapse of time or both, would constitute an Event of Default if that condition
or event were not cured or removed within any applicable grace or cure period.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 305 in lieu of a lost, destroyed,
mutilated or stolen Security shall be deemed to evidence the same debt as the
lost, destroyed, mutilated or stolen Security.
"Proceeding" means any suit in equity, action at law or other judicial or
administrative proceeding.
"Purchase Money Indebtedness" means purchase money obligations to finance,
refinance or refund the cost (including the cost of construction) of real or
tangible personal property (including such obligations with respect to Capital
Leases).
"Redemption Date," when used with respect to any Securities to be redeemed,
means the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price," when used with respect to any Security to be redeemed,
means the price at which it is to be redeemed pursuant to this Indenture.
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"Regular Record Date," for the interest payable on any Interest Payment
Date, means the thirtieth day (whether or not a Business Day) immediately
preceding such Interest Payment Date.
"Reorganization Plan" means the First Amended Joint Chapter 11 Plan (As
Modified), dated as of November 12, 1996, the First Modification thereto dated
January 16, 1997 and the Second Modification thereto dated January 22, 1997, as
confirmed by the United States Bankruptcy Court for the District of Delaware on
January 23, 1997, and the Third Modification thereto dated March 14, 1997, as
approved by order of the United States Bankruptcy Court for the District of
Delaware dated March 27, 1997.
"Reportable Event" shall mean a Reportable Event as defined in Section
4043(c) of ERISA with respect to which the notice requirements have not been
waived.
"Requisite Holders" means the Holders of fifty-one percent (51%) of the
Aggregate Outstanding Amount of Securities.
"Responsible Officer" when used with respect to the Trustee means any
officer assigned to the Corporate Trust Office and also means, with respect to
any particular corporate trust matter, any other officer of the Trustee to whom
such matter is referred because of his or her knowledge of and familiarity with
the particular subject.
"Scheduled Principal Payments" means, at a specified date, the scheduled
principal payments due on the Senior Secured Notes as set forth in Section
307(b)(i).
"Secondary Securities" has the meaning set forth in Section 307.
"Securities" means the Senior Secured Notes.
"Security Agreement" means that certain Security Agreement, dated as of the
date hereof, between the Company and each Guarantor and the Trustee, for the
benefit of the Holders, as amended, modified or supplemented from time to time.
"Security Agreement--Patents and Trademarks" means that certain Security
Agreement and Mortgage -- Patents and Trademarks, dated as of the date hereof,
between the Company and each Guarantor and the Trustee, for the benefit of the
Holders, as amended, modified or supplemented from time to time.
"Security Register" and "Security Registrar" have the meanings specified in
Section 304.
"Senior Secured Notes" means the Company's 14% Senior Secured Notes Due
April 1, 2004 issued and outstanding pursuant to this Indenture (including
Secondary Securities issued in respect thereof).
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"Shareholders Agreement" shall mean that certain Agreement dated as of
April 1, 1997 by and among the Company and WS Acquisition L.L.C., The Equitable
Life Assurance Society of the United States, The Northwest Mutual Life
Insurance, Phoenix Home Life Mutual Insurance Company, GE Capital Assurance
Company, Business Men's Assurance Company and Indianapolis Life Insurance
Company, as amended, modified or supplemented from time to time.
"Special Record Date," for the payment of any Defaulted Interest, means a
date fixed by the Trustee pursuant to Section 307(e)(1).
"Stated Maturity," when used with respect to any Security or any
installment of interest thereon, means the date specified in such Security as
the fixed date on which the principal of such Security (disregarding any
mandatory redemption payments required by the terms of this Indenture) or such
installment of interest is due and payable.
"Stock Sale" has the meaning set forth in Section 423(b) hereof.
"Stock Sale Proceeds" has the meaning set forth in Section 423(b) hereof.
"Stock Sale Redemption Proceeds" means, in the case of any Stock Sale, the
Stock Sale Proceeds minus the amount of such Stock Sale Proceeds applied to
repay Credit Facility Indebtedness pursuant to Section 423(b)(x) hereof.
"Subsidiary" means, with respect to any Person, any corporation,
association, partnership or other business entity of which more than 50% of the
total voting power of shares of stock or partnership or other interests entitled
to vote in the election of directors, managers or trustees thereof is at the
time owned or controlled, directly or indirectly, by such Person and/or one or
more of the other Subsidiaries of such Person or a combination thereof but in no
event shall include an Inactive Subsidiary.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at
the date as of which this instrument was executed, except as provided in Section
805.
"Trustee" means the Person named as the "Trustee" in the first paragraph of
this instrument, until a successor Trustee shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Trustee" shall mean
such successor Trustee.
"UCC" means the Uniform Commercial Code of the state identified by the
context in which the term is used.
"UK Pledge Agreement" means that certain Charge Over Shares and Irrevocable
Proxy dated as of the date hereof, between the Company and the Trustee, for the
benefit of the Holders, as amended, modified or supplemented from time to time.
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Section 102. Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee to take any
action under any provision of this Indenture, the Company shall furnish to the
Trustee a Compliance Certificate stating that all conditions precedent, if any,
provided for in this Indenture (including any covenants the compliance with
which constitutes a condition precedent) relating to the proposed action have
been complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with, except
that, in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate or
opinion need be furnished.
Every certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture shall include:
(a) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(b) a brief statement as to the nature and scope of the examination or
investigation, if any, upon which the statements or opinions contained in
such certificate or opinion are based;
(c) a statement that, in the opinion of each such individual, he or
she has made such examination or investigation as is necessary to enable
him or her to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(d) a statement as to whether, in the opinion of each such individual,
such condition or covenant has been complied with.
Section 103. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an Authorized Officer of the Company may be
based, insofar as it relates to legal matters, upon a certificate or opinion of,
or representations by, counsel, unless such Authorized Officer knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which the certificate or
opinion is based are erroneous. Any such certificate or Opinion of Counsel may
be
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based, insofar as it relates to factual matters, upon a certificate or opinion
of, or representations by, an Authorized Officer of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Section 104. Acts of Holders.
(a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Indenture to be given or taken by Holders may
be embodied in and evidenced by one or more instruments of substantially similar
tenor signed by such Holders in person or by agent duly appointed in writing;
and, except as herein or therein otherwise expressly provided, such action shall
become effective when such instrument or instruments are delivered to the
Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and (subject to Section 601) conclusive in favor of the Trustee and
the Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such instrument
or writing may be proved in any reasonable manner which the Trustee deems
sufficient.
(c) The ownership of Securities shall be proved by the Security Register.
(d) Any request, demand, authorization, direction, notice, consent, waiver
or other action by the Holder of any Security shall bind every future Holder of
the same Security or Holder of every Security issued upon the transfer thereof
or in exchange therefor or in lieu thereof, in respect of anything done,
suffered or omitted to be done by the Trustee, any Paying Agent or the Company
in reliance thereon, whether or not notation of such action is made upon such
Security.
If the Company shall solicit from the Holders any request, demand
authorization, direction, notice, consent, waiver or other action, the Company
may, at its option, fix in advance a record date for the determination of such
Holders entitled to give such request, demand, authorization, direction, notice,
consent, waiver or other action, but the Company shall have no obligation to do
so. Notwithstanding the Trust Indenture Act Section 316(c), any such record date
shall be a date not more than 30 days prior to the first solicitation of Holders
generally in connection therewith and no later than the date such solicitation
is completed.
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If such a record date is fixed, such request, demand, authorization,
direction, notice, consent, waiver or other action may be given before or after
such record date, but only the Holders of record at the close of business on
such record date shall be deemed to be Holders for the purposes of determining
whether Holders of the requisite proportion of Securities then Outstanding have
authorized or agreed or consented to such request, demand, authorization,
direction, notice, consent, waiver or other action and for that purpose the
Outstanding Securities shall be computed as of such record date; provided that
no such authorization, agreement or consent by the Holders on such record date
shall be deemed effective unless it shall become effective pursuant to the
provisions of this Indenture not later than six months after the record date.
Section 105. Notices to Trustee and Company.
Any request, demand, authorization, direction, notice, consent, waiver or
Act of Holders or other document provided or permitted by this Indenture to be
made upon, given or furnished to, or filed with,
(a) the Trustee by any Holder or by the Company shall be sufficient
for every purpose hereunder if made, given, furnished or filed, in writing
and mailed, first-class postage prepaid, or delivered by nationally
recognized overnight courier, to or with the Trustee at its Corporate Trust
Office, Attention: Corporate Trust Administrator (with a copy thereof to
the Company at the address specified in Section 105(b)), or at any other
address previously furnished in writing to the Company and each Holder by
the Trustee; or
(b) the Company by the Trustee or by any Holder shall be sufficient
for every purpose hereunder (unless otherwise expressly provided herein) if
in writing and mailed, first-class postage prepaid, or delivered by
nationally recognized overnight courier, to the Company addressed to it at
77 Route 25, Pierson Industrial Park, Bradford, Vermont 05033, Attention:
Russell J. David, Vice President-Finance, or at any other address
previously furnished in writing to the Trustee by the Company.
Any request, demand, authorization, direction, notice, concern, waiver or
action of Holders or other document delivered pursuant to this Section 105 shall
be effective (i) five (5) days after mailing, if sent by mail, first-class
postage prepaid, or (ii) on the next Business Day if sent by nationally
recognized overnight courier.
Section 106. Notice to Holders; Waiver.
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed (at the Company's expense), first-class postage
prepaid, to each Holder affected by such event, at its address as it appears in
the Security Register, not later than the latest date, and not earlier than the
earliest date, prescribed for the giving of such notice. In any case where
notice to Holders
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is given by mail, neither the failure to mail such notice, nor any defect in any
notice so mailed, to any particular Holder shall affect the sufficiency of such
notice with respect to other Holders. Any notice when mailed to a Holder in the
aforesaid manner shall be conclusively deemed to have been received by such
Holder whether or not actually received by such Holder. Where this Indenture
provides for notice in any manner, such notice may be waived in writing by the
Person entitled to receive such notice, either before or after the event, and
such waiver shall be the equivalent of such notice. Waivers of notice by Holders
shall be filed with the Trustee, but such filing shall not be a condition
precedent to the validity of any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by reason of
any other cause, it shall be impracticable to mail notice of any event as
required by any provision of this Indenture, then any method of giving such
notice as shall be satisfactory to the Trustee shall be deemed to be a
sufficient giving of such notice.
Section 107. Conflict with Trust Indenture Act.
If and to the extent that any provision of this Indenture limits, qualifies
or conflicts with the duties imposed by Sections 310 to 318, inclusive, of the
Trust Indenture Act, or conflicts with any provision (an "incorporated
provision") required by or deemed to be included in this Indenture by operation
of such Trust Indenture Act Sections, such imposed duties or incorporated
provision shall control. If any provision of this Indenture modifies or excludes
any provision of the Trust Indenture Act that may be so modified or excluded,
the latter provision shall be deemed to apply to this Indenture as so modified
or excluded, as the case may be.
Section 108. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
Section 109. Successors and Assigns.
All covenants and agreements in this Indenture by the Company or any
Guarantor shall bind its successors and assigns, whether so expressed or not.
Section 110. Separability Clause.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
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Section 111. Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or implied, shall
give to any Person (other than the parties hereto and their successors and
permitted assigns hereunder, any Paying Agent, Security Registrar and the
Holders) any benefit or any legal or equitable right, remedy or claim under this
Indenture.
Section 112. Governing Laws.
This Indenture and the Securities shall be governed by and construed in
accordance with the laws of the State of New York (including, without
limitation, Section 5-1401 of the General Obligations Law of the State of New
York), without regard to conflicts of law principles.
Section 113. Legal Holidays.
In any case where any Interest Payment Date, any date established for the
payment of Defaulted Interest under Section 3.07(e) hereof, any Redemption Date
or the Stated Maturity of any Security shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Securities)
payment of interest or principal need not be made on such date, but may be made
on the next succeeding Business Day with the same force and effect as if made on
the Interest Payment Date, any date established for the payment of Defaulted
Interest under Section 3.07(e) hereof or Redemption Date, or at the Stated
Maturity; provided, however, that interest shall accrue with respect to any
principal payment (at the rate then applicable to the Securities) for the period
from and after such Redemption Date or Stated Maturity, as the case may be, to
(but not including) the next succeeding Business Day, and shall be payable on
such next succeeding Business Day.
Section 114. Conflict with Collateral Documents.
If and to the extent that any of the rights, powers and obligations of the
Trustee provided under this Indenture conflicts with the provisions of any of
the Collateral Documents, the provisions of this Indenture shall control.
ARTICLE TWO
SECURITY FORMS
Section 201. Forms Generally.
The Securities and the Trustee's certificate of authentication with respect
thereto shall be in substantially the forms set forth in Exhibit A hereof, with
such appropriate insertions, omissions, substitutions and other variations as
are required or permitted by this Indenture and may have such letters, numbers
or other marks of identification and such legends or endorsements
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placed thereon as may be required to comply with the rules of any securities
exchange or as may, consistently herewith, be determined by the Authorized
Officer of the Company executing such Securities, as evidenced by his or her
execution of the Securities. Any portion of the text of any Security may be set
forth on the reverse thereof, with an appropriate reference thereto on the face
of the Security. The definitive Securities shall be printed, lithographed or
engraved or produced by any combination of these methods or may be produced in
any other manner, all as determined by the Authorized Officer of the Company
executing such Securities, as evidenced by his or her execution of such
Securities.
Section 202. Forms of Securities and Certificate of Authentication.
The Senior Secured Notes shall be in substantially the form attached hereto
as Exhibit A and the form of the Trustee's certificate of authentication shall
be in the form provided in such Exhibit, which is incorporated in, and made a
part of, this Indenture.
ARTICLE THREE
THE SECURITIES
Section 301. Title and Terms.
The aggregate original principal amount of Securities which may be
authenticated and delivered under this Indenture on the Closing Date is limited
to $29,500,000, except for Securities authenticated and delivered upon
registration of transfer of, or in exchange for, or in lieu of, other Securities
(including Secondary Securities) pursuant to Section 303, 304, 305, 307, 806 or
908. Interest on the Securities shall begin to accrue on the Closing Date and
the initial Interest Rate (prior to default) on the Securities shall be equal to
14% per annum, payable in cash or, at the Company's option, up to 4% per annum
in Secondary Securities; provided that, with respect to the payment due on the
first Interest Payment Date, the Company may, at its option, pay all interest
due on that date in Secondary Securities. Notwithstanding anything to the
contrary in the preceding sentence, so long as no Potential Event of Default or
Event of Default shall have occurred and be continuing on the date the Interest
Rate is to reduce pursuant to the terms of this Section 301:
(a) the Interest Rate (prior to default) on the Securities shall be
permanently reduced to 12% per annum, payable in cash or, at the Company's
option, up to 2% per annum in Secondary Securities, upon the delivery by
the Company to the Trustee of (i) financial statements demonstrating that
Consolidated EBITDA for the immediately preceding four consecutive fiscal
quarters of the Company was not less than $18,000,000 and (ii) an Officers
Certificate certifying as to the foregoing and as to the effective date of
such reduction, such reduction in the Interest Rate (prior to default) on
the Securities to be effective as of the first day of the next succeeding
calendar month that
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commences at least thirty days after the date on which such financial
statements have been (1) delivered to the Trustee and (2) filed with the
Commission; and
(b) the Interest Rate (prior to default) on the Securities shall be
permanently reduced to 10% per annum payable in cash, upon the delivery by
the Company to the Trustee of (i) financial statements demonstrating that
Consolidated EBITDA for the immediately preceding four consecutive fiscal
quarters of the Company was not less than $25,000,000 and (ii) an Officers
Certificate certifying as to the foregoing and as to the effective date of
such reduction, such reduction in the Interest Rate (prior to default) on
the Securities to be effective as of the first day of the next succeeding
calendar month that commences at least thirty days after the date on which
such financial statements have been (1) delivered to the Trustee and (2)
filed with the Commission.
If a Potential Event of Default or Event of Default has occurred and is
continuing on the date any reduction in the Interest Rate would otherwise become
effective pursuant to Section 301(a) or (b) hereof, such Interest Rate reduction
shall not become effective until the first day of the next succeeding calendar
month after the date on which such Potential Event of Default or Event of
Default has been cured or waived in accordance with the provisions of this
Indenture.
Upon the occurrence of any event which would result in the reduction of the
Interest Rate pursuant to Section 301(a) or (b) hereof, the Trustee (at the
expense of the Company) shall give prompt written notice to all Holders (i) of
such occurrence, (ii) that, provided that there is no occurrence and continuance
of a Potential Event of Default or Event of Default on the date the Interest
Rate is to reduce pursuant to Section 301(a) or (b), the Interest Rate will be
reduced, and (iii) the effective date thereof.
The Interest Rate in effect with respect to the Securities is subject to
increase as provided in Sections 503 and 515. Any such increase shall be paid
solely in cash.
Upon the occurrence of any Payment Default, Bankruptcy Default or any
default pursuant to Section 501(c) hereof, all interest accrued thereafter and
during the period in which the Payment Default, Bankruptcy Default or any
default pursuant to Section 501(c) hereof has continued shall be payable solely
in cash, and no portion thereof may be paid in Secondary Securities.
Section 302. Denominations.
The Securities shall be issuable in registered form in any denomination of
$250,000 or more (except for Secondary Securities).
Section 303. Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company by an Authorized
Officer of the Company. The signature of such Authorized Officer on the
Securities may be
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manual or facsimile. Securities bearing the manual or facsimile signature of any
individual who at the time of execution of the Securities was authorized to act
on behalf of the Company in executing the Securities shall bind the Company,
notwithstanding that such individual may have ceased to be authorized to act in
such capacity prior to the authentication and delivery of such Securities or did
not possess such authorization at the date of such Securities.
At any time and from time to time after the execution and delivery of this
Indenture, the Company may deliver Securities executed by the Company to the
Trustee for authentication, together with a Company Order for the authentication
and delivery of such Securities; and the Trustee in accordance with such Company
Order shall authenticate and deliver such Securities as provided in this
Indenture and not otherwise.
Each Security authenticated and delivered by the Trustee upon a Company
Order on the Closing Date shall be dated as of the Closing Date. All other
Securities that are authenticated after the Closing Date for any other purpose
under this Indenture shall be dated the date of their authentication.
No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for in Exhibit
A hereto duly executed by the Trustee by manual signature of one of its duly
authorized Responsible Officers, and such certificate upon any Security shall be
conclusive evidence, and the only evidence, that such Security has been duly
authenticated and delivered hereunder and entitled to the benefits of this
Indenture.
In case the Company, as permitted by Section 421 hereof, shall be
consolidated or merged with or into any other Person or shall convey or transfer
all or substantially all of its properties and assets to any other Person, and
the successor Person resulting from such consolidation, or surviving such
merger, or into which the Company shall have been merged, or the successor
Person which shall have received a conveyance or transfer, as aforesaid, shall
have executed an indenture supplemental hereto with the Trustee pursuant to
Article Eight, any of the Securities authenticated or delivered prior to such
consolidation, merger, conveyance or transfer may, from time to time, at the
request of the successor Person, be exchanged for other Securities executed in
the name of the successor Person with such changes in phraseology and form as
may be appropriate, but otherwise in substance of like tenor as the Securities
surrendered for such exchange and of like principal amount; and the Trustee,
upon Company Order of the successor Person, shall authenticate and deliver
Securities as specified in such request for the purpose of such exchange. If
Securities shall at any time be authenticated and delivered in any new name of a
successor Person pursuant to this Section in exchange or substitution for or
upon registration of transfer of any Securities, such successor Person, at the
option of any Holder but without expense to such Holder, shall provide for the
exchange of all Securities at the time Outstanding held by such Holder for
Securities authenticated and delivered in such new name.
The Trustee shall have the right to decline to authenticate and deliver any
Securities under this Section if the Trustee, being advised by counsel,
determines that such action may not
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lawfully be taken or if the Trustee in good faith by its board of directors or
trustees, executive committee, or a trust committee of directors or trustees or
vice presidents shall determine that such action would expose the Trustee to
personal liability to existing Holders.
Section 304. Registration, Registration of Transfer and Exchange.
The Company shall cause to be kept at the Corporate Trust Office of the
Trustee a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 402 being herein sometimes
referred to as the "Security Register") in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the registration
of Securities and of transfers of Securities. The Trustee is hereby initially
appointed "Security Registrar" for the purpose of registering Securities and
transfers of Securities as herein provided. Upon any resignation or removal of
the Security Registrar, the Company shall promptly appoint a successor with the
approval of the Requisite Holders or, in the absence of such approval, assume
the duties of Security Registrar until a successor shall have been approved, and
notify the Holders of such action.
If a Person other than the Trustee is appointed by the Company as Security
Registrar, the Company will give the Trustee prompt written notice of the
appointment of such Security Registrar and of the location, and any change in
the location, of the Security Register, and the Trustee shall have the right to
inspect the Security Register at all reasonable times and to obtain copies
thereof and the Trustee shall have the right to conclusively rely upon a
certificate executed on behalf of the Security Registrar by an authorized
officer thereof as to the names, addresses, wiring instructions and taxpayer
identification numbers of the Holders of the Securities and the principal
amounts and numbers of such Securities.
Upon surrender for registration of transfer of any Security at the office
or agency of the Company designated pursuant to Section 402 for such purpose,
the Company shall execute, and the Trustee shall authenticate and deliver, in
the name of the designated transferee or transferees, one or more new Securities
of any authorized denomination or denominations, of a like aggregate principal
amount.
At the option of the Holder, one or more Securities may be exchanged for
one or more other Securities of any authorized denomination or denominations, of
a like aggregate principal amount, upon surrender of the Securities to be
exchanged at such office or agency. Whenever any Securities are so surrendered
for exchange, the Company shall execute, and the Trustee shall authenticate and
deliver, the Securities which the Holder making the exchange is entitled to
receive.
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All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt and entitled to the same benefits under this Indenture as the Securities
surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer, or
for exchange or redemption shall (if so required by the Company or the Trustee)
be duly endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Trustee, duly executed by the Holder thereof
or its attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange or redemption of Securities, but the Company may require payment of a
sum sufficient to pay all documentary, stamp or similar issue or transfer tax or
other governmental charge that may be imposed in connection with any
registration of transfer or exchange of Securities, other than exchanges
pursuant to Sections 806 or 908 not involving any transfer.
The Company shall not be required (a) to issue, register the transfer of or
exchange any Security during a period beginning at the opening of business
fifteen (15) days before the mailing of a notice of redemption of the Securities
selected for redemption under Sections 423, 425 or 904 and ending at the close
of business on the day of such mailing, or (b) to register the transfer of or
exchange any Security so selected for redemption in whole or in part, except the
unredeemed portion of Securities being redeemed in part.
Section 305. Mutilated, Destroyed, Lost and Stolen Securities.
If (a) any mutilated Security is surrendered to the Trustee, or (b) the
Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Security, and there is delivered to the
Company and the Trustee such security or indemnity as may be required by them to
save each of them and any agent thereof harmless, then, in the absence of notice
to the Company or the Trustee that such Security has been acquired by a bona
fide purchaser, the Company shall execute and upon the Company's written request
the Trustee shall authenticate and deliver, in exchange for any such mutilated
Security or in lieu of any such destroyed, lost or stolen Security, a
replacement Security of like tenor and principal amount, bearing a number not
contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has become
or is about to become due and payable, the Company in its discretion may,
instead of issuing a replacement Security, pay such Security.
Upon the issuance of any replacement Securities under this Section, the
Company may require the payment of a sum sufficient to cover any documentary,
stamp or similar issue or transfer tax or other governmental charge that may be
imposed in relation thereto and any other expenses (including the fees and
expenses of the Trustee) connected therewith.
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Every replacement Security issued pursuant to this Section in lieu of any
destroyed, lost or stolen Security shall constitute a contractual obligation of
the Company, whether or not the destroyed, lost or stolen Security shall be at
any time enforceable by anyone, and shall be entitled to all benefits of this
Indenture equally and proportionately with any and all other Securities duly
issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities.
Section 306. Persons Deemed Owners.
Prior to, and at the time of, due presentment for registration of transfer,
the Company, the Trustee, the Security Registrar, and any agent of the Company,
the Trustee or the Security Registrar may treat the Person in whose name any
Security is registered as the owner of such Security for the purpose of
receiving payment of principal of and (subject to Section 307) interest on such
Security and for all other purposes whatsoever, whether or not such Security be
overdue, and neither the Company, the Trustee nor any agent of the Company or
the Trustee shall be affected by notice to the contrary.
Section 307. Payment of Principal and Interest; Preservation of Rights.
(a) The Securities shall accrue interest (prior to default) during each
Interest Accrual Period at the applicable Interest Rate determined in accordance
with Section 301. Accrued interest shall be paid by the Company on each Interest
Payment Date in cash, or, to the extent permitted in Section 301, at the option
of the Company, through the issuance of additional Securities (such Securities
as issued from time to time for accrued interest being referred to herein as
"Secondary Securities"); provided that the Company may at its option pay cash in
lieu of issuing Secondary Securities. Any such Secondary Securities shall be
governed by this Indenture and shall be identical in all respects to the
Securities initially issued hereunder (except, as the case may be, with respect
to the issuance date and principal amount). The issuance of Secondary Securities
in accordance with this Section 307 shall not relieve the Company of its
obligations under Section 401. To the extent lawful and enforceable, interest on
Defaulted Interest and interest on the principal amount of Securities shall
accrue at the applicable Interest Rate, as may be increased pursuant to Sections
503 and 515.
(b) The principal of the Securities shall be payable as follows unless the
unpaid principal of such Securities becomes due and payable at an earlier date
by declaration of acceleration or in accordance with Sections 423, 425 and 901:
(i) Amounts shall be due and payable in accordance with the following
schedule, provided that the outstanding principal amount of Securities to
be repaid pursuant to this Section 307(b)(i) on a Scheduled Principal
Payment Date on or prior to
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October 1, 2003 shall be reduced on a pro rata basis to the extent of any
redemption of Securities made prior to the applicable Scheduled Principal
Payment Date:
Scheduled Outstanding Principal
Principal Payment Date to be Repaid
---------------------- ---------------------
October 1, 2001 $4,000,000
April 1, 2002 4,000,000
October 1, 2002 4,000,000
April 1, 2003 4,000,000
October 1, 2003 4,000,000
April 1, 2004 Balance of Unpaid Principal
(ii) All payments of principal on the Securities made pursuant to this
subsection shall be allocated to the Securities by lot or any other
appropriate and fair method determined by the Trustee.
(c) Except as set forth above with respect to payment of interest by
issuance of Secondary Securities, interest and principal on each Security shall
be payable by (i) wire transfer to a United States dollar account maintained by
the Holder of such Security at a Depository Institution in the United States as
reflected on the Security Register on the close of business on the applicable
Record Date or (ii) mailing checks for such interest and principal to the
Holders entitled thereto, first class postage prepaid, to each Holder to such
address as shall appear on the Security Register on the close of business of the
applicable Record Date. Interest and principal on each Security shall be paid by
the Paying Agent from the amounts made available therefor by the Company. In the
case of the Maturity of a Security (other than pursuant to Section 423, 425 or
901), the Trustee, in the name and at the expense of the Company, shall notify
the Person entitled thereto at its address as it appears on the Security
Register that such Security is to be paid in full. Such notice shall be mailed
as soon as practicable, and in any event no later than the tenth (10th) day
prior to the Maturity of such Security and shall specify the place where such
Security may be presented and surrendered for final payment. The Company, with
the prior consent of the Trustee, may, but shall not be obligated to, adopt any
other method of payment requested by a Holder.
(d) The Holders as of the close of business on the Regular Record Date in
respect of an Interest Payment Date shall be entitled to the interest accrued
and payable and principal payable, if any, on such Interest Payment Date.
Payments of interest, in cases where the amount of interest which is being paid
on Securities is less than the amount of interest which has accrued, to such
Holders shall be made in the proportion that the unpaid principal balance of the
Securities registered in the name of each such Holder on such Regular Record
Date bears to the Aggregate Outstanding Amount of all Securities on such Regular
Record Date. Any such payments that are returned to the Paying Agent shall be
held for payment as herein provided at the office or agency of the Company to be
maintained as provided in Section 402.
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(e) Any interest on any Security which is payable, but is not punctually
paid or duly provided for (including, without limitation, provision by issuance
of Secondary Securities), on any Interest Payment Date (herein called "Defaulted
Interest") shall forthwith cease to be payable to the Holder on the relevant
Regular Record Date by virtue of having been such Holder; and such Defaulted
Interest may, unless the Trustee shall have made demand therefor as provided in
the Securities and Section 503 hereof, be paid by the Company, at its election
in each case, as provided in subsection (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest to
the Persons in whose names the Securities (or their respective Predecessor
Securities) are registered at the close of business on a date (the "Special
Record Date") for the payment of such Defaulted Interest, which shall be
fixed in the following manner. The Company shall notify the Trustee in
writing of the amount of Defaulted Interest proposed to be paid on each
Security and the date of the proposed payment, and at the same time the
Company shall deposit with the Trustee an amount of money equal to the
aggregate amount proposed to be paid in respect of such Defaulted Interest
or shall make arrangements satisfactory to the Trustee for such deposit
prior to the date of the proposed payment, such money when deposited is to
be held in trust for the benefit of the Persons entitled to such Defaulted
Interest as provided in this subsection. The Company shall be entitled to
any interest earned on the amounts so deposited. Thereupon the Trustee
shall fix the Special Record Date for the payment of such Defaulted
Interest which shall be not more than fifteen (15) days and not less than
ten (10) days prior to the date of the proposed payment and not less than
ten (10) days after the receipt by the Trustee of the notice of the
proposed payment. The Trustee shall promptly notify the Company of such
Special Record Date. In the name and at the expense of the Company, the
Trustee shall cause notice of the proposed payment of such Defaulted
Interest and the Special Record Date therefor to be mailed, first-class
postage prepaid, to each Holder at its address as it appears in the
Security Register, not less than ten (10) days prior to such Special Record
Date. Notice of the proposed payment of such Defaulted Interest and the
Special Record Date therefor having been so mailed, such Defaulted Interest
shall be paid to the Persons in whose names the Securities (or their
respective Predecessor Securities) are registered at the close of business
on such Special Record Date and shall no longer be payable pursuant to the
following subsection (2).
(2) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon such
notice as may be required by such exchange, if, after notice given by the
Company to the Trustee of the proposed payment pursuant to this subsection,
such payment shall be deemed practicable by the Trustee.
(f) All Secondary Securities permitted or required to be issued under the
terms of this Indenture in lieu of the cash payment of accrued interest shall be
issued and delivered to the Holders entitled thereto on the applicable Regular
Record Date no later than the Interest Payment Date on which such accrued
interest is due.
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Section 308. Cancellation.
All Securities surrendered for payment, redemption, registration of
transfer or exchange shall, if surrendered to any Person other than the Trustee,
be delivered to the Trustee and shall be promptly cancelled by it. The Company
may at any time deliver to the Trustee for cancellation any Securities
previously authenticated and delivered hereunder which the Company may have
acquired in any manner whatsoever, and all Securities so delivered shall be
promptly cancelled by the Trustee. No Securities shall be authenticated in lieu
of or in exchange for any Securities cancelled as provided in this Section,
except as expressly permitted by this Indenture. All cancelled Securities held
by the Trustee shall be returned to the Company.
Section 309. Computation of Interest.
Interest on the Securities shall be computed on the basis of a 360-day year
of twelve 30-day months and the actual number of days which have elapsed.
Section 310. CUSIP Numbers.
The Company in issuing the Securities may use "CUSIP" numbers (if then
generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices
of redemption as a convenience to Holders; provided that any such notice may
state that no representation is made as to the correctness of such numbers
either as printed on the Securities or as contained in any notice of a
redemption and that reliance may be placed only on the other identification
numbers printed on the Securities, and any such redemption shall not be affected
by any defect in or omission of such numbers. The Company will promptly notify
the Trustee of any change in the CUSIP numbers.
ARTICLE FOUR
COVENANTS
Section 401. Payment of Principal and Interest.
Subject to the grace periods provided in Section 501(a), the Company will
duly and punctually pay the principal of and interest on the Securities in
accordance with the terms of the Securities and this Indenture.
Section 402. Maintenance of Office or Agency.
The Company will maintain an office or agency where Securities may be
presented or surrendered for payment, where Securities may be surrendered for
registration of transfer or exchange and where notices and demands to or upon
the Company in respect of the Securities may be served. The Company will give
prompt written notice to the Trustee of the location of any such office or
agency and any change of location thereof. The Company hereby initially
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designates the office of the Trustee at the Corporate Trust Office of the
Trustee as such office or agency of the Company. In case the Company shall fail
to maintain any such office or agency or shall fail to give such notice of the
location or of any change in the location thereof, presentations, Securities to
be surrendered and demands may be made and notices may be served at the
Corporate Trust Office of the Trustees.
Section 403. Money for Security Payments to be Held in Trust.
On or before 12:00 Noon, Eastern time, on the Business Day immediately
preceding each due date of the principal of or interest on, any Securities,
except as otherwise set forth in Section 423, the Company shall deposit with the
Paying Agent a sum in same day funds (or, if permitted hereunder, Secondary
Securities) sufficient to pay the principal or interest so becoming due, such
sum to be held in trust for the benefit of the Persons entitled to such
principal or interest, and (unless such Paying Agent is the Trustee) the Company
will promptly notify the Trustee in writing of such action or any failure to so
act.
The Company will cause any Paying Agent other than the Trustee to execute
and deliver to the Trustee an instrument in which such Paying Agent shall agree
with the Trustee, subject to the provisions of this Section, that such Paying
Agent will:
(a) hold all sums held by it for the payment of the principal of or
interest on Securities in trust for the benefit of the Persons entitled
thereto until such sums shall be paid to such Persons or otherwise disposed
of as herein provided;
(b) give the Trustee notice of any default by the Company (or any
other obligor upon the Securities) in the making of any payment of
principal or interest; and
(c) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, pay, or by Company
Order direct any Paying Agent to pay, to the Trustee all sums held in trust by
the Paying Agent, such sums to be held by the Trustee upon the same trusts as
those upon which such sums were held by such Paying Agent; and, upon such
payment by any Paying Agent to the Trustee, such Paying Agent shall be released
from all further liability with respect to such money.
Any money deposited with the Trustee or any Paying Agent in trust for the
payment of the principal of or interest on any Security and remaining unclaimed
for two years after such principal or interest has become due and payable shall
be paid to the Company; and the Holder of such Security shall thereafter, as an
unsecured general creditor, look only to the Company for payment thereof, and
all liability of the Trustee or such Paying Agent with respect to such trust
money shall thereupon cease; provided, however, that the Trustee or such Paying
Agent, before
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being required to make any such repayment, may at the expense of the Company
cause to be published once, in Authorized Newspapers, notice that such money
remains unclaimed and that, after a date specified therein, which shall not be
less than thirty (30) days from the date of such notification or publication,
any unclaimed balance of such money then remaining will be repaid to the
Company.
Section 404. Maintenance of Existence; Compliance with Laws.
Except as otherwise specifically permitted under Section 417, 421 or 423,
the Company will do or cause to be done all things necessary to preserve and
keep in full force and effect its corporate existence and the corporate or
partnership existence, as the case may be, of each Subsidiary and all rights,
privileges, franchises, permits, licenses, patents, patent rights, approvals,
copyrights, trademarks, tradenames and other authority which if not so preserved
or kept in full force and effect would have a material adverse effect on the
business of the Company and its Subsidiaries taken as a whole. The Company and
its Subsidiaries will at all times conduct their business in an orderly manner
without voluntary interruption and shall exercise all reasonable diligence in
order to comply with the requirements of all material applicable laws, rules,
regulations, licenses, permits and orders of any governmental authority,
noncompliance with which would materially and adversely affect the business,
properties, assets, operations or condition (financial or otherwise) of the
Company and its Subsidiaries taken as a whole. The Company shall at all times be
a corporation organized and existing under the laws of a State of the United
States of America.
Section 405. Payment of Taxes and Other Claims.
(a) The Company will, and will cause each of its Subsidiaries to, pay and
discharge promptly when due all taxes, assessments and other 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;
provided, however, that such payment and discharge shall not be required with
respect to (i) any such tax, assessment, charge, levy or claim so long as the
validity or amount thereof shall be contested in good faith by appropriate
proceedings and the applicable party shall have set aside on its books adequate
reserves with respect thereto in accordance with GAAP and such contest operates
to suspend collection of the contested tax, assessment, charge, levy or claims
and enforcement of a Lien or (ii) any tax, assessment, charge, levy or claims,
the failure to pay and discharge when due which, individually or in the
aggregate, would not have a Material Adverse Effect.
(b) The Company will not, nor will it permit any of its Subsidiaries to,
file or consent to the filing of any consolidated income tax return with any
Person other than the Company and its Subsidiaries.
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Section 406. Limitation on Indebtedness.
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, create, incur, assume, guarantee, or otherwise become or
remain directly or indirectly liable with respect to, any Indebtedness; provided
however, that this Section 406 shall not limit the incurrence by the Company or
any Subsidiary of (i) the Credit Facility Indebtedness; (ii) Indebtedness
incurred hereunder; and (iii) to the extent permitted under the Credit Agreement
or the Canadian Credit Agreement (a) Indebtedness secured by Liens permitted
under Section 412, (b) Indebtedness (including, without limitation, guarantees)
existing on the date hereof but not the extension, renewal or refunding thereof,
(c) Indebtedness to trade creditors incurred and deposits from customers
received in the ordinary course of business, (d) guarantees constituting the
endorsement of negotiable instruments for deposit or collection in the ordinary
course of business, (e) Purchase Money Indebtedness to finance capital
expenditures in an aggregate amount outstanding at any time not to exceed
$5,000,000 provided that any Lien granted with respect to such Indebtedness is
permitted by Section 412(e) hereof, (f) guarantees by the Company of
Indebtedness of any Subsidiary permitted under this Section 406 or trade
accounts payable of a Subsidiary arising in the ordinary course of business in
accordance with customary trade terms and guarantees by any Subsidiary of
Indebtedness of the Company or another Subsidiary permitted under this Section
406 or trade accounts payable of the Company or another Subsidiary arising in
the ordinary course of business in accordance with customary trade terms, (g)
other unsecured Indebtedness in the ordinary course of business not to exceed
$3,000,000 at any one time outstanding, (h) interest rate and currency
protection agreements occurring in the ordinary course of business, (i)
Indebtedness to finance insurance premiums, (j) intercompany Indebtedness
between the Company and wholly owned Subsidiaries which are Guarantors (other
than SLM Trademark Acquisition Canada Corporation) and (k) other unsecured
Indebtedness but only if at the time such Indebtedness is incurred, (1) either
(x) the Interest Rate on the Securities has been permanently reduced to 12% per
annum pursuant to Section 301(a) and the Company has irrevocably waived its
right to pay any interest in Secondary Securities as otherwise permitted by
Section 301(a) or (y) the Interest Rate on the Securities has been permanently
reduced to 10% per annum pursuant to Section 301(b); (2) after giving effect to
the incurrence of such Indebtedness, the ratio of Consolidated EBITDA to
Consolidated Interest Expense for the four fiscal quarter period ending on or
immediately prior to the time such Indebtedness is incurred (x) if such
Indebtedness is incurred on or prior to September 30, 2001, exceeds 2.25 to 1.00
or (y) if such Indebtedness is incurred at any time thereafter, exceeds 2.75 to
1.00; (3) such Indebtedness does not mature or become subject to any mandatory
prepayment other than as a result of an event of default or amortization of
principal prior to July 2, 2004; and (4) the Company shall have delivered to the
Trustee an Officers' Certificate stating that the incurrence of such
Indebtedness satisfies each of the requirements set forth in this Section 406(k)
and demonstrating in reasonable detail compliance at the end of the applicable
accounting period with the restrictions contained clause (2) of this Section
406(k).
Section 407. Limitation on Dividends, Distributions and Certain Payments.
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The Company and its Subsidiaries will not, directly or indirectly, (i)
prepay, redeem, purchase or retire any Indebtedness incurred pursuant to Section
406(k) or (ii) declare, order, pay, make or set apart any sum for any dividends
or make any other distribution, whether in cash, property, securities or a
combination thereof, with respect to (whether by reduction of capital or
otherwise) any shares of its capital stock 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 set aside
any amount for any such purpose except that (1) any Subsidiary of the Company
may pay dividends or make other distributions to its direct parent, (2) the
Company may pay dividends in kind or exchange shares of its capital stock for
other such shares and (3) so long as no Potential Event of Default or Event of
Default has occurred and is continuing or would result therefrom, the Company
may repurchase or redeem its shares from employees or officers who have died,
resigned, been terminated or retired so long as the aggregate amount expended in
any fiscal year of the Company does not exceed (x) $250,000 and (y) at any time
after April 1, 2000, provided that the Consolidated Net Income for the previous
fiscal year of the Company equals or exceeds $250,000, an additional $250,000 in
such fiscal year.
Section 408. Limitation on Restrictions Affecting Subsidiaries.
Except as otherwise set forth herein or as may be set forth in the Credit
Agreement, the Canadian Credit Agreement, any guarantee relating to either of
the foregoing or any agreement binding on a Subsidiary acquired after the date
hereof in accordance with the terms hereof, the Company will not, and will not
permit any Subsidiary to, create or otherwise cause or suffer to exist or become
effective any consensual encumbrance or restriction of any kind on the ability
of any Subsidiary to (a) pay dividends or make any other distribution on any of
such Subsidiary's capital stock or partnership interests owned by the Company or
any Subsidiary of the Company, (b) pay any Indebtedness owed to the Company or
any other Subsidiary of the Company, (c) make loans or advances to the Company
or any other Subsidiary of the Company, or (d) transfer any of its property or
assets to the Company or any other Subsidiary of the Company.
Section 409. Guaranty and Security Agreements.
The Company shall, and shall cause each of the Guarantors to, execute and
deliver the Collateral Documents, and the Company agrees, and agrees to cause
the Guarantors, to perform fully, promptly and faithfully all of their
respective obligations under each of the Collateral Documents and the Guaranties
to which they are a party, in each case, in accordance with the terms thereof.
Section 410. Reserved.
Section 411. Financial Statements and Other Reports.
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The Company will maintain a system of accounting established and
administered in accordance with sound business practices to permit preparation
of financial statements in conformity with GAAP. The Company will deliver to the
Trustee:
(a) such information, documents, reports and certificates as is
required under Sections 704 and 705;
(b) promptly upon any officer of the Company obtaining knowledge (i)
of any condition or event which constitutes an Event of Default or
Potential Event of Default, (ii) that any Person has given any notice to
the Company or any Subsidiary of the Company or taken any other action with
respect to a claimed default or event or condition of the type referred to
in Section 501(d), (iii) of a material adverse change in the business,
operations, properties, assets, condition (financial or otherwise) or
prospects of the Company and its Subsidiaries, taken as a whole, or (iv)
that any holder of a Lien permitted by Section 412(f) has given any notice
to the Company or any Subsidiary of the Company or taken any other action
with respect to such Lien that could result in the foreclosure or
enforcement of such Lien against the assets of the Company or any
Subsidiary, an Officers' Certificate specifying the nature and period of
existence of any such condition or event, or specifying the notice given or
action taken by such holder or Person and the nature of such claimed
default, Event of Default or Potential Event of Default and what action the
Company or such Subsidiary, as the case may be, has taken, is taking and
proposes to take with respect thereto; and
(c) with reasonable promptness, such other information and data with
respect to the Company or its Subsidiaries as from time to time may be
reasonably requested by the Trustee.
Section 412. Limitation on Liens; Negative Pledge.
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, create, incur, assume or permit to exist any Lien on or
with respect to any of its properties or assets or the properties or assets of
any of its Subsidiaries, respectively, whether now owned or hereafter acquired,
or any income or profits therefrom, 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 or similar laws (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 fifteen (15)
days or which are being contested in compliance with Section 405;
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(c) Liens securing the payment of taxes, assessments and governmental
charges or levies, that are not delinquent or are being diligently
contested in compliance with Section 405;
(d) zoning restrictions, easements, rights of way licenses, flowage
rights, reservations, provisions, covenants, conditions, waivers,
restrictions on the use of property or minor defects or irregularities of
title and similar encumbrances (and with respect to leasehold interests,
mortgages, obligations, liens and other encumbrances incurred, created,
assumed or permitted to exist and arising by, through or under a landlord
or owner of the leased property, with or without consent to the lessee)
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) purchase money Liens granted in connection with the occurrence of
Indebtedness permitted by Section 406(e) hereof, to the vendor or Person
financing the construction or acquisition of property, plant or equipment,
provided that (i) such Lien is limited to the particular assets constructed
or acquired, (ii) the debt secured by the Lien does not exceed the amount
financed for the construction or acquisition cost (including transaction
costs and indemnities customarily secured by a Lien of such type) of the
specific assets on which the Lien is granted, (iii) such Lien arises and
the Indebtedness secured thereby is created within 120 days of the
completion of such construction or of such acquisition or are incurred to
extend, renew or refinance such Liens and Indebtedness incurred within such
120-day period and (iv) such transaction does not otherwise violate the
terms of the Indenture;
(f) Liens securing the Credit Facility Indebtedness;
(g) Liens existing on the date of this Indenture but not the
extension, renewal or refunding of the Indebtedness secured thereby;
(h) Liens granted to the Trustee pursuant to the Collateral Documents
as security for the benefit of the Holders of the Securities hereunder;
(i) Liens and deposits securing the performance of bids, tenders,
leases, contracts (other than for the repayment of borrowed money),
statutory obligations, surety, customs and appeal bonds, performance bonds
and other obligations of like nature, incurred as an incident to and in the
ordinary course of business;
(j) judgment Liens securing judgments and decrees, which would not
constitute an Event of Default under Section 501(g);
(k) warrants being issued under the Reorganization Plan or stock
options issued pursuant to stock option plans;
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(l) option of other shareholders of CCM Holdings (1983) Inc.;
(m) UCC or Personal Property Security Law filings made for
informational purposes by lessors of property to the Company, a Guarantor
or any Subsidiary thereof;
(n) Liens in favor of customs and revenue authorities to secure the
payment of custom duties in connection with the importation of goods in the
ordinary course of business;
(o) Liens on property prior to the acquisition thereof by the Company,
a Guarantor or any Subsidiary thereof, provided that such Lien is not
created in contemplation of or in connection with such acquisition, such
Lien does not apply to any other property and such Lien does not materially
interfere with the use, occupancy and operation of any property, materially
reduce the fair market value of such property but for such Lien or result
in any material increase in the cost of operating, occupying or owning (or
leasing) such property; or
(p) Liens that arise automatically under Environmental Laws provided
that the Company is in compliance with Section 404 and any such Lien would
not have a Material Adverse Effect.
Neither the Company nor any of its Subsidiaries will enter into any
agreement prohibiting the creation or assumption of any Lien upon any of their
properties or assets, whether now owned or hereafter acquired, to secure payment
of the Securities (except in respect of any specific asset purchased pursuant to
any Purchase Money Indebtedness permitted under Section 406(iii)(b) or (e)).
Section 413. Restrictions on Acquisition of Subsidiaries.
The Company will not, nor will it permit any Subsidiary to, acquire or form
any Subsidiary without the express prior written consent of the Requisite
Holders, which consent shall not be unreasonably withheld, unless,
simultaneously with the acquisition or formation of such Subsidiary (i) the
Company or Subsidiary, as applicable, executes a pledge agreement (in
substantially the form of the Pledge Agreement) and grants to the Trustee a Lien
with respect to the outstanding stock of such acquired or formed Subsidiary
owned by it and (ii) the Company causes each Subsidiary so formed or acquired to
execute and deliver to the Trustee a counterpart hereof or such other documents
as may be necessary to, cause such Subsidiary to be bound by the Guaranty and
cause such Subsidiary to execute and deliver all applicable Collateral
Documents; provided, however, that any Subsidiary formed or acquired in
accordance with the provisions of this Indenture, that is not wholly owned by
the Company and/or its wholly owned Subsidiaries and where the aggregate
investment of the Company and its Subsidiaries in such non-wholly owned
Subsidiary does not exceed $1,500,000 (such non-wholly owned Subsidiary being
referred to herein as an "Exempted Subsidiary") shall not be required to comply
with the terms of clause
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(ii) of this Section 413. Reference to "Subsidiaries" in this Indenture shall
not be applicable until any such Subsidiaries are formed.
Section 414. Inspection.
The Company will permit and will cause each of its Subsidiaries to permit
the Trustee or its authorized representatives to visit and inspect properties of
the Company or any of its Subsidiaries, including its and their financial and
accounting records, and to make copies and take extracts therefrom, and to
discuss its and their affairs, finances and accounts with its and their officers
and independent public accountants, all upon reasonable notice to the Company
and at such reasonable times during normal business hours and as often as may be
reasonably requested. The Trustee agrees that it shall schedule any meeting with
any such independent public accountant through the Company and an Authorized
Officer of the Company shall have the right to be present at any such meeting.
Section 415. Maintenance of Properties and Insurance.
The Company will, and will cause its Subsidiaries to maintain, preserve and
protect at all times all property material to the conduct of its businesses and
keep such property in good repair, working order and condition (reasonable wear
and tear excepted) 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 in all material respects at all times. The Company will
provide or cause to be provided, for itself and the Subsidiaries, insurance
against loss or damage of the kinds customarily insured against by entities
similarly situated and owning like properties, including, but not limited to,
products liability insurance and public liability insurance, with reputable
insurers or with the government of the United States of America or an agency or
instrumentality thereof, in such amounts with such deductibles and by such
methods as shall be customary for entities similarly situated in the industry.
Section 416. Transactions with Affiliates.
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, enter into or permit to exist any transaction
(including, without limitation, the purchase, sale, lease or exchange of any
property or the rendering of any service) with any Affiliate of the Company, on
terms that are less favorable to the Company or that Subsidiary, as the case may
be, than those which might be obtained at the time from Persons who are not such
an Affiliate; provided that, any transaction with such an Affiliate having an
aggregate value equal to or greater than $500,000 shall require the approval of
a majority of the Company's independent directors, and provided further, that
the foregoing restriction shall not apply to any transaction between the Company
and any of its wholly-owned Subsidiaries or between any of the Company's
wholly-owned Subsidiaries.
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Section 417. Dissolution of Certain Subsidiaries.
The Company shall cause (i) each Inactive Subsidiary to dissolve no later
than June 30, 1997 and (ii) #1 Apparel Canada Inc. to transfer all of its assets
and liabilities to Sport Maska Inc. and dissolve no later than June 30, 1997 (in
each case providing the Trustee with satisfactory evidence of such dissolution
or transfer, as applicable); and cause each Inactive Subsidiary and #1 Apparel
Canada Inc. after it has transferred its assets and liabilities to engage in no
activities (including, without limitation, incurring of Liens or Indebtedness,
acquiring assets or making investments) other than those reasonably required to
complete dissolution. The Company shall cause each of the Inactive Subsidiaries
to have no material assets or liabilities.
Section 418. Waiver of Stay, Extension or Usury Laws.
The Company, for itself and on behalf of each Guarantor, covenants (to the
extent that it may lawfully do so) that it will not at any time insist upon, or
plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay or extension law or any usury law or other law, which would prohibit or
forgive the Company or any Guarantor from paying all or any portion of the
principal of or interest on the Securities as contemplated herein, wherever
enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this Indenture; and (to the extent that it may
lawfully do so) the Company, for itself and on behalf of each Guarantor, hereby
expressly waives all benefit or advantage of any such law, and covenants that it
will not hinder, delay or impede the execution of any power herein granted to
the Trustee, but will suffer and permit the execution of every such power as
though no such law had been enacted.
Section 419. Limitation on Investments, Loans and Advances.
The Company will not, nor will it permit any Subsidiary to, make any
advance, loan, extension of credit or capital contribution to, or purchase any
stock, bonds, notes, debentures or other securities of, or make any other
investment in, any Person, except for (i) investments in Cash Equivalents, (ii)
investments in the stock of any Subsidiary and in CCM Holdings (1983) Inc.
existing on the Closing Date, but not any additional investments therein except
for the issuance of shares by Sport Maska Inc. to the Company in connection with
the dissolution of #1 Apparel Canada Inc. as required under Section 417 hereof;
(iii) intercompany loans and advances between the Company and wholly-owned
Subsidiaries which are Guarantors (other than SLM Trademark Acquisition Canada
Corporation); (iv) investments existing on the Closing Date and renewals,
replacements and extensions thereof; (v) investments in non-cash consideration
received in connection with a permitted Asset Sale (subject to the granting of a
Lien as required hereby or by the Collateral Documents); (vi) investments
arising from transactions by the Company or any of its Subsidiaries with
customers or suppliers in the ordinary course of business, including, without
limitation, endorsements of negotiable instruments and debt obligations and
other investments received in connection with the bankruptcy or reorganization
of customers and suppliers or in settlement of delinquent obligations of, or
other disputes with, customers or suppliers, arising in the ordinary course of
business (subject to the granting of a Lien
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as required hereby or by the Collateral Documents); (vii) loans or advances (x)
to employees (1) to cover payroll, travel and similar expenses arising in the
ordinary course or (2) allow such employees to exercise options in the stock of
the Parent, so long as the aggregate amount of such loans and advances does not
exceed $250,000 at any one time outstanding and (y) to representatives acting
as agent for the Company or its Subsidiaries in the ordinary course of business,
so long as the aggregate amount of such loans and advances does not exceed
$500,000 at any one time outstanding; (viii) capital expenditures and, without
duplication hereof, other purchases permitted under the Credit Agreement; (ix)
Indebtedness permitted by Section 406; (x) transactions permitted pursuant to
Section 421; and (xi) other investments in addition to those permitted by (i)
through (x) above not to exceed $3,500,000 in the aggregate at any time,
provided that the Company shall be in compliance with the terms of Section 422
and other provisions of this Indenture after taking into account such
investment.
Section 420. Additional Pledge. No later than June 30, 1997, the Company shall
cause Sport Maska Inc. to pledge all of the stock of Sport Maska Europe S.A.R.L.
to the Trustee for the ratable benefit of the Holders by agreeements
satisfactory to the Trustee, which pledge shall be subject to the Intercreditor
Agreement.
Section 421. Companies May Consolidate, etc., Only on Certain Terms.
The Company will not and will not permit any of its Subsidiaries to,
consolidate with or merge with or into (other than any consolidation or merger
of a Subsidiary into another Subsidiary or into the Company) any other
corporation or convey or transfer all or substantially all of its properties and
assets, directly or indirectly in one transaction or a series of related
transactions, to any Person, unless:
(a) the corporation formed by such consolidation or into which the
Company or any of its Subsidiaries is merged (if the Company or such
Subsidiary is not the surviving entity) or the Person which acquires by
conveyance or transfer all or substantially all of the properties and
assets of the Company or such Subsidiary (i) shall be a corporation
organized and existing under the laws of the United States of America or
any State or the District of Columbia or Canada or any province of Canada;
(ii) shall expressly assume by execution of an indenture supplemental
hereto and execution of all applicable Collateral Documents, delivered to
the Trustee, in form and substance reasonably satisfactory to the Trustee,
(1) in the case of the Company, the due and punctual payment of the
principal of and interest on the Securities and the performance of every
covenant and obligation of this Indenture to be performed or observed by
the Company, (2) in the case of such Subsidiary, the performance of every
covenant and obligation under the guaranty provided in Article Ten hereof
and (3) in the case of the Company or any such Subsidiary, the performance
of every covenant and obligation under all applicable Collateral Documents;
and (iii) if such corporation or Person is a holding company with a
significant portion of its operations conducted and assets held by one or
more subsidiaries, shall cause such subsidiaries to execute a counterpart
hereto and to be bound by the Guaranty herein;
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(b) immediately before and immediately after giving effect to such
transaction, no Event of Default, and no Potential Event of Default, shall have
happened and be continuing;
(c) immediately after giving effect to such transaction, the corporation
formed by such consolidation or into which the Company or such Subsidiary is
merged or the Person which acquired by conveyance or transfer all or
substantially all of the properties and assets of the Company or such Subsidiary
shall have a Consolidated Net Worth of not less than the Consolidated Net Worth
of the Company or such Subsidiary immediately preceding such transaction;
(d) the Company shall have complied with the provisions of Section 425, to
the extent applicable; and
(e) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel stating that such consolidation, merger,
conveyance or transfer and such supplemental indenture complies with this
Indenture and that all conditions precedent herein relating to such transaction
have been complied with.
Upon any consolidation or merger, or any sale or transfer of all or
substantially all of the assets, of the Company in accordance with this Section
421, the successor Person formed by such consolidation or into which the Company
is merged or to which such sale or transfer is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
this Indenture with the same effect as if such successor Person had been named
as the Company herein. When a successor assumes all the obligations of its
predecessor under this Indenture, the Securities and the Collateral Documents to
which the predecessor is a party, the predecessor will be released from the
obligations thereunder.
Section 422. Conduct of Business.
The Company will not, and will not permit any of its Subsidiaries to,
engage in any business other than the business engaged in by the Company and its
Subsidiaries on the Closing Date and similar, complementary or related
businesses and any other businesses which in the aggregate are not material to
the Company and its Subsidiaries taken as a whole.
Section 423. Offers to Redeem Upon the Sale of Assets or Sale of Equity.
(a) The Company will not, and will not permit any of its Subsidiaries to
enter into any Asset Sale unless (i) the Net Cash Proceeds of Asset Sale are
equal to or greater than $0, (ii) any promissory note or other instrument
evidencing indebtedness for borrowed money delivered to the Company and/or its
Subsidiaries in connection with such Asset Sale shall be pledged to the Trustee
pursuant to the Collateral Documents (subject to the terms of the Intercreditor
Agreement), and (iii) the Company shall deliver an Officers' Certificate to the
Trustee demonstrating the date of receipt of the Net Cash Proceeds of Asset Sale
and the derivation of the Net Cash Proceeds of Asset Sale.
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Within one hundred and eighty (180) days after the receipt of Net Cash
Proceeds of Asset Sale or Net Insurance Proceeds, the Company or its Subsidiary,
as applicable, shall either:
(i) have purchased or contracted for the purchase of replacement
assets for the assets subject to such Asset Sale or Net Insurance Proceeds,
as the case may be, provided, that the Company or its Subsidiary shall not
purchase any replacement assets pursuant to this subparagraph (i) of this
Section 423 unless, (x) at the time of such purchase, and after taking such
purchase into account, no Potential Event of Default or Event of Default
shall have occurred and be continuing and (y) the proceeds from the sale or
damage, as the case may be, of long term assets (classified in accordance
with GAAP) are used only to purchase long term assets (classified in
accordance with GAAP), or
(ii) if the Company or its Subsidiary, as applicable, has not
purchased or contracted for the purchase of replacement assets as provided
in subparagraph (i) above, or to the extent Net Cash Proceeds of Asset Sale
or Net Insurance Proceeds, as the case may be, exceed such purchase price,
use such Proceeds (or excess Proceeds) as follows:
(x) first, the Company shall be entitled to retain the Net Cash
Proceeds of Asset Sale or Net Insurance Proceeds, as the case may be,
to the extent that such Proceeds when aggregated with all other Net
Cash Proceeds of Asset Sale and Net Insurance Proceeds received in the
applicable fiscal year by the Company or any Subsidiary and not used
in accordance with subparagraph (i) above or (ii) (y) or (z) below, do
not exceed $350,000;
(y) second, to the extent the Credit Facility Indebtedness is
secured pursuant to the Credit Agreement, the Canadian Credit
Agreement or any related agreement by the assets that were sold,
leased, assigned or otherwise transferred or damaged, as the case may
be, unless waived in accordance with the terms thereof, the Company
may (1) repay and/or deposit in a cash collateral account to be
applied solely toward the repayment of, the Credit Facility
Indebtedness, and (2) permanently reduce the commitments under the
Credit Agreement or the Canadian Credit Agreement by the amount of
such Net Cash Proceeds of Asset Sale or Net Insurance Proceeds applied
to repay the Credit Facility Indebtedness pursuant to clause (1)
above; and then
(z) third, the Company shall deposit with the Trustee, to be held
by the Trustee, for the benefit of the Holders, pending either a
mandatory or voluntary offer to redeem Securities as hereinafter
provided.
Pending the use of Net Proceeds of Asset Sale or Net Insurance Proceeds as
provided in subparagraph (i) above, and subject to the provisions of
subparagraph (ii)(x) above, the Company shall, to the extent such Net Proceeds
of Asset Sale or Net Insurance Proceeds, as the case may be, are not immediately
used in accordance with subparagraph (ii)(y) above, deliver
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such Proceeds to the Trustee to be deposited in a segregated interest bearing
account. Upon written request of the Company and delivery of an Officer's
Certificate (as set forth below), the Trustee shall remit to the Company the Net
Proceeds of Asset Sale or Net Insurance Proceeds, as the case may be, set forth
in the Officer's Certificate to be used for purposes set forth in clauses (i) or
(ii)(y) of this Section 423(a). Upon the expiration of one hundred and eighty
(180) days from the delivery of such Proceeds to the Trustee, such Proceeds then
on deposit shall constitute Available Redemption Proceeds and shall be held
thereafter by the Trustee in accordance with provisions of this Section 423.
Concurrent with the consummation of any Asset Sale or the receipt of any
Net Insurance Proceeds and the application of the Net Cash Proceeds of Asset
Sale or Net Insurance Proceeds, as the case may be, pursuant to subparagraphs
(i) or (ii) above, the Company shall deliver to the Trustee an Officers'
Certificate describing in reasonable detail the gross proceeds received, the
calculation and amount of Net Cash Proceeds of Asset Sale or the Net Insurance
Proceeds, as the case may be, and the application and amount of such Proceeds
pursuant to this Section 423.
(b) Upon the sale by the Company of any equity securities issued by the
Company, other than sales in connection with the exercise of options for the
purchase of the Company's stock or from the resale to optionees of shares
previously purchased as permitted pursuant to Section 407 either (i) for options
to directors, officers and employees outstanding on the date hereof (including,
without limitation, those outstanding under present employment arrangements with
Mr. Wasserman) or (ii) for options granted hereafter, so long as the aggregate
Net Cash Proceeds received does not exceed $200,000 in any fiscal year of the
Company (a "Stock Sale"), the Company shall:
(x) first, apply all of the cash proceeds from such sale, net of all
costs of sale and issuance incurred by the Company ("Stock Sale Proceeds")
to the repayment of the Credit Facility Indebtedness and the permanent
reduction of the commitments under the Credit Agreement or the Canadian
Credit Agreement by the amount of the Stock Sale Proceeds applied to the
repayment of the Credit Facility Indebtedness, unless waived in accordance
with the terms thereof, and
(y) second, deposit such Stock Sale Proceeds with the Trustee, to be
held by the Trustee, for the benefit of the Holders, pending either a
mandatory or voluntary offer to redeem Securities as hereinafter provided.
(c) The Company may offer to redeem Securities at any time the Trustee is
in possession of Available Redemption Proceeds. At any time the Trustee shall be
in possession of Available Redemption Proceeds of $500,000 or more, the Trustee
shall notify the Company in writing, and the Company shall commence an offer to
redeem Securities within ten (10) Business Days. Any offer to redeem Securities
pursuant to this Section 423 shall constitute an "Asset/Stock Sale Redemption."
Any Asset/Stock Sale Redemption commenced shall provide that all Available
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Redemption Proceeds then in the possession of the Trustee shall be available for
the redemption of Securities.
Unless the Company shall have theretofore called all the outstanding
Securities for redemption pursuant to Section 425 or 901, notice of an offer in
connection with an Asset/Stock Sale Redemption shall be given by the Company by
first class mail, postage prepaid, mailed not less than thirty-five (35) days
before the Asset/Stock Sale Redemption Date to each Holder of a Security (with a
copy to the Trustee) at his address as it appears on the Security Register on
the date of such notice, but failure to give such notice by mailing in the
manner herein provided to the Holder, or any defect in the notice to any Holder,
shall not affect the validity of the proceedings for the redemption of any other
Securities. Notwithstanding the foregoing, notice of such offer to redeem shall
be given by the Trustee at the Company's request in the name and at the expense
of the Company; provided, that the Trustee receives such request no less than
forty (40) days before the Asset/Stock Sale Redemption Date. The Asset/Stock
Sale Redemption Date with respect to any Asset/Stock Sale Redemption shall be
the sixty-fifth (65th) days after the date on which the Company determines to,
or is required to, commence an Asset/Stock Sale Redemption.
All such notices shall state:
(i) the Asset/Stock Sale Redemption Date;
(ii) the amount of Available Redemption Proceeds;
(iii) that the redemption price will be one hundred percent (100%) of
the principal amount of the Securities redeemed, plus accrued and unpaid
interest thereon to the Asset/Stock Sale Redemption Date;
(iv) that on the Asset/Stock Sale Redemption Date (to the extent the
Holder has elected to have his or her Securities redeemed) the redemption
price will become due and payable upon the Securities to be redeemed, and
that interest thereon shall cease to accrue on and after such date;
(v) that the Securities shall be surrendered at the principal office
of the Trustee for payment of the redemption price;
(vi) that a Holder electing to accept the offer and require redemption
of its Securities will be required to deliver the Securities, with the form
entitled "Notice of Holder to Elect Redemption" on the reverse of the
Securities properly completed ("Notice of Election"), not later than the
tenth (10th) day prior to the Asset/Stock Sale Redemption Date; and
(vii) in the case of an Asset/Stock Sale Redemption, that such Notice
of Election shall be irrevocable absent the written consent of the Company.
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No failure of the Company to give the foregoing notice shall limit any
Holder's right to accept the offer and require the redemption of Securities
pursuant to an Asset/Stock Sale Redemption.
A Holder electing to accept the offer and require redemption of its
Securities shall make such election by delivering the Securities, with the
Notices of Election properly completed, to the Corporate Trust Office of the
Trustee not later than the tenth (10th) day prior to the Asset/Stock Sale
Redemption Date. Such Notice of Election shall be irrevocable absent the written
consent of the Company.
If the Available Redemption Proceeds are insufficient to redeem all of the
Securities with respect to which properly completed and validly executed Notices
of Election shall have been delivered, the Trustee or its agent shall select by
lot or any other appropriate and fair method, the Securities to be redeemed as a
whole or in part and the Trustee or its agent shall promptly return all
Securities delivered but not selected for redemption to the registered holder
thereof.
If the principal amount of the Securities delivered, together with properly
completed and validly executed Notices of Election, is less than the Available
Redemption Proceeds, the Company shall be required to redeem only such
Securities so delivered and the Trustee shall be entitled to deliver to the
Company the remaining amount of Available Redemption Proceeds.
To the extent redemption of the Securities is required under this Section
423, all Available Redemption Proceeds on the Asset Sale Redemption Date shall
be applied by the Trustee to pay one hundred percent (100%) of the principal
amount of, and accrued interest on, the Securities to be redeemed; provided,
that any semi-annual payment of interest becoming due on the Asset Sale
Redemption Date shall be payable to the holder of such Securities registered as
such on the Regular Record Date.
The Securities with respect to which Holders shall have elected to accept
the offer and require redemption and which have been selected to be redeemed, as
provided above, shall, on the Asset/Stock Sale Redemption Date, become due and
payable at the redemption price set forth above, and from and after such date
such Securities shall cease to bear interest. Upon surrender of any Security for
redemption in accordance with any Notice of Election and acceptance of such
Security for redemption, as provided above, such Security shall be redeemed by
the Company at the Redemption Price set forth in this Section 423.
Section 424. Reserved.
Section 425. Mandatory Redemption Upon Change of Control. Upon the occurrence of
any Change of Control, each Holder shall have the right, at the Holder's option,
to require the Company to redeem all or any portion of such Holder's Securities
at a redemption price equal to one hundred percent (100%) of the principal
amount thereof, together with accrued and unpaid interest thereon to the Change
of Control Redemption Date. The "Change of Control Redemption
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Date" shall be the sixty-fifth (65th) day after the date on which a Change of
Control shall have occurred.
Unless the Company shall have therefore called all the outstanding
Securities for redemption pursuant to Section 423 or 901, notice of the
occurrence of a Change of Control shall be given by the Company by first class
mail, postage prepaid, mailed not more than thirty-five (35) days after the
occurrence of such Change of Control, to each Holder (with a copy to the
Trustee) at his address as it appears on the Security Register on the date of
such notice, but failure to give such notice by mailing in the manner herein
provided to the Holder, or any defect in the notice to any Holder, shall not
affect the validity of the proceedings for the redemption of any other
Securities. Notwithstanding the foregoing, notice of a Change of Control shall
be given by the Trustee at the Company's request in the name and at the expense
of the Company; provided, that the Trustee receives such request no less than
forty (40) days before the Change of Control Redemption Date.
All such notices shall state:
(i) the events constituting the Change of Control;
(ii) the Change of Control Redemption Date;
(iii) that the redemption price will be one hundred percent (100%) of
the principal amount of the Securities redeemed, plus accrued and unpaid
interest thereon to the Change of Control Redemption Date;
(iv) that on the Change of Control Redemption Date to the extent the
Holder has elected to have his or her Securities redeemed the redemption
price will become due and payable upon the Securities to be redeemed, and
that interest thereon shall cease to accrue on and after such date;
(v) that the Securities shall be surrendered at the principal office
of the Trustee for payment of the redemption price;
(vi) that a Holder electing to accept the offer and require redemption
of its Securities will be required to deliver the Securities, with a
properly completed Notice of Election, not later than the tenth (10th) day
prior to the Change of Control Redemption Date; and
(vii) that such Notice of Election shall be irrevocable absent the
written consent of the Company.
No failure of the Company to give the foregoing notice shall limit any
Holder's right to accept the offer and require the redemption of Securities
pursuant to this Section 425.
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A Holder electing to require redemption of its Securities shall make such
election by delivering the Securities, with the Notices of Election properly
completed, to the Corporate Trust Office of the Trustee not later than the tenth
(10th) day prior to the Change of Control Redemption Date. Such Notice of
Election shall be irrevocable absent the written consent of the Company.
On or before 12:00 noon, Eastern time, on the Business Day immediately
preceding the Change of Control Redemption Date, the Company shall deposit with
the Trustee or Paying Agent an amount of money, in same day available funds,
sufficient to pay one hundred percent (100%) of the principal amount of, and
accrued interest on, all of the Securities with respect to which properly
completed Notices of Election shall have been delivered; provided, that any
semi-annual payment of interest becoming due on the Change of Control Redemption
Date shall be payable to the holder of such Securities registered as such on the
Regular Record Date.
The Securities with respect to which Holders shall have elected to require
redemption, shall, on the Change of Control Redemption Date, become due and
payable at the redemption price set forth above, and from and after such date
(unless the Company shall default in the payment of the Redemption Price) such
Securities shall cease to bear interest. Upon surrender of any Security for
redemption in accordance with any Notice of Election such Security shall be
redeemed by the Company at the Redemption Price set forth in this Section 425.
If any Security to be redeemed shall not be so paid upon surrender thereof
for redemption, the principal shall, until paid, bear interest from the Change
of Control Redemption Date at the rate borne by the Security (including, if
applicable, any increase under Section 503 or 515).
ARTICLE FIVE
DEFAULTS AND REMEDIES
Section 501. Events of Default.
"Event of Default," wherever used herein, means any one of the following
events (whatever the reason for such Event of Default and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(a) default in the payment of (i) any interest on any Security when it
becomes due and payable, and continuance of such default for a period of
three days or (ii) the principal of any Security at its Maturity; provided,
however, a default in the payment of interest with respect to a Security
relating to a payment permitted to be made by issuance of Secondary
Securities in accordance with Section 307 shall constitute an Event of
Default for purposes of this Indenture to the extent that such default
arises from failure to issue
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such Secondary Securities in the amount, at the time and in the manner
required by Sections 307(a) and (f); or
(b) default in the performance, or breach, of any covenant,
representation, warranty, obligation or agreement of the Company or any
Guarantor in this Indenture (other than a covenant, a default in the
performance of which or breach of which is specifically dealt with
elsewhere in this Section and except for a default or breach under Sections
406, 407, 421, 423 or 425) or any Collateral Documents and such default in
performance, or breach, shall continue for a period of (or, in the case of
a breach of a representation or warranty, the statement underlying such
breach shall remain untrue after a period of) thirty (30) days from the
earlier of (i) actual knowledge thereof by an Authorized Officer of the
Company or of a Guarantor, and (ii) written notice, by registered or
certified mail, to the Company by the Trustee or to the Company and the
Trustee by at least the Requisite Holders, specifying such default or
breach and requiring it to be remedied and stating that such notice is a
"Notice of Default" hereunder; or
(c) default in the performance, or breach, of any covenant, obligation
or agreement of the Company in Sections 406, 407, 421, 423 or 425 of this
Indenture; or
(d) (i) failure of the Company or any of its Subsidiaries to pay when
due or any default in the payment of any principal or interest on any other
Indebtedness in the outstanding principal amount of $250,000 or more beyond
any period of grace provided; or (ii) breach or default with respect to any
other Indebtedness the outstanding principal amount of which is $250,000 or
more or of any loan agreement, mortgage, indenture or other material
agreement relating thereto, if the effect of such default or breach is to
cause, or to permit the holder or holders of that Indebtedness (or a
trustee on behalf of such holder or holders) to cause, that Indebtedness to
become or be declared due prior to its stated maturity (upon the giving or
receiving of notice, lapse of time, both, or otherwise); or
(e) (i) a court shall enter a decree or order for relief in respect of
the Company or any of its Subsidiaries in an involuntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, which decree or order is not stayed or any other similar relief
shall be granted under any applicable federal or state law; or (ii) an
involuntary case is instituted against the Company or any of its
Subsidiaries under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, or a decree or order of a court for the
appointment of a receiver, liquidator, sequestrator, trustee, custodian or
other officer having similar powers over the Company or any of its
Subsidiaries, or over all or a substantial part of any of their property,
shall have been entered; or the involuntary appointment of an interim
receiver, trustee or other custodian of the Company or any of its
Subsidiaries for all or a substantial part of any of their property; or the
issuance of a warrant of attachment, execution or similar process against
any substantial part of the property of the Company or any of its
Subsidiaries and
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the continuance of any such events in this clause (ii) for thirty (30) days
unless dismissed, stayed, bonded or discharged; or
(f) the Company or any of its Subsidiaries shall have an order for
relief entered with respect to it or commence a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or shall consent to the entry of an order for relief in an
involuntary case, or to the conversion to an involuntary case, under any
such law, or shall consent to the appointment of or taking possession by a
receiver, trustee or other custodian for all or a substantial part of its
property; the making by the Company or any of its Subsidiaries of any
assignment for the benefit of creditors; or the inability or failure of the
Company or any of its Subsidiaries or the admission by the Company or any
of its Subsidiaries in writing of its inability to pay its debts as such
debts become due; or the board of directors or other governing body of the
Company or any of its Subsidiaries (or any committee thereof) adopts any
resolution or otherwise authorizes action to approve any of the foregoing;
or
(g) any money judgement, writ or warrant of attachment, or similar
process involving in any case an amount in excess of $250,000 not
adequately covered by insurance shall be entered or filed against the
Company or any of its Subsidiaries or any of their respective assets and
shall remain undischarged, unvacated, unbonded or unstayed for a period of
thirty (30) consecutive days or in any event later than five (5) days prior
to the date of any proposed sale thereunder; or
(h) any order, judgment or decree shall be entered against the Company
or any of its Subsidiaries, decreeing the dissolution or split up of the
Company or that Subsidiary and such order shall remain undischarged or
unstayed for a period in excess of thirty (30) consecutive days; or
(i) a Reportable Event shall have occurred with respect to a Pension
Plan, (ii) the filing by the Company or Subsidiary thereof, 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 the Company or
Subsidiary thereof, 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 Trustee, 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) the Company or a Subsidiary thereof 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) the Company or a
Subsidiary thereof 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
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respect to any Plan which would constitute an event of default under any
other agreement entered into by the Company or a Subsidiary thereof or any
ERISA Affiliate, and in each case in clauses (i) through (viii) of this
subsection (i), such event or condition, together with all other such
events or conditions, if any, could subject the Company or a Subsidiary
thereof or any ERISA Affiliate to any taxes, penalties or other liabilities
which, in the reasonable opinion of the Trustee, would have a Material
Adverse Effect; or
(j) the Company or a Subsidiary thereof or any ERISA Affiliate (x)
shall have been notified by the sponsor of a Multiemployer Plan that it has
incurred any withdrawal liability to such Multiemployer Plan, (y) 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, and (z) the payment of such withdrawal liability would, in the
reasonable opinion of the Trustee, have a Material Adverse Effect; or (ii)
with respect to any Canadian Pension Plan there shall occur (A) the
institution of any steps by the Company or a Subsidiary thereof or any
other person to terminate such Canadian Pension Plan if, as a result of
such termination, the Company or a Subsidiary member could be required to
make a contribution to such Canadian Pension Plan, or could reasonably
expect to incur a liability or obligation to such Canadian Pension Plan
which, in the reasonable opinion of the Trustee, would have a Material
Adverse Effect; or (B) a material contribution failure occurs with respect
to any such Canadian Pension Plan sufficient to give rise to a Lien on any
material portion of the property of the Company or a Subsidiary member and
such failure is not remedied within 30 days of its occurrence; or
(k) this Indenture and the Securities shall be revoked by the Company
or shall cease to be in full force and effect or the rights or security
afforded the Trustee, for the benefit of the Holders, in the Collateral is
thereby in any material respect impaired for any reason; or the Company
shall contest in any manner that this Indenture, the Securities or the
Collateral Documents constitute valid and enforceable agreements or the
Company shall assert in any manner that it has no further obligation or
liability under such documents; or
(l) any Guaranty shall for any reason cease to be or be revoked or
cease to be in full force and effect and enforceable in accordance with its
terms or any rights or security afforded the Trustee, for the benefit of
the Holders, by any Guarantor is in any material respect impaired for any
reason or any Guarantor shall contest in any manner that any Collateral
Document to which it is a party is a valid and enforceable agreement of
such Guarantor, or any Guarantor shall assert in any manner that it has no
further obligation or liability under its Guaranty or the Collateral
Documents to which it is a party.
Section 502. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default occurs and is continuing, then and in every such
case, the Trustee or the Requisite Holders may, and the Trustee, upon the
request of the Requisite Holders,
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shall, declare the unpaid principal of all the Securities to be due and payable
immediately, by a notice in writing to the Company (and to the Trustee if given
by Requisite Holders) and upon any such declaration such principal, together
with interest accrued thereon, shall become due and payable; provided that if an
Event of Default specified in subsections 501(e) or (f) occurs, then such
principal, together with interest accrued thereon, shall become immediately due
and payable without any such declaration or notice or any other action and
references in this Indenture to "declaration of acceleration" shall include such
automatic acceleration.
At any time after such declaration of acceleration has been made and before
a judgment or decree for payment of the money due has been obtained by the
Trustee as hereinafter in this Article provided, the Requisite Holders, by
written notice to the Company and the Trustee, may rescind and annul such
declaration and its consequences if
(a) the Company has paid or irrevocably deposited with the Trustee a
sum sufficient to pay:
(i) all overdue interest on all Securities (or issued Secondary
Securities with respect thereto if theretofore permitted by this Indenture
but not yet issued),
(ii) the principal of any Securities which has become due otherwise
than by such declaration of acceleration, together with interest thereon
(without duplication of amounts paid under clause (i) above) from the date
of default at the rate stipulated by Sections 503 and 515,
(iii) to the extent that payment of such interest is lawful, interest
upon overdue interest at the rate stipulated by Sections 503 and 515, and
(iv) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel;
and
(b) all Events of Default (other than the nonpayment of interest on or
principal of Securities which have become due solely by such declaration of
acceleration), have been cured or waived as provided in Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
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Section 503. Collection of Indebtedness and Suits for Enforcement by Trustee.
The Company covenants that if
(a) default is made in the payment of any interest on any Security
when such interest becomes due and payable and such default continues for a
period of three days, or
(b) default is made in the payment of the principal of any Security at
the Maturity thereof,
the Company will, upon demand of the Trustee, pay to the Trustee, for the
benefit of the Holders of such Securities, in cash, the whole amount then due
and payable on such Securities for principal and interest, with interest upon
the overdue principal and, to the extent that payment of such interest shall be
legally enforceable, upon overdue installments of interest, at the rate then
borne by the Securities plus 2.0% per annum; and, in addition thereto, such
further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee and Requisite Holders, and their respective agents and
counsel.
If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name and as trustee of an express trust, may institute
Proceedings for the collection of the sums so due and unpaid and may prosecute
such Proceedings to judgment or final decree, and may enforce the same against
the Company, any Guarantor or any other obligor upon the Securities and collect
the moneys adjudged or decreed to be payable in the manner provided by law out
of the property of the Company, any Guarantor or any other obligor upon the
Securities, wherever situated, and the Company shall reimburse and indemnify the
Trustee for any expenses incurred in connection with such Proceedings as
provided in Section 607.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate Proceedings as the Trustee shall deem most effectual
to protect and enforce any such rights, whether for the specific enforcement of
any covenant or agreement in this Indenture or any Collateral Document or in aid
of the exercise of any power granted herein or in any Collateral Document, or to
enforce any other proper remedy or legal or equitable right vested in the
Trustee by this Indenture or by law.
Section 504. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
Proceeding relative to the Company, a Guarantor or any other obligor upon the
Securities or the property of the Company, of such Guarantor or of such other
obligor or their creditors, the Trustee (irrespective of whether the principal
of the Securities shall then be due and payable as therein expressed or by
declaration
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or otherwise and irrespective of whether the Trustee shall have made any demand
on the Company for the payment of overdue principal or interest) shall be
entitled and empowered, by intervention in such proceeding or otherwise,
(a) to file and prove a claim for the whole amount of principal and
interest owing and unpaid in respect of the Securities (including any
interest which, to the extent permitted by law, may accrue subsequent to
the commencement of such Proceeding) and to file such other papers or
documents as may be necessary or advisable in order to have the claims of
the Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and of
the Holders allowed in such Proceeding, and
(b) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay the
Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 607.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
In any Proceedings brought by the Trustee (and also any Proceedings
involving the interpretation of any provision of this Indenture to which the
Trustee shall be a party) the Trustee shall be held to represent all the Holders
of the Securities, and it shall not be necessary to make any Holders of the
Securities parties to any such Proceedings.
Section 505. Trustee May Enforce Claims Without Possession of Securities.
All rights of action and claims under this Indenture or the Securities may
be prosecuted and enforced by the Trustee without the possession of any of the
Securities or the production thereof in any Proceeding relating thereto, and any
such Proceeding instituted by the Trustee shall be brought in its own name and
as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be applied as
set forth in Section 506.
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Section 506. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal or interest,
upon presentation of the Securities and the notation thereon of the payment if
only partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all taxes, assessments or liens with
respect to the Collateral that are prior to the lien of this Indenture,
except those taxes, assessments or liens as to which any sale of the
Collateral shall have been subject, and to the payment of all costs and
expenses of sale of or other realization upon the Collateral pursuant to
the provisions of this Article, and all expenses, liabilities and advances
incurred or made by the Trustee, or its agents, attorneys and counsel in
connection with the sale or other realization upon the Collateral or
otherwise due to the Trustee pursuant to Section 607;
SECOND: To the payment of amounts then due and unpaid on the
Outstanding Securities for interest, pro rata, without preference or
priority of any kind, according to the amounts due and payable on such
Securities with respect to interest;
THIRD: To the payment of principal of the Outstanding Securities,
pro rata, without preference or priority of any kind, according to the
amounts due and payable on the Securities with respect to principal;
FOURTH: The balance, if any, to the Person or Persons entitled
thereto.
Section 507. Limitation on Suits.
No Holder of any Securities shall have any right to institute any
Proceeding with respect to this Indenture, or for the appointment of a receiver
or trustee, or for any other remedy hereunder, unless
(a) such Holder has previously given written notice to the Trustee of
a continuing Event of Default;
(b) Requisite Holders shall have made written request to the Trustee
to institute Proceedings in respect of such Event of Default in its own
name as Trustee hereunder;
(c) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(d) the Trustee for thirty (30) days after its receipt of such notice,
request and offer of indemnity has failed to institute any such Proceeding;
and
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(e) no direction inconsistent with such written request has been given
to the Trustee during such thirty (30) day period by Requisite Holders;
it being understood and intended that no one or more Holders shall have any
right in any manner whatsoever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders of Securities.
In the event the Trustee shall receive conflicting or inconsistent requests
and indemnity from two or more groups of Holders of Securities, each
representing less than Requisite Holders, the Trustee in its sole discretion may
determine what action, if any, shall be taken. In such event, the Trustee shall
give written notice of such conflicting or inconsistent requests to the Holders.
Section 508. Unconditional Right of Holders to Receive Principal and Interest.
Notwithstanding any other provision in this Indenture, the Holder of any
Security shall have the right on the terms stated herein, which is absolute and
unconditional, to receive payment of the principal of and interest on such
Security on the respective Stated Maturities, subject to the grace periods
provided in Section 501(a), expressed in such Security and this Indenture (or,
in the case of redemption, on the Redemption Date) and to institute suit for the
enforcement of any such payment, and such rights shall not be impaired without
the consent of such Holder.
Section 509. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any Proceeding to enforce any
right or remedy under this Indenture and such Proceeding has been discontinued
or abandoned for any reason, or has been determined adversely to the Trustee or
to such Holder, then and in every such case the Company, the Guarantors, the
Trustee and the Holders shall, subject to any determination in such Proceeding,
be restored severally and respectively to their former positions hereunder, and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such Proceeding had been instituted.
Section 510. Rights and Remedies Cumulative.
Except as provided in Section 305, no right or remedy herein conferred upon
or reserved to the Trustee or to the Holders is intended to be exclusive of any
other right or remedy, and every right and remedy shall, to the extent permitted
by law, be cumulative and in addition to every other right and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy.
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Section 511. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Security to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or any
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.
Section 512. Control by Holders.
Requisite Holders shall have the right to direct the time, method and place
of conducting any Proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee (including directing the
Trustee to engage counsel of such Holders' choice at the direction of such
Holders), provided that
(a) such direction shall not be in conflict with any rule of law or
with this Indenture, and
(b) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction.
Section 513. Waiver of Past Defaults.
Prior to the time a judgment or decree for payment of the money due has
been obtained by the Trustee as provided in this Article, Requisite Holders may,
on behalf of the Holders of all the Securities, waive any past Event of Default
hereunder and its consequences, except an Event of Default
(a) in the payment of the principal of or interest on any Security,
excluding principal or interest which has become due as a result of
acceleration, or
(b) in respect of a covenant or provision hereof which under Article
Eight cannot be modified or amended without the consent of the Holder of
each Outstanding Security affected.
Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Indenture and the Company, the Guarantors, the Trustee and the Holders
shall be restored to their former positions and rights hereunder; but no such
waiver shall extend to any subsequent or other default or impair any right
consequent thereon.
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Section 514. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Security by its
acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture or any Collateral Document, or in any suit against the Trustee
for any action taken, suffered or omitted by it as Trustee, the filing by any
party litigant in such suit of an undertaking to pay the costs of such suit, and
that such court may in its discretion assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in such suit, having due
regard to the merits and good faith of the claims or defenses made by such party
litigant; but the provisions of this Section shall not apply to any suit
instituted by the Trustee, to any suit instituted by any Holder, or group of
Holders, holding in the aggregate more than 10% of the Aggregate Outstanding
Amount of Securities, or to any suit instituted by any Holder for the
enforcement of the payment of the principal of or interest on any Security on or
after the respective Stated Maturities expressed in such Security (or, in the
case of redemption, on or after any Redemption Date).
Section 515. Remedies.
(a) If an Event of Default shall have occurred and be continuing, and
the Securities have been declared due and payable and such declaration and
its consequences have not been rescinded and annulled, the Trustee may do
one or more of the following:
(i) institute Proceedings for the collection of all amounts then
payable on the Securities or under this Indenture, whether by declaration
or otherwise, enforce any judgment obtained, and collect from the Company
or any Guarantor monies adjudged due;
(ii) institute Proceedings from time to time for the complete or
partial foreclosure of the Lien of this Indenture with respect to the
Collateral; or
(iii) exercise any remedies of a secured party under the UCC and,
subject to the UCC, this Indenture and the Collateral Documents, take any
other appropriate action to protect and enforce the rights and remedies of
the Trustee or the Holders of the Securities hereunder.
(b) If an Event of Default as described in Section 501(b) or (c)
hereof shall have occurred and be continuing, the Trustee may, and at the
request of the Requisite Holders shall, institute a Proceeding solely to
compel performance of the covenant or agreement or to cure the
representation or warranty, the breach of which gave rise to the Event of
Default under such Section; the Trustee may enforce any equitable decree or
order arising from such Proceeding.
(c) Upon the occurrence and during the continuance of an Event of
Default, the interest rate payable with respect to the outstanding
principal amount of the Securities (including Secondary Securities), and
(to the extent lawful) interest payments thereon not paid when due,
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shall be increased to a rate which is 2.0% per annum in excess of the rate of
interest otherwise payable with respect to such Securities, which increment
shall be paid solely in cash.
Section 516. Action on Securities.
The Trustee's right to seek and recover judgment on the Securities or under
this Indenture shall not be affected by the seeking or obtaining of or
application for any other relief under or with respect to this Indenture or any
Collateral Documents. Neither the Lien under the Collateral Documents nor any
rights or remedies of the Trustee or the Holders shall be impaired by the
recovery of any judgment by the Trustee against the Company or any Guarantor or
by the levy of any execution under such judgment upon any portion of the
Collateral or upon any of the assets of the Company or any Guarantor.
ARTICLE SIX
THE TRUSTEE
Section 601. Certain Duties and Responsibilities.
The Trustee, for itself and its successors, hereby accepts the trusts
created by this Indenture upon the terms and conditions set forth herein,
including the terms and conditions set forth in this Section 601.
(a) Except during the continuance of an Event of Default,
(i) the Trustee undertakes to perform such duties and only such duties
as are specifically set forth in this Indenture, and no implied covenants
or obligations shall be read into this Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture; but in
the case of any such certificates or opinions which by any provision hereof
are specifically required to be furnished to the Trustee, the Trustee shall
be under a duty to examine the same to determine whether or not they
conform to the requirements of this Indenture (but need not confirm or
investigate the accuracy of mathematical calculations or other facts stated
therein).
(b) In case an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in their exercise, as a prudent person
would exercise or use under the circumstances in the conduct of such person's
own affairs.
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(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own willful misconduct, except that
(i) this subsection (c) shall not be construed to limit the effect of
subsection (a) of this Section;
(ii) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it shall be proved that the
Trustee was negligent in ascertaining the pertinent facts;
(iii) the Trustee shall not be liable with respect to any action taken
or omitted to be taken by it in good faith in accordance with the direction
of the Requisite Holders relating to the time, method and place of
conducting any Proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee under this
Indenture and the Trustee shall act in accordance with the instructions of
the Requisite Holders; and
(iv) no provision of this Indenture or any document or agreement
referred to herein shall require the Trustee to expend or risk its own
funds or otherwise incur any financial liability in the performance of any
of its duties hereunder, or in the exercise of any of its rights or powers,
if it shall have reasonable grounds for believing that repayment of such
funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
(d) Whether or not therein expressly so provided, every provision of this
Indenture relating to the conduct or affecting the liability of or affording
protection to the Trustee shall be subject to the provisions of this Section.
Section 602. Notice of Defaults.
Within ninety (90) days after the occurrence of any Potential Event of
Default or Event of Default hereunder, the Trustee shall transmit by first-class
mail, postage prepaid, to all Holders as their names and addresses appear in the
Security Register at the close of business one (1) day before such transmittal,
notice of such Potential Event of Default or Event of Default actually known to
the Trustee, unless such Potential Event of Default or Event of Default shall
have been cured or waived.
Section 603. Certain Rights of Trustee.
Subject to the provisions of Section 601:
(a) the Trustee may conclusively rely and shall be protected in acting
or refraining from acting upon any resolution, certificate, statement,
instrument, opinion,
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report, notice, request, direction, consent, order, bond, debenture, note,
other evidence of indebtedness or other paper or document reasonably
believed by it to be genuine and to have been signed or presented by the
proper party or parties or, in the case of cables, telecopies and telexes,
to have been sent by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order;
(c) whenever in the administration of this Indenture or under any
agreement or document referred to herein the Trustee shall deem it
desirable that a matter be proved or established prior to taking, suffering
or omitting any action hereunder, the Trustee (unless other evidence be
herein specifically prescribed) may, in the absence of bad faith on its
part, conclusively rely upon an Officers' Certificate;
(d) the Trustee may consult with independent counsel, accountants or
other experts of its selection in connection with the fulfillment of its
duties hereunder or under any agreement or document referred to herein, and
the Trustee shall be entitled to conclusively rely on the opinion of such
counsel, accountants or other experts in connection with any action taken,
omitted to be taken or suffered by the Trustee in fulfilling its duties
hereunder or under any agreement or document referred to herein. The
Trustee shall have the right at any time to seek instructions concerning
the administration of this Indenture from any court of competent
jurisdiction;
(e) the Trustee shall be under no obligation to take any action or
omit to take any action to exercise any of the rights or powers vested in
it by this Indenture or under any agreement or document referred to herein
at the request or direction of any of the Holders pursuant to this
Indenture or under any agreement or document referred to herein, unless the
Trustee shall have been provided adequate security and indemnity against
the costs, expenses and liabilities which might be incurred by it in
compliance with such request or direction, including such reasonable
advances as may be requested by the Trustee;
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it
shall be entitled to examine the books, records and premises of the
Company, personally or by agent or attorney-in-fact at the sole expense of
the Company in accordance with Section 414 and shall not incur any
liability or additional liability of any kind by reason of such inquiry or
investigation; and
(g) the Trustee may, at the expense of the Company, execute any of the
trusts or powers hereunder or under any agreement or document referred to
herein or perform
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any duties hereunder or under any agreement or document referred to herein
either directly or by or through agents or attorneys-in-fact and the
Trustee shall not be responsible for any misconduct or negligence on the
part of any agent or attorney-in-fact appointed with due care by it
hereunder.
(h) the Trustee shall not be liable for any action taken, suffered, or
omitted to be taken by it in good faith and reasonably believed by it to be
authorized or within the discretion or rights or powers conferred upon it
by this Indenture or under any agreement or document referred to herein;
and
(i) the Trustee shall not be deemed to have notice of any Event of
Default or Potential Event of Default unless a Responsible Officer of the
Trustee has actual knowledge thereof or unless written notice of any event
which is in fact such a default is received by the Trustee at the Corporate
Trust Office of the Trustee, and such notice references the Securities and
this Indenture.
Section 604. Not Responsible for Recitals or Issuance of Securities.
The recitals contained herein and in the Securities, except the Trustee's
certificate of authentication shall be taken as the statements of the Company,
and the Trustee shall not be responsible in any manner whatsoever for their
correctness. The Trustee makes no representa tions as to the validity or
sufficiency of this Indenture or of the Securities. The Trustee shall not be
accountable for the use or application by the Company of any Securities or the
proceeds thereof, except that the Trustee represents that it is duly authorized
to execute and deliver this Indenture, authenticate the Securities and perform
its obligations hereunder and that the statements made by it in a Statement of
Eligibility on Form T-1 supplied to the Company are true and accurate, subject
to the qualifications set forth therein.
Section 605. May Hold Securities.
The Trustee, any Paying Agent, Security Registrar or any other agent of the
Company, in its individual or any other capacity, may become the owner or
pledgee of Securities, and, subject to Sections 608 and 612, may otherwise deal
with the Company with the same rights it would have if it were not Trustee,
Paying Agent, Security Registrar or such other agent.
Section 606. Money Held in Trust.
Except as otherwise expressly provided herein, money held by the Trustee in
trust hereunder need not be segregated from other funds except to the extent
required by law. The Trustee shall be under no liability for interest on any
money received by it hereunder, except as expressly provided herein or as
otherwise agreed with the Company.
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Section 607. Compensation and Reimbursement.
The Company agrees
(a) to pay to the Trustee from time to time such compensation as the
Company and the Trustee shall from time to time agree in writing for the
services rendered by it hereunder and under the Collateral Documents (which
compensation shall not be limited by any provision of law in regard to the
compensation of a trustee of an express trust);
(b) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision
of this Indenture or any Collateral Document (including the reasonable
compensation and the expenses and disbursements of its agents,
attorneys-in-fact and counsel), except any such expense, disbursement or
advance as may be attributable to its negligence or bad faith; and
(c) to indemnify the Trustee or any predecessor Trustee for, and to
hold it harmless against, any loss, liability or expense incurred without
negligence or bad faith on its part, arising out of or in connection with
the acceptance or administration of this Indenture or any Collateral
Document, including the reasonable costs and expenses of defending itself
against any claim or liability in connection with the exercise or
performance of any of the Trustee's powers or duties hereunder (if incurred
without gross negligence or bad faith).
The Trustee shall have a lien prior to the Securities as to all property
and funds held by it hereunder for any amount owing it or any predecessor
Trustee pursuant to this Section 607, except with respect to funds held in trust
for the benefit of the Holders of particular Securities.
When the Trustee incurs expenses or renders services in connection with an
Event of Default specified in Section 501(e) or Section 501(f), the expenses
(including the reasonable charges and expenses of its counsel) and the
compensation for the services are intended to constitute expenses of
administration under any applicable Federal or state bankruptcy, insolvency or
other similar law.
The provisions of this Section shall survive the termination of this
Indenture.
Section 608. Eligibility; Disqualification.
This Indenture shall always have a Trustee who satisfies the requirements
of Section 310(a)(1) and (5) of the Trust Indenture Act. The Trustee shall have
a combined capital and surplus of at least $500,000,000 as set forth in its most
recent published annual report of condition. The Trustee shall comply with
Section 310(b) of the Trust Indenture Act. If at any
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time the Trustee shall cease to be eligible in accordance with the provisions of
this Section, it shall resign immediately in the manner and with the effect
hereinafter specified in this Article.
Section 609. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 610.
(b) The Trustee may resign at any time by giving written notice thereof to
the Company. If an instrument of acceptance by a successor Trustee shall not
have been delivered to the Trustee within 45 days after the giving of such
notice of resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by an Act of the Requisite
Holders, delivered to the Trustee and to the Company.
(d) If at any time:
(i) the Trustee shall fail to comply with Section 608 after written
request therefor by the Company or by any Holder, or
(ii) the Trustee shall cease to be eligible under Section 608 and
shall fail to resign after written request therefor by the Company or by
any such Holder, or
(iii) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent, or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property of affairs for the purpose or
rehabilitation, conservation or liquidation,
then, in any case, (i) the Company by a Company Order may remove the Trustee, or
(ii) subject to Section 514, any Holder may, on behalf of itself and all other
similarly situated Holders, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of acting,
or if a vacancy shall occur in the office of Trustee for any cause, the Company,
by a Company Order, shall promptly appoint a successor Trustee. If, within one
year after such resignation, removal or incapability, or the occurrence of such
vacancy, a successor Trustee shall be appointed by Act of the Requisite Holders
delivered to the Company and the retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment in accordance
with Section 610, become the successor Trustee and supersede the successor
Trustee appointed by the Company. If no successor Trustee shall have been so
appointed by the Company or the Holders of the Securities and accepted
appointment in the manner hereinafter provided, any Holder may,
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subject to Section 514, on behalf of itself and all other similarly situated
Holders, petition any court of competent jurisdiction for the appointment of a
successor Trustee.
(f) The Company shall give notice of each resignation and each removal of
the Trustee and each appointment of a successor Trustee by mailing written
notice of such event by first-class mail, postage prepaid, to the Holders of
Securities as their names and addresses appear in the Security Register at the
close of business one (1) day prior to such mailing. Each notice shall include
the name of the successor Trustee and the address of its Corporate Trust Office.
Section 610. Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute, acknowledge and
deliver to the Company and to the retiring Trustee an instrument accepting such
appointment, and thereupon the resignation or removal of the retiring Trustee
shall become effective and such successor Trustee, without any further act, deed
or conveyance, shall become vested with all the rights, powers, trusts and
duties of the retiring Trustee; but, on request of the Company or the successor
Trustee, such retiring Trustee shall, upon payment of its charges, execute and
deliver an instrument transferring to such successor Trustee all the rights,
powers and trusts of the retiring Trustee, and shall duly assign, transfer and
deliver to such successor Trustee all property and money held by such retiring
Trustee hereunder. Upon request of any such successor Trustee, the Company shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Trustee all such rights, powers and trusts.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
Section 611. Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto; provided, however, that such successor
corporation shall give written notice to the Company and each Holder, in the
manner provided for in Section 105(b), that it is the successor by merger,
conversion or consolidation, as the case may be, to the Trustee, such notice to
specify the new name and address, if applicable, of such successor corporation.
In case any Securities shall have been authenticated, but not delivered, by the
Trustee then in office, any successor by merger, conversion or consolidation to
such authenticating Trustee may adopt such authentication and deliver the
Securities so authenticated with the same effect as if such successor Trustee
had itself authenticated such Securities.
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Section 612. Preferential Collection of Claims Against Company.
The Trustee shall be subject to Section 311(a) of the Trust Indenture Act,
excluding any creditor relationship listed in Section 311(b) of the Trust
Indenture Act. A Trustee who has resigned or been removed shall be subject to
Section 311(a) of the Trust Indenture Act to the extent permitted thereunder.
Section 613. Co-Trustees and Separate Trustee.
At any time or times, (i) for the purpose of meeting the legal requirements
of any jurisdiction in which any part of the Collateral may at the time be
located, or (ii) if the Trustee deems it to be necessary to protect the
interests of the Holders of the Securities, the Company and the Trustee shall
have power to appoint, and upon the written request of the Trustee or of the
Requisite Holders, the Company shall for such purpose join with the Trustee in
the execution, delivery and performance of all instruments and agreements
necessary or proper to appoint, one or more Persons (who shall not be Holders)
approved by the Trustee either to act as co-trustee, jointly with the Trustee,
with respect to the Collateral and the grant of a security interest and Lien
thereon, or to act as separate trustee in connection therewith, in either case
with such powers as may be provided in the instrument of appointment which shall
expressly designate the property affected and the capacity of the appointee as
either a co-trustee or separate trustee, and to vest in such Person or Persons
in the capacity aforesaid, any property, title, right or power deemed necessary
or desirable, subject to the other provisions of this Section. If the Company
does not join in such appointment within 15 days after the receipt by it of a
request so to do, or in case an Event of Default has occurred and is continuing,
the Trustee alone shall have power to make such appointment.
Should any written instrument from the Company be necessary or reasonably
requested by any co-trustee or separate trustee so appointed for more fully
confirming to such co-trustee or separate trustee such property, title, right or
power, any and all such instruments shall, on request, be executed, acknowledged
and delivered by the Company.
Every co-trustee or separate trustee shall, to the extent permitted by law,
but only to such extent, be appointed subject to the following terms:
(a) the Securities shall be authenticated and delivered and all
rights, powers, duties and obligations hereunder in respect of the custody
of cash held by, or required to be deposited or pledged with, the Trustee
hereunder, shall be exercised solely by the Trustee;
(b) the rights, powers, duties and obligations hereby conferred or
imposed upon the Trustee in respect of any property covered by the
appointment of a co-trustee or separate trustee shall be conferred or
imposed upon and exercised or performed by the Trustee or by the Trustee
and such co-trustee or separate trustee jointly, as shall be provided in
the instrument appointing such co-trustee or separate trustee, except to
the
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extent that under any law of any jurisdiction in which any particular act
is to be performed, the Trustee shall be incompetent or unqualified to
perform such act, in which event such rights, powers, duties and
obligations shall be exercised and performed by such co-trustee or separate
trustee;
(c) the Trustee at any time, by an instrument in writing executed by
it, with the concurrence of the Company evidenced by a Company Order, may
accept the resignation of or remove any co-trustee or separate trustee
appointed under this Section 613, and in case an Event of Default has
occurred and is continuing, the Trustee shall have power to accept the
resignation of, or remove, any such co-trustee or separate trustee without
the concurrence of the Company. Upon the written request of the Trustee,
the Company shall join with the Trustee in the execution, delivery and
performance of all instruments and agreements necessary or proper to
effectuate such resignation or removal; a successor to any co-trustee or
separate trustee which has resigned or has been removed may be appointed in
the manner provided in this Section 613;
(d) no co-trustee or separate trustee hereunder shall be personally
liable solely by reason of any act or omission of the Trustee, or any other
such trustee hereunder;
(e) the Trustee shall not be liable solely by reason of any act or
omission of a co-trustee or separate trustee selected, if selected by the
Trustee with due care; and
(f) any Act of Holders delivered to the Trustee shall be deemed to
have been delivered to each such co-trustee and separate trustee.
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE
Section 701. Company to Furnish Trustee Names and Addresses of Holders.
The Company will furnish or cause to be furnished to the Trustee
(a) semi-annually, not more than five (5) days after each Regular
Record Date, a list, in such form as the Trustee may reasonably require, of
the names and addresses of the Holders as of such Regular Record Date, and
(b) at such other times as the Trustee may reasonably request in
writing, within thirty (30) days after receipt by the Company of any such
request, a list in similar form and content as of a date not more than
fifteen (15) days prior to the time such list is furnished;
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provided, however, that if and so long as the Trustee shall be the Security
Registrar, no such list need be furnished.
Section 702. Preservation of Information; Communications to Holders.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 701 and the names and
addresses of Holders received by the Trustee in its capacity as Security
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 701 upon receipt of a new list so furnished.
(b) If three or more Holders (hereinafter referred to as "applicants")
apply in writing to the Trustee, and furnish to the Trustee reasonable proof
that each such applicant has owned a Security for a period of at least six
months preceding the date of such application, and such application states that
the applicants desire to communicate with other Holders with respect to their
rights under this Indenture or under the Securities and is accompanied by a copy
of the form of proxy or other communication which such applicants propose to
transmit, then the Trustee shall, within five (5) Business Days after the
receipt of such application, at its election, either
(i) afford such applicants access to the information preserved at the
time by the Trustee in accordance with Section 702(a), or
(ii) inform such applicants as to the approximate number of Holders
whose names and addresses appear in the information preserved at the time
by the Trustee in accordance with Section 702(a), and as to the approximate
cost of mailing to such Holders the form of proxy or other communication,
if any, specified in such application.
If the Trustee shall elect not to afford such applicants access to such
information, the Trustee shall, upon the written request of such applicants,
mail to each Holder whose name and address appear in the information preserved
at the time by the Trustee in accordance with Section 702(a), a copy of the form
of proxy or other communication which is specified in such request, with
reasonable promptness after a tender to the Trustee of the material to be mailed
and of payment, or provision for the payment, of the reasonable expenses of
mailing, unless within five (5) days after such tender, the Trustee shall mail
to such applicants and file with the Commission, together with a copy of the
material to be mailed, a written statement to the effect that, in the opinion of
the Trustee, such mailing would be contrary to the best interests of the Holders
or would be in violation of applicable law. Such written statement shall specify
the basis of such opinion. If the Commission, after opportunity for a hearing
upon the objections specified in the written statement so filed, shall enter an
order refusing to sustain any of such objections or if, after the entry of an
order sustaining one or more of such objections, the Commission shall find,
after notice and opportunity for hearing, that all the objections so sustained
have been met and shall enter an order so declaring, the Trustee shall mail
copies of such material to all such Holders with reasonable promptness after the
entry of such order and the renewal of such tender,
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otherwise the Trustee shall be relieved of any obligation or duty to such
applicants respecting its application.
(c) Every Holder of Securities, by receiving and holding the same, agrees
with the Company and the Trustee that neither the Company nor the Trustee shall
be held accountable by reason of the disclosure of any such information as to
the names and addresses of the Holders in accordance with Section 702(b),
regardless of the source from which such information was derived, and that the
Trustee shall not be held accountable by reason of mailing any material pursuant
to a request made under Section 702(b).
Section 703. Reports by Trustee.
(a) The term "reporting date," as used in this Section, means December 15.
Within sixty (60) days after the reporting date of each year commencing in
calendar year 1997, the Trustee shall transmit by first-class mail, postage
prepaid, to all Holders as their names and addresses appear in the Security
Register at the close of business one (1) day prior to the mailing date and to
such other Persons as may be required under Section 313(c) of the Trust
Indenture Act, a brief report for the applicable period dated as of the
reporting date with respect to:
(i) its eligibility and qualifications under Section 608, or in lieu
thereof, if to the best of its knowledge it has continued to be eligible
and qualified under said Section, a written statement to such effect;
(ii) the character and amount of any advances (and the circumstances
surrounding the making thereof) made by the Trustee (as such) which remain
unpaid on the date of such report, and for the reimbursement of which it
claims or may claim a lien or charge, prior to that of the Securities, on
any property or funds held or collected by it as Trustee;
(iii) the amount, interest rate and maturity date of all other
Indebtedness owing by the Company (or by any other obligor on the
Securities) to the Trustee in its individual capacity, on the date of such
report, with a brief description of any property held as collateral
security therefor, except an Indebtedness based upon a creditor
relationship arising in any manner described in Section 311(b)(2), (3), (4)
or (6) of the Trust Indenture Act;
(iv) the property and funds of the Company or any Guarantor, if any,
physically in the possession of the Trustee as such on the date of such
report;
(v) any additional issue of Securities which the Trustee has not
previously reported;
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(vi) any action taken by the Trustee in the performance of its duties
hereunder which it has not previously reported and which in its opinion
materially affects the Securities; and
(vii) such other matters as may be required under Section 313(a) of
the Trust Indenture Act.
(b) The Trustee shall also comply with its obligations under Section 313(b)
of Trust Indenture Act.
(c) A copy of each such report shall, at the time of such transmission to
the Holders, be filed by the Trustee with each stock exchange upon which the
Securities are listed, with the Commission and also with the Company. The
Company will notify the Trustee when the Securities are listed on any stock
exchange.
Section 704. Reports by Company.
The Company shall file with the Trustee and the Commission, copies of the
annual reports and of the information, documents, and other reports (or copies
of such portions of any of the foregoing as the Commission may by rules and
regulations prescribe) which the Company would be required to file with the
Commission pursuant to Section 13 or Section 15(d) of the Exchange Act if the
Company had a class of securities registered with the Commission under the
Exchange Act or were otherwise required to file annual or other reports under
the Exchange Act. In addition, if the Company is not required to file
information, documents, or reports pursuant to either of such Sections, the
Company shall file with the Trustee and the Commission, in accordance with rules
and regulations prescribed by the Commission, such of the supplementary and
periodic information, documents, and reports which may be required pursuant to
Section 13 of the Exchange Act, in respect of a security listed and registered
on a national securities exchange as may be prescribed in such rules and
regulations.
The Company shall also file with the Trustee and the Commission, in
accordance with rules and regulations prescribed by the Commission, such
additional information, documents, and reports with respect to compliance by the
Company with the conditions and covenants provided for in this Indenture, as may
be required by such rules and regulations.
The Trustee shall mail to the Holders, at the expense of the Company,
within fifteen (15) days after receipt by it, copies of the quarterly and annual
reports and of the information, documents and other reports that the Company is
required to file with the Trustee pursuant to this Section 704 which are
received from the Company in tangible form. The Company also shall comply with
the provisions of Section 314(a) of the Trust Indenture Act. Delivery of such
reports, information and documents to the Trustee is for informational purposes
only and the Trustee's receipt of such shall not constitute constructive notice
of any information contained therein or determinable from information contained
therein, including the Company's
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compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
Section 705. Statement as to Compliance.
The Company will deliver to the Trustee annually, commencing December 1,
1997, a certificate, from its principal executive officer, principal financial
officer or principal accounting officer, stating whether or not to the best
knowledge of the signer thereof the Company is in compliance (without regard to
periods of grace or notice requirements) with all conditions and covenants under
this Indenture, and if the Company shall not be in compliance, specifying such
non-compliance and the nature and status thereof of which such signer may have
knowledge.
ARTICLE EIGHT
SUPPLEMENTAL INDENTURES
Section 801. Supplemental Indentures without Consent of Holders.
Without the consent of any Holders, the Company, the Guarantors and the
Trustee, at any time and from time to time, may enter into one or more
indentures supplemental hereto, in form satisfactory to the Trustee, for any of
the following purposes:
(a) to add to the covenants of the Company for the benefit of the
Holders, or to surrender any right or power herein conferred upon the
Company; or
(b) to cure any ambiguity, to correct or supplement any provision
herein which may be defective or inconsistent with any other provision
herein, or to make any other provisions with respect to matters or
questions arising under this Indenture; provided that, in each case, such
provisions shall not adversely affect the interests of the Holders in any
material respect; or
(c) to further secure the Securities; or
(d) to modify, eliminate or add to the provisions of this Indenture to
such extent as shall be necessary (i) in connection with the shelf
registration contemplated by the Reorganization Plan or (ii) to effect the
qualification of this Indenture under the Trust Indenture Act or under any
similar federal statute hereafter enacted, and to add to this Indenture
such other provisions as may be expressly permitted by the Trust Indenture
Act, excluding, however, the provisions referred to in Section 316(a)(2) of
the Trust Indenture Act as in effect at the date as of which this Indenture
was executed or any corresponding provision provided for in any similar
federal statute hereafter enacted or any other provision that is contrary
to the terms of paragraphs (a) through (h) of Section 802; or
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(e) to evidence the succession of another Person to the Company as
permitted under Sections 303 and 421 and the assumption by such successor
of the obligations of the Company hereunder, under the Securities and under
the Collateral Documents to which the Company is a party.
Section 802. Supplemental Indentures with Consent of Holders.
With the consent of the Requisite Holders, by Act of said Holders delivered
to the Company, the Guarantors and the Trustee, the Company and the Trustee may
enter into an indenture or indentures supplemental hereto for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Indenture or of modifying in any manner the rights of the
Holders under this Indenture; provided, however, that no such supplemental
indenture shall, without the consent of the Holders of all Outstanding
Securities:
(a) extend the Stated Maturity of the principal of, or of any
installment of interest on, any Security, or reduce the principal amount
thereof or the Interest Rate thereon, or change the provisions of this
Indenture relating to the application of proceeds of the Collateral to the
payment of principal of or interest on the Securities or change the manner
in which, any Security or the interest thereon is payable, or impair the
right to institute suit for the enforcement of any such payment after the
Stated Maturity thereof (or, in the case of redemption, on or after any
Redemption Date); or
(b) reduce the percentage of the Aggregate Outstanding Amount of
Securities, the consent of whose Holders is required for any such
supplemental indenture, or whose consent is required for any waiver (of
compliance with certain provisions of this Indenture or certain defaults
hereunder and their consequences) provided for in this Indenture; or
(c) release, impair or adversely affect a material portion of the
Collateral; or
(d) except as permitted herein, permit the creation of any lien
ranking prior to or on a parity with the lien of this Indenture with
respect to any part of the Collateral; or
(e) change the percentage of the Aggregate Outstanding Amount of
Securities, the consent of whose Holders is required pursuant to Sections
502, 512 or 515(b); or
(f) modify, directly or indirectly, the definition of the terms
"Aggregate Outstanding Amount," "Requisite Holders" and "Outstanding"; or
(g) modify any of the provisions of this Section, Section 801 or
Section 513, except to increase any such percentage or to provide that
certain or other provisions of this Indenture cannot be modified or waived
without the consent of the Holder of each Security affected thereby; or
(h) modify any of the provisions of Sections 508 or 904.
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It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to this Section 802, the Trustee shall mail to
the Holders at their respective addresses set forth on the Security Register at
the close of business on the day of execution of such supplemental indenture, a
notice setting forth in general the terms and substance of such supplemental
indenture. Any failure of the Trustee to mail such notice, or any defect
therein, shall not, however, in any way impair or affect the validity of any
such supplemental indenture.
Any solicitation of Holders of the Securities to any consent, waiver or
amendment under this Indenture involving consideration shall provide that such
consideration be paid equally to all Holders of Securities regardless of whether
or not such Holders agree to such consent, waiver or amendment.
Section 803. Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 601) shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
Section 804. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article, this
Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
Section 805. Conformity with Trust Indenture Act.
From such time as the Trust Indenture Act is applicable hereto, every
supplemental indenture executed pursuant to this Article shall conform to the
requirements of the Trust Indenture Act as then in effect.
Section 806. Reference in Securities to Supplemental Indentures.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If
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the Company shall so determine, new Securities so modified as to conform, in the
opinion of the Trustee and the Company, to any such supplemental indenture may
be prepared and executed by the Company and authenticated and delivered by the
Trustee in exchange for Outstanding Securities.
ARTICLE NINE
REDEMPTION OF SECURITIES
Section 901. Voluntary Redemption.
The Securities may be redeemed at the election of the Company, at any time
after the Closing Date, as a whole or from time to time in part, subject to the
conditions and at the Redemption Prices specified in the form of Security,
together in each case with accrued and unpaid interest to the Redemption Date.
Except upon the occurrence of (a) an Asset Sale and the redemption of Securities
from Net Proceeds of Asset Sale pursuant to Section 423, (b) a Stock Sale and
the redemption of Securities from Stock Sale Proceeds pursuant to Section 423 or
(c) a Change of Control and the redemption of Securities pursuant to Section
425, the Redemption Price shall be equal to one hundred and one percent (101%)
of the principal amount of the Securities so redeemed. The Redemption Price upon
a redemption of Securities pursuant to Section 423 or 425 shall be equal to one
hundred percent (100%) of the principal amount of the Securities so redeemed.
Section 902. Applicability of Article.
Redemption of Securities at the election of the Company or otherwise, as
permitted or required by any provision of this Indenture, shall be made in
accordance with such provision and this Article.
Section 903. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Securities pursuant to Section
901 shall be evidenced by a Company Order. In case of any redemption at the
election of the Company, the Company shall, at least sixty (60) days prior to
the Redemption Date fixed by the Company (unless a shorter notice period shall
be satisfactory to the Trustee), notify the Trustee of such Redemption Date and
of the principal amount of Securities to be redeemed.
Section 904. Selection by Trustee of Securities to be Redeemed.
If less than all the Securities are to be redeemed, the particular
Securities or portions thereof to be redeemed shall be selected not more than
sixty (60) days and not less than thirty (30) days prior to the Redemption Date
by the Trustee, from the Outstanding Securities not previously called for
redemption, by lot or any other appropriate and fair method.
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The Trustee shall promptly notify the Company and each Security Registrar
in writing of the Securities selected for redemption and, in the case of any
Securities selected for partial redemption, the principal amount thereof to be
redeemed.
For all purposes of this Indenture, unless the context otherwise requires,
all provisions relating to redemption of Securities shall relate, in the case of
any Security redeemed or to be redeemed only in part, to the portion of the
principal amount of such Security which has been or is to be redeemed.
Section 905. Notice of Redemption.
Notice of redemption shall be given by first-class mail, postage prepaid,
mailed not less than thirty (30) nor more than sixty (60) days prior to the
Redemption Date, to each Holder of Securities to be redeemed, at his, her or its
address appearing in the Security Register.
All notices of redemption shall state:
(a) the Redemption Date;
(b) the Redemption Price;
(c) if less than all Outstanding Securities are to be redeemed, the
identification (and, in the case of a Security to be redeemed in part, the
principal amount) of the particular Securities to be redeemed;
(d) that on the Redemption Date the Redemption Price will become due
and payable upon each such Security or portion thereof, and that interest
thereon shall cease to accrue on and after said date; and
(e) the place or places where such Securities are to be surrendered
for payment of the Redemption Price.
Notice of redemption of Securities to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
Section 906. Deposit of Redemption Price.
On or before 12:00 noon, Eastern time on the Business Day immediately
preceding any Redemption Date, the Company shall deposit with the Trustee or
with the Paying Agent an amount of money in same day funds sufficient to pay the
Redemption Price of, and (except if the Redemption Date shall be an Interest
Payment Date) accrued interest on, all the Securities or portions thereof which
are to be redeemed on that date.
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Section 907. Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Securities so to
be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued
interest) such Securities shall cease to bear interest. Upon surrender of any
such Security for redemption in accordance with said notice, such Security shall
be paid by the Company at the Redemption Price together with accrued interest to
the Redemption Date; provided, however, that installments of interest whose
Stated Maturity is on or prior to the Redemption Date shall be payable to the
Holders of such Securities, or one or more Predecessor Securities, registered as
such on the relevant Regular Record Dates according to the terms and the
provisions of Section 307.
If any Security called for redemption shall not be so paid on any
Redemption Date, the principal and interest then due in respect thereof shall,
until paid, bear interest from the Redemption Date at the rate specified in
Section 503.
Section 908. Securities Redeemed in Part.
Any Security which is to be redeemed only in part shall be surrendered at
the office or agency of the Company maintained for such purpose pursuant to
Section 402 (with, if the Company, the Security Registrar or the Trustee so
requires, due endorsement by, or a written instrument of transfer in form
satisfactory to the Company, the Security Registrar or the Trustee duly executed
by, the Holder thereof or its attorney duly authorized in writing), and the
Company shall execute, and the Trustee shall authenticate and deliver to the
Holder of such Security without service charge, a new Security or Securities, of
any authorized denomination as requested by such Holder in aggregate principal
amount equal to and in exchange for the unredeemed portion of the principal of
the Security so surrendered.
ARTICLE TEN
GUARANTY OF SECURITIES
Section 1001. Guaranty.
Subject to the provisions of this Article Ten, each Guarantor hereby
unconditionally guarantees to the Trustee and to each Holder of a Security
authenticated and delivered by the Trustee (i) the due and punctual payment of
the principal of and interest on such Security, when and as the same shall
become due and payable, whether at maturity, by acceleration, declaration or
otherwise, the due and punctual payment of interest on the overdue principal of
and interest on the Securities, to the extent lawful, and the due and punctual
performance of all other obligations of the Company to the Holders or the
Trustee all in accordance with the terms of such Security and of this Indenture,
and (ii) in the case of any extension of time of payment or renewal
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of any Securities or any of such other obligations, that the same will be
promptly paid in full when due or performed in accordance with the terms of the
extension or renewal, at stated maturity, by acceleration, declaration or
otherwise.
The Guarantors hereby agree that their obligations hereunder shall be
absolute and unconditional, irrespective of, and shall be unaffected by, any
invalidity, irregularity or unenforceability of any such Security or this
Indenture, any failure to enforce the provisions of any such Security or this
Indenture, any waiver, modification or indulgence granted to the Company with
respect thereto, by the Holder of such Security or the Trustee, or any other
circumstances which may otherwise constitute a legal or equitable discharge of
surety or guarantor. The Guarantors hereby waive diligence, presentment, filing
of claims with a court in the event of merger or bankruptcy of the Company, any
right to require proceeding filed against the Company, the benefit of
discussion, protest or notice with respect to any such Security or the
Indebtedness evidenced thereby and all demands whatsoever (except as specified
above), and covenant that this Guaranty will not be discharged as to any such
Security except by payment in full of the principal thereof and interest thereon
or as otherwise provided herein. Each Guarantor further agrees that as between
such Guarantor, on the one hand, and the Holders and the Trustee, on the other
hand, (i) the maturity of the obligations guaranteed hereby may be accelerated
as provided in Article Five hereof for the purposes of this Guaranty,
notwithstanding any stay, injunction or other prohibition preventing such
acceleration in respect of the obligations guaranteed hereby, and (ii) in the
event of any declaration of acceleration of such obligations as provided in
Article Five hereof, such obligations (whether or not due and payable) shall
forthwith become due and payable by each Guarantor for the purpose of this
Guaranty. In addition, without limiting the foregoing provisions, upon the
effectiveness of an acceleration under Article Five, the Trustee may make a
demand for payment on the Securities under each or any Guaranty provided for in
this Article Ten and not previously discharged.
Section 1002. Obligations Joint and Several.
The obligations of each Guarantor hereunder shall be joint and several.
Section 1003. Validity Subject to Authentication.
The Guaranties set forth in Sections 1001 and 1002 shall not be valid or
become obligatory for any purpose with respect to a Security until the
certificate of authentication on such Security shall have been signed by the
Trustee.
Section 1004. Guaranties Not Fraudulent Transfers or Conveyances.
Each Guarantor hereby, and each beneficiary under this Guaranty by
accepting the benefits hereof, confirms that it is its intention that the
guaranty by each Guarantor pursuant to this Guaranty shall not constitute a
fraudulent transfer or conveyance for purposes of any applicable provisions of
Title 11 of the United States Code, the Uniform Fraudulent Conveyance Act, the
Uniform Fraudulent Transfer Act or any similar federal (whether of the United
States,
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Canada or the United Kingdom), state or provincial law applicable to such
Guarantor. To effectuate the foregoing intent, the obligations of each Guarantor
under this Guaranty shall be limited to such maximum amount as will, after
giving effect to such maximum amount and all other liabilities of such
Guarantor, contingent or otherwise, that are relevant under such laws, and after
giving effect to any rights to contribution of such Guarantor pursuant to any
agreement providing for an equitable distribution among such Guarantor and other
Affiliates of the Company of payments made under guaranties by such parties,
result in the obligations of such Guarantor in respect of such maximum amount
not constituting a fraudulent transfer or conveyance.
Section 1005. Obligations of the Guarantors Unconditional.
Nothing contained in this Article Ten or elsewhere in this Indenture or in
any Security is intended to or shall impair, as between the Guarantors and the
Holders, the obligation of the Guarantors, which is absolute and unconditional,
to pay to the Holders the principal of and interest on the Securities as and
when the same shall become due and payable in accordance with the provisions of
this Guaranty, or is intended to or shall affect the relative rights of the
Holders and creditors of the Guarantors, nor shall anything herein or therein
prevent the Trustee or any Holder from exercising all remedies otherwise
permitted by applicable law or this Indenture.
The failure to make a payment on account of principal of or interest on the
Securities by reason of any provision of this Article Ten shall not be construed
as preventing the occurrence of an Event of Default under Section 501.
Section 1006. Release of a Guarantor.
Upon the sale or disposition (by merger or otherwise) of a Guarantor by the
Company to an entity which is not an Affiliate of the Company or any of its
Subsidiaries and which sale or disposition is otherwise in compliance with the
terms of this Indenture, that Guarantor shall be deemed released from all
obligations under this Article Ten without any further action required on the
part of the Trustee or any Holder. At the request of the Company, however, the
Trustee shall execute and deliver an appropriate instrument evidencing such
release. Any Guarantor not so released remains liable for the full amount of
principal of and interest on the Securities as provided in this Article Ten.
Section 1007. Execution of Guaranties.
To evidence this Guaranty to the Holders specified in Sections 1001 and
1002, the Guarantors hereby agree that a notation of such Guaranty shall be
endorsed on each Security authenticated and delivered by the Trustee. Each
Guarantor hereby agrees that its Guaranty set forth in Section 1001 shall remain
in full force and effect notwithstanding any failure to endorse on each Security
a notation of such Guaranty. Each such notation shall be signed on behalf of
each Guarantor by an Authorized Officer, prior to the authentication of the
Security on which it is endorsed, and the delivery of such Security by the
Trustee, after the authentication thereof hereunder, shall constitute due
delivery of such Guaranty on behalf of such Guarantor. Such
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signatures may be manual or facsimile signatures of the present, past or any
future such officers and may be imprinted or otherwise reproduced on the
Guaranty, and in case any such officer who shall have signed such notation shall
cease to be such officer before the Security on which such Guaranty is endorsed
shall have been authenticated and delivered by the Trustee or disposed of by the
Company, such Security nevertheless may be authenticated and delivered or
disposed of as though the person who signed such notation had not ceased to be
such officer of the Guarantor.
Section 1008. Guarantors May Consolidate, Etc., on Certain Terms.
Nothing contained in this Article Ten shall prevent any consolidation or
merger of a Guarantor with or into the Company or another Guarantor or shall
prevent any sale or conveyance of the property of a Guarantor as an entirety or
substantially as an entirety, to the Company or another Guarantor or shall
prevent any dissolution of a Guarantor by the Company; provided, that such
consolidation, merger, sale, conveyance or dissolution is otherwise permitted
pursuant to the terms of this Indenture. Upon any such consolidation, merger,
sale, conveyance or dissolution, such Guarantor shall be deemed released from
all obligations under this Article Ten without any further action required on
the part of the Trustee or any Holder. At the request of the Company, however,
the Trustee shall execute and deliver an appropriate instrument evidencing such
release.
Section 1009. Contribution.
In order to provide for just and equitable contribution among the
Guarantors, the Guarantors agree, inter se, that in the event any payment or
distribution is made by such Guarantor (a "Funding Guarantor") under this
Guaranty, that Funding Guarantor shall be entitled to a contribution from all
other Guarantors for all payments, damages and expenses incurred by that Funding
Guarantor in discharging the Company's obligations with respect to the
Securities.
Section 1010. Subrogation Rights of the Guarantors.
The Guarantors shall be subrogated to all rights of any and all Holders
against the Company in respect of any amounts paid to the Holders by the
Guarantors pursuant to the provisions of this Guaranty; provided, that the
Guarantors shall not be entitled to enforce, or to receive any payments arising
out of or based upon such right of subrogation, until the principal of and
interest on all the Securities shall have been paid in full.
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ARTICLE ELEVEN
COLLATERAL AND SECURITY AGREEMENTS
Section 1101. Collateral Documents.
The due and punctual payment of the principal of and accrued but unpaid
interest on the Securities when and as the same shall be due and payable,
whether on an interest payment date, at maturity, by acceleration, repurchase,
redemption or otherwise, and interest on the overdue amount of the interest (to
the extent permitted by law), if any, on the Securities and performance of all
other obligations of the Company and any Guarantor to the Holders or the Trustee
under this Indenture and the Securities, according to the terms hereunder or
thereunder, shall be secured as provided in the Collateral Documents, subject to
the Intercreditor Agreement. Each Holder, by its acceptance of a Security,
consents and agrees to the terms of the Collateral Documents and the
Intercreditor Agreement (including, without limitation, the provisions providing
for foreclosure and release of Collateral) as the same may be in effect or may
be amended from time to time in accordance with the terms thereof and hereof,
and authorizes and directs the Trustee to enter into each of the Collateral
Documents and the Intercreditor Agreement and to perform its respective
obligations and exercise its respective rights thereunder in accordance
therewith. The Company and the Guarantors will do or cause to be done all such
acts and things as may be necessary or proper, or as may be required by the
provisions of the Collateral Documents, to assure and confirm to the Trustee the
security interests in and Liens upon the Collateral contemplated hereby and by
the Collateral Documents including, in all property (real, personal and mixed)
of the Company and the Guarantors acquired after the Securities are issued, to
the extent contemplated by the Collateral Documents or as otherwise requested by
the Trustee, so as to render the same available for the security and benefit of
this Indenture and of the Securities secured hereby, according to the intent and
purposes herein expressed. The Company and each Guarantor shall take any and all
actions reasonably required to cause the Collateral Documents to create and
maintain, as security for the obligations of the Company and the Guarantors
under this Indenture and the Securities, valid and enforceable, perfected
(except as expressly provided therein) Liens in and on all of the Collateral, in
favor of the Trustee, for the benefit of the Holders, superior to and prior to
the rights of all third persons and subject to no other Liens, other than as
specifically permitted herein and therein.
Section 1102. Recording and Opinions.
(a) The Company shall furnish to the Trustee promptly after the execution
and delivery of this Indenture one or more Opinions of Counsel either (i)
stating that in the opinion of such counsel all action has been taken with
respect to the recording, registering and filing of this Indenture, financing
statements or other instruments necessary to make effective the Liens intended
to be created by the Collateral Documents, and reciting the details of such
action or (ii) stating that, in the opinion of such counsel, no such action is
necessary to make such Liens effective.
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(b) The Company shall furnish to the Trustee within three (3) months after
each anniversary of the date of this Indenture, one or more Opinions of Counsel,
dated as of such date, stating either that (i) in the opinion of such counsel,
all action has been taken with respect to the recording, registering, filing,
re-recording, re-registering and refiling of this Indenture, all supplemental
indentures, financing statements, continuation statements or other instruments
of further assurance as is necessary to maintain the Liens of the Collateral
Documents and reciting the details of such action or (ii) in the opinion of such
Counsel, no such action is necessary to maintain such Liens.
Section 1103. Release of Collateral.
(a) Subject to subsections (b) and (c) of this Section 1103, Collateral may
be released from the Lien and security interest created by the Collateral
Documents at any time or from time to time at the sole cost and expense of the
Company (i) upon payment in full of the Securities in accordance with the terms
thereof and of this Indenture and all other obligations of the Company and the
Guarantors then due and owing under this Indenture, the Securities and the
Collateral Documents; (ii) upon the sale or other disposition of such Collateral
constituting an Asset Sale if such sale or other disposition is not prohibited
under this Indenture and if the applicable Net Cash Proceeds of Asset Sale are
applied in accordance with this Indenture; (iii) upon the sale or other
disposition of such Collateral not constituting an Asset Sale pursuant to the
terms of this Indenture; (iv) upon the substitution or replacement of such
Collateral with new Collateral, provided that the Company grants to the Trustee
a security interest and Lien in such new Collateral and executes all Collateral
Documents necessary to perfect such security interest and Lien; (v) to the
extent a Lien is granted on such Collateral and the Purchase Money Indebtedness
secured thereby constitutes not less than 75% of the purchase price of the
property subject to such Lien; and (vi) to the extent expressly permitted
pursuant to the terms of Section 802. Upon compliance with above provisions and
the provisions of Section 1104 hereof, the Trustee shall execute, deliver or
acknowledge any necessary or proper instruments of termination, satisfaction or
release provided by or on behalf of the Company to evidence the release of any
Collateral permitted to be released pursuant to this Indenture or the Collateral
Documents.
(b) Except as otherwise provided in the Intercreditor Agreement, at any
time when a Potential Event of Default or Event of Default shall have occurred
and be continuing and the maturity of the Securities shall have been accelerated
(whether by declaration or otherwise) and the Trustee shall have delivered a
notice of acceleration to the Company, no release of Collateral pursuant hereto
shall be effective as against the Trustee or the Holders.
(c) The release of any Collateral from the terms hereof and of the
Collateral Documents will not be deemed to impair the security under this
Indenture in contravention of the provisions hereof if and to the extent the
Collateral is released pursuant to the provisions hereof or of the Collateral
Documents. The Trustee and each of the Holders acknowledge that a release of
Collateral in accordance with the terms hereof and of the Collateral Documents
will not be deemed for any purpose to be an impairment of the security under
this Indenture.
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<PAGE>
Section 1104. Certificates of the Issuer.
To the extent applicable the Company and the Guarantors shall comply with
(a) Section 314(b) of the Trust Indenture Act, relating to the Opinions of
Counsel regarding the Lien of the Collateral Documents, and (b) Section 314(d)
of the Trust Indenture Act, relating to the release of Collateral from the Lien
of the Collateral Documents and Officers' Certificates or other documents
regarding fair value of the Collateral. Any certificate or opinion required by
Section 314(d) of the Trust Indenture Act may be made by an officer or employee
of the Company to the extent permitted by Section 314(d) of the Trust Indenture
Act.
Section 1105. Authorization of Actions to be Taken by
the Trustee Under the Collateral Documents
Each Holder, by acceptance of a Security, consents and agrees to the terms
of the Intercreditor Agreement as the same may be in effect or may be amended
from time to time in accordance with the terms thereof and hereof and authorizes
and directs the Trustee to enter into the Intercreditor Agreement and to perform
its respective obligations and exercise its respective rights thereunder in
accordance therewith. The Trustee may, in its sole discretion and without the
consent of the Holders, on behalf of the Holders, take all actions it deems
necessary or appropriate in order to (a) enforce any of the terms of the
Collateral Documents and the Intercreditor Agreement and (b) collect and receive
any and all amounts payable in respect of the obligations of the Company and the
Guarantors hereunder. The Trustee shall have the power to institute and to
maintain such suits and proceedings as it may deem expedient to prevent any
impairment of the Collateral by any acts that may be unlawful or in violation of
the Collateral Documents, the Intercreditor Agreement or this Indenture, and
such suits and proceedings as the Trustee may deem expedient to preserve or
protect its interests and the interests of the Holders in the Collateral
(including power to institute and maintain suits or proceedings to restrain the
enforcement of or compliance with any legislative or other governmental
enactment, rule or order that may be unconstitutional or otherwise invalid if
the enforcement of, or compliance with, such enactment, rule or order would
impair the security interest hereunder or be prejudicial to the interests of the
Holders or of the Trustee). Subject to the limitations set forth in Section 802
hereof, the Trustee shall act, make elections or vote as directed by Requisite
Holders and all of the Holders shall be bound by such written direction.
Section 1106. Authorization of Receipt of Funds by the
Trustee Under the Collateral Documents
and the Intercreditor Agreement
The Trustee is authorized to receive any funds for the benefit of the
Holders distributed under the Collateral Documents and the Intercreditor
Agreement, and to make further distributions of such funds to the Holders
according to the provisions of this Indenture and the Collateral Documents.
NY1-463085 EXECUTION
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<PAGE>
This Indenture may be signed in counterparts with the same effect as if the
signatures to each counterpart were upon a single instrument, and all such
counterparts together shall be deemed an original of this Indenture.
IN WITNESS WHEREOF, we have set our hands as of the day and year first
above written.
SLM INTERNATIONAL, INC.,
as Issuer
By:_____________________________
Name: Russell David
Title Vice President-Finance
SPORT MASKA INC.,
as Guarantor
By:____________________________
Name: Russell David
Title Vice President-Finance
MASKA U.S., INC.,
as Guarantor
By:____________________________
Name: Russell David
Title Vice President-Finance
#1 APPAREL, INC.,
as Guarantor
By:____________________________
Name: Russell David
Title Vice President-Finance
NY1-463085 EXECUTION
S-1
<PAGE>
#1 APPAREL CANADA, INC.,
as Guarantor
By:______________________________
Name: Russell David
Title Vice President-Finance
SLM TRADEMARK ACQUISITION CORP.,
as Guarantor
By:____________________________
Name: Russell David
Title Vice President-Finance
SLM TRADEMARK ACQUISITION CANADA
CORPORATION,
as Guarantor
By:____________________________
Name: Russell David
Title Vice President-Finance
THE BANK OF NEW YORK,
as Trustee
By:_____________________________
Name:
Title:
NY1-463085 EXECUTION
S-2
<PAGE>
EXHIBIT A
(FACE OF SECURITY)
THIS SECURITY WAS ISSUED WITH ORIGINAL ISSUE DISCOUNT ("OID"). HOLDERS
MAY REQUEST THE RELEVANT INFORMATION TO FACILITATE THE REPORTING
OF OID BY CONTACTING THE COMPANY AT SLM INTERNATIONAL,
INC., 77 ROUTE 25, PIERSON INDUSTRIAL PARK, BRADFORD, VERMONT 05033,
ATTENTION: RUSSELL J. DAVID, VICE PRESIDENT-FINANCE.
THIS SECURITY AND THE PAYMENT HEREOF ARE SUBJECT TO AND GOVERNED BY THE
TERMS OF THAT CERTAIN SENIOR SECURED NOTE INDENTURE, DATED AS OF APRIL 1,
1997, AMONG SLM INTERNATIONAL, INC., THE GUARANTORS
NAMED THEREIN AND THE BANK OF NEW YORK, AS TRUSTEE. THE PROVISIONS
OF SUCH SENIOR SECURED NOTE INDENTURE ARE INCORPORATED
HEREIN BY THIS REFERENCE AND MADE A PART HEREOF. RIGHTS WITH
RESPECT TO, AMONG OTHER THINGS, PRIORITY OF PAYMENT AND COLLATERAL
WITH RESPECT TO THIS SECURITY ARE SUBJECT TO AND GOVERNED BY
THE TERMS OF AN INTERCREDITOR AGREEMENT, DATED AS OF APRIL 1, 1997,
BY AND AMONG THE CHASE MANHATTAN BANK, AS AGENT, THE CHASE
MANHATTAN BANK OF CANADA AND THE TRUSTEE
SLM INTERNATIONAL, INC.
SENIOR SECURED NOTE
DUE APRIL 1, 2004
No. ______ $_________
SLM INTERNATIONAL, INC., a Delaware corporation (herein called the
"Company," which term includes any successor under the Indenture hereinafter
referred to), for value received, hereby promises to pay
to______________________________________________________________________________
________________________________________________________________________________
or registered assigns, the principal sum of ___________________
_______________________________________________________________ Dollars when and
as due under the terms of this Security and the Indenture, in the manner
referred to below, and to pay interest prior to default thereon from the later
of the date hereof or the most recent date through which interest has been paid
hereon at an initial Interest Rate (prior to default) equal to 14% per annum,
payable in cash or, at the Company's option, up to 4% per annum in Secondary
Securities (as hereinafter defined); provided that, with respect to the payment
due on the first Interest Payment Date, the Company may, at its option, pay all
interest due on that
NY1-463085 EXECUTION
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<PAGE>
date in Secondary Securities. Notwithstanding anything to the contrary in the
preceding sentence, so long as no Potential Event of Default or Event of Default
shall have occurred and be continuing on the date the Interest Rate is to reduce
pursuant to the terms hereof:
(a) the Interest Rate (prior to default) on the Securities shall be
permanently reduced to 12% per annum, payable in cash or, at the Company's
option, up to 2% per annum in Secondary Securities, upon the delivery by
the Company to the Trustee of (i) financial statements demonstrating that
Consolidated EBITDA for the immediately preceding four consecutive fiscal
quarters of the Company was not less than $18,000,000 and (ii) an Officers
Certificate certifying as to the foregoing and as to the effective date of
such reduction, such reduction in the Interest Rate (prior to default) on
the Securities to be effective as of the first day of the next succeeding
calendar month that commences at least thirty days after the date on which
such financial statements have been (1) delivered to the Trustee and (2)
filed with the Commission; and
(b) the Interest Rate (prior to default) on the Securities shall be
permanently reduced to 10% per annum payable in cash, upon the delivery by
the Company to the Trustee of (i) financial statements demonstrating that
Consolidated EBITDA for the immediately preceding four consecutive fiscal
quarters of the Company was not less than $25,000,000 and (ii) an Officers
Certificate certifying as to the foregoing and as to the effective date of
such reduction, such reduction in the Interest Rate (prior to default) on
the Securities to be effective as of the first day of the next succeeding
calendar month that commences at least thirty days after the date on which
such financial statements have been (1) delivered to the Trustee and (2)
filed with the Commission.
If a Potential Event of Default or Event of Default has occurred and is
continuing on the date any reduction in the Interest Rate would otherwise
become effective pursuant to the foregoing, such Interest Rate reduction shall
not become effective until the first day of the next succeeding calendar month
after the date on which such Potential Event of Default or Event of Default has
been cured or waived in accordance with the provisions of the Indenture.
Upon the occurrence of any event which would result in a reduction of the
Interest Rate in accordance with the foregoing, the Trustee (at the expense of
the Company) shall give prompt written notice to all Holders (i) of such
occurrence, (ii) that, provided that there is no occurrence and continuance of a
Potential Event of Default or Event of Default on the date the Interest Rate is
to reduce pursuant to the foregoing, the Interest Rate will be reduced and (iii)
the effective date thereof. The Interest Rate in effect with respect to the
Securities is subject to increase as provided in Sections 503 and 515 of the
Indenture, any such increase to be paid solely in cash. Upon the occurrence and
during the continuance of any Payment Default, Bankruptcy Default or any default
pursuant to Section 501(c) of the Indenture, all interest accrued thereafter and
during the period in which the Payment Default, Bankruptcy Default or any
default pursuant to Section 501(c) of the Indenture has continued
NY1-463085 EXECUTION
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<PAGE>
shall be payable solely in cash, and no portion thereof may be paid in Secondary
Securities. Each issuance of Secondary Securities in lieu of the payment of
interest in cash on the Securities shall be made pro rata with respect to the
Outstanding Securities; provided that the Company may at its option pay cash in
lieu of issuing Secondary Securities. Any such Secondary Securities shall be
governed by the Indenture and shall be identical in all respects to the
Securities initially issued (except, as the case may be, with respect to the
issuance date and principal amount). As used herein, "Secondary Securities"
means an additional Security with a principal amount equal to the accrued but
unpaid interest, which shall be governed by the Indenture and which shall be
identical in all respects to this Security (except, as the case may be, with
respect to the issuance date and aggregate principal amount).
The principal amount of the Securities will be due and payable in
semi-annual installments in accordance with the following schedule, provided
that the outstanding principal amount of Securities to be repaid pursuant hereto
on a Scheduled Principal Payment Date on or prior to October 1, 2003 shall be
reduced on a pro rata basis to the extent of any redemp tion of Securities made
prior to the applicable Scheduled Principal Payment Date:
Scheduled Outstanding Principal
Principal Payment Date to be Repaid
---------------------- ----------------------
October 1, 2001 $4,000,000
April 1, 2002 4,000,000
October 1, 2002 4,000,000
April 1, 2003 4,000,000
October 1, 2003 4,000,000
April 1, 2004 Balance of Unpaid Principal
Principal payments may be accelerated upon the occurrence and continuance of
certain events specified in Article 5 of the Indenture. The interest payable on
this Security on any Interest Payment Date will, as provided in the Indenture,
be paid to the Person in whose name this Security (or one or more Predecessor
Securities) is registered in the Security Register at the close of business on
the Regular Record Date for such interest, which shall be the thirtieth day
(whether or not a Business Day), as the case may be, immediately preceding such
Interest Payment Date. Any such interest not so punctually paid shall forthwith
cease to be payable to the Holder of this Security on such Regular Record Date,
and may be paid to the Person in whose name this Security (or one or more
Predecessor Securities) is registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given by the Trustee to Holders of Securities
not less than 10 days prior to such Special Record Date, or may be paid at any
time in any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon such notice
as may be required by such exchange, all as more fully provided in said
Indenture. Except as set forth above with respect to payment of interest in
Secondary Securities, payment of the principal of and interest on this Security
will be made by (i) wire transfer to a United States dollar account maintained
by the Holder of this
NY1-463085 EXECUTION
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<PAGE>
Security at a Depository Institution in the United States as reflected on the
Security Register on the close of business on the applicable Record Date or (ii)
mailing checks for such interest and principal to the Holder entitled thereto to
such address as shall appear on the Security Register on the close of business
on the applicable Record Date.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly executed by
the Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture, or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this Security to be duly
executed.
Dated: _______, 1997 SLM INTERNATIONAL, INC.
By: _________________________
Name: _____________________
Title: ______________________
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Senior Secured Notes Due April 1, 2004 described
in the within-mentioned Indenture.
The Bank of New York, as Trustee
By: _________________________
Name: _____________________
Title: ______________________
Dated: _______, 1997
(BACK OF SECURITY)
This Security is one of a duly authorized issue of Securities of the
Company designated as its Senior Secured Notes Due April 1, 2004 (herein called
the "Securities"), limited (except as otherwise provided in the Indenture
referred to below) in aggregate original
NY1-463085 EXECUTION
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<PAGE>
principal amount to $29,500,000 (plus the aggregate amount of all Secondary
Securities issued), issued under an indenture (herein called the "Indenture"),
dated as of April 1, 1997, among the Company, the Guarantors listed therein and
The Bank of New York, a banking corporation organized and existing under the
laws of the State of New York, as trustee (herein called the "Trustee," which
term includes any successor Trustee under the Indenture), to which Indenture and
all indentures supplemental thereto reference is hereby made for a statement of
the respective rights, limitations of rights, duties, obligations and immunities
thereunder of the Company, the Trustee and the Holders of the Securities, and of
the terms upon which the Securities are, and are to be, authenticated and
delivered. The terms and conditions of the Indenture are incorporated herein by
this reference, and by acceptance hereof, the Holder of this Security assents to
all of the terms and conditions of the Indenture. Certain capitalized terms used
but not defined herein shall have the meanings given to them in the Indenture.
The Securities are subject to voluntary redemption upon not less than 30
nor more than 60 days' notice to each Holder of Securities to be redeemed by
first-class mail, at any time, as a whole or in part, at the election of the
Company, except in respect of redemptions under Sections 423 or 425, at a
Redemption Price equal to 101% of the principal amount being redeemed, together
in the case of any such redemption with accrued interest thereon to the
Redemption Date, all as provided in the Indenture. In addition, upon the
occurrence of any Asset Sale, receipt of Net Insurance Proceeds or the issuance
of any new equity securities of the Company, the Company may, and in certain
circumstances shall be required to, offer to redeem Securities in accordance
with the terms of the Indenture.
In the case of any redemption of Securities, interest installments whose
Stated Maturity is on or prior to the Redemption Date will be payable to the
Holders of such Securities, or one or more Predecessor Securities, of record at
the close of business on the relevant Regular Record Date referred to on the
face hereof. Securities (or portions thereof) for whose redemption and payment
provision is made in accordance with the Indenture shall cease to bear interest
from and after the date fixed for redemption.
In the event of redemption of this Security in part only, a new Security or
Securities in an aggregate principal amount equal to and in exchange for the
unredeemed portion hereof shall be issued in the name of the Holder hereof upon
the cancellation hereof.
If an Event of Default shall occur and be continuing, the principal of all
the Securities may be declared and become, due and payable in the manner and
with the effect provided in the Indenture.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders under the Indenture at any time by the
Company and the Trustee with the consent of the Requisite Holders. The Indenture
also contains provisions permitting the Requisite Holders, on behalf of the
Holders of all of the Securities, to waive compliance by
NY1-463085 EXECUTION
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<PAGE>
the Company with certain provisions of the Indenture and certain past defaults
under the Indenture and the consequences of such defaults. Any such consent or
waiver by or on behalf of the Holder of this Security shall be conclusive and
binding upon such Holder and upon all future Holders of this Security and of any
Security issued upon the registration of transfer hereof or in exchange hereof
or in lieu hereof whether or not notation of such consent or waiver is made upon
this Security.
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Company on the
terms set forth in the Indenture, which is absolute and unconditional, to pay
the principal of and interest on this Security at the times (subject to any
grace periods), place, and rate, and in the manner, prescribed herein and in the
Indenture.
As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Security is registrable on the Security Register of
the Company, upon surrender of this Security for registration of transfer at the
office or agency of the Company maintained for such purpose, duly endorsed by,
or accompanied by a written instrument of transfer in form satisfactory to, the
Company and the Trustee duly executed by, the Holder hereof or its attorney duly
authorized in writing, and thereupon one or more new Securities, of authorized
denominations and for the same aggregate principal amount, will be issued to the
designated transferee or transferees.
Except in respect of Secondary Securities, the Securities are issuable only
in registered form without coupons in any denomination of $250,000 or more. As
provided in the Indenture and subject to certain limitations therein set forth,
the Securities are exchangeable for a like aggregate principal amount of
Securities of any authorized denomination, as requested by the Holder
surrendering the same.
No service charge shall be made for any registration of transfer or
exchange or redemption of Securities, but the Company may require payment of a
sum sufficient to cover all documentary, stamp or similar issue or transfer tax
or other governmental charge payable in connection therewith.
Prior to, and at the time of, due presentment of this Security for
registration of transfer, the Company, the Trustee, the Security Registrar and
any agent of the Company or the Trustee or the Security Registrar may treat the
Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security be overdue, and neither the Company, the
Trustee, the Security Registrar nor any agent of any of the foregoing shall be
affected by notice to the contrary.
Customary abbreviations may be used in the name of a Holder or an assignee,
such as: TEN COM (=tenants in common), TEN ENT (=tenants by the entireties), JT
TEN (=joint tenants with right of survivorship and not as tenants in common),
CUST (=Custodian), and U/G/M/A (=Uniform Gifts to Minors Act).
NY1-463085 EXECUTION
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<PAGE>
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture. Requests may be made to: SLM International,
Inc., 77 Route 25, Pierson Industrial Park, Bradford, Vermont 05033, Attention:
Russell J. David, Vice President-Finance.
[FORM OF NOTATION ON NOTE RELATING TO GUARANTY]
Sport Maska Inc., Maska U.S., Inc., #1 Apparel, Inc., #1 Apparel Canada
Inc., SLM Trademark Acquisition Corp. and SLM Trademark Acquisition Canada
Corporation (hereinafter referred to as the "Guarantors," which term includes
any successor or additional Person under the Indenture referred to in the
Security upon which this notation is endorsed) have unconditionally guaranteed
(i) the due and punctual payment of the principal of and interest on the
Securities, whether at stated maturity, by acceleration, declaration or
otherwise, the due and punctual payment of on the overdue principal of and
interest on the Securities, to the extent lawful, and the due and punctual
performance of all other obligations of the Company to the Holders or the
Trustee all in accordance with the terms set forth in Article Ten of the
Indenture, and (ii) in case of any extension of time of payment or renewal of
any Securities or any of such other obligations, that the same will promptly be
paid in full when due or performed in accordance with the terms of the extension
or renewal, whether at stated maturity, by acceleration or otherwise.
The obligations of each Guarantor to the Holders and the Trustee pursuant
to the Guaranties and the Indenture are expressly set forth in Article Ten of
the Indenture and reference is hereby made to such Indenture for the precise
terms of the Guaranties made therein.
The Guaranties shall not be valid or become obligatory for any purpose
until the certificate of authentication on the Securities upon which this
Guaranty is noted shall have been executed by the Trustee under the Indenture by
the manual signature of one of its authorized signatories.
NY1-463085 EXECUTION
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<PAGE>
SPORT MASKA INC.,
as Guarantor
By:____________________________
Name:
Title:
MASKA U.S., INC.,
as Guarantor
By:____________________________
Name:
Title:
#1 APPAREL, INC.,
as Guarantor
By:____________________________
Name:
Title:
#1 APPAREL CANADA INC.,
as Guarantor
By:__________________________
Name:
Title:
SLM TRADEMARK ACQUISITION CORP.,
as Guarantor
By:____________________________
Name:
Title:
SLM TRADEMARK ACQUISITION CANADA
CORPORATION,
as Guarantor
By:____________________________
Name:
Title:
NY1-463085 EXECUTION
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<PAGE>
ASSIGNMENT FORM
I/We assign and transfer this Security to:
-------------------------------------------------------
Insert assignee's soc. sec. or tax ID no.:_____________
-------------------------------------------------------
-------------------------------------------------------
-------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint____________________________________________
_______________________________________________________ agent to
transfer this Security on the books of the Company. The
agent may substitute another to act for him or her.
Dated: ______________ Signed:_____________________________
______________________________________________________________________
(Sign exactly as your name appears on the other side of this Security)
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<PAGE>
NOTICE OF HOLDER TO ELECT REDEMPTION
If you want to elect to have this Security purchased or redeemed by the
Company pursuant to Sections 423 or 425 of the Indenture, check the box and
complete the following:
__ an election to require redemption is hereby being made.
$_________________ (principal amount of this Security with respect to which
an election to require redemption is being made)
Dated: ______________ Signed:_____________________________
______________________________________________________________________
(Sign exactly as your name appears on the other side of this Security)
NY1-463085 EXECUTION
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EXECUTION COPY
January 6, 1997
SLM International, Inc.
30 Rockefeller Plaza, Suite 4314
New York, New York 10112
Attn.: Gerald B. Wasserman
Dear Sirs:
The purpose of this letter is to confirm the agreement between
Wellspring Associates, L.L.C. ("Wellspring") and SLM International, Inc. (the
"Company") with respect to the purchase, on the terms and conditions hereinafter
set forth, by Wellspring of shares of Issued New Common Stock (as such term is
defined in the First Amended Plan of Reorganization for the Company and certain
of its affiliates, dated as of November 12, 1996 (the "Amended Plan")) that
would otherwise be distributed to the holder of the NHLE Claims under Section
4.D. of the Amended Plan and the holders of the Allowed Maska U.S. Unsecured
Claims and Allowed Non-Maska Unsecured Claims who timely avail themselves of the
Cash Option in accordance with Sections 4.G.3 and 4.H.3 of the Amended Plan
(such shares, collectively, the "Shares"). All capitalized terms not otherwise
defined herein shall have the meanings ascribed to them in the Amended Plan.
1. Purchase Price. The purchase price per share for each of the
Shares shall be $8.50. As promptly as practicable after the date on which
Ballots are required to be delivered in respect of the Amended Plan but in any
event on or prior to the tenth business day preceding the Effective Date, the
Company shall notify Wellspring in writing as to the number of Shares in respect
of which the Cash Option has been exercised and which are to be purchased by
Wellspring hereunder. Within three business days after the later of (i)
Wellspring's receipt of such notification and (ii) the Bankruptcy Court's
approval of the Company's execution and delivery of, and the performance of its
obligations under, this letter agreement, Wellspring shall deliver a letter of
credit to the Company in a face amount equal to the aggregate purchase price
payable hereunder in respect of the Shares as security for Wellspring's
performance of its obligations hereunder (the "Letter of Credit"). The Letter of
Credit shall entitle the Company to draw the face amount thereof upon
satisfaction of all the conditions precedent hereinafter set forth and shall
contain such other customary terms and conditions.
<PAGE>
2. Conditions. (a) Wellspring's obligation to purchase the Shares
hereunder shall be subject to the satisfaction of the following conditions:
(1) A plan of reorganization for the Debtors shall have been
confirmed by the Bankruptcy Court (the "Plan"), the order confirming the Plan
shall have been entered and all conditions precedent to the effectiveness of
such Plan shall have been satisfied or waived.
(2) The Plan shall provide (i) that no more than 6.5 million shares
of Authorized New Common Stock shall be issued under the Plan (other than as
provided in the Amended Plan and disclosed in the Amended Disclosure Statement);
(ii) for the economic treatment of the Lender Claims, the NHLE Claim, the
Allowed Maska U.S. Unsecured Claims and Allowed Non-Maska Unsecured Claims on a
basis consistent with the economic treatment of such Claims under the Amended
Plan; and (iii) in all other material respects, the Plan shall be substantially
in the form of the Amended Plan.
(3) The several Purchase Agreements, dated as of August 22, 1996,
between Wellspring Associates L.L.C. and holders of the Lender Claims shall not
have been terminated (collectively, the "Purchase Agreement") other than as a
result of Wellspring's breach thereof.
(b) The Company's obligation to sell, transfer and deliver the
Shares to Wellspring hereunder shall be subject to the satisfaction of the
following conditions:
(1) The Plan shall have been confirmed by the Bankruptcy Court.
(2) All conditions precedent to the effectiveness of the Plan shall
have been satisfied or waived.
(3) All representations and warranties of Wellspring hereunder shall
have been true and correct, in all material respects, when made.
3. Closing. The closing of the transaction provided for in this
letter agreement (the "Closing") shall take place on the later of (i) the
Effective Date and (ii) the first business day following the date on which each
of the conditions set forth immediately above shall have been satisfied or
waived. At the Closing, the Company shall deliver certificates representing the
Shares to Wellspring conveying to Wellspring good and valid title to the Shares,
free and clear of all liens (other than such liens as may have been or may be
created by and through Wellspring) and Wellspring shall cause an amount equal to
the product of (i) the number of Shares to be purchased hereunder multiplied by
(ii) $8.50 to be paid by wire transfer of immediately available funds to an
account of the Company or of the Disbursing Agent, such account to be designated
by the Company by written notice to Wellspring at least 3 business days prior to
the Closing.
<PAGE>
4. Representations. (a) Due Authorization, No Conflict, No Consents,
Enforceability. Wellspring represents and warrants to the Company that (i) it
has full corporate power and authority to execute and deliver this letter
agreement and to perform all of its obligations hereunder; (ii) no consent,
approval or authorization from any person or entity is required to obtained in
connection with Wellspring's execution and delivery of this letter agreement and
the performance of its obligations hereunder; (iii) the execution and delivery
of this letter agreement and the performance by Wellspring of its obligations
hereunder will not violate its operating agreement and will not result in a
violation or breach of, or a default under, any agreement to which Wellspring is
a party or by which any of its assets or properties is bound; and (iv) assuming
the due execution and delivery by the Company of this letter agreement, this
letter agreement constitutes a binding obligation of Wellspring, enforceable
against it in accordance with its terms. The Company represents and warrants to
Wellspring that (i) subject to Bankruptcy Court approval of this letter
agreement, it has full corporate power and authority to execute and deliver this
letter agreement and to perform all of its obligations hereunder; (ii) other
than the approval of the Bankruptcy Court, no consent, approval or authorization
from any person or entity is required to obtained in connection with the
Company's execution and delivery of this letter agreement and the performance of
its obligations hereunder; (iii) the execution and delivery of this letter
agreement and the performance by the Company of its obligations hereunder will
not violate the Amended SLMI Certificate of Incorporation or By-Laws and will
not result in a violation or breach of, or a default under, the Amended Plan or
any agreement to which the Company or the Reorganized SLMI is a party or by
which any of its assets or properties is bound; and (iv) assuming the due
execution and delivery by the Wellspring of this letter agreement and Bankruptcy
Court approval hereof, this letter agreement constitutes a binding obligation of
the Company, enforceable against it in accordance with its terms.
(b) Investment Intent. Wellspring represents and warrants to the
Company that its purchase of the Shares is for its own account with the present
intention of holding such Shares for purposes of investment and that Wellspring
has no present intention of selling such Shares in a public distribution in
violation of the federal securities laws or any applicable state securities
laws.
(c) No Registration. Wellspring acknowledges that the Shares have
not been registered under the Securities Act or any state securities laws by
reason of specific exemptions under the provisions thereof, the availability of
which depend in part upon the bona fide nature of Wellspring's investment intent
and the accuracy of Wellspring's representation in this paragraph 4 above.
Wellspring further acknowledges that the Company is relying upon Wellspring's
representation in subparagraph (b) for the purpose of determining whether the
sale of Shares hereunder meets the requirements for such exemption.
(d) Restricted Securities. Wellspring acknowledges that the Shares
may be "restricted securities" under the applicable federal securities laws and
that the Securities Act and the rules
<PAGE>
of the Securities and Exchange Commission provide in substance that a holder of
"restricted securities" may dispose of such securities only pursuant to an
effective registration statement under the Securities Act or in a transaction
exempt from the registration requirements of the Securities Act. Wellspring
further acknowledges that, except as provided in the Amended Plan, the Company
is not obligated to register the Shares. Wellspring further acknowledges that no
public market exists for the Shares.
(e) Accredited Investor. Wellspring represents and warrants to the
Company that it is an "accredited investor" as that term is defined in Rule
501(e) promulgated under the Securities Act and that it is financially able to
bear the economic risk of an investment in the Shares, including the total loss
thereof.
(f) Purchase Agreement. Wellspring represents and warrants that, as
of the date hereof, (1) it has waived the condition to its obligation to close
the transactions contemplated by the Purchase Agreement set forth at Section
9(c) of the Purchase Agreement and (2) the Amended Plan, in its current form,
satisfies the condition to its obligation to close the transactions contemplated
by the Purchase Agreement set forth at Section 9(b).
5. Covenants. The Company hereby covenants and agrees that it shall
use its best efforts to seek and obtain Bankruptcy Court approval of its
execution and delivery of, and the performance of its obligations under, this
letter agreement as promptly as practicable and, pending such approval and
thereafter, the Company shall not solicit any other proposal relating to the
funding of the Cash Option and shall not enter into any agreement (other than
this letter agreement) relating thereto. The Company hereby covenants and agrees
that (i) as soon as practicable after the Effective Date, Reorganized SLMI shall
file, at its expense, the Shelf Registration Statement; (ii) Reorganized SLMI
shall use its best efforts to have the Shelf Registration Statement declared
effective as soon as practicable after such filing and to keep the Shelf
Registration Statement continuously effective (by filing supplements or
amendments thereto as necessary) until the fourth anniversary of the effective
date thereof; and (iii) all of the Shares to be acquired by Wellspring hereunder
and under the Purchase Agreements shall be included in the Shelf Registration
Statement. Wellspring agrees to cooperate with the Company in the preparation
and filing of the Shelf Registration Statement. In addition, the Company hereby
covenants and agrees that it shall take all such action as Wellspring may
reasonably request to exempt the purchase by Wellspring of the Shares hereunder
and under the Purchase Agreements from the provisions of Section 203 of the
Delaware General Corporation Law.
Section 6. Specific Performance. Each of Wellspring, on the one
hand, and the Company, on the other hand, acknowledge and agree that the breach
of this letter agreement would cause irreparable damage to the other party and
that the other party may not have an adequate remedy at law. Therefore, the
obligations of each of Wellspring and the Company under this letter agreement
shall be enforceable by a decree of specific performance issued by
<PAGE>
any court of competent jurisdiction, and appropriate injunctive relief may be
applied for and granted in connection therewith. Such remedies shall, however,
be cumulative and not exclusive and shall be in addition to any other remedies
available under this letter agreement, at law or in equity.
Section 7. Complete Agreement; Modification of Agreement. This
letter agreement constitutes the complete agreement between the parties with
respect to the subject matter hereof. This agreement may not be modified,
altered, amended or waived except by an agreement in writing signed by each of
the parties hereto and, in the case of the Company, only with the approval of
Committee.
Section 8. Severability. Wherever possible, each provision of this
letter agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this letter agreement shall
be prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
letter agreement.
Section 9. Parties. This letter agreement shall be binding upon, and
inure to the benefit of, the parties and their respective successors and assigns
(including specifically with respect to the Company, Reorganized SLMI). Nothing
in this letter agreement, express or implied, shall give to any person or
entity, other than the parties, any benefit or any legal or equitable right,
remedy or claim under this letter agreement.
Section 10. Governing Law. THIS LETTER AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE
TO CONTRACTS MADE AND TO BE PERFORMED IN SUCH STATE.
Section 11. Termination. This letter agreement shall terminate
automatically at 5:00 p.m. EST on March 31, 1997 if the Closing shall not
theretofore have occurred. Wellspring may terminate this letter agreement at any
time after February 28, 1997 by notice in writing to the Company in the event
that the Bankruptcy Court shall not have entered an order approving the
Company's execution, delivery and performance of its obligations hereunder on or
prior to such date. Upon termination of this letter agreement, this letter
agreement shall be of no further force or effect and no party shall have any
continuing liability to any other party hereunder; provided, however, that, no
termination shall limit the remedies of any party hereto in respect of any
breach occurring prior to such termination.
Section 12. Notices. All notices hereunder shall be deemed given if
in writing and delivered or sent by telecopy, courier or by registered or
certified mail (return receipt
<PAGE>
requested) to the following addresses or telecopier numbers (or at such other
addresses or telecopier numbers as shall be specified by like notice):
a. if to Wellspring, to:
Wellspring Associates L.L.C.
620 Fifth Avenue
New York, New York 10020-1579
Attention: Doug Rotatori
with copies to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006-1470
Attention: James E. Millstein
if to the Company, to:
SLM International, Inc.
30 Rockefeller Plaza, Suite 4314
New York, New York 10112
Attn.: Gerald B. Wasserman
with copies to:
Kasowitz, Benson, Torres & Friedman LLP
1301 Avenue of the Americas
New York, New York 10019
Attn.: David M. Friedman, Esq.
and:
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, NY 10178
Attn.: David W. Pollak, Esq.
Any notice given by delivery, mail, or courier shall be effective
when received. Any notice given by telecopier shall be effective upon oral or
machine confirmation of transmission.
<PAGE>
* * * * * * *
If the foregoing is acceptable to you, please execute and return to
Wellspring the duplicate copy of this letter enclosed herewith, whereupon this
letter shall become a binding agreement between us.
WELLSPRING ASSOCIATES L.L.C.
By: /s/ DOUGLAS W. ROTATORI
---------------------------------------
Name: Douglas W. Rotatori
Title: Principal
SLM INTERNATIONAL, INC.
By: /s/ RUSSELL J. DAVID
---------------------------------------
Name: Russell J. David
Title: Vice President, Finance
EXHIBIT 10.2
April 8, 1997
SLM International, Inc.
c/o Maska U.S., Inc.
77 Route 25
Pierson Industrial Park
Bradford, VT 05033
AMENDMENT TO CASH OPTION AGREEMENT
Dear Sirs:
Reference is made to the letter agreement, dated January 6, 1997 (the "Cash
Option Agreement"), between Wellspring Associates L.L.C. ("Wellspring") and SLM
International, Inc. (the "Company"), with respect to the purchase by Wellspring
of shares of Issued New Common Stock that would otherwise be distributed to the
holders of certain unsecured claims who timely avail themselves of the Cash
Option. All capitalized terms not otherwise defined herein shall have the
meanings ascribed to them in the First Amended Joint Chapter 11 Plan dated
November 12, 1996, as modified, of the Company and certain of its subsidiaries
(the "Amended Plan") .
The parties hereto agree as follows:
1. The introductory paragraph of the Cash Option Agreement is hereby
amended to read as follows:
"The purpose of this letter is to confirm the agreement between
Wellspring Associates, L.L.C. ("Wellspring") and SLM International, Inc.
(the "Company") with respect to the purchase, on the terms and conditions
hereinafter set forth, by Wellspring of shares of Issued New Common Stock
(as such term is defined in the First Amended Plan of Reorganization for
the Company and certain of its affiliates, dated as of November 12, 1996,
as modified, (the "Amended Plan")) that would otherwise be distributed to
the holder of the NHLE Claims under Section 4.D. of the Amended Plan and
the holders of the Allowed Maska U.S. Unsecured Claims
1
<PAGE>
and Allowed Non-Maska Unsecured claims who timely avail themselves of the
Cash Option in accordance with Sections 4.G.3 or 4.H.3 and, in each case,
6.C.3 of the Amended Plan (such shares, collectively, the "Shares"). All
capitalized terms not otherwise defined herein shall have the meanings
ascribed to them in the Amended Plan."
2. Paragraph 3 of the Cash Option Agreement is hereby amended to read as
follows:
"3. Closing. The first closing of the transaction provided for in this
letter agreement (the "First Closing") shall take place on the later of (i)
the Effective Date and (ii) the first business day following the date on
which each of the conditions set forth immediately above shall have been
satisfied or waived. In addition, a subsequent closing or closings
(together with the First Closing, the "Closings") shall occur on each of
(A) any Subsequent Distribution Date (as such term is defined in the
Amended Plan) that occurs no later than six months after the Effective Date
and (B) the date that is two business days after the date on which the
Company shall have provided Wellspring with a list of holders of Allowed
Maska U.S. Unsecured Claims or Allowed Non-Maska Unsecured Claims who have
elected the Cash Option and the allowed amount of each such holder's claim.
At each Closing, the Company shall deliver certificates representing the
Shares to be purchased at such Closing to Wellspring conveying to
Wellspring good and valid title to such Shares, free and clear of all liens
(other than such liens as may have been or may be created by and through
Wellspring) and Wellspring shall cause an amount equal to the product of
(i) the number of Shares to be purchased at such Closing multiplied by (ii)
$8.50 to be paid by wire transfer of immediately available funds to an
account of the Company or of the Disbursing Agent, such account to be
designated by the Company by written notice to Wellspring at least 3
business days prior to such Closing."
3. Paragraph 12 of the Cash Option Agreement is hereby amended to change
the address of the Company as follows:
SLM International, Inc.
c/o Maska U.S., Inc.
77 Route 25
Pierson Industrial Park
Bradford, Vermont 05033
2
<PAGE>
4. Except as amended hereby, the provisions of the Cash Option Agreement
will continue in full force and effect in accordance with the terms thereof.
If the foregoing is acceptable to you, please execute and return to
Wellspring the duplicate copy of this letter enclosed herewith, whereupon this
letter shall become a binding agreement between us.
WELLSPRING ASSOCIATES, L.L.C.
By: /s/ DOUGLAS W. ROTATORI
--------------------------------------
Name: Douglas W. Rotatori
Title: Principal
SLM INTERNATIONAL, INC.
By: /s/ RUSSELL J. DAVID
--------------------------------------
Name: Russell J. David
Title: Vice President, Finance
3
STOCKHOLDERS' AGREEMENT
AGREEMENT, dated as of April 11, 1997, by and among SLM
International, Inc., a Delaware corporation (the "Corporation"), and those
persons set forth on Schedule A annexed hereto.
W I T N E S S E T H :
WHEREAS, the Corporation and certain of its Subsidiaries (as defined
herein) filed voluntary petitions for relief under chapter 11 of the Bankruptcy
Code on or about October 24, 1995; and
WHEREAS, the First Amended Joint Chapter 11 Plan (as Modified) of
the Corporation and such Subsidiaries was confirmed by the United States
Bankruptcy Court for the District of Delaware on or about January 23, 1997 (such
Plan, as further modified or amended from time to time after such date, the
"Plan"), and is to be consummated on the date hereof; and
WHEREAS, on the date hereof (i) the Corporation will distribute to
the Insurance Companies and Wellspring (each, as defined herein) certain shares
of its Common Stock, par value $.01 (the "Stock"), (ii) Wellspring will purchase
2,470,000 shares of Stock from the Lenders (as defined in the Plan), and (iii)
Wellspring will purchase certain shares of Stock from the Corporation in
connection with its funding of the Cash Option (as defined in the Plan); and
WHEREAS, the Insurance Companies and Wellspring may receive
additional shares of Stock upon the resolution of Disputed Claims (as defined in
the Plan); and
WHEREAS, the Corporation is authorized to issue a total of
15,000,000 shares of Stock; and
WHEREAS, as of the date hereof each Stockholder is the record and
beneficial owner of the numbers of shares of Stock set forth opposite the name
of such Stockholder on Schedule A hereto; and
WHEREAS, the parties desire to enter into an agreement with respect
to the management of the Corporation, certain transfer rights in respect of
certain shares of Stock and certain other matters.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants, agreements, representations and warranties herein contained, the
parties hereto, intending to be legally bound, covenant and agree as follows:
1. Definitions. (a) As used in this Agreement, the following terms
shall have the following meanings:
<PAGE>
"Acquired Shares" means any shares of Stock acquired by Wellspring
from the Corporation within six months after the Effective Date pursuant to
Wellspring's funding of the Cash Option (as defined in the Plan); provided,
however, that such shares shall be deemed not to be Acquired Shares if
Wellspring does not notify the other Stockholders of the acquisition of such
shares within ten days of such acquisition.
"Affiliate" of any specified Person means any other Person directly
or indirectly Controlling or Controlled by or under direct or indirect common
Control with such specified Person.
"Agreement" means this Stockholders Agreement, together with all
Schedules and Exhibits hereto, as the same may be amended, supplemented or
modified in accordance with the terms hereof from time to time.
"Control" (including, with correlative meanings, the terms
"controlling," "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 or policies of such
Person, whether through the ownership of voting securities or by contract or
otherwise.
"Effective Date" means the date of this Agreement.
"Governmental Authority" means any nation or government, any state
or other political subdivision thereof or any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government or any other regulatory authority.
"Initial Period" means the period commencing on the Effective Date
and terminating on the earliest to occur of (i) June 30, 1998, (ii) the date on
which Wellspring no longer owns beneficially and of record at least 70 percent
of the number of shares of Stock set forth opposite the name of Wellspring
Acquisition on Schedule A, (iii) the date on which the Insurance Companies
collectively no longer own beneficially and of record at least 70 percent of the
collective number of shares of Stock set forth opposite the names of the
Insurance Companies on Schedule A, and (iv) the date of consummation of a bona
fide initial public offering of the Stock by the Corporation under the
Securities Act.
" Insurance Companies" means, collectively, The Equitable Life
Assurance Society of the United States, The Northwest Mutual Life Insurance
Company, Phoenix Home Life Mutual Insurance Company, GE Capital Assurance
Company, Business Men's Assurance Company and Indianapolis Life Insurance
Company, together with each Insurance Company's Affiliates that own Stock and
that have become parties to this Agreement by executing and delivering to the
other parties hereto a copy of this Agreement.
"Insurance Company Director" means any individual nominated by the
Insurance Company Majority to serve on the Board of Directors of the Corporation
or any Subsidiary of the Corporation.
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<PAGE>
"Insurance Company Majority" means, as of the date of determination,
the holders of a majority of the shares of Stock then held by the Insurance
Companies.
"Maska" means Maska, U.S., Inc., a Vermont corporation.
"Permitted Debt" means indebtedness under (i) that certain Senior
Secured Note Indenture, dated as of even date herewith, among the Corporation,
as issuer, the guarantors named therein, as guarantors, and The Bank of New
York, as Trustee, as such Secured Note Indenture exists on the date hereof,
including, without limitation, the payment of interest in kind, as provided
therein, (ii) that certain Credit Agreement, dated as of even date herewith,
among the Corporation and certain of its Subsidiaries, as borrowers, the lenders
referred to therein and The Chase Manhattan Bank, as agent, as such Credit
Agreement exists on the date hereof, or (iii) that certain Credit Agreement,
dated as of even date herewith, among Sport Maska, #1 Apparel Canada Inc., St.
Lawrence Manufacturing Canada Inc./Manufactures St. Laurent Canada Inc. and The
Chase Manhattan Bank of Canada, as such Credit Agreement exists on the date
hereof.
"Person" means any individual, company, corporation, partnership,
limited liability company, trust, division, Governmental Authority or other
entity.
"Qualifying Stockholder" means, at any time, any Stockholder that,
together with the other members of any Group (as that term is used in Rule 13d-5
under the Exchange Act of 1934) of which such Stockholder is a member, then owns
more than 260,000 shares of Stock.
"Requirement of Law", as used with respect to any Person, means the
articles or certificate of incorporation and by-laws or other organizational or
governing documents of such Person, and any law, statute, treaty, rule or
regulation, order or determination of an arbitrator or a court or other
Governmental Authority, in each case applicable to or binding upon such Person
or any of its property, or to which such Person or any of its property is
subject.
"Related Group" of any Affiliate means such Affiliate and all
Affiliates (other than the Corporation and Subsidiaries of the Corporation) of
such Affiliate.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
"Sport Maska" means Sport Maska Inc., a Canadian corporation.
"Stockholder" means each Insurance Company and Wellspring, and each
Affiliate of any Insurance Company or Wellspring that owns any Stock and that
has become a party to this Agreement by executing and delivering to the other
parties hereto a copy of this Agreement.
"Subsequent Period" means the period commencing upon the termination
of the Initial Period and terminating on the Termination Date.
-3-
<PAGE>
"Subsidiary", as used with respect to any Person, means any entity
(whether now existing or hereafter formed or acquired) of which shares of each
class of capital stock having ordinary voting power (other than capital stock
having such power only by reason of the happening of a contingency) to elect a
majority of the board of directors or other managers of such entity are at the
time owned by such Person or by one or more Subsidiaries of such Person or by
such Person and one or more Subsidiaries of such Person.
"Termination Date" means the earliest of (i) the first date on which
either the Insurance Companies collectively or Wellspring owns less than 20
percent of the total number of shares of Stock issued and outstanding on such
date, (ii) the date of the consummation of a bona fide initial public offering
of the Stock by the Corporation under the Securities Act, and (iii) such time as
all of the parties hereto elect in a written agreement to terminate this
Agreement.
"Wellspring" means Wellspring Acquisition, together with the
Affiliates of Wellspring that own Stock and that have become parties to this
Agreement by executing and delivering to the other parties hereto a copy of this
Agreement.
"Wellspring Acquisition" means WS Acquisition, L.L.C., a New York
limited liability company.
"Wellspring Director" means any individual nominated by Wellspring
Acquisition to serve on the Board of Directors of the Corporation or any
Subsidiary of the Corporation.
(b) Any time this Agreement refers to any number or percentage of
shares of Stock, such number or percentage of shares shall be adjusted to give
effect to all stock splits, stock dividends, stock combinations,
recapitalizations and like occurrences.
(c) The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and section,
Section, schedule and exhibit references are to this Agreement unless otherwise
specified.
(d) The meanings given to terms defined herein shall be equally
applicable to the singular and plural forms of such terms. Whenever the pronouns
"it" or "its" are used herein, they shall also be deemed to mean "he" and/or
"she" or "his" and/or "hers" whenever applicable.
(e) The section headings contained herein are for the purposes of
convenience only and are not intended to define or limit the contents of such
sections.
2. Legend on Certificates; Transfer.
(a) For so long as this Agreement remains in effect, the following
statement shall be inscribed on all certificates representing shares of Stock
owned by any Stockholder (or any certificates representing shares of Stock
received with respect thereto):
-4-
<PAGE>
"THE STOCK REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO
A CERTAIN STOCKHOLDERS' AGREEMENT DATED APRIL 11, 1997,
AND ANY AMENDMENTS THERETO, A COPY OF WHICH IS ON FILE
AT THE PRINCIPAL OFFICE OF THE CORPORATION."
The Corporation shall remove the foregoing legend upon transfer of shares of
Stock to a Person other than a Stockholder in a transaction that was not
prohibited by, and did not otherwise violate, the terms of this Agreement.
Unless it has notice to the contrary, the Corporation shall be entitled to, and
shall, rely on a certificate of such transferring Stockholder in connection with
the foregoing conditions of legend removal.
(b) No Stockholder shall sell, assign, transfer or otherwise dispose
of any of shares of Stock to an Affiliate of such Stockholder unless such
Affiliate becomes a party to this Agreement by executing and delivering to the
other parties hereto a copy of this Agreement. Any sale, assignment, transfer or
other disposition of any shares of Stock subject to this Agreement not in
accordance with the terms of this Agreement shall be void and of no effect, and
the Corporation shall not give effect to such purported sale, assignment,
transfer or other disposition and shall not recognize the purported transferee
as the holder of such shares of Stock.
3. Term of Agreement. This Agreement shall terminate on the
Termination Date.
4. Tag Along Rights.
(a) If at any time
(i) Wellspring agrees to sell, assign, transfer or otherwise
dispose of (each, a "Transfer") an amount of shares of Stock equal
to or exceeding the sum of (x) 2,555,414 shares of Stock plus (y)
80% of the Acquired Shares (such sum, the "80% Amount") in one or a
series of related transactions to any Person or Persons other than
any Affiliate of Wellspring that becomes a party to this Agreement
as provided herein (such Person or Persons, a "Transferee"), or
(ii) Wellspring agrees to Transfer an amount of shares of
Stock equal to or exceeding the sum of (x) 1,916,561 shares of Stock
plus (y) 60% of the Acquired Shares, but less than the 80% Amount,
in one or a series of related transactions to any Transferee,
wherein immediately following such transaction(s) Wellspring would
own at least an amount of shares of Stock equal to or exceeding the
difference between the 80% Amount and the amount of shares to be
transferred in such transaction(s) (the amount of shares of Stock
equal to such difference being hereinafter referred to as the
"Remaining Shares"), and in connection with such transaction(s),
Wellspring would enter into a voting agreement with such Transferee
with respect to a number of shares of Stock equal to or exceeding
the Remaining Shares (including, without limitation, any agreement
to vote for
-5-
<PAGE>
directors of such Transferee or to vote at the direction of such
Transferee) or otherwise would agree to sell to such Transferee or
any Affiliate of such Transferee a number of shares of Stock equal
to or exceeding the Remaining Shares or would grant or agree to
grant to such Transferee or any Affiliate of such Transferee an
option to purchase or otherwise acquire a number of shares of Stock
equal to or exceeding the Remaining Shares, or do any combination of
the foregoing in respect of such number of shares of Stock, then,
prior to any such Transfer, Wellspring shall promptly (and in any
event at least 15 business days prior to the closing date thereof),
provide each other Stockholder with written notice of the proposed
Transfer (the "Transfer Notice") containing (i) the name and address
of the proposed Transferee, (ii) the total number of shares of Stock
then owned by Wellspring, (iii) the number of shares of Stock to be
Transferred by Wellspring, the purchase price therefor and the other
terms and conditions of payment, and (iv) the closing date for the
proposed Transfer (including when available, a copy of any purchase
agreement related thereto); provided, however, that none of the
provisions of this Section 4 shall apply to any Transfer of Stock
from Wellspring to any Affiliate of Wellspring that becomes a party
to this Agreement by executing and delivering to the other parties
hereto a copy of this Agreement.
(b) Any Stockholder (each, a "Participating Stockholder") that
wishes to participate in such Transfer shall notify Wellspring by written notice
(the "Tag-Along Notice") on or before the expiration of 10 business days
following receipt of the Transfer Notice that such Participating Stockholder
desires to Transfer to the proposed Transferee a portion of its shares of Stock
on the same terms and conditions set forth in the Transfer Notice. The Tag-Along
Notice shall specify the number of shares of Stock such Participating
Stockholder desires to Transfer (the "Tag-Along Amount"). The maximum number of
shares of Stock that each such Participating Stockholder separately shall be
entitled to Transfer hereunder shall be determined by multiplying the number of
shares of Stock held by such Participating Stockholder at the time of the
Transfer Notice by a fraction, the numerator of which is the number of shares of
Stock proposed to be Transferred to the Transferee by Wellspring and the
denominator of which is the number of shares of Stock then owned by Wellspring.
If no Stockholder provides Wellspring with a Tag-Along Notice within the period
specified above, Wellspring shall be free to consummate the sale of Stock to the
Transferee in the amount and at not more than the purchase price set forth in
the Transfer Notice and on substantially the same other terms and conditions set
forth in the Transfer Notice. If there is any Participating Stockholder(s),
Wellspring may not effect such Transfer unless, at the same time, the Transferee
shall purchase the Tag-Along Amount from each such Participating Stockholder
(or, subject to the terms of subsection (c) below, the Reduced Tag-Along Amount
(as defined therein)) on the same terms and conditions as set forth in the
Transfer Notice.
(c) If the sum (the "Aggregate Shares Offered") of (i) the number of
shares of Stock proposed to be Transferred to the Transferee by Wellspring and
(ii) the aggregate Tag- Along Amounts for all Participating Stockholders exceeds
the number of shares of Stock that such Transferee is willing to purchase, then
the Tag-Along Amount of each Participating
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<PAGE>
Stockholder shall be reduced to a number of shares of Stock (the "Reduced
Tag-Along Amount") equal to the product of the aggregate number of shares of
Stock which the Transferee is willing to purchase and a fraction, the numerator
of which is the Tag-Along Amount with respect to such Person and the denominator
of which is the Aggregate Shares Offered, and Wellspring shall Transfer only
that number of shares of Stock equal to the number of shares of Stock which the
Transferee is willing to purchase minus the aggregate Reduced Tag-Along Amounts
for all Participating Stockholders (the "Wellspring Reduced Amount").
(d) Any representation or indemnity provided by a Participating
Stockholder to the Transferee in a purchase agreement relating to such Transfer
will relate only to the shares of Stock Transferred by it. Any representation or
indemnity provided to the Transferee by Wellspring will relate only to the
shares of Stock Transferred by it.
(e) The Corporation shall, upon request by any Participating
Stockholder, issue to such Participating Stockholder one or more stock
certificates registered in the names and in the denominations (aggregating in a
number equal to the original denomination) requested by such Participating
Stockholder, to facilitate any partial sale of shares of Stock pursuant to this
Section 4.
(f) To the extent that any prospective Transferee is unwilling or
otherwise refuses to purchase Stock as provided in this Section 4 from any
Participating Stockholder (other than because such Participating Stockholder
refuses to sell such Stock on the same terms and conditions and on the same
closing date set forth in the relevant Transfer Notice), Wellspring shall not
Transfer to such prospective Transferee any Stock, unless, simultaneously with
such Transfer, Wellspring shall purchase such Stock from such Participating
Stockholder (or, subject to the terms of subsection (c) above, such
Participating Stockholder's Reduced Tag Along Amount) on the same terms and
conditions specified in the Transfer Notice.
(g) Subject to the rights of each Participating Stockholder,
Wellspring may, not later than sixty (60) days following delivery to the
Stockholders of the Transfer Notice, conclude a Transfer of Stock covered by the
Transfer Notice at not more than the purchase price set forth in the Transfer
Notice and on substantially the same other terms and conditions described in the
Transfer Notice. Any proposed Transfer on terms and conditions more favorable to
the Transferee than those described in the Transfer Notice, as well as any
proposed Transfer of any Stock by Wellspring more than sixty (60) days following
delivery to the Stockholders of the Transfer Notice, shall again be subject to
the tag-along rights of the Stockholders and shall require compliance by
Wellspring with the procedures described in this Section 4.
5. Covenants of the Corporation.
(a) Upon the request of any Stockholder, the Corporation shall
notify such Stockholder of each transfer of Stock that the Corporation has
registered on its books and afford such Stockholder access to its stock record
books. The Corporation shall, to the extent it has knowledge of the occurrence
thereof, notify each Stockholder promptly upon (i) the termination
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<PAGE>
of the Initial Period (other than by reason of the occurrence of June 30, 1998)
and (ii) the occurrence of the Termination Date.
(b) The Corporation shall permit each Stockholder, at such
Stockholder's expense, to examine the Corporation's books and records and to
discuss the Corporation's affairs, finances and accounts with its officers, all
at such reasonable times as may be requested by such Stockholder. Upon the
request of any Qualifying Stockholder, the Corporation shall use its best
efforts to provide such Qualifying Stockholder with (x) notice of each meeting
of the board of directors of the Corporation and a copy of the agenda relating
thereto, (y) the right to attend or otherwise observe, at the expense of such
Qualifying Stockholder, each such meeting, and (z) copies of all documents,
reports, information and other material distributed at each such meeting or that
are customarily available to members of the board of directors of the
Corporation, including, without limitation, copies of minutes, written consents,
other information related to such meetings and reports of what occurred at such
meetings; provided, however, that the failure of the Corporation to provide any
of the foregoing shall not affect any action taken by the Corporation or its
board of directors. Notwithstanding the foregoing, no Stockholder, and no
Affiliate of any Stockholder, shall disclose or divulge to any Person, or use or
suffer the use by any third party for any purpose, other than as permitted
hereunder or required in accordance with the terms of this Agreement, directly
or indirectly, for its own benefit or the benefit of any Person, any
confidential information of, or any confidential information obtained from or
through, the Corporation. The commitments hereunder with respect to confidential
information covered hereby shall not extend to any part of such confidential
information which (i) was known prior to disclosure by the other party; (ii) was
known or available to the public prior to disclosure by the other party; (iii)
becomes known or available to the public subsequent to disclosure by the other
party through no wrongful act of the party receiving the confidential
information; or (iv) was disclosed to the receiving party at any time by a third
party (other than an Affiliate of the receiving party) having a bona fide right
to disclose such information to the receiving party. Any party shall be
permitted to disclose such confidential information to a Governmental Authority
to the extent required by applicable laws and regulations. The provisions of
this Section shall survive for one year any termination of this Agreement.
(c) The Corporation shall cause each of its Subsidiaries to comply
with each provision of this Agreement that by its terms is applicable to such
Subsidiaries.
6. Management of the Corporation.
(a) During the Initial Period, the Board of Directors of the
Corporation shall consist of five directors, including two Wellspring Directors,
two Insurance Company Directors and the chief executive officer of the
Corporation. Initially, Martin S. Davis and Douglas W. Rotatori shall be the
Wellspring Directors; James C. Pendergast and Paul Chute shall be the Insurance
Company Directors; and Gerald B. Wasserman shall be the Chief Executive Officer
of the Corporation.
(b) During the Subsequent Period, the Board of Directors of the
Corporation shall initially consist of five directors, but the number of
directors may be increased with the
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<PAGE>
consent of Wellspring Acquisition and the Insurance Company Majority, which
consent shall not be unreasonably withheld. The Board of Directors of the
Corporation during the Subsequent Period shall include at least one Wellspring
Director and one Insurance Company Director.
(c) At each annual or special meeting, or in any consent in writing
in lieu of a meeting, for the election of directors of the Corporation,
Wellspring Acquisition shall designate the Wellspring Director(s) and the
Insurance Company Majority shall designate the Insurance Company Director(s),
and each Stockholder shall vote its shares of Stock to elect the Wellspring
Directors, the Insurance Company Directors and, during the Initial Period, the
Chief Executive Officer of the Corporation, as provided in subsections (a) and
(b) above.
(d) Immediately following the end of the Initial Period, (x)
Wellspring Acquisition shall identify by notice to the other Stockholders one of
the two Wellspring Directors then in office who shall cease to be a Wellspring
Director, but who shall continue to serve as director until removed or until his
successor is elected and qualified, and (y) the Insurance Company Majority shall
identify by notice to the other Stockholders one of the two Insurance Directors
then in office who shall cease to be an Insurance Company Director, but who
shall continue to serve as director until removed or until his successor is
elected and qualified.
(e) The Corporation's Certificate of Incorporation and Bylaws shall
at all times permit removal of directors with or without cause by vote of its
stockholders. No Stockholder shall vote or consent in writing to remove a
Wellspring Director without cause without the prior written consent of
Wellspring Acquisition, and no Stockholder shall vote or consent in writing to
remove an Insurance Company Director without cause without the prior written
consent of the Insurance Company Majority (other than with respect to the
removal of such Directors as contemplated by Section 6(d) hereof). Upon the
written request of Wellspring Acquisition, each Stockholder shall vote or
consent in writing to remove any Wellspring Director then in office, and upon
the written request of the Insurance Company Majority, each Stockholder shall
vote or consent in writing to remove any Insurance Company Director then in
office.
(f) If at any time there shall occur any vacancy in the office of
director held by a Wellspring Director, Wellspring Acquisition shall designate a
successor Wellspring Director who shall be elected by the Board of Directors to
fill such vacancy. If there shall occur any vacancy in the office of director
held by an Insurance Company Director, the Insurance Company Majority shall
designate a successor Insurance Company Director who shall be elected by the
Board of Directors to fill such vacancy. In the event that the Board of
Directors does not fill a vacancy in accordance with the terms of this
subsection (f), then, at the request of any Stockholder, the Stockholders shall
vote to (i) remove the Director elected by the Board of Directors to fill such
vacancy and (ii) replace such Director with the Wellspring Director or the
Insurance Company Director, as the case may be, that should have been elected by
the Board.
(g) At all times during the Initial Period, each committee of the
Board of Directors of the Corporation, each board of directors of any Subsidiary
of the Corporation that is incorporated in the United States and each committee
of the board of directors of any such
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<PAGE>
Subsidiary shall include at least one Wellspring Director and one Insurance
Company Director. At all times during the Subsequent Period, the Corporation
shall cause each committee of the Board of Directors of the Corporation and of
each Subsidiary of the Corporation to provide each Wellspring Director and each
Insurance Company Director who is not a member thereof with (x) notice of each
meeting of such committee and a copy of the agenda relating thereto, (y) the
right, if any such director requests, to attend or otherwise observe, at the
Corporation's expense, each such meeting, and (z) if requested, copies of all
documents, reports, information and other material distributed at each such
meeting or that are customarily available to members of the relevant committee,
including, without limitation, copies of minutes, written consents, other
information related to such meetings and reports of what occurred at such
meetings.
7. Consent Required for Certain Actions.
(a) Notwithstanding anything to the contrary set forth in this
Agreement or in the charter or by-laws of the Corporation or any Subsidiary of
the Corporation, the following actions of the Corporation or of any Subsidiary
of the Corporation shall not be undertaken, and if undertaken shall be void and
without effect, without the approval of the directors of the Corporation as
provided in subsection (b) below.
(i) the sale of the Corporation pursuant to or in connection
with a merger, consolidation or recapitalization (including, without
limitation, any merger, consolidation or recapitalization in which the
holders of Stock immediately before such merger, consolidation or
recapitalization do not own at least 50% of the outstanding voting stock
of the surviving corporation);
(ii) the issuance or sale by the Corporation of shares of its
capital stock (or rights, options, warrants or other securities
convertible into or exchangeable for its capital stock) in one or a series
of related transactions to one or more Persons, if immediately following
such issuance or sale such Persons or any Group (as that term is used in
Rule 13d-5 under the Exchange Act of 1934) of which such Persons are a
member would own shares of capital stock (when added to any shares of
capital stock which such Persons or Group have the right to acquire upon
the exercise, conversion or exchange of any rights, options, warrants or
other securities owned by them) representing more than 50% of the voting
stock of the Corporation (or the surviving corporation) then outstanding;
(iii) the voluntary or involuntary sale, assignment, transfer,
other disposition or issuance by the Corporation and/or any Subsidiary of
the Corporation (including, without limitation, Maska or Sport Maska) of
any capital stock (or rights, options, warrants or other securities
convertible into or exchangeable for capital stock) of Maska or Sport
Maska, if immediately following any such sale, assignment, transfer,
disposition or issuance the Corporation and its wholly-owned Subsidiaries,
collectively, own less than 50.1% of the outstanding equity or voting
stock (treating as outstanding for this purpose any shares of capital
stock issuable upon the exercise, conversion or
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<PAGE>
exchange of any rights, options, warrants or other securities owned by any
Person other than the Corporation or a Subsidiary of the Corporation) of
Maska or Sport Maska;
(iv) the voluntary or involuntary sale, lease, assignment,
transfer or other disposition by the Corporation or any Subsidiary of the
Corporation of all or substantially all of its property or assets;
(v) the elimination of any material line of business of the
Corporation or any Subsidiary of the Corporation;
(vi) any termination, dissolution or liquidation of the
Corporation (including pursuant to any bankruptcy, insolvency or similar
law or statute) or the declaration of any dividend in contemplation of any
such termination, dissolution or liquidation;
(vii) the voluntary filing or commencement by the Corporation
or any Subsidiary of the Corporation of any proceeding under any
bankruptcy, insolvency or similar law or statute;
(viii) any amendment of or change to the certificate of
incorporation or by-laws of the Corporation or any Subsidiary of the
Corporation;
(ix) any issuance or sale of capital stock or other securities
of the Corporation, Maska or Sport Maska, including pursuant to a stock
split or bonus, other than the issuance by the Corporation to its senior
management of (i) options to acquire no more than 975,000 shares of Stock
in the aggregate and (ii) Stock upon the exercise of such options;
(x) any transaction with any Affiliate of the Corporation or
its Subsidiaries, including, without limitation payment of any management
fee or other compensation to any such Affiliate, other than any such
transaction (i) that is entered into by the Corporation or such Subsidiary
in the ordinary course of its business not inconsistent with past
practice, (ii) that is on terms that are fair and reasonable and no less
favorable to the Corporation or such Subsidiary than the Corporation or
such Subsidiary would obtain in a comparable arm's-length transaction with
a Person not an Affiliate, and (iii) to the extent the value provided to
or on behalf of such Affiliate's Related Group by the Corporation and/or
its Subsidiaries in all transactions in the relevant fiscal year has not,
after taking into account the transaction in question, exceeded, $200,000;
(xi) the establishment or adoption of annual budgets
(including operating and capital expenditure budgets) or operating plans;
(xii) any creation, incurrence or assumption by the
Corporation or any Subsidiary of the Corporation of financial indebtedness
(including capitalized lease obligations and purchase money debt, but
excluding Permitted Debt) in excess of $5
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<PAGE>
million of such indebtedness by the Corporation and all of its
Subsidiaries in the aggregate in any fiscal year;
(xiii) any purchase or acquisition by the Corporation or any
Subsidiary of the Corporation, other than in the ordinary course of
business, of any property or assets (including, without limitation, the
acquisition of any business or entity) in excess of $5 million by the
Corporation and all of its Subsidiaries in the aggregate in any fiscal
year;
(xiv) the making of any capital expenditure by the Corporation
or any Subsidiary of the Corporation in excess of $5 million of capital
expenditures by the Corporation and all of its Subsidiaries in the
aggregate in any fiscal year; and
(xv) any retention, appointment or termination of the chief
executive officer of the Corporation and the determination of his
compensation and terms of employment.
(b) The approval of each Wellspring Director and each Insurance
Company Director then in office shall be required --
(i) during the Initial Period, for all actions specified in
subsection (a) above; and
(ii) during the Subsequent Period, for all actions specified
in clauses (i) - (vi), (viii) (to the extent any charter or by-law
amendment would be inconsistent with the provisions of this subsection
(b)(ii) or Section 6 hereof) and (x) of subsection (a) above.
8. Representations and Warranties. Each of the Stockholders and the
Corporation represents and warrants on behalf of itself to the other parties
hereto that:
(a) Authority. It has all requisite power to enter into this
Agreement and to consummate the transactions contemplated hereby. This Agreement
has been duly executed and delivered by it, has been effectively authorized by
all necessary action and constitutes its legal, valid and binding obligation,
enforceable against it in accordance with its terms, except as enforceability
may be subject to the application of general equitable principles and to
bankruptcy, insolvency, moratorium or other similar laws affecting creditors'
rights generally.
(b) Agreements Not in Breach of Other Instruments. The execution and
delivery of this Agreement, the consummation of the transactions contemplated
hereby and the fulfillment of the terms hereof will not result in a breach of
any of the terms or provisions of, or constitute a default under, or conflict
with (x) any agreement, indenture or other instrument to which it is a party or
by which it is bound, (y) any judgment, decree, order or award of any court,
governmental body, Governmental Authority or arbitrator by which it is bound or
(z) any Requirement of Law applicable to it.
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<PAGE>
(c) Regulatory Approvals. Other than the approval of the Bankruptcy
Court, which has been obtained, there are no consents, approvals, authorizations
or other requirements prescribed by any applicable Requirement of Law that must
be obtained or satisfied in connection with its execution, delivery and
performance of this Agreement.
(d) No Legal Bar. There is no suit, action or proceeding pending or,
to its each knowledge, threatened against it that questions the validity of this
Agreement, any of the transactions contemplated hereby or any action which has
been taken by any of the parties in connection herewith or in connection with
any of the transactions contemplated hereby or that seeks to enjoin the
consummation thereof.
(e) Organization and Authority. It is a company duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization, has all requisite power and authority to enter into this Agreement
and to consummate the transactions contemplated hereby.
9. Notices. All notices, demands, requests, consents and
communications required or permitted to be given under any of the provisions of
this Agreement shall be in writing and shall be delivered either personally, by
certified or registered mail postage prepaid, return receipt requested, or by
overnight courier service, in each case to the addresses set forth on Schedule A
hereto. The parties may designate in writing from time to time other and
additional places to which notices should be sent. All notices, demands,
requests, consents and communications shall be deemed to have been given (a) at
the time of actual delivery thereof, (b) if given by certified or registered
mail, five (5) Business Days after being deposited in the United States mail,
postage prepaid and properly addressed, or (c) if given by overnight courier,
the next Business Day after being sent, charges prepaid and properly addressed.
In addition, copies of all notices by any party hereto shall be sent by the
Corporation to the directors of the Corporation; provided, however, that the
inadvertent or good faith failure or delay in sending such copies shall not
affect the efficacy thereof.
10. Specific Performance. The parties hereto understand that they
will be irreparably damaged, and cannot be adequately compensated by monetary
damages, in the event that this Agreement is not specifically enforced.
Accordingly, in the event of a breach or threatened breach of the terms,
covenants and/or conditions of this Agreement by any of the parties hereto, the
other parties shall, in addition to all other remedies, be entitled to an
injunction and other equitable remedies to prevent breaches by the other parties
hereto of this Agreement, and to enforce specifically the terms and provisions
hereof in any court of the United States or any state thereof having
jurisdiction, all without showing any actual damage, this being in addition to
any other remedy to which such parties may be entitled at law or in equity.
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<PAGE>
11. Miscellaneous.
(a) The Stockholders shall vote their respective shares of Stock and
take all such other actions as shall be necessary to give effect to, and to
cause the Corporation to comply with, the terms of this Agreement.
(b) This Agreement constitutes the entire agreement of the parties
with respect to the subject matter hereof. This Agreement may be modified or
amended by a written agreement signed by all of the parties hereto.
(c) No waiver of any breach or default hereunder shall be considered
valid unless in writing, and no such waiver shall be deemed a waiver of any
subsequent breach or default of the same or similar nature.
(d) If any provision of this Agreement shall be held invalid or
unenforceable, such invalidity or unenforceability shall attach only to such
provision and shall not in any manner affect or render invalid or unenforceable
any other severable provision of this Agreement, and this Agreement shall be
carried out as if any such invalid or unenforceable provision were not contained
herein.
(e) Except as expressly provided herein, the rights and obligations
of the parties under this Agreement may not be assigned or otherwise transferred
to any other Person, except with the prior written consent of the other parties
hereto. Except as expressly provided herein, this Agreement shall not be
construed so as to confer any right or benefit upon any Person other than the
parties to this Agreement and their respective successors and permitted assigns.
Any Affiliate of Wellspring to whom any Stock is transferred and that has
executed and delivered to the other parties hereto a copy of this Agreement
shall be a permitted assign of Wellspring, and such Affiliate shall be bound by
all of the provisions of this Agreement. Any Affiliate of an Insurance Company
to whom any Stock is transferred and that has executed and delivered to the
other parties hereto a copy of this Agreement shall be a permitted assign of
such Insurance Company, and such Affiliate shall be bound by all of the
provisions of this Agreement. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.
(f) Each party hereto shall cooperate and shall take such further
action and shall execute and deliver such further documents as may be reasonably
requested by any other party in order to carry out the provisions and purposes
of this Agreement.
(g) This Agreement may be executed in one or more counterparts, all
of which taken together shall be deemed one original.
(h) This Agreement shall be governed and construed in accordance
with the laws of the State of Delaware, without regard to the principles of
conflict of laws thereof. Any legal action or proceeding under, arising out of
or in any manner relating to this Agreement, or any other document being entered
into by any Stockholder in connection with the closing on the
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<PAGE>
Effective Date at which this Agreement is being entered into, shall be brought
in the federal or state courts in the State of Delaware. Each party hereto
expressly and irrevocably assents and submits to the personal jurisdiction of
all of such courts in any such action or proceeding. Each such party further
irrevocably consents to the service of any complaint, summons, notice or other
process relating to any such action or proceeding by delivery thereof to it
personally by hand, by prepaid overnight courier or by mail at the address
provided herein. Each party expressly and irrevocably waives any claim or
defense in any such action or proceeding based on any alleged lack of personal
jurisdiction, improper venue or forum non conveniens.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
as of the day and year first above written.
SLM INTERNATIONAL, INC.
By: /s/ RUSSELL J. DAVID
------------------------------
Name: Russell J. David
Title: Vice President, Finance
WS ACQUISITION, L.L.C.
By: /s/ DOUGLAS W. ROTATORI
------------------------------
Name: Douglas W. Rotatori
Title: Principal
THE EQUITABLE LIFE ASSURANCE SOCIETY
OF THE UNITED STATES
By: /s/ JAMES C. PENDERGAST
------------------------------
Name: James C. Pendergast
Title: Investment Officer
THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY
By: /s/ J. THOMAS CHRISTOFFERSON
------------------------------
Name: J. Thomas Christofferson
Title: Vice President
PHOENIX HOME LIFE MUTUAL
INSURANCE COMPANY
By: /s/ LAWRENCE P. FLEMING
------------------------------
Name: Lawrence P. Fleming
Title: Vice President
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<PAGE>
GE CAPITAL ASSURANCE COMPANY
By: /s/ WILLIAM D. KOSKI
------------------------------
Name: William D. Koski
Title: Vice President
BUSINESS MEN'S ASSURANCE COMPANY
By: /s/ CONAUGHT M. TROUTMAN
------------------------------
Name: Conaught M. Troutman
Title: Vice President-Securities
INDIANAPOLIS LIFE INSURANCE COMPANY
By: /s/ GENE E. TRUEBLOOD
------------------------------
Name: Gene E. Trueblood
Title: Vice President & Chief Investment Officer
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<PAGE>
SCHEDULE A
Number of
Stockholders Shares of Stock
- ------------ ---------------
WS Acquisition, L.L.C. 3,194,268
620 Fifth Avenue
New York, New York 10020
Attention: Doug Rotatori
Telecopy: (212) 332-7575
The Equitable Life Assurance Society 1,253,684
of the United States
c/o Alliance Corporate Finance Group, Inc.
1345 Avenue of the Americas
39th Floor
New York, New York 10105
Attention: James C. Pendergast
Telecopy: (212) 969-1571
The Northwestern Mutual Life Insurance Company 394,015
720 East Wisconsin Avenue
Milwaukee, Wisconsin 53202-4797
Attention: Thomas Christofferson
Telecopy: (414) 299-7124
Phoenix Home Life Mutual Insurance Company 358,195
One American Row
Hartford, Connecticut 06115
Attention: Paul M. Chute
Telecopy: (203) 275-5451
GE Capital Assurance Company 286,556
60 Long Ridge Road
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<PAGE>
Number of
Stockholders Shares of Stock
- ------------ ---------------
Stamford, Connecticut 06927
Attention: A. Daniel Greenshields
Telecopy: (203) 357-6527
Business Men's Assurance Company 179,098
One Penn Valley Park
Kansas City, Missouri 64108
Attention: Derek P. Pitt
Telecopy: (816) 751-5572
Indianapolis Life Insurance Company 71,639
2960 North Meridian Street
Indianapolis, Indiana 46208
Attention: Gene E. Trueblood
Telecopy: (317) 927-3363
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EXHIBIT 10.4
SLM INTERNATIONAL, INC.
a Delaware corporation
and
AMERICAN STOCK TRANSFER & TRUST COMPANY
Warrant Agent
WARRANT AGREEMENT
<PAGE>
TABLE OF CONTENTS
Section 1. Definitions...................................................... 1
Section 2. Appointment of Agent............................................. 3
Section 3. Form of Warrant.................................................. 3
Section 4. Countersignature and Registration................................ 3
Section 5. Transfers and Exchanges.......................................... 3
Section 6. Exercise of Warrant.............................................. 4
Section 7. Fractional Interest.............................................. 4
Section 8. Payment of Taxes................................................. 4
Section 9. Mutilated or Missing Warrants.................................... 5
Section 10. Reservation of Common Stock..................................... 5
Section 11. Adjustments..................................................... 5
(a) Adjustments in the Exercise Price................................. 6
(i) Stock Dividends............................................. 6
(ii) Subdivisions and Combinations.............................. 6
(b) Officer's Certificate............................................. 6
(c) Minimum Adjustment................................................ 7
(d) Adjustment in Number of Warrant Shares............................ 7
(e) Reorganization, Reclassification, Consolidation,
Merger or Sale of Assets.......................................... 7
(f) Certain Other Distributions....................................... 8
(g) Dissolution, Liquidation or Winding Up............................ 8
(h) When Adjustments Are Not Required................................. 9
(i) Basis of Adjustments.............................................. 9
(j) Form of Warrants After Adjustments................................ 9
(k) Computations...................................................... 9
Section 12. Notices to Holders.............................................. 9
Section 13. Disposition of Proceeds on Exercise of Warrants................ 10
Section 14. Merger or Consolidation or Change of Name of Warrant Agent..... 11
i
<PAGE>
Section 15. Duties of Warrant Agent........................................ 11
Section 16. Change of Warrant Agent........................................ 13
Section 17. Identity of Transfer Agent..................................... 13
Section 18. Notices........................................................ 13
Section 19. Governing Law.................................................. 14
Section 20. Benefits of this Agreement..................................... 14
Section 21. Successors and Assigns......................................... 14
Section 22. Amendment...................................................... 15
Section 23. Headings....................................................... 15
ANNEX A - FORM OF WARRANT ............................................ A-1
ii
<PAGE>
WARRANT AGENT AGREEMENT dated as of April 11, 1997, between SLM
International, Inc., a Delaware corporation (the "Company"), and American Stock
Transfer and Trust Company, as warrant agent (together with its permitted
successors hereunder, the "Warrant Agent").
WHEREAS, the Company, together with its subsidiaries Sport Maska Inc.,
Maska U.S., Inc., #1 Apparel, Inc., #1 Apparel Canada, Inc., St. Lawrence
Manufacturing Canada Inc. and Mitchel & King Skates Limited (collectively, the
"Reorganized Debtors"), filed a First Amended Joint Chapter 11 Plan of
Reorganization (the "Plan of Reorganization"), which was confirmed pursuant to
an order of the U.S. Bankruptcy Court for the District of Delaware on January
23, 1997;
WHEREAS, pursuant to the Plan of Reorganization, the Company will,
contemporaneously herewith, issue to the holders of the Company's 18,859,679
shares of common stock outstanding as of October 24, 1995 and to the holders of
the 1,000,000 shares of the Company's common stock issued pursuant to an Order
and Final Judgment entered on July 23, 1996 by the United States District Court
for the Southern District of New York in Master File No. 94 Civ. 3327 (RLC),
warrants (the "Warrants") to purchase an aggregate of 300,000 shares of the
Company's common stock, $.01 par value per share (such class of stock, together
with any capital stock of the Company into which such class of stock shall be
converted, the "Common Stock"), such Warrants to be issued to holders of the
Company's common stock in the ratio of one warrant for every 67 shares of common
stock with any fractional interests rounded up or down to the nearest whole
number;
WHEREAS, each Warrant will entitle the registered holder thereof (each,
together with its registered successors and assigns, the "Holder" or "Holders")
to purchase one share of Common Stock;
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer, exchange and exercise of the Warrants;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth, the parties hereto agree as follows:
Section 1. Definitions. For the purposes hereof, the following terms shall
have the meanings indicated:
"Business Day" shall mean any day other than a Saturday, Sunday or other
day on which commercial banks in the City of New York are authorized or required
by law or executive order to close.
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<PAGE>
"Common Stock" shall have the meaning specified in the second whereas
clause hereof.
"Exercise Price" shall have the meaning specified in Section 3 hereof.
"Expiration Date" shall have the meaning specified in Section 3 hereof.
"Holder" or "Holders" shall have the meaning specified in the third whereas
clause hereof.
"Issuance Date" shall mean April 11, 1997.
"Market Price" shall mean, in respect of any share of Common Stock on the
date of determination thereof: (a) the closing price per share of the Common
Stock on such date on the principal national securities exchange on which the
Common Stock may at the time be listed (as published in The Wall Street Journal)
or, if no such closing price on such date is published in The Wall Street
Journal, the average of the closing bid and asked prices on such date, as
officially reported on the principal national securities exchange on which the
Common Stock is then listed or admitted to trading; or (b) if the Common Stock
is not then listed or admitted to trading on such date, or if there shall have
been no trading on such date, the average of the reported closing bid and asked
price of the Common Stock on such date as shown by the Nasdaq Stock Market and
reported by any member firm of the New York Stock Exchange, Inc. selected by the
Company; in each case averaged for a period of twenty (20) consecutive Business
Days prior to the day as of which the "Market Price" determination is being
made. If at any time the Common Stock is not listed on any exchange or included
for quotation on the Nasdaq Stock Market, the "Market Price" shall be deemed to
be the fair market value thereof determined at the Company's expense by a
nationally recognized investment banking firm unaffiliated with either the
Company or the Holders of the Warrants, selected by the Board of Directors of
the Company.
"Person" shall mean any individual, corporation, limited liability company,
partnership, trust, incorporated or unincorporated association, joint venture,
joint stock company, government (or an agency or political subdivision thereof)
or other entity of any kind.
"Plan of Reorganization" shall have the meaning specified in the first
whereas clause hereof.
"Reorganized Debtors" shall have the meaning specified in the first whereas
clause hereof.
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"Warrant Shares" shall mean the fully paid and non-assessable shares of
Common Stock or other securities or property deliverable upon the exercise of
the Warrants, as adjusted from time to time in accordance with the terms hereof.
Section 2. Appointment of Agent. The Company hereby appoints the Warrant
Agent to act as Warrant Agent for the Company in accordance with the
instructions hereinafter set forth in this Agreement, and the Warrant Agent
hereby accepts such appointment.
Section 3. Form of Warrant. The text of the Warrants and of the form of
subscription to purchase shares of Common Stock upon exercise of the Warrant to
be printed on the reverse thereof shall be substantially as set forth on Annex A
hereto. Each Warrant shall entitle the Holder thereof to purchase one share of
Common Stock (as such number may be adjusted in accordance with Section 11
hereof), at any time or from time to time from the Issuance Date until 5:00
p.m., New York time, on the fifth anniversary of the Issuance Date (the
"Expiration Date") at a purchase price of $16.92 per share (the "Exercise
Price"), all on the terms and subject to the conditions hereinafter set forth.
The number of shares of Common Stock to be received upon the exercise of the
Warrants and the Exercise Price are subject to adjustment from time to time
pursuant to the provisions of Section 11 hereof. The Warrants shall be executed
on behalf of the Company by the manual or facsimile signature of the present or
any future President or Vice President of the Company, attested to by the manual
or facsimile signature of the present or any future Secretary or Assistant
Secretary of the Company. Warrants shall be dated as of the date of
countersignature by the Warrant Agent, either upon initial issuance or upon
transfer or exchange.
Section 4. Countersignature and Registration. The Warrant Agent shall
maintain books for the transfer and registration of the Warrants. Upon the
issuance of the Warrants, the Warrant Agent shall issue and register the
Warrants in the names of the respective Holders thereof. The Warrants shall be
countersigned manually or by facsimile by the Warrant Agent and shall not be
valid for any purpose unless so countersigned. Warrants may, however, be so
countersigned by the Warrant Agent and be delivered by the Warrant Agent,
notwithstanding that the persons whose manual or facsimile signatures appear
thereon as proper officers of the Company shall have ceased to be such officers
at the time of such countersignature or delivery.
Section 5. Transfers and Exchanges. The Warrant Agent shall transfer, from
time to time, any outstanding Warrants upon the books to be maintained by the
Warrant Agent for that purpose, upon surrender thereof for transfer properly
endorsed or accompanied by appropriate instructions for transfer. Upon any such
transfer, a new Warrant shall be issued to the transferee and the surrendered
Warrant shall be canceled by the Warrant Agent. Warrants so canceled shall be
delivered by the Warrant Agent to the Company from time to time upon request.
Warrants may be exchanged at the option of the Holder, when surrendered at the
office of the Warrant Agent, for another Warrant or other Warrants of different
denominations
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of like tenor and representing in the aggregate the right to purchase a like
number of Warrant Shares.
Section 6. Exercise of Warrant. Subject to the provisions of Section 7
hereof, the Warrants may be exercised, in whole or in part, by the Holder at any
time or from time to time during normal business hours on any Business Day prior
to 5:00 p.m., New York City time, on the Expiration Date, upon surrender of the
Warrant to the Company at the office of the Warrant Agent, with the form of
subscription on the reverse thereof duly completed and executed, and upon
payment of the Exercise Price for the number of Warrant Shares being purchased
(which shall be computed by multiplying the number of Warrant Shares specified
in such form of subscription by the then current Exercise Price). Payment of
such Exercise Price shall be made in cash, by a certified or official bank check
payable to the order of the Company.
Subject to the provisions of Section 8, upon such surrender of Warrants and
payment of the Exercise Price, the Company shall issue and cause to be delivered
as promptly as practicable, in the name of and to the Holder (or as the Holder
may direct in writing), a certificate or certificates representing the number of
Warrant Shares so purchased upon the exercise of such Warrants, and, if
applicable, cash in lieu of any fraction of a share to which the Holder would
otherwise be entitled, as hereinafter provided in Section 7. Each exercise of a
Warrant shall be deemed to have been effective, and the person or persons in
whose name or names any certificate or certificates for Warrant Shares are
issuable upon such exercise shall be treated for all purposes as having become
the Holder or Holders of such Warrant Shares, immediately prior to the close of
business on the Business Day on which the Warrant has been surrendered and the
Exercise Price has been paid. In the event that any Warrant is exercised in
respect of less than all of the Warrant Shares specified therein at any time
prior to its Expiration Date, a new Warrant or Warrants, of like tenor, will be
issued to the Holder for the remaining number of Warrant Shares specified in the
Warrant so surrendered, and the Warrant Agent is hereby irrevocably authorized
to countersign and to deliver the required new Warrants pursuant to the
provisions of this Section and the Company, whenever requested by the Warrant
Agent, will supply the Warrant Agent with Warrants duly executed on behalf of
the Company for such purpose.
Section 7. Fractional Interest. The Warrants may be exercised to purchase
full Warrant Shares only and the Company shall not be required to issue
fractions of Warrant Shares. However, if a Holder exercises all Warrants then
owned of record by such Holder and such exercise would result in the issuance of
a fractional share, the Company will pay to such Holder, in lieu of the issuance
of any fractional share otherwise issuable, a cash adjustment in respect of such
fractional interest in an amount equal to such fractional interest multiplied by
the Market Price per Warrant Share on the effective date of such exercise.
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Section 8. Payment of Taxes. The Company shall pay any and all documentary
stamp taxes that may be imposed in respect of the issue or delivery of any
Warrant Shares; provided, however, that the Company shall not be required to pay
any tax or other charge imposed in connection with any transfer involved in the
issue of a certificate for Warrant Shares in any name other than that of the
Holder, and, in such case, neither the Company nor the Warrant Agent shall be
required to issue or deliver any certificate for any Warrant Shares or any
Warrant until the person requesting the same has paid to the Company the amount
of such tax or has established to the Company's satisfaction that such tax has
been paid.
Section 9. Mutilated or Missing Warrants. In case any of the Warrants shall
be mutilated, lost, stolen or destroyed, the Company may, in its discretion,
issue, and the Warrant Agent shall countersign and deliver, in exchange and
substitution for and upon cancellation of the mutilated Warrant, or in lieu of
and in substitution for the lost, stolen or destroyed Warrant, a new Warrant of
like tenor and representing an equivalent right or interest, but only upon
receipt of evidence satisfactory to the Company and the Warrant Agent of such
loss, theft or destruction and, in case of a lost, stolen or destroyed Warrant,
indemnity, if requested, also satisfactory to them. Applicants for such
substitute Warrants shall also comply with such other reasonable regulations and
pay such reasonable charges as the Company or the Warrant Agent may prescribe.
Section 10. Reservation of Common Stock. The Company covenants and agrees
that all Warrant Shares will be duly authorized, validly issued and fully paid
and nonassessable. The Company shall at all times after the date hereof and
until the Expiration Date reserve and keep available for issuance and delivery
upon the exercise of Warrants out of the authorized but unissued shares of
Common Stock, the number of Warrant Shares as will from time to time be
sufficient to permit the exercise in full of the Warrants, and the transfer
agent for the Warrant Shares and every subsequent transfer agent for the Warrant
Shares is irrevocably authorized and directed at all times to reserve such
number of authorized and unissued shares of Common Stock as shall be required
for such purpose. The Company will keep a copy of this Agreement on file with
the transfer agent for the Warrant Shares and with every subsequent transfer
agent for the Warrant Shares. The Warrant Agent is irrevocably authorized to
requisition from time to time from such transfer agent stock certificates
required to honor outstanding Warrants. The Company will supply such transfer
agent with duly executed stock certificates required to honor outstanding
Warrants. All Warrants surrendered in the exercise of the rights thereby
evidenced shall be canceled by the Warrant Agent and shall thereafter be
delivered to the Company, and such canceled Warrants shall constitute sufficient
evidence of the number of Warrant Shares which have been issued upon the
exercise of such Warrants. Promptly after the Expiration Date, the Warrant Agent
shall certify to the Company the total aggregate amount of Warrants then
outstanding, and thereafter no shares of Common Stock shall be subject to
reservation in respect of such Warrants which shall have expired.
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Section 11. Adjustments. The Exercise Price at which Warrant Shares may be
purchased and the number of Warrant Shares for which each Warrant shall be
exercisable shall be subject to adjustment from time to time as set forth in
this Section 11.
(a) Adjustments in the Exercise Price. The Exercise Price shall be subject
to adjustment from time to time as follows:
(i) Stock Dividends. In case the Company shall at any time after the date
hereof declare a dividend in shares of Common Stock or make a distribution in
shares of Common Stock, then upon such dividend or distribution, the Exercise
Price in effect immediately prior to such dividend or distribution shall
forthwith be reduced to a price determined by dividing: (A) an amount equal to
the total number of shares of Common Stock outstanding immediately prior to such
dividend or distribution multiplied by the Exercise Price in effect immediately
prior to such dividend or distribution, by (B) the total number of shares of
Common Stock outstanding immediately after such issuance or sale. For the
purposes of any computation to be made in accordance with the provisions of this
clause (i), the Common Stock issuable by way of dividend or other distribution
on any stock of the Company shall be deemed to have been issued immediately
after the opening of business on the date following the date fixed for the
determination of stockholders entitled to receive such dividend or other
distribution.
(ii) Subdivisions and Combinations. In case the Company shall at any time
subdivide or combine the outstanding Common Stock, the Exercise Price shall
forthwith be proportionately decreased in the case of subdivision or increased
in the case of combination to the nearest one cent. Any such adjustment shall
become effective at the time such subdivision or combination shall become
effective.
(b) Officer's Certificate. Within a reasonable time after the close of each
fiscal quarter of the Company during which the Exercise Price has been adjusted
as herein provided, the Company shall:
(i) file with the Warrant Agent a certificate signed by the President or
Vice President of the Company and by the Treasurer or Assistant Treasurer or the
Secretary or an Assistant Secretary of the Company, showing in detail the facts
requiring all such adjustments occurring during such period and the Exercise
Price after each such adjustment; and
(ii) the Warrant Agent shall have no duty with respect to any such
certificate filed with it except to keep the same on file and available for
inspection by Holders during reasonable business hours, and the Warrant Agent
may conclusively rely upon the latest certificate furnished to it hereunder. The
Warrant Agent shall not at any time be under any duty or responsibility to any
Holder to determine whether any facts exist which may
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require any adjustment of the Exercise Price, or with respect to the nature or
extent of any adjustment of the Exercise Price when made, or with respect to the
method employed in making any such adjustment, or with respect to the nature or
extent of the property or securities deliverable hereunder. In the absence of a
certificate having been furnished, the Warrant Agent may conclusively rely upon
the provisions of the Warrants with respect to the Warrant Shares deliverable
upon the exercise of the Warrants and the applicable Exercise Price thereof.
(c) Minimum Adjustment. Notwithstanding anything contained herein to the
contrary, no adjustment of the Exercise Price shall be made if the amount of
such adjustment shall be less than $.10, but in such case any adjustment that
would otherwise be required then to be made shall be carried forward and shall
be made at the time and together with the next subsequent adjustment which,
together with any adjustment so carried forward, shall amount to not less than
$.10.
(d) Adjustment in Number of Warrant Shares. In the event that the number of
outstanding shares of Common Stock is increased by a stock dividend payable in
Common Stock or by a subdivision of the outstanding Common Stock, then, from and
after the time at which the adjusted Exercise Price becomes effective pursuant
to paragraph (a) of this Section by reason of such dividend or subdivision, the
number of Warrant Shares issuable upon the exercise of each Warrant shall be
increased in proportion to such increase in outstanding shares. In the event
that the number of shares of Common Stock outstanding is decreased by a
combination of the outstanding Common Stock, then, from and after the time at
which the adjusted Exercise Price becomes effective pursuant to paragraph (a) of
this Section by reason of such combination, the number of Warrant Shares
issuable upon the exercise of each Warrant shall be decreased in proportion to
such decrease in the outstanding shares of Common Stock.
(e) Reorganization, Reclassification, Consolidation, Merger or Sale of
Assets.
(i) In case of any reorganization or reclassification of the
outstanding Common Stock (other than a change in par value, or from par
value to no par value, or as a result of a subdivision or combination), or
in case of any consolidation of the Company with, or merger of the Company
into, another Person (other than a consolidation or merger in which the
Company is the continuing corporation and which does not result in any
reclassification of the outstanding Common Stock), or in case of any sale,
lease or conveyance to another Person of the property of the Company as an
entirety or substantially as an entirety, the Holder of each Warrant then
outstanding shall thereafter have the right to purchase the same kind and
number of shares of Common Stock and other securities, cash or other
property (and upon the same terms and with the same rights) as would be
receivable by a holder
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<PAGE>
of the number of Warrant Shares the Holder would then be entitled to
purchase; such adjustments shall apply with respect to all such changes
occurring between the date of this Agreement and the date of exercise of
such Warrant.
(ii) If at any time, as a result of an adjustment made pursuant to
clause (i) above, the Holders shall become entitled to purchase any
securities other than shares of Common Stock, thereafter the number of such
securities so purchasable upon exercise of each Warrant and the Exercise
Price for such shares shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions
with respect to the Common Stock contained in paragraphs (a) through (d) of
this Section 11.
(iii) Notwithstanding the foregoing, in the event that the Company
consolidates with or merges into another Person in a transaction in which
persons who were the stockholders of the Company immediately prior to such
consolidation, merger or other business combination do not, immediately
thereafter, own more than 50% of the combined voting power entitled to vote
generally in the election of directors of the surviving corporation or
sells, transfers or leases all or substantially all of its assets to
another Person and, in consideration therefor, the Company or such other
Reorganized Debtor receives cash, stock, assets or other property of at
least $140,000,000 in market value (as determined in good faith by the
Board of Directors of the Company), each Holder hereof shall have the
right, at its option, to surrender its Warrant or Warrants for cancellation
to the Warrant Agent at any time prior to the Expiration Date in accordance
with the procedures set forth herein, and to receive in exchange therefor
cash in the amount of $1.67 for each Warrant Share for which his Warrant or
Warrants are then exercisable (subject to adjustment to reflect the effect
of any anti-dilution provisions contained in this Section 11).
(f) Certain Other Distributions. Subject to the provisions of this Section
11, in case the Company shall, at any time prior to the exercise of the
Warrants, make any distribution of its assets to holders of its Common Stock as
a liquidating or a partial liquidating dividend, then each Holder who exercises
his Warrants after the record date for the determination of those holders of
Common Stock entitled to such distribution of assets as a liquidating or partial
liquidating dividend, shall be entitled to receive for the Exercise Price per
Warrant, in addition to each Warrant Share, the amount of such distribution (or,
at the option of the Company, a sum equal to the value of any such assets at the
time of such distribution as determined in good faith by the Board of Directors
of the Company), which would have been payable to such Holder had he been the
holder of record of the Warrant Shares receivable upon exercise of his Warrant
on the record date for the determination of those entitled to such distribution.
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(g) Dissolution, Liquidation or Winding Up. In case of the dissolution,
liquidation or winding up of the Company, all rights under the Warrants shall
terminate on a date fixed by the Company, such date to be no earlier than ten
(10) days prior to the effectiveness of such dissolution, liquidation or winding
up and not later than five (5) days prior to such effectiveness. Notice of such
termination of purchase rights shall be given to the last Holder of Warrants, as
the same shall appear on the books of the Company maintained by the Warrant
Agent, by registered mail at least thirty (30) days prior to such termination
date.
(h) When Adjustments Are Not Required. If the Company shall take a record
of the holders of the Common Stock for the purpose of entitling them to receive
a dividend or distribution or subscription rights and shall, thereafter and
before the distribution to stockholders thereof, legally abandon its plan to pay
or deliver such dividend, distribution or subscription rights, then thereafter
no adjustment shall be required by reason of the taking of such record and any
such adjustment previously made in respect thereof shall be rescinded and
annulled.
(i) Basis of Adjustments. Any adjustments pursuant to the aforesaid
provisions of this Section 11 shall be made on the basis of the number of
Warrant Shares which the Holder thereof would have been entitled to acquire by
the exercise of the Warrant immediately prior to the event giving rise to such
adjustment.
(j) Form of Warrants After Adjustments. Irrespective of any adjustments in
the Exercise Price or the number or kind of Warrant Shares purchasable upon
exercise of the Warrants, Warrants previously or thereafter issued may continue
to express the same price and number and kind of shares as are stated in the
similar Warrants initially issuable pursuant to this Agreement.
(k) Computations. The Company may retain a firm of independent public
accountants (who may be any such firm regularly employed by the Company) to make
any computation required under this Section 11, and any certificate setting
forth such computation signed by such firm shall be conclusive evidence of the
correctness of any computation made under this Section 11.
Section 12. Notices to Holders.
(a) Upon any adjustment of the Exercise Price and the number of Warrant
Shares issuable upon exercise of a Warrant, then and in each such case the
Company shall give written notice thereof to the Warrant Agent, which notice
shall state the Exercise Price resulting from such adjustment and the increase
or decrease, if any, in the number of Warrant Shares purchasable at such price
upon the exercise of a Warrant, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
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The Company shall also mail such notice to the Holders at their addresses
appearing in the Warrant register. Failure to give or mail such notice, or any
defect therein, shall not affect the validity of the adjustments.
(b) In case at any time or from time prior to the Expiration Date:
(i) the Company shall pay a stock dividend upon its Common Stock or make
any distribution (other than regular cash dividends) to the holders of its
Common Stock;
(ii) there shall be any capital reorganization or reclassification of the
capital stock of the Company;
(iii) there shall be a consolidation or merger of the Company with or into
another Person in a transaction in which persons who were the stockholders of
the Company immediately prior to such consolidation, merger or other business
combination do not, immediately thereafter, own more than 50% of the combined
voting power entitled to vote generally in the election of directors of the
surviving corporation, or sale of substantially all of its assets to another
Person; or
(iv) there shall be a voluntary or involuntary dissolution, liquidation or
winding up of the Company;
then in any one or more of such cases, the Company shall give written notice in
the manner set forth in Section 12(a) of the date on which (A) a record shall be
taken for such dividend, distribution or subscription rights, or (B) such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up shall take place, as the case may be. Such notice
shall also specify the date as of which the holders of Common Stock of record
shall participate in such dividend, distribution or subscription rights, or
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up, as the case may be. In
case any of the events described in clause (iii) above shall occur and, as a
result thereof, the Company (or any other Reorganized Debtor) receives cash,
stock or other property of at least $140,000,000 in market value as provided in
Section 11(e) hereof, such notice shall also state that Holders are entitled, at
any time prior to the Expiration Date, to surrender their Warrants to the
Warrant Agent for cancellation in lieu of exercise and to receive in exchange
therefor cash in the amount of $1.67 for each Warrant Share for which their
Warrants are then exercisable (subject to adjustment to reflect the effect of
any anti-dilution provisions contained in Section 11 hereof). Such notice shall
be given at least thirty (30) days prior to the action in question and not less
than thirty (30) days prior to the record date in respect thereof. Failure to
give such notice, or any defect therein, shall not affect the legality or
validity of any of the matters set forth in this Section 12(b).
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Section 13. Disposition of Proceeds on Exercise of Warrants. The Warrant
Agent shall promptly forward to the Company all monies received by the Warrant
Agent for the purchase of Warrant Shares through the exercise of such Warrants.
The Warrant Agent shall keep copies of this Agreement available for inspection
by holders of Warrants during normal business hours.
Section 14. Merger or Consolidation or Change of Name of Warrant Agent. Any
corporation or company which may succeed to the corporate trust business of the
Warrant Agent by any merger or consolidation or otherwise shall be the successor
to the Warrant Agent hereunder without the execution or filing of any paper or
any further act on the part of any of the parties hereto, provided that such
corporation would be eligible to serve as a successor Warrant Agent under the
provisions of Section 15 of this Agreement. In case at the time such successor
Warrant Agent shall succeed to the agency created by this Agreement, any of the
Warrants shall have been countersigned but not delivered, any such successor
Warrant Agent may adopt the countersignature of the original Warrant Agent and
deliver such Warrants so countersigned.
In case at any time the name of the Warrant Agent shall be changed and at
such time any of the Warrants shall have been countersigned but not delivered,
the Warrant Agent may adopt the countersignature under its prior name and
deliver Warrants so countersigned. In all such cases such Warrants shall have
the full force provided in the Warrants and in the Agreement.
Section 15. Duties of Warrant Agent. The Warrant Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the Holders, by their acceptance
thereof, shall be bound:
(a) The statements of fact and recitals contained herein and in the
Warrants shall be taken as statements of the Company, and the Warrant Agent
assumes no responsibility for the correctness of any of the same except such as
describe the Warrant Agent or action taken or to be taken by it. The Warrant
Agent assumes no responsibility with respect to the distribution of the Warrants
except as herein expressly provided.
(b) The Warrant Agent shall not be responsible for any failure of the
Company to comply with any of the covenants contained in this Agreement or in
the Warrants to be complied with by the Company.
(c) The Warrant Agent may consult at any time with counsel satisfactory to
it (who may be counsel for the Company) and shall incur no liability or
responsibility to the Company or to any holder of any Warrant in respect of any
action taken, suffered or omitted by it hereunder in good faith and in
accordance with the opinion or the advice of such counsel.
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(d) The Warrant Agent shall incur no liability or responsibility to the
Company or to any Holder for any action taken in reliance on any notice,
resolution, waiver, consent, order, certificate or other instrument believed by
it to be genuine and to have been signed, sent or presented by the proper party
or parties.
(e) The Company agrees to pay to the Warrant Agent reasonable compensation
for all services rendered by the Warrant Agent and to reimburse the Warrant
Agent for all expenses, taxes and governmental or other charges incurred by the
Warrant Agent in connection therewith. In addition, the Company shall indemnify
the Warrant Agent and save it harmless against any and all liabilities,
including judgments, costs and reasonable counsel fees, for any action taken or
omitted to be taken by it in connection with the performance of its duties
hereunder, except for such liabilities, judgments, costs and counsel fees
incurred as a result of the Warrant Agent's negligence, willful misconduct or
bad faith.
(f) The Warrant Agent shall be under no obligation to institute any action,
suit or legal proceeding or to take any other action likely to involve expenses
unless the Company or one or more Holders shall furnish the Warrant Agent with
reasonable security and indemnity for any costs and expenses which may be
incurred, but this provision shall not affect the power of the Warrant Agent to
take such action as the Warrant Agent may consider proper, whether with or
without any such security or indemnity. All rights of action under this
Agreement or under any of the Warrants may be enforced by the Warrant Agent
without the possession of any of the Warrants or the production thereof at any
trial or other proceeding, and any such action, suit or proceeding instituted by
the Warrant Agent shall be brought in its name as Warrant Agent, and any
recovery of judgment shall be for the ratable benefit of the Holders, as their
respective rights and interests may appear.
(g) The Warrant Agent and any stockholder, director, officer, partner or
employee of the Warrant Agent may buy, sell or deal in any of the Warrants or
other securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or lend
money to or otherwise act as fully and freely as though it were not the Warrant
Agent under this Agreement. Nothing herein shall preclude the Warrant Agent from
acting in any other capacity for the Company or for any other legal entity.
(h) The Warrant Agent shall act hereunder solely as agent and its duties
shall be determined solely by the provisions hereof.
(i) The Warrant Agent may execute and exercise any of the rights or powers
hereby vested in it or perform any duty hereunder either itself or by or through
its attorneys, agents or employees, and the Warrant Agent shall not be
answerable or accountable for any such attorneys, agents or employees or for any
loss to the Company resulting from
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their neglect or misconduct, provided reasonable care had been exercised in the
selection and continued employment thereof.
(j) Any request, direction, election, order or demand of the Company shall
be sufficiently evidenced by an instrument signed in the name of the Company by
its President or a Vice President or its Secretary or an Assistant Secretary or
its Treasurer or an Assistant Treasurer (unless other evidence in respect
thereof is herein specifically prescribed); and any resolution of the Board of
Directors may be evidenced to the Warrant Agent by a copy thereof certified by
the Secretary or an Assistant Secretary of the Company.
Section 16. Change of Warrant Agent. The Warrant Agent may resign and be
discharged from its duties under this Agreement by giving to the Company and the
Holders, at their addresses appearing on the Warrant register, notice in writing
of such resignation, specifying a date when such resignation shall take effect.
The Company may remove the Warrant Agent by like notice to the Warrant Agent and
to the Holders. If the Warrant Agent shall resign or be removed or shall
otherwise become incapable of acting, the Company shall appoint a successor to
the Warrant Agent. If the Company shall fail to make such appointment within a
period of thirty (30) days after such resignation or incapacity or after the
Company has received notice from a Holder (who shall, with such notice, submit
his Warrant for inspection by the Company), then the Holder may apply to any
court of competent jurisdiction for the appointment of a successor to the
Warrant Agent. Any successor Warrant Agent, whether appointed by the Company or
by such a court, shall be a bank or trust company, in good standing,
incorporated under New York or federal law. After appointment, the successor
Warrant Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Warrant Agent without
further act or deed and the former Warrant Agent shall deliver and transfer to
the successor Warrant Agent all cancelled Warrants, records and property at the
time held by it hereunder, and execute and deliver any further assurance or
conveyance necessary for the purpose. Failure to file or mail any notice
provided for in this Section, however, or any defect therein, shall not affect
the validity of the resignation or removal of the Warrant Agent or the
appointment of the successor Warrant Agent, as the case may be.
Section 17. Identity of Transfer Agent. Forthwith upon the appointment of
any transfer agent for the Warrant Shares or of any subsequent transfer agent
for the Warrant Shares, the Company will file with the Warrant Agent a statement
setting forth the name and address of such transfer agent.
Section 18. Notices. All notices, demands and other communications provided
for or permitted hereunder shall be made in writing and shall be (i) personally
delivered, (ii) given or made by registered or certified first-class mail,
return receipt requested, or (ii) given or made by overnight courier, delivery
charges prepaid, addressed as follows:
13
<PAGE>
If to the Company: SLM International, Inc.
7405 Transcanada Highway
Suite 300
St. Laurent, Quebec
Canada H4T1Z2
Attention: Chief Executive Officer
With a copy to: Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178
Attention: David W. Pollak, Esq.
If to the Warrant Agent: American Stock Transfer & Trust Company
40 Wall Street
New York, NY 10005
Attention: Anne Karfunkel
The Company and the Warrant Agent shall each have the right to designate a
different address for itself by notice similarly given. All such notices,
demands and other communications shall be deemed to have been duly given (i)
upon receipt, if personally delivered; (ii) on the third full Business Day
following its deposit in the mail, if sent by certified or registered mail; or
(iii) on the Business Day following the date it was sent, if sent by overnight
courier.
Section 19. Governing Law. This Agreement and each Warrant issued hereunder
shall be deemed to be a contract made under the laws of the State of Delaware
and shall be construed and enforced in accordance with, and the rights of the
parties shall be governed by, the laws of the State of Delaware.
Section 20. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any Person other than the Company and the Holders any legal
or equitable right, remedy or claim under this Agreement, and this Agreement
shall be for the sole and exclusive benefit of the Company, the Warrant Agent
and such Holders. Nothing in this Agreement shall be construed to give any
Holder any rights as a holder of shares of Common Stock until such time, if any,
as such Holder's Warrant or Warrants are exercised in accordance with the
provisions hereof.
Section 21. Successors and Assigns. All the covenants and provisions of
this Agreement by or for the benefit of the Company or the Warrant Agent shall
bind and inure to the benefit of their respective successors and assigns
hereunder.
14
<PAGE>
Section 22. Amendment. The Company and the Warrant Agent may from time to
time supplement or amend this Agreement in order to cure any ambiguity or to
correct or supplement any provision contained herein which may be defective or
inconsistent with any other provision herein, or to make any other provisions in
regard to matters or questions arising hereunder which the Company and the
Warrant Agent may deem necessary or desirable and which shall not be
inconsistent with the provisions of the Warrants and which shall not adversely
affect the interest of the Holders.
Section 23. Headings. Section headings in this Agreement are for reference
only and shall not affect the meaning or construction of any of the provisions
hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
15
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed April 11, 1997.
SLM INTERNATIONAL, INC.
By: /s/ RUSSELL J. DAVID
---------------------------------
Name: Russell J. David
Title: Vice President, Finance
AMERICAN STOCK TRANSFER &
TRUST COMPANY
By: /s/ HERBERT J. LEMMER
---------------------------------
Name: Herbert J. Lemmer
Title: Vice President
16
<PAGE>
ANNEX A
[FORM OF WARRANT CERTIFICATE]
NUMBER WARRANT
CUSIP___________
THIS CERTIFIES THAT, for value received, ______________________________________
_______________________________________________________________________________
or registered assigns, is the owner of the number of warrants set forth above.
Each Warrant (subject to adjustments as hereinafter referred to) entitles the
owner hereof to purchase at any time from April ___, 1997 until 5:00 p.m.
Eastern Time on April ___ , 2002 one fully paid and non-assessable share of
common stock, $.01 par value per share (the "Common Stock"), of SLM
International, Inc., a Delaware corporation (the "Company") (such shares of
Common Stock being hereinafter referred to as "Shares" or a "Share"), upon
payment of the exercise price (as hereinafter described); provided, however,
that under certain conditions set forth in the Warrant Agreement hereinafter
mentioned, the number of Shares purchasable upon the exercise of this Warrant
may be increased or reduced and the exercise price may be adjusted. Subject to
adjustment as aforesaid, the exercise price per Share (the "Exercise Price")
shall be $16.92 per Share if exercised on or before 5:00 p.m. Eastern Time on
April ___, 2002. As provided in said Warrant Agreement, the Exercise Price is
payable upon the exercise of the Warrant, either in cash, by certified check or
bank draft to the order of the Company.
Under certain limited conditions set forth in the Warrant Agreement, this
Warrant may be surrendered to the Warrant Agent for cancellation at any time
prior to 5:00 p.m. Eastern Time on April ___ , 2002 in lieu of exercise and in
exchange for cash in the amount of $1.67 per Share.
Upon the exercise of this Warrant, the form of election to purchase on the
reverse hereof must be properly completed and executed. In the event that this
Warrant is exercised in respect of less than all of such Shares, a new Warrant
for the remaining number of Shares will be issued on such surrender.
This Warrant is issued under, and the rights represented hereby are subject
to the terms and provisions contained in, a Warrant Agreement (the "Warrant
Agreement") dated as of April ___, 1997, by and between the Company and American
Stock Transfer & Trust Company, as warrant agent (together with its permitted
successors, the "Warrant Agent"). The registered holder of this Warrant, by
acceptance hereof, assents to all of the terms and
A-1
<PAGE>
provisions of the Warrant Agreement. Reference is hereby made to the Warrant
Agreement for a more complete statement of the rights and limitations of rights
of the registered holders hereof, the rights and duties of the Warrant Agent and
the rights and obligations of the Company thereunder. Copies of the Warrant
Agreement are on file at the office of the Warrant Agent.
The Company shall not be required upon the exercise of this Warrant to
issue fractions of Shares, but shall make adjustment therefor in cash on the
basis of the current Market Price (as defined in the Warrant Agreement) of any
fractional interest, as provided in the Warrant Agreement.
This Warrant is transferable at the office of the Warrant Agent by the
registered holder hereof in person or by attorney duly authorized in writing,
but only in the manner and subject to the limitations provided in the Warrant
Agreement and upon surrender of this Warrant and the payment of any transfer
taxes. Upon any such transfer, a new Warrant or new Warrants of different
denominations, of this tenor and representing in the aggregate the right to
purchase a like number of Shares will be issued to the transferee in exchange
for this Warrant.
This Warrant, when surrendered at the office of the Warrant Agent by the
registered holder hereof in person or by attorney duly authorized in writing,
may be exchanged in the manner and subject to the limitations provided in the
Warrant Agreement, for another Warrant, or other Warrants of different
denominations, of like tenor and representing in the aggregate the right to
purchase a like number of Shares equal to the number of such Warrants.
If this Warrant Certificate shall be surrendered for exercise within any
period during which the transfer books for the Company's Common Stock or other
securities purchasable upon the exercise of the Warrants are closed for any
purpose, the Company shall not be required to make delivery of certificates for
the securities purchasable upon exercise until the date of the reopening of said
transfer books.
The holder of this Warrant shall not be entitled to any of the rights of a
shareholder of the Company prior to the exercise hereof.
This Warrant Certificate shall not be valid unless countersigned by the
Warrant Agent.
WITNESS the facsimile seal of the Company and the facsimile signatures of
its duly authorized officers.
Dated: ____________ SLM INTERNATIONAL, INC.
By: By:
------------------------------- -------------------------------
[Name] Name:
Secretary Title:
A-2
<PAGE>
FORM OF SUBSCRIPTION
(To be executed by the registered holder in order to exercise Warrants
in whole or in part)
To: SLM International, Inc.
c/o: American Stock Transfer & Trust Company
40 Wall Street
New York, NY 10005
The undersigned hereby irrevocably elects to exercise the right of purchase
represented by the within Warrant(s) for and to purchase thereunder, __________
______________________________ shares of Common Stock provided for therein and
tenders herewith payment of the purchase price in full to the order to the
Corporation and requests that certificates for such shares shall be issued in
the name of
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
____________________________
| |
| |
|____________________________|
________________________________________________________________________________
(Please Print or Typewrite)
and to be delivered to _________________________________________________________
(Name)
at______________________________________________________________________________
(Street Address) (City) (State) (Zip Code)
and, if said number of shares shall not be all the shares purchasable
thereunder, that a new Warrant for the balance remaining of the shares
purchasable under the within Warrant be registered in the name of, and delivered
to, the undersigned at the address stated below:
[THE UNDERSIGNED REPRESENTS THAT THE EXERCISE OF THE WITHIN WARRANT WAS NOT
SOLICITED BY A MEMBER OF THE NATIONAL ASSOCIATION OF SECURITIES DEALERS. IF
SOLICITED BY AN NASD MEMBER, PLEASE WRITE THE NAME OF THE NASD MEMBER FIRM IN
THE SPACE BELOW.]
Dated________________________, 19__ Signature: ______________________________
Note: The above signature must
Name:______________________________ correspond with the name as
(Please Print or Typewrite) written upon the face of this
Warrant or with the name of
the assignee appearing in the
Address:___________________________ assignment from below in every
(Street) particular without alteration
or enlargement or any change
whatever.
___________________________________ *Signature Guaranteed:___________________
( City) (State) (Zip Code)
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
____________________________
| |
| |
|____________________________|
A-3
<PAGE>
FORM OF ASSIGNMENT
(To be signed only upon transfer)
For value received _____________________hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
OF ASSIGNEE
____________________________
| |
| |
|____________________________|
________________________________________________________________________________
Please print or typewrite name and address including postal zip code of assignee
________________________________________________________________________________
________________________________________________________________(_____) Warrants
represented by the within Warrant certificate, together with all right, title
and interest therein, and do hereby irrevocably constitute and appoint
________________________________________________ attorney, to transfer said
Warrant on the books of the within named Corporation, with full power of
substitution in the premises.
Dated:_______________________
Signature: ___________________________________
Note: The above signature must
correspond with the name as written
upon the face of this Warrant in
every particular without alteration
or enlargement or any change
whatever.
*Signature Guaranteed:_________________________
* In case of assignment, or if the Common Stock issued upon exercise is to be
registered in the name of a person other than the holder, the holder's
signature must be guaranteed by a commercial bank, trust company or an NASD
member firm.
A-4
EXECUTION COPY
=======================================
CREDIT AGREEMENT
Dated as of April 1, 1997
Among
SLM INTERNATIONAL, INC.
MASKA U.S., INC.
#1 APPAREL, INC.
THE LENDERS NAMED HEREIN
and
THE CHASE MANHATTAN BANK, AS AGENT
=======================================
<PAGE>
TABLE OF CONTENTS
Page
----
I. DEFINITIONS........................................................... 1
SECTION 1.01. Certain Defined Terms.................................. 1
SECTION 1.02. Accounting Terms.......................................23
II. THE LOANS.............................................................24
SECTION 2.01. Term Loan Commitments and Revolving Credit
Commitments..........................................24
SECTION 2.02. Loans..................................................24
SECTION 2.03. Notice of Loans........................................27
SECTION 2.04. Notes; Repayment of Loans..............................27
SECTION 2.05. Interest on Loans......................................29
SECTION 2.06. Fees...................................................30
SECTION 2.07. Termination and Reduction of Revolving Credit
Commitments and Term Loan Commitments................30
SECTION 2.08. Interest on Overdue Amounts; Alternate Rate of Interest31
SECTION 2.09. Prepayment of Loans....................................32
SECTION 2.10. Reserve Requirements; Change in Circumstances..........35
SECTION 2.11. Change in Legality.....................................37
SECTION 2.12. Indemnity..............................................38
SECTION 2.13. Pro Rata Treatment; Assumption by and Delegation
of Authority to the Agent............................39
SECTION 2.14. Sharing of Setoffs.....................................41
SECTION 2.15. Payments and Computations..............................42
SECTION 2.16. Taxes..................................................43
SECTION 2.17. Issuance of Letters of Credit..........................46
SECTION 2.18. Payment of Letters of Credit; Reimbursement............47
SECTION 2.19. Agent's Actions with respect to Letters of Credit......49
SECTION 2.20. Letter of Credit Fees..................................49
III. COLLATERAL SECURITY...................................................51
SECTION 3.01. Security Documents.....................................51
SECTION 3.02. Filing and Recording...................................51
IV. REPRESENTATIONS AND WARRANTIES........................................52
SECTION 4.01. Organization, Legal Existence..........................52
SECTION 4.02. Authorization..........................................52
SECTION 4.03. Governmental Approvals.................................53
SECTION 4.04. Binding Effect.........................................53
SECTION 4.05. Material Adverse Change................................53
SECTION 4.06. Litigation; Compliance with Laws; Etc..................53
i
<PAGE>
Page
----
SECTION 4.07. Financial Statements...................................54
SECTION 4.08. Federal Reserve Regulations............................54
SECTION 4.09. Taxes..................................................55
SECTION 4.10. Employee Benefit Plans.................................55
SECTION 4.11. No Material Misstatements..............................57
SECTION 4.12. Investment Company Act; Public Utility Holding
Company Act..........................................57
SECTION 4.13. Security Interest......................................57
SECTION 4.14. Use of Proceeds........................................58
SECTION 4.15. Subsidiaries...........................................58
SECTION 4.16. Title to Properties; Possession Under Leases;
Trademarks...........................................58
SECTION 4.17. Solvency...............................................59
SECTION 4.18. Permits, etc...........................................59
SECTION 4.19. Compliance with Environmental Laws.....................59
SECTION 4.20. No Change in Credit Criteria or Collection Policies....60
SECTION 4.21. Employee Matters.......................................60
V. CONDITIONS OF CREDIT EVENTS...........................................61
SECTION 5.01. All Credit Events......................................61
SECTION 5.02. First Borrowing........................................61
VI. AFFIRMATIVE COVENANTS.................................................67
SECTION 6.01. Legal Existence........................................67
SECTION 6.02. Businesses and Properties..............................67
SECTION 6.03. Insurance..............................................67
SECTION 6.04. Taxes..................................................68
SECTION 6.05. Financial Statements, Reports, Etc.....................68
SECTION 6.06. Litigation and Other Notices...........................71
SECTION 6.07. ERISA and Canadian Pension Plans.......................72
SECTION 6.08. Maintaining Records; Access to Properties and
Inspections; Right to Audit.........................73
SECTION 6.09. Use of Proceeds........................................73
SECTION 6.10. Fiscal Year-End........................................74
SECTION 6.11. Further Assurances.....................................74
SECTION 6.12. Additional Grantors and Guarantors.....................74
SECTION 6.13. Environmental Laws.....................................74
SECTION 6.14. Pay Obligations to Lenders and Perform Other Covenants.76
ii
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Page
----
SECTION 6.15. Maintain Operating Accounts............................76
SECTION 6.16. Additional Pledge and Surveys..........................77
SECTION 6.17. NHL Agreements.........................................77
SECTION 6.18. CCM....................................................77
SECTION 6.19. Inactive Subsidiaries..................................77
VII. NEGATIVE COVENANTS....................................................77
SECTION 7.01. Liens..................................................78
SECTION 7.02. Sale and Lease-Back Transactions.......................80
SECTION 7.03. Indebtedness...........................................80
SECTION 7.04. Dividends, Distributions and Payments..................80
SECTION 7.05. Consolidations, Mergers and Sales of Assets............81
SECTION 7.06. Investments............................................82
SECTION 7.07. Capital Expenditures...................................84
SECTION 7.08. Rental Obligations.....................................84
SECTION 7.09. Interest Coverage Ratio................................84
SECTION 7.10. Business...............................................84
SECTION 7.11. Sales of Receivables...................................84
SECTION 7.12. Use of Proceeds........................................85
SECTION 7.13. ERISA..................................................85
SECTION 7.14. Accounting Changes.....................................85
SECTION 7.15. Prepayment or Modification of Indebtedness;
Modification of Charter Documents....................85
SECTION 7.16. Transactions with Affiliates...........................86
SECTION 7.17. Negative Pledges, Etc..................................86
VIII. EVENTS OF DEFAULT.....................................................86
IX. AGENT.................................................................91
X. MANAGEMENT, COLLECTION AND STATUS OF RECEIVABLES AND
OTHER COLLATERAL......................................................95
SECTION 10.01. Collection of Receivables; Management of Collateral...95
SECTION 10.02. Receivables Documentation.............................97
SECTION 10.03. Status of Receivables and Other Collateral............97
SECTION 10.04. Monthly Statement of Account..........................99
SECTION 10.05. Collateral Custodian..................................99
iii
<PAGE>
Page
----
XI. MISCELLANEOUS........................................................ 99
SECTION 11.01. Notices.............................................. 99
SECTION 11.02. Survival of Agreement................................100
SECTION 11.03. Successors and Assigns; Participations...............100
SECTION 11.04. Expenses; Indemnity..................................103
SECTION 11.05. Applicable Law.......................................105
SECTION 11.06. Right of Setoff......................................105
SECTION 11.07. Payments on Business Days............................105
SECTION 11.08. Waivers; Amendments..................................105
SECTION 11.09. Severability.........................................107
SECTION 11.10. Entire Agreement; Waiver of Jury Trial, Etc..........107
SECTION 11.11. Confidentiality......................................108
SECTION 11.12. Submission to Jurisdiction...........................108
SECTION 11.13. Interest Rate Limitation.............................109
SECTION 11.14. Counterparts; Facsimile Signature....................109
SECTION 11.15. Headings.............................................109
EXHIBITS
EXHIBIT A Form of Term Note
EXHIBIT B Form of Revolving Credit Note
EXHIBIT C Form of Opinion of Counsel
EXHIBIT D Form of Pledge Agreement
EXHIBIT E Form of Security Agreement
EXHIBIT F Form of Assignment and Acceptance
EXHIBIT G Form of Security Agreement - Patents and Trademarks
EXHIBIT H Form of Guarantees
EXHIBIT I Form of Canadian Letter of Credit and Application
SCHEDULES
SCHEDULE 1 Adjustments to EBITDA
SCHEDULE 1-A Inactive Subsidiaries
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 2.18 Canadian Letter of Credit Maximum Exposure
SCHEDULE 4.01 Qualified Jurisdictions
SCHEDULE 4.05 Material Adverse Change
SCHEDULE 4.06(a) Litigation
iv
<PAGE>
SCHEDULE 4.06(b) Compliance with Laws
SCHEDULE 4.09 Taxes
SCHEDULE 4.16 Leases
SCHEDULE 4.15 Subsidiaries
SCHEDULE 4.19 Environmental Law Compliance
SCHEDULE 4.21 Employee Matters
SCHEDULE 6.05(j) Borrowing Base Certificate
SCHEDULE 7.01 Existing Liens
SCHEDULE 7.03 Existing Indebtedness
SCHEDULE 7.06 Investments
SCHEDULE 7.08 Rental Obligations
v
<PAGE>
CREDIT AGREEMENT dated as of April 1, 1997, among SLM
INTERNATIONAL, INC., a Delaware corporation ("Parent"), its
wholly-owned subsidiaries #1 APPAREL, INC., a Delaware
corporation, and MASKA U.S., INC., a Vermont corporation
(the Parent and such wholly-owned subsidiaries being herein
referred to jointly and severally as the "Borrowers"), the
financial institutions from time to time party hereto,
initially consisting of those financial institutions listed
on 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 Credits (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 $74,000,000 in the form of (a) a Term Loan to the Borrowers in an aggregate
principal amount of $4,000,000, (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 $35,000,000 at any time
outstanding and (c) the Canadian Letter of Credit for the account of the
Borrowers and the Canadian Borrower in an amount not in excess of $35,000,000.
The proceeds of the Term Loan and, in part, the Revolving Credit Loans shall be
used to partially finance payments to be made pursuant to the Plan of
Reorganization. The proceeds of the Revolving Credit Loans shall also be used
for general working capital and corporate purposes. The Canadian Letter of
Credit shall secure the obligations of the Canadian Borrower under the Canadian
Credit 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:
"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
1
<PAGE>
supplemental reserves) expressed as a decimal established by the Board and any
other banking authority to which the Agent is subject 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, exemptions 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. 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.
"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
2
<PAGE>
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, 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, for any day, the annual assessment
rate (net of refunds and rounded upwards, if necessary, to the next 1/100 of 1%)
most recently estimated by the Agent (in good faith, but in no event in excess
of statutory or regulatory maximums) as the then current net annual assessment
rate that will be employed in determining amounts 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
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 Base CD Rate or the Federal Funds
Effective Rate shall be effective on the effective date of such change in the
Prime Rate, the Base 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 F annexed hereto.
"Availability" shall mean at any time (i) the lesser at such time of (x)
the Total Revolving Credit Commitment and (y) the sum of the Borrowing Base plus
the Seasonal Amount, minus (ii) the sum at such time of (x) the unpaid principal
balance of the Revolving Credit Loans together with all reserves (without
duplication of deductions
3
<PAGE>
taken in determining Net Amount of Eligible Receivables) established by the
Agent in its reasonable exclusive judgment upon notice to the Borrowers
including, without limitation, reserves reflecting the risk of suppliers
repossessing shipped goods and reserves relating to Liens permitted by Sections
7.01(b) and 7.01(c) hereof and (y) the Domestic Letter of Credit Usage.
"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, 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.
"Canadian Borrower" shall mean Sport Maska Inc.
"Canadian Credit Agreement" shall mean the Credit Agreement dated as of
April 1, 1997 between The Chase Manhattan Bank of Canada and the Canadian
Borrower, as in effect on the date hereof or as hereafter amended with the
consent of the Agent.
"Canadian Letter of Credit" shall have the meaning assigned to such term in
Section 2.17(b) hereof.
"Canadian Letter of Credit Usage" shall mean the Letter of Credit Usage
excluding only the Letter of Credit Usage relating to Domestic Letters of
Credit.
"Canadian Pension Plan" shall mean any pension plan established by a
subsidiary of the Parent under Canadian federal or state law for the benefit of
employees of the subsidiary.
"Capital Expenditures" shall mean, for any period, without duplication, the
aggregate of all expenditures (whether paid in cash or accrued as a liability)
by the Parent and its Consolidated subsidiaries during such period determined on
a Consolidated basis that, in accordance with GAAP, are or should be included in
"additions to property, plant or equipment".
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"Capitalized Lease Obligation" shall mean an obligation to pay rent or
other amounts under any lease of (or other arrangement conveying the right to
use) real and/or personal property which obligation is required to be classified
and accounted for as a capital lease on a balance sheet prepared in accordance
with GAAP, and for purposes hereof the amount of such obligation shall be the
capitalized amount thereof determined in accordance with GAAP.
"Cash Interest Expense" shall mean, for any period, the Interest Expense of
the Parent and its Consolidated subsidiaries on a Consolidated basis 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).
"CCM" shall mean CCM Holdings (1983) Inc., a Canadian corporation.
"Change of Control" shall mean (i) Investor Group shall cease to maintain
the number of seats on the Board of Directors of the Parent to which the
Investor Group is entitled pursuant to the Shareholders' Agreement in effect on
the date hereof, or (ii) from and after an initial public offering, the Investor
Group shall cease to own stock of the Parent representing at least 20% of the
aggregate ordinary voting power represented by the issued and outstanding
capital stock of the Parent.
"Charges" shall have the meaning assigned to such term in Section 11.13
hereof.
"Closing Date" shall mean the date of the first borrowing under this
Agreement, but in no event later than April 15, 1997.
"Code" shall mean the Internal Revenue Code of 1986 and the rules and
regulations promulgated thereunder, 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, and the Revolving Credit Commitment of such
Lender.
"Commitment Letter" shall mean the letter dated December 23, 1996, as
amended to the Closing Date, addressed by the Agent to the Parent, together with
all attachments thereto.
"Consolidated" shall mean, in respect of any person, as applied to any
financial or accounting term, such term determined on a consolidated basis in
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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 or Canadian federal, provincial or municipal environmental, health and
safety statutes or regulations or any other material or substance which
constitutes a material health, safety or environmental hazard to any person or
property.
"Credit Event" shall mean each borrowing and each issuance of a Letter of
Credit hereunder.
"Credits" shall mean each Loan and each Letter of Credit.
"Cure Loans" shall have the meaning assigned to such term in Section
2.13(d) hereof.
"Customer" shall mean and include the account debtor or obligor with
respect to any Receivable.
"Debt Service Expense" shall mean, in each Fiscal Year for the Parent and
its Consolidated subsidiaries on a Consolidated basis, the aggregate of
regularly scheduled principal payments due on the Term Loans in such Fiscal Year
as set forth in Section 2.04(c).
"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 lawful currency of the United States
of America.
"Domestic Letters of Credit" shall have the meaning assigned to such term
in Section 2.17(a) hereof.
"Domestic Letter of Credit Usage" shall mean the Letter of Credit Usage
excluding any Letter of Credit Usage relating to the Canadian Letter of Credit.
"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 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 for any period for the Parent and its Consolidated
subsidiaries on a Consolidated basis the sum of (i) Net Income, (ii) Interest
Expense,
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(iii) depreciation and amortization of 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 (and specifically excluding
work in process) which is, in the reasonable opinion of the Agent, not obsolete
or slow-moving and is and at all times shall continue to be acceptable to the
Agent in all respects; provided, however, that Eligible Inventory shall in no
event include inventory (i) with respect to which the Agent has not been granted
and does not have a valid, first priority security interest or (ii) which has
been returned and not reclassified as inventory or rejected by a Customer.
Standards of eligibility may be fixed and revised from time to time solely by
the Agent in the Agent's exclusive reasonable judgment. 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.
"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. Standards of
eligibility may be fixed and revised from time to time solely by the Agent in
the Agent's exclusive reasonable judgment. 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 the
underlying goods shipped or services performed, as the case may be; (b) the
payment due on the Receivable is not more than 60 days past the due date when
shipped on normal terms or not more than 30 days overdue when shipped under
dating programs providing for payment up to 210 days from invoice date; (c) the
payments due on more than 50% of all Receivables from the same Customer are less
than 60 days past the due date when shipped on normal terms or less than 30 days
past due when shipped under the dating programs referred to in (b) above; (d)
the Receivable arose from a completed and bona fide transaction (and with
respect to a sale of goods, a transaction in which title has passed to the
Customer) which requires no further act under any circumstances on the part of
the Receivables Grantors in order to cause such Receivable to be payable in full
by the 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 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", "claim" or "chattel paper" within the meaning of the
Uniform Commercial Code or Personal Property Security Law of the state in which
the Receivable is located; (g) the Customer
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has not asserted that the Receivable, and no Receivables Grantors are aware that
the Receivable, (i) arises out of a bill and hold, consignment or progress
billing arrangement or (ii) 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 Receivable or independently thereof
(provided that such Receivable shall only be ineligible to the extent thereof)
and (iii) the Customer has finally accepted the goods from the sale 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 goods returned in the
ordinary course of business provided that such Receivable shall only be
ineligible with respect to that portion thereof which has been objected to or
which relates to goods returned, rejected or repossessed; (h) the Receivable
arose in the ordinary course of business of the Receivables Grantors; (i) the
Customer is not (x) the United States or Canadian government or the government
of any state or political subdivision thereof or therein, or any agency or
department of any thereof or (y) an Affiliate of the Parent, the Borrowers or
any subsidiary of the Parent; (j) the Customer is a United States or Canadian
person or an obligor located in the United States or Canada, or an obligor
located in another jurisdiction if the applicable Receivable is covered by a
letter of credit or credit insurance in favor of, or assigned to, the Agent in
form and substance satisfactory to the Agent; (k) 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); (l) to the knowledge of the Borrowers, 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; (m) the Receivable is denominated in and provides for payment by the
Customer in dollars or Canadian dollars; (n) 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 Grantors; (o)
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;
(p) the Receivable is not with respect to a Customer located in New Jersey,
Minnesota, or any other state denying creditors access to its courts in the
absence of a Notice of Business Activities Report or other similar filing,
unless the Receivables Grantors have either qualified as a foreign corporation
authorized to transact business in such state or have filed a Notice of Business
Activities Report or similar filing with the applicable state agency for the
then current year; and (q) the Agent is satisfied with the credit standing of
the Customer in relation to the amount of credit extended.
"Environmental Claim" shall mean any written notice of violation, claim,
deficiency, demand, abatement or other order by any governmental authority or
any person for personal injury (including sickness, disease or death), tangible
or intangible
8
<PAGE>
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. ss. 9601 et seq.), the Hazardous
Material Transportation Act (49 U.S.C. ss. 1801 et seq.), the Resource
Conservation and Recovery Act (42 U.S.C. ss. 6901 et seq.), the Federal Water
Pollution Control Act (33 U.S.C. ss. 1251 et seq.), the Oil Pollution Act of
1990 (33 U.S.C. ss. 2701 et. seq.), the Safe Drinking Water Act (42 U.S.C. ss.
300f, et seq.), the Clear Air Act (42 U.S.C. ss. 7401 et seq.), the Toxic
Substances Control Act, as amended (15 U.S.C. ss. 2601 et seq.), the Federal
Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. ss. 136 et seq.), and the
Occupational Safety and Health Act (29 U.S.C. ss. 651 et seq.), and their
Canadian equivalent, including, without limitation, the Environmental Protection
Act of Ontario, the Canadian Environmental Protection Act and the Canadian
Transportation of Dangerous Goods Act, 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 having the force of law, regulations,
ordinances, licenses, permits and interpretations having the force of law 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, as in effect 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 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.
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<PAGE>
"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, for any period for the Parent and its
Consolidated subsidiaries on a Consolidated basis, the amount, if any, by which
Funds from Operations for such period exceeds the sum (a) of the Debt Service
Expense for such period plus (b) Capital Expenditures paid in cash and not
financed with permitted Indebtedness, during such period.
"Excluded Taxes" shall have the meaning assigned to such term in Section
2.16 hereof.
"Federal" shall mean the federal level of government in both the United
States and Canada.
"Final Maturity Date" shall mean the third anniversary of the Closing Date.
"Financial Officer" shall mean, with respect to any person, the chief
financial officer, vice president-finance or corporate controller 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 as of the Closing Date ends on December
31 of each year.
"Funds from Operations" shall mean, for any period, without duplication of
addition or subtraction of any items, for the Parent and its Consolidated
subsidiaries on a Consolidated basis, (A) the sum for such period of (i) the
aggregate pre-tax income (or loss) from continuing operations (which in no event
shall include the Vermont Litigation Recovery), (ii) depreciation and
amortization and (iii) other non-cash items properly deducted in arriving at
pre-tax income (or loss) minus (B) all income tax paid in cash during such
period.
"GAAP" shall have the meaning assigned to such term in Section 1.02 hereof.
"Grantor" shall mean any Grantor, Corporation, Company, Mortgagor, Pledgor
or Debtor, as such terms are defined in any of the Security Documents.
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<PAGE>
"Guarantee" shall mean any obligation, contingent or otherwise, of any
person guaranteeing or having the economic effect of guaranteeing or giving
financial assistance in respect of the repayment of any Indebtedness or monetary
obligation of any other person in any manner, whether directly or indirectly,
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 monetary obligation or to purchase (or to
advance or supply funds for the purchase of) any security for the payment of
such Indebtedness or monetary 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 monetary 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 monetary 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. The amount of any Guarantee of
any guaranteeing person shall be deemed to be the lower of (a) an amount equal
to the stated or determinable amount of the primary obligation in respect of
which such Guarantee is made and (b) the maximum amount for which such
guaranteeing person may be liable pursuant to the terms of the instrument
embodying such Guarantee, unless such primary obligation and the maximum amount
for which such guaranteeing person may be liable are not stated or determinable,
in which case the amount of such Guarantee shall be such guaranteeing person's
maximum reasonably anticipated liability in respect thereof.
"Guarantees (Canadian)" shall mean the Guarantees of each subsidiary of the
Parent incorporated in Canada or any province thereof dated as of the date
hereof in substantially the form of Exhibit H annexed hereto, as amended,
modified or supplemented from time to time.
"Guarantor" shall mean, collectively, the Parent with respect to the
Obligations of each of the other Borrowers, each subsidiary of the Parent (other
than the Non-Guaranteeing Subsidiaries), and each subsidiary of the Parent 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 goods, 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 friable 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,
without limitation, to the extent that the applicable laws of any state
establish a meaning for "hazardous material," "hazardous substance," "hazardous
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<PAGE>
waste," "solid waste" or "toxic substance" which is broader than that specified
in any Federal Environmental Law, such broader meaning shall apply in the
relevant state.
"Inactive Subsidiaries" shall mean those subsidiaries set forth on Schedule
1-A annexed hereto.
"Indebtedness" shall mean, with respect to any person, without duplication
(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 (excluding trade accounts payable and accrued
expenses arising in the ordinary course of business in accordance with customary
trade terms), (c) all obligations of such person for the deferred purchase price
of property or services (excluding trade accounts payable and accrued expenses
arising in the ordinary course of business in accordance with customary trade
terms), (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 or currency protection agreements, (f) all obligations
of such person as an account party under any letter of credit or in respect of
bankers' acceptances, (g) all Indebtedness 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 Indebtedness provided, however, that the amount of
Indebtedness of such person shall be the lesser of (i) the fair market value of
such property or assets and (ii) the amount of such Indebtedness), (h) all
Guarantees of such person and (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.
"Indemnitees" shall have the meaning assigned to such term in Section
11.04(c) hereof.
"Indenture Trustee" shall mean the Trustee appointed pursuant to the Senior
Secured Note Indenture.
"Information" shall have the meaning assigned to such term in Section
11.11 hereof.
"Intercreditor Agreement" shall mean the intercreditor agreement dated as
of the Closing Date among the Agent on behalf of the Lenders, The Chase
Manhattan Bank of Canada and the Indenture Trustee on behalf of the holders of
the Senior Secured Notes with respect to Lien priorities and related matters.
"Interest Coverage Ratio" shall mean, the ratio for the Parent and its
Consolidated subsidiaries on a Consolidated basis of (i) EBITDA (and solely for
the
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Fiscal Year ending December 31, 1997 with the adjustments described on Schedule
1 annexed hereto) less Capital Expenditures for the four most recent consecutive
fiscal quarters ending on or prior to the date of determination (or in the case
of the Fiscal Year ending December 31, 1997 the period from the Closing Date
through December 31, 1997) to (ii) the Cash Interest Expense for such
four-quarter (or in the case of the Fiscal Year ending December 31, 1997 the
period from the Closing Date through December 31, 1997) period.
"Interest Expense" shall mean, for any period, the interest expense for the
Parent and its Consolidated subsidiaries on a Consolidated basis during such
period determined 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, (v) payments of
interest expense in kind and (vi) all letter of credit fees payable with respect
to the Canadian Letter of Credit pursuant to Section 2.20(b) hereof.
"Interest Margin" shall mean, with respect to any Loan, the amount as set
forth in the last paragraph hereof as such amount shall be adjusted in
accordance with the terms of this definition. The Interest Margin shall be
adjusted thereafter in accordance with the table set forth below, three (3)
Business Days after the delivery of the financial statements to the Agent
required pursuant to Section 6.05(a), together with the corresponding compliance
certificate required pursuant to Section 6.05(e), commencing with the financial
statements and certificate for the period ending December 31, 1997, or if a
Default or Event of Default shall have occurred and be continuing, then at the
highest Interest Margin provided for herein:
Total Funded Interest Margin for Interest Margin for
Debt Ratio Eurodollar Loans Alternate Base Loans
- ------------ ---------------- --------------------
Greater than 4.00:1.00 2.75% 1.00%
Equal to or less than
4.00:1.00 but greater
than 3.00:1.00 2.50% 0.75%
Equal to or less than
3.00:1.00 but greater
than 2.00:1.00 2.25% 0.50%
2.00:1.00 or less 2.00% 0.25%
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On the Closing Date, the LIBO Rate Interest Margin shall be 2.75% and the
Alternate Base Rate Interest Margin shall be 1.00%; each shall thereafter be
adjusted in accordance with the provisions hereof.
"Interest Payment Date" shall mean with respect to any Loan, the last day
of the Interest Period applicable to the borrowing of which such Loan is a part,
and in respect of any Eurodollar Loan of more than three (3) months' duration,
each earlier day which is three (3) months after the first day of such Interest
Period.
"Interest Period" shall mean, (a) 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, and
(b) as to any Alternate Base Loan, the period commencing on the date of such
Alternate Base Loan and ending on the earliest of (i) the first Business Day of
each succeeding month, (ii) the Revolving Credit Termination Date or Final
Maturity Date, as applicable, and (iii) the date such Alternate Base Loan is
converted to a Loan of a different type in accordance with Section 2.02(e) or
repaid or prepaid in accordance with Section 2.04(c), 2.09 or 2.10; 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 with
respect to Eurodollar Loans shall end later than the Final Maturity Date or
Revolving Credit Termination Date, as applicable, 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.
"Inventory Grantors" shall mean each of the Borrowers and any domestic
subsidiary designated as such by the Agent after the date hereof.
"Investor Group" shall mean Wellspring Associates L.L.C. and its
Affiliates.
"Lender" shall have the meaning assigned to such term in the preamble to
this Agreement.
"Letter of Credit" or "Letters of Credit" shall have the meaning assigned
to such term in Section 2.17(b) 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.
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<PAGE>
"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 Agent's portion of such Eurodollar Loan and for
a maturity equal to the applicable Interest Period are offered in immediately
available funds to the London branch of the Agent 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, hypothec,
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 (including the Guarantees (Canadian)) executed and delivered at any
time with respect to the Obligations, the Notes and each other document,
instrument or agreement now or hereafter delivered by a Loan Party and
constituting an agreement entered into with the Agent or any Lender in
connection herewith or therewith.
"Loan Party" shall mean each Borrower, each Grantor and each Guarantor.
"Margin Stock" shall have the meaning assigned to such term in
Regulation U.
"Material Adverse Effect" shall mean a material adverse effect on (i) the
business, assets, prospects, operations or financial or other condition of the
Parent and the other Loan Parties taken as a whole, (ii) the ability of any Loan
Party to perform its obligations under the terms hereof or of any other Loan
Document, (iii) the rights of, or remedies 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.
"Maximum Rate" shall have the meaning assigned to such term in Section
11.13 to this Agreement.
"Mortgages" shall mean the real property mortgages dated as of the date
hereof, and executed by the applicable Grantor(s) in favor of the Agent, for its
own
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<PAGE>
benefit and for the benefit of the Lenders, as amended, modified or supplemented
from time to time.
"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.
"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, (ii) returns, discounts, claims, credits and
allowances of any nature at any time issued, owing, granted, outstanding,
available or claimed, (iii) a dilution reserve established from time to time in
the Agent's reasonable discretion and (iv) appropriate adjustments for the
conversion of Canadian dollars into dollars and any currency reserve established
from time to time in the Agent's sole reasonable discretion.
"Net Cash Proceeds" shall mean (a) the gross cash proceeds received less
(b) the sum of (i) the amount, if any, of all taxes (other than income taxes)
payable plus the good-faith best estimate of the amount of all income taxes
payable (to the extent such amount shall have been set aside), (ii) the amount,
if any, applied to repay any Indebtedness (other than the Loans) including,
without limitation, any premium, penalty, interest or other amount in connection
with such Indebtedness to the extent such Indebtedness is required by its terms
or by applicable law to be repaid, (iii) reasonable and customary fees,
discounts, commissions and expenses and other costs paid (other than those paid
to any Affiliate of the Parent) in connection with the applicable transaction,
(iv) reserves, if any, in connection with indemnification or similar obligations
and (v) amounts held in escrow, if any, in each case to the extent not already
deducted in arriving at the amount referred to in clause (a).
"Net Income" shall mean for any period, the aggregate income (or loss) for
the Parent and its Consolidated subsidiaries on a Consolidated basis for such
period which shall be an amount equal to net revenues and other proper items of
income less the aggregate 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.
"Non-Guaranteeing Subsidiaries" shall mean Mitchel and King Skates Limited
and Sport Maska Europe S.A.R.L.
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"Non Pro Rata Loans" shall have the meaning assigned to such term in
Section 2.13(d) hereof.
"Non-U.S. Lender" shall have the meaning assigned to such term in Section
2.16(f) 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 and arising in connection with the
transactions contemplated hereby, including without limitation all obligations,
liabilities and Indebtedness of the Borrowers with respect to the Security
Documents and other Loan Documents, the principal of and interest on the
Revolving Credit Loans, the Term Loans and the payment or performance of all
other obligations, liabilities, and Indebtedness of the Borrowers to the Lenders
and the Agent hereunder, under the Letters of Credit or under any one or more of
the other Loan Documents, including without limitation all fees, costs, expenses
and indemnity obligations hereunder and thereunder.
"Other Taxes" shall have the meaning assigned to such term in Section
2.16(b) hereof.
"Parent" shall have the meaning assigned to such term in the preamble
hereof.
"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 Refinancing" shall mean extensions, renewals or refinancings of
any of the Senior Secured Notes, but only to the extent such extended, renewed
or refinanced Indebtedness (i) is in an aggregate principal amount not greater
than the aggregate principal amount of the Indebtedness being extended, renewed
or refinanced plus the amount of any premiums required to be paid thereon and
fees and expenses associated therewith, (ii) has terms, conditions and covenants
substantially similar and no more restrictive than those contained in the
Indebtedness being extended, renewed or refinanced, (iii) has a final maturity
date, or a committed term ending, after or concurrent with the final maturity
date of the Indebtedness being extended, renewed or refinanced, (iv) has
aggregate required amortization payments in any year, which do
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not exceed the aggregate amount of amortization payments required for such year
by the terms of the Indebtedness being extended, renewed or refinanced, (v) if
secured, is subject to the terms of the Intercreditor Agreement, (vi) at the
time and after giving effect to such extension, renewal or refinancing, no
Default or Event of Default shall have occurred and be continuing and (vii) has
been consented to by the Required Lenders, which consent shall not be
unreasonably withheld.
"person" shall mean any natural person, corporation, business trust,
limited liability company, association, company, joint venture, partnership or
government or any agency or political subdivision thereof.
"Personal Property Security Law" shall mean the Personal Property Security
Act or other statute or statutory provisions in effect from time to time in
Canada and its provinces which deals with the perfection and priority of Liens
on Collateral.
"Plan" shall mean any employee benefit plan within the meaning of Section
3(3) of ERISA and subject thereto and which is maintained (in whole or in part)
for employees of the Borrowers, any subsidiary or any ERISA Affiliate.
"Plan of Reorganization" shall mean the First Amended Joint Chapter 11 Plan
(as modified) dated as of November 12, 1996, the First Modification thereto
dated January 16, 1997, the Second Modification thereto dated January 22, 1997,
as confirmed by order of the United States Bankruptcy Court for the District of
Delaware dated January 23, 1997 and the Third Modification thereto dated March
14, 1997, as confirmed by order of the United States Bankruptcy Court for the
District of Delaware dated March 27, 1997.
"Pledge Agreement" shall mean the Pledge Agreement dated as of the date
hereof, between the Grantor(s) referred to therein and the Agent, for its own
benefit and for the benefit of the Lenders, in substantially the form of Exhibit
D 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 Receivables Grantors'
accounts, instruments, documents, chattel paper and general intangibles related
thereto, whether secured or unsecured, whether now existing or hereafter created
or arising, and whether or not specifically assigned to the Agent for its own
benefit and/or the ratable benefit of the Lenders.
"Receivables Grantors" shall mean each of the Borrowers and any domestic
subsidiary designated as such by the Agent after the date hereof.
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"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.
"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; 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.
"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 any Loan Party (whether such property is owned,
leased, subleased or used), including, without limitation, with respect to
Contaminants and the Release thereof.
"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 with respect to which the notice requirements have not been
waived.
"Required Lenders" shall mean, at any time, Lenders holding Loans, exposure
under the Letter of Credit Usage and unused Commitments representing at least
51% of the aggregate of (a) the aggregate principal amount of Loans at such
time, (b) the Letter of Credit Usage at such time and (c) the aggregate unused
Commitments at such time, all after giving effect to the terms of Section
2.13(d)(v).
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"Responsible Officer" shall mean, with respect to any person, any vice
president or president, or the chief financial officer or corporate controller,
of such person.
"Revolving Credit Alternate Base Loan" shall mean a Revolving Credit Loan
that is an Alternate Base Loan.
"Revolving Credit Commitment" shall mean, with respect to each Lender, the
commitment of such Lender to make Revolving Credit Loans hereunder and
participate in Domestic Letters of Credit in an aggregate amount at any time
outstanding not in excess of the amount opposite the name of such Lender in the
column entitled "Revolving Credit Commitment" in the table appearing in Schedule
2.01(b), or if applicable, the amount set forth in the Assignment and Acceptance
pursuant to which such Lender became a Lender hereunder, as such amount may be
(a) reduced from time to time pursuant to this Agreement including, without
limitation, Section 2.07 hereof and (b) reduced or increased from time to time
pursuant to assignments by or to such Lender pursuant to Section 11.03 hereof.
"Revolving Credit Commitment Fee" shall have the meaning set forth in
Section 2.06 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(b) and 2.02 hereof.
"Revolving Credit Notes" shall mean the 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 third anniversary of the Closing Date (or the fourth such anniversary, if so
extended by the Agent in its sole discretion upon notice to the Borrowers given
no later than 60 days prior to the third anniversary of the Closing Date) and
(ii) such earlier date on which the Revolving Credit Commitment shall terminate,
expire or be canceled in accordance with the terms of this Agreement.
"Seasonal Amount" shall mean at any time an amount designated by the
Borrowers (which may be zero) not to exceed (x) $5,000,000 during the period
commencing five days subsequent to the Closing Date through October 31, 1997;
$4,000,000 during a seven month period to be mutually agreed upon by the Agent
and the Borrowers in Fiscal Year 1998; $3,000,000 during a seven month period to
be
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mutually agreed upon by the Agent and the Borrowers in Fiscal Year 1999; and if
the Total Revolving Credit Commitment is extended as provided for herein, an
amount determined in the Agent's sole discretion (but in no event less than
$2,000,000) during a seven month period to be mutually agreed upon by the Agent
and the Borrowers in Fiscal Year 2000 less (y) the amount designated by the
Canadian Borrower and confirmed to the Agent as a "Seasonal Amount" under the
Canadian Credit Agreement.
"Security Agreement" shall mean the Security Agreements dated as of the
date hereof, between the Grantor(s), referred to therein and the Agent, for its
own benefit and for the benefit of the Lenders, substantially in the form of
Exhibit E annexed hereto, as amended, modified or supplemented from time to
time.
"Security Agreement - Patents and Trademarks" shall mean the Security
Agreement and Mortgage - Patents and Trademarks, dated as of the date hereof,
between the Debtor(s), as such term is defined therein, referred to therein and
the Agent, for its own benefit and for the benefit of the Lenders, substantially
in the form of Exhibit G 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 Mortgages and
each other agreement now existing or hereafter created providing collateral
security for the payment or performance of any of the Obligations.
"Senior Secured Note Indenture" shall mean that certain Senior Secured Note
Indenture, dated as of April 1, 1997, among Parent, as issuer, the Guarantors
named therein, as Guarantors, and The Bank of New York, as Trustee.
"Senior Secured Notes" shall mean the Parent's 14% Senior Secured Notes due
2004, issued pursuant to the Senior Secured Note Indenture, in the original
principal amount of $29,500,000.
"Settlement Date" shall have the meaning assigned to such term in Section
2.15(c) hereof.
"Shareholders' Agreement" shall mean the Stockholders Agreement dated as of
April 1, 1997 among the Parent and the stockholders signatory thereto.
"state" shall mean both the state level of government in the United States
and the provincial level of government in Canada unless the context clearly
limits its use to a state of the United States.
"Subordinated Indebtedness" shall mean Indebtedness subordinated in right
of payment to such person's monetary obligations under this Agreement or the
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other Loan Documents (as applicable) upon terms satisfactory to and approved in
writing by the Agent.
"subsidiary" shall mean, with respect to any person, any corporation,
partnership, association or other business entity of which securities or other
ownership interests representing more than 50% of the equity or 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 such person and/or
one or more subsidiaries of such person, but in no event shall include an
Inactive Subsidiary.
"Taxes" shall have the meaning assigned to such term in Section 2.16(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(a) and
2.02.
"Term Loan Commitment" shall mean, with respect to any Lender, the Term
Loan Commitment of such Lender as set forth opposite the name of such Lender in
the column entitled "Term Loan Commitment" in the table appearing in Schedule
2.01(a), or if applicable, the amount set forth in the Assignment and Acceptance
pursuant to which such Lender became a Lender hereunder, as such amount may be
(a) reduced from time to time in accordance with the provisions of this
Agreement and (b) reduced or increased from time to time pursuant to assignments
by or to such Lender pursuant to Section 11.03 hereof.
"Term Notes" shall mean the Term Notes of the Borrowers, executed and
delivered as provided in Section 2.04, 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 Total Term Loan Commitment and
Total Revolving Credit Commitment.
"Total Funded Debt" shall mean as of the date of determination thereof, all
Indebtedness of the Parent and its Consolidated subsidiaries on a Consolidated
basis outstanding at such time which matures more than one year after the date
of calculation, and any such Indebtedness maturing within one year from such
date of calculation which is renewable or extendable at the option of the
obligor to a date more than one year from such date and including in any event
any outstanding Revolving
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Credit Loans and outstanding revolving credit loans due under the Canadian
Credit Agreement.
"Total Funded Debt Ratio" shall mean for the Parent and its Consolidated
subsidiaries on a Consolidated basis at the end of any Fiscal Year the ratio of
(i) Total Funded Debt as at the last day of the Fiscal Year then ended to (ii)
EBITDA (which in the case of the 1997 Fiscal Year shall be computed for the
period from the Closing Date through December 31, 1997 with the adjustments
described on Schedule 1 annexed hereto) minus Capital Expenditures of the Parent
and its Consolidated subsidiaries on a Consolidated basis for the Fiscal Year
then ended (which in the case of the 1997 Fiscal Year shall be computed for the
period from the Closing Date through December 31, 1997).
"Total Revolving Credit Commitment" shall mean the sum of the Lenders'
Revolving Credit Commitments.
"Total Term Loan Commitment" shall mean the sum of the Lenders' Term Loan
Commitments.
"Trademark Canada" shall mean SLM Trademark Acquisition Canada Corporation,
a Canadian corporation.
"Trademark U.S." shall mean SLM Trademark Acquisition Corp., a Delaware
corporation.
"Transactions" shall have the meaning assigned to such term in Section
4.02 hereof.
"Transferee" shall have the meaning assigned to such term in Section 2.16
hereof.
"Vermont Litigation Recovery" shall mean any recovery derived from the
civil action entitled Maska U.S., Inc. vs. Kansa General Insurance Company, et
al., Case Number 1:93-CV-309, pending in the United States District Court for
the District of Vermont.
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
("GAAP"); provided, however, that for purposes of determining compliance with
the covenants contained in Article VII or determining the Interest Margin, all
accounting or financial terms herein shall be interpreted and all accounting
determinations shall be made in accordance with GAAP as in effect on the date of
this Agreement and applied
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on a basis consistent with that used in the audited financial statements
referred to in Section 4.07.
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.
(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. 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 this
Agreement including, without limitation, Section 2.07 hereof) and (b) an amount
equal to the sum of (i) eighty percent (80%) of the Net Amount of Eligible
Receivables, plus (ii) the lesser of (A) $10,000,000 and (B) fifty percent (50%)
of the Net Amount of Eligible Inventory plus (iii) 50% of the aggregate undrawn
amount of all outstanding Domestic Letters of Credit for the purchase of
inventory consigned to the Agent (such sum referred to herein as the "Borrowing
Base") plus (iv) the Seasonal Amount, if any, minus (2) the Domestic Letter of
Credit Usage at such time (not to exceed the limitations set forth in Section
2.17(a) hereof at any time). The Borrowing Base will be computed weekly (or more
frequently if requested by the Agent) 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.
SECTION 2.02. Loans. (a) The Revolving Credit Loans made by the Lenders on
any date shall be in integral multiples of $100,000 (except that the foregoing
limitation shall not be applicable to the extent that the proceeds of such
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Loans are requested to be disbursed to the Borrowers' controlled disbursement
account); 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.
(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 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.
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 terms of the applicable Note. Loans of more than one type
may be outstanding at the same time, provided, however, not more than five (5)
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 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, facsimile or telephonic notice (promptly confirmed by written or
facsimile notice) 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 Eurodollar Loans into a subsequent Interest Period, subject to the terms
and conditions of this Agreement (including the last sentence of Section 2.02(c)
hereof) and to the following:
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(i) each conversion or continuation shall be made pro rata among the
Lenders in accordance with the respective principal amounts of the Loans
comprising the conversion or continuation, and in the case of a conversion
or continuation of fewer than all the Loans, the aggregate principal amount
of Loans converted to Alternate Base Loans shall not be less than $100,000
or in the case of the continuation of or conversion to Eurodollar Loans
$500,000 times the number of Lenders on such date and shall be an integral
multiple of $100,000;
(ii) accrued interest on a Eurodollar Loan (or portion thereof) being
converted shall be paid by the Borrowers at the time of conversion;
(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 Eurodollar Loan maturing or required to be
repaid in less than one month may not be continued as a Eurodollar Loan and
any portion of a Eurodollar Loan that cannot be continued as a Eurodollar
Loan by reason of the foregoing shall be automatically converted at the end
of the Interest Period in effect into an Alternate Base Loan;
(v) no Interest Period may be selected for any Term Eurodollar Loan
that would end later than a Repayment Date occurring on or after the first
day of such Interest Period if, after giving effect to such selection, the
aggregate outstanding amount of (A) the Term Eurodollar Loans with Interest
Periods ending on or prior to such Repayment Date and (B) the Term
Alternate Base Loans would not be at least equal to the principal amount of
Term Loans to be paid on such Repayment Date; and
(vi) at the time of any conversion to, or continuation of, any
Eurodollar Loan, no Default or Event of Default shall have occurred and be
continuing.
The Interest Period applicable to any Eurodollar Loan resulting from a
conversion or continuation shall be specified by the Borrowers in the
irrevocable notice of conversion or continuation 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 month's
duration; and, provided further, that no such Interest Period may be for more
than one month for the period commencing on the Closing Date and ending on the
earlier to occur of (x) the 120th day following the Closing Date and (y) the
completion to the satisfaction of The Chase Manhattan Bank
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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 (unless repaid or
required to be repaid pursuant to the terms hereof) shall 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, facsimile
or telephonic notice (promptly confirmed by written or facsimile notice) of each
borrowing (including, without limitation, a conversion or continuation 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 or continuation and (ii) one Business Day before an Alternate Base
Loan borrowing or conversion (except that no such confirmation or notice as
required by (ii) above will be required, unless requested by the Agent, to the
extent that the proceeds of such borrowing are requested to be disbursed to
Borrowers' controlled disbursement account maintained with the Agent). Such
notice shall specify (w) whether the Loans then being requested are to be
Alternate Base Loans or Eurodollar Loans, (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; provided, however, that no such Interest
Period may be for more than one month for the period commencing on the Closing
Date and ending on the earlier to occur of (x) the 120th 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. 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
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 or if less, the outstanding amount of
such Lender's Term Loan. 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. The outstanding balance of each
Revolving Credit Loan, as evidenced
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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 10 consecutive quarterly installments (the date
of each such installment, a "Repayment Date") in the amounts set forth below,
and such payments shall be distributed ratably among the Lenders in accordance
with their respective Term Loan Commitments:
Date Payment
---- -------
September 30, 1997 $150,000
December 31, 1997 $350,000
Each of March 31, June 30,
September 30 and
December 31, 1998 and 1999 $250,000
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
but unpaid 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 Loans, 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
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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 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 such
Borrower 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), with regard to the Obligations, 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 of time, 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 subordinates and makes junior to
the Obligations each of the other Borrower's "claims" ( as defined in Section
101(5) of the Bankruptcy Code) to which such other of the 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 unless and until all of the
Obligations to the Agent and the Lenders have been indefeasibly paid in full.
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 applicable Interest
Margin for Alternate Base Loans.
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(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 applicable Interest Margin for Eurodollar Loans.
(c) Interest on each Loan shall be payable in arrears on each applicable
Interest Payment Date, the Revolving Credit Termination Date and on the Final
Maturity Date. Interest on each 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. The Borrowers shall pay each Lender, through the Agent,
(i) on the first Business Day of each January, April, July and October
commencing July 1, 1997, (ii) on the date of any reduction of the Total
Revolving Credit Commitment pursuant to this Agreement including, without
limitation, 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 eighths of one percent (3/8 of 1%) per annum on the
average daily unused amount of the Revolving Credit Commitment of such Lender,
during the preceding quarter (or shorter period commencing with the Closing Date
or ending with the Revolving Credit Termination Date) ending immediately prior
to 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 this
Agreement including, without limitation, 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.
SECTION 2.07. Termination and Reduction of Revolving Credit Commitments and
Term Loan Commitments. (a) Upon at least three (3) Business Days' prior
irrevocable written, facsimile or telephonic notice (promptly confirmed by
written or facsimile notice) 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; 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 Domestic Letter of Credit Usage at such time. Each
partial reduction of the Total Revolving Credit Commitment shall be in a minimum
of $100,000 or an integral multiple of $100,000.
(b) Simultaneously with any termination or reduction of the Total Revolving
Credit Commitment pursuant to this Section 2.07, the Borrowers shall pay to each
Lender, through the Agent, the Revolving Credit Commitment Fee accrued and
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unpaid through and excluding the date of such termination or reduction on the
amount of the Revolving Credit Commitment of such Lender so terminated or
reduced.
(c) Unless waived by the Required Lenders, the Total Revolving Credit
Commitment 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)
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)
If the Borrowers shall default in 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 Obligations outstanding pursuant to Section 2.05 in the case of Loans or
Section 2.20 in the case of the letter of credit fees with respect to Letters of
Credit.
(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 the Required Lenders of making or maintaining
such Eurodollar Loan during such Interest Period, or that reasonable means do
not exist for ascertaining the Adjusted LIBO Rate, the Agent shall as soon as
practicable thereafter give written, facsimile or telephonic notice (promptly
confirmed by written or facsimile notice) 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.
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SECTION 2.09. 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 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 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 a cash
collateral account with the Agent to be held in such account on terms
satisfactory to the Agent (if not previously applied, such cash collateral shall
be applied by the Agent on the last day of the applicable Interest Period to
repay outstanding Eurodollar Loans as they become due).
(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 a cash collateral account with the Agent to be
held in such account on terms satisfactory to the Agent (if not previously
applied, such cash collateral shall be applied by the Agent on the last day of
the applicable Interest Period to repay outstanding Eurodollar Loans as they
become due).
(d) Within three days of the receipt of Net Cash Proceeds from (i) the sale
or other disposition of any assets of any of the Loan Parties or their
subsidiaries (excluding sales permitted by Section 7.05) or of the capital stock
of any of the Loan Parties (subject to Section 7.05 hereof) except Net Cash
Proceeds received in connection with the exercise of options for the purchase of
the Parent's stock or from the resale to optionees of shares previously redeemed
or repurchased as permitted pursuant to Section 7.04 either (x) for options to
directors, officers and employees outstanding on the Closing Date (including,
without limitation, those outstanding under present employment arrangements with
Mr. Wasserman) or (y) thereafter granted so
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long as the aggregate of Net Cash Proceeds received does not exceed $200,000 in
any Fiscal Year, (ii) the consummation of the issuance of any debt securities
not permitted by Section 7.02 of any of the Loan Parties or (iii) the Vermont
Litigation Recovery, the Borrowers unless otherwise consented to by the Required
Lenders shall make a mandatory prepayment of the Loans in an amount equal to
100% (or 50% in the case of (iii) above) of the Net Cash Proceeds received,
which proceeds 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 stock or debt securities.
(e) (i) Except as provided in clause (ii) below, promptly and in any event
not more than one Business Day following the receipt by the Agent or any of the
Borrowers or any subsidiary of any of the Borrowers of any (x) net proceeds in
excess of $250,000 (or, if there shall be continuing a Default or Event of
Default, of the full amount of net proceeds) of any casualty insurance required
to be maintained pursuant to Section 6.03 hereof on account of each separate
loss, damage or injury (each, a "Casualty Event") to any asset of the Borrowers
or any subsidiary of the Borrowers (including, without limitation, any
Collateral), or (y) net proceeds in excess of $250,000 (or, if there shall be
continuing a Default or Event of Default, of the full amount of net proceeds) of
any business interruption insurance required to be maintained pursuant to
Section 6.03 hereof on account of any business interruption event (each, a "BI
Event"), the applicable party receiving such proceeds shall notify the other of
such receipt in writing, by fax or by telephone (promptly confirmed by written
or facsimile notice), and not later than one Business Day following receipt by
the Agent or such Borrowers 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 a Casualty Event or BI Event, 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), (x) in the case of
proceeds received with respect to a BI Event, to use such proceeds in the
ordinary course of such Borrower's business and (y) in the case of proceeds
received with respect to any Casualty Event, to apply all or a portion of such
net proceeds for the purpose of replacing, repairing, restoring or rebuilding
(referred to herein as a "Rebuilding") the relevant tangible property, and, in
any such event, any required prepayment under clause (i) above shall be reduced
dollar for dollar by the amount of such election under clause (x) or clause (y)
of this sentence. An election under this clause (ii) shall not be effective
unless: (x) at the time of such election there is no continuing Default or Event
of Default; (y) the Borrowers shall have certified to the Agent that: (i) the
net proceeds of the insurance adjustment with respect to a Casualty Event,
together with other funds available to the Borrowers shall be sufficient to
complete such Rebuilding in accordance in all material respects with all
applicable laws, regulations and ordinances; and (ii) no Default or Event of
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Default has arisen or will arise as a result of such BI Event, Casualty Event or
Rebuilding; and (z) if the amount of net proceeds in question exceeds
$3,000,000, the Borrowers shall provide to the Agent evidence satisfactory to
the Agent that the replacement tangible property will have a value to the
operation of the Borrowers' or their subsidiaries' business comparable to the
replaced tangible property.
(iii) In the event of an election under clause (ii) above, pending
application of the net proceeds to business operations with respect to a BI
Event or to Rebuilding with respect to a Casualty Event, 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 applicable Rebuilding or ordinary course business
operations, as the case may be; 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 the 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 and, in the case of Rebuilding, that the withdrawal is equivalent to
the value of the improvements being rebuilt.
(f) When making a prepayment, pursuant to paragraph (a) above, the
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, facsimile or telephonic notice
(promptly confirmed by written or facsimile notice) 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)(i) above shall be applied as follows: (A)
first, to outstanding Term Alternate Base Loans in the inverse order of their
maturity up to the full amount thereof and then to outstanding Term Eurodollar
Loans in the inverse order of their maturity up to the full amount thereof and
(B) second, pro rata based on the Total Revolving Credit Commitment and the
"Revolving Credit Commitment" under the Canadian Credit Agreement then
outstanding (i) to outstanding loans under the Canadian Credit Agreement and
(ii) 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
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prepayment in accordance with clause (B)(ii), there are undrawn Letters of
Credit outstanding, and there has occurred and is continuing an Event of
Default, 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 a
cash collateral account to be held by the Agent for its own benefit and 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 (if not previously applied, such cash collateral shall be applied by the
Agent on the last day of the applicable Interest Periods to repay outstanding
Eurodollar Loans as they become due).
(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) 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), shall: (i) subject the Agent or any Lender (which shall for the purpose of
this Section 2.10 include any lending office of 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 to either the Agent or any Lender with respect to any
Eurodollar Loans made by such 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, (y) franchise or capital 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 and (z) taxes imposed by reason of any connection between the
jurisdiction imposing such tax and the Agent, such Lender or such Applicable
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Lending Office other than a connection arising solely from this Agreement); (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
(x) taxes imposed on the overall net income of such Lender or the Agent, (y)
franchise or capital 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 and (z) taxes imposed by
reason of any connection between the jurisdiction imposing such tax and the
Agent, such Lender or such Applicable Lending Office other than a connection
arising solely from this Agreement); (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 (except any such reserve requirement
reflected in the Adjusted LIBO Rate or in the Alternate Base Rate); 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, 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 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 2.16 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 2.16 hereof.
(b) If at any time and from time to time any Lender shall determine that
the adoption after the date of this Agreement of any applicable law, rule,
regulation or guideline regarding capital adequacy, or any change after the date
of this Agreement 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 after the date of this Agreement 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 issued or adopted after the date hereof (whether or not having the
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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) by an amount deemed by such Lender to be material,
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) 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 other Interest Period or with respect to any
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.
(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 after the date hereof, 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
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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 (or be continued for additional Interest Periods and
Alternate Base Loans will not thereafter be converted into Eurodollar
Loans), whereupon the Borrowers shall be prohibited from requesting
Eurodollar Loans from such Lender hereunder unless such declaration is
subsequently withdrawn and any such request shall be deemed a request for
an Alternate Base Loan; and
(ii) require that all outstanding Eurodollar Loans, made by such
Lender 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) if the Lender shall exercise its rights under (i) or (ii) all
payments of principal which would otherwise have been applied to repay the
Eurodollar Loans that would have been made by such Lender or the converted
Eurodollar Loans of such Lender shall instead be applied to repay the
Alternate Base Loans made by such Lender in lieu of, or 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 as to each Eurodollar Loan made by such Lender, if
lawful, on the last day of the then current Interest Period; otherwise, such
notice shall be effective on the date of receipt by the Borrowers.
SECTION 2.12. Indemnity. The Borrowers shall indemnify the Agent and each
Lender against any loss or reasonable expense 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): (a) 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; (b) any failure of the Borrowers to borrow hereunder
after irrevocable notice of borrowing pursuant to Section 2.03 hereof has been
given; (c) any payment, prepayment or conversion of a Eurodollar Loan on a date
other than the last day of the relevant Interest Period; or (d) 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). Such loss or reasonable expense shall include, without
limitation, an amount as reasonably determined by such Lender equal to the
excess, if any, of (i) the amount of interest which would have accrued on the
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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 for such period or Interest Period, as the case may be. 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 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; Assumption by and Delegation of Authority
to the Agent. (a) Except as permitted under Sections 2.10, 2.11, 2.12, 2.15(c)
and 2.16 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,
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
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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
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 a Lender's ratable portion
of any Credit if it shall have received notice from such 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 for the
benefit of the Lenders by Borrowers and otherwise required to be applied to such
Lender's share of any other Obligation 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 Obligation.
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
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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 the 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;
(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 Loans 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
any Loan Party, 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 or exposure under the
Letter of Credit Usage held by it as a result of which the unpaid principal
portion of the Notes or exposure under the Letter of Credit Usage held by it
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shall be proportionately less than the unpaid principal portion of the Notes or
exposure under the Letter of Credit Usage held by any other Lender, it shall be
deemed to have simultaneously purchased from such other Lender a participation
in the Notes or exposure under the Letter of Credit Usage held by such other
Lender, so that the aggregate unpaid principal amount of the Notes and exposure
under the Letter of Credit Usage and participations in Notes and 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 and exposure under the Letter of
Credit Usage then outstanding as the principal amount of the Notes and 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 and
exposure under the Letter of Credit Usage outstanding prior to such exercise of
banker's lien, setoff or counterclaim; 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 and Guarantors expressly consent to the foregoing arrangements and
agree that any Lender holding a participation in a Note or exposure under the
Letter of Credit Usage 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 or exposure under the Letter of Credit Usage in the amount of such
participation.
SECTION 2.15. Payments and Computations. (a) 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, without set-off or counterclaim. Any amounts
received after such time on any date may, in the discretion of the Agent, be
deemed to have been received on the next succeeding Business Day for purposes of
calculating interest thereon. The Agent shall distribute any such payments
received by it for the account of any other person to the appropriate recipient
promptly following receipt thereof. The Agent may charge, when due and payable,
any of the Borrowers' accounts (including, without limitation, the Borrowers'
Revolving Credit Loan Account) with the Agent for all interest, principal and
Revolving Credit Commitment Fees or other fees owing to the Agent or the Lenders
on or 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
the Borrowers and such related payment is not received by Agent, then Agent will
be
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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 (based on the outstanding balances as of the
close of business on the third Business Day immediately preceding such
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 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 Sections
2.02(d) and 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.
SECTION 2.16. Taxes. (a) Any and all payments by the Borrowers for the
account of the Agent or any Lender hereunder shall be made, in accordance with
Section 2.15 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:
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(i) in the case of the Agent and each Lender (or any transferee or
assignee thereof (any such entity, a "Transferee")), (A) taxes imposed or
based on its net income, and franchise or capital taxes imposed on it
(including withholding with respect to taxes imposed or based on its net
income or with respect to franchise or capital taxes), or (B) taxes payable
under laws (including, without limitation, any treaty, ruling,
determination or regulation) in effect on the date hereof (or in effect on
the date (i) a Transferee becomes a party to this Agreement or (ii) a new
Applicable Lending Office is designated), but not any increase in
withholding tax resulting from any subsequent change in such laws,
(ii) taxes (including withholding taxes) imposed by reason of the
failure of the Agent or any Lender or any Transferee, in each case that is
organized outside the United States, to comply with Section 2.16(f) hereof
(or the inaccuracy at any time of the certificates, documents and other
evidence delivered thereunder), and
(iii) taxes imposed by reason of any connection between the
jurisdiction imposing such tax and the Agent, such Lender or such
Applicable Lending Office, other than a connection arising solely from this
Agreement and the other Loan Documents
(the taxes referred to in the foregoing clauses (i), (ii) and (iii) individually
or collectively being called "Excluded Taxes" and 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
2.16) such Lender or the 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 to the relevant government
authority in accordance with applicable United States law any present or future
stamp or documentary or similar taxes or any other excise or property taxes,
charges or similar levies which arise 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 paid directly by such Lender or the Agent (as the
case may be) and any liability (including penalties, interest and expenses other
than those
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resulting solely from a failure by the Lender or the Agent to pay any Taxes or
Other Taxes which it is required to pay and for which it received an indemnity
payment) 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 shall become aware that it is
entitled to receive a refund in respect of any Taxes or Other Taxes, it shall
promptly notify the Borrowers thereof and shall promptly apply for such refund.
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 promptly
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 2.16 shall survive the
payment in full of principal and interest hereunder.
(f) Each Lender or Transferee that is organized outside of the United
States (a "Non-U.S. Lender") shall deliver to the Borrowers or any Guarantor, as
the case may be, (with copies to the Agent) on the date hereof (or, in the case
of a Transferee, on the date of the assignment) and from time to time as
required for renewal under applicable law duly completed copies of 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 or any subsequent version thereof,
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 Non-U.S. Lender shall promptly notify the Borrowers and the
Agent of any change in its Applicable Lending Office and such Non-U.S. Lender
shall on or before the date such Non-U.S. Lender changes its Applicable Lending
Office, deliver to the Borrowers or such Guarantor, as the case may be (with
copies to the Agent) such forms described in the preceding sentence revised as
necessary to reflect the change in such Non-U.S. Lender's Applicable Lending
Office. 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 2.16(f). If the Agent or a Lender fails to provide a certificate,
document or other evidence required pursuant to this Sec tion 2.16(f), then (i)
the Borrowers shall be entitled to deduct or withhold on payments to
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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 2.16(a) to
the extent such withholding is required 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 Section
2.16 (including, without limitation, changing its Applicable Lending Office,
transferring Loans to an Affiliate and 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, cost 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 2.17. Issuance of Letters of Credit. (a) 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 documentary or
standby letters of credit for the account of the Borrowers (each, a "Domestic
Letter of Credit" and collectively, the "Domestic Letters of Credit") the
aggregate undrawn amount of all outstanding Domestic Letters of Credit not at
any time to exceed $15,000,000 (or a sublimit of $2,000,000 in the case of
Domestic Letters of Credit which are standbys) less the then outstanding face
amount of letters of credit for the account of the Canadian Borrower for which
The Chase Manhattan Bank of Canada is or could be liable under the Lender's
Letters of Guarantee (as that term is defined in the Canadian Credit Agreement);
provided, however, that the Borrowers may not request the Agent to open a
Domestic Letter of Credit if after giving effect thereto (measured by the face
amount of such Domestic Letter of Credit) Availability would be less than zero.
The issuance of each Domestic Letter of Credit shall be made on at least three
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
Domestic Letter of Credit on the Agent's customary form completed to the
satisfaction of the Agent, together with the proposed form of the Domestic
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
Domestic 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 documentary Domestic Letter of Credit shall
not be later than 120 days from the date of issuance thereof and any standby
Domestic Letter of Credit
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shall not be later than one year from the date of issuance thereof (or
succeeding anniversaries if renewable for additional terms), and, in any event,
no Domestic Letter of Credit shall have an expiration date later than thirty
days prior to the Revolving Credit Termination Date. The Domestic Letters of
Credit shall be issued with respect of transactions occurring in the ordinary
course of business of the Borrowers or any of their subsidiaries.
(b) On the Closing Date, and subject to the conditions set forth in Article
V hereof, the Agent shall open a standby letter of credit (the "Canadian Letter
of Credit" which together with the Domestic Letters of Credit are herein
referred to as the "Letters of Credit") for the account of the Borrowers and the
Canadian Borrower in the face amount of $35,000,000 in favor of The Chase
Manhattan Bank of Canada and which may be drawn on by the beneficiary for an
amount not to exceed the lesser of (x) $35,000,000 and (y) the outstanding
obligations of the Canadian Borrower under the Canadian Credit Agreement at the
time of drawing. The Canadian Letter of Credit shall expire no later than the
final maturity date under the Canadian Credit Agreement and be in the form of
Exhibit I annexed hereto.
SECTION 2.18. Payment of Letters of Credit; Reimbursement. Upon the
issuance of any Domestic 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 Domestic 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 Domestic Letter of
Credit equal to such Lender's pro rata (based on its Revolving Credit
Commitment) share of such Domestic Letter of Credit, effective upon the issuance
of such Domestic Letter of Credit. Upon the issuance of the Canadian 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 the Canadian Letter of
Credit equal to such Lender's share (based on its maximum Canadian Letter of
Credit exposure as set forth on Schedule 2.18 annexed hereto) of the Canadian
Letter of Credit. At such time as the Agent shall advise each Lender of its
outstanding balance of Revolving Credit Loans pursuant to Section 2.15(c)
hereof, the Agent will also advise such Lender of its present letter of credit
exposure under the Canadian Letter of Credit and the Domestic Letters 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 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
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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 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 (promptly confirmed in writing) 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 in
accordance with the prior sentence the Lenders shall pay any draft presented
under a Letter of Credit, then the Agent, on behalf of the Lenders, shall charge
the revolving credit loan 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 rate applicable to Alternate Rate Loans
hereunder 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;
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(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
(e) any other circumstance or event whatsoever, whether or not similar
to any of the foregoing that might, but for the provisions of this Section,
constitute legal or equitable discharge of the Borrowers' obligations under
this Section.
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. (a) The Borrowers agree to pay (i) to
the Agent for the account of each Lender a participation fee with respect to its
participations in Domestic Letters of Credit, which shall accrue at a rate per
annum equal to the Interest Margin for Eurodollar Loans from time to time in
effect, minus 1/4 of 1% on the average daily amount of such Lender's pro rata
share of the Domestic Letter of Credit Usage (excluding any portion attributable
to unreimbursed drawings) during the period from and including the Closing Date
to but excluding the later of the date on which such Lender's Revolving Credit
Commitment terminates and the date on which such Lender ceases to have any share
of the Domestic Letter of Credit Usage, and (ii) to the Agent a fronting fee,
which shall accrue at the rate of 1/4 of 1% per annum on the average daily
amount of the Domestic Letter of Credit Usage (excluding any portion
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thereof attributable to unreimbursed drawings) during the period from and
including the Closing Date to but excluding the later of the date of termination
of the Total Revolving Credit Commitment and the date on which there ceases to
be any Domestic Letter of Credit Usage, as well as the Agent's standard fees
with respect to the issuance, amendment, renewal or extension of any Domestic
Letter of Credit or processing of drawings thereunder. Participation fees and
fronting fees accrued through and including the last day of March, June,
September and December of each year shall be payable on the first Business Day
following each such period, commencing July 1, 1997; provided that all such fees
shall be payable on the date on which the Total Revolving Credit Commitment
terminates and any such fees accruing after the date on which the Total
Revolving Credit Commitment terminates shall be payable on demand. Any other
fees payable to the Agent pursuant to this paragraph shall be payable on demand.
All participation fees and fronting fees shall be computed on the basis of a
year of 360 days and shall be payable for the actual number of days elapsed
(including the first day but excluding the last day).
(b) The Borrowers agree to pay (i) to the Agent for the account of each
Lender a participation fee with respect to its participation in the Canadian
Letter of Credit, which shall accrue at a rate per annum equal to the Interest
Margin for Eurodollar Loans from time to time in effect, minus 1/4 of 1% on the
average daily amount of such Lender's pro rata share of the Canadian Letter of
Credit Usage (excluding any portion attributable to unreimbursed drawings)
during the period from and including the Closing Date to but excluding the later
of the date on which such Canadian Letter of Credit is cancelled or drawn upon
and the date on which such Lender ceases to have any share of the Canadian
Letter of Credit Usage, and (ii) to the Agent a fronting fee, which shall accrue
at the rate of 1/4 of 1% per annum on the average daily amount of the Canadian
Letter of Credit Usage (excluding any portion thereof attributable to
unreimbursed drawings) during the period from and including the Closing Date to
but excluding the date of the cancellation of, or drawing under, the Canadian
Letter of Credit, as well as the Agent's standard fees with respect to the
issuance, amendment, renewal or extension of the Canadian Letter of Credit or
processing of a drawing thereunder. Participation fees and fronting fees accrued
through and including the last day of March, June, September and December of
each year shall be payable on the first Business Day following each such period,
commencing July 1, 1997; provided that all such fees shall be payable on the
date on which the Canadian Letter of Credit is cancelled or drawn upon. Any
other fees payable to the Agent pursuant to this paragraph shall be payable on
demand. All participation fees and fronting fees shall be computed on the basis
of a year of 360 days and shall be payable for the actual number of days elapsed
(including the first day but excluding the last day).
(c) The Borrowers shall pay each Lender, through the Agent, on the first
Business Day of each January, April, July and October commencing July 1, 1997
and on the date of the cancellation of , or drawing under, the Canadian Letter
of Credit, in
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immediately available funds, a commitment fee of three eighths of one percent
(3/8 of 1%) per annum on the average daily amount of the difference between such
Lender's maximum Canadian Letter of Credit exposure as set forth on Schedule
2.18 annexed hereto and its pro rata share (based on its maximum Canadian Letter
of Credit exposure as set forth on Schedule 2.18 annexed hereto) of the amount
drawable under the Canadian Letter of Credit to satisfy the obligations of the
Canadian Borrower under the Canadian Credit Agreement, during the preceding
quarter ending immediately prior to such date. The commitment fee due to each
Lender under this Section 2.20(c) shall commence to accrue on the date hereof
and cease to accrue on the earlier of (i) the date of the cancellation of, or
drawing under, the Canadian Letter of Credit and (ii) the date on which such
Lender ceases to have any share of the Canadian Letter of Credit Usage. The
commitment fee shall be calculated on the basis of the actual number of days
elapsed in a year of 360 days.
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, or cause each other
Grantor to 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 Personal Property Security Law 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. Without limiting the foregoing, with respect to the
Security Agreement to be perfected under the applicable laws of Quebec, the
Borrowers shall cause the applicable Grantors to confirm an assignment from The
Chase Manhattan Bank to the Agent or Lenders becoming such after the Closing
Date at such time or from time to time as there shall be another Lender under
this Agreement besides The Chase Manhattan Bank and to provide an opinion of
counsel as to the continued effectiveness of the Lien created thereunder in
favor of the Agent for the benefit of itself and the Lenders or such other
Lenders, all in form 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, registered 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
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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.
IV. REPRESENTATIONS AND WARRANTIES
Each of the Borrowers jointly and severally represents and warrants for
itself and its subsidiaries to each of the Lenders that both before and after
giving effect to the consummation of the Transactions:
SECTION 4.01. Organization, Legal Existence. Each of the Loan Parties and
their 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 the nature of its business
so requires (all such jurisdictions being listed in Schedule 4.01 annexed
hereto) except where the failure to so qualify or be in good standing would not
result in a Material Adverse Effect. Each of the Loan Parties has the corporate
power to execute, deliver and perform its obligations under this Agreement and
the other Loan Documents to which it is a party, and with respect to the
Borrowers to borrow hereunder and to execute and deliver the Notes. Each of the
Inactive Subsidiaries has no material assets or liabilities and is not engaging
in any activity which would be prohibited pursuant to Section 6.19 hereof.
SECTION 4.02. Authorization. The execution, delivery and performance by
each of the Loan Parties 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 Plan of Reorganization
(collectively, the "Transactions") (a) have been duly authorized by all
requisite corporate and, if required, stockholder action on the part of the
applicable Loan Party 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 Loan Parties, or
their respective 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 Loan Parties, or their respective subsidiaries, or (C) any provision of any
material indenture,
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agreement or other instrument to which the Loan Parties, or their respective
subsidiaries, or any of their respective properties or assets are or may be
bound, (ii) 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 except where any
such conflict, violation, breach or default referred to in (i) or (ii) would not
result in a Material Adverse Effect or (iii) result in the creation or
imposition of any Lien of any nature whatsoever (other than in favor of the
Agent, for its own benefit and for the benefit of the Lenders or as permitted
pursuant to Section 7.01) upon any property or assets of the Loan Parties, or
their respective subsidiaries.
SECTION 4.03. Governmental Approvals. No registration or filing with
consent or approval of, or other action by, any Federal, state or other
governmental agency, authority or regulatory body is or will be required in
connection with the Transactions, except for (a) such registrations, filings,
consents, approvals or actions the failure of which to obtain or make would not
have a Material Adverse Effect or (b) such as have been made or obtained or (c)
the filings necessary to perfect the Liens (x) created by the Security Documents
and (y) in favor of the Indenture Trustee as contemplated by the Senior Secured
Note Indenture.
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 by the Borrowers will constitute, a legal, valid and
binding obligation of the applicable Loan Party enforceable against such Loan
Party in accordance with its terms subject (a) as to enforcement of remedies, to
applicable bankruptcy, insolvency, reorganization, moratorium and other similar
laws affecting the enforcement of creditors' rights generally, from time to time
in effect and (b) to general principles of equity.
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 and its subsidiaries
taken as a whole since December 31, 1995.
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 any Borrower, threatened against or affecting any of the
Loan Parties or any of their subsidiaries or the businesses, assets or rights of
any of the Loan Parties or any of their subsidiaries (i) which involve any of
the Transactions or (ii) as to which there is a reasonable likelihood of an
adverse determination and which, if adversely determined, would, individually or
in the aggregate, materially impair the ability of any of the Loan Parties or
any of their subsidiaries to conduct business substantially as now conducted, or
result in a Material Adverse Effect.
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(b) Except as set forth in Schedule 4.06(b) annexed hereto, no Loan Parties
or 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 where such violation or default would
result in a Material Adverse Effect.
SECTION 4.07. Financial Statements. (a) The Borrowers have heretofore
furnished to the Agent Consolidated balance sheets and statements of income and
cash flows of the Parent (i) dated as of December 31, 1995 and audited by and
accompanied by the opinion of independent public accountants, (ii) dated as of
September 30, 1996 and December 31, 1996 for the nine month and twelve month
periods then ended and prepared by management and (iii) dated as of January 31,
1997 for the one month period then ended and prepared by management. Such
balance sheets and statements of income and cash flows present fairly in all
material respects the Consolidated financial condition and results of operations
of the Parent and its Consolidated subsidiaries as of the dates and for the
periods indicated, and such audited balance sheets and the notes thereto
disclose all material liabilities, direct or contingent, of the Parent and its
subsidiaries, as of the dates thereof.
(b) The Borrowers have heretofore furnished to the Agent projected income
statements, balance sheets and cash flows of the Parent on a Consolidated basis
dated November 6, 1996 for a five year period, as supplemented on March 3, 1997,
together with projected monthly Borrowing Bases for 1997, such projections
disclosing all material assumptions made by Borrowers in formulating such
projections and giving effect to the Transactions. The projections are based
upon estimates and assumptions, all of which were believed by management to be
reasonable in light of the conditions which existed at the time the projections
were made and have been prepared on the basis of the assumptions stated therein.
(c) The Borrowers have heretofore furnished to the Agent a Consolidated and
consolidating pro forma balance sheet of the Parent and which sets forth
information before and after giving effect to the Transactions.
(d) The financial statements referred to in this Section 4.07 have been
prepared in accordance with GAAP, except that the unaudited statements do not
contain footnotes and are subject to year-end audit adjustments.
SECTION 4.08. Federal Reserve Regulations. (a) No Loan Parties or
subsidiary thereof are 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
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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, and if
required by applicable law, 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.
SECTION 4.09. Taxes. The Loan Parties and each of their respective
subsidiaries has filed or caused to be filed all material Federal, state, local
and foreign tax returns which are required to be filed by it, on or prior to the
date hereof. Each of the Loan Parties and each of their subsidiaries have 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, in writing, except as permitted by Section
6.04, except to the extent that the nonpayment of such taxes would not result in
a Material Adverse Effect and except for certain federal taxes being paid on a
six year installment basis, with interest, pursuant to the Plan of
Reorganization. As of the Closing Date except as set forth on Schedule 4.09
annexed hereto, no Federal income tax returns of any Loan Parties or any of
their subsidiaries have been audited by the United States Internal Revenue
Service or Revenue Canada and no Loan Parties or subsidiary thereof have as of
the date hereof requested or been granted any extension of time to file any
Federal, state, local or foreign tax return. Except as set forth on Schedule
4.09 annexed hereto, none of the Loan Parties or their subsidiaries are party to
or have any obligation under any tax sharing agreement.
SECTION 4.10. Employee Benefit Plans. (a) Except where the incorrectness of
any of the following will not have a Material Adverse Effect:
(i) No Reportable Event has occurred or is continuing with respect to any
Pension Plan.
(ii) 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 Loan Parties or any ERISA Affiliate is obligated to
contribute to a Pension Plan or a Multiemployer Plan. None of the Loan Parties
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 Loan Parties, any subsidiary
or any ERISA Affiliate made contributions, (D) incurred or caused to occur a
"complete withdrawal" (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
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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 Borrowers 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.
(viii)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
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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.
(b) All Canadian Pension Plans comply currently, and have complied in the
past, in all material respects, both as to form and operation, with their terms
and the provisions of all applicable laws, rules and regulations; all necessary
governmental approvals have been obtained which are material to each subsidiary
in respect to the operation of its Canadian Pension Plans; no notice of intent
to terminate any Canadian Pension Plan has been filed or given by any party or
governmental body; no event has occurred or condition exists which might
constitute grounds for termination of any Canadian Pension Plan which
termination would result in a Material Adverse Effect with respect to the
applicable subsidiary or that might result in the incurrence by any Canadian
subsidiary of a Borrower of any material liability, fine or penalty; and no
actions, suits or claims are pending or reasonably expected to be asserted
against any Canadian Pension Plan or the assets of any Canadian Pension Plan.
SECTION 4.11. No Material Misstatements. The information, reports,
financial statements, exhibits or schedules, taken as a whole, furnished by or
on behalf of the Loan Parties 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, do not contain any material
misstatement of fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading in any material respect; provided, however, that to the
extent any such information, report, financial statement, exhibit or schedule
was based upon or constitutes a forecast or projection, each of the Borrowers
represents only that it acted in good faith and used reasonable assumptions in
the preparation of such information, report, financial statement, exhibit or
schedule.
SECTION 4.12. Investment Company Act; Public Utility Holding Company Act.
No Loan Parties or subsidiary thereof is an "investment company" as defined in,
or is otherwise subject to regulation under, the Investment Company Act of 1940
or the Investment Companies Act, Canada. No Loan Parties or 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. Upon the due filing of UCC-1 financing
statements or comparable documents under the Personal Property Security Law, the
recording of the Mortgages in the applicable recording offices, the delivery of
the Collateral under the Pledge Agreement and the filing of assignments for
security with the United States Patent and Trademark Office or comparable office
under the Personal Property Security Act, each of the Security Documents creates
and grants to the Agent, for its own benefit and for the benefit of the Lenders,
a legal, valid and perfected first priority (except as permitted pursuant to
Section 7.01 hereof) Lien in the
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collateral identified therein to the extent a Lien can be perfected in such
Collateral by the taking of the foregoing actions. 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 payments to be
made pursuant to the Plan of Reorganization.
(b) All proceeds of each borrowing under the Revolving Credit Commitment on
the Closing Date, if any, shall be used to partially finance the payments to be
made pursuant to the Plan of Reorganization and to provide for working capital
requirements and for general corporate purposes of the Borrowers. All proceeds
of each subsequent borrowing under the Revolving Credit Commitment after the
Closing Date shall be used to provide for working capital requirements and for
general corporate purposes (including payment of interest on the Senior Secured
Notes to the extent not prohibited by Section 7.15) 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 and, in addition, similar information with respect to CCM.
SECTION 4.16. Title to Properties; Possession Under Leases; Trademarks. (a)
Each of the Loan Parties and each subsidiary has good 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 have been disposed of in the ordinary course of business or as
permitted by this Agreement, and except where lack of title or a valid leasehold
interest dos not materially interfere with the ability of any of the Loan
Parties or any subsidiary thereof to conduct its business as now conducted. All
interests of such persons in such assets and properties are free and clear of
all Liens other than those permitted by Section 7.01 hereof.
(b) Except as disclosed in Schedule 4.16 hereto, each of the Loan Parties
and each of their subsidiaries has complied with all material obligations under
all material 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 each of the Loan Parties
and each of their subsidiaries enjoys peaceful and undisturbed possession under
all such material leases.
(c) Each of the Loan Parties and each of their respective 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 such Loan Parties and such subsidiary. To its
knowledge,
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no Loan Parties or 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. Except as set forth on Schedule 4.06(a) annexed hereto, there is no
claim or action by any such other person pending, or to the knowledge of any
Responsible Officer of any of the Loan Parties or any subsidiary thereof,
threatened, against any of the Loan Parties or any subsidiary thereof with
respect to any of the rights or property referred to in this Section 4.16(c).
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.
(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).
(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).
SECTION 4.18. Permits, etc. Each of the Loan Parties and each of their
subsidiaries possesses all licenses, permits, approvals and consents, including,
without limitation, all environmental, health and safety licenses, permits,
approvals and consents of all Federal, state and local governmental authorities
except where failure does not materially interfere with the ability of such Loan
Party or subsidiary to conduct its business as currently conducted ("Permits"),
each such Permit is and will be in full force and effect, each of the Loan
Parties 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.
SECTION 4.19. Compliance with Environmental Laws. Except as disclosed in
Schedule 4.19 hereto: (i) the operations of the Loan Parties and their
subsidiaries comply with all applicable Environmental Laws except for any such
non-
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compliance which would not have a Material Adverse Effect; (ii) the Loan Parties
and their subsidiaries and all of their present facilities or operations, as
well as to the knowledge of the Loan Parties and their 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
Loan Parties and their 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 in each
case which would have a Material Adverse Effect; (iv) none of the Loan Parties
or any subsidiaries of the Loan Parties nor any predecessor of any of the Loan
Parties or any subsidiary of any Loan Parties 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 in each case which would have a Material Adverse Effect; (v) none of
the Loan Parties or their subsidiaries has been notified that it has any
material liability in connection with any Release of any Contaminant into the
environment in each case which would have a Material Adverse Effect; (vi) none
of the operations of the Loan Parties or their subsidiaries involve the
generation, transportation, treatment or disposal of Hazardous Materials in
violation of Environmental Law in each case which would have a Material Adverse
Effect; (vii) neither the Loan Parties nor their 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 Loan Parties
and their subsidiaries neither has any lessee, prior owner, or other person in
each case which would have a Material Adverse Effect; (viii) no underground
storage tanks or surface impoundments are on any property of the Loan Parties
and their subsidiaries, in each case the result of which would have a Material
Adverse Effect; and (ix) to the best of the knowledge of the Loan Parties and
their subsidiaries, 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 Loan Parties 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 Receivables Grantors since December 31, 1995.
SECTION 4.21. Employee Matters. Except as disclosed in Schedule 4.21
hereto, (a) neither the Loan Parties nor any of their subsidiaries nor any of
such person's employees are subject to any collective bargaining agreement, (b)
to the knowledge of the Borrowers, no petition for certification or union
election is pending with respect to the employees of the Loan Parties or any of
their subsidiaries and no union or collective bargaining unit has sought such
certification or recognition with
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respect to the employees of the Loan Parties or any of their subsidiaries and
(c) there are no strikes, slowdowns, work stoppages or controversies pending or,
to the knowledge of Borrowers threatened between the Loan Parties or any of
their respective subsidiaries and their respective employees, other than
employee grievances arising in the ordinary course of business none of which
would have, either individually or in the aggregate, a Material Adverse Effect.
The Loan Parties are in compliance with all employment laws applicable to each
of such Loan Parties except where the failure to so comply would not have a
Material Adverse Effect.
V. CONDITIONS OF CREDIT EVENTS
The obligation of each Lender to make Loans and extend other Credits
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 as required by
Section 2.03 hereof or a request for the issuance of a Letter of Credit
pursuant to Section 2.17 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 of the Borrowers 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.
(d) The Agent shall have received a certificate signed by the
Financial Officer of each of the Borrowers (i) as to the compliance with
(b) and (c) above and (ii) with respect to each Revolving Credit Loan and
each Domestic Letter of Credit, demonstrating that after giving effect
thereto the Availability is zero or greater.
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:
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(a) The Lenders shall have received the favorable written opinion 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 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 in the case of
the Parent, a Responsible Officer), Provincial Registrar 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, 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 resolutions described in
item (B) below, (B) that attached thereto is a true and complete copy of
resolutions 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 resolutions have 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
have not been amended since the date of the last amendment thereto shown on
the certificate of good standing furnished pursuant to (i) above (or in the
case of a person organized under the Federal or state laws of Canada, since
the date of the certified articles of incorporation 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 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, the Mortgages together with title insurance (or, as
appropriate,
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title opinions) in form, scope and amount satisfactory in all respects to
the Agent and certificates evidencing the Pledged Stock, together with
undated stock powers executed in blank, each duly executed by the
applicable Grantors.
(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 (or similar service in Canada), listing
all effective financing statements which name as debtor any Borrower, any
Guarantor or any Grantor and which are filed in the appropriate offices in
the states or other applicable jurisdictions in which are located the chief
executive office and other operating offices of such person, together with
copies of such financing statements or of the security agreements to which
such filings relate. 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 or statement under the Personal
Property Security Law) required by law or reasonably requested by the Agent
to be filed, registered or recorded in order to create in favor of the
Agent for its own benefit and for the benefit of the Lenders a first
priority perfected Lien in the Collateral (subject to the Liens permitted
by Section 7.01) shall 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 or Personal
Property Security Law or comparable filings made with respect to each of
the Borrowers and each Grantor in the jurisdictions in which the Borrowers
are doing business and/or in which any Collateral is located, and in which
Uniform Commercial Code or Personal Property Security Law 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:
(i) the most recent (dated within seven (7) days of the Closing
Date) schedule and aging of accounts receivable and inventory
designations of the Borrowers;
(ii) evidence that the Borrowers have combined availability (that
is, the sum of (x) Availability and (y) availability under the
Canadian Credit Agreement) after giving effect to both the Revolving
Credit Loans made
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on the Closing Date and extensions of credit under the Canadian Credit
Agreement on the Closing Date of not less than $16,000,000;
(iii) evidence that there has been entered a final non-appealable
order of confirmation consistent with the Plan of Reorganization and
that unless waived by the Agent all conditions precedent to the
effectiveness of the Plan of Reorganization have been satisfied;
(iv) a copy of a field examination of the Borrowers' books and
records;
(v) evidence of the compliance by the Borrowers with Sec tion
6.03 hereof;
(vi) the financial statements described in Section 4.07 hereof,
together with a draft of the audited financial statements for the
Fiscal Year ended December 31, 1996;
(vii) evidence that the Transactions are in material compliance
with all material applicable laws and regulations;
(viii)the Guarantees (Canadian) and the Guarantee of the
Obligations by Trademark U.S.;
(ix) evidence of payment of all fees owed to the Agent and the
Lenders by the Borrowers under this Agreement, the Commitment Letter
or otherwise;
(x) 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;
(xi) copies of all major customer, supplier contracts and
employment agreements with respect to each Borrower;
(xii) except as set forth in Schedule 4.05 annexed hereto,
evidence that there has been no material adverse change in the
business, assets, operations or financial condition of the Parent and
subsidiaries since December 31, 1995;
(xiii)evidence of the repayment in full of exiting credit
arrangements and the termination of all commitments to lend
thereunder, and the termination of all security interests securing
such indebtedness as
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required under paragraph (f) above, all as set forth in the Plan of
Reorganization; and
(xiv) evidence that except as disclosed in the schedule delivered
pursuant to (k)(i) below 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 to the knowledge
of the Loan Parties threatened against or affecting any of the Loan
Parties or any subsidiary thereof or any of their respective
businesses, assets or rights which involve any of the Transactions.
(j) The Agent and the Lenders shall have had the opportunity, if they
so choose, to examine 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 examination and audit shall have been
satisfactory to the Agent and Lenders in all material 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) a schedule of disputed claims relating to the Plan of
Reorganization and an analysis of the expected disposition thereof;
(ii) copies of all real property lease agreements entered into by
any of the Borrowers and Guarantors, together with appropriate
landlord and/or mortgagee waivers or rent escrow arrangements with the
Agent (covering at least six months rent); and
(iii) copies of all loan agreements, notes and other
documentation evidencing Indebtedness for borrowed money of any of the
Borrowers, their subsidiaries, Grantors or Guarantors which is to
remain outstanding pursuant to the Plan of Reorganization, including
the Senior Secured Notes.
(l) Messrs. Kaye, Scholer, Fierman, Hays & Handler, LLP, counsel to
the Agent, and Canadian counsel retained by the Agent, shall have received
payment in full for all reasonable legal fees charged, and all reasonable
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.
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(m) The Agent shall have entered into the Intercreditor Agreement with
the Indenture Trustee on behalf of holders of the Senior Secured Notes in
form and substance satisfactory to it.
(n) The corporate structure and capitalization of the Loan Parties
shall be satisfactory to the Lenders in all material respects, including,
without limitation, that the Investor Group own at least 38% of the
aggregate ordinary voting power represented by the issued and outstanding
stock of the Parent.
(o) All legal matters in connection with the Transactions shall be
satisfactory to the Agent, the Lenders and their respective counsel in
their sole discretion.
(p) 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.
(q) The Receivables Grantors and the Agent (or another financial
institution acceptable to the Agent) shall have entered into lockbox and
cash management arrangements pursuant to documentation satisfactory in form
and substance to the Agent.
(r) The closing shall have occurred under the Canadian Credit
Agreement.
(s) The transfer of all assets and liabilities and the capital stock
of St. Lawrence Manufacturing Canada Inc. to the Canadian Borrower shall
have been completed to the satisfaction of the Agent.
(t) Environmental audits, appraisals on real property subject to the
Mortgages and appraisals of personal property, all in form and substance
satisfactory to the Agent shall have been completed.
(u) Each subsidiary which was incorporated under the laws of Canada
shall have reincorporated under the laws of New Brunswick and the Agent
shall have received satisfactory evidence of such reincorporation.
(v) The Agent shall have received such other documents as the Lenders
or the Agent or Agent's counsel shall reasonably deem necessary.
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VI. AFFIRMATIVE COVENANTS
Each of the Borrowers 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 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 except
as otherwise permitted by Section 7.05.
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 other than the dissolution
of the Inactive Subsidiaries; maintain and operate such businesses in the same
general manner in which they are presently conducted and operated; comply in all
material respects with all applicable laws, rules, regulations and governmental
orders (whether Federal, state or local in all applicable jurisdictions)
applicable to the operation of such businesses whether now in effect or
hereafter enacted (including, without limitation, all applicable laws, rules,
regulations and governmental orders relating to employment matters, 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 of any of which would have a Material Adverse Effect; 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 (reasonable wear and tear excepted) 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 in all material
respects 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 and against such risks, including fire 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, and in no event at any time in an amount less than the replacement value
of the Collateral, (c) maintain in full force and effect public liability
insurance against claims for bodily 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 Borrowers or any of their subsidiaries, as is customary
with companies similarly situated and in the same or similar businesses, (d)
maintain business interruption and
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product liability insurance to such extent as is customary with companies
similarly situated and in the same or similar businesses, and (e) 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 its own benefit and 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; provided, however, that such payment and
discharge shall not be required with respect to (i) any such tax, assessment,
charge, levy or claim so long as the validity or amount thereof shall be
contested in good faith by appropriate proceedings and the applicable party,
shall have set aside on its books adequate reserves with respect thereto in
accordance with GAAP and such contest operates to suspend collection of the
contested tax, assessment, charge, levy or claims and enforcement of a Lien or
(ii) any tax, assessment, charge, levy or claims, the failure to pay and
discharge when due which, individually or in the aggregate would not have a
Material Adverse Effect.
SECTION 6.05. Financial Statements, Reports, Etc. Furnish to the Agent,
with copies for each of the Lenders:
(a) within 90 days (or no later than April 15, 1997 in the case of the
1996 Fiscal Year) after the end of each Fiscal Year (except that for the
1997 Fiscal Year such period shall be from the Closing Date through
December 31, 1997), (i) Consolidated and consolidating balance sheets and
Consolidated and consolidating income statements showing the Consolidated
financial condition of the Parent and its Consolidated subsidiaries as of
the close of such Fiscal Year and the results of their Consolidated
operations during such year, (ii) a Consolidated and consolidating
statement of shareholders' equity, and (iii) 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 comparative figures
need not be presented for the 1997 Fiscal Year), all the foregoing
Consolidated financial statements to be audited by a "Big 6" accounting
firm or any other independent public accountants acceptable to the Agent
and accompanied by an opinion of such accountants (which opinion shall not
contain any qualification with respect to a departure from GAAP or a
limitation on the scope of the auditor's engagement), and to be in form and
substance acceptable to the Agent;
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(b) within 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 Consolidated financial condition and results of operations of the
Parent and its Consolidated subsidiaries as of the end of each such quarter
and during 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 (h) below and to the results for the
comparable period during the immediately preceding Fiscal Year, in each
case prepared and certified by the Financial Officer of the Parent as
presenting fairly in all material respects the Consolidated financial
condition and results of operations of the Parent and its Consolidated
subsidiaries and as having been prepared in accordance with GAAP (except
the absence of footnote disclosure), in each case subject to normal
year-end audit adjustments;
(c) within 30 days (or by April 15, 1997 in the case of February 1997)
(or forty-five days for the month of December only) after the end of each
month (i) unaudited Consolidated and consolidating balance sheets and
income statements showing the Consolidated financial condition and results
of operations of the Parent and its Consolidated subsidiaries as of the end
of each such month and during such month, (ii) a Consolidated and
consolidating statement of shareholders' equity and (iii) a Consolidated
and consolidating 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 (h) below and to the results for
the comparable period during the immediately preceding Fiscal Year,
prepared and certified by the Financial Officer of the Borrowers as
presenting fairly in all material respects the Consolidated financial
condition and results of operations of the Borrowers and their Consolidated
subsidiaries and as having been prepared in accordance with GAAP (except
the absence of footnote disclosures), in each case subject to normal
year-end audit adjustments;
(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
(or any like commission in Canada) pursuant to the requirements of
applicable securities legislation, including the Securities Act of 1933 or
the Securities Exchange Act of 1934;
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(e) (i) concurrently with any delivery under (a) or (b) 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 each of
the Borrowers, 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 7.07, 7.08 and 7.09 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 certificate, in the case of the
certificate 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 certify
that to the best of such accountants' knowledge, as of the dates of the
financial statements being furnished no Default or Event of Default has
occurred under any of the covenants set forth in Sections 7.07, 7.08 and
7.09 hereof (such certificate to include calculations demonstrating
compliance with such covenants) 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 shall in
addition certify that in the course of preparing the audit and the
certificate referred to herein, such accountants have not become aware of
the occurrence of any other Default or Event of Default and, if such a
Default or Event of Default has occurred, specifying the nature thereof;
provided, however, that any certificate delivered concurrently with (a)
above shall be accompanied by a supplemental certificate confirming the
accuracy of the accountants' certificate and signed by each of the
Financial Officers of the Borrowers;
(f) concurrently with any delivery under (a) above, 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 any Borrowers and their
subsidiaries;
(g) within 20 days of the end of each fiscal month, an aging schedule
of the Receivables of each Receivables Grantor in the form of the aging
schedule of Receivables dated February 28, 1997 previously furnished to the
Agent and a certificate executed by the Financial Officer of the Borrowers
with respect to inventory designations;
(h) prior to the beginning of each Fiscal Year, a summary of business
plans and financial projections (including, without limitation, with
respect to Capital Expenditures) for the Borrowers and their respective
subsidiaries for such Fiscal Year (including monthly Consolidated and
consolidating balance sheets, statements of income and of cash flow) and
annual projections through the next two Fiscal Years thereafter prepared by
management and in form and
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detail (including, without limitation, principal assumptions, projected
Borrowing Bases and projected covenant compliance) satisfactory to the
Required Lenders;
(i) as soon as practicable, copies of all reports, forms, filings,
loan documents and financial information submitted to governmental agencies
and/or its shareholders;
(j) within 3 Business Days after the end of each week (but no later
than Wednesday), a certificate, substantially in the form of Schedule
6.05(j) hereto, executed by the Financial Officer of the Borrowers
demonstrating compliance as at the end of each week with the Availability
requirements; and
(k) 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, 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 any Borrowers or any of their 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 there is
a reasonable likelihood of an adverse determination and which, if adversely
determined, could reasonably be expected, individually or in the aggregate,
to materially impair the ability of any of the Loan Parties to conduct
business substantially as now conducted, or result in a Material Adverse
Effect, or (B) materially impair the right of any Borrowers or a subsidiary
thereof to perform its obligations under this Agreement, any Note or any
other Loan Document to which it is a party;
(c) immediately upon becoming aware thereof, notice to the Agent of
the breach by any party of any material agreement with any of the Loan
Parties;
(d) any Default or Event of Default, specifying the nature and extent
thereof and the action (if any) taken or which is proposed to be taken with
respect thereto;
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(e) immediately upon becoming aware thereof, notice to the Agent of
any loss or destruction of, or substantial damage to, any material portion
of the Collateral, and any other matters materially affecting the value,
enforceability or collectibility of any material portion of the Collateral;
and
(f) any development in the business or affairs of any Borrowers or any
of their subsidiaries which has had or which could reasonably be expected
to have a Material Adverse Effect.
SECTION 6.07. ERISA and Canadian Pension Plans. (a) Pay and discharge
promptly any material liability imposed upon it pursuant to the provisions of
Title IV of ERISA; provided, however, that neither the Borrowers 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 5 days, after
(i) the occurrence of any Reportable Event, a copy of the materials that are
filed with the PBGC, (ii) any Borrower 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 any Borrower 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) upon request, 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) any Borrower 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
any Borrower 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) any Borrower 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) any
Borrowers 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 Officer
setting forth details as to such Reportable
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Event, notice, event or condition and the action which such Borrower or such
ERISA Affiliate proposes to take with respect thereto.
(c) Make any contribution required to be made by it under any Canadian
Pension Plan and immediately give notice to the Agent of any material change to
any such Canadian Pension Plan or of any action or proceeding, commenced or
threatened, in respect of such Canadian Pension Plan that would result in a
material liability to any Loan Party.
SECTION 6.08. Maintaining Records; Access to Properties and Inspections;
Right to Audit. 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 the Agent may request, permit any authorized
representative designated by the Agent to visit and inspect the properties and
financial records of the Borrowers and their subsidiaries and to make extracts
from such financial records at the Agent's expense, and permit any authorized
representative designated by the Agent to discuss the affairs, finances and
condition of the Borrowers and their subsidiaries with the appropriate Financial
Officer and such other officers as the Borrowers shall deem appropriate and the
Borrowers' independent public accountants, as applicable. The Agent agrees that
it shall schedule any meeting with any such independent public accountant
through the Borrowers and a Responsible Officer of one or more Borrowers shall
have the right to be present at any such meeting. Any Lender may accompany the
Agent on any visit and inspection and participate in any discussion and upon the
occurrence and continuance of an Event of Default any Lender in its own right
may visit and inspect to the same extent and on the same terms as the Agent, all
expenses of the Agent or any Lender after the occurrence and continuance of an
Event of Default to be paid by the Borrowers. At the Borrowers' expense, the
Agent shall have the right to audit, as often as it may request, the existence
and condition of the accounts receivables, inventory, books and records of the
Borrowers and their subsidiaries and to review their compliance with the terms
and conditions of this Agreement and the other Loan Documents. In addition, at
the Borrowers' expense the Agent may on two occasions in the 1997 Fiscal Year
and once in each subsequent Fiscal Year retain an outside inventory appraisal
firm to conduct an appraisal of Borrowers', and their subsidiaries', inventory;
provided, however, upon the occurrence and continuance of an Event of Default,
the Agent may retain such appraisers at the Borrowers' expense without
restriction.
SECTION 6.09. Use of Proceeds. Use the proceeds of the Credits only for the
purposes set forth in Section 2.17 and Section 4.14 hereof.
SECTION 6.10. Fiscal Year-End. Cause its Fiscal Year to end on December 31
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 (subject to the Liens permitted by Section
7.01) 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 (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 of the
Obligations 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 pursuant to the Security Agreement.
SECTION 6.13. Environmental Laws. (a) Comply, and cause each of their
subsidiaries or tenants or other licensed users of their properties 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 except where any non-compliance
or Lien would not result in a Material Adverse Effect. The Borrowers shall not
cause or suffer or permit, and shall not suffer or permit any of their
subsidiaries to cause or suffer or permit, the property of the Borrowers or
their subsidiaries to be used for the generation, production, processing,
handling, storage, transporting or disposal of any Hazardous Material, except
for Hazardous Materials used, generated, produced, processed, handled, stored,
transported or disposed of in the ordinary course of business of the Borrowers
and their subsidiaries or in connection with any investigation or remediation of
any applicable property, in which case such Hazardous Materials shall be used,
stored, generated, treated and disposed of only in compliance with Environmental
Law except where any non-compliance would not result in a Material Adverse
Effect.
(b) Supply to the Agent copies of all Permits and all submissions by the
Borrowers or any of their 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 friable asbestos, soil, or subsurface or other materials or conditions) that
may be conducted or performed (by or on behalf of the Borrowers or any of their
subsidiaries) on or regarding the properties owned, operated, leased or occupied
by the Borrowers or any of their subsidiaries or regarding any conditions that
might have been affected by Hazardous Materials on or Released or removed from
such properties in each case that relate to matters that would have a Material
Adverse Effect. The Borrowers shall also permit and authorize, and shall cause
their subsidiaries to permit and authorize, the consultants, attorneys or other
persons that prepare such submissions or reports or perform such audits, tests,
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studies or assessments to discuss such submissions, reports or audits with the
Agent and the Lenders.
(c) Promptly (and in no event more than five Business Days after the
Borrowers become aware or are otherwise informed of such event) provide oral and
written notice to the Agent upon the happening of any of the following:
(i) any Borrower, any subsidiary of any Borrower, or any tenant or
other occupant of any property of such Borrower or such subsidiary receives
written notice of any claim, complaint, charge or notice of a violation or
potential violation of any Environmental Law that would have a Material
Adverse Effect;
(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 any Borrower or any subsidiary of any Borrower in
amounts that are required to be reported under Environmental Law, or
Hazardous Materials at levels or in amounts that are required to be
reported, remedied or responded to under Environmental Law are detected on
or in the soil or groundwater in each case which would have a Material
Adverse Effect;
(iii) any Borrower or any subsidiary of any Borrower is or may be
liable for any costs of cleaning up or otherwise remedying a Release of
Hazardous Materials that would have a Material Adverse Effect;
(iv) any part of the properties owned, operated, leased or occupied by
any Borrower or any subsidiary of any Borrower are subject to a Lien under
any Environmental Law that would have a Material Adverse Effect; or
(v) any Borrower or any subsidiary of any Borrower undertakes any
Remedial Work with respect to any Hazardous Materials that would have a
Material Adverse Effect.
(d) Without in any way limiting the scope of Section 11.04(c) and in
addition to any obligations thereunder, each of the Borrowers 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 governmental body or any third
person arising under any Environmental Law or under tort, contract or common law
except to the extent such liability, loss, damage, suit, action or proceeding
arises out of the gross negligence or wilful misconduct of any Lender, the Agent
or any of their authorized representatives. To the extent laws of the
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United States, Canada or any applicable state or local law in which property
owned, operated, leased or occupied by any Borrower or any subsidiary of any
Borrower are located provide 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, no later than sixty days after notice that a
Release has occurred is given by the Agent to such Borrower or such subsidiary,
such Borrower or such subsidiary shall take appropriate action with respect to
the Release. To the extent any Hazardous Materials located in or under a
specific property either results in the imposition of a Lien on the property or
would cause a Material Adverse Effect to occur, the remediation thereof shall be
an affirmative covenant of the Borrowers hereunder.
(e) In the event that any Remedial Work is required to be performed by any
Borrower or any subsidiary of any Borrower under any applicable Environmental
Law, any judicial order, or by any governmental entity, such Borrower 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 judicial orders; provided, however, that such Remedial Work shall not be
required so long as it shall be contested in good faith by appropriate
proceedings and the applicable party shall have set aside on its books adequate
reserves with respect thereto in accordance with GAAP and such contest operates
to suspend any requirement that such Remedial Work be performed.
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) 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) and in each of the
other Loan Documents, all at the times and places and in the manner set forth
therein, subject to applicable cure and grace periods, 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 with the Agent or with (x)The Chase
Manhattan Bank of Canada or (y) any of the chartered banks of Canada or other
financial institution approved by the Agent and on terms (which shall include
obtaining blocked account agreements) satisfactory to the Agent in its sole
discretion.
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SECTION 6.16. Additional Pledge and Surveys. (a) No later than June 30,
1997, pledge the stock of Sport Maska Europe S.A.R.L. to the Agent for the
ratable benefit of the Lenders by agreements in form and substance satisfactory
to the Agent.
(b) No later than June 30, 1997, deliver to the Agent surveys of each of
the premises subject to the Mortgages together with amendments to title policies
in form and substance satisfactory to the Agent.
SECTION 6.17. NHL Agreements. Maintain the license agreements with National
Hockey League Enterprises, Inc., its Canadian counterpart and their affiliates
and renew each of such license agreements on the same or similar terms or on
terms which are consistent with those of other licensees of National Hockey
League Enterprises, Inc., its Canadian counterpart and their affiliates for
similar products in similar markets.
SECTION 6.18. CCM. Cause Trademark Canada to take all actions necessary to
maintain compliance with the shareholders' agreement between Trademark Canada
and Gestion Pro Velo Inc. as in effect on the date hereof with respect to the
operations of CCM and cause each of the applicable Loan Parties to maintain in
effect the license and sublicense agreements between and among CCM and such Loan
Parties.
SECTION 6.19. Inactive Subsidiaries. Cause (i) each Inactive Subsidiary to
dissolve and (ii) #1 Apparel Canada Inc. to transfer all of its assets and
liabilities to the Canadian Borrower and dissolve no later than June 30, 1997
(in each case providing the Agent with satisfactory evidence of such dissolution
or transfer, as applicable); and cause each Inactive Subsidiary and #1 Apparel
Canada after it has transferred its assets and liabilities to engage in no
activities (including, without limitation, incurring of Liens on Indebtedness,
acquiring assets or making investments) other than those reasonably required to
complete dissolution.
VII. NEGATIVE COVENANTS
Each of the Borrowers 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 shall be unpaid, it will not and will not cause or
permit any of their subsidiaries and, in the case of Section 7.13 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),
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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 or similar laws (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 compliance with Section 6.04;
(c) Liens securing the payment of taxes, assessments and governmental
charges or levies, that are not delinquent or are being diligently
contested in compliance with Section 6.04;
(d) zoning restrictions, easements, rights of way licenses, flowage
rights, reservations, provisions, covenants, conditions, waivers,
restrictions on the use of property or minor defects or irregularities of
title and similar encumbrances (and with respect to leasehold interests,
mortgages, obligations, liens and other encumbrances incurred, created,
assumed or permitted to exist and arising by, through or under a landlord
or owner of the leased property, with or without consent of the lessee)
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) purchase money Liens granted in connection with the incurrence of
Indebtedness permitted by Section 7.03(vi) hereof, to the vendor or person
financing the construction or acquisition of property, plant or equipment,
provided that (i) such Lien is limited to the particular assets constructed
or acquired, (ii) the debt secured by the Lien does not exceed the amount
financed for the construction or acquisition cost (including transaction
costs and indemnities customarily secured by a Lien of such type) of the
specific assets on which the Lien is granted, (iii) such Lien arises and
the Indebtedness secured thereby is created within 120 days of the
completion of such construction or of such acquisition or are incurred to
extend, renew or refinance such Liens and Indebtedness incurred within such
120-day period and (iv) such transaction does not otherwise violate this
Agreement;
(f) Liens junior to the Obligations securing the Senior Secured Notes
and the guaranties in respect thereof so long as they are subject to the
Intercreditor Agreement and any Permitted Refinancing thereof;
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(g) Liens existing on the date of this Agreement and set forth in
Schedule 7.01 annexed hereto but not the extension, renewal or refunding of
the Indebtedness secured thereby;
(h) Liens created in favor of the Agent for for its own benefit and
the benefit of the Lenders pursuant to the Loan Documents or created
pursuant to Canadian Credit Agreement;
(i) Liens and deposits securing the performance of bids, tenders,
leases, contracts (other than for the repayment of borrowed money),
statutory obligations, surety, customs and appeal bonds, performance bonds
and other obligations of like nature, incurred as an incident to and in the
ordinary course of business;
(j) judgment Liens securing judgments and decrees, which would not
constitute an Event of Default under paragraph (j) of Article VIII;
(k) warrants being issued under the Plan of Reorganization or stock
options issued pursuant to stock option plans;
(l) option of other shareholder of CCM;
(m) UCC or Personal Property Security Law filings made for
informational purposes by, or Liens created in connection with the leasing
of any property from, lessors of property to a Borrower, a Guarantor or any
subsidiary thereof;
(n) Liens in favor of customs and revenue authorities to secure the
payment of custom duties in connection with the importation of goods in the
ordinary course of business;
(o) Liens on property prior to the acquisition thereof by a Borrower,
a Guarantor or any subsidiary thereof, provided that such Lien is not
created in contemplation of or in connection with such acquisition, such
Lien does not apply to any other property and such Lien does not materially
interfere with the use, occupancy and operation of any property, materially
reduce the fair market value of such property but for such Lien or result
in any material increase in the cost of operating, occupying or owning (or
leasing) such property; or
(p) Liens that arise automatically under Environmental Laws provided
that the Borrowers are in compliance with Section 6.13 and any such Lien
would not have a Material Adverse Effect.
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SECTION 7.02. Sale and Lease-Back Transactions. Enter into any arrangement,
directly or indirectly, with any person whereby any Borrower or any of their
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 Borrowers or such
subsidiary intends to use for substantially the same purpose or purposes as the
property being sold or transferred except for sale and lease-back transactions
which would otherwise be in compliance with Sections 7.01, 7.03 and 7.08.
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, renewal or refunding thereof, (iii) Indebtedness incurred
hereunder, including without limitation the Guarantees (Canadian) and the
Guarantee of Trademark U.S., (iv) Indebtedness to trade creditors incurred and
deposits from customers received 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) purchase money Indebtedness
(including Capital Lease Obligations) to finance Capital Expenditures permitted
by Section 7.07 hereof provided that any Lien granted with respect to such
Indebtedness is permitted by Section 7.01(e) hereof, (vii) Subordinated
Indebtedness, (viii) Guarantees by the Parent of Indebtedness of a subsidiary
permitted under this Section 7.03 or trade accounts payable arising in the
ordinary course of business in accordance with customary trade terms and
Guarantees by a subsidiary of Indebtedness of the Parent permitted under this
Section 7.03 or trade accounts payable arising in the ordinary course of
business in accordance with customary trade terms but only to the extent such
Indebtedness or trade accounts payable arising in the ordinary course of
business in accordance with customary trade terms was incurred for the benefit
of such subsidiary, (ix) other unsecured Indebtedness in the ordinary course of
business not to exceed $2,000,000 at any one time outstanding, (x) interest rate
and currency protection agreements occurring in the ordinary course of business,
(xi) Indebtedness to finance insurance premiums and (xii) intercompany
Indebtedness of #1 Apparel Canada Inc. to the Canadian Borrower for working
capital purposes not to exceed $Canadian 10,000,000 at any time outstanding
provided that such Indebtedness is pledged to The Chase Manhattan Bank of
Canada.
SECTION 7.04. Dividends, Distributions and Payments. Declare or pay,
directly and indirectly, any dividends or make any other distribution, whether
in cash, property, securities or a combination thereof, with respect to (whether
by reduction of capital or otherwise) any shares of its capital stock 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 set aside any amount for any such purpose except that any
Borrower or any subsidiary of a Borrower may pay dividends or make other
distributions to its direct parent, the Parent may pay dividends
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in kind or exchange shares of its capital stock for other such shares and so
long as no Default or Event of Default has occurred and is continuing or would
result therefrom, the Parent may repurchase or redeem its shares from employees
or officers who have died, resigned, been terminated or retired so long as the
aggregate amount expended in any Fiscal Year does not exceed $250,000.
SECTION 7.05. Consolidations, Mergers and Sales of Assets. Consolidate with
or merge into or amalgamate with 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 permit another person to merge into or amalgamate with
it, or acquire all or substantially all the capital stock or assets of any other
person; provided, however, that the foregoing shall not prohibit:
(a) purchases and sales of inventory in the ordinary course;
(b) (i) sales of assets (excluding capital stock of a subsidiary),
(ii) sale-leaseback transactions and (iii) sales of worn out, obsolete,
scrap or surplus assets not to exceed for (i), (ii) and (iii) $350,000 in
the aggregate in any Fiscal Year;
(c) sales of accounts receivable permitted by Section 7.11;
(d) sale and leaseback transactions to the extent permitted pursuant
to Section 7.02;
(e) leases, subleases and licenses in the ordinary course of business
(subject to any restrictions contained in the Security Documents);
(f) Capital Expenditures permitted by Section 7.07;
(g) liquidation of investments permitted pursuant to Sections 7.06(a)
through (e), dissolution of Inactive Subsidiaries as provided in Section
6.19 hereof and, so long as no Default or Event of Default shall have
occurred and be continuing, the transfer of the stock of #1 Apparel Canada
Inc. from the Parent to the Canadian Borrower (subject to the Lien in favor
of the Agent) and the subsequent dissolution of #1 Apparel Canada Inc.;
(h) No later than June 30, 1997 and so long as at the time thereof and
immediately after giving effect thereto no Event of Default shall have
occurred and be continuing, the merger or consolidation of any subsidiary
incorporated in the United States (other than Trademark U.S.) with or into
any other subsidiary incorporated in the United States in which no person
other than the Parent or any such subsidiary receives consideration and the
Agent in its sole discretion is
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satisfied that the surviving person has assumed all Obligations of the
person merging with or consolidating into such surviving person and that
there has been no Material Adverse Effect with respect to the Collateral;
and
(i) sale of assets at Beauport provided that all Net Cash Proceeds are
applied in the manner required pursuant to Section 2.09(f) for sales made
pursuant to Section 2.09(d).
SECTION 7.06. Investments. Own, purchase or acquire any stock, obligations,
assets (not in the ordinary course of business) 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, time deposits and money market accounts
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
$250,000,000 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. and certificates of deposit in dollars offered by
money market mutual funds meeting the criteria in (c) below;
(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) investments in money market mutual funds having assets in excess
of $2,000,000,000;
(d) 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.;
(e) federally tax exempt securities rated A or better by either
Standard & Poor's Ratings Group or Moody's Investors Service, Inc.;
(f) investments in the stock of any subsidiary and in CCM existing on
the Closing Date, but not any additional investments therein except for the
issuance of shares by the Canadian Borrower to the Parent in connection
with the windup of #1 Apparel Canada Inc. as permitted pursuant to Section
7.05(g);
(g) existing investments as set forth on Schedule 7.06 annexed hereto
and renewals, replacements and extensions thereof;
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(h) investments in non-cash consideration received in connection with
a permitted sale of assets (subject to the granting of a Lien as required
by the Security Documents);
(i) investments arising from transactions by any Loan Party or any of
its subsidiaries with customers or suppliers in the ordinary course of
business, including, without limitation, endorsements of negotiable
instruments and debt obligations and other investments received in
connection with the bankruptcy or reorganization of customers and suppliers
or in settlement of delinquent obligations of, or other disputes with,
customers or suppliers, arising in the ordinary course of business (subject
to the granting of a Lien as required by the Security Documents);
(j) loans or advances to (x) employees (i) to cover payroll, travel
and similar expenses, arising in the ordinary course or (ii) to allow such
employees to exercise options in the stock of the Parent, so long as the
aggregate amount of such loans and advances does not exceed $250,000 at
any one time outstanding and (y) to representatives acting as agent for a
Borrower in the ordinary course of business, so long as the aggregate
amount of such loans and advances does not exceed $500,000 at any one time
outstanding;
(k) Capital Expenditures and other purchases permitted under other
provisions of this Agreement;
(l) Indebtedness permitted by Section 7.03;
(m) transactions permitted pursuant to Section 7.05;
(n) loans and advances by the Canadian Borrower to the extent
permitted pursuant to Section 7.03(xii) hereof; and
(o) other investments in addition to those permitted by (a) through
(n) above not to exceed $2,000,000 (after crediting all cash distributions
received from such investments) during the term of this Agreement;
provided, however, that any such investment made in any Fiscal Year is
funded from or is capable of being funded from Excess Cash Flow from the
prior Fiscal Year which is not applied to prepay or redeem Senior Secured
Notes pursuant to Section 7.15 hereof; and provided, further, that to the
extent applicable the Agent is granted a Lien on any such investment
pursuant to the Security Documents;
provided that, in each case mentioned in (a), (b), (d) and (e) above, such
obligations shall mature not more than one year from the date of acquisition
thereof.
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SECTION 7.07. Capital Expenditures. Permit the aggregate amount of payments
made for Capital Expenditures (other than Capital Expenditures made with
proceeds of insurance as permitted pursuant to Section 2.09(e) or sales of
assets as permitted pursuant to exception (b) of Section 7.05), 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 subsidiaries:
Period Maximum Amount
------ --------------
Fiscal Year ending December 31, 1997 $3,650,000
Fiscal Year ending December 31, 1998 $4,000,000
Fiscal Year ending December 31, 1999
and each Fiscal Year thereafter $4,400,000
SECTION 7.08. Rental Obligations. Incur, create, assume or permit to exist,
in respect of leases of real and personal property (other than finance leases),
monetary 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, property taxes, or insurance premiums, other than (x) those
set forth on Schedule 7.08 annexed hereto and any renewal or replacement thereof
and (y) other such obligations incurred in the ordinary course of business or
representing increased rental costs in replacing existing rental facilities in
an aggregate amount for the Parent and its subsidiaries not to exceed $1,000,000
during the term of this Agreement.
SECTION 7.09. Interest Coverage Ratio. Permit the Interest Coverage Ratio
at the end of any fiscal quarter, commencing with the fiscal quarter ending
December 31, 1997, to be less than 1.25:1.00.
SECTION 7.10. Business. Alter the nature of its business as operated on the
date of this Agreement in any material respect (it being understood that
Trademark Canada shall engage in no business other than its investment in the
stock of CCM and activities related thereto).
SECTION 7.11. Sales of Receivables. Sell, assign, discount, transfer, or
otherwise dispose of any accounts receivable, 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 Agent.
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SECTION 7.12. 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 2.17 or Section 4.14 hereof.
SECTION 7.13. ERISA. (a) Engage in any transaction in connection with which
any Borrower 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 any Borrower or any ERISA Affiliate to the PBGC.
(c) Fail to make payment when due of all material amounts which, under the
provisions of any Plan, any Borrower or any ERISA Affiliate are 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 7.14. Accounting Changes. Make any change in their accounting
treatment or financial reporting practices except as required or permitted by
GAAP.
SECTION 7.15. Prepayment or Modification of Indebtedness; Modification of
Charter Documents. (a) Except as may be required by Section 423 of the Senior
Secured Note Indenture, directly or indirectly prepay, redeem, purchase or
retire any of the Senior Secured Notes or any Subordinated Indebtedness;
provided, however, that (i) in any Fiscal Year, after the delivery of the
financial statements and certificates required to be delivered pursuant to
Section 6.05(a) and (e) for the prior Fiscal Year, commencing with the
statements and certificates to be delivered for the Fiscal Year ending December
31, 1997, the Parent may (but shall not be obligated to) prepay or redeem Senior
Secured Notes in an amount up to 50% of Excess Cash Flow for such prior Fiscal
Year and (ii) when received, after first applying the proceeds thereof to prepay
the Term Loan until repaid in full (in the manner provided in Section 2.09(f),
(g) and (i) with respect to Term Loans) 50% of amounts representing the Vermont
Litigation Recovery may be applied to so prepay or redeem the Senior Secured
Notes; provided, further, that in the case of (i) and (ii) above both before and
after giving effect to any such payment or redemption no Default or Event of
Default shall exist.
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(b) Modify, amend or otherwise alter the terms and provisions of any
Subordinated Indebtedness, the Senior Secured Note Indenture or the Senior
Secured Notes to the extent such would be adverse to the Lenders in any material
respect.
(c) Pay any interest in cash on the Senior Secured Notes on the first
interest payment date of October 1, 1997 and thereafter pay any interest in cash
if the Borrowers would not be in compliance with Section 7.09 hereof and, solely
with respect to the interest payment dates of April 1, 1998 and October 1, 1998,
would not be in compliance after giving effect to any such payment.
(d) Modify, amend or alter their certificates or articles of incorporation
or other constitutive documents or preferred stock/certificates of designations
or the Shareholders' Agreement to the extent such would be adverse to the
Lenders in any material respect.
SECTION 7.16. Transactions with Affiliates. Except as otherwise
specifically set forth in this Agreement or except with respect to the
allocation of overhead among the Parent and its subsidiaries occurring in the
ordinary course of business, directly or indirectly purchase, acquire or lease
any property from, or sell, transfer or lease any property to, or enter into any
other transaction with, any stockholder, Affiliate or agent of any Borrower,
except at prices and on terms not less favorable to it than that which would
have been obtained in an arm's-length transaction with a non-affiliated third
party.
SECTION 7.17. Negative Pledges, Etc. Enter into any agreement (other than
this Agreement or any other Loan Document, the Senior Secured Note Indenture or
the Senior Secured Notes or any agreement relating to any Indebtedness permitted
pursuant to Sections 7.03(ii) and (vi) but only with respect to the property
securing such Indebtedness) 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.
VIII. 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 by any Loan
Party or subsidiary thereof 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;
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(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, or under the Notes,
Letters of Credit, or any other Loan Document or in connection with any
other Credit Event 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 (i) Sections 6.01, 6.03, 6.05 (other than
subsections (a), (b) and (e)), 6.08 (with respect to inspection, visitation
and audits), 6.09, 6.10, 6.14, 6.15, 6.17 and 6.18 or Article VII hereof,
any of the Notes, Security Documents or other Loan Documents, (ii) the
provisions of subsections (a), (b) and (e) of Section 6.05 and such default
shall continue for a period of three Business Days (provided that such
grace period shall only be available a maximum of three times) or (iii) any
other terms of this Agreement (other than as specified in (a), (b), (c) or
(d)(i) or (d)(ii) above) and such default with respect to any such other
terms shall continue for a period of 15 days;
(e) any Loan Party or subsidiary thereof shall (i) voluntarily
commence any proceeding or file any petition seeking relief under Title 11
of the United States Code, the Canadian Bankruptcy and Insolvency Act or
Companies Creditors Arrangement Act 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 subsidiary thereof 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;
(f) 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 subsidiary thereof, or of a
substantial part of the property or assets of any Loan Party or subsidiary
thereof, under Title 11 of the United States Code, the Canadian Bankruptcy
and Insolvency Act or Companies Creditors Arrangement Act or any other
Federal state or foreign bankruptcy, insolvency, receivership or similar
law, (ii) the appointment of a receiver, trustee,
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custodian, sequestrator or similar official for any Loan Party or
subsidiary thereof or for a substantial part of the property of any Loan
Party or subsidiary thereof, or (iii) the winding-up or liquidation of any
Loan Party or subsidiary thereof; and such proceeding or petition shall
continue undismissed for 30 days or an order or decree approving or
ordering any of the foregoing shall continue unstayed and in effect for 30
days;
(g) default shall be made with respect to any Indebtedness of any Loan
Party or subsidiary thereof (excluding Indebtedness outstanding hereunder)
which either individually or taken together with other Indebtedness as to
which a default has occurred shall exceed $250,000 if the effect of any
such default shall be to accelerate, or to permit the holder or obligee of
any such Indebtedness (or any trustee on behalf of such holder or obligee)
at its option to accelerate, the maturity of such Indebtedness;
(h) (i) a Reportable Event shall have occurred with respect to a
Pension Plan, (ii) the filing by any Loan Party or subsidiary thereof, 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 or
subsidiary thereof, 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 subsidiary thereof 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
subsidiary thereof 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 subsidiary thereof 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 subsidiary thereof or any ERISA Affiliate to any
taxes, penalties or other liabilities which, in the reasonable opinion of
the Agent, would have a Material Adverse Effect;
(i) (i) any Loan Party or subsidiary thereof or any ERISA Affiliate
(x) shall have been notified by the sponsor of a Multiemployer Plan that it
has incurred any withdrawal liability to such Multiemployer Plan, (y) does
not have reasonable
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grounds for contesting such withdrawal liability and is not in fact
contesting such withdrawal liability in a timely and appropriate manner,
and (z) the payment of such withdrawal liability would, in the reasonable
opinion of the Agent, have a Material Adverse Effect; or (ii) with respect
to any Canadian Pension Plan there shall occur (A) the institution of any
steps by any Loan Party or subsidiary thereof or any other person to
terminate such Canadian Pension Plan if, as a result of such termination,
the Loan Party or subsidiary member could be required to make a
contribution to such Canadian Pension Plan, or could reasonably expect to
incur a liability or obligation to such Canadian Pension Plan which, in the
reasonable opinion of the Agent, would have a Material Adverse Effect; or
(B) a material contribution failure occurs with respect to any such
Canadian Pension Plan sufficient to give rise to a Lien on any material
portion of the property of the Loan Party or subsidiary member and such
failure is not remedied within 30 days of its occurrence;
(j) a judgment (not reimbursed by insurance policies of any Loan Party
or subsidiary thereof) or decree for the payment of money, a fine or
penalty which when taken together with all other outstanding judgments,
decrees, fines and penalties shall exceed $250,000 shall be rendered by a
court or other tribunal against any Loan Party or subsidiary thereof 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 levy upon assets or
properties to enforce such judgment, decree, fine or penalty;
(k) this Agreement, any Note, any of the Security Documents or other
Loan Documents shall for any reason cease to be, or shall be asserted by
any Loan Party or subsidiary thereof not to be, a legal, valid and binding
obligation of any Loan Party or subsidiary thereof, enforceable in
accordance with its terms (subject as to enforcement of remedies to
applicable bankruptcy, insolvency, reorganization, moratorium and other
similar laws affecting the enforcement of creditors' rights generally from
time to time in effect and to general principles of equity), or a Lien
affecting a material portion of the Collateral purported to be created by
any of the Security Documents shall for any reason cease to be, or be
asserted by any Loan Party or subsidiary thereof not to be, a valid, first
priority perfected Lien (except to the extent otherwise permitted under
this Agreement or any of the Security Documents);
(l) a Change of Control shall occur;
(m) any material damage to, or loss, theft or destruction of, any
material Collateral, whether or not insured, or any strike, lockout, labor
dispute, embargo, condemnation, act of God or public enemy, or other
casualty which causes, for more than thirty (30) consecutive days beyond
the coverage period of any
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applicable business interruption insurance, the cessation or substantial
curtailment of revenue producing activities at any facility of a Loan Party
or subsidiary thereof if, in the case of any of the foregoing, such event
or circumstance would have a Material Adverse Effect;
(n) a Lien or Liens, individually or in the aggregate exceeding $
250,000 arising from unpaid Federal, state or local taxes shall be filed
against any Loan Party's or subsidiary's properties or assets; or
(o) if an event shall occur and be continuing with respect to CCM
which would constitute an Event of Default under paragraph (e) or (f) above
if CCM were a Loan Party;
then, and in any such event (other than an event described in paragraph (e) or
(f) 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)
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, and (iii)
require that the Borrowers remit to the Agent cash collateral in an amount equal
to the aggregate undrawn amount of all outstanding Letters of Credit at such
time, such cash collateral to be held by the Agent for its own benefit and the
benefit of the Lenders in a cash collateral account on terms and conditions
satisfactory to the Agent (such cash collateral to the extent not applied to
satisfy Obligations shall be returned to the Borrowers within three Business
Days after all Events of Default have been cured or waived), 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, 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 (e) or (f) 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.
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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 actions and 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. For its services as Agent, the
Borrowers have agreed to pay The Chase Manhattan Bank an administration fee
which has been negotiated between the parties.
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 which are 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 being deemed not to have
knowledge of any Default or Event of Default unless and until written notice
thereof is given to the Agent by any Borrower or a Lender), the Agent within a
reasonable time shall give written 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.
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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 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 in Section 11.03 by such payee to the Agent and the Borrowers and such
transfer is otherwise in accordance with Section 11.03.
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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 of the Lenders hereby acknowledges that the Agent and/or one or
more Affiliates of the Agent may at any time and from time to time be a holder
of equity interests in a Loan Party.
Each Lender agrees (i) to reimburse the Agent in the amount of such
Lender's pro rata share (based on its Commitment hereunder) of any expenses
incurred for its own benefit and/or 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.
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 Commitment 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 certificate, without further
inquiry); or (iii) constituting property leased to any of the Borrowers or any
subsidiary under a lease which has expired or been terminated or is about to
expire and which has not been, and is not intended by the applicable Borrower 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,
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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 the Lenders' security interest in Collateral
which, in accordance with Article 9 of the Uniform Commercial Code or any
comparable provision of the Personal Property Security Law 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 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.
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.
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 with the consent of the Borrowers which shall not be
unreasonably withheld (except that no such consent shall be required if an Event
of Default shall exist under paragraph (b) or (c) of Article VIII). 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 in
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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.
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) arrange for remittances on
Receivables of each of the Receivables Grantors to be made directly to lockboxes
designated by the Agent or in such other manner as the Agent may direct, and
(ii) promptly deposit, or cause to be deposited, all payments received by the
Receivables Grantors 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 Receivables Grantors 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 Receivables Grantors for and as the Lenders' property and shall
not be commingled with the Receivables Grantors' other funds. All remittances
and payments that are deposited in accordance with the foregoing will, after two
Business Days (or three Business Days in the case of deposits that are made
after 1:00 p.m. (New York time)), be applied by the Agent to reduce the
outstanding balance of the Revolving Credit Loans, subject to final collection
in cash of the item deposited.
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
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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. The Receivables Grantors 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, in the ordinary course of its
business.
(b) (i) Each of the Receivables Grantors hereby constitutes the Agent or
the Agent's designee as such person's attorney-in-fact with power to endorse
such person'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 person'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 Default, to notify the Postal Service authorities
to change the address for delivery of mail addressed to such Borrowers 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 the Total Commitment is
terminated.
(ii) The Agent, without notice to or consent of the Receivables Grantors,
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
Receivables Grantors any and all checks, drafts and other instruments for the
payment of money relating to the Receivables, and each of the Receivables
Grantors hereby waives notice of presentment, protest and non-payment of any
instrument so endorsed.
(c) Nothing herein contained shall be construed to constitute any
Receivables Grantor as agent of the Agent or any Lender 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
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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 Receivables Grantors' 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 Receivables Grantors 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 Receivables Grantor and the
applicable Receivables Grantor shall reimburse the Agent for any amount paid
upon demand. The applicable Receivables Grantor 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
Receivables Grantors 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 reasonably require, furnish, or cause to be
furnished, such further schedules and/or information as the Agent may reasonably
require relating to the Receivables, including, without limitation, sales
invoices. In addition, the Borrowers shall notify the Agent of any material
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 reasonably 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 of the
Borrowers covenants, represents and warrants that: (a) the Receivables Grantors
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) it will not seek to qualify, or maintain the
qualification of, a Receivable as an Eligible Receivable unless such Receivable
shall be a good and valid account representing an undisputed bona
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fide indebtedness incurred or an amount indisputably 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
by a Receivables Grantor, or work, labor and/or services theretofore rendered by
a Receivables Grantor; (c) it will not seek to qualify, or maintain the
qualification of, a Receivable as an Eligible Receivable unless such Receivable
or portion thereof which it seeks to so qualify is not subject to any 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 Receivables Grantors' business; (d) none
of the transactions underlying or giving rise to any Eligible Receivable shall
violate any applicable state or Federal laws or regulations in any material
respect, and all documents relating to any Eligible Receivable shall be legally
sufficient under such laws or regulations and shall be legally enforceable in
accordance with their terms (subject as to enforcement of remedies to applicable
bankruptcy, insolvency, reorganization, moratorium and other similar laws
affecting the enforcement of creditors' rights generally from time to time in
effect and to general principles of equity); (e) it will not seek to qualify, or
maintain the qualification of, a Receivable as an Eligible Receivable unless to
the best of its knowledge (without independent inquiry), each Customer,
guarantor or endorser with respect to such Receivable is solvent and will
continue to be fully able to pay all Eligible Receivables on which it is
obligated in full when due; (f) it will not seek to qualify, or maintain the
qualification of, a Receivable as an Eligible Receivable unless all documents
and agreements relating to such Receivable shall be true and correct and in all
respects what they purport to be; (g) it will not seek to qualify, or maintain
the qualification of, a Receivable as an Eligible Receivable unless to the best
of its knowledge, all signatures and endorsements that appear on all documents
and agreements relating to such Receivable 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 are customary for businesses similarly situated; (i) it will
not seek to qualify, or maintain the qualification of, a Receivable as an
Eligible Receivable unless it shall have immediately notified the Agent as to
any accounts arising out of contracts with the United States or Canada or any
department, agency or instrumentality thereof, and shall have executed any
instruments and taken 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) 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 immediately pledged, endorsed, assigned and delivered to the
Agent as additional collateral; (k) it nor any other Receivables Grantor shall
not re-date any invoice or sale or make sales on extended dating beyond that
customary in the industry; (l) it and each other Inventory Grantor shall conduct
a physical count of its inventory at such intervals as the Agent may request
(but not more often than one time in any Fiscal Year unless an Event of Default
has occurred and is continuing) and promptly supply the Agent with a copy of
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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 (m) it nor any other
Receivables or Inventory Grantor 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' revolving credit and term
loan 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 during the
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 or any other
Receivables Grantor or Inventory Grantor 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, or cause any other Receivables Grantor or Inventory Grantor
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 paid by the
Borrowers on demand and then added to the Obligations if not paid.
XI. MISCELLANEOUS
SECTION 11.01. Notices. Notices, consents and other communications provided
for herein shall be in writing and shall be delivered by hand or overnight
courier service or mailed by certified or registered mail or sent by telecopy
addressed,
(a) if to all or any of the Borrowers, Guarantors, or Grantors, c/o
Parent, at 77 Route 25, Pierson Industrial Park, Bradford, Vermont 05033
(Telecopy No. 603-924-4408), Attention: Russell J. David, Vice
President-Finance, with a copy to Morgan, Lewis & Bockius LLP, 101 Park
Avenue, New York, New York 10178- 0060, Attention: David W. Pollak, Esq.
(Telecopy No. (212) 309-6273);
(b) if to the Agent, at The Chase Manhattan Bank, 633 Third Avenue,
7th Floor, Asset Based Lending, New York, New York 10017, Attention: Credit
Deputy (Telecopy No. 212-622-5218), with a copy to Kaye, Scholer, et al.,
LLP, at 425 Park Avenue, New York, New York 10022, Attention: Jeffrey M.
Epstein, Esq. (Telecopy No. 212-836-7151); and
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(c) if to any Lender, at the address or telecopy number set forth
below its name in Schedule 2.01 annexed hereto or in the Assignment and
Acceptance pursuant to which such Lender became a party 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 sent by overnight courier service or five
days after being sent by registered or certified mail, postage prepaid, return
receipt requested, if by mail, or when receipt is acknowledged if sent by
telecopy, in each case addressed to such party as provided in this Section 11.01
or in accordance with the latest unrevoked direction from such party.
SECTION 11.02. Survival of Agreement. All covenants, agreements,
representations and warranties made by any Borrowers herein and in the
certificates or other instruments prepared or delivered in connection with this
Agreement, any of the Security Documents, 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 the 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 11.03. 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 permitted successors and assigns of such party; and all
covenants, promises and agreements by or on behalf of any Loan Party, 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 Borrowers may assign or transfer any of its rights or obligations
hereunder without the written consent of all the Lenders.
(b) Each Lender, without the consent of the Borrowers or the Agent, 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, 2.12 and
2.16 (provided
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such participant shall have complied with the terms thereof) hereof, but only to
the extent any of such Sections would be available to the Lender which sold such
participation, and shall not be entitled to receive any greater amount than the
selling Lender would be entitled to receive and (iv) the Borrowers, the
Guarantors, 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 such Lender
shall retain the sole right and responsibility to enforce the obligations of the
Loan Parties 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
decreasing any fees payable hereunder or the amount of principal or the rate of
interest payable on the Loans, or extending the dates fixed for any payment of
principal pursuant to Section 2.04(c) or interest on the Loans, or increasing or
extending the Commitments or the release of all Collateral.
(c) Each Lender may assign by novation, to any one or more banks or other
entities with the prior written consent of the Borrowers (which shall not be
unreasonably withheld) and 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 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 an aggregate minimum principal amount of $5,000,000 and the
amount of the Revolving Credit Commitment and Term Loan Commitment retained by
such Lender shall not be less than $10,000,000 or shall be zero, (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 the Notes subject to such assignment and a processing
and recordation fee of $5,000 and (iv) the Assignee, if it shall not be a
Lender, shall deliver to the Agent an Administrative Questionnaire in the form
provided to such Assignee by the Agent. Upon such execution, delivery,
acceptance and recording and after receipt of the written consent of the Agent
and the Borrowers, from and after the effective date specified in each
Assignment and Acceptance, which 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
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(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 but shall continue to be entitled
to the benefits of Sections 2.10, 2.12, 2.16 and 11.04, as well as any fees
accrued for its account hereunder and not yet paid).
(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, and that
its Commitment and the outstanding balance of its Loans and participations in
Letters of Credit, in each case without giving effect to assignments thereof
which have not become effective, are as set forth in such Assignment and
Acceptance, 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 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 Loan Party or the performance or observance by any
Loan Party of any of their respective obligations under this Agreement, or any
of the other Loan Documents or any other instrument or document furnished
pursuant hereto or thereto; (iii) such assignee represents and warrants that it
is legally authorized to enter into such Assignment and Acceptance and confirms
that it has received a copy of this Agreement 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 11.01
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 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 other Loan Parties,
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the Agent and 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, the other Loan Parties 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 the Notes subject to such
assignment, any processing and recordation fee and, if required, an
Administrative Questionnaire and the written consents to such assignment, the
Agent shall, if such Assignment and Acceptance has been completed and is
substantially in the form of Exhibit F 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 the
surrendered Notes new 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 Commitment hereunder, new Notes to the order of the assigning
Lender in an amount equal to the Term Loan Commitment and Revolving Credit
Commitment retained by it hereunder. Such new Notes shall be in an aggregate
principal amount equal to the aggregate principal amount of such surrendered
Notes, or, with respect to the Term Notes, the principal amount of the Term Loan
outstanding at such time as evidenced by the Term Note being surrendered, shall
be dated the effective date of such Assignment and Acceptance and shall
otherwise be in substantially the form of Exhibit A or Exhibit B, as the case
may be. 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 11.03, 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 information relating to the Borrowers received from such
Lender to the extent required pursuant to Section 11.11.
SECTION 11.04. Expenses; Indemnity. (a) Each of the Borrowers 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
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Agreement or any of the 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 enforcement or
protection of its rights, including but not limited to the reasonable fees and
disbursements of counsel for the Agent and ongoing field examination expenses
and charges, and, in connection with such enforcement or protection, the
reasonable fees and disbursements of counsel for the Lenders. Each of the
Borrowers 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 of the Borrowers 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, without
limitation, withholding or other taxes that may be imposed by Canada or any
political subdivision thereof with respect to any payments made pursuant to this
Agreement and 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 any claim, litigation, investigation or proceedings, whether
or not the Agent, any Lender or any such person is a party thereto, relating to
(i) the use of any of the proceeds of the Loans, (ii) this Agreement, any of the
other Loan Documents, Plan of Reorganization 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 or (iv) breach of any representation or
warranty; provided, however, that such indemnity shall not, as to the Agent or
any Lender or such person, 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 or such person.
(c) Each of the Borrowers indemnifies, and agrees to defend and hold
harmless the Agent and the Lenders and their respective officers, directors,
share holders, 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 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.
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(d) The provisions of this Section 11.04 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 11.04 shall be payable on
written demand therefor.
SECTION 11.05. 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 11.06. Right of Setoff. If an Event of Default shall have occurred
and be continuing, upon the request of the Agent 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 of the
Borrowers or Guarantors against any and all of the obligations of such Borrower
or Guarantor 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 11.07. 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 of the Borrowers 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.
SECTION 11.08. 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
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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 of the Borrowers or
Guarantors 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 of the Borrowers in any case shall entitle
it to any other or further notice or demand in similar or other circumstances.
(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) decrease the principal amount of, or extend the Final
Maturity Date or Revolving Credit Termination Date (except in accordance with
the terms hereof) or the dates for the payment of principal pursuant to Section
2.04(c) or interest on, any Note or reduce the rate of interest on any Note,
(ii) increase the Revolving Credit Commitment or Term Loan Commitment of any
Lender, increase any percentage or amount contained in the definition of
Borrowing Base or Seasonal Amount or amend or modify the provisions of this
Section, Section 2.06 with respect to decreasing any fee or extending the time
for payment thereof, Section 2.13, Section 4.14 or Section 11.04 hereof or the
definition of "Required Lenders," or (iii) release any material portion of
Collateral (except as may be expressly permitted by the Loan Documents), 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, amendment or waiver
authorized in accordance with 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 11.08(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 11.08(b) above, with the written consent of the Borrowers
and such Required 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
106
<PAGE>
Commitment of each Minority Lender, (ii) the assignment in accordance with Sec
tion 11.03 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 increase 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 Borrowers shall deem necessary in order to effect
the changes specified in clauses (i) through (iv) hereof.
SECTION 11.09. Severability. In the event any one or more of the provisions
contained in this Agreement or in the Notes or any of the other Loan Documents
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 11.10. 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 among the parties hereto with respect to the transactions hereunder 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 out of, under or in connection with this Agreement, the
Notes, any of the other Loan Documents or the transactions hereunder.
(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
107
<PAGE>
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 11.11. Confidentiality. The Agent and each of the Lenders agrees 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 (who will be informed of
the confidential nature thereof) in connection with its participation in the
transactions hereunder or the administration of this Agreement or the other Loan
Documents; (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 (in any which case notice will be provided to the Parent and any
other applicable Loan Party to the extent not prohibited by law); (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 Loan Party or any of their
respective subsidiaries (and such source was not prohibited from transmitting
the information by reason of being party to a confidentiality agreement) 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 Loan Party or any of their
respective subsidiaries; (iv) to the extent any Loan Party 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 11.03(g) hereof.
SECTION 11.12. 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 Loan Parties hereby accepts for itself
and in respect of its property, generally and unconditionally, the jurisdiction
of the aforesaid courts.
(b) Each of the Loan Parties hereby irrevocably waives, 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,
108
<PAGE>
which it may now or hereafter have to the bringing of any such action or
proceeding in such respective jurisdictions.
(c) Each of the Loan Parties 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
11.01 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 Loan Party in any other
jurisdiction.
SECTION 11.13. Interest Rate Limitation. (a) Notwithstanding anything
herein to the contrary, if at any time the interest rate applicable to any Loan,
together with all fees, charges and other amounts which are treated as interest
on such Loan under applicable law (collectively, the "Charges"), shall exceed
the maximum lawful rate (the "Maximum Rate") which may be contracted for,
charged, taken, received or reserved by the Lender holding such Loan in
accordance with applicable law, the rate of interest payable in respect of such
Loan hereunder, together with all Charges payable in respect thereof, shall be
limited to the Maximum Rate and, to the extent lawful, the interest and Charges
that would have been payable in respect of such Loan but were not payable as a
result of the operation of this Section shall be cumulated and the interest and
Charges payable to such Lender in respect of other Loans or periods shall be
increased (but not above the Maximum Rate therefor) until such cumulated amount,
together with interest thereon, at the Federal Funds Effective Rate (as defined
in Alternate Base Rate) to the date of repayment, shall have been received by
such Lender.
(b) If the Interest Act (Canada) should be found to apply with respect to
the computation of interest under any of the Loan Documents, then whenever
interest is calculated on the basis of a year of 360 days, the rate of interest
expressed as an annual rate for purposes of such Act shall be equivalent to the
rate of interest applicable to such Loan or other obligation multiplied by the
actual number of days in the calendar year in which the same is to be
ascertained, and divided by 360.
SECTION 11.14. 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.
SECTION 11.15. 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.
109
<PAGE>
IN WITNESS WHEREOF, the Borrowers, the Agent and the Lenders have caused
this Agreement to be duly executed by their respective duly authorized officers
as of the day and year first above written.
SLM INTERNATIONAL, INC.
By:_____________________________
Name:
Title:
MASKA U.S., INC.
By:_____________________________
Name:
Title:
#1 APPAREL, INC.
By:_____________________________
Name:
Title:
LENDERS:
THE CHASE MANHATTAN BANK, as Agent
and as a Lender
By:_____________________________
Name:
Title:
================================================================================
CREDIT AGREEMENT
Dated as of April 1st, 1997
BETWEEN
SPORT MASKA INC.
- AND -
THE CHASE MANHATTAN BANK OF CANADA
================================================================================
Fraser & Beatty Goodman Phillips & Vineberg
Barristers and Solicitors Barristers & Solicitors
P.O. Box 100 1501 McGill College
42nd Floor 26th Floor
1 First Canadian Place Montreal, Quebec
Toronto, Ontario H3A 3N9
M5X 1B2
<PAGE>
i
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms.................................1
SECTION 1.02. Accounting Terms......................................18
ARTICLE II
THE CREDIT FACILITY
SECTION 2.01. Revolving Credit Commitment...........................18
SECTION 2.02. Revolving Credit Loan.................................19
SECTION 2.03. Notice of Credit......................................19
SECTION 2.04. Promissory Note.......................................19
SECTION 2.05. Interest on Revolving Credit Loans....................20
SECTION 2.06. Fees..................................................20
SECTION 2.07. Bankers' Acceptances..................................21
SECTION 2.08. Termination and Reduction of Revolving Credit
Commitment .........................................23
SECTION 2.09. Interest on Overdue Amounts...........................24
SECTION 2.10. Prepayment of Credits.................................24
SECTION 2.11. Reserve Requirements..................................27
SECTION 2.12. Indemnity.............................................29
SECTION 2.13. Payments and Computations.............................29
SECTION 2.14. Taxes.................................................30
SECTION 2.15. Issuance of Domestic Letters of Credit................32
SECTION 2.16. Payment of Letters of Credit..........................33
SECTION 2.17. Lender's Actions with respect to Lender's Letters of
Guarantee...........................................34
SECTION 2.18. Letter of Guarantee Fees..............................35
ARTICLE III
COLLATERAL SECURITY
SECTION 3.01. Security Documents....................................35
SECTION 3.02. Filing and Recording..................................36
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Organization, Legal Existence.........................36
SECTION 4.02. Authorization.........................................37
SECTION 4.03. Governmental Approvals................................37
<PAGE>
ii
SECTION 4.04. Binding Effect........................................38
SECTION 4.05. Material Adverse Change...............................38
SECTION 4.06. Litigation............................................38
SECTION 4.07. Financial Statements..................................38
SECTION 4.08. Taxes.................................................39
SECTION 4.09. Employee Benefit Plans................................40
SECTION 4.10. No Material Misstatements.............................40
SECTION 4.11. Security Interest.....................................40
SECTION 4.12. Use of Proceeds.......................................40
SECTION 4.13. Subsidiaries..........................................41
SECTION 4.14. Title to Properties...................................41
SECTION 4.15. Solvency..............................................42
SECTION 4.16. Permits, etc..........................................42
SECTION 4.17. Compliance with Environmental Laws....................42
SECTION 4.18. No Change in Credit Criteria or Collection Policies...43
SECTION 4.19. Employee Matters......................................43
ARTICLE V
CONDITIONS OF CREDIT EVENTS
SECTION 5.01. All Credit Events.....................................44
SECTION 5.02. First Borrowing.......................................45
ARTICLE VI
AFFIRMATIVE COVENANTS
SECTION 6.01. Affirmative Covenants.................................50
ARTICLE VII
NEGATIVE COVENANTS
SECTION 7.01. Negative Covenants....................................50
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.01. Events of Default.....................................51
<PAGE>
iii
ARTICLE IX
MANAGEMENT, COLLECTION AND STATUS OF RECEIVABLES AND OTHER
COLLATERAL
SECTION 9.01. Collection of Receivables.............................53
SECTION 9.02. Receivables Documentation.............................55
SECTION 9.03. Status of Receivables and Other Collateral............56
SECTION 9.04. Monthly Statement of Account..........................57
SECTION 9.05. Collateral Custodian..................................57
ARTICLE X
MISCELLANEOUS
SECTION 10.01. Notices..............................................57
SECTION 10.02. Survival of Agreement................................58
SECTION 10.03. Successors and Assigns...............................58
SECTION 10.04. Expenses.............................................60
SECTION 10.05. Applicable Law.......................................61
SECTION 10.06. Right of Setoff......................................61
SECTION 10.07. Payments on Business Days............................61
SECTION 10.08. Waivers..............................................62
SECTION 10.09. Severability.........................................63
SECTION 10.10. Entire Agreement.....................................63
SECTION 10.11. Confidentiality......................................63
SECTION 10.12. Submission to Jurisdiction...........................64
SECTION 10.13. Interest Rate Limitation.............................64
SECTION 10.14. Counterparts.........................................65
SECTION 10.15. Headings.............................................65
EXHIBITS
EXHIBIT A Form of Bankers' Acceptance
EXHIBIT B Form of Chase U.S. Letter of Credit
EXHIBIT C Form of Lender's Letter of Guarantee
EXHIBIT D Form of Promissory Note
SCHEDULES
SCHEDULE 1.01 Summary of Security
SCHEDULE 4.01 Qualified Jurisdictions
SCHEDULE 4.05 Material Adverse Change
SCHEDULE 4.06(a) Litigation
<PAGE>
iv
SCHEDULE 4.06(b) Compliance with Laws
SCHEDULE 4.08 Taxes
SCHEDULE 4.13 Subsidiaries
SCHEDULE 4.14 Leases
SCHEDULE 4.17 Environmental Law Compliance
SCHEDULE 4.19 Employee Matters
<PAGE>
THIS CREDIT AGREEMENT is made as of the 1st day of April, 1997.
B E T W E E N:
SPORT MASKA INC., a corporation continued under the
laws of the Province of New Brunswick
- and -
THE CHASE MANHATTAN BANK OF CANADA, one of the
chartered banks of Canada
WHEREAS The Chase Manhattan Bank of Canada (hereinafter referred to
as the "Lender") has agreed, subject to the terms and conditions hereof, to
provide a revolving operating credit facility in a maximum aggregate principal
amount equal to the Canadian Dollar Equivalent of $35,000,000.00 U.S. in favour
of Sport Maska Inc. (hereinafter referred to as the "Borrower") in order to
assist the Borrower with its general working capital requirements and to
partially finance the payments to be made pursuant to the Plan of
Reorganization;
NOW THEREFORE in consideration of the premises and the agreements
herein set out and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms. For purposes hereof, the
following terms shall have the meanings specified below:
"ACCEPTANCE FEE" means, with respect to a Bankers' Acceptance
accepted by the Lender under this Agreement, a fee payable in Canadian Dollars
by the Borrower to the Lender calculated on the face amount of the Bankers'
Acceptance at the rate of 0.25% per annum, on the basis of the number of days in
the Contract Period and a year of 360 days.
"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. For the purposes of this definition, the term "control"
(including, with correlative
<PAGE>
Page 2
meanings, the terms such as "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.
"AGREEMENT" shall mean this Credit Agreement, together with all
Schedules and Exhibits hereto as each may be amended, supplemented, extended or
restated from time to time.
"APPAREL CANADA" shall mean #1 Apparel Canada Inc., a corporation
continued under the laws of the Province of New Brunswick.
"AVAILABILITY" shall mean at any time (i) the lesser at such time of
(x) the Revolving Credit Commitment and (y) the sum of the Borrowing Base plus
the Seasonal Amount, minus (ii) the sum at such time of (x) the unpaid principal
balance of the Revolving Credit Loans together with all reserves (without
duplication of deductions taken in determining Net Amount of Eligible
Receivables) established by the Lender in its reasonable exclusive judgment upon
notice to the Borrower including, without limitation, reserves reflecting the
risk of suppliers to the Borrower or Apparel Canada repossessing shipped goods
from the Borrower or Apparel Canada and (y) the Domestic Letter of Credit Usage
and (z) the aggregate of all outstanding Bankers Acceptances and all outstanding
liability of the Borrower to reimburse the Lender for matured Bankers
Acceptances.
"BANK ACT SECURITY" means security granted by the Borrower to the
Lender (charging its goods, wares and merchandise) pursuant to section 427 of
the Bank Act pursuant to the Lender's standard form documentation therefor.
"BANKERS' ACCEPTANCE" means a bill of exchange substantially in the
form of Exhibit "A" (or such other form as may be acceptable to the Lender)
denominated in Canadian Dollars, drawn by the Borrower and accepted by the
Lender.
"BI EVENT" shall have the meaning assigned to such term in Section
2.10(d) hereof.
"BORROWER" 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(A) hereof.
"BUSINESS DAY" shall mean any day, other than a Saturday, Sunday or
legal holiday in the Province of Ontario, the Province of Quebec or the State of
New
<PAGE>
Page 3
York, on which banks are open for the transaction of their banking business in
the ordinary course in Toronto, Montreal and New York City.
"CANADIAN DOLLAR EQUIVALENT" shall mean, for any amount at any
time expressed in United States (U.S.) dollars, the amount of Canadian
Dollars that would be sold at the spot rate of exchange of Chase U.S. at such
time in order to purchase such amount of U.S. dollars.
"CANADIAN PENSION PLAN" shall mean any pension plan established by
the Parent, the Borrower or any subsidiary thereof under Canadian federal or
provincial law for the benefit of employees of the Borrower or any subsidiary
thereof.
"CAPITALIZED LEASE OBLIGATION" shall mean an obligation to pay rent
or other amounts under any lease of (or other arrangement conveying the right to
use) real and/or personal property which obligation is required to be classified
and accounted for as a capital lease on a balance sheet prepared in accordance
with GAAP, and for purposes hereof the amount of such obligation shall be the
capitalized amount thereof determined in accordance with GAAP.
"CASUALTY EVENT" shall have the meaning assigned to such term in
SECTION 2.10(D) hereof.
"CCM" shall mean Gestion CCM (1983) Inc./CCM Holdings (1983) Inc., a
corporation incorporated under the federal laws of Canada.
"CDOR RATE" shall mean on any day the annual rate of interest which
is the rate determined as being the arithmetic average of the quotations of all
institutions listed in respect of the "BA 1 Month" rate for Canadian Dollar
denominated bankers' acceptances displayed and identified as such on the
"Reuters Screen CDOR Page" (as defined in the International Swap Dealer
Association, Inc. definitions, as modified and amended from time to time) as of
10:00 A.M. Toronto, Ontario local time on such day and, if such day is not a
Business Day, then on the immediately preceding Business Day (as adjusted by the
Lender after 10:00 A.M. Toronto, Ontario local time to reflect any error in a
posted rate of interest or in the posted average annual rate of interest). If
such rates are not available on the Reuters Screen CDOR Page on any particular
day, then the CDOR Rate on that day shall be calculated as the arithmetic mean
of the 30 day rates applicable to Canadian Dollar denominated banker's
acceptances quoted by the Lender and two other financial institutions (selected
and agreed upon between the Lender and the Borrower) as of 10:00 A.M. Toronto,
Ontario local time on such day, or if such day is not a Business Day, then on
the immediately preceding Business Day;
"CHANGE OF CONTROL" shall mean (i) Investor Group shall cease to
maintain the number of seats on the Board of Directors of the Parent to which
the Investor Group is entitled pursuant to the Shareholders' Agreement in effect
on the date hereof, or (ii)
<PAGE>
Page 4
from and after an initial public offering, the Investor Group shall cease to own
stock of the Parent representing at least 20% of the aggregate ordinary voting
power represented by the issued and outstanding capital stock of the Parent.
"CHARGES" shall have the meaning assigned to such term in Section
10.13 hereof.
"CHASE U.S." shall mean The Chase Manhattan Bank, in its capacity
as Agent pursuant to the U.S. Credit Agreement.
"CHASE U.S. LETTER OF CREDIT" shall mean the standby letter of
credit to be issued by Chase U.S. in favour of the Lender as security for the
Obligations to be substantially in the form of Exhibit "B" attached hereto.
"CLOSING DATE" shall mean the closing date under the U.S. Credit
Agreement, but shall in no event be later than April 15, 1997.
"COLLATERAL" shall mean all collateral and security as described
in the Security Documents.
"CONCENTRATION ACCOUNTS" shall mean collectively the Canadian Dollar
account and the U.S. Dollar account each to be opened and maintained in the name
of each of the Borrower and Apparel Canada at the main branch of National Bank
of Canada in Montreal, Quebec located at
controlled by the Lender as contemplated by section 9.01 below.
"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 (and without limiting the generality of
the foregoing, and for clarity, the Borrower and Apparel Canada are consolidated
subsidiaries of the Parent).
"CONTAMINANT" shall mean all Hazardous Materials and all those
substances which are regulated by or form the basis of liability under Federal,
provincial, state or local government in Canada or the United States
environmental, health and safety statutes or regulations or any other material
or substance which constitutes a material health, safety or environmental hazard
to any person or property.
"CONTRACT PERIOD" shall mean, with respect to a Bankers' Acceptance,
the term of days of such Bankers' Acceptance, if Bankers' Acceptances are
selected by the Borrower in accordance with Section 2.03, commencing on the
Drawdown Date or Conversion Date, as applicable, of such Bankers' Acceptance and
expiring on a Business
<PAGE>
Page 5
Day, which term shall be for 30, 60, 90 or 180 days thereafter, in each case
subject to availability.
"CONVERSION DATE" shall mean the date upon which a Prime Rate Loan
is converted to a Bankers' Acceptance or a date upon which a Bankers' Acceptance
is converted to a Prime Rate Loan, all in accordance with the provisions hereof.
"CREDIT" shall mean each Revolving Credit Loan and each Bankers'
Acceptance and each issuance of a Domestic Letter of Credit in respect of which
the Lender could be liable to make a payment under the Lender's Letter of
Guarantee.
"CREDIT EVENT" shall mean each borrowing or obtaining of any form of
Credit by the Borrower hereunder.
"CUSTOMER" shall mean and include the account debtor or obligor with
respect to any Receivable or purchaser with respect to any inventory.
"DEBENTURES" shall mean the debentures dated April 1, 1997 executed
by the Borrower, Apparel Canada and Trademark Canada in favour of the Lender.
"DEFAULT" shall mean any condition, act or event which, with notice
or lapse of time or both, would constitute an Event of Default.
"DISCOUNT PROCEEDS" shall mean, in respect of a Bankers' Acceptance
accepted and purchased by the Lender under this Agreement, an amount (rounded to
the nearest whole cent, and with one-half of one cent being rounded up)
calculated on the applicable Drawdown Date or Conversion Date by multiplying:
(a) the face amount of such Bankers' Acceptance; by
(b) a fraction, the numerator of which is one and the denominator of
which is the sum of one plus the product of:
(i) the applicable Discount Rate (expressed as a decimal); and
(ii) a fraction, the numerator of which is the Contract Period
for such Bankers' Acceptance, and the denominator of which
is three hundred sixty (360) days;
with the price as so determined being rounded up or down to the fifth decimal
place and .000005 rounded up.
"DISCOUNT RATE" applicable to a Bankers' Acceptance being issued on
any Drawdown Date or Conversion Date, and purchased by the Lender, shall mean
the percentage discount rate (expressed in two decimal places) of the Lender at
which it would, in accordance with its normal practices, at or about 10:00 a.m.
(Toronto time) on such Drawdown Date or Conversion Date, be prepared to purchase
Bankers' Acceptances accepted by it and having a comparable issue and maturity
date as the issue and maturity date of such Bankers' Acceptance.
<PAGE>
Page 6
"DOLLARS" or "CANADIAN DOLLARS" or the symbol "$" shall mean lawful
currency of Canada.
"DOMESTIC LENDING OFFICE" shall mean, with respect to the Lender,
the office of the Lender located at 1 First Canadian Place, Suite 6900, Toronto,
Ontario, M5X 1A4 or such other office of the Lender as the Lender may from time
to time specify to the Borrower.
"DOMESTIC LETTERS OF CREDIT" shall mean each and every of the
letters of credit (whether documentary or otherwise) issued by an Issuing Bank
for the account of the Borrower as contemplated by section 2.15 of this
Agreement, the aggregate face amount of all such Domestic Letters of Credit not
to exceed $4,000,000.00 Canadian at any time and no more than twenty (20) such
Domestic Letters of Credit may be issued and outstanding at any time and the
aggregate face amount of all Domestic Letters of Credit which are standby
credits shall not, together with all standby letters of credit outstanding under
the U.S. Credit Agreement, exceed at any time in the aggregate Canadian Dollar
Equivalent of $2,000,000 U.S.
"DOMESTIC LETTER OF CREDIT USAGE" shall mean at any time the sum of
(i) the aggregate undrawn amount of all outstanding Domestic Letters of Credit
at such time plus (ii) the unreimbursed drawings at such time under the Lender's
Letter of Guarantee.
"DRAWDOWN DATE" shall mean the date upon which a Revolving Credit
Loan is made.
"ELIGIBLE INVENTORY" shall mean inventory of each of the Borrower
and Apparel Canada comprised solely of raw materials and finished goods (and
specifically excluding work in process) which is, in the reasonable opinion of
the Lender, not obsolete or slow-moving and is and at all times shall continue
to be acceptable to the Lender in all respects; provided, however, that Eligible
Inventory shall in no event include inventory (i) with respect to which the
Lender has not been granted and does not have a valid, first ranking hypothec or
first priority security interest or (ii) which has been returned and not
reclassified as inventory or rejected by a Customer. Standards of eligibility
may be fixed and revised from time to time solely by the Lender in the Lender's
exclusive reasonable judgment. In determining eligibility, the Lender may, but
need not, rely on reports and schedules furnished by the Borrower, but reliance
by the Lender thereon from time to time shall not be deemed to limit the right
of the Lender to revise standards of eligibility at any time as to both present
and future inventory of the Borrower.
"ELIGIBLE RECEIVABLES" shall mean Receivables created by each of the
Borrower and Apparel Canada in the ordinary course of business arising out of
the sale or lease of goods or rendering of services by the Borrower or Apparel
Canada, which
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are and at all times shall continue to be acceptable to the Lender in all
respects. Standards of eligibility may be fixed and revised from time to time
solely by the Lender in the Lender's exclusive reasonable judgment. 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 the underlying goods shipped or services performed, as the case may
be; (b) the payment due on the Receivable is not more than 60 days past the due
date when shipped on normal terms or not more than 30 days overdue when shipped
under dating programs providing for payment up to 210 days from invoice date;
(c) the payments due on more than 50% of all Receivables from the same Customer
are less than 60 days past the due date when shipped on normal terms or less
than 30 days past due when shipped under the dating programs referred to in (b)
above; (d) the Receivable arose from a completed and bona fide transaction (and
with respect to a sale of goods, a transaction in which title has passed to the
Customer) which requires no further act under any circumstances on the part of
the Borrower or Apparel Canada in order to cause such Receivable to be payable
in full by the Customer; (e) the Receivable is in full conformity with the
representations and warranties made by the Borrower to the Lender with respect
thereto and is free and clear of all security interests and Liens of any nature
whatsoever other than any security interest deemed to be held by the Borrower or
Apparel Canada or any security interest created pursuant to the Security
Documents or permitted by Section 7.01 of the U.S. Credit Agreement; (f) the
Receivable constitutes an "account" "claim" or "chattel paper" within the
meaning of the Personal Property Security Law of the province or other
jurisdiction in which the Receivable is located; (g) the Customer has not
asserted that the Receivable, and neither the Borrower nor Apparel Canada is
aware that the Receivable, (i) arises out of a bill and hold, consignment or
progress billing arrangement or (ii) 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 Receivable or independently
thereof (provided that such Receivable shall only be ineligible to the extent
thereof) and (iii) the Customer has finally accepted the goods from the sale 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 goods returned
in the ordinary course of business provided that such Receivable shall only be
ineligible with respect to that portion thereof which has been objected to or
which relates to goods returned, rejected or repossessed; (h) the Receivable
arose in the ordinary course of business of the Borrower or Apparel Canada; (i)
the Customer is not (x) the Canadian or the United States government or the
government of any state, province or political subdivision thereof or therein,
or any agency or department of any thereof or (y) an Affiliate of the Parent,
the Borrower or Apparel Canada or any subsidiary of the Parent; (j) the Customer
is a Canadian or United States person or an obligor located in Canada or the
United States, or an obligor located in another jurisdiction if the applicable
Receivable is covered by a letter of credit or credit insurance in favour of, or
assigned to, the Lender in form and substance satisfactory to the Lender; (k)
the Receivable complies with all material requirements of all applicable
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laws and regulations, whether Federal, provincial 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); (l) to the knowledge of the
Borrower or Apparel Canada, as relevant, 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; (m) the Receivable is denominated in and provides for payment by the
Customer in Canadian dollars or United States dollars; (n) 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 Borrower or
Apparel Canada, as applicable; (o) the Lender possesses a valid, perfected,
first ranking hypothec or first priority security interest, as the case may be,
in such Receivable as security for payment of the Obligations; (p) the
Receivable is not with respect to a Customer located in New Jersey, Minnesota,
or any other state or province denying creditors access to its courts in the
absence of a Notice of Business Activities Report or extra-provincial licence or
other similar filing, unless the Borrower or Apparel Canada, as applicable, has
either qualified as a foreign corporation authorized to transact business in
such province or state or has filed a Notice of Business Activities Report or
extra-provincial licence or similar filing with the applicable province or state
agency for the then current year; and (q) the Lender is satisfied with the
credit standing of the Customer in relation to the amount of credit extended.
"ENVIRONMENTAL CLAIM" shall mean any written notice of violation,
claim, deficiency, 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
non-accidental Releases), of, or exposure to, any Contaminant at, in, by or from
any of the properties of the Borrower or its 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
Borrower or its subsidiaries or (iii) the violation, or alleged violation by the
Borrower or any of its 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 Borrower or its subsidiaries, under any applicable Environmental Law.
"ENVIRONMENTAL LAWS" includes, without limitation, the Environmental
Protection Act (Ontario), the Ontario Water Resources Act, the Environment
Quality Act
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Page 9
(Quebec), the Canadian Environmental Protection Act, the Fisheries Act, and the
Transportation of Dangerous Goods Act, and the Canada Shipping Act, and their
United States equivalent, including, without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act (42 U.S.C. ss. 9601 et
seq.), the Hazardous Material Transportation Act (49 U.S.C. ss. 1801 et seq.),
the Resource Conservation and Recovery Act (42 U.S.C. ss. 6901 et seq.), the
Federal Water Pollution Control Act (33 U.S.C. ss. 1251 et seq.), the Oil
Pollution Act of 1990 (33 U.S.C. ss. 2701 et. seq.), the Safe Drinking Water Act
(42 U.S.C. ss. 300f, et seq.), the Clear Air Act (42 U.S.C. ss. 7401 et seq.),
the Toxic Substances Control Act, as amended (15 U.S.C. ss. 2601 et seq.), the
Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. ss. 136 et seq.),
and the Occupational Safety and Health Act (29 U.S.C. ss. 651 et seq.), as such
laws have been and hereafter may be amended or supplemented, and any related or
analogous present or future Federal, provincial, state or local, statutes, rules
having the force of law, regulations, ordinances, licenses, permits and
interpretations having the force of law and orders of regulatory and
administrative bodies.
"EVENT OF DEFAULT" shall have the meaning assigned to such term in
ARTICLE VIII hereof.
"EXCLUDED TAXES" shall have the meaning assigned to such term in
SECTION 2.14 hereof.
"FEDERAL" shall mean the federal level of government in both Canada
and the United States.
"FINANCIAL OFFICER" shall mean, the chief financial officer,
vice-president, finance or corporate controller of the Borrower.
"FIRST RATE" shall have the meaning assigned to such term in Section
2.05(c) hereof.
"FISCAL YEAR" shall mean the fiscal year of the Parent for
accounting purposes which as of the Closing Date ends on December 31 of each
year.
"GAAP" shall have the meaning assigned to such term in Section 1.02
hereof.
"GRANTOR" shall mean the Borrower and Apparel Canada and Trademark
Canada and any other party that is defined or described as a "Grantor",
"Corporation", "Company", "Mortgagor", "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 or giving
financial
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assistance in respect of the repayment of any Indebtedness or monetary
obligation of any other person in any manner, whether directly or indirectly,
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 monetary obligation or to purchase (or to
advance or supply funds for the purchase of) any security for the payment of
such Indebtedness or monetary 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 monetary 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 monetary 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. The amount of any Guarantee of
any guaranteeing person shall be deemed to be the lower of (a) an amount equal
to the stated or determinable amount of the primary obligation in respect of
which such Guarantee is made and (b) the maximum amount for which such
guaranteeing person may be liable pursuant to the terms of the instrument
embodying such Guarantee, unless such primary obligation and the maximum amount
for which such guaranteeing person may be liable are not stated or determinable,
in which case the amount of such Guarantee shall be such guaranteeing person's
maximum reasonably anticipated liability in respect thereof.
"HAZARDOUS MATERIAL" shall mean any pollutant, contaminant,
chemical, or industrial or hazardous, toxic or dangerous goods, 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 friable 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,
without limitation, to the extent that the applicable laws of any province,
state or municipality establish a meaning for "hazardous material," "hazardous
substance," "hazardous waste," "solid waste" or "toxic substance" which is
broader than that specified in any Federal Environmental Law, such broader
meaning shall apply in the relevant province, state, or municipality, as the
case may be.
"INDEBTEDNESS" shall mean, with respect to any person, without
duplication (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 (excluding trade accounts payable and
accrued expenses arising in the ordinary course of business in accordance with
customary trade terms), (c) all obligations of such person for the deferred
purchase price of property or services
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(excluding trade accounts payable and accrued expenses arising in the ordinary
course of business in accordance with customary trade terms), (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 or currency protection agreements, (f) all obligations of such
person under or in respect of bankers' acceptances and/or as an account party
under any letter of credit, (g) all Indebtedness 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 Indebtedness provided, however, that the amount of
Indebtedness of such person shall be the lesser of (i) the fair market value of
such property or assets and (ii) the amount of such Indebtedness), (h) all
Guarantees of such person and (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 Revolving Credit Termination Date.
"INDEMNITIES" shall have the meaning assigned to such term in
SECTION 10.04(C) hereof.
"INDENTURE TRUSTEE" shall mean the Trustee appointed pursuant to the
Senior Secured Note Indenture.
"INFORMATION" shall have the meaning assigned to such term in
SECTION 10.11 hereof.
"INTERCREDITOR AGREEMENT" shall mean the intercreditor agreement
dated as of the Closing Date among the Lender, Chase U.S. (on behalf of certain
other parties) and the Indenture Trustee on behalf of the holders of the Senior
Secured Notes with respect to Lien priorities and related matters.
"INTEREST PAYMENT DATE" shall mean with respect to any Bankers'
Acceptance, the last day of the Contract Period applicable thereto and, in the
case of a Prime Rate Loan the last Business Day of each month.
"INVESTOR GROUP" shall mean Wellspring Associates L.L.C. and its
Affiliates.
"ISSUING BANK" shall mean on the Closing Date, Royal Bank of Canada,
one of the chartered banks of Canada and thereafter any other chartered bank of
Canada which the Borrower proposes, from and after the Closing Date, acceptable
to the Lender, to which the Borrower applies for the issuance of one or more
Domestic Letters of Credit (in accordance with Section 2.15 hereof).
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"LENDER" shall have the meaning assigned to such term in the
preamble to this Agreement.
"LENDER'S LETTERS OF GUARANTEE" shall mean the standby letter or
letters of credit (or letters of guarantee) that the Lender will be issuing from
time to time in favour of an Issuing Bank as security for the Domestic Letters
of Credit issued by such Issuing Bank, such Lender's Letters of Guarantee being
limited to an aggregate maximum of $4,000,000.00 Canadian, to permit partial
draws and to otherwise be in the form of Exhibit "C" hereto.
"LIEN" shall mean, with respect to any asset, (i) any mortgage,
hypothec, lien, pledge, encumbrance, prior claim, 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 DOCUMENTS" shall mean this Agreement, each Security Document,
executed and delivered at any time with respect to the Obligations, the
Promissory Note and each other document, instrument or agreement now or
hereafter delivered by a Loan Party and constituting an agreement entered into
with the Lender in connection herewith or therewith.
"LOAN PARTY" shall mean the Borrower and any Grantor.
"MATERIAL ADVERSE EFFECT" shall mean (A) a material adverse effect
on (i) the business, assets, prospects, operations or financial or other
condition of the Loan Parties and the Parent taken as a whole, (ii) the ability
of any Loan Party or the Parent to perform its obligations under the terms
hereof or of any other Loan Document (or with respect to the Parent, the U.S.
Credit Agreement), (iii) the rights of, or remedies available to, the Lender
under any Loan Document, or (iv) the Lender's Lien on any material portion of
the Collateral or the priority of such Lien, or (B) a Material Adverse Effect as
defined under the U.S. Credit Agreement.
"MAXIMUM RATE" shall have the meaning assigned to such term in
Section 10.13 to this Agreement.
"MORTGAGE" shall mean the real property mortgage dated April ___,
1997, and executed by Apparel Canada in favour of the Lender charging property
in Mount Forest, Ontario, as amended, modified or supplemented from time to
time.
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"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.
"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, (ii) returns, discounts, claims,
credits and allowances of any nature at any time issued, owing, granted,
outstanding, available or claimed, (iii) a dilution reserve established from
time to time in the Lender's reasonable discretion and (iv) appropriate
adjustments for the conversion of Canadian dollars into United States dollars
(for purposes of any consolidated analysis of the Borrowing Base of the Borrower
and the borrowing base of the Parent under the U.S. Credit Agreement) and any
currency reserve established from time to time in the Lender's sole discretion.
"NET CASH PROCEEDS" shall mean (a) the gross cash proceeds received
less (b) the sum of (i) the amount, if any, of all taxes (other than income
taxes) payable plus the good-faith best estimate of the amount of all income
taxes payable (to the extent such amount shall have been set aside), (ii) the
amount, if any, applied to repay any Indebtedness (other than the Revolving
Credit Loans) including, without limitation, any premium, penalty, interest or
other amount in connection with such Indebtedness to the extent such
Indebtedness is required by its terms or by applicable law to be repaid, (iii)
reasonable and customary fees, discounts, commissions and expenses and other
costs paid (other than those paid to any Affiliate of the Parent) in connection
with the applicable transaction, (iv) reserves, if any, in connection with
indemnification or similar obligations, and (v) amounts held in escrow, if any,
in each case to the extent not already deducted in arriving at the amount
referred to in clause (a).
"NON-GUARANTEEING SUBSIDIARIES" shall mean Mitchel and King
Skates Ltd. and Sport Maska Europe S.A.R.L.
"NON-CANADIAN LENDER" shall have the meaning assigned to such term
in Section 2.14(f) hereof.
"OBLIGATIONS" shall mean all obligations, liabilities and
Indebtedness of the Borrower to the Lender, whether now existing or hereafter
created, direct or indirect, due or not, whether created directly or acquired by
assignment, participation or otherwise and arising in connection with the
transactions contemplated hereby, including without limitation all obligations,
liabilities and Indebtedness of the Borrower with respect to the Security
Documents and other Loan Documents, the principal of and interest on the
Revolving Credit Loans, Banker's Acceptances and the payment or performance of
all other obligations, liabilities, and Indebtedness of the Borrower to the
Lender hereunder, under or in respect of the Lender's Letters of Guarantee or
under any one or more of the other Loan Documents, including without
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limitation all fees, costs, expenses and indemnity obligations hereunder and
thereunder.
"OTHER TAXES" shall have the meaning assigned to such term in
Section 2.14(b) hereof.
"PARENT" shall mean SLM International, Inc., a corporation
incorporated under the laws of the State of Delaware.
"PERMITS" shall have the meaning assigned to such term in Section
4.16 hereof.
"PERSON" shall mean any natural person, corporation, business trust,
limited liability company, association, company, joint venture, partnership or
government or any agency or political subdivision thereof.
"PERSONAL PROPERTY SECURITY LAW" shall mean the Personal Property
Security Act of Ontario or other comparable statute or statutory provisions in
effect from time to time in any other province of Canada or any state in the
United States which deals with the perfection, registration, protection and
priority of Liens on Collateral.
"PLAN OF REORGANIZATION" shall mean the First Amended Joint Chapter
11 Plan (as modified) dated as of November 12, 1996, the First Modification
thereto dated January 16, 1997 and the Second Modification thereto dated January
22, 1997, as confirmed by order of the United States Bankruptcy Court for the
District of Delaware dated January 23, 1997 and the Third Modification thereto
dated April ___, 1997 as confirmed by order of the United States Bankruptcy
Court for the District of Delaware dated April ___, 1997.
"PLEDGE AGREEMENT" shall mean the Pledge Agreement dated as of the
date hereof, between the Grantor(s) referred to therein and Chase U.S. (on its
own behalf and as agent on behalf of certain other parties) in substantially the
form thereof annexed to the U.S. Credit Agreement as an exhibit thereto, as it
may be amended, modified or supplemented from time to time.
"PLEDGED STOCK" shall have the meaning assigned to such term in the
Pledge Agreement and the Quebec Pledge Agreement.
"PRIME RATE" shall mean the annual rate of interest in effect from
time to time equal to the greater of: (i) floating annual rate of interest
established from time to time by the Lender as the reference rate it will use
for purposes of determining rates of interest it will charge on Canadian Dollar
loans to customers in Canada and (ii) the CDOR Rate plus 1% per annum.
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"PRIME RATE LOAN" shall mean a Canadian Dollar advance by the Lender
to the Borrower hereunder in respect of which interest accrues at an annual rate
of interest equal to the Prime Rate.
"PROMISSORY NOTE" shall mean the promissory note of the Borrower,
executed and delivered as provided in Section 2.04 hereof, in substantially the
form of EXHIBIT "D" annexed hereto, as amended, modified or supplemented from
time to time.
"PROVINCIAL" shall mean the provincial level of government in
Canada.
"QUEBEC PLEDGE AGREEMENT" shall mean the share pledge agreement
dated as of the date hereof, between Trademark Canada and Chase U.S. in
substantially the form annexed to the U.S. Credit Agreement as an exhibit
thereto, as it may be amended, modified or supplemented from time to time.
"REBUILDING" shall have the meaning assigned to such term in Section
2.10(d) hereof.
"RECEIVABLES" shall mean and include all of the Borrower's (and
where the context requires Apparel Canada's) accounts, instruments, documents,
chattel paper and general intangibles related thereto, whether secured or
unsecured, whether now existing or hereafter created or arising, and whether or
not specifically assigned to the Lender.
"REGISTER" shall have the meaning ascribed thereto in Section
5.02(f).
"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;
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.
"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 Borrower or any other Loan Party
(whether such property is owned, leased, subleased or used), including, without
limitation, with respect to Contaminants and the Release thereof.
"RESPONSIBLE OFFICER" shall mean, with respect to any person, any
vice president or president, or the Financial Officer of such person.
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"REVOLVING CREDIT COMMITMENT" shall mean the commitment of the
Lender to make or extend Credit hereunder to the Borrower in an aggregate amount
at any time outstanding not in excess of the Canadian Dollar Equivalent of
$35,000,000.00 U.S., or if applicable, such amount as reduced from time to time
pursuant to this Agreement including, without limitation, Section 2.08 hereof.
"REVOLVING CREDIT COMMITMENT FEE" shall have the meaning set forth
in Section 2.06 hereof.
"REVOLVING CREDIT LOAN" shall mean a revolving credit loan in the
form of a Prime Rate Loan made in Canadian Dollars pursuant to Sections 2.01 and
2.02 hereof and otherwise subject to the provisions hereof.
"REVOLVING CREDIT TERMINATION DATE" shall mean the earlier to occur
of (i) April 3, 2000 (or April 3, 2001, if so extended by the Lender in its sole
discretion upon notice to the Borrower given no later than 60 days prior to
April 3, 2000, provided that if Chase U.S. agrees to extend the term of the U.S.
Credit Agreement with the Parent, this Agreement shall be correspondingly
extended for the same period of time provided that the term of this Agreement
shall always mature and expire on the fifth (5th) Business Day preceding the
maturity and expiration of the term in the U.S. Credit Agreement; provided
further however that the term of this Agreement shall not be extended beyond
April 3, 2000, in any event, unless the Lender has received a corresponding
extension of the expiry date of the Chase U.S. Letter of Credit, in form and
substance satisfactory to the Lender) and (ii) such earlier date on which the
Revolving Credit Commitment shall terminate, expire or be cancelled in
accordance with the terms of this Agreement.
"SEASONAL AMOUNT" shall mean at any time an amount designated by the
Borrower (which may be zero) not to exceed (i) the Canadian Dollar Equivalent of
$5,000,000.00 U.S. during the period commencing five days subsequent to the
Closing Date through October 31, 1997; the Canadian Dollar Equivalent of
$4,000,000.00 U.S. during a seven month period to be mutually agreed upon by the
Lender and the Borrower in Fiscal Year 1998; the Canadian Dollar Equivalent of
$3,000,000.00 U.S. during a seven month period to be mutually agreed upon by the
Lender and the Borrower in Fiscal Year 1999; and if the Revolving Credit
Commitment is extended as provided for herein, an amount determined in the
Lender's sole discretion and agreed to by Chase U.S. (but in no event less than
the Canadian Dollar Equivalent of $2,000,000.00 U.S.) during a seven month
period to be mutually agreed upon by the Lender and the Borrower and consented
to by Chase U.S. in Fiscal Year 2000 less (ii) the "Seasonal Amount" as that
term is defined in, and as designated to Chase U.S. under the U.S. Credit
Agreement.
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"SECURITY AGREEMENTS" shall mean the Debentures and deeds of
hypothec dated as of April 1, 1997, between the Grantor(s) and the Lender in
form and substance satisfactory to the Lender, as amended, modified or
supplemented from time to time.
"SECURITY AGREEMENTS (INTELLECTUAL PROPERTY)" shall mean the
Security Agreements (Intellectual Property), dated as of April 1, 1997 by
Apparel Canada, Sport Maska, Trademark Canada in favour of the Lender, in form
and substance satisfactory to the Lender, as amended, modified or supplemented
from time to time.
"SECURITY DOCUMENTS" shall mean the Security Agreements, the Pledge
Agreement, the Security Agreement (Intellectual Property), the Mortgage, the
Bank Act Security, the Guarantee of Trademark Canada and the Guarantee of
Apparel Canada and each other agreement described in Schedule 1.01 or hereafter
created providing collateral security for the payment or
performance of any of the Obligations.
"SENIOR SECURED NOTE INDENTURE" shall mean that certain Senior
Secured Note Indenture, dated as of April 1, 1997, among the Parent, as issuer,
the guarantors named therein, as guarantors, and The Bank of New York, as
Trustee.
"SENIOR SECURED NOTES" shall mean the Parent's 14% Senior Secured
Notes due 2004, issued pursuant to the Senior Secured Note Indenture, in the
original principal amount of $29,500,000.00 U.S.
"SHAREHOLDERS' AGREEMENT" shall mean the Stockholders Agreement
dated as of April ___, 1997 among the Parent and the Stockholders signatory
thereto, as the same may be amended, supplemented, extended or restated from
time to time.
"SPECIAL DEPOSIT" shall have the meaning assigned to such term in
Section 2.10(d) hereof.
"STATE" shall mean the state level of government in the United
States.
"ST-LAWRENCE" shall mean St-Lawrence Manufacturing Canada
Inc./Manufactures St-Laurent Canada Inc., a corporation incorporated under the
federal laws of Canada.
"SUBSIDIARY" shall mean, with respect to any person, any
corporation, partnership, association or other business entity of which
securities or other ownership interests representing more than 50% of the equity
or 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
such person and/or one or more subsidiaries of such person but in no event shall
include an Inactive Subsidiary (as that last term is defined in the U.S. Credit
Agreement).
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"TAXES" shall have the meaning assigned to such term in Section
2.14(a) hereof.
"TRADEMARK CANADA" shall mean SLM Trademark Acquisition Canada
Corporation, a corporation continued under the laws of the Province of New
Brunswick.
"TRANSACTIONS" shall have the meaning assigned to such term in
SECTION 4.02 hereof.
"U.S. CREDIT AGREEMENT" shall mean the credit agreement dated as
of April 1, 1997 among Chase U.S. (on its own behalf and in its capacity as
agent for certain other parties) and SLM International, Inc., Maska U.S.,
Inc. and #1 Apparel, Inc. as the same may be amended, supplemented, extended
or restated from time to time.
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 Canada
("GAAP"); provided, however, that for purposes of determining compliance with
the covenants contained in Article VII, all accounting or financial terms herein
shall be interpreted and all accounting determinations shall be made in
accordance with GAAP as in effect on the date of this Agreement and applied on a
basis consistent with that used in the audited financial statements referred to
in Section 4.07.
ARTICLE II
THE CREDIT FACILITY
SECTION 2.01. Revolving Credit Commitment. (a) Subject to the terms
and conditions herein and relying upon the representations and warranties herein
set forth, the Lender agrees to make or extend Credit to the Borrower, 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 the Revolving Credit Commitment. Notwithstanding the
foregoing, the aggregate principal amount of Credit outstanding at any time
shall not exceed (1) the lesser of (a) the Revolving Credit Commitment (as such
amount may be reduced pursuant to this Agreement including, without limitation,
Section 2.08 hereof) and (b) an amount equal to the sum of (i) eighty percent
(80%) of the Net Amount of Eligible Receivables, plus (ii) the lesser of (A) the
Canadian Dollar Equivalent of $20,000,000.00 U.S. and (B) fifty percent (50%) of
the Net Amount of Eligible Inventory (such sum referred to herein as the
"BORROWING BASE") plus (iii) the Seasonal Amount, if any, minus (2) the sum of
(x) the unpaid principal balance of Revolving Credit Loans together with all
reserves established by the Lender and referred to in the definition of
Availability and (y) the Domestic Letter of Credit Usage at such time and (z)
the aggregate of all outstanding
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Bankers' Acceptances and all outstanding liability of the Borrower to reimburse
the Lender for matured Bankers' Acceptances. The Borrowing Base will be computed
weekly (or more frequently if requested by the Lender) and a compliance
certificate from a Responsible Officer of the Borrower presenting its
computation will be delivered to the Lender and to Chase U.S. in accordance with
Section 6.05 of the U.S. Credit Agreement.
Subject to the foregoing and within the foregoing limits, the
Borrower may borrow, repay (or, subject to the provisions of Section 2.10
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 Credit shall be made hereunder if the amount thereof exceeds
the Availability outstanding at such time.
SECTION 2.02. Revolving Credit Loans. (a) The Revolving Credit
Loans made by the Lender on any date to the Borrower shall be in a minimum
amount of $100,000.00 and in integral multiples of $100,000.00.
(b) The initial Revolving Credit Loans shall be made by the Lender
against delivery of the Promissory Note, payable to the order of the Lender, as
referred to in Section 2.04 hereof.
(c) Each Revolving Credit Loan shall be by way of a Prime Rate Loan.
Provided that the Borrower has complied with its obligations hereunder, the
Lender may provide such Revolving Credit Loan under this Agreement by causing
its Domestic Lending Office to make or issue such Revolving Credit Loans.
SECTION 2.03. Notice of Credit. The Borrower shall, through a
Responsible Officer of the Borrower, give the Lender (with a copy to Chase U.S.)
irrevocable written, facsimile or telephonic notice (promptly confirmed by
written or facsimile notice) of each requested borrowing not later than 11:00
A.M., Toronto time, (i) one Business Day before a Prime Rate Loan borrowing or
conversion of another form of Credit to a Prime Rate Loan and (ii) three (3)
Business Days before the obtaining of Credit by way of Bankers' Acceptances or
rollover at maturity of Bankers' Acceptances and (iii) three (3) Business Days
before requesting that the Issuing Bank issue a Domestic Letter of Credit. Such
notice shall specify (w) whether the Credit then being requested is to be a
Prime Rate Loan or Bankers' Acceptance or request for consent to a Domestic
Letter of Credit being issued by an Issuing Bank, (x) the date of such borrowing
(which shall be a Business Day) and amount thereof, and (y) if a Bankers'
Acceptance, the Contract Period for such Bankers' Acceptance and (z) if a
Domestic Letter of Credit, the proposed amount and term of the Domestic Letter
of Credit and identity and address of the proposed Issuing Bank.
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SECTION 2.04. Promissory Note; Repayment of Revolving Credit Loans.
(a) All Prime Rate Loans made by the Lender to the Borrower shall be evidenced
by a single Promissory Note, duly executed by the Borrower, dated the Closing
Date, in substantially the form of EXHIBIT "D" annexed hereto, delivered and
payable to the Lender in a principal amount equal to the Revolving Credit
Commitment on such date. The outstanding balance of each Revolving Credit Loan,
shall mature and be due and payable on the Revolving Credit Termination Date.
(b) The Promissory Note shall bear interest from its date on the
outstanding principal balance thereof, as provided in Section 2.05 hereof.
(c) The Lender shall, and is hereby authorized by the Borrower to,
endorse on the schedule attached to the Promissory Note (or on a continuation of
such schedule attached to the Promissory Note and made a part thereof) an
appropriate notation evidencing the date and amount of each Prime Rate Loan to
the Borrower from the 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 the Promissory Note shall not affect any
obligations of the Borrower under the Promissory Note. Any such notation shall
be conclusive and binding as to the date and amount of such Prime Rate Loan or
portion thereof, or payment or prepayment of principal or interest thereon,
absent manifest error.
SECTION 2.05. Interest on Revolving Credit Loans. (a) Subject to the
provisions of Section 2.05(b) and Section 2.09 hereof, each Prime Rate Loan
shall bear interest at a rate per annum equal to the Prime Rate calculated
monthly in arrears from the date of each advance.
(b) Interest on each Prime Rate Loan shall be payable in arrears on
each applicable Interest Payment Date and on the Revolving Credit Termination
Date. Interest on each Prime Rate Loan shall be computed based on a 360 day
year. The Lender shall determine the interest rate applicable to each Prime Rate
Loan and shall promptly advise the Borrower of the interest rate so determined.
(c) For purposes of disclosure under the Interest Act (Canada),
where interest is calculated pursuant to this Agreement at a rate based on a 360
day year (the "First Rate") it is hereby agreed that the rate or percentage of
interest expressed as an annual rate for purposes of such Act is equivalent to
such First Rate multiplied by the actual number of days in the applicable
calendar year, divided by 360.
SECTION 2.06. Fees. The Borrower shall pay to the Lender (i) on the
first Business Day of each January, April, July and October commencing July 1,
1997, (ii) on the date of any reduction of the Revolving Credit Commitment
pursuant to this Agreement including, without limitation, Section 2.08 hereof
and (iii) on the Revolving Credit Termination Date, in immediately available
funds, a commitment fee (the
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"Revolving Credit Commitment Fee") of 1/8 of 1% per annum on the average daily
unused amount of the Revolving Credit Commitment during the preceding quarter
(or shorter period commencing with the Closing Date or ending with the Revolving
Credit Termination Date) ending immediately prior to such date. The Revolving
Credit Commitment Fee due to the 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 pursuant to this Agreement including, without limitation,
pursuant to Section 2.08 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.
SECTION 2.07. Bankers' Acceptances. (a) The Borrower shall pay
to the Lender the Acceptance Fee on the undiscounted face amount of each
Bankers' Acceptance accepted by the Lender hereunder. Such fee shall be paid
upon acceptance by the Lender of such Bankers' Acceptance.
(b) The Lender shall not accept any bill of exchange drawn by the
Borrower to be a Bankers' Acceptance hereunder which:
(i) is drawn on or which matures on a day which is not a
Business Day;
(ii) matures subsequent to the Revolving Credit Termination
Date;
(iii) has a Contract Period exceeding 180 days;
(iv) is denominated in any currency other than Canadian
Dollars;
(v) is less than $100,000 or not in whole integral multiples
thereof;
(vi) is not otherwise in a form satisfactory to the Lender; or
(vii) in respect of which the Borrower has not then paid the
applicable Acceptance Fee.
(c) The Borrower hereby renounces, and shall not claim or request or
require the Lender to claim, any days of grace for the payment of any Bankers'
Acceptances.
(d) Upon acceptance of a Bankers' Acceptance of the Borrower by the
Lender, the Borrower may offer to sell Bankers' Acceptances to the Lender at the
Discount Rate and, if purchased, the Lender shall credit the Discount Proceeds
received to the Borrower's account maintained with the Lender or as the Borrower
may otherwise direct. The Acceptance Fee payable by the Borrower to the Lender
in respect
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of each Bankers' Acceptance accepted and purchased by the Lender shall be set
off against the Discount Proceeds payable by the Lender under this Section
2.07(d).
(e) The Borrower hereby unconditionally agrees to pay to the Lender
at the Lender's Domestic Lending Office (or as it may otherwise direct) on the
maturity date (whether at stated maturity, by acceleration hereunder or
otherwise) of each Bankers' Acceptance, the aggregate undiscounted face amount
of each then maturing Bankers' Acceptance and in this regard, the Borrower
hereby authorizes the Lender to debit the Concentration Accounts or any account
of the Borrower with the Lender with the amount(s) required to pay the full
undiscounted face amount of such Bankers' Acceptance, notwithstanding the fact
that such Bankers' Acceptance may be held by the Lender in its own right at
maturity. The obligation of the Borrower to reimburse and pay the Lender for
then maturing Bankers' Acceptances may be satisfied (provided no Event of
Default has occurred and is subsisting or no event has occurred which, but for
notice being given or grace periods expiring (or both) would be an Event of
Default and provided that there is sufficient Availability) by the Borrower
requesting, in accordance with and subject to this Agreement either: that a
Revolving Credit Loan equal to the undiscounted face amount of all then maturing
Bankers' Acceptances be made to it; or that new Bankers' Acceptances be issued,
accepted by the Lender and sold at discount in sufficient amounts to repay the
undiscounted face amount of the then maturing Bankers' Acceptances. The Borrower
acknowledges and agrees that any and all Security Documents now or hereafter
held by the Lender for the payment of all or any portion of the Indebtedness and
Obligations shall be held by the Lender as continuing collateral security for,
among other things, repayment of the indebtedness and liability of the Borrower
to the Lender in respect of all Bankers' Acceptances.
(f) To facilitate the acceptance by the Lender of bills of exchange
to be Bankers' Acceptances as contemplated by this Agreement, the Borrower shall
supply the Lender, at the Lender's request, with such number of bills of
exchange as the Lender may request in form acceptable to the Lender, duly
executed by the Borrower. The Lender shall exercise such care in the custody and
safekeeping of such bills of exchange as the Lender gives to similar property
owned by it. Drafts to be accepted as Bankers' Acceptances shall be signed by an
officer or officers of the Borrower who are duly authorized by the Borrower to
execute the Bankers' Acceptances on behalf of the Borrower. The signatures on
behalf of the Borrower may be mechanically reproduced in facsimile, and any such
signatures shall be binding on the Borrower as if such signatures had been
manually inscribed by the persons or other parties duly authorized to sign on
behalf of the Borrower. Notwithstanding that any one or more individuals or
other parties whose manual or facsimile signature appears on any bill as a
signatory on behalf of the Borrower, may no longer hold office or be an
authorized signatory at the date of such bill or at the date of its acceptance
by the Lender hereunder or at any time thereafter, any Bankers' Acceptance
signed as aforesaid on behalf of the Borrower shall be valid and binding upon
the Borrower and the Lender shall be entitled to rely
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on the most recent certificates of signing authority delivered to it by the
Borrower, until the Lender receives notice in writing of a change of authorized
signatures (with sample signatures of such authorized signatories).
(g) Subject to the following subparagraph (h), no prepayment of any
Bankers' Acceptance shall be made by the Borrower to the Lender prior to the
maturity date of such Bankers' Acceptance.
(h) Upon the occurrence of an Event of Default, notwithstanding the
date of maturity of any outstanding Bankers' Acceptances, the Borrower shall pay
to the Lender forthwith upon demand by the Lender, an amount equivalent to the
amount or amounts required to pay:
(i) on maturity, the undiscounted face amount of all
outstanding Bankers' Acceptances which the Lender is
required to honour; and
(ii) all unpaid acceptance fees, if any, owed to the Lender
and, except for any amount payable in respect of unpaid acceptance fees, all
such amounts shall be deposited into an interest-bearing cash collateral account
to be held by the Lender as additional security for payment of the undiscounted
face amount of such outstanding Bankers' Acceptances upon maturity and accrued
interest on such cash collateral, at the option of the Lender, may either be
credited to the Borrower or applied against any Indebtedness or Obligations
which continues to be outstanding.
(i) For purposes of certainty, if the Borrower wishes to obtain
Credit in the form of new Banker's Acceptances, to repay maturing Banker's
Acceptances at their respective maturity, it may request the Lender to rollover
such Credits in the form of new Banker's Acceptances, subject to the provisions
of section 2.07(e) above.
SECTION 2.08. Termination and Reduction of Revolving Credit
Commitment. (a) Upon at least three (3) Business Days' prior irrevocable
written, facsimile or telephonic notice (promptly confirmed by written or
facsimile notice) to the Lender, the Borrower may at any time in whole
permanently repay and thereby terminate, or from time to time in part
permanently reduce, the Revolving Credit Commitment provided, however, that the
Revolving Credit Commitment shall not be reduced at any time to an amount less
than the Revolving Credit Loans outstanding under the Revolving Credit
Commitment at such time. Each partial reduction of the Revolving Credit
Commitment shall be in a minimum of $100,000.00 and integral multiples thereon
of $100,000.00.
(b) Simultaneously with any termination or reduction of the
Revolving Credit Commitment pursuant to this Section 2.08, the Borrower shall
pay to the Lender
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the Revolving Credit Commitment Fee accrued and unpaid through and excluding the
date of such termination or reduction on the amount of the Revolving Credit
Commitment terminated or reduced.
(c) The Revolving Credit Commitment shall be permanently reduced on
each date that a prepayment of principal of the Credit is required pursuant to
Section 2.10(c) hereof by the amount of each such required prepayment. In any
event, the Revolving Credit Commitment of the Lender shall automatically and
permanently terminate on the Revolving Credit Termination Date, and all Credit
still outstanding on such date shall be due and payable in full together with
accrued interest thereon.
SECTION 2.09. Interest on Overdue Amounts; Alternate Rate of
Interest. If the Borrower shall Default in the payment of the principal of or
interest on any Credit or any other amount becoming due hereunder, by
acceleration or otherwise, the Borrower shall on demand from time to time pay
interest, to the extent permitted by law, on all overdue 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
Prime Rate calculated daily on such amount overdue and payable on demand.
SECTION 2.10. Prepayment of Credits. (a) The Borrower shall not have
the right to prepay any Bankers' Acceptance prior to its maturity. Subject to
the terms and conditions contained in this Section 2.10. and elsewhere in this
Agreement, the Borrower shall have the right to prepay any Prime Rate Loan at
any time and from time to time in whole or in part without penalty (except as
otherwise provided for herein) provided however that each such partial
prepayment of a Prime Rate Loan shall be in an integral multiple of $100,000.00.
(b) The Borrower shall make prepayments of the Prime Rate Loans or
other Credits from time to time such that Availability equals or exceeds zero at
all times. On the date of any termination or reduction of the Revolving Credit
Commitment pursuant to Section 2.08 hereof or elsewhere in this Agreement, the
Borrower shall pay or prepay so much of the Credit as shall be necessary in
order that the Availability equals or exceeds zero following such termination or
reduction; provided, however, that the Borrower shall not be required to make
any prepayment of any Bankers' Acceptance pursuant to this Section until the
last day of the Contract Period with respect thereto so long as an amount equal
to such prepayment is deposited by the Borrower in a cash collateral account
with the Lender to be held in such account on terms satisfactory to the Lender
(if not previously applied, such cash collateral shall be applied by the Lender
on the last day of the Contract Period to satisfy the Obligations).
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(c) Within three (3) days of the receipt of Net Cash Proceeds from
(i) the sale or other disposition of any assets of the Borrower or any of its
subsidiaries (excluding sales permitted by Section 7.05 of the U.S. Credit
Agreement) or of the capital stock of any of the Borrower or CCM (subject to
Section 7.05 of the U.S. Credit Agreement) or (ii) the consummation of the
issuance of any debt securities of the Borrower not permitted by Section 7.03 of
the U.S. Credit Agreement, the Borrower unless otherwise consented to by the
Lender shall make a mandatory prepayment of the Credit in an amount equal to
100% of the Net Cash Proceeds received, which proceeds shall be applied as set
forth in paragraph (e) below. Nothing contained in this paragraph (c) shall be
or be deemed to be a consent to the sale of any assets or stock or the issuance
of any stock or debt securities.
(d) (i) Except as provided in clause (ii) below, promptly and in any
event not more than one Business Day following the receipt by the Lender or the
Borrower or any subsidiary of the Borrower of any (x) net proceeds in excess of
the Canadian Dollar Equivalent of $250,000.00 U.S. (or, if there shall have
occurred and be continuing a Default or Event of Default, of the full amount of
net proceeds) of any casualty insurance required to be maintained pursuant to
Section 6.03 of the U.S. Credit Agreement on account of each separate loss,
damage or injury (each, a "Casualty Event") to any asset of the Borrower or any
subsidiary of the Borrower (including, without limitation, any Collateral), or
(y) net proceeds in excess of the Canadian Dollar Equivalent of $250,000.00 U.S.
(or, if there shall be continuing a Default or Event of Default, of the full
amount of net proceeds) of any business interruption insurance required to be
maintained pursuant to Section 6.03 of the U.S. Credit Agreement on account of
any business interruption event (each, a "BI Event"), the Borrower shall notify
the Lender of such receipt in writing, by fax or by telephone (promptly
confirmed by written or facsimile notice), and not later than one (1) Business
Day following receipt by the Lender or the Borrower or such subsidiary of any
such proceeds, there shall become due and payable a prepayment of the Revolving
Credit Loans in an amount equal to 100% of such proceeds. Prepayments from such
net proceeds shall be applied as set forth in paragraph (e) below.
(ii) In the case of the receipt of net proceeds described in clause
(i) above with respect to a Casualty Event or BI Event, the Borrower may elect,
by written notice delivered to the Lender not later than the day on which a
prepayment would otherwise be required under clause (d)(i) above: (x) in the
case of proceeds received with respect to a BI Event, to use such proceeds in
the ordinary course of the Borrower's business and (y) in the case of proceeds
received with respect to any Casualty Event, to apply all or a portion of such
net proceeds for the purpose of replacing, repairing, restoring or rebuilding
(referred to herein as a "Rebuilding") the relevant asset, and, in any such
event, any required prepayment under clause (i) above shall be reduced dollar
for dollar by the amount of such election and application of proceeds under
clause (x) or clause (y) of this sentence. An election under this clause (ii)
shall not be effective
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unless: (x) at the time of such election there is no
continuing Default or Event of Default; (y) the Borrower shall have certified to
the Lender that: (i) the net proceeds of the insurance adjustment with respect
to a Casualty Event, together with other funds available to the Borrower shall
be sufficient to complete such Rebuilding in accordance in all material respects
with all applicable laws, regulations and ordinances; and (ii) no Default or
Event of Default has arisen or will arise as a result of such BI Event, Casualty
Event or Rebuilding; and (z) if the amount of net proceeds in question exceeds
the Canadian Dollar Equivalent of $3,000,000.00 U.S., the Borrower shall further
provide to the Lender evidence satisfactory to the Lender that the replacement
tangible property will have a value to the operation of the Borrower's business
comparable to the replaced tangible property and that such replacement tangible
property is subject to the Security Documents.
(iii) In the event of an election under clause (ii) above, pending
application of the net proceeds to business operations with respect to a BI
Event or to Rebuilding with respect to a Casualty Event, the Borrower 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 Lender, the balance, if any, of such
net proceeds remaining after such application, pursuant to agreements in form,
scope and substance reasonably satisfactory to the Lender. The Special Deposit,
together with all interest on such Special Deposit, shall be available to the
Borrower solely for the applicable Rebuilding or ordinary course business
operations, as the case may be; provided, however, that at such time as a
Default or Event of Default shall occur, the balance of the Special Deposit and
interest thereon may be applied by the Lender to repay the Obligations in such
order as the Lender shall elect. The Lender 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 and, in the case of Rebuilding, that the withdrawal is equivalent to
the value of the improvements being rebuilt.
(e) When making a prepayment, pursuant to paragraph (a) above, the
Borrower shall furnish to the Lender, not later than 11:00 a.m. (Toronto time)
three (3) Business Days prior to the date of such prepayment of Prime Rate
Loans, written, facsimile or telephonic notice (promptly confirmed by written or
facsimile notice) of prepayment which shall specify the prepayment date and the
principal amount of each Revolving Credit Loan (or portion thereof) to be
prepaid, which notice shall be irrevocable and shall commit the Borrower to
prepay such Revolving Credit 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 (c) or (d)(i) above shall be
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governed by Section 2.09(f) of the U.S. Credit Agreement and, when received,
shall be applied by the Lender on such parts of the Obligations, in such order,
as the Lender determines in its discretion; provided, however, that if at the
time of the making of any prepayment in accordance with paragraphs (c) or (d),
there are outstanding Bankers' Acceptances or Domestic Letters of Credit (or
both), then in the discretion of the Lender, all or a portion of any such
prepayment (not to exceed an amount equal to the aggregate face amount of all
such outstanding Bankers' Acceptances and Domestic Letters of Credit) shall be
deposited by the Borrower in a cash collateral account to be held by the Lender
for application by the Lender to the payment of any drawing made under any such
Bankers' Acceptances on maturity thereof.
(f) Except as otherwise expressly provided in this Section 2.10,
payments with respect to any paragraph of this Section 2.10 are in addition to
payments made or required to be made under any other paragraph of this Section
2.10.
SECTION 2.11. Reserve Requirements; Change in Circumstances. (a)
Notwithstanding any other provision herein, if after the date of this Agreement
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), shall: (i) subject the Lender (which shall for the purpose of this Section
2.11 include any lending office of the 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 to the Lender with respect to any Credit made by the Lender to the Borrower
or with respect to the obligations of the Lender under Sections 2.15 through
2.18 hereof (other than (x) taxes imposed on the overall net income of the
Lender, (y) franchise or capital taxes imposed on the Lender; and (z) taxes
imposed by reason of any connection between the jurisdiction imposing such tax
and the Lender or its applicable lending office other than a connection arising
solely from this Agreement) (ii) change the basis of taxation of payments to the
Lender of the principal of or interest on any Credit or any other fees or
amounts payable with respect to any Bankers' Acceptance or letters of credit or
otherwise hereunder (other than (x) taxes imposed on the overall net income of
the Lender (y) franchise or capital taxes imposed on the Lender and (z) taxes
imposed by reason of any connection between the jurisdiction imposing such tax
and the Lender or its applicable lending office other than a connection arising
solely from this Agreement); (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 the Lender; or
(iv) impose on the Lender, any other condition affecting this Agreement; and the
result of any of the foregoing shall be to increase the cost to the Lender of
making or maintaining any Credit, or to reduce the amount of any payment
(whether of principal, interest, fee, compensation or otherwise) receivable by
the Lender, then the Borrower shall pay to the Lender upon the Lender's demand,
such additional amount or amounts as will compensate the Lender for such
additional costs or reduction. The Lender
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agrees to give notice to the Borrower of any such change in law, regulation,
interpretation or administration with reasonable promptness after becoming
actually aware thereof and of the applicability thereof to all or any of the
Transactions. Notwithstanding anything contained herein to the contrary, nothing
in clause (i) or (ii) of this Section 2.11(a) shall be deemed to (x) permit the
Lender to recover any amount thereunder which would not be recoverable under
Section 2.14 hereof or (y) require the Borrower to make any payment of any
amount to the extent that such payment would duplicate any payment made by the
Borrower pursuant to Section 2.14 hereof.
(b) If at any time and from time to time the Lender shall determine
that the adoption after the date of this Agreement of any applicable law, rule,
regulation or guideline regarding capital adequacy, or any change after the date
of this Agreement 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 after the date of this Agreement in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by the Lender
(or its lending office) with any request or directive regarding capital adequacy
issued or adopted after the date hereof (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 the Lender's capital or on the capital
of the Lender's holding company, if any, as a consequence of its obligations
hereunder to a level below that which the Lender could have achieved but for
such adoption, change or compliance (taking into consideration the Lender's
policies and the policies of the Lender's holding company with respect to
capital adequacy) by an amount deemed by the Lender to be material, then from
time to time the Borrower shall pay to the Lender upon the Lender's demand
therefor such additional amount or amounts as will compensate the Lender for
such reduction. The Lender agrees to give notice to the Borrower 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 all or any one or more
Transactions.
(c) A statement of the Lender setting forth such amount or amounts,
supported by calculations in reasonable detail, as shall be necessary to
compensate the Lender as specified in paragraphs (a) and (b) above shall be
delivered to the Borrower and shall be conclusive absent manifest error. The
Borrower shall pay the Lender the amount shown as due on any such statement
within ten (10) days after its receipt of the same.
(d) Failure on the part of the Lender to demand compensation for any
increased costs, reduction in amounts received or receivable with respect to any
Credit
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in the rate of return earned on the Lender's capital, shall not constitute a
waiver of the Lender's rights to demand compensation for any increased costs or
reduction in amounts received or receivable or reduction in rate of return in
respect of such Credit or any other Credit. The protection under this Section
2.11 shall be available to the Lender 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 the Lender for compensation.
(e) In claiming any additional amounts payable pursuant to this
Section 2.11 the Lender agrees to use reasonable efforts (consistent with legal
and regulatory restrictions) to designate a different office or branch of the
Lender 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 the Lender, be otherwise disadvantageous to the Lender.
SECTION 2.12. Indemnity. The Borrower shall indemnify the Lender
against any loss or reasonable expense which the 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 Lender under this Agreement or any other agreement, or at
law): (a) any failure of the Borrower to fulfill on the date of any Credit Event
the applicable conditions set forth in Article V hereof applicable to it; (b)
any failure of the Borrower to borrow hereunder after irrevocable notice of
borrowing pursuant to Section 2.03 hereof has been given; (c) any payment,
prepayment or conversion of a Bankers' Acceptance on a date other than the last
day of the relevant Contract Period; (d) any default in payment or prepayment of
the principal amount of any Credit or any part thereof or interest accrued
thereon, or with respect to any letters of credit issued by the Lender for the
account of the Borrower, in each case as and when due and payable (at the due
date thereof, by irrevocable notice of prepayment or otherwise); or (e) any
default in payment of any amount, commission or fee in respect of the issuance
or renewal of the Lender's Letters of Guarantee. Such loss or reasonable expense
shall include, without limitation, an amount as reasonably determined by the
Lender 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 (or, in the case of a failure to borrow by way
of Bankers' Acceptances on the last day of the Contract Period for such Bankers'
Acceptance which would have commenced on the date of such failure to borrow), at
the applicable rate of interest for such Credit provided for herein over (ii)
the amount of interest (as reasonably determined by the Lender) that would be
realized by the Lender in reemploying the funds so paid, prepaid or converted or
not borrowed for such period or Contract Period, as the case may be. The Lender
shall provide to the Borrower a statement, signed by an officer of the Lender,
explaining any loss or expense and setting forth, if applicable, the computation
pursuant to the preceding
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sentence, and such statement shall be conclusive absent manifest error. The
Borrower shall pay the Lender the amount shown as due on any such statement
within ten (10) days after the receipt of the same. The indemnities contained
herein shall survive the expiration or termination of this Agreement.
SECTION 2.13. Payments and Computations. The Borrower shall make
each payment hereunder and under any instrument delivered hereunder not later
than 12:00 noon (Toronto time) on the day when due in lawful money of Canada (in
freely transferable dollars) to the Lender at its offices at 1 First Canadian
Place, Suite 6900, Toronto, Ontario, M5X 1A4, in immediately available funds,
without set-off, compensation or counterclaim. Any amounts received after such
time on any date may, in the discretion of the Lender, be deemed to have been
received on the next succeeding Business Day for purposes of calculating
interest thereon. The Lender may charge, when due and payable, any of the
Borrower's accounts with the Lender or the Concentration Accounts or all or any
combination of them for all interest, principal and Revolving Credit Commitment
Fees or other fees owing to the Lender on or with respect to this Agreement
and/or the 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 Borrower shall make any
such payments upon demand.
SECTION 2.14. Taxes. (a) Any and all payments by the Borrower for
the account of the Lender hereunder shall be made, 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 Canada or any political
subdivision thereof, excluding:
(i) in the case of the Lender (or any participant), (A) taxes
imposed or based on its net income, and franchise or
capital taxes imposed on it (including withholding with
respect to taxes imposed or based on its net income or with
respect to franchise or capital taxes), or (B) taxes
payable under laws (including, without limitation, any
treaty, ruling, determination or regulation) in effect on
the date hereof (or in effect on the date a participant
acquires from the Lender a participation in this Agreement)
but not any increase in withholding tax resulting from any
subsequent change in such laws,
(ii) taxes (including withholding taxes) imposed by reason of the
failure of the Lender or any participant, in each case that is
organized outside Canada, to comply with Section 2.14(f)
hereof (or the inaccuracy at any time of the certificates,
documents and other evidence delivered thereunder), and
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(iii) taxes imposed by reason of any connection between the
jurisdiction imposing such tax and the Lender other than a
connection arising solely from this Agreement and the other
Loan Documents,
(the taxes referred to in the foregoing clauses (i), (ii) and (iii) individually
or collectively being called "Excluded Taxes" and all such nonexcluded taxes,
levies, imposts, deductions, charges, withholdings and liabilities being
hereinafter referred to as "Taxes"). If the Borrower shall be required by law to
deduct any Taxes from or in respect of any sum payable hereunder to the Lender,
(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 2.14) the Lender
receives an amount equal to the sum it would have received had no such
deductions been made, (y) the Borrower shall make such deductions and (z) the
Borrower shall pay the full amount deducted to the relevant tax authority or
other authority in accordance with applicable law.
(b) In addition, the Borrower agrees to pay to the relevant
government authority in accordance with applicable Canadian law, whether
federal, provincial or municipal, any present or future stamp or documentary or
similar taxes or any other excise or property taxes, charges or similar levies
which arise from the execution, delivery or registration of, or otherwise with
respect to, this Agreement (hereinafter referred to as "Other Taxes").
(c) The Borrower will indemnify the Lender for the full amount of
Taxes or Other Taxes paid directly by the Lender and any liability (including
penalties, interest and expenses other than those resulting solely from a
failure by the Lender to pay any Taxes or Other Taxes which it is required to
pay and for which it received an indemnity payment) arising therefrom or with
respect thereto. This indemnification shall be made within thirty (30) days from
the date the Lender makes written demand therefor. If the Lender shall become
aware that it is entitled to receive a refund in respect of any Taxes or Other
Taxes, it shall promptly notify the Borrower thereof and shall promptly apply
for such refund. If the Lender receives a refund in respect of any Taxes or
Other Taxes for which the Lender has received payment from the Borrower
hereunder, the Lender shall promptly notify the Borrower of such refund and the
Lender shall promptly repay such refund to the Borrower, provided that the
Borrower, upon the request of the Lender, agrees to return such refund (plus any
penalties, interest or other charges) to the Lender in the event the Lender is
required to repay such refund.
(d) Within thirty (30) days after the date of any payment of Taxes
or Other Taxes withheld by the Borrower in respect of any payment to the Lender,
the Borrower will furnish to the Lender, at its address referred to in Section
10.01 hereof,
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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 2.14 shall
survive the payment in full of principal and interest hereunder.
(f) Each participant in this Agreement, the Credits and Security
Documents that is organized (and whose governing jurisdiction is) outside of
Canada (a "Non-Canadian Lender") shall deliver to the Borrower (with a copy to
the Lender) on the date of the participation and from time to time as required
for renewal under applicable law duly completed copies of such certificates,
documents or other evidence, indicating in each case that the participant is
entitled to receive payments under this Agreement without any deduction or
withholding of any Canadian federal and/or provincial income taxes. The Borrower
shall be entitled to rely on such forms in their possession until receipt of any
revised or successor form pursuant to this Section 2.14(f). If a participant
fails to provide a certificate, document or other evidence required pursuant to
this Section 2.14(f), then (i) the Borrower shall be entitled to deduct or
withhold on payments to the Lender as a result of such failure, as required by
law, and (ii) the Borrower shall not be required to make payments of additional
amounts with respect to such withheld Taxes pursuant to clause (x) of Section
2.14(a) to the extent such withholding is required by reason of the failure of
the participant to provide the necessary certificate, document or other
evidence.
(g) The Lender and any participant shall use reasonable efforts to
avoid or minimize any amounts which might otherwise be payable pursuant to this
Section 2.14 (including, without limitation, transferring Credits to an
Affiliate and 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 the Lender or any participant
that would result in any tax, cost or other expense to the Lender or the
participant (other than a tax, cost or other expense for which the Lender or the
participant shall have been reimbursed or indemnified by the Borrower pursuant
to this Agreement or otherwise) or any action which would or might in the
reasonable opinion of the Lender or the participant have an adverse effect upon
its business, operations or financial condition or otherwise be disadvantageous
to the Lender.
SECTION 2.15. Issuance of Domestic Letters of Credit. (a) The
Borrower may apply for and obtain Domestic Letters of Credit issued for its
account by an Issuing Bank subject to the requirements of the applicable
agreement between the Borrower and such Issuing Bank (such agreement to be
satisfactory in form and substance to the Lender) and subject to satisfaction of
the conditions set forth in Article V hereof and such other conditions as the
Lender requires of its customers generally;
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Page 33
provided that not more than twenty (20) Domestic Letters of Credit may be
outstanding at any time and provided that the aggregate undrawn amount of all
outstanding Domestic Letters of Credit shall not at any time exceed $4,000,000
Canadian; and provided, further, that the Borrower may not request any proposed
Issuing Bank to issue a Domestic Letter of Credit if after giving effect thereto
(measured by the face amount of such Domestic Letter of Credit and the Domestic
Letter of Credit Usage) Availability would be less than zero. The Borrower shall
not make application to or request any proposed Issuing Bank to issue any
Domestic Letter of Credit until the Borrower shall first have given at least
three Business Days' prior written notice to the Lender and to Chase U.S. (at
its Domestic Lending Office, as that term is defined in the U.S. Credit
Agreement) which written notice shall provide full particulars of the proposed
Domestic Letter of Credit that the Borrower would like to have issued, together
with such other certificates, documents and other papers and information as the
Lender may reasonably request. The Borrower acknowledges that it shall have no
right to request a proposed Issuing Bank to issue a Domestic Letter of Credit
and no proposed Issuing Bank shall be obligated to issue any Domestic Letter of
Credit if such issuance has not first been approved by the Lender and Chase U.S.
The expiration date of any Domestic Letter of Credit shall not be later than 120
days from the date of issuance thereof, and, in any event, no Domestic Letter of
Credit shall have an expiration date later than thirty days prior to the
Revolving Credit Termination Date. The Domestic Letters of Credit shall be
issued with respect of transactions occurring in the ordinary course of business
of the Borrower or any of its subsidiaries.
(b) Subject to the conditions set forth in Article V hereof and to
the Borrower's compliance with the requirements set forth in section 2.15(a),
the Lender shall open and issue a Lender's Letter of Guarantee for the account
of the Borrower in favour of the applicable Issuing Bank. The Lender's Letters
of Guarantee shall expire no later than the Revolving Credit Termination Date
and be in the form of Exhibit "C" annexed hereto.
SECTION 2.16. Payment of Letters of Credit; Reimbursement. Upon the
issuance of any Domestic Letter of Credit, the Borrower shall notify the Lender
of the principal amount, the number, and the expiration date thereof and provide
the Lender with a copy thereof. Each Issuing Bank shall be entitled to make
partial draws from time to time under the Lender's Letter of Guarantee if the
Borrower has not reimbursed such Issuing Bank for payments made on account of
Domestic Letters of Credit. Promptly after it shall have ascertained that any
payment document and any accompanying documents presented under the Lender's
Letter of Guarantee appear on their face to be in substantial conformity with
the terms and conditions thereof, the Lender shall give telephonic (promptly
confirmed in writing) or facsimile notice to the Borrower of the receipt and
amount of such payment documents and the date on which payment thereon will be
made, and the Lender, not later than 3:00 p.m. on such day, shall make the
appropriate payment to the beneficiary of the Lender's Letter of
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Guarantee. If in accordance with the prior sentence the Lender shall have made
such payment under the Lender's Letter of Guarantee, then the Lender may charge
all or any accounts of the Borrower with or under the control of the Lender for
the amount thereof, together with the Lender's customary overdraft fee in the
event the funds available in such accounts shall not be sufficient to reimburse
the Lender for such payment and the Borrower shall not otherwise have discharged
such reimbursement obligation by 11:00 a.m., Toronto time, on the date of such
payment. The Borrower hereby absolutely, unconditionally and irrevocably agrees
to indemnify, reimburse and hold harmless the Lender from all payments made and
costs incurred by the Lender in respect of the Lender's Letters of Guarantee. If
the Lender has not been reimbursed with respect to such drawing as provided
above, the Borrower shall be liable to pay to the Lender, 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 Prime Rate plus two percent (2%) per annum calculated on the daily
outstanding amount payable on demand. The obligations of the Borrower under this
Section 2.16 to reimburse the Lender for all drawings under the Lender's Letters
of Guarantee shall be absolute, unconditional and irrevocable and shall be
satisfied strictly in accordance with its terms, irrespective of:
(a) any lack of validity or enforceability of any Domestic
Letter of Credit or any Lender's Letters of Guarantee;
(b) the existence of any claim, setoff, defense or other right which
the Borrower or any other person may at any time have against the beneficiary
under any Domestic Letter of Credit or under the Lender's Letters of Guarantee
or the Lender or any other person in connection with this Agreement or any other
transaction (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 Lender);
(c) any draft or other document presented under any Domestic Letter
of Credit or under the Lender's Letters of Guarantee 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 Issuing Bank or the Lender under any Domestic
Letter of Credit or the Lender's Letters of Guarantee (respectively) against
presentation of a draft or other document which does not comply with the terms
thereof; and
(e) any other circumstance or event whatsoever, whether or not
similar to any of the foregoing that might, but for the provisions of this
Section, constitute legal or equitable discharge of the Borrower's obligations
hereunder.
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It is understood that in making any payment under the Lender's
Letters of Guarantee (x) the Lender's exclusive reliance on the documents
presented to it under such Lender's Letters of Guarantee as to any and all
matters set forth therein, including, without limitation, reliance on the amount
of any draft presented thereunder, whether or not the amount due to the
beneficiary equals the amount of such draft and whether or not any document
presented pursuant thereto 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 Lender's Letters of
Guarantee 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 Lender's Letters of
Guarantee with the terms thereof shall, in each case, not be deemed willful
misconduct or gross negligence of the Lender.
SECTION 2.17. Lender's Actions with respect to Lender's Letters of
Guarantee. Any draws from time to time under the Lender's Letters of Guarantee
may, in the discretion of the Lender or its correspondents, be interpreted by
them (to the extent not inconsistent with such Lender's Letters of Guarantee) 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 Lender
and its correspondents may accept and act upon the name, signature, or act of
any party purporting to be the administrator, receiver, trustee in bankruptcy,
or other legal representative of the beneficiary designated in the Lender's
Letters of Guarantee in the place of the name, signature, or act of such party.
SECTION 2.18. Letter of Guarantee Fees. The Borrower agrees to pay to the Lender
a letter of guarantee fee which shall accrue at the rate of 1/4 of 1% per annum
on the average daily amount of all outstanding Lender's Letters of Guarantee
(excluding any portion thereof attributable to unreimbursed drawings) during the
period from the issuance of each Lender's Letter of Guarantee to but excluding
the later of the Revolving Credit Termination Date and the date on which there
ceases to be any outstanding and undrawn Lender's Letters of Guarantee, as well
as the Lender's standard fees with respect to the issuance, amendment, renewal
or extension of the Lender's Letters of Guarantee or processing of drawings
thereunder. Such fees accrued through and including the last day of March, June,
September and December of each year shall be payable on the first Business Day
of the month following each such period, commencing July 1, 1997; provided that
all such fees shall be payable on the date on which the Total Revolving Credit
Commitment terminates and any such fees accruing after the date on which the
Total Revolving Credit Commitment terminates shall be payable on demand. Any
other fees payable to the Lender pursuant to this paragraph shall be payable on
demand. All such fees shall be computed on the basis of
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a year of 360 days and shall be payable for the actual number of days elapsed
(including the first day but excluding the last day).
ARTICLE III
COLLATERAL SECURITY
SECTION 3.01. Security Documents. The Obligations shall be secured
by the Collateral described in each of the Security Documents and are entitled
to the benefits thereof. The Borrower shall duly execute and deliver, or cause
its subsidiaries and each other Grantor to 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 applicable Personal Property Security Law and other documents,
all in form and substance satisfactory to the Lender, as may be reasonably
required by the Lender to grant to it a valid, perfected and enforceable first
priority Lien on and security interest in (subject only to the Liens permitted
under Section 7.01 of the U.S. Credit Agreement) the Collateral. Without
limiting the foregoing, with respect to the Security Agreement being executed
and delivered and registered and/or filed in Quebec, the Borrower shall confirm
and cause any other applicable Grantors to confirm an assignment from the Lender
to any other participants or assignees becoming such after the Closing Date at
such time or from time to time as there shall be another lender under this
Agreement besides the Lender and to provide an opinion of counsel as to the
continued effectiveness of the Lien created thereunder in favour of the Lender
for the benefit of itself and all such participants or assignees, all in form
satisfactory to the Lender.
SECTION 3.02. Filing and Recording. The Borrower shall, at its sole
cost and expense, cause all instruments and documents given as evidence of
security pursuant to this Agreement to be duly recorded, registered and/or filed
or otherwise perfected in all places necessary, in the opinion of the Lender,
and take such other actions as the Lender may reasonably request, in order to
perfect and protect the Liens of the Lender in the Collateral. The Borrower, to
the extent permitted by law, hereby authorizes the Lender to file any financing
statement or application for registration 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 Lender, may at any time be desirable although the same may
have been executed only by the Lender or, at the option of the Lender, to sign
such financing statement or application for registration on behalf of the
Borrower and file the same, and the Borrower hereby irrevocably designates the
Lender, its agents, representatives and designees as its agent and
attorney-in-fact for this purpose. In the event that any renewal of
registration, re-registration, re-recording or refiling thereof (or the filing
of any statements of continuation or assignment of any financing statement or
registered right) is required to protect and preserve such Lien, the Borrower
shall, at the Borrower's cost and expense, cause the same to be renewed,
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re-registered, recorded and/or refiled at the time and in the manner requested
by the Lender.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Except as disclosed in Schedule 4.00, the Borrower represents and
warrants to the Lender that both before and after giving effect to the
consummation of the Transactions:
SECTION 4.01. Organization, Legal Existence. Each of the Loan
Parties and the Parent and their respective 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 the nature of its business so requires (all such
jurisdictions being listed in SCHEDULE 4.01 annexed hereto) except where the
failure to so qualify or be in good standing would not result in a Material
Adverse Effect. Each of the Loan Parties and the Parent has the corporate power
to execute, deliver and perform its obligations under this Agreement and the
other Loan Documents (and with respect to the Parent, the U.S. Credit Agreement)
to which it is a party, and with respect to the Borrower to borrow hereunder and
to execute and deliver the Promissory Note. St-Lawrence, being a wholly owned
subsidiary of the Borrower on the Closing Date, has no assets (all of its assets
having been transferred to the Borrower) or liabilities (other than those
liabilities set out in Schedule 4.01) (all such liabilities of St-Lawrence,
including those set out in Schedule 4.01 having been assumed by the Borrower)
and St-Lawrence is not engaging in any business.
SECTION 4.02. Authorization. The execution, delivery and performance
by the Borrower of this Agreement and each of the other Loan Documents to which
it is a party, the borrowings hereunder by the Borrower from time to time, the
execution and delivery by the Borrower of the Promissory Note, the grant of
Liens on and security interests in the Collateral created by the Security
Documents and the transactions contemplated to occur under or in connection with
the Plan of Reorganization (collectively, the "Transactions") (a) have been duly
authorized by all requisite corporate and, if required, stockholder action on
the part of the applicable Loan Party 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
Loan Parties, or their respective 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 Loan Parties, or their respective subsidiaries, or
(C) any provision of any material indenture, agreement or other instrument to
which
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the Loan Parties, or their respective subsidiaries, or any of their respective
properties or assets are or may be bound, (ii) 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 except where any such conflict, violation, breach or Default
referred to in (i) or (ii) (all of which are disclosed in Schedule 4.00) would
not result in a Material Adverse Effect or (iii) result in the creation or
imposition of any Lien of any nature whatsoever (other than in favour of the
Lender or in favour of Chase U.S. or as permitted pursuant to Section 7.01 of
the U.S. Credit Agreement) upon any property or assets of the Loan Parties, or
their respective subsidiaries.
SECTION 4.03. Governmental Approvals. No registration or filing with
consent or approval of, or other action by, any Federal, provincial, state or
other governmental agency, authority or regulatory body is or will be required
in connection with the Transactions, except for (a) such registrations, filings,
consents, approvals or actions the failure of which to obtain or make would not
have a Material Adverse Effect or (b) such as have been made or obtained or (c)
the filings and registrations necessary to perfect the Liens (x) created by the
Security Documents and (y) in favour of the Indenture Trustee as contemplated by
the Senior Secured Note Indenture.
SECTION 4.04. Binding Effect. This Agreement and the other Loan
Documents to which it is a party constitutes, and the Promissory Note when duly
executed and delivered by the Borrower will constitute, a legal, valid and
binding obligation of the applicable Loan Party enforceable against such Loan
Party in accordance with its terms subject (a) to enforcement of remedies, to
applicable bankruptcy, insolvency, reorganization, moratorium and other similar
laws affecting the enforcement of creditors' rights generally, from time to time
in effect and (b) to general principles of equity.
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 and
subsidiaries, including, without limitation, the Borrower, taken as a whole
since December 31, 1995.
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 Borrower, threatened against or
affecting any of the Loan Parties or any of their subsidiaries or the
businesses, assets or rights of any of the Loan Parties or any of their
subsidiaries (i) which involve any of the Transactions or (ii) as to which there
is a reasonable likelihood of an adverse determination and which, if adversely
determined, would, individually or in the aggregate, materially impair the
ability of any of the Loan
<PAGE>
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Parties or any of their subsidiaries to conduct business substantially as now
conducted, or result in a Material Adverse Effect.
(b) Except as set forth in SCHEDULE 4.06(b) annexed hereto, no Loan
Parties or 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 where such violation or default
would result in a Material Adverse Effect.
SECTION 4.07. Financial Statements. (a) The Borrower has heretofore
furnished to the Lender Consolidated balance sheets and statements of income and
cash flows of the Parent (i) dated as of December 31, 1995 and audited by and
accompanied by the opinion of independent public accountants; and (ii) dated as
of September 30, 1996 and December 31, 1996 for the nine month period and twelve
month periods respectively then ended and prepared by management and (iii) dated
as of January 31, 1997 for the one month period then ended and prepared by
management. The Borrower has also furnished to the Lender draft consolidating
balance sheets and statements of income and cash flows for the Parent, the
Borrower and Affiliates thereof. Such balance sheets and statements of income
and cash flows present fairly in all material respects the Consolidated
financial condition and results of operations of the Parent and its Consolidated
subsidiaries including, without limitation, the Borrower, as of the dates and
for the periods indicated, and such audited balance sheets and the notes thereto
disclose all material liabilities, direct or contingent, of the Parent and its
subsidiaries, including, without limitation, the Borrower, as of the dates
thereof.
(b) The Borrower has heretofore furnished to the Lender projected
income statements, balance sheets and cash flows of the Parent on a Consolidated
basis dated November 6, 1996 for a five year period as supplemented on March 3,
1997, together with projected monthly Borrowing Bases for 1997, such projections
disclosing all material assumptions made by the Borrower in formulating such
projections and giving effect to the Transactions. The projections are based
upon estimates and assumptions, all of which were believed by management to be
reasonable in light of the conditions which existed at the time the projections
were made and have been prepared on the basis of the assumptions stated therein.
(c) The Borrower has heretofore furnished to the Lender a
Consolidated and consolidating pro forma balance sheet of the Parent and which
sets forth information before and after giving effect to the Transactions.
(d) The financial statements referred to in this Section 4.07 have
been prepared in accordance with GAAP, except that the unaudited statements do
not contain footnotes and are subject to year-end audit adjustments.
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SECTION 4.08. Taxes. The Borrower and each of its subsidiaries has
filed or caused to be filed all material Federal, provincial, state, local and
foreign tax returns which are required to be filed by it, on or prior to the
date hereof. The Borrower and each of its subsidiaries have 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, in writing, except as permitted by Section 6.04 of
the U.S. Credit Agreement, except to the extent that the nonpayment of such
taxes would not result in a Material Adverse Effect and except for certain
Federal taxes being paid on a six-year installment basis, with interest,
pursuant to the Plan of Reorganization. As of the Closing Date except as set
forth on SCHEDULE 4.08 annexed hereto, no Federal or provincial income tax
returns of any Loan Parties or any of their subsidiaries have been audited by
Revenue Canada or by any competent provincial taxing authority or the United
States Internal Revenue Service and no Loan Parties or subsidiary thereof have
as of the date hereof requested or been granted any extension of time to file
any Federal, provincial, state, local or foreign tax return. Except as set forth
on SCHEDULE 4.08 annexed hereto, none of the Loan Parties or their subsidiaries
are party to or have any obligation under any tax sharing agreement.
SECTION 4.09. Employee Benefit Plans. All Canadian Pension Plans
comply currently, and have complied in the past, in all material respects, both
as to form and operation, with their terms and the provisions of all applicable
laws, rules and regulations; all necessary governmental approvals have been
obtained which are material to the Borrower with respect to the operation of its
Canadian Pension Plans; no notice of intent to terminate any Canadian Pension
Plan has been filed or given by any party or governmental body; no event has
occurred or condition exists which might constitute grounds for termination of
any Canadian Pension Plan which termination would result in a Material Adverse
Effect with respect to the Borrower or that might result in the incurrence by
the Borrower or any subsidiary of the Borrower of any material liability, fine
or penalty; and no actions, suits or claims are pending or reasonably expected
to be asserted against any Canadian Pension Plan or the assets of any Canadian
Pension Plan.
SECTION 4.10. No Material Misstatements. The information, reports,
financial statements, exhibits or schedules, taken as a whole, furnished by or
on behalf of the Borrower to the Lender in connection with any of the
Transactions or this Agreement, the Security Documents, the Promissory Note or
any other Loan Documents or included therein, do not contain any material
misstatement of fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading in any material respect; provided, however, that to the
extent any such information, report, financial statement, exhibit or schedule
was based upon or constitutes a forecast or projection, the Borrower represents
only that it acted in good faith and used reasonable assumptions in the
preparation of such information, report, financial statement, exhibit or
schedule.
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SECTION 4.11. Security Interest. Upon the due filing of financing
statements under the Personal Property Security Law, the recording of the
Mortgage in the applicable land registry office, the delivery of the Collateral
under the Pledge Agreement and the filing of the Security Agreements
(Intellectual Property) and the Security Agreements in the Canadian Intellectual
Property Office and the filing of a Notice of Intention with the Bank of Canada
in respect of Section 427 Bank Act Security, the registrations and notices
required in respect of the Quebec Security Agreements and the filing of
assignments with the United States Patent and Trademark Office, each of the
Security Documents creates and grants to the Lender, a legal, valid and
perfected first priority (except as permitted pursuant to Section 7.01 of the
U.S. Credit Agreement) Lien in the collateral identified therein to the extent a
Lien can be perfected in such Collateral by the taking of the foregoing actions.
Such collateral or property is not subject to any other Liens whatsoever, except
Liens permitted by Section 7.01 of the U.S. Credit Agreement.
SECTION 4.12. Use of Proceeds. (a) All proceeds of each borrowing
under the Revolving Credit Commitment on the Closing Date, if any, shall be used
to provide for working capital requirements and for general corporate purposes
of the Borrower and to partially finance the payments to be made pursuant to the
Plan of Reorganization. All proceeds of each subsequent borrowing under the
Revolving Credit Commitment after the Closing Date shall be used to provide for
working capital requirements and for general corporate purposes (including
payment of interest on the Senior Secured Notes to the extent not prohibited by
Section 7.15 of the U.S. Credit Agreement) of the Borrower.
SECTION 4.13. Subsidiaries. As of the Closing Date all of the issued
and outstanding shares in the capital stock of the Borrower are owned, legally
and beneficially by the Parent and 50% of the issued and outstanding shares in
the capital stock of CCM is owned legally and beneficially by Trademark Canada
and the Borrower owns, legally and beneficially all of the issued and
outstanding shares in the capital stock of St-Lawrence, and SCHEDULE 4.13
annexed hereto sets forth each subsidiary of the Borrower and each subsidiary of
the Parent, including, without limitation, the Borrower, Apparel Canada,
Trademark Canada and CCM, its jurisdiction of incorporation, its capitalization
and ownership of its capital stock.
SECTION 4.14. Title to Properties; Possession Under Leases;
Trademarks. (a) The Borrower and each of its subsidiaries has good 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 have been disposed of in the ordinary course of business or
as permitted by this Agreement, and except where lack of title or a valid
leasehold interest does not materially interfere with the ability of the
Borrower or any subsidiary thereof to conduct its business as now conducted. All
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interests of such persons in such assets and properties are free and clear of
all Liens other than those permitted by Section 7.01 of the U.S. Credit
Agreement.
(b) Except as disclosed in SCHEDULE 4.14 hereto, the Borrower and
each of its subsidiaries has complied with all material obligations under all
material 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 Borrower and each of its
subsidiaries enjoys peaceful and undisturbed possession under all such material
leases.
(c) Except as disclosed in Schedule 4.06(a), the Borrower and each
of 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 such Borrower and such
subsidiary. To its knowledge, neither the Borrower 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 Borrower or any subsidiary thereof, threatened, against the Borrower or any
subsidiary thereof with respect to any of the rights or property referred to in
this Section 4.14(c).
SECTION 4.15. Solvency. (a) The fair salable value of the assets of
the Parent, the Borrower and the other Consolidated subsidiaries of the Parent,
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,
including, without limitation, the Borrower, as they become absolute and mature.
(b) The assets of the Parent and its Consolidated subsidiaries
including, without limitation, the Borrower and Apparel Canada, do not
constitute unreasonably small capital for the Parent and its Consolidated
subsidiaries, including, without limitation, the Borrower and Apparel Canada, to
carry out their business as now conducted and as proposed to be conducted.
(c) Neither the Parent nor any subsidiary thereof, including,
without limitation, the Borrower, 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).
(d) Neither the Parent nor any subsidiary thereof, including,
without limitation, the Borrower, 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
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(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).
SECTION 4.16. Permits, etc. The Borrower and each of its
subsidiaries possesses all licenses, permits, approvals and consents, including,
without limitation, all environmental, health and safety licenses, permits,
approvals and consents of all Federal, provincial, state and local governmental
authorities except where failure does not materially interfere with the ability
of such Borrower or subsidiary to conduct its business as currently conducted
(collectively, the "Permits"), each such Permit is and will be in full force and
effect, the Borrower 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.
SECTION 4.17. Compliance with Environmental Laws. Except as
disclosed in SCHEDULE 4.17 hereto: (i) the operations of the Borrower and its
subsidiaries comply with all applicable Environmental Laws except for any
non-compliance which would not have a Material Adverse Effect; (ii) the Borrower
and its subsidiaries and all of their present facilities or operations, as well
as to the knowledge of the Borrower 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
Borrower and its subsidiaries, none of their operations is the subject of any
Federal, provincial, state or municipal investigation evaluating whether any
Remedial Work is needed to respond to a Release of any Contaminant into the
environment in each case which would have a Material Adverse Effect; (iv)
neither the Borrower nor any subsidiaries of the Borrower nor any predecessor of
the Borrower or any subsidiary of the Borrower 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 in each case which would have a Material Adverse Effect; (v) neither
the Borrower nor its subsidiaries has been notified that it has any material
liability in connection with any Release of any Contaminant into the environment
in each case which would have a Material Adverse Effect; (vi) none of the
operations of the Borrower or its subsidiaries involve the generation,
transportation, treatment or disposal of Hazardous Materials in violation of
Environmental Law in each case which would have a Material Adverse Effect; (vii)
neither the Borrower nor its subsidiaries has 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 Borrower and its subsidiaries neither
has any lessee, prior owner, or other person in each case which would have a
Material Adverse Effect; (viii) no underground storage tanks or surface
impoundments are on any property of the
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Loan Parties and their subsidiaries in each case, the result of which would have
a Material Adverse Effect; and (ix) to the best of the knowledge of the Borrower
and its subsidiaries, no Lien in favour 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 Borrower and its subsidiaries.
SECTION 4.18. No Change in Credit Criteria or Collection Policies.
There has been no material change in credit criteria or collection policies
concerning account receivables of the Borrower since December 31, 1995.
SECTION 4.19. Employee Matters. Except as disclosed in SCHEDULE 4.19
hereto, (a) neither the Borrower and its subsidiaries nor any of such person's
employees are subject to any collective bargaining agreement, (b) to the
knowledge of the Borrower, no petition for certification or union election is
pending with respect to the employees of the Borrower or any of its subsidiaries
and no union or collective bargaining unit has sought such certification or
recognition with respect to the employees of the Borrower or any of its
subsidiaries and (c) there are no strikes, slowdowns, work stoppages or
controversies pending or, to the knowledge of Borrower threatened between the
Borrower or any of its subsidiaries and their respective employees, other than
employee grievances arising in the ordinary course of business none of which
would have, either individually or in the aggregate, a Material Adverse Effect.
The Borrower is in compliance with all employment laws applicable to the
Borrower except where the failure to so comply would not have a Material Adverse
Effect.
ARTICLE V
CONDITIONS OF CREDIT EVENTS
The obligation of the Lender to make Revolving Credit Loans and
extend other Credits 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 Lender and Chase U.S. shall each have received a notice of
borrowing as required by Section 2.03 hereof (with respect to Revolving Credit
Loans and Bankers' Acceptances) or shall have received a notice with respect to
the proposed issuance of Domestic Letters of Credit, as required by section 2.15
hereof.
(b) The representations and warranties set forth in Article IV
hereof and in any documents delivered herewith, including, without limitation,
the Loan
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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) The 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.
(d) The Lender and Chase U.S. shall have received a certificate
signed by the Financial Officer of the Borrower (i) as to the compliance with
(b) and (c) above and (ii) with respect to each Revolving Credit Loan,
demonstrating that after giving effect thereto the Availability is zero or
greater.
(e) The Lender shall have received written confirmation and
consent from Chase U.S. for the proposed loan or other advance of Credit to
be made, such confirmation to be in writing and to be in the form agreed to
between Chase U.S. and the Lender.
SECTION 5.02. First Borrowing. The obligations of the Lender in
respect of the first Credit Event hereunder are subject to the following
additional conditions precedent:
(a) The Lender shall have received the favourable written opinion of
Ontario, Quebec, New York and New Brunswick counsel for the Borrower and each
Guarantor and Grantor, dated the Closing Date, addressed to the Lender and
satisfactory to the Lender.
(b) The Lender shall have received (i) a copy of the certificate or
articles of incorporation or constitutive documents, in each case as amended to
date, of the Borrower and Apparel Canada and Trademark Canada, certified as of a
recent date by the Provincial Registrar, or other appropriate official of the
jurisdiction of its organization and updated (from the government certificate to
the Closing Date) by a Responsible Officer, and a certificate as to the good
standing of each from such official, in each case dated as of a recent date;
(ii) a certificate of the Secretary of the Borrower, 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 resolutions described in item (B) below,
(B) that attached thereto is a true and complete copy of resolutions adopted by
such person's sole shareholder or in the case of Trademark Canada its
shareholders pursuant to the applicable unanimous shareholders agreement
authorizing the execution, delivery and performance of this Agreement, the
Security Documents, the Promissory Note, the other Loan Documents and the Credit
Events hereunder, as applicable, and that such resolutions have not been
modified, rescinded or amended and are in full force and
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effect, (C) as to the incumbency and specimen signature of each of such person's
officers executing this Agreement, the Promissory Note, 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
Lender may reasonably request.
(c) The Lender shall have received a certificate, dated the Closing
Date and signed by the Financial Officer of the Borrower, confirming compliance
with 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) The Lender shall have received the Promissory Note duly executed
by the Borrower, payable to its order and otherwise complying with the
provisions of Section 2.04 hereof.
(e) The Lender shall have received, duly executed and delivered the
Security Documents including, without limitation, the Chase U.S. Letter of
Credit, Security Agreements, the Pledge Agreement, the Quebec Pledge Agreement,
the Bank Act Security, the Guarantee of Trademark Canada and the Guarantee of
Apparel Canada, the Security Agreement (Intellectual Property), the Mortgage
together with a title opinion from counsel of the Borrower and an agreement
between National Bank of Canada, the Borrower, Apparel Canada and the Lender
relating to the operation of the Concentration Accounts and a tripartite
agreement between the Lender, the Borrower and Royal Bank of Canada with respect
to the Domestic Letters of Credit in form, scope and amount satisfactory in all
respects to the Lender.
(f) The Lender shall have received certified copies or a certified
print-out from the Ministry of Consumer and Commercial Relations (Ontario) or on
Form UCC-11 of a UCC Reporter Service or certified statements of the
registration of rights issued by the registrar of the register of personal and
movable real rights established pursuant to the Civil Code of Quebec (the
"Register") or certificates satisfactory to the Lender listing all effective
financing statements and/or rights registered in the Register and duplicate
registered copies of the Security Documents which name as debtor the Borrower,
any guarantor of the Obligations or any Grantor or the Parent and which are
filed in all appropriate offices in the provinces, states or other applicable
jurisdictions in which are located the chief executive office and other
operating offices of such person, or any part of the collateral is located
together with copies of such certified statements, financing statements or of
the security agreements to which such filings relate. With respect to any Liens
not permitted pursuant to Section 7.01 of the U.S. Credit Agreement, the Lender
shall have received termination statements or discharges/cancellations in form
and substance satisfactory to it.
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(g) Each document (including, without limitation, each financing
statement under the Personal Property Security Law and the Notice of Intention
under the Bank Act) required by law or reasonably requested by the Lender to be
filed, registered or recorded in order to create in favour of the Lender a first
priority perfected Lien in the Collateral (subject to the Liens permitted by
Section 7.01 of the U.S. Credit Agreement) shall have been properly filed,
registered or recorded in each jurisdiction in which the filing, registration or
recordation thereof is so required or requested. The Lender shall have received
certified statements issued by the registrar of the Register, an acknowledgment
copy, or other evidence satisfactory to it, of each such filing, registration or
recordation.
(h) The Lender shall have received the results of a search of tax
and other Liens and judgments and of security searches under the Personal
Property Security Law and Bank Act or a search of comparable filings made with
respect to the 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 Personal Property Security Law filings have been made against the
Borrower, each Guarantor and each Grantor pursuant to paragraph (g) above.
(i) the Lender and Chase U.S. shall each have received and
determined to be in form and substance satisfactory to them:
(A) the most recent (dated within seven (7) days of the
Closing Date) schedule and aging of accounts receivable
and inventory designations of the Borrower;
(B) evidence that all conditions precedent to the first
Loan under the U.S. Credit Agreement have been
satisfied or waived;
(C) evidence that there has been entered a final
non-appealable order of confirmation consistent with the
Plan of Reorganization and that unless waived by the
Lender all conditions precedent to the effectiveness of
the Plan of Reorganization have been satisfied;
(D) a copy of a field examination of the Borrower's books
and records;
(E) evidence of the compliance by the Borrower with all
insurance requirements as set out in the U.S. Credit
Agreement;
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(F) the financial statements described in Section 4.07
hereof, together with a draft of the audited financial
statements for the Fiscal Year ended December 31, 1996;
(G) evidence that the Transactions are in material
compliance with all material applicable laws and
regulations;
(H) evidence of payment of all fees owed to the Lender by
the Borrower under this Agreement or otherwise;
(I) evidence that all requisite third party consents
(including, without limitation, consents with respect to
the Borrower and each of the Grantors and Guarantors) to
the Transactions have been received;
(J) copies of all major Customer, supplier contracts and
employment agreements with respect to the Borrower;
(K) except as set forth in SCHEDULE 4.05 annexed hereto,
evidence that there has been no material adverse change
in the business, assets, operations or financial
condition of the Parent or any subsidiaries, including,
without limitation, the Borrower since December 31,
1995;
(L) evidence of the repayment in full of exiting credit
arrangements and the termination of all commitments to
lend thereunder, and the termination of all Liens
securing such Indebtedness as required under paragraph
(f) above, all as set forth in the Plan of
Reorganization; and
(M) evidence that except as disclosed in the schedule
delivered pursuant to (k)(i) below 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
to the knowledge of the Loan Parties threatened
against or affecting any of the Loan Parties or any
subsidiary thereof or any of their respective
businesses, assets or rights which involve any of the
Transactions.
(j) The Lender shall have had the opportunity, at the Lender's
option, to examine the books of account and other records and files of the
Borrower and its subsidiaries, and to make copies thereof, and to conduct a
pre-closing audit which shall include, without limitation, verification of
Eligible Receivables, payment of payroll
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taxes and accounts payable and formulation of an opening Borrowing Base, and the
results of such examination and audit shall have been satisfactory to the Lender
in all material respects.
(k) The Lender shall have received and had the opportunity to review
and determine to be in form and substance satisfactory to it:
(i) a schedule of disputed claims relating to the Plan of
Reorganization and an analysis of the expected disposition
thereof;
(ii) copies of all real property lease agreements entered into by
the Borrower, together with appropriate landlord and/or
mortgagee waivers with the Lender; and
(iii) copies of all loan agreements, notes and other documentation
evidencing Indebtedness for borrowed money of the Borrower and
its subsidiaries, which is to remain outstanding pursuant to
the Plan of Reorganization, including the Senior Secured
Notes.
(l) Messrs. Fraser & Beatty, Canadian counsel to the Lender, and
McMaster Meighen, special Quebec counsel retained by the Lender shall have
received payment in full for all reasonable legal fees charged, and all
reasonable 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 Lender shall have entered into the Intercreditor Agreement
with Chase U.S. and the Indenture Trustee on behalf of holders of the Senior
Secured Notes in form and substance satisfactory to it.
(n) The corporate structure and capitalization of the Loan Parties
shall be satisfactory to the Lender in all material respects including, without
limitation, that the Investor Group owns at least 38% of the aggregate issued
and outstanding voting stock of the Parent.
(o) All legal matters in connection with the Transactions shall be
satisfactory to the Lender and its counsel in their sole discretion.
(p) The Borrower shall have executed and delivered to the Lender 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 Lender.
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(q) The Borrower and the Lender shall have entered into depository
and cash management arrangements pertaining to the Concentration Accounts and
the Borrower's direction to their Customers to deposit accounts payable directly
into the Concentration Accounts pursuant to documentation satisfactory in form
and substance to the Lender.
(r) The closing shall have occurred under the U.S. Credit
Agreement.
(s) The transfer of all assets and liabilities by St-Lawrence to the
Borrower and the sale of all the capital stock of St-Lawrence by the Parent to
the Borrower shall have been completed to the satisfaction of the Lender.
(t) Environmental audits, appraisals on real property subject to the
Debentures and appraisals of personal property all in form and substance
satisfactory to the Lender shall have been completed.
(u) Sport Maska, Apparel Canada and Trademark Canada shall have been
continued under the laws of the Province of New Brunswick and the Lender shall
have received evidence satisfactory to it of such continuance.
(v) The Lender shall have received such other documents as the
Lender or Lender's counsel shall reasonably deem necessary.
ARTICLE VI
AFFIRMATIVE COVENANTS
SECTION 6.01. Affirmative Covenants. (a) The Borrower acknowledges
that the Parent has covenanted and agreed in Article VI of the U.S. Credit
Agreement to cause each of its subsidiaries, to perform certain covenants and
the Borrower hereby covenants and agrees with the Lender that, so long as this
Agreement shall remain in effect or the principal of or interest on the
Promissory Note, any amount under any Bankers' Acceptance or any fee, expense or
other Obligation payable hereunder shall be unpaid, it will, and will cause each
of its respective subsidiaries to perform each of the covenants pertaining to it
set out in said Article VI as fully and effectually as if such covenants were
set out herein in their entirety (such covenants as applicable to the Borrower
and its subsidiaries being incorporated by reference herein) and to do all
things as may be necessary to comply with such covenants, save and except that
the Borrower may maintain its operating and cash management accounts with
National Bank of Canada and the Borrower shall direct all of its Customers to
remit all accounts payable and other amounts owing by each such Customer to the
Borrower directly to the Concentration Accounts (the form of such direction to
be in writing and in form and substance satisfactory to the Lender) and provide
the Lender with a copy of each such written direction all as more particularly
set out in Section 9.01 hereof.
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(b) Notwithstanding anything to the contrary contained in this
Agreement, the Borrower shall on demand by the Lender, pay or prepay to the
Lender outstanding Credits hereunder if, and to the extent that, the Lender
determines the total outstanding Credits hereunder exceed at such time
$35,000,000.00 United States.
ARTICLE VII
NEGATIVE COVENANTS
SECTION 7.01. Negative Covenants. The Borrower acknowledges that the
Parent has covenanted and agreed in Article VII of the U.S. Credit Agreement
that it will cause each of its subsidiaries to not directly or indirectly take
or do certain actions or things and the Borrower hereby covenants and agrees
with the Lender that, so long as this Agreement shall remain in effect or the
principal of or interest on the Promissory Note, any amount under any Bankers'
Acceptance, or any fee, expense or other Obligation payable hereunder shall be
unpaid, it will not and will cause its subsidiaries to not either directly or
indirectly take or do any actions or things that would result in a breach of the
covenants set forth in said Article VII as fully and effectually as if such
covenants were set out herein in their entirety (such covenants as applicable to
the Borrower and its subsidiaries being incorporated by reference herein) .
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.01. Events of Default. In case of the happening of any of
the following events (herein called "Events of Default"):
(a) default shall be made in the payment of any principal of any Credit
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 or the Lender is not reimbursed in full for any drawings made under
the Lender's Letters of Guarantee;
(b) default shall be made in the payment of any interest on any Revolving
Credit Loans, or any fee or any other amount payable hereunder, or under the
Promissory Note, Bankers' Acceptances, or any other Loan Document or in
connection with any other Credit Event when and as the same shall become due and
payable;
(c) an Event of Default (as defined in the U.S. Credit Agreement)
shall have occurred and be continuing under the U.S. Credit Agreement which
has not been waived in writing by Chase U.S. or the lenders thereunder (with
a copy of such waiver having been received by the Lender);
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(d) the Borrower or any subsidiary thereof shall (i) voluntarily commence
any proceeding or file any petition seeking relief under the Bankruptcy and
Insolvency Act (Canada), the Companies' Creditors Arrangement Act (Canada) or
Title 11 of the United States Code or any other Federal, provincial, 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 Borrower or subsidiary thereof 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;
(e) 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 the Borrower or any subsidiary thereof, or of a substantial part
of the property or assets of the Borrower or any subsidiary thereof, under the
Bankruptcy and Insolvency Act (Canada), the Companies' Creditors Arrangement Act
(Canada) or Title 11 of the United States Code or any other Federal, provincial,
state or foreign bankruptcy, insolvency, receivership or similar law, (ii) the
appointment of a receiver, trustee, custodian, sequestrator or similar official
for the Borrower or any subsidiary thereof or for a substantial part of the
property of the Borrower or any subsidiary thereof, or (iii) the winding-up or
liquidation of the Borrower or any subsidiary thereof; and such proceeding or
petition shall continue undismissed for thirty (30) days or an order or decree
approving or ordering any of the foregoing shall continue unstayed and in effect
for thirty (30) days,
then, and in any such event (other than an event described in paragraph (c), (d)
or (e) above), and at any time thereafter during the continuance of such event,
the Lender may by written notice (or facsimile notice promptly confirmed in
writing) to the Borrower, take any or all of the following actions at the same
or different times: (i) terminate forthwith all or any portion of the Revolving
Credit Commitment; (ii) declare the Promissory Note and any amounts then
outstanding on account of Bankers' Acceptances to be forthwith due and payable,
and (iii) require that the Borrower remit to the Lender cash collateral in an
amount equal to the aggregate amount of all outstanding Bankers' Acceptances and
the aggregate amount of all outstanding Domestic Letters of Credit on the basis,
and for the purposes set out in section 2.07(h) at such time, such cash
collateral to be held by Lender in a cash collateral account on terms and
conditions satisfactory to the Lender (such cash collateral to the extent not
applied to satisfy Obligations shall be returned to the Borrower after all
Events of Default have been cured or waived) and for this purpose the Borrower
hereby pledges
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and grants a security interest in all such cash collateral in
favour of the Lender as security for repayment of the Obligations in full, and,
upon the Lender taking any one or more of the steps enumerated in subparagraphs
(i), (ii) and (iii) above, the principal of the Promissory Note, together with
accrued interest and fees thereon and any amounts then owing to the Lender on
account of Bankers' Acceptances and in respect of the Lender's Letters of
Guarantee and all other liabilities and Obligations of the Borrower accrued
hereunder, shall become forthwith due and payable both as to principal and
interest, without presentment, demand, protest or any other notice of any kind,
all of which are hereby expressly waived by the Borrower, anything contained
herein or in the Promissory Note to the contrary notwithstanding and the Lender
shall be entitled to realize upon and enforce its rights and remedies under the
Security Documents in such order as the Lender wishes and the Lender may apply
any and all proceeds of any realization or enforcement under the Security
Documents against such parts of the Obligations as the Lender sees fit, in its
discretion (it being understood and agreed that when the Lender draws upon the
Chase U.S. Letter of Credit and is paid by Chase U.S. thereunder, Chase U.S.
shall be subrogated to the rights of the Lender in relation to the Borrower and
the Collateral hereunder and under the Security Documents); provided, however,
that with respect to a Default described in paragraph (c), (d) or (e) above, the
Revolving Credit Commitment shall automatically terminate and the principal of
the Promissory Note, together with accrued interest and fees thereon and any
amounts then owing to the Lender on account of outstanding Bankers' Acceptances
and in respect of the Lender's Letters of Guarantee (including, without
limitation, all amounts in respect of then outstanding Bankers' Acceptances and
the Lender's Letters of Guarantee for which the Borrower is contingently liable
to reimburse or indemnify the Lender) and all other liabilities and Obligations
of the Borrower 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 Borrower,
anything contained herein or in the Promissory Note to the contrary
notwithstanding and the Lender shall, in addition to its other rights and
remedies, draw upon the Chase U.S. Letter of Credit (it being understood and
agreed that when the Lender draws upon the Chase U.S. Letter of Credit and is
paid by Chase U.S. thereunder, Chase U.S. shall be subrogated to the rights of
the Lender in relation to the Borrower and the Collateral hereunder and under
the Security Documents).
ARTICLE IX
MANAGEMENT, COLLECTION AND
STATUS OF RECEIVABLES AND OTHER COLLATERAL
SECTION 9.01. Collection of Receivables; Management of Collateral
and Control of Concentration Accounts. (a) The Borrower and Apparel Canada
shall, at their own cost and expense, (i) arrange for remittances on Canadian
Dollar Receivables
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and U.S. Dollar Receivables of the Borrower and Apparel Canada to be made
directly to respectively, the Canadian dollar account and the U.S. dollar
account comprising the Concentration Accounts or in such other manner as the
Lender may direct from time to time, and (ii) promptly deposit, or cause to be
deposited, all payments received by the Borrower and Apparel Canada on account
of such Receivables, whether in the form of cash, cheques, notes, drafts, bills
of exchange, money orders or otherwise, in such Concentration Accounts in
precisely the form received (but with any endorsements of the Borrower or
Apparel Canada necessary for deposit or collection), subject to withdrawal by
the Lender only, as hereinafter provided, and until such payments are deposited,
such payments shall be deemed to be held in trust by the Borrower and Apparel
Canada for and as the Lender's property and shall not be commingled with the
Borrower's or Apparel Canada's other funds. All remittances and payments that
are deposited in accordance with the foregoing will, be remitted daily by
National Bank of Canada to the Lender in Toronto, Ontario as it directs; the
proceeds of which may be held by the Lender as cash collateral and applied by
the Lender to reduce the outstanding balance of the Credits and outstanding
Obligations. The Borrower agrees that the Lender shall have control over all
proceeds in the Concentration Accounts at all times and the Lender is hereby
authorized, in its discretion at all times, to apply and appropriate proceeds in
any one or more of the Concentration Accounts against the outstanding
Obligations at all times. The Borrower hereby (and the Borrower shall cause
Apparel Canada to likewise) pledges to the Lender, and grants to the Lender a
security interest in and hereby hypothecates in the amount of $50,000,000.00
Canadian in favour of the Lender all present and future proceeds in the
Concentration Accounts as security for the Obligations. Neither the Borrower nor
Apparel Canada shall have any right to withdraw any amount from either or both
the Concentration Accounts except with the prior written consent of the Lender.
Upon the occurrence and continuance of an Event of Default, the
Lender may send and/or register a notice of assignment and/or notice of
withdrawal of authorization to collect and/or notice of the Lender's Liens or
security interests to any and all Customers or any third party holding or
otherwise concerned with any of the Collateral, and thereafter the Lender shall
have the sole right to collect the Receivables and/or take possession of the
Collateral and the books and records relating thereto. Neither the Borrower nor
Apparel Canada shall, without the Lender'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, in the ordinary course of its business.
(b) (i) Each of the Borrower and Apparel Canada hereby constitutes
the Lender or the Lender's designee as their attorney-in-fact with power to
endorse their name upon any notes, acceptances, cheques, drafts, money orders or
other evidences of
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payment or Collateral that may come into its possession; to sign their 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 Default, to notify the Postal Service authorities to change the address for
delivery of mail addressed to the Borrower or Apparel Canada to such address as
the Lender 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 Lender 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 the Revolving Credit Commitment is terminated.
(ii) The Lender, without notice to or consent of the Borrower
or Apparel Canada, 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 the Borrower or Apparel Canada any and all checks, drafts and other
instruments for the payment of money relating to the Receivables, and the
Borrower and Apparel Canada hereby waive notice of presentment, protest and
non-payment of any instrument so endorsed; and (D) may continue to exercise its
right to appropriate and apply all proceeds then and thereafter in the
Concentration Accounts against the Obligations.
(c) Nothing herein contained shall be construed to constitute the
Borrower or Apparel Canada as agent of the Lender for any purpose whatsoever,
and the Lender 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 Lender's act or omission
constituted gross negligence or willful misconduct). The Lender 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 Lender's error, omission or delay constituted
gross negligence or willful misconduct). The Lender does not, by anything herein
or in any assignment or otherwise, assume any of the Borrower's or Apparel
Canada's obligations under any contract or agreement assigned to the Lender, and
the
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Lender shall not be responsible in any way for the performance by the Borrower
or Apparel Canada 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 Lender 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 Borrower or Apparel Canada and the
Borrower and Apparel Canada shall reimburse the Lender for any amount paid upon
demand. The Borrower and Apparel Canada shall notify the Lender if any
Receivables include any tax due to any such taxing authority and, in the absence
of such notice, the Lender 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 the
Borrower or Apparel Canada by reason of the sale and delivery creating such
Receivables.
SECTION 9.02. Receivables Documentation. The Borrower and Apparel
Canada will, in addition to the monthly Receivables agings delivered pursuant to
this Agreement, at such intervals as the Lender may reasonably require, furnish,
or cause to be furnished, such further schedules and/or information as the
Lender may reasonably require relating to the Receivables of the Borrower and
Apparel Canada, including, without limitation, sales invoices. In addition, the
Borrower and Apparel Canada shall notify the Lender of any material
non-compliance in respect of the representations, warranties and covenants
contained in Section 9.03 hereof. The items to be provided under this Section
9.02 are to be in form reasonably satisfactory to the Lender and are to be
executed and delivered to the Lender from time to time solely for its
convenience in maintaining records of the Collateral; the Borrower's or Apparel
Canada's failure to give any of such items to the Lender shall not affect,
terminate, modify or otherwise limit the Lender's Lien or security interest in
the Collateral.
SECTION 9.03. Status of Receivables and Other Collateral. Each of
the Borrower and Apparel Canada covenants, represents and warrants that: (a) the
Borrower and Apparel Canada shall be the sole owner, free and clear of all Liens
except in favour of the Lender or otherwise permitted hereunder, of and fully
authorized to sell, transfer, pledge, hypothecate and/or grant a security
interest in each and every item of said Collateral owned respectively by it; (b)
it will not seek to qualify, or maintain the qualification of, a Receivable as
an Eligible Receivable unless such Receivable shall be a good and valid account
representing an undisputed bona fide indebtedness incurred or an amount
indisputably 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 by the Borrower or Apparel Canada, or work,
labour and/or services theretofore rendered by the Borrower or Apparel Canada;
(c) it will not seek to qualify, or maintain the qualification of, a Receivable
as an Eligible Receivable unless such Receivable or portion thereof which it
seeks to so qualify is not subject to any defense (including,
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without limitation, compensation), 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 the Borrower's or
Apparel Canada's business; (d) none of the transactions underlying or giving
rise to any Eligible Receivable shall violate any applicable provincial, state
or Federal laws or regulations in any material respect, and all documents
relating to any Eligible Receivable shall be legally sufficient under such laws
or regulations and shall be legally enforceable in accordance with their terms
(subject as to enforcement of remedies to applicable bankruptcy, insolvency,
reorganization, moratorium and other similar laws affecting the enforcement of
creditors' rights generally from time to time in effect and to general
principles of equity); (e) it will not seek to qualify, or maintain the
qualification of, a Receivable as an Eligible Receivable unless to the best of
its knowledge (without independent inquiry), each Customer, guarantor or
endorser with respect to such Receivable is solvent and will continue to be
fully able to pay all Eligible Receivables on which it is obligated in full when
due; (f) it will not seek to qualify, or maintain the qualification of, a
Receivable as an Eligible Receivable unless all documents and agreements
relating to such Receivable shall be true and correct and in all respects what
they purport to be; (g) it will not seek to qualify, or maintain the
qualification of, a Receivable as an Eligible Receivable unless to the best of
its knowledge, all signatures and endorsements that appear on all documents and
agreements relating to such Receivable 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 are customary for businesses similarly situated; (i) it will
not seek to qualify, or maintain the qualification of, a Receivable as an
Eligible Receivable unless it shall have immediately notified the Lender as to
any accounts arising out of contracts with Canada or the United States or any
political subdivision, department, agency or instrumentality thereof, and shall
have executed any instruments and taken any steps required by the Lender in
order that all monies due or to become due under any such contract shall be
assigned to the Lender; (j) if any amount payable under or in connection with
any Receivable is evidenced by a promissory note or other instrument, such
promissory note or instrument shall be immediately pledged, endorsed, assigned
and delivered to the Lender as additional collateral; (k) neither it nor Apparel
Canada shall re-date any invoice or sale or make sales on extended dating beyond
that customary in the industry; (l) it shall conduct a physical count of its
inventory at such intervals as the Lender may request (but not more often than
one time in any Fiscal Year unless an Event of Default has occurred and is
continuing) and promptly supply the Lender 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 (m) neither it nor Apparel Canada
shall be entitled to pledge the Lender's credit on any purchases or for any
purpose whatsoever.
SECTION 9.04. Monthly Statement of Account. The Lender shall render
to the Borrower each month a statement of the Borrower's revolving credit
account,
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which shall constitute an account stated and shall be deemed to be correct and
accepted by and be binding upon the Borrower unless the Lender receives a
written statement of the Borrower's exceptions within thirty (30) days after
such statement was rendered to the Borrower.
SECTION 9.05. Collateral Custodian. Upon the occurrence and during
the continuance of an Event of Default, the Lender may at any time and from time
to time employ and maintain in the premises of the Borrower a custodian selected
by the Lender who shall have full authority to do all acts necessary to protect
the Lender's interests and to report to the Lender thereon. The Borrower hereby
agrees to co-operate, with any such custodian and to do whatever the Lender may
reasonably request to preserve the Collateral. All costs and expenses incurred
by the Lender by reason of the employment of the custodian shall be paid by the
Borrower on demand and then added to the Obligations if not paid.
ARTICLE X
MISCELLANEOUS
SECTION 10.01. Notices. Notices, consents and other communications
provided for herein shall be in writing and shall be delivered by hand or
overnight courier service or mailed by certified or registered mail or sent by
telecopy addressed,
(a) if to the Borrower, at 7405 Trans Canada Highway, Suite 300, St.
Laurent, Quebec H4T 1Z2, Canada (Telecopy No. 514-331-7061), Attention:
Russell J. David, Vice-President, Finance, with a copy to Goodman Phillips &
Vineberg, 1501 McGill College, 26th Floor, Montreal, Quebec H3A 3N9,
Attention: Leon Garfinkle (Telecopy No. 514-841-6499); and
(b) if to the Lender, at The Chase Manhattan Bank of Canada, 1 First
Canadian Place, Suite 6900, Toronto, Ontario, M5X 1A4, Attention: Christine
Chan (Telecopy No. 416-216-4161), with a copy to Fraser & Beatty, P.O. Box
100, 1 First Canadian Place, Toronto, Ontario, M5X 1B2, Attention: Peter E.
Murphy, (Telecopy No. 416-863-4592) and a copy concurrently to Chase U.S.,
633 Third Avenue, 7th Floor, Asset Based Lending, New York, New York 10017,
Attention: Credit Deputy (Telecopy No. 212-622-5218).
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 sent by overnight courier service or five
(5) days after being sent by registered or certified mail, postage prepaid,
return receipt requested, if by mail, or when receipt is acknowledged if sent by
telecopy, in each case addressed to such party
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as provided in this Section 10.01 or in accordance with the latest unrevoked
direction from such party.
SECTION 10.02. Survival of Agreement. All covenants, agreements,
representations and warranties made by any Borrower herein and in the
certificates or other instruments prepared or delivered in connection with this
Agreement, any of the Security Documents, or any other Loan Document, shall be
considered to have been relied upon by the Lender and shall survive the making
or advancing by the Lender of any Credit hereunder and the execution and
delivery to the Lender of the Promissory Note and the 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 Promissory Note or any other fee or
amount payable under the Promissory Note or this Agreement or any other Loan
Document is outstanding and unpaid and so long as the Revolving Credit
Commitment has not been terminated.
SECTION 10.03. 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 permitted successors and assigns of such party; and all
covenants, promises and agreements by or on behalf of the Borrower or the
Lender, 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 Borrower specifically confirms that the Lender may at any
time and from time to time pledge, hypothecate or otherwise grant a security
interest in any Revolving Credit Loan or the Promissory Note (or any part
thereof) to any chartered bank of Canada. The Borrower may not assign or
transfer any of its rights or obligations hereunder without the written consent
of the Lender.
(b) The Lender, without the consent of the Borrower but subject to
obtaining the consent of Chase U.S., 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 the Credits owing to it and the Lender's Letters of
Guarantee and the Promissory Note held by it); provided, however, that (i) the
Lender's obligations under this Agreement (including, without limitation, its
Revolving Credit Commitment) shall remain unchanged, (ii) the Lender shall
remain solely responsible to the Borrower 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 2.11, 2.12 and
2.14 hereof (provided such participant shall have complied with the terms
thereof), but only to the extent any of such Sections would be available to the
Lender, and shall not be entitled to receive any greater amount than the Lender
would be entitled to receive in aggregate and (iv) the Borrower shall continue
to deal solely and directly with the Lender in connection with the Lender's
rights and obligations under this Agreement; provided, further, however, that
the Lender shall retain the sole right and
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responsibility to enforce the obligations of the Borrower relating to the
Obligations, 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 decreasing any fees payable
hereunder or the amount of principal or the rate of interest payable on any of
the outstanding Credits, or extending the dates fixed for any payment of
principal or interest on the Credits, or the release of all Collateral.
(c) Notwithstanding any other provision herein, the Lender may, in
connection with any participation or proposed participation pursuant to this
Section 10.03, disclose to a participant or proposed participant, any
information, including, without limitation, any information, relating to the
Borrower furnished to the Lender by or on behalf of the Borrower in connection
with this Agreement; provided, however, that prior to any such disclosure, each
such participant or proposed participant shall agree to preserve the
confidentiality of any information relating to the Borrower received from the
Lender to the extent required pursuant to Section 10.11.
(d) In the event that the Borrower amalgamates, merges or otherwise
reorganizes with one or more other corporations, the Borrower agrees that the
corporation resulting therefrom shall continue to be bound by and subject to all
the terms, conditions, covenants and agreements herein contained and the
Borrower and the other parties to such amalgamation, merger or other
reorganization and the corporation resulting therefrom shall execute any and all
documents and assurances required by the Lender in its sole discretion either
before or after such amalgamation, merger or other reorganization so as to
effectively confirm all of the obligations of the Borrower and of the
corporation resulting therefrom to the Lender under this Agreement and all other
Loan Documents or otherwise.
SECTION 10.04. Expenses; Indemnity. (a) The Borrower agrees to pay
all reasonable out-of-pocket expenses incurred by the Lender 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 Lender in
connection with the enforcement or protection of its rights in connection with
this Agreement or any of the other Loan Documents or with the outstanding
Credits made or the Promissory Note or Bankers' Acceptances issued hereunder, or
in connection with any pending or threatened action, proceeding, or
investigation relating to the enforcement or protection of its rights, including
but not limited to the reasonable fees and disbursements of all counsel for the
Lender and ongoing field examination expenses and charges, and, in connection
with such enforcement or protection, the reasonable fees and disbursements of
counsel for the Lender. The Borrower further indemnifies the Lender from and
agrees to hold the Lender harmless against any documentary taxes, assessments or
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charges made by any governmental authority by reason of the execution and
delivery of this Agreement or the Promissory Note.
(b) The Borrower indemnifies the Lender and its directors, officers,
employees and agents against, and agrees to hold the Lender and each such person
harmless from, any and all losses, claims, damages, liabilities and related
expenses, including, without limitation, withholding or other taxes that may be
imposed by Canada or the United States of America (or both) or any political
subdivision thereof with respect to any payments made pursuant to this Agreement
and 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 any claim, litigation, investigation or proceedings, whether or not
the Lender or any such person is a party thereto, relating to (i) the use of any
of the proceeds of the Revolving Credit Loans, (ii) this Agreement, any of the
other Loan Documents, Plan of Reorganization 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 Revolving Credit Commitment) and consummation of the
transactions contemplated hereby and thereby or (iv) breach of any
representation or warranty; provided, however, that such indemnity shall not, as
to the Lender or such person, 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 Lender or such person.
(c) The Borrower indemnifies, and agrees to defend and hold harmless
the Lender and its 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 Borrower 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 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 10.04 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 Revolving Credit Loans, the invalidity or
unenforceability of any term or provision of this Agreement or the Promissory
Note, or any investigation made by or on behalf of the Lender. All amounts due
under this Section 10.04 shall be payable on written demand therefor.
<PAGE>
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SECTION 10.05. Applicable Law. This agreement and the Promissory
Note shall be construed in accordance with and governed by the laws of the
Province of Ontario and the federal laws of Canada applicable therein.
SECTION 10.06. Right of Setoff. If an Event of Default shall have
occurred and be continuing, the Lender shall and is hereby authorized at any
time and from time to time, to the fullest extent permitted by law, to set-off,
compensate and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and all proceeds in the Concentration
Accounts and other Indebtedness at any time owing by the Lender to or for the
credit or the account of the Borrower or Guarantors against any and all of the
obligations of such Borrower or Guarantor now or hereafter existing under this
Agreement and the Promissory Note held by the Lender, irrespective of whether or
not the Lender shall have made any demand under this Agreement or the Promissory
Note and although such obligations may be unmatured. The Lender agrees to notify
promptly the Borrower after any such setoff and application made by the Lender,
but the failure to give such notice shall not affect the validity of such setoff
and application. The rights of the Lender under this Section are in addition to
other rights and remedies (including, without limitation, other rights of
setoff) which may be available to the Lender.
SECTION 10.07. Payments on Business Days. (a) Should the principal
of or interest on the Promissory Note 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 "Contract 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 the Borrower hereunder and all Revolving Credit
Loans made by the Lender hereunder shall be made in lawful money of Canada in
immediately available funds at the office of the Lender set forth in Section
10.01 hereof.
SECTION 10.08. Waivers; Amendments. (a) No failure or delay of the
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 Lender hereunder are cumulative
and not exclusive of any rights or remedies which the Lender may otherwise have.
No waiver of any provision of this Agreement or the Promissory Note nor consent
to any departure by the 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 the Borrower in any
<PAGE>
Page 63
case shall entitle it to any other or further notice or demand in similar or
other circumstances.
(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 Borrower and the Lender and in respect of which the Lender
has received the consent of Chase U.S. (to the extent required under the U.S.
Credit Agreement) except that any waiver or amendment of any of the affirmative
or negative covenants in Article VI or Article VII of the U.S. Credit Agreement
shall automatically be effective to correspondingly, and to the same extent,
modify the performance obligations of the Borrower under Articles VI and VII of
this Agreement, provided however that no such agreement shall (i) decrease the
principal amount of, or extend the Revolving Credit Termination Date (except in
accordance with the terms thereof) or interest on, any outstanding Credit or
reduce the rate of interest on any outstanding Credit or be construed as, or
have the effect of, comprising or reducing the amount of the outstanding
Obligations, (ii) increase the Revolving Credit Commitment of the Lender,
increase any percentage or amount contained in the definition of Borrowing Base
or Seasonal Amount or amend or modify the provisions of this Section, or
decrease any fee or extend the time for payment thereof, (iii) release any
material portion of Collateral (except as may be expressly permitted by the Loan
Documents), in each case without the prior written consent of the Lender and
provided further, however, that no such agreement shall amend, modify or
otherwise affect the rights or duties of the Lender under this Agreement or the
other Loan Documents without the written consent of the Lender. The Lender shall
be bound by any modification, amendment or waiver authorized in accordance with
this Section regardless of whether the Promissory Note shall be marked to make
reference thereto, and any consent by the Lender or holder of the Promissory
Note pursuant to this Section shall bind any person subsequently acquiring an
interest in the Promissory Note from it, whether or not such Promissory Note
shall be so marked.
SECTION 10.09. Severability. In the event any one or more of the
provisions contained in this Agreement or in the Promissory Note or any of the
other Loan Documents 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 10.10. Entire Agreement. (a) This Agreement, the Promissory
Note and the other Loan Documents constitute the entire contract between the
parties hereto relative to the subject matter hereof. Any previous agreement
among the parties hereto with respect to the transactions hereunder is
superseded by this Agreement, the Promissory Note and the other Loan Documents.
Except as expressly provided herein or in the Promissory Note or the Loan
Documents (other than this Agreement), nothing in this Agreement, the Promissory
Note or in the other Loan Documents, expressed or
<PAGE>
Page 64
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 Promissory Note or the other Loan Documents.
(b) Except as prohibited by law, each party hereto hereby waives any
right it may have to claim or recover in any litigation any special, exemplary,
punitive or consequential damages or any damages other than, or in addition to,
actual damages.
(c) The Borrower hereby certifies that no representative, agent or
attorney of the Lender has represented, expressly or otherwise, that the Lender
would not, in the event of litigation, seek to enforce the foregoing waivers.
SECTION 10.11. Confidentiality. The Lender agrees to keep
confidential (and to cause its officers, directors, employees, agents and
representatives to keep confidential) all information, materials and documents
furnished to the Lender (the "Information"). Notwithstanding the foregoing, the
Lender shall be permitted to disclose Information (i) to such of its officers,
directors, employees, agents and representatives and to any and all Affiliates
of the Lender from time to time as need to know such Information (who will be
informed of the confidential nature thereof) in connection with the transactions
hereunder or the administration of this Agreement or the other Loan Documents;
(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 (in any which case notice will be provided to the Borrower to the
extent not prohibited by law); (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 Lender on a non-confidential basis from a source other
than any Borrower or any of its subsidiaries (and such source was not prohibited
from transmitting the information by reason of being party to a confidentiality
agreement) or (C) was available to the Lender on a non-confidential basis prior
to its disclosure to the Lender by the Borrower or any of its subsidiaries; (iv)
to the extent the Borrower shall have consented to such disclosure in writing;
or (v) in connection with the sale of any Collateral pursuant to the provisions
of any of the other Loan Documents.
SECTION 10.12. Submission to Jurisdiction. (a) Any legal action or
proceeding with respect to this Agreement or the Promissory Note or any other
Loan Document may be brought in the courts of the Province of Ontario, and, by
execution and delivery of this Agreement, the Borrower hereby accepts for itself
and in respect of its property, generally and unconditionally, the jurisdiction
of the aforesaid courts.
(b) The Borrower hereby irrevocably waives, in connection with any
such action or proceeding, any objection, including, without limitation, any
objection to the
<PAGE>
Page 65
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
jurisdiction.
(c) The Borrower hereby irrevocably consents to the service of
process of the aforementioned courts in any such action or proceeding by the
mailing of a copy thereof by registered or certified mail, postage prepaid, to
the Borrower at its address set forth in Section 10.01 hereof.
(d) Nothing herein shall affect the right of the Lender to serve
process in any other manner permitted by law or to commence legal proceedings or
otherwise proceed against the Borrower in any other jurisdiction.
SECTION 10.13. Interest Rate Limitation. (a) Notwithstanding
anything herein to the contrary, if at any time the interest rate applicable to
any Revolving Credit Loan or any other Credits hereunder, together with all
fees, charges and other amounts which are treated as interest thereon under
applicable law (collectively, the "Charges"), shall exceed the maximum lawful
rate (the "Maximum Rate") which may be contracted for, charged, taken, received
or reserved by the Lender in accordance with the Interest Act (Canada) or the
Criminal Code (Canada) or any other applicable law, the rate of interest payable
in respect of such Credits hereunder, together with all Charges payable in
respect thereof, shall be limited to the Maximum Rate and, to the extent lawful,
the interest and Charges that would have been payable in respect of such Credits
but were not payable as a result of the operation of this Section shall be
cumulated and the interest and Charges payable to the Lender in respect of other
Credits or periods shall be increased (but not above the Maximum Rate therefor)
until such cumulated amount, together with interest thereon, at the Prime Rate
calculated monthly not in arrears, to the date of repayment, shall have been
received by the Lender.
SECTION 10.14. 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 bear the signatures of each of the parties
hereto shall be delivered to the Lender.
SECTION 10.15. 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.
<PAGE>
Page 66
IN WITNESS WHEREOF, the Borrower and the Lender have caused this
Agreement to be duly executed by their respective duly authorized officers as of
the day and year first above written.
SPORT MASKA INC.
Per: /s/ D. BRUCE RANDALL C.S.
------------------------------------
Name: D. Bruce Randall
Title: Secretary
THE CHASE MANHATTAN BANK OF CANADA
Per: /s/ CHRISTINE CHAN
------------------------------------
Name: Christine Chan
Title: Vice President
Acknowledged and agreed to for the purposes of Article IX of the above Credit
Agreement.
#1 APPAREL CANADA INC.
Per: /s/ D. BRUCE RANDALL
------------------------------------
Name: D. Bruce Randall
Title: Secretary
<PAGE>
EXHIBIT "A"
GRAPHICAL REPRESENTATION OF
C A N C E L L E D C H E C K
N O. 5 1 2 8
[FRONT AND BACK]
<PAGE>
EXHIBIT "B"
[LETTERHEAD OF THE CHASE MANHATTAN BANK]
IRREVOCABLE NONTRANSFERABLE LETTER OF CREDIT
- --------------------------------------------------------------------------------
April __, 1997
$35,000,000 United States Dollars
Irrevocable Letter of Credit No. __
THE CHASE MANHATTAN BANK OF CANADA
1 First Canadian Place, Suite 6900
100 King Street West
Toronto, ON
M5X 1A4
Attention: _________________________
Ladies and Gentlemen:
The Chase Manhattan Bank (hereinafter referred to as the "Bank"), being a
party to a credit agreement dated as of April __, 1997 (that credit agreement
together with all amendments or extensions thereto is hereinafter collectively
referred to as the "U.S. CREDIT AGREEMENT") made among SLM International, Inc.,
Maska U.S., Inc. and #1 Apparel, Inc., as borrowers (collectively referred to
below as the "U.S. BORROWERS"), and the Bank as agent for the lenders named
therein hereby establishes and issues in favour of The Chase Manhattan Bank of
Canada (hereinafter referred to as the "BENEFICIARY"), this irrevocable
nontransferable letter of credit No. ______ (hereinafter referred to as the
"LETTER OF CREDIT") for the account of the U.S. Borrowers and Sport Maska Inc.,
(the "CANADIAN BORROWER"), the U.S. Borrowers and the Canadian Borrower being
collectively referred to below as the "L/C APPLICANTS".
This Letter of Credit is being issued by the Bank to the Beneficiary for
the term of the Canadian Credit (as defined below) expiring on the Termination
Date (as defined below) as security for the present and future indebtedness and
liability of the Canadian Borrower (whether absolute or contingent, direct or
indirect) to the Beneficiary pursuant to or in connection with the credit
agreement dated as of April __,1997 (that credit agreement together with all
amendments or extensions thereto is collectively referred to below as the
"CANADIAN CREDIT AGREEMENT") between the Beneficiary as lender and the Canadian
Borrower.
<PAGE>
2
The Bank hereby irrevocably authorizes the Beneficiary to draw on the Bank
in Canadian Dollars a maximum aggregate amount not exceeding the Canadian Dollar
Equivalent (as that term is defined below) of not exceeding $35,000,000 United
States Dollars (hereinafter referred to as the "STATED AMOUNT") from and after
the date hereof, to and including the earliest to occur, on or before the close
of business at the Designated Office of the Bank of: (i) 5 (five) Business Days
following the Revolving Credit Termination Date, as that term is defined in the
Canadian Credit Agreement (such 5th day thereafter being hereinafter referred to
as the "STATED EXPIRATION DATE"); and (ii) the date (hereinafter referred to as
the "ACCELERATED EXPIRATION DATE") upon which an Event of Default (as that term
is defined in the Canadian Credit Agreement) has occurred and is continuing
which has not been waived in writing by the Beneficiary as lender thereunder and
in respect of which the Beneficiary has determined to exercise its rights of
enforcement and (iii) April __, 2000 (the earliest to occur of the Stated
Expiration Date and the Accelerated Expiration Date and April __, 2000, being
hereinafter referred to as the "TERMINATION DATE").
For purposes of this Letter of Credit, "DESIGNATED OFFICE" shall mean the
office of the Bank located at 55 Water Street, Room 1708, 17th floor, New York,
New York 10041, Attention: Standby Letter of Credit Department or such other
address as the Bank may advise the Beneficiary in writing; and "CANADIAN DOLLAR
EQUIVALENT" shall mean, for any amount at any time expressed in United States
dollars, the amount of Canadian Dollars that would be sold at the Bank's spot
rate of exchange at such time in order to purchase such amount of U.S. dollars;
and "Business Day" shall mean any day other than a Saturday, Sunday or legal
holiday in the Province of Ontario, the Province of Quebec or the State of New
York on which banks are open for the transaction of their banking business in
the ordinary course in Toronto, Montreal and New York City.
The Stated Amount is available to the Beneficiary upon presentation of a
certificate (with your selection of text where indicated and blanks
appropriately completed) in the form of Exhibit "A" attached hereto (the
"PAYMENT DOCUMENT") presented to the Bank at the Designated Office in accordance
with the terms of this Letter of Credit. Partial drawings under this Letter of
Credit are not permitted.
In this Letter of Credit and the Payment Document reference to the credit
established pursuant to the Canadian Credit Agreement (hereinafter referred to
as the "CANADIAN CREDIT") is for identification purposes only, and shall not
limit, in any way, or otherwise affect the obligation of the Bank hereunder to
pay, upon presentation of a Payment Document presented in accordance with the
terms of this Letter of Credit, the Stated Amount requested to be paid in the
Payment Document without any duty on the Bank to inquire into any matters
relating to the Canadian Credit.
<PAGE>
3
All drawings made pursuant to this Letter of Credit by the Beneficiary may
be made by presentation in person or by telecopier transmission of the Payment
Document at the Designated Office of the Bank (telecopier no. (212) 363-5656)
before the close of business on a day on which the Bank is open for the
transaction of business at such address, without further need of documentation,
including the original of this Letter of Credit, it being understood that the
Payment Document so submitted is to be the sole operative instrument of drawing.
This Letter of Credit shall, if not drawn upon before the close of business
on the Termination Date at the Designated Office of the Bank, automatically
terminate on the Termination Date, and, at such time, upon the request of the
Bank, this Letter of Credit shall be delivered to the Bank for cancellation.
This Letter of Credit is not transferable in whole or in part.
Communications with respect to this Letter of Credit shall be addressed to
the Bank at the Designated Office of the Bank with a copy concurrently being
sent to the Bank at 633 Third Avenue, New York, New York 10017-6764, Attention:
Asset Based Region-Credit Deputy; Telecopier No. (212) 622-5218, and shall make
specific reference to the number of this Letter of Credit.
To the extent not inconsistent with the express terms hereof, this Letter
of Credit shall be governed by, and construed in accordance with, the terms of
the Uniform Customs and Practice for Documentary Credits (1993 Revision),
International Chamber of Commerce Publication No. 500 ("ICC 500"). As to matters
not governed by the ICC 500, this Letter of Credit shall be governed by and
construed in accordance with the laws of the State of New York, including
without limitation the Uniform Commercial Code as in effect in the State of New
York.
THE CHASE MANHATTAN BANK
Per:
------------------------------------
Authorized Signing Officer
<PAGE>
EXHIBIT "A"
TO
THE CHASE MANHATTAN BANK
LETTER OF CREDIT NO. _____
THE CHASE MANHATTAN BANK
55 Water Street
Room 1708, 17th Floor
New York, New York
U.S.A. 10041
Attention: Standby Letter of Credit Department
The undersigned, a duly authorized representative of The Chase Manhattan
Bank of Canada (hereinafter referred to as the "Beneficiary"), hereby CERTIFIES
on behalf of the Beneficiary, and not in my personal capacity, as follows with
respect to that certain irrevocable nontransferable letter of credit No. _____
dated as of April __, 1997 (hereinafter referred to as the "Letter of Credit"),
issued by The Chase Manhattan Bank (hereinafter referred to as the "Bank") in
favour of the Beneficiary:
1. The Beneficiary is the lender pursuant to the Canadian Credit Agreement
(as that term is defined in the Letter of Credit) and is entitled to make this
draw request under the Letter of Credit.
2. [Select the appropriate certification from one of the following
options.]
An Event of Default (as that term is defined in the Canadian Credit
Agreement) has occurred and is continuing which has not been waived in writing
by the Beneficiary as lender thereunder and in respect of which the Beneficiary
has determined to exercise its rights of enforcement.
or
The Revolving Credit Termination Date (as that term is defined in the
Canadian Credit Agreement) has occurred and the Canadian Borrower (as that term
is defined in the Letter of Credit) has not repaid in full its indebtedness and
liability thereunder.
3. All principal and interest in respect of the Canadian Credit outstanding
under the Canadian Credit Agreement is due and payable.
<PAGE>
2
4. The amount being drawn hereunder, namely $__________ Canadian, does not
exceed the lesser of the Canadian Dollar Equivalent (as defined in the Letter of
Credit) of $35,000,000 United States Dollars and the amount of indebtedness and
liability owing to the Beneficiary under the Canadian Credit Agreement.
5. Payment by the Bank pursuant to this drawing shall be made to the
Beneficiary c/o The Royal Bank of Canada, Main Branch, Toronto, Ontario,
Correspondence Banking Division, Transit No. 09591 for the account of The Chase
Manhattan Bank of Canada, Account Number 219-247-4, Re: Sport Maska Inc.
IN WITNESS WHEREOF, this Certificate has been executed this ______ day
of _____________, ____.
THE CHASE MANHATTAN BANK OF CANADA
Per:
----------------------------------
Authorized Signing Officer
<PAGE>
EXHIBIT "C"
[CHASE MANHATTAN CANADA LETTERHEAD]
April __, 1997
Irrevocable Letter of Credit No. _____
ROYAL BANK OF CANADA
Banks, Financial Institutions and Trade
10th Floor, South Tower
Royal Bank Plaza
Toronto, Ontario
M5J 2J5
Attention: Asoka Wijesekera
Dear Sirs/Mesdames:
Pursuant to the request, and for the account, of Sport Maska Inc. we, The
Chase Manhattan Bank of Canada, hereby establish this irrevocable standby letter
of credit in your favour for a total amount not exceeding Four Million Canadian
Dollars ($4,000,000.00) available at our Designated Branch by drawings as
hereinafter provided for prior to 3:00 p.m. on April __, 1998 (that date as
extended from time to time pursuant to the terms of this letter of credit,
referred to as the "Stated Expiration Date").
Drawings under this letter of credit shall be made by presentation to our
Designated Branch between the hours of 10:00 a.m. and 3:00 p.m. (Toronto time)
on a day on which our Designated Branch is open for normal banking business of a
payment document, in the form of Exhibit "A" attached hereto.
Upon presentation of such payment document together with attachments
referred to therein prior to the Stated Expiration Date we will honour your
drafts without regard to the state of account between The Chase Manhattan Bank
of Canada and Sport Maska Inc. up to the total aggregate amount hereinbefore
referred to.
This letter of credit is not transferable.
<PAGE>
-2-
There may be more than one drawing under this letter of credit and the
amount remaining to be drawn will be reduced by each amount drawn on the basis
that the aggregate liability under this letter of credit at any time and from
time to time shall not exceed $4,000,000.00 Canadian.
The Stated Expiration Date shall be automatically extended without
amendment for an additional period of one calendar year from the present or any
future Stated Expiration Date unless at least thirty days' prior to any such
Stated Expiration Date, we shall notify you in writing by registered mail, or by
hand delivery, to your address noted above, that we elect not to renew this
letter of credit for any such additional period. In all events this letter of
credit will expire on April __, 2000. Notice will be deemed to have been validly
given to you when actually received by you, if delivered by us to you, or on the
third day following our mailing of such notice to you by registered mail. Upon
receipt by you of such notice, you may draw under this letter of credit by
presentation of a payment document in the form of Exhibit "A". All references in
this letter of credit to the Stated Expiration Date shall be deemed to be
references to the date resulting from the last such extension, if any.
Communications with respect to this letter of credit shall be addressed to
us at The Chase Manhattan Bank of Canada, 100 King Street West, Suite 6900, P.O.
Box 106, 1 First Canadian Place, Toronto, Ontario M5X 1A4, Attention: Standby
Letter of Credit Unit (such address being our "Designated Branch" for purposes
of this standby letter of credit), specifically referring to the number of this
letter of credit.
To the extent not inconsistent with the express terms hereof, this letter
of credit shall be governed by and construed in accordance with the terms of the
Uniform Customs and Practice for Documentary Credits (1993 Revision)
International Chamber of Commerce Publication No. 500 (the "Uniform Customs").
As to matters not covered by the Uniform Customs, this letter of credit shall be
governed by and construed in accordance with the laws of the Province of Ontario
and the federal laws of Canada applicable therein.
THE CHASE MANHATTAN BANK OF CANADA
Per:
------------------------------------
Authorized Signature
Per:
-------------------------------------
Authorized Signature
<PAGE>
EXHIBIT "A"
TO
THE CHASE MANHATTAN BANK OF CANADA
IRREVOCABLE LETTER OF CREDIT NO. _____
THE CHASE MANHATTAN BANK OF CANADA
100 King Street West
Suite 6900, P.O. Box 106
1 First Canadian Place
Toronto, Ontario
M5X 1A4
Attention: Standby Letter of Credit Department
The undersigned, a duly authorized representative of Royal Bank of Canada
(hereinafter referred to as the "Beneficiary"), hereby CERTIFIES on behalf of
the Beneficiary, and not in my personal capacity, as follows with respect to
that certain irrevocable nontransferable letter of credit No. _____ dated as of
April __, 1997 (hereinafter referred to as the "Letter of Credit"), issued by
The Chase Manhattan Bank of Canada (hereinafter referred to as the "Bank") in
favour of the Beneficiary:
1. The Beneficiary issued a letter of credit dated _______________ for the
account of Sport Maska Inc. which has been duly drawn upon by the beneficiary
thereunder and Sport Maska Inc. has not indemnified or reimbursed us for the
amount of such drawing thereunder and such default by Sport Maska Inc. in
reimbursing us for our payment under that letter of credit has continued for
[______] days and Sport Maska Inc. is, as of the date hereof, still in such
default and the same is due and owing to us and accordingly the Beneficiary is
entitled to make this draw request under the Letter of Credit.
2. Attached hereto is a copy of the letter of credit referred to in
paragraph 1 above.
3. The amount being drawn hereunder, namely $____________ Cdn. is the
amount justly owing to the Beneficiary by Sport Maska Inc. in respect of the
letter of credit referred to in paragraph 1 above.
[OR ALTERNATIVELY, IN SUBSTITUTION FOR PARAGRAPHS 1, 2 AND 3 ABOVE:
1. The Beneficiary has received a notice from the Bank pursuant to the
Letter of Credit advising that it does not intend to renew or extend the Letter
of Credit and accordingly the Beneficiary hereby requests payment to it of
<PAGE>
-2-
$____________ (Cdn.) that amount being the lesser of $4,000,000.00 (Cdn.) and
the face amount of all outstanding letters of credit issued by the Beneficiary
for the account of Sport Maska Inc.
2. The Beneficiary hereby certifies that the amount referred to in
paragraph 1 above is justly and truly due and owing to it by Sport Maska Inc.
3. The Beneficiary hereby agrees to deposit the proceeds of such drawing
hereunder in an interest-bearing trust account to be held as collateral security
for such indebtedness and liability of Sport Maska Inc. to the Beneficiary and
to apply the proceeds or balance therein against the obligations of Sport Maska
Inc., as and when the letters of credit issued by the Beneficiary for the
account of Sport Maska Inc. are duly drawn upon by the beneficiaries thereunder
and to hold the unappropriated balance of such proceeds in trust for the Bank
and remit such net balance to the Bank (with an accounting).]
4. We agree that upon payment by the Bank to us herein, you shall be fully
subrogated to and in all of our rights against Sport Maska Inc. and any relevant
goods, all without prejudice to any other rights the Bank may have against Sport
Maska Inc. and its property, assets and undertaking.
5. Payment by the Bank pursuant to this drawing shall be made to the
Beneficiary c/o The Royal Bank of Canada, Banks, Financial Institutions and
Trade, 10th Floor, South Tower, Royal Bank Plaza, Toronto, Ontario M5J 2J5, Re:
Sport Maska Inc.
IN WITNESS WHEREOF, this Certificate has been executed this ________ day
of ________________, ____.
ROYAL BANK OF CANADA
Per:
---------------------------------------
Authorized Signing Officer
<PAGE>
EXHIBIT "D"
REVOLVING CREDIT NOTE
Canadian Dollar Equivalent of
$35,000,000 United States Dollars
April 15, 1997
FOR VALUE RECEIVED, the undersigned SPORT MASKA INC. (the "Borrower"),
hereby promises to pay to the order of THE CHASE MANHATTAN BANK OF CANADA (the
"Lender"), at the office of the Lender, at 1 First Canadian Place, Suite 6900,
Toronto, Ontario, M5X 1A4 on the Revolving Credit Termination Date as defined in
the Credit Agreement dated as of April 1, 1997, between the Borrower and the
Lender (as the same may be amended, modified or supplemented from time to time
in accordance with its terms is hereinafter referred to as the "Credit
Agreement") or earlier as provided for in the Credit Agreement, the lesser of
the principal sum of the Canadian Dollar Equivalent of $35,000,000 United States
Dollars or the aggregate unpaid principal amount of all Revolving Credit Loans
to the Borrower from the Lender pursuant to the terms of the Credit Agreement,
in lawful money of Canada in immediately available funds, and to pay interest
from the date thereof on the principal amount hereof from time to time
outstanding, in like funds, at said office, at a rate or rates per annum and, in
each case, payable on such dates as determined pursuant to the terms of the
Credit Agreement.
The Borrower promises to pay interest, on demand, on any overdue principal
and fees and, to the extent permitted by law, overdue interest from their due
dates at a rate or rates determined as set forth in the Credit Agreement.
The Borrower hereby waives diligence, presentment, demand, protest and
notice of any kind whatsoever. The non-exercise by the holder of any of its
rights hereunder in any particular instance shall not constitute a waiver
thereof in that or any subsequent instance.
All borrowings evidenced by this Note and all payments and prepayments of
the principal hereof and interest hereon and the respective date thereof shall
be endorsed by the holder hereof on the schedule attached hereto and made a part
hereof, or on a continuation thereof which shall be attached hereto and made a
part hereof, or otherwise recorded by such holder in its internal records;
provided, however, that the failure of the holder hereof to make such a notation
or any error in such a notation shall not in any manner affect the obligation of
the Borrower to make payments of principal and interest in accordance with the
terms of this Note and the Credit Agreement.
This Note is the Promissory Note referred to in the Credit Agreement,
which, among other things, contains provisions for the acceleration of the
maturity hereof upon the happening of certain events, for optional and mandatory
prepayment of the principal hereof prior to the maturity hereof and for the
amendment or waiver of certain provisions of the Credit Agreement, all upon the
terms and conditions therein specified.
<PAGE>
2.
For the purposes of this Note, the phrase "Canadian Dollar Equivalent"
means, for any amount at any time expressed in United States (U.S.) dollars, the
amount of Canadian Dollars that would be sold at the Lender's spot rate of
exchange at such time in order to purchase such amount in U.S. dollars.
This Note shall be construed in accordance with and governed by the laws of
the Province of Ontario and the federal laws of Canada applicable therein, and
shall enure to the benefit of the Lender and its successors and assigns and
shall be binding upon the Borrower and its successors and assigns.
SPORT MASKA INC.
Per: c.s.
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Name: D. Bruce Randall
Title: Secretary
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LOANS AND PAYMENT
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AMOUNT OF LOAN PAYMENTS UNPAID NAME OF PERSON
DATE PRINCIPAL INTEREST PRINCIPAL MAKING NOTATION
BALANCE OF NOTE
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EXECUTION COPY
SECURITY AGREEMENT
SECURITY AGREEMENT dated as of April 1, 1997, among SLM International,
Inc., a Delaware corporation, #1 Apparel, Inc., a Delaware corporation, and
Maska U.S., Inc., a Vermont corporation (collectively, the "Borrowers"),SLM
Trademark Acquisition Corp., a Delaware corporation ("Acquisition"), #1 Apparel
Canada Inc., a corporation under the Business Corporations Act (New Brunswick)
("Apparel"), Sport Maska Inc., a corporation under the Business Corporations Act
(New Brunswick) ("Maska"), SLM Trademark Acquisition Canada
Corporation/Corporation D'Acquisition De Marque De Commerce SLM Canada, a
corporation under the Business Corporations Act (New Brunswick) ("TACC"; TACC,
Acquisition, Apparel, Maska and the Borrowers are each sometimes referred to
herein as a "Grantor" and collectively as the "Grantors") and The Chase
Manhattan Bank, a New York banking corporation, as agent (the "Agent") for (i)
the lenders (the "Lenders") referred to in the Credit Agreement dated as of the
date hereof, among the Borrowers, the Lenders and the Agent (as amended,
modified or supplemented from time to time in accordance with its terms, the
"Credit Agreement") and (ii) for itself as issuer of the Letters of Credit. All
capitalized terms used herein and not defined herein shall have the meanings set
forth in the Credit Agreement.
The Agent and the Lenders have agreed to extend Credits to or for the
account of the Borrowers pursuant to, and subject to the terms and conditions
of, the Credit Agreement. The obligation of the Lenders to extend such Credits
under the Credit Agreement is conditioned on the execution and delivery by the
Grantors of a security agreement in the form hereof to secure the following
(collectively, the "Secured Obligations"): all Obligations (such Obligations to
include, without limitation, the due and punctual payment and performance of (a)
the principal of and interest on the Loans (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, 11 U.S.C. ss.362(a), 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), when and as
due, whether at maturity, by acceleration, upon one or more dates set for
prepayment or otherwise, (b) Indebtedness at any time and from time to time
under the Letters of Credit, (c) all obligations of the Grantors at any time and
from time to time under this Agreement and (d) all other obligations of the
Grantors and Guarantors at any time and from time to time under the Credit
Agreement and the other Loan Documents).
Accordingly, the Grantors and the Agent hereby agree as follows:
1. Definitions of Terms Used Herein. As used herein, the following terms
shall have the following meanings:
<PAGE>
(a) "Accounts Receivable" shall mean (i) all of any Grantor's present and
future accounts, general intangibles, chattel paper and instruments, as such
terms are defined in the Uniform Commercial Code as in effect in the State of
New York ("NYUCC"), (ii) all moneys, securities and other property and the
proceeds thereof, now or hereafter held or received by, or in transit to, the
Agent from or for any Grantor, whether for safekeeping, pledge, custody,
transmission, collection or otherwise, and all of the deposits (general or
special) of any Grantor, balances, sums and credits with, and all of the
Grantors' claims against the Agent at any time existing, (iii) all of any
Grantor's right, title and interest, and all of any Grantor's rights, remedies,
security and Liens, in, to and in respect of any accounts receivable, including,
without limitation, rights of stoppage in transit, replevin, repossession and
reclamation and other rights and remedies of an unpaid vendor, lienor or secured
party, guaranties or other contracts of suretyship with respect to accounts
receivable, deposits or other security for the obligation of any account debtor,
and credit and other insurance, (iv) all of any Grantor's right, title and
interest in, to and in respect of all goods relating to, or which by sale have
resulted in, accounts receivable, including, without limitation, all goods
described in invoices or other documents or instruments with respect to, or
otherwise representing or evidencing, any account receivable, and all returned,
reclaimed or repossessed goods, and (v) all claims, demands, loans and advances
at any time existing, and all interest accrued or that may hereafter accrue
thereon, of any Grantor against any other Grantor.
(b) "Collateral" shall mean all (i) Accounts Receivable, (ii) Contract
Rights, (iii) Documents, (iv) Equipment, (v) General Intangibles, (vi)
Inventory, (vii) Proceeds, (viii) Investment Property, and (ix) Deposit
Accounts, in each case, wherever located and whether now owned or hereafter
acquired or existing.
(c) "Contract Rights" shall mean all agreements to which any Grantor is a
party, as each such agreement may be amended, supplemented or otherwise modified
from time to time, including without limitation (i) all rights of such Grantor
to receive moneys due under or pursuant to the Contract Rights, (ii) all rights
of such Grantor to receive proceeds of any insurance, indemnity, warranty or
guaranty with respect to the Contract Rights, (iii) all claims of such Grantor
for damages arising out of any breach of or default under the Contract Rights,
and (iv) all rights of such Grantor to terminate, amend, supplement, modify or
exercise rights or options under the Contract Rights, to perform thereunder and
to compel performance and otherwise exercise all remedies thereunder, but
excluding those license agreements between each of Maska U.S., Inc., #1 Apparel,
Inc. and Maska with National Hockey League Enterprises, Inc., its Canadian
counterpart and their affiliates.
(d) "Deposit Accounts" shall mean all deposit accounts of any Grantor,
including without limitation all deposit accounts maintained with Agent.
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(e) "Documents" shall mean all instruments, files, records, ledger sheets,
documents, computer programs, tapes, disks and related data processing software
covering or relating to any of the Collateral.
(f) "Equipment" shall mean all of the Grantors' machinery, equipment,
vehicles, furniture and fixtures and all attachments, accessories and equipment
now or hereafter owned or acquired in the Grantors' business or used in
connection therewith, and all substitutions and replacements thereof, wherever
located, whether now owned or hereafter acquired by any Grantor.
(g) "General Intangibles" shall mean all of the Grantors' present and
future general intangibles of every kind and description, including (without
limitation) patents, patent applications, trade names and trademarks and the
goodwill of the business symbolized thereby, national, provincial, Federal,
state and local tax refund claims of all kinds.
(h) "Inventory" shall mean all of the Grantors' right, title and interest
in and to raw materials, work in process, finished goods and other goods and all
other inventory (as such term is defined in the NYUCC), whether now owned or
hereafter acquired, all wrapping, packaging, advertising and shipping materials,
and any documents relating thereto and all negotiable documents of title
(including without limitation warehouse receipts, dock receipts and bills of
lading) issued by any person covering any Inventory (any such negotiable
document of title being a "Negotiable Document of Title").
(i) "Investment Property" shall mean all of the Grantors' right, title and
interest in and to all present and future securities, security entitlements and
securities accounts.
(j) "Proceeds" shall mean any consideration received from the sale,
exchange, lease or other disposition of any asset or property which constitutes
Collateral, any other value received as a consequence of the possession of any
Collateral and any payment received from any insurer or other person or entity
as a result of the destruction, loss, theft or other involuntary conversion of
whatever nature of any asset or property that constitutes Collateral, and shall
include, without limitation, all cash and negotiable instruments received or
held by any of the Lenders pursuant to any lockbox or similar arrangement
relating to the payment of Accounts Receivable.
2. Security Interests. As security for the payment or performance,
as the case may be, of the Secured Obligations, the Grantors hereby create and
grant to the Agent, its successors and its assigns, for its own benefit and for
the pro rata benefit of the Lenders, their successors and their assigns, a
security interest in the Collateral (the "Security Interest"). Without limiting
the foregoing, to the extent permitted by law, the Agent is hereby authorized to
file one or more financing statements, continuation
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statements or other documents for the purpose of perfecting, confirming,
continuing, enforcing or protecting the Security Interest, naming the Grantors
as debtors and the Agent as secured party, without the signature of any Grantor.
The Grantors agree at all times to keep in all material respects accurate
and complete accounting records with respect to the Collateral, including, but
not limited to, a record of all payments and Proceeds received.
3. Further Assurances. Each Grantor jointly and severally agrees, at its
expense, to execute, acknowledge, deliver and cause to be duly filed all such
further instruments and documents, mark conspicuously each item of chattel paper
included in the Accounts Receivable, each agreement related thereto, and, at the
request of the Agent, each of its records pertaining to the Collateral, with a
legend, in form and substance satisfactory to the Agent indicating that such
Collateral is subject to the security interest granted hereby and take all such
other actions as the Agent may from time to time reasonably request for the
assuring and preserving of the Security Interest and the rights and remedies
created hereby, including, without limitation, the payment of any reasonable
fees and taxes required in connection with the execution and delivery of this
Agreement, the granting of the Security Interest and the filing of any financing
statements or other documents in connection herewith. If any amount payable
under or in connection with any of the Collateral shall be or become evidenced
by any promissory note or other instrument, such note or instrument shall be
promptly pledged and delivered to the Agent, accompanied by a note power undated
and executed in blank in form and substance reasonably satisfactory to the
Agent. Each Grantor agrees to notify the Agent prior to any change in its
corporate name or in the location of its chief executive office, its chief place
of business or the office where it keeps its records relating to the Accounts
Receivable or any chattel paper evidencing the Accounts Receivable owned by it
and the location of any other Collateral. Each Grantor agrees promptly to notify
the Agent if any material portion of the Collateral is damaged or destroyed.
4. Inspection and Verification. In accordance with Section 6.08 of the
Credit Agreement, the Agent and any authorized representatives designated by the
Agent shall have the right, upon reasonable notice (which may be telephonic), at
all reasonable times and at Agent's expense where so provided in Section 6.08 of
the Credit Agreement, to inspect the Collateral owned by such Grantor, all
records related thereto (and to make extracts and copies from such records at
Agent's expense where so provided in Section 6.08 of the Credit Agreement), and
the premises upon which any such Collateral is located, to discuss such
Grantor's affairs with the appropriate Financial Officer and such other officers
as such Grantor shall deem appropriate and such Grantor's independent public
accountants, as applicable, and to verify under reasonable procedures the
validity, amount, quality, quantity, value, and condition of or any other matter
relating to, such Collateral, including, in the case of Accounts Receivable or
other Collateral in the possession of a third person, upon the occurrence
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and during the continuance of an Event of Default contacting account debtors and
third persons possessing such Collateral. Subject to the provisions of Section
11.11 of the Credit Agreement, the Agent shall have the absolute right to share
any information it gains from such inspection or verification with any or all of
the Lenders.
5. Taxes; Encumbrances. At its option, the Agent may discharge past due
taxes, liens, security interests or other encumbrances at any time levied or
placed on the Collateral and not permitted under the Credit Agreement, and may
pay for the maintenance and preservation of the Collateral to the extent a
Grantor fails to do so as required by the Credit Agreement, and each Grantor
agrees to reimburse the Agent on demand for any payment made or any expense
incurred by it pursuant to the foregoing authorization; provided, however, that
the Agent shall not discharge such taxes, liens, security interests or other
encumbrances or pay for such maintenance or preservation prior to the occurrence
and continuance of an Event of Default unless the Agent shall have requested the
applicable Grantor to discharge such taxes, liens, security interest or other
encumbrances or pay such amounts (to the extent required by this Agreement or
the Credit Agreement) and such Grantor shall have failed or refused to do so
within such period of time as shall have been specified by the Agent in such
notice; and provided, further, that nothing in this Section 5 shall be
interpreted as excusing a Grantor from the performance of any covenants or other
promises with respect to taxes, liens, security interests or other encumbrances
and maintenances as set forth herein or in the Credit Agreement.
6. Assignment of Security Interest. If at any time a Grantor shall take and
perfect a security interest in any property of an account debtor or any other
person to secure payment and performance of an Account Receivable, such Grantor
shall promptly assign such security interest to the Agent. Such assignment need
not be filed of public record unless necessary to continue the perfected status
of the security interest against creditors of and transferees from the account
debtor or other person granting the security interest.
7. Representations and Warranties. Each Grantor represents and warrants to
the Agent, as to itself and the Collateral owned by it , that:
(a) Title and Authority. It has (i) rights in and good title to the
Collateral in which it is granting a security interest hereunder and (ii) the
requisite power and authority to grant to the Agent the Security Interest in
such Collateral pursuant hereto and to execute, deliver and perform its
obligations in accordance with the terms of this Agreement, without the consent
or approval of any other person other than any consent or approval which has
been obtained.
(b) Filing. Fully executed Uniform Commercial Code financing statements
containing a description of the Collateral shall have been, or shall be
delivered to the Agent in a form such that they can be, filed of record in each
applicable
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governmental, municipal or other office in every jurisdiction in which any
portion of the Collateral is located as may be necessary to publish notice of
and protect the validity of and to establish a valid, legal and perfected
security interest in favor of the Agent, for the benefit of the Lenders, in
respect of the Collateral in which a security interest may be perfected by
filing a Uniform Commercial Code Financing Statement in the United States and
its territories and possessions or any other jurisdictions, and no further or
subsequent filing, refiling, recording, rerecording, registration or
reregistration is necessary in any such jurisdiction, except as provided under
applicable law with respect to the filing of Uniform Commercial Code
continuation statements.
(c) Validity of Security Interest. Except as otherwise permitted under the
Credit Agreement, the Security Interest constitutes a valid, legal and, upon the
filing of applicable UCC Financing Statements in the applicable jurisdictions,
perfected first priority security interest in all of the Collateral in which a
security interest may be perfected by filing a UCC Financing Statement in the
United States for payment and performance of the Secured Obligations.
(d) Information Regarding Names. It has disclosed in writing to the Agent
any trade names used to identify it in its business or in the ownership of its
properties.
(e) Absence of Other Liens. The Collateral is owned by it free and clear of
any Lien of any nature whatsoever, except as granted pursuant to this Agreement
and as permitted by the Credit Agreement, and, except as provided by paragraph
(b) of this Section 7, no financing statement has been filed, under the Uniform
Commercial Code as in effect in any state or otherwise, covering any Collateral
except as indicated on Schedule 7.01 to the Credit Agreement.
(f) Additional Representations for Accounts Receivable. The representations
and warranties with respect to Receivables contained in Article X of the Credit
Agreement are hereby incorporated herein in their entirety and shall be deemed
made by each Grantor hereunder with respect to the Accounts Receivable of such
Grantor.
(g) Survival of Representations and Warranties. All representations and
warranties of the Grantors contained in this Agreement shall survive the
execution, delivery and performance of this Agreement until the termination of
this Agreement pursuant to Section 28.
8. Records of Accounts Receivable; Physical Count of Inventory; Etc.. (a)
Each Grantor will provide the Agent with such further schedules and/or
information respecting each Account Receivable as the Agent may reasonably
require.
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(b) Each Grantor shall conduct a physical count of its Inventory not less
than once each Fiscal Year and, upon the occurrence and during the continuance
of an Event of Default, at such intervals as the Agent may reasonably request,
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.
(c) Each Grantor shall cause the Equipment to be maintained and preserved
in good repair, working order and condition, reasonable wear and tear excepted,
and shall from time to time make or cause to be made all needful and proper
repairs, replacements and other improvements in connection therewith.
(d) Each Grantor shall promptly upon the issuance and delivery to such
Grantor of any Negotiable Document of Title (other than Inventory which, in the
ordinary course of business, is in transit either (A) from a supplier to such
Grantor, (B) between the locations specified in Schedule I hereto, or (C) to
customers of such Grantor), deliver such Negotiable Document of Title to the
Agent.
(e) Each Grantor shall, at its own expense, maintain insurance with respect
to the Equipment and Inventory in accordance with the terms of the Credit
Agreement.
9. Supplemental Documentation. In connection with the execution and
delivery of this Agreement, each Grantor shall furnish or cause to be furnished
to the Agent on or prior to the Closing Date a certificate, substantially in the
form of Annex A hereto, signed by a Responsible Officer of such Grantor dated
the Closing Date, certifying that, as of the date of such certificate, all
representations and warranties of such Grantor in Section 7 are true and correct
and that such Grantor is in compliance with all conditions, agreements and
covenants to be observed or performed hereunder.
10. Protection of Security. Each Grantor shall, at its own cost and
expense, take any and all actions reasonably necessary to defend title to the
Collateral owned by it against all persons and to defend the Security Interest
of the Agent in such Collateral, and the priority thereof, against any adverse
Lien of any nature whatsoever except for Liens permitted pursuant to Section
7.01 of the Credit Agreement.
11. Continuing Obligations of the Grantors. Each Grantor shall remain
liable to observe and perform all the conditions and obligations to be observed
and performed by it under each contract, agreement, interest or obligation
relating to the Collateral, all in accordance with the terms and conditions
thereof, and shall indemnify and hold harmless the Agent, and the Lenders from
any and all such liabilities.
12. Use and Disposition of Collateral. Except as permitted by the Credit
Agreement, no Grantor shall make or permit to be made any assignment, pledge
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<PAGE>
or hypothecation of the Collateral, or grant any security interest in the
Collateral except for the Security Interest. No Grantor shall make or permit to
be made any transfer of any Collateral, except Inventory in the ordinary course
of business and as otherwise permitted by the Credit Agreement or the Pledge
Agreement dated as of the date hereof among the Grantors and the Agent for the
Lenders and for itself as issuer of the Letters of Credit (as amended, modified
or supplemented from time to time in accordance with its terms), and each
Grantor shall remain at all times in possession of the Collateral owned by it
other than transfers to the Agent pursuant to the provisions hereof and as
otherwise provided in this Agreement or the Credit Agreement. The Security
Interest granted herein shall automatically terminate with respect to any item
of Collateral that is permitted to be sold, transferred, disposed or pledged
pursuant to this Section 12. Subject to Article IX of the Credit Agreement, the
Agent shall promptly take such actions, and execute such releases, termination
statements or other instruments as may be reasonably requested by the applicable
Grantor to evidence the termination and release contemplated hereby.
13. Limitation on Modifications of Accounts Receivable. No Grantor will,
without the Agent's prior written consent, grant any extension of the time of
payment of any of its Accounts Receivable, compromise, compound or settle the
same for less than the full amount thereof, release, in whole or in part, any
person liable for the payment thereof, or allow any credit or discount
whatsoever thereon other than extensions, credits, discounts, compromises,
releases or settlements or releases granted or made in the ordinary course of
business.
14. Collections. The provisions of Article X of the Credit Agreement with
respect to the collection of Receivables and the management of Collateral are
hereby deemed incorporated herein in their entirety and shall be binding upon
each of the Grantors with respect the Accounts Receivable of such Grantor as if
set forth herein.
15. Remedies upon Default. Upon the occurrence and during the continuance
of an Event of Default, each Grantor agrees to deliver each item of Collateral
to the Agent on demand, and it is agreed that the Agent shall have the right to
take any or all of the following actions at the same or different times: with or
without legal process and with or without previous notice or demand for
performance, to take possession of the Collateral and without liability for
trespass (except for actual damage caused by the Agent's gross negligence or
willful misconduct) to enter any premises where the Collateral may be located
for the purpose of taking possession of or removing the Collateral and,
generally, to exercise any and all rights afforded to a secured party under, and
subject to its obligations contained in, the Uniform Commercial Code as in
effect in any state or other applicable law. Without limiting the generality of
the foregoing, each Grantor agrees that the Agent shall have the right, subject
to the mandatory requirements of applicable law, to sell or otherwise dispose of
all or any part of the Collateral, at public or private sale or at any broker's
board or on
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any securities exchange, for cash, upon credit or for future delivery as the
Agent shall deem appropriate. Each such purchaser at any such sale shall hold
the property sold absolutely free from any claim or right on the part of the
applicable Grantor, and such Grantor hereby waives (to the extent permitted by
law) all rights of redemption, stay and appraisal which such Grantor now has or
may at any time in the future have under any rule of law or statute now existing
or hereafter enacted.
The Agent shall give the applicable Grantor 10 days' written notice (which
each Grantor agrees is reasonable notice within the meaning of Section 9-504(3)
of the NYUCC) of the Agent's intention to make any sale of such Grantor's
Collateral. Such notice, in the case of a public sale, shall state the time and
place for such sale and, in the case of a sale at a broker's board or on a
securities exchange, shall state the board or exchange at which such sale is to
be made and the day on which the Collateral, or portion thereof, will first be
offered for sale at such board or exchange. Any such public sale shall be held
at such time or times within ordinary business hours and at such place or places
as the Agent may fix and state in the notice of such sale. At any such sale, the
Collateral, or portion thereof, to be sold may be sold in one lot as an entirety
or in separate parcels, as the Agent may (in its sole and absolute discretion)
determine. The Agent shall not be obligated to make any sale of any Collateral
if it shall determine not to do so, regardless of the fact that notice of sale
of such Collateral shall have been given. The Agent may, without notice or
publication, adjourn any public or private sale or cause the same to be
adjourned from time to time by announcement at the time and place fixed for
sale, and such sale may, without further notice, be made at the time and place
to which the same was so adjourned. In case any sale of all or any part of the
Collateral is made on credit or for future delivery, the Collateral so sold may
be retained by the Agent until the sale price is paid in full by the purchaser
or purchasers thereof, but the Agent shall not incur any liability in case any
such purchaser or purchasers shall fail to take up and pay for the Collateral so
sold and, in case of any such failure, such Collateral may be sold again upon
like notice. At any public sale made pursuant to this Section 15, the Agent may
bid for or purchase, free (to the extent permitted by law) from any right of
redemption, stay or appraisal on the part of any Grantor (all said rights being
also hereby waived and released to the extent permitted by law), with respect to
the Collateral or any part thereof offered for sale and the Agent may make
payment on account thereof by using any claim then due and payable to the Agent
or any Lender from such Grantor as a credit against the purchase price, and the
Agent may, upon compliance with the terms of sale, hold, retain and dispose of
such property without further accountability to such Grantor therefor. For
purposes hereof, a written agreement to purchase the Collateral or any portion
thereof shall be treated as a sale thereof; the Agent shall be free to carry out
such sale pursuant to such agreement, and no Grantor shall be entitled to the
return of the Collateral or any portion thereof subject thereto, notwithstanding
the fact that after the Agent shall have entered into such an agreement all
Events of Default shall have been remedied and the Secured Obligations paid in
full. Grantors, jointly and severally, shall remain liable for any deficiency.
As an alternative to exercising the power of sale herein conferred upon it, the
Agent may
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proceed by a suit or suits at law or in equity to foreclose this Agreement and
to sell the Collateral or any portion thereof pursuant to a judgment or decree
of a court or courts having competent jurisdiction or pursuant to a proceeding
by a court-appointed receiver.
Upon the occurrence and during the continuation of an Event of Default, the
Agent may exercise dominion and control over, and refuse to permit further
withdrawals (whether of money, securities, instruments or other property) from,
any deposit accounts maintained with the Agent constituting part of the
Collateral.
16. Application of Proceeds. The proceeds of any collection or sale of
Collateral, as well as any Collateral consisting of cash, shall be applied by
the Agent as follows:
FIRST, to the Agent to reimburse the Agent for that portion of the
payments, if any, made by it with respect to Letters of Credit for which a
Lender, as a participant in such Letter of Credit pursuant to Section 2.18 of
the Credit Agreement, failed to pay its pro rata share thereof as required
pursuant to such Section 2.18;
SECOND, to the payment of all reasonable costs and expenses incurred by the
Agent in connection with such collection or sale or otherwise in connection with
this Agreement or any of the Secured Obligations, including, but not limited to,
all court costs and the reasonable fees and expenses of its agents and legal
counsel, the repayment of all advances made by the Agent hereunder on behalf of
the Grantors and any other reasonable costs or expenses incurred in connection
with the exercise of any right or remedy hereunder;
THIRD, to the Agent to be held as cash collateral to the extent of the
undrawn amounts, if any, of outstanding Letters of Credit;
FOURTH, pro rata to the payment in full of principal and interest in
respect of any Loans outstanding (pro rata as among the Lenders in accordance
with the amounts of the Loans made by them pursuant to the Credit Agreement);
FIFTH, to the payment in full of all Secured Obligations (other than those
referred to above) owed to the Lenders (pro rata as among the Lenders in
accordance with the amounts of Secured Obligations owed to each Lender on the
date of any such distribution); and
SIXTH, to the Indenture Trustee for the Senior Secured Notes, to the
appropriate Grantors, their successors and assigns, or to whosoever may be
lawfully entitled to receive same or as a court of competent jurisdiction may
otherwise direct.
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Upon any sale of the Collateral by the Agent (including, without limitation,
pursuant to a power of sale granted by statute or under a judicial proceeding),
the receipt of the Agent or of the officer making the sale shall be a sufficient
discharge to the purchaser or purchasers of the Collateral so sold and such
purchaser or purchasers shall not be obligated to see to the application of any
part of the purchase money paid over to the Agent or such officer or be
answerable in any way for the misapplication thereof.
17. Locations of Collateral; Place of Business. (a) Each Grantor hereby
represents and warrants as to itself and the Collateral owned by it that all the
Collateral is located at the locations listed on Schedule I hereto and that its
federal employer identification number is as set forth on said Schedule. The
Grantors agree not to establish, or permit to be established, any other location
for Collateral unless all filings have been made under the Uniform Commercial
Code or similar filings as in effect in any state or other jurisdiction or
otherwise which are required for the Agent to continue to have a valid, legal
and perfected first priority security interest in the Collateral in which a
security interest may be perfected by such filing.
(b) Each Grantor confirms that its chief executive office, other offices
and the places where Inventory and Equipment are maintained are located as
indicated on Schedule I hereto. Each Grantor agrees not to change, or permit to
be changed, any such location unless all filings have been made under the
Uniform Commercial Code or similar filings or otherwise for the Agent to
continue to have a valid, legal and perfected first priority security interest
in the Collateral in which a security interest may be perfected by such filing.
18. Security Interest Absolute. All rights of the Agent hereunder, the
Security Interest, and all obligations of the Grantors hereunder, shall be
absolute and unconditional irrespective of (i) any lack of validity or
enforceability of the Credit Agreement, any other Loan Document, any other
agreement with respect to any of the Secured Obligations or any other agreement
or instrument relating to any of the foregoing, (ii) any change in the time,
manner or place of payment of, or in any other term of, all or any of the
Secured Obligations, or any other amendment or waiver of or consent to any
departure from the Credit Agreement, any other Loan Document or any other
agreement or instrument, (iii) any exchange, release or nonperfection of any
Lien on other Collateral, or any release or amendment or waiver of or consent to
or departure from any guarantee, for all or any of the Secured Obligations, or
(iv) any other circumstance which might otherwise constitute a defense available
to, or discharge of, the Grantors, any of the Guarantors or any other obligor in
respect of the Secured Obligations or in respect of this Agreement (other than
the indefeasible payment in full of the Secured Obligations and subject to
Section 28 hereof).
19. No Waiver. No failure on the part of the Agent to exercise, and no
delay in exercising, any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy by
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the Agent preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. All remedies hereunder are cumulative and are not
exclusive of any other remedies provided by law. The Agent and the Lenders shall
not be deemed to have waived any rights hereunder or under any other agreement
or instrument unless such waiver shall be in writing and signed by such parties.
20. Agent Appointed Attorney-in-Fact. Each Grantor hereby appoints the
Agent the attorney-in-fact of such Grantor upon the occurrence and during the
continuance of an Event of Default solely for the purpose of carrying out the
provisions of this Agreement and taking any action and executing any instrument
which the Agent may deem necessary or advisable to accomplish the purposes
hereof, which appointment is irrevocable and coupled with an interest.
21. Agent's Fees and Expenses. The provisions of Section 11.04 of the
Credit Agreement with respect to the reimbursement of fees and expenses and
indemnification are hereby deemed incorporated herein in their entirety and
shall be binding upon each of the Grantors as if set forth herein, and each
Grantor, jointly and severally shall be obligated to, (x) upon demand, pay to
the Agent the amount of any and all reasonable expenses, including the
reasonable fees and expenses of its counsel and of any experts or agents which
the Agent may incur in connection with (i) the administration of this Agreement,
(ii) the custody or preservation of, or the sale or other disposition of,
collection from, or other realization upon, any of the Collateral, (iii) the
exercise or enforcement of any of the rights of the Agent hereunder or (iv) the
failure by any Grantor to perform or observe any of the provisions hereof, and
(y) indemnify the Agent and the Lenders, in each case to the same extent set
forth in Section 11.04 of the Credit Agreement. Any such amounts payable as
provided hereunder or thereunder shall be additional Secured Obligations secured
hereby and by the other Security Documents.
22. Binding Agreement; Assignments. This Agreement, and the terms,
covenants and conditions hereof, shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and assigns, except that
the Grantors shall not be permitted to assign this Agreement or any interest
herein or in the Collateral, or any part thereof, or any cash or property held
by the Agent as Collateral under this Agreement, except as contemplated or
permitted by this Agreement or the Credit Agreement.
23. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (INCLUDING NEW YORK CONFLICTS
PRINCIPLES).
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<PAGE>
24. Notices. All communications and notices hereunder shall be in writing
and shall be given (i) in the case of any Grantor incorporated under the laws of
any state of the United States of America, in care of Maska U.S., Inc. at 77
Route 25, Pierson Industrial Park, Bradford, Vermont 05033 Attention: Russell
David, Vice President-Finance (Telecopy No. (802) 222-5781), with a copy to
Morgan Lewis & Bockius, LLP, 101 Park Avenue, New York, New York 10178-0060,
Attention: David W. Pollak, Esq. (Telecopy No. (212) 309-6273), (ii) in the case
of any Grantor organized under the Business Corporations Act (New Brunswick), in
care of SLM International, Inc. at 7405 Trans Canada Highway, Suite 300, St.
Laurent, Quebec H4T 1Z2, Canada, Attention: Russell David, Vice
President-Finance (Telecopy No. (514) 331-7061), with a copy to Morgan, Lewis &
Bockius, LLP, 101 Park Avenue, New York, New York 10178- 0060, Attention: David
W. Pollak, Esq. (Telecopy No. (212) 309-6273), and (iii) in the case of any
other person, as provided in the Credit Agreement.
25. Severability. In case any one or more of the provisions contained in
this Agreement should be invalid, illegal or unenforceable the remaining
provisions contained herein shall not in any way be affected or impaired.
26. Section Headings. Section headings used herein are for convenience only
and are not to affect the construction of, or to be taken into
consideration in interpreting, this Agreement.
27. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which, when
taken together, shall constitute but one instrument. This Agreement shall be
effective when a counterpart which bears the signature of the Grantors shall
have been delivered to the Agent, and the Agent shall have executed this
Agreement.
28. Termination. This Agreement and the Security Interest shall terminate
when (a) all the Secured Obligations have been fully and indefeasibly paid in
cash, (b) the Lenders have no further commitment to make any Loans under the
Credit Agreement, and (c) the Agent shall have no further obligation to issue
any Letters of Credit, at which time the Agent shall execute and deliver to the
Grantors all Uniform Commercial Code termination statements and similar
documents which the Grantor shall reasonably request to evidence such
termination; provided, however, that all indemnities of the Grantors contained
in this Agreement shall survive, and remain operative and in full force and
effect regardless of, the termination of this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Security
Agreement as of the day and year first above written.
SLM INTERNATIONAL, INC.
By:______________________________
Name:
Title:
#1 APPAREL, INC.
By:______________________________
Name:
Title:
MASKA U.S., INC.
By:______________________________
Name:
Title:
#1 APPAREL CANADA INC.
By:______________________________
Name:
Title:
SLM TRADEMARK ACQUISITION CORP.
By:______________________________
Name:
Title:
<PAGE>
SLM TRADEMARK ACQUISITION CANADA
CORPORATION
CORPORATION D'ACQUISITION DE
MARQUE DE COMMERCE SLM CANADA
By:______________________________
Name:
Title:
SPORT MASKA INC.
By:______________________________
Name:
Title:
THE CHASE MANHATTAN BANK, as Agent
By:______________________________
Name:
Title:
EXECUTION COPY
SECURITY AGREEMENT AND MORTGAGE -
TRADEMARKS AND PATENTS
AGREEMENT dated as of April 1, 1997 among SLM International, Inc., a
Delaware corporation, #1 Apparel, Inc., a Delaware corporation, and Maska U.S.,
Inc., a Vermont corporation (collectively, the "Borrowers"), SLM Trademark
Acquisition Corp., a Delaware corporation ("Acquisition"), #1 Apparel Canada
Inc., a corporation under the Business Corporations Act (New Brunswick)
("Apparel"), Sport Maska Inc., a corporation under the Business Corporations Act
(New Brunswick) ("Maska"), SLM Trademark Acquisition Canada
Corporation/Corporation D'Acquisition De Marque De Commerce SLM Canada, a
corporation under the Business Corporations Act (New Brunswick) ("TACC"; TACC,
Acquisition, Apparel, Maska, and the Borrowers are each sometimes referred to
herein as a "Debtor" and collectively as the "Debtors") each having an office at
the address set forth under its signature below, and The Chase Manhattan Bank, a
New York banking corporation having an office at 633 Third Avenue, New York, New
York 10017, as agent (referred to herein as the "Secured Party") for (i) the
lenders (the "Lenders") referred to in the Credit Agreement dated as of the date
hereof, among the Borrowers, the Lenders and the Secured Party (as amended,
modified or supplemented from time to time in accordance with its terms, the
"Credit Agreement") and for (ii) itself as issuer of the Letters of Credit.
A. Each Debtor owns the Trademarks described in Schedule A annexed hereto
and made a part hereof set forth below such Debtor's name.
B. Each Debtor is the owner and holder of the patents listed on Schedule B
annexed hereto and made a part hereof set forth below such Debtor's name.
C. The Secured Party and the Lenders have agreed to extend Credits to or
for the account of the Borrowers pursuant to, and subject to the terms and
conditions of, the Credit Agreement. The obligation of the Lenders to extend
such Credits under the Credit Agreement is conditioned on the execution and
delivery by the Debtors of a security agreement in the form hereof to secure the
following (the "Secured Obligations"): all Obligations (such Obligations to
include, without limitation, the due and punctual payment and performance of (a)
the principal of and interest on the Loans (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, 11 U.S.C. ss.362(a), 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),
<PAGE>
when and as due, whether at maturity, by acceleration, upon one or more dates
set for prepayment or otherwise, (b) Indebtedness at any time and from time to
time under the Letters of Credit, (c) all obligations of the Debtors at any time
and from time to time under this security agreement and (d) all other
obligations of the Debtors and the Guarantors at any time and from time to time
under the Credit Agreement and the other Loan Documents).
NOW, THEREFORE, IT IS AGREED that, as security for the full and prompt
payment and performance of the Secured Obligations, each Debtor does hereby
mortgage to and pledge with the Secured Party for its own benefit and the
benefit of the Lenders, and grant to the Secured Party a security interest in,
all of such Debtor's right, title and interest in and to (i) each of the
Trademarks (as hereinafter defined), and the goodwill of the business symbolized
by each of the Trademarks, all customer lists and other records of the Debtors
relating to the distribution of products bearing the Trademarks and each of the
registrations described in Schedule A hereto; (ii) each of the Patents (as
hereinafter defined) and each of the registrations listed on Schedule B hereto;
(iii) the right (but not the obligation) to register claims under any state or
Federal law or regulation or any law or regulation of any foreign country and to
apply for, renew and extend the Trademarks or Patents; (iv) the right (but not
the obligation) to sue or bring opposition or cancellation proceedings in the
name of any Debtor or in the name of Secured Party or otherwise for past,
present and future infringements of the Trademarks or Patents and all rights
(but not obligations) corresponding thereto in the United States and any foreign
country; and (v) any and all proceeds of the foregoing, including, without
limitation, any claim by any Debtor against any third party for infringement of
the Trademarks or the Patents, in each case, wherever located and whether now
owned or hereafter acquired or existing (collectively, the "Collateral").
1. Terms defined in the Credit Agreement and not otherwise defined herein,
shall have the meaning set forth in the Credit Agreement. As used in this
Agreement, unless the context otherwise requires:
"Patents" shall mean (i) all letters patent of the United States or any
other country, all right, title and interest therein and thereto, and all
applications, registrations and recordings thereof, including, without
limitation, applications, registrations and recordings in the United States
Patent and Trademark Office, the Canadian Intellectual Property Office or in any
similar office or agency of the United States or Canada, any state thereof, or
any other country or any political subdivision thereof, all whether now owned or
hereafter acquired by a Debtor, including, but not limited to, those described
in Schedule B annexed hereto and made a part hereof, and (ii) all reissues,
continuations, continuations-in-part, extensions or divisionals thereof and all
licenses thereof.
2
<PAGE>
"Trademarks" shall mean (i) all trademarks, trade names, trade styles,
service marks, prints and labels on which said trademarks, trade names, trade
styles and service marks have appeared or appear, designs and general
intangibles of like nature, now existing or hereafter adopted or acquired, all
right, title and interest therein and thereto, and all applications,
registrations and recordings thereof, including, without limitation,
applications, registrations and recordings in the United States Patent and
Trademark Office, the Canadian Intellectual Property Office or in any similar
office or agency of the United States or Canada, any state thereof, or any other
country or any political subdivision thereof, all whether now owned or hereafter
acquired by a Debtor, including, but not limited to, those described in Schedule
A annexed hereto and made a part hereof, and (ii) all reissues, extensions or
renewals thereof and all licenses thereof.
2. Each Debtor hereby represents, warrants, covenants and agrees as to
itself and the Collateral owned by it as follows:
(a) Such Debtor has the sole, full and clear title to the registered
Trademarks material to its business for the goods and services covered by the
registrations thereof and such registrations are valid and subsisting and in
full force and effect.
(b) Each Debtor will perform all acts and execute all documents, including,
without limitation, assignments for security in form suitable for filing with
the United States Patent and Trademark Office, substantially in the forms of
Exhibits 1 and 2, and the Canadian Intellectual Property Office, substantially
in the form of Exhibit 3 hereof, reasonably requested by the Secured Party at
any time to evidence, perfect, maintain, record and enforce the Secured Party's
interest in the United States and Canadian Patents and Trademarks (other than
with respect to "Intent to Use Trademark Applications") or otherwise in
furtherance of the provisions of this Agreement, and each Debtor hereby
authorizes the Secured Party to execute and file one or more financing
statements (and similar documents) or copies thereof or of this Security
Agreement with respect to the Collateral signed only by the Secured Party.
(c) Except to the extent that Debtor shall determine otherwise through the
exercise of sound business judgment, each Debtor (either itself or through
licensees) will continue to use all of the Trademarks material to such Debtor's
business on each and every trademark class of goods applicable to its current
line as reflected in its current catalogs, brochures and price lists in order to
maintain the Trademarks in full force free from any claim of abandonment for
nonuse and no Debtor will (nor will it permit any licensee thereof to) do any
act or knowingly omit to do any act whereby any Trademark may become
invalidated.
(d) Each Debtor has the sole, full and clear title to each of the United
States and Canadian issued Patents material to its business and shown on
Schedule B
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<PAGE>
hereto below its name and the registrations thereof are valid and subsisting and
in full force and effect. None of the Patents has been abandoned or dedicated,
and, except to the extent that Debtor shall determine otherwise through the
exercise of sound business judgment, no Debtor will do any act, or omit to do
any act, whereby any Patent material to its business may become abandoned or
dedicated and shall notify the Secured Party immediately if it knows of any
reason or has reason to know that any application or registration may become
abandoned or dedicated.
(e) The provisions of Section 11.04 of the Credit Agreement with respect to
the reimbursement of fees and expenses and indemnification are hereby deemed
incorporated herein in their entirety and shall be binding upon each of the
Debtors as if set forth herein, and each Debtor, jointly and severally shall be
obligated to, (x) upon demand, pay to the Secured Party the amount of any and
all reasonable expenses, including the reasonable fees and expenses of its
counsel and of any experts or agents which the Secured Party may incur in
connection with (i) the administration of this Agreement, (ii) the custody or
preservation of, or the sale or other disposition of, collection from, or other
realization upon, any of the Collateral, (iii) the exercise or enforcement of
any of the rights of the Secured Party hereunder or (iv) the failure by any
Debtor to perform or observe any of the provisions hereof, and (y) indemnify the
Agent and the Lenders, in each case to the same extent set forth in Section
11.04 of the Credit Agreement. Any such amounts payable as provided hereunder or
thereunder shall be additional Secured Obligations secured hereby and by the
other Security Documents.
(f) If any Debtor shall obtain rights to any new Trademarks or Patents, the
provisions of this Agreement shall automatically apply thereto. Each Debtor
shall promptly notify the Secured Party in writing of any rights to any new
Trademarks or Patents acquired by such Debtor after the date hereof and of any
registrations issued or applications for registration made after the date
hereof. In no event shall any Debtor, either itself or through any agent,
employee, licensee or designee, (i) file an application for the registration of
any Patent or Trademark with the United States Patent and Trademark Office, the
Canadian Intellectual Property Office or any similar office or agency of the
United States or Canada, any state thereof, any other country or any political
subdivision thereof or (ii) file any assignment of any patent or trademark,
which such Debtor may acquire from a third party, with the United States Patent
and Trademark Office, the Canadian Intellectual Property Office or any similar
office or agency of the United States or Canada, any state thereof, any other
country or any political subdivision thereof, unless such Debtor shall, on or
prior to the date of such filing, notify the Secured Party thereof and, if
requested by the Secured Party, execute, deliver and record such agreements,
instruments, documents and papers as the Secured Party may reasonably request,
in form and substance reasonably satisfactory to the Secured Party, pursuant to
which such Debtor shall grant a security interest to the extent of its interest
in such registration as provided herein to the Secured Party, and each Debtor
hereby constitutes the Secured Party its attorney-in-fact to execute
4
<PAGE>
and file all such writings for the foregoing purposes, all acts of such attorney
being hereby ratified and confirmed; such power being coupled with an interest
is irrevocable until the Secured Obligations are paid in full.
(g) Each Debtor has the power and authority to grant the security interest
herein granted; and the Collateral is not now, and at all times hereafter will
not be, subject to any Liens or encumbrances of any nature whatsoever, except in
favor of the Secured Party and as permitted under the Credit Agreement, and to
the best knowledge of the Debtors, none of the Collateral is subject to any
Lien.
(h) Except as permitted by the Credit Agreement and to the extent that the
Secured Party, upon prior written notice from a Debtor, shall consent, no Debtor
will assign, sell, mortgage, lease, transfer, pledge, hypothecate, grant a Lien
upon, encumber, grant an exclusive or non-exclusive license, or otherwise
dispose of any of the Collateral, and nothing in this Agreement shall be deemed
a consent by the Secured Party to any such action except as expressly permitted
herein or in the Credit Agreement.
(i) As of the date hereof no Debtor nor any subsidiary thereof owns any
Patents or Trademarks that are material to the business of the applicable
Debtor, or has any Patents or Trademarks that are material to the business of
the applicable Debtor registered in, or the subject of pending applications in,
the United States Patent and Trademark Office, the Canadian Intellectual
Property Office or any similar office or agency of the United States or Canada,
any state thereof, any other country or any political subdivision thereof, other
than those described in Schedules A and B hereto.
(j) Each Debtor will take all necessary steps in any proceeding before the
United States Patent and Trademark Office, the Canadian Intellectual Property
Office or any similar office or agency of the United States or Canada, any state
thereof, any other country or any political subdivision thereof, to maintain
each application and registration of the Trademarks and Patents that are
material to the business of the applicable Debtor, including, without
limitation, filing of renewals, affidavits of use, affidavits of
incontestability and opposition, interference and cancellation proceedings
(except to the extent that dedication, abandonment or invalidation is permitted
under paragraphs 2(c) and 2(d) hereof).
(k) Each Debtor assumes all responsibility and liability arising from the
use of the Trademarks, and the Debtors hereby jointly and severally indemnify
and hold the Secured Party harmless from and against any claim, suit, loss,
damage or expense (including reasonable attorneys' fees) arising out of any
alleged defect in any product manufactured, promoted or sold by any Debtor (or
any subsidiary thereof) in connection with any Trademark or out of the
manufacture, promotion, labeling, sale or advertisement of any such product by
such Debtor (or any subsidiary thereof). Each Debtor agrees that the Secured
Party does not assume, and shall have no
5
<PAGE>
responsibility for, the payment of any sums due or to become due under any
agreement or contract included in the Collateral or the performance of any
obligations to be performed under or with respect to any such agreement or
contract by any Debtor, and the Debtors hereby agree to jointly and severally
indemnify and hold the Secured Party harmless with respect to any and all claims
by any person relating thereto.
(l) The Secured Party may, in its sole discretion, pay any amount or do any
act required of any Debtor hereunder to preserve, defend, protect, maintain,
record or enforce any rights in the Collateral, or the right, title and interest
granted the Secured Party herein, and which any Debtor fails to do or pay, and
any such payment shall be subject to Section 2(e) hereof.
(m) Each Debtor agrees that if it, or any subsidiary thereof, learns of any
use by any Person of any term or design likely to cause confusion with any
Trademark that is material to the business of the applicable Debtor, it shall
promptly notify the Secured Party of such use and, if requested by the Secured
Party, shall join with the Secured Party, at its expense, in such action as the
Secured Party, in its reasonable discretion, may deem advisable for the
protection of the Secured Party's interest in and to such Trademark(s).
(n) All licenses of Trademarks and Patents which any Debtor has granted to
third parties are set forth in Schedule C hereto.
(o) This Agreement together with the filing of financing statements
describing the Collateral with the filing offices set forth on Schedule D hereto
and the recording of assignments for security substantially in the forms of
Exhibits 1, 2 and 3 hereof with the United States Patent and Trademark Office
and the Canadian Intellectual Property Office, respectively, creates a valid,
perfected and first priority security interest in the Collateral, securing the
payment of the Secured Obligations.
(p) If any Debtor shall acquire title to any new Trademarks or Patents, the
provisions of this Agreement shall automatically apply thereto. Each Debtor
shall promptly notify the Secured Party in writing of any rights to any new
Trademarks or Patents acquired by such Debtor after the date hereof and of any
registrations issued or applications for registration made after the date
hereof. Concurrently with the filing of an application for registration for any
Trademarks or Patents, such Debtors shall execute, deliver and record in all
places where this Agreement is recorded an appropriate agreement, substantially
in the form hereof, with appropriate insertions, or an amendment to this
Agreement, in form and substance reasonably satisfactory to the Secured Party,
pursuant to which such Debtor shall grant a security interest to the extent of
its interest in such registration as provided herein to the Secured Party.
3. Upon the occurrence and during the continuance of an Event of Default,
in addition to all other rights and remedies of the Secured Party, whether under
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<PAGE>
law, the Credit Agreement or otherwise, all such rights and remedies being
cumulative, not exclusive and enforceable alternatively, successively or
concurrently, without (except as provided herein) notice to, or consent by, the
Debtors, the Secured Party shall have the following rights and remedies (subject
to the Credit Agreement): (a) the applicable Debtor shall not make any further
use of the Patents or the Trademarks or any mark similar thereto for any purpose
other than in the ordinary course of business; (b) the Secured Party may, at any
time and from time to time, upon 10 days' prior written notice to the applicable
Debtor, license, whether general, special or otherwise, and whether on an
exclusive or nonexclusive basis, any of the Patents or Trademarks, throughout
the world for such term or terms, on such conditions, and in such manner, as the
Secured Party shall in its sole discretion determine, provided that no such
actions shall violate any provision of any then existing license for the Patent
or Trademark; (c) the Secured Party may (without assuming any obligations or
liability thereunder), at any time, enforce (and shall have the exclusive right
to enforce) against any licensee or sublicensee all rights and remedies of any
Debtor in, to and under any one or more license agreements with respect to the
Collateral, and take or refrain from taking any action under any thereof, and
each Debtor hereby releases the Secured Party from, and agrees to hold the
Secured Party free and harmless from and against any claims arising out of, any
action taken or omitted to be taken with respect to any such license or
sublicense agreement, except if arising solely as a result of the gross
negligence or wilful misconduct of the Secured Party or resulting from a breach
by the Secured Party of the terms and provisions of such license or sublicense
agreement; (d) the Secured Party may, at any time and from time to time, upon 10
days' prior notice to the applicable Debtor, assign, sell, or otherwise dispose
of, the Collateral or any of it, either with or without special or other
conditions or stipulations, with power to buy the Collateral or any part of it,
and with power also to execute assurances, and do all other acts and things for
completing the assignment, sale or disposition which the Secured Party shall, in
its reasonable discretion, deem appropriate or proper; and (e) in addition to
the foregoing, in order to implement the assignment, sale or other disposal of
any of the Collateral pursuant to subparagraph 3(d) hereof, the Secured Party
may, at any time, pursuant to the authority granted in the Powers of Attorney
described in paragraph 4 hereof (such authority becoming effective on the
occurrence and continuation of an Event of Default), execute and deliver on
behalf of the applicable Debtor, one or more instruments of assignment of the
Patents or Trademarks (or any application or registration thereof), in form
suitable for filing, recording or registration in any country. Each Debtor
agrees to pay when due all reasonable costs incurred in any such transfer of the
Patents or Trademarks, including any taxes, fees and reasonable attorneys' fees,
and all such costs shall be added to the Secured Obligations in accordance with
Section 2(e). The Secured Party may apply the proceeds actually received from
any such license, assignment, sale or other disposition as provided in the
following paragraphs; and the Debtors shall remain jointly and severally liable
and will pay the Secured Party on demand any deficiency remaining, together with
interest thereon at a rate equal to the highest rate then payable on the Secured
Obligations and the balance of any expenses unpaid. Nothing herein contained
shall be construed as
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<PAGE>
requiring the Secured Party to take any such action at any time. In the event of
any such license, assignment, sale or other disposition of the Collateral, or
any of it, after the occurrence and continuation of an Event of Default, each
Debtor shall supply its know-how and expertise relating to the manufacture and
sale of the products bearing or in connection with the Trademarks or Patents,
and its customer lists and other records relating to the Trademarks or Patents
and to the distribution of said products, to the Secured Party or its designee.
The proceeds of any sale of Collateral, as well as any Collateral
consisting of cash, shall be applied by the Secured Party as follows:
FIRST, to the Secured Party to reimburse the Secured Party for that portion
of the payments, if any, made by it with respect to Letters of Credit for which
a Lender, as a participant in such Letter of Credit pursuant to Section 2.18 of
the Credit Agreement, failed to pay its pro rata share thereof as required
pursuant to such Section 2.18;
SECOND, to the payment of all reasonable costs and expenses incurred by the
Secured Party in connection with such sale or otherwise in connection with this
Agreement or any of the Secured Obligations, including, but not limited to, all
court costs and the reasonable fees and expenses of its agents and legal
counsel, the repayment of all advances made by the Secured Party hereunder on
behalf of the Debtors and any other reasonable costs or expenses incurred in
connection with the exercise of any right or remedy hereunder;
THIRD, to the Secured Party to be held as cash collateral to the extent of
the undrawn amount, if any, or outstanding Letters of Credit;
FOURTH, pro rata to the payment in full of principal and interest in
respect of any Loans outstanding (pro rata as among the Lenders in accordance
with the amounts of the Loans made by them pursuant to the Credit Agreement);
FIFTH, to the payment in full of all Secured Obligations (other than those
referred to above) owed to the Lenders (pro rata as among the Lenders in
accordance with the amounts of Secured Obligations owed to them on the date of
any such distribution); and
SIXTH, to the Indenture Trustee for the Senior Secured Notes, to the
appropriate Debtor, its successors or assigns, or to whosoever may be lawfully
entitled to receive the same or as a court of competent jurisdiction may
otherwise direct.
4. Concurrently with the execution and delivery hereof, each Debtor is
executing and delivering to the Secured Party, in the form of Exhibit 4 hereto,
five originals of a Power of Attorney for the implementation of the assignment,
sale or other
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disposal of the Trademarks and Patents pursuant to paragraphs 3(d) and (e)
hereof and each Debtor hereby releases the Secured Party from any claims, causes
of action and demands at any time arising out of or with respect to any actions
taken or omitted to be taken by the Secured Party under the powers of attorney
granted herein, other than actions taken or omitted to be taken through the
gross negligence or willful misconduct of the Secured Party.
5. All rights of the Secured Party hereunder, the security interest granted
to the Secured Party hereunder, and all obligations of the Debtors hereunder,
shall be absolute and unconditional irrespective of (i) any lack of validity or
enforceability of the Credit Agreement, any other Loan Document, any other
agreement with respect to any of the Secured Obligations or any other agreement
or instrument relating to any of the foregoing, (ii) any change in the time,
manner or place of payment of, or in any other term of, all or any of the
Secured Obligations, or any other amendment or waiver of or consent to any
departure from the Credit Agreement, any other Loan Document or any other
agreement or instrument, (iii) any exchange, release or nonperfection of any
Lien on other Collateral, or any release or amendment or waiver of or consent to
or departure from any guarantee, for all or any of the Secured Obligations, or
(iv) any other circumstance which might otherwise constitute a defense available
to, or discharge of, any Debtor, any of the Guarantors or any other obligor in
respect of the Secured Obligations or in respect of this Agreement (other than
the indefeasible payment in full of all of the Secured Obligations and subject
to Section 13 of this Agreement).
6. No failure on the part of the Secured Party to exercise, and no delay in
exercising, any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy by the Secured Party preclude any other or further exercise thereof or
the exercise of any other right, power or remedy. All remedies hereunder are
cumulative and are not exclusive of any other remedies provided by law. The
Secured Party and the Lenders shall not be deemed to have waived any rights
hereunder or under any other agreement or instrument unless such waiver shall be
in writing and signed by such parties.
7. This Agreement, and the terms, covenants and conditions hereof, shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, except that no Debtor shall be permitted to assign this
Agreement or any interest herein or in the Collateral, or any part thereof, or
any cash or property held by the Secured Party as Collateral under this
Agreement, except as contemplated or permitted by this Agreement or the Credit
Agreement.
8. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
LAWS OF THE STATE OF NEW YORK (INCLUDING NEW YORK CONFLICTS PRINCIPLES).
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9. All communications and notices hereunder shall be in writing and shall
be given (i) in the case of any Debtor incorporated under the laws of any state
of the United States of America, in care of Maska U.S., Inc. at 77 Route 25,
Pierson Industrial Park, Bradford, Vermont 05033, Attention: Russell David, Vice
President - Finance, (Telecopy No. (802) 222-5781), with a copy to Morgan, Lewis
& Bockius, LLP, 101 Park Avenue, New York, New York 10178-0060, Attention: David
W. Pollak, Esq., (Telecopy No. (212) 309-6273), (ii) in the case of any Debtor
organized under the Business Corporations Act (New Brunswick), in care of SLM
International, Inc. at 7405 Trans Canada Highway, Suite 300, St. Laurent Quebec
H4T 1Z2, Canada, Attention: Russell David, Vice President-Finance, (Telecopy No.
(514) 331-7061), with a copy to Morgan, Lewis & Bockius, LLP, 101 Park Avenue,
New York, New York 10178-0060, Attention: David W. Pollak, Esq., (Telecopy No.
(212) 309-6273), and (iii) in the case of any other person, as provided in the
Credit Agreement.
10. In case any one or more of the provisions contained in this Agreement
should be invalid, illegal or unenforceable, the remaining provisions contained
herein shall not in any way be affected or impaired.
11. Section headings used herein are for convenience only and are not to
affect the construction of, or to be taken into consideration in interpreting,
this Agreement.
12. This Agreement may be executed in two or more counterparts, each of
which shall constitute an original, but all of which, when taken together, shall
constitute but one instrument. This Agreement shall be effective when a
counterpart which bears the signature of the Debtors shall have been delivered
to the Secured Party, and the Secured Party shall have executed this Agreement.
13. This Agreement and the security interest granted hereunder shall
terminate when (a) all the Secured Obligations have been fully and indefeasibly
paid in cash, (b) the Lenders have no further commitment to make any Loans under
the Credit Agreement, and (c) the Secured Party shall have no further obligation
to issue any Letters of Credit, at which time the Secured Party shall execute
and deliver to the Debtors all Uniform Commercial Code termination statements,
releases, terminations of assignment and similar documents which the Debtors
shall reasonably request to evidence such termination; provided, however, that
all indemnities of the Debtors contained in this Agreement shall survive, and
remain operative and in full force and effect regardless of, the termination of
this Agreement. The security interest hereunder shall automatically terminate in
any Collateral that is permitted to be sold or disposed of by the Credit
Agreement or in the case of any sale that is consented pursuant to Section 11.08
of the Credit Agreement. The Secured Party shall promptly take such action, and
execute such releases, termination statements or other documents as may be
reasonably requested by an interested party, at the expense of the Grantors, to
evidence the termination and releases contemplated hereby.
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IN WITNESS WHEREOF, each Debtor and the Secured Party have caused this
Agreement to be executed by their respective officers thereunto duly authorized
as of the day and year first above written.
SLM INTERNATIONAL, INC.
By: ____________________________________
Name:
Title:
Address:
#1 APPAREL, INC.
By: ____________________________________
Name:
Title:
Address:
MASKA U.S., INC.
By: ____________________________________
Name:
Title:
Address:
SLM TRADEMARK ACQUISITION CORP.
By: ____________________________________
Name:
Title:
Address:
SPORT MASKA INC.
By: ____________________________________
Name:
Title:
Address:
11
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#1 APPAREL CANADA INC.
By: ____________________________________
Name:
Title:
Address:
SLM TRADEMARK ACQUISITION
CANADA CORPORATION
CORPORATION D'ACQUISITION DE
MARQUE DE COMMERCE SLM CANADA
By: ____________________________________
Name:
Title:
Address:
THE CHASE MANHATTAN BANK, as Agent
By: ____________________________________
Name:
Title:
12
EXECUTION COPY
PLEDGE AGREEMENT
AND IRREVOCABLE PROXY
PLEDGE AGREEMENT dated as of April 1, 1997 among SLM International, Inc., a
Delaware corporation, #1 Apparel, Inc., a Delaware corporation, and Maska U.S.,
Inc., a Vermont corporation (collectively, the "Borrowers"), SLM Trademark
Acquisition Corp., a Delaware corporation ("Acquisition"), #1 Apparel Canada
Inc., a corporation under the Business Corporations Act (New Brunswick)
("Apparel"), Sport Maska Inc., a corporation under the Business Corporations Act
(New Brunswick) ("Maska"), SLM Trademark Acquisition Canada
Corporation/Corporation D'Acquisition De Marque De Commerce SLM Canada, a
corporation under the Business Corporations Act (New Brunswick) ("TACC"; TACC,
Acquisition, Apparel, Maska, and the Borrowers are each sometimes referred to
herein as a "Grantor" and collectively as the "Grantors") and The Chase
Manhattan Bank, a New York banking corporation, as agent (the "Agent") for (i)
the lenders (the "Lenders") referred to in the Credit Agreement dated as of the
date hereof, among the Borrowers, the Lenders and the Agent (as amended,
modified or supplemented from time to time in accordance with its terms, the
"Credit Agreement") and (ii) for itself as issuer of the Letters of Credit. All
capitalized terms used herein and not defined herein shall have the meanings set
forth in the Credit Agreement.
The Agent and the Lenders have agreed to extend Credits to or for the
account of, the Borrowers pursuant to, and subject to the terms and conditions
of, the Credit Agreement. The obligation of the Lenders to extend such Credits
under the Credit Agreement is conditioned on the execution and delivery by the
Grantors of a pledge agreement in the form hereof to secure the following
(collectively, the "Secured Obligations"): all Obligations (such Obligations to
include, without limitation, the due and punctual payment and performance of (a)
the principal of and interest on the Loans (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, 11 U.S.C. ss.362(a), 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), when and as
due, whether at maturity, by acceleration, upon one or more dates set for
prepayment or otherwise, (b) Indebtedness at any time and from time to time
under the Letters of Credit, (c) all obligations of the Grantors at any time and
from time to time under this Pledge Agreement and (d) all other obligations of
the Grantors and the Guarantors at any time and from time to time under the
Credit Agreement and the other Loan Documents).
Accordingly, the Grantors and the Agent hereby agree as follows:
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1. Pledge. As security for the payment and performance in full of the
Secured Obligations, each Grantor hereby transfers, grants, bargains, sells,
conveys, pledges, sets over, endorses over, and delivers unto the Agent, and
grants to the Agent, for its own benefit and for the benefit of the Lenders, a
security interest in all of such Grantor's right, title and interest in and to,
and hypothecates to the Agent (the "Hypothec") all of its interest in, (a) the
shares of capital stock owned by such Grantor, which shares are listed in Part A
of Schedule I annexed hereto next to such Grantor's name (the "Initial Pledged
Stock") and any additional shares of, and all securities convertible into and
warrants, options and other rights to purchase or otherwise acquire, capital
stock of the issuers listed in Part A of Schedule I annexed hereto, or any
corporation successor thereto pursuant to an amalgamation or other
reorganization, obtained in the future by any of the Grantors (collectively, the
Initial Pledged Stock together with all such additional shares and securities
pledged in the future, the "Pledged Stock"), (b) all instruments of indebtedness
naming (whether now existing or hereinafter arising) any Grantor as payee
thereunder, which indebtedness shall be listed in Part B of Schedule I annexed
hereto next to such Grantor's name (the "Pledged Debt") and (c) subject to
Section 5 below, all proceeds of the Pledged Stock and Pledged Debt, including,
without limitation, all cash, dividends, securities or other property at any
time and from time to time receivable or otherwise distributed in respect of or
in exchange pursuant to a purchase, redemption, conversion or cancellation or
other transformation for any of or all such Pledged Stock or Pledged Debt, all
renewals thereof, and all accessions and substitutions thereto (the items
referred to in clauses (a) through (c) being collectively called the
"Collateral"). Upon delivery to the Agent, all securities now or notes now or
hereafter included in the Collateral including, without limitation, the Pledged
Stock and the Pledged Debt (the "Pledged Securities") shall be accompanied by
undated stock or note powers, as the case may be, duly executed in blank or
other instruments of transfer satisfactory to the Agent and by such other
instruments and documents as the Agent may reasonably request. Each delivery of
Pledged Securities shall be accompanied by a schedule showing a description of
the securities theretofore and then being pledged hereunder, which schedule
shall be attached hereto as Schedule I and made a part hereof. Each schedule so
delivered shall supersede any prior schedules so delivered.
To the extent that the Civil Code of Quebec should be found to apply, the
amount of the Hypothec granted hereby shall be $100,000,000.
2. Delivery of Collateral. Each Grantor agrees to deliver promptly or cause
to be delivered promptly to the Agent, for its own benefit and for the benefit
of the Lenders, any and all Pledged Securities, and any and all certificates or
other instruments or documents representing any of the Collateral (together with
any necessary stock power, note power or endorsement).
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3. Representations, Warranties and Covenants. Each Grantor hereby
represents, warrants and covenants as to itself and the Collateral pledged by it
hereunder to and with the Agent that:
(a) except for the security interest and the Hypothec granted to the Agent
and Liens permitted under the Credit Agreement, each Grantor (i) is and, subject
to the provisions of the Credit Agreement, will at all times continue to be the
direct owner, beneficially and of record, of the Pledged Stock that it is
pledging hereunder and is and will continue to be the holder of the Pledged Debt
that it is pledging hereunder (provided that SLM may transfer its shares of
Apparel to Maska so long as the Agent's Lien attaches thereto and there is
executed and delivered a revised Schedule 1 in form satisfactory to the Agent),
(ii) holds the Collateral that it is pledging hereunder free and clear of all
Liens, charges, encumbrances and security interests of every kind and nature,
(iii) will make no assignment, pledge, hypothecation or, subject to the
provisions of the Credit Agreement, transfer of, grant any option or similar
right with respect to, or create or suffer to exist any security interest in,
the Collateral (or any part thereof) that it is pledging hereunder including,
without limitation, by virtue of becoming bound by any agreement which restricts
in any manner the rights of any present or future holder of any Pledged Stock
with respect thereto, and (iv) subject to Section 5 below, will cause any and
all Collateral, whether for value paid by a Grantor or otherwise, to be
forthwith deposited with the Agent and pledged hereunder;
(b) each Grantor (i) has the requisite power and authority to pledge the
Collateral it is pledging hereunder in the manner hereby done or contemplated,
(ii) will not amend, modify or supplement any Pledged Debt without the prior
written consent of the Agent, nor forgive any Indebtedness evidenced by any
Pledged Debt, and (iii) will defend its title or interest thereto or therein
against any and all Liens, however arising, of all persons whomsoever (other
than the Liens permitted by the Credit Agreement);
(c) no consent or approval not obtained of any governmental body or
regulatory authority or any securities exchange was or is necessary to the
validity of the pledge, and security interests effected hereby;
(d) by virtue of the execution and delivery by each Grantor of this
Agreement, when the certificates, instruments or other documents representing or
evidencing the Collateral are delivered to the Agent in accordance with this
Agreement, the Agent will obtain a valid and perfected first priority security
interest and Hypothec in such Collateral as security for the repayment of the
Secured Obligations;
(e) the pledge effected hereby is effective to vest in the Agent the rights
of the Agent in the Collateral as set forth herein;
(f) all of the Pledged Stock has been duly authorized and validly issued
and as at the date hereof, the Initial Pledged Stock constitutes (i) all of the
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issued and outstanding shares of capital stock of the issuers listed on Part A
of Schedule I annexed hereto, (ii) 50% of the issued and outstanding shares of
capital stock of CCM, and (iii) all outstanding warrants, options or other
rights to purchase, or other agreements outstanding with respect to, or property
that is now or hereafter convertible into, or that requires the issuance or sale
of, any Initial Pledged Stock such Pledged Stock has been validly pledged to the
Agent pursuant hereto;
(g) the Pledged Debt constitutes all of the issued and outstanding
intercompany Indebtedness, evidenced by a promissory note of the respective
issuers thereof owing to such Grantor;
(h) pledge hereunder, immediately upon its acquisition (directly of
indirectly) thereof, any and all shares of stock of any person that, after the
date of this Agreement, becomes, as a result of any occurrence, a direct
subsidiary of such Grantor; and
(i) (i) pledge hereunder, immediately upon their issuance, any and all
instruments or other evidences of additional Indebtedness from time to time owed
to such Grantor by any obligor on the Pledged Debt, and (ii) pledge hereunder,
immediately upon their issuance, any and all instruments or other evidences of
Indebtedness from time to time owed to such Grantor by any person that after the
date of this Agreement becomes, as a result of any occurrence, a direct or
indirect subsidiary of such Grantor.
All representations, warranties and covenants of the Grantors contained in this
Agreement shall survive the execution, delivery and performance of this
Agreement until the termination of this Agreement pursuant to Section 14 hereof.
4. Registration in Nominee Name; Denominations. Upon the occurrence and
during the continuance of an Event of Default, the Agent shall have the right
(in its sole and absolute discretion with subsequent notice to the Grantors) to
hold the Pledged Securities in its own name or the name of its nominee. In
addition, the Agent shall at all times have the right to exchange the
certificates representing any of the Pledged Securities for certificates of
smaller or larger denominations for any purpose consistent with this Agreement.
5. Voting Rights; Dividends; Irrevocable Proxy; etc. (a) Unless and until
an Event of Default shall have occurred and be continuing:
(i) Each Grantor shall be entitled to exercise any and all voting and/or
consensual rights and powers accruing to an owner of Pledged Securities or any
part thereof for any purpose not inconsistent with the terms of this Agreement,
the Credit Agreement and the other Loan Documents, provided that such action
would not adversely affect the rights and remedies inuring to the Agent or the
Lenders under this
4
<PAGE>
Agreement or the Credit Agreement or the ability of the Agent or the Lenders to
exercise the same.
(ii) The Agent shall execute and deliver to each Grantor, or cause to be
executed and delivered to each Grantor, all such proxies, powers of attorney,
and other instruments as such Grantor may reasonably request for the purpose of
enabling such Grantor to exercise the voting and/or consensual rights and powers
which it is entitled to exercise pursuant to subparagraph (i) above and to
receive the cash dividends it is entitled to receive pursuant to subparagraph
(iii) below.
(iii) Each Grantor shall be entitled to receive and retain any and all cash
dividends, principal and interest paid on the Pledged Securities only to the
extent that such cash dividends, principal and interest are permitted by, and
otherwise paid in accordance with the terms and conditions of the Credit
Agreement, the other Loan Documents and applicable laws. Any and all
x. noncash dividends,
y. return of capital, capital surplus or paid-in surplus, dividends paid or
payable in cash or otherwise in connection with a partial or total liquidation
or dissolution, principal, interest and
z. other distributions made on or in respect of Pledged Securities (other
than distributions described in the initial sentence in (a)(iii) above), whether
paid or payable in cash or otherwise, whether resulting from a subdivision,
combination or reclassification of the outstanding capital stock of the issuer
of any Pledged Securities or received in exchange for Pledged Securities or any
part thereof, or in redemption thereof, as a result of any merger,
consolidation, acquisition or other exchange of assets to which such issuer may
be a party or otherwise,
shall be and become part of the Collateral, and, if received by any Grantor,
shall not be commingled by such Grantor with any of its other funds or property
but shall be held separate and apart therefrom, shall be held in trust for the
benefit of the Agent and the Lenders and shall be forthwith delivered to the
Agent in the same form as so received (with any necessary endorsement).
(b) Upon the occurrence and during the continuance of an Event of Default,
all rights of any Grantor to receive any dividends, principal, interest, stock,
instruments, securities, and other distributions which such Grantor is
authorized to receive pursuant to paragraph (a)(iii) of this Section 5 shall
cease, and all such rights shall thereupon become vested in the Agent, which
shall have the sole and exclusive right and authority to receive and retain such
dividends, principal, interest, stock, instruments, securities and other
distributions which Grantor is authorized to receive pursuant to paragraph
(a)(iii) of this Section 5. All dividends, principal, interest, stock,
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<PAGE>
instruments, securities and other distributions which Grantor is authorized to
receive pursuant to paragraph (a)(iii) of this Section 5 which are received by
any Grantor contrary to the provisions of this Section 5(b) shall be received in
trust for the benefit of the Agent, shall be segregated from other property or
funds of such Grantor and shall be forthwith delivered to the Agent as
Collateral in the same form as so received (with any necessary endorsement). Any
and all money and other property paid over to or received by the Agent pursuant
to the provisions of this Section 5(b) shall be retained by the Agent in an
account to be established by the Agent upon receipt of such money or other
property and shall be applied in accordance with the provisions of Section 9
hereof. After all Events of Default have been cured or waived, within five
Business Days after all such Events of Default have been cured or waived, each
Grantor shall again be entitled to receive dividends, principal, interest, stock
instruments, securities and other distributions which such Grantor is entitled
to receive pursuant to paragraph (a)(iii) of this Section 5.
(c) Upon the occurrence and during the continuance of an Event of Default,
all rights of any Grantor to exercise the voting and consensual rights and
powers which it is entitled to exercise pursuant to Section 5(a)(i) shall cease,
and pursuant to the irrevocable proxy granted herein, all such rights shall
thereupon become vested in the Agent, which shall have the sole and exclusive
right and authority to exercise such voting and consensual rights and powers;
provided that, unless otherwise directed by the Required Lenders, the Agent
shall have the right from time to time following and during the continuance of
an Event of Default to permit the applicable Grantors to exercise such rights.
After all Events of Default have been cured or waived, each Grantor shall have
the right to exercise the voting and consensual rights and powers that it would
otherwise be entitled to exercise pursuant to the terms of paragraph (a) (i)
above and the obligations of the Agent pursuant to the terms of paragraph (a)
(ii) of this Section 5 shall be reinstated.
(d) As long as the Credit Agreement remains in effect and until all of the
Secured Obligations have been paid fully and indefeasibly, any payments made in
respect of the Pledged Debt shall be and become part of the Collateral, and, if
received by any Grantor, shall not be commingled by such Grantor with any of its
other funds or property but shall be held separate and apart therefrom, shall be
held in trust for the benefit of the Agent and the Lenders and shall be
forthwith delivered to the Agent in the same form as so received.
(e) In order to permit the Agent to exercise the voting and other
consensual rights which it may be entitled to exercise pursuant to Section 5(c)
and to receive all dividends and other distributions which it may be entitled to
receive under Section 5(a)(iii) or Section 5(b), each Grantor shall promptly
execute and deliver (or cause to be executed and delivered) to the Agent all
such proxies, dividend payment orders and other instruments as the Agent may
from time to time reasonably request.
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Without limiting the effect of the foregoing, each Grantor does hereby
constitute and appoint the Agent as its proxy, and, upon the occurrence and
during the continuance of an Event of Default, the Agent shall have the right to
exercise all rights, benefits, privileges and powers accruing to such Grantor,
as owner of the Pledged Securities, including, without limitation, giving or
withholding consent, calling and attending shareholders meetings to be held from
time to time with full power to vote and act for and in the name, place and
stead of such Grantor and in the same manner, to the same extent, and with the
same effect that such Grantor would if personally present at such meetings,
giving to the Agent full power of substitution and revocation, which proxy shall
be effective, automatically and without the necessity of any action (including
any transfer of any Pledged Stock on the record books of the issuer thereof) by
any person (including the issuer of the Pledged Stock or any officer or agent
thereof).
THIS PROXY IS IRREVOCABLE
Other than the proxies given by the Grantors to the Indenture Trustee, any
proxy of proxies heretofore given by any Grantor to any person or persons
whatsoever are hereby revoked. THIS PROXY SHALL CONTINUE IN FULL FORCE AND
EFFECT UNTIL SUCH TIME AS ALL SECURED OBLIGATIONS ARE PAID AND SATISFIED IN FULL
IN ACCORDANCE WITH THE TERMS OF THE CREDIT AGREEMENT.
6. Issuance of Additional Stock. Except as may be permitted by the Credit
Agreement, each Grantor agrees that it will cause each of its subsidiaries not
to issue any stock or other securities, whether in addition to, by stock
dividend or other distribution upon, or in substitution for, the Pledged
Securities or otherwise.
7. Supplemental Documentation. In connection with the execution and
delivery of this Agreement each Grantor shall furnish or cause to be furnished
to the Agent on or prior to the Closing Date a certificate, substantially in the
form of Annex A hereto, signed by a Responsible Officer of such Grantor dated
the Closing Date, certifying that, as of the date of such certificate, all
representations and warranties of such Grantor in Section 3 hereof are true and
correct and that such Grantor is in compliance with all conditions, agreements
and covenants to be observed or performed hereunder.
8. Remedies upon Event of Default. If an Event of Default shall have
occurred and be continuing, the Agent may, in addition to all other rights and
remedies provided for herein or otherwise available to it, including all the
rights and remedies of a secured party under the Uniform Commercial Code as in
effect in any relevant jurisdiction (whether or not the Uniform Commercial Code
applies to the affected Pledged Securities), sell or otherwise dispose of all or
any part of the Collateral, at public or private sale or at any broker's board
or on any securities exchange, for cash, upon credit or for future delivery as
the Agent shall deem appropriate. Each such purchaser at any such sale shall
hold the property sold absolutely free from any claim
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or right on the part of any Grantor, and each Grantor hereby waives (to the
extent permitted by law) all rights of redemption, stay and appraisal which such
Grantor now has or may at any time in the future have under any rule of law or
statute now existing or hereafter enacted.
The Agent shall give the applicable Grantor 10 days' written notice (which
each Grantor agrees is reasonable notice within the meaning of Section 9-504(3)
of the Uniform Commercial Code as in effect in New York) of the Agent's
intention to make any sale of such Grantor's Collateral. Such notice, in the
case of a public sale, shall state the time and place for such sale and, in the
case of a sale at a broker's board or on a securities exchange, shall state the
board or exchange at which such sale is to be made and the day on which the
Collateral, or portion thereof, will first be offered for sale at such board or
exchange. Any such public sale shall be held at such time or times within
ordinary business hours and at such place or places as the Agent may fix and
state in the notice of such sale. At any such sale, the Collateral, or portion
thereof, to be sold may be sold in one lot as an entirety or in separate
parcels, as the Agent may (in its sole and absolute discretion) determine. The
Agent shall not be obligated to make any sale of any Collateral if it shall
determine not to do so, regardless of the fact that notice of sale of such
Collateral shall have been given. The Agent may, without notice or publication,
adjourn any public or private sale or cause the same to be adjourned from time
to time by announcement at the time and place fixed for sale, and such sale may,
without further notice, be made at the time and place to which the same was so
adjourned. In case any sale of all or any part of the Collateral is made on
credit or for future delivery, the Collateral so sold may be retained by the
Agent until the sale price is paid in full by the purchaser or purchasers
thereof, but the Agent shall not incur any liability in case any such purchaser
or purchasers shall fail to take up and pay for the Collateral so sold and, in
case of any such failure, such Collateral may be sold again upon like notice. At
any public sale made pursuant to this Section 8, the Agent may bid for or
purchase, free (to the extent permitted by law) from any right of redemption,
stay or appraisal on the part of any Grantor (all said rights being also hereby
waived and released to the extent permitted by law), with respect to the
Collateral or any part thereof offered for sale and the Agent may make payment
on account thereof by using any claim then due and payable to the Agent or any
Lender from such Grantor as a credit against the purchase price, and the Agent
may, upon compliance with the terms of sale, hold, retain and dispose of such
property without further accountability to such Grantor therefor. Grantors,
jointly and severally, shall remain liable for any deficiency. For purposes
hereof, a written agreement to purchase the Collateral or any portion thereof
shall be treated as a sale thereof; the Agent shall be free to carry out such
sale pursuant to such agreement, and no Grantor shall be entitled to the return
of the Collateral or any portion thereof subject thereto, notwithstanding the
fact that after the Agent shall have entered into such an agreement all Events
of Default shall have been remedied and the Secured Obligations paid in full. As
an alternative to exercising the power of sale herein conferred upon it, the
Agent may proceed by a suit or suits at law or in equity to foreclose this
Agreement and to sell
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the Collateral or any portion thereof pursuant to a judgment or decree of a
court or courts having competent jurisdiction or pursuant to a proceeding by a
court-appointed receiver.
9. Application of Proceeds of Sale. The proceeds of any sale of Collateral,
as well as any Collateral consisting of cash, shall be applied by the Agent as
follows:
FIRST, to the Agent to reimburse the Agent for that portion of the
payments, if any, made by it with respect to Letters of Credit for which a
Lender, as a participant in such Letter of Credit pursuant to Section 2.18 of
the Credit Agreement, failed to pay its pro rata share thereof as required
pursuant to such Section 2.18;
SECOND, to the payment of all reasonable costs and expenses incurred by the
Agent in connection with such collection or sale or otherwise in connection with
this Agreement or any of the Secured Obligations, including, but not limited to,
all court costs and the reasonable fees and expenses of its agents and legal
counsel, the repayment of all advances made by the Agent hereunder on behalf of
the Grantors any other reasonable costs or expenses incurred in connection with
the exercise of any right or remedy hereunder;
THIRD, to the Agent to be held as cash collateral to the extent of undrawn
amounts, if any, of outstanding Letters of Credit;
FOURTH, pro rata to the payment in full of principal and interest in
respect of any Loans outstanding (pro rata as among the Lenders in accordance
with the amounts of the Loans made by them pursuant to the Credit Agreement);
FIFTH, to the payment in full of all Secured Obligations (other than those
referred to above) owed to the Lenders (pro rata as among the Lenders in
accordance with the amounts of Secured Obligations owed to them on the date of
any such distribution); and
SIXTH, to the Indenture Trustee for the Senior Secured Notes, to the
appropriate Grantors, their successors or assigns, or to whosoever may be
lawfully entitled to receive the same or as a court of competent jurisdiction
may otherwise direct.
10. Agent Appointed Attorney-in-Fact. Each Grantor hereby appoints the
Agent the attorney-in-fact of such Grantor upon the occurrence and during the
continuance of an Event of Default solely for the purpose of carrying out the
provisions of this Agreement and taking any action and executing any instrument
which the Agent may deem necessary or advisable to accomplish the purposes
hereof, which appointment is irrevocable and coupled with an interest. Without
limiting the generality of the foregoing, the Agent shall have the right, upon
the occurrence and during the
9
<PAGE>
continuance of an Event of Default, with full power of substitution either in
the Agent's name or in the name of such Grantor, to ask for, demand, sue for,
collect, receive receipt and give acquittance for any and all moneys due or to
become due and under and by virtue of any Collateral, to endorse checks, drafts,
orders and other instruments for the payment of money payable to the applicable
Grantor representing any interest or dividend, or other distribution payable in
respect of the Collateral or any part thereof or on account thereof and to give
full discharge for the same, to settle, compromise, prosecute or defend any
action, claim or proceeding with respect thereto, and to sell, assign, endorse,
pledge, transfer and make any agreement respecting, or otherwise deal with, the
same; provided, however, that nothing herein contained shall be construed as
requiring or obligating the Agent or the Lenders to make any commitment or to
make any inquiry as to the nature or sufficiency of any payment received by the
Agent or the Lenders, or to present or file any claim or notice, or to take any
action with respect to the Collateral or any part thereof or the moneys due or
to become due in respect thereof or any property covered thereby, and no action
taken by the Agent or the Lenders or omitted to be taken with respect to the
Collateral or any part thereof shall give rise to any defense, counterclaim or
offset in favor of any Grantor or to any claim or action against the Agent or
the Lenders in the absence of the gross negligence or wilful misconduct of the
Agent or the Lenders.
11. No Waiver. No failure on the part of the Agent to exercise, and no
delay in exercising, any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy by the Agent preclude any other or further exercise thereof or
the exercise of any other right, power or remedy. All remedies hereunder are
cumulative and are not exclusive of any other remedies provided by law. The
Agent and the Lenders shall not be deemed to have waived any rights hereunder or
under any other agreement or instrument unless such waiver shall be in writing
and signed by such parties.
12. Security Interest Absolute. All rights of the Agent hereunder, the
grant of a security interest and Hypothec in the Collateral and all obligations
of the Grantors hereunder, shall be absolute and unconditional irrespective of
(i) any lack of validity or enforceability of the Credit Agreement, any
guarantee or other agreement with respect to any of the Secured Obligations or
any other agreement or instrument relating to any of the foregoing, (ii) any
change in time, manner or place of payment of, or in any other term of, all or
any of the Secured Obligations, or any other amendment or waiver of or any
consent to any departure from the Credit Agreement or any other agreement or
instrument, (iii) any exchange, release or nonperfection of any Lien on other
collateral, or any release or amendment or waiver of or consent to or departure
from any guarantee, for all or any of the Secured Obligations or (iv) any other
circumstance which might otherwise constitute a defense available to, or a
discharge of, any Grantor in respect of the Secured Obligations or in respect of
this Agreement (other than the indefeasible payment in full of all of the
Secured Obligations and subject to Section 14 of this Agreement).
10
<PAGE>
13. Agent's Fees and Expenses. The provisions of Section 11.04 of the
Credit Agreement with respect to the reimbursement of fees and expenses and
indemnification are hereby deemed incorporated herein in their entirety and
shall be binding upon each of the Grantors as if set forth herein, and each
Grantor, jointly and severally shall be obligated to, (x) upon demand, pay to
the Agent the amount of any and all reasonable expenses, including the
reasonable fees and expenses of its counsel and of any experts or agents which
the Agent may incur in connection with (i) the administration of this Agreement,
(ii) the custody or preservation of, or the sale or other disposition of,
collection from, or other realization upon, any of the Collateral, (iii) the
exercise or enforcement of any of the rights of the Agent hereunder or (iv) the
failure by any Grantor to perform or observe any of the provisions hereof, and
(y) indemnify the Agent and the Lenders, in each case to the same extent set
forth in Section 11.04 of the Credit Agreement. Any such amounts payable as
provided hereunder or thereunder shall be additional Secured Obligations secured
hereby and by the other Security Documents.
14. Termination. This Agreement shall terminate when (a) all the Secured
Obligations have been fully and indefeasibly paid in cash, (b) the Lenders have
no further commitment to make any Loans under the Credit Agreement, and (c) the
Agent shall have no further obligation to issue any Letters of Credit, at which
time the Agent shall reassign without any representations or warranties and
deliver, to the extent required by the Intercreditor Agreement, to the Indenture
Trustee, or otherwise to the Grantors, or to such person or persons as the
Grantors shall designate, against receipt, such of the Collateral (if any) as
shall not have been sold or otherwise still be held by it hereunder, together
with appropriate instruments of reassignment and release; provided, however,
that all indemnities of the Grantors contained in this Agreement shall survive,
and remain operative and in full force and effect regardless of, the termination
of this Agreement. Any such reassignment shall be without recourse to or
warranty by the Agent and at the expense of the Grantors. The security interest
hereunder shall automatically terminate in any Collateral that is permitted to
be sold or disposed of by the Credit Agreement or in the case of any sale that
is consented pursuant to Section 11.08 of the Credit Agreement. The Agent shall
promptly take such action, and execute such releases, termination statements or
other documents as may be reasonably requested by an interested party, at the
expense of the Grantors, to evidence the termination and releases contemplated
hereby.
15. Notices. All communications and notices hereunder shall be in writing
and shall be given (i) in the case of any Grantor incorporated under the laws of
any state of the United States of America, in care of Maska U.S., Inc. at 77
Route 25, Pierson Industrial Park, Bradford, Vermont 05033, Attention: Russell
David, Vice President-Finance (Telecopy No. (802) 222-5781), with a copy to
Morgan, Lewis & Bockius, LLP, 101 Park Avenue, New York, New York 10178-0060,
Attention: David W. Pollak, Esq. (Telecopy No. (212) 309-6273), (ii) in the case
of any Grantor organized under the Business Corporations Act (New Brunswick), in
care of SLM International,
11
<PAGE>
Inc. at 7405 Trans Canada Highway, Suite 300, St. Laurent, Quebec H4T 1Z2,
Canada, Attention: Russell David, Vice President-Finance (Telecopy No. (514)
331-7061), with a copy to Morgan, Lewis & Bockius, LLP, 101 Park Avenue, New
York, New York 10178-0060, Attention: David W. Pollak, Esq. (Telecopy No. (212)
309-6273), and (iii) in the case of any other person, as provided in the Credit
Agreement.
16. Further Assurances. Each Grantor agrees at its expense to do such
further acts and things, and to execute and deliver such additional conveyances,
assignments, agreements and instruments, as the Agent may at any time reasonably
request in connection with the administration and enforcement of this Agreement
or with respect to the Collateral or any part thereof or in order better to
assure and confirm unto the Agent its rights and remedies hereunder.
17. Binding Agreement; Assignments. This Agreement, and the terms,
covenants and conditions hereof, shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and assigns, except that
no Grantor shall be permitted to assign this Agreement or any interest herein or
in the Collateral, or any part thereof, or otherwise pledge, encumber or grant
any option with respect to the Collateral, or any part thereof, or any cash or
property held by the Agent as Collateral under this Agreement, except as
contemplated or permitted by this Agreement or the Credit Agreement.
18. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (INCLUDING NEW YORK CONFLICTS
PRINCIPLES).
19. Severability. In case any one or more of the provisions contained in
this Agreement should be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired.
20. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which, when
taken together, shall constitute but one instrument. This Agreement shall be
effective when a counterpart which bears the signature of the Grantors shall
have been delivered to the Agent, and the Agent shall have executed this
Agreement.
12
<PAGE>
21. Section Headings. Section headings used herein are for convenience only
and are not to affect the construction of, or be taken into consideration in
interpreting, this Agreement.
22. English Language. The parties hereto confirm that it is their wish that
this Agreement as well as any other documents relating thereto, including
notices, have been and shall be drawn up in the English language only.
Les parties aux presentes confirment leur volonte que cette convention de
meme que tous les documents, y compris tous avis, s'y rattachant, solent rediges
en langue anglaise seulement.
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Pledge
Agreement as of the day and year first above written.
SLM INTERNATIONAL, INC.
By:
---------------------------------------
Name:
Title:
#1 APPAREL, INC.
By:
---------------------------------------
Name:
Title:
MASKA U.S., INC.
By:
---------------------------------------
Name:
Title:
SLM TRADEMARK ACQUISITION CORP.
By:
---------------------------------------
Name:
Title:
#1 APPAREL CANADA INC.
By:
---------------------------------------
Name:
Title:
14
<PAGE>
SPORT MASKA INC.
By:
---------------------------------------
Name:
Title:
SLM TRADEMARK ACQUISITION
CANADA CORPORATION
CORPORATION D'ACQUISITION DE
MARQUE DE COMMERCE SLM CANADA
By:
---------------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK, as Agent
By:
---------------------------------------
Name:
Title:
15
CHARGE OVER SHARES
AND IRREVOCABLE PROXY
CHARGE OVER SHARES is dated as of April 1, 1997 and is made between SLM
International, Inc., a Delaware corporation, (the "Grantor") and The Chase
Manhattan Bank, a New York banking corporation as agent (the "Agent") (i) for
the lenders (the "Lenders") referred to in the Credit Agreement dated as of the
date hereof, among the Grantor, #1 Apparel, Inc. a Delaware corporation and
Maska U.S., Inc., a Vermont corporation (collectively, the "Borrowers") the
Lenders and the Agent (as amended, modified or supplemented from time to time in
accordance with its terms, the "Credit Agreement") and (ii) for itself as issuer
of the Letters of Credit. All capitalized terms used herein and not defined
herein shall have the meanings set forth in the Credit Agreement.
The Agent and the Lenders have agreed to extend Credits to or for the
account of, the Borrowers pursuant to, and subject to the terms and conditions
of, the Credit Agreement. The obligation of the Lenders to extend such Credits
under the Credit Agreement is conditioned on the execution and delivery by the
Grantor of a Charge Over Shares in the form hereof to secure the following
(collectively, the "Secured Obligations"): all Obligations (such Obligations to
include, without limitation, the due and punctual payment and performance of (a)
the principal of and interest on the Loans (including the payment of amounts
that would become due but for the operation of the automatic stay under Section
362(a) of the United States Bankruptcy Code, 11 U.S.C. ss.362(a), 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),
when and as due, whether at maturity, by acceleration, upon one or more dates
set for prepayment or otherwise, (b) Indebtedness at any time and from time to
time under the Letters of Credit, (c) all obligations of the Grantor at any time
and from time to time under this Charge Over Shares and (d) all other
obligations of the Grantor and the Guarantors at any time and from time to time
under the Credit Agreement and the other Loan Documents).
Accordingly, the Grantor and the Agent hereby agree as follows:
1. Charge Over Shares and Debt. As security for the payment and performance
in full of the Secured Obligations, the Grantor hereby charges unto and grants
to the Agent, for its own benefit and for the benefit of the Lenders, a security
interest in all of the Grantor's right, title and interest in and to, (a) the
shares owned by the Grantor, which shares are listed in Part A of Schedule I
annexed hereto next to the Grantor's name (the "Initial Charged Shares" and any
additional shares of, and all securities convertible into and warrants, options
and other rights to purchase or otherwise acquire, capital stock of the issuers
listed in Part A of Schedule I annexed hereto, or any corporation successor
thereto pursuant to an amalgamation or other reorganization, obtained in the
future by the Grantor (collectively, the Initial Charged
<PAGE>
Shares together with all such additional shares and securities pledged in the
future, the "Charged Shares"), (b) all instruments of indebtedness naming
(whether now existing or hereinafter arising) the Grantor as payee thereunder,
which indebtedness shall be listed in Part B of Schedule I annexed hereto next
to the Grantor's name (the "Charged Debt") and (c) subject to Section 5 below,
all proceeds of the Charged Shares or Charged Debt, including, without
limitation, all cash, dividends, securities or other property at any time and
from time to time receivable or otherwise distributed in respect of or in
exchange for pursuant to a purchase, redemption, conversion or cancellation or
other transformation for any of or all such Charged Shares or Charged Debt, all
renewals thereof, and all accessions and substitutions thereto (the items
referred to in clauses (a) through (c) being collectively called the
"Collateral"). Upon delivery to the Agent, all forms of transfer or assignment
securities or notes now or hereafter included in the Collateral including,
without limitation, the Charged Shares and the Charged Debt (the "Charged
Securities") shall be accompanied by undated share certificates, as the case may
be, duly executed in blank or other instruments of transfer satisfactory to the
Agent and by such other instruments and documents as the Agent may reasonably
request. Each delivery of Charged Securities shall be accompanied by a schedule
showing a description of the securities theretofore and then being charged
hereunder, which schedule shall be attached hereto as Schedule I and made a part
hereof. Each schedule so delivered shall supersede any prior schedules so
delivered.
2. Delivery of Collateral. The Grantor agrees to deliver promptly or cause
to be delivered promptly to the Agent, for its own benefit and for the benefit
of the Lenders, any and all stock or share certificates or other documents of
title to or representing the Charged Securities together with such duly executed
transfers or assignments or Stock Transfer forms with the name of the
transferee, date and consideration left blank, as the Agent may require to
enable the Agent to vest the same in the Agent (for its own benefit and for the
benefit of the Lenders) or its nominee, to the intent that the Agent may at any
time following an Event of Default, (subject always to the terms of the Credit
Agreement) present them for registration to the issuer of the Charged
Securities.
3. Representations, Warranties and Covenants. The Grantor hereby
represents, warrants and covenants as to itself and the Collateral charged by it
hereunder to and with the Agent that:
(a) except for the security interest and charge granted to the Agent and
Liens permitted under the Credit Agreement, the Grantor (i) is and, subject to
the provisions of the Credit Agreement, will at all times continue to be the
direct owner, beneficially and of record, of the Charged Shares that it is
charging hereunder and is and will continue to be the holder of the Charged Debt
that it is charging hereunder, (ii) holds the Collateral that it is charging
hereunder free and clear of all Liens, charges, encumbrances and security
interests of every kind and nature, (iii) will make no assignment, pledge,
hypothecation or, subject to the provisions of the Credit Agreement, transfer
of, grant any option or similar right with respect to, or create or suffer to
exist any security interest in, the Collateral (or any part thereof) that it is
charging hereunder including, without limitation, by virtue of becoming bound by
any agreement which restricts in
2
<PAGE>
any manner the rights of any present or future holder of any Charged Shares with
respect thereto, and (iv) subject to Section 5 below, will cause any and all
Collateral, whether for value paid by the Grantor or otherwise, to be forthwith
deposited with the Agent and charged, pledged or assigned hereunder;
(b) the Grantor (i) has the requisite power and authority to charge and
assign the Collateral it is charging hereunder in the manner hereby done or
contemplated, (ii) will not amend, modify or supplement any Charged Debt without
the prior written consent of the Agent, nor forgive any Indebtedness evidenced
by any Charged Security, and (iii) will defend its title or interest thereto or
therein against any and all Liens, however arising, of all persons whomsoever
(other than the Liens permitted by the Credit Agreement);
(c) no consent or approval not obtained of any governmental body or
regulatory authority or any securities exchange was or is necessary to the
validity of the charge, and security interests effected hereby;
(d) by virtue of the execution and delivery by the Grantor of this Charge
Over Shares, when the certificates, instruments or other documents representing
or evidencing the Collateral are delivered to the Agent in accordance with this
Charge Over Shares, the Agent will obtain a valid and perfected first equitable
mortgage and charge over and security interest in such Collateral as security
for the repayment of the Secured Obligations;
(e) the charge is effective to vest in the Agent the rights of the Agent in
the Collateral as set forth herein;
(f) all of the Charged Shares have been duly authorized and validly issued
and as at the date hereof, the Initial Charged Shares constitute (i) all of the
issued and outstanding shares of the issuers listed on Part A of Schedule I
annexed hereto, and (ii) all outstanding warrants, options or other rights to
purchase, or other agreements outstanding with respect to, or property that is
now or hereafter convertible into, or that requires the issuance or sale of, any
Charged Shares, and such Charged Shares have been validly charged to the Agent
pursuant hereto;
(g) the Charged Debt constitutes all of the issued and outstanding
intercompany Indebtedness, evidenced by a promissory note of the respective
issuers thereof owing to the Grantor;
(h) charge hereunder, immediately upon its acquisition (directly of
indirectly) thereof, any and all shares of any person that, after the date of
this Charge Over Shares, becomes, as a result of any occurrence, a direct
subsidiary of the Grantor; and
(i) (i) charge hereunder, immediately upon their issuance, any and all
instruments or other evidences of additional Indebtedness from time to time owed
to the Grantor
3
<PAGE>
by any obligor on the Charged Debt, and (ii) charge hereunder, immediately upon
their issuance, any and all instruments or other evidences of Indebtedness from
time to time owed to the Grantor by any person that after the date of this
Charge Over Shares becomes, as a result of any occurrence, a direct or indirect
subsidiary of the Grantor.
All representations, warranties and covenants of the Grantor contained in this
Charge Over Shares shall survive the execution, delivery and performance of this
Charge Over Shares until the termination of this Charge Over Shares pursuant to
Section 14 hereof.
4. Registration in Nominee Name; Denominations. Upon the occurrence and
during the continuance of an Event of Default, the Agent shall have the right
(in its sole and absolute discretion, with subsequent notice to the Grantor) to
transfer the Charged Securities into its own name or the name of its nominee, to
require the directors of the issuer to approve such transfer or assignment of
the Charged Securities (subject to the Articles of Association of the issuers)
and, subject to payment of any stamp duty on the transfer or assignment of such
Charged Securities, to register the Agent or its nominee (as the case may be) as
the holder thereof. In addition, subject always to the Articles of Association
of the issuer, the Agent shall at all times have the right to exchange the
certificates representing any of the Charged Securities for certificates of
smaller or larger denominations for any purpose consistent with this Charge Over
Shares.
5. Voting Rights; Dividends; Irrevocable Proxy; etc. (a) Unless and until
an Event of Default shall have occurred and be continuing:
(i) The Grantor shall be entitled to exercise any and all voting and/or
consensual rights and powers accruing to an owner of Charged Shares or any part
thereof for any purpose not inconsistent with the terms of this Charge Over
Shares, the Credit Agreement and the other Loan Documents, provided that such
action would not adversely affect the rights and remedies inuring to the Agent
or the Lenders under this Charge Over Shares or the Credit Agreement or the
ability of the Agent or the Lenders to exercise the same.
(ii) The Agent shall execute and deliver to the Grantor, or cause to be
executed and delivered to the Grantor, all such proxies, powers of attorney, and
other instruments as the Grantor may reasonably request for the purpose of
enabling the Grantor to exercise the voting and/or consensual rights and powers
which it is entitled to exercise pursuant to subparagraph (i) above and to
receive the cash dividends it is entitled to receive pursuant to subparagraph
(iii) below.
(iii) The Grantor shall be entitled to receive and retain any and all cash
dividends, principal and interest paid on the Charged Securities only to the
extent that such cash dividends, principal and interest are permitted by, and
otherwise paid in accordance with the terms and conditions of the Credit
Agreement, the Articles of Association of the issuer of the Charges Securities,
the other Loan Documents and applicable laws. Any and all
4
<PAGE>
x noncash dividends,
y. return of capital, capital surplus or paid-in surplus, dividends paid or
payable in cash or otherwise in connection with a partial or total liquidation
or dissolution, principal, interest and
z. other distributions made on or in respect of Charged Securities (other
than contributions described in the initial sentence in (a)(iii) above), whether
paid or payable in cash or otherwise, whether resulting from a subdivision,
combination or reclassification of the outstanding capital stock of the issuer
of any Charged Securities or received in exchange for Charged Securities or any
part thereof, or in redemption thereof, as a result of any merger,
consolidation, acquisition or other exchange of assets to which such issuer may
be a party or otherwise,
shall be and become part of the Collateral, and, if received by the Grantor,
shall not be commingled by the Grantor with any of its other funds or property
but shall be held separate and apart therefrom, shall be held in trust for the
benefit of the Agent and the Lenders and shall be forthwith delivered to the
Agent in the same form as so received (with any necessary endorsement).
(b) Upon the occurrence and during the continuance of an Event of Default,
all rights of the Grantor to receive any dividends, principal, interest, stock,
instruments, securities, and other distributions which the Grantor is authorized
to receive pursuant to paragraph (a)(iii) of this Section 5 shall cease, and all
such rights shall thereupon become vested in the Agent, which shall have the
sole and exclusive right and authority to receive and retain such dividends,
principal, interest, stock, instruments, securities and other distributions
which the Grantor is authorized to receive pursuant to paragraph (a)(iii) of
this Section 5. All dividends, principal, interest, stock, instruments,
securities and other distributions which the Grantor is authorized to receive
pursuant to paragraph (a)(iii) of this Section 5 which are received by the
Grantor contrary to the provisions of this Section 5(b) shall be received in
trust for the benefit of the Agent, shall be segregated from other property or
funds of the Grantor and shall be forthwith delivered to the Agent as Collateral
in the same form as so received (with any necessary endorsement). Any and all
money and other property paid over to or received by the Agent pursuant to the
provisions of this Section 5(b) shall be retained by the Agent in an account to
be established by the Agent upon receipt of such money or other property and
shall be applied in accordance with the provisions of Section 9 hereof. After
all Events of Default have been cured or waived, the Agent shall, within five
Business Days after all such Events of Default have been cured or waived, the
Grantor shall again be entitled to receive dividends, principal, interest, stock
instruments, securities and other distributions which the Grantor is entitled to
receive pursuant to paragraph (a)(iii) of this Section 5.
(c) Upon the occurrence and during the continuance of an Event of Default,
all rights of the Grantor to exercise the voting and consensual rights and
powers which it is
5
<PAGE>
entitled to exercise pursuant to Section 5(a)(i) shall cease, and pursuant to
the irrevocable proxy granted herein, all such rights shall thereupon become
vested in the Agent, which shall have the sole and exclusive right and authority
to exercise such voting and consensual rights and powers; provided that, unless
otherwise directed by the Required Lenders, the Agent shall have the right from
time to time following and during the continuance of an Event of Default to
permit the Grantor to exercise such rights. After all Events of Default have
been cured or waived, the Grantor shall have the right to exercise the voting
and consensual rights and powers that it would otherwise be entitled to exercise
pursuant to the terms of paragraph (a) (i) above and the obligations of the
Agent pursuant to the terms of paragraph (a) (ii) of this Section 5 shall be
reinstated.
(d) As long as the Credit Agreement remains in effect and until all of the
Secured Obligations have been paid fully and indefeasibly, any payments made in
respect of the Charged Debt shall be and become part of the Collateral, and, if
received by the Grantor, shall not be commingled by the Grantor with any of its
other funds or property but shall be held separate and apart therefrom, shall be
held in trust for the benefit of the Agent and the Lenders and shall be
forthwith delivered to the Agent in the same form as so received.
(e) In order to permit the Agent to exercise the voting and other
consensual rights which it may be entitled to exercise pursuant to Section 5(c)
and to receive all dividends and other distributions which it may be entitled to
receive under Section 5(a)(iii) or Section 5(b), the Grantor shall promptly
execute and deliver (or cause to be executed and delivered) to the Agent all
such proxies, dividend payment orders and other instruments as the Agent may
from time to time reasonably request.
Without limiting the effect of the foregoing, the Grantor does constitute
and appoint the Agent as its proxy, and upon the occurrence and during the
continuance of an Event of Default, the Agent shall have the right to exercise
all rights, benefits, privileges and powers accruing to the Grantor, as owner of
the Charged Securities, including, without limitation, giving or withholding
consent, calling and attending shareholders meetings to be held from time to
time with full power to vote and act for and in the name, place and stead of the
Grantor and in the same manner, to the same extent, and with the same effect
that the Grantor would if personally present at such meetings, giving to the
Agent full power of substitution and revocation, which proxy shall be effective,
automatically and without the necessity of any action (including any transfer of
any Charged Shares on the record books of the issuer thereof) by any person
(including the issuer of the Charged Shares or any director, officer or agent
thereof).
Immediately following occurrence of an Event of Default, the Grantor shall
give notice to the Company Secretary of the Issuer of the Charged Shares of the
appointment of the Agent as the Grantor's proxy in accordance with this Section
5 and the Grantor's attorney in accordance with Section 10 hereof in relation to
the Charged Securities.
THIS PROXY IS IRREVOCABLE
6
<PAGE>
Other than the proxies given by the Grantor to the Indenture Trustee, any
proxy of proxies heretofore given by the Grantor to any person or persons
whatsoever are hereby revoked. THIS PROXY SHALL CONTINUE IN FULL FORCE AND
EFFECT UNTIL SUCH TIME AS ALL SECURED OBLIGATIONS ARE PAID AND SATISFIED IN FULL
IN ACCORDANCE WITH THE TERMS OF THE CREDIT AGREEMENT.
6. Issuance of Additional Shares. Except as may be permitted by the Credit
Agreement, the Grantor agrees that it will cause each of its subsidiaries not to
issue any stock or other securities, whether in addition to, by stock dividend
or other distribution upon, or in substitution for, the Charged Securities or
otherwise.
7. Supplemental Documentation. In connection with the execution and
delivery of this Charge Over Shares the Grantor shall furnish or cause to be
furnished to the Agent on or prior to the Closing Date a certificate,
substantially in the form of Annex A hereto, signed by a Responsible Officer of
the Grantor dated the Closing Date, certifying that, as of the date of such
certificate, all representations and warranties of the Grantor in Section 3
hereof are true and correct and that the Grantor is in compliance with all
conditions, agreements and covenants to be observed or performed hereunder.
8. Remedies upon Event of Default. If an Event of Default shall have
occurred and be continuing, the Agent may, in addition to all other rights and
remedies provided for herein or otherwise available to it, including all the
rights and remedies of a secured party under the United States Uniform
Commercial Code as in effect in any relevant jurisdiction (whether or not the
Uniform Commercial Code applies to the affected Charged Securities), sell or
otherwise dispose of all or any part of the Collateral, at public or private
sale or at any broker's board or on any securities exchange, for cash, upon
credit or for future delivery as the Agent shall deem appropriate. Each such
purchaser at any such sale shall hold the property sold absolutely free from any
claim or right on the part of the Grantor, and the Grantor hereby waives (to the
extent permitted by law) all rights of redemption, stay and appraisal which the
Grantor now has or may at any time in the future have under any rule of law or
statute now existing or hereafter enacted.
The Agent shall give the Grantor 10 days' written notice (which the Grantor
agrees is reasonable notice within the meaning of Section 9-504(3) of the
Uniform Commercial Code as in effect in New York) of the Agent's intention to
make any sale of the Grantor's Collateral. Such notice, in the case of a public
sale, shall state the time and place for such sale and, in the case of a sale at
a broker's board or on a securities exchange, shall state the board or exchange
at which such sale is to be made and the day on which the Collateral, or portion
thereof, will first be offered for sale at such board or exchange. Any such
public sale shall be held at such time or times within ordinary business hours
and at such place or places as the Agent may fix and state in the notice of such
sale. At any such sale, the Collateral, or portion thereof, to be sold may be
sold in one lot as an entirety or in separate parcels, as the Agent may (in its
sole and absolute discretion) determine. The Agent shall not be obligated to
make any sale of any Collateral if it shall determine not to do so, regardless
of the fact that notice of sale of such Collateral shall have been given. The
Agent may, without notice or publication, adjourn any
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<PAGE>
public or private sale or cause the same to be adjourned from time to time by
announcement at the time and place fixed for sale, and such sale may, without
further notice, be made at the time and place to which the same was so
adjourned. In case any sale of all or any part of the Collateral is made on
credit or for future delivery, the Collateral so sold may be retained by the
Agent until the sale price is paid in full by the purchaser or purchasers
thereof, but the Agent shall not incur any liability in case any such purchaser
or purchasers shall fail to take up and pay for the Collateral so sold and, in
case of any such failure, such Collateral may be sold again upon like notice. At
any public sale made pursuant to this Section 8, the Agent may bid for or
purchase, free (to the extent permitted by law) from any right of redemption,
stay or appraisal on the part of the Grantor (all said rights being also hereby
waived and released to the extent permitted by law), with respect to the
Collateral or any part thereof offered for sale and the Agent may make payment
on account thereof by using any claim then due and payable to the Agent or any
Lender from the Grantor as a credit against the purchase price, and the Agent
may, upon compliance with the terms of sale, hold, retain and dispose of such
property without further accountability to the Grantor therefor. For purposes
hereof, a written agreement to purchase the Collateral or any portion thereof
shall be treated as a sale thereof; the Agent shall be free to carry out such
sale pursuant to such agreement, and the Grantor shall not be entitled to the
return of the Collateral or any portion thereof subject thereto, notwithstanding
the fact that after the Agent shall have entered into such an agreement all
Events of Default shall have been remedied and the Secured Obligations paid in
full. As an alternative to exercising the power of sale herein conferred upon
it, the Agent may proceed by a suit or suits at law or in equity to foreclose
this Charge Over Shares and to sell the Collateral or any portion thereof
pursuant to a judgment or decree of a court or courts having competent
jurisdiction or pursuant to a proceeding by a court-appointed receiver.
9. Application of Proceeds of Sale. The proceeds of any sale of Collateral,
as well as any Collateral consisting of cash, shall be applied by the Agent as
follows:
FIRST, to the Agent to reimburse the Agent for that portion of the
payments, if any, made by it with respect to Letters of Credit for which a
Lender, as a participant in such Letter of Credit pursuant to Section 2.18 of
the Credit Agreement, failed to pay its pro rata share thereof as required
pursuant to such Section 2.18;
SECOND, to the payment of all reasonable costs and expenses incurred by the
Agent in connection with such collection or sale or otherwise in connection with
this Charge Over Shares or any of the Secured Obligations, including, but not
limited to, all court costs and the reasonable fees and expenses of its agents
and legal counsel, the repayment of all advances made by the Agent hereunder on
behalf of the Grantor any other reasonable costs or expenses incurred in
connection with the exercise of any right or remedy hereunder;
THIRD, to the Agent to be held as cash collateral to the extent of undrawn
amounts, if any, of outstanding Letters of Credit;
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<PAGE>
FOURTH, pro rata to the payment in full of principal and interest in
respect of any Loans outstanding (pro rata as among the Lenders in accordance
with the amounts of the Loans made by them pursuant to the Credit Agreement);
FIFTH, to the payment in full of all Secured Obligations (other than those
referred to above) owed to the Lenders (pro rata as among the Lenders in
accordance with the amounts of Secured Obligations owed to them on the date of
any such distribution); and
SIXTH, to the Indenture Trustee for the Senior Secured Notes, the Grantor,
their successors or assigns, or to whosoever may be lawfully entitled to receive
the same or as a court of competent jurisdiction may otherwise direct.
10. Agent Appointed Attorney-in-Fact. The Grantor hereby appoints the Agent
its attorney-in-fact upon the occurrence and during the continuance of an Event
of Default solely for the purpose of carrying out the provisions of this Charge
Over Shares and taking any action and executing any instrument which the Agent
may deem necessary or advisable to accomplish the purposes hereof, which
appointment is irrevocable and coupled with an interest. Without limiting the
generality of the foregoing, the Agent shall have the right, upon the occurrence
and during the continuance of an Event of Default, with full power of
substitution either in the Agent's name or in the name of the Grantor, to ask
for, demand, sue for, collect, receive receipt and give acquittance for any and
all moneys due or to become due and under and by virtue of any Collateral, to
endorse the cheques, drafts, orders and other instruments for the payment of
money payable to the Grantor representing any interest or dividend, or other
distribution payable in respect of the Collateral or any part thereof or on
account thereof and to give full discharge for the same, to settle, compromise,
prosecute or defend any action, claim or proceeding with respect thereto, and to
sell, assign, endorse, pledge, transfer and make any agreement respecting, or
otherwise deal with, the same; provided, however, that nothing herein contained
shall be construed as requiring or obligating the Agent or the Lenders to make
any commitment or to make any inquiry as to the nature or sufficiency of any
payment received by the Agent or the Lenders, or to present or file any claim or
notice, or to take any action with respect to the Collateral or any part thereof
or the moneys due or to become due in respect thereof or any property covered
thereby, and no action taken by the Agent or the Lenders or omitted to be taken
with respect to the Collateral or any part thereof shall give rise to any
defense, counterclaim or offset in favor of the Grantor or to any claim or
action against the Agent or the Lenders in the absence of the gross negligence
or wilful misconduct of the Agent or the Lenders.
11. No Waiver. No failure on the part of the Agent to exercise, and no
delay in exercising, any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy by the Agent preclude any other or further exercise thereof or
the exercise of any other right, power or remedy. All remedies hereunder are
cumulative and are not exclusive of any other remedies provided by law. The
Agent and the Lenders shall not be deemed to have waived any rights hereunder or
under any other agreement or instrument unless such waiver shall be in writing
and signed by such parties.
9
<PAGE>
12. Security Interest Absolute. All rights of the Agent hereunder, the
grant of a security interest in the Collateral and all obligations of the
Grantor hereunder, shall be absolute and unconditional irrespective of (i) any
lack of validity or enforceability of the Credit Agreement, any guarantee or
other agreement with respect to any of the Secured Obligations or any other
agreement or instrument relating to any of the foregoing, (ii) any change in
time, manner or place of payment of, or in any other term of, all or any of the
Secured Obligations, or any other amendment or waiver of or any consent to any
departure from the Credit Agreement or any other agreement or instrument, (iii)
any exchange, release or nonperfection of any Lien on other collateral, or any
release or amendment or waiver of or consent to or departure from any guarantee,
for all or any of the Secured Obligations or (iv) any other circumstance which
might otherwise constitute a defense available to, or a discharge of, the
Grantor in respect of the Secured Obligations or in respect of this Charge Over
Shares (other than the indefeasible payment in full of all of the Secured
Obligations and subject to Section 14 of this Charge Over Shares).
13. Agent's Fees and Expenses. The provisions of Section 11.04 of the
Credit Agreement with respect to the reimbursement of fees and expenses and
indemnification are hereby deemed incorporated herein in their entirety and
shall be binding upon the Grantor as if set forth herein, and the Grantor shall
be obligated to, (x) upon demand, pay to the Agent the amount of any and all
reasonable expenses, including the reasonable fees and expenses of its counsel
and of any experts or agents which the Agent may incur in connection with (i)
the administration of this Charge Over Shares, (ii) the custody or preservation
of, or the sale or other disposition of, collection from, or other realization
upon, any of the Collateral, (iii) the exercise or enforcement of any of the
rights of the Agent hereunder or (iv) the failure by the Grantor to perform or
observe any of the provisions hereof, and (y) indemnify the Agent and the
Lenders, in each case to the same extent set forth in Section 11.04 of the
Credit Agreement. Any such amounts payable as provided hereunder or thereunder
shall be additional Secured Obligations secured hereby and by the other Security
Documents.
14. Termination. This Charge Over Shares shall terminate when (a) all the
Secured Obligations have been fully and indefeasibly paid in cash, (b) the
Lenders have no further commitment to make any Loans under the Credit Agreement,
and (c) the Agent shall have no further obligation to issue any Letters of
Credit, at which time the Agent shall reassign without any representations or
warranties and deliver, to the extent required by the Intercreditor Agreement,
to the Indenture Trustee, or otherwise to the Grantor, or to such person or
persons as the Grantor shall designate, against receipt, such of the Collateral
(if any) as shall not have been sold or otherwise still be held by it hereunder,
together with appropriate instruments of reassignment and release; provided,
however, that all indemnities of the Grantor contained in this Charge Over
Shares shall survive, and remain operative and in full force and effect
regardless of, the termination of this Charge Over Shares. Any such reassignment
shall be without recourse to or warranty by the Agent and at the expense of the
Grantor. The security interest hereunder shall automatically terminate in any
Collateral that is permitted to be sold or disposed of by the Credit Agreement
or in the case of any sale that is consented pursuant to Section 11.08 of the
Credit
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<PAGE>
Agreement. The Agent shall promptly take such action, and execute such releases,
termination statements or other documents as may be reasonably requested by an
interested party, at the expense of the Grantor, to evidence the termination and
releases contemplated hereby.
15. Notices. All communications and notices hereunder shall be in writing
and shall be given (i) in the case of the Grantor: at 77 Route 25, Pierson
Industrial Park, Bradford, Vermont 05033 (Telecopy No. (802) 222-5781),
Attention: Russell David, Vice President - Finance, with a copy to Morgan, Lewis
& Bockius, LLP, 101 Park Avenue, New York, New York 10178-0060, Attention: David
W. Pollak, Esq. (Telecopy No. (212) 309-6273), and (ii) in the case of any other
person, as provided in the Credit Agreement.
16. Further Assurances. The Grantor agrees at its expense to do such
further acts and things, and to execute and deliver such additional conveyances,
assignments, agreements and instruments, as the Agent may at any time reasonably
request in connection with the administration and enforcement of this Charge
Over Shares or with respect to the Collateral or any part thereof or in order
better to assure and confirm unto the Agent its rights and remedies hereunder.
17. Binding Agreement; Assignments. This Charge Over Shares, and the terms,
covenants and conditions hereof, shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and assigns, except that
the Grantor shall not be permitted to assign this Charge Over Shares or any
interest herein or in the Collateral, or any part thereof, or otherwise charge,
pledge, encumber or grant any option with respect to the Collateral, or any part
thereof, or any cash or property held by the Agent as Collateral under this
Charge Over Shares, except as contemplated or permitted by this Charge Over
Shares or the Credit Agreement.
18. Governing Law/Jurisdiction. This Charge Over Shares shall be governed
by and interpreted and construed in accordance with English law.
The Grantor, for the benefit of the Agent and the Lenders, hereby
irrevocably agrees that any proceedings or disputes in connection this Charge
Over Shares may be brought either in the courts of England and Wales, or in any
competent state court of the State of New York, USA or any federal court within
the State of New York, USA and hereby submits to the non-exclusive jurisdiction
of or any such court.
The Grantor and the Agent irrevocably waive any objection which each may
respectively have, now or hereafter, to the laying of the venue of any
proceedings in any such court as is referred in this Section 18 and any claim
that any such proceedings have been brought in an inconvenient forum and further
irrevocably agree that a judgement in any proceedings brought in any competent
court shall be conclusive and binding upon the Grantor and may be enforced in
the courts of any other jurisdiction.
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<PAGE>
19. Severability. In case any one or more of the provisions contained in
this Charge Over Shares should be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired.
20. Counterparts. This Charge Over Shares may be executed in two or
more counterparts, each of which shall constitute an original, but all of which,
when taken together, shall constitute but one instrument. This Charge Over
Shares shall be effective when a counterpart which bears the signature of the
Grantor shall have been delivered to the Agent, and the Agent shall have
executed this Charge Over Shares.
21. Section Headings. Section headings used herein are for convenience only
and are not to affect the construction of, or be taken into consideration in
interpreting, this Charge Over Shares.
22. English Language. The parties hereto confirm that it is their wish that
this Charge Over Shares as well as any other documents relating thereto,
including notices, have been and shall be drawn up in the English language only.
Les parties aux presentes confirment leur volonte que cette convention de
meme que tous les documents, y compris tous avis, s'y rattachant, solent rediges
en langue anglaise seulement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Charge Over
Shares as of the day and year first above written.
SLM INTERNATIONAL, INC.
By:______________________________
Name:
Title:
THE CHASE MANHATTAN BANK, as Agent
By_____________________________
Name:
Title:
12
MORTGAGE, SECURITY AGREEMENT, AND
ASSIGNMENT OF LEASES AND RENTS
------------------------------------------------
MASKA U.S., INC.,
a Vermont corporation
Mortgagor
to
THE CHASE MANHATTAN BANK, as agent
Mortgagee
------------------------------------------------
DATED: As of April 1, 1997
------------------------------------------------
Premises Located at:
77 Route 25
Pierson Industrial Park
Bradford, VT 05033
Record and Return to:
Kaye, Scholer, Fierman, Hays & Handler, LLP
425 Park Avenue
New York, New York 10022
Attn: Jeffrey Epstein
------------------------------------------------
<PAGE>
INDEX
Page
----
1. Payment of Indebtedness and Performance of Covenants and Agreements..... 3
2. Title to Property....................................................... 3
3. Representations of Mortgagor............................................ 3
4. Future Advances......................................................... 4
5. Insurance............................................................... 4
6. Impositions............................................................. 5
7. Deposits for Impositions and Insurance.................................. 6
8. Maintenance and Alterations............................................. 7
9. Leasing................................................................. 7
10. Recording, Filing and Other Fees........................................ 8
11. Taxes Imposed on Mortgagee and the Lenders.............................. 8
12. Compliance with Laws, etc............................................... 8
13. Inspection.............................................................. 8
14. Certificate of Mortgagor................................................ 8
15. Condemnation............................................................ 9
16. Restoration............................................................ 10
17. Mortgagee's Right to Perform Mortgagor's Covenants..................... 10
18. Due on Sale............................................................ 10
19. Default................................................................ 10
20. Appointment of Receiver................................................ 11
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Page
----
21. Power of Sale.......................................................... 11
22. Judicial Foreclosure................................................... 11
23. Sale in Parcels........................................................ 11
24. Possession of Premises................................................. 12
25. Expenses of Mortgagee and/or the Lenders............................... 12
26. Mortgagor's Waivers.................................................... 12
27. Partial Foreclosure.................................................... 12
28. No Waiver.............................................................. 12
29. Attorneys' Fees........................................................ 13
30. Rights Cumulative...................................................... 13
31. Interest After Maturity................................................ 13
32. No Credit for Taxes.................................................... 13
33. Liens.................................................................. 13
34. Change in Taxation..................................................... 14
35. Assignment of Leases and Rents......................................... 14
36. Security Agreement..................................................... 15
37. No Release............................................................. 16
38. Corporate Authority.................................................... 16
39. Notices................................................................ 16
40. Severability........................................................... 16
41. No Usury............................................................... 16
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<PAGE>
Page
42. No Representation by Mortgagee......................................... 17
43. Indemnification Against Liabilities.................................... 17
44. No Oral Changes........................................................ 17
45. Governing Law.......................................................... 17
46. Construction........................................................... 18
47. Gender................................................................. 18
48. Captions............................................................... 18
49. After Acquired Property................................................ 18
50. Further Assurances..................................................... 18
51. Certain Definitions.................................................... 18
52. Successors and Assigns................................................. 18
53. Environmental Laws..................................................... 18
54. Credit Agreement....................................................... 18
Schedule A - Description of the Land
Schedule B - Permitted Encumbrances
Schedule C - Leases
iii
<PAGE>
MORTGAGE, SECURITY AGREEMENT, AND
ASSIGNMENT OF LEASES AND RENTS
THIS MORTGAGE, SECURITY AGREEMENT, AND ASSIGNMENT OF LEASES AND RENTS
("Mortgage") made as of this 1st day of April, 1997 by MASKA U.S., INC., a
Vermont corporation, having an office at 77 Route 25, Pierson Industrial Park,
Bradford, Vermont 05033 ("Mortgagor"), to THE CHASE MANHATTAN BANK , a New York
banking corporation having an office at 633 Third Avenue, New York, New York
10017, as agent for itself and the other Lenders (such term and all other
capitalized terms used but not defined herein shall have the meanings assigned
thereto in the Credit Agreement referred to below) ("Mortgagee").
W I T N E S S E T H :
WHEREAS, Mortgagor, SLM International, Inc., a Delaware corporation, #1
Apparel, Inc., a Delaware corporation, Mortgagee and the Lenders have entered
into a Credit Agreement dated as of April 1, 1997 (as amended, modified,
restated or supplemented from time to time, the "Credit Agreement") pursuant to
which Mortgagee and the Lenders have agreed to make (a) a Term Loan in an
aggregate original principal amount not in excess of FOUR MILLION DOLLARS
($4,000,000) (as the terms and conditions of which may be amended, replaced,
extended, supplemented, substituted, severed, consolidated, increased, restated
or modified from time to time, collectively the "Term Loan") and (b) Revolving
Credit Loans in an aggregate principal amount not in excess of SEVENTY MILLION
DOLLARS ($70,000,000) at any time outstanding (as the terms and conditions of
which may be amended, replaced, extended, supplemented, substituted, severed,
consolidated, increased, restated or modified from time to time, the "Revolving
Credit Loans");
WHEREAS, in order to evidence the Term Loan and the Revolving Credit Loans,
Mortgagor has executed and delivered to the Lenders (a) Term Notes in the
aggregate original principal amount of FOUR MILLION DOLLARS ($4,000,000) (as
amended, replaced, extended, supplemented, substituted, severed, consolidated,
increased, restated or modified from time to time, collectively the "Term
Notes") and (b) Revolving Credit Notes in the aggregate maximum principal amount
of THIRTY-FIVE MILLION DOLLARS ($35,000,000) (as amended, replaced, extended,
supplemented, substituted, severed, consolidated, increased, restated or
modified from time to time, the "Revolving Credit Notes") (the Revolving Credit
Notes and the Term Notes are hereinafter collectively referred to as the
"Notes"); and (c) reimbursement obligations under the Canadian Letter of Credit
in the aggregate maximum principal amount of THIRTY-FIVE MILLION DOLLARS
($35,000,000) (such obligation referred to as the "L/C Obligation");
WHEREAS, the Credit Agreement and the Notes and L/C Obligation and all
sums, amounts, and expenses paid by Mortgagee and/or the Lenders hereunder,
thereunder or under any of the other Loan Documents and all other Obligations,
together with all interest thereon, and all fees, obligations, liabilities,
covenants, sums, amounts and
<PAGE>
expenses (the aforesaid together with the aggregate maximum principal amount of
SEVENTY-FOUR MILLION DOLLARS ($74,000,000) being hereinafter referred to as the
"Indebtedness") are secured by, among other things, this Mortgage, and the
terms, covenants and conditions of the Credit Agreement and the Notes are
incorporated herein and are hereby made a part hereof; and
WHEREAS, in order to induce Mortgagee and the Lenders to make the financial
accommodations provided for in the Credit Agreement, Mortgagor has agreed to
execute and deliver to Mortgagee this Mortgage.
NOW, THEREFORE, KNOW ALL MEN BY THESE PRESENTS that in order to secure the
Indebtedness and in consideration of the foregoing premises and the sum of TEN
DOLLARS ($l0.00) in hand well and truly paid by Mortgagee, the receipt of which
is hereby acknowledged, Mortgagor by these presents does mortgage, warrant,
grant, bargain, sell, convey, alien, release, transfer and confirm unto
Mortgagee for its own benefit and for the benefit of the Lenders forever, the
following (collectively, the "Property"):
A. All that certain land located in Orange County, Vermont, more
particularly described in Schedule A annexed hereto and made a part hereof (the
"Land").
B. All the buildings, structures and improvements, now or at any time
hereafter erected on the Land or any part thereof (collectively, the
"Buildings").
C. All machinery, apparatus, equipment, personal property and fixtures of
every kind and nature whatsoever now or hereafter located in, on or about the
Buildings or upon the Land, or attached to or used or usable in connection with
the operation or maintenance of the Land or the Buildings, or any part thereof,
and now owned or hereafter acquired (collectively, the "Building Equipment"; and
the Land, the Buildings and the Building Equipment being hereafter sometimes
collectively referred to as the "Premises").
D. All right, title and interest of Mortgagor, whether now owned or
hereafter acquired, in and to any opened or proposed avenues, streets, roads,
public places, sidewalks, alleys, strips or gores of land, in front of or
adjoining the Land or the Buildings, and all easements, tenements,
hereditaments, appurtenances, rights and rights of way, public or private,
pertaining or belonging to the Land or the Buildings.
E. All insurance proceeds and all awards and payments, including interest
thereon, and the right to receive the same, which may be made in respect of all
or any part of the Premises or any estate or interest therein or appurtenant
thereto, as a result of damage to or destruction of all or any part of the
Premises, the exercise of the right of condemnation or eminent domain, the
closing of, or the alteration of the grade of, any street on or adjoining the
Land, or any other injury to or decrease in the value of all or any part of the
Premises.
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<PAGE>
F. All right, title and interest of Mortgagor in and to any and all present
and future Leases (as defined in Paragraph 51) of all or any part of the
Premises, and in and to the rents, issues and profits payable thereunder and
cash or securities deposited thereunder as lessees' security deposits.
G. All franchises, permits, licenses and rights therein respecting the use,
occupation and operation of the Premises or the activities conducted thereon or
therein.
H. All right, title and interest of Mortgagor in and to any minerals, oil
or gas located on, under or appurtenant to the Land.
I. All right, title and interest of Mortgagor in and to any real estate tax
refunds with respect to the Premises.
J. The rents, royalties, revenue, income, issues and profits of any of the
foregoing.
TO HAVE AND TO HOLD the Property unto Mortgagee, its successors, heirs and
assigns, forever.
Provided, that if Mortgagor shall pay the Indebtedness at the time and times,
and in the manner provided in the Notes and the Credit Agreement, then this
Mortgage and the estate, right, title and interest granted herein shall cease,
terminate and become void, and Mortgagee shall deliver to Mortgagor a
satisfaction of this Mortgage in proper and recordable form.
AND MORTGAGOR COVENANTS, REPRESENTS AND WARRANTS TO AND WITH MORTGAGEE AS
FOLLOWS:
1. Payment of Indebtedness and Performance of Covenants and Agreements.
Mortgagor shall pay the Indebtedness when due in accordance with the provisions
of the Notes, the Credit Agreement and the other Loan Documents, and perform the
covenants and agreements of Mortgagor set forth in the Loan Documents.
2. Title to Property. Mortgagor represents and warrants that (a) it has a
good and marketable title to a fee estate in the Land, (b) it has all necessary
power and authority to enter into, deliver and perform this Mortgage, (c) it has
obtained any and all consents and approvals necessary or required for the making
of this Mortgage, and the making of this Mortgage will not violate any contract
or agreement to which Mortgagor is a party or by which the Property is bound,
and (d) the Property is free of all liens, mortgages, pledges, encumbrances,
charges or security interests whatsoever except those items (the "Permitted
Encumbrances") listed on Schedule B annexed hereto and made a part hereof.
Mortgagor does hereby warrant to take all actions reasonably necessary to
3
<PAGE>
defend its title to and interest in the Property and the validity of the lien
hereof against the claims of all Persons.
3. Representations of Mortgagor. Mortgagor covenants, represents and
warrants to Mortgagee that (a) the Buildings currently erected on the Land and
the use thereof are in compliance with all applicable zoning and building codes,
ordinances and regulations for the use and operation of the Land and Buildings,
and all necessary permits, approvals and certificates have been obtained and are
in full force and effect, (b) any building hereafter constructed on the Land
shall be constructed in compliance with all applicable zoning and building
codes, ordinances and regulations and shall lie wholly within the boundaries of
the Land, (c) the Buildings shall at all times be independent and self-contained
operating units, and (d) the Land shall at all times be a separate tax lot.
4. Future Advances. Without limiting the generality of any other provision
hereof, the Indebtedness shall include: (a) all existing indebtedness of
Mortgagor to Mortgagee and/or the Lenders evidenced by any of the Loan
Documents; (b) all future advances that may subsequently be made by Mortgagee
and/or the Lenders as provided by any of the Loan Documents; and (c) all other
indebtedness, if any, of Mortgagor to Mortgagee and/or the Lenders now due or to
become due or hereafter contracted pursuant to any of the Loan Documents.
5. Insurance.
(a) Mortgagor shall keep the Buildings and the Building Equipment insured
for the benefit of Mortgagee against loss or damage by fire, casualty and such
other hazards in accordance with Section 6.03 of the Credit Agreement, and
proceeds thereunder shall be payable and applied in accordance with Section
2.09(e) of the Credit Agreement. Duplicate original policies (or if the same
shall be unattainable, memoranda or certificates of insurance of the issuer of
such policies) and, at least 30 days prior to the expiration thereof, binders
evidencing the renewals thereof accompanied by proof of payment shall be
delivered to and held by Mortgagee. Any insurance required by this Mortgage may
be part of a blanket policy maintained by Mortgagor, provided that such blanket
policy provides for an allocation of the coverage amount thereunder to the
Buildings and the Building Equipment in amounts required by the provisions of
this Paragraph, that any such blanket policy otherwise complies with the
provisions of this Paragraph, and that the protection afforded thereunder shall
not be less than that which would have been afforded under a separate policy
with respect to the same insured risks. All insurance policies required to be
effected by this Mortgage shall (1) include effective waivers by the insurer of
all rights of subrogation against any named insured, the Indebtedness secured by
this Mortgage and the Property and all claims for insurance premiums against
Mortgagee and the Lenders, (2) provide that no cancellation, reduction in amount
or substantial modification in coverage thereof shall be effective until at
least thirty (30) days after receipt by Mortgagee of written notice thereof, (3)
include "replacement cost endorsements" if available, and (4) be reasonably
satisfactory in all other respects to Mortgagee. If Mortgagor fails to insure
4
<PAGE>
the Buildings or the Building Equipment, or both, or to deliver, after providing
written notice to Mortgagor, the policies, as required by the provisions of this
Paragraph, Mortgagee may, at its option, effect such insurance, pay the premiums
therefor, and the amounts paid by Mortgagee, with interest from the time of
payment by Mortgagee, at the Applicable Rate (as defined in Paragraph 51),
shall, on demand, be immediately due from Mortgagor to Mortgagee and shall be
added to and included in the Indebtedness and shall be secured by this Mortgage.
(b) Subject to the terms and provisions of the Credit Agreement, Mortgagee
shall have the right but not the obligation, on behalf of Mortgagor, to adjust
and compromise any claims under such insurance, collect and receive the proceeds
thereof and execute and deliver all proofs of loss, receipts, vouchers and
releases in connection with such claims. Subject to the terms and provision of
the Credit Agreement, Mortgagor shall not adjust or compromise any claims under
such insurance, without the prior written consent of Mortgagee.
(c) Subject to the terms and provisions of the Credit Agreement, including,
without limitation, the provisions of Section 2.09(e) thereof permitting
Mortgagor to restore or rebuild, Mortgagee may deduct from the proceeds of the
insurance required to be obtained by Mortgagor pursuant to Paragraph 5(a), any
expenses, including, without limitation, attorneys' fees and disbursements (to
the extent permitted by law) incurred by Mortgagee in connection with the
recovery of such insurance proceeds and such net proceeds shall be applied in
accordance with Section 2.09(f) of the Credit Agreement (without regard to any
requirement for incremental payments). Any application of such insurance
proceeds toward prepayment of the Indebtedness shall not be deemed a waiver by
Mortgagee or the Lenders of their respective rights to receive payment of the
balance of the Indebtedness in accordance with the provisions of this Mortgage.
(d) Mortgagor shall not obtain or permit to be obtained separate insurance
concurrent in form or contributing in the event of loss with the insurance
Mortgagor is required to maintain under the provisions of Paragraph 5(a) unless
such insurance is in accordance with all of the provisions of Paragraph 5(a) and
unless Mortgagor gives Mortgagee notice of such separate insurance at least 30
days prior to the effective date of the policy or policies. Mortgagor shall,
upon each and every request of Mortgagee (not to exceed one every six months),
furnish Mortgagee with an appraisal of the replacement value and the insurable
value of the Buildings and Building Equipment by an appraiser satisfactory to
Mortgagee.
(e) If the Land is located in an area which has been identified by the
Secretary of Housing and Urban Development as a flood hazard area and in which
flood insurance has been made available under the National Flood Insurance Act
of 1968, Mortgagor will keep the Buildings and Building Equipment covered by
flood insurance up to the maximum limit of coverage available under said Act but
not in excess of the amount of the Indebtedness.
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6. Impositions.
(a) Except as may be permitted by the Credit Agreement, and subject to
Paragraph 5(b), Mortgagor shall pay, within the applicable grace period and
before the same become delinquent or in default, all real estate taxes, personal
property taxes, assessments, water rates and sewer rents, license fees, all
charges which may be imposed for the use of vaults, chutes, areas and other
space beyond the lot line and abutting the public sidewalks in front of or
adjoining the Land, and any other amounts which could be or become a lien upon
or against the Property or any part thereof (collectively, the "Impositions").
Mortgagor shall deliver to Mortgagee, within 20 days after the due date of each
payment of any Imposition or Assessment, receipts evidencing such payment or
other proof of payment satisfactory to Mortgagee.
(b) Notwithstanding the provisions of Paragraph 6(a), Mortgagor shall have
the right, in good faith, to contest by appropriate legal proceedings, after
notice to, but without cost or expense to, Mortgagee, the amount or validity of
any of the Impositions and to postpone the payment of same, provided that: (i)
such contest shall operate to prevent the collection thereof or other
realization thereon, the sale of the lien thereof, and the sale or forfeiture of
the Property or any part thereof; (ii) such contest shall be promptly and
diligently prosecuted by and at the expense of Mortgagor; (iii) Mortgagee shall
not thereby suffer any civil, or be subjected to any criminal, penalties or
sanctions; (iv) Mortgagor shall promptly pay such contested Imposition if at any
time all or any part of the Property shall be in danger of being foreclosed,
sold, forfeited, or otherwise lost or if such contest shall be discontinued; and
(v) Mortgagor shall deposit with Mortgagee, prior to commencing any such
proceedings, security, satisfactory to Mortgagee, in an amount not less than the
amount of the Impositions to be contested and of any interest and additional
charges to be incurred as a result of such contest.
7. Deposits for Impositions and Insurance. After the occurrence and
continuance of one or more Defaults, then upon notice from Mortgagee, Mortgagor
shall deposit with Mortgagee on the first day of each month an amount equal to
l/12th of the aggregate annual payments for (i) the Impositions, and (ii) the
insurance premiums on the policies of insurance required to be obtained and kept
in force by Mortgagor under this Mortgage. In addition, upon notice from
Mortgagee, Mortgagor shall deposit with Mortgagee such sum of money which,
together with such monthly installments, shall be sufficient to pay all the
Impositions and insurance premiums at least 30 days prior to the due date
thereof. If the amounts of any Impositions are not ascertainable at the time any
deposit is required to be made, the deposit shall be made on the basis of the
amounts of the Impositions for the prior tax year and, upon the amounts of the
Impositions being fixed for the then current year, Mortgagor shall, upon notice
from Mortgagee, deposit any deficiency with Mortgagee. If the amounts of any
insurance premiums are not ascertainable at the time any deposit is required to
be made, the deposit shall be made on the basis of the amount of the insurance
premiums for the prior year of the policy or policies, and upon
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the amount of the insurance premiums being fixed for the then current year of
the policy or policies, Mortgagor shall, upon notice from Mortgagee, deposit any
deficiency with Mortgagee. If, on a date 30 days prior to the due date, there
shall be insufficient funds on deposit with Mortgagee for the payment of any of
the Impositions or the insurance premiums, Mortgagor shall, upon demand of
Mortgagee, forthwith deposit the amount of such deficiency with Mortgagee. The
funds deposited with Mortgagee shall constitute additional collateral for the
Indebtedness, shall be held by it at interest, and, shall not be commingled with
other funds of Mortgagee, and provided that Mortgagor shall not be in Default in
the performance of any of the covenants and agreements of Mortgagor under the
Loan Documents, or under any instrument collateral to this Mortgage, which shall
be applied in payment of the Impositions and insurance premiums when due to the
extent that Mortgagor shall have deposited funds with Mortgagee for such
purpose. In the event of any Default by Mortgagor under this Mortgage, or any
default by Mortgagor under any of the other Loan Documents or any instrument
collateral thereto, the funds deposited with Mortgagee may, at the option of
Mortgagee, be retained and applied toward the payment of any or all of the
Indebtedness, in such order of priority as is provided in the Security
Documents, but no such application shall be deemed to have been made by
operation of law or otherwise until actually made by Mortgagee. Mortgagor shall
furnish Mortgagee with a bill for each of the Impositions and insurance premiums
and/or such other documents necessary for its payment, if available, at least 30
days prior to the date it first becomes due. Upon an assignment of this
Mortgage, Mortgagee shall have the right to pay over the balance of such
deposits in its possession to the assignee, and upon the making of such payment
Mortgagee shall be completely released from all liability with respect to such
deposits and Mortgagor shall look solely to the assignee with respect thereto.
The provisions of the preceding sentence shall apply to each and every
assignment or transfer of such deposits to a new assignee.
8. Maintenance and Alterations.
(a) Mortgagor shall put, keep and maintain the Premises and the sidewalks,
curbs and alleys adjoining or abutting the same in good and lawful order,
condition and repair, (reasonable wear and tear excepted) and Mortgagor shall
make or cause to be made, as and when the same shall become necessary, all
structural and nonstructural repairs, whether exterior or interior, ordinary or
extraordinary, foreseen or unforeseen. Mortgagor shall not commit or suffer any
waste of the Premises and shall not demolish, alter, or remove or permit the
demolition, alteration, or removal of the Buildings or the Building Equipment,
or any part thereof, unless such alteration, demolition or removal will not (i)
materially diminish the utility of the Buildings or Building Equipment for the
operation of the business, or (ii) upon completion, result in a reduction of the
value of the Buildings or Building Equipment below the value immediately
preceding such alteration, demolition or removal, except to the extent and in
the manner provided in the Credit Agreement.
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(b) Mortgagor shall not construct additions to all or part of the Buildings
or the Building Equipment or construct any new or additional buildings on the
Land which will materially interfere with the operation conducted thereon or
materially diminish the fair market value thereof without Mortgagee's prior
written consent.
9. Leasing. Except as set forth on Schedule C annexed hereto and made a
part hereof, Mortgagor represents that there are no Leases now in effect.
Mortgagor shall not enter into any Lease of all or any part of the Premises or
amend, renew, extend or otherwise modify in any material respect any Lease, or,
except for security deposits, accept rent for a period of more than three months
in advance, without in each instance obtaining Mortgagee's prior written consent
thereto which consent shall not be unreasonably withheld or delayed. Mortgagor
shall not terminate, cancel or permit a surrender, termination or cancellation
of any Lease except where the tenant or lessee under such Lease is in default
thereunder. Mortgagor shall deliver to Mortgagee a duplicate original of each
Lease promptly after the execution thereof. At the option of Mortgagee, each
Lease, and all renewals, replacements, extensions, and modifications thereof,
and all rights of the tenant thereunder, shall be subject and subordinate to
this Mortgage, and to each and every advance made or thereafter made hereunder
or under the Notes secured hereby and to all renewals, additions, supplements,
modifications, consolidations, spreaders, replacements, and extensions of this
Mortgage and all future Leases shall contain provisions obligating the lessees
thereunder during the continuance of a Default hereunder to attorn to Mortgagee
or any purchaser therefrom if Mortgagee or such purchaser succeeds to the
interest of Mortgagor under such Lease. Mortgagor shall fully and promptly
perform all of the obligations to be performed by the lessor under any and all
Leases. Mortgagor shall do all things necessary to compel the performance and
observance of each and every obligation to be performed or observed by the
lessees under such Leases. Mortgagor shall give prompt notice to Mortgagee of
(a) any notice received by Mortgagor of any default by the lessor under any
Lease, (b) the commencement of any action or proceeding by any tenant the
purpose of which shall be the cancellation of any Lease or a diminution or
abatement of the rent payable thereunder, (c) any notice of default given by
Mortgagor to the tenant under any Lease, or (d) the interposition by any tenant
of any defense or counterclaim in any action or proceeding brought by Mortgagor
against such tenant; and Mortgagor will cause a copy of any process, pleading or
notice received or served by Mortgagor in reference to any such action, defense
or claim to be promptly delivered to Mortgagee. Mortgagor shall hold in trust
all security deposits and advance rent given on account of any Lease, and
deposit such security in a bank or trust company and shall not commingle such
funds with other funds. Mortgagor shall repay or apply such funds only in
accordance with the provisions of the applicable Leases.
10. Recording, Filing and Other Fees. Mortgagor shall pay all recording and
filing fees, all recording taxes, and all other costs and expenses in connection
with the preparation, execution and recordation and other manner of perfection
of this Mortgage, and any other Loan Documents, and shall reimburse Mortgagee on
demand for all costs and expenses of any kind incurred by Mortgagee in
connection therewith (including, without
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limitation, reasonable attorneys' fees and disbursements, to the extent
permitted by law). Mortgagor will, at any time on request of Mortgagee, execute
or cause to be executed financing statements, continuation statements, security
agreements, or the like, in respect of any Building Equipment for the assuring
and preservation of the security interest granted hereunder, and Mortgagor
hereby irrevocably appoints Mortgagee as its attorney-in-fact for such purposes.
Mortgagor shall pay all filing fees, including fees for filing continuation
statements, in connection with such financing statements.
11. Taxes Imposed on Mortgagee and the Lenders. Mortgagor shall pay any
taxes (except any income, inheritance and franchise taxes) imposed on Mortgagee
by reason of its ownership of this Mortgage or the Notes.
12. Compliance with Laws, etc. Mortgagor shall comply with all laws,
statutes, ordinances, rules, regulations and other requirements of all
governmental authorities relating to all or any part of the Property and the
sidewalks, curbs and alleys adjoining the Land, and the condition, repair,
maintenance, use and occupation thereof. Mortgagor shall obtain and keep in full
force and effect all franchises, permits, licenses and other certificates
required in connection with the use, occupation, and operation of the Premises
and the activities conducted thereon or therein. Mortgagor shall not use or
permit the use of the Premises in any manner which would materially impair the
value of the Premises or increase the risk of fire or other casualty. Mortgagor
shall advise Mortgagee promptly in writing of all written complaints and charges
made by any governmental authority affecting the Property or affecting Mortgagor
or its business which may impair the security granted hereunder.
13. Inspection. Mortgagee and its authorized agents and employees shall
have the right, at Mortgagee's option and, so long as no Default is continuing,
at Mortgagee's sole expense, to enter the Premises at all reasonable times and
upon reasonable notice for the purpose of inspecting the same.
14. Certificate of Mortgagor. Mortgagor, upon request of Mortgagee, shall
certify to Mortgagee, by an instrument in form reasonably satisfactory to
Mortgagee, duly acknowledged, the amount of the Indebtedness then owing, the
date to which any interest on the Indebtedness has been paid, whether any
offsets or defenses exist against payment of the Indebtedness or performance of
any of the covenants and agreements of Mortgagor under the Loan Documents and
such other matters in connection with the Loan Documents that Mortgagee might
reasonably request, within 10 days if the request is made personally, or within
15 days if the request is made by mail. Mortgagee shall have the right to rely
on such certification.
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15. Condemnation.
(a) Mortgagor shall give notice to Mortgagee upon Mortgagor's learning of
the threatened or actual commencement of any action or proceeding to take all or
any part of the Premises by exercise of the right of condemnation or eminent
domain or of any action or proceeding to close or to alter the grade of any
street on or adjoining the Land. Mortgagee may participate in any such action or
proceeding, and Mortgagor shall deliver to Mortgagee such instruments as
Mortgagee shall request to permit such participation. Mortgagor shall not settle
any such action or proceeding or agree to accept any award or payment without
the prior written consent of Mortgagee, and such award or payment and any
interest thereon (hereinafter collectively called the "Award") shall be paid to
Mortgagee and the amount received shall be retained and applied as provided in
Paragraph 15(b).
(b) At the option of Mortgagee, Mortgagee shall retain and apply the Award
toward payment of the Indebtedness (whether or not due and payable) (without
premium) in such order of priority as Mortgagee shall elect or shall be paid
over in whole or in part to pay or reimburse Mortgagor for the cost of restoring
or reconstructing the Building and the Building Equipment in a manner and on
conditions satisfactory to Mortgagee; provided, however, that to the extent that
the Award received by Mortgagee shall exceed the amount required to satisfy in
full the then total amount of the Indebtedness, Mortgagee shall promptly pay
over to Mortgagor the amount of such excess. In no event shall Mortgagee be
required to satisfy this Mortgage until the Indebtedness is fully paid and
Mortgagee shall not be required to release from the lien of this Mortgage any
portion of the Premises so taken until Mortgagee receives the Award for the
portion so taken.
(c) The application of the Award toward payment of the Indebtedness shall
not be deemed a waiver by Mortgagee of its right to receive payment of the
balance of the Indebtedness in accordance with the provisions of the Loan
Documents. Mortgagee shall have the right, but shall be under no obligation, to
question the amount of the Award, and Mortgagee may accept same without
prejudice to the rights that Mortgagee may have to question such amount. In any
such condemnation or eminent domain action or proceeding Mortgagee may be
represented by attorneys selected by Mortgagee, and all reasonable sums paid by
Mortgagee in connection with such action or proceeding (including, without
limitation, reasonable attorneys' fees to the extent permitted by law) shall, on
demand, be immediately due from Mortgagor to Mortgagee and the same shall be
secured by this Mortgage.
(d) Notwithstanding any taking by condemnation or eminent domain, closing
of, or alteration of the grade of, any street or other injury to or decrease in
value of the Premises by any public or quasi-public authority or corporation,
the unpaid principal portion of the Indebtedness shall continue to bear interest
at the rate payable pursuant to the applicable Loan Documents until the Award
shall have been actually received by Mortgagee, and any reduction in the
Indebtedness, resulting from the
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application by Mortgagee of the Award shall be deemed to take effect only on the
date of such receipt.
16. Restoration. Subject to the provisions of Section 2.09(e) of the Credit
Agreement, if the Buildings or the Building Equipment shall be damaged or
destroyed, in whole or in part, by fire or other casualty, or by any taking in
condemnation proceedings or the exercise of any right of eminent domain, and if
Mortgagor or Mortgagee elects to restore, repair or rebuild the same, Mortgagor
shall promptly restore, replace or rebuild the same to as nearly as possible the
value, quality and condition they were in immediately prior to such fire or
other casualty or taking, with such alterations or changes as may be approved in
writing by Mortgagee, which approval shall not be unreasonably withheld or
delayed. Mortgagor shall give prompt notice to Mortgagee of any damage or
destruction to the Buildings or Building Equipment by fire or other casualty, as
well as the initiation of any condemnation or eminent domain proceeding
affecting the same.
17. Mortgagee's Right to Perform Mortgagor's Covenants. If Mortgagor should
fail in the payment, performance or observance of any term of covenant
hereunder, Mortgagee may, at its option after 10 days prior written notice to
Mortgagor, pay, perform or observe the same, and the amounts advanced by, and
the other costs and expenses of, Mortgagee in paying, performing or observing
the same, with interest from the time of the advances or payments at the
Applicable Rate, shall, on demand, be immediately due from Mortgagor to
Mortgagee and shall be secured by this Mortgage.
18. Due on Sale.
(a) If Mortgagor enters into a contract to sell or sells, conveys,
alienates, assigns, or transfers the Property, or any part thereof or interest
therein in any manner other than as expressly permitted by the Credit Agreement,
whether voluntarily or involuntarily, directly or indirectly, or by operation of
law or otherwise, then Mortgagee shall have the right, at its option, at any
time thereafter to declare the entire principal then outstanding under the Loan
Documents (if not then due and payable), and all accrued and unpaid interest
thereon, and all other accrued sums and charges under the Loan Documents
immediately due and payable. No waiver of this right or delay in the exercise
thereof shall operate as a waiver thereof unless Mortgagee shall have executed
and delivered to Mortgagor a written waiver of such right.
(b) Except as expressly permitted by the Credit Agreement, any sale,
assignment, transfer, pledge or other disposition, whether voluntary or
involuntary, by operation of law or otherwise, of 50% or more, in the aggregate,
whether by one or more transfers, of the outstanding voting stock of Mortgagor,
or of any other corporation directly or indirectly owning or controlling 50% or
more of Mortgagor, shall be deemed to be a transfer of the Property for the
purposes of this Paragraph 18.
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19. Default. The entire principal then outstanding under the Loan Documents
(if not then due and payable), and all accrued and unpaid interest thereon, and
all other accrued sums and charges under the Loan Documents shall, by written
notice given to Mortgagor, become immediately due and payable at the option of
Mortgagee after the occurrence of one or more of the following events (each a
"Default"): (a) upon the occurrence and continuance of any "Event of Default"
(as such term is defined in the Credit Agreement) under the Credit Agreement; or
(b) upon the failure of Mortgagor to observe or perform any other monetary
(including, without limitation, the payment of installments of principal and
interest) or nonmonetary covenants or agreements of Mortgagor hereunder, which
in the case of monetary covenants or agreements, other than the failure to pay
installments of principal or interest, shall be continuing for a period of 10
days after the giving of written notice to Mortgagor, and in the case of
non-monetary covenants or agreements shall be continuing for a period of 30 days
after the giving of written notice to Mortgagor.
20. Appointment of Receiver. If a Default shall be continuing, Mortgagee
may apply for the appointment of a receiver of the Property, the Premises and/or
the rents, royalties, revenue, income, issues, and profits of all or any part of
the Property from whatever source derived and thereupon it is hereby expressly
covenanted and agreed that the court shall forthwith appoint such receiver with
the usual powers and duties of receivers in like cases; and Mortgagee shall be
entitled to the appointment of such receiver as a matter of right, to the extent
not prohibited by applicable law, without consideration of the value of the
Property as security for the amounts due to Mortgagee or the Lenders or the
solvency of any Person liable for the payment of such amounts. In order to
maintain and preserve the Property and to prevent waste and impairment of its
security, Mortgagee may, at its option, advance monies to the appointed receiver
and all such sums advanced and not paid from rents, payables, revenue, income,
issues and profits as described in the first sentence of this Paragraph 20,
shall become secured obligations and shall bear interest from the date of such
advance at the Applicable Rate.
21. Power of Sale. If a Default shall be continuing, Mortgagee may sell the
Property to the extent permitted and pursuant to the applicable provisions of
the laws of the state in which the Land is located.
22. Judicial Foreclosure. If a Default shall be continuing, Mortgagee may
institute an action of mortgage foreclosure for the enforcement hereof and
realization on the Property or any other security which is herein or elsewhere
provided for, and proceed thereon to final judgment and execution thereon. At
any such sale Mortgagee and the Lenders may bid for and acquire the Property or
any part thereof and in lieu of paying cash therefor may make settlement for the
purchase price by crediting upon the Indebtedness then secured by this Mortgage
the net sales price after deducting therefrom the expenses of the sale and the
costs of the action and any other sums which Mortgagee is authorized to deduct
under this Mortgage. The proceeds of such sale shall be applied first to the
payment of the costs and charges of such sale, including, without limitation,
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Mortgagee's reasonable attorneys' fees (to the extent permitted by law), second
to the payment of the Obligations as provided for in the Security Documents, and
third, to the payment of any surplus, if any, to Mortgagor, its successors or
assigns, or as a court of competent jurisdiction may direct. To the extent not
prohibited by applicable law, Mortgagor waives any statutory waiting period with
respect to the execution of a judgment obtained by Mortgagee in connection with
any foreclosure proceedings.
23. Sale in Parcels. In the event of a foreclosure of this Mortgage or upon
any sale under this Mortgage pursuant to judicial proceedings or otherwise, the
Property may, to the extent permitted by law, be sold in one parcel and as an
entirety or in such parcels, manner or order as Mortgagee in its sole discretion
may select.
24. Possession of Premises. To the extent permitted by law, after the
occurrence of and during continuance of a Default, Mortgagee and its agents and
any receiver appointed by a court are authorized to (a) take possession of the
Premises; (b) lease the Premises or make reasonable modifications to or cancel
leases; (c) take reasonable measures to maintain, repair, alter and restore the
Premises; (d) collect all rents, issues, income and profits payable under all
Leases directly from the lessees thereunder upon notice to each such lessee that
a Default exists under this Mortgage accompanied by a demand on such lessee for
the payment to Mortgagee of all rents due and to become due under its Lease; and
(e) after deducting all costs of collection and administration expense, apply
the net rents and profits to the payment of Impositions, insurance premiums and
all other carrying charges (including, without limitation, reasonable agents'
compensation and fees and reasonable costs of counsel, to the extent permitted
by law, and receivers) and to the maintenance, repair or restoration of the
Premises, or on account and in reduction of the Indebtedness in such order and
amounts as Mortgagee in Mortgagee's sole discretion may elect. Mortgagee shall
be liable to account only for rents and profits actually received by Mortgagee.
25. Expenses of Mortgagee and/or the Lenders. All sums (including
attorneys' fees and disbursements, to the extent permitted by law) paid by
Mortgagee in connection with any litigation to prosecute or defend the rights
and obligations created by this Mortgage, with interest thereon at the
Applicable Rate from the time of payment by Mortgagee, shall, on demand, be
immediately due from Mortgagor to Mortgagee and shall be added to and included
in the Indebtedness and shall be secured by this Mortgage.
26. Mortgagor's Waivers. Mortgagor, for itself and its successors and
assigns, hereby irrevocably waives and releases, to the extent permitted by law,
and whether now or hereafter in force, (a) the benefit of any and all valuation
and appraisement laws, (b) any right of redemption whether statutory or
otherwise, in respect of the Property, and (c) all exemption laws whatsoever and
all moratoriums, extensions or stay laws or rules, or orders of court in the
nature of any one or more of them.
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27. Partial Foreclosure. Mortgagee may from time to time, if permitted by
law, take action to recover any sums, whether interest, principal or any other
sums, required to be paid under this Mortgage or any other Loan Document as the
same become due, without prejudice to the right of Mortgagee thereafter to bring
an action of foreclosure, or any other action, for a default or defaults by
Mortgagor existing when such earlier action was commenced. Mortgagee may also
foreclose this Mortgage for any sums due under this Mortgage or any other Loan
Document and the lien of this Mortgage shall continue to secure the balance of
the Indebtedness.
28. No Waiver. Any failure by Mortgagee to insist upon the strict
performance by Mortgagor of any of the covenants and agreements of Mortgagor
under the Loan Documents shall not be deemed to be a waiver of any of such
covenants or agreements, and Mortgagee and each Lender, notwithstanding any such
failure, may thereafter insist upon the strict performance by Mortgagor of any
and all of such covenants or agreements.
29. Attorneys' Fees. If this Mortgage shall be foreclosed, or if any of the
Loan Documents is placed in the hands of an attorney for collection or is
collected through any court, including any bankruptcy court, there shall be
included in the computation of the sums secured hereby, to the extent permitted
by law, the amount of a reasonable fee for the services of the attorney retained
by Mortgagee in the foreclosure action or proceeding, non-judicial sale and all
disbursements, costs, allowances and additional allowances provided by law.
30. Rights Cumulative. The rights and remedies provided for in this
Mortgage, or which Mortgagee may have otherwise, at law or in equity, shall, to
the extent permitted by law, be distinct, separate and cumulative and shall not
be deemed to be inconsistent with each other, and none of them, whether or not
exercised by Mortgagee, shall be deemed to be in exclusion of any other, and any
two or more of all such rights and remedies may be exercised at the same time,
all to the extent permitted by law.
31. Interest After Maturity. The principal amount of the Indebtedness and
any other amounts secured by this Mortgage and, if permitted by law, any accrued
interest thereon, shall bear interest from and after maturity, whether or not
resulting from acceleration, at the rate provided for in Section 2.08 of the
Credit Agreement, but this shall not constitute an extension of time for payment
of the Indebtedness.
32. No Credit for Taxes. Mortgagor shall not claim or demand or be entitled
to any credit or credits on account of any of the sums secured hereby by reason
of the Impositions assessed against all or any part of the Property or for any
payments made on account thereof. No deductions shall be made or claimed from
the taxable value of all or any part of the Premises by reason of this Mortgage.
33. Liens.
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(a) This Mortgage is and shall be maintained as a valid first lien on the
Property subject only to any encumbrances created pursuant to the Loan Documents
and the Permitted Encumbrances, if any. Except as permitted by the Credit
Agreement, Mortgagor shall not, directly or indirectly, create or suffer or
permit to be created, or to stand, against the Property or any portion thereof,
or against the rents, royalties, revenue, income, issues and profits therefrom,
any lien, charge, mortgage, deed of trust, adverse claim or other encumbrance
(herein collectively referred to as a "lien"), whether senior or junior in lien
to this Mortgage, other than the lien of (i) this Mortgage, (ii) the Permitted
Encumbrances and (iii) any other liens created pursuant to the Loan Documents;
provided, however, that nothing contained in this Paragraph 33 shall require
Mortgagor to pay any real estate taxes or other Impositions prior to the time
when same are required to be paid under this Mortgage. Except as permitted by
the Credit Agreement, Mortgagor will keep and maintain the Premises free from
all liens of Persons supplying labor or materials relating to the construction,
alteration, modification or repair of the Premises. Except as expressly
permitted by the Credit Agreement, if any such lien shall be filed against the
Premises, Mortgagor agrees to discharge the same of record (by payment, bonding,
or otherwise) within 10 days after the filing thereof. Except as expressly
permitted by the Credit Agreement, no financing statement, conditional bill of
sale or chattel mortgage shall be made or filed against the Building Equipment
without the prior consent of Mortgagee and if at any time there should be any
(with or without the consent of Mortgagee), then in the event of any Default,
all right, title and interest of Mortgagor in and to all deposits and payments
made thereon are hereby assigned to Mortgagee.
(b) Notwithstanding the provisions of Paragraph 33(a), Mortgagor shall have
the right, provided no Default shall exist hereunder, in good faith, to contest
by appropriate legal proceedings, after notice to, but without cost or expense
to, Mortgagee, the validity of any liens arising in connection with the Property
and to postpone the payment of same, provided that: (i) such contest shall
operate to prevent the collection thereof or other realization thereon, the sale
of the lien thereof, and the sale or forfeiture of the Property or any part
thereof; (ii) such contest shall be promptly and diligently prosecuted by and at
the expense of Mortgagor; (iii) Mortgagee shall not thereby suffer any civil, or
be subjected to any criminal, penalties or sanctions; (iv) Mortgagor shall
promptly pay such contested lien if at any time all or any part of the Property
shall be in danger of being foreclosed, sold, forfeited, or otherwise lost or if
such contest shall be discontinued; and (v) Mortgagor shall deposit with
Mortgagee, prior to commencing any such proceedings, security, satisfactory to
Mortgagee, in an amount sufficient to pay or otherwise discharge such contested
lien and of any interest or additional charges incurred as a result of such
contest.
34. Change in Taxation. In the event of the enactment of or change in
(including, without limitation, a change in interpretation of) any applicable
law (a) deducting or allowing Mortgagor to deduct from the value of the Property
for the purpose of taxation any lien or security interest thereon, (b) imposing,
modifying or deeming
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applicable any reserve or special requirement against deposits in or for the
account of, or loans by, or other liabilities of, or other assets held by
Mortgagee, or (c) subjecting Mortgagee to any tax or changing the basis of
taxation of mortgages, deeds of trust, or other liens or debts secured thereby,
or the manner of collection of such taxes, in each such case, so as to affect
this Mortgage, and the result is to increase the taxes imposed upon or the cost
to Mortgagee of maintaining the Indebtedness or to reduce the amount of any
payments receivable hereunder, then, and in any such event, Mortgagor shall,
promptly, pay to Mortgagee for the account of Mortgagee such additional amounts
as may be required to compensate for such increased costs or reduced amounts,
provided that if any such payment or reimbursement shall be unlawful or would
constitute usury under applicable law, then Mortgagee may, at its option,
declare the Indebtedness due and payable upon 60 days' notice.
35. Assignment of Leases and Rents. Mortgagor assigns and grants a security
interest to Mortgagee in and to the rents, royalties, revenue, income, issues
and profits of the Premises as further security for the payment, of the
Indebtedness, and during the continuance of a Default Mortgagor grants to
Mortgagee the right to enter the Premises for the purpose of collecting the same
and to let the Premises, or any part thereof, and to apply said rents,
royalties, revenue, income, issues and profits, after payment of all necessary
charges and expenses, on account of the Indebtedness. This assignment and grant
shall continue in effect until the Indebtedness is fully paid. Mortgagee hereby
waives the right to enter the Premises for the purpose of collecting said rents,
issues and profits, and Mortgagor shall be entitled to collect, receive and use
said rents, issues and profits, until the occurrence and continuance of one or
more Defaults. During the continuance of any Default, the right of Mortgagor to
collect, receive and use said rents, royalties, revenue, income, issues and
profits, shall be revoked forthwith. Mortgagor shall, from time to time after
request by Mortgagee, execute, acknowledge and deliver to Mortgagee, in form
reasonably satisfactory to Mortgagee, separate assignments effectuating the
foregoing. Mortgagee shall not be obligated to perform or discharge any
obligation or duty to be performed or discharged by Mortgagor under any Lease or
other agreement affecting all or any part of the Premises, and no assignment of
any such Lease or other agreement shall place the responsibility for the
control, care, management or repair of all or any part of the Premises upon
Mortgagee, nor make Mortgagee liable for any negligence by any Person other than
Mortgagee or its directors, officers, agents, employees or servants in the
management, operation, upkeep, repair or control of all or any part of the
Premises resulting in injury, death or property damage. In addition, after the
occurrence and during the continuance of a Default and the giving of notice to
Mortgagor, Mortgagor will pay monthly in advance to Mortgagee, or to any
receiver appointed to collect said rents, royalties, revenue, income, issues and
profits, the fair and reasonable rental value for the use and occupancy of the
Premises or of such part thereof as may be in the possession of Mortgagor, and
upon default in any such payment will vacate and surrender the possession
thereof to Mortgagee or to such receiver, and in default thereof may be evicted
by summary or other proceedings. Without limiting the generality of any
provision of this Paragraph 35, if a proceeding under Title 11 of the United
States Code, as in effect from
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time to time (the "Bankruptcy Code"), is commenced by or against Mortgagor,
then, pursuant to Section 552(b)(2) of the Bankruptcy Code, the security
interest granted by this Mortgage shall automatically extend to all rents,
royalties, revenue, income, issues and profits acquired by Mortgagor after the
commencement of the case and such rents, royalties, revenue, income, issues and
profits shall constitute cash collateral under Section 363(a) of the Bankruptcy
Code.
36. Security Agreement. It is the intention of the parties hereto that this
instrument shall constitute a Security Agreement within the meaning of the
Uniform Commercial Code as enacted in the state in which the Land is located
with respect to the personalty and fixtures comprising a part of the Property,
and that a security interest shall attach thereto for the benefit of Mortgagee
to further secure the payment of the Indebtedness. Mortgagor hereby authorizes
Mortgagee to file financing and continuation statements with respect to such
collateral in which Mortgagor has a mortgageable interest, without the signature
of Mortgagor whenever lawful, and upon request, Mortgagor shall promptly execute
financing and continuation statements in form satisfactory to Mortgagee to
further evidence and secure Mortgagee's interest in such collateral, and shall
pay all filing fees in connection therewith in accordance with Paragraph 10. In
the event of the occurrence and continuance of one or more Defaults, Mortgagee,
pursuant to the applicable provision of the Uniform Commercial Code, shall have
the option of proceeding as to both real and personal property in accordance
with its rights and remedies in respect of the real property, in which event the
default provisions of the Uniform Commercial Code shall not apply. The parties
agree that in the event Mortgagee elects to proceed with respect to collateral
constituting personalty or fixtures separately from the real property, the
giving of ten days' notice by Mortgagee, sent by an overnight mail service,
postage prepaid, to Mortgagor at its address referred to in Paragraph 39,
designating the place and time of any public sale or the time after which any
private sale or other intended disposition of such collateral is to be made,
shall be deemed to be reasonable notice thereof and Mortgagor waives any other
notice with respect thereto. Notwithstanding anything in Paragraph 54 to the
contrary, in the event of any inconsistency or conflict between the terms and
provisions of any Security Agreement and the terms and provisions of this
Paragraph 36, the terms and provisions of the Security Agreement shall control.
37. No Release. Neither Mortgagor nor any other Person now or hereafter
obligated for the payment of the Indebtedness or the performance of all or any
part of the covenants and agreements of Mortgagor under the Loan Documents shall
be released from paying such Indebtedness and performing such covenants and
agreements and the lien of this Mortgage shall not be affected by reason of (a)
the failure of Mortgagee to comply with any request of Mortgagor, or of any
other Person so obligated, to take action to foreclose this Mortgage or
otherwise enforce any of the provisions of this Mortgage or of any of the
covenants and agreements of Mortgagor under the Loan Documents, (b) the release,
regardless of consideration, of the whole or any part of the security held for
the Indebtedness, (c) the release, regardless of consideration, of the
obligations of any Person or Persons liable for payment of the Indebtedness, or
performance of the covenants and
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agreements of Mortgagor under the Loan Documents, or (d) any agreement or
stipulation extending the time of payment or modifying the terms of any of the
Loan Documents, and in the event of such agreement or stipulation, Mortgagor and
all such other Persons shall continue to be liable under the Loan Documents, as
amended by such agreement or stipulation, unless expressly released and
discharged in writing by Mortgagee.
38. Corporate Authority. Mortgagor represents and warrants that it has
taken all necessary and proper action, which has not been modified or revoked,
to enter into this Mortgage and that the execution and delivery of this Mortgage
by the individual who has signed this Mortgage on behalf of Mortgagor has been
duly authorized and is sufficient action to constitute this Mortgage as a valid,
binding and enforceable obligation of Mortgagor subject (a) as to enforcement of
remedies, to applicable bankruptcy, insolvency, reorganization, moratorium and
other similar laws affecting the enforcement of creditors' rights generally,
from time to time in effect and (b) to general principles of equity.
39. Notices. All notices, demands, consents, approvals, requests and other
communications provided for herein shall be in the form and manner as set forth
in Section 11.01 of the Credit Agreement.
40. Severability. If any provision of this Mortgage or the application
thereof to any Person or circumstance shall to any extent be invalid or
unenforceable, the remainder of this Mortgage, or the application of such
provision to Persons or circumstances other than those as to which it is invalid
or unenforceable, shall not be affected thereby, and each provision of this
Mortgage shall be valid and enforceable to the fullest extent permitted by law.
41. No Usury. If any payments required to be made under the Loan Documents
shall be in excess of the amounts allowed by law, the amounts of such payments
shall be reduced to the maximum amounts allowed by law and any interest paid
under or in connection with any of the Loan Documents in excess of the maximum
interest rate permitted by law shall be deemed payment in reduction of the
principal amount of the Indebtedness.
42. No Representation by Mortgagee. By accepting or approving anything
required to be observed, performed or fulfilled, or to be given to Mortgagee
pursuant to this Mortgage, including, without limitation, any officer's
certificate, balance sheet, statement of profit and loss or other financial
statement, survey, appraisal, plans for alterations or restoration, or insurance
policy, Mortgagee shall not be deemed to have warranted or represented the
sufficiency, legality, effectiveness or legal effect of the same, or of any
term, provision or condition thereof, and such acceptance or approval thereof
shall not be or constitute any warranty or representation with respect thereto
by Mortgagee.
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43. Indemnification Against Liabilities. Mortgagor will protect, indemnify,
hold harmless and defend Mortgagee and its officers, directors, agents,
servants, and employees from and against any and all liabilities, obligations,
claims, damages, penalties, causes of action, costs and expenses (including,
without limitation, reasonable attorneys' fees and expenses, to the extent
permitted by law) imposed upon or incurred by or asserted against Mortgagee by
reason of (a) ownership of a mortgagee's interest in the Property, (b) any
accident or injury to or death of Persons or loss of or damage to or loss of the
use of property occurring on or about the Premises or any part thereof or the
adjoining sidewalks, curbs, vaults and vault spaces, if any, streets, alleys or
ways, (c) any use, nonuse or condition of the Premises or any part thereof or
the adjoining sidewalks, curbs, vaults and vault spaces, if any, streets, alleys
or ways, (d) any failure on the part of Mortgagor to perform or comply with any
of the terms of this Mortgage, (e) performance of any labor or services or the
furnishing of any materials or other property in respect of the Premises or any
part thereof made or suffered to be made by or on behalf of Mortgagor, (f) any
negligence or tortious act on the part of Mortgagor or any of its respective
agents, contractors, lessees, licensees or invitees, or (g) any work in
connection with any alterations, changes, new construction or demolition of the
Premises; provided, however, that such indemnity shall not, as to Mortgagee and
its officers, directors, agents, servants and employees, apply to any such
liabilities, obligations, claims, damages, penalties, causes of action, costs or
expenses to the extent they resulted from the gross negligence or willful
misconduct of Mortgagee or any such Person. All amounts payable to Mortgagee
under this Paragraph 43 shall be payable on demand and shall be deemed
indebtedness secured by this Mortgage and any such amounts which are not paid
within 10 days after demand therefor by Mortgagee shall bear interest at the
Applicable Rate from the date of such demand. In case any action, suit or
proceeding is brought against Mortgagor or Mortgagee by reason of any such
occurrence, Mortgagor, upon request of Mortgagee, will, at Mortgagor's expense,
resist and defend such action, suit or proceeding or cause the same to be
resisted or defended by counsel designated by Mortgagor and approved by
Mortgagee (which approval shall not be unreasonably withheld or delayed).
44. No Oral Changes. This Mortgage and its provisions cannot be changed,
waived, discharged or terminated orally but only by an agreement in writing,
signed by the party against whom enforcement of the change, waiver, discharge or
termination is sought.
45. Governing Law. This Mortgage and the rights of the parties hereunder
shall be governed by the laws of the state in which the Land is located without
giving effect to conflict of laws principles.
46. Construction. This Mortgage shall be construed without regard to any
presumption or rule requiring construction against the party causing such
instrument or any portion thereof to be drafted.
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47. Gender. All terms and words used in this Mortgage, regardless of the
number or gender in which they are used, shall be deemed to include any other
number and any other gender as the context may require.
48. Captions. The headings in this Mortgage and the index at the beginning
of this Mortgage are for convenience of reference only and shall not limit or
otherwise affect any of the terms hereof.
49. After Acquired Property. All property of every kind which is hereafter
acquired by Mortgagor which, by the terms hereof, is required or intended to be
subjected to the lien of this Mortgage shall, immediately upon the acquisition
thereof by Mortgagor, and without any further mortgage, conveyance, assignment
or transfer, become subject to the lien of this Mortgage.
50. Further Assurances. Mortgagor shall execute, acknowledge and deliver to
Mortgagee any documents and instruments which Mortgagee may reasonably request
from time to time for the better assuring, conveying, assigning, transferring,
confirming or perfecting of Mortgagee's security and rights under this Mortgage,
in form and substance satisfactory to Mortgagee.
51. Certain Definitions. The following terms shall, for all purposes of
this Mortgage, have the respective meanings herein specified unless the context
otherwise requires:
(a) The "Applicable Rate" shall mean the highest rate then payable on
any of the Obligations; and
(b) "Lease" shall mean every lease or occupancy agreement for the use
or hire of all or any portion of the Premises which shall be in effect at
the date hereof, or which shall hereafter be entered into by or on behalf
of Mortgagor.
52. Successors and Assigns. The terms, covenants and provisions of this
Mortgage shall apply to, be binding upon and inure to the benefit of Mortgagee
and Mortgagor and their respective successors and assigns. All grants,
covenants, terms, provisions and conditions contained herein shall run with the
Land.
53. Environmental Laws. Mortgagor shall comply with or cause to be complied
with all Environmental Laws to the extent and in the same manner set forth in
Section 6.13 of the Credit Agreement.
54. Credit Agreement. In the event of any inconsistency or conflict between
the terms and provisions of the Credit Agreement and the terms and provisions of
this Mortgage, the terms and provisions of the Credit Agreement shall control.
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IN WITNESS WHEREOF, Mortgagor has hereunto set its hand and seal as of the
day and year first above written.
MORTGAGOR:
MASKA U.S., INC.
By: _____________________________
Name:
Title:
ATTEST:
By: _____________________________
Name:
Title: _____________ Secretary
[Corporate Seal]
WITNESS:
By: _____________________________
This instrument prepared by Eric J. Kuhn, Kaye, Scholer, Fierman, Hays &
Handler, LLP, 425 Park Avenue, New York, New York 10022.
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EXECUTION COPY
INTER-CREDITOR AGREEMENT
THIS INTER-CREDITOR AGREEMENT, dated as of April 1, 1997 (this
"Agreement"), is by and among The Chase Manhattan Bank, a New York banking
corporation ("Chase New York"), for itself and as agent for the other lenders
named in Schedules 2.01(a) and (b) to the U.S. Credit Agreement referred to
below (the "Lenders"), The Chase Manhattan Bank of Canada, one of the chartered
banks of Canada ("Chase Canada" and together with Chase New York collectively
referred to as the "Senior Lienholder") as lender under the Canadian Credit
Agreement referred to below, and The Bank of New York, a banking corporation
organized under the laws of the State of New York, as Trustee for the benefit of
the Holders of Senior Secured Notes (the "Junior Lienholder") under the
Indenture referred to below (as such terms are defined therein) and as Security
Holder for the benefit of the Holders of Senior Secured Notes. All capitalized
terms used herein but not otherwise defined shall have the meanings set forth in
the Credit Agreement or Indenture, as applicable.
WHEREAS, Chase New York has entered into a Credit Agreement, dated as of
April 1, 1997 (as amended, supplemented, restated or otherwise modified from
time to time to the extent permitted by the Indenture, the "U.S. Credit
Agreement"), with the Loan Parties on its own behalf and as agent pursuant to
which the Lenders have agreed severally and not jointly to advance funds to the
Borrowers for the purposes stated therein; and
WHEREAS, Chase Canada has entered into a Credit Agreement, dated as of
April 1, 1997 (as amended, supplemented, restated or otherwise modified from
time to time to the extent permitted by the Indenture, the "Canadian Credit
Agreement" and together with the U.S. Credit Agreement collectively referred to
as the "Credit Agreement"), with the Loan Parties pursuant to which Chase Canada
has agreed to advance funds to the Borrowers for the purposes stated therein;
and
WHEREAS, to secure all present and future obligations of the Borrowers
under or in connection with the Credit Agreement and the other Loan Documents,
pursuant to the Security Documents the Borrowers and the other Loan Parties have
granted and hereafter may grant to the Senior Lienholder Liens in substantially
all of the Grantors' assets, real and personal, tangible and intangible, now
existing or hereafter arising or acquired and the proceeds thereof as more
particularly set forth in the Security Documents (the "Collateral"); and
WHEREAS, the Issuer has authorized the creation of an issue of its Senior
Secured Notes in an aggregate original principal amount of $29,500,000; and
<PAGE>
WHEREAS, the Junior Lienholder has entered into a Senior Secured Note
Indenture, dated as of April 1, 1997 (as amended, supplemented, restated or
otherwise modified from time to time, to the extent permitted by the Credit
Agreement, the "Indenture") with SLM International, Inc., as Issuer (the
"Issuer") and each of its direct and indirect wholly-owned subsidiaries, as
guarantors; and
WHEREAS, to secure all present and future obligations of the Issuer under
or in connection with the Indenture and the Senior Secured Notes, the Grantors
have granted and hereafter may grant to the Junior Lienholder Liens in the
Collateral; and
WHEREAS, the Senior Lienholder and the Junior Lienholder wish to confirm
the relative priority of their respective Liens in the Collateral and establish
certain other matters relating thereto.
NOW, THEREFORE, the Senior Lienholder and the Junior Lienholder hereby
agree as follows:
1. The Senior Lienholder consents to the granting by each Loan Party to the
Junior Lienholder of a junior Lien in the Collateral as security for the payment
of all obligations of the Issuer or any guarantor under the Indenture, the
Collateral Documents or the Senior Secured Notes, including, without limitation,
interest and other fees as provided for in the Indenture and the Senior Secured
Notes.
2. The Lien of the Senior Lienholder in the Collateral shall be security
for the payment and performance of the Obligations, any renewals or other
extensions of Indebtedness under the Credit Agreement, any refundings or, to the
extent permitted by the Indenture, refinancings, thereof, and all interest that
would have accrued on the Obligations but for the commencement of a Proceeding
(as defined below) (collectively, the "Secured Obligations").
3. The Lien of the Senior Lienholder in the Collateral shall be deemed to
have a priority senior to any Lien of the Junior Lienholder in such Collateral
and all filings made by the Junior Lienholder to evidence its Liens on the
Collateral shall give notice of such priority. This relative priority of the
Senior Lienholder in respect of the Collateral shall be irrespective of the
time, order or method of attachment or perfection of security interests, or the
time or order of the filing of financing statements, or the giving of or failure
to give notice of purchase money security interests. The Junior Lienholder
further acknowledges that the indebtedness of the Borrowers to the Senior
Lienholder is revolving in nature and that the amount thereof which may be
outstanding at any time or from time to time may, subject to the terms of the
Credit Agreement and Indenture, be increased or reduced and subsequently
re-borrowed. Subject to the terms of the Credit Agreement and the Indenture, the
terms of the Indebtedness of the Borrowers to the Senior Lienholder may be
modified, extended or amended from time
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to time, and the amount thereof may be increased or reduced, all without notice
to or consent by the Junior Lienholder and without affecting the provisions of
this Agreement.
4. For the limited purpose of perfecting or publishing the Lien of the
Junior Lienholder in those types or items of Collateral in which a Lien may only
be perfected or published by possession of such types or items of Collateral,
the Junior Lienholder hereby appoints the Senior Lienholder as its agent (and/or
the agreed third person for the purposes of the Civil Code of Quebec) for the
limited purpose of possessing on its behalf (a) the Collateral identified on
Schedule A hereto, and (b) such other Collateral that may come into the
possession of the Senior Lienholder from time to time, and the Senior Lienholder
agrees to act as the Junior Lienholder's agent (and/or the agreed third person
for the purposes of the Civil Code of Quebec) for such limited purpose of
perfecting or publishing the Junior Lienholder's Lien by possession through an
agent (and/or the agreed third person for the purposes of the Civil Code of
Quebec), provided that the Senior Lienholder shall not incur any liability to
the Junior Lienholder by virtue of acting as the Junior Lienholder's agent
(and/or the agreed third person for the purposes of the Civil Code of Quebec)
hereunder in the absence of gross negligence or willful misconduct by the Senior
Lienholder. Except as contemplated in paragraphs 9 and 10 of this Agreement or
Section 1103 of the Indenture, the Senior Lienholder shall not relinquish
possession of all or any portion of the Collateral in its possession without the
prior written consent of the Junior Lienholder. If such written consent is not
provided by the Junior Lienholder within ten (10) Business Days after receipt of
a written notice requesting same, the Senior Lienholder shall deliver possession
of such Collateral to the Junior Lienholder. If the Junior Lienholder refuses to
take possession of such Collateral, then the Senior Lienholder may return such
Collateral to the Grantor without incurring liability to the Junior Lienholder
unless there is an express written agreement to the contrary in effect between
the Senior Lienholder and the Junior Lienholder. In that connection and for the
purposes of Section 2705 of the Civil Code of Quebec, the Senior Lienholder
hereby acknowledges receipt of a copy of the Share Pledge Agreement dated as of
April 1, 1997 by and among The Bank of New York and the Grantors named therein
and has agreed to act as the agreed third person to hold the Collateral so
pledged in favour of the Junior Lienholder.
5. (a) Until such time as all Secured Obligations to the Senior Lienholder
shall have been paid in full, the Junior Lienholder agrees that it will not
commence or continue any default, foreclosure or liquidation proceedings the
primary purpose of which is to exercise any rights or remedies (judicially or
nonjudicially) in respect of any of the Collateral, including, without
limitation, the Junior Lienholder's rights with respect to real property leases
pursuant to any Landlord Agreements. Without limitation of the foregoing, the
Junior Lienholder shall not send notification of assignment or payment to
account debtors of the Receivables Grantors or do any other act which would
interfere with or otherwise adversely affect the Senior Lienholder's Lien
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in the Collateral, until such time as all Secured Obligations to the Senior
Lienholder shall have been paid in full.
(b) In addition to the limitation set forth in paragraph 5(a) above, upon
(i) the occurrence and continuance of an Event of Default under the
Indenture, and
(ii) the delivery of written notice to the Senior Lienholder by the
Junior Lienholder (a "Notice of Intention to Act") of the determination to
take any action or exercise any rights, remedies or powers under the terms
of the Indenture, the Senior Secured Notes or the Collateral Documents, or
to exercise any other right or remedy at law or in equity that the Junior
Lienholder might otherwise possess to collect any amount due and payable
under the Indenture, the Senior Secured Notes or the Collateral Documents
including, but not limited to, the acceleration of the maturity of the
Senior Secured Notes, the filing of, or the joining in the filing of, any
petition in bankruptcy or the taking advantage of any other insolvency law
of any jurisdiction (but specifically excluding the exercise of any right
or remedy whose primary purpose is to require the Company or the Guarantors
to comply with the covenants and provisions of the Indenture, the Senior
Secured Notes or the Collateral Documents, other than with respect to the
payment of monies) (any such action, a "Junior Lienholder Act"),
the Senior Lienholder may, within 15 days of the receipt of the Notice of
Intention to Act, deliver to Junior Lienholder a Standstill Notice (as
hereinafter defined) invoking a Standstill Period (as hereinafter defined). For
purposes of this Agreement, the term "Standstill Notice" shall mean a written
notice executed by the Senior Lienholder and delivered to the Junior Lienholder
notifying the Junior Lienholder of the Senior Lienholder's invocation of the
Standstill Period. For purposes of this Agreement, the term "Standstill Period"
shall mean a 180-day period commencing on the date on which the Senior
Lienholder receives or, pursuant to paragraph 18 hereof, is deemed to have
received a Notice of Intention to Act from the Junior Lienholder, during which
time the Junior Lienholder shall refrain from taking any Junior Lienholder Act,
provided however, that notwithstanding the issuance of a Standstill Notice, the
Standstill Period shall automatically terminate upon the acceleration of the
maturity of the Obligations by the Senior Lienholder (other than a drawing on
the Canadian Letter of Credit). The Junior Lienholder shall refrain from taking
any Junior Lienholder Act during the period between the issuance to the Senior
Lienholder of the Notice of Intention to Act and the date by which the Senior
Lienholder is required to deliver a Standstill Notice as herein provided
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<PAGE>
and if such Standstill Notice is delivered, the Junior Lienholder shall further
refrain from taking any Junior Lienholder Act during the Standstill Period. The
Senior Lienholder's right to issue a Standstill Notice pursuant to this
paragraph 5(b) shall be limited to the issuance of one Standstill Notice during
any 365 day period. The Senior Lienholder's rights to issue any Standstill
Notice pursuant to this paragraph 5(b) shall terminate upon payment in full of
all Senior Obligations outstanding pursuant to the Credit Agreement and the
other Loan Documents executed and delivered contemporaneously herewith (as the
same may be amended, supplemented, restated, modified or extended from time to
time in accordance with the terms thereof and the Indenture), it being expressly
understood that the right to issue a Standstill Notice pursuant to this
paragraph 5(b) shall not thereafter continue for the benefit of any Person who
may at any time renew, refund, replace or refinance such Senior Obligations.
6. The Junior Lienholder waives any claim it might have at any time against
the Senior Lienholder arising out of any and all actions which the Senior
Lienholder takes or omits to take with respect to (a) the Loan Documents, (b)
collection of the Secured Obligations, (c) the valuation, use or protection of
the Collateral, or (d) the perfection or enforcement of the Senior Lienholder's
Lien on the Collateral, so long as such actions or failure to act do not
constitute gross negligence or willful misconduct or constitute a breach of this
Agreement.
7. In the event any payment from or distribution of Collateral of any kind,
or any collections or other proceeds thereof whether in cash, property or
securities, is made to the Senior Lienholder or the Junior Lienholder as secured
creditors of any Loan Party in any Proceeding (as defined below), the Senior
Lienholder shall be entitled to receive all such payments and distributions for
application to the Secured Obligations in accordance with the terms of the Loan
Documents until the Secured Obligations have been paid in full, and, upon any
such Proceeding, any such payments from or distributions of Collateral to which
the Junior Lienholder would be entitled except for the provisions hereof, shall
be paid by such Loan Party or by any receiver, trustee in bankruptcy,
liquidating trustee, agent or other person making such payment or distribution
directly to the Senior Lienholder to the extent necessary to pay all Secured
Obligations in full. The Senior Lienholder and the Junior Lienholder shall
consent to any action or proceeding by the other seeking "adequate protection"
or similar relief under the United States Bankruptcy Code or the Canadian
Bankruptcy and Insolvency Act or Companies Creditors Arrangement Act with
respect to the Collateral. "Proceeding" shall mean any dissolution or winding up
or total or partial liquidation or reorganization of such Loan Party whether
voluntary or involuntary, or in bankruptcy, insolvency, receivership or other
similar proceedings or upon an assignment for the benefit of creditors, or any
other marshaling of assets and liabilities.
8. In the event any payment from or distribution of Collateral of any kind,
or any collections or other proceeds thereof whether in cash, property or
securities, shall be received by the Junior Lienholder (other than as permitted
under the
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Credit Agreement or upon a release of the Senior Lienholder's Lien in accordance
with paragraph 10 of this Agreement) in contravention of this Agreement, such
Collateral and proceeds shall be held in trust for the benefit of, and promptly
remitted to, the Senior Lienholder, so long as there shall be any outstanding
Secured Obligations.
9. Upon the request of the Senior Lienholder, the Junior Lienholder shall
immediately release or otherwise terminate its Lien upon the Collateral or any
part thereof (and if such Collateral consists of all of the stock of a Loan
Party, then also the Guarantee of such Loan Party held by the Junior
Lienholder), to the extent that such Collateral or any part thereof is sold or
otherwise disposed of in connection with the satisfaction, partial or in full,
of the Secured Obligations, by the Senior Lienholder in accordance with the
terms of the Credit Agreement and the Indenture, and the Junior Lienholder will
immediately execute such release documents as the Senior Lienholder may request
in connection therewith.
10. If a Loan Party sells a portion of the Collateral and such sale is
permitted by the terms of the Credit Agreement or the Senior Lienholder agrees
to release its Lien thereon, the Junior Lienholder shall thereupon execute at
the request of such Loan Party the termination statements or other Lien releases
reasonably necessary to release its Lien upon such Collateral. Until such time
as all Secured Obligations have been paid in full, all proceeds of any such sale
of Collateral shall be paid to the Senior Lienholder in accordance with the
provisions of the Loan Documents for application to the Secured Obligations;
provided, however, if the Lenders waive the application of the proceeds in whole
or in part of any such sale or other disposition of Collateral to permanently
reduce the Total Commitment under the U.S. Credit Agreement or the Revolving
Credit Commitment under the Canadian Credit Agreement, then such portion thereof
not so applied shall be paid to the Junior Lienholder for distribution in
accordance with the provisions of the Indenture. After all the Secured
Obligations have been paid in full, any proceeds of the Collateral shall be paid
to the Junior Lienholder for distribution in accordance with the provisions of
the Indenture, and any remaining proceeds of the Collateral shall be paid to the
Loan Parties, as applicable, or as otherwise required by applicable law.
11. Notwithstanding any endorsements appearing on any insurance policy that
insures the Collateral or any part thereof, until such time as the Secured
Obligations shall have been paid in full, the Junior Lienholder agrees that with
respect to each such insurance policy, the Senior Lienholder shall have the sole
and exclusive right to effect settlement under each such policy in respect of
any loss of or casualty to the Collateral and that all proceeds of such policy
in respect of any such loss of or casualty to the Collateral shall either be
utilized to restore or rebuild Collateral as provided for in the Loan Documents
or, until such time as all Secured Obligations have been paid in full, be paid
exclusively to the Senior Lienholder in accordance with the provisions of the
Loan Documents for application to the Secured Obligations.
6
<PAGE>
12. In connection with the occurrence and continuance of an Event of
Default as defined under the Credit Agreement or any other Loan Document or the
Indenture, each of the Senior Lienholder and the Junior Lienholder upon becoming
aware thereof shall send to the other notice of such default and a copy of any
declaration of default, declaration of acceleration or other similar notice sent
by such Lienholder to any Loan Party. The Senior Lienholder shall also send the
Junior Lienholder (a) a copy of any notification relating to the public or
private sale of the Collateral sent to any Loan Party including, without
limitation, any notice sent pursuant to Section 9-504 of the Uniform Commercial
Code or similar provisions of the Personal Property Security Law or any notice
of the exercise of a hypothecary right served to any Loan Party pursuant to the
provisions of the Civil Code of Quebec and (b) a notice upon payment in full of
the Secured Obligations.
13. In the event the Senior Lienholder shall commence any action to
foreclose upon, realize upon, take physical possession of or otherwise effect
collection (each a "Foreclosure") or sell, transfer or otherwise dispose of
(each a "Sale"), any Collateral, all costs, expenses and fees incurred in
connection with the Foreclosure and Sale of the Collateral, including, without
limitation, all amounts owed under license agreements entered into with respect
to the Collateral (the "Costs"), shall be the sole responsibility of, and shall
be paid by, the party hereto receiving the proceeds of such Foreclosure or Sale.
In the event both parties hereto have received proceeds of such Foreclosure or
Sale, each party hereto shall be responsible for the payment of its Pro Rata
Share of the Costs. Solely for the purposes of the immediately preceding
sentence, each party's Pro Rata Share shall mean that percentage of the Costs
that bears the same relation to the aggregate costs as the amount of proceeds of
Foreclosure and Sale received by such party bears to the aggregate proceeds of
Foreclosure and Sale.
14. In the event of commencement of enforcement, foreclosure or other
exercise of remedies by the Senior Lienholder, the Junior Lienholder shall
cooperate with the Senior Lienholder in the exercise of its rights and remedies.
At any time and from time to time, the Junior Lienholder shall take any further
action and execute at the request of the Senior Lienholder such additional
documents and instruments (in recordable form, if requested), at the expense of
the Senior Lienholder, as the Senior Lienholder may reasonably request to
effectuate the terms of and priorities contemplated by this Agreement.
15. If the Junior Lienholder shall resign or be removed as Trustee under
the Indenture at any time, the Junior Lienholder shall notify the Senior
Lienholder thereof and shall advise any successor Trustee of this Agreement. On
or prior to the date of appointment of the successor Trustee, the Junior
Lienholder shall obtain an undertaking from such successor Trustee to be bound
hereby in form and substance reasonably satisfactory to the Senior Lienholder.
7
<PAGE>
16. In the event of any conflict or inconsistency between the terms of this
Agreement, any other Loan Document, the Indenture or the Collateral Documents,
this Agreement shall govern as between the Senior Lienholder and the Junior
Lienholder.
17. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, and no other person
or persons (including, without limitation, any Loan Party) shall have any right,
benefit, priority or interest under, or because of the existence of, this
Agreement.
18. All notices and written communications provided for in this Agreement
shall be given in writing and sent by overnight delivery service (with charges
prepaid) or by facsimile transmission with the original being sent by overnight
delivery service (with charges prepaid) by the next succeeding Business Day, in
each case addressed to the party to be notified as follows, or to such other
address as a party may designate as to itself by like notice:
If to the Senior Lienholder: c/o The Chase Manhattan Bank
633 Third Avenue, 7th Floor
Asset Based Lending
New York, New York 10017
Attention: Credit Deputy
Fax No.: (212) 622-5271
with copies to: Kaye, Scholer, Fierman,
Hays & Handler, LLP
425 Park Avenue
New York, New York 10022
Attention: Jeffrey M. Epstein, Esq.
Fax No.: (212) 836-6475
Fraser & Beatty
1 First Canadian Place
100 King Street W
Toronto, Canada M5X 1B2
Attention: Peter E. Murphy, Esq.
Fax No.: (416) 863-4592
8
<PAGE>
If to the Junior Lienholder: The Bank of New York
101 Barclay Street
New York, New York
Attention: Corporate Trust Trustee
Administration
Fax No.: 212-815-5915
with a copy to: Emmit, Marvin & Martin
120 Broadway
New York, NY 10286
Attention: Corporate Group
Fax No.: (212) 238-3100
19. This Agreement may not be amended except by a writing signed by the
parties hereto.
20. This Agreement may be executed in any number of counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same instrument. This Agreement shall
become effective upon the execution of a counterpart hereof by each of the
parties hereto. Delivery of an executed counterpart of a signature page to this
Agreement and any amendments by telecopier shall be as effective as delivery of
a manually executed counterpart thereof.
21. This Agreement shall be governed by and interpreted in accordance with
the laws of the State of New York.
22. Nothing in this Agreement shall be construed to modify or relieve, in
any way, any Loan Party's obligation to perform its agreements under the Credit
Agreement or any other Loan Document or under the Indenture or the Senior
Secured Notes or the Collateral Documents.
23. This Agreement shall not affect the rights of the Senior Lienholder, on
the one hand, and the Junior Lienholder, on the other hand, relative to the
rights of any other creditors of the Loan Parties.
24. If any of the provisions or terms of this Agreement shall for any
reason be held to be invalid or unenforceable, such invalidity or
unenforceability shall not affect any of the other terms hereof, and this
Agreement shall be construed as if such unenforceable term had never been
contained herein.
25. The Junior Lienholder and Senior Lienholder each agrees that, in
addition to any other courts that may have jurisdiction under applicable laws,
any action or proceeding to enforce or arising out of or in connection with this
Agreement or any of
9
<PAGE>
the Collateral may be commenced in the Courts of the State of New York in New
York County, or in the United States District Court for the Southern District of
New York, and the Junior Lienholder and Senior Lienholder each consents and
submits in advance to such jurisdiction and agrees that venue will be proper in
such courts on any such matter. The choice of forum set forth in this paragraph
shall not be deemed to preclude the enforcement of any judgment obtained in such
forum, or the taking of any action under this Agreement to enforce the same, in
any appropriate jurisdiction.
26. The Junior Lienholder and Senior Lienholder each hereby waives
trial by jury, in any litigation in any court with respect to, in connection
with, or arising out of or in connection this Agreement or the Collateral or any
instrument or document delivered pursuant hereto, or any other claim or dispute
however arising, between the Senior Lienholder and the Junior Lienholder. The
Junior Lienholder and Senior Lienholder each confirms that the foregoing waivers
were negotiated and are informed and freely made.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their duly authorized officers on the day and year first above
written.
THE CHASE MANHATTAN BANK, THE BANK OF NEW YORK,
as Agent as Trustee
By: By:
----------------------------- -----------------------------
Title: Title:
THE CHASE MANHATTAN
BANK OF CANADA
By:
-----------------------------
Title:
11
<PAGE>
ACKNOWLEDGEMENT AND CONSENT OF LOAN PARTIES
Each of the undersigned hereby irrevocably acknowledges and consents to the
foregoing InterCreditor Agreement and more particularly that the Senior
Lienholder acts, for the purposes of the Civil Code of Quebec, as agreed third
person to hold types or items of Collateral referred to in Section 4 of this
Agreement. By executing this Agreement, each of the undersigned acknowledges and
consents to the provisions hereof as they relate to the relative rights of the
Senior Lienholder and the Junior Lienholder as among the Senior Lienholder and
the Junior Lienholder; provided, however, that nothing in this InterCreditor
Agreement shall amend, modify, change or supersede the respective terms of the
Credit Agreement, any other Loan Document, the Indenture, the Collateral
Documents or the Senior Secured Notes (or any other document to which any of the
undersigned may be a party) as between the Senior Lienholder and any of the
undersigned or as between the Junior Lienholder and any of the undersigned and
in the event of any conflict or inconsistency between the terms of this
Agreement and the Credit Agreement or any other Loan Document, the Credit
Agreement or such other Loan Document, as the case may be, shall govern as
between the Senior Lienholder and the undersigned and in the event of any
conflict or inconsistency between the terms of this Agreement and the Indenture,
the Collateral Documents or the Senior Secured Notes, the Indenture, the
Collateral Documents or the Senior Secured Notes, as the case may be, shall
govern as between the Junior Lienholder and the undersigned. The undersigned
further agree that the terms of this Agreement shall not give the undersigned
any substantive rights vis-a-vis the Senior Lienholder or the Junior Lienholder.
SLM INTERNATIONAL, INC.
By:
---------------------------------
Name:
Title:
MASKA U.S., INC.
By:
---------------------------------
Name:
Title:
1
<PAGE>
#1 APPAREL, INC.
By:
---------------------------------
Name:
Title:
SPORT MASKA INC.
By:
---------------------------------
Name:
Title:
SLM TRADEMARK ACQUISITION
CANADA CORPORATION
By:
---------------------------------
Name:
Title:
SLM TRADEMARK ACQUISITION CORP.
By:
---------------------------------
Name:
Title:
#1 APPAREL CANADA INC.
By:
---------------------------------
Name:
Title:
2
(FACE OF SECURITY)
THIS SECURITY WAS ISSUED WITH ORIGINAL ISSUE DISCOUNT ("OID"). HOLDERS
MAY REQUEST THE RELEVANT INFORMATION TO FACILITATE THE
REPORTING OF OID BY CONTACTING THE COMPANY AT SLM INTERNATIONAL,
INC., 77 ROUTE 25, PIERSON INDUSTRIAL PARK, BRADFORD, VERMONT 05033,
ATTENTION: RUSSELL J. DAVID, VICE PRESIDENT-FINANCE.
THIS SECURITY AND THE PAYMENT HEREOF ARE SUBJECT TO AND GOVERNED BY THE
TERMS OF THAT CERTAIN SENIOR SECURED NOTE INDENTURE, DATED AS OF APRIL 1,
1997, AMONG SLM INTERNATIONAL, INC., THE GUARANTORS
NAMED THEREIN AND THE BANK OF NEW YORK, AS TRUSTEE. THE PROVISIONS
OF SUCH SENIOR SECURED NOTE INDENTURE ARE INCORPORATED
HEREIN BY THIS REFERENCE AND MADE A PART HEREOF. RIGHTS WITH
RESPECT TO, AMONG OTHER THINGS, PRIORITY OF PAYMENT AND
COLLATERAL WITH RESPECT TO THIS SECURITY ARE SUBJECT TO AND GOVERNED BY
THE TERMS OF AN INTERCREDITOR AGREEMENT, DATED AS OF APRIL 1, 1997,
BY AND AMONG THE CHASE MANHATTAN BANK, AS AGENT, THE CHASE
MANHATTAN BANK OF CANADA AND THE TRUSTEE
SLM INTERNATIONAL, INC.
SENIOR SECURED NOTE
DUE APRIL 1, 2004
No. ______ $_________
SLM INTERNATIONAL, INC., a Delaware corporation (herein called the
"Company," which term includes any successor under the Indenture hereinafter
referred to), for value received, hereby promises to pay
to______________________________________________________________________________
________________________________________________________________________________
or registered assigns, the principal sum of ___________________
_______________________________________________________________ Dollars when and
as due under the terms of this Security and the Indenture, in the manner
referred to below, and to pay interest prior to default thereon from the later
of the date hereof or the most recent date through which interest has been paid
hereon at an initial Interest Rate (prior to default) equal to 14% per annum,
payable in cash or, at the Company's option, up to 4% per annum in Secondary
Securities (as hereinafter defined); provided that, with respect to the payment
due on the first Interest Payment Date, the Company may, at its option, pay all
interest due on that date in Secondary Securities. Notwithstanding anything to
the contrary in the preceding
NY1-463085 EXECUTION
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<PAGE>
sentence, so long as no Potential Event of Default or Event of Default shall
have occurred and be continuing on the date the Interest Rate is to reduce
pursuant to the terms hereof:
(a) the Interest Rate (prior to default) on the Securities shall be
permanently reduced to 12% per annum, payable in cash or, at the Company's
option, up to 2% per annum in Secondary Securities, upon the delivery by
the Company to the Trustee of (i) financial statements demonstrating that
Consolidated EBITDA for the immediately preceding four consecutive fiscal
quarters of the Company was not less than $18,000,000 and (ii) an Officers
Certificate certifying as to the foregoing and as to the effective date of
such reduction, such reduction in the Interest Rate (prior to default) on
the Securities to be effective as of the first day of the next succeeding
calendar month that commences at least thirty days after the date on which
such financial statements have been (1) delivered to the Trustee and (2)
filed with the Commission; and
(b) the Interest Rate (prior to default) on the Securities shall be
permanently reduced to 10% per annum payable in cash, upon the delivery by
the Company to the Trustee of (i) financial statements demonstrating that
Consolidated EBITDA for the immediately preceding four consecutive fiscal
quarters of the Company was not less than $25,000,000 and (ii) an Officers
Certificate certifying as to the foregoing and as to the effective date of
such reduction, such reduction in the Interest Rate (prior to default) on
the Securities to be effective as of the first day of the next succeeding
calendar month that commences at least thirty days after the date on which
such financial statements have been (1) delivered to the Trustee and (2)
filed with the Commission.
If a Potential Event of Default or Event of Default has occurred and is
continuing on the date any reduction in the Interest Rate would otherwise
become effective pursuant to the foregoing, such Interest Rate reduction shall
not become effective until the first day of the next succeeding calendar month
after the date on which such Potential Event of Default or Event of Default has
been cured or waived in accordance with the provisions of the Indenture.
Upon the occurrence of any event which would result in a reduction of the
Interest Rate in accordance with the foregoing, the Trustee (at the expense of
the Company) shall give prompt written notice to all Holders (i) of such
occurrence, (ii) that, provided that there is no occurrence and continuance of a
Potential Event of Default or Event of Default on the date the Interest Rate is
to reduce pursuant to the foregoing, the Interest Rate will be reduced and (iii)
the effective date thereof. The Interest Rate in effect with respect to the
Securities is subject to increase as provided in Sections 503 and 515 of the
Indenture, any such increase to be paid solely in cash. Upon the occurrence and
during the continuance of any Payment Default, Bankruptcy Default or any default
pursuant to Section 501(c) of the Indenture, all interest accrued thereafter and
during the period in which the Payment Default, Bankruptcy Default or any
default pursuant to Section 501(c) of the Indenture has continued shall be
payable solely in cash, and no portion thereof may be paid in Secondary
Securities.
NY1-463085 EXECUTION
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<PAGE>
Each issuance of Secondary Securities in lieu of the payment of interest in cash
on the Securities shall be made pro rata with respect to the Outstanding
Securities; provided that the Company may at its option pay cash in lieu of
issuing Secondary Securities. Any such Secondary Securities shall be governed by
the Indenture and shall be identical in all respects to the Securities initially
issued (except, as the case may be, with respect to the issuance date and
principal amount). As used herein, "Secondary Securities" means an additional
Security with a principal amount equal to the accrued but unpaid interest, which
shall be governed by the Indenture and which shall be identical in all respects
to this Security (except, as the case may be, with respect to the issuance date
and aggregate principal amount).
The principal amount of the Securities will be due and payable in
semi-annual installments in accordance with the following schedule, provided
that the outstanding principal amount of Securities to be repaid pursuant hereto
on a Scheduled Principal Payment Date on or prior to October 1, 2003 shall be
reduced on a pro rata basis to the extent of any redemp tion of Securities made
prior to the applicable Scheduled Principal Payment Date:
Scheduled Outstanding Principal
Principal Payment Date to be Repaid
---------------------- ----------------------
October 1, 2001 $4,000,000
April 1, 2002 4,000,000
October 1, 2002 4,000,000
April 1, 2003 4,000,000
October 1, 2003 4,000,000
April 1, 2004 Balance of Unpaid Principal
Principal payments may be accelerated upon the occurrence and continuance of
certain events specified in Article 5 of the Indenture. The interest payable on
this Security on any Interest Payment Date will, as provided in the Indenture,
be paid to the Person in whose name this Security (or one or more Predecessor
Securities) is registered in the Security Register at the close of business on
the Regular Record Date for such interest, which shall be the thirtieth day
(whether or not a Business Day), as the case may be, immediately preceding such
Interest Payment Date. Any such interest not so punctually paid shall forthwith
cease to be payable to the Holder of this Security on such Regular Record Date,
and may be paid to the Person in whose name this Security (or one or more
Predecessor Securities) is registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given by the Trustee to Holders of Securities
not less than 10 days prior to such Special Record Date, or may be paid at any
time in any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon such notice
as may be required by such exchange, all as more fully provided in said
Indenture. Except as set forth above with respect to payment of interest in
Secondary Securities, payment of the principal of and interest on this Security
will be made by (i) wire transfer to a United States dollar account maintained
by the Holder of this Security at a Depository Institution in the United States
as reflected on the Security Register on
NY1-463085 EXECUTION
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<PAGE>
the close of business on the applicable Record Date or (ii) mailing checks for
such interest and principal to the Holder entitled thereto to such address as
shall appear on the Security Register on the close of business on the applicable
Record Date.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly executed by
the Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture, or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this Security to be duly
executed.
Dated: _______, 1997 SLM INTERNATIONAL, INC.
By: ____________________________
Name: _______________________
Title: ______________________
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Senior Secured Notes Due April 1, 2004 described in the
within-mentioned Indenture.
The Bank of New York, as Trustee
By: ____________________________
Name: _______________________
Title: ______________________
Dated: _______, 1997
(BACK OF SECURITY)
This Security is one of a duly authorized issue of Securities of the
Company designated as its Senior Secured Notes Due April 1, 2004 (herein called
the "Securities"), limited on the Closing Date (except as otherwise provided in
the Indenture referred to below) in aggregate original principal amount to
$29,500,000 (plus the aggregate amount of all
NY1-463085 EXECUTION
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<PAGE>
Secondary Securities issued), issued under an indenture (herein called the
"Indenture"), dated as of April 1, 1997, among the Company, the Guarantors
listed therein and The Bank of New York, a banking corporation organized and
existing under the laws of the State of New York, as trustee (herein called the
"Trustee," which term includes any successor Trustee under the Indenture), to
which Indenture and all indentures supplemental thereto reference is hereby made
for a statement of the respective rights, limitations of rights, duties,
obligations and immunities thereunder of the Company, the Trustee and the
Holders of the Securities, and of the terms upon which the Securities are, and
are to be, authenticated and delivered. The terms and conditions of the
Indenture are incorporated herein by this reference, and by acceptance hereof,
the Holder of this Security assents to all of the terms and conditions of the
Indenture. Certain capitalized terms used but not defined herein shall have the
meanings given to them in the Indenture.
The Securities are subject to voluntary redemption upon not less than 30
nor more than 60 days' notice to each Holder of Securities to be redeemed by
first-class mail, at any time, as a whole or in part, at the election of the
Company, except in respect of redemptions under Sections 423 or 425, at a
Redemption Price equal to 101% of the principal amount being redeemed, together
in the case of any such redemption with accrued interest thereon to the
Redemption Date, all as provided in the Indenture. In addition, upon the
occurrence of any Asset Sale, receipt of Net Insurance Proceeds or the issuance
of any new equity securities of the Company, the Company may, and in certain
circumstances shall be required to, offer to redeem Securities in accordance
with the terms of the Indenture.
In the case of any redemption of Securities, interest installments whose
Stated Maturity is on or prior to the Redemption Date will be payable to the
Holders of such Securities, or one or more Predecessor Securities, of record at
the close of business on the relevant Regular Record Date referred to on the
face hereof. Securities (or portions thereof) for whose redemption and payment
provision is made in accordance with the Indenture shall cease to bear interest
from and after the date fixed for redemption.
In the event of redemption of this Security in part only, a new Security or
Securities in an aggregate principal amount equal to and in exchange for the
unredeemed portion hereof shall be issued in the name of the Holder hereof upon
the cancellation hereof.
If an Event of Default shall occur and be continuing, the principal of all
the Securities may be declared and become, due and payable in the manner and
with the effect provided in the Indenture.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders under the Indenture at any time by the
Company and the Trustee with the consent of the Requisite Holders. The Indenture
also contains provisions permitting the Requisite Holders, on behalf of the
Holders of all of the Securities, to waive compliance by the Company with
certain provisions of the Indenture and certain past defaults under the
NY1-463085 EXECUTION
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<PAGE>
Indenture and the consequences of such defaults. Any such consent or waiver by
or on behalf of the Holder of this Security shall be conclusive and binding upon
such Holder and upon all future Holders of this Security and of any Security
issued upon the registration of transfer hereof or in exchange hereof or in lieu
hereof whether or not notation of such consent or waiver is made upon this
Security.
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Company on the
terms set forth in the Indenture, which is absolute and unconditional, to pay
the principal of and interest on this Security at the times (subject to any
grace periods), place, and rate, and in the manner, prescribed herein and in the
Indenture.
As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Security is registrable on the Security Register of
the Company, upon surrender of this Security for registration of transfer at the
office or agency of the Company maintained for such purpose, duly endorsed by,
or accompanied by a written instrument of transfer in form satisfactory to, the
Company and the Trustee duly executed by, the Holder hereof or its attorney duly
authorized in writing, and thereupon one or more new Securities, of authorized
denominations and for the same aggregate principal amount, will be issued to the
designated transferee or transferees.
Except in respect of Secondary Securities, the Securities are issuable only
in registered form without coupons in any denomination of $250,000 or more. As
provided in the Indenture and subject to certain limitations therein set forth,
the Securities are exchangeable for a like aggregate principal amount of
Securities of any authorized denomination, as requested by the Holder
surrendering the same.
No service charge shall be made for any registration of transfer or
exchange or redemption of Securities, but the Company may require payment of a
sum sufficient to cover all documentary, stamp or similar issue or transfer tax
or other governmental charge payable in connection therewith.
Prior to, and at the time of, due presentment of this Security for
registration of transfer, the Company, the Trustee, the Security Registrar and
any agent of the Company or the Trustee or the Security Registrar may treat the
Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security be overdue, and neither the Company, the
Trustee, the Security Registrar nor any agent of any of the foregoing shall be
affected by notice to the contrary.
Customary abbreviations may be used in the name of a Holder or an assignee,
such as: TEN COM (=tenants in common), TEN ENT (=tenants by the entireties), JT
TEN (=joint tenants with right of survivorship and not as tenants in common),
CUST (=Custodian), and U/G/M/A (=Uniform Gifts to Minors Act).
NY1-463085 EXECUTION
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<PAGE>
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture. Requests may be made to: SLM International,
Inc., 77 Route 25, Pierson Industrial Park, Bradford, Vermont 05033, Attention:
Russell J. David, Vice President-Finance.
[FORM OF NOTATION ON NOTE RELATING TO GUARANTY]
Sport Maska Inc., Maska U.S., Inc., #1 Apparel, Inc., #1 Apparel Canada
Inc., SLM Trademark Acquisition Corp. and SLM Trademark Acquisition Canada
Corporation (hereinafter referred to as the "Guarantors," which term includes
any successor or additional Person under the Indenture referred to in the
Security upon which this notation is endorsed) have unconditionally guaranteed
(i) the due and punctual payment of the principal of and interest on the
Securities, whether at stated maturity, by acceleration, declaration or
otherwise, the due and punctual payment of on the overdue principal of and
interest on the Securities, to the extent lawful, and the due and punctual
performance of all other obligations of the Company to the Holders or the
Trustee all in accordance with the terms set forth in Article Ten of the
Indenture, and (ii) in case of any extension of time of payment or renewal of
any Securities or any of such other obligations, that the same will promptly be
paid in full when due or performed in accordance with the terms of the extension
or renewal, whether at stated maturity, by acceleration or otherwise.
The obligations of each Guarantor to the Holders and the Trustee pursuant
to the Guaranties and the Indenture are expressly set forth in Article Ten of
the Indenture and reference is hereby made to such Indenture for the precise
terms of the Guaranties made therein.
The Guaranties shall not be valid or become obligatory for any purpose
until the certificate of authentication on the Securities upon which this
Guaranty is noted shall have been executed by the Trustee under the Indenture by
the manual signature of one of its authorized signatories.
NY1-463085 EXECUTION
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<PAGE>
SPORT MASKA INC.,
as Guarantor
By:____________________________
Name:
Title:
MASKA U.S., INC.,
as Guarantor
By:____________________________
Name:
Title:
#1 APPAREL, INC.,
as Guarantor
By:____________________________
Name:
Title:
#1 APPAREL CANADA INC.,
as Guarantor
By:____________________________
Name:
Title:
SLM TRADEMARK ACQUISITION CORP.,
as Guarantor
By:____________________________
Name:
Title:
SLM TRADEMARK ACQUISITION CANADA
CORPORATION,
as Guarantor
By:____________________________
Name:
Title:
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<PAGE>
ASSIGNMENT FORM
I/We assign and transfer this Security to:
-------------------------------------------------------
Insert assignee's soc. sec. or tax ID no.:_____________
-------------------------------------------------------
-------------------------------------------------------
-------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint____________________________________________
_______________________________________________________ agent to
transfer this Security on the books of the Company. The
agent may substitute another to act for him or her.
Dated: ______________ Signed:______________________________________
_______________________________________________________________________
(Sign exactly as your name appears on the other side of this Security)
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<PAGE>
NOTICE OF HOLDER TO ELECT REDEMPTION
If you want to elect to have this Security purchased or redeemed by the
Company pursuant to Sections 423 or 425 of the Indenture, check the box and
complete the following:
__ an election to require redemption is hereby being made.
$_________________ (principal amount of this Security with respect to which
an election to require redemption is being made)
Dated: ______________ Signed:_____________________________
______________________________________________________________________
(Sign exactly as your name appears on the other side of this Security)
NY1-463085 EXECUTION
A-10
EXECUTION
SECURITY AGREEMENT
SECURITY AGREEMENT dated as of April 1, 1997, among SLM International,
Inc., a Delaware corporation (the "Company"), #1 Apparel, Inc., a Delaware
corporation ("#1 Apparel"), Maska U.S., Inc., a Vermont corporation ("Maska
U.S."), SLM Trademark Acquisition Corp., a Delaware corporation ("Acquisition"),
Sport Maska Inc., a corporation under the New Brunswick Business Corporations
Act ("Maska"), #1 Apparel Canada Inc., a corporation under the New Brunswick
Business Corporations Act ("#1 Apparel Canada") SLM Trademark Acquisition Canada
Corporation/Corporation D'Acquisition De Marque De Commerce SLM Canada, a
corporation under the New Bruswick Business Corporations Act ("TACC"; TACC, the
Company, #1 Apparel, Maska U.S., Acquisition, Maska and #1 Apparel Canada are
each sometimes referred to herein as a "Grantor" and collectively as the
"Grantors") and The Bank of New York, a banking corporation organized and
existing under the laws of the State of New York, as trustee and collateral
agent (the "Trustee") for the Holders referred to in the Senior Secured Note
Indenture dated as of the date hereof, among the Company, as issuer, the
Guarantors named therein, as guarantors, and the Trustee (as supplemented or
modified from time to time in accordance with its terms, the "Indenture"). All
capitalized terms used herein and not defined herein shall have the meanings set
forth in the Indenture.
The Holders have agreed to acquire the Securities pursuant to, and subject
to the terms and conditions of, the Indenture. Pursuant to the terms of the
Indenture, the Grantors are required to execute and deliver a security agreement
in the form hereof to secure the following (collectively, the "Secured
Obligations"): all Obligations (such Obligations to include, without limitation,
the due and punctual payment and performance of (a) the principal of and
interest on the Securities (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, 11 U.S.C. ss.362(a), and interest that, but for the filing of a
petition in bankruptcy with respect to the Company, would accrue on such
obligations, whether or not a claim is allowed against the Company for such
interest in the related bankruptcy proceeding), when and as due, whether at
maturity, by acceleration, upon one or more dates set for redemption or
otherwise, (b) all obligations of the Grantors at any time and from time to time
under this Agreement and (c) all other obligations of the Grantors at any time
and from time to time under the Indenture and the Collateral Documents).
Accordingly, the Grantors and the Trustee hereby agree as follows:
1. Definitions of Terms Used Herein. As used herein, the following terms
shall have the following meanings:
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(a) "Accounts Receivable" shall mean (i) all of any Grantor's present and
future accounts, general intangibles, chattel paper and instruments, as such
terms are defined in the UCC as in effect in the State of New York ("NYUCC"),
(ii) all moneys, securities and other property and the proceeds thereof, now or
hereafter held or received by, or in transit to, the Trustee from or for any
Grantor, whether for safekeeping, pledge, custody, transmission, collection or
otherwise, and all of the deposits (general or special) of any Grantor,
balances, sums and credits with, and all of the Grantors' claims against the
Trustee at any time existing, (iii) all of any Grantor's right, title and
interest, and all of any Grantor's rights, remedies, security and Liens, in, to
and in respect of any accounts receivable, including, without limitation, rights
of stoppage in transit, replevin, repossession and reclamation and other rights
and remedies of an unpaid vendor, lienor or secured party, guaranties or other
contracts of suretyship with respect to accounts receivable, deposits or other
security for the obligation of any account debtor, and credit and other
insurance, (iv) all of any Grantor's right, title and interest in, to and in
respect of all goods relating to, or which by sale have resulted in, accounts
receivable, including, without limitation, all goods described in invoices or
other documents or instruments with respect to, or otherwise representing or
evidencing, any account receivable, and all returned, reclaimed or repossessed
goods and (v) all claims, demands, loans, and advances at any time existing, and
all interest accrued or that may hereafter accrue thereon, of any Grantor
against any other Grantor.
(b) "Collateral" shall mean all (i) Accounts Receivable, (ii) Documents,
(iii) Equipment, (iv) General Intangibles, (v) Inventory, (vi) Proceeds, (vii)
Investment Property, (viii) Contract Rights and (ix) Deposit Accounts, in each
case, wherever located and whether now owned or hereafter acquired or existing.
(c) "Contract Rights" shall mean all agreements to which any Grantor is a
party, as each such agreement may be amended, supplemented or otherwise modified
from time to time, including without limitation (i) all rights of such Grantor
to receive moneys due under or pursuant to the Contract Rights, (ii) all rights
of such Grantor to receive proceeds of any insurance, indemnity, warranty or
guaranty with respect to the Contract Rights, (iii) all claims of such Grantor
for damages arising out of any breach of or default under the Contract Rights,
and (iv) all rights of such Grantor to terminate, amend, supplement, modify or
exercise rights or options under the Contract Rights, to perform thereunder and
to compel performance and otherwise exercise all remedies thereunder, but
excluding those license agreements between each of Maska U.S., #1 Apparel and
Maska with National Hockey League Enterprises, Inc., its Canadian counterpart
and their affiliates.
(d) "Deposit Accounts" shall mean all deposit accounts of any Grantor,
including without limitation all deposit accounts maintained with Trustee.
NY1-497048 EXECUTION
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<PAGE>
(e) "Documents" shall mean all instruments, files, records, ledger sheets,
documents, computer programs, tapes, disks and related data processing software
covering or relating to any of the Collateral.
(f) "Equipment" shall mean all of any Grantor's machinery, equipment,
vehicles, furniture and fixtures and all attachments, accessories and equipment
now or hereafter owned or acquired in such Grantor's business or used in
connection therewith, and all substitutions and replacements thereof, wherever
located, whether now owned or hereafter acquired by any Grantor.
(g) "General Intangibles" shall mean all of any Grantor's present and
future general intangibles of every kind and description, including (without
limitation) patents, patent applications, trade names and trademarks and the
goodwill of the business symbolized thereby, national, provincial, Federal,
state and local tax refund claims of all kinds.
(h) "Inventory" shall mean all of any Grantor's right, title and interest
in and to raw materials, work in process, finished goods and other goods and all
other inventory (as such term is defined in the NYUCC), whether now owned or
hereafter acquired, all wrapping, packaging, advertising and shipping materials,
and any documents relating thereto and all negotiable documents of title
(including without limitation warehouse receipts, dock receipts and bills of
lading) issued by any Person covering any Inventory (any such negotiable
document of title being a "Negotiable Document of Title").
(i) "Investment Property" shall mean all of any Grantor's right, title and
interest in and to all present and future securities, security entitlements and
securities accounts.
(j) "Proceeds" shall mean any consideration received from the sale,
exchange, lease or other disposition of any asset or property which constitutes
Collateral, any other value received as a consequence of the possession of any
Collateral and any payment received from any insurer or other Person or entity
as a result of the destruction, loss, theft or other involuntary conversion of
whatever nature of any asset or property that constitutes Collateral, and shall
include, without limitation, all cash and negotiable instruments received or
held by the Trustee or any of the Holders pursuant to any lockbox or similar
arrangement relating to the payment of Accounts Receivable.
2. Security Interests. As security for the payment or performance, as the
case may be, of the Secured Obligations, the Grantors hereby create and grant to
the Trustee, its successors and its assigns, for its own benefit and for the pro
rata benefit of the Holders, their successors and their assigns, a security
interest in the Collateral (the "Security Interest"). Without limiting the
foregoing, to the extent permitted by law, the Trustee is hereby authorized to
file one or more financing statements, continuation statements or other
documents for the purpose of
NY1-497048 EXECUTION
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<PAGE>
perfecting, confirming, continuing, enforcing or protecting the Security
Interest, naming the Grantors as debtors and the Trustee as secured party,
without the signature of any Grantor.
The Grantors agree at all times to keep in all material respects accurate
and complete accounting records with respect to the Collateral, including, but
not limited to, a record of all payments and Proceeds received.
3. Further Assurances. Each Grantor jointly and severally agrees, at its
expense, to execute, acknowledge, deliver and cause to be duly filed all such
further instruments and documents, mark conspicuously each item of chattel paper
included in the Accounts Receivable, each agreement related thereto, and, at the
request of the Trustee, each of its records pertaining to the Collateral, with a
legend, in form and substance satisfactory to the Trustee indicating that such
Collateral is subject to the security interest granted hereby and take all such
other actions as the Trustee may from time to time reasonably request for the
assuring and preserving of the Security Interest and the rights and remedies
created hereby, including, without limitation, the payment of any reasonable
fees and taxes required in connection with the execution and delivery of this
Agreement, the granting of the Security Interest and the filing of any financing
statements or other documents in connection herewith. Subject to the
Intercreditor Agreement, if any amount payable under or in connection with any
of the Collateral shall be or become evidenced by any promissory note or other
instrument, such note or instrument shall be promptly pledged and delivered to
the Trustee, accompanied by a note power undated and executed in blank in form
and substance reasonably satisfactory to the Trustee. Each Grantor agrees to
notify the Trustee prior to any change in its corporate name or in the location
of its chief executive office, its chief place of business or the office where
it keeps its records relating to the Accounts Receivable or any chattel paper
evidencing the Accounts Receivable owned by it and the location of any other
Collateral. Each Grantor agrees promptly to notify the Trustee if any material
portion of the Collateral is damaged or destroyed.
4. Inspection and Verification. In accordance with Section 414 of the
Indenture, the Trustee and any authorized representatives designated by the
Trustee shall have the right, upon reasonable notice (which may be telephonic),
at all reasonable times, to inspect the Collateral owned by such Grantor, all
records related thereto (and to make extracts and copies from such records at
Trustee's expense where so provided in Section 414 of the Indenture), and the
premises upon which any such Collateral is located, to discuss such Grantor's
affairs with the officers as such Grantor shall deem appropriate and such
Grantor's independent public accountants, as applicable, and to verify under
reasonable procedures the validity, amount, quality, quantity, value, and
condition of or any other matter relating to, such Collateral, including, in the
case of Accounts Receivable or other Collateral in the possession of a third
Person, upon the occurrence and during the continuance of an Event of Default
contacting account debtors and third Persons possessing
such Collateral. The Trustee shall have the absolute right to share any
information it gains from such inspection or verification with any or all of the
Holders.
NY1-497048 EXECUTION
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<PAGE>
5. Taxes; Encumbrances. At its option, the Trustee may discharge past due
taxes, liens, security interests or other encumbrances at any time levied or
placed on the Collateral and not permitted under the Indenture, and may pay for
the maintenance and preservation of the Collateral to the extent a Grantor fails
to do so as required by the Indenture, and each Grantor agrees to reimburse the
Trustee on demand for any payment made or any expense incurred by it pursuant to
the foregoing authorization; provided, however, that the Trustee shall not
discharge such taxes, liens, security interests or other encumbrances or pay for
such maintenance or preservation prior to the occurrence and continuance of an
Event of Default unless the Trustee shall have requested the applicable Grantor
to discharge such taxes, liens, security interest or other encumbrances or pay
such amounts (to the extent required by this Agreement or the Indenture) and
such Grantor shall have failed or refused to do so within such period of time as
shall have been specified by the Trustee in such notice; and provided, further,
that nothing in this Section 5 shall be interpreted as excusing a Grantor from
the performance of any covenants or other promises with respect to taxes, liens,
security interests or other encumbrances and maintenances as set forth herein or
in the Indenture.
6. Assignment of Security Interest. If at any time a Grantor shall take and
perfect a security interest in any property of an account debtor or any other
Person to secure payment and performance of an Account Receivable, such Grantor
shall promptly assign such security interest to the Trustee. Such assignment
need not be filed of public record unless necessary to continue the perfected
status of the security interest against creditors of and transferees from the
account debtor or other Person granting the security interest.
7. Representations and Warranties. Each Grantor represents and warrants to
the Trustee, as to itself and the Collateral owned by it, that:
(a) Title and Authority. It has (i) rights in and good title to the
Collateral in which it is granting a security interest hereunder and (ii) the
requisite power and authority to grant to the Trustee the Security Interest in
such Collateral pursuant hereto and to execute, deliver and perform its
obligations in accordance with the terms of this Agreement, without the consent
or approval of any other Person other than any consent or approval which has
been obtained.
(b) Filing. Fully executed UCC financing statements containing a
description of the Collateral shall have been, or shall be delivered to the
Trustee in a form such that they can be, filed of record in each applicable
governmental, municipal or other office in every jurisdiction in which any
portion of the Collateral is located as may be necessary to publish notice of
and protect the validity of and to establish a valid, legal and perfected
security interest in favor of the Trustee, for the benefit of the Holders, in
respect of the Collateral in which a security interest may be perfected by
filing a UCC Financing Statement in the United States and its territories and
possessions or any other jurisdictions, and no further or subsequent filings,
NY1-497048 EXECUTION
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<PAGE>
refiling, recording, rerecording, registration or reregistration is necessary in
any such jurisdiction, except as provided under applicable law with respect to
the filing of UCC continuation statements.
(c) Validity of Security Interest. Except as otherwise permitted under the
Indenture, the Security Interest constitutes a valid, legal and, upon the filing
of applicable UCC financing statements in the applicable jurisdictions,
perfected first priority security interest in all of the Collateral in which a
security interest may be perfected by filing a UCC financing statement in the
United States for payment and performance of the Secured Obligations.
(d) Information Regarding Names. It has disclosed in writing to the Trustee
any trade names used to identify it in its business or in the ownership of its
properties.
(e) Absence of Other Liens. The Collateral is owned by it free and clear of
any Lien of any nature whatsoever, except as granted pursuant to this Agreement
and as permitted by the Indenture, and, except as provided by paragraph (b) of
this Section 7, no financing statement has been filed, under the UCC as in
effect in any state or otherwise, covering any Collateral except as permitted
under Section 412 of the Indenture.
(f) Reserved.
(g) Survival of Representations and Warranties. All representations and
warranties of the Grantors contained in this Agreement shall survive the
execution, delivery and performance of this Agreement until the termination of
this Agreement pursuant to Section 28.
8. Records of Accounts Receivable; Physical Count of Inventory; Etc..
(a) Each Grantor will provide the Trustee with such further schedules and/
or information respecting each Account Receivable as the Trustee may reasonably
require.
(b) Each Grantor shall conduct a physical count of its Inventory not less
than once each Fiscal Year and, upon the occurrence and during the continuance
of an Event of Default, at such intervals as the Trustee may reasonably request,
and promptly supply the Trustee 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.
(c) Each Grantor shall cause the Equipment to be maintained and preserved
in good repair, working order and condition, reasonable wear and tear excepted,
and shall from time to time make or cause to be made all needful and proper
repairs, replacements and other improvements in connection therewith.
(d) Each Grantor shall promptly upon the issuance and delivery to such
Grantor of any Negotiable Document of Title (other than Inventory which, in the
ordinary course of business, is in transit either (A) from a supplier to such
Grantor, (B) between the locations
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specified in Schedule I hereto, or (C) to customers of such Grantor), deliver
such Negotiable Document of Title to the Trustee.
(e) Each Grantor shall, at its own expense, maintain insurance with respect
to the Equipment and Inventory and other Collateral in accordance with the terms
of the Indenture. All insurance covering the Collateral shall include the
Trustee as additional insured and loss payee and shall further provide for at
least 30 days' prior written notice to the Trustee of the cancellation or
substantial modification thereof.
9. Supplemental Documentation. In connection with the execution and
delivery of this Agreement, each Grantor shall furnish or cause to be furnished
to the Trustee on or prior to the Closing Date a certificate, substantially in
the form of Annex A hereto, signed by an Authorized Officer of such Grantor
dated the Closing Date, certifying that, as of the date of such certificate, all
representations and warranties of such Grantor in Section 7 are true and correct
and that such Grantor is in compliance with all conditions, agreements and
covenants to be observed or performed hereunder.
10. Protection of Security. Each Grantor shall, at its own cost and
expense, take any and all actions reasonably necessary to defend title to the
Collateral owned by it against all Persons and to defend the Security Interest
of the Trustee in such Collateral, and the priority thereof, against any adverse
Lien of any nature whatsoever except for Liens permitted pursuant to Section 412
of the Indenture.
11. Continuing Obligations of the Grantors. Each Grantor shall remain
liable to observe and perform all the conditions and obligations to be observed
and performed by it under each contract, agreement, interest or obligation
relating to the Collateral, all in accordance with the terms and conditions
thereof, and shall indemnify and hold harmless the Trustee, and the Holders from
any and all such liabilities.
12. Use and Disposition of Collateral. Except as permitted by the
Indenture, no Grantor shall make or permit to be made any assignment, pledge or
hypothecation of the Collateral, or grant any security interest in the
Collateral except for the Security Interest. No Grantor shall make or permit to
be made any transfer of any Collateral, except Inventory in the ordinary course
of business, the transfer by the Company of its shares of #1 Apparel Canada to
Maska and as otherwise permitted by the Indenture, and each Grantor shall remain
at all times in possession of the Collateral owned by it other than transfers to
the Trustee pursuant to the provisions hereof and as otherwise provided
in this Agreement or the Indenture. The Security Interest granted herein shall
automatically terminate with respect to any item of Collateral that is permitted
to be sold, transferred, disposed or pledged pursuant to this Section 12.
Subject to Article Six of the Indenture, the Trustee shall promptly take such
actions, and execute such releases, termination statements or other instruments
as may be reasonably requested by the applicable Grantor to evidence the
termination and release contemplated hereby.
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13. Limitation on Modifications of Accounts Receivable. No Grantor will,
without the Trustee's prior written consent, grant any extension of the time of
payment of any of its Accounts Receivable, compromise, compound or settle the
same for less than the full amount thereof, release, in whole or in part, any
Person liable for the payment thereof, or allow any credit or discount
whatsoever thereon other than extensions, credits, discounts, compromises,
releases or settlements or releases granted or made in the ordinary course of
business.
14. Reserved.
15. Remedies upon Default. Subject to the Intercreditor Agreement, upon the
occurrence and during the continuance of an Event of Default, each Grantor
agrees to deliver each item of Collateral to the Trustee on demand, and it is
agreed that the Trustee shall have the right to take any or all of the following
actions at the same or different times: with or without legal process and with
or without previous notice or demand for performance, to take possession of the
Collateral and without liability for trespass (except for actual damage caused
by the Trustee's gross negligence or willful misconduct) to enter any premises
where the Collateral may be located for the purpose of taking possession of or
removing the Collateral and, generally, to exercise any and all rights afforded
to a secured party under, and subject to its obligations contained in, the UCC
as in effect in any state or other applicable law. Without limiting the
generality of the foregoing, each Grantor agrees that the Trustee shall have the
right, subject to the mandatory requirements of applicable law, to sell or
otherwise dispose of all or any part of the Collateral, at public or private
sale or at any broker's board or on any securities exchange, for cash, upon
credit or for future delivery as the Trustee shall deem appropriate. Each such
purchaser at any such sale shall hold the property sold absolutely free from any
claim or right on the part of the applicable Grantor, and such Grantor hereby
waives (to the extent permitted by law) all rights of redemption, stay and
appraisal which such Grantor now has or may at any time in the future have under
any rule of law or statute now existing or hereafter enacted.
The Trustee shall give the applicable Grantor 10 days' written notice
(which each Grantor agrees is reasonable notice within the meaning of Section
9-504(3) of the NYUCC) of the Trustee's intention to make any sale of such
Grantor's Collateral. Such notice, in the case of a public sale, shall state the
time and place for such sale and, in the case of a sale at a broker's board or
on a securities exchange, shall state the board or exchange at which such sale
is to be made and the day on which the Collateral, or portion thereof, will
first be offered for sale at such board or exchange. Any such public sale shall
be held at such time or times within ordinary business hours and at such place
or places as the Trustee may fix and state in the notice of such sale. At any
such sale, the Collateral, or portion thereof, to be sold may be sold in one lot
as an entirety or in separate parcels, as the Trustee may (in its sole and
absolute discretion) determine. The Trustee shall not be obligated to make any
sale of any Collateral if it shall determine not to do so, regardless of the
fact that notice of sale of such Collateral shall have been given. The Trustee
may, without notice or publication, adjourn any public or private sale or cause
the same to be adjourned from time to time by announcement at the time and place
fixed for sale, and such
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sale may, without further notice, be made at the time and place to which the
same was so adjourned. In case any sale of all or any part of the Collateral is
made on credit or for future delivery, the Collateral so sold may be retained by
the Trustee until the sale price is paid in full by the purchaser or purchasers
thereof, but the Trustee shall not incur any liability in case any such
purchaser or purchasers shall fail to take up and pay for the Collateral so sold
and, in case of any such failure, such Collateral may be sold again upon like
notice. At any public sale made pursuant to this Section 15, the Trustee may bid
for or purchase, free (to the extent permitted by law) from any right of
redemption, stay or appraisal on the part of any Grantor (all said rights being
also hereby waived and released to the extent permitted by law), with respect to
the Collateral or any part thereof offered for sale and the Trustee may make
payment on account thereof by using any claim then due and payable to the
Trustee or any Holder from such Grantor as a credit against the purchase price,
and the Trustee may, upon compliance with the terms of sale, hold, retain and
dispose of such property without further accountability to such Grantor
therefor. For purposes hereof, a written agreement to purchase the Collateral or
any portion thereof shall be treated as a sale thereof; the Trustee shall be
free to carry out such sale pursuant to such agreement, and no Grantor shall be
entitled to the return of the Collateral or any portion thereof subject thereto,
notwithstanding the fact that after the Trustee shall have entered into such an
agreement all Events of Default shall have been remedied and the Secured
Obligations paid in full. Grantors, jointly and severally, shall remain liable
for any deficiency. As an alternative to exercising the power of sale herein
conferred upon it, the Trustee may proceed by a suit or suits at law or in
equity to foreclose this Agreement and to sell the Collateral or any portion
thereof pursuant to a judgment or decree of a court or courts having competent
jurisdiction or pursuant to a proceeding by a court-appointed receiver.
Upon the occurrence and during the continuation of an Event of Default, the
Trustee may exercise dominion and control over, and refuse to permit further
withdrawals (whether of money, securities, instruments or other property) from,
any deposit accounts maintained with the Trustee constituting part of the
Collateral.
16. Application of Proceeds. The proceeds of any collection or sale of
Collateral, as well as any Collateral consisting of cash, shall be applied by
the Trustee in accordance with Section 506 of the Indenture.
Upon any sale of the Collateral by the Trustee (including, without limitation,
pursuant to a power of sale granted by statute or under a judicial proceeding),
the receipt of the Trustee or of the officer making the sale shall be a
sufficient discharge to the purchaser or purchasers of the Collateral so sold
and such purchaser or purchasers shall not be obligated to see to the
application of any part of the purchase money paid over to the Trustee or such
officer or be answerable in any way for the misapplication thereof.
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17. Locations of Collateral; Place of Business. (a) Each Grantor hereby
represents and warrants as to itself and the Collateral owned by it that all the
Collateral is located at the locations listed on Schedule I hereto and that its
federal employer identification number is as set forth on said Schedule. The
Grantors agree not to establish, or permit to be established, any other location
for Collateral unless all filings have been made under the UCC or similar
filings as in effect in any state or other jurisdiction or otherwise which are
required for the Trustee to continue to have a valid, legal and perfected first
priority security interest in the Collateral in which a security interest may be
perfected by such filing.
(b) Each Grantor confirms that its chief executive office, other offices
and the places where Inventory and Equipment are maintained are located as
indicated on Schedule I hereto. Each Grantor agrees not to change, or permit to
be changed, any such location unless all filings have been made under the UCC or
similar filings or otherwise for the Trustee to continue to have a valid, legal
and perfected first priority security interest in the Collateral in which a
security interest may be perfected by such filing.
18. Security Interest Absolute. All rights of the Trustee hereunder, the
Security Interest, and all obligations of the Grantors hereunder, shall be
absolute and unconditional irrespective of (i) any lack of validity or
enforceability of the Indenture, any Collateral Document, any other agreement
with respect to any of the Secured Obligations or any other agreement or
instrument relating to any of the foregoing, (ii) any change in the time, manner
or place of payment of, or in any other term of, all or any of the Secured
Obligations, or any other amendment or waiver of or consent to any departure
from the Indenture, any Collateral Document or any other agreement or
instrument, (iii) any exchange, release or nonperfection of any Lien on other
Collateral, or any release or amendment or waiver of or consent to or departure
from any guarantee, for all or any of the Secured Obligations, or (iv) any other
circumstance which might otherwise constitute a defense available to, or
discharge of, the Grantors, any of the Guarantors or any other obligor in
respect of the Secured Obligations or in respect of this Agreement (other than
the indefeasible payment in full of the Secured Obligations and subject to
Section 28 hereof).
19. No Waiver. No failure on the part of the Trustee to exercise, and no
delay in exercising, any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy by the Trustee preclude any other or further exercise thereof or
the exercise of any other right, power or remedy. All remedies hereunder are
cumulative and are not exclusive of any other remedies provided by law. The
Trustee and the Holders shall not be deemed to have waived any rights hereunder
or under any other agreement or instrument unless such waiver shall be in
writing and signed by such parties.
20. Trustee Appointed Attorney-in-Fact. Each Grantor hereby appoints the
Trustee the attorney-in-fact of such Grantor upon the occurrence and during the
continuance of an Event of Default solely for the purpose of carrying out the
provisions of this Agreement and
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taking any action and executing any instrument which the Trustee may deem
necessary or advisable to accomplish the purposes hereof, which appointment is
irrevocable and coupled with an interest.
21. Trustee's Fees and Expenses. The provisions of Sections 503 and 607 of
the Indenture with respect to the reimbursement of fees and expenses and
indemnification are hereby deemed incorporated herein in their entirety and
shall be binding upon each of the Grantors as if set forth herein, and each
Grantor, jointly and severally shall be obligated to, (x) upon demand, pay to
the Trustee the amount of any and all reasonable expenses, including the
reasonable fees and expenses of its counsel and of any experts or agents which
the Trustee may incur in connection with (i) the administration of this
Agreement, (ii) the custody or preservation of, or the sale or other disposition
of, collection from, or other realization upon, any of the Collateral, (iii) the
exercise or enforcement of any of the rights of the Trustee hereunder or (iv)
the failure by any Grantor to perform or observe any of the provisions hereof,
and (y) indemnify the Trustee and the Holders. Any such amounts payable as
provided hereunder or thereunder shall be additional Secured Obligations secured
hereby and by the other Collateral Documents. The obligations contained in this
Section 21 shall survive the termination of this Agreement or the resignation or
removal of the Trustee.
22. Binding Agreement; Assignments. This Agreement, and the terms,
covenants and conditions hereof, shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and assigns, except that
the Grantors shall not be permitted to assign this Agreement or any interest
herein or in the Collateral, or any part thereof, or any cash or property held
by the Trustee as Collateral under this Agreement, except as contemplated or
permitted by this Agreement or the Indenture.
23. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (INCLUDING NEW YORK CONFLICTS
PRINCIPLES).
24. Notices. All communications and notices hereunder shall be in writing
and shall be given (i) in the case of any Grantor organized under the laws of
any state of the United States of America in care of Maska U.S., Inc. at 77
Route 25, Pierson Industrial Park, Bradford, Vermont, 05033 (Telecopy No.:
802-222-5781), Attention: Russell David, Vice President-Finance, with a copy to
Morgan, Lewis & Bockius, LLP, 101 Park Avenue, New York, New York 10178-0060,
Attention: David W. Pollak, Esq. (Telecopy No. (212) 309-6273), (ii) in case of
any Grantor organized under the New Brunswick Business Corporations Act, in care
of SLM International, Inc. at 7405 Trans Canada Highway, Suite 300, St. Laurent
Quebec H4T 1Z2, Canada (Telecopy No. (514) 331-7061), Attention: Russell David,
Vice President-Finance, with a copy to Morgan, Lewis & Bockius, LLP, 101 Park
Avenue, New York, New York 10178-0060, Attention: David W. Pollak, Esq.
(Telecopy No. (212) 309-6273), and (iii) in the case of the
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Trustee, The Bank of New York at 101 Barclay Street, 21 West, New York, New York
10286, (Telecopy No.: 212-815-5915) Attention: Corporate Trust Administrator.
25. Severability. In case any one or more of the provisions contained in
this Agreement should be invalid, illegal or unenforceable the remaining
provisions contained herein shall not in any way be affected or impaired.
26. Section Headings. Section headings used herein are for convenience only
and are not to affect the construction of, or to be taken into consideration in
interpreting, this Agreement.
27. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which, when
taken together, shall constitute but one instrument. This Agreement shall be
effective when a counterpart which bears the signature of the Grantors shall
have been delivered to the Trustee, and the Trustee shall have executed this
Agreement.
28. Termination. This Agreement and the Security Interest shall terminate
when all the Secured Obligations have been fully and indefeasibly paid in cash,
at which time the Trustee shall execute and deliver to the Grantors all UCC
termination statements and similar documents which the Grantor shall reasonably
request to evidence such termination; provided, however, that all indemnities of
the Grantors contained in this Agreement shall survive, and remain operative and
in full force and effect regardless of, the termination of this Agreement.
29. Intercreditor Agreement. This Agreement, including the right of Trustee
to exercise remedies hereunder, shall be subject to the terms and conditions of
the Intercreditor Agreement. Notwithstanding the foregoing or any reference to
the Intercreditor Agreement herein, each Grantor agrees and acknowledges that
neither this Agreement nor the Intercreditor Agreement provides such Grantor
with any rights as a third party beneficiary or otherwise.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Security
Agreement as of the day and year first above written.
SLM INTERNATIONAL, INC.
By:______________________________
Name: Russell David
Title: Vice President-Finance
#1 APPAREL, INC.
By:______________________________
Name: Russell David
Title: Vice President-Finance
MASKA U.S., INC.
By:______________________________
Name: Russell David
Title: Vice President-Finance
SPORT MASKA INC.
By:______________________________
Name: Russell David
Title: Vice President-Finance
#1 APPAREL CANADA INC.
By:_______________________________
Name: Russell David
Title: Vice President-Finance
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SLM TRADEMARK ACQUISITION CORP.
By:______________________________
Name: Russell David
Title: Vice President-Finance
SLM TRADEMARK ACQUISITION CANADA
CORPORATION/CORPORATION
D'ACQUISITION DE MARQUE DE
COMMERCE SLM CANADA
By:______________________________
Name: Russell David
Title: Vice President-Finance
THE BANK OF NEW YORK, as Trustee
By:______________________________
Name:
Title:
NY1-497048 EXECUTION
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EXECUTION
SECURITY AGREEMENT AND MORTGAGE -
TRADEMARKS AND PATENTS
AGREEMENT dated as of this 1st day of April, 1997 among SLM International,
Inc., a Delaware corporation (the "Company"), #1 Apparel, Inc., a Delaware
corporation ("#1 Apparel"), Maska U.S., Inc., a Vermont corporation ("Maska
U.S."),SLM Trademark Acquisition Corp., a Delaware corporation ("Acquisition"),
Sport Maska Inc., a corporation under the New Brunswick Business Corporations
Act ("Maska"), #1 Apparel Canada Inc., a corporation under the New Brunswick
Business Corporations Act ("#1 Apparel Canada"), SLM Trademark Acquisition
Canada Corporation/Corporation D'Acquisition De Marque De Commerce SLM Canada, a
corporation under the New Brunswick Business Corporations Act ("TACC"; TACC, the
Company, #1 Apparel, Maska U.S., Acquisition, #1 Apparel Canada and Maska are
each sometimes referred to herein as a "Debtor" and collectively as the
"Debtors") and The Bank of New York, a banking corporation organized and
existing under the laws of the State of New York, as trustee and collateral
agent (the "Secured Party") for the Holders referred to in the Senior Secured
Note Indenture dated as of the date hereof, among the Company, as issuer, the
Guarantors named therein, as guarantors, and the Secured Party (as supplemented
or modified from time to time in accordance with its terms, the "Indenture").
A. Each Debtor owns the Trademarks described in Schedule A annexed hereto
and made a part hereof set forth below such Debtor's name.
B. Each Debtor is the owner and holder of the patents listed on Schedule B
annexed hereto and made a part hereof set forth below such Debtor's name.
C. The Holders have agreed to acquire the Securities pursuant to, and
subject to the terms and conditions of, the Indenture. Pursuant to the terms of
the Indenture, the Debtors are required to execute and deliver a security
agreement in the form hereof to secure the following (the "Secured
Obligations"): all Obligations (such Obligations to include, without limitation,
the due and punctual payment and performance of (a) the principal of and
interest on the Securities (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, 11 U.S.C. ss.362(a), and interest that, but for the filing of a
petition in bankruptcy with respect to the Company, would accrue on such
obligations, whether or not a claim is allowed against the Company for such
interest in the related bankruptcy proceeding), when and as due, whether at
maturity, by acceleration, upon one or more dates set for redemption or
otherwise, (b) all obligations of the Debtors at any time and from time
NY1-497050 EXECUTION
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to time under this security agreement and (c) all other obligations of the
Debtors at any time and from time to time under the Indenture and the Collateral
Documents).
NOW, THEREFORE, IT IS AGREED that, as security for the full and prompt
payment and performance of the Secured Obligations, each Debtor does hereby
mortgage to and pledge with the Secured Party for its own benefit and the
benefit of the Holders, and grant to the Secured Party a security interest in,
all of such Debtor's right, title and interest in and to (i) each of the
Trademarks (as hereinafter defined), and the goodwill of the business symbolized
by each of the Trademarks, all customer lists and other records of the Debtors
relating to the distribution of products bearing the Trademarks and each of the
registrations described in Schedule A hereto; (ii) each of the Patents (as
hereinafter defined) and each of the registrations listed on Schedule B hereto;
(iii) the right (but not the obligation) to register claims under any state or
Federal law or regulation or any law or regulation of any foreign country and to
apply for, renew and extend the Trademarks or Patents; (iv) the right (but not
the obligation) to sue or bring opposition or cancellation proceedings in the
name of any Debtor or in the name of Secured Party or otherwise for past,
present and future infringements of the Trademarks or Patents and all rights
(but not obligations) corresponding thereto in the United States and any foreign
country; and (v) any and all proceeds of the foregoing, including, without
limitation, any claim by any Debtor against any third party for infringement of
the Trademarks or the Patents, in each case, wherever located and whether now
owned or hereafter acquired or existing (collectively, the "Collateral").
1. Terms defined in the Indenture and not otherwise defined herein, shall
have the meaning set forth in the Indenture. As used in this Agreement, unless
the context otherwise requires:
"Patents" shall mean (i) all letters patent of the United States or any
other country, all right, title and interest therein and thereto, and all
applications, registrations and recordings thereof, including, without
limitation, applications, registrations and recordings in the United States
Patent and Trademark Office, the Canadian Intellectual Property Office or in any
similar office or agency of the United States or Canada, any state thereof, or
any other country or any political subdivision thereof, all whether now owned or
hereafter acquired by a Debtor, including, but not limited to, those described
in Schedule B annexed hereto and made a part hereof, and (ii) all reissues,
continuations, continuations-in-part, extensions or divisionals thereof and all
licenses thereof.
"Trademarks" shall mean (i) all trademarks, trade names, trade styles,
service marks, prints and labels on which said trademarks, trade names, trade
styles and service marks have appeared or appear, designs and general
intangibles of like nature, now existing or hereafter adopted or acquired, all
right, title and interest therein and thereto, and all applications,
registrations and recordings thereof, including, without limitation,
applications, registrations and recordings in the United States Patent and
Trademark Office, Canadian Intellectual Property Office or in any similar office
or agency of the United States or Canada, any state thereof, or any
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<PAGE>
other country or any political subdivision thereof, all whether now owned or
hereafter acquired by a Debtor, including, but not limited to, those described
in Schedule A annexed hereto and made a part hereof, and (ii) all reissues,
extensions or renewals thereof and all licenses thereof.
2. Each Debtor hereby represents, warrants, covenants and agrees as to
itself and the Collateral owned by it as follows:
(a) Such Debtor has the sole, full and clear title to the registered
Trademarks material to its business for the goods and services covered by the
registrations thereof and such registrations are valid and subsisting and in
full force and effect.
(b) Each Debtor will perform all acts and execute all documents, including,
without limitation, assignments for security in form suitable for filing with
the United States Patent and Trademark Office substantially in the form of
Exhibits 1 and 2, and the Canadian Intellectual Property Office, substantially
in the form of Exhibit 3, hereof, reasonably requested by the Secured Party at
any time to evidence, perfect, maintain, record and enforce the Secured Party's
interest in the United States and Canadian Patents and Trademarks (other than
with respect to "Intent to Use Trademark Applications" or otherwise in
furtherance of the provisions of this Agreement, and each Debtor hereby
authorizes the Secured Party to execute and file one or more financing
statements (and similar documents) or copies thereof or of this Security
Agreement with respect to the Collateral signed only by the Secured Party.
(c) Except to the extent that Debtor shall determine otherwise through the
exercise of sound business judgment, each Debtor (either itself or through
licensees) will continue to use all of the Trademarks material to such Debtor's
business on each and every trademark class of goods applicable to its current
line as reflected in its current catalogs, brochures and price lists in order to
maintain the Trademarks in full force free from any claim of abandonment for
nonuse and no Debtor will (nor will it permit any licensee thereof to) do any
act or knowingly omit to do any act whereby any Trademark may become
invalidated.
(d) Each Debtor has the sole, full and clear title to each of the United
States and Canadian issued Patents material to its business and shown on
Schedule B hereto below its name and the registrations thereof are valid and
subsisting and in full force and effect. None of the Patents has been abandoned
or dedicated, and, except to the extent that Debtor shall determine otherwise
through the exercise of sound business judgment, no Debtor will do any act, or
omit to do any act, whereby any Patent material to its business may become
abandoned or dedicated and shall notify the Secured Party immediately if it
knows of any reason or has reason to know that any application or registration
may become abandoned or dedicated.
(e) The provisions of Sections 503 and 607 of the Indenture with respect to
the reimbursement of fees and expenses and indemnification are hereby deemed
incorporated herein in their entirety and shall be binding upon each of the
Debtors as if set forth herein, and each
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Debtor, jointly and severally shall be obligated to, (x) upon demand, pay to the
Secured Party the amount of any and all reasonable expenses, including the
reasonable fees and expenses of its counsel and of any experts or agents which
the Secured Party may incur in connection with (i) the administration of this
Agreement, (ii) the custody or preservation of, or the sale or other disposition
of, collection from, or other realization upon, any of the Collateral, (iii) the
exercise or enforcement of any of the rights of the Secured Party hereunder or
(iv) the failure by any Debtor to perform or observe any of the provisions
hereof, and (y) indemnify the Secured Party and the Holders. Any such amounts
payable as provided hereunder or thereunder shall be additional Secured
Obligations secured hereby and by the other Security Documents. The obligations
contained in this paragraph (e) shall survive the termination of this Agreement
or the resignation or removal of the Secured Party.
(f) If any Debtor shall obtain rights to any new Trademarks or Patents, the
provisions of this Agreement shall automatically apply thereto. Each Debtor
shall promptly notify the Secured Party in writing of any rights to any new
Trademarks or Patents acquired by such Debtor after the date hereof and of any
registrations issued or applications for registration made after the date
hereof. In no event shall any Debtor, either itself or through any agent,
employee, licensee or designee, (i) file an application for the registration of
any Patent or Trademark with the United States Patent and Trademark Office,
Canadian Intellectual Property Office or any similar office or agency of the
United States or Canada, any state thereof, any other country or any political
subdivision thereof or (ii) file any assignment of any patent or trademark,
which such Debtor may acquire from a third party, with the United States Patent
and Trademark Office, Canadian Intellectual Property Office or any similar
office or agency of the United States or Canada, any state thereof, any other
country or any political subdivision thereof, unless such Debtor shall on or
prior to the date of such filing, notify the Secured Party thereof and, if
requested by the Secured Party or the Agent under the Credit Agreement, execute,
deliver and record such agreements, instruments, documents and papers as the
Secured Party or such Agent may reasonably request in the form hereof, with
appropriate insertions, or an amendment to this Agreement, in form and substance
reasonably satisfactory to the Secured Party, pursuant to which such Debtor
shall grant a security interest to the extent of its interest in such
registration as provided herein to the Secured Party, and each Debtor hereby
constitutes the Secured Party its attorney-in-fact to execute and file all such
writings for the foregoing purposes, all acts of such attorney being hereby
ratified and confirmed; such power being coupled with an interest is irrevocable
until the Secured Obligations are paid in full.
(g) Each Debtor has the power and authority to grant the security interest
herein granted; and the Collateral is not now, and at all times hereafter will
not be, subject to any Liens or encumbrances of any nature whatsoever, except in
favor of the Secured Party and as permitted under the Indenture, and to the best
knowledge of the Debtors, none of the Collateral is subject to any Lien.
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(h) Except as permitted by the Indenture and to the extent that the Secured
Party, upon prior written notice from a Debtor, shall consent, no Debtor will
assign, sell, mortgage, lease, transfer, pledge, hypothecate, grant a Lien upon,
encumber, grant an exclusive or non-exclusive license, or otherwise dispose of
any of the Collateral, and nothing in this Agreement shall be deemed a consent
by the Secured Party to any such action except as expressly permitted herein or
in the Indenture.
(i) As of the date hereof no Debtor nor any Subsidiary thereof owns any
Patents or Trademarks that are material to the business of the applicable
Debtor, or has any Patents or Trademarks that are material to the business of
the applicable Debtor registered in, or the subject of pending applications in,
the United States Patent and Trademark Office, Canadian Intellectual Property
Office or any similar office or agency of the United States or Canada, any state
thereof, any other country or any political subdivision thereof, other than
those described in Schedules A and B hereto.
(j) Each Debtor will take all necessary steps in any proceeding before the
United States Patent and Trademark Office, Canadian Intellectual Property Office
or any similar office or agency of the United States or Canada, any state
thereof, any other country or any political subdivision thereof, to maintain
each application and registration of the Trademarks and Patents that are
material to the business of the applicable Debtor, including, without
limitation, filing of renewals, affidavits of use, affidavits of
incontestability and opposition, interference and cancellation proceedings
(except to the extent that dedication, abandonment or invalidation is permitted
under paragraphs 2(c) and 2(d) hereof).
(k) Each Debtor assumes all responsibility and liability arising from the
use of the Trademarks, and the Debtors hereby jointly and severally indemnify
and hold the Secured Party harmless from and against any claim, suit, loss,
damage or expense (including reasonable attorneys' fees) arising out of any
alleged defect in any product manufactured, promoted or sold by any Debtor (or
any Subsidiary thereof) in connection with any Trademark or out of the
manufacture, promotion, labeling, sale or advertisement of any such product by
such Debtor (or any Subsidiary thereof). Each Debtor agrees that the Secured
Party does not assume, and shall have no responsibility for, the payment of any
sums due or to become due under any agreement or contract included in the
Collateral or the performance of any obligations to be performed under or with
respect to any such agreement or contract by any Debtor, and the Debtors hereby
agree to jointly and severally indemnify and hold the Secured Party harmless
with respect to any and all claims by any Person relating thereto.
(l) The Secured Party may, in its sole discretion, pay any amount or do any
act required of any Debtor hereunder to preserve, defend, protect, maintain,
record or enforce any rights in the Collateral, or the right, title and interest
granted the Secured Party herein, and which any Debtor fails to do or pay, and
any such payment shall be subject to Section 2(e) hereof.
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(m) Each Debtor agrees that if it, or any Subsidiary thereof, learns of any
use by any Person of any term or design likely to cause confusion with any
Trademark that is material to the business of the applicable Debtor, it shall
promptly notify the Secured Party of such use and, if requested by the Secured
Party, shall join with the Secured Party, at its expense, in such action as the
Secured Party, in its reasonable discretion, may deem advisable for the
protection of the Secured Party's interest in and to such Trademark(s).
(n) All licenses of Trademarks and Patents which any Debtor has granted to
third parties are set forth in Schedule C hereto.
(o) This Agreement together with the filing of financing statements
describing the Collateral with the filing offices set forth on Schedule D hereto
and the recording of the assignments for security substantially in the forms of
Exhibits 1, 2 and 3 hereof with the United States Patent and Trademark Office
and the Canadian Intellectual Property Office, respectively, creates a valid,
perfected and first priority security interest in the Collateral, securing the
payment of the Secured Obligations.
(p) If any Debtor shall acquire title to any new Trademarks or Patents, the
provisions of this Agreement shall automatically apply thereto. Each Debtor
shall promptly notify the Secured Party in writing of any rights to any new
Trademarks or Patents acquired by such Debtor after the date hereof and of any
registrations issued or applications for registration made after the date
hereof. Concurrently with the filing of an application for registration for any
Trademarks or Patents, such Debtors shall execute, deliver and record in all
places where this Agreement is recorded an appropriate agreement, substantially
in the form hereof, with appropriate insertions, or an amendment to this
Agreement, in form and substance reasonably satisfactory to the Secured Party,
pursuant to which such Debtor shall grant a security interest to the extent of
its interest in such registration as provided herein to the Secured Party.
3. Subject to the Intercreditor Agreement, upon the occurrence and during
the continuance of an Event of Default, in addition to all other rights and
remedies of the Secured Party, whether under law, the Indenture or otherwise,
all such rights and remedies being cumulative, not exclusive and enforceable
alternatively, successively or concurrently, without (except as provided herein)
notice to, or consent by, the Debtors, the Secured Party shall have the
following rights and remedies: (a) the applicable Debtor shall not make any
further use of the Patents or the Trademarks or any mark similar thereto for any
purpose other than in the ordinary course of business; (b) the Secured Party
may, at any time and from time to time, upon 10 days' prior written notice to
the applicable Debtor, license, whether general, special or otherwise, and
whether on an exclusive or nonexclusive basis, any of the Patents or Trademarks,
throughout the world for such term or terms, on such conditions, and in such
manner, as the Secured Party shall in its sole discretion determine, provided
that no such actions shall violate any provision of any then existing license
for the Patent or Trademark; (c) the Secured Party may (without assuming any
obligations or liability thereunder), at any time, enforce (and shall have the
exclusive right
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to enforce) against any licensee or sublicensee all rights and remedies of any
Debtor in, to and under any one or more license agreements with respect to the
Collateral, and take or refrain from taking any action under any thereof, and
each Debtor hereby releases the Secured Party from, and agrees to hold the
Secured Party free and harmless from and against any claims arising out of, any
action taken or omitted to be taken with respect to any such license or
sublicense agreement, except if arising solely as a result of the gross
negligence or wilful misconduct of the Secured Party or resulting from a breach
by the Secured Party of the terms and provisions of such license or sublicense
agreement; (d) the Secured Party may, at any time and from time to time, upon 10
days' prior notice to the applicable Debtor, assign, sell, or otherwise dispose
of, the Collateral or any of it, either with or without special or other
conditions or stipulations, with power to buy the Collateral or any part of it,
and with power also to execute assurances, and do all other acts and things for
completing the assignment, sale or disposition which the Secured Party shall, in
its reasonable discretion, deem appropriate or proper; and (e) in addition to
the foregoing, in order to implement the assignment, sale or other disposal of
any of the Collateral pursuant to subparagraph 3(d) hereof, the Secured Party
may, at any time, pursuant to the authority granted in the Powers of Attorney
described in paragraph 4 hereof (such authority becoming effective on the
occurrence and continuation of an Event of Default), execute and deliver on
behalf of the applicable Debtor, one or more instruments of assignment of the
Patents or Trademarks (or any application or registration thereof), in form
suitable for filing, recording or registration in any country. Each Debtor
agrees to pay when due all reasonable costs incurred in any such transfer of the
Patents or Trademarks, including any taxes, fees and reasonable attorneys' fees,
and all such costs shall be added to the Secured Obligations in accordance with
Section 2(e). The Secured Party may apply the proceeds actually received from
any such license, assignment, sale or other disposition as provided in the
following paragraphs; and the Debtors shall remain jointly and severally liable
and will pay the Secured Party on demand any deficiency remaining, together with
interest thereon at a rate equal to the highest rate then payable on the Secured
Obligations and the balance of any expenses unpaid. Nothing herein contained
shall be construed as requiring the Secured Party to take any such action at any
time. In the event of any such license, assignment, sale or other disposition of
the Collateral, or any of it, after the occurrence and continuation of an Event
of Default, each Debtor shall supply its know-how and expertise relating to the
manufacture and sale of the products bearing or in connection with the
Trademarks or Patents, and its customer lists and other records relating to the
Trademarks or Patents and to the distribution of said products, to the Secured
Party or its designee.
The proceeds of any sale of Collateral, as well as any Collateral
consisting of cash, shall be applied by the Secured Party in accordance with
Section 506 of the Indenture.
4. Concurrently with the execution and delivery hereof, each Debtor is
executing and delivering to the Secured Party, in the form of Exhibit 4 hereto,
five originals of a Power of Attorney for the implementation of the assignment,
sale or other disposal of the Trademarks and Patents pursuant to paragraphs 3(d)
and (e) hereof and each Debtor hereby releases the Secured Party from any
claims, causes of action and demands at any time arising out
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of or with respect to any actions taken or omitted to be taken by the Secured
Party under the powers of attorney granted herein, other than actions taken or
omitted to be taken through the gross negligence or willful misconduct of the
Secured Party.
5. All rights of the Secured Party hereunder, the security interest granted
to the Secured Party hereunder, and all obligations of the Debtors hereunder,
shall be absolute and unconditional irrespective of (i) any lack of validity or
enforceability of the Indenture, any Collateral Document, any other agreement
with respect to any of the Secured Obligations or any other agreement or
instrument relating to any of the foregoing, (ii) any change in the time, manner
or place of payment of, or in any other term of, all or any of the Secured
Obligations, or any other amendment or waiver of or consent to any departure
from the Indenture, any Collateral Document or any other agreement or
instrument, (iii) any exchange, release or nonperfection of any Lien on other
Collateral, or any release or amendment or waiver of or consent to or departure
from any guarantee, for all or any of the Secured Obligations, or (iv) any other
circumstance which might otherwise constitute a defense available to, or
discharge of, any Debtor, any of the Guarantors or any other obligor in respect
of the Secured Obligations or in respect of this Agreement (other than the
indefeasible payment in full of all of the Secured Obligations and subject to
Section 13 of this Agreement).
6. No failure on the part of the Secured Party to exercise, and no delay in
exercising, any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy by the Secured Party preclude any other or further exercise thereof or
the exercise of any other right, power or remedy. All remedies hereunder are
cumulative and are not exclusive of any other remedies provided by law. The
Secured Party and the Holders shall not be deemed to have waived any rights
hereunder or under any other agreement or instrument unless such waiver shall be
in writing and signed by such parties.
7. This Agreement, and the terms, covenants and conditions hereof, shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, except that no Debtor shall be permitted to assign this
Agreement or any interest herein or in the Collateral, or any part thereof, or
any cash or property held by the Secured Party as Collateral under this
Agreement, except as contemplated or permitted by this Agreement or the
Indenture.
8. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
LAWS OF THE STATE OF NEW YORK (INCLUDING NEW YORK CONFLICTS PRINCIPLES).
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9. All communications and notices hereunder shall be in writing and shall
be given (i) in the case of any Debtor organized under the laws of any state of
the United States of America in care of Maska U.S., Inc. at 77 Route 25, Pierson
Industrial Park, Bradford, Vermont 05033 (Telecopy No.: 802-222-5781) Attention:
Russell David, Vice President-Finance, with a copy to Morgan, Lewis & Bockius,
LLP, 101 Park Avenue, New York, New York 10178-0060, Attention: David W. Pollak,
Esq. (Telecopy No. (212) 309- 6273), (ii) in the case of any Debtor organized
under the New Brunswick Business Corporations Act, in care of SLM International,
Inc. at 7405 Trans Canada Highway, Suite 300, St. Laurent Quebec H4T 1Z2, Canada
(Telecopy No. (514) 331-7061), Attention: Russell David, Vice President-Finance,
with a copy to Morgan, Lewis & Bockius, LLP, 101 Park Avenue, New York, New York
10178-0060, Attention: David W. Pollak, Esq. (Telecopy No. (212) 309-6273), and
(iii) in the case of the Secured Party, The Bank of New York at 101 Barclay
Street, 21 West, New York, New York 10286, (Telecopy No.: 212-815-5915)
Attention: Corporate Trust Administrator.
10. In case any one or more of the provisions contained in this Agreement
should be invalid, illegal or unenforceable the remaining provisions contained
herein shall not in any way be affected or impaired.
11. Section headings used herein are for convenience only and are not to
affect the construction of, or to be taken into consideration in interpreting,
this Agreement.
12. This Agreement may be executed in two or more counterparts, each of
which shall constitute an original, but all of which, when taken together, shall
constitute but one instrument. This Agreement shall be effective when a
counterpart which bears the signature of the Debtors shall have been delivered
to the Secured Party, and the Secured Party shall have executed this Agreement.
13. This Agreement and the security interest granted hereunder shall
terminate when (a) all the Secured Obligations have been fully and indefeasibly
paid in cash at which time the Secured Party shall execute and deliver to the
Debtors all UCC termination statements, releases, terminations of assignment and
similar documents which the Debtors shall reasonably request to evidence such
termination; provided, however, that all indemnities of the Debtors contained in
this Agreement shall survive, and remain operative and in full force and effect
regardless of the termination of this Agreement. The security interest hereunder
shall automatically terminate in any Collateral that is permitted to be sold or
disposed of by the Indenture or in the case of any sale that is consented
pursuant to 802 of the Indenture. The Secured Party shall promptly take such
action, and execute such releases, termination statements or other documents as
may be reasonably requested by an interested party, at the expense of the
Grantors, to evidence the termination and releases contemplated hereby.
14. Intercreditor Agreement. This Agreement, including the right of Secured
Party to exercise remedies hereunder, shall be subject to the terms and
conditions of the
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Intercreditor Agreement. Notwithstanding the foregoing or any reference to the
Intercreditor Agreement herein, each Debtor agrees and acknowledges that neither
this Agreement nor the Intercreditor Agreement provides such Debtor with any
rights as a third party beneficiary or otherwise.
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IN WITNESS WHEREOF, each Debtor and the Secured Party have caused this
Agreement to be executed by their respective officers thereunto duly authorized
as of the day and year first above written.
SLM INTERNATIONAL, INC.
By:______________________________
Name: Russell David
Title: Vice President-Finance
#1 APPAREL, INC.
By:______________________________
Name: Russell David
Title: Vice President-Finance
MASKA U.S., INC.
By:______________________________
Name: Russell David
Title: Vice President-Finance
SLM TRADEMARK ACQUISITION CORP.
By:______________________________
Name: Russell David
Title: Vice President-Finance
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#1 APPAREL CANADA INC.
By:______________________________
Name: Russell David
Title: Vice President-Finance
SPORT MASKA INC.
By:______________________________
Name: Russell David
Title: Vice President-Finance
SLM TRADEMARK ACQUISITION
CANADA CORPORATION/
CORPORATION D'ACQUISITION DE
MARQUE DE COMMERCE
SLM CANADA
By:______________________________
Name: Russell David
Title: Vice President-Finance
THE BANK OF NEW YORK, as Secured Party
By_____________________________
Name:
Title:
NY1-497050 EXECUTION
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EXECUTION
PLEDGE AGREEMENT
AND
IRREVOCABLE PROXY
PLEDGE AGREEMENT dated as of April 1, 1997 among SLM International, Inc., a
Delaware corporation (the "Company"), #1 Apparel, Inc., a Delaware corporation
("#1 Apparel"), Maska U.S., Inc., a Vermont corporation ("Maska U.S."),SLM
Trademark Acquisition Corp., a Delaware corporation ("Acquisition"), Sport Maska
Inc., a corporation under the New Brunswick Business Corporations Act ("Maska"),
#1 Apparel Canada Inc., a corporation under the New Brunswick Business
Corporations Act ("#1 Apparel Canada"), SLM Trademark Acquisition Canada
Corporation/Corporation D'Acquisition De Marque De Commerce SLM Canada, a
corporation under the New Brunswick Business Corporations Act ("TACC"; TACC, the
Company, #1 Apparel, Maska U.S., Acquisition, #1 Apparel Canada and Maska are
each sometimes referred to herein as a "Grantor" and collectively as the
"Grantors") and The Bank of New York, a banking corporation organized and
existing under the laws of the State of New York, as trustee and collateral
agent (the "Trustee") for the Holders referred to in the Senior Secured Note
Indenture dated as of the date hereof, among the Company, as issuer, the
Guarantors named therein, as guarantors, and the Trustee (as supplemented or
modified from time to time in accordance with its terms, the "Indenture"). All
capitalized terms used herein and not defined herein shall have the meanings set
forth in the Indenture.
The Holders have agreed to acquire the Securities pursuant to, and subject
to the terms and conditions of, the Indenture. Pursuant to the terms of the
Indenture, the Grantors are required to execute and deliver a pledge agreement
in the form hereof to secure the following (collectively, the "Secured
Obligations"): all Obligations (such Obligations to include, without limitation,
the due and punctual payment and performance of (a) the principal of and
interest on the Securities (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, 11 U.S.C. ss.362(a), and interest that, but for the filing of a
petition in bankruptcy with respect to the Company, would accrue on such
obligations, whether or not a claim is allowed against the Company for such
interest in the related bankruptcy proceeding), when and as due, whether at
maturity, by acceleration, upon one or more dates set for redemption or
otherwise, (b) all obligations of the Grantors at any time and from time to time
under this Pledge Agreement and (c) all other obligations of the Grantors at any
time and from time to time under the Indenture and the Collateral Documents).
Accordingly, the Grantors and the Trustee hereby agree as follows:
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1. Pledge. As security for the payment and performance in full of the
Secured Obligations, each Grantor hereby transfers, grants, bargains, sells,
conveys, pledges, sets over, endorses over, and, subject to the Intercreditor
Agreement, delivers unto the Trustee, and grants to the Trustee, for its own
benefit and for the benefit of the Holders, a security interest in all of such
Grantor's right, title and interest in and to, and hypothecates to the Trustee
(the "Hypothec") all of its interest in, (a) the shares of capital stock owned
by such Grantor, which shares are listed in Part A of Schedule I annexed hereto
next to such Grantor's name (the "Initial Pledged Stock") and any additional
shares of, and all securities convertible into and warrants, options and other
rights to purchase or otherwise acquire, capital stock of the issuers listed in
Part A of Schedule I annexed hereto, or any corporation successor thereto
pursuant to an amalgamation or other reorganization, obtained in the future by
any of the Grantors (collectively, the Initial Pledged Stock together with all
such additional shares and securities pledged in the future, the "Pledged
Stock"), (b) all instruments of indebtedness naming (whether now existing or
hereinafter arising) any Grantor as payee thereunder, which indebtedness shall
be listed in Part B of Schedule I annexed hereto next to such Grantor's name
(the "Pledged Debt") and (c) subject to Section 5 below, all proceeds of the
Pledged Stock and Pledged Debt, including, without limitation, all cash,
dividends, securities or other property at any time and from time to time
receivable or otherwise distributed in respect of or in exchange for pursuant to
a purchase, redemption, conversion or cancellation or other transformation any
of or all such Pledged Stock or Pledged Debt, all renewals thereof, and all
accessions and substitutions thereto (the items referred to in clauses (a)
through (c) being collectively called the "Collateral"). Upon delivery to the
Trustee, all securities now or notes now or hereafter included in the Collateral
including, without limitation, the Pledged Stock and the Pledged Debt (the
"Pledged Securities") shall be accompanied by undated stock or note powers, as
the case may be, duly executed in blank or other instruments of transfer
satisfactory to the Trustee and by such other instruments and documents as the
Trustee may reasonably request. Each delivery of Pledged Securities shall be
accompanied by a schedule showing a description of the securities theretofore
and then being pledged hereunder, which schedule shall be attached hereto as
Schedule I and made a part hereof. Each schedule so delivered shall supersede
any prior schedules so delivered.
To the extent that the Civil Code of Quebec should be found to apply, the
amount of the Hypothec granted hereby shall be Cdn $75,000,000 with interest
thereon, from the date hereof at the rate of 25% per annum.
2. Delivery of Collateral. Subject to the Intercreditor Agreement, each
Grantor agrees to deliver promptly or cause to be delivered promptly to the
Trustee, for its own benefit and for the benefit of the Holders, any and all
Pledged Securities, and any and all certificates or other instruments or
documents representing any of the Collateral (together with any necessary stock
power, note power or endorsement).
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<PAGE>
3. Representations, Warranties and Covenants. Each Grantor hereby
represents, warrants and covenants as to itself and the Collateral pledged by it
hereunder to and with the Trustee that:
(a) except for the security interest and the Hypothec granted to the
Trustee and Liens permitted under the Indenture, each Grantor (i) is and,
subject to the provisions of the Indenture, will at all times continue to be the
direct owner, beneficially and of record, of the Pledged Stock that it is
pledging hereunder and is and will continue to be the holder of the Pledged Debt
that it is pledging hereunder (provided that the Company may transfer its shares
of #1 Apparel Canada to Maska so long as the Trustee's Lien attaches thereto and
there is executed and delivered a revised Schedule I in form satisfactory to the
Trustee), (ii) holds the Collateral that it is pledging hereunder free and clear
of all Liens, charges, encumbrances and security interests of every kind and
nature, and (iii) will make no assignment, pledge, hypothecation or, subject to
the provisions of the Indenture, transfer of, grant any option or similar right
with respect to, or create or suffer to exist any security interest in, the
Collateral (or any part thereof) that it is pledging hereunder including,
without limitation, by virtue of becoming bound by any agreement which restricts
in any manner the rights of any present or future holder of any Pledged Stock
with respect thereto, and (iv) subject to Section 5 below and the Intercreditor
Agreement, will cause any and all Collateral, whether for value paid by a
Grantor or otherwise, to be forthwith deposited with the Trustee and pledged or
assigned hereunder;
(b) each Grantor (i) has the requisite power and authority to pledge the
Collateral it is pledging hereunder in the manner hereby done or contemplated,
(ii) will not amend, modify or supplement any Pledged Debt without the prior
written consent of the Trustee, nor forgive any Indebtedness evidenced by any
Pledged Debt, and (iii) will defend its title or interest thereto or therein
against any and all Liens, however arising, of all Persons whomsoever (other
than the Liens permitted by the Indenture);
(c) no consent or approval not obtained of any governmental body or
regulatory authority or any securities exchange was or is necessary to the
validity of the pledge, and security interests effected hereby;
(d) by virtue of the execution and delivery by each Grantor of this
Agreement, when the certificates, instruments or other documents representing or
evidencing the Collateral are delivered to the Trustee in accordance with this
Agreement, the Trustee will obtain a valid and perfected first priority security
interest and Hypothec in such Collateral as security for the repayment of the
Secured Obligations;
(e) the pledge effected hereby is effective to vest in the Trustee the
rights of the Trustee in the Collateral as set forth herein;
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(f) all of the Pledged Stock has been duly authorized and validly issued
and as at the date hereof, (A) the Initial Pledged Stock constitutes (i) all of
the issued and outstanding shares of capital stock of the issuers listed on Part
A of Schedule I annexed hereto, (ii) 50% of the issued and outstanding shares of
capital stock of CCM Holdings (1983) Inc., and (iii) all outstanding warrants,
options or other rights to purchase, or other agreements outstanding with
respect to, or property that is now or hereafter convertible into, or that
requires the issuance or sale of, any Initial Pledged Stock and such Pledged
Stock has been validly pledged to the Trustee pursuant hereto;
(g) the Pledged Debt constitutes all of the issued and outstanding
intercompany Indebtedness, evidenced by a promissory note of the respective
issuers thereof owing to such Grantor;
(h) pledge hereunder, immediately upon its acquisition (directly of
indirectly) thereof, any and all shares of stock of any Person that, after the
date of this Agreement, becomes, as a result of any occurrence, a direct
Subsidiary of such Grantor; and
(i) (i) pledge hereunder, immediately upon their issuance, any and all
instruments or other evidences of additional Indebtedness from time to time owed
to such Grantor by any obligor on the Pledged Debt, and (ii) pledge hereunder,
immediately upon their issuance, any and all instruments or other evidences of
Indebtedness from time to time owed to such Grantor by any Person that after the
date of this Agreement becomes, as a result of any occurrence, a direct or
indirect Subsidiary of such Grantor.
All representations, warranties and covenants of the Grantors contained in this
Agreement shall survive the execution, delivery and performance of this
Agreement until the termination of this Agreement pursuant to Section 14 hereof.
4. Registration in Nominee Name; Denominations. Subject to the
Intercreditor Agreement, upon the occurrence and during the continuance of an
Event of Default, the Trustee shall have the right (in its sole and absolute
discretion with subsequent notice to the Grantors) to hold the Pledged
Securities in its own name or the name of its nominee. In addition, the Trustee
shall at all times have the right to exchange the certificates representing any
of the Pledged Securities for certificates of smaller or larger denominations
for any purpose consistent with this Agreement.
5. Voting Rights; Dividends; Irrevocable Proxy; etc. (a) Unless and until
an Event of Default shall have occurred and be continuing:
(i) Each Grantor shall be entitled to exercise any and all voting and/or
consensual rights and powers accruing to an owner of Pledged Securities or any
part thereof for any purpose not inconsistent with the terms of this Agreement,
the Indenture, and the other
NY1-497088 EXECUTION
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<PAGE>
Collateral Documents, provided that such action would not adversely affect the
rights and remedies inuring to the Trustee or the Holders under this Agreement
or the Indenture or the ability of the Trustee or the Holders to exercise the
same.
(ii) The Trustee shall execute and deliver to each Grantor, or cause to be
executed and delivered to each Grantor, all such proxies, powers of attorney,
and other instruments as such Grantor may reasonably request for the purpose of
enabling such Grantor to exercise the voting and/or consensual rights and powers
which it is entitled to exercise pursuant to subparagraph (i) above and to
receive the cash dividends it is entitled to receive pursuant to subparagraph
(iii) below.
(iii) Each Grantor shall be entitled to receive and retain any and all cash
dividends, principal and interest paid on the Pledged Securities only to the
extent that such cash dividends, principal and interest are permitted by, and
otherwise paid in accordance with the terms and conditions of the Indenture, the
Collateral Documents and applicable laws. Any and all
x noncash dividends,
y. return of capital, capital surplus or paid-in surplus, dividends paid or
payable in cash or otherwise in connection with a partial or total liquidation
or dis- solution, principal, interest and
z. other distributions made on or in respect of Pledged Securities (other
than distributions described in the initial sentence in (a)(iii) above), whether
paid or payable in cash or otherwise, whether resulting from a subdivision,
combination or reclassification of the outstanding capital stock of the issuer
of any Pledged Securities or received in exchange for Pledged Securities or any
part thereof, or in redemption thereof, as a result of any merger,
consolidation, acquisition or other exchange of assets to which such issuer may
be a party or otherwise,
shall be and become part of the Collateral, and, if received by any Grantor,
shall not be commingled by such Grantor with any of its other funds or property
but shall be held separate and apart therefrom, shall be held in trust for the
benefit of the Trustee and the Holders and, subject to the Intercreditor
Agreement, shall be forthwith delivered to the Trustee in the same form as so
received (with any necessary endorsement).
(b) Upon the occurrence and during the continuance of an Event of Default,
all rights of any Grantor to receive any dividends, principal, interest, stock,
instruments, securities, and other distributions which such Grantor is
authorized to receive pursuant to paragraph (a)(iii) of this Section 5 shall
cease, and all such rights shall thereupon become vested in the Trustee, which
shall have the sole and exclusive right and authority to receive and retain such
dividends, principal, interest, stock, instruments, securities and other
distributions which Grantor is authorized to receive pursuant to paragraph
(a)(iii) of this Section 5. All dividends, principal, interest, stock,
instruments, securities and other distributions which Grantor is
NY1-497088 EXECUTION
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<PAGE>
authorized to receive pursuant to paragraph (a)(iii) of this Section 5 which are
received by any Grantor contrary to the provisions of this Section 5(b) shall be
received in trust for the benefit of the Trustee, shall be segregated from other
property or funds of such Grantor and shall be forthwith delivered to the
Trustee as Collateral in the same form as so received (with any necessary
endorsement). Any and all money and other property paid over to or received by
the Trustee pursuant to the provisions of this Section 5(b) shall be retained by
the Trustee in an account to be established by the Trustee upon receipt of such
money or other property and shall be applied in accordance with the provisions
of Section 9 hereof. After all Events of Default have been cured or waived, the
Trustee shall, within five Business Days after all such Events of Default have
been cured or waived, each Grantor shall again be entitled to receive dividends,
principal, interest, stock instruments, securities and other distributions which
such Grantor is entitled to receive pursuant to paragraph (a)(iii) of this
Section 5.
(c) Upon the occurrence and during the continuance of an Event of Default,
all rights of any Grantor to exercise the voting and consensual rights and
powers which it is entitled to exercise pursuant to Section 5(a)(i) shall cease,
and pursuant to the irrevocable proxy granted herein, all such rights shall
thereupon become vested in the Trustee, which shall have the sole and exclusive
right and authority to exercise such voting and consensual rights and powers;
provided that, unless otherwise directed by the Requisite Holders, the Trustee
shall have the right from time to time following and during the continuance of
an Event of Default to permit the applicable Grantors to exercise such rights.
After all Events of Default have been cured or waived, each Grantor shall have
the right to exercise the voting and consensual rights and powers that it would
otherwise be entitled to exercise pursuant to the terms of paragraph (a)(i)
above and the obligations of the Trustee pursuant to the terms of paragraph
(a)(ii) of this Section 5 shall be reinstated.
(d) As long as the Indenture remains in effect and until all of the Secured
Obligations have been paid fully and indefeasibly, any payments made in respect
of the Pledged Debt shall be and become part of the Collateral, and, if received
by any Grantor, shall not be commingled by such Grantor with any of its other
funds or property but shall be held separate and apart therefrom, shall be held
in trust for the benefit of the Trustee and the Holders and shall be forthwith
delivered to the Trustee in the same form as so received.
(e) In order to permit the Trustee to exercise the voting and other
consensual rights which it may be entitled to exercise pursuant to Section 5(c)
and to receive all dividends and other distributions which it may be entitled to
receive under Section 5(a)(iii) or Section 5(b), each Grantor shall promptly
execute and deliver (or cause to be executed and delivered) to the Trustee all
such proxies, dividend payment orders and other instruments as the Trustee may
from time to time reasonably request.
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Without limiting the effect of the foregoing, each Grantor does hereby
constitute and appoint the Trustee as its proxy, and the Trustee shall have the
right, upon the occurrence and during the continuance of an Event of Default, to
exercise all rights, benefits, privileges and powers accruing to such Grantor,
as owner of the Pledged Securities, including, without limitation, giving or
withholding consent, calling and attending shareholders meetings to be held from
time to time with full power to vote and act for and in the name, place and
stead of such Grantor and in the same manner, to the same extent, and with the
same effect that such Grantor would if personally present at such meetings,
giving to the Trustee full power of substitution and revocation, which proxy
shall be effective, automatically and without the necessity of any action
(including any transfer of any Pledged Stock on the record books of the issuer
thereof) by any Person (including the issuer of the Pledged Stock or any officer
or agent thereof).
THIS PROXY IS IRREVOCABLE
Other than the proxies given by the Grantors to the Agent, any proxy of
proxies heretofore given by any Grantor to any Person or Persons whatsoever are
hereby revoked. THIS PROXY SHALL CONTINUE IN FULL FORCE AND EFFECT UNTIL SUCH
TIME AS ALL SECURED OBLIGATIONS ARE PAID AND SATISFIED IN FULL IN ACCORDANCE
WITH THE TERMS OF THE INDENTURE.
6. Issuance of Additional Stock. Except as may be permitted by the
Indenture, each Grantor agrees that it will cause each of its Subsidiaries not
to issue any stock or other securities, whether in addition to, by stock
dividend or other distribution upon, or in substitution for, the Pledged
Securities or otherwise.
7. Supplemental Documentation. In connection with the execution and
delivery of this Agreement each Grantor shall furnish or cause to be furnished
to the Trustee on or prior to the Closing Date a certificate, substantially in
the form of Annex A hereto, signed by an Authorized Officer of such Grantor
dated the Closing Date, certifying that, as of the date of such certificate, all
representations and warranties of such Grantor in Section 3 hereof are true and
correct and that such Grantor is in compliance with all conditions, agreements
and covenants to be observed or performed hereunder.
8. Remedies upon Event of Default. Subject to the Intercreditor Agreement,
if an Event of Default shall have occurred and be continuing, the Trustee may,
in addition to all other rights and remedies provided for herein or otherwise
available to it, including all the rights and remedies of a secured party under
the UCC as in effect in any relevant jurisdiction (whether or not the UCC
applies to the affected Pledged Securities), sell or otherwise dispose of all or
any part of the Collateral, at public or private sale or at any broker's board
or on any securities exchange, for cash, upon credit or for future delivery as
the Trustee shall deem appropriate. Each such purchaser at any such sale shall
hold the property sold absolutely free from any claim or right on the part of
any Grantor, and each Grantor hereby waives (to the extent permitted by law)
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<PAGE>
all rights of redemption, stay and appraisal which such Grantor now has or may
at any time in the future have under any rule of law or statute now existing or
hereafter enacted.
The Trustee shall give the applicable Grantor 10 days' written notice (which
each Grantor agrees is reasonable notice within the meaning of Section 9-504(3)
of the UCC as in effect in New York) of the Trustee's intention to make any sale
of such Grantor's Collateral. Such notice, in the case of a public sale, shall
state the time and place for such sale and, in the case of a sale at a broker's
board or on a securities exchange, shall state the board or exchange at which
such sale is to be made and the day on which the Collateral, or portion thereof,
will first be offered for sale at such board or exchange. Any such public sale
shall be held at such time or times within ordinary business hours and at such
place or places as the Trustee may fix and state in the notice of such sale. At
any such sale, the Collateral, or portion thereof, to be sold may be sold in one
lot as an entirety or in separate parcels, as the Trustee may (in its sole and
absolute discretion) determine. The Trustee shall not be obligated to make any
sale of any Collateral if it shall determine not to do so, regardless of the
fact that notice of sale of such Collateral shall have been given. The Trustee
may, without notice or publication, adjourn any public or private sale or cause
the same to be adjourned from time to time by announcement at the time and place
fixed for sale, and such sale may, without further notice, be made at the time
and place to which the same was so adjourned. In case any sale of all or any
part of the Collateral is made on credit or for future delivery, the Collateral
so sold may be retained by the Trustee until the sale price is paid in full by
the purchaser or purchasers thereof, but the Trustee shall not incur any
liability in case any such purchaser or purchasers shall fail to take up and pay
for the Collateral so sold and, in case of any such failure, such Collateral may
be sold again upon like notice. At any public sale made pursuant to this Section
8, the Trustee may bid for or purchase, free (to the extent permitted by law)
from any right of redemption, stay or appraisal on the part of any Grantor (all
said rights being also hereby waived and released to the extent permitted by
law), with respect to the Collateral or any part thereof offered for sale and
the Trustee may make payment on account thereof by using any claim then due and
payable to the Trustee or any Lender from such Grantor as a credit against the
purchase price, and the Trustee may, upon compliance with the terms of sale,
hold, retain and dispose of such property without further accountability to such
Grantor therefor. Grantors, jointly and severally, shall remain liable for any
deficiency. For purposes hereof, a written agreement to purchase the Collateral
or any portion thereof shall be treated as a sale thereof; the Trustee shall be
free to carry out such sale pursuant to such agreement, and no Grantor shall be
entitled to the return of the Collateral or any portion thereof subject thereto,
notwithstanding the fact that after the Trustee shall have entered into such an
agreement all Events of Default shall have been remedied and the Secured
Obligations paid in full. As an alternative to exercising the power of sale
herein conferred upon it, the Trustee may proceed by a suit or suits at law or
in equity to foreclose this Agreement and to sell the Collateral or any portion
thereof pursuant to a judgment or decree of a court or courts having competent
jurisdiction or pursuant to a proceeding by a court-appointed receiver.
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9. Application of Proceeds of Sale. The proceeds of any sale of Collateral,
as well as any Collateral consisting of cash, shall be applied by the Trustee in
accordance with Section 506 of the Indenture.
10. Trustee Appointed Attorney-in-Fact. Each Grantor hereby appoints the
Trustee the attorney-in-fact of such Grantor upon the occurrence and during the
continuance of an Event of Default solely for the purpose of carrying out the
provisions of this Agreement and taking any action and executing any instrument
which the Trustee may deem necessary or advisable to accomplish the purposes
hereof, which appointment is irrevocable and coupled with an interest. Without
limiting the generality of the foregoing, the Trustee shall have the right, upon
the occurrence and during the continuance of an Event of Default, with full
power of substitution either in the Trustee's name or in the name of such
Grantor, to ask for, demand, sue for, collect, receive receipt and give
acquittance for any and all moneys due or to become due and under and by virtue
of any Collateral, to endorse checks, drafts, orders and other instruments for
the payment of money payable to the applicable Grantor representing any interest
or dividend, or other distribution payable in respect of the Collateral or any
part thereof or on account thereof and to give full discharge for the same, to
settle, compromise, prosecute or defend any action, claim or proceeding with
respect thereto, and to sell, assign, endorse, pledge, transfer and make any
agreement respecting, or otherwise deal with, the same; provided, however, that
nothing herein contained shall be construed as requiring or obligating the
Trustee or the Holders to make any commitment or to make any inquiry as to the
nature or sufficiency of any payment received by the Trustee or the Holders, or
to present or file any claim or notice, or to take any action with respect to
the Collateral or any part thereof or the moneys due or to become due in respect
thereof or any property covered thereby, and no action taken by the Trustee or
the Holders or omitted to be taken with respect to the Collateral or any part
thereof shall give rise to any defense, counterclaim or offset in favor of any
Grantor or to any claim or action against the Trustee or the Holders in the
absence of the gross negligence or wilful misconduct of the Trustee or the
Holders.
11. No Waiver. No failure on the part of the Trustee to exercise, and no
delay in exercising, any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy by the Trustee preclude any other or further exercise thereof or
the exercise of any other right, power or remedy. All remedies hereunder are
cumulative and are not exclusive of any other remedies provided by law. The
Trustee and the Holders shall not be deemed to have waived any rights hereunder
or under any other agreement or instrument unless such waiver shall be in
writing and signed by such parties.
12. Security Interest Absolute. All rights of the Trustee hereunder, the
grant of a security interest and Hypothec in the Collateral and all obligations
of the Grantors hereunder, shall be absolute and unconditional irrespective of
(i) any lack of validity or enforceability of the Indenture, any guarantee or
other agreement with respect to any of the Secured Obligations or any other
agreement or instrument relating to any of the foregoing, (ii) any change in
time, manner
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or place of payment of, or in any other term of, all or any of the Secured
Obligations, or any other amendment or waiver of or any consent to any departure
from the Indenture or any other agreement or instrument, (iii) any exchange,
release or nonperfection of any Lien on other collateral, or any release or
amendment or waiver of or consent to or departure from any guarantee, for all or
any of the Secured Obligations or (iv) any other circumstance which might
otherwise constitute a defense available to, or a discharge of, any Grantor in
respect of the Secured Obligations or in respect of this Agreement (other than
the indefeasible payment in full of all of the Secured Obligations and subject
to Section 14 of this Agreement).
13. Trustee's Fees and Expenses. The provisions of Sections 503 and 607 of
the Indenture with respect to the reimbursement of fees and expenses and
indemnification are hereby deemed incorporated herein in their entirety and
shall be binding upon each of the Grantors as if set forth herein, and each
Grantor, jointly and severally shall be obligated to, (x) upon demand, pay to
the Trustee the amount of any and all reasonable expenses, including the
reasonable fees and expenses of its counsel and of any experts or agents which
the Trustee may incur in connection with (i) the administration of this
Agreement, (ii) the custody or preservation of, or the sale or other disposition
of, collection from, or other realization upon, any of the Collateral, (iii) the
exercise or enforcement of any of the rights of the Trustee hereunder or (iv)
the failure by any Grantor to perform or observe any of the provisions hereof,
and (y) indemnify the Trustee and the Holders. Any such amounts payable as
provided hereunder or thereunder shall be additional Secured Obligations secured
hereby and by the other Security Documents. The obligations contained in this
Section 13 shall survive the termination of this Agreement or the resignation or
removal of the Trustee.
14. Termination. This Agreement shall terminate when all the Secured
Obligations have been fully and indefeasibly paid in cash, at which time the
Trustee shall reassign without any representations or warranties and deliver, to
the Grantors, or to such Person or Persons as the Grantors shall designate,
against receipt, such of the Collateral (if any) as shall not have been sold or
otherwise still be held by it hereunder, together with appropriate instruments
of reassignment and release; provided, however, that all indemnities of the
Grantors contained in this Agreement shall survive, and remain operative and in
full force and effect regardless of, the termination of this Agreement. Any such
reassignment shall be without recourse to or warranty by the Trustee and at the
expense of the Grantors. The security interest hereunder shall automatically
terminate in any Collateral that is permitted to be sold or disposed of by the
Indenture or as otherwise released pursuant to Section 1103 of the Indenture.
The Trustee shall promptly take such action, and execute such releases,
termination statements or other documents as may be reasonably requested by an
interested party, at the expense of the Grantors, to evidence the termination
and releases contemplated hereby.
15. Notices. All communications and notices hereunder shall be in writing
and shall be given (i) in the case of any Grantor organized under the laws of
any state of the United States of America in care of Maska U.S., Inc. at 77
Route 25, Pierson Industrial Park, Bradford,
NY1-497088 EXECUTION
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Vermont, 05033 (Telecopy No.: 802-222-5781), Attention: Russell David, Vice
President-Finance, with a copy to Morgan, Lewis & Bockius, LLP, 101 Park Avenue,
New York, New York 10178-0060, Attention: David W. Pollak, Esq. (Telecopy No.
(212) 309-6273), (ii) in the case of any Grantor organized under the New
Brunswick Business Corporations Act, in care of SLM International, Inc. at 7405
Trans Canada Highway, Suite 300, St. Laurent Quebec H4T 1Z2, Canada (Telecopy
No. (514) 331-7061), Attention: Russell David, Vice President-Finance, with a
copy to Morgan, Lewis & Bockius, LLP, 101 Park Avenue, New York, New York
10178-0060, Attention: David W. Pollak, Esq. (Telecopy No. (212) 309-6273), and
(iii) in the case of the Trustee, The Bank of New York at 101 Barclay Street, 21
West, New York, New York 10286, (Telecopy No.: 212-815-5915) Attention:
Corporate Trust Administrator.
16. Further Assurances. Each Grantor agrees at its expense to do such
further acts and things, and to execute and deliver such additional conveyances,
assignments, agreements and instruments, as the Trustee may at any time
reasonably request in connection with the administration and enforcement of this
Agreement or with respect to the Collateral or any part thereof or in order
better to assure and confirm unto the Trustee its rights and remedies hereunder.
17. Binding Agreement; Assignments. This Agreement, and the terms,
covenants and conditions hereof, shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and assigns, except that
no Grantor shall be permitted to assign this Agreement or any interest herein or
in the Collateral, or any part thereof, or otherwise pledge, encumber or grant
any option with respect to the Collateral, or any part thereof, or any cash or
property held by the Trustee as Collateral under this Agreement, except as
contemplated or permitted by this Agreement or the Indenture.
18. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (INCLUDING ITS CONFLICTS OF LAWS
PRINCIPLES).
19. Severability. In case any one or more of the provisions contained in
this Agreement should be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired.
20. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which, when
taken together, shall constitute but one instrument. This Agreement shall be
effective when a counterpart which bears the signature of the Grantors shall
have been delivered to the Trustee, and the Trustee shall have executed this
Agreement.
NY1-497088 EXECUTION
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21. Section Headings. Section headings used herein are for convenience only
and are not to affect the construction of, or be taken into consideration in
interpreting, this Agreement.
22. English Language. The parties hereto confirm that it is their wish that
this Agreement as well as any other documents relating thereto, including
notices, have been and shall be drawn up in the English language only.
Les parties aux presentes confirment leur volonte que cette convention de
meme que tous les documents, y compris tous avis, s'y rattachant, solent rediges
en langue anglaise seulement.
23. Intercreditor Agreement. This Agreement, including the right of Trustee
to exercise remedies hereunder, shall be subject to the terms and conditions of
the Intercreditor Agreement. Notwithstanding the foregoing or any reference to
the Intercreditor Agreement herein, each Grantor agrees and acknowledges that
neither this Agreement nor the Intercreditor Agreement provides such Grantor
with any rights as a third party beneficiary or otherwise.
NY1-497088 EXECUTION
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IN WITNESS WHEREOF, the parties hereto have duly executed this Pledge
Agreement as of the day and year first above written.
SLM INTERNATIONAL, INC.
By:______________________________
Name: Russell David
Title: Vice President-Finance
#1 APPAREL, INC.
By:______________________________
Name: Russell David
Title: Vice President-Finance
MASKA U.S., INC.
By:______________________________
Name: Russell David
Title: Vice President-Finance
SLM TRADEMARK ACQUISITION CORP.
By:______________________________
Name: Russell David
Title: Vice President-Finance
SPORT MASKA INC.
By:______________________________
Name: Russell David
Title: Vice President-Finance
NY1-497088 EXECUTION
S-1
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SLM TRADEMARK ACQUISITION
CANADA CORPORATION
CORPORATION D'ACQUISITION DE
MARQUE DE COMMERCE SLM CANADA
By:______________________________
Name: Russell David
Title: Vice President-Finance
#1 APPAREL CANADA INC.
By:_______________________________
Name: Russell David
Title: Vice President-Finance
THE BANK OF NEW YORK, as Trustee
By_____________________________
Name:
Title:
NY1-497088 EXECUTION
S-2
CHARGE OVER SHARES
AND IRREVOCABLE PROXY
CHARGE OVER SHARES is dated as of April 1, 1997 and is made between SLM
International, Inc., a Delaware corporation, (the "Grantor") and The Bank of New
York, a banking corporation organized and existing under the laws of the State
of New York, as trustee and collateral agent (the "Trustee") for the Holders
referred to in the Senior Secured Note Indenture dated as of the date hereof,
among the Grantor, as issuer, the Guarantors named therein, as guarantors and
the Trustee (as supplemented or modified from time to time in accordance with
its terms, the "Indenture"). All capitalized terms used herein and not defined
herein shall have the meanings set forth in the Indenture.
The Holders have agreed to acquire the Securities pursuant to, and subject
to the terms and conditions of, the Indenture. Pursuant to the terms of the
Indenture, the Grantor is required to execute and deliver a Charge Over Shares
in the form hereof to secure the following (collectively, the "Secured
Obligations"): all Obligations (such Obligations to include, without limitation,
the due and punctual payment and performance of (a) the principal of and
interest on the Securities (including the payment of amounts that would become
due but for the operation of the automatic stay under Section 362(a) of the
United States Bankruptcy Code, 11 U.S.C. ss. 362(a), and interest that, but for
the filing of a petition in bankruptcy with respect to the Grantor would accrue
on such obligations, whether or not a claim is allowed against the Grantor for
such interest in the related bankruptcy proceeding), when and as due, whether at
maturity, by acceleration, upon one or more dates set for redemption or
otherwise, (b) all obligations of the Grantor at any time and from time to time
under this Charge Over Shares and (c) all other obligations of the Grantor and
the Guarantors at any time and from time to time under the Indenture and the
Collateral Documents).
Accordingly, the Grantor and the Trustee hereby agree as follows:
1. Charge Over Shares and Debt. As security for the payment and performance
in full of the Secured Obligations, the Grantor hereby charges unto and grants
to the Agent, subject to the Intercreditor Agreement, for its own benefit and
for the benefit of the Holders, a security interest in all of the Grantor's
right, title and interest in and to, (a) the shares owned by the Grantor, which
shares are listed in Part A of Schedule I annexed hereto next to the Grantor's
name (the "Initial Charged Shares" and any additional shares of, and all
securities convertible into and warrants, options and other rights to purchase
or otherwise acquire, capital stock of the issuers listed in Part A of Schedule
I annexed hereto, or any corporation successor thereto pursuant to an
amalgamation or other reorganization, obtained in the future by the Grantor
(collectively, the Initial Charged Shares together with all such additional
shares and securities pledged in the future, the "Charged Shares"), (b) all
instruments of indebtedness naming (whether now existing or hereinafter arising)
the Grantor as payee thereunder, which
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indebtedness shall be listed in Part B of Schedule I annexed hereto next to the
Grantor's name (the "Charged Debt") and (c) subject to Section 5 below, all
proceeds of the Charged Shares or Charged Debt, including, without limitation,
all cash, dividends, securities or other property at any time and from time to
time receivable or otherwise distributed in respect of or in exchange for
pursuant to a purchase, redemption, conversion or cancellation or other
transformation for any of or all such Charged Shares or Charged Debt, all
renewals thereof, and all accessions and substitutions thereto (the items
referred to in clauses (a) through (c) being collectively called the
"Collateral"). Upon delivery to the Trustee, all forms of transfer or assignment
securities or notes now or hereafter included in the Collateral including,
without limitation, the Charged Shares and the Charged Debt (the "Charged
Securities") shall be accompanied by undated share certificates, as the case may
be, duly executed in blank or other instruments of transfer satisfactory to the
Trustee and by such other instruments and documents as the Trustee may
reasonably request. Each delivery of Charged Securities shall be accompanied by
a schedule showing a description of the securities theretofore and then being
charged hereunder, which schedule shall be attached hereto as Schedule I and
made a part hereof. Each schedule so delivered shall supersede any prior
schedules so delivered.
2. Delivery of Collateral. Subject to the Intercreditor Agreement, the
Grantor agrees to deliver promptly or cause to be delivered promptly to the
Trustee, for its own benefit and for the benefit of the Holders, any and all
stock or share certificates or other documents of title to or representing the
Charged Securities together with such duly executed transfers or assignments or
Stock Transfer forms with the name of the transferee, date and consideration
left blank, as the Trustee may require to enable the Trustee to vest the same in
the Trustee (for its own benefit and for the benefit of the Holders) or its
nominee, to the intent that the Trustee may at any time following an Event of
Default, (subject always to the terms of the Indenture and the Intercreditor
Agreement) present them for registration to the issuer of the Charged
Securities.
3. Representations, Warranties and Covenants. The Grantor hereby
represents, warrants and covenants as to itself and the Collateral charged by it
hereunder to and with the Trustee that:
(a) except for the security interest and charge granted to the Trustee and
Liens permitted under the Indenture, the Grantor (i) is and, subject to the
provisions of the Indenture, will at all times continue to be the direct owner,
beneficially and of record, of the Charged Shares that it is charging hereunder
and is and will continue to be the holder of the Charged Debt that it is
charging hereunder, (ii) holds the Collateral that it is charging hereunder free
and clear of all Liens, charges, encumbrances and security interests of every
kind and nature, (iii) will make no assignment, pledge, hypothecation or,
subject to the provisions of the Indenture, transfer of, grant any option or
similar right with respect to, or create or suffer to exist any security
interest in, the Collateral (or any part thereof) that it is charging hereunder
including, without limitation, by virtue of becoming bound by any agreement
which restricts in any manner the rights of any present or future holder of any
Charged Shares with respect thereto, and (iv) subject to Section 5 below and the
Intercreditor Agreement, will cause any and all Collateral, whether for value
paid
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by the Grantor or otherwise, to be forthwith deposited with the Trustee and
charged, pledged or assigned hereunder;
(b) the Grantor (i) has the requisite power and authority to
charge and assign the Collateral it is charging hereunder in the manner hereby
done or contemplated, (ii) will not amend, modify or supplement any Charged Debt
without the prior written consent of the Trustee, nor forgive any Indebtedness
evidenced by any Charged Security, and (iii) will defend its title or interest
thereto or therein against any and all Liens, however arising, of all Persons
whomsoever (other than the Liens permitted by the Indenture);
(c) no consent or approval not obtained of any governmental body or
regulatory authority or any securities exchange was or is necessary to the
validity of the charge, and security interests effected hereby;
(d) by virtue of the execution and delivery by the Grantor of this Charge
Over Shares, when the certificates, instruments or other documents representing
or evidencing the Collateral are delivered to the Trustee in accordance with
this Charge Over Shares, the Trustee will obtain a valid and perfected first
equitable mortgage and charge over and security interest in such Collateral as
security for the repayment of the Secured Obligations;
(e) the charge is effective to vest in the Trustee the rights of the
Trustee in the Collateral as set forth herein;
(f) all of the Charged Shares have been duly authorized and validly issued
and as at the date hereof, the Initial Charged Shares constitute (i) all of the
issued and outstanding shares of the issuers listed on Part A of Schedule I
annexed hereto, and (ii) all outstanding warrants, options or other rights to
purchase, or other agreements outstanding with respect to, or property that is
now or hereafter convertible into, or that requires the issuance or sale of, any
Charged Shares, and such Charged Shares have been validly charged to the Trustee
pursuant hereto;
(g) the Charged Debt constitutes all of the issued and outstanding
intercompany Indebtedness, evidenced by a promissory note of the respective
issuers thereof owing to the Grantor;
(h) charge hereunder, immediately upon its acquisition (directly of
indirectly) thereof, any and all shares of any Person that, after the date of
this Charge Over Shares, becomes, as a result of any occurrence, a direct
Subsidiary of the Grantor; and
(i) (i) charge hereunder, immediately upon their issuance, any and all
instruments or other evidences of additional Indebtedness from time to time owed
to the Grantor by any obligor on the Charged Debt, and (ii) charge hereunder,
immediately upon their issuance, any and all instruments or other evidences of
Indebtedness from time to time owed to the Grantor
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by any Person that after the date of this Charge Over Shares becomes, as a
result of any occurrence, a direct or indirect Subsidiary of the Grantor.
All representations, warranties and covenants of the Grantor contained in this
Charge Over Shares shall survive the execution, delivery and performance of this
Charge Over Shares until the termination of this Charge Over Shares pursuant to
Section 14 hereof.
4. Registration in Nominee Name; Denominations. Subject to the
Intercreditor Agreement, upon the occurrence and during the continuance of an
Event of Default, the Trustee shall have the right (in its sole and absolute
discretion, with subsequent notice to the Grantor) to transfer the Charged
Securities into its own name or the name of its nominee, to require the
directors of the issuer to approve such transfer or assignment of the Charged
Securities (subject to the Articles of Association of the issuers) and, subject
to payment of any stamp duty on the transfer or assignment of such Charged
Securities, to register the Trustee or its nominee (as the case may be) as the
holder thereof. In addition, subject always to the Articles of Association of
the issuer, the Trustee shall at all times have the right to exchange the
certificates representing any of the Charged Securities for certificates of
smaller or larger denominations for any purpose consistent with this Charge Over
Shares.
5. Voting Rights; Dividends; Irrevocable Proxy; etc. (a) Unless and until
an Event of Default shall have occurred and be continuing:
(i) The Grantor shall be entitled to exercise any and all voting
and/or consensual rights and powers accruing to an owner of Charged Shares or
any part thereof for any purpose not inconsistent with the terms of this Charge
Over Shares, the Indenture and the other Collateral Documents, provided that
such action would not adversely affect the rights and remedies inuring to the
Trustee or the Holders under this Charge Over Shares or the Indenture or the
ability of the Trustee or the Holders to exercise the same.
(ii) The Trustee shall execute and deliver to the Grantor, or cause to
be executed and delivered to the Grantor, all such proxies, powers of attorney,
and other instruments as the Grantor may reasonably request for the purpose of
enabling the Grantor to exercise the voting and/or consensual rights and powers
which it is entitled to exercise pursuant to subparagraph (i) above and to
receive the cash dividends it is entitled to receive pursuant to subparagraph
(iii) below.
(iii) The Grantor shall be entitled to receive and retain any and all
cash dividends, principal and interest paid on the Charged Securities only to
the extent that such cash dividends, principal and interest are permitted by,
and otherwise paid in accordance with the terms and conditions of the Indenture,
the Articles of Association of the issuer of the Charges Securities, the
Collateral Documents and applicable laws. Any and all
x noncash dividends,
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<PAGE>
y. return of capital, capital surplus or paid-in surplus, dividends
paid or payable in cash or otherwise in connection with a partial or total
liquidation or dissolution, principal, interest and
z. other distributions made on or in respect of Charged Securities
(other than contributions described in the initial sentence in (a)(iii) above),
whether paid or payable in cash or otherwise, whether resulting from a
subdivision, combination or reclassification of the outstanding capital stock of
the issuer of any Charged Securities or received in exchange for Charged
Securities or any part thereof, or in redemption thereof, as a result of any
merger, consolidation, acquisition or other exchange of assets to which such
issuer may be a party or otherwise,
shall be and become part of the Collateral, and, if received by the Grantor,
shall not be commingled by the Grantor with any of its other funds or property
but shall be held separate and apart therefrom, shall be held in trust for the
benefit of the Trustee and the Holders and, subject to the Intercreditor
Agreement, shall be forthwith delivered to the Trustee in the same form as so
received (with any necessary endorsement).
(b) Upon the occurrence and during the continuance of an Event of Default,
all rights of the Grantor to receive any dividends, principal, interest, stock,
instruments, securities, and other distributions which the Grantor is authorized
to receive pursuant to paragraph (a)(iii) of this Section 5 shall cease, and all
such rights shall thereupon become vested in the Trustee, which shall have the
sole and exclusive right and authority to receive and retain such dividends,
principal, interest, stock, instruments, securities and other distributions
which the Grantor is authorized to receive pursuant to paragraph (a)(iii) of
this Section 5. All dividends, principal, interest, stock, instruments,
securities and other distributions which the Grantor is authorized to receive
pursuant to paragraph (a)(iii) of this Section 5 which are received by the
Grantor contrary to the provisions of this Section 5(b) shall be received in
trust for the benefit of the Trustee, shall be segregated from other property or
funds of the Grantor and shall be forthwith delivered to the Trustee as
Collateral in the same form as so received (with any necessary endorsement). Any
and all money and other property paid over to or received by the Trustee
pursuant to the provisions of this Section 5(b) shall be retained by the Trustee
in an account to be established by the Trustee upon receipt of such money or
other property and shall be applied in accordance with the provisions of Section
9 hereof. Within five Business Days after all Events of Default have been cured
or waived, the Grantor shall again be entitled to receive dividends, principal,
interest, stock instruments, securities and other distributions which the
Grantor is entitled to receive pursuant to paragraph (a)(iii) of this Section 5.
(c) Upon the occurrence and during the continuance of an Event of Default,
all rights of the Grantor to exercise the voting and consensual rights and
powers which it is entitled to exercise pursuant to Section 5(a)(i) shall cease,
and pursuant to the irrevocable proxy granted herein, all such rights shall
thereupon become vested in the Trustee, which shall have the sole and exclusive
right and authority to exercise such voting and consensual rights and powers;
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provided that, unless otherwise directed by the Requisite Holders, the Trustee
shall have the right from time to time following and during the continuance of
an Event of Default to permit the Grantor to exercise such rights. After all
Events of Default have been cured or waived, the Grantor shall have the right to
exercise the voting and consensual rights and powers that it would otherwise be
entitled to exercise pursuant to the terms of paragraph (a) (i) above and the
obligations of the Trustee pursuant to the terms of paragraph (a) (ii) of this
Section 5 shall be reinstated.
(d) As long as the Indenture remains in effect and until all of the Secured
Obligations have been paid fully and indefeasibly, any payments made in respect
of the Charged Debt shall be and become part of the Collateral, and, if received
by the Grantor, shall not be commingled by the Grantor with any of its other
funds or property but shall be held separate and apart therefrom, shall be held
in trust for the benefit of the Trustee and the Holders and shall be forthwith
delivered to the Trustee in the same form as so received.
(e) In order to permit the Trustee to exercise the voting and other
consensual rights which it may be entitled to exercise pursuant to Section 5(c)
and to receive all dividends and other distributions which it may be entitled to
receive under Section 5(a)(iii) or Section 5(b), the Grantor shall promptly
execute and deliver (or cause to be executed and delivered) to the Trustee all
such proxies, dividend payment orders and other instruments as the Trustee may
from time to time reasonably request.
Without limiting the effect of the foregoing, the Grantor does constitute
and appoint the Trustee as its proxy, and upon the occurrence and during the
continuance of an Event of Default, the Trustee shall have the right to exercise
all rights, benefits, privileges and powers accruing to the Grantor, as owner of
the Charged Securities, including, without limitation, giving or withholding
consent, calling and attending shareholders meetings to be held from time to
time with full power to vote and act for and in the name, place and stead of the
Grantor and in the same manner, to the same extent, and with the same effect
that the Grantor would if personally present at such meetings, giving to the
Trustee full power of substitution and revocation, which proxy shall be
effective, automatically and without the necessity of any action (including any
transfer of any Charged Shares on the record books of the issuer thereof) by any
Person (including the issuer of the Charged Shares or any director, officer or
Trustee thereof).
Immediately following occurrence of an Event of Default, the Grantor shall give
notice to the Company Secretary of the Issuer of the Charged Shares of the
appointment of the Trustee as the Grantor's proxy in accordance with this
Section 5 and the Grantor's attorney in accordance with Section 10 hereof in
relation to the Charged Securities.
THIS PROXY IS IRREVOCABLE
Other than the proxies given by the Grantor to the Agent any proxy of
proxies heretofore given by the Grantor to any Person or Persons whatsoever are
hereby revoked. THIS
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PROXY SHALL CONTINUE IN FULL FORCE AND EFFECT UNTIL SUCH TIME AS ALL SECURED
OBLIGATIONS ARE PAID AND SATISFIED IN FULL IN ACCORDANCE WITH THE TERMS OF THE
INDENTURE.
6. Issuance of Additional Shares. Except as may be permitted by the
Indenture, the Grantor agrees that it will cause each of its Subsidiaries not to
issue any stock or other securities, whether in addition to, by stock dividend
or other distribution upon, or in substitution for, the Charged Securities or
otherwise.
7. Supplemental Documentation. In connection with the execution and
delivery of this Charge Over Shares the Grantor shall furnish or cause to be
furnished to the Trustee on or prior to the Closing Date a certificate,
substantially in the form of Annex A hereto, signed by an Authorized Officer of
the Grantor dated the Closing Date, certifying that, as of the date of such
certificate, all representations and warranties of the Grantor in Section 3
hereof are true and correct and that the Grantor is in compliance with all
conditions, agreements and covenants to be observed or performed hereunder.
8. Remedies upon Event of Default. Subject to the Intercreditor Agreement,
if an Event of Default shall have occurred and be continuing, the Trustee may,
in addition to all other rights and remedies provided for herein or otherwise
available to it, including all the rights and remedies of a secured party under
the UCC as in effect in any relevant jurisdiction (whether or not the UCC
applies to the affected Charged Securities), sell or otherwise dispose of all or
any part of the Collateral, at public or private sale or at any broker's board
or on any securities exchange, for cash, upon credit or for future delivery as
the Trustee shall deem appropriate. Each such purchaser at any such sale shall
hold the property sold absolutely free from any claim or right on the part of
the Grantor, and the Grantor hereby waives (to the extent permitted by law) all
rights of redemption, stay and appraisal which the Grantor now has or may at any
time in the future have under any rule of law or statute now existing or
hereafter enacted.
The Trustee shall give the Grantor 10 days' written notice (which the
Grantor agrees is reasonable notice within the meaning of Section 9-504(3) of
the UCC as in effect in New York) of the Trustee's intention to make any sale of
the Grantor's Collateral. Such notice, in the case of a public sale, shall state
the time and place for such sale and, in the case of a sale at a broker's board
or on a securities exchange, shall state the board or exchange at which such
sale is to be made and the day on which the Collateral, or portion thereof, will
first be offered for sale at such board or exchange. Any such public sale shall
be held at such time or times within ordinary business hours and at such place
or places as the Trustee may fix and state in the notice of such sale. At any
such sale, the Collateral, or portion thereof, to be sold may be sold in one lot
as an entirety or in separate parcels, as the Trustee may (in its sole and
absolute discretion) determine. The Trustee shall not be obligated to make any
sale of any Collateral if it shall determine not to do so, regardless of the
fact that notice of sale of such Collateral shall have been given. The Trustee
may, without notice or publication, adjourn any public or private sale or cause
the same to be adjourned from time to time by announcement at the time and place
fixed for sale, and such sale may, without further notice, be made at the time
and place to which the
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same was so adjourned. In case any sale of all or any part of the Collateral is
made on credit or for future delivery, the Collateral so sold may be retained by
the Trustee until the sale price is paid in full by the purchaser or purchasers
thereof, but the Trustee shall not incur any liability in case any such
purchaser or purchasers shall fail to take up and pay for the Collateral so sold
and, in case of any such failure, such Collateral may be sold again upon like
notice. At any public sale made pursuant to this Section 8, the Trustee may bid
for or purchase, free (to the extent permitted by law) from any right of
redemption, stay or appraisal on the part of the Grantor (all said rights being
also hereby waived and released to the extent permitted by law), with respect to
the Collateral or any part thereof offered for sale and the Trustee may make
payment on account thereof by using any claim then due and payable to the
Trustee or any Holder from the Grantor as a credit against the purchase price,
and the Trustee may, upon compliance with the terms of sale, hold, retain and
dispose of such property without further accountability to the Grantor therefor.
The Grantor shall remain liable for any deficiency. For purposes hereof, a
written agreement to purchase the Collateral or any portion thereof shall be
treated as a sale thereof; the Trustee shall be free to carry out such sale
pursuant to such agreement, and the Grantor shall not be entitled to the return
of the Collateral or any portion thereof subject thereto, notwithstanding the
fact that after the Trustee shall have entered into such an agreement all Events
of Default shall have been remedied and the Secured Obligations paid in full. As
an alternative to exercising the power of sale herein conferred upon it, the
Trustee may proceed by a suit or suits at law or in equity to foreclose this
Charge Over Shares and to sell the Collateral or any portion thereof pursuant to
a judgment or decree of a court or courts having competent jurisdiction or
pursuant to a proceeding by a court-appointed receiver.
9. Application of Proceeds of Sale. The proceeds of any sale of Collateral,
as well as any Collateral consisting of cash, shall be applied by the Trustee in
accordance with Section 506 of the Indenture.
10. Trustee Appointed Attorney-in-Fact. The Grantor hereby appoints the
Trustee its attorney-in-fact upon the occurrence and during the continuance of
an Event of Default solely for the purpose of carrying out the provisions of
this Charge Over Shares and taking any action and executing any instrument which
the Trustee may deem necessary or advisable to accomplish the purposes hereof,
which appointment is irrevocable and coupled with an interest. Without limiting
the generality of the foregoing, the Trustee shall have the right, upon the
occurrence and during the continuance of an Event of Default, with full power of
substitution either in the Trustee's name or in the name of the Grantor, to ask
for, demand, sue for, collect, receive receipt and give acquittance for any and
all moneys due or to become due and under and by virtue of any Collateral, to
endorse the cheques, drafts, orders and other instruments for the payment of
money payable to the Grantor representing any interest or dividend, or other
distribution payable in respect of the Collateral or any part thereof or on
account thereof and to give full discharge for the same, to settle, compromise,
prosecute or defend any action, claim or proceeding with respect thereto, and to
sell, assign, endorse, pledge, transfer and make any agreement respecting, or
otherwise deal with, the same; provided, however, that nothing herein contained
shall be construed as requiring or obligating the Trustee or the Holders to make
any
8
<PAGE>
commitment or to make any inquiry as to the nature or sufficiency of any payment
received by the Trustee or the Holders, or to present or file any claim or
notice, or to take any action with respect to the Collateral or any part thereof
or the moneys due or to become due in respect thereof or any property covered
thereby, and no action taken by the Trustee or the Holders or omitted to be
taken with respect to the Collateral or any part thereof shall give rise to any
defense, counterclaim or offset in favor of the Grantor or to any claim or
action against the Trustee or the Holders in the absence of the gross negligence
or wilful misconduct of the Trustee or the Holders.
11. No Waiver. No failure on the part of the Trustee to exercise, and no
delay in exercising, any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy by the Trustee preclude any other or further exercise thereof or
the exercise of any other right, power or remedy. All remedies hereunder are
cumulative and are not exclusive of any other remedies provided by law. The
Trustee and the Holders shall not be deemed to have waived any rights hereunder
or under any other agreement or instrument unless such waiver shall be in
writing and signed by such parties.
12. Security Interest Absolute. All rights of the Trustee hereunder, the
grant of a security interest in the Collateral and all obligations of the
Grantor hereunder, shall be absolute and unconditional irrespective of (i) any
lack of validity or enforceability of the Indenture, any guarantee or other
agreement with respect to any of the Secured Obligations or any other agreement
or instrument relating to any of the foregoing, (ii) any change in time, manner
or place of payment of, or in any other term of, all or any of the Secured
Obligations, or any other amendment or waiver of or any consent to any departure
from the Indenture or any other agreement or instrument, (iii) any exchange,
release or nonperfection of any Lien on other collateral, or any release or
amendment or waiver of or consent to or departure from any guarantee, for all or
any of the Secured Obligations or (iv) any other circumstance which might
otherwise constitute a defense available to, or a discharge of, the Grantor in
respect of the Secured Obligations or in respect of this Charge Over Shares
(other than the indefeasible payment in full of all of the Secured Obligations
and subject to Section 14 of this Charge Over Shares).
13. Trustee's Fees and Expenses. The provisions of Sections 503 and 607 of
the Indenture with respect to the reimbursement of fees and expenses and
indemnification are hereby deemed incorporated herein in their entirety and
shall be binding upon the Grantor as if set forth herein, and the Grantor shall
be obligated to, (x) upon demand, pay to the Trustee the amount of any and all
reasonable expenses, including the reasonable fees and expenses of its counsel
and of any experts or Trustees which the Trustee may incur in connection with
(i) the administration of this Charge Over Shares, (ii) the custody or
preservation of, or the sale or other disposition of, collection from, or other
realization upon, any of the Collateral, (iii) the exercise or enforcement of
any of the rights of the Trustee hereunder or (iv) the failure by the Grantor to
perform or observe any of the provisions hereof, and (y) indemnify the Trustee
and the Holders. Any such amounts payable as provided hereunder or thereunder
shall be additional Secured Obligations
9
<PAGE>
secured hereby and by the other Security Documents. The obligations contained in
this Section 13 shall survive the termination of this Charge Over Shares or the
resignation or removal of the Trustee.
14. Termination. This Charge Over Shares shall terminate when all the
Secured Obligations have been fully and indefeasibly paid in cash, at which time
the Trustee shall reassign without any representations or warranties and deliver
to the Grantor, or to such Person or Persons as the Grantor shall designate,
against receipt, such of the Collateral (if any) as shall not have been sold or
otherwise still be held by it hereunder, together with appropriate instruments
of reassignment and release; provided, however, that all indemnities of the
Grantor contained in this Charge Over Shares shall survive, and remain operative
and in full force and effect regardless of, the termination of this Charge Over
Shares. Any such reassignment shall be without recourse to or warranty by the
Trustee and at the expense of the Grantor. The security interest hereunder shall
automatically terminate in any Collateral that is permitted to be sold or
disposed of by the Indenture or as otherwise released pursuant to Section 1103
of the Indenture. The Trustee shall promptly take such action, and execute such
releases, termination statements or other documents as may be reasonably
requested by an interested party, at the expense of the Grantor, to evidence the
termination and releases contemplated hereby.
15. Notices. All communications and notices hereunder shall be in writing
and shall be given (i) in the case of the Grantor: at 77 Route 25, Pierson
Industrial Park, Bradford, Vermont 05033 (Telecopy No. (802) 222-5781),
Attention: Russell David, Vice President - Finance, with a copy to Morgan, Lewis
& Bockius, LLP, 101 Park Avenue, New York, New York 10178-0060, Attention: David
W. Pollak, Esq. (Telecopy No. (212) 309-6273), and (ii) in the case of the
Trustee, The Bank of New York at: 101 Barclay Street, 21 West, New York, New
York 10286, (Telecopy No.: 212-815-5915) Attention: Corporate Trust Department.
16. Further Assurances. The Grantor agrees at its expense to do such
further acts and things, and to execute and deliver such additional conveyances,
assignments, agreements and instruments, as the Trustee may at any time
reasonably request in connection with the administration and enforcement of this
Charge Over Shares or with respect to the Collateral or any part thereof or in
order better to assure and confirm unto the Trustee its rights and remedies
hereunder.
17. Binding Agreement; Assignments. This Charge Over Shares, and the terms,
covenants and conditions hereof, shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and assigns, except that
the Grantor shall not be permitted to assign this Charge Over Shares or any
interest herein or in the Collateral, or any part thereof, or otherwise charge,
pledge, encumber or grant any option with respect to the Collateral, or any part
thereof, or any cash or property held by the Trustee as Collateral under this
Charge Over Shares, except as contemplated or permitted by this Charge Over
Shares or the Indenture.
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<PAGE>
18. Governing Law/Jurisdiction. This Charge Over Shares shall be governed
by and interpreted and construed in accordance with English law.
The Grantor, for the benefit of the Trustee and the Holders, hereby
irrevocably agrees that any proceedings or disputes in connection this Charge
Over Shares may be brought either in the courts of England and Wales, or in any
competent state court of the State of New York, USA or any federal court within
the State of New York, USA and hereby submits to the non-exclusive jurisdiction
of or any such court.
The Grantor and the Trustee irrevocably waive any objection which each may
respectively have, now or hereafter, to the laying of the venue of any
proceedings in any such court as is referred in this Section 18 and any claim
that any such proceedings have been brought in an inconvenient forum and further
irrevocably agree that a judgement in any proceedings brought in any competent
court shall be conclusive and binding upon the Grantor and may be enforced in
the courts of any other jurisdiction.
19. Severability. In case any one or more of the provisions contained in
this Charge Over Shares should be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired.
20. Counterparts. This Charge Over Shares may be executed in two or more
counterparts, each of which shall constitute an original, but all of which, when
taken together, shall constitute but one instrument. This Charge Over Shares
shall be effective when a counterpart which bears the signature of the Grantor
shall have been delivered to the Trustee, and the Trustee shall have executed
this Charge Over Shares.
21. Section Headings. Section headings used herein are for convenience only
and are not to affect the construction of, or be taken into consideration in
interpreting, this Charge Over Shares.
22. English Language. The parties hereto confirm that it is their wish that
this Charge Over Shares as well as any other documents relating thereto,
including notices, have been and shall be drawn up in the English language only.
Les parties aux presentes confirment leur volonte que cette convention de
meme que tous les documents, y compris tous avis, s'y rattachant, solent rediges
en langue anglaise seulement.
23. Intercreditor Agreement. This Charge Over Shares, including the right
of the Trustee to exercise remedies hereunder, shall be subject to the terms and
conditions of the Intercreditor Agreement. Notwithstanding the foregoing or any
reference to the Intercreditor Agreement herein, the Grantor agrees and
acknowledges that neither this Charge Over Shares nor
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<PAGE>
the Intercreditor Agreement provides the Grantor with any rights as a third
party beneficiary or otherwise.
IN WITNESS WHEREOF, the parties hereto have duly executed this Charge Over
Shares as of the day and year first above written.
SLM INTERNATIONAL, INC.
By:______________________________
Name:
Title:
THE BANK OF NEW YORK, as Trustee
By:______________________________
Name:
Title:
12
- 1 -
DEED OF HYPOTHEC
BETWEEN
THE BANK OF NEW YORK
AND
SLM TRADEMARK ACQUISITION CANADA CORPORATION
BEARING FORMAL DATE AS OF
APRIL 1ST, 1997
<PAGE>
TABLE OF CONTENTS
PAGE
----
1. INTERPRETATION ........................................ 2
2. [NOT USED] ............................................ 4
3. [NOT USED] ............................................ 4
4. HYPOTHEC: DESCRIPTION OF CHARGED PROPERTY ............. 4
5. AMOUNT OF THE HYPOTHEC ................................ 7
6. SECURED OBLIGATIONS ................................... 7
7. ADDITIONAL PROVISIONS PERTAINING TO THE HYPOTHEC ON
RENTAL INCOME AND LEASES .............................. 8
8. ADDITIONAL PROVISIONS TO THE HYPOTHEC ON CLAIMS
(OTHER THAN RENTALS) ................................... 9
9. ADDITIONAL PROVISIONS TO THE HYPOTHEC ON SECURITIES ... 9
10. ASSIG SUBJECT TO THE FINANCIAL
ADMINISTRATION ACT .................................... 10
11. REPRESENTATIONS AND WARRANTIES ........................ 10
12. COVENANTS ............................................. 14
13. EVENTS OF DEFAULT ..................................... 20
14. TRUSTEE'S RECOURSES IN CASE OF DEFAULT ................ 21
15. GENERAL PROVISIONS .................................... 27
16. INTERCREDITOR AGREEMENT ............................... 30
17. GOVERNING LAW ......................................... 30
18. AMENDMENTS ............................................ 30
19. FORMAL DATE ........................................... 30
20. ENGLISH LANGUAGE ...................................... 31
<PAGE>
DEED OF HYPOTHEC
B E F O R E Mtre Richard Trudeau, the undersigned notary for the Province of
Quebec, practicing in the City of Longueuil.
APPEARED: THE BANK OF NEW YORK, a banking corporation organized under the Laws
of the State of New York, (U.S.A.) having its head office at 101 Barclay Street,
21 West, New York, New York, 10286, U.S.A., herein acting and represented by
Marie E. Trimboli, its Assistant Treasurer, hereunto duly authorized for the
purposes hereof as she so declares. Notice of its address will be registered at
the Register of Personal and Movable Real Rights concurrently with the
registration of this Deed.
(hereinafter the "TRUSTEE")
AND: SLM TRADEMARK ACQUISITION CANADA CORPORATION , a legal person being a
corporation continued under the Business Corporations Act (New Brunswick),
having its registered office at c/o Stewart McKelvey Stirling Scales, 10th
Floor, Brunswick House, 44 Chipman Hill, P.O. Box 7289, Postal Station "A",
Saint John, New Brunswick, E2L 4S6 and its principal place of business at 7405
Trans-Canada Highway, Suite 300, Ville Saint-Laurent, Quebec H4T 1Z2, herein
acting and represented by Bruce Randall, its Secretary, duly authorized for the
purposes hereof pursuant to a resolution adopted by its shareholders on April ,
1997, a certified copy of which is annexed hereto after having been acknowledged
true and signed for the purpose of identification by said representative in the
presence of the undersigned Notary.
(hereinafter the "GRANTOR")
WHICH PARTIES HAVE DECLARED AS FOLLOWS:
WHEREAS the Grantor is desirous of securing its Guaranty (as hereinafter
defined) in the manner hereinafter appearing;
NOW, THEREFORE, THE PARTIES HERETO AGREE AS FOLLOWS:
<PAGE>
-2-
1. INTERPRETATION
1.1 DEFINITIONS
The following terms, wherever used in this Deed or in the accompanying
schedules, shall, unless there be something in the context inconsistent
therewith, have the following meanings:
1.1.1 "BUSINESS DAY" means a day on which the Trustee's branch is
opened for business but does not include Saturday and Sunday.
1.1.2 "CHARGED PROPERTY" shall have the meaning ascribed to it in
Section 4 hereof;
1.1.3 "COLLATERAL" shall have the meaning ascribed to it in paragraph
4.8 hereof;
1.1.4 "DEFAULT" means one or the other events set out in Section 13
hereof;
1.1.5 "DOLLARS" or "$" means the legal currency in Canada;
1.1.6 "GRANTOR" means SLM Trademark Acquisition Canada Corporation
and any of its successors or assigns;
1.1.7 "GUARANTY" means the guaranty provided by the Grantor under
Article 10 of that certain Senior Secured Note Indenture (the
"INDENTURE") dated as of April 1st, 1997 between SLM
International, Inc., Sport Maska Inc., Maska U.S., Inc., #1
Apparel, Inc., #1 Apparel Canada Inc., SLM Trademark
Acquisition Corp., SLM Trademark Acquisition Canada Corporation
and The Bank of New York, pursuant to which the Grantor shall
have guaranteed, among other things, the payment of the
Securities issued pursuant to the Indenture;
1.1.8 "HYPOTHEC" shall have the meaning ascribed to it in Section 4
hereof;
1.1.9 "PROPERTY IN STOCK" shall have the meaning ascribed to it in
paragraph 4.4 hereof;
1.1.10 "SECURED OBLIGATIONS" means all of the obligations which are to
be secured by the Hypothec pursuant to Section 6 hereof;
<PAGE>
-3-
1.1.11 "THIS DEED", "THESE PRESENTS", "HEREIN", "HEREBY",
"HEREUNDER", "HEREOF" and similar expressions refer to this
Deed, and the accompanying schedules and to any deed or
document supplemental or complementary hereto or restating this
Deed;
1.1.12 "TRUSTEE" means The Bank of New York and shall include any
successor thereto pursuant to the applicable provisions of the
Indenture.
1.2 GENDER
Unless there be something in the context inconsistent therewith, words
importing any gender shall include any other gender as may be applicable under
the circumstances.
1.3 HEADINGS
The division of this Deed into Sections, subsections and paragraphs and
the insertion of titles are for convenience of reference only and do not affect
the meaning or the interpretation of the present Deed. Unless otherwise
indicated, a reference to a particular Section, subsection or paragraph is a
reference to the particular Section, subsection or paragraph in this Deed.
1.4 SCHEDULES
The Schedules annexed hereto shall form an integral part of this Deed.
1.5 DELAYS AND CALCULATION OF DELAYS
The delays provided hereunder are calculated simultaneously with the
delays imposed by law and are not in addition to such delays. In the calculation
of any period of delay, the period shall exclude the day from which the period
commences and the period shall include the last day thereof.
1.6 BUSINESS DAY
When the date on which a delay expires or a payment has to be made or an
act has to be done is not a Business Day, the delay expires or the payment must
be made or the act must be done on the next following Business Day, unless
expressly provided otherwise in this Deed.
1.7 TERMS DEFINED IN THE INDENTURE
The terms defined in the Indenture shall have the same meaning when used
herein unless otherwise defined herein.
<PAGE>
-4-
[NOT USED]
[NOT USED]
HYPOTHEC: DESCRIPTION OF CHARGED PROPERTY
The Grantor hereby hypothecates in favour of the Trustee for its own
benefit and for the equal and rateable benefit of each Holder of a Security
issued pursuant to the Indenture and authenticated and delivered by the Trustee,
the universality of all of the Grantor's movable and immovable property, present
and future, corporeal and incorporeal, of whatever nature and kind and wherever
situate (the "Charged property") and, with respect to incorporeal or intangible
property, property located outside of the Province of Quebec or used in more
than one jurisdiction, hereby charges, assigns and mortgages in favour of the
Trustee for its own benefit and for the equal and rateable benefit of each
Holder of a Security issued pursuant to the Indenture and authenticated and
delivered by the Trustee and creates a security interest in the Charged property
(the hypothec, charge, mortgage and assignment and the security interest
hereinafter collectively referred to as the "Hypothec"), the whole including
without limitation the following universalities of present and future
properties:
4.1 IMMOVABLES
All the immovable properties of the Grantor, along with all property
permanently physically attached or joined thereto so as to ensure the utility
thereof (including the heating and air conditioning apparatus and watertanks)
and which become immovable by the effect of law, the hypothec on future
immovables to become effective upon the registration of a notice to that effect
in accordance with section 2949 of the Civil Code of Quebec (collectively
hereinafter referred to as the "IMMOVABLES").
4.2 RENTALS, REVENUES AND LEASES OF IMMOVABLES
All rentals, annuities and revenues which are or may be produced by the
Immovables as well as any other right of the Grantor in any lease, present and
future, which may affect such Immovables.
4.3 RENTAL INSURANCE
Proceeds of any insurance covering losses of revenue and rentals described
in paragraph 4.2 above.
4.4 PROPERTY IN STOCK
All property in stock or inventory of every nature and kind of the Grantor
whether in its possession, in transit or held on its behalf, including raw
materials, work in process, finished goods or other materials, goods
manufactured or
<PAGE>
-5-
transformed, or in the process of being so, by the Grantor or by others,
packaging materials, property evidenced by bill of lading, animals, mineral
substances, hydrocarbons and other products of the soil as well as all fruits
thereof from the time of their extraction (hereinafter the "Property in stock").
The Property in stock held by third parties under a lease agreement, a
leasing contract, a franchise or licence agreement, or any other agreement
entered into with or on behalf of the Grantor, is also subject to this Hypothec.
Property having formed part of the Property in stock which is alienated by
the Grantor in favour of a third person but in respect of which the Grantor has
retained title pursuant to a reservation of ownership provision, shall remain
charged by the Hypothec until title is transferred; any Property in stock the
ownership of which reverts to the Grantor pursuant to the resolution or
resiliation of any agreement or following its repossession is also subject to
the Hypothec.
4.5 CLAIMS, BOOK DEBTS AND OTHER MOVABLE PROPERTY
4.5.1 CLAIMS, RECEIVABLES AND BOOK DEBTS
All of the Grantor's claims, debts, demands and choses in action,
whatever their cause or nature, whether or not they are certain, liquid or
exigible; whether or not evidenced by any title (and whether or not such
title is negotiable), note, acceptances, bill of exchange or drafts;
whether litigious or not; whether or not they have been previously or are
to be invoiced; whether or not they constitute book debts. Hypothecated
claims shall include: (i) indemnities payable to the Grantor under any all
risk insurance policy, any life insurance policy or any liability
insurance policy, subject to the rights of other subsequent ranking
hypothecs on the insured property, (ii) the sums owing to the Grantor in
connection with interest or currency exchange contracts and other treasury
or hedging instruments, management of risks or derivative instruments
existing in favour of the Grantor ("SWAPS"), and (iii) the Grantor's
rights in any credit balances, monies or deposits in accounts held for it
by the Trustee (subject to the Trustee's compensation or set-off rights)
or by any financial institution or any other person.
4.5.2 RIGHTS OF ACTION
The Grantor's rights under contract with third parties as well as
the Grantor's rights of action and claims against third persons.
4.5.3 ACCESSORIES
The hypothecs, security interest, security agreement, guarantees,
suretyships, notes, acceptances and accessories to the claims and rights
described above and other rights relating thereto (including, without
limitation, the rights of the Grantor in its capacity as seller under any
<PAGE>
-6-
instalment sale, with respect to the claims hereby hypothecated which are
the result of such sale).
4.5.4 MOVABLE PROPERTY
All movable property owned by the Grantor and covered by the
instalment sales mentioned in paragraph 4.5.3 hereof.
A right or a claim shall not be excluded from the Charged property merely
because: (i) the debtor thereof is not domiciled in the Province of Quebec or
(ii) the debtor thereof is an affiliate (as such term is defined in the Canada
Business Corporations Act) of the Grantor (regardless of the law of the
jurisdiction of its incorporation) or (iii) such right or claim is not related
to the ordinary course of business or the operations of the Grantor.
4.6 SECURITIES
All securities (including shares, debentures, units, bonds, obligations,
rights, options, warrants, debt securities, investment certificates, units in
mutual funds, certificates or other instruments representing such property) now
or hereafter owned by the Grantor or held by the Grantor or on its behalf,
including without limitation those issued or which will be issued by the
corporations or partnerships listed in Schedule "B" or by any corporation or
partnership successor thereto pursuant to an amalgamation or any other
reorganization (a copy of which Schedule "B" remains annexed hereto after having
been recognized as true and signed for identification by the representatives of
the parties hereto with and in the presence of the undersigned notary); as well
as all those which are delivered by the Grantor to the Trustee or to a third
party on its behalf from time to time.
4.7 EQUIPMENT AND ROAD VEHICLES
The equipment, office furniture, appliances, supplies, apparatus, tools,
patterns, models, dies, blueprints, fittings, furnishings, fixtures, machinery
and rolling stock (including road vehicles) of the Grantor, including additions
and accessories and spare parts.
4.8 TRADE-MARKS AND OTHER INTELLECTUAL PROPERTY RIGHTS
All of the Grantor's rights in any trade-mark, copyright, industrial
design, patent, goodwill, invention, trade name, trade secret, trade process,
license, permit, franchise, know-how, plant breeders' right, integrated circuit
topography and in any other intellectual property right, including any
application or registration relating thereto if any, improvements and
modifications thereto as well as rights in any claim against third parties in
connection with the protection of any such intellectual property rights or
infringement thereto, in Canada or abroad, (sometimes hereinafter referred to
collectively as the "Collateral") including without limitation those listed in
Schedule "B" hereto.
<PAGE>
-7-
4.9 FRUITS AND REVENUES
All cash, profits, proceeds, fruits, dividends, rights and revenues which
are or may be produced by or declared or distributed with respect to the Charged
property or in exchange thereof as well as the proceeds of the Charged property,
including without limitation any property, equipment, negotiable instrument,
bill, commercial paper, security, money, compensation for expropriation
remitted, given in exchange or paid pursuant to a sale, repurchase, distribution
or any other transaction with respect to the Charged property.
4.10 RECORDS AND OTHERS
All records, data, vouchers, invoices and other documents related to the
Charged property described above, including without limitation, computer
programs, disks, tapes and other means of electronic communication of the
Grantor, as well as the rights of the Grantor to recover such property from
third parties, receipts, customer lists, distribution lists, directories and
other similar property of the Grantor.
Any and all Charged property which is acquired, transformed or
manufactured after the date of this Deed shall be charged by the Hypothec, (i)
whether or not such property has been acquired in replacement of other Charged
property which may have been alienated by the Grantor in the ordinary course of
business, (ii) whether or not such property results from a transformation,
mixture or combination of any Charged property, and (iii) in the case of
securities, whether or not they have been issued pursuant to the purchase,
redemption, conversion or cancellation or any other transformation of the
charged securities and without the Trustee being required to register or
re-register any notice whatsoever, the property charged under the Hypothec being
the universality of the Grantor's present and future property.
5. AMOUNT OF THE HYPOTHEC
The amount for which the Hypothec is granted is a principal amount of
Seventy-five million dollars ($75,000,000) with interest thereon from the date
of this Deed at the rate of twenty-five percent (25%) per annum.
6. SECURED OBLIGATIONS
The Hypothec secures the payment of all sums due or to become due by the
Grantor under the Guaranty and/or pursuant to this Deed and the performance of
all obligations of the Grantor provided for under this Deed and/or under the
Guaranty.
Any future obligation hereby secured shall be deemed to be one in respect
of which the Grantor has once again obligated itself hereunder according to the
provisions of section 2797 of the Civil Code of Quebec.
<PAGE>
-8-
7. ADDITIONAL PROVISIONS PERTAINING TO THE HYPOTHEC ON
RENTAL INCOME AND LEASES
With respect to any Immovables generating rentals and revenues:
7.1 LIST OF TENANTS
The Grantor shall provide the Trustee, before January 30th each year, with
a list containing the name of all tenants and details as to their leases as at
the immediately preceding December 31st. The Grantor shall obtain the prior
written consent of the Trustee with respect to the terms and conditions of any
new lease or the modifications or renewals of any existing leases provided
nothing herein shall compel the Trustee to waive any right it may have pursuant
to Article 1887 of the Civil Code of Quebec. Upon request of the Trustee, acting
reasonably, the Grantor shall further provide (i) a copy (or the original, when
requested by the Trustee) of all leases, present and future, relating to the
Immovables and any document and any useful information in connection therewith,
and (ii) a written acknowledgment by the tenants, present and future, of the
hypothec on rentals hereby created in the form required by the Trustee.
7.2 LEASES AND STATEMENT OF REVENUES
The Trustee may require that all leases be subject to its approval, that
they be subordinated to its rights hereunder and that the Grantor provide it on
a yearly basis with a statement of revenues and expenditures concerning the
Immovables.
7.3 RENTS, ANNUITIES AND REVENUES COLLECTION
The Trustee hereby authorizes the Grantor to collect all rents, annuities
and revenues which are rental income; however, the Grantor shall not collect in
advance more than one month of rent (other than as a security deposit) nor shall
it renounce to the payment of any rent. Such authorization may be revoked at any
time by the Trustee in accordance with what is provided for by law; in such a
case, the Trustee may exercise as it deems appropriate, to the exclusion of the
Grantor, all rights, claims, privileges and hypothecs (legal or conventional) of
the Grantor in order to maintain, renew, grant or terminate any lease, and to
further protect or collect rents, annuities and revenues from the Immovables.
7.4 COLLECTION
The Trustee shall have the right to bring an action for recovery of
rentals, impleading the Grantor, it being understood that the Trustee shall be
under no obligation to exercise such right and shall not be liable for any loss
or damage which may result from its failure to collect such rentals. The Trustee
shall have the right to deduct a ten per cent (10%) collection fee from any
rentals collected as well as any commission usually charged by the Trustee for
the collection of rentals, miscellaneous costs and expenses (copies, service
fees, legal counsel fees and others, opening files, surveillance fees, execution
fees or fees for cancellation of lease) incurred as a result of such collection.
<PAGE>
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8. ADDITIONAL PROVISIONS TO THE HYPOTHEC ON CLAIMS (OTHER THAN RENTALS)
8.1 AUTHORIZATION TO RECOVER
Save and except for claims resulting from an expropriation, those referred
to in Section 9 and paragraph 12.9 hereof and save for any other claims for
which collection is otherwise dealt with pursuant to any agreement entered into
with the Trustee or any other person, the Trustee hereby authorizes the Grantor
to recover all claims and other Charged property referred to in paragraph 4.5.
Such authorization may be revoked at any time by the Trustee by written notice
with respect to all or any part of the hypothecated claims, whereupon the
Trustee shall be free to itself effect such recovery and to exercise any of the
rights referred to in paragraph 8.2 below; the Grantor shall then remit to the
Trustee all records, books, invoices, bills, contracts, titles, papers and other
documents related to the claims. If, after such authorization is revoked (and
even if such revocation is not yet registered or delivered to the holders of
such claims), sums payable under such claims and property are paid to the
Grantor, it shall receive same as mandatary of the Trustee and shall remit same
to the Trustee promptly without the necessity of any demand to this effect.
8.2 RECOVERY
The Trustee may recover all claims and other Charged property referred to
in paragraph 4.5 in accordance with what is provided for by law; it may further
exercise any rights regarding such Charged property and more particularly, it
may grant or refuse any consent which may be required from the Grantor in its
capacity as owner of such Charged property, and shall not, in the exercise of
such right, be required to obtain the consent of the Grantor or serve the
Grantor any notice thereof, nor shall it be under any obligation to establish
that the Grantor has refused or neglected to exercise such rights, and it may
further grant delays, take or abandon any security, make arrangements with
debtors of any hypothecated claims, make compromises, grant releases and
generally deal at its discretion with matters concerning all Charged property
referred to in paragraph 4.5 without the intervention or consent of the Grantor.
9. ADDITIONAL PROVISIONS TO THE HYPOTHEC ON SECURITIES
9.1 TRUSTEE'S RIGHTS
The Trustee may, at any time after the occurrence of a Default, transfer
any securities or any part thereof into its own name or that of a third party
appointed by it so that the Trustee or its nominee(s) may appear as the sole
registered holder, in which case:
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9.1.1 Voting rights
All voting rights and any other right attached to such securities
may be exercised by the Trustee (without any obligation of the Trustee to
do so) or on behalf of the Trustee.
9.1.2 Revenues, dividends and others
The Trustee shall collect revenues, dividends and capital
distributions and the Grantor shall cease to have any right thereto and
the Trustee may either hold same as Charged property or apply them in
reduction of the Secured Obligations.
9.2 PHYSICAL POSSESSION OF THE CERTIFICATES
The certificates representing the hypothecated securities may be kept in
the possession of the Trustee or in the possession of its agent.
The Grantor hereby irrevocably appoints any officer or employee of the
Trustee as its attorney with full power of substitution and authority to execute
such documents necessary to render effective the rights granted to the Trustee
pursuant to this Section 9.
10. ASSIGNMENT OF CLAIMS SUBJECT TO THE FINANCIAL ADMINISTRATION ACT
The Grantor hereby assigns to the Trustee by way of absolute assignment
all its present and future claims which are subject to Sections 67 and 68 of the
Financial Administration Act, as collateral and continuing security of all
Secured Obligations. The Trustee may, at any time, fulfill any of the
formalities required by law to make such transfer enforceable.
11. REPRESENTATIONS AND WARRANTIES
The Grantor hereby represents and warrants that:
11.1 LEGAL PERSON
It is a legal person (corporation).
11.2 HEAD OFFICE
The registered office or domicile of the Grantor is located in New
Brunswick.
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11.3 INCORPORATION
It is duly incorporated and in good standing under the law of its
jurisdiction of incorporation.
11.4 POWERS
It has the capacity and the powers necessary to grant the Hypothec and to
bind itself as herein provided for; the execution of this Deed, the compliance
with its provisions and the performance of its covenants shall not entail or
result in any breach of or default under any other agreement or document to
which the Grantor is bound.
11.5 AUTHORIZATION OF THIS DEED
This Deed has been duly authorized by resolution or by any other necessary
action under its constating documents, by-laws or otherwise, in order to give it
full effect and to render its obligations fully enforceable, subject to
applicable bankruptcy, insolvency, reorganization, moratorium and other similar
laws affecting the enforcement of creditors' rights generally from time to time
in effect.
11.6 EXECUTION OF THIS DEED
This Deed has been executed by duly authorized persons.
11.7 BUSINESS OR FIRM NAMES
It uses no business or firm name other than those referred to in Schedule
"B" hereof.
11.8 TITLES OF OWNERSHIP AND EXISTING CHARGES
It is the unconditional and absolute owner of the Charged property, except
for future property, and all such property is free and clear of any prior claim,
hypothec, charge, security or security interest, seizure by garnishment, right
of resolution or repossession or of any other right whatsoever existing in
favour of persons other than the Trustee and other than any such right which
constitutes a Lien which is permitted in accordance with paragraphs (a) and
following of Section 412 of the Indenture.
11.9 SHAREHOLDER AGREEMENT
There exists no shareholders' agreement in connection with securities
which are charged under this agreement other than that certain shareholders
agreement originally made between Sport Maska Inc. (now known as ZMD Sports
Investments Inc.) and Gestion Pro Velo Inc. on April 8, 1993 and that certain
agreement between Sport Maska Inc. (now known as ZMD Sports Investments Inc.)
and Gestion Pro Velo Inc. dated October 9, 1992. There exists no restriction in
the articles or other constating documents of the Grantor regarding the
assignment or transfer of
<PAGE>
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securities which are charged hereunder other than the restrictions pertaining to
a closed company (as such term is defined in the Securities Act (Quebec)) and
those declared in writing to the Trustee.
11.10 LOCATION OF CHARGED PROPERTY
The Charged property referred to in paragraphs 4.4, 4.6, 4.7 and 4.10
hereinabove is located in the premises described in Schedule "C" hereof (a copy
of which Schedule "C" remains annexed hereto after having been acknowledged as
true and signed for identification by the representatives of the parties hereto
with and in the presence of the undersigned notary). The Trustee acknowledges
that items of Charged Property may, from time to time, be located at other
places in Quebec or Ontario when in transit to and from such premises.
11.11 DISPOSITION OF CHARGED PROPERTY
Except for property referred to in paragraph 4.4 hereinabove, it does not,
in the ordinary course of its business, sell property similar to or of the same
nature as the Charged property.
11.12 CLAIMS SUBJECT TO THE FINANCIAL ADMINISTRATION ACT
It has no claim falling under Section 10 hereof, other than those
indicated in Schedule "B" hereof.
11.13 CLAIMS SECURED BY REGISTERED HYPOTHEC
It has no claim which is secured by registered hypothec other than those
indicated in Schedule "B" hereof.
11.14 [NOT USED]
11.15 LITIGATION
It has knowledge of no suit or action against it, as to which there is a
reasonable likelihood of an adverse determination and which, if adversely
determined, would likely materially affect unfavorably the Charged property.
Grantor is not 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 where such violation or default would
result in a Material Adverse Effect.
11.16 DEFAULT
It is not in default under the present Deed.
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11.17 INTELLECTUAL PROPERTY
11.17.1 all registrations, applications for registration, filings
and notices thereof in respect of the Collateral, including
all relevant renewals, have been duly and properly made, are
in full force and effect and are not subject to dispute by
any governmental authority or agency and all leases,
licences and other agreements affecting any right, title or
interest of the Grantor in any of the Collateral
(collectively, the "Third Party Agreements") are in good
standing;
11.17.2 none of the Collateral has been adjudged invalid or
unenforceable or has been cancelled, in whole or in part,
and all such Collateral is presently subsisting, valid, in
good standing and enforceable, with the exception of those,
if any, set out in the Schedule "B" hereto and identified as
"pending applications", "cancelled/expunged registrations",
"abandoned applications" or "registrations no longer in name
of the Grantor";
11.17.3 the Grantor is the exclusive owner or in the case of
licensed Collateral, the sole and exclusive licensee, of the
entire and unencumbered right, title and interest in and to
each of the Collateral free and clear of any liens, charges
and encumbrances except for any Lien which is permitted in
accordance with paragraph (a) and following of Section 412
of the Indenture;
11.17.4 the Collateral listed in Schedule "B", constitutes all of
the intellectual property rights now owned by the Grantor;
11.17.5 the Grantor has adopted, used continuously and currently is
using all of the Collateral; all licensees of the Collateral
(or all relevant portions thereof) from the Grantor as
licensor have been licensed properly to use such Collateral
and the Grantor has retained under license the direct or
indirect control of the character or quality of the goods or
services in connection with which use of such Collateral has
been licensed by it; all use of such Collateral has been
proper both in form and in relation to the goods or services
in connection with which the Collateral is used by the
Grantor or its licensees; and proper ownership notices have
been used by the Grantor or its licensees;
<PAGE>
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11.17.6 nothing contained in this Deed or the Indenture, including,
without limitation, the granting of the Hypothec by the
Grantor in favour of the Trustee, constitutes a breach under
any Third Party Agreement.
12. COVENANTS
The Grantor hereby covenants:
12.1 INFORMATION
To give notice in writing to the Trustee:
- of any change whatsoever in its name and business names or in the
representations and warranties hereinabove mentioned in Section 11;
- of the name of any surety (guarantor) which may have guaranteed the
payment of claims hypothecated hereby and other Charged property mentioned
in paragraph 4.5 hereof;
- of the name of the insurers to the insurance contracts referred to herein;
- of the existence of any security, hypothec, prior claims or property right
retained or assigned securing claims and other Charged property referred
to in paragraph 4.5 hereof and, in such cases, to provide the Trustee,
upon demand, with satisfactory proof that such security or hypothec has
been registered or published in accordance with applicable law in order
for the rights of the Trustee to be set up against third persons;
- of the existence and details of any new claim arising hereafter which
alone or together with any other claims falling under Section 10 hereof is
material.
12.2 ADDITIONAL INFORMATION
To provide the Trustee with any information it may reasonably request with
respect to the Charged property or in order to determine whether or not the
Grantor is in compliance with its undertakings and obligations hereunder. The
Grantor shall inform the Trustee of any event, occurrence, or fact which might
have a Material Adverse Effect.
12.3 ACCOUNTING BOOKS
To keep, with respect to the Charged property, books, vouchers and other
documentation, as would a reasonable and diligent administrator, including a
list containing the names and addresses of all debtors of the hypothecated
claims, and keep them available for the Trustee to examine and obtain copies
thereof.
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12.4 [NOT USED]
12.5 PRESERVATION OF THE HYPOTHEC
To perform all acts and execute all deeds and documents (including notices
of renewal) necessary to give full effect to the Hypothec and to ensure that it
is at all times fully opposable against third persons.
12.6 COMPENSATION, FEES AND EXPENSES
To pay to the Trustee from time to time all out-of-pocket costs and
expenses relating to this Deed and to the exercise of all rights resulting in
favour of the Trustee from such Deed as well as all out-of-pocket costs and
expenses incurred to set up the rights of the Trustee against third persons, and
all discharge fees (such costs and expenses shall include all reasonable fees
and expenses of consultants, agents or counsels retained by the Trustee); to
reimburse the Trustee for all out-of-pocket costs and expenses incurred by it
for the purpose of carrying out the Grantor's obligations or of exercising its
rights, all such costs and expenses bearing interest at an annual rate equal to
the base rate of National Bank of Canada which shall be in force from time to
time, plus 3%; National Bank of Canada's base rate shall be the one advertised
as its rate of reference for determining the interest rate on commercial loans
in Dollars granted in Canada; the obligations arising from this paragraph shall
not exceed twenty-five per cent (25%) of the nominal value of the Hypothec; the
repayment of such costs and expenses shall be secured by the Hypothec.
12.7 ENCUMBRANCES AND TITLE
Not to grant, at any time hereafter, any easement, right-of ways,
servitude or any other charges against the Charged property without having first
obtained the prior written consent of the Trustee, (save for public easements
granted for utility purposes which do not materially affect unfavourably the
Charged property) and to maintain the Charged property free and clear of any
conventional or legal hypothec, prior claim under Articles 2650 et seq. of the
Civil Code of Quebec, charge, security, garnishment, right of resolution or
repossession or any other right in favour of a person or persons other than the
Trustee, in each case other than in regard to a Lien which is permitted in
accordance with paragraphs (a) and following of Section 412 of the Indenture; to
preserve, warrant and defend its title against any claim, action or
contestation.
12.8 LIST OF PROPERTY IN STOCK AND BOOK DEBTS
To give the Trustee, from time to time, upon demand, a statement of the
value of its Property in stock and a list of its book debts shown in the reverse
order of their due date.
<PAGE>
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12.9 INSURANCE
The Grantor covenants to:
12.9.1 keep its insurable properties adequately insured at all
times by financially sound and reputable insurers;
12.9.2 maintain such other insurance, to such extent and against
such risks, including fire and other risks insured against
by extended coverage, as is customary for the Charged
Property and 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 Grantor 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 Trustee, and in no event at
any time in an amount less than the replacement value of
the Charged Property;
12.9.3 maintain in full force and effect public liability
insurance against claims for bodily injury or death or
property damage occurring upon, in, about or in connection
with the use of any properties owned, occupied or
controlled by the Grantor or any of its subsidiaries, as
is customary with companies similarly situated and in the
same or similar businesses;
12.9.4 maintain business interruption and product liability
insurance to such extent as is customary with companies
similarly situated and in the same or similar businesses;
and
12.9.5 maintain such other insurance as may be required by law or
as may be reasonably requested by the Trustee for purposes
of assuring compliance with this paragraph 12.9;
it being understood that:
12.9.6 the Trustee is forthwith named as beneficiary of the
indemnities payable pursuant to these policies (excluding
those pertaining to civil liability) and the Grantor shall
cause the recording of this designation on the policies
which must also contain (i) a standard hypothecary
warranty clause approved by the Insurance Bureau of
Canada, preventing the invalidation of the policies
because of any reference or declaration contained in the
insurance application or omitted therefrom or any act or
negligence by the Grantor and (ii) provisions preventing
their cancellation or amendment to the detriment of the
<PAGE>
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Trustee, for any reason whatsoever, including failure to
pay the premiums, unless the omission or Default is not
remedied within thirty (30) days following receipt of
written notification thereof by the Trustee;
12.9.7 the insurance policies do not contain coinsurance clauses
save with the prior written agreement of the Trustee;
12.9.8 the Grantor will deliver to the Trustee all policies and
certificates of insurance maintained in accordance with
this paragraph 12.9;
12.9.9 in the event of any material loss or damage, the Grantor
shall immediately notify the Trustee of the loss incurred
or damage sustained. The indemnity, with respect to
property and damage insurance, shall be paid to the
Trustee to the extent of its interest. The Trustee may
apply any indemnity received by it to reduce any amount
owed to it hereunder and/or under the Guaranty. However,
the reduction shall be effective only once the Trustee has
informed the Grantor of such choice. The indemnity may
also be remitted to the insured to be used for
replacement, repair or reconstruction purposes, according
to terms and conditions pre-determined by the Trustee.
12.10 LOSS OR DAMAGE
To immediately notify the Trustee of any loss of, or substantial damage
to, any material portion of the Charged property and take all diligent steps to
ensure that the insurer pays the indemnity to the Trustee.
12.11 LEASE AND TRANSFER
Not to lease, sell, assign or otherwise alienate the Charged property, in
whole or in part, without the prior written consent of the Trustee, except for
property referred to in paragraph 4.4 above which may be leased or sold in the
ordinary course of business of the Grantor and except as expressly permitted in
the Indenture.
12.12 MAINTENANCE
The Grantor shall diligently pay the cost of any public utility services
and authorizes the Trustee to obtain from the related authorities the amounts
due to this account and any information relating to payment of such charges.
12.13 LOCATION OF PROPERTY
Not to change the location of the Charged property unless it obtains the
prior written consent of the Trustee.
<PAGE>
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12.14 TITLE
To ensure that its right of ownership in any Charged property in the hands
or possession of any third party remains opposable against third parties and,
accordingly, that such right has been registered or published, if registration
or publication is required by law for the purpose of opposability against third
parties.
12.15 LESSORS
If any of the Charged property is located in premises leased pursuant to a
lease executed before January 1, 1994 (and where the registration of a legal
hypothec has been perfected) or if it were moved to premises leased as
aforesaid, to obtain a full cession of priority in favour of the rights of the
Trustee under the present Hypothec and to immediately notify, following the
execution of the present Deed or immediately following the moving into the
leased premises, the lessor of such premises, in writing, of the present
Hypothec and to deliver to the Trustee within three (3) days after such
notification proof of same.
12.16 USE AND DESTINATION
Not to change the use or destination of the Charged property unless it
obtains the prior written consent of the Trustee.
12.17 VALUE
To protect and use the Charged property and to carry on its business so as
to preserve its value.
12.18 INTELLECTUAL PROPERTY
The Grantor shall:
12.18.1 use its trade-marks, trade-mark registrations, trade-mark
applications, trade names, business names, trade styles,
logos, service marks, and all other forms of business
identifiers (hereinafter the "Trademarks") only on goods
of at least as high quality as the goods on which the
Grantor or its predecessor used the goods as of the date
hereof and maintain the quality of any and all products in
connection with which the Trademarks and other Collateral
is used, consistent with the quality of said products as
of the date hereof;
12.18.2 take or cause to be undertaken all steps necessary to
protect the Grantor's interest in and to maintain the
Collateral in good standing, including without limitation,
to pursue diligently all applications through to
registration and to renew all registrations and pay all
<PAGE>
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maintenance fees as applicable, as well as attending to
the filing of all required documentation;
12.18.3 vigorously protect, preserve and maintain all of the
Grantor's right, title and interest in the Collateral,
including, without limitation, the prosecution and/or
defence against any and all suits concerning validity,
infringement, enforceability, ownership or other aspects
affecting any of the Collateral (any expenses incurred in
protecting, preserving and maintaining any of the
Collateral shall be borne by the Grantor);
12.18.4 upon written request by the Trustee, execute and deliver
any and all agreements, instruments, documents and papers
as the Trustee may reasonably request to evidence the
Hypothec in the Collateral;
12.18.5 perform all covenants required under any Third Party
Agreement including, inter alia, promptly paying all
required fees, royalties and taxes to maintain each and
every item of the Collateral in full force and effect;
12.18.6 if at any time or from time to time, the Grantor (i)
becomes aware of any existing Collateral of which the
Grantor has not previously informed the Trustee, (ii)
obtains rights to any new Collateral, or (iii) becomes
entitled to the benefit of any Collateral not identified
in Schedule "B", then the Grantor shall promptly notify
the Trustee and regardless of when the Grantor so notifies
the Trustee, Schedule "B" hereto, as applicable,
automatically shall be modified and amended to include any
such Collateral and the provisions of this Deed
automatically shall apply thereto;
12.18.7 maintain up to date records regarding the Collateral;
12.18.8 provide the Trustee with a written report on each
anniversary of this Deed regarding the status of the
Collateral;
12.18.9 not abandon any right to file a trademark application or
patent application, or abandon any pending trademark or
patent application, or abandon any of the Collateral or
any suits involving any of the Collateral, without the
prior written consent of the Trustee, which consent of the
Trustee shall not be unreasonably withheld;
<PAGE>
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12.18.10 not take any action, or permit any action to be taken by
any person or persons subject to its control, including
licensees, or fail to take any action, which would
adversely affect the validity, enforceability or
transferability (to the Trustee or otherwise) of all or
any of the Collateral; and ensure generally that the
Collateral is and remains valid, in good standing and
enforceable.
12.19 RELEASE OF COLLATERAL
The Hypothec shall not be discharged prior to the indefeasible payment in
full of all amounts owing hereunder and under the Guaranty and the performance
of all obligations of the Grantor hereunder and under the Guaranty.
13. EVENTS OF DEFAULT
The Grantor shall be in default hereunder without notice or other
formality and the security hereby constituted shall immediately become
enforceable, if it fails to pay any amount due or to become due under the
Guaranty, upon demand and in any of the following events ("DEFAULT"):
13.1 [NOT USED]
13.2 [NOT USED]
13.3 [NOT USED]
13.4 CROSS DEFAULT
An Event of Default (as defined in the Indenture) occurs under the
Indenture on the part of SLM International, Inc. or under the Guaranty on the
part of the Grantor.
13.5 CHARGED PROPERTY
If the Grantor fails at any time to maintain, preserve or protect all
property material to the conduct of its businesses and keep such property in
good repair, working order and condition (reasonable wear and tear excepted) or
fails from time to time to make, or cause to be made, all needful and proper
repairs, renewals, additions, improvements and replacements thereto which are
necessary in order that the business carried on in connection therewith may be
properly conducted in all material respects at all times.
<PAGE>
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13.6 OTHER AGREEMENTS
The Grantor fails to pay any indebtedness or to perform any of the
Grantor's obligations required to be paid or performed under any other agreement
creating a charge against the Charged property.
13.7 INSOLVENCY AND BANKRUPTCY
The Grantor ceases to carry on its enterprise or an important part
thereof, becomes insolvent or becomes subject to proceedings, makes an
assignment or files a notice to file a proposal under any law relating to
insolvency, bankruptcy, reorganization or to arrangements with creditors or any
petition in bankruptcy is taken against the Grantor.
13.8 [NOT USED]
13.9 LEGAL EXISTENCE
The Grantor loses its legal existence; an order is issued or a resolution
is adopted for its winding-up or liquidation.
13.10 HYPOTHECARY RIGHTS
Any of the Charged property is subject to a hypothecary right from another
creditor, a partition procedure, a "sale of an enterprise" as it is understood
under sections 1767 and ssq. of the Civil Code of Quebec or an expropriation,
except to the extent or under circumstances permitted in accordance with the
Indenture.
14. TRUSTEE'S RECOURSES IN CASE OF DEFAULT
14.1 PAYMENT OF INDEBTEDNESS
In case the Hypothec shall have become enforceable, on account of one or
the other of the events mentioned in Section 13 or paragraphs 13.1 through 13.10
above, the Trustee may, in its discretion, at any time or times, demand payment
of all or any part of the Secured Obligations and the same shall forthwith
become immediately due and payable to the Trustee. Any payment then made by the
Grantor shall be deemed to have been made in discharge of its obligations
hereunder or under the Guaranty, and any money so received by the Trustee shall
be applied as provided for in paragraphs 14.13 and 15.4 hereof.
14.2 EXERCISE OF RIGHTS
In case the Hypothec shall have become enforceable and the Grantor shall
have failed to pay the Trustee, on demand, the outstanding amount due under the
Guaranty together with any other amounts secured hereunder, the Trustee may in
its discretion, through its officers, agents or attorneys, exercise any right of
action provided for under this Deed (and more particularly under this Section
14) or by law
<PAGE>
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or in equity including without limitation any of the hypothecary rights provided
for under sections 2748 to 2794 of the Civil Code of Quebec and any rights or
remedies provided to secured parties under any applicable personal property
security legislation.
14.3 RIGHTS OF THE TRUSTEE
Whatever hypothecary rights the Trustee elects to exercise or whatever
rights or recourses the Trustee elects to exercise either pursuant to the law of
any other jurisdiction or in equity, the following provisions, to the greatest
extent permitted by applicable law, shall apply:
14.3.1 the Trustee may, in its discretion, at the Grantor's expense:
14.3.1.1 pursue the transformation of the Charged property or
any work in process or unfinished goods comprised in
the Charged property and complete the manufacture or
processing thereof or proceed with any operations to
which such property is submitted by the Grantor in
the ordinary course of its business and acquire
property for such purposes;
14.3.1.2 alienate or dispose of any Charged property which
may be obsolete, may perish or is likely to
depreciate rapidly;
14.3.1.3 use for its benefit all information obtained while
exercising its rights;
14.3.1.4 perform any of the Grantor's obligations or
covenants hereunder;
14.3.1.5 exercise any right attached to the Charged property
on such conditions and in such manner as it may
determine, acting reasonably, including without
restriction the grant of licences whether general or
special on an exclusive or non exclusive basis, of
any intellectual property charged hereunder;
14.3.1.6 for the exercise of any of its rights, utilize
without charge the Grantor's plant, equipment,
machinery, process, information, records, computer
programs and intellectual property; for the purposes
hereof the Grantor shall, at the request of the
Trustee, concurrently with or after the execution of
these presents execute a power of attorney with
respect to intellectual property (in
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conformity with paragraph 15.9 hereof) in favour of
the Trustee;
14.3.1.7 borrow monies or lend monies and, in such cases, the
monies borrowed or lent by the Trustee shall bear
interest at the rate then obtained or charged by the
Trustee for such borrowing or loan; these monies
shall be reimbursed by the Grantor on demand and,
until they have been repaid in full, such monies and
interest thereon shall be secured by the present
Hypothec and be paid in priority of any other sums
secured hereunder;
14.3.1.8 maintain or repair, restore or renovate, begin or
complete any construction work on or related to the
Charged property;
14.3.2 the Trustee shall exercise its rights in good faith in order
to attempt to reduce the Secured Obligations, in a reasonable
manner, taking into account all circumstances;
14.3.3 the Trustee may, directly or indirectly, purchase or
otherwise acquire the Charged property;
14.3.4 the Trustee, when exercising its rights, may waive any right
of the Grantor, with or without consideration therefor;
14.3.5 the Trustee shall have no obligation to make an inventory of
the Charged property, to take out any kind of insurance with
respect thereof or to grant any security whatsoever;
14.3.6 the Trustee shall not be bound to continue to carry on the
Grantor's enterprise or to make any productive use of the
Charged property or to maintain such property in operating
condition;
14.3.7 the Grantor shall, upon request of the Trustee, move the
Charged property and render it available to the Trustee unto
premises designated by the Trustee and which, in its opinion,
shall be more suitable in the circumstances.
14.4 GRANTOR'S REMEDY
If the Grantor remedies the default mentioned in any prior notice of
exercise of hypothecary right, the Grantor shall, as required by law, pay all
reasonable fees incurred by the Trustee by reason of the default; these fees
shall include without limitation the administrative fees of the Trustee, the
legal fees of its legal advisers and fees paid to experts.
<PAGE>
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14.5 TAKING IN PAYMENT
If the Trustee elects to exercise its right to take in payment the Charged
property and the Grantor requires that the Trustee instead sell by itself or
under judicial authority, the Charged property on which such right is exercised,
the Grantor hereby acknowledges that the Trustee shall not be bound to abandon
its recourse of taking in payment unless, prior to the expiry of the time period
allocated for surrender, the Trustee (i) has been granted a security
satisfactory to it, to ensure that the proceeds of the sale of the Charged
property will be sufficient to pay the Guaranty in full, (ii) has been
reimbursed for all reasonable costs and expenses incurred in connection to this
Deed, including all fees of consultants and legal counsel and (iii) has been
advanced the necessary sums for the sale of said Charged property; the Grantor
further acknowledges that the Trustee alone is entitled to select the type of
sale it may wish to conduct or have conducted.
14.6 SURRENDER OF CHARGED PROPERTY
The Grantor will, to the greatest extent permitted by applicable law, be
deemed to have surrendered the Charged property which is in the possession of
the Trustee, or of a third party on its behalf, if the Trustee has not, within
the delays determined by law or by a tribunal to surrender, received written
notice from the Grantor to the effect that it intends to contest the exercise of
the hypothecary recourse set forth in the prior notice.
14.7 EVALUATION
Where the Trustee sells the Charged property itself, to the greatest
extent permitted by applicable law, it shall not be required to obtain any prior
evaluation by a third party.
14.8 SALE OF CHARGED PROPERTY
The Trustee, to the greatest extent permitted by applicable law, may elect
to sell the Charged property after giving such prior notices as may be required
by law in which event (i) the sale may be made with legal warranty given by the
Grantor or with complete or partial exclusion of such warranty; (ii) the sale
may be made cash or with a term or under such reasonable conditions determined
by the Trustee; and (iii) upon failure of payment of the purchase price, the
Trustee may resiliate or resolve such sale and such Charged property may then be
resold.
14.9 USE OF PREMISES
In order to exercise any of its rights, the Trustee may use the premises
located in the Immovables.
<PAGE>
-25-
14.10 SEVERAL ADMINISTRATORS
Where several administrators are involved hereunder, the parties, to the
greatest extent permitted by applicable law, waive the application of sections
1332 to 1338 inclusively of the Civil Code of Quebec.
14.11 APPOINTMENT OF AGENT
The Trustee, to the greatest extent permitted by applicable law, may
appoint an agent or a receiver and manager (collectively a "Receiver") over all
or any portion of the Charged property by written instrument in accordance with
paragraph 14.12 or may apply to a court for the appointment of a Receiver to
take possession of all or such part of the Charged property as the Trustee shall
designate, with such duties, powers and obligations as the court making the
appointment shall confer, and the Grantor hereby irrevocably consents to the
appointment of such Receiver.
14.12 APPOINTMENT OF RECEIVER
The Trustee, to the greatest extent permitted by applicable law, may with
or without taking possession, by instrument executed by the Trustee, appoint a
Receiver of all or any part of the Charged property and of the rents, income and
profits therefrom and may from time to time by similar instrument remove any
Receiver and appoint another in its place and upon the appointment of any such
Receiver or Receivers from time to time the following provisions, to the
greatest extent permitted by applicable law, shall apply:
14.12.1 every such Receiver shall be vested with all of the rights,
powers, remedies and discretions of the Trustee set forth in paragraphs
14.3.1.1 to 14.3.1.8, inclusively, including, without limitation, the
power to sell, for cash or credit or part cash and part credit, lease or
dispose of all or any part of the Charged property, whether by public
auction or by private sale or lease in such manner and on such terms as it
may determine in its absolute discretion acting reasonably and to do all
acts, exercise all discretions and make all determinations of the Trustee
described therein;
14.12.2 every such Receiver shall have the power to borrow money on
the security of the Charged property in priority to the security created
by this Deed for the purpose of the preservation, maintenance, completion
or protection of the Charged property or any part thereof or for making
any replacements thereof or improvements and additions thereto or for
carrying on all or any part of the business of the Grantor relating to the
Charged property, and in so doing the Receiver may issue certificates
designated as "Receiver's Certificates" which may be payable either to
order or to bearer and may be payable at such time or times as the
Receiver may think expedient and shall bear interest at such rates of
interest as the Receiver may consider reasonable, and the amounts from
time to time payable pursuant to such Receiver's Certificates shall form a
charge upon the Charged property in priority to the security created by
this Deed;
<PAGE>
-26-
14.12.3 the Trustee may from time to time fix the remuneration of
every such Receiver who shall be entitled to deduct the same out of the
receipts derived from or comprising part of the Charged property or the
proceeds thereof;
14.12.4 every such Receiver shall be deemed to be an agent of the
Grantor and not of the Trustee for the purposes of:
(i) carrying on and managing the business and affairs of the
Grantor, and
(ii) establishing liability for all of the acts or omissions
of the Receiver while acting as such and the Trustee shall not be in
any way responsible for any acts or omissions on the part of any
such Receiver, its officers, employees and agents,
the Grantor hereby irrevocably authorizing the Trustee to give
instructions to the Receiver relating to the performance of its powers and
discretions as set out herein;
14.12.5 the appointment of every such Receiver by the Trustee or
anything which may be done by any such Receiver or the removal of any such
Receiver or the termination of any such receivership shall not have the
effect of constituting the Trustee a mortgagee in possession in respect of
the Charged property or any part thereof;
14.12.6 no such Receiver shall be liable to the Grantor to account
for moneys other than moneys actually received by such Receiver in respect
of the Charged property and every such Receiver shall apply such moneys so
received in the manner provided in paragraph 14.13; and
14.12.7 the Trustee may at any time and from time to time terminate
any such receivership by notice in writing executed by the Trustee to any
such Receiver;
14.13 IMPUTATION OF PAYMENTS
Except as herein otherwise expressly provided, to the greatest extent
permitted by applicable law, all monies arising from any sale or realization of
the Charged property, in whole or in part, whether under any sale by the Trustee
or by judicial process or otherwise, shall be applied, together with any other
monies then in the hands of the Trustee and available for such purpose, in the
first place to pay or reimburse the Trustee's fees, charges, expenses,
borrowing, advances and all other moneys provided or obtained by it or at its
request in or about the execution of its powers and rights with respect to these
presents, with interest thereon as herein provided, and the residue of the said
moneys shall be applied on account of Secured Obligations or, at the option of
the Trustee, may be held unappropriated in a
<PAGE>
-27-
collateral account in order to provide for payment of any charge ranking prior
to the Hypothec.
The Grantor shall only be credited with amounts received by the Trustee in
cash from the possession, sale, lease or other disposition of, or realization
upon, the Charged property as and when such cash is received.
14.14 LIABILITY OF GRANTOR
The Grantor shall remain liable to the Trustee for any deficiency
remaining after the application of the proceeds of any sale, lease or
disposition of the Charged property by the Trustee.
15. GENERAL PROVISIONS
15.1 ADDITIONAL SECURITY
The Hypothec created hereby is in addition to and not in substitution of
or in replacement for any other hypothec or security held by the Trustee and
shall not impair the Trustee's rights of compensation and set-off.
15.2 INVESTMENTS
The Trustee, to the greatest extent permitted by applicable law, may, at
its entire discretion, invest any monies or instruments received or held by it
pursuant of this Deed or deposit same in a non-interest bearing account without
having to comply with any legal provisions concerning the investment of property
of others.
15.3 SET-OFF
Provided the Secured Obligations are due and exigible or that the Trustee
is entitled to declare them owing and exigible, the Trustee may, to the greatest
extent permitted by applicable law, compensate and set-off any Secured
Obligations with any and all amounts then owed to the Grantor by the Trustee in
any capacity, whether due or not, and the Trustee shall then be deemed to have
exercised such right to compensate and set-off as at the time the decision was
taken by it even though the entry therefor is made on the Trustee's record
subsequent thereto.
15.4 IMPUTATION OF PAYMENTS
The Trustee, to the greatest extent permitted by applicable law, shall be
at liberty to impute any amounts collected in the exercise of its rights prior
to or after any Default as it may choose without having to comply with any
provisions of the Civil Code of Quebec concerning the imputation of payments.
<PAGE>
-28-
15.5 DELAYS
The Trustee, to the greatest extent permitted by applicable law, may grant
delays, take any security or renounce thereto, accept compromises, grant
quittances and releases and generally deal, with any matters related to the
Charged property, the whole without limiting the rights of the Trustee and
without reducing the liability of the Grantor.
15.6 CONTINUING SECURITY
The Hypothec shall be a continuing security and shall remain in full force
and effect despite the repayment from time to time, of the whole or of any part
of the Secured Obligations; it shall remain in full force until the execution of
a final release by the Trustee.
15.7 TIME OF ESSENCE
The mere lapse of time provided for the Grantor to perform its obligations
or the expiry of any term therefor shall automatically create a default
hereunder, without the Trustee being obliged to serve any notice or prior notice
upon the Grantor.
15.8 CUMULATIVE RIGHTS
The rights and recourses of the Trustee hereunder are cumulative and do
not exclude any other rights and recourses which the Trustee might have. No
omission or delay on the part of the Trustee in the exercise of any right shall
have the effect of operating as a waiver of such right. The partial or sole
exercise of a right or power will not prevent the Trustee from exercising
thereafter any other right or power. The Trustee may exercise its right
hereunder without any obligation to exercise any right against any other person
liable for payment of the Secured Obligations and without having to enforce any
other security granted with respect to the Secured Obligations.
15.9 IRREVOCABLE POWER OF ATTORNEY
The Trustee is hereby designated as the irrevocable attorney of the
Grantor with full powers of substitution for the purposes hereof or for the
purpose of carrying out any and all acts and executing any and all deeds,
proxies or other documents which the Trustee may deem useful in order to
exercise its rights or which the Grantor neglects or refuses to execute or to
carry out, provided however that, if a Default has not occurred and is not
continuing, the Grantor shall have been requested by the Trustee to do so by a
three (3) Business Days prior written notice.
15.10 PERFORMANCE
The Trustee may, at its entire discretion, perform any of the Grantor's
liabilities under this Deed. It may then immediately request payment of any
expense
<PAGE>
-29-
incurred in doing so, including interest at the rate provided for in paragraph
12.6 above, and such repayment is secured by the Hypothec.
15.11 DELEGATION
The Trustee may, at its entire discretion, appoint any person or persons
for the purpose of exercising any of its rights, actions or the performance of
any covenant resulting from this Deed or law or equity; in such case, the
Trustee may supply such person with any information it holds relating to the
Grantor or to the Charged property.
15.12 TITLE DEEDS
All titles of ownership, land surveys, certificates of location and other
documents related to the Immovables shall upon request be remitted to the
Trustee who is entitled to keep them until a final release and discharge of this
Hypothec is obtained.
15.13 WAIVER
Where the Grantor has taken an Immovable in payment for an hypothecated
claim ranking prior to the present Hypothec, the Grantor waives its right to
take advantage of the provisions of section 2771 of the Civil Code of Quebec.
15.14 LIABILITY
The Trustee shall not be liable for material injuries or damages resulting
from its fault, or the fault of its agents, officers, consultants, unless such
fault is gross or intentional.
15.15 SUCCESSORS
The rights hereby conferred upon the Trustee shall benefit all its
successors and nominees.
15.16 NOTICES
Any notice to the Grantor shall be delivered to its address set out above
or to any other address in Canada of which the Trustee has been given written
notice; any notice to the Trustee shall be delivered to the Trustee's branch
located at the address set out above.
15.17 RECEIPT OF NOTICE
A notice given hereunder shall be deemed to have been received by the
other party on the date of its delivery, when delivered on a Business Day, or on
the third (3rd) Business Day after it has been mailed, if sent prepaid by
certified or registered mail, or the day of its transmission, if transmitted by
facsimile on or
<PAGE>
-30-
before 3:00 p.m. on a Business Day or on the Business Day next following the day
of transmission if transmitted by facsimile after 3:00 p.m.
15.18 SEVERABILITY
Every provision of this Deed is and shall be independent of the other and
in the event that any part of this Deed is declared invalid, illegal or
unenforceable, then the remaining terms, clauses and provisions of this Deed
shall not be affected by such declaration and all the remaining clauses of this
Deed shall remain valid, binding and enforceable.
15.19 TRUST PROVISIONS
Notwithstanding the references herein to The Bank of New York (or its
successor hereunder, if any) as a "trustee" or to it acting as trustee, no trust
within the meaning of Chapter II of Title Six of Book Four of the Civil Code of
Quebec is intended to be or is created or constituted hereby. In addition, the
provisions of Title Seven of Book Four of the Civil Code of Quebec shall not
apply to any administration by the Trustee hereunder.
16. INTERCREDITOR AGREEMENT
This Deed including the right of the Trustee to exercise remedies
hereunder, shall be subject to the terms and conditions of the Intercreditor
Agreement. Notwithstanding the foregoing or any reference to the Intercreditor
Agreement, the Grantor agrees and acknowledges that neither this Deed nor the
Intercreditor Agreement provides such Grantor with any rights as a third party
beneficiary or otherwise.
17. GOVERNING LAW
This Deed shall be governed by and construed in accordance with the laws
of the Province of Quebec, including the rules relating to conflicts of laws
provided for thereunder.
18. AMENDMENTS
No amendment may be made to this Deed unless signed by the Grantor and the
Trustee.
19. FORMAL DATE
This Deed may be referred to as bearing formal date of the first (1st) day
of April, Nineteen hundred and ninety-seven (1997), notwithstanding the actual
date of its execution.
<PAGE>
-31-
20. ENGLISH LANGUAGE
The parties hereto confirm that the present agreement has been drawn up in
the English language at their request. Les parties aux presentes confirment que
la presente convention a ete redigee en langue anglaise a leur demande.
WHEREOF ACT:
DONE AND PASSED in the City of Montreal, Province of Quebec, on this tenth day
(10th) of April, Nineteen hundred and ninety-seven (1997), under number number
five thousand seven hundred and ninety-nine (5799) of the original of the
minutes of the undersigned notary.
AND after the parties had declared to have taken cognizance of these presents
and to have exempted the said Notary from reading them or causing them to be
read, the said duly authorized officers of the Grantor and the Trustee
respectively have signed these presents, all in the presence of the said Notary
who has also signed.
SLM TRADEMARK ACQUISITION
CANADA CORPORATION
per: /s/ BRUCE RANDALL
--------------------------
Bruce Randall
THE BANK OF NEW YORK
per: /s/ MARIE E. TRIMBOLI
--------------------------
Marie E. Trimboli
/s/ RICHARD TRUDEAU
--------------------------
Mtre Richard Trudeau, Notary
TRUE COPY OF THIS ORIGINAL REMAINS IN MY OFFICE.
/s/ SPECIMEN
--------------------------
<PAGE>
SCHEDULE "B"
B.1 Securities (par. 4.6)
Gestion CCM (1983) Inc. / CCM Holdings (1983) Inc.
B.2 Trade-Marks and Other Intellectual Property (par. 4.8)
None
B.3 Business or Firm names (par.11.7 )
3166694 Canada Inc.
B.4 Claims subject to the Financial Administration Act (par 11.12)
None
B.5 Claims Secured by registered hypothecs (par. 11.13)
None
***** ***** *****
The foregoing is Schedule "B" annexed to the Deed of hypothec granted by SLM
Trademark Acquisition Canada Corporation. in favour of The Bank of New York
before Mtre Richard Trudeau, Notary, on the tenth (10th) day of April Nineteen
hundred and ninety-seven (1997) under number five thousand seven hundred and
ninety-nine (5799) (__________________ ) of his minutes annexed thereto and
recognized as true and signed by the representatives therein mentioned with and
in the presence of the undersigned Notary.
MARIE E. TRIMBOLI
------------------------------
BRUCE RANDALL
------------------------------
RICHARD TRUDEAU
------------------------------
Mtre Richard Trudeau, Notary
TRUE COPY
/s/ SPECIMEN
- ------------------------------
<PAGE>
SCHEDULE "A"
[NOT USED]
<PAGE>
SCHEDULE "C"
(par. 11.10)
Location of Charged Property
C.1 Charged Property Located in Quebec
7405 Trans-Canada Highway
Suite 300
Ville St-Laurent, Quebec
H4T 1Z2
C.2. Charged Property Located Outside of Quebec
Address(es)
None
C. 3. Property Intended to be Used in More Than One Province or Jurisdiction
Address(es), Provinces or States
None
***** ***** *****
The foregoing is Schedule "C" annexed to the Deed of hypothec granted by SLM
Trademark Acquisition Canada Corporation in favour of The Bank of New York
before Mtre Richard Trudeau, Notary, on the eleventh (11th) day of April
Nineteen hundred and ninety-seven (1997) under number five thousand seven
hundred and ninety-nine (5799______________) of his minutes and recognized as
true and signed by the representatives therein mentioned with and in the
presence of the undersigned Notary.
MARIE E. TRIMBOLI
------------------------------
BRUCE RANDALL
------------------------------
RICHARD TRUDEAU
------------------------------
Mtre Richard Trudeau, Notary
TRUE COPY
/s/ SPECIMEN
- ------------------------------
SECURITY AGREEMENT
(INTELLECTUAL PROPERTY)
THE UNDERSIGNED, SPORT MASKA INC. (the "Corporation"), a corporation
continued and subsisting under the laws of the Province of New Brunswick, hereby
enters into this Security Agreement, made effective as of April 1st , 1997 in
favour of The Bank of New York (the "Trustee") as trustee for the benefit of the
Holders of Securities issued pursuant to a Senior Secured Note Indenture dated
as of April 1, 1997 among SLM International, Inc. (the "Borrower"), Maska U.S.,
Inc., #1 Apparel, Inc., #1 Apparel Canada Inc., Sport Maska Inc., SLM Trademark
Acquisition Canada Corporation, SLM Trademark Acquisition Corp. and the Trustee
(that agreement, as amended, restated or supplemented from time to time being
referred to below as the "Indenture");
WHEREAS it is a condition precedent to the Indenture that this
Agreement be entered into;
AND WHEREAS pursuant to Article 10 of the Indenture, the Corporation
has guaranteed in favour of the Trustee the repayment of all indebtedness and
liability of the Borrower under the Indenture, the Securities (as defined in the
Indenture) and the Collateral Documents (as defined in the Indenture) (that
guarantee, as it may be amended, restated, or supplemented from time to time
being referred to below as the "Guarantee") and has agreed to enter into this
Agreement to secure repayment of its indebtedness and liability under the
Guarantee, now or hereafter existing, absolute or contingent, joint or several
together with all reasonable expenses (including legal fees and disbursements on
a solicitor and his or her own client basis) incurred by the Trustee or any of
the Holders (as defined in the Indenture) and/or any agent or receiver or
receiver/manager acting on behalf of the Trustee or any of the Holders in
connection with the preparation, registration, enforcement of rights under or
analysis of rights under the Guarantee and this Agreement from time to time (all
of which present and future indebtedness, liabilities, obligations and expenses,
together with all extensions and renewals thereof, are hereinafter collectively
referred to as the "Indebtedness");
NOW THEREFORE, in consideration of the premises set forth herein and
for other good and valuable consideration, the receipt, sufficiency and adequacy
of which are hereby acknowledged, the Corporation agrees as follows:
1. Creation of Security Interest. As security for the complete and
timely payment and satisfaction of all of the Indebtedness, the Corporation
hereby grants to the Trustee a security interest and hypothecates in favour of
the Trustee (collectively, the "Security Interest"), with unfettered rights to
power of sale, to the extent permitted by law or by the specific license
agreements, if relevant, in and to all of the right, title
<PAGE>
2.
and interest of the Corporation in and to all of its now existing and hereafter
created or acquired:
(a) computer programs, application software, hardware and/or software
maintenance support agreements and all documentation relating
thereto, licences of software, copyrights, patents and
inventions, industrial designs, trade secrets, inventor
certificates, statutory invention registrations and all know-how
obtained, developed or used by the Corporation in connection with
its business, including, without limitation the patents,
industrial designs and software listed in Exhibit "A" attached
hereto and hereby made a part hereof and (i) renewals or
extensions thereof; (ii) all income, damages and payments now or
hereafter due or payable with respect thereto, including, without
limitation, damages and payments for past or future infringements
thereof; (iii) the right to sue for past, present and future
infringements thereof; and (iv) all rights corresponding thereto
throughout the world (all of the foregoing computer programs,
application software, hardware and/or software maintenance
support agreements, licenses of software, copyrights, patents and
inventions, industrial designs, trade secrets and know-how, and
applications and registrations thereof, together with the items
described in clauses (i) - (iv) of this subsection 1(a) are
sometimes hereinafter collectively referred to as the
"Patents/Designs/Copyrights");
(b) trademarks, trademark registrations, trademark applications,
trade names, business names, trade styles, logos, service marks,
and all other forms of business identifiers, including, without
limitation, the trademarks, trademark registrations, trademark
applications, trade names, business names, trade styles, logos
and all other forms of business identifiers listed on Exhibit "B"
attached hereto and hereby made a part hereof, and (i) renewals
or extensions thereof, (ii) all income, damages and payments now
or hereafter due or payable with respect thereto, including,
without limitation, damages and payments for past or future
infringements thereof, (iii) the right to sue for past, present
and future infringements thereof, and (iv) all rights
corresponding thereto throughout the world (all of the foregoing
trademarks, trade names and trade styles, and applications and
registrations thereof, together with the items described in
clauses (i)-(iv) of this subsection 1(b), are sometimes
hereinafter referred to individually as a "Trademark", and,
collectively, as the "Trademarks");
(c) all license agreements with respect to any of the Trademarks or
any Trademark or any application or registration therefor or any
other trade name or trade style, between the Corporation and any
other party, whether the Corporation is a licensor or licensee
under any such license
<PAGE>
3.
agreement, including, without limitation, the licenses listed on
Exhibit "C" attached hereto and hereby made a part hereof, and (i)
renewals or extensions thereof, (ii) all income, damages and
payments now or hereafter due or payable with respect thereto,
including, without limitation, damages and payments for past or
future breaches thereof, (iii) the right to sue for past, present
and future breaches thereof, and (iv) all rights corresponding
thereto throughout the world (all of the foregoing license
agreements and the rights of the Corporation thereunder, together
with the items described in clauses (i)-(iv) of this subsection
1(c), are sometimes hereinafter referred to individually as a
"License", and, collectively, as the "Licenses"); and
(d) the goodwill of the business of the Corporation connected with
and symbolized by any one or more of the
Patents/Designs/Copyrights, Trademarks and Licences, and (i) all
damages and payments now or hereafter due or payable with respect
thereto, including, without limitation, damages and payments for
past or future depreciation thereof or injury thereto, (ii) the
right to sue for past, present and future depreciation thereof or
injury thereto, and (iii) all rights corresponding thereto
throughout the world (the foregoing goodwill, together with the
items described in clauses (i)-(iii) of this subsection 1(d), are
referred to as the "Goodwill").
(The Patents/Designs/Copyrights, Trademark or Trademarks, License or Licenses
and Goodwill referred to in subparagraphs 1(a), (b), (c) and (d) above are
sometimes collectively referred to below as the "Collateral").
The Corporation and the Trustee agree that they have not agreed to
postpone the time for attachment of the Security Interests granted hereby with
respect to the Corporation's presently existing Collateral and that such
Security Interests shall attach to the Collateral acquired after the date hereof
as soon as the Corporation has rights in such Collateral. From time to time, at
the request of the Trustee, the Corporation shall make and do all acts and
things and execute and deliver all documents, agreements and instruments as the
Trustee reasonably may request by notice in writing to the Corporation in order
to create, preserve, perfect, validate or otherwise protect the Security
Interests to enable the Trustee to exercise and enforce its rights and remedies
hereunder (except that nothing hereunder shall constitute a waiver of any rights
available to the Corporation at law to the extent that such rights cannot be
lawfully waived) and generally to carry out the provisions and purposes of this
Agreement. The Trustee agrees that it shall have no right to be assigned the
title to any of the Collateral unless and until the Security Interest hereby
constituted shall become enforceable as hereinafter provided.
<PAGE>
4.
The amount of the hypothec referred to in this Section 1 is
seventy-five million dollars ($75,000,000.00) with interest thereon from the
date of this Agreement at the rate of twenty-five percent (25%) per annum.
2. (a) Warranties and Representations. Subject to paragraph 2(b) below,
the Corporation warrants and represents to the Trustee that:
(i) all registrations, applications for registration, filings and
notices thereof in respect of the Collateral, including all
relevant renewals, have been duly and properly made, are in full
force and effect and are not subject to dispute by any
governmental authority or agency and all leases, licences and
other agreements affecting any right, title or interest of the
Corporation in any of the Collateral (collectively, the "Third
Party Agreements") are in good standing;
(ii) none of the Collateral has been adjudged invalid or unenforceable or
has been cancelled, in whole or in part, and all such Collateral is
presently subsisting, valid, in good standing and enforceable, with
the exception of those set out in the Exhibits hereto and identified
as "pending applications", "cancelled/expunged registrations",
"abandoned applications" or "registrations no longer in name of the
Corporation";
(iii) the Corporation is the exclusive owner or in the case of licensed
Collateral, the sole and exclusive licensee, of the entire and
unencumbered right, title and interest in and to each of the
Collateral (except as otherwise expressly described in the Exhibits
hereto) free and clear of any liens, charges and encumbrances except
for liens, charges and encumbrances permitted under the Indenture or
otherwise consented to by the Trustee in writing (the "Permitted
Encumbrances");
(iv) the Collateral listed on Exhibits "A", "B" and "C", respectively,
constitute all of the Patents/Designs/Copyrights, Trademarks and
Licenses now owned by the Corporation;
(v) the Corporation has adopted, used continuously and currently is
using all of the Patents/Designs/Copyrights, Trademarks and
Licences; all licensees of the Collateral (or all relevant
portions thereof) from the Corporation as licensor have been
licensed properly to use such Collateral and the Corporation has
retained under license the direct or indirect control of the
character or quality of the goods or services in connection with
which use of such Collateral has been licensed by it; all use of
such Collateral has been proper both in form and in relation to
the goods or services in connection with which the Collateral is
used by the
<PAGE>
5.
Corporation or its licensees; and proper ownership notices have been
used by the Corporation or its licensees;
(vi) the Corporation has no notice of any suits or actions commenced
or threatened in respect of any of the Collateral, including,
without limitation, any suits or actions which contain
allegations respecting the validity, enforceability, infringement
or ownership of any of the Collateral, including, without
limitation, any of the Corporation's right, title and interest in
the Collateral and no notice, or knowledge, of any person
infringing any of the Collateral;
(vii) the Corporation has the right to execute and deliver this
Agreement and to perform its covenants and obligations hereunder;
(viii) this Agreement is a valid, legal and binding obligation of the
Corporation subject to bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting
creditors' rights and the discretion exercisable by Courts of
competent jurisdiction in respect of the availability of equitable
remedies; and
(ix) nothing contained in this Agreement or the Indenture, including,
without limitation, the granting of the Security Interest by the
Corporation in favour of the Trustee, constitutes a breach under any
Third Party Agreement.
(b) The foregoing representations and warranties shall be continuing
representations and warranties which, for greater certainty, shall apply at the
date hereof to all Collateral owned or licensed by the Corporation on the date
hereof including, without limitation, the Collateral described in Exhibits "A",
"B" and "C" hereto and shall be deemed to be given by the Corporation and to
apply to all after acquired Collateral immediately upon the Corporation
acquiring the same.
3. Covenants of the Corporation. The Corporation covenants and
agrees that until the Indebtedness shall have been satisfied in full, the
Corporation shall:
(a) use the Trademarks only on goods of at least as high quality as the
goods on which the Corporation or its predecessor used the goods as
of the date hereof and maintain the quality of any and all products
in connection with which the Trademarks and other Collateral is
used, consistent with the quality of said products as of the date
hereof;
(b) take or cause to be undertaken all steps necessary to protect the
Corporation's interest in and to maintain the
Patents/Designs/Copyrights, Trademarks and Licenses and other
Collateral in good standing, including without limitation, to
pursue
<PAGE>
6.
diligently all applications through to registration and to renew all
registrations and pay all maintenance fees as applicable, as well as
attending to the filing of all required documentation;
(c) vigorously protect, preserve and maintain all of the
Corporation's right, title and interest in the Collateral,
including, without limitation, the prosecution and/or defence
against any and all suits concerning validity, infringement,
enforceability, ownership or other aspects affecting any of the
Collateral (any expenses incurred in protecting, preserving and
maintaining any of the Collateral shall be borne by the
Corporation);
(d) upon written request by the Trustee, execute and deliver any and all
agreements, instruments, documents and papers as the Trustee may
reasonably request to evidence the Trustee's Security Interest in
the Collateral;
(e) perform all covenants required under any Third Party Agreement
including, inter alia, promptly paying all required fees, royalties
and taxes to maintain each and every item of the Collateral in full
force and effect;
(f) if at any time or from time to time, before the Indebtedness
shall have been satisfied in full, the Corporation (i) becomes
aware of any existing Patents/Designs/Copyrights, Trademarks or
Licenses of which the Corporation has not previously informed the
Trustee, (ii) obtains rights to any new
Patents/Designs/Copyrights, Trademarks or Licenses, or (iii)
becomes entitled to the benefit of any
Patents/Designs/Copyrights, Trademarks, or Licenses not
identified on any of Exhibits "A", "B" or "C", then the
Corporation shall promptly notify the Trustee and regardless of
when the Corporation so notifies the Trustee, Exhibits "A", "B"
and "C" hereto, as applicable, automatically shall be modified
and amended to include any such Patents/Designs/Copyrights,
Trademarks and Licenses and the provisions of this Agreement
automatically shall apply thereto;
(g) maintain up to date records regarding the Collateral;
(h) provide the Trustee with a written report on each anniversary of
this Agreement regarding the status of all
Patents/Designs/Copyrights, Trademarks and Licenses;
(i) provide the Trustee, upon request by the Trustee from time to time,
with a certificate of an officer of the Corporation certifying the
compliance of the Corporation with this Agreement;
<PAGE>
7.
(j) not sell, transfer, assign or dispose of its interest in, or grant
any license or sublicense under any of the
Patents/Designs/Copyrights or Trademarks or the Licenses or the
Goodwill, or enter into any other agreement with respect to any of
the Collateral, without the prior written consent of the Trustee,
which consent shall not be unreasonably withheld;
(k) not abandon any right to file a trademark application or patent
application, or abandon any pending trademark or patent application,
or abandon any of the Patents/Designs/Copyrights, Trademarks,
Licenses or Goodwill or any suits involving any of the Collateral,
without the prior written consent of the Trustee, which consent of
the Trustee shall not be unreasonably withheld;
(l) not take any action, or permit any action to be taken by any person
or persons subject to its control, including licensees, or fail to
take any action, which would adversely affect the validity,
enforceability or transferability (to the Trustee or otherwise) of
all or any of the Collateral; and
(m) not create or permit to exist any mortgage, hypothec, pledge,
charge, lien or other encumbrance upon the Collateral, other than
the existing Permitted Encumbrances, except as expressly consented
to in writing by the Trustee.
4. Right of the Trustee to Inspect. The Trustee shall have the right,
at any time and from time to time upon reasonable notice and upon such terms as
are agreed to in advance by the Corporation and prior to payment in full of the
Indebtedness and release and discharge by the Trustee of the Guarantee and this
Agreement (collectively, the "Termination"), to inspect the premises of the
Corporation and to examine the books, records and operations of the Corporation,
including, without limitation, the quality control processes of the Corporation.
5. Term of Security Interest; Royalties. The term of the Security
Interest granted herein shall continue until the Termination. The Corporation
agrees that the assignment or transfer to and use by the Trustee of all
Collateral shall be worldwide and without any liability on the part of the
Trustee or any of the Holders for royalties or other related charges from the
Trustee or any of the Holders to the Corporation.
6. Expenses. All expenses incurred by or on behalf of the Trustee
or any of the Holders in connection with the performance of any of the
covenants and agreements set forth herein shall be borne by the Corporation
in accordance with the Indenture.
7. Duties of the Corporation. Until the Termination, the Corporation
shall, at its own expense:
<PAGE>
8.
(a) diligently prosecute any and all Patent/Designs/Copyrights and
Trademark applications pending as of the date hereof or
thereafter;
(b) make application to register all Patent/Designs/Copyrights and
Trademarks, as appropriate and to the extent commercially
reasonable;
(c) protect, preserve and maintain vigorously all of the right, title
and interest of the Corporation in and to the Collateral, including,
without limitation, the prosecution or defence of all suits
concerning the validity, infringement, breach, enforceability,
ownership or other aspects affecting any of the Collateral; and
(d) ensure generally that the Collateral is and remains valid, in
good standing and enforceable.
8. Default. Without prejudice to the right of the Trustee to demand
payment of all or any part of the Indebtedness hereby secured at any time or
times, pursuant to the Guarantee, the Indebtedness shall, at the option of the
Trustee, become payable and the security hereby constituted shall become
enforceable in each and every of the events following (each a "Default"):
(a) if the Corporation makes default in the observance or performance of
any written agreement or undertaking heretofore or hereafter given
by the Corporation to the Trustee or the Holders pursuant to or in
connection with the Indenture, whether contained herein or not;
(b) if the Corporation makes default in payment of all or any portion
of the Indebtedness when due whether the same is secured hereby
or not;
(c) if an order is made or a resolution passed for the winding-up of the
Corporation, or if a petition is filed for the winding-up of the
Corporation, provided, however, the Corporation may at any time be
wound up into the Borrower or any Subsidiary (as defined in the
Indenture) of the Borrower;
(d) if the Corporation ceases or threatens to cease to carry on business
(except as is permitted pursuant to section 8(c) hereof) or if the
Corporation commits or threatens to commit any act of bankruptcy or
if the Corporation becomes insolvent or makes an assignment or
proposal in bankruptcy or gives notice of its intention to do so or
makes a bulk sale of its assets or if a bankruptcy petition is filed
or presented against the Corporation;
(e) if any proceedings with respect to the Corporation are commenced
under the Companies' Creditors Arrangement Act (Canada) or the
Bankruptcy and
<PAGE>
9.
Insolvency Act (Canada) or if the Corporation shall seek relief or
consent to the filing of a petition against it under any law which
involves any arrangement with or any compromise of any rights of any
one or more creditors of the Corporation;
(f) if an execution or any other process of any court becomes
enforceable against the Corporation or if a distress or analogous
process is levied upon the property of the Corporation or any part
thereof;
(g) if any sum which has been admitted as due by the Corporation or is
not disputed to be due by it and which forms or is capable of being
made a charge upon any of the Collateral in priority to the Security
Interest created by this Agreement is unpaid;
(h) if the Corporation shall default in the observance or performance of
any material provision relating to any material indebtedness or
liability of the Corporation to any creditor other than the Trustee
or the Holders;
(i) if any material licences, permits or approvals required by any law,
regulation or governmental policy or any governmental agency or
commission for the operation by the Corporation of its business
shall be withdrawn or cancelled; or
(j) if any representation or warranty made by the Company or any of its
officers, employees or agents to the Trustee shall be false or
inaccurate in any material respect.
9. Waivers. No course of dealing between the Corporation and the
Trustee, nor any failure to exercise, nor any delay in exercising, on the part
of the Trustee, any right, power or privilege hereunder or under the Guarantee
or the Indenture shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, power or privilege hereunder or thereunder
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The Trustee may waive, in whole or in part, any
breach of any provisions of this Agreement by the Corporation, any breach of any
provisions of the Guarantee or the Indenture or any of the rights and remedies
of the Trustee whether provided hereunder or otherwise, provided that no such
waiver shall be considered to have been given unless given expressly in writing
by the Trustee to the Corporation. No waiver given by the Trustee in accordance
with this Section 9 shall be construed as a waiver of any other or subsequent
breach or default by the Corporation.
10. Severability. The provisions of this Agreement are severable, and if
any clause or provision shall be held invalid and unenforceable in whole or in
part in any jurisdiction by a Court of competent jurisdiction, then such
invalidity or unenforceability shall affect only such clause or provision, or
part thereof, in such
<PAGE>
10.
jurisdiction, and shall not in any manner affect such clause or provision in any
other jurisdiction, or any other clause or provision of this Agreement in any
jurisdiction.
11. Modification. This Agreement cannot be altered, amended or
modified in any way, or by any other document or instrument signed by each of
the Corporation and the Trustee.
12. Cumulative Remedies. All of the rights and remedies of the
Trustee with respect to the Collateral, whether established hereby or by the
Guarantee or the Indenture, or by any other agreements or by law shall be
cumulative and may be exercised singularly or concurrently.
13. Irrevocable Power of Attorney. The Corporation irrevocably
constitutes and appoints the Trustee and each of its authorized employees from
time to time as the true and lawful attorney of the Corporation with full power
of substitution in the name of the Corporation, with power after the security
constituted hereby shall have become enforceable to:
(a) endorse or sign the name of the Corporation on and execute and
deliver all applications, registrations, recordings, reissues,
continuations, continuations in part, term restorations and
extensions thereof, documents, papers, agreements, assignments
and instruments necessary or desirable for the purpose of
recording, registering and filing of, or accomplishing any other
formality with respect to the Collateral or any part thereof or
otherwise regarding the Collateral, or any part thereof;
(b) take any other actions with respect to the Collateral, or any part
thereof, as the Trustee deems to be in the best interest of the
Trustee or the Lenders, including without limitation, the
realization or collection of all or any income, damages or payments
related thereto;
(c) grant or issue any exclusive or non-exclusive license or
sublicense under or in respect of the Collateral, or any part
thereof to anyone; or
(d) assign, pledge, convey, sell, license, or otherwise transfer title
in or dispose of the Collateral or any part thereof (or the right,
title and interest of the Corporation therein) to anyone by private
or public sale, lease or otherwise upon such terms and conditions as
the Trustee may determine as permitted by law and whether or not the
Trustee has taken possession of any of the Collateral.
The Corporation and the Trustee acknowledge and agree that any disposition
referred to in clause (d) in this Section 13 may be either a disposition of all
or any of the Collateral and may be by way of public auction, public tender,
private contract or otherwise as permitted by law. The Trustee may sell or
dispose of the Collateral for
<PAGE>
11.
consideration payable by instalments either with or without taking security for
the payment of such instalments and may make and deliver to any purchaser
thereof good and sufficient assignment, documents or instruments and give
receipts for the purchase money, and any such sale or disposition shall be a
perpetual bar, both at law and in equity, against the Corporation and all those
claiming an interest in and to the Collateral by, from, through or under the
Corporation. The Corporation hereby ratifies all acts of any such attorney
taken, done or caused to be taken or done in accordance with this Section 13.
This power of attorney shall be irrevocable unless and until the Indebtedness
shall have been paid in full and the Termination has occurred. Upon execution of
this Agreement, the Corporation shall execute the power of attorney in the same
or substantially the same form as set forth in Exhibit "D" to this Agreement.
14. Remedies. Whenever the Security Interest granted pursuant to this
Agreement shall have become enforceable, and so long as it shall remain
enforceable, the Trustee may, in addition to all other rights and remedies
available to it at law or in equity, proceed to realize upon such security and
to enforce its rights by:
(a) the appointment by instrument in writing of a receiver or receivers
of the Collateral or any part thereof (which receiver or receivers
may be any person or persons, whether an officer or officers or
employee or employees of the Trustee or not and the Trustee may
remove any receiver or receivers so appointed and appoint another or
others in his, her or their stead);
(b) proceedings in any court of competent jurisdiction for the
appointment of a receiver or receivers or for sale of the
Collateral or any part thereof;
(c) any other action, suit, remedy or proceeding authorized or
permitted hereby or by law or by equity;
(d) exercising all of the rights of the Corporation under all contracts,
agreements or other instruments in writing relating to the
Collateral as fully and effectually as if the Trustee were the
absolute owner thereof;
(e) commencing legal proceedings for and on behalf of and in the name of
the Trustee and at the expense of the Corporation in order to
enforce the rights of the Corporation under any contracts,
agreements, or other instruments in writing which may relate to the
Collateral; or
(f) exercising any of the rights and/or remedies referred to in
Section 13 hereof.
Any receiver or receivers appointed pursuant to this Section 14 shall have power
to: (i) take possession of and to use the Collateral or any part thereof; (ii)
borrow money required for the maintenance, preservation or protection of the
Collateral or any part
<PAGE>
12.
thereof or the carrying on of the business of the Corporation; (iii) further
charge the Collateral in priority to the security interests of this Agreement as
security for money so borrowed; and (iv) sell, lease or otherwise dispose of the
whole or any part of the Collateral on such terms and conditions and in such
manner as the receiver shall determine as permitted by law. The term "receiver"
as used in this Agreement includes a receiver and manager. The Trustee may file
such proofs of claim and other documents as may be necessary or advisable in
order to have its claim lodged in any bankruptcy, winding-up or other judicial
proceedings relating to the Corporation. In addition, the Trustee may use and
possess the Collateral or any part thereof, free from all encumbrances, liens
and charges (unless otherwise expressly provided for herein) without hindrance,
interruption or denial of the same by the Corporation or by any other person or
persons and may lease or sell the whole or any part or parts of the Collateral .
Any sale hereunder may be made by public auction, by public tender or by private
contract or as otherwise permitted by applicable law. Such sale shall be on such
terms and conditions as to credit or otherwise and as to upset or reserve bid or
price as to the Trustee acting in a commercially reasonable manner may seem
advantageous. Such sale may take place whether or not the Trustee has taken
possession of the Collateral. No remedy for the realization of the Security
Interest granted herein or for the enforcement of the rights of the Trustee
shall be exclusive of or dependent on any other such remedy, but any one or more
of such remedies may from time to time be exercised independently or in
combination.
15. Effect on Other Agreements. The Corporation acknowledges and agrees
that this Agreement is not intended to limit or restrict in any way the rights
and remedies of the Trustee under the Guarantee, the Collateral Documents (as
defined in the Indenture) or the Indenture, or any other security granted by the
Corporation to the Trustee pursuant thereto, but rather is intended to
facilitate the exercise of such rights and remedies. The Trustee shall have, in
addition to all other rights and remedies given to it by the terms of this
Agreement, the Guarantee, the Collateral Documents and the Indenture, all rights
and remedies allowed by law and the rights and remedies of a secured party under
the Personal Property Security Act as enacted in any jurisdiction in which the
Collateral may be located (including, without limitation, any of the hypothecary
rights provided for under articles 2748 to 2794 of the Civil Code of Quebec).
16. Binding Effect; Benefits. This Agreement, receipt of a true copy of
which is hereby acknowledged by the Corporation, shall be binding upon the
Corporation and its respective successors and permitted assigns, and shall enure
to the benefit of and be enforceable by the Trustee, its successors, nominees
and assigns. The Trustee may, upon the terms provided in the Indenture, assign,
transfer and deliver to any transferee any or all of the Indebtedness secured by
this Agreement or any security or any documents or instruments held by the
Trustee in respect thereof, provided that no such assignment, transfer or
delivery shall release the Corporation from any of the Indebtedness secured by
this Agreement; and thereafter the Trustee shall, to the extent
<PAGE>
13.
provided in the Indenture, be fully discharged from any and all further
responsibility with respect to the Indebtedness, including without limitation
all documents and instruments so assigned, transferred or delivered. Such
transferee shall be vested with all powers and rights of the Trustee under such
security, documents or instruments but the Trustee shall retain all rights and
powers with respect to any such security, documents or instruments not so
assigned, transferred or delivered. The Corporation shall not sell or assign its
interest in, or grant any license or sublicense under the Collateral without the
prior written consent of the Trustee.
17. Release of Security Interest. Upon Termination, the Trustee shall
upon request in writing by the Corporation and at the expense of the Corporation
execute and deliver to the Corporation all documents and instruments, and shall
take such other actions, as may be necessary or proper to release the lien on
and security interest in the Collateral, subject to any disposition thereof
which may have been made by the Trustee pursuant hereto.
18. Governing Law and Jurisdiction. This Agreement shall be governed by
and construed in accordance with the laws of the Province of New Brunswick and
the federal laws of Canada applicable therein. The Corporation agrees that any
lawsuit, action or proceeding arising out of or relating to this Agreement may
be instituted in the Courts of New Brunswick and the Corporation hereby accepts
and irrevocably submits to the jurisdiction of the said Courts and acknowledges
their competence and agrees to be bound by any judgment thereof; provided that
nothing herein shall limit the rights of the Trustee to bring or initiate
proceedings against the Corporation or any other person elsewhere.
19. Headings. Paragraph headings used herein are for convenience
only and shall not modify nor interpret the provisions which they precede.
20. Further Assurances. The Corporation agrees to execute and deliver
such further agreements, instruments and documents, and to perform such further
acts, as the Trustee reasonably may request from time to time in order to carry
out the purpose of this Agreement and the covenants and agreements set forth
herein.
21. Survival of Representations. All representations and warranties
of the Corporation contained in this Agreement shall survive the execution
and delivery of this Agreement.
22. Counterparts. This Agreement may be executed by the parties in
counterparts, each of which shall be deemed to be an original and all of
which together shall constitute one and the same agreement.
23. Inconsistencies. This Agreement is executed pursuant to the
Indenture and is subject to the terms thereof. In the event of any
contradiction between the terms
<PAGE>
14.
hereof and the comparable terms of the Indenture, the terms of the Indenture
shall prevail.
24. Selection of Language. It is the express wish of the Parties
that this agreement and any related documents be drawn up and executed in
English. Les parties conviennent que la presente convention et tous les
documents s'y rattachant soient rediges et signes en anglais.
<PAGE>
15.
IN WITNESS WHEREOF, this Agreement has been executed by the
Corporation, effective as of the date first written above.
SPORT MASKA INC.
By: /s/ D. BRUCE RANDALL c/s
------------------------------------
Name: D. Bruce Randall
Title: Secretary
THE BANK OF NEW YORK, as trustee
By: /s/ MARIE TRIMBOLI c/s
------------------------------------
Name: Marie Trimboli
Title: Assistant Treasurer
<PAGE>
Page 20
- --------------------------------------------------------------------------------
APPLICATION DATE PATENT/INDUSTRIAL DESIGN
- --------------------------------------------------------------------------------
Page 20
- --------------------------------------------------------------------------------
APPLICATION DATE PATENT/INDUSTRIAL DESIGN
- --------------------------------------------------------------------------------
EXHIBIT "A"
CANADIAN
PATENTS/INDUSTRIAL DESIGNS/COPYRIGHTS
OWNED BY # 1 APPAREL INC.
- --------------------------------------------------------------------------------
APPLICATION DATE PATENT/INDUSTRIAL DESIGN
INDUSTRIAL DESIGN REGISTRATION NO. 71087
DRAWSTRING CAP
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT "B"
CANADIAN
REGISTERED TRADEMARKS
OWNED BY #1 APPAREL INC.
- --------------------------------------------------------------------------------
TRADEMARK SERIAL NO. REGISTRATION NO. WARES
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT "C"
LICENSE AGREEMENTS
None
<PAGE>
EXHIBIT "D"
IRREVOCABLE POWER OF ATTORNEY
REGARDING INTELLECTUAL PROPERTY
The undersigned, SPORT MASKA INC., a corporation duly incorporated, continued
and existing under the laws of the Province of New Brunswick, having its office
and principal place of business at 7405 Trans-Canada Highway, Suite 300,
Saint-Laurent, Quebec (hereinafter referred to as the "Grantor"), hereby
irrevocably constitutes and appoints The Bank of New York (the "Bank") and its
successors and permitted assigns, and each of their respective directors,
officers, employees, agents and representatives, as the true and lawful attorney
of the Grantor with full power of substitution in the name of the Grantor for
the following purposes:
1. To do any and all such acts and things and to endorse or sign the name of
the Grantor and execute and deliver all applications, registrations,
recordings, reissues, continuations, continuations in part, term
restorations and extensions thereof, documents, papers, agreements,
assignments and instruments as the Bank in its sole discretion, considers
necessary or desirable for the purpose of recording, registering and filing
with the Canadian Intellectual Property Office, the United States Patent
and Trademark Office or any other governmental office, bureau or agency
dealing with intellectual property rights, or accomplishing any other
formality with respect to carrying out the provisions and purposes of the
security agreement dated as of April 1st , 1997 made between the Grantor
and the Bank (the "Security Agreement"), a copy of which is attached hereto
as Schedule "A", and any other security with respect to all or any part of
the Collateral (as that term is defined in the Security Agreement) granted
by the Grantor in favour of the Bank, or its assigns, including a hypothec
bearing formal date of April 1st , 1997 (collectively, the "Other
Security") or to take any other action with respect to all or any part of
the Collateral or to exercise any of its rights and remedies under the
Security Agreement or under the Other Security, and to do all acts or
things necessary or desirable to grant or issue any exclusive or
non-exclusive license or sub-license under or in respect of the Collateral,
or any part thereof, to anyone or to transfer, assign, pledge, convey,
sell, license or otherwise transfer, take in or dispose of all rights,
title and interest of the Grantor in and to the Collateral or any parts
thereof to any person or persons by private or public sale, lease or
otherwise, upon such terms and conditions as the Bank may determine best,
otherwise in compliance with applicable law, and whether or not the Bank
has taken possession of the
<PAGE>
2.
Collateral or to otherwise realize on the Collateral in any manner
contemplated by the Security Agreement or Other Security or to realize or
collect all or any income, damages, payments or proceeds related thereto;
and
2. To do or take any step appropriate for the preservation or protection of
any or all of the Collateral for the benefit of the Bank.
The Grantor hereby acknowledges and ratifies all acts accomplished in connection
herewith. Capitalized terms used herein and not otherwise defined herein shall
have their respective meanings as defined in the Security Agreement. This power
of attorney is made pursuant to the Security Agreement and will take effect
solely in the event or upon the occurrence of a Default under the Security
Agreement and this power of attorney may not be revoked until the payment or
performance in full of all Indebtedness (as that term is defined in the Security
Agreement).
This power of attorney shall be governed by the laws of the Province of New
Brunswick and the federal laws of Canada applicable therein.
DATED this 1st day of April, 1997.
SPORT MASKA INC.
Per: c/s
-----------------------------
Name:
Title:
SLM TRADEMARK ACQUISITION CANADA CORPORATION
DEBENTURE $75,000,000
A. PROMISE TO PAY
1. SLM TRADEMARK ACQUISITION CANADA CORPORATION (the "Company") for
value received hereby agrees with THE BANK OF NEW YORK (the "Secured Party"),
for its own benefit and for the benefit of the Holders from time to time that it
will, subject to the provisions of that certain Delivery Agreement made in
favour of the Secured Party by the Company of even date herewith (the "Delivery
Agreement") on demand pay to the Secured Party the principal sum of SEVENTY-FIVE
MILLION DOLLARS ($75,000,000). The Company will also, subject to the provisions
of the Delivery Agreement, pay to the Secured Party, as and when demanded,
interest on the said principal sum. The Company will pay such interest at the
rate of 25% per annum calculated and payable monthly not in advance, both before
and after demand and before and after default, judgment and execution from the
date hereof until payment in full of all amounts owing hereunder.
B. GRANT OF MORTGAGES, CHARGES AND SECURITY INTERESTS
2. As security for payment of the principal and interest and all
other indebtedness and liability from time to time payable hereunder, the
Company hereby:
(a) mortgages and charges (subject to the exceptions as to leaseholds
hereinafter contained) as and by way of a fixed and specific mortgage and charge
to and in favour of the Secured Party, and grants to the Secured Party a
security interest in, all real and immovable property (including, by way of
sub-lease, leasehold lands) (collectively, the "Lands") now or hereafter owned
or acquired by the Company and all buildings, erections, improvements, fixtures
and plant now or hereafter owned or acquired by the Company (whether the same
form part of the realty or not) and all appurtenances to any of the foregoing
including without limiting the generality of the foregoing the property
described in Appendix "A" hereto; "real and immovable property" shall include
any interest in or right with respect to real and immovable property;
(b) mortgages and charges to the Secured Party as and by way of a fixed
and specific mortgage and charge, and grants to the Secured Party a security
interest in all present and future:
(i) income, revenues and profits derived from any tenancy, use or
occupation of the Lands and rents and other sums payable to the
Company pursuant to the terms of any leases, licences, subleases,
<PAGE>
2.
agreements to lease, license or sublease, or rights to occupy (each
a "lease") the Lands;
(ii) benefits, advantages and powers to be derived from such leases,
with full power and authority to demand, sue for, recover, receive
and give receipts for all rents and other moneys payable thereunder
and otherwise to enforce the rights of the landlord thereunder on
behalf of and in the name of the Company; and
(iii) benefit of all guarantees and indemnities with respect to any
leases and the performance of any obligations of any tenant
thereunder;
(c) mortgages and charges to the Secured Party as and by way of a fixed
and specific mortgage and charge, and grants to the Secured Party a security
interest in, all its present and future equipment, including, without limiting
the generality of the foregoing, all fixtures, plant, machinery, tools and
furniture now or hereafter owned or acquired and any equipment specifically
listed or otherwise described in Appendix "B" hereto;
(d) mortgages and charges to the Secured Party, and grants to the Secured
Party a security interest in, all its present and future inventory, including,
without limiting the generality of the foregoing, all raw materials, goods in
process, finished goods and packaging material and goods acquired or held for
sale or furnished or to be furnished under contracts of rental or service;
(e) mortgages and charges to the Secured Party, and grants to the Secured
Party a security interest in, all its other goods and tangible personal
property;
(f) mortgages and charges to the Secured Party, and grants to the Secured
Party a security interest in all its present and future intangibles, including,
without limiting the generality of the foregoing, all its present and future
book debts, accounts and other amounts receivable, contract rights and chooses
in action of every kind or nature including insurance rights arising from or out
of the assets referred to in subparagraphs (a), (b), (c), (d) or (e) hereof,
goodwill, chattel paper, instruments of title, negotiable documents of title,
investments, money and securities and all dividends, income or other
distributions, whether paid or distributed in cash, securities or other
property, in respect of any of the property described in this section 2;
(g) charges in favour of the Secured Party as and by way of a floating
charge, and grants to the Secured Party a security interest in, all of its
business, undertaking, property and assets, real and personal, moveable or
immovable, of whatsoever nature and kind, both present and future (other than
property and assets hereby validly subjected to a specific mortgage, charge or
security interest by subparagraphs (a), (b), (c), (d), (e) or (f) hereof and the
exceptions hereinafter contained); and
<PAGE>
3.
(h) mortgages and charges in favour of the Secured Party, and grants to
the Secured Party a security interest in, the proceeds arising from any of the
assets referred to in this paragraph 2;
all of which present and future property and assets of the Company referred to
in subparagraphs 2 (a), (b), (c), (d), (e), (f), (g) and (h) hereof are
hereinafter collectively called the "Charged Assets". All rights of the Secured
Party hereunder, the security, and all obligations of the Company hereunder,
shall be absolute and unconditional irrespective of (i) any lack of validity or
enforceability of any loan document including the Senior Secured Note Indenture
(the "Indenture") dated as of April 1, 1997 among SLM International, Inc. (the
"Borrower"), Sport Maska Inc., Maska U.S., Inc., #1 Apparel, Inc., #1 Apparel
Canada Inc., SLM Trademark Acquisition Corp., SLM Trademark Acquisition Canada
Corporation and the Secured Party, as the same may be amended, restated or
supplemented from time to time, the guarantee granted by the Company in favour
of the Secured Party pursuant to Article 10 of the Indenture, any other
agreement with respect to the indebtedness and liability under the Indenture or
any indebtedness or liability secured hereby or any other agreement or
instrument relating to the foregoing, (ii) any change in the time, manner or
place of payment of, or in any other term of, all or any of the indebtedness and
liability under the Indenture or any indebtedness or liability secured hereby or
any other amendment or waiver of or consent to any departure from any guarantee,
any loan document, the Indenture, or any other agreement or instrument, (iii)
any exchange, release or nonperfection of any Charged Asset or any release or
amendment or waiver of or consent to or departure from the indebtedness under
the Indenture or any guarantee for all or any of the indebtedness and liability
secured hereby, or (iv) any other circumstance which might otherwise constitute
a defence available to, or discharge of, the Company, any guarantor or any other
obligor in respect of the indebtedness and liability, secured by or in respect
of this debenture.
C. LOCATION OF CHARGED ASSETS
3. The Company hereby represents and warrants to the Secured Party
that:
(a) its chief executive office is presently at:
7405 TransCanada Highway
Suite 300
St-Laurent, Quebec
H4T 1Z2;
<PAGE>
4.
(b) all of its ledgers, books of account and other financial records are
presently at the location set out in subparagraph 3(a) and at:
6375 Picard Street
St-Hyacinthe, Quebec
J2S 1H3
(c) the Charged Assets (other than the assets described in subparagraph
3(b)) are presently at the locations set out in subparagraphs 3(a)
and (b) and in Appendix "C" hereto.
4. The Charged Assets now situate in the Provinces of Ontario and
Quebec are on the date hereof primarily situate or located at the location(s)
set out in Appendix "C" hereto but may from time to time be located at other
premises of the Company in Ontario or Quebec. The tangible personal property
constituting the Charged Assets may also be located at other places in Ontario
or Quebec while in transit to and from such locations and premises and may, from
time to time, be situate or located at any other place in Ontario or Quebec when
on lease or consignment to any lessee or consignee from the Company.
D. LIMITED EXCEPTIONS TO GRANT OF CHARGE
5. The last day of any term reserved by any lease or sublease, oral or
written, or any agreement therefor, now held or hereafter acquired by the
Company, and whether falling within the general or particular description of the
Charged Assets, is hereby and shall be excepted out of the mortgage, charge and
security interest hereby or by any other instrument created, but the Company
shall stand possessed of the reversion of one day remaining in the Company in
respect of any such term, for the time being demised, as aforesaid, upon trust
to assign and dispose of the same as any purchaser of such term shall direct.
E. AGREEMENTS OF THE COMPANY
6. The Company and the Secured Party covenant and agree that:
(a) they have not agreed to postpone the time for attachment of the
security interests granted hereby with respect to the Charged Assets presently
existing and that such security interests shall attach to the Charged Assets
acquired after the date hereof as soon as the Company has rights in such assets;
(b) in accordance with subsection 7(3) of the Land Registration Reform Act
(Ontario), the covenants deemed to be included in a charge by subsection 7(1) of
such Act are expressly excluded from this debenture; and
(c) subject to paragraph 29 hereof, the Company shall not at any time
hereafter make any claim to the Charged Assets, challenge the Secured Party's
rights thereto or make any demands upon the Secured Party with respect to the
Charged
<PAGE>
5.
Assets and the Secured Party shall from this time forward be exonerated and
discharged of and from all claims and demands which the Company might or could
have against the Secured Party with respect to the Charged Assets.
7. The Company represents and warrants to the Secured Party that:
(a) the Company is the sole registered, legal and beneficial owner of
an estate in fee simple in the Lands described in Appendix "A" hereto with good
and marketable title thereto, and the Company is the sole legal and beneficial
owner of the remainder of the Charged Assets, free of any Lien, encumbrance or
other right whatsoever except for Permitted Encumbrances (as defined in the
Indenture);
(b) the Company is duly incorporated and in good standing under the laws
of its jurisdiction of incorporation, has the right, power and lawful authority
to charge and mortgage to the Secured Party, and otherwise grant security
interests in all of its right, title and interest in and to, the Charged Assets
as provided for in this debenture and this debenture constitutes a legal, valid
and binding obligation of the Company, enforceable against the Company in
accordance with its terms, subject to bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting creditors' rights and
the discretion exercisable by Courts of competent jurisdiction in respect of the
availability of equitable remedies; and
(c) neither the execution of this debenture nor the performance by the
Company of its obligations hereunder will result in any breach of or default
under any law or any other agreement or document to which the Company is a party
or by which it may be bound.
8. The Company agrees with the Secured Party that until all indebtedness and
liability owing by the Company to the Secured Party are paid in full:
(a) it will not, without the prior written consent of the Secured
Party:
(i) incur, create, assume or permit to exist any further or
additional indebtedness except as permitted under the terms
of the Indenture;
(ii) create, assume or permit to exist any Liens upon, assign,
transfer, mortgage, charge, pledge, hypothecate or otherwise
grant security over or a security interest in any of the
Charged Assets except to the Secured Party and except
Permitted Encumbrances;
(iii) sell, transfer, assign, or otherwise dispose of any of the
Charged Assets or any group of property and assets forming
part of the Charged Assets except for a sale of inventory in
the ordinary course of business and such other sales as
permitted under the Indenture;
<PAGE>
6.
(iv) merge or amalgamate with any other corporation except as
permitted under the Indenture;
(v) change the location of its chief executive office, place of
business or principal place of residence without providing the
Secured Party with fifteen days' prior written notice;
(vi) take any action (or not take any action) which would result in
a default or an Event of Default under the Indenture or
hereunder;
(vii) remove the Charged Assets from the locations referred to in
paragraph 3 hereof unless such removal is a permitted sale of
the Charged Assets or keep the Charged Assets at a location
other than the locations referred to in paragraph 3 hereof
provided that the Company may also remove Charged Assets to
another location upon the condition that it provide the
Secured Party with at least 14 days prior written notice of
its intention to do so and provides to the Secured Party prior
to such removal an agreement from any lessor of such location
as provided in subparagraph 9(l) hereof; or
(viii) change its name without giving prior written notice to the
Secured Party of the new name and the date upon which such
change of name will take effect; and
(b) it will:
(i) hold the proceeds received from any direct or indirect
dealing with the Charged Assets in trust for the Secured
Party after either the occurrence of a default under the
Indenture or the security constituted by this debenture
becoming enforceable, hold the proceeds of any Asset Sale
permitted under the Indenture which are payable to the
Secured Party or the Holders and the proceeds of any Asset
Sale which is not permitted under the Indenture in trust
for the Secured Party, and, if required in accordance with
the terms of the Indenture, hold all proceeds of any sale,
lease, assignment or other transfer of all or any part of
the Charged Assets made outside the ordinary course of
business of the Company in trust for the Secured Party, and
in each case, forthwith remit such proceeds to the Secured
Party;
(ii) strictly comply with every covenant and undertaking heretofore
or hereafter given by it to the Secured Party and take any
action that may be necessary to enable the Borrower to comply
with its obligations under the Indenture, the Securities and
the Collateral Documents;
<PAGE>
7.
(iii) permit the Secured Party at any time and from time to time,
when the security granted pursuant to this debenture shall
have become enforceable, to require any account debtor of the
Company to make payment to the Secured Party of any or all
amounts owing by the account debtor to the Company and the
Secured Party may take control of any proceeds referred to in
subparagraph 2(h) hereof and may hold all such amounts
received from any account debtor and any such proceeds as cash
collateral as part of the Charged Assets and as security for
the indebtedness and liability secured by this debenture;
(iv) deliver to the Secured Party promptly upon request, any
documents of title, instruments, securities and chattel
paper constituting, representing or relating to the Charged
Assets and all statements of account, bills, invoices and
books of account relating to accounts and all records,
ledgers, reports, correspondence, schedules, documents,
statements, lists and other writings relating to the
Charged Assets for the purpose of inspecting, auditing or
copying same;
(v) at the Secured Party's request, cause such of the
securities which constitute Charged Assets to be registered
in the name of the Secured Party or its nominee and the
Company hereby authorizes the Secured party to transfer
such securities into the name of the Secured Party or its
nominee so that the Secured Party or its nominee may appear
as the sole owner of record of such securities; the Company
shall, at the request of the Secured Party, deliver to the
Secured Party appropriate powers of attorney for transfer
in blank, duly executed and with signatures guaranteed, in
respect of such securities;
(vi) immediately upon becoming aware thereof, give the Secured
Party written notice of any loss or destruction of, or
substantial damage to, any material portion of the Charged
Assets which alone, or together with any other Collateral (as
defined in the Indenture) which is lost, destroyed or
substantially damaged, constitutes a material portion of the
Collateral;
(vii) promptly notify the Secured Party of the acquisition by it of
receivables or other amounts owing to it from persons located
in any jurisdiction other than Ontario or Quebec;
(viii) keep its insurable properties adequately insured at
all times by financially sound and reputable insurers;
<PAGE>
8.
(ix) maintain such other insurance, to such extent and against
such risks, including fire and other risks insured against
by extended coverage, as is customary for the Charged
Assets and 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 Company 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 Secured Party, and in no event at any time in an
amount less than the replacement value of the Charged
Assets;
(x) maintain in full force and effect public liability insurance
against claims for bodily injury or death or property damage
occurring upon, in, about or in connection with the use of any
properties owned, occupied or controlled by the Company or any
of its subsidiaries, as is customary with companies similarly
situated and in the same or similar businesses;
(xi) maintain business interruption and product liability insurance
to such extent as is customary with companies similarly
situated and in the same or similar businesses;
(xii) maintain such other insurance as may be required by law or as
may be reasonably requested by the Secured Party for purposes
of assuring compliance with this subparagraph 8(b);
(xiii) ensure that all insurance covering tangible personal property
subject to a Lien in favour of the Secured Party granted
pursuant hereto shall provide that, in the case of each
separate loss, the full amount of insurance proceeds shall be
payable to the Secured Party subject to the rights of the
holders of prior ranking Permitted Encumbrances, and shall
further provide for at least 30 days' prior written notice to
the Secured Party of the cancellation or substantial
modification thereof;
(xiv) deliver to the Secured Party all policies and certificates
of insurance maintained in accordance with this
subparagraph 8(b); and
(xv) provide to the Secured Party, from time to time upon demand, a
statement of the value of its inventory and a list of its book
debts shown in the reverse order of their due date.
9. The Company agrees with the Secured Party that:
(a) it will at all times fully perform and comply with all
obligations imposed on, assumed by or agreed to by it pursuant to this debenture
and any prior
<PAGE>
9.
encumbrance of the Lands or any part thereof or its interest therein, that it
will pay all rents and perform all obligations under the leases charged by this
debenture and that, if the Company shall fail so to do, the Secured Party may
(but shall not be obliged to) take any action the Secured Party deems necessary
or desirable acting reasonably to cure any default by the Company in the
performance of or compliance with any of the Company's obligations hereunder,
under any lease or imposed upon, assumed by or agreed to by the Company pursuant
to any such prior encumbrance;
(b) upon receipt by the Secured Party in regard to any such prior
encumbrance or any lease of any written notice of default by the Company, the
Secured Party may rely thereon and take any action as aforesaid, acting
reasonably, to cure such default even though the existence of such default or
the nature thereof may be questioned or denied by the Company or by any party on
behalf of the Company;
(c) at its option, the Secured Party may discharge past due taxes, Liens,
or other encumbrances (other than Permitted Encumbrances which are not in
default) at any time levied or placed on the Charged Assets and may pay for the
maintenance and preservation of the Charged Assets to the extent the Company
fails to do so in accordance with the Indenture or this debenture, provided,
however, that the Secured Party shall not discharge such taxes, Liens or other
encumbrances or pay for such maintenance or preservation prior to the occurrence
and continuance of an Event of Default under the Indenture unless the Secured
Party shall have requested the Company to discharge such taxes, Liens or other
encumbrances or pay such amounts and the Company shall have failed or refused to
do so within such period of time as shall have been specified by the Secured
Party in such notice; provided that nothing in this debenture shall excuse the
Company from the performance of any covenants or other promises with respect to
taxes, Liens, prior claims or other encumbrances and maintenances;
(d) the Company hereby expressly grants to the Secured Party, and agrees
that the Secured Party shall have the absolute and immediate right to enter in
and upon the Lands or any part thereof to such extent and as often as the
Secured Party, in its sole discretion, acting reasonably, deems necessary or
desirable, in order to cure any such default by the Company;
(e) the Secured Party may pay and expend such sums of money as the Secured
Party in its sole discretion, acting reasonably, deems necessary for any purpose
provided for in subparagraphs 9(a), (b), (c) and (d), and the Company hereby
agrees to pay to the Secured Party, immediately upon notification by the Secured
Party and without demand, all such sums so paid and expended by the Secured
Party, together with interest thereon at the Interest Rate then in effect in
accordance with the Indenture;
<PAGE>
10.
(f) all sums so paid and expended by the Secured Party and such interest
thereon, shall be secured hereby in addition to all other moneys hereby secured
and in priority to all other mortgages and charges;
(g) if this debenture is or shall be outstanding at the expiration of the
term of any lease (a "material lease") of real property forming part of the
Charged Assets which is material to the conduct of the Company's business and
the Company shall refuse or neglect to exercise its right, if any, to renew such
material lease and to pay the fees, costs, charges and expenses incidental to
and payable upon such renewals, then, and as often as it shall happen, the
Secured Party may, at its sole discretion, effect such renewals in its own name
or otherwise, and in such case every such renewed material lease and the lands
and buildings thereby demised shall remain and be security to the Secured Party
for the indebtedness and liability secured by this debenture and as well for the
payment of all money paid by the Secured Party for every such renewal and the
Secured Party's costs, charges, and expenses and interest thereon at the
Interest Rate then in effect in accordance with the Indenture;
(h) it will not: (i) surrender any material lease or any rights of renewal
with respect thereto (except for the leases of the premises located at 2245 St.
Paul, St.-Hyacinthe, Quebec and 3030 Ste. Anne Boulevard, Beauport, Quebec);
subordinate any material lease to any mortgage of the fee interest of the
landlord thereof in the lands subject to such lease, unless in connection with
any such subordination the Company obtains from the holder of such mortgage a
non-disturbance agreement in favour of the Company and its successors and
assigns (including the Secured Party) in form and substance satisfactory to the
Secured Party (save and except that with respect to existing leases, the Company
shall only be required to use commercially reasonable efforts to obtain such a
non-disturbance agreement); (ii) terminate or cancel any material lease without
the prior written consent of the Secured Party; or (iii) without the prior
written consent of the Secured Party, modify, change, supplement, alter or amend
any material lease either orally or in writing;
(i) no release or forbearance of any of the Company's obligations pursuant
to any material lease or pursuant to any prior encumbrance of the Company's
interest in the Lands or any part thereof, including without limitation the
Company's obligations with respect to the payment of rent as provided for in any
such lease, shall release the Company from any of the Company's obligations
pursuant to this debenture;
(j) unless the Secured Party shall otherwise expressly consent in writing,
the title in fee simple to the property demised by any material lease and the
leasehold estate shall not merge but shall always remain separate and distinct,
notwithstanding the union of said estates either in the landlord of any such
lease or the Company pursuant to any such lease or in a third party, by purchase
or otherwise;
<PAGE>
11.
(k) if the Company shall, at any time before payment in full of the
indebtedness and liability secured by this debenture, acquire the freehold title
to the Lands demised by any lease, this mortgage and charge shall attach and
extend to, and constitute a mortgage and charge of such freehold estate; and
(l) the Company hereby agrees that it will not place the Charged Assets or
allow the Charged Assets to be placed on any premises that are leased unless the
lessor of such premises has first agreed in writing with the Secured Party to
subordinate and postpone any and all of its claims, security and rights to the
claims and security of the Secured Party; provided that this covenant will not
prohibit the Company from selling the Charged Assets in the normal course of the
Company's business.
10. The Company hereby agrees that it will at all times, both before and
after default, do or cause to be done such additional things and execute and
deliver or cause to be executed and delivered all such further acts and
documents as the Secured Party may reasonably require for the better mortgaging,
charging, confirming and granting of security interests in the present or future
Charged Assets to the Secured Party, including, without limitation, the payment
of any fees and taxes required in connection with the execution and delivery of
this debenture, the granting of the security and the filing, recording, or
registering of any financing statements or other documents in connection
therewith. If any amount payable under, or in connection with, any of the
Charged Assets shall be or become evidenced by any promissory note or other
instrument, such note or instrument shall be promptly pledged and delivered to
the Secured Party, duly endorsed in a manner satisfactory to the Secured Party.
If at any time the Company shall take and perfect a security interest or
hypothec in any property of an account debtor or any other person to secure
payment and performance of an account receivable, the Company shall promptly
assign such security interest or hypothec to the Secured Party. Such assignment
need not be filed, recorded or registered of public record unless necessary to
continue the perfected status of the security interest or hypothec against
creditors of and transferees from the account debtor or other person granting
the security interest or hypothec.
11. The Company shall, at its own cost and expense, take any and all
actions reasonably necessary to defend title to the Charged Assets against all
persons and to defend the security of the Secured Party in such Charged Assets,
and the priority thereof, against any adverse Lien or encumbrance of any nature
whatsoever, except for such Liens or encumbrances permitted by the Secured Party
in writing, including, without limitation, the Permitted Encumbrances.
<PAGE>
12.
12. The Company shall remain liable to observe and perform all the
conditions and obligations to be observed and performed by it under each
contract and agreement, interest or obligation relating to the Charged Assets,
all in accordance with the terms and conditions thereof and shall indemnify and
hold harmless the Secured Party and the Holders from any and all such
liabilities.
13. The Company will not, without the Secured Party's prior written
consent, grant any extension of the time of payment of any its accounts
receivable, or compromise, compound or settle the same for less than the full
amount thereof, or release, in whole or in part, any person liable for the
payment thereof, or allow any credit or discount whatsoever thereon other than
extensions, credits, discounts, compromises or settlements granted or made in
the ordinary course of business.
F. DEFAULT
14. Subject to the terms of the Delivery Agreement, all indebtedness and
liability owing by the Company to the Secured Party and hereby secured shall
become payable and the security hereby constituted shall become enforceable upon
the demand by the Secured Party.
15. The Secured Party may in writing (and not otherwise) waive any
breach by the Company of any of the provisions contained in this debenture or
any default by the Company in the observance or performance of any provision of
this debenture; provided always that no waiver by the Secured Party shall extend
to or be taken in any manner whatsoever to affect any subsequent breach or
default, whether of the same or a different nature, or the rights resulting
therefrom.
G. REMEDIES OF THE SECURED PARTY
16. Whenever the security hereby constituted shall have become
enforceable, and so long as it shall remain enforceable, the Company will have
no right to vote or take any other action with respect to any securities
constituting Charged Assets or receive any dividends or interest (whether
declared or payable before or after the security hereby constituted becoming
enforceable) in respect of the Charged Assets, and the Secured Party may proceed
to realize such security and to enforce its rights by:
(a) entry;
(b) the appointment by instrument in writing of a receiver or receivers of
the Charged Assets or any part thereof (which receiver or receivers may be any
Person or Persons, whether an officer or officers or employee or employees of
the Secured Party
<PAGE>
13.
or not) and the Secured Party may remove any receiver or receivers so appointed
and appoint another or others in his or their stead;
(c) proceedings in any court of competent jurisdiction for the
appointment of a receiver or receivers or for sale of the Charged Assets or
any part thereof; or
(d) any other action, suit, remedy or proceeding authorized or
permitted hereby or by law or by equity.
In addition, the Secured Party may file such proofs of claim and
other documents as may be necessary or advisable in order to have its claim
lodged in any bankruptcy, insolvency, winding-up or other judicial proceedings
relative to the Company.
The Secured Party or any receiver or receivers so appointed shall
have power to:
(i) take possession of and to use the Charged Assets or any part
thereof with power to exclude the Company and its officers,
employees and agents therefrom;
(ii) carry on the business of the Company (including, but not
limited to, the taking or defending of any actions or legal
proceedings, and the doing or refraining from doing all other
things as to it, acting reasonably, may seem necessary or
desirable in connection with the business, operations and
affairs of the Company);
(iii) take all such steps as it may consider necessary or desirable
for the purposes of preserving, maintaining and completing all
or any part of the Charged Assets and making such replacements
thereof and improvements and additions thereto as it shall
consider expedient;
(iv) receive the rents, incomes and profits of any kind whatsoever
from the Charged Assets and pay therefrom
(A) any expenses of preserving, maintaining and completing
the Charged Assets, of making such replacements thereof
and improvements and additions thereto as it may
consider expedient and of carrying on all or any part
of the business of the Company relating to the Charged
Assets, and
(B) any charges against the Charged Assets ranking in
priority to or pari passu with the security created by
this debenture or the payment of which may be necessary
or desirable to preserve or protect all or any part of
the Charged Assets or the interest of the Secured Party
therein;
(v) lease all or any part of the Charged Assets and renew from
time to time all or any of the leases on such terms and
conditions as the Secured Party may determine;
<PAGE>
14.
(vi) with or without taking possession, take any action or
proceedings to enforce the performance of any covenant
contained in any of the leases;
(vii) enjoy and exercise all the powers of the Company as it
considers necessary or desirable for the exercise of any and
all of the remedies provided for herein, including, without
limitation, the powers to make any arrangement or compromise
on behalf and in the name of the Company which it considers
expedient, to purchase on credit and borrow money on behalf
and in the name of the Company and to advance its own moneys
to the Company, all at such rates of interest as it may
consider reasonable, and to enter into contracts and undertake
obligations on behalf of and in the name of the Company for
any and all of the foregoing purposes or which it considers
necessary or desirable for the exercise of any of the rights,
powers and remedies provided for herein, all of which
borrowings, advances and obligations together with interest
thereon shall, at the discretion of the Secured Party, be
entitled to the security hereof in priority to the payment of
the obligations secured by this debenture;
(viii) borrow money required for the maintenance,
preservation or protection of the Charged Assets or any
part thereof or the carrying on of the business of the
Company;
(ix) further charge the Charged Assets in priority to the charge
of this debenture as security for money so borrowed;
(x) vote and take all other action with respect to any securities
constituting Charged Assets and collect all revenues,
dividends and distributions distributed in connection with
such securities; and
(xi) sell, lease or otherwise dispose of the whole or any part of
the Charged Assets on such terms and conditions and in such
manner as the receiver shall determine.
Every receiver appointed by the Secured Party shall be deemed to be an agent of
the Company and not of the Secured Party for the purposes of (i) carrying on and
managing the business and affairs of the Company and (ii) establishing liability
for all of the acts or omissions of the receiver while acting as such and the
Secured Party shall not be in any way responsible for any acts or omissions on
the part of any such receiver, its officers, employees and agents; provided
that, without restricting the generality of the foregoing, the Company
irrevocably authorizes the Secured Party to
<PAGE>
15.
give instructions to each receiver relating to the performance of its powers and
discretions. The appointment of a receiver or any thing which may be done by the
receiver shall not have the effect of constituting the Secured Party a mortgagee
in possession.
In addition, the Secured Party may enter upon, use, occupy and
possess the Charged Assets or any part thereof, free from all encumbrances,
Liens and charges, except for Permitted Encumbrances, without hindrance,
interruption or denial of the same by the Company or by any other person or
persons, and may lease or sell the whole or any part or parts of the Charged
Assets. Any sale hereunder may be made by public auction, by public tender or by
private contract, with or without notice and with or without advertising and
without any other formality (except as required by law), all of which are hereby
waived by the Company. Such sale shall be on such terms and conditions as to
credit or otherwise and as to upset or reserve bid or price as to the Secured
Party in its sole discretion may seem advantageous. In the case of any sale on
credit or partly on credit, the Secured Party shall not be accountable for any
proceeds thereof unless and until actually received by the Secured Party in
cash. Such sale may take place whether or not the Secured Party has taken
possession of the Charged Assets.
The Company agrees to pay to the Secured Party forthwith on demand
all expenses incurred by the Secured Party in the preparation, perfection,
administration and enforcement of this debenture (including without limitation
expenses incurred in considering and protecting or improving the Secured Party's
position, or attempting to do so, whether before or after default), all amounts
borrowed by the receiver from the Secured Party as hereinbefore provided and all
costs, charges, expenses and fees (including, without limiting the generality of
the foregoing, the fees and expenses of any receiver and legal fees on a
solicitor and client basis) of or incurred by the Secured Party and by any
receiver or receivers or agent or agents appointed by the Secured Party in
connection with the recovery or enforcing of payment of any moneys owing
hereunder, whether by realization, by taking possession or otherwise. All such
sums, together with interest thereon at the Interest Rate then in effect in
accordance with the Indenture, shall be secured by the charges contained herein.
To the extent that the aggregate of the principal and accrued interest secured
hereby and such borrowed money, costs, fees and expenses exceed the principal
amount of this debenture, the Company hereby mortgages and charges and grants a
security interest in the Charged Assets to the Secured Party to secure payment
of such excess amount.
No remedy for the realization of the security hereof or for the
enforcement of the rights of the Secured Party shall be exclusive of or
dependent on any other such remedy, but any one or more of such remedies may
from time to time be exercised independently or in combination; and the exercise
of any remedy under any
<PAGE>
16.
document in any jurisdiction shall not prejudice or affect the exercise of any
remedy under another document in any jurisdiction. The term "receiver" as used
in this debenture includes a receiver and manager.
The Secured Party shall not, nor shall any receiver appointed by it,
be liable for any failure to exercise its rights, powers or remedies arising
hereunder or otherwise, including without limitation any failure to take
possession of, collect, enforce, realize, sell, lease or otherwise dispose of,
preserve, maintain, complete, protect, replace or improve all or any part of the
Charged Assets, to carry on all or any part of the business of the Company or to
take any steps or proceedings for any such purposes. Neither the Secured Party
nor any receiver appointed by it shall have any obligation to take any steps or
proceedings to preserve rights against prior parties to or in respect of all or
any part of the Charged Assets, whether or not in its possession and neither the
Secured Party nor any receiver appointed by it shall be liable for failure to do
so. Subject to the foregoing, the Secured Party shall use reasonable care in the
custody and preservation of the Charged Assets in its possession.
17. Subject to the provisions of the Indenture, any and all payments
made in respect of the indebtedness and liability secured by this debenture from
time to time may be applied to such part or parts of the indebtedness and
liability secured by this debenture as the Secured Party may see fit, and the
Secured Party shall at all times and from time to time have the right to change
any appropriation as the Secured Party may see fit.
18. Upon any sale of the Charged Assets by the Secured Party (including,
without limitation, pursuant to a power of sale granted by statute or under a
judicial proceeding) the receipt of the Secured Party or of the officer making
the sale shall be a sufficient discharge to the purchaser or purchasers of the
Charged Assets so sold and such purchaser or purchasers shall not be obligated
to see to the application of any part of the purchase money paid over to the
Secured Party or such officer or be answerable in any way for the misapplication
thereof.
H. RIGHTS OF THE SECURED PARTY
19. The Secured Party may, in accordance with subparagraph 9(c) of this
debenture, pay and satisfy the whole or any part of any Liens, taxes, rates,
charges or encumbrances now or hereafter existing in respect of any of the
Charged Assets (other than Permitted Encumbrances which are not in default) and
such payments together with all costs, charges and expenses which may be
incurred in connection with making such payments shall form part of the
indebtedness and liability secured by this
<PAGE>
17.
debenture and shall be secured by the mortgages, charges and security interests
granted herein. In the event of the Secured Party satisfying any such lien,
charge or encumbrance, it shall be entitled to all the equities and securities
of the person or persons so paid and is hereby authorized to obtain any
discharge thereof and hold such discharge without registration for so long as it
may deem advisable to do so.
20. The Company grants to the Secured Party the right to set off against
any and all accounts, credits or balances maintained by it with the Secured
Party, the aggregate amount of any of the indebtedness and liability secured by
this debenture provided the same is due.
21. The Secured Party, without exonerating in whole or in part the
Company, may grant time, renewals, extensions, indulgences, releases and
discharges to, may take securities from and give the same and any or all
existing securities up to, may abstain from taking securities from or from
perfecting securities of, may accept compositions from, and may otherwise deal
with the Company and all other persons and securities as the Secured Party may
see fit.
22. Nothing herein shall obligate the Secured Party to extend or
amend any credit to the Company.
23. The Secured Party may, in accordance with the Indenture, assign,
transfer and deliver to any transferee any of the indebtedness and liability
secured by this debenture or any security or any documents or instruments held
by the Secured Party in respect thereof provided that no such assignment,
transfer or delivery shall release the Company from any of the indebtedness and
liability secured by this debenture; and thereafter the Secured Party shall be
fully discharged from all responsibility with respect to the indebtedness and
liability secured by this debenture and security, documents and instruments so
assigned, transferred or delivered. Such transferee shall be vested with all
powers and rights of the Secured Party under such security, documents or
instruments but the Secured Party shall retain all rights and powers with
respect to any such security, documents or instruments not so assigned,
transferred or delivered. The Company shall not assign any of its rights or
obligations hereunder without the prior written consent of the Secured Party.
24. The Secured Party is hereby authorized to file, record or register,
as the case may be, one or more financing statements, financing change
statements or other documents in all jurisdictions which the Secured Party deems
necessary or appropriate for the purpose of perfecting, confirming, continuing,
enforcing or protecting the
<PAGE>
18.
security held by the Secured Party in respect of the indebtedness and liability
secured by this debenture.
25. The Company hereby appoints the Secured Party the attorney of such
Company solely for the purposes of carrying out the provisions of this debenture
and taking any action or executing any instrument which the Secured Party may
deem necessary or advisable to accomplish the purposes herewith, which
appointment is irrevocable and coupled with an interest.
26. The Secured Party and such persons as the Secured Party may
designate shall have the right, at any reasonable time or times during Company's
usual business hours, and upon reasonable notice, (which may be by telephone) to
inspect the Charged Assets, all records related thereto (and to make extracts
and copies from such records) and the premises upon which any such Charged
Assets are located, to discuss the Company's affairs with the officers of the
Company and its independent accountants and to verify under reasonable
procedures, the validity, amount, quality, quantity, value and condition of or
any other matter relating to, such Charged Assets, including, in the case of
accounts receivable or Charged Assets in the possession of a third person,
contacting account debtors and third persons possessing such Charged Assets. The
Secured Party shall have the absolute right to share any information that it
gains from such inspection or verification with any or all of the Holders.
J. MISCELLANEOUS
27. If one or more of the provisions contained herein shall be invalid,
illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall not in any way
be affected or impaired thereby.
28. No amendment of this debenture shall be binding unless executed
in writing by the party to be bound thereby.
29. Until the security hereby constituted shall have become enforceable,
the Company shall have quiet possession of the Charged Assets. Upon payment by
the Company, its successors or permitted assigns, of all indebtedness and
liability of the Company to the Secured Party secured hereby and the fulfilment
of all other obligations of the Company to the Secured Party secured hereby and
termination of the Company's guarantee given pursuant to the Indenture and
provided that the Secured Party is then under no obligation (conditional or
otherwise) to make any further loan or
<PAGE>
19.
extend any other type of credit to the Company or the Borrower, the Secured
Party shall, upon request in writing by the Company and at the Company's
expense, discharge this debenture.
30. This debenture shall be construed in accordance with and be governed
by the laws of the Province of New Brunswick. For the purpose of legal
proceedings, this debenture shall be deemed to have been made in the said
Province and to be performed therein and the courts of that Province shall have
jurisdiction over all disputes which may arise under this debenture. The Company
hereby irrevocably and unconditionally submits to the non-exclusive jurisdiction
of such courts, provided always that nothing herein contained shall prevent the
Secured Party from proceeding at its election against the Company in the courts
of any other province, country or jurisdiction.
31. The headings in this debenture are included for convenience of
reference only, and shall not constitute a part of this debenture for any
other purpose.
32. This debenture is in addition to and not in substitution for any
other security now or hereafter held by the Secured Party and shall be general
and continuing security notwithstanding that the indebtedness and liability of
the Company to the Secured Party shall be at any time or from time to time fully
satisfied or paid.
33. This debenture and all its provisions shall enure to the benefit
of the Secured Party, its successors and assigns, and shall be binding on the
Company, its successors and permitted assigns.
34. Any demand or notice by the Secured Party in connection with this
debenture shall be given to the Company c/o SLM International, Inc. at the
place and in accordance with the terms set out in the Indenture for the
giving of notices thereunder.
35. In construing this debenture, terms herein shall have the same
meaning as defined in the Personal Property Security Act (New Brunswick), unless
the context otherwise requires and capitalized terms not defined herein will
have the meaning attributed to such terms in the Indenture. The word "Company",
the personal pronoun "it" or "its" and any verb relating thereto and used
therewith shall be read and construed as required by and in accordance with the
context in which such words are used depending upon whether the Company is one
or more individuals, corporations or partnerships and, if more than one, shall
apply and be binding upon each of them
<PAGE>
20.
severally. The term "successors" shall include, without limiting its meaning,
any corporation resulting from the amalgamation of a corporation with another
corporation and, where the Company is a partnership, any new partnership
resulting from the admission of new partners or any other change in the Company,
including, without limiting the generality of the foregoing, the death of any or
all of the partners.
36. The Secured Party acknowledges that it has entered into an
Intercreditor Agreement (as that term is defined in the Indenture).
Notwithstanding the foregoing, the Grantor agrees and acknowledges that the
Intercreditor Agreement does not provide the Grantor with any rights as a third
party beneficiary or otherwise.
IN WITNESS WHEREOF the Company has executed this debenture as of the
1st day of April, 1997.
SLM TRADEMARK ACQUISITION
CANADA CORPORATION
By: /s/ BRUCE RANDELL c/s
-------------------------
title - Secretary
<PAGE>
APPENDIX "A"
Legal description of freehold lands
Intentionally blank.
<PAGE>
APPENDIX "B"
List of Equipment
Intentionally blank.
<PAGE>
APPENDIX "C"
Locations where Charged Property Located
MASKA-APPAREL PRODUCTS LOCATIONS
#1 APPAREL CANADA INC. HOLT MANUFACTURING CO., INC.
375 Sligo Road West P.O. Box 2017
P.O. Box 850 2208 Air Park Drive
Mount Forest, Ontario Burlington, N.C. 27216
N0G 2L0 USA
COMDYE INC. KEBEC SUBLIME INC.
333 Louvain Street West 8401 Ray-Lawson Boulevard
Montreal, Quebec Anjou, Quebec
H2N 1B2 H1J 1K6
CONFECTION ST-MATHIEU KNITRAMA FABRICS
3125 Bernard Pilon 7801 Jarry East
Loc. H-8 Anjou, Quebec
St-Mathieu de Beloeil, Quebec H1J 1H3
J3G 4S5
CORALTEX INC. PETE'S CRESTING LTD.
800 Melchers 1 Adelaide St. N., Unit 13
Berthierville, Quebec London, Ontario
J0K 1A0 N6B 3P8
CREATION JADE INC. PRIMOTEX KNITTING INC.
5699, rue Principale 432 Isabey
Ascot Corner, Quebec St-Laurent, Quebec
J0B 1A0 H4T 1V3
DANSK PRO-JOY
Marsvej 7-9 530 Governors Road
DK-7430, IKAST Guelph, Ontario
DENMARK N1K 1E3
FIN-PRINT INC. TRICOTS J.T.S.
530 Governors Road 500 Sauve West #104A
Guelph, Ontario Montreal, Quebec
N1K 1E3 H3L 1Z8
CCM-HARDGOODS PRODUCTS LOCATIONS
BECKWITH BEMIS INC. LAMINATED TEXTILES LTD.
1145 Belanger (LAMTEX)
Sherbrooke, Quebec 155 Signet Drive
J1K 2B1 Weston Ontario
M9L 1V1
SONATEX LAMINATING INC. TEXTILES M.T.C. LTEE
3335 North Service Road 5575 Casgrain
Unit 2-3 Montreal, Quebec
Burlington, Ontario H2T 1Y1
L7N 3G2
3030 Ste-Anne Boulevard
Beauport, Quebec
G1E 6N1
MORTGAGE, SECURITY AGREEMENT, AND
ASSIGNMENT OF LEASES AND RENTS
------------------------------------------------
MASKA U.S., INC.,
a Vermont corporation
Mortgagor
to
THE BANK OF NEW YORK, as trustee
Mortgagee
------------------------------------------------
DATED: As of April 1, 1997
------------------------------------------------
Premises Located at:
77 Route 25
Pierson Industrial Park
Bradford, VT 05033
Record and Return to:
O'Melveny & Myers, LLP
153 East 53rd St.
New York, New York 10021
Attn: Jennifer G. Grenert, Esq.
------------------------------------------------
NY1-497038 EXECUTION
<PAGE>
INDEX
Page
----
1. Payment of Indebtedness and Performance of Covenants and
Agreements..................................................... 3
2. Title to Property.............................................. 3
3. Representations of Mortgagor................................... 3
4. Future Advances................................................ 3
5. Insurance...................................................... 4
6. Impositions.................................................... 5
7. Deposits for Impositions and Insurance......................... 5
8. Maintenance and Alterations.................................... 6
9. Leasing........................................................ 7
10. Recording, Filing and Other Fees............................... 7
11. Taxes Imposed on Mortgagee and the Holders..................... 8
12. Compliance with Laws, etc...................................... 8
13. Inspection..................................................... 8
14. Certificate of Mortgagor....................................... 8
15. Condemnation................................................... 9
16. Restoration.................................................... 10
17. Mortgagee's Right to Perform Mortgagor's Covenants............. 10
18. Due on Sale.................................................... 10
19. Default........................................................ 10
NY1-497038 EXECUTION
i
<PAGE>
Page
----
20. Appointment of Receiver........................................ 11
21. Power of Sale.................................................. 11
22. Judicial Foreclosure........................................... 11
23. Sale in Parcels................................................ 11
24. Possession of Premises......................................... 12
25. Expenses of Mortgagee and/or the Holders....................... 12
26. Mortgagor's Waivers............................................ 12
27. Partial Foreclosure............................................ 12
28. No Waiver...................................................... 13
29. Attorneys' Fees................................................ 13
30. Rights Cumulative.............................................. 13
31. Interest After Maturity........................................ 13
32. No Credit for Taxes............................................ 13
33. Liens.......................................................... 13
34. Change in Taxation............................................. 14
35. Assignment of Leases and Rents................................. 15
36. Security Agreement............................................. 15
37. No Release..................................................... 16
38. Corporate Authority............................................ 16
39. Notices........................................................ 17
40. Severability................................................... 17
NY1-497038 EXECUTION
ii
<PAGE>
Page
----
41. No Usury....................................................... 17
42. No Representation by Mortgagee................................. 17
43. Indemnification Against Liabilities............................ 17
44. No Oral Changes................................................ 18
45. Governing Law.................................................. 18
46. Construction................................................... 18
47. Gender......................................................... 18
48. Captions....................................................... 18
49. After Acquired Property........................................ 18
50. Further Assurances............................................. 18
51. Certain Definitions............................................ 18
52. Intercreditor Agreement........................................ 19
53. Successors and Assigns......................................... 19
54. Reserved....................................................... 19
55. Indenture...................................................... 19
Schedule A - Description of the Land
Schedule B - Permitted Encumbrances
NY1-497038 EXECUTION
iii
<PAGE>
MORTGAGE, SECURITY AGREEMENT, AND
ASSIGNMENT OF LEASES AND RENTS
THIS MORTGAGE, SECURITY AGREEMENT, AND ASSIGNMENT OF LEASES AND RENTS
("Mortgage") made as of this 1st day of April, 1997 by MASKA U.S., INC., a
Vermont corporation, having an office at 77 Route 25, Pierson Industrial Park,
Bradford, VT 05033 ("Mortgagor"), to THE BANK OF NEW YORK, a New York banking
corporation having an office at 101 Barclay Street, New York, New York 10286-
0099, as trustee (such term and all other capitalized terms used but not defined
herein shall have the meanings assigned thereto in the Indenture referred to
below) ("Mortgagee").
W I T N E S S E T H :
WHEREAS, SLM International, Inc., a Delaware corporation, as issuer,
Mortgagor, Sport Maska Inc., #1 Apparel, Inc., #1 Apparel Canada Inc., SLM
Trademark Acquisition Corp. and SLM Trademark Acquisition Canada Corporation
("collectively, the "Borrowers") have entered into a Senior Secured Note
Indenture dated as of April 1, 1997 with Mortgagee, as trustee for the Holders
referred to therein (as amended, modified, restated or supplemented from time to
time, the "Indenture") pursuant to which the Borrowers have agreed to issue the
Securities to the Holders and the Holders have agreed to acquire the Securities
on the terms and subject to the provisions set forth in the Indenture.
WHEREAS, the Indenture and the Securities and all sums, amounts, and
expenses paid by Mortgagee and/or the Holders hereunder, thereunder or under any
of the of the Collateral Documents and all other obligations thereunder,
(together with all interest thereon, and all fees, obligations, liabilities,
covenants, sums, amounts and expenses, the "Indebtedness") are secured by, among
other things, this Mortgage, and the terms, covenants and conditions of the
Indenture and the Securities are incorporated herein and are hereby made a part
hereof; and
WHEREAS, in order to induce Mortgagee and the Holders to enter into the
Indenture, Mortgagor has agreed to execute and deliver to Mortgagee this
Mortgage.
NOW, THEREFORE, KNOW ALL MEN BY THESE PRESENTS that in order to secure the
Indebtedness and in consideration of the foregoing premises and the sum of TEN
DOLLARS ($10.00) in hand well and truly paid by Mortgagee, the receipt of which
is hereby acknowledged, Mortgagor by these presents does mortgage, warrant,
grant, bargain, sell, convey, alien, release, transfer and confirm unto
Mortgagee for its own benefit and for the benefit of the Holders forever, the
following (collectively, the "Property"):
A. All that certain land located in Orange County, Vermont, more
particularly described in Schedule A annexed hereto and made a part hereof (the
"Land").
NY1-497038 EXECUTION
1
<PAGE>
B. All the buildings, structures and improvements, now or at any time
hereafter erected on the Land or any part thereof (collectively, the
"Buildings").
C. All machinery, apparatus, equipment, personal property and fixtures of
every kind and nature whatsoever now or hereafter located in, on or about the
Buildings or upon the Land, or attached to or used or usable in connection with
the operation or maintenance of the Land or the Buildings, or any part thereof,
and now owned or hereafter acquired (collectively, the "Building Equipment"; and
the Land, the Buildings and the Building Equipment being hereafter sometimes
collectively referred to as the "Premises").
D. All right, title and interest of Mortgagor, whether now owned or
hereafter acquired, in and to any opened or proposed avenues, streets, roads,
public places, sidewalks, alleys, strips or gores of land, in front of or
adjoining the Land or the Buildings, and all easements, tenements,
hereditaments, appurtenances, rights and rights of way, public or private,
pertaining or belonging to the Land or the Buildings.
E. All insurance proceeds and all awards and payments, including interest
thereon, and the right to receive the same, which may be made in respect of all
or any part of the Premises or any estate or interest therein or appurtenant
thereto, as a result of damage to or destruction of all or any part of the
Premises, the exercise of the right of condemnation or eminent domain, the
closing of, or the alteration of the grade of, any street on or adjoining the
Land, or any other injury to or decrease in the value of all or any part of the
Premises.
F. All right, title and interest of Mortgagor in and to any and all present
and future Leases (as defined in Paragraph 51) of all or any part of the
Premises, and in and to the rents, issues and profits payable thereunder and
cash or securities deposited thereunder as lessees' security deposits.
G. All franchises, permits, licenses and rights therein respecting the use,
occupation and operation of the Premises or the activities conducted thereon or
therein.
H. All right, title and interest of Mortgagor in and to any minerals, oil
or gas located on, under or appurtenant to the Land.
I. All right, title and interest of Mortgagor in and to any real estate tax
refunds with respect to the Premises.
J. The rents, royalties, revenue, income, issues and profits of any of the
foregoing.
NY1-497038 EXECUTION
2
<PAGE>
TO HAVE AND TO HOLD the Property unto Mortgagee, its successors, heirs and
assigns, forever.
Provided, that if Mortgagor shall pay the Indebtedness at the time and times,
and in the manner provided in the Notes and the Indenture, then this Mortgage
and the estate, right, title and interest granted herein shall cease, terminate
and become void, and Mortgagee shall deliver to Mortgagor a satisfaction of this
Mortgage in proper and recordable form.
AND MORTGAGOR COVENANTS, REPRESENTS AND WARRANTS TO AND WITH MORTGAGEE AS
FOLLOWS:
1. Payment of Indebtedness and Performance of Covenants and Agreements.
Mortgagor shall pay the Indebtedness when due in accordance with the provisions
of the Securities, the Indenture and the other Collateral Documents
(collectively, the "Loan Documents"), and perform the covenants and agreements
of Mortgagor set forth in the Loan Documents.
2. Title to Property. Mortgagor represents and warrants that (a) it has a
good and marketable title to a fee estate in the Land, (b) it has all necessary
power and authority to enter into, deliver and perform this Mortgage, (c) it has
obtained any and all consents and approvals necessary or required for the making
of this Mortgage, and the making of this Mortgage will not violate any contract
or agreement to which Mortgagor is a party or by which the Property is bound,
and (d) the Property is free of all liens, mortgages, pledges, encumbrances,
charges or security interests whatsoever except those items (the "Permitted
Encumbrances") listed on Schedule B annexed hereto and made a part hereof.
Mortgagor does hereby warrant to take all actions reasonably necessary to defend
its title to and interest in the Property and the validity of the lien hereof
against the claims of all Persons.
3. Representations of Mortgagor. Mortgagor covenants, represents and
warrants to Mortgagee that (a) the Buildings currently erected on the Land and
the use thereof are in compliance with all applicable zoning and building codes,
ordinances and regulations for the use and operation of the Land and Buildings,
and all necessary permits, approvals and certificates have been obtained and are
in full force and effect, (b) any building hereafter constructed on the Land
shall be constructed in compliance with all applicable zoning and building
codes, ordinances and regulations and shall lie wholly within the boundaries of
the Land, (c) the Buildings shall at all times be independent and self-contained
operating units, and (d) the Land shall at all times be a separate tax lot.
4. Future Advances. Without limiting the generality of any other provision
hereof, the Indebtedness shall include: (a) all existing indebtedness of
Mortgagor to Mortgagee and/or the Holders evidenced by any of the Loan
Documents; (b) all future advances that may subsequently be made by Mortgagee
and/or the Holders as provided by
NY1-497038 EXECUTION
3
<PAGE>
any of the Loan Documents; and (c) all other indebtedness, if any, of Mortgagor
to Mortgagee and/or the Holders now due or to become due or hereafter contracted
pursuant to any of the Loan Documents.
5. Insurance.
(a) Mortgagor shall keep the Buildings and the Building Equipment insured
for the benefit of Mortgagee against loss or damage by fire, casualty and such
other hazards in accordance with Section 415 of the Indenture. Duplicate
original policies (or if the same shall be unattainable, memoranda or
certificates of insurance of the issuer of such policies) and, at least 30 days
prior to the expiration thereof, binders evidencing the renewals thereof
accompanied by proof of payment shall be delivered to and held by Mortgagee. Any
insurance required by this Mortgage may be part of a blanket policy maintained
by Mortgagor, provided that such blanket policy provides for an allocation of
the coverage amount thereunder to the Buildings and the Building Equipment in
amounts required by the provisions of this Paragraph, that any such blanket
policy otherwise complies with the provisions of this Paragraph, and that the
protection afforded thereunder shall not be less than that which would have been
afforded under a separate policy with respect to the same insured risks. All
insurance policies required to be effected by this Mortgage shall (1) include
effective waivers by the insurer of all rights of subrogation against any named
insured, the Indebtedness secured by this Mortgage and the Property and all
claims for insurance premiums against Mortgagee and the Holders, (2) provide
that no cancellation, reduction in amount or substantial modification in
coverage thereof shall be effective until at least thirty (30) days after
receipt by Mortgagee of written notice thereof, (3) include "replacement cost
endorsements" if available, and (4) be reasonably satisfactory in all other
respects to Mortgagee. If Mortgagor fails to insure the Buildings or the
Building Equipment, or both, or to deliver, after providing written notice to
Mortgagor, the policies, as required by the provisions of this Paragraph,
Mortgagee may, at its option, effect such insurance, pay the premiums therefor,
and the amounts paid by Mortgagee, with interest from the time of payment by
Mortgagee, at the Applicable Rate (as defined in Paragraph 51), shall, on
demand, be immediately due from Mortgagor to Mortgagee and shall be added to and
included in the Indebtedness and shall be secured by this Mortgage.
(b) Subject to the terms and provisions of the Indenture, Mortgagee shall
have the right but not the obligation, on behalf of Mortgagor, to adjust and
compromise any claims under such insurance, collect and receive the proceeds
thereof and execute and deliver all proofs of loss, receipts, vouchers and
releases in connection with such claims. Subject to the terms and provision of
the Indenture, Mortgagor shall not adjust or compromise any claims under such
insurance, without the prior written consent of Mortgagee.
(c) Reserved.
NY1-497038 EXECUTION
4
<PAGE>
(d) Mortgagor shall not obtain or permit to be obtained separate insurance
concurrent in form or contributing in the event of loss with the insurance
Mortgagor is required to maintain under the provisions of Paragraph 5(a) unless
such insurance is in accordance with all of the provisions of Paragraph 5(a) and
unless Mortgagor gives Mortgagee notice of such separate insurance at least 30
days prior to the effective date of the policy or policies. Mortgagor shall,
upon each and every request of Mortgagee (not to exceed one every six months),
furnish Mortgagee with an appraisal of the replacement value and the insurable
value of the Buildings and Building Equipment by an appraiser satisfactory to
Mortgagee.
(e) If the Land is located in an area which has been identified by the
Secretary of Housing and Urban Development as a flood hazard area and in which
flood insurance has been made available under the National Flood Insurance Act
of 1968, Mortgagor will keep the Buildings and Building Equipment covered by
flood insurance up to the maximum limit of coverage available under said Act but
not in excess of the amount of the Indebtedness.
6. Impositions.
(a) Except as may be permitted by the Indenture, and subject to Paragraph
5(b), Mortgagor shall pay, within the applicable grace period and before the
same become delinquent or in default, all real estate taxes, personal property
taxes, assessments, water rates and sewer rents, license fees, all charges which
may be imposed for the use of vaults, chutes, areas and other space beyond the
lot line and abutting the public sidewalks in front of or adjoining the Land,
and any other amounts which could be or become a lien upon or against the
Property or any part thereof (collectively, the "Impositions"). Mortgagor shall
deliver to Mortgagee, within 20 days after the due date of each payment of any
Imposition or Assessment, receipts evidencing such payment or other proof of
payment satisfactory to Mortgagee.
(b) Notwithstanding the provisions of Paragraph 6(a), Mortgagor shall have
the right, in good faith, to contest by appropriate legal proceedings, after
notice to, but without cost or expense to, Mortgagee, the amount or validity of
any of the Impositions and to postpone the payment of same, provided that: (i)
such contest shall operate to prevent the collection thereof or other
realization thereon, the sale of the lien thereof, and the sale or forfeiture of
the Property or any part thereof; (ii) such contest shall be promptly and
diligently prosecuted by and at the expense of Mortgagor; (iii) Mortgagee shall
not thereby suffer any civil, or be subjected to any criminal, penalties or
sanctions; (iv) Mortgagor shall promptly pay such contested Imposition if at any
time all or any part of the Property shall be in danger of being foreclosed,
sold, forfeited, or otherwise lost or if such contest shall be discontinued; and
(v) Mortgagor shall deposit with Mortgagee, prior to commencing any such
proceedings, security, satisfactory to Mortgagee, in an amount not less than the
NY1-497038 EXECUTION
5
<PAGE>
amount of the Impositions to be contested and of any interest and additional
charges to be incurred as a result of such contest.
7. Deposits for Impositions and Insurance. After the occurrence and
continuance of one or more Defaults, then upon notice from Mortgagee, Mortgagor
shall deposit with Mortgagee on the first day of each month an amount equal to
l/12th of the aggregate annual payments for (i) the Impositions, and (ii) the
insurance premiums on the policies of insurance required to be obtained and kept
in force by Mortgagor under this Mortgage. In addition, upon notice from
Mortgagee, Mortgagor shall deposit with Mortgagee such sum of money which,
together with such monthly installments, shall be sufficient to pay all the
Impositions and insurance premiums at least 30 days prior to the due date
thereof. If the amounts of any Impositions are not ascertainable at the time any
deposit is required to be made, the deposit shall be made on the basis of the
amounts of the Impositions for the prior tax year and, upon the amounts of the
Impositions being fixed for the then current year, Mortgagor shall, upon notice
from Mortgagee, deposit any deficiency with Mortgagee. If the amounts of any
insurance premiums are not ascertainable at the time any deposit is required to
be made, the deposit shall be made on the basis of the amount of the insurance
premiums for the prior year of the policy or policies, and upon the amount of
the insurance premiums being fixed for the then current year of the policy or
policies, Mortgagor shall, upon notice from Mortgagee, deposit any deficiency
with Mortgagee. If, on a date 30 days prior to the due date, there shall be
insufficient funds on deposit with Mortgagee for the payment of any of the
Impositions or the insurance premiums, Mortgagor shall, upon demand of
Mortgagee, forthwith deposit the amount of such deficiency with Mortgagee. The
funds deposited with Mortgagee shall constitute additional collateral for the
Indebtedness, shall be held by it with interest, and shall not be commingled
with other funds of Mortgagee, and provided that Mortgagor shall not be in
Default in the performance of any of the covenants and agreements of Mortgagor
under the Loan Documents, or under any instrument collateral to this Mortgage,
which shall be applied in payment of the Impositions and insurance premiums when
due to the extent that Mortgagor shall have deposited funds with Mortgagee for
such purpose. In the event of any Default by Mortgagor under this Mortgage, or
any default by Mortgagor under any of the other Loan Documents or any instrument
collateral thereto, the funds deposited with Mortgagee may, at the option of
Mortgagee, be retained and applied toward the payment of any or all of the
Indebtedness, in such order of priority as is provided in the Collateral
Documents, but no such application shall be deemed to have been made by
operation of law or otherwise until actually made by Mortgagee. Mortgagor shall
furnish Mortgagee with a bill for each of the Impositions and insurance premiums
and/or such other documents necessary for its payment, if available, at least 30
days prior to the date it first becomes due. Upon an assignment of this
Mortgage, Mortgagee shall have the right to pay over the balance of such
deposits in its possession to the assignee, and upon the making of such payment
Mortgagee and each Holder shall be completely released from all liability with
respect to such deposits and Mortgagor shall look solely to the assignee with
respect
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thereto. The provisions of the preceding sentence shall apply to each and every
assignment or transfer of such deposits to a new assignee.
8. Maintenance and Alterations.
(a) Mortgagor shall put, keep and maintain the Premises and the sidewalks,
curbs and alleys adjoining or abutting the same in good and lawful order,
condition and repair, (reasonable wear and tear excepted) and Mortgagor shall
make or cause to be made, as and when the same shall become necessary, all
structural and nonstructural repairs, whether exterior or interior, ordinary or
extraordinary, foreseen or unforeseen. Mortgagor shall not commit or suffer any
waste of the Premises and shall not demolish, alter, or remove or permit the
demolition, alteration, or removal of the Buildings or the Building Equipment,
or any part thereof, unless such alteration, demolition or removal will not (i)
materially diminish the utility of the Buildings or Building Equipment for the
operation of the business,
or (ii) upon completion, result in a reduction of the value of the Buildings or
Building Equipment below the value immediately preceding such alteration,
demolition or removal, except to the extent and in the manner provided in the
Indenture.
(b) Mortgagor shall not construct additions to all or part of the Buildings
or the Building Equipment or construct any new or additional buildings on the
Land which will materially interfere with the operation conducted thereon or
materially diminish the fair market value thereof without Mortgagee's prior
written consent.
9. Leasing. Except as set forth on Schedule C annexed hereto and made a
part hereof, Mortgagor represents that there are no Leases now in effect.
Mortgagor shall not enter into any Lease of all or any part of the Premises or
amend, renew, extend or otherwise modify in any material respect any Lease, or,
except for security deposits, accept rent for a period of more than three months
in advance, without in each instance obtaining Mortgagee's prior written consent
thereto which consent shall not be unreasonably withheld or delayed. Mortgagor
shall not terminate, cancel or permit a surrender, termination or cancellation
of any Lease except where the tenant or lessee under such Lease is in default
thereunder. Mortgagor shall deliver to Mortgagee a duplicate original of each
Lease promptly after the execution thereof. At the option of Mortgagee, each
Lease, and all renewals, replacements, extensions, and modifications thereof,
and all rights of the tenant thereunder, shall be subject and subordinate to
this Mortgage, and to each and every advance made or thereafter made hereunder
or under the Notes secured hereby and to all renewals, additions, supplements,
modifications, consolidations, spreaders, replacements, and extensions of this
Mortgage and all future Leases shall contain provisions obligating the lessees
thereunder during the continuance of a Default hereunder to attorn to Mortgagee
or any purchaser therefrom if Mortgagee or such purchaser succeeds to the
interest of Mortgagor under such Lease. Mortgagor shall fully and promptly
perform all of the obligations to be performed by the lessor under any and all
Leases. Mortgagor shall do all
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things necessary to compel the performance and observance of each and every
obligation to be performed or observed by the lessees under such Leases.
Mortgagor shall give prompt notice to Mortgagee of (a) any notice received by
Mortgagor of any default by the lessor under any Lease, (b) the commencement of
any action or proceeding by any tenant the purpose of which shall be the
cancellation of any Lease or a diminution or abatement of the rent payable
thereunder, (c) any notice of default given by Mortgagor to the tenant under any
Lease, or (d) the interposition by any tenant of any defense or counterclaim in
any action or proceeding brought by Mortgagor against such tenant; and Mortgagor
will cause a copy of any process, pleading or notice received or served by
Mortgagor in reference to any such action, defense or claim to be promptly
delivered to Mortgagee. Mortgagor shall hold in trust all security deposits and
advance rent given on account of any Lease, and deposit such security in a bank
or trust company and shall not commingle such funds with other funds. Mortgagor
shall repay or apply such funds only in accordance with the provisions of the
applicable Leases.
10. Recording, Filing and Other Fees. Mortgagor shall pay all recording and
filing fees, all recording taxes, and all other costs and expenses in connection
with the preparation, execution and recordation and other manner of perfection
of this Mortgage, and any other Loan Documents, and shall reimburse Mortgagee on
demand for all costs and expenses of any kind incurred by Mortgagee in
connection therewith (including, without limitation, reasonable attorneys' fees
and disbursements, to the extent permitted by law). Mortgagor will, at any time
on request of Mortgagee, execute or cause to be executed financing statements,
continuation statements, security agreements, or the like, in respect of any
Building Equipment for the assuring and preservation of the security interest
granted hereunder, and Mortgagor hereby irrevocably appoints Mortgagee as its
attorney-in-fact for such purposes. Mortgagor shall pay all filing fees,
including fees for filing continuation statements, in connection with such
financing statements.
11. Taxes Imposed on Mortgagee and the Holders. Mortgagor shall pay any
taxes (except any income, inheritance and franchise taxes) imposed on Mortgagee
by reason of its ownership of this Mortgage or the Securities.
12. Compliance with Laws, etc. Mortgagor shall comply with all laws,
statutes, ordinances, rules, regulations and other requirements of all
governmental authorities relating to all or any part of the Property and the
sidewalks, curbs and alleys adjoining the Land, and the condition, repair,
maintenance, use and occupation thereof. Mortgagor shall obtain and keep in full
force and effect all franchises, permits, licenses and other certificates
required in connection with the use, occupation, and operation of the Premises
and the activities conducted thereon or therein. Mortgagor shall not use or
permit the use of the Premises in any manner which would materially impair the
value of the Premises or increase the risk of fire or other casualty. Mortgagor
shall advise Mortgagee promptly in writing of all written complaints and charges
made by any
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governmental authority affecting the Property or affecting Mortgagor or its
business which may impair the security granted hereunder.
13. Inspection. Mortgagee and its authorized agents and employees shall
have the right, at Mortgagee's option and, so long as no Default is continuing,
at Mortgagee's sole expense, to enter the Premises at all reasonable times and
upon reasonable notice for the purpose of inspecting the same.
14. Certificate of Mortgagor. Mortgagor, upon request of Mortgagee, shall
certify to Mortgagee, by an instrument in form reasonably satisfactory to
Mortgagee, duly acknowledged, the amount of the Indebtedness then owing, the
date to which any interest on the Indebtedness has been paid, whether any
offsets or defenses exist against payment of the Indebtedness or performance of
any of the covenants and agreements of Mortgagor under the Loan Documents and
such other matters in connection with the Loan Documents that Mortgagee might
reasonably request, within 10 days if the request is made personally, or within
15 days if the request is made by mail. Mortgagee shall have the right to rely
on such certification.
15. Condemnation.
(a) Mortgagor shall give notice to Mortgagee upon Mortgagor's learning of
the threatened or actual commencement of any action or proceeding to take all or
any part of the Premises by exercise of the right of condemnation or eminent
domain or of any action or proceeding to close or to alter the grade of any
street on or adjoining the Land. Mortgagee may participate in any such action or
proceeding, and Mortgagor shall deliver to Mortgagee such instruments as
Mortgagee shall request to permit such participation. Mortgagor shall not settle
any such action or proceeding or agree to accept any award or payment without
the prior written consent of Mortgagee, and such award or payment and any
interest thereon (hereinafter collectively called the "Award") shall be paid to
Mortgagee and the amount received shall be retained and applied as provided in
Paragraph 15(b).
(b) At the option of Mortgagee, Mortgagee shall retain and apply the Award
toward payment of the Indebtedness (whether or not due and payable) (without
premium) in such order of priority as Mortgagee shall elect or shall be paid
over in whole or in part to pay or reimburse Mortgagor for the cost of restoring
or reconstructing the Building and the Building Equipment in a manner and on
conditions satisfactory to Mortgagee; provided, however, that to the extent that
the Award received by Mortgagee shall exceed the amount required to satisfy in
full the then total amount of the Indebtedness, Mortgagee shall promptly pay
over to Mortgagor the amount of such excess. In no event shall Mortgagee be
required to satisfy this Mortgage until the Indebtedness is fully paid and
Mortgagee shall not be required to release from the lien of this Mortgage any
portion of the Premises so taken until Mortgagee receives the Award for the
portion so taken.
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(c) The application of the Award toward payment of the Indebtedness shall
not be deemed a waiver by Mortgagee of its right to receive payment of the
balance of the Indebtedness in accordance with the provisions of the Loan
Documents. Mortgagee shall have the right, but shall be under no obligation, to
question the amount of the Award, and Mortgagee may accept same without
prejudice to the rights that Mortgagee may have to question such amount. In any
such condemnation or eminent domain action or proceeding Mortgagee may be
represented by attorneys selected by Mortgagee, and all reasonable sums paid by
Mortgagee in connection with such action or proceeding (including, without
limitation, reasonable attorneys' fees to the extent permitted by law) shall, on
demand, be immediately due from Mortgagor to Mortgagee and the same shall be
secured by this Mortgage.
(d) Notwithstanding any taking by condemnation or eminent domain, closing
of, or alteration of the grade of, any street or other injury to or decrease in
value of the Premises by any public or quasi-public authority or corporation,
the unpaid principal portion of the Indebtedness shall continue to bear interest
at the rate payable pursuant to the applicable Loan Documents until the Award
shall have been actually received by Mortgagee, and any reduction in the
Indebtedness, resulting from the application by Mortgagee of the Award shall be
deemed to take effect only on the date of such receipt.
16. Restoration. If the Buildings or the Building Equipment shall be
damaged or destroyed, in whole or in part, by fire or other casualty, or by any
taking in condemnation proceedings or the exercise of any right of eminent
domain, and if Mortgagor or Mortgagee elects to restore, repair or rebuild the
same, Mortgagor shall promptly restore, replace or rebuild the same to as nearly
as possible the value, quality and condition they were in immediately prior to
such fire or other casualty or taking, with such alterations or changes as may
be approved in writing by Mortgagee, which approval shall not be unreasonably
withheld or delayed. Mortgagor shall give prompt notice to Mortgagee of any
damage or destruction to the Buildings or Building Equipment by fire or other
casualty, as well as the initiation of any condemnation or eminent domain
proceeding affecting the same.
17. Mortgagee's Right to Perform Mortgagor's Covenants. If Mortgagor should
fail in the payment, performance or observance of any term of covenant
hereunder, Mortgagee may, at its option after 10 days prior written notice to
Mortgagor, pay, perform or observe the same, and the amounts advanced by, and
the other costs and expenses of, Mortgagee in paying, performing or observing
the same, with interest from the time of the advances or payments at the
Applicable Rate, shall, on demand, be immediately due from Mortgagor to
Mortgagee and shall be secured by this Mortgage.
18. Due on Sale.
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(a) If Mortgagor enters into a contract to sell or sells, conveys,
alienates, assigns, or transfers the Property, or any part thereof or interest
therein in any manner other than as expressly permitted by the Indenture,
whether voluntarily or involuntarily, directly or indirectly, or by operation of
law or otherwise, then Mortgagee shall have the right, at its option, at any
time thereafter to declare the entire principal then outstanding under the Loan
Documents (if not then due and payable), and all accrued and unpaid interest
thereon, and all other accrued sums and charges under the Loan Documents
immediately due and payable. No waiver of this right or delay in the exercise
thereof shall operate as a waiver thereof unless Mortgagee shall have executed
and delivered to Mortgagor a written waiver of such right.
(b) Except as expressly permitted by the Indenture, any sale, assignment,
transfer, pledge or other disposition, whether voluntary or involuntary, by
operation of law or otherwise, of 50% or more, in the aggregate, whether by one
or more transfers, of the outstanding voting stock of Mortgagor, or of any other
corporation directly or indirectly owning or controlling 50% or more of
Mortgagor, shall be deemed to be a transfer of the Property for the purposes of
this Paragraph 18.
19. Default. The entire principal then outstanding under the Loan Documents
(if not then due and payable), and all accrued and unpaid interest thereon, and
all other accrued sums and charges under the Loan Documents shall, by written
notice given to Mortgagor, become immediately due and payable at the option of
Mortgagee after the occurrence of one or more of the following events (each a
"Default"): (a) upon the occurrence and continuance of any "Event of Default"
(as such term is defined in the Indenture) under the Indenture; or (b) upon the
failure of Mortgagor to observe or perform any other monetary (including,
without limitation, the payment of installments of principal and interest) or
nonmonetary covenants or agreements of Mortgagor hereunder, which in the case of
monetary covenants or agreements, other than the failure to pay installments of
principal or interest, shall be continuing for a period of 10 days after the
giving of written notice to Mortgagor, and in the case of non-monetary covenants
or agreements shall be continuing for a period of 30 days after the giving of
written notice to Mortgagor.
20. Appointment of Receiver. If a Default shall be continuing, Mortgagee
may apply for the appointment of a receiver of the Property, the Premises and/or
the rents, royalties, revenue, income, issues, and profits of all or any part of
the Property from whatever source derived and thereupon it is hereby expressly
covenanted and agreed that the court shall forthwith appoint such receiver with
the usual powers and duties of receivers in like cases; and Mortgagee shall be
entitled to the appointment of such receiver as a matter of right, to the extent
not prohibited by applicable law, without consideration of the value of the
Property as security for the amounts due to Mortgagee or the Holders or the
solvency of any Person liable for the payment of such amounts. In order to
maintain and preserve the Property and to prevent waste and impairment of its
security, Mortgagee may, at its option, advance monies to the appointed receiver
and all such sums
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advanced and not paid from rents, payables, revenue, income, issues and profits
as described in the first sentence of this Paragraph 20, shall become secured
obligations and shall bear interest from the date of such advance at the
Applicable Rate.
21. Power of Sale. If a Default shall be continuing, Mortgagee may sell the
Property to the extent permitted and pursuant to the applicable provisions of
the laws of the state in which the Land is located.
22. Judicial Foreclosure. If a Default shall be continuing, Mortgagee may
institute an action of mortgage foreclosure for the enforcement hereof and
realization on the Property or any other security which is herein or elsewhere
provided for, and proceed thereon to final judgment and execution thereon. At
any such sale Mortgagee and the Holders may bid for and acquire the Property or
any part thereof and in lieu of paying cash therefor may make settlement for the
purchase price by crediting upon the Indebtedness then secured by this Mortgage
the net sales price after deducting therefrom the expenses of the sale and the
costs of the action and any other sums which Mortgagee is authorized to deduct
under this Mortgage. The proceeds of such sale shall be applied first to the
payment of the costs and charges of such sale, including, without limitation,
Mortgagee's reasonable attorneys' fees (to the extent permitted by law), second
to the payment of the Obligations as provided for in the Collateral Documents,
and third, to the payment of any surplus, if any, to Mortgagor, its successors
or assigns, or as a court of competent jurisdiction may direct. To the extent
not prohibited by applicable law, Mortgagor waives any statutory waiting period
with respect to the execution of a judgment obtained by Mortgagee in connection
with any foreclosure proceedings.
23. Sale in Parcels. In the event of a foreclosure of this Mortgage or upon
any sale under this Mortgage pursuant to judicial proceedings or otherwise, the
Property may, to the extent permitted by law, be sold in one parcel and as an
entirety or in such parcels, manner or order as Mortgagee in its sole discretion
may select.
24. Possession of Premises. To the extent permitted by law, after the
occurrence of and during continuance of a Default, Mortgagee and its agents and
any receiver appointed by a court are authorized to (a) take possession of the
Premises; (b) lease the Premises or make reasonable modifications to or cancel
leases; (c) take reasonable measures to maintain, repair, alter and restore the
Premises; (d) collect all rents, issues, income and profits payable under all
Leases directly from the lessees thereunder upon notice to each such lessee that
a Default exists under this Mortgage accompanied by a demand on such lessee for
the payment to Mortgagee of all rents due and to become due under its Lease; and
(e) after deducting all costs of collection and administration expense, apply
the net rents and profits to the payment of Impositions, insurance premiums and
all other carrying charges (including, without limitation, reasonable agents'
compensation and fees and reasonable costs of counsel, to the extent permitted
by law, and receivers) and to the maintenance, repair or restoration of the
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Premises, or on account and in reduction of the Indebtedness in such order and
amounts as Mortgagee in Mortgagee's sole discretion may elect. Mortgagee shall
be liable to account only for rents and profits actually received by Mortgagee.
25. Expenses of Mortgagee and/or the Holders. All sums (including
attorneys' fees and disbursements, to the extent permitted by law) paid by
Mortgagee or any Holder in connection with any litigation to prosecute or defend
the rights and obligations created by this Mortgage, with interest thereon at
the Applicable Rate from the time of payment by Mortgagee or such Holder, shall,
on demand, be immediately due from Mortgagor to Mortgagee or such Holder and
shall be added to and included in the Indebtedness and shall be secured by this
Mortgage.
26. Mortgagor's Waivers. Mortgagor, for itself and its successors and
assigns, hereby irrevocably waives and releases, to the extent permitted by law,
and whether now or hereafter in force, (a) the benefit of any and all valuation
and appraisement laws, (b) any right of redemption whether statutory or
otherwise, in respect of the Property, (c) any applicable homestead or dower
laws, and (d) all exemption laws whatsoever and all moratoriums, extensions or
stay laws or rules, or orders of court in the nature of any one or more of them.
27. Partial Foreclosure. Mortgagee may from time to time, if permitted by
law, take action to recover any sums, whether interest, principal or any other
sums, required to be paid under this Mortgage or any other Loan Document as the
same become due, without prejudice to the right of Mortgagee thereafter to bring
an action of foreclosure, or any other action, for a default or defaults by
Mortgagor existing when such earlier action was commenced. Mortgagee may also
foreclose this Mortgage for any sums due under this Mortgage or any other Loan
Document and the lien of this Mortgage shall continue to secure the balance of
the Indebtedness.
28. No Waiver. Any failure by Mortgagee to insist upon the strict
performance by Mortgagor of any of the covenants and agreements of Mortgagor
under the Loan Documents shall not be deemed to be a waiver of any of such
covenants or agreements, and Mortgagee and each Holder, notwithstanding any such
failure, may thereafter insist upon the strict performance by Mortgagor of any
and all of such covenants or agreements.
29. Attorneys' Fees. If this Mortgage shall be foreclosed, or if any of the
Loan Documents is placed in the hands of an attorney for collection or is
collected through any court, including any bankruptcy court, there shall be
included in the computation of the sums secured hereby, to the extent permitted
by law, the amount of a reasonable fee for the services of the attorney retained
by Mortgagee in the foreclosure action or proceeding, non-judicial sale and all
disbursements, costs, allowances and additional allowances provided by law.
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30. Rights Cumulative. The rights and remedies provided for in this
Mortgage, or which Mortgagee may have otherwise, at law or in equity, shall, to
the extent permitted by law, be distinct, separate and cumulative and shall not
be deemed to be inconsistent with each other, and none of them, whether or not
exercised by Mortgagee, shall be deemed to be in exclusion of any other, and any
two or more of all such rights and remedies may be exercised at the same time,
all to the extent permitted by law.
31. Interest After Maturity. The principal amount of the Indebtedness and
any other amounts secured by this Mortgage and, if permitted by law, any accrued
interest thereon, shall bear interest from and after maturity, whether or not
resulting from acceleration, at the rate provided for in Section 503 of the
Indenture, but this shall not constitute an extension of time for payment of the
Indebtedness.
32. No Credit for Taxes. Mortgagor shall not claim or demand or be entitled
to any credit or credits on account of any of the sums secured hereby by reason
of the Impositions assessed against all or any part of the Property or for any
payments made on account thereof. No deductions shall be made or claimed from
the taxable value of all or any part of the Premises by reason of this Mortgage.
33. Liens.
(a) This Mortgage is and shall be maintained as a valid first lien on the
Property subject only to any encumbrances created pursuant to the Loan Documents
and the Permitted Encumbrances. Except as permitted by the Indenture, Mortgagor
shall not, directly or indirectly, create or suffer or permit to be created, or
to stand, against the Property or any portion thereof, or against the rents,
royalties, revenue, income, issues and profits therefrom, any lien, charge,
mortgage, deed of trust, adverse claim or other encumbrance (herein collectively
referred to as a "lien"), whether senior or junior in lien to this Mortgage,
other than the lien of (i) this Mortgage, (ii) the Permitted Encumbrances and
(iii) any other liens created pursuant to the Loan Documents; provided, however,
that nothing contained in this Paragraph 33 shall require Mortgagor to pay any
real estate taxes or other Impositions prior to the time when same are required
to be paid under this Mortgage. Except as permitted by the Indenture, Mortgagor
will keep and maintain the Premises free from all liens of Persons supplying
labor or materials relating to the construction, alteration, modification or
repair of the Premises. Except as expressly permitted by the Indenture, if any
such lien shall be filed against the Premises, Mortgagor agrees to discharge the
same of record (by payment, bonding, or otherwise) within 10 days after the
filing thereof. Except as expressly permitted by the Indenture, no financing
statement, conditional bill of sale or chattel mortgage shall be made or filed
against the Building Equipment without the prior consent of Mortgagee and if at
any time there should be any (with or without the consent of Mortgagee), then in
the event of any Default, all
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right, title and interest of Mortgagor in and to all deposits and payments made
thereon are hereby assigned to Mortgagee.
(b) Notwithstanding the provisions of Paragraph 33(a), Mortgagor shall have
the right, provided no Default shall exist hereunder, in good faith, to contest
by appropriate legal proceedings, after notice to, but without cost or expense
to, Mortgagee, the validity of any liens arising in connection with the Property
and to postpone the payment of same, provided that: (i) such contest shall
operate to prevent the collection thereof or other realization thereon, the sale
of the lien thereof, and the sale or forfeiture of the Property or any part
thereof; (ii) such contest shall be promptly and diligently prosecuted by and at
the expense of Mortgagor; (iii) Mortgagee shall not thereby suffer any civil, or
be subjected to any criminal, penalties or sanctions; (iv) Mortgagor shall
promptly pay such contested lien if at any time all or any part of the Property
shall be in danger of being foreclosed, sold, forfeited, or otherwise lost or if
such contest shall be discontinued; and (v) Mortgagor shall deposit with
Mortgagee, prior to commencing any such proceedings, security, satisfactory to
Mortgagee, in an amount sufficient to pay or otherwise discharge such contested
lien and of any interest or additional charges incurred as a result of such
contest.
34. Change in Taxation. In the event of the enactment of or change in
(including, without limitation, a change in interpretation of) any applicable
law (a) deducting or allowing Mortgagor to deduct from the value of the Property
for the purpose of taxation any lien or security interest thereon, (b) imposing,
modifying or deeming applicable any reserve or special requirement against
deposits in or for the account of, or loans by, or other liabilities of, or
other assets held by Mortgagee, or (c) subjecting Mortgagee to any tax or
changing the basis of taxation of mortgages, deeds of trust, or other liens or
debts secured thereby, or the manner of collection of such taxes, in each such
case, so as to affect this Mortgage, and the result is to increase the taxes
imposed upon or the cost to Mortgagee of maintaining the Indebtedness or to
reduce the amount of any payments receivable hereunder or under the other Loan
Documents, then, and in any such event, Mortgagor shall promptly pay to
Mortgagee for the account of Mortgagee or such Holder such additional amounts as
may be required to compensate for such increased costs or reduced amounts,
provided that if any such payment or reimbursement shall be unlawful or would
constitute usury under applicable law, then Mortgagee may, at its option,
declare the Indebtedness due and payable upon 60 days' notice.
35. Assignment of Leases and Rents. Mortgagor assigns and grants a security
interest to Mortgagee in and to the rents, royalties, revenue, income, issues
and profits of the Premises as further security for the payment, of the
Indebtedness, and during the continuance of a Default Mortgagor grants to
Mortgagee the right to enter the Premises for the purpose of collecting the same
and to let the Premises, or any part thereof, and to apply said rents,
royalties, revenue, income, issues and profits, after payment of all necessary
charges and expenses, on account of the Indebtedness. This assignment and
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grant shall continue in effect until the Indebtedness is fully paid. Mortgagee
hereby waives the right to enter the Premises for the purpose of collecting said
rents, issues and profits, and Mortgagor shall be entitled to collect, receive
and use said rents, issues and profits, until the occurrence and continuance of
one or more Defaults. During the continuance of any Default, the right of
Mortgagor to collect, receive and use said rents, royalties, revenue, income,
issues and profits, shall be revoked forthwith. Mortgagor shall, from time to
time after request by Mortgagee, execute, acknowledge and deliver to Mortgagee,
in form reasonably satisfactory to Mortgagee, separate assignments effectuating
the foregoing. Mortgagee shall not be obligated to perform or discharge any
obligation or duty to be performed or discharged by Mortgagor under any Lease or
other agreement affecting all or any part of the Premises, and no assignment of
any such Lease or other agreement shall place the responsibility for the
control, care, management or repair of all or any part of the Premises upon
Mortgagee, nor make Mortgagee liable for any negligence by any Person other than
Mortgagee or its directors, officers, agents, employees or servants in the
management, operation, upkeep, repair or control of all or any part of the
Premises resulting in injury, death or property damage. In addition, after the
occurrence and during the continuance of a Default and the giving of notice to
Mortgagor, Mortgagor will pay monthly in advance to Mortgagee, or to any
receiver appointed to collect said rents, royalties, revenue, income, issues and
profits, the fair and reasonable rental value for the use and occupancy of the
Premises or of such part thereof as may be in the possession of Mortgagor, and
upon default in any such payment will vacate and surrender the possession
thereof to Mortgagee or to such receiver, and in default thereof may be evicted
by summary or other proceedings. Without limiting the generality of any
provision of this Paragraph 35, if a proceeding under Title 11 of the United
States Code, as in effect from time to time (the "Bankruptcy Code"), is
commenced by or against Mortgagor, then, pursuant to Section 552(b)(2) of the
Bankruptcy Code, the security interest granted by this Mortgage shall
automatically extend to all rents, royalties, revenue, income, issues and
profits acquired by Mortgagor after the commencement of the case and such rents,
royalties, revenue, income, issues and profits shall constitute cash collateral
under Section 363(a) of the Bankruptcy Code.
36. Security Agreement. It is the intention of the parties hereto that this
instrument shall constitute a security agreement within the meaning of the
Uniform Commercial Code as enacted in the state in which the Land is located
with respect to the personalty and fixtures comprising a part of the Property,
and that a security interest shall attach thereto for the benefit of Mortgagee
to further secure the payment of the Indebtedness. Mortgagor hereby authorizes
Mortgagee to file financing and continuation statements with respect to such
collateral in which Mortgagor has a mortgageable interest, without the signature
of Mortgagor whenever lawful, and upon request, Mortgagor shall promptly execute
financing and continuation statements in form satisfactory to Mortgagee to
further evidence and secure Mortgagee's interest in such collateral, and shall
pay all filing fees in connection therewith in accordance with Paragraph 10. In
the event of the occurrence and continuance of one or more Defaults, Mortgagee,
pursuant to the applicable
NY1-497038 EXECUTION
16
<PAGE>
provision of the Uniform Commercial Code, shall have the option of proceeding as
to both real and personal property in accordance with its rights and remedies in
respect of the real property, in which event the default provisions of the
Uniform Commercial Code shall not apply. The parties agree that in the event
Mortgagee elects to proceed with respect to collateral constituting personalty
or fixtures separately from the real property, the giving of ten days' notice by
Mortgagee, sent by an overnight mail service, postage prepaid, to Mortgagor at
its address referred to in Paragraph 39, designating the place and time of any
public sale or the time after which any private sale or other intended
disposition of such collateral is to be made, shall be deemed to be reasonable
notice thereof and Mortgagor waives any other notice with respect thereto.
Notwithstanding anything in Paragraph 55 to the contrary, in the event of any
inconsistency or conflict between the terms and provisions of any Security
Agreement and the terms and provisions of this Paragraph 36, the terms and
provisions of the Security Agreement shall control.
37. No Release. Neither Mortgagor nor any other Person now or hereafter
obligated for the payment of the Indebtedness or the performance of all or any
part of the covenants and agreements of Mortgagor under the Loan Documents shall
be released from paying such Indebtedness and performing such covenants and
agreements and the lien of this Mortgage shall not be affected by reason of (a)
the failure of Mortgagee to comply with any request of Mortgagor, or of any
other Person so obligated, to take action to foreclose this Mortgage or
otherwise enforce any of the provisions of this Mortgage or of any of the
covenants and agreements of Mortgagor under the Loan Documents, (b) the release,
regardless of consideration, of the whole or any part of the security held for
the Indebtedness, (c) the release, regardless of consideration, of the
obligations of any Person or Persons liable for payment of the Indebtedness, or
performance of the covenants and agreements of Mortgagor under the Loan
Documents, or (d) any agreement or stipulation extending the time of payment or
modifying the terms of any of the Loan Documents, and in the event of such
agreement or stipulation, Mortgagor and all such other Persons shall continue to
be liable under the Loan Documents, as amended by such agreement or stipulation,
unless expressly released and discharged in writing by Mortgagee.
38. Corporate Authority. Mortgagor represents and warrants that it has
taken all necessary and proper action, which has not been modified or revoked,
to enter into this Mortgage and that the execution and delivery of this Mortgage
by the individual who has signed this Mortgage on behalf of Mortgagor has been
duly authorized and is sufficient action to constitute this Mortgage as a valid,
binding and enforceable obligation of Mortgagor subject (a) as to enforcement of
remedies, to applicable bankruptcy, insolvency, reorganization, moratorium and
other similar laws affecting the enforcement of creditors' rights generally,
from time to time in effect and (b) to general principles of equity.
39. Notices. All notices, demands, consents, approvals, requests and other
communications provided for herein shall be in the form and manner as set forth
in Section 105 of the Indenture.
NY1-497038 EXECUTION
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<PAGE>
40. Severability. If any provision of this Mortgage or the application
thereof to any Person or circumstance shall to any extent be invalid or
unenforceable, the remainder of this Mortgage, or the application of such
provision to Persons or circumstances other than those as to which it is invalid
or unenforceable, shall not be affected thereby, and each provision of this
Mortgage shall be valid and enforceable to the fullest extent permitted by law.
41. No Usury. If any payments required to be made under the Loan Documents
shall be in excess of the amounts allowed by law, the amounts of such payments
shall be reduced to the maximum amounts allowed by law and any interest paid
under or in connection with any of the Loan Documents in excess of the maximum
interest rate permitted by law shall be deemed payment in reduction of the
principal amount of the Indebtedness.
42. No Representation by Mortgagee. By accepting or approving anything
required to be observed, performed or fulfilled, or to be given to Mortgagee
pursuant to this Mortgage, including, without limitation, any officer's
certificate, balance sheet, statement of profit and loss or other financial
statement, survey, appraisal, plans for alterations or restoration, or insurance
policy, Mortgagee shall not be deemed to have warranted or represented the
sufficiency, legality, effectiveness or legal effect of the same, or of any
term, provision or condition thereof, and such acceptance or approval thereof
shall not be or constitute any warranty or representation with respect thereto
by Mortgagee.
43. Indemnification Against Liabilities. Mortgagor will protect, indemnify,
hold harmless and defend Mortgagee and its officers, directors, agents,
servants, and employees from and against any and all liabilities, obligations,
claims, damages, penalties, causes of action, costs and expenses (including,
without limitation, reasonable attorneys' fees and expenses, to the extent
permitted by law) imposed upon or incurred by or asserted against Mortgagee by
reason of (a) ownership of a mortgagee's interest in the Property, (b) any
accident or injury to or death of Persons or loss of or damage to or loss of the
use of property occurring on or about the Premises or any part thereof or the
adjoining sidewalks, curbs, vaults and vault spaces, if any, streets, alleys or
ways, (c) any use, nonuse or condition of the Premises or any part thereof or
the adjoining sidewalks, curbs, vaults and vault spaces, if any, streets, alleys
or ways, (d) any failure on the part of Mortgagor to perform or comply with any
of the terms of this Mortgage, (e) performance of any labor or services or the
furnishing of any materials or other property in respect of the Premises or any
part thereof made or suffered to be made by or on behalf of Mortgagor, (f) any
negligence or tortious act on the part of Mortgagor or any of its respective
agents, contractors, lessees, licensees or invitees, or (g) any work in
connection with any alterations, changes, new construction or demolition of the
Premises; provided, however, that such indemnity shall not, as to Mortgagee and
its officers, directors, agents, servants
NY1-497038 EXECUTION
18
<PAGE>
and employees, apply to any such liabilities, obligations, claims, damages,
penalties, causes of action, costs or expenses to the extent they resulted from
the gross negligence or willful misconduct of Mortgagee or any such Person. All
amounts payable to Mortgagee under this Paragraph 43 shall be payable on demand
and shall be deemed indebtedness secured by this Mortgage and any such amounts
which are not paid within 10 days after demand therefor by Mortgagee shall bear
interest at the Applicable Rate from the date of such demand. In case any
action, suit or proceeding is brought against Mortgagor or Mortgagee by reason
of any such occurrence, Mortgagor, upon request of Mortgagee, will, at
Mortgagor's expense, resist and defend such action, suit or proceeding or cause
the same to be resisted or defended by counsel designated by Mortgagor and
approved by Mortgagee (which approval shall not be unreasonably withheld or
delayed).
44. No Oral Changes. This Mortgage and its provisions cannot be changed,
waived, discharged or terminated orally but only by an agreement in writing,
signed by the party against whom enforcement of the change, waiver, discharge or
termination is sought.
45. Governing Law. This Mortgage and the rights of the parties hereunder
shall be governed by the laws of the state in which the Land is located without
giving effect to conflict of laws principles.
46. Construction. This Mortgage shall be construed without regard to any
presumption or rule requiring construction against the party causing such
instrument or any portion thereof to be drafted.
47. Gender. All terms and words used in this Mortgage, regardless of the
number or gender in which they are used, shall be deemed to include any other
number and any other gender as the context may require.
48. Captions. The headings in this Mortgage and the index at the beginning
of this Mortgage are for convenience of reference only and shall not limit or
otherwise affect any of the terms hereof.
49. After Acquired Property. All property of every kind which is hereafter
acquired by Mortgagor which, by the terms hereof, is required or intended to be
subjected to the lien of this Mortgage shall, immediately upon the acquisition
thereof by Mortgagor, and without any further mortgage, conveyance, assignment
or transfer, become subject to the lien of this Mortgage.
50. Further Assurances. Mortgagor shall execute, acknowledge and deliver to
Mortgagee any documents and instruments which Mortgagee may reasonably request
from time to time for the better assuring, conveying, assigning, transferring,
confirming or perfecting of Mortgagee's security and rights under this Mortgage,
in form and substance satisfactory to Mortgagee.
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<PAGE>
51. Certain Definitions. The following terms shall, for all purposes of
this Mortgage, have the respective meanings herein specified unless the context
otherwise requires:
(a) The "Applicable Rate" shall mean the highest rate then payable on any
of the Obligations; and
(b) "Lease" shall mean every lease or occupancy agreement for the use or
hire of all or any portion of the Premises which shall be in effect at the date
hereof, or which shall hereafter be entered into by or on behalf of Mortgagor.
52. Intercreditor Agreement. This Mortgage, including the right of the
Trustee to exercise remedies hereunder, shall be subject to the terms and
conditions of the Intercreditor Agreement. Notwithstanding the foregoing, the
Mortgagor, and each other Borrower agrees and acknowledges that neither this
Mortgage nor the Intercreditor Agreement provides Mortgagor or such Borrower
with any rights as a third party beneficiary or otherwise.
53. Successors and Assigns. The terms, covenants and provisions of this
Mortgage shall apply to, be binding upon and inure to the benefit of Mortgagee
and Mortgagor and their respective successors and assigns. All grants,
covenants, terms, provisions and conditions contained herein shall run with the
Land.
54. Reserved.
55. Indenture. In the event of any inconsistency or conflict between the
terms and provisions of the Indenture and the terms and provisions of this
Mortgage, the terms and provisions of the Indenture shall control.
NY1-497038 EXECUTION
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<PAGE>
IN WITNESS WHEREOF, Mortgagor has hereunto set its hand and seal as of the
day and year first above written.
MORTGAGOR:
MASKA U.S., INC.
By: _____________________________
Name: Russell David
Title: Vice President-Finance
ATTEST:
By: _____________________________
Name:
Title: _____________ Secretary
[Corporate Seal]
WITNESS:
By: _____________________________
This instrument prepared by Jennifer G. Grenert, O'Melveny & Myers LLP, 153
East 53rd Street, New York, New York, 10022.
NY1-497038 EXECUTION
S-1
<PAGE>
STATE OF _________ )
) ss.
COUNTY OF ________ )
At ____________, in said County, this ____ day of ________, 1997,
personally appeared ____________________, who is _______________ of MASKA U.S.,
INC. and acknowledged this instrument, by ________ sealed and subscribed, to be
______ free act and deed and the free act and deed of MASKA U.S., INC.
Notary Public:
(NOTARY SEAL)
My commission expires:
My commission number is:
NY1-497038 EXECUTION
N-1
SLM INTERNATIONAL, INC.
DEBENTURE $75,000,000
A. PROMISE TO PAY
1. SLM INTERNATIONAL, INC. (the "Company") for value received hereby agrees with
THE BANK OF NEW YORK (the "Secured Party"), for its own benefit and for the
benefit of the Holders from time to time that it will, subject to the provisions
of that certain Delivery Agreement made in favour of the Secured Party by the
Company of even date herewith (the "Delivery Agreement") on demand pay to the
Secured Party the principal sum of SEVENTY-FIVE MILLION DOLLARS ($75,000,000).
The Company will also, subject to the provisions of the Delivery Agreement, pay
to the Secured Party, as and when demanded, interest on the said principal sum.
The Company will pay such interest at the rate of 25% per annum calculated and
payable monthly not in advance, both before and after demand and before and
after default, judgment and execution from the date hereof until payment in full
of all amounts owing hereunder.
B. GRANT OF MORTGAGES, CHARGES AND SECURITY INTERESTS
2. As security for payment of the principal and interest and all
other indebtedness and liability from time to time payable hereunder, the
Company hereby:
(a) mortgages and charges (subject to the exceptions as to leaseholds
hereinafter contained) as and by way of a fixed and specific mortgage and charge
to and in favour of the Secured Party, and grants to the Secured Party a
security interest in, all real and immovable property (including, by way of
sub-lease, leasehold lands) (collectively, the "Lands") now or hereafter owned
or acquired by the Company and all buildings, erections, improvements, fixtures
and plant now or hereafter owned or acquired by the Company (whether the same
form part of the realty or not) and all appurtenances to any of the foregoing
including without limiting the generality of the foregoing the property
described in Appendix "A" hereto; "real and immovable property" shall include
any interest in or right with respect to real and immovable property;
(b) mortgages and charges to the Secured Party as and by way of a fixed
and specific mortgage and charge, and grants to the Secured Party a security
interest in all present and future:
(i) income, revenues and profits derived from any tenancy, use or
occupation of the Lands and rents and other sums payable to the
Company pursuant to the terms of any leases, licences, subleases,
<PAGE>
2.
agreements to lease, license or sublease, or rights to occupy (each
a "lease") the Lands;
(ii) benefits, advantages and powers to be derived from such leases,
with full power and authority to demand, sue for, recover, receive
and give receipts for all rents and other moneys payable thereunder
and otherwise to enforce the rights of the landlord thereunder on
behalf of and in the name of the Company; and
(iii) benefit of all guarantees and indemnities with respect to any
leases and the performance of any obligations of any tenant
thereunder;
(c) mortgages and charges to the Secured Party as and by way of a fixed
and specific mortgage and charge, and grants to the Secured Party a security
interest in, all its present and future equipment, including, without limiting
the generality of the foregoing, all fixtures, plant, machinery, tools and
furniture now or hereafter owned or acquired and any equipment specifically
listed or otherwise described in Appendix "B" hereto;
(d) mortgages and charges to the Secured Party, and grants to the Secured
Party a security interest in, all its present and future inventory, including,
without limiting the generality of the foregoing, all raw materials, goods in
process, finished goods and packaging material and goods acquired or held for
sale or furnished or to be furnished under contracts of rental or service;
(e) mortgages and charges to the Secured Party, and grants to the Secured
Party a security interest in, all its other goods and tangible personal
property;
(f) mortgages and charges to the Secured Party, and grants to the Secured
Party a security interest in all its present and future intangibles, including,
without limiting the generality of the foregoing, all its present and future
book debts, accounts and other amounts receivable, contract rights and chooses
in action of every kind or nature including insurance rights arising from or out
of the assets referred to in subparagraphs (a), (b), (c), (d) or (e) hereof,
goodwill, chattel paper, instruments of title, negotiable documents of title,
investments, money and securities and all dividends, income or other
distributions, whether paid or distributed in cash, securities or other
property, in respect of any of the property described in this section 2;
(g) charges in favour of the Secured Party as and by way of a floating
charge, and grants to the Secured Party a security interest in, all of its
business, undertaking, property and assets, real and personal, moveable or
immovable, of whatsoever nature and kind, both present and future (other than
property and assets hereby validly subjected to a specific mortgage, charge or
security interest by subparagraphs (a), (b), (c), (d), (e) or (f) hereof and the
exceptions hereinafter contained); and
<PAGE>
3.
(h) mortgages and charges in favour of the Secured Party, and grants to
the Secured Party a security interest in, the proceeds arising from any of the
assets referred to in this paragraph 2;
all of which present and future property and assets of the Company referred to
in subparagraphs 2 (a), (b), (c), (d), (e), (f), (g) and (h) hereof are
hereinafter collectively called the "Charged Assets". All rights of the Secured
Party hereunder, the security, and all obligations of the Company hereunder,
shall be absolute and unconditional irrespective of (i) any lack of validity or
enforceability of any loan document including the Senior Secured Note Indenture
(the "Indenture") dated as of April 1, 1997 among the Company, Sport Maska Inc.,
Maska U.S., Inc., #1 Apparel, Inc., #1 Apparel Canada Inc., SLM Trademark
Acquisition Corp., SLM Trademark Acquisition Canada Corporation and the Secured
Party, as the same may be amended, restated or supplemented from time to time,
any guarantee or any other agreement with respect to the indebtedness and
liability under the Indenture or any indebtedness or liability secured hereby or
any other agreement or instrument relating to the foregoing, (ii) any change in
the time, manner or place of payment of, or in any other term of, all or any of
the indebtedness and liability under the Indenture or any indebtedness or
liability secured hereby or any other amendment or waiver of or consent to any
departure from any guarantee, any loan document, the Indenture, or any other
agreement or instrument, (iii) any exchange, release or nonperfection of any
Charged Asset or any release or amendment or waiver of or consent to or
departure from the indebtedness under the Indenture or any guarantee for all or
any of the indebtedness and liability secured hereby, or (iv) any other
circumstance which might otherwise constitute a defence available to, or
discharge of, the Company, any guarantor or any other obligor in respect of the
indebtedness and liability, secured by or in respect of this debenture.
C. LOCATION OF CHARGED ASSETS
3. Intentionally Deleted
4. The Company agrees to give the Secured Party ten (10) days written
notice prior to acquiring any Charged Assets in Ontario or moving any Charged
Assets into Ontario.
D. LIMITED EXCEPTIONS TO GRANT OF CHARGE
5. The last day of any term reserved by any lease or sublease, oral or
written, or any agreement therefor, now held or hereafter acquired by the
Company, and whether falling within the general or particular description of the
Charged Assets,
<PAGE>
4.
is hereby and shall be excepted out of the mortgage, charge and security
interest hereby or by any other instrument created, but the Company shall stand
possessed of the reversion of one day remaining in the Company in respect of any
such term, for the time being demised, as aforesaid, upon trust to assign and
dispose of the same as any purchaser of such term shall direct.
E. AGREEMENTS OF THE COMPANY
6. The Company and the Secured Party covenant and agree that:
(a) they have not agreed to postpone the time for attachment of the
security interests granted hereby with respect to the Charged Assets presently
existing and that such security interests shall attach to the Charged Assets
acquired after the date hereof as soon as the Company has rights in such assets;
(b) in accordance with subsection 7(3) of the Land Registration Reform Act
(Ontario), the covenants deemed to be included in a charge by subsection 7(1) of
such Act are expressly excluded from this debenture; and
(c) subject to paragraph 29 hereof, the Company shall not at any time
hereafter make any claim to the Charged Assets, challenge the Secured Party's
rights thereto or make any demands upon the Secured Party with respect to the
Charged Assets and the Secured Party shall from this time forward be exonerated
and discharged of and from all claims and demands which the Company might or
could have against the Secured Party with respect to the Charged Assets.
7. The Company represents and warrants to the Secured Party that:
(a) the Company is the sole registered, legal and beneficial owner of
an estate in fee simple in the Lands described in Appendix "A" hereto with good
and marketable title thereto, and the Company is the sole legal and beneficial
owner of the remainder of the Charged Assets, free of any Lien, encumbrance or
other right whatsoever except for Permitted Encumbrances (as defined in the
Indenture);
(b) the Company is duly incorporated and in good standing under the laws
of its jurisdiction of incorporation, has the right, power and lawful authority
to charge and mortgage to the Secured Party, and otherwise grant security
interests in all of its right, title and interest in and to, the Charged Assets
as provided for in this debenture and this debenture constitutes a legal, valid
and binding obligation of the Company, enforceable against the Company in
accordance with its terms, subject to bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting creditors' rights and
the discretion exercisable by Courts of competent jurisdiction in respect of the
availability of equitable remedies; and
<PAGE>
5.
(c) neither the execution of this debenture nor the performance by the
Company of its obligations hereunder will result in any breach of or default
under any law or any other agreement or document to which the Company is a party
or by which it may be bound.
8. The Company agrees with the Secured Party that until all
indebtedness and liability owing by the Company to the Secured Party are paid in
full:
(a) it will not, without the prior written consent of the Secured
Party:
(i) incur, create, assume or permit to exist any further or
additional indebtedness except as permitted under the terms
of the Indenture;
(ii) create, assume or permit to exist any Liens upon, assign,
transfer, mortgage, charge, pledge, hypothecate or otherwise
grant security over or a security interest in any of the
Charged Assets except to the Secured Party and except
Permitted Encumbrances;
(iii) sell, transfer, assign, or otherwise dispose of any of the
Charged Assets or any group of property and assets forming
part of the Charged Assets except for a sale of inventory in
the ordinary course of business and such other sales as
permitted under the Indenture;
(iv) merge or amalgamate with any other corporation except as
permitted under the Indenture;
(v) Intentionally Deleted;
(vi) take any action (or not take any action) which would result in
a default or an Event of Default under the Indenture or
hereunder; or
(vii) change its name without giving prior written notice to the
Secured Party of the new name and the date upon which such
change of name will take effect; and
(b) it will:
(i) hold the proceeds received from any direct or indirect
dealing with the Charged Assets in trust for the Secured
Party after either the occurrence of a default under the
Indenture or the security constituted by this debenture
becoming enforceable, hold the proceeds of any Asset Sale
permitted under the Indenture which are payable to the
Secured Party or the Holders and the proceeds of any Asset
Sale which is not permitted under the Indenture in trust
for the Secured Party, and, if required in accordance with
the terms of the Indenture, hold all proceeds of any sale,
lease, assignment or other transfer of all or any part of
the Charged
<PAGE>
6.
Assets made outside the ordinary course of business of the
Company in trust for the Secured Party, and in each case,
forthwith remit such proceeds to the Secured Party;
(ii) strictly comply with every covenant and undertaking heretofore
or hereafter given by it to the Secured Party and take any
action that may be necessary to enable any other party to
comply with its obligations under the Indenture, the
Securities and the Collateral Documents;
(iii) permit the Secured Party at any time and from time to time,
when the security granted pursuant to this debenture shall
have become enforceable, to require any account debtor of the
Company to make payment to the Secured Party of any or all
amounts owing by the account debtor to the Company and the
Secured Party may take control of any proceeds referred to in
subparagraph 2(h) hereof and may hold all such amounts
received from any account debtor and any such proceeds as cash
collateral as part of the Charged Assets and as security for
the indebtedness and liability secured by this debenture;
(iv) deliver to the Secured Party promptly upon request, any
documents of title, instruments, securities and chattel
paper constituting, representing or relating to the Charged
Assets and all statements of account, bills, invoices and
books of account relating to accounts and all records,
ledgers, reports, correspondence, schedules, documents,
statements, lists and other writings relating to the
Charged Assets for the purpose of inspecting, auditing or
copying same;
(v) at the Secured Party's request, cause such of the
securities which constitute Charged Assets to be registered
in the name of the Secured Party or its nominee and the
Company hereby authorizes the Secured party to transfer
such securities into the name of the Secured Party or its
nominee so that the Secured Party or its nominee may appear
as the sole owner of record of such securities; the Company
shall, at the request of the Secured Party, deliver to the
Secured Party appropriate powers of attorney for transfer
in blank, duly executed and with signatures guaranteed, in
respect of such securities;
(vi) immediately upon becoming aware thereof, give the Secured
Party written notice of any loss or destruction of, or
substantial damage to, any material portion of the Charged
Assets which alone, or
<PAGE>
7.
together with any other Collateral (as defined in the
Indenture) which is lost, destroyed or substantially damaged,
constitutes a material portion of the Collateral;
(vii) promptly notify the Secured Party of the acquisition by it of
receivables or other amounts owing to it from persons located
in any jurisdiction in Canada;
(viii) keep its insurable properties adequately insured at
all times by financially sound and reputable insurers;
(ix) maintain such other insurance, to such extent and against
such risks, including fire and other risks insured against
by extended coverage, as is customary for the Charged
Assets and 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 Company 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 Secured Party, and in no event at any time in an
amount less than the replacement value of the Charged
Assets;
(x) maintain in full force and effect public liability insurance
against claims for bodily injury or death or property damage
occurring upon, in, about or in connection with the use of any
properties owned, occupied or controlled by the Company or any
of its subsidiaries, as is customary with companies similarly
situated and in the same or similar businesses;
(xi) maintain business interruption and product liability insurance
to such extent as is customary with companies similarly
situated and in the same or similar businesses;
(xii) maintain such other insurance as may be required by law or as
may be reasonably requested by the Secured Party for purposes
of assuring compliance with this subparagraph 8(b);
(xiii) ensure that all insurance covering tangible personal property
subject to a Lien in favour of the Secured Party granted
pursuant hereto shall provide that, in the case of each
separate loss, the full amount of insurance proceeds shall be
payable to the Secured Party subject to the rights of the
holders of prior ranking Permitted Encumbrances, and shall
further provide for at least 30 days' prior written notice to
the Secured Party of the cancellation or substantial
modification thereof;
<PAGE>
8.
(xiv) deliver to the Secured Party all policies and certificates
of insurance maintained in accordance with this
subparagraph 8(b); and
(xv) provide to the Secured Party, from time to time upon demand, a
statement of the value of its inventory and a list of its book
debts shown in the reverse order of their due date.
9. The Company agrees with the Secured Party that:
(a) it will at all times fully perform and comply with all
obligations imposed on, assumed by or agreed to by it pursuant to this debenture
and any prior encumbrance of the Lands or any part thereof or its interest
therein, that it will pay all rents and perform all obligations under the leases
charged by this debenture and that, if the Company shall fail so to do, the
Secured Party may (but shall not be obliged to) take any action the Secured
Party deems necessary or desirable acting reasonably to cure any default by the
Company in the performance of or compliance with any of the Company's
obligations hereunder, under any lease or imposed upon, assumed by or agreed to
by the Company pursuant to any such prior encumbrance;
(b) upon receipt by the Secured Party in regard to any such prior
encumbrance or any lease of any written notice of default by the Company, the
Secured Party may rely thereon and take any action as aforesaid, acting
reasonably, to cure such default even though the existence of such default or
the nature thereof may be questioned or denied by the Company or by any party on
behalf of the Company;
(c) at its option, the Secured Party may discharge past due taxes, Liens,
or other encumbrances (other than Permitted Encumbrances which are not in
default) at any time levied or placed on the Charged Assets and may pay for the
maintenance and preservation of the Charged Assets to the extent the Company
fails to do so in accordance with the Indenture or this debenture, provided,
however, that the Secured Party shall not discharge such taxes, Liens or other
encumbrances or pay for such maintenance or preservation prior to the occurrence
and continuance of an Event of Default under the Indenture unless the Secured
Party shall have requested the Company to discharge such taxes, Liens or other
encumbrances or pay such amounts and the Company shall have failed or refused to
do so within such period of time as shall have been specified by the Secured
Party in such notice; provided that nothing in this debenture shall excuse the
Company from the performance of any covenants or other promises with respect to
taxes, Liens, prior claims or other encumbrances and maintenances;
(d) the Company hereby expressly grants to the Secured Party, and agrees
that the Secured Party shall have the absolute and immediate right to enter in
and upon the Lands or any part thereof to such extent and as often as the
Secured Party, in its sole
<PAGE>
9.
discretion, acting reasonably, deems necessary or desirable, in order to cure
any such default by the Company;
(e) the Secured Party may pay and expend such sums of money as the Secured
Party in its sole discretion, acting reasonably, deems necessary for any purpose
provided for in subparagraphs 9(a), (b), (c) and (d), and the Company hereby
agrees to pay to the Secured Party, immediately upon notification by the Secured
Party and without demand, all such sums so paid and expended by the Secured
Party, together with interest thereon at the Interest Rate then in effect in
accordance with the Indenture;
(f) all sums so paid and expended by the Secured Party and such interest
thereon, shall be secured hereby in addition to all other moneys hereby secured
and in priority to all other mortgages and charges;
(g) if this debenture is or shall be outstanding at the expiration of the
term of any lease (a "material lease") of real property forming part of the
Charged Assets which is material to the conduct of the Company's business and
the Company shall refuse or neglect to exercise its right, if any, to renew such
material lease and to pay the fees, costs, charges and expenses incidental to
and payable upon such renewals, then, and as often as it shall happen, the
Secured Party may, at its sole discretion, effect such renewals in its own name
or otherwise, and in such case every such renewed material lease and the lands
and buildings thereby demised shall remain and be security to the Secured Party
for the indebtedness and liability secured by this debenture and as well for the
payment of all money paid by the Secured Party for every such renewal and the
Secured Party's costs, charges, and expenses and interest thereon at the
Interest Rate then in effect in accordance with the Indenture;
(h) it will not: (i) surrender any material lease or any rights of renewal
with respect thereto (except in the case where the prior written consent of the
Secured Party has been obtained); subordinate any material lease to any mortgage
of the fee interest of the landlord thereof in the lands subject to such lease,
unless in connection with any such subordination the Company obtains from the
holder of such mortgage a non-disturbance agreement in favour of the Company and
its successors and assigns (including the Secured Party) in form and substance
satisfactory to the Secured Party (save and except that with respect to existing
leases, the Company shall only be required to use commercially reasonable
efforts to obtain such a non-disturbance agreement); (ii) terminate or cancel
any material lease without the prior written consent of the Secured Party; or
(iii) without the prior written consent of the Secured Party, modify, change,
supplement, alter or amend any material lease either orally or in writing;
(i) no release or forbearance of any of the Company's obligations pursuant
to any material lease or pursuant to any prior encumbrance of the Company's
interest in the Lands or any part thereof, including without limitation the
Company's obligations
<PAGE>
10.
with respect to the payment of rent as provided for in any such lease, shall
release the Company from any of the Company's obligations pursuant to this
debenture;
(j) unless the Secured Party shall otherwise expressly consent in writing,
the title in fee simple to the property demised by any material lease and the
leasehold estate shall not merge but shall always remain separate and distinct,
notwithstanding the union of said estates either in the landlord of any such
lease or the Company pursuant to any such lease or in a third party, by purchase
or otherwise;
(k) if the Company shall, at any time before payment in full of the
indebtedness and liability secured by this debenture, acquire the freehold title
to the Lands demised by any lease, this mortgage and charge shall attach and
extend to, and constitute a mortgage and charge of such freehold estate; and
(l) the Company hereby agrees that it will not place the Charged Assets or
allow the Charged Assets to be placed on any premises that are leased unless the
lessor of such premises has first agreed in writing with the Secured Party to
subordinate and postpone any and all of its claims, security and rights to the
claims and security of the Secured Party; provided that this covenant will not
prohibit the Company from selling the Charged Assets in the normal course of the
Company's business.
10. The Company hereby agrees that it will at all times, both before and
after default, do or cause to be done such additional things and execute and
deliver or cause to be executed and delivered all such further acts and
documents as the Secured Party may reasonably require for the better mortgaging,
charging, confirming and granting of security interests in the present or future
Charged Assets to the Secured Party, including, without limitation, the payment
of any fees and taxes required in connection with the execution and delivery of
this debenture, the granting of the security and the filing, recording, or
registering of any financing statements or other documents in connection
therewith. If any amount payable under, or in connection with, any of the
Charged Assets shall be or become evidenced by any promissory note or other
instrument, such note or instrument shall be promptly pledged and delivered to
the Secured Party, duly endorsed in a manner satisfactory to the Secured Party.
If at any time the Company shall take and perfect a security interest or
hypothec in any property of an account debtor or any other person to secure
payment and performance of an account receivable, the Company shall promptly
assign such security interest or hypothec to the Secured Party. Such assignment
need not be filed, recorded or registered of public record unless necessary to
continue the perfected status of the security interest or hypothec against
creditors of and transferees from the account debtor or other person granting
the security interest or hypothec.
<PAGE>
11.
11. The Company shall, at its own cost and expense, take any and all
actions reasonably necessary to defend title to the Charged Assets against all
persons and to defend the security of the Secured Party in such Charged Assets,
and the priority thereof, against any adverse Lien or encumbrance of any nature
whatsoever, except for such Liens or encumbrances permitted by the Secured Party
in writing, including, without limitation, the Permitted Encumbrances.
12. The Company shall remain liable to observe and perform all the
conditions and obligations to be observed and performed by it under each
contract and agreement, interest or obligation relating to the Charged Assets,
all in accordance with the terms and conditions thereof and shall indemnify and
hold harmless the Secured Party and the Holders from any and all such
liabilities.
13. The Company will not, without the Secured Party's prior written
consent, grant any extension of the time of payment of any its accounts
receivable, or compromise, compound or settle the same for less than the full
amount thereof, or release, in whole or in part, any person liable for the
payment thereof, or allow any credit or discount whatsoever thereon other than
extensions, credits, discounts, compromises or settlements granted or made in
the ordinary course of business.
F. DEFAULT
14. Subject to the terms of the Delivery Agreement, all indebtedness and
liability owing by the Company to the Secured Party and hereby secured shall
become payable and the security hereby constituted shall become enforceable upon
the demand by the Secured Party.
15. The Secured Party may in writing (and not otherwise) waive any
breach by the Company of any of the provisions contained in this debenture or
any default by the Company in the observance or performance of any provision of
this debenture; provided always that no waiver by the Secured Party shall extend
to or be taken in any manner whatsoever to affect any subsequent breach or
default, whether of the same or a different nature, or the rights resulting
therefrom.
G. REMEDIES OF THE SECURED PARTY
16. Whenever the security hereby constituted shall have become
enforceable, and so long as it shall remain enforceable, the Company will have
no right to vote or take any other action with respect to any securities
constituting Charged Assets or receive any dividends or interest (whether
declared or payable before or after the
<PAGE>
12.
security hereby constituted becoming enforceable) in respect of the Charged
Assets, and the Secured Party may proceed to realize such security and to
enforce its rights by:
(a) entry;
(b) the appointment by instrument in writing of a receiver or receivers of
the Charged Assets or any part thereof (which receiver or receivers may be any
Person or Persons, whether an officer or officers or employee or employees of
the Secured Party or not) and the Secured Party may remove any receiver or
receivers so appointed and appoint another or others in his or their stead;
(c) proceedings in any court of competent jurisdiction for the
appointment of a receiver or receivers or for sale of the Charged Assets or
any part thereof; or
(d) any other action, suit, remedy or proceeding authorized or
permitted hereby or by law or by equity.
In addition, the Secured Party may file such proofs of claim and
other documents as may be necessary or advisable in order to have its claim
lodged in any bankruptcy, insolvency, winding-up or other judicial proceedings
relative to the Company.
The Secured Party or any receiver or receivers so appointed shall
have power to:
(i) take possession of and to use the Charged Assets or any part
thereof with power to exclude the Company and its officers,
employees and agents therefrom;
(ii) carry on the business of the Company (including, but not
limited to, the taking or defending of any actions or legal
proceedings, and the doing or refraining from doing all other
things as to it, acting reasonably, may seem necessary or
desirable in connection with the business, operations and
affairs of the Company);
(iii) take all such steps as it may consider necessary or desirable
for the purposes of preserving, maintaining and completing all
or any part of the Charged Assets and making such replacements
thereof and improvements and additions thereto as it shall
consider expedient;
(iv) receive the rents, incomes and profits of any kind whatsoever
from the Charged Assets and pay therefrom (A) any expenses of
preserving, maintaining and
completing the Charged Assets, of making such
replacements thereof and improvements and additions
thereto as it may consider expedient and of carrying on
all or any part of the business of the Company relating
to the Charged Assets, and
(B) any charges against the Charged Assets ranking in
priority to or pari passu with the security created by
this debenture or
<PAGE>
13.
the payment of which may be necessary or desirable to
preserve or protect all or any part of the Charged
Assets or the interest of the Secured Party therein;
(v) lease all or any part of the Charged Assets and renew from
time to time all or any of the leases on such terms and
conditions as the Secured Party may determine;
(vi) with or without taking possession, take any action or
proceedings to enforce the performance of any covenant
contained in any of the leases;
(vii) enjoy and exercise all the powers of the Company as it
considers necessary or desirable for the exercise of any and
all of the remedies provided for herein, including, without
limitation, the powers to make any arrangement or compromise
on behalf and in the name of the Company which it considers
expedient, to purchase on credit and borrow money on behalf
and in the name of the Company and to advance its own moneys
to the Company, all at such rates of interest as it may
consider reasonable, and to enter into contracts and undertake
obligations on behalf of and in the name of the Company for
any and all of the foregoing purposes or which it considers
necessary or desirable for the exercise of any of the rights,
powers and remedies provided for herein, all of which
borrowings, advances and obligations together with interest
thereon shall, at the discretion of the Secured Party, be
entitled to the security hereof in priority to the payment of
the obligations secured by this debenture;
(viii) borrow money required for the maintenance, preservation or
protection of the Charged Assets or any part thereof or the
carrying on of the business of the Company;
(ix) further charge the Charged Assets in priority to the charge
of this debenture as security for money so borrowed;
(x) vote and take all other action with respect to any securities
constituting Charged Assets and collect all revenues,
dividends and distributions distributed in connection with
such securities; and
(xi) sell, lease or otherwise dispose of the whole or any part of
the Charged Assets on such terms and conditions and in such
manner as the receiver shall determine.
<PAGE>
14.
Every receiver appointed by the Secured Party shall be deemed to be an agent of
the Company and not of the Secured Party for the purposes of (i) carrying on and
managing the business and affairs of the Company and (ii) establishing liability
for all of the acts or omissions of the receiver while acting as such and the
Secured Party shall not be in any way responsible for any acts or omissions on
the part of any such receiver, its officers, employees and agents; provided
that, without restricting the generality of the foregoing, the Company
irrevocably authorizes the Secured Party to give instructions to each receiver
relating to the performance of its powers and discretions. The appointment of a
receiver or any thing which may be done by the receiver shall not have the
effect of constituting the Secured Party a mortgagee in possession.
In addition, the Secured Party may enter upon, use, occupy and
possess the Charged Assets or any part thereof, free from all encumbrances,
Liens and charges, except for Permitted Encumbrances, without hindrance,
interruption or denial of the same by the Company or by any other person or
persons, and may lease or sell the whole or any part or parts of the Charged
Assets. Any sale hereunder may be made by public auction, by public tender or by
private contract, with or without notice and with or without advertising and
without any other formality (except as required by law), all of which are hereby
waived by the Company. Such sale shall be on such terms and conditions as to
credit or otherwise and as to upset or reserve bid or price as to the Secured
Party in its sole discretion may seem advantageous. In the case of any sale on
credit or partly on credit, the Secured Party shall not be accountable for any
proceeds thereof unless and until actually received by the Secured Party in
cash. Such sale may take place whether or not the Secured Party has taken
possession of the Charged Assets.
The Company agrees to pay to the Secured Party forthwith on demand
all expenses incurred by the Secured Party in the preparation, perfection,
administration and enforcement of this debenture (including without limitation
expenses incurred in considering and protecting or improving the Secured Party's
position, or attempting to do so, whether before or after default), all amounts
borrowed by the receiver from the Secured Party as hereinbefore provided and all
costs, charges, expenses and fees (including, without limiting the generality of
the foregoing, the fees and expenses of any receiver and legal fees on a
solicitor and client basis) of or incurred by the Secured Party and by any
receiver or receivers or agent or agents appointed by the Secured Party in
connection with the recovery or enforcing of payment of any moneys owing
hereunder, whether by realization, by taking possession or otherwise. All such
sums, together with interest thereon at the Interest Rate then in effect in
accordance with the Indenture, shall be secured by the charges contained herein.
To the extent that the aggregate of the principal and accrued interest secured
hereby and such borrowed
<PAGE>
15.
money, costs, fees and expenses exceed the principal amount of this debenture,
the Company hereby mortgages and charges and grants a security interest in the
Charged Assets to the Secured Party to secure payment of such excess amount.
No remedy for the realization of the security hereof or for the
enforcement of the rights of the Secured Party shall be exclusive of or
dependent on any other such remedy, but any one or more of such remedies may
from time to time be exercised independently or in combination; and the exercise
of any remedy under any document in any jurisdiction shall not prejudice or
affect the exercise of any remedy under another document in any jurisdiction.
The term "receiver" as used in this debenture includes a receiver and manager.
The Secured Party shall not, nor shall any receiver appointed by it,
be liable for any failure to exercise its rights, powers or remedies arising
hereunder or otherwise, including without limitation any failure to take
possession of, collect, enforce, realize, sell, lease or otherwise dispose of,
preserve, maintain, complete, protect, replace or improve all or any part of the
Charged Assets, to carry on all or any part of the business of the Company or to
take any steps or proceedings for any such purposes. Neither the Secured Party
nor any receiver appointed by it shall have any obligation to take any steps or
proceedings to preserve rights against prior parties to or in respect of all or
any part of the Charged Assets, whether or not in its possession and neither the
Secured Party nor any receiver appointed by it shall be liable for failure to do
so. Subject to the foregoing, the Secured Party shall use reasonable care in the
custody and preservation of the Charged Assets in its possession.
17. Subject to the provisions of the Indenture, any and all payments
made in respect of the indebtedness and liability secured by this debenture from
time to time may be applied to such part or parts of the indebtedness and
liability secured by this debenture as the Secured Party may see fit, and the
Secured Party shall at all times and from time to time have the right to change
any appropriation as the Secured Party may see fit.
18. Upon any sale of the Charged Assets by the Secured Party (including,
without limitation, pursuant to a power of sale granted by statute or under a
judicial proceeding) the receipt of the Secured Party or of the officer making
the sale shall be a sufficient discharge to the purchaser or purchasers of the
Charged Assets so sold and such purchaser or purchasers shall not be obligated
to see to the application of any part of the purchase money paid over to the
Secured Party or such officer or be answerable in any way for the misapplication
thereof.
<PAGE>
16.
H. RIGHTS OF THE SECURED PARTY
19. The Secured Party may, in accordance with subparagraph 9(c) of this
debenture, pay and satisfy the whole or any part of any Liens, taxes, rates,
charges or encumbrances now or hereafter existing in respect of any of the
Charged Assets (other than Permitted Encumbrances which are not in default) and
such payments together with all costs, charges and expenses which may be
incurred in connection with making such payments shall form part of the
indebtedness and liability secured by this debenture and shall be secured by the
mortgages, charges and security interests granted herein. In the event of the
Secured Party satisfying any such lien, charge or encumbrance, it shall be
entitled to all the equities and securities of the person or persons so paid and
is hereby authorized to obtain any discharge thereof and hold such discharge
without registration for so long as it may deem advisable to do so.
20. The Company grants to the Secured Party the right to set off against
any and all accounts, credits or balances maintained by it with the Secured
Party, the aggregate amount of any of the indebtedness and liability secured by
this debenture provided the same is due.
21. The Secured Party, without exonerating in whole or in part the
Company, may grant time, renewals, extensions, indulgences, releases and
discharges to, may take securities from and give the same and any or all
existing securities up to, may abstain from taking securities from or from
perfecting securities of, may accept compositions from, and may otherwise deal
with the Company and all other persons and securities as the Secured Party may
see fit.
22. Nothing herein shall obligate the Secured Party to extend or
amend any credit to the Company.
23. The Secured Party may, in accordance with the Indenture, assign,
transfer and deliver to any transferee any of the indebtedness and liability
secured by this debenture or any security or any documents or instruments held
by the Secured Party in respect thereof provided that no such assignment,
transfer or delivery shall release the Company from any of the indebtedness and
liability secured by this debenture; and thereafter the Secured Party shall be
fully discharged from all responsibility with respect to the indebtedness and
liability secured by this debenture and security, documents and instruments so
assigned, transferred or delivered. Such transferee shall be vested with all
powers and rights of the Secured Party under such security, documents or
instruments but the Secured Party shall retain all rights and powers with
<PAGE>
17.
respect to any such security, documents or instruments not so assigned,
transferred or delivered. The Company shall not assign any of its rights or
obligations hereunder without the prior written consent of the Secured Party.
24. The Secured Party is hereby authorized to file, record or register,
as the case may be, one or more financing statements, financing change
statements or other documents in all jurisdictions which the Secured Party deems
necessary or appropriate for the purpose of perfecting, confirming, continuing,
enforcing or protecting the security held by the Secured Party in respect of the
indebtedness and liability secured by this debenture.
25. The Company hereby appoints the Secured Party the attorney of such
Company solely for the purposes of carrying out the provisions of this debenture
and taking any action or executing any instrument which the Secured Party may
deem necessary or advisable to accomplish the purposes herewith, which
appointment is irrevocable and coupled with an interest.
26. The Secured Party and such persons as the Secured Party may
designate shall have the right, at any reasonable time or times during Company's
usual business hours, and upon reasonable notice, (which may be by telephone) to
inspect the Charged Assets, all records related thereto (and to make extracts
and copies from such records) and the premises upon which any such Charged
Assets are located, to discuss the Company's affairs with the officers of the
Company and its independent accountants and to verify under reasonable
procedures, the validity, amount, quality, quantity, value and condition of or
any other matter relating to, such Charged Assets, including, in the case of
accounts receivable or Charged Assets in the possession of a third person,
contacting account debtors and third persons possessing such Charged Assets. The
Secured Party shall have the absolute right to share any information that it
gains from such inspection or verification with any or all of the Holders.
J. MISCELLANEOUS
27. If one or more of the provisions contained herein shall be invalid,
illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall not in any way
be affected or impaired thereby.
28. No amendment of this debenture shall be binding unless executed
in writing by the party to be bound thereby.
<PAGE>
18.
29. Until the security hereby constituted shall have become enforceable,
the Company shall have quiet possession of the Charged Assets. Upon payment by
the Company, its successors or permitted assigns, of all indebtedness and
liability of the Company to the Secured Party secured hereby and the fulfilment
of all other obligations of the Company to the Secured Party secured hereby and
provided that the Secured Party is then under no obligation (conditional or
otherwise) to make any further loan or extend any other type of credit to the
Company, the Secured Party shall, upon request in writing by the Company and at
the Company's expense, discharge this debenture.
30. This debenture shall be construed in accordance with and be governed
by the laws of the Province of Ontario. For the purpose of legal proceedings,
this debenture shall be deemed to have been made in the said Province and to be
performed therein and the courts of that Province shall have jurisdiction over
all disputes which may arise under this debenture. The Company hereby
irrevocably and unconditionally submits to the non-exclusive jurisdiction of
such courts, provided always that nothing herein contained shall prevent the
Secured Party from proceeding at its election against the Company in the courts
of any other province, country or jurisdiction.
31. The headings in this debenture are included for convenience of
reference only, and shall not constitute a part of this debenture for any
other purpose.
32. This debenture is in addition to and not in substitution for any
other security now or hereafter held by the Secured Party and shall be general
and continuing security notwithstanding that the indebtedness and liability of
the Company to the Secured Party shall be at any time or from time to time fully
satisfied or paid.
33. This debenture and all its provisions shall enure to the benefit
of the Secured Party, its successors and assigns, and shall be binding on the
Company, its successors and permitted assigns.
34. Any demand or notice by the Secured Party in connection with this
debenture shall be given to the Company at the place and in accordance with the
terms set out in the Indenture for the giving of notices thereunder.
35. In construing this debenture, terms herein shall have the
same meaning as defined in the Personal Property Security Act (Ontario), unless
the context otherwise
<PAGE>
19.
requires and capitalized terms not defined herein will have the meaning
attributed to such terms in the Indenture. The word "Company", the personal
pronoun "it" or "its" and any verb relating thereto and used therewith shall be
read and construed as required by and in accordance with the context in which
such words are used depending upon whether the Company is one or more
individuals, corporations or partnerships and, if more than one, shall apply and
be binding upon each of them severally. The term "successors" shall include,
without limiting its meaning, any corporation resulting from the amalgamation of
a corporation with another corporation and, where the Company is a partnership,
any new partnership resulting from the admission of new partners or any other
change in the Company, including, without limiting the generality of the
foregoing, the death of any or all of the partners.
36. The Secured Party acknowledges that it has entered into an
Intercreditor Agreement (as that term is defined in the Indenture).
Notwithstanding the foregoing, the Grantor agrees and acknowledges that the
Intercreditor Agreement does not provide the Grantor with any rights as a third
party beneficiary or otherwise.
IN WITNESS WHEREOF the Company has executed this debenture as of the
1st day of April, 1997.
SLM INTERNATIONAL, INC.
By: /s/ BRUCE RANDALL
-------------------------------------
title - Secretary
<PAGE>
APPENDIX "A"
Legal description of freehold lands
Intentionally blank.
<PAGE>
APPENDIX "B"
List of Equipment
Intentionally blank.
DEED OF HYPOTHEC
BETWEEN
THE BANK OF NEW YORK
AND
SLM INTERNATIONAL, INC.
BEARING FORMAL DATE AS OF
APRIL 1ST, 1997
<PAGE>
TABLE OF CONTENTS
PAGE
----
1. INTERPRETATION.......................................2
2. [NOT USED]...........................................3
3. [NOT USED]...........................................3
4. HYPOTHEC: DESCRIPTION OF CHARGED PROPERTY............4
5. AMOUNT OF THE HYPOTHEC...............................7
6. SECURED OBLIGATIONS..................................7
7. ADDITIONAL PROVISIONS PERTAINING TO THE HYPOTHEC ON
RENTAL INCOME AND LEASES.............................8
8. ADDITIONAL PROVISIONS TO THE HYPOTHEC ON CLAIMS
(OTHER THAN RENTALS).................................9
9. ADDITIONAL PROVISIONS TO THE HYPOTHEC ON SECURITIES...9
10. ASSIGNMENT OF CLAIMS SUBJECT TO THE FINANCIAL
ADMINISTRATION ACT..................................10
11. REPRESENTATIONS AND WARRANTIES......................10
12. COVENANTS...........................................14
13. EVENTS OF DEFAULT...................................19
14. TRUSTEE'S RECOURSES IN CASE OF DEFAULT..............21
15. GENERAL PROVISIONS..................................26
16. INTERCREDITOR AGREEMENT.............................29
17. GOVERNING LAW.......................................29
18. AMENDMENTS..........................................30
19. FORMAL DATE.........................................30
20. ENGLISH LANGUAGE....................................30
<PAGE>
DEED OF HYPOTHEC
B E F O R E Mtre Richard Trudeau, the undersigned notary for the Province of
Quebec, practicing in the City of Longueuil.
APPEARED: THE BANK OF NEW YORK, a banking corporation organized under the Laws
of the State of New York, (U.S.A.) having its head office at 101 Barclay Street,
21 West, New York, New York, 10286, U.S.A., herein acting and represented by
Marie E. Trimboli, its Assistant Treasurer, hereunto duly authorized for the
purposes hereof for the purposes hereof as she so declares. Notice of its
address will be registered at the Register of Personal and Movable Real Rights
concurrently with the registration of this Deed.
(hereinafter the "TRUSTEE")
AND: SLM INTERNATIONAL, INC., a legal person being a corporation constituted
under the Laws of the State of Delaware, (U.S.A.) having its registered office
at 1209 Orange Street, Wilmington, Delaware, 19801, U.S.A. herein acting and
represented by Bruce Randall, its Secretary, duly authorized for the purposes
hereof pursuant to a resolution adopted by its Board of Directors on March 24,
1997, a certified copy of which is annexed hereto after having been acknowledged
true and signed for the purpose of identification by said representative in the
presence of the undersigned Notary.
(hereinafter the "GRANTOR")
WHICH PARTIES HAVE DECLARED AS FOLLOWS:
WHEREAS the Grantor is desirous of securing its obligation under the Indenture
(as hereinafter defined) in the manner hereinafter appearing;
NOW, THEREFORE, THE PARTIES HERETO AGREE AS FOLLOWS:
<PAGE>
2
1. INTERPRETATION
1.1 DEFINITIONS
The following terms, wherever used in this Deed shall, unless there be
something in the context inconsistent therewith, have the following meanings:
1.1.1 "BUSINESS DAY" means a day on which the Trustee's branch in
the city of New York is opened for business but does not
include Saturday and Sunday.
1.1.2 "CHARGED PROPERTY" shall have the meaning ascribed to it in
Section 4 hereof;
1.1.3 "COLLATERAL" shall have the meaning ascribed to it in
paragraph 4.8 hereof;
1.1.4 "DEFAULT" means one or the other events set out in Section 13
hereof;
1.1.5 "DOLLARS" or "$" means the legal currency in Canada;
1.1.6 "GRANTOR" means SLM International, Inc. and any of its
successors or assigns;
1.1.7 "INDENTURE" means that certain Senior Secured Note Indenture
dated as of April 1st, 1997 between SLM International, Inc.,
Sport Maska Inc., Maska U.S., Inc., #1 Apparel, Inc., #1
Apparel Canada Inc., SLM Trademark Acquisition Corp., SLM
Trademark Acquisition Canada Corporation and The Bank of New
York;
1.1.8 "HYPOTHEC" shall have the meaning ascribed to it in Section 4
hereof;
1.1.9 "PROPERTY IN STOCK" shall have the meaning ascribed to it in
paragraph 4.4 hereof;
1.1.10 "SECURED OBLIGATIONS" means all of the obligations which are
to be secured by the Hypothec pursuant to Section 6 hereof;
1.1.11 "THIS DEED", "THESE PRESENTS", "HEREIN", "HEREBY",
"HEREUNDER", "HEREOF" and similar expressions refer to this
Deed, and the accompanying schedules and to any deed or
document supplemental or complementary hereto or restating
this Deed;
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3
1.1.12 "TRUSTEE" means The Bank of New York and shall include any
successor thereto pursuant to the applicable provisions of
the Indenture.
1.2 GENDER
Unless there be something in the context inconsistent therewith, words
importing any gender shall include any other gender as may be applicable under
the circumstances.
1.3 HEADINGS
The division of this Deed into Sections, subsections and paragraphs and
the insertion of titles are for convenience of reference only and do not affect
the meaning or the interpretation of the present Deed. Unless otherwise
indicated, a reference to a particular Section, subsection or paragraph is a
reference to the particular Section, subsection or paragraph in this Deed.
1.4 SCHEDULES
The Schedules annexed hereto shall form an integral part of this Deed.
1.5 DELAYS AND CALCULATION OF DELAYS
The delays provided hereunder are calculated simultaneously with the
delays imposed by law and are not in addition to such delays. In the calculation
of any period of delay, the period shall exclude the day from which the period
commences and the period shall include the last day thereof.
1.6 BUSINESS DAY
When the date on which a delay expires or a payment has to be made or an
act has to be done is not a Business Day, the delay expires or the payment must
be made or the act must be done on the next following Business Day, unless
expressly provided otherwise in this Deed.
1.7 TERMS DEFINED IN THE INDENTURE
The terms defined in the Indenture shall have the same meaning when used
herein unless otherwise defined herein.
2. [NOT USED]
3. [NOT USED]
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4
4. HYPOTHEC: DESCRIPTION OF CHARGED PROPERTY
The Grantor hereby hypothecates in favour of the Trustee for its own
benefit and for the equal and rateable benefit of each Holder of a Security
issued pursuant to the Indenture and authenticated and delivered by the Trustee,
the universality of all of the Grantor's movable and immovable property, present
and future, corporeal and incorporeal, of whatever nature and kind and wherever
situate (the "Charged property") and, with respect to incorporeal or intangible
property, property located outside of the Province of Quebec or used in more
than one jurisdiction, hereby charges, assigns and mortgages in favour of the
Trustee for its own benefit and for the equal and rateable benefit of each
Holder of a Security issued pursuant to the Indenture and authenticated and
delivered by the Trustee and creates a security interest in the Charged property
(the hypothec, charge, mortgage and assignment and the security interest
hereinafter collectively referred to as the "Hypothec"), the whole including
without limitation the following universalities of present and future
properties:
4.1 IMMOVABLES
All the immovable properties of the Grantor, along with all property
permanently physically attached or joined thereto so as to ensure the utility
thereof (including the heating and air conditioning apparatus and watertanks)
and which become immovable by the effect of law, the hypothec on future
immovables to become effective upon the registration of a notice to that effect
in accordance with section 2949 of the Civil Code of Quebec (collectively
hereinafter referred to as the "IMMOVABLES").
4.2 RENTALS, REVENUES AND LEASES OF IMMOVABLES
All rentals, annuities and revenues which are or may be produced by the
Immovables as well as any other right of the Grantor in any lease, present and
future, which may affect such Immovables.
4.3 RENTAL INSURANCE
Proceeds of any insurance covering losses of revenue and rentals described
in paragraph 4.2 above.
4.4 PROPERTY IN STOCK
All property in stock or inventory of every nature and kind of the Grantor
whether in its possession, in transit or held on its behalf, including raw
materials, work in process, finished goods or other materials, goods
manufactured or transformed, or in the process of being so, by the Grantor or by
others, packaging materials, property evidenced by bill of lading, animals,
mineral substances, hydrocarbons and other products of the soil as well as all
fruits thereof from the time of their extraction (hereinafter the "Property in
stock").
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5
The Property in stock held by third parties under a lease agreement, a
leasing contract, a franchise or licence agreement, or any other agreement
entered into with or on behalf of the Grantor, is also subject to this Hypothec.
Property having formed part of the Property in stock which is alienated by
the Grantor in favour of a third person but in respect of which the Grantor has
retained title pursuant to a reservation of ownership provision, shall remain
charged by the Hypothec until title is transferred; any Property in stock the
ownership of which reverts to the Grantor pursuant to the resolution or
resiliation of any agreement or following its repossession is also subject to
the Hypothec.
4.5 CLAIMS, BOOK DEBTS AND OTHER MOVABLE PROPERTY
4.5.1 CLAIMS, RECEIVABLES AND BOOK DEBTS
All of the Grantor's claims, debts, demands and choses in action,
whatever their cause or nature, whether or not they are certain, liquid or
exigible; whether or not evidenced by any title (and whether or not such
title is negotiable), note, acceptances, bill of exchange or drafts;
whether litigious or not; whether or not they have been previously or are
to be invoiced; whether or not they constitute book debts. Hypothecated
claims shall include: (i) indemnities payable to the Grantor under any all
risk insurance policy, any life insurance policy or any liability
insurance policy, subject to the rights of other subsequent ranking
hypothecs on the insured property, (ii) the sums owing to the Grantor in
connection with interest or currency exchange contracts and other treasury
or hedging instruments, management of risks or derivative instruments
existing in favour of the Grantor ("SWAPS"), and (iii) the Grantor's
rights in any credit balances, monies or deposits in accounts held for it
by the Trustee (subject to the Trustee's compensation or set-off rights)
or by any financial institution or any other person.
4.5.2 RIGHTS OF ACTION
The Grantor's rights under contract with third parties as well as
the Grantor's rights of action and claims against third persons.
4.5.3 ACCESSORIES
The hypothecs, security interest, security agreement, guarantees,
suretyships, notes, acceptances and accessories to the claims and rights
described above and other rights relating thereto (including, without
limitation, the rights of the Grantor in its capacity as seller under any
instalment sale, with respect to the claims hereby hypothecated which are
the result of such sale).
4.5.4 MOVABLE PROPERTY
All movable property owned by the Grantor and covered by the
instalment sales mentioned in paragraph 4.5.3 hereof.
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6
A right or a claim shall not be excluded from the Charged property merely
because: (i) the debtor thereof is not domiciled in the Province of Quebec or
(ii) the debtor thereof is an affiliate (as such term is defined in the Canada
Business Corporations Act) of the Grantor (regardless of the law of the
jurisdiction of its incorporation) or (iii) such right or claim is not related
to the ordinary course of business or the operations of the Grantor.
4.6 SECURITIES
All securities (including shares, debentures, units, bonds, obligations,
rights, options, warrants, debt securities, investment certificates, units in
mutual funds, certificates or other instruments representing such property) now
or hereafter owned by the Grantor or held by the Grantor or on its behalf,
including without limitation those issued or which will be issued by the
corporations or partnerships listed in Schedule "B" or by any corporation or
partnership successor thereto pursuant to an amalgamation or any other
reorganization (a copy of which Schedule "B" remains annexed hereto after having
been recognized as true and signed for identification by the representatives of
the parties hereto with and in the presence of the undersigned notary); as well
as all those which are delivered by the Grantor to the Trustee or to a third
party on its behalf from time to time.
4.7 EQUIPMENT AND ROAD VEHICLES
The equipment, office furniture, appliances, supplies, apparatus, tools,
patterns, models, dies, blueprints, fittings, furnishings, fixtures, machinery
and rolling stock (including road vehicles) of the Grantor, including additions
and accessories and spare parts.
4.8 TRADE-MARKS AND OTHER INTELLECTUAL PROPERTY RIGHTS
All of the Grantor's rights in any trade-mark, copyright, industrial
design, patent, goodwill, invention, trade name, trade secret, trade process,
license, permit, franchise, know-how, plant breeders' right, integrated circuit
topography and in any other intellectual property right, including any
application or registration relating thereto if any, improvements and
modifications thereto as well as rights in any claim against third parties in
connection with the protection of any such intellectual property rights or
infringement thereto, in Canada or abroad, (sometimes hereinafter referred to
collectively as the "Collateral") including without limitation those registered
in Canada and listed in Schedule "B" hereto.
4.9 FRUITS AND REVENUES
All cash, profits, proceeds, fruits, dividends, rights and revenues which
are or may be produced by or declared or distributed with respect to the Charged
property or in exchange thereof as well as the proceeds of the Charged property,
including without limitation any property, equipment, negotiable instrument,
bill, commercial paper, security, money, compensation for expropriation
remitted, given in exchange or paid pursuant to a sale, repurchase, distribution
or any other transaction with respect to the Charged property.
<PAGE>
7
4.10 RECORDS AND OTHERS
All records, data, vouchers, invoices and other documents related to the
Charged property described above, including without limitation, computer
programs, disks, tapes and other means of electronic communication of the
Grantor, as well as the rights of the Grantor to recover such property from
third parties, receipts, customer lists, distribution lists, directories and
other similar property of the Grantor.
Any and all Charged property which is acquired, transformed or
manufactured after the date of this Deed shall be charged by the Hypothec, (i)
whether or not such property has been acquired in replacement of other Charged
property which may have been alienated by the Grantor in the ordinary course of
business, (ii) whether or not such property results from a transformation,
mixture or combination of any Charged property, and (iii) in the case of
securities, whether or not they have been issued pursuant to the purchase,
redemption, conversion or cancellation or any other transformation of the
charged securities and without the Trustee being required to register or
re-register any notice whatsoever, the property charged under the Hypothec being
the universality of the Grantor's present and future property.
5. AMOUNT OF THE HYPOTHEC
The amount for which the Hypothec is granted is a principal amount of
Seventy-five million dollars ($75,000,000) with interest thereon from the date
of this Deed at the rate of twenty-five percent (25%) per annum.
6. SECURED OBLIGATIONS
The Hypothec secures the due and punctual payment of the principal of,
premium, if any, and interest with respect to the Securities, when and as the
same shall become due and payable and the due and punctual payment of interest
on the overdue principal of premium, if any, and the interest on the Securities
as well as the due performance of all obligations of the Grantor resulting from
this Deed, the Securities and the Indenture.
Any future obligation hereby secured shall be deemed to be one in respect
of which the Grantor has once again obligated itself hereunder according to the
provisions of section 2797 of the Civil Code of Quebec.
<PAGE>
8
7. ADDITIONAL PROVISIONS PERTAINING TO THE HYPOTHEC ON
RENTAL INCOME AND LEASES
With respect to any Immovables generating rentals and revenues:
7.1 LIST OF TENANTS
The Grantor shall provide the Trustee, before January 30th each year, with
a list containing the name of all tenants and details as to their leases as at
the immediately preceding December 31st. The Grantor shall obtain the prior
written consent of the Trustee with respect to the terms and conditions of any
new lease or the modifications or renewals of any existing leases provided
nothing herein shall compel the Trustee to waive any right it may have pursuant
to Article 1887 of the Civil Code of Quebec. Upon request of the Trustee, acting
reasonably, the Grantor shall further provide (i) a copy (or the original, when
requested by the Trustee) of all leases, present and future, relating to the
Immovables and any document and any useful information in connection therewith,
and (ii) a written acknowledgment by the tenants, present and future, of the
hypothec on rentals hereby created in the form required by the Trustee.
7.2 LEASES AND STATEMENT OF REVENUES
The Trustee may require that all leases be subject to its approval, that
they be subordinated to its rights hereunder and that the Grantor provide it on
a yearly basis with a statement of revenues and expenditures concerning the
Immovables.
7.3 RENTS, ANNUITIES AND REVENUES COLLECTION
The Trustee hereby authorizes the Grantor to collect all rents, annuities
and revenues which are rental income; however, the Grantor shall not collect in
advance more than one month of rent (other than as a security deposit) nor shall
it renounce to the payment of any rent. Such authorization may be revoked at any
time by the Trustee in accordance with what is provided for by law; in such a
case, the Trustee may exercise as it deems appropriate, to the exclusion of the
Grantor, all rights, claims, privileges and hypothecs (legal or conventional) of
the Grantor in order to maintain, renew, grant or terminate any lease, and to
further protect or collect rents, annuities and revenues from the Immovables.
7.4 COLLECTION
The Trustee shall have the right to bring an action for recovery of
rentals, impleading the Grantor, it being understood that the Trustee shall be
under no obligation to exercise such right and shall not be liable for any loss
or damage which may result from its failure to collect such rentals. The Trustee
shall have the right to deduct a ten per cent (10%) collection fee from any
rentals collected as well as any commission usually charged by the Trustee for
the collection of rentals, miscellaneous costs and expenses (copies, service
fees, legal counsel fees and others, opening files, surveillance fees, execution
fees or fees for cancellation of lease) incurred as a result of such collection.
<PAGE>
9
8. ADDITIONAL PROVISIONS TO THE HYPOTHEC ON CLAIMS (OTHER
THAN RENTALS)
8.1 AUTHORIZATION TO RECOVER
Save and except for claims resulting from an expropriation, those referred
to in Section 9 and paragraph 12.9 hereof and save for any other claims for
which collection is otherwise dealt with pursuant to any agreement entered into
with the Trustee or any other person, the Trustee hereby authorizes the Grantor
to recover all claims and other Charged property referred to in paragraph 4.5.
Such authorization may be revoked at any time by the Trustee by written notice
with respect to all or any part of the hypothecated claims, whereupon the
Trustee shall be free to itself effect such recovery and to exercise any of the
rights referred to in paragraph 8.2 below; the Grantor shall then remit to the
Trustee all records, books, invoices, bills, contracts, titles, papers and other
documents related to the claims. If, after such authorization is revoked (and
even if such revocation is not yet registered or delivered to the holders of
such claims), sums payable under such claims and property are paid to the
Grantor, it shall receive same as mandatary of the Trustee and shall remit same
to the Trustee promptly without the necessity of any demand to this effect.
8.2 RECOVERY
The Trustee may recover all claims and other Charged property referred to
in paragraph 4.5 in accordance with what is provided for by law; it may further
exercise any rights regarding such Charged property and more particularly, it
may grant or refuse any consent which may be required from the Grantor in its
capacity as owner of such Charged property, and shall not, in the exercise of
such right, be required to obtain the consent of the Grantor or serve the
Grantor any notice thereof, nor shall it be under any obligation to establish
that the Grantor has refused or neglected to exercise such rights, and it may
further grant delays, take or abandon any security, make arrangements with
debtors of any hypothecated claims, make compromises, grant releases and
generally deal at its discretion with matters concerning all Charged property
referred to in paragraph 4.5 without the intervention or consent of the Grantor.
9. ADDITIONAL PROVISIONS TO THE HYPOTHEC ON SECURITIES
9.1 TRUSTEE'S RIGHTS
The Trustee may, at any time after the occurrence of a Default, transfer
any securities or any part thereof into its own name or that of a third party
appointed by it so that the Trustee or its nominee(s) may appear as the sole
registered holder, in which case:
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10
9.1.1 Voting rights
All voting rights and any other right attached to such securities
may be exercised by the Trustee (without any obligation of the Trustee to
do so) or on behalf of the Trustee.
9.1.2 Revenues, dividends and others
The Trustee shall collect revenues, dividends and capital
distributions and the Grantor shall cease to have any right thereto and
the Trustee may either hold same as Charged property or apply them in
reduction of the Secured Obligations.
9.2 PHYSICAL POSSESSION OF THE CERTIFICATES
The certificates representing the hypothecated securities may be kept in
the possession of the Trustee or in the possession of its agent.
The Grantor hereby irrevocably appoints any officer or employee of the
Trustee as its attorney with full power of substitution and authority to execute
such documents necessary to render effective the rights granted to the Trustee
pursuant to this Section 9.
10. ASSIGNMENT OF CLAIMS SUBJECT TO THE FINANCIAL
ADMINISTRATION ACT
The Grantor hereby assigns to the Trustee by way of absolute assignment
all its present and future claims which are subject to Sections 67 and 68 of the
Financial Administration Act, as collateral and continuing security of all
Secured Obligations. The Trustee may, at any time, fulfill any of the
formalities required by law to make such transfer enforceable.
11. REPRESENTATIONS AND WARRANTIES
The Grantor hereby represents and warrants that:
11.1 LEGAL PERSON
It is a legal person (corporation).
11.2 HEAD OFFICE
The registered office or domicile of the Grantor is located in the State
of Delaware, U.S.A.
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11
11.3 INCORPORATION
It is duly incorporated and in good standing under the law of its
jurisdiction of incorporation.
11.4 POWERS
It has the capacity and the powers necessary to grant the Hypothec and to
bind itself as herein provided for; the execution of this Deed, the compliance
with its provisions and the performance of its covenants shall not entail or
result in any breach of or default under any other agreement or document to
which the Grantor is bound.
11.5 AUTHORIZATION OF THIS DEED
This Deed has been duly authorized by resolution or by any other necessary
action under its constating documents, by-laws or otherwise, in order to give it
full effect and to render its obligations fully enforceable, subject to
applicable bankruptcy, insolvency, reorganization, moratorium and other similar
laws affecting the enforcement of creditors' rights generally from time to time
in effect.
11.6 EXECUTION OF THIS DEED
This Deed has been executed by duly authorized persons.
11.7 BUSINESS OR FIRM NAMES
It uses no business or firm name other than those referred to in Schedule
"B" hereof.
11.8 TITLES OF OWNERSHIP AND EXISTING CHARGES
It is the unconditional and absolute owner of the Charged property, except
for future property, and all such property is free and clear of any prior claim,
hypothec, charge, security or security interest, seizure by garnishment, right
of resolution or repossession or of any other right whatsoever existing in
favour of persons other than any such right which constitutes a Lien which is
permitted in accordance with paragraphs (a) and following of Section 412 of the
Indenture.
11.9 SHAREHOLDER AGREEMENT
There exists no shareholders' agreement in connection with securities
which are charged under this agreement other than a declaration made by the
Grantor on April 9, 1997 pursuant to Section 99(3) of the Business Corporations
Act (New Brunswick) with respect to Sport Maska Inc. and #1 Apparel Canada Inc.
There exists no restriction in the articles or other constating documents of the
Grantor regarding the assignment or transfer of securities which are charged
hereunder other than the restrictions pertaining to a closed company (as such
term is defined in the Securities Act (Quebec)) and those declared in writing to
the Trustee.
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11.10 [NOT USED]
11.11 DISPOSITION OF CHARGED PROPERTY
Except for property referred to in paragraph 4.4 hereinabove, it does not,
in the ordinary course of its business, sell property similar to or of the same
nature as the Charged property.
11.12 CLAIMS SUBJECT TO THE FINANCIAL ADMINISTRATION ACT
It has no claim falling under Section 10 hereof, other than those
indicated in Schedule "B" hereof.
11.13 CLAIMS SECURED BY REGISTERED HYPOTHEC
It has no claim which is secured by registered hypothec other than those
indicated in Schedule "B" hereof.
11.14 [NOT USED]
11.15 LITIGATION
It has knowledge of no suit or action against it, as to which there is a
reasonable likelihood of an adverse determination and which, if adversely
determined, would likely materially affect unfavorably the Charged property.
Grantor is not 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 where such violation or default would
result in a Material Adverse Effect.
11.16 DEFAULT
It is not in default under the present Deed.
11.17 INTELLECTUAL PROPERTY
11.17.1 all registrations, applications for registration, filings
and notices thereof in respect of the Collateral, including
all relevant renewals, have been duly and properly made,
are in full force and effect and are not subject to dispute
by any governmental authority or agency and all leases,
licences and other agreements affecting any right, title or
interest of the Grantor in any of the Collateral
(collectively, the "Third Party Agreements") are in good
standing;
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13
11.17.2 none of the Collateral has been adjudged invalid or
unenforceable or has been cancelled, in whole or in part,
and all such Collateral is presently subsisting, valid, in
good standing and enforceable, with the exception of those,
if any, set out in the Schedule "B" hereto and identified
as "pending applications", "cancelled/expunged
registrations", "abandoned applications" or "registrations
no longer in name of the Grantor";
11.17.3 the Grantor is the exclusive owner or in the case of
licensed Collateral, the sole and exclusive licensee, of
the entire and unencumbered right, title and interest in
and to each of the Collateral free and clear of any liens,
charges and encumbrances except for any Lien which is
permitted in accordance with paragraph (a) and following of
Section 412 of the Indenture;
11.17.4 the Collateral listed in Schedule "B", constitutes all of
the intellectual property rights now owned by the Grantor;
11.17.5 the Grantor has adopted, used continuously and currently is
using all of the Collateral; all licensees of the
Collateral (or all relevant portions thereof) from the
Grantor as licensor have been licensed properly to use such
Collateral and the Grantor has retained under license the
direct or indirect control of the character or quality of
the goods or services in connection with which use of such
Collateral has been licensed by it; all use of such
Collateral has been proper both in form and in relation to
the goods or services in connection with which the
Collateral is used by the Grantor or its licensees; and
proper ownership notices have been used by the Grantor or
its licensees;
11.17.6 nothing contained in this Deed or the Indenture, including,
without limitation, the granting of the Hypothec by the
Grantor in favour of the Trustee, constitutes a breach
under any Third Party Agreement.
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14
12. COVENANTS
The Grantor hereby covenants:
12.1 INFORMATION
To give notice in writing to the Trustee:
- of any change whatsoever in its name and business names or in the
representations and warranties hereinabove mentioned in Section 11;
- of the name of any surety (guarantor) which may have guaranteed the
payment of claims hypothecated hereby and other Charged property mentioned
in paragraph 4.5 hereof;
- of the name of the insurers to the insurance contracts referred to herein;
- of the existence of any security, hypothec, prior claims or property right
retained or assigned securing claims and other Charged property referred
to in paragraph 4.5 hereof and, in such cases, to provide the Trustee,
upon demand, with satisfactory proof that such security or hypothec has
been registered or published in accordance with applicable law in order
for the rights of the Trustee to be set up against third persons;
- of the existence and details of any new claim arising hereafter which
alone or together with any other claims falling under Section 10 hereof is
material.
12.2 ADDITIONAL INFORMATION
To provide the Trustee with any information it may reasonably request with
respect to the Charged property or in order to determine whether or not the
Grantor is in compliance with its undertakings and obligations hereunder. The
Grantor shall inform the Trustee of any event, occurrence, or fact which might
have a Material Adverse Effect.
12.3 ACCOUNTING BOOKS
To keep, with respect to the Charged property, books, vouchers and other
documentation, as would a reasonable and diligent administrator, including a
list containing the names and addresses of all debtors of the hypothecated
claims, and keep them available for the Trustee to examine and obtain copies
thereof.
12.4 [NOT USED]
12.5 PRESERVATION OF THE HYPOTHEC
To perform all acts and execute all deeds and documents (including notices
of renewal) necessary to give full effect to the Hypothec and to ensure that it
is at all times fully opposable against third persons.
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15
12.6 COMPENSATION, FEES AND EXPENSES
To pay to the Trustee from time to time all out-of-pocket costs and
expenses relating to this Deed and to the exercise of all rights resulting in
favour of the Trustee from such Deed as well as all out-of-pocket costs and
expenses incurred to set up the rights of the Trustee against third persons, and
all discharge fees (such costs and expenses shall include all reasonable fees
and expenses of consultants, agents or counsels retained by the Trustee); to
reimburse the Trustee for all out-of-pocket costs and expenses incurred by it
for the purpose of carrying out the Grantor's obligations or of exercising its
rights, all such costs and expenses bearing interest at an annual rate equal to
the base rate of National Bank of Canada which shall be in force from time to
time, plus 3%; National Bank of Canada's base rate shall be the one advertised
as its rate of reference for determining the interest rate on commercial loans
in Dollars granted in Canada; the obligations arising from this paragraph shall
not exceed twenty-five per cent (25%) of the nominal value of the Hypothec; the
repayment of such costs and expenses shall be secured by the Hypothec.
12.7 ENCUMBRANCES AND TITLE
Not to grant, at any time hereafter, any easement, right-of ways,
servitude or any other charges against the Charged property without having first
obtained the prior written consent of the Trustee, (save for public easements
granted for utility purposes which do not materially affect unfavourably the
Charged property) and to maintain the Charged property free and clear of any
conventional or legal hypothec, prior claim under Articles 2650 et seq. of the
Civil Code of Quebec, charge, security, garnishment, right of resolution or
repossession or any other right in favour of a person or persons other than the
Trustee, in each case other than in regard to a Lien which is permitted in
accordance with paragraphs (a) and following of Section 412 of the Indenture; to
preserve, warrant and defend its title against any claim, action or
contestation.
12.8 LIST OF PROPERTY IN STOCK AND BOOK DEBTS
To give the Trustee, from time to time, upon demand, a statement of the
value of its Property in stock and a list of its book debts shown in the reverse
order of their due date.
12.9 INSURANCE
The Grantor covenants to:
12.9.1 keep its insurable properties adequately insured at all times by
financially sound and reputable insurers;
12.9.2 maintain such other insurance, to such extent and against such
risks, including fire and other risks insured against by extended
coverage, as is customary for the Charged Property and as is
customary with companies similarly situated and in the same or
similar businesses, provided,
<PAGE>
16
however, that such insurance shall insure the property of the
Grantor 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 Trustee, and in
no event at any time in an amount less than the replacement value
of the Charged Property;
12.9.3 maintain in full force and effect public liability insurance
against claims for bodily injury or death or property damage
occurring upon, in, about or in connection with the use of any
properties owned, occupied or controlled by the Grantor or any of
its subsidiaries, as is customary with companies similarly situated
and in the same or similar businesses;
12.9.4 maintain business interruption and product liability insurance to
such extent as is customary with companies similarly situated and
in the same or similar businesses; and
12.9.5 maintain such other insurance as may be required by law or as may
be reasonably requested by the Trustee for purposes of assuring
compliance with this paragraph 12.9;
it being understood that:
12.9.6 the Trustee is forthwith named as beneficiary of the indemnities
payable pursuant to these policies (excluding those pertaining to
civil liability) and the Grantor shall cause the recording of this
designation on the policies which must also contain provisions
preventing their cancellation or amendment to the detriment of the
Trustee, for any reason whatsoever, including failure to pay the
premiums, unless the omission or Default is not remedied within
thirty (30) days following receipt of written notification thereof
by the Trustee;
12.9.7 the insurance policies do not contain coinsurance clauses save with
the prior written agreement of the Trustee;
12.9.8 the Grantor will deliver to the Trustee all policies and
certificates of insurance maintained in accordance with this
paragraph 12.9;
12.9.9 in the event of any material loss or damage, the Grantor shall
immediately notify the Trustee of the loss incurred or damage
sustained. The indemnity, with respect to property and damage
insurance, shall be paid to the Trustee to the extent of its
interest. The Trustee may apply any indemnity received by it to
reduce any amount owed
<PAGE>
17
to it hereunder and/or under the Guaranty. However, the reduction
shall be effective only once the Trustee has informed the Grantor
of such choice. The indemnity may also be remitted to the insured
to be used for replacement, repair or reconstruction purposes,
according to terms and conditions pre-determined by the Trustee.
12.10 LOSS OR DAMAGE
To immediately notify the Trustee of any loss of, or substantial damage
to, any material portion of the Charged property and take all diligent steps to
ensure that the insurer pays the indemnity to the Trustee.
12.11 LEASE AND TRANSFER
Not to lease, sell, assign or otherwise alienate the Charged property, in
whole or in part, without the prior written consent of the Trustee, except for
property referred to in paragraph 4.4 above which may be leased or sold in the
ordinary course of business of the Grantor and except as expressly permitted in
the Indenture.
12.12 MAINTENANCE
The Grantor shall diligently pay the cost of any public utility services
and authorizes the Trustee to obtain from the related authorities the amounts
due to this account and any information relating to payment of such charges.
12.13 LOCATION OF PROPERTY
Not to change the location of the Charged property unless it obtains the
prior written consent of the Trustee.
12.14 TITLE
To ensure that its right of ownership in any Charged property in the hands
or possession of any third party remains opposable against third parties and,
accordingly, that such right has been registered or published, if registration
or publication is required by law for the purpose of opposability against third
parties.
12.15 LESSORS
If any of the Charged property is located, in the province of Quebec, in
premises leased pursuant to a lease executed before January 1, 1994 (and where
the registration of a legal hypothec has been perfected) or if it were moved to
premises leased as aforesaid, to obtain a full cession of priority in favour of
the rights of the Trustee under the present Hypothec and to immediately notify,
following the execution of the present Deed or immediately following the moving
into the leased premises, the lessor of such premises, in writing, of the
present Hypothec and to deliver to the Trustee within three (3) days after such
notification proof of same.
<PAGE>
18
12.16 USE AND DESTINATION
Not to change the use or destination of the Charged property unless it
obtains the prior written consent of the Trustee.
12.17 VALUE
To protect and use the Charged property and to carry on its business so as
to preserve its value.
12.18 INTELLECTUAL PROPERTY
The Grantor shall:
12.18.1 use its trade-marks, trade-mark registrations, trade-mark
applications, trade names, business names, trade styles,
logos, service marks, and all other forms of business
identifiers (hereinafter the "Trademarks") only on goods of
at least as high quality as the goods on which the Grantor
or its predecessor used the goods as of the date hereof and
maintain the quality of any and all products in connection
with which the Trademarks and other Collateral is used,
consistent with the quality of said products as of the date
hereof;
12.18.2 take or cause to be undertaken all steps necessary to
protect the Grantor's interest in and to maintain the
Collateral in good standing, including without limitation,
to pursue diligently all applications through to
registration and to renew all registrations and pay all
maintenance fees as applicable, as well as attending to the
filing of all required documentation;
12.18.3 vigorously protect, preserve and maintain all of the
Grantor's right, title and interest in the Collateral,
including, without limitation, the prosecution and/or
defence against any and all suits concerning validity,
infringement, enforceability, ownership or other aspects
affecting any of the Collateral (any expenses incurred in
protecting, preserving and maintaining any of the
Collateral shall be borne by the Grantor);
12.18.4 upon written request by the Trustee, execute and deliver
any and all agreements, instruments, documents and papers
as the Trustee may reasonably request to evidence the
Hypothec in the Collateral;
12.18.5 perform all covenants required under any Third Party
Agreement including, inter alia, promptly paying all
<PAGE>
19
required fees, royalties and taxes to maintain each and
every item of the Collateral in full force and effect;
12.18.6 if at any time or from time to time, the Grantor (i)
becomes aware of any existing Collateral of which the
Grantor has not previously informed the Trustee, (ii)
obtains rights to any new Collateral, or (iii) becomes
entitled to the benefit of any Collateral not identified in
Schedule "B", then the Grantor shall promptly notify the
Trustee and regardless of when the Grantor so notifies the
Trustee, Schedule "B" hereto, as applicable, automatically
shall be modified and amended to include any such
Collateral and the provisions of this Deed automatically
shall apply thereto;
12.18.7 maintain up to date records regarding the Collateral;
12.18.8 provide the Trustee with a written report on each
anniversary of this Deed regarding the status of the
Collateral;
12.18.9 not abandon any right to file a trademark application or
patent application, or abandon any pending trademark or
patent application, or abandon any of the Collateral or any
suits involving any of the Collateral, without the prior
written consent of the Trustee, which consent of the
Trustee shall not be unreasonably withheld;
12.18.10 not take any action, or permit any action to be taken by
any person or persons subject to its control, including
licensees, or fail to take any action, which would
adversely affect the validity, enforceability or
transferability (to the Trustee or otherwise) of all or any
of the Collateral; and ensure generally that the Collateral
is and remains valid, in good standing and enforceable.
12.19 RELEASE OF COLLATERAL
The Hypothec shall not be discharged prior to the indefeasible payment in
full of all amounts owing hereunder and under the Indenture and the performance
of all obligations of the Grantor hereunder and under the Indenture.
13. EVENTS OF DEFAULT
The Grantor shall be in default hereunder without notice or other
formality and the security hereby constituted shall immediately become
enforceable, if it fails
<PAGE>
20
to pay any amount due or to become due under the Indenture and/or the Securities
upon demand, and in any of the following events ("DEFAULT"):
13.1 [NOT USED]
13.2 [NOT USED]
13.3 [NOT USED]
13.4 CROSS DEFAULT
An Event of Default (as defined in the Indenture) occurs under the
Indenture on the part of the Grantor or under the Guaranty on the part of any
Guarantor.
13.5 CHARGED PROPERTY
If the Grantor fails at any time to maintain, preserve or protect all
property material to the conduct of its businesses and keep such property in
good repair, working order and condition (reasonable wear and tear excepted) or
fails from time to time to make, or cause to be made, all needful and proper
repairs, renewals, additions, improvements and replacements thereto which are
necessary in order that the business carried on in connection therewith may be
properly conducted in all material respects at all times.
13.6 OTHER AGREEMENTS
The Grantor fails to pay any indebtedness or to perform any of the
Grantor's obligations required to be paid or performed under any other agreement
creating a charge against the Charged property.
13.7 INSOLVENCY AND BANKRUPTCY
The Grantor ceases to carry on its enterprise or an important part
thereof, becomes insolvent or becomes subject to proceedings, makes an
assignment or files a notice to file a proposal under any law relating to
insolvency, bankruptcy, reorganization or to arrangements with creditors or any
petition in bankruptcy is taken against the Grantor.
13.8 [NOT USED]
13.9 LEGAL EXISTENCE
The Grantor loses its legal existence; an order is issued or a resolution
is adopted for its winding-up or liquidation.
<PAGE>
21
13.10 HYPOTHECARY RIGHTS
Any of the Charged property is subject to a hypothecary right from another
creditor, a partition procedure, a "sale of an enterprise" as it is understood
under sections 1767 and ssq. of the Civil Code of Quebec or an expropriation,
except to the extent or under circumstances permitted in accordance with the
Indenture.
14. TRUSTEE'S RECOURSES IN CASE OF DEFAULT
14.1 PAYMENT OF INDEBTEDNESS
In case the Hypothec shall have become enforceable, on account of one or
the other of the events mentioned in Section 13 or paragraphs 13.1 through 13.10
above, the Trustee may, in its discretion, at any time or times, demand payment
of all or any part of the Secured Obligations and the same shall forthwith
become immediately due and payable to the Trustee. Any payment then made by the
Grantor shall be deemed to have been made in discharge of its obligations
hereunder or under the Indenture, and any money so received by the Trustee shall
be applied as provided for in paragraphs 14.13 and 15.4 hereof.
14.2 EXERCISE OF RIGHTS
In case the Hypothec shall have become enforceable and the Grantor shall
have failed to pay the Trustee, on demand, the outstanding amount due under the
Indenture together with any other amounts secured hereunder, the Trustee may in
its discretion, through its officers, agents or attorneys, exercise any right of
action provided for under this Deed (and more particularly under this Section
14) or by law or in equity including without limitation any of the hypothecary
rights provided for under sections 2748 to 2794 of the Civil Code of Quebec and
any rights or remedies provided to secured parties under any applicable personal
property security legislation.
14.3 RIGHTS OF THE TRUSTEE
Whatever hypothecary rights the Trustee elects to exercise or whatever
rights or recourses the Trustee elects to exercise either pursuant to the law of
any other jurisdiction or in equity, the following provisions, to the greatest
extent permitted by applicable law, shall apply:
14.3.1 the Trustee may, in its discretion, at the Grantor's expense:
14.3.1.1 pursue the transformation of the Charged property or
any work in process or unfinished goods comprised in
the Charged property and complete the manufacture or
processing thereof or proceed with any operations to
which such property is submitted by the Grantor in
the ordinary course of its business and acquire
property for such purposes;
<PAGE>
22
14.3.1.2 alienate or dispose of any Charged property which
may be obsolete, may perish or is likely to
depreciate rapidly;
14.3.1.3 use for its benefit all information obtained while
exercising its rights;
14.3.1.4 perform any of the Grantor's obligations or
covenants hereunder;
14.3.1.5 exercise any right attached to the Charged property
on such conditions and in such manner as it may
determine, acting reasonably, including without
restriction the grant of licences whether general or
special on an exclusive or non exclusive basis, of
any intellectual property charged hereunder;
14.3.1.6 for the exercise of any of its rights, utilize
without charge the Grantor's plant, equipment,
machinery, process, information, records, computer
programs and intellectual property; for the purposes
hereof the Grantor shall, at the request of the
Trustee, concurrently with or after the execution of
these presents execute a power of attorney with
respect to intellectual property (in conformity with
paragraph 15.9 hereof) in favour of the Trustee;
14.3.1.7 borrow monies or lend monies and, in such cases, the
monies borrowed or lent by the Trustee shall bear
interest at the rate then obtained or charged by the
Trustee for such borrowing or loan; these monies
shall be reimbursed by the Grantor on demand and,
until they have been repaid in full, such monies and
interest thereon shall be secured by the present
Hypothec and be paid in priority of any other sums
secured hereunder;
14.3.1.8 maintain or repair, restore or renovate, begin or
complete any construction work on or related to the
Charged property;
14.3.2 the Trustee shall exercise its rights in good faith in order
to attempt to reduce the Secured Obligations, in a reasonable
manner, taking into account all circumstances;
14.3.3 the Trustee may, directly or indirectly, purchase or otherwise
acquire the Charged property;
<PAGE>
23
14.3.4 the Trustee, when exercising its rights, may waive any right
of the Grantor, with or without consideration therefor;
14.3.5 the Trustee shall have no obligation to make an inventory of
the Charged property, to take out any kind of insurance with
respect thereof or to grant any security whatsoever;
14.3.6 the Trustee shall not be bound to continue to carry on the
Grantor's enterprise or to make any productive use of the
Charged property or to maintain such property in operating
condition;
14.3.7 the Grantor shall, upon request of the Trustee, move the
Charged property and render it available to the Trustee unto
premises designated by the Trustee and which, in its opinion,
shall be more suitable in the circumstances.
14.4 GRANTOR'S REMEDY
If the Grantor remedies the default mentioned in any prior notice of
exercise of hypothecary right, the Grantor shall, as required by law, pay all
reasonable fees incurred by the Trustee by reason of the default; these fees
shall include without limitation the administrative fees of the Trustee, the
legal fees of its legal advisers and fees paid to experts.
14.5 TAKING IN PAYMENT
If the Trustee elects to exercise its right to take in payment the Charged
property and the Grantor requires that the Trustee instead sell by itself or
under judicial authority, the Charged property on which such right is exercised,
the Grantor hereby acknowledges that the Trustee shall not be bound to abandon
its recourse of taking in payment unless, prior to the expiry of the time period
allocated for surrender, the Trustee (i) has been granted a security
satisfactory to it, to ensure that the proceeds of the sale of the Charged
property will be sufficient to pay the Guaranty in full, (ii) has been
reimbursed for all reasonable costs and expenses incurred in connection to this
Deed, including all fees of consultants and legal counsel and (iii) has been
advanced the necessary sums for the sale of said Charged property; the Grantor
further acknowledges that the Trustee alone is entitled to select the type of
sale it may wish to conduct or have conducted.
14.6 SURRENDER OF CHARGED PROPERTY
The Grantor will, to the greatest extent permitted by applicable law, be
deemed to have surrendered the Charged property which is in the possession of
the Trustee, or of a third party on its behalf, if the Trustee has not, within
the delays determined by law or by a tribunal to surrender, received written
notice from the Grantor to the effect that it intends to contest the exercise of
the hypothecary recourse set forth in the prior notice.
<PAGE>
24
14.7 EVALUATION
Where the Trustee sells the Charged property itself, to the greatest
extent permitted by applicable law, it shall not be required to obtain any prior
evaluation by a third party.
14.8 SALE OF CHARGED PROPERTY
The Trustee, to the greatest extent permitted by applicable law, may elect
to sell the Charged property after giving such prior notices as may be required
by law in which event (i) the sale may be made with legal warranty given by the
Grantor or with complete or partial exclusion of such warranty; (ii) the sale
may be made cash or with a term or under such reasonable conditions determined
by the Trustee; and (iii) upon failure of payment of the purchase price, the
Trustee may resiliate or resolve such sale and such Charged property may then be
resold.
14.9 USE OF PREMISES
In order to exercise any of its rights, the Trustee may use the premises
located in the Immovables.
14.10 SEVERAL ADMINISTRATORS
Where several administrators are involved hereunder, the parties, to the
greatest extent permitted by applicable law, waive the application of sections
1332 to 1338 inclusively of the Civil Code of Quebec.
14.11 APPOINTMENT OF AGENT
The Trustee, to the greatest extent permitted by applicable law, may
appoint an agent or a receiver and manager (collectively a "Receiver") over all
or any portion of the Charged property by written instrument in accordance with
paragraph 14.12 or may apply to a court for the appointment of a Receiver to
take possession of all or such part of the Charged property as the Trustee shall
designate, with such duties, powers and obligations as the court making the
appointment shall confer, and the Grantor hereby irrevocably consents to the
appointment of such Receiver.
14.12 APPOINTMENT OF RECEIVER
The Trustee, to the greatest extent permitted by applicable law, may with
or without taking possession, by instrument executed by the Trustee, appoint a
Receiver of all or any part of the Charged property and of the rents, income and
profits therefrom and may from time to time by similar instrument remove any
Receiver and appoint another in its place and upon the appointment of any such
Receiver or Receivers from time to time the following provisions, to the
greatest extent permitted by applicable law, shall apply:
14.12.1 every such Receiver shall be vested with all of the rights,
powers, remedies and discretions of the Trustee set forth in paragraphs
14.3.1.1 to 14.3.1.8, inclusively, including, without limitation,
<PAGE>
25
the power to sell, for cash or credit or part cash and part credit, lease
or dispose of all or any part of the Charged property, whether by public
auction or by private sale or lease in such manner and on such terms as it
may determine in its absolute discretion acting reasonably and to do all
acts, exercise all discretions and make all determinations of the Trustee
described therein;
14.12.2 every such Receiver shall have the power to borrow money on
the security of the Charged property in priority to the security created
by this Deed for the purpose of the preservation, maintenance, completion
or protection of the Charged property or any part thereof or for making
any replacements thereof or improvements and additions thereto or for
carrying on all or any part of the business of the Grantor relating to the
Charged property, and in so doing the Receiver may issue certificates
designated as "Receiver's Certificates" which may be payable either to
order or to bearer and may be payable at such time or times as the
Receiver may think expedient and shall bear interest at such rates of
interest as the Receiver may consider reasonable, and the amounts from
time to time payable pursuant to such Receiver's Certificates shall form a
charge upon the Charged property in priority to the security created by
this Deed;
14.12.3 the Trustee may from time to time fix the remuneration of
every such Receiver who shall be entitled to deduct the same out of the
receipts derived from or comprising part of the Charged property or the
proceeds thereof;
14.12.4 every such Receiver shall be deemed to be an agent of the
Grantor and not of the Trustee for the purposes of:
(i) carrying on and managing the business and affairs of the
Grantor, and
(ii) establishing liability for all of the acts or omissions of
the Receiver while acting as such and the Trustee shall not
be in any way responsible for any acts or omissions on the
part of any such Receiver, its officers, employees and
agents,
the Grantor hereby irrevocably authorizing the Trustee to give instructions to
the Receiver relating to the performance of its powers and discretions as set
out herein;
14.12.5 the appointment of every such Receiver by the Trustee or
anything which may be done by any such Receiver or the removal of any such
Receiver or the termination of any such receivership shall not have the
effect of constituting the Trustee a mortgagee in possession in respect of
the Charged property or any part thereof;
14.12.6 no such Receiver shall be liable to the Grantor to account
for moneys other than moneys actually received by such Receiver in respect
<PAGE>
26
of the Charged property and every such Receiver shall apply such moneys so
received in the manner provided in paragraph 14.13; and
14.12.7 the Trustee may at any time and from time to time terminate
any such receivership by notice in writing executed by the Trustee to any
such Receiver;
14.13 IMPUTATION OF PAYMENTS
Except as herein otherwise expressly provided, to the greatest extent
permitted by applicable law, all monies arising from any sale or realization of
the Charged property, in whole or in part, whether under any sale by the Trustee
or by judicial process or otherwise, shall be applied, together with any other
monies then in the hands of the Trustee and available for such purpose, in the
first place to pay or reimburse the Trustee's fees, charges, expenses,
borrowing, advances and all other moneys provided or obtained by it or at its
request in or about the execution of its powers and rights with respect to these
presents, with interest thereon as herein provided, and the residue of the said
moneys shall be applied on account of Secured Obligations or, at the option of
the Trustee, may be held unappropriated in a collateral account in order to
provide for payment of any charge ranking prior to the Hypothec.
The Grantor shall only be credited with amounts received by the Trustee in
cash from the possession, sale, lease or other disposition of, or realization
upon, the Charged property as and when such cash is received.
14.14 LIABILITY OF GRANTOR
The Grantor shall remain liable to the Trustee for any deficiency
remaining after the application of the proceeds of any sale, lease or
disposition of the Charged property by the Trustee.
15. GENERAL PROVISIONS
15.1 ADDITIONAL SECURITY
The Hypothec created hereby is in addition to and not in substitution of
or in replacement for any other hypothec or security held by the Trustee and
shall not impair the Trustee's rights of compensation and set-off.
15.2 INVESTMENTS
The Trustee, to the greatest extent permitted by applicable law, may, at
its entire discretion, invest any monies or instruments received or held by it
pursuant of this Deed or deposit same in a non-interest bearing account without
having to comply with any legal provisions concerning the investment of property
of others.
<PAGE>
27
15.3 SET-OFF
Provided the Secured Obligations are due and exigible or that the Trustee
is entitled to declare them owing and exigible, the Trustee may, to the greatest
extent permitted by applicable law, compensate and set-off any Secured
Obligations with any and all amounts then owed to the Grantor by the Trustee in
any capacity, whether due or not, and the Trustee shall then be deemed to have
exercised such right to compensate and set-off as at the time the decision was
taken by it even though the entry therefor is made on the Trustee's record
subsequent thereto.
15.4 IMPUTATION OF PAYMENTS
The Trustee, to the greatest extent permitted by applicable law, shall be
at liberty to impute any amounts collected in the exercise of its rights prior
to or after any Default as it may choose without having to comply with any
provisions of the Civil Code of Quebec concerning the imputation of payments.
15.5 DELAYS
The Trustee, to the greatest extent permitted by applicable law, may grant
delays, take any security or renounce thereto, accept compromises, grant
quittances and releases and generally deal, with any matters related to the
Charged property, the whole without limiting the rights of the Trustee and
without reducing the liability of the Grantor.
15.6 CONTINUING SECURITY
The Hypothec shall be a continuing security and shall remain in full force
and effect despite the repayment from time to time, of the whole or of any part
of the Secured Obligations; it shall remain in full force until the execution of
a final release by the Trustee.
15.7 TIME OF ESSENCE
The mere lapse of time provided for the Grantor to perform its obligations
or the expiry of any term therefor shall automatically create a default
hereunder, without the Trustee being obliged to serve any notice or prior notice
upon the Grantor.
15.8 CUMULATIVE RIGHTS
The rights and recourses of the Trustee hereunder are cumulative and do
not exclude any other rights and recourses which the Trustee might have. No
omission or delay on the part of the Trustee in the exercise of any right shall
have the effect of operating as a waiver of such right. The partial or sole
exercise of a right or power will not prevent the Trustee from exercising
thereafter any other right or power. The Trustee may exercise its right
hereunder without any obligation to exercise any right against any other person
liable for payment of the Secured Obligations and without having to enforce any
other security granted with respect to the Secured Obligations.
<PAGE>
28
15.9 IRREVOCABLE POWER OF ATTORNEY
The Trustee is hereby designated as the irrevocable attorney of the
Grantor with full powers of substitution for the purposes hereof or for the
purpose of carrying out any and all acts and executing any and all deeds,
proxies or other documents which the Trustee may deem useful in order to
exercise its rights or which the Grantor neglects or refuses to execute or to
carry out, provided however that, if a Default has not occurred and is not
continuing, the Grantor shall have been requested by the Trustee to do so by a
three (3) Business Days prior written notice.
15.10 PERFORMANCE
The Trustee may, at its entire discretion, perform any of the Grantor's
liabilities under this Deed. It may then immediately request payment of any
expense incurred in doing so, including interest at the rate provided for in
paragraph 12.6 above, and such repayment is secured by the Hypothec.
15.11 DELEGATION
The Trustee may, at its entire discretion, appoint any person or persons
for the purpose of exercising any of its rights, actions or the performance of
any covenant resulting from this Deed or law or equity; in such case, the
Trustee may supply such person with any information it holds relating to the
Grantor or to the Charged property.
15.12 TITLE DEEDS
All titles of ownership, land surveys, certificates of location and other
documents related to the Immovables shall upon request be remitted to the
Trustee who is entitled to keep them until a final release and discharge of this
Hypothec is obtained.
15.13 WAIVER
Where the Grantor has taken an Immovable in payment for an hypothecated
claim ranking prior to the present Hypothec, the Grantor waives its right to
take advantage of the provisions of section 2771 of the Civil Code of Quebec.
15.14 LIABILITY
The Trustee shall not be liable for material injuries or damages resulting
from its fault, or the fault of its agents, officers, consultants, unless such
fault is gross or intentional.
15.15 SUCCESSORS
The rights hereby conferred upon the Trustee shall benefit all its
successors and nominees.
<PAGE>
29
15.16 NOTICES
Any notice to the Grantor shall be delivered to its address set out above
or to any other address in Canada of which the Trustee has been given written
notice; any notice to the Trustee shall be delivered to the Trustee's branch
located at the address set out above.
15.17 RECEIPT OF NOTICE
A notice given hereunder shall be deemed to have been received by the
other party on the date of its delivery, when delivered on a Business Day, or on
the third (3rd) Business Day after it has been mailed, if sent prepaid by
certified or registered mail, or the day of its transmission, if transmitted by
facsimile on or before 3:00 p.m. on a Business Day or on the Business Day next
following the day of transmission if transmitted by facsimile after 3:00 p.m.
15.18 SEVERABILITY
Every provision of this Deed is and shall be independent of the other and
in the event that any part of this Deed is declared invalid, illegal or
unenforceable, then the remaining terms, clauses and provisions of this Deed
shall not be affected by such declaration and all the remaining clauses of this
Deed shall remain valid, binding and enforceable.
15.19 TRUST PROVISIONS
Notwithstanding the references herein to The Bank of New York (or its
successor hereunder, if any) as a "trustee" or to it acting as trustee, no trust
within the meaning of Chapter II of Title Six of Book Four of the Civil Code of
Quebec is intended to be or is created or constituted hereby. In addition, the
provisions of Title Seven of Book Four of the Civil Code of Quebec shall not
apply to any administration by the Trustee hereunder.
16. INTERCREDITOR AGREEMENT
This Deed including the right of the Trustee to exercise remedies
hereunder, shall be subject to the terms and conditions of the Intercreditor
Agreement. Notwithstanding the foregoing or any reference to the Intercreditor
Agreement, the Grantor agrees and acknowledges that neither this Deed nor the
Intercreditor Agreement provides such Grantor with any rights as a third party
beneficiary or otherwise.
17. GOVERNING LAW
This Deed shall be governed by and construed in accordance with the laws
of the Province of Quebec, including the rules relating to conflicts of laws
provided for thereunder.
<PAGE>
30
18. AMENDMENTS
No amendment may be made to this Deed unless signed by the Grantor and the
Trustee.
19. FORMAL DATE
This Deed may be referred to as bearing formal date of the first (1st) day
of April, Nineteen hundred and ninety-seven (1997), notwithstanding the actual
date of its execution.
20. ENGLISH LANGUAGE
The parties hereto confirm that the present agreement has been drawn up in
the English language at their request. Les parties aux presentes confirment que
la presente convention a ete redigee en langue anglaise a leur demande.
WHEREOF ACT:
DONE AND PASSED in the City of Montreal, Province of Quebec, on this tenth day
(10th) of April, Nineteen hundred and ninety-seven (1997), under number five
thousand seven hundred and ninety-five (5795) of the original of the minutes of
the undersigned notary.
AND after the parties had declared to have taken cognizance of these presents
and to have exempted the said Notary from reading them or causing them to be
read, the said duly authorized officers of the Grantor and the Trustee
respectively have signed these presents, all in the presence of the said Notary
who has also signed.
SLM INTERNATIONAL, INC.
per: /s/ BRUCE RANDALL
---------------------------
Bruce Randall
THE BANK OF NEW YORK
per: /s/ MARIE E. TRIMBOLI
---------------------------
Marie E. Trimboli
/s/ RICHARD TRUDEAU
---------------------------
Mtre Richard Trudeau, Notary
TRUE COPY OF THIS ORIGINAL REMAINS IN MY OFFICE.
/s/ [SPECIMEN]
-----------------------
<PAGE>
SCHEDULE "A"
[NOT USED]
<PAGE>
SCHEDULE "B"
B.1 Securities (par. 4.6)
Mitchel & King Skates Ltd.
Sport Maska Inc.
Maska U.S., Inc.
#1 Apparel, Inc.
#1 Apparel Canada Inc.
SLM Trademark Acquisition Corp.
B.2 Trade-Marks and Other Intellectual Property (par. 4.8)
None.
B.3 Business or Firm names (par 11.7)
SLM
SLMI
B.4 Claims subject to the Financial Administration Act (par 11.12)
None.
B.5 Claims Secured by registered hypothecs (par. 11.13)
None.
***** ***** *****
The foregoing is Schedule B annexed to the Deed of hypothec granted by SLM
International, Inc. in favour of The Bank of New York before Mtre Richard
Trudeau, Notary, on the eleventh (11th) day of April Nineteen hundred and
ninety-seven (1997) under number five thousand seven hundred and ninety-five
(5795__________) of his minutes and recognized as true and signed by the
representatives therein mentioned with and in the presence of the undersigned
Notary.
/s/ MARIE E. TRIMBOLI
---------------------------
Marie E. Trimboli
/s/ BRUCE RANDALL
---------------------------
Bruce Randall
/s/ RICHARD TRUDEAU
---------------------------
Mtre Richard Trudeau, Notary
/s/ [SPECIMEN]
-----------------------
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
SLM International, Inc. on Form S-8 (File No. 33-53996) of our report, which
included an explanatory paragraph regarding the Company's accounting for the
Plan of Reorganization, dated April 14, 1997, on our audits of the consolidated
financial statements and financial statement schedule of SLM International, Inc.
as of December 31, 1996 and 1995, and for the years ended December 31, 1996,
1995 and 1994, which report is included in this Annual Report on Form 10-K.
/s/ COOPERS & LYBRAND L.L.P.
Albany, New York
April 14, 1997
CONSENT OF INDEPENDENT ACCOUNTS
We consent to the incorporation by reference in the registration statement
report of SLM International, Inc. on Form S-8 (File No. 33-53996) of our report
which includes an explanatory paragraph regarding the Company's accounting for
the Plan of Reorganisation, dated April 14, 1997, on St-Lawrence Manufacturing
Canada Inc. (formerly Buddy L Canada Inc.), on Sport Maska Inc., on #1 Apparel
Canada Inc., our reports which include an explanatory paragraph regarding
uncertainties as to the ability of the company to continue as a going concern
dated April 25, 1996 on St-Lawrence Manufacturing Canada Inc., on Sport Maska
Inc., on #1 Apparel Canada Inc. and dated April 14, 1995 on Buddy L Canada Inc.,
on Sport Maska Inc., on #1 Apparel Canada Inc.
Chartered Accountants
/s/ RAYMOND, CHABOT, MARTIN, PARE
Montreal, Canada
April 14, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DECEMBER 31,
1996 FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 35,589
<SECURITIES> 0
<RECEIVABLES> 33,313
<ALLOWANCES> 0
<INVENTORY> 37,179
<CURRENT-ASSETS> 112,027
<PP&E> 12,817
<DEPRECIATION> 0
<TOTAL-ASSETS> 124,925
<CURRENT-LIABILITIES> 61,349
<BONDS> 0
0
0
<COMMON> 189
<OTHER-SE> (97,378)
<TOTAL-LIABILITY-AND-EQUITY> 124,925
<SALES> 140,321
<TOTAL-REVENUES> 140,321
<CGS> 92,613
<TOTAL-COSTS> 92,613
<OTHER-EXPENSES> 57,323
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,555
<INCOME-PRETAX> (19,170)
<INCOME-TAX> (448)
<INCOME-CONTINUING> (18,722)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,722)
<EPS-PRIMARY> (0.99)
<EPS-DILUTED> (0.99)
</TABLE>
