U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
Current Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): 4/14/99
PTI HOLDING INC.
----------------------------------------
(Name of small business issuer in its charter)
Delaware 1-11586 13-3590980
- --------------------- ----------- -------------
(State or jurisdiction Commission (I.R.S. Employer
of incorporation or file Identification
organization) number No.)
c/o 15 East North Street, Dover, DE 19901
- --------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
(302) 678-0855
----------------------------------------
(Issuer's Telephone Number, Including Area Code)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On April 14, 1999, Flents Products Co., Inc., a Delaware corporation
("Flents"), and prior to that date a wholly owned subsidiary of PTI Holding Inc.
(a Delaware corporation ("Holding")), consummated an asset acquisition (the
"Acquisition") of Karlen Manufacturing, Inc., a Michigan corporation ("Karlen").
Holding acquired substantially all of the operating assets of Karlen, other than
one product line and cash. The purchase price was $17,750,000 subject to
adjustment. The assets were acquired subject to substantially all existing
operating liabilities of Karlen, other than liabilities related to the excluded
product line. The Acquisition was consummated pursuant to an Asset Purchase
Agreement dated January 8, 1999, as amended by amendment dated April 14, 1999,
among Flents, Karlen and the shareholders of Karlen.
The purchase price consisted of a $16,750,000 cash payment and a $1,000,000
promissory note.1 The operating assets which were not acquired in the
Acquisition include Karlen's Blue Devil product line, which constituted
approximately 1% - 2% of Karlen's net sales in 1998. Other assets which were not
acquired include the cash and cash equivalents of Karlen, which totaled
approximately $1,400,000 as of June 30, 1998. All agreements entered into and
described below are dated April 14, 1999 unless noted otherwise.
Karlen had revenues in the amount of approximately $12,345,000 in 1998. The
assets acquired include approximately $1,585,000 in accounts receivables,
$1,800,000 in inventory and $372,000 in property and equipment. Flents assumed
current liabilities of approximately $373,000.
In connection with the Acquisition, Flents entered into an Employment
Agreement with Tim Drumhiller, the chief operating officer of Karlen, to serve
as the President of Flents. The Employment Agreement has a term of five years.
Mr. Drumhiller's wife, Lynette K. Drumhiller, is the beneficiary of certain
trusts which are shareholders of Karlen.
Flents also entered into a Commercial Lease Agreement between Flents and
Lendell J. Williams, as trustee of the "Lendell J. Williams Inter-Vivos Trust",
dated September 15, 1992 (the "Trust") for the property currently used as
Karlen's principal manufacturing facility at 5401 South Graham Road, Swan Creek
Township, Saginaw, Michigan. The lease is for a term of three years and is at
specified rental payments, which Flents believes are fair market rates. The
Trust is a shareholder of Karlen.
In addition, Flents has entered into a Requirements Agreement with Lendell
Manufacturing, Inc. ("LMI"), a Michigan corporation, by which Flents has agreed
to buy from LMI, and LMI has agreed to supply, all of Flents' annual
requirements of non-latex polyurethane cosmetic grade foam, subject to the terms
of the Agreement. This raw material is used in the manufacture of foam wedges
which are used in various cosmetic products. The term of this agreement is for
three years with purchase prices under the Requirements Agreement approximately
equal to the historic purchase prices charged to Karlen for this critical raw
material. The Trust is a shareholder of LMI. In addition, the Trust is the
landlord under the Commercial Lease Agreement for Karlen's former facility.
Lynette K. Drumhiller, the daughter of Lendell J. Williams is a beneficiary of
the trust and Mr. Drumhiller's wife.
To finance the Acquisition, at the Closing, Flents entered into a
$10,000,000 financing facility pursuant to a Revolving Credit, Term Loan and
Security Agreement with PNC Bank, National Association (the "Bank"). The
facility includes a Term loan of $4,000,000, fully funded at closing, and a line
of credit of $6,000,000 of which at closing approximately $2,900,000 was drawn
and approximately $1,000,000 was available under the facility's various
borrowing limits. Flents pledged all of its assets as security for this
financing.
Flents also entered into with The 1818 Mezzanine Fund, L.P., an affiliate
of Brown Brothers Harriman & Co. Inc. (the "1818 Fund"), a Securities Purchase
Agreement by which the 1818 Fund acquired (1) detachable warrants exercisable to
purchase 22 shares of common stock of Flents, par value $.01 per share, which
would constitute upon issuance 22% of the issued and outstanding common stock on
a diluted basis, and (2) an $8,000,000 promissory note with an interest rate of
12%. The Warrants are exercisable for a nominal purchase price until April 14,
2009. The promissory note is payable interest only for six years and is due in
full at maturity in six years.
Pursuant to an Investment Agreement by and among Warren Schaeffer and
Meredith Birrittella, Flents issued to Warren Schaeffer, 10 shares of common
stock of Flents, par value $.01 per share, for consideration of $1,000,000, and
issued to Meredith Birrittella, 8 shares of the common stock of Flents, par
value $.01 per share, for consideration of $800,000. Meredith Birrittella is the
Chief Executive Officer of Holding, and Warren Schaeffer is the President of
Holding.
Upon the exercise of the warrants by the 1818 Fund, Holding will own 60% of
Flents. Because Flents is no longer a wholly-owned subsidiary of Holding, Flents
also entered into a Management Agreement with Protective Technologies
International Inc., a New York corporation and a wholly owned subsidiary of
Holding ("PTI Sports"). Under the Management Agreement, PTI Sports will provide
various services to Flents, including senior executive services of the Chief
Executive Officer and the Chief Financial Officer of PTI Sports, information and
data processing functions and services, management systems and services, and
senior human resource management functions and services, such as payroll,
benefits, pension and related functions.
Flents also entered into a Shareholders' Agreement by and among Flents,
Holding, the 1818 Fund, Meredith Birrittella and Warren Schaeffer. The
Shareholders' Agreement places various restrictions on the transfer of shares of
Flents common stock. It also grants to the 1818 Fund and Mssrs. Birrittella and
Schaeffer the "tag-along" right to sell shares of Flents common stock in certain
circumstances with Holding. It also grants preemptive rights and rights to
designate directors to the shareholders. Each of the shareholders of Flents also
agreed to vote their shares to enforce the Shareholders' Agreement.
Flents also amended its Certificate of Incorporation to set as seven the
number of directors on the Board of Directors. Therefore, Mssrs. Birrittella and
Schaeffer's right to appoint two directors and the 1818 Fund's right to appoint
two directors could lead to effective control of Flents.
Because of the nature of the transaction, Holding engaged an independent
investment banking firm, Management Planning, Inc. ("MPI"), to evaluate the
fairness of the Acquisition and its financing. MPI rendered the opinion that the
acquisition of Karlen by Flents, the investment in Flents by Mssrs. Birrittella
and Schaeffer and the terms of the Bank's financing of Flents are fair to the
shareholders of the Holding from a financial point of view.
Also at Closing, PTI Sports and Zacko Sports Inc., a Delaware corporation
("Zacko"), both of which are wholly owned subsidiaries of Holding, entered into
a $25,000,000 financing facility pursuant to a Revolving Credit, Term Loan and
Security Agreement by and among PTI Sports, Zacko and the Bank. The facility
includes a term loan of $3,000,000, fully funded at closing, and a line of
credit of $22,000,000 of which at closing approximately $11,100,000 was drawn
and approximately $4,400,000 was available under the facility's various
borrowing limits. PTI Sports and Zacko pledged all of their assets as security
for this financing.
Of the $14,100,000 borrowed by PTI Sports at closing, PTI Sports lent to
Holding $1,000,000 pursuant to a Promissory Note made by Holding to the order of
PTI Sports. Holding, in turn, lent such $1,000,000 to Flents pursuant to a
Promissory Note made by Flents to the order of Holding.
Holding also made capital contributions to Flents in the form of $200,000
cash and $1,000,000 by assumption of the obligation to make, and the making of,
the $1,000,000 purchase money promissory note payable to the order of Karlen.
Holding has guaranteed the obligations of Flents, PTI and Zacko under their
respective agreements with the Bank. Holding has also guaranteed the obligations
of Flents under the Asset Purchase Agreement between Flents and Karlen.
The proceeds of the loans from the Bank were also used to repay all
existing bank financing of Flents, PTI Sports and Zacko.
<PAGE>
(a) Financial Statements of Business Acquired To be filed by amendment.
(b) Pro-Forma Financial Information To be filed by amendment.
(c) Exhibits
Exhibit No. Description
- ------------ ------------
1 Asset Purchase Agreement dated January 8, 1999, by and among Flents
Products Co., Inc., Karlen Manufacturing, Inc. and the shareholders of
Karlen Manufacturing, Inc, as amended by amendment dated April 14, 1999.
2 Purchase Money Promissory Note made payable to Karlen Manufacturing, Inc.
dated April 14, 1999.
3 Revolving Credit, Term Loan and Security Agreement dated April 14,1999
between Flents Products Co., Inc. and PNC Bank, National Association.
4 Revolving Credit, Term Loan and Security Agreement dated April 14, 1999 by
and among Protective Technologies International Inc., Zacko Sports Inc. and
PNC Bank, National Association.
5 Securities Purchase Agreement dated April 14, 1999 between Flents Products
Co., Inc. and The 1818 Mezzanine Fund, L.P.
6 Investment Agreement dated April 14, 1999 by and among Meredith
Birrittella, Warren Schaeffer and Flents Products Co., Inc.
7 Management Agreement dated April 14, 1999 between Flents Products Co., Inc.
and Protective Technologies International Inc.
8 Shareholder's Agreement dated April 14, 1999 by and among Flents Products
Co., Inc., PTI Holding Inc., The 1818 Mezzanine Fund, L.P., Meredith
Birrittella and Warren Schaeffer.
9 Fairness Opinion rendered by Management Planning, Inc. dated April 13,
1999.
10 Consent of Management Planning, Inc.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: April 29, 1999.
PTI HOLDING INC.
By:/s/ Meredith Birrittella
Meredith Birrittella
Chief Executive Officer
(authorized signatory)
- --------
1 The purchase price promissory note was made by Holding as a capital
contribution to Flents.
<PAGE>
EXHIBIT 1
ASSET PURCHASE AGREEMENT
AGREEMENT dated January 8, 1999 by and among Karlen Manufacturing,
Inc., a Michigan corporation ("Karlen"); Lendell J. Williams, as trustee for the
Lendell J. Williams Inter-Vivos Trust under a trust agreement dated September
15, 1992 ("LJW Trustee"); Karen A. Williams, as trustee for the Karen A.
Williams Inter-Vivos Trust under a trust agreement dated September 15, 1992
("KAW Trustee"); Roland G. Niederstadt, as trustee for the Lendell J. Williams
and Karen A. Williams Inter-Vivos Trust for the Benefit of Lynette K. Drumhiller
under a trust agreement dated December 22, 1992 ("LKD Trustee"); Roland G.
Niederstadt, as trustee for the Lendell J. Williams and Karen A. Williams
Inter-Vivos Trust for the Benefit of Lesley A. Forbes under a trust agreement
dated December 22, 1992 ("LAF Trustee"); and Flents Products Co., Inc., a
Delaware corporation ("Purchaser"). (LJW Trustee, KAW Trustee, LKD Trustee, and
LAF Trustee are referred to herein individually as a "Shareholder of Karlen" and
collectively as the "Shareholders of Karlen"). Any reference to Seller herein
shall include Karlen and each Shareholder of Karlen, unless the context requires
any other combination of Karlen and Shareholders of Karlen.
WHEREAS, Karlen desires to sell to Purchaser, and Shareholders of
Karlen desire to cause Karlen to sell to Purchaser, and Purchaser desires to
purchase from Karlen, substantially all of the assets of Karlen subject to
certain of the liabilities of Karlen, upon the terms hereinafter set forth;
NOW, THEREFORE, in consideration of the covenants set forth herein and
in reliance on the representations and warranties contained herein, the parties
hereto hereby agree as follows:
Section 1. Purchase and Sale of Assets.
1.1. Acquired Assets.
On the Closing Date (as hereinafter defined), Seller shall
sell, assign, transfer and deliver, unto Purchaser, and its successors and
assigns forever, free and clear of all Liens (as defined in Section 5.5 hereof)
(other than rights of third parties under contracts assigned pursuant to this
Agreement), all right, title, interest and claims in or to the business,
properties and assets of Seller used, useful for, or held for use in Karlen's
business and operations (the "Business") other than the Excluded Assets
(hereinafter defined), together with the goodwill of Seller in the Business, all
as the same existed on August 31, 1998, except for those assets disposed of in
the ordinary course of business consistent with past practice in arms-length
transactions with unaffiliated parties, together with any additions thereto
after August 31, 1998, (hereinafter sometimes together referred to as the
"Acquired Assets"), including without limitation the following assets:
(i) all machines, equipment, tools, dies, product tooling,
molds, furniture, fixtures, trucks, automobiles, other vehicles, office
supplies, artwork (positives and negatives) for package and product
designs and promotional materials, and all other tangible personal
property, including without limitation that property (A) described on
Schedule 1.1(i) hereto, (B) used, held for use or acquired for use in
the Business; or (C) located at any premises operated by Karlen;
(ii) all contracts, promissory notes, leases of personal
property and agreements listed on Schedule 1.1(ii) hereto, and all
other contracts, leases, agreements, promissory notes and other
evidences of indebtedness to Karlen in connection with the Business;
(iii) all intangible assets and all rights, interests and
claims of Seller in, to or under all intangible assets used, held for
use or acquired for use in the Business (including without limitation
the name "Karlen," the other assets listed on Schedule 1.1(iii), and
any other trademarks, trade names or service marks under which Seller
has operated the Business, any copyrighted or copyrightable material,
and any patents, drawings, designs, formulas, manufacturing processes,
customers' records, customer lists, supplier lists, pricing
information, employee records, choses in action, claims, computer
software, programming and applications used, held for use or acquired
for use in the Business, together with any goodwill associated with any
of the foregoing);
(iv) all inventories, raw materials (including inventories and
raw materials on order but not received as of the Closing Date), and
work-in-progress, used, held for use or acquired for use in the
Business or located at any premises operated by Karlen;
(v) all claims, demands, judgments, rights, choses in action,
accounts receivable, bills and notes receivable, documents,
instruments, credits and deferred items;
(vi) all supplies, marketing and sales literature (including
catalogs) that are related to the Business;
(vii) all rights and interests under or pursuant to warranties
and/or guaranties of suppliers of the Business relating to the Acquired
Assets or the Business;
(viii) all leasehold improvements to the real property listed
on Schedule 1.1(viii);
(ix) all licenses, franchises, permits, privileges,
immunities, approvals and authorizations from a governmental or
regulatory body ("Governmental Permits") that are necessary to entitle
the Seller to own or lease, operate and use its assets to conduct the
Business substantially as historically conducted by Seller;
(x) all telephone, telex, and telephone facsimile numbers,
computer online addresses, other communication media designations and
directory listings utilized in connection with the Business;
(xi) all assets reflected in the books of accounts of Karlen
as of August 31, 1998, or located on any premises operated by the
Karlen; and
(xii) all books, records and files of Seller relating to the
Business for all periods.
1.2. Excluded Assets. The Acquired Assets do not include the assets
(herein collectively referred to as the "Excluded Assets") of Seller as follows:
(a) cash, cash equivalents and securities, (except security deposits and tax
withholding held in separate accounts); (b) claims of Seller for refunds,
credits, carrybacks or carryforwards in connection with any federal, state or
local taxes (or similar taxes) of the Business for tax periods ending on or
prior to the Closing Date and proceeds thereof; (c) counterclaims and cross
claims to the extent relating to any liability against which Seller indemnifies
Purchaser hereunder to the extent Seller actually pays money in respect of the
liability related to such counterclaim or cross claim ; (d) insurance claims and
rights under insurance policies to the extent relating to any liability against
which Seller indemnifies Purchaser hereunder to the extent Seller actually pays
money in respect of such liability; (e) the assets related to the Sellers' Blue
Devil line of products described on Schedule 1.2(e) hereto (the "Blue Devil
Assets"); (f) indebtedness of Shareholders of Karlen to Karlen; (g) assets
described on Schedule 1.2(g); (h) leases of any vehicles by Karlen from Karen A.
Williams or Lendell J. Williams; and (i) rights under this Agreement; in each
case to the extent not reflected as an asset on the Balance Sheet (hereinafter
defined).
Section 2. Liabilities.
2.1. Assumed Liabilities.
(a) Purchaser shall assume on the Closing Date and, effective
as of the Closing and contingent upon the occurrence of the Closing, shall
discharge in accordance with its terms (subject to any defenses or claimed
offsets asserted in good faith against the obligee to whom such liabilities,
payments and obligations are owed), subject to any contrary provision herein,
the Assumed Liabilities as defined in Section 10.4 hereof.
(b) No other liabilities, payments or obligations of Seller
(absolute, contingent, known or unknown, matured or unmatured, or otherwise)
arising out of the Business or the operations of the Seller, the ownership or
operation of any of the Acquired Assets, the consummation of the transactions
under this Agreement or otherwise shall be assumed by Purchaser, and Seller
hereby, effective as of the Effective Time of the Closing and without the
necessity of any further action on the part of Seller, assumes and/or retains
responsibility for, and shall pay for, perform, satisfy or obtain a discharge or
release from, promptly as they shall become due, all of such other liabilities,
payments or obligations.
2.2. Retained Liabilities. Without limiting the generality of Section
2.1(b) hereof, and regardless of whether any of the following may be disclosed
to Purchaser pursuant to Section 5 hereof or otherwise, or whether Purchaser may
have knowledge of the same, Purchaser shall not assume, and shall not be deemed
to have assumed, any obligation, payment or liability of Seller, and Seller
shall and does hereby assume and retain responsibility for and shall pay,
perform, satisfy or obtain a discharge or release from, promptly as they shall
become due, any and all Retained Liabilities as defined in Section 10.4 hereof.
Section 3. Consideration.
3.1. Purchase Price. The purchase price (the "Purchase Price") for the
Acquired Assets shall be $17,750,000.00, subject to adjustment as set forth
below. At Closing, a portion of the Purchase Price equal to $621,500 (the
"Escrow Amount") shall be paid by wire transfer or certified or bank teller's
check to Seller's counsel as escrow agent (the "Escrow Agent") to be held
pursuant to Section 3.2(c) hereof. The remainder of the Purchase Price, less the
amount of the Deposits (hereinafter defined), shall be payable by up to five
wire transfers or certified or bank teller's check(s) at Closing (hereinafter
defined) in U.S. dollars as directed by Seller.
3.2. Deposit.
(a) Purchaser deposited with Currie Kendall Polasky Meisel
PLC, as escrowee (the "Deposit Agent"), an amount of $25,000 (the "First
Deposit"), which is being held until the termination of this Agreement or the
Closing (hereinafter defined) and, upon the Closing, shall be released to the
Seller, all pursuant to the terms of the Letter of Intent dated September 16,
1998, as amended by letter dated October 26, 1998 and by letter dated December
4, 1998, by and between Karlen and Purchaser (the "Amended Letter of Intent")
attached hereto as Exhibit G-1.
(b) On December 4, 1998, Purchaser deposited with Currie
Kendall Polasky Meisel PLC, as escrowee (the "Deposit Agent"), an amount of
$50,000 (the "Second Deposit"), which is being held until the termination of
this Agreement or the Closing (hereinafter defined) and, upon the Closing, shall
be released to the Seller, all pursuant to the terms of the Amended Letter of
Intent and/or the Deposit Escrow Agreement dated the date hereof, by and among
the Seller, the Deposit Agent and the Purchaser in the form attached hereto as
Exhibit G-2.
(c) Upon execution of this Agreement, Purchaser shall issue a
check payable to the Deposit Agent, in the amount of $150,000.00 (the "Third
Deposit"), which shall be held in an interest bearing account or other
investment as directed by Seller until the termination of this Agreement or the
Closing (hereinafter defined) and, upon the Closing, shall be released to the
Seller, all pursuant to the terms of an Deposit Escrow Agreement dated the date
hereof, by and among the Seller, the Deposit Agent and the Purchaser in the form
attached hereto as Exhibit G-2.
The First Deposit, the Second Deposit, and the Third Deposit are referred
to herein collectively as the "Deposits."
(d) The Escrow Amount shall be held in an interest bearing
account or other investment as directed by Seller for a period not to exceed one
year after the Closing Date (except to the extent a claim is made thereon) to
provide funds for (i) any claim for indemnification in accordance with Section
10 hereof and (ii) payment of any downward adjustments to the Purchase Price in
accordance with Section 3.3 hereof, pursuant to the terms of the Purchase Price
Escrow Agreement dated the Closing Date, by and among the Seller, the Escrow
Agent and the Purchaser in the form attached hereto as Exhibit I.
3.3. Adjustments to Purchase Price.
(a) In the event that the Closing Adjusted Net Book Value (as
defined below) as set forth on the Closing Balance Sheet (hereinafter defined)
is greater than or less than $3,452,561, the Purchase Price shall be adjusted up
or down, respectively, dollar for dollar by such excess or deficiency as set
forth below.
(b) "Closing Adjusted Net Book Value," for purposes of this
Agreement, shall be determined as follows:
(i) Within thirty (30) days after the Closing Date,
Purchaser shall prepare and furnish to Seller a balance sheet of the
Business as of the Closing Date (the "Preliminary Closing Balance
Sheet"), prepared from the books and records of Karlen, except
excluding all Excluded Assets and Retained Liabilities (as defined in
Section 10.4). The Preliminary Closing Balance Sheet shall contain the
same line items as and shall be prepared in accordance with the
accounting methods and procedures used in the preparation of the August
31, 1998 pro forma balance sheet annexed to the Letter of Intent. The
Preliminary Closing Balance Sheet shall be accompanied by a computation
by Purchaser of Closing Adjusted Net Book Value based on the
Preliminary Closing Balance Sheet and supported by an explanation in
reasonable detail. The cost of the initial preparation of the
Preliminary Closing Balance Sheet and the computation of the Closing
Adjusted Net Book Value provided for in this subparagraph 3.3(b)(i)
shall be borne by Purchaser.
(ii) Promptly after the delivery of the Preliminary
Closing Balance Sheetpursuant to subparagraph 3.3(b)(i) above, Seller's
independent certified public accountants shall perform an examination
of the Preliminary Closing Balance Sheet and the computation of Closing
Adjusted Net Book Value therefrom. Within twenty (20) business days
after the receipt of such Preliminary Closing Balance Sheet and
computation of Closing Adjusted Net Book Value, Seller's accountants
shall advise the parties hereto in writing whether theirexamination
revealed that any changes are required to be made to the Preliminary
Closing Balance Sheet or the computation of Closing Adjusted Net Book
Value as set forth in this Section 3.3, specifying in reasonable detail
such proposed adjustments and the basis therefor. Such accountants
shall deliver to the parties hereto balance sheets incorporating all of
such adjustments that such accountants deem mandatory. In the event
Purchaser shall concur therewith, or shall not object thereto in
writing within ten (10) days after receipt thereof, the Preliminary
Closing Balance Sheet as proposed to be adjusted by Seller's
accountants shall become the "Closing Balance Sheet." The cost of the
examination by Seller's accountants of the Preliminary Closing Balance
Sheet and the computation of the Closing Adjusted Net Book Value
provided for in this subparagraph 3.3(b)(ii) shall be borne by Seller.
(iii) In the event Purchaser objects in writing,
specifying such objections in reasonable detail, to the Preliminary
Closing Balance Sheet proposed by Seller's accountants within such
10-day period, Seller, Seller's accountants, Purchaser and Purchaser's
accountants shall meet, within ten (10) days following the date of such
objection, to resolve such dispute; and in the event that thereafter
there shall remain a dispute between the parties as to the Closing
Balance Sheet and the computation of Closing Adjusted Net Book Value,
such dispute shall be referred to a nationally recognized firm of
independent certified public accountants (that shall not have performed
any accounting or other professional services for either party hereto
or any of their affiliates) selected by Seller from a list of five (5)
such firms supplied by Purchaser within five (5) days after the end of
the 10-day discussion period, for determination in accordance with the
terms of this Agreement, and the determination of said firm shall be
final and binding upon all parties. The parties shall use their best
efforts to cause said firm to make such determination within fifteen
(15) business days after such dispute has been submitted to them. The
fees and expenses of said firm in so acting shall be shared equally by
Seller and Purchaser, unless (i) said firm's final determination
results in a determination of Closing Adjusted Net Book Value that is
more than the Closing Adjusted Net Book Value determined by Purchaser
by a percent more than 10%, in which case the fees and expenses of said
firm shall be paid by Purchaser or (ii) said firm's final determination
results in a determination of Closing Adjusted Net Book Value that is
less than the Closing Adjusted Net Book Value determined by Seller by a
percent more than 10%, in which case the fees and expenses of said firm
shall be paid by Seller.
(iv) As used in this Agreement, the term "Closing
Adjusted Net Book Value" shall mean the assets on the Closing Date of
Seller (other than Excluded Assets retained by Seller pursuant to
Section 1.2) less the liabilities on the Closing Date of Seller assumed
by Purchaser; provided, however, that Seller's liabilities for this
purpose shall exclude the Retained Liabilities. For the purpose of
determining the Closing Adjusted Net Book Value, the Seller's assets
and liabilities shall be determined in a manner consistent with the
accounting principles, methods and procedures used in the preparation
of the August 31, 1998 pro forma balance sheet annexed to the Letter of
Intent (the "Pro Forma Balance Sheet"), and the amount of inventory of
the Seller as of Closing shall be determined by the same methods and
procedures used to project the amount of inventory of the Seller as of
August 31, 1998, as reflected on the Pro Forma Balance Sheet.
(v) An adjustment payment required pursuant to this
Section 3.3, if any, shall be made not later than 15 days after the
final determination of the Closing Adjusted Net Book Value.
3.4. Allocation. Seller and Purchaser shall mutually agree upon the
fair market value of the Acquired Assets after any adjustment to the Purchase
Price is made pursuant to Section 3.3 hereof. Such allocations shall be binding
on Purchaser and Seller for all federal, state and local tax purposes; and
Purchaser and Seller shall file with their respective federal income tax returns
forms that shall reflect such allocation.
Section 4. Closing.
Provided that the conditions in Sections 8 and 9
hereof shall have been satisfied or waived, the consummation of the purchase and
sale of the Acquired Assets contemplated by this Agreement (the "Closing")
shall, unless another date is agreed to in writing by Seller and Purchaser, take
place at a location to be mutually agreed upon by the Purchaser and the Seller
on the date designated by notice from Purchaser not less than 10 business days
after such notice and in the absence of an event beyond the reasonable control
of a party that prevents or delays the Closing, including, without limitation,
Act of God, act or omission of civil or military authority, fire, severe weather
condition, embargo, war, political strife or riot, delay in transportation,
compliance with any regulation or directive of any national, state or local
government or a department or agency thereof, or any other cause which by the
exercise of reasonable diligence the affected party would be unable to overcome,
(a "Force Majeur Event") not after the day that is 45 days after the date
hereof. All references contained herein to "the Effective Time of the Closing"
shall be deemed to refer to the time that the consummation of the transaction
contemplated hereby is completed.
Section 5. Representations and Warranties of Seller.
Seller represents and warrants to Purchaser as follows, and acknowledges and
confirms that each such representation and warranty shall be deemed to be
material and that Purchaser is relying upon such representations and warranties
in connection with the execution, delivery and performance of this Agreement,
notwithstanding any investigation made by Purchaser or on its behalf.
5.1. Organization and Good Standing.
(a) Karlen is a corporation duly organized, validly existing
and in good standing under the laws of the state of its incorporation and is
qualified to transact business and is in good standing as a foreign corporation
in the jurisdictions where it is required to qualify (such jurisdictions being
set forth in Schedule 5.1 hereto).
(b) Karlen has the power and authority (corporate and
otherwise) to own, lease and operate its properties and to carry on its business
as now conducted.
(c) Karlen has no subsidiaries or equity investments in any
entity and is not involved in a partnership or joint venture.
5.2. Consents, Authorizations and Binding Effect.
(a) Seller may execute, deliver and perform this Agreement
without the necessity of obtaining any consent, approval, authorization or
waiver or giving any notice or otherwise, except for such consents, approvals,
authorizations, waivers and notices set forth on Schedule 5.2 hereto.
(b) This Agreement has been duly authorized, executed and
delivered by Seller and constitutes the legal, valid and binding obligation of
Seller, enforceable in accordance with its terms. The execution, delivery and
performance of this Agreement will not:
(i) constitute a violation of the Certificate or
Articles of Incorporation or the By-Laws, as amended, of Karlen;
(ii) conflict with, result in the breach of,
constitute a default, with or without notice and/or lapse of time,
under, result in being declared void or voidable any provision of, or
result in any right to terminate or cancel or any other right adverse
to the Business under any contract, lease, agreement, license,
commitment or purchase order to which Seller or any of its properties
is a party or is bound;
(iii) constitute a violation of any statute,
judgment, order, decree or regulation or rule of any court,
governmental authority or arbitrator applicable or relating to Seller,
the Acquired Assets or the Business; or
(iv) result in the acceleration of any debt or other
obligation of Seller or the creation of any Lien (as defined in Section
5.5) upon any of the Acquired Assets.
5.3. Shareholders of Karlen.
(a) LJW Trustee, KAW Trustee, LKD Trustee, and LAF Trustee are
the only beneficial or registered owners of the capital stock of Karlen.
5.4. Financial Statements and Financial Condition.
(a) The Seller has maintained the Seller's books of account in
accordance with applicable laws, rules and regulations, and such books and
records are and, during the periods covered by the Financial Statements
(hereinafter defined), were correct and complete in all respects, and completely
and accurately reflect the transactions of the Business and the income,
expenses, assets and liabilities of the Business, including the nature thereof
and the transactions giving rise thereto.
(b) Included in Schedule 5.4 are (i) the reviewed balance
sheets of Karlen as of December 31, 1996 and December 31, 1997 and the related
statements of income and cash flows for the period from January 1, 1996 through
December 31, 1997, reported on by Yeo & Yeo, P.C.; (ii) the unaudited balance
sheet of Karlen as of June 30, 1997 and the unaudited statements of income and
cash flows for the period from January 1, 1997 through June 30, 1997; (iii) the
unaudited balance sheet of Karlen as of June 30, 1998 and the unaudited
statements of income and cash flows for the period from January 1, 1998 through
June 30, 1998; and (iv) the unaudited balance sheet of Karlen, less the Excluded
Assets (as defined in Section 10.4), as of August 31, 1998 prepared in
accordance with generally accepted accounting principles consistently applied,
except as set forth in Schedule 5.4(b) hereto (the "Balance Sheet")
(collectively the "Financial Statements").
(c) The Financial Statements, including the Balance Sheet,
have been prepared from the books of account of Karlen, in conformity with
generally accepted accounting principles consistently applied (except as noted
in Schedule 5.4(b)), and present fairly the financial position of the Business
as of the date of such statements and the results of operations of the Business
for the periods covered thereby. The Financial Statements reflect all necessary
adjustments and reserves for losses and contingencies.
(d) The Seller and the Business have no liabilities
(including, without limitation, unasserted claims, whether known or unknown,
matured or unmatured, absolute, contingent or otherwise) that, in accordance
with generally accepted accounting principles, are required to be reflected, and
are not reflected or are in excess of the amount reflected, in the Balance Sheet
or notes thereto except (i) those incurred since the date of the Balance Sheet
in the ordinary course of business, consistent with past practice, in arms'
length transactions with unrelated parties, and which do not have and cannot
reasonably be expected to have, in the aggregate, a material adverse affect on
the business, financial condition or prospects of the Business (a "Material
Adverse Effect") and (ii) those specifically described on Schedule 5.4(d)
hereto.
5.5. Title and Condition of Assets.
(a) Except as otherwise disclosed on Schedule 5.5(a) hereto,
Seller has and will convey at Closing good and marketable title to the Acquired
Assets, free and clear of liens, encumbrances, claims of third parties, security
interests, mortgages, pledges, agreements, options and rights of others of any
kind whatsoever, whether or not filed, recorded or perfected, and including,
without limitation, any conditional sale or title retention agreement or lease
in the nature thereof or any financing statements filed in any jurisdiction or
any agreement to give any such financing statements (hereinafter collectively
referred to as "Liens"), other than rights of third parties under leases of
tangible personal property disclosed on Schedule 1.1(ii) hereto and liens for
taxes not due and payable.
(b) The equipment and the other tangible assets included in
the Acquired Assets are suitable for the purposes for which they are being used
and constitute all of the equipment and the other tangible assets used in the
operations of the Business, and necessary to operate the Business as conducted
during the two years prior to the date hereof. None of the Acquired Assets has
been affected by any fire, accident, act of God or any other casualty that
materially and adversely impairs its function in the Business. The Business is
not conducted under any material restriction imposed upon Seller (such as a
consent decree, easement, judgment or zoning variance) that is not imposed upon
other similar businesses.
(c) Schedule 1.l(i) hereto includes a complete and correct
list and a summary description of all material tangible personal property in the
nature of machinery and equipment owned or leased by Seller and used or held for
use in the Business. True and correct copies of all leases identified on
Schedule 1.l(ii) and all amendments thereto have been supplied to Purchaser.
Such leases, amendments and leasehold interests represent valid and binding
rights and/or obligations of Seller, are in full force and effect and are
enforceable by Seller in accordance with their respective terms, and the
transactions contemplated herein may be consummated without creating an event of
default or imposing any other penalty thereunder. Seller has no accrued
obligation as lessee thereunder or under any other lease that it has not fully
performed; and Seller has not received any notice of default under any such
lease. Seller enjoys peaceful and undisturbed possession under all leases to
which it is a party as lessee. None of the leases is in default and no event has
occurred or is continuing that with proper notice and/or the passage of time
would constitute an event of default thereunder.
(d) Seller does not own, lease or use any real property,
except as set forth on Schedule 5.5(d).
5.6. Inventories. The inventories of the Seller reflected on the
Balance Sheet have been valued pursuant to Seller's past accounting methods and
procedures for determining interim inventory, and the value of obsolete
materials and materials of below standard quality has been written down in
accordance with generally accepted accounting principles. The inventories of the
Seller contain no material amount of obsolete or damaged items, are of good
useable or merchantable quality, and are saleable or usable in the ordinary
course of business twelve (12) months from the date hereof at present levels of
business operation, except for not more than $125,000 of inventory. The
inventories of Seller reflected on the Balance Sheet do not include packaging
inventory owned by third parties, but which may be located at the premises
operated by Karlen, and which are not conveyed to Purchaser under this
Agreement. To the knowledge of the Seller, no returns of inventory in excess of
$2000 will be made by customers of Seller after the Closing Date from
inventories sold prior to the Closing Date.
5.7. Receivables. The trade accounts and other receivables of Seller
are bona fide receivables and arose out of arms' length transactions, are
recorded correctly on the books and records of the Business, and, to the
knowledge of Seller, except for the types of discounts as set forth on Schedule
5.7 hereto, are not subject to any offsetting claims or adjustments and are
collectible within ninety (90) days after the date hereof in the amount equal to
the aggregate face amount of such receivables, less any reserves therefor
reflected on the Balance Sheet or added in the ordinary course of business since
the date of the Balance Sheet, consistent with prior practice.
5.8. Insurance.
(a) Schedule 5.8(a) hereto sets forth (i) a list of all
policies of insurance maintained by Seller and all programs of self-insurance
covering risks or contingencies customarily covered by insurance in connection
with the Business, including insurance providing benefits for employees, in
effect on the date hereof; (ii) a description of the coverage of such policies
or programs; and (iii) the annual premiums therefor and the underwriter and
expiration dates thereof.
(b) All premiums due and payable on the policies listed on
Schedule 5.8(a) have been paid, and all such policies are in full force and
effect in accordance with their respective terms. Such policies are underwritten
by financially sound and reputable insurers.
(c) Schedule 5.8(c) sets forth all claims pending and, to the
knowledge of Seller, threatened under any of the casualty or liability insurance
policies or self-insurance programs set forth in Schedule 5.8(a), and all claims
made thereunder during the three years preceding the date hereof.
(d) Schedule 5.8(d) sets forth all claims pending and, to the
knowledge of Seller, threatened under any of the errors and omissions, product
liability or similar insurance policies or self-insurance programs set forth in
Schedule 5.8(a), and all claims made thereunder during the three years preceding
the date hereof.
5.9. Litigation and Compliance.
(a) Except as set forth on Schedule 5.9(a), since January 1,
1995 there are and have been no actions, suits, claims or proceedings or
governmental or administrative investigations pending or, to the best knowledge
of Seller, threatened, nor, to the best knowledge of Seller, is there any
reasonable basis for any such action, suit, claim, proceeding or investigation
(i) by, against or otherwise involving or relating to Seller or the Business,
the employees or agents working in the Business, any of the Acquired Assets or
any asset or property of others leased or used in the Business, involving a
claim for more than $2,500 or (ii) that questions or challenges the validity of
this Agreement or any action taken or to be taken pursuant to this Agreement.
Schedule 5.9(a) also sets forth all lawsuits, arbitrations and litigation-type
proceedings commenced during the three years before the date hereof or currently
pending involving allegations of tort or similar liability or product liability
and/or defective design or manufacture of any product of the Business
manufactured, distributed or sold by Seller, involving a claim for more than
$2,500, and not disclosed in Schedule 5.8.
(b) Seller with respect to the Business is in substantial
compliance with, is not in default or violation in any material respect under,
and has not been charged with or received any notice within the 12 months prior
to the date hereof of any violation of any statute, law, ordinance, regulation,
decree or order applicable to the Business or the Acquired Assets.
(c) Seller is not subject to any judgment, order or decree
entered in any lawsuit or proceeding.
(d) Seller has duly filed all reports and returns required to
be filed by it with governmental authorities and has obtained all material
Governmental Permits (a complete list of which Governmental Permits is set forth
on Schedule 5.9(d) hereto) that are required of Seller. Seller has fulfilled all
of its obligations under such Governmental Permits. All of such Governmental
Permits are in full force and effect, no notice has been received by Seller
questioning the validity thereof or declaring any defect or default relating
thereto. To the best knowledge of Seller, no event has occurred that with notice
and/or the passage of time would result in a default or grounds for suspension
or cancellation under any of such Governmental Permits or would adversely affect
the validity thereof. No proceedings for the suspension or cancellation of any
of them, and no investigation relating to any of them, is pending or, to the
best knowledge of Seller, threatened, and none of them will be affected by the
consummation of the transactions contemplated hereby, except for notice or
informational filings required in connection therewith.
(e) Seller has and will through the Closing Date operate the
Business in material compliance with all laws, rules, statutes, ordinances,
orders and regulations, including, without limitation, those applicable under
the Occupational Safety and Health Act of 1970, as amended, or any equivalent
state law. Seller has not received any notice of any violation thereof, nor is
Seller aware of any basis therefor. Annexed hereto as Schedule 5.9(e) are all
reports of inspections by OSHA inspectors or private OSHA consultants retained
by Seller during the prior 24 months.
(f) Each real property owned or leased by Seller has a valid
certificate of occupancy issued by the appropriate authority and is being used
in compliance with such certificate and all applicable zoning ordinances,
regulations and variances. The improvements on each such real property comply
with all applicable building, fire safety and sewerage codes, rules,
regulations, statutes and ordinances and comply in all material respects with
the mandates of the federal Americans with Disabilities Act, as such premises
are currently used. To the knowledge of Seller, the improvements on all such
real property, and the plumbing, electrical, HVAC and other support systems
therein are in good working order and repair. Schedule 5.9(f) sets forth all
reports and communications received by Seller during the past two years from any
building, fire safety or similar inspector with regard to any real property used
for the Business.
5.10. Taxes.
(a) Seller has, or on or before the Closing Date will have,
duly filed all tax reports and returns required to be filed as of such date. All
such tax reports and returns are or will be complete, accurate and in compliance
with all relevant laws and regulations in all material respects, and, except as
described in Schedule 5.10 hereto, none has been audited by any governmental
authority. Seller has, or on or before the Closing Date will have, paid and
discharged all federal, state, local and foreign taxes, interest, penalties or
other payments required, as the case may be, to be paid and then currently due
as shown on such tax reports and returns or otherwise, including, without
limitation, the operations and employees of Seller as of such date. To the
knowledge of Seller, no audit of Seller is planned or threatened. Seller has
withheld proper and accurate amounts from its employees' compensation and either
paid such amounts to the appropriate taxing authorities or set aside such
amounts in accounts for such purpose in substantial compliance with all
withholding and similar provisions of the IRS Code of 1986, as amended, and any
other applicable law. Seller has paid all unemployment insurance and workers'
compensation premiums and other charges related to its employees and independent
contractors required to be treated as employees.
(b) Seller has not received notice of any tax deficiency
outstanding, proposed or assessed against it with respect to the Business or the
Acquired Assets, nor does Seller have any knowledge of any basis for any tax
deficiency or assessment, nor has Seller executed any waiver of any statute of
limitations on the assessment or collection of any tax. There are no tax liens
upon, pending against or, to the best knowledge of Seller, threatened against
any Acquired Assets.
(c) No transaction contemplated hereby is subject to
withholding under Section 1445 of the Internal Revenue Code of 1986, as amended
(the "Code").
5.11. Intangible Assets.
(a) Schedule 1.1(iii) hereto sets forth a description, of
the following property used, held for use or licensed for use in the Business:
(i) all existing patents, patent applications,
trademarks, trademark registrations, applications for trademark
registrations, trade names and copyrights owned by Seller or in which
Seller has any proprietary interest;
(ii) all computer software, programs, and
applications owned, licensed by or used or held by Seller other than
commercially available software subject only to a "shrink-wrap"
agreement;
(iii) all material copyrightable property that is
published or distributed (such as brochures and catalogues) and
patentable ideas, inventions and discoveries (on which patent
applications have been prepared or filed or evaluated in writing) and
designs used or held by Seller;
(iv) all material trade secrets used or held by
Seller, including, without limitation, designs, inventions,
discoveries, methods of production and formulas; and
(v) all license, sublicense and other agreements with
respect to any of the foregoing intellectual property rights as to
which Seller is a licensor or licensee.
Except as disclosed in Schedule 5.11(a), Seller either: (i) owns the entire
right, title and interest in and to the Intellectual Property described in
Schedule 1.1(iii) or included in the Acquired Assets free and clear of Liens; or
(ii) has the perpetual, royalty-free right to use same.
(b) "Intellectual Property" means and includes all of the
types of property described in Section 5.11(a) above. No material Intellectual
Property other than as described on Schedule 1.1(iii) is used or necessary in
connection with the conduct of the Business. No claim is pending or, to the
knowledge of Seller, threatened against Seller by any person or entity relating
to (i) any of the Intellectual Property, or its use, listed, described or
referred to on Schedule 1.1(iii); (ii) except as described in Schedule 5.11(b),
infringement by Seller (in connection with the Business) on the Intellectual
Property rights of any person or entity; or (iii) infringement by any person or
entity on the Intellectual Property rights listed, described or referred to on
Schedule 1.1(iii). To the knowledge of Seller, no valid basis exists for any
claims referred to in this paragraph 5.11(b).
(c) Except as disclosed in Schedule 5.11(c), the current
computer software, programming and applications used by Seller, or held by
Seller for use in the Business, as set forth and described on Schedule 1.1(iii)
hereto (the "Software"), to the extent they have been designed or developed by
Seller or by consultants on Seller's behalf, are original and are protected by
the copyright laws of the U.S., and Seller has complete rights to and ownership
of such Software. All work performed in connection therewith was "work-for-hire"
under the U.S. Copyright Act, or the product thereof has been assigned in full
to Seller. No part of such Software or the use thereof infringes upon the rights
of any other person or entity, or violates or infringes upon any common law or
statutory rights of any other person or entity, including, without limitation,
rights relating to defamation, contractual rights, copyrights, patents, trade
secrets and rights of privacy or publicity. Seller has not sold, assigned,
licensed, distributed or in any other way disposed of or encumbered the
Software.
(d) The Software, to the extent it is licensed from any third
party licensor or constitutes "off-the-shelf" software, is held by Seller
legitimately and is fully and freely transferable without any third party
consent and is not limited to use on any hardware and/or any site or sites. All
of the computer hardware of Seller used or dedicated to use in the Business,
has, and has had, only legitimately-licensed software installed therein.
(e) To the knowledge of Seller, the Software is free from any
significant software defect or programming or documentation error, operates and
runs in a reasonable and efficient business manner, conforms to the
specifications thereof, and, with respect to owned Software, the applications
can be recreated from their associated source code, which is in Seller's sole
custody and control.
(f) Seller has not knowingly altered the data, or any Software
or supporting software that may in turn damage the integrity of the data, stored
in electronic, optical or magnetic form. Except as set forth on Schedule 5.11(f)
hereto, Seller has no knowledge of the existence of any bugs or viruses with
respect to the Software.
(g) Seller shall, to the maximum possible extent, pass through
to Purchaser all manufacturer's and supplier's warranties and support contracts
for the Software that is not owned by Seller, and Seller shall upon Purchaser's
reasonable request, execute each and every document that is necessary or
appropriate to effectuate Purchaser's obtaining and enjoying the benefits of any
such pass-through warranty.
(h) Seller has furnished all documentation relating to the
use, maintenance and operation of the Software, all of which, to the knowledge
of Seller, is true and accurate.
(i) Schedule 5.11(i) includes a list of all trademarks and
copyrights included in the Acquired Assets that are subject to the filing of an
affidavit of use or renewal.
5.12. Employees.
(a) Schedule 5.12 hereto contains a list of all persons
performing employment services for the Business and a description of all
compensation arrangements (including without limitation salaries and bonus
compensation) affecting them, including all active employees and all employees
on leave of absence, on workers' compensation, disability leave, military leave,
lay-off (with recall rights), or on other approved leave of absence, as of
December 1, 1998. Such Schedule sets forth the status of each such employee.
(b) Seller (i) except as described on Schedule 5.12(b)(i), has
not received any material complaint from, and has not engaged in any material
dispute with, any of its employees and independent contractors during the twelve
(12) months prior to the date hereof, and to the best knowledge of Seller, no
event has occurred that with notice and/or the passage of time would result in
grounds for any such material dispute; and (ii) except as described on Schedule
5.12(b)(ii), is not aware of any upper management employee who plans to
terminate employment or association with Seller, or after the Closing Date with
Purchaser, whether currently or as a result of the transactions contemplated
hereby.
5.13. ERISA. (a) Included on Schedule 5.13 is a list of each employee
benefit plan (within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")), written or oral employment
or consulting agreement, severance pay plan, employee relations policy, practice
or arrangement, agreements with respect to leased or temporary employees,
vacation plan or arrangement, sick plan, stock purchase plan, stock option plan,
fringe benefit plan, bonus plan and any deferred compensation agreement, plan or
program covering any present or former employee of Seller working in the
Business and which is, or at any time was, sponsored or maintained by (or to
which contributions are, were, or at any time were required to have been, made
by) Seller or any other organization which is a member of a controlled group of
organizations (within the meaning of Sections 414(b), (c), (m) or (o) of the
Internal Revenue Code of 1986, as amended) of which Seller is a member (the
"Controlled Group") in connection with the Business.
5.14. Labor Relations.
(a) Except as set forth on Schedule 5.14(a), no employee of
Seller in connection with the Business has been, or is, covered by any
collective bargaining agreement.
(b) Seller has complied, and is currently in compliance, in
all material respects with applicable laws (including, without limitation,
ERISA), rules and regulations relating to the employment of labor, including
without limitation those relating to wages, hours, unfair labor practices,
discrimination and payment of social security and similar taxes. Except as set
forth on Schedule 5.14(b), since January 1, 1996 Seller has not received any
written notice of any unfair labor practice complaint, or any claim for
discrimination or harassment related to the Business.
(c) Seller in connection with the Business has not suffered
during the past three years any material work stoppage or labor dispute, and, to
Seller's knowledge, none has been threatened and none is being planned or is
pending. To the knowledge of Seller, no union organizational activity, other
than by existing recognized unions referenced in Schedule 5.14(a), is currently
underway with respect to the Business.
(d) Except as set forth on Schedule 5.14(d), no non-union
employee or independent contractor who provides or has provided services to
Seller in connection with the Business is covered by an agreement, written or
oral, regarding employment, severance, pension, consulting or any related
matter.
5.15. Contracts. Etc.
(a) All contracts, leases, agreements, licenses, commitments
and orders to which Seller is a party or by which Seller or any of its assets is
bound ("Contracts") that involve individually a total of more than $10,000 or
have a term or successively renewable terms longer than six months are listed on
Schedule 1.l(ii) (including parties, date, term and approximate dollar amount of
payments involved). The Contracts that would be listed on Schedule 1.1(ii) but
do not exceed the dollar or term period threshold, do not involve, in the
aggregate, in excess of $25,000, excluding open sale and purchase orders.
(b) All the Contracts are valid and in full force and effect
and constitute the legal, valid and binding obligations of Seller and the other
parties thereto, and there are no existing defaults by Seller, or, to the
knowledge of Seller, by any other party thereto, no party has accrued any
entitlement to indemnification under any of the Contracts whether based on a
default or otherwise, and, to the knowledge of Seller, no event, act or omission
has occurred that (with or without notice, lapse of time and/or the happening or
occurrence of any other event) would result in a material default thereunder.
None of such Contracts is to be performed by Seller at a price that is less than
Seller's cost and would result in an aggregate material loss to Seller. No
option exists or will arise as a result of the Closing to amend or terminate any
Contract. None of the Contracts is being or has been proposed in writing to be
renegotiated, and no party under any of them is paying liquidated damages in
lieu of performance.
(c) Seller has heretofore delivered to Purchaser or its
counsel true, correct and complete copies of all of the Contracts.
(d) Except as set forth on Schedule 5.15(d), all of the
Contracts were entered into in the ordinary course of business and to the
knowledge of Seller contain terms that are substantially consistent with
customary industry practice in all material respects.
(e) Schedule 5.15(e) sets forth a list of each lease of real
property related to the Business (including the parties, fixed rent, additional
rent, expiration date, renewal and purchase options, location, description of
the premises and uses being made thereof) or Seller. Except as set forth on such
Schedule, Seller has the right to quiet enjoyment of all such property for the
full applicable term and no material dispute exists in connection with any of
them.
5.16. Customers and Suppliers.
(a) Seller is unaware of any material loss or threatened
material loss of any business from any Material Customer (hereinafter defined),
from any supplier or of the interruption of supply or loss of business with any
of the suppliers of the Business, other than as described on Schedule 5.16(a)or
5.16(b). Seller has not received in writing any material complaint from, and is
not engaged in any material dispute with, any customer or supplier.
(b) Set forth on Schedule 5.16(b) is a list of the names and
addresses of the ten largest customers of each of the retail and advertising
specialty divisions of the Business (a "Material Customer") and the dollar
volume of orders shipped to each in 1996 and in 1997, the dollar volume of such
orders shipped for the period from January 1 through September 30 in 1997 and
1998, and the dollar volume of such orders shipped in September of 1997 and
1998.
(c) Nothing has come to the attention of Seller that would
reasonably lead the Seller to believe that any of the customers listed on
Schedule 5.16(b) or any supplier of the Business has terminated or will
terminate or curtail its business relationship with Seller as a result of this
Agreement or otherwise, or with Purchaser after the Closing, other than as
described on Schedule 5.16(a).
(d) Except as set forth on Schedule 5.16(d), to the best
knowledge of the Seller, all of the Seller's raw materials inventory and
supplies are commercially available at comparable prices from suppliers other
than those from which same is currently purchased for the Business, and Seller
is not aware of any future material increase in prices not consistent with prior
practice by any of such suppliers. Seller has not experienced any work stoppage
in the business resulting from a shortage of supply of any raw material during
the three years immediately prior to the date hereof.
5.17. Absence of Certain Changes, Etc. Since January 1, 1998: Except as
set forth on Schedule 5.17, Seller is not aware of any event or other
development that has occurred that could cause a material loss or decline in
sales of the Business; the Business has not experienced any material increase in
the cost of, or difficulty in obtaining, raw materials or components,
replacement parts or any other supplies; no compensation increase for any
employee working in the Business outside of the ordinary course or in excess of
10% on an annual basis has been granted or promised; nothing has come to the
attention of Seller that would lead the Seller to believe that any material
adverse change in the business, operations, or prospects of the Business or in
the condition of any of the Acquired Assets, or the assets or properties of
others leased or used in the Business, has occurred or is likely to occur; no
material damage, destruction or loss to any of the Acquired Assets has occurred;
Seller has not entered into any transaction or contract, or amended any
contract, which might have a Material Adverse Effect; Seller in connection with
the Business has not incurred any material indebtedness for borrowed funds or
entered into any material capitalized lease obligation; Seller has not canceled
or waived any claim or right of material value relating to the Business or sold,
leased, transferred, suffered any Lien to arise upon, or otherwise disposed of
any assets related to the Business except in arms length transactions with
unrelated parties for fair consideration in the ordinary course of business;
Seller has not taken, or omitted to take, any action that would if taken or
omitted between the date hereof and the Closing Date constitute a breach of
Section 7.2 hereof.
5.18. Environmental Matters.
(a) Seller has all Governmental Permits necessary to conduct
the Business as it has been conducted relating to discharges, pollution and
other environmental matters (whether relating to land, air, water, noise, odor
or other matters) (a list of which is set forth on Schedule 5.18(a)), and as to
any such Governmental Permit that has expired or is about to expire, Seller (or
other appropriate party) has timely and properly applied for renewal of same.
Seller (or other appropriate party) has and is currently operating within the
limits set forth in such environmental Governmental Permits, regardless of
whether such Governmental Permits are current, expired or about to expire. No
claims have been filed against, or notices received by, Seller alleging a
violation of any such environmental Governmental permits. No investigation into
environmental matters in connection with the Business or any real property used
in the Business has been conducted during the past three years, or is currently
being conducted, by any governmental authority. Seller has secured all ancillary
environmental Governmental Permits, or has undertaken the timely transfer of
same, necessary for the consummation of the transactions contemplated by this
Agreement and the continuance of operations of the Business immediately after
Closing upon consummation of the transactions contemplated hereby.
(b) No facts, events or conditions existing on the date hereof
(including without limitation the generation, treatment, transport, storage,
emission, disposal, release or other placement, deposit or location of any
substance) interfere with or prevent continued compliance by Seller with any
statute, law, regulation, ordinance or Governmental Permit relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling, emission, discharge, release or threatened release into
the environment, of any pollutant, contaminant, hazardous waste, hazardous
substance, toxic substance or toxic waste. Except as disclosed on Schedule
5.18(b), there are not, and have never been, any underground storage tanks
located in or under any real property leased, owned or used by Seller (including
any predecessors).
(c) All pollutants, contaminants, hazardous wastes, hazardous
substances, toxic substances, toxic wastes, petroleum products or
non-biodegradable substances ("Contaminants") produced or used in the Business
and disposed of other than through sale of finished products have been safely
delivered to properly licensed and authorized waste management companies and
disposed of by such companies in compliance with all applicable laws, rules,
regulations and ordinances.
(d) Schedule 5.18(d) sets forth: (i) all written reports or
notices of releases, leakings, injections, dispersals, leachings, or migrations
of a Contaminant, and (ii) all written notices of the generation of any
hazardous waste, in connection with the Business.
5.19. Fraudulent Conveyances; Bankruptcy. Seller is not entering into
this Agreement with the intent to hinder, delay or defraud present or future
creditors. None of Karlen or the Shareholders of Karlen is now insolvent and
none is, or has been, involved in any bankruptcy or similar proceeding.
5.20. Related Party Transactions. Schedule 5.20 sets forth all
transactions and agreements conducted or entered into in the last year between
Seller and any other person, corporation or entity, directly or indirectly,
affiliated with Seller.
5.21. Backlog. Schedule 5.21 lists all outstanding orders for the sale
of goods by Seller as of the date set forth on said Schedule. As of such date,
none of Seller or any of the purchasers was in default under any of such orders,
Seller had not received any notice of cancellation with respect to such orders
except as set forth in Section 5.21, nor does Seller have any knowledge that
would lead the Seller to believe that any such cancellation will occur.
5.22. Other Information. The Schedules annexed hereto and the documents
and information with respect to Seller, the Acquired Assets and the Business
that are required to be supplied to Purchaser pursuant to this Agreement or have
been supplied to Purchaser at its request by Seller or on its behalf do not, to
the best knowledge of Seller, contain any statement that is false or misleading
with respect to a material fact, and do not omit to state a material fact
necessary in order to make the statements therein under the circumstance in
which they are made not false or misleading in any material respect.
5.23 Regulatory Approvals. All consents, approvals, authorizations, and
other requirements prescribed by any law, rule or regulation which must be
obtained or satisfied by Seller and which are necessary for the consummation by
Seller of the transactions contemplated by this Agreement, have been, or will be
prior to the Closing Date, obtained and satisfied, at Seller's expense.
Section 6. Representations and Warranties of Purchaser.
Purchaser
represents and warrants to Seller as follows, and acknowledges that Seller is
relying upon such representations and warranties in connection with the
execution, delivery and performance of this Agreement, notwithstanding any
investigation made by Seller or on their behalf.
6.1. Authorizations and Binding Effect.
(a) Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation
and is qualified to transact business and is in good standing as a foreign
corporation in the jurisdictions where it is required to qualify.
(b) This Agreement has been duly executed and delivered by
Purchaser and constitutes the legal, valid and binding obligation of Purchaser,
enforceable in accordance with its terms. The execution, delivery and
performance of this Agreement does not and will not:
(i) conflict with, result in the breach of, constitute a
default, with or without notice and/or lapse of time, under, result in
being declared void or voidable any provision of, or result in any
right to terminate or cancel any contract, lease or agreement to which
Purchaser or any of its properties is bound;
(ii) constitute a violation of any statute, judgment, order,
decree or regulation or rule of any court, governmental authority or
arbitrator applicable or relating to Purchaser; or
(iii) result in the acceleration of any debt or other
obligation of Purchaser. 6.2. Judgments. No judgments exist against
Purchaser or any of Purchaser's assets.
6.3. Litigation. No actions, suits, claims, proceedings or
investigations (whether or not purportedly on behalf of or against Purchaser),
are pending or threatened against Purchaser at law or in equity that relate to
the transactions contemplated by this Agreement or that will prohibit Purchaser
from performing the obligations to be performed by it hereunder.
6.4. Regulatory Approvals. All consents, approvals, authorizations, and
other requirements prescribed by any law, rule or regulation which must be
obtained or satisfied by Purchaser and which are necessary for the consummation
by Purchaser of the transactions contemplated by this Agreement, have been, or
will be prior to the Closing Date, obtained and satisfied, at Purchaser's
expense.
6.5. Financing. Purchaser represents and warrants that it has available
funds and/or approved financing for purchase of the Acquired Assets.
Section 7. Covenants.
7.1. Access to Records and Properties of the Seller.
(a) Between the date of this Agreement and the Closing Date,
Seller shall give to Purchaser such access to the premises, books and records of
Seller relating to the Business, and such copies thereof, as Purchaser may from
time to time reasonably request. Any investigation pursuant to this Section 7.1
shall be conducted in such manner as not to interfere unreasonably with the
operation of the business of Seller.
(b) Purchaser shall not dispose of or destroy any business
records and files of Seller related to the Business for periods prior to the
Closing Date, without first offering to turn over possession thereof to Seller
by written notice to Seller at least ninety (90) days prior to the proposed
dates of such disposition or destruction. Purchaser shall not dispose of or
destroy any personnel records of anyone who worked for Seller (including medical
records), but shall turn over possession without notice to Seller.
(c) To the extent reasonably required by Seller, Purchaser
shall allow Seller and their agents access to all business records and files
(including personnel records and medical records) of Seller related to the
Business that relate to periods prior to the Closing Date, upon reasonable
advance notice during normal working hours at any location where such records
are stored, and Seller shall have the right, at Seller's own expense, to make
copies of any such records and files, provided, however, that any such access or
copying shall be had or done in such a manner so as not to unreasonably
interfere with the normal conduct of the Business by Purchaser.
(d) After the Closing, Purchaser shall make available to
Seller upon written request: (i) personnel of Purchaser to assist Seller in
locating and obtaining records and files maintained by Seller for periods prior
to the Closing Date, and Seller shall reimburse Purchaser for the actual cost
thereof; and (ii) any personnel of Purchaser whose assistance or participation
is reasonably required by Seller in anticipation of, preparation for, or the
prosecution or defense of existing or future litigation, tax returns or other
matters, in which Seller is involved, or in order to address any Retained
Liability, and Seller shall reimburse Purchaser for the actual cost thereof.
7.2. Operation of the Business. From and after the date hereof until
the Closing Date, Seller shall with regard to the Business and its operations:
(a) Operate the Business diligently and only in the usual,
ordinary manner and, to the extent consistent with such operation, (i) preserve
its current business organization intact, (ii) use their best efforts to
preserve its current relationships with employees, customers, suppliers and all
other persons having business dealings with them; (iii) maintain in force the
insurance policies referred to in Section 5.8 hereof; and (iv) maintain in good
working order and repair all tangible personal property and all improvements on
real property (and all fixtures and systems therein) included in the Acquired
Assets, ordinary wear and tear excepted.
(b) Maintain the Seller's books, accounts and records in the
usual and ordinary manner, and in a manner that fairly and correctly reflects
the income, expenses, assets and liabilities of the Business on a basis
consistent with prior years.
(c) Comply with all Federal, state, local and other
governmental (domestic or foreign) laws, statutes, ordinances, rules,
regulations, orders, writs, injunctions, decrees, awards or other requirements
of any court or other governmental or other authority applicable to Seller or
its assets or to the conduct of the Business, and use best efforts to perform
all obligations under all contracts, agreements, licenses, permits and
undertakings without default.
(d) Make no modification or change in any existing right,
concession, license, lease, contract, commitment or agreement, and no sale or
other disposition of any right or privilege accruing to them, except in the
ordinary course of business consistent with past practice, and except as
otherwise provided herein.
(e) Not enter into, modify or extend any contract relating to
the Business, or engage in any activity or transaction, in either case not in
the ordinary course of business and in accordance with past practice; and not
enter into, terminate, modify or extend any contract material to the Business.
(f) Make no change in the compensation payable or to become
payable to any present or former director, employee, salesman, consultant or
other agent, except as required by existing contracts to which Seller is bound;
make no change in any existing, and enter into no new, arrangement or contract
relating to management, executive or clerical services or relating to the
sharing of administrative or other overhead or any management or supervisory
fee; establish or make no bonus, stock option, profit sharing, retirement or
other similar payment, plan or arrangement or institute any increase therein,
except as otherwise provided herein or one-time bonuses payable prior to the
Closing Date; and enter into no union contract and no employment agreement, or
agreement with any salesperson or sales agent or any franchise agreement,
independent dealer/distributor agreement or other contract or arrangement with
respect to the performance of services for the Business.
(g) Not sell, lease or dispose of, or allow any Lien to arise
upon, any of the Acquired Assets and not acquire or commit to acquire any
material capital assets except for fair market price, in the ordinary course of
business, consistent with prior practice, in arms-length transactions.
(h) Not pay, satisfy or discharge in any other way any account
payable, indebtedness, claim or liability of any kind, except for the payment of
liabilities reflected on the Balance Sheet at no more than the book amount
thereof and except for payments for inventory and supplies at fair market value
ordered in the ordinary course of business consistent with prior practice; and
not delay or accelerate the payment of any account payable or indebtedness
beyond the usual and customary period therefor or the legal maturity thereof.
(i) Not delay or accelerate collection of any note or
receivable beyond the usual and customary period therefor or the legal maturity
thereof.
(j) Not allow levels of raw materials, supplies,
work-in-process, or inventories to vary materially from the levels customarily
maintained in the Business.
(k) Except as set forth in Schedule 7.2(k), not create, incur
or assume, or agree to create, incur or assume, any indebtedness, or enter into
any capitalized lease obligation, other than that (i) incurred in the usual and
ordinary course of business, or (ii) incurred pursuant to existing contracts
disclosed in the Schedules hereto, in all cases not exceeding $25,000 in the
aggregate, excluding purchase orders entered into in the ordinary course of
business.
(l) Not enter into any contract for the purchase of real
property or exercise any option to extend or terminate any lease of real
property without notifying Purchaser in advance of a deadline therefor and
obtaining Purchaser's consent thereto.
(m) Pay all 1998 year-end bonuses to employees of Karlen and
make any 1998 contribution to any profit-sharing or other employee benefit plan
of Karlen prior to the Closing.
(n) Not make any agreement, commitment or arrangement to take
any action inconsistent with the obligations under, or prohibited by, the
foregoing Subsection 7.2.
7.3. Competing Transactions. Seller shall not take any action, directly
or indirectly, to negotiate, cause, promote, authorize or agree to any
transaction competing or interfering with any of the transactions contemplated
by this Agreement.
7.4. Best Efforts to Satisfy Conditions. Seller and Purchaser shall
each use its best efforts to cause the conditions to the obligations of the
other parties to be satisfied to the extent that the satisfaction of such
conditions is in its or his control, including obtaining any necessary consents,
authorizations, and approvals. Each of the parties hereto shall refrain from
taking any action, and shall notify the other parties promptly of any event,
occurrence or circumstances, that might render any of its representations and
warranties inaccurate as of the Closing Date.
7.5. Employment Agreement. Tim Drumhiller ("Drumhiller") and Purchaser
shall negotiate diligently and in good faith the terms of an Employment
Agreement in a form mutually agreeable to Drumhiller and Purchaser.
7.6. Taxes. Seller shall pay all of the sales taxes or transfer taxes
or fees payable as a direct result of the consummation of the transactions
contemplated hereby. Seller shall pay any income, recapture or similar tax that
becomes payable as a result of the payments made to Seller hereunder.
7.7. Confidentiality. All parties hereto shall keep in strict
confidence all information pertaining to the business of Seller and Purchaser as
well as the terms of the transactions contemplated hereby, except as the parties
hereto mutually agree and except as disclosure shall be required by law, in
which case, to the extent possible, the party required to make any such
disclosure shall provide notice thereof at least three business days prior to
such disclosure and shall work in good faith with the other party hereto to make
a mutually acceptable disclosure.
7.8 Bulk Sales. Purchaser hereby waives compliance by the Seller with
all provisions of the Michigan Uniform Commercial Code and other similar
statutes relating to the bulk transfer of assets because Seller has agreed to
indemnify Purchaser for any liability arising out of noncompliance therewith.
7.9. Product Liability Coverage. At all times following the Closing,
Purchaser shall maintain product liability and errors and omissions insurance
coverage (and shall pay all premiums and deductibles with respect thereto) for
all claims which may be made after the Closing (or which are not otherwise
covered by Seller's insurance policies in existence immediately prior to
Closing) with respect to the products of Seller and its predecessors, which
coverage is set forth in Schedule 7.9 hereof or shall be at least comparable in
all material respects (including amount thereof) to Purchaser's coverage in
effect on the Closing date with respect to the comparable products of Purchaser
and shall be placed with comparable or better carriers. The relevant policies
shall name Shareholders of Karlen, Karlen and Karlen's successors in interest as
named insureds. At Closing, Purchaser shall deliver copies of Purchaser's then
current insurance policies which provide the insurance coverage required under
this Section 7.9; thereafter, the Purchaser shall provide evidence of the
insurance coverage required under this Section 7.9 at least 10 business days
prior to the expiration of the policy or policies reflected in the last such
evidence of coverage.
7.10. [Omitted]
7.11. Registration of Intellectual Property. If any Intellectual
Property transferred pursuant hereto is in the process of registration or
patenting with the U.S. Patent and Trademark Office, the U.S. Copyright Office
or any similar federal, state or foreign authority, Seller shall, at the request
of Purchaser and at Purchaser's expense, assist Purchaser in pursuing and
securing any and all such registrations and patenting; provided that for a
period of six months after the Closing Date, Purchaser shall not be required to
compensate Seller for the assistance of any of Seller's full-time employees.
After such six-month period, Purchaser shall pay to Seller Seller's actual cost
of such employees.
7.12. Benefit of Contracts. (a) Seller shall use their best efforts,
subject to this Section 7.12, to secure all consents, approvals, novations and
authorizations from third parties (including a government or governmental unit)
as shall be required in order to enable Seller to effect the transactions
contemplated by this Agreement, and shall otherwise use all reasonable efforts
to cause the consummation of the transactions contemplated hereby in accordance
with the terms and conditions hereof. The foregoing provision or anything else
contained in this Agreement to the contrary notwithstanding, Seller has no
obligation to cause any union representing any of the employees of the Business
to negotiate or enter into a contract with Purchaser, nor is Seller obligated to
cause any of such employees to accept employment with Purchaser. Seller shall
not make any agreement, commitment or understanding adversely affecting the
Business as a condition of obtaining any such consents, approvals, novations and
authorizations, without the prior written consent of Purchaser.
(b) To the extent that any of the Acquired Assets are not
capable of being sold, assigned, transferred, delivered or subleased to
Purchaser, or to the extent that a transfer of the Acquired Assets would result
in a breach or a right to terminate or any other right adverse to the Business,
without the consent or waiver of any third person (including a government or
governmental unit), or if such sale, assignment, transfer, delivery or sublease
or attempted sale, assignment, transfer, delivery or sublease would constitute a
breach thereof or a violation of any law, decree, order, regulation or other
governmental edict, this Agreement shall not constitute or require a sale,
assignment, transfer, delivery or sublease thereof.
(c) Seller shall use all reasonable efforts, and Purchaser
shall cooperate with Seller, to obtain all necessary consents, waivers and
novations and to resolve the impediments to the sale, assignment, transfer,
delivery or subleases required by this Agreement and to obtain any other
consents, waivers and novations necessary to sell, transfer, assign, deliver and
convey to Purchaser any of the Acquired Assets; provided, however, that Seller
shall not be obligated to pay any consideration therefor to the party from whom
any such consent, waiver or novation is requested nor shall Seller be obligated
to incur any obligation as a secondary obligor or surety with respect to any
Contract in order to obtain any consent, waiver or novation, unless Purchaser
provides Seller with reasonable indemnification for such obligations in each
case.
(d) To the extent that the consents, waivers and novations
referred to in this Section 7.12 are not obtained by Seller, or until the
impediments to the sale, assignment, transfer, delivery or sublease referred to
herein are resolved, Seller shall provide, at the request of Purchaser, to
Purchaser the benefits of any Acquired Asset by any reasonable and lawful
arrangement that provides such benefits to Purchaser. In respect to such
Acquired Assets, Seller shall enforce, at the request of Purchaser, for the
account of Purchaser, through litigation or otherwise, at Purchaser's sole
expense, any rights of Seller arising from any Acquired Asset against any third
person (including a government or governmental unit), including the right to
elect to terminate in accordance with the terms thereof upon the advice of
Purchaser.
(e) To the extent that Purchaser is provided the benefits
pursuant to this Section 7.12 of any Acquired Asset, Purchaser shall perform for
the benefit of any third person (including a government or governmental unit),
the obligations of Seller thereunder or in connection therewith, but only to the
extent that such action by Purchaser would not result in any default thereunder
or in connection therewith, and if Purchaser shall fail to perform to the extent
required herein, Seller shall cease to be obligated under this Section 7.12 in
respect of the Acquired Asset that is the subject of such failure to perform.
7.13. Public Announcements. The parties hereto will consult with each
other before issuing any press release or otherwise making any public statements
with respect to the transactions contemplated hereunder and shall not issue any
such press release or make any such public statement prior to such consultation.
7.14. Trusts.
(a) From the Closing Date until fifteen (15) months after the
Closing Date, Sellers shall invest any funds released to the Sellers from the
Escrow Fund only in readily marketable assets, such as publicly traded assets.
During such period, upon investment or reinvestment of any such funds, the
Sellers shall provide notice to the Purchaser, specifying the investments in
which and/or the accounts where such funds are invested and the amounts so
invested.
(b) From the Closing Date until the end of the Survival Period
(defined in Secton 10.1 below), the aggregate net value of the assets of the
Lendell J. Williams Inter-Vivos Trust under a trust agreement dated September
15, 1992, the Karen A. Williams Inter-Vivos Trust under a trust agreement dated
September 15, 1992, Lendell J. Williams and Karen A. Williams Inter-Vivos Trust
for the Benefit of Lynette K. Drumhiller under a trust agreement dated December
22, 1992, and the Lendell J. Williams and Karen A. Williams Inter-Vivos Trust
for the Benefit of Lesley A. Forbes under a trust agreement dated December 22,
1992 (the "Trusts") shall not at any time be less than $3 million, and, from the
end of the Survival Period until the fifth anniversary of the Closing Date, the
aggregate net value of the assets of the Trusts shall not be less than $1
million.
(c) From the Closing Date until the fifth anniversary of the
Closing Date, on each anniversary of the Closing Date the trustees of the Trusts
shall provide Purchaser an affidavit stating that the aggregate net value of the
assets of the Trusts are not less than the applicable minimum amount set forth
in Section 7.14(a) above.
7.15. Guaranty. PTI Holding Inc., a Delaware corporation, ("PTI")
shall guaranty the obligations of the Purchaser hereunder.
Section 8. Conditions of Obligations of Purchaser.
The obligations of Purchaser to consummate the purchase and sale under this
Agreement are subject to the satisfaction of the following conditions, each of
which may be waived by Purchaser. Any such waiver by Purchaser shall not reduce
or impair Purchaser's right to seek indemnification hereunder in respect of the
failure to meet the condition that shall have been waived.
8.1. Representations and Warranties; Performance of Obligations.
(a) The representations and warranties of Seller set forth in
Section 5 hereof and in all agreements, documents and instruments executed and
delivered pursuant hereto or in connection with the Closing shall have been on
the date hereof and shall be on the Closing Date true and correct in all
material respects as though made on and as of the Closing Date.
(b) Seller shall have performed the agreements and obligations
necessary to be performed by them under this Agreement prior to the Closing
Date. Without limiting the generality of the foregoing, Seller shall have
obtained all consents, waivers, approvals and authorizations or have made
reasonable arrangements in accordance with Section 7.12 hereof, and shall have
given all notices to third parties, and discharged in full any Liens, necessary
so that upon acquisition of the Acquired Assets, Purchaser shall have good and
marketable title to all of the Acquired Assets and all right, title, interest
and claims of Seller in, to, relating to or arising under the Acquired Assets
free and clear of any Liens except as set forth on Schedule 5.5.
8.2. Transfer of Assets. Seller shall have delivered to Purchaser a
Bill of Sale and Assignment and other assignment forms as Purchaser shall
reasonably request for the transfer of the Acquired Assets, together with any
bulk sale tax return due in connection therewith.
8.3. Seller's Good-standing. Seller shall have provided the Purchaser
with a copy of a short-form good-standing certificate for Seller from the state
of its organization, together with a copy of the minutes of its meeting of the
Shareholders of Karlen approving this Agreement, each of the documents referred
to herein and the consummation of the transactions contemplated hereby.
8.4. Noncompete Agreement. Karlen, Lendell Manufacturing, Inc., a
Michigan corporation, Tim Drumhiller, Lendell J. Williams, Lynette Drumhiller,
Lesley Williams, and Karen A. Williams shalll have executed and delivered to
Purchaser a Noncompete Agreement in the form of Exhibit B.
8.5. Change of Corporate Name. Seller shall have delivered to Purchaser
an executed amendment to Seller's articles of incorporation changing the name of
Seller to a name that is not similar to Karlen Manufacturing, Inc., together
with a check for the filing fees to be incurred therewith.
8.6. Requirements Agreement. Lendell Manufacturing, Inc., a Michigan
corporation ("LMI"), shall have entered into a Requirements Agreement in the
form of Exhibit D hereto with Purchaser, for LMI to supply to Purchaser, during
the three-year period after the Closing Date, the non-latex polyurethane
cosmetic grade foam required by Purchaser in the business acquired from Seller.
PTI shall guarantee the obligations of Purchaser under such Requirements
Agreement.
8.7. Business Premises Agreement. LJW Trustee shall have entered into a
Lease Agreement in the form of Exhibit H hereto with Purchaser, for Purchaser to
lease, during the three-year period after the Closing Date, the building at 5401
South Graham Road, St. Charles, Michigan. PTI shall guarantee the obligations of
Purchaser under such Lease Agreement.
8.8. Employment Agreement. Prior to January 22, 1999, Drumhiller shall
have executed and delivered to Purchaser an Employment Agreement contingent on
the closing of the transactions contemplated hereunder and in a form mutually
agreeable to Drumhiller and Purchaser.
8.9. Other Matters. Seller shall have furnished, or caused to be
furnished, to Purchaser, in form and substance satisfactory to Purchaser,
evidence as Purchaser may have reasonably requested as to the satisfaction of
the conditions contained in this Section 8, and an opinion of Seller's counsel
in the form of Exhibit E hereto.
Section 9. Conditions of Obligations of Seller.
The obligations of Seller to consummate the sale and purchase under this
Agreement are subject to the satisfaction of the following conditions, each of
which may be waived by Seller. Any such waiver by Seller shall not reduce or
impair Seller's right to seek indemnification hereunder in respect of the
failure to meet the condition that shall have been waived.
9.1. Representations and Warranties; Performance of Obligations.
(a) The representations and warranties of Purchaser set forth
in Section 6 hereof and in all agreements, documents and instruments executed
and delivered pursuant hereto or in connection with the Closing shall have been
and be true and correct in all respects at all times commencing with the date of
this Agreement and ending with and on the Closing Date as though made on and as
of the Closing Date.
(b) Purchaser shall have performed the agreements and
obligations necessary to be performed by it under this Agreement prior to the
Closing Date.
9.2. Purchase Price. Purchaser shall have delivered to Seller the
Purchase Price to be delivered on the Closing Date pursuant to Section 3 hereof.
9.3. Purchaser's Good-standing. Purchaser shall have provided Seller
with a copy of a short-form good-standing certificate of the state of its
incorporation, together with a copy of its charter and by-laws, as amended, and
the minutes of its board meeting (or, if applicable, executed consent of its
directors) approving this Agreement, each of the documents referred to herein
and the consummation of the transactions contemplated hereby.
9.4. Requirements Agreement. Purchaser shall have entered into a
Requirements Agreement in the form of Exhibit D hereto with LMI, for LMI to
supply to Purchaser, during the three-year period after the Closing Date, the
non-latex polyurethane cosmetic grade foam required by Purchaser in the business
acquired from Seller. PTI shall guarantee the obligations of Purchaser under
such Requirements Agreement.
9.5. Business Premises Lease Agreement. Purchaser shall have entered
into a Lease Agreement in the form of Exhibit H hereto with LJW Trustee , for
Purchaser to lease, during the three-year period after the Closing Date, the
building at 5401 South Graham Road, St. Charles, Michigan. PTI shall guarantee
the obligations of Purchaser under such Lease Agreement.
9.6. Employment Agreement. Prior to January 22, 1999, Purchaser shall
have executed and delivered to Drumhiller an Employment Agreement contingent on
the closing of the transactions contemplated hereunder and in a form mutually
agreeable to Drumhiller and Purchaser.
9.7. Other Matters. Purchaser shall have furnished, or caused to be
furnished, to Seller, in form and substance satisfactory to Seller, evidence as
Seller may have reasonably requested as to the satisfaction of the conditions
contained in this Section 9, and an opinion of Purchaser's counsel in the form
of Exhibit F hereto.
Section 10. Survival of Representations and Warranties; Indemnifications.
10.1. Survival. The representations, warranties and agreements made in
Sections 5 and 6 hereof and in the Schedules hereto by Purchaser and Seller
shall remain operative and in full force as of the date made until April 28,
2000, except with respect to Sections 5.2, 5.3, 5.5(a), 5.10, with respect to
tax matters, as to which such representations and warranties shall continue to
survive for a period of the applicable statute of limitations for breach of
contract or tax claims (as applicable, the "Survival Period"), as appropriate,
regardless of any investigation made by or on behalf of any party.
10.2. Indemnification by Seller. Seller shall defend, hold harmless and
indemnify Purchaser, its affiliates, successors, shareholders, directors,
officers, successors, and assigns from any and all losses, liabilities,
proceedings, claims, settlements, judgments, fines, assessments, damages and
expenses (including reasonable attorneys' fees and investigation and litigation
expenses, whether arising out of a third party claim or relating to recovering
indemnifiable damages) (collectively, the "indemnifiable damages") that
Purchaser may suffer or incur in whole or in part by reason of, or which may
arise out of: (i) the inaccuracy or breach of any of the representations and
warranties of Seller in this Agreement; (ii) the breach by Seller of any of the
covenants or warranties herein; and (iii) any claim for payment of any Retained
Liability (hereinafter defined).This Section 10.2 shall not apply with respect
to any claim asserted after the applicable survival of representation and
warranty time periods set forth in Section 10.1 hereof.
10.3. Indemnification by Purchaser. Purchaser shall defend, hold
harmless and indemnify Seller, its affiliates, successors, shareholders,
directors, officers, successors, and assigns from any and all "indemnifiable
damages" that Seller may suffer or incur by reason of: (i) the inaccuracy or
breach of any of the representations and warranties of Purchaser herein; (ii)
the breach by Purchaser of any of the covenants or warranties herein; (iii) any
claim for payment of any liability or performance of any obligation designated
as assumed by Purchaser in Section 10.4(a); or (iv) contracts referred to in
Section 7.12(e) hereof on which Purchaser defaults. This Section 10.3 shall not
apply with respect to any claim asserted after the applicable survival of
representation and warranty time periods set forth in Section 10.1 hereof.
10.4. Assumed and Retained Liabilities.
(a) Purchaser shall assume on the Closing Date and, effective
as of the Closing and contingent upon the occurrence of the Closing, shall
discharge in accordance with its terms (subject to any defenses or claimed
offsets asserted in good faith against the obligee to whom such liabilities,
payments and obligations are owed), subject to any contrary provision herein,
the liabilities, and only the liabilities, set forth in this Section 10.4(a)
(the "Assumed Liabilities"):
(i) except for those liabilities not assumed by
Purchaser and for which Seller has retained responsibility as described
in this Section 10.4 below, the accrued liabilities of the Business to
the extent of the amount thereof correctly stated on the Balance Sheet,
to the extent not paid, performed, satisfied, discharged or released
prior to the Effective Time of the Closing;
(ii) liabilities of the Business incurred on or prior
to the Effective Time of the Closing in the amounts included in the
Closing Balance Sheet (except for those liabilities not assumed by
Purchaser and for which Seller has retained responsibility as described
in this Section 10.4 below) and subsequent to the date of the Balance
Sheet incurred in the ordinary course of business in arms' length
transactions with unrelated parties if such liabilities are consistent
with past practices of the Seller and expressly authorized hereunder,
to the extent not paid, performed, satisfied, discharged or released
prior to the Effective Time of the Closing;
(iii) the continuing obligations arising or
continuing subsequent to the Effective Time of the Closing under the
contracts:
(A) listed on Schedule 1.1(ii) hereto; or
(B) relating to the Business and entered into or made by the
Seller in the ordinary course of business consistent with past
practices of the Seller and which, pursuant to Section 5.15 hereof, are
not material enough to be listed on Schedule 1.1(ii) hereto or arise
from open purchase or sale orders or shall have been entered into after
the date hereof as expressly permitted hereunder;
(iv) liabilities with respect to the Employee Benefit
Plans (including, without limitation, all fringe benefits, bonus and
profit sharing plans, pension, health, retirement, severance, vacation,
sick day and personal day) owing to an employee of Seller at the
Closing Date who shall have been offered employment by Purchaser,
accepted such offer and not have resigned voluntarily prior to the
first day of the first month commencing a least 90 days after the
Closing Date;
(v) liabilities of the Business resulting from facts
and circumstances occurring and arising after the Effective Time of the
Closing.
(b) Seller shall pay for, perform, satisfy or obtain a
discharge or release from, promptly as they shall become due, all of the
Retained Liabilities whether or not such Retained Liabilities are included in
the Closing Balance Sheet. "Retained Liabilities" means all liabilities,
payments or obligations of Seller (matured or unmatured, absolute, contingent,
known or unknown, or otherwise) or otherwise related to the Business, except the
assumed liabilities set forth in Section 10(a) hereof, and shall include,
without limitation, regardless of whether any of the following liabilities may
be disclosed to Purchaser pursuant to Section 5 hereof or otherwise, or whether
Purchaser may have knowledge of the same, all of the following liabilities,
except to the extent reserved for on the Closing Balance Sheet:
(i) liabilities for federal, state, local or foreign
income, excise, sales, unemployment, employer and employee withholding,
social security, occupation, franchise or customs taxes, duties or
charges (hereinafter referred to collectively as "Taxes" or separately
as a "Tax") levied, assessed or imposed in any manner upon Seller that
accrue or are attributable to any event or occurrence transpiring, or
any tax periods or portions thereof ending, on or before the Closing
Date, or any interest, penalties or additions to any such Tax with
respect thereto;
(ii) liabilities for any civil or criminal penalties
(including interest), or any payments in the nature thereof, imposed
upon, or sought to be imposed upon Seller or Purchaser (or any of the
officers, directors or shareholders of Purchaser), on account of any
fraudulent, criminal, intentional, willful or negligent act or
omission, or any act or omission of Seller or any of the directors,
officers, employees or agents of Seller occurring prior to the Closing
Date (except negligence to the extent resulting in a product liability
claim);
(iii) any claim by any customer for return of
inventory shown by Purchaser to have been manufactured, distributed or
sold by Seller prior to the Closing Date which cannot be resold by
Purchaser in the ordinary course of business, any claim by any customer
for replacement or repair of goods or parts shown by Purchaser to have
been manufactured, distributed or sold by Seller prior to the Closing
Date, any liability for period-end rebates to the extent such rebates
are allocable to sales made prior to the Closing Date, or any liability
for co-op advertising placed or purchased or relating to sales made
prior to the Closing Date;
(iv) liabilities with respect to the Employee Benefit
Plans (including, without limitation, all fringe benefits, bonus and
profit sharing plans, pension, health, retirement, survivor and
disability benefits, severance, vacation, sick day and personal day)
owing to any employee of Seller enaged in the Business at the Closing
Date except as set forth in Section 10(a)(iv), including, without
limitation, all liability to any such employee who (A) shall not have
been offered employment by Purchaser, (B) shall not have accepted such
offer, or (C) shall have resigned voluntarily prior to the first day of
the first month commencing a least 90 days after the Closing Date, and
all liabilities for Employee Benefit Plans to the extent accrued for
service prior to the Closing Date or to the extent not included in
Purchaser's Comparable Wage Package as offered to such employee;
(v) all liabilities arising out of worker's
compensation claims resulting from any injury that occurred or occurs
before the Closing Date;
(vi) all liabilities owed to any employee, consultant
or independent contractor who is not retained by Purchaser after
Closing or who is retained but shall have resigned voluntarily prior to
the first day of the first month commencing a least 90 days after the
Closing Date, accruing prior to the Closing Date as if such employee
resigned on the Closing Date;
(vii) any claim based on the intentional conduct of
Seller in design or manufacture of, or any other product liability
claim relating to, any product shown by Purchaser to have
beenmanufactured, distributed or sold by Seller or any service provided
by Seller prior to the Closing Date;
(viii) any present or potential obligation to
remediate or take other action or any present or potential liability
(including with respect to past activities occurring prior to the
Closing Date), whether criminal or civil, and whether to any
governmental entity or private party, under, any statute, law,
regulation, ordinance or Governmental Permit or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling, emission, discharge, release or
threatened release into the environment, of any pollutant, contaminant,
hazardous waste, hazardous substance, toxic substance or toxic waste
that are related to facts, events, circumstances or conditions
(including without limitation the generation, treatment, transport,
storage, emission, disposal, release or other placement, deposit or
location of any substance) existing or occurring on or prior to the
Closing Date, whether or not based on a change of law unless adopted
more than five years after the Closing Date; provided, however, that to
the extent that such liability is based predominantly upon a practice
continued by Purchaser after the Closing Date, Purchaser shall be
liable therefor;
(ix) any present or potential obligation to remediate
or take other action or any present or potential liability relating to
any underground storage tanks located in or under any real property
leased, owned or used by Seller in connection with the Business
(including any predecessors) on or prior to the Closing Date;
(x) any present or potential obligation to remediate
or take other action or any present or potential liability relating to
any leaks, spills or discharges of any petroleum product or other
hazardous or non-biodegradable substance (i) onto the land of any
property leased, owned or used by Seller in connection with the
Business, or (ii) into any waterway or body of water or any sewerage or
septic system that is part of, adjacent to or connected with any such
property or (iii) otherwise in connection with the Business (including
any predecessors), in each case of clauses (i), (ii) and (iii) on or
prior to the Closing Date;
(xi) any present or potential obligation to remediate
or take other action or any present or potential liability relating to
any other environmental degradation, damage, pollution or contamination
of any property leased, owned or used by Seller in connection with the
Business (including any predecessors) on or prior to the Closing Date;
(xii) any liabilities for federal, state, local or
foreign taxes levied, assessed or imposed in any manner that accrue or
are attributable to any increase in the value of assets shown on the
books of Seller, resulting from a correct restatement of assets in
accordance with generally accepted accounting principles and applicable
tax regulations, including, without limitation, based upon a physical
inventory performed on or about December 31, 1998; and
(xiii) any liability under any Contract not assigned
to Purchaser or under which a default shall have occurred or an
indemnification obligation shall have arisen prior to or upon the
transfer of the Acquired Assets and as to which, after the Closing,
Purchaser shall not have received the benefit under Section 7.12
hereof.
10.5. Notice and Right to Defend Third Party Claims and
Perform Remediation.
(a) Promptly upon receipt of notice of any third party claim,
demand or assessment or the commencement of any suit, action or proceeding in
respect of which indemnity may be sought on account of an indemnity agreement
contained in this Section 10, the party seeking indemnification (the
"Indemnitee") shall notify in writing, within the Survival Period and within
sufficient time to respond to such claim or answer or otherwise plead in such
action, the party from whom indemnification is sought (the "Indemnitor")
thereof; provided, however, that failure or delay to supply such notice shall
not relieve Indemnitor of their indemnification obligation hereunder except to
the extent that Indemnitor is actually prejudiced by such failure or delay;
provided further that Indemnitee must provide notice to Indemnitor within the
Survival Period and no later than 90 days after the service of written notice or
a summons and complaint alleging any such third party claim.
(b) In case any claim, demand or assessment is asserted or
suit, action or proceeding commenced against an Indemnitee (collectively a
"Claim") and Indemnitee notifies the Indemnitor in accordance with this
Agreement of the commencement thereof, if the Indemnitor acknowledges its
indemnification obligations therefor hereunder, then, the Indemnitor shall be
entitled assume the defense, conduct or settlement thereof. The Indemnitor shall
be liable to the Indemnitee for any legal or other expenses subsequently
incurred by the Indemnitee in connection with the defense, conduct or settlement
thereof. The Indemnitee and the Indemnitor will cooperate in connection with any
such Claim and make personnel, books and records relevant to the Claim available
at Indemnitor's expense.
(c) Anything to the contrary herein notwithstanding, prior to
finally settling any such Claim, the Indemnitor shall give to the Indemnitee
prompt notice of its intention to settle same and the terms of such proposed
settlement and acknowledging its indemnification responsibility therefor
hereunder. If the Indemnitee shall object to such proposed settlement within 10
business days, then the Indemnitee shall thereafter, at its sole expense, assume
the control and defense of such claim, suit, action, investigation or
proceeding. If the Indemnitee does not object to the terms of the proposed
settlement within the aforesaid l0-day period, then the Indemnitor shall have
the right to consummate such proposed settlement upon the terms set forth in the
aforesaid notice. If Indemnitor acknowledges in writing its obligation to
indemnify Indemnitee with respect to a Claim, then Indemnitee shall not settle
such Claim without Indemnitor's prior written consent.
(d) With respect to any claims for indemnification brought
because of breaches of the representations or warranties contained in Section
5.18 hereof, Seller's obligations under this Section 10 are conditioned upon
Seller's having the opportunity to deal and to negotiate with the cognizant
governmental agency(ies) in order to settle all matters giving rise to such
claims. Purchaser shall provide Seller with written notification immediately
upon (i) the imposition on Purchaser of any affirmative obligation by, or (ii)
the receipt by Purchaser of any request for information from, in the case of
either (i) or (ii), any governmental agency and relating to the use, operation
or ownership of the real property owned or leased by Seller or the operation of
the Business prior to the Closing Date, and Purchaser shall afford Seller the
opportunity to respond to any such matter. Purchaser shall use reasonable
efforts to notify Seller at least ten (10) business days in advance of any event
at which physical samples are reasonably expected to be taken, and Purchaser
shall permit Seller to, and shall use reasonable efforts to obtain any
authorization from any person or governmental agency necessary to permit Seller
to, take split or duplicate samples. Where remediation or corrective action is
required to be taken pursuant to this Section 10 on any of the real property
included in the Acquired Assets, Seller shall have the opportunity to perform
such remediation or corrective action, and if Seller acknowledges Seller's full
obligation therefor, Purchaser grants to Seller a continuing right of reasonable
access to such property for the purposes of Seller's undertaking such
remediation or corrective action. Purchaser agrees to obtain a similar right of
access from Purchaser's tenants if required. Furthermore, Purchaser shall
reasonably cooperate with Seller towards effecting such remediation or
corrective action and, in such case, shall provide Seller with copies of any
studies, analytical test results or reports in Purchaser's possession with
respect to the environmental condition of the Acquired Assets. All remediation
or corrective action by Seller shall be done so as not to interfere with the
operation of Purchaser's business.
10.6. Payment of Amounts Due. The amount of any indemnifiable damages
conceded or determined to be due from Seller to Purchaser, pursuant to any of
the provisions of this Section 10, shall be paid to Purchaser within five (5)
business days from the date so conceded or determined first out of the escrow
fund established pursuant to Section 3.2(d) hereof and the Purchase Price Escrow
Agreement, and when such fund is exhausted, by Seller. The amount of any
indemnifiable damages conceded or determined to be due from Purchaser to Seller,
pursuant to any of the provisions of this Section 10, shall be paid to Seller by
Purchaser within five (5) business days from the date so conceded or determined.
The amount of any indemnifiable damages due pursuant to any of the provisions of
this Section 10, if not paid may be offset against any amounts due from
Indemnitee to the Indemnitor.
10.7. Basket. Any other provision of this Agreement to the contrary
notwithstanding, the liabilities of the parties under this Agreement shall be
limited in that no party shall have any liability to the other party hereunder
that arises from any non-wilful and non-fraudulent default, breach of warranty,
misrepresentation, omission or failure, including any liability pursuant to
Section 10.2 or 10.3 hereof, unless the aggregate amount of all indemnifiable
damages incurred by the indemnitee arising from all such innocent breaches,
misrepresentations, omissions and failures by the indemnitor, exceeds $60,000,
and in such event, the indemnitor shall be required to pay only the amount by
which such aggregate indemnifiable damages exceed $60,000, except that such
limit shall not be applicable with respect to (i) the adjustment of the Purchase
Price pursuant to Section 3; (ii) the amount of the assets and liabilities of
the Seller listed on the Balance Sheet; or (iii) claims based on Sections 5.2,
5.3, 5.4, 5.5(a), 5.10, 5.13, 5.15(a), 6.1 and Schedules provided pursuant to
such sections nor shall any of such claims be counted in satisfying such $60,000
basket.
10.8 Exclusive Remedy. The indemnification remedies provided in this
Section 10 shall constitute the exclusive remedy for any and all losses,
damages, liabilities, claims, costs, fees and expenses against any party for any
claim based upon a breach or default under this Agreement except for (i) any
remedy on termination of this Agreement under Section 11; and (ii) the
limitations set forth in this Section 10 shall not limit the remedies available
under any document or agreement signed at Closing which includes covenants or
agreements to be performed or fulfilled after the closing,
Section 11. Termination and Liquidated Damages.
(a) This Agreement may be terminated by Purchaser if: (i)
Seller defaults in its obligations under this Agreement, fails to cure such
default for ten (10) business days after notice thereof by Purchaser, and as a
result thereof Purchaser is unable to acquire the Acquired Assets on the terms
set forth herein and Purchaser, at the time of Seller's default, is not in
default in its obligations under this Agreement; or (ii) any condition in
Section 8 is not satisfied by the Closing Date, provided, however, that all
conditions of Section 9, not waived by Seller, are satisfied by Purchaser by the
later of the Closing Date or such further grace period provided under Section
11(b). In the event Purchaser wishes to terminate this Agreement under Section
11(a)(ii), Purchaser shall give to Seller written notice of the condition that
Purchaser believes is not satisfied as of the Closing Date, and Seller shall
have ten (10) business days in which to satisfy such condition or to demonstrate
that such condition can be satisfied not more than thirty (30) days after such
notice. If Seller, under Section 11(a)(i), does not cure such default or, under
Section 11(a)(ii), does not satisfy such condition within such 10-day period or
make such demonstration within such 10-day period and thereafter satisfy such
condition within such 30-day period, then the Agreement may be terminated by
Purchaser immediately upon written notice.
(b) This Agreement may be terminated by Seller if: (i)
Purchaser defaults in its obligations under this Agreement, fails to cure such
default for ten (10) business days after notice thereof by Seller, and as a
result thereof Seller is unable to sell the Acquired Assets on the terms set
forth herein and Seller, at the time of Purchaser's default, is not in default
in its obligations under this Agreement; or (ii) any condition of Section 9 is
not satisfied by Purchaser by the Closing Date, provided, however, that all
conditions of Section 8, not waived by Purchaser, are satisfied by Seller by the
later of the Closing Date or such further grace period provided under Section
11(a). In the event Seller wishes to terminate this Agreement under this Section
11(b)(ii), Seller shall give to Purchaser written notice of the condition that
Seller believes is not satisfied as of the Closing Date, and Purchaser shall
have ten (10) business days in which to satisfy such condition or to demonstrate
that such condition can be satisfied not more than thirty (30) days after such
notice. If Purchaser, under Section 11(b)(i) above, does not cure such default
or, under Section 11(b)(ii), does not satisfy such condition within such 10-day
period or make such demonstration within such 10-day period and thereafter
satisfy such condition within such 30-day period, then the Agreement may be
terminated by Seller immediately upon written notice. In the absence of a Force
Majeur Event, if the transactions contemplated under this Agreement are not
consummated prior to the end of the day that is 45 days after the date hereof,
then this Agreement may be terminated by Seller immediately upon written notice;
provided, however, that all conditions of Section 8, not waived by Purchaser,
are satisfied by Seller prior to the end of the day that is 45 days after the
date hereof and such conditions remain satisfied through the end of such day.
(c) Notwithstanding any other provision of this Agreement,
this Agreement may be terminated at any time by mutual written agreement of
Purchaser and Seller.
(d) If Purchaser terminates this Agreement for any reason
other than as provided for in Sections 11(a) or 11(c) or if Seller terminates
this Agreement pursuant to Section 11(b), the Seller shall be entitled to
liquidated damages of $225,000, the parties hereto acknowledging that such
damages will be hard to determine and that such amount is a reasonable estimate
thereof.
(e) If Purchaser terminates this Agreement pursuant to Section
11(a), the Seller shall pay (i) the Purchaser's legal fees and other costs and
expenses with respect to the negotiation, execution and the delivery of this
Agreement and the consummation of the transactions hereunder; (ii) any amounts
reasonably expended or incurred by Purchaser in collecting any amount due under
Section 11(e)(i), including, without limitation, reasonable attorneys' fees and
costs, whether or not any legal action is instituted in connection therewith;
and (iii) if the Seller shall sell outside of the ordinary course of business
all or a substantial portion of the Acquired Assets or all or a substantial
portion of the equity interests of Seller are sold by merger, stock sale or
otherwise for consideration having a value greater than the Purchase Price (the
"Higher Sale Price") to any other party in any transaction, occurring within 12
months after the Closing Date, an amount equal to the Higher Sale Price less the
Purchase Price; provided, however, that Seller shall not be liable to Purchaser
for any amounts due under Section 11(e)(i) or 11(e)(ii) in excess of $200,000.
The calculation of the Higher Sale Price shall include all consideration
delivered directly or indirectly to or for the benefit of any Seller including
any assumption of liability not contemplated to be assumed by Purchaser
hereunder.
(f) If this Agreement is terminated under Section 11(d), the
Deposit Agent shall release the Deposits and any interest thereon to the Seller
pursuant to the terms of the Letter of Intent by and among the Seller and the
Purchaser in the form attached hereto as Exhibit G-1, as amended, (the "Letter
of Intent") and/or a Deposit Escrow Agreement, by and among the Seller and the
Purchaser in the form attached hereto as Exhibit G-2 (the "Deposit Escrow
Agreement") and the amount released to the Seller pursuant to this Section 11(f)
shall be the liquidated damages due the Seller under Section 11(d).
(g) If this Agreement is terminated in any manner except
pursuant to Section 11(d), the Deposit Agent shall return the Deposits and any
interest thereon to the Purchaser, pursuant to the terms of the Letter of Intent
and/or the Deposit Escrow Agreement, and the amount released to the Purchaser
pursuant to this Section 11(g) shall not be deducted from any liquidated damages
due the Purchaser under Section 11(e).
Section 12. Further Actions.
From time to time, as and when requested by Purchaser, Seller shall execute and
deliver such documents and instruments and shall take such further or other
actions as Purchaser may reasonably deem necessary to carry out the intent and
purposes of this Agreement, to convey, transfer, assign and deliver to
Purchaser, and its successors and assigns, the Acquired Assets, and to vest in
the Purchaser all right, title and interest in and to Acquired Assets free and
clear of Liens except as described in Schedule 5.5 (or to evidence any of the
foregoing) and to consummate and give effect to the other transactions
contemplated hereby.
Section 13. Broker's Fees.
Purchaser shall pay any broker's or other fee due to Woodbridge Group, Inc. in
regard of the transactions hereunder. Each of Seller and Purchaser represents
that it has not used or retained any other broker or finder in connection with
the transactions contemplated hereby. Each of the parties hereto (the
"Indemnifier") shall indemnify and hold harmless the other from any claim for
broker's or other fees claimed by any third party to have been incurred on
behalf of the Indemnifier.
Section 14. Expenses.
Except as otherwise specifically provided herein, each of Seller and Purchaser
shall bear its own legal fees and other costs and expenses with respect to the
negotiation, execution and the delivery of this Agreement and the consummation
of the transactions hereunder, and the Acquired Assets shall not be reduced or
impaired by the payment or accrual of any such costs and expenses of Seller. Any
such costs and expenses of Seller arising out of this transaction shall be paid
by Shareholders of Karlen or reflected on the Closing Balance Sheet.
Section 15. Entire Agreement.
This Agreement, which includes the Schedules and Exhibits hereto and the other
documents, agreements and instruments executed and delivered pursuant to or in
connection with this Agreement, contains the entire agreement between Seller and
Purchaser with respect to the transactions contemplated by this Agreement and
supersedes all prior arrangements or understandings with respect thereto,
whether written or oral.
Section 16. Construction.
(a) The descriptive headings of this Agreement are for
convenience only and shall not control or affect the meaning or construction of
any provision of this Agreement.
(b) Any representation or warranty made to the knowledge of
any parties hereto, or as to what any such party is aware of, or statements of
similar purport, shall mean that such party has made a reasonable and diligent
investigation of the facts in connection therewith and is making such
representation or warranty based upon the results of such investigation.
(c) Each of the parties to this Agreement participated in the
drafting of this Agreement and the interpretation of any ambiguity contained in
this Agreement will not be affected by the claim that a particular party drafted
any provision hereof.
(d) Any pronoun herein shall include all genders and/or the
plural or singular as appropriate from the context.
Section 17. Notices.
All notices or other communications which are required or permitted hereunder
shall be in writing and sufficient when delivered personally or telecopied by
confirmed facsimile, or the day signed for or rejected by addressee after
mailing by registered or certified mail, return receipt requested, or the next
business day if sent by nationally recognized overnight courier providing for a
return receipt, in each case postage prepaid, addressed as follows:
If to Purchaser:
Flents Products Co., Inc.
1 Executive Boulevard
Yonkers, NY 10701
Facsimile: (914) 423-9610
with a copy to:
Akabas & Cohen
488 Madison Avenue, 11th Floor
New York, NY 10022
Attn: Seth Akabas, Esq.
Facsimile: (212) 308-8582
If to Seller:
Mr. Lendell J. Williams
Lendell Manufacturing, Inc.
5301 South Graham Road
St. Charles, MI 48655
Facsimile: (517) 865-8118
with a copy to:
Currie Kendall Polasky Meisel PLC
141 Harrow Lane
Saginaw, MI 48603-6093
Attn: David J. Kolat, Esq.
Facsimile: (517) 793-6597
Any party may by notice change the address to which notice or other
communications to it are to be delivered or mailed.
Section 18. Governing Law.
This Agreement shall be governed by and construed in accordance with the laws of
the State of Michigan applicable to contracts entered into, executed and to be
performed wholly in such state, and the venue for any action with respect hereto
shall be Detroit, Michigan. Each of the parties hereto consents to the
jurisdiction of the courts of the State of Michigan and agrees not to bring any
action in regard of this Agreement or the transactions hereunder in any other
jurisdiction.
Section 19. Assignability.
This Agreement shall not be assignable otherwise than by operation of law by any
party hereto without the prior written consent of the other parties, and any
purported assignment without such prior written consent shall be void, except
that Purchaser may assign this agreement to a corporation controlling,
controlled by or under common control with Purchaser.
Section 20. Waivers and Amendments.
Any waiver of any term or condition of this Agreement, or any amendment or
supplementation of this Agreement, shall be effective only if in writing
executed by the party against whom such waiver, amendment or supplementation is
sought to be charged. A waiver of any breach or failure to enforce any of the
terms or conditions of this Agreement shall not in any way affect, limit or
waive a party's rights hereunder at any time to enforce strict compliance
thereafter with every term or condition of this Agreement.
Section 21. Third Party Rights.
Any other provision of this Agreement to the contrary notwithstanding, this
Agreement shall not create benefits for any third party, including, without
limitation, any employees of Seller or Purchaser.
Section 22. Illegalities.
In the event that any provision contained in this Agreement shall be determined
to be invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and the remaining provisions of this Agreement shall not, at the
election of the party for whose benefit the provision exists, be in any way
impaired.
Section 23. Counterparts.
This Agreement may be executed in multiple counterparts all of which taken
together shall constitute one and the same instrument.
Section 24. Arbitration.
Any controversy, dispute or claim arising under or relating to the provisions of
this Agreement, or the breach thereof, shall be determined by arbitration in
Detroit, Michigan in accordance with the Commercial Arbitration Rules of the
American Arbitration Association ("AAA") then in effect, except that the
arbitrator shall be required to set forth in reasonable detail the basis for his
determination as well as the method of calculating any monetary award. However,
where the parties hereto agree on alternate dispute resolution proceedings,
utilization of the facilities of the AAA shall not be required. The decision and
award in any such arbitration proceeding shall be binding and final on the
parties, and judgment upon the award rendered by the arbitrator(s) may be
entered in any court of competent jurisdiction.
IN WITNESS WHEREOF, each of the undersigned corporations has caused
this Agreement to be executed by its duly authorized officer, and the
Shareholders of Karlen have executed this Agreement, as of the date first above
written.
FLENTS PRODUCTS CO., INC. KARLEN MANUFACTURING, INC.
By: /s/ Meredith Birrittella By: /s/ Tim Drumhiller
Name: Meredith Birrittella Name: Tim Drumhiller
Title: C.E.O. Title: President
/s/ Lendell J. Williams
LENDELL J. WILLIAMS, AS TRUSTEE FOR THE
LENDELL J. WILLIAMS INTER-VIVOS TRUST
UNDER A TRUST AGREEMENT DATED SEPTEMBER 15, 1992
/s/ Karen A. Williams
KAREN A. WILLIAMS, AS TRUSTEE FOR THE
KAREN A. WILLIAMS INTER-VIVOS TRUST
UNDER A TRUST AGREEMENT DATED SEPTEMBER 15, 1992
/s/ Roland G. Niederstadt
ROLAND G. NIEDERSTADT, AS TRUSTEE FOR THE
LENDELL J. WILLIAMS AND KAREN A. WILLIAMS
INTER-VIVOS TRUST FOR THE BENEFIT OF
LYNETTE K. DRUMHILLER
UNDER A TRUST AGREEMENT DATED DECEMBER 22, 1992
/s/ Roland G. Niederstadt
ROLAND G. NIEDERSTADT, AS TRUSTEE FOR THE
LENDELL J. WILLIAMS AND KAREN A. WILLIAMS
INTER-VIVOS TRUST FOR THE BENEFIT OF
LESLEY A. FORBES
UNDER A TRUST AGREEMENT DATED DECEMBER 22, 1992
Agreed as to Sections 7.15, 9.4, and 9.5:
PTI HOLDING, INC.
By: /s/ Meredith Birrittella
Name: Meredith Birrittella
Title: C.E.O.
Agreed as to Section 7.5, and 8.4 and 8.8:
/s/ Tim Drumhiller
TIM DRUMHILLER
<PAGE>
AMENDMENT TO
ASSET PURCHASE AGREEMENT
AMENDMENT dated April 14, 1999 by and among Karlen Manufacturing, Inc.,
a Michigan corporation ("Karlen"); Lendell J. Williams, as trustee for the
Lendell J. Williams Inter-Vivos Trust under a trust agreement dated September
15, 1992 ("LJW Trustee"); Karen A. Williams, as trustee for the Karen A.
Williams Inter-Vivos Trust under a trust agreement dated September 15, 1992
("KAW Trustee"); Roland G. Niederstadt, as trustee for the Lendell J. Williams
and Karen A. Williams Inter-Vivos Trust for the Benefit of Lynette K. Drumhiller
under a trust agreement dated December 22, 1992 ("LKD Trustee"); Roland G.
Niederstadt, as trustee for the Lendell J. Williams and Karen A. Williams
Inter-Vivos Trust for the Benefit of Lesley A. Forbes under a trust agreement
dated December 22, 1992 ("LAF Trustee"); and Flents Products Co., Inc., a
Delaware corporation ("Purchaser"). (LJW Trustee, KAW Trustee, LKD Trustee, and
LAF Trustee are referred to herein individually as a "Shareholder of Karlen" and
collectively as the "Shareholders of Karlen"). Any reference to Seller herein
shall include Karlen and each Shareholder of Karlen, unless the context requires
any other combination of Karlen and Shareholders of Karlen.
WHEREAS, Purchaser and Seller, have entered into an Asset Purchase
Agreement dated as of January 8, 1999 (the "Asset Purchase Agreement") pursuant
to which Purchaser is purchasing certain assets of Karlen, as described in the
Asset Purchase Agreement;
WHEREAS, PTI Holding Inc., a Delaware corporation ("PTI"), has
guaranteed the obligations of Purchaser under the Asset Purchase Agreement;
WHEREAS, Purchaser and Seller desire to amend the Asset Purchase
Agreement, upon the terms hereinafter set forth;
NOW, THEREFORE, in consideration of the covenants set forth herein and
in reliance on the representations and warranties contained herein, the parties
hereto hereby agree as follows:
1. Amendments to the Asset Purchase Agreement.
(a) Section 3.1 of the Asset Purchase Agreement is hereby
amended to read as follows:
3.1. Purchase Price. The purchase price (the "Purchase Price")
for the Acquired Assets shall be $17,750,000.00, subject to adjustment
as set forth below. The Purchase Price, less the amount of the
Promissory Note (hereinafter defined) and the Deposits (hereinafter
defined), shall be payable by up to five wire transfers or certified or
bank teller's check(s) at Closing (hereinafter defined) in U.S. dollars
as directed by Seller. At Closing, PTI shall execute and deliver a
promissory note to Seller in the form of Exhibit J hereto with a
principal balance of $1,000,000 (the "Promissory Note"). Payees under
the Promissory Note shall enter into a subordination agreement with
PTI's financial institutional lenders on the standard form or
forms of such institutional lenders, subordinating the Promissory
Note to all of PTI's obligations to such institutions.
(b) Section 3.2 (d) of the Asset Purchase Agreement is hereby
amended to read as follows:
(d) Upon execution of this Amendment, Purchaser shall
issue a check payable to the Deposit Agent, in the amount of $50,000.00
(the "Fourth Deposit"), which shall be held in an interest bearing
account or other investment as directed by Seller until the termination
of this Asset Purchase Agreement or the Closing (hereinafter defined)
and, upon the Closing, shall be released to the Seller, all pursuant to
the terms of this Amendment and the Deposit Escrow Agreement dated
January 8, 1999, by and among the Seller, the Deposit Agent and the
Purchaser.
The First Deposit, the Second Deposit, the Third Deposit, and the
Fourth Deposit are referred to herein collectively as the "Deposits."
(c) Section 3.3(b)(v) of the Asset Purchase Agreement is
hereby amended to read as follows:
(v) An adjustment payment required pursuant to this
Section 3.3, if any, shall be made not later than 15 days after the
final determination of the Closing Adjusted Net Book Value. The amount
of any such adjustment due from a party, if not paid by such party, may
be offset against any amounts due to such party from the other party
hereto.
(d) Section 4 of the Asset Purchase Agreement is hereby
amended to read as follows:
Section 4. Closing. Provided that the conditions in Sections 8
and 9 hereof shall have been satisfied or waived, the consummation of
the purchase and sale of the Acquired Assets contemplated by this
Agreement (the "Closing") shall, unless another date is agreed to in
writing by Seller and Purchaser, take place at a location to be
mutually agreed upon by the Purchaser and the Seller on the date
designated by notice from Purchaser not less than two (2) business days
after such notice and, in the absence of an event beyond the reasonable
control of a party that prevents or delays the Closing, including,
without limitation, Act of God, act or omission of civil or military
authority, fire, severe weather condition, embargo, war, political
strife or riot, delay in transportation, compliance with any regulation
or directive of any national, state or local government or a department
or agency thereof, or any other cause which by the exercise of
reasonable diligence the affected party would be unable to overcome, (a
"Force Majeur Event"), no later than April 15, 1999, provided, however,
that such date may be adjourned by a party hereto if the other party
hereto shall not have satisfied all of the conditions to be satisfied
by such other party on or before the Closing. All references contained
herein to "the Effective Time of the Closing" shall be deemed to refer
to the time that the consummation of the transaction contemplated
hereby is completed.
(e) Section 7.14(a) of the Asset Purchase Agreement is hereby
deleted in its entirety.
(f) Section 8.8 of the Asset Purchase Agreement is hereby
amended to read as follows:
8.8. Employment Agreement. Drumhiller shall have executed
and delivered to Purchaser an Employment Agreement in the form of
Exhibit K hereto.
(g) Section 9.6 of the Asset Purchase Agreement is hereby
amended to read as follows:
9.6. Employment Agreement. Purchaser shall have executed and
delivered to Drumhiller an Employment Agreement in the form of Exhibit
K hereto.
(h) Section 10.6 of the Asset Purchase Agreement is hereby
amended to read as follows:
10.6. Payment of Amounts Due. The amount of any indemnifiable
damages conceded or determined to be due from Seller to Purchaser,
pursuant to any of the provisions of this Section 10, shall be paid to
Purchaser by Seller within five (5) business days from the date so
conceded or determined. The amount of any indemnifiable damages
conceded or determined to be due from Purchaser to Seller, pursuant to
any of the provisions of this Section 10, shall be paid to Seller by
Purchaser within five (5) business days from the date so conceded or
determined. The amount of any indemnifiable damages due pursuant to any
of the provisions of this Section 10, if not paid, may be offset
against any amounts due from Indemnitee to the Indemnitor.
(i) Section 11(b) of the Asset Purchase Agreement is hereby
amended to read as follows:
(b) This Agreement may be terminated by Seller if:
(i) Purchaser defaults in its obligations under this Agreement, fails
to cure such default for ten (10) business days after notice thereof by
Seller, and as a result thereof Seller is unable to sell the Acquired
Assets on the terms set forth herein and Seller, at the time of
Purchaser's default, is not in default in its obligations under this
Agreement; or (ii) any condition of Section 9 is not satisfied by
Purchaser by the Closing Date, provided, however, that all conditions
of Section 8, not waived by Purchaser, are satisfied by Seller by the
later of the Closing Date or such further grace period provided under
Section 11(a). In the event Seller wishes to terminate this Agreement
under this Section 11(b)(ii), Seller shall give to Purchaser written
notice of the condition that Seller believes is not satisfied as of the
Closing Date, and Purchaser shall have ten (10) business days in which
to satisfy such condition or to demonstrate that such condition can be
satisfied not more than thirty (30) days after such notice. If
Purchaser, under Section 11(b)(i) above, does not cure such default or,
under Section 11(b)(ii), does not satisfy such condition within such
10-day period or make such demonstration within such 10-day period and
thereafter satisfy such condition within such 30-day period, then the
Agreement may be terminated by Seller immediately upon written notice.
In the absence of a Force Majeur Event, if the transactions
contemplated under this Agreement are not consummated prior to the end
of April 15, 1999 then this Agreement may be terminated by Seller
immediately upon written notice; provided, however, that all conditions
of Section 8, not waived by Purchaser, are satisfied by Seller prior to
the end of April 15, 1999 and such conditions remain satisfied through
the end of such day.
(j ) Exhibit I to the Asset Purchase Agreement is hereby
deleted in its entirety.
(k) Exhibit A hereto is hereby annexed to the Asset Purchase
Agreement as Exhibit J to the Asset Purchase Agreement.
(l) Exhibit B hereto is hereby annexed to the Asset Purchase
Agreement as Exhibit K to the Asset Purchase Agreement.
(m) The form of Commercial Lease Agreement annexed to the
Asset Purchase Agreement as Exhibit H is amended to provide that Tenant shall
have the optionto renew such lease for a period of three (3) years on the same
terms, provided that the Base Rent for each Lease Year of the renewal term shall
be increased to reflect changes in the cost of living pursuant to the formula
set forth in subsection 3(B) of the Commercial Lease Agreement. Tenant shall be
required to exercise such option prior to sixth months before the expiration of
the term of the Commercial Lease Agreement.
(n) The form of Requirements Agreement annexed to the Asset
Purchase Agreement as Exhibit D is amended to provide that the net invoice price
payable by Buyer on any size, type and class of Foam sold to Buyer will be no
greater than 90% of the Seller's list price and no less than 80% of the Seller's
list price for such type, quantity and class of Foam; provided, however, that
such price shall not be greater than the price charged by Seller on any sale
within 90 days before or after such sale to Buyer to any other person who
purchased Foam of the same type, quantity and class and will be no greater than
the price for such type, quantity and class of Foam generally available in the
market
Except as amended hereby, the Asset Purchase Agreement remains unamended,
unmodified and in full force and effect.
IN WITNESS WHEREOF, each of the undersigned corporations has caused
this Agreement to be executed by its duly authorized officer, and the
Shareholders of Karlen have executed this Agreement, as of the date first above
written.
FLENTS PRODUCTS CO., INC. KARLEN MANUFACTURING, INC.
By: /s/ Meredith Birrittella By: Tim Drumhiller
Name: Meredith Birrittella Name: Tim Drumhiller
Title: C.E.O. Title: President
/s/ Lendell J. Williams
LENDELL J. WILLIAMS, AS TRUSTEE
FOR THE LENDELL J. WILLIAMS INTER-VIVOS TRUST
UNDER A TRUST AGREEMENT DATED SEPTEMBER 15, 1992
/s/ Karen A. Williams
KAREN A. WILLIAMS, AS TRUSTEE
FOR THE KAREN A. WILLIAMS INTER-VIVOS TRUST
UNDER A TRUST AGREEMENT DATED SEPTEMBER 15, 1992
/s/ Roland G. Niederstadt
ROLAND G. NIEDERSTADT, AS TRUSTEE
FOR THE LENDELL J. WILLIAMS AND KAREN A. WILLIAMS
INTER-VIVOS TRUST FOR THE BENEFIT OF
LYNETTE K. DRUMHILLER
UNDER A TRUST AGREEMENT DATED DECEMBER 22, 1992
/s/ Roland G. Niederstadt
ROLAND G. NIEDERSTADT, AS TRUSTEE
FOR THE LENDELL J. WILLIAMS AND KAREN A. WILLIAMS
INTER-VIVOS TRUST FOR THE BENEFIT OF
LESLEY A. FORBES
UNDER A TRUST AGREEMENT DATED DECEMBER 22, 1992
Agreed as to Sections 1(f) and 1(g):
/s/ Tim Drumhiller
TIM DRUMHILLER
Agreed as to Sections 1(a):
PTI HOLDING INC.
By: /s/ Meredith Birrittella
Name: Meredith Birrittella
Title: C.E.O.
<PAGE>
EXHIBIT 2
THE OBLIGATIONS EVIDENCED HEREBY ARE SUBORDINATE IN THE MANNER AND TO THE EXTENT
SET FORTH IN THAT CERTAIN SUBORDINATION AGREEMENT DATED AS OF MARCH 31, 1999
BETWEEN KARLEN MANUFACTURING, INC. A MICHIGAN CORPORATION, AND PNC BANK,
NATIONAL ASSOCIATION TO THE INDEBTEDNESS, OBLIGATIONS AND OTHER LIABILITIES
(INCLUDING INTEREST) OWED BY FLENTS PRODUCTS CO., INC., ("FLENTS") PROTECTIVE
TECHNOLOGIES INTERNATIONAL, INC., ZACKO SPORTS, INC. AND PTI HOLDING INC. UNDER
AND PURSUANT TO ANY OF THE "SENIOR INSTRUMENTS" (AS DEFINED THEREIN) (THE
"SUBORDINATION AGREEMENT"), AND EACH HOLDER HEREOF, BY ITS ACCEPTANCE HEREOF,
ACKNOWLEDGES AND AGREES TO BE BOUND BY THE PROVISIONS OF THE SUBORDINATION
AGREEMENT.
PROMISSORY NOTE
$1,000,000.00 Date: April 14, 1999
FOR VALUE RECEIVED, PTI Holding, Inc., a Delaware corporation with a
mailing address at 1 Executive Boulevard, Yonkers, NY 10701 ("Maker"), hereby
promises to pay to the order of Karlen Manufacturing, Inc., a Michigan
corporation ("Payee"), at 5301 South Graham Road, St. Charles, MI 48655, or at
such other place as the holder hereof may designate in writing, the principal
sum of $1,000,000.00, together with interest, which shall accrue and be paid on
the principal outstanding from time to time at the rate of 12% per annum (the
"Base Rate") quarterly in arrears on the first day of each calender quarter
beginning July 1, 1999. All the then remaining principal and all accrued and
unpaid interest shall be due and payable in full on March 31, 2002.
Payment of principal, interest and any other sum due hereunder shall be
made in lawful money of the United States of America. This Note may be prepaid
in whole or in part at any time without premium or penalty provided that such
prepayment is accompanied by a notice of the amount being prepaid. Any partial
prepayment shall be credited first to the last installment due hereunder and,
successively, to the next preceding installments so that a partial prepayment
will not change any due dates for subsequent installments until the full amounts
of principal, interest and other amounts due hereunder are paid in full.
Commencing on March 31, 2001, Maker shall be required to prepay this
Note to the extent that, pursuant to Section 7.5 of the Revolving Credit, Term
Loan and Security Agreement by and among PNC Bank, National Association ("PNC"),
as a lender and as agent for the financial institutions party thereto from time
to time, Protective Technologies International Inc. ("PTI") and Zacko Sports,
Inc. dated April 14, 1999 (the "Credit Agreement"), PTI shall qualify to make
loans to the Maker to be applied to the prepayment of this Note. If PTI so
qualifies, by signature of this Note, PTI agrees to make the required loan(s) to
Maker to be applied to prepayment of this Note.
If any one or more of the following events (herein termed "Events of
Default") shall happen:
(a) any payment of principal or interest is not paid when due and
payable hereunder for 10 (ten) business days after notice of late payment,
provided however, that a late payment that is the third late payment in any
12-month period shall constitute an Event of Default without notice or grace
period;
(b) Maker hereof shall:
(i) consent to the appointment of a receiver or trustee for
all or a substantial part of its or his property or to the filing of a
petition against it or him under the federal bankruptcy laws or any
other similar law or statute for the relief or aid of debtors of the
United States of America or any State thereof, as now or hereinafter in
effect (the "Bankruptcy Laws"),
(ii) have an order for relief entered against it or him under
the Bankruptcy Laws or otherwise be adjudicated a bankrupt or insolvent
or have any court of competent jurisdiction assume custody or control
of Maker or of the whole or any substantial part of its property,
(iii) become insolvent or admit its or his inability, or
become unable, to pay its or his debts generally as they become due,
(iv) file a petition for relief or for reorganization or for
the adoption of an arrangement under the Bankruptcy Laws or an
admission seeking the relief therein provided,
(v) make a general assignment for the benefit of its
creditors, except as may be provided for by, or in connection with, the
Credit Agreement or the Revolving Credit, Term Loan and Security
Agreement by and between Flents and PNC, as a lender and as agent for
the financial institutions party thereto from time to time;
(c) default in the due observance of any provision of this Note (except
as set forth in clause (a) above) and the same shall not be cured within 30 days
of written notice from Payee;
(d) Maker takes any action to terminate, liquidate or dissolve Maker,
(e) the sale of all or substantially all the assets of Maker, except as
may be provided for by, or in connection with, the Credit Agreement or the
Revolving Credit, Term Loan and Security Agreement by and between Flents and
PNC, as a lender and as agent for the financial institutions party thereto from
time to time, then, subject to the terms and provisions of the Subordination
Agreement, and in any such event, at any time thereafter, if any Event of
Default shall then be continuing, Payee may by written notice to Maker declare
the principal, accrued interest and any other amounts owing under this Note to
be immediately due and payable (except that in case of an Event of Default under
paragraphs (b) through (c) above no such additional notice shall be required and
such acceleration shall be automatic upon the occurrence of such Event of
Default), and in such case the same shall be paid immediately in full. If any
payment of interest is not paid by the end of 7 calendar days after the date
when due and payable hereunder, Maker shall promptly pay to Payee a late charge
equal to 2% of the amount of the overdue payment. Maker acknowledges that such
charge is a reasonable estimate of the additional cost to be incurred by Payee
on account of a late payment. Interest shall accrue and compound on all interest
payments not paid and past due, after expiration of any applicable grace period
provided herein, whether or not an Event of Default has occurred, at the Base
Rate.
Subject to the terms and provisions of the Subordination Agreement, in
case any one or more defaults hereunder shall occur and be continuing, Payee may
proceed to protect and enforce Payee's rights either by suit in equity or by
action at law, or both, whether for the specific performance of any covenant,
condition, or agreement contained in this Note or in aid of the exercise of any
power granted in this Note or to enforce any other legal or equitable right of
Payee. Subject to the terms and provisions of the Subordination Agreement, after
an Event of Default, Maker shall pay to Payee immediately upon written demand
therefor any amounts reasonably expended or incurred by Payee in collecting any
amount due hereunder, including, without limitation, reasonable attorneys' fees
and costs, whether or not any legal action is instituted in connection
therewith, including interest on all such amounts from the date demanded until
the date paid.
Notwithstanding anything in this Note to the contrary, the indebtedness
evidenced by this Note shall be subordinate and junior in right of payment to
the indebtedness (the "Senior Debt") of the Maker for money borrowed, whether
outstanding at the date of this Note or incurred after the date of this Note,
from any recognized financial institution. If any event of default shall occur
under any Senior Debt, then the holders of the Senior Debt shall be entitled to
receive payment in full of all principal and interest on the Senior Debt before
the holders of this Note are entitled to receive any payment on account of
principal or interest on this Note.
This Note (a) may not be changed, waived, discharged or terminated
except by an instrument in writing signed by the Payee and (b) shall be binding
upon Maker, its successors and assigns, and shall inure to the benefit of and be
enforceable by Payee, its successors and assigns. No promises or representations
have been made by Payee in connection herewith except as expressly set forth
herein. Maker hereby waives presentment, demand, protest, notice of dishonor and
all other notices and demands, except as expressly set forth herein.
Subject to the terms and provisions of the Subordination Agreement,
this Note shall be paid in full without any offset or deduction for any claim,
counterclaim or defense of any kind whatsoever, the right to raise any of which
is waived by Maker. Maker also hereby waives the right to trial by jury in any
litigation related to this Note.
This Note shall be construed and governed in all respects by the laws
of the State of Michigan applicable to contracts made and to be performed
therein.
If any provision of this Note is deemed to be invalid, illegal, or
unenforceable, the balance of this Note shall remain in full force and effect.
Any notice or communication required or sent in connection with this
Note shall be effective when signed for or refused by addressee if sent by first
class mail, postage prepaid, or the next day if sent by overnight courier
providing for a return receipt, addressed, if to the Payee at: 5301 South Graham
Road, St. Charles, MI 48655, and if to the Maker at: 1 Executive Boulevard,
Yonkers, NY 10701, any such address may be changed by sending notice of such
change at least 10 days prior to the effective date of the change.
As a further inducement to the Payee to accept this Note, Maker,
acknowledging that Payee is relying on the covenants in this paragraph,
covenants and agrees that: in any action or proceeding brought on, under or in
connection with or relating to this Note, any legal suit arising out of or in
connection with this Note may be instituted in any Federal or State Court in the
State of Michigan, City of Detroit; Maker waives any objection it may now or
hereafter have to such venue in any legal suit; irrevocably submits to the
jurisdiction of any such Court in any such suit; agrees not to bring any such
suit, action or other proceeding in any other jurisdiction; and agrees that
service of process may be effected therein by the same means as notices may be
given as hereinabove provided.
This Agreement shall not be assignable by Maker otherwise than by
operation of law without the prior written consent of Payee, and any purported
assignment without such prior written consent shall be void.
IN WITNESS WHEREOF, Maker has caused this Note to executed by its duly
authorized officer on the day and year first above written.
PTI HOLDING INC.
By:/s/ Meredith Birrittella
Name: Meredith Birrittella
Title: C.E.O.
AGREED as to paragraph 3 of this Note.
PROTECTIVE TECHNOLOGIES
INTERNATIONAL, INC.
By:/s/ Meredith Birrittella
Name: Meredith Birrittella
Title: C.E.O.
<PAGE>
EXHIBIT 3
REVOLVING CREDIT, TERM LOAN
AND
SECURITY AGREEMENT
PNC BANK, NATIONAL ASSOCIATION
(AS LENDER AND AS AGENT)
WITH
FLENTS PRODUCTS CO., INC.
(BORROWER)
APRIL 14, 1999
<PAGE>
<TABLE>
<S> <C> <C> <C>
Table of Contents
Page
I. DEFINITIONS.............................................................................................1
1.1. Accounting Terms...............................................................................1
1.2. General Terms..................................................................................1
1.3. Uniform Commercial Code Terms.................................................................21
1.4. Certain Matters of Construction...............................................................21
II. ADVANCES, PAYMENTS.....................................................................................21
2.1. (a) Revolving Advances........................................................................21
(b) Discretionary Rights...................................................................22
2.2. Procedure for Revolving Advances Borrowing....................................................22
2.3. Disbursement of Advance Proceeds..............................................................24
2.4. Term Loan.....................................................................................24
2.5. Maximum Advances..............................................................................24
2.6. Repayment of Advances.........................................................................24
2.7. Repayment of Excess Advances..................................................................25
2.8. Statement of Account..........................................................................25
2.9. Letters of Credit.............................................................................25
2.10. Issuance of Letters of Credit.................................................................26
2.11. Requirements For Issuance of Letters of Credit................................................26
2.12. Additional Payments...........................................................................27
2.13. Manner of Borrowing and Payment...............................................................27
2.14. Mandatory Prepayments.........................................................................29
2.15. Use of Proceeds...............................................................................30
2.16. Defaulting Lender.............................................................................30
III. INTEREST AND FEES......................................................................................31
3.1. Interest......................................................................................31
3.2. Letter of Credit Fees.........................................................................31
3.3. Fee Letter....................................................................................32
3.4. Facility Fee..................................................................................32
3.5. Computation of Interest and Fees..............................................................32
3.6. Maximum Charges...............................................................................32
3.7. Increased Costs...............................................................................33
3.8. Basis For Determining Interest Rate Inadequate or Unfair......................................33
3.9. Capital Adequacy..............................................................................34
IV. COLLATERAL; GENERAL TERMS..............................................................................35
4.1. Security Interest in the Collateral...........................................................35
4.2. Perfection of Security Interest...............................................................35
4.3. Disposition of Collateral.....................................................................35
4.4. Preservation of Collateral....................................................................35
4.5. Ownership and Location of Collateral..........................................................36
4.6. Defense of Agent's and Lenders' Interests.....................................................36
4.7. Books and Records.............................................................................37
4.8. Financial Disclosure..........................................................................37
4.9. Compliance with Laws..........................................................................37
4.10. Inspection of Premises........................................................................38
4.11. Insurance.....................................................................................38
4.12. Failure to Pay Insurance......................................................................39
4.13. Payment of Taxes..............................................................................39
4.14. Payment of Leasehold Obligations..............................................................39
4.15. Receivables...................................................................................40
(a) Nature of Receivables..................................................................40
(b) Solvency of Customers..................................................................40
(c) Locations of Executive Offices of Borrower.............................................40
(d) Collection of Receivables..............................................................40
(e) Notification of Assignment of Receivables..............................................40
(f) Power of Agent to Act on Borrower's Behalf.............................................40
(g) No Liability...........................................................................41
(h) Establishment of a Lockbox Account, Dominion Account...................................41
(i) Adjustments............................................................................42
4.16. Inventory.....................................................................................42
4.17. Maintenance of Equipment......................................................................42
4.18. Exculpation of Liability......................................................................42
4.19. Environmental Matters.........................................................................42
4.20. Financing Statements..........................................................................44
V. REPRESENTATIONS AND WARRANTIES.........................................................................44
5.1. Authority; Enforceable Obligations............................................................44
5.2. Formation and Qualification...................................................................45
5.3. Survival of Representations and Warranties....................................................45
5.4. Tax Returns...................................................................................45
5.5. Financial Statements..........................................................................46
5.6. Corporate Name and Locations..................................................................47
5.7. O.S.H.A. and Environmental Compliance.........................................................47
5.8. Solvency; No Litigation, Violation, Indebtedness or Default...................................48
5.9. Patents, Trademarks, Copyrights and Licenses..................................................49
5.10. Licenses and Permits..........................................................................49
5.11. Default of Indebtedness.......................................................................49
5.12. No Default....................................................................................50
5.13. No Burdensome Restrictions....................................................................50
5.14. No Labor Disputes.............................................................................50
5.15. Margin Regulations............................................................................50
5.16. Investment Company Act........................................................................50
5.17. Disclosure....................................................................................50
5.18. Delivery of Acquisition Documentation, Mezzanine Documentation and Equity Purchase
Documentation.................................................................................50
5.19. Swaps.........................................................................................51
5.20. Conflicting Agreements........................................................................51
5.21. Application of Certain Laws and Regulations...................................................51
5.22. Business and Property of Borrower.............................................................51
5.23. Year 2000.....................................................................................51
VI. AFFIRMATIVE COVENANTS..................................................................................51
6.1. Payment of Fees...............................................................................51
6.2. Conduct of Business and Maintenance of Existence and Assets...................................51
6.3. Violations....................................................................................52
6.4. Government Receivables........................................................................52
6.5. Net Worth.....................................................................................52
6.6. Leverage Ratio................................................................................52
6.7. Fixed Charge Coverage Ratio...................................................................53
6.8. Execution of Supplemental Instruments.........................................................53
6.9. Payment of Indebtedness.......................................................................53
6.10. Standards of Financial Statements.............................................................53
6.11. Exercise of Rights............................................................................53
6.12. Year 2000 Problem.............................................................................53
VII. NEGATIVE COVENANTS.....................................................................................53
7.1. Merger, Consolidation, Acquisition and Sale of Assets.........................................54
7.2. Creation of Liens.............................................................................54
7.3. Guarantees....................................................................................54
7.4. Investments...................................................................................54
7.5. Loans.........................................................................................54
7.6. Capital Expenditures..........................................................................54
7.7. Dividends.....................................................................................54
7.8. Indebtedness..................................................................................55
7.9. Nature of Business............................................................................55
7.10. Transactions with Affiliates..................................................................55
7.11. Leases........................................................................................56
7.12. Subsidiaries..................................................................................56
7.13. Fiscal Year and Accounting Changes............................................................56
7.14. Pledge of Credit..............................................................................56
7.15. Amendment of Articles of Incorporation, By-Laws...............................................56
7.16. Compliance with ERISA.........................................................................56
7.17. Prepayment of Indebtedness....................................................................57
7.18. Subordinated Note; Seller Notes...............................................................57
7.19. Other Agreements..............................................................................57
VIII. CONDITIONS PRECEDENT...................................................................................57
8.1. Conditions to Initial Advances................................................................57
(a) Note...................................................................................57
(b) Filings, Registrations and Recordings..................................................57
(c) Corporate Proceedings..................................................................58
(d) Incumbency Certificates................................................................58
(e) Certificates...........................................................................58
(f) Good Standing Certificates.............................................................58
(g) Legal Opinion..........................................................................58
(h) No Litigation..........................................................................58
(i) Financial Condition Certificates.......................................................59
(j) Collateral Examination.................................................................59
(k) Fees...................................................................................59
(l) Pro Forma Financial Statements.........................................................59
(m) Acquisition,Mezzanine and Equity Documents.............................................59
(n) Subordination Agreements...............................................................59
(o) Pledge Agreement.......................................................................60
(p) Pledge Agreement.......................................................................60
(q) Insurance..............................................................................60
(r) Payment Instructions...................................................................60
(s) Blocked Accounts.......................................................................60
(t) Consents...............................................................................60
(u) No Adverse Material Change.............................................................60
(v) Leasehold Agreements...................................................................60
(w) Guarantees and Other Documents.........................................................60
(x) Net Worth..............................................................................60
(y) Contract Review........................................................................61
(z) Closing Certificate....................................................................61
(aa) Borrowing Base.........................................................................61
(bb) Compliance with Laws...................................................................61
(cc) Other..................................................................................61
8.2. Conditions to Each Advance....................................................................61
(a) Representations and Warranties.........................................................61
(b) No Default.............................................................................61
(c) Maximum Advances.......................................................................62
IX. INFORMATION AS TO BORROWER.............................................................................62
9.1. Disclosure of Material Matters................................................................62
9.2. Schedules.....................................................................................62
9.3. Environmental Reports.........................................................................62
9.4. Litigation....................................................................................63
9.5. Material Occurrences..........................................................................63
9.6. Government Receivables........................................................................63
9.7. Annual Financial Statements...................................................................63
9.8. Quarterly Financial Statements................................................................64
9.9. Monthly Financial Statements..................................................................64
9.10. Other Reports.................................................................................64
9.11. Additional Information........................................................................65
9.12. Projected Operating Budget....................................................................65
9.13. Variances From Operating Budget...............................................................65
9.14. Notice of Suits, Adverse Events...............................................................65
9.15. ERISA Notices and Requests....................................................................65
9.16. Additional Documents..........................................................................66
X. EVENTS OF DEFAULT......................................................................................66
XI. LENDERS' RIGHTS AND REMEDIES AFTER DEFAULT.............................................................69
11.1. Rights and Remedies...........................................................................69
11.2. Agent's Discretion............................................................................70
11.3. Setoff........................................................................................70
11.4. Rights and Remedies not Exclusive.............................................................70
XII. WAIVERS AND JUDICIAL PROCEEDINGS.......................................................................71
12.1. Waiver of Notice..............................................................................71
12.2. Delay.........................................................................................71
12.3. Jury Waiver...................................................................................71
XIII. EFFECTIVE DATE AND TERMINATION.........................................................................71
13.1. Term..........................................................................................71
13.2. Termination...................................................................................72
XIV. REGARDING AGENT........................................................................................73
14.1. Appointment...................................................................................73
14.2. Nature of Duties..............................................................................73
14.3. Lack of Reliance on Agent and Resignation.....................................................73
14.4. Certain Rights of Agent.......................................................................74
14.5. Reliance......................................................................................74
14.6. Notice of Default.............................................................................74
14.7. Indemnification...............................................................................75
14.8. Agent in its Individual Capacity..............................................................75
14.9. Delivery of Documents.........................................................................75
14.10. Borrower's Undertaking to Agent...............................................................75
XV. MISCELLANEOUS..........................................................................................75
15.1. Governing Law.................................................................................75
15.2. Entire Understanding..........................................................................76
15.3. Successors and Assigns; Participations; New Lenders...........................................78
15.4. Application of Payments.......................................................................79
15.5. Indemnity.....................................................................................79
15.6. Notice........................................................................................79
15.7. Survival......................................................................................80
15.8. Severability..................................................................................80
15.9. Expenses......................................................................................81
15.10. Injunctive Relief.............................................................................81
15.11. Consequential Damages.........................................................................81
15.12. Captions......................................................................................81
15.13. Counterparts; Telecopied Signatures...........................................................81
15.14. Construction..................................................................................81
15.15. Confidentiality; Sharing Information..........................................................81
15.16. Publicity.....................................................................................82
</TABLE>
<PAGE>
REVOLVING CREDIT, TERM LOAN
AND
SECURITY AGREEMENT
Revolving Credit, Term Loan and Security Agreement dated April 14, 1999
among Flents Products Co., Inc., a corporation organized under the laws of the
State of Delaware ("Borrower"), the financial institutions which are now or
which hereafter become a party hereto (collectively, the "Lenders" and
individually a "Lender") and PNC BANK, NATIONAL ASSOCIATION ("PNC"), as agent
for Lenders (PNC, in such capacity, the "Agent").
IN CONSIDERATION of the mutual covenants and undertakings herein
contained, Borrower, Lenders and Agent hereby agree as follows:
I. DEFINITIONS.
1.1. Accounting Terms. As used in this Agreement, the Note, or any
certificate, report or other document made or delivered pursuant to this
Agreement, accounting terms not defined in Section 1.2 or elsewhere in this
Agreement and accounting terms partly defined in Section 1.2 to the extent not
defined, shall have the respective meanings given to them under GAAP; provided,
however, whenever such accounting terms are used for the purposes of determining
compliance with financial covenants in this Agreement, such accounting terms
shall be defined in accordance with GAAP as applied in preparation of the
audited financial statements of Holdings for the fiscal year ended December 31,
1998.
1.2. General Terms. For purposes of this Agreement the following terms shall
have the following meanings:
"Accountants" shall have the meaning set forth in Section 9.7
hereof.
"Acquisition Agreement" shall mean the Asset Purchase
Agreement including all exhibits and schedules thereto dated as of January 8,
1999 by and among Karlen, the other parties named therein as Shareholders of
Karlen (collectively, "Seller") as seller and Borrower, as Purchaser, as amended
by Amendment dated as of April 14, 1999.
"Acquisition Documentation" shall mean, collectively, the
Acquisition Agreement and all other agreements, instruments and documents
executed in connection therewith, including, without limitation, the Seller
Note.
"Advances" shall mean and include the Revolving Advances,
Letters of Credit, and the Term Loan.
"Advance Rates" shall have the meaning set forth in Section
2.1(a) hereof.
"Affiliate" of any Person shall mean (a) any Person (other
than a Subsidiary) which, directly or indirectly, is in control of, is
controlled by, or is under common control with such Person, or (b) any Person
who is a director or officer (i) of such Person, (ii) of any Subsidiary of such
Person or (iii) of any Person described in clause (a) above. For purposes of
this definition, control of a Person shall mean the power, direct or indirect,
(x) to vote 5% or more of the Stock having ordinary voting power for the
election of directors of such Person or other Persons performing similar
functions for any such Person, or (y) to direct or cause the direction of the
management and policies of such Person whether by ownership of Stock, contract
or otherwise.
"Agent" shall have the meaning set forth in the preamble to
this Agreement and shall include its successors and assigns.
"Agreement" shall mean this Revolving Credit, Term Loan and
Security Agreement, as the same may be amended, supplemented or otherwise
modified from time to time.
"Applicable Margin" shall mean (i) with respect to Revolving
Advances and Standby Letter of Credit fees, (x) for the period through and
including March 31, 2000, 2.75% and (y) after March 31, 2000, 2.75% unless, with
respect to any fiscal quarter ending thereafter, if the Fixed Charge Coverage
Ratio for the four fiscal quarters ending as of the end of each of the two
consecutive fiscal quarters immediately preceding such fiscal quarter is as set
forth below (and provided that Agent has received the quarterly financial
statements and required calculations for such fiscal quarters pursuant to
Section 9.8), then the Applicable Margin for such fiscal quarter shall be
adjusted commencing 5 Business Days after receipt of such financial statements
by Agent to the applicable percentage set forth below:
Fixed Charge Coverage Ratio: Applicable Margin:
1.50:1.00 to 1.99:1.00 2.50%
Equal to or greater 2.25%
than 2.00 to 1.00
and (ii) with respect to the Term Loan, (x) for the period
through and including March 31, 2000, 3.50% and (y) after March 31, 2000, 3.50%
unless, with respect to any fiscal quarter ending thereafter, if the Fixed
Charge Coverage Ratio for the four fiscal quarters ending as of the end of each
of the two consecutive fiscal quarters immediately preceding such fiscal quarter
is as set forth below (and provided that Agent has received the quarterly
financial statements and required calculations for such fiscal quarters pursuant
to Section 9.8), then the Applicable Margin for such fiscal quarter shall be
adjusted commencing 5 Business Days after receipt of such financial statements
by Agent to the applicable percentage set forth below:
Fixed Charge Coverage Ratio: Applicable Margin:
1.50:1.00 to 1.99:1.00 3.25%
Equal to or greater 3.00%
Than 2.00 to 1.00
If any financial statement referred to in (i) or (ii) above is
not delivered within the required time periods, then, until so delivered, the
Fixed Charge Coverage Ratio for such fiscal period (or portion thereof) shall,
for the purpose of this definition, be deemed to be less than or equal to 1.49
to 1.00.
"Authority" shall have the meaning set forth in Section 4.19(d).
"Base Rate" shall mean the base commercial lending rate of PNC
as publicly announced to be in effect from time to time, such rate to be
adjusted automatically, without notice, on the effective date of any change in
such rate. This rate of interest is determined from time to time by PNC as a
means of pricing some loans to its customers and is neither tied to any external
rate of interest or index nor does it necessarily reflect the lowest rate of
interest actually charged by PNC to any particular class or category of
customers of PNC.
"Blocked Accounts" shall have the meaning set forth in Section
4.15(h).
"Borrower" shall have the meaning set forth in the preamble to
this Agreement and shall extend to all permitted successors and assigns of such
Person.
"Borrower's Account" shall have the meaning set forth in
Section 2.8.
"Business Day" shall mean any day other than Saturday or
Sunday or a legal holiday on which commercial banks are authorized or required
by law to be closed for business in East Brunswick, New Jersey and, if the
applicable Business Day relates to any Eurodollar Rate Loans, such day must also
be a day on which dealings are carried on in the London interbank market.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C. 9601 et seq.
"Change of Control" shall mean (a) the occurrence of any event
(whether in one or more transactions) which results in a transfer of control of
Holdings to a Person or group of Persons (within the meaning of the Securities
Exchange Act of 1934, as amended) who are not an Original Owner, (b) any merger
or consolidation of or with Holdings which results in a transfer of control of
Holdings to a Person who is not an Original Owner, (c) Meredith Birrittella (or
any successor who is reasonably satisfactory to Agent) ceases to be the Chief
Executive Officer, (d) Meredith Birrittella ceases to be a director of Holdings
(other than by reason of death or disability) or (e) the Original Owner ceases
to own at least 500,000 shares (as adjusted for any stock split, reverse split,
stock dividend, reclassification or similar event) of the outstanding voting
Stock of Holdings. For purposes of this definition, "control of Holdings" shall
mean the power, direct or indirect (x) to vote 50% or more of the Stock having
ordinary voting power for the election of directors of Holdings or (y) to direct
or cause the direction of the management and policies of Holdings by ownership
of Stock, contract or otherwise. In addition, "Change of Control" shall mean and
include any event constituting a "Change of Control" as defined in the
Securities Purchase Agreement.
"Change of Ownership," subject to the proviso set forth at the
end of this sentence, shall mean 76% of the outstanding voting Stock of Borrower
is no longer owned by Holdings or the approval by Holdings of the sale of any
outstanding voting Stock of Borrower or 18% of outstanding voting Stock of
Borrower is no longer owed by the Management Investors or a majority of the
Board of Directors of Borrower shall consist of Persons other than Continuing
Directors (the term Continuing Director shall mean any member of the Board of
Directors of Borrower on the Closing Date, any member of the Board of Directors
appointed pursuant to Section 6.1 of the Shareholders Agreement as in effect on
the date hereof and any other member of the Board of Directors who shall be
recommended or elected to succeed or become a Continuing Director by a majority
of Continuing Directors who are the members of the Board of Directors of
Borrower; provided that it shall not be a Change of Ownership solely as a result
of any or all of (i) the acquisition by the Mezzanine Lender of 22% or less of
the voting Stock of Borrower (or such other number of shares of the voting Stock
pursuant to the anti-dilution adjustments in such Warrants as in effect on the
date hereof) pursuant to the exercise of the Warrants, (ii) the exercise of
options (as in effect on the date hereof) to purchase common stock of Borrower
granted to Timothy Drumhiller pursuant to the terms of the employment agreement
between Mr. Drumhiller and Borrower dated the date hereof (the "Employment
Agreement") or (iii) the exercise of other employee options to purchase common
stock of Borrower in an aggregate amount for all such options not to exceed 10%
of the voting Stock of Borrower (on a fully diluted basis) pursuant to any
employee stock option plan approved by the Board of Directors of Borrower).
"Charges" shall mean all taxes, charges, fees, imposts, levies
or other assessments, including, without limitation, all net income, gross
income, gross receipts, sales, use, ad valorem, value added, transfer,
franchise, profits, inventory, capital stock, license, withholding, payroll,
employment, social security, unemployment, excise, severance, stamp, occupation
and property taxes, custom duties, fees, assessments, liens, claims and charges
of any kind whatsoever, together with any interest and any penalties, additions
to tax or additional amounts, imposed by any taxing or other authority, domestic
or foreign (including, without limitation, the Pension Benefit Guaranty
Corporation or any environmental agency or superfund), upon the Collateral,
Borrower or any of its Affiliates.
"Closing Date" shall mean April 14, 1999 or such other date as
may be agreed to by the parties hereto.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time and the regulations promulgated thereunder.
"Collateral" shall mean and include:
(a) all Receivables;
(b) all Equipment;
(c) all General Intangibles;
(d) all Inventory;
(e) the Leasehold Interests;
(f) all of Borrower's right, title and interest
in and to (i) its goods and other property including, but not limited to, all
merchandise returned or rejected by Customers, relating to or securing any of
the Receivables; (ii) all of Borrower's rights as a consignor, a consignee, an
unpaid vendor, mechanic, artisan, or other lienor, including stoppage in
transit, setoff, detinue, replevin, reclamation and repurchase; (iii) all
additional amounts due to Borrower from any Customer relating to the
Receivables; (iv) other property, including warranty claims, relating to any
goods securing this Agreement; (v) all of Borrower's contract rights, rights of
payment which have been earned under a contract right, instruments, documents,
chattel paper, warehouse receipts, deposit accounts, money, securities and
investment property; (vi) if and when obtained by Borrower, all real and
personal property of third parties in which Borrower has been granted a Lien as
security for the payment or enforcement of Receivables; and (vii) any other
goods, personal property or real property now owned or hereafter acquired in
which Borrower has expressly granted a Lien or may in the future grant a Lien to
Agent hereunder, or in any amendment or supplement hereto or thereto, or under
any other agreement between Agent and Borrower;
(g) all of Borrower's ledger sheets, ledger cards,
files, correspondence, records, books of account, business papers, computers,
computer software (owned by Borrower or in which it has an interest), computer
programs, tapes, disks and documents relating to (a), (b), (c), (d), (e) or (f)
of this paragraph; and
(h) all proceeds and products of (a), (b), (c),
(d), (e), (f) and (g) in whatever form, including, but not limited to: cash,
deposit accounts (whether or not comprised solely of proceeds), certificates
of deposit, insurance proceeds (including hazard, flood and credit insurance),
negotiable instruments and other instruments for the payment of money, chattel
paper, security agreements, documents, eminent domain proceeds, condemnation
proceeds and tort claim proceeds.
"Commitment Percentage" of any Lender shall mean the
percentage set forth below such Lender's name on the signature page hereof as
same may be adjusted upon any assignment by a Lender pursuant to Section 15.3(b)
hereof.
"Commitment Transfer Supplement" shall mean a document in the
form of Exhibit 15.3 hereto, properly completed and otherwise in form and
substance satisfactory to Agent by which the Purchasing Lender purchases and
assumes a portion of the obligation of Lenders to make Advances under this
Agreement.
"Consents" shall mean all filings and all licenses, permits,
consents, approvals, authorizations, qualifications and orders of Governmental
Bodies and other third Persons, domestic or foreign, necessary to carry on
Borrower's business, or necessary (including to avoid a conflict or breach under
any agreement , instrument, other document, license, permit or other
authorization) for the execution, delivery or performance of this Agreement, the
Other Documents, the Acquisition Documentation, the Mezzanine Documentation or
the Equity Purchase Documentation, including, without limitation, any Consents
required under all applicable federal, state or other applicable law.
"Contingent Obligations" shall mean as to any Person any
obligation of such Person guaranteeing or intending to guarantee any
Indebtedness, leases, dividends or other obligations ("primary obligations") of
any other Person (the "primary obligation") in any manner, whether directly or
indirectly, including, without limitation, any obligation of such Person,
whether or not contingent, (a) to purchase any such primary obligation or any
property constituting direct or indirect security therefor, (b) to advance or
supply funds (i) for the purchase or payment of any such primary obligation or
(ii) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary obligor, (c) to
purchase property, securities or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability of the primary obligor
to make payment of such primary obligation or (d) otherwise to assure or hold
harmless the owner of such primary obligation against loss in respect thereof;
provided, however, that the term Contingent Obligation shall not include
endorsements of instruments for deposit or collection in the ordinary course of
business. The amount of any Contingent Obligation shall be deemed to be an
amount equal to the stated or determinable amount of the primary obligation in
respect of which such Contingent Obligation is made or, if not stated or
determinable, the maximum reasonably anticipated liability in respect thereof
(assuming such Person is required to perform thereunder) as determined by such
Person in good faith.
"Contract Rate" shall mean, as applicable, the Revolving
Interest Rate or the Term Loan Rate.
"Controlled Group" shall mean all members of a controlled
group of corporations and all trades or businesses (whether or not incorporated)
under common control which, together with Borrower, are treated as a single
employer under Section 414 of the Code.
"Current Assets" at a particular date, shall mean all cash,
cash equivalents, accounts and inventory of Borrower and all other items which
would, in conformity with GAAP, be included under current assets on a balance
sheet of Borrower as at such date; provided, however, that such amounts shall
not include (a) any amounts for any Indebtedness owing by an Affiliate of
Borrower, (b) any shares of stock issued by an Affiliate of Borrower, or (c) the
cash surrender value of any life insurance policy.
"Current Liabilities" at a particular date, shall mean all
amounts which would, in conformity with GAAP, be included under current
liabilities on a balance sheet of Borrower, as at such date, but in any event
including, without limitation, the amounts of (a) all Indebtedness of Borrower
payable on demand, or, at the option of the Person to whom such Indebtedness is
owed, not more than twelve (12) months after such date, (b) any payments in
respect of any Indebtedness of Borrower (whether installment, serial maturity,
sinking fund payment or otherwise) required to be made not more than twelve (12)
months after such date, (c) all reserves in respect of liabilities or
Indebtedness payable on demand or, at the option of the Person to whom such
Indebtedness is owed, not more than twelve (12) months after such date, the
validity of which is not contested at such date, and (d) all accruals for
federal or other taxes measured by income payable within a twelve (12) month
period.
"Customer" shall mean and include the account debtor with
respect to any Receivable and/or the prospective purchaser of goods, services or
both with respect to any contract or contract right, and/or any party who enters
into or proposes to enter into any contract or other arrangement with Borrower,
pursuant to which Borrower is to deliver any personal property or perform any
services.
"Default" shall mean an event, circumstance or condition
which, with the giving of notice or passage of time or both, would constitute an
Event of Default.
"Default Rate" shall have the meaning set forth in Section 3.1
hereof.
"Defaulting Lender" shall have the meaning set forth in
Section 2.16(a) hereof.
"Depository Accounts" shall have the meaning set forth in
Section 4.15(h) hereof.
"Documents" shall have the meaning set forth in Section 8.1(c)
hereof.
"Dollar" and the sign "$" shall mean lawful money of the
United States of America.
"Domestic Rate Loan" shall mean any Advance that bears
interest based upon the Base Rate.
"Early Termination Date" shall have the meaning set forth in
Section 13.1 hereof.
"Earnings Before Interest and Taxes" shall mean for any period
the sum of (i) net income (or loss) of Borrower for such period (excluding
extraordinary gains or non-cash losses), plus (ii) all interest expense of
Borrower for such period, plus (iii) all charges against income of Borrower for
such period for federal, state and local taxes actually paid.
"EBITDA" shall mean for any period the sum of (i) Earnings
Before Interest and Taxes for such period plus (ii) depreciation expenses for
such period, plus (iii) amortization expenses for such period.
"Eligible Inventory" shall mean and include Inventory
excluding work in process, valued at the lower of cost or market value,
determined on a first-in-first-out basis, which is not, in Agent's opinion,
obsolete, slow moving or unmerchantable and which Agent, in its sole discretion,
shall not deem ineligible Inventory, based on such considerations as Agent may
from time to time deem appropriate including, without limitation, whether the
Inventory is subject to a perfected, first priority security interest in favor
of Agent and whether the Inventory conforms to all standards imposed by any
Governmental Body which has regulatory authority over such goods or the use or
sale thereof. Without limiting the generality of the foregoing, Eligible
Inventory shall not include (x) Inventory located at the premises of
subcontractors or vendors for processing or otherwise or (y) Inventory located
at warehouses or leased premises unless Agent has received consents and waivers,
in form and substance satisfactory to Agent, from such third parties with
respect to such Inventory and such Inventory is otherwise subject to a
perfected, first priority security interest in favor of Agent (including,
without limitation, in the case of warehouses that all warehouse receipts or
other negotiable instruments in respect of such Inventory have been duly
endorsed for transfer and delivered to Agent). Subject to the foregoing,
Eligible Inventory shall include Inventory in-transit for which title has passed
to Borrower, which is insured to the full value thereof and for which Agent
shall have in its possession (a) all negotiable bills of lading properly
endorsed and (b) all non-negotiable bills of lading issued in Agent's name.
"Eligible Receivables" shall mean and include with respect to
Borrower, each Receivable of Borrower arising in the ordinary course of
Borrower's business and which Agent, in its sole credit judgment, shall deem to
be an Eligible Receivable, based on such considerations as Agent may from time
to time deem appropriate. A Receivable shall not be deemed eligible unless such
Receivable is subject to Agent's first priority perfected security interest and
no other Lien (other than Permitted Encumbrances), and is evidenced by an
invoice or other documentary evidence satisfactory to Agent. In addition, no
Receivable shall be an Eligible Receivable if:
(a)......it arises out of a sale made by Borrower to an
Affiliate of Borrower or to a Person controlled by an Affiliate of Borrower;
(b)......(i) in the case of all Customers other than Target
(or any of its Affiliates), it is due or unpaid more than (x) sixty (60) days
after the original due date or (y) more than one hundred twenty (120) days after
the original invoice date; or (ii) in the case of Target (or any of its
Affiliates), it is due or unpaid more than (x) seventy-five (75) days after the
original due date or (y) more than one hundred thirty-five (135) days after the
original invoice date;
(c)......fifty percent (50%) or more of the Receivables from
such Customer are not deemed Eligible Receivables hereunder. Such percentage
may, in Agent's sole discretion, be increased or decreased from time to time;
(d)......any covenant, representation or warranty contained in
this Agreement with respect to such Receivable has been breached;
(e)......the Customer shall (i) apply for, suffer, or consent
to the appointment of, or the taking of possession by, a receiver, custodian,
trustee or liquidator of itself or of all or a substantial part of its property
or call a meeting of its creditors, (ii) admit in writing its inability, or be
generally unable, to pay its debts as they become due or cease operations of its
present business, (iii) make a general assignment for the benefit of creditors,
(iv) commence a voluntary case under any state or federal bankruptcy laws (as
now or hereafter in effect), (v) be adjudicated a bankrupt or insolvent, (vi)
file a petition seeking to take advantage of any other law providing for the
relief of debtors, (vii) acquiesce to, or fail to have dismissed, any petition
which is filed against it in any involuntary case under such bankruptcy laws, or
(viii) take any action for the purpose of effecting any of the foregoing;
(f)......the sale is to a Customer outside the continental
United States of America and Canada, unless the sale is on letter of credit,
guaranty or acceptance terms, in each case acceptable to Agent in its sole
discretion;
(g)......the sale to the Customer is on a bill-and-hold,
guaranteed sale, sale-and-return, sale on approval, consignment or any other
repurchase or return basis or is evidenced by chattel paper;
(h)......Agent believes, in its sole judgment, that collection
of such Receivable is insecure or that such Receivable may not be paid by reason
of the Customer's financial inability to pay;
(i)......the Customer is the United States of America, any
state or any department, agency or instrumentality of any of them, unless the
Borrower assigns its right to payment of such Receivable to Agent pursuant to
the Assignment of Claims Act of 1940, as amended (31 U.S.C. Sub-Section 3727 et
seq. and 41 U.S.C. Sub-Section 15 et seq.) or has otherwise complied with other
applicable statutes or ordinances;
(j)......the goods giving rise to such Receivable have not
been shipped and delivered to and accepted by the Customer or the services
giving rise to such Receivable have not been performed by Borrower and accepted
by the Customer or the Receivable otherwise does not represent a final sale;
(k)......the Receivables of the Customer exceed a credit limit
determined by Agent, in its sole discretion, to the extent such Receivable
exceeds such limit;
(l)......the Receivable is subject to any offset, deduction,
defense, dispute, or counterclaim, the Customer is also a creditor or supplier
of Borrower or the Receivable is contingent in any respect or for any reason;
(m)......Borrower has made any agreement with any Customer for
any deduction therefrom, except for discounts or allowances made in the ordinary
course of business for prompt payment, all of which discounts or allowances are
reflected in the calculation of the face value of each respective invoice
related thereto;
(n)......shipment of the merchandise or the rendition of
services has not been completed;
(o)......any return, rejection or repossession of the
merchandise has occurred;
(p)......such Receivable is not payable to Borrower; or
(q)......such Receivable is not otherwise satisfactory to
Agent as determined in good faith by Agent in the exercise of its discretion in
a reasonable manner.
"Environment" shall mean navigable waters, waters of the
contiguous zone, ocean waters, natural resources, surface waters, ground water,
drinking water supply, land surface, subsurface strata, ambient air, both inside
and outside of buildings and structures, man-made buildings and structures, and
plant and animal life on earth.
"Environmental Complaint" shall have the meaning set forth in
Section 4.19(d) hereof.
"Environmental Compliance Costs" shall mean any expenditures,
costs, assessments or expenses (including any expenditures, costs, assessments
or expenses in connection with the conduct of any Remedial Action, as well as
reasonable fees, disbursements and expenses of attorneys, experts, personnel and
consultants), whether direct or indirect, necessary to cause the operations,
real property, assets, equipment or facilities owned, leased, operated or used
by any Borrower or any Guarantor to be in compliance with any and all
requirements, as in effect at the Closing Date, of Environmental Laws,
principles of common law concerning pollution, protection of the Environment or
health and safety, or Permits issued pursuant to Environmental Laws; provided,
however, that Environmental Compliance Costs do not include expenditures, costs,
assessments or expenses necessary in connection with normal maintenance of such
real property, assets, equipment or facilities or the replacement of equipment
in the normal course of events due to ordinary wear and tear.
"Environmental Laws" shall mean all federal, state and local
environmental, land use, zoning, health, chemical use, safety and sanitation
laws, statutes, ordinances and codes relating to the protection of the
environment and/or governing the use, storage, treatment, generation,
transportation, processing, handling, production or disposal of Hazardous
Substances and the rules, regulations, policies, guidelines, interpretations,
decisions, orders and directives of federal, state and local governmental
agencies and authorities with respect thereto.
"Equipment" shall mean and include all of Borrower's goods
(other than Inventory) whether now owned or hereafter acquired and wherever
located including, without limitation, all equipment, machinery, apparatus,
motor vehicles, fittings, furniture, furnishings, fixtures, parts, accessories
and all replacements and substitutions therefor or accessions thereto.
"Equity Purchase Agreement" shall mean the Investment
Agreement dated as of April 14, 1999 among Borrower and the Management Investors
relating to the purchase by the Management Investors of 18 shares of Common
Stock of Borrower for an aggregate consideration of $1,800,000 in cash.
"Equity Purchase Documentation" shall mean, collectively, the
Equity Purchase Agreement and all other agreements, instruments and documents
executed in connection therewith or executed in connection with any of the other
Equity Transactions.
"Equity Transactions" shall have the meaning set forth in
Section 8.1(m) hereof.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time and the rules and regulations promulgated
thereunder.
"Eurodollar Rate" shall mean for any Eurodollar Rate Loan for
the then current Interest Period relating thereto the interest rate per annum
determined by PNC by dividing (the resulting quotient rounded upwards, if
necessary, to the nearest 1/100th of 1% per annum) (i) the rate of interest
determined by PNC in accordance with its usual procedures (which determination
shall be conclusive absent manifest error) to be the average of the London
interbank offered rates for U.S. Dollars quoted by the British Banker's
Association as set forth on Dow Jones Markets Service (formerly known as
Telrate) (or appropriate successor or, if British Banker's Association or its
successor ceases to provide such quotes, a comparable replacement determined by
PNC) display page 3750 (or such other display page on the Dow Jones Markets
Service system as may replace display page 3750) two (2) Business Days prior to
the first day of such Interest Period for an amount comparable to such
Eurodollar Rate Loan and having a borrowing date and a maturity comparable to
such Interest Period by (ii) a number equal to 1.00 minus the Reserve
Percentage. The Eurodollar Rate may also be expressed by the following formula:
Average of London interbank offered rates quoted by BBA as shown on Eurodollar
Rate = Dow Jones Market
Service display page 3750 or
appropriate successor 1.00 -
Reserve Percentage
"Eurodollar Rate Loan" shall mean an Advance at any time that
bears interest based on the Eurodollar Rate.
"Event of Default" shall mean the occurrence of any of the
events set forth in Article X hereof.
"Excess Cash Flow" for any fiscal period shall mean EBITDA of
Borrower for such fiscal period minus capital expenditures made by Borrower
during such fiscal period minus taxes actually paid by Borrower during such
fiscal period plus decreases in Working Capital of Borrower for such fiscal
period (excluding decreases in Working Capital resulting from any write down of
current assets or increase in reserves in accordance with GAAP) minus increases
in Working Capital of Borrower during such fiscal period (excluding increases in
Working Capital resulting from any write up of current assets or decrease in
reserves in accordance with GAAP) minus principal and interest payments under
Senior Debt Payments and Subordinated Debt Payments actually paid by Borrower
during such fiscal period.
"Federal Funds Rate" shall mean, for any day, the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as published for such
day (or if such day is not a Business Day, for the next preceding Business Day)
by the Federal Reserve Bank of New York, or if such rate is not so published for
any day which is a Business Day, the average of quotations for such day on such
transactions received by PNC from three Federal funds brokers of recognized
standing selected by PNC.
"Fee Letter" shall mean the fee letter dated the Closing Date
between Borrower and PNC.
"Fixed Charge Coverage Ratio" shall mean and include for
Borrower, with respect to any fiscal period, the ratio of (a) EBITDA for such
period minus the sum of (x) capital expenditures made during such period plus
(y) cash taxes actually paid during such period to (b) the sum of (i) all Senior
Debt Payments during such period plus (ii) all Subordinated Debt Payments during
such period.
"Formula Amount" shall have the meaning set forth in Section
2.1(a).
"Funded Debt" shall mean, for any period, the sum of (i) the
aggregate stated balance sheet amount of all Indebtedness of Borrower as
determined in accordance with GAAP (except, if the outstanding face amount of
any such Indebtedness is greater than the stated balance sheet amount of such
Indebtedness, such face amount shall be deemed to be the stated balance sheet
amount for purposes of this calculation) plus, without duplication, (ii) any
Indebtedness for borrowed money of any other Person as to which Borrower has
created a guarantee or other Contingent Obligation.
"GAAP" shall mean generally accepted accounting principles in
the United States of America in effect from time to time.
"General Intangibles" shall mean and include all of Borrower's
general intangibles, whether now owned or hereafter acquired including, without
limitation, all choses in action, causes of action, corporate or other business
records, inventions, designs, patents, patent applications, equipment
formulations, manufacturing procedures, quality control procedures, trademarks,
service marks, trade secrets, goodwill, copyrights, design rights,
registrations, licenses, franchises, customer lists, tax refunds, tax refund
claims, computer programs, all claims under guaranties, security interests or
other security held by or granted to Borrower to secure payment of any of the
Receivables by a Customer all rights of indemnification and all other intangible
property of every kind and nature (other than Receivables).
"Governmental Body" shall mean any nation or government, any
state, municipality or other political subdivision thereof or any entity,
authority, agency, division or department exercising the legislative, judicial,
regulatory or administrative functions of or pertaining to a government.
"Guarantor" shall mean Holdings and any other Person who may
hereafter guarantee payment or performance of the whole or any part of the
Obligations and "Guarantors" means collectively all such Persons.
"Guaranty" shall mean any guaranty of the obligations of
Borrower executed by a Guarantor in favor of Agent for the ratable benefit of
Lenders.
"Hazardous Discharge" shall have the meaning set forth in
Section 4.19(d) hereof.
"Hazardous Substance" shall mean, without limitation, any
flammable explosives, radon, radioactive materials, asbestos, urea formaldehyde
foam insulation, polychlorinated biphenyls, petroleum and petroleum products,
methane, hazardous materials, Hazardous Wastes, hazardous or Toxic Substances or
related materials as defined in CERCLA, the Hazardous Materials Transportation
Act, as amended (49 U.S.C. Sections 1801, et seq.), RCRA, Articles 15 and 27 of
the New York State Environmental Conservation Law or any other applicable
Environmental Law and in the regulations adopted pursuant thereto.
"Hazardous Wastes" shall mean all waste materials subject to
regulation under CERCLA, RCRA or applicable state law, and any other applicable
Federal and state laws now in force or hereafter enacted relating to hazardous
waste disposal.
"Holdings" shall mean PTI Holding Inc., a Delaware corporation.
"Holdings Proceeding" shall mean the occurrence of any of the
following events: (i) Holdings shall apply for, consent to or suffer the
appointment of, or the taking of possession by, a receiver, custodian, trustee,
liquidator or similar fiduciary of itself or of all or a substantial part of its
property, (ii) Holdings shall make a general assignment for the benefit of
creditors, (iii) Holdings shall commence a voluntary case under any state or
federal bankruptcy laws (as now or hereafter in effect), (iv) Holdings shall be
adjudicated a bankrupt or insolvent, (v) Holdings shall file a petition seeking
to take advantage of any other law providing for the relief of debtors, (vi)
Holdings shall acquiesce to, or fail to have dismissed, within thirty (30) days,
any petition filed against it in any involuntary case under such bankruptcy
laws, (vii) Holdings shall take any action for the purpose of effecting any of
the foregoing, or (viii) Holdings shall admit in writing its inability, or be
generally unable, to pay its debts as they become due or cease operations of its
present business.
"Indebtedness" of a Person at a particular date shall mean all
obligations of such Person which in accordance with GAAP would be classified
upon a balance sheet as liabilities (except capital stock and surplus earned or
otherwise) and in any event, without limitation by reason of enumeration, shall
include all indebtedness, debt and other similar monetary obligations of such
Person whether direct or guaranteed, and all premiums, if any, due at the
required prepayment dates of such indebtedness, and all indebtedness secured by
a Lien on assets owned by such Person, whether or not such indebtedness actually
shall have been created, assumed or incurred by such Person. Any indebtedness of
such Person resulting from the acquisition by such Person of any assets subject
to any Lien shall be deemed, for the purposes hereof, to be the equivalent of
the creation, assumption and incurring of the indebtedness secured thereby,
whether or not actually so created, assumed or incurred.
"Ineligible Security" shall mean any security which may not be
underwritten or dealt in by member banks of the Federal Reserve System under
Section 16 of the Banking Act of 1933 (12 U.S.C. Section 24, Seventh), as
amended.
"Intercompany Note" shall have the meaning set forth in
Section 7.8 hereof.
"Intercreditor Agreement" shall mean the Intercreditor and
Subordination Agreement of even date herewith between Agent and Holdings.
"Interest Period" shall mean the period provided for any
Eurodollar Rate Loan pursuant to Section 2.2(b).
"Inventory" shall mean and include all of Borrower's now owned
or hereafter acquired goods, merchandise and other personal property, wherever
located, to be furnished under any contract of service or held for sale or
lease, all raw materials, work in process, finished goods and materials and
supplies of any kind, nature or description which are or might be used or
consumed in Borrower's business or used in selling or furnishing such goods,
merchandise and other personal property, and all documents of title or other
documents representing them.
"Inventory Advance Rate" shall have the meaning set forth in
Section 2.1(a)(y)(ii) hereof.
"Issuer" shall mean any Person who issues a Letter of Credit
and/or accepts a draft pursuant to the terms hereof.
"Karlen" shall mean Karlen Manufacturing, Inc., a Michigan
corporation.
"Karlen Acquisition" shall mean the acquisition of
substantially all of the assets of Karlen by Borrower pursuant to the
Acquisition Agreement.
"Leasehold Interests" shall mean all of Borrower's right,
title and interest in and to (a) the premises located at 5401 South Graham Road,
Swan Creek Township, Saginaw County Michigan and (b) any and all other real
property now or hereafter leased by Borrower.
"Lender" and "Lenders" shall have the meaning ascribed to such
term in the preamble to this Agreement and shall include each Person which
becomes a transferee, successor or assign of any Lender.
"Letter of Credit Fees" shall have the meaning set forth in
Section 3.2.
"Letters of Credit" shall have the meaning set forth in
Section 2.9.
"Leverage Ratio" shall mean, at any date of determination, the
ratio of Funded Debt on such date to EBITDA for any fiscal period ending on such
date.
"Lien" shall mean any mortgage, deed of trust, pledge,
hypothecation, assignment, security interest, lien (whether statutory or
otherwise), Charge, claim or encumbrance, or preference, priority or other
security agreement or preferential arrangement held or asserted in respect of
any asset of any kind or nature whatsoever including, without limitation, any
conditional sale or other title retention agreement, any lease having
substantially the same economic effect as any of the foregoing, and the filing
of, or agreement to give, any financing statement under the Uniform Commercial
Code or comparable law of any jurisdiction.
"Management Agreement" shall mean the management agreement of
even date herewith between Borrower and PTI as amended from time to time in
accordance with its terms.
"Management Equity Transactions" shall have the meaning set
forth in Section 8.1(m) hereof.
"Management Investors" shall mean Meredith Birrittella and
Warren Schaeffer.
"Material Adverse Effect" shall mean a material adverse effect
on (a) the condition (financial or otherwise), results of operations, assets,
business, properties or prospects of the applicable Person or Persons, (b)
Borrower's ability to duly and punctually pay or perform the Obligations in
accordance with the terms thereof, (c) the value of the Collateral, or Agent's
Liens on the Collateral or the priority of any such Lien or (d) the practical
realization of the benefits of Agent's and each Lender's rights and remedies
under this Agreement and the Other Documents.
"Maximum Revolving Advance Amount" shall mean $6,000,000.
"Mezzanine Documentation" shall mean the Securities Purchase
Agreement, the Subordinated Note, the Warrants, the Shareholders Agreement and
all other agreements, instruments and documents executed in connection
therewith, each as amended from time to time in accordance with their terms.
"Mezzanine Lender" shall mean The 1818 Mezzanine Fund, an
Affiliate of Brown Brothers Harriman and Co., a New York limited partnership.
"Monthly Advances" shall have the meaning set forth in Section
3.1 hereof.
"Multiemployer Plan" shall mean a "multiemployer plan" as
defined in Sections 3(37) and 4001(a)(3) of ERISA.
"Net Worth" at a particular date, shall mean all amounts which
would be included under stockholders' equity on a balance sheet of Borrower
determined in accordance with GAAP as at such date.
"Note" shall mean collectively, the Term Note and the
Revolving Credit Note.
"Obligations" shall mean and include any and all loans,
advances, debts, liabilities, obligations, covenants and duties owing by
Borrower to Lenders or Agent or to any other direct or indirect subsidiary or
affiliate of Agent or any Lender (excluding accounts payable to any such direct
or indirect subsidiary or affiliate of Agent or any Lender that is a supplier or
other vendor of Borrower of goods in the ordinary course of business) of any
kind or nature, present or future (including, without limitation, any interest
accruing thereon after maturity, or after the filing of any petition in
bankruptcy, or the commencement of any insolvency, reorganization or like
proceeding relating to the Borrower, whether or not a claim for post-filing or
post-interest is allowed in such proceeding), whether or not evidenced by any
note, guaranty or other instrument, whether arising under any agreement,
instrument or document (including, without limitation, this Agreement and the
Other Documents) whether or not for the payment of money, whether arising by
reason of an extension of credit, opening of a letter of credit, loan, equipment
lease or guarantee, under any interest or currency swap, future, option or other
similar agreement, or in any other manner, whether arising out of overdrafts or
deposit or other accounts or electronic funds transfers (whether through
automated clearing houses or otherwise) or out of the Agent's or any Lender's
non-receipt of or inability to collect funds or otherwise not being made whole
in connection with depository transfer check or other similar arrangements,
whether direct or indirect (including those acquired by assignment or
participation), absolute or contingent, joint or several, due or to become due,
now existing or hereafter arising, contractual or tortious, liquidated or
unliquidated, regardless of how such indebtedness or liabilities arise or by
what agreement or instrument they may be evidenced or whether evidenced by any
agreement or instrument, including, but not limited to, any and all of
Borrower's Indebtedness and/or liabilities under this Agreement, the Other
Documents or under any other agreement between Agent or Lenders and Borrower and
any amendments, extensions, renewals or increases and all costs and expenses of
Agent and any Lender incurred in the documentation, negotiation, modification,
enforcement, collection or otherwise in connection with any of the foregoing,
including but not limited to reasonable attorneys' fees and expenses and all
obligations of Borrower to Agent or Lenders to perform acts or refrain from
taking any action.
"Original Owner" shall mean Meredith Birrittella.
"Other Documents" shall mean the Note, the Questionnaire, any
Guaranty, the Pledge Agreement, the Subordination Agreements, Intercreditor
Agreement, and any and all other agreements, instruments and documents,
including, without limitation, guaranties, pledges, powers of attorney,
consents, and all other writings heretofore, now or hereafter executed by
Borrower or any Guarantor and/or delivered to Agent or any Lender in respect of
the transactions contemplated by this Agreement.
"Parent" of any Person shall mean a corporation or other
entity owning, directly or indirectly at least 50% of the Stock having ordinary
voting power to elect a majority of the directors of the Person, or other
Persons performing similar functions for any such Person.
"Parent Equity Investment" shall have the meaning set forth in
Section 8.1(m) hereof.
"Participant" shall mean each Person who shall be granted the
right by any Lender to participate in any of the Advances and who shall have
entered into a participation agreement in form and substance satisfactory to
such Lender.
"Payment Office" shall mean initially Two Tower Center
Boulevard, East Brunswick, New Jersey 08816; thereafter, such other office of
Agent, if any, which it may designate by notice to Borrower and to each Lender
to be the Payment Office.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Permit" shall mean any license, permit, exemption, consent,
waiver, authorization, right, order or approval of, and required registration
with, any Governmental Body.
"Permitted Encumbrances" shall mean (a) Liens in favor of
Agent for the benefit of Agent and Lenders; (b) Liens for taxes, assessments or
other governmental charges not delinquent or being contested in good faith and
by appropriate proceedings and with respect to which proper reserves have been
taken by Borrower; provided, that, the Lien shall have no effect on the priority
of the Liens in favor of Agent or the value of the assets in which Agent has
such a Lien and a stay of enforcement of any such Lien shall be in effect; (c)
Liens disclosed in the financial statements referred to in Section 5.5, the
existence of which Agent has consented to in writing; (d) deposits or pledges to
secure obligations under worker's compensation, social security or similar laws,
or under unemployment insurance; (e) deposits or pledges to secure bids,
tenders, contracts (other than contracts for the payment of money), leases,
statutory obligations, surety and appeal bonds and other obligations of like
nature arising in the ordinary course of Borrower's business; (f) judgment Liens
that have been stayed or bonded and mechanics', workers', materialmen's or other
like Liens arising in the ordinary course of Borrower's business with respect to
obligations which are not due or which are being contested in good faith by
Borrower; (g) Liens placed upon fixed assets or equipment hereafter acquired to
secure a portion of the purchase price thereof, provided that (x) any such lien
shall not encumber any other property of Borrower and (y) the aggregate amount
of Indebtedness secured by such Liens incurred as a result of such purchases
during any fiscal year shall not exceed the amount provided for in Section 7.6;
and (h) Liens disclosed on Schedule 1.2.
"Person" shall mean any individual, sole proprietorship,
partnership, corporation, business trust, joint stock company, trust,
unincorporated organization, association, limited liability company, limited
liability partnership, institution, public benefit corporation, joint venture,
entity or Governmental Body (whether Federal, state, county, city, municipal or
otherwise, including any instrumentality, division, agency, body or department
thereof).
"Plan" shall mean any employee benefit plan within the meaning
of Section 3(3) of ERISA, maintained for employees of Borrower or any member of
the Controlled Group or any such Plan to which Borrower or any member of the
Controlled Group is required to contribute on behalf of any of its employees.
"Pledge Agreement" shall mean the Pledge Agreement of even
date herewith executed by Holdings in favor of Agent securing the Guaranty of
Holdings.
"Pro Forma Balance Sheet" shall have the meaning set forth in
Section 5.5(a) hereof.
"Pro Forma Financial Statements" shall have the meaning set
forth in Section 5.5(b) hereof.
"Projections" shall have the meaning set forth in Section 5.5
(b) hereof.
"PTI" shall mean Protective Technologies International Inc., a
New York corporation and wholly-owned subsidiary of Holdings.
"Purchasing Lender" shall have the meaning set forth in
Section 15.3 hereof.
"Questionnaire" shall mean the Documentation Information
Questionnaire and the responses thereto provided by Borrower and delivered to
Agent.
"RCRA" shall mean the Resource Conservation and Recovery Act,
42 U.S.C. 6901 et seq., as same
may be amended from time to time.
"Real Property" shall mean all of the owned and leased real
property (and improvements thereon) identified on Schedule 4.5 hereto.
"Receivables" shall mean and include, as to Borrower, all of
Borrower's accounts, contract rights, instruments (including those evidencing
Indebtedness owed to Borrower by their Affiliates), documents, chattel paper,
general intangibles relating to accounts, drafts and acceptances, and all other
forms of obligations owing to Borrower arising out of or in connection with the
sale or lease of Inventory or the rendition of services, all guarantees and
other security therefor, whether secured or unsecured, now existing or hereafter
created, and whether or not specifically sold or assigned to Agent hereunder.
"Receivables Advance Rate" shall have the meaning set forth in
Section 2.1(a)(y)(i) hereof.
"Release" shall have the meaning set forth in Section 5.7(c)
(i) hereof.
"Remedial Action" shall mean all actions, whether voluntary or
involuntary, reasonably necessary to comply with, or discharge any obligation
under, Environmental Laws to (i) clean up, remove, treat, cover or in any other
way adjust Hazardous Substances in the indoor or outdoor Environment; (ii)
prevent or control the Release of Hazardous Substances so that they do not
migrate or endanger or threaten to endanger public health or welfare or the
Environment; or (iii) perform remedial studies, investigations, restoration and
post-remedial studies, investigations and monitoring on, about or in any real
property.
"Reportable Event" shall mean a reportable event described in
Section 4043(b) of ERISA or the regulations promulgated thereunder.
"Required Lenders" shall mean Lenders holding at least
sixty-six percent (66%) of the Advances and, if no Advances are outstanding,
shall mean Lenders holding sixty-six percent (66%) of the Commitment
Percentages.
"Reserve Percentage" shall mean the maximum effective
percentage in effect on any day as prescribed by the Board of Governors of the
Federal Reserve System (or any successor) for determining the reserve
requirements (including, without limitation, supplemental, marginal and
emergency reserve requirements) with respect to eurocurrency funding.
"Revolving Advances" shall mean Advances made other than
Letters of Credit and the Term Loan.
"Revolving Credit Note" shall mean, collectively, the
promissory notes referred to in Section 2.1(a) hereof.
"Revolving Interest Rate" shall mean an interest rate per
annum equal to (a) the sum of the Base Rate plus one-quarter of one percent
(.25%) with respect to Domestic Rate Loans and (b) the sum of the Eurodollar
Rate plus the Applicable Margin with respect to Eurodollar Rate Loans.
"Securities Purchase Agreement" shall mean the Securities
Purchase Agreement of even date herewith between Borrower and Mezzanine Lender,
as it may be amended in accordance with its terms.
"Section 20 Subsidiary" shall mean the Subsidiary of the bank
holding company controlling PNC, which Subsidiary has been granted authority by
the Federal Reserve Board to underwrite and deal in certain Ineligible
Securities.
"Senior Debt Payments" shall mean and include all cash
actually expended by Borrower to make (a) interest payments on any Advances
hereunder, plus, (b) scheduled principal payments on the Term Loan, plus (c)
payments for all fees, commissions and charges set forth herein and with respect
to any Advances, plus (d) capitalized lease payments, plus (e) payments with
respect to any other Indebtedness for borrowed money, including without
limitation the Intercompany Note.
"Seller Note" shall mean the subordinated promissory note of
Holdings dated as of the date hereof in the aggregate principal sum of
$1,000,000 and issued to the Seller pursuant to the Acquisition Agreement.
"Senior Subordinated Security Agreement" shall mean that
certain Senior Subordinated Security Agreement of even date herewith between
Holdings and Borrower.
"Settlement Date" shall mean the Closing Date and thereafter
Wednesday of each week unless such day is not a Business Day in which case it
shall be the next succeeding Business Day.
"Shareholders Agreement" shall mean the Shareholders'
Agreement among Holdings, Borrower, Mezzanine Lender, the Original Owner and
Warren Schaeffer, as it may be amended in accordance with its terms.
"Stock" shall mean all shares, options, warrants, general or
limited partnership interests, member interests, participation or other
equivalents (regardless of how designated) of or in a corporation, partnership,
limited liability company or other entity whether voting or nonvoting, including
without limitation common stock, preferred stock, convertible securities or any
other "equity security" (as such term is defined in Rule 3a11-1 of the General
Rules and Regulations promulgated by the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended).
"Subordinated Debt Payments" shall mean and include all cash
actually expended to make payments of principal and interest on the Subordinated
Note.
"Subordinated Loan" shall mean the loan evidenced by the
Subordinated Note.
"Subordinated Note" shall mean, collectively, the subordinated
promissory note issued by Borrower in favor of Mezzanine Lender dated of even
date herewith in the aggregate principal sum of $8,000,000.
"Subordination Agreement" shall mean, collectively, the
Subordination Agreement of even date herewith between Agent and Mezzanine Lender
and acknowledged and agreed to by Borrower, and the Subordination Agreement
dated of even date herewith among Agent, Holdings and the Seller, each as
amended, supplemented or otherwise modified from time to time.
"Subsidiary" shall mean a corporation or other entity of whose
shares of stock or other ownership interests having ordinary voting power (other
than stock or other ownership interests having such power only by reason of the
happening of a contingency) to elect a majority of the directors of such
corporation, or other Persons performing similar functions for such entity, are
owned, directly or indirectly, by such Person.
"Term" shall have the meaning set forth in Section 13.1 hereof.
"Term Loan" shall mean the Advances made pursuant to Section
2.4 hereof.
"Term Loan Rate" shall mean an interest rate per annum equal
to (a) the sum of the Base Rate plus three-fourths of one percent (.75%) with
respect to Domestic Rate Loans or (b) the sum of the Eurodollar Rate plus the
Applicable Margin with respect to Eurodollar Rate Loans.
"Term Note" shall mean the promissory note described in
Section 2.4 hereof.
"Termination Event" shall mean (i) a Reportable Event with
respect to any Plan or Multiemployer Plan; (ii) the withdrawal of Borrower or
any member of the Controlled Group from a Plan or Multiemployer Plan during a
plan year in which such entity was a "substantial employer" as defined in
Section 4001(a)(2) of ERISA; (iii) the providing of notice of intent to
terminate a Plan in a distress termination described in Section 4041(c) of
ERISA; (iv) the institution by the PBGC of proceedings to terminate a Plan or
Multiemployer Plan; (v) any event or condition (a) which might constitute
grounds under Section 4042 of ERISA for the termination of, or the appointment
of a trustee to administer, any Plan or Multiemployer Plan, or (b) that may
result in termination of a Multiemployer Plan pursuant to Section 4041A of
ERISA; or (vi) the partial or complete withdrawal within the meaning of Sections
4203 and 4205 of ERISA, of Borrower or any member of the Controlled Group from a
Multiemployer Plan.
"Toxic Substance" shall mean and include any material present
on the Real Property or the Leasehold Interests which has been shown to have
significant adverse effect on human health or which is subject to regulation
under the Toxic Substances Control Act (TSCA), 15 U.S.C. 2601 et seq.,
applicable state law, or any other applicable Federal or state laws now in force
or hereafter enacted relating to toxic substances. "Toxic Substance" includes
but is not limited to asbestos, polychlorinated biphenyls (PCBs) and lead-based
paints.
"Transactions" shall have the meaning set forth in Section 5.5
hereof.
"Transferee" shall have the meaning set forth in Section 15.3
(b) hereof.
"Undrawn Availability" at a particular date shall mean an
amount equal to (a) the lesser of (i) the Formula Amount or (ii) the Maximum
Revolving Advance Amount, minus (b) the sum of (i) the outstanding amount of
Advances (other than the Term Loan) plus (ii) all amounts due and owing
Borrower's trade creditors which are more than sixty (60) days past their due
date, plus (iii) fees and expenses for which Borrower is liable but which have
not been paid or charged to Borrower's Account.
"Uniform Commercial Code" shall have the meaning set forth in
Section 1.3 hereof.
"Warrants" shall mean those Warrants of Borrower issued to the
Mezzanine Lender on the Closing Date pursuant to the Mezzanine Documentation.
"Week" shall mean the time period commencing with the opening
of business on a Wednesday and ending on the end of business the following
Tuesday.
"Working Capital" at a particular date, shall mean the excess,
if any, of Current Assets over Current Liabilities at such date.
"Year 2000 Problem" shall have the meaning set forth in
Section 5.23 hereof.
1.3. Uniform Commercial Code Terms. All terms used herein and defined
in the Uniform Commercial Code as adopted in the State of New York (the "Uniform
Commercial Code") shall have the meaning given therein unless otherwise defined
herein.
1.4. Certain Matters of Construction. The terms "herein," "hereof" and
"hereunder" and other words of similar import refer to this Agreement as a whole
and not to any particular section, paragraph or subdivision. Any pronoun used
shall be deemed to cover all genders. Wherever appropriate in the context, terms
used herein in the singular also include the plural and vice versa "or" has the
inclusive meaning represented by the phrase "and/or," and "including" has the
meaning represented by the phrase "including without limitation." All references
to "shall" and "will" are intended to have the same meaning. All references to
statutes and related regulations shall include any amendments of same and any
successor statutes and regulations. Unless otherwise provided, all references to
any instruments or agreements to which Agent is a party, including, without
limitation, references to any of the Other Documents, shall include any and all
modifications or amendments thereto and any and all extensions or renewals
thereof. All covenants hereunder shall be given independent effect so that if a
particular action or condition is not permitted by any of such covenants, the
fact that it would be permitted by an exception to, or otherwise within the
limitations of, another covenant shall not avoid the occurrence of a default if
such action is taken or condition exists. In addition, all representations and
warranties hereunder shall be given independent effect so that if a particular
representation or warranty proves to be incorrect or is breached, the fact that
another representation or warranty concerning the same or similar subject matter
is correct or is not breached will not affect the incorrectness of or breach of
a representation and warranty hereunder.
II. ADVANCES, PAYMENTS.
2.1. (a)......Revolving Advances. Subject to the terms and conditions
set forth in this Agreement, including, without limitation, Section 2.1(b), each
Lender, severally and not jointly, will make Revolving Advances to Borrower in
aggregate amounts outstanding at any time equal to such Lender's Commitment
Percentage of the lesser of (x) the Maximum Revolving Advance Amount less the
aggregate amount of outstanding Letters of Credit or (y) an amount equal to the
sum of:
(i) up to 85%, subject to the provisions of Section 2.1(b)
hereof ("Receivables Advance Rate"), of Eligible Receivables,
plus
(ii) up to the lesser of (A) 60%, subject to the provisions of
Section 2.1(b) hereof ("Inventory Advance Rate"), of the value
of the Eligible Inventory (the Receivables Advance Rate and
the Inventory Advance Rate shall be referred to collectively,
as the "Advance Rates") or (B) $3,000,000 in the aggregate at
any one time, minus
(iii) the aggregate amount of outstanding Letters of Credit,
minus
(iv) such reserves as Agent may reasonably deem proper and
necessary from time to time.
The amount derived from the sum of (x) Sections 2.1(a)(y)(i) and (ii)
minus (y) the sum of Section 2.1 (a)(y)(iii) and (iv) at any time and from time
to time shall be referred to as the "Formula Amount." The Revolving Advances
shall be evidenced one or more secured promissory notes (collectively,
"Revolving Credit Note") substantially in the form attached hereto as Exhibit
2.1(a).
(b)......Discretionary Rights. The Advance Rates may be
increased or decreased by Agent at any time and from time to time in the
exercise of its reasonable discretion. Borrower consents to any such increases
or decreases and acknowledges that decreasing the Advance Rates or increasing
the reserves may limit or restrict Advances requested by Borrower.
2.2. Procedure for Revolving Advances Borrowing.
(a)......Borrower may notify Agent prior to 11:00 a.m. on a
Business Day of Borrower's request to incur, on that day, a Revolving Advance
hereunder, which Revolving Advance shall be a minimum amount of $250,000 and in
integral multiples of $50,000 and which request shall be irrevocable. Should any
amount required to be paid as interest hereunder, or as fees or other charges
under this Agreement or any other agreement with Agent or Lenders, or with
respect to any other Obligation, become due, same shall be deemed a request for
a Revolving Advance as of the date such payment is due, in the amount required
to pay in full such interest, fee, charge or Obligation under this Agreement or
any other agreement with Agent or Lenders, and such request shall be
irrevocable.
(b)......Notwithstanding the provisions of (a) above, in the
event Borrower desires to obtain a Eurodollar Rate Loan, Borrower shall give
Agent at least three (3) Business Days' prior written notice, specifying (i) the
date of the proposed borrowing (which shall be a Business Day), (ii) the type of
borrowing and the amount on the date of such Advance to be borrowed, which
amount shall be a minimum amount of $250,000 and in integral multiples of
$50,000, and (iii) the duration of the first Interest Period therefor. Interest
Periods for Eurodollar Rate Loans shall be for one, two or three months;
provided, if an Interest Period would end on a day that is not a Business Day,
it shall end on the next succeeding Business Day unless such day falls in the
next succeeding calendar month in which case the Interest Period shall end on
the next preceding Business Day. No Eurodollar Rate Loan shall be made available
to Borrower during the continuance of a Default or an Event of Default.
(c)......Each Interest Period of a Eurodollar Rate Loan shall
commence on the date such Eurodollar Rate Loan is made and shall end on such
date as Borrower may elect as set forth in (b)(iii) above provided that the
exact length of each Interest Period shall be determined in accordance with the
practice of the interbank market for offshore Dollar deposits and no Interest
Period shall end after the last day of the Term.
Borrower shall elect the initial Interest Period applicable to a
Eurodollar Rate Loan by its notice of borrowing given to Agent pursuant to
Section 2.2(b) or by its notice of conversion given to Agent pursuant to Section
2.2(d), as the case may be. Borrower shall elect the duration of each succeeding
Interest Period by giving irrevocable written notice to Agent of such duration
not less than three (3) Business Days prior to the last day of the then current
Interest Period applicable to such Eurodollar Rate Loan. If Agent does not
receive timely notice of the Interest Period elected by Borrower, Borrower shall
be deemed to have elected to convert to a Domestic Rate Loan subject to Section
2.2(d) hereinbelow.
(d)......Provided that no Event of Default shall have occurred
and be continuing, Borrower may, on the last Business Day of the then current
Interest Period applicable to any outstanding Eurodollar Rate Loan, or on any
Business Day with respect to Domestic Rate Loans, convert any such loan into a
loan of another type in the same aggregate principal amount provided that any
conversion of a Eurodollar Rate Loan shall be made only on the last Business Day
of the then current Interest Period applicable to such Eurodollar Rate Loan. If
Borrower desires to convert a loan, Borrower shall give Agent not less than
three (3) Business Days' prior written notice to convert from a Domestic Rate
Loan to a Eurodollar Rate Loan or one (1) Business Day's prior written notice to
convert from a Eurodollar Rate Loan to a Domestic Rate Loan, specifying the date
of such conversion, the loans to be converted and if the conversion is from a
Domestic Rate Loan to any other type of loan, the duration of the first Interest
Period therefor. After giving effect to each such conversion, there shall not be
outstanding more than five (5) Eurodollar Rate Loans, in the aggregate.
(e)......At its option and upon three (3) Business Days' prior
written notice, Borrower may prepay the Eurodollar Rate Loans in whole at any
time or in part from time to time, without premium or penalty, but with accrued
interest on the principal being prepaid to the date of such repayment. Borrower
shall specify the date of prepayment of Advances which are Eurodollar Rate Loans
and the amount of such prepayment. In the event that any prepayment of a
Eurodollar Rate Loan is required or permitted on a date other than the last
Business Day of the then current Interest Period with respect thereto, Borrower
shall indemnify Agent and Lenders therefor in accordance with Section 2.2(f)
hereof.
(f)......Borrower shall indemnify Agent and Lenders and hold
Agent and Lenders harmless from and against any and all losses or expenses that
Agent and Lenders may sustain or incur as a consequence of any prepayment,
conversion of or any default by Borrower in the payment of the principal of or
interest on any Eurodollar Rate Loan or failure by Borrower to complete a
borrowing of, a prepayment of or conversion of or to a Eurodollar Rate Loan
after notice thereof has been given, including, but not limited to, any interest
payable by Agent or Lenders to lenders of funds obtained by it in order to make
or maintain its Eurodollar Rate Loans hereunder. A certificate as to any
additional amounts payable pursuant to the foregoing sentence submitted by Agent
or any Lender to Borrower shall be conclusive absent manifest error.
(g)......Notwithstanding any other provision hereof, if any
applicable law, treaty, regulation or directive, or any change therein or in the
interpretation or application thereof, shall make it unlawful for any Lender
(for purposes of this subsection (g), the term "Lender" shall include any Lender
and the office or branch where any Lender or any corporation or bank controlling
such Lender makes or maintains any Eurodollar Rate Loans) to make or maintain
its Eurodollar Rate Loans, the obligation of Lenders to make Eurodollar Rate
Loans hereunder shall forthwith be cancelled and Borrower shall, if any affected
Eurodollar Rate Loans are then outstanding, promptly upon request from Agent,
either pay all such affected Eurodollar Rate Loans or convert such affected
Eurodollar Rate Loans into loans of another type. If any such payment or
conversion of any Eurodollar Rate Loan is made on a day that is not the last day
of the Interest Period applicable to such Eurodollar Rate Loan, Borrower shall
pay Agent, upon Agent's request, such amount or amounts as may be necessary to
compensate Lenders for any loss or expense sustained or incurred by Lenders in
respect of such Eurodollar Rate Loan as a result of such payment or conversion,
including (but not limited to) any interest or other amounts payable by Lenders
to lenders of funds obtained by Lenders in order to make or maintain such
Eurodollar Rate Loan. A certificate as to any additional amounts payable
pursuant to the foregoing sentence submitted by Lenders to Borrower shall be
conclusive absent manifest error.
2.3. Disbursement of Advance Proceeds. All Advances shall be disbursed
from whichever office or other place Agent may designate from time to time and,
together with any and all other Obligations of Borrower to Agent or Lenders,
shall be charged to Borrower's Account on Agent's books. During the Term,
Borrower may use the Revolving Advances by borrowing, prepaying and reborrowing,
all in accordance with the terms and conditions hereof. The proceeds of each
Revolving Advance requested by Borrower or deemed to have been requested by
Borrower under Section 2.2(a) hereof shall, with respect to requested Revolving
Advances to the extent Lenders make such Revolving Advances, be made available
to the Borrower on the day so requested by way of credit to Borrower's operating
account at PNC, or such other bank as Borrower may designate following
notification to Agent, in immediately available federal funds or other
immediately available funds or, with respect to Revolving Advances deemed to
have been requested by Borrower, be disbursed to Agent to be applied to the
outstanding Obligations giving rise to such deemed request.
2.4. Term Loan. Subject to the terms and conditions of this Agreement,
each Lender, severally and not jointly, will make a Term Loan to Borrower in the
sum equal to such Lender's Commitment Percentage of $4,000,000. The Term Loan
shall be advanced on the Closing Date and shall be, with respect to principal,
payable as follows, subject to acceleration upon the occurrence of an Event of
Default under this Agreement or termination of this Agreement: in equal monthly
installments of $66,667.00 each, commencing on May 1, 1999 and on the first day
of each month thereafter, with the outstanding principal balance, together with
accrued interest and charges due and payable on the last day of the Term and
shall be evidenced by a secured promissory note (the "Term Note") in
substantially the form attached hereto as Exhibit 2.4.
2.5. Maximum Advances. The aggregate balance of Revolving Advances
outstanding at any time shall not exceed the lesser of (a) Maximum Revolving
Advance Amount or (b) the Formula Amount.
2.6. Repayment of Advances.
(a)......The Advances shall be due and payable in full on the
last day of the Term subject to earlier prepayment as herein provided. The Term
Loan shall be due and payable as provided in Section 2.4 hereof and in the Term
Note.
(b)......Borrower recognizes that the amounts evidenced by
checks, notes, drafts or any other items of payment relating to and/or proceeds
of Collateral may not be collectible by Agent on the date received. In
consideration of Agent's agreement to conditionally credit Borrower's Account as
of the Business Day on which Agent receives those items of payment, Borrower
agrees that, in computing the charges under this Agreement, all items of payment
shall be deemed applied by Agent on account of the Obligations one (1) Business
Day after the Business Day Agent receives such payments via wire transfer or
electronic depository check. Agent is not, however, required to credit
Borrower's Account for the amount of any item of payment which is unsatisfactory
to Agent and Agent may charge Borrower's Account for the amount of any item of
payment which is returned to Agent unpaid.
(c)......All payments (including prepayments) of principal,
interest and other amounts payable hereunder, or under any of the related
agreements shall be made to Agent on behalf of the Lenders at the Payment Office
not later than 1:00 P.M. (New York time) on the due date therefor in lawful
money of the United States of America in federal funds or other funds
immediately available to Agent. Agent shall have the right to effectuate payment
on any and all Obligations due and owing hereunder by charging Borrower's
Account or by making Advances as provided in Section 2.2 hereof.
(d)......Borrower shall pay principal, interest, and all other
amounts payable hereunder, or under any related agreement, without any deduction
whatsoever, including, but not limited to, any deduction for any setoff or
counterclaim.
2.7. Repayment of Excess Advances. The aggregate balance of Advances
outstanding at any time in excess of the maximum amount of Advances permitted
hereunder shall be immediately due and payable without the necessity of any
demand, at the Payment Office, whether or not a Default or Event of Default has
occurred.
2.8. Statement of Account. Agent shall maintain, in accordance with its
customary procedures, a loan account ("Borrower's Account") in the name of
Borrower in which shall be recorded the date and amount of each Advance made by
Agent and the date and amount of each payment in respect thereof; provided,
however, the failure by Agent to record the date and amount of any Advance shall
not adversely affect Agent or any Lender. Each month, Agent shall send to
Borrower a statement showing the accounting for the Advances made, payments made
or credited in respect thereof, and other transactions between Agent and
Borrower, during such month. The monthly statements shall be deemed correct and
binding upon Borrower in the absence of manifest error and shall constitute an
account stated between Lenders and Borrower unless Agent receives a written
statement of Borrower's specific exceptions thereto within forty five (45) days
after such statement is received by Borrower. The records of Agent with respect
to Borrower's Account shall be conclusive evidence absent manifest error of the
amounts of Advances and other charges thereto and of payments applicable
thereto.
2.9. Letters of Credit. Subject to the terms and conditions hereof,
Agent shall (a) issue or cause the issuance of Letters of Credit ("Letters of
Credit") on behalf of Borrower; provided, however, that Agent will not be
required to issue or cause to be issued any Letters of Credit to the extent that
the face amount of such Letters of Credit would then cause the sum of (i) the
outstanding Revolving Advances plus (ii) outstanding Letters of Credit to exceed
the lesser of (x) the Maximum Revolving Advance Amount or (y) the Formula
Amount. The maximum amount of outstanding Letters of Credit shall not exceed
$1,000,000 in the aggregate at any time. All disbursements or payments related
to Letters of Credit shall be deemed to be Domestic Rate Loans consisting of
Revolving Advances and shall bear interest at the Revolving Interest Rate for
Domestic Rate Loans; Letters of Credit that have not been drawn upon shall not
bear interest.
2.10. Issuance of Letters of Credit.
(a)......Borrower may request Agent to issue or cause the
issuance of a Letter of Credit by delivering to Agent at the Payment Office,
Agent's form of Letter of Credit Application (the "Letter of Credit
Application") completed to the satisfaction of Agent; and, such other
certificates, documents and other papers and information as Agent may reasonably
request. Borrower also has the right to give instructions and make agreements
with respect to any application, any applicable letter of credit and security
agreement, any applicable letter of credit reimbursement agreement and/or any
other applicable agreement, any letter of credit and the disposition of
documents, disposition of any unutilized funds, and to agree with Agent upon any
amendment, extension or renewal of any Letter of Credit.
(b)......Each Letter of Credit shall, among other things, (i)
provide for the payment of sight drafts or acceptances of usance drafts when
presented for honor thereunder in accordance with the terms thereof and when
accompanied by the documents described therein and (ii) have an expiry date not
later than six (6) months, except Stand-By Letters of Credit which may have an
expiry date not later than twelve (12) months, in cash case after such Letter of
Credit's date of issuance, and in no event later than the last day of the Term.
Each Letter of Credit shall be subject to the Uniform Customs and Practice for
Documentary Credits (1993 Revision), International Chamber of Commerce
Publication No. 500, and any amendments or revision thereof adhered to by the
Issuer and, to the extent not inconsistent therewith, the laws of the State of
New York.
(c)......Agent shall use its reasonable efforts to notify
Lenders of the request by Borrower for a Letter of Credit hereunder.
2.11. Requirements For Issuance of Letters of Credit.
(a)......In connection with the issuance of any Letter of
Credit Borrower shall indemnify, save and hold Agent, each Lender and each
Issuer harmless from any loss, cost, expense or liability, including, without
limitation, payments made by Agent, any Lender or any Issuer and expenses and
reasonable attorneys' fees incurred by Agent, any Lender or Issuer arising out
of, or in connection with, any Letter of Credit to be issued or created for
Borrower. Borrower shall be bound by Agent's or any Issuer's regulations and
good faith interpretations of any Letter of Credit issued or created for
Borrower's Account, although this interpretation may be different from its own;
and, neither Agent, nor any Lender, nor any Issuer nor any of their
correspondents shall be liable for any error, negligence, or mistakes, whether
of omission or commission, in following Borrower's instructions or those
contained in any Letter of Credit or of any modifications, amendments or
supplements thereto or in issuing or paying any Letter of Credit, except for
Agent's, any Lender's, any Issuer's or such correspondents' willful misconduct.
(b)......Borrower shall authorize and direct any Issuer to
name Borrower as the "Applicant" or "Account Party" of each Letter of Credit. If
Agent is not the Issuer of any Letter of Credit, Borrower shall authorize and
direct the Issuer to deliver to Agent all instruments, documents, and other
writings and property received by the Issuer pursuant to the Letter of Credit
and to accept and rely upon Agent's instructions and agreements with respect to
all matters arising in connection with the Letter of Credit or the application
therefor.
(c)......In connection with all Letters of Credit issued or
caused to be issued by Agent under this Agreement, Borrower hereby appoints
Agent, or its designee, as its attorney, with full power and authority (i) to
sign and/or endorse Borrower's name upon any warehouse or other receipts, letter
of credit applications and acceptances; (ii) to sign Borrower's name on bills of
lading; (iii) to clear Inventory through the United States of America Customs
Department ("Customs") in the name of Borrower or Agent or Agent's designee, and
to sign and deliver to Customs officials powers of attorney in the name of
Borrower for such purpose; and (iv) to complete in Borrower's name or Agent's,
or in the name of Agent's designee, any order, sale or transaction, obtain the
necessary documents in connection therewith, and collect the proceeds thereof.
Neither Agent nor its attorneys will be liable for any acts or omissions nor for
any error of judgment or mistakes of fact or law, except for Agent's or its
attorney's willful misconduct. This power, being coupled with an interest, is
irrevocable as long as any Letters of Credit remain outstanding.
(d)......Each Lender shall to the extent of the percentage
amount equal to the product of such Lender's Commitment Percentage times the
aggregate amount of all unreimbursed reimbursement obligations arising from
disbursements made or obligations incurred with respect to the Letters of Credit
be deemed to have irrevocably purchased an undivided participation in each such
unreimbursed reimbursement obligation. In the event that at the time a
disbursement is made the unpaid balance of Revolving Advances exceeds or would
exceed, with the making of such disbursement, the lesser of the Maximum
Revolving Advance Amount or the Formula Amount, and such disbursement is not
reimbursed by Borrower within two (2) Business Days, Agent shall promptly notify
each Lender and upon Agent's demand each Lender shall pay to Agent such Lender's
proportionate share of such unreimbursed disbursement together with such
Lender's proportionate share of Agent's unreimbursed costs and expenses relating
to such unreimbursed disbursement. Upon receipt by Agent of a repayment from
Borrower of any amount disbursed by Agent for which Agent had already been
reimbursed by Lenders, Agent shall deliver to each Lender that Lender's pro rata
share of such repayment. Each Lender's participation commitment shall continue
until the last to occur of any of the following events: (A) Agent ceases to be
obligated to issue or cause to be issued Letters of Credit hereunder; (B) no
Letter of Credit issued hereunder remains outstanding and uncancelled or (C) all
Persons (other than Borrower) have been fully reimbursed for all payments made
under or relating to Letters of Credit.
2.12. Additional Payments. Any sums expended by Agent or any Lender due
to Borrower's failure to perform or comply with its obligations under this
Agreement or any Other Document including, without limitation, Borrower's
obligations under Sections 4.2, 4.4, 4.12, 4.13, 4.14 and 6.1 hereof, may be
charged to Borrower's Account as a Revolving Advance and added to the
Obligations.
2.13. Manner of Borrowing and Payment.
(a)......Each borrowing of Revolving Advances shall be
advanced according to the applicable Commitment Percentages of Lenders. The Term
Loan shall be advanced according to the Commitment Percentages of Lenders.
(b)......Each payment (including each prepayment) by Borrower
on account of the principal of and interest on the Revolving Advances, shall be
applied to the Revolving Advances pro rata according to the applicable
Commitment Percentages of Lenders. Each payment (including each prepayment) by
Borrower on account of the principal of and interest on the Term Note, shall be
made from or to, or applied to that portion of the Term Loan evidenced by the
Term Note pro rata according to the Commitment Percentages of Lenders. Except as
expressly provided herein, all payments (including prepayments) to be made by
Borrower on account of principal, interest and fees shall be made without set
off or counterclaim and shall be made to Agent on behalf of the Lenders to the
Payment Office, in each case on or prior to 1:00 P.M., New York time, in Dollars
and in immediately available funds, and otherwise shall be made in accordance
with the terms and conditions hereof, including Sections 2.6 and 2.7 hereof.
(c)......(i) Notwithstanding anything to the contrary
contained in Sections 2.13(a) and (b) hereof, commencing with the first Business
Day following the Closing Date, each borrowing of Revolving Advances shall be
advanced by Agent and each payment by Borrower on account of Revolving Advances
shall be applied first to those Revolving Advances advanced by Agent. On or
before 1:00 P.M., New York time, on each Settlement Date commencing with the
first Settlement Date following the Closing Date, Agent and Lenders shall make
certain payments as follows: (I) if the aggregate amount of new Revolving
Advances made by Agent during the preceding Week (if any) exceeds the aggregate
amount of repayments applied to outstanding Revolving Advances during such
preceding Week, then each Lender shall provide Agent with funds in an amount
equal to its applicable Commitment Percentage of the difference between (w) such
Revolving Advances and (x) such repayments and (II) if the aggregate amount of
repayments applied to outstanding Revolving Advances during such Week exceeds
the aggregate amount of new Revolving Advances made during such Week, then Agent
shall provide each Lender with funds in an amount equal to its applicable
Commitment Percentage of the difference between (y) such repayments and (z) such
Revolving Advances.
(ii) Each Lender shall be entitled to earn interest
at the applicable Contract Rate on outstanding Advances which it has funded.
(iii) Promptly following each Settlement Date, Agent
shall submit to each Lender a
certificate with respect to payments received and Advances made during the Week
immediately preceding such Settlement Date. Such certificate of Agent shall be
conclusive in the absence of manifest error.
(d)......If any Lender or Participant (a "benefitted Lender")
shall at any time receive any payment of all or part of its Advances, or
interest thereon, or receive any Collateral in respect thereof (whether
voluntarily or involuntarily or by set-off) in a greater proportion than any
such payment to and Collateral received by any other Lender, if any, in respect
of such other Lender's Advances, or interest thereon, and such greater
proportionate payment or receipt of Collateral is not expressly permitted
hereunder, such benefitted Lender shall purchase for cash from the other Lenders
a participation in such portion of each such other Lender's Advances, or shall
provide such other Lender with the benefits of any such Collateral, or the
proceeds thereof, as shall be necessary to cause such benefitted Lender to share
the excess payment or benefits of such Collateral or proceeds ratably with each
of Lenders; provided, however, that if all or any portion of such excess payment
or benefits is thereafter recovered from such benefitted Lender, such purchase
shall be rescinded, and the purchase price and benefits returned, to the extent
of such recovery, but without interest. Each Lender so purchasing a portion of
another Lender's Advances may exercise all rights of payment (including, without
limitation, rights of set-off) with respect to such portion as fully as if such
Lender were the direct holder of such portion.
(e)......Unless Agent shall have been notified by telephone,
confirmed in writing, by any Lender that such Lender will not make the amount
which would constitute its applicable Commitment Percentage of the Advances
available to Agent, Agent may (but shall not be obligated to) assume that such
Lender shall make such amount available to Agent on the next Settlement Date
and, in reliance upon such assumption, make available to Borrower a
corresponding amount. Agent will promptly notify Borrower of its receipt of any
such notice from a Lender. If such amount is made available to Agent on a date
after such next Settlement Date, such Lender shall pay to Agent on demand an
amount equal to the product of (i) the daily average Federal Funds Rate
(computed on the basis of a year of 360 days) during such period as quoted by
Agent, times (ii) such amount, times (iii) the number of days from and including
such Settlement Date to the date on which such amount becomes immediately
available to Agent. A certificate of Agent submitted to any Lender with respect
to any amounts owing under this paragraph (e) shall be conclusive, in the
absence of manifest error. If such amount is not in fact made available to Agent
by such Lender within three (3) Business Days after such Settlement Date, Agent
shall be entitled to recover such an amount, with interest thereon at the rate
per annum then applicable to such Revolving Advances hereunder, on demand from
Borrower; provided, however, that Agent's right to such recovery shall not
prejudice or otherwise adversely affect Borrower's rights (if any) against such
Lender.
2.14. Mandatory Prepayments.
(a)......Subject to Section 4.3 hereof, when Borrower sells or
otherwise disposes of any Collateral other than Inventory in the ordinary course
of business, Borrower shall repay the Advances in an amount equal to the net
proceeds of such sale (i.e., gross proceeds less the reasonable costs of such
sales or other dispositions), such repayments to be made promptly but in no
event more than one (1) Business Day following receipt of such net proceeds, and
until the date of payment, such proceeds shall be held in trust for Agent. The
foregoing shall not be deemed to be implied consent to any such sale otherwise
prohibited by the terms and conditions hereof. Such repayments shall be applied
(x) first, to the outstanding principal installments of the Term Loan, in the
inverse order of the maturities thereof, and (y) second, to the remaining
Advances in such order as Agent may determine, subject to Borrower's ability to
reborrow Revolving Advances in accordance with the terms hereof. Notwithstanding
the provisions of this Section 2.14(a), but subject to all other provisions
hereof including, without limitation, Sections 2.14(b) and 4.15(h) hereof,
solely for purposes of this Section 2.14(a), the license of Borrower's
intellectual property, which intellectual property is not used by Borrower in
its business as presently conducted, shall not be deemed a sale or disposition
of Collateral.
(b)......Borrower shall prepay the outstanding amount of the
Advances in an amount equal to 50% of Excess Cash Flow for each fiscal year
commencing on or after December 31, 1999, payable upon delivery of the financial
statements to Agent referred to in and required by Section 9.7 for such fiscal
year but in any event not later than one-hundred and five (105) days after the
end of each such fiscal year, which amount shall be applied first, to the
outstanding principal installments of the Term Loan in the inverse order of the
maturities thereof and, second, to the remaining Advances in such order as Agent
may determine subject to Borrower's ability to reborrow Revolving Advances in
accordance with the terms hereof. In the event that the financial statement is
not so delivered, then a calculation based upon estimated amounts shall be made
by Agent upon which calculation Borrower shall make the prepayment required by
this Section 2.14(b), subject to adjustment when the financial statement is
delivered to Agent as required hereby. The calculation made by Agent shall not
be deemed a waiver of any rights Agent or Lenders may have as a result of the
failure by Borrower to deliver such financial statement.
2.15. Use of Proceeds.
(a) Borrower shall apply the proceeds of Advances to (i) fund,
in part, the Karlen Acquisition, (ii) repay existing indebtedness owed to Key
Bank of New York, (iii) pay fees and expenses relating to this transaction, and
(iv) to provide for its general corporate purposes and working capital needs not
prohibited by the terms of this Agreement including, without limitation,
payments of interest and certain fees and expenses payable to the Mezzanine
Lender not prohibited by the terms of this Agreement or the Subordination
Agreement with Mezzanine Lender.
(b) Without limiting the generality of Section 2.15(a) above,
neither Borrower, the Guarantors nor any other person which may in the future
become party to this Agreement or the Other Documents as Borrower or Guarantor,
intend to use nor shall they use any portion of the proceeds of the Advances,
directly or indirectly, to purchase during the underwriting period, or for 30
days thereafter, Ineligible Securities being underwritten by a Section 20
Subsidiary.
2.16. Defaulting Lender.
(a)......Notwithstanding anything to the contrary contained
herein, in the event any Lender (x) has refused (which refusal constitutes a
breach by such Lender of its obligations under this Agreement) to make available
its portion of any Advance or (y) notifies either Agent or Borrower that it does
not intend to make available its portion of any Advance (if the actual refusal
would constitute a breach by such Lender of its obligations under this
Agreement) (each, a "Lender Default"), all rights and obligations hereunder of
such Lender (a "Defaulting Lender") as to which a Lender Default is in effect
and of the other parties hereto shall be modified to the extent of the express
provisions of this Section 2.16 while such Lender Default remains in effect.
(b)......Advances shall be incurred pro rata from Lenders (the
"Non-Defaulting Lenders") which are not Defaulting Lenders based on their
respective Commitment Percentages, and no Commitment Percentage of any Lender or
any pro rata share of any Advances required to be advanced by any Lender shall
be increased as a result of such Lender Default. Amounts received in respect of
principal of any type of Advances shall be applied to reduce the applicable
Advances of each Lender pro rata based on the aggregate of the outstanding
Advances of that type of all Lenders at the time of such application; provided,
that, such amount shall not be applied to any Advances of a Defaulting Lender at
any time when, and to the extent that, the aggregate amount of Advances of any
Non-Defaulting Lender exceeds such Non-Defaulting Lender's Commitment Percentage
of all Advances then outstanding.
(c)......A Defaulting Lender shall not be entitled to give
instructions to Agent or to approve, disapprove, consent to or vote on any
matters relating to this Agreement and the Other Documents. All amendments,
waivers and other modifications of this Agreement and the Other Documents may be
made without regard to a Defaulting Lender and, for purposes of the definition
of "Required Lenders," a Defaulting Lender shall be deemed not to be a Lender
and not to have Advances outstanding.
(d)......Other than as expressly set forth in this Section
2.16, the rights and obligations of a Defaulting Lender (including the
obligation to indemnify Agent) and the other parties hereto shall remain
unchanged. Nothing in this Section 2.16 shall be deemed to release any
Defaulting Lender from its obligations under this Agreement and the Other
Documents, shall alter such obligations, shall operate as a waiver of any
default by such Defaulting Lender hereunder, or shall prejudice any rights which
Borrower, Agent or any Lender may have against any Defaulting Lender as a result
of any default by such Defaulting Lender hereunder.
(e)......In the event a Defaulting Lender retroactively cures
to the satisfaction of Agent the breach which caused a Lender to become a
Defaulting Lender, such Defaulting Lender shall no longer be a Defaulting Lender
and shall be treated as a Lender under this Agreement.
III. INTEREST AND FEES.
3.1. Interest. Interest on Advances shall be payable in arrears on the
first Business Day of each month with respect to Domestic Rate Loans and, with
respect to Eurodollar Rate Loans, at the end of each Interest Period. Interest
charges shall be computed on the actual principal amount of Advances outstanding
during the month (the "Monthly Advances") at a rate per annum equal to (i) with
respect to Revolving Advances, the applicable Revolving Interest Rate and (ii)
with respect to the Term Loan, the Term Loan Rate (as applicable, the "Contract
Rate"). Whenever, subsequent to the date of this Agreement, the Base Rate is
increased or decreased, the applicable Contract Rate for Domestic Rate Loans
shall be similarly changed without notice or demand of any kind by an amount
equal to the amount of such change in the Base Rate during the time such change
or changes remain in effect. The Eurodollar Rate shall be adjusted with respect
to Eurodollar Rate Loans without notice or demand of any kind on the effective
date of any change in the Reserve Percentage as of such effective date. Upon and
after the occurrence of an Event of Default, and during the continuation
thereof, the Obligations shall bear interest at the applicable Contract Rate
plus two (2%) percent per annum (the "Default Rate").
3.2. Letter of Credit Fees.
(a)......Borrower shall pay (x) to Agent, for the benefit of
Lenders, fees for each Letter of Credit ("Issuing Fees") for the period from and
excluding the date of issuance of same to and including the date of expiration
or termination, equal to (i) with respect to Documentary Letters of Credit, to
the average daily face amount of each outstanding Documentary Letter of Credit
multiplied by one-half percent (0.50%) per annum, or (ii) with respect to
Standby Letters of Credit, the average daily face amount of each outstanding
Standby Letter of Credit multiplied by the Applicable Margin per annum, in each
case such fees to be calculated on the basis of a 360-day year for the actual
number of days elapsed and to be payable monthly in arrears on the first day of
each month and on the last day of the Term and (y) to the Issuer, any and all
fees and expenses as agreed upon by the Issuer and Borrower in connection with
any Letter of Credit, including, without limitation, in connection with the
opening, amendment or renewal of any such Letter of Credit and any acceptances
created thereunder and shall reimburse Agent for any and all fees and expenses,
if any, paid by Agent to the Issuer (all of the foregoing fees including Issuing
Fees, the "Letter of Credit Fees"). Notwithstanding the foregoing, one-quarter
of one percent (0.25%) of each Issuing Fee shall only be for the account of
Agent as a fronting fee. All such charges shall be deemed earned in full on the
date when the same are due and payable hereunder and shall not be subject to
rebate or proration upon the termination of this Agreement for any reason. Any
such charge in effect at the time of a particular transaction shall be the
charge for that transaction, notwithstanding any subsequent change in the
Issuer's prevailing charges for that type of transaction. All Letter of Credit
Fees payable hereunder shall be deemed earned in full on the date when the same
are due and payable hereunder and shall not be subject to rebate or proration
upon the termination of this Agreement for any reason.
At any time following the occurrence and during the
continuance of an Event of Default, at Agent's request, Borrower will cause cash
to be deposited and maintained in an account with Agent, as cash collateral, in
an amount equal to one hundred and five percent (105%) of the outstanding
Letters of Credit, and Borrower hereby irrevocably authorizes Agent, in its
discretion, on Borrower's behalf and in Borrower's name, to open such an account
and to make and maintain deposits therein, or in an account opened by Borrower,
in the amounts required to be made by Borrower, out of the proceeds of
Receivables or other Collateral or out of any other funds of Borrower coming
into any Lender's possession at any time. Agent will invest such cash collateral
(less applicable reserves) in such short-term money-market items as to which
Agent and Borrower mutually agree and the net return on such investments shall
be credited to such account and constitute additional cash collateral. Borrower
may not withdraw amounts credited to any such account except upon payment and
performance in full of all Obligations and termination of this Agreement.
3.3. Fee Letter. Borrower shall pay the fees set forth in the Fee
Letter in accordance with the provisions thereof.
3.4. Facility Fee. If, for any month during the Term, the average daily
unpaid balance of the Revolving Advances for each day of such month does not
equal the Maximum Revolving Advance Amount, then Borrower shall pay to Agent for
the ratable benefit of Lenders a fee at a rate equal to three-eighths of one
percent (.375%) per annum on the amount by which the Maximum Revolving Advance
Amount exceeds such average daily unpaid balance. Such fee shall be payable to
Agent in arrears on the last day of each month. For purposes of calculating such
fees, the amount drawable under a Letter of Credit shall be added to such daily
unpaid balance.
3.5. Computation of Interest and Fees. Interest and fees hereunder
shall be computed on the basis of a year of 360 days and for the actual number
of days elapsed. If any payment to be made hereunder becomes due and payable on
a day other than a Business Day, the due date thereof shall be extended to the
next succeeding Business Day and interest thereon shall be payable at the
applicable Contract Rate for Domestic Rate Loans during such extension.
3.6. Maximum Charges. In no event whatsoever shall interest and other
charges charged hereunder exceed the highest rate permissible under law. In the
event interest and other charges as computed hereunder would otherwise exceed
the highest rate permitted under law, such excess amount shall be first applied
to any unpaid principal balance owed by Borrower, and if the then remaining
excess amount is greater than the previously unpaid principal balance, Lenders
shall promptly refund such excess amount to Borrower and the provisions hereof
shall be deemed amended to provide for such permissible rate.
3.7. Increased Costs. In the event that any applicable law, treaty or
governmental regulation, or any change therein or in the interpretation or
application thereof, or compliance by any Lender (for purposes of this Section
3.7, the term "Lender" shall include Agent or any Lender and any corporation or
bank controlling Agent or any Lender) and the office or branch where Agent or
any Lender (as so defined) makes or maintains any Eurodollar Rate Loans with any
request or directive (whether or not having the force of law) from any central
bank or other financial, monetary or other authority, shall:
(a)......subject Agent or any Lender to any tax of any kind
whatsoever with respect to this Agreement or any Other Document or change the
basis of taxation of payments to Agent or any Lender of principal, fees,
interest or any other amount payable hereunder or under any Other Documents
(except for changes in the rate of tax on the overall net income of Agent or any
Lender by the jurisdiction in which it maintains its principal office);
(b)......impose, modify or hold applicable any reserve,
special deposit, assessment or similar requirement against assets held by, or
deposits in or for the account of, advances or loans by, or other credit
extended by, any office of Agent or any Lender, including (without limitation)
pursuant to Regulation D of the Board of Governors of the Federal Reserve
System; or
(c)......impose on Agent or any Lender or the London interbank
Eurodollar market any other condition with respect to this Agreement or any
Other Document;
and the result of any of the foregoing is to increase the cost
to Agent or any Lender of making, renewing or maintaining its Advances hereunder
by an amount that Agent or such Lender deems to be material or to reduce the
amount of any payment (whether of principal, interest or otherwise) in respect
of any of the Advances by an amount that Agent or such Lender deems to be
material, then, in any case Borrower shall promptly pay Agent or such Lender,
upon its demand, such additional amount as will compensate Agent or such Lender
for such additional cost or such reduction, as the case may be. Agent or such
Lender shall certify the amount of such additional cost or reduced amount to
Borrower, and such certification shall be conclusive absent manifest error.
3.8. Basis For Determining Interest Rate Inadequate or Unfair.
In the event that Agent or any Lender shall have determined that:
(a)......reasonable means do not exist for ascertaining the
Eurodollar Rate applicable pursuant to Section 2.2 hereof for any Interest
Period; or
(b)......Dollar deposits in the relevant amount and for the
relevant maturity are not available in the London interbank Eurodollar market,
with respect to an outstanding Eurodollar Rate Loan, a proposed Eurodollar Rate
Loan, or a proposed conversion of a Domestic Rate Loan into a Eurodollar Rate
Loan;
then Agent shall give Borrower prompt written, telephonic or
telegraphic notice of such determination. If such notice is given, (i) any such
requested Eurodollar Rate Loan shall be made as a Domestic Rate Loan, unless
Borrower shall notify Agent no later than 10:00 a.m. (New York City time) two
(2) Business Days prior to the date of such proposed borrowing, that its request
for such borrowing shall be cancelled or made as an unaffected type of
Eurodollar Rate Loan, (ii) any Domestic Rate Loan or Eurodollar Rate Loan which
was to have been converted to an affected type of Eurodollar Rate Loan shall be
continued as or converted into a Domestic Rate Loan, or, if Borrower shall
notify Agent, no later than 10:00 a.m. (New York City time) two (2) Business
Days prior to the proposed conversion, shall be maintained as an unaffected type
of Eurodollar Rate Loan, and (iii) any outstanding affected Eurodollar Rate
Loans shall be converted into a Domestic Rate Loan, or, if Borrower shall notify
Agent, no later than 10:00 a.m. (New York City time) two (2) Business Days prior
to the last Business Day of the then current Interest Period applicable to such
affected Eurodollar Rate Loan, shall be converted into an unaffected type of
Eurodollar Rate Loan, on the last Business Day of the then current Interest
Period for such affected Eurodollar Rate Loans. Until such notice has been
withdrawn, Lenders shall have no obligation to make an affected type of
Eurodollar Rate Loan or maintain outstanding affected Eurodollar Rate Loans and
Borrower shall not have the right to convert a Domestic Rate Loan or an
unaffected type of Eurodollar Rate Loan into an affected type of Eurodollar Rate
Loan.
3.9. Capital Adequacy.
(a)......In the event that Agent or any Lender shall have
determined that any applicable law, rule, regulation or guideline regarding
capital adequacy, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by Agent or any Lender (for purposes of this Section 3.9, the term "Lender"
shall include Agent or any Lender and any corporation or bank controlling Agent
or any Lender) and the office or branch where Agent or any Lender (as so
defined) makes or maintains any Eurodollar Rate Loans with any request or
directive regarding capital adequacy (whether or not having the force of law) of
any such authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on Agent or any Lender's capital as a
consequence of its obligations hereunder to a level below that which Agent or
such Lender could have achieved but for such adoption, change or compliance
(taking into consideration Agent's and each Lender's policies with respect to
capital adequacy) by an amount deemed by Agent or any Lender to be material,
then, from time to time, Borrower shall pay upon demand to Agent or such Lender
such additional amount or amounts as will compensate Agent or such Lender for
such reduction in regard to this Agreement. In determining such amount or
amounts, Agent or such Lender may use any reasonable averaging or attribution
methods. The protection of this Section 3.9 shall be available to Agent and each
Lender regardless of any possible contention of invalidity or inapplicability
with respect to the applicable law, regulation or condition.
(b)......A certificate of Agent or such Lender setting forth
such amount or amounts as shall be necessary to compensate Agent or such Lender
with respect to Section 3.9(a) hereof when delivered to Borrower shall be
conclusive absent manifest error.
IV. COLLATERAL; GENERAL TERMS
4.1. Security Interest in the Collateral. To secure the prompt payment
and performance to Agent and each Lender of the Obligations, Borrower hereby
assigns, pledges and grants to Agent for the ratable benefit of each Lender a
continuing security interest in and to and lien on all of its Collateral,
whether now owned or existing or hereafter acquired or arising and wheresoever
located. Borrower shall mark its books and records as may be necessary or
appropriate to evidence, protect and perfect Agent's security interest and lien
and shall cause its financial statements to reflect such security interest and
lien.
4.2. Perfection of Security Interest. Borrower shall take all action
that may be necessary or desirable, or that Agent may request, so as at all
times to maintain the validity, perfection, enforceability and priority of
Agent's security interest and lien on the Collateral or to enable Agent to
protect, exercise or enforce its rights hereunder and in the Collateral,
including, but not limited to, (i) immediately discharging all Liens other than
Permitted Encumbrances, (ii) obtaining landlords' or mortgagees' lien waivers,
(iii) delivering to Agent, endorsed or accompanied by such instruments of
assignment as Agent may specify, and stamping or marking, in such manner as
Agent may specify, any and all chattel paper, instruments, letters of credits
and advices thereof and documents evidencing or forming a part of the
Collateral, (iv) entering into warehousing, lockbox and other custodial
arrangements satisfactory to Agent, and (v) executing and delivering financing
statements, instruments of pledge, mortgages, notices and assignments, in each
case in form and substance satisfactory to Agent, relating to the creation,
validity, perfection, maintenance or continuation of Agent's security interest
and lien under the Uniform Commercial Code or other applicable law. Agent is
hereby authorized to file financing statements signed by Agent instead of
Borrower in accordance with Section 9-402(2) of Uniform Commercial Code. All
charges, expenses and fees Agent may incur in doing any of the foregoing, and
any local taxes relating thereto, shall be charged to Borrower's Account as a
Revolving Advance of a Domestic Rate Loan and added to the Obligations, or, at
Agent's option, shall be paid to Agent for the ratable benefit of Lenders
immediately upon demand.
4.3. Disposition of Collateral. Borrower will safeguard and protect all
Collateral for Agent's general account and make no disposition thereof whether
by sale, lease or otherwise except (a) the sale of Inventory in the ordinary
course of business and (b) the disposition or transfer of obsolete or worn out
Equipment in the ordinary course of business during any fiscal year having an
aggregate fair market value of not more than $100,000 and only to the extent
that (i) the proceeds of any such disposition are used to acquire replacement
Equipment which is subject to Agent's first priority security interest or (ii)
the proceeds of which are remitted to Agent as a prepayment pursuant to Section
2.14(a) hereof.
4.4. Preservation of Collateral. Following the occurrence of a Default
(in the case of a Default, only if the Agent deems it necessary to protect its
or any Lender's interest in and to preserve the Collateral) or an Event of
Default in addition to the rights and remedies set forth in Section 11.1 hereof,
Agent: (a) may at any time take such steps as Agent deems necessary to protect
Agent's or any Lender's interest in and to preserve the Collateral, including
the hiring of such security guards or the placing of other security protection
measures as Agent may deem appropriate; (b) may employ and maintain at any of
Borrower's premises a custodian who shall have full authority to do all acts
necessary to protect Agent's interests in the Collateral; (c) may lease
warehouse facilities to which Agent may move all or part of the Collateral; (d)
may use Borrower's owned or leased lifts, hoists, trucks and other facilities or
equipment for handling or removing the Collateral; and (e) shall have, and is
hereby granted, a right of ingress and egress to the places where the Collateral
is located, and may proceed over and through any of Borrower's owned or leased
property. Borrower shall cooperate fully with all of Agent's efforts to preserve
the Collateral and will take such actions to preserve the Collateral as Agent
may direct. All of Agent's expenses of preserving the Collateral pursuant to
this Agreement, including any expenses relating to the bonding of a custodian,
shall be charged to Borrower's Account as a Revolving Advance of a Domestic Rate
Loan and added to the Obligations.
4.5. Ownership and Location of Collateral. (a) With respect to the
Collateral, at the time the Collateral becomes subject to Agent's security
interest: (i) Borrower shall be the sole owner of and fully authorized and able
to sell, transfer, pledge and/or grant a first priority security interest in
each and every item of the its respective Collateral to Agent; and, except for
Permitted Encumbrances the Collateral shall be free and clear of all Liens and
encumbrances whatsoever; (ii) each document and agreement executed by Borrower
or delivered to Agent or any Lender in connection with this Agreement shall be
true and correct in all respects; and (iii) all signatures and endorsements of
Borrower that appear on such documents and agreements shall be genuine and
Borrower shall have full capacity to execute same.
(b)......Borrower's Inventory and Equipment shall be located
as set forth on Schedule 4.5 or any such other location provided that with
respect to such location, Borrower has complied with the other provisions of
this Section 4.5(b). Borrower shall not open any new office or place of business
without 30 days prior written notice to Agent and provided Borrower executes
such documents and takes such other action requested by Agent pursuant to
Section 4.2, and, without the prior consent of the Agent, Inventory and
Equipment shall not be removed from such locations or stored at new locations,
except with respect to the sale or disposition of Inventory in the ordinary
course of business and Equipment to the extent permitted in Section 4.3 hereof,
provided that notwithstanding the foregoing, but subject to the other terms and
conditions hereof, Borrower may store Inventory at any other location, provided
that (i) during any twelve (12) month period, Borrower may only store up to an
aggregate value of $50,000 of Inventory at any such other location, (ii) such
Inventory shall be stored at such location for not more than sixty (60) days,
(iii) Borrower shall deliver concurrent written notice to Agent, and (iv) no
later than ten (10) days after storing Inventory at any such location, Borrower
shall execute and deliver all such documents and take such other actions
requested by Agent pursuant to Section 4.2.
4.6. Defense of Agent's and Lenders' Interests. Until (a) payment and
performance in full of all of the Obligations and (b) termination of this
Agreement, Agent's interests in the Collateral shall continue in full force and
effect. During such period Borrower shall not, without Agent's prior written
consent, pledge, sell (except Inventory in the ordinary course of business and
Equipment to the extent permitted in Section 4.3 hereof), assign, transfer,
create or suffer to exist a Lien upon or encumber or allow or suffer to be
encumbered in any way except for Permitted Encumbrances, any part of the
Collateral. Borrower shall defend Agent's interests in the Collateral against
any and all Persons whatsoever. At any time following an Event of Default and
demand by Agent for payment of all Obligations, Agent shall have the right to
take possession of the indicia of the Collateral and the Collateral in whatever
physical form contained, including without limitation: labels, stationery,
documents, instruments and advertising materials. If Agent exercises this right
to take possession of the Collateral, Borrower shall, upon demand, assemble it
in the best manner possible and make it available to Agent at a place reasonably
convenient to Agent. In addition, with respect to all Collateral, Agent and
Lenders shall be entitled to all of the rights and remedies set forth herein and
further provided by the Uniform Commercial Code or other applicable law.
Borrower shall, and Agent may, at its option, instruct all suppliers, carriers,
forwarders, warehouses or others receiving or holding cash, checks, Inventory,
documents or instruments in which Agent holds a security interest to deliver
same to Agent and/or subject to Agent's order and if they shall come into
Borrower's possession, they, and each of them, shall be held by Borrower in
trust as Agent's trustee, and Borrower will immediately deliver them to Agent in
their original form together with any necessary endorsement.
4.7. Books and Records. Borrower shall (a) keep proper books of record
and account in which full, true and correct entries will be made of all dealings
or transactions of or in relation to its business and affairs; (b) set up on its
books accruals with respect to all taxes, assessments, charges, levies and
claims; and (c) on a reasonably current basis set up on its books, from its
earnings, allowances against doubtful Receivables, advances and investments and
all other proper accruals (including, without limitation, accruals for premiums,
if any, due on required payments and accruals for depreciation, obsolescence, or
amortization of properties), which should be set aside from such earnings in
connection with its business. All determinations pursuant to this subsection
shall be made in accordance with, or as required by, GAAP consistently applied
in the opinion of such independent public accountant as shall then be regularly
engaged by Borrower.
4.8. Financial Disclosure. Borrower hereby irrevocably authorizes and
directs all accountants and auditors employed by Borrower at any time during the
Term to exhibit and deliver to Agent and each Lender copies of any of Borrower's
financial statements, trial balances, workpapers, or other accounting records of
any sort in the accountant's or auditor's possession, and to disclose to Agent
and each Lender any information such accountants and auditors may have
concerning Borrower's financial status and business operations. Borrower hereby
authorizes all Governmental Bodies to furnish to Agent and each Lender copies of
reports or examinations relating to Borrower, whether made by Borrower or
otherwise; however, Agent and each Lender will attempt to obtain such
information or materials directly from Borrower prior to obtaining such
information or materials from such accountants, auditors or Governmental Bodies.
4.9. Compliance with Laws. Borrower shall comply with all acts, rules,
regulations and orders of any legislative, administrative or judicial body or
official applicable to its respective Collateral or any part thereof or to the
operation of Borrower's business, in any case, the non-compliance with which
(individually or in the aggregate) could reasonably be expected to have a
Material Adverse Effect on Borrower.
4.10. Inspection of Premises. At all reasonable times Agent and each
Lender shall have full access to and the right to audit, check, inspect and make
abstracts and copies from Borrower's books, records, audits, correspondence and
all other papers relating to the Collateral and the operation of Borrower's
business. Agent, any Lender and their agents may enter upon any of Borrower's
premises at any time during business hours and at any other reasonable time, and
from time to time, for the purpose of inspecting the Collateral and any and all
records pertaining thereto and the operation of Borrower's business.
4.11. Insurance. The assets and properties of Borrower at all times
shall be maintained in accordance with the requirements of all insurance
carriers which provide insurance with respect to the assets and properties of
Borrower so that such insurance shall remain in full force and effect. Borrower
shall bear the full risk of any loss of any nature whatsoever with respect to
the Collateral. At Borrower's own cost and expense in amounts and with carriers
acceptable to Agent, Borrower shall (a) keep all its insurable properties and
properties in which Borrower has an interest insured against the hazards of
fire, flood, sprinkler leakage, those hazards covered by extended coverage
insurance and such other hazards, and for such amounts, as is customary in the
case of companies engaged in businesses similar to Borrower's including, without
limitation, business interruption insurance; (b) maintain a bond or other
insurance in such amounts as is customary in the case of companies engaged in
businesses similar to Borrower insuring against larceny, embezzlement or other
criminal misappropriation of insured's officers and employees who may either
singly or jointly with others at any time have access to the assets or funds of
Borrower either directly or through authority to draw upon such funds or to
direct generally the disposition of such assets; (c) maintain public and product
liability insurance against claims for personal injury, death or property damage
suffered by others; (d) maintain all such worker's compensation or similar
insurance as may be required under the laws of any state or jurisdiction in
which Borrower is engaged in business; (e) furnish Agent with (i) copies of all
policies and evidence of the maintenance of such policies by the renewal thereof
at least thirty (30) days before any expiration date, and (ii) appropriate loss
payable endorsements in form and substance satisfactory to Agent, naming Agent
as a co-insured and loss payee as its interests may appear with respect to all
insurance coverage referred to in clauses (a) and (c) above, and providing (A)
that all proceeds thereunder shall be payable to Agent, (B) no such insurance
shall be affected by any act or neglect of the insured or owner of the property
described in such policy, and (C) that such policy and loss payable clauses may
not be cancelled, amended or terminated unless at least thirty (30) days' prior
written notice is given to Agent. In the event of any loss thereunder, the
carriers named therein hereby are directed by Agent and Borrower to make payment
for such loss to Agent and not to Borrower and Agent jointly. If any insurance
losses are paid by check, draft or other instrument payable to Borrower and
Agent jointly, Agent may, and is hereby authorized to, endorse Borrower's name
thereon and do such other things as Agent may deem advisable to reduce the same
to cash. Agent is hereby authorized to adjust and compromise claims under
insurance coverage referred to above. All loss recoveries received by Agent upon
any such insurance may be applied to the Obligations, in such order as Agent in
its sole discretion shall determine. Any surplus shall be paid by Agent to
Borrower or applied as may be otherwise required by law. Any deficiency thereon
shall be paid by Borrower to Agent, on demand. Anything hereinabove to the
contrary notwithstanding, and subject to the fulfillment of the conditions set
forth below, Agent shall remit to Borrower insurance proceeds received by Agent
during any calendar year under insurance policies procured and maintained by
Borrower which insure Borrower's insurable properties to the extent such
insurance proceeds do not exceed $50,000 in the aggregate during such calendar
year. In the event the amount of insurance proceeds received by Agent exceeds
$50,000, then Agent shall not be obligated to remit the insurance proceeds to
Borrower unless Borrower shall provide Agent with evidence satisfactory to Agent
that the insurance proceeds will be used by Borrower to repair, replace or
restore the insured property which was the subject of the insurable loss. In the
event Borrower has previously received (or, after giving effect to any proposed
remittance by Agent to Borrower would receive) insurance proceeds which equal or
exceed $50,000 in the aggregate during any calendar year, then Agent may, in its
sole discretion, either remit the insurance proceeds to Borrower upon Borrower
providing Agent with evidence satisfactory to Agent that the insurance proceeds
will be used by Borrower to repair, replace or restore the insured property
which was the subject of the insurable loss, or apply the proceeds to the
Obligations, as aforesaid. The agreement of Agent to remit insurance proceeds to
Borrower in the manner above provided shall be subject in each instance to
satisfaction of each of the following conditions: (x) no Event of Default or
Default shall then have occurred and be continuing, and (y) Borrower shall use
such insurance proceeds to repair, replace or restore the insurable property
which was the subject of the insurable loss and for no other purpose.
4.12. Failure to Pay Insurance. If Borrower fails to obtain insurance
as hereinabove provided, or to keep the same in force, Agent, if Agent so
elects, may obtain such insurance and pay the premium therefor on behalf of
Borrower, and charge Borrower's Account therefor as a Revolving Advance of a
Domestic Rate Loan and such expenses so paid shall be part of the Obligations.
Agent will notify Borrower after it has obtained any such insurance.
4.13. Payment of Taxes. Borrower will pay, when due, all taxes,
assessments and other Charges lawfully levied or assessed upon Borrower or any
of the Collateral including, without limitation, real and personal property
taxes, assessments and charges and all franchise, income, employment, social
security benefits, withholding, and sales taxes. If any tax by any Governmental
Body is or may be imposed on or as a result of any transaction between Borrower
and Agent or any Lender which Agent or any Lender may be required to withhold or
pay or if any taxes, assessments, or other Charges remain unpaid after the date
fixed for their payment, or if any claim shall be made which, in Agent's or any
Lender's opinion, may possibly create a valid Lien on the Collateral, Agent may
without notice to Borrower pay the taxes, assessments or other Charges and
Borrower hereby indemnifies and holds Agent and each Lender harmless in respect
thereof. Agent will notify Borrower after it has made any such payment. The
amount of any payment by Agent under this Section 4.13 shall be charged to
Borrower's Account as a Revolving Advance of a Domestic Rate Loan and added to
the Obligations and, until Borrower shall furnish Agent with an indemnity
therefor (or supply Agent with evidence satisfactory to Agent that due provision
for the payment thereof has been made), Agent may hold without interest any
balance standing to Borrower's credit and Agent shall retain its security
interest and lien on any and all Collateral held by Agent.
4.14. Payment of Leasehold Obligations. Borrower shall at all times
pay, when and as due, its rental obligations under all leases under which it is
a tenant, and shall otherwise comply, in all material respects, with all other
terms of such leases and keep them in full force and effect and, at Agent's
request will provide evidence of having done so.
4.15. Receivables.
(a)......Nature of Receivables. Each of the Receivables shall
be a bona fide and valid account representing a bona fide indebtedness incurred
by the Customer therein named, for a fixed sum as set forth in the invoice
relating thereto (provided immaterial or unintentional invoice errors shall not
be deemed to be a breach hereof) with respect to an absolute sale or lease and
delivery of goods upon stated terms of Borrower, or work, labor or services
theretofore rendered by Borrower as of the date each Receivable is created. Same
shall be due and owing in accordance with Borrower's standard terms of sale
without dispute, setoff or counterclaim except as may be stated on the accounts
receivable schedules delivered by Borrower to Agent.
(b)......Solvency of Customers. Each Customer, to the best of
Borrower's knowledge, as of the date each Receivable is created, is and will be
solvent and able to pay all Receivables on which the Customer is obligated in
full when due or with respect to such Customers of Borrower who are not solvent
Borrower has set up on its books and in its financial records bad debt reserves
adequate to cover such Receivables.
(c)......Locations of Executive Offices of Borrower.
Borrower's chief executive office is located at the addresses set forth on
Schedule 4.15(c) hereto. Until written notice is given to Agent by Borrower of
any other office at which Borrower keeps its records pertaining to Receivables,
all such records shall be kept at such executive office.
(d)......Collection of Receivables. Until Borrower's authority
to do so is terminated by Agent (which notice Agent may give at any time
following the occurrence of an Event of Default or a Default or when Agent in
its reasonable discretion deems it to be in Lenders' best interest to do so),
Borrower will, at Borrower's sole cost and expense, but on Agent's behalf and
for Agent's account, collect as Agent's property and in trust for Agent all
amounts received on Receivables, and shall not commingle such collections with
Borrower's funds or use the same except to pay Obligations. Borrower shall, upon
request, deliver to Agent, or deposit in the Blocked Account, in original form
and on the date of receipt thereof, all checks, drafts, notes, money orders,
acceptances, cash and other evidences of Indebtedness.
(e)......Notification of Assignment of Receivables. At any
time after and during the continuance of a Default or an Event of Default, Agent
shall have the right to send notice of the assignment of, and Agent's security
interest in and lien on, the Receivables to any and all Customers or any third
party holding or otherwise concerned with any of the Collateral. Thereafter,
Agent shall have the sole right to collect the Receivables, take possession of
the Collateral, or both. Agent's actual collection expenses, including, but not
limited to, stationery and postage, telephone and telegraph, secretarial and
clerical expenses and the salaries of any collection personnel used for
collection, may be charged to Borrower's Account and added to the Obligations.
(f)......Power of Agent to Act on Borrower's Behalf. Agent
shall have and is hereby granted the right to receive, endorse, assign and/or
deliver in the name of Agent or Borrower any and all checks, drafts and other
instruments for the payment of money relating to the Receivables, and Borrower
hereby waives notice of presentment, protest and non-payment of any instrument
so endorsed. Borrower hereby constitutes Agent or Agent's designee as Borrower's
attorney with power (A) at any time: (i) to endorse Borrower's name upon any
notes, acceptances, checks, drafts, money orders or other evidences of payment
or Collateral; (ii) to sign Borrower's name on any invoice or bill of lading
relating to any of the Receivables, drafts against Customers, assignments and
verifications of Receivables; (iii) to send verifications of Receivables to any
Customer; (iv) to sign Borrower's name on all financing statements or any other
documents or instruments deemed necessary or appropriate by Agent to preserve,
protect, or perfect Agent's interest in the Collateral and to file same; and (v)
to do all other acts and things necessary to carry out this Agreement; and (B)
following the occurrence and during the continuance of an Event of Default: (i)
to demand payment of the Receivables; (ii) to enforce payment of the Receivables
by legal proceedings or otherwise; (iii) to exercise all of Borrower's rights
and remedies with respect to the collection of the Receivables and any other
Collateral; (iv) to settle, adjust, compromise, extend or renew the Receivables;
(v) to settle, adjust or compromise any legal proceedings brought to collect
Receivables; (vi) to prepare, file and sign Borrower's name on a proof of claim
in bankruptcy or similar document against any Customer; and (vii) to prepare,
file and sign Borrower's name on any notice of Lien, assignment or satisfaction
of Lien or similar document in connection with the Receivables. All acts of said
attorney or designee are hereby ratified and approved, and said attorney or
designee shall not be liable for any acts of omission or commission nor for any
error of judgment or mistake of fact or of law, unless done maliciously or with
gross (not mere) negligence; this power being coupled with an interest is
irrevocable while any of the Obligations remain unpaid. Agent shall have the
right at any time following the occurrence and during the continuance of an
Event of Default to change the address for delivery of mail addressed to
Borrower to such address as Agent may designate and to receive, open and dispose
of all mail addressed to Borrower.
(g)......No Liability. Neither Agent nor any Lender shall,
under any circumstances or in any event whatsoever, have any liability for any
error or omission or delay of any kind occurring in the settlement, collection
or payment of any of the Receivables or any instrument received in payment
thereof, or for any damage resulting therefrom. Following the occurrence and
during the continuation of an Event of Default or Default, Agent may, without
notice or consent from Borrower, and, in the case of a Default, only to the
extent Agent deems it necessary for the protection of its or any Lender's
interest in and to preserve the Collateral, sue upon or otherwise collect,
extend the time of payment of, compromise or settle for cash, credit or upon any
terms any of the Receivables or any other securities, instruments or insurance
applicable thereto and/or release any obligor thereof. Agent is authorized and
empowered to accept, following the occurrence and during the continuation of an
Event of Default or Default, the return of the goods represented by any of the
Receivables, without notice to or consent by Borrower, all without discharging
or in any way affecting Borrower's liability hereunder.
(h)......Establishment of a Lockbox Account, Dominion Account.
All proceeds of Collateral shall be deposited by Borrower into a lockbox
account, dominion account or such other "blocked account" ("Blocked Accounts")
as Agent may require at any time and from time to time pursuant to an
arrangement with such bank as may be selected by Borrower and be acceptable to
Agent. Borrower shall issue to any such bank, an irrevocable letter of
instruction directing said bank to transfer such funds so deposited to Agent,
either to any account maintained by Agent at said bank or by wire transfer to
appropriate account(s) of Agent. All funds deposited in such "blocked account"
shall immediately become the property of Agent and Borrower shall obtain the
agreement by such bank to waive any offset rights against the funds so
deposited. Neither Agent nor any Lender assumes any responsibility for such
"blocked account" arrangement, including without limitation, any claim of accord
and satisfaction or release with respect to deposits accepted by any bank
thereunder. Alternatively, Agent may establish depository accounts ("Depository
Accounts") in the name of Agent at a bank or banks for the deposit of such funds
and Borrower shall deposit all proceeds of Collateral or cause same to be
deposited, in kind, in such Depository Accounts of Agent in lieu of depositing
same to the Blocked Accounts.
(i)......Adjustments. Borrower will not, without Agent's
consent, compromise or adjust any Receivables (or extend the time for payment
thereof) or accept any returns of merchandise or grant any additional discounts,
allowances or credits thereon except for those compromises, adjustments,
returns, discounts, credits and allowances as have been heretofore customary in
the business of Borrower.
4.16. Inventory. To the extent Inventory held for sale or lease has
been produced by Borrower, it has been and will be produced by Borrower in
accordance with the Federal Fair Labor Standards Act of 1938, as amended, and
all rules, regulations and orders thereunder.
4.17. Maintenance of Equipment. Except with regard to obsolete or worn
out Equipment disposed of in accordance with Section 4.3 hereof, the Equipment
shall be maintained in good operating condition and repair (reasonable wear and
tear excepted) and all necessary replacements of and repairs thereto shall be
made so that the value and operating efficiency of the Equipment shall be
maintained and preserved. Borrower shall not use or operate the Equipment in
violation of any law, statute, ordinance, code, rule or regulation.
4.18. Exculpation of Liability. Nothing herein contained shall be
construed to constitute Agent or any Lender as Borrower's agent for any purpose
whatsoever, nor shall Agent or any Lender be responsible or liable for any
shortage, discrepancy, damage, loss or destruction of any part of the Collateral
wherever the same may be located and regardless of the cause thereof. Neither
Agent nor any Lender, whether by anything herein or in any assignment or
otherwise, assume any of Borrower's obligations under any contract or agreement
assigned to Agent or such Lender, and neither Agent nor any Lender shall be
responsible in any way for the performance by Borrower of any of the terms and
conditions thereof.
4.19. Environmental Matters. (a) Borrower shall ensure that the Real
Property (and all operations and business conducted thereon) remains in
compliance with all Environmental Laws and they shall not place or permit to be
placed any Hazardous Substances on any Real Property except as not prohibited by
applicable law or appropriate governmental authorities.
(b)......Borrower shall establish and maintain a system to
assure and monitor continued compliance with all applicable Environmental Laws
which system shall include periodic reviews of such compliance.
(c)......Borrower shall (i) employ in connection with the use
of the Real Property appropriate technology necessary to maintain compliance
with any applicable Environmental Laws and (ii) dispose of any and all Hazardous
Waste generated at the Real Property only at facilities and with carriers that
maintain valid permits under RCRA and any other applicable Environmental Laws.
Borrower shall use their best efforts to obtain certificates of disposal, such
as hazardous waste manifest receipts, from all treatment, transport, storage or
disposal facilities or operators employed by Borrower in connection with the
transport or disposal of any Hazardous Waste generated at the Real Property.
(d)......In the event Borrower obtains, gives or receives
notice of any Release or threat of Release of a reportable quantity of any
Hazardous Substances at the Real Property (any such event being hereinafter
referred to as a "Hazardous Discharge") or receives any notice of violation,
request for information or notification that it is potentially responsible for
investigation or cleanup of environmental conditions at the Real Property,
demand letter or complaint, order, citation, or other written notice with regard
to any Hazardous Discharge or violation of Environmental Laws affecting the Real
Property or Borrower's interest therein (any of the foregoing is referred to
herein as an "Environmental Complaint") from any Person, including any state
agency responsible in whole or in part for environmental matters in the state in
which the Real Property is located or the United States Environmental Protection
Agency (any such person or entity hereinafter the "Authority"), then Borrower
shall, within five (5) Business Days, give written notice of same to Agent
detailing facts and circumstances of which Borrower is aware giving rise to the
Hazardous Discharge or Environmental Complaint. Such information is to be
provided to allow Agent to protect its security interest in the Collateral and
is not intended to create nor shall it create any obligation upon Agent or any
Lender with respect thereto.
(e)......Borrower shall promptly forward to Agent copies of
any request for information, notification of potential liability, demand letter
relating to potential responsibility with respect to the investigation or
cleanup of Hazardous Substances at any other site owned, operated or used by
Borrower to dispose of Hazardous Substances and shall continue to forward copies
of correspondence between Borrower and the Authority regarding such claims to
Agent until the claim is settled. Borrower shall promptly forward to Agent
copies of all documents and reports concerning a Hazardous Discharge at the Real
Property that Borrower is required to file under any Environmental Laws. Such
information is to be provided solely to allow Agent to protect Agent's security
interest in the Collateral.
(f)......Borrower shall respond promptly to any Hazardous
Discharge or Environmental Complaint and take all necessary action in order to
safeguard the health of any Person and to avoid subjecting the Collateral or
Real Property to any Lien. If Borrower shall fail to respond promptly to any
Hazardous Discharge or Environmental Complaint or Borrower shall fail to comply
with any of the requirements of any Environmental Laws, Agent on behalf of
Lenders may, but without the obligation to do so, for the sole purpose of
protecting Agent's interest in Collateral: (A) give such notices or (B) enter
onto the Real Property (or authorize third parties to enter onto the Real
Property) and take such actions as Agent (or such third parties as directed by
Agent) deem reasonably necessary or advisable, to clean up, remove, mitigate or
otherwise deal with any such Hazardous Discharge or Environmental Complaint. All
reasonable costs and expenses incurred by Agent and Lenders (or such third
parties) in the exercise of any such rights, including any sums paid in
connection with any judicial or administrative investigation or proceedings,
fines and penalties, together with interest thereon from the date expended at
the Default Rate for Domestic Rate Loans constituting Revolving Advances shall
be paid upon demand by Borrower, and until paid shall be added to and become a
part of the Obligations secured by the Liens created by the terms of this
Agreement or any other agreement between Agent, any Lender and Borrower.
(g)......Promptly upon the written request of Agent from time
to time, Borrower shall provide Agent, at Borrower's expense, with an
environmental site assessment or environmental audit report prepared by an
environmental engineering firm acceptable in the reasonable opinion of Agent, to
assess with a reasonable degree of certainty the existence of a Hazardous
Discharge and the potential costs in connection with abatement, cleanup and
removal of any Hazardous Substances found on, under, at or within the Real
Property. Any report or investigation of such Hazardous Discharge proposed and
acceptable to an appropriate Authority that is charged to oversee the clean-up
of such Hazardous Discharge shall be acceptable to Agent. If such estimates,
individually or in the aggregate, exceed $100,000, Agent shall have the right to
require Borrower to post a bond, letter of credit or other security reasonably
satisfactory to Agent to secure payment of these costs and expenses.
(h)......Borrower shall defend and indemnify Agent and Lenders
and hold Agent, Lenders and their respective employees, agents, directors and
officers harmless from and against all loss, liability, damage and expense,
claims, costs, fines and penalties, including attorney's fees, suffered or
incurred by Agent or Lenders under or on account of any Environmental Laws,
including, without limitation, the assertion of any Lien thereunder, with
respect to any Hazardous Discharge, the presence of any Hazardous Substances
affecting the Real Property, whether or not the same originates or emerges from
the Real Property or any contiguous real estate, including any loss of value of
the Real Property as a result of the foregoing except to the extent such loss,
liability, damage and expense is attributable to any Hazardous Discharge
resulting from actions on the part of Agent or any Lender. Borrower's
obligations under this Section 4.19 shall arise upon the discovery of the
presence of any Hazardous Substances at the Real Property, whether or not any
federal, state, or local environmental agency has taken or threatened any action
in connection with the presence of any Hazardous Substances. Borrower's
obligation and the indemnifications hereunder shall survive the termination of
this Agreement.
(i)......For purposes of Section 4.19 and 5.7, all references
to Real Property shall be deemed to include all of Borrower's right, title and
interest in and to its owned and leased premises.
4.20. Financing Statements. Except with respect to the financing
statements filed by Agent and the financing statements described on Schedule
1.2, no financing statement covering any of the Collateral or any proceeds
thereof is on file in any public office.
V. REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants as follows:
5.1. Authority; Enforceable Obligations. Borrower and each Guarantor has full
power, authority and legal right to enter into this Agreement and the Other
Documents to which it is a party and to perform all its respective Obligations
hereunder and thereunder. The execution, delivery and performance of this
Agreement and of the Other Documents (a) are within Borrower's and Guarantor's
corporate powers, have been duly authorized by all necessary corporate or other
action, are not in contravention of law or the terms of such Person's by-laws,
certificate of incorporation or other applicable documents relating to such
Person's formation or to the conduct of such Person's business or of any
material agreement or undertaking to which such Person is a party or by which
Borrower is bound, including without limitation, the Acquisition Documentation,
the Mezzanine Documentation and the Equity Purchase Documentation or (b) will
not conflict with or violate any law or regulation, or any judgement, order or
decree of any Governmental Body, (c) will not require the Consent of any
Governmental Body or any other Person, except those Consents set forth on
Schedule 5.1 hereto, all of which will have been duly obtained, made or complied
with prior to the Closing Date and which are in full force and effect and (d)
will not conflict with nor result in any breach in any of the provisions of or
constitute a default under or result in the creation of any Lien except
Permitted Encumbrances upon any asset of Borrower under the provisions of any
agreement, charter document, instrument, by-law, or other instrument to which
Borrower or its property is a party or by which it may be bound, including,
without limitation, under the provisions of any of the Acquisition
Documentation, the Mezzanine Documentation or the Equity Purchase Documentation.
This Agreement, the Other Documents and the Subordination Agreement have been
duly executed and delivered by Borrower and each Guarantor which is a party
thereto, and this Agreement, the Other Documents and the Subordination Agreement
constitute legal, valid and binding obligations of Borrower and each Guarantor
party thereto, enforceable against Borrower and each Guarantor party thereto in
accordance with their respective terms except as the enforceability thereof may
be limited by bankruptcy, insolvency, reorganization and other laws affecting
creditor's rights and remedies in general.
5.2. Formation and Qualification. (a) Borrower and each Guarantor is
duly incorporated and in good standing under the laws of the states listed on
Schedule 5.2(a) and is qualified to do business and is in good standing in each
state in which qualification and good standing are necessary for Borrower or
such Guarantor to conduct its business and own its property and where the
failure to so qualify could reasonably be expected to have a Material Adverse
Effect on Borrower or such Guarantor. Borrower and each Guarantor has delivered
to Agent true and complete copies of each of their respective certificates of
incorporation and by-laws and will promptly notify Agent of any amendment or
changes thereto.
(b).....Borrower has no Subsidiaries and the only Subsidiaries
of Holdings are correctly listed on Schedule 5.2(b).
5.3. Survival of Representations and Warranties. All representations
and warranties of Borrower and each Guarantor contained in this Agreement and
the Other Documents to which such Person is a party shall be true at the time
of, and after giving effect to, the closing of the transactions contemplated by
the Acquisition Documentation, the Mezzanine Documentation and the Equity
Purchase Documentation, and shall be true at the time of Borrower's or such
Guarantor's execution of this Agreement and the Other Documents to which it is a
party, and shall survive the execution, delivery and acceptance thereof by the
parties thereto and the closing of the transactions described therein or related
thereto.
5.4. Tax Returns. Borrower's federal tax identification number is set
forth on Schedule 5.4. Borrower has filed all federal, state and local tax
returns and other reports each is required by law to file and has paid all
taxes, assessments, fees and other governmental charges that are due and
payable. Federal, state and local income tax returns of Borrower have been
examined and reported upon by the appropriate taxing authority or closed by
applicable statute and satisfied for all fiscal years prior to and including the
fiscal year ending December 31, 1997. The provision for taxes on the books of
Borrower are adequate for all years not closed by applicable statutes, and for
its current fiscal year, and Borrower has no knowledge of any deficiency or
additional assessment in connection therewith not provided for on its books.
Prior to the date hereof, the Borrower has been included in consolidated federal
income tax returns filed by Holdings on behalf of the affiliated group of
corporations of which Holdings is the common parent (such returns being referred
to as "Consolidated Returns"); all such Consolidated Returns required to be
filed through the date hereof have been timely filed in a manner consistent with
prior years and applicable laws and regulations; and all such Consolidated
Returns are true and complete in all material respects.
5.5. Financial Statements.
(a)......The pro forma balance sheet of Borrower (the "Pro
Forma Balance Sheet") furnished to Agent on the Closing Date reflects the
consummation of the transactions contemplated by the Acquisition Documentation,
the Mezzanine Documentation, the Equity Purchase Documentation and under this
Agreement (the "Transactions") and is accurate, complete and correct and fairly
reflects the financial condition of Borrower as of the Closing Date after giving
effect to the Transactions, and has been prepared in accordance with GAAP,
consistently applied. The Pro Forma Balance Sheet has been certified as
accurate, complete and correct in all material respects by the President and
Chief Financial Officer of Holdings and Borrower. All financial statements
referred to in this subsection 5.5(a), including the related schedules and notes
thereto, have been prepared, in accordance with GAAP, except as may be disclosed
in such financial statements.
(b)......The twelve-month cash flow and operating income
projections of the Borrower and its projected balance sheets as of the Closing
Date, copies of which are annexed hereto as Exhibit 5.5(b) (the "Projections")
were prepared by the Chief Financial Officer of Holdings and Borrower, are based
on underlying assumptions which provide a reasonable basis for the projections
contained therein and reflect Borrower's judgment based on present circumstances
of the most likely set of conditions and course of action for the projected
period. The cash flow Projections together with the Pro Forma Balance Sheet, are
referred to as the "Pro Forma Financial Statements."
(c)......The consolidated and consolidating balance sheets of
Holdings and such other Persons described therein (including the accounts of
Borrower and all other Subsidiaries of Holdings for the respective periods
during which a subsidiary relationship existed) and the balance sheet of Karlen
(i) as of December 31, 1998, and December 31, 1998, respectively, and the
related statements of income, changes in stockholder's equity, and changes in
cash flow for the period ended on such date, all (other than with respect to
Karlen) accompanied by reports thereon containing opinions without qualification
by independent certified public accountants, and with respect to Karlen,
reviewed by independent certified public accountants and (ii) as of February 28,
1999, and the related statements of income, changes in stockholders' equity and
cash flow for the period ended on such date, copies of all of which have been
delivered to Agent, have been prepared in accordance with GAAP, consistently
applied (except for changes in application in which such accountants concur) and
present fairly the financial position of Holdings and its Subsidiaries, Borrower
and Karlen, respectively, at such date and the results of their operations for
such periods. Since December 31, 1997, there has been no change in the
condition, financial or otherwise, of Borrower, Karlen or Holdings as shown on
such Person's balance sheet as of such date and no change in the aggregate value
of Equipment owned by Borrower or Karlen except changes in the ordinary course
of business, none of which individually or in the aggregate has been materially
adverse.
5.6. Corporate Name and Locations. (a) Borrower has not been known by
any other corporate name in the past five years and does not sell Inventory
under any other name except as set forth on Schedule 5.6, nor, except as set
forth in Schedule 5.6, has Borrower been the surviving corporation of a merger
or consolidation or acquired all or substantially all of the assets of any
Person during the preceding five (5) years.
(b)......There is no location at which Borrower has any
Inventory (except for Inventory in transit) other than (i) those locations
listed on Schedule 4.5 hereto and (ii) any other locations in the continental
United States permitted pursuant to the terms of Section 4.5(b) hereof. Schedule
4.5 hereto contains a correct and complete list, as of the Closing Date, of the
legal names and addresses of each warehouse at which Inventory of Borrower is
stored. None of the receipts received by Borrower from any warehouse states that
the goods covered thereby are to be delivered to bearer or to the order of a
named Person or to a named Person and such named Person's assigns. Schedule 4.5
hereto sets forth a correct and complete list as of the Closing Date of (A) each
place of business of Borrower and (B) the chief executive office of Borrower.
Schedule 4.5 hereto sets forth a correct and complete list as of the Closing
Date of the location, by state and street address, of all Real Property leased
by Borrower. Borrower does not own any Real Property.
5.7. O.S.H.A. and Environmental Compliance.
(a)......Borrower has duly complied with, and its facilities,
business, assets, property, leaseholds, Real Property and Equipment are in
compliance in all material respects with, the provisions of the Federal
Occupational Safety and Health Act, the Environmental Protection Act, RCRA and
all other Environmental Laws; there have been no outstanding citations, notices
or orders of non-compliance issued to Borrower or relating to its business,
assets, property, leaseholds, Real Property or Equipment under any such laws,
rules or regulations.
(b)......Borrower has been issued all required federal, state
and local licenses, certificates or permits relating to all applicable
Environmental Laws.
(c)......(i) There are no visible signs of releases, spills,
discharges, leaks or disposal (collectively referred to as "Releases") of
Hazardous Substances at, upon, under or within any Real Property; (ii) there are
no underground storage tanks or polychlorinated biphenyls on the Real Property;
(iii) the Real Property has never been used as a treatment, storage or disposal
facility of Hazardous Waste; and (iv) no Hazardous Substances are present on the
Real Property, excepting such quantities as are handled in accordance with all
applicable manufacturer's instructions and governmental regulations and in
proper storage containers and as are necessary for the operation of the
commercial business of Borrower or of its tenants.
5.8. Solvency; No Litigation, Violation, Indebtedness or Default.
(a)......After giving effect to the Transactions, Borrower
will be solvent, able to pay its debts as they mature, have capital sufficient
to carry on its business and all businesses in which it is about to engage, and
(i) as of the Closing Date, the fair present saleable value of its assets,
calculated on a going concern basis, is in excess of the amount of its
liabilities and (ii) subsequent to the Closing Date, the fair saleable value of
its assets (calculated on a going concern basis) will be in excess of the amount
of its liabilities.
(b)......Except as disclosed in Schedule 5.8(b), neither
Borrower nor any Guarantor has any (i) pending or threatened litigation,
arbitration, actions or proceedings which involve the possibility of having a
Material Adverse Effect on Borrower or the Collateral, (ii) any liabilities or
indebtedness for borrowed money other than the Obligations, the Subordinated
Note and the Intercompany Note and (iii) any Liens on any of its assets or
properties other than Permitted Encumbrances.
(c)......Neither Borrower nor any Guarantor is in violation of
any applicable law, rule, statute, regulation or ordinance in any respect which
could reasonably be expected to have a Material Adverse Effect on Borrower or
the Collateral nor is Borrower in violation of any order of any court,
arbitration board, tribunal or other Governmental Body.
(d)......Neither Borrower nor any member of the Controlled
Group maintains or contributes to any Plan other than those listed on Schedule
5.8(d) hereto. Except as set forth in Schedule 5.8(d), (i) no Plan has incurred
any "accumulated funding deficiency," as defined in Section 302(a)(2) of ERISA
and Section 412(a) of the Code, whether or not waived, and Borrower and each
member of the Controlled Group has met all applicable minimum funding
requirements under Section 302 of ERISA in respect of each Plan, (ii) each Plan
which is intended to be a qualified plan under Section 401(a) of the Code as
currently in effect has been determined by the Internal Revenue Service to be
qualified under Section 401(a) of the Code and the trust related thereto is
exempt from federal income tax under Section 501(a) of the Code, (iii) neither
Borrower nor any member of the Controlled Group has incurred any liability to
the PBGC other than for the payment of premiums, and there are no premium
payments which have become due which are unpaid, (iv) no Plan has been
terminated by the plan administrator thereof nor by the PBGC, and there is no
occurrence which would cause the PBGC to institute proceedings under Title IV of
ERISA to terminate any Plan, (v) at this time, the current value of the assets
of each Plan exceeds the present value of the accrued benefits and other
liabilities of such Plan and neither Borrower nor any member of the Controlled
Group knows of any facts or circumstances which would materially change the
value of such assets and accrued benefits and other liabilities, (vi) neither
Borrower nor any member of the Controlled Group has breached any of the
responsibilities, obligations or duties imposed on it by ERISA with respect to
any Plan, (vii) neither Borrower nor any member of a Controlled Group has
incurred any liability for any excise tax arising under Section 4972 or 4980B of
the Code, and no fact exists which could give rise to any such liability, (viii)
neither Borrower nor any member of the Controlled Group nor any fiduciary of,
nor any trustee to, any Plan, has engaged in a "prohibited transaction"
described in Section 406 of the ERISA or Section 4975 of the Code nor taken any
action which would constitute or result in a Termination Event with respect to
any such Plan which is subject to ERISA, (ix) Borrower and each member of the
Controlled Group has made all contributions due and payable with respect to each
Plan, (x) there exists no event described in Section 4043(b) of ERISA, for which
the thirty (30) day notice period contained in 29 CFR 2615.3 has not been
waived, (xi) neither Borrower nor any member of the Controlled Group has any
fiduciary responsibility for investments with respect to any plan existing for
the benefit of persons other than employees or former employees of Borrower and
any member of the Controlled Group, and (xii) neither Borrower nor any member of
the Controlled Group has withdrawn, completely or partially, from any
Multiemployer Plan so as to incur liability under the Multiemployer Pension Plan
Amendments Act of 1980.
(e) Neither Borrower nor Guarantor has any responsibility or liability
(including, without limitation, with respect to any clean-up costs or any
Environmental Compliance Costs) for any environmental investigation,
contamination or remediation with respect to the property located at One River
Street, Hastings-on-Hudson, New York.
5.9. Patents, Trademarks, Copyrights and Licenses. All patents, patent
applications, trademarks, trademark applications, service marks, service mark
applications, copyrights, copyright applications, design rights, tradenames,
assumed names, trade secrets and licenses owned or utilized by Borrower as of
the Closing Date are set forth on Schedule 5.9, are valid and have been duly
registered or filed with all appropriate Governmental Bodies and constitute all
of the intellectual property rights which are necessary for the operation of its
business; there is no objection to or pending challenge to the validity of any
such material patent, trademark, copyright, design right, tradename, trade
secret or license and Borrower is not aware of any grounds for any challenge,
except as set forth in Schedule 5.9 hereto. Each patent, patent application,
patent license, trademark, trademark application, trademark license, service
mark, service mark application, service mark license, copyright, copyright
application and copyright license owned or held by Borrower and all trade
secrets used by Borrower consist of original material or property developed by
Borrower or was lawfully acquired by Borrower from the proper and lawful owner
thereof. Each of such items has been maintained so as to preserve the value
thereof from the date of creation or acquisition thereof. With respect to all
software, except "off-the-shelf" software (for which Borrower has access to
only), used by Borrower, Borrower is in possession of all source and object
codes related to each piece of software or is the beneficiary of a source code
escrow agreement, each such source code escrow agreement being listed on
Schedule 5.9 hereto.
5.10. Licenses and Permits. Except as set forth in Schedule 5.10,
Borrower (a) is in compliance with and (b) has procured and is now in possession
of, all material licenses or permits required by any applicable federal, state,
provincial or local law, rule or regulation for the operation of its business in
each jurisdiction wherein it is now conducting or proposes to conduct business
and where the failure to procure such licenses or permits could have a Material
Adverse Effect on Borrower.
5.11. Default of Indebtedness. Borrower is not in default in the
payment of the principal of or interest on any Indebtedness or under any
instrument or agreement under or subject to which any Indebtedness has been
issued and no event has occurred under the provisions of any such instrument or
agreement which with or without the lapse of time or the giving of notice, or
both, constitutes or would constitute an event of default thereunder.
5.12. No Default. Borrower is not in default in the payment or
performance of any of its contractual obligations and no Default has occurred.
Borrower has heretofore delivered to the Agent true and complete copies of all
material contracts to which it is a party or to which it or any of its
properties is subject.
5.13. No Burdensome Restrictions. Borrower is not party to any contract
or agreement the performance of which could have a Material Adverse Effect on
Borrower. Borrower has not agreed or consented to cause or permit in the future
(upon the happening of a contingency or otherwise) any of its property, whether
now owned or hereafter acquired, to be subject to a Lien which is not a
Permitted Encumbrance.
5.14. No Labor Disputes. As of the Closing Date, Borrower is not
involved in any labor dispute and, as of the date of each request for an
Advance, no labor dispute will exist other than nonmaterial ordinary course of
business disputes with any employee which could not be reasonably expected to
have a Material Adverse Effect on Borrower. There are no strikes or walkouts or
union organization of Borrower's employees threatened or in existence and no
labor contract is scheduled to expire during the Term other than as set forth on
Schedule 5.14 hereto.
5.15. Margin Regulations. Borrower is not engaged, nor will it engage,
principally or as one of its important activities, in the business of extending
credit for the purpose of "purchasing" or "carrying" any "margin stock" within
the respective meanings of each of the quoted terms under Regulation U or
Regulation G of the Board of Governors of the Federal Reserve System as now and
from time to time hereafter in effect. No part of the proceeds of any Advance
will be used for "purchasing" or "carrying" "margin stock" as defined in
Regulation U of such Board of Governors.
5.16. Investment Company Act. Borrower is not an "investment company"
registered or required to be registered under the Investment Company Act of
1940, as amended, nor is it controlled by such a company.
5.17. Disclosure. No representation or warranty made by Borrower in
this Agreement, the Mezzanine Documentation, the Acquisition Documentation or in
the Equity Purchase Documentation, or in any financial statement, report,
certificate or any other document furnished in connection herewith or therewith
contains any untrue statement of a material fact or omits to state any material
fact necessary to make the statements herein or therein not misleading. There is
no fact known to Borrower or which reasonably should be known to Borrower which
Borrower has not disclosed to Agent in writing with respect to the transactions
contemplated by the Mezzanine Documentation, Acquisition Documentation, Equity
Purchase Documentation or this Agreement, which could reasonably be expected to
have a Material Adverse Effect on Borrower.
5.18. Delivery of Acquisition Documentation, Mezzanine Documentation
and Equity Purchase Documentation. Agent has received complete copies of the
Acquisition Documentation, the Mezzanine Documentation and the Equity Purchase
Documentation (in each case, including all exhibits, Schedules and disclosure
letters referred to therein or delivered pursuant thereto, if any) and all
amendments thereto, waivers relating thereto and other side letters or
agreements affecting the terms thereof. None of such documents and agreements
has been amended or supplemented, nor have any of the provisions thereof been
waived, except pursuant to a written agreement or instrument which has
heretofore been delivered to Agent. All of the proceeds of the Equity
Transactions will be used by Borrower to finance, in part, on the date of the
initial Advance, the Karlen Acquisition.
5.19. Swaps. Borrower is not a party to, nor will it be a party to, any
swap agreement whereby Borrower has agreed or will agree to swap interest rates
or currencies unless same provides that damages upon termination following an
event of default thereunder are payable on an unlimited "two-way basis" without
regard to fault on the part of either party.
5.20. Conflicting Agreements. No provision of any mortgage, indenture,
contract, agreement, judgment, decree or order binding on Borrower or affecting
the Collateral conflicts with, or requires any Consent which has not already
been obtained to, or would in any way prevent the execution, delivery or
performance of, the terms of this Agreement or the Other Documents.
5.21. Application of Certain Laws and Regulations. Neither Borrower nor
any Affiliate of Borrower is subject to any law, statute, rule or regulation
which regulates the incurrence of any Indebtedness, including without
limitation, laws, statutes, rules or regulations relative to common or
interstate carriers or to the sale of electricity, gas, steam, water, telephone,
telegraph or other public utility services.
5.22. Business and Property of Borrower. Upon and after the Closing
Date, Borrower does not propose to engage in any business other than the
businesses conducted on the Closing Date and fully disclosed to the Agent and
activities necessary to conduct the foregoing. On the Closing Date, Borrower
will own all the property and possess all of the rights and Consents necessary
for the conduct of the business of Borrower.
5.23. Year 2000. Borrower has reviewed the areas within its business
and operations which could be adversely affected by, and have developed or are
developing a program to address on a timely basis, the risk that certain
computer applications used by Borrower (or any of its respective material
suppliers, customers or vendors) may be unable to recognize and perform properly
date-sensitive functions involving dates prior to and after December 31, 1999
(the "Year 2000 Problem). The Year 2000 Problem will not have a Material Adverse
Effect on Borrower.
VI. AFFIRMATIVE COVENANTS.
Borrower shall, until payment in full of the Obligations and
termination of this Agreement:
6.1. Payment of Fees. Pay to Agent on demand all usual and customary
fees and expenses which Agent incurs in connection with (a) the forwarding of
Advance proceeds and (b) the establishment and maintenance of any Blocked
Accounts or Depository Accounts as provided for in Section 4.15(h). Agent may,
without making demand, charge Borrower's Account for all such fees and expenses.
6.2. Conduct of Business and Maintenance of Existence and Assets. (a)
Conduct continuously and operate actively its business according to good
business practices and maintain all of its properties useful or necessary in its
business in good working order and condition (reasonable wear and tear excepted
and except as may be disposed of in accordance with the terms of this
Agreement), including, without limitation, all licenses, patents, copyrights,
design rights, tradenames, trade secrets and trademarks and take all actions
necessary to enforce and protect the validity of any intellectual property right
or other right included in the Collateral and immediately notify Agent upon
acquiring any ownership interest in or other right to use any patent, trademark,
copyright, license or other intellectual property of any kind after the date
hereof; (b) keep in full force and effect its existence and comply with the
laws, rules and regulations governing the conduct of its business where the
failure to do so could reasonably be expected to have a Material Adverse Effect
on Borrower; and (c) make all such reports and pay all such franchise and other
taxes and license fees and do all such other acts and things as may be lawfully
required to maintain its rights, licenses, leases, powers and franchises under
the laws of the United States or any political subdivision thereof where the
failure to do so could reasonably be expected to have a Material Adverse Effect
on Borrower.
6.3. Violations. Promptly notify Agent in writing of any violation of
any law, statute, rule or regulation or ordinance of any Governmental Body, or
of any agency thereof, applicable to Borrower which could reasonably be expected
to have a Material Adverse Effect on Borrower.
6.4. Government Receivables. Take all steps necessary to protect
Agent's interest in the Collateral under the Federal Assignment of Claims Act,
the Uniform Commercial Code, and all other applicable state or local statutes or
ordinances and deliver to Agent appropriately endorsed, any instrument or
chattel paper connected with any Receivable arising out of contracts between
Borrower and the United States, any state or any department, agency or
instrumentality of any of them.
6.5. Net Worth. Maintain at all times a Net Worth in an amount not less
than $11,500,000, provided such amount shall be increased commencing with
respect to each fiscal year (or portion thereof) commencing on January 1, 2000,
to an amount equal to the minimum Net Worth amount required for the immediately
preceding fiscal year pursuant to this Section 6.5 plus an amount equal to 50%
of the positive net income of Borrower for such prior fiscal year.
6.6 Leverage Ratio. Maintain a Leverage Ratio at the end of each of the
following fiscal quarters with respect to the four fiscal quarters then ended of
no greater than the applicable Leverage Ratio set forth below:
Fiscal Quarter.... Applicable Leveraged Ratio
Each Fiscal Quarter ending. 4.0 to 1.0
on or prior to March 31, 2000
Each Fiscal Quarter occurring after 3.75 to 1.0
March 31, 2000 and ending on or prior
to March 31, 2001
Each Fiscal Quarter occurring after 3.5 to 1.0
March 31, 2001 and ending on or prior
to March 31, 2002
Each Fiscal Quarter occurring 3.25 to 1.0
after March 31, 2002
6.7. Fixed Charge Coverage Ratio. Maintain a Fixed Charge Coverage
Ratio at the end of each fiscal quarter with respect to the four fiscal quarters
then ended of not less than 1.2 to 1.0.
6.8. Execution of Supplemental Instruments. Execute and deliver to
Agent from time to time, upon demand, such supplemental agreements, statements,
assignments and transfers, or instructions or documents relating to the
Collateral, and such other instruments as Agent may request, in order that the
full intent of this Agreement may be carried into effect, provided that any
amendment to this Agreement may only be made pursuant to Section 15.2(a).
6.9. Payment of Indebtedness. Pay, discharge or otherwise satisfy at or
before maturity (subject, where applicable, to specified grace periods and, in
the case of the trade payables, to normal payment practices) all its obligations
and liabilities of whatever nature, except when the failure to do so could not
reasonably be expected to have a Material Adverse Effect or when the amount or
validity thereof is currently being contested within 30 days after such maturity
in good faith by appropriate proceedings and Borrower shall have provided for
such reserves as Agent may reasonably deem proper and necessary, subject at all
times to any applicable subordination arrangement in favor of Lenders.
6.10. Standards of Financial Statements. Cause all financial statements
referred to in Sections 9.7, 9.8, 9.9, 9.10, 9.11, 9.12, 9.13 and 9.14 as to
which GAAP is applicable to be complete and correct in all material respects
(subject, in the case of interim financial statements, to normal year-end audit
adjustments) and to be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein (except as
concurred in by such reporting accountants or officer, as the case may be, and
disclosed therein).
6.11. Exercise of Rights. Enforce all of its rights under the
Acquisition Documentation and all other material contractual rights executed in
connection therewith including, but not limited to, all indemnification rights
and pursue all remedies available to it with diligence and in good faith in
connection with the enforcement of any such rights.
6.12. Year 2000 Problem. Take all steps necessary to ensure that the
Year 2000 Problem will not have a Material Adverse Effect on Borrower or any of
their Subsidiaries.
VII. NEGATIVE COVENANTS.
Borrower shall not, until satisfaction in full of the Obligations and
termination of this Agreement:
7.1. Merger, Consolidation, Acquisition and Sale of Assets.
(a)......Enter into any merger, consolidation or other
reorganization with or into any other Person or acquire all or a substantial
portion of the assets or Stock of any Person (or of any subsidiary, division or
operating unit of any Person) or permit any other Person to consolidate with or
merge with it.
(b)......Sell, lease, transfer or otherwise dispose of any of
its properties or assets, except the sale of Inventory in the ordinary course of
its business and except the disposition or transfer of obsolete or worn out
Equipment in accordance with Section 4.3.
7.2. Creation of Liens. Create or suffer to exist any Lien or transfer
upon or against any of its property or assets now owned or hereafter acquired,
except Permitted Encumbrances.
7.3. Guarantees. Become liable upon the obligations or liabilities of
any Person by assumption, endorsement or guaranty thereof or otherwise (other
than to Lenders) except the endorsement of checks in the ordinary course of
business.
7.4. Investments. Purchase or acquire obligations or Stock of, or any
other interest in, any Person, except (a) obligations issued or guaranteed by
the United States of America or any agency thereof, (b) commercial paper with
maturities of not more than 180 days and a published rating of not less than A-1
or P-1 (or the equivalent rating), (c) certificates of time deposit and bankers'
acceptances having maturities of not more than 180 days and repurchase
agreements backed by United States government securities of a commercial bank if
(i) such bank has a combined capital and surplus of at least $500,000,000, or
(ii) its debt obligations, or those of a holding company of which it is a
Subsidiary, are rated not less than A (or the equivalent rating) by a nationally
recognized investment rating agency, and (d) U.S. money market funds that invest
solely in obligations issued or guaranteed by the United States of America or an
agency thereof.
7.5. Loans. Make advances, loans or extensions of credit to any Person,
including without limitation, any Parent, Subsidiary or Affiliate except with
respect to (a) the extension of commercial trade credit in connection with the
sale of Inventory in the ordinary course of its business and (b) loans or
advances to employees in the ordinary course of business not to exceed the
aggregate amount of $50,000 at any time outstanding.
7.6. Capital Expenditures. Contract for, purchase or make any
expenditure or commitments for fixed or capital assets (including capitalized
leases) in any fiscal year in an amount in excess of $250,000, except for fiscal
year 1999 for which such limit shall be $500,000.
7.7. Dividends. Declare, pay or make any dividend or distribution on
any shares of common stock, preferred stock or any other Stock of Borrower
(other than dividends or distributions payable in its Stock) or split-up or
reclassify any of its Stock or apply any of its funds, property or assets to the
purchase, redemption or other retirement or acquisition of any common or
preferred stock or any other Stock, including, without limitation, the Warrants
or any options to purchase or acquire any such shares of common or preferred
stock or other Stock of Borrower.
7.8. Indebtedness. Create, incur, assume or suffer to exist any
Indebtedness (exclusive of trade debt incurred in the ordinary course of
business to non-affiliates) except in respect of (i) Indebtedness to Lenders;
(ii) Indebtedness incurred for capital expenditures permitted under Section 7.6
hereof; (iii) Indebtedness due under the Subordinated Note as amended from time
to time provided such amendment shall not be in violation of the prohibitions
contained in Section 7.19 hereof; and (iv) a loan from Holdings to Borrower on
the Closing Date in the amount of $1,000,000, provided that the repayment of
such loan is subordinated to the payment of the Obligations pursuant to the
terms of and evidenced by a promissory note substantially in the form of Exhibit
7.8 hereto (the "Intercompany Note") and senior to the payment of the
Subordinated Note as set forth in the Subordination Agreement and which will be
secured by Liens on all of Borrower's Collateral prior to all other Liens other
than the Liens securing the Obligations.
7.9. Nature of Business. Substantially change the nature of the
business in which it is presently engaged, nor except as specifically permitted
hereby purchase or invest, directly or indirectly, in any assets or property
other than in the ordinary course of business for assets or property which are
useful in, necessary for and are to be used in its business as presently
conducted, and Borrower will not purchase any Real Property or other real
property.
7.10. Transactions with Affiliates. Directly or indirectly, purchase,
acquire or lease any property from, or sell, transfer or lease any property to,
or otherwise enter into any transaction or deal with, any Affiliate, except
transactions disclosed to the Agent, which are in the ordinary course of
business, and on an arm's-length basis on terms and on conditions no less
favorable than terms and conditions which would have been obtainable from a
Person other than an Affiliate; except (i)(x) Holdings shall be entitled to
receive payments of principal and interest under and pursuant to the terms and
conditions of the Intercompany Note as in effect on the Closing Date and (y)
Borrower shall be entitled to reimburse Holdings in an aggregate amount not to
exceed $50,000 in cash during any fiscal year to be applied by Holdings to pay
franchise taxes, accounting and SEC fees and expenses and other ordinary course
of business operating expenses incurred by Holdings on behalf of Borrower, so
long as prior to and after giving effect to any such payments there shall not
exist a Default or Event of Default (ii) PTI shall be entitled to a management
fee, payable pursuant to the terms of the Management Agreement as in effect on
the date hereof and pursuant to any amendment not prohibited by Section 7.19
hereof, so long as prior to and after giving effect to any such payments there
shall not exist any Event of Default or Default, (iii) Mezzanine Lender shall be
entitled to receive regularly scheduled payments of interest under and pursuant
to the terms and conditions of the Subordinated Note and certain other interest,
fees and expenses under the Subordinated Note or Securities Purchase Agreement,
in each case that are expressly permitted under the Subordination Agreement with
Mezzanine Lender, (iv) Mezzanine Lender shall be entitled to receive certain
other fees and expenses not covered by clause (iii) above pursuant to the terms
and conditions of the Mezzanine Documentation (other than the Subordinated Note
and the Securities Purchase Agreement), as in effect on the date hereof and
pursuant to any amendment that does not violate the Subordination Agreement with
Mezzanine Lender or Section 7.19 hereof, and provided that prior to and after
giving effect to any such payments there shall not exist any Event of Default or
Default and (v) other than with respect to any obligation of Borrower to pay
Mezzanine Lender any principal, interest, fees, expenses or any other monetary
obligation, Borrower may otherwise perform its nonmonetary obligations under the
Mezzanine Documentation provided that such performance would not violate any
other provision of this Agreement or result in a Default or an Event of Default.
7.11. Leases. Enter as lessee into any lease arrangement for real or
personal property (unless capitalized and permitted under Section 7.6 hereof) if
after giving effect thereto, aggregate annual rental payments for all leased
property would exceed $300,000 in any one fiscal year.
7.12. Subsidiaries.
(a)......Form any Subsidiary.
(b)......Enter into any partnership, joint venture or similar
arrangement.
7.13. Fiscal Year and Accounting Changes. Change its fiscal year or
make any change (i) in accounting treatment and reporting practices except as
required by GAAP or (ii) in tax reporting treatment except as required by law.
7.14. Pledge of Credit. Now or hereafter pledge Agent's or any Lender's
credit on any purchases or for any purpose whatsoever or use any portion of any
Advance in or for any business other than Borrower's business as conducted on
the date of this Agreement.
7.15. Amendment of Articles of Incorporation, By-Laws. Amend, modify or
waive any term or material provision of its Articles of Incorporation or By-Laws
except to increase the amount of authorized common stock or unless required by
law.
7.16. Compliance with ERISA. (i) (x) Maintain, or permit any member of
the Controlled Group to maintain, or (y) become obligated to contribute, or
permit any member of the Controlled Group to become obligated to contribute, to
any Plan, other than those Plans disclosed on Schedule 5.8(d), (ii) engage, or
permit any member of the Controlled Group to engage, in any non-exempt
"prohibited transaction," as that term is defined in section 406 of ERISA and
Section 4975 of the Code, (iii) incur, or permit any member of the Controlled
Group to incur, any "accumulated funding deficiency," as that term is defined in
Section 302 of ERISA or Section 412 of the Code, (iv) terminate, or permit any
member of the Controlled Group to terminate, any Plan where such event could
result in any liability of Borrower or any member of the Controlled Group or the
imposition of a lien on the property of Borrower or any member of the Controlled
Group pursuant to Section 4068 of ERISA, (v) assume, or permit any member of the
Controlled Group to assume, any obligation to contribute to any Multiemployer
Plan not disclosed on Schedule 5.8(d), (vi) incur, or permit any member of the
Controlled Group to incur, any withdrawal liability to any Multiemployer Plan;
(vii) fail promptly to notify Agent of the occurrence of any Termination Event,
(viii) fail to comply, or permit a member of the Controlled Group to fail to
comply, with the requirements of ERISA or the Code or other applicable laws in
respect of any Plan, (ix) fail to meet, or permit any member of the Controlled
Group to fail to meet, all minimum funding requirements under ERISA or the Code
or postpone or delay or allow any member of the Controlled Group to postpone or
delay any funding requirement with respect of any Plan.
<PAGE>
7.17. Prepayment of Indebtedness. At any time, directly or indirectly,
prepay any Indebtedness (other than to Lenders and other than prepayments of
account payables to vendors and suppliers in the ordinary course of business
consistent with past practices), or repurchase, redeem, retire or otherwise
acquire any Indebtedness of Borrower.
7.18. Subordinated Note; Seller Notes. At any time, directly or
indirectly, pay, prepay, repurchase, redeem, retire or otherwise acquire, or
make any payment on account of any principal of, interest on or premium payable
in connection with the repayment or redemption of the Subordinated Note or the
Seller Note, except for payments of regularly scheduled interest payments under
the Subordinated Note as expressly permitted in the Subordination Agreement with
Mezzanine Lender.
7.19. Other Agreements. (a) Enter into any material amendment, waiver
or modification of the Acquisition Documentation or the Equity Purchase
Documentation or any related agreements or the Employment Agreement if such
amendment, waiver or modification (individually or in the aggregate) could
reasonably be expected to have a Material Adverse Effect on Borrower, (b) amend
or modify the Intercompany Note or the Management Agreement other than any
amendment to the Management Agreement, the effect of which would not be to
decrease, increase or otherwise change the payments thereunder or otherwise
violate any other provision of this Agreement, or terminate or permit the
Management Agreement to terminate for any reason prior to the Maturity Date
without the Agent's prior written consent (other than a termination following a
Change of Ownership (as defined in the Revolving Credit, Term Loan and Security
Agreement dated April 14, 1999 between PTI, Zacko Sports, Inc. and Agent, as in
effect on the date hereof)) or (c) amend or modify any of the Mezzanine
Documentation to accelerate the mandatory redemption or repurchase provisions
relating to the Warrants or common stock issuable pursuant thereto or to
increase or accelerate any of the fees or any other payment of any kind
thereunder or otherwise amend or modify any of the Mezzanine Documentation or
make any payment or take any other action, in any such case if such amendment,
modification, payment or action would result in a violation of any provision of
the Subordination Agreement or this Agreement.
VIII. CONDITIONS PRECEDENT.
8.1. Conditions to Initial Advances. The agreement of Lenders to make
the initial Advances requested to be made on the Closing Date is subject to the
satisfaction, or waiver by Lenders, immediately prior to or concurrently with
the making of such Advances, of the following conditions precedent:
(a) Note. Agent shall have received the Note duly
executed and delivered by an authorized officer of Borrower;
(b) Filings, Registrations and Recordings. Each document
(including, without limitation, any Uniform Commercial Code financing statement)
required by this Agreement, any Other Document, any related agreement or under
law or reasonably requested by the Agent to be filed, registered or recorded in
order to create, in favor of Agent, a perfected security interest in and lien
upon the Collateral shall have been properly filed, registered or recorded in
each jurisdiction in which the filing, registration or recordation thereof is so
required or requested, and Agent shall have received an acknowledgment copy, or
other evidence satisfactory to it, of each such filing, registration or
recordation and satisfactory evidence of the payment of any necessary fee, tax
or expense relating thereto;
<PAGE>
(c) Corporate Proceedings. Agent shall have received a copy of
the resolutions in form and substance reasonably satisfactory to Agent, of the
Board of Directors of Holdings and Borrower authorizing (i) the execution,
delivery and performance of this Agreement, the Note, the Other Documents, any
related agreements, the Mezzanine Documentation, the Acquisition Documentation
and the Equity Purchase Documentation (collectively, the "Documents") and (ii)
the granting by Borrower of the security interests in and liens upon the
Collateral in each case certified by the Secretary or an Assistant Secretary of
Holdings and Borrower as of the Closing Date; and, such certificate shall state
that the resolutions thereby certified have not been amended, modified, revoked
or rescinded as of the date of such certificate;
(d) Incumbency Certificates. Agent shall have received a
certificate of the Secretary or an Assistant Secretary of Holdings and Borrower,
dated the Closing Date, as to the incumbency and signature of the officers of
Holdings and Borrower executing this Agreement, any certificate or other
documents to be delivered by it pursuant hereto, together with evidence of the
incumbency of such Secretary or Assistant Secretary;
(e) Certificates. Agent shall have received a copy of the
Articles or Certificate of Incorporation of Holdings and Borrower and all
amendments thereto, certified by the Secretary of State or other appropriate
official of its jurisdiction of incorporation together with copies of the
By-Laws of Holdings and Borrower certified as accurate and complete by the
Secretary of Holdings and Borrower;
(f) Good Standing Certificates. Agent shall have received good
standing certificates for Holdings and Borrower dated not more than 15 business
days prior to the Closing Date, issued by the Secretary of State or other
appropriate official of Holdings' and Borrower's jurisdiction of incorporation
and each jurisdiction where the conduct of Holdings' and Borrower's business
activities or the ownership of its properties necessitates qualification;
(g) Legal Opinion. Agent shall have received the executed
legal opinion of Akabas & Cohen, in form and substance satisfactory to Agent,
which shall cover such matters incident to the transactions contemplated by this
Agreement, the Note, the Guaranty, the Other Documents, the Subordination
Agreement, and related agreements as Agent may reasonably require and Borrower
hereby authorizes and directs such counsel to deliver such opinions to Agent and
Lenders. In addition, Agent shall have received executed reliance letters (or
legal opinions with reliance language), in form and substance satisfactory to
Agent, with respect to all legal opinions delivered in connection with the
Karlen Acquisition;
(h) No Litigation. (i) No litigation, investigation or
proceeding before or by any arbitrator or Governmental Body shall be continuing
or threatened against Holdings or Borrower or against the officers or directors
of Holdings or Borrower (A) in connection with this Agreement, the Other
Documents or the Mezzanine Documentation or any of the transactions contemplated
thereby and which, in the reasonable opinion of Agent, is deemed material or (B)
which could, in the reasonable opinion of Agent, have a Material Adverse Effect;
and (ii) no injunction, writ, restraining order or other order of any nature
materially adverse to Holdings or Borrower or the conduct of its business or
inconsistent with the due consummation of the Transactions shall have been
issued by any Governmental Body;
(i) Financial Condition Certificates. Agent shall have
received an executed Financial Condition Certificate in the form of Exhibit
8.1(i);
(j) Collateral Examination. Agent shall have completed
Collateral examinations and received appraisals, the results of which shall be
satisfactory in form and substance to Lenders, of the Receivables, Inventory,
General Intangibles, Real Property, Leasehold Interest and Equipment and other
Collateral of Borrower and all books and records in connection therewith;
(k) Fees. Agent shall have received all fees payable to Agent
and Lenders on or prior to the Closing Date pursuant to Article III hereof;
(l) Pro Forma Financial Statements. Agent shall have received
a copy of the Pro Forma Financial Statements which shall be satisfactory in all
respects to Lenders;
(m) Acquisition, Mezzanine and Equity Documents. Agent shall
have received final executed copies of the Acquisition Documentation, the
Mezzanine Documentation and the Equity Purchase Documentation, and all related
agreements, documents and instruments as in effect on the Closing Date, all of
which shall be satisfactory in form and substance to the Agent, and the
transactions contemplated by such documentation shall be consummated prior to or
simultaneously with the making of the initial Advance including, without
limitation, evidence satisfactory to the Agent of (a) (w) the receipt by
Borrower of a cash contribution from the Management Investors in respect of 18
shares of newly issued common stock of Borrower in the aggregate amount of
$1,800,000 (the "Management Equity Transactions"), (x) the receipt by Borrower
of a capital contribution in the aggregate amount of $1,000,000 made by issuance
of the Seller Note from Holdings to Karlen and cancellation of such liability
(y) the receipt by Borrower of a cash contribution from Holdings in the
aggregate amount of $200,000 and (z) the cancellation of at least $3,500,000 in
the aggregate principal amount of non-interest bearing junior subordinated debt
of Borrower held by Holdings as a capital contribution to Borrower (such
transactions referred to in clauses (x), (y) and (z), collectively, the "Parent
Equity Investment" and together with the Management Equity Transactions,
collectively, the "Equity Transactions") and (b) the receipt by Borrower of the
proceeds of the Subordinated Note in the sum of $8,000,000. Each of the
conditions precedent to the parties' respective obligations to consummate the
Acquisition and Equity Transactions as set forth in the Acquisition
Documentation and the Equity Purchase Documentation shall have been satisfied to
the satisfaction of the Agent or waived with the consent of the Agent and the
Required Lenders, and the Acquisition and the Equity Transactions shall have
been consummated in accordance with all applicable laws, the Acquisition
Documentation and the Equity Purchase Documentation, and the consideration
payable to the Seller pursuant to the Acquisition Agreement shall not exceed
$16,750,000 in cash and $1,000,000 in Seller Note and all aspects thereof shall
be satisfactory to the Agent;
(n) Subordination Agreements. Agent shall have entered into a Subordination
Agreement with Borrower and Mezzanine Lender and with the Seller, in each case
which shall set forth the basis upon which the Mezzanine Lender and the Seller,
respectively, may receive, and Borrower may make, payments under the
Subordinated Note and the Seller Note, respectively, which basis shall be
satisfactory in form and substance to Agent in its sole discretion;
(o) Pledge Agreement. Agent and Holdings shall have entered into the Pledge
Agreement, in form and substance satisfactory to Agent;
(p) Intercreditor Agreement. Agent and Holdings shall have entered into
the Intercreditor Agreement, in form and substance satisfactory to Agent;
(q) Insurance. Agent shall have received in form and substance satisfactory to
Agent, certified copies of Borrower's casualty insurance policies, together with
loss payable endorsements on Agent's standard form of loss payee endorsement
naming Agent as loss payee, and certified copies of Borrower's liability
insurance policies, together with endorsements naming Agent as a co-insured;
(r) Payment Instructions. Agent shall have received written instructions from
Borrower directing the application of proceeds of the initial Advances made
pursuant to this Agreement;
(s) Blocked Accounts. Agent shall have received duly executed agreements
establishing the Blocked Accounts or Depository Accounts with financial
institutions acceptable to Agent for the collection or servicing of the
Receivables and proceeds of the Collateral;
(t) Consents. Agent shall have received any and all Consents necessary to permit
the effectuation of the transactions contemplated by this Agreement and the
Other Documents including, without limitation, a Consent with respect to the
collateral assignment of the Acquisition Agreement; and, Agent shall have
received such Consents and waivers of such third parties as might assert claims
with respect to the Collateral, as Agent and its counsel shall deem necessary;
(u) No Adverse Material Change. (i) since December 31, 1997, there shall not
have occurred any event, condition or state of facts which could reasonably be
expected to have a Material Adverse Effect and (ii) no representations made or
information supplied to Agent shall have been proven to be inaccurate or
misleading in any material respect;
(v) Leasehold Agreements. Agent shall have received landlord, mortgagee or
warehouseman agreements satisfactory to Agent with respect to all premises
leased by Borrower or at which Inventory is located;
(w) Guarantees and Other Documents. Agent shall have received (i) the executed
Guarantee, (ii) the executed Pledge Agreement, and (iii) the executed Other
Documents, all in form and substance satisfactory to Agent;
(x) Net Worth. Agent shall have received the Pro Forma Balance Sheet reflecting
a Net Worth including the Subordinated Indebtedness after giving effect to the
Transactions of at least $18,100,000;
(y) Contract Review. Agent shall have reviewed all material contracts and other
agreements to which Borrower is a party or is bound or which effects the
business of Borrower or the Collateral of Borrower including, without
limitation, leases, union contracts, labor contracts, vendor supply contracts,
license agreements, distributorship agreements and employment agreements, and
all such contracts and agreements shall be satisfactory in all respects to
Agent;
(z) Closing Certificate. Agent shall have received a closing certificate signed
by the Chief Financial Officer of Holdings and Borrower dated as of the date
hereof, stating that (i) all representations and warranties set forth in this
Agreement and the Other Documents are true and correct on and as of such date,
(ii) Holdings and Borrower are on such date in compliance with all the terms and
provisions set forth in this Agreement and the Other Documents and (iii) on such
date no Default or Event of Default has occurred or is continuing;
(aa) Borrowing Base. Agent shall have received evidence from
Borrower that the aggregate amount of Eligible Receivables and Eligible
Inventory is sufficient in value and amount to support Advances in the amount
requested by Borrower on the Closing Date, and that after giving effect to the
initial Advances hereunder, Borrower shall have Undrawn Availability of at least
$1,000,000 as evidenced by the Borrowing Base certificate in substantially the
form of Exhibit 8.1(y) hereof;
(bb) Compliance with Laws. Agent shall be reasonably satisfied
that Borrower is in compliance with all pertinent federal, state local or
territorial regulations, including, but not limited to those with respect to
EPA, OSHA and ERISA; and
(cc) Other. All corporate and other proceedings, and all
documents, instruments and other legal matters in connection with the
Transactions shall be satisfactory in form and substance to Agent and its
counsel.
8.2. Conditions to Each Advance. The agreement of Lenders to make any
Advance requested to be made on any date (including, without limitation, the
initial Advance), is subject to the satisfaction of the following conditions
precedent as of the date such Advance is made:
(a)......Representations and Warranties. Each of the
representations and warranties made by each Guarantor or Borrower in or pursuant
to this Agreement, the Other Documents and any related agreements to which it is
a party, and each of the representations and warranties contained in any
certificate, document or financial or other statement furnished at any time
under or in connection with this Agreement, the Other Documents or any related
agreement shall be true and correct in all material respects (i) in the case of
Borrower and each Guarantor other than Holdings, on and as of such date as if
made on and as of such date and (ii) in the case of Holdings, on and as of the
Closing Date; provided that to the extent any of such representations and
warranties of Borrower relate to Guarantor or its properties (but not to
Borrower or its properties including the Collateral) then such representation
and warranties shall be true and correct in all material respects as of the
Closing Date only;
(b)......No Default. No Event of Default or Default shall have
occurred and be continuing on such date, or would exist after giving effect to
the Advances requested to be made, on such date and, in the case of the initial
Advance, after giving effect to the consummation of the transactions
contemplated by the Acquisition Documentation and the Equity Purchase
Documentation; provided, however that Lenders, in their sole discretion, may
continue to make Advances notwithstanding the existence of an Event of Default
or Default and that any Advances so made shall not be deemed a waiver of any
such Event of Default or Default; and
(c)......Maximum Advances. In the case of any Advances
requested to be made, after giving effect thereto, the aggregate Advances shall
not exceed the maximum amount of Advances permitted under Section 2.1 hereof.
Each request for an Advance by Borrower hereunder shall constitute a
representation and warranty by Borrower as of the date of such Advance that the
conditions contained in this subsection shall have been satisfied.
IX. INFORMATION AS TO BORROWER.
Borrower shall, until satisfaction in full of the Obligations and the
termination of this Agreement:
9.1. Disclosure of Material Matters. Immediately upon learning thereof,
report to Agent all matters materially affecting the value, enforceability or
collectability of any portion of the Collateral including, without limitation,
Borrower's reclamation or repossession of, or the return to Borrower of, a
material amount of goods or claims or disputes asserted by any Customer or other
obligor.
9.2. Schedules. Deliver to Agent (i) at least weekly on the first
Business Day of each week, a detailed listing of all sales made by Borrower
during the prior week and (ii) on or before the fifteenth (15th) day of each
month as and for the prior month (a) accounts receivable agings, (b) accounts
payable schedules (c) Inventory reports, including without limitation, reports
by category and location, and (d) a reconciliation to the general ledger of the
Borrower of the reports described in Sections 9.2(i)(a)-(c) above. In addition,
Borrower will deliver to Agent at such intervals as Agent may require: (i)
confirmatory assignment schedules, (ii) copies of Customer's invoices, (iii)
evidence of shipment or delivery, and (iv) such further schedules, documents
and/or information regarding the Collateral as Agent may require including,
without limitation, trial balances and test verifications. Agent shall have the
right to confirm and verify all Receivables by any manner and through any medium
it considers advisable and do whatever it may deem reasonably necessary to
protect its interests hereunder. The items to be provided under this Section are
to be in form reasonably satisfactory to Agent and executed by Borrower and
delivered to Agent from time to time solely for Agent's convenience in
maintaining records of the Collateral, and Borrower's failure to deliver any of
such items to Agent shall not affect, terminate, modify or otherwise limit
Agent's Lien with respect to the Collateral.
9.3. Environmental Reports. Furnish Agent, concurrently with the
delivery of the financial statements referred to in Sections 9.7 and 9.8, with a
certificate signed by the President of Borrower stating, to the best of his
knowledge, that Borrower is in compliance in all material respects with all
federal, state and local Environmental Laws and occupational safety and health.
To the extent Borrower is not in compliance with the foregoing laws, the
certificate shall set forth with specificity all areas of non-compliance and the
proposed action Borrower will implement in order to achieve full compliance.
9.4. Litigation. Promptly notify Agent in writing of any claim if the
amount in question or which could reasonably be determined to be due from
Borrower is in excess of $100,000, and of each litigation, suit or
administrative proceeding affecting Borrower or Holdings, whether or not the
claim is covered by insurance, and of any litigation, suit or administrative
proceeding, which in any such case affects any of the Collateral or which could
reasonably be expected to have a Material Adverse Effect on Borrower.
9.5. Material Occurrences. Promptly notify Agent in writing upon the
occurrence of (a) any Event of Default or Default; (b) any event of default
under the Mezzanine Documentation or the Intercompany Note; (c) any event which
with the giving of notice or lapse of time, or both, would constitute an event
of default under the Mezzanine Documentation or the Intercompany Note; (d) any
event, development or circumstance whereby any financial statements or other
reports furnished to Agent fail in any material respect to present fairly, in
accordance with GAAP consistently applied, the financial condition or operating
results of Borrower as of the date of such statements and for the period then
ended, as applicable; (e) any accumulated retirement plan funding deficiency
which, if such deficiency continued for two plan years and was not corrected as
provided in Section 4971 of the Code, could subject Borrower to a tax imposed by
Section 4971 of the Code; (f) each and every default by Borrower which might
result in the acceleration of the maturity of any Indebtedness, including the
names and addresses of the holders of such Indebtedness with respect to which
there is a default existing or with respect to which the maturity has been or
could be accelerated, and the amount of such Indebtedness; (g) any material
indemnity claim made by Borrower or the Seller under the Acquisition Agreement;
and (h) any other development in the business or affairs of Holdings or Borrower
which could reasonably be expected to have a Material Adverse Effect on Holdings
or Borrower; in each case describing the nature thereof and the action Borrower
proposes to take with respect thereto.
9.6. Government Receivables. Notify Agent immediately if any of its
Receivables arise out of contracts between Borrower and the United States, any
state, or any department, agency or instrumentality of any of them.
9.7. Annual Financial Statements. Furnish Agent within one-hundred and
five (105) days after the end of each fiscal year of Holdings, financial
statements of Holdings on a consolidating and consolidated basis and of Borrower
including, but not limited to, statements of income and stockholders' equity and
cash flow from the beginning of the current fiscal year to the end of such
fiscal year and the balance sheet as at the end of such fiscal year and in
comparative form with respect to the same period for the prior fiscal year, all
prepared in accordance with GAAP applied on a basis consistent with prior
practices, and in reasonable detail and reported upon without qualification by
an independent certified public accounting firm selected by Borrower and
satisfactory to Agent (the "Accountants"). The report of the Accountants shall
be accompanied by a statement of the Accountants certifying that (i) they have
caused this Agreement to be reviewed, (ii) in making the examination upon which
such report was based either no information came to their attention which to
their knowledge constituted an Event of Default or a Default under this
Agreement or any related agreement or, if such information came to their
attention, specifying any such Default or Event of Default, its nature, when it
occurred and whether it is continuing, and such report shall contain or have
appended thereto calculations which set forth Borrower's compliance with the
requirements or restrictions imposed by Sections 6.5, 6.6, 6.7, 7.6, 7.7, 7.8,
7.11, 7.17 and 7.18 hereof. In addition, the reports shall be accompanied by a
certificate of Holdings' and Borrower's Chief Financial Officer which shall
state that, based on an examination sufficient to permit him to make an informed
statement, no Default or Event of Default exists, or, if such is not the case,
specifying such Default or Event of Default, its nature, when it occurred,
whether it is continuing and the steps being taken by Borrower with respect to
such event, and such certificate shall have appended thereto calculations which
set forth Borrower's compliance with the requirements or restrictions imposed by
Sections 6.5, 6.6, 6.7, 7.6, 7.7, 7.8, 7.11, 7.17 and 7.18 hereof.
9.8. Quarterly Financial Statements. Furnish Agent within sixty (60)
days after the end of each fiscal quarter, an unaudited balance sheet of
Holdings on a consolidated and consolidating basis and of Borrower and unaudited
statements of income and stockholders' equity and cash flow of Holdings on a
consolidated and consolidating basis and of Borrower reflecting results of
operations from the beginning of the fiscal year to the end of such quarter and
for such quarter, prepared on a basis consistent with prior practices and
complete and correct in all material respects, subject to normal year end
adjustments. The reports shall be accompanied by a certificate signed by the
Chief Financial Officer of Holdings and Borrower, which shall state that, based
on an examination sufficient to permit him to make an informed statement, no
Default or Event of Default exists, or, if such is not the case, specifying such
Default or Event of Default, its nature, when it occurred, whether it is
continuing and the steps being taken by Borrower with respect to such default
and, such certificate shall have appended thereto calculations which set forth
Borrower's compliance with the requirements or restrictions imposed by Sections
6.5, 6.6, 6.7, 7.6, 7.7, 7.8, 7.11, 7.17 and 7.18 hereof.
9.9. Monthly Financial Statements. Furnish Agent within thirty (30)
days after the end of each month, an unaudited balance sheet of Holdings on a
consolidated and consolidating basis and of Borrower and unaudited statements of
income and stockholders' equity and cash flow of Holdings on a consolidated and
consolidating basis and of Borrower reflecting results of operations from the
beginning of the fiscal year to the end of such month and for such month, and in
comparative form with respect to the same period for the prior fiscal year
prepared on a basis consistent with prior practices and complete and correct in
all material respects, subject to normal year end adjustments. The reports shall
be accompanied by a certificate of Borrower's and Holdings' Chief Financial
Officer which shall state that, based on an examination sufficient to permit him
to make an informed statement, no Default or Event of Default exists, or, if
such is not the case, specifying such Default or Event of Default, its nature,
when it occurred, whether it is continuing and the steps being taken by Borrower
with respect to such event and, such certificate shall have appended thereto
calculations which set forth Borrower's compliance with the requirements or
restrictions imposed by Sections 6.5, 6.6, 6.7, 7.6, 7.7, 7.8, 7.11, 7.17 and
7.18 hereof.
9.10. Other Reports. Furnish Agent (i) as soon as available, but in any
event within ten (10) days after the issuance thereof, copies of such financial
statements, reports and returns as Holdings shall send to its stockholders and
(ii) copies of all notices, financial statements and other materials sent
pursuant to the Mezzanine Documentation, simultaneously with the sending of
such.
9.11. Additional Information. Furnish Agent with such additional
information as Agent shall reasonably request in order to enable Agent to
determine whether the terms, covenants, provisions and conditions of this
Agreement and the Other Documents have been complied with by Borrower including,
without limitation and without the necessity of any request by Agent, (a) copies
of all environmental audits and reviews, (b) at least thirty (30) days prior
thereto (and subject to Section 4.5), notice of Borrower's opening of any new
office or place of business or Borrower's closing of any existing office or
place of business, and (c) promptly upon Borrower's learning thereof, notice of
any general labor dispute or other material labor dispute to which Borrower may
become a party, any strikes or walkouts relating to any of its plants or other
facilities, and the expiration of any labor contract to which Borrower is a
party or by which Borrower is bound.
9.12. Projected Operating Budget. Furnish Agent, prior to the Closing
Date with respect to the current fiscal year and no later than thirty (30) days
prior to the beginning of Borrower's fiscal year commencing with the fiscal year
commencing on January 1, 2000, a month by month projected operating budget and
cash flow of Borrower for such fiscal year (including an income statement for
each month and a balance sheet as at the end of the last month in each fiscal
quarter), such projections to be accompanied by a certificate signed by the
President or Chief Financial Officer of Borrower to the effect that such
projections have been prepared on the basis of sound financial planning practice
consistent with past budgets and financial statements and that such officer has
no reason to question the reasonableness of any material assumptions on which
such projections were prepared.
9.13. Variances From Operating Budget. Furnish Agent, concurrently with
the delivery of the financial statements referred to in Section 9.7 and each
monthly report, a written report summarizing all material variances from budgets
submitted by Borrower pursuant to Section 9.12 and a discussion and analysis by
management with respect to such variances.
9.14. Notice of Suits, Adverse Events. Furnish Agent with prompt
written notice of (i) any lapse or other termination of any Consent issued to
Borrower by any Governmental Body or any other Person that is material to the
operation of Borrower's business, (ii) any refusal by any Governmental Body or
any other Person to renew or extend any such Consent; and (iii) copies of any
periodic or special reports filed by Borrower or any Guarantor with any
Governmental Body or Person, if such reports indicate any material change in the
business, operations, affairs or condition of Borrower or any Guarantor, or if
copies thereof are requested by Lender, and (iv) copies of any material notices
and other communications from any Governmental Body or Person which specifically
relate to Borrower or any Guarantor.
9.15. ERISA Notices and Requests. Furnish Agent with immediate written
notice in the event that (i) Borrower or any member of the Controlled Group
knows or has reason to know that a Termination Event has occurred, together with
a written statement describing such Termination Event and the action, if any,
which Borrower or member of the Controlled Group has taken, is taking, or
proposes to take with respect thereto and, when known, any action taken or
threatened by the Internal Revenue Service, Department of Labor or PBGC with
respect thereto, (ii) Borrower or any member of the Controlled Group knows or
has reason to know that a prohibited transaction (as defined in Sections 406 of
ERISA and 4975 of the Code) has occurred together with a written statement
describing such transaction and the action which Borrower or any member of the
Controlled Group has taken, is taking or proposes to take with respect thereto,
(iii) a funding waiver request has been filed with respect to any Plan together
with all communications received by Borrower or any member of the Controlled
Group with respect to such request, (iv) any increase in the benefits of any
existing Plan or the establishment of any new Plan or the commencement of
contributions to any Plan to which Borrower or any member of the Controlled
Group was not previously contributing shall occur, (v) Borrower or any member of
the Controlled Group shall receive from the PBGC a notice of intention to
terminate a Plan or to have a trustee appointed to administer a Plan, together
with copies of each such notice, (vi) Borrower or any member of the Controlled
Group shall receive any favorable or unfavorable determination letter from the
Internal Revenue Service regarding the qualification of a Plan under Section
401(a) of the Code, together with copies of each such letter; (vii) Borrower or
any member of the Controlled Group shall receive a notice regarding the
imposition of withdrawal liability, together with copies of each such notice;
(viii) Borrower or any member of the Controlled Group shall fail to make a
required installment or any other required payment under Section 412 of the Code
on or before the due date for such installment or payment; (ix) Borrower or any
member of the Controlled Group knows that (a) a Multiemployer Plan has been
terminated, (b) the administrator or plan sponsor of a Multiemployer Plan
intends to terminate a Multiemployer Plan, or (c) the PBGC has instituted or
will institute proceedings under Section 4042 of ERISA to terminate a
Multiemployer Plan.
9.16. Additional Documents. Execute and deliver to Agent, upon request,
such documents and agreements as Agent may, from time to time, reasonably
request to carry out the purposes, terms or conditions of this Agreement,
including, without limitation, such as may be necessary or desirable to confirm
or perfect the Agent's and the Lenders' interests in and Liens on the
Collateral. Without limiting the generality of the foregoing, (a) no later than
45 days after the Closing Date, Borrower shall deliver to Agent patent and
trademark lien searches, in form and substance satisfactory to the Agent, with
respect to all patents and trademarks that the Borrower has registered with the
Federal Patent and Trademark Office or any other jurisdiction, if any, where the
Borrower has registered any patents or trademarks, which searches shall not
disclose any Liens other than Liens in favor of the Agent, and Permitted
Encumbrances, if any, (b) no later than 10 days after request by Agent, Borrower
shall take such action with respect to its accounts as may be requested by Agent
which Agent deems necessary or desirable to protect its rights hereunder, (c) no
later than 30 days after the Closing Date, Borrower shall obtain a landlord
waiver and consent with respect to its Collateral held at PTI's leased premises
in Hastings-on-Hudson, and deliver it to Agent, all in form and substance
satisfactory to Agent and (d) no later than 30 days after the Closing Date,
Borrower shall obtain and deliver to Agent a certificate of good standing in the
state of Michigan.
X. EVENTS OF DEFAULT.
The occurrence of any one or more of the following events shall
constitute an "Event of Default":
10.1. failure by Borrower to pay any principal or interest on the
Obligations when due, whether at maturity or by reason of acceleration pursuant
to the terms of this Agreement or by notice of intention to prepay, or by
required prepayment or failure to pay any other liabilities or make any other
payment, fee or charge provided for herein when due (including without
limitation pursuant to Section 2.7 hereof) or in any Other Document;
10.2. any representation or warranty made or deemed made by Borrower or
any Guarantor (other than Holdings) in this Agreement, any Other Document or any
related agreement or in any certificate, document or financial or other
statement furnished at any time in connection herewith or therewith or any
representation or warranty made or deemed made by Holdings in the Guaranty or
the Pledge Agreement, in any such case shall prove to have been incorrect in any
material respect on the date when made or deemed to have been made;
10.3. failure by Borrower to (i) furnish financial information (x) when
due or (y) when requested if such failure continues for ten (10) days after any
such request, or (ii) permit the inspection of its books or records;
10.4. issuance of a notice of Lien, levy, assessment, injunction or
attachment against Borrower's Inventory or Receivables or against a material
portion of Borrower's other property which is not fully stayed or lifted within
thirty (30) days;
10.5. except as otherwise provided for in Sections 10.1 and 10.3,
failure or neglect of Borrower or any Guarantor (other than Holdings) to
perform, keep or observe any term, provision, condition, covenant herein
contained, or contained in any Other Document or any other agreement or
arrangement, now or hereafter entered into between Borrower or any Guarantor, on
the one hand, and Agent or any Lender, on the other hand, or failure or neglect
of Holdings to perform any covenant or agreement in the Pledge Agreement or the
Guaranty (other than a failure or neglect by Holdings in connection with or as a
result of a Holdings Proceeding), except for a failure or neglect of Borrower to
perform, keep or observe any term, provision, condition or covenant, contained
in Sections 4.6, 4.7, 4.9, 4.11, 6.1, 6.3, 6.4, 9.4 or 9.6 hereof which is cured
within ten (10) Business Days from the occurrence of such failure or neglect;
10.6. any judgment or judgments are rendered or judgment liens filed
against Borrower for an aggregate amount in excess of $250,000 which within
forty (40) days of such rendering or filing is not either fully satisfied,
stayed or discharged of record;
10.7. Borrower shall (i) apply for, consent to or suffer the
appointment of, or the taking of possession by, a receiver, custodian, trustee,
liquidator or similar fiduciary of itself or of all or a substantial part of its
property, (ii) make a general assignment for the benefit of creditors, (iii)
commence a voluntary case under any state or federal bankruptcy laws (as now or
hereafter in effect), (iv) be adjudicated a bankrupt or insolvent, (v) file a
petition seeking to take advantage of any other law providing for the relief of
debtors, (vi) acquiesce to, or fail to have dismissed, within thirty (30) days,
any petition filed against it in any involuntary case under such bankruptcy
laws, or (vii) take any action for the purpose of effecting any of the
foregoing;
10.8. Borrower shall admit in writing its inability, or be generally
unable, to pay its debts as they become due or cease operations of its present
business;
10.9. any Subsidiary of Borrower shall (i) apply for, consent to or
suffer the appointment of, or the taking of possession by, a receiver,
custodian, trustee, liquidator or similar fiduciary of itself or of all or a
substantial part of its property, (ii) admit in writing its inability, or be
generally unable, to pay its debts as they become due or cease operations of its
present business, (iii) make a general assignment for the benefit of creditors,
(iv) commence a voluntary case under any state or federal bankruptcy laws (as
now or hereafter in effect), (v) be adjudicated a bankrupt or insolvent, (vi)
file a petition seeking to take advantage of any other law providing for the
relief of debtors, (vii) acquiesce to, or fail to have dismissed, within thirty
(30) days, any petition filed against it in any involuntary case under such
bankruptcy laws, or (viii) take any action for the purpose of effecting any of
the foregoing;
10.10. any change in Borrower's results of operations or condition
(financial or otherwise) or affairs which in Agent's opinion has a Material
Adverse Effect on Borrower;
10.11. any Lien created hereunder or provided for hereby or under any
related agreement for any reason ceases to be or is not a valid and perfected
Lien having a first priority interest, other than with respect to any Lien
granted by Holdings on its assets pursuant to the Pledge Agreement in connection
with or as a result of a Holdings Proceeding;
10.12. an Event of Default has occurred under any of the Mezzanine
Documentation or under the Intercompany Note, in any case which default shall
not have been cured or waived within any applicable grace period;
10.13. a default of the obligations of Borrower under any other
agreement to which it is a party shall occur which materially and adversely
affects its results of operations, condition (financial or otherwise), affairs
or prospects, which default is not cured within any applicable grace period;
10.14. other than as a result of or in connection with a Holdings
Proceeding, (i) termination or breach of any Guaranty or the Pledge Agreement
executed and delivered to Agent in connection with the Obligations of Borrower,
or (ii) if any Guarantor attempts to terminate, challenges the validity of, or
its liability under, any such Guaranty or Pledge Agreement;
10.15. any Change of Ownership or Change of Control shall occur;
10.16. any material provision of this Agreement or any Other Document
shall, for any reason, cease to be valid and binding on Borrower or any
Guarantor (other than Holdings), or, other than in connection with or as a
result of a Holdings Proceeding, on Holdings, or Borrower or any Guarantor
(other than Holdings) or, other than in connection with or as a result of a
Holdings Proceeding, Holdings shall so claim in writing to Agent;
10.17. (i) any Governmental Body shall (A) revoke, terminate, suspend
or adversely modify any license, permit, patent, trademark, tradename or
copyright of Borrower, the continuation of which is material to the continuation
of Borrower's business, or (B) commence proceedings to suspend, revoke,
terminate or adversely modify any such license, permit, patent, trademark,
tradename or copyright and such proceedings shall not be dismissed or discharged
within sixty (60) days, or (c) schedule or conduct a hearing on the renewal of
any license, permit, patent, trademark, tradename or copyright necessary for the
continuation of Borrower's business and the staff of such Governmental Body
issues a report recommending the termination, revocation, suspension or
material, adverse modification of such license, permit, trademark, patent,
tradename or copyright; (ii) any license or other agreement which is necessary
or material to the operation of Borrower's business shall be revoked or
terminated and not replaced by a substitute acceptable to Agent within thirty
(30) days after the date of such revocation or termination, and such revocation
or termination and non-replacement would reasonably be expected to have a
Material Adverse Effect on Borrower;
10.18. any portion of the Collateral shall be seized or taken by a
Governmental Body, or Borrower or the title and rights of Borrower or any
Original Owner which is the owner of any material portion of the Collateral
shall have become the subject matter of claim, litigation, suit or other
proceeding which has a reasonable likelihood, in the opinion of Agent, upon
final determination, of resulting in impairment or loss of the security provided
by this Agreement or the Other Documents;
10.19. the operations of Borrower's manufacturing facility are
interrupted at any time for more than one hundred seventy-five (175) hours
during any period of thirty (30) consecutive days and Borrower is not meeting
substantially all orders during such 30-day period, unless Borrower shall (i) be
entitled to receive for such period of interruption, proceeds of business
interruption insurance sufficient to assure that its per diem cash needs during
such period is at least equal to its average per diem cash needs for the
consecutive three month period immediately preceding the initial date of
interruption and (ii) receive such proceeds in the amount described in clause
(i) preceding not later than thirty (30) days following the initial date of any
such interruption; provided, however, that notwithstanding the provisions of
clauses (i) and (ii) of this section, an Event of Default shall be deemed to
have occurred if Borrower shall be receiving the proceeds of business
interruption insurance for a period of sixty (60) consecutive days; or
10.20. an event or condition specified in Sections 7.16 or 9.15 hereof
shall occur or exist with respect to a Plan and, as a result of such event or
condition, together with all other such events or conditions, Borrower or any
member of the Controlled Group shall incur, or in the opinion of Agent be
reasonably likely to incur, a liability to a Plan or the PBGC (or both) which,
in the reasonable judgment of Agent, would have a Material Adverse Effect on
Borrower.
XI. LENDERS' RIGHTS AND REMEDIES AFTER DEFAULT.
11.1. Rights and Remedies. (a) Upon the occurrence of (i) an Event of Default
pursuant to Sections 10.7, 10.8 or 10.9, all Obligations shall be immediately
due and payable and this Agreement and the obligation of Lenders to make
Advances shall be deemed terminated; and (ii) any of the other Events of Default
and at any time thereafter (such default not having previously been cured), at
the option of Required Lenders all Obligations shall be immediately due and
payable and Lenders shall have the right to terminate this Agreement and to
terminate the obligation of Lenders to make Advances and (iii) a filing of a
petition against Borrower in any involuntary case under any state or federal
bankruptcy laws, the obligation of Lenders to make Advances hereunder shall be
terminated other than as may be required by an appropriate order of the
bankruptcy court having jurisdiction over Borrower.
(b) Upon the occurrence of any Event of Default, in addition to the rights and
remedies set forth in Section 4.4 and 4.15 hereof, Agent shall have the right to
exercise any and all other rights and remedies provided for herein, under the
Other Documents, under the Uniform Commercial Code and at law or equity
generally, including, without limitation, the right to foreclose the security
interests granted herein and to realize upon any Collateral by any available
judicial procedure and/or to take possession of and sell any or all of the
Collateral with or without judicial process. Agent may enter any of Borrower's
premises or other premises without legal process and without incurring liability
to Borrower therefor, and Agent may thereupon, or at any time thereafter, in its
discretion without notice or demand, take the Collateral and remove the same to
such place as Agent may deem advisable and Agent may require Borrower to make
the Collateral available to Agent at a convenient place. With or without having
the Collateral at the time or place of sale, Agent may sell the Collateral, or
any part thereof, at public or private sale, at any time or place, in one or
more sales, at such price or prices, and upon such terms, either for cash,
credit or future delivery, as Agent may elect. Except as to that part of the
Collateral which is perishable or threatens to decline speedily in value or is
of a type customarily sold on a recognized market, Agent shall give Borrower
reasonable notification of such sale or sales, it being agreed that in all
events written notice mailed to Borrower at least five (5) days prior to such
sale or sales is reasonable notification. At any public sale Agent or any Lender
may bid for and become the purchaser, and Agent, any Lender or any other
purchaser at any such sale thereafter shall hold the Collateral sold absolutely
free from any claim or right of whatsoever kind, including any equity of
redemption, and all such claims, rights and equities are hereby expressly waived
and released by Borrower.
(c) In connection with the exercise of the foregoing remedies, including without
limitation, the sale of Inventory, Agent is hereby granted a perpetual,
nonrevocable, royalty free, nonexclusive license and permission to use all of
Borrower's trademarks, trade styles, trade names, patents, patent applications,
copyrights, trademarks, service marks, licenses, franchises and other
proprietary rights which are used or useful in connection with (a) Inventory for
the purpose of selling or otherwise disposing of such Inventory and (b)
Equipment for the purpose of completing the manufacture of unfinished goods.
(d) The proceeds realized from the sale or other disposition of any Collateral
shall be applied as follows: first, to the reasonable costs, expenses and
attorneys' fees and expenses incurred by Agent for collection and for
acquisition, completion, protection, removal, storage, sale and delivery of the
Collateral; second, to interest due upon any of the Obligations and any fees
payable under this Agreement; and, third, to the principal of the Obligations.
If any deficiency shall arise, Borrower and Guarantor shall remain liable to
Agent and Lenders therefor.
11.2. Agent's Discretion. Agent shall have the right in its sole
discretion to determine which rights, Liens, security interests or remedies
Agent may at any time pursue, relinquish, subordinate, or modify or to take any
other action with respect thereto and such determination will not in any way
modify or affect any of Agent's or Lenders' rights hereunder.
11.3. Setoff. In addition to any other rights which Agent or any Lender
may have under applicable law, upon the occurrence of an Event of Default
hereunder, Agent and such Lender shall have a right, immediately and without
notice of any kind, to apply Borrower's property held by Agent and such Lender
to reduce the Obligations.
11.4. Rights and Remedies not Exclusive. The enumeration of the
foregoing rights and remedies is not intended to be exhaustive and the exercise
of any right or remedy shall not preclude the exercise of any other right or
remedies provided for herein or otherwise provided by law, all of which shall be
cumulative and not alternative.
XII. WAIVERS AND JUDICIAL PROCEEDINGS.
12.1. Waiver of Notice. Borrower hereby waives notice of non-payment of
any of the Receivables, demand, presentment, protest and notice thereof with
respect to any and all instruments, notice of acceptance hereof, notice of loans
or advances made, credit extended, Collateral received or delivered, or any
other action taken in reliance hereon, and all other demands and notices of any
description, except such as are expressly provided for herein.
12.2. Delay. No delay or omission on Agent's or any Lender's part in
exercising any right, remedy or option shall operate as a waiver of such or any
other right, remedy or option or of any Default or Event of Default.
12.3. Jury Waiver. EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES
ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (A)
ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT
EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (B) IN ANY WAY CONNECTED WITH
OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM
WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT
EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO
OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER
SOUNDING IN CONTRACT OR TORT OR OTHERWISE AND EACH PARTY HEREBY CONSENTS THAT
ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT
TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL
COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE
CONSENTS OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
XIII. EFFECTIVE DATE AND TERMINATION.
13.1. Term. This Agreement, which shall inure to the benefit of and
shall be binding upon the respective successors and permitted assigns of
Borrower, Agent and each Lender, shall become effective on the date hereof and
shall continue in full force and effect until April 14, 2002 (the "Term") unless
sooner terminated as herein provided. Borrower may terminate this Agreement at
any time upon ninety (90) days' prior written notice upon payment in full of the
Obligations. In the event the Obligations are prepaid in full prior to the last
day of the Term (the date of such prepayment hereinafter referred to as the
"Early Termination Date"), Borrower shall pay to Agent for the benefit of
Lenders an early termination fee in an amount equal to (x) $200,000 if the Early
Termination Date occurs on or after the Closing Date to and including the date
immediately preceding the first anniversary of the Closing Date, (y) $100,000 if
the Early Termination Date occurs on or after the first anniversary of the
Closing Date to and including the date immediately preceding the second
anniversary of the Closing Date, and (z) $50,000 if the Early Termination Date
occurs on or after the second anniversary of the Closing Date to and including
the date which is 30 days immediately preceding the third anniversary of the
Closing Date; provided, however, in the event that the Lenders (and not the
Borrower) cause the Early Termination Date to occur by requiring prepayment in
full of the Obligations solely as a result of an Event of Default pursuant to
Section 10.15 hereof (a "Change of Control Termination") and no other Event of
Default, then (a) in the event that such Change of Control Termination resulted
solely from the issuance of additional shares of common stock of Borrower or of
Holdings to the public in any initial or secondary public offering of common
stock pursuant to a registration statement declared effective by the Securities
and Exchange Commission and otherwise consummated in compliance with all
applicable laws and regulations (a "Public Offering"), and provided that no
other Event of Default or Default existed immediately prior to or after giving
effect to any such Public Offering, then no termination fee would be payable
hereunder, (b) in the event that such Change of Control Termination resulted
solely from (1) the issuance of additional shares of common stock of Borrower,
not to exceed 15% of the voting stock of Borrower (on a fully diluted basis), to
a stockholder of Borrower other than any stockholder on the date hereof or (2)
the transfer of shares of common stock of Borrower held by Holdings to any other
stockholder of Borrower existing on the date hereof (other than Mezzanine
Lender) or (3) the transfer of shares of common stock of Borrower by any
Management Investor to Holdings, and provided that, in any such event, no other
Event of Default or Default existed immediately prior to or after giving effect
to any such transfer or issuance, then no termination fee would be payable
hereunder, and (c) in the event that such Change of Control Termination occurred
at any time after the first anniversary hereof and resulted from any Change of
Control or Change of Ownership not described in clauses (a) or (b) of this
Section 13.1, and provided that no other Event of Default or Default existed
immediately prior to or after giving effect to any such transaction, then the
termination fee payable under this Section 13.1 shall be an amount equal to 50%
of the applicable termination fee set forth in clause (y) or (z) of this Section
13.1.
13.2. Termination. The termination of the Agreement shall not affect
Borrower's, Agent's or any Lender's rights, or any of the Obligations having
their inception prior to the effective date of such termination, and the
provisions hereof shall continue to be fully operative until all transactions
entered into, rights or interests created or Obligations have been fully and
indefeasibly paid, disposed of, concluded or liquidated. The security interests,
Liens and rights granted to Agent and Lenders hereunder and the financing
statements filed hereunder shall continue in full force and effect,
notwithstanding the termination of this Agreement or the fact that Borrower's
Account may from time to time be temporarily in a zero or credit position, until
all of the Obligations of Borrower have been indefeasibly paid and performed in
full after the termination of this Agreement or Borrower has furnished Agent and
Lenders with an indemnification satisfactory to Agent and Lenders with respect
thereto. Accordingly, Borrower waives any rights which it may have under Section
9-404(1) of the Uniform Commercial Code to demand the filing of termination
statements with respect to the Collateral, and Agent shall not be required to
send such termination statements to Borrower, or to file them with any filing
office, unless and until this Agreement shall have been terminated in accordance
with its terms and all Obligations have been indefeasibly paid in full in
immediately available funds. All representations, warranties, covenants, waivers
and agreements contained herein shall survive termination hereof until all
Obligations are indefeasibly paid or performed in full.
XIV. REGARDING AGENT.
14.1. Appointment. Each Lender hereby designates PNC to act as Agent
for such Lender under this Agreement and the Other Documents. Each Lender hereby
irrevocably authorizes Agent to take such action on its behalf under the
provisions of this Agreement and the Other Documents and to exercise such powers
and to perform such duties hereunder and thereunder as are specifically
delegated to or required of Agent by the terms hereof and thereof and such other
powers as are reasonably incidental thereto and Agent shall hold all Collateral,
payments of principal and interest, fees (except the fees set forth in the fee
letter) charges and collections (without giving effect to any collection days)
received pursuant to this Agreement, for the ratable benefit of Lenders. Agent
may perform any of its duties hereunder by or through its agents or employees.
As to any matters not expressly provided for by this Agreement (including
without limitation, collection of the Note) Agent shall not be required to
exercise any discretion or take any action, but shall be required to act or to
refrain from acting (and shall be fully protected in so acting or refraining
from acting) upon the instructions of the Required Lenders, and such
instructions shall be binding; provided, however, that Agent shall not be
required to take any action which exposes Agent to liability or which is
contrary to this Agreement or the Other Documents or applicable law unless Agent
is furnished with an indemnification reasonably satisfactory to Agent with
respect thereto.
14.2. Nature of Duties. Agent shall have no duties or responsibilities
except those expressly set forth in this Agreement and the Other Documents.
Neither Agent nor any of its officers, directors, employees or agents shall be
(i) liable for any action taken or omitted by them as such hereunder or in
connection herewith, unless caused by their gross (not mere) negligence or
willful misconduct, or (ii) responsible in any manner for any recitals,
statements, representations or warranties made by Borrower or any officer
thereof contained in this Agreement, or in any of the Other Documents or in any
certificate, report, statement or other document referred to or provided for in,
or received by Agent under or in connection with, this Agreement or any of the
Other Documents or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement, or any of the Other Documents
or for any failure of Borrower to perform its obligations hereunder. Agent shall
not be under any obligation to any Lender to ascertain or to inquire as to the
observance or performance of any of the agreements contained in, or conditions
of, this Agreement or any of the Other Documents, or to inspect the properties,
books or records of Borrower. The duties of Agent as respects the Advances to
Borrower shall be mechanical and administrative in nature; Agent shall not have
by reason of this Agreement a fiduciary relationship in respect of any Lender;
and nothing in this Agreement, expressed or implied, is intended to or shall be
so construed as to impose upon Agent any obligations in respect of this
Agreement except as expressly set forth herein.
14.3. Lack of Reliance on Agent and Resignation. Independently and
without reliance upon Agent or any other Lender, each Lender has made and shall
continue to make (i) its own independent investigation of the financial
condition and affairs of Borrower in connection with the making and the
continuance of the Advances hereunder and the taking or not taking of any action
in connection herewith, and (ii) its own appraisal of the creditworthiness of
Borrower. Agent shall have no duty or responsibility, either initially or on a
continuing basis, to provide any Lender with any credit or other information
with respect thereto, whether coming into its possession before making of the
Advances or at any time or times thereafter except as shall be provided by
Borrower pursuant to the terms hereof. Agent shall not be responsible to any
Lender for any recitals, statements, information, representations or warranties
herein or in any agreement, document, certificate or a statement delivered in
connection with or for the execution, effectiveness, genuineness, validity,
enforceability, collectability or sufficiency of this Agreement or any Other
Document, or of the financial condition of Borrower, or be required to make any
inquiry concerning either the performance or observance of any of the terms,
provisions or conditions of this Agreement, the Note, the Other Documents or the
financial condition of Borrower, or the existence of any Event of Default or any
Default.
Agent may resign on sixty (60) days' written notice to each of Lenders
and Borrower and upon such resignation, the Required Lenders will promptly
designate a successor Agent reasonably satisfactory to Borrower.
Any such successor Agent shall succeed to the rights, powers and duties
of Agent, and the term "Agent" shall mean such successor agent effective upon
its appointment, and the former Agent's rights, powers and duties as Agent shall
be terminated, without any other or further act or deed on the part of such
former Agent. After any Agent's resignation as Agent, the provisions of this
Article XIV shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was Agent under this Agreement.
14.4. Certain Rights of Agent. If Agent shall request instructions from
Lenders with respect to any act or action (including failure to act) in
connection with this Agreement or any Other Document, Agent shall be entitled to
refrain from such act or taking such action unless and until Agent shall have
received instructions from the Required Lenders; and Agent shall not incur
liability to any Person by reason of so refraining. Without limiting the
foregoing, Lenders shall not have any right of action whatsoever against Agent
as a result of its acting or refraining from acting hereunder in accordance with
the instructions of the Required Lenders.
14.5. Reliance. Agent shall be entitled to rely, and shall be fully
protected in relying, upon any note, writing, resolution, notice, statement,
certificate, telex, teletype or telecopier message, cablegram, order or other
document or telephone message believed by it to be genuine and correct and to
have been signed, sent or made by the proper person or entity, and, with respect
to all legal matters pertaining to this Agreement and the Other Documents and
its duties hereunder, upon advice of counsel selected by it. Agent may employ
agents and attorneys-in-fact and shall not be liable for the default or
misconduct of any such agents or attorneys-in-fact selected by Agent with
reasonable care.
14.6. Notice of Default. Agent shall not be deemed to have knowledge or
notice of the occurrence of any Default or Event of Default hereunder or under
the Other Documents, unless Agent has received notice from a Lender or Borrower
referring to this Agreement or the Other Documents, describing such Default or
Event of Default and stating that such notice is a "notice of default." In the
event that Agent receives such a notice, Agent shall give notice thereof to
Lenders. Agent shall take such action with respect to such Default or Event of
Default as shall be reasonably directed by the Required Lenders; provided, that,
unless and until Agent shall have received such directions, Agent may (but shall
not be obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable in the
best interests of Lenders.
14.7. Indemnification. Each Lender will reimburse and indemnify Agent
in proportion to its respective portion of the Advances (or, if no Advances are
outstanding, according to its Commitment Percentage), from and against any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever which
may be imposed on, incurred by or asserted against Agent in performing its
duties hereunder, or in any way relating to or arising out of this Agreement or
any Other Document; provided that, Lenders shall not be liable for any portion
of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from Agent's gross
(not mere) negligence or willful misconduct.
14.8. Agent in its Individual Capacity. With respect to the obligation
of Agent to lend under this Agreement, the Advances made by it shall have the
same rights and powers hereunder as any other Lender and as if it were not
performing the duties as Agent specified herein; and the term "Lender" or any
similar term shall, unless the context clearly otherwise indicates, include
Agent in its individual capacity as a Lender. Agent may engage in business with
Borrower as if it were not performing the duties specified herein, and may
accept fees and other consideration from Borrower for services in connection
with this Agreement or otherwise without having to account for the same to
Lenders.
14.9. Delivery of Documents. To the extent Agent receives financial
statements required under Sections 9.7, 9.8, and 9.9 from Borrower pursuant to
the terms of this Agreement, Agent will promptly furnish such documents and
information to Lenders.
14.10. Borrower's Undertaking to Agent. Without prejudice to their
respective obligations to Lenders under the other provisions of this Agreement,
Borrower hereby undertakes with Agent to pay to Agent from time to time on
demand all amounts from time to time due and payable by it for the account of
Agent or Lenders or any of them pursuant to this Agreement to the extent not
already paid. Any payment made pursuant to any such demand shall pro tanto
satisfy the relevant Borrower's obligations to make payments for the account of
Lenders or the relevant one or more of them pursuant to this Agreement.
XV. MISCELLANEOUS.
15.1. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York applied to contracts to be
performed wholly within the State of New York. Any judicial proceeding brought
by or against Borrower with respect to any of the Obligations, this Agreement or
any related agreement may be brought in any Federal or state court of competent
jurisdiction in the State of New York, United States of America, and, by
execution and delivery of this Agreement, Borrower accepts for itself and in
connection with its properties, generally and unconditionally, the non-exclusive
jurisdiction of the aforesaid courts, and irrevocably agrees to be bound by any
judgment rendered thereby in connection with this Agreement. Borrower hereby
waives personal service of any and all process upon it and consents that all
such service of process may be made by registered mail (return receipt
requested) directed to Borrower at its address set forth in Section 15.6 and
service so made shall be deemed completed five (5) days after the same shall
have been so deposited in the mails of the United States of America. Agent shall
use reasonable efforts to provide a copy of any service of process made pursuant
to this Section 15.1 to Akabas & Cohen at the address set forth in Section 15.6
hereof; provided that failure by Agent to provide such copy shall not in any way
affect the validity of or have any other effect on the service of process on
Borrower. Nothing herein shall affect the right to serve process in any manner
permitted by law or shall limit the right of Agent or any Lender to bring
proceedings against Borrower in the courts of any other jurisdiction. Borrower
waives any objection to jurisdiction and venue of any action instituted
hereunder and shall not assert any defense based on lack of jurisdiction or
venue or based upon forum non conveniens. Any judicial proceeding by Borrower
against Agent or any Lender involving, directly or indirectly, any matter or
claim in any way arising out of, related to or connected with this Agreement or
any related agreement, shall be brought only in a Federal or state court located
in the County of New York, State of New York.
15.2. Entire Understanding. (a) This Agreement and the documents
executed concurrently herewith contain the entire understanding between
Borrower, Agent and each Lender and supersedes all prior agreements and
understandings, if any, relating to the subject matter hereof. Any promises,
representations, warranties or guarantees not herein contained and hereinafter
made shall have no force and effect unless in writing, signed by Borrower's,
Agent's and each Lender's respective officers. Neither this Agreement nor any
portion or provisions hereof may be changed, modified, amended, waived,
supplemented, discharged, cancelled or terminated orally or by any course of
dealing, or in any manner other than by an agreement in writing, signed by the
party to be charged. Borrower acknowledges that it has been advised by counsel
in connection with the execution of this Agreement and Other Documents and is
not relying upon oral representations or statements inconsistent with the terms
and provisions of this Agreement.
(b)......The Required Lenders, Agent with the consent in
writing of the Required Lenders, and Borrower may, subject to the provisions of
this Section 15.2 (b), from time to time enter into written supplemental
agreements to this Agreement or the Other Documents executed by Borrower, for
the purpose of adding or deleting any provisions or otherwise changing, varying
or waiving in any manner the rights of Lenders, Agent or Borrower thereunder or
the conditions, provisions or terms thereof of waiving any Event of Default
thereunder, but only to the extent specified in such written agreements;
provided, however, that no such supplemental agreement shall, without the
consent of all Lenders:
(i) increase the Commitment Percentage of any Lender.
(ii) extend the maturity of any Note or the due date
for any amount payable hereunder, or decrease the rate of interest or reduce any
fee payable by Borrower to Lenders pursuant to this Agreement.
(iii) alter the definition of the term Required
Lenders or alter, amend or modify
this Section 15.2(b).
(iv) release any Collateral during any calendar year
(other than in accordance with the provisions of this Agreement) having an
aggregate value in excess of $100,000.
(v) change the rights and duties of Agent.
(vi) permit any Revolving Advance to be made if after
giving effect thereto the
total of Advances outstanding hereunder would exceed the Formula Amount for more
than sixty (60) consecutive Business Days or exceed one hundred and ten percent
(110%) of the Formula Amount.
(vii) increase the Advance Rates above the Advance
Rates in effect on the Closing
Date.
(viii) increase the Maximum Revolving Advance Amount
or permit any Revolving Advance
to be made if after giving effect thereto the total of Revolving Advances
outstanding hereunder would exceed the Formula Amount for more than sixty (60)
consecutive Business Days or exceed one hundred ten percent (110%) of the
Formula Amount.
Any such supplemental agreement shall apply equally to each Lender and shall be
binding upon Borrower, Lenders and Agent and all future holders of the
Obligations. In the case of any waiver, Borrower, Agent and Lenders shall be
restored to their former positions and rights, and any Event of Default waived
shall be deemed to be cured and not continuing, but no waiver of a specific
Event of Default shall extend to any subsequent Event of Default (whether or not
the subsequent Event of Default is the same as the Event of Default which was
waived), or impair any right consequent thereon.
Notwithstanding the foregoing, Agent may at its discretion and without
the consent of the Required Lenders, voluntarily permit the Revolving Advances
at any time to exceed the Formula Amount by not more than 10% but Agent will not
voluntarily permit the Revolving Advances to exceed such amount during any
period consisting of more than thirty (30) consecutive days. For the purposes of
the preceding sentence, the discretion granted to Agent hereunder shall not
preclude involuntary overadvances that may result from time to time from the
fact that the Formula Amount was unintentionally exceeded (whether at the time
of any Revolving Advance or at the time of the issuance of a Letter of Credit
resulting in a Revolving Advance) for any reasons including, but not limited to,
Collateral believed to be eligible in fact being or becoming ineligible or the
return of uncollected checks or other items applied to the reduction of the
Revolving Advances or overadvances made to protect or preserve Collateral. In
the event that Agent involuntarily permits the Revolving Advances to exceed the
Formula Amount by more than 10%, Agent shall decrease such excess in as
expeditious a manner as is practicable under the circumstances and not
inconsistent with the reasons for such excess. Revolving Advances made after
Agent has determined the existence of involuntary overadvances shall be deemed
to be involuntary overadvances and shall be decreased in accordance with the
preceding sentence.
In the event that Agent requests the consent of a Lender pursuant to
this Section 15.2 and such Lender shall not respond or reply to Agent in writing
within five (5) days of delivery of such request, such Lender shall be deemed to
have consented to matter that was the subject of the request. In the event that
Agent requests the consent of a Lender pursuant to this Section 15.2 and such
consent is denied, then PNC may, at its option, require such Lender to assign
its interest in the Advances to PNC or to another Lender or to any other Person
designated by the Agent (the "Designated Lender"), for a price equal to the then
outstanding principal amount thereof plus accrued and unpaid interest and fees
due such Lender, which interest and fees shall be paid when collected from
Borrower. In the event PNC elects to require any Lender to assign its interest
to PNC or to the Designated Lender, PNC will so notify such Lender in writing
within forty five (45) days following such Lender's denial, and such Lender will
assign its interest to PNC or the Designated Lender no later than five (5) days
following receipt of such notice pursuant to a Commitment Transfer Supplement
executed by such Lender, PNC or the Designated Lender, as appropriate, and
Agent.
15.3. Successors and Assigns; Participations; New Lenders.
(a)......This Agreement shall be binding upon and inure to the
benefit of Borrower, Agent, each Lender, all future holders of the Obligations
and their respective successors and assigns, except that Borrower may not assign
or transfer any of its rights or obligations under this Agreement without the
prior written consent of Agent and each Lender.
(b)......Borrower acknowledges that in the regular course of
commercial banking business one or more Lenders may at any time and from time to
time sell participating interests in the Advances to other financial
institutions (each such transferee or purchaser of a participating interest, a
"Transferee"). Each Transferee may exercise all rights of payment (including
without limitation rights of set-off) with respect to the portion of such
Advances held by it or other Obligations payable hereunder as fully as if such
Transferee were the direct holder thereof provided that Borrower shall not be
required to pay to any Transferee more than the amount which it would have been
required to pay to Lender which granted an interest in its Advances or other
Obligations payable hereunder to such Transferee had such Lender retained such
interest in the Advances hereunder or other Obligations payable hereunder and in
no event shall Borrower be required to pay any such amount arising from the same
circumstances and with respect to the same Advances or other Obligations payable
hereunder to both such Lender and such Transferee. Borrower hereby grants to any
Transferee a continuing security interest in any deposits, moneys or other
property actually or constructively held by such Transferee as security for the
Transferee's interest in the Advances.
(c)......Any Lender may with the consent of Agent which shall
not be unreasonably withheld or delayed sell, assign or transfer all or any part
of its rights under this Agreement and the Other Documents to one or more
additional banks or financial institutions and one or more additional banks or
financial institutions may commit to make Advances hereunder (each a "Purchasing
Lender"), in minimum amounts of not less than $2,000,000, pursuant to a
Commitment Transfer Supplement, executed by a Purchasing Lender, the transferor
Lender, and Agent and delivered to Agent for recording. Upon such execution,
delivery, acceptance and recording, from and after the transfer effective date
determined pursuant to such Commitment Transfer Supplement, (i) Purchasing
Lender thereunder shall be a party hereto and, to the extent provided in such
Commitment Transfer Supplement, have the rights and obligations of a Lender
thereunder with a Commitment Percentage as set forth therein, and (ii) the
transferor Lender thereunder shall, to the extent provided in such Commitment
Transfer Supplement, be released from its obligations under this Agreement, the
Commitment Transfer Supplement creating a novation for that purpose. Such
Commitment Transfer Supplement shall be deemed to amend this Agreement to the
extent, and only to the extent, necessary to reflect the addition of such
Purchasing Lender and the resulting adjustment of the Commitment Percentages
arising from the purchase by such Purchasing Lender of all or a portion of the
rights and obligations of such transferor Lender under this Agreement and the
Other Documents. Borrower hereby consents to the addition of such Purchasing
Lender and the resulting adjustment of the Commitment Percentages arising from
the purchase by such Purchasing Lender of all or a portion of the rights and
obligations of such transferor Lender under this Agreement and the Other
Documents. Borrower shall promptly execute and deliver such further documents
and do such further acts and things in order to effectuate the foregoing.
(d)......Agent shall maintain at its address a copy of each
Commitment Transfer Supplement delivered to it and a register (the "Register")
for the recordation of the names and addresses of the Advances owing to each
Lender from time to time. The entries in the Register shall be conclusive, in
the absence of manifest error, and Borrower, Agent and Lenders may treat each
Person whose name is recorded in the Register as the owner of the Advance
recorded therein for the purposes of this Agreement. The Register shall be
available for inspection by Borrower or any Lender at any reasonable time and
from time to time upon reasonable prior notice. Agent shall receive a fee in the
amount of $2,500 payable by the applicable Purchasing Lender upon the effective
date of each transfer or assignment to such Purchasing Lender.
(e)......Borrower authorizes each Lender to disclose to any
Transferee or Purchasing Lender and any prospective Transferee or Purchasing
Lender any and all financial information in such Lender's possession concerning
Borrower which has been delivered to such Lender by or on behalf of Borrower
pursuant to this Agreement or in connection with such Lender's credit evaluation
of Borrower.
15.4. Application of Payments. Agent shall have the continuing and
exclusive right to apply or reverse and re-apply any payment and any and all
proceeds of Collateral to any portion of the Obligations. To the extent that
Borrower makes a payment or Agent or any Lender receives any payment or proceeds
of the Collateral for Borrower's benefit, which are subsequently invalidated,
declared to be fraudulent or preferential, set aside or required to be repaid to
a trustee, debtor in possession, receiver, custodian or any other party under
any bankruptcy law, common law or equitable cause, then, to such extent, the
Obligations or part thereof intended to be satisfied shall be revived and
continue as if such payment or proceeds had not been received by Agent or such
Lender.
15.5. Indemnity. Borrower shall indemnify Agent, each Lender and each
of their respective officers, directors, Affiliates, employees and agents from
and against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses and disbursements of any kind or
nature whatsoever (including, without limitation, fees and disbursements of
counsel) which may be imposed on, incurred by, or asserted against Agent or any
Lender in any claim, litigation, proceeding or investigation instituted or
conducted by any governmental agency or instrumentality or any other Person with
respect to any aspect of, or any transaction contemplated by, or referred to in,
or any matter related to, this Agreement or the Other Documents, whether or not
Agent or any Lender is a party thereto, except to the extent that any of the
foregoing arises out of the willful misconduct of the party being indemnified.
15.6. Notice. Any notice or request hereunder may be given to Borrower
or to Agent or any Lender at their respective addresses set forth below or at
such other address as may hereafter be specified in a notice designated as a
notice of change of address under this Section. Any notice or request hereunder
shall be given by (a) hand delivery, (b) overnight courier, (c) registered or
certified mail, return receipt requested, (d) telex or telegram, subsequently
confirmed by registered or certified mail, or (e) telecopy to the number set out
below (or such other number as may hereafter be specified in a notice designated
as a notice of change of address) with electronic confirmation of its receipt.
Any notice or other communication required or permitted pursuant to this
Agreement shall be deemed given (a) when personally delivered to any officer of
the party to whom it is addressed, (b) on the earlier of actual receipt thereof
or three (3) days following posting thereof by certified or registered mail,
postage prepaid, or (c) upon actual receipt thereof when sent by a recognized
overnight delivery service or (d) upon actual receipt thereof when sent by
telecopier to the number set forth below with electronic confirmation of its
receipt, in each case addressed to each party at its address set forth below or
at such other address as has been furnished in writing by a party to the other
by like notice:
(A) If to Agent or PNC Bank, National Association
PNC at: Two Tower Center Boulevard
East Brunswick, New Jersey 08816
Attention: Arthur Lippens
Telephone: (732) 220-4352
Telecopier: (732) 220-4393
with a copy to: Haythe & Curley
237 Park Avenue
New York, New York 10017
Attention: Joseph J. Romagnoli, Esq.
Telephone: (212) 880-6034
Telecopier:(212) 682-0200
(B) If to a Lender other than Agent, as specified on the signature
pages hereof
(C) If to Borrower, at: Flents Products Co., Inc.
One Executive Boulevard
Yonkers, New York 10701
Attention: President
Telephone: (914) 423-9390
Telecopier: (914) 423-9610
with a copy to: Akabas & Cohen
488 Madison Avenue
New York, New York 10022
Attention: Seth A. Akabas, Esq.
Telephone: (212) 308-8505
Telecopier: (212) 308-8582
15.7. Survival. The obligations of Borrower under Sections 2.2(f), 3.7,
3.9, 4.19(h), 14.7 and 15.5 shall survive termination of this Agreement and the
Other Documents and payment in full of the Obligations.
15.8. Severability. If any part of this Agreement is contrary to,
prohibited by, or deemed invalid under applicable laws or regulations, such
provision shall be inapplicable and deemed omitted to the extent so contrary,
prohibited or invalid, but the remainder hereof shall not be invalidated thereby
and shall be given effect so far as possible.
15.9. Expenses. All costs and expenses including, without limitation,
reasonable attorneys' fees (including the allocated costs of in house counsel)
and disbursements incurred by Agent, Agent on behalf of Lenders and Lenders (a)
in all efforts made to enforce payment of any Obligation or effect collection of
any Collateral, or (b) in connection with the entering into, modification,
amendment, administration and enforcement of this Agreement or the Subordination
Agreement, or any consents or waivers hereunder or thereunder and all related
agreements, documents and instruments, or (c) in instituting, maintaining,
preserving, enforcing and foreclosing on Agent's security interest in or Lien on
any of the Collateral or maintaining, preserving or enforcing any of Agent's or
any Lender's rights hereunder or under the Subordination Agreement and under all
related agreements, in any case, whether through judicial proceedings or
otherwise, or (d) in defending or prosecuting any actions or proceedings arising
out of or relating to Agent's or any Lender's transactions with Holdings,
Borrower, or Mezzanine Lender or (e) in connection with any advice given to
Agent or any Lender with respect to its rights and obligations under this
Agreement, the Subordination Agreement, and all related agreements, may be
charged to Borrower's Account and shall be part of the Obligations.
15.10. Injunctive Relief. Borrower recognizes that, in the event
Borrower fails to perform, observe or discharge any of its obligations or
liabilities under this Agreement, any remedy at law may prove to be inadequate
relief to Lenders; therefore, Agent, if Agent so requests, shall be entitled to
temporary and permanent injunctive relief in any such case without the necessity
of proving that actual damages are not an adequate remedy.
15.11. Consequential Damages. Neither Agent nor any Lender, nor any
agent or attorney for any of them, shall be liable to Borrower or any Guarantor
(or any affiliate of any such Person) for consequential damages arising from any
breach of contract, tort or other wrong relating to the establishment,
administration or collection of the Obligations.
15.12. Captions. The captions at various places in this Agreement are
intended for convenience only and do not constitute and shall not be interpreted
as part of this Agreement.
15.13. Counterparts; Telecopied Signatures. This Agreement may be
executed in any number of and by different parties hereto on separate
counterparts, all of which, when so executed, shall be deemed an original, but
all such counterparts shall constitute one and the same agreement. Any signature
delivered by a party by facsimile transmission shall be deemed to be an original
signature hereto.
15.14. Construction. The parties acknowledge that each party and its
counsel have reviewed this Agreement and that the normal rule of construction to
the effect that any ambiguities are to be resolved against the drafting party
shall not be employed in the interpretation of this Agreement or any amendments,
schedules or exhibits thereto.
15.15. Confidentiality; Sharing Information. (a) Agent, each Lender and
each Transferee shall hold all non-public information obtained by Agent, such
Lender or such Transferee pursuant to the requirements of this Agreement in
accordance with Agent's, such Lender's and such Transferee's customary
procedures for handling confidential information of this nature; provided,
however, Agent, each Lender and each Transferee may disclose such confidential
information (a) to its examiners, Affiliates, outside auditors, counsel and
other professional advisors, (b) to Agent, any Lender or to any prospective
Transferees and Purchasing Lenders, provided such Transferees or Purchasing
Lenders are bound by this Section or a similar confidentiality agreement and (c)
as required or requested by any Governmental Body or representative thereof or
pursuant to legal process; provided, further that (i) unless specifically
prohibited by applicable law or court order, Agent, each Lender, each Transferee
and each Purchasing Lender shall use its reasonable best efforts prior to
disclosure thereof, to notify Borrower of the applicable request for disclosure
of such non-public information (A) by a Governmental Body or representative
thereof (other than any such request in connection with an examination of the
financial condition of a Lender or a Transferee by such Governmental Body) or
(B) pursuant to legal process and (ii) in no event shall Agent, any Lender or
any Transferee or any Purchasing Lender be obligated to return any materials
furnished by Borrower other than those documents and instruments in possession
of Agent or any Lender in order to perfect its Lien on the Collateral once the
Obligations have been paid in full and this Agreement has been terminated. This
Section 15.15 shall survive the termination of this Agreement.
(b)......Borrower acknowledges that from time to time
financial advisory, investment banking and other services may be offered or
provided to Borrower or one or more of its Affiliates (in connection with this
Agreement or otherwise) by any Lender or by one or more Subsidiaries or
Affiliates of such Lender and Borrower hereby authorizes each Lender to share
any information delivered to such Lender by Borrower and its Subsidiaries
pursuant to this Agreement, or in connection with the decision of such Lender to
enter into this Agreement, to any such Subsidiary or Affiliate of such Lender,
it being understood that any such Subsidiary or Affiliate of any Lender
receiving such information shall be bound by the provision of Section 15.15 as
if it were a Lender hereunder. Such authorization shall survive the repayment of
the other Obligations and the termination of the Loan Agreement.
15.16. Publicity. Borrower and each Lender hereby authorizes Agent to
make appropriate announcements of the financial arrangement entered into among
Borrower, Agent and Lenders, including, without limitation, announcements which
are commonly known as tombstones, in such publications and to such selected
parties as Agent shall in its sole and absolute discretion deem appropriate.
<PAGE>
Each of the parties has signed this Agreement as of the day and year
first above written.
FLENTS PRODUCTS CO., INC.
ATTEST:
By:_/s/ Meredith Birrittella
________________________ Name: Meredith Birrittella
[SEAL] Title: C.E.O.
One Executive Boulevard
Yonkers, New York 10701
PNC BANK, NATIONAL ASSOCIATION, as Lender and as Agent
By:__/s/ Anthony J. Foti
Name: Anthony J. Foti
Title: Vice President
Two Tower Center Boulevard
East Brunswick, New Jersey 08816
Commitment Percentage: 100%
<PAGE>
EXHIBIT 4
REVOLVING CREDIT, TERM LOAN
AND
SECURITY AGREEMENT
PNC BANK, NATIONAL ASSOCIATION
(AS LENDER AND AS AGENT)
WITH
PROTECTIVE TECHNOLOGIES INTERNATIONAL INC.
AND
ZACKO SPORTS, INC.
(BORROWERS)
APRIL 14, 1999
<PAGE>
<TABLE>
<S> <C> <C> <C>
Table of Contents
Page
I. DEFINITIONS...................................................................................................5
1.1. Accounting Terms...................................................................................5
1.2. General Terms......................................................................................5
1.3. Uniform Commercial Code Terms......................................................................5
1.4. Certain Matters of Construction....................................................................5
II. ADVANCES, PAYMENTS...........................................................................................5
2.1. (a) Revolving Advances...........................................................................5
(b) Individual Revolving Advances................................................................5
(c) Discretionary Rights.........................................................................5
2.2. Procedure for Revolving Advances Borrowing.........................................................5
2.3. Disbursement of Advance Proceeds...................................................................5
2.4. Term Loan..........................................................................................5
2.5. Maximum Advances...................................................................................5
2.6. Repayment of Advances..............................................................................5
2.7. Repayment of Excess Advances.......................................................................5
2.8. Statement of Account...............................................................................5
2.9. Letters of Credit..................................................................................5
2.10. Issuance of Letters of Credit.....................................................................5
2.11. Requirements For Issuance of Letters of Credit....................................................5
2.12. Additional Payments...............................................................................5
2.13. Manner of Borrowing and Payment...................................................................5
2.14. Mandatory Prepayments.............................................................................5
2.15. Use of Proceeds...................................................................................5
2.16. Defaulting Lender.................................................................................5
III. INTEREST AND FEES...........................................................................................5
3.1. Interest...........................................................................................5
3.2. Letter of Credit Fees..............................................................................5
3.3. Fee Letter.........................................................................................5
3.4 Facility Fee........................................................................................5
3.5. Computation of Interest and Fees...................................................................5
3.6. Maximum Charges....................................................................................5
3.7. Increased Costs....................................................................................5
3.8. Basis For Determining Interest Rate Inadequate or Unfair...........................................5
3.9. Capital Adequacy...................................................................................5
IV. COLLATERAL; GENERAL TERMS...................................................................................5
4.1. Security Interest in the Collateral................................................................5
4.2. Perfection of Security Interest....................................................................5
4.3. Disposition of Collateral..........................................................................5
4.4. Preservation of Collateral.........................................................................5
4.5. Ownership and Location of Collateral...............................................................5
4.6. Defense of Agent's and Lenders'Interests...........................................................5
4.7. Books and Records..................................................................................5
4.8. Financial Disclosure...............................................................................5
4.9. Compliance with Laws...............................................................................5
4.10. Inspection of Premises............................................................................5
4.11. Insurance.........................................................................................5
4.12. Failure to Pay Insurance..........................................................................5
4.13. Payment of Taxes..................................................................................5
4.14. Payment of Leasehold Obligations..................................................................5
4.15. Receivables.......................................................................................5
(a) Nature of Receivables......................................................................5
(b) Solvency of Customers......................................................................5
(c) Locations of Executive Offices of Borrowers................................................5
(d) Collection of Receivables..................................................................5
(e) Notification of Assignment of Receivables..................................................5
(f) Power of Agent to Act on Borrowers'Behalf..................................................5
(g) No Liability...............................................................................5
(h) Establishment of a Lockbox Account, Dominion Account.......................................5
(i) Adjustments................................................................................5
4.16. Inventory.........................................................................................5
4.17. Maintenance of Equipment..........................................................................5
4.18. Exculpation of Liability..........................................................................5
4.19. Environmental Matters.............................................................................5
4.20. Financing Statements..............................................................................5
V. REPRESENTATIONS AND WARRANTIES................................................................................5
5.1. Authority; Enforceable Obligations.................................................................5
5.2. Formation and Qualification........................................................................5
5.3. Survival of Representations and Warranties.........................................................5
5.4. Tax Returns........................................................................................5
5.5. Financial Statements...............................................................................5
5.6. Corporate Name and Locations.......................................................................5
5.7. O.S.H.A. and Environmental Compliance..............................................................5
5.8. Solvency; No Litigation, Violation, Indebtedness or Default........................................5
5.9. Patents, Trademarks, Copyrights and Licenses.......................................................5
5.10. Licenses and Permits..............................................................................5
5.11. Default of Indebtedness...........................................................................5
5.12. No Default........................................................................................5
5.13. No Burdensome Restrictions........................................................................5
5.14. No Labor Disputes.................................................................................5
5.15. Margin Regulations................................................................................5
5.16. Investment Company Act............................................................................5
5.17. Disclosure........................................................................................5
5.18. Swaps.............................................................................................5
5.19. Conflicting Agreements............................................................................5
5.20. Application of Certain Laws and Regulations.......................................................5
5.21. Business and Property of Borrower.................................................................5
5.22. Year 2000.........................................................................................5
VI. AFFIRMATIVE COVENANTS...................................................................................5
6.1. Payment of Fees....................................................................................5
6.2. Conduct of Business and Maintenance of Existence and Assets........................................5
6.3. Violations.........................................................................................5
6.4. Government Receivables.............................................................................5
6.5. Net Worth..........................................................................................5
6.6. Fixed Charge Coverage Ratio........................................................................5
6.7. Execution of Supplemental Instruments..............................................................5
6.8. Payment of Indebtedness............................................................................5
6.9. Standards of Financial Statements..................................................................5
6.10. Year 2000 Problem.................................................................................5
VII. NEGATIVE COVENANTS..........................................................................................5
7.1. Merger, Consolidation, Acquisition and Sale of Assets..............................................5
7.2. Creation of Liens..................................................................................5
7.3. Guarantees.........................................................................................5
7.4. Investments........................................................................................5
7.5. Loans..............................................................................................5
7.6. Capital Expenditures...............................................................................5
7.7. Dividends..........................................................................................5
7.8. Indebtedness.......................................................................................5
7.9. Nature of Business.................................................................................5
7.10. Transactions with Affiliates......................................................................5
7.11. Leases............................................................................................5
7.12. Subsidiaries......................................................................................5
7.13. Fiscal Year and Accounting Changes................................................................5
7.14. Pledge of Credit..................................................................................5
7.15. Amendment of Articles of Incorporation, By-Laws...................................................5
7.16. Compliance with ERISA.............................................................................5
7.17. Prepayment of Indebtedness........................................................................5
7.18. Other Agreements..................................................................................5
VIII. CONDITIONS PRECEDENT.......................................................................................5
8.1. Conditions to Initial Advances.....................................................................5
(a) Note 5
(b) Filings, Registrations and Recordings......................................................5
(c) Corporate Proceedings......................................................................5
(d) Incumbency Certificates....................................................................5
(e) Certificates...............................................................................5
(f) Good Standing Certificates.................................................................5
(g) Legal Opinion..............................................................................5
(h) No Litigation..............................................................................5
(i) Financial Condition Certificates...........................................................5
(j) Collateral Examination.....................................................................5
(k) Fees 5
(l) Pro Forma Financial Statements.............................................................5
(m) Pledge Agreement...........................................................................5
(n) Senior Subordinated Security Agreement.....................................................5
(o) Intercreditor Agreements...................................................................5
(p) Insurance..................................................................................5
(q) Payment Instructions.......................................................................5
(r) Blocked Accounts...........................................................................5
(s) Consents...................................................................................5
(t) No Adverse Material Change.................................................................5
(u) Leasehold Agreements.......................................................................5
(v) Guarantees and Other Documents.............................................................5
(w) Net Worth..................................................................................5
(x) Contract Review............................................................................5
(y) Closing Certificate........................................................................5
(z) Borrowing Base.............................................................................5
(aa) Compliance with Laws......................................................................5
(bb) Product Liability Insurance...............................................................5
(cc) Other.....................................................................................5
8.2. Conditions to Each Advance.........................................................................5
(a) Representations and Warranties.............................................................5
(b) No Default.................................................................................5
(c) Maximum Advances...........................................................................5
IX. INFORMATION AS TO BORROWERS..................................................................................5
9.1. Disclosure of Material Matters.....................................................................5
9.2. Schedules..........................................................................................5
9.3. Environmental Reports..............................................................................5
9.4. Litigation.........................................................................................5
9.5. Material Occurrences...............................................................................5
9.6. Government Receivables.............................................................................5
9.7. Annual Financial Statements........................................................................5
9.8. Quarterly Financial Statements.....................................................................5
9.9. Monthly Financial Statements.......................................................................5
9.10. Other Reports.....................................................................................5
9.11. Additional Information............................................................................5
9.12. Projected Operating Budget........................................................................5
9.13. Variances From Operating Budget...................................................................5
9.14. Notice of Suits, Adverse Events...................................................................5
9.15. ERISA Notices and Requests........................................................................5
9.16. Additional Documents..............................................................................5
X. EVENTS OF DEFAULT.............................................................................................5
XI. LENDERS'RIGHTS AND REMEDIES AFTER DEFAULT....................................................................5
11.1. Rights and Remedies...............................................................................5
11.2. Agent's Discretion................................................................................5
11.3. Setoff............................................................................................5
11.4. Rights and Remedies not Exclusive.................................................................5
XII. WAIVERS AND JUDICIAL PROCEEDINGS............................................................................5
12.1. Waiver of Notice..................................................................................5
12.2. Delay.............................................................................................5
12.3. Jury Waiver.......................................................................................5
XIII. EFFECTIVE DATE AND TERMINATION.............................................................................5
13.1. Term..............................................................................................5
13.2. Termination.......................................................................................5
XIV. REGARDING AGENT.............................................................................................5
14.1. Appointment.......................................................................................5
14.2. Nature of Duties..................................................................................5
14.3. Lack of Reliance on Agent and Resignation.........................................................5
14.4. Certain Rights of Agent...........................................................................5
14.5. Reliance..........................................................................................5
14.6. Notice of Default.................................................................................5
14.7. Indemnification...................................................................................5
14.8. Agent in its Individual Capacity..................................................................5
14.9. Delivery of Documents.............................................................................5
14.10. Borrowers'Undertaking to Agent...................................................................5
XV. BORROWING AGENCY.............................................................................................5
15.1. Borrowing Agency Provisions.......................................................................5
15.2. Waiver of Subrogation.............................................................................5
XVI. MISCELLANEOUS...............................................................................................5
16.1. Governing Law.....................................................................................5
16.2. Entire Understanding..............................................................................5
16.3. Successors and Assigns; Participations; New Lenders...............................................5
16.4. Application of Payments...........................................................................5
16.5. Indemnity.........................................................................................5
16.6. Notice............................................................................................5
16.7. Survival..........................................................................................5
16.8. Severability......................................................................................5
16.9. Expenses..........................................................................................5
16.10. Injunctive Relief................................................................................5
16.11. Consequential Damages............................................................................5
16.12. Captions.........................................................................................5
16.13. Counterparts; Telecopied Signatures..............................................................5
16.14. Construction.....................................................................................5
16.15. Confidentiality; Sharing Information.............................................................5
16.16. Publicity........................................................................................5
</TABLE>
<PAGE>
REVOLVING CREDIT, TERM LOAN
AND
SECURITY AGREEMENT
Revolving Credit, Term Loan and Security Agreement dated April 14, 1999
among Protective Technologies International Inc., a corporation organized under
the laws of the State of New York ("PTI"), and Zacko Sports, Inc., a corporation
organized under the laws of the State of Delaware ("Zacko") (PTI and Zacko, each
a "Borrower" and collectively "Borrowers"), the financial institutions which are
now or which hereafter become a party hereto (collectively, the "Lenders" and
individually a "Lender") and PNC BANK, NATIONAL ASSOCIATION ("PNC"), as agent
for Lenders (PNC, in such capacity, the "Agent").
IN CONSIDERATION of the mutual covenants and undertakings herein
contained, Borrowers, Lenders and Agent hereby agree as follows:
I. DEFINITIONS.
1.1. Accounting Terms. As used in this Agreement, the Note, or any
certificate, report or other document made or delivered pursuant to this
Agreement, accounting terms not defined in Section 1.2 or elsewhere in this
Agreement and accounting terms partly defined in Section 1.2 to the extent not
defined, shall have the respective meanings given to them under GAAP; provided,
however, whenever such accounting terms are used for the purposes of determining
compliance with financial covenants in this Agreement, such accounting terms
shall be defined in accordance with GAAP as applied in preparation of the
audited financial statements of Holdings for the fiscal year ended December 31,
1998.
1.2. General Terms. For purposes of this Agreement the following terms
shall have the following meanings:
"Accountants" shall have the meaning set forth in Section 9.7
hereof.
"Advance Rates" shall have the meaning set forth in Section
2.1(a) hereof.
"Advances" shall mean and include the Revolving Advances,
Letters of Credit, and the Term Loan.
"Affiliate" of any Person shall mean (a) any Person (other
than a Subsidiary) which, directly or indirectly, is in control of, is
controlled by, or is under common control with such Person, or (b) any Person
who is a director or officer (i) of such Person, (ii) of any Subsidiary of such
Person or (iii) of any Person described in clause (a) above. For purposes of
this definition, control of a Person shall mean the power, direct or indirect,
(x) to vote 5% or more of the Stock having ordinary voting power for the
election of directors of such Person or other Persons performing similar
functions for any such Person, or (y) to direct or cause the direction of the
management and policies of such Person whether by ownership of Stock, contract
or otherwise.
"Agent" shall have the meaning set forth in the preamble to
this Agreement and shall include its successors and assigns.
"Agreement" shall mean this Revolving Credit, Term Loan and
Security Agreement, as the same may be amended, supplemented or otherwise
modified from time to time.
"Applicable Margin" shall mean (i) with respect to Revolving
Advances and Standby Letter of Credit fees, (x) for the period through and
including March 31, 2000, 2.75% and (y) after March 31, 2000, 2.75% unless, with
respect to any fiscal quarter ending thereafter, if the Fixed Charge Coverage
Ratio for the four fiscal quarters ending as of the end of each of the two
consecutive fiscal quarters immediately preceding such fiscal quarter is as set
forth below (and provided that Agent has received the quarterly financial
statements and required calculations for such fiscal quarters pursuant to
Section 9.8), then the Applicable Margin for such fiscal quarter shall be
adjusted commencing 5 Business Days after receipt of such financial statements
by Agent to the applicable percentage set forth below:
Fixed Charge Coverage Ratio: Applicable Margin:
1.50:1.00 to 1.99:1.00 2.50%
Equal to or greater 2.25%
than 2.00 to 1.00
and (ii) with respect to the Term Loan, (x) for the period
through and including March 31, 2000, 3.25% and (y) after March 31, 2000, 3.25%
unless, with respect to any fiscal quarter ending thereafter, if the Fixed
Charge Coverage Ratio for the four fiscal quarters ending as of the end of each
of the two consecutive fiscal quarters immediately preceding such fiscal quarter
is as set forth below (and provided that Agent has received the quarterly
financial statements and required calculations for such fiscal quarters pursuant
to Section 9.8), then the Applicable Margin for such fiscal quarter shall be
adjusted commencing 5 Business Days after receipt of such financial statements
by Agent to the applicable percentage set forth below:
Fixed Charge Coverage Ratio: Applicable Margin:
1.50:1.00 to 1.99:1.00 3.00%
Equal to or greater 2.75%
Than 2.00 to 1.00
If any financial statement referred to in (i) or (ii) above is not delivered
within the required time periods, then, until so delivered, the Fixed Charge
Coverage Ratio for such fiscal period (or portion thereof) shall, for the
purpose of this definition, be deemed to be less than or equal to 1.49 to 1.00
"Authority" shall have the meaning set forth in Section 4.19(d).
"Base Rate" shall mean the base commercial lending rate of PNC
as publicly announced to be in effect from time to time, such rate to be
adjusted automatically, without notice, on the effective date of any change in
such rate. This rate of interest is determined from time to time by PNC as a
means of pricing some loans to its customers and is neither tied to any external
rate of interest or index nor does it necessarily reflect the lowest rate of
interest actually charged by PNC to any particular class or category of
customers of PNC.
"Blocked Accounts" shall have the meaning set forth in Section
4.15(h).
"Borrower" or "Borrowers" shall have the meaning set forth in
the preamble to this Agreement and shall extend to all permitted successors and
assigns of such Persons.
"Borrowers' Account" shall have the meaning set forth in
Section 2.8.
"Borrowers on a combined basis" shall mean PTI and Zacko.
"Borrowing Agent" shall mean PTI.
"Business Day" shall mean any day other than Saturday or
Sunday or a legal holiday on which commercial banks are authorized or required
by law to be closed for business in East Brunswick, New Jersey and, if the
applicable Business Day relates to any Eurodollar Rate Loans, such day must also
be a day on which dealings are carried on in the London interbank market.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C. 9601 et seq.
"Change of Control" shall mean (a) the occurrence of any event
(whether in one or more transactions) which results in a transfer of control of
Holdings to a Person or group of Persons (within the meaning of the Securities
Exchange Act of 1934, as amended) who are not an Original Owner, (b) any merger
or consolidation of or with Holdings which results in a transfer of control of
Holdings to a Person who is not an Original Owner, (c) Meredith Birrittella (or
any successor who is reasonably satisfactory to Agent) ceases to be the Chief
Executive Officer, (d) Meredith Birrittella ceases to be a director of Holdings
(other than by reason of death or disability) or (e) the Original Owner ceases
to own at least 500,000 shares (as adjusted for any stock split, reverse split,
stock dividend, reclassification or similar event) of the outstanding voting
Stock of Holdings. For purposes of this definition, "control of Holdings" shall
mean the power, direct or indirect (x) to vote 50% or more of the Stock having
ordinary voting power for the election of directors of Holdings or (y) to direct
or cause the direction of the management and policies of Holdings by ownership
of Stock, contract or otherwise.
"Change of Ownership" shall mean 100% of the outstanding
voting Stock of any Borrower is no longer owned by Holdings.
"Charges" shall mean all taxes, charges, fees, imposts, levies
or other assessments, including, without limitation, all net income, gross
income, gross receipts, sales, use, ad valorem, value added, transfer,
franchise, profits, inventory, capital stock, license, withholding, payroll,
employment, social security, unemployment, excise, severance, stamp, occupation
and property taxes, custom duties, fees, assessments, liens, claims and charges
of any kind whatsoever, together with any interest and any penalties, additions
to tax or additional amounts, imposed by any taxing or other authority, domestic
or foreign (including, without limitation, the Pension Benefit Guaranty
Corporation or any environmental agency or superfund), upon the Collateral, any
Borrower or any of its Affiliates.
"Closing Date" shall mean April 14, 1999 or such other date as
may be agreed to by the parties hereto.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time and the regulations promulgated thereunder.
"Collateral" shall mean and include:
(a) all Receivables;
(b) all Equipment;
(c) all General Intangibles;
(d) the Intercompany Note and the Management Notes;
(e) the Karlen Intercompany Note;
(f) all Inventory;
(g) the Leasehold Interests;
(h) all of each Borrower's right,title and interest
in and to (i) its respective goods and other property including, but not limited
to, all merchandise returned or rejected by Customers, relating to or securing
any of the Receivables; (ii) all of each Borrower's rights as a consignor, a
consignee, an unpaid vendor, mechanic, artisan, or other lienor, including
stoppage in transit, setoff, detinue, replevin, reclamation and repurchase;
(iii) all additional amounts due to any Borrower from any Customer relating to
the Receivables; (iv) other property, including warranty claims, relating to any
goods securing this Agreement; (v) all of each Borrower's contract rights,
rights of payment which have been earned under a contract right, instruments,
documents, chattel paper, warehouse receipts, deposit accounts, money,
securities and investment property; (vi) if and when obtained by any Borrower,
all real and personal property of third parties in which such Borrower has been
granted a Lien as security for the payment or enforcement of Receivables; and
(vii) any other goods, personal property or real property now owned or hereafter
acquired in which any Borrower has expressly granted a Lien or may in the future
grant a Lien to Agent hereunder, or in any amendment or supplement hereto or
thereto, or under any other agreement between Agent and any Borrower;
(i) all of each Borrower's ledger sheets, ledger
cards, files, correspondence, records, books of account, business papers,
computers, computer software (owned by any Borrower or in which it has an
interest), computer programs, tapes, disks and documents relating to (a), (b),
(c), (d), (e), (f), (g) or (h) of this paragraph; and
(j) all proceeds and products of (a), (b), (c),
(d), (e), (f), (g), (h) and (i) in whatever form, including, but not limited to:
cash, deposit accounts (whether or not comprised solely of proceeds),
certificates of deposit, insurance proceeds (including hazard, flood and credit
insurance), negotiable instruments and other instruments for the payment of
money, chattel paper, security agreements, documents, eminent domain proceeds,
condemnation proceeds and tort claim proceeds.
"Commitment Percentage" of any Lender shall mean the
percentage set forth below such Lender's name on the signature page hereof as
same may be adjusted upon any assignment by a Lender pursuant to Section 16.3(b)
hereof.
"Commitment Transfer Supplement" shall mean a document in the
form of Exhibit 16.3 hereto, properly completed and otherwise in form and
substance satisfactory to Agent by which the Purchasing Lender purchases and
assumes a portion of the obligation of Lenders to make Advances under this
Agreement.
"Consents" shall mean all filings and all licenses, permits,
consents, approvals, authorizations, qualifications and orders of Governmental
Bodies and other third Persons, domestic or foreign, necessary to carry on any
Borrower's business or necessary (including to avoid a conflict or breach under
any agreement, instrument, other document, license, permit or other
authorization) for the execution, delivery or performance of this Agreement or
the Other Documents, including, without limitation, any Consents required under
all applicable federal, state or other applicable law.
"Contingent Obligations" shall mean as to any Person any
obligation of such Person guaranteeing or intending to guarantee any
Indebtedness, leases, dividends or other obligations ("primary obligations") of
any other Person (the "primary obligation") in any manner, whether directly or
indirectly, including, without limitation, any obligation of such Person,
whether or not contingent, (a) to purchase any such primary obligation or any
property constituting direct or indirect security therefor, (b) to advance or
supply funds (i) for the purchase or payment of any such primary obligation or
(ii) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary obligor, (c) to
purchase property, securities or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability of the primary obligor
to make payment of such primary obligation or (d) otherwise to assure or hold
harmless the owner of such primary obligation against loss in respect thereof;
provided, however, that the term Contingent Obligation shall not include
endorsements of instruments for deposit or collection in the ordinary course of
business. The amount of any Contingent Obligation shall be deemed to be an
amount equal to the stated or determinable amount of the primary obligation in
respect of which such Contingent Obligation is made or, if not stated or
determinable, the maximum reasonably anticipated liability in respect thereof
(assuming such Person is required to perform thereunder) as determined by such
Person in good faith.
"Contract Rate" shall mean, as applicable, the Revolving
Interest Rate or the Term Loan Rate.
"Controlled Group" shall mean all members of a controlled
group of corporations and all trades or businesses (whether or not incorporated)
under common control which, together with any Borrower, are treated as a single
employer under Section 414 of the Code.
"Current Assets" at a particular date, shall mean all cash,
cash equivalents, accounts and inventory of Borrowers on a combined basis and
all other items which would, in conformity with GAAP, be included under current
assets on a balance sheet of Borrowers on a combined basis as at such date;
provided, however, that such amounts shall not include (a) any amounts for any
Indebtedness owing by an Affiliate of any Borrower, (b) any shares of stock
issued by an Affiliate of any Borrower, or (c) the cash surrender value of any
life insurance policy.
"Current Liabilities" at a particular date, shall mean all
amounts which would, in conformity with GAAP, be included under current
liabilities on a balance sheet of Borrowers on a combined basis, as at such
date, but in any event including, without limitation, the amounts of (a) all
Indebtedness of Borrowers on a combined basis payable on demand, or, at the
option of the Person to whom such Indebtedness is owed, not more than twelve
(12) months after such date, (b) any payments in respect of any Indebtedness of
any Borrower (whether installment, serial maturity, sinking fund payment or
otherwise) required to be made not more than twelve (12) months after such date,
(c) all reserves in respect of liabilities or Indebtedness payable on demand or,
at the option of the Person to whom such Indebtedness is owed, not more than
twelve (12) months after such date, the validity of which is not contested at
such date, and (d) all accruals for federal or other taxes measured by income
payable within a twelve (12) month period.
"Customer" shall mean and include the account debtor with
respect to any Receivable and/or the prospective purchaser of goods, services or
both with respect to any contract or contract right, and/or any party who enters
into or proposes to enter into any contract or other arrangement with any
Borrower, pursuant to which such Borrower is to deliver any personal property or
perform any services.
"Default" shall mean an event, circumstance or condition
which, with the giving of notice or passage of time or both, would constitute an
Event of Default.
"Default Rate" shall have the meaning set forth in Section 3.1
hereof.
"Defaulting Lender" shall have the meaning set forth in
Section 2.16(a) hereof.
"Depository Accounts" shall have the meaning set forth in
Section 4.15(h) hereof.
"Documents" shall have the meaning set forth in Section 8.1(c)
hereof.
"Dollar" and the sign "$" shall mean lawful money of the
United States of America.
"Domestic Rate Loan" shall mean any Advance that bears
interest based upon the Base Rate.
"Early Termination Date" shall have the meaning set forth in
Section 13.1 hereof.
"Earnings Before Interest and Taxes" shall mean for any period
the sum of (i) net income (or loss) of Borrowers on a combined basis for such
period (excluding extraordinary gains or non-cash losses), plus (ii) all
interest expense of Borrowers on a combined basis for such period, plus (iii)
all charges against income of Borrowers on a combined basis for such period for
federal, state and local taxes actually paid.
"EBITDA" shall mean for any period the sum of (i) Earnings
Before Interest and Taxes for such period plus (ii) depreciation expenses for
such period, plus (iii) amortization expenses for such period.
"Eligible Inventory" shall mean and include Inventory,
excluding work in process, with respect to each Borrower valued at the lower of
cost or market value, determined on a first-in-first-out basis, which is not, in
Agent's opinion, obsolete, slow moving or unmerchantable and which Agent, in its
sole discretion, shall not deem ineligible Inventory, based on such
considerations as Agent may from time to time deem appropriate including,
without limitation, whether the Inventory is subject to a perfected, first
priority security interest in favor of Agent and whether the Inventory conforms
to all standards imposed by any Governmental Body which has regulatory authority
over such goods or the use or sale thereof. Without limiting the generality of
the foregoing, Eligible Inventory shall not include (x) Inventory located at the
premises of subcontractors or vendors for processing or otherwise or (y)
Inventory located at warehouses or leased premises unless Agent has received
consents and waivers, in form and substance satisfactory to Agent, from such
third parties with respect to such Inventory and such Inventory is otherwise
subject to a perfected, first priority security interest in favor of Agent
(including, without limitation, in the case of warehouses that all warehouse
receipts or other negotiable instruments in respect of such Inventory have been
duly endorsed for transfer and delivered to Agent). Subject to the foregoing,
Eligible Inventory shall include Inventory in-transit for which title has passed
to any Borrower, which is insured to the full value thereof and for which Agent
shall have in its possession (a) all negotiable bills of lading properly
endorsed and (b) all non-negotiable bills of lading issued in Agent's name.
"Eligible Receivables" shall mean and include with respect to
each Borrower, each Receivable of such Borrower arising in the ordinary course
of such Borrower's business and which Agent, in its sole credit judgment, shall
deem to be an Eligible Receivable, based on such considerations as Agent may
from time to time deem appropriate. A Receivable shall not be deemed eligible
unless such Receivable is subject to Agent's first priority perfected security
interest and no other Lien (other than Permitted Encumbrances), and is evidenced
by an invoice or other documentary evidence satisfactory to Agent. In addition,
no Receivable shall be an Eligible Receivable if:
(a) it arises out of a sale made by any Borrower to an
Affiliate of any Borrower or to a Person controlled by an Affiliate of any
Borrower;
(b) (i) in the case of all Customers other than Target (or any
of its Affiliates), it is due or unpaid more than (x) sixty (60) days after the
original due date or (y) more than one hundred twenty (120) days after the
original invoice date; or (ii) in the case of Target (or any of its Affiliates),
it is due or unpaid more than (x) seventy-five (75) days after the original due
date or (y) more than one hundred thirty-five (135) days after the original
invoice date;
(c) fifty percent (50%) or more of the Receivables from such
Customer are not deemed Eligible Receivables hereunder. Such percentage may, in
Agent's sole discretion, be increased or decreased from time to time;
(d) any covenant, representation or warranty contained in this
Agreement with respect to such Receivable has been breached;
(e) the Customer shall (i) apply for, suffer, or consent to
the appointment of, or the taking of possession by, a receiver, custodian,
trustee or liquidator of itself or of all or a substantial part of its property
or call a meeting of its creditors, (ii) admit in writing its inability, or be
generally unable, to pay its debts as they become due or cease operations of its
present business, (iii) make a general assignment for the benefit of creditors,
(iv) commence a voluntary case under any state or federal bankruptcy laws (as
now or hereafter in effect), (v) be adjudicated a bankrupt or insolvent, (vi)
file a petition seeking to take advantage of any other law providing for the
relief of debtors, (vii) acquiesce to, or fail to have dismissed, any petition
which is filed against it in any involuntary case under such bankruptcy laws, or
(viii) take any action for the purpose of effecting any of the foregoing;
(f) the sale is to a Customer outside the continental United
States of America and Canada, unless the sale is on letter of credit, guaranty
or acceptance terms, in each case acceptable to Agent in its sole discretion;
(g) the sale to the Customer is on a bill-and-hold, guaranteed
sale, sale-and-return, sale on approval, consignment or any other repurchase or
return basis or is evidenced by chattel paper;
(h) Agent believes, in its sole judgment, that collection of
such Receivable is insecure or that such Receivable may not be paid by reason of
the Customer's financial inability to pay;
(i) the Customer is the United States of America, any state or
any department, agency or instrumentality of any of them, unless the applicable
Borrower assigns its right to payment of such Receivable to Agent pursuant to
the Assignment of Claims Act of 1940, as amended (31 U.S.C. Sub-Section 3727 et
seq. and 41 U.S.C. Sub-Section 15 et seq.) or has otherwise complied with other
applicable statutes or ordinances;
(j) the goods giving rise to such Receivable have not been
shipped and delivered to and accepted by the Customer or the services giving
rise to such Receivable have not been performed by the applicable Borrower and
accepted by the Customer or the Receivable otherwise does not represent a final
sale;
(k) the Receivables of the Customer exceed a credit limit
determined by Agent, in its sole discretion, to the extent such Receivable
exceeds such limit;
(l) the Receivable is subject to any offset, deduction,
defense, dispute, or counterclaim, the Customer is also a creditor or supplier
of a Borrower or the Receivable is contingent in any respect or for any reason;
(m) the applicable Borrower has made any agreement with any
Customer for any deduction therefrom, except for discounts or allowances made in
the ordinary course of business for prompt payment, all of which discounts or
allowances are reflected in the calculation of the face value of each respective
invoice related thereto;
(n) shipment of the merchandise or the rendition of
services has not been completed;
(o) any return, rejection or repossession of the
merchandise has occurred;
(p) such Receivable is not payable to a Borrower; or
(q) with respect to Receivables each month arising out of
sales made by any Borrower to Toys-R-Us (or any of its Affiliates) such
Receivables shall not be Eligible Receivables to the extent the aggregate amount
of such Receivables as a percentage of all Receivables of Borrowers for each
such month exceeds the Applicable Percentage for each such month set forth
below:
Month Applicable Percentage
- -------- ----------------------
January 54
February 36
March 47
April 56
May 59
June 45
July 39
August 37
September 59
October 62
November 58
December 56
(r) such Receivable is not otherwise satisfactory to Agent as
determined in good faith by Agent in the exercise of its discretion in a
reasonable manner.
"Environment" shall mean navigable waters, waters of the
contiguous zone, ocean waters, natural resources, surface waters, ground water,
drinking water supply, land surface, subsurface strata, ambient air, both inside
and outside of buildings and structures, man-made buildings and structures, and
plant and animal life on earth.
"Environmental Complaint" shall have the meaning set forth in
Section 4.19(d) hereof.
"Environmental Compliance Costs" shall mean any expenditures,
costs, assessments or expenses (including any expenditures, costs, assessments
or expenses in connection with the conduct of any Remedial Action, as well as
reasonable fees, disbursements and expenses of attorneys, experts, personnel and
consultants), whether direct or indirect, necessary to cause the operations,
real property, assets, equipment or facilities owned, leased, operated or used
by any Borrower or any Guarantor to be in compliance with any and all
requirements, as in effect at the Closing Date, of Environmental Laws,
principles of common law concerning pollution, protection of the Environment or
health and safety, or Permits issued pursuant to Environmental Laws; provided,
however, that Environmental Compliance Costs do not include expenditures, costs,
assessments or expenses necessary in connection with normal maintenance of such
real property, assets, equipment or facilities or the replacement of equipment
in the normal course of events due to ordinary wear and tear.
"Environmental Laws" shall mean all federal, state and local
environmental, land use, zoning, health, chemical use, safety and sanitation
laws, statutes, ordinances and codes relating to the protection of the
environment and/or governing the use, storage, treatment, generation,
transportation, processing, handling, production or disposal of Hazardous
Substances and the rules, regulations, policies, guidelines, interpretations,
decisions, orders and directives of federal, state and local governmental
agencies and authorities with respect thereto.
"Equipment" shall mean and include as to each Borrower all of
such Borrower's goods (other than Inventory) whether now owned or hereafter
acquired and wherever located including, without limitation, all equipment,
machinery, apparatus, motor vehicles, fittings, furniture, furnishings,
fixtures, parts, accessories and all replacements and substitutions therefor or
accessions thereto.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time and the rules and regulations promulgated
thereunder.
"Eurodollar Rate" shall mean for any Eurodollar Rate Loan for
the then current Interest Period relating thereto the interest rate per annum
determined by PNC by dividing (the resulting quotient rounded upwards, if
necessary, to the nearest 1/100th of 1% per annum) (i) the rate of interest
determined by PNC in accordance with its usual procedures (which determination
shall be conclusive absent manifest error) to be the average of the London
interbank offered rates for U.S. Dollars quoted by the British Banker's
Association as set forth on Dow Jones Markets Service (formerly known as
Telrate) (or appropriate successor or, if British Banker's Association or its
successor ceases to provide such quotes, a comparable replacement determined by
PNC) display page 3750 (or such other display page on the Dow Jones Markets
Service system as may replace display page 3750) two (2) Business Days prior to
the first day of such Interest Period for an amount comparable to such
Eurodollar Rate Loan and having a borrowing date and a maturity comparable to
such Interest Period by (ii) a number equal to 1.00 minus the Reserve
Percentage. The Eurodollar Rate may also be expressed by the following formula:
Average of London interbank offered rates quoted by BBA as shown on Eurodollar
Rate = Dow Jones Market
Service display page 3750 or
appropriate successor 1.00 -
Reserve Percentage
"Eurodollar Rate Loan" shall mean an Advance at any time that
bears interest based on the Eurodollar Rate.
"Event of Default" shall mean the occurrence of any of the
events set forth in Article X hereof.
"Excess Cash Flow" for any fiscal period shall mean EBITDA of
Borrowers on a combined basis for such fiscal period minus capital expenditures
made by Borrowers on a combined basis during such fiscal period minus taxes
actually paid by Borrowers during such fiscal period plus decreases in Working
Capital of Borrowers on a combined basis for such fiscal period (excluding
decreases in Working Capital resulting from any write down of current assets or
increase in reserves in accordance with GAAP) minus increases in Working Capital
of Borrowers on a combined basis during such fiscal period (excluding increases
in Working Capital resulting from any write up of current assets or decrease in
reserves in accordance with GAAP) minus principal and interest payments under
Senior Debt Payments actually paid by Borrowers during such fiscal period.
"Federal Funds Rate" shall mean, for any day, the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as published for such
day (or if such day is not a Business Day, for the next preceding Business Day)
by the Federal Reserve Bank of New York, or if such rate is not so published for
any day which is a Business Day, the average of quotations for such day on such
transactions received by PNC from three Federal funds brokers of recognized
standing selected by PNC.
"Fee Letter" shall mean the fee letter dated, the Closing Date
between Borrowers and PNC.
"Fixed Charge Coverage Ratio" shall mean and include for
Borrowers on a combined basis, with respect to any fiscal period, the ratio of
(a) EBITDA for such period minus the sum of (x) capital expenditures made during
such period plus (y) cash taxes actually paid during such period to (b) all
Senior Debt Payments during such period.
"Formula Amount" shall have the meaning set forth in Section
2.1(a).
"GAAP" shall mean generally accepted accounting principles in
the United States of America in effect from time to time.
"General Intangibles" shall mean and include as to each
Borrower all of such Borrower's general intangibles, whether now owned or
hereafter acquired including, without limitation, all choses in action, causes
of action, corporate or other business records, inventions, designs, patents,
patent applications, equipment formulations, manufacturing procedures, quality
control procedures, trademarks, service marks, trade secrets, goodwill,
copyrights, design rights, registrations, licenses, franchises, customer lists,
tax refunds, tax refund claims, computer programs, all claims under guaranties,
security interests or other security held by or granted to such Borrower to
secure payment of any of the Receivables by a Customer all rights of
indemnification and all other intangible property of every kind and nature
(other than Receivables).
"Governmental Body" shall mean any nation or government, any
state, municipality or other political subdivision thereof or any entity,
authority, agency, division or department exercising the legislative, judicial,
regulatory or administrative functions of or pertaining to a government.
"Guarantor" shall mean Holdings and any other Person who may
hereafter guarantee payment or performance of the whole or any part of the
Obligations and "Guarantors" means collectively all such Persons.
"Guaranty" shall mean any guaranty of the obligations of
Borrowers executed by a Guarantor in favor of Agent for the ratable benefit of
Lenders.
"Hastings Facility" shall have the meaning set forth in
Section 5.8(e) hereof.
"Hazardous Discharge" shall have the meaning set forth in
Section 4.19(d) hereof.
"Hazardous Substance" shall mean, without limitation, any
flammable explosives, radon, radioactive materials, asbestos, urea formaldehyde
foam insulation, polychlorinated biphenyls, petroleum and petroleum products,
methane, hazardous materials, Hazardous Wastes, hazardous or Toxic Substances or
related materials as defined in CERCLA, the Hazardous Materials Transportation
Act, as amended (49 U.S.C. Sections 1801, et seq.), RCRA, Articles 15 and 27 of
the New York State Environmental Conservation Law or any other applicable
Environmental Law and in the regulations adopted pursuant thereto.
"Hazardous Wastes" shall mean all waste materials subject to
regulation under CERCLA, RCRA or applicable state law, and any other applicable
Federal and state laws now in force or hereafter enacted relating to hazardous
waste disposal.
"Holdings" shall mean PTI Holding Inc., a Delaware corporation.
"Indebtedness" of a Person at a particular date shall mean all
obligations of such Person which in accordance with GAAP would be classified
upon a balance sheet as liabilities (except capital stock and surplus earned or
otherwise) and in any event, without limitation by reason of enumeration, shall
include all indebtedness, debt and other similar monetary obligations of such
Person whether direct or guaranteed, and all premiums, if any, due at the
required prepayment dates of such indebtedness, and all indebtedness secured by
a Lien on assets owned by such Person, whether or not such indebtedness actually
shall have been created, assumed or incurred by such Person. Any indebtedness of
such Person resulting from the acquisition by such Person of any assets subject
to any Lien shall be deemed, for the purposes hereof, to be the equivalent of
the creation, assumption and incurring of the indebtedness secured thereby,
whether or not actually so created, assumed or incurred.
"Individual Formula Amount" shall mean at the date of
determination thereof, with respect to each Borrower an amount equal to: (a) up
to the Receivables Advance Rate of Eligible Receivables of such Borrower, plus
(b) up to the Inventory Advance Rate of the value of Eligible Inventory of such
Borrower; minus (c) the aggregate amount of outstanding Letters of Credit issued
or caused to be issued on behalf of such Borrower, minus (d) such reserves as
Agent may reasonably deem proper and necessary from time to time.
"Ineligible Security" shall mean any security which may not be
underwritten or dealt in by member banks of the Federal Reserve System under
Section 16 of the Banking Act of 1933 (12 U.S.C. Section 24, Seventh), as
amended.
"Intercompany Note" shall have the meaning set forth in
Section 7.5 hereof.
"Intercreditor Agreement" shall mean the Intercreditor and
Subordination Agreement of even date herewith entered into between Agent and
Holdings.
"Interest Period" shall mean the period provided for any
Eurodollar Rate Loan pursuant to Section 2.2(b).
"Inventory" shall mean and include as to each Borrower all of
such Borrower's now owned or hereafter acquired goods, merchandise and other
personal property, wherever located, to be furnished under any contract of
service or held for sale or lease, all raw materials, work in process, finished
goods and materials and supplies of any kind, nature or description which are or
might be used or consumed in such Borrower's business or used in selling or
furnishing such goods, merchandise and other personal property, and all
documents of title or other documents representing them.
"Inventory Advance Rate" shall have the meaning set forth in
Section 2.1(a)(y)(ii) hereof.
"Issuer" shall mean any Person who issues a Letter of Credit
and/or accepts a draft pursuant to the terms hereof.
"Karlen" shall mean Karlen Manufacturing, Inc., a Michigan
corporation.
"Karlen Intercompany Note" shall have the meaning set forth in
Section 7.5 hereof.
"Karlen Subordination Agreement" shall mean that certain
Subordination Agreement of even date herewith between Karlen and Agent, as it
may be amended in accordance with its terms.
"Leasehold Interests" shall mean all of each Borrower's right,
title and interest in and to (a) the premises located at (i) One Executive
Boulevard, Yonkers, New York 10701; (ii) 9540 Waples Street, San Diego,
California 92121; and (iii) One River Street, Hastings-on-Hudson, New York
10706; and (b) any and all other real property now or hereafter leased by any
Borrower.
"Lender" and "Lenders" shall have the meaning ascribed to such
term in the preamble to this Agreement and shall include each Person which
becomes a transferee, successor or assign of any Lender.
"Letters of Credit" shall have the meaning set forth in
Section 2.9.
"Letter of Credit Fees" shall have the meaning set forth in
Section 3.2.
"Lien" shall mean any mortgage, deed of trust, pledge,
hypothecation, assignment, security interest, lien (whether statutory or
otherwise), Charge, claim or encumbrance, or preference, priority or other
security agreement or preferential arrangement held or asserted in respect of
any asset of any kind or nature whatsoever including, without limitation, any
conditional sale or other title retention agreement, any lease having
substantially the same economic effect as any of the foregoing, and the filing
of, or agreement to give, any financing statement under the Uniform Commercial
Code or comparable law of any jurisdiction.
"Management Agreement" shall mean the management agreement of
even date herewith between PTI and Flents Products Co, Inc, a Delaware
corporation, as amended from time to time in accordance with its terms.
"Management Notes" shall have the meaning set forth in Section
7.5 hereof.
"Material Adverse Effect" shall mean a material adverse effect
on (a) the condition (financial or otherwise), results of operations, assets,
business, properties or prospects of the applicable Person or Persons, (b) any
Borrower's ability to duly and punctually pay or perform the Obligations in
accordance with the terms thereof, (c) the value of the Collateral, or Agent's
Liens on the Collateral or the priority of any such Lien or (d) the practical
realization of the benefits of Agent's and each Lender's rights and remedies
under this Agreement and the Other Documents.
"Maximum Revolving Advance Amount" shall mean $22,000,000.
"Monthly Advances" shall have the meaning set forth in Section
3.1 hereof.
"Multiemployer Plan" shall mean a "multiemployer plan" as
defined in Sections 3(37) and 4001(a)(3) of ERISA.
"Net Worth" at a particular date, shall mean all amounts which
would be included under stockholders' equity on a balance sheet of Borrowers on
a combined basis determined in accordance with GAAP as at such date.
"Note" shall mean collectively, the Term Note and the Revolving
Credit Note.
"Obligations" shall mean and include any and all loans,
advances, debts, liabilities, obligations, covenants and duties owing by each
Borrower to Lenders or Agent or to any other direct or indirect subsidiary or
affiliate of Agent or any Lender (excluding accounts payable to any such direct
or indirect subsidiary or affiliate of Agent or any Lender that is a supplier or
other vendor of any Borrower of goods in the ordinary course of business) of any
kind or nature, present or future (including, without limitation, any interest
accruing thereon after maturity, or after the filing of any petition in
bankruptcy, or the commencement of any insolvency, reorganization or like
proceeding relating to the Borrower, whether or not a claim for post-filing or
post-interest is allowed in such proceeding), whether or not evidenced by any
note, guaranty or other instrument, whether arising under any agreement,
instrument or document, (including, without limitation, this Agreement and the
Other Documents) whether or not for the payment of money, whether arising by
reason of an extension of credit, opening of a letter of credit, loan, equipment
lease or guarantee, under any interest or currency swap, future, option or other
similar agreement, or in any other manner, whether arising out of overdrafts or
deposit or other accounts or electronic funds transfers (whether through
automated clearing houses or otherwise) or out of the Agent's or any Lender's
non-receipt of or inability to collect funds or otherwise not being made whole
in connection with depository transfer check or other similar arrangements,
whether direct or indirect (including those acquired by assignment or
participation), absolute or contingent, joint or several, due or to become due,
now existing or hereafter arising, contractual or tortious, liquidated or
unliquidated, regardless of how such indebtedness or liabilities arise or by
what agreement or instrument they may be evidenced or whether evidenced by any
agreement or instrument, including, but not limited to, any and all of any
Borrower's Indebtedness and/or liabilities under this Agreement, the Other
Documents or under any other agreement between Agent or Lenders and any Borrower
and any amendments, extensions, renewals or increases and all costs and expenses
of Agent and any Lender incurred in the documentation, negotiation,
modification, enforcement, collection or otherwise in connection with any of the
foregoing, including but not limited to reasonable attorneys' fees and expenses
and all obligations of any Borrower to Agent or Lenders to perform acts or
refrain from taking any action.
"Original Owner" shall mean Meredith Birrittella.
"Other Documents" shall mean the Note, the Questionnaire, any
Guaranty, the Intercreditor Agreement, the Subordination Agreements, the Pledge
Agreement and any and all other agreements, instruments and documents,
including, without limitation, guaranties, pledges, powers of attorney,
consents, and all other writings heretofore, now or hereafter executed by any
Borrower or any Guarantor and/or delivered to Agent or any Lender in respect of
the transactions contemplated by this Agreement.
"Parent" of any Person shall mean a corporation or other
entity owning, directly or indirectly at least 50% of the Stock having ordinary
voting power to elect a majority of the directors of the Person, or other
Persons performing similar functions for any such Person.
"Participant" shall mean each Person who shall be granted the
right by any Lender to participate in any of the Advances and who shall have
entered into a participation agreement in form and substance satisfactory to
such Lender.
"Payment Office" shall mean initially Two Tower Center
Boulevard, East Brunswick, New Jersey 08816; thereafter, such other office of
Agent, if any, which it may designate by notice to Borrowing Agent and to each
Lender to be the Payment Office.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Permit" shall mean any license, permit, exemption, consent,
waiver, authorization, right, order or approval of, and required registration
with, any Governmental Body.
"Permitted Encumbrances" shall mean (a) Liens in favor of
Agent for the benefit of Agent and Lenders; (b) Liens for taxes, assessments or
other governmental charges not delinquent or being contested in good faith and
by appropriate proceedings and with respect to which proper reserves have been
taken by Borrowers; provided, that, the Lien shall have no effect on the
priority of the Liens in favor of Agent or the value of the assets in which
Agent has such a Lien and a stay of enforcement of any such Lien shall be in
effect; (c) Liens disclosed in the financial statements referred to in Section
5.5, the existence of which Agent has consented to in writing; (d) deposits or
pledges to secure obligations under worker's compensation, social security or
similar laws, or under unemployment insurance; (e) deposits or pledges to secure
bids, tenders, contracts (other than contracts for the payment of money),
leases, statutory obligations, surety and appeal bonds and other obligations of
like nature arising in the ordinary course of any Borrower's business; (f)
judgment Liens that have been stayed or bonded and mechanics', workers',
materialmen's or other like Liens arising in the ordinary course of any
Borrower's business with respect to obligations which are not due or which are
being contested in good faith by the applicable Borrower; (g) Liens placed upon
fixed assets or equipment hereafter acquired to secure a portion of the purchase
price thereof, provided that (x) any such lien shall not encumber any other
property of the Borrowers and (y) the aggregate amount of Indebtedness secured
by such Liens incurred as a result of such purchases during any fiscal year
shall not exceed the amount provided for in Section 7.6; and (h) Liens disclosed
on Schedule 1.2.
"Person" shall mean any individual, sole proprietorship,
partnership, corporation, business trust, joint stock company, trust,
unincorporated organization, association, limited liability company, limited
liability partnership, institution, public benefit corporation, joint venture,
entity or Governmental Body (whether Federal, state, county, city, municipal or
otherwise, including any instrumentality, division, agency, body or department
thereof).
"Plan" shall mean any employee benefit plan within the meaning
of Section 3(3) of ERISA, maintained for employees of Borrowers or any member of
the Controlled Group or any such Plan to which any Borrower or any member of the
Controlled Group is required to contribute on behalf of any of its employees.
"Pledge Agreement" shall mean the Pledge Agreement of even
date herewith executed by Holdings in favor of Agent securing the Guaranty of
Holdings.
"Pro Forma Balance Sheet" shall have the meaning set forth in
Section 5.5(a) hereof.
"Pro Forma Financial Statements" shall have the meaning set
forth in Section 5.5(b) hereof.
"Projections" shall have the meaning set forth in Section 5.5
(b) hereof.
"PTI" shall have the meaning set forth in the preamble to this
Agreement.
"Purchasing Lender" shall have the meaning set forth in
Section 16.3 hereof.
"Questionnaire" shall mean the Documentation Information
Questionnaire and the responses thereto provided by Borrowers and delivered to
Agent.
"RCRA" shall mean the Resource Conservation and Recovery Act,
42 U.S.C. 6901 et seq., as same may be amended from time to time.
"Real Property" shall mean all of the owned and leased real
property (and improvements thereon) identified on Schedule 4.5 hereto.
"Receivables" shall mean and include, as to each Borrower, all
of such Borrower's accounts, contract rights, instruments (including those
evidencing Indebtedness owed to Borrowers by their Affiliates), documents,
chattel paper, general intangibles relating to accounts, drafts and acceptances,
and all other forms of obligations owing to such Borrower arising out of or in
connection with the sale or lease of Inventory or the rendition of services, all
guarantees and other security therefor, whether secured or unsecured, now
existing or hereafter created, and whether or not specifically sold or assigned
to Agent hereunder.
"Receivables Advance Rate" shall have the meaning set forth in
Section 2.1(a)(y)(i) hereof.
"Release" shall have the meaning set forth in Section 5.7(c)(i)
hereof.
"Remedial Action" shall mean all actions, whether voluntary or
involuntary, reasonably necessary to comply with, or discharge any obligation
under, Environmental Laws to (i) clean up, remove, treat, cover or in any other
way adjust Hazardous Substances in the indoor or outdoor Environment; (ii)
prevent or control the Release of Hazardous Substances so that they do not
migrate or endanger or threaten to endanger public health or welfare or the
Environment; or (iii) perform remedial studies, investigations, restoration and
post-remedial studies, investigations and monitoring on, about or in any real
property.
"Reportable Event" shall mean a reportable event described in
Section 4043(b) of ERISA or the regulations promulgated thereunder.
"Required Lenders" shall mean Lenders holding at least
sixty-six percent (66%) of the Advances and, if no Advances are outstanding,
shall mean Lenders holding sixty-six percent (66%) of the Commitment
Percentages.
"Reserve Percentage" shall mean the maximum effective
percentage in effect on any day as prescribed by the Board of Governors of the
Federal Reserve System (or any successor) for determining the reserve
requirements (including, without limitation, supplemental, marginal and
emergency reserve requirements) with respect to eurocurrency funding.
"Revolving Advances" shall mean Advances made other than
Letters of Credit, and the Term Loan.
"Revolving Credit Note" shall mean , collectively, the
promissory notes referred to in Section 2.1(a) hereof.
"Revolving Interest Rate" shall mean an interest rate per
annum equal to (a) the sum of the Base Rate plus one-quarter of one percent
(.25%) with respect to Domestic Rate Loans and, (b) the sum of the Eurodollar
Rate plus the Applicable Margin with respect to Eurodollar Rate Loans.
"Section 20 Subsidiary" shall mean the Subsidiary of the bank
holding company controlling PNC, which Subsidiary has been granted authority by
the Federal Reserve Board to underwrite and deal in certain Ineligible
Securities.
"Senior Debt Payments" shall mean and include all cash
actually expended by Borrowers to make (a) interest payments on any Advances
hereunder, plus, (b) scheduled principal payments on the Term Loan, plus (c)
payments for all fees, commissions and charges set forth herein and with respect
to any Advances, plus (d) capitalized lease payments, plus (e) payments with
respect to any other Indebtedness for borrowed money.
"Senior Subordinated Security Agreement" shall mean that
certain Senior Subordinated Security Agreement of even date herewith between
Holdings and Flents.
"Settlement Date" shall mean the Closing Date and thereafter
Wednesday of each week unless such day is not a Business Day in which case it
shall be the next succeeding Business Day.
"Stock" shall mean all shares, options, warrants, general or
limited partnership interests, member interests, participation or other
equivalents (regardless of how designated) of or in a corporation, partnership,
limited liability company or other entity whether voting or nonvoting,
including, without limitation, common stock, preferred stock, convertible
securities or any other "equity security" (as such term is defined in Rule
3a11-1 of the General Rules and Regulations promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended).
"Subordination Agreements" shall mean, collectively, the
Subordination Agreement of even date herewith entered into between Agent and PTI
and the Karlen Subordination Agreement.
"Subsidiary" shall mean a corporation or other entity of whose
shares of stock or other ownership interests having ordinary voting power (other
than stock or other ownership interests having such power only by reason of the
happening of a contingency) to elect a majority of the directors of such
corporation, or other Persons performing similar functions for such entity, are
owned, directly or indirectly, by such Person.
"Term" shall have the meaning set forth in Section 13.1 hereof.
"Term Loan" shall mean the Advances made pursuant to Section
2.4 hereof.
"Term Loan Rate" shall mean an interest rate per annum equal
to (a) the sum of the Base Rate plus three-fourths of one percent (.75%) with
respect to Domestic Rate Loans or, (b) the sum of the Eurodollar Rate plus the
Applicable Margin with respect to Eurodollar Rate Loans.
"Term Note" shall mean the promissory note described in
Section 2.4 hereof.
"Termination Event" shall mean (i) a Reportable Event with
respect to any Plan or Multiemployer Plan; (ii) the withdrawal of any Borrower
or any member of the Controlled Group from a Plan or Multiemployer Plan during a
plan year in which such entity was a "substantial employer" as defined in
Section 4001(a)(2) of ERISA; (iii) the providing of notice of intent to
terminate a Plan in a distress termination described in Section 4041(c) of
ERISA; (iv) the institution by the PBGC of proceedings to terminate a Plan or
Multiemployer Plan; (v) any event or condition (a) which might constitute
grounds under Section 4042 of ERISA for the termination of, or the appointment
of a trustee to administer, any Plan or Multiemployer Plan, or (b) that may
result in termination of a Multiemployer Plan pursuant to Section 4041A of
ERISA; or (vi) the partial or complete withdrawal within the meaning of Sections
4203 and 4205 of ERISA, of any Borrower or any member of the Controlled Group
from a Multiemployer Plan.
"Toxic Substance" shall mean and include any material present
on the Real Property or the Leasehold Interests which has been shown to have
significant adverse effect on human health or which is subject to regulation
under the Toxic Substances Control Act (TSCA), 15 U.S.C. 2601 et seq.,
applicable state law, or any other applicable Federal or state laws now in force
or hereafter enacted relating to toxic substances. "Toxic Substance" includes
but is not limited to asbestos, polychlorinated biphenyls (PCBs) and lead-based
paints.
"Transactions" shall have the meaning set forth in Section 5.5
hereof.
"Transferee" shall have the meaning set forth in Section 16.3
(b) hereof.
"Undrawn Availability" at a particular date shall mean an
amount equal to (a) the lesser of (i) the Formula Amount or (ii) the Maximum
Revolving Advance Amount, minus (b) the sum of (i) the outstanding amount of
Advances (other than the Term Loan) plus (ii) all amounts due and owing to
Borrowers' trade creditors which are more than sixty (60) days past their due
date, plus (iii) fees and expenses for which Borrowers are liable but which have
not been paid or charged to Borrowers' Account.
"Uniform Commercial Code" shall have the meaning set forth in
Section 1.3 hereof.
"Week" shall mean the time period commencing with the opening
of business on a Wednesday and ending on the end of business the following
Tuesday.
"Working Capital" at a particular date, shall mean the excess,
if any, of Current Assets over Current Liabilities at such date.
"Year 2000 Problem" shall have the meaning set forth in
Section 5.23 hereof.
"Zacko" shall have the meaning set forth in the preamble of
this Agreement.
1.3. Uniform Commercial Code Terms. All terms used herein and defined
in the Uniform Commercial Code as adopted in the State of New York (the "Uniform
Commercial Code") shall have the meaning given therein unless otherwise defined
herein.
1.4. Certain Matters of Construction. The terms "herein," "hereof" and
"hereunder" and other words of similar import refer to this Agreement as a whole
and not to any particular section, paragraph or subdivision. Any pronoun used
shall be deemed to cover all genders. Wherever appropriate in the context, terms
used herein in the singular also include the plural and vice versa "or" has the
inclusive meaning represented by the phrase "and/or," and "including" has the
meaning represented by the phrase "including without limitation." All references
to "shall" and "will" are intended to have the same meaning. All references to
statutes and related regulations shall include any amendments of same and any
successor statutes and regulations. Unless otherwise provided, all references to
any instruments or agreements to which Agent is a party, including, without
limitation, references to any of the Other Documents, shall include any and all
modifications or amendments thereto and any and all extensions or renewals
thereof. All covenants hereunder shall be given independent effect so that if a
particular action or condition is not permitted by any of such covenants, the
fact that it would be permitted by an exception to, or otherwise within the
limitations of, another covenant shall not avoid the occurrence of a default if
such action is taken or condition exists. In addition, all representations and
warranties hereunder shall be given independent effect so that if a particular
representation or warranty proves to be incorrect or is breached, the fact that
another representation or warranty concerning the same or similar subject matter
is correct or is not breached will not affect the incorrectness of or a breach
of a representation and warranty hereunder.
II. ADVANCES, PAYMENTS.
2.1. (a) Revolving Advances. Subject to the terms and conditions set
forth in this Agreement, including, without limitation, Sections 2.1(b) and
2.1(c), each Lender, severally and not jointly, will make Revolving Advances to
Borrowers in aggregate amounts outstanding at any time equal to such Lender's
Commitment Percentage of the lesser of (x) the Maximum Revolving Advance Amount
less the aggregate amount of outstanding Letters of Credit or (y) an amount
equal to the sum of:
(i) up to 85%, subject to the provisions of Section 2.1(c)
hereof ("Receivables Advance Rate"), of Eligible Receivables, plus
(ii) up to the lesser of (A) 60%, subject to the provisions of
Section 2.1(c) hereof ("Inventory Advance Rate"), of the value
of the Eligible Inventory (the Receivables Advance Rate and
the Inventory Advance Rate shall be referred to collectively,
as the "Advance Rates") or (B) $11,000,000 in the aggregate at
any one time, minus
(iii) the aggregate amount of outstanding Letters of Credit,
minus
(iv) such reserves as Agent may reasonably deem proper and
necessary from time to time.
The amount derived from the sum of (x) Sections 2.1(a)(y)(i) and (ii)
minus (y) the sum of Section 2.1 (a)(y)(iii) and (iv) at any time and from time
to time shall be referred to as the "Formula Amount." The Revolving Advances
shall be evidenced one or more secured promissory notes (collectively,
"Revolving Credit Note") substantially in the form attached hereto as Exhibit
2.1(a).
(b) Individual Revolving Advances. Each Lender, severally and
not jointly, will make Revolving Advances to each Borrower in aggregate amounts
outstanding at any time not greater than such Lender's Commitment Percentage of
such Borrower's Individual Formula Amount less the aggregate amount of
outstanding Letters of Credit.
(c) Discretionary Rights. The Advance Rates may be increased
or decreased by Agent at any time and from time to time in the exercise of its
reasonable discretion. Each Borrower consents to any such increases or decreases
and acknowledges that decreasing the Advance Rates or increasing the reserves
may limit or restrict Advances requested by Borrowing Agent.
2.2. Procedure for Revolving Advances Borrowing.
(a) Borrowing Agent on behalf of any Borrower may notify Agent
prior to 11:00 a.m. on a Business Day of a Borrower's request to incur, on that
day, a Revolving Advance hereunder, which Revolving Advance shall be a minimum
amount of $250,000 in integral multiples of $50,000 and which request shall be
irrevocable. Should any amount required to be paid as interest hereunder, or as
fees or other charges under this Agreement or any other agreement with Agent or
Lenders, or with respect to any other Obligation, become due, same shall be
deemed a request for a Revolving Advance as of the date such payment is due, in
the amount required to pay in full such interest, fee, charge or Obligation
under this Agreement or any other agreement with Agent or Lenders, and such
request shall be irrevocable.
(b) Notwithstanding the provisions of (a) above, in the event
any Borrower desires to obtain a Eurodollar Rate Loan, Borrowing Agent shall
give Agent at least three (3) Business Days' prior written notice, specifying
(i) the date of the proposed borrowing (which shall be a Business Day), (ii) the
type of borrowing and the amount on the date of such Advance to be borrowed,
which amount shall be a minimum amount of $250,000 and in integral multiples of
$50,000, and (iii) the duration of the first Interest Period therefor. Interest
Periods for Eurodollar Rate Loans shall be for one, two or three months;
provided, if an Interest Period would end on a day that is not a Business Day,
it shall end on the next succeeding Business Day unless such day falls in the
next succeeding calendar month in which case the Interest Period shall end on
the next preceding Business Day. No Eurodollar Rate Loan shall be made available
to Borrower during the continuance of a Default or an Event of Default.
(c) Each Interest Period of a Eurodollar Rate Loan shall
commence on the date such Eurodollar Rate Loan is made and shall end on such
date as Borrowing Agent may elect as set forth in (b)(iii) above provided that
the exact length of each Interest Period shall be determined in accordance with
the practice of the interbank market for offshore Dollar deposits and no
Interest Period shall end after the last day of the Term.
Borrowing Agent shall elect the initial Interest Period applicable to a
Eurodollar Rate Loan by its notice of borrowing given to Agent pursuant to
Section 2.2(b) or by its notice of conversion given to Agent pursuant to Section
2.2(d), as the case may be. Borrowing Agent shall elect the duration of each
succeeding Interest Period by giving irrevocable written notice to Agent of such
duration not less than three (3) Business Days prior to the last day of the then
current Interest Period applicable to such Eurodollar Rate Loan. If Agent does
not receive timely notice of the Interest Period elected by Borrowing Agent,
Borrowers shall be deemed to have elected to convert to a Domestic Rate Loan
subject to Section 2.2(d) hereinbelow.
(d) Provided that no Event of Default shall have occurred and
be continuing, any Borrower may, on the last Business Day of the then current
Interest Period applicable to any outstanding Eurodollar Rate Loan, or on any
Business Day with respect to Domestic Rate Loans, convert any such loan into a
loan of another type in the same aggregate principal amount provided that any
conversion of a Eurodollar Rate Loan shall be made only on the last Business Day
of the then current Interest Period applicable to such Eurodollar Rate Loan. If
a Borrower desires to convert a loan, Borrowing Agent shall give Agent not less
than three (3) Business Days' prior written notice to convert from a Domestic
Rate Loan to a Eurodollar Rate Loan or one (1) Business Day's prior written
notice to convert from a Eurodollar Rate Loan to a Domestic Rate Loan,
specifying the date of such conversion, the loans to be converted and if the
conversion is from a Domestic Rate Loan to any other type of loan, the duration
of the first Interest Period therefor. After giving effect to each such
conversion, there shall not be outstanding more than five (5) Eurodollar Rate
Loans, in the aggregate.
(e) At its option and upon three (3) Business Days' prior
written notice, any Borrower may prepay the Eurodollar Rate Loans in whole at
any time or in part from time to time, without premium or penalty, but with
accrued interest on the principal being prepaid to the date of such repayment.
Such Borrower shall specify the date of prepayment of Advances which are
Eurodollar Rate Loans and the amount of such prepayment. In the event that any
prepayment of a Eurodollar Rate Loan is required or permitted on a date other
than the last Business Day of the then current Interest Period with respect
thereto, such Borrower shall indemnify Agent and Lenders therefor in accordance
with Section 2.2(f) hereof.
(f) Each Borrower shall indemnify Agent and Lenders and hold
Agent and Lenders harmless from and against any and all losses or expenses that
Agent and Lenders may sustain or incur as a consequence of any prepayment,
conversion of or any default by any Borrower in the payment of the principal of
or interest on any Eurodollar Rate Loan or failure by any Borrower to complete a
borrowing of, a prepayment of or conversion of or to a Eurodollar Rate Loan
after notice thereof has been given, including, but not limited to, any interest
payable by Agent or Lenders to lenders of funds obtained by it in order to make
or maintain its Eurodollar Rate Loans hereunder. A certificate as to any
additional amounts payable pursuant to the foregoing sentence submitted by Agent
or any Lender to Borrowing Agent shall be conclusive absent manifest error.
(g) Notwithstanding any other provision hereof, if any
applicable law, treaty, regulation or directive, or any change therein or in the
interpretation or application thereof, shall make it unlawful for any Lender
(for purposes of this subsection (g), the term "Lender" shall include any Lender
and the office or branch where any Lender or any corporation or bank controlling
such Lender makes or maintains any Eurodollar Rate Loans) to make or maintain
its Eurodollar Rate Loans, the obligation of Lenders to make Eurodollar Rate
Loans hereunder, shall forthwith be cancelled and Borrowers shall, if any
affected Eurodollar Rate Loans are then outstanding, promptly upon request from
Agent, either pay all such affected Eurodollar Rate Loans or convert such
affected Eurodollar Rate Loans into loans of another type. If any such payment
or conversion of any Eurodollar Rate Loan is made on a day that is not the last
day of the Interest Period applicable to such Eurodollar Rate Loan, Borrowers
shall pay Agent, upon Agent's request, such amount or amounts as may be
necessary to compensate Lenders for any loss or expense sustained or incurred by
Lenders in respect of such Eurodollar Rate Loan as a result of such payment or
conversion, including (but not limited to) any interest or other amounts payable
by Lenders to lenders of funds obtained by Lenders in order to make or maintain
such Eurodollar Rate Loan. A certificate as to any additional amounts payable
pursuant to the foregoing sentence submitted by Lenders to Borrowing Agent shall
be conclusive absent manifest error.
2.3. Disbursement of Advance Proceeds. All Advances shall be disbursed
from whichever office or other place Agent may designate from time to time and,
together with any and all other Obligations of Borrowers to Agent or Lenders,
shall be charged to Borrowers' Account on Agent's books. During the Term,
Borrowers may use the Revolving Advances by borrowing, prepaying and
reborrowing, all in accordance with the terms and conditions hereof. The
proceeds of each Revolving Advance requested by Borrowers or deemed to have been
requested by Borrowers under Section 2.2(a) hereof shall, with respect to
requested Revolving Advances to the extent Lenders make such Revolving Advances,
be made available to the applicable Borrower on the day so requested by way of
credit to such Borrower's operating account at PNC, or such other bank as
Borrowing Agent may designate following notification to Agent, in immediately
available federal funds or other immediately available funds or, with respect to
Revolving Advances deemed to have been requested by any Borrower, be disbursed
to Agent to be applied to the outstanding Obligations giving rise to such deemed
request.
2.4. Term Loan. Subject to the terms and conditions of this Agreement,
each Lender, severally and not jointly, will make a Term Loan to Borrowers in
the sum equal to such Lender's Commitment Percentage of $3,000,000. The Term
Loan shall be advanced on the Closing Date and shall be, with respect to
principal, payable as follows, subject to acceleration upon the occurrence of an
Event of Default under this Agreement or termination of this Agreement: in equal
monthly installments of $83,334.00 each, commencing on May 1, 1999 and on the
first day of each month thereafter, with the outstanding principal balance,
together with accrued interest and charges due and payable on the last day of
the Term and shall be evidenced by a secured promissory note (the "Term Note")
in substantially the form attached hereto as Exhibit 2.4.
2.5. Maximum Advances. The aggregate balance of Revolving Advances
outstanding at any time shall not exceed the lesser of (a) Maximum Revolving
Advance Amount or (b) the Formula Amount.
2.6. Repayment of Advances.
(a) The Advances shall be due and payable in full on the last
day of the Term subject to earlier prepayment as herein provided. The Term Loan
shall be due and payable as provided in Section 2.4 hereof and in the Term Note.
(b) Each Borrower recognizes that the amounts evidenced by
checks, notes, drafts or any other items of payment relating to and/or proceeds
of Collateral may not be collectible by Agent on the date received. In
consideration of Agent's agreement to conditionally credit Borrowers' Account as
of the Business Day on which Agent receives those items of payment, each
Borrower agrees that, in computing the charges under this Agreement, all items
of payment shall be deemed applied by Agent on account of the Obligations one
(1) Business Day after the Business Day Agent receives such payments via wire
transfer or electronic depository check. Agent is not, however, required to
credit Borrowers' Account for the amount of any item of payment which is
unsatisfactory to Agent and Agent may charge Borrowers' Account for the amount
of any item of payment which is returned to Agent unpaid.
(c) All payments (including prepayments) of principal,
interest and other amounts payable hereunder, or under any of the related
agreements shall be made to Agent on behalf of the Lenders at the Payment Office
not later than 1:00 P.M. (New York time) on the due date therefor in lawful
money of the United States of America in federal funds or other funds
immediately available to Agent. Agent shall have the right to effectuate payment
on any and all Obligations due and owing hereunder by charging Borrowers'
Account or by making Advances as provided in Section 2.2 hereof.
(d) Borrowers shall pay principal, interest, and all other
amounts payable hereunder, or under any related agreement, without any deduction
whatsoever, including, but not limited to, any deduction for any setoff or
counterclaim.
2.7. Repayment of Excess Advances. The aggregate balance of Advances
outstanding at any time in excess of the maximum amount of Advances permitted
hereunder shall be immediately due and payable without the necessity of any
demand, at the Payment Office, whether or not a Default or Event of Default has
occurred.
2.8. Statement of Account. Agent shall maintain, in accordance with its
customary procedures, a loan account ("Borrowers' Account") in the name of
Borrowers in which shall be recorded the date and amount of each Advance made by
Agent and the date and amount of each payment in respect thereof; provided,
however, the failure by Agent to record the date and amount of any Advance shall
not adversely affect Agent or any Lender. Each month, Agent shall send to
Borrowing Agent a statement showing the accounting for the Advances made,
payments made or credited in respect thereof, and other transactions between
Agent and Borrowers, during such month. The monthly statements shall be deemed
correct and binding upon Borrowers in the absence of manifest error and shall
constitute an account stated between Lenders and Borrowers unless Agent receives
a written statement of Borrowers' specific exceptions thereto within forty-five
(45) days after such statement is received by Borrowing Agent. The records of
Agent with respect to the Borrowers' Account shall be conclusive evidence absent
manifest error of the amounts of Advances and other charges thereto and of
payments applicable thereto.
2.9. Letters of Credit. Subject to the terms and conditions hereof,
Agent shall issue or cause the issuance of Letters of Credit ("Letters of
Credit") on behalf of any Borrower; provided, however, that Agent will not be
required to issue or cause to be issued any Letters of Credit to the extent that
the face amount of such Letters of Credit would then cause the sum of (i) the
outstanding Revolving Advances plus (ii) outstanding Letters of Credit to exceed
the lesser of (x) the Maximum Revolving Advance Amount or (y) the Formula
Amount; provided, further, however, that Agent will not be required to issue or
cause to be issued any Letters of Credit to the extent that the face amount of
such Letters of Credit issued for such Borrower would then cause the sum of (i)
the outstanding Revolving Advances to such Borrower plus (ii) the outstanding
Letters of Credit issued or caused to be issued on behalf of such Borrower to
exceed such Borrower's Individual Formula Amount. The maximum amount of
outstanding Letters of Credit shall not exceed $2,000,000 in the aggregate at
any time. All disbursements or payments related to Letters of Credit shall be
deemed to be Domestic Rate Loans consisting of Revolving Advances and shall bear
interest at the Revolving Interest Rate for Domestic Rate Loans; Letters of
Credit that have not been drawn upon shall not bear interest.
2.10. Issuance of Letters of Credit.
(a) Borrowing Agent, on behalf of Borrowers, may request Agent
to issue or cause the issuance of a Letter of Credit by delivering to Agent at
the Payment Office, Agent's form of Letter of Credit Application (the "Letter of
Credit Application") completed to the satisfaction of Agent; and, such other
certificates, documents and other papers and information as Agent may reasonably
request. Borrowing Agent, on behalf of Borrowers, also has the right to give
instructions and make agreements with respect to any application, any applicable
letter of credit and security agreement, any applicable letter of credit
reimbursement agreement and/or any other applicable agreement, any letter of
credit and the disposition of documents, disposition of any unutilized funds,
and to agree with Agent upon any amendment, extension or renewal of any Letter
of Credit.
(b) Each Letter of Credit shall, among other things, (i)
provide for the payment of sight drafts or acceptances of usance drafts when
presented for honor thereunder in accordance with the terms thereof and when
accompanied by the documents described therein and (ii) have an expiry date not
later than six (6) months, except Stand-By Letters of Credit which may have an
expiry date not later than twelve (12) months, in each case after such Letter of
Credit's date of issuance, and in no event later than the last day of the Term.
Each Letter of Credit shall be subject to the Uniform Customs and Practice for
Documentary Credits (1993 Revision), International Chamber of Commerce
Publication No. 500, and any amendments or revision thereof adhered to by the
Issuer and, to the extent not inconsistent therewith, the laws of the State of
New York.
(c) Agent shall use its reasonable efforts to notify Lenders
of the request by Borrowing Agent for a Letter of Credit hereunder.
2.11. Requirements For Issuance of Letters of Credit.
(a) In connection with the issuance of any Letter of Credit,
Borrowers shall indemnify, save and hold Agent, each Lender and each Issuer
harmless from any loss, cost, expense or liability, including, without
limitation, payments made by Agent, any Lender or any Issuer and expenses and
reasonable attorneys' fees incurred by Agent, any Lender or Issuer arising out
of, or in connection with, any Letter of Credit to be issued or created for any
Borrower. Borrowers shall be bound by Agent's or any Issuer's regulations and
good faith interpretations of any Letter of Credit issued or created for
Borrowers' Account, although this interpretation may be different from its own;
and, neither Agent, nor any Lender, nor any Issuer nor any of their
correspondents shall be liable for any error, negligence, or mistakes, whether
of omission or commission, in following Borrowing Agent's or any Borrower's
instructions or those contained in any Letter of Credit or of any modifications,
amendments or supplements thereto or in issuing or paying any Letter of Credit,
except for Agent's, any Lender's, any Issuer's or such correspondents' willful
misconduct.
(b) Borrowing Agent shall authorize and direct any Issuer to
name the applicable Borrower as the "Applicant" or "Account Party" of each
Letter of Credit. If Agent is not the Issuer of any Letter of Credit, Borrower
shall authorize and direct the Issuer to deliver to Agent all instruments,
documents, and other writings and property received by the Issuer pursuant to
the Letter of Credit and to accept and rely upon Agent's instructions and
agreements with respect to all matters arising in connection with the Letter of
Credit, or the application therefor.
(c) In connection with all Letters of Credit issued or caused
to be issued by Agent under this Agreement, each Borrower hereby appoints Agent,
or its designee, as its attorney, with full power and authority (i) to sign
and/or endorse such Borrower's name upon any warehouse or other receipts, letter
of credit applications and acceptances; (ii) to sign such Borrower's name on
bills of lading; (iii) to clear Inventory through the United States of America
Customs Department ("Customs") in the name of such Borrower or Agent or Agent's
designee, and to sign and deliver to Customs officials powers of attorney in the
name of such Borrower for such purpose; and (iv) to complete in such Borrower's
name or Agent's, or in the name of Agent's designee, any order, sale or
transaction, obtain the necessary documents in connection therewith, and collect
the proceeds thereof. Neither Agent nor its attorneys will be liable for any
acts or omissions nor for any error of judgment or mistakes of fact or law,
except for Agent's or its attorney's willful misconduct. This power, being
coupled with an interest, is irrevocable as long as any Letters of Credit remain
outstanding.
(d) Each Lender shall to the extent of the percentage amount
equal to the product of such Lender's Commitment Percentage times the aggregate
amount of all unreimbursed reimbursement obligations arising from disbursements
made or obligations incurred with respect to the Letters of Credit be deemed to
have irrevocably purchased an undivided participation in each such unreimbursed
reimbursement obligation. In the event that at the time a disbursement is made
the unpaid balance of Revolving Advances exceeds or would exceed, with the
making of such disbursement, the lesser of the Maximum Revolving Advance Amount
or the Formula Amount, and such disbursement is not reimbursed by Borrowers
within two (2) Business Days, Agent shall promptly notify each Lender and upon
Agent's demand each Lender shall pay to Agent such Lender's proportionate share
of such unreimbursed disbursement together with such Lender's proportionate
share of Agent's unreimbursed costs and expenses relating to such unreimbursed
disbursement. Upon receipt by Agent of a repayment from any Borrower of any
amount disbursed by Agent for which Agent had already been reimbursed by
Lenders, Agent shall deliver to each Lender that Lender's pro rata share of such
repayment. Each Lender's participation commitment shall continue until the last
to occur of any of the following events: (A) Agent ceases to be obligated to
issue or cause to be issued Letters of Credit hereunder; (B) no Letter of Credit
issued hereunder remains outstanding and uncancelled or (C) all Persons (other
than the applicable Borrower) have been fully reimbursed for all payments made
under or relating to Letters of Credit.
2.12. Additional Payments. Any sums expended by Agent or any Lender due
to any Borrower's failure to perform or comply with its obligations under this
Agreement or any Other Document including, without limitation, any Borrower's
obligations under Sections 4.2, 4.4, 4.12, 4.13, 4.14 and 6.1 hereof, may be
charged to Borrowers' Account as a Revolving Advance and added to the
Obligations.
2.13. Manner of Borrowing and Payment.
(a) Each borrowing of Revolving Advances shall be advanced
according to the applicable Commitment Percentages of Lenders. The Term Loan
shall be advanced according to the applicable Commitment Percentages of Lenders.
(b) Each payment (including each prepayment) by Borrowers on
account of the principal of and interest on the Revolving Advances, shall be
applied to the Revolving Advances pro rata according to the applicable
Commitment Percentages of Lenders. Each payment (including each prepayment) by
Borrowers on account of the principal of and interest on the Term Note, shall be
made from or to, or applied to that portion of the Term Loan evidenced by the
Term Note pro rata according to the Commitment Percentages of Lenders. Except as
expressly provided herein, all payments (including prepayments) to be made by
any Borrower on account of principal, interest and fees shall be made without
set off or counterclaim and shall be made to Agent on behalf of the Lenders to
the Payment Office, in each case on or prior to 1:00 P.M., New York time, in
Dollars and in immediately available funds, and otherwise shall be made in
accordance with the terms and conditions hereof, including Sections 2.6 and 2.7
hereof.
(c) (i) Notwithstanding anything to the contrary contained in
Sections 2.13(a) and (b) hereof, commencing with the first Business Day
following the Closing Date, each borrowing of Revolving Advances shall be
advanced by Agent and each payment by any Borrower on account of Revolving
Advances shall be applied first to those Revolving Advances advanced by Agent.
On or before 1:00 P.M., New York time, on each Settlement Date commencing with
the first Settlement Date following the Closing Date, Agent and Lenders shall
make certain payments as follows: (I) if the aggregate amount of new Revolving
Advances made by Agent during the preceding Week (if any) exceeds the aggregate
amount of repayments applied to outstanding Revolving Advances during such
preceding Week, then each Lender shall provide Agent with funds in an amount
equal to its applicable Commitment Percentage of the difference between (w) such
Revolving Advances and (x) such repayments and (II) if the aggregate amount of
repayments applied to outstanding Revolving Advances during such Week exceeds
the aggregate amount of new Revolving Advances made during such Week, then Agent
shall provide each Lender with funds in an amount equal to its applicable
Commitment Percentage of the difference between (y) such repayments and (z) such
Revolving Advances.
(ii) Each Lender shall be entitled to earn interest
at the applicable Contract Rate on outstanding Advances which it has funded.
(iii) Promptly following each Settlement Date, Agent
shall submit to each Lender a certificate with respect to payments received and
Advances made during the Week immediately preceding such Settlement Date. Such
certificate of Agent shall be conclusive in the absence of manifest error.
(d) If any Lender or Participant (a "benefitted Lender") shall
at any time receive any payment of all or part of its Advances, or interest
thereon, or receive any Collateral in respect thereof (whether voluntarily or
involuntarily or by set-off) in a greater proportion than any such payment to
and Collateral received by any other Lender, if any, in respect of such other
Lender's Advances, or interest thereon, and such greater proportionate payment
or receipt of Collateral is not expressly permitted hereunder, such benefitted
Lender shall purchase for cash from the other Lenders a participation in such
portion of each such other Lender's Advances, or shall provide such other Lender
with the benefits of any such Collateral, or the proceeds thereof, as shall be
necessary to cause such benefitted Lender to share the excess payment or
benefits of such Collateral or proceeds ratably with each of Lenders; provided,
however, that if all or any portion of such excess payment or benefits is
thereafter recovered from such benefitted Lender, such purchase shall be
rescinded, and the purchase price and benefits returned, to the extent of such
recovery, but without interest. Each Lender so purchasing a portion of another
Lender's Advances may exercise all rights of payment (including, without
limitation, rights of set-off) with respect to such portion as fully as if such
Lender were the direct holder of such portion.
(e) Unless Agent shall have been notified by telephone,
confirmed in writing, by any Lender that such Lender will not make the amount
which would constitute its applicable Commitment Percentage of the Advances
available to Agent, Agent may (but shall not be obligated to) assume that such
Lender shall make such amount available to Agent on the next Settlement Date
and, in reliance upon such assumption, make available to Borrowers a
corresponding amount. Agent will promptly notify Borrowers of its receipt of any
such notice from a Lender. If such amount is made available to Agent on a date
after such next Settlement Date, such Lender shall pay to Agent on demand an
amount equal to the product of (i) the daily average Federal Funds Rate
(computed on the basis of a year of 360 days) during such period as quoted by
Agent, times (ii) such amount, times (iii) the number of days from and including
such Settlement Date to the date on which such amount becomes immediately
available to Agent. A certificate of Agent submitted to any Lender with respect
to any amounts owing under this paragraph (e) shall be conclusive, in the
absence of manifest error. If such amount is not in fact made available to Agent
by such Lender within three (3) Business Days after such Settlement Date, Agent
shall be entitled to recover such an amount, with interest thereon at the rate
per annum then applicable to such Revolving Advances hereunder, on demand from
Borrowers; provided, however, that Agent's right to such recovery shall not
prejudice or otherwise adversely affect Borrowers' rights (if any) against such
Lender.
2.14. Mandatory Prepayments.
(a) Subject to Section 4.3 hereof, when any Borrower sells or
otherwise disposes of any Collateral other than Inventory in the ordinary course
of business, Borrowers shall repay the Advances in an amount equal to the net
proceeds of such sale (i.e., gross proceeds less the reasonable costs of such
sales or other dispositions), such repayments to be made promptly but in no
event more than one (1) Business Day following receipt of such net proceeds, and
until the date of payment, such proceeds shall be held in trust for Agent. The
foregoing shall not be deemed to be implied consent to any such sale otherwise
prohibited by the terms and conditions hereof. Such repayments shall be applied
(x) first, to the outstanding principal installments of the Term Loan, in the
inverse order of the maturities thereof, and (y) second, to the remaining
Advances in such order as Agent may determine, subject to Borrowers' ability to
reborrow Revolving Advances in accordance with the terms hereof. Notwithstanding
the provisions of this Section 2.14(a), but subject to all other provisions
hereof including, without limitation, Sections 2.14(b) and 4.15(h) hereof,
solely for purposes of this Section 2.14(a), the license of any Borrower's
intellectual property, which intellectual property is not used by such Borrower
in its business as presently conducted, shall not be deemed a sale or
disposition of Collateral.
(b) Borrowers shall prepay the outstanding amount of the
Advances in an amount equal to 50% of Excess Cash Flow for each fiscal year
commencing on or after December 31, 1999, payable upon delivery of the financial
statements to Agent referred to in and required by Section 9.7 for such fiscal
year but in any event not later than one hundred and five (105) days after the
end of each such fiscal year, which amount shall be applied first, to the
outstanding principal installments of the Term Loan in the inverse order of the
maturities thereof and, second, to the remaining Advances in such order as Agent
may determine subject to Borrowers' ability to reborrow Revolving Advances in
accordance with the terms hereof. In the event that the financial statement is
not so delivered, then a calculation based upon estimated amounts shall be made
by Agent upon which calculation Borrowers shall make the prepayment required by
this Section 2.14(b), subject to adjustment when the financial statement is
delivered to Agent as required hereby. The calculation made by Agent shall not
be deemed a waiver of any rights Agent or Lenders may have as a result of the
failure by Borrowers to deliver such financial statement.
(c) On the date of receipt, Borrowers shall repay the
outstanding amount of the Advances in an amount equal to any and all payments
(including any prepayment) received by PTI from Holdings on account of the
Intercompany Note, the Karlen Intercompany Note or either of the Management
Notes. Such repayments shall be applied (x) first, to the outstanding Revolving
Advances in such order as Agent may determine, subject to Borrower's ability to
reborrow Revolving Advances in accordance with the terms hereof, and (y),
second, to the outstanding principal installments of the Term Loan, in the
inverse order of the maturities thereof.
2.15. Use of Proceeds.
(a) Borrowers shall apply the proceeds of Advances to (i) make
the loan from PTI to Holdings evidenced by the Intercompany Note, the proceeds
of which shall be advanced to Flents Products, Co., Inc., a Delaware corporation
to fund, in part, the acquisition by Flents of substantially all of the assets
of Karlen, (ii) to make loans from PTI to Holdings to the extent permitted under
Section 7.5(d) or 7.5(e), the proceeds of which shall be used solely to make
payments to Karlen expressly permitted pursuant to the Karlen Subordination
Agreement, (iii) repay existing indebtedness owed to Key Bank of New York, (iv)
pay fees and expenses relating to this transaction, and (v) to provide for their
general corporate purposes and working capital needs not prohibited by the terms
of this Agreement.
(b) Without limiting the generality of Section 2.15(a) above,
neither the Borrowers, the Guarantors nor any other person which may in the
future become party to this Agreement or the Other Documents as Borrower or
Guarantor, intend to use nor shall they use any portion of the proceeds of the
Advances, directly or indirectly, to purchase during the underwriting period, or
for 30 days thereafter, Ineligible Securities being underwritten by a Section 20
Subsidiary.
2.16. Defaulting Lender.
(a) Notwithstanding anything to the contrary contained herein,
in the event any Lender (x) has refused (which refusal constitutes a breach by
such Lender of its obligations under this Agreement) to make available its
portion of any Advance or (y) notifies either Agent or Borrowing Agent that it
does not intend to make available its portion of any Advance (if the actual
refusal would constitute a breach by such Lender of its obligations under this
Agreement) (each, a "Lender Default"), all rights and obligations hereunder of
such Lender (a "Defaulting Lender") as to which a Lender Default is in effect
and of the other parties hereto shall be modified to the extent of the express
provisions of this Section 2.16 while such Lender Default remains in effect.
(b) Advances shall be incurred pro rata from Lenders (the
"Non-Defaulting Lenders") which are not Defaulting Lenders based on their
respective Commitment Percentages, and no Commitment Percentage of any Lender or
any pro rata share of any Advances required to be advanced by any Lender shall
be increased as a result of such Lender Default. Amounts received in respect of
principal of any type of Advances shall be applied to reduce the applicable
Advances of each Lender pro rata based on the aggregate of the outstanding
Advances of that type of all Lenders at the time of such application; provided,
that, such amount shall not be applied to any Advances of a Defaulting Lender at
any time when, and to the extent that, the aggregate amount of Advances of any
Non-Defaulting Lender exceeds such Non-Defaulting Lender's Commitment Percentage
of all Advances then outstanding.
(c) A Defaulting Lender shall not be entitled to give
instructions to Agent or to approve, disapprove, consent to or vote on any
matters relating to this Agreement and the Other Documents. All amendments,
waivers and other modifications of this Agreement and the Other Documents may be
made without regard to a Defaulting Lender and, for purposes of the definition
of "Required Lenders," a Defaulting Lender shall be deemed not to be a Lender
and not to have Advances outstanding.
(d) Other than as expressly set forth in this Section 2.16,
the rights and obligations of a Defaulting Lender (including the obligation to
indemnify Agent) and the other parties hereto shall remain unchanged. Nothing in
this Section 2.16 shall be deemed to release any Defaulting Lender from its
obligations under this Agreement and the Other Documents, shall alter such
obligations, shall operate as a waiver of any default by such Defaulting Lender
hereunder, or shall prejudice any rights which any Borrower, Agent or any Lender
may have against any Defaulting Lender as a result of any default by such
Defaulting Lender hereunder.
(e) In the event a Defaulting Lender retroactively cures to
the satisfaction of Agent the breach which caused a Lender to become a
Defaulting Lender, such Defaulting Lender shall no longer be a Defaulting Lender
and shall be treated as a Lender under this Agreement.
III. INTEREST AND FEES.
3.1. Interest. Interest on Advances shall be payable in arrears on the
first Business Day of each month with respect to Domestic Rate Loans and, with
respect to Eurodollar Rate Loans, at the end of each Interest Period. Interest
charges shall be computed on the actual principal amount of Advances outstanding
during the month (the "Monthly Advances") at a rate per annum equal to (i) with
respect to Revolving Advances, the applicable Revolving Interest Rate and (ii)
with respect to the applicable Term Loan, the Term Loan Rate (as applicable, the
"Contract Rate"). Whenever, subsequent to the date of this Agreement, the Base
Rate is increased or decreased, the applicable Contract Rate for Domestic Rate
Loans shall be similarly changed without notice or demand of any kind by an
amount equal to the amount of such change in the Base Rate during the time such
change or changes remain in effect. The Eurodollar Rate shall be adjusted with
respect to Eurodollar Rate Loans without notice or demand of any kind on the
effective date of any change in the Reserve Percentage as of such effective
date. Upon and after the occurrence of an Event of Default, and during the
continuation thereof, the Obligations shall bear interest at the applicable
Contract Rate plus two (2%) percent per annum (the "Default Rate").
3.2. Letter of Credit Fees.
(a) Borrowers shall pay (x) to Agent, for the benefit of
Lenders, fees for each Letter of Credit ("Issuing Fees") for the period from and
excluding the date of issuance of same to and including the date of expiration
or termination, equal to (i) with respect to Documentary Letters of Credit, to
the average daily face amount of each outstanding Documentary Letter of Credit
multiplied by one-half percent (0.50%) per annum, or (ii) with respect to
Standby Letters of Credit, the average daily face amount of each outstanding
Standby Letter of Credit multiplied by the Applicable Margin per annum, in each
case, such fees to be calculated on the basis of a 360-day year for the actual
number of days elapsed and to be payable monthly in arrears on the first day of
each month and on the last day of the Term and (y) to the Issuer, any and all
fees and expenses as agreed upon by the Issuer and the Borrowing Agent in
connection with any Letter of Credit, including, without limitation, in
connection with the opening, amendment or renewal of any such Letter of Credit
and any acceptances created thereunder and shall reimburse Agent for any and all
fees and expenses, if any, paid by Agent to the Issuer (all of the foregoing
fees including Issuing Fees, the "Letter of Credit Fees"). Notwithstanding the
foregoing, one-quarter of one percent (0.25%) of each Issuing Fee shall only be
for the account of Agent as a fronting fee. All such charges shall be deemed
earned in full on the date when the same are due and payable hereunder and shall
not be subject to rebate or proration upon the termination of this Agreement for
any reason. Any such charge in effect at the time of a particular transaction
shall be the charge for that transaction, notwithstanding any subsequent change
in the Issuer's prevailing charges for that type of transaction. All Letter of
Credit Fees payable hereunder shall be deemed earned in full on the date when
the same are due and payable hereunder and shall not be subject to rebate or
proration upon the termination of this Agreement for any reason.
At any time following the occurrence and during the
continuance of an Event of Default, at Agent's request, Borrowers will cause
cash to be deposited and maintained in an account with Agent, as cash
collateral, in an amount equal to one hundred and five percent (105%) of the
outstanding Letters of Credit, and each Borrower hereby irrevocably authorizes
Agent, in its discretion, on such Borrower's behalf and in such Borrower's name,
to open such an account and to make and maintain deposits therein, or in an
account opened by such Borrower, in the amounts required to be made by such
Borrower, out of the proceeds of Receivables or other Collateral or out of any
other funds of such Borrower coming into any Lender's possession at any time.
Agent will invest such cash collateral (less applicable reserves) in such
short-term money-market items as to which Agent and such Borrower mutually agree
and the net return on such investments shall be credited to such account and
constitute additional cash collateral. No Borrower may withdraw amounts credited
to any such account except upon payment and performance in full of all
Obligations and termination of this Agreement.
3.3. Fee Letter. Borrowers shall pay the fees set forth in the Fee
Letter in accordance with the provisions thereof.
3.4. Facility Fee. If, for any month during the Term, the average daily
unpaid balance of the Revolving Advances for each day of such month does not
equal the Maximum Revolving Advance Amount, then Borrowers shall pay to Agent
for the ratable benefit of Lenders a fee at a rate equal to three-eighths of one
percent (.375%) per annum on the amount by which the Maximum Revolving Advance
Amount exceeds such average daily unpaid balance. Such fee shall be payable to
Agent in arrears on the last day of each month. For purposes of calculating such
fees, the amount drawable under a Letter of Credit shall be added to such daily
unpaid balance.
3.5. Computation of Interest and Fees. Interest and fees hereunder
shall be computed on the basis of a year of 360 days and for the actual number
of days elapsed. If any payment to be made hereunder becomes due and payable on
a day other than a Business Day, the due date thereof shall be extended to the
next succeeding Business Day and interest thereon shall be payable at the
applicable Contract Rate for Domestic Rate Loans during such extension.
3.6. Maximum Charges. In no event whatsoever shall interest and other
charges charged hereunder exceed the highest rate permissible under law. In the
event interest and other charges as computed hereunder would otherwise exceed
the highest rate permitted under law, such excess amount shall be first applied
to any unpaid principal balance owed by Borrowers, and if the then remaining
excess amount is greater than the previously unpaid principal balance, Lenders
shall promptly refund such excess amount to Borrowers and the provisions hereof
shall be deemed amended to provide for such permissible rate.
3.7. Increased Costs. In the event that any applicable law, treaty or
governmental regulation, or any change therein or in the interpretation or
application thereof, or compliance by any Lender (for purposes of this Section
3.7, the term "Lender" shall include Agent or any Lender and any corporation or
bank controlling Agent or any Lender) and the office or branch where Agent or
any Lender (as so defined) makes or maintains any Eurodollar Rate Loans with any
request or directive (whether or not having the force of law) from any central
bank or other financial, monetary or other authority, shall:
(a) subject Agent or any Lender to any tax of any kind
whatsoever with respect to this Agreement or any Other Document or change the
basis of taxation of payments to Agent or any Lender of principal, fees,
interest or any other amount payable hereunder or under any Other Documents
(except for changes in the rate of tax on the overall net income of Agent or any
Lender by the jurisdiction in which it maintains its principal office);
(b) impose, modify or hold applicable any reserve, special
deposit, assessment or similar requirement against assets held by, or deposits
in or for the account of, advances or loans by, or other credit extended by, any
office of Agent or any Lender, including (without limitation) pursuant to
Regulation D of the Board of Governors of the Federal Reserve System; or
(c) impose on Agent or any Lender or the London interbank
Eurodollar market any other condition with respect to this Agreement or any
Other Document;
and the result of any of the foregoing is to increase the cost to Agent or any
Lender of making, renewing or maintaining its Advances hereunder by an amount
that Agent or such Lender deems to be material or to reduce the amount of any
payment (whether of principal, interest or otherwise) in respect of any of the
Advances by an amount that Agent or such Lender deems to be material, then, in
any case Borrowers shall promptly pay Agent or such Lender, upon its demand,
such additional amount as will compensate Agent or such Lender for such
additional cost or such reduction, as the case may be. Agent or such Lender
shall certify the amount of such additional cost or reduced amount to Borrowers,
and such certification shall be conclusive absent manifest error.
3.8. Basis For Determining Interest Rate Inadequate or Unfair. In
the event that Agent or any Lender shall have determined that:
(a) reasonable means do not exist for ascertaining the
Eurodollar Rate applicable pursuant to Section 2.2 hereof for any Interest
Period; or
(b) Dollar deposits in the relevant amount and for the
relevant maturity are not available in the London interbank Eurodollar market,
with respect to an outstanding Eurodollar Rate Loan, a proposed Eurodollar Rate
Loan, or a proposed conversion of a Domestic Rate Loan into a Eurodollar Rate
Loan,
then Agent shall give Borrowing Agent prompt written, telephonic or telegraphic
notice of such determination. If such notice is given, (i) any such requested
Eurodollar Rate Loan shall be made as a Domestic Rate Loan, unless Borrowing
Agent shall notify Agent no later than 10:00 a.m. (New York City time) two (2)
Business Days prior to the date of such proposed borrowing, that its request for
such borrowing shall be cancelled or made as an unaffected type of Eurodollar
Rate Loan, (ii) any Domestic Rate Loan or Eurodollar Rate Loan which was to have
been converted to an affected type of Eurodollar Rate Loan shall be continued as
or converted into a Domestic Rate Loan, or, if Borrowing Agent shall notify
Agent, no later than 10:00 a.m. (New York City time) two (2) Business Days prior
to the proposed conversion, shall be maintained as an unaffected type of
Eurodollar Rate Loan, and (iii) any outstanding affected Eurodollar Rate Loans
shall be converted into a Domestic Rate Loan, or, if Borrowing Agent shall
notify Agent, no later than 10:00 a.m. (New York City time) two (2) Business
Days prior to the last Business Day of the then current Interest Period
applicable to such affected Eurodollar Rate Loan, shall be converted into an
unaffected type of Eurodollar Rate Loan, on the last Business Day of the then
current Interest Period for such affected Eurodollar Rate Loans. Until such
notice has been withdrawn, Lenders shall have no obligation to make an affected
type of Eurodollar Rate Loan or maintain outstanding affected Eurodollar Rate
Loans and no Borrower shall have the right to convert a Domestic Rate Loan or an
unaffected type of Eurodollar Rate Loan into an affected type of Eurodollar Rate
Loan.
3.9. Capital Adequacy.
(a) In the event that Agent or any Lender shall have
determined that any applicable law, rule, regulation or guideline regarding
capital adequacy, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by Agent or any Lender (for purposes of this Section 3.9, the term "Lender"
shall include Agent or any Lender and any corporation or bank controlling Agent
or any Lender) and the office or branch where Agent or any Lender (as so
defined) makes or maintains any Eurodollar Rate Loans with any request or
directive regarding capital adequacy (whether or not having the force of law) of
any such authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on Agent or any Lender's capital as a
consequence of its obligations hereunder to a level below that which Agent or
such Lender could have achieved but for such adoption, change or compliance
(taking into consideration Agent's and each Lender's policies with respect to
capital adequacy) by an amount deemed by Agent or any Lender to be material,
then, from time to time, Borrowers shall pay upon demand to Agent or such Lender
such additional amount or amounts as will compensate Agent or such Lender for
such reduction in regard to this Agreement. In determining such amount or
amounts, Agent or such Lender may use any reasonable averaging or attribution
methods. The protection of this Section 3.9 shall be available to Agent and each
Lender regardless of any possible contention of invalidity or inapplicability
with respect to the applicable law, regulation or condition.
(b) A certificate of Agent or such Lender setting forth such
amount or amounts as shall be necessary to compensate Agent or such Lender with
respect to Section 3.9(a) hereof when delivered to Borrowers shall be conclusive
absent manifest error.
IV. COLLATERAL; GENERAL TERMS
4.1. Security Interest in the Collateral. To secure the prompt payment
and performance to Agent and each Lender of the Obligations, each Borrower
hereby assigns, pledges and grants to Agent for the ratable benefit of each
Lender a continuing security interest in and to and lien on all of its
Collateral, whether now owned or existing or hereafter acquired or arising and
wheresoever located. Each Borrower shall mark its books and records as may be
necessary or appropriate to evidence, protect and perfect Agent's security
interest and lien and shall cause its financial statements to reflect such
security interest and lien.
4.2. Perfection of Security Interest. Each Borrower shall take all
action that may be necessary or desirable, or that Agent may request, so as at
all times to maintain the validity, perfection, enforceability and priority of
Agent's security interest in and lien on the Collateral or to enable Agent to
protect, exercise or enforce its rights hereunder and in the Collateral,
including, but not limited to, (i) immediately discharging all Liens other than
Permitted Encumbrances, (ii) obtaining landlords' or mortgagees' lien waivers,
(iii) delivering to Agent, endorsed or accompanied by such instruments of
assignment as Agent may specify, and stamping or marking, in such manner as
Agent may specify, any and all chattel paper, instruments, letters of credits
and advices thereof and documents evidencing or forming a part of the
Collateral, (iv) entering into warehousing, lockbox and other custodial
arrangements satisfactory to Agent, and (v) executing and delivering financing
statements, instruments of pledge, mortgages, notices and assignments, in each
case in form and substance satisfactory to Agent, relating to the creation,
validity, perfection, maintenance or continuation of Agent's security interest
and lien under the Uniform Commercial Code or other applicable law. Agent is
hereby authorized to file financing statements signed by Agent instead of any
Borrower in accordance with Section 9-402(2) of Uniform Commercial Code. All
charges, expenses and fees Agent may incur in doing any of the foregoing, and
any local taxes relating thereto, shall be charged to Borrowers' Account as a
Revolving Advance of a Domestic Rate Loan and added to the Obligations, or, at
Agent's option, shall be paid to Agent for the ratable benefit of Lenders
immediately upon demand.
4.3. Disposition of Collateral. Each Borrower will safeguard and
protect all Collateral for Agent's general account and make no disposition
thereof whether by sale, lease or otherwise except (a) the sale of Inventory in
the ordinary course of business and (b) the disposition or transfer of obsolete
and worn out Equipment in the ordinary course of business during any fiscal year
having an aggregate fair market value of not more than $100,000 and only to the
extent that (i) the proceeds of any such disposition are used to acquire
replacement Equipment which is subject to Agent's first priority security
interest or (ii) the proceeds of which are remitted to Agent as a prepayment
pursuant to Section 2.14(a) hereof.
4.4. Preservation of Collateral. Following the occurrence of a Default
(in the case of a Default, only if the Agent deems it necessary to protect its
or any Lender's interest in and to preserve the Collateral) or an Event of
Default in addition to the rights and remedies set forth in Section 11.1 hereof,
Agent: (a) may at any time take such steps as Agent deems necessary to protect
Agent's or any Lender's interest in and to preserve the Collateral, including
the hiring of such security guards or the placing of other security protection
measures as Agent may deem appropriate; (b) may employ and maintain at any of
any Borrower's premises a custodian who shall have full authority to do all acts
necessary to protect Agent's interests in the Collateral; (c) may lease
warehouse facilities to which Agent may move all or part of the Collateral; (d)
may use any Borrower's owned or leased lifts, hoists, trucks and other
facilities or equipment for handling or removing the Collateral; and (e) shall
have, and is hereby granted, a right of ingress and egress to the places where
the Collateral is located, and may proceed over and through any of any
Borrower's owned or leased property. Each Borrower shall cooperate fully with
all of Agent's efforts to preserve the Collateral and will take such actions to
preserve the Collateral as Agent may direct. All of Agent's expenses of
preserving the Collateral pursuant to this Agreement, including any expenses
relating to the bonding of a custodian, shall be charged to Borrower's Account
as a Revolving Advance of a Domestic Rate Loan and added to the Obligations.
4.5. Ownership and Location of Collateral.
(a) With respect to the Collateral, at the time the Collateral
becomes subject to Agent's security interest: (i) each Borrower shall be the
sole owner of and fully authorized and able to sell, transfer, pledge and/or
grant a first priority security interest in each and every item of the its
respective Collateral to Agent; and, except for Permitted Encumbrances the
Collateral shall be free and clear of all Liens and encumbrances whatsoever;
(ii) each document and agreement executed by each Borrower or delivered to Agent
or any Lender in connection with this Agreement shall be true and correct in all
respects; and (iii) all signatures and endorsements of each Borrower that appear
on such documents and agreements shall be genuine and each Borrower shall have
full capacity to execute same.
(b) Each Borrower's Inventory and Equipment shall be located
as set forth on Schedule 4.5 or any such other location provided that with
respect to such location, such Borrower has complied with the other provisions
of this Section 4.5(b). No Borrower shall open any new office or place of
business without 30 days prior written notice to Agent and provided that such
Borrower executes such documents and takes such other action requested by Agent
pursuant to Section 4.2, and, without the prior written consent of Agent,
Inventory and Equipment shall not be removed from such locations or stored at
new locations except with respect to the sale or disposition of Inventory in the
ordinary course of business and Equipment to the extent permitted in Section 4.3
hereof, provided that notwithstanding the foregoing, but subject to the other
terms and conditions hereof, such Borrower may store Inventory at any other
location, provided that (i) during any twelve (12) month period, Borrower may
only store up to an aggregate value of $250,000 of Inventory at any such other
location, (ii) such Inventory shall be stored at such location for not more than
sixty (60) days, (iii) Borrower shall deliver concurrent written notice to
Agent, and (iv) no later than ten (10) days after storing Inventory at any such
location, Borrower shall execute and deliver all such documents and take such
other actions requested by Agent pursuant to Section 4.2.
4.6. Defense of Agent's and Lenders' Interests. Until (a) payment and
performance in full of all of the Obligations and (b) termination of this
Agreement, Agent's interests in the Collateral shall continue in full force and
effect. During such period no Borrower shall, without Agent's prior written
consent, pledge, sell (except Inventory in the ordinary course of business and
Equipment to the extent permitted in Section 4.3 hereof), assign, transfer,
create or suffer to exist a Lien upon or encumber or allow or suffer to be
encumbered in any way except for Permitted Encumbrances, any part of the
Collateral. Each Borrower shall defend Agent's interests in the Collateral
against any and all Persons whatsoever. At any time following an Event of
Default and demand by Agent for payment of all Obligations, Agent shall have the
right to take possession of the indicia of the Collateral and the Collateral in
whatever physical form contained, including without limitation: labels,
stationery, documents, instruments and advertising materials. If Agent exercises
this right to take possession of the Collateral, Borrowers shall, upon demand,
assemble it in the best manner possible and make it available to Agent at a
place reasonably convenient to Agent. In addition, with respect to all
Collateral, Agent and Lenders shall be entitled to all of the rights and
remedies set forth herein and further provided by the Uniform Commercial Code or
other applicable law. Each Borrower shall, and Agent may, at its option,
instruct all suppliers, carriers, forwarders, warehouses or others receiving or
holding cash, checks, Inventory, documents or instruments in which Agent holds a
security interest to deliver same to Agent and/or subject to Agent's order and
if they shall come into any Borrower's possession, they, and each of them, shall
be held by such Borrower in trust as Agent's trustee, and such Borrower will
immediately deliver them to Agent in their original form together with any
necessary endorsement.
4.7. Books and Records. Each Borrower shall (a) keep proper books of
record and account in which full, true and correct entries will be made of all
dealings or transactions of or in relation to its business and affairs; (b) set
up on its books accruals with respect to all taxes, assessments, charges,
levies, and claims; and (c) on a reasonably current basis set up on its books,
from its earnings, allowances against doubtful Receivables, advances and
investments and all other proper accruals (including, without limitation,
accruals for premiums, if any, due on required payments and accruals for
depreciation, obsolescence, or amortization of properties), which should be set
aside from such earnings in connection with its business. All determinations
pursuant to this subsection shall be made in accordance with, or as required by,
GAAP consistently applied in the opinion of such independent public accountant
as shall then be regularly engaged by Borrowers.
4.8. Financial Disclosure. Each Borrower hereby irrevocably authorizes
and directs all accountants and auditors employed by such Borrower at any time
during the Term to exhibit and deliver to Agent and each Lender copies of any of
any Borrower's financial statements, trial balances, workpapers, or other
accounting records of any sort in the accountant's or auditor's possession, and
to disclose to Agent and each Lender any information such accountants and
auditors may have concerning such Borrower's financial status and business
operations. Each Borrower hereby authorizes all Governmental Bodies to furnish
to Agent and each Lender copies of reports or examinations relating to such
Borrower, whether made by such Borrower or otherwise; however, Agent and each
Lender will attempt to obtain such information or materials directly from such
Borrower prior to obtaining such information or materials from such accountants,
auditors or Governmental Bodies.
4.9. Compliance with Laws. Each Borrower shall comply with all acts,
rules, regulations and orders of any legislative, administrative or judicial
body or official applicable to its respective Collateral or any part thereof or
to the operation of such Borrower's business, in any case, the non-compliance
with which (individually or in the aggregate) could reasonably be expected to
have a Material Adverse Effect on such Borrower.
4.10. Inspection of Premises. At all reasonable times Agent and each
Lender shall have full access to and the right to audit, check, inspect and make
abstracts and copies from each Borrower's books, records, audits, correspondence
and all other papers relating to the Collateral and the operation of each
Borrower's business. Agent, any Lender and their agents may enter upon any of
Borrower's premises at any time during business hours and at any other
reasonable time, and from time to time, for the purpose of inspecting the
Collateral and any and all records pertaining thereto and the operation of such
Borrower's business.
4.11. Insurance. The assets and properties of Borrowers at all times
shall be maintained in accordance with the requirements of all insurance
carriers which provide insurance with respect to the assets and properties of
Borrowers so that such insurance shall remain in full force and effect. Each
Borrower shall bear the full risk of any loss of any nature whatsoever with
respect to the Collateral. At each Borrower's own cost and expense in amounts
and with carriers acceptable to Agent, each Borrower shall (a) keep all its
insurable properties and properties in which each Borrower has an interest
insured against the hazards of fire, flood, sprinkler leakage, those hazards
covered by extended coverage insurance and such other hazards, and for such
amounts, as is customary in the case of companies engaged in businesses similar
to such Borrower's including, without limitation, business interruption
insurance; (b) maintain a bond or other insurance in such amounts as is
customary in the case of companies engaged in businesses similar to such
Borrower insuring against larceny, embezzlement or other criminal
misappropriation of insured's officers and employees who may either singly or
jointly with others at any time have access to the assets or funds of such
Borrower either directly or through authority to draw upon such funds or to
direct generally the disposition of such assets; (c) maintain public and product
liability insurance against claims for personal injury, death or property damage
suffered by others; (d) maintain all such worker's compensation or similar
insurance as may be required under the laws of any state or jurisdiction in
which such Borrower is engaged in business; (e) furnish Agent with (i) copies of
all policies and evidence of the maintenance of such policies by the renewal
thereof at least thirty (30) days before any expiration date, and (ii)
appropriate loss payable endorsements in form and substance satisfactory to
Agent, naming Agent as a co-insured and loss payee as its interests may appear
with respect to all insurance coverage referred to in clauses (a) and (c) above,
and providing (A) that all proceeds thereunder shall be payable to Agent, (B) no
such insurance shall be affected by any act or neglect of the insured or owner
of the property described in such policy, and (C) that such policy and loss
payable clauses may not be cancelled, amended or terminated unless at least
thirty (30) days' prior written notice is given to Agent. In the event of any
loss thereunder, the carriers named therein hereby are directed by Agent and the
applicable Borrower to make payment for such loss to Agent and not to such
Borrower and Agent jointly. If any insurance losses are paid by check, draft or
other instrument payable to any Borrower and Agent jointly, Agent may, and is
hereby authorized to, endorse such Borrower's name thereon and do such other
things as Agent may deem advisable to reduce the same to cash. Agent is hereby
authorized to adjust and compromise claims under insurance coverage referred to
above. All loss recoveries received by Agent upon any such insurance may be
applied to the Obligations, in such order as Agent in its sole discretion shall
determine. Any surplus shall be paid by Agent to Borrowers or applied as may be
otherwise required by law. Any deficiency thereon shall be paid by Borrowers to
Agent, on demand. Anything hereinabove to the contrary notwithstanding, and
subject to the fulfillment of the conditions set forth below, Agent shall remit
to Borrowers insurance proceeds received by Agent during any calendar year under
insurance policies procured and maintained by any Borrower which insure such
Borrower's insurable properties to the extent such insurance proceeds do not
exceed $250,000 in the aggregate for all Borrowers during such calendar year. In
the event the amount of insurance proceeds received by Agent exceeds $250,000,
then Agent shall not be obligated to remit the insurance proceeds to such
Borrower unless such Borrower shall provide Agent with evidence satisfactory to
Agent that the insurance proceeds will be used by such Borrower to repair,
replace or restore the insured property which was the subject of the insurable
loss. In the event any Borrower has previously received (or, after giving effect
to any proposed remittance by Agent to any Borrower would receive) insurance
proceeds which equal or exceed $250,000 in the aggregate for all Borrowers
during any calendar year, then Agent may, in its sole discretion, either remit
the insurance proceeds to such Borrower upon such Borrower's providing Agent
with evidence satisfactory to Agent that the insurance proceeds will be used by
such Borrower to repair, replace or restore the insured property which was the
subject of the insurable loss, or apply the proceeds to the Obligations, as
aforesaid. The agreement of Agent to remit insurance proceeds to such Borrower
in the manner above provided shall be subject in each instance to satisfaction
of each of the following conditions: (x) no Event of Default or Default shall
then have occurred and be continuing, and (y) such Borrower shall use such
insurance proceeds to repair, replace or restore the insurable property which
was the subject of the insurable loss and for no other purpose.
4.12. Failure to Pay Insurance. If any Borrower fails to obtain
insurance as hereinabove provided, or to keep the same in force, Agent, if Agent
so elects, may obtain such insurance and pay the premium therefor on behalf of
Borrower, and charge Borrowers' Account therefor as a Revolving Advance of a
Domestic Rate Loan and such expenses so paid shall be part of the Obligations.
Agent will notify Borrower after it has obtained any such insurance.
4.13. Payment of Taxes. Each Borrower will pay, when due, all taxes,
assessments and other Charges lawfully levied or assessed upon such Borrower or
any of the Collateral including, without limitation, real and personal property
taxes, assessments and charges and all franchise, income, employment, social
security benefits, withholding, and sales taxes. If any tax by any Governmental
Body is or may be imposed on or as a result of any transaction between any
Borrower and Agent or any Lender which Agent or any Lender may be required to
withhold or pay or if any taxes, assessments, or other Charges remain unpaid
after the date fixed for their payment, or if any claim shall be made which, in
Agent's or any Lender's opinion, may possibly create a valid Lien on the
Collateral, Agent may without notice to Borrowers pay the taxes, assessments or
other Charges and each Borrower hereby indemnifies and holds Agent and each
Lender harmless in respect thereof. Agent will notify Borrower after it has made
any such payment. The amount of any payment by Agent under this Section 4.13
shall be charged to Borrowers' Account as a Revolving Advance of a Domestic Rate
Loan and added to the Obligations and, until Borrowers shall furnish Agent with
an indemnity therefor (or supply Agent with evidence satisfactory to Agent that
due provision for the payment thereof has been made), Agent may hold without
interest any balance standing to Borrowers' credit and Agent shall retain its
security interest in and lien on any and all Collateral held by Agent.
4.14. Payment of Leasehold Obligations. Each Borrower shall at all
times pay, when and as due, its rental obligations under all leases under which
it is a tenant, and shall otherwise comply, in all material respects, with all
other terms of such leases and keep them in full force and effect and, at
Agent's request will provide evidence of having done so.
4.15. Receivables.
(a) Nature of Receivables. Each of the Receivables shall be a
bona fide and valid account representing a bona fide indebtedness incurred by
the Customer therein named, for a fixed sum as set forth in the invoice relating
thereto (provided immaterial or unintentional invoice errors shall not be deemed
to be a breach hereof) with respect to an absolute sale or lease and delivery of
goods upon stated terms of a Borrower, or work, labor or services theretofore
rendered by a Borrower as of the date each Receivable is created. Same shall be
due and owing in accordance with the applicable Borrower's standard terms of
sale without dispute, setoff or counterclaim except as may be stated on the
accounts receivable schedules delivered by Borrowers to Agent.
(b) Solvency of Customers. Each Customer, to the best of each
Borrower's knowledge, as of the date each Receivable is created, is and will be
solvent and able to pay all Receivables on which the Customer is obligated in
full when due or with respect to such Customers of any Borrower who are not
solvent such Borrower has set up on its books and in its financial records bad
debt reserves adequate to cover such Receivables.
(c) Locations of Executive Offices of Borrowers. Each
Borrower's chief executive office is located at the addresses set forth on
Schedule 4.15(c) hereto. Until written notice is given to Agent by Borrowing
Agent of any other office at which any Borrower keeps its records pertaining to
Receivables, all such records shall be kept at such executive office.
(d) Collection of Receivables. Until any Borrower's authority
to do so is terminated by Agent (which notice Agent may give at any time
following the occurrence of an Event of Default or a Default or when Agent in
its reasonable discretion deems it to be in Lenders' best interest to do so),
each Borrower will, at such Borrower's sole cost and expense, but on Agent's
behalf and for Agent's account, collect as Agent's property and in trust for
Agent all amounts received on Receivables, and shall not commingle such
collections with any Borrower's funds or use the same except to pay Obligations.
Each Borrower shall, upon request, deliver to Agent, or deposit in the Blocked
Account, in original form and on the date of receipt thereof, all checks,
drafts, notes, money orders, acceptances, cash and other evidences of
Indebtedness.
(e) Notification of Assignment of Receivables. At any time
after and during the continuance of a Default or an Event of Default, Agent
shall have the right to send notice of the assignment of, and Agent's security
interest in and lien on, the Receivables to any and all Customers or any third
party holding or otherwise concerned with any of the Collateral. Thereafter,
Agent shall have the sole right to collect the Receivables, take possession of
the Collateral, or both. Agent's actual collection expenses, including, but not
limited to, stationery and postage, telephone and telegraph, secretarial and
clerical expenses and the salaries of any collection personnel used for
collection, may be charged to Borrowers' Account and added to the Obligations.
(f) Power of Agent to Act on Borrowers' Behalf. Agent shall
have and is hereby granted the right to receive, endorse, assign and/or deliver
in the name of Agent or any Borrower any and all checks, drafts and other
instruments for the payment of money relating to the Receivables, and each
Borrower hereby waives notice of presentment, protest and non-payment of any
instrument so endorsed. Each Borrower hereby constitutes Agent or Agent's
designee as such Borrower's attorney with power (A) at any time: (i) to endorse
such Borrower's name upon any notes, acceptances, checks, drafts, money orders
or other evidences of payment or Collateral; (ii) to sign such Borrower's name
on any invoice or bill of lading relating to any of the Receivables, drafts
against Customers, assignments and verifications of Receivables; (iii) to send
verifications of Receivables to any Customer; (iv) to sign such Borrower's name
on all financing statements or any other documents or instruments deemed
necessary or appropriate by Agent to preserve, protect, or perfect Agent's
interest in the Collateral and to file same; and (v) to do all other acts and
things necessary to carry out this Agreement; and (B) following the occurrence
and during the continuance of an Event of Default: (i) to demand payment of the
Receivables; (ii) to enforce payment of the Receivables by legal proceedings or
otherwise; (iii) to exercise all of Borrowers' rights and remedies with respect
to the collection of the Receivables and any other Collateral; (iv) to settle,
adjust, compromise, extend or renew the Receivables; (v) to settle, adjust or
compromise any legal proceedings brought to collect Receivables; (vi) to
prepare, file and sign such Borrower's name on a proof of claim in bankruptcy or
similar document against any Customer; and (vii) to prepare, file and sign such
Borrower's name on any notice of Lien, assignment or satisfaction of Lien or
similar document in connection with the Receivables. All acts of said attorney
or designee are hereby ratified and approved, and said attorney or designee
shall not be liable for any acts of omission or commission nor for any error of
judgment or mistake of fact or of law, unless done maliciously or with gross
(not mere) negligence; this power being coupled with an interest is irrevocable
while any of the Obligations remain unpaid. Agent shall have the right at any
time following the occurrence and during the continuance of an Event of Default,
to change the address for delivery of mail addressed to any Borrower to such
address as Agent may designate and to receive, open and dispose of all mail
addressed to any Borrower.
(g) No Liability. Neither Agent nor any Lender shall, under
any circumstances or in any event whatsoever, have any liability for any error
or omission or delay of any kind occurring in the settlement, collection or
payment of any of the Receivables or any instrument received in payment thereof,
or for any damage resulting therefrom. Following the occurrence and during the
continuation of an Event of Default or Default, Agent may, without notice or
consent from any Borrower, and, in the case of a Default, only to the extent
Agent deems it necessary for the protection of its or any Lender's interest in
and to preserve the Collateral, sue upon or otherwise collect, extend the time
of payment of, compromise or settle for cash, credit or upon any terms any of
the Receivables or any other securities, instruments or insurance applicable
thereto and/or release any obligor thereof. Agent is authorized and empowered to
accept following the occurrence and during the continuation of an Event of
Default or Default, the return of the goods represented by any of the
Receivables, without notice to or consent by any Borrower, all without
discharging or in any way affecting any Borrower's liability hereunder.
(h) Establishment of a Lockbox Account, Dominion Account. All
proceeds of Collateral shall be deposited by Borrowers into a lockbox account,
dominion account or such other "blocked account" ("Blocked Accounts") as Agent
may require at any time and from time to time pursuant to an arrangement with
such bank as may be selected by Borrowers and be acceptable to Agent. Borrowers
shall issue to any such bank, an irrevocable letter of instruction directing
said bank to transfer such funds so deposited to Agent, either to any account
maintained by Agent at said bank or by wire transfer to appropriate account(s)
of Agent. All funds deposited in such "blocked account" shall immediately become
the property of Agent and Borrowers shall obtain the agreement by such bank to
waive any offset rights against the funds so deposited. Neither Agent nor any
Lender assumes any responsibility for such "blocked account" arrangement,
including without limitation, any claim of accord and satisfaction or release
with respect to deposits accepted by any bank thereunder. Alternatively, Agent
may establish depository accounts ("Depository Accounts") in the name of Agent
at a bank or banks for the deposit of such funds and Borrowers shall deposit all
proceeds of Collateral or cause same to be deposited, in kind, in such
Depository Accounts of Agent in lieu of depositing same to the Blocked Accounts.
(i) Adjustments. No Borrower will, without Agent's consent,
compromise or adjust any Receivables (or extend the time for payment thereof) or
accept any returns of merchandise or grant any additional discounts, allowances
or credits thereon except for those compromises, adjustments, returns,
discounts, credits and allowances as have been heretofore customary in the
business of such Borrower.
4.16. Inventory. To the extent Inventory held for sale or lease has
been produced by any Borrower, it has been and will be produced by such Borrower
in accordance with the Federal Fair Labor Standards Act of 1938, as amended, and
all rules, regulations and orders thereunder.
4.17. Maintenance of Equipment. Except with regard to obsolete or worn
out Equipment disposed of in accordance with Section 4.3 hereof, the Equipment
shall be maintained in good operating condition and repair (reasonable wear and
tear excepted) and all necessary replacements of and repairs thereto shall be
made so that the value and operating efficiency of the Equipment shall be
maintained and preserved. No Borrower shall use or operate the Equipment in
violation of any law, statute, ordinance, code, rule or regulation.
4.18. Exculpation of Liability. Nothing herein contained shall be
construed to constitute Agent or any Lender as any Borrower's agent for any
purpose whatsoever, nor shall Agent or any Lender be responsible or liable for
any shortage, discrepancy, damage, loss or destruction of any part of the
Collateral wherever the same may be located and regardless of the cause thereof.
Neither Agent nor any Lender, whether by anything herein or in any assignment or
otherwise, assume any of any Borrower's obligations under any contract or
agreement assigned to Agent or such Lender, and neither Agent nor any Lender
shall be responsible in any way for the performance by any Borrower of any of
the terms and conditions thereof.
4.19. Environmental Matters. (a) Borrowers shall ensure that the Real
Property (and all operations and businesses conducted thereon) remains in
compliance with all Environmental Laws and they shall not place or permit to be
placed any Hazardous Substances on any Real Property except as not prohibited by
applicable law or appropriate governmental authorities.
(b) Borrowers shall establish and maintain a system to assure
and monitor continued compliance with all applicable Environmental Laws which
system shall include periodic reviews of such compliance.
(c) Borrowers shall (i) employ in connection with the use of
the Real Property appropriate technology necessary to maintain compliance with
any applicable Environmental Laws and (ii) dispose of any and all Hazardous
Waste generated at the Real Property only at facilities and with carriers that
maintain valid permits under RCRA and any other applicable Environmental Laws.
Borrowers shall use their best efforts to obtain certificates of disposal, such
as hazardous waste manifest receipts, from all treatment, transport, storage or
disposal facilities or operators employed by Borrowers in connection with the
transport or disposal of any Hazardous Waste generated at the Real Property.
(d) In the event any Borrower obtains, gives or receives
notice of any Release or threat of Release of a reportable quantity of any
Hazardous Substances at the Real Property (any such event being hereinafter
referred to as a "Hazardous Discharge") or receives any notice of violation,
request for information or notification that it is potentially responsible for
investigation or cleanup of environmental conditions at the Real Property,
demand letter or complaint, order, citation, or other written notice with regard
to any Hazardous Discharge or violation of Environmental Laws affecting the Real
Property or any Borrower's interest therein (any of the foregoing is referred to
herein as an "Environmental Complaint") from any Person, including any state
agency responsible in whole or in part for environmental matters in the state in
which the Real Property is located or the United States Environmental Protection
Agency (any such person or entity hereinafter the "Authority"), then Borrowing
Agent shall, within five (5) Business Days, give written notice of same to Agent
detailing facts and circumstances of which any Borrower is aware giving rise to
the Hazardous Discharge or Environmental Complaint. Such information is to be
provided to allow Agent to protect its security interest in the Collateral and
is not intended to create nor shall it create any obligation upon Agent or any
Lender with respect thereto.
(e) Borrowers shall promptly forward to Agent copies of any
request for information, notification of potential liability, demand letter
relating to potential responsibility with respect to the investigation or
cleanup of Hazardous Substances at any other site owned, operated or used by any
Borrower to dispose of Hazardous Substances and shall continue to forward copies
of correspondence between any Borrower and the Authority regarding such claims
to Agent until the claim is settled. Borrowers shall promptly forward to Agent
copies of all documents and reports concerning a Hazardous Discharge at the Real
Property that any Borrower is required to file under any Environmental Laws.
Such information is to be provided solely to allow Agent to protect Agent's
security interest in the Collateral.
(f) Borrowers shall respond promptly to any Hazardous
Discharge or Environmental Complaint and take all necessary action in order to
safeguard the health of any Person and to avoid subjecting the Collateral or
Real Property to any Lien. If any Borrower shall fail to respond promptly to any
Hazardous Discharge or Environmental Complaint or any Borrower shall fail to
comply with any of the requirements of any Environmental Laws, Agent on behalf
of Lenders may, but without the obligation to do so, for the sole purpose of
protecting Agent's interest in Collateral: (A) give such notices or (B) enter
onto the Real Property (or authorize third parties to enter onto the Real
Property) and take such actions as Agent (or such third parties as directed by
Agent) deem reasonably necessary or advisable, to clean up, remove, mitigate or
otherwise deal with any such Hazardous Discharge or Environmental Complaint. All
reasonable costs and expenses incurred by Agent and Lenders (or such third
parties) in the exercise of any such rights, including any sums paid in
connection with any judicial or administrative investigation or proceedings,
fines and penalties, together with interest thereon from the date expended at
the Default Rate for Domestic Rate Loans constituting Revolving Advances shall
be paid upon demand by Borrowers, and until paid shall be added to and become a
part of the Obligations secured by the Liens created by the terms of this
Agreement or any other agreement between Agent, any Lender and any Borrower.
(g) Promptly upon the written request of Agent from time to
time, Borrowers shall provide Agent, at Borrowers' expense, with an
environmental site assessment or environmental audit report prepared by an
environmental engineering firm acceptable in the reasonable opinion of Agent, to
assess with a reasonable degree of certainty the existence of a Hazardous
Discharge and the potential costs in connection with abatement, cleanup and
removal of any Hazardous Substances found on, under, at or within the Real
Property. Any report or investigation of such Hazardous Discharge proposed and
acceptable to an appropriate Authority that is charged to oversee the clean-up
of such Hazardous Discharge shall be acceptable to Agent. If such estimates,
individually or in the aggregate, exceed $100,000, Agent shall have the right to
require Borrowers to post a bond, letter of credit or other security reasonably
satisfactory to Agent to secure payment of these costs and expenses.
(h) Borrowers shall defend and indemnify Agent and Lenders and
hold Agent, Lenders and their respective employees, agents, directors and
officers harmless from and against all loss, liability, damage and expense,
claims, costs, fines and penalties, including attorney's fees, suffered or
incurred by Agent or Lenders under or on account of any Environmental Laws,
including, without limitation, the assertion of any Lien thereunder, with
respect to any Hazardous Discharge, the presence of any Hazardous Substances
affecting the Real Property, whether or not the same originates or emerges from
the Real Property or any contiguous real estate, including any loss of value of
the Real Property as a result of the foregoing except to the extent such loss,
liability, damage and expense is attributable to any Hazardous Discharge
resulting from actions on the part of Agent or any Lender. Borrowers'
obligations under this Section 4.19 shall arise upon the discovery of the
presence of any Hazardous Substances at the Real Property, whether or not any
federal, state, or local environmental agency has taken or threatened any action
in connection with the presence of any Hazardous Substances. Borrowers'
obligation and the indemnifications hereunder shall survive the termination of
this Agreement.
(i) For purposes of Section 4.19 and 5.7, all references to
Real Property shall be deemed to include all of Borrowers' right, title and
interest in and to its owned and leased premises.
4.20. Financing Statements. Except with respect to the financing
statements filed by Agent and the financing statements described on Schedule
1.2, no financing statement covering any of the Collateral or any proceeds
thereof is on file in any public office.
V. REPRESENTATIONS AND WARRANTIES.
Each Borrower represents and warrants as follows:
5.1. Authority; Enforceable Obligations. Each Borrower and each
Guarantor has full power, authority and legal right to enter into this Agreement
and the Other Documents to which it is a party and to perform all its respective
Obligations hereunder and thereunder. The execution, delivery and performance of
this Agreement and of the Other Documents (a) are within such Borrower's and
Guarantor's corporate powers, have been duly authorized by all necessary
corporate or other action, are not in contravention of law or the terms of such
Person's by-laws, certificate of incorporation or other applicable documents
relating to such Person's formation or to the conduct of such Person's business
or of any material agreement or undertaking to which such Person is a party or
by which such Person is bound, (b) will not conflict with or violate any law or
regulation, or any judgement, order or decree of any Governmental Body, (c) will
not require the Consent of any Governmental Body or any other Person, except
those Consents set forth on Schedule 5.1 hereto, all of which will have been
duly obtained, made or complied with prior to the Closing Date and which are in
full force and effect and (d) will not conflict with, nor result in any breach
in any of the provisions of or constitute a default under or result in the
creation of any Lien except Permitted Encumbrances upon any asset of such
Borrower under the provisions of any agreement, charter document, instrument,
by-law, or other instrument to which such Borrower or its property is a party or
by which it may be bound. This Agreement and the Other Documents have been duly
executed and delivered by each Borrower and each Guarantor which is a party
thereto, and this Agreement and the Other Documents constitute legal, valid and
binding obligations of each Borrower and each Guarantor party thereto,
enforceable against each such Borrower and each such Guarantor party thereto in
accordance with their respective terms, except as the enforceability thereof may
be limited by bankruptcy, insolvency, reorganization and other laws affecting
creditor's rights and remedies in general.
5.2. Formation and Qualification. (a) Each Borrower and Guarantor is
duly incorporated and in good standing under the laws of the states listed on
Schedule 5.2(a) and is qualified to do business and is in good standing in each
state in which qualification and good standing are necessary for such Borrower
or Guarantor to conduct its business and own its property and where the failure
to so qualify could reasonably be expected to have a Material Adverse Effect on
such Borrower or Guarantor. Each Borrower and each Guarantor has delivered to
Agent true and complete copies of each of their respective certificates of
incorporation and by-laws and will promptly notify Agent of any amendment or
changes thereto.
(b) No Borrower has any Subsidiaries and the only Subsidiaries
of Holdings are correctly listed on Schedule 5.2(b).
5.3. Survival of Representations and Warranties. All representations
and warranties of each Borrower and each Guarantor contained in this Agreement
and the Other Documents to which such Person is a party shall be true at the
time of such Borrower's and Guarantor's execution of this Agreement and the
Other Documents to which it is a party, and shall survive the execution,
delivery and acceptance thereof by the parties thereto and the closing of the
transactions described therein or related thereto.
5.4. Tax Returns. Each Borrower's federal tax identification number is
set forth on Schedule 5.4. Each Borrower has filed all federal, state and local
tax returns and other reports each is required by law to file and has paid all
taxes, assessments, fees and other governmental charges that are due and
payable. Federal, state and local income tax returns of each Borrower have been
examined and reported upon by the appropriate taxing authority or closed by
applicable statute and satisfied for all fiscal years prior to and including the
fiscal year ending December 31, 1997. The provision for taxes on the books of
each Borrower are adequate for all years not closed by applicable statutes, and
for its current fiscal year, and no Borrower has any knowledge of any deficiency
or additional assessment in connection therewith not provided for on its books.
Prior to the Closing Date, the Borrowers have been included in consolidated
federal income tax returns filed by Holdings on behalf of the affiliated group
of corporations of which Holdings is the common parent (such returns being
referred to as "Consolidated Returns"); all such Consolidated Returns required
to be filed through the date hereof have been timely filed in a manner
consistent with prior years and applicable laws and regulations; and all such
Consolidated Returns are true and complete in all material respects.
5.5. Financial Statements.
(a) The pro forma balance sheet of Borrowers on a combined
basis (the "Pro Forma Balance Sheet") furnished to Agent on the Closing Date
reflects the consummation of the transactions contemplated under this Agreement
(collectively, the "Transactions") and is accurate, complete and correct and
fairly reflects the financial condition of Borrowers on a combined basis as of
the Closing Date after giving effect to the Transactions, and has been prepared
in accordance with GAAP, consistently applied. The Pro Forma Balance Sheet has
been certified as accurate, complete and correct in all material respects by the
President and Chief Financial Officer of Holdings and each Borrower. All
financial statements referred to in this subsection 5.5(a), including the
related schedules and notes thereto, have been prepared, in accordance with
GAAP, except as may be disclosed in such financial statements.
(b) The twelve-month cash flow and operating income
projections of the Borrowers on a combined basis and their projected balance
sheets as of the Closing Date, copies of which are annexed hereto as Exhibit
5.5(b) (the "Projections") were prepared by the Chief Financial Officer of
Holdings and each Borrower, are based on underlying assumptions which provide a
reasonable basis for the projections contained therein and reflect Borrowers'
judgment based on present circumstances of the most likely set of conditions and
course of action for the projected period. The cash flow Projections together
with the Pro Forma Balance Sheet, are referred to as the "Pro Forma Financial
Statements."
(c) The consolidated and consolidating balance sheets of
Holdings and such other Persons described therein (including the accounts of
Borrowers and all other Subsidiaries of Holdings for the respective periods
during which a subsidiary relationship existed) (i) as of December 31, 1998, and
the related statements of income, changes in stockholder's equity, and changes
in cash flow for the period ended on such date, all accompanied by reports
thereon containing opinions without qualification by independent certified
public accountants, and (ii) as of February 28, 1999, and the related statements
of income changes in stockholders' equity and cash flow for the period ended on
such date, copies of all of which have been delivered to Agent, have been
prepared in accordance with GAAP, consistently applied (except for changes in
application in which such accountants concur) and present fairly the financial
position of Holdings and its Subsidiaries and Borrowers, at such date and the
results of their operations for such period. Since December 31, 1997, there has
been no change in the condition, financial or otherwise, of any Borrower or
Holdings as shown on such Person's balance sheet as of such date and no change
in the aggregate value of Equipment owned by Borrowers, except changes in the
ordinary course of business, none of which individually or in the aggregate has
been materially adverse.
5.6. Corporate Name and Locations. (a) No Borrower has been known by
any other corporate name in the past five years and does not sell Inventory
under any other name except as set forth on Schedule 5.6, nor, except as set
forth in Schedule 5.6, has any Borrower been the surviving corporation of a
merger or consolidation or acquired all or substantially all of the assets of
any Person during the preceding five (5) years.
(b) There is no location at which any Borrower has any
Inventory (except for Inventory in transit) other than (i) those locations
listed on Schedule 4.5 hereto and (ii) any other locations in the continental
United States permitted pursuant to the terms of Section 4.5(b) hereof. Schedule
4.5 hereto contains a correct and complete list, as of the Closing Date, of the
legal names and addresses of each warehouse at which Inventory of any Borrower
is stored. None of the receipts received by a Borrower from any warehouse states
that the goods covered thereby are to be delivered to bearer or to the order of
a named Person or to a named Person and such named Person's assigns. Schedule
4.5 hereto sets forth a correct and complete list as of the Closing Date of (A)
each place of business of each Borrower and (B) the chief executive office of
each Borrower. Schedule 4.5 hereto sets forth a correct and complete list as of
the Closing Date of the location, by state and street address, of all Real
Property leased by any Borrower. No Borrower owns any Real Property.
5.7. O.S.H.A. and Environmental Compliance.
(a) Each Borrower has duly complied with, and its facilities,
business, assets, property, leaseholds, Real Property and Equipment are in
compliance in all material respects with, the provisions of the Federal
Occupational Safety and Health Act, the Environmental Protection Act, RCRA and
all other Environmental Laws; there have been no outstanding citations, notices
or orders of non-compliance issued to any Borrower or relating to its business,
assets, property, leaseholds, Real Property or Equipment under any such laws,
rules or regulations.
(b) Each Borrower has been issued all required federal, state
and local licenses, certificates or permits relating to all applicable
Environmental Laws.
(c) (i) There are no visible signs of releases, spills,
discharges, leaks or disposal (collectively referred to as "Releases") of
Hazardous Substances at, upon, under or within any Real Property; (ii) there are
no underground storage tanks or polychlorinated biphenyls on the Real Property;
(iii) the Real Property has never been used as a treatment, storage or disposal
facility of Hazardous Waste; and (iv) no Hazardous Substances are present on the
Real Property, excepting such quantities as are handled in accordance with all
applicable manufacturer's instructions and governmental regulations and in
proper storage containers and as are necessary for the operation of the
commercial business of any Borrower or of its tenants.
5.8. Solvency; No Litigation, Violation, Indebtedness or Default.
(a) After giving effect to the Transactions, Borrowers will be
solvent, able to pay their debts as they mature, have capital sufficient to
carry on their business and all businesses in which they are about to engage,
and (i) as of the Closing Date, the fair present saleable value of their assets,
calculated on a going concern basis, is in excess of the amount of their
liabilities and (ii) subsequent to the Closing Date, the fair saleable value of
their assets (calculated on a going concern basis) will be in excess of the
amount of their liabilities.
(b) Except as disclosed in Schedule 5.8(b), no Borrower or
Guarantor has (i) any pending or threatened litigation, arbitration, actions or
proceedings which involve the possibility of having a Material Adverse Effect on
such Borrower, Guarantor or the Collateral (ii) any liabilities or indebtedness
for borrowed money other than the Obligations; and (iii) any Liens on any of its
assets or properties other than Permitted Encumbrances.
(c) No Borrower or Guarantor is in violation of any
applicable, law, rule, statute, regulation or ordinance in any respect which
could reasonably be expected to have a Material Adverse Effect on such Borrower,
Guarantor or the Collateral, nor is any Borrower or Guarantor in violation of
any order of any court, arbitration board, tribunal or other Governmental Body.
(d) No Borrower nor any member of the Controlled Group
maintains or contributes to any Plan other than those listed on Schedule 5.8(d)
hereto. Except as set forth in Schedule 5.8(d), (i) no Plan has incurred any
"accumulated funding deficiency," as defined in Section 302(a)(2) of ERISA and
Section 412(a) of the Code, whether or not waived, and each Borrower and each
member of the Controlled Group has met all applicable minimum funding
requirements under Section 302 of ERISA in respect of each Plan, (ii) each Plan
which is intended to be a qualified plan under Section 401(a) of the Code as
currently in effect has been determined by the Internal Revenue Service to be
qualified under Section 401(a) of the Code and the trust related thereto is
exempt from federal income tax under Section 501(a) of the Code, (iii) no
Borrower nor any member of the Controlled Group has incurred any liability to
the PBGC other than for the payment of premiums, and there are no premium
payments which have become due which are unpaid, (iv) no Plan has been
terminated by the plan administrator thereof nor by the PBGC, and there is no
occurrence which would cause the PBGC to institute proceedings under Title IV of
ERISA to terminate any Plan, (v) at this time, the current value of the assets
of each Plan exceeds the present value of the accrued benefits and other
liabilities of such Plan and no Borrower nor any member of the Controlled Group
knows of any facts or circumstances which would materially change the value of
such assets and accrued benefits and other liabilities, (vi) no Borrower nor any
member of the Controlled Group has breached any of the responsibilities,
obligations or duties imposed on it by ERISA with respect to any Plan, (vii) no
Borrower nor any member of a Controlled Group has incurred any liability for any
excise tax arising under Section 4972 or 4980B of the Code, and no fact exists
which could give rise to any such liability, (viii) no Borrower nor any member
of the Controlled Group nor any fiduciary of, nor any trustee to, any Plan, has
engaged in a "prohibited transaction" described in Section 406 of the ERISA or
Section 4975 of the Code nor taken any action which would constitute or result
in a Termination Event with respect to any such Plan which is subject to ERISA,
(ix) each Borrower and each member of the Controlled Group has made all
contributions due and payable with respect to each Plan, (x) there exists no
event described in Section 4043(b) of ERISA, for which the thirty (30) day
notice period contained in 29 CFR 2615.3 has not been waived, (xi) no Borrower
nor any member of the Controlled Group has any fiduciary responsibility for
investments with respect to any plan existing for the benefit of persons other
than employees or former employees of any Borrower and any member of the
Controlled Group, and (xii) no Borrower nor any member of the Controlled Group
has withdrawn, completely or partially, from any Multiemployer Plan so as to
incur liability under the Multiemployer Pension Plan Amendments Act of 1980.
(e) None of the Borrowers or any Guarantor has any
responsibility or liability (including, without limitation, with respect to any
clean-up costs or any Environmental Compliance Costs) for any environmental
investigation, contamination or remediation with respect to the property located
at One River Street, Hastings-on-Hudson, New York (the "Hastings Facility").
5.9. Patents, Trademarks, Copyrights and Licenses. All patents, patent
applications, trademarks, trademark applications, service marks, service mark
applications, copyrights, copyright applications, design rights, tradenames,
assumed names, trade secrets and licenses owned or utilized by any Borrower as
of the Closing Date are set forth on Schedule 5.9, are valid and have been duly
registered or filed with all appropriate Governmental Bodies and constitute all
of the intellectual property rights which are necessary for the operation of its
business; there is no objection to or pending challenge to the validity of any
such material patent, trademark, copyright, design right, tradename, trade
secret or license and no Borrower is aware of any grounds for any challenge,
except as set forth in Schedule 5.9 hereto. Each patent, patent application,
patent license, trademark, trademark application, trademark license, service
mark, service mark application, service mark license, copyright, copyright
application and copyright license owned or held by any Borrower and all trade
secrets used by any Borrower consist of original material or property developed
by such Borrower or was lawfully acquired by such Borrower from the proper and
lawful owner thereof. Each of such items has been maintained so as to preserve
the value thereof from the date of creation or acquisition thereof. With respect
to all software, except "off-the-shelf" software (for which a Borrower has
access to only), used by any Borrower, such Borrower is in possession of all
source and object codes related to each piece of software or is the beneficiary
of a source code escrow agreement, each such source code escrow agreement being
listed on Schedule 5.9 hereto.
5.10. Licenses and Permits. Except as set forth in Schedule 5.10, each
Borrower (a) is in compliance with and (b) has procured and is now in possession
of, all material licenses or permits required by any applicable federal, state,
provincial or local law, rule or regulation for the operation of its business in
each jurisdiction wherein it is now conducting or proposes to conduct business
and where the failure to procure such licenses or permits could have a Material
Adverse Effect on such Borrower.
5.11. Default of Indebtedness. No Borrower or Guarantor is in default
in the payment of the principal of or interest on any Indebtedness or under any
instrument or agreement under or subject to which any Indebtedness has been
issued and no event has occurred under the provisions of any such instrument or
agreement which with or without the lapse of time or the giving of notice, or
both, constitutes or would constitute an event of default thereunder.
5.12. No Default. No Borrower or Guarantor is in default in the payment
or performance of any of its contractual obligations and no Default has
occurred. Borrowers have heretofore delivered to the Agent true and complete
copies of all material contracts to which it is a party or to which any of its
property is bound.
5.13. No Burdensome Restrictions. No Borrower is party to any contract
or agreement the performance of which could have a Material Adverse Effect on
such Borrower. No Borrower has agreed or consented to cause or permit in the
future (upon the happening of a contingency or otherwise) any of its property,
whether now owned or hereafter acquired, to be subject to a Lien which is not a
Permitted Encumbrance.
5.14. No Labor Disputes. As of the Closing Date, no Borrower is
involved in any labor dispute and, as of the date of each request for an
Advance, no labor dispute will exist other than nonmaterial ordinary course of
business disputes with any employee which could not be reasonably expected to
have a Material Adverse Effect on any Borrower. There are no strikes or walkouts
or union organization of any Borrower's employees threatened or in existence and
no labor contract is scheduled to expire during the Term other than as set forth
on Schedule 5.14 hereto.
5.15. Margin Regulations. No Borrower is engaged, nor will it engage,
principally or as one of its important activities, in the business of extending
credit for the purpose of "purchasing" or "carrying" any "margin stock" within
the respective meanings of each of the quoted terms under Regulation U or
Regulation G of the Board of Governors of the Federal Reserve System as now and
from time to time hereafter in effect. No part of the proceeds of any Advance
will be used for "purchasing" or "carrying" "margin stock" as defined in
Regulation U of such Board of Governors.
5.16. Investment Company Act. No Borrower is an "investment company"
registered or required to be registered under the Investment Company Act of
1940, as amended, nor is it controlled by such a company.
5.17. Disclosure. No representation or warranty made by any Borrower in
this Agreement or in any financial statement, report, certificate or any other
document furnished in connection herewith contains any untrue statement of a
material fact or omits to state any material fact necessary to make the
statements herein or therein not misleading. There is no fact known to Borrowers
or which reasonably should be known to Borrowers which Borrowers have not
disclosed to Agent in writing with respect to the transactions contemplated by
this Agreement which could reasonably be expected to have a Material Adverse
Effect on any Borrower.
5.18. Swaps. No Borrower is a party to, nor will it be a party to, any
swap agreement whereby such Borrower has agreed or will agree to swap interest
rates or currencies unless same provides that damages upon termination following
an event of default thereunder are payable on an unlimited "two-way basis"
without regard to fault on the part of either party.
5.19. Conflicting Agreements. No provision of any mortgage, indenture,
contract, agreement, judgment, decree or order binding on any Borrower or
affecting the Collateral conflicts with, or requires any Consent which has not
already been obtained to, or would in any way prevent the execution, delivery or
performance of, the terms of this Agreement or the Other Documents.
5.20. Application of Certain Laws and Regulations. No Borrower nor any
Affiliate of any Borrower, is subject to any law, statute, rule or regulation
which regulates the incurrence of any Indebtedness, including without
limitation, laws, statutes, rules or regulations relative to common or
interstate carriers or to the sale of electricity, gas, steam, water, telephone,
telegraph or other public utility services.
5.21. Business and Property of Borrower. Upon and after the Closing
Date, Borrowers do not propose to engage in any business other than the
businesses conducted on the Closing Date and fully disclosed to the Agent and
activities necessary to conduct the foregoing. On the Closing Date, each
Borrower will own all the property and possess all of the rights and Consents
necessary for the conduct of the business of such Borrower. Each of Fu-Chung
Manufacturing, Inc., a Delaware corporation, and Alpine Financial Inc., a
Delaware corporation (collectively, the "Inactive Affiliates") is an inactive
subsidiary of Holdings that conducts no business and has less than $25,000 in
total assets. Zacko has less than $25,000 on deposit in its Merrill Lynch
account, which is its only account.
5.22. Year 2000. Each Borrower has reviewed the areas within their
business and operations which could be adversely affected by, and have developed
or are developing a program to address on a timely basis, the risk that certain
computer applications used by each Borrower (or any of their respective material
suppliers, customers or vendors) may be unable to recognize and perform properly
date-sensitive functions involving dates prior to and after December 31, 1999
(the "Year 2000 Problem"). The Year 2000 Problem will not have a Material
Adverse Effect on any Borrower.
VI. AFFIRMATIVE COVENANTS.
Each Borrower shall, and shall cause each of its Subsidiaries to, until
payment in full of the Obligations and termination of this Agreement:
6.1. Payment of Fees. Pay to Agent on demand all usual and customary
fees and expenses which Agent incurs in connection with (a) the forwarding of
Advance proceeds and (b) the establishment and maintenance of any Blocked
Accounts or Depository Accounts as provided for in Section 4.15(h). Agent may,
without making demand, charge Borrowers' Account for all such fees and expenses.
6.2. Conduct of Business and Maintenance of Existence and Assets. (a)
Conduct continuously and operate actively its business according to good
business practices and maintain all of its properties useful or necessary in its
business in good working order and condition (reasonable wear and tear excepted
and except as may be disposed of in accordance with the terms of this
Agreement), including, without limitation, all licenses, patents, copyrights,
design rights, tradenames, trade secrets and trademarks and take all actions
necessary to enforce and protect the validity of any intellectual property right
or other right included in the Collateral, and immediately notify Agent upon
acquiring any ownership interest in or other right to use any patent, trademark,
copyright, license or other intellectual property of any kind after the date
hereof; (b) keep in full force and effect its existence and comply with the
laws, rules and regulations governing the conduct of its business where the
failure to do so could reasonably be expected to have a Material Adverse Effect
on such Borrower; and (c) make all such reports and pay all such franchise and
other taxes and license fees and do all such other acts and things as may be
lawfully required to maintain its rights, licenses, leases, powers and
franchises under the laws of the United States or any political subdivision
thereof where the failure to do so could reasonably be expected to have a
Material Adverse Effect on such Borrower.
6.3. Violations. Promptly notify Agent in writing of any violation of
any law, statute, rule, regulation, or ordinance of any Governmental Body, or of
any agency thereof, applicable to any Borrower which could reasonably be
expected to have a Material Adverse Effect on any Borrower.
6.4. Government Receivables. Take all steps necessary to protect
Agent's interest in the Collateral under the Federal Assignment of Claims Act,
the Uniform Commercial Code and all other applicable state or local statutes or
ordinances and deliver to Agent appropriately endorsed, any instrument or
chattel paper connected with any Receivable arising out of contracts between any
Borrower and the United States, any state or any department, agency or
instrumentality of any of them.
6.5. Net Worth. Maintain, with respect to all Borrowers on a combined
basis, at all times a Net Worth in an amount not less than $8,125,000, provided
such amount shall be increased commencing with respect to each fiscal year (or
portion thereof) commencing on January 1, 2000, to an amount equal to the
minimum Net Worth amount required for the immediately preceding fiscal year
pursuant to this Section 6.5 plus an amount equal to 50% of the positive net
income of Borrowers on a combined basis for such prior fiscal year.
6.6. Fixed Charge Coverage Ratio. Maintain, with respect to all
Borrowers on a combined basis, a Fixed Charge Coverage Ratio at the end of each
fiscal quarter with respect to the four fiscal quarters then ended of not less
than 1.2 to 1.0.
6.7. Execution of Supplemental Instruments. Execute and deliver to
Agent from time to time, upon demand, such supplemental agreements, statements,
assignments and transfers, or instructions or documents relating to the
Collateral, and such other instruments as Agent may request, in order that the
full intent of this Agreement may be carried into effect provided that any
amendment to this Agreement may only be made pursuant to Section 16.2(a).
6.8. Payment of Indebtedness. Pay, discharge or otherwise satisfy and
perform at or before maturity (subject, where applicable, to specified grace
periods and, in the case of the trade payables, to normal payment practices) all
its obligations and liabilities of whatever nature, except when the failure to
do so could not reasonably be expected to have a Material Adverse Effect or when
the amount or validity thereof is currently being contested within 30 days after
such maturity in good faith by appropriate proceedings and each Borrower shall
have provided for such reserves as Agent may reasonably deem proper and
necessary, subject at all times to any applicable subordination arrangement in
favor of Lenders.
6.9. Standards of Financial Statements. Cause all financial statements
referred to in Sections 9.7, 9.8, 9.9, 9.10, 9.11, 9.12, 9.13 and 9.14 as to
which GAAP is applicable to be complete and correct in all material respects
(subject, in the case of interim financial statements, to normal year-end audit
adjustments) and to be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein (except as
concurred in by such reporting accountants or officer, as the case may be, and
disclosed therein).
6.10. Year 2000 Problem. Take all steps necessary to ensure that the
Year 2000 Problem will not have a Material Adverse Effect on any Borrower or any
of their Subsidiaries.
6.11 Additional Insurance. Within 90 days after the Closing Date, PTI
shall obtain $10,000,000 of additional product liability insurance coverage in
addition to its existing product liability coverage of $20,000,000, with respect
to claims (including, without limitation, occurrences in 1998) for personal
injury, death or property damage suffered by others and otherwise in form and
substance satisfactory to Agent, and such insurance coverage shall be otherwise
in compliance with Section 4.11 hereof (including, without limitation,
subsection (e)). Without limiting any other right or remedy that Agent may have,
if PTI fails to comply with the foregoing covenant within such 90-day period,
Agent can obtain such insurance coverage on behalf of PTI and all costs and
expenses relating thereto shall be charged to Borrowers Account as a Revolving
Advance of a Domestic Rate Loan and added to the Obligations.
VII. NEGATIVE COVENANTS.
No Borrower shall, until satisfaction in full of the Obligations and
termination of this Agreement:
7.1. Merger, Consolidation, Acquisition and Sale of Assets.
(a) Enter into any merger, consolidation or other
reorganization with or into any other Person or acquire all or a substantial
portion of the assets or Stock of any Person (or of any Subsidiary, division or
operating unit of any Person) or permit any other Person to consolidate with or
merge with it.
(b) Sell, lease, transfer or otherwise dispose of any of its
properties or assets, except the sale of Inventory in the ordinary course of its
business and except the disposition or transfer of obsolete and worn out
Equipment in accordance with Section 4.3.
7.2. Creation of Liens. Create or suffer to exist any Lien or transfer
upon or against any of its property or assets now owned or hereafter acquired,
except Permitted Encumbrances.
7.3. Guarantees. Become liable upon the obligations or liabilities of
any Person by assumption, endorsement or guaranty thereof or otherwise (other
than to Lenders) except the endorsement of checks in the ordinary course of
business.
7.4. Investments. Purchase or acquire obligations or Stock of, or any
other interest in, any Person, except (a) obligations issued or guaranteed by
the United States of America or any agency thereof, (b) commercial paper with
maturities of not more than 180 days and a published rating of not less than A-1
or P-1 (or the equivalent rating), (c) certificates of time deposit and bankers'
acceptances having maturities of not more than 180 days and repurchase
agreements backed by United States government securities of a commercial bank if
(i) such bank has a combined capital and surplus of at least $500,000,000, or
(ii) its debt obligations, or those of a holding company of which it is a
Subsidiary, are rated not less than A (or the equivalent rating) by a nationally
recognized investment rating agency, and (d) U.S. money market funds that invest
solely in obligations issued or guaranteed by the United States of America or an
agency thereof.
7.5. Loans. Make advances, loans or extensions of credit to any Person,
including without limitation, any Parent, Subsidiary or Affiliate except with
respect to (a) the extension of commercial trade credit in connection with the
sale of Inventory in the ordinary course of its business; (b) a loan from PTI to
Holdings on the Closing Date in the amount of $1,000,000, provided that (1) such
loan shall be evidenced by a promissory note substantially in the form of
Exhibit 7.5(b) hereto (the "Intercompany Note") and (2) such Intercompany Note
shall be pledged by PTI and delivered to the Agent for the ratable benefit of
the Lenders; (c) (i) a loan from PTI to the Original Owner in the principal
amount of $600,000 and a loan from PTI to Warren Schaeffer in the principal
amount of $600,000 provided that (A) each such loan shall be evidenced by a
promissory note substantially in the form of Exhibit 7.5(c) (collectively, the
"Management Notes") and (B) such Management Notes shall be pledged by PTI and
delivered to Agent for the ratable benefit of the Lenders and (ii) other loans
to its employees in the ordinary course of business not to exceed the aggregate
amount of $50,000 at any time outstanding; (d) commencing on the second
anniversary of the Closing Date, loans from PTI to Holdings, to be applied by
Holdings solely to make prepayments of Subordinated Indebtedness (as defined in
the Karlen Subordination Agreement), provided that, (A) prior to and after
giving effect to any such loan, (i) the Fixed Charge Coverage Ratio of Borrowers
on a combined basis shall be equal to or greater than 2.0 to 1.0; (ii) Borrowers
shall have Undrawn Availability of at least $3,000,000 and (iii) no Default or
Event of Default shall have occurred; (B) such prepayments are otherwise
permitted and in accordance with the terms and provisions of the Karlen
Subordination Agreement; and (C) each such loan shall be evidenced by a
subordinated demand promissory note in substantially the form of Exhibit 7.5(d)
(the "Karlen Intercompany Note") and the Karlen Intercompany Note shall be
pledged to Agent; and (e) loans from PTI to Holdings, to be applied by Holdings
solely to make regularly scheduled payments of interest under the Subordinated
Note (as defined in the Karlen Subordination Agreement) as in effect on the date
hereof, provided that, (A) prior to and after giving effect to any such loan,
(i) the Fixed Charge Coverage Ratio of Borrowers on a combined basis shall be
equal to or greater than 2.0 to 1.0; Borrowers shall have Undrawn Availability
of at least $3,000,000 and (ii) no Default or Event of Default shall have
occurred; (B) such regularly scheduled payments of interest are otherwise
permitted and in accordance with the terms and provisions of the Karlen
Subordination Agreement; and (C) each such loan shall be evidenced by the Karlen
Intercompany Note and otherwise permitted in accordance with the terms and
provisions thereof.
7.6. Capital Expenditures. Contract for, purchase or make any
expenditure or commitments for fixed or capital assets (including capitalized
leases) in any fiscal year in an amount in excess of $500,000.
7.7. Dividends. Except for a $200,000 cash dividend from PTI to
Holdings made on the Closing Date to be applied as a cash capital contribution
to Flents on the Closing Date, declare, pay or make any dividend or distribution
on any shares of common stock, preferred stock or any other Stock of such
Borrower (other than dividends or distributions payable in its Stock) or split
up or reclassify any of its Stock or apply any of its funds, property or assets
to the purchase, redemption or other retirement or acquisition of any common or
preferred stock or any other Stock, including, without limitation, any options
to purchase or acquire any such shares of common or preferred stock or other
stock of such Borrower.
7.8. Indebtedness. Create, incur, assume or suffer to exist any
Indebtedness (exclusive of trade debt incurred in the ordinary course of
business to non-Affiliates) except in respect of (a) Indebtedness to Lenders and
(b) Indebtedness incurred for capital expenditures permitted under Section 7.6
hereof.
7.9. Nature of Business. Substantially change the nature of the
business in which it is presently engaged, nor except as specifically permitted
hereby purchase or invest, directly or indirectly, in any assets or property
other than in the ordinary course of business for assets or property which are
useful in, necessary for and are to be used in its business as presently
conducted, and Borrowers will not purchase any Real Property or other real
property. Without the prior written consent of Agent neither Borrower shall
permit the Merrill Lynch account maintained by Zacko to have on deposit more
than $25,000 at any time.
7.10. Transactions with Affiliates. Directly or indirectly, purchase,
acquire or lease any property from, or sell, transfer or lease any property to,
or otherwise enter into any transaction or deal with, any Affiliate, except
transactions disclosed to the Agent, which are in the ordinary course of
business, and on an arm's-length basis on terms and on conditions no less
favorable than terms and conditions which would have been obtainable from a
Person other than an Affiliate; except (i) PTI shall be entitled to receive
payments of principal and interest under and pursuant to the terms and
conditions of the Intercompany Note as in effect on the Closing Date and
payments of principal and interest under each Karlen Intercompany Note, (ii) PTI
shall be entitled to reimburse Holdings in an aggregate amount not to exceed
$100,000 in cash during any fiscal year, to be applied by Holdings to pay
certain lease expenses, franchise taxes, accounting and SEC fees and expenses
and other ordinary course of business operating expenses incurred by Holdings on
behalf of Borrowers, so long as prior to and after giving effect to any such
payments there shall not exist any Event of Default or Default and (iii) loans
to Holdings to the extent expressly permitted pursuant to Section 7.5 hereof.
7.11. Leases. Enter as lessee into any lease arrangement for real or
personal property (unless capitalized and permitted under Section 7.6 hereof) if
after giving effect thereto, aggregate annual rental payments for all leased
property would exceed (i) $1,325,000 during fiscal year 1999, (ii) $1,400,000
during fiscal year 2000 and (iii) $1,500,000 during fiscal year 2001 and
thereafter (or, in the event the lease for the Hastings Facility shall have
terminated and Borrowers shall move to another location, $2,000,000 in fiscal
year 2001 and thereafter).
7.12. Subsidiaries.
(a) Form any Subsidiary.
(b) Enter into any partnership, joint venture or similar
arrangement.
7.13. Fiscal Year and Accounting Changes. Change its fiscal year or
make any change (i) in accounting treatment and reporting practices except as
required by GAAP or (ii) in tax reporting treatment except as required by law.
7.14. Pledge of Credit. Now or hereafter pledge Agent's or any Lender's
credit on any purchases or for any purpose whatsoever or use any portion of any
Advance in or for any business other than such Borrower's business as conducted
on the date of this Agreement.
7.15. Amendment of Articles of Incorporation, By-Laws. Amend, modify or
waive any term or material provision of its Articles of Incorporation or
By-Laws, except to increase the amount of authorized common stock, or unless
required by law.
7.16. Compliance with ERISA. (i) (x) Maintain, or permit any member of
the Controlled Group to maintain, or (y) become obligated to contribute, or
permit any member of the Controlled Group to become obligated to contribute, to
any Plan, other than those Plans disclosed on Schedule 5.8(d), (ii) engage, or
permit any member of the Controlled Group to engage, in any non-exempt
"prohibited transaction," as that term is defined in section 406 of ERISA and
Section 4975 of the Code, (iii) incur, or permit any member of the Controlled
Group to incur, any "accumulated funding deficiency," as that term is defined in
Section 302 of ERISA or Section 412 of the Code, (iv) terminate, or permit any
member of the Controlled Group to terminate, any Plan where such event could
result in any liability of any Borrower or any member of the Controlled Group or
the imposition of a lien on the property of any Borrower or any member of the
Controlled Group pursuant to Section 4068 of ERISA, (v) assume, or permit any
member of the Controlled Group to assume, any obligation to contribute to any
Multiemployer Plan not disclosed on Schedule 5.8(d), (vi) incur, or permit any
member of the Controlled Group to incur, any withdrawal liability to any
Multiemployer Plan; (vii) fail promptly to notify Agent of the occurrence of any
Termination Event, (viii) fail to comply, or permit a member of the Controlled
Group to fail to comply, with the requirements of ERISA or the Code or other
applicable laws in respect of any Plan, (ix) fail to meet, or permit any member
of the Controlled Group to fail to meet, all minimum funding requirements under
ERISA or the Code or postpone or delay or allow any member of the Controlled
Group to postpone or delay any funding requirement with respect of any Plan.
7.17. Prepayment of Indebtedness. At any time, directly or indirectly,
prepay any Indebtedness (other than to Lenders and other than prepayments of
account payables to vendors and suppliers in the ordinary course of business
consistent with past practices), or repurchase, redeem, retire or otherwise
acquire any Indebtedness of any Borrower.
7.18. Other Agreements. (a) Enter into any amendment, waiver or
modification of the Intercompany Note, either of the Management Notes, the
Intercreditor Agreement, any Karlen Intercompany Note, or any related agreements
(b) amend or modify the Management Agreement other than any amendment to the
Management Agreement, the effect of which would not be to decrease, increase or
otherwise change the payments thereunder or otherwise violate any other
provision of this Agreement or terminate or permit the Management Agreement to
terminate for any reason prior to the Maturity Date without the Agent's prior
written consent.
VIII. CONDITIONS PRECEDENT.
8.1. Conditions to Initial Advances. The agreement of Lenders to make
the initial Advances requested to be made on the Closing Date is subject to the
satisfaction, or waiver by Lenders, immediately prior to or concurrently with
the making of such Advances, of the following conditions precedent:
(a) Note. Agent shall have received the Notes duly
executed and delivered by an authorized officer of each Borrower;
(b) Filings, Registrations and Recordings. Each document
(including, without limitation, any Uniform Commercial Code financing statement)
required by this Agreement, any Other Document, any related agreement or under
law or reasonably requested by the Agent to be filed, registered or recorded in
order to create, in favor of Agent, a perfected security interest in and Lien
upon the Collateral shall have been properly filed, registered or recorded in
each jurisdiction in which the filing, registration or recordation thereof is so
required or requested, and Agent shall have received an acknowledgment copy, or
other evidence satisfactory to it, of each such filing, registration or
recordation and satisfactory evidence of the payment of any necessary fee, tax
or expense relating thereto;
(c) Corporate Proceedings. Agent shall have received a copy of
the resolutions in form and substance reasonably satisfactory to Agent, of the
Board of Directors of Holdings and each Borrower authorizing (i) the execution,
delivery and performance of this Agreement, the Note, the Other Documents and
any related agreements, (collectively, the "Documents") and (ii) the granting by
each Borrower of the security interests in and liens upon the Collateral in each
case certified by the Secretary or an Assistant Secretary of Holdings and each
Borrower as of the Closing Date; and, such certificate shall state that the
resolutions thereby certified have not been amended, modified, revoked or
rescinded as of the date of such certificate;
(d) Incumbency Certificates. Agent shall have received a
certificate of the Secretary or an Assistant Secretary of Holdings and each
Borrower, dated the Closing Date, as to the incumbency and signature of the
officers of Holdings and each Borrower executing this Agreement, any certificate
or other documents to be delivered by it pursuant hereto, together with evidence
of the incumbency of such Secretary or Assistant Secretary;
(e) Certificates. Agent shall have received a copy of the
Articles or Certificate of Incorporation of Holdings and each Borrower, and all
amendments thereto, certified by the Secretary of State or other appropriate
official of its jurisdiction of incorporation together with copies of the
By-Laws of Holdings and each Borrower and all agreements of Holdings and of each
Borrower's shareholders certified as accurate and complete by the Secretary of
each Borrower;
(f) Good Standing Certificates. Agent shall have received good
standing certificates for Holdings and each Borrower dated not more than 15 days
prior to the Closing Date, issued by the Secretary of State or other appropriate
official of Holdings and each Borrower's jurisdiction of incorporation and each
jurisdiction where the conduct of Holdings and each Borrower's business
activities or the ownership of its properties necessitates qualification;
(g) Legal Opinion. Agent shall have received the executed
legal opinion of Akabas & Cohen, in form and substance satisfactory to Agent,
which shall cover such matters incident to the transactions contemplated by this
Agreement, the Note, the Guaranty, the Intercreditor Agreement, the Other
Documents, and related agreements as Agent may reasonably require and each
Borrower hereby authorizes and directs such counsel to deliver such opinions to
Agent and Lenders;
(h) No Litigation. (i) No litigation, investigation or
proceeding before or by any arbitrator or Governmental Body shall be continuing
or threatened against Holdings or any Borrower or against the officers or
directors of Holdings or any Borrower (A) in connection with this Agreement, the
Other Documents or any of the transactions contemplated thereby and which, in
the reasonable opinion of Agent, is deemed material or (B) which could, in the
reasonable opinion of Agent, have a Material Adverse Effect; and (ii) no
injunction, writ, restraining order or other order of any nature materially
adverse to Holdings or any Borrower or the conduct of its business or
inconsistent with the due consummation of the Transactions shall have been
issued by any Governmental Body;
(i) Financial Condition Certificates. Agent shall have
received an executed Financial Condition Certificate in the form of Exhibit
8.1(i);
(j) Collateral Examination. Agent shall have completed
Collateral examinations and received appraisals, the results of which shall be
satisfactory in form and substance to Lenders, of the Receivables, Inventory,
General Intangibles, Real Property, Leasehold Interest and Equipment and other
Collateral of each Borrower and all books and records in connection therewith;
(k) Fees. Agent shall have received all fees payable to Agent
and Lenders on or prior to the Closing Date pursuant to Article III hereof;
(l) Pro Forma Financial Statements. Agent shall have received
a copy of the Pro Forma Financial Statements which shall be satisfactory in all
respects to Lenders;
(m) Pledge Agreement. Agent and Holdings shall have entered
into the Pledge Agreement, in form and substance satisfactory to Agent in its
sole discretion;
(n) Senior Subordinated Security Agreement. Holdings and
Flents shall have entered into the Senior Subordinated Security Agreement, in
form and substance satisfactory to Agent.
(o) Intercreditor Agreements. Holdings and Agent shall have
entered into the Intercreditor Agreement and the Subordination Agreements shall
have been entered into by all parties thereto, in each case, in form and
substance satisfactory to Agent;
(p) Insurance. Agent shall have received in form and substance
satisfactory to Agent, certified copies of Borrowers' casualty insurance
policies, together with loss payable endorsements on Agent's standard form of
loss payee endorsement naming Agent as loss payee, and certified copies of
Borrowers' liability insurance policies, together with endorsements naming Agent
as a co-insured;
(q) Payment Instructions. Agent shall have received written
instructions from Borrowers directing the application of proceeds of the initial
Advances made pursuant to this Agreement;
(r) Blocked Accounts. Agent shall have received duly executed
agreements establishing the Blocked Accounts or Depository Accounts with
financial institutions acceptable to Agent for the collection or servicing of
the Receivables and proceeds of the Collateral;
(s) Consents. Agent shall have received any and all Consents
necessary to permit the effectuation of the transactions contemplated by this
Agreement and the Other Documents, including, without limitation, Consents from
all licensors in form and substance satisfactory to Agent and a Consent with
respect to the Collateral Assignment of the Senior Subordinated Security
Agreement and the Intercredit Agreement; and, Agent shall have received such
Consents and waivers of such other third parties as might assert claims with
respect to the Collateral, as Agent and its counsel shall deem necessary;
(t) No Adverse Material Change. (i) since December 31, 1997,
there shall not have occurred any event, condition or state of facts which could
reasonably be expected to have a Material Adverse Effect on any Borrower and
(ii) no representations made or information supplied to Agent shall have been
proven to be inaccurate or misleading in any material respect;
(u) Leasehold Agreements. Agent shall have received landlord,
mortgagee or warehouseman agreements satisfactory to Agent with respect to all
premises leased by Borrowers or at which Inventory is located;
(v) Guarantees and Other Documents. Agent shall have
received (i) the executed Guarantees, (ii) the executed Pledge Agreement, and
(iii) the executed Other Documents, all in form and substance satisfactory to
Agent;
(w) Net Worth. Agent shall have received the Pro Forma
Balance Sheet reflecting a Net Worth after giving effect to the Transactions of
at least $8,800,000;
(x) Contract Review. Agent shall have reviewed all material
contracts of and other agreements to which any Borrower is a party or is bound
or which effects the business of any Borrower or the Collateral including,
without limitation, leases, union contracts, labor contracts, vendor supply
contracts, license agreements and distributorship agreements and employment
agreements and all such contracts and agreements shall be satisfactory in all
respects to Agent;
(y) Closing Certificate. Agent shall have received a closing
certificate signed by the Chief Financial Officer of Holdings and each Borrower
dated as of the date hereof, stating that (i) all representations and warranties
set forth in this Agreement and the Other Documents are true and correct on and
as of such date, (ii) Holdings and Borrowers are on such date in compliance with
all the terms and provisions set forth in this Agreement and the Other Documents
and (iii) on such date no Default or Event of Default has occurred or is
continuing;
(z) Borrowing Base. Agent shall have received evidence from
Borrowers that the aggregate amount of Eligible Receivables and Eligible
Inventory is sufficient in value and amount to support Advances in the amount
requested by Borrowers on the Closing Date; and that after giving effect to the
initial Advances hereunder, Borrowers shall have Undrawn Availability of at
least $2,500,000 as evidenced by the Borrowing Base certificate in substantially
the form of Exhibit 8.1(z) hereof;
(aa) Compliance with Laws. Agent shall be reasonably satisfied
that each Borrower is in compliance with all pertinent federal, state, local or
territorial regulations, including, but not limited to those with respect to
EPA, OSHA and ERISA;
(bb) Product Liability Insurance. Agent shall have received
evidence to its satisfaction that Borrowers maintain sufficient product
liability insurance, all in form and substance satisfactory to Agent;
(cc) Other. All corporate and other proceedings, and all
documents, instruments and other legal matters in connection with the
Transactions shall be satisfactory in form and substance to Agent and its
counsel; and
8.2. Conditions to Each Advance. The agreement of Lenders to make any
Advance requested to be made on any date (including, without limitation, the
initial Advance), is subject to the satisfaction of the following conditions
precedent as of the date such Advance is made:
(a) Representations and Warranties. Each of the
representations and warranties made by Holdings or any Borrower in or pursuant
to this Agreement, the Other Documents and any related agreements to which it is
a party, and each of the representations and warranties contained in any
certificate, document or financial or other statement furnished at any time
under or in connection with this Agreement, the Other Documents or any related
agreement shall be true and correct in all material respects on and as of such
date as if made on and as of such date;
(b) No Default. No Event of Default or Default shall have
occurred and be continuing on such date, or would exist after giving effect to
the Advances requested to be made, on such date; provided, however that Lenders,
in their sole discretion, may continue to make Advances notwithstanding the
existence of an Event of Default or Default and that any Advances so made shall
not be deemed a waiver of any such Event of Default or Default; and
(c) Maximum Advances. In the case of any Advances requested to
be made, after giving effect thereto, the aggregate Advances shall not exceed
the maximum amount of Advances permitted under Section 2.1 hereof.
Each request for an Advance by any Borrower hereunder shall constitute a
representation and warranty by each Borrower as of the date of such Advance that
the conditions contained in this subsection shall have been satisfied.
IX. INFORMATION AS TO BORROWERS.
Each Borrower shall, until satisfaction in full of the Obligations and
the termination of this Agreement:
9.1. Disclosure of Material Matters. Immediately upon learning thereof,
report to Agent all matters materially affecting the value, enforceability or
collectability of any portion of the Collateral including, without limitation,
any Borrower's reclamation or repossession of, or the return to any Borrower of,
a material amount of goods or claims or disputes asserted by any Customer or
other obligor.
9.2. Schedules. Deliver to Agent (i) at least weekly on the first
Business Day of each week, a detailed listing of all sales made by each Borrower
during the prior week and (ii) on or before the fifteenth (15th) day of each
month as and for the prior month (a) accounts receivable aging, (b) accounts
payable schedules and (c) Inventory reports, including without limitation,
reports by category and location, and (d) a reconciliation to the general ledger
of each Borrower of the reports described in Sections 9.2(i)(a)-(c) above. In
addition, each Borrower will deliver to Agent at such intervals as Agent may
require: (i) confirmatory assignment schedules, (ii) copies of Customer's
invoices, (iii) evidence of shipment or delivery, and (iv) such further
schedules, documents and/or information regarding the Collateral as Agent may
require including, without limitation, trial balances and test verifications.
Agent shall have the right to confirm and verify all Receivables by any manner
and through any medium it considers advisable and do whatever it may deem
reasonably necessary to protect its interests hereunder. The items to be
provided under this Section are to be in form reasonably satisfactory to Agent
and executed by each Borrower and delivered to Agent from time to time solely
for Agent's convenience in maintaining records of the Collateral, and any
Borrower's failure to deliver any of such items to Agent shall not affect,
terminate, modify or otherwise limit Agent's Lien with respect to the
Collateral.
9.3. Environmental Reports. Furnish Agent, concurrently with the
delivery of the financial statements referred to in Sections 9.7 and 9.8, with a
certificate signed by the President of each Borrower stating, to the best of his
knowledge, that each Borrower is in compliance in all material respects with all
federal, state and local Environmental Laws and occupational safety and health.
To the extent any Borrower is not in compliance with the foregoing laws, the
certificate shall set forth with specificity all areas of non-compliance and the
proposed action such Borrower will implement in order to achieve full
compliance.
9.4. Litigation. Promptly notify Agent in writing of any claim if the
amount in question or which could reasonably be determined to be due from any
Borrower is in excess of $100,000, and of each litigation, suit or
administrative proceeding affecting any Borrower or Holdings, whether or not the
claim is covered by insurance, and of any litigation, suit or administrative
proceeding, which in any such case affects any of the Collateral or which could
reasonably be expected to have a Material Adverse Effect on any Borrower.
9.5. Material Occurrences. Promptly notify Agent in writing upon the
occurrence of (a) any Event of Default or Default; (b) any event of default
under the Intercompany Note; (c) any event which with the giving of notice or
lapse of time, or both, would constitute an event of default under the
Intercompany Note; (d) any event, development or circumstance whereby any
financial statements or other reports furnished to Agent fail in any material
respect to present fairly, in accordance with GAAP consistently applied, the
financial condition or operating results of any Borrower as of the date of such
statements and for the period then ended, as applicable; (e) any accumulated
retirement plan funding deficiency which, if such deficiency continued for two
plan years and was not corrected as provided in Section 4971 of the Code, could
subject any Borrower to a tax imposed by Section 4971 of the Code; (f) each and
every default by any Borrower which might result in the acceleration of the
maturity of any Indebtedness, including the names and addresses of the holders
of such Indebtedness with respect to which there is a default existing or with
respect to which the maturity has been or could be accelerated, and the amount
of such Indebtedness; and (g) any other development in the business or affairs
of Holdings or any Borrower which could reasonably be expected to have a
Material Adverse Effect on Holdings or any Borrower; in each case describing the
nature thereof and the action Borrowers propose to take with respect thereto.
9.6. Government Receivables. Notify Agent immediately if any of its
Receivables arise out of contracts between any Borrower and the United States,
any state, or any department, agency or instrumentality of any of them.
9.7. Annual Financial Statements. Furnish Agent within one hundred and
five (105) days after the end of each fiscal year of Holdings, financial
statements of Holdings on a consolidating and consolidated basis and of each
Borrower including, but not limited to, statements of income and stockholders'
equity and cash flow from the beginning of the current fiscal year to the end of
such fiscal year and the balance sheet as at the end of such fiscal year and in
comparative form with respect to the same period for the prior fiscal year, all
prepared in accordance with GAAP applied on a basis consistent with prior
practices, and in reasonable detail and reported upon without qualification by
an independent certified public accounting firm selected by Borrowers and
satisfactory to Agent (the "Accountants"). The report of the Accountants shall
be accompanied by a statement of the Accountants certifying that (i) they have
caused this Agreement to be reviewed, (ii) in making the examination upon which
such report was based either no information came to their attention which to
their knowledge constituted an Event of Default or a Default under this
Agreement or any related agreement or, if such information came to their
attention, specifying any such Default or Event of Default, its nature, when it
occurred and whether it is continuing, and such report shall contain or have
appended thereto calculations which set forth Borrowers' compliance with the
requirements or restrictions imposed by Sections 6.5, 6.6, 7.6, 7.7, 7.8, 7.11,
7.17 and 7.18 hereof. In addition, the reports shall be accompanied by a
certificate of Holdings and each Borrower's Chief Financial Officer which shall
state that, based on an examination sufficient to permit him to make an informed
statement, no Default or Event of Default exists, or, if such is not the case,
specifying such Default or Event of Default, its nature, when it occurred,
whether it is continuing and the steps being taken by such Borrower with respect
to such event, and such certificate shall have appended thereto calculations
which set forth Borrowers' compliance with the requirements or restrictions
imposed by Sections 6.5, 6.6, 7.6, 7.7, 7.8, 7.11 , 7.17 and 7.18 hereof.
9.8. Quarterly Financial Statements. Furnish Agent within sixty (60)
days after the end of each fiscal quarter, an unaudited balance sheet of
Holdings on a consolidated and consolidating basis and of each Borrower and
unaudited statements of income and stockholders' equity and cash flow of
Holdings on a consolidated and consolidating basis and of each Borrower
reflecting results of operations from the beginning of the fiscal year to the
end of such quarter and for such quarter, prepared on a basis consistent with
prior practices and complete and correct in all material respects, subject to
normal year end adjustments. The reports shall be accompanied by a certificate
signed by the Chief Financial Officer of Holdings and each Borrower, which shall
state that, based on an examination sufficient to permit him to make an informed
statement, no Default or Event of Default exists, or, if such is not the case,
specifying such Default or Event of Default, its nature, when it occurred,
whether it is continuing and the steps being taken by Borrowers with respect to
such default and, such certificate shall have appended thereto calculations
which set forth Borrowers' compliance with the requirements or restrictions
imposed by Sections 6.5, 6.6, 7.6, 7.7, 7.8, 7.11, 7.17 and 7.18 hereof.
9.9. Monthly Financial Statements. Furnish Agent within thirty (30)
days after the end of each month, an unaudited balance sheet of Holdings on a
consolidated and consolidating basis and of each Borrower and unaudited
statements of income and stockholders' equity and cash flow of Holdings on a
consolidated and consolidating basis and of each Borrower reflecting results of
operations from the beginning of the fiscal year to the end of such month and
for such month and in comparative form with respect to the same period for the
prior fiscal year, prepared on a basis consistent with prior practices and
complete and correct in all material respects, subject to normal year end
adjustments. The reports shall be accompanied by a certificate of each
Borrower's and Holdings Chief Financial Officer, which shall state that, based
on an examination sufficient to permit him to make an informed statement, no
Default or Event of Default exists, or, if such is not the case, specifying such
Default or Event of Default, its nature, when it occurred, whether it is
continuing and the steps being taken by Borrowers with respect to such event
and, such certificate shall have appended thereto calculations which set forth
Borrowers' compliance with the requirements or restrictions imposed by Sections
6.5, 6.6, 7.6, 7.7, 7.8, 7.11, 7.17 and 7.18 hereof.
9.10. Other Reports. Furnish Agent as soon as available, but in any
event within ten (10) days after the issuance thereof, with copies of such
financial statements, reports and returns as each Borrower shall send to its
stockholders.
9.11. Additional Information. Furnish Agent with such additional
information as Agent shall reasonably request in order to enable Agent to
determine whether the terms, covenants, provisions and conditions of this
Agreement and the Other Documents have been complied with by Borrowers
including, without limitation and without the necessity of any request by Agent,
(a) copies of all environmental audits and reviews, (b) at least thirty (30)
days prior thereto (and subject to Section 4.5), notice of any Borrower's
opening of any new office or place of business or any Borrower's closing of any
existing office or place of business, and (c) promptly upon any Borrower's
learning thereof, notice of any general labor dispute or other material labor
dispute to which any Borrower may become a party, any strikes or walkouts
relating to any of its plants or other facilities, and the expiration of any
labor contract to which any Borrower is a party or by which any Borrower is
bound.
9.12. Projected Operating Budget. Furnish Agent, prior to the Closing
Date with respect to the current fiscal year and no later than thirty (30) days
prior to the beginning of each Borrower's fiscal year commencing with the fiscal
year commencing on January 1, 2000, a month by month projected operating budget
and cash flow of Borrowers on a combined basis for such fiscal year (including
an income statement for each month and a balance sheet as at the end of the last
month in each fiscal quarter), such projections to be accompanied by a
certificate signed by the President or Chief Financial Officer of each Borrower
to the effect that such projections have been prepared on the basis of sound
financial planning practice consistent with past budgets and financial
statements and that such officer has no reason to question the reasonableness of
any material assumptions on which such projections were prepared.
9.13. Variances From Operating Budget. Furnish Agent, concurrently with
the delivery of the financial statements referred to in Section 9.7 and each
monthly report, a written report summarizing all material variances from budgets
submitted by Borrowers pursuant to Section 9.12 and a discussion and analysis by
management with respect to such variances.
9.14. Notice of Suits, Adverse Events. Furnish Agent with prompt
written notice of (i) any lapse or other termination of any Consent issued to
any Borrower by any Governmental Body or any other Person that is material to
the operation of any Borrower's business or any Guarantor, (ii) any refusal by
any Governmental Body or any other Person to renew or extend any such Consent;
and (iii) copies of any periodic or special reports filed by any Borrower or any
Guarantor with any Governmental Body or Person, if such reports indicate any
material change in the business, operations, affairs or condition of any
Borrower or any Guarantor, or if copies thereof are requested by Lender, and
(iv) copies of any material notices and other communications from any
Governmental Body or Person which specifically relate to any Borrower or any
Guarantor.
9.15. ERISA Notices and Requests. Furnish Agent with immediate written
notice in the event that (i) any Borrower or any member of the Controlled Group
knows or has reason to know that a Termination Event has occurred, together with
a written statement describing such Termination Event and the action, if any,
which such Borrower or member of the Controlled Group has taken, is taking, or
proposes to take with respect thereto and, when known, any action taken or
threatened by the Internal Revenue Service, Department of Labor or PBGC with
respect thereto, (ii) any Borrower or any member of the Controlled Group knows
or has reason to know that a prohibited transaction (as defined in Sections 406
of ERISA and 4975 of the Code) has occurred together with a written statement
describing such transaction and the action which such Borrower or any member of
the Controlled Group has taken, is taking or proposes to take with respect
thereto, (iii) a funding waiver request has been filed with respect to any Plan
together with all communications received by any Borrower or any member of the
Controlled Group with respect to such request, (iv) any increase in the benefits
of any existing Plan or the establishment of any new Plan or the commencement of
contributions to any Plan to which any Borrower or any member of the Controlled
Group was not previously contributing shall occur, (v) any Borrower or any
member of the Controlled Group shall receive from the PBGC a notice of intention
to terminate a Plan or to have a trustee appointed to administer a Plan,
together with copies of each such notice, (vi) any Borrower or any member of the
Controlled Group shall receive any favorable or unfavorable determination letter
from the Internal Revenue Service regarding the qualification of a Plan under
Section 401(a) of the Code, together with copies of each such letter; (vii) any
Borrower or any member of the Controlled Group shall receive a notice regarding
the imposition of withdrawal liability, together with copies of each such
notice; (viii) any Borrower or any member of the Controlled Group shall fail to
make a required installment or any other required payment under Section 412 of
the Code on or before the due date for such installment or payment; (ix) any
Borrower or any member of the Controlled Group knows that (a) a Multiemployer
Plan has been terminated, (b) the administrator or plan sponsor of a
Multiemployer Plan intends to terminate a Multiemployer Plan, or (c) the PBGC
has instituted or will institute proceedings under Section 4042 of ERISA to
terminate a Multiemployer Plan.
9.16. Additional Documents. Execute and deliver to Agent, upon request,
such documents and agreements as Agent may, from time to time, reasonably
request to carry out the purposes, terms or conditions of this Agreement,
including, without limitation, such as may be necessary or desirable to confirm
or perfect the Agent's and the Lenders' interests in and Liens on the
Collateral. Without limiting the generality of the foregoing, (a) no later than
45 days after the Closing Date, Borrowers shall deliver to the Agent patent and
trademark lien searches, in form and substance satisfactory to the Agent, with
respect to all patents and trademarks that the Borrowers have registered with
the Federal Patent and Trademark Office or any other jurisdiction, if any, where
the Borrowers have registered any patents or trademarks, which searches shall
not disclose any Liens other than Liens in favor of the Agent, and Permitted
Encumbrances, if any, (b) no later than 10 days after request by Agent,
Borrowers shall take such action with respect to its Merrill Lynch and other
accounts as may be requested by Agent which Agent deems necessary or desirable
to protect its rights hereunder, (c) no later than 30 days after the Closing
Date, Borrower shall obtain all licensor consents, landlord waivers and
warehousemen's agreements not obtained on or prior to the Closing Date and in
form and substance satisfactory to Agent and deliver them to Agent, all in form
and substance satisfactory to Agent, (d) no later than two Business Days after
the Closing Date, Borrower shall cause the original Management Note of Warren
Schaeffer executed by Warren Schaeffer to be delivered to the Agent and (e) no
later than 30 days after the Closing Date, Borrower shall obtain and deliver to
Agent certificates of good standing of PTI in the States of New York and
California.
X. EVENTS OF DEFAULT.
The occurrence of any one or more of the following events shall
constitute an "Event of Default":
10.1. failure by any Borrower to pay any principal or interest on the
Obligations when due, whether at maturity or by reason of acceleration pursuant
to the terms of this Agreement or by notice of intention to prepay, or by
required prepayment or failure to pay any other liabilities or make any other
payment, fee or charge provided for herein when due (including, without
limitation, pursuant to Section 2.7 hereof) or in any Other Document;
10.2. any representation or warranty made or deemed made by any
Borrower or any Guarantor in this Agreement, any Other Document or any related
agreement or in any certificate, document or financial or other statement
furnished at any time in connection herewith or therewith shall prove to have
been incorrect in any material respect on the date when made or deemed to have
been made;
10.3. failure by any Borrower to (i) furnish financial information (x)
when due or (y) when requested, if such failure continues for ten (10) days
after any such request, or (ii) permit the inspection of its books or records;
10.4. issuance of a notice of Lien, levy, assessment, injunction or
attachment against any Borrower's Inventory or Receivables or against a material
portion of any Borrower's other property which is not fully stayed or lifted
within thirty (30) days;
10.5. except as otherwise provided for in Sections 10.1 and 10.3,
failure or neglect of any Borrower or any Guarantor to perform, keep or observe
any term, provision, condition, covenant herein contained, or contained in any
Other Document or any other agreement or arrangement, now or hereafter entered
into between any Borrower or any Guarantor, on the one hand, and Agent or any
Lender, on the other hand, except for a failure or neglect of Borrower to
perform, keep or observe any term, provision, condition or covenant, contained
in Sections 4.6, 4.7, 4.9, 4.11, 6.1, 6.3, 6.4, 9.4 or 9.6 hereof which is cured
within ten (10) Business Days from the occurrence of such failure or neglect;
10.6. any judgment or judgments are rendered or judgment liens filed
against any Borrower or any Guarantor for an aggregate amount in excess of
$250,000 which within forty (40) days of such rendering or filing is not either
fully satisfied, stayed or discharged of record;
10.7. any Borrower shall (i) apply for, consent to or suffer the
appointment of, or the taking of possession by, a receiver, custodian, trustee,
liquidator or similar fiduciary of itself or of all or a substantial part of its
property, (ii) make a general assignment for the benefit of creditors, (iii)
commence a voluntary case under any state or federal bankruptcy laws (as now or
hereafter in effect), (iv) be adjudicated a bankrupt or insolvent, (v) file a
petition seeking to take advantage of any other law providing for the relief of
debtors, (vi) acquiesce to, or fail to have dismissed, within thirty (30) days,
any petition filed against it in any involuntary case under such bankruptcy
laws, or (vii) take any action for the purpose of effecting any of the
foregoing;
10.8. any Borrower shall admit in writing its inability, or be
generally unable, to pay its debts as they become due or cease operations of its
present business;
10.9. any Affiliate or any Subsidiary of any Borrower or any Guarantor
shall (i) apply for, consent to or suffer the appointment of, or the taking of
possession by, a receiver, custodian, trustee, liquidator or similar fiduciary
of itself or of all or a substantial part of its property, (ii) admit in writing
its inability, or be generally unable, to pay its debts as they become due or
cease operations of its present business, (iii) make a general assignment for
the benefit of creditors, (iv) commence a voluntary case under any state or
federal bankruptcy laws (as now or hereafter in effect), (v) be adjudicated a
bankrupt or insolvent, (vi) file a petition seeking to take advantage of any
other law providing for the relief of debtors, (vii) acquiesce to, or fail to
have dismissed, within thirty (30) days, any petition filed against it in any
involuntary case under such bankruptcy laws, or (viii) take any action for the
purpose of effecting any of the foregoing;
10.10. any change in any Borrower's or any Guarantor's results of
operations or condition (financial or otherwise) or affairs which in Agent's
opinion has a Material Adverse Effect on such Borrower or such Guarantor;
10.11. any Lien created hereunder or provided for hereby or under any
related agreement for any reason ceases to be or is not a valid and perfected
Lien having a first priority interest;
10.12 an event of default has occurred and been declared under the
Intercompany Note, either of the Management Notes, or the Karlen Intercompany
Note which default shall not have been cured or waived within any applicable
grace period;
10.13. a default of the obligations of any Borrower or any Guarantor
under any other agreement to which it is a party shall occur which materially
and adversely affects its results of operations, condition (financial or
otherwise), affairs or prospects, which default is not cured within any
applicable grace period;
10.14. termination or breach of any Guaranty or the Pledge Agreement
executed and delivered to Agent in connection with the Obligations of any
Borrower, or if any Guarantor attempts to terminate, challenges the validity of,
or its liability under, any such Guaranty or Pledge Agreement;
10.15. any Change of Ownership or Change of Control shall occur;
10.16. any material provision of this Agreement or any Other Document
shall, for any reason, cease to be valid and binding on any Borrower or any
Guarantor, or any Borrower or any Guarantor shall so claim in writing to Agent
or any Lender;
10.17. (i) any Governmental Body shall (A) revoke, terminate, suspend
or adversely modify any license, permit, patent, trademark, tradename or
copyright of any Borrower, the continuation of which is material to the
continuation of any Borrower's business, or (B) commence proceedings to suspend,
revoke, terminate or adversely modify any such license, permit, patent,
trademark, tradename or copyright and such proceedings shall not be dismissed or
discharged within sixty (60) days or (c) schedule or conduct a hearing on the
renewal of any license, permit, patent, trademark, tradename or copyright
necessary for the continuation of any Borrower's business and the staff of such
Governmental Body issues a report recommending the termination, revocation,
suspension or material, adverse modification of such license, permit, trademark,
patent, tradename or copyright; (ii) any license or other agreement which is
necessary or material to the operation of any Borrower's business shall be
revoked or terminated and not replaced by a substitute acceptable to Agent
within thirty (30) days after the date of such revocation or termination, and
such revocation or termination and non-replacement would reasonably be expected
to have a Material Adverse Effect on any Borrower;
10.18. any portion of the Collateral shall be seized or taken by a
Governmental Body, or any Borrower or the title and rights of any Borrower or
any Original Owner which is the owner of any material portion of the Collateral
shall have become the subject matter of claim, litigation, suit or other
proceeding which has a reasonable likelihood, in the opinion of Agent, upon
final determination, of resulting in impairment or loss of the security provided
by this Agreement or the Other Documents;
10.19. the operations of any Borrower's manufacturing facility are
interrupted at any time for more than one hundred seventy-five (175) hours
during any period of thirty (30) consecutive days and such Borrower is not
meeting substantially all orders during such 30-day period, unless such Borrower
shall (i) be entitled to receive for such period of interruption, proceeds of
business interruption insurance sufficient to assure that its per diem cash
needs during such period is at least equal to its average per diem cash needs
for the consecutive three month period immediately preceding the initial date of
interruption and (ii) receive such proceeds in the amount described in clause
(i) preceding not later than thirty (30) days following the initial date of any
such interruption; provided, however, that notwithstanding the provisions of
clauses (i) and (ii) of this section, an Event of Default shall be deemed to
have occurred if such Borrower shall be receiving the proceeds of business
interruption insurance for a period of sixty (60) consecutive days; or
10.20. an event or condition specified in Sections 7.16 or 9.15 hereof
shall occur or exist with respect to a Plan and, as a result of such event or
condition, together with all other such events or conditions, any Borrower or
any member of the Controlled Group shall incur, or in the opinion of Agent be
reasonably likely to incur, a liability to a Plan or the PBGC (or both) which,
in the reasonable judgment of Agent, would have a Material Adverse Effect on any
Borrower.
XI. LENDERS' RIGHTS AND REMEDIES AFTER DEFAULT.
11.1. Rights and Remedies. (a) Upon the occurrence of (i) an Event of
Default pursuant to Sections 10.7, 10.8 or 10.9, all Obligations shall be
immediately due and payable and this Agreement and the obligation of Lenders to
make Advances shall be deemed terminated; and, (ii) any of the other Events of
Default and at any time thereafter (such default not having previously been
cured), at the option of Required Lenders all Obligations shall be immediately
due and payable and Lenders shall have the right to terminate this Agreement and
to terminate the obligation of Lenders to make Advances and (iii) a filing of a
petition against Borrower in any involuntary case under any state or federal
bankruptcy laws, the obligation of Lenders to make Advances hereunder shall be
terminated other than as may be required by an appropriate order of the
bankruptcy court having jurisdiction over any Borrower.
(b) Upon the occurrence of any Event of Default, in addition
to the rights and remedies set forth in Section 4.4 and 4.15 hereof, Agent shall
have the right to exercise any and all other rights and remedies provided for
herein, under the Other Documents, under the Uniform Commercial Code and at law
or equity generally, including, without limitation, the right to foreclose the
security interests granted herein and to realize upon any Collateral by any
available judicial procedure and/or to take possession of and sell any or all of
the Collateral with or without judicial process. Agent may enter any of
Borrower's premises or other premises without legal process and without
incurring liability to any Borrower therefor, and Agent may thereupon, or at any
time thereafter, in its discretion without notice or demand, take the Collateral
and remove the same to such place as Agent may deem advisable and Agent may
require Borrowers to make the Collateral available to Agent at a convenient
place. With or without having the Collateral at the time or place of sale, Agent
may sell the Collateral, or any part thereof, at public or private sale, at any
time or place, in one or more sales, at such price or prices, and upon such
terms, either for cash, credit or future delivery, as Agent may elect. Except as
to that part of the Collateral which is perishable or threatens to decline
speedily in value or is of a type customarily sold on a recognized market, Agent
shall give Borrowers reasonable notification of such sale or sales, it being
agreed that in all events written notice mailed to Borrowers at least five (5)
days prior to such sale or sales is reasonable notification. At any public sale
Agent or any Lender may bid for and become the purchaser, and Agent, any Lender
or any other purchaser at any such sale thereafter shall hold the Collateral
sold absolutely free from any claim or right of whatsoever kind, including any
equity of redemption and all such claims, rights and equities are hereby
expressly waived and released by each Borrower.
(c) In connection with the exercise of the foregoing remedies,
including without limitation, the sale of Inventory, Agent is hereby granted a
perpetual nonrevocable, royalty free, nonexclusive license and permission to use
all of each Borrower's trademarks, trade styles, trade names, patents, patent
applications, copyrights, trademarks, service marks, licenses, franchises and
other proprietary rights which are used or useful in connection with (a)
Inventory for the purpose of selling or otherwise disposing of such Inventory
and (b) Equipment for the purpose of completing the manufacture of unfinished
goods.
(d) The proceeds realized from the sale or other disposition
of any Collateral shall be applied as follows: first, to the reasonable costs,
expenses and attorneys' fees and expenses incurred by Agent for collection and
for acquisition, completion, protection, removal, storage, sale and delivery of
the Collateral; second, to interest due upon any of the Obligations and any fees
payable under this Agreement; and, third, to the principal of the Obligations.
If any deficiency shall arise, Borrowers and Guarantors shall remain liable to
Agent and Lenders therefor.
11.2. Agent's Discretion. Agent shall have the right in its sole
discretion to determine which rights, Liens, security interests or remedies
Agent may at any time pursue, relinquish, subordinate, or modify or to take any
other action with respect thereto and such determination will not in any way
modify or affect any of Agent's or Lenders' rights hereunder.
11.3. Setoff. In addition to any other rights which Agent or any Lender
may have under applicable law, upon the occurrence of an Event of Default
hereunder, Agent and such Lender shall have a right, immediately and without
notice of any kind, to apply any Borrower's property held by Agent and such
Lender to reduce the Obligations.
11.4. Rights and Remedies not Exclusive. The enumeration of the
foregoing rights and remedies is not intended to be exhaustive and the exercise
of any right or remedy shall not preclude the exercise of any other right or
remedies provided for herein or otherwise provided by law, all of which shall be
cumulative and not alternative.
XII. WAIVERS AND JUDICIAL PROCEEDINGS.
12.1. Waiver of Notice. Each Borrower hereby waives notice of
non-payment of any of the Receivables, demand, presentment, protest and notice
thereof with respect to any and all instruments, notice of acceptance hereof,
notice of loans or advances made, credit extended, Collateral received or
delivered, or any other action taken in reliance hereon, and all other demands
and notices of any description, except such as are expressly provided for
herein.
12.2. Delay. No delay or omission on Agent's or any Lender's part in
exercising any right, remedy or option shall operate as a waiver of such or any
other right, remedy or option or of any Default or Event of Default.
12.3. Jury Waiver. EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES
ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (A)
ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT
EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (B) IN ANY WAY CONNECTED WITH
OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM
WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT
EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO
OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER
SOUNDING IN CONTRACT OR TORT OR OTHERWISE AND EACH PARTY HEREBY CONSENTS THAT
ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT
TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL
COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE
CONSENTS OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
XIII. EFFECTIVE DATE AND TERMINATION.
13.1. Term. This Agreement, which shall inure to the benefit of and
shall be binding upon the respective successors and permitted assigns of each
Borrower, Agent and each Lender, shall become effective on the date hereof and
shall continue in full force and effect until April 14, 2002 (the "Term") unless
sooner terminated as herein provided. Borrowers may terminate this Agreement at
any time upon ninety (90) days' prior written notice upon payment in full of the
Obligations. In the event the Obligations are prepaid in full prior to the last
day of the Term (the date of such prepayment hereinafter referred to as the
"Early Termination Date"), Borrowers shall pay to Agent for the benefit of
Lenders an early termination fee in an amount equal to (x) $500,000 if the Early
Termination Date occurs on or after the Closing Date to and including the date
immediately preceding the first anniversary of the Closing Date, (y) $250,000 if
the Early Termination Date occurs on or after the first anniversary of the
Closing Date to and including the date immediately preceding the second
anniversary of the Closing Date, and (z) $125,000 if the Early Termination Date
occurs on or after the second anniversary of the Closing Date to and including
the date which is 30 days immediately preceding the third anniversary of the
Closing Date; provided, however, in the event that the Lenders (and not the
Borrowers or either of them) cause the Early Termination Date to occur by
requiring prepayment in full of the Obligations solely as a result of an Event
of Default pursuant to Section 10.15 hereof (a "Change of Control Termination")
and no other Event of Default, then (a) in the event that such Change of Control
Termination resulted solely from the issuance of additional shares of common
stock of Holdings to the public in any secondary public offering of common stock
of Holdings pursuant to a registration statement declared effective by the
Securities and Exchange Commission and otherwise consummated in compliance with
all applicable laws and regulations (a "Public Offering"), and provided that no
other Event of Default or Default existed immediately prior to or after giving
effect to any such Public Offering, then no termination fee would be payable
hereunder, and (b) in the event that such Change of Control Termination occurred
at any time after the first anniversary hereof and resulted from any Change of
Control not described in clause (a) of this Section 13.1, and provided that no
other Event of Default or Default existed immediately prior to or after giving
effect to any such transaction, then the termination fee payable under this
Section 13.1 shall be an amount equal to 50% of the applicable termination fee
set forth in clause (y) or (z) of this Section 13.1.
13.2. Termination. The termination of the Agreement shall not affect
any Borrower's, Agent's or any Lender's rights, or any of the Obligations having
their inception prior to the effective date of such termination, and the
provisions hereof shall continue to be fully operative until all transactions
entered into, rights or interests created or Obligations have been fully and
indefeasibly paid, disposed of, concluded or liquidated. The security interests,
Liens and rights granted to Agent and Lenders hereunder and the financing
statements filed hereunder shall continue in full force and effect,
notwithstanding the termination of this Agreement or the fact that Borrowers'
Account may from time to time be temporarily in a zero or credit position, until
all of the Obligations of each Borrower have been indefeasibly paid and
performed in full after the termination of this Agreement or each Borrower has
furnished Agent and Lenders with an indemnification satisfactory to Agent and
Lenders with respect thereto. Accordingly, each Borrower waives any rights which
it may have under Section 9-404(1) of the Uniform Commercial Code to demand the
filing of termination statements with respect to the Collateral, and Agent shall
not be required to send such termination statements to each Borrower, or to file
them with any filing office, unless and until this Agreement shall have been
terminated in accordance with its terms and all Obligations have been
indefeasibly paid in full in immediately available funds. All representations,
warranties, covenants, waivers and agreements contained herein shall survive
termination hereof until all Obligations are indefeasibly paid or performed in
full.
XIV. REGARDING AGENT.
14.1. Appointment. Each Lender hereby designates PNC to act as Agent
for such Lender under this Agreement and the Other Documents. Each Lender hereby
irrevocably authorizes Agent to take such action on its behalf under the
provisions of this Agreement and the Other Documents and to exercise such powers
and to perform such duties hereunder and thereunder as are specifically
delegated to or required of Agent by the terms hereof and thereof and such other
powers as are reasonably incidental thereto and Agent shall hold all Collateral,
payments of principal and interest, fees (except the fees set forth in the fee
letter, charges and collections (without giving effect to any collection days)
received pursuant to this Agreement, for the ratable benefit of Lenders. Agent
may perform any of its duties hereunder by or through its agents or employees.
As to any matters not expressly provided for by this Agreement (including
without limitation, collection of the Note) Agent shall not be required to
exercise any discretion or take any action, but shall be required to act or to
refrain from acting (and shall be fully protected in so acting or refraining
from acting) upon the instructions of the Required Lenders, and such
instructions shall be binding; provided, however, that Agent shall not be
required to take any action which exposes Agent to liability or which is
contrary to this Agreement or the Other Documents or applicable law unless Agent
is furnished with an indemnification reasonably satisfactory to Agent with
respect thereto.
14.2. Nature of Duties. Agent shall have no duties or responsibilities
except those expressly set forth in this Agreement and the Other Documents.
Neither Agent nor any of its officers, directors, employees or agents shall be
(i) liable for any action taken or omitted by them as such hereunder or in
connection herewith, unless caused by their gross (not mere) negligence or
willful misconduct, or (ii) responsible in any manner for any recitals,
statements, representations or warranties made by any Borrower or any officer
thereof contained in this Agreement, or in any of the Other Documents or in any
certificate, report, statement or other document referred to or provided for in,
or received by Agent under or in connection with, this Agreement or any of the
Other Documents or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement, or any of the Other Documents
or for any failure of any Borrower to perform its obligations hereunder. Agent
shall not be under any obligation to any Lender to ascertain or to inquire as to
the observance or performance of any of the agreements contained in, or
conditions of, this Agreement or any of the Other Documents, or to inspect the
properties, books or records of any Borrower. The duties of Agent as respects
the Advances to Borrowers shall be mechanical and administrative in nature;
Agent shall not have by reason of this Agreement a fiduciary relationship in
respect of any Lender; and nothing in this Agreement, expressed or implied, is
intended to or shall be so construed as to impose upon Agent any obligations in
respect of this Agreement except as expressly set forth herein.
14.3. Lack of Reliance on Agent and Resignation. Independently and
without reliance upon Agent or any other Lender, each Lender has made and shall
continue to make (i) its own independent investigation of the financial
condition and affairs of each Borrower in connection with the making and the
continuance of the Advances hereunder and the taking or not taking of any action
in connection herewith, and (ii) its own appraisal of the creditworthiness of
each Borrower. Agent shall have no duty or responsibility, either initially or
on a continuing basis, to provide any Lender with any credit or other
information with respect thereto, whether coming into its possession before
making of the Advances or at any time or times thereafter except as shall be
provided by any Borrower pursuant to the terms hereof. Agent shall not be
responsible to any Lender for any recitals, statements, information,
representations or warranties herein or in any agreement, document, certificate
or a statement delivered in connection with or for the execution, effectiveness,
genuineness, validity, enforceability, collectability or sufficiency of this
Agreement or any Other Document, or of the financial condition of any Borrower,
or be required to make any inquiry concerning either the performance or
observance of any of the terms, provisions or conditions of this Agreement, the
Note, the Other Documents or the financial condition of any Borrower, or the
existence of any Event of Default or any Default.
Agent may resign on sixty (60) days' written notice to each of Lenders
and Borrowing Agent and upon such resignation, the Required Lenders will
promptly designate a successor Agent reasonably satisfactory to Borrowers.
Any such successor Agent shall succeed to the rights, powers and duties
of Agent, and the term "Agent" shall mean such successor agent effective upon
its appointment, and the former Agent's rights, powers and duties as Agent shall
be terminated, without any other or further act or deed on the part of such
former Agent. After any Agent's resignation as Agent, the provisions of this
Article XIV shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was Agent under this Agreement.
14.4. Certain Rights of Agent. If Agent shall request instructions from
Lenders with respect to any act or action (including failure to act) in
connection with this Agreement or any Other Document, Agent shall be entitled to
refrain from such act or taking such action unless and until Agent shall have
received instructions from the Required Lenders; and Agent shall not incur
liability to any Person by reason of so refraining. Without limiting the
foregoing, Lenders shall not have any right of action whatsoever against Agent
as a result of its acting or refraining from acting hereunder in accordance with
the instructions of the Required Lenders.
14.5. Reliance. Agent shall be entitled to rely, and shall be fully
protected in relying, upon any note, writing, resolution, notice, statement,
certificate, telex, teletype or telecopier message, cablegram, order or other
document or telephone message believed by it to be genuine and correct and to
have been signed, sent or made by the proper person or entity, and, with respect
to all legal matters pertaining to this Agreement and the Other Documents and
its duties hereunder, upon advice of counsel selected by it. Agent may employ
agents and attorneys-in-fact and shall not be liable for the default or
misconduct of any such agents or attorneys-in-fact selected by Agent with
reasonable care.
14.6. Notice of Default. Agent shall not be deemed to have knowledge or
notice of the occurrence of any Default or Event of Default hereunder or under
the Other Documents, unless Agent has received notice from a Lender or a
Borrower referring to this Agreement or the Other Documents, describing such
Default or Event of Default and stating that such notice is a "notice of
default." In the event that Agent receives such a notice, Agent shall give
notice thereof to Lenders. Agent shall take such action with respect to such
Default or Event of Default as shall be reasonably directed by the Required
Lenders; provided, that, unless and until Agent shall have received such
directions, Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable in the best interests of Lenders.
14.7. Indemnification. Each Lender will reimburse and indemnify Agent
in proportion to its respective portion of the Advances (or, if no Advances are
outstanding, according to its Commitment Percentage), from and against any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever which
may be imposed on, incurred by or asserted against Agent in performing its
duties hereunder, or in any way relating to or arising out of this Agreement or
any Other Document; provided that, Lenders shall not be liable for any portion
of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from Agent's gross
(not mere) negligence or willful misconduct.
14.8. Agent in its Individual Capacity. With respect to the obligation
of Agent to lend under this Agreement, the Advances made by it shall have the
same rights and powers hereunder as any other Lender and as if it were not
performing the duties as Agent specified herein; and the term "Lender" or any
similar term shall, unless the context clearly otherwise indicates, include
Agent in its individual capacity as a Lender. Agent may engage in business with
any Borrower as if it were not performing the duties specified herein, and may
accept fees and other consideration from any Borrower for services in connection
with this Agreement or otherwise without having to account for the same to
Lenders.
14.9. Delivery of Documents. To the extent Agent receives financial
statements required under Sections 9.7, 9.8, and 9.9 from any Borrower pursuant
to the terms of this Agreement, Agent will promptly furnish such documents and
information to Lenders.
14.10. Borrowers' Undertaking to Agent. Without prejudice to their
respective obligations to Lenders under the other provisions of this Agreement,
each Borrower hereby undertakes with Agent to pay to Agent from time to time on
demand all amounts from time to time due and payable by it for the account of
Agent or Lenders or any of them pursuant to this Agreement to the extent not
already paid. Any payment made pursuant to any such demand shall pro tanto
satisfy the relevant Borrower's obligations to make payments for the account of
Lenders or the relevant one or more of them pursuant to this Agreement.
XV. BORROWING AGENCY.
15.1. Borrowing Agency Provisions.
(a) Each Borrower hereby irrevocably designates Borrowing
Agent to be its attorney and agent and in such capacity to borrow, sign and
endorse notes, and execute and deliver all instruments, documents, writings and
further assurances now or hereafter required hereunder, on behalf of such
Borrower or Borrowers, and hereby authorizes Agent to pay over or credit all
loan proceeds hereunder in accordance with the request of Borrowing Agent.
(b) The handling of this credit facility as a co-borrowing
facility with a borrowing agent in the manner set forth in this Agreement is
solely as an accommodation to Borrowers and at their request. Neither Agent nor
any Lender shall incur liability to Borrowers as a result thereof. To induce
Agent and Lenders to do so and in consideration thereof, each Borrower hereby
indemnifies Agent and each Lender and holds Agent and each Lender harmless from
and against any and all liabilities, expenses, losses, damages and claims of
damage or injury asserted against Agent or any Lender by any Person arising from
or incurred by reason of the handling of the financing arrangements of Borrowers
as provided herein, reliance by Agent or any Lender on any request or
instruction from Borrowing Agent or any other action taken by Agent or any
Lender with respect to this Section 15.1 except due to willful misconduct or
gross (not mere) negligence by the indemnified party.
(c) All Obligations shall be joint and several, and each
Borrower shall make payment upon the maturity of the Obligations by acceleration
or otherwise, and such obligation and liability on the part of each Borrower
shall in no way be affected by any extensions, renewals and forbearance granted
to Agent or any Lender to any Borrower, failure of Agent or any Lender to give
any Borrower notice of borrowing or any other notice, any failure of Agent or
any Lender to pursue or preserve its rights against any Borrower, the release by
Agent or any Lender of any Collateral now or thereafter acquired from any
Borrower, and such agreement by each Borrower to pay upon any notice issued
pursuant thereto is unconditional and unaffected by prior recourse by Agent or
any Lender to the other Borrowers or any Collateral for such Borrower's
Obligations or the lack thereof.
15.2. Waiver of Subrogation. Each Borrower expressly waives any and all
rights of subrogation, reimbursement, indemnity, exoneration, contribution of
any other claim which such Borrower may now or hereafter have against the other
Borrowers or other Person directly or contingently liable for the Obligations
hereunder, or against or with respect to the other Borrowers' property
(including, without limitation, any property which is Collateral for the
Obligations), arising from the existence or performance of this Agreement, until
termination of this Agreement and the indefeasible repayment in full of the
Obligations.
XVI. MISCELLANEOUS.
16.1. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York applied to contracts to be
performed wholly within the State of New York. Any judicial proceeding brought
by or against any Borrower with respect to any of the Obligations, this
Agreement or any related agreement may be brought in any Federal or state court
of competent jurisdiction in the State of New York, United States of America,
and, by execution and delivery of this Agreement, each Borrower accepts for
itself and in connection with its properties, generally and unconditionally, the
non-exclusive jurisdiction of the aforesaid courts, and irrevocably agrees to be
bound by any judgment rendered thereby in connection with this Agreement. Each
Borrower hereby waives personal service of any and all process upon it and
consents that all such service of process may be made by registered mail (return
receipt requested) directed to Borrowing Agent at its address set forth in
Section 16.6 and service so made shall be deemed completed five (5) days after
the same shall have been so deposited in the mails of the United States of
America, or, at the Agent's and/or any Lender's option, by service upon
Borrowing Agent which each Borrower irrevocably appoints as such Borrower's
Agent for the purpose of accepting service within the State of New York. Agent
shall use reasonable efforts to provide a copy of any service of process made
pursuant to this Section 16.1 to Akabas & Cohen at the address set forth in
Section 16.6 hereof; provided that failure by Agent to provide such copy shall
not in any way affect the validity of or have any other effect on the service of
process on Borrower. Nothing herein shall affect the right to serve process in
any manner permitted by law or shall limit the right of Agent or any Lender to
bring proceedings against any Borrower in the courts of any other jurisdiction.
Each Borrower waives any objection to jurisdiction and venue of any action
instituted hereunder and shall not assert any defense based on lack of
jurisdiction or venue or based upon forum non conveniens. Any judicial
proceeding by any Borrower against Agent or any Lender involving, directly or
indirectly, any matter or claim in any way arising out of, related to or
connected with this Agreement or any related agreement, shall be brought only in
a Federal or state court located in the County of New York, State of New York.
16.2. Entire Understanding. (a) This Agreement and the documents
executed concurrently herewith contain the entire understanding between each
Borrower, Agent and each Lender and supersedes all prior agreements and
understandings, if any, relating to the subject matter hereof. Any promises,
representations, warranties or guarantees not herein contained and hereinafter
made shall have no force and effect unless in writing, signed by each
Borrower's, Agent's and each Lender's respective officers. Neither this
Agreement nor any portion or provisions hereof may be changed, modified,
amended, waived, supplemented, discharged, cancelled or terminated orally or by
any course of dealing, or in any manner other than by an agreement in writing,
signed by the party to be charged. Each Borrower acknowledges that it has been
advised by counsel in connection with the execution of this Agreement and Other
Documents and is not relying upon oral representations or statements
inconsistent with the terms and provisions of this Agreement.
(b) The Required Lenders, Agent with the consent in writing of
the Required Lenders, and Borrowers may, subject to the provisions of this
Section 16.2 (b), from time to time enter into written supplemental agreements
to this Agreement or the Other Documents executed by Borrowers, for the purpose
of adding or deleting any provisions or otherwise changing, varying or waiving
in any manner the rights of Lenders, Agent or Borrowers thereunder or the
conditions, provisions or terms thereof of waiving any Event of Default
thereunder, but only to the extent specified in such written agreements;
provided, however, that no such supplemental agreement shall, without the
consent of all Lenders:
(i) increase the Commitment Percentage of any Lender.
(ii) extend the maturity of any Note or the due date
for any amount payable hereunder, or decrease the rate of interest or reduce any
fee payable by Borrowers to Lenders pursuant to this Agreement.
(iii) alter the definition of the term Required
Lenders or alter, amend or modify
this Section 16.2(b).
(iv) release any Collateral during any calendar year
(other than in accordance with the provisions of this Agreement) having an
aggregate value in excess of $100,000.
(v) change the rights and duties of Agent.
(vi) permit any Revolving Advance to be made if after
giving effect thereto the
total of Advances outstanding hereunder would exceed the Formula Amount for more
than sixty (60) consecutive Business Days or exceed one hundred and ten percent
(110%) of the Formula Amount.
(vii) increase the Advance Rates above the Advance
Rates in effect on the Closing
Date.
(viii) increase the Maximum Revolving Advance Amount
or permit any Revolving Advance
to be made if after giving effect thereto the total of Revolving Advances
outstanding hereunder would exceed the Formula Amount for more than sixty (60)
consecutive Business Days or exceed one hundred ten percent (110%) of the
Formula Amount.
Any such supplemental agreement shall apply equally to each Lender and shall be
binding upon Borrowers, Lenders and Agent and all future holders of the
Obligations. In the case of any waiver, Borrowers, Agent and Lenders shall be
restored to their former positions and rights, and any Event of Default waived
shall be deemed to be cured and not continuing, but no waiver of a specific
Event of Default shall extend to any subsequent Event of Default (whether or not
the subsequent Event of Default is the same as the Event of Default which was
waived), or impair any right consequent thereon.
Notwithstanding the foregoing, Agent may at its discretion and without
the consent of the Required Lenders, voluntarily permit the Revolving Advances
at any time to exceed the Formula Amount by not more than 10% but Agent will not
voluntarily permit the Revolving Advances to exceed such amount during any
period consisting of more than thirty (30) consecutive days. For the purposes of
the preceding sentence, the discretion granted to Agent hereunder shall not
preclude involuntary overadvances that may result from time to time from the
fact that the Formula Amount was unintentionally exceeded (whether at the time
of any Revolving Advance or at the time of the issuance of a Letter of Credit
resulting in a Revolving Advance) for any reasons including, but not limited to,
Collateral believed to be eligible in fact being or becoming ineligible or the
return of uncollected checks or other items applied to the reduction of the
Revolving Advances or overadvances made to protect or preserve Collateral. In
the event that Agent involuntarily permits the Revolving Advances to exceed the
Formula Amount by more than 10%, Agent shall decrease such excess in as
expeditious a manner as is practicable under the circumstances and not
inconsistent with the reasons for such excess. Revolving Advances made after
Agent has determined the existence of involuntary overadvances shall be deemed
to be involuntary overadvances and shall be decreased in accordance with the
preceding sentence.
In the event that Agent requests the consent of a Lender pursuant to
this Section 16.2 and such Lender shall not respond or reply to Agent in writing
within five (5) days of delivery of such request, such Lender shall be deemed to
have consented to matter that was the subject of the request. In the event that
Agent requests the consent of a Lender pursuant to this Section 16.2 and such
consent is denied, then PNC may, at its option, require such Lender to assign
its interest in the Advances to PNC or to another Lender or to any other Person
designated by the Agent (the "Designated Lender"), for a price equal to the then
outstanding principal amount thereof plus accrued and unpaid interest and fees
due such Lender, which interest and fees shall be paid when collected from
Borrower. In the event PNC elects to require any Lender to assign its interest
to PNC or to the Designated Lender, PNC will so notify such Lender in writing
within forty five (45) days following such Lender's denial, and such Lender will
assign its interest to PNC or the Designated Lender no later than five (5) days
following receipt of such notice pursuant to a Commitment Transfer Supplement
executed by such Lender, PNC or the Designated Lender, as appropriate, and
Agent.
16.3. Successors and Assigns; Participations; New Lenders.
(a) This Agreement shall be binding upon and inure to the
benefit of Borrowers, Agent, each Lender, all future holders of the Obligations
and their respective successors and assigns, except that no Borrower may assign
or transfer any of its rights or obligations under this Agreement without the
prior written consent of Agent and each Lender.
(b) Each Borrower acknowledges that in the regular course of
commercial banking business one or more Lenders may at any time and from time to
time sell participating interests in the Advances to other financial
institutions (each such transferee or purchaser of a participating interest, a
"Transferee"). Each Transferee may exercise all rights of payment (including
without limitation rights of set-off) with respect to the portion of such
Advances held by it or other Obligations payable hereunder as fully as if such
Transferee were the direct holder thereof provided that Borrowers shall not be
required to pay to any Transferee more than the amount which it would have been
required to pay to Lender which granted an interest in its Advances or other
Obligations payable hereunder to such Transferee had such Lender retained such
interest in the Advances hereunder or other Obligations payable hereunder and in
no event shall Borrowers be required to pay any such amount arising from the
same circumstances and with respect to the same Advances or other Obligations
payable hereunder to both such Lender and such Transferee. Each Borrower hereby
grants to any Transferee a continuing security interest in any deposits, moneys
or other property actually or constructively held by such Transferee as security
for the Transferee's interest in the Advances.
(c) Any Lender may with the consent of Agent which shall not
be unreasonably withheld or delayed sell, assign or transfer all or any part of
its rights under this Agreement and the Other Documents to one or more
additional banks or financial institutions and one or more additional banks or
financial institutions may commit to make Advances hereunder (each a "Purchasing
Lender"), in minimum amounts of not less than $2,000,000, pursuant to a
Commitment Transfer Supplement, executed by a Purchasing Lender, the transferor
Lender, and Agent and delivered to Agent for recording. Upon such execution,
delivery, acceptance and recording, from and after the transfer effective date
determined pursuant to such Commitment Transfer Supplement, (i) Purchasing
Lender thereunder shall be a party hereto and, to the extent provided in such
Commitment Transfer Supplement, have the rights and obligations of a Lender
thereunder with a Commitment Percentage as set forth therein, and (ii) the
transferor Lender thereunder shall, to the extent provided in such Commitment
Transfer Supplement, be released from its obligations under this Agreement, the
Commitment Transfer Supplement creating a novation for that purpose. Such
Commitment Transfer Supplement shall be deemed to amend this Agreement to the
extent, and only to the extent, necessary to reflect the addition of such
Purchasing Lender and the resulting adjustment of the Commitment Percentages
arising from the purchase by such Purchasing Lender of all or a portion of the
rights and obligations of such transferor Lender under this Agreement and the
Other Documents. Borrowers hereby consent to the addition of such Purchasing
Lender and the resulting adjustment of the Commitment Percentages arising from
the purchase by such Purchasing Lender of all or a portion of the rights and
obligations of such transferor Lender under this Agreement and the Other
Documents. Borrowers shall promptly execute and deliver such further documents
and do such further acts and things in order to effectuate the foregoing.
(d) Agent shall maintain at its address a copy of each
Commitment Transfer Supplement delivered to it and a register (the "Register")
for the recordation of the names and addresses of the Advances owing to each
Lender from time to time. The entries in the Register shall be conclusive, in
the absence of manifest error, and Borrowers, Agent and Lenders may treat each
Person whose name is recorded in the Register as the owner of the Advance
recorded therein for the purposes of this Agreement. The Register shall be
available for inspection by Borrowers or any Lender at any reasonable time and
from time to time upon reasonable prior notice. Agent shall receive a fee in the
amount of $2,500 payable by the applicable Purchasing Lender upon the effective
date of each transfer or assignment to such Purchasing Lender.
(e) Borrowers authorize each Lender to disclose to any
Transferee or Purchasing Lender and any prospective Transferee or Purchasing
Lender any and all financial information in such Lender's possession concerning
Borrowers which has been delivered to such Lender by or on behalf of Borrowers
pursuant to this Agreement or in connection with such Lender's credit evaluation
of Borrowers.
16.4. Application of Payments. Agent shall have the continuing and
exclusive right to apply or reverse and re-apply any payment and any and all
proceeds of Collateral to any portion of the Obligations. To the extent that any
Borrower makes a payment or Agent or any Lender receives any payment or proceeds
of the Collateral for any Borrower's benefit, which are subsequently
invalidated, declared to be fraudulent or preferential, set aside or required to
be repaid to a trustee, debtor in possession, receiver, custodian or any other
party under any bankruptcy law, common law or equitable cause, then, to such
extent, the Obligations or part thereof intended to be satisfied shall be
revived and continue as if such payment or proceeds had not been received by
Agent or such Lender.
16.5. Indemnity. Each Borrower shall indemnify Agent, each Lender and
each of their respective officers, directors, Affiliates, employees and agents
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses and disbursements of any
kind or nature whatsoever (including, without limitation, fees and disbursements
of counsel) which may be imposed on, incurred by, or asserted against Agent or
any Lender in any claim, litigation, proceeding or investigation instituted or
conducted by any governmental agency or instrumentality or any other Person with
respect to any aspect of, or any transaction contemplated by, or referred to in,
or any matter related to, this Agreement or the Other Documents, whether or not
Agent or any Lender is a party thereto, except to the extent that any of the
foregoing arises out of the willful misconduct of the party being indemnified.
16.6. Notice Any notice or request hereunder may be given to any
Borrower or to Agent or any Lender at their respective addresses set forth below
or at such other address as may hereafter be specified in a notice designated as
a notice of change of address under this Section. Any notice or request
hereunder shall be given by (a) hand delivery, (b) overnight courier, (c)
registered or certified mail, return receipt requested, (d) telex or telegram,
subsequently confirmed by registered or certified mail, or (e) telecopy to the
number set out below (or such other number as may hereafter be specified in a
notice designated as a notice of change of address) with electronic confirmation
of its receipt. Any notice or other communication required or permitted pursuant
to this Agreement shall be deemed given (a) when personally delivered to any
officer of the party to whom it is addressed, (b) on the earlier of actual
receipt thereof or three (3) days following posting thereof by certified or
registered mail, postage prepaid, or (c) upon actual receipt thereof when sent
by a recognized overnight delivery service or (d) upon actual receipt thereof
when sent by telecopier to the number set forth below with electronic
confirmation of its receipt, in each case addressed to each party at its address
set forth below or at such other address as has been furnished in writing by a
party to the other by like notice:
(A) If to Agent or PNC Bank, National Association
PNC at: Two Tower Center Boulevard
East Brunswick, New Jersey 08816
Attention: Arthur Lippens
Telephone: (732) 220-4352
Telecopier: (732) 220-4393
with a copy to: Haythe & Curley
237 Park Avenue
New York, New York 10017
Attention: Joseph J. Romagnoli, Esq.
Telephone: (212) 880-6000
Telecopier: (212) 682-0200
(B) If to a Lender other than Agent, as specified on the signature
pages hereof
(C) If to Borrowing Agent
or any Borrower, at: Protective Technologies International, Inc.
One Executive Boulevard
Yonkers, New York 10701
Attention: President
Telephone: (914) 423-9390
Telecopier: (914) 423-9610
with a copy to: Akabas & Cohen
488 Madison Avenue
New York, New York 10022
Attention: Seth A. Akabas, Esq.
Telephone: (212) 308-8505
Telecopier: (212) 308-8582
16.7. Survival. The obligations of Borrowers under Sections 2.2(f),
3.7, 3.9, 4.19(h), 14.7 and 16.5 shall survive termination of this Agreement and
the Other Documents and payment in full of the Obligations.
16.8. Severability. If any part of this Agreement is contrary to,
prohibited by, or deemed invalid under applicable laws or regulations, such
provision shall be inapplicable and deemed omitted to the extent so contrary,
prohibited or invalid, but the remainder hereof shall not be invalidated thereby
and shall be given effect so far as possible.
16.9. Expenses. All costs and expenses including, without limitation,
reasonable attorneys' fees (including the allocated costs of in house counsel)
and disbursements incurred by Agent, Agent on behalf of Lenders and Lenders (a)
in all efforts made to enforce payment of any Obligation or effect collection of
any Collateral, or (b) in connection with the entering into, modification,
amendment, administration and enforcement of this Agreement, or any consents or
waivers hereunder and all related agreements, documents and instruments, or (c)
in instituting, maintaining, preserving, enforcing and foreclosing on Agent's
security interest in or Lien on any of the Collateral or maintaining, preserving
or enforcing any of Agent's or any Lender's rights hereunder, and under all
related agreements, in any case, whether through judicial proceedings or
otherwise, or (d) in defending or prosecuting any actions (or proceedings
arising out of or relating to Agent's or any Lender's transactions with Holdings
or any Borrower, or (e) in connection with any advice given to Agent or any
Lender with respect to its rights and obligations under this Agreement and all
related agreements, may be charged to Borrowers' Account and shall be part of
the Obligations.
16.10. Injunctive Relief. Each Borrower recognizes that, in the event
any Borrower fails to perform, observe or discharge any of its obligations or
liabilities under this Agreement, any remedy at law may prove to be inadequate
relief to Lenders; therefore, Agent, if Agent so requests, shall be entitled to
temporary and permanent injunctive relief in any such case without the necessity
of proving that actual damages are not an adequate remedy.
16.11. Consequential Damages. Neither Agent nor any Lender, nor any
agent or attorney for any of them, shall be liable to any Borrower or any
Guarantor (or any affiliate of any such Person) for consequential damages
arising from any breach of contract, tort or other wrong relating to the
establishment, administration or collection of the Obligations.
16.12. Captions. The captions at various places in this Agreement are
intended for convenience only and do not constitute and shall not be interpreted
as part of this Agreement.
16.13. Counterparts; Telecopied Signatures. This Agreement may be
executed in any number of and by different parties hereto on separate
counterparts, all of which, when so executed, shall be deemed an original, but
all such counterparts shall constitute one and the same agreement. Any signature
delivered by a party by facsimile transmission shall be deemed to be an original
signature hereto.
16.14. Construction. The parties acknowledge that each party and its
counsel have reviewed this Agreement and that the normal rule of construction to
the effect that any ambiguities are to be resolved against the drafting party
shall not be employed in the interpretation of this Agreement or any amendments,
schedules or exhibits thereto.
16.15. Confidentiality; Sharing Information. (a) Agent, each Lender and
each Transferee shall hold all non-public information obtained by Agent, such
Lender or such Transferee pursuant to the requirements of this Agreement in
accordance with Agent's, such Lender's and such Transferee's customary
procedures for handling confidential information of this nature; provided,
however, Agent, each Lender and each Transferee may disclose such confidential
information (a) to its examiners, Affiliates, outside auditors, counsel and
other professional advisors, (b) to Agent, any Lender or to any prospective
Transferees and Purchasing Lenders, provided such Transferees or Purchasing
Lenders are bound by this Section or a similar confidentiality agreement, and
(c) as required or requested by any Governmental Body or representative thereof
or pursuant to legal process; provided, further that (i) unless specifically
prohibited by applicable law or court order, Agent, each Lender, each Transferee
and each Purchasing Lender shall use its reasonable best efforts prior to
disclosure thereof, to notify the applicable Borrower of the applicable request
for disclosure of such non-public information (A) by a Governmental Body or
representative thereof (other than any such request in connection with an
examination of the financial condition of a Lender or a Transferee by such
Governmental Body) or (B) pursuant to legal process and (ii) in no event shall
Agent, any Lender, any Transferee or any Purchasing Lender, be obligated to
return any materials furnished by any Borrower other than those documents and
instruments in possession of Agent or any Lender in order to perfect its Lien on
the Collateral once the Obligations have been paid in full and this Agreement
has been terminated. This Section 16.15 shall survive the termination of this
Agreement.
(b) Borrower acknowledges that from time to time financial
advisory, investment banking and other services may be offered or provided to
such Borrower or one or more of its Affiliates (in connection with this
Agreement or otherwise) by any Lender or by one or more Subsidiaries or
Affiliates of such Lender and each Borrower hereby authorizes each Lender to
share any information delivered to such Lender by such Borrower and its
Subsidiaries pursuant to this Agreement, or in connection with the decision of
such Lender to enter into this Agreement, to any such Subsidiary or Affiliate of
such Lender, it being understood that any such Subsidiary or Affiliate of any
Lender receiving such information shall be bound by the provision of Section
16.15 as if it were a Lender hereunder. Such authorization shall survive the
repayment of the other Obligations and the termination of the Loan Agreement.
16.16. Publicity. Each Borrower and each Lender hereby authorizes Agent
to make appropriate announcements of the financial arrangement entered into
among Borrowers, Agent and Lenders, including, without limitation, announcements
which are commonly known as tombstones, in such publications and to such
selected parties as Agent shall in its sole and absolute discretion deem
appropriate.
<PAGE>
Each of the parties has signed this Agreement as of the day and year
first above written.
PROTECTIVE TECHNOLOGIES INTERNATIONAL, INC.
ATTEST:
By:/s/_Meredith Birrittella
________________________ Name:_Meredith Birrittella
[SEAL] Title: C.E.O.
ZACKO SPORTS, INC.
ATTEST:
By:/s/ Meredith Birrittella
________________________ Name:_Meredith Birrittella
[SEAL] Title:_ C.E.O.
PNC BANK, NATIONAL ASSOCIATION, as Lender and as Agent
By:__/s/_Anthony J. Foti
Name: Anthony J. Foti
Title: Vice President
Commitment Percentage: 100
<PAGE>
EXHIBIT 5
SECURITIES PURCHASE AGREEMENT, dated as of April 14, 1999, by
and between FLENTS PRODUCTS CO., INC., a Delaware corporation (the "Company"),
and THE 1818 MEZZANINE FUND, L.P., a Delaware limited partnership (the
"Purchaser").
WHEREAS, the Company proposes to acquire (the "Acquisition")
substantially all of the assets of Karlen Manufacturing, Inc., a Michigan
corporation ("Karlen"), pursuant to the Karlen Purchase Agreement (as defined
herein); and
WHEREAS, concurrently with the Acquisition, the Company
proposes to issue and sell to the Purchaser for an aggregate purchase price of
$8,000,000 (i) a Senior Subordinated Promissory Note with a final maturity of
April 14, 2005 in the aggregate principal amount of $8,000,000 (the "Senior
Subordinated Note" and together with all notes issued in connection with the
substitution, replacement or transfer thereof, the "Notes") and (ii) detachable
warrants (the "Warrants") exercisable at any time to purchase 22 shares of
common stock, par value $.01 per share (the "Common Stock"), of the Company
(subject to adjustment), which is equal to 22% of the outstanding Common Stock
of the Company on a fully diluted basis, at an exercise price of $.01 per share,
in each case upon the terms and subject to the conditions set forth in this
Agreement.
In consideration of the mutual covenants and agreements set
forth herein and for good and valuable consideration, the receipt and adequacy
of which is hereby acknowledged, the parties hereto agree as follows:
I. ARTICLE
DEFINITIONS
A. Definitions. As used in this Agreement, and unless the context requires a
different meaning, the following terms have the meanings indicated:
"Accountants" has the meaning assigned such term in Section
9.1(a).
"Acquisition" has the meaning assigned that term in the first
Whereas clause.
"Affiliate" shall have the meaning ascribed to such term in
Rule 12b-2 of the General Rules and Regulations under the Exchange Act.
"Agreement" means this Agreement, as the same may be amended,
supplemented or modified in accordance with the terms hereof.
"BBH & Co." means Brown Brothers Harriman and Co., a New York
limited partnership.
"Business Day" means any day other than a Saturday, Sunday or
other legal holiday on which commercial banks in the City of New York, New York
are authorized or required by law or executive order to close.
"Capital Lease Obligations" means, as to any Person, any
obligation of such Person to pay rent or other amounts under any lease of (or
other arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligation is required to be classified and accounted
for as a capital lease on a balance sheet of such Person under GAAP and, for the
purposes of Article 10, the amount of any such obligation at any time shall be
the capitalized amount thereof at such time determined in accordance with GAAP
consistently applied.
"Capital Stock" of any Person means any and all shares,
interests, participations or other equivalents (however designated) of such
Person's capital stock (or equivalent ownership interests in a Person not a
corporation) whether now outstanding or hereafter issued, including, without
limitation, all common stock and preferred stock and any rights, warrants or
options to purchase such Person's capital stock.
"Change of Control" means such time as:
(i) (a) In the case of the Company, any Person or "group" (within the meaning of
Section 13(d)(3) of the Exchange Act) other than the Parent, the Purchaser, or
the Principal Shareholders is or becomes the beneficial owner, directly or
indirectly, of outstanding shares of capital stock of the Company, entitling
such Person or Persons to exercise 50% or more of the total votes entitled to be
cast at a regular or special meeting, or by action by written consent, of
stockholders of the Company (the term "beneficial owner" shall be determined in
accordance with Rule 13d-3, promulgated by the Commission under the Exchange
Act), and
(b) In the case of the Parent, any Person or
"group" (within the meaning of Section 13(d)(3) of the Exchange Act) other than
the Parent Principal Shareholders is or becomes the beneficial owner, directly
or indirectly, of outstanding shares of capital stock of the Parent, entitling
such Person or Persons to exercise 50% or more of the total votes entitled to be
cast at a regular or special meeting, or by action by written consent, of
stockholders of the Parent (the term "beneficial owner" shall be determined in
accordance with Rule 13d-3, promulgated by the Commission under the Exchange
Act);
(i) (a) In the case of the Company, a majority of the Board of Directors of the
Company shall consist of Persons other than Continuing Directors and the Fund
Director. The term "Continuing Director" shall mean any member of the Board of
Directors of the Company on the Closing Date and any other member of the Board
of Directors who shall be recommended or elected to succeed or become a
Continuing Director by a majority of Continuing Directors who are then members
of the Board of Directors of the Company, and
(b) In the case of the Parent, a majority of the
Board of Directors of the Parent shall consist of Persons other than Parent
Continuing Directors. The term "Parent Continuing Director" shall mean any
member of the Board of Directors of the Parent on the Closing Date and any other
member of the Board of Directors who shall be recommended or elected to succeed
or become a Parent Continuing Director by a majority of Parent Continuing
Directors who are then members of the Board of Directors of the Parent;
(i) (a) In the case of the Company, the stockholders of the Company shall have
approved a recapitalization, reorganization, merger, consolidation or similar
transaction, in each case, with respect to which all or substantially all the
Persons who were the respective beneficial owners, directly or indirectly, of
the outstanding shares of capital stock of the Company immediately prior to such
recapitalization, reorganization, merger or consolidation, will own less than
50% of the combined voting power of the then outstanding shares of capital stock
of the Company resulting from such recapitalization, reorganization, merger,
consolidation or similar transaction, and
(b) In the case of the Parent, the stockholders
of the Parent shall have approved a recapitalization, reorganization, merger,
consolidation or similar transaction, in each case, with respect to which all or
substantially all the Persons who were the respective beneficial owners,
directly or indirectly, of the outstanding shares of capital stock of the Parent
immediately prior to such recapitalization, reorganization, merger or
consolidation, will own less than 50% of the combined voting power of the then
outstanding shares of capital stock of the Parent resulting from such
recapitalization, reorganization, merger, consolidation or similar transaction;
(i) (a) In the case of the Company, the stockholders of the Company shall have
approved of the sale or other disposition of all or substantially all the assets
of the Company in one transaction or in a series of related transactions, and
(b) In the case of the Parent, the stockholders
of the Parent shall have approved of the sale or other disposition of all or
substantially all the assets of the Parent in one transaction or in a series of
related transactions;
(i) (a) In the case of the Company, immediately after any merger, consolidation,
recapitalization or similar transaction, the Parent or the Principal
Shareholders shall be the beneficial owners, directly or indirectly, of
outstanding shares of capital stock of the Company (or any Person surviving such
transaction) entitling it to exercise 50% or more of the total voting power of
shares of capital stock of the Company (or the surviving Person in such
transaction) and, in anticipation of, in connection with or as a result of, such
transaction, the Company (or such surviving Person) shall have incurred or
issued additional Indebtedness such that the total Indebtedness so incurred or
issued equals at least 50% of the consideration payable in such transaction, and
(b) In the case of the Parent, immediately after
any merger, consolidation, recapitalization or similar transaction, the Parent
Principal Shareholders shall be the beneficial owners, directly or indirectly,
of outstanding shares of capital stock of the Parent (or any Person surviving
such transaction) entitling it to exercise 50% or more of the total voting power
of shares of capital stock of the Parent (or any Person surviving such
transaction) and, in anticipation of, in connection with or as a result of, such
transaction, the Parent (or any Person surviving such transaction) shall have
incurred or issued additional Indebtedness such that the total Indebtedness so
incurred or issued equals at least 50% of the consideration payable in such
transaction; and
(i) the occurrence of a "Change of Control" or "Change of Ownership" (each as
defined in the Credit Agreement);
provided, that, in the case of the Company, a Change of Control shall not be
deemed to have occurred if such event or occurrence which would otherwise have
caused a Change of Control of the Company was in connection with a Qualified
Spin-Off of the Company; and provided, further, that, in the case of the Parent,
a Change of Control shall not be deemed to have occurred after an event or
occurrence which would otherwise have caused a Change of Control of the Parent
if, and for so long as, (i) the Board of Directors of the Company continues to
be composed of seven (7) members and (ii) two (2) members of the Board of
Directors of the Company continue to be designated as directors by the Purchaser
pursuant to the Shareholders Agreement and Meredith Birrittella and Warren
Schaeffer each continue to be members of the Board of Directors of the Company.
"Claims" has the meaning assigned to that term in Section 5.23.
"Closing" has the meaning assigned to that term in Section 2.3.
"Closing Date" means the date specified in Section 2.3.
"Code" means the Internal Revenue Code of 1986, as amended, or
any successor statute thereto.
"Commission" means the Securities and Exchange Commission or
any similar agency then having jurisdiction to enforce the Securities Act.
"Common Stock" has the meaning assigned to that term in the
second Whereas clause.
"Consolidated Net Worth" means, as of the date of
determination with respect to any Person, the consolidated stockholders' equity
on a balance sheet of such Person and its Subsidiaries, determined in accordance
with GAAP.
"Contingent Obligations" shall mean as to any Person any
obligation of such Person guaranteeing or intending to guarantee any
Indebtedness, leases, dividends or other obligations ("primary obligations") of
any other Person (the "primary obligation") in any manner, whether directly or
indirectly, including, without limitation, any obligation of such Person,
whether or not contingent, (a) to purchase any such primary obligation or any
property constituting direct or indirect security therefor, (b) to advance or
supply funds (i) for the purchase or payment of any such primary obligation or
(ii) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary obligor, (c) to
purchase property, securities or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability of the primary obligor
to make payment of such primary obligation or (d) otherwise to assure or hold
harmless the owner of such primary obligation against loss in respect thereof;
provided, however, that the term Contingent Obligation shall not include
endorsements of instruments for deposit or collection in the ordinary course of
business. The amount of any Contingent Obligation shall be deemed to be an
amount equal to the stated or determinable amount of the primary obligation in
respect of which such Contingent Obligation is made or, if not stated or
determinable, the maximum reasonably anticipated liability in respect thereof
(assuming such Person is required to perform thereunder) as determined by such
Person in good faith.
"Contractual Obligations" means as to any Person, any
provision of any security issued by such Person or of any agreement,
undertaking, contract, indenture, mortgage, deed of trust or other instrument to
which such Person is a party or by which it or any of its property is bound.
"Credit Agreement" means the Credit Agreement, dated April 14,
1999, between the Company and PNC Bank National Association, as well as the
notes, security documents and other agreements entered into in connection
therewith, in each case as amended from time to time in accordance with its
terms.
"Current Market Price" per share shall mean, on any date
specified herein for the determination thereof, the average daily Market Price
of the Common Stock for those days during the period of 15 days, ending on such
date, on which the national securities exchanges were open for trading
(excluding, for the purposes of such determination, purchases or sales of shares
of Common Stock by any officer or director of the Company or any family member
or Affiliate thereof).
"Demand Group" has the meaning assigned to that term in Section 9.16.
"Demand Notice" has the meaning assigned to that term in Section 9.16.
"Earnings Before Interest and Taxes" shall mean, with respect
to any Person, for any period the sum of (i) net income (or loss) of such Person
for such period (excluding extraordinary gains or non-cash losses), plus (ii)
all interest expense of such Person for such period, plus (iii) all charges
against income of such Person for such period for federal, state and local taxes
actually paid. All references contained herein to Earnings Before Interest and
Taxes shall be to the Earnings Before Interest and Taxes of the Company and its
Subsidiaries, determined on a consolidated basis.
"EBITDA" shall mean for any period the sum of (i) Earnings
Before Interest and Taxes for such period plus (ii) depreciation expenses for
such period, plus (iii) amortization expenses for such period. All references
contained herein to EBITDA shall be to the EBITDA of the Company and its
Subsidiaries, determined on a consolidated basis.
"Environment" means navigable waters, waters of the contiguous
zone, ocean waters, natural resources, surface waters, ground water, drinking
water supply, land surface, subsurface strata, ambient air, both inside and
outside of buildings and structures, man-made buildings and structures, and
plant and animal life on earth.
"Environmental Claims" means any notification, whether direct
or indirect, formal or informal, written or oral, pursuant to Safety and
Environmental Laws or principles of common law relating to pollution, protection
of the Environment or health and safety, that any of the current or past
operations of the Company or any of the Subsidiaries, or any by-product thereof,
or any of the property currently or formerly owned, leased or operated by the
Company or any of the Subsidiaries, or the operations or property of any
predecessor of the Company or any of the Subsidiaries, is or may be implicated
in or subject to any Claim, Requirements of Law, hearing, notice, agreement or
evaluation by any Governmental Authority or any other person.
"Environmental Compliance Costs" means any expenditures,
costs, assessments or expenses (including any expenditures, costs, assessments
or expenses in connection with the conduct of any Remedial Action, as well as
reasonable fees, disbursements and expenses of attorneys, experts, personnel and
consultants), whether direct or indirect, necessary to cause the operations,
real property, assets, equipment or facilities owned, leased, operated or used
by the Company or any of its Subsidiaries to be in compliance with any and all
requirements, as in effect at the Closing Date, of Safety and Environmental
Laws, principles of common law concerning pollution, protection of the
Environment or health and safety, or Permits issued pursuant to Safety and
Environmental Laws; provided, however, that Environmental Compliance Costs do
not include expenditures, costs, assessments or expenses necessary in connection
with normal maintenance of such real property, assets, equipment or facilities
or the replacement of equipment in the normal course of events due to ordinary
wear and tear.
"Equity and Capital Contribution Transactions" means, collectively, the
Management Equity Investment, the Parent Capital Contribution, and the Parent
Debt Contribution.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
"Event of Default" has the meaning assigned such term in Section 11.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and the
rules and regulations of the Commission thereunder.
"Finance, Equity, Capital Contribution and Acquisition
Documents" means (i) the Credit Agreement, (ii) the notes and agreements entered
into in connection with the issuance of the Intercompany Note (in each case, as
in effect as of the Closing Date), (iii) the agreements entered into in
connection with the Equity and Capital Contribution Transactions, as in effect
as of the Closing Date and (iv) the Karlen Purchase Agreement and the agreements
entered into in connection therewith, as in effect as of the Closing Date.
"Financials" has the meaning assigned such term in Section 5.9.
"Fiscal Quarter" means the three-month accounting period of
the Company ending March 31, June 30, September 30 and December 31 of each
Fiscal Year.
"Fiscal Year" means the fiscal year of the Company commencing
on January 1 of each year and ending on December 31 of the same year.
"Fixed Charge Coverage Ratio" shall mean and include, with
respect to any fiscal period, the ratio of (a) EBITDA for such period minus the
sum of (x) capital expenditures made during such period plus (y) cash Taxes
actually paid during such period to (b) the sum of (i) all Senior Debt Payments
during such period plus (ii) all Subordinated Debt Payments during such period.
"Fund" means the Purchaser, but shall not mean any assignee of
the rights of the Purchaser under this Agreement or any transferee of any
securities of the Company purchased by the Purchaser hereunder.
"Funded Debt" shall mean, for any period, the sum of (i) the
aggregate stated balance sheet amount of all Indebtedness of the Company as
determined in accordance with GAAP (except, if the outstanding face amount of
any such Indebtedness is greater than the stated balance sheet amount of such
Indebtedness, such face amount shall be deemed to be the stated balance sheet
amount for purposes of this calculation) plus, without duplication, (ii) any
Indebtedness for borrowed money of any other Person as to which the Company has
created a guarantee or other Contingent Obligation.
"Fund Director" means the member of the Board of Directors of
the Company designated by the Fund pursuant to the Shareholders' Agreement.
"GAAP" means generally accepted United States accounting
principles in effect from time to time.
"Governmental Authority" means the government of any nation,
state, city, locality or other political subdivision of any thereof, any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, and any corporation or other entity
owned or controlled, through stock or capital ownership or otherwise, by any of
the foregoing.
"Hastings Facility" has the meaning assigned such term in
Section 5.23(k).
"Hazardous Substance" means any toxic waste, pollutant,
contaminant, hazardous substance, toxic substance, hazardous waste, special
waste, industrial substance or waste, petroleum or petroleum-derived substance
or waste, radioactive substance or waste, or any constituent of any such
substance or waste, or any other substance regulated under or defined by any
Safety and Environmental Law.
"Holder" means the Purchaser and any subsequent direct or
indirect transferee of Notes or Warrants or shares of Common Stock issuable upon
exercise of Warrants, other than a transferee who has acquired Warrants or
shares of Common Stock issuable upon exercise of Warrants that have been (a) the
subject of a distribution pursuant to a registered public offering or (b)
transferred to a transferee who has acquired such securities after such
securities have been the subject of a distribution to the public pursuant to
Rule 144 or otherwise distributed under circumstances not requiring a legend.
"Indebtedness" of a Person at a particular date shall mean all
obligations of such Person which in accordance with GAAP would be classified
upon a balance sheet as liabilities (except capital stock and surplus earned or
otherwise) and in any event, without limitation by reason of enumeration, shall
include all indebtedness, debt and other similar monetary obligations of such
Person whether direct or guaranteed, and all premiums, if any, due at the
required prepayment dates of such indebtedness, all obligations under Capital
Lease Obligations, all indebtedness secured by a Lien on assets owned by such
Person, whether or not such indebtedness actually shall have been created,
assumed or incurred by such Person and any Contingent Obligation. Any
indebtedness of such Person resulting from the acquisition by such Person of any
assets subject to any Lien shall be deemed, for the purposes hereof, to be the
equivalent of the creation, assumption and incurring of the indebtedness secured
thereby, whether or not actually so created, assumed or incurred.
"Initial Public Offering" shall mean the initial public
offering of the Company's Common Stock pursuant to a registration statement
declared effective under the Securities Act.
"Intercompany Note" shall mean the promissory note of the
Company, dated the Closing Date in the aggregate principal amount of $1,000,000
and issued to Parent.
"Interim Financials" has the meaning assigned such term in
Section 5.9.
"Inventory" shall mean and include all of the Company's now
owned or hereafter acquired goods, merchandise and other personal property,
wherever located, to be furnished under any contract of service or held for sale
or lease, all raw materials, work in process, finished goods and materials and
supplies of any kind, nature or description which are or might be used or
consumed in the Company's business or used in selling or furnishing such goods,
merchandise and other personal property, and all documents of title or other
documents representing them.
"Investment" means (i) the acquisition (whether for cash,
property, services, securities or otherwise) of Capital Stock, bonds, notes,
debentures, partnership or other ownership interests or other securities of any
other Person or any agreement to make any such acquisition; and (ii) the making
of any advance, loan or other extension of credit to, any Person (including the
purchase of property from another Person subject to an understanding or
agreement, contingent or otherwise, to resell such property to such Person, but
excluding any accounts receivable created in the ordinary course of business).
"Karlen" has the meaning assigned that term in the first
Whereas clause.
"Karlen Purchase Agreement" means the Asset Purchase
Agreement, dated January 9, 1999, and amended as of April 14, 1999, by and among
Karlen, the Company and the other parties named therein, attached as Exhibit A.
"Leverage Ratio" shall mean, at any date of determination, the
ratio of Funded Debt on such date to EBITDA for any fiscal period ending on such
date.
"Liabilities" has the meaning assigned to such term in
Section 5.9.
"Lien" means any mortgage, deed of trust, pledge,
hypothecation, assignment, encumbrance, lien (statutory or other) or preference,
priority, right or other security interest or preferential arrangement of any
kind or nature whatsoever (excluding preferred stock or equity related
preferences), including, without limitation, those created by, arising under or
evidenced by any conditional sale or other title retention agreement, any
interest of a lessor under a capital lease, or any financing lease having
substantially the same economic effect as any of the foregoing.
"Management Agreement" means the Management Agreement,
substantially in the form attached hereto as Exhibit B.
"Management Equity Investment" has the meaning assigned to
such term in Section 3.26.
"Market Price" shall mean, per share of Common Stock, on any
date specified herein: (a) if the Common Stock is not then listed or admitted to
trading on any national securities exchange but is designated as a national
market system security, the last trading price of the Common Stock on such date;
or (b) if there shall have been no trading on such date or if the Common Stock
is not so designated, the average of the reported closing bid and asked price of
the Common Stock, (excluding, for the purposes of such determination, any bid or
ask by any officer or director of the Company or any family member or Affiliate
thereof), on such date as shown by NASDAQ and reported by any member firm of the
NYSE selected by the Company.
"NASDAQ" means the National Market System of Nasdaq Stock
Market.
"Net Income" shall mean for any period, the net income (loss)
of any Person, determined in accordance with GAAP, after deducting all operating
expenses, provisions for Taxes and reserves and all other proper deductions in
accordance with GAAP. All references contained herein to the Net Income of the
Company shall be to the Net Income of the Company and its Subsidiaries,
determined on a consolidated basis.
"Nonparticipating Holders" has the meaning assigned to that
term in Section 9.16.
"Notes" has the meaning assigned to that term in the second
Whereas clause.
"NYSE" means the New York Stock Exchange, Inc.
"Outstanding Borrowings" means all Indebtedness of the Company
and any of its Subsidiaries for money borrowed.
"Parent" means PTI Holding Inc., a Delaware corporation.
"Parent Capital Contribution" has the meaning assigned to such
term in Section 3.28.
"Parent Debt Contribution" has the meaning assigned to such
term in Section 3.22.
"Parent Principal Shareholders" means Meredith Birrittella and
Martin Birrittella.
"Per Share Equity Value" of a share of Common Stock shall mean
the quotient obtained by dividing (a) the "as if fully distributed value" of all
outstanding shares of the Company's Common Stock (on a fully diluted basis)
(assuming that (i) the shares of Common Stock are publicly traded on a national
exchange, (ii) that no person or group owns a control block, (iii) no
consideration is given to any minority investment discounts or discounts related
to restrictions on transferability or discounts relating to illiquidity and (iv)
all outstanding convertible or exchangeable securities or outstanding options of
the Company have been converted, exchanged or exercised and any additional
consideration payable upon such conversion, exchange or exercise has been paid
to the Company), as determined by a nationally recognized investment banking
firm selected by the Company and the Demand Group, by (b) the number of
outstanding shares of the Company's Common Stock on a fully diluted basis.
"Permit" means any license, permit, exemption, consent,
waiver, authorization, right, order or approval of, and required registration
with, any Governmental Authority.
"Person" means any individual, firm, corporation, partnership,
limited liability company, trust, incorporated or unincorporated association,
joint venture, joint stock company, Governmental Authority or other entity of
any kind, and shall include any successor (by merger or otherwise) of any such
entity.
"Principal Shareholders" means Meredith Birrittella and Warren Schaeffer.
"Pro Forma Balance Sheet" has the meaning assigned such term in Section 5.9.
"Pro Forma Financial Statements" has the meaning assigned such term in
Section 5.9.
"Projections" has the meaning assigned such term in Section 5.9.
"Public Market Capitalization" means, as of any date of determination,
the product of (x) the Current Market Price on such date and (y) the number of
issued and outstanding shares of Common Stock as of such date.
"Purchase Price" has the meaning assigned to that term in Section 2.1.
"Qualified Spin-Off" means a distribution to shareholders of the Parent of
shares of Capital Stock of the Company pursuant to a registration statement
declared effective under the Securities Act that (i) determined as of fifteen
(15) days after the date of such distribution, results in a minimum Public
Market Capitalization with respect to such Capital Stock of at least $25,000,000
and that (ii) shall be otherwise reasonably acceptable to the Purchaser.
"Redemption Date" has the meaning assigned to that term in
Section 9.16.
"Registration Rights Agreement" means the Registration Rights
Agreement substantially in the form attached hereto as Exhibit C, as the same
may be amended or modified from time to time in accordance with its terms.
"Release" means any release, spill, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, leaching or
migration into or through the indoor or outdoor Environment or into, through or
out of any property, including the movement of Hazardous Substances through or
in the air, soil, surface water, ground water or property.
"Remedial Action" means all actions, whether voluntary or
involuntary, reasonably necessary to comply with, or discharge any obligation
under, Safety and Environmental Laws to (i) clean up, remove, treat, cover or in
any other way adjust Hazardous Substances in the indoor or outdoor Environment;
(ii) prevent or control the Release of Hazardous Substances so that they do not
migrate or endanger or threaten to endanger public health or welfare or the
Environment; or (iii) perform remedial studies, investigations, restoration and
post-remedial studies, investigations and monitoring on, about or in any real
property.
"Requirements of Law" means, as to any Person, any law,
treaty, rule or regulation or determination of an arbitrator or a court or other
Governmental Authority, in each case applicable or binding upon such Person or
any of its property or to which such Person or any of its property is subject.
"Required Redemption Notice" has the meaning assigned to that
term in Section 9.16.
"Restricted Payment" means (a) any dividend or other
distribution on any share of the Company's or any Subsidiary's Capital Stock
(except dividends payable solely in shares of their Capital Stock) or (b) any
payment by the Company or any of its Subsidiaries on account of the direct or
indirect purchase, redemption, retirement or other acquisition of (i) any shares
of the Company's or any such Subsidiary's Capital Stock (except shares acquired
upon the conversion thereof into other shares of their Capital Stock), (ii) any
option, warrant or other right to acquire shares of the Company's or any such
Subsidiary's Capital Stock or (iii) any Indebtedness of the Company or any such
Subsidiary (other than indebtedness incurred pursuant to the Notes, the Credit
Agreement, the Intercompany Note) prior to any date set forth for mandatory
repayment of principal or interest thereon.
"Safety and Environmental Laws" means all Requirements of Law
relating to pollution, protection of the Environment, public or worker health
and safety, or the emission, discharge, release or threatened release of
Hazardous Substances into the Environment or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Substances including the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. ss. 9601 et
seq., the Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901 et seq.,
the Toxic Substances Control Act, 15 U.S.C. ss. 2601 et seq., the Federal Water
Pollution Control Act, 33 U.S.C. ss. 1251 et seq., the Clean Air Act, 42 U.S.C.
ss. 7401 et seq., the Federal Insecticide, Fungicide and Rodenticide Act, 7
U.S.C. ss. 121 et seq., the Occupational Safety and Health Act, 29 U.S.C. ss.
651 et seq., the Asbestos Hazard Emergency Response Act, 15 U.S.C. ss. 2601 et
seq., the Safe Drinking Water Act, 42 U.S.C. ss. 300f et seq., the Oil Pollution
Act of 1990, 33 U.S.C. ss. 2701 et seq., and analogous state acts.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations of the Commission promulgated thereunder.
"Senior Debt Payments" shall mean and include all cash
actually expended by the Company to make (a) interest payments on the Revolving
Advances, Letters of Credit and the Term Loan (each as defined in the Credit
Agreement), plus (b) scheduled principal payments of the Term Loan, plus (c)
payments for all fees, commissions and charges set forth in the Credit Agreement
with respect to the Revolving Advances, Letters of Credit and the Term Loan,
plus (d) capitalized lease payments, plus (e) payments with respect to any other
Indebtedness for borrowed money, including without limitation the Intercompany
Note.
"Senior Subordinated Note" has the meaning assigned to that
term in the second Whereas clause.
"Shareholders' Agreement" means the Shareholders' Agreement,
dated as of April 14, 1999, by and among the Company, the Fund, Meredith
Birrittella and Warren Schaeffer, substantially in the form of Exhibit D hereto.
"Solvent" means, as to any Person, that the fair saleable
value on a going concern basis of the assets and property of such Person is, on
the date of determination, greater than the total amount of liabilities
(including contingent and unliquidated liabilities) of such Person as of such
date and that, as of such date, such Person is able to pay all liabilities of
such Person as such liabilities mature. In computing the amount of contingent or
unliquidated liabilities at any time, such liabilities will be computed as the
amount which, in light of all the facts and circumstances existing at such time,
represents the amount that is probable to become an actual or matured liability.
"Subordinated Debt Payments" shall mean and include all cash
actually expended to make payments of principal or interest on the Senior
Subordinated Note.
"Subordination Agreement" means the Subordination Agreement
substantially in the form of Exhibit E hereto.
"Subsidiary" means, with respect to any Person, a corporation
or other entity of which 50% or more of the combined voting power of the then
outstanding securities ordinarily (and apart from rights accruing under special
circumstances) having the right to vote in the election of directors is owned,
directly or indirectly, by such Person.
"Tax" or "Taxes" means all federal, state, county, local,
foreign and other taxes (including, without limitation, income, profits,
premium, estimated, excise, sales, use, occupancy, gross receipts, franchise, ad
valorem, severance, capital levy, production, transfer, withholding, employment,
unemployment compensation, payroll-related and property taxes, import duties and
other governmental charges and assessments), whether or not measured in whole or
in part by net income, and including deficiencies, interest, additions to tax or
interest, and penalties with respect thereto, and including expenses associated
with any proposed adjustment relating to any of the foregoing (including advice
in connection with contesting such adjustment).
"Technology Systems" has the meaning assigned to that term in
Section 5.34.
"Temporary Cash Investment" means any Investment in (i) United
States Government Obligations, (ii) commercial paper rated at least A or the
equivalent thereof by Moody's Investors Service, or a similar nationally
recognized credit rating agency, (iii) time deposits (including certificates of
deposit) with any bank or trust company which is organized, licensed or
otherwise regulated under the laws of the United States or any state thereof,
the long-term debt securities of which are rated at least A or the equivalent
thereof by Moody's Investors Service, or a similar nationally recognized credit
rating agency; provided, in the case of (i), (ii), or (iii), that such
Investment matures within one (1) year from the date of acquisition thereof by
the Company or any of its Subsidiaries or (iv) United States money market funds
that invest solely in United States Government Obligations.
"Transactions" means the transactions contemplated by
Transaction Documents and the Finance, Equity, Capital Contribution and
Acquisition Documents.
"Transaction Documents" means, collectively, this Agreement,
the Note, the Warrants, the Registration Rights Agreement and the Shareholders'
Agreement.
"United States Government Obligations" means direct
non-callable obligations of, or non-callable obligations guaranteed by the
United States or any agency thereof for the payment of which obligation the full
faith and credit of the United States is pledged.
"USTs" means any underground or aboveground storage tanks or
related piping or dispensers.
"Warrant" has the meaning assigned to that term in the second
Whereas clause.
"Year 2000 Compliance" has the meaning assigned to that term
in Section 5.33.
"Y2K Compliant" has the meaning assigned to that term in
Section 9.21.
A. Accounting Terms; Financial Covenants. All accounting terms used herein not
expressly defined in this Agreement shall have the respective meanings given to
them in accordance with sound accounting practice. The term "sound accounting
practice" shall mean such accounting practice as, in the opinion of the
independent accountants regularly retained by the Company, conforms at the time
to GAAP applied on a consistent basis. If any changes in accounting principles
are hereafter occasioned by promulgation of rules, regulations, pronouncements
or opinions by or are otherwise required by the Financial Accounting Standards
Board or the American Institute of Certified Public Accountants (or successors
thereto or agencies with similar functions), and any of such changes results in
a change in the method of calculation of, or affects the results of such
calculation of, any of the financial covenants, standards or terms found herein,
then the parties hereto agree to enter into and diligently pursue negotiations
in order to amend such financial covenants, standards or terms so as to reflect
fairly and equitably such changes, with the desired result that the criteria for
evaluating the Company's financial condition and results of operations shall be
the same after such changes as if such changes had not been made.
I. ARTICLE
PURCHASE AND SALE
A. Purchase and Sale of Senior Subordinated Note and Warrants. Subject to the
terms and conditions set forth herein, the Company agrees that it will issue to
the Purchaser, and the Purchaser agrees that it will acquire from the Company,
at the Closing, (i) the principal amount of the Senior Subordinated Note, with
such Senior Subordinated Note being substantially in the form attached hereto as
Exhibit F, appropriately completed in conformity herewith, and Warrants to
purchase initially 22 shares of Common Stock, with such Warrants being
substantially in the form attached hereto as Exhibit G, for an aggregate
purchase price of $8,000,000 (the "Purchase Price") in cash, by wire transfer of
immediately available funds to an account designated in a notice delivered to
the Purchaser not later than two Business Days prior to the Closing Date.
A. Fees. The Company hereby agrees that it will pay to the Purchaser, at the
Closing, a facility fee equal to 1.5% of the Purchase Price (less any portion
thereof previously paid by the Company to the Purchaser), payable in cash by
wire transfer of immediately available funds to an account designated in a
notice delivered to the Company not later than two Business Days prior to the
Closing Date.
A. Closing. The purchase and issuance of the Senior Subordinated Note and the
Warrants shall take place at the closing (the "Closing") to be held at the
offices of Haythe & Curley, 237 Park Avenue, New York, New York 10017 on April
14, 1999 (the "Closing Date"), at 10:00 a.m., New York City time, or on such
other date and at such other time as the Purchaser and the Company may mutually
agree. At the Closing, subject to the terms and conditions set forth herein, the
Company shall sell the Senior Subordinated Note and the Warrants to the
Purchaser by delivering to the Purchaser the Senior Subordinated Note and the
Warrants registered in the name of the Purchaser, with appropriate issue stamps,
if any, affixed at the expense of the Company, free and clear of any Lien, and
the Purchaser shall purchase the Senior Subordinated Note and the Warrants for
the Purchase Price.
I. ARTICLE
CONDITIONS TO THE OBLIGATION
OF THE PURCHASER TO CLOSE
The obligation of the Purchaser to purchase the Senior
Subordinated Note and the Warrants, to pay the Purchase Price at the Closing,
and to perform any of its obligations hereunder shall be subject to the
satisfaction or waiver of the following conditions on or before the Closing
Date:
A. Representations and Warranties True. The representations and warranties of
the Company contained in Article 5 hereof shall be true and correct (a) at and
as of the Closing Date and (b) after giving effect to the transactions
contemplated by the Transaction Documents and the Finance, Equity, Capital
Contribution and Acquisition Documents, as if made at and as of such date.
A. Compliance with this Agreement. The Company shall have performed and complied
with all of its agreements and conditions set forth or contemplated herein that
are required to be performed or complied with by the Company on or before the
Closing Date.
A. Officer's Certificate. The Purchaser shall have received a certificate, dated
the Closing Date and signed by the President or an Executive Vice-President of
the Company, certifying that the conditions set forth in Sections 3.1 (with
respect to the representations and warranties of the Company) and 3.2 have been
satisfied on and as of such date. The Purchaser shall have received a
certificate, dated the Closing Date and signed by the President or an Executive
Vice-President of the Parent, certifying that the conditions set forth in
Section 3.1 (with respect to the representations and warranties of the Parent)
have been satisfied on and as of such date.
A. Secretary's Certificate.
(a) The Purchaser shall have received a certificate, attaching a good standing
certificate from the Delaware Secretary of State with respect to the Company,
such certificate dated the Closing Date and signed by the Secretary or an
Assistant Secretary of the Company certifying the truth and correctness of
attached copies of the articles or certificate of incorporation and by-laws of
the Company and resolutions of the Board of Directors of the Company approving
this Agreement and the Transactions (to the extent they are to be entered into,
performed by or complied with by the Company).
(b) The Purchaser shall have received a certificate,
attaching a good standing certificate from the Delaware Secretary of State with
respect to the Parent, such certificate dated the Closing Date and signed by the
Secretary or an Assistant Secretary of the Parent certifying the truth and
correctness of attached copies of the articles or certificate of incorporation
and by-laws of the Parent and resolutions of the Board of Directors of the
Parent approving this Agreement and the Transactions (to the extent they are to
be entered into, performed by or complied with by the Parent).
A. Documents. The Purchaser shall have received copies of such documents as it
reasonably may request in connection with the sale of the Senior Subordinated
Note and the Warrants and the transactions contemplated hereby, all in form and
substance reasonably satisfactory to the Purchaser.
A. Purchase Permitted by Applicable Laws; Legal Investment. The acquisition of
and payment for the Senior Subordinated Note and the Warrants and the
consummation of the transactions contemplated hereby (a) shall not be prohibited
by any applicable law or governmental regulation, (b) shall not subject the
Purchaser to any penalty or, in its reasonable judgment, other onerous condition
under or pursuant to any applicable law or governmental regulation and (c) shall
be permitted by the laws and regulations of the jurisdictions to which it is
subject.
A. Opinion of Counsel. The Purchaser shall have received the opinion of Akabas &
Cohen, counsel to the Company, dated the Closing Date, substantially in the form
attached hereto as Exhibit H.
A. Approval of Counsel to the Purchaser. All actions and proceedings hereunder
and all documents required to be delivered by the Company hereunder or in
connection with the consummation of the transactions contemplated hereby, and
all other related matters, shall have been reasonably acceptable to Paul, Weiss,
Rifkind, Wharton & Garrison, counsel to the Purchaser, as to their form and
substance. B. Consents and Approvals. All consents, waivers, exemptions,
authorizations, or other actions by, or notices to, or filings with,
Governmental Authorities and other Persons necessary or required in connection
with the execution, delivery or performance by the Company or enforcement
against the Company of this Agreement, any other Transaction Document or the
Finance, Equity, Capital Contribution and Acquisition Documents shall have been
obtained and be in full force and effect, and the Purchaser shall have been
furnished with appropriate evidence thereof.
A. No Material Adverse Change. Since December 31, 1998, there shall have been no
material adverse change, nor shall any such change be threatened, in the assets,
business, properties, prospects, operations or financial or other condition of
the Company and its Subsidiaries, taken as a whole.
A. Due Diligence. The Purchaser shall have completed its due diligence review of
the assets, business, properties, operations and financial and other condition
of the Company and shall be reasonably satisfied with the results of such
review.
A. Employment Agreements. Tim Drumhiller shall have duly executed and delivered
an employment agreement with the Company, the terms and conditions of which are
reasonably acceptable to the Purchaser.
A. Registration Rights Agreement. The Company shall have duly executed and
delivered to the Purchaser the Registration Rights Agreement.
A. Certificate of Incorporation and By-Laws of the Company and the Subsidiaries.
No amendments to the articles or certificate of incorporation or by-laws of the
Company or any of its Subsidiaries as in effect on the date hereof shall have
been effected.
A. Market Conditions. Prior to the Closing Date, (a) trading in securities
generally on the NYSE shall not have been suspended or limited or minimum or
maximum prices shall not have been generally established on such exchange, or
additional material governmental restrictions, not in force on the date of this
Agreement, shall not have been imposed upon trading in securities generally by
such exchange or by order of the Commission or any court or other Governmental
Authority, (b) a general banking moratorium shall not have been declared by
either federal or New York State authorities or (c) any material adverse change
in the financial or securities markets in the United States or in political,
financial or economic conditions in the United States or any outbreak or
material escalation of hostilities or declaration by the United States of a
national emergency or war or other calamity or crisis shall not have occurred.
B. No Litigation. No action, suit, proceeding, claim or dispute shall have been
brought or otherwise arisen at law, in equity, in arbitration or before any
Governmental Authority against the Parent, the Company or any Subsidiary which
would, if adversely determined, in the reasonable judgment of the Purchaser, (a)
after giving effect to the transactions contemplated hereby, have a material
adverse effect on the assets, business, properties, prospects, operations or
financial or other condition of the Company and its Subsidiaries, taken as a
whole, or (b) have a material adverse effect on the ability of the Company to
perform its obligations under this Agreement or any other Transaction Document
or the Finance, Equity, Capital Contribution and Acquisition Documents.
A. No Default or Breach. The Company shall not have been in default under or
with respect to any of the Transaction Documents or the Finance, Equity, Capital
Contribution and Acquisition Documents, and, after giving effect to the
transactions contemplated hereby and thereby, the Company will not be in default
under any of the Transaction Documents or the Finance, Equity, Capital
Contribution and Acquisition Documents.
A. Shareholders' Agreement. The Shareholders' Agreement shall have been duly
executed and delivered by all the parties thereto (other than the Purchaser) and
(i) one designee of the Purchaser shall have been elected to the Board of
Directors of the Company and (ii) one designee of the Purchaser shall have been
elected to the Board of Directors of Parent, in each case pursuant to the terms
of the Shareholders' Agreement.
A. Facilities Fee. The Company shall have paid to the Purchaser the fees
provided for in Section 2.2 hereof.
A. Management Agreement. The Management Agreement shall have been executed and
delivered by the parties thereto, in form and substance satisfactory to the
Purchaser.
A. Parent Debt Contribution. At least $3,500,000 in aggregate principal amount
of non-interest-bearing junior subordinated debt of the Company held by the
Parent shall have been canceled by the Parent as a capital contribution to the
Company (the "Parent Debt Contribution").
A. Karlen Purchase Agreement. The closing of the transactions contemplated by
the Karlen Purchase Agreement shall simultaneously occur with the Closing hereof
and all of the conditions set forth in Section 8 thereof shall have been
satisfied or waived; provided, that any such waiver shall have been given only
with the prior written consent of the Purchaser.
A. Senior Financing. The Company shall have obtained (or simultaneously be
obtaining) senior financing pursuant to the Credit Agreement in an amount not
exceeding $10 million (including a revolving credit facility not in excess of $6
million) in connection with the Acquisition on terms reasonably satisfactory to
the Purchaser.
A. Subordination Agreement. The form and substance of the Subordination
Agreement to be entered into among the Purchaser, the lenders under the Credit
Agreement and the other parties thereto shall be satisfactory to the Purchaser
in its sole discretion.
A. Management Equity Investment. The Company shall have received a cash payment
from Meredith W. Birrittella and Warren Schaeffer in respect of 18 shares of
newly issued Common Stock in the aggregate amount of $1,800,000 (the "Management
Equity Investment").
A. Intercompany Note. The Company shall issue a junior subordinated promissory
note to the Parent, in exchange for a cash payment of $1,000,000 pursuant to the
Intercompany Note.
A. Parent Capital Contribution. The Company shall have received a capital
contribution in cash from the Parent in the amount of $200,000 and a capital
contribution from the Parent in the aggregate amount of $1,000,000 made by the
issuance of a note from the Parent to Karlen (in lieu of the Company issuing
such note) and the cancellation of such liability of the Company (collectively,
the "Parent Capital Contribution").
A. Finance, Equity, Capital Contribution and Acquisition Documents. The forms,
terms and provisions of each of the Finance, Equity, Capital Contribution and
Acquisition Documents shall be reasonably satisfactory to the Purchaser.
A. Existing Indebtedness. The Company shall repay all of its existing
indebtedness simultaneously with the Closing hereunder.
A. Closing Balance Sheet. Giving effect to the transactions contemplated by the
Finance, Equity, Capital Contribution and Acquisition Documents and the
Transaction Documents, as of the Closing Date the closing balance sheet of the
Company will be as set forth on Exhibit I attached hereto.
I. ARTICLE
CONDITIONS TO THE OBLIGATION
OF THE COMPANY TO CLOSE
The obligations of the Company to issue and sell the Senior
Subordinated Note and the Warrants and to perform any of its other obligations
hereunder, shall be subject to the satisfaction or waiver of the following
conditions on or before the Closing Date:
A. Representations and Warranties True. The representations and warranties of
the Purchaser contained in Article 6 hereof shall be true and correct in all
material respects at and as of the Closing Date as if made at and as of such
date.
A. Compliance with this Agreement. The Purchaser shall have performed and
complied with all of its agreements and conditions set forth or contemplated
herein that are required to be performed or complied with by the Purchaser on or
before the Closing Date.
A. Approval of Counsel to the Company. All actions and proceedings hereunder and
all documents required to be delivered by the Purchaser hereunder or in
connection with the consummation of the transactions contemplated hereby, and
all other related matters, shall have been reasonably acceptable to Akabas &
Cohen, counsel to the Company, as to their form and substance.
A. Consents and Approvals. All consents, exemptions, authorizations, waivers or
other actions by, or notices to, or filings with, Governmental Authorities and
other Persons necessary or required in connection with the execution, delivery
or performance by the Purchaser or enforcement against the Purchaser of this
Agreement shall have been obtained and be in full force and effect, and the
Company shall have been furnished with appropriate evidence thereof.
A. Karlen Purchase Agreement. The closing of the transactions contemplated by
the Karlen Purchase Agreement shall simultaneously occur with the Closing
hereof.
A. Senior Financing. The Company shall have obtained (or simultaneously be
obtaining) senior financing pursuant to the Credit Agreement in an amount of at
least $10 million (including a revolving credit facility not in excess of $6
million) in connection with the Acquisition.
A. Management Equity Investment. The Company shall have received a cash payment
from Meredith W. Birrittella and Warren Schaeffer in respect of 18 shares of
newly issued Common Stock in the aggregate amount of $1,800,000.
A. Additional Financing. The Company shall have received a cash payment of
$1,000,000 from the Parent pursuant to the provisions of the Intercompany Note.
4.9 Parent Capital Contribution. The Company shall have
received a capital contribution in cash from the Parent in the amount of
$200,000 and a capital contribution from the Parent in the aggregate amount of
$1,000,000 made by the issuance of a note from the Parent to Karlen (in lieu of
the Company issuing such note) and the cancellation of such liability of the
Company.
I. ARTICLE
REPRESENTATIONS AND
WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Purchaser as
follows:
A. Corporate Existence and Power. The Company and each of its Subsidiaries:
(a) is, and after giving effect to the Transactions will be duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization;
(a) has, and after giving effect to the Transactions will have (i) full
corporate power and authority and (ii) all governmental licenses,
authorizations, consents and approvals to own and operate its property, to lease
the property it operates as lessee and to conduct the business in which it is
currently, or is currently proposed to be, engaged;
(a) is, and after giving effect to the Transactions will be duly qualified as a
foreign corporation, licensed and in good standing under the laws of each
jurisdiction where its ownership, lease or operation of property or the conduct
of its business requires such qualification; and
(a) is, and after giving effect to the Transactions will be in compliance with
(i) its articles or certificate of incorporation and by-laws or other
organizational or governing documents and (ii) all Requirements of Law;
except, in the case of (b)(ii), (c) or (d)(ii) of this Section 5.1, to the
extent that the failure to do so would not have a material adverse effect on the
assets, business, properties, prospects, operations or financial or other
condition of the Company and its Subsidiaries, taken as a whole.
A. Corporate Authorization; No Contravention. The execution, delivery and
performance by the Company of this Agreement, the Registration Rights Agreement,
the Shareholders' Agreement, any other Transaction Document and the Finance,
Equity, Capital Contribution and Acquisition Documents and the transactions
contemplated hereby and thereby, including without limitation, the issuance of
the Senior Subordinated Note and the Warrants:
(a) is within the Company's corporate power and authority and has been
duly authorized by all necessary corporate action; and
(a) does not, and will not after giving effect to the transactions contemplated
hereby, contravene the terms of the articles or certificate of incorporation or
by-laws or other organizational or governing documents or any amendment thereof
of the Company or any of its Subsidiaries; and
(a) does not, and will not after giving effect to the transactions contemplated
hereby, violate, conflict with or result in any breach of, contravention of or
the creation of any Lien (except as contemplated herein) under, any Contractual
Obligation of the Company or any of its Subsidiaries or any order or decree
directly relating to the Company or any of its Subsidiaries.
A. Governmental Authorization; Third Party Consents. No approval, consent,
exemption, authorization, or other action by, or notice to, or filing with, any
Governmental Authority or any other Person, is necessary or required in
connection with the execution, delivery or performance by the Company or
enforcement against the Company of this Agreement, the Senior Subordinated Note,
the Warrants, the Registration Rights Agreement, the Shareholders' Agreement,
any other Transaction Document or the Finance, Equity, Capital Contribution and
Acquisition Documents and the transactions contemplated hereby or thereby, other
than those that have been obtained or made on or prior to the Closing.
A. Binding Effect. This Agreement has been duly executed and delivered by the
Company, and at the Closing the Senior Subordinated Note, the Registration
Rights Agreement, the Shareholders' Agreement, the Warrants and each other
Transaction Document will be duly executed and delivered by the Company, and
this Agreement constitutes the legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its terms, and at the
Closing the Registration Rights Agreement, the Shareholders' Agreement, the
Senior Subordinated Note and the Warrants will constitute the legal, valid and
binding obligations of the Company enforceable against the Company in accordance
with their respective terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and other laws of general applicability
relating to or affecting creditors' rights and to general equity principles.
A. No Legal Bar. Neither the execution, delivery and performance of this
Agreement, the Registration Rights Agreement, the Shareholders' Agreement or any
other Transaction Document or the Finance, Equity, Capital Contribution and
Acquisition Documents nor the issuance of the Senior Subordinated Note, or the
Warrants will violate any Requirements of Law or any Contractual Obligation of
the Company.
A. Litigation. Except as set forth on Schedule 5.6, there are no, and after
giving effect to the transactions contemplated hereby there will not be, any
actions, suits, proceedings, claims or disputes pending, or to the knowledge of
the Company or the Subsidiaries, threatened, at law, in equity, in arbitration
or before any Governmental Authority against the Company or the Subsidiaries:
(a) with respect to any Transaction Document or any Finance, Equity, Capital
Contribution and Acquisition Documents or any of the transactions contemplated
hereby or thereby; or
(a) which would, after giving effect to the Transaction Documents and the
Finance, Equity, Capital Contribution and Acquisition Documents and the
transactions contemplated hereby and thereby, if adversely determined, (i) have
a material adverse effect on the assets, business, properties, prospects,
operations or financial or other condition of the Company and its Subsidiaries,
taken as a whole or (ii) have a material adverse effect on the ability of the
Company to perform its obligations under this Agreement or any other Transaction
Document or any Finance, Equity, Capital Contribution and Acquisition Documents.
No injunction, writ, temporary restraining order, decree or any order of any
nature has been issued by any court or other Governmental Authority purporting
to enjoin or restrain the execution, delivery and performance of this Agreement
or any other Transaction Document or any Finance, Equity, Capital Contribution
and Acquisition Documents.
A. No Default or Breach. No event has occurred and is continuing or would result
from the incurring of obligations by the Company under this Agreement, the
Registration Rights Agreement, the Shareholders' Agreement or any other
Transaction Document or any Finance, Equity, Capital Contribution and
Acquisition Document which constitutes a default under or breach of any of the
provisions hereof or of the Notes and no such event will occur or will be
continuing after giving effect to the transactions contemplated hereby. Neither
the Company or any of its Subsidiaries is, and after giving effect to the
transactions contemplated by the Transaction Documents and the Finance, Equity,
Capital Contribution and Acquisition Documents will not be, in default under or
with respect to any Contractual Obligation, Transaction Document or Finance,
Equity, Capital Contribution and Acquisition Document in any respect.
A. Title to Properties. The Company and each of its Subsidiaries has, and after
giving effect to the transactions contemplated by the Transaction Documents or
Finance, Equity, Capital Contribution and Acquisition Documents will have, good
record and marketable title to, or hold leases in full force and effect in all
their real property, except for such defects in title as could not, individually
or in the aggregate, have a materially adverse effect on the assets, business,
properties, prospects, operations or financial or other conditions of the
Company and its Subsidiaries, taken as a whole, or the ability of the Company to
perform its obligations under this Agreement, the Senior Subordinated Note, the
Warrants, the Registration Rights Agreement or Finance, Equity, Capital
Contribution and Acquisition Documents.
A. Financial Condition; No Undisclosed Liabilities.
(a) The pro forma balance sheet of the Company (the "Pro Forma Balance Sheet")
furnished to the Purchaser on the Closing Date reflects the consummation of the
Transactions and is accurate, complete and correct and fairly reflects the
financial condition of the Company as of the Closing Date after giving effect to
the Transactions, and has been prepared in accordance with GAAP, consistently
applied. The Pro Forma Balance Sheet has been certified as accurate, complete
and correct in all material respects by the President and Chief Financial
Officer of Parent and Company. All financial statements referred to in this
subsection 5.9(a), including the related schedules and notes thereto, have been
prepared, in accordance with GAAP, except as may be disclosed in such financial
statements.
(a) The twelve-month cash flow projections of the Company and its projected
balance sheets as of the Closing Date, copies of which are annexed as Schedule
5.9A (the "Projections"), were prepared by the Chief Financial Officer of Parent
and Company, are based on underlying assumptions which provide a reasonable
basis for the projections contained therein and reflect the Company's judgment
based on present circumstances of the most likely set of conditions and course
of action for the projected period. The cash flow Projections together with the
Pro Forma Balance Sheet, are referred to as the "Pro Forma Financial
Statements."
(a) The consolidated and consolidating balance sheets of Parent and such other
Persons described therein (including the accounts of the Company and all other
Subsidiaries of Parent for the respective periods during which a subsidiary
relationship existed) and the balance sheet of Karlen (i) as of December 31,
1997 and December 31, 1998, respectively, and the related statements of income,
changes in stockholder's equity, and changes in cash flow for the period ended
on such date, all accompanied by reports thereon containing opinions without
qualification by independent certified public accountants (the "Financials"),
and (ii) as of February 28, 1999, and the related statements of income, changes
in stockholders' equity and cash flow for the period ended on such date (the
"Interim Financials"), copies of all of which have been delivered to Purchaser,
have been prepared in accordance with GAAP, consistently applied (except for
changes in application in which such accountants concur) and present fairly the
financial position of Parent and its Subsidiaries, the Company and Karlen,
respectively, at such date and the results of their operations for such periods.
Since December 31, 1998 there has been no material adverse change in the
condition, financial or otherwise, of the Company, Karlen or Parent as shown on
such Person's balance sheet as of such date.
(a) Except as set forth on Schedule 5.9B, the Company and its Subsidiaries,
after giving effect to the Transactions, will not have any material direct or
indirect indebtedness, liability or obligation, whether known or unknown, fixed
or unfixed, contingent or otherwise, and whether or not of a kind required by
GAAP to be set forth on a financial statement (collectively "Liabilities"),
other than (i) Liabilities fully and adequately reflected on the Financials and
the Interim Financials, (ii) those incurred since the date of the Financials in
the ordinary course of business, and (iii) Liabilities incurred pursuant to the
Senior Subordinated Note, the promissory notes issued pursuant to the Credit
Agreement and the Intercompany Note.
A. No Material Adverse Change. Since December 31, 1998, there has not been any
material adverse change, nor to the knowledge of the Company or any of its
Subsidiaries is any such change threatened, in the assets, business, properties,
prospects, operations or financial or other condition of the Company and its
Subsidiaries, taken as a whole.
A. Investment Company. Neither the Company nor any Person controlling the
Company is, and no such Person after giving effect to the transactions
contemplated hereby will be, an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
A. Subsidiaries. Schedule 5.12 sets forth a complete and accurate list of all of
the Subsidiaries of the Company together with their respective jurisdictions of
incorporation or organization. All of such Subsidiaries are directly and wholly
owned by the Company. All of the outstanding shares of capital stock of the
Subsidiaries that are corporations are validly issued, fully paid and
nonassessable. All of the outstanding shares of capital stock of, or other
ownership interests in, each of the Subsidiaries are owned by the Company free
and clear of any Liens. No Subsidiary has outstanding options, warrants,
subscriptions, calls, rights, convertible securities or other agreement or
commitments obligating the Subsidiary to issue, transfer or sell any securities
of the Subsidiary.
A. Capitalization. As of the Closing Date, after giving effect to the
transactions contemplated hereby and by the Finance, Equity, Capital
Contribution and Acquisition Documents, (i) the authorized capital stock of the
Company will consist of 200 shares of Common Stock, (ii) 78 shares of Common
Stock will be issued and outstanding, of which 60 shares will be owned of record
by the Parent and (iii) 0 shares of Common Stock will be held in the Company's
treasury. All such shares of capital stock of the Company have been duly
authorized and all of the issued and outstanding shares of Common Stock are
fully paid and non-assessable. The Warrants to be issued at the Closing are
exercisable into 22% of the Common Stock of the Company on a fully diluted basis
as of the Closing Date and after taking into account the transactions
contemplated by the Transaction Documents and the Finance, Equity, Capital
Contribution and Acquisition Documents. Except for shares reserved for issuance
upon exercise of the Warrants, there are no shares of capital stock of the
Company reserved for issuance. The Common Stock when issued upon exercise of the
Warrants are duly authorized, and, when so issued, will be fully paid,
non-assessable and free and clear of any Lien. Except for the Warrants, there
are no options, warrants or other rights to purchase shares of capital stock or
other securities of the Company, nor is the Company obligated in any manner to
issue shares of its capital stock or other securities. Except as contemplated
hereby and for relevant state and federal securities laws, there are no
restrictions on the Company's ability to transfer shares of capital stock of the
Company.
A. Solvency. On and as of the Closing Date, after giving effect to the
transactions contemplated hereby and the Transaction Documents and the Finance,
Equity, Capital Contribution and Acquisition Documents, the Company will be
Solvent.
A. Private Offering. No form of general solicitation or general advertising was
used by the Company or, to its knowledge, its representatives in connection with
the offer or sale of the Senior Subordinated Note or the Warrants. No
registration of the Senior Subordinated Note or the Warrants pursuant to the
provisions of the Securities Act or any state securities or "blue sky" laws will
be required by the offer, sale or issuance of any such securities pursuant to
the transactions contemplated hereby. The Company agrees that neither it, nor
anyone acting on its behalf, will offer or sell the Senior Subordinated Note,
the Warrants or any other security so as to require the registration of the
Senior Subordinated Note or the Warrants or any other security pursuant to the
provisions of the Securities Act or any state securities or "blue sky" laws,
unless such securities are so registered.
A. Broker's, Finder's or Similar Fees. Except for the facility fee payable to
the Purchaser pursuant to Section 2.2 hereof and the fee for $340,000 payable by
the Company to Woodbridge Group, Inc. in connection with the Transactions, there
are no brokerage commissions, finder's fees or similar fees or commissions
payable in connection with the offer or sale of the Senior Subordinated Note or
the Warrants contemplated hereby based on any agreement, arrangement or
understanding with the Company, or any action taken by any such entity.
A. Full Disclosure. No statement by the Company contained in the Finance,
Equity, Capital Contribution and Acquisition Documents or in any Transaction
Document or any other document, certificate, notice or consent related to any of
the foregoing delivered to the Purchaser in connection with the purchase and
sale of the Senior Subordinated Note and the Warrants at or prior to the Closing
contains (or will contain) an untrue statement of a material fact or omits (or
will omit) to state a material fact required to be stated therein or necessary
to make the statements made, in light of the circumstances in which made, not
materially false or misleading.
A. Anti-Dilution Protection. No holder of shares of Common Stock (or securities
convertible into or exchangeable or exercisable for any of the foregoing) has
any rights to purchase or receive additional or other securities of the Company
upon the occurrence of an event that might dilute such holder's percentage
interest in the Company.
A. Registration Rights Agreements. As of the Closing Date, the Company will not
be a party to any agreement granting any registration rights to any Person
except for the Registration Rights Agreement.
A. Shareholders' Agreement. As of the Closing Date, neither the Company, Parent
nor, to the best knowledge of the Company, any holder of any class of Capital
Stock of Parent, will be a party to any agreement, arrangement or understanding
with respect to the voting of any class of Capital Stock of the Company or the
Parent which is inconsistent with the terms of the Shareholders' Agreement.
A. Labor Relations. Neither the Company nor any of its Subsidiaries is engaged
in any unfair labor practice. There is (a) no unfair labor practice complaint
pending or, to the best knowledge of the Company or any of its Subsidiaries,
threatened against the Company or any of its Subsidiaries before the National
Labor Relations Board and no grievance or arbitration proceeding arising out of
or under any collective bargaining agreement is so pending or, to the best
knowledge of the Company, threatened, (b) no strike, labor dispute, slowdown or
stoppage pending or threatened against the Company or any of its Subsidiaries,
and (c) no union representation question existing with respect to the employees
of the Company or any of its Subsidiaries and, to the knowledge of the Company
or any of its Subsidiaries, no union organizing activities are taking place.
A. ERISA and Employee Benefit Plans.
(a) There are no employee benefit plans, arrangements, policies or commitments
of any type (including, but not limited to, plans described in section 3(3) of
ERISA) maintained by the Company or any of its Subsidiaries, or with respect to
which the Company or any of its Subsidiaries has or could have any direct or
indirect liability, other than those described in Schedule 5.22 ("Benefit
Plans").
(a) Accurate and complete copies of all plan text and agreements, the most
recent annual report, the most recent annual and periodic accounting of plan
assets, and the most recent actuarial valuation with respect to each Benefit
Plan have been delivered to the Purchaser.
(a) No Benefit Plan is subject to Title IV of ERISA or section 412 of the Code.
No Benefit Plan is a "multiple employer plan" within the meaning of the Code or
ERISA.
(a) With respect to each Benefit Plan, except as set forth in Schedule 5.22: (i)
if it is intended to qualify under section 401(a) or 403(a) of the Code, such
plan so qualifies; (ii) such Benefit Plan has been maintained and administered
at all times in compliance with its terms and applicable laws and regulations;
(iii) no event has occurred and there exists no circumstances under which the
Company or any of its Subsidiaries could incur material liability under ERISA,
the Code or otherwise (other than routine claims for benefits) with respect to
such plan or with respect to any other entity's employee benefit plan; and (iv)
all contributions and premiums due with respect to such plan have been made on a
timely basis.
(a) With respect each Benefit Plan that is a "welfare plan" (as defined in ERISA
section 3(1)): (i) no such plan provides medical or death benefits with respect
to current or former employees of the Company or any of its Subsidiaries beyond
their termination of employment (other than as required to avoid an excise tax
under Code section 4980B); and (ii) the Company and each of its Subsidiaries has
complied with the requirements of Code section 4980B.
(a) The consummation of the Transactions will not: (i) entitle any individual to
severance or termination pay; (ii) accelerate the time of payment or vesting, or
increase the amount of compensation due to any individual (except for Tom
Drumhiller pursuant to his employment agreement with the Company, which is
attached hereto as Exhibit J); or (iii) result in the payment that will be taken
into account in determining whether there is an "excess parachute payment" under
Code section 280G(b)(1).
A. Environmental Matters. Except as disclosed on Schedule 5.23:
(a) Neither the Company nor any of its Subsidiaries is or has been in violation
in any material respect of any applicable Safety and Environmental Law.
(a) The Company and the Subsidiaries have all Permits required pursuant to
Safety and Environmental Laws that are material to the conduct of the business
of the Company or any of the Subsidiaries, all such Permits are in full force
and effect, no action, cause of action, suit, claim, complaint, demand,
litigation or legal, administrative or arbitral proceeding or investigation
(collectively, "Claims") to revoke, limit or modify any of such Permits is
pending and the Company and each of the Subsidiaries is in compliance in all
material respects with all terms and conditions thereof. All such Permits are
listed on Schedule 5.23.
(a) Neither the Company nor any of the Subsidiaries has received, or will
receive due to the consummation of this transaction, any Environmental Claim.
(a) The Company and the Subsidiaries have filed all notices required under
Safety and Environmental Laws indicating the past or present Release,
generation, treatment, storage or disposal of Hazardous Substances. All such
notices are listed on Schedule 5.23.
(a) Neither the Company nor any of the Subsidiaries has entered into any written
agreement with any Governmental Body or any other Person by which the Company or
any of the Subsidiaries has assumed responsibility, either directly or as a
guarantor or surety, for the remediation of any condition arising from or
relating to a Release or threatened Release of Hazardous Substances into the
Environment.
(a) To the knowledge of the Company or any of its Subsidiaries, there is not now
and has not been at any time in the past a Release or threatened Release of
Hazardous Substances into the Environment for which the Company or any of the
Subsidiaries may be directly or indirectly responsible in an amount in excess of
$25,000.
(a) Except in cases which would not give rise to any liability under any Safety
and Environmental Law in excess of $25,000, there is not now and has not been at
any time in the past at, on or in any of the real properties owned, leased or
operated by the Company or any of its Subsidiaries, and, to the knowledge of the
Company or any of its Subsidiaries, there was not at, on or in any real property
previously owned, leased or operated by the Company or any of its Subsidiaries
or any predecessor: (i) any generation, use, handling, Release, treatment,
recycling, storage or disposal of any Hazardous Substances; (ii) any UST,
surface impoundment, lagoon, landfill, solid waste disposal area, or other
containment facility (past or present) for the temporary or permanent storage,
treatment or disposal of Hazardous Substances; (iii) any asbestos-containing
material; (iv) any polychlorinated biphenyls (PCBs) used in hydraulic oils,
electrical transformers or other equipment; (v) any Release or threatened
Release, or any visible signs of Releases or threatened Releases, of a Hazardous
Substance to the Environment in form or quantity requiring Remedial Action under
Safety and Environmental Laws; or (vi) any Hazardous Substances present at such
property, excepting such quantities as are handled in accordance with all
applicable manufacturer's instructions and Safety and Environmental Laws and in
proper storage containers, and as are necessary for the operations of the
Company and its Subsidiaries.
(a) To the knowledge of the Company or any of its Subsidiaries, there is no
basis or reasonably anticipated basis, individually or in the aggregate, for any
Environmental Claim or Environmental Compliance Costs in excess of $25,000.
(a) Neither the Company nor any of its Subsidiaries has transported, stored,
treated or disposed, nor has it allowed or arranged for any third persons to
transport, store, treat or dispose, any Hazardous Substance to or at: (i) any
location other than a site lawfully permitted to receive such substances for
such purposes, or (ii) any location designated for Remedial Action pursuant to
Safety and Environmental Laws; nor has it performed, arranged for or allowed by
any method or procedure such transportation or disposal in contravention of any
Safety and Environmental Laws or in any other manner which may result in
Environmental Compliance Costs or in an Environmental Claim. All locations at
which the Company or any of the Subsidiaries has disposed of any Hazardous
Substance are listed on Schedule 5.23.
(a) The Company and each of its Subsidiaries is in full compliance with the
upgrade requirements for USTs as will be in effect as of December 31, 1998
pursuant to the Resource Conservation and Recovery Act, 42 U.S.C. ss.6901 et
seq. or has an adequate capital expenditure program in place to be in compliance
therewith on or before December 31, 1998.
(a) Each of the Company and its Subsidiaries has no responsibility or liability
(including, without limitation, with respect to any clean-up costs or any
Environmental Compliance Costs) for any environmental investigation,
contamination or remediation with respect to the property located at One River
Street, Hastings-on-Hudson, New York (the "Hastings Facility").
A. Taxes.
(a) The Company and each of its Subsidiaries have timely filed all returns with
respect to Taxes required to be filed through the date hereof in a manner
consistent with prior years and applicable laws and regulations and all such Tax
returns are true and complete in all material respects. The Company and its
Subsidiaries have been included in consolidated Federal income tax returns filed
by Parent on behalf of the affiliated group of corporations of which Parent is
the common parent (such returns being referred to as "Consolidated Returns");
all such Consolidated Returns required to be filed through the date hereof have
been timely filed in a manner consistent with prior years and applicable laws
and regulations; and all such Consolidated Returns are true and complete in all
material respects. The Company and each of its Subsidiaries have timely paid all
Taxes that are due through the date hereof, or that are claimed or asserted by
any taxing authority to be due through the date hereof, except for those Taxes
that are being contested in good faith by appropriate proceedings and with
respect to which adequate reserves have been set aside. With respect to any
period for which Consolidated Returns have not yet been filed, or for which
Taxes are not yet due or owing, the Company and each of its Subsidiaries have no
liability for Taxes in each case other than Taxes incurred in the ordinary
course of business or for which accruals are reflected in the December 31, 1998
Financials.
(a) No audit or other proceeding by any court, taxing authority, or similar
person is pending or, to the knowledge of the Company or any of its
Subsidiaries, threatened with respect to any Taxes due from or with respect to
the operations of the Company or any of its Subsidiaries, or any Consolidated
Returns filed by or with respect to the operations of the Company or any of any
its Subsidiaries. No assessment of Taxes is proposed against the Company, any of
its Subsidiaries or their assets.
A. Patents, Trademarks, Etc.
(a) Each of the Company and each of its Subsidiaries owns or has licensed or
otherwise has the right to use all patents, trademarks, service marks, trade
names, copyrights, licenses, franchises and other rights that are material to
the operation of its businesses as presently conducted or proposed to be
conducted.
(a) Each of the Company and each of its Subsidiaries owns or licenses computer
software (excluding some of the source codes thereto, certain of which the
Company has access to only) that is material to the operation of its businesses
as presently conducted or proposed to be conducted. All computer software owned
by the Company and each of its Subsidiaries, including the source codes thereto,
is free and clear of all Liens, has not in any material way been divulged to any
third party and represents unique work product to which the Company and each of
its Subsidiaries, as the case may be, has good and marketable title. Each of the
Company and each of its Subsidiaries uses and has used its best efforts to
secure and maintain its intellectual property rights in any and all computer
software it owns. Duplicates of all such owned or licensed computer software,
including the source codes (if any), are at a secure off-site location.
(a) No product, process, method, substance or other material presently owned,
sold, licensed or employed by the Company or any of its Subsidiaries, or which
the Company or any of its Subsidiaries contemplates owning, selling, licensing
or employing, (i) except as set forth on Schedule 5.25, infringes upon the
patents, trademarks, service marks, copyrights or licenses that are owned by
others or (ii) to the best knowledge of the Company or any of its Subsidiaries,
is being infringed upon by any other Person. No litigation is pending and no
claim has been made against the Company or any of its Subsidiaries or, to the
best knowledge of the Company or any of its Subsidiaries, is threatened,
contesting the right of the Company or any of its Subsidiaries to own, sell,
license or use any product, process, method, substance or other material
presently owned, sold, licensed or employed by the Company or any of its
Subsidiaries or which the Company or any of its Subsidiaries intends to acquire
an ownership interest in, sell, license or employ. To the best knowledge of the
Company or any of its Subsidiaries, no patent, invention, device, principle or
any statute, law, rule, regulation, standard or code is pending or proposed
which would be reasonably likely to have a material adverse effect on the
assets, business, properties, prospects, operations or financial or other
condition of the Company and its Subsidiaries taken as a whole.
A. Potential Conflicts of Interest. To the best knowledge of the Company, except
as set forth on Schedule 5.26, no officer, director or Affiliate of the Company
or any of its Subsidiaries, and no relative or spouse of any such officer,
director or Affiliate: (a) owns, directly or indirectly, any interest in
(excepting less than 1% stock holdings for investment purposes in securities of
publicly held and traded companies), or is an officer, director, employee or
consultant of, any Person which is, or is engaged in business as, a competitor,
lessor, lessee, supplier, distributor, sales agent or customer of, or lender to
or borrower from, the Company or any of its Subsidiaries; (b) owns, directly or
indirectly, in whole or in part, any tangible or intangible property that the
Company or any of its Subsidiaries uses in the conduct of its business; or (c)
has any cause of action or other claim whatsoever against, or owes any amount
to, the Company or any of its Subsidiaries, except for claims in the ordinary
course of business such as for accrued vacation pay, accrued benefits under
employee benefit plans, and similar matters and agreements arising in the
ordinary course of business.
A. Trade Relations. To the best knowledge of the Company, there exists no actual
or threatened termination, cancellation or limitation of, or any adverse
modification or change in, the business relationship or business of the Company
and its Subsidiaries taken as a whole or their business with any customer or any
group of customers whose use of their services are individually or in the
aggregate material to the business of the Company and its Subsidiaries taken as
a whole, or with any material supplier, and there exists no condition or state
of facts or circumstances that would adversely affect the assets, business,
properties, prospects, operations or financial or other condition of the Company
and its Subsidiaries, taken as a whole, or prevent the Company or its
Subsidiaries from conducting their business after the consummation of the
transactions contemplated by the Transaction Documents and the Finance, Equity,
Capital Contribution and Acquisition Documents in substantially the same manner
in which it heretofore has been conducted.
A. Outstanding Borrowings. Schedule 5.28 lists (i) the amount of all Outstanding
Borrowings, (ii) the Liens that relate to such Outstanding Borrowings and that
encumber the assets of the Company or any of its Subsidiaries and (iii) the name
of each lender thereof.
A. Material Contracts. Neither the Company nor any Subsidiary is (i) a party to
any Contractual Obligation or (ii) subject to any charge, corporate restriction,
judgment, injunction, decree or Requirement of Law, which materially adversely
affects, or which may adversely affect, the assets, business, properties,
prospects, operations or financial or other condition of the Company and its
Subsidiaries, taken as a whole. Schedule 5.29 lists all contracts, agreements
and commitments of the Company and any Subsidiary, whether written or oral,
other than (a) the Transaction Documents and the Finance, Equity, Capital
Contribution and Acquisition Documents, (b) purchase orders in the ordinary
course of the Company's and any Subsidiary's business, and (c) any other
contracts, agreements and commitments of the Company or any of its Subsidiaries
that (i) do not extend beyond December 31, 1999 and involve the receipt or
payment of not more than $50,000, (ii) do not relate to employment or labor
matters and (iii) are not material to the assets, business, properties,
prospects, operations or financial or other condition of the Company and its
Subsidiaries, taken as a whole. All of the contracts, agreements and commitments
of the Company and its Subsidiaries are in full force and effect and binding
upon the parties thereto in accordance with their terms. Neither the Company nor
any of its Subsidiaries, nor to the knowledge of the Company or any of its
Subsidiaries, or other party to such contracts, agreements and commitments is in
default thereunder, nor does any condition exist that with notice or lapse of
time or both would constitute a default thereunder. Neither the Company nor any
of its Subsidiaries has any knowledge of any proposed, pending, or likely
cancellation or termination of any such contract, agreement or commitment.
A. Insurance. Schedule 5.30 sets forth all policies or binders of fire,
liability, workman's compensation, vehicular, life or other insurance held by or
on behalf of the Company and its Subsidiaries (specifying the insurer, the
policy number of covering note numbers with respect to binders and describing
each pending claim thereunder of more than $25,000). Such policies and binders
are in full force and effect. Neither the Company nor any of its Subsidiaries is
in default with respect to any provision contained in any such policy or binder
and has not failed to give any notice or present any claim under such policy or
binder in due and timely fashion. Except for claims set forth on Schedule 5.30,
there are no outstanding unpaid judgments or claims under any such policy or
binder. Neither the Company nor any of its Subsidiaries has received a notice of
cancellation or non-renewal of any such policy or binder. Neither the Company
nor any of its Subsidiaries has any knowledge of any inaccuracy in any
application for such policies or binders, any failure to pay premiums when due
or any similar state of facts which might form the basis for termination of any
such insurance.
A. Compliance with Laws. The Company and each of its Subsidiaries have the
lawful authority and all material state, federal, special or local governmental
authorizations, licenses or permits required to conduct their respective
businesses as such businesses are presently being conducted. There are no
pending or threatened actions, notices, or proceedings by any state, federal,
special or local government or any subdivision thereof or any public or private
group other than as set forth on Schedule 5.31A. Schedule 5.31B contains a list
and brief description of all licenses, including those granted or derived from
governmental sources, issued or granted to the Company or its Subsidiaries.
Except as disclosed on Schedule 5.31C or on other Schedules to this Agreement,
neither the Company nor its Subsidiaries' operations, nor any of the assets
owned, leased, occupied or used by Company or its Subsidiaries in the operation
of the businesses thereof materially violates or fails to comply in any material
respect with applicable health, fire, environmental, safety, zoning or building
codes, laws or ordinances, rules or regulations. Schedule 5.31D sets forth each
state or locality where the Company and each of its Subsidiaries have
applications pending for governmental authorizations, licenses or permits to
conduct their respective businesses and, if applicable, indicates whether any
Governmental Authority in any such state or locality has denied, delayed or in
any way indicated that such applications will not be approved in their current
form. B. Board of Directors. As of the Closing Date, the Board of Directors of
the Company will be composed of Meredith Birrittella, Myles Birrittella, Robert
Gould, Warren Schaeffer and Jean-Pierre Paquin.
A. Year 2000 Compliance. All computer hardware and software (including all
computer hardware and software contained in imbedded systems) used in the
business of the Company and its Subsidiaries (whether such hardware and software
is owned by the Company or its Subsidiaries or is licensed from third parties)
(collectively, the "Technology Systems") is designed to be used prior to, during
and after the calendar year 2000 and such hardware and software will continue to
operate during each such time period to accurately process date data (including,
but not limited to calculating, comparing and sequencing) from, into and between
the twentieth and twenty-first centuries, including leap year calculations (the
"Year 2000 Compliance"). The occurrence of the calendar year 2000 will not
adversely affect the Technology Systems of the Company and its Subsidiaries. No
expenditures in excess of currently budgeted items is necessary to cause
Technology Systems to operate properly prior to, during and after the calendar
year 2000. The Company and its Subsidiaries have taken reasonable steps to
determine whether the failure of any third parties with which the Company and
its Subsidiaries have a material relationship to achieve Year 2000 Compliance
could have a material adverse effect on the Company and the Subsidiaries taken
together. The Company and its Subsidiaries have implemented a program to
confirm, prior to September 30, 1999, with all material third party suppliers
and/or customers that communicate electronically with the Company and its
Subsidiaries that such communications will not be disrupted and will continue to
function properly prior to, during and after the calendar year 2000 and that
such communications during the aforesaid time periods will not disrupt the
Technology Systems or the operations of the Company and its Subsidiaries.
A. Karlen Purchase Agreement. The copy of the Karlen Purchase Agreement provided
by the Company to the Purchaser (a) is a true and correct copy thereof, (b) has
not been amended or modified since April 14, 1999 and (c) is in full force and
effect and will be in full force and effect as of the Closing Date. On the
Closing Date, each of the representations and warranties made by the Company
and, to the knowledge of the Company, Karlen in the Karlen Purchase Agreement is
true and correct in all material respects.
A. Intercompany Transactions. Schedule 5.35 sets forth a list of all services
provided by the Parent to the Company and by the Company to the Parent, and all
arrangements, agreements and transactions between the Parent and the Company.
I. ARTICLE
REPRESENTATIONS AND
WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to, and covenants and
agrees with, the Company as follows:
A. Existence and Power. The Purchaser:
(a) is duly organized and validly existing under the laws of the jurisdiction of
its organization; and
(a) has the power and authority to own and operate its property, to lease the
property it operates as lessee and to conduct the business in which it is
currently, or is currently proposed to be, engaged.
A. Authorization; No Contravention. The execution, delivery and performance by
the Purchaser of this Agreement, the Registration Rights Agreement and the
Shareholders' Agreement:
(a) is within the Purchaser's power and authority and has been duly
authorized by all necessary action;
(a) does not contravene the terms of the Purchaser's Agreement of Limited
Partnership, or any amendment thereof;
(a) will not violate, conflict with or result in any breach or contravention of
or the creation of any Lien under, any Contractual Obligation of the Purchaser,
or any order or decree directly relating to the Purchaser; and
(a) does not require approval, consent, exemption, authorization or other action
by, or notice to, or filing with, any Governmental Authority or any other
Person, other than those that have been obtained or made on or prior to the
Closing.
A. Binding Effect. Each of this Agreement, the Registration Rights Agreement and
the Shareholders' Agreement has, or will, as of the Closing Date, been duly
executed and delivered by the Purchaser, and constitutes the legal, valid and
binding obligation of the Purchaser enforceable against it in accordance with
its terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, or similar laws affecting the enforcement of creditors' rights
generally or by equitable principles relating to enforceability. B. No Legal
Bar. The execution, delivery and performance of this Agreement, the Registration
Rights Agreement and the Shareholders' Agreement will not violate any
Requirement of Law.
A. Purchase for Own Account. The Senior Subordinated Note and the Warrants
(including, for purposes of this Section 6.5, the Common Stock issuable upon
exercise of the Warrants) to be acquired by the Purchaser pursuant to this
Agreement are being acquired for its own account and with no intention of
distributing or reselling such securities or any part thereof in any transaction
that would be in violation of the securities laws of the United States of
America, or any state, without prejudice, however, to the rights of the
Purchaser at all times to sell or otherwise dispose of all or any part of the
Senior Subordinated Note and the Warrants under an effective registration
statement under the Securities Act, or under an exemption from such registration
available under the Securities Act, and subject, nevertheless, to the
disposition of the Purchaser's property being at all times within its control.
If the Purchaser should in the future decide to dispose of the Senior
Subordinated Note or the Warrants, the Purchaser understands and agrees that it
may do so only in compliance with the Securities Act and applicable state
securities laws, as then in effect, and that stop-transfer instructions to that
effect, where applicable, will be in effect with respect to such securities. If
the Purchaser should decide to dispose of such securities (other than pursuant
to its registration rights under the Registration Rights Agreement), the
Purchaser, if requested by the Company, will have the obligation in connection
with such disposition, at the Purchaser's expense, of delivering an opinion of
counsel of recognized standing in securities law, in connection with such
disposition to the effect that the proposed disposition of such securities would
not be in violation of the Securities Act or any applicable state securities
laws and, assuming such opinion is required and is otherwise appropriate in form
and substance under the circumstances, the Company will accept, and will
recommend to any applicable transfer agent or trustee for such securities that
it accept, such opinion. The Purchaser is an "accredited investor" as defined in
Rule 501 of Regulation D promulgated under the Securities Act. The Purchaser
agrees to the imprinting, so long as required by law, of a legend on
certificates representing all of the Warrants to the following effect: "THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED, QUALIFIED,
APPROVED OR DISAPPROVED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE
STATE SECURITIES LAWS OR AN APPLICABLE EXEMPTION TO THE REGISTRATION
REQUIREMENTS OF SUCH ACT OR SUCH LAWS AND NEITHER THE UNITED STATES SECURITIES
AND EXCHANGE COMMISSION NOR ANY OTHER FEDERAL OR STATE REGULATORY AUTHORITY HAS
PASSED ON OR ENDORSED THE MERITS OF THESE SECURITIES." B. Broker's, Finder's or
Similar Fees. Except as otherwise set forth in this Agreement, there are no
brokerage commissions, finder's fees or similar fees or commissions payable in
connection with the offer or sale of the Senior Subordinated Note and the
Warrants contemplated hereby based on any agreement, arrangement or
understanding with the Purchaser or any action taken by the Purchaser.
I. ARTICLE
INDEMNIFICATION
A. Indemnification by the Company. In addition to all other sums due hereunder
or provided for in this Agreement, the Company agrees to indemnify and hold
harmless the Purchaser and its Affiliates (including, without limitation, BBH &
Co.) and their respective officers, directors, agents, employees and partners
(each, an "indemnified party") to the fullest extent permitted by law from and
against any and all losses, claims, damages, expenses (including reasonable
fees, disbursements and other charges of counsel), damages or other liabilities
("Losses") resulting from any breach of any representation or warranty, covenant
or agreement of the Company in the Transaction Documents or any legal,
administrative or other actions (including actions brought by any equity holders
of the Company or derivative actions brought by any Person claiming through the
Company or in the Company's name), proceedings or investigations (whether formal
or informal), or written threats thereof, based upon, relating to or arising out
of this Agreement, the Senior Subordinated Note, the Warrants, the Registration
Rights Agreement, any other Transaction Document, the transactions contemplated
hereby, or any indemnified person's role therein or in the transactions
contemplated hereby; provided, however, that the Company shall not be liable
under this Section 7.1: (a) for any amount paid in settlement of claims without
the Company's consent (which consent shall not be unreasonably withheld), (b)
with respect to Losses arising solely out of actions brought by the partners of
the Fund against an indemnified party or by one indemnified party against
another or (c) to the extent that it is finally judicially determined that such
Losses resulted primarily from the willful misconduct, bad faith or gross
negligence of such indemnified party or a breach of the Purchaser's
representations in Article 6; provided, further, that if and to the extent that
such indemnification is unenforceable for any reason, the Company shall make the
maximum contribution to the payment and satisfaction of such indemnified
liability which shall be permissible under applicable laws. In connection with
the obligation of the Company to indemnify for expenses as set forth above, the
Company further agrees to reimburse each indemnified party for all such expenses
(including reasonable fees, disbursements and other charges of counsel) as they
are incurred by such indemnified party; provided, however, that if an
indemnified party is reimbursed hereunder for any expenses, such reimbursement
of expenses shall be refunded to the extent it is finally judicially determined
that the Losses in question are not indemnifiable hereunder.
A. Notification. Each indemnified party under this Article 7 will, promptly
after the receipt of notice of a claim or notice of the commencement of any
action or other proceeding against such indemnified party in respect of which
indemnity may be sought from the Company under this Article 7, notify the
Company in writing of the commencement thereof. The omission of any indemnified
party so to notify the Company of any such action shall not relieve the Company
from any liability which it may have to such indemnified party other than
pursuant to this Article 7 or, unless, and only to the extent that, such
omission results in the Company's forfeiture of substantive rights or defenses.
In case any such action or other proceeding shall be brought against any
indemnified party and it shall notify the Company of the commencement thereof,
the Company shall be entitled to participate therein and, to the extent that it
may wish, to assume the defense thereof, with counsel reasonably satisfactory to
such indemnified party; provided, however, that any indemnified party may, at
its own expense, retain separate counsel to participate in such defense.
Notwithstanding the foregoing, in any action or proceeding in which both the
Company and an indemnified party is, or is reasonably likely to become, a party,
such indemnified party shall have the right to employ separate counsel at the
Company's expense and to control its own defense of such action or proceeding
if, in the reasonable opinion of counsel to such indemnified party, (a) there
are or may be legal defenses available to such indemnified party or to other
indemnified parties that are different from or additional to or may be in
conflict with those available to the Company or (b) any conflict or potential
conflict exists between the Company and such indemnified party that would make
such separate representation advisable; provided, however, that in no event
shall the Company be required to pay fees and expenses under this Section 7 for
more than one firm of attorneys in any jurisdiction in any one legal action or
group of related legal actions. The Company shall not, without the consent of
the indemnified party (which consent shall not be unreasonably withheld),
consent to the entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such indemnified party of a release from all liability in respect to such
claim or litigation or which requires action other than the payment of money by
the Company. The rights accorded to indemnified parties hereunder shall be in
addition to any rights that any indemnified party may have at common law, by
separate agreement or otherwise.
A. Registration Rights Agreement. Notwithstanding anything to the contrary in
this Article 7, the indemnification and contribution provisions of the
Registration Rights Agreement shall govern any claim made with respect to
registration statements filed pursuant thereto or sales made thereunder.
I.
<PAGE>
ARTICLE
PRE-CLOSING AFFIRMATIVE COVENANTS
7.1 Operation of Company. From and after the date hereof through the Closing
Date, the Company and its Subsidiaries shall not enter into any transaction or
take any action other than in the ordinary course of business, except that the
Company and its Subsidiaries may enter into such transactions and take such
other actions outside of the ordinary course of business, in each case as may be
specifically approved in writing by the Purchaser.
7.1 Use of Proceeds. The Company shall use the proceeds of the sale of the
Senior Subordinated Note and Warrants hereunder only (a) to fund the purchase of
the assets of Karlen pursuant to the Karlen Purchase Agreement, (b) the
refinancing of the Company's existing indebtedness, (c) for the payment of fees
and expenses in connection with the transactions contemplated in the Transaction
Agreements and (d) to provide for working capital requirements and general
corporate purposes of the Company.
7.1 Taxes. The Company and its Subsidiaries shall prepare and timely file, in a
manner consistent with prior years and applicable laws and regulations, all Tax
returns required to be filed on or before the Closing Date, and all such Tax
returns will be true and complete in all material respects. The Company and its
Subsidiaries shall timely pay all Taxes required to be paid by them on or before
the Closing Date, or that are claimed or asserted by any taxing authority to be
due on or before the Closing Date, except for those Taxes that are being
contested in good faith by appropriate proceedings and with respect to which
adequate reserves have been set aside.
7
ARTICLE
AFFIRMATIVE COVENANTS
The Company hereby covenants and agrees (a) with the Fund,
with respect to all of this Article 9, and (b) with any other Holder, with
respect to all of this Article 9 except Sections 9.1(d) and 9.9, that, unless
the Purchaser or any other Holder, as the case may be, waives compliance in
writing:
7.1 Financial Statements.
(a) The Company shall deliver to the Purchaser and any other Holder within one
hundred and five (105) days after the end of each fiscal year of Parent,
financial statements of Parent on a consolidating and consolidated basis and of
the Company including, but not limited to, statements of income and
stockholders' equity and cash flow from the beginning of the current fiscal year
to the end of such fiscal year and the balance sheet as at the end of such
fiscal year and in comparative form with respect to the same period for the
prior fiscal year, all prepared in accordance with GAAP applied on a basis
consistent with prior practices, and in reasonable detail and reported upon
without qualification by Arthur Anderson LLP (or any successor thereto) or a
nationally recognized independent accounting firm. The report of the Accountants
shall be accompanied by a statement of the Accountants certifying that (i) they
have caused this Agreement to be reviewed, (ii) in making the examination upon
which such report was based either no information came to their attention which
to their knowledge constituted an Event of Default or a Default under this
Agreement or any related agreement or, if such information came to their
attention specifying any such Default or Event of Default, its nature, when it
occurred and whether it is continuing, and such report shall contain or have
appended thereto calculations which set forth the Company's compliance with the
financial covenants contained in Sections 10.1, 10.2, and 10.3.
(a) The Company shall deliver to the Purchaser and any other Holder within sixty
(60) days after the end of each fiscal quarter, an unaudited balance sheet of
Parent on a consolidated and consolidating basis and of the Company and
unaudited statements of income and stockholders' equity and cash flow of Parent
on a consolidated and consolidating basis and of the Company reflecting results
of operations from the beginning of the fiscal year to the end of such quarter
and for such quarter, prepared on a basis consistent with prior practices and
complete and correct in all material respects, subject to normal year end
adjustments.
(a) The Company shall deliver to the Purchaser and any other Holder within
thirty (30) days after the end of each month, an unaudited balance sheet of
Parent on a consolidated and consolidating basis and of the Company and
unaudited statements of income and stockholders' equity of the Parent on a
consolidated and consolidating basis and of the Company reflecting results of
operations from the beginning of the fiscal year to the end of such month and
for such month, and in comparative form with respect to the same period for the
prior fiscal year prepared on a basis consistent with prior practices and
complete and correct in all material respects, subject to normal year end
adjustments.
(a) The Company shall deliver to the Purchaser and any other Holder budgets,
monthly management reports, documentation of material financial transactions,
projections, operating reports, acquisition analyses, presentations to banks,
financial institutions or potential investors, consultants' reports and such
other financial and operating data of the Company and its Subsidiaries as the
Fund reasonably may request.
(a) The Company shall deliver to the Purchaser and any other Holder at any time
when it is not subject to Section 13 or 15(d) of the Exchange Act, upon request,
to the Purchaser and prospective purchaser of Notes, Warrants or Common Stock,
information of the type that would satisfy the requirement of subsection
(d)(4)(i) of Rule 144A (or any similar successor provision) under the Securities
Act.
(a) The Company shall deliver to the Purchaser and any other Holder, except as
otherwise provided in Section 9.1(a) and (b), if and when the Company becomes
subject to the Securities Act or the Exchange Act, promptly after the same are
filed, copies of all reports, statements and other documents filed with the
Commission.
7.1 Certificates; Other Information. The Company shall furnish to the Purchaser
and to any other holder of the Notes:
(a) concurrently with the delivery of the financial statements referred to in
Section 9.1(a) and (b) above, a certificate of the Company's Chief Financial
Officer stating that, to the best of such officer's knowledge, there exists no
default under or breach of Articles 9 and 10, except as specified in such
certificates; and
(a) concurrently with the delivery of the financial statements referred to in
Section 9.1(b) above, a certificate of an officer of the Company including
calculations set forth in reasonable detail showing the Company's compliance
with the financial covenants contained in Sections 10.1, 10.2 and 10.3, and
concurrently with the delivery of the financial statements referred to in
Section 9.1(a) above, a certificate of Arthur Anderson LLP including
calculations set forth in reasonable detail showing the Company's compliance
with the financial covenants contained in Sections 10.1, 10.2, and 10.3.
7.1 Preservation of Corporate Existence. The Company shall, and shall cause each
of its Subsidiaries to:
(a) preserve and maintain in full force and effect its corporate existence and
good standing under the laws of its jurisdiction of incorporation or
organization;
(a) preserve and maintain in full force and effect all material rights,
privileges, qualifications, licenses and franchises necessary in the normal
conduct of its business; and
(a) use its reasonable efforts to preserve its business organization.
7.1 Payment of Obligations. The Company shall, and shall cause its Subsidiaries
to, pay and discharge as the same shall become due and payable, all their
respective obligations and liabilities, including without limitation:
(a) all tax liabilities, assessments and governmental charges or levies upon it
or its properties or assets, unless the same are being contested in good faith
by appropriate proceedings and adequate reserves in accordance with GAAP are
being maintained by the Company or such Subsidiary;
(a) all lawful claims which the Company and each of its Subsidiaries are
obligated to pay, which are due and which, if unpaid, might by law become a Lien
upon its property; and
(a) all payments of principal and interest when due (giving effect to any grace
periods relating thereto) on Indebtedness.
7.1 Compliance with Laws. The Company shall comply, and shall cause each
Subsidiary to comply, in all material respects with its articles or certificate
of incorporation and by-laws or other organizational or governing documents and
all Requirements of Law and with the directions of any Governmental Authority
having jurisdiction over it or its business, except such as to which such
failure to comply would not have a material adverse effect on the assets,
business, operations, properties, prospects or financial or other condition of
the Company or its Subsidiaries.
7.1 Notices. Upon knowledge of the Chief Executive Officer, the President, any
Executive Vice-President or the Chief Financial Officer of the Company of the
events described below, the Company shall give prompt written notice (but in any
event within 10 days) to each holder of Notes:
(a) of the occurrence of any default under, or breach of, any of the provisions
of Articles 9 or 10 accompanied by a certificate specifying the nature of such
default or breach, the period of existence thereof and the action that the
Company has taken or proposes to take with respect thereto;
(a) of any (i) material default or event of default under the Credit Agreement
or any other material Contractual Obligation of the Company or any of its
Subsidiaries, or (ii) material dispute, litigation, investigation, proceeding or
suspension which may exist at any time between the Company or any of its
Subsidiaries and any Governmental Authority; and
(a) Each notice pursuant to this Section 9.6 shall be accompanied by a statement
by the Chief Executive Officer, President or Chief Financial Officer of the
Company setting forth details of the occurrence referred to therein and stating
what action the Company proposes to take with respect thereto.
7.1 Issue Taxes. The Company shall pay, or cause to be paid, all documentary and
similar taxes levied under the laws of any applicable jurisdiction in connection
with the issuance of the Senior Subordinated Note and the Warrants, the Common
Stock to be issued upon exercise of the Warrants and the execution and delivery
of the other agreements and documents contemplated hereby and any modification
of the Senior Subordinated Note and the Warrants or such other agreements and
documents and will hold the Purchaser harmless, without limitation as to time,
against any and all liabilities with respect to all such taxes.
7.1 Reservation of Shares. The Company shall at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of issue or
delivery upon exercise of all outstanding Warrants as provided therein, such
number of shares of Common Stock as shall then be issuable or deliverable upon
the exercise of all outstanding Warrants. Such shares of Common Stock shall,
when issued or delivered in accordance with the terms of the Warrants, be duly
and validly issued and fully paid and non-assessable. The Company shall issue
the Common Stock into which the Warrants are convertible upon the proper
surrender of the Warrants in accordance with the provisions therein and shall
otherwise comply with the terms thereof.
7.1 Inspection.
(a) The Company will permit, and will cause each of its Subsidiaries to permit,
representatives of the Fund to visit and inspect any of its properties, to
examine its corporate, financial and operating records and make copies thereof
or abstracts therefrom, and to discuss its affairs, finances and accounts with
their respective directors, officers and independent public accountants, all at
such reasonable times during normal business hours and as often as may be
reasonably requested, upon reasonable advance notice to the Company.
(a) The Purchaser will utilize reasonable good faith efforts to maintain as
confidential and refrain from using any information obtained from the Company
pursuant to Section 9.9(a), 9.1(c) or 9.1(d) (other than information which (i)
at the time of disclosure or thereafter is generally available to and known by
the public (other than as a result of a disclosure directly or indirectly by the
Purchaser or any of its representatives), (ii) is available to the Purchaser on
a non-confidential basis from a source other than the Company or its
Subsidiaries, provided that such source was not known by the Purchaser to be
bound by a confidentiality agreement with the Company or any of its Subsidiaries
or (iii) has been independently developed by the Purchaser, and shall not
disclose any information obtained from the Company pursuant to Section 9.9(a) or
9.1(c) and required to be maintained as confidential pursuant hereto, except (a)
to BBH & Co. and its advisors, representatives, agents, partners and employees,
(b) to its advisors, representatives, agents, partners (and their
representatives and advisors) and employees, (c) to any prospective transferee
of the Senior Subordinated Note, the Warrants or the shares of Common Stock
issued upon the exercise of the Warrants or of an interest in the Purchaser or
in a successor fund sponsored by BBH & Co., (d) as may be required by law
(including a court order, subpoena or other administrative order or process) or
applicable regulations to which the Purchaser is or becomes subject; provided,
that the Purchaser has given prior written notice to the Company, (e) in
connection with any litigation arising out of or related to this Agreement;
provided, that the Purchaser has given prior written notice to the Company, (f)
to the executive officers of the Company or any of its Subsidiaries, (g) with
the consent of the Company, or (h) in connection with the Transactions;
provided, that in the case of (a), (b) or (c), such party or parties agree to
comply with the confidentiality provisions of this Section 9.9.
7.1 Management Agreement. There shall be no transactions or arrangements of any
kind between the Company (and any of its Subsidiaries) and the Parent (and any
of its Subsidiaries), other than those contemplated by, and on terms set forth
in, the Management Agreement. The Management Agreement shall not be amended,
modified or otherwise supplemented without the consent of the Purchaser.
7.1 Registration and Listing. If any shares of Common Stock required to be
reserved for purposes of exercise of the Warrants as provided in the Warrants,
require registration with or approval of any Governmental Authority under any
federal or state or other applicable law before such Common Stock may be issued
or delivered upon exercise of the Warrants, the Company will in good faith and
as expeditiously as possible endeavor to cause such Common Stock to be duly
registered or approved, as the case may be, unless such registration or approval
is required solely because of a breach of the Purchaser's representation
contained in Section 6.5. In the event that, and so long as, the Common Stock
(or any series or class of Capital Stock into which the Common Stock is
reorganized, reclassified, reconstituted or otherwise changed) is listed on the
NYSE or quoted or listed on any other national securities exchange or NASDAQ,
the Company will, if permitted by the rules of such system or exchange, quote or
list and keep quoted or listed on such exchange or NASDAQ, upon official notice
of issuance, all Common Stock issuable or deliverable upon exercise of the
Warrants. In addition, the Company will in good faith and as expeditiously as
possible endeavor to obtain private placement numbers for the Notes, the
Warrants and the Common Stock (or any series or class of Capital Stock into
which the Common Stock is reorganized, reclassified, reconstituted or otherwise
changed) issued pursuant to the exercise thereof, assigned by the CUSIP Service
Bureau of Standard & Poor's Corporation.
7.1 Use of Proceeds. The proceeds of the Senior Subordinated Note and the
Warrants shall be as specified in Section 8.3.
7.1 Payment of Notes. The Company shall pay the principal of, interest on and
other amounts due in respect of, the Notes on the dates and in the manner
provided herein and in the Notes.
7.1 Initial Public Offering. In connection with any Initial Public Offering by
the Company, the Company hereby covenants and agrees to undertake and perform,
if requested by the Purchaser, all acts necessary or advisable to cause the
shares of Common Stock issuable upon exercise of the Warrants to be
reclassified, reorganized, reconstituted or otherwise changed into the same
series of class of Capital Stock of the Company issued in any such Initial
Public Offering.
7.1 Anti-dilution Protection. Immediately preceding the earlier to occur of (i)
an Initial Public Offering and (ii) the sale by the Purchaser of all of its
Common Stock of the Company (the earliest to occur being referred to herein as
the "Adjustment Event"), to the extent that the Purchaser has previously
exercised all or a portion of the Warrants (such Warrants so exercised being
"Exercised Warrants"), the Company hereby covenants and agrees to sell to the
Purchaser that number of additional shares of Common Stock of the Company, each
at a price per share equal to the par value of the Common Stock, equal to the
difference of (x) the number of shares that would have been issued to the
Purchaser had the Purchaser exercised the Exercised Warrants concurrently with
the Adjustment Event less (y) the number of shares of Common Stock previously
issued to the Purchaser upon the exercise of those Exercised Warrants. To the
extent that the foregoing computation would result in the issuance by the
Company of a fractional share of Common Stock, in lieu thereof the Company shall
pay therefore an amount in cash equal to such fraction multiplied by the Current
Market Price (as defined in the Warrants) of a share of Common Stock on the date
of such Adjustment Event.
7.1 Equity Put Option. From and after the fifth anniversary of the Closing Date,
if a Qualified Spin-Off of the Company shall not have occurred as of the date a
Demand Notice (as defined herein) is delivered to the Company, the Fund or its
transferees (each a "Demand Group") may by notice to the Company (a "Demand
Notice") require the Company to redeem (unless otherwise prevented by law), at a
redemption price per share equal to the Per Share Equity Value, all or a portion
of the then outstanding shares of Common Stock issued upon exercise of the
Warrants held by such Persons. Within 10 days following receipt of a Demand
Notice, the Company shall give notice (a "Required Redemption Notice") to all
registered holders of shares of Common Stock issued upon exercise of the
Warrants or issuable upon exercise of the Warrants (assuming the exercise of any
unexercised Warrants in accordance with their terms) who did not participate in
the Demand Notice ("Nonparticipating Holders") that the Company has received a
Demand Notice and shall inform each such Nonparticipating Holder that it has the
right under this Agreement to include in the redemption all or a portion of the
Common Stock held by such holder by giving the Company written notice of its
desire to participate therein within 30 days following receipt of the Company's
Required Redemption Notice. Notice of a request for redemption pursuant to this
Section 9.16 shall be sent in accordance with Section 14.2 of this Agreement and
the Company shall (unless otherwise prevented by law) redeem the shares of
Common Stock participating in such demand no later than the 180th day after the
Company receives such Demand Notice (the "Redemption Date"). At any time on or
after the Redemption Date, the participating holders of shares of Common Stock
shall be entitled to receive payment of the Per Share Equity Value in
immediately available funds upon actual delivery to the Company or its transfer
agent of their share certificates. Notwithstanding anything to the contrary
contained herein, a holder of Warrants which are then currently exercisable
shall not be required to exercise such Warrants and shall be entitled, under and
in compliance with the terms of this Section 9.16, to require the Company to
redeem (unless otherwise prevented by law) such Warrants at a price per share
equal to the Per Share Equity Value less the exercise price thereof.
7.1 Payment Upon Demand Notice. If upon receipt of a Demand Notice pursuant to
the terms of this Agreement, the Company does not have sufficient funds to make
the payments required to be made in connection with any such notice, the Company
shall use its best efforts to effect a sale, merger or other similar transaction
of the Company and take all commercially reasonable actions desirable so that
the Company has sufficient funds and is able to make all such payments and
redeem all such shares.
7.1 Sale of Company. In the event of a contemplated sale of all of the capital
stock of the Company (by way of merger or otherwise), the Company shall, if
requested by the Purchaser, use its best efforts to cause such sale transaction
to be structured in a manner that requires the purchaser(s) to purchase the
Warrants from the Purchaser at a price equal to the consideration the Purchaser
would have received had it exercised the Warrants immediately prior to the
consummation of such sale transaction less the exercise price of such Warrants.
7.1 Allocation for Tax Purposes. The Company hereby covenants and agrees that it
shall allocate $2,200,000 of the Purchase Price to the purchase by the Purchaser
of the Warrants. 7.2 Parent Merger. If, at any time, (i) the Parent shall have
sold or transferred the Capital Stock of Protective Technologies International,
Inc., a New York corporation ("PTI"), or distributed the Capital Stock of PTI to
the Parent's shareholders or if (ii) PTI has sold all or substantially all of
its assets, then the Company shall notify the Holders after such transaction of
its consummation, and, unless the Parent then has another direct operating
subsidiary other than Flents or PTI, at the request of holders of 51% of the
aggregate principal amount of the Notes outstanding and 51% of the Warrants or
Common Stock issued upon the exercise of the Warrants, the Company shall be
merged with and into Parent within sixty (60) days of such request so that the
Warrants issued pursuant to this Agreement will be exercisable into common stock
of the Parent; provided, that such merger shall be on terms that the Boards of
Directors of the Parent and the Company have each determined (upon the advice of
their respective financial advisors) are fair to the shareholders of the Parent
or the Company, as the case may be, from a financial point of view.
7.1 Customer/Supplier Y2K Compliance. The Company (i) will confirm, prior to
September 30, 1999, with all material third party suppliers and/or customers
that communicate electronically with the Company and its Subsidiaries that such
communications will not be disrupted and will continue to function properly
prior to, during and after the calendar year 2000 and that such communications
during the aforesaid time periods will not disrupt the Technology Systems or the
operations of the Company and its Subsidiaries ("Y2K Compliant") and (ii) will,
prior to December 30, 1999, cease to communicate electronically with all such
suppliers and/or customers that are not Y2K Compliant as of such date.
7.1 Directors' and Officers' Liability Insurance. Within 30 days after the
Closing Date, the Company (or the Parent) shall have obtained directors' and
officers' liability insurance for the officers and directors of the Company that
provides coverage that is comparable to that obtained by similarly situated
companies.
7
ARTICLE
NEGATIVE AND FINANCIAL COVENANTS
Until the payment of all principal of and interest on the
Notes and all other amounts due at the time of payment of such principal and
interest under this Agreement, including, without limitation, all expenses and
amounts due at such time in respect of indemnity obligations under Article 7
(except with respect to Sections 10.4 - 10.11, inclusive, which shall be binding
upon the Company until the consummation of an Initial Public Offering), the
Company covenants and agrees as follows:
7.1 Consolidated Net Worth. The Company shall maintain at all times a
Consolidated Net Worth in an amount not less than $10,000,000, provided such
amount shall be increased commencing with respect to each fiscal year (or
portion thereof) commencing on January 1, 2000, to an amount equal to the
minimum Consolidated Net Worth amount required for the immediately preceding
fiscal year pursuant to this Section 10.1 plus an amount equal to 50% of the
positive Net Income of the Company for such prior fiscal year.
7.1 Leverage Ratio. The Company shall not permit the Leverage Ratio for the
period of four consecutive Fiscal Quarters ending on the last day of each Fiscal
Quarter (i) ending on or prior to March 31, 2000 to be greater than 4.0 to 1.0,
(ii) occurring after March 31, 2000 and ending on or prior to March 31, 2001 to
be greater than 3.75 to 1.0, (iii) occurring after March 31, 2001 and ending on
or prior to March 31, 2002 to be greater than 3.50 to 1.0, (iv) occurring after
March 31, 2002 and ending on or prior to March 31, 2003 to be greater than 3.25
to 1.0, or (v) occurring after March 31, 2003 to be greater than 3.0 to 1.0.
7.1 Fixed Charge Coverage Ratio. The Company shall not permit the Fixed Charge
Coverage Ratio at the end of each Fiscal Quarter with respect to the period of
the four consecutive Fiscal Quarters then ended to be less than 1.0 to 1.0.
7.1 Consolidations and Mergers. The Company shall not merge, consolidate with or
into, or convey, transfer, lease or otherwise dispose of (whether in one
transaction or in a series of transactions) all or substantially all of its
assets (whenever acquired), and the Company shall not allow any of its
Subsidiaries to merge or consolidate with or into any other Person except
another Subsidiary of the Company, except the Company may consolidate or merge
with or into, or sell all or substantially all of its assets to, any Person if:
(a) The corporation or partnership formed by such consolidation or surviving
such merger or the Person which acquires all or substantially all of the assets
of the Corporation shall be (after giving effect to such transaction) a Solvent
corporation or partnership organized or formed, as the case may be, and existing
under, the laws of the United States, any state thereof, or the District of
Columbia and shall expressly assume in writing all of the obligations of the
Company under this Agreement, the Senior Subordinated Note, the Warrants, the
Registration Rights Agreement and the Shareholders' Agreement;
(a) immediately after giving effect to such transaction, no default under, or
breach of, any material Contractual Obligation of the Company or of the
provisions of Articles 9 and 10 exists;
(a) the corporation or partnership formed by or surviving any such transaction
or the Person that acquires all or substantially all of the assets of the
Company shall have a Consolidated Net Worth at least equal to the Consolidated
Net Worth of the Company immediately prior to such transaction; and
(a) the Company shall have furnished to the Holders (i) an opinion of counsel
reasonably satisfactory to the holders of a majority in interest of the Notes
and (ii) the certificate of the Chief Financial Officer of the Company to the
effect that such transaction has been consummated in compliance with the
foregoing requirements; provided, that nothing in this Section 10.4 shall affect
the Notes, the Warrants, the Shareholders' Agreement or the Registration Rights
Agreement or the rights of any holder of the Notes or the Warrants under this
Agreement.
7.1 Transactions with Affiliates. Except for the transactions contemplated by
the Management Agreement and the Transaction Documents, the Company shall not,
and shall not permit any of its Subsidiaries to, enter into any transaction with
any Affiliate of the Company or of any such Subsidiary, unless each of the
following conditions shall be satisfied: (i) such transaction must be in the
ordinary course of business and pursuant to the reasonable requirements of the
business of the Company or such Subsidiary, (ii) such transaction must be on
terms no less favorable to the Company or such Subsidiary than those the Company
or such Subsidiary would obtain in a comparable arm's-length transaction with a
Person not an Affiliate of the Company or such Subsidiary and (iii) the
consummation of such transaction must follow the prior approval of a majority of
the independent members of the Board of Directors of the Company (excluding
those employed by the Company or any Subsidiary, Meredith Birrittella and any
spouse, sibling or descendant of any of the foregoing).
7.1 No Inconsistent Agreements. Neither the Company nor any of its Subsidiaries
shall (a) enter into any loan or other agreement after the date hereof or (b)
amend or modify any currently existing loan or other agreement, which by its
terms restricts or prohibits the ability of the Company to pay the principal of
or interest on the Notes or to issue Common Stock upon exercise of the Warrants,
except to the extent not prohibited by the Subordination Agreement.
7.1 Limitation on Indebtedness.
(i) Neither the Company nor any of its Subsidiaries shall, directly or
indirectly, issue, assume or otherwise incur any Indebtedness, other than:
Indebtedness under this Agreement and the Notes; Indebtedness with respect to
the principal amount of the Term Loan (as defined in the Credit Agreement)
portion of the Credit Agreement in the original principal amount of $4,000,000,
as the principal balance thereof is paid and reduced from time to time in
accordance with its terms; Indebtedness with respect to Revolving Advances and
Letters of Credit (each as defined in the Credit Agreement) to the extent such
Revolving Advances or Letters of Credit are included in Senior Indebtedness (as
defined in the Subordination Agreement) under the Subordination Agreement;
Indebtedness with respect to the principal amount of the Intercompany Note in
the original principal amount of $1,000,000, as the principal balance thereof is
paid and reduced from time to time in accordance with its terms; Indebtedness
secured by a Lien permitted under Section 10.8(v) hereof;
additional unsecured Indebtedness (other than trade payables incurred in the
ordinary course) at any one time outstanding in a principal amount not exceeding
$5,000,000; and amendments to, modifications, or refinancings, refundings or
extensions of the foregoing; provided, that such refinancings, refundings or
extensions shall not (A) exceed the principal amount refinanced, refunded or
extended (except as permitted by the Subordination Agreement), (B) change the
maturity (or weighted average life to maturity) of such Indebtedness (except as
permitted by the Subordination Agreement), (C) increase the interest rate
applicable to, or fees payable with respect to, such Indebtedness (except as
permitted by the Subordination Agreement), (D) cause any covenants or
undertakings (whether affirmative or negative) of the Company or any Subsidiary
thereof in respect of such Indebtedness to be more restrictive than such
covenants or undertakings had been prior to such refinancing, refunding or
extension (except as permitted by the Subordination Agreement), (E) facilitate
the exercise or enforcement of any remedies of any obligee of such Indebtedness
in respect of any default or event of default thereunder, (F) result in any
amendments or modifications of any of the subordination provisions applicable to
such Indebtedness, (G) cause any Events of Default (as defined in the Credit
Agreement) to be more restrictive than such Events of Default had been prior to
such amendment, modification, refinancing, refunding or extension or (H) be in
violation of the terms of the Subordination Agreement.
(b) Except for the Intercompany Note, the Company shall not incur any
Indebtedness unless such Indebtedness is pari passu with all other Indebtedness
under the Credit Agreement or is pari passu with or subordinated to the Notes.
7.1 Limitation on Liens. Neither the Company nor any of its Subsidiaries shall
create, incur, assume or suffer to exist any Lien on any asset now owned or
hereafter acquired by it, other than: (i) Liens existing on the date of this
Agreement and disclosed on Schedule 10.8 and other Liens arising under the
Credit Agreement and the Intercompany Note and related security documents; (ii)
Liens for taxes, statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics and materialmen, in each case only to the extent the
obligations thereto are not yet due or are being contested in good faith by
appropriate proceedings diligently pursued; (iii) Liens to secure performance of
tenders, bids, statutory obligations or government contracts, and similar Liens
not securing Indebtedness and arising in the ordinary course of business; (iv)
Liens to secure Indebtedness permitted under Section 10.7(a)(ii), (iii) and (iv)
(and 10.7(a)(vii), to the extent it relates to 10.7(a)(ii), (iii) and (iv)); and
(v) any Lien on equipment or real property securing Indebtedness up to $250,000
(except for fiscal year 1999 for which year such limitation shall be $500,000)
in any 12-month period incurred or assumed for the sole purpose of financing all
or part of the cost of acquiring such equipment or real property, provided that
such Lien attaches to such asset concurrently with or within 10 days after the
acquisition thereof.
7.1 Investments. Neither the Company nor any of its Subsidiaries shall make any
Investment, except for (i) Investments in Temporary Cash Investments, (ii) loans
and advances to employees for reasonable travel and business expenses in the
ordinary course of business, (iii) prepaid expenses incurred in the ordinary
course of business, (iv) trade accounts receivable created in the ordinary
course of business, (v) Investments existing as of the date of, and reflected
on, the Financials, which Investments are listed on Schedule 10.10, and (vii)
additional Investments not to exceed $100,000 in the aggregate.
7.1 Limitations on Restricted Payments. Neither the Company nor any of its
Subsidiaries will declare or make any Restricted Payment except that the Company
may repurchase Common Stock and Warrants pursuant to Section 9.16.
7.1 Dispositions of Assets. Neither the Company nor any of its Subsidiaries
shall sell, transfer, lease or otherwise dispose of (in one transaction or in a
series of transactions) all or any part of the assets or properties of the
Company or any of its Subsidiaries other than (i) assets or properties sold in
the ordinary course of business or (ii) assets or properties, sales of which do
not exceed in the aggregate $100,000 in any 12-month period.
7.1 Articles of Incorporation and By Laws of the Company and its Subsidiaries.
Except with the prior written consent of the Purchaser, no amendments to the
articles or certificate of incorporation or by laws of the Company or any of its
Subsidiaries shall be effected.
7.1 Stock Option Plans. The Company shall not, without the consent of the
Purchaser, adopt any stock option or similar plan or issue any equity securities
to any employee or consultant of the Company or any of its Subsidiaries, except
for a stock plan for the issuance at fair market value of options with respect
to the Common Stock to employees of the Company (other than Meredith Birrittella
or Warren Schaeffer) in an aggregate amount for all such options issuable
pursuant to such plan that is less than 10% of the outstanding Common Stock (on
a fully-diluted basis) on the date hereof (as adjusted for any stock split,
reverse stock split, stock dividend, reclassification or similar event).
7.1 Limitations on Asset Purchases. Without the prior consent of the Purchaser,
the Company will not acquire new assets other than in the ordinary course of
business, except if the value of the transaction (or series of transactions) by
which such assets are acquired does not exceed $1,000,000 in the aggregate.
7
ARTICLE
DEFAULTS AND REMEDIES
7.1 Events of Default. An "Event of Default" shall occur if:
(i) the Company shall default in the payment of any installment of principal of
any Note, when and as the same shall become due and payable, whether at maturity
or at a date fixed for prepayment or by acceleration or otherwise; or
(i) the Company shall default in the payment of any installment of interest on
any Note according to the terms thereof, when and as the same shall become due
and payable and such default shall continue for a period of five days; or
(i) the Company or any of its Subsidiaries shall default in the due observance
or performance of any covenant to be observed or performed pursuant to Sections
9.1(a), 9.1(b), 9.8, 9.10, 9.16, 9.20 or Article 10 hereof; or
(i) the Company or any of its Subsidiaries, as the case may be, shall default in
the due observance or performance of any other covenant, condition or agreement
on the part of the Company or any of its Subsidiaries to be observed or
performed pursuant to the terms of this Agreement, and such default shall
continue for 30 days after the earliest of (A) the date the Company obtains
knowledge of such default, or (B) the date written notice thereof shall have
been given to the Company by the holder of any of the Notes; or
(i) any representation, warranty, certification or statement made by or on
behalf of the Company or made by or on behalf of Parent in this Agreement or in
any certificate or other document delivered pursuant hereto shall have been
incorrect in any material respect when made; or
(i) any (A) default in any payment of principal of or interest of any
Indebtedness of the Company or any of its Subsidiaries, in an aggregate amount
outstanding at any one time equal to or exceeding $100,000, and such default
shall continue for a period of ten days or (B) default in the observance or
performance of any other agreement or condition relating to Indebtedness of the
Company or any of its Subsidiaries of an amount greater than $100,000 or
contained in any instrument or agreement evidencing, securing or relating
thereto, or any other event shall occur or condition exist, the effect of which
default or other event or condition results in the acceleration of such
Indebtedness prior to its stated maturity, except that, with respect to (A) and
(B), to the extent that such default is with respect to Indebtedness of the
Company or any of its Subsidiaries other than Indebtedness for borrowed money,
unless such default is disputed in good faith; or
(i) the Company or any Subsidiary shall (A) apply for, consent to or suffer the
appointment of, or the taking of possession by, a receiver, custodian, trustee,
liquidator or similar fiduciary of itself or of all or a substantial part of its
property, (B) make a general assignment for the benefit of creditors, (C)
commence a voluntary case under any state or federal bankruptcy laws (as now or
hereafter in effect), (D) be adjudicated a bankrupt or insolvent, (E) file a
petition seeking to take advantage of any other law providing for the relief of
debtors, (F) acquiesce to, or fail to have dismissed, within thirty (30) days,
any petition filed against it in any involuntary case under such bankruptcy
laws, or (G) take any action for the purpose of effecting any of the foregoing;
(i) the Company or any Subsidiary thereof shall admit in writing its inability,
or be generally unable, to pay its debts as they become due or cease operations
of its present business;
(i) one or more judgments for the payment of money in an aggregate amount in
excess of $250,000 (to the extent not covered by insurance) shall be rendered
against the Company or any of its Subsidiaries and the same shall remain
undischarged for a period of 40 days during which execution shall not be
effectively stayed, or any action shall be legally taken by a judgment creditor
to levy upon assets or properties of the Company or any of its Subsidiaries to
enforce any such judgment.
7.1 Acceleration. If an Event of Default occurs under clauses (vii) or (viii) of
Section 11.1, then the outstanding principal of and all accrued interest on the
Notes and all other amounts owing under this Agreement and the Note shall
automatically become immediately due and payable, without presentment, demand,
protest or notice of any kind, all of which are expressly waived. If any other
Event of Default occurs and is continuing, the holders of 51% of the aggregate
principal amount of the Notes outstanding, by written notice to the Company, may
declare the principal of and accrued interest on the Notes and all other amounts
owing under this Agreement to be due and payable immediately. Upon such
declaration, such principal and interest and other amounts shall become
immediately due and payable. The holders of 51% of the aggregate principal
amount of the Notes outstanding may rescind an acceleration and its consequences
if all existing Events of Default have been cured or waived, except nonpayment
of principal or interest or other amounts that has become due solely because of
the acceleration, and if the rescission would not conflict with any judgment or
decree. Any notice or rescission shall be given in the manner specified in
Section 14.2 hereof.
7
ARTICLE
SUBORDINATION
The Notes shall at all times be wholly subordinate and junior
in right of payment to senior indebtedness (as defined in the Subordination
Agreement), to the extent and in the manner provided in the Subordination
Agreement.
7
ARTICLE
PREPAYMENT
The Company shall prepay outstanding principal (together with
accrued interest) on the Notes in accordance with the "Mandatory Prepayment"
provisions set forth in Section 3 of the Notes. The Company may prepay
outstanding principal (together with accrued interest) on the Notes only if the
Notes are prepaid in accordance with the "Optional Prepayment" provisions set
forth in Section 4 of the Notes.
7
ARTICLE
MISCELLANEOUS
7.1 Survival of Provisions. All of the representations and warranties made
herein shall survive the execution and delivery of this Agreement, any
investigation by or on behalf of the Purchaser or any Affiliate, acceptance of
the Senior Subordinated Note, Warrants and shares of Common Stock issued
pursuant to the exercise of the Warrants and payment therefor, payment of the
Senior Subordinated Note or upon redemption or otherwise, exercise of the
Warrants or termination of this Agreement.
7.1 Notices. All notices, demands and other communications provided for or
permitted hereunder shall be made in writing and shall be by registered or
certified first-class mail, return receipt requested, telecopier, courier
services or personal delivery to the following addresses, or to such other
addresses as shall be designated from time to time by a party in accordance with
this Section 14.2:
(a) if to the Purchaser:
The 1818 Mezzanine Fund, L.P.
c/o Brown Brothers Harriman & Co.
59 Wall Street
New York, New York 10005
Attention: Robert R. Gould
Telecopier No.: (212) 493-8429
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Marilyn Sobel, Esq.
Telecopier No.: (212) 757-3990
(a) if to the Company:
Flents Products Co., Inc.
1 Executive Boulevard
Yonkers, New York 10701
Attention: Chief Financial Officer
Telecopier No.: (914) 423-9610
with a copy to:
Akabas & Cohen
488 Madison Avenue
11th Floor
New York, New York 10022
Attention: Michael H. Sproule, Esq.
Telecopier No.: (212) 308-8582
All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; the next
Business Day, if delivered by commercial overnight courier service; five
Business Days after being deposited in the mail, postage prepaid, if mailed; and
when receipt is acknowledged (or if not a Business Day, then the next Business
Day), if telecopied.
7.1 Successors and Assigns. This Agreement shall inure to the benefit of and be
binding upon the successors and permitted assigns and permitted transferees of
the parties hereto. Except as provided in Articles 7 and 12, no Person other
than the parties hereto and their successors and permitted assigns is intended
to be a beneficiary of this Agreement, the Notes and the Warrants.
7.1 Assignments.
(a) The Company may not assign any of its rights or obligations under this
Agreement without the written consent of the Purchaser (prior to Closing) or the
holders of a majority (x) in aggregate principal amount of the Notes (following
Closing) and (y) of the shares of Common Stock issuable upon conversion of the
Warrants.
(a) The Purchaser and any subsequent holder of Notes or Warrants may, at any
time or from time to time sell, agree to sell or assign to one or more other
Persons who agree to be bound by all of the terms of this Agreement, all or any
portion of the Notes or Warrants. In the event of any such sale or assignment of
a Note, upon surrender for exchange of any Note at the office of the Company
designated for notices in accordance with Section 14.2, the Company shall
execute and deliver in exchange therefor, without expense to the holder, one or
more new Notes in the same aggregate principal amount as the then unpaid
principal amount of the Note so surrendered as such holder shall specify, dated
as of the date to which interest has been paid on the Note so surrendered (or,
if no interest has been paid, the date of such surrendered Note), in the name of
such Person or Persons as may be designated by such holder in writing, and
otherwise of the same form and tenor as the Note so surrendered for exchange.
Every Note surrendered for transfer shall be duly endorsed, or accompanied by a
written instrument of transfer duly executed by the holder of such Note or its
attorney duly authorized in writing.
7.1 Amendment and Waiver.
(a) No failure or delay on the part of any Holder, 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 preclude any other
or further exercise thereof or the exercise of any other right, power or remedy.
The remedies provided for herein are cumulative and are not exclusive of any
remedies that may be available to any holder of a Note or Warrant at law, in
equity or otherwise.
(a) Any amendment, supplement or modification of or to any provision of this
Agreement, any waiver of any provision of this Agreement and any consent to any
departure by the Company from the terms of any provision of this Agreement,
shall be effective (i) only if it is made or given in writing and signed by the
Company and (x) holders of 51% of the aggregate principal amount of the Notes
outstanding and (y) holders of at least 51% of the shares of Common Stock issued
or issuable upon the exercise of the Warrants, and (ii) only in the specific
instance and for the specific purpose for which made or given.
(i) Any amendment, supplement or modification of or to any provision of the
Notes, any waiver of any provision of the Notes, and any consent to any
departure by the Company from the terms of any provision of the Notes, shall be
effective only if it is made or given in writing and signed by the Company and
the holders of 51% of the aggregate principal amount of the Notes outstanding,
and only in the specific instance and for the specific purpose for which made or
given. However, without the consent of each holder of a Note affected, an
amendment may not:
(1) reduce the rate of or extend the time for payment of
interest on any Note;
(1) reduce the principal of or extend the maturity of any Note;
(1) change the time at which any Note shall or may be prepaid in
accordance with Sections 3 and 4 of the Notes;
(1) make any Note payable in money other than that stated in the
Notes;
(1) make any change in the Subordination Agreement that adversely affects the
rights of any holder of a Note under the Subordination Agreement; or
(1) make any change in the first or second sentence of this
Section 14.5(c).
Except where notice is specifically required by this Agreement, no notice to or
demand on the Company in any case shall entitle the Company to any other or
further notice or demand in similar or other circumstances.
7.1 Counterparts. This Agreement may be executed in any number of counterparts
and by the parties hereto in separate 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 agreement.
7.1 Headings. The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
7.1 Determinations. All determinations to be made by the Company, the Purchaser
or any Holder hereunder in its opinion or judgment or with its approval or
otherwise shall be made by it in its sole discretion.
7.1 Governing Law. This Agreement has been negotiated, executed and delivered in
the State of New York and shall be governed by and construed in accordance with
the laws of the State of New York, without regard to principles of conflicts of
law.
7.1 Jurisdiction. Each party to this Agreement hereby irrevocably agrees that
any legal action or proceeding arising out of or relating to this Agreement or
any agreements or transactions contemplated hereby may be brought in the courts
of the State of New York located in New York City or of the United States of
America for the Southern District of New York and hereby expressly submits to
the personal jurisdiction and venue of such courts for the purposes thereof and
expressly waives any claim of improper venue and any claim that such courts are
an inconvenient forum. Each party hereby irrevocably consents to the service of
process of any of the aforementioned courts pursuant to a contractual provision
in any such suit, action or proceeding by the mailing of copies thereof by
registered or certified mail, postage prepaid, to the address set forth in
Section 14.2, such service to become effective 10 days after such mailing. TO
THE EXTENT NOT PROHIBITED BY APPLICABLE LAW WHICH CANNOT BE WAIVED, EACH PARTY
HEREBY WAIVES, AND COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF,
DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF
ANY ISSUE, CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION ARISING OUT OF OR BASED
UPON THIS AGREEMENT OR THE SUBJECT MATTER HEREOF OR ANY FUNDAMENTAL DOCUMENT, IN
EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING OR WHETHER IN CONTRACT OR
TORT OR OTHERWISE.
7.1 Severability. In the event that any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
7.1 Rules of Construction. Unless the context otherwise requires, "or" is not
exclusive, and references to sections or subsections refer to sections or
subsections of this Agreement.
7.1 Remedies. If a breach of this Agreement, the Notes or the Warrants by the
Company occurs and is continuing, the Purchaser or any holder of Notes or
Warrants may pursue any available remedy by proceeding at law or in equity to
enforce the performance (including, without limitation, the specific
performance) of any provision of the Notes, the Warrants or this Agreement. The
Purchaser or any holder of Notes or Warrants may maintain a proceeding even if
it does not possess any of the Notes or Warrants or does not produce any of them
in the proceeding. Except as otherwise provided by law, a delay or omission by
the Purchaser or any holder of Notes or Warrants in exercising any right or
remedy accruing upon any such breach shall not impair the right or remedy or
constitute a waiver of or acquiescence in any such breach. No remedy is
exclusive of any other remedy. All available remedies are cumulative.
7.1 Entire Agreement. This Agreement, together with the exhibits and schedules
hereto, the Senior Subordinated Note, the Warrants, the Registration Rights
Agreement and the Shareholders' Agreement are intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein and therein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein or therein. This Agreement, together with the exhibits and schedules
hereto, the Senior Subordinated Note, the Warrants, the Registration Rights
Agreement and the Shareholders' Agreement supersede all prior agreements and
understandings among the parties with respect to such subject matter.
7.1 Attorneys' Fees. In any action or proceeding brought to enforce any
provision of this Agreement, the Notes, the Warrants, the Registration Rights
Agreement and the Shareholders' Agreement or any other document or instrument
contemplated hereby or thereby, or where any provision hereof or thereof is
validly asserted as a defense, the successful party shall be entitled to recover
reasonable attorneys' fees, charges and disbursements in addition to any other
available remedy.
7.1 Publicity. Except as may be required by applicable law, no party hereto
shall issue a publicity release or announcement or otherwise make any public
disclosure concerning this Agreement or the transactions contemplated hereby,
without prior approval by the other parties hereto. If any announcement is
required by law to be made by a party hereto, prior to making such announcement
such party will deliver a draft of such announcement to the other parties and
shall give the other parties an opportunity to comment thereon.
7.1 Expenses. The Company acknowledges and agrees that whether or not the
transactions contemplated hereby are consummated, the Company shall reimburse
the Purchaser for all out-of-pocket expenses, all legal fees and expenses of the
Purchaser incurred in connection with the negotiation, execution, delivery and
enforcement of this Agreement and the other Transaction Documents (including,
without limitation, all fees, disbursements and related charges of Paul, Weiss,
Rifkind, Wharton & Garrison.) The Company further acknowledges and agrees that
it shall bear all fees and expenses of and relating to the appraisal firm
selected to determine the Per Share Equity Value in connection with the delivery
of a Demand Notice pursuant to Section 9.16.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered by their respective officers or partners
hereunto duly authorized as of the date first above written.
FLENTS PRODUCTS CO., INC.
By: /s/ Meredith Birrittella
Name: Meredith Birrittella
Title: C.E.O.
THE 1818 MEZZANINE FUND, L.P.
By: Brown Brothers Harriman & Co., General Partner
By: /s/ Robert R. Gould
Name: Robert R. Gould
Title: Partner
The undersigned
is party to this Agreement solely with respect to
Section 9.20 of this Agreement.
PTI HOLDING INC.
By:/s/ Meredith Birrittella
Name: Meredith Birrittella
Title: C.E.O.
[Securities Purchase Agreement]
<PAGE>
EXHIBIT 6
INVESTMENT AGREEMENT
AGREEMENT dated April 14, 1999 among Meredith Birrittella, an
individual residing at 7 Knights Court, Upper Saddle River, NJ 07458
("Birrittella"), Warren Schaeffer, an individual residing at 425 East 58th
Street, Apartment 35A, New York, NY 10022 ("Schaeffer"), and Flents Products
Co., Inc., a Delaware corporation (the "Company"). Any reference to Investors
herein shall include Birrittella and Schaeffer.
WHEREAS, the Company proposes to issue and sell to the 1818
Mezzanine Fund, L.P., a Delaware limited partnership (the "Fund") for an
aggregate purchase price of $8,000,000 (i) a Senior Subordinated Promissory Note
in the aggregate principal amount of $8,000,000 and (ii) detachable warrants
exercisable at any time to purchase 22 shares (subject to adjustment) of common
stock, par value $.01 share, (the "Common Stock") of the Company (subject to
adjustment), in each case upon the terms and subject to the conditions set forth
in that Securities Purchase Agreement, dated the date hereof, by and between the
Company and the Fund (the "Purchase Agreement"),
WHEREAS, the Company proposes to enter into a Revolving
Credit, Term Loan and Security Agreement, dated the date hereof, by and between
the Company and PNC Bank, National Association ("PNC"), as agent and lender,
(the "Credit Agreement") on the terms and subject to the conditions set forth in
the Credit Agreement,
WHEREAS, it is a condition precedent of the Purchase Agreement
and the Credit Agreement that the Investors purchase shares of the Common Stock
of the Company on the terms and subject to the conditions set forth herein, and
WHEREAS, the parties hereto desire for the Investors to invest
in the Company on the terms and subject to the conditions set forth herein; and
NOW, THEREFORE, in consideration of the premises and promises
herein contained and for other good and valuable consideration, the sufficiency
of which is hereby acknowledged, the parties hereto agree as follows:
1. Issue and Sale of Securities. At the Closing, the Company, in
consideration of the payment by Birrittella to the Company of $800,000, shall
issue and sell to Birrittella 8 shares of the Common Stock and, in consideration
of the payment by Schaeffer to the Company of $1,000,000, shall issue and sell
to Schaeffer 10 shares of the Common Stock (the "Securities").
2. Closing. The closing (the "Closing") at which the Securities shall
be sold to the Investors pursuant to this Agreement shall be held simultaneously
with the signing of this Agreement on the date hereof (the "Closing Date") at
the offices of Haythe & Curly, counsel to PNC.
3. Use of Proceeds. The Company shall use the proceeds from the sale of
the Securities (a) to fund the purchase of the assets of Karlen Manufacturing
Co., Inc., a Michigan corporation, (b) the refinancing of the Company's existing
indebtedness, (c) payment of fees and expenses in connection with the such asset
purchase and such refinancing, and (d) to provide for working capital
requirements and general corporate purposes of the Company.
4. Conditions. The purchase of and payment for the Securities to be
sold and delivered to the Investors at the Closing is subject to the accuracy of
all representations and warranties by the Company contained herein and in the
Purchase Agreement and to the performance by the Company of all the terms and
conditions on its part to be performed hereunder and under the Purchase
Agreement on or prior to the Closing Date.
5. Company's Representations and Warranties. The Company represents and
warrants, each of which representation and warranty shall be deemed material and
to have been relied upon by the Investors, that as of the date hereof:
5.1. Common Stock. All of the issued and outstanding Common Stock,
consisting of 60 shares held by PTI Holding Inc., a Delaware corporation, are,
and the Securities when issued will be, duly authorized, validly issued, fully
paid and non-assessable and were, and will be, issued in compliance with all
applicable securities laws.
5.2. No Conflict; Corporate Action.
(a) The execution and delivery of this Agreement and the
performance of the provisions hereof are duly authorized by the Company and do
not require the consent or approval of any governmental body or other regulatory
authority or any third party not yet obtained. All corporate action for the due
execution and delivery of this Agreement, including the issuance and sale of the
Securities, have been duly and validly obtained or taken. This Agreement
constitutes a valid and binding obligation of the Company enforceable against it
in accordance with its terms.
(b) The execution, delivery and performance of this Agreement
and the transactions contemplated herein will not:
(i) constitute a violation of the Articles of Incorporation or
the By-Laws, each as amended through the date hereof, of the Company;
(ii) conflict with, result in the breach of, constitute a
default, with or without notice and/or lapse of time, under, result in
being declared void or voidable any provision of, or result in any
right to terminate or cancel any contract, lease, agreement, license,
commitment or purchase order to which the Company, any subsidiary or
any of their respective properties is bound;
(iii) constitute a violation of any statute, judgment, order,
decree or regulation or rule of any court, governmental authority or
arbitrator applicable or relating to the Company or any subsidiary, or
the business of the Company or any subsidiary; or
(iv) result in (A) the acceleration of any debt or other
obligation of the Company or any subsidiary; (B) the creation of any
lien, charge or other encumbrance upon any of the assets of the Company
or any subsidiary; (C) the termination or cancellation or right to
terminate or cancel any obligation owed to the Company or any
subsidiary; (D) any right adverse to the Company or any subsidiary.
5.3. Brokerage. No finder's fees, brokerage commissions, consulting
fees and like charges are due or to be paid in connection with the transactions
contemplated by this Agreement, except fees payable to Woodbridge Group, Inc.
("Woodbridge") set forth in a separate agreement between the Company and
Woodbridge.
All representations and warranties contained in this Agreement or the Purchase
Agreement or made by or on behalf of the Company in writing in connection with
the transactions contemplated herein shall survive the Closing. All statements
contained in any certificate or other instrument delivered by or on behalf of
the Company pursuant hereto or in connection with the transactions contemplated
herein shall constitute representations and warranties by the Company hereunder.
Notwithstanding anything to the contrary herein, the Company shall not be liable
to the Investors for the inaccuracy of any of representations and warranties by
the Company contained in the Purchase Agreement of which the Investors were
aware at the time such representation or warranty was made by the Company.
6. Securities Law Matters; Investors' Representations.
The Investors represent and warrant to the Company as follows, and
acknowledge that the Company is relying upon such representations and warranties
in connection with the execution, delivery and performance of this Agreement,
notwithstanding any investigation made by the Company or on its behalf.
6.1. Securities Matters.
(a) Investors are acquiring the Securities for investment
only, and not with any view to the sale or distribution thereof. Investors are
not acquiring the Securities as a result of any advertisement, public meeting or
other public offering.
(b) The addresses set forth below are each of Investors' true
and correct residences, and each of Investors has no present intention of
becoming a resident of any other state or jurisdiction.
(c) Each of Investors understands that the Securities are not
registered under the Securities Act of 1933, as amended (the "Act"), and must be
held by him or it indefinitely unless they are subsequently registered under the
Act or an exemption from such registration is available. Each of Investors
understand that the resale of such Securities will be restricted so that such
resale may be made only in accordance with the appropriate exemptions (including
holding such Securities for periods of time specified in Rule 144 promulgated
under the Act and compliance with the other provisions thereof, if such
exemption is available), or registration under the Act.
<PAGE>
(d) Each of Investors is aware of the risks of an investment
in restricted securities, and each of Investors has no need for any income from
its investment in the Securities and can afford to lose his or its entire
investment. Each of Investors is aware that the Company has made no
representation as to the value of the Securities now or in the future. Each of
Investors or legal and financial advisors available to each of them, has such
knowledge and experience in financial and business matters so that Investors are
capable of assessing the merits and risks of acquiring the Securities.
(e) Investors have reviewed have had an opportunity to ask
questions of and receive answers from management of the Company and to obtain
any additional information that the Company possesses or can acquire without
unreasonable effort or expense relating to the Company's business, financial
condition and results of operations, although neither the Company nor any person
or entity on its behalf has made any representation or warranty except as
expressly contained herein.
(f) Each of Investors understands that all certificates
evidencing the Securities will bear a legend substantially in the following
form:
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended, or under any state
securities laws. These securities may not be sold, transferred, pledged
or hypothecated in the absence of an effective registration statement
for the securities under said Act or an opinion of counsel and other
assurances satisfactory to the Company prior to the transaction that
registration under said Act is not required.
(g) Each of Investors has consulted with tax and legal counsel
selected by him or it in connection with this Agreement, and with financial
advisors, who have reviewed the merits of an investment in the Securities
hereunder. Each of Investors, together with such persons, has sufficient
knowledge and experience in business and financial matters to evaluate the
merits and the risks of an investment in the Securities, and each of Investors
is fully aware of the risks involved and has determined that an investment in
the Securities is consistent with his or its investment objectives. Each of
Investors is relying solely on his or its own tax advisors with respect to the
tax factors relating to an investment in the Securities.
(h) Prior to the registration of the Securities, if an
Investor or any subsequent holder, desires to transfer any of the Securities,
such holder must give to the Company prior written notice of such proposed
transfer including the name and address of the proposed
<PAGE>
transferee. Such transfer may be made only either (i) upon
publication by the Securities and Exchange Commission (the "Commission") of a
ruling, interpretation, opinion or "no action letter" based upon facts presented
to the Commission, or (ii) upon receipt by the Company of an opinion of counsel
to the Company or reasonable satisfaction to the Company, in either case to the
effect that the proposed transfer will not violate the provisions of the Act,
the Securities Exchange Act of 1934, as amended, or the rules and regulations
promulgated under either such act.
(i) Prior to any such proposed transfer, and as a condition
thereto, such holder, or any subsequent holder, will, if requested by the
Company, deliver to the Company (i) an investment letter setting forth
investment representations of the proposed transferee and such proposed
transferee's covenant to comply with the transfer provisions set forth in this
Section 6.1, signed by the proposed transferee, and (ii) an agreement by the
transferee to indemnify the Company to the same extent as set forth in Section
6.1(j) hereof.
(j) Each of Investors acknowledges that he understands the
meaning and legal consequences of the representations and warranties contained
herein and hereby agrees to indemnify and hold harmless the Company and its
officers, directors agents and representatives and each of their heirs, legal
representatives, successors and assigns from and against any and all loss,
damage or liability (including reasonable attorneys' fees and costs incurred in
enforcing this indemnity provision) due to or arising out of (i) any transfer of
any of the Securities in violation of the Act, the Securities Exchange Act of
1934, as amended, or the rules and regulations promulgated under either of such
acts, (ii) any transfer of any of the Securities not in accordance herewith or
(iii) any untrue statement or omission to state any material fact in connection
with the investment representations or with respect to the facts and
representations supplied by such holder to counsel to the Company upon which its
opinion as to a proposed transfer shall have been based.
(k) The Company may place a stop order with its transfer agent
and registrar, if any, with respect to any of the Securities or any certificates
into which such Securities are exchanged, except to the extent such security is
covered by an effective registration statement under the Act.
7. Financial Statements. As long as the Investors together own any of
the Common Stock then issued and outstanding, the Company shall deliver to each
of the Investors upon completion any financial statements produced by the
Company, including without limitation, annual, quarterly, and monthly statements
of income, stockholders' equity and cash flow.
8. Additional Provisions.
8.1. Modification of Agreement; Consent. This Agreement and the
documents and instruments referred to herein constitute the entire agreement
among the parties hereto with respect to the subject matter hereof. Any
provision in this Agreement to the contrary notwithstanding, changes in or
additions to this Agreement may be made, and/or compliance with any covenant or
condition herein set forth may be omitted, only pursuant to a written document
executed by or on behalf of the parties hereto.
8.2. Stamp, Tax and Delivery Costs. The Company shall pay all stamp and
other taxes, if any, which may be payable in respect of the issuance and sale of
any Securities to the Investors, and shall save the Investors harmless against
any loss or liability resulting from nonpayment or delay in payment of any such
tax.
8.3. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto, and their respective successors and
assigns, except this Agreement and the obligations hereunder may not be assigned
by the Company without the consent of the Investors.
8.4. Notices. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient when delivered personally
or telecopied by confirmed facsimile, or the day signed for or rejected by
addressee after mailing by registered or certified mail, return receipt
requested, or the next business day if sent by nationally recognized overnight
courier providing for a return receipt, in each case postage prepaid, addressed
as follows:
If to Company:
Flents Products Co, Inc.
One Executive Boulevard
Yonkers, NY 10701
Attn: Chief Financial Officer
Facsimile: (914) 423-9374
with a copy to:
Akabas & Cohen
488 Madison Avenue, 11th Floor
New York, New York 10022
Attn: Seth Akabas, Esq.
Facsimile: (212) 308-8582
If to Birrittella:
Mr. Meredith Birrittella
7 Knights Court
Upper Saddle River, NJ 07458
Facsimile: (914) 376-6923
If to Schaeffer:
Mr. Warren Schaeffer
425 East 58th Street, Apartment 35A
New York, NY 10022
Facsimile: (914) 376-6923
Any party may by notice change the address to which notice or other
communications to it are to be delivered or mailed, effective ten (10) days
after such notice.
8.5. Governing Law. All matters concerning the validity and
interpretation of and performance under this Agreement shall be governed by the
laws of the State of New York for contracts made, executed and performed in such
State. Each of the parties hereto consents to the jurisdiction of the courts of
the State of New York, agrees not to bring any action in regard to this
Agreement or the transactions hereunder in any other jurisdiction, and agrees
that the venue of any such action shall be New York, New York.
8.6. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original and all of which together shall constitute
one and the same instrument.
8.7. Term. All of the covenants and other terms of this Agreement shall
survive in full force and effect so long as the Investors owns any of the
Securities.
8.8. Construction.
(a) The descriptive headings of this Agreement are for
convenience only and shall not control or affect the meaning or construction of
any provision of this Agreement.
(b) Each of the parties to this Agreement participated in the
drafting of this Agreement and the interpretation of any ambiguity contained in
this Agreement will not be affected by the claim that a particular party drafted
any provision hereof.
(c) Any pronoun herein shall include all genders and/or the
plural or singular as appropriate from the context.
IN WITNESS WHEREOF, each of the Investors has executed, and the Company
has caused to be duly executed by its duly authorized officer this Agreement, as
of the day and year first written above.
FLENTS PRODUCT CO., INC.
By:/s/ Meredith Birrittella
Name: Meredith Birrittella
Title: C.E.O.
/s/ Meredith Birrittella
/s/ Warren Schaeffer
MEREDITH BIRRITTELLA
WARREN SCHAEFFER
<PAGE>
EXHIBIT 7
MANAGEMENT AGREEMENT
AGREEMENT dated April 14, 1999 between Flents Products Co., Inc., a
Delaware corporation having an office at One Executive Boulevard, Yonkers, NY
10701 (the "Company"), and Protective Technologies International Inc., a New
York corporation having an office at One Executive Boulevard, Yonkers, NY 10701
(the "Manager").
W I T N E S S E T H:
WHEREAS, the Company desires to engage the Manager, and the Manager
desires, to provide management services for the Company in accordance with the
terms hereof,
NOW, THEREFORE, In consideration of the premises and the mutual
covenants contained herein, the sufficiency of which is hereby acknowledged, the
parties hereto hereby agree as follows:
1. Engagement. The Company hereby engages the Manager to provide
Management services, and the Manager hereby accepts such engagement, subject to
the terms and conditions hereinafter set forth.
2. Term. The term of the Manager's engagement hereunder shall commence
on the date hereof and shall continue thereafter until December 31, 2001, and
shall continue thereafter for successive one-year renewals unless notice of
non-renewal is sent by either party hereto to the other party at least 90 days
prior to the expiration of the initial or any renewal term hereof, unless sooner
properly terminated pursuant to the terms hereof.
3. Duties.
(a) The Manager shall provide the following services to the
Company:
(i) subject to Section 4(c) hereof, senior executive
services including the roles customarily performed by the chief
executive officer and the chief financial officer, but not the chief
operating officer, of companies similar to the Company;
(ii) all bookkeeping and controller, tax and audit
functions and services, to the extent requested by the Company;
(iii) all information and data processing functions
and services such as accounts payable and accounts receivable,
auditing, controls, and generation of financial statements, to the
extent requested by the Company;
(iv) all senior human resource management functions
and services such as pension and health insurance and other fringe
benefits, payroll and related functions, to the extent requested by the
Company;
(v) procurement of products liability insurance under
the Manager's policy, if requested by the Company;
(vi) all office space and equipment, and all clerical
and support services necessary to each of the functions and services
set forth in this Section 3(a) above.
(b) The Manager shall also make available personnel of the
Manager familiar with the services provided hereunder to meet with the Board of
Directors of the Company as reasonably requested by the Board of Directors of
the Company.
(c) The Manager shall provide the services hereunder in a
competent professional manner, in accordance with customary practice in the
Company's industry, and in any event comparable to the similar services rendered
by the Manager for its own operations.
(d) The Manager shall segregate the Company's information from
all other information managed by the Manager and shall investigate, and if
cost-effective, arrange to have the Company's information processed on a server
located in the Company's own offices and under the Company's control such that
the Company could, if it elected to do so, access and process its own
information without the Manager's participation. The Manager shall deliver to
the Company on a weekly basis computer back-up tapes containing all information
of the Company managed by the Manager under this Agreement.
4. Compensation and Benefits.
(a) In consideration of the services to be rendered by the
Manager hereunder, the Company shall pay to the Manager, and it shall accept,
compensation as follows:
(i) for the period from the date hereof through
September 30, 1999, on the same basis and terms as the intercompany
charges booked for such services by the Company and the Manager in
their current fiscal year, so long as such charges continue to be
approved by the independent directors of the Company as being a fair
and reasonable estimate of the Company's costs in supplying such
services; and
(ii) for the period from and after October 1, 1999,
the sum of the following amounts (which is currently $60,290 per month
plus the direct cost of product liability insurance procured by the
Manager for the Company (currently $2.95 for each $1,000 in sales)), as
the same shall be adjusted as set forth below:
(A)(x) subject to Section 4(c) hereof, $15,442 per month with
respect to the services being provided hereunder with respect
to the roles customarily performed by the chief executive
officer and the chief financial officer, adjusted as of the
beginning of each fiscal year of the Manager by the percentage
increase in the average salaries of the chief executive
officer and the chief financial officer of the Manager since
the beginning of the prior fiscal year, but not in excess of
10% per year on a cumulative basis; plus (y) $17,037 per month
with respect to the services being provided hereunder by
employees of the Manager (the "Non-CFO/CEO Employees") other
than those serving the roles customarily performed by the
chief executive officer and the chief financial officer,
adjusted (upward or downward, as appropriate) as of the
beginning of each fiscal year of the Manager by the percentage
increase or decrease, as the case may be, in the aggregate
annual salaries of the Non-CFO/CEO Employees at the beginning
of such fiscal year compared to the aggregate annual salaries
of the Non-CFO/CEO Employees at the beginning of the prior
fiscal year;
(B) the "Area Use Percent" (hereinafter defined) of the total
amount ("Rent") of monthly rent, additional rent and other
charges payable under the Manager's office lease at One
Executive Blvd., Yonkers, NY, or at such other facility as the
Manager uses for its executive offices ("Executive
Office")(currently, this item totals $2,908 per month); plus
(C) the Area Use Percent of Manager's direct monthly security
costs at its Executive Office (currently, this item totals $63
per month); plus
(D) the "Area Use Percent" of the Manager's charges for office
furniture, equipment and tenant improvements depreciation,
plus, if the Manager is then providing services under Section
3(a)(iii) above, the "Revenue Percent" (hereinafter defined)
of the Manager's charges for depreciation on computer
equipment at the Executive Office, all such charges to be in
accordance with generally accepted accounting principles
(currently, this item totals $24,841 per month); plus
(E) the direct cost of product liability insurance, if any,
procured by the Manager for the Company (currently $2.95 for
each $1,000 in sales).
Such compensation shall be payable in monthly installments on the
fifteenth day of each month based on calculations reasonably made by
the chief financial officer of the Manager as of the first day of such
month; provided that a single adjustment payment promptly after being
calculated following the end of each fiscal year of the Manager, based
upon the actual costs and the actual Area Use Percents and Revenue
Percents in effect during each month of such year and the Manager's
year-end audit, shall be due and payable from the Company to the
Manager if compensation was underpaid during such fiscal year and from
the Manager to the Company if compensation was overpaid during such
fiscal year. The obligation to make such adjustment payment shall
survive termination of this Agreement. "Area Use Percent" shall mean
the amount of area in the Executive Office used by the Manager's
employees engaged in the provision of services hereunder (provided that
the area used by any such employee not working full-time on services
hereunder shall be reduced pro rata by the percent of such employee's
full-working time that is devoted to work other than services
hereunder), divided by the amount of area used by all employees at the
Executive Office (common areas in the Executive Office shall not be
counted in such calculation). "Revenue Percent" means the net revenues
of the Company, divided by sum of the net revenues of the Company plus
the net revenues of the Manager and any other company using the
computers at the Executive Office for management information services.
(b) The Manager shall be entitled to reimbursement for all
reasonable travel, entertainment and other extraordinary business expenses
reasonably incurred or expended by it for the performance of its duties
hereunder, subject to a periodic accounting reasonably satisfactory to the
Company; provided that any such expenditure in excess of $1,000 shall be
approved in advance by the Company.
(c) Any provision herein to the contrary notwithstanding, if,
for any reason, neither Meredith Birrittella nor Anthony Costanzo is providing
services hereunder, and the Company elects to itself hire individuals to provide
the services described in Section 3(a)(i), then, if such individuals are
reasonably acceptable to PNC Bank, no compensation shall thereafter be due to
the Manager under Section 4(a)(ii)(A)(x) above, and the Manager will not longer
provide services pursuant to Section 3(a)(i) above.
5. Termination of Engagement. Either party may terminate the engagement
of the Manager and the term of this Agreement prior to the expiration thereof:
(a) if the other party defaults in the performance of a material obligation
hereunder and fails to cure such default for 30 days after written notice of
such default specifying in reasonable detail the nature of such default; or (b)
180 days after notice of termination for any reason or no reason. Any such
termination shall be effected by notice to the other party and shall be
effective under Clause 5(a) at any time after the date thereof as set forth in
such notice and under Clause 5(b) above at any time after the 180th day
following the delivery of such notice as set forth in such notice. The
obligation to satisfy liabilities previously incurred hereunder and the
confidentiality provisions in Section 7, below, shall survive termination of
this Agreement. The Manager shall cooperate with the Company in transferring all
data gathered and maintained hereunder to the Company or the Manager's successor
as reasonably requested by the Company.
6. Indemnification.
(a) The Company shall defend, hold harmless and indemnify the
Manager, its officers, directors, employees, shareholders and agents, and each
of their successors, assigns, heirs and legal representatives (collectively,
"Indemnitees") from any and all losses, liabilities, proceedings, claims,
settlements, judgments, fines, assessments, damages and expenses (including
reasonable attorneys' fees and investigation and litigation expenses, whether
arising out of a third party claim or relating to recovering indemnifiable
damages) hereunder (collectively, the "indemnifiable damages") that the Manager
may suffer or incur in whole or in part by reason of, or which may arise out of,
the performance of the Manager's duties hereunder, provided, however, that the
Company shall not be responsible for indemnifying or holding harmless any
Indemnitee from any indemnifiable damage to the extent same is caused by (i) the
negligence or wilful misconduct of an Indemnitee or (ii) the Indemnitee's breach
of the terms and provisions of this Agreement.
(b) Promptly upon receipt of notice of any third party claim,
demand or assessment or the commencement of any suit, action or proceeding in
respect of which indemnity may be sought on account of an indemnity agreement
contained in this Section 6, the Indemnitee shall notify in writing, within
sufficient time to respond to such claim or answer or otherwise plead in such
action, the Company; provided, however, that failure or delay to supply such
notice shall not relieve the Company of its indemnification obligation hereunder
except to the extent that the Company is actually prejudiced by such failure or
delay.
(c) In case any claim, demand or assessment is asserted or
suit, action or proceeding commenced against an Indemnitee (collectively a
"Claim") and it notifies the Company of the commencement thereof, if the Company
acknowledges its indemnification obligations therefor hereunder, then, the
Company shall be entitled to participate therein, and, to the extent that it may
wish, to assume the defense, conduct or settlement thereof, with counsel
satisfactory to the Indemnitee, whose consent to the selection of counsel shall
not unreasonably be withheld; provided, however, that if the Indemnitee has any
separate defense from those of the Company that counsel to the Indemnitee opines
in writing is in conflict with a defense of the Company, then the Indemnitee
shall have the right to be represented by its own counsel at the Company's
expense. The Indemnitee shall have the right in any event to participate in any
such defense with its own counsel at its own expense. The Indemnitee shall
cooperate with the Company in connection with any such Claim and make personnel,
books and records relevant to the Claim available to the Company at Company's
expense. In the event that the Company fails timely to defend, contest or
otherwise protect against any such Claim, the Indemnitee shall have the right to
defend, contest or otherwise protect against the same and may make any
compromise or settlement thereof and recover the entire cost thereof from the
Company, including, without limitation, reasonable attorneys' fees,
disbursements and all amounts paid as a result of such Claim or compromise or
settlement thereof.
(d) Anything in this Agreement to the contrary
notwithstanding, neither party shall settle any such Claim, without the consent
of the other party, not to be unreasonably withheld
7. Non-Disclosure of Confidential
Information and Non-Competition; Representations.
(a) The Manager acknowledges that it has been informed that it
is the policy of the Company to maintain as secret and confidential all
information (i) relating to the products, processes, designs and/or systems used
by the Company and (ii) relating to the customers and employees, consultants,
independent contractors and suppliers of the Company and all other business
information relating to the Company, in the case of each of Clauses 7(a)(i),
(ii) and (iii) above to the extent not available to persons other than the
Manager, the Company, their agents and their affiliates (all such information
hereafter referred to as "Confidential Information"). The parties hereto confirm
that it is reasonably necessary to protect the Company's goodwill that the
Manager agree, and accordingly the Manager does agree, that it will not directly
or indirectly (except where authorized by the Board of Directors of the Company
for the benefit of the Company), for or on behalf of itself or any Person
(hereinafter defined), at any time during his engagement by the Company or after
it ceases to be engaged by the Company for any reason, divulge to any Person
other than the Company (hereinafter referred to collectively as a "third
party"), or use or cause to authorize any third parties to use, any such
Confidential Information, or any other information regarded as confidential and
valuable by the Company that it knows or should know is regarded as confidential
and valuable by the Company (whether or not any of the foregoing information is
actually novel or unique or is actually known to others and whether or not
marked "confidential"). As used herein, the term "Person" means any person,
corporation, partnership or other entity.
(b) The Manager shall, upon the expiration or termination of
this Agreement for any reason, forthwith deliver up to the Company any and all
drawings, notebooks, phone books, address books, customer or supplier lists, and
other documents and materials, or copies thereof, on any media and in any form,
including, without limitation, on magnetic discs, compact discs or other
computer-readable formats, in its possession or under its control that contain
or otherwise embody any Confidential Information or any other information or
data gathered and maintained by the Manager about the Company in connection with
the services provided hereunder.
(c) The Manager hereby represents and warrants that its
information management systems to be used in performing services hereunder are
year 2000 compliant and will function properly and efficiently in the transition
from the year 1999 to the year 2000 and in the year 2000.
8. Entire Agreement. This Agreement and the Contribution Agreement
contain the entire understanding of the parties with respect to the subject
matter hereof and thereof and supersede any prior agreement between the parties.
No change, termination or attempted waiver of any of the provisions hereof shall
be binding unless in writing and signed by the party against whom the same is
sought to be enforced.
9. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the respective heirs, legal representatives,
successors and assigns of the parties hereto, except that the Manager may not
assign his duties hereunder.
10. Governing Law. All matters concerning the validity and
interpretation of and performance under this Agreement shall be governed by the
laws of the State of New York.
11. Arbitration. Any controversy or claim arising out of or related to
this Agreement or any breach hereof hall be settled by arbitration in New York,
NY in accordance with the rules of the American Arbitration Association, and
judgment upon such award rendered by the Arbitrator may be entered in any court
having jurisdiction thereof.
12. Designations and Notices. Any notices or other communications
hereunder, except as may otherwise be provided in this Agreement, shall be in
writing and shall be deemed given and delivered when delivered personally, or
when signed for or not accepted if mailed by certified mail, return receipt
requested, or the next business day if sent by nationally recognized courier
service providing for a return receipt, in each case, postage prepaid, addressed
to the address on the first page hereof or to such other address as either party
shall designate by notice to the other, effective ten (10) days after such
notice and, with a copy to Akabas & Cohen, 488 Madison Avenue, New York, NY
10022, Attn: Seth A. Akabas, Esq.
13. Severability. The invalidity or unenforceability of any particular
provision of this Agreement in any jurisdiction shall not affect the other
provisions hereof or such provision in other jurisdictions, and this Agreement
shall be construed in such jurisdiction in all respects as if such invalid or
unenforceable provisions were omitted. Furthermore, in lieu of such illegal,
invalid, or unenforceable provision in such jurisdiction there shall be added
automatically as a part of this Agreement a provision as similar in terms to
such illegal, invalid, or unenforceable provisions as may be possible and be
legal, valid and enforceable.
14. Further Assurances. Each party shall execute such other documents
and instruments as shall be requested by the other party in order fully to
accomplish the purposes of this Agreement.
IN WITNESS WHEREOF, the Manager and the Company has each caused this
Agreement to be executed by its duly authorized officer as of the date first
above written.
FLENTS PRODUCTS CO., INC. PROTECTIVE TECHNOLOGIES
INTERNATIONAL INC.
By: /s/ Meredith Birrittella By: /s/ Meredith Birrittella
Name: Meredith Birrittella Name: Meredith Birrittella
Title: CEO Title: CEO
<PAGE>
EXHIBIT 8
SHAREHOLDERS' AGREEMENT
SHAREHOLDERS' AGREEMENT, dated as of April 14, 1999 (this
"Agreement"), among PTI Holding Inc., a Delaware corporation (the "Parent"),
Flents Products Co., Inc., a Delaware corporation (the "Company"), The 1818
Mezzanine Fund, L.P., a Delaware limited partnership (the "Purchaser"), Meredith
Birrittella ("Birrittella") and Warren Schaeffer ("Schaeffer").
WHEREAS, pursuant to a Securities Purchase Agreement, dated as
of April 14, 1999, by and among the Company and the Purchaser (the "Securities
Purchase Agreement"), the Company has agreed to issue and sell to the Purchaser
for an aggregate purchase price of $8,000,000 (i) a Senior Subordinated
Promissory Note with a final maturity of April 14, 2005 in the aggregate
principal amount of $8,000,000 and (ii) detachable warrants (the "Warrants")
exercisable at any time to purchase 22 shares of common stock, par value $.01
per share, of the Company (subject to adjustment), which is equal to 22% of the
outstanding Common Stock of the Company on a fully diluted basis, at an exercise
price of $.01 per share; and
WHEREAS, the parties hereto wish to restrict the transfer of
the Shares (as hereinafter defined) and to provide, for among other things, tag
along and preemptive rights, corporate governance rights and obligations, voting
rights and obligations, and other rights and obligations under certain
conditions with respect to the Company and the Parent.
NOW, THEREFORE, in consideration of the mutual promises and
agreements set forth herein, the adequacy of which are hereby acknowledged, the
parties hereto agree as follows:
I. Definitions. As used in this Agreement, the following terms shall have the
meanings set forth below:
"Affiliate" shall have the meaning ascribed to such term in
Rule 12b-2 of the General Rules and Regulations under the Exchange Act.
"Birrittella" has the meaning set forth in the recitals to
this Agreement.
"Business Day" means any day other than a Saturday, Sunday or
other legal holiday on which commercial banks in the City of New York, New York
are authorized or required by law or executive order to close.
"Common Stock Equivalent" means any security or obligation
which is by its terms convertible into shares of Company Common Stock and
including, without limitation, any option, warrant or other subscription or
purchase right with respect to the Company Common Stock.
"Company" has the meaning set forth in the recitals to this
Agreement.
"Company Common Stock" means the Common Stock, par value $.01
per share, of the Company or any other capital stock of the Company into which
such stock is reclassified or reconstituted and any other common stock of the
Company.
"Company Shareholders" means the Major Company Shareholders
and the Purchaser and any transferee thereof who has agreed to be bound by the
terms and conditions of this Agreement.
"Company Shareholders Meeting" has the meaning set forth in
Section 6.1.
"Company Shares" means, with respect to each Company
Shareholder, all shares, whether now owned or hereafter acquired, of Company
Common Stock.
"Company Written Consent" has the meaning set forth in Section
6.1.
"Current Market Price" per share shall mean, on any date
specified herein for the determination thereof, the average daily Market Price
of the Company Common Stock for those days during the period of 30 days, ending
on such date, on which the national securities exchanges were open for trading.
"Excess New Securities" has the meaning set forth in Section
4.2 of this Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Initial Public Offering" means the initial public offering of
shares of Company Common Stock pursuant to a registration statement declared
effective under the Securities Act.
"Major Company Shareholders" means the Parent, Birrittella,
Schaeffer and any permitted transferee of any of them to which Company Shares
are transferred in accordance with Section 2.2.
"Major Parent Shareholders" means Birrittella and any
permitted transferee of him to which Parent Shares are transferred in accordance
with Section 2.2.
"Major Shareholders" means, collectively, the Major Company
Shareholders and the Major Parent Shareholders.
"Manager Purchasers" means, collectively, Birrittella and
Schaeffer.
"Market Price" shall mean, per share of Company Common Stock,
on any date specified herein for the determination thereof: (a) if the Company
Common Stock is not then listed or admitted to trading on any national
securities exchange but is designated as a national market system security, the
last trading price of the Company Common Stock on such date; or (b) if there
shall have been no trading on such date or if the Company Common Stock is not so
designated, the average of the reported closing bid and asked price of the
Company Common Stock, on such date as shown by NASDAQ and reported by any member
firm of the NYSE selected by the Company.
"NASDAQ" means the National Market System of Nasdaq Stock
Market.
"New Issuance Notice" has the meaning set forth in Section 4.1
of this Agreement.
"New Securities" has the meaning set forth in Section 4.1 of
this Agreement.
"NYSE" means the New York Stock Exchange, Inc.
"Offered Securities" has the meaning set forth in Section 3.2
of this Agreement.
"Parent Common Stock" means the Common Stock, par value $.01
per share, of the Parent or any other capital stock of the Parent into which
such stock is reclassified or reconstituted and any other common stock of the
Parent.
"Parent Shareholders" means the Major Parent Shareholders and
any transferee thereof who has agreed to be bound by the terms and conditions of
this Agreement.
"Parent Shareholders Meeting" shall mean any regular or
special meeting of the shareholders of the Parent.
"Parent Shares" means, with respect to each Parent
Shareholder, all shares, whether now owned or hereafter acquired, of Parent
Common Stock.
"Parent Written Consent" shall mean any written consent
executed in lieu of a Parent Shareholders Meeting.
"Person" means any individual, corporation, partnership,
limited liability company, firm, joint venture, association, joint stock
company, trust, unincorporated organization, governmental authority or other
entity.
"Pledged Shares" has the meaning set forth in Section 2.1 of
this Agreement.
"Preemptive Rightholder" has the meaning set forth in Section
4.2 of this Agreement.
"Proportionate Percentage" has the meaning set forth in
Section 4.2 of this Agreement.
"Proposed Price" shall have the meaning set forth in Section
4.1 of this Agreement.
"Public Market Capitalization" means, as of any date of
determination, the product of (x) the Current Market Price on such date and (y)
the number of issued and outstanding shares of Company Common Stock as of such
date.
"Purchaser Company Director" has the meaning set forth in
Section 6.1.
"Qualified Public Market" means, as of any date of
determination, (i) at least 25% of the issued and outstanding shares of Company
Common Stock as of such date have been sold pursuant to an underwritten public
offering by means of a registration statement declared effective under the
Securities Act and have not been repurchased by the Company, and (ii) as of such
date, the Public Market Capitalization with respect to such Company Common Stock
is at least $25,000,000.
"Qualified Spin-Off" has the meaning set forth in the
Securities Purchase Agreement.
"Schaeffer" has the meaning set forth in the recitals to this
Agreement.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Selling Stockholder" has the meaning set forth in Section 3.1
of this Agreement.
"Shareholder" means, collectively, the Company Shareholders
and the Parent Shareholders.
"Shares" means, collectively, the Company Shares and the
Parent Shares.
"Third Party Purchaser" has the meaning set forth in Section
3.1 of this Agreement.
"transfer" has the meaning set forth in Section 2.1 of this
Agreement.
I. Restrictions on Transfer of Shares.
A. Limitation on Transfer. Except for the pledge by the Parent of the Company
Shares held by the Parent (the "Pledged Shares") in connection with the
transactions contemplated by the Credit Agreement (as defined in the Securities
Purchase Agreement), no Shareholder shall sell, give, assign, hypothecate,
pledge, encumber, grant a security interest in or otherwise dispose of (whether
by operation of law or otherwise) (each a "transfer") any Shares or any right,
title or interest therein or thereto, except in accordance with the provisions
of this Agreement and in the event of such transfer, any transferee obtaining
any record or beneficial interest or right to vote such Shares hereunder shall
agree to be bound by this Agreement and shall comply with Section 2.2. Any
attempt to transfer any Shares or any rights thereunder in violation of the
preceding sentence shall be null and void ab initio and the Parent or the
Company, as the case may be, shall not register any such transfer.
A. Transfers in Compliance with Law; Substitution of Transferee.
1. No transfer (including, without limitation, a transfer of the Pledged Shares
to the pledgee thereof) may be made of any Shares unless (a) the transferee has
agreed in writing to be bound by the terms and conditions of this Agreement and
(b) the transfer complies in all respects with applicable federal and state
securities laws, including, without limitation, the Securities Act; provided,
that the restriction on transfer set forth in subsection (a) shall not apply to
a transferee of the Parent who receives Company Shares pursuant to a
registration statement declared effective under the Securities Act or pursuant
to a spin-off of the Company Common Stock to the holders of the Parent Common
Stock in compliance with the Securities Act. Upon becoming a party to this
Agreement, the transferee of a Major Shareholder shall be substituted for and be
subject to the same obligations as, the transferring Major Shareholder hereunder
with respect to the Shares transferred to such permitted transferee.
1. Notwithstanding any other provision of this Agreement, (i) from and after the
consummation of an Initial Public Offering, for transfers of shares of Company
Common Stock by any Major Company Shareholder in any 360 day period that in the
aggregate are not greater than 10% of the number of shares of Company Common
Stock held by such Major Company Shareholder on the date hereof, a transferee of
such Major Company Shareholder of such shares shall not be required to be bound
by the terms and conditions of this Agreement and (ii) at any time, Birrittella
may transfer shares of Parent Common Stock to one or more Persons who would not
be required to be bound by the terms and conditions of this Agreement to the
extent that upon the consummation of such sale or sales Birrittella shall hold
no less than 500,000 shares of Parent Common Stock; provided, that if (i) a
Change of Control (as defined in the Securities Purchase Agreement without
giving effect to the last proviso of such definition) with respect to the Parent
has occurred and (ii) Birrittella ceases to be an officer or a director of the
Parent, the restrictions on transfer set forth in this Section 2 shall no longer
apply to shares of Parent Common Stock held by Birrittella.
I. Tag Along Rights.
A. Company Shareholder Rights. Subject to Section 2 and Section 3.4, except for
the transfer of the Pledged Shares to the pledgee thereof, if any Major Company
Shareholder (a "Selling Stockholder") wishes to transfer all or any portion of
its or his Company Shares to any Person (a "Third Party Purchaser"), the
Purchaser and, if the Parent is the Selling Stockholder, Birrittella and
Schaeffer (in each case, other than the Selling Stockholder) (each, as
applicable, a "Tag-Along Rightholder") shall each have the right to sell to such
Third Party Purchaser, upon the terms set forth in the Offering Notice (as
defined below), that number of shares held by such Tag-Along Rightholder equal
to that percentage of the Offered Securities (as defined below) determined by
dividing (i) the total number of Company Shares then owned by such Tag-Along
Rightholder by (ii) the total number of Company Shares then owned by the Selling
Stockholder plus the total number of Company Shares then owned by all Tag-Along
Rightholders exercising their rights as provided in this Section 3.1. The
Selling Stockholder and the Tag-Along Rightholder(s) shall effect the sale of
the Offered Securities and the Tag-Along Rightholder(s) shall sell the number of
Offered Securities required to be sold pursuant to this Section 3.1, and the
number of Offered Securities to be sold to such Third Party Purchaser by the
Selling Stockholder shall be reduced accordingly. This Section 3 shall not apply
to public market transactions.
A. Offering Notice. At least fifteen (15) days prior to the proposed
consummation of a sale by a Selling Stockholder which gives rise to the rights
of the Tag-Along Rightholders as set forth in Section 3.1 of this Agreement,
each Selling Stockholder shall give notice (an "Offering Notice") to each
Tag-Along Rightholder of each proposed sale by it which shall state (a) the name
of such Selling Stockholder, (b) the number of Company Shares proposed to be
transferred (the "Offered Securities"), (c) the name and address of the proposed
Third Party Purchaser, (d) the proposed amount and form of consideration and
terms and conditions of payment offered by such Third Party Purchaser, (e) the
percent of Company Shares that each such Tag-Along Rightholder may sell to such
Third Party Purchaser (determined in accordance with Section 3.1), and (f) a
representation that such Third Party Purchaser has been informed of the
"tag-along" rights provided for in this Section 3.1 and has agreed to purchase
the Company Shares in accordance with the terms hereof.
A. Tag Along Rights; Exercise. In order to exercise its right to sell the
Company Shares to a Third Party Purchaser pursuant to this Article 3, a
Tag-Along Rightholder must agree to make substantially the same representations
and warranties with respect to the ownership of the securities to be sold by it
as a Selling Stockholder agrees to make in connection with the proposed sale by
it of Offered Securities to a Third Party Purchaser. The "tag-along" rights
provided by this Article 3 must be exercised by the each Tag-Along Rightholder
within seven (7) days following receipt of the notice required by Section 3.2,
by delivery of a written notice to such Selling Stockholder indicating such
Tag-Along Rightholder's wish to exercise its rights and specifying the number of
Company Shares (up to the maximum number of Company Shares owned by such
Tag-Along Rightholder that such Tag-Along Rightholder has "tag-along" rights to
sell to such Third Party Purchaser) it wishes to sell, provided that a Tag-Along
Rightholder may waive its rights under this Article 3 prior to the expiration of
such 7-day period by giving written notice to the Selling Stockholder, with a
copy to the Company. The failure of a Tag-Along Rightholder to respond within
such 7-day period shall be deemed to be a waiver of such Tag-Along Rightholder's
rights under this Article 3. If such Third Party Purchaser fails to purchase
Company Shares from the Tag-Along Rightholders that have properly exercised
their rights hereunder, then such Selling Stockholder shall not be permitted to
consummate the proposed sale of the Offered Securities, and any such attempted
sale shall be null and void and the Company shall not register any such
transfer.
A. Transfers to Family Members. Notwithstanding anything to the contrary
contained in this Agreement, but subject to Section 2, at any time, each of the
Major Company Shareholders (other than the Parent) may transfer all or a portion
of his Company Shares to or among (i) the other Major Company Shareholders
(other than the Parent); (ii) a member of the Major Company Shareholder's
immediate family, which shall include his spouse, siblings, children,
grandchildren, nieces or nephews ("Family Members") or (iii) a trust,
corporation, partnership or limited liability company, all of the beneficial
interests in which shall be held by the Major Company Shareholder or one or more
Family Members of the Major Company Shareholder (or of the owner of all of the
equity interests of the Major Company Shareholder) or which would otherwise be
an Affiliate of the Major Company Shareholder; provided, however, that during
the period that any trust, corporation, partnership or limited liability company
holds any right, title or interest in any Company Shares, no Person other than
the Major Company Shareholder or one or more Family Members of the Major Company
Shareholder may be or become beneficiaries, stockholders, limited or general
partners or members of any of them.
I. Future Issuance of Shares; Preemptive Rights.
A. New Issuance Notice. Except for (a) capital stock of the Company which may be
issued to employees, consultants or directors of the Company who are not
affiliated with any holder of greater than 5% of the issued and outstanding
shares of Company Common Stock pursuant to a stock option plan or other employee
benefit arrangement approved by the Board of Directors of the Company, (b) a
subdivision of the outstanding shares of Company Common Stock into a larger
number of shares of Company Common Stock, (c) capital stock issued upon
exercise, conversion or exchange of any Common Stock Equivalent or (d) capital
stock of the Company issued in consideration of the acquisition, approved by the
Board of Directors of the Company, by the Company or any of its Subsidiaries of
another Person who is not affiliated with any holder of greater than 5% of the
issued and outstanding shares of Company Common Stock, if the Company wishes to
issue any shares of capital stock or any other securities convertible into or
exchangeable for capital stock of the Company (collectively, "New Securities")
to any Person (the "Subject Purchaser"), then the Company shall offer a
percentage of such New Securities as set forth in this Section 4 to the Company
Shareholders by sending written notice (the "New Issuance Notice") to the
Company Shareholders, which New Issuance Notice shall state (a) the number of
New Securities proposed to be issued and (b) the proposed purchase price per
share of the New Securities that the Company is willing to accept (the "Proposed
Price"). Upon delivery of the New Issuance Notice, such offer shall be
irrevocable unless and until the rights provided for in Section 4.2 shall have
been waived or shall have expired or an amended or revised New Issuance Notice
shall have been delivered. This Section 4 shall not apply to public market
transactions.
A. Preemptive Rights; Exercise. For a period of fifteen (15) days after the
giving of the New Issuance Notice pursuant to Section 4.1, each of the Company
Shareholders (each, a "Preemptive Rightholder") shall have the right to purchase
its Proportionate Percentage (as hereinafter defined) of the New Securities that
are to be sold at a purchase price equal to the Proposed Price and upon the
terms and conditions set forth in the New Issuance Notice. Each such Preemptive
Rightholder shall have the right to purchase that percentage of the New
Securities determined by dividing (a) the total number of shares of Company
Shares then owned by such Preemptive Rightholder exercising its rights under
this Section 4.2 by (b) the total number of Company Shares then owned by all of
the Preemptive Rightholders exercising their rights under this Section 4.2 (the
"Proportionate Percentage"). If any Preemptive Rightholder does not fully
subscribe for the number or amount of New Securities that it or he is entitled
to purchase pursuant to the preceding sentence, then each of the Company
Shareholders who elected to purchase New Securities shall have the right to
purchase that percentage of the remaining New Securities not so subscribed for
(for the purposes of this Section 4.2, the "Excess New Securities") determined
by dividing (x) the total number of Company Shares then owned by such fully
participating Preemptive Rightholder by (y) the total number of Company Shares
then owned by all fully participating Preemptive Rightholders who elected to
purchase Excess New Securities. The right of each Preemptive Rightholder to
purchase the New Securities shall be exercisable by delivering written notice of
the exercise thereof, prior to the expiration of the 15-day period, to the
Company, which notice shall state the amount of New Securities that such
Preemptive Rightholder elects to purchase. The failure of a Preemptive
Rightholder to respond within such 15-day period shall be deemed to be a waiver
of such Preemptive Rightholder's rights under Section 4.2, provided that each
Preemptive Rightholder may waive its rights under Section 4.2 prior to the
expiration of such 15-day period by giving written notice to the Company.
A. Closing. The closing of the purchase of New Securities subscribed for by the
Preemptive Rightholders under Section 4.2, shall be held at the executive office
of the Company at 11:00 a.m., local time, on (a) the 45th day after the giving
of the New Issuance Notice pursuant to Section 4.1, if any Preemptive
Rightholder elects to purchase any of the New Securities under Section 4.2 or
(b) at such other time and place as the parties to the transaction may agree. At
such closing, the Company shall deliver certificates representing the New
Securities, and such New Securities shall be issued on the same terms as set
forth in the New Issuance Notice, free and clear of all Liens and the Company
shall so represent and warrant, and further represent and warrant that such New
Securities shall be, upon issuance thereof to the Preemptive Rightholders and
after payment therefor, duly authorized, validly issued, fully paid and
nonassessable. The Preemptive Rightholders purchasing the New Securities shall
deliver at the closing payment in full in immediately available funds for the
New Securities purchased by him or it. At such closing, all of the parties to
the transaction shall execute such additional documents as are otherwise
necessary or appropriate.
A. Sale to Subject Purchaser. Unless all of the New Securities are purchased
pursuant to Section 4.2, the Company may sell to the Subject Purchaser all of
the New Securities not purchased by the Preemptive Rightholders pursuant to
Section 4.2 on terms and conditions that are no more favorable to the Subject
Purchaser than those set forth in the New Issuance Notice; provided, however,
that such sale is bona fide and made pursuant to a contract entered into and
closed within three (3) months of the earlier to occur of (i) the waiver by the
Preemptive Rightholders of their option to purchase all of the New Securities
pursuant to Section 4.2 and (ii) the expiration of the 15-day period referred to
in Section 4.2. If such sale is not consummated within such three (3) month
period for any reason, then the restrictions provided for herein shall again
become effective, and no issuance and sale of New Securities may be made
thereafter by the Company without again offering the same in accordance with
this Article 4. The closing of any issue and purchase pursuant to this Section
4.4 shall be held at the time and place as the parties to the transaction may
agree.
I. After-Acquired Securities; Agreement to be Bound.
A. After-Acquired Securities. All of the provisions of this Agreement shall
apply to all of the Shares and Common Stock Equivalents now owned or which may
be issued or transferred hereafter to a Shareholder in consequence of any
additional issuance, purchase, exchange or reclassification of any of such
Shares or Common Stock Equivalents, corporate reorganization, or any other form
of recapitalization, consolidation, merger, share split or share dividend, or
which are acquired by a Shareholder in any other manner.
I. Corporate Governance of the Company.
A. Election of Directors; Number and Composition. Each Company Shareholder shall
vote its or his Company Shares at any regular or special meeting of the Company
(a "Company Shareholders Meeting"), or in any written consent executed in lieu
of such a meeting of shareholders of the Company (a "Company Written Consent")
with respect to such Company Shares, and take all other reasonable actions
necessary to ensure that the number of directors constituting the entire Board
of Directors of the Company shall be not greater than seven (7). Each Company
Shareholder shall vote its or his shares at any Company Shareholders Meeting
called for the purpose of filling the positions on the Board of Directors of the
Company or in any Company Written Consent executed for such purpose, and to take
all other reasonable actions necessary to ensure the election to the Board of
Directors of the Company of (i) two (2) individuals designated by the Purchaser
(each a "Purchaser Company Director" and together the "Purchaser Company
Directors"); (ii) one (1) individual designated by Birrittella; and (iii) one
(1) individual designated by Schaeffer (the directors designated pursuant to
clauses (ii) and (iii) being referred to individually as a "Manager Company
Director" and, together, as the "Manager Company Directors"). Each Purchaser
Company Director shall have the right to serve in any committee formed by the
Board of Directors of the Company.
A. Removal and Replacement of Purchaser Company Directors.
1. Removal of Purchaser Company Director. If, at any time, the Purchaser
notifies the Company Shareholders of its wish to remove at any time and for any
reason (or no reason) any Purchaser Company Director, then each Company
Shareholder shall vote all of its or his Company Shares so as to remove such
Purchaser Company Director.
1. Replacement of Directors.
(A) If at any time, a vacancy is created on the Board of Directors of the
Company by reason of the incapacity, death, removal or resignation of any
Purchaser Company Director, then the Purchaser shall designate an individual who
shall be elected to fill such vacancy until the next Company Shareholders
Meeting.
(A) Upon receipt of notice of the designation of a nominee, each Company
Shareholder shall, as soon as practicable after the date of such notice, take
action, including the voting of its or his Company Shares, to elect the director
designated by the Purchaser to fill such vacancy.
1. Reimbursement of Expenses. Notwithstanding anything to the contrary contained
in this Agreement, the Company shall reimburse the Purchaser for all reasonable
travel and accommodation expenses incurred by any Purchaser Company Director in
connection with the performance of his or her duties as a director of the
Company.
1. Company Actions. The Company shall cause any Purchaser Company Director
(unless, after customary investigation of such person's qualifications, the
Board of Directors of the Company reasonably determines in good faith that such
person is not qualified or acceptable under standards applied fairly and equally
to all nominees) to be included in the slate of nominees recommended by the
Board to the Company's shareholders for election as directors, and the Company
shall use its best efforts to cause the election of such nominee, including
voting all shares for which the Company holds proxies (unless otherwise directed
by the shareholder submitting such proxy) or is otherwise entitled to vote, in
favor of the election of such person. If, at any time, a vacancy is created on
the Board of Directors of the Company by reason of the incapacity, death,
removal or resignation of any Purchaser Company Director, the Company shall take
all action necessary to cause the election of the individual designated by the
Purchaser to fill such vacancy.
A. Removal and Replacement of Manager Company Directors.
1. Removal of Manager Company Directors. If, at any time, any Manager Purchaser
notifies the Company Shareholders of his wish to remove at any time and for any
reason (or no reason) the Manager Company Director appointed by such Manager
Purchaser, then each Company Shareholder shall vote all of its or his Company
Shares so as to remove such Manager Company Director.
1. Replacement of Directors.
(A) If at any time, a vacancy is created on the Board of Directors of the
Company by reason of the incapacity, death, removal or resignation of any
Manager Company Director, then the Manager Purchaser who appointed such Manager
Company Director shall designate an individual who shall be elected to fill such
vacancy until the next Company Shareholders Meeting.
(A) Upon receipt of notice of the designation of a nominee, each Company
Shareholder shall, as soon as practicable after the date of such notice, take
action, including the voting of its or his Company Shares, to elect the director
designated by such Manager Company Director to fill such vacancy.
1. Reimbursement of Expenses. Notwithstanding anything to the contrary contained
in this Agreement, the Company shall reimburse the Manager Company Directors for
all reasonable travel and accommodation expenses incurred by them in connection
with the performance of his duties as a director of the Company, but only to the
extent that such expenses are not otherwise reimbursed by the Company.
1. Company Actions. The Company shall cause any Manager Company Director
(unless, after customary investigation of such person's qualifications, the
Board of Directors of the Company reasonably determines in good faith that such
person is not qualified or acceptable under standards applied fairly and equally
to all nominees) to be included in the slate of nominees recommended by the
Board to the Company's shareholders for election as directors, and the Company
shall use its best efforts to cause the election of such nominee, including
voting all shares for which the Company holds proxies (unless otherwise directed
by the shareholder submitting such proxy) or is otherwise entitled to vote, in
favor of the election of such person. If, at any time, a vacancy is created on
the Board of Directors of the Company by reason of the incapacity, death,
removal or resignation of any Manager Company Director, the Company shall take
all action necessary to cause the election of the individual designated by the
Manager Purchaser who designated such Manager Company Director to fill such
vacancy.
A. Amendments to Certificate of Incorporation. Each Company Shareholder hereby
covenants and agrees that it will not vote to amend the Certificate of
Incorporation of the Company to cause there to be more or less than seven (7)
members of the Board of Directors.
I. Parent Merger with the Company. Each Shareholder (other than the pledgee of
the Pledged Shares in the event it has exercised its rights as pledgee thereof)
hereby covenants and agrees to vote its respective Shares at any Parent
Shareholders Meeting or Company Shareholders Meeting, as the case may be, or in
any Parent Written Consent or Company Written Consent, as the case may be, in
each case held or taken to approve of any action required to be performed by the
Parent or the Company, as the case may be, to give effect to the provisions of
Section 9.20 of the Securities Purchase Agreement.
I. Observer Rights. For so long as (i) the number of shares of Company Common
Stock held by the Purchaser (assuming the conversion of the Warrants held by the
Purchaser) represents at least 25% of the number of shares of Company Common
Stock originally purchased by the Purchaser pursuant to the Securities Purchase
Agreement (assuming the conversion of the Warrants held by the Purchaser), and
(ii) the Parent shall hold at least 20% of the issued and outstanding shares of
Company Common Stock, the Purchaser shall have the right at any time to
designate one individual to serve as an observer at all meetings of the Board of
Directors of the Parent (or at any meeting of any committee thereof).
I. Stock Certificate Legend. A copy of this Agreement shall be filed with the
respective Secretaries of the Parent and the Company and kept with the records
of each of the Parent and the Company.
(1) A certificate representing Parent Shares now held or hereafter acquired by
any Parent Shareholder shall for as long as this Agreement is effective bear
legends substantially in the following form:
THE SALE, ASSIGNMENT, HYPOTHECATION, PLEDGE, ENCUMBRANCE OR OTHER
DISPOSITION (EACH A "TRANSFER") AND VOTING OF ANY OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE RESTRICTED BY THE TERMS OF THE
SHAREHOLDERS' AGREEMENT, DATED APRIL 14, 1999, AMONG PTI HOLDING INC.
(THE "PARENT"), FLENTS PRODUCTS CO., INC., THE 1818 MEZZANINE FUND,
L.P. AND THE SHAREHOLDERS NAMED THEREIN. THE PARENT WILL NOT REGISTER
THE TRANSFER OF SUCH SECURITIES ON THE BOOKS OF THE PARENT UNLESS AND
UNTIL THE TRANSFER HAS BEEN MADE IN COMPLIANCE WITH THE TERMS OF THE
SHAREHOLDERS' AGREEMENT. THE PARENT WILL MAIL A COPY OF SUCH AGREEMENT,
TOGETHER WITH A COPY OF THE EXPRESS TERMS OF THE SECURITIES AND THE
OTHER CLASS OR CLASSES AND SERIES OF SHARES, IF ANY, WHICH THE PARENT
IS AUTHORIZED TO ISSUE, TO THE RECORD HOLDER OF THIS CERTIFICATE,
WITHOUT CHARGE, WITHIN FIVE DAYS AFTER RECEIPT OF A WRITTEN REQUEST
THEREFOR.
(1) A certificate representing Company Shares now held or hereafter acquired by
any Company Shareholder shall for as long as this Agreement is effective bear
legends substantially in the following form:
THE SALE, ASSIGNMENT, HYPOTHECATION, PLEDGE, ENCUMBRANCE OR OTHER
DISPOSITION (EACH A "TRANSFER") AND VOTING OF ANY OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE RESTRICTED BY THE TERMS OF THE
SHAREHOLDERS' AGREEMENT, DATED APRIL 14, 1999, AMONG PTI HOLDING INC.,
FLENTS PRODUCTS CO., INC. (THE "COMPANY") , THE 1818 MEZZANINE FUND,
L.P. AND THE SHAREHOLDERS NAMED THEREIN. THE COMPANY WILL NOT REGISTER
THE TRANSFER OF SUCH SECURITIES ON THE BOOKS OF THE COMPANY UNLESS AND
UNTIL THE TRANSFER HAS BEEN MADE IN COMPLIANCE WITH THE TERMS OF THE
SHAREHOLDERS' AGREEMENT. THE COMPANY WILL MAIL A COPY OF SUCH
AGREEMENT, TOGETHER WITH A COPY OF THE EXPRESS TERMS OF THE SECURITIES
AND THE OTHER CLASS OR CLASSES AND SERIES OF SHARES, IF ANY, WHICH THE
COMPANY IS AUTHORIZED TO ISSUE, TO THE RECORD HOLDER OF THIS
CERTIFICATE, WITHOUT CHARGE, WITHIN FIVE DAYS AFTER RECEIPT OF A
WRITTEN REQUEST THEREFOR.
I. Miscellaneous.
A. Notices. All notices, demands and other communications provided for or
permitted hereunder shall be made in writing and shall be by registered or
certified first-class mail, return receipt requested, telecopier, courier
services or personal delivery to the following addresses, or to such other
addresses as shall be designated from time to time by a party in accordance with
this Section 9.1:
(a) if to the Purchaser:
The 1818 Mezzanine Fund, L.P.
c/o Brown Brothers Harriman & Co.
59 Wall Street
New York, New York 10005
Attention: Robert R. Gould
Telecopier No.: (212) 493-8429
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Marilyn Sobel, Esq.
Telecopier No.: (212) 757-3990
(a) if to the Company:
Flents Products Co., Inc.
1 Executive Boulevard
Yonkers, New York 10701
Attention: Chief Financial Officer
Telecopier No.: (914) 423-9610
with a copy to:
Akabas & Cohen
488 Madison Avenue
11th Floor
New York, New York 10022
Attention: Michael H. Sproule, Esq.
Telecopier No.: (212) 308-8582
(a) if to the Parent:
PTI Holding Inc.
1 Executive Boulevard
Yonkers, New York 10701
Attention: Chief Financial Officer
Telecopier No.: (914) 423-9610
with a copy to:
Akabas & Cohen
488 Madison Avenue
11th Floor
New York, New York 10022
Attention: Michael H. Sproule, Esq.
Telecopier No.: (212) 308-8582
(a) If to the Parent Shareholders or to the Company Shareholders, at the address
of such Parent Shareholder or Company Shareholder on the books and records of
the Company or the Parent, as the case may be.
All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; the next
Business Day, if delivered by commercial overnight courier service; five
Business Days after being deposited in the mail, postage prepaid, if mailed; and
when receipt is acknowledged (or if not a Business Day, then the next Business
Day), if telecopied.
A. Amendment and Waiver.
(1) No failure or delay on the part of any party hereto, 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 preclude any
other or further exercise thereof or the exercise of any other right, power or
remedy.
(1) Any amendment, supplement or modification of or to any provision of this
Agreement, any waiver of any provision of this Agreement and any consent to any
departure by the Parent, Company, any Parent Shareholder or any Company
Shareholder from the terms of any provision of this Agreement, shall be
effective (i) only if it is made or given in writing and signed by the party
requesting such amendment or waiver and holders of at least 51% of the shares of
Company Common Stock issued or issuable upon the exercise of the Warrants, and
(ii) only in the specific instance and for the specific purpose for which made
or given.
A. Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of the parties and their respective successors, heirs, legatees and
legal representatives. This Agreement is not assignable except in connection
with a transfer of Parent Shares or Company Shares, as the case may be, in
accordance with this Agreement.
A. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which taken
together shall constitute one and the same instrument.
A. Specific Performance. The parties hereto intend that each of the parties have
the right to seek damages or specific performance in the event that any other
party hereto fails to perform such party's obligations hereunder. Therefore, if
any party shall institute any action or proceeding to enforce the provisions
hereof, any party against whom such action or proceeding is brought hereby
waives any claim or defense therein that the plaintiff party has an adequate
remedy at law.
A. Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
A. Governing Law. This Agreement has been negotiated, executed and delivered in
the State of New York and shall be governed by and construed in accordance with
the laws of the State of New York, without regard to principles of conflicts of
law.
A. Jurisdiction. Each party to this Agreement hereby irrevocably agrees that any
legal action or proceeding arising out of or relating to this Agreement or any
agreements or transactions contemplated hereby may be brought in the courts of
the State of New York located in New York City or of the United States of
America for the Southern District of New York and hereby expressly submits to
the personal jurisdiction and venue of such courts for the purposes thereof and
expressly waives any claim of improper venue and any claim that such courts are
an inconvenient forum. Each party hereby irrevocably consents to the service of
process of any of the aforementioned courts pursuant to a contractual provision
in any such suit, action or proceeding by the mailing of copies thereof by
registered or certified mail, postage prepaid, to the address set forth in
Section 10.1, such service to become effective 10 days after such mailing. TO
THE EXTENT NOT PROHIBITED BY APPLICABLE LAW WHICH CANNOT BE WAIVED, EACH PARTY
HEREBY WAIVES, AND COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF,
DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF
ANY ISSUE, CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION ARISING OUT OF OR BASED
UPON THIS AGREEMENT OR THE SUBJECT MATTER HEREOF OR ANY FUNDAMENTAL DOCUMENT, IN
EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING OR WHETHER IN CONTRACT OR
TORT OR OTHERWISE.
A. Severability. In the event that any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
A. Rules of Construction. Unless the context otherwise requires, "or"
is not exclusive, and references to sections or subsections refer to sections or
subsections of this Agreement.
A. Entire Agreement. This Agreement, together with the exhibits and schedules
hereto, is intended by the parties as a final expression of their agreement and
intended to be a complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject matter contained
herein and therein. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein or therein. This
Agreement, together with the exhibits hereto, supersede all prior agreements and
understandings between the parties with respect to such subject matter.
A. Term of Agreement. This Agreement shall become effective upon the execution
hereof and shall (i) with respect to Section 6, terminate at such time as the
number of shares of Company Common Stock held by the Purchaser (assuming the
conversion of the Warrants held by the Purchaser) represents less than 25% of
the number of shares of Company Common Stock originally purchased by the
Purchaser pursuant to the Securities Purchase Agreement (assuming the conversion
of such Warrants) and (ii) with respect to Sections 2, 4 and 5, terminate at
such time as there exists a Qualified Public Market; provided, that
notwithstanding anything to the contrary contained herein, the rights of
Birrittella set forth in this Agreement shall terminate at such time as the
number of shares of Company Common Stock held by him represents less than 25% of
the number of shares of Company Common Stock held by him on the date hereof and
the rights of Schaeffer set forth in this Agreement shall terminate at such time
as the number of shares of Company Common Stock held by him represents less than
25% of the number of shares of Company Common Stock held by him on the date
hereof. B. Further Assurances. Each of the parties shall, and shall cause their
respective Affiliates to, execute such instruments and take such action as may
be reasonably required or desirable to carry out the provisions hereof and the
transactions contemplated hereby.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered by their respective officers or partners
hereunto duly authorized as of the date first above written.
PTI HOLDING INC.
By:/s/ Meredith Birrittella
Name: Meredith Birrittella
Title: C.E.O.
FLENTS PRODUCTS CO., INC.
By:/s/ Meredith Birrittella
Name: Meredith Birrittella
Title: C.E.O.
THE 1818 MEZZANINE FUND, L.P.
By: Brown Brothers Harriman &
Co., General Partner
By:/s/ Robert R. Gould
Name: Robert R. Gould
Title: Partner
/s/ Meredith Birrittella
Meredith Birrittella
/s/ Warren Schaeffer
Warren Schaeffer
<PAGE>
EXHIBIT 9
April 13, 1999
CONFIDENTIAL
The Board of Directors
PTI Holding Inc.
One Executive Boulevard
Yonkers, New York 10701
Gentlemen:
We understand that Flents Products Co. ("Flents"), a wholly-owned subsidiary of
PTI Holding Inc. ("PTII") plans to acquire substantially all of the assets of
Karlen Manufacturing, Inc. ("Karlen") in a cash transaction (the "Transaction").
The Transaction calls for $16,750,000 in cash to be paid to Karlen and a
subordinated promissory note in the amount of $1,000,000 to be delivered to
Karlen by PTII and $750,000 to be incurred by Flents for Transaction expenses.
The Transaction is to be funded as follows: 1) a revolving line of credit
facility under which $2,500,000 will be taken down at the closing of the
Transaction; 2) term loan financing in the amount of $5,000,000; 3) subordinated
debt of $8,000,000 advanced by The 1818 Mezzanine Fund; 4) an $800,000 direct
equity investment made by Meredith W. Birrittella (Chairman and CEO of PTII); 5)
a $1,000,000 direct equity investment made by Warren Schaeffer (Secretary of
PTII); and 6) a $1,200,000 direct equity investment from PTII. The $1,800,000
combined equity investment in the Transaction by Messrs. Birrittella and
Schaeffer is referred to as the "Birrittella and Schaeffer Investment." Messrs.
Birrittella and Schaeffer will receive 8.0% and 10.0% of the equity of Flents,
respectively. You have asked Management Planning, Inc. ("MPI") to advise you as
to the fairness, from a financial point of view, of the Transaction and the
Birrittella and Schaeffer Investment to PTII and its shareholders.
Since 1939, MPI has been engaged in the valuation of businesses and their
securities for corporate, tax and other purposes, including financing,
recapitalizations, purchases and sales of closely held securities, estate, gift
and income tax matters, and mergers and acquisitions. In conducting our analysis
and arriving at our opinion as expressed herein, we have conducted such studies,
analyses and investigations as we deemed appropriate under the circumstances. We
have also taken into account our assessment of general and economic, industry,
market and financial conditions, as well as our experience in connection with
similar transactions in securities in general.
Our advisory services and the opinion expressed herein are provided exclusively
for the information and assistance of the Board of Directors of PTI Holding Inc.
in connection with its consideration of the Transaction. Such services and
opinions are not intended to be investment advice and should in no way be
construed as such. The contents of this opinion letter may be disclosed only in
accordance with the terms of the agreement executed by Management Planning, Inc.
and PTI Holding Inc. on March 16, 1999.
Neither MPI nor its employees have any present or contemplated future financial
interest in PTII, Flents or Karlen and no other interest whatsoever which might
affect the performance of our responsibilities in a totally disinterested
manner. The professional fee charged by MPI for preparation of this opinion
letter is not contingent upon our conclusions.
In preparing our opinion, we have relied, without independent verification, on
the accuracy, completeness and fairness of all financial and other information
that was publicly available or furnished to us by PTI Holding Inc. and
Woodbridge Group, Inc. We have not made any additional independent valuation or
appraisal or any of the assets or liabilities of PTII, Flents or Karlen, and we
have not been furnished with any such evaluation or appraisal. Our opinion is
necessarily based on economic, market and other conditions in effect on, and the
information made available to us as of, the date hereof. In arriving at our
opinion, we conducted such studies, analyses and investigations as we deemed
appropriate. Among other things, we:
1) Studied the Confidential Information Memorandum regarding
the Transaction as prepared by Woodbridge Group, Inc.;
2) Reviewed and analyzed the comprehensive documentation file on
the Transaction compiled by Woodbridge Group, Inc., which
included financial data on PTII, Flents and Karlen;
3) Considered the stand-alone value of Flents to PTII and its
shareholders (without benefit of the Transaction) by preparing
a comparative analysis of Flents and certain publicly held
companies that we deemed to be reasonably similar to Flents
with respect to financial and operating results and investment
characteristics;
4) Considered the stand-alone value of Flents to PTII (without
benefit of the Transaction) by preparing a discounted cash
flow analysis of Flents;
5) Reviewed and analyzed merger and acquisition transactions
for Flents' and Karlen's industries and related industries;
6) Considered a range of "exit" values for Flents (giving full
consideration to the Transaction) based on assumptions as to
time horizon (five to seven years) and multiples of EBIT (6.0
to 10.0);
7) Evaluated the prospective internal rates of return accruing to
the equity investors in the Transaction, including PTII, its
shareholders, the Birrittella and Schaeffer Investment, and
The 1818 Mezzanine Fund; and;
8) Performed such other studies and analyses as we deemed
appropriate.
Based on our review and analysis, and assuming that the Transaction proceeds to
a closing with a financing structure as described herein, it is our opinion that
the Transaction and the Birrittella and Schaeffer Investment are fair, from a
financial point of view, to PTI Holding Inc. and its shareholders.
Very respectfully yours,
MANAGEMENT PLANNING, INC.
<PAGE>
EXHIBIT 10
CONSENT
Management Planning, Inc. ("MPI") hereby consents to permit PTI Holding
Inc., a Delaware corporation, to include as an exhibit to its current report on
Form 8-K dated April 14, 1999, to be filed with the Securities Exchange
Commission, the fairness opinion rendered by MPI in connection with the
acquisition by Flents Products Co. Inc. of substantially all of the assets of
Karlen Manufacturing Inc.
Dated: April 29, 1999
MANAGEMENT PLANNING, INC.
By: /s/ Frank E. Koehl, Jr.
Name: Frank E. Koehl, Jr.
Title: Senior Vice Presdient
