<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----- -----
COMMISSION FILE NUMBER 0-20842
TRO LEARNING, INC.
-------------------
(Exact name of Registrant as specified in its charter)
Delaware 36-3660532
- - --------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1721 Moon Lake Boulevard, Suite 555, Hoffman Estates, IL 60194
- - -------------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 781-7800
--------------
Not Applicable
---------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days:
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock, $.01 par value 6,415,340 shares
- - ---------------------------- ----------------
Class Outstanding as of March 1, 1999
(This document contains 19 pages)
1
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TRO LEARNING, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited):
Consolidated Statements of Income for the
Three Months Ended January 31, 1999 and 1998 . . . . . . . . . . . 3
Consolidated Balance Sheets as of
January 31, 1999 and October 31, 1998. . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows for the
Three Months Ended January 31, 1999 and 1998 . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . . . . . . .12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . .17
Item 2. Changes in Securities. . . . . . . . . . . . . . . . . . . . . . .17
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . . . . . .17
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . .17
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . . . .17
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . .17
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
TRO LEARNING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JANUARY 31,
------------------------
1999 1998
-------- --------
<S> <C> <C>
Revenues by product line:
PLATO-Registered Trademark- Education. . . . . . $5,661 $6,043
Aviation Training. . . . . . . . . . . . . . . . --- 1,160
-------- --------
Total revenues . . . . . . . . . . . . . . . 5,661 7,203
Cost of revenues. . . . . . . . . . . . . . . . . . 961 1,590
-------- --------
Gross profit . . . . . . . . . . . . . . . . 4,700 5,613
-------- --------
Operating expenses:
Selling, general and administrative. . . . . . . 5,546 5,942
Product development and customer support . . . . 1,336 2,022
-------- --------
Total operating expenses . . . . . . . . . . 6,882 7,964
-------- --------
Operating loss . . . . . . . . . . . . . (2,182) (2,351)
Interest expense. . . . . . . . . . . . . . . . . . 615 464
Interest income and other expense, net. . . . . . . 49 86
-------- --------
Loss before income taxes . . . . . . . . . . (2,846) (2,901)
Credit for income taxes . . . . . . . . . . . . . . --- ---
-------- --------
Net loss . . . . . . . . . . . . . . . . . . $(2,846) $(2,901)
-------- --------
-------- --------
Earnings per share:
Basic and diluted. . . . . . . . . . . . . . . . $ (0.44) $ (0.45)
-------- --------
-------- --------
Weighted average common shares outstanding:
Basic and diluted. . . . . . . . . . . . . . . . 6,415 6,400
-------- --------
-------- --------
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
TRO LEARNING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JANUARY 31, OCTOBER 31,
1999 1998
----------- -----------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . $ 399 $ 466
Accounts receivable, less allowances of $ 979 and
$920, respectively . . . . . . . . . . . . . . . 13,205 16,427
Inventories. . . . . . . . . . . . . . . . . . . . . 656 648
Prepaid expenses and other current assets. . . . . . 901 1,121
----------- -----------
Total current assets . . . . . . . . . . . . . . 15,161 18,662
Equipment and leasehold improvements, less accumulated
depreciation of $3,355 and $3,204, respectively. . . 1,194 1,073
Product development costs, less accumulated
amortization of $5,305 and $4,768, respectively. . . 6,553 6,380
Other assets . . . . . . . . . . . . . . . . . . . . . . 1,056 1,292
----------- -----------
$23,964 $27,407
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . $ 1,583 $ 2,895
Accrued employee salaries and benefits . . . . . . . 1,642 2,647
Accrued liabilities. . . . . . . . . . . . . . . . . 1,595 2,130
Revolving loan . . . . . . . . . . . . . . . . . . . 7,438 9,321
Deferred revenue . . . . . . . . . . . . . . . . . . 2,721 3,290
----------- -----------
Total current liabilities. . . . . . . . . . . . 14,979 20,283
Long-term debt . . . . . . . . . . . . . . . . . . . . . 3,050 3,050
Deferred revenue, less current portion . . . . . . . . . 470 405
----------- -----------
Total liabilities. . . . . . . . . . . . . . . . 18,499 23,738
----------- -----------
Convertible redeemable preferred stock, net of
unamortized discount and issuance costs. . . . . . . 4,184 ---
Stockholders' equity:
Common stock, $.01 par value, 25,000 shares
authorized; 6,535 shares issued and 6,415 shares
outstanding in 1999 and 1998 . . . . . . . . . . 64 64
Paid-in capital. . . . . . . . . . . . . . . . . . . 23,370 22,956
Treasury stock at cost, 120 shares in 1999 and 1998. (1,176) (1,176)
Accumulated deficit. . . . . . . . . . . . . . . . . (20,438) (17,592)
Accumulated other comprehensive income . . . . . . . (539) (583)
----------- -----------
Total stockholders' equity . . . . . . . . . . . 1,281 3,669
----------- -----------
$23,964 $27,407
----------- -----------
----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
TRO LEARNING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JANUARY 31,
-----------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . $(2,846) $(2,901)
-------- --------
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . 681 661
Provision for doubtful accounts. . . . . . . . . . . . . . 312 75
Loss on disposal of fixed assets . . . . . . . . . . . . . 2 ---
Changes in assets and liabilities:
Decrease in accounts receivable . . . . . . . . . . . . 2,911 1,361
Increase in inventories . . . . . . . . . . . . . . . . (8) (50)
Decrease in prepaid expenses and other current and
noncurrent assets. . . . . . . . . . . . . . . . . . 456 169
Increase (decrease) in accounts payable . . . . . . . . (1,312) 1,478
Decrease in accrued liabilities and accrued
employee salaries and benefits . . . . . . . . . . . (1,540) (1,170)
Decrease in deferred revenue. . . . . . . . . . . . . . (504) (15)
-------- --------
Total adjustments. . . . . . . . . . . . . . . . . . 998 2,509
-------- --------
Net cash used in operating activities . . . . . . (1,848) (392)
-------- --------
Cash flows from investing activities:
Capital expenditures. . . . . . . . . . . . . . . . . . . . . (277) (123)
Capitalization of product development costs . . . . . . . . . (709) (742)
-------- --------
Net cash used in investing activities. . . . . . . . . . . (986) (865)
-------- --------
Cash flows from financing activities:
Net proceeds from short-term borrowings . . . . . . . . . . . 558 641
Book overdraft. . . . . . . . . . . . . . . . . . . . . . . . --- 211
Repayment of long-term debt . . . . . . . . . . . . . . . . . (2,441) (100)
Net proceeds from issuance of convertible preferred stock . . 4,578 ---
Net proceeds from issuance of common stock. . . . . . . . . . 20 38
-------- --------
Net cash provided by financing activities. . . . . . . . . 2,715 790
-------- --------
Effect of foreign currency on cash . . . . . . . . . . . . . . . 52 (70)
-------- --------
Net decrease in cash and cash equivalents. . . . . . . . . . . . (67) (537)
Cash and cash equivalents at beginning of period . . . . . . . . 466 537
-------- --------
Cash and cash equivalents at end of period . . . . . . . . . . . $ 399 $ ---
-------- --------
-------- --------
Cash paid for interest expense . . . . . . . . . . . . . . . . . $ 447 $ 674
-------- --------
-------- --------
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
TRO LEARNING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF BUSINESS:
TRO Learning, Inc. and its subsidiaries (the "Company") develop and market
microcomputer-based, interactive, self-paced instructional systems. The
Company's PLATO Learning Systems are marketed primarily to educational
institutions and private industry.
BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements have been prepared
by the Company pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. Accordingly, these
financial statements should be read in conjunction with the consolidated
financial statements and the notes thereto included in the Company's Form 10-K
for the fiscal year ended October 31, 1998.
The financial information furnished reflects, in the opinion of the Company, all
adjustments of a normal, recurring nature necessary for a fair statement of the
results for the interim periods presented. Because of cyclical and other
factors, the results for the interim periods presented are not necessarily
indicative of the results to be expected for the full fiscal year.
REVENUE RECOGNITION:
Revenue from the sale of education and training courseware licenses, computer
hardware, and related support services, is recognized when courseware, hardware,
and related services are delivered. Post customer support is recognized ratably
over the contract period. Deferred revenue represents the portion of billings
made or payments received in advance of services being performed or products
being delivered.
PRODUCT DEVELOPMENT, ENHANCEMENT, AND MAINTENANCE COSTS:
The Company develops education and training products, referred to hereafter as
courseware products. Costs incurred in the development of the Company's current
generation courseware products and related enhancements and routine maintenance
thereof are expensed as incurred. All costs incurred by the Company in
establishing the technological feasibility of new courseware products to be
sold, leased, or otherwise marketed are expensed as incurred. Once
technological feasibility has been established, costs incurred in the
development of new generation courseware products are capitalized.
6
<PAGE>
TRO LEARNING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
CONTINUED:
PRODUCT DEVELOPMENT, ENHANCEMENT, AND MAINTENANCE COSTS, Continued
Amortization is provided over the estimated useful life of the new courseware
products, generally three years, using the straight-line method. Amortization
begins when the product is available for general release to customers.
Unamortized capitalized costs determined to be in excess of the net realizable
value of the product are expensed at the date of such determination.
EARNINGS PER SHARE:
Basic earnings per share is calculated based only upon the weighted average
number of common shares outstanding during the period. Diluted earnings per
share is calculated based upon the weighted average number of common and, where
dilutive, potential common shares outstanding during the period. Potential
common shares include options, warrants and convertible securities. Since the
Company incurred a net loss for all periods presented, potential common shares
are antidilutive and excluded from the calculation, and basic and diluted
earnings per share are the same.
COMPREHENSIVE INCOME:
As of November 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, REPORTING COMPREHENSIVE INCOME ("SFAS 130"), as required.
SFAS 130 establishes new rules for the reporting of comprehensive income and its
components. Foreign currency translation adjustments, which prior to adoption
were reported separately in stockholders' equity, are required to be included in
other comprehensive income in the consolidated financial statements. The
adoption of SFAS 130 does not impact the Company's net income (loss) or total
stockholders' equity.
RECLASSIFICATIONS:
Certain prior year amounts have been reclassified in the consolidated financial
statements to conform to the current year presentation.
7
<PAGE>
TRO LEARNING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
2. ACCOUNTS RECEIVABLE:
Accounts receivable include net installment receivables of $7,734,000 and
$10,496,000 at January 31, 1999 and October 31, 1998, respectively. Installment
receivables billable after one year were $348,000 and $575,000 at January 31,
1999 and October 31, 1998, respectively, and are included in other assets on the
consolidated balance sheets.
3. DEBT:
REVOLVING LOAN:
At January 31, 1999, the Company's revolving loan agreement, as amended,
provided for a maximum $18 million line of credit through February 28, 1999. The
agreement also provided for additional line of credit borrowings up to a maximum
$4,500,000 from time to time during certain periods of the remaining term of the
agreement. Substantially all of the Company's assets were pledged as collateral
under the agreement. Borrowings under the line were limited by the available
borrowing base, as defined, consisting primarily of certain accounts receivable
and inventory, and interest was at the prime rate plus 1.5% to 2%, as defined.
At January 31, 1999, borrowings of $7,438,000 were outstanding at an interest
rate of 9.5%.
In addition, the revolving loan agreement provided for a $3 million term loan at
an interest rate of 15%. The remaining term loan balance was repaid during the
first quarter of 1999.
NEW REVOLVING LOAN AGREEMENT:
On February 26, 1999, the Company entered into a new revolving loan agreement,
with a new lender, that provides for a maximum $15 million line of credit
through February 26, 2002. Substantially all of the Company's assets are
pledged as collateral under the agreement. Borrowings are limited by the
available borrowing base, as defined, consisting of certain accounts receivable
and inventory, and bear interest at the prime rate plus 1% or the London
Interbank Offered Rate (LIBOR) plus 3%, as determined by the Company pursuant to
the agreement. A commitment fee is payable quarterly based on the unused
portion of the line of credit. The agreement contains restrictive financial
covenants (including Minimum Net Worth, Minimum Earnings Before Interest Taxes
Depreciation and Amortization (EBITDA), and Minimum Interest Coverage) and
restrictions on borrowings, asset sales and dividends, as defined.
Upon entering the new agreement, the Company terminated its previous revolving
loan agreement. All outstanding borrowings and accrued interest were repaid
with funds advanced under the new line of credit.
8
<PAGE>
TRO LEARNING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
3. DEBT, CONTINUED:
LONG-TERM DEBT:
At January 31, 1999, the Company's long-term debt consisted of $3,050,000 of 10%
subordinated convertible debentures with interest payable semiannually. At the
option of the holder, the debentures are convertible into the Company's common
stock at $9.60 per share. The Company may redeem the debentures at 101% of
principal, plus interest, subject to certain terms and conditions. The
debentures have a scheduled maturity in 2004 and are subject to mandatory
redemption at 25% of principal annually beginning in 2001.
4. CONVERTIBLE REDEEMABLE PREFERRED STOCK:
On January 13, 1999, the Company issued 540 shares of its Series C Convertible
Redeemable Preferred Stock (the "Series C Preferred") and warrants to purchase
125,000 shares of the Company's common stock at $9.51 per share for an aggregate
purchase price of $5 million. The proceeds, net of transaction fees, were
approximately $4,578,000 and were used to repay existing borrowings. A value of
$394,000 has been assigned to the warrants using the Black-Scholes stock option
pricing model.
Each share of the Series C Preferred has a par value of $0.01 and a stated value
of $10,000. The Series C Preferred ranks senior to the Company's common stock,
has no voting rights, and is not entitled to any dividends.
The Series C Preferred, as amended, is convertible into shares of the Company's
common stock, at the option of the holder, up to ten years from the issue date.
Conversion is mandatory for all such securities still outstanding on January 13,
2009. The number of common shares to be issued is determined by dividing the
stated value of the Series C Preferred being converted by the conversion price.
The conversion price of the Series C Preferred is equal to the lower of (a)
$9.51 per share or (b) the applicable percentage of the average of the three
lowest closing prices of the Company's common stock during the 30 trading days
immediately prior to the date of conversion. The applicable percentage is
adjusted over time from 90% to 82%. There is a minimum conversion price of
$4.69 per share, subject to adjustment based on the Company's financial
performance. If fiscal year 1999 pretax income does not meet established
thresholds, the minimum conversion price will be adjusted to as low as $3.17 per
share.
Certain conversion restrictions exist in the event such conversion would result
in (a) the holders' beneficial ownership being more than 4.99% of the Company's
outstanding common stock or (b) the issuance of more than 20% of the Company's
outstanding common stock. The Company may redeem the Series C Preferred in cash
at any time, provided the average closing price of the Company's common stock
during the defined period prior to such redemption is not greater than
9
<PAGE>
TRO LEARNING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
4. CONVERTIBLE REDEEMABLE PREFERRED STOCK, CONTINUED:
$15.85 per share. The redemption price is based on the number of common shares
that would be received upon conversion at such time and from 125% to 156% of the
average closing price of the Company's common stock during the defined period
prior to such time.
The Series C Preferred is subject to redemption in cash, at the option of the
holder, upon certain events, as defined, including a change in control of the
Company and a trading suspension of the Company's common stock on NASDAQ or a
subsequent market. The redemption price is equal to the greater of (a) 115% of
the stated value or (b) the number of common shares that would be received upon
conversion at such time multiplied by the closing price of the Company's common
stock prior to redemption, as defined. As these events are outside of the
Company's control and redemption would be in cash, the Series C Preferred is
presented between total liabilities and stockholders' equity on the consolidated
balance sheet, as required by the Securities and Exchange Commission. Upon
conversion of the Series C Preferred into common shares, the related amounts
will be classified as stockholders' equity.
The initial carrying value of $4,184,000 at January 31, 1999 will increase to
the aggregate stated value of $5,400,000 over the ten-year term of the Series C
Preferred. This accretion will be reflected as a charge to retained earnings in
the consolidated balance sheet and will reduce net income (loss) available to
common stockholders for purposes of calculating basic earnings per share.
Concurrent with the issuance of the Series C Preferred, the Company issued
125,000 warrants to purchase the Company's common stock at $9.51 per share.
These warrants expire five years from the issue date. The value assigned to
these warrants of $394,000 has been reflected as an increase to paid-in capital
on the consolidated balance sheet at January 31, 1999.
5. INCOME TAXES:
No tax benefit has been recorded at January 31, 1999 for the first quarter loss,
as the Company is unable to demonstrate that, more likely than not, it will be
able to realize its deferred tax asset.
10
<PAGE>
TRO LEARNING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
6. COMPREHENSIVE INCOME (LOSS):
Total comprehensive loss was as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------
JANUARY 31, JANUARY 31,
1999 1998
------------ -------------
<S> <C> <C>
Net loss. . . . . . . . . . . . . . . . . . . $(2,846) $(2,901)
Foreign currency translation adjustments. . . 44 (87)
------------ -------------
Total comprehensive loss. . . . . . . . $(2,802) $(2,988)
------------ -------------
------------ -------------
</TABLE>
Accumulated other comprehensive income is included as a separate component of
stockholders' equity on the consolidated balance sheets.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- - --------------------------------------------------------------------------------
OVERVIEW
The Company is a leading developer and marketer of microcomputer-based,
interactive, self-paced instructional systems. Offering more than 2,000 hours
of comprehensive academic and applied skills courseware designed for adolescents
and adults, the Company's PLATO-Registered Trademark- Learning Systems are
marketed to middle schools and high schools, colleges, job training programs,
correctional institutions, military education programs and corporations. The
PLATO Learning System is delivered via networks, CD-ROM, the Internet and
private Intranets.
In September 1998, the Company announced the sale of its Aviation Training
business (which marketed PC-based instructional systems to airlines worldwide
for use by commercial airline pilots, maintenance crews and cabin personnel) and
will focus exclusively on its PLATO brand going forward.
RESULTS OF OPERATIONS
FIRST QUARTER FISCAL 1999 COMPARED TO FIRST QUARTER FISCAL 1998
REVENUES:
The following table highlights revenues by product line (in 000's):
<TABLE>
<CAPTION>
PLATO EDUCATION AVIATION TRAINING TOTAL
------------------- -------------------- -------------------
1999 1998 1999 1998 1999 1998
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Courseware and professional services $5,070 $4,678 $ --- $1,107 $5,070 $5,785
Hardware, third-party courseware and other 591 1,365 --- 53 591 1,418
-------- -------- -------- -------- -------- --------
Total revenues $5,661 $6,043 $ --- $1,160 $5,661 $7,203
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
</TABLE>
PLATO Education courseware and professional services revenue increased $392,000,
or 8%, while hardware and third-party courseware revenue decreased $774,000, or
56%, in line with the Company's plan to improve profitability. Total PLATO
Education revenues decreased $382,000 or 6% compared to the prior year.
Aviation Training revenues were $1,160,000 in the first quarter of fiscal 1998.
Total revenues of $5,661,000 for the first quarter of fiscal 1999 decreased
$1,542,000, or 21%, as compared to $7,203,000 for the first quarter of fiscal
1998.
GROSS PROFIT:
PLATO Education gross profit increased $112,000 from the prior year, and gross
margin increased to 83% from 76%, reflecting the increased mix of higher margin
courseware and professional services revenue.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- - --------------------------------------------------------------------------------
RESULTS OF OPERATIONS, CONTINUED
FIRST QUARTER FISCAL 1999 COMPARED TO FIRST QUARTER FISCAL 1998, CONTINUED
GROSS PROFIT, CONTINUED:
Aviation Training gross profit was $1,025,000 for the first quarter of fiscal
1998. Total gross profit for the first quarter of fiscal 1999 decreased
$913,000, or 16%, to $4,700,000 as compared to $5,613,000 for the first quarter
of fiscal 1998.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE:
Selling, general, and administrative expense for the first quarter of fiscal
1999 decreased $396,000 or 7% to $5,546,000 as compared to $5,942,000 for the
first quarter of fiscal 1998.
PLATO Education expenses were comparable to the prior year. Aviation Training
expenses were $362,000 in the first quarter of fiscal 1998.
PRODUCT DEVELOPMENT AND CUSTOMER SUPPORT:
Product development and customer support expense for the first quarter of fiscal
1999 decreased $686,000 or 34% to $1,336,000 as compared to $2,022,000 for the
first quarter of fiscal 1998.
PLATO Education expenses were comparable to the prior year. Aviation Training
expenses were $755,000 in the first quarter of fiscal 1998.
OPERATING LOSS:
The operating loss was $2,182,000 for the first quarter of fiscal 1999 as
compared to $2,351,000 for the prior year. The operating loss for PLATO
Education was $2,260,000 for the first quarter of fiscal 1998. The first
quarter loss reflects the impact of a traditionally lower level of revenue in
the first half of the Company's fiscal year. The improvement in PLATO Education
operating results was due primarily to the increased mix of higher margin
courseware revenues.
INTEREST EXPENSE:
Interest expense for the first quarter of fiscal 1999 was $615,000 as compared
to $464,000 for the first quarter of fiscal 1998. This increase was due
principally to the accelerated amortization of fees related to the Company's
revolving loan agreement which was replaced with a new loan agreement in
February 1999 (see Note 3 of Notes to Consolidated Financial Statements).
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- - --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
At January 31, 1999, the Company's principal sources of liquidity included cash
and cash equivalents of $399,000, net accounts receivable of $13,205,000, and
its line of credit. The Company had net installment receivables of $8,082,000 at
January 31, 1999, of which $7,734,000 is billable within one year and is
included in net accounts receivable on the consolidated balance sheet.
Net cash used in the Company's operating activities was $1,848,000 in the first
quarter of fiscal 1999 as compared to $392,000 in the first quarter of fiscal
1998. Cash flows from operations, borrowings and capital were used principally
to fund the Company's working capital requirements. In addition to cash flows
from operations, the Company has resources available under its revolving loan
agreement (see Note 3 of Notes to Consolidated Financial Statements). At
January 31, 1999, borrowings of $7,438,000 were outstanding under the line of
credit at an interest rate of 9.5%.
Net cash used in the Company's investing activities was $986,000 in the first
quarter of fiscal 1999 for capital expenditures and capitalized product
development costs.
Net cash provided by financing activities was $2,715,000 in the first quarter of
fiscal 1999. Repayments of the term loan and short-term borrowings offset the
net proceeds received from the issuance of preferred stock in January 1999 (see
Note 4 of Notes to Consolidated Financial Statements).
The Company entered into a new revolving loan agreement with a new lender in
February 1999. This new facility offers the Company a longer-term banking
relationship with a lower interest and fee structure compared to the previous
revolving loan agreement (see Note 3 of Notes to Consolidated Financial
Statements).
The Company continues to explore alternatives to meet its anticipated working
capital, capital expenditure, and business investment requirements.
YEAR 2000:
Many existing computer systems use only the last two digits to identify a year.
Consequently, as the year 2000 approaches, many systems do not yet recognize the
difference between the years 1900 and 2000. This, as well as other date-related
processing issues, may cause systems to fail or malfunction. As a result, the
Year 2000 (Y2K) issue may affect the Company's products and normal business
activities.
The Company began addressing the Y2K issue in early 1998 and has assembled a Y2K
evaluation team that is endorsed by, and includes members of, senior management.
A budget has been prepared for Y2K costs and progress reports are presented to
senior management on a
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- - --------------------------------------------------------------------------------
YEAR 2000, CONTINUED:
regular basis. The Y2K evaluation team has developed and implemented a
comprehensive Y2K readiness plan for the Company's products and operations. The
objectives of the Y2K evaluation team are as follows:
- - - Develop a Y2K compliance standard for the Company's PLATO courseware and
software products and determine compliance with that standard;
- - - Advise on compliance of third party courseware, operating system, and
hardware products based on representations by vendors of these products;
- - - Determine compliance for the Company's internal systems (including
information technology (IT) systems, such as financial and order entry
systems, and non-IT systems, such as telephones and other office
equipment);
- - - Determine the Y2K readiness of key business partners that the Company
relies on for normal business operations.
The Company has developed a compliance standard based on common testing
methodology. Existing PLATO courseware and software products are currently
being reviewed to determine compliance with that standard. The most current
compliance and remediation information is maintained on the Company's Internet
web site. PLATO products currently under development are being designed to be
Y2K compliant.
The Company also sells various third party courseware, operating system, and
hardware products. Y2K compliance information has been received from key
vendors of third party courseware products and this information is maintained on
the Company's Internet web site. Web links to key vendors of third party
operating system and hardware products are also provided.
The Company has taken, and will continue to take, actions necessary to resolve
Y2K issues with its internal IT and non-IT systems, including planned
replacements and upgrades. Major computers, applications, and related equipment
have been reviewed and are either compliant or software upgrades have been
ordered and will be installed in 1999. The Company's accounting and data
processing system was not Y2K compliant and was recently upgraded to a version
that the vendor has indicated is Y2K compliant.
The Company relies on key business partners for its normal business operations
and has contacted them regarding Y2K readiness. While the Company is confident
these partners are preparing for the year 2000, it has no control over their
preparations and there is no assurance that they will be successful in
addressing all Y2K issues.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- - --------------------------------------------------------------------------------
YEAR 2000, CONTINUED:
While the Company's Y2K costs incurred to date have not been material,
additional costs will be incurred as Y2K readiness is completed in mid-1999.
Based on information currently available, management expects these additional
costs to be immaterial as well.
While the Company is dedicating existing internal resources toward attaining Y2K
readiness, there is no assurance that it will be successful in addressing all
Y2K issues. If the Company does not achieve Y2K readiness, there could be
significant adverse effects on its results of operations, liquidity, and
financial condition. For example:
- - - If the Company's PLATO products are not Y2K compliant, it could suffer
increased costs, lost sales or other negative consequences resulting from
customer dissatisfaction, including litigation.
- - - If the Company's internal systems are not Y2K compliant, financial and
customer information, orders and product shipments could be delayed and
customer support could be interrupted.
- - - If the Company's customers do not achieve Y2K readiness, sales and cash
receipts may be delayed.
- - - If the Company's key business partners and other third parties do not
achieve Y2K readiness, its ability to receive supplies, ship products,
process cash receipts, and conduct other ongoing business activities may be
affected.
Based on the progress the Company has made to date in addressing Y2K issues,
management does not expect significant risks with its Y2K compliance at this
time. As the Company's plan is to address its major Y2K issues prior to being
affected by them, it has not developed comprehensive Y2K-related contingency
plans. If progress deviates from plan or significant risks are identified, the
Company will consider contingency plans as deemed necessary.
This Y2K discussion is based on the Company's best estimates using the
information that is currently available, and is subject to change. Actual
results may differ materially from these estimates.
16
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any litigation that is expected to have
a material adverse effect on the Company or its business.
ITEM 2. CHANGES IN SECURITIES
On January 13, 1999, the Company issued 540 shares of its Series C
Convertible Preferred Stock and warrants to purchase 125,000 shares of
the Company's common stock at $9.51 per share for an aggregate
purchase price of $5 million (see Note 4 of Notes to Consolidated
Financial Statements).
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
10.01 Secured Credit Agreement, dated February 26, 1999,
among First Source Financial LLP, as lender, The Roach
Organization, Inc. and TRO Learning (Canada), Inc., as
borrowers
10.02 Security Agreement, dated February 26, 1999, among The
Roach Organization, Inc., TRO Learning (Canada), Inc.
and First Source Financial LLP
10.28 Certificate of Amendment to Certificate of Designations
for Series C Convertible Preferred Stock, dated March
5, 1999
27 Financial Data Schedule
</TABLE>
17
<PAGE>
PART II. OTHER INFORMATION, CONTINUED
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K, CONTINUED
(b) Reports on Form 8-K:
On January 25, 1999, the Company filed a Current Report on Form
8-K, dated January 22, 1999, to announce the completion of a $5
million private placement of convertible preferred stock.
18
<PAGE>
SIGNATURES
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 on March 15, 1999.
TRO LEARNING, INC.
By /s/William R. Roach
----------------------------------------
Chairman of the Board, President and
Chief Executive Officer
(principal executive officer)
/s/John Murray
----------------------------------------
Executive Vice President and
Chief Financial Officer
(principal financial officer)
/s/Mary Jo Murphy
----------------------------------------
Vice President, Corporate Controller and
Chief Accounting Officer
(principal accounting officer)
19
<PAGE>
FINAL
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
SECURED CREDIT AGREEMENT
DATED AS OF FEBRUARY 26, 1999
AMONG
FIRST SOURCE FINANCIAL LLP,
AS LENDER,
THE ROACH ORGANIZATION, INC.
AND
TRO LEARNING (CANADA), INC.,
AS BORROWERS
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 1 CERTAIN DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
1.1 Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
1.2 Accounting and Financial Determinations . . . . . . . . . . . . . . . . . . . .-19-
1.3 Cross References; Headings. . . . . . . . . . . . . . . . . . . . . . . . . . .-20-
SECTION 2 COMMITMENTS; LOAN REQUESTS; REDUCTION OR TERMINATION OF COMMITMENTS;
PREPAYMENTS; MAKING OF PAYMENTS; SETOFF . . . . . . . . . . . . . . . . . . . . . . .-20-
2.1 Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-20-
2.2 Termination Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-21-
2.3 Loan Requests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-21-
2.4 Certain Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-22-
2.5 Voluntary Reduction or Termination of the Revolving Commitment. . . . . . . . .-22-
2.6 Mandatory Prepayments on Loans. . . . . . . . . . . . . . . . . . . . . . . . .-22-
2.7 Prepayment Premium. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-23-
2.8 Making of Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-23-
2.9 Due Date Extension. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-23-
2.10 Setoff. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-24-
2.11 Certain Matters Relating to LC Guaranties . . . . . . . . . . . . . . . . . . .-24-
2.12 Loan Account. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-26-
2.13 Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-26-
SECTION 3 NOTES; RECORD KEEPING . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-26-
3.1 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-27-
SECTION 4 INTEREST. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-27-
4.1 Interest Rates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-27-
4.2 Default Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-27-
4.3 Conversion or Continuation. . . . . . . . . . . . . . . . . . . . . . . . . . .-27-
4.4 Special Provisions Governing LIBOR Rate Loans . . . . . . . . . . . . . . . . .-28-
4.5 Interest Payment Dates. . . . . . . . . . . . . . . . . . . . . . . . . . . . .-30-
4.6 Setting of Rates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-31-
4.7 Computation of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . .-31-
SECTION 5 FEES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-31-
5.1 Non-Use Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-31-
5.2 Closing Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-31-
5.3 Letter of Credit Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-32-
5.4 Audit Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-32-
5.5 Computation of Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-32-
-i-
<PAGE>
SECTION 6 DEPOSITARY ACCOUNT AGREEMENTS; RESTRICTED ACCOUNTS; LIST OF RESTRICTED
ACCOUNTS AND RESTRICTED ACCOUNT STATEMENTS. . . . . . . . . . . . . . . . . . . . . .-32-
6.1 Depositary Account Agreements . . . . . . . . . . . . . . . . . . . . . . . . .-32-
6.2 Restricted Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-33-
6.3 List of Accounts and Account Statements . . . . . . . . . . . . . . . . . . . .-34-
SECTION 7 PROCEEDS OF COLLATERAL; APPLICATION OF FUNDS; DEEMED LOANS. . . . . . . . . . .-34-
7.1 Proceeds of Collateral; Notices to Account Debtors; Lockbox . . . . . . . . . .-34-
7.2 Application of Depositary Account Funds . . . . . . . . . . . . . . . . . . . .-35-
7.3 Application of Funds Available for Loan Repayments. . . . . . . . . . . . . . .-36-
7.4 Application Upon an Event of Default. . . . . . . . . . . . . . . . . . . . . .-36-
7.5 Deemed Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-36-
7.6 Application of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . .-36-
SECTION 8 INCREASED COSTS AND OTHER SPECIAL PROVISIONS. . . . . . . . . . . . . . . . . .-38-
8.1 Increased Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-38-
8.2 Funding Losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-38-
8.3 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-39-
8.4 Discretion of Lender as to Manner of Funding. . . . . . . . . . . . . . . . . .-40-
8.5 Conclusiveness of Statements; Survival of Provisions. . . . . . . . . . . . . .-40-
SECTION 9 COLLATERAL AND ELIGIBILITY REQUIREMENTS . . . . . . . . . . . . . . . . . . . .-40-
9.1 Eligible Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-40-
9.2 Account Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-41-
9.3 Verification of Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . .-42-
9.4 Eligible Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-42-
9.5 Inventory Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-43-
9.6 Security Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-44-
9.7 Consigned Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-44-
9.8 Collateral Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-44-
9.9 Subsequently Acquired Property. . . . . . . . . . . . . . . . . . . . . . . . .-44-
9.10 Change of Location or Name. . . . . . . . . . . . . . . . . . . . . . . . . . .-45-
9.11 Deliveries; Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . .-45-
SECTION 10 REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . . . . . . . .-46-
10.1 Due Organization, Authorization, Etc. . . . . . . . . . . . . . . . . . . . . .-46-
10.2 Certain Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-46-
10.3 Financial Information; Financial Condition. . . . . . . . . . . . . . . . . . .-46-
10.4 Litigation and Contingent Obligations . . . . . . . . . . . . . . . . . . . . .-47-
10.5 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-48-
10.6 Contracts; Absence of Default . . . . . . . . . . . . . . . . . . . . . . . . .-48-
10.7 Employee Benefit Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . .-48-
10.8 Investment Company Act; Public Utility Holding Company Act. . . . . . . . . . .-49-
10.9 Regulations G, T, U and X . . . . . . . . . . . . . . . . . . . . . . . . . . .-49-
10.10 Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-49-
-ii-
<PAGE>
10.11 Confirmation of Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . .-49-
10.12 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-49-
10.13 Material Disruptions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-50-
10.14 Patents, Trademarks, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . .-50-
10.15 Ownership of Properties; Property Schedule. . . . . . . . . . . . . . . . . . .-50-
10.16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-50-
10.17 Accuracy of Information . . . . . . . . . . . . . . . . . . . . . . . . . . . .-50-
10.18 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-50-
10.19 Hazardous Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-50-
10.20 Agent's Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-51-
10.21 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-51-
10.22 Securities Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-51-
10.23 Governmental Authorizations . . . . . . . . . . . . . . . . . . . . . . . . . .-51-
10.24 Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-52-
10.25 Employees and Labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-52-
10.26 Year 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-52-
10.27 Solvency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-53-
10.28 Collateral. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-53-
10.29 Places of Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-53-
10.30 Other Names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-53-
10.31 Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-53-
SECTION 11 COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-53-
11.1 Reports, Certificates and Other Information . . . . . . . . . . . . . . . . . .-54-
11.2 Corporate Existence; Foreign Qualification. . . . . . . . . . . . . . . . . . .-57-
11.3 Books, Records and Inspections. . . . . . . . . . . . . . . . . . . . . . . . .-57-
11.4 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-58-
11.5 Taxes and Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-58-
11.6 Employee Benefit Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . .-58-
11.7 Collateral Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-59-
11.8 Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-59-
11.9 Maintenance of Permits. . . . . . . . . . . . . . . . . . . . . . . . . . . . .-59-
11.10 Purchase, Redemption, Distribution, Interest and Payment Restrictions . . . . .-59-
11.11 Guaranties, Loans, Advances or Investments. . . . . . . . . . . . . . . . . . .-60-
11.12 Mergers, Consolidations, Sales. . . . . . . . . . . . . . . . . . . . . . . . .-60-
11.13 Unconditional Purchase Obligations. . . . . . . . . . . . . . . . . . . . . . .-60-
11.14 Regulations G, U and X. . . . . . . . . . . . . . . . . . . . . . . . . . . . .-60-
11.15 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-60-
11.16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-60-
11.17 Other Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-61-
11.18 Business Activities; Name . . . . . . . . . . . . . . . . . . . . . . . . . . .-61-
11.19 Transactions with Affiliates. . . . . . . . . . . . . . . . . . . . . . . . . .-61-
11.20 Environmental Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . .-61-
11.21 Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-61-
11.22 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-61-
11.23 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-61-
-iii-
<PAGE>
11.24 Landlord and Warehouseman Agreements. . . . . . . . . . . . . . . . . . . . . .-62-
11.25 Maintenance of Real Estate. . . . . . . . . . . . . . . . . . . . . . . . . . .-62-
11.26 Account Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-62-
11.27 Instruments and Chattel Paper . . . . . . . . . . . . . . . . . . . . . . . . .-62-
11.28 Inventory Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-63-
11.29 Collateral Locations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-63-
11.30 Disposal of Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-63-
11.31 Changes in Organization Documents . . . . . . . . . . . . . . . . . . . . . . .-64-
11.32 Impairment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-64-
11.33 Management Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-64-
11.34 Corporate Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-64-
11.35 Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-64-
11.36 Leases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-65-
11.37 Restricted Payments of Indebtedness . . . . . . . . . . . . . . . . . . . . . .-65-
11.38 Year 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-65-
SECTION 12 CONDITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-66-
12.1 Initial Loan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-66-
12.2 All Loans; LC Guaranties. . . . . . . . . . . . . . . . . . . . . . . . . . . .-67-
SECTION 13 EVENTS OF DEFAULT AND THEIR EFFECT. . . . . . . . . . . . . . . . . . . . . . .-68-
13.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-68-
13.2 Effect of Event of Default. . . . . . . . . . . . . . . . . . . . . . . . . . .-70-
13.3 Rights and Remedies Generally . . . . . . . . . . . . . . . . . . . . . . . . .-70-
13.4 Entry Upon Premises and Access to Information . . . . . . . . . . . . . . . . .-71-
13.5 Sale or Other Disposition of Collateral by Lender . . . . . . . . . . . . . . .-71-
13.6 Notice to Account Debtors . . . . . . . . . . . . . . . . . . . . . . . . . . .-71-
13.7 Waiver of Demand. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-72-
13.8 Waiver of Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-72-
SECTION 14 GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-72-
14.1 Waiver; Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-72-
14.2 Confirmations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-72-
14.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-72-
14.4 Costs, Expenses and Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . .-73-
14.5 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-73-
14.6 Submission To Jurisdiction. . . . . . . . . . . . . . . . . . . . . . . . . . .-74-
14.7 Governing Law; Severability . . . . . . . . . . . . . . . . . . . . . . . . . .-75-
14.8 Sale of Notes; Participations . . . . . . . . . . . . . . . . . . . . . . . . .-75-
14.9 Entry Into Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-75-
14.10 Legal Opinions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-75-
14.11 Jury Trial; Damage Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . .-76-
14.12 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . . . . .-76-
14.13 Marshalling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-76-
14.14 Waivers With Respect to Other Instruments . . . . . . . . . . . . . . . . . . .-76-
14.15 Retention of Borrower' Documents. . . . . . . . . . . . . . . . . . . . . . . .-76-
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<PAGE>
14.16 Survival of Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . .-76-
14.17 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-77-
14.18 Exceptions to Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . .-77-
14.19 Construction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-77-
14.20 Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-77-
14.21 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-77-
14.22 Acknowledgment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-77-
14.23 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-78-
14.24 Joint and Several Liability of Borrowers. . . . . . . . . . . . . . . . . . . .-78-
14.25 Foreign Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-79-
14.26 Income Tax Gross Up . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-79-
14.27 Registry. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-80-
</TABLE>
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<PAGE>
SECURED CREDIT AGREEMENT
THIS SECURED CREDIT AGREEMENT (this "AGREEMENT") dated as of February
26, 1999 is entered into among THE ROACH ORGANIZATION, INC., a Delaware
corporation ("ROACH"), TRO LEARNING (CANADA), INC., a Canadian corporation ("TRO
CANADA"; Roach and TRO Canada are hereinafter referred to, collectively, as
"BORROWERS" and individually, as a "BORROWER") and FIRST SOURCE FINANCIAL LLP,
an Illinois registered limited liability partnership ("LENDER").
RECITAL:
Borrowers desire to borrow from Lender and Lender desires to lend to
Borrowers on the terms and conditions set forth herein.
NOW THEREFORE, in consideration of the mutual agreements contained
herein, and subject to the terms and conditions hereof, the parties hereto agree
as follows:
SECTION 1 CERTAIN DEFINITIONS.
SECTION 1.1 CERTAIN DEFINITIONS. When used herein, the following
terms shall have the following meanings:
"ACCOUNT DEBTOR" shall mean any Person who is or may become
obligated on or under an Account of any other Person.
"ACCOUNTS" shall mean, with respect to any Person, all presently
existing and hereafter arising or acquired accounts, accounts receivable,
contracts, notes, drafts, acceptances, and other forms of obligations (including
forms of obligations evidenced by Chattel Paper, Documents or Instruments of
such Person) now or hereafter owned or held by or payable to such Person
relating in any way to Inventory or arising from the sale or lease of Inventory
or the rendering of services by such Person or howsoever otherwise arising,
including the right to payment of any interest or finance charges with respect
thereto; all such merchandise that may be reclaimed or repossessed or returned
to such Person; all of such Person's rights as an unpaid vendor, including
stoppage in transit, reclamation, rescission, replevin, and sequestration; all
pledged assets and all letters of credit, guaranty claims, Liens held by or
granted to such Person to secure payment of any Accounts of such Person; all
proceeds and products of all of the foregoing described properties and interests
in properties; and all proceeds of insurance with respect thereto; and all
customer lists, ledgers, books of account, records, computer programs, computer
disks or tape files (including all microfilm), computer printouts, computer
runs, and other computer prepared information relating to any of the foregoing.
"ACCOUNTS TRIAL BALANCE" - see SECTION 11.1(n).
"ADJUSTED BORROWING BASE" means, at any time, the Borrowing Base
MINUS the Overadvance Amount, in each case in effect at such time.
<PAGE>
"AFFILIATE" shall mean, with respect to any Person, (a) any
director (or Person holding the equivalent position) or officer (or Person
holding the equivalent position) of such Person or of any Person described in
CLAUSE (b) with respect to such Person, and (b) any other Person which, directly
or indirectly, controls or is controlled by or under common control with such
Person (excluding any trustee under, or any committee with responsibility for
administering, any Pension Plan). Lender shall not be deemed to be an Affiliate
of any Obligor or Holdings. A Person shall be deemed to be (x) "controlled by"
any other Person if such other Person possesses, directly or indirectly, power
to direct or cause the direction of the management and policies of such Person
whether by contract or otherwise; or (y) "controlled by" or "under common
control with" such other Person if such other Person is a member of the
immediate family of such Person or is the executor, administrator, or other
personal representative of such Person.
"ASSET SALE" shall mean any sale, assignment, conveyance,
transfer or other disposition of any Property of any Obligor other than (i) any
sale or lease of inventory in the ordinary course of business, (ii) any sale of
obsolete or unusable items of equipment so long as the aggregate proceeds of all
such sales do not exceed $100,000 in any Fiscal Year and (iii) any sale or
trade-in of obsolete or unusable items of equipment which are promptly replaced
with new items of equipment of like function and comparable value to the
obsolete or unusable items of equipment when the same were new or not obsolete
or unusable.
"ASSET SALE PROCEEDS" shall mean the aggregate cash proceeds
payable to any Obligor in connection with any Asset Sale after deduction of all
reasonable, customary and documented costs and expenses of such Asset Sale.
"AUDIT FEE" shall have the meaning ascribed thereto in SECTION
5.5.
"BANKRUPTCY CODE" shall mean Title 11, United States Code, as
amended from time to time.
"BORROWERS" - see Preamble.
"BORROWING AVAILABILITY" shall mean at any time the excess at
such time of (a) the lesser of (i) the Revolving Commitment or (ii) the
Borrowing Base, over (b) Total Revolving and LC Exposure.
"BORROWING BASE" shall mean at any time an amount equal to the
sum at such time of:
(a) eighty-five percent (85%) of the face amount (less maximum
discounts, credits and allowances which were granted to Account Debtors in
connection therewith) of existing Eligible Accounts from Account Debtors
residing in the United States, PLUS
(b) seventy percent (70%) of the face amount (less maximum discounts,
credits and allowances which were granted to Account Debtors in connection
therewith) of
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<PAGE>
existing Eligible Accounts from Account Debtors residing in Canada, PLUS
(c) the lesser of (i) seventy percent (70%) of the face amount (less
maximum discounts, credits and allowances which were granted to Account
Debtors in connection therewith) of existing Eligible Installment Accounts
or (ii) an amount equal to (x) during the first Loan Year, $7,200,000, and
(y) during any Loan Year thereafter, $6,000,000, PLUS
(d) the lesser of (i) fifty percent (50%) of the book value of all
then existing Eligible Inventory, determined at the lower of cost
(determined on a first-in-first-out ["FIFO"] basis) or market or (ii)
$1,500,000, PLUS
(e) the Overadvance Amount; PROVIDED, that, notwithstanding the
foregoing or anything to the contrary contained herein, the Overadvance
Amount shall not be included in the calculation of the Borrowing Base for
more than (i) one hundred eighty (180) consecutive days or (ii) two hundred
seventy (270) total days, in each case in any Fiscal Year.
"BORROWING BASE CERTIFICATE" shall mean a certificate in
substantially the form of EXHIBIT A, duly certified by the chief financial
officer, controller or treasurer of Roach.
"BUSINESS DAY" shall mean any day of the year (other than any
Saturday or Sunday) on which the Federal Reserve Banks of Chicago, Illinois and
Minneapolis, Minnesota are open for business in Chicago, Illinois and
Minneapolis, Minnesota, and when used in connection with LIBOR Rate Loans, this
definition will also exclude any day on which commercial banks are not open for
dealing in United States dollar deposits in the London (U.K.) interbank market.
"CANADIAN COLLECTED BALANCE" - see SECTION 7.2(a).
"CANADIAN CONTROLLED DISBURSEMENT OPERATING ACCOUNT" - see
SECTION 6.2(b).
"CANADIAN DEPOSITARY ACCOUNT AGREEMENT" - see SECTION 6.1.
"CANADIAN DEPOSITARY ACCOUNT" - see SECTION 6.2(b).
"CANADIAN DEPOSITARY ACCOUNT BANK" shall mean each bank and other
entity serving in the capacity of agent for Lender under any Canadian Depositary
Account Agreement (including any successor Canadian Depositary Account
Agreement). Initially the Canadian Depositary Account Bank shall mean The
Toronto-Dominion Bank.
"CAP AMOUNT" shall mean, at any time, the sum of the
reimbursement obligations of a Borrower guaranteed by each LC Guaranty at the
time of its issuance (such amount, with respect to any LC Guaranty, being herein
called the "RELEVANT CAP"); it being understood that:
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<PAGE>
(a) the Relevant Cap with respect to any LC Guaranty shall be reduced from
time to time by the stated amount of a Permitted LC covered thereby if
Lender shall have received evidence satisfactory to Lender that the
following conditions have been satisfied: (i) such Permitted LC shall
have terminated or expired in accordance with its terms, or (ii) such
Permitted LC shall have been surrendered to the Issuer thereof and
canceled, or (iii) if such Permitted LC shall have been drawn upon,
the Issuer thereof shall have been fully reimbursed for the amount of
such draw or (iv) such Issuer shall have consented in writing to a
reduction, equal to such stated amount in such Relevant Cap; and
(b) the Relevant Cap with respect to any LC Guaranty may be increased from
time to time by the stated amount of a Permitted LC to be covered
thereby if Lender shall have received evidence satisfactory to Lender
that such Permitted LC shall be issued in a manner permitted by this
Agreement concurrently with such increase;
PROVIDED, that in no event shall the Cap Amount exceed at any time $2,000,000;
and PROVIDED, FURTHER, that for purposes of determining the Cap Amount, each LC
Guaranty issued hereunder shall be included unless the applicable Issuer shall
have acknowledged in writing that Lender shall have no further obligations
thereunder or Lender shall have received other assurances from the applicable
Issuer that Lender shall have no further obligations thereunder.
"CAPITALIZED LEASES" shall mean, with respect to any Person at
any time, any lease which, in accordance with GAAP, is required to be
capitalized on the balance sheet of such Person at such time, and CAPITALIZED
LEASE OBLIGATIONS shall mean, with respect to any Person at any time, the
aggregate amount which, in accordance with GAAP, is required to be reported as a
liability on the balance sheet of such Person at such time as lessee under
Capitalized Leases.
"CASH EQUIVALENTS" shall mean any or all of the following:
obligations of, or guaranteed as to interest and principal by, the United States
Government maturing within 90 days after the date on which such obligations are
purchased; open market commercial paper of any corporation (other than any
Obligor or any Affiliate of any Obligor) incorporated under the laws of the
United States of America or any State thereof or the District of Columbia rated
"Prime-1" or its equivalent by Moody's Investors Service Inc. and "A-1" or its
equivalent by Standard & Poor's Corporation; or certificates of deposit maturing
within 90 days after the issuance thereof issued by commercial banks organized
under the laws of the United States of America or of any political subdivision
thereof and either having a combined capital and surplus in excess of
$500,000,000.
"CASH INSTRUMENTS" shall mean all cash, checks, drafts and other
similar writings for the payment of money.
"CHANGE OF CONTROL" shall mean the occurrence of any of the
following events or conditions:
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<PAGE>
(a) except, in the case of TRO Canada, for a nominal number of
director qualifying shares, Holdings shall cease for any reason to be the
sole record and beneficial owner of 100% of the issued and outstanding
Equity Interests with respect to each Borrower; or
(b) (A) any Person acquires, or two or more other Persons acting as a
group (within the meaning of Section 13(d) of the Exchange Act) acquire,
directly or indirectly, beneficial ownership (within the meaning of Rule
13d-3 of the SEC under the Exchange Act), in excess of fifty percent (50%)
of the issued and outstanding Equity Interests with respect to Holdings;
and (B) during the first Loan Year, Investor divests more than twenty
percent (20%) of the Equity Interests Investor beneficially owns (within
the meaning of Rule 13d-3 of the SEC under the Exchange Act), directly or
indirectly, as of the Closing Date; or
(c) during any period of up to twelve (12) consecutive calendar
months, commencing after the Closing Date, individuals who at the beginning
of such twelve month period were directors of Holdings cease for any reason
to constitute a majority of the Board of Directors of Holdings, unless the
Persons replacing such individuals were nominated by the Board of Directors
of Holdings; or
(d) during the first Loan Year, William Roach ceases, for any reason
(except by reason of death, incapacity or removal by a duly authorized
resolution of the board of directors for cause) to be involved in the day
to day operations and management of the Borrowers in his capacity as
Chairman, Chief Executive Officer or President for more than (i) 30
consecutive days or (ii) 60 days during such Loan Year.
"CHATTEL PAPER" shall mean, with respect to any Person, any
"chattel paper," as such term is defined in the UCC, now owned or hereafter
acquired by such Person, wherever located.
"CLOSING DATE" shall mean the date on which the initial Loans
hereunder are made.
"CODE" shall mean the Internal Revenue Code of 1986, as amended
from time to time, and any replacements thereof.
"COLLATERAL" shall mean all property and/or rights on or in which
a Lien or security interest is granted to Lender (or to any agent, trustee or
other party acting on behalf of Lender) to secure all or any of the Liabilities,
including any such Lien or security interest pursuant to this Agreement or any
of the Collateral Documents or any other agreements, instruments or documents
provided for herein or therein or delivered or to be delivered hereunder or
thereunder or in connection herewith or therewith.
"COLLATERAL ACCESS AGREEMENTS" shall mean any landlord waivers,
mortgagee waivers, bailee letters or any similar acknowledgment agreements of
any warehouseman or processor in possession of Inventory, in each case in a form
reasonably
-5-
<PAGE>
acceptable to Lender.
"COLLATERAL DOCUMENTS" shall mean, collectively, the Security
Agreement, Collateral Access Agreements, Depositary Account Agreements, LC
Guaranties, LC Reimbursement Agreements, any Uniform Commercial Code financing
statements, and any and all other documents provided for in SECTION 9 or
otherwise pursuant to which a Lien is granted to Lender (or to any agent,
trustee, or other party acting on behalf of Lender) as security for any of the
Liabilities, and all agreements, instruments and documents, including, without
limitation, this Agreement and any security agreements, loan agreements, notes,
guarantees, mortgages, deeds of trust, leasehold mortgages, leasehold deeds of
trust, subordination agreements, pledges, powers of attorney, consents,
assignments, intercreditor agreements, mortgagee waivers, reimbursement
agreements, contracts, notices, leases, financing statements, whether
heretofore, now or hereafter executed by or on behalf of any one or more of the
Obligors in connection with the Liabilities, in each case as the same may be
amended, modified, continued or supplemented from time to time.
"COMMITMENTS" shall mean the Letter of Credit Commitment and the
Revolving Commitment, and COMMITMENT shall mean either thereof.
"COMPLIANCE CERTIFICATE" - see SECTION 11.1(e).
"CONSOLIDATED ENTITY" shall mean Holdings and those of its
Subsidiaries consolidated with it for purposes of financial reporting,
including, in any event, each of the Borrowers.
"CONTINGENT OBLIGATION" shall mean, with respect to any Person,
the undrawn face amount of any letters of credit issued for the account of such
Person and shall also mean any obligation of such Person guaranteeing or in
effect guaranteeing any Indebtedness, leases, dividends, letters of credit or
other obligations ("PRIMARY OBLIGATIONS") of any other Person (the "PRIMARY
OBLIGOR") 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 financial
condition or solvency of the primary obligor, (c) to purchase property,
securities or services primarily for the purpose of assuring the obligee under
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 obligee under such primary obligation against loss in respect thereof;
PROVIDED, 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 or, where such
Contingent Obligation is specifically limited to a portion of any such primary
obligation, that portion to which it is limited 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" shall mean, with respect to any Person, each agreement
of
-6-
<PAGE>
such Person with respect to the sale of goods or services by such Person.
"CONTRACTUAL OBLIGATION" shall mean, with respect to any Person,
any provision of any security issued by such Person or of any agreement,
document, instrument or undertaking to which such Person is a party or by which
it or any of its property is bound.
"CONTROLLED GROUP" shall mean the Obligors and any corporation,
trade, business or other Person that is, along with any of them, a member of a
controlled group of Persons or a controlled group of trades or businesses or an
affiliated service group as described in sections 414(b), 414(c) and 414(m),
respectively, of the Code or in section 4001 of ERISA.
"CONVERTIBLE PREFERRED DOCUMENTS" shall mean the following
documents which are related to Holdings' Series C Convertible Preferred Stock,
par value $.01 per share: (a) Holdings' Certificate of Designations of Series C
Convertible Preferred Stock filed on January 13, 1999 with the Secretary of
State of the State of Delaware, (b) that certain Series C Convertible Preferred
Stock Purchase Agreement dated January 13, 1999 among Holdings, KA Investments,
LDC, Gary S. Kohler, First Trust National Association TTEE FBO Gary Kohler IRA,
Industricorp & Co., Inc. FBO Twin City Carpenters Pension Plan and Stark
International, and (c) that certain Registration Rights Agreement dated January
13, 1999 among Holdings, KA Investments, LDC, Gary S. Kohler, First Trust
National Association TTEE FBO Gary Kohler IRA, Industricorp & Co., Inc. FBO Twin
City Carpenters Pension Plan, and Stark International, in each case as the same
may be amended from time to time with prior written consent from the Lender.
"DEFAULT INTEREST PERIOD" - see SECTION 4.2(b).
"DEFAULT RATE" - see SECTION 4.2(a).
"DEPOSITARY ACCOUNT AGREEMENTS" shall mean, collectively, the
Canadian Depositary Account Agreement and the Domestic Depositary Account
Agreement.
"DEPOSITARY ACCOUNT BANKS" shall mean, collectively, the Canadian
Depositary Account Bank and the Domestic Depositary Account Bank.
"DEPOSITARY ACCOUNTS" shall mean, collectively, the Canadian
Depositary Account and the Domestic Depositary Account.
"DOCUMENTS" shall mean, with respect to any Person, any
"documents" as such term is defined in the UCC, now owned or hereafter acquired
by such Person wherever located.
"DOLLAR(S)" and the sign "$" shall mean lawful money of the
United States of America.
"DOMESTIC COLLECTED BALANCE" - see SECTION 7.2(b).
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<PAGE>
"DOMESTIC OPERATING ACCOUNT" - see SECTION 6.2(a).
"DOMESTIC CONTROLLED DISBURSEMENT ZERO BALANCE ACCOUNT" - see
SECTION 6.2(a).
"DOMESTIC DEPOSITARY ACCOUNT AGREEMENT" - see SECTION 6.1.
"DOMESTIC DEPOSITARY ACCOUNT" - see SECTION 6.2(a).
"DOMESTIC DEPOSITARY ACCOUNT BANK" shall mean each bank and other
entity serving in the capacity of agent for Lender under the Domestic Depositary
Account Agreement (including any successor Domestic Depositary Account
Agreement). Initially the Domestic Depositary Account Bank shall mean Harris
Trust and Savings Bank, an Illinois banking corporation.
"EBITDA" shall mean, for any period, the Net Income for such
period, PLUS, to the extent deducted in computing such Net Income, the sum of
(a) all Federal, state, local and foreign income tax expense, (b) Interest
Expense, (c) depreciation and amortization expenses, and (d) any extraordinary
pre-tax non-cash losses, MINUS, to the extent added in computing such Net
Income, (i) any interest income and (ii) any extraordinary pre-tax non-cash
gains, all as determined for the Consolidated Entity in accordance with GAAP.
"ELIGIBLE ACCOUNTS" shall have the meaning ascribed thereto in
SECTION 9.1(a).
"ELIGIBLE INSTALLMENT ACCOUNTS" shall have the meaning ascribed
thereto in SECTION 9.1(b).
"ELIGIBLE INVENTORY" shall have the meaning ascribed thereto in
SECTION 9.4.
"EMPLOYEE BENEFIT PLAN" shall mean any "employee benefit plan,"
as defined under Section 3(3) of ERISA or any other plan, policy, program,
arrangement or agreement, whether or not written, with respect to current
employees, former employees, independent contractors or leased employees, as
defined in Code Section 414(n), or the beneficiaries or dependents thereof,
which is or has been maintained by any Borrower or a current or past member of
the Controlled Group or as to which any Borrower or any current or past member
of the Controlled Group otherwise has or could have any liability.
"EQUIPMENT" shall mean, with respect to any Person, all of such
Person's machinery, equipment and furniture of every kind and nature, trade
fixtures and fixtures not forming a part of real property, all whether now owned
or hereafter acquired, and wherever situated, together with all appurtenances,
additions and accessions thereto, replacements therefor, all parts therefor, all
substitutes for any of the foregoing.
"EQUITY INTERESTS" shall mean, with respect to any Person, all of
the
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<PAGE>
shares of capital stock, membership interests, partnership units or other equity
interests, as the case may be, of any class of such Person, and, as determined
in accordance with GAAP, options, warrants and other rights to acquire any such
capital stock, membership interests, partnership units or other equity
interests.
"EQUITY SALE" shall mean any capital contribution to, or any
issuance, sale, give away, conveyance, transfer or other disposition of any of
its Equity Interests by any Obligor or Holdings or any other change in the
capital structure of any of them.
"EQUITY SALE PROCEEDS" shall mean the aggregate cash proceeds
paid or payable to any Obligor or Holdings in connection with any Equity Sale,
after deduction of all reasonable, customary and documented costs and expenses
of such Equity Sale.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"EVENT OF DEFAULT" shall mean any of the events or conditions
described in SECTION 13.1.
"FACILITY" shall mean the facilities of the respective Borrowers
listed on SCHEDULE 10.29.
"FISCAL QUARTER" shall mean each fiscal quarter of the
Consolidated Entity for financial accounting purposes, which ends on the last
day of January, April, July and October, respectively.
"FISCAL YEAR" shall mean the fiscal year of the Consolidated
Entity for financial accounting purposes, which Fiscal Year ends on the last day
of October.
"FIXTURES" shall mean, with respect to any Person, all "fixtures"
as such term is defined in the UCC, now owned or hereafter acquired by such
Person, wherever located.
"FORCE MAJEURE" shall mean acts of God, acts of public enemies,
insurrections, riots, civil disturbances, strikes, boycotts, other direct
consequences of a labor dispute, other industrial disturbances, fires,
explosions, floods, epidemics, quarantine restrictions, shortages of materials,
equipment or transportation, freight embargoes, power or utility failures,
orders or acts, or failures to act, of civil or military authority or other
similar causes beyond the control of any Obligor.
"FUNDING DATE" shall mean the date of funding of a Loan and each
continuation or conversion of Prime Rate Loans and LIBOR Rate Loans or issuance
of a Letter of Credit or a LC Guaranty therefor, which date in all cases shall
be a Business Day.
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<PAGE>
"GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time consistently applied
with those used in the preparation of the audited consolidated financial
statements of Consolidated Entity for the Fiscal Year ending October 31, 1998.
"GENERAL INTANGIBLES" shall mean, with respect to any Person, all
of such Person's presently owned or hereafter acquired "general intangibles" as
defined in the UCC of such Person, including Intellectual Property, goodwill,
choses in action, causes of action, franchises, customer lists, contract rights,
confidential information, employment agreements, engineering contracts,
leasehold interests in real and personal property, insurance policies (including
business interruption insurance), licenses, permits, and such other Property
which uniquely reflect the goodwill of the business of such Person; deposit
accounts, letters of credit, and General Intangibles relating to other items of
Collateral, including rights to refunds or indemnification; reversionary or
other rights of such Person to excess Employee Benefit Plan assets upon
termination or amendment thereof; and proceeds of all of the foregoing,
including insurance proceeds, including proceeds of business interruption
insurance, income tax refunds, and claims for tax or other refunds against any
Governmental Authority.
"GROSS CAPITAL EXPENDITURES" shall mean, for any period, the
total of all expenditures incurred by the Consolidated Entity determined on a
consolidated basis in respect of the purchase or other acquisition of fixed or
capital assets during such period, without any deduction for trade-ins, salvage
values, resales or similar recoveries, including the amount which, in accordance
with GAAP, is or should be initially posted to a consolidated balance sheet of
the Consolidated Entity with respect to Capitalized Leases.
"GOVERNMENTAL ACTS" - see SECTION 2.11(c).
"HAZARDOUS MATERIAL" shall mean: (a) any "hazardous substance" as
now defined pursuant to the Comprehensive Environmental Response, Compensation
and Liability Act ("CERCLA"), 42 U.S.C.A. Section 9601(14), as amended by the
Superfund Amendments and Reauthorization Act ("SARA"); (b) any "pollutant or
contaminant" as defined in 42 U.S.C.A. Section 9601(33); (c) any material now
defined as "hazardous waste" pursuant to 40 C.F.R. Part 261; (d) any petroleum,
including crude oil and any fraction thereof; (e) natural gas, natural gas
liquids, liquefied natural gas, or synthetic gas usable for fuel; (f) any
"hazardous chemical" as defined pursuant to 29 C.F.R. Part 1910; (g) any
asbestos, polychlorinated biphenyl (PCB), or isomer of dioxin, or any material
or thing containing or composed of such substance or substances; and (h) any
other substance, regardless of physical form, that is subject to any past,
present or future Federal, state or local governmental statute, rule or
regulation relating to the protection of human health, plant life, animal life,
natural resources, property or the reasonable enjoyment of life or property from
the presence in the environment of any solid, liquid, gas, odor or any form of
energy, from whatever source.
"HOLDINGS" shall mean TRO Learning, Inc., a Delaware corporation.
"INDEBTEDNESS" shall mean, with respect to any Person, the
following, without duplication, of such Person: (a) indebtedness for borrowed
money or for the deferred
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purchase price of property or services (other than deferred compensation to
employees and trade liabilities incurred in the ordinary course of business and
payable in accordance with customary practices), whether on open account or
evidenced by a note, bond, debenture or similar instrument, (b) obligations
under Capitalized Leases, (c) reimbursement obligations for letters of credit,
banker's acceptances or other credit accommodations, whether drawn or undrawn,
(d) liabilities, as determined by Lender, under any interest rate agreement, (e)
Contingent Obligations and (f) Indebtedness secured by any Lien on any property
of such Person, even if such Person has not assumed such Indebtedness.
"INDEBTEDNESS TO BE REFINANCED" - see SECTION 12.1(h).
"INSTRUMENT" shall mean, with respect to any Person, any
"instrument" as defined in the UCC, now owned or hereafter acquired by such
Person, wherever located, other than instruments that constitute, or are a part
of a group of writings that constitute, Chattel Paper of such Person.
"INTANGIBLE ASSETS" shall mean licenses, franchises, patents,
patent applications, trademarks, trademark applications, trade names,
copyrights, copyright applications, computer software rights, goodwill and
research and development expense or other intangibles shown on the consolidated
balance sheet of the Consolidated Entity.
"INSTALLMENT ACCOUNTS" shall mean, with respect to any Person,
those specific Accounts of such Person with respect to which the Account Debtors
thereunder are permitted by written contract to make installment payments over
time against the outstanding balance of such Account, provided that such Account
has been created in accordance with the Borrowers' established revenue
recognition policies as described in SCHEDULE 1.1.
"INTELLECTUAL PROPERTY" shall mean, with respect to any Person,
all of such Person's present and future designs, patents, patent rights and
applications therefor, technology, trademarks and registrations or applications
therefor, service marks, trade names, inventions, copyrights and all
applications and registrations therefor, advertising matter, software or
computer programs, license rights, trade secrets, methods, processes, logos,
knowhow, drawings, specifications, descriptions and licenses with respect
thereto, and all memoranda, notes, and records with respect to any research and
development, whether now owned or hereafter acquired by such Person and proceeds
of all of the foregoing, including proceeds of insurance policies thereon.
"INTEREST COVERAGE RATIO" shall mean, for any period, the ratio
for such period of (i) EBITDA to (ii) Interest Expense, all as determined for
the Consolidated Entity on a consolidated basis in accordance with GAAP.
"INTEREST EXPENSE" shall mean, for any period, the gross interest
expense accrued or paid by the Consolidated Entity during such period,
determined on a consolidated basis in accordance with GAAP. For the purposes of
the foregoing, gross interest expense shall be determined after giving effect to
any net payments made or received by the Consolidated Entity with respect to
interest rate protection agreements, except that for the purpose of
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calculating the covenants contained in Section 11.35, extraordinary Interest
Expense paid with respect to the Indebtedness to be Refinanced not to exceed
$325,000 shall not be included in such calculations.
"INTEREST PERIOD" shall mean with respect to any LIBOR Rate Loan,
a period of one, three or six months commencing on a Business Day selected by
Borrowers pursuant to this Agreement. Each such Interest Period shall end on
(but exclude) the date which numerically corresponds to such date one, three or
six months thereafter, PROVIDED, that if there is no such numerically
corresponding day in such next, third or sixth succeeding month, such Interest
Period shall end on the first Business Day of the month next succeeding such
next, third or sixth succeeding month. If any Interest Period would otherwise
end on a day which is not a Business Day, such Interest Period shall end on the
next succeeding Business Day.
"INVENTORY" shall mean, as to any Person, all of the inventory of
such Person of every kind and description, now or at any time hereafter owned by
or in the custody or possession, actual or constructive, of such Person,
wherever located, including all merchandise, raw materials, parts, supplies,
work-in-process and finished goods intended for sale, together with all the
containers, packing, packaging, shipping and similar materials related thereto,
and including such inventory as is temporarily out of such Person's custody or
possession, including inventory on the premises of other Persons and items in
transit, and including any goods reclaimed, returned or repossessed upon any
Accounts, Documents, Instruments or Chattel Paper relating to or arising from
the sale of inventory, and all substitutions and replacements therefor, and all
additions and accessions thereto, and all ledgers, books of account, records,
computer printouts, computer runs, microfilm, microfiche and other
computer-prepared information relating to any of the foregoing, and any and all
proceeds of any of the foregoing, including proceeds of insurance policies
thereon.
"INVESTMENT PROPERTY" shall mean, with respect to any Person, all
"investment property" as defined in Section 9-115 of the Uniform Commercial Code
in those jurisdictions in which such definition has been adopted and shall
include (i) all securities, whether certificated or uncertificated, including
stocks, bonds, interests in limited liability companies, partnership interests,
treasuries, certificates of deposit, and mutual fund shares; (ii) all securities
entitlements of such Person, including the rights of such Person to any
securities account and the financial assets held by a securities intermediary in
such securities account and any free credit balance or other money owing by any
securities intermediary with respect to that account; (iii) all securities
accounts held by such Person; (iv) all commodity contracts held by such Person;
and (v) all commodity accounts held by such Person.
"INVESTOR" shall mean, collectively, William Roach, an
individual, and such Person's spouse, descendants and ancestors (whether natural
or adopted), a spouse of any such descendant or ancestor and a trustee or any
trust primarily for the benefit of such Person and/or one or more of the
foregoing.
"ISSUER" shall mean LaSalle National Bank, N.A., or any other
financial institution which any Borrower, from time to time with the prior
written consent of Lender, may
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select to issue Permitted LCs.
"LC EXPOSURE" shall mean, at any time, the sum, of (a) the Cap
Amount at such time less the amount of outstanding Letters of Credit included in
Reimbursement Obligations for the purposes of CLAUSE (b) of this definition,
PLUS (b) the then aggregate amount of outstanding Reimbursement Obligations.
"LC GUARANTY" - see SECTION 2.1(b).
"LC GUARANTY REQUEST" - see SECTION 12.2(c).
"LC REIMBURSEMENT AGREEMENT" - see SECTION 2.1(b).
"LC UTILIZATION" - see SECTION 5.3.
"LEASE OBLIGATIONS" shall mean, at any date, the rental
commitments of a Person under leases for real and/or personal property
(including taxes, insurance, maintenance and similar expenses which such Person
is obligated to pay under the terms of said leases) on such date, whether or not
such obligations are reflected as liabilities or commitments on a balance sheet
of such Person or in the notes thereto, excluding, however, Capitalized Lease
Obligations.
"LENDER" - see Preamble.
"LENDER PARTY" - see SECTION 14.5.
"LETTER OF CREDIT" shall mean a letter of credit issued by an
Issuer for the account of a Borrower pursuant to an LC Reimbursement Agreement.
"LETTER OF CREDIT COMMITMENT" - see SECTION 2.1(b).
"LIABILITIES" shall mean all of the following, in each case
howsoever created, arising or evidenced, whether direct or indirect, joint or
several, absolute or contingent, or now or hereafter existing or arising, or due
or to become due: (i) all liabilities, obligations and indebtedness to Lender of
any one or more of the Borrowers and their respective successors and assigns
under or in connection with this Agreement, any Note, any Letter of Credit, any
LC Guaranty, or any of the other Related Documents, (ii) all other liabilities,
obligations and indebtedness of any one or more of the Borrowers to Lender,
whether or not arising out of or in connection with this Agreement, any Note, or
any other Related Document, and (iii) all other obligations of any one or more
of the Borrowers or their respective successors and assigns to Lender in
connection with the Related Transactions.
"LIBOR INTEREST PAYMENT DATE" shall mean, with respect to any
LIBOR Rate Loan, the fifteenth day of each month and the last day of each
Interest Period applicable thereto, commencing with the first of such dates to
occur after the making of such LIBOR Rate Loan.
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"LIBOR INTEREST RATE DETERMINATION DATE" shall mean each date of
determining the LIBOR Rate with respect to an Interest Period which date shall
be the first Business Day prior to the first day of the applicable Interest
Period for any LIBOR Rate Loan.
"LIBOR RATE" shall mean, for any Interest Period, an interest
rate per annum obtained by dividing (i) the rate of interest published in THE
WALL STREET JOURNAL on the LIBOR Interest Rate Determination Date in the column
captioned "Money Rates" under the heading "London Interbank Offered Rates
(LIBOR)", with respect to a time period equal to such Interest Period, by (ii) a
percentage equal to 100% MINUS the LIBOR Reserve Percentage, if any, in effect
on the applicable LIBOR Interest Rate Determination Date; PROVIDED, that, if
such publication is not available or such rate is not set forth therein, the
LIBOR Rate shall be determined on the basis of any other source determined by
Lender in its reasonable discretion.
"LIBOR RATE LOAN" shall mean a Loan which bears interest for a
specific Interest Period based on the LIBOR Rate.
"LIBOR RESERVE PERCENTAGE" shall mean, for any day, the aggregate
of the rates (expressed as a decimal) of any reserve requirements current on
such day (including, without limitation, basic, supplemental, marginal and
emergency reserves) under any regulation promulgated by the Board of Governors
of the Federal Reserve System (or any successor thereto) as in effect from time
to time dealing with reserve requirements prescribed for eurocurrency funding,
including any reserve requirements with respect to "eurocurrency liabilities"
under Regulation D of the Board of Governors of the Federal Reserve System.
"LIEN" shall mean, when used with respect to any Person, any
interest in any real or personal property, asset or other right held, owned or
being purchased or acquired by such Person which secures payment or performance
of any obligation and shall include any security interest, mortgage, lien,
pledge, encumbrance, charge, retained security title of a conditional vendor or
lessor, or other security interest of any kind, whether arising under a security
agreement, mortgage, deed of trust, chattel mortgage, assignment, pledge,
retention of security title, financing or similar statement or notice or arising
as a matter of law, judicial process or otherwise.
"LOAN" and "LOANS" - see SECTION 2.1(a).
"LOAN YEAR" shall mean each period of 12 consecutive months
commencing on the Closing Date and on each anniversary thereof.
"LOCKBOX" - see SECTION 6.2(c).
"LOSS PROPERTY" - see SECTION 7.6.
"LOSS PROCEEDS" - see SECTION 7.6.
"MANAGER" shall mean First Source Financial, Inc., a Delaware
corporation, and its successors and assigns, as manager of Lender.
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"MASTER AGENTS" - see SECTION 14.23.
"MATERIAL ADVERSE EFFECT" shall mean (a) a material adverse
effect on the financial condition, operations, assets, business or prospects of
the Obligors taken as a whole, (b) a material impairment of the ability of any
Obligor to perform its obligations in connection with this Agreement or any of
the Related Documents to which it is a party, (c) a material adverse effect on
Lender's Lien priority in, or the value of, the Collateral, or (d) a material
adverse effect on the validity or enforceability of any of the Related Documents
or the rights, powers or remedies of Lender to enforce or collect any of the
Liabilities.
"MATERIAL INTELLECTUAL PROPERTY RIGHT" - see SECTION 10.14.
"MONTHLY REPORT" shall have the meaning ascribed thereto in
SECTION 11.1(n).
"MULTIEMPLOYER PLAN" shall mean any "multiemployer plan" within
the meaning of Section 3(37) or 4001(a)(3) of ERISA to which any Borrower or a
current or past member of the Controlled Group is making or has made
contributions, or as to which any Borrower or any current or past member of the
Controlled Group otherwise has or could have any liability.
"NET INCOME" shall mean, for any period, net income or loss of
the Consolidated Entity as it would appear on a consolidated income statement of
the Consolidated Entity for such period prepared in accordance with GAAP.
"NET WORTH" shall mean the net worth of the Consolidated Entity
as it would appear on a consolidated balance sheet of the Consolidated Entity
prepared in accordance with GAAP.
"NOTE" - see SECTION 3.1.
"NOTICE OF LIBOR ACTIVITY" - see SECTION 2.3(b).
"OBLIGORS" shall mean the Borrowers and their respective
Subsidiaries and "OBLIGOR" shall mean any of them.
"ORGANIZATION DOCUMENTS" of a Person shall mean, as applicable,
the articles of incorporation, articles of organization, operating agreement,
bylaws, partnership agreement and all other organization documents of such
Person.
"OTHER ACCOUNTS" - see SECTION 6.2(d).
"OVERADVANCE AMOUNT" shall mean an amount equal to $1,500,000.
"PBGC" shall mean Pension Benefit Guaranty Corporation, and any
entity
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succeeding to any or all of its functions under ERISA.
"PENSION PLAN" shall mean any "employee pension benefit plan", as
such term is defined in Section 3(2) of ERISA (other than a Multiemployer Plan),
which is (a) subject to Title IV of ERISA or subject to the minimum funding
standards under Section 412 of the Code or Section 302 of ERISA and (b) is or
has been maintained by any Borrower or a current or past member of the
Controlled Group, or as to which any Borrower or any member of the Controlled
Group otherwise has or could have any liability.
"PERMITTED LC" shall mean a Letter of Credit issued with Lender's
prior written consent; PROVIDED, that (a) each such Letter of Credit shall
expire pursuant to its terms on or before the Termination Date, (b) at no time
shall Total Revolving and LC Exposure exceed the lesser at such time of the
Revolving Commitment and the Borrowing Base, (c) Borrower's reimbursement
obligations with respect to each such Letter of Credit shall be secured by an LC
Guaranty and (d) Lender and the respective Issuer shall have agreed in writing
that the Relevant Cap for such LC Guaranty shall be increased by an amount equal
to the stated amount of such Letter of Credit.
"PERMITTED LIENS" shall mean any of the following Liens:
(a) Liens in favor of Lender, granted pursuant to the Collateral
Documents;
(b) Liens (i) in connection with the acquisition of fixed assets
after the date hereof and attaching only to the Property being
acquired, if the Indebtedness secured thereby is incurred in
connection with the acquisition and does not exceed eighty percent
(80%) of the fair market value of such Property at the time of
acquisition thereof, and (ii) Liens on property being leased pursuant
to leases which are Capitalized Lease Obligations permitted under this
Agreement, provided that the aggregate outstanding amount of all such
Indebtedness and Capitalized Lease Obligations described in the
preceding CLAUSES (i) and (ii) does not at any time exceed $250,000;
(c) Liens for current taxes or other governmental charges or
levies which are not delinquent or are being contested in good faith
and by appropriate proceedings, and with respect to which adequate
reserves have been established, and are being maintained, in
accordance with GAAP;
(d) mechanic's, worker's, materialmen's, landlord's and
carrier's and other like Liens arising in the ordinary course of
business in respect of obligations which are not delinquent or which
are being contested in good faith and by appropriate proceedings, and
with respect to which adequate reserves have been established, and are
being maintained, in accordance with GAAP;
(e) Liens arising in the ordinary course of business for sums
being contested in good faith and by appropriate proceedings, and with
respect to which
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adequate reserves have been established, and are being maintained, in
accordance with GAAP, or for sums not due, and in any case not
involving any deposits or advances for borrowed money or the deferred
purchase price of Property or services;
(f) zoning ordinances, easements, licenses, reservations,
covenants, conditions or restrictions on the use of real property
which, in Lender's reasonable determination, are not violated by
existing uses or improvements not otherwise permitted, do not in the
aggregate interfere with the use of the related real property and do
not materially and adversely affect the marketability of the title to
the related real property;
(g) Liens incurred in the ordinary course of business in
connection with worker's compensation, unemployment insurance or other
forms of governmental insurance or benefits;
(h) Liens shown on SCHEDULE 10.5; and
(i) Liens affecting the underlying fee interest of any leased
real property.
"PERSON" shall mean any natural person, corporation, firm,
partnership, limited liability company, limited liability partnership, firm,
trust, association, government, governmental agency, Employee Benefit Plan or
other entity, whether acting in an individual, fiduciary or other capacity.
"PREPAYMENT PREMIUM" - see SECTION 2.7.
"PRIMARY COLLATERAL LOCATIONS" - see SECTION 11.24.
"PRIME RATE" shall mean the highest "prime rate" of interest in
the U.S.A. reported, from time to time, by THE WALL STREET JOURNAL; PROVIDED,
that in the event that THE WALL STREET JOURNAL ceases to be published or to
report rates of the aforesaid type, the "Prime Rate" shall be determined from a
comparable source chosen by Lender in good faith. The "Prime Rate" shall change
effective on the date of the publication of any change in the applicable index
by which such "Prime Rate" is determined.
"PRIME RATE LOAN" shall mean a Loan or the portion thereof which
bears interest determined by reference to the Prime Rate.
"PROPERTY" shall mean, with respect to any Person, all types of
real, personal or mixed property and all types of tangible or intangible
property, in each case of such Person.
"REAL ESTATE" of a Person shall mean the real property, mineral
rights, leasehold or other interests in real property together with any purchase
options and other rights
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related to such leaseholds or other interests owned, leased, used or operated
now or hereafter by such Person, all Fixtures and personal property used in
conjunction therewith and such Person's rights to leases, rents and profits with
respect thereto.
"REIMBURSEMENT OBLIGATIONS" - see SECTION 2.11(a).
"RELATED DOCUMENTS" shall mean, collectively, the Notes and the
Collateral Documents, in each case as the same may be amended, restated,
modified or supplemented from time to time pursuant to the terms hereof or
thereof.
"RELATED TRANSACTIONS" shall mean all transactions contemplated
by this Agreement and the Related Documents, including, without limitation, the
making of any Loans and the granting of Liens on the Collateral to secure the
Liabilities.
"REPORTABLE EVENT" shall have the meaning given to such term
under Section 4043 of ERISA or the regulations issued thereunder.
"REQUIREMENT OF LAW" for any Person shall mean the corporate
charter and by-laws or other organizational or governing documents of such
Person, and any law, treaty, rule, ordinance or regulation or determination of
an arbitrator or a court or other governmental authority, in each case
applicable to or binding upon such Person or any of its property or to which
such Person or any of its Property is subject.
"RESPONSIBLE OFFICER" shall mean the chief financial officer,
treasurer or controller of each Borrower.
"RESTRICTED ACCOUNTS" - see SECTION 6.1.
"REVOLVING COMMITMENT" - see SECTION 2.1(a).
"SEC" shall mean Securities and Exchange Commission and any
entity succeeding to any or all of its functions under the Exchange Act.
"SECURITY AGREEMENT" - see SECTION 9.8.
"SOLVENT" with respect to any Person on any date of
determination, shall mean that (i) the fair saleable value of such Person's
Property is in excess of the total amount of the present value of its
Liabilities (including for purposes of this definition all liabilities, whether
or not reflected on a balance sheet prepared in accordance with GAAP, and
whether direct or indirect, fixed or contingent, liquidated or unliquidated,
secured or unsecured, disputed or undisputed), (ii) such Person is generally
able to pay its debts or obligations in the ordinary course as they mature, and
(iii) such Person has capital sufficient to carry on its business as conducted
and as proposed to be conducted. In computing the amount of contingent,
unliquidated or disputed liabilities at any time, such liabilities will be
computed at the amount which, in light of all of the facts and circumstances
existing at such time, represents the amount that can reasonably be expected to
become an actual or matured liability. "SOLVENCY" shall have
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a correlative meaning.
"SUBSIDIARY" shall mean, with respect to any Person (herein
referred to as the "parent"), any corporation, association or other business
entity (whether now existing or hereafter organized) of which at least a
majority of the securities or other ownership interests having ordinary voting
power for the election of directors (or their equivalent under the laws of the
jurisdiction of organization of such person) is, at the time any determination
is being made, owned or controlled by the parent or one or more subsidiaries of
the parent or by parent and one or more subsidiaries of the parent; PROVIDED,
THAT, for purposes of this Agreement, TRO (UK) shall be deemed to be an
Affiliate, but not a Subsidiary, of the Obligors.
"SUBORDINATED DEBT DOCUMENTS" shall mean Holdings' Series 1997
10% Subordinated Convertible Debentures due March 27, 2004 in the aggregate
principal amount of $3,050,000 represented by Debenture Certificates
No.1997/10-1 through No. 1997/10-55 and warrants to purchase common stock of
Holdings issued at such time, in each case as the same may be amended from time
to time with the prior written consent of the Lender.
"SUBORDINATED INDEBTEDNESS" shall mean the Indebtedness evidenced
by the Subordinated Debt Documents.
"TERMINATION DATE" - see SECTION 2.1(a).
"TOTAL REVOLVING AND LC EXPOSURE" shall mean, at any time, the
sum of (a) the LC Exposure, if any, at such time and (b) the then aggregate
outstanding principal amount of all Loans.
"TRO (UK)" shall mean TRO Learning (UK) Limited.
"UNAPPLIED INSURANCE OR CONDEMNATION PROCEEDS" - shall mean Loss
Proceeds which Lender may apply against the Liabilities in accordance with
SECTION 7.6.
"UNMATURED EVENT OF DEFAULT" shall mean any event or condition
which if it continues uncured will, with lapse of time or notice or lapse of
time and notice, constitute an Event of Default.
"WELFARE PLAN" shall mean any "employee welfare benefit plan", as
such term is defined in Section 3(1) of ERISA.
"Y2K ISSUES" - see SECTION 10.14.
SECTION 1.2 ACCOUNTING AND FINANCIAL DETERMINATIONS. Where the
character or amount of any asset or liability or item of income or expense or
equity interest is required to be determined, or any accounting computation is
required to be made, for the purpose of this Agreement or the Related Documents,
such determination or calculation shall be made, to the extent applicable and
except as otherwise specified in this Agreement or such Related Document, in
accordance with GAAP; PROVIDED, that if any change in generally accepted
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accounting principles from those applied in the preparation of the financial
statements referred to in SECTION 10.3 is occasioned by the promulgation of
rules, regulations, pronouncements and opinions by or required by the Financial
Accounting Standards Board or the American Institute of Certified Public
Accountants (or successors thereto or agencies with similar functions), the
initial announcement of which change is made after the Closing Date, results in
a change in the method of calculation of financial covenants, standards or terms
found in SECTIONS 1 or 11, the parties hereto agree to enter into good faith
negotiations in order to amend such provisions so as to reflect such changes
with the desired result that the criteria for evaluating the Consolidated
Entity's financial condition shall be the same after such changes as if such
changes had not been made; and PROVIDED, that until such time as the parties
hereto agree upon such amendments, such financial covenants, standards and terms
shall be construed and calculated as though such change had not taken place.
When used herein, the term "financial statement" shall include the notes and
schedules thereto, if any. All other terms contained in this Agreement (and
which are not otherwise specifically defined herein) shall have the meanings
provided in Article 9 of the Uniform Commercial Code of the State of Illinois
(the "UCC") to the extent the same are used or defined therein. All
determinations of the book value of Inventory contemplated hereby shall be at
the lower of cost (on a first-in, first-out basis) or market.
SECTION 1.3 CROSS REFERENCES; HEADINGS. The words "hereof",
"herein" and "hereunder" and words of a similar import when used in this
Agreement or in any of the Related Documents shall refer to this Agreement or
such Related Document as a whole and not to any particular provision of this
Agreement or such Related Document. Section, Schedule and Exhibit references
contained in this Agreement are references to Sections, Schedules and Exhibits
in or to this Agreement unless otherwise specified. Any reference in any Section
or definition to any clause is, unless otherwise specified, to such clause of
such Section or definition. The various headings in this Agreement and the
Related Documents are inserted for convenience only and shall not affect the
meaning or interpretation of this Agreement or such Related Document or any
provision hereof or thereof.
SECTION 2 COMMITMENTS; LOAN REQUESTS; REDUCTION OR TERMINATION OF
COMMITMENTS; PREPAYMENTS; MAKING OF PAYMENTS; SETOFF.
SECTION 2.1 COMMITMENTS. Subject to the terms and conditions of
this Agreement, Lender shall:
(a) REVOLVING COMMITMENT. Make loans to Borrowers (herein
collectively called the "LOANS" and individually called a "LOAN") on a joint and
several revolving basis from time to time before February 26, 2002, or such
later date as may be established pursuant to SECTION 2.2 or such earlier date
pursuant to a termination of this Agreement under SECTION 13.2 hereof (herein
called the "TERMINATION DATE"), in such amounts as the Borrowers from time to
time may request up to $15,000,000 (the foregoing commitment of Lender, as it
may be reduced in accordance with the terms hereof from time to time, is herein
called the "REVOLVING COMMITMENT"), less all reductions in the amount of the
Revolving Commitment pursuant to SECTION 2.5, PROVIDED, that Lender shall not be
required to make any Loan if, after giving effect to such Loan, Total Revolving
and LC Exposure would exceed the lesser of (i) the amount of the
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Revolving Commitment then in effect or (ii) the Borrowing Base at such time.
Lender reserves the right in the exercise of its reasonable business judgment
with respect to the Borrowing Base to (i) adjust any eligibility criteria or
establish new eligibility criteria, and (ii) modify the advance rates against
Eligible Accounts, Eligible Installment Accounts and Eligible Inventory.
(b) LETTER OF CREDIT COMMITMENT. Issue guaranties to an Issuer, or
any other assurance of repayment acceptable to such Issuer which Lender in its
sole discretion may offer (each such guaranty or other assurance herein,
together with any extension or renewals thereof, or guaranties issued by Lender
in substitution therefor from time to time, called an "LC GUARANTY") of
reimbursement obligations of a Borrower arising under reimbursement agreements
in such form as is satisfactory to Lender (herein collectively called the "LC
REIMBURSEMENT AGREEMENTS" and individually called an "LC REIMBURSEMENT
AGREEMENT"), in each case executed in connection with Permitted LCs; PROVIDED,
that Lender shall not be required to issue any LC Guaranty if, after giving
effect to such issuance, Total Revolving and LC Exposure would exceed an amount
equal to the lesser of (i) the Revolving Commitment then in effect or (ii) the
Borrowing Base at such time, and PROVIDED, FURTHER, that in no event shall the
aggregate amount of reimbursement obligations of Borrowers secured at any time
pursuant to LC Guaranties exceed $2,000,000. All LC Guaranties shall expire on
or before the Termination Date. The foregoing commitment of Lender is herein
called the "LETTER OF CREDIT COMMITMENT."
SECTION 2.2 TERMINATION DATE. This Agreement shall be effective
from the Closing Date until the Termination Date; PROVIDED, that all of Lender's
rights and remedies under this Agreement shall survive such termination until
all of the Liabilities have been finally paid in full in cash. In addition, this
Agreement may be terminated as set forth in SECTION 13.2. Upon the effective
date of termination, all of the Liabilities shall become immediately due and
payable without notice or demand notwithstanding any terms contained herein or
in any Note to the contrary. Notwithstanding any termination of this Agreement,
until (i) all of the Liabilities except unmatured contingent Liabilities (other
than those Liabilities described in CLAUSES (ii) and (iii) below) for which no
claim has been asserted shall have been paid in full in cash, (ii) each LC
Guaranty shall have been terminated and (iii) Borrowers shall have provided to
Lender security on terms satisfactory to Lender with respect to any pending or
overtly threatened action against any Person which could result in a claim
against Borrowers by any Lender Party for indemnification under SECTION 14.5,
Borrowers shall remain bound by the terms of this Agreement and Lender shall be
entitled to retain its Liens on the Collateral.
SECTION 2.3 LOAN REQUESTS.
(a) With respect to borrowings comprised of Prime Rate Loans, the
Borrowers shall give notice to Lender written notice of each such proposed
borrowing substantially in the form set forth in EXHIBIT B-1 (each a "NOTICE OF
PRIME RATE ACTIVITY") thereof by 10:00 A.M. Chicago time on the day of the
proposed Funding Date thereof. Prime Rate Loans made on any Funding Date shall
be in an aggregate minimum amount of $5,000 and integral multiples of $5,000 in
excess thereof.
(b) With respect to borrowings comprised of LIBOR Rate Loans, the
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Borrowers shall deliver to Lender written notice of each such proposed borrowing
substantially in the form set forth in EXHIBIT B-2 (each a "NOTICE OF LIBOR
ACTIVITY") by 10:00 A.M. Chicago time at least three (3) Business Days prior to,
but in any event no more than five (5) Business Days prior to, the proposed date
of such borrowing. LIBOR Rate Loans shall be in an aggregate minimum amount of
$100,000 and integral multiples of $100,000 in excess thereof (or in such other
amount as Lender shall permit as shall be evidenced by the making of such LIBOR
Rate Loan by Lender).
(c) Each notice given pursuant to this SECTION 2.3 shall be
irrevocable and Borrowers shall be bound to make a borrowing in accordance
therewith. Subject to receipt by Lender of the documents required under SECTION
12 with respect to a borrowing and the satisfaction of all other conditions
precedent to such borrowing set forth in this Agreement, on the requested
Funding Date Lender shall pay over such funds by wire transfer to the Domestic
Operating Account (except that, with respect to the initial Loans, disbursement
shall be according to instructions to be agreed upon by Lender and Borrowers on
or prior to the Closing Date). Such notice shall be in writing and shall
specify the date, amount and type of borrowing. No Lender Party shall incur any
liability to any Obligor in acting upon any notice referred to above which such
Lender Party believes in good faith to have been given by a duly authorized
officer or other persons authorized to borrow on behalf of the Borrowers or for
otherwise acing in good faith under this SECTION 2.3 and, upon funding of any
Loans by Lender in accordance with this Agreement pursuant to any such notice,
Borrowers shall have effected a Loan hereunder.
SECTION 2.4 CERTAIN WAIVERS. Borrowers waive notice of the
creation of any of the Liabilities and all other notices whatsoever to Borrowers
with respect to the Liabilities except notices required under SECTION 13.1.
SECTION 2.5 VOLUNTARY REDUCTION OR TERMINATION OF THE REVOLVING
COMMITMENT. Borrowers may voluntarily from time to time on at least five
Business Days' prior written irrevocable notice to Lender by Borrowers
permanently reduce the Revolving Commitment in whole or in part; PROVIDED, that,
if in part, any such reduction to be in an aggregate amount of at least $100,000
and an integral multiple of $50,000; and, PROVIDED, FURTHER, that, effective as
of the date of each such partial reduction in the Revolving Commitment, each of
the dollar sublimit set forth in PARAGRAPHS (b) and (c) of the definition of the
term "Borrowing Base," shall be reduced automatically and permanently by an
amount equal to (i) the amount of such sublimit then in effect MULTIPLIED BY (b)
a fraction, the numerator of which is the amount of such reduction and the
denominator of which is the Revolving Commitment in effect immediately prior to
giving effect thereto.
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SECTION 2.6 MANDATORY PREPAYMENTS ON LOANS; REDUCTION IN
OVERADVANCE AMOUNT.
(a) Concurrently with each reduction (including any termination) of
the Revolving Commitment (whether pursuant to SECTION 2.5 or otherwise),
Borrowers shall make a mandatory prepayment of the Loans outstanding in the
amount, if any, by which (i) the Total Revolving and LC Exposure exceeds (ii)
the then reduced amount of the Revolving Commitment. In addition, if at any
time (i) the Total Revolving and LC Exposure shall exceed (ii) the Borrowing
Base, Borrowers shall make a mandatory prepayment of the Loans in the aggregate
amount of such excess. Each such payment shall be accompanied by accrued
interest on such principal amount and amounts payable under SECTION 4.4(f), if
any.
(b) If at any time the making of a deemed Loan pursuant to the first
sentence of SECTION 7.5 causes Total Revolving and LC Exposure to exceed the
lesser of (i) the Revolving Commitment or (ii) the Borrowing Base, then
Borrowers immediately shall make a mandatory prepayment of Loans outstanding in
the aggregate amount of such excess. Each such payment shall be accompanied by
accrued interest on such principal amount and amounts payable under SECTION
4.4(f), if any. If any such excess remains after payment in full of the
outstanding Loans, Borrowers shall immediately cash collateralize the LC
Exposure in accordance with SECTION 13.2, to the extend necessary to eliminate
such remaining excess.
(c) Borrowers shall prepay the Loans in an amount equal to (i) the
Asset Sale Proceeds concurrently upon receipt by any Obligor of such Asset Sale
Proceeds and (ii) Equity Sale Proceeds concurrently upon receipt by any Obligor
or Holdings of such Equity Sale Proceeds.
(d) Any prepayment of the Loans made under this Section shall be
applied in accordance with SECTIONS 7.3 or 7.4, as applicable, and shall be
accompanied by any amounts required by SECTION 8.2 hereof.
SECTION 2.7 PREPAYMENT PREMIUM. Each voluntary reduction of the
Revolving Commitment pursuant to SECTION 2.5 and each mandatory reduction to the
Revolving Commitment made pursuant to SECTION 2.6(a), shall be accompanied in
each case by a prepayment premium ("PREPAYMENT PREMIUM") paid to Lender in an
amount equal to: (a) if such reduction is made at any time during the period
from and including the Closing Date to and including the first anniversary of
the Closing Date, two percent (2%) of such commitment reduction; (b) if such
reduction is made at any time during the period after the first anniversary of
the Closing Date through and including the second anniversary of the Closing
Date, one percent (1%) of such commitment reduction; and (c) if such reduction
is made at any time during the period after the second anniversary of the
Closing Date through and including the third anniversary of the Closing Date,
one-half of one percent (0.5%) of such commitment reduction.
SECTION 2.8 MAKING OF PAYMENTS. All payments of principal of, or
interest on, the Notes and of all fees and other Liabilities shall be made by
Borrowers to Lender, without setoff, deduction or counterclaim, in immediately
available Dollars. Unless Agent exercises its option under SECTION 7.5 hereof,
all such payments shall be made to Lender's
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Account No. 2358874 at LaSalle National Bank, ABA #071000505 (or such other
account as Lender may from time to time specify), not later than 11:30 A.M.
Chicago time, on the date due; and funds received after that hour shall be
deemed to have been received by Lender on the next following Business Day.
Anything in this Agreement to the contrary notwithstanding, under no
circumstances shall receipt by any Depositary Account Bank of funds of any
Borrower into a Depositary Account or the holding of funds therein constitute
repayment of Loans, or entitle any Borrower to interest thereon.
SECTION 2.9 DUE DATE EXTENSION. If any payment of principal,
interest or fees with respect to any of the Loans falls due on a Saturday,
Sunday or other day which is not a Business Day, then such due date shall be
extended to the next following Business Day, and additional interest and fees
shall accrue and be payable for the period of such extension.
SECTION 2.10 SETOFF. Lender, each Depositary Account Bank (as agent
of Lender) and any holder of a Note shall have all rights of setoff (up to the
full amount of the Liabilities at the time of any such setoff) provided by
applicable law, and in addition thereto, at any time that (a) any payment or
amount owing by any Obligor under or in connection with this Agreement or the
Related Documents is then due to Lender or any such holder of a Note or (b) any
Event of Default exists, Lender (or each Depositary Account Bank as Lender's
agent) and any such holder of a Note may apply to the payment of such payment or
other amount due by a Borrower any and all balances, credits, deposits, accounts
or moneys of such Borrower then or thereafter with Lender (or such Depositary
Account Bank as Lender's agent) or such holder of a Note.
SECTION 2.11 CERTAIN MATTERS RELATING TO LC GUARANTIES.
(a) Notwithstanding any provision herein to the contrary, immediately
upon any Issuer's presentation of any demand for payment under an LC Guaranty,
Borrowers shall be jointly and severally obligated to reimburse Lender on the
date on which Lender honors such demand, in immediately available funds equal to
the amount of such honored demand (such obligations being referred to herein as
"REIMBURSEMENT OBLIGATIONS"). Lender shall use its best efforts to give notice
to Borrowers of the amount of such honored demand by Lender, PROVIDED, that the
failure to give such notice shall not relieve Borrowers of their Reimbursement
Obligation nor give rise to or result in any liability of Lender. If all or any
part of such demand is not paid by Borrowers when due, such unpaid amount shall
bear interest for each day during the period from the day of such demand until
it shall be paid in full at a rate equal to the Default Rate. Borrowers shall
be deemed to have requested that such Reimbursement Obligation be converted into
a Loan. Such Reimbursement Obligation shall be so converted if, and only if,
each of the following conditions shall have been satisfied within three (3)
Business Days after the date the Reimbursement Obligation is incurred: (a) after
giving effect to such conversion, Total Revolving and LC Exposure shall not
exceed the Revolving Commitment then in effect, and (b) all other conditions
precedent to the making of a Loan shall be satisfied unless Lender shall have
waived the same (and the making of such Loan shall be deemed to be a waiver by
Lender of such right), other than any requirement that the amount of such Loan
shall be in a minimum amount of $100,000 or an integral multiple of $50,000.
Such conversion shall be effective on the date on which all of the conditions
specified in the preceding sentence are satisfied, and thereafter each
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reference in this Agreement or any other Related Document to a Loan or Loans
shall be deemed to include reference to such Reimbursement Obligations as so
converted.
(b) The joint and several obligation of Borrowers to reimburse Lender
for demands made under the LC Guaranties shall be unconditional and irrevocable
and shall be enforced strictly in accordance with the terms of this Agreement
under all circumstances, including, without limitation, the following: (a) lack
of validity or enforceability of the applicable LC Guaranty or Permitted LC; (b)
the existence of any claim, set-off, defense or other right which Borrowers may
have at any time against an Issuer, any Lender Party or any other Person,
whether in connection with this Agreement, the transactions contemplated herein
or any unrelated transaction (including any underlying transaction between
Borrowers and the beneficiary under a Permitted LC); (c) any draft, demand
certificate or any other document presented under an LC Guaranty or Permitted LC
proving to be forged, fraudulent, invalid or insufficient in any respect or any
statement therein being untrue or inaccurate in any respect, except to the
extent of any gross negligence or willful misconduct of Lender; (d) payment by
Lender under the LC Guaranty against a demand which does not comply with the
terms of the LC Guaranty, PROVIDED, that such payment does not constitute gross
negligence or willful misconduct of Lender; (e) any adverse change in the
condition (financial or otherwise) of Borrowers; (f) any breach of this
Agreement by Borrowers or any Lender Party; (g) any other circumstances or
happening whatsoever, which is similar to any of the foregoing; or (h) the fact
that an Event of Default or an Unmatured Event of Default shall have occurred
and be continuing.
(c) In addition to amounts payable as elsewhere provided herein and
to the provisions of SECTION 14.5, Borrowers hereby jointly and severally agree
to indemnify, exonerate and hold each Lender Party free and harmless from and
against any and all claims, demands, actions, causes of action, suits, losses,
costs (including attorneys' fees and disbursements), charges, liabilities and
damages, and expenses in connection therewith (irrespective of whether such
Person is a party to the action for which indemnification hereunder is sought)
which such Lender Party incurs or is subject to as a consequence, directly or
indirectly, of (i) the issuance of any LC Guaranty, other than as a result of
the gross negligence or willful misconduct of such Person as determined by a
court of competent jurisdiction, or (ii) the failure of Lender to honor a demand
under an LC Guaranty as a result of any act or omission relating to an LC
Guaranty, whether rightful or wrongful, of any present or future de jure or de
facto government or governmental authority (herein all such acts or omissions
being called "GOVERNMENTAL ACTS"). All obligations under this SECTION 2.10(c)
shall survive any termination of this Agreement.
(d) As among Borrowers and Lender Parties, Borrowers assume all risks
of the acts and omissions of, or misuse of an LC Guaranty by, the applicable
Issuer or any beneficiary of a Permitted LC. Without limiting the foregoing,
Lender shall not be responsible for: (i) the form, validity, sufficiency,
accuracy, genuineness or legal effect of any document submitted by any Person in
connection with the application for and issuance of an LC Guaranty or Permitted
LC, even if such document is proven to be in any respect invalid, insufficient,
inaccurate, fraudulent or forged; (ii) the validity or sufficiency of any
instrument transferring or assigning or purporting to transfer or assign an LC
Guaranty or Permitted LC or the rights or benefits thereunder or proceeds
thereof, in whole or in part, which may prove to be invalid or ineffective for
any reason; (iii) the failure of the beneficiary of a Permitted LC to comply
fully
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with conditions required in order to draw thereupon, or the failure of an Issuer
to comply fully with conditions required in order to demand under an LC
Guaranty; (iv) errors, omissions, interruptions or delays in transmission or
delivery of any messages, by mail, cable, telegraph, facsimile, telex or
otherwise, whether or not they be in cipher; (V) errors in interpretation of
technical terms; (vi) any loss or delay in the transmission or otherwise of any
document required in order to make a drawing under a Permitted LC or a demand
under an LC Guaranty or of the proceeds of either thereof; (vii) the
misapplication by an Issuer of the proceeds of any demand under an LC Guaranty;
and (viii) any consequences arising from causes beyond the control of such
Lender Party, including, without limitation, any Governmental Acts. None of the
above shall affect, impair or prevent the vesting of any of any Lender Party's
rights or powers hereunder. Without limiting the foregoing provisions of this
SECTION 2.11, any action taken or omitted by any Lender Party under or in
connection with an LC Guaranty shall not put Lender Party under any resulting
liability to Borrowers.
SECTION 2.12 LOAN ACCOUNT. Subject to the provisions of SECTION
2.13 hereof, Lender shall maintain a loan account (each, a "LOAN ACCOUNT") on
its books for Borrowers in which shall be recorded (i) all Loans and advances
made pursuant to this Agreement, (ii) the issuance of all LC Guaranties, (iii)
all payments made on such Loans and advances and (iv) all other appropriate
debits and credits as provided in this Agreement including all fees, charges,
expenses and interest. The failure so to record any such information or any
error in so recording any such information shall not, however, limit or
otherwise affect the actual joint and several obligations of Borrowers hereunder
or under the Notes to repay the principal amount of all Loans together with all
interest accruing thereon. All entries in the Loan Accounts shall be made in
accordance with Lender's customary accounting practices as in effect from time
to time. Borrowers shall pay the Liabilities reflected as owing by it under the
Loan Accounts and all other Liabilities hereunder as such amounts become due or
are declared due pursuant to the terms of this Agreement. So long as an
Unmatured Event of Default or an Event of Default shall have occurred and be
continuing, Borrowers irrevocably waive the right to direct the application of
any and all payments at any time or times thereafter received by Lender from or
on behalf of Borrowers, and Borrowers do hereby irrevocably agree that Lender
shall have the continuing exclusive right to apply and to reapply any and all
payments received at any time or times hereafter against the Liabilities in such
manner as Lender may deem advisable notwithstanding any previous entry by Lender
upon the Loan Account or by Lender on any other books and records.
SECTION 2.13 STATEMENTS. All Loans and advances to any Borrower,
and all other debits and credits provided for in this Agreement, shall be
evidenced by entries made by Lender in the Loan Accounts and in Lender's books
and records showing the date, amount and character for each such debit or
credit. Until such time as Lender shall have rendered to Borrowers written
statements of account as provided herein, the balance in the Loan Accounts, as
set forth on Lender's most recent printout or other written statement, shall be
rebuttably presumptive evidence of the amounts due and owing to Lender by
Borrowers; PROVIDED that any failure to so record or any error in so recording
shall not limit or otherwise affect Borrowers' obligations to pay the
Liabilities. Not more than twenty (20) days after the last day of each calendar
month, Lender shall render to Borrowers a statement setting forth the principal
balance of the Loan Accounts and the calculation of interest and fees due
thereon. Each such statement
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shall be subject to subsequent adjustment by Lender but shall, absent manifest
errors or omissions, be presumed correct and binding upon Borrowers, and shall
constitute an account stated unless, within thirty (30) days after receipt of
any statement from Lender, Borrowers shall deliver to Lender in accordance with
SECTION 14.3 written objection thereto specifying the error or errors, if any,
contained in such statement. In the absence of a written objection delivered to
Lender as set forth in this SECTION 2.13, Lender's statement of the Loan Account
shall be conclusive evidence of the amount of the Liabilities.
SECTION 3 NOTES; RECORD KEEPING.
SECTION 3.1 NOTES. The Loans shall be evidenced, in part, by a
promissory note of Borrowers (herein, as from time to time supplemented,
extended or replaced, called the "NOTE") substantially in the form set forth in
EXHIBIT C, with appropriate insertions, dated the date hereof, payable to the
order of Lender in the maximum principal amount of the initial Revolving
Commitment.
SECTION 4 INTEREST.
SECTION 4.1 INTEREST RATES. Subject to SECTION 4.3, Borrowers
hereby jointly and severally promise to pay interest on the outstanding
principal amount of each Loan for the period commencing on the date thereof
until such Loan is paid in full, at a rate per annum determined by reference to
the Prime Rate or the LIBOR Rate, respectively. The applicable basis for
determining the rate of interest shall be selected by Borrowers at the time a
borrowing is requested pursuant to SECTION 2.3 or at the time a Notice of LIBOR
Activity is given pursuant to SECTION 4.4, as the case may be. If on any day
any portion of any Loan is outstanding with respect to which notice has not been
given to Lender in accordance with the terms of this Agreement specifying the
basis for determining the rate of interest thereon, then for that day, such
portion of such Loan shall be a Prime Rate Loan and shall bear interest at a
rate determined by reference to the Prime Rate. Subject to SECTION 4.3, (i)
each Prime Rate Loan and LIBOR Rate Loan shall bear interest at a rate per annum
determined as follows: (a) if it is a Prime Rate Loan, then at the sum of the
Prime Rate in effect from time to time PLUS one percent (1.0%); or (b) if it is
a LIBOR Rate Loan, then at the sum of the LIBOR Rate for the applicable Interest
Period PLUS three percent (3.0%).
SECTION 4.2 DEFAULT INTEREST.
(a) During any Default Interest Period, the unpaid principal amount
of (i) all Loans shall bear interest at the rate per annum set forth in SECTION
4.1 as to such Liabilities, and (ii) all other Liabilities shall bear interest
at the rate per annum applicable to Prime Rate Loans in each case PLUS two
percent (2.0%) per annum (the rate described in this CLAUSE (a) being herein
called the "DEFAULT RATE").
(b) For purposes of this SECTION 4.2, the term "DEFAULT INTEREST
PERIOD" shall mean a period of time (i) if an Event of Default under SECTIONS
13.1(a) or 13.1(e) occurs, commencing on the date on which such Event of Default
occurs and ending on the date on which such Event of Default is waived, or (ii)
if an Event of Default (other than under SECTION 13.1(a)
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or 13.1(e)) occurs, commencing on the date of written notice to Borrowers from
Lender of such occurrence and ending on the date such Event of Default is waived
by Lender.
SECTION 4.3 CONVERSION OR CONTINUATION.
(a) Subject to the provisions of SECTION 4.4, Borrowers shall have
the option (i) to convert at any time all or any part of its outstanding Loans
equal to $100,000 and integral multiples of $100,000 in excess of that amount
(or in such other amount as Lender shall permit as shall be evidenced by the
conversion of such Loan by Lender) from a Prime Rate Loan to a LIBOR Rate Loan
for a specified Interest Period; (ii) to convert all or any part of its
outstanding Loans equal to $100,000 and integral multiples of $100,000 in
excess of that amount (or in such other amount as Lender shall permit as shall
be evidenced by the conversion of such Loan by Lender) from LIBOR Rate Loans to
Prime Rate Loans on the expiration date of any Interest Period applicable
thereto; or (iii) upon the expiration of the Interest Period with respect to any
LIBOR Rate Loans, to continue all or any portion of such Loans equal to
$100,000 and integral multiples of $100,000 in excess of that amount (or in such
other amount as Lender shall permit as shall be evidenced by the continuation of
such Loan by Lender) as LIBOR Rate Loans for a specified Interest Period, and
the succeeding Interest Period(s) of such continued Loans shall commence on the
expiration date of the Interest Period applicable thereto; PROVIDED, that,
notwithstanding the foregoing, no outstanding Loan may be continued as, or be
converted into, a LIBOR Rate Loan (i) pursuant to SECTION 4.4(h), when any Event
of Default or Unmatured Event of Default has occurred and is continuing and (ii)
pursuant to SECTION 4.4(i), if, after giving effect to any such conversion or
continuation, the aggregate outstanding principal amount of LIBOR Rate Loans
would exceed an amount equal to (x) the Adjusted Borrowing Base MINUS (y) the
excess, if any, of the aggregate then outstanding principal amount of the Prime
Rate Loans and LC Exposure over the Overadvance Amount in effect at such time.
(b) In the event Borrowers shall elect to convert or continue a Loan
under SECTION 4.3(a), Borrowers shall deliver to Lender a written Notice of
LIBOR Activity which shall set forth the details of such proposed conversion or
continuation, as the case may be, by 10:00 A.M., Chicago time three (3) Business
Days prior to, but in any event not more than five (5) Business Days prior to,
the proposed conversion/continuation date. Upon conversion or continuation by
Lender in accordance with this Agreement pursuant to any Notice of LIBOR
Activity, Borrowers shall have effected the conversion/continuation of Loans
hereunder.
(c) The officers and employees of Borrowers authorized to request a
Loan on behalf of Borrowers are also authorized to request a
conversion/continuation on behalf of Borrowers. Lender shall not incur any
liability to Borrowers in acting upon any notice referred to above which Lender
believes in good faith to have been given by a duly authorized officer or other
person authorized to act on behalf of Borrowers or for otherwise acting in good
faith under this SECTION 4.3.
(d) Each Notice of LIBOR Activity shall be irrevocable and Borrowers
shall be bound to convert or continue in accordance therewith.
SECTION 4.4 SPECIAL PROVISIONS GOVERNING LIBOR RATE LOANS.
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Notwithstanding anything to the contrary contained in this Agreement, the
following provisions shall govern with respect to LIBOR Rate Loans as to the
matters covered:
(a) DETERMINATION OF INTEREST PERIOD. By giving notice as set forth
in SECTIONS 2.3 or 4.3(b), as the case may be, Borrowers shall, subject to the
other provisions of this SECTION 4.4 specify whether the Interest Period
applicable to any requested LIBOR Rate Loan shall be a one-month, three-month or
six-month period. The determination of Interest Periods shall be further
subject to the following provisions: (i) in the case of immediately successive
Interest Periods, each successive Interest Period shall commence on the day on
which the immediately preceding Interest Period expires; (ii) if any Interest
Period would otherwise expire on a day which is not a Business Day, the Interest
Period shall be extended to expire on the next succeeding Business Day; (iii)
Borrowers may not select an Interest Period for any Loan which terminates later
than the Termination Date; (iv) Borrower may not select an Interest Period with
respect to any portion of principal of a Loan which extends beyond a date on
which Borrower could reasonably be expected to be required to make a mandatory
payment or prepayment of that portion of principal; (v) any Interest Period
which begins on a day for which there is no numerically corresponding day in the
calendar month during which such Interest Period is to end shall (subject to
CLAUSE (ii) above) end on the first Business Day following the last day of such
calendar month; and (vi) there shall be no more than four (4) LIBOR Rate Loans
in effect at any one time.
(b) DETERMINATION OF INTEREST RATE. As soon as practicable on the
LIBOR Interest Rate Determination Date, Lender shall determine (which
determination shall, absent manifest error, be presumptively correct) the
interest rate which shall apply to such Loans for such Interest Period and shall
promptly give notice thereof (in writing or by telephone) to the Borrowers.
(c) SUBSTITUTED RATE OF BORROWING. In the event that on any LIBOR
Interest Rate Determination Date with respect to any Loans, Lender shall have
determined (which determination shall be presumptively correct and binding upon
all parties) that, by reason of any changes arising after the date of this
Agreement affecting the London interbank market, adequate and fair means do not
exist for ascertaining the LIBOR Rate on a basis consistent with the essential
intent of the parties hereto, then, and in each such event, the right of
Borrowers to select the LIBOR Rate with respect to such Loans shall be suspended
until Lender shall notify Borrowers that the circumstances causing such
suspension no longer exist, and such Loans shall be Prime Rate Loans.
(d) ILLEGALITY. Notwithstanding anything to the contrary contained
in this Agreement, in the event that on any date Lender shall have reasonably
determined (which determination shall be final and conclusive and binding upon
all parties) that the making or continuation of its LIBOR Rate Loans violates
any applicable law, treaty, governmental rule, regulation or order (whether or
not having the force of law and whether or not failure to comply therewith would
be unlawful), then, and in any such event, Lender shall promptly give notice (by
telephone confirmed in writing) to Borrowers of that determination. Subject to
the prior withdrawal of a Notice of LIBOR Activity or prepayment of the LIBOR
Rate Loans as contemplated by the following SECTION 4.4(e), the obligation of
Lender to make or maintain
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LIBOR Rate Loans during any such period shall be terminated at the earlier of
the termination of the Interest Period then in effect or when required by law,
and Borrowers shall no later than the termination of the Interest Period in
effect at the time any such determination pursuant to this SECTION 4.4(d) is
made or, earlier, when required by law, repay the LIBOR Rate Loans, together
with all interest accrued thereon and amounts payable under SECTION 4.4(f).
(e) OPTIONS OF BORROWERS. In lieu of prepaying Lender as required by
SECTION 4.4(d), Borrowers may, by giving notice (by telephone confirmed
immediately by facsimile) to Lender and subject to the other terms of this
Agreement, request Lender to make the LIBOR Rate Loan then being requested as a
Prime Rate Loan or to continue to maintain the outstanding Prime Rate Loan then
the subject of a Notice of LIBOR Activity as a Prime Rate Loan or to convert
LIBOR Rate Loans then outstanding that are so affected into Prime Rate Loans at
the end of the then current Interest Period (or at such earlier time as
prepayment is otherwise required) in the manner contemplated by SECTION 4.4 but
without satisfying the advance notice requirements therein.
(f) COMPENSATION. In addition to (but without duplication of) such
amounts as are required to be paid by Borrowers pursuant to SECTIONS 4.1, 4.2,
8.1, 8.2, 8.3 and 8.4, Borrowers shall compensate Lender for all losses, costs,
expenses and liabilities and all customary administrative charges and fees,
including, without limitation, any loss, cost or expense incurred by reason of
the liquidation or reemployment of deposits or other funds acquired by Lender to
fund or maintain Lender's LIBOR Rate Loans and all customary administrative
charges and fees, which Lender may sustain (i) if for any reason a borrowing of
any LIBOR Rate Loan does not occur on a date specified therefor in a Notice of
LIBOR Activity, or if a successive Interest Period does not commence after
notice therefor is given pursuant to SECTION 4.3(b), (ii) if any voluntary or
mandatory prepayment of any LIBOR Rate Loan occurs for any reason on a date
which is not the last day of an Interest Period, (iii) as a consequence of any
required conversion of a LIBOR Rate Loan to a Prime Rate Loan as a result of any
of the events indicated in SECTIONS 4.4(d) or 4.4(e), or (iv) as a consequence
of any other default by Borrowers to repay any LIBOR Rate Loan when required by
the terms of this Agreement. In addition, Borrowers shall pay Lender its
customary administrative charges and fees incurred in connection with any of the
foregoing.
(g) MANNER OF FUNDING OF LIBOR RATE LOANS. Lender shall be entitled
to fund and maintain its funding of all or any part of any LIBOR Rate Loan
requested by Borrowers hereunder in any manner it sees fit, it being understood
and agreed, however, that for the purposes of this Agreement, all determinations
hereunder shall be made as if Lender had actually funded and maintained each
LIBOR Rate Loan during each Interest Period for such Loan through the purchase
of deposits in the London interbank market having a maturity corresponding to
such Interest Period and bearing an interest rate equal to the LIBOR Rate for
such Interest Period.
(h) LIBOR RATE LOANS AFTER DEFAULT. Unless Lender shall otherwise
agree in writing, after occurrence and during the continuance of an Unmatured
Event of Default or an Event of Default, Borrowers may not elect to have a Loan
be made or continued as, or converted to, a LIBOR Rate Loan after the expiration
of any Interest Period then in effect for that Loan.
(i) LIBOR RATE LOANS AND OVERADVANCE AMOUNT. Unless Lender shall
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otherwise agree in writing, Borrowers may not elect to have a Loan made or
continued as, or converted to, a LIBOR Rate Loan if, after giving effect to the
making, conversion or continuation of such Loan, the aggregate outstanding
principal amount of LIBOR Rate Loans would exceed an amount equal to (x) the
Adjusted Borrowing Base MINUS (y) the excess, if any, of the aggregate then
outstanding principal amount of the Prime Rate Loans over the Overadvance Amount
in effect at such time.
SECTION 4.5 INTEREST PAYMENT DATES. Accrued interest on each Prime
Rate Loan shall be payable in arrears on the fifteenth day of each month, and at
maturity, commencing with March 15, 1999. Accrued interest on each LIBOR Rate
Loan shall be payable in arrears on each LIBOR Interest Payment Date applicable
to such Loan and, in any event, at maturity. After maturity (whether by
acceleration or otherwise), accrued interest on all Loans shall be payable on
demand.
SECTION 4.6 SETTING OF RATES. Interest rates hereunder shall be
calculated from time to time by Lender and each such calculation of an interest
rate shall be conclusive and binding on Borrowers in the absence of demonstrable
error.
SECTION 4.7 COMPUTATION OF INTEREST. Interest on each Loan shall
be computed for the actual number of days elapsed on the basis of a year
consisting of 360 days. In computing interest on any Loan, the date of the
making of the Loan or the first day of an Interest Period, as the case may be,
shall be included and the date of payment of the Loan or the expiration date of
an Interest Period, as the case may be, shall be excluded; PROVIDED, that if a
Loan is repaid on the same day on which it is made, one day's interest shall in
any event be paid on that Loan. The interest rate applicable to each Prime Rate
Loan shall change simultaneously with each change in the Prime Rate.
For the purposes hereof, whenever interest is calculated on the basis of a
year of 360 days, each rate of interest determined pursuant to such calculation
expressed as an annual rate for purposes of the Interest Act (Canada) is
equivalent to such rate as so determined multiplied by the actual number of days
in the calendar in which the same is to be ascertained and divided by 360.
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SECTION 5 FEES.
SECTION 5.1 NON-USE FEES. Borrowers jointly and severally agree to
pay to Lender, on a quarterly basis, a non-use fee for the period from and
including the date hereof to but excluding the Termination Date (or such earlier
date on which the Revolving Commitment shall be terminated pursuant to SECTION
2.5 or 13.2) equal to (a) the excess of the daily average of the then applicable
Revolving Commitment over the daily average of the aggregate principal amount of
the Total Revolving and LC Exposure for such Fiscal Quarter MULTIPLIED BY (b) a
percentage amount equal to (i) one-half of one percent (0.5%), if the daily
average of the aggregate principal amount of the Total Revolving and LC Exposure
for such Fiscal Quarter is greater than $6,000,000, and (ii) three-quarters of
one percent (0.75%), if the daily average of the aggregate principal amount of
the Total Revolving and LC Exposure during such Fiscal Quarter is less than or
equal to $6,000,000. Such non-use fee shall be payable in arrears on the
fifteenth day of each January, April, July and October (commencing on April 15,
1999) and on the Termination Date (or such earlier date on which the Revolving
Commitment shall terminate) for any period then ending for which such fee shall
not have been theretofore paid.
SECTION 5.2 CLOSING FEE. On the date of the initial Loan,
Borrowers jointly and severally agree to pay to Lender a fully earned and
non-refundable closing fee in the amount of $67,500, which shall be in addition
to any commitment fee or other fee paid to Lender prior to the Closing Date.
SECTION 5.3 LETTER OF CREDIT FEES. Borrowers shall pay to Lender a
fee for the period from and including the first date on which any Permitted LC
issued at its request is outstanding to but excluding the Termination Date (or
such earlier date on which all of the LC Guaranties shall no longer be of any
force or effect and the originals thereof are returned by the appropriate Issuer
to Lender and the applicable Issuer shall have acknowledged in writing that
Lender shall have no further obligations thereunder) three percent (3%) per
annum on the daily average of the aggregate stated amounts of outstanding
Permitted LCs (the "LC UTILIZATION"). Such fees shall be payable in arrears on
the fifteenth day of each January, April, July and October (commencing on April
15, 1999) and on the date on which all of the LC Guaranties shall no longer be
of any force or effect. The LC Utilization shall be rebuttably presumed to equal
the Cap Amount at such time, unless Lender has actually received certification
from the applicable Issuer to the contrary. All LC Reimbursement Agreements
shall require the applicable Issuer to provide certification of the daily LC
Utilization, but in the event such Issuer fails to comply with such requirement,
the preceding sentence shall apply.
SECTION 5.4 AUDIT FEES. Borrowers jointly and severally agree to
pay Lender's reasonable out-of-pocket costs in connection with each field audit
conducted by Lender or its agents pursuant to SECTION 11.3; PROVIDED, that so
long as no Unmatured Event of Default or Event of Default shall have occurred
and be continuing, Borrowers shall not be liable for reimbursing Lender for the
costs and expenses of more than (a) three (3) field audits in the first Loan
Year and (b) two (2) field audits in any Loan Year thereafter.
SECTION 5.5 COMPUTATION OF FEES. All fees shall be computed for
the
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actual number of days elapsed on the basis of a year consisting of 360 days.
SECTION 6 DEPOSITARY ACCOUNT AGREEMENTS; RESTRICTED ACCOUNTS; LIST OF
RESTRICTED ACCOUNTS AND RESTRICTED ACCOUNT STATEMENTS.
SECTION 6.1 DEPOSITARY ACCOUNT AGREEMENTS. Prior to the date of
the initial Loan, (i) Roach and the Domestic Depositary Account Bank and such
other Persons as are designated by Lender shall enter into a Depositary Account
Agreement (herein, as it may be amended, restated, supplemented or otherwise
modified from time to time, called the "DOMESTIC DEPOSITARY ACCOUNT AGREEMENT")
and (ii) TRO Canada and the Canadian Depositary Account Bank and such other
Persons as are designated by Lender shall enter into a Depositary Agreement
(herein, as it may be amended, restated, supplemented or otherwise modified from
time to time, called the "CANADIAN DEPOSITARY ACCOUNT AGREEMENT" and, together
with the Domestic Depositary Account Agreement, sometimes hereinafter referred
to as the "DEPOSITARY ACCOUNT AGREEMENTS"). Pursuant to the Collateral
Documents, including the Depositary Account Agreements, each Borrower shall
grant to Lender a continuing first priority lien upon, and security interest in
(i) the Canadian Depositary Account, the Canadian Controlled Disbursement
Operating Account, the Domestic Depositary Account, the Domestic Operating
Account and the Domestic Controlled Disbursement Zero Balance Account,
respectively, in each case as described below and to the extent of such
Borrower's interest, if any, therein (collectively, with respective to each
Borrower, such Borrower's "RESTRICTED ACCOUNTS"), (ii) all funds, items,
instruments, investments, securities and other things of value at any time paid,
deposited, credited to or held in such Borrower's Lockbox or Restricted Accounts
(whether for collection, provisionally or otherwise), (iii) all other Property
of such Borrower from time to time in the possession or under the control of, or
in transit to, any Lender Party or any agent, bailee or custodian therefor, and
(iv) all proceeds of all of the foregoing. Each Depositary Account Agreement
shall specify that throughout the term of this Agreement, the Domestic
Depositary Account Bank or the Canadian Depositary Bank, as the case may be, (A)
shall be pledgee-in-possession (for the benefit of Lender) of the Restricted
Accounts of each Borrower described therein, all Cash Instruments of each
Borrower held by such Person, and all such funds, items, instruments, investment
property, investments, securities, other things of value, Property and proceeds,
(B) shall take such action as shall be specified in any written notice from
Lender to enable Lender to exercise its rights with respect to such lien and
security interest, (C) shall be entitled to exercise all and any rights which
any Lender Party may have under this Agreement and the Related Documents or
applicable law with respect to the Restricted Accounts of each Borrower
described therein and such other Property and (D) shall provide Lender with
copies of all statements relating to the Restricted Accounts of the each
Borrower described therein provided by such Person to such Borrower.
Notwithstanding any provision of this SECTION 6.1, Lender shall have no
obligation to reconcile or verify, at any time or for any purpose, any balance
in any Restricted Account of any Borrower or any other account maintained by the
Domestic Depositary Account Bank or the Canadian Depositary Bank, as the case
may be, as agent for Lender.
SECTION 6.2 RESTRICTED ACCOUNTS.
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(a) DOMESTIC RESTRICTED ACCOUNTS. Lender shall maintain at the
Domestic Depositary Account Bank (i) the account identified as the
"Depositary Account" in the Domestic Depositary Account Agreement (herein
called the "DOMESTIC DEPOSITARY ACCOUNT"), (ii) the account identified as
the "Controlled Disbursement Funding Account" in the Domestic Depositary
Account Agreement (herein called the "DOMESTIC OPERATING ACCOUNT") and
(iii) the account identified as the "Controlled Disbursement Zero Balance
Account" in the Domestic Depositary Account Agreement (herein called the
"DOMESTIC CONTROLLED DISBURSEMENT ZERO BALANCE ACCOUNT"). The Domestic
Depositary Account, the Domestic Operating Account and the Domestic
Controlled Disbursement Zero Balance Account shall be under the sole
dominion and control of Lender, and no Borrower shall have any right of
withdrawal therefrom.
(b) CANADIAN RESTRICTED ACCOUNTS. Lender shall maintain at the
Canadian Depositary Account Bank (i) the account identified as the
"Depositary Account" in the Canadian Depositary Account Agreement (herein
called the "CANADIAN DEPOSITARY ACCOUNT" and (ii) the account identified as
the "Operating Account" in the Canadian Depositary Account Agreement
(herein called the "CANADIAN CONTROLLED DISBURSEMENT OPERATING ACCOUNT").
The Canadian Depositary Account and the Canadian Controlled Disbursement
Operating Account shall be under the sole dominion and control of Lender,
and no Borrower shall have any right of withdrawal therefrom.
(c) LOCKBOXES. Each Borrower shall maintain a lockbox with (i) in
the case of Roach, the Domestic Depositary Account Bank and (ii) in the
case of TRO Canada, the Canadian Depositary Account Bank (herein called,
with respect to each Borrower, such Borrower's "LOCKBOX" and, collectively
for all Borrowers, the "LOCKBOXES"). Each Lockbox shall be under the sole
dominion and control of Lender, and no Borrower shall have any right of
withdrawal therefrom.
(d) OTHER ACCOUNTS. No Borrower shall maintain any operating account
except (i) in the case of Roach, the Domestic Operating Account and the
Controlled Disbursement Zero Balance Account, respectively, and (ii) in the
case of TRO Canada, the Canadian Controlled Disbursement Operating Account,
and agrees that it will not maintain any bank investment or other account
of any kind whatsoever with any other brokerage house or financial
institution; PROVIDED, that, so long as no Event of Default shall have
occurred and be continuing, each Borrower may maintain the petty cash,
payroll and other accounts listed on SCHEDULE 6.3 hereto at the financial
institutions indicated thereon ("OTHER ACCOUNTS"), PROVIDED, FURTHER, that
(i) the aggregate amount of funds on deposit in each such petty cash
account shall not exceed $10,000 and each such payroll account shall not at
any time exceed the sum of all accrued payroll and payroll taxes then
payable by the applicable Borrower on account of payroll obligations of
such Borrower payable from such account; (ii) each Borrower shall have
irrevocably instructed the relevant financial institution, at the request
of Lender (which request shall not be made unless an Event of Default has
occurred and is continuing), to provide Lender with information concerning
such accounts, (iii) such financial institution shall acknowledge such
instructions in writing for the benefit of Lender, and (iv) at any time
when an Event of Default has occurred and is continuing, each Borrower
shall, at the
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request of Lender, promptly cause each such financial institution to
provide Lender with daily reports of the balance in each such account.
SECTION 6.3 LIST OF ACCOUNTS AND ACCOUNT STATEMENTS. All
Restricted Accounts of each Borrower and all payroll, petty cash and other
accounts of each Borrower are described on SCHEDULE 6.3. In the event any
Borrower opens any new accounts or closes any account in accordance with the
terms of this Agreement, such Borrower shall deliver to Lender a revised version
of SCHEDULE 6.3 showing any changes thereto within three (3) Business Days of
any such change. Each Borrower shall instruct each bank listed on SCHEDULE 6.3
at which such Borrower maintains any Restricted Account to provide Lender with
copies of all statements issued by such bank with respect to such Restricted
Account.
SECTION 7 PROCEEDS OF COLLATERAL; APPLICATION OF FUNDS; DEEMED LOANS.
SECTION 7.1 PROCEEDS OF COLLATERAL; NOTICES TO ACCOUNT DEBTORS;
LOCKBOX. Each Borrower shall direct all its Account Debtors to pay all Accounts
and other proceeds of Collateral directly to its Lockbox for deposit into (i) in
the case of Roach, the Domestic Depositary Account and (ii) in the case of TRO
Canada, the Canadian Depositary Account. In addition, each Borrower shall take
all such actions as Lender in good faith deems necessary or appropriate to
ensure that at all times on and after the date hereof all proceeds of its
Collateral (including, without limitation, all Cash Instruments) are sent
directly to its Lockbox. If, notwithstanding the actions provided for in the
preceding sentences of this SECTION 7.1, any Borrower shall receive, or any
financial institution shall receive for the account of any Borrower, any Cash
Instruments, such Borrower shall, or shall cause such financial institution to,
transmit in the form received, before the close of business on the next
succeeding Business Day, all such Cash Instruments (properly endorsed, where
required, so that all items delivered may be collected by such Person) to the
Domestic Depositary Account Bank or the Canadian Depositary Account Bank, as the
case may be, for deposit to the applicable Depositary Account. Borrowers shall
not, and Borrowers shall not permit or cause any such financial institution to,
commingle any Cash Instrument so received except in the applicable Depositary
Account, and Borrowers shall hold separate and apart from all other Property,
all such Cash Instruments in express trust for the benefit of Lender until
delivery thereof is made to the Domestic Depositary Account Bank or Canadian
Depositary Account Bank as the case may be. Pursuant to, and subject to the
terms and conditions of the applicable Depositary Account Agreement, items
deposited in the respective Lockboxes shall be credited to (i) in the case of
Roach's Lockbox, the Domestic Depositary Account and (ii) in the case of TRO
Canada, the Canadian Depositary Account. Borrowers and any of their Affiliates,
employees, or other Persons acting for or in concert with Borrowers, shall,
acting as trustee for Lender, receive, as the sole and exclusive property of
Lender any monies, checks, notes, drafts or any other payments relating to
and/or proceeds of Restricted Accounts or other Collateral which come into the
possession or under the control of Borrowers or any Affiliates, employees or
other Persons acting for or in concert with Borrowers, and immediately upon
receipt thereof, Borrowers or such other Persons shall remit the same or cause
the same to be deposited, in kind, into the respective Depositary Accounts or,
at the direction of Lender, shall remit the same, or cause the same to be
remitted, in kind, to Lender at Lender's address set forth in SECTION 14.3.
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SECTION 7.2 APPLICATION OF DEPOSITARY ACCOUNT FUNDS.
(a) CANADIAN DEPOSITARY ACCOUNT. At the opening of business on the
last Business Day of each week, the Canadian Depositary Account Bank shall
calculate the amount of collected funds on deposit in the Canadian
Depositary Account (herein, the "CANADIAN COLLECTED BALANCE" for such day).
Thereafter on such Business Day, the Canadian Depositary Account Bank shall
transfer in Dollars from the Canadian Depositary Account to the Domestic
Operating Account (for application as set forth in SECTION 7.2(b)) an
amount equal to the excess, if any, of the Canadian Collected Balance over
$10,000 (Canadian) on such Business Day. Any remaining Canadian Collected
Balance in the Canadian Depositary Account shall be retained therein.
(b) DOMESTIC DEPOSITARY ACCOUNT. At the opening of business on each
Business Day, the Domestic Depositary Account Bank shall calculate the
amount of collected funds on deposit in the Domestic Depositary Account
(herein, the "DOMESTIC COLLECTED BALANCE" for such day). Thereafter on
such Business Day, the Domestic Depositary Account Bank shall promptly
transfer from the Domestic Depositary Account to Lender (for application as
set forth in SECTION 7.3) an amount equal to the Domestic Collected Balance
on such Business Day in excess of $5,000, PROVIDED, that if the amount of
the Domestic Collected Balance is not an integral multiple of $5,000, the
amount transferred to Lender shall be reduced to an amount equal to the
nearest lower integral multiple of $5,000.
SECTION 7.3 APPLICATION OF FUNDS AVAILABLE FOR LOAN REPAYMENTS.
Any amounts received by Lender pursuant to SECTION 7.2(b) shall be applied to
the outstanding obligations of Borrowers in the following order of priority:
FIRST, to principal of the Reimbursement Obligations and the Loans then due and
payable, in such order as Lender shall elect (PROVIDED, that, application on
account of Loans shall be made by Lender (i) first, to Prime Rate Loans and
(ii) only when no Prime Rate Loans are outstanding, to LIBOR Rate Loans);
SECOND, to interest on the Loans then due and payable; THIRD, to any fees
hereunder then due and payable, in such order as Lender may elect; and FOURTH,
to the payment of any other Liabilities then due and payable to Lender, in such
order as Lender may elect.
SECTION 7.4 APPLICATION UPON AN EVENT OF DEFAULT. If an Event of
Default shall have occurred and be continuing, and notwithstanding the foregoing
SECTIONS 7.2 and 7.3, at the request of Lender, each Depositary Account Bank
shall transfer the Domestic Depositary Account Collected Balance and the
Canadian Depositary Account Collected Balance, as the case may be, to Lender for
application to the Liabilities in such order as Lender, in its sole discretion,
shall elect. Each of the Depositary Account Banks shall be entitled to rely on
a written statement of Lender to the effect that an Event of Default has
occurred and is continuing.
SECTION 7.5 DEEMED LOANS. Notwithstanding any provision contained
herein to the contrary, and in addition to, and not in limitation of, any of the
other rights or remedies of Lender set forth herein, including, without
limitation, pursuant to SECTION 7.4, at the sole option of Lender, in order to
facilitate timely payment hereunder of all Liabilities in respect
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of (i) payments of interest due on any Loans and (ii) payments of cash, fees,
expenses and other Liabilities due and payable by Borrowers to Lender hereunder
or under any of the Related Documents and (iii) payments by Lender of any amount
due and payable under the respective Depositary Account Agreements or any other
agreement entered into by Lender and the Domestic Depositary Account Bank or
Canadian Depositary Account Bank in connection with this Agreement (including,
without limitation, any amount resulting from the return, dishonor or other
non-payment of items deposited with any Depositary Account Bank by or on behalf
of Borrowers), then, whether or not there is Borrowing Availability under the
Revolving Commitment, Borrowers shall be deemed automatically to have made a
request for, and upon such payment Lender shall be deemed to have made, a Prime
Rate Loan, in the full amount of such payment. Borrowers acknowledge that such
Loan may cause Borrowers to have exceeded the Revolving Commitment, in which
event Borrowers shall be obligated to immediately make a prepayment pursuant to
SECTION 2.6(b).
SECTION 7.6 APPLICATION OF PROCEEDS. In the event Borrowers shall
suffer any loss covered by insurance in excess of $100,000, Borrowers shall
promptly notify Lender in writing, and each Borrower for itself, hereby agrees
to and hereby authorizes and directs each and every insurance company concerned
to make all such payments for losses which exceed $100,000 directly and solely
to Lender (who may, but need not, make proof of loss) and Lender is hereby
authorized to adjust, collect and compromise in its discretion all claims under
all such policies, and each Borrower shall sign, upon demand by Lender, all
receipts, vouchers and releases required by such insurance companies; PROVIDED,
that other than after the occurrence and during the continuance of an Event of
Default, any Borrower may adjust, collect and compromise insurance claims upon
notice to and with Lender's consent (which shall be exercised reasonably and in
good faith), provided further such Borrower is acting reasonably and diligently.
In the event any Borrower shall be awarded any amount pursuant to any
condemnation proceeding or the taking or injury to any property for public use,
Borrowers shall immediately notify Lender in writing if such condemnation or
taking has a Material Adverse Effect on any Borrower, and Borrowers agree that
the proceeds of all such awards shall be paid to Lender and authorize Lender, on
behalf and in the name of Borrowers to execute and deliver valid acquittances
for and to appeal from any such award. Borrowers shall also immediately notify
Lender of any actual or threatened condemnation or eminent domain proceedings
which could reasonably be expected to have a Material Adverse Effect and shall
give Lender at any time any additional instruments requested by Lender for the
purpose of validly and sufficiently assigning all awards or appealing any such
award. Insurance proceeds and awards described in this SECTION 7.6
(collectively, "LOSS PROCEEDS"), or any part thereof, received by Lender, after
deducting therefrom any expenses incurred, may be applied by Lender at its
option (i) to the repair or restoration of the property suffering any loss,
condemnation or taking ("LOSS PROPERTY"), (ii) to the payment of the
Liabilities. Lender shall not be held responsible for any failure to collect
any insurance proceeds due under the terms of any policy regardless of the cause
of such failure unless due to the gross negligence or wilful misconduct of
Lender. Notwithstanding the foregoing, Lender agrees any Loss Proceeds shall be
applied as follows:
(a) If no Unmatured Event of Default or Event of Default has occurred
and is continuing at the time of the insured loss, condemnation or taking and
the amount of such Loss Proceeds together with all other Loss Proceeds
previously or contemporaneously paid to Lender
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hereunder is less than $500,000, then such Loss Proceeds shall be paid into (i)
in the case of Loss Proceeds with respect to Property of Roach, the Domestic
Depositary Account and (ii) in the case of Loss Proceeds with respect to
Property of TRO Canada, the Canadian Depositary Account, in each case for
application pursuant to this Agreement.
(b) If no Unmatured Event of Default or Event of Default has occurred
and is continuing at the time of the insured loss, condemnation or taking and
the amount of such Loss Proceeds, together with all other Loss Proceeds
previously or contemporaneously paid to Lender hereunder is $500,000 or greater,
then Lender will permit the Loss Proceeds to be utilized toward the restoration
of the Loss Property, PROVIDED that (i) business interruption loss insurance
will be payable to Borrowers during the period necessary to restore the Loss
Property, (ii) the proceeds of such business interruption insurance together
with other funds available to Borrowers will be sufficient to pay all of
Borrowers' obligations during such period, (iii) after giving effect to such
proposed restoration no Event of Default or Unmatured Event of Default will be
in existence and (iv) prior to such utilization of the Loss Proceeds, Lender
shall be provided with (A) a full and complete set of plans and specifications
for the restoration of the Loss Property, and (B) a current appraisal indicating
that the value of the Loss Property following the restoration as contemplated by
such plans and specifications will be of a value at least equal to the greater
of (I) the Loss Property prior to the loss or (II) the then outstanding
principal balance of the Liabilities, and (C) all other items that may be
reasonably requested by Lender in form and substance satisfactory to Lender.
The plans and specifications and the appraisal must be in a form and content
fully satisfactory to Lender. Lender shall disburse such Loss Proceeds for the
purpose of restoration of the Loss Property on a monthly basis upon receipt of
satisfactory draw requests and inspection reports of an architect approved by
Lender certifying as to the percentage of completion of the restoration project.
Lender shall retain a ten percent (10%) retainage of all Loss Proceeds disbursed
hereunder pending the issuance of a final certificate of substantial completion
issued by the inspecting architect certifying the completion of the restoration
of the Loss Property in accordance with the approved plans and specifications.
In the event of an Unmatured Event of Default or Event of Default at any time
following an insurance loss, condemnation or taking, Lender may apply all Loss
Proceeds then in Lender's possession as a reduction against the Liabilities. No
interest shall be payable by Lender on account of any Loss Proceeds at any time
held by Lender.
SECTION 8 INCREASED COSTS AND OTHER SPECIAL PROVISIONS.
SECTION 8.1 INCREASED COSTS. If, after the date hereof, the
adoption of any applicable "law" (which expression, as used in this SECTION 8.1,
includes statutes, rules and regulations thereunder and interpretations thereof
by any competent court or by any governmental authority or other regulatory body
or official charged with the administration or the interpretation thereof and
requests, directives, instructions and notices at any time or from time to time
hereafter made upon or otherwise issued to Lender by any central bank or other
fiscal, monetary or other authority (whether or not having the force of law))
adopted, becoming effective, or any change in the interpretation or
administration thereof, or compliance by Lender with any request or directive
(whether or not having the force of law) of any such authority or agency, shall
subject Lender to any tax, levy, impost, duty, charge, fee, deduction or
withholding of any nature (other than taxes imposed on or measured by the
overall net income of Lender) or capital
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adequacy requirement with respect to, or shall impose or increase or render
applicable any special deposit, assessment, insurance charge, reserve or
liquidity or other similar requirement (whether or not having the force of law)
against assets held by, or deposits in or for the account of, or loans made by
Lender, or shall otherwise increase the effective cost of, the Loans, or
Lender's obligation to make, issue or maintain the Loans, or shall change the
basis of taxation of payments to Lender of the principal of or interest on the
Loans or any other amounts due under this Agreement in respect of the Loans, or
Lender's obligation to make, issue or maintain the Loans (except for changes in
the rate of tax on the overall net income of Lender), or shall impose on Lender
any other condition or requirement affecting the Loans or Lender's obligation to
make the Loans, and the result of any of the foregoing is to increase the cost
to Lender of making, funding, issuing or maintaining the Loans, to require
Lender to make any payment or to forego any interest or other sum payable under
this Agreement, or to reduce the amount of any rate of return or any sum
received or receivable by Lender under this Agreement or under the Notes with
respect thereto, then upon written notice of such occurrence to Borrowers by
Lender (which notice shall contain a statement setting forth a description of
such occurrence) at any time and from time to time and as often as the occasion
therefor may arise, Borrowers shall pay to Lender such additional amount or
amounts as will compensate Lender for such increased cost, payment, sum or such
reduction.
SECTION 8.2 FUNDING LOSSES. Borrowers hereby jointly and severally
agree that if Lender receives a notice (whether written or oral) of borrowing or
repayment pursuant to this Agreement and Borrowers fail to borrow or repay
strictly in accordance therewith, then, upon demand by Lender (which demand
shall be accompanied by a statement setting forth the basis for the calculations
of the amount being claimed) Borrowers will indemnify Lender against any net
loss or expense which Lender may sustain or incur (including, without
limitation, any net loss or expense incurred by reason of the liquidation or
reemployment of funds acquired by Lender to fund or maintain Loans), as
reasonably determined by Lender, as a result of any failure of Borrowers to
borrow or repay any Loan on a date specified therefor in a notice (whether
written or oral) of borrowing or repayment pursuant to this Agreement. For this
purpose, all notices to Lender pursuant to this Agreement shall be deemed to be
irrevocable.
SECTION 8.3 TAXES.
(a) Any and all payments by Borrowers to Lender under this Agreement
and any of the Related Documents shall be made free and clear of, and without
deduction or withholding for any and all present or future taxes, levies,
imposts, deductions, charges or withholdings, and all liabilities with respect
thereto, excluding both (i) franchise taxes or similar taxes as are imposed on
Lender other than by a jurisdiction (or any political subdivision thereof) in
which it is doing business solely as a result of or related to its actions under
this Agreement or any of the Related Documents and (ii) any tax imposed upon
Lender's gross net income (including United States federal tax withholding)
(collectively, the "WITHHOLDING TAXES"). In addition, Borrowers shall pay all
present or future stamp or documentary taxes or any other excise or property
taxes, charges or similar levies which arise from any payment made hereunder or
from the execution, delivery or registration of, or otherwise with respect to,
this Agreement or any of the Related Documents (collectively, the "DOCUMENTARY
TAXES").
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(b) If Lender shall be required by law to pay any Withholding Taxes
or Documentary Taxes, Borrowers agree to indemnify and hold harmless Lender for
the full amount of Withholding Taxes or Documentary Taxes so paid by Lender and
any liability (including penalties, interest, additions to tax and expenses)
arising therefrom or with respect thereto. Payment under this indemnification
shall be made within thirty (30) days after the date Lender makes written demand
therefor together with evidence of payment of such Withholding Taxes or
Documentary Taxes.
(c) If Borrowers shall be required by law to deduct or withhold any
Withholding Taxes or Documentary Taxes from or in respect of any sum payable
hereunder to Lender, then:
(i) the sum payable shall be increased as necessary so that
after making all required deductions and withholdings (including deductions
and withholdings applicable to additional sums payable under this Section)
Lender receives an amount equal to the sum it would have received had no
such deductions or withholdings been made;
(ii) Borrowers shall make such deductions and withholdings;
(iii) Borrowers shall pay the full amount deducted or withheld
to the relevant taxing authority or other authority in accordance with
applicable law; and
(iv) Borrowers shall also pay to Lender, at the time interest is
paid, all additional amounts which Lender specifies as necessary to
preserve the after-tax yield Lender would have received if such Withholding
Taxes or Documentary Taxes had not been imposed.
(d) Within thirty (30) days after the date of any payment by any
Borrower of Withholding Taxes or Documentary Taxes, such Borrower shall deliver
to Lender the original or a certified copy of a receipt evidencing payment
thereof, or other evidence of payment reasonably satisfactory to Lender.
SECTION 8.4 DISCRETION OF LENDER AS TO MANNER OF FUNDING.
Notwithstanding any provision of this Agreement to the contrary, Lender shall be
entitled to fund and maintain its funding of all or any part of the Loans in any
manner it sees fit.
SECTION 8.5 CONCLUSIVENESS OF STATEMENTS; SURVIVAL OF
PROVISIONS. In making the determinations contemplated by this SECTION 8, Lender
may make such reasonable estimates, assumptions, allocations and the like that
Lender in good faith determines to be appropriate; and, subject to the foregoing
clause, determinations and statements of Lender pursuant to this SECTION 8 shall
be conclusive absent demonstrable error. The provisions of this SECTION 8 shall
survive termination of this Agreement.
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SECTION 9 COLLATERAL AND ELIGIBILITY REQUIREMENTS.
SECTION 9.1 ELIGIBLE ACCOUNTS; INSTALLMENT ACCOUNTS.
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(a) "ELIGIBLE ACCOUNTS" shall mean all Accounts of each Borrower,
other than the following: (i) Accounts which remain unpaid as of one hundred
twenty (120) days after the date of the original invoice (or, in the case of
Eligible Installment Accounts which are becoming Eligible Accounts, the date of
the invoice for such payment), with respect thereto; (ii) all Accounts owing by
a single Account Debtor, including a currently scheduled Account, if fifty
percent (50%) or more of the balance owing by such Account Debtor is ineligible
by reason of the criterion set forth in CLAUSE (i) of this SECTION 9.1;
(iii) Accounts with respect to which the Account Debtor is an Affiliate of any
Borrower or a director, officer or employee of any Borrower or its Affiliates;
(iv) Accounts with respect to which the Account Debtor is a governmental
authority or prime contractor thereof unless Borrowers have complied in a manner
satisfactory to Lender with the Federal Assignment of Claims Act of 1940, as
amended, or similar law or statute of the relevant state, province, municipality
or other jurisdiction and any amendments thereto, relative to the assignment of
such Accounts; (v) Accounts with respect to which the Account Debtor is not a
resident of the United States or Canada (other than the provinces of
Newfoundland, the Northwest Territories and Nunavat) unless such Account is
payable in United States Dollars and the Account Debtor has supplied Borrowers
with an irrevocable letter of credit, issued by a financial institution
satisfactory to Lender, in an amount sufficient to cover such Account and in
form and substance satisfactory to Lender and without right of setoff; (vi)
Accounts arising with respect to goods which have not been shipped, delivered
to, and accepted by an Account Debtor pursuant to a customer order form or
contract or arising with respect to services which have not been fully performed
and accepted by an Account Debtor pursuant to a customer order form or contract
or to which any dispute exists; (vii) Accounts for which the prospect of payment
in full or performance in a timely manner by the Account Debtor is or is likely
to become impaired as determined by Lender in the exercise of its discretion;
(viii) Accounts which are not invoiced (and dated as of the date of such
invoice) and sent to the Account Debtor within five (5) days after delivery of
the underlying goods to or performance of the underlying services for the
Account Debtor or, in the case of an Eligible Installment Account which is
becoming an Eligible Account, within five (5) days of the date of the purchase
order for such goods or services; (ix) Accounts with respect to which Lender
does not have a first and valid fully perfected Lien free and clear of any other
Lien; (x) Accounts with respect to which the Account Debtor is the subject of
bankruptcy or a similar insolvency proceeding or has made an assignment for the
benefit of creditors or whose assets have been conveyed to a receiver or
trustee; (xi) Accounts with respect to which the Account Debtor's obligation to
pay the Account is conditional upon the Account Debtor's approval or is
otherwise subject to any repurchase obligation or return right, as with sales
made on a guaranteed sale, bill-and-hold, sale-or-return, demonstration, sale on
approval or other terms by reason of which the payment by the Account Debtor is
or may be conditional (except with respect to Accounts in connection with which
Account Debtors are entitled to return Inventory solely on the basis of the
quality of such Inventory) or consignment basis; (xii) Accounts to the extent
that the Account Debtor's indebtedness to Borrowers exceeds twenty percent (20%)
of the lesser of (a) the Revolving Commitment then in effect or (b) the
aggregate Accounts then owing to Borrowers; (xiii) Accounts with respect to
which any disclosure is required in accordance with SECTION 9.2; (xiv) contra
Accounts to the extent of the amount of the accounts payable owed by Borrowers
to the Account Debtor; (xv) Accounts with respect to which the Account Debtor is
located in any state denying creditors access to its courts in the absence of a
Notice of Business Activities Report or other similar filing unless Borrowers
have either qualified as a foreign corporation
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authorized to transact business in such state or has filed a Notice of Business
Activities Report or similar filing with the applicable Governmental Authority
in such state for the then current year; (xvi) Accounts evidenced by Chattel
Paper or any Instrument of any kind, to the extent possession of such Chattel
Paper or Instrument is not granted to Lender; and (xvii) Accounts which Lender
determines in good faith to be unacceptable.
(b) "ELIGIBLE INSTALLMENT ACCOUNTS" shall mean all Installment
Accounts of each Borrower, other than the following: (i) that portion of
Installment Accounts which are not scheduled to be paid within one (1) year of
the date of the original customer order form or contract with respect thereto
except for those Installment Accounts listed on SCHEDULE 9.1(b) hereto; (ii)
Installment Accounts which are related to an Account Debtor for which any
Account does not meet the eligibility criteria of SECTION 9.1(a)(i); and (iii)
Installment Accounts which would not be deemed Eligible Accounts under the
provisions of SECTIONS 9.1(a)(iii) through (xvii), inclusive.
SECTION 9.2 ACCOUNT WARRANTIES. With respect to Accounts scheduled,
listed or referred to on the initial Accounts Trial Balance included in the
initial Monthly Report or on any subsequent Accounts Trial Balance or Borrowing
Base Certificate of a Borrower, such Borrower represents and warrants to Lender
that, except as disclosed in the applicable Accounts Trial Balance or Borrowing
Base Certificate: (i) the Accounts represent bona fide sales of Inventory by
such Borrower or the provision of services to customers in the ordinary course
of business completed in accordance with the terms and provisions contained in
the documents available to Lender with respect thereto and are not evidenced by
a judgment or by an Instrument or Chattel Paper; (ii) the amounts shown on the
applicable Accounts Trial Balance and on such Borrower's books and records and
all invoices and statements which may be delivered to Lender with respect
thereto are actually and absolutely owing to such Borrower and are not in any
way contingent; (iii) no payments have been or shall be made thereon except
payments immediately delivered to a Depositary Account pursuant to this
Agreement, or, if misdirected (through no fault of the Borrowers) to any
Affiliate or employee of the Borrowers, Borrowers or such other Persons remitted
the same or cause the same to be deposited, in kind, into the respective
Depositary Accounts or, at the direction of Lender, remitted the same, or caused
the same to be remitted, in kind, to Lender at Lender's address set forth in
SECTION 14.3; (iv) there are no setoffs, claims or disputes existing or asserted
with respect thereto and Borrowers have not made any agreement with any Account
Debtor for any deduction therefrom except a discount or allowance allowed by
such Borrower in the ordinary course of its business for prompt payment and
which discount and allowance is reflected in the calculation of the face amount
of each invoice related to such Account; (v) to the best of Borrowers'
knowledge, there are no facts, events or occurrences which in any way impair the
validity or enforcement thereof or tend to reduce the amount payable thereunder
as shown on the respective Accounts Trial Balances or Borrowing Base
Certificates, such Borrower's books and records and all invoices and statements
delivered to Lender with respect thereto; (vi) to the best of Borrowers'
knowledge, all Account Debtors have the capacity to contract and are Solvent;
(vii) Borrowers have received no notice of proceedings or actions which are
threatened or pending or have been taken against any Account Debtor which might
result in any material adverse change in such Account Debtor's financial
condition; (viii) the Accounts do not arise from the sale of Inventory produced
in violation of the Fair Labor Standards Act so as to be subject to the
so-called "hot goods" provision contained in
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Title 29 U.S.C., Section 215(a)(1); (ix) the services furnished and/or Inventory
sold giving rise to the Account are not, and will not be at the time of sale
thereof, subject to any Lien except that of Lender; (x) the Accounts have not
been pledged or sold to any Person or otherwise encumbered and such Borrower is
the owner of the Accounts free and clear of any Lien except that of Lender; and
(xi) with respect to Accounts for which the Account Debtor is located in any
state denying creditors access to its courts in the absence of a Notice of
Business Activities Report or other similar filing, such Borrower has either
qualified as a foreign corporation authorized to transact business in such state
or has filed all required Notice of Business Activities Reports or comparable
filings with the applicable Governmental Authority.
SECTION 9.3 VERIFICATION OF ACCOUNTS. Lender shall have the right
(i) during the pendency of an Event of Default, in the name of Borrowers, a
nominee of Lender or Lender's name, to verify with Account Debtors the validity,
amount or any other matter relating to any Account, by mail, telephone, or in
person; and (ii) at any time or from time to time, in the name of a nominee of
Lender, to verify with Account Debtors the validity, amount or any other matter
relating to any Account by mail only.
SECTION 9.4 ELIGIBLE INVENTORY. "ELIGIBLE INVENTORY" shall consist
of all Inventory of each of the Borrowers, except the following: (i) work in
process; (ii) Inventory which is damaged, obsolete, not in good condition, or
not either currently usable or currently saleable in the ordinary course of such
Borrower's business as determined by Lender; (iii) Inventory which Lender
determines, or which in accordance with such Borrower's customary business
practices, is unacceptable due to age, type, category and/or quantity, including
any Inventory which is in excess of a one (1) year's supply or is otherwise
slow-moving; (iv) Inventory with respect to which Lender does not have a first
and valid, fully perfected Lien; (v) Inventory consisting of packaging or
supplies; (vi) Inventory in the possession of such Borrower but not owned by
such Borrower; (vii) Inventory produced in violation of the Fair Labor Standards
Act and subject to the so-called "hot goods" provision contained in Title 29
U.S.C. Section 215(a)(1); (viii) Inventory with respect to which any disclosure
is required in the applicable Monthly Report or Borrowing Base Certificate in
accordance with SECTION 11.1(q); (ix) Inventory which is on consignment (other
than inventory with respect to which the Borrowers have satisfied all
requirements set forth in SECTION 9.7) or is located at a place other than the
places of business and collateral locations of such Borrower listed on SCHEDULE
10.29; PROVIDED that, subject to SECTION 11.24, in the case of leased or
bailment locations listed on SCHEDULE 10.29, no Inventory located at any such
location shall be "ELIGIBLE INVENTORY" until the applicable landlord or bailee
has executed a lien waiver in form and substance satisfactory to Lender)
including Inventory in transit; (x) Inventory consisting of finished goods which
do not meet the specifications of the purchase order for which such Inventory
was produced; and (xi) Inventory which fails to meet the standards imposed by
any governmental agency, or department or division thereof, having regulatory
authority over such goods, its use and/or sale. In the event that Inventory
previously scheduled in a Monthly Report or Borrowing Base Certificate ceases to
be Eligible Inventory, Borrowers shall notify Lender thereof immediately.
SECTION 9.5 INVENTORY WARRANTIES. With respect to Inventory
scheduled, listed or referred to in any Monthly Report or Borrowing Base
Certificate as to a Borrower, Borrowers represent and warrant that, except as
disclosed in such Monthly Reports or
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Borrowing Base Certificate (i) such Inventory is located at one of the
Facilities or locations set forth on SCHEDULE 10.29 as to such Borrower, (ii)
such Borrower has good, indefeasible and merchantable title to such Inventory
and such Inventory is not subject to any Lien or document whatsoever except for
the prior, first perfected Lien granted to Lender hereunder, (iii) such
Inventory is of good and merchantable quality, free from any defects and is not
goods returned to Borrowers by or repossessed from an Account Debtor or goods
taken in trade, PROVIDED, however, that Inventory returned, undamaged, from an
Account Debtor within thirty (30) days of shipment thereof shall not be deemed
ineligible if it otherwise complies with this SECTION 9.5 (iv) such Inventory is
not subject to any licensing, patent, royalty, trademark, trade name or
copyright agreements with any third parties which materially restricts the
ability of Borrowers or, in the case of the exercise of its remedies, Lender to
sell the Inventory, (v) the completion of manufacture, sale or other disposition
of such Inventory by Lender following an Event of Default shall not require the
consent of any Person and shall not constitute a breach or default under any
contract or agreement to which Borrowers are a party or to which the Inventory
is subject, and (vi) no Inventory has been produced in violation of the Fair
Labor Standards Act so as to be subject to the so-called "hot goods" provision
contained in Title 29 U.S.C., Section 215(a)(1).
SECTION 9.6 SECURITY INTEREST. All of each Borrower's Liabilities
constitute one loan secured by Lender's Liens on the Collateral now or from time
to time hereafter granted by such or any Obligor to Lender. To secure timely
payment, performance and observance in full of their respective Liabilities,
Borrowers shall grant to Lender a right of setoff against and a continuing Lien
upon all of their respective right, title and interest in and to all personal
property and fixtures of Borrowers and all other Collateral, whether now owned
or hereafter acquired by Borrowers and wheresoever located. In addition,
concurrently with the acquisition of any real property after the Closing Date
except for Property acquired and encumbered by Permitted Liens, Obligors shall
grant and convey to Lender as security for timely payment, performance and
observance of the Liabilities, first mortgage Liens on all such real property.
SECTION 9.7 CONSIGNED INVENTORY. With respect to consigned
Inventory, Borrowers shall (and, as applicable, cause their respective
Subsidiaries to) perfect their respective interest in such Inventory by filing
and delivering notice to the creditors of record of the consignee, all as
provided in Section 9-114 of the UCC, and in form and substance satisfactory to
Lender, and Borrowers shall execute and deliver all financing statements,
security agreements, amendments thereto, or other documents (and pay the cost of
filing or recording the same in all public offices deemed necessary by Lender),
as Lender may request, in a form satisfactory to Lender, to perfect and maintain
the Liens on such Collateral granted by Borrowers to Lender hereunder and under
the Collateral Documents.
SECTION 9.8 COLLATERAL DOCUMENTS. Concurrently with or prior to
the Closing Date, each Obligor execute and deliver to Lender the following: (a)
a Security Agreement in form and substance satisfactory to Lender (herein, as
the same may be amended, modified or supplemented from time to time, called the
"SECURITY AGREEMENT"); and (b) mortgages on real estate held in fee simple in
form and substance satisfactory to Lender covering all such real estate owned by
any Obligor (as the same may be amended, modified or supplemented from time to
time, collectively called the "MORTGAGES" and individually called a
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"MORTGAGE"). At any time after the date hereof that a Subsidiary shall be
formed or acquired by any Obligor, such Obligor shall cause such Subsidiary to
execute and deliver to Lender a security agreement and a guaranty in form and
substance satisfactory to Lender with such changes therein as Lender may
reasonably require, together with such other documents, instruments and things
as Lender may reasonably require in connection therewith, PROVIDED, THAT, the
foregoing is not intended and shall not be deemed or construed to permit the
formation by any Obligor to the extent such formation is not expressly permitted
pursuant to the terms of this Agreement.
SECTION 9.9 SUBSEQUENTLY ACQUIRED PROPERTY. As further security
for the payment, performance and observance of the Liabilities, Obligors shall,
so long as any of the Liabilities shall remain outstanding or Lender shall
continue to have any Commitment: (a) acquire and maintain their respective
property in a manner which will enable Obligors to allow such property to become
subject to the Liens of the Collateral Documents; (b) obtain and maintain the
consent or approval of any Person whose consent or approval is required to the
granting of a Lien on any such property to or for the benefit of Lender; (c)
execute and deliver from time to time within ten (10) days after its purchase or
acquisition of any real property or of property subject to a titling statute or
of any other personal property, asset or other right, amendments and supplements
to the Collateral Documents in form and substance, and together with other
documents, satisfactory to Lender, and in such number of counterparts as Lender
may require, by which it shall (and only in the event that such action shall be
required in order to) pledge, mortgage and grant a perfected Lien on such
property, asset or right to Lender except for Property acquired and encumbered
by Permitted Liens; (d) execute and deliver to Lender, in form and substance
satisfactory to Lender and in such number of counterparts as Lender may require,
(i) an assignment of any Obligor's rights under any contract to construct any
property with a fair market value in excess of $100,000 promptly upon entering
into such contract, and (ii) such other agreements and instruments (including,
without limitation, acknowledgments by other contract parties) as may be
necessary to grant a Lien on and security interest in any Obligor's rights and
interests under each such contract and each such property, whether under
construction or otherwise, to Lender; and (e) execute and deliver to Lender, in
form and substance satisfactory to Lender and in such number of counterparts as
Lender may require, assignments of any Obligor's rights under each lease to
which an Obligor is a party as landlord or sublandlord, promptly upon entering
into such lease.
SECTION 9.10 CHANGE OF LOCATION OR NAME. So long as any of the
Liabilities shall remain outstanding or Lender shall continue to have any
Commitment, no Obligor shall change (a) the location of any such Person's
principal place of business, chief executive office, major executive office,
chief place of business or its records concerning its business and financial
affairs, or (b) such Person's name or the name under or by which it conducts its
business, in each case without first giving Lender at least 30 days' advance
written notice thereof and having taken any and all action required or desirable
by Lender to maintain and preserve the first perfected Lien and security
interest in favor of Lender on all property thereof free and clear of any Lien
whatsoever except for Permitted Liens; PROVIDED, that notwithstanding the
foregoing, Borrowers shall not change the location of any such Person's
principal place of business, chief executive office, major executive office,
chief place of business or its records concerning its business and financial
affairs to any place outside the contiguous continental United States of
America.
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SECTION 9.11 DELIVERIES; FURTHER ASSURANCES. Each Obligor shall, at
Borrowers' sole expense, (i) without any request by Lender, immediately deliver
or cause to be delivered to Lender, in due form for transfer (i.e., endorsed in
blank or accompanied by duly executed undated blank stock or bond powers), all
securities, chattel paper, instruments and documents, if any, at any time
representing all or any of the Collateral, (ii) upon request of Lender, furnish
or cause to be furnished to Lender such surveys, mortgagee title commitments or
policies, appraisals, opinions of counsel and other documents as Lender may
specify, (iii) without request by Lender, cause Lender's Lien hereunder and
under the Collateral Documents to be at all times duly noted on any certificate
of title issuable with respect to any of the Collateral and forthwith deliver or
cause to be delivered to Lender each such certificate of title, and (iv) execute
and deliver, or cause to be executed and delivered, to Lender in due form for
filing or recording (and pay the cost of filing or recording the same in all
public offices deemed necessary or advisable by Lender) such assignments
(including, without limitation, assignments of life insurance), security
agreements, mortgages, deeds of trust, pledge agreements, consents, waivers,
financing statements, stock or bond powers, and other documents, and do such
other acts and things, all as may from time to time be necessary or desirable to
establish and maintain to the satisfaction of Lender a valid first perfected
Lien on and security interest in all assets of each Obligor now or hereafter
existing or acquired (free of all other Liens whatsoever other than Permitted
Liens) to secure payment and performance of the Liabilities.
SECTION 10 REPRESENTATIONS AND WARRANTIES.
To induce Lender to enter into this Agreement and to make Loans hereunder,
each Borrower represents and warrants to Lender that:
SECTION 10.1 DUE ORGANIZATION, AUTHORIZATION, ETC. Each Obligor is
a corporation duly existing and in good standing under the laws of the
jurisdiction of its formation and is duly qualified and in good standing in each
jurisdiction where, because of the nature of its activities or properties, such
qualification is required or where the failures so to qualify singly or in the
aggregate could reasonably be expected to have a Material Adverse Effect (which
jurisdictions shall include, without limitation, those jurisdictions listed on
SCHEDULE 10.1). The execution, delivery and performance by each Obligor of this
Agreement and the Related Documents to which they respectively are parties, and
the consummation of the Related Transactions, are within their respective
corporate powers, have been duly authorized by all necessary corporate action
(including, without limitation, director and shareholder approval, if required),
have received all necessary governmental and other consents and approvals and
made all necessary filings with and given all necessary notices to any
governmental authority (if any shall be required), and do not and will not
contravene or conflict with, or create a Lien or right of termination or
acceleration under, any Requirement of Law or Contractual Obligation binding
upon it. This Agreement and each of the Related Documents to which any Obligor
is a party are (or when executed and delivered will be) the legal, valid, and
binding obligations of such Person enforceable against such Person in accordance
with their respective terms, except as limited by applicable bankruptcy,
reorganization, insolvency or similar laws affecting the enforcement of
creditors' rights generally and except as limited by general principles of
equity regardless of whether such enforcement is sought in a proceeding in
equity or law.
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SECTION 10.2 CERTAIN AGREEMENTS. The Borrowers have furnished to
Lender true, correct and complete copies of each of the Related Documents and
the Subordinated Debt Documents (including all schedules and written disclosures
in connection therewith). All warranties of each of the Obligors, and, to
Borrowers' knowledge, all warranties of the other parties thereto (other than
Lender and the respective Depositary Account Banks) set forth in the Related
Documents and Subordinated Debt Documents, respectively, are true and correct in
all material respects without any waiver or modification thereof and no default
of any Obligor, and to the Borrowers' knowledge, no default of any other party,
exists thereunder.
SECTION 10.3 FINANCIAL INFORMATION; FINANCIAL CONDITION. All
balance sheets, cash flow statements and all statements of operations, of
shareholders' equity and of changes in financial position (other than
projections) which have been or shall hereafter be furnished to Lender by or on
behalf of the Borrowers for the purposes of or in connection with this
Agreement, the Related Documents or the Related Transactions (including the
financial information referred to below, except for the projections referred to
in CLAUSE (d) below) have been and will be prepared in accordance with GAAP
consistently applied throughout the periods involved and do and will present
fairly the financial condition of the entities involved as of the dates thereof
and the results of their operations for the periods covered thereby. All
projections (including, without limitation, the projections described in CLAUSES
(d) and (e) below) which have been or shall be furnished to Lender for purposes
of or in connection with this Agreement, the Related Documents or the Related
Transactions represent the Borrowers' managements' reasonable estimates of
future performance at the time such projections are made, based upon historical
financial information and reasonable assumptions of management. Such financial
data includes, without limitation, the following financial statements and
reports which have been furnished to Lender on or prior to the date hereof:
(a) the audited consolidated balance sheets of the Consolidated
Entity as of October 31, 1998, and the related audited consolidated statements
of earnings, shareholders' equity, cash flow and changes in financial position
for the year ending on such date (the "FINANCIALS");
(b) the consolidated balance sheets of the Consolidated Entity as of
December 31, 1998 and the related statements of income and cash flow of the
Consolidated Entity for the two-month period ending on such date;
(c) the pro forma consolidated balance sheets of the Consolidated
Entity as of the Closing Date after giving effect to all Related Transactions
(the "PRO FORMA");
(d) the projected pro forma consolidated balance sheets and projected
statements of earnings and cash flow for the Consolidated Entity for each Fiscal
Quarter during the Fiscal Years ending October 31, 1999 and October 31, 2000,
respectively, in each case after giving effect to all Related Transactions.
There has been no material adverse change since October 31, 1998 in the
financial condition, operations, assets or business of the Consolidated Entity,
other than as a result of the Related
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Transactions, from that reflected in the financial information as to the
Consolidated Entity referred to in CLAUSES (a) through (c).
SECTION 10.4 LITIGATION AND CONTINGENT OBLIGATIONS. Except as set
forth in SCHEDULE 10.4 hereto (including estimates of the dollar amounts
involved), the financial statements delivered to the Lender, and except for
claims as to which the insurer has admitted coverage in writing and which are
fully covered by insurance, no claims, litigation (including, without
limitation, derivative actions and litigation with respect to any Employee
Benefit Plan), arbitration, governmental investigation or proceeding or inquiry
is pending or, to the best of Borrowers' knowledge, threatened against any the
Borrowers, any member of the Controlled Group or any Employee Benefit Plan
fiduciaries (i) which singly or in the aggregate could, if adversely determined,
reasonably be expected to have a Material Adverse Effect, or (ii) which relates
to any of the Related Transactions, and, except as set forth in SCHEDULE 10.4,
there is no basis known to any Borrower for any of the foregoing. Other than
any liability incident to such claims, litigation or proceedings, the Obligors
have no material Contingent Obligations not provided for or referred to in the
Financials or in SCHEDULE 10.4 hereto. The matters described on SCHEDULE 10.4,
if adversely determined, singly or in the aggregate could not reasonably be
expected to have a Material Adverse Effect.
SECTION 10.5 LIENS. None of the assets of any Obligor will be
subject to any Lien, except for Permitted Liens, which are junior to the Lien of
the Collateral Documents. Except as described in SCHEDULE 10.5, Lender will
obtain, as security for the Liabilities, (i) a legally valid and binding first
mortgage Lien on all real property now owned or hereafter acquired by any
Obligor, and (ii) a first priority perfected Lien on all other property
described in the Collateral Documents as being pledged, assigned or granted
thereby. The descriptions of other Property described in the Collateral
Documents correctly describe all Property used in the business or operations of
any Obligor in a manner sufficient to create an enforceable Lien on or security
interest in such property.
SECTION 10.6 CONTRACTS; ABSENCE OF DEFAULT. No Obligor is in
material default under any material Contract or other contracts transferred to
or assumed by it (a) to which it is a party or by which it is bound, and (b)
where such default could have a Material Adverse Effect. A list of all material
contracts existing on the date hereof is attached hereto as SCHEDULE 10.6.
SECTION 10.7 EMPLOYEE BENEFIT PLANS. (a) No Borrower has, nor has
any member of the Controlled Group, incurred any liability with respect to any
Pension Plan other than to pay premiums to the PBGC and make required
contributions to such Pension Plans (provided that any such contributions and
premiums which are due have been paid).
(b) With respect to any Employee Benefit Plan, full and timely
payment has been made of all amounts required under Section 412 of the Code,
Section 302 of ERISA or under the terms of each such Plan, no event or condition
has occurred which has or could result in the imposition of a lien or an
accumulated funding deficiency (whether or not waived) under Section 412 of the
Code or Section 302 of ERISA, each of the Borrowers and each current or past
member of the Controlled Group has fulfilled its obligations, if any, under the
minimum
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funding standards of ERISA and the Code, and no security has been posted or is
required to be posted under Section 401(a)(29) of the Code or Section 307 of
ERISA.
(c) No steps have been taken to terminate, or withdraw from, any
Pension Plan or any Multiemployer Plan.
(d) No Reportable Event has occurred.
(e) No Borrower nor any member of the Controlled Group has any
contingent liability with respect to any post-retirement benefits under a
Welfare Plan (other than liability for health care continuation coverage in
compliance with the requirements of Part 6 of Subtitle B of Title I of ERISA or
Section 4980B of the Code).
(f) All Employee Benefit Plans (i) comply in form with any
requirements of ERISA and have been operated and administered in compliance with
their terms and in a manner so as not to result in any material liability to any
Borrower nor any current or past member of the Controlled Group for failure to
comply with ERISA and all of the applicable statutes and regulations issued
thereunder, and (ii) if intended to qualify under the Code, are in a form and
have been administered in a manner so as not to result in any material liability
to any Borrower or any current or past member of the Controlled Group for
failure to comply with the applicable provisions thereof and are subject to an
Internal Revenue Service determination with respect to such qualification.
Except for future funding obligations, no conditions exist or events or
transactions have occurred with respect to any Employee Benefit Plan which could
result in the incurrence by any Borrower or any current or past member of the
Controlled Group of any liability, except to the extent the same (x) have been
funded or adequately reserved on the consolidated balance sheet of the
Consolidated Entity, or (y) will not result in the incurrence of any liability
by any Borrower or any current or past member of the Controlled Group in excess
of $75,000 in the aggregate.
(g) No Obligor is an Employee Benefit Plan, none of their assets
constitute assets of an Employee Benefit Plan and the execution, performance and
delivery of this Agreement and the Related Documents and the consummation of the
Related Transactions will not involve any prohibited transaction, as defined in
Section 406 of ERISA or Section 4975 of the Code, for which an exemption is
unavailable.
SECTION 10.8 INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING COMPANY
ACT. None of the Obligors is an "investment company" or a company "controlled"
by an "investment company," within the meaning of the Investment Company Act of
1940, as amended, or a "holding company," or a "subsidiary company" of a
"holding company," or an "affiliate" of a "holding company," within the meaning
of the Public Utility Holding Company Act of 1935, as amended.
SECTION 10.9 REGULATIONS G, T, U AND X. None of the Obligors is
engaged principally, or as one of its important activities, in the business of
extending credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulation U or X of the Board of Governors of the Federal
Reserve System). None of the Obligors nor any Affiliate
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of any Obligor, to Borrowers' knowledge, any Person acting on their behalf has
taken or will take action to cause the execution, delivery or performance of
this Agreement or the Notes, or the other Related Documents, the making or
existence of the Loans or the use of proceeds of the Loans to violate Regulation
G, T, U or X of the Board of Governors of the Federal Reserve System.
SECTION 10.10 PROCEEDS. The proceeds of the Loans will be used for
working capital purposes, except that proceeds of the initial Loan shall be used
to repay in full the Indebtedness to Be Refinanced.
SECTION 10.11 CONFIRMATION OF WARRANTIES. All representations and
warranties of each of the Obligors set forth in the Related Documents are true
and correct in all material respects as if made as of the Closing Date.
SECTION 10.12 INSURANCE. SCHEDULE 10.12 hereto sets forth a true and
correct summary of all insurance carried by the Obligors. Each Obligor is
adequately insured based upon similar businesses for its benefit under policies
issued by insurers of recognized responsibility in such amounts as are
reasonable, it being agreed that Obligors' practice of self-insuring their
employees health insurance up to $50,000 per individual per year is reasonable.
No notice of any pending or threatened cancellation has been received by any
Obligor with respect to any of such insurance policies. Each Obligor is in
compliance with all conditions contained in such insurance policies.
SECTION 10.13 MATERIAL DISRUPTIONS. Neither the business nor the
properties of any Obligor is affected, or anticipated to be affected, by any
existing events of Force Majeure or other existing casualties which singly or in
the aggregate could reasonably be expected to have a Material Adverse Effect.
SECTION 10.14 PATENTS, TRADEMARKS, ETC. Each Obligor owns and
possesses, or is licensed under valid and enforceable license agreements, or is
otherwise entitled to use without payment, all such patents, patent rights,
trademarks, trademark rights, trade names, trade name rights, service marks,
service mark rights, trade secrets, mask works and copyrights as are necessary
for the conduct of its business as now conducted or presently proposed to be
conducted without, to any Obligor's knowledge, any infringement upon rights of
others which could have a Material Adverse Effect, and, except as set forth in
PART 1 of SCHEDULE 10.14, there is no Intellectual Property, the loss of which
singly or in the aggregate could reasonably be expected to have a Material
Adverse Effect (any such item, whether or not set forth on SCHEDULE 10.14, being
herein called a "MATERIAL INTELLECTUAL PROPERTY RIGHT"). PARTS 1 and 2 of
SCHEDULE 10.14 together contain a complete list of all license agreements, other
than off shelf license agreements and third party distribution agreements for
which any Obligor is a licensee or licensor, relating to Intellectual Property
held by any Obligor under license agreements.
SECTION 10.15 OWNERSHIP OF PROPERTIES; PROPERTY SCHEDULE. Each
Obligor has good and marketable title to all of its properties and assets, real
and personal, of any nature whatsoever (which cannot be replaced without
material expense, delay or interruption of
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business) subject only to Permitted Liens.
SECTION 10.16 INTENTIONALLY OMITTED.
SECTION 10.17 ACCURACY OF INFORMATION. All factual information
heretofore or contemporaneously herewith furnished by or on behalf of any
Obligor to Lender for purposes of or in connection with this Agreement or any
transaction contemplated hereby is, and all other such factual information
hereafter furnished by or on behalf of any Obligor to Lender will be, true and
accurate in every material respect on the date as of which such information is
dated or certified and not incomplete by omitting to state any material fact
necessary to make such information not misleading.
SECTION 10.18 SUBSIDIARIES. Except for TRO Canada as a Subsidiary of
Roach, the Obligors have no other Subsidiaries.
SECTION 10.19 HAZARDOUS MATERIALS. Except as disclosed in SCHEDULE
10.19 hereto, (a) to Borrower's knowledge, no Obligor has, nor has any other
Person, ever caused or permitted any Hazardous Material to be released, treated,
stored or disposed of in a manner which could reasonably be expected to form the
basis for any claim, demand, proceeding or action by any Person, past, present
or future on, under or at any real property legally or beneficially owned (or
any interest or estate in real property which is owned) or operated by any
Obligor (including, without limitation, any property owned by a land trust the
beneficial interest in which is owned in whole or in part by any of them), (b)
no such real property has ever been used (by any Obligor or, to Borrowers'
knowledge, by any other Person) as (i) a disposal site for any Hazardous
Material or (ii) a permanent storage site for any Hazardous Material, and (c)
none of the Obligors, nor, to Borrowers' knowledge, any of their predecessors or
any other Affiliates of any of them, has ever caused or permitted any Hazardous
Material to be transported, released, treated, stored or disposed of in a manner
which could reasonably be expected to form the basis for any claim, demand,
proceeding or action by any Person. The matters described on SCHEDULE 10.19, if
adversely determined, neither singly nor in the aggregate could reasonably be
expected to have a Material Adverse Effect.
SECTION 10.20 AGENT'S FEES. No agent, broker, investment banker,
Person, or firm acting on behalf of any Obligor or their respective Affiliates,
or under the authority of any such Person, is or will be entitled to any
broker's or finder's fee or any other commission or similar fee, directly or
indirectly, from any of the parties hereto in connection with any of the
transactions contemplated herein.
SECTION 10.21 TAXES. Each Obligor has filed all tax returns that
are required to be filed by it or on behalf of any Employee Benefit Plan, and
has paid or provided reasonably adequate reserves for the payment of all taxes,
including, without limitation, all payroll taxes and federal and state
withholding taxes, and all assessments payable by it that have become due, other
than those that are not yet delinquent or that are disclosed on SCHEDULE 10.21
and are being contested in good faith by appropriate proceedings and with
respect to which reasonably adequate reserves have been established, and are
being maintained, in accordance with GAAP. There is no ongoing audit or, to
Borrowers' actual knowledge, other governmental
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investigation of the tax liability of any Obligor or any Employee Benefit Plan
and there is no unresolved claim by a taxing authority concerning any Obligor's
tax liability (or by any governmental authority with respect to any Employee
Benefit Plan), for any period for which returns have been filed or were due. As
used in this SECTION 10.21, the term "taxes" includes all taxes of any nature
whatsoever and however denominated, including, without limitation, excise,
import, governmental fees, duties and all other charges, as well as additions to
tax, penalties and interest thereon, imposed by any government or
instrumentality, whether federal, state, local, foreign or other.
SECTION 10.22 SECURITIES LAWS. No Obligor nor any of their
Affiliates, nor anyone acting on behalf of any such Person, has directly or
indirectly offered any interest in the Notes or any other Liability for sale to,
or solicited any offer to acquire any such interest from, or has sold any such
interest to any Person that would subject the issuance or sale of the Notes or
any other Liability to registration under the Securities Act of 1933, as
amended.
SECTION 10.23 GOVERNMENTAL AUTHORIZATIONS. Each Obligor has all
licenses, franchises, permits and other governmental authorizations necessary
for all businesses carried on by it (including owning and leasing the real and
personal property owned and leased by it), except where failures to obtain such
licenses, franchises, permits and other governmental authorizations (a) are not
related to any use, manufacture, generation, storage, transport, release or
disposal by any such Obligor of any Hazardous Material, and (b) neither singly
nor in the aggregate could reasonably be expected to (i) subject any such Person
or any of its officers to criminal liability or (ii) have a Material Adverse
Effect.
SECTION 10.24 COMPLIANCE WITH LAWS. Except as disclosed on SCHEDULE
10.24 hereto, each Obligor: (i) is in compliance in all material respects with
all applicable laws, ordinances, rules, regulations, orders, policies,
guidelines or other requirements of any governmental authority, including the
same relating to any manufacture, use, generation, release, storage, transport
or disposal of any Hazardous Material except where such failure to comply could
be reasonably expected to have a Material Adverse Effect, (ii) has filed in a
timely manner all reports, documents and other materials required to be filed by
it with any governmental bureau, agency or instrumentality (and the information
contained in each of such filings is true, correct and complete in all material
respects), except where failures to make such filings are not related to the
manufacture, use, generation, release, storage, transport or disposal of any
Hazardous Material by any Obligor and neither singly nor in the aggregate could
reasonably be expected to have a Material Adverse Effect and (iii) has retained
all records and documents required to be retained by it pursuant to any
applicable law, ordinance, rule, regulation or order of any governmental
authority, except where failures to retain such records are not related to the
use, manufacture, generation, release, storage, transport or disposal of any
Hazardous Material and neither singly nor in the aggregate could reasonably be
expected to subject any Obligor or any of its officers to criminal liability or
have a Material Adverse Effect.
SECTION 10.25 EMPLOYEES AND LABOR. There is no unfair labor practice
complaint against any Obligor pending before the National Labor Relations Board
or any state or local agency nor is there a labor strike or other labor dispute,
work stoppage, pending or, to any Borrower's knowledge, threatened affecting any
of the foregoing which if adversely resolved
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singly or in the aggregate could reasonably be expected to have a Material
Adverse Effect; there is no existing representation question respecting the
employees of any Obligor nor are there organizational attempts affecting any of
the employees of any Obligor which singly or in the aggregate could reasonably
be expected to have a Material Adverse Effect; there is no grievance pending or,
to any Borrower's knowledge, threatened affecting any Obligor; and no labor
disputes or work stoppages involving any Obligor are pending or, to any
Borrower's knowledge, threatened, which singly or in the aggregate could
reasonably be expected to have a Material Adverse Effect. No Obligor is a party
to any collective bargaining agreements, except as listed on SCHEDULE 10.25
hereto. To Borrowers' knowledge, no customer or supplier of any Obligor is
involved in, or threatened with or affected by, any labor dispute, arbitration,
lawsuit or administrative proceeding which singly or in the aggregate could
reasonably be expected to have a Material Adverse Effect.
SECTION 10.26 YEAR 2000. Obligors are conducting a review and
assessment of all internal computer applications and programs (the "SOFTWARE")
owned, licensed or used by any Obligor and, to Obligor's knowledge, all such
Software is fully able to perform date-sensitive or other functions on or after,
or as to dates on or after December 31, 1999 ("Y2K ISSUES"), except where the
failure to perform such function is not reasonably expected to have a Material
Adverse Effect, and except as listed on SCHEDULE 10.26 annexed hereto. Obligors
have contacted their suppliers of goods and services with regard to Y2K Issues
and have not received indication from such suppliers that such suppliers' goods
and services will not continue to perform in a manner consistent with each
Obligor's business requirements on or after December 31, 1999 without
interruption.
SECTION 10.27 SOLVENCY. Each Obligor is Solvent both before and
after giving to the execution and delivery of this Agreement and any of the
Related Documents to which any Obligor is a party and consummation of the
transactions contemplated hereunder or thereunder, including, without
limitation, the Related Transactions.
SECTION 10.28 COLLATERAL. Except for the Permitted Liens, all of the
Collateral is and will continue to be owned by each Obligor, as applicable, free
and clear of all Liens. From and after the making of the initial Loan and after
the making of all necessary filings, the provisions of the Security Agreement
and the other Collateral Documents will be effective to create and will give
Lender as security for the repayment of the Liabilities, a legal, valid,
perfected and enforceable Lien (which priority is subject only to Permitted
Liens) upon all right, title and interest of each Obligor, as applicable, in any
and all of the Collateral (including the Lien in the items and amounts deposited
in any of the Restricted Accounts). Upon the acknowledgment of Lender's security
interest in the Restricted Accounts by the banks or other financial institutions
at which such Restricted Accounts are maintained, this Agreement will be
effective to create and will give Lender as security for the repayment of the
Liabilities, a legal, valid, perfected and enforceable first priority Lien on
all deposits or other items in the Restricted Accounts.
SECTION 10.29 PLACES OF BUSINESS. As of the Closing Date, the
principal place of business and chief executive office of each Obligor is set
forth on SCHEDULE 10.29 and, except as disclosed on SCHEDULE 10.29, none of such
locations have changed within the six (6)
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month period prior to the Closing Date. Except for sales offices, no Obligor
has maintained places of business in the last six (6) months except for those
listed on SCHEDULE 10.29. The books and records of the Obligors and all Chattel
Paper, Instruments and all records of accounts of the Obligors are located and
hereafter shall continue to be located at the principal place of business and
chief executive office of the Borrowers.
SECTION 10.30 OTHER NAMES. The business conducted by the Obligors
has not been in the past five (5) years, and will not be without the prior
written consent of the Lender not to be unreasonably withheld, conducted under
any corporate, trade or fictitious name other than those names disclosed on
SCHEDULE 10.30.
SECTION 10.31 REAL ESTATE. SCHEDULE 10.29 describes all Real Estate
owned or leased or otherwise occupied by any Obligor except for sales offices
(other than district sales offices). The Borrowers represent and warrant to
Lender that such Obligor has good, indefeasible and merchantable title to and
ownership of, or a valid leasehold interest in, each parcel of Real Estate
described in SCHEDULE 10.29, free and clear of all Liens, except Liens in favor
of Lender and the Permitted Liens.
SECTION 11 COVENANTS.
Until the expiration or termination of the Commitments and thereafter
until the Notes and all other Liabilities are paid and performed in full, each
Borrower agrees that, unless at any time Lender shall otherwise expressly
consent in writing, it will, and will cause each Obligor to:
SECTION 11.1 REPORTS, CERTIFICATES AND OTHER INFORMATION. Furnish or
cause to be furnished to Lender:
(a) As soon as available, but in any event within 120 days after the
end of each Fiscal Year of the Consolidated Entity: (i) copies of the balance
sheets of the Consolidated Entity as at the end of such Fiscal Year and the
related statements of earnings, shareholders' equity and cash flows for such
Fiscal Year in accordance with GAAP applied consistently throughout the periods
reflected therein, such consolidated financial statements to be certified,
without a going concern or like qualification or qualification arising out of
the scope of the audit, by PriceWaterhouseCoopers (or such other independent
certified public accountants of recognized standing as shall be selected by
Holdings with Lender's approval).
(b) As soon as available, but in any event within 45 days after the
end of each Fiscal Quarter: (i) copies of the unaudited balance sheets of the
Consolidated Entity as at the end of such Fiscal Quarter and the related
unaudited statements of earnings, shareholders' equity and cash flows for such
Fiscal Quarter and the portion of the Fiscal Year through such Fiscal Quarter.
(c) As soon as available, but in any event within 30 days after the
end of each month, copies of the unaudited balance sheets of the Consolidated
Entity as at the end of such month and the related unaudited statements of
earnings and cash flows for such month and the
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portion of the Fiscal Year through such month in accordance with GAAP applied
consistently throughout the periods reflected therein and certified by the chief
financial officer of Holdings as presenting fairly the financial condition and
results of operations of the Consolidated Entity (subject to normal year-end
audit adjustments).
(d) As soon as available, but in any event: (i) within 30 days after
the beginning of each Fiscal Year of Holdings, a copy of the plan and forecast
(including a projected consolidated closing balance sheet, income statement and
funds flow statement and amount of the Revolving Commitment and Borrowing
Availability) of the Consolidated Entity for the current Fiscal Year in monthly
detail with respect to the Revolving Commitment and Borrowing Availability and
quarterly detail with respect to the other financial projections; and (ii)
within 30 days after the end of the second Fiscal Quarter of the Consolidated
Entity in each Fiscal Year, an update of each plan and forecast delivered with
respect to the Fiscal Year in which such Fiscal Quarter occurs, reflecting
changes in such plan resulting from actual and then anticipated results and
forecasts.
(e) Contemporaneously with the furnishing of a copy of each annual
audit report and of each set of financial statements provided for in SECTIONS
11.1(b) and 11.1(d), a duly completed certificate in substantially the form of
EXHIBIT D or in such other form as Lender may from time to time require (each a
"COMPLIANCE CERTIFICATE"), signed by the chief financial officer of Holdings,
containing, among other things, a computation of, and showing compliance with,
each of the applicable financial ratios and restrictions contained in this
SECTION 11, and to the effect that as of such date no Event of Default or
Unmatured Event of Default has occurred and is continuing or if such an Event of
Default or Unmatured Event of Default has occurred and is continuing, setting
forth the nature thereof and the actions each Obligor is taking with respect
thereto.
(f) Promptly upon receipt thereof, copies of all financial and
management reports regarding the Consolidated Entity, submitted to any Obligor,
Holdings or any shareholder of any Obligor or Holdings by independent public
accountants in connection with each annual or interim audit report made by such
accountants of the books of the Consolidated Entity.
(g) Promptly upon the filing or making thereof, copies of each filing
and each report made by Holdings with or to any securities exchange or the
Securities and Exchange Commission and of each written communication from
Holdings to its shareholders as a group.
(h) Forthwith upon learning of the occurrence of any of the
following, written notice thereof, describing the same and the steps being taken
by any Obligor or any other party with respect thereto: (i) the occurrence of an
Event of Default or an Unmatured Event of Default, (ii) the institution of, or
any adverse determination or materially adverse development in, any litigation,
arbitration proceeding or governmental proceeding which could have a Material
Adverse Effect, (iii) the occurrence of a Reportable Event, (iv) the institution
of any steps to terminate any Pension Plan, (v) the institution of any steps to
completely or partially withdraw from any Multiemployer Plan, (vi) the failure
of any Borrower or any current or past member of the Controlled Group to make a
required contribution to any Pension Plan if such failure is sufficient to give
rise to a Lien under Section 412 of the Code or Section 302 of ERISA, (vii) the
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adoption of any amendment which would require any Borrower or any current or
past member of the Controlled Group to provide a bond or other security to a
Pension Plan under Section 401(a)(29) of the Code or Section 307 of ERISA,
(viii) the incurrence of any increase in the contingent liability of any
Borrower or any member of the Controlled Group or any other conditions, events
or transactions with respect to any present (or future) Employee Benefit Plan
which (a) is not adequately reserved on the balance sheet of the Borrowers or
one of the Controlled Group members and (b) could reasonably be expected to
result in the incurrence by any Borrower or any member of the Controlled Group
of any liability in excess of $75,000 (in the aggregate), (ix) the commencement
of any dispute which might lead to the revocation, suspension or termination of
any Related Document, (x) any termination (without renewal), loss, suspension or
other impairment of any of Obligor's rights under any Material Intellectual
Property Right or material Contract or (xi) any other event or events which
singly or in the aggregate could reasonably be expected to have a Material
Adverse Effect.
(i) Written notification 30 days prior to any cancellation or
material change (other than one which enlarges the scope of coverage, adds
additional insureds or increases coverage limits) of any such insurance by any
Obligor and within 5 days after receipt of any notice (whether formal or
informal) of cancellation, reduction in coverage, or shortening of policy period
or material adverse change by any of its insurers.
(j) With respect to each "MULTIEMPLOYER PLAN", as defined in section
4001 of ERISA as to which any Borrower or any current or past member of the
Controlled Group may have any liability, (i) no less frequently than annually, a
written estimate (which shall be based on information received from each such
plan, it being expressly understood that the Borrowers shall take all reasonable
steps to obtain such information) of the withdrawal liability that would be
incurred by any Borrower or any current or past member of the Controlled Group
in the event that any Borrower or any current or past member of the Controlled
Group were to completely withdraw from that plan in a complete withdrawal as
defined in section 4201 of ERISA, and (ii) written notice thereof, as soon as it
has reason to believe (on the basis of the most recent information available to
it) that the sum of (a) the withdrawal liability that would be incurred by any
Borrower or any current or past member of the Controlled Group if such Borrower
or any current or past member of the Controlled Group completely withdrew from
any Multiemployer Plans as to which such Consolidated Entities or any current or
past member of the Controlled Group has an obligation to contribute, and (b) the
amount of the outstanding withdrawal liability (without unaccrued interest)
incurred by such Borrower of any current or past member of the Controlled Group
to Multiemployer Plans, would exceed $75,000 in the aggregate.
(k) Prompt written notice of execution of any agreement by any
Obligor to merge or consolidate into or with, or purchase or otherwise acquire
all or substantially all of the assets or stock of any class of, or any
partnership or any material joint venture interest in, any other Person, or for
the sale, transfer, lease or conveyance by any Obligor of all or any substantial
part of its assets or sale, or for the assignment by any Obligor without
recourse of any of its receivables.
(l) With respect to any Obligor, written notice of any change in
chief executive officer, chief financial officer, treasurer, controller or
senior vice president of sales
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within 15 Business Days of such change.
(m) INTENTIONALLY OMITTED.
(n) Not later than the twentieth (20th) day of each month, a monthly
report ("MONTHLY REPORT") for Roach, accompanied by a certificate in the form
attached as EXHIBIT E, which shall be signed by the chief financial officer,
treasurer or controller of Roach. The Monthly Report shall be in form and
substance satisfactory to Lender and shall include, as of the last Business Day
of the preceding month (and with respect to the initial Monthly Report attached
as EXHIBIT E, as of a date not more than two (2) Business Days prior to the
Closing Date): (i) a separate aged trial balance of Accounts other than
Installment Accounts ("ACCOUNTS RECEIVABLE TRIAL BALANCE") of each Borrower
sorted by Account Debtor in invoice detail and submitted in hard copy and/or
electronic disk indicating which Accounts are current, 30 to 59, 60 to 89, 90 to
119 and 120 days or more past the original invoice date and listing the names
and, if required by Lender, addresses of all applicable Account Debtors, (ii) a
schedule of Installment Accounts ("INSTALLMENT ACCOUNTS TRIAL BALANCE"; Accounts
Receivable Trial Balance and Installment Accounts Trial Balance are referred to
collectively as "ACCOUNTS TRIAL BALANCE") of each Borrower sorted by Account
Debtor, in individual customer order form or contract detail, specifying the
date of the customer order form or contract, the total Installment Account in
respect of such Account Debtor's customer order form or contract, a schedule of
monthly billing amounts within the next year, and remaining amount scheduled to
be billed beyond the next year, (iii) a summary of accounts payable of each
Borrower showing which accounts payable are current, 30 to 59, 60 to 89 and 90
days or more past due and listing the names and, if required by Lender,
addresses of applicable creditors; (iv) a schedule of Inventory owned by Roach
and in Roach's possession valued at the lower of cost or market on a FIFO basis;
and (iv) copies of all bank statements relating to all Other Accounts. Each
Borrower shall provide in all Monthly Reports all changes with respect to what
constitutes Eligible Inventory. In addition, Borrowers shall deliver a
consolidating Borrowing Base Certificate to Lender not later than each Wednesday
as of the previous Friday. If requested by Lender, each Borrower shall furnish
copies of any other reports or information, in a form and with such specificity
as is satisfactory to Lender, concerning Accounts and Inventory of such Borrower
included, described or referred to in any Borrowing Base Certificate and any
other documents in connection therewith requested by Lender, including but only
if specifically requested by Lender, copies of all invoices, customer order
forms or contracts prepared in connection with such Accounts and all credit
memoranda issued by Borrowers (Borrowers shall issue such credit memoranda in
accordance with their current practice and without delay, but in any event
within three (3) Business Days of receipt of notice of a dispute with respect to
an Account).
(o) INTENTIONALLY OMITTED.
(p) From time to time, such other information concerning the
Consolidated Entity or any Obligor as Lender may reasonably request.
SECTION 11.2 CORPORATE EXISTENCE; FOREIGN QUALIFICATION. Do and
cause to be done at all times all things necessary to (i) maintain and preserve
the corporate existence of each Obligor, (ii) be duly qualified to do business
and in good standing as a foreign
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corporation in each jurisdiction where the nature of its business makes such
qualification necessary, except any such jurisdiction where failure to so
qualify could not have a Material Adverse Effect (which jurisdictions shall
include, without limitation, those jurisdictions listed in SCHEDULE 10.1) and
(iii) comply with all Contractual Obligations and Requirements of Law binding
upon such Person, except to the extent that failures to so comply therewith
singly or in the aggregate could not reasonably be expected to have a Material
Adverse Effect.
SECTION 11.3 BOOKS, RECORDS AND INSPECTIONS. Maintain complete and
accurate books and records. In addition, Lender, or any Person designated by
Lender in writing, shall have the right, from time to time hereafter, to call at
any of Obligor's place or places of business (or any other place where the
Collateral or any information relating thereto is kept or located) during normal
business hours upon reasonable prior written or telephonic notice by Lender or
such other Person; PROVIDED that no prior notice shall be required upon the
occurrence and during the continuance of an Event of Default or Unmatured Event
of Default, and, without hindrance or delay (i) to inspect, audit, check and
make copies of and extracts from such their books, records, journals, orders,
receipts and any correspondence and other data relating to their business or to
any transactions between the parties hereto, (ii) to make such verification
concerning the Collateral as Lender may consider reasonable under the
circumstances, and (iii) to discuss the affairs, finances and business of the
Obligors with any officers, employees or directors of any Obligor. So long as
no Unmatured Event of Default or Event of Default shall have occurred and be
continuing, Borrowers shall not be liable for reimbursing Lender for the costs
and expenses of the Lender in connection with the activities described in
clauses (i), (ii) and (iii) hereof except to the extent provided in SECTION 5.4
hereof.
SECTION 11.4 INSURANCE. (i) If any Obligor maintains "key man"
insurance with respect to any officer or director of such Obligor, such Obligor
shall assign the proceeds of such insurance to Lender pursuant to an assignment
in form and substance reasonably satisfactory to Lender, (ii) maintain such
insurance (X) as may be required by law, or by the Collateral Documents or
otherwise by Lender, and (Y) in any event to such extent and against such
hazards and liabilities, as is customarily maintained by prudent companies
similarly situated, (iii) maintain a sufficient amount of insurance so that none
of the Obligors nor Lender will be considered a co-insurer or co-insurers, (iv)
with respect to each liability insurance policy, (A) cause such policy to
provide, pursuant to endorsements in form and substance satisfactory to Lender,
that Lender is named as an additional insured and that the insurer will give
Lender 30 days' prior written notice of the termination or other material
modification of such policy and (B) notify Lender within 5 days after obtaining
any new policy, or increasing coverage under any existing policy, describing in
detail in such notice any such new policy or increase, and (v) with respect to
each physical damage or casualty policy, and each life insurance policy referred
to in SUBCLAUSE (i), (A) cause such policy to provide, pursuant to endorsements
in form and substance satisfactory to Lender, that Lender is named as a loss
payee as to personal property, mortgagee as to real property and an assignee
with respect to life insurance and that the insurer will give 30 days' prior
written notice of the termination or other material modification of such policy,
(B) cause such policy to provide, pursuant to endorsements in form and substance
satisfactory to Lender, that the insurance shall not be invalidated as against
Lender by any action or inaction of any Person other than Lender, regardless of
any breach or violation of any warranty, declaration or condition contained in
such policy, (C) as against Lender, the insurers shall waive any rights
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of subrogation to the extent that the named insured has waived such rights (and
each Borrower hereby irrevocably and unconditionally waives for itself and any
Obligor any right of subrogation against Lender, except for claims arising out
of the gross negligence or willful misconduct of Lender), and (D) notify Lender
within 5 days of obtaining any new policy or increasing coverage under any
existing policy, describing in detail in such notice any such new policy or
increase.
SECTION 11.5 TAXES AND LIABILITIES. Pay when due all taxes and
assessments except as contested in good faith and by appropriate proceedings
with respect to which reasonably adequate reserves have been established, and
are being maintained, in accordance with GAAP if and so long as forfeiture of
any part of the Collateral will not result from the failure to pay any such
taxes, assessments or other material liabilities during the period of any such
contest.
SECTION 11.6 EMPLOYEE BENEFIT PLANS. (i) Maintain, and cause each
current or past member of the Controlled Group to maintain, each Pension Plan as
to which it may have any material liability, in compliance in all material
respects with all applicable Requirements of Law or as required pursuant to a
collective bargaining agreement, or if intended to qualify under Section 401(a)
or 501(a) of the Code, in form and administered in a manner so as not to result
in any liability to any Borrower, or any current or past member of the
Controlled Group for failure to comply with the applicable provisions thereof,
and (ii) not institute any actions which could give rise to any of the
following, unless the liability to any Borrower or any current or past member of
the Controlled Group arising from the same will not exceed $75,000 or is
adequately reserved on the consolidated balance sheet of the Consolidated
Entity: (a) a Reportable Event, (b) the complete or partial withdrawal from any
Multiemployer Plan as defined in Section 4210 of ERISA, (c) an amendment,
modification or termination or withdrawal from of a Pension Plan or the entering
into of any new Pension Plan, (whether or not resulting in the posting of a
security under Section 401(a)(29) of the Code or Section 307 of ERISA), (d) an
obligation to file a notice of intent to terminate a Pension Plan under Section
4041 of ERISA, (e) a lien under Section 412 of the Code or Section 302 of ERISA,
(f) the institution of proceedings to terminate a Pension Plan by the Pension
Benefit Guaranty Corporation under Section 4043 of ERISA, or (g) other than in
the ordinary course, the incurrence of any increase in the contingent liability
of any Obligor or any other conditions, events or transactions with respect to
any present (or future) Employee Benefit Plan. No Obligor will become a party
or otherwise become obligated to contribute to any Multiemployer Plan.
SECTION 11.7 COLLATERAL DOCUMENTS. Cause the Collateral Documents,
as security for the payment and performance of Notes and all other Liabilities,
to be and remain valid, perfected Liens on and security interests in all assets
of each Borrower now or hereafter existing or acquired (free of all other Liens
whatsoever other than Permitted Liens). Without limiting the generality of the
foregoing, each Obligor shall, at least once during any six (6) month period,
deliver to Lender (i) an updated SCHEDULE 10.14, (ii) evidence that any
additional Material Intellectual Property Right reflected on such updated
schedule has been registered or a registration applied for with the United
States Patent and Trademark Office or Copyright Office, as appropriate, and
(iii) has executed and delivered to Lender such supplemental intellectual
property security agreements as Lender may require for filing with such offices.
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SECTION 11.8 COMPLIANCE WITH LAWS. Comply with all Federal, state
and local laws, rules and regulations related to its business except to the
extent that failures to so comply singly or in the aggregate could not
reasonably be expected to have a Material Adverse Effect.
SECTION 11.9 MAINTENANCE OF PERMITS. Maintain all permits, licenses
and consents as are required for the conduct of its business by any state,
Federal or local government agency or instrumentality (including, without
limitation, any such license, consent or permit relating to Hazardous Materials
or the disposal thereof) unless the failure to maintain such licenses, permits
and consents could not reasonably be expected to have a Material Adverse Effect.
SECTION 11.10 PURCHASE, REDEMPTION, DISTRIBUTION, INTEREST AND
PAYMENT RESTRICTIONS. Not, directly or indirectly, purchase, redeem or
otherwise acquire any of its Equity Interests or declare or make any dividend,
distribution or payment to any holder of any of its Equity Interests, or set
aside any funds for any such purpose, or make any other payment of any nature
whatsoever to any holder of any shares of the capital stock or any of their
Affiliates or members, partners or shareholders (in their capacity as such),
PROVIDED, that (i) Borrowers may make payments permitted pursuant to SECTION
11.19 and (ii) PROVIDED, that immediately prior and after giving effect to any
such dividend or distribution, dividends or other distributions to Holdings to
permit Holdings to (a) pay regularly scheduled payments of interest and
mandatory redemptions of principal on Subordinated Indebtedness required by the
Subordinated Debt Documents, and (b) pay amounts required by the Convertible
Preferred Stock Documents; PROVIDED, further, that no Borrower shall pay such
dividend or distribution to Holdings more than five (5) Business Days prior to
the date (I) scheduled for such payment on Subordinated Indebtedness or (II)
required for such payment pursuant to the Convertible Preferred Stock Documents.
SECTION 11.11 GUARANTIES, LOANS, ADVANCES OR INVESTMENTS. Not become
or be a guarantor or surety of, or otherwise incur any Contingent Obligation or
become or be responsible in any manner (whether by agreement to purchase any
obligations, stock, assets, goods or services, or to supply or advance any
funds, assets, goods or services, or otherwise) with respect to, any undertaking
of any other Person, or make or permit to exist any loans or advances to,
investments in, or contributions to the capital of, any other Person, except for
(i) guaranties in favor of Lender, (ii) the endorsement, in the ordinary course
of collection, of instruments payable to it or to its order, (iii) investments
in Cash Equivalents, (iv) intercompany Indebtedness between Obligors and (v)
intercompany Indebtedness to TRO (UK) (except that cash advances shall not
exceed in the aggregate at any one time outstanding (a) $6,000,000 during the
fiscal year ending October 31, 1999, (b) $6,750,000 during the fiscal year
ending October 31, 2000, and (c) $7,500,000 during the fiscal year ending
October 31, 2001 and at any time thereafter), and in any event evidenced by a
promissory note of TRO (UK) made payable to Roach in the amount of $40,000,000,
dated February 25, 1999 and endorsed and delivered to Lender.
SECTION 11.12 MERGERS, CONSOLIDATIONS, SALES. Not (a) be a party to
any merger or consolidation or purchase or otherwise acquire all or
substantially all of the assets or
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stock of any class of, or any partnership or joint venture interest or other
interest in, any other Person; or (b) sell, transfer, convey or lease all or any
substantial part of its assets or sell or assign with or without recourse any
Account, other than any sale of inventory in the ordinary course of business,
and PROVIDED that the sale, transfer, conveyance or lease of assets shall be in
addition subject to the limitations set forth in the Security Agreement.
SECTION 11.13 UNCONDITIONAL PURCHASE OBLIGATIONS. Not enter into or
be a party to any contract for the purchase of materials, supplies or other
property or services, if such contract requires that payment be made by it
regardless of whether delivery is ever made of such materials, supplies or other
property or services except for contracts with investment banking firms related
to strategic alternatives.
SECTION 11.14 REGULATIONS G, U AND X. Not use or permit any proceeds
of the Loans to be used, either directly or indirectly, for the purpose, whether
immediate, incidental or ultimate, of "purchasing or carrying margin stock"
within the meaning of Regulations G, U and X of the Board of Governors of the
Federal Reserve System, as amended from time to time.
SECTION 11.15 SUBSIDIARIES. Notwithstanding any provision of this
Agreement to the contrary, not create or permit to exist any Subsidiary except
for those existing on the date hereof.
SECTION 11.16 INTENTIONALLY OMITTED.
SECTION 11.17 OTHER AGREEMENTS. Not enter into any agreement
containing any provision which would be violated or breached by the performance
of its obligations hereunder, under any of the Related Documents or under any
other instrument or document delivered or to be delivered by it hereunder or in
connection herewith.
SECTION 11.18 BUSINESS ACTIVITIES; NAME. Not engage in any type of
business except the businesses described in SCHEDULE 11.18 and the activities
incidental and related thereto. Obligors shall transact and conduct business
only in their respective corporate name and such trade names as are set forth in
SCHEDULE 10.30 unless such Obligor (i) shall have given Lender thirty (30) days
prior written notice of its intent to do so and (ii) shall have executed and
delivered to Lender such documents and instruments as Lender may require to
maintain its first priority, perfected Lien in the Collateral.
SECTION 11.19 TRANSACTIONS WITH AFFILIATES. Not enter into, or
cause, suffer or permit to exist any transaction, arrangement or contract with
any Affiliate other than a Borrower, including without limitation the purchase,
sale or exchange of property or the rendering of any service, with any
Affiliate, except for (i) payment of salary and compensation to employees, (ii)
transactions referred to on SCHEDULE 11.19 and (iii) intercompany loans
permitted by SECTION 11.11 hereof.
SECTION 11.20 ENVIRONMENTAL LIABILITIES. Not violate in any material
respect any Requirement of Law regarding Hazardous Material; and, without
limiting the
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foregoing, not dispose of any Hazardous Material into, onto or (except in
material compliance with Requirements of Law) from any real property owned or
operated by it, nor allow any lien imposed pursuant to any law, regulation or
order relating to Hazardous Materials or the disposal thereof to be imposed or
to remain on such real property.
SECTION 11.21 INDEBTEDNESS. Not incur or permit to exist any
Indebtedness or accounts payable except (i) the Loans, (ii) deferred taxes,
(iii) current accounts payable arising in the ordinary course of business, (iv)
non-current accounts payable which any Obligor is contesting in good faith and
by appropriate proceedings diligently conducted, and with respect to which
adequate reserves have been established, and are being maintained, in accordance
with GAAP, and (v) Indebtedness of a type referenced in CLAUSES (b) and (c) of
the definition of Permitted Liens provided that the aggregate outstanding amount
thereof does not at any time exceed $250,000 as to the Indebtedness referenced
in either such clause ("PERMITTED PURCHASE MONEY DEBT"), (vi) the Subordinated
Indebtedness, (vii) other Indebtedness shown on SCHEDULE 11.21, and (viii)
unsecured Indebtedness in an aggregate amount not to exceed $500,000 at any one
time outstanding.
SECTION 11.22 LIENS. Not create or permit to exist any Lien with
respect to any assets of any Obligor now or hereafter existing or acquired,
except Permitted Liens.
SECTION 11.23 FISCAL YEAR. Not change its Fiscal Year from a Fiscal
Year ending on the last day of October without the prior written consent of
Lender.
SECTION 11.24 LANDLORD AND WAREHOUSEMAN AGREEMENTS. Provide Lender
with copies of all agreements between any Obligor and any landlord, bailee,
warehouseman or processor which owns any premises at which Inventory or any
other Collateral may, from time to time, be located. Each Borrower shall
deliver to Lender on or before the Closing Date a landlord's waiver for the
Edina and Bloomington, Minnesota and the Hoffman Estates, Illinois locations
(collectively, "PRIMARY COLLATERAL LOCATIONS") in form and substance acceptable
to Lender from the lessor of each such leased property. With respect to such
leased locations, if any Borrower is unable to deliver such a landlord waiver or
bailee letter the Inventory at that location shall automatically be deemed
ineligible without further action by Lender. In the event any Borrower delivers
to Lender such landlord waiver after the Closing Date, subject to the terms and
conditions of this Agreement (including SECTION 9.4), Inventory located at such
leased location or other location, as applicable, may be considered Eligible
Inventory. Each Borrower shall timely and fully pay and perform its obligations
under all leases and other agreements with respect to (a) each Primary
Collateral Location and (b) each other location of Collateral where failure to
pay or perform could have a Material Adverse Effect. Each Borrower shall
promptly deliver to Lender copies of (i) any and all default notices received by
it under or with respect to any such leased location or other location, and (ii)
such other notices or documents with respect to Primary Collateral Locations as
Lender may request in its reasonable discretion.
SECTION 11.25 MAINTENANCE OF REAL ESTATE. Keep and maintain the
Real Estate and all improvements thereon in good condition and repair (ordinary
wear and tear excepted) and shall maintain the value and utility thereof and
shall maintain such Real Estate in
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conformity with all applicable building and zoning codes and other applicable
laws, statutes, rules and regulations. Each Borrower shall maintain its leased
real property in the same manner as its owned Real Estate, and comply with the
terms of its leases of Real Estate, in accordance with the applicable leases.
SECTION 11.26 ACCOUNT RECORDS. At all times hereafter maintain a
record of its Accounts, keeping correct and accurate records itemizing and
describing the names and addresses of Account Debtors, relevant invoice numbers,
shipping dates and due dates, collection histories, and Accounts agings, all of
which records shall be available during Borrowers' usual business hours at the
request of any of Lender's officers, employees or agents. Borrowers shall
cooperate fully with Lender and their agents who shall have the right at any
time or times to inspect its Accounts and the records with respect thereto.
Borrowers shall conduct a review of their bad debt reserves and collection
histories at least once each year and promptly following such review shall
supply Lender with a report in a form and with such specificity as may be
reasonably satisfactory to Lender concerning such review of the Accounts.
SECTION 11.27 INSTRUMENTS AND CHATTEL PAPER. All Chattel Paper shall
be marked with the following legend: "This writing and the obligations evidenced
or secured hereby are subject to the security interest of First Source Financial
LLP, as Lender." Upon the request of Lender and at all times upon the
occurrence and during the continuance of an Event of Default or Unmatured Event
of Default, immediately upon any Borrower's receipt thereof, Borrowers shall
deliver or cause to be delivered to Lender, with appropriate endorsement and
assignment to vest title, with full recourse to Borrowers, and possession in
Lender, all Instruments and Chattel Paper which any Obligor now owns or may at
any time or times hereafter acquire.
SECTION 11.28 INVENTORY RECORDS. At all times hereafter maintain a
perpetual inventory, keeping correct and accurate records itemizing and
describing the kind, type, quality and quantity of Inventory and of Eligible
Inventory, Borrowers' cost therefor and daily withdrawals therefrom and
additions thereto, and the locations of all Inventory in the possession of
bailees, all of which records shall be available during Borrowers' usual
business hours at the request of any of Lender's officers, employees or agents.
Borrowers and its employees and officers shall cooperate fully with Lender and
its agents who shall have the right at any time or times to inspect the
Inventory and the records with respect thereto. Borrowers shall conduct a
physical count of its Inventory at least once each year and promptly following
such physical inventory shall supply Lender with a report in form and substance
satisfactory to Lender concerning such physical count of their Inventory, and
shall furnish to Lender, at Lender's request, such other documents and reports
with respect to the Inventory.
SECTION 11.29 COLLATERAL LOCATIONS. Not sell any of the Inventory on
a guaranteed sale, sale-and-return, sale on approval or consignment basis or any
other basis subject to a repurchase obligation or return right. Neither the
location of the principal place of business and chief executive office of any
Borrower as set forth on SCHEDULE 10.29, the locations of Collateral as set
forth on SCHEDULE 10.29 nor the corporate name or mailing address of any Obligor
shall be changed, nor shall there be established additional places of business
or additional locations at which Collateral is stored, kept or processed unless
(i) such Obligor shall have given
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Lender not less than thirty (30) days prior written notice thereof, (ii) Lender
shall have determined that, after giving effect to any such change of name,
address or location, Lender shall have a first perfected Lien in the Collateral
except for Permitted Liens, (iii) in the case of Collateral locations, such
Obligor shall have delivered a landlord waiver or bailee letter, as applicable,
in form and substance satisfactory to Lender with respect to such location, and
(iv) all negotiable documents and receipts in respect of any Collateral
maintained at such premises are promptly delivered to Lender. Prior to making
any such change or establishing such new location, Obligors shall execute any
additional financing statements or other documents or notices required by
Lender. All Collateral located at any such new location shall automatically
without further action by Lender be deemed ineligible to constitute Eligible
Accounts or Eligible Inventory, as the case may be, until Obligors shall have
complied with the requirements of this SECTION 11.29 and SECTION 11.24.
SECTION 11.30 DISPOSAL OF PROPERTY. Not sell, lease, assign,
transfer or otherwise dispose of any of its Property or rights to any Person
except for (i) bona fide sales of Inventory to customers for fair value in the
ordinary course of business and (ii) sales of Equipment which is obsolete,
worn-out or otherwise not useable its business in an aggregate amount in any
Fiscal Year not to exceed $100,000. In the event any Equipment of any Obligor
is sold, transferred or otherwise disposed of as permitted by this SECTION 11.30
or with Lender's consent, and (i) such sale, transfer or disposition is effected
without replacement of the Equipment so sold, transferred or disposed of or such
Equipment is replaced by Equipment leased by such Obligor, such Obligor shall
promptly (but in any event within three (3) Business Days of the receipt
thereof) deliver all of the cash proceeds of any such sale, transfer or
disposition to Lender, or (ii) such sale, transfer or disposition is made in
connection with the purchase by an Obligor of replacement Equipment, such
Obligor shall use the proceeds of such sale, transfer or disposition to finance
the purchase by such Obligor of replacement Equipment and shall deliver to
Lender written evidence of the use of the proceeds for such purchase. Except as
permitted by SECTION 11.22, all replacement Equipment purchased by Obligors
shall be free and clear of all Liens, except for Liens in favor of Lender. All
proceeds delivered to Lender under this SECTION 11.30 shall be applied to the
outstanding Loans (without permanent reduction of the Revolving Commitment)
without premium or penalty.
SECTION 11.31 CHANGES IN ORGANIZATION DOCUMENTS. Not, without the
prior written consent of the Lender, amend its Organization Documents in any
manner which could adversely affect the interests of the Lender.
SECTION 11.32 IMPAIRMENT AGREEMENTS. Not enter into or assume any
agreement, instrument, indenture or other obligation (other than this Agreement
and the Related Documents) which (i) contains a negative pledge provision which
would require a sharing of any interest in the Collateral, (ii) prohibits or
limits the creation or assumption of any Lien in favor of Lender for the benefit
of itself upon its Property, whether now owned or hereafter acquired, or (iii)
restricts, prohibits or requires the consent of any Person with respect to the
payment of Restricted Payments.
SECTION 11.33 MANAGEMENT FEES. Not enter into any management or
consulting agreements or other similar arrangements with any Person or retain
any management
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consultants resulting in payment in any calendar year in connection therewith in
the aggregate in excess of $250,000.
SECTION 11.34 CORPORATE ACCOUNTS. Not maintain corporate deposit
accounts jointly with any Affiliate or commingle any of its funds with funds of
any Affiliate.
SECTION 11.35 FINANCIAL COVENANTS.
(a) MINIMUM NET WORTH. Not permit Net Worth on the last day of any
Fiscal Quarter ending during any period set forth below to be less than the
amount set forth below opposite such period:
<TABLE>
<CAPTION>
MINIMUM
PERIOD ENDING NET WORTH
------------- ---------
<S> <C>
April 30, 1999 $4,600,000
July 31, 1999 $6,200,000
October 31, 1999 $11,000,000
January 31, 2000 $10,000,000
April 30, 2000 $10,000,000
July 31, 2000 $12,500,000
October 31, 2000 $15,000,000
and each period ending thereafter
</TABLE>
(b) MINIMUM EBITDA. Not permit EBITDA for the twelve-month period
ending as of the last day of each quarter set forth below to be less than the
amount set forth below opposite such period:
<TABLE>
<CAPTION>
MINIMUM
PERIOD ENDING EBITDA
------------- -------
<S> <C>
April 30, 1999 $6,000,000
July 31, 1999 $6,500,000
October 31, 1999 $9,500,000
January 31, 2000 $9,000,000
April 30, 2000 $9,000,000
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July 31, 2000 $10,000,000
October 31, 2000 $11,500,000
and each period ending thereafter
</TABLE>
(c) MINIMUM INTEREST COVERAGE RATIO. Not permit the Interest
Coverage Ratio for any quarter ending on April 30, July 31, October 31 or
January 31 in any year (except for the period ending January 31, 2000) to be
less than 2.25 to 1.00.
SECTION 11.36 LEASES. Not incur or permit to exist any Lease Obligations
(other than leases which are cancelable at the option of such Obligor without
penalty and on no more than 90 days' notice) which require the payment of
amounts of rental in excess of $2,500,000 in the aggregate for all Obligors
combined in any one Fiscal Year.
SECTION 11.37 RESTRICTED PAYMENTS OF INDEBTEDNESS. Not permit any Obligor
to (a) make any voluntary or optional prepayment of any Indebtedness (other than
the Liabilities) or (b) make any payment or other distribution of any kind to
Holdings in respect of Senior Subordinated Indebtedness, except as otherwise
expressly permitted by SECTION 11.10 hereof.
SECTION 11.38 YEAR 2000. Obligors shall complete their review of all
Software by June 30, 1999 and shall ensure by such date that no Y2K Issues exist
with respect to such Software which could have a Material Adverse Effect.
SECTION 12 CONDITIONS.
The obligation of Lender to make the Loans is subject to the following
conditions precedent or concurrent:
SECTION 12.1 INITIAL LOAN. The obligation of Lender to make the
initial Loan shall be subject to the prior or concurrent satisfaction (in form
and substance satisfactory to Lender) of each of the conditions precedent set
forth below:
(a) No Event of Default or Unmatured Event of Default shall have
occurred and be continuing or will result from the making of such Loan.
(b) All warranties and representations contained in this Agreement
and the Related Documents shall be true and correct in all material respects as
of the date of such Loan, with the same effect as though made on the date of
such Loan.
(c) In the opinion of Lender, in its sole and absolute discretion,
(i) no litigation (including, without limitation, derivative actions),
arbitration, governmental investigation or proceeding or inquiry shall, on the
date of the initial Loan, be pending, or to the knowledge of any Borrower,
threatened which seeks to enjoin or otherwise prevent the consummation of, or to
recover any damages or to obtain relief as a result of, the Related
Transactions, or would be materially adverse to, or be detrimental to the
interests of, any of the
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parties to this Agreement or the Related Documents or any of the Related
Transactions, and (ii) no material adverse development shall have occurred in
any litigation (including, without limitation, derivative actions), arbitration,
government investigation or proceeding or inquiry disclosed in SCHEDULE 10.4).
(d) The fees referred to in SECTION 5 which are due and payable on or
prior to the date of the initial Loan shall have been paid to Lender.
(e) Each Lockbox and Restricted Account shall have been established
pursuant to SECTION 6.2 and the financial institutions at which any Obligor has
established the payroll and petty cash accounts described in SECTION 6.2(c)
shall have furnished Lender with the acknowledgment referred to in such Section.
(f) Lender shall have received all of the following, each duly
executed and dated the date of the initial Loan (or such earlier date as shall
be satisfactory to Lender), in form and substance satisfactory to Lender: the
Notes, the Depositary Account Agreements, the Security Agreements from each
Obligor (as applicable) and such other agreements, documents, instruments,
certificates and opinions as Lender may reasonably request.
(g) Borrowing Availability after giving effect to all Loans made on
the Closing Date and LC Exposure existing on the Closing Date shall be not less
than $1,500,000.
(h) The obligations of the Obligors identified on SCHEDULE 12.1
(herein called "INDEBTEDNESS TO BE REFINANCED"), together with all interest
accrued thereon and all prepayment premiums and other amounts payable in
connection therewith, will be refinanced in full from the proceeds of the Loans
on the Closing Date and Lender shall have received a letter from each of the
holders of the Indebtedness to be Refinanced setting forth in each case (x) the
amount of principal and accrued interest thereon due such holder as of the date
of such letter, (y) the per diem interest rate on unpaid principal thereunder as
of such date, and (z) payment instructions relative to the payment of such
Indebtedness to be Refinanced, and, unless waived by Lender, enclosing in escrow
any and all Uniform Commercial Code termination statements, mortgage releases
and releases of security interests in patents, trademarks and copyrights, in
form and substance satisfactory to Lender, sufficient to terminate all Liens
securing any of the Indebtedness to be Refinanced.
SECTION 12.2 ALL LOANS; LC GUARANTIES. The obligation of Lender to
make the initial Loan and each subsequent Loan or to issue an LC Guaranty is
subject to the following further conditions precedent (except as set forth in
SECTION 12.3(c)):
(a) (i) No Event of Default or Unmatured Event of Default shall have
occurred and be continuing or will result from the making of such Loan or
issuing such LC Guaranty, (ii) the warranties and representations contained in
this Agreement and the Related Documents shall be true and correct in all
material respects as of the date of such requested Loan or provision of such LC
Guaranty, with the same effect as though made on the date of such Loan or
provision of such LC Guaranty, and (iii) there shall have been no material
adverse change or notice to any Obligor of prospective material adverse change
with respect to insurance maintained
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by any Obligor.
(b) (i) No claims, litigation (including, without limitation,
derivative actions), arbitration, governmental proceeding, investigation or
inquiry not disclosed in writing by Borrowers to Lender prior to the date of the
last previous Loan or issuance of an LC Guaranty, whichever shall be pending or
known to be threatened against any Obligor, (ii) no material development not so
disclosed shall have occurred in any claim, litigation (including, without
limitation, derivative actions), arbitration, governmental proceeding,
investigation or inquiry which was so disclosed, and (iii) no event, condition
or development shall have occurred or developed at any time (whether before or
after the making of the last previous Loan), which (in the case of each of the
foregoing CLAUSES (i) through (iii)) in the opinion of Lender could have a
Material Adverse Effect.
(c) Lender shall have received: (i) a Monthly Report from each
Borrower dated no more than thirty-one (31) days prior to the date of such Loan,
(ii) a Borrowing Base Certificate delivered in accordance with SECTION 11.1(n),
(iii) not later than the fifteenth Business Day of the first calendar month
following the making of each Loan, a certificate, substantially in the form of
EXHIBIT F or in such other form as Lender shall from time to time designate to
Borrowers (the "BORROWING CERTIFICATE") dated the last Business Day of the month
in which such Loan was requested, signed by the President or a Vice President of
each Borrower, (iv) not less than three (3) days prior to the making of an LC
Guaranty, a certificate substantially in the form of EXHIBIT G (the "LC GUARANTY
REQUEST") relating to all Permitted LCs to be covered by an LC Guaranty since
the most recent prior LC Guaranty Request, signed by the President or a Vice
President or other appropriate officer of each Borrower, and (v) such other
documents as Lender may reasonably request in support of such requested Loan or
LC Guaranty, provided, that unless otherwise requested by Lender, each Borrower
may deliver one Borrowing Certificate each calendar month for all Loans for
which such Borrowing Certificate is required.
SECTION 13 EVENTS OF DEFAULT AND THEIR EFFECT.
SECTION 13.1 EVENTS OF DEFAULT. Each of the following shall
constitute an Event of Default under this Agreement:
(a) Default in the payment when due and payable (i) for a period of
five (5) days of any principal of or interest or premium on any Loan or any fee
hereunder or (ii) of any of the Liabilities upon the Termination Date, whether
by lapse of time, acceleration or otherwise.
(b) Default, and continuance thereof for five days, in the payment
when due, whether by acceleration or otherwise, of any amount payable hereunder
or under the Related Documents (other than any amount described in SECTION
13.1(a)).
(c) (i) Default in the payment when due and payable (subject to any
applicable grace period), whether by acceleration or otherwise, of any other
Indebtedness of, or guaranteed by the Obligors aggregating $400,000 or more, or
(ii) default in the performance or observance of any obligation or condition
with respect to any such other Indebtedness of, or guaranteed by the Obligors if
the effect of such default is to accelerate the maturity of (or there is matured
and
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unpaid) such other Indebtedness aggregating $250,000 or more, or to cause such
other Indebtedness aggregating $400,000 or more to become due and payable, or to
permit the holder or holders of such other Indebtedness of $400,000 or more, or
any trustee or agent for such holders, to cause such other Indebtedness to
become due and payable prior to its expressed maturity.
(d) INTENTIONALLY OMITTED.
(e) (i) Any Obligor becomes insolvent or generally fails to pay, or
admits in writing its inability to pay, debts as they become due and payable; or
(ii) any Obligor applies for, consents to, or acquiesces in the appointment of,
a trustee, receiver or other custodian or similar Person for itself or for any
of its Property, or makes a general assignment for the benefit of creditors; or
(iii) in the absence of such application, consent or acquiescence, a trustee,
receiver or other custodian or similar Person is appointed for any Obligor or
for a substantial part of such Person's Property, unless (A) such Person
institutes appropriate proceedings to contest or discharge such appointment
within 10 days and thereafter continuously and diligently prosecutes such
proceedings and (B) such appointment is in fact discharged within 45 days of
such appointment; or (iv) any bankruptcy, reorganization, debt arrangement, or
other case or proceeding under any bankruptcy or insolvency law, or any
dissolution or liquidation proceeding is commenced in respect of any Obligor,
unless (X) such case or proceeding is not commenced by any Obligor (Y) such case
or proceeding is not consented to or acquiesced in by any Obligor or the
shareholders of any Obligor, and (Z) such Person institutes appropriate
proceedings to dismiss such case or proceeding within 10 days and thereafter
continuously and diligently prosecutes such proceedings and such case or
proceeding is in fact dismissed within 45 days after the commencement thereof;
or (v) any Obligor takes any action to authorize, or in furtherance of, any of
the foregoing.
(f) Failure for a period of thirty (30) days after written notice
thereof to or by any Obligor or Holdings to comply with or to perform any
provision of this Agreement or any Related Document.
(g) Any warranty or representation made by or on behalf of any
Obligor or any other Person herein or in any of the Related Documents, or
otherwise in connection herewith or therewith is inaccurate or incorrect in any
material respect, or is breached or false or misleading in any material respect,
in each case as of the date such warranty or representation is made or is deemed
made hereunder; or any schedule, certificate, financial statement, report,
notice, or other writing furnished by or on behalf of any Obligor to Lender is
false or misleading in any material respect on the date as of which the facts
therein set forth are stated or certified.
(h) Except to the extent that any of the following is expressly
permitted hereunder or does not give rise to the incurrence by any Borrower or
any current or past member of the Controlled Group of any liability in excess of
$75,000 (in the aggregate), or except to the extent any of the following is
adequately reserved on the balance sheet of the Borrowers or one of its current
members of the Controlled Group, the institution of any steps by any Borrower or
any other Person, including the Pension Benefit Guaranty Corporation, (a) to
amend, modify or terminate a Pension Plan or to enter into any new Pension Plan,
(b) to cause a complete or partial
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withdrawal from any Multiemployer Plan, or (c) other than in the ordinary
course, to directly or indirectly cause to exist any other conditions, events or
transaction which could reasonably expected to give rise to any liability of any
Borrower or any current member of the Controlled Group with respect to any
Employee Benefit Plan.
(i) Any party (including any Obligor or Holdings) to any Related
Document (other than Lender) shall fail to comply with or to perform (subject to
any applicable grace period) any provision of such Related Document applicable
to it; or any of the Related Documents shall fail to remain in full force and
effect; or any action shall be taken by any Person (other than Lender or any
Depositary Account Bank) to discontinue or terminate any of the Related
Documents or to contest the validity, binding nature or enforceability of any
thereof.
(j) Any of the Collateral or the Property of any Obligor having a
fair market value of more than $400,000 in the aggregate for the Obligors
combined is attached, seized, subjected to a writ or distress warrant, or levied
upon, or come within the possession or control of any judgment creditor,
receiver, trustee, custodian or assignee for the benefit of creditors of any
Obligor and on or before the thirty (30) day period thereafter such Collateral
or Property is not returned to such Person or such writ, distress warrant or
levy is not dismissed, vacated, stayed or lifted.
(k) A Change of Control occurs or exists.
(l) There shall be entered against any Obligor one or more judgments,
awards or decrees, or orders of attachment, garnishment or any other writ, which
exceed $400,000 in the aggregate at any one time outstanding, excluding
judgments, awards, decrees, orders or writs (i) for which there is full
insurance and with respect to which the insurer has assumed responsibility in
writing, (ii) for which there is full indemnification (upon terms and by
creditworthy indemnitors which are satisfactory to Lender) or (iii) which have
been in force for less than the applicable period for filing an appeal so long
as execution is not levied thereunder (or in respect of which the applicable
Obligor shall at the time in good faith be prosecuting an appeal or proceeding
for review and in respect of which a stay of execution or appropriate appeal
bond shall have been obtained pending such appeal or review).
(m) The receipt by any Obligor of any claim or assessment from any
Federal, state or local governmental authority, or any other Person, asserting
liability or potential liability against such Person under any Environmental Law
that could reasonably be expected to have a Material Adverse Effect.
(n) Any security interest created under any Related Document shall
cease to be a valid and perfected first priority security interest or Lien
(subject to Permitted Liens) in any of the Collateral purported to be covered
thereby for any reason other than the failure of Lender to take any action
within its control.
SECTION 13.2 EFFECT OF EVENT OF DEFAULT. If an Unmatured Event of
Default or an Event of Default shall have occurred and be continuing, Lender may
elect to do one or more of the following at any time or times and in any order:
(i) reduce the amount of the
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Revolving Commitment, (ii) restrict the amount of, or suspend its obligations to
make, Loans, (iii) restrict or suspend the issuance of Letters of Credit or LC
Guaranties or (iv) demand that Borrowers immediately deposit with Lender an
amount equal to one hundred ten percent (110%) of the LC Exposure to enable
Lender to make payments under the LC Guaranties when required, and such amount
shall become immediately due and payable. If any Event of Default described in
SECTION 13.1(e) shall occur, the Commitments (if not theretofore terminated)
shall immediately terminate and the Notes and all other Liabilities shall become
immediately due and payable, all without notice of any kind; and, in the case of
any other Event of Default, Lender may declare the Commitments (if not
theretofore terminated) to be terminated and the Notes and all other Liabilities
to be due and payable, whereupon the Commitments (if not theretofore terminated)
shall immediately terminate and the Notes and all other Liabilities shall become
immediately due and payable, all without further notice of any kind. Lender
shall promptly provide Borrowers written notice of any such declaration but
failure to do so shall not impair the effect of such declaration.
Notwithstanding the foregoing, the effect as an Event of Default of any event
described in SECTION 13 may be waived by Lender in writing. In the case of any
Event of Default occurring by reason of any wilful action or inaction by or on
behalf of any Borrower in order to avoid payment of any prepayment fee or
premium pursuant to SECTION 2.7 which Borrowers would have to pay if the
Liabilities were paid in full, an equivalent fee shall also be immediately due
and payable to the extent permitted by law.
SECTION 13.3 RIGHTS AND REMEDIES GENERALLY. Upon acceleration of
the Liabilities, Lender shall have, in addition to any other rights and remedies
contained in this Agreement or in any of the Related Documents, all of the
rights and remedies of a secured party under the UCC or other applicable laws,
all of which rights and remedies shall be cumulative and non-exclusive, to the
extent permitted by law. In addition to all such rights and remedies, Lender
shall have the right to sell, lease or otherwise dispose of all or any part of
the Collateral and the sale, lease or other disposition of the Collateral, or
any part thereof, by Lender after an Event of Default may be for cash, credit or
any combination thereof, and Lender may purchase all or any part of the
Collateral at public or, if permitted by law, private sale, and in lieu of
actual payment of such purchase price, may set-off the amount of such purchase
price against the Liabilities then owing. Any sales of the Collateral may be
adjourned from time to time with or without notice. Lender shall have the right
to conduct such sales on any Borrower's premises, at Borrowers' expense, or
elsewhere, on such occasion or occasions as Lender may see fit.
SECTION 13.4 ENTRY UPON PREMISES AND ACCESS TO INFORMATION. Upon
acceleration of the Liabilities, Lender shall have the right (i) to cause the
Collateral to remain on any Borrower's premises, without any obligation to pay
rent, (ii) to enter upon the premises of any Borrower where the Collateral is
located or any other place or places where the Collateral is believed to be
located and kept, without any obligation to pay rent, to render the Collateral
useable or saleable, or to remove the Collateral therefrom to the premises of
Lender or any agent of Lender, at Borrowers' expense, for such time as Lender
may desire in order effectively to collect or liquidate the Collateral, and
(iii) to require Borrowers to assemble the Collateral and make it available to
Lender at a place or places to be designated by Lender. Upon acceleration of
the Liabilities, Lender shall have the right to take possession of Borrowers'
original books and records, to obtain access to each Borrower's data processing
equipment, computer hardware and software relating to the Collateral and to use
all of the foregoing and the information contained
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therein in any manner Lender deems appropriate; and Lender shall have the right
to notify postal authorities to change the address for delivery of each
Borrower's mail to an address designated by Lender and to receive, open and
dispose of all mail addressed to the respective Borrowers and to take possession
of all checks or other original remittances contained in such mail.
SECTION 13.5 SALE OR OTHER DISPOSITION OF COLLATERAL BY LENDER. Any
notice required to be given by Lender of a sale, lease or other disposition or
other intended action by Lender with respect to any of the Collateral which is
given to a Borrower as specified in SECTION 14.3, at least ten (10) days prior
to such proposed action, shall constitute fair and reasonable notice to such
Borrower of any such action. The net proceeds realized by Lender upon any such
sale or other disposition, after deduction for the expenses of retaking,
holding, storing, transporting, preparing for sale, selling or otherwise
disposing of the Collateral incurred by Lender in connection therewith, shall be
applied as provided herein toward satisfaction of the Liabilities. Lender shall
account to Borrowers for any surplus realized upon such sale or other
disposition, and Borrowers shall remain liable for any deficiency. The
commencement of any action, legal or equitable, or the rendering of any judgment
or decree for any deficiency, shall not affect Lender's Liens on the Collateral
until the Liabilities are fully paid.
SECTION 13.6 NOTICE TO ACCOUNT DEBTORS. Lender may, in its sole
discretion, at any time or times, upon the occurrence and during the continuance
of an Event of Default and without prior notice to Borrowers, notify any or all
Account Debtors that the Accounts have been assigned to Lender and that Lender
has a Lien therein. Upon the occurrence and during the continuance of an Event
of Default, Lender may direct or, at the request of Lender, Borrowers shall
direct, any or all Account Debtors to make all payments upon the Accounts
directly to Lender. Lender shall furnish Borrowers with a copy of any such
notice.
SECTION 13.7 WAIVER OF DEMAND. DEMAND, PRESENTMENT, PROTEST AND
NOTICE OF DEMAND, PRESENTMENT, PROTEST, NONPAYMENT, INTENT TO ACCELERATE AND
ACCELERATION ARE HEREBY WAIVED BY BORROWERS. BORROWERS ALSO WAIVE THE BENEFIT
OF ALL VALUATION, APPRAISAL AND EXEMPTION LAWS.
SECTION 13.8 WAIVER OF NOTICE. EXCEPT AS PROVIDED IN SECTION 13.5,
UPON THE OCCURRENCE OF A DEFAULT OR AN EVENT OF DEFAULT, BORROWERS HEREBY WAIVE
ALL RIGHTS TO NOTICE AND HEARING OF ANY KIND PRIOR TO THE EXERCISE BY LENDER OF
ITS RIGHTS TO REPOSSESS THE COLLATERAL WITHOUT JUDICIAL PROCESS OR TO REPLEVY,
ATTACH OR LEVY UPON THE COLLATERAL WITHOUT PRIOR NOTICE OR HEARING. BORROWERS
ACKNOWLEDGE THAT THEY HAVE BEEN ADVISED BY COUNSEL OF ITS CHOICE WITH RESPECT TO
THIS TRANSACTION AND THIS AGREEMENT.
SECTION 14 GENERAL.
SECTION 14.1 WAIVER; AMENDMENTS. No delay on the part of Lender or
any holder of a Note or other Liability in the exercise of any right, power or
remedy shall
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operate as a waiver thereof, nor shall any single or partial exercise by any of
them of any right, power or remedy preclude other or further exercise thereof,
or the exercise of any other right, power or remedy. No amendment, modification
or waiver of, or consent with respect to, any provision of this Agreement or a
Note or any Related Document shall in any event be effective unless the same
shall be in writing and signed and delivered by Lender, and then any such
amendment, modification, waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
SECTION 14.2 CONFIRMATIONS. Each of the Borrowers and Lender (or
any holder of a Note) agree from time to time, upon written request received by
it from the other, to confirm to the other in writing the aggregate unpaid
principal amount of the Loans then outstanding under such Note.
SECTION 14.3 NOTICES. Except with respect to SECTION 2.3: (a)
notices forwarded by mail shall be deemed to have been given on the earlier to
occur of (i) receipt or (ii) three days after the date sent, if sent by
registered or certified mail, postage paid, and:
(i) IF TO ANY BORROWER, addressed to such Borrower at its address
shown below its signature hereto, with a copy addressed to any other Person
indicated; or
(ii) IF TO LENDER, addressed to Lender at the address shown below its
signature hereto, with a copy addressed to any other Person indicated; or
in the case of any party, at such other address as such party may, by written
notice received by the other parties to this Agreement, have designated as its
address for notices; and (b) notices given by telegram or facsimile transmission
shall be deemed to have been given when sent if addressed to the party to whom
sent, at its address as aforesaid. Notices of borrowing pursuant to SECTION 2.3
shall be effective upon receipt by Lender and shall be in writing (or by
telephone to be confirmed in writing by Borrowers). Lender shall be entitled to
rely upon all telephone notices and notices delivered by facsimile or similar
electronic transmission and Borrowers shall jointly and severally indemnify and
hold Lender harmless from any loss, cost or expense ensuing from any such
reliance, which indemnification shall survive any termination of this Agreement.
SECTION 14.4 COSTS, EXPENSES AND TAXES. Borrowers jointly and
severally agree to pay on demand all out-of-pocket costs and expenses of Lender
(including the reasonable fees and out-of-pocket expenses of counsel for Lender
and of local counsel, if any, who may be retained by said counsel and all costs
of appraisals, surveys, environmental reviews and the like required to be made
or completed) in connection with the preparation, execution and delivery of this
Agreement, the Related Documents and all other instruments or documents provided
for herein or delivered or to be delivered hereunder or in connection herewith.
Borrowers further jointly and severally agree to pay all out-of-pocket costs and
expenses (including reasonable attorneys' fees and legal expenses) incurred by
Lender in connection with the administration, enforcement, waiver or amendment
of this Agreement, the Related Documents and any such other instruments or
documents. In addition, Borrowers further jointly and severally agree to pay,
and to save Lender harmless from all liability for, any document, stamp, filing,
recording, mortgage or other taxes which may be payable in connection with the
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borrowings hereunder or the execution, delivery, recording or filing of this
Agreement, any of the Related Documents or of any other instruments or documents
provided for herein or delivered or to be delivered hereunder or in connection
herewith. All obligations provided for in this SECTION 14.4 shall survive any
termination of this Agreement.
SECTION 14.5 INDEMNIFICATION. In consideration of the execution and
delivery of this Agreement by Lender and Lender's extension of the Commitments,
Borrowers jointly and severally hereby agree to indemnify, exonerate and hold
Lender and Manager and each of their respective officers, directors, employees
and agents (including, without limitation, each Depositary Account Bank, and
herein collectively called "LENDER PARTIES" and individually called a "LENDER
PARTY") free and harmless from and against any and all claims, demands, actions,
causes of action, suits, losses, costs (including, without limitation, all
documentary, recording, filing, mortgage or other stamp taxes or duties),
charges, liabilities and damages, and expenses in connection therewith
(irrespective of whether such Lender Party is a party to the action for which
indemnification hereunder is sought), and including, without limitation,
reasonable attorneys' fees and disbursements (called in this SECTION 14.5 the
"INDEMNIFIED LIABILITIES"), of any and every kind whatsoever paid, incurred or
suffered by, or asserted against, any Lender Party for, with respect to, arising
out of or as a direct or indirect result of:
(a) any transaction financed or to be financed in whole or in part,
directly or indirectly, with the proceeds of any Loan or involving any Loan or
the execution, delivery, performance or enforcement of this Agreement, the
Related Documents and any instrument, document or agreement executed pursuant
hereto by any of Lender Parties;
(b) (i) the presence on or under, or the escape, seepage, leakage,
spillage, discharge, emission or release from, any real property legally or
beneficially owned (or any estate or interest which is owned) or operated by any
Obligor (including, without limitation, any property owned by a land trust the
beneficial interest in which is owned, in whole or in part, by any Obligor) of
any Hazardous Material (including, without limitation, any claims, demands,
actions, causes of action, suits, losses, costs, charges, liabilities and
damages, asserted or arising under the Comprehensive Environmental Response,
Compensation and Liability Act, any so-called "Superfund" or "Superlien" law, or
any other Federal, state or local statute, law, ordinance, code, rule,
regulation, order or decree regulating, relating to or imposing liability or
standards of conduct concerning, any Hazardous Material), and (ii) any of the
conditions disclosed in any of the documents listed on SCHEDULE 10.19
regardless, in the case of either of CLAUSE (i) or CLAUSE (ii), of whether
caused by, or within the control of, any Obligor;
(c) (i) any untrue statement or alleged untrue statement of a
material fact contained in any registration statement, prospectus or offering
memorandum or in any preliminary prospectus or preliminary offering memorandum
or any amendment or supplement to any thereof or in any other writing prepared
in connection with the offer, sale or resale of any securities of any Obligor or
Holdings, or (ii) any omission or alleged omission to state therein a material
fact required to be stated or necessary to make the statements therein not
misleading; and
(d) (i) any injury to person or damage to property, known or unknown,
reported or unreported, which results from the use of the products of any
Obligor, or (ii) any
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obligation or liability arising out of or with respect to the business or
operations of any Obligor, in each case whether any of such matters arise before
or after the foreclosure of or other taking of title to all or any portion of
the Collateral by Lender;
except for any such Indemnified Liabilities arising on account of the relevant
Lender Party's gross negligence or willful misconduct and, to the extent that
the foregoing undertaking may be unenforceable for any reason, Borrowers jointly
and severally agree to make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law. All obligations provided for in this SECTION 14.5 shall survive
any termination of this Agreement and shall not be reduced or impaired by any
investigation made by or on behalf of any Lender Party.
SECTION 14.6 SUBMISSION TO JURISDICTION. LENDER MAY ENFORCE ANY
CLAIM ARISING OUT OF THIS AGREEMENT OR THE RELATED DOCUMENTS IN ANY STATE OR
FEDERAL COURT HAVING SUBJECT MATTER JURISDICTION AND LOCATED IN CHICAGO,
ILLINOIS. FOR THE PURPOSE OF ANY ACTION OR PROCEEDING INSTITUTED WITH RESPECT
TO ANY SUCH CLAIM, EACH BORROWER HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION
OF SUCH COURTS. EACH BORROWER HEREBY IRREVOCABLY DESIGNATES CORPORATE SERVICES
CORPORATION WITH OFFICES ON THE DATE HEREOF AT ILLINOIS CORPORATION SERVICE
COMPANY, 700 SOUTH SECOND STREET, SPRINGFIELD, ILLINOIS 62704, TO RECEIVE FOR
AND ON BEHALF OF SUCH PERSON SERVICE OF PROCESS IN ILLINOIS. EACH BORROWER
FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF SAID COURTS BY
MAILING A COPY THEREOF, BY REGISTERED MAIL, POSTAGE PREPAID, TO SUCH PERSON AND
AGREES THAT SUCH SERVICE, TO THE FULLEST EXTENT PERMITTED BY LAW, (i) SHALL BE
DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON IT IN ANY SUCH SUIT,
ACTION OR PROCEEDING AND (ii) SHALL BE TAKEN AND HELD TO BE VALID PERSONAL
SERVICE UPON AND PERSONAL DELIVERY TO IT. NOTHING HEREIN CONTAINED SHALL AFFECT
THE RIGHT OF LENDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR
PRECLUDE LENDER FROM BRINGING AN ACTION OR PROCEEDING IN RESPECT HEREOF IN ANY
OTHER COUNTRY, STATE OR PLACE HAVING JURISDICTION OVER SUCH ACTION. EACH
BORROWER HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
OBJECTION WHICH SUCH PERSON MAY HAVE OR HEREAFTER HAVE TO THE LAYING OF THE
VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT LOCATED
IN CHICAGO, ILLINOIS AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING
BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
SECTION 14.7 GOVERNING LAW; SEVERABILITY; REMEDIES CUMULATIVE. This
Agreement and the Notes shall be a contract made under and governed by the
internal laws of the State of Illinois without regard to conflict of laws
principles. Whenever possible each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under
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applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement. All obligations of the
Obligors and rights of Lender and any other holder of a Note or Liability
expressed herein or in the Related Documents shall be in addition to and not in
limitation of those provided by applicable law or in any other written
instrument or agreement relating to any of the Liabilities.
SECTION 14.8 SALE OF NOTES; PARTICIPATIONS. Lender may assign to
one or more banks or other Persons all or any part of or rights in, or may grant
participations to one or more banks or other Persons in or to, this Agreement,
any Loan or Loans or the Notes or either of them or Lender's rights and remedies
hereunder and thereunder, and to the extent of any such assignment or
participation (unless otherwise stated therein) the assignee or participant of
such assignment or participation shall have the same rights and benefits
hereunder and thereunder as it would have if it were Lender hereunder.
SECTION 14.9 ENTRY INTO AGREEMENT. Each Borrower represents,
warrants and acknowledges that (i) the relationship between each Borrower and
Lender is solely that of a borrower and a lender, and (ii) each Borrower is in
sole control of its business and has entered into this Agreement as its own free
act and voluntary deed, based upon its independent judgment as to its best
interests.
SECTION 14.10 LEGAL OPINIONS. Borrowers expressly consent to the
rendering of opinions by its counsel and of each other counsel required by
Lender to be rendered in connection with the initial closing of the matters
contemplated hereby, and thereafter to be rendered from time to time in
connection with this Agreement or any Related Document, and acknowledges that
such opinions, when so rendered, shall be deemed to be rendered at the request
and upon the instruction of Borrowers, which have, and will have (prior to the
rendering of each opinion), consulted with and been advised by such counsel as
to the consequences of such consent, request and instructions.
SECTION 14.11 JURY TRIAL; DAMAGE WAIVER. EACH PARTY HERETO HEREBY
EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
ENFORCE OR DEFEND ANY RIGHTS UNDER OR RELATED TO OR ARISING OUT OF THIS
AGREEMENT OR ANY RELATED DOCUMENT TO WHICH IT IS A PARTY, OR UNDER ANY
AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE
FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING FROM ANY
RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT OR ANY RELATED DOCUMENT,
AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND
NOT BEFORE A JURY.
SECTION 14.12 SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon each Borrower, Lender and their respective successors and assigns,
and shall inure to the benefit of each Borrower, Lender and their respective
successors and assigns; PROVIDED, that no Borrower shall have any right to
assign their respective rights or delegate their respective duties under this
Agreement. Lender may assign any of its rights under this Agreement and the
Related
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Documents to its lenders for collateral security purposes. This Agreement and
the Related Documents contain the entire agreement of the parties hereto with
respect to the matters covered hereby.
SECTION 14.13 MARSHALLING. Lender shall be under no obligation to
marshall any assets in favor of Borrowers or any other Person or against or in
payment of any or all of the Liabilities.
SECTION 14.14 WAIVERS WITH RESPECT TO OTHER INSTRUMENTS. Borrowers
waive presentment, demand and protest and notice of presentment, demand protest,
default, nonpayment, maturity, release, compromise, settlement, extension, or
renewal of any or all of any Person's commercial paper, Accounts, contract
rights, documents, Instruments, Chattel Paper and guaranties at any time held by
Lender on which Borrowers may in any way be liable and hereby ratifies and
confirms whatever Lender may do regarding the enforcement, collection,
compromise, or release thereof.
SECTION 14.15 RETENTION OF BORROWER' DOCUMENTS. Lender may destroy
or otherwise dispose of all documents, schedules, invoices or other papers
delivered to Lender in accordance with its customary practices unless any
Borrower requests in writing that same be returned. Upon any Borrower's request
and at such Borrower's expense, Lender shall return such papers when Lender's
actual or anticipated need for same has terminated.
SECTION 14.16 SURVIVAL OF WARRANTIES. All representations and
warranties of Borrowers contained in this Agreement or any of the Related
Documents shall survive the execution and delivery of this Agreement and the
Related Documents and the making of the Loans. Notwithstanding anything
contained in this Agreement to the contrary, the provisions of, and the
undertakings, indemnifications and agreements of Borrowers set forth in SECTIONS
2.11(c), 8, 14.4 and 14.5 shall survive payment of the Liabilities and
termination of this Agreement.
SECTION 14.17 COUNTERPARTS. This Agreement and any amendments,
waivers, consents or supplements may be executed in any number of counterparts
and by different parties in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all of which
counterparts together shall constitute but one and the same agreement. Delivery
of an executed counterpart of this Agreement by facsimile or similar electronic
medium shall be equally as effective as delivery of a manually executed
counterpart of this Agreement. Any Person delivering an executed counterpart of
this Agreement by facsimile or similar electronic medium shall also deliver a
manually executed counterpart of this Agreement; PROVIDED that the failure to
deliver a manually executed counterpart shall not affect the validity,
enforceability or binding effect of this Agreement.
SECTION 14.18 EXCEPTIONS TO COVENANTS. No Borrower shall be deemed
to be permitted to take any action or omit to take any action which is permitted
as an exception to any of the terms, provisions or covenants contained in any of
the Related Documents if such action or omission would result in an Event of
Default or Unmatured Event of Default or the breach of any term, provision or
covenant contained in any Related Document.
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SECTION 14.19 CONSTRUCTION. Borrowers acknowledge that it and their
counsel have approved this Agreement and the Related Documents and that the
usual rule of construction to the effect that any ambiguities or inconsistencies
are to be resolved against the drafting Person shall not be applicable in the
interpretation of this Agreement and any of the Related Documents.
SECTION 14.20 REINSTATEMENT. This Agreement shall remain in full
force and effect and continue to be effective or to be reinstated, as the case
may be, if at any time payment and performance of the Liabilities, or any part
thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must
otherwise be restored or returned by any obligee of the Liabilities, whether as
a "voidable preference," "fraudulent conveyance," or otherwise, all as though
such payment or performance had not been made. In the event that any payment,
or any part thereof, is rescinded, reduced, restored or returned, the
Liabilities shall be reinstated and deemed reduced only by such amount paid and
not so rescinded, reduced, restored or returned.
SECTION 14.21 ENTIRE AGREEMENT. This Agreement, including all
Exhibits, Schedules, the Related Documents, and other documents attached hereto
or incorporated by reference herein, constitute the entire agreement of the
parties with respect to the subject matter hereof and supersede all other
negotiations, understandings and representations, oral or written, with respect
to the subject matter hereof, including that certain Commitment Letter dated as
of January 14, 1999 between Lender and Roach.
SECTION 14.22 ACKNOWLEDGMENT. BORROWERS ACKNOWLEDGE THAT THEY HAVE
BEEN ADVISED BY COUNSEL OF THEIR CHOICE WITH RESPECT TO THIS AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED HEREBY, AND BORROWERS ACKNOWLEDGE AND AGREE THAT (I)
EACH OF THE WAIVERS SET FORTH HEREIN WERE KNOWINGLY AND VOLUNTARILY MADE, (II)
THE OBLIGATIONS OF LENDER HEREUNDER, INCLUDING THE OBLIGATION TO ADVANCE AND
LEND FUNDS TO BORROWERS IN ACCORDANCE HEREWITH, SHALL BE STRICTLY CONSTRUED AND
SHALL BE EXPRESSLY SUBJECT TO BORROWERS' COMPLIANCE IN ALL RESPECTS WITH THE
TERMS AND CONDITIONS HEREIN SET FORTH, AND (III) NO REPRESENTATIVE OF LENDER HAS
WAIVED OR MODIFIED ANY OF THE PROVISIONS OF THIS AGREEMENT AS OF THE DATE HEREOF
AND NO SUCH WAIVER OR MODIFICATION FOLLOWING THE DATE HEREOF SHALL BE EFFECTIVE
UNLESS MADE IN ACCORDANCE WITH SECTION 14.1.
SECTION 14.23 CONFIDENTIALITY. Borrowers agree that Lender may
disclose information relating to Borrowers to each of the Master Lenders and the
Master Agents which have agreed to use procedures substantially comparable to
those used by them in respect of non-public information as supplied to them by
or on behalf of Lender to the extent that such information is not and does not
become publicly available and which Lender indicates at the time is to be
treated confidentially; PROVIDED, that each of the Master Lenders, and the
Master Agents, as the case may be, is hereby authorized to deliver a copy of
each or any financial statement of any one or more of the Borrowers or any other
information relating to the Loans, or the
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Collateral, which may be furnished to it hereunder or otherwise to (a) its legal
counsel and auditors and other professional advisors, (b) governmental or
regulatory authorities having jurisdiction over it, (c) independent financial
rating agencies (including, without limitation the Rating Agencies), (d) any
person providing general liquidity or credit enhancement to the Master Lenders,
and (e) (subject to obtaining a confidentiality agreement containing the
foregoing confidentiality restrictions) any Person to whom a Master Lender
proposes to assign all or any part of its interest or grant a participation in
its interest. As used herein: "MASTER AGENTS" shall mean Citicorp North
America, Inc. ("CNAI"), Bank of New York and any successor thereto or assignee
thereof; "MASTER LENDER" shall mean any person becoming a party "LENDER" to that
certain Second Amended and Restated Credit Agreement dated as of May 24, 1996
(as amended from time to time, the "MASTER CREDIT AGREEMENT") among First Source
Financial, Inc., Lender, Master Agents and such Lenders; and "RATING AGENCIES"
shall mean Standard and Poor's and Moody's Ratings Group, a division of
McGraw-Hill, Inc., and Moody's Investors Services, Inc.
SECTION 14.24 JOINT AND SEVERAL LIABILITY OF BORROWERS.
Each Borrower shall be jointly and severally liable hereunder and under
each of the Related Documents with respect to all Liabilities, regardless of
which Borrower actually receives the proceeds of the Loans or the benefit of any
other extensions of credit hereunder, or the manner in which Borrowers or Lender
account therefor in their respective books and records. Notwithstanding the
foregoing, (i) each Borrower's obligations and liabilities with respect to
proceeds of Loans which it receives or Letters of Credit issued for its account,
and related fees, costs and expenses, and (ii) each Borrower's obligations and
liabilities arising as a result of the joint and several liability of Borrowers
hereunder with respect to proceeds of Loans received by, or Letters of Credit
issued for the account of, the other Borrower, together with the related fees,
costs and expenses, shall be separate and distinct obligations, both of which
are primary obligations of such Borrower. Neither the joint and several
liability of, nor the Liens granted to Lender under the Collateral Documents by,
any of the Borrowers shall be impaired or released by (A) the failure of Lender,
any successors or assigns thereof, or any holder of any Note or any of the
Liabilities to assert any claim or demand or to exercise or enforce any right,
power or remedy against any Obligor or Holdings, any other Person, the
Collateral or otherwise; (B) any extension or renewal for any period (whether or
not longer than the original period) or exchange of any of the Liabilities or
the release or compromise of any obligation of any nature of any Person with
respect thereto; (C) the surrender, release or exchange of all or any part of
any property (including without limitation the Collateral) securing payment,
performance and/or observance of any of the Liabilities or the compromise or
extension or renewal for any period (whether or not longer than the original
period) of any obligations of any nature of any Person with respect to any such
property; (D) any action or inaction on the part of Lender, or any other event
or condition with respect to the other Borrower, including any such action or
inaction or other event or condition, which might otherwise constitute a defense
available to, or a discharge of, such other Borrower, or a guarantor or surety
of or for any or all of the Liabilities, including, without limitation,
Holdings; and (E) any other act, matter or thing (other than payment or
performance of the Liabilities) which would or might, in the absence of this
provision, operate to release, discharge or otherwise prejudicially affect the
obligations of such or the other Borrower.
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SECTION 14.25 FOREIGN JUDGMENTS.
If, for the purpose of obtaining or enforcing a judgment in any court in
any jurisdiction it becomes necessary to convert into the currency of the
country giving such judgment (the "JUDGMENT CURRENCY") an amount due hereunder
in United States dollars, then the date on which the rate of exchange is fixed
by such court for such conversion shall be known as the "CONVERSION DATE". If
there is a change in the rate of exchange between the Judgment Currency and
United States dollars occurring between the Conversion Date and the date of
actual receipt of the amount due hereunder or under such judgment, the
applicable Borrower will, notwithstanding such judgment, to the extent permitted
by applicable law, pay all such additional amounts as may be necessary to ensure
that the amount paid and received in the Judgment Currency when converted at the
rate of exchange prevailing on the date of such receipt will produce the amount
then due in United States dollars. The obligation to make such additional
payment shall constitute a separate and independent obligation of such Borrower
and shall not merge with any judgment or any partial payment or enforcement of
payment. The term "rate of exchange" used herein shall include any premiums and
costs of exchange payable in connection with the conversion being effected.
SECTION 14.26 INCOME TAX GROSS UP. All payments payable under this
agreement whether principal, interest or otherwise shall be paid in full, free
and clear of any present or future taxes, levies, imposts, duties, charges, fees
or withholdings and without set-off or counterclaim or any restriction or
condition or deduction whatsoever. If any Borrower is compelled by law to make
any deduction or withholding it will ensure that the same does not exceed the
minimum liability therefor and will promptly pay Lender such additional amount
as will result in the net amount received by Lender being equal to the full
amount which would have been receivable had there been no deduction or
withholding.
SECTION 14.27 REGISTRY.
Upon any assignment by Lender, or any assignee under SECTION 14.8
(collectively, "Assignees"), of all or any part of or rights in any Loan or
Loans or the Notes pursuant to SECTION 14.8, Borrower hereby designates Lender
to serve as Borrower's agent, solely for purposes of this SECTION 14.26 to
maintain a register (the "Register") on which it will record the Commitment from
time to time of each of the Assignees, the Loans made by each of the Assignees
and each repayment in respect of the principal amount of the Loans of each
Assignee. Failure to make any such recordation, or any error in such
recordation shall not affect Borrower's obligations in respect of such Loans.
With respect to any Assignee, the transfer of the Commitments of such Assignee
and the rights to the principal of, and interest on, any Loan made pursuant to
such Commitment shall not be effective until such transfer is recorded on the
Register maintained by Lender with respect to ownership of such Commitment and
Loans and prior to such recordation all amounts owing to the transferor with
respect to such Commitments and Loans shall remain owing to the transferor. The
registration of assignment or transfer of all or part of any Commitment and
Loans shall be recorded by Lender on the Register only upon the acceptance by
Lender of a properly executed and delivered assignment and assumption agreement,
reasonably satisfactory to Lender. Coincident with the delivery of such an
assignment and assumption agreement to Lender for acceptance and registration of
assignment or
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transfer of all or part of a Loan, or as soon thereafter as practicable, the
assigning or transferor Assignee shall surrender the Note evidencing such Loan,
and thereupon one or more new Notes in the same aggregate principal amount then
owing to such assignor or transferor Assignee shall be issued to the assigning
or transferor Assignee and/or the new Assignee. Borrower agrees to indemnify
Lender from and against any and all losses, claims, damages and liabilities of
whatsoever nature which may be imposed on, asserted against or incurred by
Lender in performing its duties under this SECTION 14.26.
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Executed and delivered at Chicago, Illinois, as of the day and year first above
written.
THE ROACH ORGANIZATION, INC.
By:
--------------------------------------------
Steven R. Schuster
Vice President
Address: c/o TRO Learning, Inc.
4660 West 77th Street
Edina, Minnesota 55311
Attention: John Murray and Steven Schuster
612-832-1210
Telephone: 612-832-1000
TRO LEARNING (CANADA), INC.
By:
--------------------------------------------
Steven Schuster
Vice President
Address: c/o TRO Learning, Inc.
4660 West 77th Street
Edina, Minnesota 55311
Attention: John Murray and Steven Schuster
612-832-1208
Telephone: 612-832-1000
<PAGE>
FIRST SOURCE FINANCIAL LLP
By: First Source Financial, Inc.
Its: Manager
By:
--------------------------------------------
John P. Thacker
Senior Vice President
2850 West Golf Road - Fifth Floor
Rolling Meadows, IL 60008
Attention: Contract Administration
Facsimile: (847) 734-7910, 7911
Telephone: (847) 734-2000
<PAGE>
SECURITY AGREEMENT
THIS SECURITY AGREEMENT, dated as of February ____, 1999 (herein, as the
same from time to time may be amended, restated, supplemented, or otherwise
modified from time to time, called this "AGREEMENT"), is by and among THE ROACH
ORGANIZATION, INC., a Delaware corporation ("ROACH"), TRO LEARNING (CANADA),
INC., a Canadian corporation ("TRO CANADA"; Roach and TRO Canada are hereinafter
referred to individually as a "DEBTOR" and collectively as "DEBTORS"), and FIRST
SOURCE FINANCIAL LLP, an Illinois registered limited liability partnership
(together with its successors and assigns, "LENDER").
BACKGROUND:
1. Debtors and Lender are parties to a certain Secured Credit Agreement
of even date herewith (herein, as the same from time to time may be amended,
restated, supplemented or otherwise modified from time to time, called the
"SECURED CREDIT AGREEMENT"), pursuant to which Lender has agreed to make certain
Loans and other extensions of credit to Debtors.
2. It is a condition precedent to the making of the initial Loans under
the Secured Credit Agreement that this Agreement be executed and delivered.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto agree as follows:
SECTION 1. DEFINITIONS. (a) When used herein, the following terms shall
have the following meanings:
ACCOUNT OF ANY PERSON shall mean all "Accounts" (as such term is defined in
the Uniform Commercial Code), of such Person including, without limitation, any
right of such Debtor to payment for goods sold or leased or for services
rendered which is not evidenced by an Instrument or Chattel Paper of any Person,
whether or not it has been earned by performance.
ACCOUNT DEBTOR shall mean the Person who is obligated on or under any
Account, Chattel Paper or, if appropriate, any of the General Intangibles of any
Person.
BENEFITS - see SECTION 16.
CANADIAN DEPOSITARY ACCOUNT BANK shall mean each bank and other entity
serving in the capacity of agent for Lender under any Canadian Depositary
Account Agreement (including any successor Canadian Depositary Account
Agreement). Initially the Canadian Depositary Account Bank shall mean The
Toronto-Dominion Bank.
CERTIFICATED SECURITY shall have the meaning assigned to such term in the
Uniform
<PAGE>
Commercial Code.
CHATTEL PAPER shall have the meaning assigned to such term in the Uniform
Commercial Code.
COLLATERAL shall mean all property or rights in which a Security Interest
is granted hereunder.
COMMITMENT shall have the meaning assigned to such term in the Secured
Credit Agreement.
COMPUTER HARDWARE AND SOFTWARE COLLATERAL of any Person shall mean (i) all
computer and other electronic data processing hardware, integrated computer
systems, central processing units, memory units, display terminals, printers,
features, computer elements, card readers, tape drives, hard and soft disk
drives, cables, electrical supply hardware, generators, power equalizers,
accessories and all peripheral devices and other related computer hardware of
such Person, whether now owned, licensed or leased or hereafter acquired by such
Person; (ii) all software programs (including source code and object code and
all related applications and data files) of such Person, whether now owned,
licensed or leased or hereafter acquired by such Person, designed for use on the
computers and electronic data processing hardware described in CLAUSE (i) above;
(iii) all firmware associated therewith, whether now owned, licensed or leased
or hereafter acquired by such Person; (iv) all documentation (including flow
charts, logic diagrams, manuals, guides and specifications) for such hardware,
software and firmware described in the preceding CLAUSES (i), (ii) and (iii),
whether now owned, licensed or leased or hereafter acquired by such Person; and
(v) all rights with respect to all of the foregoing, including, without
limitation, any and all copyrights, licenses, options, warranties, service
contracts, program services, test rights, maintenance rights, support rights,
improvement rights, renewal rights and indemnifications and any substitutions,
replacements, additions or model conversions of any of the foregoing.
COPYRIGHT COLLATERAL of any Person shall mean all copyrights and all
semiconductor chip product mask works of such Person, whether statutory or
common law, registered or unregistered, now or hereafter in force throughout the
world, including, without limitation, all of such Person's right, title and
interest in and to all copyrights and mask works registered in the United States
Copyright Office or anywhere else in the world and also including, without
limitation, the copyrights and mask works of such Person referred to in ITEM A
of SCHEDULE III attached hereto, and all applications for registration thereof,
whether pending or in preparation, all copyright and mask work licenses of such
Person, including each copyright and mask work license referred to in ITEM B of
SCHEDULE III attached hereto, the right to sue for past, present and future
infringements of any thereof, all rights corresponding thereto throughout the
world, all extensions and renewals of any thereof and all proceeds of the
foregoing, including, without limitation, licenses, royalties, income, payments,
claims, damages and proceeds of suit.
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<PAGE>
DEFAULT shall mean any Unmatured Event of Default or any Event of Default.
DEPOSIT ACCOUNTS shall have the meaning assigned to such term in the
Uniform Commercial Code.
DEPOSITARY ACCOUNT AGREEMENTS shall have the meaning assigned to such term
in the Secured Credit Agreement.
DEPOSITARY ACCOUNT BANKS shall mean, collectively, the Canadian Depositary
Account Bank and the Domestic Depositary Account Bank.
DOCUMENT shall have the meaning assigned to such term in the Uniform
Commercial Code.
DOMESTIC DEPOSITARY ACCOUNT BANK shall mean each bank and other entity
serving in the capacity of agent for Lender under any Domestic Depositary
Account Agreement (including any successor Domestic Depositary Account
Agreement). Initially the Domestic Depositary Account Bank shall mean Harris
Trust and Savings Bank, an Illinois banking corporation.
EQUIPMENT shall have the meaning assigned to such term in the Uniform
Commercial Code.
FIXTURE shall have the meaning assigned to such term in the Uniform
Commercial Code.
GENERAL INTANGIBLES shall have the meaning assigned to such term in the
Uniform Commercial Code and shall include, without limitation, goodwill.
GOODS shall have the meaning assigned to such term in the Uniform
Commercial Code.
INSTRUMENT shall have the meaning assigned to such term in the Uniform
Commercial Code.
INTANGIBLE COLLATERAL of any Person shall mean all Collateral of such
Person other than Goods.
INTELLECTUAL PROPERTY COLLATERAL of any Person shall mean, collectively,
the Computer Hardware and Software Collateral, the Copyright Collateral, the
Patent Collateral, the Trademark Collateral and the Trade Secrets Collateral, in
each case of such Person.
INVENTORY of any Person shall mean all "Inventory" (as such term is defined
in the Uniform Commercial Code), of such Person including, without limitation,
all goods, merchandise and other personal property furnished under any contract
of service or intended for sale or lease, including, without limitation, all raw
materials, work in process, finished goods
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and materials and supplies, of any kind, nature or description, that are used or
consumed by such Person's business, or are or might be used in connection with
the manufacture, packing, shipping, advertising, selling or finishing of such
goods, merchandise and other personal property, and all returned or repossessed
goods now or at any time or times hereafter in the possession or under the
control of any such Person or Lender.
INVESTMENT PROPERTY shall have the meaning assigned to such term in the
Uniform Commercial Code.
LANDLORD'S CONSENT shall mean a declaration and agreement substantially in
the form of EXHIBIT A hereto (and in form and substance satisfactory to Lender)
executed and delivered by the appropriate Persons pursuant to SECTION 4(d).
NOTES shall have the meaning assigned to such term in the Secured Credit
Agreement.
PATENT COLLATERAL of any Person shall mean:
(a) all letters patent and applications for letters patent of such
Person throughout the world, including all patent applications of such
Person in preparation for filing anywhere in the world and including each
patent and patent application of such Person referred to in ITEM A of
SCHEDULE II attached hereto;
(b) all patent licenses of such Person, including each patent license
of such Person referred to in ITEM B of SCHEDULE II attached hereto;
(c) all reissues, divisions, continuations, continuations-in-part,
extensions, renewals and reexaminations of any of the items described in
CLAUSES (a) and (b); and
(d) all proceeds of, and rights associated with, the foregoing
(including license royalties and proceeds of infringement suits), the right
of such Person to sue third parties for past, present or future
infringements of any patent or patent application, including any patent or
patent application of such Person referred to in ITEM A of SCHEDULE II
attached hereto, and for breach or enforcement of any patent license of
such Person, including any patent license referred to in ITEM B of SCHEDULE
II attached hereto, and all rights corresponding thereto throughout the
world.
RESTRICTED ACCOUNTS shall have the meaning assigned to such term in the
Secured Credit Agreement.
SECURITY shall have the meaning assigned to such term in the Uniform
Commercial Code.
SECURITY INTEREST shall mean any mortgage, lien, pledge, encumbrance,
charge or other security interest of any kind, whether arising under a security
agreement, mortgage, deed of
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trust, chattel mortgage, assignment, pledge, financing or similar statement or
notice or as a matter of law, judicial process or otherwise. As used herein
with respect to the rights granted by any Person to Lender hereunder in such
Collateral, "SECURITY INTEREST" means a security interest under the Uniform
Commercial Code.
TRADEMARK COLLATERAL of any Person shall mean:
(a) all trademarks, trade names, corporate names, company names,
business names, fictitious business names, trade dress, service marks,
certification marks, collective marks, logos, other sources of business
identifiers, prints and labels on which any of the foregoing have appeared
or appear, designs and general intangibles of a like nature of such Person
(each of the foregoing items in this CLAUSE (a) being called a "TRADEMARK"
of such Person), now existing anywhere in the world or hereafter adopted or
acquired, whether currently in use or not, all registrations and recordings
thereof and all applications in connection therewith, whether pending or in
preparation for filing, including registrations, recordings and
applications in the United States Patent and Trademark Office or in any
office or agency of the United States of America or any State thereof or
any foreign country, including those referred to in ITEM A of SCHEDULE I
attached hereto;
(b) all Trademark licenses of such Person, including each Trademark
license of such Person referred to in ITEM B of SCHEDULE I attached hereto;
(c) all reissues, extensions or renewals of any of the items
described in CLAUSES (a) and (b);
(d) all of the goodwill of the business connected with the use of,
and symbolized by the items described in, CLAUSES (a) and (b); and
(e) all proceeds of, and rights associated with, the foregoing,
including any claim by such Person against third parties for past, present
or future infringement or dilution of any Trademark, Trademark registration
or Trademark license, including any Trademark, Trademark registration or
Trademark license of such Person referred to in ITEM A and ITEM B of
SCHEDULE I attached hereto, or for any injury to the goodwill associated
with the use of any such Trademark or for breach or enforcement of any
Trademark license.
TRADE SECRETS COLLATERAL of any Person shall mean common law and statutory
trade secrets and all other confidential and proprietary information and all
know-how obtained by or used in or contemplated at any time for use in the
business of such Person (each of the foregoing being called a "TRADE SECRET" of
such Person), whether or not such Trade Secret has been reduced to a writing or
other tangible form, including all documents and things embodying, incorporating
or referring in any way to such Trade Secret, all Trade Secret licenses of such
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<PAGE>
Person, including each Trade Secret license referred to in SCHEDULE IV attached
hereto, and including the right to sue for and to enjoin and to collect damages
for the actual or threatened misappropriation of any Trade Secret and for the
breach or enforcement of any such Trade secret license.
UNCERTIFICATED SECURITY shall have the meaning assigned to such term in the
Uniform Commercial Code.
UNIFORM COMMERCIAL CODE shall mean the Uniform Commercial Code as in effect
in the State of Illinois on the date of this Agreement.
UNMATURED EVENT OF DEFAULT shall mean any event or condition which if it
continues uncured will, with the passage of time or giving of notice, or both,
become an Event of Default.
UNMATURED INSOLVENCY DEFAULT shall mean an Unmatured Event of Default
arising under section 13.1(e) of the Secured Credit Agreement.
(b) Unless otherwise defined herein, capitalized terms used herein and
defined in the Secured Credit Agreement shall have the same meanings when used
herein. Terms not otherwise defined herein or in the Secured Credit Agreement
shall have the meanings, if any, ascribed to them under the Uniform Commercial
Code.
SECTION 2. GRANT OF SECURITY INTEREST. As collateral security for the
prompt and complete payment, performance and observance of all Liabilities, each
Debtor hereby mortgages, pledges and grants to Lender a continuing Security
Interest and lien under the Uniform Commercial Code and all other applicable
laws in and on, as the case may be, all of the following property of such Debtor
(the "COLLATERAL") wherever located, whether now or hereafter existing, owned,
licensed, leased, consigned, arising or acquired:
(i) Accounts of such Debtor;
(ii) Goods (including, without limitation, all of such Debtor's
Equipment, Fixtures and Inventory);
(iii) General Intangibles, including, without limitation,
(A) all tax refunds,
(B) all Intellectual Property Collateral of such Debtor,
(C) rights arising out of leases, licenses and contracts which
are not Accounts of such Debtor, and
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(D) all of such Debtor's goodwill;
(iv) Chattel Paper, Documents, Instruments, Investment Property,
Certificated Securities and Uncertificated Securities;
(v) money and property now or at any time in the possession or under
the control of, or in transit to, Lender or any Depositary Account
Bank, any Debtor or any bailee, agent or custodian of Lender, any
Depositary Account Bank or any Debtor;
(vi) right, title and interest (if any) in and to such Debtor's
Restricted Account and all other accounts of such Debtor maintained
by any Depositary Account Bank, and any Deposit Accounts and any
other accounts maintained by such Debtor, all funds on deposit
therein, all investments arising out of such funds, all claims
thereunder or in connection therewith, and all cash, securities,
rights and other property at any time and from time to time
received, receivable or otherwise distributed in respect of such
accounts, such funds or such investments;
(vii) insurance policies, including claims or rights to payment
thereunder; and
(viii) Liens, guaranties and other rights and privileges pertaining to any
of the Collateral of such Debtor;
together with: (ix) all books, ledgers, books of account, records, writings,
data bases, information and other property of such Debtor relating to, used or
useful in connection with, evidencing, embodying, incorporating or referring to,
any of the foregoing; and (x) all proceeds, products, rents, issues, profits and
returns of and from any of the foregoing.
SECTION 3. DEBTORS TO REMAIN LIABLE. Each Debtor hereby expressly agrees
that, anything herein to the contrary notwithstanding, such Debtor shall remain
liable under each contract, agreement, interest or obligation assigned by such
Debtor to Lender hereunder to observe and perform all of the conditions and
obligations to be observed and performed by such Debtor thereunder, all in
accordance with and pursuant to the terms and provisions thereof. The exercise
by Lender of any of the rights assigned hereunder shall not release any Debtor
from any of its duties or obligations under any such contract, agreement,
interest or obligation. Lender shall not have any duty, responsibility,
obligation or liability under any such contract, agreement, interest or
obligation by reason of or arising out of the assignment thereof to Lender or
the granting to Lender of a Security Interest therein or the receipt by Lender
of any payment relating to any such contract, agreement, interest or obligation
pursuant hereto, nor shall Lender be required or obligated in any manner to
perform or fulfill any of the obligations of such Debtor thereunder or pursuant
thereto, or to make any payment, or to make any inquiry as to the nature or
sufficiency of any payment received by Lender or the sufficiency of any
performance of any party under any such contract, agreement, interest or
obligation, or to present or file any claim,
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or to take any action to collect or enforce any performance or the payment of
any amounts which may have been assigned to Lender, in which Lender may have
been granted a Security Interest or to which Lender may be entitled at any time
or times.
SECTION 4. REPRESENTATIONS AND WARRANTIES AND AGREEMENTS. Each Debtor
represents and warrants to, and covenants and agree with, Lender that:
(a) No Uniform Commercial Code financing statement (other than any which
may have been filed on behalf of Lender or in connection with a Permitted Lien
or which has been, or in connection with execution and delivery hereof is being,
terminated) covering any of the Collateral of any Debtor is on file in any
public office.
(b) Such Debtor has and will have a valid leasehold interest in all leased
Collateral of such Debtor which is material to the operation of such or any
other Debtor's business, and, except as otherwise noted in Schedule 10.29 of the
Secured Credit Agreement, good and marketable title to all its other material
Collateral, real and personal, of any nature whatsoever (which, with respect to
licenses, means that such Debtor is the lawful owner of its rights under
licenses, except as provided in Section 10.14 of the Secured Credit Agreement),
free of all Security Interests whatsoever, other than the Security Interest
created hereby and the Permitted Liens, with full power and authority to execute
this Agreement, to perform such Debtor's obligations hereunder, and to subject
the Collateral of such Debtor to the assignment and Security Interest created
hereby.
(c) All of such Debtor's books and records are now located at the premises
shown on SCHEDULE V hereto as the location of such Debtor's chief executive
office, and all of such Debtor's Equipment, Inventory and other Goods are
located at the location of such Debtor's chief executive office or at one or
more of the other premises shown on SCHEDULE V hereto or at one or more of the
premises shown on SCHEDULE VI hereto;
(d) Such Debtor shall provide Lender with a Landlord's Consent executed by
the landlord under all leases covering the premises shown on SCHEDULE V hereto.
(e) All information with respect to the Collateral of such Debtor and the
Account Debtors set forth in any schedule, certificate or other writing at any
time heretofore or hereafter furnished by or on behalf of any Debtor to Lender,
and all other information heretofore or hereafter furnished by or on behalf of
any Debtor to Lender, is and will be true, correct and complete in all material
respects as of the date furnished and does not and will not omit any material
fact necessary to make the statements not misleading.
(f) Such Debtor will at all times maintain its chief executive office as
identified in SCHEDULE V hereto in the contiguous continental United States and
such Debtor shall take such action from time to time as is required so that a
creditor of such Debtor would reasonably expect the chief executive office, as
identified on SCHEDULE V or as relocated by such Debtor with notice
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to Lender as provided in the Secured Credit Agreement, to be its chief executive
office for purposes of Article 9 of the Uniform Commercial Code.
(g) With respect to any Intellectual Property Collateral of such Debtor
the loss, impairment or infringement of which simply or in the aggregate could
reasonably be expected to have a Material Adverse Effect:
(i) such Intellectual Property Collateral is subsisting and has
not been adjudged invalid or unenforceable, in whole or in part,
(ii) such Intellectual Property Collateral is valid and
enforceable,
(iii) such Debtor has made all filings and recordations necessary in
the exercise of reasonable and prudent business judgment to protect its
interest in such Intellectual Property Collateral, including, without
limitation, recordations of all of its interest in such Patent Collateral
and Trademark Collateral of such Debtor in the United States Patent and
Trademark Office and in corresponding offices in Canada and its claims to
such Copyright Collateral of such Debtor in the United States Copyright
Office and in corresponding offices in Canada,
(iv) such Debtor is the owner of the entire and unencumbered right,
title and interest in and to such Intellectual Property Collateral except
for Permitted Liens, and no claim has been made that the use of such
Intellectual Property Collateral does or may violate the asserted rights of
any third party, and
(v) such Debtor has performed and will continue to perform all
acts and has paid and will continue to pay all required fees and taxes to
maintain each and every item of such Intellectual Property Collateral in
full force and effect in the United States and Canada, as applicable.
Such Debtor owns directly, or is entitled to use by license or otherwise, all
Intellectual Property Collateral of any Person used in, necessary for or
material to the conduct of such Debtor's businesses. No litigation is pending
or, to the best knowledge of any Debtor, threatened which contains allegations
respecting the validity, enforceability, infringement or ownership of any of the
Intellectual Property Collateral of such or any other Debtor.
(h) None of the Collateral of such Debtor (other than Intangible
Collateral) has, within the four (4) months preceding the date of this
Agreement, been located at any place other than such Debtor's own premises at
the addresses shown with respect to such Debtor on the signature page hereto or
at one or more of the premises of such Debtor listed on SCHEDULES V and VI
hereto.
(i) SCHEDULE VIII to the Secured Credit Agreement lists all trade names by
which
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such Debtor is now known or was previously known.
SECTION 5. PROCESSING, SALE, COLLECTIONS, ETC.
(a) Until notice to Debtors from Lender to the contrary, given at any time
after the occurrence and during continuance of any Event of Default or Unmatured
Insolvency Default, each Debtor (i) may, in the ordinary course of its business,
at its own expense, sell, lease or furnish under contracts of service any of the
Inventory normally held by such Debtor for such purpose, and use and consume, in
the ordinary course of its business, any raw materials, work in process or
materials normally held by such Debtor for such purpose (but no such sale or use
shall limit or impair Lender's Security Interest in any proceeds thereof,
including, without limitation, any Account of such Debtor), (ii) will, at its
own expense, endeavor to collect, as and when due, all amounts due with respect
to any of its Intangible Collateral, including the taking of such action with
respect to such collection as Lender may reasonably request or, in the absence
of such request, as such Debtor may deem advisable, and (iii) may grant, subject
to the next sentence hereof, to any Person obligated on any of Intangible
Collateral, any rebate, refund or allowance to which such Person may be lawfully
entitled, and may accept, in connection therewith, the return of goods, the sale
or lease of which shall have given rise to such Intangible Collateral. Lender,
however, may at any time after an Event of Default or an Unmatured Event of
Default, (1) notify any Person obligated on any of the Intangible Collateral of
any Debtor to make payment to Lender of any amounts due or to become due
thereunder; (2) enforce collection of any of any such Debtor's Intangible
Collateral by suit or otherwise; (3) surrender, release or exchange all or any
part thereof, or compromise or extend or renew for any period (whether or not
longer than the original period) any indebtedness thereunder or evidenced
thereby; and (4) notify any Debtor (and upon receipt of such notice such Debtor
agrees to notify, at its sole expense, any parties obligated on any of its
Collateral) to make pament to Lender of any amount due or to become due under
the Collateral of such Debtor.
(b) Subject to the terms of the Secured Credit Agreement, each Debtor
will, forthwith upon receipt, transmit and deliver to Lender or any Depositary
Account Bank, in the form received, all cash, checks, drafts and other
instruments or writings for the payment of money (properly endorsed, where
required, so that such items may be collected by Lender or any Depositary
Account Bank) which may be received by such Debtor at any time in full or
partial payment, or other proceeds of any Collateral of such Debtor. Except as
Lender may otherwise consent in writing, any such items which may be so received
by any Debtor will not be commingled by such Debtor with any of its other funds
or property, but, until delivery to Lender or any Depositary Account Bank, will
be held separate and apart from such other funds and property and in trust for
Lender or any Depositary Account Bank.
(c) Lender and any Depositary Account Bank each is authorized to endorse,
in the name of any Debtor, any item, howsoever received by Lender or any
Depositary Account Bank representing any payment on or other proceeds of any of
such Debtor's Collateral.
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SECTION 6. AGREEMENTS OF DEBTORS. Each Debtor shall:
(a) Keep all its Inventory and other Goods, unless Lender shall otherwise
consent in writing, at one or more of its own premises (as shown on SCHEDULE V
hereto) or at one or more of its premises listed on SCHEDULE VI hereto;
PROVIDED, HOWEVER, that (i) so long as no Event of Default or Unmatured
Insolvency Default shall have occurred and be continuing, and subject to SECTION
6(j), such Debtor may designate additional or replacement premises (such
premises shall be located in the contiguous continental United States) for
inclusion on SCHEDULE V hereto upon delivery to Agent of (A) 30 days' prior
written notice and (B) all documents, and completion of all action, required by
Lender to maintain the Security Interest in favor of Lender in such Debtor's
Collateral, free and clear of any other Security Interest whatsoever except for
Permitted Liens and (ii) in the case of any public warehouse facility or
distribution center listed on SCHEDULE VI hereto from time to time (A) such
Debtor's Inventory and other Goods shall be kept separate from Goods of those
Persons (other than such Debtor) using such premises and shall be clearly and
conspicuously designated as being such Debtor's sole property (for example, by
posting signs or by affixing such Debtor's name on its Inventory and other
Goods) and (B) such Debtor shall cause the owner of such premises to (1) sign
and deliver to Lender a Bailee Waiver in the form of EXHIBIT B hereto and (2)
place the following language prominently on the face of any bill of lading,
warehouse receipt or other document of title issued relating to Inventory or
Goods of such Debtor: "THE PROPERTY DESCRIBED HEREIN IS SUBJECT TO THE SECURITY
INTEREST OF FIRST SOURCE FINANCIAL LLP."
(b) Immediately notify Lender of (i) the occurrence of any event causing
loss in value of any of such Debtor's Goods in excess, in the aggregate during
any of Debtors' fiscal years, of $100,000 combined for all Debtors, and (ii) the
amount of such loss.
(c) Furnish Lender such information concerning such Debtor, such Debtor's
Collateral and the Account Debtors as Lender may from time to time reasonably
request.
(d) Defend such Debtor's title to its Collateral against all Persons and
against all claims and demands whatsoever.
(e) Do all acts reasonably necessary to maintain, preserve and protect all
its Collateral, keep all its Collateral in good condition and repair (ordinary
wear and tear excepted), and prevent any waste or unusual or unreasonable
depreciation thereof.
(f) Permit Lender and designees of Lender, from time to time, to inspect
its Collateral, and to inspect, audit and make copies of and extracts from all
records and all other papers in the possession of such Debtor and will, upon
request of Lender, deliver to Lender all of such records and papers which
pertain to its Collateral and Account Debtors.
(g) Upon request of Lender, stamp on its records concerning its Collateral
(excluding its Inventory) (and/or enter into its computer records concerning its
Collateral including but not
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limited to its Inventory) a notation, in form satisfactory to Lender, of the
Security Interest created hereby.
(h) Except for the sale or lease of its Inventory in the ordinary course
of its business and except as otherwise permitted by the Secured Credit
Agreement, not sell, lease, assign, license, sublicense, abandon or otherwise
transfer, or create or permit to exist, any Security Interest (other than
Permitted Liens) on any of its Collateral to or in favor of any Person other
than Lender.
(i) At all times keep all of its Inventory and Equipment insured against
loss, damage, theft and other risks in the manner required by Section 11.4 of
the Secured Credit Agreement (whether or not the Secured Credit Agreement shall
be in effect) and, if Lender so requests, deposit with Lender certified copies
of the relevant policies and certificates of insurance.
(j) Furnish or cause to be furnished to Lender, in accordance with Section
9.7 of the Secured Credit Agreement, notice in writing as soon as possible and
in any event no later than 30 days prior to the occurrence from time to time of
(i) any change in the location of such Debtor's chief executive office and (ii)
any change in the name of such Debtor or the name under or by which it conducts
its business, and take all action required by Lender to maintain and preserve
the Security Interest in favor of Lender in such Debtor's Collateral, free and
clear of any other Security Interest whatsoever except for Permitted Liens.
(k) Reimburse Lender for all expenses, including reasonable attorneys'
fees and legal expenses and expenses of any repairs to realty or other property
(unless and to the extent that the damage giving rise to such repairs is caused
by the willful misconduct or gross negligence of the Lender) to which any of its
Collateral may be affixed or be a part, incurred by Lender in seeking to collect
or enforce any rights under or with respect to its Collateral, in seeking to
collect the Notes and all other Liabilities, and in enforcing its rights
hereunder, together with interest thereon from the date incurred until
reimbursed by such Debtor at the Default Rate.
(l) Not sell, assign or license to any third party any of its right, title
or interest in any of its Intellectual Property Collateral and General
Intangibles other than in such Debtor's ordinary course of business.
(m) Not, unless such Debtor shall either (i) reasonably and in good faith
determine (and notice of such determination shall have been delivered to Lender)
that any of its Patent Collateral is of negligible economic value to such
Debtor, or (ii) have a valid business purpose to do otherwise, do any act, or
omit to do any act, whereby any of such Debtor's Patent Collateral may lapse or
become abandoned or dedicated to the public or unenforceable.
(n) Not, and shall not permit any of its licensees to, unless such Debtor
shall either (i) reasonably and in good faith determine (and notice of such
determination shall have been delivered to Lender) that any of its Trademark
Collateral is of negligible economic value to such
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Debtor or (ii) have a valid business purpose to do otherwise,
(A) fail to continue to use any of its Trademark Collateral in
order to maintain all of its Trademark Collateral in full force free from
any claim of abandonment for non-use,
(B) fail to maintain as in the past the quality of products and
services offered under all of its respective Trademark Collateral,
(C) fail to employ all of its Trademark Collateral registered with
any Federal or State or foreign authority with an appropriate notice of
such registration,
(D) adopt or use any trademark which is confusingly similar or a
colorable imitation of any of its Trademark Collateral except in compliance
with applicable law,
(E) use any of its Trademark Collateral registered with any
Federal or State or foreign authority except for the uses for which
registration or application for registration of such Trademark Collateral
has been made except in compliance with applicable law, or
(F) do or permit any act or knowingly omit to do any act whereby
any of its Trademark Collateral may lapse or become invalid or
unenforceable.
(o) Not, unless such Debtor shall either (i) reasonably and in good faith
determine (and notice of such determination shall have been delivered to Lender)
that any of its Copyright Collateral or any of its Trade Secrets Collateral is
of negligible economic value to such Debtor or (ii) have a valid business
purpose to do otherwise, do or permit any act or knowingly omit to do any act
whereby any of its Copyright Collateral or any of its Trade Secrets Collateral
may lapse or become invalid or unenforceable or placed in the public domain
except upon expiration of the end of an unrenewable term of a registration
thereof.
(p) Notify Lender immediately if it knows, or has reason to know, that any
application or registration relating to any material item of its Intellectual
Property Collateral may become abandoned or dedicated to the public or placed in
the public domain or invalid or unenforceable, or of any adverse determination
or development (including the institution of, or any such determination or
development in, any proceeding in the United States Patent and Trademark Office,
the United States Copyright Office or any foreign counterpart thereof or any
court) regarding such Debtor's ownership of any of its Intellectual Property
Collateral, its right to register the same or to keep and maintain and enforce
the same.
(q) Not, nor shall any of such Debtor's agents, employees, designees or
licensees, file an application for the registration of any of its Intellectual
Property Collateral with the United States Patent and Trademark Office, the
United States Copyright Office or any similar office or agency in any other
country or any political subdivision thereof, unless such Debtor promptly
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informs Lender, and, upon request of Lender, executes and delivers any and all
agreements, instruments, documents and papers as Lender may request to evidence
Lender's Security Interest in such Intellectual Property Collateral and the
goodwill and general intangibles of such Debtor relating thereto or represented
thereby.
(r) Take all necessary steps, including in any proceeding before the
United States Patent and Trademark Office, the United States Copyright Office or
any similar office or agency in Canada or any political subdivision thereof, to
maintain and pursue any application (and to obtain the relevant registration)
filed with respect to, and to maintain any registration of, its Intellectual
Property Collateral as each Debtor deems appropriate in its reasonable business
judgment, including the filing of applications for renewal, affidavits of use,
affidavits of incontestability and opposition, interference and cancellation
proceedings and the payment of fees and taxes (except to the extent that
dedication, abandonment or invalidation is permitted under the foregoing CLAUSE
(m), (n) or (o)).
(s) Contemporaneously herewith, execute and deliver to Lender an Agreement
(Patent), upon Lenders request, an Agreement (Trademark) and an Agreement
(Copyright) in the forms of EXHIBITS C, D and E hereto, respectively, and shall
execute and deliver to Lender any other document required to acknowledge or
register or perfect Lender's interest in any part of its Intellectual Property
Collateral.
(t) At its sole expense, (i) without any request by Lender, immediately
deliver or cause to be delivered to Lender, in due form for transfer (i.e.,
endorsed in blank or accompanied by duly executed undated blank stock or bond
powers), all Securities, Chattel Paper, Instruments, Investment Property and
Documents, if any, of such Debtor at any time representing all or any of its
Collateral, (ii) upon request of Lender cause Lender's Security Interest
hereunder and under the other Collateral Documents to be at all times duly noted
on any certificate of title issuable with respect to any of its Collateral and
forthwith deliver or cause to be delivered to Lender each such certificate of
title to the extent not covered by a Permitted Lien, and (iii) execute and
deliver, or cause to be executed and delivered, to Lender, in due form for
filing or recording (and pay the cost of filing or recording the same in all
public offices deemed necessary or advisable by Lender) such assignments
(including, without limitation, assignments of life insurance, if such Debtor
elects or is otherwise required to obtain such insurance), security agreements,
mortgages, deeds of trust, pledge agreements, consents, waivers, financing
statements, stock or bond powers and other documents, and do such other acts and
things, all as may from time to time be necessary or desirable, to the
satisfaction of Lender, to establish and maintain in favor of Lender, a valid
perfected lien on and Security Interest in all assets of such Debtor now or
hereafter existing or acquired (free of all other liens, claims and rights of
third parties whatsoever other than Permitted Liens) to secure prompt and
complete payment, performance and observance of the Liabilities.
(u) At the request of Lender after the occurrence and during the
continuance of an Event of Default, transfer all or any part of its Collateral
(including, with respect to any of its
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Trademarks, the goodwill associated therewith) into the name of Lender or its
nominee, with or without disclosing that such Collateral is subject to the
Security Interest hereunder.
(v) At all times comply with the requirements of all applicable laws
(including, without limitation, the provisions of the Fair Labor Standards Act),
rules, regulations and orders of every governmental authority, non-compliances
with which simply or in the aggregate could reasonably be expected to,
materially and adversely affect the value of such Debtor's Collateral or the
worth of such Debtor's Collateral as collateral security, taken as a whole.
SECTION 7. RENEWALS, AMENDMENTS AND OTHER SECURITY; PARTIAL RELEASES.
(a) Lender may from time to time, whether before or after any of the
Liabilities shall become due and payable, without notice to any Debtor, take any
or all of the following actions (provided that actions taken under clause (v)
may be taken only after the occurrence and during the continuance of an Event of
Default): (i) retain or obtain a Security Interest in any property to secure
payment and performance of any of the Liabilities, (ii) retain or obtain the
primary or secondary liability of any Person, in addition to any Debtor, with
respect to any of the Liabilities, (iii) create, extend or renew for any period
(whether or not longer than the original period) or alter or exchange any of the
Liabilities or release or compromise any obligation of any nature of any Person
with respect thereto, (iv) release or fail to perfect its Security Interest in,
or surrender, release or permit any substitution or exchange for, all or any
part of any property securing any of the Liabilities, or create, extend or renew
for any period (whether or not longer than the original period) or release,
compromise, alter or exchange any obligations of any nature of any Person with
respect to any such property, and (v) resort to the Collateral of any Debtor or
all Debtors for payment of any of the Liabilities whether or not Lender (1)
shall have resorted to any other property securing payment and performance of
the Liabilities or (2) shall have proceeded against any other Person primarily
or secondarily liable on any of the Liabilities (all of the actions referred to
in preceding CLAUSES (1) and (2) hereby being expressly waived by each Debtor).
(b) No release from the Security Interest created by this Agreement of any
part of the Collateral of any Debtor by Lender shall in any way alter, vary or
diminish the force or effect of or Security Interest created by this Agreement
against the balance or remainder of such or any other Debtor's Collateral.
SECTION 8. GRANT OF LICENSE TO USE INTANGIBLES. In addition to SECTION
6(u) hereof and solely for the purpose of enabling Lender to exercise rights and
remedies hereunder, each Debtor hereby grants to Lender, after the occurrence
and during the continuance of an Event of Default, an irrevocable, nonexclusive
license (exercisable without payment of royalty or other compensation to such
Debtor) to use, assign, license or sublicense any General Intangibles, now owned
or hereafter acquired by such Debtor, and wherever the same may be located,
including in such license reasonable access as to all media in which any of the
licensed items may be recorded or stored and to all computer programs used for
the compilation or printout thereof.
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SECTION 9. INFORMATION. Lender and any of the officers, employees, agents
or auditors of Lender shall have the right at reasonable intervals after the
date hereof to make reasonable inquiries by mail, telephone, telegraph or
otherwise to any Person with respect to validity and amount or any other matter
(including, without limitation, the assertion by Account Debtors of claims,
offsets and counterclaims) concerning any of any such Debtor's Collateral.
SECTION 10. EVENT OF DEFAULT.
(a) (i) Whenever an Event of Default or Unmatured Insolvency Default
shall exist or be occurring, Lender may exercise from time to time any rights
and remedies available to Lender hereunder, under the Secured Credit Agreement
and under the Uniform Commercial Code or otherwise available to Lender under
applicable law. Each Debtor hereby expressly waives, to the fullest extent
permitted by applicable law, any and all notices, advertisements, hearings, or
process of law in connection with the exercise by Lender of any of its rights
and remedies after an Event of Default or Unmatured Insolvency Default occurs.
(ii) Each Debtor agrees, upon the occurrence of an Event of Default or
Unmatured Insolvency Default and upon the request of Lender, to assemble, at
such Debtor's expense, all of its Collateral at any location requested by
Lender.
(iii) To the fullest extent permitted by applicable law, each Debtor
hereby waives the right to object to the manner or sufficiency of advertising,
refurbishing of its Collateral, or solicitation of bids in connection with any
sales or other disposition of its Collateral. Any sale by Lender may be made at
any broker's board or public or private sale, with or without notice or
advertisement, for cash or credit, and for present or future delivery. At any
such public or private sale or other disposition of any Debtor's Collateral,
Lender may, to the fullest extent permissible under applicable law, purchase the
whole or any part of such Collateral sold, or may sell or dispose of such
Collateral to any other Person, free from any and all claims of any Debtor or of
any other Person claiming by, through, or under any Debtor. Each Debtor hereby
expressly waives and releases, to the fullest extent permitted by applicable
law, any right of redemption on the part of such Debtor. If any notification of
intended disposition of any Debtor's Collateral is required by law, such
notification, if mailed, shall be deemed reasonably and properly given if mailed
at least five (5) days before such disposition, postage prepaid, addressed to
such Debtor at the address of such Debtor set forth in the Secured Credit
Agreement. Any proceeds of any Debtor's Collateral, or of the disposition by
Lender of any Debtor's Collateral (including, without limitation, Benefits to
the extent provided in SECTION 16 hereof), may be applied by Lender to the
payment of expenses in connection with such Collateral, including reasonable
attorneys' fees and legal expenses, and any balance of such proceeds may be
applied by Lender toward the payment of such of the Liabilities, and in such
order of application, as Lender may from time to time elect.
(b) Without limiting any other provision of this Agreement, whenever an
Event of
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Default or Unmatured Insolvency Default shall be existing, Lender, with or
without process of law, may enter upon any premises where any Debtor's
Collateral or any part thereof may be, and take possession of all or any part
thereof; and Lender may, without Lender being responsible except as provided
under applicable law for loss or damage, hold, store, keep idle, lease, operate
or otherwise use or permit the use of such Collateral or any part thereof for
such time and upon such terms as Lender may deem to be reasonable, and may
demand, collect and retain all earnings and all other sums due and to become due
in respect of such Collateral from any Person whomsoever, accounting only for
net earnings, if any, arising from use or from the sale thereof after charging
against all receipts from use or from the sale thereof all reasonable costs and
expenses of, and damages or losses by reason of, such use or sale.
(c) Each Debtor hereby agrees to pay any and all costs and expenses
incurred by Lender in retaking, holding, preparing for sale, selling and the
like with regard to the Collateral of such and any other Debtor, including,
without limitation, attorneys' fees incurred by Lender in connection therewith.
(d) Each Debtor agrees that in any sale of any of its Collateral,
Lender is authorized to comply with any limitation or restriction in connection
with such sale as counsel may advise Lender is necessary in order to avoid any
violation of applicable law (including, without limitation, compliance with such
procedures as may restrict the number of prospective bidders or purchasers,
require that such prospective bidders and purchasers have certain
qualifications, and restrict such prospective bidders and purchasers to Persons
who will represent and agree that they are purchasing for their own account or
investment and not with a view to the distribution or resale of such
Collateral), or in order to obtain any required approval of the sale or of the
purchaser by any governmental or regulatory authority or official, and each
Debtor further agrees that such compliance shall not result in such sale being
considered or deemed not to have been made in a commercially reasonable manner,
nor shall Lender be liable or accountable to any Debtor for any discount allowed
by reason of the fact that such Collateral was sold in compliance with any such
limitation or restriction.
(e) The proceeds of any sale of any Debtor's Collateral sold pursuant
to the terms of this SECTION 10 and any cash held as Collateral of any Debtor
hereunder shall be applied by Lender as follows:
FIRST: to payment of all of the reasonable costs and expenses of
Lender, including (i) the expenses of such sale, (ii) the out-of-pocket
costs and expenses of Lender and the fees and out-of-pocket expenses of
counsel employed by Lender, (iii) the payment of all advances made by
Lender for the account of such Debtor and (iv) the payment of all costs and
expenses incurred by Lender in connection with the administration and
enforcement of this Agreement, to the extent that such advances, costs and
expenses shall not have been reimbursed to Lender;
SECOND: to the payment in full of the Liabilities in such order as
Lender may
-17-
<PAGE>
determine from time to time in its sole discretion; and
THIRD: the balance, if any, of such proceeds shall be paid to such
Debtor, its successors and assigns, or as a court of competent jurisdiction
may direct.
(f) If sufficient sums are not realized upon any disposition of
Debtor's Collateral to pay all Liabilities and any expenses of such disposition,
including, without limitation, attorneys' fees, Debtors hereby jointly and
severally promise to pay immediately any resulting deficiency.
(g) No right or remedy herein conferred is intended to be exclusive of
any other right or remedy, but every such right or remedy shall be cumulative
and shall be in addition to every other right or remedy herein conferred, or
conferred upon Lender by any other agreement or instrument or security, or now
or hereafter existing at law or in equity or by statute.
SECTION 11. AUTHORITY OF LENDER. (a) Lender shall have, and be entitled
to exercise, all such powers hereunder as are specifically delegated to Lender
by the terms hereof, together with such powers as are incidental thereto.
Lender may execute any of its duties hereunder by or through agents or employees
and shall be entitled to retain counsel and to act in reliance upon the advice
of such counsel concerning all matters pertaining to its duties hereunder.
Neither Lender, nor any director, officer or employee of Lender, shall be liable
for any action taken or omitted to be taken by Lender hereunder or in connection
herewith. Each Debtor agrees to reimburse Lender, on demand, for all costs and
expenses incurred by Lender in connection with the administration and
enforcement of this Agreement (including costs and expenses incurred by any
agent employed by Lender) and agrees to indemnify (which indemnification shall
survive any termination of this Agreement) and hold harmless Lender (and any
such agent) from and against any and all liability incurred by Lender (or such
agent) hereunder or in connection herewith except to the extent of any gross
negligence or wilful misconduct on the part of Lender.
(b) Lender may from time to time, without notice to any Debtor, at its
option, perform any obligation to be performed by any Debtor hereunder, under
the Secured Credit Agreement or the Related Documents which shall not have been
performed and take any other action which, in its sole discretion, Lender deems
necessary or desirable for the maintenance or preservation of any Collateral of
any Debtor or all Debtors' or Lender's Security Interest in any of such
Collateral. All moneys advanced by Lender in connection with the foregoing
shall, whether or not there are then outstanding any Loans made under the
Secured Credit Agreement, bear interest at the Default Rate (or such lower
maximum rate as shall be legal under applicable law), and shall be jointly and
severally repayable together with such interest by such Debtor to Lender, upon
the demand of Lender, and shall be secured hereby prior to any other
indebtedness or obligation secured hereby, but the making of any such advance by
Lender shall not relieve such Debtor of any default hereunder or thereunder.
SECTION 12. TERMINATION. Subject to SECTION 15(n) hereof, this Agreement
shall terminate when the Commitments shall be terminated and all the Liabilities
have been
-18-
<PAGE>
indefeasibly fully paid and performed, at which time Lender shall reassign and
redeliver (or cause to be reassigned and redelivered) to each Debtor, or to such
Person or Persons as each Debtor shall designate, against receipt, such of its
Collateral (if any) as shall not have been sold or otherwise applied by Lender
pursuant to the terms hereof and still shall be held by it hereunder, together
with appropriate instruments of termination, reassignment and release.
SECTION 13. PROTECTION OF INTELLECTUAL PROPERTY COLLATERAL. (a) Each
Debtor shall have the duty to protect, preserve and maintain all rights in each
of the items of its Intellectual Property Collateral, including, without
limitation, the duty to prosecute and/or defend against any and all suits
concerning validity, infringement, enforceability, ownership or dilution or
other aspects of such Intellectual Property Collateral, as well as the duty to
register all of its material Copyrights with the United States Copyright Office
as Debtor deems appropriate in its reasonable business judgment and to make
publications of all copyrighted materials with an appropriate copyright notice.
Any expenses incurred in protecting, preserving and maintaining the Intellectual
Property Collateral of any Debtor shall be borne by such Debtor. To the maximum
extent permitted by law, after the occurrence of and during the continuance of
an Event of Default, Lender shall have the right, without taking title to any
Debtor's Intellectual Property Collateral, to bring suit, in Lender's name or in
such Debtor's name or in both such names, as determined by Lender, to enforce
any or all of such Intellectual Property Collateral or Lender's Security
Interest therein, in which event such Debtor shall, at the request of Lender, do
any and all lawful acts and execute any and all proper documents required by
Lender in aid of such enforcement. All costs, expenses and other moneys
advanced by Lender in connection with the foregoing shall be treated as an
advance under SECTION 11(b) hereof, but the making of any such advance by Lender
shall not relieve any such Debtor of any default hereunder. All monetary
recoveries from any such suits instituted by Lender shall be retained by and
owned solely by Lender. In addition, Debtors shall indemnify on a joint and
several basis, (which indemnification shall survive any termination of this
Agreement) and hold harmless Lender from any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements (including attorneys' fees and legal expenses) of any kind
whatsoever which may be imposed on, incurred by or asserted against Lender in
connection with or in any way arising out of such suits, proceedings or other
actions. Notwithstanding the foregoing, Lender shall have no obligations or
liabilities regarding any Debtor's Intellectual Property Collateral by reason
of, or arising out of, this Agreement.
(b) If any Event of Default or Unmatured Insolvency Event shall have
occurred and be continuing, upon the written demand of Lender, each Debtor shall
execute and deliver to Lender an assignment or assignments of its Intellectual
Property Collateral and such other documents as are necessary or appropriate to
carry out the intent and purposes of this Agreement along with, in the case of
any of its Trademarks, goodwill and assets relating to the products sold under
such Trademark. Each Debtor agrees that such an assignment shall be applied to
reduce the Liabilities then due only to the extent that Lender receives cash
proceeds in respect of the sale of, or other realization upon, such Debtor's
Intellectual Property Collateral or licenses; such cash proceeds to be applied
to the payment of expenses incurred in connection with such Intellectual
-19-
<PAGE>
Property Collateral or licenses, including attorneys' fees and legal expenses,
and any balance of such proceeds shall be applied by Lender as provided in
SECTION 10(a)(iii). Without limiting any other rights and remedies of Lender,
each Debtor shall within five (5) Business Days of written notice from the
Lender make available to Lender such personnel in such Debtor's employ on the
date of the Event of Default or Unmatured Insolvency Event as the Lender may
reasonably designate, by name, title or job responsibility, to permit Lender to
continue, directly or indirectly, to advertise and operate the business of such
Debtor under any of such Debtor's General Intangibles.
SECTION 14. SUBMISSION TO JURISDICTION. LENDER MAY ENFORCE ANY CLAIM
ARISING OUT OF THIS AGREEMENT, ANY RELATED DOCUMENT, ANY COLLATERAL OR ANY
AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE
FUTURE BE DELIVERED IN CONNECTION HEREWITH, OR ARISING FROM OR RELATED TO ANY
CREDIT RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT IN ANY STATE OR
FEDERAL COURT HAVING SUBJECT MATTER JURISDICTION AND LOCATED IN CHICAGO,
ILLINOIS. FOR THE PURPOSE OF ANY ACTION OR PROCEEDING INSTITUTED WITH RESPECT
TO ANY SUCH CLAIM, EACH DEBTOR HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF
SUCH COURTS AND ALSO HAS IRREVOCABLY DESIGNATED THE PERSON WHOSE NAME AND
ADDRESS ARE SET FORTH IN THE SECURED CREDIT AGREEMENT TO RECEIVE FOR AND ON
BEHALF OF EACH DEBTOR SERVICE OF PROCESS IN ILLINOIS. EACH DEBTOR FURTHER
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF SAID COURTS BY MAILING A
COPY THEREOF, BY REGISTERED MAIL, POSTAGE PREPAID, TO SUCH DEBTOR AND AGREES
THAT SUCH SERVICE, TO THE FULLEST EXTENT PERMITTED BY LAW, (I) SHALL BE DEEMED
IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON IT IN ANY SUCH SUIT, ACTION
OR PROCEEDING AND (II) SHALL BE TAKEN AND HELD TO BE VALID PERSONAL SERVICE UPON
AND PERSONAL DELIVERY TO IT. NOTHING HEREIN CONTAINED SHALL AFFECT THE RIGHT OF
LENDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR PRECLUDE LENDER
FROM BRINGING AN ACTION OR PROCEEDING IN RESPECT HEREOF IN ANY OTHER COUNTRY,
STATE OR PLACE HAVING JURISDICTION OVER SUCH ACTION. EACH DEBTOR IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE
OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT LOCATED IN CHICAGO, ILLINOIS AND ANY CLAIM
THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM.
SECTION 15. MISCELLANEOUS PROVISIONS.
-20-
<PAGE>
(a) Lender and any Depositary Account Bank shall be deemed to have
exercised reasonable care in the custody and preservation of each Debtor's
Collateral if they take such action for that purpose as any such Debtor requests
in writing, but failure of Lender or any Depositary Account Bank to comply with
any such request shall not of itself be deemed a failure to exercise reasonable
care, and no failure of Lender or any Depositary Account Bank to preserve or
protect any rights with respect to any of such Collateral against prior or other
parties, or to do any act with respect to the preservation of any of such
Collateral not so requested by any Debtor, shall be deemed a failure to exercise
reasonable care in the custody or preservation of such Collateral.
(b) Each Debtor hereby appoints Lender, with full power of
substitution, as such Debtor's attorney-in-fact for the purpose of carrying out
the provisions of this Agreement and taking any action and executing any
instrument which Lender may deem necessary or advisable to accomplish the
purposes hereof, which appointment is irrevocable and coupled with an interest.
Without limiting the generality of the foregoing, each Debtor agrees that Lender
shall have the right and authority: (i) while any Event of Default or Unmatured
Insolvency Default shall exist, to assign, sell, license, sublicense or
otherwise dispose of all right, title and interest of such Debtor in and to its
Intellectual Property Collateral and any other of its General Intangibles
including, without limitation, assignments, recordings, registrations and
applications therefor in the United States Patent and Trademark Office, the
United States Copyright Office or any similar office or agency of the United
States, any State thereof or any other country or political subdivision thereof,
and for the purpose of the recording, registering and filing of, or
accomplishing any other formality with respect to, the foregoing, to execute and
deliver any and all agreements, documents, instruments of assignment or other
papers necessary or advisable to effect such purpose; and, (ii) subject to
SECTION 16 hereof, to make claim for, and receive and give acquittance for
payment on account of, loss under any insurance policy covering its Collateral,
or any part thereof, and to receive, endorse and collect all checks, drafts and
other orders for the payment of money representing the proceeds of such
insurance.
(c) All notices or other communications hereunder shall be given (and
shall be deemed to have been received, in each case) in the manner specified
under Section 14.3 of the Secured Credit Agreement, whether or not then in
effect.
(d) No delay on the part of Lender in the exercise of any right or
remedy shall operate as a waiver thereof, and no single or partial exercise by
Lender of any right or remedy shall preclude other or further exercise thereof
or the exercise of any other right or remedy.
(e) No amendment to, modification or waiver of, or consent with respect
to, any provision of this Agreement shall in any event be effective unless the
same shall be in writing and signed and delivered by Lender, and then any such
amendment, modification, waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
(F) THIS AGREEMENT SHALL BE DEEMED TO HAVE BEEN DELIVERED
-21-
<PAGE>
AT CHICAGO, ILLINOIS, AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
THE INTERNAL LAWS OF THE STATE OF ILLINOIS WITHOUT REGARD TO ITS PRINCIPLES OF
CONFLICTS OF LAW. WHENEVER POSSIBLE, EACH PROVISION OF THIS AGREEMENT SHALL BE
INTERPRETED IN SUCH MANNER AS TO BE EFFECTIVE AND VALID UNDER APPLICABLE LAW,
BUT IF ANY PROVISION OF THIS AGREEMENT SHALL BE PROHIBITED BY OR INVALID UNDER
SUCH LAW, SUCH PROVISION SHALL BE INEFFECTIVE TO THE EXTENT OF SUCH PROHIBITION
OR INVALIDITY, WITHOUT INVALIDATING THE REMAINDER OF SUCH PROVISION OR THE
REMAINING PROVISIONS OF THIS AGREEMENT. ALL OBLIGATIONS OF EACH DEBTOR, ANY OF
SUCH DEBTOR'S SUBSIDIARIES OR ANY RELATED PERSON AND RIGHTS OF LENDER AND ANY
OTHER HOLDER OF A NOTE OR LIABILITY EXPRESSED IN THIS AGREEMENT SHALL BE IN
ADDITION TO AND NOT IN LIMITATION OF THOSE PROVIDED UNDER APPLICABLE LAW OR IN
ANY OTHER WRITTEN INSTRUMENT OR AGREEMENT RELATING TO ANY OF THE LIABILITIES.
(g) The rights and privileges of Lender hereunder shall inure to the
benefit of its successors and assigns. This Agreement shall be binding upon
each Debtor and its successors and assigns.
(h) At the option of Lender, this Agreement, or a carbon, photographic
or other reproduction of this Agreement or of any Uniform Commercial Code
financing statement covering each Debtor's Collateral or any portion thereof,
shall be sufficient as a Uniform Commercial Code financing statement and may be
filed as such.
(i) The section headings in this Agreement are inserted for convenience
of reference and shall not be considered a part of this Agreement or used in its
interpretation.
(j) This Agreement may be executed in any number of counterparts and by
the different parties on separate counterparts and each such counterpart shall
for all purposes be deemed an original, but all such counterparts shall together
constitute but one and the same Agreement. Each Debtor hereby acknowledges
receipt of a true, correct and complete counterpart of this Agreement.
(K) EACH PARTY HERETO HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY
JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER OR
RELATED TO THIS AGREEMENT, ANY COLLATERAL OR ANY AMENDMENT, INSTRUMENT, DOCUMENT
OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION
WITH THE FOREGOING OR ARISING FROM ANY CREDIT RELATIONSHIP EXISTING IN
CONNECTION WITH THIS AGREEMENT, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING
SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
-22-
<PAGE>
(l) Each Debtor hereby expressly waives to the fullest extent permitted
by law: (i) notice of the acceptance by Lender of this Agreement, (ii) notice
of the existence or creation or non-payment of all or any of the Liabilities,
(iii) presentment, demand, notice of dishonor, protest, and all other notices
whatsoever except as required hereunder and under the Secured Credit Agreement,
and (iv) all diligence in collection or protection of or realization upon the
Liabilities or any thereof, any obligation hereunder, or any security for or
guaranty of any of the foregoing.
(m) Subject to the provisions of the Secured Credit Agreement, Lender
may, from time to time, without notice to any Debtor, assign or transfer any or
all of the Liabilities or any interest therein; and, notwithstanding any such
assignment or transfer or any subsequent assignment or transfer thereof, such
Liabilities shall be and remain Liabilities for the purposes of this Agreement,
and each and every immediate and successive assignee or transferee of any
portion of the Liabilities or of any interest therein shall, to the extent of
the interest of such assignee or transferee in the Liabilities, be entitled to
the benefits of this Agreement to the same extent as if such assignee or
transferee were an original Lender; PROVIDED, HOWEVER, that each Lender shall
have an unimpaired right, prior and superior to that of any such assignee or
transferee, to enforce this Agreement, as to those of the Liabilities which
Lender has not assigned or transferred.
(n) Each Debtor agrees that, if at any time all or any part of any
payment theretofore applied by Lender to any of the Liabilities is or must be
rescinded or returned by Lender for any reason whatsoever (including, without
limitation, the insolvency, bankruptcy or reorganization of any Debtor or any of
its Affiliates), such Liabilities shall, for the purposes of this Agreement, to
the extent that such payment is or must be rescinded or returned, be deemed to
have continued in existence, notwithstanding such application, except that no
interest shall be charged from the date of application of such payment to the
date of rescission or return of such payment, and the Security Interest granted
hereunder shall continue to be effective or be reinstated, as the case may be,
as to such Liabilities, all as though such application had not been made.
(o) Lender is the current holder of all Liabilities, but, subject to
the Secured Credit Agreement, may in the future transfer, assign or sell certain
Liabilities.
(p) Each Debtor hereby acknowledges that there are no conditions to the
effectiveness of this Agreement.
(q) If any item of Collateral hereunder also constitutes collateral
granted to Lender under any other mortgage, agreement or instrument, in the
event of any conflict between the provisions under this Agreement and those
under such other mortgage, agreement or instrument relating to such Collateral,
the provision or provisions selected by the Lender shall control with respect to
such Collateral.
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<PAGE>
(r) In case of conflict between any provision of this Agreement and any
provision of the Secured Credit Agreement, the provisions of the Secured Credit
Agreement shall control.
SECTION 16. APPLICATION OF INSURANCE PROCEEDS. Any loss benefits under
any of the insurance policies maintained by any Debtor pursuant to SECTION 6(i)
hereof shall be applied in accordance with SECTION 7.6 of the Secured Credit
Agreement.
SECTION 17. LENDER MAY PURCHASE INSURANCE. Unless Debtors provide Lender
with evidence reasonably satisfactory to Lender of the insurance coverage
required by SECTION 6(i) of this Agreement, Lender may purchase insurance at
Debtors' expense to protect Lender's interest in the Collateral. This insurance
may, but need not, protect any Debtor's interest in the Collateral. The
coverage purchased by Lender may not pay any claim made by any Debtor or any
claim made against any Debtor in connection with the Collateral. Debtors may
later cancel any insurance purchased by Lender, but only after providing Lender
with evidence reasonably satisfactory to Lender that Debtors have obtained
insurance as required by SECTION 6(i) of this Agreement. If Lender purchases
insurance for the Collateral, Debtors will be responsible on a joint and several
basis for the costs of that insurance, including interest at the Default Rate
(or such lower maximum rate as shall be legal under applicable law) and any
other charges imposed by Lender in connection with the placement of insurance,
until the effective date of the cancellation or expiration of such insurance.
The costs of the insurance may, at Lender's discretion, be added to the
Liabilities, and in any event shall be secured by the Collateral Documents. It
is understood and agreed that the costs of insurance obtained by Lender may be
more than the costs of insurance any Debtor may be able to obtain on its own.
[remainder of this page intentionally left blank]
-24-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and
year first above written.
ADDRESS: THE ROACH ORGANIZATION, INC.,
c/o TRO Learning, Inc. a Delaware corporation
4660 West 77th Street
Edina, Minnesota 55311 By:
-----------------------------------
Attention: John Murray and Steven R. Schuster
Steven Schuster Vice President
Telecopy:
-------------------------
Telephone:
-------------------------
TRO LEARNING (CANADA), INC., a Canadian
corporation
By:
-----------------------------------
Steven R. Schuster
Vice President
ADDRESS: FIRST SOURCE FINANCIAL LLP, an
c/o First Source Financial, Inc. Illinois registered limited liability
2850 West Golf Road partnership
5th Floor
Delaware By: First Source Financial, Inc., a
Rolling Meadows, Illinois 60008 corporation, its Agent/Manager
Telephone: (847) 734-2000
Telecopy: (847) 734-7910
By:
-----------------------------------
John P. Thacker
Senior Vice President
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF DESIGNATION
TRO LEARNING, INC., a corporation organized and existing under and by virtue of
the General Corporation of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors by the unanimous written consent of
its members, filed with the minutes of the Board, adopted a resolution proposing
and declaring advisable that the following amendment to the Certificate of
Designation of said corporation:
RESOLVED, that the Certificate of Designation of TRO LEARNING, INC.
for 540 shares of Series C Convertible Preferred Stock (the "Preferred Stock")
of the Company filed on January 13, 1999, be amended by changing Sections
5(a)(ii) and 5(a)(iii)(C) of the Certificate of Designation, so that, as
amended, Section 5(a)(ii) shall read as follows:
AUTOMATIC CONVERSION. Subject to the provisions in this
paragraph, all outstanding shares of Preferred Stock for which
conversion notices have not previously been received or for which
redemption has not been made or required hereunder shall be
automatically converted on January 13, 2009 (such date the "AUTOMATIC
CONVERSION DATE"), at the Conversion Price on the Automatic Conversion
Date. The conversion contemplated by this paragraph shall not occur
if (a) either (1) an Underlying Securities Registration Statement is
not then effective or (2) the Holder is not permitted to resell
Underlying Shares pursuant to Rule 144(k) promulgated under the
Securities Act of 1933, as amended (the "Securities Act"), without
volume restrictions; (b) there are not sufficient shares of Common
Stock authorized and reserved for issuance upon such conversion; or
(c) the Company shall have defaulted on its covenants and obligations
hereunder or under the Purchase Agreement or Registration Rights
Agreement. Notwithstanding the foregoing, the period for conversion
under this Section shall be extended (on a day-for-day basis) and
therefore the Automatic Conversion Date shall be deemed to be the date
which is the number of Trading Days that the Purchaser is unable to
resell Underlying Shares under an Underlying Securities Registration
Statement due to (a) the Common Stock not being listed for trading on
the Nasdaq National Market ("NASDAQ") or on the New York Stock
Exchange, American Stock Exchange, or the Nasdaq SmallCap Market
(each, a "SUBSEQUENT MARKET"), (b) the failure of an Underlying
Securities Registration Statement to be declared effective by the
Securities and Exchange Commission (the "COMMISSION") by the
Effectiveness Date (as defined in the Registration Rights Agreement),
or (c) if an Underlying Securities Registration Statement shall have
been declared effective by the Commission, (x) the failure of such
Underlying Securities Registration Statement to remain effective at
all times thereafter as to all Underlying Shares, or (y) the
suspension of the Holder's ability
<PAGE>
to resell Underlying Shares thereunder after the Automatic Conversion
Date originally noted above.
and so that, as amended, Section 5(a)(iii)(C) shall read as follows:
Notwithstanding anything to the contrary set forth herein,
the Company shall not be obligated to issue in excess of 1,151,525
shares of Common Stock upon conversion of Preferred Stock (the
"MAXIMUM SHARE AMOUNT"), which number shall be subject to adjustment
pursuant to Section 5, PROVIDED, however that in the event that the
1999 fiscal year end pre-tax earnings are (i) less than $3,068,000.00,
then the Maximum Share Amount shall be 1,703,470 shares of Common
Stock or (ii) equal to or greater than $3,068,000.00 but less than
$4,763,000.00, then the Maximum Share Amount shall be 1,362,776 shares
of Common Stock. In accordance with the Purchase Agreement such
number of shares of Common Stock shall be available on a pro rata
basis based upon the pro rata purchase price for the Preferred Stock
paid by the original Holders of Preferred Stock. Shares of Common
Stock issued (i) in connection with the Conversion Notice delivered on
January 13, 2001, (ii) on the Automatic Conversion Date pursuant to
SECTION 5(a)(ii), and (iii) in respect of penalties and liquidated
damages hereunder, shall not count towards the Maximum Share Amount
referenced in this paragraph and penalties and liquidated damages
shall be paid in cash unless otherwise agreed to by the Holder.
SECOND: That in lieu of a meeting and vote of the stockholders of the
Preferred Stock, said stockholders have given unanimous written consent to said
amendment in accordance with the provisions of Section 228 of the State of
Delaware.
THIRD: That the aforesaid amendment was duly adopted in accordance
with the applicable provisions of Sections 242 and 228 of the General
Corporation Law of the State of Delaware.
- 2 -
<PAGE>
IN WITNESS WHEREOF, said TRO LEARNING, INC. has caused this
certificate to be signed by John Murray, its Executive Vice President and Chief
Financial Officer, this 5th day of March, 1999.
TRO LEARNING, INC.
By:
-------------------------
John Murray
Its: Executive Vice President and Chief
Financial Officer
- 3 -
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME FOUND IN THE
COMPANY'S FORM 10-Q FOR THE QUARTER ENDED JANUARY 31, 1999 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-END> JAN-31-1999
<CASH> 399
<SECURITIES> 0
<RECEIVABLES> 13205
<ALLOWANCES> 979
<INVENTORY> 656
<CURRENT-ASSETS> 15161
<PP&E> 1194
<DEPRECIATION> 3355
<TOTAL-ASSETS> 23964
<CURRENT-LIABILITIES> 14979
<BONDS> 3050
4184
0
<COMMON> 64
<OTHER-SE> 1217
<TOTAL-LIABILITY-AND-EQUITY> 23964
<SALES> 5661
<TOTAL-REVENUES> 5661
<CGS> 961
<TOTAL-COSTS> 961
<OTHER-EXPENSES> 6931
<LOSS-PROVISION> 312
<INTEREST-EXPENSE> 615
<INCOME-PRETAX> (2846)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2846)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2846)
<EPS-PRIMARY> (0.44)
<EPS-DILUTED> (0.44)
</TABLE>
