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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
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 September 30, 1998
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 33-63274
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CHATWINS GROUP, INC.
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(Exact name of Registrant as specified in its charter)
DELAWARE 74-2156829
- ------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
300 WEYMAN PLAZA, SUITE 340
PITTSBURGH, PENNSYLVANIA 15236
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(Address of principal executive offices, including zip code)
(412) 885-5501
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(Registrant's telephone number, including area code)
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
----- -----
At October 31, 1998, 289,677 shares of common stock, par value $.01 per share,
were outstanding.
Exhibit index is on page 25.
Page 1 of 118 pages.
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CHATWINS GROUP, INC.
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet at
September 30, 1998 and December 31, 1997 3
Condensed Consolidated Statement of Income and
Comprehensive Income for the three and nine
months ended September 30, 1998 and 1997 4
Condensed Consolidated Statement of Cash Flows for
the nine months ended September 30, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits 24
(b) Reports on Form 8-K 24
SIGNATURES 24
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CHATWINS GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
AT SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(in thousands)
At September 30, At December 31,
1998 1997
--------------- --------------
(unaudited)
ASSETS:
Cash and cash equivalents $ 192 $ 734
Receivables, net 36,958 34,246
Inventories, net (note 2) 23,765 16,964
Other current assets 7,686 4,687
-------- --------
Total current assets 68,601 56,631
Property, plant and equipment, net 32,599 31,380
Investments, net 7,751 12,013
Goodwill, net 4,556 4,764
Other assets, net 7,262 6,481
-------- --------
Total assets $120,769 $111,269
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Congress Facility $ 28,194 $ 26,061
Current maturities of debt 25,803 700
Trade payables 23,132 16,239
Other current liabilities 12,063 11,412
-------- --------
Total current liabilities 89,192 54,412
Senior notes due 2003, net 24,959 49,900
Other long-term debt 775 823
Other liabilities 5,241 4,416
-------- --------
Total liabilities 120,167 109,551
Commitments and contingent liabilities (note 5) - -
Minority interests 1,043 1,033
Redeemable preferred stock 8,368 8,026
Warrant value 14 210
Stockholders' equity (note 3) (8,823) (7,551)
-------- --------
Total liabilities and stockholders' equity $120,769 $111,269
======== ========
See accompanying notes to condensed consolidated financial statements.
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CHATWINS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
AND COMPREHENSIVE INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(in thousands, except share and per share information)(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
------- ------- -------- --------
Net sales $50,632 $47,587 $140,961 $138,339
Cost of sales 41,101 38,829 113,019 112,192
------- ------- -------- --------
Gross profit 9,531 8,758 27,942 26,147
Selling, general & administrative 6,232 5,798 18,097 16,623
Other (income) expense, net (5) 4 32 486
------- ------- -------- --------
Operating profit 3,304 2,956 9,813 9,038
Interest expense, net 2,550 2,452 7,450 7,319
Minority interests (2) (2) 17 (104)
------- ------- -------- --------
Income before income taxes and
equity in earnings of affiliate 756 506 2,346 1,823
Provision for income taxes 294 162 914 508
------- ------- -------- --------
Income before equity in earnings
of affiliate 462 344 1,432 1,315
Equity income (loss) from continuing
operations of affiliate (219) 35 (2,284) 5
Equity loss from discontinued
operations of affiliate - - (274) -
------- ------- -------- --------
Net income (loss) and
comprehensive income (loss) $ 243 $ 379 $ (1,126) $ 1,320
======= ======= ======== ========
Earnings applicable to common stock $ 129 $ 265 $ (1,468) $ 978
======= ======= ======== ========
Earnings per common share (basic) $ 0.45 $ 1.09 $ (5.07) $ 4.03
======= ======= ======== ========
Average equivalent common
shares outstanding (basic) 289,677 242,887 289,677 242,887
======= ======= ======== ========
Earnings per common share (diluted) $ 0.44 $ 0.90 $ (5.01) $ 3.34
======= ======= ======== ========
Average equivalent common
shares outstanding (diluted) 292,887 292,887 292,887 292,887
======= ======= ======== ========
See accompanying notes to condensed consolidated financial statements.
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CHATWINS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(in thousands)
(unaudited)
Nine Months Ended
September 30,
1998 1997
------- -------
Cash flow from operating activities:
Net income (loss) and comprehensive income (loss) $(1,126) $ 1,320
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation 3,003 2,589
Amortization 723 669
Provision for losses on inventories - 120
Minority share of income (losses) 17 (104)
Equity in net (income) loss of affiliate 2,558 (5)
Changes in assets and liabilities, net of
the purchase of a business:
Increase in receivables (2,712) (5,216)
Increase in inventories (6,801) (778)
Increase in trade payables 6,893 4,151
Net change in other assets and liabilities (830) 2,537
------- -------
Cash provided by operating activities 1,725 5,283
------- -------
Cash flow from investing activities:
Capital expenditures (4,252) (3,840)
Investment in joint venture (100) -
------- -------
Cash used in investing activities (4,352) (3,840)
------- -------
Cash flow from financing activities:
Repayments of debt (48) (48)
Repayments to related parties - (579)
Net change in Congress Facility 2,133 (513)
Increase in consolidated subsidiary indebtedness - 1
------- -------
Cash provided by (used in) financing activities 2,085 (1,139)
------- -------
Net increase (decrease) in cash and cash equivalents (542) 304
Cash and cash equivalents, beginning of year 734 356
------- -------
Cash and cash equivalents, end of period $ 192 $ 660
======= =======
See accompanying notes to condensed consolidated financial statements.
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CHATWINS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all normal recurring
adjustments considered necessary for a fair statement of the results of
operations have been included. The results of operations for the three and
nine month periods ended September 30, 1998 are not necessarily indicative of
the results of operations for the full year. The results of operations for
the three and nine months ended September 30, 1997 are restated as the result
of an adjustment as discussed in note 2 to the consolidated financial
statements for the year ended December 31, 1997. When reading the financial
information contained in this Quarterly Report, reference should be made to
the financial statements, schedules and notes contained in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997.
NOTE 2: INVENTORIES
Inventories are comprised of the following (in thousands):
At September 30, At December 31,
1998 1997
--------------- --------------
(unaudited)
Raw materials $ 8,119 $ 7,679
Work-in-process 9,597 5,678
Finished goods 6,970 4,501
------- -------
Total inventories 24,686 17,858
Less: LIFO reserves (921) (894)
------- -------
Inventories $23,765 $16,964
======= =======
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NOTE 3: STOCKHOLDERS' EQUITY AND EARNINGS PER SHARE
The following represents a reconciliation of the change in stockholders'
equity for the nine month period ended September 30, 1998 (in thousands):
Par Capital Accum-
Value in ulated
of Trea- Excess Notes Accum- Trans-
Common sury of Par Receiv- ulated lation
Stock Stock Value able Deficit Adjmt. Total
------ ----- ------- ------- -------- ------ --------
At January 1,
1998 $ 3 $(500) $1,664 $(1,001) $ (7,029) $(688) $ (7,551)
Activity
(unaudited):
Net loss - - - - (1,126) - (1,126)
Preferred stock
accretions - - - - (342) - (342)
Warrant
redemption - - 196 - - - 196
--- ----- ------ ------- -------- ----- --------
At September 30,
1998 $ 3 $(500) $1,860 $(1,001) $ (8,497) $(688) $ (8,823)
=== ===== ====== ======= ======== ===== ========
The computations of basic and diluted earnings per common share (EPS) for
the nine month periods ended September 30, 1998 and 1997 are as follows (in
thousands, except share and per share amounts)(unaudited):
Income Shares EPS
-------- -------- -------
Nine months ended September 30, 1998:
Net loss $ (1,126)
Less: Preferred stock dividend accretions (342)
--------
Income available to common stockholders,
shares outstanding and basic EPS (1,468) 289,677 $ (5.07)
=======
Dilutive effect of Warrants 3,210
-------- --------
Income available to common stockholders,
shares outstanding and diluted EPS $ (1,468) 292,887 $ (5.01)
======== ======== =======
Nine months ended September 30, 1997:
Net income as restated (note 1) $ 1,320
Less: Preferred stock dividend accretions (342)
--------
Income available to common stockholders,
shares outstanding and basic EPS 978 242,887 $ 4.03
=======
Dilutive effect of Warrants 50,000
-------- --------
Income available to common stockholders,
shares outstanding and diluted EPS $ 978 292,887 $ 3.34
======== ======== =======
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NOTE 4: RELATED PARTY TRANSACTIONS
The Company has a consulting agreement with Stanwich Partners, Inc. under
which $75,000 and $225,000 were expensed in each of the three and nine month
periods ended September 30, 1998 and 1997, respectively.
During 1997 and the first nine months of 1998, the Company entered into
various operating lease agreements with CPS Leasing, Inc. (CPSL), a company
owned 80% by Consumer Portfolio Services and 20% by Charles E. Bradley Jr.,
President of Consumer Portfolio Services, a director of the Company and son of
Charles E. Bradley Sr., Chairman of the Board, Director and a beneficial
shareholder of the Company. During the first nine months of 1998, the Company
made lease payments totaling $131,883 to CPSL.
NOTE 5: COMMITMENTS AND CONTINGENT LIABILITIES
The Company is involved in various litigation matters in the ordinary
course of business. In the opinion of management, settlement of these various
litigation matters and other contingent matters will not have any material
effect on the Company's financial position. The Company does not have any
adverse commitments at September 30, 1998.
NOTE 6: OPERATING SEGMENT DISCLOSURES
The Company considers its separately identifiable divisions to be its
operating segments pursuant to the management approach. The following
represents a description of each division and a disaggregation of certain
financial information by operating segment for the nine month periods ended
September 30, 1998 and 1997.
Alliance - Alliance designs, engineers and manufactures cranes used in a
wide range of steel and aluminum mill applications and large special purpose
cranes used in marine and aerospace applications and heavy industrial plants.
Alliance also manufactures lighter duty cranes for various industrial
applications, coke oven machinery and other large steel-related fabrications.
In recent years, Alliance has expanded and diversified its engineering and
manufacturing capabilities to offer a variety of equipment and related
engineering, fabrication, maintenance and repair services.
Auto-Lok - Auto-Lok manufactures high quality roll formed and structural
steel fabricated storage racks for industrial and commercial handling systems
and general storage applications. In addition, Auto-Lok participates on
larger contracts in the sale of total material handling systems through
purchasing and reselling related components such as decking and carton flow
devices, and subcontracting of rack erection.
CPI - CPI specializes in manufacturing large, seamless pressure vessels
for the above ground storage and transportation of highly pressurized gases
such as natural gas, hydrogen, nitrogen, oxygen and helium. These pressure
vessels are provided to customers such as industrial gas producers and
suppliers, the alternative fueled vehicle compressed natural gas fuel
industry, chemical and petrochemical processing facilities, shipbuilders,
NASA, public utilities and gas transportation companies.
Hanna - Hanna designs and manufactures a broad line of hydraulic and
pneumatic cylinders, actuators, accumulators and manifolds. These products
are used in a wide variety of industrial and mobile machinery and equipment
requiring the application of force in a controlled and repetitive process.
Hanna's specialty is custom cylinders in both small quantities packaged by its
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distributors with valves, pumps and controls as complete fluid power systems
and large quantities sold directly to equipment manufacturers.
Klemp - Klemp is a highly diversified manufacturer of metal grating
products. Klemp manufactures quality steel and aluminum bar grating products
in a variety of sizes, configurations and finishes, and also custom fabricates
bar grating products for specialized applications. Klemp products are sold
for use in many industrial applications where a combination of strength, light
weight, access and a free flow of air, heat, water or light is desired. Its
products are used in water and wastewater treatment plants, railroad tank
cars, petroleum storage facilities, aircraft, mines, roads, bridge decks and
general manufacturing facilities.
Steelcraft - Steelcraft manufactures and sells cold-rolled steel leaf
springs. Its principal customers are manufacturers of trailers for boats,
small utility vehicles and golf carts and makers of recreational vehicles and
agricultural trailers.
The following represents the disaggregation of financial data at and for
the nine months ended September 30, 1998 and 1997 (in thousands)(unaudited):
Total
Net Sales EBITDA(1) Assets(2)
--------- --------- ---------
Nine months ended
September 30, 1998:
Alliance $ 31,502 $ 2,559 $ 18,866
Auto-Lok 19,427 1,391 10,758
CPI 19,766 4,038 19,691
Hanna 25,131 4,152 16,937
Klemp(3) 42,011 2,220 33,290
Steelcraft 3,124 589 1,895
Headquarters/Other - (1,787) 19,332
-------- -------- --------
Totals $140,961 13,162 $120,769
======== ========
Depreciation and amortization (3,726)
Interest expense(4) (7,090)
--------
Income before income taxes $ 2,346
========
Nine months ended
September 30, 1997:
Alliance $ 30,864 $ 2,812 $ 14,659
Auto-Lok 20,032 615 9,758
CPI 20,172 4,250 15,759
Hanna 25,612 3,478 16,437
Klemp(3) 38,237 2,223 29,832
Steelcraft 3,287 601 1,672
Headquarters/Other 135 (1,948) 21,326
-------- -------- --------
Totals $138,339 12,031 $109,443
======== ========
Depreciation and amortization (3,285)
Interest expense(4) (6,923)
--------
Income before income taxes $ 1,823
========
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(1) EBITDA is presented due to its relationship to the Company's financial
covenants benefitting the Senior Notes (as defined).
(2) Headquarters total assets at September 30, 1998 and 1997 are primarily
comprised of deferred tax assets and the Company's investment in Reunion
common stock.
(3) Financial data of Klemp de Mexico and Shanghai Klemp are reported as part
of the Klemp division.
(4) Excludes amortization of debt issuance expenses of $360,000 and $396,000
for the nine month periods ended September 30, 1998 and 1997, respectively.
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
GENERAL
During 1997 and the first nine months of 1998, the Company's
organizational structure included six divisions that design, manufacture and
market metal products, two majority-owned foreign joint ventures which
manufacture and fabricate metal grating, an oil and gas division and an equity
investment in Reunion Industries, Inc. (Reunion). During 1997 and the first
nine months of 1998, substantially all of the Company's operations related to
metal products.
On June 20, 1995, the Company acquired 1,450,000 shares of Reunion common
stock constituting approximately 38% of the then outstanding common stock of
Reunion. Reunion is primarily engaged in the manufacture of high volume,
precision plastics products, providing engineered plastics services and
compounding and molding thermoset polyester resins. Reunion also has wine
grape agricultural operations in Napa County, California. The Company's
investment in Reunion is being accounted for under the equity method of
accounting. The Company's proportional share of Reunion's operating results
is included in the accompanying condensed consolidated statement of income for
the three and nine month periods ended September 30, 1998 and 1997 as equity
income (loss) from operations of affiliate. See "Recent Developments - Other
Matters", "Termination of Merger Agreement with Reunion" and "Results of
Operations" below.
In connection with the acquisition of the Reunion common stock, on June
20, 1995, the Company and State Street Bank and Trust Company (Trustee), as
successor trustee to the indenture dated as of May 1, 1993 (Indenture)
pursuant to which the Company issued $50 million principal amount of 13%
senior notes (Senior Notes), agreed to a first supplemental indenture and
waiver of covenants of the Indenture under which the Senior Notes are issued.
Pursuant to this supplemental indenture, the Company agreed to offer to
purchase $25.0 million (representing 50% of the originally issued principal
amount of the Senior Notes) from Senior Notes holders on each of June 1, 1999
and 2000 at an amount equal to 100% of the aggregate outstanding principal
amount thereof, plus unpaid interest to the purchase date. The Company has
classified the principal amount of the first purchase offer as current
maturities of long-term debt in its consolidated balance sheet at September
30, 1998 included herein. See "Liquidity and Capital Resources."
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RECENT DEVELOPMENTS
New Credit Facility
On October 30, 1998, the Company and NationsBank, N.A. (NationsBank), a
national banking association, executed a financing and security agreement
(Financing Agreement) wherein NationsBank has provided the Company with a
revolving credit facility (NationsBank Facility) of up to a maximum principal
amount of $40.0 million, including a letter of credit facility of up to $5.0
million.
The NationsBank Facility includes a Special Availability Amount, as
defined in the Financing Agreement, of $6.0 million. The Special Availability
Amount is required to be reduced in $750,000 increments on each of February 1,
May 1, August 1 and November 1 in each of the years 1999 and 2000. Once
reduced, the Special Availability Amount may not be reborrowed. Availability
under the NationsBank Facility is subject to a borrowing base limitation
calculated as the aggregate of 85% of eligible accounts receivable plus the
lesser of $15.0 million or the sum of 60% of finished goods and raw materials,
50% of supplies and stores, a percentage, determined from time to time by
NationsBank, of work-in-process and the Special Availability Amount in effect
at the time of the calculation, all of the above as defined in the Financing
Agreement. Interest under the NationsBank Facility is determined by reference
to various rates including the NationsBank prime rate, the Federal Funds rate
or LIBOR, each plus an applicable margin. The Company may elect the rates
upon notification to NationsBank with applicable margins ranging from zero to
0.5% when using either the NationsBank prime rate or the Federal Funds rate
and from 2.0% to 2.75% when using LIBOR.
The NationsBank Facility is secured by a lien in favor of NationsBank on
the Company's accounts receivable, inventory and certain other property and
accounts to the extent necessary to permit foreclosure on the accounts
receivable and inventory. The Financing Agreement expires on October 31, 2001
and is renewable annually thereafter, subject to the approval of NationsBank,
but not beyond October 31, 2005.
Contemporaneously with the execution of the Financing Agreement on
October 30, 1998, the Company borrowed a total of $28.9 million under the
NationsBank Facility, $28.1 million of which was used to repay, in total,
borrowings, interest and fees under the Company's then existing revolving
credit facility (Congress Facility) with Congress Financial Corporation
(Congress) and $0.8 million of which was placed on deposit with Congress as
cash collateral for unexpired letters of credit. Such cash collateral will be
returned to the Company upon the expirations of the related letters of credit.
The Company and Congress agreed to terminate the Congress Facility upon
execution of the Financing Agreement. On November 2, 1998, the Company
borrowed an additional $3.25 million under the NationsBank Facility to fund
its semiannual interest payment on the Senior Notes.
The NationsBank Facility includes various representations, warranties and
affirmative and negative covenants by the Company and provides NationsBank
with certain rights and remedies in the event of any defaults including, but
not limited to, acceleration of all amounts borrowed under the NationsBank
Facility.
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Exercise of Warrants
Pursuant to a Warrant Agreement dated as of May 1, 1993 (Warrant
Agreement), the Company issued 50,000 warrants (Warrants), each of which
entitles the holder thereof to purchase one share of the common stock of the
Company at an exercise price of $.01 per share. The Warrants were issued in a
transaction pursuant to which the Company issued $50 million of 13% senior
notes (Senior Notes). The Warrants were not exercisable except upon the
occurrence of certain Trigger Events as defined in the Warrant Agreement or,
if no Trigger Event had occurred prior to May 3, 1998, upon the Company's
failure to consummate a Repurchase Offer due to a Payment Blockage, both as
defined in the Warrant Agreement. No Trigger Event had occurred through May
3, 1998 and a Payment Blockage existed on such date, resulting in the Warrants
becoming exercisable as of May 3, 1998. Consistent with the Warrant
Agreement, the Company notified holders of the Warrants of the existence of a
Payment Blockage within 30 days of such date. Due to the prospective merger
with Reunion, the Company simultaneously gave holders of the Warrants a Bring
Along Notice (as defined in the Warrant Agreement) notifying them that their
Warrants would lapse if not exercised within thirty days. The thirty-day
period was subsequently extended indefinitely when the merger with Reunion was
delayed. The Merger Agreement with Reunion has been terminated by mutual
agreement. See "Termination of Merger Agreement with Reunion." Although the
Merger Agreement has been terminated, the Warrants continue to be exercisable
due to the existence of a Payment Blockage. Through the date of this
Quarterly Report on Form 10-Q, 46,790 Warrants have been exercised at $.01 per
share resulting in the issuance of 46,790 shares of the Company's common stock
outstanding. See "Liquidity and Capital Resources."
The Company previously notified its warrantholders that because of the
announcement of its prospective merger with Reunion, the Company's
registration statement on Form S-1 filed with the Securities and Exchange
Commission could not be used in connection with any resale of the Warrants or
the Company's common stock underlying the Warrants and would remain
unavailable until further notice. Accordingly, any transactions in the
Warrants or the Company's common stock into which the Warrants are
convertible, other than the conversion itself, must meet the conditions of
Rule 144A or another exemption from the registration requirements of the
Securities Act of 1933. Although the Merger Agreement between the Company and
Reunion has been terminated, the registration statement remains unavailable
until updated by the Company. The Company will update and restore the
availability of this registration statement in the near future. See
"Termination of Merger Agreement with Reunion" and "Liquidity and Capital
Resources."
Default Under Indenture
In May of 1998, the Company executed a joint venture agreement pursuant
to which it contributed $100,000 to Suzhou Grating, Ltd., a fiberglass
reinforced plastic grating manufacturer in China. The investment constitutes
a default under the Indenture.
In May of 1998, Mr. Bradley transferred all of his shares of the
Company's common stock to the Charles E. Bradley, Sr. Family Limited
Partnership (Bradley FLP). Because the Bradley FLP has granted voting control
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over such shares to Stanwich Partners, Inc. which in turn has granted voting
control over such shares to Mr. John G. Poole, a director of the Company, Mr.
Bradley does not have sole voting control over such shares of the Company's
common stock thereby causing a breach of the Securities Pledge Agreement (as
defined in the Indenture) for which there is no remedy provided under the
Securities Pledge Agreement but which creates a default under the Indenture.
The Indenture provides that neither of the aforementioned defaults will
mature into an Event of Default subject to the remedies therein provided,
including acceleration of the Senior Notes, until the Trustee under the
Indenture or the holders of at least twenty-five percent (25%) of the Senior
Notes notify the Company of the default and the default remains unremedied for
thirty (30) days after said notice. As of the date of this Quarterly Report
on Form 10-Q, the Company had not received notice from either the Trustee or
any Senior Note holders. Although the Company does not expect either of these
two defaults to mature into an Event of Default, there can be no assurance
that an Event of Default will not result from these defaults.
Other Matters
On May 1, 1998, approximately 75 employees of the Company's Klemp
division in Chicago, IL represented by the International Association of
Bridge, Structural and Ornamental Iron Workers (Union) went on strike citing
differences over wage increases and other benefits. Such employees had been
working under a collective bargaining agreement which expired on April 30,
1998. By a vote of the Union's membership on May 19, 1998, a new contract was
ratified and the strike ended on May 22, 1998. This strike adversely affected
the second quarter 1998 results of operations of the Company's Klemp division.
See "Results of Operations."
As previously reported by Reunion, on April 24, 1998, a jury in state
district court in Harris County, Texas returned jury verdict findings against
Reunion related to a November 1995 contract for the sale of all outstanding
shares of capital stock of Reunion's wholly owned oil and gas subsidiary to
Bargo Energy Company (Bargo). The jury found that Bargo had a right to
terminate the November 1995 stock purchase agreement with Reunion and that
Reunion fraudulently induced Bargo into entering into the agreement. In July
1998, the court entered judgement affirming the $5.0 million punitive damages
jury verdict and awarded approximately $3.0 million in attorneys' fees and
costs. Reunion maintained at trial and continues to maintain that all
requirements to closing under the contract were met, and that Bargo was
required to close the transaction. Reunion's management continues to maintain
that no evidence sufficient to support a jury finding of fraud or related
punitive damages was presented at trial. Reunion has filed a bond which
suspends execution on the judgment while it appeals. Reunion has filed a
formal notice of appeal and intends to file its appeal as soon as possible.
However, Reunion's management has informed the Company that although it
believes, based on consultation with counsel, that it is more likely than not
that the judgment will be overturned on appeal, Reunion has recorded an
accrual of $8.8 million for the amount of the judgment by a charge to its
continuing operations for the second quarter of 1998 in accordance with
generally accepted accounting principles. The Company's results of operations
for the nine months ended September 30, 1998 and the carrying value of the
Company's investment in Reunion common stock on the equity method of
accounting were adversely affected by this action. See "Results of
Operations."
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TERMINATION OF MERGER AGREEMENT WITH REUNION
In a press release on October 20, 1998, the Company announced that the
May 31, 1998 Merger Agreement between the Company and Reunion was terminated
by mutual agreement. The Company reported that this decision was made as a
result of Reunion's inability to arrange sufficient refinancing of all of the
debt of the combined companies under existing market conditions. The Company
intends to pursue reconsideration of the prospective merger as market
conditions permit. There can be no assurances that Reunion and the Company
would agree on the terms of a merger in the future or, if terms are agreed to,
a merger would be consummated.
KING-WAY
On November 3, 1997, Stanwich Acquisition Corporation (SAC) acquired the
King-Way Material Handling Company business (Kingway) from the Kingston-Warren
Corporation for a purchase price of $18.1 million. SAC is a privately-held
company whose common stock is owned 42.5% by Mr. Charles E. Bradley Sr. (Mr.
Bradley) (Chairman of the Board and Director of Chatwins), 42.5% by Mr.
Kimball J. Bradley (Senior Vice President and shareholder of Chatwins and son
of Mr. Bradley) and 15% by Mr. Richard L. Evans (Executive Vice President,
Chief Financial Officer and Secretary of Reunion). Similar to Auto-Lok, King-
way is in the business of producing industrial and commercial storage racks
and materials handling systems.
At the time King-Way was available for purchase, the Company's management
was desirous of acquiring King-Way as a strategic acquisition by its Auto-Lok
division as King-Way's computerized systems were thought to be an important
line extension to Auto-Lok's more traditional storage and materials handling
systems. The Company was not, however, able to consummate the acquisition
because of restrictions under its existing financing documents. Mr. Bradley
therefore organized and capitalized SAC to acquire and hold King-Way until
such time as it could be acquired by the Company.
Because King-Way had been operating as a division of Kingston-Warren
Corporation, it was necessary to establish King-Way's business in new
facilities with appropriate overhead support. Meanwhile, Auto-Lok possessed
surplus floor space, production workforce, administrative organization and
equipment that could be utilized to continue King-Way's operations.
Accordingly, SAC and Auto-Lok entered into a service agreement pursuant to
which King-Way would utilize Auto-Lok's surplus capacity in exchange for fees
approximately equal to Auto-Lok's costs of providing the surplus capacity plus
a right of first negotiation to acquire King-Way from SAC. The integration of
King-Way's business into Auto-Lok's facility took place primarily during the
first quarter of 1998 with King-Way's initial operations at such facility
beginning in April 1998. Through September 30, 1998, costs totalling $836,744
have been allocated to Kingway from Auto-Lok.
PRIOR PERIOD ADJUSTMENT
The Company restated its consolidated financial statements at and for the
years ended December 31, 1996 and 1995 in the Company's annual report on Form
10-K for the year ended December 31, 1997 as filed with the Securities and
Exchange Commission on April 15, 1998 to correct errors in the recorded book
value of inventory at one of the Company's significant divisions. In early
1998, the Company's corporate management became aware of an overstatement in
<PAGE>
<PAGE> 15
the December 31, 1997 recorded book value of inventory at its Klemp division
in the aggregate amount of $2,239,000. The overstatement came to the
attention of the Company's corporate management as a result of physical counts
made at year end 1997. A review of this difference by corporate management
led to the discovery that quantities and costing standards used to value
inventory at the Klemp division had been overstated in prior periods and that
such overstatements had intentionally not been disclosed to the Company's
corporate management by Klemp division management. Of the $2,239,000,
$158,000 relates to 1997, $338,000 relates to 1996 and $312,000 relates to
1995. The remainder relates to periods prior to 1995. Of the $158,000 that
relates to 1997, $40,000 each relates to the first, second and third quarters
of 1997. The condensed consolidated statements of income for the three and
nine month periods ended September 30, 1997 presented herein have been
restated accordingly.
THE YEAR 2000 (Y2K)
The Company, like most companies, utilizes electronic technology which
includes computer hardware and software systems that process information and
perform calculations that are date- and time-dependent. The Company is aware
that the coming of Y2K poses pervasive and complex problems in that virtually
every computer operation, unless it is Y2K compliant, will be affected in some
way by the rollover of the two-digit year value from "99" to "00" and the
inadvertent recognition by the electronic technology of "00" as the year 1900
rather than Y2K. The Company is also aware that it may not only be negatively
impacted by the failure of its own systems to be Y2K compliant, but may also
be negatively impacted by the Y2K non-compliance of its vendors, customers,
lenders and any other party with which the Company transacts business.
In 1995, the Company undertook a project to invest in and install a time-
critical manufacturing and management information system at certain of its
significant divisions in an effort directed towards the goals of cost savings
and improved information flow by substantially improving all operational
processes. Y2K compliant technology is part of this system and the Company
anticipates no material adverse effects to its new operating systems from Y2K.
In addition to internal Y2K compliance, the Company is surveying all
significant vendors, customers, lenders and other outside parties with which
it transacts business in an effort to identify Y2K non-compliance by such
parties. Results indicate that those important parties with which the Company
does business will be substantially Y2K compliant by the end of 1998.
The Company has incurred and expects to continue to incur internal staff
and other costs as a result of modifying existing systems to be Y2K compliant.
Such costs will continue to be expensed as incurred and funded through
internally generated cash while costs to acquire new equipment and software
will be capitalized and depreciated over their useful lives. Management does
not expect the incremental cost to the Company of enterprise-wide Y2K
compliance to be material to its operations but recognizes that the failure of
the Company or any party with which the Company conducts business to be Y2K
compliant in a timely manner could have a material adverse impact on the
operations of the Company.
NEW ACCOUNTING PRONOUNCEMENT
In February 1998, The FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." SFAS No. 132 revises
employers' disclosures about pensions and other postretirement benefit plans
<PAGE>
<PAGE> 16
but does not change the measurement or recognition of those plans. SFAS No.
132 is effective for fiscal years beginning after December 15, 1997. The
Company expects to adopt SFAS No. 132 in 1998. Although this statement will
require the Company to evaluate its current reporting and disclosure
requirements, its adoption is not expected to affect amounts recorded in the
primary consolidated financial statements.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This Quarterly Report on Form 10-Q contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1993, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
including statements regarding, among other things, growth strategies and
penetrations of new markets, mergers and joint ventures, financings and/or
refinancings, transactions with affiliates and the effects of Y2K on
electronic technology on which the Company is directly or indirectly
dependent. These forward-looking statements are based largely on the
Company's expectations and are subject to a number of risks, uncertainties and
restrictions, certain of which are beyond the Company's control. Actual
outcomes could differ from these forward-looking statements as a result of,
among other things, adverse economic conditions, competition, demand for the
Company's and competitors' products, financing and/or refinancing difficulties
and unanticipated Y2K noncompliance effects. In light of these risks,
uncertainties and restrictions, there can be no assurance that actual outcomes
will equal or approximate the forward-looking statements. Furthermore, the
Company undertakes no obligation to publicly update or revise any forward-
looking statement whether as a result of new information, future events or
otherwise.
RESULTS OF OPERATION
Nine Months Ended September 30, 1998 Compared to
Nine Months Ended September 30, 1997
Net sales for the first nine months of 1998 totalled $141.0 million,
compared to $138.3 million for the first nine months of 1997. Sales for the
first nine months of 1998 increased $2.7 million, or approximately 2%,
compared to the first nine months of 1997. The increase in sales was
primarily at Klemp and Alliance, partially offset by decreases at the
remaining divisions. Klemp's sales, including its international entities,
increased $3.8 million and Alliance's sales increased $0.6 million. Sales
decreased $0.6 million at Auto-Lok, $0.5 million at Hanna and $0.4 million at
CPI. The increase in sales at Klemp reflects an improving domestic market
trend over the softening in its markets which began in 1996 and continued
through much of 1997 and the ramp-up in operations at Shanghai Klemp which had
an increase in sales of $1.2 million. Additionally, Klemp de Mexico's sales
increased $1.1 million. The decrease in sales at Hanna was primarily in its
mobile cylinder line, reflective of lower order levels during the first nine
months of 1998 from a single customer, a trend which is expected to reverse in
the fourth quarter. Decreases at CPI and Auto-Lok were general in nature and
not indicative of adverse trends.
Gross profit for the first nine months of 1998 was almost $28.0 million,
compared to almost $26.2 million for the first nine months of 1997. First
nine months 1998 gross profit increased $1.8 million, or 7%. Gross profit
margin was 19.8% in the first nine months of 1998, compared to 18.9% in the
<PAGE>
<PAGE> 17
comparable 1997 period. Gross profit during the first nine months of 1998
compared to 1997 improved $0.8 million at Hanna, $0.7 million at Auto-Lok and
$0.5 million at Klemp, all of which was at the foreign subsidiaries primarily
due to increases in their volumes. Gross profit margin was also up at Hanna
and Auto-Lok but down at Klemp. Gross profits and gross profit margins at the
other divisions of the Company either increased or decreased slightly,
primarily as the result of increases or decreases in their respective volumes.
Although Hanna's overall volume decreased in the first nine months of 1998
compared to 1997, the increase in gross profit and margin at Hanna was
primarily due to the efficiencies of the increased volume in its industrial
cylinder line, which has higher margin products than its mobile cylinder line.
Although Auto-Lok's overall volume decreased in the first nine months of 1998
compared to 1997, the increase in gross profit and margin at Auto-Lok was
primarily due to the absorption of a portion of the Auto-Lok facility's fixed
and semi-variable overhead costs by King-Way's operations beginning in April
1998. See "King-Way." Although Klemp's overall domestic volume increased in
the first nine months of 1998 compared to 1997, domestically gross profit and
margin were down primarily due to the three week strike at its Chicago plant
and the resulting inability to absorb fixed costs. See "Recent Developments -
Other Matters."
Selling, general and administrative (SGA) expenses for the first nine
months of 1998 were $18.1 million, compared to $16.6 million for the first
nine months of 1997. SGA expenses as a percentage of sales increased to 12.8%
for the first nine months of 1998 compared to 12.0% in the first nine months
of 1997. The increase in SGA as a percentage of sales occurred during the
first half of 1998 and was due to an overall increase in administrative
spending at most divisions due to management hirings and increased domestic
and international marketing efforts.
Other expense for the first nine months of 1998 was less than $0.1
million, compared to $0.5 million for the first nine months of 1997, a net
decrease of $0.4 million. There were no individually significant or
offsetting items in the first nine months of either 1998 or 1997.
Interest expense, net, for the first nine months of 1998 was $7.45
million, compared to $7.32 million for the first nine months of 1997. In
general, average borrowing levels under the Congress facility increased during
the third quarter of 1998 when compared to the third quarter of 1997 as a
result of an increase in net working capital (defined as receivables and
inventories less trade payables).
Minority interests represent results during the first nine months of 1998
and 1997 allocated to the minority ownerships of the Company's CFI-Klemp and
Shanghai Klemp joint ventures. Minority interests are calculated based on the
percentage of minority ownership.
There was a tax provision of $0.9 million in the first nine months of
1998, compared to $0.5 million in the first nine months of 1997. The increase
in the tax provision for the 1998 first nine months compared to the 1997 first
nine months was primarily due to the increase in pre-tax income and a $0.3
million reduction in the valuation allowance for deferred tax assets during
the first nine months of 1997.
The Company's results of operation for the first nine months of 1998 and
the carrying value of the Company's investment in Reunion common stock on the
equity method of accounting were adversely affected by Reunion's results of
<PAGE>
<PAGE> 19
operation for the first nine months of 1998 which included an $8.8 million
charge to its second quarter continuing operations resulting from an adverse
litigation judgment entered against Reunion (see "Recent Developments - Other
Matters") and a $1.2 million charge to its second quarter discontinued
operations related to environmental remediation costs for certain Louisiana
oil and gas properties. The equity losses of $2.6 million in the first nine
months of 1998 represent the Company's proportionate share of Reunion's first
nine months 1998 results, compared to nearly zero for the first nine months of
1997.
Three Months Ended September 30, 1998 Compared to
Three Months Ended September 30, 1997
Net sales for the third quarter of 1998 totalled $50.6 million, compared
to $47.6 million for the third quarter of 1997. Sales for the third quarter
of 1998 increased $3.0 million, or over 6%, compared to the third quarter of
1997. In general, all significant divisions of the Company showed increased
sales in the third quarter of 1998 compared to the third quarter of 1997.
Sales increased $1.3 million at Klemp, of which $0.6 million was from the
foreign subsidiaries, $0.6 million at Hanna, $0.5 million each at Alliance and
CPI, and $0.3 million at Auto-Lok. These sales increases were general in
nature and the result of increased shipment levels in the third quarter of
1998 compared to 1997.
Gross profit for the third quarter of 1998 was almost $9.6 million,
compared to $8.8 million for the third quarter of 1997. Third quarter 1998
gross profit increased $0.8 million, or 9%. Gross profit margin was 18.8% in
the third quarter of 1998, compared to 18.4% in the comparable 1997 period.
Except for Alliance, gross profits and gross margins during the third quarter
of 1998 compared to 1997 improved at all significant divisions of the Company,
primarily as a result of the efficiencies of increase volumes. Auto-Lok's
gross profit and margin improved also as a result of its increased ability to
absorb overhead costs by King-Way's operations beginning in April 1998. See
"King-Way." Although Alliance's overall volume increased in the third quarter
of 1998 compared to 1997, the decrease in gross profit and margin was
primarily due to a lower margin product mix.
Selling, general and administrative (SGA) expenses for the third quarter
of 1998 were $6.2 million, compared to $5.8 million for the third quarter of
1997. SGA expenses as a percentage of sales increased to 12.3% for the third
quarter of 1998 compared to 12.2% in the third quarter of 1997. The increase
in SGA was due to an overall increase in administrative spending at most
divisions due to management hirings and increased domestic and international
marketing efforts.
Other income for the third quarters of 1998 and 1997 was almost zero.
There were no individually significant or offsetting items in the first nine
months of either 1998 or 1997.
Interest expense, net, for the third quarter of 1998 was almost $2.6
million, compared to almost $2.5 million for the third quarter of 1997. In
general, average borrowing levels under the Congress facility increased during
the third quarter of 1998 when compared to the third quarter of 1997 as a
result of an increase in net working capital (defined as receivables and
inventories less trade payables).
Minority interests represent results during the third quarters of 1998
<PAGE>
<PAGE> 20
and 1997 allocated to the minority ownerships of the Company's CFI-Klemp and
Shanghai Klemp joint ventures. Minority interests are calculated based on the
percentage of minority ownership.
There was a tax provision of $0.3 million in the third quarter of 1998,
compared to just under $0.2 million in the third quarter of 1997. The
increase in the tax provision for the 1998 third quarter compared to the 1997
third quarter was primarily due to an increase in pre-tax income and a $0.1
million reduction in the valuation allowance for deferred tax assets during
the third quarter of 1997 which did not recur in the third quarter of 1998.
The equity loss of $0.2 million in the third quarter of 1998 represents
the Company's proportionate share of Reunion's third quarter 1998 results,
compared to a less than $0.1 million equity income in the third quarter of
1997.
LIQUIDITY AND CAPITAL RESOURCES
General
The Company manages its liquidity as a consolidated enterprise. The
operating divisions of the Company carry minimal cash balances. Until October
30, 1998, the effective date of the NationsBank Facility (see "Recent
Developments - New Credit Facility" and below), cash generated from the
divisions' operating activities generally was used to repay previous
borrowings under the Congress Facility, as well as other uses (e.g. corporate
headquarters expenses, debt service, capital expenditures, etc.). Conversely,
cash required for the divisions' operating activities generally was provided
from funds available under the Congress Facility. Although the Company
operates in relatively mature markets, it intends to continue to invest in and
grow its businesses through selected capital expenditures as cash generation
permits. Management believes that all required principal and interest
payments, as well as capital expenditures, will be met by cash flows from
operations and/or borrowings under the NationsBank Facility or other financing
or refinancing arrangements, if necessary.
On October 30, 1998, the Company and NationsBank executed the Financing
Agreement wherein NationsBank has provided the Company with the NationsBank
Facility of up to a maximum principal amount of $40.0 million, including a
letter of credit facility of up to $5.0 million.
The NationsBank Facility includes a Special Availability Amount, as
defined in the Financing Agreement, of $6.0 million. The Special Availability
Amount is required to be reduced in $750,000 increments on each of February 1,
May 1, August 1 and November 1 in each of the years 1999 and 2000. Once
reduced, the Special Availability Amount may not be reborrowed.Availability
under the NationsBank Facility is subject to a borrowing base limitation
calculated as the aggregate of 85% of eligible accounts receivable plus the
lesser of $15.0 million or the sum of 60% of finished goods and raw materials,
50% of supplies and stores, a percentage, determined from time to time by
NationsBank, of work-in-process and the Special Availability Amount in effect
at the time of the calculation, all of the above as defined in the Financing
Agreement. Interest under the NationsBank Facility is determined by reference
to various rates including the NationsBank prime rate, the Federal Funds rate
or LIBOR, each plus an applicable margin. The Company may elect the rates
upon notification to NationsBank with applicable margins ranging from zero to
0.5% when using either the NationsBank prime rate or the Federal Funds rate
<PAGE>
<PAGE> 21
and from 2.0% to 2.75% when using LIBOR.
The NationsBank Facility is secured by a lien in favor of NationsBank on
the Company's accounts receivable, inventory and certain other property and
accounts to the extent necessary to permit foreclosure on the accounts
receivable and inventory. The Financing Agreement expires on October 31, 2001
and is renewable annually thereafter, subject to the approval of NationsBank,
but not beyond October 31, 2005.
Contemporaneously with the execution of the Financing Agreement on
October 30, 1998, the Company borrowed a total of $28.9 million under the
NationsBank Facility, $28.1 million of which was used to repay, in total,
borrowings, interest and fees under the Congress Facility and $0.8 million of
which was placed on deposit with Congress as cash collateral for unexpired
letters of credit. Such cash collateral will be returned to the Company upon
the expirations of the related letters of credit. The Company and Congress
agreed to terminate the Congress Facility upon execution of the Financing
Agreement. On November 2, 1998, the Company borrowed an additional $3.25
million under the NationsBank Facility to fund its semiannual interest payment
on the Senior Notes.
The NationsBank Facility includes various representations, warranties and
affirmative and negative covenants by the Company and provides NationsBank
with certain rights and remedies in the event of any defaults including, but
not limited to, acceleration of all amounts borrowed under the NationsBank
Facility.
Under the Congress Facility, the Company was subject to compliance with
various covenants, representations and warranties, all as defined in the Loan
and Security Agreement (Loan Agreement) between Congress and the Company. The
Maximum Credit (as defined in the Loan Agreement) under the Congress Facility
was temporarily increased to $30.0 million pursuant to an April 28, 1998
amendment as discussed below. At September 30, 1998, the Company was in
compliance with all covenants and there were no events of default under the
Congress Facility. Borrowings outstanding under the Congress Facility at
September 30, 1998 totalled $28.2 million.
On April 28, 1998, the Congress Facility was amended to provide a
temporary increase in the Maximum Credit to $30.0 million from $28.0 million
and a temporary $3.0 million overadvance availability. The proceeds from this
$3.0 million overadvance were used for various purposes, including the
Company's May 1, 1998 $3.25 million interest payment on its Senior Notes.
Additionally, as part of this amendment, the expiration date of the Loan
Agreement was extended to August 31, 1998. On August 18, 1998, the Congress
Facility was further amended to extend the Maximum Credit temporary increase
period and further extend the expiration date of the Loan Agreement to October
31, 1998. Effective with the execution of the Financing Agreement with
NationsBank and the repayment of all borrowings, interest and fees under the
Congress Facility, effective October 31, 1998, the Company and Congress agreed
to terminate the Loan Agreement.
<PAGE>
<PAGE> 22
Borrowings under the Congress Facility bore interest at an annual rate of
the Philadelphia National Bank Prime Rate plus 1.5%. The facility also
contained an unused line fee of 0.5% and a $5,000 monthly servicing fee. The
Loan Agreement was scheduled to expire on June 30, 1998 but was extended to
October 31, 1998.
In May of 1998, the Company executed a joint venture agreement pursuant
to which it contributed $100,000 to Suzhou Grating, Ltd., a fiberglass
reinforced plastic grating manufacturer in China. The investment constitutes
a default under the Indenture.
In May of 1998, Mr. Bradley transferred all of his shares of the
Company's common stock to the Bradley FLP. Because the Bradley FLP has
granted voting control over such shares to Stanwich Partners, Inc. which in
turn has granted voting control over such shares to Mr. John G. Poole, a
director of the Company, Mr. Bradley does not have sole voting control over
such shares of the Company's common stock thereby causing a breach of the
Securities Pledge Agreement (as defined in the Indenture) for which there is
no remedy provided under the Securities Pledge Agreement but which creates a
default under the Indenture.
The Indenture provides that neither of the aforementioned defaults will
mature into an Event of Default subject to the remedies, including
acceleration of the Senior Notes, therein provided until the Trustee under the
Indenture or the holders of at least twenty-five percent (25%) of the Senior
Notes notify the Company of the default and the default remains unremedied for
thirty (30) days after said notice. As of the date of this Quarterly Report
on Form 10-Q, the Company had not received notice from either the Trustee or
any Senior Note holders. Although the Company does not expect either of these
two defaults to mature into an Event of Default, there can be no assurance
that an Event of Default will not result from these defaults.
In connection with the acquisition of the Reunion common stock, on June
20, 1995, the Company and Trustee agreed to a first supplemental indenture and
waiver of covenants of the Indenture under which the Senior Notes are issued.
Pursuant to this supplemental indenture, the Company agreed to offer to
purchase $25.0 million (representing 50% of the originally issued principal
amount of the Senior Notes) from Senior Notes holders on each of June 1, 1999
and 2000 at an amount equal to 100% of the aggregate outstanding principal
amount thereof, plus unpaid interest to the purchase date. The Company has
classified the principal amount of the first purchase offer as current
maturities of long-term debt in its consolidated balance sheet at September
30, 1998 included herein.
At December 31, 1997, the Company had net operating loss carryforwards
for tax return reporting purposes of approximately $2.2 million, of which $1.0
million expires in 2008 with the remainder of $1.2 million expiring in 2011.
The availability of these carryforwards may be subject to limitations imposed
by the Internal Revenue Code. A U.S. federal corporate income tax return
examination has been completed for the Company's 1995 tax year. The Company
believes adequate provisions for income taxes have been recorded for all
years.
SFAS 109 requires that deferred tax assets be reduced by a valuation
allowance if it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The Company periodically reviews
the adequacy of the valuation allowance as a result of changes in its
<PAGE>
<PAGE> 23
profitability and other factors. Based on reviews during 1997, the Company
reduced the valuation allowance by $0.3 million in the first nine months of
1997.
Operating Activities
Operating activities provided $1.7 million of cash during the first nine
months of 1998, compared to cash provided of $5.3 million in the first nine
months of 1997, a decrease of almost $3.6 million. An increase in income
before depreciation, amortization, minority interests and equity income (loss)
of $0.6 million in the first nine months of 1998 compared to 1997 was more
than offset by an increase of $0.8 million in cash used during the first nine
months of 1998 compared to 1997 as the result of changes in net working
capital (defined as receivables, inventories and trade payables for cash flow
purposes). Additionally, net changes in other assets and liabilities used
$0.8 million in cash during the first nine months of 1998 compared to cash
provided of $2.5 million in the first nine months of 1997. Cash provided in
the first nine months of 1997 was primarily due to increases in customer
deposits and other current liabilities while cash used in the first nine
months of 1998 was the result of an increase in prepaid expenses and
reductions of liabilities.
Investing Activities
Investing activities used $4.4 million of cash during the first nine
months of 1998, compared to cash used of $3.8 million during the first nine
months of 1997, an increase in cash used of $0.6 million, all related to an
increase in capital expenditures during the first nine months of 1998 compared
to the first nine months of 1997. During the second quarter of 1998, the
Company made a $0.1 million investment in a fiberglass grating joint venture
in China. See "Recent Developments - Defaults Under Indenture."
Financing Activities
Financing activities during the first nine months of 1998 provided $2.1
million in cash, compared to $1.1 million of cash used during the first nine
months of 1997, an increase in cash provided of $3.2 million. This increase
in cash provided is the result of an increase of $2.1 million in the level of
net borrowings under the Congress Facility during the first nine months of
1998 compared to a decrease of $0.5 million in the first nine months of 1997.
Additionally, repayments of related party indebtedness decreased $0.6 million.
Borrowings, interest and fees under the Congress Facility were repaid and the
Loan Agreement was terminated effective October 30, 1998. See "Recent
Developments - New Credit Facility" and "Liquidity and Capital Resources -
General."
<PAGE>
<PAGE> 24
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following exhibits are filed herewith in accordance
with Item 601 of Regulation S-K:
Exhibit No. Exhibit Description
----------- -------------------
4.44 Financing and Security Agreement, dated
as of October 30, 1998, by and among
Chatwins Group, Inc. and NationsBank, N.A.
27 Financial Data Schedule (electronically
filed report only).
(b) Reports on Form 8-K - None.
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, thereto duly authorized.
Date: November 13, 1998 CHATWINS GROUP, INC.
----------------- (Registrant)
By: /s/ Joseph C. Lawyer
-------------------------------
Joseph C. Lawyer
President and Chief
Executive Officer
By: /s/ John M. Froehlich
-------------------------------
John M. Froehlich
Vice President, Chief Financial
Officer and Treasurer
(chief financial and accounting officer)
<PAGE>
<PAGE> 25
EXHIBIT INDEX
Exhibit No. Exhibit Description Page No.
----------- ------------------- --------
4.44 Financing and Security Agreement, 26
dated as of October 30, 1998, by
and among Chatwins Group, Inc.
and NationsBank, N.A.
27 Financial Data Schedule 118
FINANCING AND SECURITY AGREEMENT
by and among
CHATWINS GROUP, INC.
as Borrower
and
NATIONSBANK, N.A.,
as Lender
Dated as of: October 30, 1998
<PAGE>
<PAGE> 27
TABLE OF CONTENTS
ARTICLE 1 DEFINITIONS........................................................1
Section 1.1 Certain Defined Terms.......................................1
Section 1.2 Accounting Terms and Other Definitional Provisions.........22
ARTICLE 2 THE CREDIT FACILITIES.............................................23
Section 2.1 The Revolving Credit Facility..............................23
2.1.1 Revolving Credit Facility...................................23
2.1.2 Procedure for Making Advances Under the Revolving Loan;
Lender Protection Loans.................................23
2.1.3 Borrowing Base..............................................24
2.1.4 Borrowing Base Report.......................................24
2.1.5 Revolving Credit Note.......................................25
2.1.6 Mandatory Prepayments of Revolving Loan.....................25
2.1.7 Optional Prepayments of Revolving Loan......................25
2.1.8 The Collateral Account......................................25
2.1.9 Revolving Loan Account......................................26
2.1.10 Revolving Credit Unused Line Fee...........................27
2.1.11 Early Termination Fee......................................27
2.1.12 Required Availability under the Revolving Credit Facility..27
2.1.13 Elimination of Special Availability Loans..................28
Section 2.2 The Letter of Credit Facility..............................28
2.2.1 Letters of Credit...........................................28
2.2.2 Letter of Credit Fees.......................................28
2.2.3 Terms of Letters of Credit; Post-Expiration Date
Letters of Credit.......................................28
2.2.4 Procedures for Letters of Credit............................29
2.2.5 Payments of Letters of Credit...............................29
2.2.6 Change in Law; Increased Cost...............................31
2.2.7 General Letter of Credit Provisions.........................31
2.2.8 Actions in Respect of the Letters of Credit.................32
2.2.9 Letter of Credit Cash Collateral Account....................33
Section 2.3 Interest...................................................34
2.3.1 Applicable Interest Rates...................................34
2.3.2 Selection of Interest Rates.................................34
2.3.3 Inability to Determine LIBOR Base Rate......................36
2.3.4 Indemnity...................................................36
2.3.5 Payment of Interest.........................................37
Section 2.4 General Financing Provisions...............................37
2.4.1 Lender Authorizations.......................................37
2.4.2 Use of Proceeds of the Loans................................37
2.4.3 Closing Fee.................................................37
2.4.4 Collateral Management Fee...................................37
2.4.5 Computation of Interest and Fees............................38
2.4.6 Payments....................................................38
2.4.7 Liens; Setoff...............................................38
2.4.8 Requirements of Law.........................................38
2.4.9 Funds Transfer Services.....................................39
ARTICLE 3 THE COLLATERAL....................................................40
Section 3.1 Debt and Obligations Secured...............................40
Section 3.2 Grant of Liens.............................................40
Section 3.3 Collateral Disclosure List.................................40
Section 3.4 Personal Property..........................................40
3.4.1 Instruments and Chattel Paper, Promissory Notes, etc........41
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Section 3.5 Record Searches............................................41
Section 3.6 Costs......................................................41
Section 3.7 Release....................................................42
Section 3.8 Inconsistent Provisions....................................42
ARTICLE 4 REPRESENTATIONS AND WARRANTIES....................................42
Section 4.1 Representations and Warranties.............................42
4.1.1 Subsidiaries................................................42
4.1.2 Good Standing...............................................42
4.1.3 Power and Authority.........................................42
4.1.4 Binding Agreements..........................................43
4.1.5 No Conflicts................................................43
4.1.6 No Defaults, Violations.....................................43
4.1.7 Compliance with Laws........................................43
4.1.8 Margin Stock................................................43
4.1.9 Investment Company Act; Margin Securities...................44
4.1.10 Litigation.................................................44
4.1.11 Financial Condition of Borrower............................44
4.1.12 Proforma Financial Statements..............................45
4.1.13 Full Disclosure............................................45
4.1.14 Solvency...................................................45
4.1.15 Indebtedness for Borrowed Money............................45
4.1.16 Taxes......................................................45
4.1.17 ERISA......................................................46
4.1.18 Title to Properties........................................46
4.1.19 Patents, Trademarks, Etc...................................46
4.1.20 Employee Relations.........................................46
4.1.21 Presence of Hazardous Materials or Hazardous Materials
Contamination..........................................47
4.1.22 Perfection and Priority of Collateral......................47
4.1.23 Places of Business and Location of Collateral..............47
4.1.24 Business Names and Addresses...............................47
4.1.25 Inventory..................................................47
4.1.26 Accounts...................................................48
4.1.27 Compliance with Eligibility Standards......................48
4.1.28 Year 2000 Compliance.......................................48
Section 4.2 Survival; Updates of Representations and Warranties........49
ARTICLE 5 CONDITIONS PRECEDENT..............................................49
Section 5.1 Conditions to the Initial Advance and Initial
Letter of Credit.............................................49
5.1.1 Organizational Documents....................................49
5.1.2 Opinion of Borrower's Counsel...............................49
5.1.3 Consents, Licenses, Approvals, Etc..........................50
5.1.4 Notes.......................................................50
5.1.5 Financing Documents and Collateral..........................50
5.1.6 Other Financing Documents...................................50
5.1.7 Other Documents, Etc........................................50
5.1.8 Payment of Fees.............................................50
5.1.9 Collateral Disclosure List..................................50
5.1.10 Recordings and Filings.....................................50
5.1.11 Insurance Certificate......................................51
5.1.12 Landlord's Waivers.........................................51
5.1.13 Bailee Acknowledgments.....................................51
5.1.14 Field Examination; Appraisal...............................51
5.1.15 Proforma Balance Sheet and Projections.....................51
5.1.16 Material Adverse Change....................................51
5.1.17 Collateral Account, Lockbox, etc...........................51
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5.1.18 Minimum Required Availability at Closing...................51
5.1.19 Indenture Maximum Amount...................................52
5.1.20 Year 2000 Plan.............................................52
5.1.21 Completion of Schedules....................................52
Section 5.2 Conditions to all Extensions of Credit.....................52
5.2.1 Borrowing Base; Other Conditions............................52
5.2.2 Default.....................................................52
5.2.3 Representations and Warranties..............................52
5.2.4 Legal Matters...............................................53
5.2.5 Adverse Change..............................................53
ARTICLE 6 COVENANTS OF THE BORROWER.........................................53
Section 6.1 Affirmative Covenants......................................53
6.1.1 Financial Statements........................................53
6.1.2 Reports to SEC and to Stockholders..........................54
6.1.3 Recordkeeping, Rights of Inspection, Field Examination, Etc.54
6.1.4 Legal Existence.............................................55
6.1.5 Compliance with Laws........................................56
6.1.6 Preservation of Properties..................................56
6.1.7 Line of Business............................................56
6.1.8 Insurance...................................................56
6.1.9 Taxes.......................................................56
6.1.10 ERISA......................................................57
6.1.11 Notification of Events of Default and Adverse Developments.57
6.1.12 Hazardous Materials; Contamination.........................58
6.1.13 Disclosure of Significant Transactions.....................58
6.1.14 Financial Covenants........................................59
6.1.15 Collection of Receivables..................................59
6.1.16 Assignments of Receivables.................................59
6.1.17 Government Accounts........................................60
6.1.18 Inventory..................................................60
6.1.19 Defense of Title and Further Assurances....................60
6.1.20 Business Names; Locations..................................61
6.1.21 Subsequent Opinion of Counsel as to Recording Requirements.61
6.1.22 Use of Premises and Equipment..............................61
6.1.23 Protection of Collateral...................................61
6.1.24 Year 2000 Compliance.......................................62
6.1.25 Retention of Investment Banking Firm.......................62
Section 6.2 Negative Covenants.........................................62
6.2.1 Merger, Acquisition or Sale of Assets.......................62
6.2.2 Subsidiaries................................................62
6.2.3 Purchase or Redemption of Securities, Dividend Restrictions.62
6.2.4 Indebtedness................................................63
6.2.5 Investments, Loans and Other Transactions...................63
6.2.6 Stock of Subsidiaries.......................................64
6.2.7 Liens.......................................................64
6.2.8 Disposition of Assets.......................................64
6.2.9 Transactions with Affiliates................................65
6.2.10 Other Business.............................................65
6.2.11 ERISA Compliance...........................................65
6.2.12 Prohibition on Hazardous Materials.........................65
6.2.13 Method of Accounting; Fiscal Year..........................65
6.2.14 Compensation...............................................65
6.2.15 Transfer of Collateral.....................................66
6.2.16 Sale and Leaseback.........................................66
6.2.17 Capital Expenditures.......................................66
6.2.18 Amendments to Indenture....................................66
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ARTICLE 7 DEFAULT AND RIGHTS AND REMEDIES...................................67
Section 7.1 Events of Default..........................................67
7.1.1 Failure to Pay..............................................67
7.1.2 Breach of Representations and Warranties....................67
7.1.3 Failure to Comply with Certain Covenants....................67
7.1.4 Failure to Comply with Other Covenants......................67
7.1.5 Default Under Other Financing Documents or Obligations......67
7.1.6 Receiver; Bankruptcy........................................67
7.1.7 Involuntary Bankruptcy, etc.................................68
7.1.8 Judgment....................................................68
7.1.9 Execution; Attachment.......................................68
7.1.10 Default Under Indenture....................................68
7.1.11 Default Under Other Borrowings.............................68
7.1.12 Challenge to Agreements....................................69
7.1.13 Material Adverse Change....................................69
7.1.14 Change in Control..........................................69
7.1.15 Liquidation, Termination, Dissolution, etc.................69
7.1.16 Criminal Proceedings.......................................69
7.1.17 Guaranty Agreement; Collateral Assignment of
Life Insurance..........................................69
7.1.18 Required Availability......................................70
Section 7.2 Remedies...................................................70
7.2.1 Acceleration................................................70
7.2.2 Further Advances............................................70
7.2.3 Uniform Commercial Code.....................................70
7.2.4 Specific Rights With Regard to Collateral...................71
7.2.5 Application of Proceeds.....................................72
7.2.6 Performance by Lender.......................................72
7.2.7 Other Remedies..............................................72
ARTICLE 8 MISCELLANEOUS.....................................................73
Section 8.1 Notices....................................................73
Section 8.2 Amendments; Waivers........................................73
Section 8.3 Cumulative Remedies........................................74
Section 8.4 Severability...............................................75
Section 8.5 Assignments by Lender......................................75
Section 8.6 Successors and Assigns.....................................75
Section 8.7 Continuing Agreements......................................75
Section 8.8 Enforcement Costs..........................................76
Section 8.9 Applicable Law; Jurisdiction...............................76
8.9.1 Applicable Law..............................................76
8.9.2 Jurisdiction................................................76
8.9.3 Consent to Service of Process...............................76
Section 8.10 Duplicate Originals and Counterparts......................77
Section 8.11 Headings..................................................77
Section 8.12 No Agency.................................................77
Section 8.13 Date of Payment...........................................77
Section 8.14 Entire Agreement..........................................77
Section 8.15 Waiver of Trial by Jury...................................77
Section 8.16 Liability of the Lender...................................78
NOTE: PAGE REFERENCES IN THIS TABLE OF CONTENTS RELATED TO THE ACTUAL
EXECUTION DOCUMENT AND NOT THE ELECTRONICALLY FILED EXHIBIT AS FILED HEREIN.
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EXHIBITS
Exhibit "A"-- FORM OF BORROWING BASE REPORT
Exhibit "B"-- FORM OF REVOLVING CREDIT NOTE
Exhibit "C"-- WIRE TRANSFER PROCEDURES
Exhibit "D"-- FORM OF COMPLIANCE CERTIFICATE
Exhibit "E-1"-- LANDLORD WAIVER
Exhibit "E-2"-- BAILEE WAIVER
Exhibit "F"-- FORM OF GUARANTY AGREEMENT
Exhibit "G"-- FORM OF COLLATERAL ASSIGNMENT OF LIFE INSURANCE
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SCHEDULES
Schedule 1.1(n)-- Permitted Foreign Account Debtors
Schedule 4.1.6-- Defaults Under Indenture
Schedule 4.1.15-- Indebtedness for Borrowed Money
Schedule 4.1.20-- Employee Relations
Schedule 4.1.23-- Liens
Schedule 6.2.4-- Indebtedness
Schedule 6.2.5-- Investments
Schedule 6.2.9-- Affiliate Transactions
Schedule 6.2.14-- Compensation
FINANCING AND SECURITY AGREEMENT
THIS FINANCING AND SECURITY AGREEMENT is made as of this 30th day of
October, 1998, by and between CHATWINS GROUP, INC., a Delaware corporation
("Borrower"), and NATIONSBANK, N.A., a national banking association (the
"Lender").
RECITALS
A. The Borrower has applied to the Lender for credit facilities
consisting of a revolving credit facility in the maximum principal amount of
$40,000,000, including the Letter of Credit Obligations (as defined below)
which shall not exceed $5,000,000 in the aggregate, all to be used by the
Borrower for the Permitted Uses described in this Agreement.
B. The Lender is willing to make those credit facilities available to
the Borrower upon the terms and subject to the conditions set forth in this
Agreement.
NOW THEREFORE, in consideration of the premises, and for other good and
valuable consideration, receipt of which is hereby acknowledged, the parties
agree as follows:
ARTICLE 1 DEFINITIONS
Section 1.1 Certain Defined Terms.
As used in this Agreement, the terms defined in the Preamble and Recitals
hereto shall have the respective meanings specified therein, and the following
terms shall have the following meanings:
"Account" individually and "Accounts" collectively mean all accounts
now owned or hereafter created or acquired by Borrower, including, without
limitation, all of the following now owned or hereafter created or acquired by
Borrower: (a) accounts receivable, contract rights, book debts, notes, drafts
and other obligations or indebtedness owing to Borrower arising from the sale,
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lease or exchange of goods or other property and/or the performance of
services; (b) Borrower's rights in, to and under all purchase orders for
goods, services or other property; (c) Borrower's rights to any goods,
services or other property represented by any of the foregoing (including
returned or repossessed goods and unpaid sellers" rights of rescission,
replevin, reclamation and rights to stoppage in transit); (d) monies due to or
to become due to Borrower under all contracts for the sale, lease or exchange
of goods or other property and/or the performance of services, including the
right to payment of any interest or finance charges with respect thereto
(whether or not yet earned by performance on the part of Borrower); (e)
uncertificated securities; and (f) letters of credit securing or providing for
payment of any of the foregoing.
"Account Debtor" means any Person who is obligated on a Receivable
and "Account Debtors" mean all Persons who are obligated on the Receivables.
"Adjusted Special Availability Amount" means, as at any time, an
amount equal to (i) from January 31, 1999, through June 1, 1999, the lesser of
(A) the Guarantor Pledge Amount then in effect, and (B) the Special
Availability Amount then in effect, (ii) from January 31, 2000, through June
1, 2000, the lesser of (A) the Guarantor Pledge Amount then in effect, and (B)
the Special Availability Amount then in effect, and (iii) at all other times,
the Special Availability
Amount then in effect.
"Affiliate" means, with respect to any designated Person, any other
Person, (i) directly or indirectly controlling, directly or indirectly
controlled by, or under direct or indirect common control with the Person
designated, (ii) directly or indirectly owning or holding five percent (5%) or
more of any equity interest in such designated Person, or (iii) five percent
(5%) or more of whose stock or other equity interest is directly or indirectly
owned or held by such designated Person. For purposes of this definition, the
term "control" (including with correlative meanings, the terms "controlling",
"controlled by" and "under common control with") means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through ownership of voting
securities or other equity interests or by contract or otherwise.
"Agreement" means this Financing and Security Agreement, as amended,
restated, supplemented or otherwise modified from time to time in writing in
accordance with the provisions of Section 8.2 of this Agreement.
"Applicable Interest Rate" means (i) the LIBOR Rate, or (ii) the
Base Rate.
"Applicable Base Rate Margin" means (i) with respect to Base Rate
Loans consisting of Special Availability Loans, 0.50% per annum, and (ii) with
respect to all other Base Rate Loans, 0.00% per annum.
"Applicable LIBOR Margin" means (i) with respect to LIBOR Loans
consisting of Special Availability Loans, 2.75% per annum, and (ii) with
respect to all other LIBOR Loans, 2.00% per annum.
"Applicable Margin" means (i) with respect to Base Rate Loans, the
Applicable Base Rate Margin, and (ii) with respect to LIBOR Loans, the
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Applicable LIBOR Margin.
"Asset Disposition" means the disposition of any or all of the
Assets of the Borrower or any Subsidiary of the Borrower, whether by sale,
lease, transfer or other disposition (including any such disposition effected
by way of merger or consolidation) other than sales of Inventory in the
ordinary course of business.
"Assets" means at any date all assets that, in accordance with GAAP
consistently applied, should be classified as assets on a consolidated balance
sheet of the Borrower and its Subsidiaries.
"Bailee Waiver" means a bailee estoppel letter substantially in the
form attached hereto as Exhibit "E-2" and incorporated herein by reference.
"Bankruptcy Code" means the United States Bankruptcy Code, as
amended from time to time, and any successor Laws.
"Base Rate" means the sum of (i) the greater of (A) the Prime Rate,
and (B) the rate which is 0.5% in excess of the Federal Funds Rate plus (ii)
the Applicable Margin.
"Base Rate Loan" means any Loan for which interest is to be computed
with reference to the Base Rate.
"Borrower" means the "Borrower" described in the preamble of this
Agreement.
"Borrowing Base" has the meaning described in Section 2.1.3
(Borrowing Base).
"Borrowing Base Deficiency" has the meaning described in Section
2.1.3 (Borrowing Base).
"Borrowing Base Report" has the meaning described in Section 2.1.4
(Borrowing Base Report).
"Business Day" means any day other than a Saturday, Sunday or other
day on which commercial banks in Maryland are authorized or required to close.
"Capital Expenditure" means an expenditure (whether payable in cash
or other property or accrued as a liability) for Fixed or Capital Assets,
including, without limitation, the entering into of a Capital Lease.
"Capital Lease" means with respect to any Person any lease of real
or personal property, for which the related Lease Obligations have been or
should be, in accordance with GAAP consistently applied, capitalized on the
balance sheet of that Person.
"Cash Equivalents" means (a) securities with maturities of nine (9)
months or less from the date of acquisition issued or fully guaranteed or
insured by the United States Government or any agency thereof, (b)
certificates of deposit with maturities of nine (9) months or less from the
date of acquisition of, or moneymarket accounts maintained with, the Lender,
any Affiliate of the Lender, or any other domestic commercial bank having
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capital and surplus in excess of One Hundred Million Dollars ($100,000,000.00)
or such other domestic financial institutions or domestic brokerage houses to
the extent disclosed to, and approved by, the Lender, (c) commercial paper of
a domestic issuer rated at least either A-1 by Standard & Poor's Corporation
(or its successor) or P-1 by Moody's Investors Service, Inc. (or its
successor) with maturities of nine (9) months or less from the date of
acquisition, and (d) repurchase obligations with a term of not more than seven
(7) days for underlying securities of the types described in clause (a) or
deposits of the type described in clause (b) above entered into with a bank
meeting the qualifications described in clause (b) above.
"Change of Control" means, as at any date, the ceasing of Charles E.
Bradley, Sr. and John G. Poole, or any trust or partnership established for
estate planning purposes of which Charles E. Bradley, Sr. or John G. Poole, or
any Immediate Family Member of Charles E. Bradley, Sr. or John G. Poole is a
beneficiary (and over which Charles E. Bradley, Sr., John G. Poole, Kimball
Bradley or Stanwich Partners, Inc. retains sole voting power and control), to
have beneficial ownership or control of greater than fifty percent (50%) or
more of the combined voting power or economic benefit, on a fully-diluted
basis, of the then outstanding common stock of the Borrower entitled to vote
generally in the election of directors of the Borrower.
"Closing Date" means October 30, 1998, or such later Business Day on
which the Lender shall be satisfied that the conditions precedent set forth in
Section 5.1(Conditions to the Initial Advance and Initial Letter of Credit.)
have been fulfilled.
"Closing Fee" has the meaning described in Section 2.4.3 (Closing
Fee).
"Collateral" means all property of the Borrower subject from time to
time to the Liens of this Agreement, any of the Security Documents and/or any
of the other Financing Documents, together with any and all cash and non-cash
proceeds and products thereof.
"Collateral Account" has the meaning described in Section 2.1.8 (The
Collateral Account).
"Collateral Assignment of Life Insurance Policy" means, if it is
executed, the Collateral Assignment of Life Insurance Policy executed by
Charles E. Bradley,Sr., with respect to the Guarantor Policy, substantially in
the form attached hereto as Exhibit "G" and incorporated herein by reference.
"Collateral Disclosure List" has the meaning described in Section
3.3 (Collateral Disclosure List).
"Collateral Management Fee" and "Collateral Management Fees" have
the meanings described in Section 2.4.4 (Collateral Management Fee).
"Collection" means each check, draft, cash, money, instrument, item,
and other remittance in payment or on account of payment of the Accounts or
otherwise with respect to any Collateral, including, without limitation, cash
proceeds of any returned, rejected or repossessed goods, the sale or lease of
which gave rise to an Account, and other proceeds of Collateral; and
"Collections" means the collective reference to all of the foregoing.
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"Commitment" means the Revolving Credit Commitment or the Letter of
Credit Commitment, as the case may be, and "Commitments" means the collective
reference to the Revolving Credit Commitment and the Letter of Credit
Commitment.
"Commonly Controlled Entity" means an entity, whether or not
incorporated, which is under common control with the Borrower within the
meaning of Section 414(b)or (c) of the Internal Revenue Code.
"Compliance Certificate" means a periodic Compliance Certificate
described in Section 6.1.1 (Financial Statements).
"Copyrights" means collectively all of the following:
(a)all copyrights, rights and interests in copyrights, works
protectable by copyright, copyright registrations and copyright applications
now owned or hereafter created or acquired by Borrower;
(b)all renewals of any of the foregoing;
(c)all income, royalties, damages and payments now or hereafter due
and/or payable under any of the foregoing, including, without limitation,
damages or payments for past or future infringements of any of the foregoing;
(d)the right to sue for past, present and future infringements of
any of the foregoing; and
(e)all rights corresponding to any of the foregoing throughout the
world.
"Copyright License" means any written agreement now or hereafter in
existence granting to the Borrower any right to use any Copyright, as may be
amended,modified or supplemented from time to time.
"Credit Facility" means the Revolving Credit Facility or the Letter
of Credit Facility, as the case may be, and "Credit Facilities" means
collectively the Revolving Credit Facility, the Letter of Credit Facility and
all other credit facilities now or hereafter extended under or secured by this
Agreement.
"Current Letter of Credit Obligations" shall have the meanings
described in Section 2.2.5 (Payments of Letters of Credit) of this Agreement.
"Default" means an event which, with the giving of notice or lapse
of time, or both, would constitute an Event of Default under the provisions of
this Agreement.
"Depository Account" means one or more depository accounts
established by the Borrower at such banks or other financial institutions as
are acceptable to the Lender or at a centrally located bank or financial
institution.
"Documents" means all documents or other receipts covering,
evidencing or representing goods now owned or hereafter acquired by Borrower,
including,without limitation, all bills of lading, dock warrants, dock
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<PAGE> 37
receipts, warehouse receipts and orders for the delivery of goods, and any
other document which in the regular course of business or financing is treated
as adequately evidencing that the Person in possession of it is entitled to
receive, hold and dispose of the document and the goods it covers.
"Domestic Subsidiary" means a Subsidiary organized under the laws of
any jurisdiction in the United States.
"Early Termination Fee" has the meaning described in Section 2.1.11
(Early Termination Fee).
"EBITDA" means as to the Borrower and its Domestic Subsidiaries for
any period of determination thereof, and excluding any amounts related to
foreign Subsidiaries, the sum of (a) income before equity income (or loss)
from Affiliates, plus (b) interest expense and income tax provisions for such
period,plus (c) depreciation and amortization of assets for such period.
"Eligible Inventory" means the collective reference to all Inventory
of the Borrower held for sale in the ordinary course of business, valued at
the lowest of (i) the net purchase cost or net manufacturing cost or (ii)
prevailing market value, excluding, however, any Inventory which consists of:
(a)any Inventory located outside of the United States;
(b)any Inventory located outside of a jurisdiction in which the
Lender has perfected the Liens of the Lender under this Agreement by filing in
that jurisdiction, free and clear of all other Liens;
(c)any Inventory not in the actual possession of the Borrower, or
any Inventory which is in transit to or from the Borrower, except to the
extent provided in subsection (d) below;
(d)any Inventory in the possession of a bailee, warehouseman,
consignee or similar third party, except to the extent that such bailee,
warehouseman,consignee or similar third party has entered into an agreement
with the Lender in which such bailee, warehouseman, consignee or similar third
party consents and agrees to the Lender's Lien on such Inventory and to such
other terms and conditions as may be reasonably required by the Lender;
(e)any Inventory located on premises leased or rented to the
Borrower or otherwise not owned by the Borrower, unless the Lender has
received a waiver and consent from the lessor, landlord and/or owner in the
form of Exhibit "E-1"hereto or otherwise, in form and substance reasonably
satisfactory to the Lender and from any mortgagee of such lessor, landlord or
owner to the extent required by the Lender;
(f)any Inventory the sale or other disposition of which has given
rise to a Receivable;
(g)any Inventory which fails to meet all standards and requirements
imposed by any Governmental Authority over such Inventory or its production,
storage, use or sale;
(h)except to the extent otherwise agreed in writing by Lender,
work-in-process,displays, packaging and promotional materials;
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(i)any Inventory as to which the Lender determines in the exercise
of its Good Faith discretion is not in good condition or is defective,
unmerchantable, post-seasonal, slow moving or obsolete; and
(j)any Inventory which the Lender in exercise of its Good Faith
discretion has deemed to be ineligible because the Lender considers the
collateral value to the Lender to be impaired or its ability to realize such
value to be insecure.
In the event of any dispute under the foregoing criteria, as to whether
Inventory is, or has ceased to be, Eligible Inventory, the decision of the
Lender in the Good Faith exercise of its discretion shall control.
"Eligible Receivable" and "Eligible Receivables" mean, at any time
of determination thereof, the collective reference to the unpaid portion of
each Account (net of any returns, discounts, claims, credits, charges, accrued
rebates or other allowances, offsets, deductions, counterclaims, disputes or
other defenses and reduced by the aggregate amount of all reserves, limits and
deductions provided for in this definition and elsewhere in this Agreement) in
United States Dollars by the Borrower, provided each Account conforms and
continues to conform to the following criteria to the satisfaction of the
Lender,in its the exercise of its Good Faith discretion:
(a)the Account arose in the ordinary course of the Borrower's
business from a bona fide outright sale of Inventory by the Borrower or from
services performed by the Borrower and (i) (A) except with respect to
Permitted Bill and Hold Accounts, such Inventory has been delivered to the
appropriate Account Debtors or their respective designees, (B) except with
respect to Permitted Bill and Hold Accounts, the Borrower has in its
possession shipping receipts evidencing such shipment, and (C) no return,
rejection, or repossession has occurred or (ii) such services have been
completed (or, with respect to Accounts arising from contracts of the Borrower
that contemplate milestone payments, have been rendered to the extent
necessary under such contracts to create a valid and binding unconditional
obligation of the Account Debtor for payment of the portion of account
included in the computation of Eligible Accounts) in a manner
consistent with the agreement with the Account Debtor;
(b)the Account is a valid, legally enforceable obligation of the
Account Debtor and requires no further act on the part of any Person under any
circumstances to make the Account payable by the Account Debtor;
(c)the Account is based upon an enforceable order or contract,
written or oral,for Inventory shipped or for services performed, and the same
were shipped(except with respect to Permitted Bill and Hold Sales) or
performed in accordance with such order or contract;
(d)if the Account arises from the sale of Inventory, the Inventory
the sale of which gave rise to the Account has been shipped or delivered to
the Account Debtor on an absolute sale basis and not on a bill and hold sale
basis (except with respect to Permitted Bill and Hold Sales), a consignment
sale basis, a guaranteed sale basis, a sale or return basis, or on the basis
of any other similar understanding;
(e)if the Account arises from the performance of services, such
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<PAGE> 39
services have been fully rendered (or, with respect to Accounts arising from
contracts of the Borrower that contemplate milestone payments, have been
rendered to the extent necessary under such contracts to create a valid and
binding unconditional obligation of the Account Debtor for payment of the
portion of account included in the computation of Eligible Accounts) and do
not relate to any warranty claim or obligation;
(f)the Account is evidenced by an invoice or other documentation in
form acceptable to the Lender, dated no later than the date of shipment in the
case of the sale of goods (other than Permitted Bill and Hold Sales), or dated
promptly (but in no event later than the last day of the Borrower's billing
cycle during which the services were completed) after completion of the
performance of services, and containing only terms normally offered by the
Borrower;
(g)the amount shown on the books of the Borrower and on any invoice,
certificate,schedule or statement delivered to the Lender is owing to the
Borrower and no partial payment has been received unless reflected with that
delivery;
(h)the Account is not outstanding more than ninety (90) days from
the date of the invoice therefor or past due more than sixty (60) days after
its due date, which shall not be later than thirty (30) days after the invoice
date;
(i)the Account is not owing by any Account Debtor for which fifty
percent (50%)or more of such Account Debtor's other Accounts due to the
Borrower are non-Eligible Receivables;
(j)the Account is not owing by an Account Debtor or a group of
affiliated Account Debtors to the Borrower whose then existing Accounts owing
to the Borrower individually exceed in aggregate face amount twenty percent
(20%) of the Borrower's total Eligible Receivables;
(k)the Account Debtor has not returned, rejected or refused to
retain, or otherwise notified the Borrower of any dispute concerning, or
claimed nonconformity of, any of the Inventory or services from the sale or
furnishing of which the Account arose;
(l)the Account is not subject to any present or contingent (and no
facts exist which are the basis for any future) offset, claim, deduction or
counterclaim,dispute or defense in law or equity on the part of such Account
Debtor, or any claim for credits, allowances, or adjustments by the Account
Debtor because of returned, inferior, or damaged Inventory or unsatisfactory
services, or for any other reason including, without limitation, those arising
on account of a breach of any express or implied representation or warranty,
provided, however, that if such Account otherwise meets the conditions for
inclusion among the Eligible Receivables, such Account, minus the amount of
the offset, claim, deduction,counterclaim, dispute or defense, may be included
among the Eligible Receivables;
(m)the Account Debtor is not a Subsidiary or Affiliate of the
Borrower or an employee, officer, director or shareholder of the Borrower or
any Subsidiary or Affiliate of the Borrower, provided, however, that Eligible
Receivables may include at any time up to $500,000 of Accounts arising from
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<PAGE> 40
sales by (i) the Auto-Lok division of the Borrower to Stanwich Acquisition
Corp., doing business as King-Way Material Handling Company, or (ii) the CP
Industries division of the Borrower to NPS Acquisition Corp., in each case so
long as such Accounts would otherwise meet the conditions for inclusion among
Eligible Receivables;
(n)the Account Debtor is not incorporated or primarily conducting
business in any jurisdiction outside of the United States of America or Canada
(other than the Account Debtors set forth in Schedule 1.1(n) attached hereto
and made a part hereof) unless the Account Debtor's obligations with respect
to such Account are secured by a letter of credit, guaranty or banker's
acceptance having terms and from such issuers and confirmation banks as are
acceptable to the Lender in its sole and absolute discretion;
(o)the Account Debtor with respect to such Account is not insolvent
or the subject of any bankruptcy or insolvency proceedings of any kind;
(p)the Account Debtor is not a Governmental Authority, unless the
Borrower has complied with the Federal Assignment of Claims Act or any
comparable state statute or regulation;
(q)the Borrower is not indebted in any manner to the Account Debtor
(as creditor,lessor, supplier or otherwise), with the exception of customary
credits, warranty obligations, adjustments and/or discounts given to an
Account Debtor by the Borrower in the ordinary course of its business,
provided, however, that if such Account otherwise meets the conditions for
inclusion among the Eligible Receivables, such Account, minus the amount of
such indebtedness, may be included among the Eligible Receivables;
(r)the Account does not arise from services under or related to any
warranty obligation of the Borrower or out of service charges, finance charges
or other fees for the time value of money;
(s)the Account is not evidenced by chattel paper or an instrument of
any kind and is not secured by any letter of credit unless the original of
such chattel paper,instrument or letter of credit has been transferred,
assigned and/or pledged to the Lender in a manner satisfactory to the Lender
as security for the Obligations;
(t)the title of the Borrower to the Account is absolute and is not
subject to any Lien (other than in favor of the Lender);
(u)the Borrower has the full and unqualified right and power to
assign and grant a security interest in, and Lien on, the Account to the
Lender as security and collateral for the payment of the Obligations;
(v)the Account is subject to a Lien in favor of the Lender, which
Lien is perfected as to the Account by the filing of financing statements and
which Lien upon such filing constitutes a first priority security interest and
Lien;
(w)the Inventory giving rise to the Account was not, at the time of
the sale thereof, subject to any Lien, except those in favor of the Lender;
(x)the Account Debtor is located in Minnesota, unless the Borrower
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<PAGE> 41
shall have properly qualified to do business in Minnesota or shall have filed
a Notice of Business Activities Report with the Minnesota Division of Taxation
for the then current year, provided, however, that Eligible Receivables may
include at anytime up to $250,000 of Accounts arising from sales to Account
Debtors located in Minnesota, so long as such Accounts would otherwise meet
the conditions for inclusion among Eligible Receivables;
(y)the Account Debtor is located in New Jersey, unless the Borrower
shall have properly qualified to do business in New Jersey or shall have filed
a Notice of Business Activities Report with the New Jersey Division of
Taxation for the then current year;
(z)the Account Debtor is located in any other jurisdiction which
requires that the Borrower, in order to sue any Person in such jurisdiction's
courts, either(i) qualify to do business in such jurisdiction, or (ii) file a
report with taxation division of such jurisdiction for the then current year,
unless the Borrower shall have fulfilled either of such requirements for the
then current year with respect to such jurisdiction; and
(aa)the Lender in the Good Faith exercise of its discretion has not
deemed the Account ineligible because of uncertainty as to the credit
worthiness of the Account Debtor or because the Lender considers the
collateral value of such Account to the Lender to be impaired or its ability
to realize such value to be insecure.
In the event of any dispute, under the foregoing criteria, as to whether an
account is, or has ceased to be, an Eligible Receivable, the decision of the
Lender in the Good Faith exercise of its discretion shall control.
"Enforcement Costs" means all reasonable out-of-pocket expenses,
charges, costs and fees whatsoever (including, without limitation, reasonable
attorney's fees and expenses) of any nature whatsoever paid or incurred by or
on behalf of the Lender in connection with (a) any or all of the Obligations,
this Agreement and/or any of the other Financing Documents, and (b) the
creation, perfection,collection, maintenance, preservation, defense,
protection, realization upon,disposition, sale or enforcement of all or any
part of the Collateral, this Agreement or any of the other Financing
Documents, including, without limitation,those costs and expenses more
specifically enumerated in Section 3.6 (Costs)and/or Section 8.8 (Enforcement
Costs).
"Equipment" means all equipment, machinery, computers, chattels,
tools, parts,machine tools, furniture, furnishings, fixtures and supplies of
every nature,presently existing or hereafter acquired or created and wherever
located, whether or not the same shall be deemed to be affixed to real
property, together with all accessions, additions, fittings, accessories,
special tools, and
improvements thereto and substitutions therefor and all parts and equipment
which may be attached to or which are necessary or beneficial for the
operation, use and/or disposition of such personal property, all licenses,
warranties, franchises and general intangibles related thereto or necessary or
beneficial for the operation,use and/or disposition of the same, together with
all Accounts, Chattel Paper,Instruments and other consideration received by
the Borrower on account of the sale, lease or other disposition of all or any
part of the foregoing, and together with all rights under or arising out of
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<PAGE> 42
present or future Documents and contracts relating to the foregoing and all
proceeds (cash and non-cash) of the foregoing.
"Equity" means, at any date as to the Borrower and its Subsidiaries,
the total of capital stock (except treasury stock and net of any note
receivable received upon the issuance of any shares of capital stock) and
contributed capital, as determined on a consolidated basis in accordance with
GAAP consistently applied,after eliminating all intercompany items.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time.
"Eurodollar Business Day" means any Business Day on which dealings
in United States Dollar deposits are carried out on the London interbank
market and on which commercial banks are open for domestic and international
business(including dealings in United States Dollar deposits) in London,
England.
"Eurodollar Lending Office" means with respect to the Lender such
branch or office of the Lender or an Affiliate of the Lender designated by the
Lender, as applicable, from time to time as the branch or office at which the
LIBOR Loans are to be made or maintained.
"Event of Default" has the meaning described in ARTICLE 7.
"Excess Cash Flow" means, with respect to the Borrower and its
Domestic Subsidiaries, for any period, an amount equal to EBITDA for such
period minus the sum of (1) principal, interest and other payments on
Indebtedness for Borrowed Money, (2) non-financed Capitalized Expenditures,
and (3) cash income taxes paid for such period.
"Federal Funds Rate" means for any day of determination, the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers, as
published for such day (or,if such day is not a Business Day, by the Federal
Reserve Bank for the next preceding Business Day) by the Federal Reserve Bank
of Richmond, Virginia or, if such rate is not so published for any day that is
a Business Day, the average of quotations for such day on such transactions
received by the Lender from three(3) Federal funds brokers of recognized
standing selected by the Lender.
"Fees" means the collective reference to each fee payable to the
Lender, under the terms of this Agreement or under the terms of any of the
other Financing Documents, including, without limitation, the Revolving Credit
Unused Line Fees,the Letter of Credit Fees, the Early Termination Fee, the
Closing Fee, and the Field Examination Fees.
"Financial Institution" means any bank, finance company or other
Person or Governmental Authority which in the ordinary course of business
makes or purchases interests in commercial credit facilities.
"Financing Documents" means, at any time, collectively this
Agreement, the Notes,the Guaranty Agreement, the Collateral Assignment of Life
Insurance, the Security Documents, the Letter of Credit Documents, the Post
Closing Agreement and any other instrument, agreement or document previously,
simultaneously or hereafter executed and delivered by the Borrower, any
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<PAGE> 43
guarantor and/or any other Person,singly or jointly with another Person or
Persons, evidencing, securing,guarantying or in connection with this
Agreement, any Note, any of the Security Documents, any of the Credit
Facilities, and/or any of the Obligations.
"Fixed Charge Coverage Ratio" means, with respect to the Borrower
and its Domestic Subsidiaries for the period of any determination thereof, the
ratio of(a) EBITDA minus cash income tax paid for such period, minus
non-financed Capital Expenditures, to (b) Fixed Charges.
"Fixed Charges" means for any period of determination, the scheduled
or required payments (including, without limitation, principal and interest)
on all Indebtedness for Borrowed Money of the Borrower and its Domestic
Subsidiaries.
"Fixed or Capital Assets" of a Person at any date means all assets
which would,in accordance with GAAP consistently applied, be classified on the
balance sheet of such Person as property, plant or equipment at such date.
"GAAP" means generally accepted accounting principles in the United
States of America in effect from time to time, or in the case of the
calculation of the financial covenants contained in Section 6.1.14 (Financial
Covenants) and with respect to the definitions used therein, "GAAP" means
generally accepted accounting principles in the United States of America in
effect on the Closing Date.
"General Intangibles" means all general intangibles, now owned or
hereafter acquired by Borrower, including, without limitation, all right,
title and interest of Borrower in and to: (i) all tax refunds and tax refund
claims;(ii) Intellectual Property (as hereinafter defined); (iii) all choses
in action and causes of action; and (iv) all trade secrets and other
confidential information relating to the business of Borrower including by way
of illustration and not limitation: systems and techniques for the analysis,
diagnosis and correction of malfunctions of products used by Borrower's
customers; the names and addresses of, and credit and other business
information concerning,Borrower's past, present or future customers; the
prices which Borrower obtains for its services or at which it sells
merchandise; estimating and cost procedures; profit margins; policies and
procedures pertaining to the manufacture, sale and design of equipment,
components, devices and services furnished by Borrower; and information
concerning the manner of operation,business plans, pledges, projections, and
all other information of any kind or character, whether or not reduced to
writing, with respect to the conduct by Borrower of its business not generally
known by the public.
"Good Faith" has the meaning set forth in Section 1301.01(S) of the
Ohio Revised Code as in effect on the Closing Date.
"Governmental Authority" means any nation or government, any state
or other political subdivision thereof and any entity exercising executive,
legislative,judicial, regulatory or administrative functions of or pertaining
to government and any department, agency or instrumentality thereof.
"Guarantor Pledge Amount" shall mean, as at any time, an amount
equal to the sum of (a) the face amount of the Guarantor Policy or the portion
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<PAGE> 44
thereof collaterally assigned to the Lender plus (b) any cash or Cash
Equivalents pledged by or on behalf of Charles E. Bradley, Sr., to the Lender
pursuant to documentation acceptable to the Lender, in its sole discretion,
provided,however, that (i) if for any reason the Guaranty Agreement has not
been executed and delivered to the Lender as at such time, the Guarantor
Pledge Amount shall equal zero, (ii) if for any reason the Collateral
Assignment of Life Insurance with respect to the Guarantor Policy has not been
executed and delivered to the Lender as at such time, or if the Guarantor
Policy is for any reason not in effect at such time, the portion of the
Guarantor Pledge Amount attributable to the Guarantor Policy shall equal zero,
and (iii) if for any reason the cash or Cash Equivalents to be pledged by or
on behalf of Charles E. Bradley are not pledged in a manner and pursuant to
documentation satisfactory to the Lender and effective to provide the Lender a
first-priority Lien therein, the portion of the Guarantor Pledge Amount
attributable to the pledged cash or Cash Equivalents shall equal zero.
"Guarantor Policy" shall mean a policy of insurance, on the life of
the Charles E. Bradley, Sr., issued in a form and by an insurer acceptable to
the Lender, in its reasonable discretion, in an amount at all times equal to
or greater than the greater of (a) the Special Availability Amount then in
effect, and (b) Three Million Dollars ($3,000,000).
"Guaranty Agreement" means, if it is executed, a Guaranty Agreement
executed by Charles E. Bradley, Sr. in favor of the Lender, substantially in
the form attached hereto as Exhibit "F" and incorporated herein by reference.
"Hazardous Materials" means (a) any "hazardous waste" as defined by
the Resource Conservation and Recovery Act of 1976, as amended from time to
time, and regulations promulgated thereunder; (b) any "hazardous substance" as
defined by the Comprehensive Environmental Response, Compensation and
Liability Act of 1980,as amended from time to time, and regulations
promulgated thereunder; (c) any substance the presence of which on any
property now or hereafter owned, acquired or operated by the Borrower is
prohibited by any Law similar to those set forth in this definition; and (d)
any other substance which by Law requires special handling in the collection,
storage, treatment or disposal of a substance.
"Hazardous Materials Contamination" means the contamination (whether
presently existing or occurring after the date of this Agreement) by Hazardous
Materials of any property owned or operated by the Borrower or for which the
Borrower has responsibility, including, without limitation, improvements,
facilities, soil,ground water, air or other elements on, or of, any property
now or hereafter owned, acquired or operated by the Borrower, and any other
contamination by Hazardous Materials for which the Borrower is, or is claimed
to be, responsible.
"Immediate Family Member" means, with respect to any natural person,
such person's parents, spouse, children, grandchildren, siblings, nieces and
nephews.
"Indebtedness for Borrowed Money" of a Person means at any time the
sum at such time of (a) Liabilities of such Person for borrowed money or for
the deferred purchase price of property or services, (b) any obligations of
such Person in respect of letters of credit, banker's or other acceptances or
similar obligations issued or created for the account of such Person, (c)
Lease Obligations of such Person with respect to Capital Leases, (d) all
liabilities secured by any Lien on any property owned by such Person, to the
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<PAGE> 45
extent attached to such Person's interest in such property, even though such
Person has not assumed or become personally liable for the payment thereof,
(e) obligations of third parties which are being guarantied or indemnified
against by such Person or which is secured by the property of such Person; and
(f) any obligations,liabilities or indebtedness, contingent or otherwise,
under or in connection with, each Interest Rate/Currency Protection Agreement
and other similar agreements and arrangements; but excluding trade and other
accounts payable in the ordinary course of business in accordance with
customary trade terms and which are not overdue (as determined in accordance
with customary trade practices).
"Indenture" means the Indenture, dated as of May 1, 1993, by and
between the Borrower, as issuer, and The First National Bank of Boston, as
trustee, in connection with the issue of $50,000,000 13% Senior Notes due 2003
and 13% Senior Exchange Notes due 2003, as modified by (i) that certain First
Supplemental Indenture and Waiver of Covenants, dated as of June 20, 1995, and
(ii) that certain Second Supplemental Indenture, dated as of June 20, 1995, as
the same now exists or may hereafter be amended, supplemented, renewed,
restated or replaced.
"Indenture Maximum Amount" means, as at any time, an amount equal to
the sum of(i) eighty percent (80%) of the book value of the Borrower's
Accounts at such time, plus (ii) seventy percent (70%) of the book value of
the Borrower's Inventory at such time, minus (iii) the aggregate amount of all
net cash proceeds applied to permanently reduce Indebtedness outstanding under
this Agreement pursuant to this Agreement or pursuant to Section 4.10 of the
Indenture.
"Instruments and Chattel Paper" means instruments and chattel paper
and any replacements therefor and other writings which evidence a right to the
payment of money and which are not themselves security agreements or leases
and are of a type which in the ordinary course of business are transferred by
delivery with any necessary endorsement or assignment, including, without
limitation, all checks, drafts, notes, bonds, debentures, government
securities, certificates of deposit, options and warrants in which Debtor now
has or hereafter acquires any rights.
"Intellectual Property" shall mean collectively all of the
following: Copyrights, Copyright Licenses, Patents, Patent Licenses,
Trademarks and Trademark Licenses.
"Interest Payment Date" means the dates provided for the payment of
interest on the Loans in Section 2.3.5 of this Agreement.
"Interest Period" means as to any LIBOR Loan, the period commencing
on and including the date such LIBOR Loan is made (or on the effective date of
the Borrower's election to convert any Base Rate Loan to a LIBOR Loan in
accordance with the provisions of this Agreement) and ending on and including
the day which numerically corresponds to such date thirty (30), sixty (60),
ninety (90), one hundred twenty (120), or one hundred eighty (180) days
thereafter as selected by the Borrower in accordance with the provisions of
this Agreement, and thereafter,each period commencing on the last day of the
then preceding Interest Period for such LIBOR Loan and ending on and including
the day which numerically corresponds to such date thirty (30), sixty (60),
ninety (90), one hundred twenty (120), or one hundred eighty (180) days
thereafter (or, if such month has no numerically corresponding day, on the
last Business Day of such month) as selected by the Borrower in accordance
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<PAGE> 46
with the provisions of this Agreement, provided, however,that:
(a)the first day of any Interest Period shall be a Eurodollar
Business Day;
(b)if any Interest Period would end on a day that shall not be a
Eurodollar Business Day, such Interest Period shall be extended to the next
succeeding Eurodollar Business Day unless such next succeeding Eurodollar
Business Day would fall in the next calendar month, in which case, such
Interest Period shall end on the next preceding Eurodollar Business Day; and
(c)no Interest Period shall extend beyond the Revolving Credit
Expiration Date.
"Interest Rate Election Notice" has the meaning described in Section
2.3.2(f).
"Interest Rate/Currency Protection Agreement" means, for any Person,
any interest rate swap, cap, floor or collar agreements, currency agreements,
currency spot,foreign exchange and forward contracts or similar arrangement
between such Person and one or more financial institutions providing for the
transfer or mitigation of interest or currency risks either generally or under
specific contingencies.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended from time to time, and the Income Tax Regulations issued and proposed
to be issued thereunder.
"Inventory" means all inventory now owned or hereafter acquired by
Borrower,wherever located, including, without limitation, finished goods, raw
materials,work-in-process and other materials and supplies (including
packaging and shipping materials) used or consumed in the manufacture or
production thereof and goods which are returned to or repossessed by Borrower;
"Item of Payment" means each check, draft, cash, money, instrument,
item, and other remittance in payment or on account of payment of the
Receivables or otherwise with respect to any Collateral, including, without
limitation, cash proceeds of any returned, rejected or repossessed goods, the
sale or lease of which gave rise to a Receivable, and other proceeds of
Collateral; and "Items of Payment" means the collective reference to all of
the foregoing.
"Landlord Waiver" means a Landlord Estoppel Letter executed in favor
of the Lender substantially in the form attached hereto as Exhibit "E-1" and
incorporated herein by reference.
"Laws" means all ordinances, statutes, rules, regulations, orders,
injunctions,writs, or decrees of any Governmental Authority or agent thereof.
"Lease Obligations" of a Person means for any period the rental
commitments of such Person for such period under leases for real and/or
personal property (net of rent from subleases thereof, but including taxes
which such Person, as the lessee, is obligated to pay under the terms of said
leases, except to the extent that such taxes are payable by sublessees),
including rental commitments under Capital Leases.
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<PAGE> 47
"Letter of Credit" and "Letters of Credit" shall have the meanings
described in Section 2.2.1 (Letters of Credit) of this Agreement.
"Letter of Credit Agreement" means the collective reference to each
letter of credit application and agreement substantially in the form of the
Lender's then standard form of application for letter of credit or such other
form as may be approved by the Lender, executed and delivered by the Borrower
in connection with the issuance of a Letter of Credit, as the same may from
time to time be amended,restated, supplemented or modified; and "Letter of
Credit Agreements" means all of the foregoing in effect at any time and from
time to time.
"Letter of Credit Cash Collateral Account" shall have the meaning
described in Section 2.2.8 (Actions in Respect of the Letters of Credit) of
this Agreement.
"Letter of Credit Commitment" means the agreements of the Lender
under the Letter of Credit Agreements, all subject to and in accordance with
the provisions of this Agreement; and "Letter of Credit Commitments" means the
collective reference to the Letter of Credit Commitment of the Lender.
"Letter of Credit Fronting Fee" and "Letter of Credit Fronting Fees"
have the meanings described in Section 2.2.2 (Letter of Credit Fees) of this
Agreement.
"Letter of Credit Documents" means any and all drafts under or
purporting to be under a Letter of Credit, any Letter of Credit Agreement, and
any other instrument, document or agreement executed and/or delivered by the
Borrower or any other Person under, pursuant to or in connection with a Letter
of Credit or any Letter of Credit Agreement.
"Letter of Credit Facility" means the facility established pursuant
to Section 2.2 (Letter of Credit Facility) of this Agreement.
"Letter of Credit Fee" and "Letter of Credit Fees" means the fees
described in Section 2.2.2 (Letter of Credit Fees) of this Agreement.
"Letter of Credit Obligations" means the collective reference to all
Obligations of the Borrower with respect to the Letters of Credit and the
Letter of Credit Agreements.
"Liabilities" means at any date all liabilities that in accordance
with GAAP consistently applied should be classified as liabilities on a
consolidated balance sheet of the Borrower and its Subsidiaries.
"LIBOR Base Rate" means for any Interest Period with respect to any
LIBOR Loan,the per annum interest rate (rounded upward, if necessary, to the
nearest next 1/100 of 1%) quoted to the Lender or an Affiliate of the Lender,
on an immediately available funds basis, at or about 11:00 a.m. (London time)
on the date that is two (2) Eurodollar Business Days prior to the first day of
such Interest Period, for the offering by leading banks in the London
interbank Eurodollar market of United States Dollar deposits with the Lender
or such Affiliate for a period comparable in time to the duration of such
Interest Period and in amounts comparable to the amount of such LIBOR Loan as
to which the LIBOR Base Rate is to be determined. If the Lender shall be
unable or shall otherwise fail to so obtain the LIBOR Base Rate, the LIBOR
Base Rate shall be the average of those rates quoted on the REUTERS SCREEN
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<PAGE> 48
"LIBO" page for a period comparable to the applicable Interest Period (rounded
upward, if necessary, to the nearest next 1/100 of 1%).
"LIBOR Loan" means any Loan for which interest is to be computed
with reference to the LIBOR Rate.
"LIBOR Rate" means for any Interest Period with respect to any LIBOR
Loan,(i) the Applicable Margin, plus (ii) the per annum rate of interest
calculated pursuant to the following formula (rounded up to the nearest
1/100th of 1%):
LIBOR Base Rate
-------------------------
1.00 - Reserve Percentage
"Lien" means any mortgage, deed of trust, deed to secure debt,
grant, pledge,security interest, assignment, encumbrance, judgment, lien,
hypothecation,provision in any instrument or other document for confession of
judgment,cognovit or other similar right or remedy, claim or charge of any
kind, whether perfected or unperfected, avoidable or unavoidable, including,
without limitation, any conditional sale or other title retention agreement,
any lease in the nature thereof, and the filing of or agreement to give any
financing statement under the Uniform Commercial Code of any jurisdiction,
excluding the precautionary filing of any financing statement by any lessor in
a true lease transaction, by any bailor in a true bailment transaction or by
any consignor in a true consignment transaction under the Uniform Commercial
Code of any jurisdiction or the agreement to give any financing statement by
any lessee in a true lease transaction, by any bailee in a true bailment
transaction or by any consignee in a true consignment transaction.
"Loan" or "Loans" means the Revolving Loan.
"Loan Notice" has the meaning described in Section 2.1.2 (Procedure
for Making Advances).
"Lockbox" has the meaning described in Section 2.1.8 (The Collateral
Account).
"Material Adverse Effect" means either in any case or in the
aggregate, a material adverse effect on (w) the business, condition,
properties, affairs or operations of the Borrower, (x) the right or ability of
the Borrower to carry on a substantial portion of its operations as now
conducted or proposed to be conducted, (y) the value of, or the ability of the
Lender to realize upon, the Collateral, or (z) the rights of or benefits
available to the Lender under any of the Financing Documents.
"Multiemployer Plan" means a Plan which is a multiemployer plan as
defined in Section 4001(a)(3) of ERISA.
"Net Worth" means, as to the Borrower, its shareholders equity, as
applicable,(including, without limitation, preferred stock), determined in
accordance with GAAP.
"Note" means the Revolving Credit Note, and "Notes" means
collectively the Revolving Credit Note and any other promissory note which may
from time to time evidence all or any portion of the Obligations.
"Obligations" means all present and future indebtedness, duties,
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<PAGE> 49
obligations, and liabilities, whether now existing or contemplated or
hereafter arising, of the Borrower to the Lender under, arising pursuant to,
in connection with and/or on account of the provisions of this Agreement, each
Note, each Security Document,and/or any of the other Financing Documents, the
Loans, and/or any of the Credit Facilities including, without limitation, the
principal of, and interest on, each Note, late charges, the Fees, Enforcement
Costs, and prepayment fees, letter of credit fees or fees charged with respect
to any guaranty of any letter of credit,and also means all other present and
future indebtedness, liabilities and obligations, whether now existing or
contemplated or hereafter arising, of the Borrower to the Lender or its
Affiliates with respect to the Letters of Credit,the Interest Rate/Currency
Protection Agreements, deposit or other cash management or credit services of
any nature whatsoever, regardless, in any such case, of whether such debts,
obligations and liabilities be direct, indirect,primary, secondary, joint,
several, joint and several, fixed or contingent; and also means any and all
renewals, extensions, substitutions, amendments,restatements and
rearrangements of any such debts, obligations and liabilities.
"Outstanding Letter of Credit Obligations" has the meaning described
in Section 2.2.3 (Terms of Letters of Credit; Post-Expiration Date Letters of
Credit) of this Agreement.
"Patents" means collectively all of the following: (a) all United
States and foreign patents and patent applications now owned or hereafter
created or acquired by Debtor and the inventions and improvements described
and claimed therein, and all patentable inventions; (b) reissues, divisions,
continuations,renewals, extensions and continuations-in-part of any of the
foregoing; (c) all income, royalties, damages or payments now or hereafter due
and/or payable under any of the foregoing with respect to any of the
foregoing, including, without limitation, damages or payments for past or
future infringements of any of the foregoing; (d) the right to sue for past,
present and future infringements of any of the foregoing; and (e) all rights
corresponding to any of the foregoing throughout the world.
"Patent License" means any written agreement now or hereafter in
existence granting to the Borrower any right to use any invention on which a
Patent is in existence, as may be amended, modified or supplemented from time
to time.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permitted Bill and Hold Sales" means up to $1,000,000 at any one
time outstanding of sales of Inventory by the Borrower in the ordinary course
of its business with respect to which (a) the goods that are the subject
matter of the sale are located, pursuant to the Account Debtor's written
instructions, on the Borrower's premises, (b) the Borrower has received and
maintains a copy of the Account Debtor's written instruction to invoice the
Account Debtor for such sale,(c) title to the goods that are the subject
matter of the sale has passed to the Account Debtor, and (d) the goods that
are the subject matter of the sale are clearly identified as bill-and-hold
inventory and segregated from Borrower's Inventory.
"Permitted Indenture Refinancing" means Indebtedness incurred to
extend,refinance, refund or renew the Indebtedness for Borrowed Money under
the Indenture (the "Refinancing Debt"), provided that:
(i)the aggregate outstanding principal amount of the Refinancing
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Debt shall not at any time exceed the amount of principal, accrued interest
and premium (including any prepayment penalties) under the Indenture;
(ii)the scheduled final maturity date of the Refinancing Debt is not
earlier than October 31, 2002;
(iv)the Refinancing Debt is unsecured;
(v)the Refinancing Debt bears interest at market rates prevailing at
its date of issuance and in any event at a rate that is no higher than the
rate charged under the Indenture;
(vi)both at the time of and immediately after giving effect to the
incurrence of the Refinancing Debt and the retirement of the Indenture, no
Default or Event of Default shall have occurred and be continuing; and
(vii)the terms and conditions of the Refinancing Debt are no more
restrictive or adverse to Borrower or its Subsidiaries or the rights of the
Lender under this Agreement and other Financing Documents than those in the
Indenture on the date it was issued (including, without limitation, with
respect to the ability to incur indebtedness and grant Liens to secure
indebtedness, financial performance,and events of default).
"Permitted Liens" means (a) Liens for Taxes which are not delinquent
or which(i) are being diligently contested in good faith and by appropriate
proceedings and adequate reserves with respect thereto are maintained on the
books of the Borrower or its Subsidiaries, (ii) the Borrower has the financial
ability to pay,with all penalties and interest, at all times without
materially and adversely affecting the Borrower, and (iii) are not, and will
not be with appropriate filing, the giving of notice and/or the passage of
time, entitled to priority over any Lien of the Lender; (b) deposits or
pledges to secure obligations under workers" compensation, social security or
similar laws, or under unemployment insurance in the ordinary course of
business; (c) Liens securing the Obligations;(d) judgment Liens to the extent
the entry of such judgment does not constitute an Event of Default under the
terms of this Agreement or result in the sale or levy of, or execution on, any
of the Collateral; (e) statutory liens of landlords, carriers, warehousemen,
mechanics, materialmen and other similar liens imposed by law, which are
incurred in the ordinary course of business for sums not more than thirty (30)
days delinquent or which are being contested in good faith by appropriate
proceedings and for which reserves shall have been set aside on the Borrower's
books, all as determined by the Lender in the Good Faith exercise of its
discretion; (f) Liens against cash deposits to secure the performance of
tenders, statutory obligations, surety, customs bonds, bids,government
contracts, performance bonds and other similar obligations (exclusive of
obligations for the payment of borrowed money); (g) deposits, made in the
ordinary course of business to secure liability to insurance carriers;(h)
Purchase Money Security Interests; provided that: the aggregate Liabilities
secured by any such Liens that may be incurred during any calendar year may
not exceed $2,500,000; (i) easements, rights-of-way, restrictions and other
similar encumbrances on real property incurred in the ordinary course of
business which are not substantial in amount and which do not in any case
materially detract from the value of the property subject thereto or interfere
with the ordinary conduct of the business of the Borrower and its
Subsidiaries, and (j) such other Liens, if any, as are set forth on Schedule
4.1.23 attached hereto and made apart hereof.
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"Permitted Uses" means (a) with respect to the initial advance on
the Revolving Loan, the repayment and refinancing of certain existing
indebtedness of the Borrower and all transaction costs related to such
repayment and refinancing and to the transactions contemplated by this
Agreement, and (b) with respect to subsequent advances under the Revolving
Loan, general corporate purposes other than (i) payments of principal on and
repurchases or redemptions of the Senior Notes and (ii) any other purposes
that are prohibited under this Agreement.
"Person" or "person" means any individual, sole proprietorship,
partnership,limited liability company, corporation (including, without
limitation, any corporation which elects subchapter S status under the
Internal Revenue Code of 1986, as amended), business trust, unincorporated
association, joint stock corporation, trust, joint venture or other entity or
any government or any agency or instrumentality or political subdivision
thereof.
"Plan" means any pension plan which is covered by Title IV of ERISA
and in respect of which the Borrower or a Commonly Controlled Entity is an
"employer"as defined in Section 3 of ERISA.
"Post Closing Agreement" means that certain Post Closing Agreement
dated the date hereof between the Borrower and the Lender as the same may from
time to time be amended, restated, supplemented or otherwise modified.
"Post-Default Rate" means (a) with respect to principal balance of
the Notes, the respective Applicable Interest Rates under the Notes from time
to time plus two hundred (200) basis points per annum and (b) with respect to
all other Obligations, the Applicable Interest Rates under the Revolving
Credit Note from time to time plus two hundred (200) basis points per annum.
"Post-Expiration Date Letter of Credit" and "Post-Expiration Date
Letters of Credit" shall have the meanings described in Section 2.2.3 (Terms
of Letters of Credit; Post-Expiration Date Letters of Credit) of this
Agreement.
"Prepayment" means a Revolving Loan Mandatory Prepayment or a
Revolving Loan Optional Prepayment, as the case may be, and "Prepayments"
means collectively all Revolving Loan Mandatory Prepayments and all Revolving
Loan Optional Prepayments.
"Prime Rate" means the floating and fluctuating per annum prime
commercial lending rate of interest of the Lender, as established and publicly
declared by the Lender at any time or from time to time. The Prime Rate shall
be adjusted automatically, without notice, as of the effective date of any
change in such prime commercial lending rate. The Prime Rate does not
necessarily represent the lowest rate of interest charged by the Lender to
borrowers.
"Proforma Balance Sheet" has the meaning described in Section 4.1.12
(Proforma Financial Statements) below.
"Proforma Financial Projections" has the meaning described in
Section 4.1.12(Proforma Financial Statements) below.
"Proposed Acquisition" means a proposal by the Borrower with respect
to the acquisition or purchase of, or investment in, any Person, any operating
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division or unit of any Person, or the stock or assets of any Person, engaged
substantially in the line of business of the Borrower described in Section
6.1.7(Line of Business) or in a business reasonably related thereto,
provided,however, that (a) the aggregate purchase price of, investment in,
and/or expenditures relating to, any such acquisition, purchase, or investment
cannot itself exceed Five Million Dollars ($5,000,000), (b) such acquisition,
purchase or investment cannot otherwise constitute or give rise to a Default
or an Event of Default, (c) the Borrower shall have furnished financial
projections to the Lender which give effect to such acquisition, purchase or
investment and which indicate that such acquisition, purchase and/or
investment could not or would not cause a Default or Event of Default, (d) all
assets so acquired that constitute or would, if they were owned by the
Borrower, constitute Collateral, whether acquired directly or indirectly
through the acquisition of stock of another Person, shall be subject,
immediately after such acquisition, to the extent permitted by the Indenture
(or any Refinanced Indenture), to a first priority security interest,
perfected by filing or possession, in favor of the Lender securing the
Obligations, and (e) immediately prior to such acquisition,purchase, or
investment, the Borrower must have Revolving Credit Availability in an amount
satisfactory to the Lender, in its sole discretion.
"Purchase Money Security Interest" means the interest of a lessor
under a Capital Lease and also means a purchase money security interest,
attaching at the time of acquisition, in Equipment acquired after the date of
this Agreement; provided,however, that (i) the indebtedness secured by any
such security interest shall not exceed one hundred percent (100%) of the cost
of the Equipment covered,(ii) each such security interest shall attach only to
the Equipment so acquired for the purchase money for that Equipment, and (iii)
the acquisition to which any such security interest relates shall not result
in a Default or Event of Default under this Agreement.
"Receivable" means the Borrower's now owned and hereafter owned,
acquired or created Accounts, Chattel Paper, General Intangibles and
Instruments; and"Receivables" means all of the Borrower's now or hereafter
owned, acquired or created Accounts, Chattel Paper, General Intangibles and
Instruments, and all cash and non-cash proceeds and products thereof.
"Records" means all of Borrower's present and future books of
account of every kind or nature, purchase and sale agreements, invoices,
ledger cards, bills of lading and other shipping evidence, statements,
correspondence, memoranda, credit files and other data relating to any of the
foregoing or any account debtor,together with the tapes, disks, diskettes or
other data and software storage media and devices, file cabinets or containers
in or on which the foregoing are stored (including any rights of Borrower with
respect to the foregoing maintained with or by any other person)
"Refinanced Indenture" means the indenture or financing agreement
that would replace the Indenture in connection with a Permitted Indenture
Refinancing.
"Reportable Event" means any of the events set forth in Section
4043(c) of ERISA or the regulations thereunder.
"Reserve Amount" shall mean an amount determined by Lender, in its
sole discretion, as a reserve against Collateral values and potential or
anticipated obligations of the Borrower, including, without limitation, (i)
tax liabilities and other obligations owing to governmental entities including
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all amounts referred to in Section 6.1.9 hereof, (ii) litigation liabilities,
(iii) the anticipated costs and expenses relating to the liquidation of
Collateral,(iv) unpaid sales taxes, (vi) those reserve amounts as required to
be held as reserves under GAAP, and (vii) liabilities and other obligations
owing by the Borrower to any lessor of real property leased by the Borrower or
to any warehouseman.
"Reserve Percentage" means, at any time, the then current maximum
rate (expressed as a decimal) for which reserves (including any basic,
supplemental, marginal and emergency reserves) are required to be maintained
by member banks of the Federal Reserve System under Regulation D of the Board
of Governors of the Federal Reserve System against "Eurocurrency liabilities",
as that term is defined in Regulation D. The LIBOR Rate shall be adjusted
automatically on and as of the effective date of any change in the Reserve
Percentage.
"Responsible Officer" means the Borrower's chief executive officer,
president or any vice president.
"Revolving Credit Availability" means, as at any time, an amount
equal to (a) the least of (i) the Revolving Credit Committed Amount, (ii) the
then Borrowing Base,or (iii) the Indenture Maximum Amount, minus (b) the
Reserve Amount then in effect, minus (c) the then aggregate outstanding
principal balance of the Revolving Loan, minus (d) the then current stated
amount of all outstanding Letters of Credit.
"Revolving Credit Commitment" means the agreement of the Lender
relating to the making of the Revolving Loan and advances thereunder subject
to and in accordance with the provisions of this Agreement.
"Revolving Credit Commitment Period" means the period of time from
the Closing Date to the Business Day preceding the Revolving Credit
Termination Date.
"Revolving Credit Committed Amount" has the meaning described in
Section 2.1.1(Revolving Credit Facility).
"Revolving Credit Expiration Date" means October 31, 2001, or any
anniversary thereof to the extent the provisions of the immediately succeeding
sentence shall have been complied with. Subject to continued credit approval
by the Lender, the Revolving Credit Expiration Date shall be extended beyond
October 31, 2001, for successive one (1) year periods unless the Borrower or
the Lender shall have notified the other in writing of its desire to terminate
this Agreement by September 30, 2001, or September 30 of the applicable
succeeding calendar year;provided, however, that in no event shall the
Revolving Credit Expiration Date be extended to a date beyond October 31,
2005.
"Revolving Credit Facility" means the facility established by the
Lender pursuant to Section 2.1 (Revolving Credit Facility) of this Agreement.
"Revolving Credit Note" has the meaning described in Section 2.1.5
(Revolving Credit Note).
"Revolving Credit Termination Date" means the earlier of (a) the
Revolving Credit Expiration Date, or (b) the date on which the Revolving
Credit Commitment is terminated pursuant to Section 7.2 or otherwise.
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"Revolving Credit Unused Line Fee" and "Revolving Credit Unused Line
Fees" have the meanings described in Section (Revolving Credit Unused Line
Fee).
"Revolving Loan" has the meaning described in Section 2.1.1
(Revolving Credit Facility).
"Revolving Loan Account" has the meaning described in Section 2.1.9
(Revolving Loan Account).
"Revolving Loan Mandatory Prepayment" and "Revolving Loan Mandatory
Prepayments" have the meanings described in Section 2.1.6 (Mandatory
Prepayments of Revolving Loan).
"Revolving Loan Optional Prepayment" and "Revolving Loan Optional
Prepayments" have the meanings described in Section 2.1.7 (Optional Prepayment
of Revolving Loan).
"Securities" means the collective reference to each and every
certificated or uncertificated security which constitutes a "Security" or an
"investment security" under the provisions of Article 8 of the Uniform
Commercial Code and to each and every "investment property" under the
provisions of Article 9 of the Uniform Commercial Code (if that definition is
included in that Article), and all proceeds (cash and non-cash) of the
foregoing.
"Security Documents" means collectively any assignment, pledge
agreement,security agreement, mortgage, deed of trust, deed to secure debt,
financing statement and any similar instrument, document or agreement under or
pursuant to which a Lien is now or hereafter granted to, or for the benefit
of, the Lender on any real or personal property of any Person to secure all or
any portion of the Obligations, all as the same may from time to time be
amended, restated,supplemented or otherwise modified, including, without
limitation, this Agreement, the Landlord Waivers, the Bailee Waivers, the
Guaranty Agreement and the Collateral Assignment of Life Insurance.
"Security Procedures" means the rules, policies and procedures
adopted and implemented by the Lender and its Affiliates at any time and from
time to time with respect to security procedures and measures relating to
electronic funds transfers, all as the same may be amended, restated,
supplemented, terminated,or otherwise modified at any time and from time to
time by the Lender in its sole and absolute discretion.
"Senior Notes" means the 13% Senior Notes due 2003 and the 13%
Senior Exchange Notes due 2003 issued pursuant to the Indenture in the
aggregate principal amount of Fifty Million Dollars ($50,000,000).
"Special Availability Amount" means an amount equal to (i) from the
Closing Date through January 31, 1999, $6,000,000, (ii) from February 1, 1999,
through April 30, 1999, $5,250,000, (iii) from May 1, 1999, through July 31,
1999,$4,500,000, (iv) from August 1, 1999, through October 31, 1999,
$3,750,000,(v) from November 1, 1999, through January 31, 2000, $3,000,000,
(vi) from February 1, 2000, through April 30, 2000, $2,250,000, (vii) from May
1, 2000,through July 31, 2000, $1,500,000, (viii) from August 1, 2000, through
October 31, 2000, $750,000, and (ix) at all times thereafter, zero.
"Special Availability Loans" means, as at any time, the portion of
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the Loans equal to the lesser of (i) the Adjusted Special Availability Amount
then in effect, or (ii) the then aggregate outstanding principal balance of
the Revolving Loan.
"State" means the State of Ohio.
"Subordinated Indebtedness" means all Indebtedness incurred at any
time by the Borrower, which is in amounts, subject to repayment terms, and
subordinated to the Obligations, as set forth in one, or more written
agreements, all in form and substance satisfactory to the Lender.
"Subsidiary" means any corporation, limited liability company,
partnership, joint venture, unincorporated association or other entity, the
majority of the voting shares, units or ownership interests of which at the
time are owned directly by the Borrower and/or by one or more Subsidiaries of
the Borrower.
"Taxes" means all taxes and assessments whether general or special,
ordinary or extraordinary, or foreseen or unforeseen, of every character
(including all penalties or interest thereon), which at any time may be
assessed, levied,confirmed or imposed by any Governmental Authority on the
Borrower or any of its properties or assets or any part thereof or in respect
of any of its or their franchises, businesses, income or profits.
"Trademarks" means collectively all of the following now owned or
hereafter created or acquired by the Borrower:
(a)all trademarks, trade names, corporate names, company names,
business names, fictitious business names, trade styles, service marks, logos,
other business identifiers, prints and labels in which any of the foregoing
have appeared or appear, all registrations and recordings thereof, and all
applications in connection therewith including registrations, recordings and
applications in the United States Patent and Trademark Office or in any
similar office or agency of the United States, any State thereof or any other
country or any political subdivision thereof;
(b)all reissues, extensions or renewals thereof;
(c)all income, royalties, damages and payments now or hereafter due
and/or payable under any of the foregoing or with respect to any of the
foregoing including damages or payments for past or future infringements of
any of the foregoing;
(d)the right to sue for past, present and future infringements of
any of the foregoing;
(e)all rights corresponding to any of the foregoing throughout the
world; and
(f)all goodwill associated with and symbolized by any of the
foregoing.
"Trademark License" means any written agreement now or hereafter in
existence granting to the Borrower any right to use any Trademark, as may be
amended,modified or supplemented from time to time.
"Uniform Commercial Code" means, unless otherwise provided in this
Agreement, the Uniform Commercial Code as adopted by and in effect from time
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to time in the State or in any other jurisdiction, as applicable.
"United States Dollar", "Dollar", "Dollars" and "$" means the lawful
money of the United States of America.
"Wholly Owned Subsidiary" means any Domestic Subsidiary, all the
shares of stock of all classes of which (other than directors" qualifying
shares) at the time are owned directly or indirectly by the Borrower and/or by
one or more Wholly Owned Subsidiaries of the Borrower.
"Wire Transfer Procedures" means the rules, policies and procedures
adopted and implemented by the Lender and its Affiliates at any time and from
time to time with respect to electronic funds transfers to or on behalf of the
Borrower,including, without limitation, the Security Procedures, all as the
same may be amended, restated, supplemented, terminated or otherwise modified
at any time and from time to time by the Lender in its sole and absolute
discretion.
Section 1.2 Accounting Terms and Other Definitional Provisions.
Unless otherwise defined herein, as used in this Agreement and in any
certificate, report or other document made or delivered pursuant
hereto,accounting terms not otherwise defined herein, and accounting terms
only partly defined herein, to the extent not defined, shall have the
respective meanings given to them under GAAP, as consistently applied to the
applicable Person.Unless otherwise defined herein, all terms used herein which
are defined by the Uniform Commercial Code shall have the same meanings as
assigned to them by the Uniform Commercial Code unless and to the extent
varied by this Agreement. The words "hereof", "herein" and "hereunder" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement,
and article, section, subsection,schedule and exhibit references are
references to articles, sections or subsections of, or schedules or exhibits
to, as the case may be, this Agreement unless otherwise specified. As used
herein, the singular number shall include the plural, the plural the singular
and the use of the masculine, feminine or neuter gender shall include all
genders, as the context may require. Reference to any one or more of the
Financing Documents shall mean the same as the foregoing may from time to time
be amended, restated, substituted, extended,renewed, supplemented or otherwise
modified.
ARTICLE 2 THE CREDIT FACILITIES
Section 2.1 The Revolving Credit Facility.
2.1.1 Revolving Credit Facility.
Subject to and upon the provisions of this Agreement, the
Lender establishes a revolving credit facility in favor of the Borrower in the
principal amount of up to Forty Million Dollars ($40,000,000) ("Revolving
Credit Committed Amount"). The aggregate of all advances under the Revolving
Credit Facility are sometimes referred to in this Agreement collectively as
the "Revolving Loan."
During the Revolving Credit Commitment Period, the Borrower may request
advances under the Revolving Credit Facility in accordance with the provisions
of this Agreement; provided that after giving effect to the Borrower's
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request, the outstanding principal balance of the Revolving Loan plus the
current stated amount of outstanding Letters of Credit would not exceed an
amount equal to (a)the least of (i) the Revolving Credit Committed Amount,
(ii) the Borrowing Base,or (iii) the Indenture Maximum Amount, minus (b) the
Reserve Amount.
2.1.2 Procedure for Making Advances Under the Revolving Loan;
Lender Protection Loans.
The Borrower may borrow, pay, prepay and reborrow under
the Revolving Credit Facility on any Business Day. Advances under the
Revolving Loan shall be deposited to a demand deposit account of the Borrower
with the Lender or shall be otherwise applied as directed by the Borrower,
which direction the Lender may require to be in writing. Not later than 12:00
noon (Baltimore, Maryland Time)on the date of the requested borrowing, the
Borrower shall give the Lender oral or written notice (a "Loan Notice") of the
amount and (if requested by the Lender) the purpose of the requested
borrowing. Any oral Loan Notice shall be confirmed in writing by the Borrower
within three (3) Business Days after the making of the requested advance under
the Revolving Loan. Each Loan Notice shall be irrevocable.
In addition, the Borrower hereby irrevocably authorizes the Lender at any
time without further request from or notice to the Borrower, to make advances
under the Revolving Loan which the Lender, in the Good Faith exercise of its
reasonable discretion, deems necessary or appropriate to protect the rights
and benefits of the Lender under this Agreement, including, without
limitation, advances under the Revolving Loan to cover debit balances in the
Revolving Loan Account,principal of, and/or interest on, any Loan, the
Obligations (including any Letter of Credit Obligations), and/or Enforcement
Costs, prior to, on, or after the termination of other advances under this
Agreement, regardless of whether the outstanding principal amount of the
Revolving Loan which the Lender may advance hereunder exceeds the Revolving
Credit Committed Amount.
2.1.3 Borrowing Base.
As used in this Agreement, the term "Borrowing Base" means
at any time, an amount equal to the aggregate of (a) eighty-five percent (85%)
of the amount of Eligible Receivables plus (b) the lesser of (i) Fifteen
Million Dollars ($15,000,000) or(ii) the sum of (x) sixty percent (60%) of the
amount of Eligible Inventory consisting of finished goods and raw materials,
plus (y) fifty percent (50%) of the amount of Eligible Inventory consisting of
supplies and stores, plus (z) a percentage (if any) to be determined by the
Lender, in its sole discretion, of the amount of Eligible Inventory consisting
of work-in-process plus (c) the Adjusted Special Availability Amount then in
effect.
The Borrowing Base shall be computed based on the Borrowing Base Report
most recently delivered to the Lender in conformity with this Agreement. In
the event the Borrower fails to furnish a Borrowing Base Report required by
Section 2.1.4(Borrowing Base Report) below, or in the event the Lender
determines, in its reasonable discretion, that a Borrowing Base Report is no
longer accurate, the Lender may suspend the making of or limit advances under
the Revolving Credit Facility. The Borrowing Base shall be subject to
reduction by amounts credited to the Collateral Account since the date of the
most recent Borrowing Base Report and by the amount of any Receivable or any
Inventory which was included in the Borrowing Base but which the Lender
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determines, in its reasonable discretion,fails to meet the respective criteria
applicable from time to time for Eligible Receivables or Eligible Inventory.
If at any time the total of the aggregate principal amount of the
Revolving Loan plus the current stated amount of outstanding Letters of Credit
exceeds an amount equal to (a) the least of (i) the Borrowing Base, (ii) the
Indenture Maximum Amount, or (iii) the Revolving Credit Committed Amount,
minus (b) the Reserve Amount (if then in effect), a borrowing base deficiency
("Borrowing Base Deficiency") shall exist. Each time a Borrowing Base
Deficiency exists, the Borrower, at the sole and absolute discretion of the
Lender exercised from time to time, shall pay the Borrowing Base Deficiency ON
DEMAND to the Lender.
Without implying any limitation on the Lender's discretion with respect
to the Borrowing Base, the criteria for Eligible Receivables and for Eligible
Inventory contained in the respective definitions of Eligible Receivables and
of Eligible Inventory are in part based upon the business operations of the
Borrower existing on or about the Closing Date and upon information and
records furnished to the Lender by the Borrower. If at any time or from time
to time hereafter, the business operations of the Borrower change or such
information and records furnished to the Lender are incorrect or misleading,
the Lender in its Good Faith discretion may at any time and from time to time
during the duration of this Agreement change such criteria or add new
criteria. The Lender may communicate such changed or additional criteria to
the Borrower from time to time either orally or in writing.
2.1.4 Borrowing Base Report.
The Borrower shall furnish to the Lender no less
frequently than weekly and at such other times as may be requested by the
Lender a report of the Borrowing Base(each a "Borrowing Base Report";
collectively, the "Borrowing Base Reports") in the form attached hereto as
Exhibit "A" and made a part hereof, appropriately completed and duly signed.
The Borrowing Base Report shall contain the amount and payments on the
Receivables, the value of Inventory, and the calculations of the Borrowing
Base and the Indenture Maximum Amount, all in such detail, and accompanied by
such supporting and other information, as the Lender may from time to time
reasonably request. Upon the Lender's request and upon the creation of any
Receivables, or at such intervals as the Lender may require, the Borrower
shall provide the Lender with such further schedules, documents and/or
information regarding the Receivables and the Inventory as the Lender may
reasonably require. The items to be provided under this Section 2.1.4 shall
be in form satisfactory to the Lender, and certified as true and correct by a
Responsible Officer of the Borrower, and delivered to the Lender from time to
time solely for the Lender's convenience in maintaining records of the
Collateral. The Borrower's failure to deliver any of such items to the Lender
shall not affect, terminate, modify, or otherwise limit the Liens of the
Lender in the Collateral.
2.1.5 Revolving Credit Note.
The obligation of the Borrower to pay the Revolving Loan,
with interest, shall be evidenced by a promissory note executed by the
Borrower (as from time to time extended, amended, restated, supplemented,
replaced or otherwise modified, the"Revolving Credit Note") substantially in
the form of Exhibit "B" attached hereto and made a part hereof, with
appropriate insertions. The Revolving Credit Note shall be dated as of the
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Closing Date, shall be payable to the order of the Lender at the times
provided in such Revolving Credit Note, and shall be in the principal amount
of the Revolving Credit Committed Amount. The Borrower acknowledges and
agrees that, if the outstanding principal balance of the Revolving Loan
outstanding from time to time exceeds the face amount of the Borrower's
Revolving Credit Note, the excess shall bear interest at the rates provided
from time to time for advances under the Revolving Loan evidenced by such
Revolving Credit Note and shall be payable, with accrued interest, ON DEMAND.
The Revolving Credit Note shall not operate as a novation of any of the
Obligations or nullify, discharge, or release any such Obligations or the
continuing contractual relationship of the parties hereto in accordance with
the provisions of this Agreement.
2.1.6 Mandatory Prepayments of Revolving Loan.
The Borrower shall make the mandatory prepayments (each a
"Revolving Loan Mandatory Prepayment" and collectively, the "Revolving Loan
Mandatory Prepayments") of the Revolving Loan at any time and from time to
time in such amounts requested by the Lender pursuant to Section 2.1.3
(Borrowing Base) of this Agreement in order to cover any Borrowing Base
Deficiency and in order to cover any deficiency under Section 2.1.12 (Required
Availability under the Revolving Credit Facility).
2.1.7 Optional Prepayments of Revolving Loan.
The Borrower shall have the option at any time and from
time to time to prepay(each a "Revolving Loan Optional Prepayment" and
collectively the "Revolving Loan Optional Prepayments") the Revolving Loan, in
whole or in part without premium or penalty (other than any amounts due in
respect thereof under Section 2.1.11 and Section 2.3.4 hereof).
2.1.8 The Collateral Account.
The Borrower shall deposit, or cause to be deposited, all
Items of Payment to a bank account designated by the Lender and from which the
Lender alone has power of access and withdrawal (the "Collateral Account").
Each deposit shall be made not later than the next Business Day after the date
of receipt of the Items of Payment. The Items of Payment shall be deposited
in precisely the form received,except for the endorsements of the Borrower
where necessary to permit the collection of any such Items of Payment, which
endorsement the Borrower hereby agrees to make. In the event the Borrower
fails to do so, the Borrower hereby authorizes the Lender to make the
endorsement in the name of the Borrower. Prior to such a deposit, the
Borrower shall not commingle any Items of Payment with the Borrower's other
funds or property, but will hold them separate and apart intrust and for the
account of the Lender.
In addition, the Borrower shall direct the mailing of all Items of
Payment from its Account Debtors that customarily mail Items of Payment to one
or more post-office boxes designated by the Lender, or to such other
additional or replacement post-office boxes pursuant to the request of the
Lender from time to time(collectively, the "Lockbox"). The Lender shall have
unrestricted and exclusive access to the Lockbox. If and to the extent any
Account Debtors of the Borrower customarily send Items of Payment by wire
transfer, the Borrower will instruct such Account Debtors to direct such wire
transfers to the Collateral Account.
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The Borrower hereby authorizes the Lender to inspect all Items of
Payment,endorse all Items of Payment in the name of the Borrower, and deposit
such Items of Payment in the Collateral Account. The Lender reserves the
right, to provide to the Collateral Account credit prior to final collection
of an Item of Payment and to disallow credit for any Item of Payment which to
the Lender determines is not collectible. In the event Items of Payment are
returned to the Lender for any reason whatsoever, the Lender may forward such
Items of Payment a second time. Any returned Items of Payment shall be
charged back to the Collateral Account, the Revolving Loan Account, or other
account, as appropriate.
Except after the occurrence and during the continuance of an Event of
Default,as of the Business Day of receipt by the Lender, the Lender will apply
the whole or any part of the collected funds credited to the Collateral
Account first against the Revolving Loan and thereafter against any of the
Obligations then due, the order and method of such application to be in the
sole discretion of the Lender. Following the occurrence and during the
continuance of an Event of Default, as of the Business Day of receipt by the
Lender, the Lender may apply the whole or any part of the collected funds
credited to the Collateral Account against any of the Obligations (whether or
not then due) in such order and manner as shall be determined by the Lender in
its sole discretion. In consideration for the Lender's agreement to credit
the Collateral Account as of the Business Day on which the Lender receives
Items of Payment and to reimburse the Lender for the cost of delays in the
collection and clearance of computing interest on the Obligations, all Items
of Payment shall be deemed received by the Lender one (1)Business Day after
the Lender's actual receipt thereof.
2.1.9 Revolving Loan Account.
The Lender will establish and maintain a loan account on
its books (the"Revolving Loan Account") to which the Lender will (a) debit (i)
the principal amount of each advance under the Revolving Loan made by the
Lender hereunder as of the date made, (ii) the amount of any interest accrued
on the Revolving Loan as and when due, and (iii) any other amounts due and
payable by the Borrower to the Lender from time to time under the provisions
of this Agreement in connection with the Revolving Loan and the other
Obligations, including, without limitation,Enforcement Costs, Fees, late
charges, and service, collection and audit fees and(b) credit all payments
made by the Borrower to the Lender on account of the Revolving Loan as of the
date made including, without limitation, funds credited to the Revolving Loan
Account from the Collateral Account. The Lender may debit the Revolving Loan
Account for the amount of any Item of Payment which is returned to the Lender
unpaid. All credit entries to the Revolving Loan Account are conditional and
shall be readjusted as of the date made if final and indefeasible payment is
not received by the Lender in cash or solvent credits Any and all periodic or
other statements or reconciliations, and the information contained in those
statements or reconciliations, of the Revolving Loan Account shall be final,
binding and conclusive upon the Borrower in all respects, absent manifest
error, unless the Lender receives specific written objection thereto from the
Borrower within thirty (30) days after such statement or reconciliation shall
have been sent by the Lender.
2.1.10 Revolving Credit Unused Line Fee.
The Borrower shall pay to the Lender a monthly revolving
credit facility fee (collectively, the "Revolving Credit Unused Line Fees" and
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individually, a "Revolving Credit Unused Line Fee") in an amount equal to
three-eighths percent (0.375%) per annum of an amount equal to (a) the average
daily unused and undisbursed portion of the Revolving Credit Committed Amount
less (b) the average aggregate face amount of all Letters of Credit
outstanding during the period in question in effect from time to time accruing
during each calendar month,calculated in arrears. The accrued and unpaid
portion of the Revolving Credit Unused Line Fee shall be paid by the Borrower
to the Lender on the first day of each month, commencing on the first such
date following the date hereof, and on the Revolving Credit Termination Date.
2.1.11 Early Termination Fee.
In the event of the termination by, or on behalf of, the
Borrower, of the Revolving Credit Commitment (other than a termination of the
Revolving Credit Commitment in connection with or as a result of the
acceleration of the Obligations under Section 7.2, unless such acceleration
arises from or in connection with a bad faith failure by the Borrower to act
in accordance with its Obligations under this Agreement or the other Financing
Documents), or in the event of the payment in full of the aggregate
outstanding principal amount of the Revolving Loan, in each case on or prior
to October 31, 2001, the Borrower shall pay to the Lender a fee (the "Early
Termination Fee") in the amount of (a) one percent (1.0%) of the Revolving
Credit Committed Amount if such termination occurs on or prior to October 31,
1999, and (b) one-half of one percent (0.5%)of the Revolving Credit Committed
Amount if such termination occurs during the period commencing on October 31,
1999 and ending prior to October 31, 2000.
Payment of the Revolving Loan in whole or in part by or on behalf of the
Borrower, by court order or otherwise, following and as a result of the
institution of any bankruptcy proceeding by or against the Borrower, shall be
deemed to be a prepayment of the Revolving Loan subject to the Early
Termination Fee provided in this subsection. Notwithstanding the foregoing,
if after the consummation of any Permitted Indenture Refinancing the Lender
refuses to permit the Borrower to engage in a Proposed Acquisition satisfying
in all respects the definition of "Proposed Acquisition," the Borrower may,
within sixty (60) days after the date such refusal, terminate the Revolving
Credit Commitment without liability for the Early Termination Fee.
2.1.12 Required Availability under the Revolving Credit Facility.
(a)On the Closing Date and at all times thereafter, the
aggregate outstanding principal amount of the Revolving Loan and the current
stated amount of the Letters of Credit shall not exceed an amount equal to (i)
the least of (A) the Borrowing Base, (B) the Indenture Maximum Amount, or (C)
the Revolving Credit Committed Amount, minus (ii) the Reserve Amount, such
amount to be determined after application of the Permitted Uses of the
Revolving Loan required to be made on the Closing Date, the amount of the
costs relating to the closing of this Agreement (including, without
limitation, applicable Fees, recording costs,recording taxes, and the fees and
expenses of the Borrower's and the Lender's professionals).
(b)The Borrower shall make a Revolving Loan Mandatory
Prepayment pursuant to the provisions of Section 2.1.6 to the extent necessary
to achieve compliance with this Section.
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2.1.13 Elimination of Special Availability Loans.
Notwithstanding any other provision of this Agreement, the
Lender shall upon Borrower's written request reduce the Special Availability
Amount to zero,without the opportunity for the Borrower to borrow further
Special Availability Loans, if (a) no Event of Default then exists or would
thereupon occur and(b) the Lender determines, in its Good Faith discretion,
that the Borrower has sufficient Revolving Credit Availability, taking into
account such factors as Lender deems appropriate, in its Good Faith
discretion, to meet its working capital needs and to service its debt on an
ongoing basis without the need for Special Availability Loans.
Section 2.2 The Letter of Credit Facility.
2.2.1 Letters of Credit.
Subject to and upon the provisions of this Agreement, and
as a part of the Revolving Credit Commitment, the Borrower may obtain standby
and documentary letters of credit (as the same may from time to time be
amended, supplemented or otherwise modified, each a "Letter of Credit" and
collectively the "Letters of Credit") from the Lender from time to time from
the Closing Date until the Business Day preceding the Revolving Credit
Termination Date. The Borrower shall not be entitled to obtain a Letter of
Credit unless (a) the Borrower is then able to obtain a Revolving Loan from
the Lender in an amount not less than the proposed face amount of the Letter
of Credit requested by the Borrower, and (b)the sum of the then Outstanding
Letter of Credit Obligations (including the amount of the requested Letter of
Credit) does not exceed Five Million Dollars($5,000,000).
2.2.2 Letter of Credit Fees.
The Borrower shall pay to the Lender a fee of two percent
(2.0%) per annum of the aggregate face amount of the Letters of Credit
outstanding on the first day of the month, without regard for provisions
contained in the Letters of Credit which may give rise to a reduction in the
outstanding principal amount of the Letters of Credit unless such reduction
has actually occurred (each a "Letter of Credit Fronting Fee" and
collectively, the "Letter of Credit Fronting Fees"). The accrued and unpaid
portion of each Letter of Credit Fronting Fee shall be paid in arrears on the
first day of each month and upon the expiration or termination date of the
respective Letter of Credit Agreements. In addition, the Borrower shall pay
to the Lender any and all additional customary issuance,
negotiation,processing, transfer or other charges to the extent and as and
when required by the provisions of any Letter of Credit Agreement. All Letter
of Credit Fronting Fees and such other charges are included in and are a part
of the "Fees" payable by the Borrower under the provisions of this Agreement.
2.2.3 Terms of Letters of Credit; Post-Expiration Date Letters
of Credit.
Each Letter of Credit shall (a) be opened pursuant to a
Letter of Credit Agreement and (b) expire on a date not later than the
Business Day preceding the Revolving Credit Expiration Date; provided,
however, that if any Letter of Credit does have an expiration date later than
the Business Day preceding the Revolving Credit Termination Date (each a
"Post-Expiration Date Letter of Credit" and collectively, the "Post-Expiration
Date Letters of Credit"), effective as of the Business Day preceding the
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Revolving Credit Termination Date and without prior notice to or the consent
of the Borrower, the Lender shall make advances under the Revolving Loan for
the account of the Borrower in the aggregate face amount of all such Letters
of Credit. The Lender shall deposit the proceeds of such advances into the
Letter of Credit Cash Collateral Account. The Borrower acknowledges and
agrees that the Lender shall be entitled to reimburse any draw or draft on any
Post-Expiration Date Letter of Credit from the monies on deposit in the Letter
of Credit Cash Collateral Account without notice to or consent of the
Borrower. The Borrower further acknowledges and agrees that the Lender's
election to reimburse any draw or draft on any Post-Expiration Date Letter of
Credit from the Letter of Credit Cash Collateral shall in no way limit,
impair,lessen, reduce, release or otherwise adversely affect the Borrower's
obligation to pay any Letter of Credit Obligations under or relating to the
Post-Expiration Date Letters of Credit except to extent such reimbursement has
been indefeasibly retained by the Lender. At such time as all Post-Expiration
Date Letters of Credit have expired and all Letter of Credit Obligations
relating to the Post-Expiration Date Letters of Credit have been paid in full,
the Lender agrees to apply the amount of any remaining funds on deposit in the
Letter of Credit Cash Collateral Account to the then unpaid balance of the
Obligations under the Revolving Credit Facility in such order and manner as
the Lender shall determine in its sole and absolute discretion in accordance
with the provisions of this Agreement.
Each Letter of Credit shall be used for Permitted Uses, and for no other
purposes except as may otherwise be agreed by the Lender in writing. The
aggregate face amount of all Letters of Credit at any one time outstanding and
issued by the Lender pursuant to the provisions of this Agreement, including,
without limitation, any and all Post-Expiration Date Letters of Credit, plus
the amount of any unpaid Letter of Credit Fees accrued or scheduled to accrue
thereon, and less the aggregate amount of all drafts issued under or
purporting to have been issued under such Letters of Credit that have been
paid by the Lender and for which the Lender has been reimbursed by the
Borrower in full in accordance with Section 2.2.5 below and the Letter of
Credit Agreements, and for which the Lender has no further obligation or
commitment to restore all or any portion of the amounts drawn and reimbursed,
is herein called the "Outstanding Letter of Credit Obligations".
2.2.4 Procedures for Letters of Credit.
The Borrower shall give the Lender written notice at least
five (5) Business Days prior to the date on which the Borrower desires the
Lender to issue a Letter of Credit. Such notice shall be accompanied by a
duly executed Letter of Credit Agreement specifying, among other things: (a)
the name and address of the intended beneficiary of the Letter of Credit, (b)
the requested face amount of the Letter of Credit, (c) whether the Letter of
Credit is to be revocable or irrevocable, (d) the Business Day on which the
Letter of Credit is to be opened and the date on which the Letter of Credit is
to expire, (e) the terms of payment of any draft or drafts which may be drawn
under the Letter of Credit, and (f) any other terms or provisions the Borrower
desires to be contained in the Letter of Credit. Such notice shall also be
accompanied by such other information,certificates, confirmations, and other
items as the Lender may require to assure that the Letter of Credit is to be
issued in accordance with the provisions of this Agreement and a Letter of
Credit Agreement. In the event of any conflict between the provisions of this
Agreement and the provisions of a Letter of Credit Agreement, the provisions
of this Agreement shall prevail and control unless otherwise expressly
provided in the Letter of Credit Agreement. Upon (i) receipt of such notice,
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(ii) payment of all Fees payable in connection with the issuance of such
Letter of Credit, and (iii) receipt of a duly executed Letter of Credit
Agreement, the Lender shall process such notice and Letter of Credit Agreement
in accordance with its customary procedures and open such Letter of Credit on
the Business Day specified in such notice.
2.2.5 Payments of Letters of Credit.
The Borrower hereby promises to pay to the Lender, ON
DEMAND and in United States Dollars, the following which are herein
collectively referred to as the "Current Letter of Credit Obligations":
(a)the amount which the Lender has paid or will be
required to pay under each draft or draw on a Letter of Credit, whether such
demand be in advance of (but in no event earlier than one Business Day prior
to) the Lender's payment or for reimbursement for such payment;
(b)any and all reasonable charges and expenses which the
Lender may pay or incur relative to the Letter of Credit and/or such draws or
drafts; and
(c)interest on the amounts described in (a) and (b) not
paid by the Borrower as and when due and payable under the provisions of (a)
and (b) above from the day the same are due and payable until paid in full at
a rate per annum equal to the then current highest rate of interest on the
Revolving Credit Note.
In addition, the Borrower hereby promises to pay any and all other Letter
of Credit Obligations as and when due and payable in accordance with the
provisions of this Agreement and the Letter of Credit Agreements. The
obligation of the Borrower to pay Current Letter of Credit Obligations and all
other Letter of Credit Obligations shall be absolute and unconditional under
any and all circumstances and irrespective of any setoff, counterclaim or
defense to payment which the Borrower or any other account party may have or
have had against the beneficiary of such Letter of Credit, the Lender, or any
other Person, including,without limitation, any defense based on the failure
of any draft or draw to conform to the terms of such Letter of Credit, any
draft or other document proving to be forged, fraudulent or invalid, or the
legality, validity,regularity or enforceability of such Letter of Credit, any
draft or other documents presented with any draft, any Letter of Credit
Agreement, this Agreement, or any of the other Financing Documents, all
whether or not the Lender had actual or constructive knowledge of the same,
and irrespective of any Collateral, security or guarantee therefor or right of
offset with respect thereto and irrespective of any other circumstances
whatsoever which constitutes,or might be construed to constitute, an equitable
or legal discharge of the Borrower for any Letter of Credit Obligations, in
bankruptcy or otherwise,provided, however, that the Borrower shall not be
obligated to reimburse the Lender for any wrongful payment under such Letter
of Credit made as a result of the Lender's willful misconduct or gross
negligence. The obligation of the Borrower to pay the Letter of Credit
Obligations shall not be conditioned or contingent upon the pursuit by the
Lender or any other Person at any time of any right or remedy against any
Person which may be or become liable in respect of all or any part of such
obligation or against any Collateral, security or guarantee therefor or right
of offset with respect thereto.
Without in any way limiting the Borrower's payment obligation with
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respect to Letters of Credit as set forth above, upon each drawing under a
Letter of Credit,the Lender shall seek reimbursement from any amounts then on
deposit in the Letter of Credit Cash Collateral Account. In the event that
(i) no amounts are then on deposit in such Letter of Credit Cash Collateral
Account, (ii) the amount then on deposit in such Letter of Credit Cash
Collateral Account is insufficient to pay the amount of such drawing, (iii)
the Lender is legally prevented or restrained from immediately applying
amounts on deposit in such Letter of Credit Cash Collateral Account or (iv)
the Borrower is required to make a payment under Section 2.2.8 hereof and
fails to make such payment as required, then the amount of each unreimbursed
drawing under such Letter of Credit and payment required to be made under
Section 2.2.8 shall automatically be converted into an advance under the
Revolving Loan made to the Borrower on the date of such drawing for all
purposes of this Agreement (but without any requirement for compliance with
any conditions to the making of Revolving Loans contained in Section 5.2
hereof). To the extent that the Lender applies amounts on deposit in the
Letter of Credit Cash Collateral Account as aforesaid and, thereafter, such
application (or any portion thereof) is rescinded or any amount so applied
must otherwise be returned by the Lender upon the insolvency, bankruptcy or
reorganization of the Borrower or otherwise, then the amount so rescinded or
returned shall automatically be converted into an advance under the Revolving
Loan made to the Borrower on the date of such drawing for all purposes of this
Agreement (but without any requirement for compliance with any conditions to
the making of Revolving Loans contained in Section 5.2 hereof).
The Letter of Credit Obligations shall continue to be effective, or be
reinstated, as the case may be, if at any time payment of all or any portion
of the Letter of Credit Obligations is rescinded or must otherwise be restored
or returned by the Lender upon the insolvency, bankruptcy, dissolution,
liquidation or reorganization of any Person, or upon or as a result of the
appointment of a receiver, intervenor, or conservator of, or trustee or
similar officer for, any Person, or any substantial part of such Person's
property, all as though such payments had not been made.
2.2.6 Change in Law; Increased Cost.
If after the Closing Date any change in any law or
regulation or in the interpretation thereof by any court or other Governmental
Authority charged with the administration thereof shall either (a) impose,
modify or deem applicable any reserve, special deposit or similar requirement
against Letters of Credit issued by the Lender, or (b) impose on the Lender
any other condition regarding this Agreement or any Letter of Credit, and the
result of any event referred to in clauses (a) or (b) above shall be to
increase the cost to the Lender of issuing,maintaining or extending the Letter
of Credit or the cost to the Lender of funding any obligation under or in
connection with the Letter of Credit, then,upon demand by the Lender, the
Borrower shall promptly pay to the Lender from time to time as specified by
the Lender, additional amounts which shall be sufficient to compensate the
Lender for such increased cost, together with interest on each such amount
from the date demanded until payment in full thereof at a rate per annum equal
to the then highest current rate of interest on the Revolving Loan. A
certificate as to such increased cost incurred by the Lender setting forth in
reasonable detail the calculation of such costs, submitted by the Lender to
the Borrower, shall be conclusive, absent manifest error.
2.2.7 General Letter of Credit Provisions.
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The Borrower hereby instructs the Lender to pay any draft
complying with the terms of any Letter of Credit irrespective of any
instructions of the Borrower to the contrary. The Borrower assumes all risks
of the acts and omissions of the beneficiary and other users of any Letter of
Credit. The Lender and its respective branches, Affiliates and/or
correspondents shall not be responsible for and the Borrower hereby
indemnifies and holds the Lender and its respective branches, Affiliates
and/or correspondents harmless from and against all liability, loss and
expense (including reasonable attorney's fees and costs)incurred by the Lender
and/or its respective branches, Affiliates and/or correspondents (other than
arising from its or their acts of gross negligence or willful misconduct)
relative to and/or as a consequence of (a) any failure by any Borrower to
perform the agreements hereunder and under any Letter of Credit Agreement, (b)
any Letter of Credit Agreement, this Agreement as it relates to Letters of
Credit, any Letter of Credit and any draft, draw and/or acceptance under or
purported to be under any Letter of Credit, (c) any action taken or omitted by
the Lender and/or any of its respective branches, Affiliates and/or
correspondents at the request of the Borrower, (d) any failure or inability to
perform in accordance with the terms of any Letter of Credit by reason of any
control or restriction rightfully or wrongfully exercised by any de facto or
dejure Governmental Authority, group or individual asserting or exercising
governmental or paramount powers, and/or (e) any consequences arising from
causes beyond the control of the Lender and/or any of its respective
branches,Affiliates and/or correspondents, (f) the form, validity,
sufficiency, accuracy,or genuineness or legal effect of any Letter of Credit
or any document submitted by any party in connection with the application for
and issuance of a Letter of Credit, even if it should in fact prove to be in
any or all respects invalid,insufficient, inaccurate, fraudulent or forged,
and/or (g) the form, validity,sufficiency, accuracy, genuineness or legal
effect of any instrument transferring or assigning or purporting to transfer
or assign a Letter of Credit 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. None of the foregoing shall affect,impair or prevent the vesting
of any rights or powers granted to the Lender hereunder.
Except for gross negligence and willful misconduct, the Lender and its
respective branches, Affiliates and/or correspondents, shall not be liable or
responsible in any respect for any (a) error, omission, interruption or delay
in transmission, dispatch or delivery of any one or more messages or advices
in connection with any Letter of Credit, whether transmitted by cable,
telegraph,mail or otherwise and despite any cipher or code which may be
employed, and/or(b) action, inaction or omission which may be taken or
suffered by it or them in good faith or through inadvertence in identifying or
failing to identify any beneficiary or otherwise in connection with any Letter
of Credit.
Any Letter of Credit may be amended, modified or revoked only upon the
receipt by the Lender from the Borrower and the beneficiary (including any
transferee and/or assignee of the original beneficiary), of a written consent
and request therefor.
If any Laws, order of court and/or ruling or regulation of any
Governmental Authority of the United States (or any state thereof) and/or any
country other than the United States permits a beneficiary under a Letter of
Credit to require the Lender and/or any of its respective branches, Affiliates
and/or correspondents to pay drafts under or purporting to be under a Letter
of Credit after the expiration date of the Letter of Credit, the Borrower
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shall reimburse the Lender for any such payment pursuant to provisions of
Section 2.2.5 hereof.
Except as may otherwise be specifically provided in a Letter of Credit or
Letter of Credit Agreement, the laws of the State of Ohio and the Uniform
Customs and Practice for Documentary Credits, 1993 Revision, International
Chamber of Commerce Publication No. 500 shall govern the Letters of Credit.
The Laws,rules, provisions and regulations of the Uniform Customs and Practice
for Documentary Credits are hereby incorporated by reference. In the event of
a conflict between the Uniform Customs and Practice for Documentary Credits
and the laws of the State of Ohio, the Uniform Customs and Practice for
Documentary Credits shall prevail.
2.2.8 Actions in Respect of the Letters of Credit.
In addition to the Lender's rights with respect to
Post-Expiration Date Letters of Credit set forth in Section 2.2.3 hereof, if
any Event of Default shall have occurred and be continuing, Lender may,
whether in addition to taking any of the actions described in Section 7.2.1 or
otherwise, if any Letters of Credit shall have been issued and be outstanding
for the account of the Borrower, make demand upon the Borrower to, and
forthwith upon such demand the Borrower will, pay to the Lender in same day
funds at the Lender's office designated in such demand,for deposit in a
special non-interest bearing cash collateral account for the Borrower (each
such account maintained for the Borrower being referred to as the"Letter of
Credit Cash Collateral Account") to be maintained at such office of the
Lender, an amount equal to the aggregate face amount of all Letters of Credit
then outstanding, after giving effect to all drawings paid thereunder or
reductions of such face amount and to all reinstatements of such face amounts
effected, pursuant to the terms of the applicable Letter of Credit, prior to
such time. Each Letter of Credit Cash Collateral Account shall be in the name
of the Borrower (as a cash collateral account), but under the sole dominion
and control of the Lender and subject to the terms of this Agreement.
2.2.9 Letter of Credit Cash Collateral Account.
(a)The Borrower hereby pledges, and grants to the Lender a
lien and security interest in, all funds held in its Letter of Credit Cash
Collateral Account from time to time and all proceeds thereof, as security for
the payment of all amounts due and to become due from the Borrower to the
Lender under the Financing Documents.
(b)The Lender may, at any time or from time to time after
funds are deposited in the Letter of Credit Cash Collateral Account, apply
funds then held in such Letter of Credit Cash Collateral Account to the
payment of any amounts, in such order as the Lender may elect, as shall have
become or shall become due and payable by the Borrower to the Lender under the
Financing Documents first, in respect of the Letters of Credit of the Borrower
and second, in respect of all other Obligations.
(c)Neither the Borrower nor any Person claiming on behalf
of or through the Borrower shall have any right to withdraw any of the funds
held in a Letter of Credit Cash Collateral Account, except as otherwise
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provided in subsection (d)below.
(d)So long as no Event of Default shall be continuing, the
Lender will apply to the Obligations, at the written request of the Borrower,
funds held in the Borrower's Letter of Credit Cash Collateral Account in an
amount up to but not exceeding the excess, if any (immediately prior to the
release of any such funds), of (i) the total amount of funds held in such
Letter of Credit Cash Collateral Account over (ii) the Letter of Credit
Obligations of the Borrower. If at any time the Letter of Credit Obligations
of the Borrower shall have been indefeasibly paid or otherwise satisfied in
full and no Event of Default shall then exist, the Lender will apply any
remaining amount on deposit in such Letter of Credit Cash Collateral Account
to the other Obligations of the Borrower to the Lender in such order and
method of application as may be elected by the Lender in its sole discretion
and/or retain such amount as continuing security for the Obligations.
(e)The Borrower agrees that it will not (i) sell or
otherwise dispose of any interest in the Letter of Credit Cash Collateral
Account or any funds held therein, or (ii) create or permit to exist any lien,
security interest or other charge or encumbrances upon or with respect to the
Letter of Credit Cash Collateral Account or any funds held therein other than
in favor of the Lender.
(f)The Lender shall exercise reasonable care in the
custody and preservation of any funds held in the Letter of Credit Cash
Collateral Account and shall be deemed to have exercised such care if such
funds are accorded treatment substantially equivalent to that which the Lender
accords its own property, it being understood that the Lender shall not have
any responsibility for taking any necessary steps to preserve rights against
any parties with respect to any such funds.
(g) If any Event of Default shall have occurred and be
continuing:
(i)The Lender may, without notice to the Borrower at
any time or from time to time, charge, set-off and otherwise apply all or any
part of the Obligations of the Borrower now or hereafter existing under any of
the Financing Documents against its Letter of Credit Cash Collateral Account
or any part thereof.
(ii)The Lender may also exercise in respect of the
Letter of Credit Cash Collateral Account, in addition to other rights and
remedies provided for herein or otherwise available to it, all the rights and
remedies of a secured party upon default under the Uniform Commercial Code in
effect at that time, and the Lender may, without notice except as specified
below, sell such Letter of Credit Cash Collateral Account or any part thereof
in one or more parcels at public or private sale, at any of the Lender's
offices or elsewhere, for cash, on creditor for future delivery, and upon such
other terms as the Lender may deem commercially reasonable. The Borrower
agrees that, to the extent notice of sale shall be required by law, at least
ten (10) days" notice to the Borrower of the time and place of any public sale
or the time after which any private sale is to be made shall constitute
reasonable notification. The Lender shall not be obligated to make any sale
of a Letter of Credit Cash Collateral Account,regardless of notice of sale
having been given. The Lender may adjourn any public or private sale from
time to time by announcement at the time and place fixed therefor, and such
sale may, without further notice, be made at the time and place to which it
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was so adjourned.
(iii)Any cash held by the Lender in the Letter of
Credit Cash Collateral Account,and all cash proceeds received by the Lender in
respect of any sale of,collection from or other realization upon all or any
part of such Letter of Credit Cash Collateral Account shall be applied in
whole by the Lender against the Obligations in such order as the Lender shall
elect. Any surplus of such cash or cash proceeds held by Lender and remaining
after payment in full of all the Obligations shall be paid over to the
Borrower or to whomsoever may be lawfully entitled to receive such surplus.
Section 2.3 Interest.
2.3.1 Applicable Interest Rates.
(a)Each Loan shall bear interest until maturity (whether
by acceleration,declaration, extension or otherwise) at either the Base Rate
or the LIBOR Rate,as selected and specified by the Borrower in an Interest
Rate Election Notice furnished to the Lender in accordance with the provisions
of Section 2.3.2(f),or as otherwise determined in accordance with the
provisions of this Section 2.3,and as may be adjusted from time to time in
accordance with the provisions of Section 2.3.3.
(b)Notwithstanding the foregoing, following the occurrence
and during the continuance of an Event of Default, all Loans and all other
Obligations shall bear interest at the Post-Default Rate.
2.3.2 Selection of Interest Rates.
(a)The Borrower may select the initial Applicable Interest
Rate or Applicable Interest Rates to be charged on the Loans, provided,
however, that notwithstanding any selection by the Borrower, Special
Availability Loans shall at all times bear interest first at the Base Rate and
then, to the extent Special Availability Loans at any time exceed the portion
of the Loans to which the Base Rate has been selected or is otherwise
applicable, at the LIBOR Rate.
(b)From time to time after the date of this Agreement as
provided in this Section, by a proper and timely Interest Rate Election Notice
furnished to the Lender in accordance with the provisions of Section 2.3.2(f),
the Borrower may select an initial Applicable Interest Rate or Applicable
Interest Rates for any Loans or may convert the Applicable Interest Rate and,
when applicable, the Interest Period, for any existing Loan to any other
Applicable Interest Rate or,when applicable, any other Interest Period.
(c) The Borrower's selection of an Applicable Interest
Rate and/or an Interest Period, its election to convert an Applicable Interest
Rate and/or an Interest Period to another Applicable Interest Rate or Interest
Period, and any other adjustments in an interest rate are subject to the
following limitations:
(i)the Borrower shall not at any time select or
change to an Interest Period that extends beyond the Revolving Credit
Expiration Date.
(ii)no change from the LIBOR Rate to the Base Rate
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shall become effective on a day other than a Business Day and on a day which
is the last day of the then current Interest Period; no change of an Interest
Period shall become effective on a day other than the last day of the then
current Interest Period; and no change from the Base Rate to the LIBOR Rate
shall become effective on a day other than a day which is a Eurodollar
Business Day;
(iii)any Applicable Interest Rate change for any Loan
to be effective on a date on which any principal payment on account of such
Loan is scheduled to be paid shall be made only after such payment shall have
been made;
(iv)no more than five (5) different LIBOR Rates may
be outstanding at any time and from time to time with respect to the Revolving
Loan;
(v)the first day of each Interest Period shall be a
Eurodollar Business Day;
(vi)if, as of the effective date of a selection, a
Default or an Event of Default exists, the Lender, in the exercise of its sole
and absolute discretion, may elect that no such selection, election or
adjustment shall be allowed.
(d)The minimum principal amount of a LIBOR Loan shall be
One Million Dollars($1,000,000), and each such LIBOR Loan shall be an integral
multiple of Two Hundred Fifty Thousand Dollars ($250,000).
(e)If a request for an advance under the Loans is not
accompanied by an Interest Rate Election Notice or does not otherwise include
a selection of an Applicable Interest Rate and, if applicable, an Interest
Period, or if, after having made a selection of an Applicable Interest Rate
and, if applicable, an Interest Period, the Borrower fails or is not otherwise
entitled under the provisions of this Agreement to continue such Applicable
Interest Rate or Interest Period, the Borrower shall be deemed to have
selected the Base Rate as the Applicable Interest Rate until such time as the
Borrower has selected a different Applicable Interest Rate and specified an
Interest Period in accordance with, and subject to, the provisions of this
Section.
(f)The Lender will not be obligated to make Loans, to
convert the Applicable Interest Rate on Loans to another Interest Rate, or to
change Interest Periods,unless the Lender shall have received an irrevocable
written or telephonic notice(an "Interest Rate Election Notice") from the
Borrower specifying the following information:
(i)the amount to be borrowed or converted or
continued;
(ii)a selection of the Base Rate or the LIBOR Rate;
(iii)the length of the Interest Period if the
Applicable Interest Rate selected is the LIBOR Rate; and
(iv)the requested date on which such election is to
be effective.Any telephonic notice must be confirmed in writing within three
(3) Business Days. Each Interest Rate Election Notice must be received by the
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Lender not later than 12:00 noon (Baltimore, Maryland Time) on the Business
Day of any requested borrowing or conversion in the case of a selection of the
Base Rate and not later than 12:00 noon (Baltimore, Maryland Time) on the
third (3rd) Business Day before the effective date of any requested borrowing
or conversion or continuation in the case of a selection of the LIBOR Rate.
2.3.3 Inability to Determine LIBOR Base Rate.
(a)In the event that (i) the Lender shall have determined
that, by reason of circumstances affecting the London interbank eurodollar
market, adequate and reasonable means do not exist for ascertaining the LIBOR
Base Rate for any requested Interest Period with respect to a Loan the
Borrower has requested to be made or to be converted to a LIBOR Loan or (ii)
the Lender shall determine that the LIBOR Base Rate for any requested Interest
Period with respect to a Loan the Borrower has requested to be made or to be
converted to a LIBOR Loan does not adequately and fairly reflect the cost to
the Lender of funding or converting such Loan, the Lender shall give
telephonic or written notice of such determination to the Borrower at least
one (1) day prior to the proposed date for funding or converting such Loan.
If such notice is given, any request for a LIBOR Loan shall be made or
converted to a Base Rate Loan. Until such notice has been withdrawn by the
Lender, the Borrower will not request that any Loan be made or converted to a
LIBOR Loan.
(b)If applicable Laws shall (i) make it unlawful for the
Lender to fund through the purchase of Dollar deposits with respect to any
portion of a Loan that is based, or requested by the Borrower to be based, on
LIBOR or otherwise give effect to the Lender's obligations as contemplated
under this Section with respect to the use of the LIBOR Rate, or (ii) impose
on the Lender any costs based on or measured by the excess above a specified
level of the amount of a category of deposits or other liabilities of the
Lender which includes deposits by reference to which the LIBOR Rate is
determined as provided herein or a category of extensions of credit or other
assets of the Lender which includes a LIBOR Rate, or (iii) impose on the
Lender any restrictions on the amount of such a category of liabilities or
assets which the Lender may hold, then, in each such case, the Lender may, by
notice thereof to the Borrower, terminate the LIBOR option. Any portion of
the Loans subject thereto shall immediately bear interest thereafter at the
Base Rate.
2.3.4 Indemnity.
The Borrower agrees to indemnify and reimburse the Lender
and to hold the Lender harmless from any loss, cost (including administrative
costs) or expense(including, without limitation, any such loss or expense
arising from there employment of funds obtained by the Lender to maintain any
LIBOR Loan or from fees payable to terminate the deposits from which such
funds were obtained) which the Lender may sustain or incur as a consequence of
(a) a default by the Borrower in payment when due of the principal amount of
or interest on any LIBOR Loan,(b) the failure of the Borrower to make, or
convert the Applicable Interest Rate of, a Loan after the Borrower has given a
Loan Notice or an Interest Rate Election Notice, (c) the failure of the
Borrower to make any prepayment of a LIBOR Loan after the Borrower has given
notice of such intention to make such a prepayment, (d) the termination of the
LIBOR option pursuant to Section 2.3.3(b),and/or (e) the making by the
Borrower of a prepayment of a LIBOR Loan on a day which is not the last day of
the Interest Period for such LIBOR Loan. This agreement and covenants of the
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Borrower shall survive termination or expiration of this Agreement and payment
of the other Obligations.
2.3.5 Payment of Interest.
(a)Unpaid and accrued interest on any advance of the Loans
which consists of a Base Rate Loan shall be paid monthly, in arrears, on the
first day of each calendar month, commencing on December 1, 1998, and on the
first day of each calendar month thereafter, and at maturity (whether by
acceleration, declaration,extension or otherwise).
(b)Notwithstanding the foregoing, any and all unpaid and
accrued interest on any Base Rate Loan converted to a LIBOR Loan or prepaid
shall be paid immediately upon such conversion and/or prepayment, as
appropriate.
(c)Unpaid and accrued interest on any LIBOR Loan shall be
paid on the last Business Day of each Interest Period for such LIBOR Loan
(and, in addition, for any Interest Period of one hundred twenty (120) or one
hundred eighty (180) days,on the first Business Day after the 89th day after
the commencement of the Interest Period) and at maturity (whether by
acceleration, declaration, extension or otherwise); provided, however, that
any and all unpaid and accrued interest on any LIBOR Loan prepaid prior to
expiration of the then current Interest Period for such LIBOR Loan shall be
paid immediately upon prepayment.
Section 2.4 General Financing Provisions.
2.4.1 Lender Authorizations.
The Borrower hereby irrevocably authorizes the Lender to
make Loans to the Borrower, and hereby irrevocably authorizes the Lender to
issue Letters of Credit for the account of the Borrower, pursuant to the
provisions of this Agreement upon the written, oral or telephone request of
any one (1) of the Persons who is from time to time a Responsible Officer of
the Borrower under the provisions of the most recent "Certificate" of
corporate resolutions and/or incumbency of the Borrower on file with the
Lender. The Lender does not assume any responsibility or liability for any
errors, mistakes, and/or discrepancies in the oral,telephonic, written or
other transmissions of any instructions, orders, requests and confirmations
between the Lender and the Borrower in connection with the Credit Facilities,
any Loan, any Letter of Credit or any other transaction in connection with the
provisions of this Agreement.
2.4.2 Use of Proceeds of the Loans.
The proceeds of each Loan shall be used by the Borrower
for Permitted Uses, and for no other purposes except as may otherwise be
agreed by the Lender in writing.
2.4.3 Closing Fee.
The Borrower shall pay on or before the Closing Date to
the Lender a Closing Fee(the "Closing Fee") in the amount of Three Hundred
Thousand Dollars ($300,000),which fee has been fully earned and is
non-refundable. Lender acknowledges that the Borrower has paid to the Lender,
prior to the Closing Date, Seventy-Five Thousand Dollars ($75,000), which
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amount, net of costs and expenses incurred by the Lender through the Closing
Date, shall be credited toward the payment of the Closing Fee on the Closing
Date.
2.4.4 Collateral Management Fee.
The Borrower shall pay to the Lender an annual collateral
management fee(collectively, the "Collateral Management Fees" and individually
a "Collateral Management Fee"), in the amount of Sixty Thousand Dollars
($60,000), payable quarterly in arrears, in installments of Fifteen Thousand
Dollars ($15,000) each,on the first day of each February, May, August and
October, with the balance of any quarterly installment (or pro rata portion
thereof) which has not been paid being due and payable on the date the other
Obligations have been paid in full and the Commitments terminated.
2.4.5 Computation of Interest and Fees.
All applicable Fees and interest shall be calculated on
the basis of a year of three hundred sixty (360) days for the actual number of
days elapsed. Any change in the interest rate on any of the Obligations
resulting from a change in the Base Rate shall become effective as of the
opening of business on the day on which such change in the Base Rate is
announced.
2.4.6 Payments.
All payments of the Obligations, including, without
limitation, principal,interest, Prepayments, and Fees, shall be paid by the
Borrower without setoff or counterclaim to the Lender (except as otherwise
provided herein) at the Lender's office specified in Section 8.1 (unless the
Lender specifies a different address)in immediately available funds not later
than 12:00 noon. (Baltimore, Maryland Time) on the due date of such payment.
All payments received by the Lender after such time shall be deemed to have
been received by the Lender for purposes of computing interest and Fees and
otherwise as of the next Business Day. Payments shall not be considered
received by the Lender until such payments are paid to the Lender in
immediately available funds. Unless otherwise provided in this Agreement or
in the other Financing Documents, prior to the occurrence of an Event of
Default, all payments shall be applied as follows: first to any Fees,second to
any and all accrued and unpaid late charges and Enforcement Costs,third to any
and all accrued but unpaid interest on the Obligations, and then to principal.
Following the occurrence of an Event of Default, subject to Section 7.2.5, all
payments shall be applied to the Obligations in such order and manner as shall
be determined by the Lender in its sole and absolute discretion.
2.4.7 Liens; Setoff.
In addition to the Liens set forth in ARTICLE 3, the
Borrower hereby grants to the Lender a continuing Lien as security for all of
the Obligations upon any and all monies, securities, and other property of the
Borrower and the proceeds thereof, now or hereafter held or received by or in
transit to, the Lender and/or any Affiliate of the Lender, from or for the
Borrower, and also upon any and all deposit accounts (general or special) and
credits of the Borrower, if any, with the Lender or any Affiliate of the
Lender, at any time existing, excluding any deposit accounts held by the
Borrower in capacity as trustee. Without implying any limitation on any other
rights the Lender may have under the Financing Documents or applicable Laws,
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during the continuance of an Event of Default, the Lender is hereby authorized
by the Borrower at any time and from time to time,without notice to the
Borrower, to set off, appropriate and apply any or all items hereinabove
referred to against all Obligations then outstanding (whether or not then
due), all in such order and manner as shall be determined by the Lender in its
sole and absolute discretion.
2.4.8 Requirements of Law.
In the event that the Lender shall have determined in Good
Faith that (a) the adoption after the Closing Date of any Laws regarding
capital adequacy, or (b)any change after the Closing Date therein or in the
interpretation or application thereof or (c) compliance by the Lender or any
corporation controlling the Lender with any request or directive regarding
capital adequacy (whether or not having the force of law) from any central
bank or Governmental Authority, does or shall have the effect of reducing the
rate of return on the capital of the Lender or any corporation controlling the
Lender, as a consequence of the obligations of the Lender hereunder to a level
below that which the Lender or any corporation controlling the Lender would
have achieved but for the adoption, change or compliance (taking into
consideration the policies of such Lender and the corporation controlling the
Lender, with respect to capital adequacy) by an amount reasonably deemed by
the Lender to be material, then from time to time,after submission by the
Lender to the Borrower of a written request therefor and a statement of the
basis for such determination setting forth in reasonable detail the
calculation of such amount, the Borrower shall pay to such Lender such
additional amount or amounts in order to compensate for such reduction.
2.4.9 Funds Transfer Services.
(a)The Borrower acknowledges that the Lender has made
available to the Borrower Wire Transfer Procedures, a copy of which is
attached to this Agreement as Exhibit "C" and which include a description of
the Security Procedures. The Borrower and the Lender agree that the Security
Procedures are commercially reasonable. The Borrower further acknowledges
that the full scope of the Security Procedures which the Lender or such
Affiliate bank offers and strongly recommends for funds transfers is available
only if the Borrower communicates directly with the Lender or such Affiliate
bank as applicable in accordance with said procedures. If the Borrower
attempts to communicate by any other method or otherwise not in accordance
with the Security Procedures or other security procedures of which the
Borrower has received notice after the date hereof, the Lender or such
Affiliate bank, as applicable, shall not be required to execute such
instructions, but if the Lender or such Affiliate bank, as applicable, does
so, the Borrower will be deemed to have refused the Security Procedures that
the Lender or such Affiliate bank as applicable offers and strongly
recommends, and the Borrower will be bound by any funds transfer, whether or
not authorized,which is issued in the Borrower's name and accepted by the
Lender or such Affiliate bank, as applicable, in Good Faith. The Lender or
such Affiliate bank,as applicable, may modify Wire Transfer Procedures
including, without limitation,the Security Procedures at such time or times
and in such manner as the Lender or such Affiliate bank, as applicable, in its
sole discretion, deems appropriate to meet prevailing standards of good
banking practice. By continuing to use the Lender's or such Affiliate bank's,
as applicable, wire transfer services after receipt of any modification of the
Wire Transfer procedures including, without limitation, the Security
Procedures, the Borrower agrees that the Security Procedures, as modified, are
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likewise commercially reasonable. The Borrower further agrees to establish
and maintain procedures to safeguard the Security Procedures and any
information related thereto. Neither the Lender nor any Affiliate of the
Lender is responsible for detecting any error in payment order sent by the
Borrower to the Lender.
(b)The Lender or such Affiliate bank, as applicable, will
generally use the Fedwire funds transfer system for domestic funds transfers,
and the funds transfer system operated by the Society for Worldwide
International Financial Telecommunication (SWIFT) for international funds
transfers. International funds transfers may also be initiated through the
Clearing House InterBank Payment System (CHIPs) or international cable.
However, the Lender or such Affiliate bank, as applicable, may use any means
and routes that the Lender or such Affiliate bank, as applicable, in its sole
and absolute discretion, may consider suitable for the transmission of funds
under the circumstances. Each payment order, or cancellation thereof, carried
out through a funds transfer system or a clearinghouse will be governed by all
applicable funds transfer system rules and clearing house rules and clearing
arrangements, whether or not the Lender or such Affiliate bank, as applicable,
is a member of the system, clearinghouse or arrangement and the Borrower
acknowledges that the Lender's or such Affiliate bank's, as applicable, right
to reverse, adjust, stop payment or delay posting of an executed payment order
is subject to the laws, regulations, rules, circulars and agreements.
ARTICLE 3 THE COLLATERAL
Section 3.1 Debt and Obligations Secured.
All property and Liens assigned, pledged or otherwise granted under or in
connection with this Agreement (including, without limitation, those under
Section 3.2 (Grant of Liens) below) or any of the Financing Documents shall
secure (a) the payment of all of the Obligations, including, without
limitation,any and all Outstanding Letter of Credit Obligations, and (b) the
performance,compliance with an observance by the Borrower of the provisions of
this Agreement and all of the other Financing Documents or otherwise under the
Obligations.
Section 3.2 Grant of Liens.
To secure payment and performance of all Obligations, the Borrower hereby
grants to the Lender a continuing security interest in, a lien upon, and a
right of setoff against, and hereby assigns to Lender as security, the
following property and interests in property, whether now owned or hereafter
acquired or existing, and wherever located: (a) Accounts; (b) Inventory; (c)
the following property of the Borrower to the extent necessary to permit the
Lender to foreclose and realize upon the Borrower's Accounts and Inventory:
General Intangibles (excluding,however, any license agreement pursuant to
which the grant of a security interest in the Borrower's rights and interests
in such license agreement would constitute an enforceable event of termination
or event of default giving the other party an enforceable right to terminate
such license agreement, unless such other party has given its consent or
waived any such event of termination or event of default), Documents,
Instruments and Chattel Paper; (d) all deposit accounts(general or special) of
the Borrower maintained with any bank or financial institution; (e) all
Depository Accounts and all cash deposited therein from time to time and other
monies and property of the Borrower in the possession of or under the control
of the Lender or any agent for the Lender; (f) all Records that at any time
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evidence or contain information relating to any of the property described in
clauses (a) through (e) above or are otherwise necessary or helpful in the
collection thereof or realization thereon; and (g) all products and proceeds
of all or any of the foregoing, in any form, including, without limitation,
insurance proceeds and all claims against third parties for loss or damage to
or destruction of any or all of the foregoing.
Section 3.3 Collateral Disclosure List.
On or prior to the Closing Date, the Borrower shall deliver to the Lender
a list(the "Collateral Disclosure List") which shall contain such information
with respect to the Borrower's business and real and personal property as the
Lender may require and shall be certified by a Responsible Officer of the
Borrower, all in the form provided to the Borrower by the Lender. Without
implying any limitation on any other provision of this Agreement, the Borrower
shall furnish to the Lender an update of the information contained in the
Collateral Disclosure List at any time and from time to time as may be
necessary to make the information contained in the Collateral Disclosure List
complete and correct and at other times as may be requested by the Lender.
Such updates shall be deemed to be included in the definition of "Collateral
Disclosure List."
Section 3.4 Personal Property.
The Borrower acknowledges and agrees that it is the intention of the
parties to this Agreement that the Lender shall have a first priority,
perfected Lien, inform and substance satisfactory to the Lender and its
counsel, on all of the Borrower's Collateral, whether now owned or hereafter
arising or acquired:
3.4.1 Instruments and Chattel Paper, Promissory Notes, etc.
(a)On the Closing Date and without implying any limitation
on the scope of Section 3.2 (Grant of Liens) above, the Borrower shall deliver
to Lender all originals of all of the Collateral consisting of Instruments and
Chattel Paper and Documents and, if the Lender so requires, shall execute and
deliver a separate pledge, assignment and security agreement in form and
content reasonably acceptable to the Lender, which pledge, assignment and
security agreement shall assign, pledge and grant a Lien to the Lender, on all
of such Collateral.
(b)In the event that the Borrower shall acquire after the
Closing Date any Collateral consisting of Instruments and Chattel Paper or
Documents, the Borrower shall promptly so notify the Lender and deliver the
originals of all of the foregoing to the Lender promptly and in any event
within ten (10) days of each acquisition.
(c)All Collateral consisting of securities, Instruments
and Chattel Paper and Documents shall be delivered to the Lender endorsed
and/or assigned as required by the pledge, assignment and security agreement
and/or as the Lender may require and, if applicable, shall be accompanied by
blank irrevocable and unconditional stock or bond powers.
Section 3.5 Record Searches.
As of the Closing Date and thereafter at the time any Financing Document
is executed and delivered by the Borrower pursuant to this Section, the Lender
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shall have received, in form and substance satisfactory to the Lender, such
Lien or record searches with respect to the Borrower and/or any other Person,
as appropriate, and the property covered by such Financing Document showing
that the Lien of such Financing Document will be a perfected first priority
Lien on the property covered by such Financing Document subject only to
Permitted Liens, to the extent permitted under Section 3.4 (Personal
Property.), or to such other matters as the Lender may approve.
Section 3.6 Costs.
The Borrower agrees to pay, as part of the Enforcement Costs and to the
fullest extent permitted by applicable Laws, on demand all reasonable costs,
fees and expenses incurred by the Lender in connection with the taking,
perfection,preservation, protection and/or release of a Lien on the
Collateral, including,without limitation:
(a)reasonable fees and expenses incurred by the Lender in
preparing, reviewing,negotiating and finalizing the Financing Documents from
time to time (including,without limitation, reasonable attorneys" fees
incurred in connection with preparing, reviewing, negotiating, and finalizing
any of the Financing Documents,including, any amendments and supplements
thereto);
(b)all filing and/or recording taxes or fees;
(c)all title insurance premiums and costs;
(d)all costs of Lien and record searches;
(e)reasonable attorneys" fees in connection with all legal
opinions required;
(f)appraisal and/or survey costs; and
(g)all related costs, fees and expenses.
Section 3.7 Release.
Upon the payment and performance of all Obligations of the Borrower and
all obligations and liabilities of each other Person, other than the Lender,
under this Agreement and all other Financing Documents, the termination and/or
expiration of all of the Commitments, all Letters of Credit, and all
Outstanding Letter of Credit Obligations, upon the Borrower's request and at
the Borrower's sole cost and expense, the Lender shall release and/or
terminate any Financing Document but only if and provided that there is no
commitment or obligation(whether or not conditional) of the Lender to
readvance amounts which would be secured thereby and/or no commitment or
obligation of the Lender to issue any Letter of Credit or return or restore
any payment of any Current Letter of Credit Obligations.
Section 3.8 Inconsistent Provisions.
In the event that the provisions of any Financing Document directly
conflict with any provision of this Agreement, the provisions of this
Agreement govern.
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ARTICLE 4 REPRESENTATIONS AND WARRANTIES
Section 4.1 Representations and Warranties.
The Borrower represents and warrants to the Lender, as follows:
4.1.1 Subsidiaries.
The Borrower has the Subsidiaries listed on the Collateral
Disclosure List attached hereto and made a part hereof and no others. Each of
the Subsidiaries is a Wholly Owned Subsidiary except as shown on the
Collateral Disclosure List,which correctly indicates the nature and amount of
the Borrower's ownership interests therein.
4.1.2 Good Standing.
Each of the Borrower and its Subsidiaries, if any, (a) is
a corporation, duly organized, existing and in good standing under the laws of
the jurisdiction of its incorporation or formation, as applicable, (b) has the
legal power to own its property and to carry on its business as now being
conducted, and (c) is duly qualified to do business and is in good standing in
each jurisdiction in which the character of the properties owned by it therein
or in which the transaction of its business makes such qualification
necessary, except where such failure to qualify could not reasonably be
expected to have a Material Adverse Effect.
4.1.3 Power and Authority.
The Borrower has full legal power and authority to execute
and deliver this Agreement and the other Financing Documents to which it is a
party, to make the borrowings and to request Letters of Credit under this
Agreement, and to incur and perform the Obligations whether under this
Agreement, the other Financing Documents or otherwise, all of which have been
duly authorized by all proper and necessary corporate action on the part of
the Borrower. No consent or approval of shareholders or any creditors of the
Borrower, and no consent, approval,filing or registration with or notice to
any Governmental Authority on the part of the Borrower, is required as a
condition to the execution, delivery, validity or enforceability of this
Agreement, the other Financing Documents, the performance by the Borrower of
the Obligations, except for consents, approvals,filings, registrations and
notices that shall be received, given or accomplished on or before the Closing
Date and except for filings necessary for perfection of Liens in favor of the
Lender.
4.1.4 Binding Agreements.
This Agreement and the other Financing Documents executed
and delivered by the Borrower have been properly executed and delivered and
constitute the valid and legally binding obligations of the Borrower and are
fully enforceable against the Borrower in accordance with their respective
terms, subject to bankruptcy,insolvency, reorganization, moratorium and other
laws of general applications affecting the rights and remedies of creditors
and secured parties, and general principles of equity regardless of whether
applied in a proceeding in equity or at law.
4.1.5 No Conflicts.
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Neither the execution, delivery and performance of the
terms of this Agreement or of any of the other Financing Documents executed
and delivered by the Borrower nor the consummation of the transactions
contemplated by this Agreement will conflict with, violate or be prevented by
(a) the Borrower's charter or bylaws,(b) any other existing mortgage,
indenture, material contract or material agreement binding on the Borrower or
affecting its property, or (c) any Laws, the conflict or violation of which
could reasonably be expected to have a Material Adverse Effect.
4.1.6 No Defaults, Violations.
(a)No Default or Event of Default has occurred and is
continuing.
(b)Except as disclosed on Schedule 4.1.6(b), the Borrower
is not in default under or with respect to any obligations under the
Indenture.
(c)Neither the Borrower nor any of its Subsidiaries is in
default under or with respect to any obligation under any existing mortgage,
indenture, contract or agreement binding on it or affecting its property in
any respect (other than the defaults under the Indenture, as further described
on Schedule 4.1.6(b)), which default could reasonably be expected to have a
Material Adverse Effect.
4.1.7 Compliance with Laws.
Neither the Borrower nor any of its Subsidiaries is in
violation of any applicable Laws (including, without limitation, any Laws
relating to employment practices, to environmental, occupational and health
standards and controls) or order, writ, injunction, decree or demand of any
court, arbitrator, or any Governmental Authority affecting Borrower or any of
its Subsidiaries or any of its or their respective properties, the violation
of which, considered in the aggregate, could reasonably be expected to have a
Material Adverse Effect.
4.1.8 Margin Stock.
None of the proceeds of the Loans will be used, directly
or indirectly, by the Borrower or any Subsidiary for the purpose of purchasing
or carrying, or for the purpose of reducing or retiring any indebtedness which
was originally incurred to purchase or carry, any "margin stock" within the
meaning of Regulation U (12CFR Part 221), of the Board of Governors of the
Federal Reserve System or for any other purpose which might make the
transactions contemplated in this Agreement a "purpose credit" within the
meaning of said Regulation U, or cause this Agreement to violate any other
regulation of the Board of Governors of the Federal Reserve System or the
Securities Exchange Act of 1934 or the Small Business Investment Act of 1958,
as amended, or any rules or regulations promulgated under any of such
statutes.
4.1.9 Investment Company Act; Margin Securities.
Neither the Borrower nor any of its Subsidiaries is an
investment company within the meaning of the Investment Company Act of 1940,
as amended, nor is it,directly or indirectly, controlled by or acting on
behalf of any Person which is an investment company within the meaning of said
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Act. Neither the Borrower nor any of its Subsidiaries is engaged principally,
or as one of its important activities, in the business of extending credit for
the purpose of purchasing or carrying "margin stock" within the meaning of
Regulation U (12 CFR Part 221), of the Board of Governors of the Federal
Reserve System.
4.1.10 Litigation.
There are no proceedings, actions or investigations
pending or, so far as the Borrower knows, threatened before or by any court,
arbitrator or any Governmental Authority which, in any one case or in the
aggregate, as determined by the Lender in Good Faith, could reasonably be
expected to have a Material Adverse Effect.
4.1.11 Financial Condition of Borrower.
(a)The interim financial statements delivered to the
Lender by the Borrower under Section 6.1.1(c) (Financial Statements) of this
Agreement from time to time, are in all material respects complete and correct
and fairly present the financial position of the Borrower and its Subsidiaries
and the results of their operations and transactions in their surplus accounts
as of the dates and for the periods referred to and have been prepared in
accordance with GAAP applied on a consistent basis throughout the period
involved (subject to normal year-end adjustments and the absence of
footnotes). There are no material liabilities,direct or indirect, fixed or
contingent, of the Borrower or any of its Subsidiaries as of the date of such
financial statements which are not reflected therein or in the notes thereto
to the extent required by GAAP. There has been no material adverse change in
the financial condition or operations of the Borrower and its Subsidiaries
since the Closing Date and to the best of the Borrower's knowledge (after due
inquiry) no such material adverse change is pending or threatened. Neither
the Borrower nor any of its Subsidiaries has guaranteed the obligations of, or
made any investment in or advances to, any Person, except as reflected in such
financial statements.
(b)The audited annual financial statements of the Borrower
delivered to the Lender by the Borrower under Section 6.1.1(a) (Financial
Statements) of this Agreement from time to time, are in all material respects
complete and correct and fairly present the financial position of the Borrower
and its Subsidiaries and the results of their operations and transactions in
their surplus accounts as of the date and for the period referred to and have
been prepared in accordance with GAAP applied on a consistent basis throughout
the period involved. There are no material liabilities, direct or indirect,
fixed or contingent, of the Borrower or its Subsidiaries as of the date of
such financial statements which are not reflected therein or in the notes
thereto to the extent required by GAAP. Neither Borrower nor any of its
Subsidiaries has guaranteed the obligations of, or made any investment in or
advances to, any Person, except as reflected in such financial statements.
4.1.12 Proforma Financial Statements.
On or before the Closing Date, the Borrower has furnished
to the Lender a proforma consolidated balance sheet of the Borrower and its
Subsidiaries as of December 31, 1998 (the "Proforma Balance Sheet"), together
with proforma financial projections for the two (2) year period subsequent to
the Closing Date(the "Proforma Financial Projections"). The Proforma Balance
Sheet is correct and complete in all material respects, and fairly presents in
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all material respects the proforma consolidated financial condition of the
Borrower and its Subsidiaries. The Proforma Financial Projections represent
the Borrower's good faith estimate of the future operations of the Borrower as
of the date thereof and are based on reasonable assumptions. The Proforma
Financial Projections are not a guaranty of future performance.
4.1.13 Full Disclosure.
The financial statements referred to in Section 4.1.11
(Financial Condition of Borrower) of this Agreement, the Financing Documents
(including, without limitation, this Agreement), and the statements, reports
or certificates furnished by the Borrower in connection with the Financing
Documents (a) do not contain any untrue statement of a material fact and (b)
when taken in their entirety, do not omit any material fact necessary to make
the statements contained therein not misleading. There is no fact known to
the Borrower which the Borrower has not disclosed to the Lender prior to the
date of this Agreement with respect to the transactions contemplated by the
Financing Documents which constitutes or could reasonably be expected to have
a Material Adverse Effect.
4.1.14 Solvency.
In each case after giving effect to the Indebtedness for
Borrowed Money represented by the Obligations outstanding and/or to be
incurred and the transactions contemplated by this Agreement, the Borrower is
solvent, having assets of a fair salable value which exceed the amount
required to pay its debts as they become absolute and matured (including
contingent, subordinated,unmatured and unliquidated Liabilities), and the
Borrower is able to and anticipates that it will be able to meet its debts as
they mature and have adequate capital to conduct the business in which it is
or proposes to be engaged.
4.1.15 Indebtedness for Borrowed Money.
Except for the Obligations, and except as set forth in
Schedule 4.1.15 attached hereto and made a part of this Agreement, the
Borrower has no Indebtedness for Borrowed Money. The Lender has received
photocopies of all promissory notes evidencing any Indebtedness for Borrowed
Money set forth in Schedule 4.1.15,together with any and all subordination
agreements, other agreements, documents,or instruments securing, evidencing,
guarantying or otherwise executed and delivered in connection therewith.
4.1.16 Taxes.
The Borrower and its Subsidiaries have filed all returns,
reports and forms for Taxes which, to the knowledge of the Borrower, are
required to have been filed,and has paid all Taxes as shown on such returns or
on any assessment received by it, to the extent that such Taxes have become
due, unless and to the extent only that such Taxes, assessments and
governmental charges are currently contested in good faith and by appropriate
proceedings by the Borrower, such Taxes are not the subject of any Liens other
than Permitted Liens, and adequate reserves therefor have been established as
required under GAAP. All tax liabilities of the Borrower were as of the date
of audited financial statements referred to in Section 4.1.11 (Financial
Condition of Borrower) above, and are now, adequately provided for on the
books of the Borrower and its Subsidiaries, as appropriate. Except to the
extent being contested diligently and in good faith in accordance with the
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provisions of this Agreement, no tax liability has been asserted by the
Internal Revenue Service or any state or local authority against the Borrower
for Taxes that has not been paid or provided for.
4.1.17 ERISA.
With respect to any "pension plan" as defined in Section
3(2) of ERISA, which plan is now or in the two years previous to the Closing
Date has been maintained or contributed to by the Borrower and/or to the
Borrower's knowledge by any commonly controlled entity: (a) no "accumulated
funding deficiency" as defined in Code 412 or ERISA 302 has occurred, whether
or not that accumulated funding deficiency has been waived; (b) no Reportable
Event has occurred which could reasonably be expected to have a Material
Adverse Effect; (c) no termination of any plan subject to Title IV of ERISA
has occurred which could reasonably be expected to have a Material Adverse
Effect; (d) neither the Borrower nor, to the Borrower's knowledge, any
commonly controlled entity (as defined under ERISA) has incurred a "complete
withdrawal" within the meaning of ERISA 4203 from any Multiemployer Plan; (e)
neither the Borrower nor, to the Borrower's knowledge,any commonly controlled
entity has incurred a "partial withdrawal" within the meaning of ERISA 4205
with respect to any Multiemployer Plan; and (f) no Multiemployer Plan to
which the Borrower or, to the Borrower's knowledge, any commonly controlled
entity has an obligation to contribute is in "reorganization"within the
meaning of ERISA 4241, nor has notice been received by the Borrower or any
commonly controlled entity that such a Multiemployer Plan will be placed in
"reorganization".
4.1.18 Title to Properties.
The Borrower has good and marketable title to or good
leasehold interest in all of its properties, including, without limitation,
the Collateral and the properties and assets reflected in the Pro Forma
Balance Sheet and the balance sheets described in Section 4.1.11 (Financial
Condition of Borrower) above,subject to Permitted Liens.
4.1.19 Patents, Trademarks, Etc.
The Borrower and each of its Subsidiaries owns, possesses,
or has the right to use all necessary Patents, licenses, Trademarks,
Copyrights, permits and franchises to own their respective properties and to
conduct their respective businesses as now conducted, without known conflict
with the rights of any other Person. Any and all obligations to pay royalties
or other charges with respect to such properties and assets are properly
reflected on the financial statements furnished from time to time and
described in Section 4.1.11 (Financial Condition of Borrower) above to the
extent required by GAAP.
4.1.20 Employee Relations.
Except as disclosed on Schedule 4.1.20 attached hereto and
made a part of this Agreement, (a) neither the Borrower nor any Subsidiary
thereof nor any of the Borrower's or its Subsidiary's employees is subject to
any collective bargaining agreement, (b) no petition for certification or
union election is pending with respect to the employees of the Borrower or any
Subsidiary and to the Borrower's knowledge no union or collective bargaining
unit has sought such certification or recognition with respect to the
employees of the Borrower or any Subsidiary,(c) there are no strikes,
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slowdowns, work stoppages or controversies pending or,to the best knowledge of
the Borrower, threatened between the Borrower or any Subsidiary and its
employees, and (d) neither the Borrower nor any Subsidiary is subject to an
employment contract, severance agreement, commission contract(other than
contracts with sales representatives), consulting agreement or bonus
agreement. Hours worked and payments made to the employees of the Borrower
have not been in violation of the Fair Labor Standards Act, any other
applicable Law dealing with such matters. All payments due from the Borrower
or any of its Subsidiaries or for which any claim may be made against the
Borrower or a Subsidiary, on account of wages and employee and retiree health
and welfare insurance and other benefits have been paid or accrued as a
liability on its books in accordance with applicable Laws. The consummation
of the transactions contemplated by the Financing Agreement or any of the
other Financing Documents,will not give rise to a right of termination or
right of renegotiation on the part of any union under any collective
bargaining agreement to which the Borrower or any of its Subsidiaries is a
party or by which it is bound.
4.1.21 Presence of Hazardous Materials or Hazardous Materials
Contamination.
To the best of the Borrower's knowledge, (a) no Hazardous
Materials are located on any real property owned, controlled or operated by
the Borrower or any of its Subsidiaries or for which the Borrower or any of
its Subsidiaries is, or is claimed to be, responsible, except for reasonable
quantities of necessary supplies for use by the Borrower or any of its
Subsidiaries in the ordinary course of its business and stored, used, managed
after use and disposed of incompliance with applicable Laws; and (b) no
property owned, controlled or operated by the Borrower or any of its
Subsidiaries or for which the Borrower or any of its Subsidiaries has, or is
claimed to have, responsibility has ever been used as a manufacturing or dump
site for Hazardous Materials nor is affected by Hazardous Materials
Contamination at any other property.
4.1.22 Perfection and Priority of Collateral.
The Lender has, or upon execution and recording of this
Agreement and the Security Documents will have, and will continue to have as
security for the Obligations, a valid and perfected Lien on and security
interest in all Collateral, free of all other Liens, claims and rights of
third parties whatsoever except Permitted Liens.
4.1.23 Places of Business and Location of Collateral.
The information contained in the Collateral Disclosure
List is complete and correct. The Collateral Disclosure List completely and
accurately identifies the address of (a) the chief executive office of the
Borrower, (b) any and each other place of business of the Borrower, (c) the
location of all books and records pertaining to the Collateral, and (d) each
location, other than the foregoing,where any of the Collateral is located.
The proper and only places to file financing statements with respect to the
Collateral within the meaning of the Uniform Commercial Code are the filing
offices for those jurisdictions in which the Borrower maintains a place of
business as identified on the Collateral Disclosure List.
4.1.24 Business Names and Addresses.
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Except as set forth in Collateral Disclosure List as in
effect on the Closing Date, in the five (5) years preceding the date hereof,
the Borrower has not changed its name, identity or corporate structure, has
not conducted business under any name other than its current name, and has not
conducted its business in any jurisdiction other than those disclosed on the
Collateral Disclosure List.
4.1.25 Inventory.
As of the Closing Date, except to the extent from time to
time disclosed in Borrowing Base Reports provided to the Lender, the Inventory
of the Borrower is(a) of good and merchantable quality, free from defects, (b)
not stored with a bailee, warehouseman, carrier, or similar party, (c) not on
consignment, sale on approval, or sale or return, and (d) located at the
places of business set forth on the Collateral Disclosure List. No goods
offered for sale by the Borrower are consigned to or held on sale or return
terms by the Borrower. All Inventory manufactured or produced by the Borrower
or any Subsidiary has been and continues to be manufactured and produced in
compliance with all applicable requirements of Sections 6, 7 and 12 of the
Fair Labor Standards Act, as amended, and all regulations and orders of the
United States Department of Labor.
4.1.26 Accounts.
With respect to all of Borrower's Accounts, (a) they are
genuine, and in all respects what they purport to be, and are not evidenced by
a judgment, any Instruments and Chattel Paper (unless such judgment has been
assigned and such Instrument or Chattel Paper has been endorsed and delivered
to the Lender); (b)they represent bona fide transactions completed in
accordance with the terms and provisions contained in the invoices, purchase
orders and other contracts relating thereto, and the underlying transaction
therefor is in accordance with all applicable Laws; (c) the amounts shown on
the Borrower's books and records,with respect thereto are actually and
absolutely owing to the Borrower and are not contingent or subject to
reduction for any reason other than regular discounts, credits or adjustments
in the ordinary course of its business; (d) no payments have been or shall be
made thereon except payments turned over to the Lender by the Borrower; (e) to
the best of the Borrower's knowledge (after due inquiry), all Account Debtors
thereon have the capacity to contract; and (f) the goods sold, leased or
transferred or the services furnished giving rise thereto are not subject to
any Liens except the security interest granted to the Lender by this Agreement
and Permitted Liens.
4.1.27 Compliance with Eligibility Standards.
Each Account of the Borrower and all Inventory included in
the calculation of the Borrowing Base does, as of the time of the most recent
Borrowing Base Report,meet and comply with all of the standards for Eligible
Receivables and Eligible Inventory. With respect to all Eligible Receivables
set forth in the most recent Borrowing Base Report (a) there are no facts,
events or occurrences known to the Borrower which in any way materially impair
the validity, collectability or enforceability thereof or tend to reduce the
amount payable thereunder; and (b)there are no proceedings or actions known to
the Borrower which are threatened or pending against any Account Debtor which
could reasonably be expected to result in any material adverse change in the
Borrowing Base.
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4.1.28 Year 2000 Compliance.
The Borrower has (i) initiated a review and assessment of
all areas within its and each of its Subsidiaries" business and operations
(including those affected by suppliers, vendors and customers) that could be
adversely affected by the"Year 2000 Problem" (that is, the risk that computer
applications used by the Borrower or any of its Subsidiaries (or its
suppliers, vendors and customers) maybe unable to recognize and perform
properly date-sensitive functions involving certain dates prior to and any
date after December 31, 1999), (ii) developed a plan and timeline for
addressing the Year 2000 Problem on a timely basis and(iii) to date,
implemented that plan in accordance with that timetable. Based on the
foregoing, the Borrower believes that all computer applications (including
those of its suppliers, vendors and customers) that are material to its or any
of its Subsidiaries" business and operations are reasonably expected on a
timely basis to be able to perform properly date-sensitive functions for all
dates before and after January 1, 2000 (that is, be "Year 2000 compliant").
Section 4.2 Survival; Updates of Representations and Warranties.
All representations and warranties contained in or made under or in
connection with this Agreement and the other Financing Documents shall survive
the Closing Date, the making of any advance under the Loans and extension of
credit made hereunder, and the incurring of any other Obligations and shall be
deemed to have been made at the time of each request for, and again at the
time the making of,each advance under the Loans or the issuance of each Letter
of Credit.
ARTICLE 5 CONDITIONS PRECEDENT
Section 5.1 Conditions to the Initial Advance and Initial Letter of
Credit.
Except as set forth in the Post Closing Agreement, the making of the
initial advance under the Revolving Loans and the issuance of any initial
Letter of Credit is subject to the fulfillment on or before the Closing Date
of the following conditions precedent in a manner satisfactory in form and
substance to the Lender and its counsel:
5.1.1 Organizational Documents.
The Lender shall have received from the Borrower:
(a)a certificate of good standing/legal existence
certified by the Secretary of State, or other appropriate Governmental
Authority, of the state of incorporation/formation of the Borrower;
(b)a certificate of qualification to do business for the
Borrower certified by the Secretary of State or other Governmental Authority
of each state in which the Borrower's business requires such qualification,
except for those states where the failure to so qualify could not reasonably
be expected to have Material Adverse Effect;
(c)certificates dated as of the Closing Date by the
Secretary or an Assistant Secretary of the Borrower with respect to:
(i)true and complete copies of the Borrower's
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corporate charter and bylaws, and all amendments thereto;
(ii)true and complete copies of the resolutions of
its Board of Directors authorizing (i) the execution, delivery and performance
of the Financing Documents to which it is a party, (ii) the borrowings by the
Borrower hereunder,and
(iii) the granting of the Liens contemplated by this
Agreement and the Financing Documents to which it is a party; and(iii)the
incumbency, authority and signatures of the officers of the Borrower
authorized to sign this Agreement and the other Financing Documents to which
it is a party.
5.1.2 Opinion of Borrower's Counsel.
The Lender shall have received (i) the favorable opinion
of counsel for the Borrower (ii) the favorable opinion of Borrower's
Pennsylvania local counsel,(iii) the favorable opinion of Borrower's Illinois
local counsel and (iv) the favorable opinion of Borrower's Ohio local counsel,
each addressed to the Lender in form satisfactory to the Lender and its
counsel.
5.1.3 Consents, Licenses, Approvals, Etc.
The Lender shall have received copies of all consents,
licenses and approvals,required in connection with the execution, delivery,
performance, validity and enforceability of the Financing Documents and such
consents, licenses and approvals shall be in full force and effect.
5.1.4 Notes.
The Lender shall have received the Revolving Credit Note,
conforming to the requirements hereof and executed by a Responsible Officer of
the Borrower and attested, if required, by a duly authorized representative of
the Borrower.
5.1.5 Financing Documents and Collateral.
The Borrower shall have executed and delivered the
Financing Documents to be executed by it, and shall have delivered any
Collateral consisting of original Chattel Paper, Instruments, Securities,
opinions, title insurance, and other documents contemplated by ARTICLE 3
hereof.
5.1.6 Other Financing Documents.
In addition to the Financing Documents to be delivered by
the Borrower, the Lender shall have received the Financing Documents duly
executed and delivered by Persons other than the Borrower.
5.1.7 Other Documents, Etc.
The Lender shall have received such other certificates,
opinions, documents and instruments confirmatory of or otherwise relating to
the transactions contemplated hereby as may have been reasonably requested by
the Lender.
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5.1.8 Payment of Fees.
The Lender shall have received payment of any Fees due on
or before the Closing Date.
5.1.9 Collateral Disclosure List.
The Borrower shall have delivered the Collateral
Disclosure List required under the provisions of Section 3.3 (Collateral
Disclosure List) hereof duly executed by a Responsible Officer of the
Borrower.
5.1.10 Recordings and Filings.
The Borrower shall have: (a) executed and delivered all
Financing Documents(including, without limitation, UCC-1 and UCC-3 statements)
required to be filed,registered or recorded in order to create, in favor of
the Lender, a perfected Lien in the Collateral in form and in sufficient
number for filing, registration,and recording in each office in each
jurisdiction in which such filings,registrations and recordations are
required, and (b) delivered such evidence as the Lender may deem satisfactory
that all necessary filing fees and all recording and other similar fees, and
all Taxes and other expenses related to such filings,registrations and
recordings will be or have been paid in full.
5.1.11 Insurance Certificate.
The Lender shall have received an insurance certificate in
accordance with the provisions of Section 6.1.8 (Insurance) of this Agreement.
5.1.12 Landlord's Waivers.
The Lender shall have received a landlord's waiver from
each landlord of each and every business premise leased by the Borrower and on
which any of the Collateral is or may hereafter be located, which landlords"
waivers must be substantially in the form attached hereto as Exhibit "E-1" and
otherwise acceptable to the Lender and its counsel.
5.1.13 Bailee Acknowledgments.
The Lender shall have received an agreement acknowledging
the Liens of the Lender from each bailee, warehouseman, consignee or similar
third party which has possession of any of the Collateral, which agreements
must be substantially in the form attached hereto as Exhibit "E-2" and
otherwise acceptable to the Lender and its counsel.
5.1.14 Field Examination; Appraisal.
Lender shall have completed a field examination of the
Borrower's business,operations and income, the results of which field
examination shall be in all respects acceptable to the Lender in its sole and
absolute discretion and shall include reference discussions with key customers
and vendors.
5.1.15 Proforma Balance Sheet and Projections.
The Lender shall have received and approved the Borrower's
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Proforma Balance Sheet and Proforma Financial Projections, which Proforma
Balance Sheet and Proforma Financial Projections must be in form and content
acceptable to the Lender.
5.1.16 Material Adverse Change.
No material adverse change shall have occurred in the
condition (financial or otherwise), operations or business of the Borrower
since June 30, 1998.
5.1.17 Collateral Account, Lockbox, etc.
The Borrower shall have established a Collateral Account,
Lockbox, controlled disbursement account and all other accounts required under
this Agreement.
5.1.18 Minimum Required Availability at Closing.
On the Closing Date, the aggregate outstanding principal
amount of the Revolving Loan and the current stated amount of the Letters of
Credit shall not exceed an amount equal to (i) the least of (A) the Borrowing
Base, (B) the Indenture Maximum Amount, or (C) the Revolving Credit Committed
Amount, minus (ii) Two Million Dollars ($2,000,000), minus (iii) the Reserve
Amount, such amount to be determined after application of the Permitted Uses
of the Revolving Loan required to be made on the Closing Date, the amount of
the costs relating to the closing of this Agreement (including, without
limitation, applicable Fees, recording costs, recording taxes, and the fees
and expenses of the Borrower's and the Lender's professionals).
5.1.19 Indenture Maximum Amount.
The Lender shall have received evidence satisfactory to
the Lender, in its sole discretion, (a) that the initial advance on the
Revolving Loan will not exceed the Indenture Maximum Amount, and (b) that the
Loans contemplated hereby will not violate the provisions of the Indenture.
5.1.20 Year 2000 Plan.
Lender shall have completed a review of Borrower's plan to
become Year 2000 Compliant, the results of which review shall be in all
respects acceptable to the Lender in its sole and absolute discretion.
5.1.21 Completion of Schedules.
The Lender shall have received and approved all Schedules
to this Agreement fully completed.
Section 5.2 Conditions to all Extensions of Credit.
The making of all advances under the Loans and the issuance of all
Letters of Credit is subject to the fulfillment of the following conditions
precedent in a manner satisfactory in form and substance to the Lender and its
counsel:
5.2.1 Borrowing Base; Other Conditions.
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The Borrower shall have furnished all Borrowing Base
Reports required by Section 2.1.4 (Borrowing Base Report) of this Agreement,
there shall exist no Borrowing Base Deficiency, and as evidence thereof, the
Borrower shall have furnished to the Lender such reports, schedules,
certificates, records and other papers as may be reasonably requested by the
Lender and the Borrower shall have complied with the other terms and
conditions for advances and Letters of Credit contained in ARTICLE 2.
5.2.2 Default.
There shall exist no Event of Default or Default
hereunder, and none shall arise immediately before or immediately after the
making of the advance or issuance of the Letter of Credit requested.
5.2.3 Representations and Warranties.
The representations and warranties of the Borrower
contained among the provisions of this Agreement or in any report, statement,
schedule, certificate, financial statement or other document furnished in
connection with this Agreement or any of the other Financing Documents shall
be true and with the same effect as though such representations and warranties
had been made at the time of the making of,and of the request for, each
advance under the Loans or the issuance of each Letter of Credit, except that
the representations and warranties which relate to financial statements which
are referred to in Section 4.1.11 (Financial Condition of Borrower) shall also
be deemed to cover financial statements furnished from time to time to the
Lender pursuant to Section 6.1.1 (Financial Statements) of this Agreement and
except to the extent such representations were made only as of a specific
date.
5.2.4 Legal Matters.
All legal documents incident to each advance under the
Loans and the issuance of each Letter of Credit shall be satisfactory to
counsel for the Lender.
5.2.5 Adverse Change.
No change shall have occurred in the condition (financial
or otherwise),operations or business of the Borrower and its Subsidiaries
since the Closing Date which could reasonably be expected to constitute a
Material Adverse Effect.
ARTICLE 6 COVENANTS OF THE BORROWER
Section 6.1 Affirmative Covenants.
So long as any of the Obligations (or any of the Commitments therefor)
shall be outstanding hereunder, the Borrower agrees with the Lender as
follows:
6.1.1 Financial Statements.
(a)Annual Statements and Certificates. the Borrower shall
furnish to the Lender as soon as available, but in no event more than ninety
(90) days after the close of each fiscal year of the Borrower, (i) a copy of
the annual financial statement in reasonable detail satisfactory to the Lender
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relating to the Borrower and its Subsidiaries, prepared in accordance with
GAAP and examined and audited by independent certified public accountants of
nationally recognized standing, which financial statement shall include a
consolidated balance sheet of the Borrower and its Subsidiaries as of the end
of such fiscal year and consolidated statement of income, and consolidated
statements of cash flows and changes in shareholders equity of the Borrower
and its Subsidiaries for such fiscal year, (ii) an unaudited consolidating
balance sheet of the Borrower and its Subsidiaries as of the end of such
fiscal year and an unaudited consolidating statement of income for such fiscal
year, and (iii) a Compliance Certificate, in substantially the form attached
to this Agreement as Exhibit "D", containing a detailed computation of each
financial covenant in this Agreement which is applicable for the period
reported, and a certification that no change has occurred to the information
contained in the Collateral Disclosure List (except as set forth any schedule
attached to the certification), each prepared by a Responsible Officer of the
Borrower in a format acceptable to the Lender and (iii) a management letter in
the form prepared by the Borrower's independent certified public accountants.
(b)Annual Opinion of Accountant. the Borrower shall
furnish to the Lender as soon as available, but in no event more than one
hundred twenty (120) days after the close of each fiscal year of the Borrower,
a letter or opinion of the accountant who examined and certified the annual
financial statement relating to the Borrower and its Subsidiaries stating
whether anything in such accountant's examination has revealed the occurrence
of a Default or an Event of Default hereunder relating to financial and
accounting matters, and, if so, stating the facts with respect thereto.
(c)Monthly Statements and Certificates. the Borrower shall
furnish to the Lender as soon as available, but in no event more than thirty
(30) days after the close of each fiscal month of the Borrower, consolidated
and consolidating balance sheets and income statements of the Borrower and its
Subsidiaries as of the close of and for such period, consolidated cash flows
and changes in shareholders equity statements for such period, and a
Compliance Certificate, in substantially the form attached to this Agreement
as Exhibit "D", containing a detailed computation of each financial covenant
in this Agreement which is applicable for each month which is the end of a
fiscal quarter of the Borrower and a certification that no change has occurred
to the information contained in the Collateral Disclosure List (except as set
forth on any schedule attached to the certification), all as prepared and
certified by a Responsible Officer of the Borrower and accompanied by a
certificate of that officer stating whether any event has occurred which
constitutes a Default or an Event of Default hereunder,and, if so, stating the
facts with respect thereto.
(d)Monthly Reports. The Borrower shall furnish to the
Lender within twenty (20)days after the end of each fiscal month a report
containing the following information:
(i)a detailed aging schedule of all Receivables by
Account Debtor, in such detail, and accompanied by such supporting
information, as the Lender may from time to time request;
(ii)a detailed aging of all accounts payable by
supplier, in such detail, and accompanied by such supporting information, as
the Lender may from time to time request;
(iii)a listing of all Inventory by component,
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category and location, in such detail, and accompanied by such supporting
information as the Lender may from time to time request; and
(iv)such other information as the Lender may
reasonably request.
(e)Annual Budget and Projections. The Borrower shall
furnish to the Lender as soon as available, but in no event later than the
thirtieth (30th) day after the end of each fiscal year:
(i)a consolidated budget and pro forma financial
statements (including balance sheets, cash flow statements and income
statements) on a month-to-month basis for the following fiscal year, and
(ii)one (1) year projections.
(f)Additional Reports and Information. The Borrower shall
furnish to the Lender promptly, such additional information, reports or
statements as the Lender may from time to time reasonably request.
6.1.2 Reports to SEC and to Stockholders.
The Borrower shall furnish to the Lender, promptly upon
the filing or making thereof, at least one (1) copy of all financial
statements, reports, notices and proxy statements sent by the Borrower to its
stockholders of the type customarily sent to shareholders of a public
corporation, and of all regular and other reports filed by the Borrower with
any securities exchange or with the Securities and Exchange Commission.
6.1.3 Recordkeeping, Rights of Inspection, Field Examination,
Etc.
(a)The Borrower shall, and shall cause each of its
Domestic Subsidiaries to,maintain (i) a standard system of accounting in
accordance with GAAP, and(ii) proper books of record and account in which
full, true and correct entries are made of all dealings and transactions in
relation to its properties, business and activities.
(b)The Borrower shall, and shall cause each of its
Domestic Subsidiaries to,permit authorized representatives of the Lender to
visit and inspect the properties of the Borrower and such Domestic
Subsidiaries, to review, audit,check and inspect the Collateral at any time
with or without notice (subject to the provisions set forth below), to review,
audit, check and inspect the Borrower's other books of record at any time with
or without notice (subject to the provisions set forth below), and to make
abstracts and photocopies thereof,and to discuss the affairs, finances and
accounts of the Borrower and its Domestic Subsidiaries, with the officers,
directors, employees and other representatives of the Borrower and its
Domestic Subsidiaries and the irrespective accountants, all at such times
during normal business hours and other reasonable times and as often as the
Lender may reasonably request. The Lender shall give reasonable notice of
visits and inspections; provided however, that the Borrower acknowledges and
agrees that (i) no notice need be given if there exists an Event of Default or
a Default or if information provided by or at the direction of the Borrower
regarding the Collateral or the Borrower's financial condition has been
intentionally misstated; and (ii) the Borrower shall not prevent any visit or
inspection if the Lender or a representative thereof advises(which advice may
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be oral) the Borrower that no notice is required because the inspection is
being made pursuant to Section 6.1.3(b) of this Agreement. For the purpose of
the foregoing, the Lender shall have, and is hereby granted, a right of
ingress and egress to the places where the Collateral is located, and may
proceed over and through any of the Borrower's owned or leased property.
(c)The Borrower hereby irrevocably authorizes and directs
all accountants and auditors employed by the Borrower and/or any of its
Subsidiaries at any time prior to the repayment in full of the Obligations to
discuss freely with the Lender any information they may have concerning the
financial status and business operations of the Borrower and/or any
Subsidiaries and to exhibit and deliver to the Lender copies of the financial
statements, trial balances, management letters, or other accounting records of
any nature of the Borrower and/or any of its Subsidiaries in the accountant's
or auditor's possession, provided that the Borrower shall have the right to
participate in any meetings between the Lender and the Borrower's accountants
or auditors. Further, the Borrower hereby authorizes all Governmental
Authorities to furnish to the Lender copies of reports or examinations
relating to the Borrower and/or any of its Subsidiaries,whether made by the
Borrower or otherwise.
(d)Any and all reasonable out-of-pocket costs and expenses
incurred by, or on behalf of, the Lender in connection with the conduct of any
of the foregoing(including, but not limited to, those costs and expenses of
the Lender's agents,representatives, attorneys and accounting firms) shall be
part of the Enforcement Costs and shall be payable to the Lender upon demand.
The Borrower acknowledges and agrees that such expenses may include, but shall
not be limited to, any and all reasonable out-of-pocket costs and expenses of
the Lender's employees in, and when, traveling to the Borrower's facilities.
6.1.4 Legal Existence.
The Borrower shall maintain, and cause each of its
Domestic Subsidiaries to maintain, its legal existence in good standing in the
jurisdiction in which it is incorporated and in each other jurisdiction where
it is required to register or qualify to do business if the failure to do so
in such other jurisdiction could reasonably be expected to have a Material
Adverse Effect.
6.1.5 Compliance with Laws.
The Borrower shall comply, and cause each of its
Subsidiaries to comply, with all applicable Laws and observe the valid
requirements of Governmental Authorities,the noncompliance with or the
nonobservance of which could reasonably be expected to have a Material Adverse
Effect.
6.1.6 Preservation of Properties.
The Borrower will, and will cause each of its Domestic
Subsidiaries to, at all times (a) maintain, preserve, protect and keep its
properties, whether owned or leased, in good operating condition, working
order and repair (ordinary wear and tear excepted), and from time to time will
make all proper repairs, maintenance,replacements, additions and improvements
thereto needed to maintain such properties in good operating condition,
working order and repair, and (b) do or cause to be done all things necessary
to preserve and to keep in full force and effect its material franchises,
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leases of real and personal property, trade names, patents, trademarks and
permits which are necessary for the continuance of its business.
6.1.7 Line of Business.
The Borrower will continue to engage substantially only in
the business of manufacturing and marketing fabricated and machined industrial
parts and products and business reasonably related thereto. 6.1.8
Insurance.The Borrower will, and will cause each of its Domestic Subsidiaries
to, at all times maintain with "A" or better rated insurance companies (as
rated by Best to the extent such rating system is in effect) such insurance
as is required by applicable Laws and such other insurance, in such amounts,
of such types and against such risks, hazards, liabilities, casualties and
contingencies as are usually insured against in the same geographic areas by
business entities engaged in the same or similar business. In the event an
insurance company's rating at any time falls below "A", the Borrower will
replace the insurance company at the next policy renewal date or within thirty
(30) days after such rating falls below"A", whichever is later. Without
limiting the generality of the foregoing, the Borrower will, and will cause
each of its Domestic Subsidiaries to, keep adequately insured all of its
property against loss or damage resulting from fire or other risks insured
against by extended coverage and maintain public liability insurance against
claims for personal injury, death or property damage occurring upon, in or
about any properties occupied or controlled by it, or arising in any manner
out of the businesses carried on by it, all in such amounts not less than the
Lender shall reasonably determine from time to time based on the foregoing
standard. The Borrower shall deliver to the Lender on the Closing Date (and
thereafter on each date there is a change in the insurance coverage) a
certificate of a Responsible Officer of the Borrower containing a detailed
list of the insurance then in effect, stating the names of the insurance
companies,the types, the amounts and rates of the insurance, dates of the
expiration thereof and the properties and risks covered thereby, together with
certificates of insurance naming the Lender as certificate holder, additional
insured,mortgagee and loss payee. Within thirty (30) days after notice in
writing from the Lender, the Borrower shall obtain such additional insurance
as the Lender may reasonably request to comply with the provisions of this
Section 6.1.8.
6.1.9 Taxes.
Except to the extent that the validity or amount thereof
is being contested in good faith and by appropriate proceedings and the
Borrower has maintained adequate reserves with respect thereto in accordance
with GAAP, the Borrower will, and will cause each of its Subsidiaries, to pay
and discharge all Taxes prior to the date when any interest or penalty would
accrue for the nonpayment thereof. The Borrower shall furnish to the Lender
at such times as the Lender may require proof reasonably satisfactory to the
Lender of the making of payments or deposits required by applicable Laws
including, without limitation, payments or deposits with respect to amounts
withheld by the Borrower from wages and salaries of employees and amounts
contributed by the Borrower on account of federal and other income or wage
taxes and amounts due under the Federal Insurance Contributions Act, as
amended.
6.1.10 ERISA.
The Borrower will, and will cause each of its Domestic
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Subsidiaries and Affiliates to, comply with the funding requirements of ERISA
with respect to employee pension benefit plans for its respective employees.
The Borrower will not permit with respect to any employee benefit plan or
plans covered by Title IV of ERISA (a) any prohibited transaction or
transactions under ERISA or the Internal Revenue Code, which could reasonably
be expected to result in a Material Adverse Effect, or (b) any Reportable
Event if, upon termination of the plan or plans with respect to which one or
more such Reportable Events shall have occurred, there is or would be any
liability of the Borrower and/or any of its Subsidiaries and Affiliates to the
PBGC, which could reasonably be expected to result in a Material Adverse
Effect. Upon the Lender's request, the Borrower will deliver to the Lender a
copy of the most recent actuarial report, financial statements and annual
report completed with respect to any "defined benefit plan", as defined in
ERISA.
6.1.11 Notification of Events of Default and Adverse
Developments.
The Borrower shall promptly notify the Lender upon
obtaining knowledge of the occurrence of:
(a)any Event of Default;
(b)any Default;
(c)any litigation instituted or threatened against the
Borrower or any of its Subsidiaries and of the entry of any judgment or Lien
(other than any Permitted Liens) against any of the assets or properties of
the Borrower or any Subsidiary where the claims against the Borrower or any
Subsidiary exceed Two Hundred Fifty Thousand Dollars ($250,000) and are not
covered by insurance;
(d)any event, development or circumstance whereby the
financial statements furnished hereunder fail in any material respect to
present fairly, in accordance with GAAP, the financial condition and
operational results of the Borrower or any Subsidiary;
(e)any judicial, administrative or arbitral proceeding
pending against the Borrower or any of its Subsidiaries and any judicial or
administrative proceeding known by the Borrower to be threatened against the
Borrower or any Subsidiary which, if adversely decided, could reasonably be
expected to have a Material Adverse Effect;
(f)the receipt by the Borrower or any Subsidiary of any
notice, claim or demand from any Governmental Authority which alleges that the
Borrower or any Subsidiary is in violation of any of the terms of, or has
failed to comply in any material respect with any applicable Laws regulating
its operation and business,including, but not limited to, the Occupational
Safety and Health Act and the Environmental Protection Act, which could
reasonably be expected to have a Material Adverse Effect; and
(g)any other development in the business or affairs of the
Borrower or any of its Subsidiaries which could reasonably be expected to have
a Material Adverse Effect; in each case describing in detail reasonably
satisfactory to the Lender the nature thereof and the action the Borrower
proposes to take with respect thereto.
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6.1.12 Hazardous Materials; Contamination.
The Borrower agrees to:
(a)give notice to the Lender immediately upon acquiring
knowledge of the presence of any Hazardous Materials or any Hazardous
Materials Contamination on any property owned, operated or controlled by the
Borrower or for which the Borrower is, or is claimed to be, responsible
(provided that such notice shall not be required for Hazardous Materials
placed or stored on such property in accordance with applicable Laws in the
ordinary course of the Borrower's line of business described in Section 6.1.7
above), with a full description thereof;
(b)promptly comply in all material respects with any Laws
requiring the removal,treatment or disposal of Hazardous Materials or
Hazardous Materials Contamination and, if requested by the Lender, provide the
Lender with satisfactory evidence of such compliance;
(c)provide the Lender, within ten (10) days after a demand
by the Lender, with a bond, letter of credit or similar financial assurance
evidencing to the Lender's satisfaction that the necessary funds are available
to pay the cost of removing, treating, and disposing of such Hazardous
Materials or Hazardous Materials Contamination and discharging any Lien which
may be established as a result thereof on any property owned, operated or
controlled by the Borrower or for which the Borrower is, or is claimed to be,
responsible; and
(d)as part of the Obligations, defend, indemnify and hold
harmless the Lender and each of its Lenders, employees, trustees, successors
and assigns from any and all claims which may now or in the future (whether
before or after the termination of this Agreement) be asserted as a result of
the presence of any Hazardous Materials or any Hazardous Materials
Contamination on any property owned,operated or controlled by the Borrower for
which the Borrower is, or is claimed to be, responsible. The Borrower
acknowledges and agrees that this indemnification shall survive the
termination of this Agreement and the Commitments and the payment and
performance of all of the other Obligations.
6.1.13 Disclosure of Significant Transactions.
The Borrower shall deliver to the Lender a written notice
describing in reasonable detail each transaction by it involving the purchase,
sale, lease, or other acquisition or loss or casualty to or disposition of an
interest in Fixed or Capital Assets which exceeds Two Hundred Fifty Thousand
Dollars ($250,000),said notices to be delivered to the Lender within ten (10)
days of the occurrence of each such transaction.
6.1.14 Financial Covenants.
(a)Fixed Charge Coverage Ratio. The Borrower and its
Domestic Subsidiaries will maintain on a consolidated basis, tested as of the
last day of each of the Borrower's fiscal quarters, for the four (4) quarter
period ending on that date,a Fixed Charge Coverage Ratio of not less than (i)
for each four (4) quarter period ending on December 31, 1998, March 31, 1999,
June 30, 1999, and September 30, 1999, 1.20 to 1.0, and (ii) thereafter, 1.25
to 1.0.
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(b)Indebtedness for Borrowed Money to Cash Flow. The
Borrower and its Domestic Subsidiaries will maintain on a consolidated basis,
tested as the last day of each of the Borrower" fiscal quarters, for the four
(4) quarter period ending on such date, a ratio of (i) Indebtedness for
Borrowed Money to (ii) EBITDA minus gains (and plus losses) on the sale of
investments and Domestic Subsidiaries, of not greater than (A) for each four
(4) quarter period ending after the Closing Date in 1998 or 1999, 5.0 to 1.0,
(B) for each four (4) quarter period ending in 2000, 4.0 to 1.0, and (C) for
each four (4) quarter period thereafter, 3.0 to 1.0.
6.1.15 Collection of Receivables.
Until the Lender shall have notified the Borrower of the
revocation of such privilege following the occurrence of an Event of Default
and subject to the terms and provisions of Section 2.1.8 hereof, the Borrower
and its Subsidiaries shall at their own expense have the privilege for the
account of, and in trust for, the Lender of collecting their Receivables and
receiving in respect thereto all Items of Payment and shall otherwise
completely service all of the Receivables including (a) the billing, posting
and maintaining of complete records applicable thereto, (b) the taking of such
action with respect to the Receivables, as the Borrower and each of the
Subsidiaries may deem advisable; and(c) the granting, in the ordinary course
of business, to any Account Debtors rebates, refunds or adjustments, and may
accept, in connection therewith, the return of goods, the sale or lease of
which shall have given rise to a Receivable and may take such other actions
relating to the settling of any Account Debtor's claim as may be commercially
reasonable. The Lender may, at its option, at anytime or from time to time
following the occurrence and during the continuance of an Event of Default
revoke the collection privilege given in this Agreement to the Borrower and
each of the Subsidiaries by either giving notice of its assignment of, and
Lien on the Collateral to the Account Debtors or giving notice of such
revocation to the Borrower. The Lender shall not have any duty to, and the
Borrower hereby releases the Lender from all claims of loss or damage caused
by the delay or failure to collect or enforce any of the Receivables or to
preserve any rights against any other party with an interest in the
Collateral.
6.1.16 Assignments of Receivables.
The Borrower will following the occurrence and during the
continuance of an Event of Default, upon request, execute and deliver to the
Lender written assignments,in form and content acceptable to the Lender, of
specific Receivables or groups of Receivables; provided, however, the Lien
and/or security interest granted to the Lender, under this Agreement shall not
be limited to in any way to or by the inclusion or exclusion of Receivables
within such assignments. Receivables so assigned shall secure payment of the
Obligations and are not sold to the Lender whether or not any assignment
thereof, which is separate from this Agreement, is in form absolute. The
Borrower agrees that neither any assignment to the Lender nor any other
provision contained in this Agreement or any of the other Financing Documents
shall impose on the Lender any obligation or liability of the Borrower with
respect to that which is assigned and the Borrower hereby agrees to indemnify
the Lender and hold the Lender harmless from any and all claims,actions,
suits, losses, damages, costs, expenses, fees, obligations and liabilities
which may be incurred by or imposed upon the Lender by virtue of the
assignment of and Lien on the Borrower's rights, title and interest in, to,
and under the Collateral.
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6.1.17 Government Accounts.
The Borrower will promptly notify the Lender if any of the
Receivables arise out of contracts with the United States or with any other
Governmental Authority,and, as appropriate, execute any Instruments and take
any steps reasonably required by the Lender in order that all moneys due and
to become due under such contracts shall be assigned to the Lender and notice
thereof given to the Governmental Authority under the Federal Assignment of
Claims Act or any other applicable Laws.
6.1.18 Inventory.
With respect to the Inventory, the Borrower and its
Domestic Subsidiaries will: (a) as soon as possible upon demand by the Lender
from time to time, prepare and deliver to the Lender designations of Inventory
specifying the Borrower's and Domestic Subsidiaries" cost of Inventory and
such other matters and information relating to the Inventory as the Lender may
reasonably request; (b) keep correct and accurate records itemizing and
describing the kind, type, quality and quantity of Inventory, the Borrower's
and Domestic Subsidiaries" cost therefor and the selling price thereof, all of
which records shall be available to the officers, employees and agents of the
Lender upon demand in accordance with the terms hereof for inspection and
copying thereof; and (c) not store Inventory having an aggregate value
(determined at the lesser of cost or market value) of any greater than Two
Hundred Fifty Thousand Dollars ($250,000) at any one time with a bailee,
warehouseman or similar Person without the Lender's prior written consent
(unless such bailee, warehouseman or Person has executed and delivered a
Bailee Waiver in favor of the Lender and/or such other instruments or
documents as Lender may reasonably request), which consent shall not be
unreasonably withheld and may be conditioned on prior to storage (i) the
filing of appropriate financing statements in the jurisdiction in which such
warehouse or other facility is located, (ii) delivery by the bailee,
warehouseman or similar Person to the Lender of (A) warehouse receipts, in
form acceptable to the Lender, in the name of the Lender evidencing the
storage of Inventory and the interests of the Lender therein and (B) an
acknowledgment of receipt of notice of the Liens of the Lender in the
Borrower's Inventory, and (iii) other reasonable conditions.
6.1.19 Defense of Title and Further Assurances.
At its expense, the Borrower will defend the title to the
Collateral (and any part thereof), and will promptly execute, acknowledge and
deliver any financing statement, renewal, affidavit, deed, assignment,
continuation statement, security agreement, certificate or other document
which the Lender may require in order to perfect, preserve, maintain,
continue, protect and/or extend the Lien or security interest granted to the
Lender under this Agreement, under any of the other Financing Documents and
the first priority of that Lien, subject only to the Permitted Liens. The
Borrower will from time to time do whatever the Lender may reasonably require
by way of obtaining, executing, delivering, and/or filing financing
statements, landlords" or mortgagees" waivers, notices of assignment and other
notices and amendments and renewals thereof and the Borrower will take any and
all steps and observe such formalities as the Lender may require, in order to
create and maintain a valid Lien upon, pledge of, or paramount security
interest in, the Collateral, subject to the Permitted Liens. The Borrower
shall pay to the Lender on demand all taxes, reasonable costs and expenses
incurred by the Lender in connection with the preparation, execution,
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recording and filing of any such document or instrument. To the extent that
the proceeds of any of the Accounts or Receivables of the Borrower are
expected to become subject to the control of, or in the possession of, a party
other than the Borrower or the Lender, the Borrower shall cause all such
parties to execute and deliver on the Closing Date security documents,
financing statements or other documents as requested by the Lender and as may
be necessary to evidence and/or perfect the security interest of the Lender in
those proceeds. The Borrower agrees that a copy of a fully executed security
agreement and/or financing statement shall be sufficient to satisfy for all
purposes the requirements of a financing statement as set forth in Article 9
of the applicable Uniform Commercial Code. The Borrower hereby irrevocably
appoints the Lender as the Borrower's attorney-in-fact, with power of
substitution, in the name of the Lender or in the name of the Borrower or
otherwise, for the use and benefit of the Lender, but at the cost and expense
of the Borrower and without notice to the Borrower, to execute and deliver any
and all of the instruments and other documents and take any action which the
Lender may require pursuant the foregoing provisions of this Section 6.1.19,
to the extent not taken by the Borrower as contemplated above. Lender agrees
to notify Borrower of any actions taken by the Lender under this Section
6.1.19.
6.1.20 Business Names; Locations.
The Borrower will notify and cause each of its Domestic
Subsidiaries to notify the Lender (a) not less than thirty (30) days prior to
(i) any change in the name under which the Borrower or the applicable Domestic
Subsidiary conducts its business, or (ii) any change of the location of the
chief executive office of the Borrower or any Domestic Subsidiary, and (b)
within ten (10) days after the opening of any new place of business or the
closing of any existing place of business, and any change in the location of
the places where the Collateral, or any part thereof, or the books and
records, or any part thereof, are kept.
6.1.21 Subsequent Opinion of Counsel as to Recording
Requirements.
In the event that the Borrower or any Domestic Subsidiary
shall transfer its chief executive office or the office where it keeps its
records pertaining to the Collateral, upon the Lender's reasonable request,
the Borrower will provide to the Lender a subsequent opinion of counsel as to
the filing, recording and other requirements with which the Borrower and its
Domestic Subsidiaries have complied to maintain the Lien and security interest
in favor of the Lender, in the Collateral.
6.1.22 Use of Premises and Equipment.
The Borrower agrees that until the Obligations are fully
paid and all of the Commitments and the Letters of Credit have been terminated
or have expired, the Lender (a) after the occurrence and during the
continuance of an Event of Default, may use the Borrower's owned or leased
lifts, hoists, trucks and other facilities or equipment for handling or
removing the Collateral; and (b) in connection with the Lender's right to
inspect the Collateral and exercise rights and remedies during an Event of
Default, shall have, and is hereby granted, aright of ingress and egress to
the places where the Collateral is located, and may proceed over and through
the Borrower's owned or leased property.
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6.1.23 Protection of Collateral.
The Borrower agrees that the Lender may at any time
following the occurrence and during the continuance of an Event of Default
take such steps as the Lender deems necessary to protect the interest of the
Lender in, and to preserve the Collateral, including, the hiring of such
security guards or the placing of other security protection measures as the
Lender deems appropriate, may employ and maintain at the Borrower's premises a
custodian who shall have full authority to do all acts necessary to protect
the interests of the Lender in the Collateral and may lease warehouse
facilities to which the Lender may move all or any part of the Collateral to
the extent commercially reasonable. At any time following the occurrence and
during the continuance of an Event of Default, the Borrower agrees to
cooperate fully with the Lender's efforts to preserve the Collateral and will
take such actions to preserve the Collateral as the Lender may direct. All of
the Lender's expenses of preserving the Collateral as contemplated under this
Section 6.1.23, including any expenses relating to the compensation and
bonding of a custodian, shall part of the Enforcement Costs.
6.1.24 Year 2000 Compliance.
The Borrower will promptly notify the Lender in the event
the Borrower discovers or determines that any computer application (including
those of its suppliers,vendors and customers) that is material to its or any
of its Subsidiaries"business and operations will not be Year 2000 compliant.
6.1.25 Retention of Investment Banking Firm.
The Borrower shall engage an investment banking firm
acceptable to the Lender,in its reasonable discretion, by no later than
November 30, 1998, to assist the Borrower in exploring strategies for ongoing
compliance with the Indenture and the possible recapitalization of the
Borrower.
Section 6.2 Negative Covenants.
So long as any of the Obligations or the Commitments or Letter of Credit
therefor shall be outstanding hereunder, the Borrower agrees with the Lender
that without the prior written consent of the Lender:
6.2.1 Merger, Acquisition or Sale of Assets.
Neither the Borrower nor any of its Domestic Subsidiaries
will (a) alter or amend its capital structure, (b) authorize any additional
class of equity shares,(c) issue any stock or equity of any class, (d) enter
into any merger or consolidation or amalgamation, (e) enter into any merger or
consolidation or amalgamation, (f) windup or dissolve itself (or suffer any
liquidation or dissolution), (g) acquire all or substantially all of the
assets or any Person,or (h) make any Asset Disposition except for sales
permitted by Section 6.2.8. Any consent of the Lender to the disposition of
any assets not specifically permitted hereby may be conditioned on a specified
use of the proceeds of disposition.
6.2.2 Subsidiaries.
Neither the Borrower nor any of its Domestic Subsidiaries
will create or acquire any Subsidiaries other than the Subsidiaries identified
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on the Collateral Disclosure List on the Closing Date (if any).
6.2.3 Purchase or Redemption of Securities, Dividend
Restrictions.
The Borrower will not (a) purchase, redeem or otherwise
acquire any shares of its capital stock, warrants or other securities now or
hereafter outstanding, declare or pay any dividends thereon, apply any of its
property or assets to the purchase, redemption or other retirement of, set
apart any sum for the payment of any dividends on, or for the purchase,
redemption, or other retirement of,make any distribution by reduction of
capital or otherwise in respect of, any shares of any class of capital stock
of the Borrower, or any warrants, permit any Subsidiary to purchase or acquire
any shares of any class of capital stock of,or warrants issued by, the
Borrower, make any distribution to stockholders or set aside any funds for any
such purpose; provided, however, that notwithstanding the foregoing, the
Borrower may at any time after the consummation of a Permitted Indenture
Refinancing, so long as no Default or Event of Default then exists or would
thereupon occur, and so long as, both before and after giving effect thereto,
Revolving Credit Availability would be equal to or greater than Three Million
Dollars ($3,000,000), pay cash dividends on or redeem Preferred Stock of the
Borrower, provided that amounts so paid shall not in the aggregate
exceed,during any fiscal year, an amount equal to the lesser of (x) 50% of
Borrower's Excess Cash Flow for such fiscal year and (y) $1,000,000, or (b)
prepay, purchase or redeem any Indebtedness for Borrowed Money other than (i)
the Obligations,(ii) required purchases, redemptions and retirements (other
than with proceeds of the Loans) of the Senior Notes under the Indenture, and
(iii) the Permitted Indenture Refinancing.
6.2.4 Indebtedness.
The Borrower will not create, incur, assume or suffer to
exist any Indebtedness for Borrowed Money or permit any Domestic Subsidiary to
do so, except:
(a)the Obligations;
(b)Indebtedness for Borrowed Money secured by Permitted
Liens;
(c)Indebtedness of the Borrower existing on the date
hereof and either reflected on the financial statements furnished pursuant to
Section 4.1.11 (Financial Condition of the Borrower) or set forth in Schedule
6.2.4 attached hereto and made a part hereof and extensions or renewals
thereof, so long as the principal amount thereof is not increased;
(d)Subordinated Indebtedness;
(e)additional unsecured Indebtedness for Borrowed Money in
the aggregate principal amount not to exceed at any time One Hundred Thousand
Dollars($100,000); and
(f)Indebtedness for Borrowed Money outstanding under the
Indenture and the Senior Notes issued thereunder, and the Permitted Indenture
Refinancing.
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6.2.5 Investments, Loans and Other Transactions.
The Borrower will not, and will not permit any of its
Domestic Subsidiaries to,(a) make, assume, acquire or continue to hold any
investment in any property or any Person, whether by stock purchase, capital
contribution, acquisition of indebtedness of such Person, acquisition of all
or substantially all the assets of any Person, or otherwise (including,
without limitation, investments in any joint venture or partnership), (b)
guaranty or otherwise become contingently liable for the Liabilities or
obligations of any Person, or (c) make any loans or advances, or otherwise
extend credit to any Person, except:
(i)any loan or advance to an officer or employee of
the Borrower or any Subsidiary in the ordinary course of business, provided
that the aggregate amount of all such advances by all of the Borrower and its
Subsidiaries (taken as a whole) outstanding at any time shall not exceed Two
Hundred Fifty Thousand Dollars ($250,000) in the aggregate;
(ii)the endorsement of negotiable instruments for
deposit or collection or similar transactions in the ordinary course of
business;
(iii)any investment in Cash Equivalents, which are
pledged to the Lender as collateral and security for the Obligations;
(iv)trade credit extended to customers in the
ordinary course of business;
(v)investments made after the Closing Date in
Subsidiaries existing on the Closing Date consisting of loans or capital
contributions to such Subsidiaries in an aggregate amount not to exceed One
Hundred Thousand Dollars $100,000;
(vi)to the extent permitted by the Indenture, other
investments in an aggregate amount not to exceed Two Hundred Fifty Thousand
Dollars ($250,000); and
(vii)those investments more particularly set forth on
Schedule 6.2.5 attached hereto and made a part hereof.
6.2.6 Stock of Subsidiaries.
The Borrower will not sell or otherwise dispose of any
shares of capital stock of any Domestic Subsidiary or permit any Domestic
Subsidiary to issue any additional shares of its capital stock except pro rata
to its stockholders.
6.2.7 Liens.
The Borrower agrees that it (a) will not create, incur,
assume or suffer to exist any Lien upon any of its properties or assets,
whether now owned or hereafter acquired, or permit any Domestic Subsidiary so
to do, except for Liens securing the Obligations and Permitted Liens, (b) will
not agree to, assume or suffer to exist any provision in any instrument or
other document (other than the Financing Documents) for confession of
judgment, cognovit or other similar right or remedy,(c) will not allow or
suffer to exist any Permitted Liens, except permitted purchase money Liens, to
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be superior to Liens securing the Obligations, (d) will not enter into any
contracts for the consignment of goods, will not execute or suffer the filing
of any financing statements in connection therewith or the posting of any
signs giving notice of consignments, and will not engage in the sale of goods
belonging to others, and (e) will not allow or suffer to exist the failure of
any Lien described in the Security Documents to attach to, and/or remain at
all times perfected on, any of the property described in the Security
Documents.
6.2.8 Disposition of Assets.
The Borrower will not sell, discount, allow credits or
allowances, transfer,assign, extend the time for payment on, convey, lease,
assign, transfer or otherwise dispose of its Assets (including without
limitation the Collateral)other than in accordance with its credit collection
policies, except, (a) prior to an Event of Default which is continuing and,
thereafter until the Lender has notified (which notice may be limited to
certain assets or categories of assets)the Borrower not to sell or make
dispositions of Inventory or other assets,dispositions that are not Asset
Dispositions, (b) the sale of unnecessary or obsolete Equipment, (c) the sale
of the real property owned by the Klemp Division of the Borrower and located
in Chicago, Illinois and Liberty, Missouri, and(d) the Services Agreement
between the Auto-Lok division of the Borrower and Stanwich Acquisition Corp.
6.2.9 Transactions with Affiliates.
Except as disclosed on Schedule 6.2.9 attached hereto and
made a part hereof, and except as permitted by Section 6.2.14 (Compensation.),
neither the Borrower nor any of its Subsidiaries will enter into or
participate in any transaction with any Affiliate or, except in the ordinary
course of business, with the officers,directors, partners, employees and other
representatives of the Borrower and/or any Subsidiary and except for
transactions in the ordinary course of business and upon fair and reasonable
terms which are no less favorable than would be obtained in a comparable
arms-length transaction with a Person who is not an Affiliate.
6.2.10 Other Business.
Neither the Borrower nor any of its Subsidiaries will
engage directly or indirectly in any business other than its line of business
as of the Closing Date and those permitted under Section 6.1.7.
6.2.11 ERISA Compliance.
Neither the Borrower nor any Commonly Controlled Entity
shall: (a) engage in or permit any "prohibited transaction" (as defined in
ERISA); (b) cause any"accumulated funding deficiency" as defined in ERISA
and/or the Internal Revenue Code; (c) terminate any pension plan in a manner
which could result in the imposition of a lien on the property of the Borrower
pursuant to ERISA; (d)terminate or consent to the termination of any
Multiemployer Plan; or (e) incur a complete or partial withdrawal with respect
to any Multiemployer Plan, which with respect to any of the events set forth
in clauses (a) through (e) could reasonably be expected to cause a Material
Adverse Effect.
6.2.12 Prohibition on Hazardous Materials.
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Neither the Borrower nor any of its Subsidiaries shall
place, manufacture or store or permit to be placed, manufactured or stored any
Hazardous Materials on any property owned, operated or controlled by the
Borrower or any of its Subsidiaries or for which the Borrower or any of its
Subsidiaries is responsible other than Hazardous Materials placed or stored on
such property in compliance with applicable Laws in the ordinary course of the
Borrower's or any of its Subsidiaries business.
6.2.13 Method of Accounting; Fiscal Year.
The Borrower agrees that:
(a)it shall not change the method of accounting employed
in the preparation of any financial statements furnished to the Lender under
the provisions of Section 6.1.1 (Financial Statements) of this Agreement,
unless required to conform to GAAP and on the condition that the Borrower's
accountants shall furnish such information as the Lender may request to
reconcile the changes with the Borrower's prior financial statements.
(b)it will not change its fiscal year from a year ending
on December 31.
6.2.14 Compensation.
Except as disclosed on Schedule 6.2.14 and as permitted by
Section 6.2.9, neither the Borrower nor any Subsidiary will pay any bonuses,
fees, compensation,commissions, salaries, drawing accounts, or other payments
(cash and non-cash),whether direct or indirect, to any stockholders or
partners of the Borrower or any Subsidiary, or any Affiliate of the Borrower
or any Subsidiary, other than reasonable compensation for actual services
rendered by stockholders or partners in their capacity as officers or
employees, and except for, (i) reasonable director's fees, (ii) reasonable and
customary indemnifications of officers,directors, partners, employees and
consultants, (iii) the reimbursement of reasonable travel and other
out-of-pocket expenses reasonably incurred by the Borrower's directors in the
performance of their duties, (iv) the reimbursement to Charles E. Bradley, Sr.
of premiums and other expenses relating to the obtaining of the Guarantor
Policy, and (v) the payment to Charles E. Bradley, Sr.of a guaranty fee in an
amount not to exceed 5% per annum of the principal amount of the maximum
liability of Charles E. Bradley, Sr. under the Guaranty Agreement;provided
that no payment of any such guaranty fees shall be made by the Borrower(but
such guaranty fees and interest thereon shall accrue) at any time prior to the
consummation of the Permitted Indenture Refinancing, and, after the
consummation of the Permitted Indenture Refinancing, such guaranty fees may be
paid not more frequently than quarterly.
6.2.15 Transfer of Collateral.
Neither the Borrower nor any of its Subsidiaries will
transfer, or permit the transfer, to another location of any of the Collateral
or the books and records related to any of the Collateral unless the notice
required by Section 6.1.20 has been given and the Liens of the Lender have
been perfected by filing in that location.
6.2.16 Sale and Leaseback.
Neither the Borrower nor any of its Domestic Subsidiaries
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will directly or indirectly enter into any arrangement to sell or transfer all
or any substantial part of its fixed assets and thereupon or within one (1)
year thereafter rent or lease the assets so sold or transferred; provided,
however, that the Borrower may enter into a sale/leaseback transaction with
respect to the real property of its Klemp division located in Chicago,
Illinois and the real property of its Klemp division located in Liberty,
Missouri.
6.2.17 Capital Expenditures.
Neither the Borrower nor any of its Domestic Subsidiaries
will make, directly or indirectly, Capital Expenditures which in the aggregate
(for the Borrower and all of its Domestic Subsidiaries) exceed (a)during the
fiscal year of the Borrower ending December 31, 1999, Four Million Five
Hundred Thousand Dollars($4,500,000), and (b) during any fiscal year of the
Borrower thereafter, an amount equal to (i) Four Million Five Hundred Thousand
Dollars ($4,500,000) plus(ii) Four Million Five Hundred Thousand Dollars,
minus (iii) the lesser of(A) Four Million Five Hundred Thousand Dollars
($4,500,000) and (B) the amount of Capital Expenditures actually incurred in
the immediately preceding fiscal year by the Borrower.
6.2.18 Amendments to Indenture.
The Borrower shall not amend, supplement or otherwise
modify the Indenture or the Refinanced Indenture to do any of the following:
(a) secure the obligations thereunder, (b) accelerate the dates for any
principal or interest payments or redemptions or repurchases or mandatory
offers to repurchase or redeem,(c) increase the rate of interest payable
thereunder, or (d) amend or add any covenants or provisions the result of
which is to make the Indenture more restrictive or adverse to Borrower or its
Subsidiaries or the rights of the Lender under this Agreement and other
Financing Documents than those in the Indenture on the Closing Date and, with
respect to the Refinanced Indenture, the date it was issued (including in
either case, without limitation, the ability to incur indebtedness and grant
Liens to secure indebtedness, financial performance,and events of default).
ARTICLE 7 DEFAULT AND RIGHTS AND REMEDIES
Section 7.1 Events of Default.
The occurrence of any one or more of the following events shall
constitute an"Event of Default" under the provisions of this Agreement:
7.1.1 Failure to Pay.
The failure of the Borrower to pay any of the Obligations
as and when due and payable in accordance with the provisions of this
Agreement, the Notes and/or any of the other Financing Documents.
7.1.2 Breach of Representations and Warranties.
Any representation or warranty made by the Borrower or any
of its Subsidiaries in this Agreement or in any report, statement, schedule,
certificate, financial statement or other document furnished in connection
with this Agreement, any of the other Financing Documents, or the Obligations,
shall prove to have been false or misleading when made or deemed made.
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7.1.3 Failure to Comply with Certain Covenants.
The failure of the Borrower to perform, observe or comply
with any covenant,condition or agreement contained in Sections 6.1.1
(Financial Statements), 6.1.3(Recordkeeping, Rights of Inspection, Field
Examination, Etc.), 6.1.8(Insurance), 6.1.14 (Financial Covenants), 6.1.16
(Assignment of Receivables),6.1.18 (Inventory) (other than clause (c)
thereof), 6.1.19 (Defense of Title and Further Assurances), 6.1.20 (Business
Names; Locations), 6.1.22 (Use of Premises and Equipment), 6.1.23 (Protection
of Collateral), or Section 6.2 (Negative Covenants).
7.1.4 Failure to Comply with Other Covenants.
The failure of the Borrower to perform, observe or comply
with any covenant,condition or agreement contained in this Agreement other
than those referred to in Sections 7.1.1, 7.1.2 or 7.1.3 above, which failure
shall remain unremedied for a period of thirty (30) days after the Borrower
discovers or should have discovered such failure.
7.1.5 Default Under Other Financing Documents or Obligations.
A default shall occur under any of the other Financing
Documents or under any other Obligations, and such default is not cured within
any applicable grace period provided therein.
7.1.6 Receiver; Bankruptcy.
The Borrower or any Domestic Subsidiary of the Borrower
shall (a) apply for or consent to the appointment of a receiver, trustee or
liquidator of itself or any of its property, (b) admit in writing its
inability to pay its debts as they mature, (c) make a general assignment for
the benefit of creditors, (d) be adjudicated a bankrupt or insolvent, (e) file
a voluntary petition in bankruptcy or a petition or an answer seeking or
consenting to reorganization or an arrangement with creditors or to take
advantage of any bankruptcy,reorganization, insolvency, readjustment of debt,
dissolution or liquidation law or statute, or an answer admitting the material
allegations of a petition filed against it in any proceeding under any such
law, or take corporate action for the purposes of effecting any of the
foregoing, or (f) by any act indicates its consent to, approval of or
acquiescence in any such proceeding or the appointment of any receiver of or
trustee for any material portion of its property, or suffer any such
receivership, trusteeship or proceeding to exist, or (g) by any act indicates
its consent to, approval of or acquiescence in any order, judgment or decree
by any court of competent jurisdiction or any Governmental Authority or any
agency thereof enjoining or otherwise prohibiting the operation of a material
portion of the Borrower's or any of its Domestic Subsidiary's business or the
use or disposition of a material portion of the Borrower's or any of its
Domestic Subsidiary's assets.
7.1.7 Involuntary Bankruptcy, etc.
(a) An order for relief shall be entered in any
involuntary case brought against the Borrower or any Domestic Subsidiary of
the Borrower under the Bankruptcy Code, or (b) any such case shall be
commenced against the Borrower or any Domestic Subsidiary of the Borrower and
shall not be dismissed with sixty (60)days after the commencement thereof, or
(c) an order, judgment or decree under any other Law is entered by any court
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of competent jurisdiction or by any other Governmental Authority on the
application of a Governmental Authority or of a Person other than the Borrower
or any Domestic Subsidiary of the Borrower(i) adjudicating the Borrower or any
Domestic Subsidiary of the Borrower bankrupt or insolvent, or (ii) appointing
a receiver, trustee or liquidator of the Borrower or any Domestic Subsidiary
of the Borrower, or of a material portion of such Borrower's, Domestic
Subsidiary's assets, or (iii) enjoining, prohibiting or otherwise limiting the
operation of a material portion of the Borrower's or any Domestic Subsidiary's
business or the use or disposition of a material portion of the Borrower's or
any Domestic Subsidiary's assets.
7.1.8 Judgment.
Unless adequately insured in the reasonable opinion of the
Lender, the entry of a final judgment for the payment of money involving in
the aggregate more than Two Hundred Fifty Thousand Dollars ($500,000) against
the Borrower or any Domestic Subsidiary of the Borrower, and the failure by
the Borrower or such Domestic Subsidiary to discharge the same, or cause it to
be discharged, within thirty (30) days from the date of the order, decree or
process under which or pursuant to which such judgment was entered, or to
secure a stay of execution pending appeal of such judgment.
7.1.9 Execution; Attachment.
Any execution or attachment shall be levied against the
Collateral, or any part thereof, and such execution or attachment shall not be
set aside, discharged or stayed within thirty (30) days after the same shall
have been levied.
7.1.10 Default Under Indenture.
Any Event of Default (as defined in the Indenture or the
Refinanced Indenture)under the Indenture or the Senior Notes issued pursuant
thereto, or, in the event of a Permitted Indenture Refinancing, the Refinanced
Indenture shall have occurred and shall not have been waived or otherwise
cured in accordance with the requirements of the Indenture or the Refinanced
Indenture, as the case may be.
7.1.11 Default Under Other Borrowings.
Default shall be made with respect to any Indebtedness for
Borrowed Money of the Borrower or any Domestic Subsidiary of the Borrower
(other than the Loans and the Indebtedness for Borrowed Money under the
Indenture) in excess of One Million Dollars ($1,000,000) in the aggregate if
the effect of such default is to accelerate the maturity of such Indebtedness
for Borrowed Money or to permit the holder or obligee thereof or other party
thereto to cause such Indebtedness for Borrowed Money to become due prior to
its stated maturity.
7.1.12 Challenge to Agreements.
The Borrower or any Subsidiary of the Borrower shall
challenge the validity and binding effect of any provision of any of the
Financing Documents or shall state its intention to make such a challenge of
any of the Financing Documents or any of the Financing Documents shall for any
reason (except to the extent permitted by its express terms) cease to be
effective or to create a valid and perfected first priority Lien (except for
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Permitted Liens) on, or security interest in, any of the Collateral purported
to be covered thereby.
7.1.13 Material Adverse Change.
An event which has a Material Adverse Effect has occurred.
7.1.14 Change in Control.
Any Change of Control shall occur.
7.1.15 Liquidation, Termination, Dissolution, etc..
The Borrower shall liquidate, dissolve or terminate its
existence without the prior written consent of the Lender.
7.1.16 Criminal Proceedings.
There shall have been instituted against the Borrower any
criminal proceedings for which forfeiture of any asset is a potential penalty.
7.1.17 Guaranty Agreement; Collateral Assignment of Life
Insurance.
The Lender shall not have received, by the earlier to
occur of (x) January 29,1999, or (y) the date that is 30 days after the date
on which Lender notifies Borrower (which notification date shall not be
earlier than November 20, 1998),that Borrower must provide the Guaranty
Agreement and collateral contemplated by this Section 7.1.17 (Guaranty
Agreement; Collateral Assignment of Life Insurance.), either:
(a)the Guaranty Agreement, together with (i) the
Collateral Assignment of Life Insurance with respect to the Guarantor Policy
(together with evidence satisfactory to the Lender, in its sole discretion,
that the Guarantor Policy has been issued)and/or (ii) marketable securities,
cash or Cash Equivalents satisfactory to the Lender pledged to the Lender
pursuant to documentation that is satisfactory to the Lender, in its sole
discretion, or
(b) (i) at least $5,000,000 in proceeds from the sale of
the real property of the Borrower located at 1132 West Blackhawk Street,
Chicago, Illinois for application to the Loans, or other funds sufficient in
amount to allow the Borrower to eliminate the Special Availability Amount, as
determined by the Lender, in its sole discretion, together with (ii) an
executed amendment to this Agreement complying with Section 8.2 the effect of
which is to reduce each of the Special Availability Amount and the Adjusted
Special Availability Amount to zero without the opportunity to reborrow
Special Availability Loans, but subject to re-borrowing in Lender's sole and
absolute discretion.
7.1.18 Required Availability.
The average daily Revolving Credit Availability fails, for
any calendar month,to be greater than or equal to One Million Dollars
($1,000,000).
Section 7.2 Remedies.
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Upon the occurrence and, thereafter, at any time during the continuance
of any Event of Default, the Lender may, in the exercise of its sole and
absolute discretion from time to time, exercise any one or more of the
following rights,powers or remedies:
7.2.1 Acceleration.
The Lender may declare any or all of the Obligations to be
immediately due and payable, notwithstanding anything contained in this
Agreement or in any of the other Financing Documents to the contrary, without
presentment, demand, protest,notice of protest or of dishonor, or other notice
of any kind, all of which the Borrower hereby waives.
7.2.2 Further Advances.
The Lender may from time to time without notice to the
Borrower suspend,terminate or limit any further advances, loans or other
extensions of credit under the Commitment, under this Agreement and/or under
any of the other Financing Documents. Further, upon the occurrence of an
Event of Default specified in Sections 7.1.6 (Receiver; Bankruptcy) or 7.1.7
(Involuntary Bankruptcy, etc.) above, the Revolving Credit Commitment, the
Letter of Credit Commitment and any agreement in any of the Financing
Documents to provide additional credit and/or to issue Letters of Credit shall
immediately and automatically terminate and the unpaid principal amount of the
Notes (with accrued interest thereon) and all other Obligations then
outstanding, shall immediately become due and payable without further action
of any kind and without presentment, demand, protest or notice of any kind,
all of which are hereby expressly waived by the Borrower.
7.2.3 Uniform Commercial Code.
The Lender shall have all of the rights and remedies of a
secured party under the applicable Uniform Commercial Code and other
applicable Laws. Upon demand by the Lender, the Borrower shall assemble the
Collateral and make it available to the Lender, at a place designated by the
Lender. The Lender or its agents may without notice from time to time enter
upon the Borrower's premises to take possession of the Collateral, to remove
it, to render it unusable, to process it or otherwise prepare it for sale, or
to sell or otherwise dispose of it. At the Lender's direction, the Borrower
shall cease to process, prepare for sale, sell or otherwise dispose of the
Collateral.
Any written notice of the sale, disposition or other intended action by
the Lender with respect to the Collateral which is sent by regular mail,
postage prepaid, to the Borrower at their respective addresses set forth in
Section 8.1 of this Agreement, or such other address of the Borrower which may
from time to time be shown on the Lender's records, at least ten (10) days
prior to such sale,disposition or other action, shall constitute commercially
reasonable notice to the Borrower. The Lender may alternatively or
additionally give such notice in any other commercially reasonable manner.
Nothing in this Agreement shall require the Lender to give any notice not
required by applicable Laws or not required by the specific terms of this
Agreement.
If any consent, approval, or authorization of any state, municipal or
other Governmental Authority or of any other Person or of any Person having
any interest therein, should be necessary to effectuate any sale or other
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disposition of the Collateral, the Borrower agrees to execute all such
applications and other instruments, and to take all other action, as may be
required in connection with securing any such consent, approval or
authorization.
The Borrower recognizes that the Lender may be unable to effect a public
sale of all or a part of the Collateral consisting of Securities by reason of
certain prohibitions contained in the Securities Act of 1933, as amended, and
other applicable Federal and state Laws. The Lender may, therefore, take such
steps as it may deem appropriate to comply with such Laws and may, for
example, at any sale of the Collateral consisting of Securities restrict the
prospective bidders or purchasers as to their number, nature of business and
investment intention, including, without limitation, a requirement that the
Persons making such purchases represent and agree to the satisfaction of the
Lender that they are purchasing such Securities for their account, for
investment, and not with a view to the distribution or resale of any thereof.
The Borrower covenants and agrees to do or cause to be done promptly all such
acts and things as the Lender may request from time to time and as may be
necessary to offer and/or sell the Securities or any part thereof in a manner
which is valid and binding and in conformance with all applicable Laws. Upon
any such sale or disposition, the Lender shall have the right to deliver,
assign and transfer to the purchaser thereof the Collateral consisting of
Securities so sold.
7.2.4 Specific Rights With Regard to Collateral.
In addition to all other rights and remedies provided
hereunder or as shall exist at law or in equity from time to time, the Lender
may (but shall be under no obligation to), without notice to the Borrower, and
Borrower hereby irrevocably appoints the Lender as its attorney-in-fact, with
power of substitution, in the name of the Lender and/or in the name of the
Borrower or otherwise, for the use and benefit of the Lender, but at the cost
and expense of the Borrower and without notice to the Borrower:
(a)request any Account Debtor obligated on any of the
Accounts to make payments thereon directly to the Lender, with the Lender
taking control of the cash and non-cash proceeds thereof;
(b)compromise, extend or renew any of the Collateral or
deal with the same as it may deem advisable;
(c)make exchanges, substitutions or surrenders of all or
any part of the Collateral;
(d)copy, transcribe, or remove from any place of business
of the Borrower or any of its Subsidiaries all books, records, ledger sheets,
correspondence, invoices and documents, relating to or evidencing any of the
Collateral or without cost or expense to the Lender, make such use of the
Borrower's or any Subsidiary's place(s) of business as may be necessary to
administer, control and collect the Collateral;
(e)repair, alter or supply goods if necessary to fulfill
in whole or in part the purchase order of any Account Debtor;
(f)demand, collect, receipt for and give renewals,
extensions, discharges and releases of any of the Collateral;
<PAGE>
<PAGE> 110
(g)institute and prosecute legal and equitable proceedings
to enforce collection of, or realize upon, any of the Collateral;
(h)settle, renew, extend, compromise, compound, exchange
or adjust claims in respect of any of the Collateral or any legal proceedings
brought in respect thereof;
(i)endorse or sign the name of the Borrower upon any items
of payment,certificates of title, instruments, securities, stock powers,
documents,documents of title, financing statements, assignments, notices or
other writing relating to or part of the Collateral and on any proof of claim
in bankruptcy against an Account Debtor;
(j)notify the Post Office authorities to change the
address for the delivery of mail to the Borrower to such address or Post
Office Box as the Lender may designate and receive and open all mail addressed
to the Borrower; and
(k)take any other action necessary or beneficial to
realize upon or dispose of the Collateral or to carry out the terms of this
Agreement.
7.2.5 Application of Proceeds.
Any proceeds of sale or other disposition of the
Collateral will be applied by the Lender to the payment first of any and all
Enforcement Costs, and any balance of such proceeds will be applied to the
Obligations in such order and manner as the Lender shall determine in its sole
and absolute discretion. If the sale or other disposition of the Collateral
fails to fully satisfy the Obligations, the Borrower shall liable to the
Lender for any deficiency.
7.2.6 Performance by Lender.
If the Borrower shall fail to pay the Obligations or
otherwise fail to perform,observe or comply with any of the conditions,
covenants, terms, stipulations or agreements contained in this Agreement or
any of the other Financing Documents,the Lender without notice to or demand
upon the Borrower and without waiving or releasing any of the Obligations or
any Default or Event of Default, may (but shall be under no obligation to) at
any time thereafter make such payment or perform such act for the account and
at the expense of the Borrower, and may enter upon the premises of the
Borrower for that purpose and take all such action thereon as the Lender may
consider necessary or appropriate for such purpose and the Borrower hereby
irrevocably appoints the Lender as its attorney-in-fact to do so, with power
of substitution, in the name of the Lender, or in the name of the Borrower or
otherwise, for the use and benefit of the Lender, but at the cost and expense
of the Borrower and without notice to the Borrower. All sums so paid or
advanced by the Lender together with interest thereon from the date of
payment, advance or incurring until paid in full at the Post-Default Rate and
all costs and expenses, shall be deemed part of the Enforcement Costs, shall
be paid by the Borrower to the Lender on demand, and shall constitute and
become a part of the Lender's Obligations.
7.2.7 Other Remedies.
The Lender may from time to time proceed to protect or
<PAGE>
<PAGE> 111
enforce the rights of the Lender by an action or actions at law or in equity
or by any other appropriate proceeding, whether for the specific performance
of any of the covenants contained in this Agreement or in any of the other
Financing Documents, or for an injunction against the violation of any of the
terms of this Agreement or any of the other Financing Documents, or in aid of
the exercise or execution of any right, remedy or power granted in this
Agreement, the Financing Documents, and/or applicable Laws. The Lender is
authorized to offset and apply to all or any part of the Obligations all
moneys, credits and other property of any nature whatsoever of the Borrower
now or at any time hereafter in the possession of, in transit to or from,
under the control or custody of, or on deposit with, the Lender or any
Affiliate of the Lender.
ARTICLE 8 MISCELLANEOUS
Section 8.1 Notices.
All notices, requests and demands to or upon the parties to this
Agreement shall be in writing and shall be deemed to have been given or made
when delivered by hand on a Business Day, or three (3) days after the date
when deposited in the mail, postage prepaid by registered or certified mail,
return receipt requested,or when sent by overnight courier, on the Business
Day next following the day on which the notice is delivered to such overnight
courier, addressed as follows:
the Borrower: Chatwins Group, Inc.
300 Weyman Plaza
Suite 340
Pittsburgh, Pennsylvania 15236
Attention: Russell S. Carolus
With copies to: Richards & O'Neil, LLP
885 Third Avenue
New York, New York 10022-4802
Attention: Ann F. Chamberlain
Lender: NationsBank, N.A.
NationsBank Business Credit
100 S. Charles Street
Mail Code: MD4-325-04-15
4th Floor
Baltimore, MD 21201
Attention: Alison Arbuthnot
Copy to: Calfee, Halter & Griswold LLP
1400 McDonald Investment Center
800 Superior Avenue
Cleveland, Ohio 44114
Attention: Thomas A. Cicarella, Esq.
By written notice, each party to this Agreement may change the address to
which notice is given to that party, provided that such changed notice shall
include a street address to which notices may be delivered by overnight
courier in the ordinary course on any Business Day.
Section 8.2 Amendments; Waivers.
<PAGE>
<PAGE> 112
This Agreement and the other Financing Documents may not be amended,
modified,or changed in any respect except by an agreement in writing signed by
the Lender and the Borrower. No waiver of any provision of this Agreement or
of any of the other Financing Documents, nor consent to any departure by the
Borrower therefrom, shall in any event be effective unless the same shall be
in writing signed by the Lender. No course of dealing between the Borrower
and the Lender and no act or failure to act from time to time on the part of
the Lender shall constitute a waiver, amendment or modification of any
provision of this Agreement or any of the other Financing Documents or any
right or remedy under this Agreement, under any of the other Financing
Documents or under applicable Laws. Without implying any limitation on the
foregoing:
(a)Any waiver or consent shall be effective only in
the specific instance, for the terms and purpose for which given, subject to
such conditions as the Lender may specify in any such instrument;
(b)No waiver of any Default or Event of Default shall
extend to any subsequent or other Default or Event of Default, or impair any
right consequent thereto;
(c)No notice to or demand on the Borrower in any case
shall entitle the Borrower to any other or further notice or demand in the
same, similar or other circumstance;
(d)No failure or delay by the Lender to insist upon
the strict performance of any term, condition, covenant or agreement of this
Agreement or of any of the other Financing Documents, or to exercise any
right, power or remedy consequent upon a breach thereof, shall constitute a
waiver, amendment or modification of any such term, condition, covenant or
agreement or of any such breach or preclude the Lender from exercising any
such right, power or remedy at any time or times; and
(e)By accepting payment after the due date of any
amount payable under this Agreement or under any of the other Financing
Documents, the Lender shall not be deemed to waive the right either to require
prompt payment when due of all other amounts payable under this Agreement or
under any of the other Financing Documents, or to declare a default for
failure to effect such prompt payment of any such other amount.
Section 8.3 Cumulative Remedies.
The rights, powers and remedies provided in this Agreement and in the
other Financing Documents are cumulative, may be exercised concurrently or
separately,may be exercised from time to time and in such order as the Lender
shall determine, subject to the provisions of this Agreement, and are in
addition to,and not exclusive of, rights, powers and remedies provided by
existing or future applicable Laws. In order to entitle the Lender to
exercise any remedy reserved to it in this Agreement, it shall not be
necessary to give any notice, other than such notice as may be expressly
required in this Agreement. Without limiting the generality of the foregoing
and subject to the terms of this Agreement, the Lender may:
(a)proceed against the Borrower with or without
proceeding against any other Person (including, without limitation, any
guarantor) who may be liable (by endorsement, guaranty, indemnity or
otherwise) for all or any part of the Obligations;
<PAGE>
<PAGE> 113
(b)proceed against the Borrower with or without
proceeding under any of the other Financing Documents or against any
Collateral or other collateral and security for all or any part of the
Obligations;
(c)without reducing or impairing the obligation of
the Borrower and without notice, release or compromise with any guarantor or
other Person liable (by endorsement, guaranty, indemnity or otherwise) for all
or any part of the Obligations under the Financing Documents or otherwise; and
(d)without reducing or impairing the obligations of
the Borrower and without notice thereof: (i) fail to perfect the Lien in any
or all Collateral or to release any or all the Collateral or to accept
substitute Collateral, (ii)approve the making of advances under the Revolving
Loan under this Agreement,(iii) waive any provision of this Agreement or the
other Financing Documents,(iv) exercise or fail to exercise rights of setoff
or other rights, or (v) accept partial payments or extend from time to time
the maturity of all or any part of the Obligations.
Section 8.4 Severability.
In case one or more provisions, or part thereof, contained in this
Agreement or in the other Financing Documents shall be invalid, illegal or
unenforceable in any respect under any Law, then without need for any further
agreement, notice or action:
(a)the validity, legality and enforceability of the
remaining provisions shall remain effective and binding on the parties thereto
and shall not be affected or impaired thereby;
(b)the obligation to be fulfilled shall be reduced to
the limit of such validity;
(c)if such provision or part thereof pertains to
repayment of the Obligations,then, all of the Obligations of the Borrower to
the Lender shall become immediately due and payable; and
(d)if the affected provision or part thereof operates
or would prospectively operate to invalidate this Agreement in whole or in
part, then such provision or part thereof only shall be void, and the
remainder of this Agreement shall remain operative and in full force and
effect.
Section 8.5 Assignments by Lender.
The Lender may, without notice to or consent of the Borrower, sell,
assign or transfer to or participate with any Person or Persons all or any
portion of the Obligations, and each such Person or Persons shall have the
right to enforce the provisions of this Agreement and any of the other
Financing Documents as fully as the Lender, provided that the Lender shall
continue to have the unimpaired right to enforce the provisions of this
Agreement and any of the other Financing Documents as to so much of the
Obligations that the Lender has not sold, assigned or transferred. In
connection with the foregoing, the Lender shall have the right to disclose to
any such actual or potential purchaser, assignee, transferee or participant
all financial records, information, reports, financial statements and
documents obtained in connection with this Agreement and any of the other
<PAGE>
<PAGE> 114
Financing Documents.
Section 8.6 Successors and Assigns.
This Agreement and all other Financing Documents shall be binding upon
and inure to the benefit of the Borrower, the Lender and their respective
successors and permitted assigns, except that the Borrower shall have no right
to assign its rights hereunder or any interest herein without the prior
written consent of the Lender.
Section 8.7 Continuing Agreements.
All covenants, agreements, representations and warranties made by the
Borrower in this Agreement, in any of the other Financing Documents, and in
any certificate delivered pursuant hereto or thereto shall survive the making
by the Lender of the Loans, the issuance of Letters of Credit and the
execution and delivery of the Notes, shall be binding upon the Borrower
regardless of how long before or after the date hereof any of the Obligations
were or are incurred, and shall continue in full force and effect so long as
any of the Obligations are outstanding and unpaid.
Section 8.8 Enforcement Costs.
The Borrower agrees to pay to the Lender on demand all Enforcement
Costs,together with interest thereon from the date of demand until paid in
full at a per annum rate of interest equal at all times to the Post-Default
Rate. Enforcement Costs shall be immediately due and payable on demand.
Without implying any limitation on the foregoing, the Borrower agrees, as part
of the Enforcement Costs, to pay upon demand any and all stamp and other Taxes
and fees payable or determined to be payable in connection with the execution
and delivery of this Agreement and the other Financing Documents and to save
the Lender harmless from and against any and all liabilities with respect to
or resulting from any delay in paying or omission to pay any Taxes or fees
referred to in this Section. The provisions of this Section shall survive the
execution and delivery of this Agreement, the repayment of the other
Obligations and shall survive the termination of this Agreement.
Section 8.9 Applicable Law; Jurisdiction.
8.9.1 Applicable Law.
As a material inducement to the Lender to enter into this
Agreement, the Borrower and the Lender acknowledge and agree that the
Financing Documents, including,this Agreement, shall be governed by the Laws
of the State, as if each of the Financing Documents and this Agreement had
each been executed, delivered,administered and performed solely within the
State even though for the convenience and at the request of the Borrower, one
or more of the Financing Documents may be executed elsewhere. The parties
acknowledge, however, that remedies under certain of the Financing Documents
which relate to property outside the State may be subject to the laws of the
state in which the property is located.
8.9.2 Jurisdiction.
THE BORROWER IRREVOCABLY SUBMITS TO THE JURISDICTION OF
ANY STATE OR FEDERAL COURT SITTING IN THE STATE OVER ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER
<PAGE>
<PAGE> 115
FINANCING DOCUMENTS. THE BORROWER IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE
LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH
COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY
SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. FINAL JUDGMENT IN ANY
SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT SHALL BE CONCLUSIVE
AND BINDING UPON THE BORROWER AND MAY BE ENFORCED IN ANY COURT IN WHICH THE
BORROWER IS SUBJECT TO JURISDICTION, BY A SUIT UPON SUCH JUDGMENT, PROVIDED
THAT SERVICE OF PROCESS IS EFFECTED UPON THE BORROWER IN ONE OF THE MANNERS
SPECIFIED IN THIS SECTION OR AS OTHERWISE PERMITTED BY APPLICABLE LAWS.
8.9.3 Consent to Service of Process.
The Borrower hereby consents to process being served in any
suit, action or proceeding of the nature referred to in this Section by (i)
the mailing of a copy thereof by registered or certified mail, postage
prepaid, return receipt requested, to the Borrower at the Borrower's address
designated in or pursuant to Section 8.1 hereof. The Borrower irrevocably
agrees that such service (i)shall be deemed in every respect effective service
of process upon the Borrower in any such suit, action or proceeding, and (ii)
shall, to the fullest extent permitted by law, be taken and held to be valid
personal service upon the Borrower. Nothing in this Section shall affect the
right of the Lender to serve process in any manner otherwise permitted by law
or limit the right of the Lender otherwise to bring proceedings against the
Borrower in the courts of any jurisdiction or jurisdictions.
Section 8.10 Duplicate Originals and Counterparts.
This Agreement may be executed in any number of duplicate originals or
counterparts, each of such duplicate originals or counterparts shall be deemed
to be an original and all taken together shall constitute but one and the same
instrument.
Section 8.11 Headings.
The headings in this Agreement are included herein for convenience only,
shall not constitute a part of this Agreement for any other purpose, and shall
not be deemed to affect the meaning or construction of any of the provisions
hereof.
Section 8.12 No Agency.
Nothing herein contained shall be construed to constitute the Borrower as
the agent of the Lender for any purpose whatsoever or to permit the Borrower
to pledge any of the credit of the Lender. The Lender shall not be
responsible or liable for any shortage, discrepancy, damage, loss or
destruction of any part of the Collateral wherever the same may be located and
regardless of the cause thereof other than through the Lender's gross
negligence or willful misconduct(as determined by a court of competent
jurisdiction after exhaustion of all appeals). The Lender shall not, by
anything herein or in any of the Financing Documents or otherwise, assume the
Borrower's obligations under any contract or agreement assigned to the Lender,
and the Lender shall not be responsible in anyway for the performance by the
Borrower of any of the terms and conditions thereof.
Section 8.13 Date of Payment.
<PAGE>
<PAGE> 116
Should the principal of or interest on the Notes become due and payable
on other than a Business Day, the maturity thereof shall be extended to the
next succeeding Business Day and in the case of principal, interest shall be
payable thereon at the rate per annum specified in the Notes during such
extension.
Section 8.14 Entire Agreement.
This Agreement and the other Financing Documents are intended by the
Lender and the Borrower to be a complete, exclusive and final expression of
the agreements contained herein. Neither the Lender nor the Borrower shall
hereafter have any rights under any prior agreements pertaining to the matters
addressed by this Agreement but shall look solely to this Agreement for
definition and determination of all of their respective rights, liabilities
and responsibilities under this Agreement.
Section 8.15 Waiver of Trial by Jury.
THE BORROWER AND THE LENDER HEREBY JOINTLY AND SEVERALLY WAIVE TRIAL BY
JURY IN ANY ACTION OR PROCEEDING TO WHICH THE BORROWER AND THE LENDER MAY BE
PARTIES,ARISING OUT OF OR IN ANY WAY PERTAINING TO (A) THIS AGREEMENT, (B) ANY
OF THE FINANCING DOCUMENTS, OR (C) THE COLLATERAL.
This waiver is knowingly, willingly and voluntarily made by the Borrower
and the Lender, and the Borrower and the Lender hereby represent that no
representations of fact or opinion have been made by any individual to induce
this waiver of trial by jury or to in any way modify or nullify its effect.
The Borrower and the Lender further represent that they have been represented
in the signing of this Agreement and in the making of this waiver by
independent legal counsel,selected of their own free will, and that they have
had the opportunity to discuss this waiver with counsel.
Section 8.16 Liability of the Lender.
The Borrower hereby agrees that the Lender shall not be chargeable for
any negligence, mistake, act or omission of any accountant, examiner, agency
or attorney employed by the Lender in making examinations or investigations or
otherwise in perfecting, maintaining or protecting upon any lien or security
interest or any other interest in the Collateral or other security for the
Obligations.
By inspecting the Collateral or any other properties of the Borrower or
by accepting or approving anything required to be observed, performed or
fulfilled by the Borrower or to be given to the Lender pursuant to this
Agreement or any of the other Financing Documents, the Lender shall not be
deemed to have warranted or represented the condition, sufficiency, legality,
effectiveness or legal effect of the same, and such acceptance or approval
shall not constitute any warranty or representation with respect thereto by
the Lender.
<PAGE>
<PAGE> 117
IN WITNESS WHEREOF, each of the parties hereto have executed and
delivered this Agreement under their respective seals as of the day and year
first written above.
WITNESS: CHATWINS GROUP, INC.
- -------------------------------- -----------------------------------
Russell S. Carolus, Vice President
WITNESS: NATIONSBANK, N.A.
- -------------------------------- -----------------------------------
Robert T. McGuire, Senior Vice President
STATE OF OHIO
COUNTY OF CUYAHOGA ss:
The foregoing Financing and Security Agreement was acknowledged
before me this 30th day of October, 1998, by Russell S. Carolus, the Vice
President of Chatwins Group, Inc., a Delaware corporation, on behalf of the
corporation.
Notary Public
<TABLE> <S> <C>
<ARTICLE>5
<LEGEND>
This schedule contains summary financial information extracted from the
registrant's financial statements included in the Form 10-Q for the period-end
indicated below and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 192
<SECURITIES> 0
<RECEIVABLES> 37,566
<ALLOWANCES> 608
<INVENTORY> 23,765
<CURRENT-ASSETS> 68,601
<PP&E> 58,484
<DEPRECIATION> 25,885
<TOTAL-ASSETS> 120,769
<CURRENT-LIABILITIES> 36,039<F1>
<BONDS> 49,918
0
8,362
<COMMON> 3
<OTHER-SE> (8,826)<F2>
<TOTAL-LIABILITY-AND-EQUITY> 120,769
<SALES> 140,961
<TOTAL-REVENUES> 140,961
<CGS> 113,019
<TOTAL-COSTS> 113,019
<OTHER-EXPENSES> 18,129
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,450
<INCOME-PRETAX> 2,346
<INCOME-TAX> 914
<INCOME-CONTINUING> 1,432
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,126)
<EPS-PRIMARY> (5.07)
<EPS-DILUTED> (5.01)
<FN>
<F1>Excludes revolving credit facility borrowings of $28,194 and Senior Note
indebtedness of $24,959, both of which are classified as current maturities in
the consolidated balance sheet at 9/30/98.
<F2>Includes charges to retained earnings of $14.3 million for redemption
value of and dividend accretions on preferred stock.
</FN>
</TABLE>
