<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended:
September 30, 1996
------------------
or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from: _______ to _______
Commission file number: 33-64142
United States Leather, Inc.
-----------------------------------------------------------
(Exact name of registrant as specified in its charter)
Wisconsin 13-3503310
-------------------------- -------------------
(State or other jurisdiction I.R.S. Employer
of incorporation) Identification No.)
1110 N. Old World Third Street, #400, Milwaukee, WI 53203
--------------------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (414) 765-1040
--------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Shares Outstanding
Class at September 30, 1996
-------------- ---------------------
Common Stock, 100
$.01 par value
As of September 30, 1996, there was no public market for the Company's
common stock.
<PAGE>
UNITED STATES LEATHER, INC.
---------------------------
INDEX
-----
<TABLE>
<CAPTION>
PAGE
NUMBER
------
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements (Unaudited)
<S> <C>
Consolidated Condensed Statements of Operations..................... 3
Consolidated Condensed Balance Sheets............................... 4
Consolidated Condensed Statements of Cash Flows..................... 5
Notes to Consolidated Condensed Financial Statements................ 6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations....................... 9
PART II - OTHER INFORMATION AND SIGNATURES
Item 6 Exhibits and Reports on Form 8-K....................................19
Signatures..........................................................19
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
ITEM I - Financial Statements
- -----------------------------
UNITED STATES LEATHER, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
(Amounts in Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
3 Months Ended Sept 30, 9 Months Ended Sept 30,
----------------------- -----------------------
1996 1995 1996 1995
-------- ------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 75,325 $78,635 $ 235,407 $ 276,113
Cost of sales 68,370 67,842 213,791 235,714
-----------------------------------------------------
Gross profit 6,955 10,793 21,616 40,399
Selling, general and administrative expenses 5,702 5,758 17,967 18,159
Restructuring expenses - - 2,468 -
Amortization of intangible assets 925 1,010 3,085 2,598
-----------------------------------------------------
Income (loss) from operations 328 4,025 (1,904) 19,642
Interest expense 4,177 4,605 12,790 13,614
Other (income) expense - - 159 -
-----------------------------------------------------
Income (loss) before taxes and extraordinary item (3,849) (580) (14,853) 6,028
Income tax provision (credit) (1,147) 52 (4,553) 3,142
-----------------------------------------------------
Net income (loss) before extraordinary item (2,702) (632) (10,300) 2,886
Extraordinary item, net of tax - - - 417
-----------------------------------------------------
Net income (loss) $ (2,702) $ (632) $ (10,300) $ 3,303
=====================================================
Per Common Share Data:
Net income (loss) before extraordinary item $ (27,020) $(6,320) $(103,000) $ 28,860
Extraordinary item - - - 4,170
-----------------------------------------------------
Net income (loss) per Common Share $ (27,020) $(6,320) $(103,000) $ 33,030
=====================================================
Weighted average Common Shares outstanding 100 100 100 100
=====================================================
</TABLE>
3
<PAGE>
UNITED STATES LEATHER, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
(Amounts in Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
As of As of
ASSETS September 30, December 31,
------ 1996 1995
------------- ------------
<S> <C> <C>
Current Assets:
Cash $ 3,157 $ 4,614
Accounts receivable, less 45,648 44,603
allowances of $5,212 and $3,924
Inventories 57,984 73,886
Prepaid expenses and other 1,313 1,441
Refundable income tax 987 572
-------------------------------
Total current assets 109,089 125,116
Property, plant and equipment, net 47,007 48,124
Goodwill, net of amortization of 102,163 104,868
$24,440 and $22,115
Other 7,413 7,886
-------------------------------
Total assets $ 265,672 $ 285,994
===============================
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
Current Liabilities:
Current maturities of long-term debt $ 211 $ 175
Revolving credit facility 21,456 26,610
Payable to bank 5,009 5,025
Accounts payable 11,375 10,367
Accrued liabilities 11,903 13,003
Income taxes payable - 312
Deferred income taxes 4,699 4,699
-------------------------------
Total current liabilities 54,653 60,191
Long-term debt, less current maturities 130,091 130,145
Deferred income taxes 3,914 7,423
Other long-term liabilities 6,119 6,970
Stockholder's Equity:
Preferred Stock, $.01 par value -
5,000,000 shares authorized,
no shares issued - -
Common Shares:
Common Stock, voting, $.01 par
value - 35,000,000 shares
authorized, 100 shares issued 1 1
Additional paid-in-capital 92,344 92,344
Cumulative translation adjustment (213) (192)
Accumulated deficit (21,237) (10,888)
-------------------------------
Total stockholder's equity 70,895 81,265
-------------------------------
Total liabilities and stockholder's equity $ 265,672 $ 285,994
===============================
</TABLE>
4
<PAGE>
UNITED STATES LEATHER, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Amounts in Thousands, Except Share and Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
For the nine months ended
September 30
----------------------------
1996 1995
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net (loss) income $ (10,300) $ 3,303
Adjustments to reconcile net income
to net cash provided
by operating activities:
Depreciation and amortization 8,617 7,356
Extraordinary item - (417)
Noncash interest expense 857 1,097
Deferred income taxes (3,509) -
Change in assets and liabilities,
net of effect of acquisition:
Accounts receivable (1,045) (1,446)
Inventories 15,902 (4,790)
Prepaid expenses and other 135 1,151
Accounts payable 1,008 (2,394)
Accrued liabilities (1,100) (3,221)
Income taxes payable/receivable (727) (547)
Other long-term liabilities (851) (2,951)
-------------------------------
Net cash provided by (used in)
operating activities 8,987 (2,859)
-------------------------------
Cash Flows from Investing Activities
Capital expenditures (4,431) (6,518)
Acquisition of A.R. Clarke & Co.,
Limited - (4,914)
Purchase of software license (679) (615)
-------------------------------
Net cash used in investing activities (5,110) (12,047)
-------------------------------
Cash Flows from Financing Activities:
Payments of revolving credit facility (65,750) (77,814)
Borrowings under revolving credit
facility 60,596 96,484
Net change in payable to bank (16) (1,141)
Purchase of senior notes - (3,280)
Payment of long-term debt (94) (135)
Payment of common stock dividend (50) (1,173)
-------------------------------
Net cash provided (used) by financing
activities (5,314) 12,941
-------------------------------
Effect of Exchange Rate Changes on Cash (20) (246)
-------------------------------
Net increase in cash (1,457) (2,211)
Cash, beginning of period 4,614 4,216
-------------------------------
Cash, end of period $ 3,157 $ 2,005
===============================
Supplemental cash flow disclosures:
Interest paid $ 15,429 $ 15,947
Income taxes paid (refunded) $ (188) $ 4,931
</TABLE>
5
<PAGE>
UNITED STATES LEATHER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(Unaudited)
(1) Basis of Presentation:
The accompanying unaudited consolidated condensed financial statements have been
prepared in accordance with the rules and regulations of the Securities and
Exchange Commission. In the opinion of management, all required disclosures have
been presented and all necessary adjustments (consisting only of normal
recurring adjustments) have been included to fairly present the results of
operations, financial position and cash flows of United States Leather, Inc.
(the "Company"). These consolidated condensed financial statements should be
read in conjunction with the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995.
(2) Net Income Per Common Share:
Net income per Common Share is calculated by dividing net income available for
Common Shares by the weighted average of Common Shares outstanding during the
period.
(3) Inventories:
Inventories consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
At lower of cost, using the first-in, first-out (FIFO)
cost method or market:
Raw materials and supplies $ 11,764 $ 18,367
Work in process 28,845 32,549
Finished goods 23,471 29,716
-------- --------
Total FIFO inventories 64,080 80,632
Difference between FIFO and LIFO cost
of inventories (6,096) (6,746)
-------- --------
Total LIFO inventories $ 57,984 $ 73,886
======== ========
</TABLE>
6
<PAGE>
UNITED STATES LEATHER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (cont'd)
(In thousands, except share and per share data)
(Unaudited)
(4) Repurchase of Senior Notes
The Company repurchased Senior Notes with a face value of $4.0 million during
the first quarter of 1995, resulting in an extraordinary gain of approximately
$0.4 million, net of tax. The Company may repurchase additional Senior Notes
through privately negotiated open market purchases, to the extent it deems it
advantageous to do so. The Company intends to explore such repurchases over the
next six to eighteen months.
(5) Purchase of A.R. Clarke & Co., Limited
On January 30, 1995, the Company purchased substantially all of the non-cash
assets of A.R. Clarke & Co., Limited of Toronto, Canada for approximately $4.9
million, plus the assumption of certain liabilities approximating $0.8 million.
This acquisition was accounted for under the purchase method of accounting.
There was not a material amount of goodwill arising out of the acquisition. The
purchase was financed through borrowings under the Revolving Credit Facility,
which was amended and restated in the first quarter of 1995 to accommodate the
acquisition.
(6) 1996 Holdings Recapitalization
On April 9, 1996, a series of transactions were completed with the consent of
the Company which resulted in a change in the ultimate ownership of the Company
from U.S. Leather Holdings, Inc. ("Holdings") to Leather U.S., Inc. (the "New
Holding Company"). Holdings had been in default under its senior debentures (the
"Holdings Debentures") due to the noncompliance by Holdings of a financial
covenant contained in the Holdings Debentures as of December 31, 1995.
The holders of the Holdings Debentures foreclosed, with Holdings consent, on
their security which was the stock of Holdings' direct subsidiary, United States
Leather Holdings, Inc. ("Sub-Holdings"), the immediate parent of the Company.
Such foreclosure resulted in the satisfaction and cancellation of the Holdings
Debentures. The covenant default, and the subsequent consensual foreclosure, did
not constitute a default or a change in control under the terms of the Company's
existing public or bank debt.
Such foreclosure resulted in the elimination of any ownership in the Company by
Bear Stearns Acquisition Corp. VII, the majority shareholder of Holdings, and
vested complete ultimate share ownership in the Company in affiliates of The
Equitable Life Assurance Society of the United States ("Equitable"), among
others. The nominees of Bear Stearns Acquisition Corp. VII have resigned from
the Board of Directors of the Company and have been replaced by nominees of the
New Holding Company.
7
<PAGE>
(7) June, 1996 Restructuring
On June 24, 1996, the Company announced a series of business decisions designed
to improve operating trends and to focus on core businesses and markets. These
decisions included:
(a) The discontinuance of the USL Trading Division and the German furniture
branch.
(b) A downsizing of it salaried workforce by the elimination of approximately
55 salaried positions.
(c) Accelerated disposition of certain inventories, primarily finished leather.
The Company recorded nonrecurring expenses of $9.4 million in the second quarter
of 1996 to recognize the cost of the above initiatives. The nonrecurring charges
included $6.6 million as an inventory reserve, which was included in cost of
sales, $2.1 million of severance expense and $0.4 million for the closing of the
German furniture branch, both of which were shown as restructuring expenses, and
$0.3 million of amortization related to the write-off of goodwill. The Company
expects, although there can be no assurance, that annual pretax savings
resulting from these actions will exceed $4 million excluding the intangible
benefits resulting from the refocusing of management.
(8) New Revolving Credit Agreement
On November 1, 1996, the Company entered into a new five year, $80 million,
asset-based revolving credit facility. The new facility is secured by
essentially all of the assets of the Company with the exception of real
property. The Company's borrowing base is calculated on a percentage of eligible
receivables and inventory. In addition, the Company is permitted an overadvance
of $15 million in the first year and $10 million thereafter. Pricing in the
first year is LIBOR plus 2.00% or prime plus 0.25%. The agreement includes
financial covenants for FIFO EBITDA to Cash Interest Expense, minimum FIFO
EBITDA and a tangible FIFO asset to total debt ratio. The agreement also
includes restrictions related to capital expenditures and indebtedness among
other restrictions. The Company is permitted to repurchase its public notes
under the agreement as long as it has $15 million of excess availability and
does not repurchase more than $30 million in the first six months of the
agreement.
As of September 30, 1996, on a pro-forma basis, the Company would have had a
borrowing base under the new asset-based credit facility of approximately $78
million, including the overadvance, and excess availability of approximately $50
million.
8
<PAGE>
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of Operations
Results of Operations
- ---------------------
The following table sets forth certain consolidated income statement data of
United States Leather, Inc. (the "Company" or "USL") as a percentage of net
sales for the periods indicated.
<TABLE>
<CAPTION>
Percentage of Net Sales
-------------------------------------------------------------
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
---------------------------- ---------------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 90.8 86.3 90.8 85.4
-------- -------- -------- --------
Gross Profit 9.2 13.7 9.2 14.6
Selling, general & administrative 7.6 7.3 7.6 6.6
Restructuring expense - - 1.0 -
Amortization of intangible assets 1.2 1.3 1.4 0.9
-------- -------- -------- --------
Income (loss) from operations 0.4 5.1 (0.8) 7.1
Other (income) expense - - 0.1 -
Interest expense 5.5 5.8 5.4 4.9
-------- -------- -------- --------
Income (loss) before taxes
and extraordinary item (5.1) (0.7) (6.3) 2.2
Income tax provision (1.5) 0.1 (1.9) 1.2
-------- -------- -------- --------
Net income (loss) before
extraordinary item (3.6) (0.8) (4.4) 1.0
Extraordinary item, net of tax - - - 0.2
-------- -------- -------- --------
Net Income (Loss) (3.6)% (0.8)% (4.4)% 1.2%
======== ======== ======== ========
</TABLE>
Management Reorganization
On October 2, 1996, the Company announced the elimination of product-line
'presidents' and the corresponding realignment of executive responsibilities
along functional areas within the organization. This change completed the
Company's transition from a subsidiary-style organization to a single Company
with multiple product lines. The new organization is designed to increase
efficiency in the delivery of properly targeted, high-quality products and
customer service.
Prior to the announcement, USL had divisions, or companies within a company. The
organizational change eliminates these "companies" and allows key executives to
manage across former "company" lines to share their expertise in all areas of
the business.
While USL will operate as one company, it will continue to make and sell its
existing and future products under current brand names which include Lackawanna
Leather, Pfister & Vogel, A.L. Gebhardt, Caldwell-Moser, A.R. Clarke and USL
Automotive Leather. Consistent with this organizational change, effective with
the third quarter 10-Q, the Company has discontinued reporting sales and gross
profits by division or by "companies within a company."
9
<PAGE>
RESULTS OF OPERATIONS - THREE MONTH PERIOD
ENDED SEPTEMBER 30, 1996
The following table sets forth net sales, gross profit and gross profit as a
percentage of sales for the Company segregated between continuing and
discontinued operations. The Company has previously announced that it was
discontinuing the USL Trading Division and the German furniture branch. To date,
the Company has completed all open orders related to the USL Trading Division.
The Company has dramatically curtailed operations at the German furniture branch
and expects to finalize the closure during the fourth quarter.
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------
September 30, 1996 September 30, 1995
------------------------ ------------------------
Net Gross Net Gross
Sales Profit % Sales Profit %
----- ------ ----- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Continuing Operations $74.5 $ 7.5 10.1% $73.6 $ 10.7 14.5%
Discontinued Operations 0.8 (0.5) (62.5) 5.0 0.1 2.0
----- ------ ----- ----- ------ -----
Total $75.3 $ 7.0 9.2% $78.6 $ 10.8 13.7%
</TABLE>
Net Sales
- ---------
Sales from continuing operations for the third quarter of 1996 were $74.5
million, an increase of $0.9 million, or 1.2%, as compared to the third quarter
of 1995 and consistent with the sales from continuing operations for the
previous four quarters which have averaged $74.2 million over this timespan.
Finished leather sales from continuing operations for the third quarter of 1996
were $67.6 million as compared to $69.4 million during the third quarter of
1995, a decrease of $1.8 million or 3.0%. This reduction was the result of
reduced selling prices, partially offset by a 2% increase in finished leather
units. The lower selling prices were the result of lower hide costs in the first
half of 1996 as compared to hide costs in the first half of 1995. The Company's
sales of inventory reserved in the second quarter of 1996 also contributed to
the lower selling prices. Increased unit sales to the automotive leather market
as well as the footwear/personal leather goods market were partially offset by
lower unit sales to the furniture leather market, especially the foreign resale
segment. Domestic furniture leather demand did strengthen during the third
quarter of 1996, although manufacturing process issues limited the ability of
the Company to capitalize on this increased demand. By-product and other sales
from continuing operations increased from $4.3 million in the third quarter of
1995 to $7.0 million in the third quarter of 1996 due to increased wet blue
sales and fewer splits being used internally. Sales of finished leather
accounted for 90.2% of the Company's net sales in the third quarter of 1996 as
compared to 94.2% in the third quarter of 1995.
Gross Profit
- ------------
Gross profit for continuing operations for the third quarter of 1996 was $7.5
million, a reduction of $3.2 million or 29.9% as compared to the same period
last year. The Company recorded a $1.0 million LIFO revaluation charge to
operations in the third quarter of 1996 as compared to a $2.5 million LIFO
revaluation credit during the same period last year. This variance of $3.5
million was principally the result of increasing hide costs during the third
quarter of 1996 as compared to decreasing hide costs during the third quarter of
1995. The average price of domestic hide purchase
10
<PAGE>
commitments made during the third quarter of 1996 was approximately 19% higher
than the average price of such commitments made during the third quarter of
1995. The upward hide price trend has continued into the fourth quarter and will
put margin pressure on fourth quarter results. Gross profits were also adversely
impacted by lower selling prices, manufacturing process issues, automotive
cutting startup costs and nonrecurring expenses associated with environmental
accruals. Gross profits were favorably impacted by the second quarter
reductions-in-force and lower hide prices on those hides purchased in the first
half of the year. As a percentage of sales, gross profits for continuing
operations dropped from 14.5% in the third quarter of 1995 to 10.1% in the third
quarter of 1995.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative expenses were $5.7 million in the third
quarter of 1996 as compared to $5.8 million in the third quarter of 1995, a
decrease of $0.1 million or 1.7%. The decrease was primarily the result of
reduced compensation expenses, partially offset by higher outside consulting
costs.
Amortization of Intangible Assets
- ---------------------------------
Amortization of intangible assets in the third quarter of 1996 was $0.9 million
as compared to $1.0 million in the third quarter of 1995.
Interest Expense
- ----------------
Interest expense during the third quarter of 1996 was $4.2 million as compared
to $4.6 million in the third quarter of 1995, a decrease of $0.4 million. The
decrease was principally due to reduced average borrowings in the Company's
revolving credit facility resulting from working capital reductions, primarily
reduced inventory levels, and the completion of the amortization of fees
associated with the original placement of this facility.
Income (Loss) Before Provision for Income Taxes
- -----------------------------------------------
The Company had a loss before taxes and extraordinary gain of $3.8 million in
the third quarter of 1996 as compared to a loss of $0.6 million in the third
quarter of 1995, a reduction of $3.2 million. This decrease was principally the
result of a $1.0 million LIFO revaluation charge to operations in the third
quarter of 1996, which was driven by increasing hide prices, compared to a $2.5
million LIFO revaluation credit in the third quarter of 1995 which reflected
decreasing hide prices.
Income Tax Provision (Credit)
- -----------------------------
The Company's tax credit was $1.1 million for the third quarter of 1996 as
compared to a $0.1 million provision for the third quarter of 1995, a reduction
of $1.2 million. After adjusting income before provision for income taxes for
nondeductible amortization of goodwill, the effective tax rate was 38% in 1996
as compared to 37% in 1995.
11
<PAGE>
Net Income
- ----------
Due to the factors listed above, the Company had a net loss of $2.7 million in
the third quarter of 1996 as compared to net loss of $0.6 million during the
third quarter of 1995.
RESULTS OF OPERATIONS - NINE MONTH PERIOD
ENDED SEPTEMBER 30, 1996
The following table sets forth net sales, gross profit, and gross profit as a
percentage of net sales, for the Company segregated between continuing and
discontinued operations. The Company has previously announced that it was
discontinuing the USL Trading Division and the German furniture branch. To date,
the Company has completed all open orders related to the USL Trading Division.
The Company has dramatically curtailed operations at the German furniture branch
and expects to finalize the closure during the fourth quarter.
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------------------------------------
September 30, 1996 September 30, 1995
---------------------------- ---------------------------
Net Gross Net Gross
Sales Profit % Sales Profit %
------ ---------- -------- ------ --------- --------
<S> <C> <C> <C> <C> <C> <C>
Continuing Operations $224.4 $22.4 10.0% $254.8 $39.8 15.6%
Discontinued Operations 11.8 (0.8) (8.0) 21.3 0.6 2.8
------ ----- ---- ------ ----- ----
Total $235.4 $21.6 9.2% $276.1 $40.4 14.6%
</TABLE>
The above table includes the recording of a $6.6 million nonrecurring inventory
reserve in June, 1996. Excluding the nonrecurring inventory charge of $6.6
million, the table would be as follows:
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------------------------------------
September 30, 1996 September 30, 1995
---------------------------- ---------------------------
Net Gross Net Gross
Sales Profit % Sales Profit %
------ ---------- -------- ------ --------- --------
<S> <C> <C> <C> <C> <C> <C>
Continuing Operations $224.4 $28.7 12.8% $254.8 $39.8 15.6%
Discontinued Operations 11.0 (0.5) (5.0) 21.3 0.6 2.8
------ ----- ---- ------ ----- ----
Total $235.4 $28.2 12.0% $276.1 $40.4 14.6%
</TABLE>
Net Sales
- ---------
Sales from continuing operations during the first nine months of 1996 were
$224.4 million as compared to $254.8 million for the same period last year, a
decrease of $30.8 million, or 12.0%. Finished leather sales from continuing
opertions decreased from $237.7 million in the first nine months of 1995
12
<PAGE>
to $207.9 million in the first nine months of 1996, a decrease of $30.1 million
or 12.7%. The decrease in finished leather sold was principally the result of a
9% decrease in square footage of finished leather sold, all of which occurred in
the first six months of 1996, as well as lower average selling prices. The
Company experienced dollar and unit declines in furniture as well as in
footwear/personal leather goods during the first nine months of the year. These
declines were partially offset by increases in its automotive leather finished
leather sales and units. Furniture backlogs have strengthened since the middle
of the year and the Company has increased its production schedules accordingly,
although manufacturing process issues have limited fulfillment of the increased
demand. The selling price decline is partially due to reduced hide costs during
the first six months of 1996 as compared to the first six months of 1995. By-
product and other sales for continuing operations decreased to $16.8 million in
the first nine months of 1996 from $17.2 million in the first nine months of
1995. Sales of finished leather accounted for 92.5% of the Company's net sales
for continuing operations in the first nine months of 1996 as compared to 93.3%
in the first nine months of 1995.
Nonrecurring Expenses Incurred in the Second Quarter of 1996
- ------------------------------------------------------------
On June 24, 1996, the Company announced a series of business decisions resulting
from an evaluation of the business that was initiated immediately after the
April 9, 1996 change in control. These decisions were designed to improve
operating trends and to focus on core businesses and markets. These decisions
included:
* The discontinuation of the USL Trading Division, the German furniture
branch and other miscellaneous noncore product segments, thereby refocusing
management and capital on the Company's core finished leather business.
* The downsizing of its salaried workforce by eliminating approximately 55
salaried positions, thereby realigning its salaried workforce to recent
volume levels as well as funding personnel additions designed to improve
quality and product development.
* The accelerated disposition of certain inventories, primarily finished
leather, thereby reducing working capital, storage and facility costs,
accelerating the movement of product in declining product segments, colors
or lines, minimizing future quality issues and focusing sales and
operations on current and future customer and operating requirements.
* The closing of its corporate headquarters, thereby moving from leased to
owned facilities, currently targeted to occur at yearend.
The Company recorded nonrecurring expenses of $9.4 million in the second quarter
of 1996 to recognize the cost of the above initiatives. The nonrecurring charges
included $6.6 million as an inventory reserve, which was included in cost of
sales, $2.1 million of severance expense and $0.4 million for the closing of the
German furniture branch, both of which were shown as restructuring expenses, and
$0.3 million of amortization related to the write-off of goodwill. The Company
expects, although there can be no assurance, that annual pretax savings
resulting from these actions will exceed $4 million excluding the intangible
benefits resulting from the refocusing of management.
13
<PAGE>
Gross Profit
- ------------
Excluding the $6.6 million inventory reserve recorded in the second quarter,
gross profit in the first nine months of 1996 for continuing operations was
$28.7 million as compared to $39.8 million in the first nine months of 1995, a
decrease of $11.1 million, or 27.9%. The decrease was the result of several
factors including a 9% reduction in the square footage of finished leather sold,
increasing hide costs (as compared to decreasing hide costs in 1995), lower
selling prices, increased unit manufacturing costs, and startup in the
automotive cut plant. The reduced sales and production volumes contributed to
the increased unit conversion costs. Average selling prices declined, partially
due to reduced hide prices in the first half of 1996 and partially due to weaker
demand and competitive market pressures, especially in the first six months of
1996. As a percentage of sales, excluding the nonrecurring inventory adjustment,
gross profits dropped from 15.6% in the first nine months of 1995 to 12.8% in
the first nine months of 1996. Including the nonrecurring inventory reserve, the
Company had a gross profit for continuing operations of $22.4 million in the
first nine months of 1996. The Company recorded a $0.7 million LIFO revaluation
credit to operations in the first nine months of 1996 as compared to a $3.0
million LIFO revaluation credit during the same period last year. While the
average price of domestic hide purchase commitments made during the first nine
months of 1996 was approximately 7% lower than the average price of these
commitments made during the first nine months of 1995, hide prices did start to
move sharply during the third quarter of 1996. The upward price trend has
continued into the fourth quarter of 1996.
The reduced square footage of finished leather produced has had an adverse
impact on the unit manufacturing costs at the Company's divisions. These
increased unit manufacturing costs were partially addressed by the reduction in
salaried positions in the second quarter of 1996. While the Company increased
production schedules in the third quarter of 1996, to meet rising demand
manufacturing process issues limited the Company's attainment of these
schedules.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative expenses were $18.0 million in the first
nine months of 1996 as compared to $18.2 million in the first nine months of
1995, a decrease of $0.2 million. The decrease was principally the result of
reduced compensation, and general cost controls, partially offset by increased
bad debt expense. The increased bad debt expense is principally related to two
specific USL Trading Division customers. The Company has announced the
discontinuation of the USL Trading Division.
Amortization of Intangible Assets
- ---------------------------------
Amortization of intangible assets for the first nine months of 1996 was $3.1
million, as compared to $2.6 million for the first nine months of 1995. The
increase was principally due to the accelerated write-off of $0.3 million of
goodwill in the second quarter of 1996 that the Company determined had no
continuing value.
14
<PAGE>
Restructuring Expense
- ---------------------
The Company incurred nonrecurring restructuring expenses of $2.5 million in the
second quarter of 1996 comprised of $2.1 million severance expense associated
with the elimination of approximately 55 salaried positions and $0.4 million
resulting from the closing of the German furniture branch.
Interest Expense
- ----------------
Interest expense in the first nine months of 1996 was $12.8 million as compared
to $13.6 million in the first nine months of 1995, an decrease of $0.8 million.
The decrease was principally the result of reduced average borrowings resulting
from working capital reductions, primarily reduced inventory levels.
Other (Income) Expense
- ----------------------
The Company incurred $0.2 million of fees associated with the April 9, 1996
change in control.
Income (Loss) Before Taxes and Extraordinary Item
- -------------------------------------------------
The Company had a loss before taxes and extraordinary item of $14.9 million in
the first nine months of 1996, as compared to income of $6.0 million in the
first nine months of 1995, a decrease of $20.9 million. This decrease was
principally the result of the recording of nonrecurring expenses of $9.4 million
as well as reduced sales and gross profits.
Income Tax Provision (Credit)
- -----------------------------
The Company's tax credit was $4.6 million for the first nine months of 1996 as
compared to a provision of $3.1 million for the first nine months of 1995, a
decrease of $7.7 million. After adjusting income before provision for income
taxes for non-deductible amortization of goodwill, the effective tax rate was
38% during the first nine months of 1996 and 1995, respectively.
Net Income (Loss) Before Extraordinary Item
- -------------------------------------------
Due to the factors described above, the Company had net loss before
extraordinary gain of $10.3 million in the first nine months of 1996 as compared
to $2.9 million of net income in the first nine months of 1995.
Extraordinary Gain
- ------------------
The Company had an extraordinary gain of $0.4 million in the first nine months
of 1995 related to the repurchase of its 10.25% senior notes due 2003 having a
face value of $4.0 million.
15
<PAGE>
Net Income (Loss)
- -----------------
The Company had a net loss of $10.3 million in the first nine months of 1996 as
compared to net income of $3.3 million in the first nine months of 1995, a
decrease of $13.6 million. The nonrecurring expenses reduced net income by $5.8
million; the remainder of the decrease was principally the result of reduced
sales and gross profits.
Liquidity and Capital Resources
- -------------------------------
During the first nine months of 1996 and the first nine months of 1995, the
Company's operations generated earnings before interest, taxes, depreciation and
amortization of $6.6 million ($15.7 million excluding the nonrecurring expenses)
and $27.5 million, respectively, and its interest expense was $12.8 million and
$13.6 million, respectively.
Net cash provided by operations was $9.0 million during the first nine months of
1996 as compared to $2.9 million of cash used during the same period in 1995.
The increase in net cash provided by operations of $11.9 million was, among
other factors, principally the result of $15.9 million decrease in inventory
during the first nine months of 1996 as compared to a $4.8 million inventory
increase during 1995 partially offset by, among other factors, reduced net
income.
Capital expenditures totaled $4.4 million in the first nine months of 1996, a
decrease of $2.1 million as compared to the same period in 1995. This difference
is primarily attributable to timing of purchases of production equipment during
the first nine months of 1996.
The Company repurchased Senior Notes with a face value of $4.0 million during
the first quarter of 1995, resulting in an extraordinary gain of approximately
$0.4 million, net of tax. The Company may repurchase additional Senior Notes
through privately negotiated open market purchases, to the extent it deems it
advantageous to do so.The Company intends to explore such repurchases over the
next six to eighteen months.
On January 30, 1995, the Company purchased substantially all of the non-cash
assets of A.R. Clarke & Co., Limited of Toronto, Canada for approximately $4.9
million in cash, plus the assumption of certain liabilities approximating $0.8
million. This acquisition was accounted for under the purchase method of
accounting. A preliminary allocation of the purchase price indicated that there
was not a material amount of goodwill arising out of the acquisition. The
purchase was financed through borrowings under the Revolving Credit Facility,
which was amended and restated in the first quarter of 1995 to accommodate the
acquisition.
In accordance with the Debenture Exchange Agreement between Holdings and the
holders of the Holdings Debentures, the Company made no payments of cash
dividends on its common stock during the first nine months of 1996, other than
for reimbursement of fifty thousand dollars of expenses as permitted under the
Revolving Credit Agreement, compared to $1.2 million paid during the same period
in 1995. Since the Debentures and the related Debenture Exchange Agreement were
extinguished on April 9, 1996, and as a result of the 1996 Holdings
recapitalization, the Company has no obligation to pay further dividends on its
common stock.
16
<PAGE>
At September 30, 1996, the Company's outstanding indebtedness was $151.7
million, comprised primarily of $130 million principal amount of Senior Notes
and borrowings under the Revolving Credit Facility. The notes mature in July,
2003, at which time $130 million becomes due. The Revolving Credit Facility was
a $65 million facility maturing in 1997. At September 30, 1996, the Company had
approximately $38.2 million available under the Revolving Credit Facility, after
deducting outstanding borrowings and letters of credit issued thereunder. The
Company was in violation of certain covenants at September 30, 1996. These
violations were in effect cured when the Revolving Credit Facility was paid off
with the November 1, 1996 refinancing described below.
On November 1, 1996, the Company entered into a new five year, $80 million,
asset-based revolving credit facility. The new facility is secured by
essentially all of the assets of the Company with the exception of real
property. The Company's borrowing base is calculated on a percentage of eligible
receivables and inventory. In addition, the Company is permitted an overadvance
of $15 million in the first year and $10 million thereafter. Pricing in the
first year is LIBOR plus 2.00% or prime plus 0.25%. The agreement includes
financial covenants for FIFO EBITDA to Cash Interest Expense, minimum FIFO
EBITDA and a tangible FIFO asset to total debt ratio. The agreement also
includes restrictions related to capital expenditures and indebtedness among
other restrictions. The Company is permitted to repurchase its public notes
under the agreement as long as it has $20 million of excess availability and
does not repurchase more than $30 million in the first six months of the
agreement.
As of September 30, 1996, on a pro forma basis, the Company would have had a
borrowing base under the new asset-based credit facility of approximately $78
million, including the overadvance, and excess availability of approximately $50
million.
The Company believes the new revolver provides United States Leather, Inc. with
the following benefits:
* Up to $15 million of increased liquidity
* Increased flexibility to pursue Company growth, capital expenditures and
other strategic initiatives
* Reduced costs of borrowing
The Company believes that its cash flow provided from operations and borrowings
available under the new revolver will be sufficient to meet its working capital
needs, anticipated capital expenditures and acquisitions, and debt service
requirements over the next twelve months.
1996 Holdings Recapitalization
- ------------------------------
On April 9, 1996, a series of transactions were completed with the consent of
the Company which resulted in a change in the ultimate ownership of the Company
from U.S. Leather Holdings, Inc. ("Holdings") to Leather U.S., Inc. (the "New
Holding Company"). Holdings had been in default under its senior debentures (the
"Holdings Debentures") due to the noncompliance by Holdings of a financial
covenant contained in the Holdings Debentures as of December 31, 1995.
The holders of the Holdings Debentures foreclosed, with Holdings consent, on
their security which was the stock of Holdings' direct subsidiary, United States
Leather Holdings, Inc. ("Sub-Holdings"), the immediate parent of the Company.
Such foreclosure resulted in the satisfaction and cancellation of the
17
<PAGE>
Holdings Debentures. The convenient default, and the subsequent consensual
foreclosure, did not constitute a default or a change in control under the terms
of the Company's existing public or bank debt.
Such foreclosure resulted in the elimination of any ownership in the Company by
Bear Stearns Acquisition Corp. VII, the majority shareholder of Holdings, and
vested complete ultimate share ownership in the Company in affiliates of The
Equitable Life Assurance Society of the United States ("Equitable"), among
others. The nominees of Bear Stearns Acquisition Corp. VII have resigned from
the Board of Directors of the Company and have been replaced by nominees of the
New Holding Company.
Other Matters
- -------------
A new 42 month Labor Agreement was negotiated covering approximately 420 Pfister
& Vogel employees, effective May 19, 1996, with an expiration of November 15,
1999. The Agreement does have an economic reopener for wages and benefits only
in November, 1996. The Company received notification from the union representing
these employees of its intent to exercise the reopener provision, and
negotiations are taking place at this time.
Certain statements in the Company's Management Discussion and Analysis of
Financial Condition and Results of Operations contain forward-looking
information. The Company's forward-looking statements are predominantly based on
its interpretation of what it considers key variables impacting those
statements. These forward-looking statements include, but may not be limited to,
hide pricing, backlogs, production rates and expected savings from the Company's
restructuring. The Company cautions investors that any forward-looking
statements by the Company are not guarantees of future performance and that
actual results may differ materially from those in the forward-looking
statements due to a variety of factors.
18
<PAGE>
PART II - OTHER INFORMATION
---------------------------
Item 6 - Exhibits and Reports on Form 8-K
- ------ --------------------------------
(a) Exhibits:
---------
4.12 Revolving Credit Agreement (and related documents), dated as of
November 1, 1996 among United States Leather, Inc., A.R. Clarke
Limited, The First National Bank of Boston and other banks which
may become parties to the agreement.
27 Financial Data Schedule
(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 thereunto duly authorized.
United States Leather, Inc.
---------------------------------
(Registrant)
Date: November 12, 1996 / s / Robert A. Hale
---------------------------------
Robert A. Hale
Chief Financial Officer
(Signing on behalf of the Registrant
and as Chief Financial Officer)
19
<PAGE>
EXHIBIT 4.12
REVOLVING CREDIT AGREEMENT
AMONG
UNITED STATES LEATHER, INC.
AND
A.R. CLARKE LIMITED,
as Borrowers,
AND
THE FIRST NATIONAL BANK OF BOSTON,
AND
OTHER BANKS WHICH MAY BECOME
PARTIES TO THIS AGREEMENT,
as Banks,
AND
THE FIRST NATIONAL BANK OF BOSTON,
as Agent
Dated as of October 31, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Title Page
- ------- ----- ----
<S> <C>
SECTION I - DEFINITIONS
1.1 Definitions.............................................. 1
1.2 Accounting Terms.........................................24
1.3 References to Dollar Amounts: United
States or Canadian Dollars.............................24
SECTION II - DESCRIPTION OF U.S. CREDIT
2.1 The U.S. Loans...........................................24
2.2 The U.S. Revolving Credit Notes..........................25
2.3 Overadvances.............................................25
2.4 U.S. Commitment Fee......................................26
2.5 Facility Fee.............................................27
2.6 Agent's Administrative Fee...............................27
2.7 Reduction of Aggregate U.S. Credit Commitments...........27
2.8 U.S. Cash Management.....................................28
SECTION IIA - DESCRIPTION OF CANADIAN CREDIT
2.A.1 The Canadian Loans.......................................29
2.A.2 The Canadian Revolving Credit Notes......................29
2.A.3 Canadian Commitment Fee..................................30
2.A.4 Reduction of Aggregate Canadian Credit Commitment........30
2.A.5 Canadian Cash Management.................................30
SECTION IIB - PROVISIONS APPLICABLE TO ALL REVOLVING LOANS
2.B.1 Notice of Borrowing or Conversion........................31
2.B.2 Interest.................................................32
2.B.3 Duration of Interest Periods.............................34
2.B.4 Conversion of Borrowings; Renewals.......................34
2.B.5 Letters of Credit........................................36
2.B.6 Letters of Credit Fees...................................37
2.B.7 Changed Circumstances....................................37
2.B.8 Payments Not at End of Interest Period...................39
2.B.9 Computation of Interest..................................39
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
2.B.10 Changes in Laws, Etc..................................... 40
2.B.11 Capital Requirements..................................... 40
2.B.12 Payments and Prepayments of the Revolving Loans.......... 41
2.B.13 Indemnities.............................................. 42
2.B.14 Telephonic Notices....................................... 42
2.B.15 Maximum Interest......................................... 42
2.B.16 Procedures for Payment................................... 43
SECTION III - CONDITIONS OF REVOLVING LOAN
3.1 Conditions Precedent to Initial Revolving Loan........... 44
3.2 Conditions Precedent to Initial Canadian Loan............ 48
3.3 Conditions Precedent to all Revolving Loans.............. 48
SECTION IV - REPRESENTATIONS AND WARRANTIES
4.1 Organization and Qualification............................ 49
4.2 Corporate Authority....................................... 49
4.3 Valid Obligations......................................... 49
4.4 Consents or Approvals..................................... 50
4.5 Title to Properties; Absence of Encumbrances.............. 50
4.6 Location of Records and Collateral;
Name Change............................................ 50
4.7 Financial Statements...................................... 51
4.8 Changes................................................... 52
4.9 Defaults.................................................. 52
4.10 Taxes.................................................... 52
4.11 Litigation............................................... 52
4.12 Subsidiaries............................................. 52
4.13 Investment Company Act................................... 52
4.14 Compliance with ERISA and Employee
Benefit Legislation.................................... 52
4.15 Environmental Matters.................................... 53
4.16 Disclosure............................................... 55
4.17 Solvency................................................. 55
4.18 Compliance with Statutes, etc............................ 55
4.19 Capitalization........................................... 55
4.20 Labor Relations.......................................... 56
4.21 Certain Transactions..................................... 56
4.22 Restrictions on the Borrower............................. 56
4.23 Capital Leases........................................... 56
4.24 Franchises, Patents, Copyrights, Etc..................... 57
4.25 Collateral............................................... 57
</TABLE>
-iii-
<PAGE>
SECTION V - AFFIRMATIVE COVENANTS
<TABLE>
<CAPTION>
<C> <S> <C>
5.1 Financial Statements and other Reporting Requirements............ 57
5.2 Conduct of Business.............................................. 60
5.3 Maintenance and Insurance........................................ 61
5.4 Taxes............................................................ 61
5.5 Inspection by the Agent.......................................... 62
5.6 Maintenance of Books and Records................................. 62
5.7 Environmental Indemnification.................................... 62
5.8 Use of Proceeds.................................................. 63
5.9 Pension Plans.................................................... 64
5.10 Fiscal Year...................................................... 64
5.11 Further Assurances............................................... 65
5.12 Location of Records and Collateral; Name Change.................. 65
SECTION VI - NEGATIVE COVENANTS
6.1 Indebtedness..................................................... 65
6.2 Contingent Liabilities........................................... 66
6.3 Leases........................................................... 66
6.4 Sale and Leaseback............................................... 66
6.5 Encumbrances..................................................... 66
6.6 Merger; Consolidation; Sale or Lease of Assets;
Acquisitions..................................................... 68
6.7 EBITDA to Cash Interest Expense Ratio............................ 68
6.8 Leverage Covenant................................................ 69
6.9 Minimum EBITDA................................................... 69
6.10 Restricted Payments.............................................. 70
6.11 Investments...................................................... 70
6.12 ERISA and Employment Benefit Legislation......................... 70
6.13 Transactions with Affiliates..................................... 70
6.14 Loans............................................................ 70
6.15 Borrowing Base................................................... 71
6.16 Minimum Excess Availability...................................... 71
6.17 Capital Expenditures............................................. 71
6.18 No Amendments to Certain Documents............................... 71
6.19 Labor Union Agreements........................................... 71
SECTION VII - DEFAULTS
7.1 Events of Default................................................. 72
7.2 Remedies.......................................................... 74
</TABLE>
-iv-
<PAGE>
SECTION VIII - CONCERNING THE AGENT AND THE BANKS
<TABLE>
<C> <S> <C>
8.1 Appointment and Authorization.................................... 75
8.2 Agent and Affiliates............................................. 75
8.3 Future Advances.................................................. 75
8.4 Delinquent Bank.................................................. 77
8.5 Payments......................................................... 78
8.6 Interest, Fees and Other Payments................................ 79
8.7 Action by Agent.................................................. 79
8.8 Notification of Defaults and Events of Default................... 80
8.9 Consultation with Experts........................................ 80
8.10 Liability of Agent............................................... 80
8.11 Indemnification.................................................. 81
8.12 Independent Credit Decision...................................... 81
8.13 Consents of all Banks............................................ 81
8.14 Successor Agent.................................................. 82
8.15 Relationship among Banks Regarding U.S.
Loans and Canadian Loans......................................... 82
SECTION IX - MISCELLANEOUS
9.1 Notices.......................................................... 84
9.2 Expenses......................................................... 85
9.3 Indemnification.................................................. 86
9.4 Set-Off.......................................................... 86
9.5 Term of Agreement................................................ 87
9.6 No Waivers....................................................... 87
9.7 Governing Law.................................................... 87
9.8 Amendments, Waivers, Etc......................................... 87
9.9 Binding Effect of Agreement...................................... 88
9.10 Successors and Assigns........................................... 89
9.11 Syndication of the Revolving Loans............................... 91
9.12 Counterparts..................................................... 91
9.13 Partial Invalidity............................................... 91
9.14 Captions......................................................... 92
9.15 Waiver of Jury Trial............................................. 92
9.16 Entire Agreement................................................. 92
</TABLE>
EXHIBITS
EXHIBIT A-1 - Form of U.S. Revolving Credit Note
EXHIBIT A-2 - Form of Canadian Revolving Credit Note
-v-
<PAGE>
EXHIBIT B-1- Form of Notice of Borrowing or Conversion (U.S.)
EXHIBIT B-2- Form of Notice of Borrowing or Conversion (Canada)
EXHIBIT C - Indebtedness; Encumbrances; Guarantees
EXHIBIT D - Disclosures
EXHIBIT E - Subsidiaries
EXHIBIT F - Locations of Real Property
EXHIBIT G - Form of Borrowing Base Report
EXHIBIT H - Form of Report of Chief Financial Officer
EXHIBIT I - Form of Single Purpose Entity Provisions
EXHIBIT J - Form of Solvency Certificate
EXHIBIT K - Form of Opinion of Counsel to the Borrower
SCHEDULES
SCHEDULE 1 - Revolving Credit Commitments and Commitment Percentages
-vi-
<PAGE>
REVOLVING CREDIT AGREEMENT
Dated as of October 31, 1996
THIS REVOLVING CREDIT AGREEMENT is made as of October 31, 1996, among
UNITED STATES LEATHER, INC. ("USL"), a Wisconsin corporation, having its chief
executive office at 1110 North Old World Third Street, Suite 400, Milwaukee,
Wisconsin 53203; A.R. CLARKE LIMITED ("Clarke"; collectively with USL, the
"Borrowers"), an Ontario corporation, having its chief executive office at 633
Eastern Avenue, Toronto, Ontario, Canada M4M 1E5; THE FIRST NATIONAL BANK OF
BOSTON ("Bank of Boston"), a national bank having its head office at 100 Federal
Street, Boston, Massachusetts 02110; the other lending institutions which may
become parties hereto pursuant to Section 9.10 (individually a "U.S. Bank", or
the "Canadian Bank", and collectively, the "U.S. Banks" and the "Banks"); and
Bank of Boston, as agent for itself and each other Bank (the "Agent").
SECTION I
---------
DEFINITIONS
-----------
1.1. Definitions.
All capitalized terms used in this Agreement, in the Revolving Credit Notes
or in any other Security Document, or any certificate, report or other document
made or delivered pursuant to this Agreement (unless otherwise defined therein)
shall have the respective meanings assigned to them below:
Accounts and Accounts Receivable. Individually and collectively, all
rights to payment for goods sold or leased or for services rendered, all sums of
money or other proceeds due or becoming due thereon, all instruments pertaining
thereto, all guaranties and security therefor, and all goods giving rise thereto
and the rights pertaining to such goods, including the right of stoppage in
transit, and all related insurance.
Adjusted Eurodollar Rate. Applicable to any Interest Period, shall mean a
rate per annum determined pursuant to the following formula:
-1-
<PAGE>
AER = [ IOR ]*
---------
[ l.00 - RP ]
AER = Adjusted Eurodollar Rate
IOR = Interbank Offered Rate
RP = Reserve Percentage
*The amount in brackets shall be rounded upwards, if necessary, to the
next higher l/l00 of l%.
Where:
"Interbank Offered Rate" applicable to any Eurodollar Loan for any
Interest Period means the rate of interest determined by the Agent to
be the prevailing rate per annum at which deposits in U.S. dollars are
offered to the Agent by first-class banks in the interbank Eurodollar
market in which it regularly participates ("Interbank Eurodollar
Market") on or about 10:00 a.m. (Boston time) 2 Business Days before
the first day of such Interest Period in an amount approximately equal
to the principal amount of the Eurodollar Loan to which such Interest
Period is to apply for a period of time approximately equal to such
Interest Period.
"Reserve Percentage" applicable to any Interest Period means the rate
(expressed as a decimal) applicable to the Agent during such Interest
Period under regulations issued from time to time by the Board of
Governors of the Federal Reserve System for determining the maximum
reserve requirement (including, without limitation, any basic,
supplemental, emergency or marginal reserve requirement) of the Agent
with respect to "Eurocurrency liabilities" as that term is defined
under such regulations.
The Adjusted Eurodollar Rate shall be adjusted automatically as of the effective
date of any change in the Reserve Percentage.
Affected Loans. See Section 2B.7.
Affiliate. With reference to any Person, (i) any director, officer or
employee of that Person, (ii) any other Person controlling, controlled by or
under direct or indirect common control of that Person, (iii) any other Person
directly or indirectly holding 5% or more of any class of the capital stock or
other equity interests (including options, warrants, convertible securities and
similar rights) of that Person and (iv) any other Person 5% or more of any class
of whose capital stock or other equity interests (including options, warrants,
convertible securities and similar rights) is held directly or indirectly by
that Person. Notwithstanding the foregoing, the term Affiliate shall not include
First Plaza Group Trust or Mellon Bank, N.A. (in its capacity as trustee), so
long as they do not hold more than 20% of the capital stock of Leather U.S.
-2-
<PAGE>
Agent. Bank of Boston in the capacity as Agent for the Banks under this
Agreement and the other Loan Documents, and includes (where the context so
admits) any other Person or Persons succeeding to the functions of the Agent
under this Agreement.
Agent's Fee. See Section 2.6.
Agreement. This Revolving Credit Agreement, as the same may be supplemented
or amended from time to time.
Ancillary Documents. Collectively, (i) the Indenture Agreement, (ii) the
Material Agreements and Contracts, and (iii) all other agreements, instruments
and contracts which shall from time to time be identified by the Agent and the
Borrowers as "Ancillary Documents" for purposes of this Agreement, as the
foregoing may be amended from time to time in accordance with Section 6.18.
Applicable Base Rate Margin. See Section 2B.2(f).
Applicable Eurodollar Margin. See Section 2B.2(f).
Assignee. See Section 9.10.
Authorized Representative. Until USL's chief financial officer notifies the
Agent that any of the following is no longer an Authorized Representative, each
of Michael Amborn, Patricia Birdener, Mary Jakubowski or Robert Hale, or such
other person(s) as USL's chief financial officer may identify to the Agent in
writing.
Availability. The sum of the U.S. Borrowing Base, plus the amount of any
Overadvances then permitted to be borrowed under Section 2.3 hereof, minus the
Canadian Deficiency.
Bailee Waivers. Collectively, the separate Bailee Waivers which have been
or are executed and delivered to the Agent, for the ratable benefit of the Banks
and the Agent, by the bailee under any bailment, in form and substance
reasonably acceptable to the Agent.
Bank of Boston. See Preamble.
Bankers' Acceptance Loans. That portion of a Canadian Loan designated to
bear interest based upon the Bankers' Acceptance Rate.
Bankers' Acceptance Rate. For any Interest Period for a Bankers' Acceptance
Loan, the rate of interest announced publicly by the Canadian Bank in Toronto,
Ontario, Canada from time to time as its Bankers' Acceptance Rate for bankers'
acceptances in Canadian dollars with a face amount comparable to the principle
amount of such Bankers' Acceptance Loan requested by the Canadian Borrower for
which the Bankers' Acceptance
-3-
<PAGE>
Rate is being determined, with maturities comparable to the Interest Period for
which such Bankers' Acceptance Rate will apply, as of approximately 10:00 a.m.
(Toronto time) one Business Day prior to the commencement of such Interest
Period, subject, however, to the provisions of Section 2B.3 hereof.
Banks. See Preamble.
Base Account. An Account Receivable of any of the Borrowers as to which the
Agent has a valid and perfected first-priority security interest and such
Borrower has furnished to the Banks and the Agent information as required by
Section 5.1(d). If and when a Base Account exists by virtue of constituting
proceeds of Base Inventory, the Inventory giving rise to the Base Account
automatically loses its status as Base Inventory.
Base Inventory. Inventory as to which any of the Borrowers has acquired
title prior to, on or after the date hereof, the Agent has acquired a valid and
perfected first-priority security interest, such Borrower has furnished the
Agent information as required by Section 5.1(d), with respect to any Inventory
located on premises leased by such Borrower, the Agent has received from the
landlord at such premises a Landlord Waiver from the landlord at such premises
in form and substance satisfactory to the Agent, and with respect to any
Inventory located on premises owned by a third party in a bailment, the Agent
has received from the operator at such premises a Bailee Waiver from the bailee
at such premises in form and substance satisfactory to the Agent. Inventory
immediately loses the status of Base Inventory if and when a Borrower sells it,
otherwise transfers title thereto, consigns or consumes it or the Agent releases
or transfers its security interest therein.
Base Rate. The greater of (i) the rate of interest announced from time to
time by the Bank of Boston at its head office as its Base Rate, and (ii) the
Federal Funds Effective Rate plus 1/2 of 1% per annum (rounded upwards, if
necessary, to the next 1/8 of 1%).
Base Rate Loan. Any U.S. Loan bearing interest calculated by reference to
the Base Rate and any Canadian Loan bearing interest calculated by reference to
the Reference Rate.
Borrowers. See Preamble.
Borrowing Base. In relation to the Borrowers as at any particular date, an
amount equal to the lesser of (i) the aggregate Revolving Credit Commitments as
in effect on such date, and (ii) the sum, as determined by the Agent, as at such
date, of (A) an amount equal to 55% of the Net Security Value of Base Inventory,
plus 55% of Eligible Documentary Letters of Credit, but in no event more than
$45,000,000, and (B) 85% of the Net Outstanding Amount of Base Accounts as at
such date; provided that the Agent, subject to the consent of the Majority Banks
or all of the Banks as required by Section 9.8 hereof, in the reasonable, good
faith exercise of its discretion and based upon a determination that a material
change in the Collateral has occurred, reserves the right to increase or
decrease the foregoing percentages.
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Whenever the Borrowing Base is used as a measure of Revolving Loans, it
shall be computed as of, and the Revolving Loans referred to shall be those
reflected in the Loan Account at, the time in question.
Borrowing Base Report. See Section 5.1(d).
Business Day. (i) For all purposes other than as covered by clause (ii)
below, any day other than a Saturday, Sunday or legal holiday on which banks in
Boston, Massachusetts (and for purposes of Canadian Loans in Toronto, Ontario,
Canada) are open for the conduct of a substantial part of their commercial
banking business; and (ii) with respect to all notices and determinations in
connection with, and payments of principal and interest on, Eurodollar Loans,
any day that is a Business Day described in clause (i) and that is also a day on
which trading takes place between banks in United States or Canadian dollar
deposits in the Interbank Eurodollar Market.
Canadian Bank. Such Canadian lending institution as the Agent may
designate from time to time to serve as the lender under the Canadian Loans, and
such institution's Canadian successors and assigns.
Canadian Base Account. Any Base Account to which title is held by, and in
which a security interest is granted to the Agent on behalf of the Canadian Bank
by, the Canadian Borrower.
Canadian Base Inventory. Any Base Inventory to which title is held by, and
in which a security interest is granted to the Agent on behalf of the Canadian
Bank by, the Canadian Borrower.
Canadian Borrower. Clarke.
Canadian Borrowing Base. The Borrowing Base solely in relation to the
Canadian Borrower.
Canadian Collateral. Collateral to which title is held by, and in which a
security interest is granted to the Agent on behalf of the Canadian Bank by, the
Canadian Borrower.
Canadian Commitment Fee. The Commitment Fee payable by the Canadian
Borrower to the Canadian Bank pursuant to Section 2A.3.
Canadian Commitment Percentage. With respect to each Bank, the percentage
set forth on Schedule 1 hereto as such Bank's percentage of the aggregate
Canadian Credit Commitments of all the Banks. Schedule 1 may be amended from
time to time unilaterally by the Agent to reflect any changes to the Canadian
Commitment Percentages occurring in accordance with the terms of this Agreement.
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Canadian Credit Commitment. In relation to the Canadian Bank, the maximum
amount of Canadian Loans that such Bank shall be committed to make to the
Canadian Borrower upon the terms and subject to the conditions contained in this
Agreement. The amount of the Canadian Bank's Canadian Credit Commitment shall be
equal to the product of the Canadian Maximum Amount times such Bank's Canadian
Commitment Percentage as set forth on Schedule 1 hereto.
Canadian Deficiency. The difference of (i) the aggregate outstanding
amount of Canadian Loans plus the outstanding amount of Canadian Letters of
Credit, minus (ii) the Canadian Borrowing Base; but in no event less than zero
dollars ($0).
Canadian Eurodollar Loan. Any Canadian Loan bearing interest at a rate
determined with reference to the Canadian Eurodollar Rate.
Canadian Eurodollar Rate. For any Interest Period for any Canadian
Eurodollar Loan, an interest rate per annum (calculated on the basis of actual
days elapsed over a 360-day year) equal to the offered quotation to first-class
banks in the Interbank Eurodollar Market by the Canadian Bank for Canadian
dollar deposits of amounts and in funds comparable to the principal amount of
such Canadian Eurodollar Loan requested by the Canadian Borrower for which the
Canadian Eurodollar Rate is being determined with maturities comparable to the
Interest Period for which such Canadian Eurodollar Rate will apply as of
approximately 10:00 A.M. (Boston time) two Business Days prior to the
commencement of such Interest Period, subject, however, to the provisions of
Section 2B.3 hereof.
Canadian Letters of Credit. Letters of Credit at site or at time
(including documentary bankers' acceptances), in form customarily issued by the
Canadian Bank as stand by, documentary or commercial letters of credit, issued
by the Canadian Bank at the request of the Canadian Borrower and for the account
of the Canadian Borrower.
Canadian Loan Account. The account or accounts on the books of the
Canadian Bank in which will be recorded Canadian Loans and advances (including
issued and outstanding Canadian Letters of Credit) made by the Canadian Bank to
the Canadian Borrower pursuant to this Agreement, payments made on such Canadian
Loans and other appropriate debits and credits as provided by this Agreement.
Canadian Loans. Any and all loans, advances and commitments made to the
Canadian Borrower by the Canadian Bank pursuant to Section IIA hereof, including
Base Rate Loans, Eurodollar Loans and Bankers' Acceptance Loans.
Canadian Maximum Amount. $7,500,000 less the dollar amount of any
Mandatory Reduction pursuant to Section 2.7.
Canadian Operating Account. See Section 2A.5.
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Canadian Patent and Trademark Security Agreement. The Patent and Trademark
Security Agreement dated as of the date hereof, executed and delivered by the
Canadian Borrower to the Agent, for the benefit of the Canadian Bank, and to be
filed with the appropriate governmental offices.
Canadian Revolving Credit Note. See Section 2A.2.
Canadian Security Agreements. The Security Agreement and the General
Security Agreement, each dated as of the date hereof and executed and delivered
by the Canadian Borrower to the Agent, for the benefit of the Canadian Bank, to
secure the Canadian Borrower's Obligations hereunder.
Capital Expenditures. Any expenditure for fixed assets, leasehold
improvements, capital leases under GAAP, installment purchases of machinery and
equipment, acquisitions of real estate and other similar expenditures including
(i) in the case of a purchase, the entire purchase price, whether or not paid
during the fiscal period in question, (ii) in the case of a capital lease, the
entire rental amount that would be capitalized on the balance sheet in
accordance with GAAP, and (iii) expenditures in or from any construction-in-
process account of a Borrower.
Capital Lease. See Section 4.23.
Cash Interest Expense. For any period, total interest expense (minus
interest income), whether paid or accrued (including the interest component of
capitalized leases), but excluding interest expense, such as amortization of
loan origination fees on the Senior Notes and this Agreement and amortization of
discount, that is not payable in cash.
Cash Management Agreements. Agency Agreements between the Borrowers'
Depository Banks and the Agent.
CERCLA. The Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as the same may have been or may be amended from time to
time.
Clarke. See Preamble.
Clarke Common Stock. The Equity Securities of Clarke.
Closing Date. The first date on which all of the conditions set forth in
Section 3.1 have been satisfied and the initial Revolving Loans are to be made
hereunder.
Code. The Internal Revenue Code of 1986 and the rules and regulations
thereunder, collectively, as the same may from time to time be supplemented or
amended and remain in effect.
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Collateral. Collectively, all of the agreements, instruments, contracts,
tangible and intangible personal property, assets, accounts, Accounts
Receivable, Inventory, Equipment, patents, trademarks, copyrights, other
intellectual property and monies, and all of the income, proceeds and products
of any thereof, under or in respect of which the Agent or any Bank or any of the
nominees, agents or legal representatives of the Agent or any Bank shall have at
the relevant time of reference to the term "Collateral," any rights or interest
as security for the payment or performance of all or any part of the
Obligations.
Consolidated and Consolidating. With separate reference to the Borrowers
and, to the extent consistent with USL's reporting practices, each of their
divisions and Subsidiaries that are actively operating and have assets
(excluding USL's foreign sales corporation PVL International, Inc., a Barbados
corporation). Consolidating information shall be consistent with the internal
reporting of USL and in detail as agreed to with the Agent.
Controlled Group. All members of a controlled group of corporations, all
trades or businesses (whether or not incorporated) under common control and all
other organizations or entities that, together with any one (or more) of the
Borrowers, are treated as a single employer under Section 414(b), (c), (m) or
(o) of the Code or Section 400l of ERISA.
Debt to Tangible Asset Ratio. The ratio of Funded Indebtedness to FIFO
Tangible Assets.
Default. An event or condition that, but for the requirement that time
elapse or notice be given, or both, would constitute an Event of Default.
Delinquent Bank. See Section 8.4.
Depository Bank. A bank or other federally insured institution listed on
Exhibit D hereto at which the Borrower maintains a Revenue Depository Account
and which enters into a Cash Management Agreement with the Agent.
EBITDA. In relation to the Borrowers for any period (without duplication),
an amount equal to Net Income, plus the following to the extent deducted in
computing such Net Income: (i) Cash Interest Expense, (ii) taxes on income,
(iii) depreciation, (iv) amortization expense, including amortization of
goodwill, deferred finance costs and other intangible assets, (v) charges and
credits related to any change in the LIFO reserve, (vi) nonrecurring expenses of
$9,344,000 recorded in the second quarter of 1996, (vii) other expense of
$159,000 (transaction fees on the April, 1996 change in control) recorded in the
second quarter of 1996, and (viii) until and including December 31, 1997,
extraordinary losses determined on a pretax basis in accordance with GAAP up to
$3,000,000 in the aggregate, including losses associated with the sale of assets
other than the sale of Inventory in the ordinary course of business, minus (ix)
extraordinary gains determined on a pretax basis in accordance with GAAP,
including gains associated with the sale of assets other than the sale of
Inventory in the ordinary course of business.
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EBITDA to Cash Interest Expense Ratio. The ratio of EBITDA to Cash
Interest Expense. Cash Interest Expense and EBITDA shall be measured as at the
last day of the fiscal period of the Borrowers, without duplication, for which
such measurements are made.
Eligible Documentary Letters of Credit. Documentary Letters of Credit
issued by the Agent or the Canadian Bank solely to the extent that such Letters
of Credit are issued for the importation or other purchase of Inventory that
would otherwise constitute Base Inventory at such time as the Agent acquires a
perfected first security interest therein and such Inventory is identified in a
Borrowing Base or Weekly Borrowing Base Report, provided that such Inventory is
not otherwise included in the Borrowing Base.
Employee Benefit Legislation. Any pension benefit, tax, or other
legislation, regulations, or other statements of administrative policy of any
Governmental Body applicable to any Employee Benefit Plan, including, without
limitation ERISA.
Employee Benefit Plan. Any pension, retirement, bonus, profit-sharing,
insurance, deferred compensation, or other similar plan, program, arrangement,
or practice covering any or all of the past or present directors, officers,
employees, or agents of any Borrower or any related Person.
Encumbrances. See Section 6.5.
Environmental Laws. Any and all applicable Canadian (or other foreign) or
domestic federal, state and local environmental, health or safety statutes,
laws, regulations, rules, ordinances, policies and rules or common law (whether
now existing or hereafter enacted or promulgated and as they may be amended from
time to time), of all Governmental Bodies which may now or hereafter have
jurisdiction over any of the Borrowers, and all applicable judicial and
administrative and regulatory decrees, judgments and orders, including common
law rulings and determinations, relating to injury to, or the protection of,
real or personal property or human health or the environment, including, without
limitation, all requirements pertaining to reporting, licensing, permitting,
investigation, containment, remediation and removal of emissions, discharges,
Releases or threatened Releases of Hazardous Materials, chemical substances,
pollutants or contaminants whether solid, liquid or gaseous in nature, into the
environment or relating to the manufacture, processing, distribution, use,
treatment, storage, Release, disposal, transport or handling of such Hazardous
Materials, chemical substances, pollutants or contaminants.
Equipment. Goods, machinery, furniture, fixtures, equipment and other
tangible personal property (other than Inventory), now owned and/or hereafter
acquired by any of the Borrowers.
Equity Securities. As to any Person, any shares of any class of capital
stock or other equity interests of such Person, voting or non-voting, or any
options, warrants or similar rights with respect to any such shares.
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ERISA. The Employee Retirement Income Security Act of 1974 and the rules
and regulations thereunder, collectively, as the same may from time to time be
supplemented or amended and remain in effect.
Eurodollar Loan. Any U.S. Eurodollar Loan or any Canadian Eurodollar Loan.
Event of Default. Any event described in Section 7.1.
Excess Availability. The difference of (a) the lesser of (i) the Maximum
Amount, or (ii) Availability, minus (b) the amount of U.S. Loans then
outstanding (including outstanding U.S. Letters of Credit).
Facility Fee. See Section 2.5.
Federal Funds Effective Rate. For any day, a fluctuating interest rate per
annum equal to the weighted average of the rates on overnight federal funds
transactions with members of the Federal Reserve System arranged by federal
funds brokers, as published for such day (or, if such day is not a Business Day,
for the next preceding Business Day) by the Federal Reserve Bank of New York,
or, if such rate is not so published for any day that is a Business Day, the
average of the quotations for such day on such transactions received by the
Agent from 3 federal funds brokers of recognized standing selected by the Agent.
FIFO Tangible Assets. The lesser of the book value and the fair market
value of the assets of the Person for whom FIFO Tangible Assets is being
determined, with Inventory being measured on a "first-in-first-out" basis, minus
the book value of intangible assets of such Person.
First Chicago Credit Agreement. The Second Amended and Restated Credit
Agreement, dated as of February 17, 1995, among the Borrowers, The First
National Bank of Chicago, as agent, and the institutions from time to time party
thereto as lenders, as the same may be amended, supplemented or modified from
time to time.
Funded Indebtedness. As applied to the Borrowers on a consolidated basis,
(i) all obligations for borrowed money or other extensions of credit whether or
not secured or unsecured, absolute or contingent, including, without limitation,
the Obligations with respect to outstanding Revolving Loans and any and all fees
and charges then due and payable, and all obligations representing the deferred
purchase price of property, other than accounts payable arising in the ordinary
course of business, (ii) all obligations evidenced by bonds, notes (including
without limitation the Senior Notes), debentures or other similar instruments,
(iii) all obligations secured by any mortgage, pledge, security interest or
other lien on property owned or acquired by any of the Borrowers, and (iv) those
portions of all obligations arising under capital leases that are required under
GAAP to be capitalized on the consolidated balance sheet of the Borrowers.
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GAAP. Generally accepted accounting principles, consistently applied.
Gebhardt. The operating division of USL doing business under the name of
Gebhardt.
Gebhardt Reserve. As applied to Gebhardt (excluding Caldwell/Moser), an
amount equal to $860,000 of the Base Accounts of Gebhardt. The Gebhardt Reserve
shall remain in full force and effect until the Agent, in its reasonable
discretion, determines that the Reserve is no longer necessary.
Governmental Body. Any United States, Canadian or other foreign federal,
state, local, provincial or other governmental authority or regulatory body, any
subdivision, agency, commission or authority thereof or any quasi-governmental
body exercising any governmental regulatory authority thereunder and any person
directly or indirectly owned by or subject to the control of any of the
foregoing, or any court, arbitrator or other judicial or quasi-judicial
tribunal.
Guarantees. As applied to the Borrowers, all guarantees, endorsements or
other contingent or surety obligations with respect to obligations of others
whether or not reflected on the Consolidated and Consolidating balance sheet of
the Borrowers, including without limitation, any obligation to furnish funds,
directly or indirectly (whether by virtue of partnership arrangements, by
agreement to keep-well or otherwise), through the purchase of goods, supplies or
services, or by way of stock purchase, capital contribution, advance or loan, or
to enter into a contract for any of the foregoing, for the purpose of payment of
obligations of any other Person.
Hazardous Material. Any substance (i) the presence of which requires or
may hereafter require notification, investigation, containment or remediation
under any Environmental Law; (ii) which is or becomes defined as a "hazardous
waste", "hazardous material" or "hazardous substance" or "toxic substances" or
"controlled industrial waste" or "pollutant" or "contaminant" under any present
or future Environmental Law or amendments thereto including, without limitation,
CERCLA and its implementing regulations and any applicable local statutes and
the regulations promulgated thereunder; (iii) which is toxic, explosive,
corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic or
otherwise hazardous and is or becomes regulated by any Governmental Body to the
extent any of the foregoing has or had jurisdiction over any of the Borrowers or
any of their Subsidiaries; or (iv) without limitation, which contains oil,
gasoline, diesel fuel or other petroleum products, asbestos or polychlorinated
biphenyls ("PCBs"). As used in this Agreement, the term "Release" shall mean and
include, without limitation, any leaking, spilling, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping, discarding,
burying, abandoning or disposing into the environment.
Holdings. United States Leather Holdings, Inc., a Delaware corporation.
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Holdings Stock Pledge. The Stock Pledge Agreement, dated as of the date
hereof, between Holdings and the Agent, pursuant to which Holdings shall pledge
to the Agent 100% of the USL Common Stock.
Indebtedness. As applied to the Borrowers on a consolidated basis, (i) all
obligations for borrowed money or other extensions of credit whether or not
secured or unsecured, absolute or contingent, including, without limitation, the
Obligations and unmatured reimbursement obligations with respect to letters of
credit or guarantees issued for the account of or on behalf of the Borrowers,
and all obligations representing the deferred purchase price of property, other
than accounts payable arising in the ordinary course of business, (ii) all
obligations evidenced by bonds, notes (including without limitation the Senior
Notes), debentures or other similar instruments, (iii) all obligations secured
by any mortgage, pledge, security interest or other lien on property owned or
acquired by any of the Borrowers, whether or not the obligations secured thereby
shall have been assumed, (iv) that portion of all obligations arising under
capital leases that is required to be capitalized on the Consolidated balance
sheet of the Borrowers, and (v) all Guarantees.
Indenture Agreement. The Indenture, dated as of August 2, 1993, between
USL and M&I First National Bank, as Indenture Trustee, as the same may be
supplemented, amended or modified from time to time.
Indenture Trustee. M&I First National Bank, or its successors or assigns,
as Trustee named in the Indenture Agreement.
Ineligible Account. An Account excluded from the definition of Net
Outstanding Amount of Base Accounts under this Agreement.
Ineligible Account Party. Any account debtor or consolidated group on a
consolidated basis which has 35% or more of its aggregate Accounts owing to a
Borrower excluded from the definition of "Net Outstanding Amount of Base
Accounts" pursuant to any of the provisions of that definition; provided, that,
amounts that are secured by a letter of credit shall be included in the Net
Outstanding Amount of Base Accounts to the extent otherwise permitted in the
definition thereof even if the account debtor would otherwise be ineligible.
Initial Financial Statement. See Section 4.7.
Insolvent or Insolvency. The occurrence of one or more of the following
events with respect to a Person: death; dissolution; termination of existence;
insolvency within the meaning of the United States Bankruptcy Code or other
applicable statutes of any Governmental Body; such Person's inability to pay its
debts as they come due; appointment of a receiver of any part of the property
of, execution of a trust mortgage or an assignment for the benefit of creditors
by, or the entry of an order for relief or the filing of a petition in
bankruptcy or the commencement of any proceedings under any bankruptcy or
insolvency
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laws, or any laws relating to the relief of debtors, readjustment of
indebtedness or reorganization of debtors, or the offering of a plan to
creditors for composition or extension, except for an involuntary proceeding
commenced against such Person which is dismissed within 60 days after the
commencement thereof without the entry of an order for relief or the appointment
of a trustee.
Interbank Eurodollar Market. See definition of Adjusted Eurodollar Rate.
Interbank Offered Rate. See definition of Adjusted Eurodollar Rate.
Interest Payment Date. With respect to each Eurodollar Loan and Bankers'
Acceptance Loan, the last day of the Interest Period for such Eurodollar Loan or
Bankers' Acceptance Loan, as applicable; provided, however, that with respect to
each Interest Period for any Eurodollar Loan of a duration of three or more
months, the Interest Payment Date with respect thereto shall include, in
addition to the last day of such Interest Period, each day which occurs every
three months after the initial date of such Interest Period.
Interest Period. With respect to each Eurodollar Loan and Bankers'
Acceptance Loan, (A) until the earlier of (i) 60 days after the Closing Date,
and (ii) the date on which Bank of Boston's Revolving Credit Commitment equals
$25,000,000, the period commencing on the date of the making or continuation of
or conversion to such Eurodollar Loan or Bankers' Acceptance Loan and ending two
weeks thereafter, and (B) after the expiration of the period referred to in the
earlier of clauses (A)(i) and (ii), the period commencing on the date of the
making or continuation of or conversion to such Eurodollar Loan or Bankers'
Acceptance Loan and ending one, two or three months thereafter, as the Borrower
may elect in the applicable Notice of Borrowing or Conversion; provided that:
(i) any Interest Period (other than an Interest Period determined
pursuant to clause (iii) below) that would otherwise end on a
day that is not a Business Day shall be extended to the next
succeeding Business Day unless such Business Day falls in the
next calendar month, in which case such Interest Period shall
end on the immediately preceding Business Day;
(ii) any Interest Period that begins on the last Business Day of a
calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such
Interest Period) shall, subject to clause (iii) below, end on
the last Business Day of a calendar month;
(iii) any Interest Period that would otherwise end after the Maturity
Date shall end on the Maturity Date; and
(iv) except with respect to the two week Interest Periods referred to
in clause (A) above, and notwithstanding clause (iii) above, no
Interest
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Period shall have a duration of less than one month, and if any
Interest Period would be for a shorter period, such Interest
Period shall not be available hereunder.
Inventory. Goods, merchandise and other personal property, now owned or
hereafter acquired by any of the Borrowers, which are held for sale or lease or
are furnished or to be furnished under a contract of service or are raw
materials, work in process or materials used or consumed or to be used or
consumed in such Borrower's business.
Investment. As applied to any of the Borrowers, the purchase or
acquisition of any share of capital stock, partnership interest, limited
liability company membership interest, evidence of indebtedness or other equity
security of any other Person, any loan, advance or extension of credit to, or
contribution to the capital of, any other Person, any real estate held for sale
or investment, any commodities futures contracts held other than in connection
with bona fide hedging transactions, any other investment in any other Person,
and the making of any commitment or acquisition of any option to make an
Investment.
Joint Venture/Investment. The proposed joint venture between USL and an
unaffiliated third party to form an operating Person or any other Investment of
debt or equity of USL in any unaffiliated third party.
Labor Union Agreements. Collectively, the labor union agreements relating
to each of the Borrowers and each of their Subsidiaries, as listed and described
on Exhibit D hereto.
Landlord Waivers. Collectively, the separate landlord waivers which have
been or are executed and delivered to the Agent, for the ratable benefit of the
Banks and the Agent, by the landlord under any Lease of real property, in form
and substance reasonably acceptable to the Agent.
Leases or Lease. Any agreement granting a Person the right to occupy space
in a structure or real estate for any period of time or any capital lease,
operating lease or other lease of or agreement to use personal property
including, but not limited to, Equipment, whether evidenced by written or oral
lease, contract, sales agreement or other agreement no matter how characterized.
Leather U.S. Leather U.S., Inc., a Delaware corporation.
Letter of Credit Maximum Amount. $20,000,000 for the period commencing on
the date hereof through thirty (30) days after the date hereof, $15,000,000 from
the 31st day after the date hereof through the 90th day after the date hereof,
and $10,000,000 from and after the 91st day after the date hereof through the
Maturity Date.
Letters of Credit. Canadian Letters of Credit and U.S. Letters of Credit.
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Loan Account. The aggregate of the U.S. Loan Account and the Canadian Loan
Account.
Loan Documents. Collectively, this Agreement (including, without
limitation, the agreements and other instruments listed or described in Section
III), the Revolving Credit Notes, the Landlord Waivers, the Bailee Waivers, the
Cash Management Agreements, the Solvency Certificates, the Holdings Stock
Pledge, the Letters of Credit, the Negative Pledges, and the Security Documents,
together with all agreements and other instruments contemplated thereby and all
schedules, exhibits and annexes thereto, as the same may from time to time be
amended and in effect.
Loftus Consulting Agreement. The agreement dated April 1, 1996, between
USL and Claymore Partners Ltd.
Majority Banks. Those Banks whose aggregate Total Commitment Percentages
constitute at least fifty-one percent (51%) of the Total Commitment Percentages
in effect at the relevant time of reference.
Mandatory Reduction. See Section 2.7.
Material Agreements and Contracts. Those agreements and contracts of any
of the Borrowers or their Subsidiaries, whether written or oral, listed and
described on Exhibit D hereto, but including without limitation, in any event,
the Labor Union Agreements, the Loftus Consulting Agreement and any contract
pursuant to which payments made or received by a Borrower in any fiscal year
exceed, in the aggregate, $150,000, but excluding any purchase order entered
into in the ordinary course of business.
Maturity Date. The fifth anniversary of the date hereof or such earlier
date upon acceleration pursuant to Section 7.2 of this Agreement.
Maximum Amount. $80,000,000 less the dollar amount of any Voluntary
Reduction or Mandatory Reduction pursuant to Section 2.7 hereof.
Maximum Permissible Rate. See Section 2B.15.
Minimum Availability. Excess Availability of at least $20,000,000.
Minimum EBITDA. See Section 6.9.
Multi-Employer Plans. Any multi-employer plan within the meaning of Section
3(37) or 4001(a)(3) of ERISA.
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Negative Pledges. Collectively, the Negative Pledges, dated as of the date
hereof and delivered by each of the Borrowers to the Agent, for the ratable
benefit of the Agent and the Banks.
Net Income. The Consolidated gross revenues of the Borrowers and their
Subsidiaries, if any, for the period in question, less taxes on income, all
expenses and other proper charges, all determined in accordance with GAAP, but
in any event, excluding from Net Income (without duplication): (i) any gain or
loss arising from any write-up of assets, except to the extent inclusion thereof
shall be approved in writing by the Agent; (ii) earnings of any Subsidiary
accrued prior to the date it became a Subsidiary; (iii) the net earnings of any
Person (other than a Subsidiary) in which a Borrower or any Subsidiary has an
ownership interest, except to the extent such net earnings shall have actually
been received by such Borrower or such Subsidiary in the form of cash
distributions; (iv) any gains or losses on the sale or other disposition of
investments or fixed or capital assets in excess of $250,000 in any given fiscal
year; (v) the proceeds of any life insurance policy; (vi) any deferred or other
credit representing any excess of the equity of any Subsidiary at the date of
acquisition thereof over the amount invested in such Subsidiary; (vii) any
reversal in excess of $250,000 in any given fiscal year of any contingency
reserve, except to the extent that provision for such contingency reserve shall
be made from income arising during such period; (viii) all extraordinary gains
of the Borrowers and their Subsidiaries, if any, as defined by GAAP, including,
without limitation, gains arising out of the repurchase of Senior Notes; and
(ix) any taxes on income attributable to excluded gains or losses excluded
pursuant to items (i) through (viii) of this paragraph.
Net Outstanding Amount of Base Accounts. The net amount of Base Accounts
outstanding after eliminating from the aggregate amount of outstanding Base
Accounts the amount of the Gebhardt Reserve (until the Agent determines in its
reasonable discretion that the Gebhardt Reserve is no longer necessary) and any
Account which:
(a) is unpaid more than 60 days after the due date set forth on the
invoice, but in no event more than 120 days after the date of such invoice, or
is unpaid more than 120 days after the date of the invoice provided such Account
is secured by a letter of credit in form reasonably acceptable to the Agent;
(b) did not arise in the ordinary course of the Borrowers' business as a
result of services which have been performed for, or the sale of goods which
have been shipped to, the account debtor;
(c) is not the legal, valid and binding obligation of the account debtor
thereunder, is not assignable, is not owned by any of the Borrowers free and
clear of all Encumbrances (except in favor of the Agent) or is evidenced by a
promissory note or other instrument;
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(d) has been reduced or against which a reduction is being sought, as
against any Borrower or its agents, by any offset, counterclaim, adjustment,
credit, allowance, contra account or other defense, or as to which there is any
(or any basis for any) return, rejection, loss or damage of or to the goods
giving rise thereto, or any request for credit or adjustments; provided, that,
all amounts remaining in such Account, after accounting for any such reduction,
return, offset, counterclaim, adjustment, credit, allowance, contra account,
other defense, rejection, loss, damage or request for credit or adjustment,
shall not be eliminated from the aggregate amount of Net Outstanding Amount of
Base Accounts;
(e) uncollectible in the ordinary course for any reason, including,
without limitation, any bankruptcy, insolvency or other financial difficulty of
the account debtor, or any impediment to the assertion of a claim or
commencement of an action against the account debtor (including as a consequence
of a failure of a Borrower to be qualified or licensed in any jurisdiction where
such qualification or licensing is required), all as determined by the Agent in
its reasonable discretion;
(f) is owing from any Affiliate, supplier or Ineligible Account Party to
any Borrower;
(g) is owing from an account debtor not located in one of the fifty United
States, Canada (provided that the aggregate amount of Net Outstanding Amount of
Base Accounts from account debtors in Canada shall not exceed $7,500,000) or the
United Kingdom (provided that the aggregate Net Outstanding Amount of Base
Accounts from account debtors in the United Kingdom shall not exceed $1,000,000)
other than an Account secured by a letter of credit from a bank or other
financial institution reasonably acceptable to the Agent in form reasonably
acceptable to the Agent, or an Account in which the Agent's security interest is
duly and properly perfected in the appropriate jurisdiction(s) subject to the
Agent's sole and absolute discretion;
(h) is owing from an account debtor which is the United States of America,
the federal Government of Canada, the government of any Canadian province, or
any department, agency or instrumentality of any of the foregoing, unless the
Account has been properly assigned to the Agent in compliance with the federal
Assignment of Claims Act, the Financial Administration Act (Canada) or any
applicable Canadian provincial legislation; and
(i) is owing from an account debtor where 35% or more of the Accounts due
from such account debtor to the Borrower are excluded under subparagraph (a) of
this definition.
Net Outstanding Amount of Canadian Base Accounts. The Net Outstanding
Amount of Base Accounts solely in relationship to Canadian Base Accounts.
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Net Outstanding Amount of U.S. Base Accounts. The Net Outstanding Amount
of Base Accounts solely in relationship to U.S. Base Accounts.
Net Proceeds. With respect to the sale, transfer, insured casualty loss or
other disposition by a Borrower of any asset or group of assets (other than
Inventory wholly in the ordinary course of business, but including, without
limitation, any sale of Equity Securities), means the amount of cash (freely
convertible into United States dollars) received by such Borrower, its agents or
the Agent, from such sale or other disposition (including, without limitation,
any tax refund), after, other than in the case of insurance proceeds (i)
provision for all income or other taxes of such Borrower measured by or
resulting from such sale or other disposition, (ii) payment of all reasonable
third party brokerage commissions and other reasonable out-of-pocket fees and
expenses to third parties related to such sale or other disposition, and (iii)
deduction of appropriate amounts approved by the Agent to be provided by such
Borrower as a reserve, in accordance with GAAP, against any liabilities
associated with such sale, transfer or other disposition and retained by such
Borrower after such sale or other disposition.
Net Security Value of Base Inventory. For each type of Base Inventory, the
net value of such Base Inventory, calculated at the lesser of fair market value
or cost determined on the "first in, first out" basis, after subtracting (i)
reserves, established in a manner consistent with USL's present practices, for
the value of any such Base Inventory which is damaged, defective, used or
otherwise not in first-class condition, obsolete or on consignment and after
taking into account charges and liens, other than those of the Agent, of all
kinds against such Base Inventory (including, without limitation, third-party
processing liens), changes in the market value thereof, and transportation and
other handling charges affecting the value thereof; and (ii) any such Base
Inventory which has otherwise been designated by the Agent in its reasonable
discretion as unacceptable because of any material change in the value of such
Inventory by notice to USL; all as determined in good faith by the Agent
consistent with customary practices in the banking industry, which determination
shall be final and binding upon the Borrowers.
Net Security Value of Canadian Base Inventory. The Net Security Value of
Base Inventory solely in relation to Canadian Base Inventory.
Net Security Value of U.S. Base Inventory. The Net Security Value of Base
Inventory solely in relation to U.S. Base Inventory.
Notice of Borrowing or Conversion. See Section 2B.1.
Obligations. Any and all obligations of the respective Borrowers to the
Agent or any Bank, arising under any of the Loan Documents, of every kind and
description, direct or indirect, absolute or contingent, primary or secondary,
due or to become due, now existing or hereafter arising, regardless of how they
arise, and including obligations to perform acts and refrain from taking action
as well as obligations to pay money.
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Overadvances. See Section 2.3.
Overadvance Spread. See Section 2B.2(d).
Participant. See Section 9.10.
Patent and Trademark Office. The United States Department of Commerce
Patent and Trademark Office, Washington, DC 20231 and the Canadian Intellectual
Property Office, Ottawa, Canada..
Patent and Trademark Security Agreement. The Patent and Trademark Security
Agreement dated as of the date hereof, executed and delivered by USL to the
Agent, for the ratable benefit of the Banks and the Agent, and to be filed with
the United States Patent and Trademark Office.
PBGC. The Pension Benefit Guaranty Corporation or any entity succeeding to
any or all of its functions under ERISA.
PCBs. See definition of Hazardous Material.
Permitted Encumbrances. See Section 6.5.
Person. An individual, a company, a corporation, an association, a
partnership, a limited liability company, a joint venture, an unincorporated
trade or business enterprise, a trust, an estate, or a government (national,
regional or local) or an agency, instrumentality or official thereof.
Plan. At any time, any employee pension or other benefit plan that is
subject to Title IV of ERISA or subject to the minimum funding standards under
Section 302 of ERISA or Section 412 of the Code and either (i) if such Plan is
maintained by a Borrower or any member of the Controlled Group for employees of
such Borrower or any member of the Controlled Group, or (ii) if such Plan is a
Multi-Employer Plan or any other arrangement under which more than one employer
makes contributions and to which (in either case) a Borrower or any member of
the Controlled Group is then making or accruing an obligation to make
contributions or has within the preceding six (6) plan years made contributions.
Qualified Investments. As applied to the Borrowers, investments in (i)
marketable notes, bonds or other obligations of the United States of America or
any agency thereof that as to principal and interest constitute direct
obligations of or are guaranteed by the United States of America; (ii)
certificates of deposit or other deposit instruments or accounts of the Agent,
any other Bank or any other financial institution executing and delivering with
the Borrower and the Agent a Cash Management Agreement in form and substance
reasonably satisfactory to the Agent, that has capital and surplus of at least
$100,000,000; (iii) commercial paper of the Agent or any other U.S. Bank that is
rated not less than prime-one
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or A-1 or their equivalents by Moody's Investors Service, Inc. or Standard &
Poor's Corporation, respectively, or their successors; (iv) any repurchase
agreement secured by any one or more of (i), (ii) or (iii); (v) shares of money
market, mutual or similar funds of the Agent or any other U.S. Bank, provided,
that such funds have assets in excess of $100,000,000 and the investments of
which are limited to investment grade securities (i.e., securities rated at
least Baa by Moody's Investors Service, Inc., or at least BBB by Standard &
Poor's Corporation); and (vi) any one or more Joint Venture/Investment in an
amount not to exceed, in the aggregate, $5,000,000 so long as (a) Excess
Availability exceeds Minimum Availability after taking into account the
investment in the Joint Venture/Investment, (b) such Joint Venture/Investment
results in USL acquiring at least a 50% equity interest in any such Joint
Venture/Investment, and (c) such Borrower, immediately upon acquiring the equity
interest, pledges to the Agent, for the ratable benefit of the Banks (including
U.S. Banks only to the extent such interest in such Joint Venture/Investment is
held by the U.S. Borrower) and the Agent, a properly perfected security interest
in all of such Borrower's right, title and interest in such Joint
Venture/Investment.
Rate Period. The period beginning on the day following delivery to the
Agent of the quarterly financial statements required to be delivered pursuant to
Section 5.1(b) and ending on the day on which the next such quarterly financial
statements are delivered.
Real Property or Real Properties. Collectively, the several parcel(s) of
land located at the addresses set forth on Exhibit F hereto, being all of the
real property locations owned or leased, or otherwise occupied, by any of the
Borrowers.
Reference Rate. A fluctuating interest rate per annum (calculated on the
basis of actual days elapsed over a 360 day year) as shall be in effect from
time to time, which rate per annum shall at all times be equal to the rate of
interest announced publicly by the Canadian Bank from time to time as its prime
rate for Canadian dollar loans, such rate to change when and as such announced
rate changes.
Release. See definition of Hazardous Material.
Reportable Event. See Section 5.1(i).
Reserve Percentage. See definition of Adjusted Eurodollar Rate.
Responsible Party Sites. See Section 4.15.
Restricted Payment. (i) Any cash or property dividend, distribution or
payment, direct or indirect, to any Person (other than a Borrower) who now or in
the future may hold an equity interest in a Borrower, whether evidenced by a
security or not, other than regular compensation and bonuses paid to employees
of USL or Clarke in the ordinary course of business and consistent with past
practices, and (ii) any payment on account of the purchase, redemption,
retirement or other acquisition for value of any capital stock of
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USL or Clarke, or any other payment or distribution made in respect thereof,
either directly or indirectly.
Revenue Depository Account. Any checking or other depository account
maintained for the receipt of proceeds from Accounts and other assets by a
Borrower at a Depository Bank (excluding payroll and petty cash accounts
maintained by any Borrower in the ordinary course of business).
Revolving Credit Commitments. Collectively, the U.S. Credit Commitments
and the Canadian Credit Commitments.
Revolving Credit Notes. Collectively, the U.S. Revolving Credit Notes and
the Canadian Revolving Credit Note.
Revolving Loans. Collectively, the loans, including, without limitation,
outstanding Base Rate Loans, Eurodollar Loans and Overadvances, made or to be
made to the U.S. Borrower by the U.S. Banks pursuant to this Agreement
(including Sections 2.1 and 2.3 hereof) and Base Rate Loans, Eurodollar Loans
and Bankers' Acceptance Loans made or to be made to the Canadian Borrower by the
Canadian Bank pursuant to this Agreement (including Section 2A.1 hereof);
subject to the limitations contained herein.
Security Documents. Collectively, the U.S. Security Agreement, the Patent
and Trademark Security Agreement, the Canadian Security Agreements, the Canadian
Patent and Trademark Security Agreement, the USL Stock Pledge, any and all UCC-1
filings, filings under the Personal Property Security Act (Ontario) or other
instruments or documents necessary to enable the Agent to perfect a legal, valid
and enforceable first-priority security interest in the U.S. and Canadian
Collateral, and all other agreements, instruments or contracts under or in
respect of which the Agent and Banks with respect to U.S. Collateral, and the
Canadian Bank or the Agent on behalf of the Canadian Bank with respect to
Canadian Collateral, or any of their respective nominees, agents, or
representatives, shall have, at such time, any rights or interests as security
for the payment or performance of all or any part of the Obligations.
Senior Notes. USL's 10 1/4% Senior Notes due July 31, 2003.
Solvency Certificates. Collectively, the certificates, substantially in
the form and substance of Exhibit J, dated as of the date hereof and executed
and delivered by the chief financial officer of each of the Borrowers to the
Agent, for the ratable benefit of the Banks and the Agent.
Subject Month. See Section 5.1(d).
Subsidiary. Any corporation, association, joint stock company, business
trust or other similar organization of which 50% or more of the ordinary voting
power for the
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election of a majority of the members of the board of directors or other
governing body of such entity is held or controlled by any of the Borrowers or a
Subsidiary of any Borrower; or any other such organization the management of
which is directly or indirectly controlled by any of the Borrowers or a
Subsidiary of any Borrower through the exercise of voting power or otherwise; or
any joint venture, whether incorporated or not, in which any Borrower has at
least a 50% ownership interest.
Total Commitment. As of any date, the sum of the then-current Revolving
Credit Commitments of the Banks, provided that the Total Commitment shall not at
any time exceed the Maximum Amount.
Total Commitment Percentages. With respect to each Bank, the percentage
set forth on Schedule 1 hereto as such Bank's percentage of the aggregate of the
respective U.S. Credit Commitments and Canadian Credit Commitments of all the
Banks. Schedule 1 may be amended from time to time unilaterally by the Agent to
reflect any changes to the Total Commitment Percentages occurring in accordance
with the terms of this Agreement as any of the Revolving Credit Commitments of
the Banks may change in accordance with the terms of this Agreement, including
as the result of assignments contemplated by Section 9.10.
Uniform Commercial Code. Shall mean, collectively, the Uniform Commercial
Code as in effect in the Commonwealth of Massachusetts and, as to particular
Collateral, the state in which such Collateral is located for purposes of filing
UCC-1 financing statements.
U.S. Banks. Collectively, (i) Bank of Boston, and (ii) each of the other
Persons which may provide additional U.S. Credit Commitments and become a party
to this Agreement as a U.S. Bank hereunder.
U.S. Base Account. Any Base Account to which title is held by, and in
which a security interest is granted to the Agent on behalf of the U.S. Banks
by, the U.S. Borrower.
U.S. Base Inventory. Any Base Inventory to which title is held by, and in
which a security interest is granted to the Agent on behalf of the U.S. Banks
By, the U.S. Borrower.
U.S. Borrower. USL.
U.S. Borrowing Base. The Borrowing Base solely in relation to the U.S.
Borrower.
U.S. Collateral. Collateral to which title is held by, and in which a
security interest is granted to the Agent on behalf of the U.S. Banks by, the
U.S. Borrower.
U.S. Commitment Fee. The Commitment Fee payable by the U.S. Borrower to
the U.S. Banks pursuant to Section 2.4.
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U.S. Commitment Percentage. With respect to each U.S. Bank, the percentage
set forth on Schedule 1 hereto as such Bank's percentage of the aggregate U.S.
Credit Commitments of all the Banks. Schedule 1 may be amended from time to time
unilaterally by the Agent to reflect any changes to the U.S. Commitment
Percentages occurring in accordance with the terms of this Agreement, including
as the result of assignments contemplated by Section 9.10.
U.S. Credit Commitment. In relation to any U.S. Bank, the maximum dollar
amount of U.S. Loans that such Bank shall be committed to make to the U.S.
Borrowers upon the terms and subject to the conditions contained in this
Agreement. The amount of each U.S. Bank's U.S. Credit Commitment shall be equal
to the product of the Maximum Amount times such Bank's U.S. Commitment
Percentage as set forth on Schedule 1 hereto.
U.S. Eurodollar Loan. Any U.S. Loan bearing interest at a rate determined
with reference to the Adjusted Eurodollar Rate.
USL. See Preamble, and shall include all divisions.
USL Common Stock. The Equity Securities of USL.
U.S. Loan Account. The account or accounts on the books of the Agent in
which will be recorded U.S. Loans and advances (including issued and outstanding
Letters of Credit) made by the Banks to the U.S. Borrower pursuant to this
Agreement, payments made on such U.S. Loans and other appropriate debits and
credits as provided by this Agreement.
U.S. Letters of Credit. Letters of Credit issued at site or at time
(including documentary bankers acceptances), in the form customarily issued by
the Agent as standby, documentary or commercial letters of credit, issued by the
Agent at the request of the U.S. Borrower and for the account of the U.S.
Borrower.
U.S. Loans. Base Rate Loans, Eurodollar Loans, Overadvances and advances
(including issued and outstanding U.S. Letters of Credit) made by the U.S. Banks
to the U.S. Borrower pursuant to this Agreement.
USL Stock Pledges. The USL Stock Pledge to the Agent and the USL Stock
Pledge to the Canadian Bank.
USL Stock Pledge to the Agent. The Stock Pledge Agreement, dated as of the
date hereof, between USL and the Agent, pursuant to which USL shall pledge to
the Agent, for the ratable benefit of the Banks and the Agent, 66% of the Clarke
Common Stock.
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USL Stock Pledge to the Canadian Bank. The Stock Pledge Agreement, dated
as of the date hereof, between USL and the Canadian Bank, pursuant to which USL
shall pledge to the Canadian Bank 34% of the Clarke Common Stock.
U.S. Operating Account. See Section 2.8.
U.S. Revolving Credit Notes. See Section 2.2.
U.S. Security Agreement. The Security Agreement, dated as of the date
hereof and executed and delivered by the U.S. Borrower to the Agent, for the
ratable benefit of the Banks and the Agent.
Voluntary Reduction. See Section 2.7.
Weekly Base Report. See Section 5.1(d).
Welfare Plan. At any time, any employee welfare benefit plan within the
meaning of Section 3(1) of ERISA if such plan is maintained by any Borrower or
any member of the Controlled Group for employees of such Borrower or any member
of the Controlled Group or if such plan is a Multi-Employer Plan or any other
arrangement under which more than one employer makes contributions, and to which
(in either case) such Borrower or any member of the Controlled Group is then
making or accruing an obligation to make contributions or has within the
preceding six (6) plan years made contributions.
1.2. Accounting Terms. All terms of an accounting character shall have
the meanings assigned thereto by GAAP applied on a basis consistent with the
financial statements referred to in Section 4.7 of this Agreement, modified to
the extent, but only to the extent, that such meanings are specifically modified
herein.
1.3 References to Dollar Amounts: United States or Canadian Dollars. All
references to dollar amounts set forth in this Agreement shall refer to United
States dollars unless expressly provided in a specific provision of this
Agreement that such reference is to Canadian dollars.
SECTION II
DESCRIPTION OF U.S. CREDIT
2.1. The U.S. Loans.
(a) U.S. Loans. Subject to the terms and conditions set forth in this
Agreement, each of the U.S. Banks severally agrees to lend to the U.S. Borrower
and the U.S. Borrower may borrow, repay and reborrow from time to time between
the Closing Date and the Maturity Date, such amounts as requested by the U.S.
Borrower up to a
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maximum aggregate principal amount outstanding (after giving effect to all
amounts requested and outstanding Letters of Credit) at any one time equal to
such Bank's U.S. Credit Commitment; provided, however, that (A) the maximum
aggregate principal amount of all U.S. Loans outstanding (including the
aggregate face amount of U.S. Letters of Credit outstanding), after giving
effect to amounts requested, shall not at any time exceed the lesser of (i) the
Maximum Amount and (ii) the amount of Availability; (B) the maximum aggregate
principal amount of all Revolving Loans (including the aggregate face amount of
U.S. Letters of Credit and Canadian Letters of Credit outstanding), after giving
effect to amounts requested, shall not at any time exceed the Maximum Amount;
and (C) at the time the U.S. Borrower requests a U.S. Loan and after giving
effect to the making thereof, no Default or Event of Default has occurred and is
continuing.
The U.S. Loans shall be made pro rata in accordance with each U.S. Bank's
U.S. Commitment Percentage. If the aggregate principal amount of U.S. Loans
outstanding (including the aggregate face amount of U.S. Letters of Credit
outstanding at such time) shall at any time exceed the lesser of (i) the Maximum
Amount, or (ii) the amount of Availability, including without limitation or
duplication on account of the making of any Canadian Loans or the issuance of
any Canadian Letters of Credit, the U.S. Borrower shall immediately pay to the
Agent for the respective accounts of the U.S. Banks the amount of such excess.
Failure to make such payment on demand shall be an Event of Default hereunder.
(b) U.S. Loan Account. The Agent shall enter U.S. Loans and advances made
by the U.S. Banks to the U.S. Borrower pursuant to this Agreement (including,
without limitation, Letters of Credit that are outstanding) as debits in the
U.S. Loan Account. The Agent shall also record in the U.S. Loan Account all
payments made by the Borrower on account of the U.S. Loans and may also record
therein, in accordance with customary accounting practices, other debits and
credits, including customary banking charges and all interest, fees, charges and
expenses chargeable to the U.S. Borrower under this Agreement. The debit balance
of the U.S. Loan Account shall reflect the amount of the U.S. Borrower's
Obligations hereunder and shall be considered prima facie evidence thereof.
2.2. The U.S. Revolving Credit Notes.
(a) The U.S. Revolving Credit Notes. The U.S. Loans shall be evidenced by
separate U.S. Revolving Credit Notes of the U.S. Borrower to each U.S. Bank in
or substantially in the form of Exhibit A-1 hereto (the "U.S. Revolving Credit
Notes"), with appropriate insertions.
(b) Note Schedules. The Agent shall, and is hereby irrevocably authorized
by the U.S. Borrower to, enter in its records, appropriate notations evidencing
the date and the amount of each U.S. Loan, as applicable, the interest rate
applicable thereto and the date and amount of each payment of principal made by
the U.S. Borrower with respect thereto; and
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in the absence of manifest error, such notations shall constitute conclusive
evidence thereof. No failure on the part of the Agent to make any notation as
provided in this subsection (b) shall in any way affect any U.S. Loan or the
rights of the U.S. Banks or Obligations of the U.S. Borrower with respect
thereto.
2.3. Overadvances.
(i) The U.S. Borrower may request of the Agent in writing from time to
time that the U.S. Banks make U.S. Loans to the U.S. Borrower at a time, or the
Agent may permit U.S. Loans, when the debit balance in the U.S. Loan Account
plus the aggregate face amount of U.S. Letters of Credit outstanding exceeds the
U.S. Borrowing Base or which U.S. Loans will cause the debit balance in the U.S.
Loan Account plus the aggregate face amount of U.S. Letters of Credit
outstanding to exceed the U.S. Borrowing Base. Any such written request from the
U.S. Borrower to the Agent shall set forth the dollar amount of such
contemplated overadvance, and such written notice shall be delivered to the
Agent at least three (3) Business Days prior to the U.S. Borrower's intended
borrowing creating the overadvances. Any such overadvances shall be made for the
debit account of each of the U.S. Banks and the U.S. Banks shall reimburse the
Agent for the making of any such U.S. Loan as though such U.S. Loan were a U.S.
Loan duly made in accordance with the terms of this Agreement (any such U.S.
Loan being herein referred to individually as an "Overadvance" and collectively
as "Overadvances"). The Agent shall enter such Overadvances, along with all
applicable interest, expenses and charges relating thereto, as debits on the
U.S. Loan Account.
(ii) In no event shall: (a) the aggregate amount of Overadvances pursuant
to Section 2.3(i) at any one time outstanding exceed the maximum aggregate
amount of (Y) $15,000,000 during the period from the Closing Date through and
including October 15, 1997; and (Z) $10,000,000 during the period from October
16, 1997 to the Maturity Date; (b) the aggregate principal amount of Revolving
Loans and Letters of Credit outstanding at any one time exceed the Maximum
Amount; and (c) any Overadvance be made at such time as there exists a Default
or Event of Default. Failure of the Borrowers to maintain any of the foregoing
conditions shall constitute a payment Event of Default pursuant to Section
7.1(a), and shall be deemed to be a failure to perform an Obligation hereunder.
(iii) In the event of any Voluntary Reduction pursuant to Section 2.7(a)
hereof or Mandatory Reduction pursuant to Section 2.7(b) hereof, the maximum
aggregate amount of Overadvances permitted pursuant to Section 2.3(ii) hereof
shall be reduced by an amount equal to the product of (x/y) times "z", where "x"
equals the maximum aggregate amount of Overadvances then permitted pursuant to
Section 2.3(ii) hereof, "y" equals the Maximum Amount immediately prior to such
Voluntary or Mandatory Reduction, and "z" equals the amount of such Voluntary or
Mandatory Reduction. In the event of any Mandatory Reduction pursuant to Section
2.7(c) hereof, the maximum aggregate amount of Overadvances permitted pursuant
to Section 2.3(ii) hereof shall be reduced by the same dollar amount as such
Mandatory Reduction.
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2.4. U.S. Commitment Fee. The U.S. Borrower shall pay to the Agent, for the
benefit of the U.S. Banks in accordance with their respective U.S. Commitment
Percentages, from the Closing Date through the Maturity Date, a U.S. Commitment
Fee computed at the rate of 0.375% per annum on the average daily amount of the
unborrowed portion of the Total Commitment minus the average daily amount of the
unborrowed portion of the Canadian Credit Commitment during each quarter or
portion thereof. Outstanding U.S. Letters of Credit shall be counted as part of
the "borrowed" portion of the U.S. Loans, for the purpose of calculating the
U.S. Commitment Fee. The U.S. Commitment Fee shall be payable (i) quarterly in
arrears, on the last day of March, June, September and December of each year
beginning December 31, 1996, and (ii) on the Maturity Date.
2.5. Facility Fee. The U.S. Borrower shall pay to the Agent on the Closing
Date, a non-refundable facility fee (the "Facility Fee") in an amount agreed
upon between the U.S. Borrower and the Agent.
2.6. Agent's Administration Fee. The U.S. Borrower shall pay to the Agent,
for its own account, a fee (the "Agent's Fee") in an amount agreed upon between
the U.S. Borrower and the Agent, which fee shall be payable quarterly in
advance, on (i) the Closing Date pro rated for the fiscal quarter in which said
Closing Date occurs, and (ii) the first Business Day of each fiscal quarter
thereafter (with the amount thereof pro rated for the calendar quarter in which
the Maturity Date occurs).
2.7. Reduction of Aggregate U.S. Credit Commitment.
(a) The U.S. Borrower may from time to time by written notice
delivered to the Agent at least 1 Business Day prior to the date of the
requested reduction, reduce by integral multiples of $500,000, any
unborrowed portion of the aggregate U.S. Credit Commitment (a "Voluntary
Reduction").
(b) Without prejudice to Section 6.6 of this Agreement, in the event
of a sale or other disposition by the U.S. Borrower of any of its assets
(including without limitation the Clarke Common Stock), except for (x)
sales of Inventory in the ordinary course of business, (y) sales of non-
functioning, obsolete or surplus Equipment that is replaced by assets of
equal or greater value, and (z) sales not in the ordinary course of
business in an aggregate amount not to exceed $1,000,000 in any fiscal year
of the U.S. Borrower, the U.S. Borrower: (a) may, subject to and in
accordance with Section 4.14 of the Indenture Agreement and provided that
at such time there exists no Default or Event of Default, use up to the
first $5,000,000 of the aggregate Net Proceeds to (X) repurchase the Senior
Notes, (Y) permanently reduce the U.S. Credit Commitment allocable as set
forth below in this Section 2.7(ii), or (Z) reinvest such amount in
operating assets to be used in one or more lines of business permitted
hereunder in which the U.S. Borrower is engaged, or plans to engage
(subject to the approval of the Agent), at the time of such sale or
disposition of assets, provided, however, that until the time of such
reinvestment of Net
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Proceeds, the U.S. Borrower shall apply the amount of Net Proceeds to be
reinvested to temporarily repay the U.S. Loans in accordance with Section
2B.12 hereof, or with respect to Eurodollar Loans, Section 2B.8 hereof; and
(b) shall be required to make a mandatory reduction of the U.S. Credit
Commitment (the "Mandatory Reduction") in an amount equal to at least 50%
of the aggregate Net Proceeds in excess of the first $5,000,000 received by
the U.S. Borrower from the sale or other disposition of such assets.
The balance of the Net Proceeds after payment of the Mandatory
Reduction (provided that at such time there exists no Default or Event of
Default) may be used by the U.S. Borrower, to (a) repurchase the Senior
Notes, (b) prepay the U.S. Loans in accordance with Section 2B.12 of this
Agreement and, with respect to Eurodollar Loans, subject to the provisions
of Section 2B.8 hereof, or (c) reinvest such Net Proceeds in operating
assets to be used in one or more lines of business permitted hereunder in
which the U.S. Borrower is engaged, or plans to enter into (subject to the
approval of the Agent), at the time of such sale or disposition of assets;
provided, however, the U.S. Borrower's application of the balance of the
Net Proceeds after payment of the Mandatory Reduction shall be subject to
and in accordance with Section 4.14 of the Indenture Agreement.
(c) In the event of an insured casualty loss, the U.S. Borrower may,
subject to and in accordance with the terms of the Security Documents, and
provided that at such time there exists no Default or Event of Default, use
up to the first $3,500,000 of the aggregate Net Proceeds from insurance
coverage to reinvest such amounts in operating assets to repair or replace
such assets as were damaged or destroyed. Any insurance proceeds in excess
of $3,500,000 on account of an insured casualty shall be applied directly
to make a Mandatory Reduction in an amount equal to the excess of such
insurance proceeds over the portion thereof utilized by the Borrower for
repairs or a replacement (such portion not to exceed $3,500,000).
(d) All Voluntary Reductions and Mandatory Reductions shall reduce the
U.S. Credit Commitments pro rata with respect to each U.S. Bank and the
Maximum Amount. Any Mandatory Reduction arising out of the sale of Clarke
Common Stock pursuant to this Section 2.7, or arising out of the sale of
Clarke's assets to the extent permitted by Section 6.6, shall reduce the
Canadian Credit Commitment with respect to the Canadian Bank and the
Canadian Maximum Amount. No Voluntary Reduction or Mandatory Reduction of
the U.S. Credit Commitment, the Maximum Amount, the Canadian Credit
Commitment or the Canadian Maximum Amount shall be subject to
reinstatement.
2.8. U.S. Cash Management. The U.S. Borrower shall deposit all cash, cash
equivalents, checks, receipts and proceeds arising out of the sale of any of the
Collateral into the Revenue Depository Accounts to be held in trust by the U.S.
Borrower for the Agent and the U.S. Banks in accordance with the Cash Management
Agreements .
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Immediately upon receipt of revenues in the Revenue Depository Accounts, all
sums deposited in such Revenue Depository Accounts shall be transferred to the
First National Bank of Chicago for deposit into account no. 94-7648 (the "U.S.
Operating Account"). By 12:00 noon on each Business Day, all funds remaining in
the U.S. Operating Account shall be transferred to the Agent in accordance with
the Cash Management Agreements to be applied towards the U.S. Borrower's
Obligations in accordance with this Agreement and the other Loan Documents. So
long as Excess Availability equals or exceeds Minimum Availability and no
Default or Event of Default has occurred, the U.S. Borrower shall be entitled to
use the funds in the U.S. Operating Account to pay obligations arising in the
ordinary course of the Borrowers' business and to make Qualified Investments.
SECTION IIA
-----------
DESCRIPTION OF CANADIAN CREDIT
------------------------------
2A.1. The Canadian Loans.
(a) Canadian Loans. Subject to the terms and conditions set forth in
this Agreement, the Canadian Bank agrees to lend to the Canadian Borrower and
the Canadian Borrower may borrow, repay and reborrow from time to time between
the Closing Date and the Maturity Date, such amounts as requested by the
Canadian Borrower up to a maximum aggregate principal amount outstanding (after
giving effect to all amounts requested and outstanding Canadian Letters of
Credit) at any one time equal to such Bank's Canadian Credit Commitment;
provided, however, that (A) the maximum aggregate principal amount of all
Canadian Loans outstanding plus the aggregate face amount of Canadian Letters of
Credit outstanding (after giving effect to amounts requested), shall not at any
time exceed the Canadian Maximum Amount; (B) the maximum aggregate principal
amount of all Revolving Loans (including the aggregate face amount of U.S.
Letters of Credit and Canadian Letters of Credit outstanding), after giving
effect to amounts requested, shall not at any time exceed the Maximum Amount;
and (C) at the time the Canadian Borrower requests a Canadian Loan and after
giving effect to the making thereof, no Default or Event of Default has occurred
and is continuing.
The Canadian Loans shall be made pro rata in accordance with each Bank's
Canadian Commitment Percentage. If the aggregate principal amount of Canadian
Loans outstanding plus the aggregate face amount of Canadian Letters of Credit
outstanding at such time shall at any time exceed the Canadian Maximum Amount,
the Canadian Borrower shall immediately pay to the Canadian Bank the amount of
such excess. Failure to make such payment on demand shall be an Event of
Default hereunder.
(b) Canadian Loan Account. The Canadian Bank shall enter Canadian Loans
and advances made by the Canadian Bank to the Canadian Borrower pursuant to this
Agreement (including, without limitation, Canadian Letters of Credit that are
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outstanding) as debits in the Canadian Loan Account. The Canadian Bank shall
also record in the Canadian Loan Account all payments made by the Canadian
Borrower on account of the Canadian Loans and may also record therein, in
accordance with customary accounting practices, other debits and credits,
including customary banking charges and all interest, fees, charges and expenses
chargeable to the Canadian Borrower under this Agreement. The debit balance of
the Canadian Loan Account shall reflect the amount of the Canadian Borrower's
Obligations hereunder and shall be considered prime facie evidence thereof.
2A.2. The Canadian Revolving Credit Notes.
(a) The Canadian Revolving Credit Note. The Canadian Loans shall be
evidenced by a separate Canadian Revolving Credit Note of the Canadian Borrower
to the Canadian Bank in or substantially in the form of Exhibit A-2 hereto (the
"Canadian Revolving Credit Note"), with appropriate insertions.
(b) Note Schedules. The Canadian Bank shall, and is hereby irrevocably
authorized by the Canadian Borrower to enter in its records appropriate
notations evidencing the date and the amount of each Canadian Loan, as
applicable, the interest rate applicable thereto and the date and amount of each
payment of principal made by the Canadian Borrower with respect thereto; and in
the absence of manifest error, such notations shall constitute conclusive
evidence thereof. No failure on the part of the Canadian Bank to make any
notation as provided in this subsection (b) shall in any way effect any Canadian
Loan or the rights of the Canadian Bank or Obligations of the Canadian Borrower
with respect thereto.
2A.3. Canadian Commitment Fee. The Canadian Borrower shall pay to the
Canadian Bank, for the account of the Canadian Bank, from the Closing Date
through the Maturity Date, a Canadian Commitment Fee computed at the rate of
[0.375]% per annum on the average daily amount of the unborrowed portion of the
Canadian Credit Commitment, during each quarter or portion thereof. Outstanding
Letters of Credit shall be counted as part of the "borrowed" portion of the
Canadian Loans, for the purpose of calculating the Canadian Commitment Fee. The
Canadian Commitment Fee shall be payable (i) quarterly in arrears, on the last
day of March, June, September and December of each year beginning December 31,
1996, and (ii) on the Maturity Date.
2A.4. Reduction of Aggregate Canadian Credit Commitment.
The Canadian Borrower may from time to time by written notice delivered to
the Canadian Bank at least 1 Business Day prior to the date of the requested
reduction, reduce by integral multiples of $500,000, any unborrowed portion of
the Canadian Credit Commitment. No reduction of the aggregate Canadian Revolving
Credit Commitment shall be subject to reinstatement.
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2A.5. Canadian Cash Management. The Canadian Borrower shall deposit all
cash, cash equivalents, checks, receipts and proceeds arising out of the sale of
any of the Collateral into the Revenue Depository Accounts with the Canadian
Bank known as Account No. 537-60 and Account No. 6501-23 in accordance with a
Cash Management Agreement. Immediately upon receipt of revenues in Account No.
537-60, all sums deposited in such Revenue Depository Account shall be
transferred for deposit into Account No. 6501-23 (the "Canadian Operating
Account"). So long as Excess Availability equals or exceeds Minimum Availability
and no Default or Event of Default has occurred, the Canadian Borrower shall be
entitled to use the funds in the Canadian Operating Account to repay Canadian
Base Rate Loans, and to otherwise transfer funds out of the Canadian Operating
Account all in accordance with the terms hereof (including to make Qualified
Investments). During the existence of a Default or an Event of Default, all sums
deposited in the Revenue Depository Accounts with the Canadian Bank or the
Canadian Operating Account shall be deposited with the Agent by depository
transfer check or by wire transfer at the Canadian Borrower's expense to be held
for the benefit of the Canadian Bank for application to the Canadian Loan
Account.
SECTION IIB
PROVISIONS APPLICABLE TO ALL REVOLVING LOANS
2B.1. Notice of Borrowing or Conversion.
(a) Except for a Revolving Loan made upon a draw under a Letter of
Credit pursuant to Section 2B.5 hereof, whenever a Borrower desires to make a
borrowing of a Revolving Loan, the U.S. Borrower shall give the Agent, at its
address set forth in Section 9.1 hereof, not later than 12:00 noon (Boston
time), and the Canadian Borrower shall give the Canadian Bank, at its address
provided in accordance with the terms of Section 9.1 hereof, not later than
12:00 noon (Toronto time), at least three (or, in the case of a Revolving Loan
which shall be a Base Rate Loan, one) Business Days' prior written notice via
telecopy or telephonic notice from an authorized representative confirmed
promptly in writing (which notice shall be irrevocable) of its desire to make a
borrowing of a Revolving Loan. Each notice of borrowing under this Section 2B.1
shall be substantially in the form of Exhibit B-1 or B-2 hereto (each a "Notice
of Borrowing or Conversion") and specify the date on which the Borrower desires
to make a borrowing of a Revolving Loan (which in each instance shall be a
Business Day), the amount of such borrowing, whether such borrowing shall be a
Base Rate Loan, a Eurodollar Loan, a Bankers' Acceptance Loan, or a combination
thereof, and in the case of the selection of a Eurodollar Loan or Bankers'
Acceptance Loan, the proposed Interest Period therefor, and, shall refer to the
most recent Borrowing Base Report delivered by the U.S. Borrower to the Agent
pursuant to Section 5.1(d) hereof, and set forth the Borrowing Base and U.S.
Borrowing Base provided therein. Following the expiration of the earlier of the
time periods described in clauses (A)(i) and (ii) of the definition of Interest
Period, if such
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notice shall be with respect to a borrowing of a Eurodollar Loan or Bankers'
Acceptance Loan but fails to state an applicable Interest Period therefor, then
such notice shall be deemed to be a request for a one-month Interest Period. If
(x) the Borrower shall fail to state in any such notice whether such Revolving
Loan shall be a Base Rate Loan, a Eurodollar Loan or a Bankers' Acceptance Loan,
or (y) the Borrower shall be deemed to have made a borrowing of a Revolving Loan
pursuant to Sections 2.1 and 2A.1 hereof, then the Borrower shall be deemed to
have selected a Base Rate Loan. Subject to the other provisions of this
Agreement, Base Rate Loans, Eurodollar Loans and Bankers' Acceptance Loans of
more than one type may be outstanding at the same time; provided, however, that
Eurodollar Loans and Bankers' Acceptance Loans shall be available for election
by the Borrower only if the Interest Periods therefor expire at least one (1)
Business Day before the Maturity Date for a Revolving Loan and such Loans shall
be for $100,000 or CD$100,000, as applicable, or any integral multiple of
$100,000 or CD$100,000, as applicable; and provided further that no more than
five (5) Interest Periods in the aggregate for U.S. Loans which are Eurodollar
Loans and three (3) Interest Periods in the aggregate for Canadian Loans which
are Eurodollar Loans or Bankers' Acceptance Loans may be outstanding at any one
time. The Agent shall promptly give each U.S. Bank telephonic notice (confirmed
promptly in writing) of the proposed U.S. Revolving Loan, of such Bank's pro
rata share thereof, and of the other matters covered by the Notice of Borrowing
or Conversion.
(b) The Borrower shall not be permitted to select a borrowing of a
Eurodollar Loan or Bankers' Acceptance Loan in any Notice of Borrowing or
Conversion (x) to the extent such selection would be prohibited by Section 2B.7
hereof, or (y) if a Default or an Event of Default shall be in existence as of
the date of selection of the applicable Interest Period.
2B.2 Interest. (a) Interest on Eurodollar Loans. The U.S. Borrower and
the Canadian Borrower shall, as applicable, pay interest on all Eurodollar Loans
at the aggregate of the Adjusted Eurodollar Rate or Canadian Eurodollar Rate, as
applicable for the Interest Period in effect, plus the Applicable Eurodollar
Margin. Except as provided in Section 2B.2(e) hereof, each Borrower shall pay
interest on the unpaid principal amount of each Eurodollar Loan made to it
outstanding from time to time (i) on each Interest Payment Date with respect to
such Eurodollar Loan with an Interest Period that does not exceed three months,
(ii) at the end of every three months from the commencement of the applicable
Interest Period with respect to such Eurodollar Loan with an Interest Period
longer than three months, (iii) at the date of conversion of such Eurodollar
Loan (or portion thereof) to a Base Rate Loan or Bankers' Acceptance Loan, (iv)
at maturity of each such Eurodollar Loan, and (v) after maturity of such
Eurodollar Loan (whether by acceleration or otherwise) upon demand.
(b) Interest on Base Rate Loans. The U.S. Borrower and the Canadian
Borrower each shall, as applicable, pay interest on all Base Rate Loans at the
aggregate of the Base Rate or the Reference Rate, as applicable, in effect from
time to time, plus the Applicable Base Rate Margin. Except as provided in
Section 2B.2(e) hereof, the
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Borrower shall pay interest on the unpaid principal amount of Base Rate Loans
made to it hereunder outstanding from time to time (i) monthly in arrears on the
first day of each calendar month commencing with December 1, 1996, (ii) at the
Maturity Date, and (iii) after the Maturity Date of such Base Rate Loan (whether
by acceleration or otherwise) upon demand.
(c) Interest on Bankers' Acceptance Loans. The Canadian Borrower
shall pay interest on all Bankers' Acceptance Loans at the aggregate of the
Bankers' Acceptance Rate plus the Applicable Eurodollar Margin. Except as
provided in Section 2B.2(e) hereof, the Canadian Borrower shall pay interest on
the unpaid principal amount of each Bankers' Acceptance Loan made to it
outstanding from time to time (i) on each Interest Payment Date with respect to
such Bankers' Acceptance Loan, (ii) at the date of conversion of such Bankers'
Acceptance Loan (or portion thereof) to a Base Rate Loan or Eurodollar Loan,
(iii) at maturity of each such Bankers' Acceptance Loan, and (iv) after maturity
of such Bankers' Acceptance Loan (whether by acceleration or otherwise) upon
demand.
(d) Interest on Overadvances. Each Overadvance shall bear interest
on the outstanding principal amount thereof at a rate per annum equal to 0.50%
over the sum of the applicable interest rate and margin for Base Rate Loans or
Eurodollar Loans, respectively, (the "Overadvance Spread"), which rate shall
change contemporaneously with any change in the applicable interest rate.
(e) Default Interest. Overdue principal (whether at maturity, by
reason of acceleration or otherwise) and, to the extent permitted by applicable
law, overdue interest and fees or any other amounts payable hereunder or under
the U.S. Revolving Credit Notes or the Canadian Revolving Credit Note,
respectively, shall upon the occurrence of an Event of Default, at the election
of the Agent or the Canadian Bank, respectively, or upon the request of the
Majority Banks, bear interest from and including the due date thereof until
paid, compounded daily and payable on demand, at a rate per annum equal to, in
the case of outstanding U.S. Loans, 2% above the interest rate otherwise
applicable to such Revolving Loans pursuant to Sections 2B.2(a), (b), or (d)
hereof, and in all other cases, 2% above the rate then applicable to Base Rate
Loans, which interest shall be compounded daily and payable to the Agent or the
Canadian Bank, respectively, on demand.
(f) For purposes of this Section 2B.2, (i) the "Applicable Base Rate
Margin" for U.S. Loans constituting Base Rate Loans shall be equal to (A) from
the Closing Date through September 30 1997, a percentage equal to 0.25%, and (B)
thereafter, the percentage determined for each Rate Period by reference to Table
1 below; (ii) the "Applicable Base Rate Margin" for Canadian Loans constituting
Base Rate Loans shall be equal to 1.5%' and (iii) the "Applicable Eurodollar
Margin" shall be (A) from the Closing Date through September 30, 1997, a
percentage equal to 2.00%, and (B) thereafter, the percentage determined for
each Rate Period by reference to Table 1 below:
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Table 1
-------
<TABLE>
<CAPTION>
Prior Four Quarters'
EBITDA to Cash Applicable Base Applicable
Interest Expense Ratio Rate Margin Eurodollar Margin
---------------------- ----------- -----------------
<S> <C> <C>
a) less than 1.50 0.50% 2.25%
b) less than or equal to 0.25% 2.00%
2.00 but greater than or
equal to 1.50
c) greater than 2.00 0.00% 1.75%
</TABLE>
For purposes of determining the Applicable Base Rate Margin and the Applicable
Eurodollar Margin, the EBITDA to Cash Interest Expense Ratio will be tested
quarterly, commencing with the first full fiscal quarter of the Borrowers
following September 30, 1997, with Cash Interest Expense and EBITDA being
determined as at the last day of the applicable fiscal quarter for the four
consecutive fiscal quarters then ended, in each case as evidenced by the annual
or quarterly financial statements required to be delivered pursuant to Section
5.1(a) or Section 5.1(b), respectively.
2B.3 Duration of Interest Periods.
(a) Subject to the provisions of the definition of Interest Period, the
duration of each Interest Period applicable to a Eurodollar Loan or Bankers'
Acceptance Loan shall be as specified in the applicable Notice of Borrowing or
Conversion. The Borrower shall have the option to elect a subsequent Interest
Period to be applicable to such Loan by giving notice of such election to the
Agent or the Canadian Bank, as applicable, received no later than 12:00 noon
(Boston time or Toronto time, as the case may be) on the date 3 Business Days
before the end of the then applicable Interest Period if such Revolving Loan is
to be continued as or converted to a Eurodollar Loan or Bankers' Acceptance
Loan.
(b) Notwithstanding the foregoing, no Borrower may select an Interest
Period that would end, but for the provisions of the definition of Interest
Period, after the Maturity Date.
2B.4 Conversion of Borrowings; Renewals. (a) Unless otherwise prohibited
under Section 2B.5 hereof, any Borrower may, from time to time following the
Closing Date and prior to the Maturity Date, convert (i) all or a portion of its
outstanding Base Rate Loans to one or more Eurodollar Loans, and with respect to
the Canadian Borrower, Bankers' Acceptance Loans as well, in aggregate amounts
and integral multiples of
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$100,000 or CN $100,000, or (ii) all or a portion of its outstanding Eurodollar
Loans to one or more Base Rate Loans, and with respect to the Canadian Borrower,
Bankers' Acceptance Loans as well, so long as the aggregate principal balance of
the portion of the Eurodollar Loans made to the Borrower not being converted, if
any, is an integral multiple of $100,000 or CN $100,000; (iii) all or a portion
of the Canadian Borrower's outstanding Bankers' Acceptance Loans to one or more
Eurodollar Loans or Base Rate Loans in aggregate amounts of or any integral
multiple of $100,000 or CN $100,000; provided, however, that the Borrowers shall
not be entitled to convert any Base Rate Loan, or portion thereof, to a
Eurodollar Loan or Bankers' Acceptance Loan, or any Eurodollar Loan, or portion
thereof, to a Bankers' Acceptance Loan, or any Bankers' Acceptance Loan, or
portion thereof, to a Eurodollar Loan, unless all accrued interest on the Base
Rate Loan, or portion thereof, or Eurodollar Loan or portion thereof, or
Bankers' Acceptance Loan, or portion thereof, as the case may be, to be
converted through the date of such conversion shall have been paid in full; and
provided further that no more than five (5) Interest Periods (with respect to
U.S. Loans) and three (3) Interest Periods (with respect to Canadian Loans) in
the aggregate for Loans which are Eurodollar Loans or Bankers' Acceptance Loans
may be outstanding at any one time. Each conversion by any Borrower of any
advance or portion thereof (other than a conversion pursuant to Section 2B.7
hereof) shall be made not later than 12:00 noon (Boston time or Toronto time, as
applicable) on a Business Day on at least three (3) Business Day's prior written
notice or telephonic notice from an authorized representative confirmed promptly
in writing to the Agent (which shall promptly notify each U.S. Bank thereof in
writing or by telephone confirmed promptly in writing) or the Canadian Bank, as
applicable, from such Borrower. Each such notice (which notice shall be
irrevocable) shall specify (i) the date of the conversion and the amount to be
converted, (ii) the particular Revolving Loan, or portion thereof, to be
converted, and (iii) in the case of conversion of any Revolving Loan to a
Eurodollar Loan or a Bankers' Acceptance Loan, the duration of the Interest
Period for such Eurodollar Loan or such Bankers' Acceptance Loan.
Notwithstanding the above, the Borrowers shall not be permitted to convert any
Revolving Loan, or portion thereof, to a Eurodollar Loan or a Bankers'
Acceptance Loan if a Default or Event of Default shall have occurred and be
continuing. Except as provided in Section 2B.4 or 2B.5 hereof, any conversion of
a Eurodollar Loan or a Bankers' Acceptance Loan, or portion thereof, to a Base
Rate Loan or a Revolving Loan of any other type shall be made only on the last
day of the Interest Period with respect to such Eurodollar Loan or Bankers'
Acceptance Loan.
(b) Each renewal by the Borrower of an outstanding Eurodollar Loan or
Bankers' Acceptance Loan or portion thereof (in an integral multiple of
$100,000) shall be made on notice to the Agent (which shall promptly notify each
Bank thereof in writing or by telephone confirmed promptly in writing) or the
Canadian Bank, as applicable given not later than 12:00 noon (Boston time or
Toronto time, as applicable) on the third Business Day prior to the last day of
the Interest Period just ending for such Eurodollar Loan or Bankers' Acceptance
Loan. Each notice (which notice shall be irrevocable) by a Borrower of the
renewal of a Eurodollar Loan or Bankers' Acceptance Loan or portion thereof,
shall be in writing or by telephone from an Authorized
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Representative of the Borrower confirmed promptly in writing by delivery of a
Notice of Borrowing or Conversion and shall specify (i) the amount of such
renewal of the Eurodollar Loan or Bankers' Acceptance Loan or portion thereof
and (ii) the duration of the Interest Period for such renewal; provided,
however, that, following the expiration of the earlier of the time periods
described in clauses (A)(i) and (ii) of the definition of Interest Period, if a
Borrower fails to select the duration of any Interest Period for the renewal of
such Eurodollar Loan or Bankers' Acceptance Loan or portion thereof (in an
integral multiple of $100,000), the duration of such Interest Period shall be
one month. Notwithstanding the above, the Borrower shall not be entitled to
renew a Eurodollar Loan or Bankers' Acceptance Loan or portion thereof, (i) if
at any time of the selection of such renewal there shall exist a Default or an
Event of Default, or (ii) to the extent such renewal would be prohibited by
Section 2B.7 hereof.
(c) Any Eurodollar Loan or Bankers' Acceptance Loan or portion
thereof as to which the Agent or Canadian Bank, as applicable, shall not have
received a proper Notice of Borrowing or Conversion as provided in Sections 2B.1
or 2B.4(a) or (b) hereof or notice of payment or prepayment by 12:00 noon
(Boston time or Toronto time, as applicable) at least three Business Days prior
to the last day of the Interest Period just ending for such Eurodollar Loan or
Bankers' Acceptance Loan shall (whether or not any Default or Event of Default
has occurred) automatically be converted to a Base Rate Loan on the last day of
the Interest Period for such Eurodollar Loan or Bankers' Acceptance Loan.
(d) All references to dollar amounts for purposes of this Section
2B.4 shall refer to Canadian Dollars for the Canadian Borrower.
2B.5. Letters of Credit. Upon the terms and subject to the conditions of
this Agreement, and in reliance upon the representations, warranties and
covenants of the Borrowers made herein, the Agent (as agent for and under the
joint responsibilities of the U.S. Banks) and the Canadian Bank each agrees to
issue, to the extent permitted by law or the Uniform Customs Practices of the
International Chamber of Commerce governing Letters of Credit (Publication No.
500 or any successor thereto), Letters of Credit upon the application of the
U.S. Borrower or the Canadian Borrower, as applicable, during the period from
the date hereof to the Maturity Date; provided that the aggregate principal
amount of Letters of Credit outstanding for the account of the U.S. Borrower and
the Canadian Borrower at any time shall not (i) exceed the Letter of Credit
Maximum Amount, or (ii) with respect to U.S. Letters of Credit, cause the
aggregate amount of outstanding U.S. Loans, including the aggregate face amount
of U.S. Letters of Credit outstanding, to exceed the lesser of (y) the Maximum
Amount or (z) the Availability; and provided, further that at the time any
Borrower requests the issuance of a Letter of Credit and after giving effect to
the issuance thereof, there has not occurred and is not continuing any Default
or Event of Default. All Letters of Credit shall expire not later than the
Maturity Date; provided, however, that documentary Letters of Credit shall
expire within 180 days after issuance. Without limiting the foregoing, if any
Letter of Credit would by its terms expire after the Maturity Date, the U.S.
Borrower or the
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Canadian Borrower, as applicable, shall, on the Maturity Date, cause another
letter of credit issued by another bank to be substituted therefor or cause
another bank satisfactory to the Agent or the Canadian Bank, as applicable, to
indemnify the Agent (for the benefit of the U.S. Banks) or the Canadian Bank, as
applicable, to its satisfaction against any and all liabilities and obligations
in respect to such Letter of Credit and, in such event, this Agreement shall
continue in full force and effect until all of the Obligations under any such
Letters of Credit have been paid in full to the Agent (for the account of the
U.S. Banks) or the Canadian Bank, as applicable.
Amounts drawn under the Letters of Credit shall become immediately due and
payable by the U.S. Borrower to the Agent for the benefit of the U.S. Banks, or
by the Canadian Borrower to the Canadian Bank, and, if not paid in accordance
with the terms of any such Letter of Credit, shall be added to the U.S. Loan
Account as U.S. Loans, or to the Canadian Loan Account as Canadian Loans, as of
the date funds are advanced under such Letter of Credit and shall be immediately
due and payable upon the Maturity Date.
In order to evidence such Letters of Credit, the U.S. Borrower or the
Canadian Borrower shall enter into, with the Agent or the Canadian Bank, as
applicable, such agreements and execute such instruments and documents as the
Agent or the Canadian Bank, as applicable, customarily requires in like
transactions, including, but not limited to, a letter of credit application and
agreement. The U.S. Borrower and the Canadian Borrower hereby acknowledges and
agrees that each of its respective chief executive officer, president, assistant
secretary, controller and chief financial officer acting alone is authorized to
sign applications for the issuance of Letters of Credit and that the execution
and submission thereof to the Agent or the Canadian Bank, as applicable, by any
such officer for the account of the U.S. Borrower or the Canadian Borrower shall
be for the benefit and liability hereunder of the U.S. Borrower or the Canadian
Borrower.
2B.6. Letters of Credit Fees. The U.S. Borrower and the Canadian
Borrower, as applicable, shall pay:
(a) for issuance of each standby Letter of Credit, (i) to the Agent
for the accounts of the U.S. Banks in proportion to their respective U.S.
Commitment Percentages, or to the Canadian Bank, as applicable, a fee
quarterly in arrears equal to the Applicable Eurodollar Margin per annum,
(ii) to the issuer of such Letter of Credit, for its own account, an
additional fee quarterly in arrears equal to 0.25% per annum of the face
amount of such standby Letter of Credit, and (iii) such normal and
customary costs, expenses and fees in connection with issuing, affecting
payment under, amending or otherwise administering any Letter of Credit
issued by the Agent or the Canadian Bank, as applicable; and
(b) for the issuance of documentary Letter of Credit, (i) a fee
quarterly in arrears equal to 3/8ths of 1% of the average daily balance of
the undrawn face amount of such documentary Letter of Credit (which fee,
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in the case of a U.S. Letter of Credit, shall be allocated 1/4% to the U.S.
Banks in proportion to their respective U.S. Commitment Percentages and
1/8th% to the Agent for its own account), and (ii) such normal and
customary costs, expenses and fees in connection with issuing, affecting
payment under, amending or otherwise administering any Letter of Credit
issued by the Agent or the Canadian Bank, as applicable.
2B.7. Changed Circumstances. In the event that:
(i) on any date on which the Adjusted Eurodollar Rate or the Canadian
Eurodollar Rate would otherwise be set, the Agent or the Canadian
Bank, as applicable, shall have determined in good faith (which
determination shall be final and conclusive) that adequate and fair
means do not exist for ascertaining the Interbank Offered Rate or the
Canadian Eurodollar Rate, as the case may be, or
(ii) at any time the Agent or the Canadian Bank, as applicable, shall have
determined in good faith (which determination shall be final and
conclusive) that:
(A) the making or continuation of, or conversion of any Revolving
Loan to, a Eurodollar Loan has been made impracticable or
unlawful by (l) the occurrence of a contingency that materially
and adversely affects the Interbank Eurodollar Market or (2)
compliance by the Agent or any Bank in good faith with any
applicable law or governmental regulation, guideline or order or
interpretation or change thereof by any governmental authority
charged with the interpretation or administration thereof or with
any request or directive of any such governmental authority
(whether or not having the force of law); or
(B) the Adjusted Eurodollar Rate or Canadian Eurodollar Rate shall no
longer represent the effective cost to any U.S. Bank for United
States dollar deposits, or to the Canadian Bank for Canadian
dollar deposits, as applicable, in the Interbank Eurodollar
Market in which it regularly participates;
then, and in any such event, the Agent or the Canadian Bank, as applicable,
shall forthwith so notify the U.S. or Canadian Borrower thereof. Until the Agent
or the Canadian Bank, as applicable, notifies such Borrower that the
circumstances giving rise to such notice no longer apply, the obligation of each
Bank to allow selection by the Borrower of the Eurodollar Loan affected by the
contingencies described in this Section 2B.7 (herein called "Affected Loans")
shall be suspended. If at the time the Agent or the Canadian Bank, as
applicable, so notifies such Borrower, such Borrower has previously given the
Agent or the Canadian Bank a Notice of Borrowing or Conversion with respect to
one or more Affected Loans but such Affected Loans have not yet gone into
effect, such notification shall be
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deemed to be void and such Borrower may borrow Revolving Loans of a non-affected
type by giving a substitute Notice of Borrowing or Conversion pursuant to
Section 2B.1.
Upon such date as shall be specified in such notice (which shall not be
earlier than the date such notice is given) such Borrower shall, with respect to
the outstanding Affected Loans, prepay the same, together with interest thereon
and any amounts required to be paid pursuant to Section 2B.8, and may borrow a
Base Rate Loan in accordance with Section 2.1 hereof, as applicable, by giving a
Notice of Borrowing or Conversion pursuant to Section 2B.1 hereof.
Notwithstanding the foregoing, to the extent reasonably possible, each Bank
will designate an alternate office with respect to its advances of Eurodollar
Loans as may be reasonably required to reduce any liability of any Borrower to
such Bank under Sections 2B.7, 2B.10 or 2B.11, so long as such designation is
not disadvantageous to such Bank in any way.
2B.8. Payments Not at End of Interest Period. If a Borrower for any
reason makes any payment of principal with respect to any Eurodollar Loan or
Bankers' Acceptance Loan on any day other than the last day of an Interest
Period applicable to such Eurodollar Loan or Bankers' Acceptance Loan, or fails
to borrow or continue or convert to a Eurodollar Loan or Bankers' Acceptance
Loan after giving a Notice of Borrowing or Conversion pursuant to Section 2B.1,
such Borrower shall pay to the Agent for the respective accounts of the U.S.
Banks, or to the Canadian Bank, as applicable, an amount computed pursuant to
the following formula:
L = (R - T) x P x D
---------------
360
Where:
L = amount payable to the Agent for the accounts of the U.S. Banks or
to the Canadian Bank
R = interest rate on such Revolving Loan
T = effective interest rate per annum at which any readily marketable
bond or other obligation of the United States, selected at the
Agent's sole discretion, or other obligation of Canada, selected at
the Canadian Bank's sole discretion, maturing on or near the last
day of the then applicable Interest Period of such Revolving Loan
and in approximately the same amount as such Revolving Loan can be
purchased by the Agent or the Canadian Bank on the day of such
payment of principal or failure to borrow or continue or convert
P = the amount of principal prepaid or the amount of the requested
Revolving Loan
D = the number of days remaining in the Interest Period as of the date
of such payment or the number of days of the requested Interest
Period
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The U.S. Borrower or Canadian Borrower, as the case may be, shall pay such
amount upon presentation by the Agent or the Canadian Bank of a statement
setting forth in reasonable detail the amount and the Agent's or the Canadian
Bank's calculation thereof pursuant hereto, which statement shall be prima facie
evidence thereof. In the event a Borrower elects to make any payment of
principal with respect to any Eurodollar Loan or Bankers' Acceptance Loan prior
to the last day of the applicable Interest Period, such payment shall be made
solely upon at least three (3) days prior written notice of the Borrower's
intention to make such payment.
2B.9. Computation of Interest. Interest on all Revolving Loans and fees
and other amounts calculated on the basis of a rate per annum shall be computed
on the basis of actual days elapsed over a 360-day year with respect to U.S.
Loans and over a 365-day year with respect to Canadian Loans. If the due date
for any payment of principal is extended by operation of law, interest shall be
payable for such extended time. If any payment required by this Agreement
becomes due on a day that is not a Business Day such payment may be made on the
next succeeding Business Day (subject to clause (i) of the definition of
Interest Period), and such extension shall be included in computing interest in
connection with such payment. Any rate of interest on the Base Rate Loans shall
change when and as the Base Rate or the Reference Rate changes, as applicable.
If and to the extent that the laws of Canada are applicable to interest payable
under this Agreement, for the purpose of the Interest Act (Canada) the yearly
rate of interest to which interest calculated on the basis of a 360 or 365 day
year is equivalent, is the rate of interest determined as herein provided
multiplied by the number of days in such year divided by 360 or 365, as the case
may be.
2B.10. Changes in Laws, Etc. With respect to any countries in which any
Borrower is engaged in business, in case any law, regulation, treaty or official
directive or the interpretation or application thereof by any court or by any
Governmental Body charged with the administration thereof or the compliance with
any guideline or request of any central bank or other Governmental Body (whether
or not having the force of law):
(i) subjects the Agent or any Bank to any tax with respect to payments
of principal or interest or any other amounts payable hereunder by
any of the Borrowers or otherwise with respect to the transactions
contemplated hereby (except for taxes on the income of the Agent or
such Bank imposed by the United States of America, Canada or any
Governmental Body), or
(ii) imposes, modifies or deems applicable any deposit insurance,
reserve, special deposit or similar requirement against assets held
by, or deposits in or for the account of, or loans by, the Agent or
any Bank (other than such requirements as are already included in
the determination of the Adjusted Eurodollar Rate or Canadian
Eurodollar Rate, as applicable), or
(iii) imposes upon the Agent or any Bank any other condition with respect
to its performance under this Agreement,
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and the result of any of the foregoing is to increase the cost to the Agent or
such Bank, reduce the income receivable by the Agent or such Bank or impose any
expense upon the Agent or such Bank with respect to any Revolving Loans, the
Agent and the Canadian Bank, as applicable, shall notify the Borrowers thereof
within fifteen (15) months of the incurrence of such increased cost or expense
or reduction in income. The Borrowers agree to pay to the Agent or such Bank the
amount of such increase in cost, reduction in income or additional expense as
and when such cost, reduction or expense is incurred or determined, upon
presentation by the Agent or such Bank of a statement in the amount and setting
forth in reasonable detail the Agent's or such Bank's calculation thereof, which
statement shall be prima facie evidence thereof. Any payments pursuant to this
Section 2B.10 shall be without duplication with respect to payments made under
Section 2B.11.
2B.11. Capital Requirements. If after the date hereof the Agent or any
Bank determines that (i) the adoption of or change in any law, rule, regulation
or guideline regarding capital requirements for banks or bank holding companies,
or any change in the interpretation or application thereof by any Governmental
Body charged with the administration thereof, or (ii) compliance by the Agent or
any Bank or its parent bank holding company with any guideline, request or
directive of any such entity regarding capital adequacy (whether or not having
the force of law), has the effect of reducing the return on the Agent's or such
Bank's or such holding company's capital as a consequence of the Agent's or such
Bank's U.S. Credit Commitment or Canadian Credit Commitment to make Revolving
Loans hereunder to a level below that which the Agent or such Bank or such
holding company could have achieved but for such adoption, change or compliance
(taking into consideration the Agent's or such Bank's or such holding company's
then existing policies with respect to capital adequacy and assuming the full
utilization of such entity's capital) by any amount deemed by the Agent or such
Bank to be material, then the Agent or such Bank shall notify the Borrowers
thereof. The Borrowers agree to pay to the Agent or such Bank the amount of such
reduction of capital as and when such reduction is determined, upon presentation
by the Agent or such Bank of a statement in the amount and setting forth in
reasonable detail the Agent's or such Bank's calculation thereof, which
statement shall be deemed true and correct absent manifest error. In determining
such amount, the Agent or such Bank may use any reasonable averaging and
attribution methods. Any payments pursuant to this Section 2B.11 shall be
without duplication with respect to payments made under Section 2B.10.
2B.12. Payments and Prepayments of the Revolving Loans.
(a) The entire principal of the U.S. Revolving Credit Notes and the
Canadian Revolving Credit Note, together with any accrued but unpaid interest,
fees, charges, costs and expenses, shall be absolutely due and payable by the
U.S. Borrower and the Canadian Borrower, respectively, to the U.S. Banks and the
Canadian Bank, respectively, on the Maturity Date. All of the other indebtedness
evidenced by the U.S. Revolving Credit Notes and the Canadian Revolving Credit
Note shall, if not sooner paid, also be absolutely due
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and payable by the U.S. Borrower and the Canadian Borrower, respectively, to the
U.S. Banks and the Canadian Bank, respectively, on the Maturity Date.
(b) Revolving Loans that are Base Rate Loans may be voluntarily prepaid at
any time, without premium or penalty, upon same Business Day's written notice to
the Agent or the Canadian Bank, respectively. Revolving Loans that are
Eurodollar Loans may be voluntarily prepaid at any time, without premium or
penalty, on the last day of any Interest Period applicable thereto, and may be
prepaid prior to the last day of the applicable Interest Period subject to and
in accordance with the terms of Section 2B.6, upon prior written notice received
by the Agent no later than 12:00 noon (Boston time), or upon prior written
notice received by the Canadian Bank no later than 12:00 noon (Toronto time), as
applicable, on the same Business Day as the prepayment. Any interest accrued on
the amounts so prepaid to the date of such payment must be paid at the time of
any such payment. Subject to the terms of Section 2.7 and 2A.4 hereof, no
prepayment of the Revolving Loans prior to the Maturity Date shall affect the
Total Commitment or impair the U.S. Borrower's or the Canadian Borrower's right
to borrow as set forth in Section 2.l and 2A.1, respectively. In the case of any
partial payment of the U.S. Loans, the total amount of such partial payment
shall be allocable among the U.S. Loans, subject to adjustment as provided in
Section 8.5, pro rata in accordance with the U.S. Commitment Percentage of each
U.S. Bank.
2B.13. Indemnities. (a) The U.S. Borrower hereby agrees to indemnify each
U.S. Bank, and the Canadian Borrower hereby agrees to indemnify the Canadian
Bank, on demand against any loss or expense which such Bank or its branch or
Affiliate may sustain or incur as a consequence of: (i) any default in payment
or prepayment of the principal amount of any Eurodollar Loan or Bankers'
Acceptance Loan made to it or any portion thereof or interest accrued thereon,
as and when due and payable (at the due date thereof, by irrevocable notice of
payment or prepayment, or otherwise); or (ii) the effect of the occurrence of
any Event of Default upon any Eurodollar Loan or Bankers' Acceptance Loan made
to it; in each case including, but not limited to, any loss or expense sustained
or incurred in liquidating or employing deposits from third parties acquired to
effect or maintain such Eurodollar Loan or Bankers' Acceptance Loan or any
portion thereof. Each Bank shall provide to the Borrowers and the Agent a
statement, supported when applicable by documentary evidence, explaining the
amount of any such loss or expense it incurs, which statement shall be prima
facie evidence thereof.
2B.14. Telephonic Notice. Without in any way limiting any Borrower's
obligation to confirm in writing any telephonic notice of a borrowing,
conversion or renewal, the Agent and the Canadian Bank may act without liability
upon the basis of a telephonic notice believed by the Agent or the Canadian Bank
in good faith to be from an authorized representative of such Borrower prior to
receipt of written confirmation
2B.15. Maximum Interest.
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(a) No provision of this Agreement or any Revolving Credit Note shall
require the payment to any Bank or permit the collection by any Bank of interest
in excess of the maximum rate of interest from time to time permitted (after
taking into account all consideration which constitutes interest) by laws
applicable to the Obligations and binding on any Bank (such maximum rate being
such Bank's "Maximum Permissible Rate").
(b) If the amount of interest computed without giving effect to this
Section 2B.15 and payable on any Interest Payment Date in respect of the
preceding Interest Period would exceed the amount of interest computed in
respect of such period at the Maximum Permissible Rate, the amount of interest
payable to such Bank on such date in respect of such period shall be computed at
such Bank's Maximum Permissible Rate and the Banks shall determine the payments
that are to be reduced or refunded, as the case may be.
(c) If and to the extent that the laws of Canada are applicable to
interest payable under this Agreement, no interest on the credit advanced will
be payable in excess of that permitted by the laws of Canada. If the effective
annual rate of interest, calculated in accordance with generally accepted
actuarial practices and principles, would exceed 60% (or such other rate as the
Parliament of Canada may determine from time to time as the criminal rate) on
the credit advanced, then, (i) the amount of any charges for the use of money,
expenses, fees, bonuses, commissions or other charges payable in connection
therewith will be reduced to the extent necessary to eliminate such excess; (ii)
any remaining excess that has been paid will be credited towards repayment of
the principal amount; and (iii) any overpayment that may remain after such
crediting will be returned forthwith on demand. In this paragraph the terms
"interest," "criminal rate" and "credit advanced" have the meanings ascribed to
them in Section 347 of the Criminal Code of Canada.
(d) If at any time and from time to time: (i) the amount of interest
payable to any Bank on any Interest Payment Date shall be computed at such
Bank's Maximum Permissible Rate pursuant to the preceding subsection (b); and
(ii) in respect of any subsequent Interest Period the amount of interest
otherwise payable to such Bank would be less than the amount of interest payable
to such Bank computed at such Bank's Maximum Permissible Rate, then the amount
of interest payable to such Bank in respect of such subsequent interest
computation period shall continue to be computed at such Bank's Maximum
Permissible Rate until the amount of interest payable to such Bank shall equal
the total amount of interest which would have been payable to such Bank if the
total amount of interest had been computed without giving effect to the
preceding subsection (b), provided, however, that if subsection (c) above
applies no such adjustment shall be made.
2B.16. Procedures for Payment. (a) Each payment or prepayment hereunder and
under the Revolving Credit Notes shall be made not later than 12:00 noon (Boston
time or Toronto time, as applicable) on the day when due in lawful money of the
United States
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of America or Canada, as applicable, to the Agent or the Canadian Bank, as
applicable, in immediately available funds, without counterclaim, offset, claim
or recoupment of any kind. Each payment or prepayment hereunder and under the
Revolving Credit Notes shall be made free and clear of, and without deduction
for, any present or future withholding or other taxes, duties or charges of any
nature imposed on such payments or prepayments by or on behalf of any
Governmental Body thereof or herein, except for taxes on the income of any Bank
and except for any withholding tax under [Part XIII] of the Income Tax Act
(Canada) as in effect on the date hereof. If any such taxes, duties or charges
are so levied or imposed on any payment or prepayment to any Bank, the U.S.
Borrower or the Canadian Borrower, as applicable, will make additional payments
in such amounts as may be necessary so that the net amount received by such U.S.
Bank or Canadian Bank, as applicable, after withholding or deduction for or on
account of all taxes, duties or charges, including deductions applicable to
additional sums payable under this Section 2B.16 (which additional sums payable
shall not include any sums payable on account of a Bank's failure to perform its
obligations pursuant to Sections 9.10(v) and (vi) hereof), will be equal to the
amount provided for herein or in such Bank's Revolving Credit Note. Whenever any
taxes, duties or charges are payable by a Borrower with respect to any payments
or prepayments hereunder or under any of the Revolving Credit Notes, such
Borrower shall furnish promptly to the Agent for the account of the applicable
U.S. Bank, or to the Canadian Bank, as applicable, information, including
certified copies of official receipts (to the extent that the relevant
Governmental Body delivers such receipts), evidencing payment of any such taxes,
duties or charges so withheld or deducted. If such Borrower fails to pay any
such taxes, duties or charges when due to the appropriate taxing authority or
fails to remit to the Agent for the account of the applicable Bank, or to the
Canadian Bank, as applicable, the required information evidencing payment of any
such taxes, duties or charges so withheld or deducted, the U.S. Borrower and the
Canadian Borrower shall indemnify jointly and severally the affected U.S. Bank
and the Canadian Bank for any incremental taxes, duties, charges, interest or
penalties that may become payable by such Bank as a result of any such failure.
The U.S. Borrower authorizes the Agent and each U.S. Bank, in the Agents' or
such Bank's sole discretion, to charge to any deposit account which the U.S.
Borrower may maintain with the Agent or such Bank the principal, interest, fees,
charges, taxes, costs and expenses provided for in this Agreement or any other
document executed and delivered in connection herewith, or to advance to the
U.S. Borrower and to charge to it as a U.S. Loan a sum sufficient to pay such
principal, interest, fees, charges, taxes, costs and expenses, with advice
thereafter sent to the U.S. Borrower's chief financial officer in accordance
with the Agent's or such Bank's customary practice.
SECTION III
-----------
CONDITIONS OF REVOLVING LOANS
-----------------------------
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3.1. Conditions Precedent to Initial Revolving Loan. The obligation of the
Banks to make the initial Revolving Loan is subject to the fulfillment on the
date hereof of each of the following conditions precedent:
3.1.1 Loan Documents, Etc.
(i) Each of (A) the Loan Documents, and (B) the Ancillary Documents, shall
have been duly and properly authorized, executed and delivered to the Agent, on
behalf of itself and the Banks, or to the Canadian Bank, as the case may be by
the respective parties thereto and shall be in full force and effect on and as
of the Closing Date; provided, however, that, subject to Section 6.5(d) hereof,
USL shall have 30 days after the Closing Date to obtain and deliver to the
Agent, for the ratable benefit of the Agent and the Banks, Bailee Waivers from
the "Domestic Third Party Locations" listed on Exhibit D hereto, and USL shall
have 90 days after the Closing Date to obtain and deliver to the Agent, for the
ratable benefit of the Agent and the Bank, a Landlord Waiver from the lessor of
USL's premises located at 8948-56 "J" Street, Omaha, Nebraska. Failure to timely
obtain and deliver to the Agent such Bailee Waivers and Landlord Waiver shall
constitute an Event of Default.
(ii) Executed original counterparts of each of the Loan Documents,
and copies of each of the Ancillary Documents, as executed and delivered by the
respective parties thereto, shall have been furnished to the Agent, on behalf of
itself and the Banks, or to the Canadian Bank, as the case may be.
3.1.2 Legality of Transactions. No change in applicable law or
regulation shall have occurred as a consequence of which it shall have become
and continue to be unlawful (i) for the Banks to perform any of their agreements
or obligations under any of the Loan Documents to which they are a party on the
Closing Date, or (ii) for any of the Borrowers to perform any of their
respective agreements or Obligations under any of the Loan Documents or
Ancillary Documents to which any of them is a party on the Closing Date;
provided, that, if it shall have become and continue to be unlawful for the
Banks to make, continue or convert to a Eurodollar Loan, or a Borrower to
accept, continue or convert to a Eurodollar Loan, then the Banks may, if
otherwise permitted under the Loan Documents, make a Base Rate Loan.
3.1.3 Representations and Warranties. Each of the representations
and warranties made by or on behalf of the Borrowers to the Agent and the Banks
in this Agreement, the other Loan Documents or the Ancillary Documents shall be
true and correct in all material respects when made, shall, for all purposes of
this Agreement, be deemed to be repeated on and as of the Closing Date, and
shall be true and correct in all material respects on and as of such date.
3.1.4 Performance, Etc. Each Borrower shall have in all material
respects duly and properly performed, complied with and observed each of its
respective covenants, agreements and obligations contained in any of the Loan
Documents or Ancillary
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Documents to which it is a party or by which it is bound which are required to
be performed on or prior to the Closing Date. No event shall have occurred on or
prior to the Closing Date and be continuing on such Closing Date, and no
condition shall exist on such Closing Date, which constitutes a Default or an
Event of Default.
3.1.5 Certified Copies of Charter Documents. The Agent shall have
received from each of the Borrowers, Leather U.S. and Holdings a copy, certified
by a duly authorized officer of the respective company to be true and complete
on the Closing Date, of (i) its charter or other incorporation documents, as in
effect on such date of certification, certified by the Secretary of State or
other appropriate governmental official, and (ii) its by-laws as in effect on
such date.
3.1.6 Proof of Corporate Action. The Agent shall have received from
each of the Borrowers and Holdings a copy, certified by a duly authorized
officer of the respective company to be true and complete on the Closing Date,
of records of all corporate action taken by each to authorize (i) its execution
and delivery of the Loan Documents and the Ancillary Documents to which it is or
is to become a party, (ii) its performance of all of its agreements and
Obligations under each of such documents, and (iii) any borrowings, pledges,
guarantees and other transactions contemplated by this Agreement.
3.1.7 Incumbency Certificate. The Agent shall have received from
each of the Borrowers and Holdings an incumbency certificate, dated the Closing
Date and signed by a duly authorized officer of the respective company, giving
the name and bearing a specimen signature of each individual who shall be
authorized: (i) to sign, in the name and on behalf of such company, each of the
Loan Documents and each of the Ancillary Documents to which it is or is to
become a party; (ii) with respect to the Borrowers, to make application for the
Revolving Loans or conversion thereof; and (iii) to give notices to take other
action on its behalf under the Loan Documents.
3.1.8 Proceedings and Documents. All corporate, governmental and
other proceeding in connection with the transactions contemplated by the Loan
Documents, the Ancillary Documents and all instruments and documents incidental
thereto, shall be in form and substance reasonably satisfactory to the Agent and
the Agent shall have received all such counterpart originals or certified or
other copies of all such instruments and documents as the Agent shall have
reasonably requested.
3.1.9 Good Standing, Etc. The Agent shall have received a long-form
certificate of the Secretary of State of the state of Wisconsin and the Ministry
of Consumer and Commercial Relations, Ontario as to the Borrowers' legal
existence and good standing in such state or province and listing all documents
on file in the offices of said Secretaries of State or Ministry. The Agent shall
also have received certificates of qualification to do business from any
jurisdictions in which any of the Borrowers or Holdings is required to be
qualified and a doing business filing for the Borrowers (including each of USL's
divisions), to the extent such doing business filings are made by the Borrowers,
from the appropriate jurisdictions. The Agent shall have received a long-form
certificate of the appropriate
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Secretary of State or other Governmental Body evidencing legal existence and
good standing of Holdings, including a listing of all documents on file in said
office.
3.1.10 Facility and Agent's Fee. The U.S. Borrower shall have
complied with its obligation under Sections 2.5 and 2.6 to pay the Facility Fee
and Agent's Fee.
3.1.11 Legal Opinions. The Agent shall have received favorable
written legal opinions in form and substance satisfactory to the Agent,
addressed to the Agent and the Banks, dated the Closing Date, from each of
Pryor, Cashman, Sherman & Flynn and Goodman, Phillips & Vineberg, counsel to the
Borrowers, in or substantially in the form of Exhibit K hereto.
3.1.12 Financial Condition. The Banks shall be satisfied that the
financial statements referred to in Section 4.7 fairly present the business and
financial condition of each of the Borrowers as at the close of business on the
date thereof and the results of operations for the periods then ended, and that
there has been no material adverse change in the assets, business, income,
prospects, operations or financial condition of any of the Borrowers since the
most recent financial statements referred to therein.
3.1.13 Security Documents; U.C.C. Search Reports; Insurance; Patents,
Trademarks and Copyrights. The Security Documents and the appropriate financing
statements (in the name of the Borrowers, USL's divisions and Holdings, as the
case may be) and other documents in respect thereto that are necessary to enable
the Agent to perfect a legal, valid and enforceable first-priority security
interest thereunder for the benefit of the U.S. Banks and the Canadian Banks, as
applicable, shall have been duly executed by each of the Borrowers and Holdings,
and filed or recorded, as applicable, in all appropriate filing offices or other
locations necessary for the perfection of such first-priority interests, and all
other actions necessary for the perfection of such interests shall have been
completed. For the purpose of this Section 3.1.13 only, in addition to
provisions of the Borrowers' legal counsels' opinion letters pursuant to Section
3.1.11, evidence of perfection shall mean for filings made in the states of
North Carolina, Indiana and Nebraska receipt by the Agent's counsel of written
facsimile notices setting forth the appropriate UCC-1 filing numbers, for
filings in Wisconsin, receipt by the Agent's counsel of oral notice from the
individuals who actually made the UCC-1 filings that such filings were in fact
made in accordance with the laws of the State of Wisconsin, and for filings in
the Province of Ontario, receipt by the Agent's counsel of a receipted copy of a
financing statement from the Ministry of Consumer and Commercial Relations,
Ontario, and a certified Personal Property Security Act (Ontario) search result
confirming such registration. The Agent shall have received reports concerning
the results of searches made no more than 30 days prior to the Closing Date of
the Patent and Trademark Office and Uniform Commercial Code filing offices for
the Borrowers and USL's divisions, as the case may be, in each appropriate
jurisdiction where Collateral is located. The Agent shall have received
satisfactory evidence that such insurance as is required by the Security
Documents to be in effect in respect of all property and fixtures of the
Borrowers is in effect and the interest of the Agent as loss payee and
additional insured has been duly endorsed upon all instruments of insurance
issued in
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respect of such property. All such insurance shall provide for 30 days' advance
written notice to the Agent of any cancellation or failure to renew thereof.
Arrangements completely satisfactory to the Agent shall have been made for the
due filing of the Patent and Trademark Security Agreement in the United States
Patent and Trademark Office and appropriate Canadian trademark office.
3.1.14 Environmental Site Assessments. The Agent and the Banks shall
have completed a review of environmental site assessment reports provided by the
Borrowers, at the Borrowers' sole expense, for all Real Properties, which
reports must be satisfactory to the Agent and the Banks in their discretion. As
deemed necessary by the Agent or any Bank, further studies and reports may be
required by the Agent from time to time at the Borrowers' expense and the
Borrowers shall provide such access to all Real Properties as may be necessary
to prepare such studies and reports.
3.1.15 Borrowing Base Report. The Borrowers shall have delivered to
the Agent a borrowing base report in form and substance reasonably satisfactory
to the Banks, dated as of the Closing Date and evidencing Excess Availability
under the Borrowing Base of at least $20,000,000.
3.1.16 First Chicago Payoff. The Agent shall have received a payoff
and release letter (and a commitment in writing to deliver related UCC-3
termination statements or other discharges) in form and substance satisfactory
to the Agent and the Banks from First National Bank of Chicago, and arrangements
completely satisfactory to the Banks shall have been made by the Borrowers with
respect thereto.
3.1.17 Completion of Due Diligence. The Agent shall have completed
its due diligence review of the Borrowers, Leather U.S. and Holdings, and the
results of such due diligence review shall have been satisfactory to the Agent
in its sole and absolute discretion.
3.1.18 Commercial Finance Examination. The Agent shall have
completed to its full satisfaction a commercial finance examination performed by
the Agent's field examiners.
3.1.19 Disclosure. All matters which the Agent deems material to its
credit decision in its sole and absolute discretion will have been disclosed to
the Agent by the Borrowers and all exceptions to the representations and
warranties made in this Agreement shall be acceptable to the Agent in its sole
and absolute discretion.
3.1.20 No Existing Defaults. At the time of the closing, there shall
exist no Defaults or Events of Default under the terms of this Agreement, the
Loan Documents and the Ancillary Documents.
3.1.21 Reimbursement of Expenses and Payment of Fees. The U.S.
Borrower shall have reimbursed the Agent for all of the reasonable fees and
disbursements
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of Goulston & Storrs, counsel to the Agent, which shall have been incurred by
the Agent in connection with the preparation, negotiation, execution and
delivery of this Agreement, the Loan Documents and the closing of the
transactions contemplated hereby.
3.1.22 Single Purpose Entity Provisions. The Agent shall have received from
Holdings amended articles of incorporation containing the Single Purpose Entity
Provisions in substantially the same form as is set forth in Exhibit I hereto.
3.1.23 Cash Management System. The Agent shall be satisfied, as determined
in its reasonable discretion, with the cash management system of each of the
Borrowers.
3.2. Conditions Precedent to Initial Canadian Loan. In addition to the
conditions for the making of any initial or other Revolving Loan hereunder, the
making of any Canadian Loan shall be subject to the designation by the Agent of
the Canadian Bank and the execution by the Canadian Bank of this Agreement and
any other Loan Documents to which it is a party.
3.3. Conditions Precedent to all Revolving Loans. The obligation of each
Bank to make each Revolving Loan, including the initial U.S. Loan and Canadian
Loan, or to continue a Revolving Loan as a Eurodollar Loan past the expiration
of an Interest Period, or to convert a Revolving Loan to a Eurodollar Loan, is
further subject to the following conditions:
(a) with respect to U.S. Loans, timely receipt by the Agent of the Notice
of Borrowing or Conversion, and with respect to Canadian Loans, timely receipt
by the Canadian Bank, of a Notice of Borrowing or Conversion, all as provided in
Section 2B.1;
(b) the representations and warranties contained in Section IV shall be
true and accurate in all material respects (except for changes in the ordinary
course not otherwise prohibited by this Agreement) on and as of the date of such
Notice of Borrowing or Conversion and on the effective date of the making,
continuation (of a Eurodollar Loan past the expiration of an Interest Period) or
conversion of each Revolving Loan to a Eurodollar Loan as though made at and as
of each such date (except to the extent that such representations and warranties
expressly relate to an earlier date), and no Default or Event of Default shall
have occurred and be continuing, or would result from such Revolving Loan;
(c) the resolutions referred to in Section 3.1.6 shall remain in full force
and effect; and
(d) no change shall have occurred in any law or regulation or
interpretation thereof that, in the opinion of counsel for the Agent or any
Bank, would make it illegal or against the policy of any Governmental Body for
such Bank to make, convert or continue such Revolving Loan hereunder; provided,
that, if it shall have become and continue to be
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unlawful for the Banks to make, continue or convert to a Eurodollar Loan, or a
Borrower to accept, continue or convert to a Eurodollar Loan, then the Banks
may, if otherwise permitted under the Loan Documents, make a Base Rate Loan.
The making or conversion of each Revolving Loan, or the continuation of a
Eurodollar Loan or a Bankers' Acceptance Loan past the expiration of an Interest
Period, shall be deemed to be a representation and warranty by each of the
Borrowers on the date of the making, continuation or conversion of such
Revolving Loan as to the accuracy of the facts referred to in subsection (b) of
this Section 3.3.
SECTION IV
----------
REPRESENTATIONS AND WARRANTIES
------------------------------
In order to induce the Agent and the Banks to enter into this Agreement and
to make Revolving Loans hereunder, the Borrowers, jointly and severally,
represent and warrant to the Agent and each Bank that:
4.1. Organization and Qualification. Each of the Borrowers (a) is a
corporation duly organized, validly existing and in good standing under the laws
of the state or Province in which it is organized as listed on Exhibit D hereto,
(b) has all requisite corporate power to own its property and conduct its
business as now conducted and as presently contemplated, and (c) is duly
qualified and in good standing as a foreign corporation and is duly authorized
to do business in each jurisdiction listed on Exhibit D hereto, which are all
the jurisdictions where the nature of its properties or business requires such
qualification or authorization, except where the failure to be so qualified or
authorized would not have a material adverse effect on the business, income,
financial condition, assets, operations, prospects or properties of any of the
Borrowers.
4.2. Corporate Authority. The execution, delivery and performance of each
of the Loan Documents and Ancillary Documents to which any of the Borrowers is a
party and the transactions contemplated hereby and thereby are within the
corporate power and authority of such Borrower who is a party thereto and have
been authorized by all necessary corporate proceedings, and do not (a) require
any consent or approval of any creditors, trustees for creditors or shareholders
of any of the Borrowers including without limitation the Indenture Trustee or
any other party pursuant to the terms of the Indenture Agreement (other than any
such consent that has been obtained and provided in writing to the Agent prior
to the Closing Date), (b) contravene any provision of the charter documents or
by-laws of any of the Borrowers or any law, rule or regulation applicable to any
of the Borrowers, (c) contravene any provision of, or constitute an event of
default or event that, but for the requirement that time elapse or notice be
given, or both, would constitute an event of default under, any other agreement,
instrument, order or undertaking binding on any of the Borrowers, including,
without limitation, the Indenture Agreement, or (d) result in or
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require the imposition of any Encumbrance on any of the properties, assets or
rights of any of the Borrowers other than Permitted Encumbrances.
4.3. Valid Obligations. Each of the Loan Documents and Ancillary Documents
to which any of the Borrowers is a party and all of their respective terms and
provisions are the legal, valid and binding obligations of the Borrower who is a
party thereto, enforceable in accordance with their respective terms, except as
limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or other laws affecting the enforcement of creditors' rights
generally, and except for general principles of equity, including, without
limitation, the remedy of specific performance or of injunctive relief which is
subject to the discretion of the court before which any proceeding therefor may
be brought.
4.4. Consents or Approvals. The execution, delivery and performance of each
of the Loan Documents and Ancillary Documents to which any of the Borrowers is a
party and the transactions contemplated herein and therein do not require any
approval or consent of, or filing or registration with, any Governmental Body or
any other party, except filings under the Uniform Commercial Code and the
Personal Property Security Act (Ontario), and with the Patent and Trademark
Office in connection with the Collateral consisting of personalty and fixtures;
and to the extent any approval or consent or filing or registration was required
for any existing Ancillary Document, or is or will be required for any future
Ancillary Document, such approval or consent has been or will be timely given,
and/or such filing or registration has been or will be timely made.
4.5. Title to Properties; Absence of Encumbrances. Each of the Borrowers
has good and marketable title to all of the material properties, assets and
rights of every name and nature now purported to be owned by it, including,
without limitation, such properties, assets and rights as are reflected in the
Initial Financial Statement (except such properties, assets or rights as have
been disposed of in the ordinary course of business since the date thereof),
free from all Encumbrances, except Permitted Encumbrances, and, except as so
disclosed, free from all defects of title that might materially adversely affect
any of such properties, assets or rights or the business, financial condition,
assets or properties of any of the Borrowers. All such properties and assets are
free and clear of all title defects or objections, liens, claims, charges,
security interests and other Encumbrances of any nature whatsoever, except
Permitted Encumbrances. The rights, properties and other assets presently owned,
leased or licensed by any of the Borrowers and described elsewhere in this
Agreement include all rights, properties and other assets necessary to permit
any of the Borrowers to conduct its businesses in all material respects in the
same manner as its businesses have been conducted prior to the date hereof. At
the time any of the Borrowers pledge, sell, assign or transfer to the Agent or
the Canadian Bank, as the case may be, any instrument, document of title,
security, chattel paper or other property (including Base Inventory, Equipment,
Base Accounts, contract rights, patents, trademarks, copyrights, Accounts and
any other Collateral) or any proceeds or products thereof, or any interest
therein, such Borrower shall be the lawful owner thereof and shall have good
right to pledge, sell, assign or transfer the same; none of such properties
shall have been pledged, sold, assigned or transferred to any Person other than
the Agent or the
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Canadian Bank, as the case may be, or in any way encumbered (other than
Permitted Encumbrances and asset sales permitted under Section 6.6 hereof); and
the Borrowers shall defend the same against the claims and demands of all
Persons.
4.6 Location of Records and Collateral; Name Change. Each of the
Borrowers shall give the Agent written notice of any change in location at which
Collateral is or will be kept and each office of the Borrowers at which the
records of any of the Borrowers pertaining to Accounts Receivable and contract
rights are kept. Except as such notice is given, all Collateral owned by a
Borrower is and shall be kept, and all records of a Borrower pertaining to
Accounts and contract rights are and shall be kept, at such location as appears
with respect to such Borrower on Exhibit D hereto. The Borrowers shall give the
Agent 30 days' prior written notice of any change in the name or corporate form
of any of them or any change in the name or names under which any Borrower's
business is transacted.
4.7. Financial Statements. USL has furnished the Agent the
Consolidated balance sheet of the Borrowers as of December 31, 1995 and the
Consolidated statements of income, changes in stockholders' equity and cash flow
of the Borrowers for the fiscal year then ended, and related footnotes, audited
and certified by Arthur Andersen LLP, and USL's Form 10-K filed with the
Securities and Exchange Commission for the year ended December 31, 1995. USL has
also furnished to the Agent the unaudited Consolidated balance sheet of the
Borrowers as of August 31, 1996, and unaudited Consolidated statements of
income, and cash flow for the eight months then ended (the "Initial Financial
Statement"), as certified by the chief financial officer of USL, but subject,
however, to normal, recurring year-end adjustments that shall not in the
aggregate be material in amount. In addition, USL has provided Consolidated
financial projections in the Confidential Financing Proposal dated August, 1996
portions of which were subsequently updated on September 23, 1996 and represent
USL's most recent financial projections. The Borrowers have also furnished
Consolidating balance sheets as of December 31, 1995 and August 31, 1996 as well
as Consolidating statements of income and cash flows for the fiscal year then
ended and the eight months then ended, respectively. Consolidating information
is consistent with internal reporting and in detail as agreed with the Agent but
does show separate full balance sheets, statements of income and cash flows for
each of the Borrowers. All such financial statements were prepared in accordance
with GAAP and present fairly the financial positions of each of the Borrowers as
of such dates and the results of the operations of each of the Borrowers for
such periods. There are no liabilities, contingent or otherwise, not disclosed
in any of such financial statements or Form 10-K that involve a material amount.
4.8. Changes. Since the date of the Initial Financial Statement, there
have been no changes in the assets, liabilities, financial condition, business,
income, operations or prospects of any of the Borrowers, the effect of which
has, in the aggregate, had a material adverse effect on the assets, properties,
business, prospects, income, operations or financial condition of the Borrowers.
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4.9. Defaults. As of the date of this Agreement, no Default or Event
of Default exists under the Loan Documents, Indenture Agreement (other than
arising out of any default or event of default under the First Chicago Credit
Agreement which have been fully disclosed to the Agent) or the Ancillary
Documents.
4.10. Taxes. Each of the Borrowers has filed all federal, state and
other tax returns required to be filed in the United States, Canada or other
jurisdiction, and all taxes, assessments and other governmental charges due from
any of the Borrowers have been fully paid or adequate reserves have been
established therefor, unless extensions for such filings or payments have been
granted, or such taxes, assessments or other governmental charges are being
contested in good faith, provided that adequate reserves have been established.
None of the Borrowers has executed any waiver of limitations in respect of tax
liabilities. Each of the Borrowers has established on its books reserves
adequate for the payment of all material federal, state and other tax
liabilities.
4.11. Litigation. Except as set forth on Exhibit D hereto, there is no
litigation, arbitration, proceeding or investigation pending or, to the
knowledge of the Borrowers, threatened against any one or more of the Borrowers,
Leather U.S. or Holdings which could reasonably result in a material judgment
not fully covered by insurance, which could reasonably result in a forfeiture of
all or any substantial part of the property of any of the Borrowers, Leather
U.S. or Holdings, or which could reasonably otherwise have a material adverse
effect on the assets, properties, business, financial condition or prospects of
any of the Borrowers, Leather U.S. or Holdings.
4.12. Subsidiaries. Except as otherwise permitted under this
Agreement, none of the Borrowers has any Subsidiaries other than those listed on
Exhibit E hereto.
4.13. Investment Company Act. None of the Borrowers is subject to
regulation under the Investment Company Act of l940, as amended.
4.14. Compliance with ERISA and Employee Benefit Legislation. Each of
the Borrowers and each member of the Controlled Group has fulfilled its
obligations under the minimum funding standards of ERISA and the Code with
respect to each Plan and any Employee Benefit Legislation with respect to any
Employee Benefit Plan and, together with each Plan, Welfare Plan and Employee
Benefit Plan, is in compliance in all material respects with the applicable
provisions of ERISA, the Code and any Employee Benefit Legislation, and has not
incurred any liability to the PBGC, any trustees or a Plan under Title IV of
ERISA or under Employee Benefit Legislation; and no "prohibited transaction" or
"reportable event" (as such terms are defined in ERISA and the Code) has
occurred with respect to any Plan or Welfare Plan or any analogous provision of
any Employee Benefit Plan that is not a Multi-Employer Plan. To the best of the
knowledge and belief of each of the Borrowers and each member of the Controlled
Group, each Plan, Welfare Plan or Employee Benefit Plan and Employee Benefit
Plan that is a Multi-Employer Plan is in compliance in all material respects
with the applicable provisions of ERISA, the Code and any Employee Benefit
Legislation; and neither any of the Borrowers nor any member of the
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Controlled Group knows or has reason to know of the occurrence of a "prohibited
transaction" or "reportable event" with respect to any Plan, Welfare Plan that
is a Multi-Employer Plan, or any analogous provision in any provision of any
Employee Benefit Plan.
4.15. Environmental Matters.
(a) Each of the Borrowers has obtained all permits, licenses and other
authorizations which are required under all Environmental Laws, except to the
extent failure to have any such permit, license or authorization would not have
a material adverse effect on the assets, properties, business, financial
condition, income, prospects, affairs or operations of such Borrower. Each of
the Borrowers is in compliance with (i) the terms and conditions of all such
permits, licenses and authorizations, and (ii) all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in any applicable Environmental Law or in any
regulation, code, plan, order, decree, judgment, injunction, notice or demand
letter issued, entered, promulgated or approved thereunder, except, in each case
or in the aggregate, to the extent failure to comply would not have a material
adverse effect on the assets, properties, business, financial condition, income,
prospects, affairs or operations of such Borrower.
(b) Except as set forth in Exhibit D hereto, no notice, notification,
demand, request for information, citation, summons or order has been issued, no
complaint has been filed, no penalty has been assessed and no investigation or
review is pending or, to the best knowledge of any Borrower, threatened by any
Governmental Body or other Person with respect to any alleged failure by any
Borrower to have any permit, license or authorization required in connection
with the conduct of its business or with respect to any Environmental Laws,
including, without limitation, Environmental Laws relating to the generation,
treatment, storage, recycling, transportation, disposal or release of any
Hazardous Materials, except to the extent such notice, notification, demand,
request for information, citation, summons, order, complaint, penalty or
investigation would not have a material adverse effect on the assets,
properties, business, financial condition, income, prospects, affairs or
operations of the Borrowers. Certain of the Borrowers have been identified in
writing as a potentially responsible party (as that term has been construed
pursuant to CERCLA, or any similar applicable Environmental Law) at the sites
listed and described in Exhibit D hereto (collectively, the "Responsible Party
Sites") and at no other sites.
(c) Except as set forth in Exhibit D hereto, no material oral or
written notification of a release of a Hazardous Material has been filed by or
on behalf of any Borrower, except to the extent such notification would not have
a material adverse effect on the assets, properties, business, financial
condition, income, prospects, affairs or operations of the Borrowers. No
property now owned, leased or used by any Borrower is listed or proposed for
listing on the National Priorities List under CERCLA or on any similar
applicable foreign or state list of sites requiring investigation or clean-up.
No property previously owned, leased, or used by the Borrower is listed or is
proposed for listing on the National Priorities List under CERCLA or on any
similar applicable foreign or state list of sites requiring investigation or
clean-up for any Hazardous Material, actually or allegedly,
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generated, treated, stored, recycled, transported, disposed or released on the
property during the time of Borrower's ownership, lease or use.
(d) There are no liens or Encumbrances arising under or pursuant to any
Environmental Laws on any of the real or personal property or properties now
owned, leased or used by any Borrower and no governmental actions have been
taken or are in process which could subject any of such properties to such liens
or Encumbrances or, as a result of which any Borrower would be required to place
any notice or restriction relating to the presence of Hazardous Materials at any
property owned by it in any deed to such property, except for deed restrictions
listed and described in Exhibit D hereto and Permitted Encumbrances.
(e) Neither any Borrower nor any previous owner, tenant, occupant or user
of (1) any property now owned, leased or used by any Borrower or (2) any
property formerly owned, leased or used by any Borrower, during the time of
Borrower's ownership, lease or use has (i) engaged in or permitted any
operations or activities upon or any use or occupancy of such property, or any
portion thereof, for the purpose of or in any way involving the handling,
manufacture, treatment, storage, use, generation, release, discharge, refining,
dumping or disposal (whether legal or illegal, accidental or intentional) of any
Hazardous Materials on, under, in or about such property, except to the extent
commonly used in day-to-day operations of such property or in the ordinary
course of business of any Borrower as disclosed to the Agent and, in such case,
only in compliance with all Environmental Laws except to the extent failure to
comply would not have a material adverse effect on the property, assets,
financial condition, business, income, operations, prospects or affairs of any
of the Borrowers, or (ii) transported any Hazardous Materials to, from or across
such property except to the extent commonly used in day-to-day operations of
such property or in the ordinary course of business of any Borrower as disclosed
to the Agent and, in such case, in compliance with all Environmental Laws except
to the extent failure to comply would not have a material adverse effect on the
property, assets, financial condition, business, income, operations, prospects
or affairs of any of the Borrowers; nor, to the best knowledge of the Borrowers,
have any Hazardous Materials migrated from other properties upon, about or
beneath such property, nor, to the best knowledge of the Borrowers, are any
Hazardous Materials presently constructed, deposited, stored or otherwise
located on, under, in or about such property except to the extent commonly used
in day-to-day operations of such property or in the ordinary course of business
of any Borrower as disclosed to the Agent and, in such case, in compliance with
all Environmental Laws except to the extent failure to comply would not have a
material adverse effect on the property, assets, financial condition, business,
income, operations, prospects or affairs of any of the Borrowers.
4.16 Disclosure. No representations and warranties made by any of the
Borrowers in this Agreement, any other Loan Document or in any other agreement,
instrument, document, certificate, statement or letter furnished to the Agent or
the Banks by or on behalf of any of the Borrowers, and no other factual
information heretofore or contemporaneously furnished by or on behalf of any of
the Borrowers to the Agent or the
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Banks (other than financial projections furnished to the Agent prior to those
delivered in accordance with Section 4.7), in connection with any of the
transactions contemplated by any of the Loan Documents or Ancillary Documents,
contains any material untrue statement of fact or omits to state a fact
necessary in order to make the statements contained therein not misleading in
light of the circumstances in which they are made. Except as disclosed herein,
there is no fact known to any of the Borrowers which materially adversely
affects, or which would in the future materially adversely affect, the property,
assets, financial position, business, income, operations, prospects or affairs
of any of the Borrowers.
4.17 Solvency. Both before and after giving effect to all Indebtedness
incurred by the Borrowers on the Closing Date and at the time any Revolving Loan
is made, each of Borrowers (i) is not Insolvent, and will not be rendered
Insolvent by the Indebtedness incurred in connection herewith, (ii) will not be
left with unreasonably small capital with which to engage in its business, (iii)
will not have incurred Indebtedness beyond its ability to pay such Indebtedness
as it matures, (iv) has assets having a present fair salable value in excess of
the amount required to pay the probable liability on its existing matured debt
as well as all existing debt as it matures during the term of this Agreement
(whether liquidated or unliquidated, absolute, fixed or contingent), and (v) is
receiving reasonably equivalent value under this Loan Agreement in exchange for
the pledges of Collateral and the assumption of the Obligations.
4.18 Compliance with Statutes, etc. Each of the Borrowers is in
compliance with all applicable statutes, regulations and orders of, and all
applicable restrictions imposed by, all Governmental Bodies, domestic or
foreign, in respect of the conduct of its business and the ownership of its
property, except such noncompliances as will not, in the aggregate, have a
material adverse effect on the business, operations, property, assets, nature of
assets, condition (financial or otherwise) or prospects of the Borrowers.
4.19 Capitalization. On and as of the Closing Date (i) USL Common Stock
consists of only 100 shares of issued and outstanding common stock of USL, 100%
of which are held by Holdings, and (ii) Clarke Common Stock consists of only
1,000 shares of issued and outstanding common stock of Clarke, 100% of which are
held by USL. All such outstanding shares have been duly and validly issued, and
are fully paid and non-assessable. None of the Borrowers has outstanding any
other securities convertible into or exchangeable for its capital stock or
outstanding any rights to subscribe for or to purchase, or any options for the
purchase of, or any agreements providing for the issuance (contingent or
otherwise) of, or any calls, commitments or claims of any character relating to,
its capital stock.
4.20 Labor Relations. None of the Borrowers are engaged in any unfair
labor practice. Except as disclosed on Exhibit D hereto, and unless it would not
have a material adverse effect on the property, assets, financial condition,
business, income, operations, prospects or affairs of any of the Borrowers,
there is (i) no unfair labor practice complaint pending or threatened against
any of the Borrowers before the National Labor Relations
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Board or analogous Governmental Body in Canada, and no grievance or arbitration
proceeding arising out of or under any collective bargaining agreement is so
pending against any of the Borrowers or, to the knowledge of the Borrowers,
threatened against any of them, (ii) no labor dispute, slowdown or stoppage
pending against the Borrowers or, to the knowledge of any of the Borrowers,
threatened against any of them, and (iii) to the best knowledge of any of the
Borrowers, no union representation question exists with respect to the employees
of any of the Borrowers and no union organizing activities are taking place.
4.21 Certain Transactions. Except as set forth on Exhibit D hereto, none
of the officers, partners, directors, or employees of any of the Borrowers is
presently a party to any transaction with any of the Borrowers (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, partner, director or such employee
or, to the knowledge of any of the Borrowers, any corporation, partnership,
trust or other entity in which any officer, partner, director, or any such
employee or natural person related to such officer, partner, director or
employee or other Person in which such officer, partner, director or employee
has a direct or indirect beneficial interest has a substantial interest or is an
officer, director, trustee or partner.
4.22 Restrictions on the Borrowers. None of the Borrowers is a party to
or bound by any contract, agreement or instrument, or subject to any charter or
other corporate restriction, materially and adversely affecting the business,
property, assets, operations or condition (financial or otherwise) of any of the
Borrowers.
4.23 Capital Leases. Except as to future Capital Leases permitted
hereunder, Exhibit D hereto contains a complete list of all capital leases and
all amendments thereto and all other documents affecting rights and obligations
thereunder, including without limitation, assignments and subleases pursuant to
which any of the Borrowers lease equipment (herein individually referred to as a
"Capital Lease" and collectively referred as the "Capital Leases"). Except as to
future Capital Leases permitted hereunder, there are no capital leases other
than the Capital Leases, affecting the personal property or the interests of any
of the Borrowers. The copies of the Capital Leases heretofore delivered by the
Borrowers to the Agent are true, correct and complete copies thereof and each of
such Capital Leases is in full force and effect in accordance with the terms
thereof. None of the Borrowers nor, to the best knowledge of any of the
Borrowers, the lessor, under any Capital Lease is in default under the
applicable Capital Lease or has given or received any notice of cancellation or
termination of such Capital Lease other than the cancellation or termination of
a Capital Lease by the Borrower party thereto in the ordinary course of its
business and not due to or arising out of the occurrence of a default by such
Borrower thereunder. No Borrower has assigned any of their interest in any of
the Capital Leases, as collateral or otherwise, or granted any license with
respect thereto, except as may be otherwise disclosed on Exhibit D hereto.
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4.24 Franchises, Patents, Copyrights, Etc. Except as otherwise set forth
on Exhibit D hereto, each of the Borrowers possesses all franchises, patents,
copyrights, trademarks, tradenames, service marks, licenses and permits, and
rights in respect of the foregoing, adequate for the conduct of its business
substantially now conducted without known conflict with any rights of others
and, in each case, free of any lien or other Encumbrance not permitted by
Section 6.5.
4.25 Collateral. All of the Obligations of the Borrowers to the Agent and
the Banks under or in respect of the Loan Documents will, at all times from and
after the execution and delivery of each of the Security Documents, be entitled
to the benefits of and be secured by each of such Security Documents to the
extent provided therein.
SECTION V
---------
AFFIRMATIVE COVENANTS
---------------------
So long as any Bank has any commitment to lend hereunder or any Revolving
Loan or other Obligation hereunder remains outstanding, the Borrowers jointly
and severally covenant as follows:
5.1. Financial Statements and other Reporting Requirements. The Borrowers
shall furnish to the Agent and, as to clauses (a), (b) and (c) below, the Banks:
(a) as soon as available to USL, but in any event within 90 days after the
end of each fiscal year of the Borrowers, a Consolidated and Consolidating
balance sheet as of the end of, and a related Consolidated and Consolidating
statement of income, changes in stockholders' equity (Consolidated only) and
cash flow for, such year, prepared in accordance with GAAP and audited and
certified in the case of the Consolidated statements by Arthur Andersen LLP or
other independent certified public accountants reasonably acceptable to the
Agent; and, concurrently with such financial statements, a copy of such
certified public accountants' management report and a written statement by such
accountants that, in the making of the audit necessary for their report and
opinion upon such financial statements they have obtained no knowledge of any
Default or Event of Default or, if in the opinion of such accountants any such
Default or Event of Default exists, they shall disclose in such written
statement the nature and status thereof;
(b) as soon as available to the Borrowers, but in any event within 45 days
after the end of each fiscal quarter of the Borrowers, a Consolidated and
Consolidating balance sheet as of the end of, and a related Consolidated and
Consolidating statement of income and cash flow for, the portion of the fiscal
year then ended and for the fiscal quarter then ended, prepared in accordance
with GAAP and certified on behalf of the Borrowers by the chief financial
officer of USL, but subject, however, to normal, recurring year-end adjustments
that shall not in the aggregate be material in amount;
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(c) as soon as practical and, in any event, within 30 days after the end
of each fiscal month (other than the last month of each fiscal quarter), a
Consolidated and Consolidating balance sheet as of the end of such month,
statement of income and statement of cash flow, each of which shall contain a
comparison of that month's balance sheet, income statement, or cash flow, as the
case may be, to that of the same month in the prior year and to the Borrowers'
financial projections, all as prepared in accordance with GAAP and certified on
behalf of the Borrowers by the chief financial officer of USL, but subject,
however, to normal, recurring year-end adjustments that shall not in the
aggregate be material in amount;
(d) as soon as practical and, in any event, within (i) [14] days after the
end of each fiscal month (the "Subject Month"), a written report in the form of
Exhibit G hereto (such report being hereinafter referred to as a "Borrowing Base
Report"), setting forth, inter alia, the Accounts Receivable balance, aging
summary, setoffs, contra accounts, Ineligible Accounts, Inventory availability
by category and other information regarding the Canadian Borrowing Base and the
U.S. Borrowing Base as of the last day of such Subject Month, certified on
behalf of the Borrowers by the chief financial officer of USL, provided that at
any time Excess Availability is less than Minimum Availability, the Borrowers
shall deliver to the Agent, on the Wednesday of the week immediately following
the day on which Excess Availability became less than Minimum Availability, and
on the Wednesday of each week thereafter until Excess Availability exceeds
Minimum Availability, a written report in substantially the same form as the
Borrowing Base Report setting forth the Canadian Borrowing Base and the U.S.
Borrowing Base as to Canadian Base Accounts and U.S. Base Accounts as at the
last Business Day of the immediately prior week (the "Weekly Base Report"),
which Weekly Base Report may incorporate Ineligible Accounts from the last
Business Day of the week two weeks immediately prior to the week in which the
Weekly Base Report is delivered; provided, further, that the Weekly Base Report
shall be in addition to the monthly Borrowing Base Report required under this
Section 5.1(d); and, provided, further, that in any case, the Borrowers shall
also, if the Agent so requests, accompany each of the Borrowing Base Reports and
the Weekly Base Reports with pledges or designations of Inventory in form and
substance satisfactory to the Agent;
(e) on or before January 31 of each fiscal year of the Borrowers, pro
forma projections of the Borrowers, on a Consolidated and Consolidating basis,
for such fiscal year on a month-to-month basis (it being recognized by the Banks
that projections as to future results are not to be viewed as facts and that the
actual results for the period or periods covered by the projections may differ
from the projected results);
(f) concurrently with the delivery of each financial statement pursuant to
subsections (a) and (b) of this Section 5.l, a report in substantially the form
of Exhibit H hereto signed on behalf of the Borrowers by the chief financial
officer of each of the Borrowers, and including, without limitation,
computations in reasonable detail evidencing compliance with the covenants
contained in Sections 6.7, 6.8 and 6.9;
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(g) promptly after the receipt thereof by any of the Borrowers, copies of
any reports submitted to any of the Borrowers by independent public accountants
in connection with any interim review of the accounts of any of the Borrowers
made by such accountants;
(h) promptly after the same are available, copies of all financial
statements and reports as any of the Borrowers shall send to its stockholders,
holders of the Senior Notes, or the Indenture Trustee, or that any of the
Borrowers may file with the Securities Exchange Commission or the Ontario
Securities Commission, as the case may be;
(i) if and when any of the Borrowers gives or is required to give notice
to the PBGC of any "Reportable Event" (as defined in Section 4043 of ERISA) with
respect to any Plan that might constitute grounds for a termination of such Plan
under Title IV of ERISA, or knows that any member of the Controlled Group or the
plan administrator of any Plan has given or is required to give notice of any
such Reportable Event, a copy of the notice of such Reportable Event given or
required to be given to the PBGC or, if such notice is not given to the PBGC, a
description of the content of the notice that would be required to be given;
(j) immediately upon becoming aware of the existence of any condition or
event (i) that constitutes a Default or Event of Default, written notice thereof
specifying the nature and duration thereof and the action being or proposed to
be taken with respect thereto, or (ii) affecting any of the Borrowers which
would reasonably be expected to have a material adverse effect on the assets,
properties, business, income, operations, condition (financial or otherwise) or
prospects of USL, written notice thereof specifying the nature thereof and the
action being or proposed to be taken with respect thereto;
(k) promptly upon becoming aware of any litigation or of any investigative
proceedings by a Governmental Body commenced or threatened against any of the
Borrowers, or of any material labor problem, dispute, slowdown, stoppage, or of
any unfair labor practice complaint commenced or threatened against any
Borrower, the outcome of which, if adversely determined, would or reasonably
might have a materially adverse effect on the assets, properties, business,
income, operations, condition (financial or otherwise) or prospects of any of
the Borrowers, written notice thereof and the action being or proposed to be
taken with respect thereto;
(l) promptly upon becoming aware of any investigative proceedings by a
Governmental Body commenced or threatened against any of the Borrowers regarding
any potential violation of Environmental Laws or any spill, Release, discharge
or disposal of any Hazardous Material, the outcome of which, if adversely
determined, would or reasonably might have a materially adverse effect on the
assets, properties, business, income, operations, condition (financial or
otherwise) or prospects of any of the Borrowers, written notice thereof and the
action being or proposed to be taken with respect thereto; and
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(m) from time to time, with reasonable promptness, such other financial
data and other information about any of the Borrowers as the Agent or any Bank
may reasonably request.
5.2. Conduct of Business. Each of the Borrowers shall:
(a) duly observe and comply in all material respects with all applicable
laws and requirements of any Governmental Bodies relative to its corporate
existence, rights and franchises, to the conduct of its business and to its
property and assets (including without limitation all Environmental Laws and
ERISA), and shall maintain and keep in full force and effect all licenses and
permits necessary in any material respect to the proper conduct of its business;
(b) provide to the Agent copies of all notices regarding the Real
Properties by any Governmental Bodies of material noncompliance with any
Environmental Law, permit, license or authorization;
(c) provide to the Agent copies of all notices which the Borrowers are
required by law to deliver to Governmental Bodies regarding any material
noncompliance of the Real Properties with any Environmental Law, permit, license
or authorization;
(d) not permit any liens or Encumbrances, other than Permitted
Encumbrances, to be placed on any Real Property or personal property of the
Borrowers arising under or pursuant to any Environmental Laws;
(e) complete all environmental remediation work which is required of any
of the Borrowers by Environmental Laws in connection with the Real Properties on
or before any applicable deadlines established by Environmental Laws unless
otherwise extended by the appropriate Governmental Body. However, none of the
Borrowers shall be responsible for delays in completing environmental
remediation work that are attributable to acts of God, weather conditions which
are not reasonably foreseeable, delays in receiving, or the failure to receive
necessary permits or approvals from state and/or local agencies (where complete
applications for such permits and/or approvals were submitted in a timely
fashion, including all appropriate and required information), intervention by
Governmental Bodies, and/or other conditions or events which are beyond the
Borrowers' reasonable control, provided that the Borrowers shall have given
prompt written notice to the Agent and the Banks upon the occurrence of any such
delay and the reason therefor;
(f) maintain its corporate existence (subject to sales permitted under
Sections 6.6(a)(iii) and 6.6(b));
(g) remain engaged substantially in the same fields of business as those
in which it is now engaged, except that the Borrowers may withdraw from any
business activity which their respective Boards of Directors reasonably deem
unprofitable or
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unsound, provided that prior to such withdrawal, the Borrowers shall provide the
Agent with written notice thereof; and
(h) subject to Sections 4.12 and 6.6, upon forming any Subsidiary, to the
extent and in the manner required by the Agent, deliver to the Agent such
Borrower's and such Subsidiary's agreement, satisfactory to counsel for the
Agent, that the Subsidiary shall be bound by the terms of this Agreement, the
other Loan Documents and the related documents and instruments thereunder, and
such other agreements and documents as the Agent and Banks may reasonably
request.
5.3. Maintenance and Insurance. Each of the Borrowers shall maintain its
properties in good repair, working order and condition or replace such
properties as required for the normal conduct of its business and from time to
time each of the Borrowers will make or cause to be made all needful and proper
repairs, renewals, replacements, additions and improvements thereto to the
extent required for the business of the Borrowers to be properly and
advantageously conducted at all times and shall maintain or cause to be
maintained all Leases and replacement Leases as may be required for the conduct
of the Borrowers' business. Each of the Borrowers shall at all times maintain
liability and casualty insurance with financially sound and reputable insurers
in such amounts as the officers of such Borrower in the exercise of their
reasonable judgment deem to be adequate. The Agent shall be named as loss payee
and additional insured and shall be given 30 days' prior written notice of any
cancellation of or failure to renew such insurance. If any of the Borrowers
fails to provide such insurance, the Agent, in its sole and complete discretion,
may provide such insurance and charge the cost thereof to the Loan Account or to
the U.S. Borrower's deposit account with the Agent. Any payment not recovered
from the Borrowers shall bear interest at the Base Rate plus Applicable Base
Rate Margin then in effect. The Agent shall not, by the fact of approving,
disapproving, accepting, obtaining or failing to obtain any such insurance,
incur liability for the form or legal sufficiency of insurance contracts,
solvency of insurance companies or payment of lawsuits, and the Borrowers,
jointly and severally, hereby expressly assume full responsibility therefor and
liability, if any, thereunder. USL, on behalf of the Borrowers, shall furnish to
the Agent certificates or other evidence reasonably satisfactory to the Agent of
compliance with the foregoing insurance provisions. The provision of this
Section 5.3 shall be deemed to be supplemental to, but not duplicative of, the
provisions of any of the Security Documents that require the maintenance of
insurance.
5.4. Taxes. Each of the Borrowers shall pay or cause to be paid all
taxes, assessments or governmental charges on or against it or its properties on
or prior to the time when they become due; provided that this covenant shall not
apply to any tax, assessment or charge that is being contested in good faith by
appropriate proceedings and with respect to which no lien in excess of $250,000
shall have been filed to secure such tax, assessment or charge and adequate
reserves have been established and are being maintained in accordance with GAAP.
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5.5. Inspection by the Agent. Each of the Borrowers shall permit the
Banks, through the Agent or the Agent's designee, at any reasonable time and
from time to time, to (a) visit and inspect the properties (including the Real
Properties) of such Borrower and/or conduct a field examination, audit (other
than environmental audit) or other on-site examination of the Borrower's
operations, books, records and property, provided that prior to the occurrence
of an Event of Default, the number of audits of the Borrowers' books and records
that the Agent or its designee may conduct in each fiscal year at the Borrowers'
sole cost and expense shall be limited to 4 (it being understood that there
shall be no limit on the number of audits that may be conducted by the Agent or
its designee at the expense of the Agent or the Banks, or at the Borrowers' sole
expense after the occurrence of and during the continuation of an Event of
Default); (b) after the occurrence and during the continuation of a Default or
an Event of Default, conduct one or more environmental audits of the Real
Properties or of any real property hereafter acquired or leased by either of the
Borrowers, and of the Borrowers' operations, books and records; (c) appraise the
value of any of the Collateral, provided that prior to the occurrence of an
Event of Default, the Agent or its designee may conduct in each fiscal year only
one appraisal at the sole expense of the Borrowers (it being understood that
there shall be no limit on the number of appraisals that may be conducted at the
expense of the Agent or the Banks, or by the Agent or its designee at the
Borrowers' sole expense after the occurrence and during the continuation of an
Event of Default); (d) examine and make copies of and take abstracts from the
books and records of any of the Borrowers, and (e) discuss the affairs, finances
and accounts of any of the Borrowers with its appropriate officers, employees
and accountants. In handling such information the Agent and the Banks shall
exercise the same degree of care that each exercises with respect to its own
proprietary information of the same types to maintain the confidentiality of any
non-public information thereby received, except that disclosure of such
information may be made (i) to the subsidiaries or affiliates of the Agent or
any Bank in connection with their present or prospective business relations with
the Borrower, (ii) to prospective transferees or purchasers of an interest in
the Revolving Loans, (iii) as required by law, regulation, rule or order,
subpoena, judicial order or similar order and (iv) as may be required in
connection with the examination, audit or similar investigation of the Agent or
any Bank.
5.6. Maintenance of Books and Records. Each of the Borrowers shall keep
adequate books and records of account, in which true and complete entries will
be made reflecting all of its business and financial transactions, and such
entries will be made in accordance with GAAP and applicable law.
5.7. Environmental Indemnification. Each of the Borrowers, jointly and
severally, covenant and agree, at their sole cost and expense, to indemnify,
defend (at trial and appellate levels and with attorneys, consultants and
experts acceptable to the Agent and the Banks) and hold the Agent and each Bank
harmless against and from any and all liens, damages, losses, liabilities,
obligations, settlement payments, penalties, assessments, citations, directives,
claims, litigation, demands, defenses, judgments, suits, proceedings, costs,
disbursements or expenses of any kind or of any nature whatsoever (including,
without limitation, reasonable attorneys', consultants' and experts' fees and
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disbursements incurred in investigating, defending against, settling or
prosecuting any claim, litigation or proceeding) which may at any time be
imposed upon, incurred by or asserted or awarded against the Agent and any Bank
or the Real Property and arising directly or indirectly from or out of: (A) the
Release or threat of Release of any Hazardous Materials on, in, under or
affecting all or any portion of the Real Property or any surrounding areas,
regardless of whether or not caused by or within the control of a Borrower; (B)
a Borrower's actual or alleged use, generation, manufacture, storage, disposal,
transportation, handling or other disposition of any Hazardous Materials at any
location; (C) the violation of any Environmental Laws relating to or affecting
the Real Property or any Borrower, whether or not caused by or within the
control of a Borrower; (D) the failure of a Borrower to comply fully with the
terms and conditions of this Agreement; (E) the violation of any Environmental
Laws in connection with other real property of a Borrower which gives or may
give rise to any rights whatsoever in any party with respect to the Real
Property by virtue of any Environmental Laws; or (F) the enforcement of this
Agreement, including, without limitation, (i) the costs of assessment,
containment and/or removal of any and all Hazardous Materials from all or any
portion of the Real Property or any surrounding areas, (ii) the costs of any
actions taken in response to a Release or threat of Release of any Hazardous
Materials on, in, under or affecting all or any portion of the Real Property or
any surrounding areas to prevent or minimize such Release or threat of Release
so that it does not migrate or otherwise cause or threaten danger to present or
future public health, safety, welfare or the environment, and (iii) costs
incurred to comply with the Environmental Laws in connection with all or any
portion of the Real Property or any surrounding areas. The rights of the Agent
and each Bank under this Agreement shall be in addition to all rights under the
Loan Documents (as such documents or instruments may be amended or modified from
time to time) and payments by any Borrower under this Agreement shall not reduce
any Borrower's obligations and liabilities under any of the Loan Documents. The
Borrowers' joint and several Obligations to indemnify, defend and hold harmless
under this Section 5.7 shall not apply to liens, damages, losses, liabilities,
judgments or costs to the extent caused by the gross negligence or willful
misconduct of the Agent or the Banks.
5.8. Use of Proceeds. The proceeds of the U.S. Loans will be used by the
U.S. Borrower (i) to repay in full the U.S. Borrower's obligations for borrowed
money under the First Chicago Credit Agreement, (ii) to repurchase up to
$30,000,000 of the Senior Notes within the first six months following the
Closing Date (with no limitation thereafter) subject to the terms of Section
6.16, (iii) to provide working capital for the U.S. Borrower and general
corporate purposes, and (iv) to pay fees, charges, costs and expenses incurred
or sustained by the U.S. Borrower in connection with the consummation of the
transactions referred to herein or contemplated hereby. The proceeds of the
Canadian Loans will be used by the Canadian Borrower (x) to repay in full the
Canadian Borrower's obligations for borrowed money under the First Chicago
Credit Agreement, (y) to provide working capital for the Canadian Borrower and
(z) for general corporate purposes. Except as may be provided in this Section,
no portion of any Revolving Loans shall be used for the purpose of purchasing or
carrying any "margin security" or "margin stock" as such terms are used in
Regulations G, U or X of the Board of Governors of the Federal Reserve System.
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5.9. Pension Plans. With respect to any Plan, the benefits under which
are guaranteed, in whole or in part, by the PBGC or any Governmental Body
succeeding to any or all of the functions of the PBGC or serving an analogous
role in Canada, each of the Borrowers and each member of the Controlled Group
will (i) fund each Plan or Employee Benefit Plan as required by the provisions
of Section 302 of ERISA and Section 412 of the Code or any provision of any
Employee Benefit Legislation; (ii) furnish the Agent, no later than the date of
submission in the case of any request or notice relating to any such Plan or
Employee Benefit Plan other than a Multi-Employer Plan, and no later than
acquiring knowledge or having reason to know thereof in the case of any request
or notice relating to a Multi-Employer Plan, (a) a copy of any request for a
waiver of the funding standards or an extension of the amortization periods
required under Section 302 of ERISA or Section 412 of the Code or any provision
of any Employee Benefit Legislation and (b) a copy of any notice of intent to
terminate any Plan sent to the PBGC or any analogous Governmental Body in
Canada, (iii) furnish to the Agent notice of any event described in Title IV of
ERISA or any analogous provision of any Employee Benefit Legislation that could
cause any Borrower or any member of the Controlled Group to become liable for
any withdrawal liability, immediately upon knowing or having reason to know of
such event, and (iv) furnish to the Agent, if and when any Borrower or any
member of the Controlled Group gives or is required to give notice to the PBGC
or analogous Governmental Body in Canada of any "reportable event" (as defined
in Section 4043 of ERISA) with respect to any Plan that might constitute grounds
for a termination of such Plan under Title IV of ERISA or any analogous
provision of any Employee Benefit Legislation, or knows or has reason to know
that the plan administrator of any Plan has given or is required to give notice
of any such reportable event, a copy of the notice of such reportable event
given or required to be given to the PBGC or analogous Governmental Body in
Canada or, if such notice is not given to the PBGC or analogous Governmental
Body in Canada, a description of the content of the notice that would be
required to be given; and the Borrower and each member of the Controlled Group
will comply, and will cause each Plan, Welfare Plan and Employee Benefit Plan
maintained by it to comply, in all material respects with the applicable
provisions of ERISA, the Code and any Employee Benefit Legislation, and cause
each Plan, Welfare Plan and Employee Benefit Plan maintained by it to pay all
benefits when due.
5.10. Fiscal Year. Each of the Borrowers shall have a fiscal year ending
on December 31 of each year and shall notify the Agent of any change in such
fiscal year. All of the Borrowers shall have the identical fiscal year end. In
the event any of the Borrowers changes its fiscal year end, the Agent and the
Banks shall have the right to modify the timing of the financial covenants
hereunder accordingly in order to correspond to any such change in the fiscal
year of such Borrower.
5.11. Further Assurances. At any time and from time to time each of the
Borrowers shall execute and deliver such further instruments and take such
further action as may reasonably be requested by the Agent to effect the
purposes of the Loan Documents.
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5.12. Location of Records and Collateral; Name Change. Each of the
Borrowers shall give the Agent written notice of any change in location at which
Collateral is or will be kept and each office of the Borrowers at which the
records of any of the Borrowers pertaining to Accounts Receivable and contract
rights are kept. Except as such notice is given, all Collateral owned by the
Borrowers shall be kept, and all records of the Borrowers pertaining to Accounts
and contract rights shall be kept, at such location(s) as appears on Exhibit D
hereto. The Borrowers shall give the Agent 30 days' prior written notice of any
change in the name or corporate form of any of them or any change in the name or
names under which any Borrower's business is transacted.
SECTION VI
NEGATIVE COVENANTS
So long as any Bank has any commitment to lend hereunder or any Revolving
Loan or other Obligation hereunder remains outstanding, the Borrowers, jointly
and severally, covenant as follows:
6.1. Indebtedness. No Borrower shall create, incur, assume, guarantee or
be or remain liable with respect to any Indebtedness other than the following:
(a) Indebtedness of the Borrowers to the Agent or the Banks or any of
their respective Affiliates under the Loan Documents;
(b) Indebtedness in respect of current liabilities, other than for
borrowed money, of any Borrower incurred in the ordinary course of business and
of a type and magnitude consistent with past practices;
(c) Indebtedness in respect of Capital Leases and purchase money security
interests of any Borrower representing obligations permitted to be incurred by
the terms of Section 6.17 and incurred in the ordinary course of business and
consistent with past practices;
(d) Indebtedness existing on the date of this Agreement and disclosed on
Exhibit C hereto or in the financial statements referred to in Section 4.7;
(e) Indebtedness secured by Permitted Encumbrances which is otherwise non-
recourse against any Borrower;
(f) Indebtedness of any Borrower owed to another Borrower;
(g) Indebtedness arising out of the issuance of letters of credit by a
lending institution other than one of the Banks, provided that no letter of
credit shall be secured by any of the property of any of the Borrowers, and,
provided, further, that the aggregate
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face amount of such letters of credit outstanding at one time pursuant to this
Section 6.1(g) shall not exceed $5,000,000; and
(h) Indebtedness permitted under Section 6.2 of this Agreement.
6.2. Contingent Liabilities. No Borrower shall create, incur, assume or
remain liable with respect to any Guarantees other than the following:
(a) Guarantees in favor of the Agent or the Banks or any of their
respective Affiliates under the Loan Documents;
(b) Guarantees existing on the date of this Agreement and disclosed on
Exhibit C hereto or in the financial statements referred to in Section 4.7;
(c) Guarantees resulting from the endorsement of negotiable instruments
for collection in the ordinary course of business; and
(d) Guarantees with respect to surety, appeal, performance and return-of-
money and other similar obligations incurred in the ordinary course of business
(exclusive of obligations for the payment of borrowed money) not exceeding in
the aggregate at any time $500,000.
6.3. Leases. No Borrower shall during any fiscal year enter into any
leases of real or personal property as lessee, except for capital and operating
leases of Equipment and real property acquired after the date hereof and
renewals of existing Leases providing for total Indebtedness of less than or
equal to $10,000,000 over and above total Indebtedness under Leases existing as
of the date hereof, or requiring payments in any one fiscal year (whether or not
such payments are termed rent) in the aggregate of less than $2,500,000 over and
above payment obligations under Leases existing as of the date hereof. The
Borrowers shall cause the landlord of any premises leased by any of the
Borrowers after the Closing Date to deliver to the Agent simultaneously with the
execution of any Lease, at the option of the Agent, a Landlord Waiver in form
and substance acceptable to the Agent.
6.4. Sale and Leaseback. None of the Borrowers shall enter into any
arrangement, directly or indirectly, whereby it shall sell or transfer any
property owned by it in order to lease such property or lease other property
that any Borrower intends to use for substantially the same purpose as the
property being sold or transferred.
6.5. Encumbrances. None of the Borrowers shall create, incur, assume or
suffer to exist any mortgage, pledge, security interest, lien or other charge or
encumbrance, including the lien or retained security title of a conditional
vendor upon or with respect to any of its property or assets ("Encumbrances"),
or assign or otherwise convey any right to receive income, including the sale or
discount of Accounts Receivable with or without recourse, except the following
("Permitted Encumbrances"):
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(a) Encumbrances in favor of the Agent or the Banks or any of their
respective Affiliates under the Loan Documents;
(b) Encumbrances existing on the date of this Agreement and disclosed in
Exhibit C hereto;
(c) liens for taxes, fees, assessments and other governmental charges to
the extent that payment of the same may be postponed or is not required in
accordance with the provisions of Section 5.4;
(d) landlords' and lessors' liens in respect of rent not in default, to
the extent Landlord Waivers shall have been delivered to the Agent and the
Banks, provided, however, that Landlord Waivers shall not be required for leased
premises located outside of the United States, or if the value of all assets on
or in all such leased premises in the aggregate (measured at the greater of cost
or fair market value) is less than $1,000,000, provided further that the
Borrower shall have ninety (90) days from the date hereof to provide a Landlord
Waiver with respect to the U.S. Borrower's chief executive office set forth in
the preamble hereto (failure to timely obtain or deliver such Landlord Waiver or
to provide the notice required under Section 5.12 that the U.S. Borrower has
changed its chief executive office shall constitute an Event of Default
hereunder); or liens in respect of pledges or deposits under workmen's
compensation, unemployment insurance, social security laws, or similar
legislation (other than ERISA) or in connection with appeal and similar bonds
incidental to litigation; mechanics', laborers' and materialmen's and similar
liens, if the obligations secured by such liens are not then delinquent or are
being contested by a Borrower in good faith; liens securing the performance of
bids, tenders, contracts (other than for the payment of money); third party
possessory liens, to the extent Bailee Waivers shall have been delivered to the
Agent and the Banks, provided, however, that Bailee Waivers shall not be
required if the value of all assets subject to all third party possessory liens
in the aggregate (measured at the greater of cost or fair market value) is less
than $1,000,000; and statutory obligations incidental to the conduct of business
of any Borrower and that do not in the aggregate materially detract from the
value of the property of any Borrower or materially impair the use thereof in
the operation of such Borrower's business;
(e) judgment liens up to and including (i) $500,000 for any single
judgment, or (ii) $2,000,000 in the aggregate, that shall not have been in
existence for a period longer than 30 days after the creation thereof or, if a
stay of execution shall have been obtained, for a period longer than 30 days
after the expiration of such stay;
(f) Encumbrances securing Indebtedness for the purchase price of capital
assets to the extent such Indebtedness is permitted by Section 6.17, provided
that (i) each such Encumbrance is given solely to secure the purchase price of
such property, does not extend to any other property and is given at the time of
acquisition of the property, and (ii) the Indebtedness secured thereby does not
exceed the lesser of the cost of such property or its fair market value at the
time of acquisition; and
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(g) easements, rights of way, restrictions and other similar charges
or Encumbrances relating to real property and not interfering in a material way
with the ordinary conduct of its business.
6.6. Merger; Consolidation; Sale or Lease of Assets; Acquisitions.
None of the Borrowers shall (a) sell, lease or otherwise dispose of assets or
properties without the prior written consent of the Agent and the Banks, other
than (i) sales of Inventory wholly in the ordinary course of business (including
the sale of Inventory from discontinued operations that were previously in the
ordinary course), (ii) sales of non-functioning, obsolete or surplus equipment
that is replaced by assets of equal or greater value, and (iii) sales of assets
not in the ordinary course of business in an aggregate amount, measured on a
cumulative basis until the Maturity Date or earlier termination of this
Agreement, not to exceed 10% of the value of the Borrower's FIFO Tangible
Assets, or (b) liquidate, or merge or consolidate into or with any other Person,
provided that Clarke may merge or consolidate into or with (x) USL if no Default
or Event of Default has occurred and is continuing or would result from such
merger and if USL is the surviving company, or (y) any other wholly-owned
Subsidiary of USL, if no Default or Event of Default has occurred and is
continuing or would result from such merger, and if Clarke is the surviving
company. None of the Borrowers shall, without the prior written consent of the
Agent and the Banks, acquire all or substantially all of the assets or capital
stock of any Person other than by means of a Qualified Investment. The Agent
shall provide UCC-3 partial termination statements and such other releases of
its Liens as the Borrowers may reasonably require in the event of a sale
pursuant to Sections 6.6(a)(ii) or (iii).
6.7. EBITDA to Cash Interest Expense Ratio. The Borrowers shall not at
any time permit the EBITDA to Cash Interest Expense Ratio of the Borrowers to be
less than the following ratios for the following fiscal periods:
<TABLE>
<CAPTION>
Minimum
Period Ratio
------ -------
<S> <C>
For each fiscal period consisting of 0.90
four consecutive calendar quarters
ending on December 31, 1996, March 31,
1997 and June 30, 1997
For the fiscal period consisting of 1.00
four consecutive calendar quarters
ending on September 30, 1997
For each fiscal period consisting of 1.25
four consecutive calendar quarters
ending on December 31, 1997 and March
30, 1998
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
For any fiscal period consisting of 1.50
four consecutive calendar quarters
ending on or after June 30, 1998
</TABLE>
6.8. Leverage Covenant. The Borrowers shall not permit the Debt to Tangible
Assets Ratio of the Borrowers to be greater than the following ratios as of the
following points in time:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
At any time after October 31, 1996 1.25
through and including May 31, 1998
At any time after June 1, 1998 1.20
</TABLE>
6.9. Minimum EBITDA. The Borrowers shall not permit EBITDA to be less than
("Minimum EBITDA"):
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
For each fiscal period consisting of $15,000,000
four consecutive calendar quarters
ending on December 31, 1996, March 31,
1997 and June 30, 1997
For the fiscal period consisting of $17,500,000
four consecutive calendar quarters
ending on September 30, 1997
For the fiscal period consisting of $20,000,000
four consecutive calendar quarters
ending on December 31, 1997
For the fiscal period consisting of $22,500,000
four consecutive calendar quarters
ending on March 31, 1998
For each fiscal period consisting of $25,000,000
four consecutive calendar quarters
ending on and after June 30, 1998
</TABLE>
Provided, however if any of the Borrowers sells or disposes of assets
in accordance with the terms of Section 6.6(a)(iii), the Minimum EBITDA shall be
reduced by an amount equal to the lesser of (i) the EBITDA during the 12 months
then ending derived from the assets or properties then sold (such EBITDA to be
determined in a manner consistent with GAAP and the Borrowers' past practices),
and (ii) $2,500,000.
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6.10. Restricted Payments. None of the Borrowers shall pay, make or
declare any Restricted Payment; provided, however, that so long as no Default or
Event of Default shall have occurred and be continuing and Excess Availability
exceeds Minimum Availability (after taking into account payments to Holdings or
USL permitted under this Section) (i) USL may make a cash or property dividend,
distribution or payment to Holdings in an amount not to exceed $50,000 per
fiscal year, (ii) USL may make loans or capital contributions to Clarke provided
that each such loan is evidence by a promissory note, and that such promissory
note shall be pledged and delivered to the Agent as security for the U.S.
Borrower's Obligations, and (iii) Clarke or any other Subsidiary of USL may make
cash or property dividends, loans, distributions or payments to USL.
6.11. Investments. None of the Borrowers shall make or maintain any
Investments other than as may be permitted by Section 6.10 and Qualified
Investments.
6.12. ERISA and Employee Benefit Legislation. None of the Borrowers
nor any member of the Controlled Group shall permit any Plan, Welfare Plan or
Employee Benefit Plan maintained by it to (i) engage in any "prohibited
transaction" (as defined in Section 406 of ERISA, Section 4975 of the Code or
any analogous definition contained in any provision of any Employee Benefit
Legislation), (ii) incur any "accumulated funding deficiency" (as defined in
Section 302 of ERISA or Section 412 of the Code or any analogous definition
contained in any provision of any Employee Benefit Legislation) whether or not
waived, or (iii) terminate in a manner that could result in the imposition of a
lien or Encumbrance on the assets of the Borrower pursuant to Section 4068 of
ERISA or any analogous provision under any Employee Benefit Legislation.
6.13. Transactions with Affiliates. None of the Borrowers shall enter
into or participate in any agreements or transactions of any kind with any
Affiliate, except (i) agreements or transactions contemplated, required or
allowed by any Loan Document or any Ancillary Document as in effect on the date
of this Agreement, including, without limitation, the Loftus Consulting
Agreement, provided that such agreements or transactions are not otherwise
prohibited by this Agreement or any of the Security Documents; or (ii)
agreements or transactions (in each case) in the ordinary course of business and
on an arms-length basis which (A) include only terms which are fair and
equitable to the Borrowers, (B) do not violate or otherwise conflict with any of
the terms of any of the Loan Documents, (C) require the payment of no fees,
charges or commissions by any of the Borrowers to any Affiliate, except those
which are reasonable and disclosed to the Agent, (D) are disclosed on the books,
accounts and records of the Borrower, and (E) involve terms no less favorable to
the Borrowers than would be the terms of a similar agreement or transaction with
any Person other than an Affiliate.
6.14. Loans. None of the Borrowers shall make to any Person any loan,
advance or other transfer with the anticipation of repayment other than as may
be permitted by Section 6.10, Qualified Investments, or loans or advances to
employees of any Borrower so long as no Default or Event of Default shall have
occurred and be continuing at the time of such
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loan or advance, provided that the amount of such loans or advances to employees
outstanding at any one time shall not exceed $100,000.
6.15. Borrowing Base. Except for Overadvances as set forth in Section
2.3 of this Agreement, none of the Borrowers shall cause or permit the aggregate
principal amount of all Revolving Loans and the aggregate face amount of Letters
of Credit outstanding at any time to exceed the Borrowing Base at such time.
6.16. Minimum Excess Availability. The Borrowers' repurchase of one or
more Senior Notes at any time shall not at the time of the repurchase cause the
amount of Excess Availability to be less than or equal to $15,000,000, taking
into account the costs of such repurchase.
6.17. Capital Expenditures. None of the Borrowers shall make any
Capital Expenditures in excess of $10,000,000 in the aggregate during any fiscal
year from and after the date hereof without the prior written consent of the
Agent and the Banks.
6.18. No Amendments to Certain Documents. None of the Borrowers shall
at any time cause or permit (i) any of the Ancillary Documents (other than the
Labor Union Agreements) to be modified, amended or supplemented in any respect
whatsoever, except for such modification or amendment as would not effect any
change materially adverse to the Agent or the Banks, or have a material adverse
effect on the business, property, assets, operations or condition (financial or
otherwise) of any of the Borrowers, or (ii) any of the charter or other
incorporation documents or by-laws of any of the Borrowers or Holdings, or the
incorporation documents of Leather U.S., to be modified, amended or supplemented
in any material respect whatsoever, without (in each case) the express prior
written agreement, consent or approval of the Agent.
6.19. Labor Union Agreements. None of the Borrowers shall engage in
any unfair labor practice. Except as disclosed on Exhibit D hereto, and unless
it would not have a material adverse effect on the property, assets, financial
condition, business, income, operations, prospects or affairs of any Borrower,
there is (i) no unfair labor practice complaint pending or to the knowledge of
any of the Borrowers threatened against any Borrower before the National Labor
Relations Board or analogous Governmental Body in Canada, and no grievance or
arbitration proceeding arising out of or under any collective bargaining
agreement is so pending against any Borrower or, to the knowledge of any
Borrower, threatened against it, (ii) no labor dispute, slow-down or stoppage
pending against any Borrower or, to the knowledge of any Borrower, threatened
against any Borrower, and (iii) to the best knowledge of any Borrower, no union
representation question exists with respect to the employees of any Borrower and
no union organizing activities are taking place.
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SECTION VII
DEFAULTS
7.1. Events of Default. There shall be an Event of Default hereunder if
any of the following events occurs:
(a) Any of the Borrowers shall fail to perform any Obligation for payment
of money under the Loan Documents, including without limitation to pay any
amount of principal of any Revolving Loans when due or any amount of interest
thereon or any fees, costs or expenses payable hereunder or under any Revolving
Credit Note or Letter of Credit; or
(b) Any of the Borrowers shall fail to perform, comply with or observe or
shall otherwise breach any one or more of the terms, obligations, covenants or
agreements contained in Sections 5.1, 5.3, 5.5, 6.1 through 6.3, inclusive, 6.5
through 6.11, inclusive, and 6.13 through 6.15, inclusive; or
(c) Any of the Borrowers shall fail to perform, comply with or observe or
shall otherwise breach any one or more of the terms, covenants, obligations or
agreements (other than in respect of subsections 7.1(a) and (b) hereof)
contained in this Agreement or in any other Loan Document and such failure shall
continue for 17 days; or
(d) any representation or warranty of any of the Borrowers made in any
Loan Document or any other documents or agreements executed in connection with
the transactions contemplated by this Agreement or in any certificate delivered
hereunder shall prove to have been false in any material respect upon the date
when made or deemed to have been made; or
(e) there shall occur any material adverse change in the assets,
properties, liabilities, financial condition, business or prospects of any of
the Borrowers;
(f) any of the Borrowers shall fail to pay at maturity, or within any
applicable period of grace, any obligations or Indebtedness (other than under
the Loan Documents) in excess of $750,000 in the aggregate for borrowed monies
or advances, or for the use of real or personal property, or fail to observe or
perform any term, covenant or agreement evidencing or securing such obligations
for borrowed monies or advances, or relating to such use of real or personal
property, the result of which failure is to permit the holder or holders of such
Indebtedness to cause such Indebtedness to become due prior to its stated
maturity upon delivery of required notice, if any; or
(g) any of the Borrowers shall (i) apply for or consent to the appointment
of, or the taking of possession by, a receiver, custodian, trustee, liquidator
or similar official of itself or of all or a substantial part of its property,
(ii) be generally not paying its debts as such debts become due, (iii) make a
general assignment for the benefit of its creditors, (iv)
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commence a voluntary case under the United States Bankruptcy Code (as now or
hereafter in effect) or similar Canadian legislation, (v) commence any case or
proceeding under any law relating to bankruptcy, insolvency, reorganization,
winding-up or composition or adjustment of debts, or any other law providing for
the relief of debtors, (vi) take any action under the laws of its jurisdiction
of incorporation or organization similar to any of the foregoing, (vii) be
Insolvent, or (viii) take any corporate action for the purpose of effecting any
of the foregoing; or
(h) a proceeding or case shall be commenced, without the application or
consent of any Borrower in any court of competent jurisdiction, seeking (i) the
liquidation, reorganization, dissolution, winding up, or composition or
readjustment of its debts, (ii) the appointment of a trustee, receiver,
custodian, liquidator or the like of it or of all or any substantial part of its
assets, or (iii) similar relief in respect of it, under any law relating to
bankruptcy, insolvency, reorganization, winding-up or composition or adjustment
of debts or any other law providing for the relief of debtors, and such
proceeding or case shall continue undismissed, or unstayed and in effect, for a
period of 60 days; or an order for relief shall be entered in an involuntary
case under the United States Bankruptcy Code (as now or hereafter in effect),
against any of the Borrowers; or action under the laws of the jurisdiction of
incorporation or organization of any of the Borrowers or any of their respective
Subsidiaries similar to any of the foregoing shall be taken with respect to any
such Borrower or such Subsidiary and shall continue unstayed and in effect for
any period of 60 days; or
(i) a judgment or order for the payment of money shall be entered against
any Borrower by any court, or a warrant of attachment or execution or similar
process shall be issued or levied against property of such Borrower, that
individually exceeds $500,000 or in the aggregate exceeds $2,000,000 in value
and such judgment, order, warrant or process shall continue undischarged or
unstayed for 30 days; or
(j) any Borrower or any member of the Controlled Group shall fail to pay
when due a material amount which it shall have become liable to pay to the PBGC
or to a Plan under Title IV of ERISA or to any Plan under Section 302 of ERISA
or Section 412 of the Code or any analogous provision under any Employee Benefit
Legislation; or a proceeding shall be instituted by a fiduciary of any Plan
against any Borrower or any member of a Controlled Group and such proceeding
shall not have been dismissed within sixty (60) days thereafter; or notice of
intent to terminate a Plan shall be filed under Title IV of ERISA or any
analogous provision under any Employee Benefit Legislation by any Borrower, any
member of the Controlled Group, any plan administrator or any combination of the
foregoing, if termination of a Plan could cause any of the Borrowers or any
member of the Controlled Group to become liable for a material amount with
respect to the Plan, or the PBGC or analogous Governmental Body shall institute
proceedings under Title IV of ERISA or any analogous provision under any
Employee Benefit Legislation to terminate or to cause a trustee to be appointed
to administer any Plan, otherwise, or a condition shall exist by reason of which
the PBGC or analogous Governmental Body would be entitled to obtain a decree
adjudicating that any Plan or Plans must be terminated; or
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(k) The Equitable Life Assurance Society and its Affiliates shall hold
directly or indirectly less than 51% of the Equity Securities of, or shall not
have the direct or indirect ability to appoint a majority of the Board of
Directors of, USL; or
(l) William F. Loftus, or someone reasonably acceptable to the Agent (the
Agent hereby acknowledging that Robert A. Hale is acceptable), shall no longer
serve as the chief executive officer of USL, provided that USL shall have 30
days from the date Mr. Loftus ceases serving as chief executive officer of USL
to appoint a successor or acting successor reasonably acceptable to the Agent;
or
(m) any Loan Document, or covenant, agreement, representation, warranty or
Obligation therein, shall be canceled, terminated, revoked or rescinded, or
cease in any material respect to be legal, valid, binding or enforceable in
accordance with the terms thereof, other than in accordance with the express
prior written agreement, consent or approval of the Agent and the Banks; or any
action at law, suit in equity or other legal proceeding to cancel, revoke, or
rescind any Loan Document shall be commenced by or on behalf of such Borrower,
or by any court or any other Governmental Body of competent jurisdiction; or any
court or any other Governmental Body of competent jurisdiction shall make a
determination that, or shall issue a judgment, order, decree or ruling to the
effect that, any one or more of, or any part of, the Loan Documents or any one
or more of the obligations of any Borrower under any one or more of the Loan
Documents are illegal, invalid or unenforceable in accordance with the terms
thereof; or
(n) any default or event of default shall occur and be continuing under
the Indenture Agreement.
7.2. Remedies. Upon the occurrence of (i) an Event of Default described
in subsections 7.1(g) and (h), immediately and automatically, and (ii) any other
Event of Default, at any time thereafter while such Event of Default is
continuing, at the option of the Majority Banks and upon the Agent's
declaration:
(a) each Bank's Revolving Credit Commitment to make any further Revolving
Loans hereunder shall terminate;
(b) the unpaid principal amount of the Revolving Loans together with
accrued interest, fees and charges, and such other Obligations as the Agent may
elect, and all other Obligations of any of the Borrowers to the Agent and each
Bank of any kind hereunder and under the other Loan Documents, shall become
immediately due and payable without presentment, demand, protest or further
notice of any kind, all of which are hereby expressly waived; and
(c) the Agent may exercise (on behalf of itself and the Banks) any and all
rights the Agent and the Banks have under this Agreement, the other Loan
Documents or any other documents or agreements executed in connection herewith,
or at law or in equity, and
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proceed to protect and enforce the Agent's and the Banks' rights by any action
at law, in equity or other appropriate proceeding.
SECTION VIII
CONCERNING THE AGENT AND THE BANKS
8.1 Appointment and Authorization. Each of the Banks hereby appoints Bank
of Boston to serve as Agent under this Agreement and irrevocably authorizes the
Agent to take such action on such Bank's behalf under this Agreement and to
exercise such powers and to perform such duties under this Agreement and the
other documents and instruments executed and delivered in connection with the
consummation of the transactions contemplated hereby as are delegated to the
Agent by the terms hereof or thereof, together with all such powers as are
reasonably incidental thereto.
8.2 Agent and Affiliates. Bank of Boston shall also have the same rights
and powers under this Agreement of a Bank and may exercise or refrain from
exercising the same as though it were not the Agent, and Bank of Boston and its
Affiliates may accept deposits from, lend money to, and generally engage in any
kind of business with the Borrower or any Affiliate of the Borrower as if it
were not the Agent hereunder. Except as otherwise provided by the terms of this
Agreement, nothing herein shall prohibit any Bank from accepting deposits from,
lending money to or generally engaging in any kind of business with the Borrower
or any Affiliate of the Borrower.
8.3 Future Advances.
(a) (i) U.S. Loans. In order to more conveniently administer the U.S.
Loans, each U.S. Bank does hereby authorize the Agent, on behalf of
such Bank, to make all U.S. Loans to the U.S. Borrower, which are
requested by the U.S. Borrower during any Business Day, subject to the
terms and conditions of this Agreement and not to exceed in the
aggregate the sum of all of the Banks' U.S. Credit Commitments. Each
U.S. Bank does hereby further irrevocably agree, subject to the terms
of Section 8.3(b), whether or not this Agreement has been terminated,
a Default or an Event of Default has occurred, the Agent has
accelerated the Obligations or the Agent is proceeding to liquidate
the Collateral, to transfer to the Agent by 2:00 p.m. on the last
Business Day of each calendar week, or such other times as the Agent
may inform the U.S. Banks of from time to time, sufficient immediately
available federal funds to reimburse the Agent for its respective U.S.
Commitment Percentage of all U.S. Loans and other advances (not to
exceed such Bank's U.S. Credit Commitment) made through the close of
business on the immediately preceding Business Day after taking into
account payments received by the Agent and applied to the U.S. Loan
Account under Section 8.5, and subject to adjustment in accordance
with the terms of Section 8.15.
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(ii) Canadian Loans. In order to more conveniently administer the
U.S. Loans, and to calculate adjustments in accordance with the terms
of Section 8.15, the Canadian Bank shall deliver to the Agent by 2:00
P.M. (Toronto time) on each Business Day a statement setting forth the
Canadian Loans made and repayments thereof received during the
immediately preceding Business Day as well as the outstanding balance
of all Canadian Loans as of the close of business on such immediately
preceding Business Day.
(b) Notwithstanding the terms of Section 8.3(a), at such time as (i) the
Majority Banks have exercised their option pursuant to Section 7.2 to
cause all of the Obligations to be immediately due and payable and
there is then no irrevocable prior commitment to fund any additional
Revolving Loans or other advances hereunder, or (ii) there has
occurred and is continuing an Event of Default under clause (a), (g)
or (h) of Section 7.1, each of the U.S. Banks shall be obligated to
fund additional U.S. Loans or other advances hereunder in accordance
with the terms of Section 8.3(a), and the Canadian Bank shall be
obligated to fund additional Canadian Loans or other advances
hereunder in accordance with the terms of Section 2A.1, solely upon
the written consent or approval of the Majority Banks. In no event
shall any Bank be required to advance any amount of U.S. Loans or
Canadian Loans, respectively, in excess of its respective U.S. Credit
Commitment or Canadian Credit Commitment.
(c) Funds provided by the Agent or the Canadian Bank as payment upon a
sight or time draft presented to the Agent or the Canadian Bank, as
applicable, under a Letter of Credit issued pursuant to the terms of
Section 2B.5 hereof, and any payments made by the Agent or the
Canadian Bank on behalf of the U.S. Borrower or the Canadian Borrower,
as applicable, including, without limitation, pursuant to the terms of
Section 5.3 hereof, shall constitute U.S. Loans or Canadian Loans, as
applicable, or other advances initially made by the Agent or the
Canadian Bank, as applicable, at such time as such funds are actually
provided, or such payments are made, by the Agent or the Canadian
Bank, as applicable. All U.S. Loans and other advances made by the
Agent on behalf of any Bank shall be, for purposes of interest income
and other charges, considered loans from such Bank to the U.S.
Borrower and reflected in the U.S. Loan Account at such time as the
Agent receives from such Bank funds as provided in this Section 8.3,
and prior to such time such U.S. Loans and advances shall be
considered, for purposes of interest income and other charges, loans
from Bank of Boston and so reflected in the U.S. Loan Account. In
addition, subject to the Security Documents, any collection of U.S.
Collateral, including, but not limited to, any collections of
Accounts, shall be applied to reduce any debit balance in the U.S.
Loan Account so that the debit
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balance of the U.S. Loan Account equals the sum of each Bank's
respective U.S. Commitment Percentage of such debit balance. The Agent
may at any time upon notice to any U.S. Bank (i) refuse to make U.S.
Loans and advances on behalf of such Bank unless such Bank shall have
provided to the Agent immediately available federal funds sufficient
to cause the U.S. Loan Account to equal and reflect such Bank's
respective U.S. Commitment Percentage; (ii) require such Bank to fund
such Revolving Loans and advances before making such U.S. Loans and
advances to the U.S. Borrower; or (iii) require that such Bank
immediately transfer to the Agent prior to the time such funds would
otherwise be required hereunder immediately available federal funds
sufficient to cause the U.S. Loan Account to equal (subject to
adjustments pursuant to the terms of Section 8.15) the sum of each
Bank's respective U.S. Commitment Percentage times the balance of such
Loan Account (it being acknowledged, however, that the Agent will
attempt to require any U.S. Bank to fund its share of any U.S. Loan or
advance prior to the time such funding would otherwise be required
hereunder to the extent such share exceeds $100,000, provided that the
foregoing shall in no way diminish the Agent's rights under clauses
(i) through (iii), inclusive, of this sentence, which rights it may
exercise in its sole discretion). Notwithstanding the provisions
hereof, the obligations to make U.S. Loans or Canadian Loans and
advances under the terms of this Agreement shall be the several and
not joint obligation of each Bank, or the Canadian Bank, as
applicable, and any advances made by the Agent on behalf of a U.S.
Bank are strictly for the administrative convenience of the parties
and shall in no way diminish such Bank's liability to the Agent,
subject to the terms of Section 8.3(b), to repay the Agent for such
U.S. Loans and advances. Under no circumstances shall the Agent or any
U.S. Bank which is not the Canadian Bank be obligated or otherwise
required to make any Canadian Loans.
8.4 Delinquent Bank. (a) Notwithstanding anything to the contrary
contained in this Agreement, any U.S. Bank that fails to make available to the
Agent its share of any U.S. Loan when and to the full extent required by the
provisions of this Agreement shall be deemed delinquent (a "Delinquent Bank")
and shall be deemed a Delinquent Bank until such time as such delinquency is
satisfied. A Delinquent Bank shall be deemed to have assigned any and all
payments due to it from the Borrower, whether on account of outstanding U.S.
Loans, interest, fees or otherwise, to the remaining non-delinquent U.S. Banks
for application to, and reduction of, their respective pro rata shares of all
outstanding U.S. Loans. The Delinquent Bank hereby authorizes the Agent to
distribute such payments to the non-delinquent U.S. Banks in proportion to their
respective pro rata shares of all outstanding U.S. Loans. A Delinquent Bank
shall be deemed to have satisfied in full a delinquency when and if, as a result
of application of the assigned payments to all outstanding U.S. Loans of the
non-delinquent U.S. Banks, the Banks' respective pro rata shares of all
outstanding U.S. Loans have returned to those in effect
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immediately prior to such delinquency and without giving effect to the
nonpayment causing such delinquency.
(b) A Delinquent Bank shall pay to the Agent on demand an amount equal to
the product of (i) the average, computed for the period referred to in clause
(iii) below, of the weighted average interest rate paid by the Agent for federal
funds acquired by the Agent during each day included in such period, multiplied
by (ii) the amount of such Delinquent Bank's share of such U.S. Loan, multiplied
by (iii) a fraction, the numerator of which is the number of days that elapsed
from and including such date to the date on which the amount of such Delinquent
Bank's share of such U.S. Loan shall become immediately available to the Agent,
and the denominator of which is 360. A statement of the Agent submitted to such
Delinquent Bank with respect to any amounts owing under this paragraph shall be
prima facie evidence of the amount due and owing to the Agent by such Delinquent
Bank.
8.5 Payments.
(a) All payments and prepayments of principal of U.S. Loans or other
advances received by the Agent shall be applied first to all fees and charges
due solely to the Agent for its own account, with the balance to be paid
promptly to each of the U.S. Banks on account of fees, charges, interest and
outstanding principal due to all U.S. Banks pro rata in accordance with their
respective U.S. Commitment Percentages. All such payments from the U.S. Borrower
to be paid to the U.S. Banks shall be held in trust for the benefit of the U.S.
Banks. As each such payment is received by the Agent, the Agent shall promptly
charge or credit each of the U.S. Banks to the extent necessary to ensure that
as between them (and subject to adjustments pursuant to the terms of Section
8.15) each of the U.S. Banks holds its respective U.S. Commitment Percentage of
outstanding U.S. Loans or other advances, based on the then unpaid aggregate
principal amounts of the U.S. Loans or other advances outstanding.
(b) Each of the Banks and the Agent hereby agrees that if it should
receive any amount (whether by voluntary payment, by the exercise of the right
of set-off or banker's lien, by counterclaim or cross action, by the enforcement
of any right hereunder or otherwise) in respect of principal of, or interest on,
the U.S. Loans or Canadian Loans, respectively, or any fees which are to be
shared among the Banks, which, as compared to the amounts theretofore received
by the other Banks with respect to such principal, interest or fees, is in
excess of such Bank's pro rata share of such principal, interest or fees as
provided in this Agreement, such Bank shall share such excess, less the costs
and expenses (including reasonable attorneys' fees and disbursements) incurred
by such Bank in connection with such realization, exercise, claim or action, pro
rata with all other Banks in proportion to their respective interests therein
(taking into account any adjustments previously determined or to be determined
by the Agent pursuant to the terms of Section 8.15) and such sharing shall be
deemed a purchase (without recourse) by such sharing party of participation
interests in the Revolving Loans or such fees, as the case may be, owed to the
recipients of such shared
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payments to the extent of such shared payments; provided, however, that if all
or any portion of such excess amount is thereafter recovered from such Bank,
such purchase shall be rescinded and the purchase price restored to the extent
of such recovery, but without interest.
(c) At such time as (i) the Majority Banks have exercised their
option pursuant to Section 7.2 to cause all of the Obligations to be immediately
due and payable and then there is no irrevocable prior commitment to fund any
additional Revolving Loans or other advances hereunder, or (ii) there has
occurred and is continuing an Event of Default under clause (a), (g) or (h) of
Section 7.1 hereof, (A) all payments received by the Agent as proceeds of U.S.
Collateral or Canadian Collateral, to be paid to the U.S. Banks or the Canadian
Bank, as applicable, under the Security Documents, shall be held in trust for
the benefit of the US. Banks and the Canadian Banks, respectively, and the Agent
shall charge or credit each of the Banks to the extent necessary to ensure that
as between them (taking into account any adjustments pursuant to the terms of
Section 8.15) each of the Banks holds its respective Total Commitment Percentage
of outstanding Revolving Loans or other advances, based on the then unpaid
aggregate principal amounts of the Revolving Loans or other advances
outstanding, and (B) each of the Banks and the Agent hereby agrees that any
amount it may receive (whether by voluntary payment, by the exercise of the
right of set-off or banker's lien, by counterclaim or cross-claim, by the
enforcement of any right hereunder or otherwise) in respect of principal of, or
interest on the Revolving Loans or any fees which are to be shared among the
Banks, shall be provided to the Agent to be distributed to all of the Banks so
as to reimburse such Banks for the reasonable costs and expenses (including
reasonable attorneys' fees and disbursements) incurred by such Bank in
connection with such realization, exercise, claim or action, and the remainder
shall be shared pro rata among all of the Banks to the extent necessary to
ensure that as between them (taking into account any adjustments pursuant to the
terms of Section 8.15) each of the Banks holds its respective Total Commitment
Percentage of outstanding Revolving Loans or other advances, based on the then
unpaid aggregate principal amounts of the Revolving Loans or other advances
outstanding; provided, however, that if all or any portion of such excess amount
is thereafter recovered from such Bank, such purchase shall be rescinded and the
purchase price restored to the extent of such recovery, but without interest.
8.6 Interest, Fees and Other Payments. (i) All payments of interest
received by the Agent in respect of U.S. Loans or other advances, except as
otherwise provided by the terms of this Agreement, and all other fees and
premiums received by the Agent hereunder or in respect of U.S. Loans or other
advances shall be applied first to all fees and charges due solely to the Agent
for its own account, and second to each of the U.S. Banks on account of fees,
charges, interest and outstanding principal due to all U.S. Banks pro rata in
accordance with their respective U.S. Commitment Percentages (taking into
account for purposes of determining pro rata shares of payments on account of
interest, but not of fees or charges, any adjustments pursuant to the terms of
Section 8.15; and (ii) all payments received by the Agent pursuant to Sections
9.2 or 9.3 of this
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Agreement shall be applied by the Agent to reimburse each Bank, on account of
the tax, charge or expense in respect of which such payment is made.
8.7 Action by Agent.
(a) The obligations of the Agent hereunder are only those expressly
set forth herein. The Agent shall have no duty to exercise any right or power or
remedy hereunder or under any other Loan Document or instrument executed and
delivered in connection with or as contemplated by this Agreement or to take any
affirmative action hereunder or thereunder.
(b) The Agent shall keep all records of the U.S. Loans and payments
with respect thereto, and shall give and receive notices and other
communications to be given or received by the Agent hereunder on behalf of the
Banks.
(c) Upon the occurrence of an Event of Default the Agent may, and
upon the direction of the Majority Banks pursuant to Section 7.2 the Agent
shall, exercise the option of the Banks pursuant to Section 7.2 to declare all
Revolving Loans and other Obligations immediately due and payable and may take
such action as may appear necessary or desirable to collect the Obligations and
enforce the rights and remedies of the Agent or the Banks.
(d) Whether or not an Event of Default shall have occurred, the Agent
may from time to time exercise the rights of the Agent and Banks hereunder or
under the other documents, instrument or agreements executed or delivered in
connection with or as contemplated by this Agreement as it may deem necessary or
desirable to protect the Collateral and the interests of the Agent and the Banks
therein.
8.8 Notification of Defaults and Events of Default. Each Bank hereby
agrees that, upon learning of the existence of a Default or an Event of Default,
it shall notify the Agent thereof. The Agent hereby agrees that upon receipt of
any notice under this Section 8.8, it shall notify the other Banks of the
existence of such Default or Event of Default.
8.9 Consultation with Experts. The Agent shall be entitled to retain and
consult with legal counsel, independent public accountants and other experts
selected by it and shall not be liable to the Banks for any action taken,
omitted to be taken or suffered in good faith by it in accordance with the
advice of such counsel, accountants or experts. The Agent may employ agents and
attorneys-in-fact and shall not be liable to the Banks for the default or
misconduct of any such agents or attorneys.
8.10 Liability of Agent. The Agent shall exercise the same care to protect
the interests of each Bank as it does to protect its own interests, so that so
long as the Agent exercises such care it shall not be under any liability to any
of the Banks, except for the Agent's gross negligence or willful misconduct with
respect to anything it may do or
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refrain from doing. Subject to the immediately preceding sentence, neither the
Agent nor any of its directors, officers, agents or employees shall be liable
for any action taken or not taken by it in connection herewith in its capacity
as Agent. Without limiting the generality of the foregoing, neither the Agent
nor any of its directors, officers, agents or employees shall be responsible for
or have any duty to ascertain, inquire into or verify: (i) any statement,
warranty or representation made in connection with this Agreement, any Loan
Document, or any borrowing hereunder; (ii) the performance or observance of any
of the covenants or agreements of the Borrowers; (iii) the satisfaction of any
condition specified in Sections 3.1, 3.2 or 3.3, except receipt of items
required to be delivered to the Agent; (iv) the validity, effectiveness,
enforceability or genuineness of this Agreement, the Revolving Credit Notes, any
other Loan Document or any other document or instrument executed and delivered
in connection with or as contemplated by this Agreement; (v) the existence,
value, collectibility or adequacy of the Collateral or any part thereof or the
validity, effectiveness, perfection or relative priority of the liens and
security interests of the Banks (through the Agent) therein; or (vi) the filing,
recording, refiling, continuing or re-recording of any financing statement or
other document or instrument evidencing or relating to the security interests or
liens of the Banks (through the Agent) in the Collateral. The Agent shall not
incur any liability by acting in reliance upon any notice, consent, certificate,
statement or other writing (which may be a bank wire, telex or similar writing)
believed by it to be genuine or to be signed by the proper party or parties.
8.11 Indemnification. Each Bank agrees to indemnify the Agent (to the
extent the Agent is not reimbursed by the Borrowers), ratably in accordance with
its Total Commitment Percentage from and against any cost, expense (including
attorneys' fees and disbursements), claim, demand, action, loss or liability
which the Agent may suffer or incur in connection with this Agreement, or any
action taken or omitted by the Agent hereunder, or the Agent's relationship with
the Borrower hereunder, including, without limitation, the costs and expenses of
defending itself against any claim or liability in connection with the exercise
or performance of any of its powers and duties hereunder and of taking or
refraining from taking any action hereunder, but excluding any costs, expenses
or losses directly arising from the Agent's gross negligence or willful
misconduct. No payment by any Bank under this Section shall in any way relieve
the Borrowers of their obligations under this Agreement with respect to the
amounts so paid by any Bank, and the Banks shall be subrogated to the rights of
the Agent, if any, in respect thereto.
8.12 Independent Credit Decision. Each of the Banks represents and
warrants to the Agent that it has, independently and without reliance upon the
Agent or any other Bank and based on the financial statements referred to in
Section 4.7 and such other documents and information as it has deemed
appropriate, made its own independent credit analysis and decision to enter into
this Agreement. Each of the Banks acknowledges that it has not relied upon any
representation by the Agent and that the Agent shall not be responsible for any
statements in or omissions from any documents or information concerning the
Borrower, this Agreement, the Revolving Credit Notes, any
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other Loan Document or any other document or instrument executed and delivered
in connection with or as contemplated by this Agreement. Each of the Banks
acknowledges that it will, independently and without reliance upon the Agent or
other Bank and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement.
8.13 Consents of All Banks. Under any circumstances where the consent,
waiver, approval or similar decision of the Majority Banks or all of the Banks
must be requested by the Borrowers under the terms of this Agreement, in the
event that Bank of Boston, acting on its own account and not as Agent, has given
any such consent, waiver, approval or otherwise, each of the other Banks hereby
agrees with Bank of Boston, that any such consent, waiver, approval or otherwise
will not be unreasonably withheld or delayed by such Bank.
8.14 Successor Agent. Bank of Boston, or any successor Agent, may resign
as Agent at any time by giving written notice thereof to the Banks and to the
Borrowers. Upon any such resignation, the Banks shall have the right to appoint
a successor Agent, (which successor Agent shall be a commercial bank (or
Affiliate thereof) or savings and loan association organized under the laws of
the United States of America or any State thereof or under the laws of another
country which is doing business in the United States of America or any State
thereof and having a combined capital, surplus and undivided profits of at least
$100,000,000 (and shall be reasonably acceptable to the Borrowers if and only if
at the time no Default or Event of Default has occurred and is continuing and
such acceptance by the Borrowers is not unreasonably withheld or delayed). If no
successor Agent shall have been so appointed by the Banks, and shall have
accepted such appointment, within 30 days after such resignation, then the
retiring Agent may, on behalf of the Banks, appoint a successor Agent, which
shall be a commercial bank (or Affiliate thereof) or savings and loan
association organized under the laws of the United States of America or any
State thereof or under the laws of another country which is doing business in
the United States of America or any State thereof and having a combined capital,
surplus and undivided profits of at least $100,000,000 (and shall be reasonably
acceptable to the Borrowers if and only if at the time no Default or Event of
Default has occurred and is continuing and such acceptance by the Borrower is
not unreasonably withheld or delayed). Upon the acceptance of any appointment as
Agent hereunder by a successor Agent, such successor Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Agent, and the retiring Agent shall be discharged from all
further duties and obligations under this Agreement as Agent. After any retiring
Agent's resignation hereunder as Agent, the provisions of this Section 8 shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Agent under this Agreement.
8.15 Relationship among Banks Regarding U.S. Loans and Canadian Loans.
(a) Reference is made to the fact that (i) the availability of
Canadian Loans to the Canadian Borrower pursuant to Section 2A.1 hereof is being
provided by the
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Canadian Bank, (ii) such Canadian Loans outstanding from time to time constitute
a sublimit under and reduction of Availability of U.S. Loans hereunder from time
to time pursuant to Section 2.1, and (iii) pursuant to Schedule 1 attached
hereto the Canadian Bank has attributed to it a Canadian Commitment Percentage
and a Total Commitment Percentage as set forth in said Schedule 1. It is hereby
acknowledged and agreed by the Agent, the Banks and the Borrowers that the
Canadian Loans are to be administered as a separate facility in accordance with
and as contemplated by the terms of this Agreement. In furtherance of the
understandings of the Banks, during the ongoing administration of the Canadian
Loans and the U.S. Loans, neither the Agent nor the other U.S. Banks shall be
obligated or permitted to make any advances of Canadian Loans. The Canadian
Bank, however, shall be obligated and permitted to make U.S. Loans in accordance
with its U.S. Commitment Percentage (subject to and taking into account
adjustments pursuant to the terms of this Section 8.15).
(b) In order to facilitate determinations of their respective
portions of the Loans to be made by each of the U.S. Banks, all of the Banks
hereby acknowledge and agree that determinations of such amounts shall be made
by the Agent in accordance with the terms of this Section, such determinations
to be deemed to be true and accurate in the absence of manifest error. Such
determinations shall be made based upon the following two principles: (i) all
Canadian Loans are to be made by the Canadian Bank, and (ii) considering that
the Canadian Bank's Canadian Commitment Percentage (i.e., 100%) is greater than
its U.S. Commitment Percentage and Total Commitment Percentage (i.e., as of the
original execution and delivery of this Agreement, 15%) the Agent shall allocate
to the Canadian Bank a reduced percentage of U.S. Loans (and a pro rata
increased percentage of U.S. Loans to the other U.S. Banks) if, and to the
extent, required to cause the Canadian Bank's aggregate percentage share of
Revolving Loans then outstanding to equal as closely as possible the Canadian
Bank's Total Commitment Percentage. For example, for illustrative purposes only:
(x) at such time as the Canadian Bank has made outstanding Canadian Loans equal
to $7,500,000.00, and the U.S. Banks in the aggregate have made outstanding U.S.
Loans equal to $72,500,000.00, the portion of the U.S. Loans that the Agent
shall then allocate to the Canadian Bank shall equal $4,500,000.00 (i.e., 6% of
U.S. Loans outstanding) so as to cause the Canadian Bank's aggregate percentage
share of the Revolving Loans then outstanding to equal 15%; (y) at such time as
the Canadian Bank has outstanding Canadian Loans equal to $7,500,000.00, and the
U.S. Banks in the aggregate have outstanding U.S. Loans equal to $20,000,000.00,
the portion of the U.S. Loans that the Agent shall then allocate to the Canadian
Bank shall equal $0.00 (since the Canadian Loans constitute such a large portion
of the total Revolving Loans that the Canadian Bank has a percentage of
outstanding Revolving Loans in excess of 15%) and the portion of the U.S. Loans
that the Agent shall then allocate to the other U.S. Banks shall be distributed
among them in proportion to such other U.S. Banks' respective U.S. Commitment
Percentages; (z) at such time as the Canadian Bank has outstanding Canadian
Loans equal to $0.00, and the U.S. Banks in the aggregate have outstanding U.S.
Loans equal to $80,000,000.00, the portion of the U.S. Loans that the Agent
shall then allocate to the Canadian Bank shall equal $12,000,000.00 so as to
cause the Canadian Bank's aggregate percentage share of the Revolving Loans then
outstanding to equal 15%.
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(c) If, upon the irrevocable termination or expiration of the
commitment of the Banks to make U.S. Loans or Canadian Loans under this
Agreement because of an Event of Default or otherwise, the aggregate percentage
of Revolving Loans made by the Canadian Bank shall exceed the Canadian Bank's
Total Commitment Percentage, at the Agent's option exercisable in its sole
discretion, the U.S. Banks (including the Canadian Bank) shall make an
additional Base Rate Loan to the U.S. Borrower for purposes of causing the U.S.
Borrower to provide funds to the Canadian Borrower so as to repay in full all of
the Obligations of the Canadian Borrower, whereupon all of the Banks shall have
respective outstanding U.S. Loans in proportion to their respective Total
Commitment Percentages.
(d) Notwithstanding any other provision of this Agreement to the
contrary, upon the acceleration of the Obligations of the Borrowers in
accordance with the terms of this Agreement, in the event that the Agent has not
then exercised its option pursuant to Section 8.15(c), each of the U.S. Banks
and the Canadian Bank hereby agrees to purchase or sell a portion of the
Revolving Loans outstanding as the Agent shall direct so as to cause the
outstanding portion of each U.S. Loan and Canadian Loan held by each of the
Banks to equal such Bank's respective Total Commitment Percentage.
SECTION IX
----------
MISCELLANEOUS
-------------
9.1. Notices. Unless otherwise specified herein, all notices hereunder to
any party hereto shall be in writing and shall be deemed to have been given (i)
when delivered by hand, (ii) five Business Days after being properly deposited
in the United States mails postage prepaid, certified, return receipt requested,
(iii) when sent by electronic facsimile transmission, or (iv) the next Business
Day after being delivered to a nationally recognized overnight courier,
addressed to such party at its address indicated below:
If to any of the Borrowers, at or in care of
United States Leather, Inc.
1110 North Old World Third Street
Suite 400
Milwaukee, Wisconsin 53203
Attention: William F. Loftus, Chief Executive Officer and President, and
Robert A. Hale, Senior Vice President and Chief Financial Officer
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Telecopy: (414) 765-1040
with a copy to
Pryor, Cashman, Sherman & Flynn
410 Park Avenue
New York, NY 10022
Attention: Blake Hornick, Esq.
Telecopy: (212) 326-0806
with a copy of any notices pertaining in any way to the Canadian Borrower
or the Canadian Loans to
Celia Rhea, Esq.
Goodman, Phillips and Vineberg
250 Yonge Street
Eaton Tower, Suite 2300
Toronto, Ontario, CANADA M5B 2M6
If to the Agent or Bank of Boston, at
The First National Bank of Boston
100 Federal Street
Boston, Massachusetts 02110
Attention: Mark K. Gertzof, Director, Mail Stop: 01-09-06
Telecopy: (617) 434-2309
with a copy to
Goulston & Storrs, P.C.
400 Atlantic Avenue
Boston, Massachusetts 02110
Attention: Philip R. Rosenblatt, Esq.
Telecopy: (617) 574-4112
If to the Canadian Bank, at such address as the Agent shall specify in
accordance with the terms hereof
with a copy to
Goulston & Storrs, P.C.,
400 Atlantic Avenue,
Boston, Massachusetts 02110
Attention: Philip R. Rosenblatt, Esq.
Telecopy: (617) 574-4112
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or at any other address specified by such party in writing.
9.2. Expenses. (a) The Borrowers will pay on demand all reasonable
expenses of the Agent in connection with the preparation, administration, waiver
or amendment of this Agreement, the Revolving Credit Notes, the Loan Documents
or other documents executed in connection therewith, or the administration,
default or collection of the Revolving Loans or other Obligations, or reasonable
expenses of the Agent and any Banks in connection with default, collection in
connection with the Agent's or any Bank's exercise, preservation or enforcement
of any of its rights, remedies or options thereunder, including, without
limitation, reasonable fees and costs of outside legal counsel or the allocated
costs of in-house legal counsel, accounting, consulting, brokerage or other
similar professional fees or expenses, and subject to Section 5.5, any fees or
expenses associated with any travel or other costs relating to any appraisals,
audits or examinations conducted in connection with the Obligations or any
Collateral therefor, and the amount of all such expenses shall, until paid, bear
interest at the rate applicable to a Base Rate Loan hereunder (including any
default rate).
(b) Notwithstanding anything to the contrary contained in this
Agreement, the U.S. Borrower and the Canadian Borrower each agree to pay any
present or future stamp or documentary taxes, any intangibles tax or any other
sales, excise or property taxes, charges or similar levies now or hereafter
assessed that arise from and are attributed to any payment made hereunder, under
the Revolving Credit Notes or from the execution, delivery of, or otherwise with
respect to, this Agreement, the Revolving Credit Notes, other Loan Documents and
any and all recording fees relating to any Loan Documents.
(c) The U.S. Borrower shall indemnify each U.S. Bank and the Agent,
and the Canadian Borrower shall indemnify the Canadian Bank, for the full amount
of any taxes, duties or charges other than taxes on the net income of a Bank
duly paid or payable by such Bank or the Agent and any liability (including
penalties, interest and expenses) arising therefrom or with respect thereto.
Indemnification payments shall be made immediately upon demand therefor.
9.3. Indemnification. The Borrowers shall absolutely and
unconditionally indemnify and hold harmless the Agent and each of the Banks
against any and all claims, demands, suits, actions, causes of action, damages,
losses, settlement payments, obligations, costs, expenses and all other
liabilities whatsoever which shall at any time or times be incurred or sustained
by the Agent or any of the Banks or by any of their shareholders, directors,
officers, employees, representatives, subsidiaries, affiliates or agents (other
than as a result of the gross negligence or willful misconduct of the Agent or
any of the Banks or such officers, directors, shareholders, employees or agents
thereof) on account of, or in relation to, or in any way in connection with, any
of the arrangements or transactions contemplated by, associated with or
ancillary to either this Agreement, any of the other Loan Documents or any of
the Ancillary Documents, whether or not all or any of the
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transactions contemplated by, associated with or ancillary to this Agreement,
any of such Loan Documents or any of such Ancillary Documents, are ultimately
consummated (other than those costs and expenses incurred by the Banks other
than the Agent in connection with the syndication, preparation, execution and
delivery of the Loan Documents, and the day-to-day administration of the
transactions contemplated thereby).
9.4. Set-Off. Regardless of the adequacy of any Collateral or other means
of obtaining repayment of the Obligations, any deposits, balances or other sums
credited by or due from the Agent or any Bank or any of its branch or affiliate
offices to any of the Borrowers may, at any time and from time to time during
the existence of a Default or Event of Default, without notice to the Borrowers
or compliance with any other condition precedent now or hereafter imposed by
statute, rule of law, or otherwise (all of which are hereby expressly waived) be
set off, appropriated, and applied by the Agent or such Bank against any and all
Obligations of the Borrowers to the Agent or such Bank or any of its affiliates
in such manner as the head office of the Agent or Bank or any of its branch
offices in their sole discretion may determine, and the Borrowers hereby grant
the Agent or such Bank a continuing security interest in such deposits, balances
or other sums for the payment and performance of all such obligations.
9.5. Term of Agreement. This Agreement shall continue in force and effect
so long as any Bank has any commitment to make Revolving Loans hereunder or any
Revolving Loan or any Obligation shall be outstanding.
9.6. No Waivers. No failure or delay by the Agent or any Bank in
exercising any right, power or privilege hereunder or under any Loan Document or
under any other documents or agreements executed in connection herewith shall
operate as a waiver thereof; nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies herein and in the other Loan
Documents are cumulative and not exclusive of any rights or remedies otherwise
provided by agreement or law.
9.7. Governing Law. This Agreement and each of the other Loan Documents
shall be deemed to be contracts made under seal and shall be construed in
accordance with and governed by the laws of the Commonwealth of Massachusetts
(without giving effect to any conflicts of laws provisions contained therein).
9.8. Amendments, Waivers, Etc. Except as otherwise expressly provided in
this Agreement or any of the other Loan Documents, the following parties, for
themselves or in their representative capacity, as the case may be, are hereby
entitled and empowered to take the following actions hereunder without the
consent, acquiescence, joinder or other agreement of any other party hereto:
(a) The Agent acting alone is hereby entitled and empowered to do any
of the following:
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(i) release from the liens created hereby any of the Collateral
having a value equal to or less than $500,000.00 per annum not to exceed
$1,500,000.00 in the aggregate over the term of this Agreement; and
(ii) amend Schedule I hereto from time-to-time to reflect any
changes to the U.S. or Canadian Credit Commitments, U.S. or Canadian Commitment
Percentages, or Total Commitment and Commitment Percentages with any other Banks
in order to reflect transactions in accordance with Section 9.10 hereto from
time-to-time (any such Schedule I as so amended from time-to-time by the Agent
to be conclusively presumed to be accurate and correct in the absence of
manifest error).
(b) The Majority Banks and the Borrower are hereby entitled and
empowered to modify, amend or supplement each of the Loan Documents in any
respect except for those respects specifically addressed elsewhere in this
Agreement (including this Section) or any other of the Loan Documents.
(c) The Majority Banks are hereby entitled and empowered to do any of
the following:
(i) waive the performance or observance by any Borrower of any
of its covenants, agreements or obligations under any of the Loan Documents;
(ii) release from any liens created hereunder or under any of the
Loan Documents any Collateral having a value greater than $1,500,000.00 in the
aggregate over the term of this Agreement but less than or equal to
$5,000,000.00 in the aggregate over the term of this Agreement;
(iii) make or give any other determinations to be made and
consents to be given by the Agent and the Banks hereunder.
(d) the Agent and all of the Banks, acting together, hereby are
entitled and empowered to do any of the following:
(i) extend or postpone the Maturity Date;
(ii) increase the percentages or types of Collateral used to
measure the Borrowing Base or the amount of Overadvances permitted under this
Agreement;
(iii) decrease the interest rates prescribed in any of the
Revolving Credit Notes;
(iv) increase the U.S. Credit Commitment, Canadian Credit
Commitment, U.S. Commitment Percentages, Canadian Commitment Percentages, Total
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Commitment or Total Commitment Percentages of any of the Banks, except as
permitted by Section 9.10;
(v) release from any liens created hereunder any Collateral
having a value greater than $5,000,000.00 in the aggregate over the term of this
Agreement;
(vi) change the definition of Majority Banks hereunder; and
(vii) modify, amend or supplement any of the terms of this
Section 9.8.
(e) Notwithstanding any provisions of this Agreement to the contrary,
any change to Section VIII of this Agreement or any other provisions of this
Agreement affecting the rights or obligations of the Agent shall not be amended
of modified without the prior written consent of the Agent.
9.9. Binding Effect of Agreement. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns; provided that (i) neither of the Borrowers may assign or transfer
its rights or obligations hereunder, and (ii) no Bank may assign or transfer its
rights or obligations hereunder to any Person except in accordance with the
provisions of Section 9.10.
9.10. Successors and Assigns.
(i) Any Bank may at any time grant to one or more banks or other
financial institutions (each, a "Participant") participating interests in its
Revolving Credit Commitment or any or all of its Revolving Loans in an amount
equal to not less than $5,000,000 and on such terms as such Bank may think fit,
provided, however, that prior to granting a participating interest to a
Participant, such Bank shall (x) notify the Borrowers and the Agent in writing
identifying the proposed Participant and stating the aggregate principal amount
of the proposed participating interest, and (y) receive the prior written
consent of each of the Borrowers (unless there is then in existence a Default or
Event of Default) and the Agent, which consent may not be unreasonably withheld
or delayed by either the Borrower or the Agent. In the event of any such grant
by a Bank of a participating interest to a Participant, whether or not upon
notice to the Borrowers and the Agent, such grantor Bank shall remain
responsible for the performance of its obligations hereunder, and the Borrowers
and the Agent shall continue to deal solely and directly with such grantor Bank
in connection with such Bank's rights and obligations under this Agreement. Any
agreement pursuant to which any Bank may grant such a participating interest
shall provide that such grantor Bank shall retain the sole right and
responsibility to enforce the obligations of the Borrowers hereunder including,
without limitation, the right to approve any amendment, modification or waiver
of any provision of this Agreement; provided, however, that such participation
agreement may provide that such grantor Bank will not agree, without the consent
of the Participant, to any modification, amendment or waiver of this Agreement
requiring the consent, agreement
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or approval of all of the Banks, as described in Section 9.8. The Borrowers
agree that each Participant shall be entitled to the benefits of Sections 2B.7,
2B.10 and 2B.11 with respect to its participating interest. An assignment or
other transfer which is not permitted by paragraph (ii) below shall be given
effect for purposes of this Agreement only to the extent of a participating
interest granted in accordance with this paragraph (i).
(ii) Any Bank may at any time assign to one or more banks or other
financial institutions (each, an "Assignee") all, or a proportionate part of
all, of its rights, interests and obligations under this Agreement and the
Revolving Credit Notes on such terms, as between such Bank and each of its
Assignees, as such Bank may think fit, and such Assignee shall assume such
rights, interests and obligations, pursuant to an instrument executed by such
Assignee and such transferor Bank; provided, however, that (A) prior to
assigning any interest to any Assignee hereunder, such Bank shall (x) notify the
Borrowers and the Agent in writing identifying the proposed Assignee and stating
the aggregate principal amount of the proposed interest to be assigned, and (y)
receive the prior written consent of each of the Borrowers (unless there is then
in existence a Default or Event of Default) and the Agent, which consent may not
be unreasonably withheld or delayed by either the Borrower or the Agent, and (B)
no Bank will assign to any Assignee less than an aggregate amount equal to
$5,000,000 of such Bank's Revolving Credit Commitment and interest in the
Revolving Credit Notes. It is understood and agreed that the proviso contained
in the immediately preceding sentence shall not be applicable in the case of,
and this paragraph (ii) shall not restrict, (A) an assignment or other transfer
by any Bank to an Affiliate of such Bank or to any other Bank or (B) a
collateral assignment or other similar transfer to a Federal Reserve Bank. Upon
execution and delivery of such an instrument and payment by such Assignee to
such transferor Bank of an amount equal to the purchase price agreed between
such transferor Bank and such Assignee, such Assignee shall be a Bank party to
this Agreement and shall have all the rights, interests and obligations of a
Bank with a Revolving Credit Commitment as set forth in such instrument of
assumption, and the transferor Bank shall be released from its obligations
hereunder to a corresponding extent, and no further consent or action by any
party shall be required. Upon the consummation of any assignment pursuant to
this paragraph (ii), the transferor Bank, the Agent and the Borrowers shall make
appropriate arrangements so that, if required, new Revolving Credit Notes are
issued to the Assignee and such other documentation as may be reasonably
required to evidence the Assignee's rights and obligations hereunder as may be
reasonably required shall be executed and delivered among the appropriate
parties.
(iii) No Assignee, Participant or other transferee of any Bank's
rights shall be entitled to receive any greater payment under Sections 2B.7,
2B.10 or 2B.11 than such Bank would have been entitled to receive with respect
to the rights transferred, unless such transfer is made with the Borrowers'
prior written consent or at a time when the circumstances giving rise to such
greater payment did not exist.
(iv) Assignments require a fee payable to the Agent solely for the
account of the assignor, and solely for the benefit of the Agent, in the amount
of $3,000.
-91-
<PAGE>
(v) Each U.S. Bank (which, for purposes of this Section 9.10, shall
include any Affiliate of a U.S. Bank that makes any Eurodollar Loan to the U.S.
Borrower pursuant to the terms of this Agreement) that is not a "United States
person" (as such term is defined in Section 7701(a)(30) of the Code) shall
submit to the U.S. Borrower and the Agent in the case of a Person that became a
U.S. Bank after the Closing Date by assignment, promptly upon such assignment,
two duly completed and signed copies of either (1) Form 1001 of the United
States Internal Revenue Service entitling such U.S. Bank to a complete exemption
from withholding on all amounts to be received by such U.S. Bank pursuant to
this Agreement and/or the U.S. Revolving Credit Notes or (2) Form 4224 of the
United States Internal Revenue Service relating to all amounts to be received by
such U.S. Bank pursuant to this Agreement and/or the U.S. Revolving Credit
Notes. Each such U.S. Bank shall, from time to time after submitting either such
form, submit to the U.S. Borrower and the Agent such additional duly completed
and signed copies of one or the other such forms (or forms evidencing
eligibility for an exemption from withholding or such successor forms or other
documents as shall be adopted from time to time by the relevant United States
taxing authorities) as may be (1) reasonably requested in writing by the U.S.
Borrower or the Agent and (2) appropriate under then current United States law
or regulations. Upon the reasonable request of the U.S. Borrower or the Agent,
each U.S. Bank that has not provided the forms or other documents, as provided
above, on the basis of being a United States person shall submit to the U.S.
Borrower and the Agent a certificate to the effect that it is a "United States
person."
(vi) Notwithstanding any other provision of this Agreement, if an
event occurs which prevents any U.S. Bank (after it has become a U.S. Bank)
which is not a "United States person" from delivering to the U.S. Borrower or
the Agent any form or certificate that such U.S. Bank is requested to submit
pursuant to the preceding paragraph, or that it is required to withdraw or
cancel any such form or certificate, or that any such form or certificate
previously submitted has otherwise become ineffective or inaccurate, such U.S.
Bank shall promptly notify the U.S. Borrower and the Agent of such fact and the
provisions of Section 2B.13 hereof shall apply.
(vii) Notwithstanding subparagraphs (i) and (ii) of this Section
9.10, so long as no Default or Event of Default has occurred and is continuing,
Bank of Boston's Revolving Credit Commitment shall at no time be less than
$15,000,000.
9.11 Syndication of the Revolving Loans. Bank of Boston, in
cooperation with the Borrowers, will manage all aspects of the syndication of
the Revolving Loans, including, without limitation, decisions as to the
selection of financial institutions to be approached, when such financial
institutions will be approached and any titles offered to proposed financial
institutions that will participate (so long as such financial institutions are
reasonably acceptable to the Borrowers), the final allocation of Revolving
Credit Commitments and the final distribution of fees, and Bank of Boston may,
on behalf of the Borrowers, accept commitments from other financial
institutions. If Bank of Boston deems such actions advisable in order to ensure
a successful syndication, Bank of Boston may
-92-
<PAGE>
propose that this Agreement be amended, modified or supplemented, provided that
the Total Commitment and the aggregate fees paid by the Borrowers remains the
same and such changes are mutually agreeable to the Borrowers and the Majority
Banks or all of the Banks, as applicable. The Borrowers and Claymore Partners,
Ltd. agree to cooperate reasonably with the syndication of the Revolving Loans
(including assignments and participations) and the Borrowers and Claymore
Partners, Ltd. will prepare and provide all information (including the financial
statements required to be delivered pursuant to Section 4.7 and confidential
information memoranda), reasonably requested by the Agent in a form reasonably
satisfactory to the Agent. The Borrowers will also make their management and
advisors available at reasonable times to meet with potential banks in
connection with the syndication or assignment of the Revolving Loans. The Agent
and the Borrowers will require any potential Bank or Participant who receives
such information provided by the Borrowers to keep such information
confidential.
9.12. Counterparts. This Agreement may be signed in any number of
counterparts with the same effect as if the signatures hereto and thereto were
upon the same instrument.
9.13. Partial Invalidity. The invalidity or unenforceability of any
one or more phrases, clauses or sections of this Agreement under particular
circumstances shall not affect the validity or enforceability thereof under
other circumstances or the validity or enforceability of the remaining portions
of this Agreement.
9.14. Captions. The captions and headings of the various sections
and subsections of this Agreement are provided for convenience only and shall
not be construed to modify the meaning of such sections or subsections.
9.15. WAIVER OF JURY TRIAL. THE BORROWERS AGREE THAT NEITHER OF THEM
NOR ANY OF THEIR ASSIGNEES OR SUCCESSORS SHALL (A) SEEK A JURY TRIAL IN ANY
LAWSUIT, PROCEEDING, COUNTERCLAIM OR ANY OTHER ACTION BASED UPON, OR ARISING OUT
OF, THIS AGREEMENT, ANY RELATED INSTRUMENTS, ANY COLLATERAL OR THE DEALINGS OR
THE RELATIONSHIP BETWEEN THE BORROWER AND EITHER OF THEIR ASSIGNS AND SUCCESSORS
AND THE AGENT AND/OR ANY BANK, OR (B) SEEK TO CONSOLIDATE ANY SUCH ACTION WITH
ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THE
PROVISIONS OF THIS PARAGRAPH HAVE BEEN FULLY DISCUSSED BY THE AGENT, THE BANK
AND THE BORROWERS, AND THESE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS. THE
BORROWERS ACKNOWLEDGE THAT NEITHER THE AGENT NOR ANY BANK HAS AGREED WITH OR
REPRESENTED TO IT THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY
ENFORCED IN ALL INSTANCES.
9.16. Entire Agreement. This Agreement, the Revolving Credit Notes,
the other Loan Documents and the other documents and agreements executed in
connection herewith
-93-
<PAGE>
constitute the final agreement of the parties hereto and supersede any prior
agreement or understanding, written or oral, with respect to the matters
contained herein and therein.
9.17 Judgment Currency. If the Agent or any Bank receives an amount
with respect to the Obligations of any Borrower or if a portion of the
Obligations is converted into a claim, proof, judgment or order, in a currency
other than U.S. dollars, (i) the applicable Borrower shall indemnify the Agent
or such Bank, as applicable, as an independent obligation against any loss,
cost, expense or liability arising out of, or as a result of, the conversion,
(ii) if the amount received by the Agent or such Bank, as applicable, when
converted into U.S. dollars at a market rate on the date of receipt by the Agent
or such Bank in the usual course of its business, as determined by the Agent, is
less than the amount owed in U.S. dollars, the applicable Borrower shall, on
demand, pay to the Agent or such Bank, as applicable, an amount in U.S. Dollars
equal to the deficit, and (iii) the applicable Borrower shall pay to the Agent
or such Bank, as applicable, on demand, any expense, cost and taxes payable in
connection with any such conversion.
-94-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized officers as of the day and year first above
written.
The Borrowers:
-------------
UNITED STATES LEATHER, INC.
By:
----------------------------------------
Title: Senior Vice President and Chief
Financial Officer
A. R. CLARKE LIMITED
By:
----------------------------------------
Title: Secretary
The Agent:
---------
THE FIRST NATIONAL BANK OF BOSTON
By:
----------------------------------------
Title: Vice President
The Banks:
---------
THE FIRST NATIONAL BANK OF BOSTON
By:
----------------------------------------
Title: Vice President
<PAGE>
EXHIBIT A-1
-----------
UNITED STATES LEATHER, INC.
PROMISSORY NOTE
___________________. 1996
$________________ __________,______________
For value received, the undersigned hereby promise to pay to [The
First National Bank of Boston] (the "Bank"), or order, at the head office of the
Bank at [100 Federal Street, Boston, Massachusetts 02110], the principal amount
of __________________ Dollars ($_______________), or such lesser amount as shall
equal the principal amount outstanding hereunder on ____________________, 2001
(the "Maturity Date"), on or before the Maturity Date, in lawful money of the
United States of America and in immediately available funds, and to pay interest
on the unpaid principal balance hereof from time to time outstanding, at said
office and in like money and funds, for the period commencing on the date hereof
until paid in full, at the rates per annum and on the dates provided in the
Agreement (as hereinafter defined).
This Note is issued pursuant to, and entitled to the benefits of, and
is subject to, the provisions of a certain Revolving Credit Agreement dated as
of ___________, 1996 among the undersigned, A.R. Clarke Limited, The First
National Bank of Boston, as agent, and the other banks party thereto (herein, as
the same may from time to time be amended or extended, referred to as the
"Agreement"), but neither this reference to the Agreement nor any provision
thereof shall affect or impair the absolute and unconditional obligation of the
undersigned maker of this Note to pay the principal of and interest on this Note
as herein provided.
As provided in the Agreement, this Note is secured by the U.S.
Collateral (as defined in the Agreement) and is subject to mandatory prepayment
in certain circumstances.
In case an Event of Default (as defined in the Agreement) shall occur,
the aggregate unpaid principal of and accrued interest on this Note shall become
or may be declared to be due and payable in the manner and with the effect
provided in the Agreement.
The undersigned may at its option prepay (subject to Sections 2B.8 and
2B.12, without premium or penalty) all or any part of the principal of this Note
before maturity upon the terms provided in the Agreement.
The undersigned maker hereby waives presentment, demand, notice of
dishonor, protest and all other demands and notices in connection with the
delivery, acceptance, performance and enforcement of this Note.
<PAGE>
This instrument shall have the effect of an instrument executed under
seal and shall be governed by and construed in accordance with the laws of the
Commonwealth of Massachusetts (without giving effect to any conflicts of laws
provisions contained therein).
UNITED STATES LEATHER, INC.
By:
--------------------------------
Title:
<PAGE>
EXHIBIT A-2
-----------
A.R. CLARKE LIMITED
PROMISSORY NOTE
___________________, 1996
$7,500,000.00 __________,______________
For value received, the undersigned hereby promise to pay to
[______________ ______________] (the "Bank"), or order, at the head office of
the Bank at [__________ ____________________________________], the principal
amount of Seven Million Five Hundred Thousand Dollars ($7,500,000.00), or such
lesser amount as shall equal the principal amount outstanding hereunder on
____________________, 2001 (the "Maturity Date"), on or before the Maturity
Date, in lawful money of Canada and in immediately available funds, and to pay
interest on the unpaid principal balance hereof from time to time outstanding,
at said office and in like money and funds, for the period commencing on the
date hereof until paid in full, at the rates per annum and on the dates provided
in the Agreement (as hereinafter defined).
This Note is issued pursuant to, and entitled to the benefits of, and
is subject to, the provisions of a certain Revolving Credit Agreement dated as
of ___________, 1996 among the undersigned, United States Leather, Inc., The
First National Bank of Boston, as agent, and the other banks party thereto
(herein, as the same may from time to time be amended or extended, referred to
as the "Agreement"), but neither this reference to the Agreement nor any
provision thereof shall affect or impair the absolute and unconditional
obligation of the undersigned maker of this Note to pay the principal of and
interest on this Note as herein provided.
As provided in the Agreement, this Note is secured by the Collateral
(as defined in the Agreement) and is subject to mandatory prepayment in certain
circumstances.
In case an Event of Default (as defined in the Agreement) shall occur,
the aggregate unpaid principal of and accrued interest on this Note shall become
or may be declared to be due and payable in the manner and with the effect
provided in the Agreement.
The undersigned may at its option prepay (subject to Sections 2B.8 and
2B.12 of the Loan Agreement, without premium or penalty) all or any part of the
principal of this Note before maturity upon the terms provided in the Agreement.
The undersigned maker hereby waives presentment, demand, notice of
dishonor, protest and all other demands and notices in connection with the
delivery, acceptance, performance and enforcement of this Note.
<PAGE>
This instrument shall have the effect of an instrument executed under
seal and shall be governed by and construed in accordance with the laws of the
Commonwealth of Massachusetts (without giving effect to any conflicts of laws
provisions contained therein).
A.R. CLARKE LIMITED
By:
----------------------------
Title
<PAGE>
EXHIBIT C
---------
INDEBTEDNESS; ENCUMBRANCES; GUARANTEES
--------------------------------------
I. Existing Indebtedness
1. 10 1/4% Senior Notes due July 31, 2003
$135 million issued August, 1993.
$130 million outstanding at Closing. See attached Indenture
dated August 2, 1993
2. Bank loan dated October 29, 1993 for new finishing plant in Berlin, WI
Original amount $1 million - Current balance due $693,000.
See attached.
3. Capital leases - see Disclosure Schedule D
4. USL, Inc. guarantee of debt of Clarke as will be required by this
agreement (no attachment)
5. CDN $3 million bankers acceptance issued by the National Bank of Canada
on September 25, 1996, which matures on November 25, 1996
6. CDN $3 million bankers acceptance issued by the National bank of Canada
on September 18, 1996, which matures on December 17, 1996.
7. CDN $3 million bankers acceptance issued by the National Bank of Canada
on October 9, 1996 which matures on January 8, 1997.
8. Outstanding Letters of Credit
<TABLE>
<CAPTION>
BANK TYPE L/C NO. BENEFICIARY EXPIRATION DATE AMOUNT
- ---- ---- ------- ----------- --------------- ------
<S> <C> <C> <C> <C> <C>
Marshall & Ills Import IM28819 Cuero Art 10-28-96 $ 166,277
Marshall & Ilsley Stand-by SB4099 Antonio Esposito 10-31-96 150,000
Marshall & Ilsley Import 11433 11-13-96 188,609
1st Natl of Chicago Stand-by 00315594 GECC 08-01-97 145,985
1st Natl of Chicago Stand-by 00315715 Wausau Ins 07-01-97 1,850,000
1st Natl of Chicago Import 373166 Grunbaum 12-15-96 1,350,000
1st Natl of Chicago Import 373170 Cuero Art 12-30-96 1,000,000
1st Natl of Chicago Stand-by 219457 Excel Corp. 12-31-96 1,000,000
</TABLE>
<PAGE>
EXHIBIT C
---------
INDEBTEDNESS; ENCUMBRANCES; GUARANTEES
--------------------------------------
<TABLE>
<CAPTION>
II. Existing Encumbrances
Debtor Creditor Juris./File No. Description
- ------ -------- --------------- -----------
<S> <C> <C> <C>
United States Amplicon, Inc. Floyd, IN Equip. Lease
Leather, Inc. 2888
("USL")
USL Amplicon, Inc. IN--SS Equip. Lease
2055107
USL/Caldwell Bohnert Equipment Co. Inc. IN--SS Equip. Lease
Moser Leather Div. 1998720
USL/Caldwell Bohnert Equipment Co. Inc. IN--SS Equip. Lease
Moser Leather Div. 1994703
USL Martel Lift Systems, Inc. NE--SS Equip. Lease
667494
USL Martel Lift Systems, Inc. NE--SS Equip. Lease
675998
USL AT&T Credit Corporation NE--SS Equip. Lease
682638
USL Amplicon, Inc. NE--SS Equip. Lease
694864
Lackawanna Metro Leasing Company NE--SS Equip. Lease
Leather Co. 652803
656681 (amend.)
USL AT&T Credit Corporation Catawba, NC Equip. Lease
962058
USL M&I First Nat. Lsing Corp. Catawba, NC Equip. Lease
930011
Lackawana M&I First Nat. Lsing Corp. NC--SS Equip. Lease
Leather Company 0955672
Div. of PVL
</TABLE>
<PAGE>
Limited Partnership
<PAGE>
<TABLE>
<CAPTION>
Debtor Creditor Juris./File No. Description
- ------ -------- --------------- -----------
<S> <C> <C> <C>
USL, AT&T Credit Corporation NC--SS Equip. Lease
Lackawana 1360856
Leather Div.
PVL Limited Pitney Bowes Credit Corp. NC--SS Equip. Lease
Partnership 0848520
Pfister & M&I First Nat. Lsing Corp. WI--SS Equip. Lease
Vogel Tanning 1273217
Co., division of 1383952 (amend.)
PVL Limited
Partnership I
(amended to:
Pfister & Vogel
Leather Company
Div. of USL)
Pfister & M&I First Nat. Lsing Corp. WI--SS Equip. Lease
Vogel Tanning 1254321
Co., division of 1293095 (amend.)
PVL Limited 1383953 (amend.)
Partnership I
(amended to:
Pfister & Vogel
Leather Company
Div. of USL)
Pfister & M&I First Nat. Lsing Corp. WI--SS Equip. Lease
Vogel Tanning 1315192
Co., division of 1385314 (amend.)
PVL Limited
Partnership I
(amended to:
Pfister & Vogel
Leather Company
Div. of USL)
The Lackawana M&I First Nat. Lsing Corp. WI--SS Equip. Lease
Leather Company, 1323419
Div. of PVL
Limited Partnership
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Debtor Creditor Juris./File No. Description
- ------ -------- --------------- -----------
<S> <C> <C> <C>
USL M&I First Nat. Lsing Corp. WI--SS Equip. Lease
1332538
1342027 (amend.)
A. L. Gebhardt M&I First Nat. Lsing Corp. WI--SS Equip. Lease
Company Inc. 1343863
1357450 (amend.)
USL Yale Financial Serv. Inc. WI--SS Equip. Lease
1429401
Pfister & American Industrial Leasing WI--SS Equip. Lease
Vogel Tanning 1559036
Co., division of
PVL Limited
Partnership I
USL IBM Credit Corporation WI--SS Equip. Lease
1543868
USL IBM Credit Corporation WI--SS Equip. Lease
1569722
USL Amplicon, Inc. WI--SS Equip. Lease
1586910
PVL Limited GECC WI--SS Equip. Lease
Partnership I 1218562
Pfister & GECC WI--SS Equip. Lease
Vogel Tanning 1218563
Co., division of
PVL Limited
Partnership I
A.R. Clarke & Co. V.W. Credit Canada Inc. Ontario Car Lease
Limited 005682988
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Debtor Creditor Juris./File No. Description
- ------ -------- --------------- -----------
<S> <C> <C> <C>
PVL Limited Heller Financial Inc. U.S. TM Office TM: "Lacka-
Partnership I 1243644 wana Genuine
Leather and
Design"
PVL Limited Heller Financial Inc. U.S. TM Office TM: "Nutra"
Partnership I 1367630
PVL Limited Heller Financial Inc. U.S. TM Office TM: "Aniline
Partnership I 1541528 Plus"
PVL Limited Heller Financial Inc. U.S. TM Office TM: "Playshu"
Partnership I 623796
PVL Limited Heller Financial Inc. U.S. TM Office TM: "Parka"
Partnership I 652891
PVL Limited Heller Financial Inc. U.S. TM Office TM: "Cortina"
Partnership I 647641
PVL Limited Heller Financial Inc. U.S. TM Office TM: "Velours"
Partnership I 638922
</TABLE>
* Including existing encumbrances, if any, on patents to be provided pursuant
to the post closing letter.
<PAGE>
EXHIBIT C
---------
INDEBTEDNESS; ENCUMBRANCES; GUARANTEES
--------------------------------------
III. Existing Guarantor
10 1/4% Senior Notes due July 31, 2003.
$135 million issued August, 1993.
$130 million outstanding at Closing. See
attached Indenture dated August 2, 1993
- Bank loan dated October 29, 1993
for new finishing plant in Berlin, WI
Original amount $1 million
Current balance due $693,000.
- Capital leases - see Disclosure Schedule D
- USL, Inc. guarantee of debt of Clarke as will
be required by this agreement (no attachment)
<PAGE>
EXHIBIT D
---------
DISCLOSURES
-----------
States or Provinces of Incorporation for each Borrower:
- ------------------------------------------------------
United States Leather, Inc.: Wisconsin
A.R. Clarke Limited: Ontario
<PAGE>
EXHIBIT D
---------
DISCLOSURES
-----------
Labor Union Agreements:
- ----------------------
Pfister & Vogel Teamsters "General"
Lackawanna Leather Hourly United Food & Commercial
Workers Union
Local 204 and 271
A.R. Clarke (Canada) Hourly United Food & Commercial
Workers Union - Local 175
<PAGE>
EXHIBIT D
---------
DISCLOSURES
-----------
<TABLE>
<CAPTION>
Depository Banks:
- ----------------
<S> <C>
First Chicago National Bank Lock Box Acct. No. 55-33767
Chicago, IL Operating Acct. No. 94-17648
Health Insurance Acct. No. 94-18199
PNC Bank Indiana, Inc. Lock Box Acct. No. 38-4013-8452
New Albany, IN 47150
Nationsbank Lock Box Acct. No. 61030433
Hickory, NC 28601
National Bank of Canada U.S. Acct. No. 537-60
Toronto, Ontario General Acct. No. 6501-23
</TABLE>
<PAGE>
EXHIBIT D
---------
DISCLOSURES
-----------
Material Agreements and Contracts:
- ---------------------------------
1. Robert Koe Severance Agreement
2. Martin Goodwin Severance Agreement
3. Kenneth Friedman Severance Agreement
4. James Crowley Severance Agreement
5. Financial Consulting Agreeement with Claymore Partners Ltd.
6. Robert Hale Employment Agreement
7. Sales Representation Agreement with Dan Brierton/Midland Trading Co.
8. Edible Hide Collagen Conract - Teepak
<PAGE>
EXHIBIT D
---------
DISCLOSURES
-----------
Jurisdictions Requiring Qualification to do Business (Sec. 4.1):
- ---------------------------------------------------------------
United States Leather, Inc., a Wisconsin corporation, is qualified to do
business in the following jurisdictions:
California *
Indiana
Illinois *
Maine
Nebraska
New York *
North Carolina
Pennsylvania
Texas
Kansas *
* Indicates jurisdictions were the dissolution or withdrawal from
qualification is in process.
A.R. Clarke Limited, an Ontario corporation, is qualified to do business
in the Provice of Ontario, Canada
<PAGE>
EXHIBIT D
---------
DISCLOSURES
-----------
<TABLE>
<CAPTION>
Location of Collateral and Records of Accounts (Sec. 4.6):
- ---------------------------------------------------------
<S> <C> <C>
UNITED STATES LEATHER, INC. 1110 N. Old World Corporate Office
Third Street (Ste. 400)
Milwaukee, WI 53203
(Leased)
PFISTER & VOGEL LEATHER 1483, 1531, 1635, 1645 Mfg. Plant & Shipping
N. Water St. Center
Milwaukee, WI 53202
1403 W. Bruce St. Warehouse
Milwaukee, WI 53204
2300 W. Cornell St. Warehouse (Processed)
Milwaukee, WI 53209 & Environmental
(Recycling)
A.L. GEBHARDT 2615 W. Greves St. Mfg. Plant
Milwaukee, WI 53233
1215, 1237 W. Bruce St. Sales, Marketing Offices
Milwaukee, WI 53204 Shipping Center
1228 W. Bruce St. Split Mfg. Plant
Milwaukee, WI 53204
BERLIN TANNING 235 S. Wisconsin St. Main Plant
Berlin, WI 54923
Industrial Park Rd. Finishing Plant
Berlin, WI 54923
CALDWELL/MOSER Silver & Albany Streets Mfg. Plant & Offices
New Albany, IN
LACKAWANNA LEATHER CO. 106 Somerset Dr. N.C. Headquarters
Conover, NC 28613
2420 "Z" St. Main Plant
Omaha, NE 68107
2405 "Z" St. Roth Building - Collagen
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Omaha, NE 68107 Production & Warehouse
8948-56 "J" St. Cut Plant - Auto
Omaha, NE 68107
(Leased)
Warehouse - Auto Cut
10C Zane Grey Sets
El Paso, TX 79906
(Leased)
A.R. CLARKE LIMITED 633 Eastern Avenue Mfg. Plant
Toronto, Ontario
Canada M4M 1E5
Pfister & Vogel Leather Business Rt. 1, Suite 32C Sales Office
Yarmouth, ME 04096
UNITED STATES LEATHER, INC. 4F-02 No. 324 Sec. 1 Asian Sales Office
Wen Shin Road,
Taichung, Taiwan,
R.O.C.
Taiwan, R.O.C.
(Rented)
</TABLE>
LOCATIONS OF COLLATERAL (ETC.)
------------------------------
DOMESTIC THIRD PARTY LOCATIONS
------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Omaha Cold Storage 5025 S. 33rd St. Public Warehouse
Omaha, NE 68107
Fashion Tanning 6 Van Road Mfg. Services
Gloversville, NY 12078
Townsend Leather 4549 Townsend Avenue Mfg. Services
Johnstown, NY 12095
</TABLE>
FOREIGN THIRD PARTY LOCATIONS
-----------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
A.A. Crack & Sons 18 Henry Street Agent Facility
Northampton, England
Fritz International 6023-6027W, 6/FL Centre B Public Warehouse
Transportation Asia Terminals Centre, Perth 3
(HK) Ltd. Kwai Chung Container Terminal
Kwai Chung, Hong Kong
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Schomisch GMBH P.O. Box 185526 German Branch
* IM Teelbruch 136
D-4300 Essesn-Kettwig
Freudenburg Pty. Ltd. 3 Brand Drive Agent Facility
Thomastown, VIC 3074
Australia
</TABLE>
* In process of shutting down this operation.
<PAGE>
EXHIBIT D
---------
DISCLOSURES
-----------
Litigation (Sec. 4.11):
1. See Exhibit D - Environmental for PRP locations. No PRP location is
expected to have a material adverse affect.
2. On September 27, 1996, the Company received penalty notices from the
Department of Treasury - U.S. Customs Service alleging a violation of 19
U.S.C. 1592 for the following amounts:
The Company is contesting the size of the penalty and has made a settlement
offer.
3. Until the consummation of the 1996 Holdings Recapitalization (as defined in
the December 31, 1995 Form 10-K of USL), Holdings intends to treat the
$86.0 million (outstanding at March 15, 1996) in aggregate principal amount
of 15% Senior Debentures due 2004 (the "Holdings Debentures") as
indebtedness for federal income tax purposes and claim interest payments
thereunder as deductions for income tax purposes. Because of the
inherently factual nature of the determination and the lack of Treasury
Regulations promulgated under applicable sections of the Internal Revenue
Code of 1986, as amended (the "Code"), however, there can be no assurance
that the Internal Revenue Service will not challenge this characterization
and assert that the Holdings Debentures constitute equity for federal
income tax purposes. If such challenge were successful, the interest paid
on the Holding Debentures would not be deductible. In such event, USL
would be severally liable with Holdings and the other members of the
Holdings consolidated group for the deficiency in taxes relating thereto.
USL does not believe, however, that any such deficiency will have a
material adverse affect on the financial condition or results of operations
of USL. USL has not sought a formal legal opinion from its tax counsel as
to the deductibility of interest payments made on the Holdings Debentures.
4. See Exhibit D - Unfair Labor Practice Complaints Labor Disputes and Union
Representation
<PAGE>
EXHIBIT D
---------
DISCLOSURES
-----------
Responsible Party Sites under CERCLA (Sec. 4.15(b)):
See the items set forth in the Disclosure Letter dated as of the date
hereof among the Borrowers and the Agent.
<PAGE>
EXHIBIT D
---------
DISCLOSURES
-----------
Unfair Labor Practice Complaints, Labor Disputes and Union Representation (Sec.
4.20):
1. Notice to reopen labor contract with Pfister & Vogel Hourly, represented by
Teamster Local 200.
2. Pending Arbitrations with Lackawanna Leather Hourly, represented by UFCW
Locals 204 and 271.
3. Pending arbitration on contract language as to how seventh consecutive day
of work as defined.
4. Pending arbitration with former employee Thomas Egan over his termination
for violating attendance policy.
5. CONOVER
Pending arbitration with former employee Eric O. Thompson over his
termination for gross negligence on the job.
No dates have been set for these arbitrations. Arbitrations two and three
likely to be settled prior to actual arbitration.
<PAGE>
EXHIBIT D
---------
DISCLOSURES
-----------
Insider Transactions with Borrower (Sec. 4.21):
- ----------------------------------------------
Financial Consulting Agreement with Claymore Partners Ltd.
<PAGE>
EXHIBIT D
---------
DISCLOSURES
-----------
Capital Leases (Sec. 4.23):
- --------------------------
Master Lease Agreement dated as of July 11, 1991 between General Electric
Capital Corporation and Pfister & Vogel Tanning Co.
<PAGE>
EXHIBIT D
---------
DISCLOSURES
-----------
Conflicts with and Encumbrances on Franchises, Patents, Copyrights, etc.
(Sec. 4.24):
See Exhibit C
<PAGE>
EXHIBIT E
---------
SUBSIDIARIES
------------
United States Leather, Inc., a Wisconsin corporation, has the following
subsidiaries, all of which are 100% owned:
- PVL International, Inc. (Barbados), which is a FSC
- A.R. Clarke Limited (Ontario)
- ALG International, Inc., which is an inactive entity
In addition, USL is establishing a representative office in Taiwan and is
closing a branch office in Germany.
<PAGE>
EXHIBIT F
---------
[LOCATIONS OF REAL PROPERTY]
<TABLE>
<CAPTION>
<S> <C> <C>
UNITED STATES LEATHER, INC. 1110 N. Old World Third Street (Ste.400) Corporate Office
Milwaukee, WI 53203 (Leased)
PFISTER & VOGEL LEATHER 1483, 1531, 1635, 1645 N. Water St. Mfg. Plant & Shipping
Milwaukee, WI 53202 Center
1403 W. Bruce St. Warehouse
Milwaukee, WI 53204
2300 W. Cornell St. Warehouse (Processed)
Milwaukee, WI 53209 & Environmental
(Recycling)
A.L. GEBHARDT 2615 W. Greves St. Mfg. Plant
Milwaukee, WI 53233
1215, 1237 W. Bruce St. Sales, Marketing Offices
Milwaukee, WI 53204 Shipping Center
1228 W. Bruce St. Split Mfg. Plant
Milwaukee, WI 53204
BERLIN TANNING 235 S. Wisconsin St. Main Plant
Berlin, WI 54923
Industrial Park Rd. Finishing Plant
Berlin, WI 54923
CALDWELL/MOSER Silver & Albany Streets Mfg. Plant & Offices
New Albany, IN
LACKAWANNA LEATHER CO. 106 Somerset Dr. N.C. Headquarters
Conover, NC 28613
2420 "Z" St. Main Plant
Omaha, NE 68107
2405 "Z" St. Roth Building - Collagen
Omaha, NE 68107 Production & Warehouse
8948-56 "J" St. Cut Plant - Auto
Omaha, NE 68107 (Leased)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
10C Zane Grey Warehouse - Auto Cut
El Paso, TX 79906 (Leased) Sets
A.R. CLARKE LIMITED 633 Eastern Avenue Mfg. Plant
Toronto, Ontario
Canada M4M 1E5
Pfister & Vogel Leather Business Rt. 1 , Suite 32C Sales Office
Yarmouth, ME 04096
UNITED STATES LEATHER, INC. 4F-02 No. 324 Sec. 1 Asian Sales Office
Wen Shin Road,
Taichung, Taiwan,
R.O.C.
Taiwan, R.O.C. (Rented)
</TABLE>
<PAGE>
EXHIBIT I
---------
SEPARATENESS COVENANTS
(TO BE INSERTED IN CHARTER OF HOLDINGS)
Single Purpose: The purpose of the Company shall be limited to (i) holding
100% of the capital stock of United States Leather, Inc., a Wisconsin
corporation ("USL"); and (ii) engaging in other activity in connection with and
in furtherance of the foregoing, and the Company shall not engage in any other
business, activity or purpose. The Company shall not incur any liabilities or
indebtedness, whether secured, unsecured, contingent or unliquidated, other than
liabilities or indebtedness incurred in the ordinary course of the Company's
business. The Company shall not acquire or have any material assets other than
the capital stock of USL.
Separateness Covenants: So long as the Revolving Credit Agreement, dated
as of October 31, 1996, among USL, A.R. Clarke Limited ("Clarke"), The First
National Bank of Boston ("FNBB"), as agent for the Banks (as defined therein),
and the Banks is in effect (as may be amended from time to time, the "Loan
Agreement"), USL or Clarke has any unsatisfied monetary obligations thereunder
and the Banks are committed to extend any credit to USL or Clarke thereunder,
the Company shall not:
(a) guarantee or pay any obligations, indebtedness or liabilities of
any Affiliate, hold out its credit as being available to satisfy the
obligations, indebtedness or liabilities of another, or pledge its
assets for the benefit of any Affiliate other than as contemplated by
the Loan Agreement or the Pledge Agreement between the Company and
FNBB as agent for the Banks of even date with the Loan Agreement;
(b) commingle any of its funds, assets or liabilities with those of
any other Person or Affiliate;
(c) take any action that, by itself or together with any other action
or event, violates or prevents the ability of the Company or an
Affiliate to comply with the Loan Agreement; and
As used herein, the term "Affiliate" shall have the same meaning ascribed
to it in the Loan Agreement, and shall include, without limitation, USL, Clarke
and Leather U.S., Inc., a Delaware corporation.
As used herein, the term "Person" shall include an individual, a company, a
corporation, an association, a partnership, a limited liability company, a joint
venture, an unincorporated trade or business enterprise, a trust, an estate, or
a government (national, regional or local) or an agency, instrumentality or
official thereof.
<PAGE>
No Amendments: The Company shall not amend, alter, change or repeal the
Single Purpose Provisions and Separateness Covenants set forth above so long as
the Loan Agreement is in effect, USL or Clarke has any unsatisfied monetary
obligations thereunder and any of the Banks are committed to extend any credit
to USL or Clarke thereunder.
<PAGE>
SCHEDULE 1
----------
[UCC Filing locations to be provided by Borrowers]
<PAGE>
This SECURITY AGREEMENT is made as of October __, 1996 among UNITED STATES
LEATHER, INC., a Wisconsin corporation having its principal place of business
and chief executive office at 1110 North Old World Third Street, Suite 400,
Milwaukee, Wisconsin 53203 (collectively with all of its divisions, the
"Borrower"), The First National Bank of Boston, a national banking association
with its head office at 100 Federal Street, Boston, Massachusetts 02110, in its
capacity as Agent (the "Agent") for the Banks (collectively, the "Banks") under
(and as defined in) the Loan Agreement referred to below.
WHEREAS, the Borrower has requested the Banks and the Agent to enter into a
certain Revolving Credit Agreement of even date herewith (as the same may be
amended from time to time, the "Loan Agreement") pursuant to which the Banks
will make certain loans to the Borrower, and the Canadian Bank (as defined in
the Loan Agreement) will make certain loans to the Borrower's wholly owned
Subsidiary, A.R. Clarke Limited, upon the terms and subject to the conditions
set forth therein;
WHEREAS, the Banks and the Agent are unwilling to enter into the Loan
Agreement and to make any loans thereunder unless the Borrower shall execute and
deliver this Security Agreement and grant the security interests herein
provided;
NOW, THEREFORE, in order to induce the Banks and the Agent to enter into
the Loan Agreement, and to make or extend to the Borrower one or more loans,
advances, or other extensions of credit and issue letters of credit for the
account of the Borrower, and in consideration thereof, and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
1. Definitions. The following terms shall have the meanings set forth
below. All capitalized terms used herein, but not defined herein, shall have the
same meanings as set forth in the Loan Agreement. Terms not otherwise defined
herein or therein shall have the meanings ascribed to them, if any, under the
Massachusetts Uniform Commercial Code.
"Account" or "Accounts Receivable" means, individually and
collectively, all of the Borrower's accounts, accounts receivable, notes, bills,
drafts, acceptances, instruments, documents, chattel paper and all other debts,
obligations and liabilities in whatever form owing to the Borrower from any
person for goods sold by it or for services rendered by it, or however otherwise
established or created, all rights to payment for goods sold or leased or for
services rendered and all sums of money or other proceeds due or becoming due
thereon, all guarantees and security therefor, all right, title and interest
-1-
<PAGE>
of the Borrower in the goods or services which gave rise thereto, including
rights to reclamation and stoppage in transit, all rights of an unpaid seller of
goods or services, and all related insurance; whether any of the foregoing be
now existing or hereafter arising, now or hereafter received by or owing or
belonging to the Borrower.
"Collateral" means all personal property, fixtures on real property
now or hereafter owned by the Borrower and trade fixtures of the Borrower of
every kind and description, tangible or intangible, whether now or hereafter
existing, whether now owned or hereafter acquired, and wherever located,
including, but not limited to, the following: all Inventory of the Borrower; all
goods of the Borrower other than Inventory; all furniture, fixtures on real
property now or hereafter owned by the Borrower and trade fixtures and similar
property of the Borrower; all machinery and equipment of the Borrower; all
Accounts of the Borrower; all contract rights of the Borrower, including without
limitation, all rights of the Borrower as a bailee; all other rights of the
Borrower to the payment of money, including without limitation amounts due from
Affiliates, bailors, tax refunds, and insurance proceeds; any and all rights the
Borrower may have pursuant to a bailee's lien; all interests of the Borrower in
goods as to which an Account shall have arisen; all files, records (including
without limitation computer programs, tapes and related electronic data
processing software to the extent any licenses are transferable) and writings of
the Borrower or in which the Borrower has an interest in any way relating to the
foregoing property; all goods, instruments, documents of title, policies and
certificates of insurance, securities, chattel paper, deposits, cash or other
property owned by the Borrower or in which the Borrower has an interest which
are now or may hereafter be in the possession of the Agent or any Bank or as to
which the Agent or any Bank may now or hereafter control possession by documents
of title or otherwise; all general intangibles of the Borrower (including
without limitation all patents, trademarks, trade names, service marks,
copyrights and applications for any of the foregoing; all goodwill connected
with the use of and symbolized by trademarks, trade names and service marks of
the Debtor; all rights to use patents, trademarks, trade names, service marks
and copyrights of any person; and any rights of the Borrower to retrieval from
third parties of electronically processed and recorded information pertaining to
any of the types of collateral referred to in this definition); any other
personal property of the Borrower, tangible or intangible, in which the Agent or
any Bank now has or hereafter acquires a security interest or which is now or
may hereafter be in the possession of the Agent or any Bank; any sums at any
time credited by or due from the Agent or any Bank to the Borrower, including
deposits; and proceeds and products of and accessions to all of the foregoing.
"Default" shall have the same meaning ascribed to such term in the
Loan Agreement.
"Event of Default" same meaning ascribed to such term in the Loan
Agreement.
-2-
<PAGE>
"Inventory" means all of the Borrower's inventory of whatever name,
nature, kind or description, all goods held for sale or lease or that are
furnished or to be furnished under contracts of service, finished goods, work in
process, raw materials, materials used or consumed or to be used or consumed by
the Borrower, all parts, supplies, chemicals, wrapping, packaging, advertising,
labeling, and shipping materials, devices, names and marks, all contracts,
rights and documents relating to any of the foregoing, whether any of the
foregoing be now existing or hereafter arising, wherever located, now owned or
hereafter acquired by the Borrower.
"Obligations" shall have the meaning ascribed to such term in the Loan
Agreement.
2. Satisfaction of Obligations. The Borrower hereby promises to pay or
otherwise satisfy all Obligations when the same shall become due, whether at
maturity, by acceleration or otherwise.
3. Grant of Security Interest.
3.1 Collateral. As security for the prompt and unconditional payment
and performance of the Obligations, the Borrower hereby grants to the Agent, for
the ratable benefit of the Banks and the Agent, a continuing security interest
in all Collateral, whether now owned or existing or hereafter arising or
acquired and wherever located; and in each case in all proceeds, products, and
accessions thereof, all causes of action and remedies relating thereto and all
guaranties and security therefor. The Borrower agrees that the security interest
herein granted has attached and shall continue until the Obligations have been
paid, performed and indefeasibly discharged in full and the Banks are not
committed to extend any credit to the Borrower under the Loan Agreement or under
any other Loan Document.
3.2 Deposits. Any and all deposits or other sums at any time credited
by or due from the Agent or any Bank or any of their respective affiliates to
the Borrower shall at all times constitute security for Obligations and, upon
the occurrence and during the continuation of a Default or Event of Default, may
be set-off against any Obligations at any time whether or not they are then
adequate. Any and all instruments, documents, policies and action, general
intangibles, chattel paper, cash, insurance proceeds, tax refunds, property and
the proceeds thereof (whether or not the same are Collateral or proceeds
thereof) owned by the Borrower or in which the Borrower has an interest, which
now or hereafter are at any time in possession or control of the Agent or any
Bank or any of their respective affiliates or in transit by mail or carrier to
or from the Agent or any Bank or such affiliate or in the possession of any
third party acting in its behalf, without regard to whether the Agent or such
Bank or such affiliate received the same in pledge, for safekeeping, as agent
for collection or transmission or otherwise or had conditionally released the
same, shall constitute security for Obligations and, upon the occurrence and
during the continuation of a Default or Event of Default, may be applied at any
time to Obligations which are then owing, whether due or not due.
-3-
<PAGE>
3.3 Insurance. The Borrower hereby assigns to the Agent, for the
ratable benefit of the Banks and the Agent, all sums, including, without
limitation, return of premiums, which may become payable to the Borrower or the
Agent under any of Borrower's policies of insurance and directs each insurance
company issuing any such policy to make payment thereof directly to the Agent,
for the ratable benefit of the Banks and the Agent, provided, however, that so
long as there exists at that time no event or condition which constitutes a
Default or Event of Default, the Agent agrees to disburse to the Borrower up to
$3,500,000 in the aggregate of the amounts received by the Agent in respect of
insured losses, so long as the Borrower uses such amounts solely for the purpose
of reinvesting in assets performing the same or similar functions.
4. Collateral.
4.1 Location of Collateral. The Borrower's principal place of
business is located at the address shown on Exhibit A hereto and the records
relating to the Borrower's Accounts Receivable are kept at the addresses listed
on Exhibit A hereto. The Borrower will not change such principal place of
business without giving thirty (30) days' prior written notice to the Agent. The
Collateral will be kept at the location(s) listed on Exhibit A and such new
locations as the Borrower shall establish not sooner than twenty (20) days after
having given written notice thereof to the Agent. The Borrower hereby grants to
the Agent , for a term commencing on the date hereof and continuing so long as
any of the Obligations remain outstanding, at a rental of $1.00 for such entire
term, the right, upon the occurrence and during the continuation of a Default or
Event of Default, to the use of all premises or places of business which the
Borrower now or hereafter may have and where any Collateral may be located for
the purpose of exercising its rights against Collateral.
4.2 Instruments. If any Accounts Receivable are at any time
evidenced by promissory notes, trade acceptances or other instruments for the
payment of money, the Borrower will immediately deliver the same to the Agent,
for the ratable benefit of the Banks and the Agent, appropriately endorsed to
the Agent's order and, regardless of the form of such endorsement, the Borrower
hereby waives presentment, demand, notice of dishonor, protest, notice of
protest and all other notices with respect thereto; provided, however, the
Borrower shall have 30 days from the date hereof to deliver to the Agent
promissory notes, trade acceptances or other instruments existing as of the date
hereof.
4.3 No Transfers. Except as expressly permitted by the Loan
Agreement, the Borrower shall not sell, lease or transfer or further encumber
any of the Collateral (except that Inventory may be sold in the ordinary course
of business) without the prior written consent of the Agent and the Banks to the
extent provided in the Loan Agreement until the Agent has reasonably determined
that the Obligations have been indefeasibly discharged in full and the Banks are
not committed to extend any credit to the Borrower under the Loan Agreement or
under any other Loan Document.
-4-
<PAGE>
4.4 Representations. The Borrower represents, warrants and agrees as
follows:
(a) The Borrower has no knowledge of any fact that would impair the
validity or make uncollectible any material amount of the Collateral that is
Accounts Receivable (other than Ineligible Accounts or Accounts Receivable
excluded on the Borrowing Base Report or Weekly Base Report), chattel paper,
general intangibles, contract rights, documents or instruments, and, to the best
of the Borrower's knowledge, each obligor liable upon such Collateral has and
will have capacity to contract.
(b) The items making up the Inventory at any time (other than an
immaterial amount of Inventory at such time or Inventory from discontinued
operations) are and will be genuine and saleable in the ordinary course of the
Borrower's business.
(c) Each Account Receivable is and will be a true and correct
statement of the actual indebtedness incurred by each Account debtor with
respect thereto, and arises and will arise out of or in connection with the sale
or lease of goods or for the rendering of services by the Borrower to each such
Account debtor.
(d) No presently effective financing statement under the Uniform
Commercial Code naming the Borrower as debtor is on file in any jurisdiction and
the Borrower has not signed any presently effective security agreement
authorizing any secured party thereunder to file a financing statement except in
each case for the Agent and Permitted Encumbrances as defined in the Loan
Agreement.
(e) The Borrower's exact legal name is set forth at the beginning of
this Agreement and the Borrower does not conduct business under any other name
except as set forth on Exhibit A attached hereto.
(f) At the time that the Borrower pledges, sells, assigns or
transfers to the Agent any instrument, document of title, security, chattel
paper or other property or any proceeds or products thereof, or any interest
therein, the Borrower shall be the lawful owner thereof, or the lawful holder of
the leasehold interest therein, and shall have good right to pledge, sell,
assign or transfer the same, subject only to the Permitted Encumbrances; and the
Borrower shall defend the same against the claims and demands of all persons.
5. Proceeds of Collateral.
5.1 Collection By the Borrower. Until the Agent exercises its right
to collect the proceeds of the Borrower's Accounts Receivable, Inventory,
instruments, chattel paper, general intangibles, contract rights and other
Collateral pursuant to this Agreement, the Borrower will collect with diligence
all such proceeds. Subject to
-5-
<PAGE>
Section 2.8 of the Loan Agreement and the Cash Management Agreements, the
Borrower will hold in trust for the Agent all checks, drafts, cash and other
remittances that are proceeds of Collateral. The Agent will credit proceeds of
Collateral received by the Agent (conditional upon final collection) against
interest accrued on or principal of Revolving Loans or other Obligations
outstanding hereunder; provided that for purposes of computing interest, the
Borrower shall not be given credit for proceeds of Collateral until they are
converted into cash or immediately available funds (for purposes of determining
the Borrowing Base, the Borrower shall be given immediate credit for the same).
Subject to Section 2.8 of the Loan Agreement and the Cash Management Agreements,
the order and method of application of the proceeds of Collateral shall be in
the Agent's sole discretion. Subject to the Loan Agreement and the Cash
Management Agreements, at any time the Agent and the Banks shall have the right
to require the Borrower (i) to enter into a lockbox arrangement with the Agent
or its representative or designee for the collection of such remittances and
payments or (ii) to maintain its deposit accounts at the Agent or, in the
alternative, at another financial institution which has agreed to accept drafts
drawn on it by the Agent under a written depository transfer agreement with the
Agent, and to block the Borrower's account and waive its own rights as against
such account.
5.2 Collection By the Agent. At the Agent's request, upon the
occurrence and during the continuance of a Default or Event of Default, the
Borrower will notify account debtors that Collateral has been assigned to the
Agent, and that payments by such debtors shall be made directly to the Agent,
and give instruction and/or dictate on billings to such debtors that their
Accounts Receivable shall be paid to the Agent. The Agent may at any time,
without prior notice to the Borrower, if a Default or Event of Default has
occurred and is continuing, collect the proceeds of the Borrower's Accounts
Receivable, Inventory, instruments, chattel paper, general intangibles, contract
rights and other Collateral, and give notice of assignment thereof to any and
all debtors thereof, and the Borrower does hereby make, constitute and appoint
the Agent its irrevocable, true and lawful attorney in fact with power upon the
occurrence and during the continuance of a Default or Event of Default: to
receive, open and dispose of all mail addressed to the Borrower; to take
possession of, sign, endorse the name of the Borrower upon and collect any
notes, drafts, money orders, demands, checks, instruments, payments (including
payments payable under or with respect to any policy of insurance), evidences of
payment, agreements, documents, and other writings that may come into the
possession of the Agent or any Bank in connection with the Collateral or as
proceeds of Collateral; in the Borrower's name or otherwise, to demand, sue for,
collect and give acquittances for, any and all moneys due or to become due upon
the Collateral; to compromise, prosecute or defend any action, claim or
proceeding with respect thereto; and to do any and all things necessary or
desirable to carry out the purposes herein contemplated.
-6-
<PAGE>
6. Protection of Security Interest.
6.1 By the Borrower. The Borrower shall continuously take all steps
that are necessary or prudent to protect and maintain the security interest of
the Agent in the Collateral. Without limiting the generality of the foregoing,
the Borrower shall:
6.1.1 No Liens. Not create, grant or permit to exist any security
interest or lien in or on any of the Collateral, except as permitted by the Loan
Agreement;
6.1.2 Books. Keep and maintain separate books (in form and substance
satisfactory to the Agent) relating to the Collateral at its principal place of
business and other addresses listed on Exhibit A hereto, not remove the same
without the prior written consent of the Agent, and allow the Banks, through the
Agent or the Agent's designees, access to the books and to the Collateral at any
reasonable time and from time to time (and at all times after the occurrence of
a Default or Event of Default) for the purpose of examination, verification,
copying, extracting or other purposes as the Agent or the Banks may require;
6.1.3 Maintenance. Maintain, preserve and protect all Collateral,
keep all Collateral in good condition and repair (ordinary wear and tear
excepted) and prevent any material waste or unusual or unreasonable depreciation
thereof;
6.1.4 Copies. Deliver to the Agent promptly at its reasonable
request all schedules, lists, invoices, original bills of lading, documents of
title, original purchase orders, receipts, agreements, writings and other items
relating to the Collateral;
6.1.5 Notice. Upon request of the Agent, make, stamp or record on
any of the Borrower's books relating to the Collateral entries or legends with
respect to the Agent's security interest, including, without limitation,
notation of the security interest of the Agent on any certificates of title or
other evidence of ownership outstanding with respect thereto, and post notices
thereof upon the Collateral or in and about designated areas where the
Collateral or any portion thereof may be stored, kept or used, from time to
time;
6.1.6 Filings. Join with the Agent at its request from time to time
in executing financing statements, amendments thereto and continuation
statements, and pay the cost of filing the same wherever the Agent reasonably
deems desirable, and do, make, execute and deliver all additional and further
acts, things, deeds, powers of attorney, assurances, writings, and instruments
that the Agent may reasonably require to vest completely in it and assure to it
its rights hereunder and in and to the Collateral;
6.1.7 Assignments Under the Federal Assignment of Claims Act. If any
Accounts Receivable arise from contracts with the United States or any
department, agency or instrumentality thereof, immediately notify the Agent
thereof and execute any instruments and take any steps reasonably requested by
the Agent in order
-7-
<PAGE>
that all monies due and to become due thereunder shall be assigned to the Agent
and notice thereof given to the Federal authorities under the Federal Assignment
of Claims Act;
6.1.8 Adverse Interests. Promptly notify the Agent of the existence
of any claims, liens, security interests, rights, attachments or other
Encumbrances, other than a Permitted Encumbrance having a value less than
$3,000,000, that may be or become adverse to the interest of the Agent in any of
the Collateral; and defend the Collateral against all claims, liens, security
interests, demands and other Encumbrances of third parties at any time claiming
an interest in the Collateral that is adverse to the security interest granted
to the Agent (other than those expressly permitted by the Loan Agreement), and
reimburse the Agent for any expenses it may incur in satisfying any of the
foregoing;
6.1.9 Insurance. Maintain insurance on the Collateral as required by
the Loan Agreement or other Loan Documents;
6.1.10 Loss. Notify the Agent in the event of a material loss of or
damage to the Collateral; of any loss, theft, damage or destruction to or of any
material asset(s) of the Borrower not covered by insurance; of any reclamation
or repossession of or any action by a creditor to reclaim or repossess any
material asset(s) of the Borrower; of any material adverse change in the
Collateral; and of any other occurrence that may materially adversely affect the
security interest of the Agent in the Collateral;
6.1.11 Inventory. At least ANNUALLY (except for those items which
are being inventoried on a "cycle count" basis) and whenever else reasonably
requested by the Agent, take a physical listing of all Inventory and provide a
copy (certified by an authorized officer of Borrower to be true, correct and
complete) of any listing of Inventory, and perform any and all further steps
requested by the Agent to perfect the Agent's security interest in Inventory,
such as leasing warehouses to the Agent or its designee, placing and maintaining
signs, appointing custodians, maintaining stock records and transferring
Inventory to warehouses;
6.1.12 Valuation. Notify the Agent in the event of any change in the
basis for valuing Inventory;
6.1.13 Name. Notify the Agent at least 30 days before changing its
legal name or doing business under any name other than its legal name or the
names set forth on Exhibit A;
6.1.14 Expenses. Pay all expenses incurred with respect to the
purchase, manufacture, delivery, use, repair, storage or other handling of the
Collateral, and reimburse the Agent for all reasonable expenses and all taxes
that the Agent may incur, including, without limitation, any and all reasonable
attorneys' fees and costs.
-8-
<PAGE>
6.2 Agent Action. The Agent is hereby authorized and permitted to take
any action at any time (except as expressly limited below) it reasonably deems
necessary or prudent to protect the Collateral or its security interest in the
Collateral, and the Borrower agrees to reimburse the Agent for the same. Without
limiting the generality of the foregoing, the Borrower hereby grants to the
Agent the right, at the Agent's sole discretion:
6.2.1 U.C.C. Statements. To sign and file in the name and on behalf of
the Borrower one or more financing statements under any applicable Uniform
Commercial Code naming the Borrower as debtor and the Agent as secured party and
indicating therein the types or describing the items of Collateral herein
specified;
6.2.2 Communication with Debtors. At any time, in its own name or in
the name of others, to communicate with account debtors in order to verify with
them to the Agent's satisfaction the existence, amount and terms of any Accounts
Receivable and the absence of any reductions, discounts, defenses or offsets
with respect thereto; provided, however, that prior to the occurrence of a
Default or Event of Default, the Agent shall communicate with such account
debtors only in the name of others and not in its own name;
6.2.3 Taxes. To (i) discharge taxes and liens levied or placed on
Collateral except those not yet due and payable or those contested in accordance
with the terms of the Loan Agreement; (ii) pay for insurance thereon or the
maintenance and preservation thereof; or (iii) if the Borrower shall fail to
make deposits in respect of F.I.C.A. and withholding taxes, make such deposits
or pay such taxes, in whole or in part, or set up such reserves as the Agent
shall deem reasonably necessary in respect of the Borrower's liability therefor.
Any amount so paid, deposited or reserved for shall constitute a Revolving Loan
under the Loan Agreement. Nothing herein shall be deemed to obligate the Agent
to do any of the foregoing and the making of any one or more such payments,
deposits or reserves shall not constitute an agreement by the Agent to take any
further or similar action or a waiver of any right of the Agent hereunder.
7. Default and Remedies.
7.1 Action after Default. Whenever any Event of Default shall have
occurred and be continuing, the Agent may, at its option and without demand
first made and without notice to the Borrower:
7.1.1 Immediately, or from time to time, take possession of the
Collateral, or any of it, wherever it may be found, using all necessary force so
to do as permitted by law, or, from time to time, require the Borrower to
assemble the Collateral, or any of it, and make it available to the Agent at a
place designated by the Agent that is reasonably convenient to the Borrower and
the Agent, and the Borrower waives all claims for damages due to, arising from
or connected with any such taking;
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7.1.2 From time to time, proceed in the foreclosure of the Agent's
security interest and sale of the Collateral, or any of it, in any manner
permitted by law or provided for herein;
7.1.3 Sell, lease or otherwise dispose of the Collateral, or any of
it, at public or private sale, with or without having the Collateral, or any of
it, at the place of sale, and upon terms and in such manner as the Agent may
determine. Except for Collateral which is perishable or threatens to decline
speedily in value or which is of a type customarily sold on a recognized market,
the Agent shall give the Borrower at least ten (10) days' prior written notice
of the time and place of any public sale of Collateral or of the time after
which any private sale or other intended disposition is to be made, which notice
the Borrower agrees is reasonable. The Agent may bid for any of the Collateral
at any public sale and acquire the same free from any redemption right, and in
lieu of paying cash therefor may make settlement for the selling price by
crediting upon the Obligations, the net selling price after deducting all
reasonable costs and expenses in any way relating thereto;
7.1.4 From time to time in the Agent's sole discretion, postpone the
time and change the place of any proposed public sale of any of the Collateral
that has been noticed as provided above, upon at least one (1) day's prior oral
or written notice to the Borrower (which notice the Borrower agrees is
reasonable) of the new time and place of such sale (which time shall be at least
five (5) days after such notice of postponement is given to the Borrower)
whenever, in the Agent's judgment, such postponement or change is necessary or
appropriate in order that the provisions of this Security Agreement applicable
to such sale may be fulfilled or in order to obtain more favorable conditions
under which such sale may take place;
7.1.5 In case of any sale by the Agent of any of the Collateral on
credit or for future delivery (which may be elected in the Agent's sole
discretion), retain the Collateral so sold until the full selling price is paid
by the purchaser, and the Agent shall incur no liability in case of failure of
the purchaser to take up and pay for the Collateral so sold. In case of any such
failure, the Collateral so sold may again be similarly sold;
7.1.6 Retain the Collateral in full, or any portion of it in partial,
satisfaction of the Obligations secured hereby;
7.1.7 Act as attorney in fact for the Borrower in obtaining,
adjusting, settling and canceling insurance, endorsing any checks or drafts, and
applying any amounts collected or received by the Agent to obligations or at the
option of the Agent, releasing the same to the Borrower, but such application or
release shall not cure or waive any Default or Event of Default hereunder or
under any other Loan Document and no amount so released shall be deemed a
payment on any Obligations secured hereby;
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<PAGE>
7.1.8 Settle, compromise or adjust any suit, action or proceeding
against or by the Borrower with respect to any Collateral and in connection
therewith, give such discharges or releases as the Agent may deem appropriate
and, generally, sell, transfer, pledge, make any agreement with respect to or
otherwise deal with any of the Collateral as fully and completely as though the
Agent were absolute owner thereof for all purposes;
7.1.9 As to the Collateral that is Accounts Receivable, chattel paper,
deposit accounts, instruments, general intangibles or contract rights, in its
own name or in the name of the Borrower:
(i) Take any action permitted under Section 5.2 relating to
such Collateral or in connection therewith, sign and endorse any
invoices, drafts against debtors, assignments, verifications and
notices in connection therewith or in connection with other documents
relating to the Collateral;
(ii) Receive payment of, receipt for, settle, compromise or
adjust and give discharges and releases for or in respect of any and
all moneys, claims and other amounts due and to become due at any time
under or arising out of the Collateral;
(iii) File any claim and take other action in any court of
law or equity or otherwise deemed appropriate by the Agent for the
purpose of collecting any and all such moneys whenever payable
relating thereto, although the Agent shall not be required or
obligated in any manner to make any demand or make any inquiry as to
the nature or sufficiency of any payment received by it, or present or
file any claim or take any action to collect or enforce the payment of
any amounts that may have been assigned to it or to which it may be
entitled hereunder at any time or times;
(iv) Give written notice to officials of the United States
Post Office to effect change or changes of address so that all mail
addressed to the Borrower may be delivered directly to a Post Office
box or to any other depository that may be selected by the Agent
(which is hereby consented to by the Borrower), and receive, open and
dispose of all mail addressed to the Borrower; and
(v) Direct obligors or any other party liable for the
payment thereunder to make payment of any and all moneys at any time
payable in connection therewith directly to the Agent or to an agent
specified by it; and notwithstanding the foregoing, neither this
Security Agreement nor the receipt by the Agent of any
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<PAGE>
payment pursuant hereto shall cause the Agent to be under any
obligation or liability in any respect to an obligor or any other
party for the performance or observance of any of the
representations, warranties, conditions or terms of any invoice,
agreement or other document issued or executed in connection with
any Account Receivable;
7.1.10 Exercise any and all remedies of a secured party under
the Massachusetts or other applicable Uniform Commercial Code or as otherwise
provided by law.
7.2 Additional Provisions.
7.2.1 The Borrower authorizes the Agent to carry out the above
remedial steps and irrevocably makes, constitutes, and appoints the Agent and
any officer or agent thereof with full power of substitution as the Borrower's
true and lawful attorney in fact in connection therewith.
7.2.2 The Borrower hereby waives, to the full extent permitted
by law, the benefit of all appraisement, valuation, stay, extension and
redemption laws now or hereafter in force, and all rights of marshalling in the
event of any sale or other disposition of any of the Collateral.
7.2.3 Prior to any disposition of Collateral, the Agent may, at
its option, cause any of the Collateral to be repaired or reconditioned in such
manner and to such extent as the Agent reasonably deems advisable, and any sums
expended therefor by the Agent shall constitute Obligations to be repaid by the
Borrower and shall be secured hereby. The Agent shall have the right to pursue
any remedy that it may have hereunder or by law. If a sufficient sum is not
realized from any such disposition of Collateral to pay all of the Obligations,
the Borrower hereby promises and agrees to pay the Agent any deficiency.
7.2.4 The receipt of the Agent for the purchase money paid at
any sale of Collateral made by the Agent shall be a sufficient discharge
therefor to any purchaser of any of the Collateral sold as provided above. No
such purchaser (or his or its representatives or assigns), after paying such
purchase money and receiving such receipt, shall be bound to see to the
application of such purchase money or any part thereof or be answerable in any
manner for any loss, misapplication or nonapplication of any such purchase
money, or be bound to inquire as to the authorization, necessity, expediency or
regularity of any such sale.
7.2.5 Under no circumstances shall the Agent be deemed to
assume any responsibility for or obligation or duty with respect to any part or
all of the Collateral of any nature or kind, or any matter or proceedings
arising out of or relating thereto, but the same shall be at the Borrower's sole
risk at all times. The Agent shall not
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<PAGE>
be required to take any action of any kind to collect, preserve or protect its
or the Borrower's rights in the Collateral or against other parties thereto. The
Agent's prior recourse to any part or all of the Collateral shall not constitute
a condition of any demand, suit or proceeding for payment or collection of the
Obligations.
7.3 Priority of Payment. Any amounts collected pursuant to action
taken under this Section 7 shall be paid to the Agent, for the ratable benefit
of the Banks and the Agent, and applied first, to the payment of any costs
incurred by the Agent in taking such action, including any and all attorneys'
fees and costs reasonably incurred; and second, to all fees and charges due
solely to the Agent for its own account under the Loan Agreement, and third, to
payment of all sums due to the Agent and the other Banks on account of and in
the following order: fees and charges, interest, outstanding principal and other
Obligations due to all of the Banks pro rata in accordance with each Bank's
respective percentage of Revolving Loans then outstanding; and the excess, if
any, shall be paid to the Borrower.
7.4 No Remedy Exclusive. No remedy herein conferred upon or reserved
to the Agent is intended to be exclusive of any other available remedy or
remedies, but each and every such remedy shall be cumulative and shall be in
addition to every other remedy given under this Agreement or now or hereafter
existing at law or in equity or by statute. No course of dealing on the part of
the Agent and no delay or omission to exercise any right or power accruing upon
the occurrence of any Default or Event of Default shall impair such right or
power or shall be construed to be a waiver thereof, but any such right and power
may be exercised from time to time and as often as may be deemed expedient. In
order to entitle the Agent to exercise any remedy reserved to it in this Section
7, it shall not be necessary to give any notice, other than any notice or
notices expressly required in this Section 7.
8. General.
8.1 Successors and Assigns. This Security Agreement shall inure to
the benefit of and shall be binding upon the parties hereto and their respective
successors and assigns whether or not an express assignment of rights hereunder
is made. No other person shall acquire or have any right under or by virtue of
this Security Agreement.
8.2 Provisions to Survive. All representations, warranties,
covenants and agreements contained in this Security Agreement shall survive the
execution and delivery of the Loan Documents.
8.3 Partial Invalidity. The invalidity or unenforceability of any
one or more phrases, clauses or sections of this Security Agreement or any other
Loan Document under particular circumstances shall not affect the validity or
enforceability thereof under other circumstances or the validity or
enforceability of the remaining portions of this Security Agreement.
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<PAGE>
8.4 Amendments. This Security Agreement may be amended, modified and
supplemented only by written agreement of the parties hereto and, if required
under Section 9.8 of the Loan Agreement, the prior written consent or approval
of the Majority Banks or all of the Banks.
8.5 Waivers. No waiver of any rights or remedies hereunder shall be
deemed made by the Agent or any Bank or any subsequent holder of the Revolving
Credit Notes under any circumstances unless in writing and duly signed on behalf
of the Agent, such Bank or such holder, as the case may be. Any such written
waiver shall apply only to the particular instance specified therein and shall
not impair the further exercise of the right or remedy involved.
8.6 Execution and Counterparts. This Security Agreement may be
executed in several counterparts, each of which shall be an original and all of
which shall constitute one and the same instrument.
8.7 Captions. Captions and headings in this Security Agreement are
for convenience only and in no way define, limit or describe the scope or intent
of the provisions hereof.
8.8 Written Notices. Any notices, expressly required by this
Agreement to be in writing, to any party hereto shall be given in accordance
with Section 9.1 of the Loan Agreement.
8.9 Governing Law. This Security Agreement shall be governed by, and
construed in accordance with, the laws of the Commonwealth of Massachusetts
(without giving effect to provisions relating to conflicts of law). Any legal
action or proceeding arising out of or relating to this Agreement or any
Obligation may be instituted in the courts of the Commonwealth of Massachusetts
or of the United States of America for the District of Massachusetts, and the
Borrower hereby irrevocably submits to the jurisdiction of each such court in
any such action or proceeding, provided, however, that the foregoing shall not
limit the Agent's rights to bring any legal action or proceeding in any other
appropriate jurisdiction in which event, at the Agent's option, the laws of such
jurisdiction or of the Commonwealth of Massachusetts shall apply. Personal
jurisdiction over the Borrower may be obtained by the service of a summons or
similar legal document to the Borrower's address for notices under this
Agreement.
8.10 Exhibits. The Exhibits attached hereto are incorporated herein
for all purposes, and shall be considered a part of this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and sealed by their duly authorized officers or representatives,
all as of the date first above written.
UNITED STATES LEATHER, INC.
By:_________________________
Title:
THE FIRST NATIONAL BANK OF
BOSTON, as Agent
By:_________________________
Title:
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<PAGE>
EXHIBIT A
---------
I. Borrower's Principal Place of Business:
---------------------------------------
Address:
1110 North Old World Third Street
Suite 400
Milwaukee, Wisconsin 53203
II. Other Locations of Collateral:
------------------------------
(a) Pfister & Vogel Leather
-----------------------
1483, 1531, 1635, 1645 N. Water Street
Milwaukee, WI 53202
1403 W. Bruce Street
Milwaukee, WI 53204
2300 W. Cornell Street
Milwaukee, WI 53209
Business Rt. 1, Suite 32C
Yarmouth, ME 04096
(b) A.L. Gebhardt
-------------
2615 W. Greves Street
Milwaukee, WI 53233
1215, 1237 W. Bruce Street
Milwaukee, WI 53204
1228 W. Bruce Street
Milwaukee, WI 53204
(c) Berlin Tanning
--------------
235 S. Wisconsin Street
Berlin, WI 54923
Industrial Park Rd.
Berlin, WI 54923
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(d) Caldwell/Moser
--------------
Silver & Albany Streets
New Albany, IN
(e) Lackawanna Leather Co.
----------------------
106 Somerset Dr.
Conover, NC 28613
2420 "Z" St.
Omaha, NE 68107
2405 "Z" St.
Omaha, NE 68107
8948-56 "J" St.
Omaha, NE 68107 (Leased)
10C Zane Grey
El Paso, TX 79906 (Leased)
(f) A.R. Clarke Limited
-------------------
633 Eastern Avenue
Toronto, Ontario
Canada M4MlE5
(g) Third Party Locations
---------------------
Omaha Cold Storage
------------------
5025 S. 33rd Street
Omaha, NE 68107
Fashion Tanning
---------------
6 Van Road
Gloversville, NY 12078
Townsend Leather
----------------
4549 Townsend Avenue
Johnstown, NY 12095
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<PAGE>
III. Other Names:
------------
A.L. Gebhardt
Lackawanna Leather
Lackawanna Automotive
Pfister & Vogel
Caldwell/Moser
A.R. Clarke Limited
Caldwell/Moser Leather Company
A.L. Gebhardt Company
Pfister & Vogel Leather Company
P&V
Lackawanna Leather Co.
A.L. Gebhardt International, Inc.
P.V.L. International, Inc.
United States Leather, Inc. Automotive Group
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<PAGE>
PLEDGE AGREEMENT
----------------
PLEDGE AGREEMENT dated as of ______________, 1996 by and between UNITED
STATES LEATHER HOLDINGS, INC., a Delaware corporation having its principal place
of business and chief executive offices at 1110 North Old World Third Street,
Suite 400, Milwaukee, Wisconsin 53203, (the "Pledgor"), and THE FIRST NATIONAL
BANK OF BOSTON, a national bank with its head office at 100 Federal Street,
Boston, Massachusetts 02110, acting in its capacity as agent for the Banks
(collectively, the "Banks") under (and as defined in) the Loan Agreement
referred to below (the "Pledgee").
WHEREAS, Pledgor is the owner of 100% of the issued and outstanding shares
of Stock (as hereinafter defined) of United States Leather, Inc., a Wisconsin
corporation ("USL"); and
WHEREAS, in order to induce the Banks to make loans and other extensions of
credit under the Loan Agreement referred to below, and in consideration thereof,
the Pledgor wishes to pledge all of the Stock of USL to the Pledgee, for the
benefit and on behalf of the Banks, on the terms and conditions described
herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Definitions. The following terms shall have the meanings set forth
below. Terms not otherwise defined herein shall have the meanings ascribed to
them in that certain Revolving Credit Agreement among USL, A.R. Clarke Limited
("Clarke"), the Banks and the Pledgee dated as of the date hereof (as the same
may be amended from time to time, the "Loan Agreement") or under the
Massachusetts Uniform Commercial Code.
"Collateral" means the Pledged Stock and all other securities of USL
and monies received and held by the Pledgee hereunder or in which a security
interest is granted hereby and which are required to be delivered to the Pledgee
hereunder.
"Default" shall have the same meaning ascribed to such term in the
Loan Agreement.
"Event of Default" shall have the same meaning ascribed to such term
in the Loan Agreement.
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<PAGE>
"Loan Documents" shall have the same meaning as in the Loan Agreement.
"Obligations" shall have the meaning ascribed to such term in the Loan
Agreement.
"Pledged Stock" means all Stock at any time pledged or required to be
pledged hereunder.
"Stock" means all of the issued and outstanding capital stock of USL
at any time owned by the Pledgor and any other or additional securities at the
time pledged to the Pledgee hereunder.
2. Pledge; Delivery.
2.1 As security for the prompt and unconditional payment and
performance by the Borrower of the Obligations, the Pledgor hereby pledges,
assigns and transfers to the Pledgee and grants the Pledgee a security interest
in the Stock owned by the Pledgor on the date hereof as described in Exhibit A
attached hereto and in the Collateral, whether now owned or hereafter acquired.
In furtherance thereof, the Pledgor hereby delivers to the Pledgee certificates
for said Stock accompanied by stock powers duly executed in blank by the Pledgor
and hereby assigns, transfers and sets over to the Pledgee all of the Pledgor's
right, title and interest in and to such certificates to be held by the Pledgee
upon the terms and conditions set forth in this Pledge Agreement. In addition,
the Pledgor delivers herewith to the Pledgee true and correct copies of the
stock transfer books of USL to be held by the Pledgee for the duration of the
pledge hereunder. If the Pledgor shall acquire by purchase, stock dividend or
otherwise any additional Stock or other Collateral at any time or from time to
time after the date hereof, the Pledgor will forthwith pledge and deposit the
same with the Pledgee hereunder and deliver to the Pledgee certificates
therefor, accompanied by stock powers duly executed in blank by the Pledgor.
2.2 The Pledgee may, in its sole discretion and at any time or times,
after the occurrence and during the continuance of an Event of Default, cause
the Pledged Stock and any other securities constituting Collateral to be
transferred into its own name or the name or names of its nominee or nominees or
successor in interest on the books of the issuer of such securities, and the
Pledgor hereby constitutes and appoints the Pledgee, its employees, agents,
successors and assigns to be the attorney-in-fact of the Pledgor to effect any
such transfer.
2.3 If any Default or Event of Default shall have occurred and be
continuing, the Pledgee may, in its sole discretion and at any time or times,
collect, receive and hold as additional Collateral all dividends, distributions
and other income on the Pledged Stock and the other Collateral.
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<PAGE>
3. Representations and Warranties of the Pledgor. The Pledgor represents
and warrants to the Pledgee as follows:
3.1 The Pledgor has and has duly exercised all requisite power and
authority to enter into this Pledge Agreement, to pledge the Pledged Stock and
other Collateral for the purposes described in Section 2, and to carry out the
transactions contemplated by this Pledge Agreement;
3.2 The Pledgor is the legal and beneficial owner of all of the
Pledged Stock;
3.3 The Pledged Stock constitutes all of the issued and outstanding
capital stock of USL, as described on Exhibit A attached hereto;
3.4 All of the shares of the Stock have been duly and validly issued,
are fully paid and nonassessable, and are owned by the Pledgor free of any
pledge, mortgage, hypothecation, lien, charge, encumbrance or security interest
in such shares or the proceeds thereof, except for that granted hereunder; and
3.5 Upon delivery of the Stock to the Pledgee or its agent, this
Pledge Agreement shall create a valid first lien upon and perfected security
interest in the Pledged Stock and the proceeds thereof, subject to no prior
security interest, lien, charge or encumbrance, or to any agreement purporting
to grant to any third party a security interest in the property or assets of the
Pledgor which would include the Stock.
4. Voting. Unless a Default or Event of Default shall have occurred and
be continuing, the Pledgor shall be entitled to vote any and all shares of the
Pledged Stock and to give consents, waivers or ratifications in respect thereof,
provided that no vote shall be cast or consent, waiver or ratification given or
action taken which would violate or be inconsistent with any of the terms of
this Pledge Agreement or the other Loan Documents or which would have the effect
of impairing the position or interests of the Pledgee. Upon the occurrence and
during the continuance of a Default or Event of Default, the Pledgee shall have
the right to vote, and to give consents, waivers and ratifications with respect
to, the Pledged Stock, provided that if the Pledgee elects not to exercise such
rights at any time, the Pledgor may continue to exercise such rights, provided
that the Pledgor shall not take any vote or other action with respect to such
Pledged Stock that would have an adverse effect on the Pledgee.
5. Remedies Upon an Event of Default.
5.1 In case an Event of Default shall have occurred and be
continuing, the Pledgee shall be entitled to exercise all of its rights, powers
and remedies (whether vested in it by this Pledge Agreement, the other Loan
Documents or by law) for the protection and enforcement of its rights in respect
of the Collateral, and the Pledgee shall be entitled, without limitation, to
exercise the following rights (in addition to the rights
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<PAGE>
and remedies of a secured party under the Uniform Commercial Code of
Massachusetts) which Pledgor hereby agrees shall be commercially reasonable:
(a) to vote all or any part of the Pledged Stock (whether or not
transferred into the name of the Pledgee) and give all consents, waivers and
ratifications in respect of the Collateral and otherwise act with respect
thereto as though it were the outright owner thereof (the Pledgor hereby
irrevocably constituting and appointing the Pledgee, its employees, agents,
successors and assigns the proxy and attorney-in-fact of Pledgor, with full
power of substitution to do so); and
(b) at any time or from time to time to sell, assign and deliver, or
grant options to purchase, all or any part of the Collateral, or any interest
therein, at any public or private sale without demand of performance,
advertisement or notice of intention to sell or of the time or place of sale or
adjournment thereof or to redeem or otherwise, all of which are hereby waived by
the Pledgor, for cash, on credit or for other property, for immediate or future
delivery without any assumption of credit risk, and for such price or prices and
on such terms as the Pledgee in its absolute discretion may determine, provided
that at least ten (10) days prior notice of the time and place of any such sale
shall be given to Pledgor.
5.2 If any of the Collateral is sold by the Pledgee upon credit or
for future delivery, the Pledgee shall not be liable for the failure of the
purchaser to pay for the same and in such event the Pledgee may resell such
Collateral. The Pledgee may buy any part or all of the Collateral at any public
sale and if any part or all of the Collateral is of a type customarily sold in a
recognized market or is of the type which is the subject of widely-distributed
standard price quotations, the Pledgee may buy at a private sale and may make
payment therefor by any means including, without limitation, cancellation of
indebtedness secured thereby.
5.3 The Pledgor recognizes that the Pledgee may be unable to effect a
public sale of the Stock or other Collateral by reason of certain prohibitions
contained in the Securities Act of 1933, as amended, or in other applicable
laws, regulations, or agreements to which such Stock or other Collateral may be
subject but may be compelled to resort to one or more private sales thereof to a
restricted group of purchasers. The Pledgor agrees that any such private sales
may be at prices and other terms less favorable to the seller than if sold at
public sales and that such private sales shall be deemed to have been made in a
"commercially reasonable" manner within the meaning of Section 9-504(3) of the
Uniform Commercial Code of the Commonwealth of Massachusetts, provided that the
notice specified in Section 5.1 shall have been given to the Pledgor. The
Pledgee shall be under no obligation to delay a sale of any of the Stock or
other Collateral for the period of time necessary to permit the issuer of such
securities to register such securities for public sale under the Securities Act
of 1933, as amended, even if the issuer would agree to do so.
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<PAGE>
5.4 At any sale of Collateral, unless prohibited by applicable law,
the Pledgee or any holder of the Obligations may bid for and purchase all or any
part of the Collateral so sold free from any such right or equity of redemption.
5.5 The Pledgor shall, upon the occurrence of an Event of Default,
immediately deliver to the Pledgee the stock transfer books of USL.
6. Remedies Cumulative. Each right, power and remedy of the Pledgee or
any holder of the Obligations provided for in this Pledge Agreement, the other
Loan Documents or in any of the other documents, instruments or agreements
securing the Obligations or now or hereafter existing at law or in equity or by
statute shall be cumulative and concurrent and shall be in addition to every
other such right, power or remedy. The exercise or beginning of the exercise by
the Pledgee or any holder of the Obligations of any one or more of the rights,
powers or remedies provided for in this Pledge Agreement, the other Loan
Documents or in any such other document, instrument or agreement now or
hereafter existing at law or in equity or by statute or otherwise shall not
preclude the simultaneous or later exercise by the Pledgee or any holder of the
Obligations of all such other rights, powers or remedies, and no failure or
delay on the part of the Pledgee or any holder of the Obligations to exercise
any such right, power or remedy shall operate as a waiver thereof.
7. Application of Moneys by the Pledgee. All moneys collected upon any
sale of the Collateral hereunder, together with all other moneys received by the
Pledgee hereunder, shall be applied as follows (i) First, to the payment of all
reasonable costs and expenses incurred by the Pledgee in connection with such
sale, the delivery of the Collateral or the collection of any such moneys
(including, without limitation, attorneys' fees and expenses reasonably
incurred); (ii) Second, to the payment of all fees and charges due solely to the
Agent for its own account under the Loan Agreement; (iii) Third, to the payment
of all sums due to the Agent and the other Banks on account of and in the
following order: fees and charges, interest, outstanding principal and other
Obligations due to all of the Banks pro rata in accordance with each Bank's
respective percentage of Revolving Loans then outstanding; and (iv) Fourth, to
the Pledgor to the extent of any surplus proceeds.
8. Transfer By the Pledgor. The Pledgor will not sell or otherwise
dispose of, grant any option with respect to, or mortgage, pledge or otherwise
encumber (except pursuant to this Pledge Agreement or as otherwise permitted by
the Loan Documents) any of the Collateral or any interest therein or consent to
or approve the issuance of any additional shares of any class of capital stock
of USL; or any securities convertible voluntarily by the holder thereof or
automatically upon the occurrence or nonoccurrence of any event or condition
into, or exchangeable for, any such shares; or any warrants, options, rights, or
other commitments entitling any person to purchase or otherwise acquire any such
shares.
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<PAGE>
9. The Pledgor's Obligations Absolute. The Obligations of the Pledgor
under this Pledge Agreement shall be absolute and unconditional and shall remain
in full force and effect without regard to, and shall not be released,
suspended, discharged, terminated or otherwise affected by any circumstance or
occurrence whatsoever, including, without limitation: (a) any renewal,
extension, amendment or modification of or addition or supplement to or deletion
from the other Loan Documents, or any assignment or transfer of the other Loan
Documents; (b) any waiver, consent, extension, indulgence or other action or
inaction under or in respect of the Loan Documents; (c) any furnishing of any
additional security to the Pledgee or its assignee or any acceptance thereof or
any release of any security by the Pledgee or its assignee; (d) any limitation
on any party's liability or obligations under the Loan Documents or any
invalidity or unenforceablity, in whole or in part, of the same; or (e) any
bankruptcy, insolvency, reorganization, composition, adjustment, dissolution,
liquidation or other like proceeding relating to the Pledgor, USL or Clarke, or
any action taken with respect to this Pledge Agreement by any trustee or
receiver or by any court, in any such proceeding; whether or not the Pledgor
shall have notice or knowledge of any of the foregoing.
10. Further Assurances. The Pledgor at its expense will execute,
acknowledge and deliver all such instruments and take all such action as the
Pledgee from time to time may reasonably request in order to further effectuate
the purposes of this Pledge Agreement and to carry out the terms hereof.
11. The Pledgee's Exoneration. Under no circumstances shall the Pledgee
be deemed to assume any responsibility for or obligation or duty with respect to
any part or all of the Collateral of any nature or kind, or any matter or
proceedings arising out of or relating thereto, but the same shall be at the
Pledgor's sole risk at all times. The Pledgee shall not be required to take any
action of any kind to collect, preserve or protect its or the Pledgor's rights
in the Collateral or against other parties thereto. The Pledgee's prior recourse
to any part or all of the Collateral shall not constitute a condition of any
demand, suit or proceeding for payment or collection of the Obligations.
12. No Waiver, Etc. The Pledgee may exercise its rights with respect to
the Collateral without resorting or regard to other collateral or sources of
reimbursement. The Pledgee shall not be deemed to have waived any of its rights
upon or under the Obligations or the Collateral unless such waiver be in writing
and signed by the Pledgee. No delay or omission on the part of the Pledgee in
exercising any right under this Pledge Agreement shall operate as a waiver of
such right or any other right. A waiver on any one occasion shall not be
construed as a bar to or waiver of any right on any future occasion. All rights
and remedies of the Pledgee on the Obligations or the Collateral, whether
evidenced hereby or by any other instrument or papers, shall be cumulative and
may be exercised separately or concurrently.
13. Termination. When all Obligations have been paid, performed and
indefeasibly discharged in full, and if at such time the Banks are not committed
to extend any credit to USL under the Loan Agreement or any other Loan Document,
this Pledge
-6-
<PAGE>
Agreement shall terminate and the Pledgee, at the expense of the Pledgor, will
duly assign, transfer and deliver to the Pledgor, or its successors or assigns,
as the case may be, such of the Collateral as has not theretofore been sold or
otherwise applied or released pursuant to this Pledge Agreement.
14. Miscellaneous.
14.1 Successors and Assigns. This Pledge Agreement shall inure to
the benefit of and shall be binding upon the parties hereto and their respective
successors and assigns whether or not an express assignment of rights hereunder
is made. No other person shall acquire or have any right under or by virtue of
this Pledge Agreement.
14.2 Provisions to Survive. All representations, warranties,
covenants and agreements contained in this Pledge Agreement shall survive the
execution and delivery of the Loan Documents and shall continue until the
Obligations have been paid, performed and indefeasibly discharged in full and
the Banks are not committed to extend any credit to USL or Clarke under the Loan
Agreement or under any other Loan Document.
14.3 Partial Invalidity. The invalidity or unenforceability of any
one or more phrases, clauses or sections of this Pledge Agreement or any other
Loan Document under particular circumstances shall not affect the validity or
enforceability thereof under other circumstances or the validity or
enforceability of the remaining portions of this Pledge Agreement.
14.4 Amendments. This Pledge Agreement may be amended, modified and
supplemented only by written agreement of the parties hereto.
14.5 Execution and Counterparts. This Pledge Agreement may be
executed in several counterparts, each of which shall be an original and all of
which shall constitute one and the same instrument.
14.6 Captions. Captions and headings in this Pledge Agreement are
for convenience only and in no way define, limit or describe the scope or intent
of the provisions hereof.
14.7 Notices. All notices, certificates or other communications
hereunder shall be in writing and shall be given in accordance with Section 9.1
of the Loan Agreement.
14.8 Governing Law. This Pledge Agreement shall be governed by, and
construed in accordance with, the laws of the Commonwealth of Massachusetts
without regard to principles of conflicts of laws.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Pledge Agreement to be
duly executed and sealed by their duly authorized officers or representatives,
all as of the date first above written.
UNITED STATES LEATHER
HOLDINGS, INC.
By_______________________________
Title:
THE FIRST NATIONAL BANK OF
BOSTON, as Agent
By_________________________________
Title:
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
Name/Address State of No. of Shares
of USL Incorporation Class of Stock Outstanding
------ ------------- -------------- -------------
<S> <C> <C> <C>
United States Leather, Inc. Wisconsin Common 100
1110 North Old World Third
Street, Suite 400
Milwaukee, WI 53203
</TABLE>
<PAGE>
PLEDGE AGREEMENT
----------------
PLEDGE AGREEMENT dated as of ______________, 1996 by and between UNITED
STATES LEATHER, INC., a Wisconsin corporation having its principal place of
business and chief executive offices at 1110 North Old World Third Street, Suite
400, Milwaukee, Wisconsin 53203, (the "Pledgor"), and THE FIRST NATIONAL BANK OF
BOSTON, a national bank with its head office at 100 Federal Street, Boston,
Massachusetts 02110, acting in its capacity as agent for the Banks
(collectively, the "Banks") under (and as defined in) the Loan Agreement
referred to below (the "Pledgee").
WHEREAS, Pledgor is the owner of 100% of the issued and outstanding shares
of Stock (as hereinafter defined) of A.R. Clarke Limited, an Ontario, Canada
corporation ("Clarke"); and
WHEREAS, in order to induce the Banks to make loans and other extensions of
credit under the Loan Agreement referred to below, and in consideration thereof,
the Pledgor wishes to pledge 66% of the Stock of Clarke to the Pledgee, for the
benefit and on behalf of the Banks, on the terms and conditions described
herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Definitions. The following terms shall have the meanings set forth
below. Terms not otherwise defined herein shall have the meanings ascribed to
them in that certain Revolving Credit Agreement among Pledgor, Clarke, the Banks
and the Pledgee dated as of the date hereof (as the same may be amended from
time to time, the "Loan Agreement") or under the Massachusetts Uniform
Commercial Code.
"Collateral" means the Pledged Stock and all other securities of
Clarke and monies received and held by the Pledgee hereunder or in which a
security interest is granted hereby and which are required to be delivered to
the Pledgee hereunder.
"Default" shall have the same meaning ascribed to such term in the
Loan Agreement.
"Event of Default" shall have the same meaning ascribed to such term
in the Loan Agreement.
-1-
<PAGE>
"Loan Documents" shall have the same meaning as in the Loan Agreement.
"Obligations" shall have the meaning ascribed to such term in the Loan
Agreement.
"Pledged Stock" means all Stock at any time pledged or required to be
pledged hereunder.
"Stock" means 66% of the issued and outstanding capital stock of
Clarke (as described in Exhibit A hereto) at any time owned by the Pledgor and
any other or additional securities at the time pledged to the Pledgee hereunder.
2. Pledge; Delivery.
2.1 As security for the prompt and unconditional payment and
performance by the Borrower of the Obligations, the Pledgor hereby pledges,
assigns and transfers to the Pledgee and grants the Pledgee a security interest
in the Stock owned by the Pledgor on the date hereof and in the Collateral,
whether now owned or hereafter acquired. In furtherance thereof, the Pledgor
hereby delivers to the Pledgee certificates for said Stock accompanied by stock
powers duly executed in blank by the Pledgor and hereby assigns, transfers and
sets over to the Pledgee all of the Pledgor's right, title and interest in and
to such certificates to be held by the Pledgee upon the terms and conditions set
forth in this Pledge Agreement. In addition, the Pledgor delivers herewith to
the Pledgee true and correct copies of the stock transfer books of Clarke to be
held by the Pledgee for the duration of the pledge hereunder. If the Pledgor
shall acquire by purchase, stock dividend or otherwise any additional Stock or
other Collateral at any time or from time to time after the date hereof, the
Pledgor will forthwith pledge and deposit the same with the Pledgee hereunder
and deliver to the Pledgee certificates therefor, accompanied by stock powers
duly executed in blank by the Pledgor.
2.2 The Pledgee may, in its sole discretion and at any time or times,
after the occurrence and during the continuance of an Event of Default, cause
the Pledged Stock and any other securities constituting Collateral to be
transferred into its own name or the name or names of its nominee or nominees or
successor in interest on the books of the issuer of such securities, and the
Pledgor hereby constitutes and appoints the Pledgee, its employees, agents,
successors and assigns to be the attorney-in-fact of the Pledgor to effect any
such transfer.
2.3 If any Default or Event of Default shall have occurred and be
continuing, the Pledgee may, in its sole discretion and at any time or times,
collect, receive and hold as additional Collateral all dividends, distributions
and other income on the Pledged Stock and the other Collateral.
-2-
<PAGE>
3. Representations and Warranties of the Pledgor. The Pledgor represents
and warrants to the Pledgee as follows:
3.1 The Pledgor has and has duly exercised all requisite power and
authority to enter into this Pledge Agreement, to pledge the Pledged Stock and
other Collateral for the purposes described in Section 2, and to carry out the
transactions contemplated by this Pledge Agreement;
3.2 The Pledgor is the legal and beneficial owner of all of the
issued and outstanding capital stock of Clarke as described in Exhibit A hereto;
3.3 The Pledged Stock constitutes 66% of the issued and outstanding
capital stock of Clarke;
3.4 All of the shares of the issued and outstanding capital stock of
Clarke Stock have been duly and validly issued, are fully paid and
nonassessable, and are owned by the Pledgor free of any pledge, mortgage,
hypothecation, lien, charge, encumbrance or security interest in such shares or
the proceeds thereof, except for that granted hereunder and except for that
granted to the Canadian Bank as contemplated by the Loan Documents; and
3.5 Upon delivery of the Stock to the Pledgee or its agent, this
Pledge Agreement shall create a valid first lien upon and perfected security
interest in the Pledged Stock and the proceeds thereof, subject to no prior
security interest, lien, charge or encumbrance, or to any agreement purporting
to grant to any third party a security interest in the property or assets of the
Pledgor which would include the Stock.
4. Voting. Unless a Default shall have occurred and is continuing, the
Pledgor shall be entitled to vote any and all shares of the Pledged Stock and to
give consents, waivers or ratifications in respect thereof, provided that no
vote shall be cast or consent, waiver or ratification given or action taken
which would violate or be inconsistent with any of the terms of this Pledge
Agreement or the other Loan Documents or which would have the effect of
impairing the position or interests of the Pledgee. Upon the occurrence and
during the continuance of a Default, the Pledgee shall have the right to vote,
and to give consents, waivers and ratifications with respect to, the Pledged
Stock, provided that if the Pledgee elects not to exercise such rights at any
time, the Pledgor may continue to exercise such rights, provided that the
Pledgor shall not take any vote or other action with respect to such Pledged
Stock that would have an adverse effect on the Pledgee.
5. Remedies Upon an Event of Default.
5.1 In case an Event of Default shall have occurred and be
continuing, the Pledgee shall be entitled to exercise all of its rights, powers
and remedies (whether vested in it by this Pledge Agreement, the other Loan
Documents or by law) for the
-3-
<PAGE>
protection and enforcement of its rights in respect of the Collateral, and the
Pledgee shall be entitled, without limitation, to exercise the following rights
(in addition to the rights and remedies of a secured party under the Uniform
Commercial Code of Massachusetts) which Pledgor hereby agrees shall be
commercially reasonable:
(a) to vote all or any part of the Pledged Stock (whether or not
transferred into the name of the Pledgee) and give all consents, waivers and
ratifications in respect of the Collateral and otherwise act with respect
thereto as though it were the outright owner thereof (the Pledgor hereby
irrevocably constituting and appointing the Pledgee, its employees, agents,
successors and assigns the proxy and attorney-in-fact of Pledgor, with full
power of substitution to do so); and
(b) at any time or from time to time to sell, assign and deliver, or
grant options to purchase, all or any part of the Collateral, or any interest
therein, at any public or private sale without demand of performance,
advertisement or notice of intention to sell or of the time or place of sale or
adjournment thereof or to redeem or otherwise, all of which are hereby waived by
the Pledgor, for cash, on credit or for other property, for immediate or future
delivery without any assumption of credit risk, and for such price or prices and
on such terms as the Pledgee in its absolute discretion may determine, provided
that at least ten (10) days prior notice of the time and place of any such sale
shall be given to Pledgor.
5.2 If any of the Collateral is sold by the Pledgee upon credit or
for future delivery, the Pledgee shall not be liable for the failure of the
purchaser to pay for the same and in such event the Pledgee may resell such
Collateral. The Pledgee may buy any part or all of the Collateral at any public
sale and if any part or all of the Collateral is of a type customarily sold in a
recognized market or is of the type which is the subject of widely-distributed
standard price quotations, the Pledgee may buy at a private sale and may make
payment therefor by any means including, without limitation, cancellation of
indebtedness secured thereby.
5.3 The Pledgor recognizes that the Pledgee may be unable to effect a
public sale of the Stock or other Collateral by reason of certain prohibitions
contained in the Securities Act of 1933, as amended, or in other applicable
laws, regulations, or agreements to which such Stock or other Collateral may be
subject but may be compelled to resort to one or more private sales thereof to a
restricted group of purchasers. The Pledgor agrees that any such private sales
may be at prices and other terms less favorable to the seller than if sold at
public sales and that such private sales shall be deemed to have been made in a
"commercially reasonable" manner within the meaning of Section 9-504(3) of the
Uniform Commercial Code of the Commonwealth of Massachusetts, provided that the
notice specified in Section 5.1 shall have been given to the Pledgor. The
Pledgee shall be under no obligation to delay a sale of any of the Stock or
other Collateral for the period of time necessary to permit the issuer of such
securities to register such securities for public sale under the Securities Act
of 1933, as amended, even if the issuer would agree to do so.
-4-
<PAGE>
5.4 At any sale of Collateral, unless prohibited by applicable law,
the Pledgee or any holder of the Obligations may bid for and purchase all or any
part of the Collateral so sold free from any such right or equity of redemption.
5.5. The Pledgor shall, upon the occurrence of an Event of Default,
immediately deliver to the Pledgee the stock transfer books of Clarke.
6. Remedies Cumulative. Each right, power and remedy of the Pledgee or
any holder of the Obligations provided for in this Pledge Agreement, the other
Loan Documents or in any of the other documents, instruments or agreements
securing the Obligations or now or hereafter existing at law or in equity or by
statute shall be cumulative and concurrent and shall be in addition to every
other such right, power or remedy. The exercise or beginning of the exercise by
the Pledgee or any holder of the Obligations of any one or more of the rights,
powers or remedies provided for in this Pledge Agreement, the other Loan
Documents or in any such other document, instrument or agreement now or
hereafter existing at law or in equity or by statute or otherwise shall not
preclude the simultaneous or later exercise by the Pledgee or any holder of the
Obligations of all such other rights, powers or remedies, and no failure or
delay on the part of the Pledgee or any holder of the Obligations to exercise
any such right, power or remedy shall operate as a waiver thereof.
7. Application of Moneys by the Pledgee. Except as set forth in Section
2.7 of the Loan Agreement, all moneys collected upon any sale of the Collateral
hereunder, together with all other moneys received by the Pledgee hereunder,
shall be applied as follows (i) First, to the payment of all reasonable costs
and expenses incurred by the Pledgee in connection with such sale, the delivery
of the Collateral or the collection of any such moneys (including, without
limitation, attorneys' fees and expenses reasonably incurred); (ii) Second, to
the payment of all fees and charges due solely to the Agent for its own account
under the Loan Agreement; (iii) Third, to the payment of all sums due to the
Agent and the other Banks on account of and in the following order: fees and
charges, interest, outstanding principal and other Obligations due to all of the
Banks pro rata in accordance with each Bank's respective percentage of Revolving
Loans then outstanding; and (iv) Fourth, to the Pledgor to the extent of any
surplus proceeds.
8. Transfer By the Pledgor. The Pledgor will not sell or otherwise
dispose of, grant any option with respect to, or mortgage, pledge or otherwise
encumber (except pursuant to this Pledge Agreement or as otherwise permitted by
the Loan Documents) any of the Collateral or any interest therein or consent to
or approve the issuance of any additional shares of any class of capital stock
of Clarke; or any securities convertible voluntarily by the holder thereof or
automatically upon the occurrence or nonoccurrence of any event or condition
into, or exchangeable for, any such shares; or any warrants, options, rights, or
other commitments entitling any person to purchase or otherwise acquire any such
shares.
-5-
<PAGE>
9. The Pledgor's Obligations Absolute. The Obligations of the Pledgor under
this Pledge Agreement shall be absolute and unconditional and shall remain in
full force and effect without regard to, and shall not be released, suspended,
discharged, terminated or otherwise affected by any circumstance or occurrence
whatsoever, including, without limitation: (a) any renewal, extension, amendment
or modification of or addition or supplement to or deletion from the other Loan
Documents, or any assignment or transfer of the other Loan Documents; (b) any
waiver, consent, extension, indulgence or other action or inaction under or in
respect of the Loan Documents; (c) any furnishing of any additional security to
the Pledgee or its assignee or any acceptance thereof or any release of any
security by the Pledgee or its assignee; (d) any limitation on any party's
liability or obligations under the Loan Documents or any invalidity or
unenforceablity, in whole or in part, of the same; or (e) any bankruptcy,
insolvency, reorganization, composition, adjustment, dissolution, liquidation or
other like proceeding relating to the Pledgor or Clarke, or any action taken
with respect to this Pledge Agreement by any trustee or receiver or by any
court, in any such proceeding; whether or not the Pledgor shall have notice or
knowledge of any of the foregoing.
10. Further Assurances. The Pledgor at its expense will execute,
acknowledge and deliver all such instruments and take all such action as the
Pledgee from time to time may reasonably request in order to further effectuate
the purposes of this Pledge Agreement and to carry out the terms hereof.
11. The Pledgee's Exoneration. Under no circumstances shall the Pledgee be
deemed to assume any responsibility for or obligation or duty with respect to
any part or all of the Collateral of any nature or kind, or any matter or
proceedings arising out of or relating thereto, but the same shall be at the
Pledgor's sole risk at all times. The Pledgee shall not be required to take any
action of any kind to collect, preserve or protect its or the Pledgor's rights
in the Collateral or against other parties thereto. The Pledgee's prior recourse
to any part or all of the Collateral shall not constitute a condition of any
demand, suit or proceeding for payment or collection of the Obligations.
12. No Waiver, Etc. The Pledgee may exercise its rights with respect to the
Collateral without resorting or regard to other collateral or sources of
reimbursement. The Pledgee shall not be deemed to have waived any of its rights
upon or under the Obligations or the Collateral unless such waiver be in writing
and signed by the Pledgee. No delay or omission on the part of the Pledgee in
exercising any right under this Pledge Agreement shall operate as a waiver of
such right or any other right. A waiver on any one occasion shall not be
construed as a bar to or waiver of any right on any future occasion. All rights
and remedies of the Pledgee on the Obligations or the Collateral, whether
evidenced hereby or by any other instrument or papers, shall be cumulative and
may be exercised separately or concurrently.
13. Termination. When all Obligations have been paid, performed and
indefeasibly discharged in full, and if at such time the Banks are not committed
to extend any credit to Pledgor under the Loan Agreement or any other Loan
Document, this
-6-
<PAGE>
Pledge Agreement shall terminate and the Pledgee, at the expense of the Pledgor,
will duly assign, transfer and deliver to the Pledgor, or its successors or
assigns, as the case may be, such of the Collateral as has not theretofore been
sold or otherwise applied or released pursuant to this Pledge Agreement.
14. Miscellaneous.
14.1 Successors and Assigns. This Pledge Agreement shall inure to the
benefit of and shall be binding upon the parties hereto and their respective
successors and assigns whether or not an express assignment of rights hereunder
is made. No other person shall acquire or have any right under or by virtue of
this Pledge Agreement.
14.2 Provisions to Survive. All representations, warranties, covenants
and agreements contained in this Pledge Agreement shall survive the execution
and delivery of the Loan Documents and shall continue until the Obligations have
been paid, performed and indefeasibly discharged in full and the Banks are not
committed to extend any credit to Pledgor or Clarke under the Loan Agreement or
under any other Loan Document.
14.3 Partial Invalidity. The invalidity or unenforceability of any one
or more phrases, clauses or sections of this Pledge Agreement or any other Loan
Document under particular circumstances shall not affect the validity or
enforceability thereof under other circumstances or the validity or
enforceability of the remaining portions of this Pledge Agreement.
14.4 Amendments. This Pledge Agreement may be amended, modified and
supplemented only by written agreement of the parties hereto.
14.5 Execution and Counterparts. This Pledge Agreement may be executed
in several counterparts, each of which shall be an original and all of which
shall constitute one and the same instrument.
14.6 Captions. Captions and headings in this Pledge Agreement are for
convenience only and in no way define, limit or describe the scope or intent of
the provisions hereof.
14.7 Notices. All notices, certificates or other communications
hereunder shall be in writing and shall be given in accordance with Section 9.1
of the Loan Agreement.
14.8 Governing Law. This Pledge Agreement shall be governed by, and
construed in accordance with, the laws of the Commonwealth of Massachusetts
without regard to principles of conflicts of laws.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Pledge Agreement to
be duly executed and sealed by their duly authorized officers or
representatives, all as of the date first above written.
UNITED STATES LEATHER, INC.
By_______________________________
Title:
THE FIRST NATIONAL BANK OF BOSTON, as Agent
By_______________________________
Title:
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
Name/Address Jurisdiction of No. of Shares
of Clarke Incorporation Class of Stock Outstanding
--------- ------------- -------------- -----------
<S> <C> <C> <C>
A.R. Clarke Limited Ontario, Canada Common 1,000
633 Eastern Avenue
Toronto, Ontario
M4MIE5
Canada
</TABLE>
<PAGE>
PLEDGE AGREEMENT
----------------
PLEDGE AGREEMENT dated as of ______________, 1996 by and between UNITED
STATES LEATHER, INC., a Wisconsin corporation having its principal place of
business and chief executive offices at 1110 North Old World Third Street, Suite
400, Milwaukee, Wisconsin 53203, (the "Pledgor"), and THE FIRST NATIONAL BANK OF
BOSTON, a national bank with its head office at 100 Federal Street, Boston,
Massachusetts 02110, acting in its capacity as agent for the Banks
(collectively, the "Banks") under (and as defined in) the Loan Agreement
referred to below (the "Pledgee").
WHEREAS, Pledgor is the owner of 100% of the issued and outstanding shares
of Stock (as hereinafter defined) of A.R. Clarke Limited, an Ontario, Canada
corporation ("Clarke"); and
WHEREAS, Pledgor, Clarke, Pledgee and, from time to time, other Banks have
entered into that certain Revolving Credit Agreement dated ___________, 1996
(the "Loan Agreement"); and
WHEREAS, in order to induce the Banks to make loans and other extensions of
credit under the Loan Agreement referred to below, and in consideration thereof,
the Pledgor wishes to pledge 34% of the Stock of Clarke to the Pledgee, for the
benefit and on behalf of the Banks, on the terms and conditions described
herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Definitions. The following terms shall have the meanings set forth
below. Terms not otherwise defined herein shall have the meanings ascribed to
them in that certain Revolving Credit Agreement among Pledgor, Clarke, the Banks
and the Pledgee dated as of the date hereof (as the same may be amended from
time to time, the "Loan Agreement") or under the Massachusetts Uniform
Commercial Code.
"Collateral" means the Pledged Stock and all other securities of
Clarke and monies received and held by the Pledgee hereunder or in which a
security interest is granted hereby and which are required to be delivered to
the Pledgee hereunder.
"Default" shall have the same meaning ascribed to such term in the
Loan Agreement.
-1-
<PAGE>
"Event of Default" shall have the same meaning ascribed to such term
in the Loan Agreement.
"Loan Documents" shall have the same meaning as in the Loan Agreement.
"Obligations" shall have the meaning ascribed to such term in the Loan
Agreement.
"Pledged Stock" means all Stock at any time pledged or required to be
pledged hereunder.
"Stock" means 34% of the issued and outstanding capital stock of
Clarke (as described in Exhibit A hereto) at any time owned by the Pledgor and
any other or additional securities at the time pledged to the Pledgee hereunder.
2. Pledge; Delivery.
2.1 As security for the prompt and unconditional payment and
performance by the Borrower of the Obligations, the Pledgor hereby pledges,
assigns and transfers to the Pledgee and grants the Pledgee a security interest
in the Stock owned by the Pledgor on the date hereof and in the Collateral,
whether now owned or hereafter acquired. In furtherance thereof, the Pledgor
hereby delivers to the Pledgee certificates for said Stock accompanied by stock
powers duly executed in blank by the Pledgor and hereby assigns, transfers and
sets over to the Pledgee all of the Pledgor's right, title and interest in and
to such certificates to be held by the Pledgee upon the terms and conditions set
forth in this Pledge Agreement. If the Pledgor shall acquire by purchase, stock
dividend or otherwise any additional Stock or other Collateral at any time or
from time to time after the date hereof, the Pledgor will forthwith pledge and
deposit the same with the Pledgee hereunder and deliver to the Pledgee
certificates therefor, accompanied by stock powers duly executed in blank by the
Pledgor.
2.2 The Pledgee may, in its sole discretion and at any time or times,
after the occurrence and during the continuance of an Event of Default, cause
the Pledged Stock and any other securities constituting Collateral to be
transferred into its own name or the name or names of its nominee or nominees or
successor in interest on the books of the issuer of such securities, and the
Pledgor hereby constitutes and appoints the Pledgee, its employees, agents,
successors and assigns to be the attorney-in-fact of the Pledgor to effect any
such transfer.
2.3 If any Default or Event of Default shall have occurred and be
continuing, the Pledgee may, in its sole discretion and at any time or times
(whether or not a Default shall have occurred), collect, receive and hold as
additional Collateral all dividends, distributions and other income on the
Pledged Stock and the other Collateral.
-2-
<PAGE>
3. Representations and Warranties of the Pledgor. The Pledgor represents
and warrants to the Pledgee as follows:
3.1 The Pledgor has and has duly exercised all requisite power
and authority to enter into this Pledge Agreement, to pledge the Pledged Stock
and other Collateral for the purposes described in Section 2, and to carry out
the transactions contemplated by this Pledge Agreement;
3.2 The Pledgor is the legal and beneficial owner of all of the
issued and outstanding capital stock of Clarke as described in Exhibit A
attached hereto;
3.3 The Pledged Stock constitutes 34% of the issued and
outstanding capital stock of Clarke;
3.4 All of the shares of the issued and outstanding capital stock
of Clarke Stock have been duly and validly issued, are fully paid and
nonassessable, and are owned by the Pledgor free of any pledge, mortgage,
hypothecation, lien, charge, encumbrance or security interest in such shares or
the proceeds thereof, except for that granted hereunder and except for that
granted to The First National Bank of Boston as contemplated by the Loan
Documents; and
3.5 Upon delivery of the Stock to the Pledgee or its agent, this
Pledge Agreement shall create a valid first lien upon and perfected security
interest in the Pledged Stock and the proceeds thereof, subject to no prior
security interest, lien, charge or encumbrance, or to any agreement purporting
to grant to any third party a security interest in the property or assets of the
Pledgor which would include the Stock.
4. Voting. Unless a Default shall have occurred and is continuing, the
Pledgor shall be entitled to vote any and all shares of the Pledged Stock and to
give consents, waivers or ratifications in respect thereof, provided that no
vote shall be cast or consent, waiver or ratification given or action taken
which would violate or be inconsistent with any of the terms of this Pledge
Agreement or the other Loan Documents or which would have the effect of
impairing the position or interests of the Pledgee. Upon the occurrence and
during the continuance of a Default, the Pledgee shall have the right to vote,
and to give consents, waivers and ratifications with respect to, the Pledged
Stock, provided that if the Pledgee elects not to exercise such rights at any
time, the Pledgor may continue to exercise such rights, provided that the
Pledgor shall not take any vote or other action with respect to such Pledged
Stock that would have an adverse effect on the Pledgee.
5. Remedies Upon an Event of Default.
5.1 In case an Event of Default shall have occurred and be
continuing, the Pledgee shall be entitled to exercise all of its rights, powers
and remedies (whether vested in it by this Pledge Agreement, the other Loan
Documents or by law) for the
-3-
<PAGE>
protection and enforcement of its rights in respect of the Collateral, and the
Pledgee shall be entitled, without limitation, to exercise the following rights
(in addition to the rights and remedies of a secured party under the Uniform
Commercial Code of Massachusetts) which Pledgor hereby agrees shall be
commercially reasonable:
(a) to vote all or any part of the Pledged Stock (whether or not
transferred into the name of the Pledgee) and give all consents, waivers and
ratifications in respect of the Collateral and otherwise act with respect
thereto as though it were the outright owner thereof (the Pledgor hereby
irrevocably constituting and appointing the Pledgee, its employees, agents,
successors and assigns the proxy and attorney-in-fact of Pledgor, with full
power of substitution to do so); and
(b) at any time or from time to time to sell, assign and deliver, or
grant options to purchase, all or any part of the Collateral, or any interest
therein, at any public or private sale without demand of performance,
advertisement or notice of intention to sell or of the time or place of sale or
adjournment thereof or to redeem or otherwise, all of which are hereby waived by
the Pledgor, for cash, on credit or for other property, for immediate or future
delivery without any assumption of credit risk, and for such price or prices and
on such terms as the Pledgee in its absolute discretion may determine, provided
that at least ten (10) days prior notice of the time and place of any such sale
shall be given to Pledgor.
5.2 If any of the Collateral is sold by the Pledgee upon credit or
for future delivery, the Pledgee shall not be liable for the failure of the
purchaser to pay for the same and in such event the Pledgee may resell such
Collateral. The Pledgee may buy any part or all of the Collateral at any public
sale and if any part or all of the Collateral is of a type customarily sold in a
recognized market or is of the type which is the subject of widely-distributed
standard price quotations, the Pledgee may buy at a private sale and may make
payment therefor by any means including, without limitation, cancellation of
indebtedness secured thereby.
5.3 The Pledgor recognizes that the Pledgee may be unable to effect a
public sale of the Stock or other Collateral by reason of certain prohibitions
contained in the Securities Act of 1933, as amended, or in other applicable
laws, regulations, or agreements to which such Stock or other Collateral may be
subject but may be compelled to resort to one or more private sales thereof to a
restricted group of purchasers. The Pledgor agrees that any such private sales
may be at prices and other terms less favorable to the seller than if sold at
public sales and that such private sales shall be deemed to have been made in a
"commercially reasonable" manner within the meaning of Section 9-504(3) of the
Uniform Commercial Code of the Commonwealth of Massachusetts, provided that the
notice specified in Section 5.1 shall have been given to the Pledgor. The
Pledgee shall be under no obligation to delay a sale of any of the Stock or
other Collateral for the period of time necessary to permit the issuer of such
securities to register such securities for public sale under the Securities Act
of 1933, as amended, even if the issuer would agree to do so.
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<PAGE>
5.4 At any sale of Collateral, unless prohibited by applicable law,
the Pledgee or any holder of the Obligations may bid for and purchase all or any
part of the Collateral so sold free from any such right or equity of redemption.
6. Remedies Cumulative. Each right, power and remedy of the Pledgee or
any holder of the Obligations provided for in this Pledge Agreement, the other
Loan Documents or in any of the other documents, instruments or agreements
securing the Obligations or now or hereafter existing at law or in equity or by
statute shall be cumulative and concurrent and shall be in addition to every
other such right, power or remedy. The exercise or beginning of the exercise by
the Pledgee or any holder of the Obligations of any one or more of the rights,
powers or remedies provided for in this Pledge Agreement, the other Loan
Documents or in any such other document, instrument or agreement now or
hereafter existing at law or in equity or by statute or otherwise shall not
preclude the simultaneous or later exercise by the Pledgee or any holder of the
Obligations of all such other rights, powers or remedies, and no failure or
delay on the part of the Pledgee or any holder of the Obligations to exercise
any such right, power or remedy shall operate as a waiver thereof.
7. Application of Moneys by the Pledgee. Except as set forth in Section
2.7 of the Loan Agreement, all moneys collected upon any sale of the Collateral
hereunder, together with all other moneys received by the Pledgee hereunder,
shall be applied as follows (i) First, to the payment of all reasonable costs
and expenses incurred by the Pledgee in connection with such sale, the delivery
of the Collateral or the collection of any such moneys (including, without
limitation, attorneys' fees and expenses reasonably incurred); (ii) Second, to
the payment of all fees and charges due solely to the Agent for its own account
under the Loan Agreement; (iii) Third, to the payment of all sums due to the
Agent and the other Banks on account of and in the following order: fees and
charges, interest, outstanding principal and other Obligations due to all of the
Banks pro rata in accordance with each Bank's respective percentage of Revolving
Loans then outstanding; and (iv) Fourth, to the Pledgor to the extent of any
surplus proceeds.
8. Transfer By the Pledgor. The Pledgor will not sell or otherwise
dispose of, grant any option with respect to, or mortgage, pledge or otherwise
encumber (except pursuant to this Pledge Agreement or as otherwise permitted by
the Loan Documents) any of the Collateral or any interest therein or consent to
or approve the issuance of any additional shares of any class of capital stock
of Clarke; or any securities convertible voluntarily by the holder thereof or
automatically upon the occurrence or nonoccurrence of any event or condition
into, or exchangeable for, any such shares; or any warrants, options, rights, or
other commitments entitling any person to purchase or otherwise acquire any such
shares.
9. The Pledgor's Obligations Absolute. The Obligations of the Pledgor
under this Pledge Agreement shall be absolute and unconditional and shall remain
in full force and effect without regard to, and shall not be released,
suspended, discharged,
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<PAGE>
terminated or otherwise affected by any circumstance or occurrence whatsoever,
including, without limitation: (a) any renewal, extension, amendment or
modification of or addition or supplement to or deletion from the other Loan
Documents, or any assignment or transfer of the other Loan Documents; (b) any
waiver, consent, extension, indulgence or other action or inaction under or in
respect of the Loan Documents; (c) any furnishing of any additional security to
the Pledgee or its assignee or any acceptance thereof or any release of any
security by the Pledgee or its assignee; (d) any limitation on any party's
liability or obligations under the Loan Documents or any invalidity or
unenforceablity, in whole or in part, of the same; or (e) any bankruptcy,
insolvency, reorganization, composition, adjustment, dissolution, liquidation or
other like proceeding relating to the Pledgor or Clarke, or any action taken
with respect to this Pledge Agreement by any trustee or receiver or by any
court, in any such proceeding; whether or not the Pledgor shall have notice or
knowledge of any of the foregoing.
10. Further Assurances. The Pledgor at its expense will execute,
acknowledge and deliver all such instruments and take all such action as the
Pledgee from time to time may reasonably request in order to further effectuate
the purposes of this Pledge Agreement and to carry out the terms hereof.
11. The Pledgee's Exoneration. Under no circumstances shall the Pledgee be
deemed to assume any responsibility for or obligation or duty with respect to
any part or all of the Collateral of any nature or kind, or any matter or
proceedings arising out of or relating thereto, but the same shall be at the
Pledgor's sole risk at all times. The Pledgee shall not be required to take any
action of any kind to collect, preserve or protect its or the Pledgor's rights
in the Collateral or against other parties thereto. The Pledgee's prior recourse
to any part or all of the Collateral shall not constitute a condition of any
demand, suit or proceeding for payment or collection of the Obligations.
12. No Waiver, Etc. The Pledgee may exercise its rights with respect to
the Collateral without resorting or regard to other collateral or sources of
reimbursement. The Pledgee shall not be deemed to have waived any of its rights
upon or under the Obligations or the Collateral unless such waiver be in writing
and signed by the Pledgee. No delay or omission on the part of the Pledgee in
exercising any right under this Pledge Agreement shall operate as a waiver of
such right or any other right. A waiver on any one occasion shall not be
construed as a bar to or waiver of any right on any future occasion. All rights
and remedies of the Pledgee on the Obligations or the Collateral, whether
evidenced hereby or by any other instrument or papers, shall be cumulative and
may be exercised separately or concurrently.
13. Termination. When all Obligations have been paid, performed and
indefeasibly discharged in full, and if at such time the Banks are not committed
to extend any credit to Pledgor under the Loan Agreement or any other Loan
Document, this Pledge Agreement shall terminate and the Pledgee, at the expense
of the Pledgor, will duly assign, transfer and deliver to the Pledgor, or its
successors or assigns, as the case
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<PAGE>
may be, such of the Collateral as has not theretofore been sold or otherwise
applied or released pursuant to this Pledge Agreement.
14. Miscellaneous.
14.1 Successors and Assigns. This Pledge Agreement shall inure to the
benefit of and shall be binding upon the parties hereto and their respective
successors and assigns whether or not an express assignment of rights hereunder
is made. No other person shall acquire or have any right under or by virtue of
this Pledge Agreement.
14.2 Provisions to Survive. All representations, warranties,
covenants and agreements contained in this Pledge Agreement shall survive the
execution and delivery of the Loan Documents and shall continue until the
Obligations have been paid, performed and indefeasibly discharged in full and
the Banks are not committed to extend any credit to Pledgor or Clarke under the
Loan Agreement or under any other Loan Document.
14.3 Partial Invalidity. The invalidity or unenforceability of any
one or more phrases, clauses or sections of this Pledge Agreement or any other
Loan Document under particular circumstances shall not affect the validity or
enforceability thereof under other circumstances or the validity or
enforceability of the remaining portions of this Pledge Agreement.
14.4 Amendments. This Pledge Agreement may be amended, modified and
supplemented only by written agreement of the parties hereto.
14.5 Execution and Counterparts. This Pledge Agreement may be
executed in several counterparts, each of which shall be an original and all of
which shall constitute one and the same instrument.
14.6 Captions. Captions and headings in this Pledge Agreement are for
convenience only and in no way define, limit or describe the scope or intent of
the provisions hereof.
14.7 Notices. All notices, certificates or other communications
hereunder shall be in writing and shall be given in accordance with Section 9.1
of the Loan Agreement.
14.8 Governing Law. This Pledge Agreement shall be governed by, and
construed in accordance with, the laws of the Commonwealth of Massachusetts
without regard to principles of conflicts of laws.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Pledge Agreement to be
duly executed and sealed by their duly authorized officers or representatives,
all as of the date first above written.
UNITED STATES LEATHER, INC.
By_______________________________
Title:
THE FIRST NATIONAL BANK OF BOSTON
By_________________________________
Title:
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT A
Name/Address Jurisdiction of Class of No. of Shares
of Clarke Incorporation Stock Outstanding
--------- ------------- ----- -----------
<S> <C> <C> <C>
A.R. Clarke Limited Ontario, Canada Common 1,000
633 Eastern Avenue
Toronto, Ontario
M4MIE5
Canada
</TABLE>
<PAGE>
SECURITY AGREEMENT
This SECURITY AGREEMENT is made as of _____________, 1996 among A.R. CLARKE
LIMITED, an Ontario corporation having its chief executive office at 633 Eastern
Avenue, Toronto, Ontario Canada M4M 1E5 (the "Borrower"), The First National
Bank of Boston, a national banking association with its head office at 100
Federal Street, Boston, Massachusetts 02110, in its capacity as Agent (the
"Agent") for the Canadian Bank (the "Canadian Bank") under (and as defined in)
the Loan Agreement referred to below.
WHEREAS, the Borrower has requested the Canadian Bank and the Agent to
enter into a certain Revolving Credit Agreement of even date herewith (as the
same may be amended from time to time, the "Loan Agreement") among the Borrower,
United States Leather, Inc. ("USL"), the Agent, the Canadian Bank and the other
Banks (as defined in the Loan Agreement), pursuant to which, inter alia, the
Canadian Bank will make certain loans to the Borrower, upon the terms and
subject to the conditions set forth therein;
WHEREAS, the Canadian Bank and the Agent are unwilling to enter into the
Loan Agreement and the Canadian Bank is unwilling to make any loans thereunder
unless the Borrower shall execute and deliver this Security Agreement and grant
the security interests herein provided;
NOW, THEREFORE, in order to induce the Canadian Bank and the Agent to enter
into the Loan Agreement, and the Canadian Bank to make or extend to the Borrower
one or more loans, advances, or other extensions of credit and issue letters of
credit for the account of the Borrower, and in consideration thereof, and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto agree as follows:
1. Definitions. The following terms shall have the meanings set forth
below. All capitalized terms used herein, but not defined herein, shall have the
same meanings as set forth in the Loan Agreement. Terms not otherwise defined
herein or therein shall have the meanings ascribed to them, if any, under the
Massachusetts Uniform Commercial Code.
"Account" or "Accounts Receivable" means, individually and
collectively, all of the Borrower's accounts, accounts receivable, notes, bills,
drafts, acceptances, instruments, documents, chattel paper and all other debts,
obligations and liabilities in whatever form owing to the Borrower from any
person for goods sold by it or for services rendered by it, or however otherwise
established or created, all rights to payment for goods sold or leased or for
services rendered and all sums of money or other proceeds due
<PAGE>
or becoming due thereon, all guarantees and security therefor, all right, title
and interest of the Borrower in the goods or services which gave rise thereto,
including rights to reclamation and stoppage in transit, all rights of an unpaid
seller of goods or services, and all related insurance; whether any of the
foregoing be now existing or hereafter arising, now or hereafter received by or
owing or belonging to the Borrower.
"Collateral" means all personal property, fixtures on real property
now or hereafter owned by the Borrower and trade fixtures of the Borrower of
every kind and description, tangible or intangible, whether now or hereafter
existing, whether now owned or hereafter acquired, and wherever located,
including, but not limited to, the following: all Inventory of the Borrower; all
goods of the Borrower other than Inventory; all furniture, fixtures on real
property now or hereafter owned by the Borrower and trade fixtures and similar
property of the Borrower; all machinery and equipment of the Borrower; all
Accounts of the Borrower; all contract rights of the Borrower, including without
limitation, all rights of the Borrower as a bailee; all other rights of the
Borrower to the payment of money, including without limitation amounts due from
Affiliates, bailors, tax refunds, and insurance proceeds; any and all rights the
Borrower may have pursuant to a bailee's lien; all interests of the Borrower in
goods as to which an Account shall have arisen; all files, records (including
without limitation computer programs, tapes and related electronic data
processing software to the extent any licenses are transferable) and writings of
the Borrower or in which the Borrower has an interest in any way relating to the
foregoing property; all goods, instruments, documents of title, policies and
certificates of insurance, securities, chattel paper, deposits, cash or other
property owned by the Borrower or in which the Borrower has an interest which
are now or may hereafter be in the possession of the Agent or any Bank or as to
which the Agent or any Bank may now or hereafter control possession by documents
of title or otherwise; all general intangibles of the Borrower (including
without limitation all patents, trademarks, trade names, service marks,
copyrights and applications for any of the foregoing; all goodwill connected
with the use of and symbolized by trademarks, trade names and service marks of
the Debtor; all rights to use patents, trademarks, trade names, service marks
and copyrights of any person; and any rights of the Borrower to retrieval from
third parties of electronically processed and recorded information pertaining to
any of the types of collateral referred to in this definition); any other
personal property of the Borrower, tangible or intangible, in which the Agent or
any Bank now has or hereafter acquires a security interest or which is now or
may hereafter be in the possession of the Agent or any Bank; any sums at any
time credited by or due from the Canadian Bank to the Borrower, including
deposits; and proceeds and products of and accessions to all of the foregoing.
"Default" shall have the same meaning ascribed to such term in the
Loan Agreement.
"Event of Default" shall have the same meaning ascribed to such term
in the Loan Agreement.
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<PAGE>
"Inventory" means all of the Borrower's inventory of whatever name,
nature, kind or description, all goods held for sale or lease or that are
furnished or to be furnished under contracts of service, finished goods, work in
process, raw materials, materials used or consumed or to be used or consumed by
the Borrower, all parts, supplies, chemicals, wrapping, packaging, advertising,
labeling, and shipping materials, devices, names and marks, all contracts,
rights and documents relating to any of the foregoing, whether any of the
foregoing be now existing or hereafter arising, wherever located, now owned or
hereafter acquired by the Borrower.
"Obligations" means any and all Obligations (as defined in the Loan
Agreement) of the Borrower to the Agent, on behalf of the Canadian Bank, or to
the Canadian Bank, arising under any of the Loan Documents.
2. Satisfaction of Obligations. The Borrower hereby promises to pay or
otherwise satisfy all Obligations when the same shall become due, whether at
maturity, by acceleration or otherwise.
3. Grant of Security Interest.
3.1 Collateral. As security for the prompt and unconditional payment
and performance of the Obligations, the Borrower hereby grants to the Agent, for
the benefit of the Canadian Bank, a continuing security interest in all
Collateral, whether now owned or existing or hereafter arising or acquired and
wherever located; and in each case in all proceeds, products, and accessions
thereof, all causes of action and remedies relating thereto and all guaranties
and security therefor. The Borrower agrees that the security interest herein
granted has attached and shall continue until the Obligations have been paid,
performed and indefeasibly discharged in full and the Canadian Bank is not
committed to extend any credit to the Borrower under the Loan Agreement or under
any other Loan Document.
3.2 Deposits. Any and all deposits or other sums at any time
credited by or due from the Agent or any Bank or any of their respective
affiliates to the Borrower shall at all times constitute security for
Obligations and, upon the occurrence and during the continuation of a Default or
Event of Default, may be set-off against any Obligations at any time whether or
not they are then adequate. Any and all instruments, documents, policies and
action, general intangibles, chattel paper, cash, insurance proceeds, tax
refunds, property and the proceeds thereof (whether or not the same are
Collateral or proceeds thereof) owned by the Borrower or in which the Borrower
has an interest, which now or hereafter are at any time in possession or control
of the Agent or any Bank or any of their respective affiliates or in transit by
mail or carrier to or from the Agent or any Bank or such affiliate or in the
possession of any third party acting in its behalf, without regard to whether
the Agent or such Bank or such affiliate received the same in pledge, for
safekeeping, as agent for collection or transmission or otherwise or had
conditionally released the same, shall constitute security for Obligations and,
upon the occurrence and during the continuation of a Default or Event of
Default, may be applied at any time to Obligations which are then owing, whether
due or not due.
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<PAGE>
3.3 Insurance. The Borrower hereby assigns to the Agent, for the
benefit of the Canadian Bank, all sums, including, without limitation, return of
premiums, which may become payable to the Borrower or the Agent, for the benefit
of the Canadian Bank, under any of Borrower's policies of insurance and directs
each insurance company issuing any such policy to make payment thereof directly
to the Agent, for the benefit of the Canadian Bank.
4. Collateral.
4.1 Location of Collateral. The Borrower's principal place of
business is located at the address shown on Exhibit A hereto and the records
relating to the Borrower's Accounts Receivable are kept at the addresses listed
on Exhibit A hereto. The Borrower will not change such principal place of
business without giving thirty (30) days' prior written notice to the Agent. The
Collateral will be kept at the location(s) listed on Exhibit A and such new
locations as the Borrower shall establish not sooner than twenty (20) days after
having given written notice thereof to the Agent. The Borrower hereby grants to
the Agent , for a term commencing on the date hereof and continuing so long as
any of the Obligations remain outstanding, at a rental of $1.00 for such entire
term, the right, upon the occurrence and during the continuation of a Default or
Event of Default, to the use of all premises or places of business which the
Borrower now or hereafter may have and where any Collateral may be located for
the purpose of exercising its rights against Collateral.
4.2 Instruments. If any Accounts Receivable are at any time
evidenced by promissory notes, trade acceptances or other instruments for the
payment of money, the Borrower will immediately deliver the same to the Agent,
for the benefit of the Canadian Bank, appropriately endorsed to the Agent's
order and, regardless of the form of such endorsement, the Borrower hereby
waives presentment, demand, notice of dishonor, protest, notice of protest and
all other notices with respect thereto; provided, however, the Borrower shall
have 30 days from the date hereof to deliver to the Agent promissory notes,
trade acceptances or other instruments existing as of the date hereof.
4.3 No Transfers. Except as expressly permitted by the Loan
Agreement, the Borrower shall not sell, lease or transfer or further encumber
any of the Collateral (except that Inventory may be sold in the ordinary course
of business) without the prior written consent of the Agent to the extent
provided in the Loan Agreement until the Agent has reasonably determined that
the Obligations have been indefeasibly discharged in full and the Canadian Bank
is not committed to extend any credit to the Borrower under the Loan Agreement
or under any other Loan Document.
4.4 Representations. The Borrower represents, warrants and agrees as
follows:
(a) The Borrower has no knowledge of any fact that would impair the
validity or make uncollectible any material amount of the Collateral that is
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<PAGE>
Accounts Receivable (other than Ineligible Accounts or Accounts Receivable
excluded on the Borrowing Base Report or Weekly Base Report), chattel paper,
general intangibles, contract rights, documents or instruments, and, to the best
of the Borrower's knowledge, each obligor liable upon such Collateral has and
will have capacity to contract.
(b) The items making up the Inventory at any time (other than an
immaterial amount of Inventory at such time or Inventory from discontinued
operations) are and will be genuine and saleable in the ordinary course of the
Borrower's business.
(c) Each Account Receivable is and will be a true and correct
statement of the actual indebtedness incurred by each Account debtor with
respect thereto, and arises and will arise out of or in connection with the sale
or lease of goods or for the rendering of services by the Borrower to each such
Account debtor.
(d) No presently effective financing statement under the Uniform
Commercial Code or Personal Property Security Act (Ontario) naming the Borrower
as debtor is on file in any jurisdiction and the Borrower has not signed any
presently effective security agreement authorizing any secured party thereunder
to file a financing statement except in each case for the Agent and Permitted
Encumbrances as defined in the Loan Agreement.
(e) The Borrower's exact legal name is set forth at the beginning of
this Agreement and the Borrower does not conduct business under any other name.
(f) At the time that the Borrower pledges, sells, assigns or
transfers to the Agent or Canadian Bank, as the case may be, any instrument,
document of title, security, chattel paper or other property or any proceeds or
products thereof, or any interest therein, the Borrower shall be the lawful
owner thereof, or the lawful holder of the leasehold interest therein, and shall
have good right to pledge, sell, assign or transfer the same, subject only to
the Permitted Encumbrances; and the Borrower shall defend the same against the
claims and demands of all persons.
5. Proceeds of Collateral.
5.1 Collection By the Borrower. Until the Agent exercises its right
to collect the proceeds of the Borrower's Accounts Receivable, Inventory,
instruments, chattel paper, general intangibles, contract rights and other
Collateral pursuant to this Agreement, the Borrower will collect with diligence
all such proceeds. Subject to Section 2A.5 of the Loan Agreement and the Cash
Management Agreements, the Borrower will hold in trust for the Agent, on behalf
of the Canadian Bank, all checks, drafts, cash and other remittances that are
proceeds of Collateral. The Canadian Bank will credit proceeds of Collateral
received by the Canadian Bank (conditional upon final collection) against
interest accrued on or principal of Canadian Loans or other
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<PAGE>
Obligations outstanding hereunder; provided that for purposes of computing
interest, the Borrower shall not be given credit for proceeds of Collateral
until they are converted into cash or immediately available funds (for purposes
of determining the Canadian Borrowing Base and the Borrowing Base, the Borrower
shall be given immediate credit for the same). Subject to Section 2A.5 of the
Loan Agreement and the Cash Management Agreements, the order and method of
application of the proceeds of Collateral shall be in the Canadian Bank's sole
discretion (subject to the terms of the Loan Agreement). Subject to the Loan
Agreement and the Cash Management Agreements, at any time the Agent shall have
the right to require the Borrower (i) to enter into a lockbox arrangement with
the Agent or its representative or designee, or the Canadian Bank, for the
collection of such remittances and payments or (ii) to maintain its deposit
accounts at the Agent or the Canadian Bank or, in the alternative, at another
financial institution which has agreed to accept drafts drawn on it by the Agent
or the Canadian Bank under a written depository transfer agreement with the
Agent and the Canadian Bank, and to block the Borrower's account and waive its
own rights as against such account.
5.2 Collection By the Agent. At the Agent's request, upon the
occurrence and during the continuance of a Default or Event of Default, the
Borrower will notify account debtors that Collateral has been assigned to the
Agent, and that payments by such debtors shall be made directly to the Agent, on
behalf of the Canadian Bank, and give instruction and/or dictate on billings to
such debtors that their Accounts Receivable shall be paid to the Agent on behalf
of the Canadian Bank. The Agent or its designee may at any time, without prior
notice to the Borrower, if a Default or Event of Default has occurred and is
continuing, collect the proceeds of the Borrower's Accounts Receivable,
Inventory, instruments, chattel paper, general intangibles, contract rights and
other Collateral, and give notice of assignment thereof to any and all debtors
thereof, and the Borrower does hereby make, constitute and appoint the Agent its
irrevocable, true and lawful attorney in fact with power upon the occurrence and
during the continuance of a Default or Event of Default: to receive, open and
dispose of all mail addressed to the Borrower; to take possession of, sign,
endorse the name of the Borrower upon and collect any notes, drafts, money
orders, demands, checks, instruments, payments (including payments payable under
or with respect to any policy of insurance), evidences of payment, agreements,
documents, and other writings that may come into the possession of the Agent or
any Bank in connection with the Collateral or as proceeds of Collateral; in the
Borrower's name or otherwise, to demand, sue for, collect and give acquittances
for, any and all moneys due or to become due upon the Collateral; to compromise,
prosecute or defend any action, claim or proceeding with respect thereto; and to
do any and all things necessary or desirable to carry out the purposes herein
contemplated.
6. Protection of Security Interest.
6.1 By the Borrower. The Borrower shall continuously take all steps
that are necessary or prudent to protect and maintain the security interest of
the Agent in the Collateral. Without limiting the generality of the foregoing,
the Borrower shall:
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<PAGE>
6.1.1 No Liens. Not create, grant or permit to exist any
security interest or lien in or on any of the Collateral, except as permitted by
the Loan Agreement;
6.1.2 Books. Keep and maintain separate books (in form and
substance satisfactory to the Agent) relating to the Collateral at its principal
place of business and other addresses listed on Exhibit A hereto, not remove the
same without the prior written consent of the Agent, and allow the Canadian
Bank, through the Agent or the Agent's designees, access to the books and to the
Collateral at any reasonable time and from time to time (and at all times after
the occurrence of a Default or Event of Default) for the purpose of examination,
verification, copying, extracting or other purposes as the Agent or the Canadian
Bank may require;
6.1.3 Maintenance. Maintain, preserve and protect all
Collateral, keep all Collateral in good condition and repair (ordinary wear and
tear excepted) and prevent any material waste or unusual or unreasonable
depreciation thereof;
6.1.4 Copies. Deliver to the Agent promptly at its reasonable
request all schedules, lists, invoices, original bills of lading, documents of
title, original purchase orders, receipts, agreements, writings and other items
relating to the Collateral;
6.1.5 Notice. Upon request of the Agent, make, stamp or record
on any of the Borrower's books relating to the Collateral entries or legends
with respect to the Agent's security interest, including, without limitation,
notation of the security interest of the Agent on any certificates of title or
other evidence of ownership outstanding with respect thereto, and post notices
thereof upon the Collateral or in and about designated areas where the
Collateral or any portion thereof may be stored, kept or used, from time to
time;
6.1.6 Filings. Join with the Agent at its request from time to
time in executing financing statements, amendments thereto and continuation
statements, and pay the cost of filing the same wherever the Agent reasonably
deems desirable, and do, make, execute and deliver all additional and further
acts, things, deeds, powers of attorney, assurances, confirmations, searches,
writings, and instruments that the Agent may reasonably require to vest
completely in it and assure to it its rights hereunder and in and to the
Collateral;
6.1.7 Assignments Under the Federal Assignment of Claims Act.
If any Accounts Receivable arise from contracts with the United States or any
department, agency or instrumentality thereof, immediately notify the Agent
thereof and execute any instruments and take any steps reasonably requested by
the Agent in order that all monies due and to become due thereunder shall be
assigned to the Agent and notice thereof given to the Federal authorities under
the Federal Assignment of Claims Act;
6.1.8 Adverse Interests. Promptly notify the Agent of the
existence of any claims, liens, security interests, rights, attachments or other
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Encumbrances, other than a Permitted Encumbrance having a value less than
$3,000,000, that may be or become adverse to the interest of the Agent in any of
the Collateral; and defend the Collateral against all claims, liens, security
interests, demands and other Encumbrances of third parties at any time claiming
an interest in the Collateral that is adverse to the security interest granted
to the Agent (other than those expressly permitted by the Loan Agreement), and
reimburse the Agent for any expenses it may incur in satisfying any of the
foregoing;
6.1.9 Insurance. Maintain insurance on the Collateral as
required by the Loan Agreement or other Loan Documents;
6.1.10 Loss. Notify the Agent and the Canadian Bank in the
event of a material loss of or damage to the Collateral; of any loss, theft,
damage or destruction to or of any material asset(s) of the Borrower not covered
by insurance; of any reclamation or repossession of or any action by a creditor
to reclaim or repossess any material asset(s) of the Borrower; of any material
adverse change in the Collateral; and of any other occurrence that may
materially adversely affect the security interest of the Agent in the
Collateral;
6.1.11 Inventory. At least annually (except for those items
which are being inventoried on a "cycle count" basis) and whenever else
reasonably requested by the Agent, take a physical listing of all Inventory and
provide a copy (certified by an authorized officer of Borrower to be true,
correct and complete) of any listing of Inventory, and perform any and all
further steps requested by the Agent to perfect the Agent's security interest in
Inventory, such as leasing warehouses to the Agent or its designee, placing and
maintaining signs, appointing custodians, maintaining stock records and
transferring Inventory to warehouses;
6.1.12 Valuation. Notify the Agent in the event of any change
in the basis for valuing Inventory;
6.1.13 Name. Notify the Agent at least 30 days before changing
its legal name or doing business under any name other than its legal name;
6.1.14 Expenses. Pay all expenses incurred with respect to the
purchase, manufacture, delivery, use, repair, storage or other handling of the
Collateral, and reimburse the Agent for all reasonable expenses and all taxes
that the Agent may incur, including, without limitation, any and all reasonable
attorneys' fees and costs.
6.2 Agent Action. The Agent is hereby authorized and permitted to
take any action at any time (except as expressly limited below) it reasonably
deems necessary or prudent to protect the Collateral or its security interest in
the Collateral, and the Borrower agrees to reimburse the Agent for the same.
Without limiting the generality of the foregoing, the Borrower hereby grants to
the Agent the right, at the Agent's sole discretion:
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<PAGE>
6.2.1 U.C.C. Statements. To sign and file in the name and on
behalf of the Borrower one or more financing statements under any applicable
Uniform Commercial Code or Personal Property Security Act (Ontario) naming the
Borrower as debtor and the Agent as secured party and indicating therein the
types or describing the items of Collateral herein specified;
6.2.2 Communication with Debtors. At any time, in its own name
or in the name of others, to communicate with account debtors in order to verify
with them to the Agent's satisfaction the existence, amount and terms of any
Accounts Receivable and the absence of any reductions, discounts, defenses or
offsets with respect thereto; provided, however, that prior to the occurrence of
a Default or Event of Default, the Agent shall communicate with such account
debtors only in the name of others and not in its own name;
6.2.3 Taxes. To (i) discharge taxes and liens levied or placed
on Collateral except those not yet due and payable or those contested in
accordance with the terms of the Loan Agreement; (ii) pay for insurance thereon
or the maintenance and preservation thereof; or (iii) if the Borrower shall fail
to make deposits in respect of F.I.C.A. and withholding taxes, make such
deposits or pay such taxes, in whole or in part, or set up such reserves as the
Agent shall deem reasonably necessary in respect of the Borrower's liability
therefor. Any amount so paid, deposited or reserved for shall constitute a
Canadian Loan under the Loan Agreement. Nothing herein shall be deemed to
obligate the Agent to do any of the foregoing and the making of any one or more
such payments, deposits or reserves shall not constitute an agreement by the
Agent to take any further or similar action or a waiver of any right of the
Agent hereunder.
7. Default and Remedies.
7.1 Action after Default. Whenever any Event of Default shall have
occurred and be continuing, the Agent, on behalf of the Canadian Bank, may, at
its option and without demand first made and without notice to the Borrower:
7.1.1 Immediately, or from time to time, take possession of the
Collateral, or any of it, wherever it may be found, using all necessary force so
to do as permitted by law, or, from time to time, require the Borrower to
assemble the Collateral, or any of it, and make it available to the Agent at a
place designated by the Agent that is reasonably convenient to the Borrower and
the Agent, and the Borrower waives all claims for damages due to, arising from
or connected with any such taking;
7.1.2 From time to time, proceed in the foreclosure of the
Agent's security interest and sale of the Collateral, or any of it, in any
manner permitted by law or provided for herein;
7.1.3 Sell, lease or otherwise dispose of the Collateral, or any
of it, at public or private sale, with or without having the Collateral, or any
of it, at the place of sale, and upon terms and in such manner as the Agent may
determine. Except for
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<PAGE>
Collateral which is perishable or threatens to decline speedily in value or
which is of a type customarily sold on a recognized market, the Agent shall give
the Borrower at least ten (10) days' prior written notice of the time and place
of any public sale of Collateral or of the time after which any private sale or
other intended disposition is to be made, which notice the Borrower agrees is
reasonable. The Agent may bid for any of the Collateral at any public sale and
acquire the same free from any redemption right, and in lieu of paying cash
therefor may make settlement for the selling price by crediting upon the
Obligations, the net selling price after deducting all reasonable costs and
expenses in any way relating thereto;
7.1.4 From time to time in the Agent's sole discretion, postpone
the time and change the place of any proposed public sale of any of the
Collateral that has been noticed as provided above, upon at least one (1) day's
prior oral or written notice to the Borrower (which notice the Borrower agrees
is reasonable) of the new time and place of such sale (which time shall be at
least five (5) days after such notice of postponement is given to the Borrower)
whenever, in the Agent's judgment, such postponement or change is necessary or
appropriate in order that the provisions of this Security Agreement applicable
to such sale may be fulfilled or in order to obtain more favorable conditions
under which such sale may take place;
7.1.5 In case of any sale by the Agent of any of the Collateral
on credit or for future delivery (which may be elected in the Agent's sole
discretion), retain the Collateral so sold until the full selling price is paid
by the purchaser, and the Agent shall incur no liability in case of failure of
the purchaser to take up and pay for the Collateral so sold. In case of any such
failure, the Collateral so sold may again be similarly sold;
7.1.6 Retain the Collateral in full, or any portion of it in
partial, satisfaction of the Obligations secured hereby;
7.1.7 Act as attorney in fact for the Borrower in obtaining,
adjusting, settling and canceling insurance, endorsing any checks or drafts, and
applying any amounts collected or received by the Agent to obligations or at the
option of the Agent, releasing the same to the Borrower, but such application or
release shall not cure or waive any Default or Event of Default hereunder or
under any other Loan Document and no amount so released shall be deemed a
payment on any Obligations secured hereby;
7.1.8 Settle, compromise or adjust any suit, action or
proceeding against or by the Borrower with respect to any Collateral and in
connection therewith, give such discharges or releases as the Agent may deem
appropriate and, generally, sell, transfer, pledge, make any agreement with
respect to or otherwise deal with any of the Collateral as fully and completely
as though the Agent were absolute owner thereof for all purposes;
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<PAGE>
7.1.9 As to the Collateral that is Accounts Receivable, chattel
paper, deposit accounts, instruments, general intangibles or contract rights, in
its own name or in the name of the Borrower:
(i) Take any action permitted under Section 5.2 relating
to such Collateral or in connection therewith, sign and endorse
any invoices, drafts against debtors, assignments, verifications
and notices in connection therewith or in connection with other
documents relating to the Collateral;
(ii) Receive payment of, receipt for, settle, compromise or
adjust and give discharges and releases for or in respect of any
and all moneys, claims and other amounts due and to become due at
any time under or arising out of the Collateral;
(iii) File any claim and take other action in any court of
law or equity or otherwise deemed appropriate by the Agent for
the purpose of collecting any and all such moneys whenever
payable relating thereto, although the Agent shall not be
required or obligated in any manner to make any demand or make
any inquiry as to the nature or sufficiency of any payment
received by it, or present or file any claim or take any action
to collect or enforce the payment of any amounts that may have
been assigned to it or to which it may be entitled hereunder at
any time or times;
(iv) Give written notice to officials of the United States
Post Office to effect change or changes of address so that all
mail addressed to the Borrower may be delivered directly to a
Post Office box or to any other depository that may be selected
by the Agent (which is hereby consented to by the Borrower), and
receive, open and dispose of all mail addressed to the Borrower;
and
(v) Direct obligors or any other party liable for the
payment thereunder to make payment of any and all moneys at any
time payable in connection therewith directly to the Agent or to
an agent specified by it; and notwithstanding the foregoing,
neither this Security Agreement nor the receipt by the Agent of
any payment pursuant hereto shall cause the Agent to be under any
obligation or liability in any respect to an obligor or any other
party for the performance or observance of any of the
representations, warranties, conditions or terms of any invoice,
agreement or other document issued or executed in connection with
any Account Receivable;
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<PAGE>
7.1.10 Exercise any and all remedies of a secured party under
the Massachusetts or other applicable Uniform Commercial Code or Personal
Property Security Act (Ontario) or as otherwise provided by law.
7.2 Additional Provisions.
7.2.1 The Borrower authorizes the Agent to carry out the above
remedial steps and irrevocably makes, constitutes, and appoints the Agent and
any officer or agent thereof with full power of substitution as the Borrower's
true and lawful attorney in fact in connection therewith.
7.2.2 The Borrower hereby waives, to the full extent permitted
by law, the benefit of all appraisement, valuation, stay, extension and
redemption laws now or hereafter in force, and all rights of marshalling in the
event of any sale or other disposition of any of the Collateral.
7.2.3 Prior to any disposition of Collateral, the Agent may, at
its option, cause any of the Collateral to be repaired or reconditioned in such
manner and to such extent as the Agent reasonably deems advisable, and any sums
expended therefor by the Agent shall constitute Obligations to be repaid by the
Borrower and shall be secured hereby. The Agent shall have the right to pursue
any remedy that it may have hereunder or by law. If a sufficient sum is not
realized from any such disposition of Collateral to pay all of the Obligations,
the Borrower hereby promises and agrees to pay the Agent any deficiency.
7.2.4 The receipt of the Agent for the purchase money paid at
any sale of Collateral made by the Agent shall be a sufficient discharge
therefor to any purchaser of any of the Collateral sold as provided above. No
such purchaser (or his or its representatives or assigns), after paying such
purchase money and receiving such receipt, shall be bound to see to the
application of such purchase money or any part thereof or be answerable in any
manner for any loss, misapplication or nonapplication of any such purchase
money, or be bound to inquire as to the authorization, necessity, expediency or
regularity of any such sale.
7.2.5 Under no circumstances shall the Agent be deemed to assume
any responsibility for or obligation or duty with respect to any part or all of
the Collateral of any nature or kind, or any matter or proceedings arising out
of or relating thereto, but the same shall be at the Borrower's sole risk at all
times. The Agent shall not be required to take any action of any kind to
collect, preserve or protect its or the Borrower's rights in the Collateral or
against other parties thereto. The Agent's prior recourse to any part or all of
the Collateral shall not constitute a condition of any demand, suit or
proceeding for payment or collection of the Obligations.
7.3 Priority of Payment. Any amounts collected pursuant to action
taken under this Section 7 shall be paid to the Agent, for the benefit of the
Canadian Bank, and applied first, to the payment of any costs incurred by the
Agent in taking such
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<PAGE>
action, including any and all attorneys' fees and costs reasonably incurred; and
second, to payment of all sums due to the Canadian Bank on account of and in the
following order: fees and charges, interest, outstanding principal and other
Obligations due to the Canadian Bank; and the excess, if any, shall be paid to
the Borrower.
7.4 No Remedy Exclusive. No remedy herein conferred upon or reserved
to the Agent or the Canadian Bank is intended to be exclusive of any other
available remedy or remedies, but each and every such remedy shall be cumulative
and shall be in addition to every other remedy given under this Agreement or now
or hereafter existing at law or in equity or by statute. No course of dealing on
the part of the Agent and no delay or omission to exercise any right or power
accruing upon the occurrence of any Default or Event of Default shall impair
such right or power or shall be construed to be a waiver thereof, but any such
right and power may be exercised from time to time and as often as may be deemed
expedient. In order to entitle the Agent to exercise any remedy reserved to it
in this Section 7, it shall not be necessary to give any notice, other than any
notice or notices expressly required in this Section 7.
8. General.
8.1 Successors and Assigns. This Security Agreement shall inure to
the benefit of and shall be binding upon the parties hereto and their respective
successors and assigns whether or not an express assignment of rights hereunder
is made. No other person shall acquire or have any right under or by virtue of
this Security Agreement.
8.2 Provisions to Survive. All representations, warranties,
covenants and agreements contained in this Security Agreement shall survive the
execution and delivery of the Loan Documents.
8.3 Partial Invalidity. The invalidity or unenforceability of any
one or more phrases, clauses or sections of this Security Agreement or any other
Loan Document under particular circumstances shall not affect the validity or
enforceability thereof under other circumstances or the validity or
enforceability of the remaining portions of this Security Agreement.
8.4 Amendments. This Security Agreement may be amended, modified and
supplemented only by written agreement of the parties hereto and, if required
under Section 9.8 of the Loan Agreement, the prior written consent or approval
of the Majority Banks or all of the Banks.
8.5 Waivers. No waiver of any rights or remedies hereunder shall be
deemed made by the Agent or the Canadian Bank or any subsequent holder of the
Canadian Revolving Credit Note(s) under any circumstances unless in writing and
duly signed on behalf of the Agent, such Bank or such holder, as the case may
be. Any such written waiver shall apply only to the particular instance
specified therein and shall not impair the further exercise of the right or
remedy involved.
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<PAGE>
8.6 Execution and Counterparts. This Security Agreement may be
executed in several counterparts, each of which shall be an original and all of
which shall constitute one and the same instrument.
8.7 Captions. Captions and headings in this Security Agreement are
for convenience only and in no way define, limit or describe the scope or intent
of the provisions hereof.
8.8 Written Notices. Any notices, expressly required by this
Agreement to be in writing, to any party hereto shall be given in accordance
with Section 9.1 of the Loan Agreement.
8.9 Governing Law. This Security Agreement shall be governed by, and
construed in accordance with, the laws of the Commonwealth of Massachusetts
(without giving effect to provisions relating to conflicts of law). Any legal
action or proceeding arising out of or relating to this Agreement or any
Obligation may be instituted in the courts of the Commonwealth of Massachusetts
or of the United States of America for the District of Massachusetts, and the
Borrower hereby irrevocably submits to the jurisdiction of each such court in
any such action or proceeding, provided, however, that the foregoing shall not
limit the Agent's rights to bring any legal action or proceeding in any other
appropriate jurisdiction in which event, at the Agent's option, the laws of such
jurisdiction or of the Commonwealth of Massachusetts shall apply. Personal
jurisdiction over the Borrower may be obtained by the service of a summons or
similar legal document to the Borrower's address for notices under this
Agreement.
8.10 Exhibits. The Exhibits attached hereto are incorporated herein
for all purposes, and shall be considered a part of this Agreement.
8.11 Governing Security Agreement. In the event of any conflict or
inconsistency between any of the terms and provisions of this Security Agreement
and of the General Security Agreement of even date herewith executed and
delivered by the Borrower to the Agent for itself and as agent for the Canadian
Bank, the terms and provisions of this Security Agreement shall govern.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and sealed by their duly authorized officers or representatives,
all as of the date first above written.
A.R. CLARKE LIMITED
By:_________________________
Title:
THE FIRST NATIONAL BANK OF
BOSTON, as Agent
By:_________________________
Title:
<PAGE>
EXHIBIT A
---------
I. Borrower's Principal Place of Business:
---------------------------------------
Address:
633 Eastern Avenue
Toronto, Ontario Canada M4M IE5
II. Other Locations of Collateral:
------------------------------
United States Leather, Inc.
1110 North Old World Third Street
Suite 400
Milwaukee, Wisconsin 53203
<PAGE>
UNITED STATES LEATHER, INC.
PATENT AND TRADEMARK SECURITY AGREEMENT
UNITED STATES LEATHER, INC. (the "Company"), a Wisconsin corporation
having its principal place of business and chief executive offices at 1110 North
Old World Third Street, Suite 400, Milwaukee, Wisconsin 53203, hereby grants,
assigns and conveys to THE FIRST NATIONAL BANK OF BOSTON, a national bank with
its head office at 100 Federal Street, Boston, Massachusetts 02110, in its
capacity as agent (the "Agent," together with its successors and assigns, being
herein sometimes called the "Secured Party") for the Banks (collectively, the
"Banks") under (and as defined in) the Revolving Credit Agreement (as may be
amended from time to time, the "Loan Agreement") of even date herewith among the
Company, A.R. Clarke Limited, the Banks and the Agent, for the ratable benefit
of the Agent and the Banks, to secure the Company's payment and performance of
all Obligations under (and as defined in) the Loan Agreement, a security
interest in all patents and patent applications listed on Schedule A hereto, and
all patents and all reissues and extensions thereof, which issue or have issued
in the United States or Canada upon any patent applications which correspond
with any of such applications or patents or any divisional, continuation or
continuation-in-part thereof, including, without limitation, the right to sue
for past, present and future infringements, and proceeds of the foregoing,
including, but not limited to, proceeds of licensing (collectively, the
"Patents"), and all trademarks and service marks and United States, state and
Canadian registrations thereof, and applications therefor that are listed on
Schedule B hereto or that correspond with any marks therein listed, together
with the goodwill of the business with which the foregoing trademarks and
service marks are used and the right to sue for past, present and future
infringements of rights in such trademarks and service marks and all renewals
thereof, and all proceeds of the foregoing including, but not limited to,
proceeds of licensing (collectively, the "Trademarks").
The Company represents and warrants to and agrees with the Secured Party as
follows:
1. The Company is the sole owner in the United States and Canada of
the entire right, title and interest in and to each of the Patents and
Trademarks, free from any mortgage, pledge, lien, security interest, charge,
adverse claim or other encumbrance including, without limitation, licenses, shop
rights (with regard to the Patents) and covenants not to sue, except the
security interest herein granted and the Permitted Encumbrances.
2. As of the date hereof, each of the Patents and Trademarks listed on
Schedules A and B is valid and enforceable, and such Patents and Trademarks
constitute all material patents, patent applications, trademarks and service
marks now owned or used by the Company.
<PAGE>
3. The Patents and Trademarks are subsisting and have not been adjudged
invalid or unenforceable, in whole or in part.
4. The execution, delivery and performance of this Agreement are within the
power of the Company and have been duly authorized by all necessary corporate
action and do not contravene any law, rule, regulation or any judgment, decree
or order of any tribunal or of any agreement to which the Company is a party or
by which any of its property is bound.
5. The Company shall defend the Patents and Trademarks against all
claims and demands of all persons at any time claiming the same or any interests
therein adverse to the Secured Party other than Permitted Encumbrances. Until
the Obligations shall have been satisfied in full, and the Banks are not
committed to extend any credit to the Company under the Loan Agreement, the
Company shall not pledge, mortgage or create or suffer to exist a security
interest in, or enter into any license, sublicense or other agreement relating
to the use of, the Patents and Trademarks, without the Secured Party's prior
consent except as permitted in the Loan Agreement.
6. The Company shall promptly apply for and obtain all renewals or
extensions of the Patents and Trademarks to the full extent permitted by law
except to the extent, in the Company's reasonable discretion, exercised in good
faith, such renewal or extension is not reasonable, prudent or beneficial to the
Company or its operations. If, before all Obligations have been satisfied in
full, the Company shall obtain rights to any new patentable inventions, or
become entitled to the benefit of any patent application, patent for any
reissue, or of any patent improvement, or if the Company develops any new
trademark or service mark, the Company shall give the Secured Party prompt
written notice of all such patents, trademarks, service marks, extensions and
renewals, and the provisions of this Agreement shall apply thereto. The failure
of the Company to deliver such notice shall constitute a default under this
Agreement. The Company authorizes the Secured Party to modify this Agreement by
amending Schedule A and Schedule B to include any new patents, any divisions,
continuations, renewals, extensions, continuations-in-part on any patent, and
any new trademark or service mark, and any trademark renewal of the Company
applied for and obtained hereafter.
7. The Company shall promptly notify the Secured Party of the institution
of, and any adverse determination in, any proceeding in the United States Patent
and Trademark Office or any other Canadian or domestic governmental agency,
court or body, regarding the Company's claim of ownership in any of the Patents
and Trademarks which could have a material adverse effect on the Company. In the
event of any material infringement of any of the Patents or Trademarks by a
third party, the Company shall promptly notify the Secured Party of such
infringement and shall take all reasonably necessary actions to obtain the
cessation of such infringement and recover all damages resulting therefrom,
including, after a Default or Event of Default (as defined in the Loan
Agreement), such action as the Secured Party deems reasonably necessary. If the
Company shall fail to take such action within three (3) months after such notice
is given
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<PAGE>
to the Secured Party, the Secured Party may upon notice to the Company, but
shall not be required to, itself take such action in the name of the Company,
and the Company hereby appoints the Secured Party the true and lawful attorney
in fact of the Company, for it and in its name, place and stead, on behalf of
the Company, to commence judicial proceedings in any court or before any other
tribunal to enjoin and recover damages for such infringement, any such damages
due to the Company, net of reasonable costs and attorneys' fees, to be applied
to the Obligations.
8. The Company shall, at its sole expense, do, make, execute and deliver
all such additional and further acts, things, deeds, assurances, and
instruments, in each case in form and substance satisfactory to the Secured
Party, relating to the creation, validity, or perfection of the security
interests and assignments provided for in this Agreement under 35 U.S.C. Section
261, 15 U.S.C. Section 1051 et seq., the Uniform Commercial Code or other laws
of the United States, the Commonwealth of Massachusetts or other states, or
Canada as the Secured Party may from time to time reasonably request, and shall
take all such other action as the Secured Party may reasonably require to more
completely vest in and assure to the Secured Party and the Banks their
respective rights hereunder or in any of the Patents or Trademarks, and the
Company hereby irrevocably authorizes the Secured Party or its designee, at the
Company's expense, to execute such documents, and file such financing statements
with respect thereto with or without the Company's signature, as the Secured
Party may deem appropriate. In the event that any rerecording or refiling (or
the filing of any statement of continuation or assignment of any financing
statement) or any repledge or reassignment, or any other action, is required at
any time to protect and preserve such security interest and assignments, the
Company shall, at its sole cost and expense, cause the same to be done or taken
at such time and in such manner as may be reasonably necessary and as may be
reasonably requested by the Secured Party.
The Secured Party is hereby irrevocably appointed by the Company as its
lawful attorney and agent, with full power of substitution to execute and
deliver on behalf of and in the name of the Company, such financing statements,
assignments, pledges and other documents and agreements, and to take such other
action as the Secured Party may deem necessary for the purpose of perfecting,
protecting or effecting the security interests and assignments granted herein
and effected hereby, and any mortgages or liens necessary or desirable to
implement or effectuate the same, under any applicable law, and the Secured
Party is hereby authorized to file on behalf of and in the name of the Company
at the Company's sole expense, such financing statement, assignments, documents,
and agreements in any appropriate governmental office.
9. If any Event of Default (as defined in the Loan Agreement) shall have
occurred and be continuing, the Secured Party may without notice or demand
declare this Agreement to be in default and the Secured Party shall thereafter
have in any jurisdiction in which enforcement hereof is sought, in addition to
all other rights and remedies, the rights and remedies of a secured party under
the Uniform Commercial Code, including, without limitation, the right to dispose
of the Patents and Trademarks at public or private
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<PAGE>
sale. The Secured Party shall give to the Company at least ten (10) days' prior
written notice (which the Company agrees is "reasonable notification" within the
meaning of Section 9-504(3) of the Uniform Commercial Code) of the time and
place of any public sale of the Patents and Trademarks or of the time after
which any private sale or any other intended disposition is to be made.
If any Event of Default shall have occurred and be continuing, the Company
hereby grants to the Secured Party the right and exclusive license to make, have
made, use and sell the inventions and marks disclosed and claimed in the Patents
and the Trademarks for the Secured Party's benefit and account, and for none
other.
The Company hereby waives any and all rights that it may have to judicial
hearing in advance of the enforcement of any of the Secured Party's rights
hereunder, including, without limitation, its rights following any Event of
Default to take immediate possession of the Patents and Trademarks and exercise
its rights with respect thereto.
The Secured Party shall not be required to marshal any present or future
security for (including, but not limited to, this Agreement and the Patents and
Trademarks subject to a security interest hereunder), or guaranties of, the
Obligations or any of them, or to resort to such security or guaranties in any
particular order; and all of the rights hereunder and in respect of such
security and guaranties shall be cumulative and in addition to all other rights,
however existing or arising. To the extent that it lawfully may, the Company
hereby agrees that it will not invoke any law relating to the marshalling of
collateral which might cause delay in or impede the enforcement of the Secured
Party's or any Bank's rights under this Agreement or any other instrument
evidencing any of the Obligations or by which any of the Obligations is secured
or guaranteed, and to the extent that it lawfully may the Company hereby
irrevocably waives the benefits of all such laws.
10. Except for notices specifically provided for herein, the Company
hereby expressly waives demand, notice, protest, notice of acceptance of this
Agreement, notice of loans made, credit extended, collateral received or
delivered or other action taken in reliance hereon and all other demands and
notices of any description. With respect both to the Obligations and any
collateral therefor, the Company assents to any extension or postponement of the
time of payment or any other indulgence, to any substitution of any party or
person primarily or secondarily liable, to the acceptance of partial payment
thereon and the settlement, compromising or adjusting of any thereof, all in
such manner and at such time or times as the Secured Party or the Banks may deem
advisable. Neither the Secured Party nor any Bank shall have any duty as to the
protection of the Patents or Trademarks or any income thereon, nor as to the
preservation or rights against prior parties, nor as to the preservation of any
rights pertaining thereto. The Secured Party and the Banks may exercise their
rights with respect to the Patents and Trademarks without resorting or regard to
other collateral or sources of reimbursement for liability. The Secured Party
and the Banks shall not be deemed to have waived any of their rights upon or
under the Obligations or the Patents and Trademarks unless such waiver be in
writing and signed by the Secured Party and the Banks in accordance with the
terms of the Loan
4
<PAGE>
Agreement. No delay or omission on the part of the Secured Party or the Banks in
exercising any right shall operate as a waiver of any right on any future
occasion. All rights and remedies of the Secured Party or the Banks with respect
to the Obligations or the Patents or Trademarks, whether evidenced hereby or by
any other instrument or papers, shall be cumulative and may be exercised
singularly or concurrently.
11. The Company will pay any and all (i) reasonable charges and costs and
all taxes incurred in implementing or subsequently amending this Agreement,
including, without limitation, recording and filing fees, appraisal fees, stamp
taxes, and fees and disbursements of the Secured Party's counsel incurred by the
Secured Party, in connection with this Agreement, and (ii) reasonable fees and
disbursements incurred by the Secured Party in the preparation, execution and
delivery of any waiver or consent by the Secured Party relating to this
Agreement, and in the enforcement of this Agreement and in the enforcement or
foreclosure of any liens, security interests or other rights of the Secured
Party under this Agreement, or under any other documentation heretofore, now, or
hereafter given to the Secured Party or the Banks in furtherance of the
transactions contemplated hereby. In addition, after the occurrence of a Default
or an Event of Default, the Company will also pay all reasonable costs and
expenses of the Banks in connection with the enforcement of this Agreement and
with the enforcement or foreclosure of any liens, security interests or other
rights of the Banks under this Agreement, or under any other documentation
heretofore, now, or hereafter given to the Secured Party or the Banks in
furtherance of the transactions contemplated hereby.
The Company agrees to reimburse the Secured Party and the Banks for, and
indemnify them against, any and all losses, expenses and liabilities (including
liabilities for penalties) of whatever kind or nature sustained and reasonably
incurred (other than as a result of the gross negligence or willful misconduct
of the Secured Party or any of the Banks) in connection with any claim, demand,
suit or legal or arbitration proceeding relating to this Agreement, or the
exercise of any rights or powers hereunder, including reasonable attorneys' fees
and disbursements.
12. The Company and the Secured Party may from time to time agree in
writing to the release of certain of the Patents and Trademarks from the
security interest created hereby.
13. The Company shall hold the Secured Party and the Banks harmless from
any and all costs, damages and expenses which may be incurred by the Secured
Party, the Banks or the Company in connection with any action or failure to act
by the Secured Party or any Bank in connection with this Agreement (other than
as a result of the gross negligence or willful misconduct of the Secured Party
or any of the Banks).
14. This Agreement and all rights and obligations hereunder, including
matters of construction, validity and performance, shall be governed by the laws
of the United States, and, to the extent that the laws of the United States are
not applicable, by
5
<PAGE>
the laws of the Commonwealth of Massachusetts (without regard to principles of
conflicts of laws). This Agreement is intended to take effect as a sealed
instrument.
15. Unless otherwise specified herein, all notices hereunder to any party
hereto shall be in writing and shall be given in accordance with Section 9.1 of
the Loan Agreement.
16. When all Obligations have been paid and performed in full, and if at
the time the Banks are not committed to extend any credit to the Company under
the Loan Agreement or under any other Loan Document (as defined in the Loan
Agreement), this Agreement shall terminate, and the Secured Party shall upon
request, at the Company's expense, execute all such documentation necessary to
release its security interest hereunder, provided, that notwithstanding the
foregoing, this Agreement shall continue to be effective or be reinstated, as
the case may be, if at any time payment or other satisfaction of any of the
Obligations is rescinded or must otherwise be restored or returned upon the
bankruptcy, Insolvency or reorganization of the Company, or otherwise, as though
such payment had not been made or such performance occurred.
17. Neither this Agreement nor any term hereof may be changed, waived,
discharged or terminated except by a written instrument expressly referring to
this Agreement and to the provisions so modified or limited, and executed by all
the parties hereto.
18. This Agreement and all obligations of the Company shall be binding
upon the successors and assigns of the Company, and shall, together with the
rights and remedies of the Secured Party hereunder, inure to the benefit of the
Secured Party, the Banks and their respective successors and assigns. If any
term of this Agreement shall be held to be invalid, illegal or unenforceable,
the validity of all other terms hereof shall be in no way affected thereby, and
this Agreement shall be construed and be enforceable as if such invalid, illegal
or unenforceable term had not been included herein. The Company acknowledges
receipt of a copy of this Agreement. Terms used herein without definition which
are defined in the Loan Agreement or the Uniform Commercial Code of
Massachusetts have such defined meanings herein, unless the context otherwise
indicates or requires.
[SIGNATURES ON NEXT PAGE]
6
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
its duly authorized officer as of this ___ day of ____________, 1996.
UNITED STATES LEATHER, INC.
By:___________________________
Its Vice President, Chief
Financial Officer and Secretary
Hereunto duly authorized
Accepted:
THE FIRST NATIONAL BANK OF BOSTON,
as Agent
By:______________________
Its
Hereunto duly authorized
<PAGE>
COMMONWEALTH OF MASSACHUSETTS )
) ss.
COUNTY OF SUFFOLK )
Then personally appeared the above-named Robert A. Hale who being duly
sworn stated that he is the Vice President, Chief Financial Officer and
Secretary of and acknowledged the foregoing instrument to be the free act and
deed of UNITED STATES LEATHER, INC., before me, this __ day of ________, 1996.
_____________________________
Notary Public
My commission expires:
<PAGE>
SCHEDULE A
----------
TO
PATENT AND TRADEMARK SECURITY AGREEMENT
PATENTS
United States Leather, Inc. Recovery of Sulfides from tannery waste
liquor Patent No. 5,328,677, dated
July 12, 1994
<PAGE>
SCHEDULE B
----------
TO
PATENT AND TRADEMARK SECURITY AGREEMENT
TRADEMARKS
<PAGE>
LANDLORD WAIVER
___________________________________________________ (the "Lessor"),
with an office at _______________________________________________________
______________________________, being the lessor of certain premises located at
______________________________________________________, Omaha, Nebraska (the
"Premises"), pursuant to the lease between Lessor and United States Leather,
Inc. (the "Lessee), dated ___________, 19__ (as the same may be amended from
time to time, including any renewal, extension or substitution thereof or
therefor, the "Lease"), for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by the Lessor, does hereby:
1. Acknowledge that the Lessor has been advised that the Lessee has
granted or will grant to The First National Bank of Boston, as agent (together
with its representatives and agents, the "Secured Party") security interests in
inventory, accounts receivable, equipment, trade fixtures and all other tangible
and intangible personal property now owned or hereafter acquired by the Lessee
(the "Collateral"), all as more fully described in a Security Agreement from
Lessee to the Secured Party (as the same may be amended, revised, replaced or
superceded from time to time, the "Security Agreement").
2. Waive, relinquish and release, solely during the term of the Security
Agreement, any and all rights of distraint, attachment, lien, levy, execution or
other rights against or upon the Collateral for any rent or other sum now or
hereafter due the Lessor under the Lease or otherwise, and all claims and
demands of every kind and nature against the Collateral, and does hereby agree
that the Collateral is and shall remain personal property of the Lessee at all
times.
3. Agree to provide the Secured Party with 30 days written prior notice
of any action taken by the Lessor to terminate the Lease or to commence any
action to gain possession of the Premises, including without limitation agreeing
to provide the Secured Party with a copy of any notice given by the Lessor to
the Lessee of the Lessee's default under the Lease or of any material amendment
thereof.
4. Agree to provide the Secured Party, both before and after termination
of the Lease, with access to the Premises to effect removal or sale of the
Collateral, and the Secured Party hereby agrees (i) to use due care during any
period it is on the Premises and, in a workmanlike manner, to repair any damage
caused by such removal or sale, and (ii) to remove or sell said Collateral
within 60 days after entry upon the Premises (and, if the Lease has been
terminated, the Secured Party shall be responsible to the Lessor for per diem
rent and other charges accruing under the Lease after 30 days of such 60 day
period.
-1-
<PAGE>
5. Represent that the Lease is in full force and effect and that the
Lessor is unaware of any current condition constituting a default under the
Lease or which would permit the Lessor to terminate the Lease.
IN WITNESS WHEREOF, the Lessor has executed this Landlord Waiver as of
the ____ day of _______, 1996.
Landlord:
[INSERT NAME]
By:________________________
Title:
Agreed:
Secured Party:
THE FIRST NATIONAL BANK OF BOSTON,
as Agent
By:___________________________
Title:
-2-
<PAGE>
(S)NEGATIVE PLEDGE
------------------
(United States Leather, Inc.)
This Agreement is made as of ____________, 1996, between UNITED STATES
LEATHER, INC., a Wisconsin corporation having its chief executive office at 1110
North Old World Third Street, Suite 400, Milwaukee, Wisconsin 53203 (the
"Borrower"), and THE FIRST NATIONAL BANK OF BOSTON, a national bank with its
head office at 100 Federal Street, Boston, Massachusetts 02110, in its capacity
as Agent (in such capacity, hereinafter called the "Agent," which expression
shall include, where the context so admits, a successor Agent) for the Banks
under and as defined in the Loan Agreement referred to below.
For consideration paid, and to secure the payment of any and all
Obligations (as defined in the Loan Agreement referred to below) of the Borrower
to the Agent and the Banks under the Revolving Credit Agreement, dated as of
________ __, 1996, among the Borrower, A. R. Clarke Limited, the Agent and the
Banks (the "Loan Agreement"), the parties hereby agree as follows:
1. Representation of Borrower. To induce the Banks to make the loans
evidenced by the Revolving Credit Notes (as defined in the Loan Agreement), the
Borrower hereby represents and warrants that it has good and marketable title to
all of its real properties identified in the legal description(s) attached
hereto (the "Negative Pledge Property") free from all liens, charges and
encumbrances whatsoever, except for the liens in existence on the date hereof
which are listed in Exhibit C to the Loan Agreement and the Permitted
Encumbrances (as defined in the Loan Agreement) (collectively, the "Permitted
Liens").
2. Negative Pledge. The Borrower will not, and will not permit any other
Person (as defined in the Loan Agreement) to create, assume, incur, or suffer to
exist any lien, mortgage, pledge, charge, security interest or other encumbrance
of any kind (including, without limitation, any purchase and sale agreement, any
conditional sale agreement or other title retention agreement) on or with
respect to the Negative Pledge Property (other than a Permitted Lien) and,
except as provided in the Loan Agreement, the Borrower will not suffer or permit
any transfer of any direct or indirect legal or beneficial interest of the
Borrower in the Negative Pledge Property without on each occasion the prior
written consent of the Agent. If the Borrower breaches this covenant, it shall
constitute an a Default or Event of Default under the Loan Agreement.
3. Remedies. Upon the occurrence of any Event of Default under the Loan
Agreement, the Agent and the Banks may pursue any remedy available to them under
the Loan Agreement, the other Loan Documents (as defined in the Loan Agreement),
at law or in equity. All remedies shall be cumulative and not exclusive.
<PAGE>
4. Waivers by Agent and the Banks. No course of dealing by the Agent or the
Banks, or delay in exercising any of their remedies hereunder or under the Loan
Agreement (or any other Loan Documents) following an Event of Default
thereunder, shall affect the Agent's or the Banks' rights later to take such
action with respect thereto, and no waiver as to any one Default or Event of
Default shall affect the Agent's or the Banks' rights as to any other Default or
Event of Default. No waiver by the Agent or the Banks shall be effective unless
in writing and signed by the Agent and the Borrower.
5. Term. This Agreement shall remain in full force and effect until the
Obligations (as defined in the Loan Agreement) have been paid, performed and
indefeasibly discharged in full and the Banks are not committed to extend any
credit to the Borrower under the Loan Agreement or under any other Loan
Document.
6. Notices. Unless otherwise specified herein, all notices hereunder to any
party hereto shall be in writing and shall be given in accordance with Section
9.1 of the Loan Agreement.
7. Counterparts. This document may be signed in counterparts and will be
fully effective as so signed.
8. Applicable Law. The terms of this Agreement shall be governed by and
construed under the laws of the state in which the Negative Pledge Property is
located.
9. Amendment. This Agreement may not be changed or terminated orally, but
only by an agreement in writing signed by the party to be charged.
10. Severability. If any term or provision of this Agreement, or the
application thereof to any person or circumstance, shall to any extent be
invalid or unenforceable, the remainder of this Agreement, or the application of
such term or provision to person or circumstances other than those as to which
it is invalid or unenforceable, shall not be affected thereby, and each term and
provision of this Agreement shall be valid and enforceable to the fullest extent
permitted by law.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
or has caused this Agreement to be executed on its behalf by its duly authorized
officer, as set forth below, all as of the date first hereinabove written.
The Borrower
------------
UNITED STATES LEATHER, INC.
______________________ By:___________________________
Title:
The Agent
--- -----
THE FIRST NATIONAL BANK OF BOSTON,
as Agent
______________________ By:____________________________
Title:
<PAGE>
NEGATIVE PLEDGE
---------------
(A.R. Clarke Limited)
This Agreement is made as of ______________, 1996, between A.R. CLARKE
LIMITED, an Ontario corporation having its chief executive office at 633 Eastern
Avenue, Toronto, Ontario Canada M4M 1E5 (the "Borrower"), and THE FIRST NATIONAL
BANK OF BOSTON, a national bank with its head office at 100 Federal Street,
Boston, Massachusetts 02110, in its capacity as Agent (in such capacity,
hereinafter called the "Agent," which expression shall include, where the
context so admits, a successor Agent) for the Canadian Bank under and as defined
in the Loan Agreement referred to below.
For consideration paid, and to secure the payment of any and all
Obligations (as defined in the Loan Agreement referred to below) of the Borrower
to the Agent and the Canadian Bank under the Revolving Credit Agreement, dated
as of ____________, 1996, (as the same may be amended from time to time, the
"Loan Agreement") among the Borrower, United States Leather, Inc., the Agent,
the Canadian Bank and the other Banks (as defined in the Loan Agreement), the
parties hereby agree as follows:
1. Representation of Borrower. To induce the Canadian Bank to make the loans
evidenced by the Canadian Revolving Credit Notes (as defined in the Loan
Agreement), the Borrower hereby represents and warrants that it has good and
marketable title to all of its real properties identified in the legal
description(s) attached hereto (the "Negative Pledge Property"), free from all
liens, charges and encumbrances whatsoever, except for the liens in existence on
the date hereof which are listed in Exhibit C to the Loan Agreement and
Permitted Encumbrances (as defined in the Loan Agreement) (collectively, the
"Permitted Liens").
2. Negative Pledge. The Borrower will not, and will not permit any other Person
(as defined in the Loan Agreement) to create, assume, incur, or suffer to exist
any lien, mortgage, pledge, charge, security interest or other encumbrance of
any kind (including, without limitation, any purchase and sale agreement, any
conditional sale agreement or other title retention agreement) on or with
respect to the Negative Pledge Property (other than a Permitted Lien) and,
except as provided in the Loan Agreement, the Borrower will not suffer or permit
any transfer of any direct or indirect legal or beneficial interest of the
Borrower in the Negative Pledge Property without on each occasion the prior
written consent of the Agent. If the Borrower breaches this covenant, it shall
constitute a Default or Event of Default under the Loan Agreement.
3. Remedies. Upon the occurrence of any Event of Default under the Loan
Agreement, the Agent and the Canadian Bank may pursue any remedy available to
them
<PAGE>
under the Loan Agreement, the other Loan Documents (as defined in the Loan
Agreement) at law or in equity. All remedies shall be cumulative and not
exclusive.
4. Waivers by Agent and the Canadian Bank. No course of dealing by the Agent or
the Canadian Bank, or delay in exercising any of their remedies hereunder or
under the Loan Agreement (or any other Loan Documents) following an Event of
Default thereunder, shall affect the Agent's or the Canadian Bank's rights later
to take such action with respect thereto, and no waiver as to any one Default or
Event of Default shall affect the Agent's or the Canadian Bank's rights as to
any other Default or Event of Default. No waiver by the Agent or the Canadian
Bank shall be effective unless in writing and signed by the Agent and the
Borrower.
5. Term. This Agreement shall remain in full force and effect until the
Obligations (as defined in the Loan Agreement) have been paid, performed and
indefeasibly discharged in full and the Canadian Bank is not committed to extend
any credit to the Borrower under the Loan Agreement or under any other Loan
Document.
6. Notices. Unless otherwise specified herein, all notices hereunder to any
party hereto shall be in writing and shall be given in accordance with Section
9.1 of the Loan Agreement.
7. Counterparts. This document may be signed in counterparts and will be fully
effective as so signed.
8. Applicable Law. The terms of this Agreement shall be governed by and
construed under the laws of the jurisdiction in which the Negative Pledge
Property is located.
9. Amendment. This Agreement may not be changed or terminated orally, but only
by an agreement in writing signed by the party to be charged.
10. Severability. If any term or provision of this Agreement, or the application
thereof to any person or circumstance, shall to any extent be invalid or
unenforceable, the remainder of this Agreement, or the application of such term
or provision to person or circumstances other than those as to which it is
invalid or unenforceable, shall not be affected thereby, and each term and
provision of this Agreement shall be valid and enforceable to the fullest extent
permitted by law.
2
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
or has caused this Agreement to be executed on its behalf by its duly authorized
officer, as set forth below, all as of the date first hereinabove written.
The Borrower
A. R. CLARKE LIMITED
By:___________________________
Title:
The Agent
THE FIRST NATIONAL BANK OF BOSTON,
as Agent
By:____________________________
Title:
<PAGE>
"The Negative Pledge Property"
A. R. CLARKE LIMITED
LIST OF COMPANY LOCATIONS
ADDRESS LEGAL DESCRIPTION
633 Eastern Avenue Part of Township Lots 11 and 12 in the
Toronto, Ontario Broken Front Concession in the original Township
Canada M4M 1E5 of York now in the said City of Toronto, and
part of the Water Lots in front of the said
Lots 11 and 12, and shown as Parts 1, 2 and 3,
Plan 63R-1472, in the City of Toronto, in the
Municipality of Metropolitan Toronto
<PAGE>
UNITED STATES LEATHER, INC.
PROMISSORY NOTE
_____________, 1996
$80,000,000.00 Boston, Massachusetts
For value received, the undersigned hereby promises to pay to The
First National Bank of Boston (the "Bank"), or order, at the head office of the
Bank at 100 Federal Street, Boston, Massachusetts 02110, the principal amount of
Eighty Million and 00/100 Dollars ($80,000,000.00), or such lesser amount as
shall equal the principal amount outstanding hereunder on the fifth anniversary
hereof (the "Maturity Date"), on or before the Maturity Date, in lawful money of
the United States of America and in immediately available funds, and to pay
interest on the unpaid principal balance hereof from time to time outstanding,
at said office and in like money and funds, for the period commencing on the
date hereof until paid in full, at the rates per annum and on the dates provided
in the Agreement (as hereinafter defined).
This Note is issued pursuant to, and entitled to the benefits of, and
is subject to, the provisions of a certain Revolving Credit Agreement of even
date herewith among the undersigned, A.R. Clarke Limited, The First National
Bank of Boston, as agent, and the other banks party thereto (herein, as the same
may from time to time be amended or extended, referred to as the "Agreement"),
but neither this reference to the Agreement nor any provision thereof shall
affect or impair the absolute and unconditional obligation of the undersigned
maker of this Note to pay the principal of and interest on this Note as herein
provided.
As provided in the Agreement, this Note is secured by the U.S.
Collateral (as defined in the Agreement) and is subject to mandatory prepayment
in certain circumstances.
In case an Event of Default (as defined in the Agreement) shall occur,
the aggregate unpaid principal of and accrued interest on this Note shall become
or may be declared to be due and payable in the manner and with the effect
provided in the Agreement.
The undersigned may at its option prepay (subject to Sections 2B.8 and
2B.12, without premium or penalty) all or any part of the principal of this Note
before maturity upon the terms provided in the Agreement.
The undersigned maker hereby waives presentment, demand, notice of
dishonor, protest and all other demands and notices in connection with the
delivery, acceptance, performance and enforcement of this Note.
<PAGE>
This instrument shall have the effect of an instrument executed under
seal and shall be governed by and construed in accordance with the laws of the
Commonwealth of Massachusetts (without giving effect to any conflicts of laws
provisions contained therein).
UNITED STATES LEATHER, INC.
By:
------------------------
Title:
-2-
<PAGE>
MASTER COMMERCIAL LETTER OF CREDIT REIMBURSEMENT
AND SECURITY AGREEMENT
This Agreement is made as of October 31st, 1996 ("Effective Date") by and
between:
THE FIRST NATIONAL BANK OF BOSTON, a national banking association with its main
offices located at 100 Federal Street Boston, Massachusetts, including its
overseas branches ("Bank"); and
UNITED STATES LEATHER, INC., a company organized under the laws of Wisconsin,
and having its principal office at 1111 North Old World Street, Suite 400,
Milwaukee, Wisconsin.
"Application" means an application by the Customer and/or the Designated Users
(as defined in section 18 below) to the Bank for the issuance of a letter of
credit and includes all modifications made with the Customer's and/or the
Designated Users' written or oral agreement or consent.
"Bank" means The First National Bank of Boston and includes its overseas
branches.
"Collateral" includes all property in which the Bank at any particular time has
a security interest and the proceeds thereof.
"Credit" means a commercial letter of credit issued pursuant to an Application,
including any amendments or modifications of such Credit.
"Customer" means the party or parties, other than the Bank, signing this
Agreement (jointly and severally if more than one).
"Uniform Customs and Practices" means the Uniform Customs and Practice for
Documentary Credits (1993 Revision), International Chamber of Commerce,
Publication No. 500, and any subsequent revisions thereof approved by the
International Chamber of Commerce.
In consideration of the Bank opening at the Customer's request, from time to
time, a Credit, the Customer hereby agrees with the Bank as follows:
1. The Customer will pay the Bank, in United States currency, the amount of
each drawing under the Credit, together with interest, commissions, all
customary charges and all other disbursements or payments by the Bank pursuant
to the Credit or this Agreement, such payment to be made (a) on demand in the
case of each drawing at sight, with interest from the date of payment under the
Credit to the date of payment by the Customer to the Bank, (b) in time to reach
the place of payment when sent by certified mail, postage prepaid, not later
than one business day prior to maturity in the
-1-
<PAGE>
case of each acceptance. If a drawing is payable in foreign currency, the
Customer shall pay the Bank the equivalent of the amount of such drawing in
United States currency, at the Bank's then selling rate for cable transfers to
the place of payment or to the place of the Bank's settlement of its obligation,
as the Bank may require. If there is no rate of exchange for effecting such
cable transfer, the Customer will pay the Bank on demand the amount in United
States currency equivalent to the Bank's actual cost of settlement, with
interest on the amount in United States currency payable by the Customer from
the date of settlement to the date of payment by the Customer. Unless otherwise
agreed, interest and commission payable hereunder shall be at such rate as the
Bank may deem appropriate; provided however, that the rate of interest on
default on any of the Customer's obligations hereunder will be Base Rate. The
Base Rate is the rate of interest announced from time to time by the Bank at its
head office as its Base Rate. Any amount which at any time may be owing by the
Customer to the Bank pursuant to this Agreement may be charged against any funds
held by the Bank for the account of the Customer.
2. The Customer will promptly examine (a) the copy of the Credit (and any
amendments thereof) sent to it by the Bank and (b) all instruments and documents
delivered to it from time to time by the Bank, and the Customer will, within
five (5) Business Days of receipt thereof, notify the Bank of any irregularity
or claim of non-compliance with the Customer's instructions. The Customer is
conclusively deemed to have waived any such claim against the Bank and its
correspondents unless such notice is given as aforesaid.
3. The Customer will procure promptly any necessary documentation, permits or
licenses for the import, export or shipping of the property in connection with
which the Credit is issued; will comply with all material foreign and domestic
governmental requirements relating to the shipment or financing of such
property; and will furnish such evidence that the above requirements have been
fulfilled as the Bank may require. The Customer will keep such property insured
in amounts, against risks and with companies reasonably satisfactory to the
Bank; will make any loss or adjustment payable to the Bank, or, at the Bank's
option, will assign the policies or certificates of insurance to the Bank and
will furnish the Bank on demand with evidence of acceptance by the insurers of
such assignment. Should the insurance upon such property be reasonably
unsatisfactory to the Bank, the Bank may after notification to Customer, at the
Customer's expense, obtain reasonable insurance satisfactory to the Bank.
4. The Customer agrees to indemnify the Bank and its correspondents for and
hold them harmless against any and all claims, loss, liability or damage,
including reasonable attorney fees, howsoever arising from or in connection with
the Credit, including any such claim or loss in connection with the surrender or
endorsement of any bill of lading, warehouse receipt or other document at any
time held by the Bank or any of its correspondents in connection with the
Credit; provided, however, that the
-2-
<PAGE>
Customer shall not hold harmless and indemnify the Bank and its correspondents
for any claim, loss, liability or damage resulting from the Bank's or such
correspondent's gross negligence or wilful misconduct. The agreements in this
paragraph shall survive any payment under or termination of this Agreement.
5. The Customer shall pay the Bank on demand all charges, costs and expenses,
including reasonable attorney fees, incurred or paid by the Bank in connection
with the exercise of any right, power or remedy hereunder, or in the enforcement
thereof.
6. The Customer grants to the Bank a security interest in all goods, documents,
instruments and accounts which shall come into the possession or control of the
Bank, any of the Bank's correspondents, or the Customer, or in which the
Customer may acquire an interest and the proceeds thereof as the result of
opening or in connection with any transaction under the Credit, as security for
(a) all payments made or to be made by the Bank or its correspondents under the
Credit (b) any interest, commission or other customary charges in relation to
the Credit, and (c) any other obligations of the Customer to the Bank under this
Agreement. Upon any default by the Customer in any of the undertakings set forth
in this Agreement, the Bank. is authorized to sell any or all such goods or
documents at public or private sale and exercise any and all other rights of a
secured creditor under the provisions of the Uniform Commercial Code of the
Commonwealth of Massachusetts or any similar statute. Any legal requirement that
the Bank must give the Customer reasonable notice of any proposed sale or
disposition of the goods or documents shall be met if such notice is given-n to
the Customer at least ten (10) days before the time of such sale or disposition.
If the Bank at any time in good faith deems itself insecure, the Customer will
upon demand deliver to the Bank additional collateral to the Bank's reasonable
satisfaction, excluding the real property or foreign patents and trademarks of
the Customer.
7. Any deposits or other sums at any time credited by or due from the Bank to
the Customer and any securities or other property of the Customer in the
possession of the Bank of any of its correspondents may at all times be held and
treated as Collateral for the payment of any obligations of the Customer to the
Bank hereunder, whether direct or indirect, absolute or contingent, due or to
become due, now existing or hereafter arising. Regardless of the adequacy of any
Collateral, any deposits or other sums credited by or due from the Bank to the
Customer may, at any time, be applied to or set off against such liabilities and
obligations without notice.
8. Upon the occurrence and continuation of a Default or an Event of Default (as
each is defined in the Credit Agreement dated as of the date hereof among the
Customer, the Bank and the other parties thereto), the Bank may without notice
or demand declare any and all of the obligations and liabilities, direct or
indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, of the Customer to the Bank under this Agreement, to be
immediately due and payable, and the Bank shall have all of the rights and
remedies provided hereunder and by law.
-3-
<PAGE>
9. The Customer will, at its expense, promptly execute and deliver to the Bank
such financing statements, continuation statements, trust receipts and other
documents as the Bank may at any time reasonably request and will promptly
reimburse the Bank for the amount of any filing or recording fees with respect
thereto.
10. Upon the occurrence and continuation of a Default or an Event of Default,
the Bank may, with power of substitution and revocation, sign in the Customer's
name as agent any document called for from the Customer and/or endorse in the
Customer's name any and all notes, checks, drafts, documents of title or other
instruments or documents in which the Bank may at any time have any interest;
and may perform any obligation or agreement in connection with the Credit or
this Agreement which the Customer has failed to perform and take any other
action which the Bank deems necessary or desirable to protect the Collateral and
its rights, powers and remedies under this Agreement.
11. Neither the Bank nor its correspondents shall be in any way responsible for
performance by any beneficiary of its obligations to the Customer, nor for the
form, sufficiency, correctness, genuineness, authority or person signing,
falsification or legal effect of any documents called for under the Credit if
such documents on their face appear to be in order.
12. Although shipment(s) in excess of the quantity called for under the Credit
are made, the Bank may make payment under the Credit in an amount or amounts not
exceeding the amount of the Credit; and the Bank may honor, as complying with
the terms of the Credit and of the Application therefore, any drafts or other
documents otherwise in order signed or issued by an administrator, executor,
conservator, trustee in bankruptcy, debtor in possession, assignee for benefit
of creditors, liquidator, receiver or other legal representative of the party
authorized under the Credit to draw or issue such drafts or other documents.
13. Unless otherwise expressly agreed to, the Customer hereby authorizes the
Bank to (a) select an advising bank, if any, (b) select a paying bank, if any,
(c) authorize or restrict negotiation under the Credit, and (d) waive any such
restriction on negotiation.
14. This Agreement and a request or consent to any modification, change,
amendment, waiver or any other action pursuant to this Agreement, shall be
binding upon the Customer and its respective heirs, executors, administrators,
successors and assigns and shall inure to the benefit of and be enforceable by
the Bank, its successors and assigns. In the event that any provision hereof is
determined by a court of competent jurisdiction to be invalid, such invalidity
shall not affect any other provision of this Agreement. The Customer represents
and warrants that the execution, delivery and performance by the Customer hereof
has been duly authorized by all necessary corporate and/or other action and that
the making and performance hereof by the
-4-
<PAGE>
Customer does not and will not contravene the material terms of any existing
law, agreement or instrument by which the Customer is bound or to which the
Customer is subject.
15. The failure of the Bank to enforce at any time any of the provisions hereof
shall not be construed to be a waiver of such provisions or of the right of the
Bank thereafter to enforce any such provisions.
16. The Credit shall be subject to, and performance by the Bank, its
correspondent and the beneficiary thereunder shall be governed by, the Uniform
Customs and Practice, except to the extent it is otherwise expressly agreed.
17. It is agreed that all directions and correspondence relating to the Credit
are to be sent at the Customer's risk and that the Bank does not assume any
responsibility for any inaccuracy, interruption, error or delay in transmission
or delivery by post, telegraph or cable, or for any inaccuracy of translation.
18. The Customer may designate in writing subsidiary corporations that shall be
eligible to submit Application(s). Such subsidiary corporations shall be
majority-owned or controlled by the Customer and shall be listed in Attachment 1
hereto (the "Designated Users"). The Customer expressly agrees that it shall
always remain primarily responsible for a) the performance of this Agreement; b)
any liabilities incurred by the Bank on behalf of the Customer and/or the
Designated Users. The Customer warrants that the Designated Users, will abide
by, and act in accordance with, the provisions of this Agreement for the benefit
of the Bank. The Customer may NOT assign this Agreement without the express
written consent of the Bank and any assignment without such consent shall be
void.
19. This Agreement is made in the Commonwealth of Massachusetts and shall be
deemed to be a contract under seal to be governed by and construed in accordance
with the laws of said Commonwealth. The Bank's rights, powers and remedies
specified herein are cumulative and are in addition to those otherwise created
or existing by law or agreement.
Customer: Bank:
- -------- ----
UNITED STATES LEATHER, THE FIRST NATIONAL BANK
INC. OF BOSTON
By: __________________________ By: __________________________
Robert A. Hale Howard C. Bailey
-5-
<PAGE>
ATTACHMENT I
(Ref: Section 18)
***
List here all subsidiary corporations and designated Network locations:
- --------------------------------------------------------------------------
Subsidiary corproation's Name And Address
- --------------------------------------------------------------------------
1)
- --------------------------------------------------------------------------
2)
- --------------------------------------------------------------------------
3)
- --------------------------------------------------------------------------
4)
- --------------------------------------------------------------------------
-6-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,157
<SECURITIES> 0
<RECEIVABLES> 50,860
<ALLOWANCES> (5,212)
<INVENTORY> 57,984
<CURRENT-ASSETS> 109,089
<PP&E> 82,760
<DEPRECIATION> (35,753)
<TOTAL-ASSETS> 265,672
<CURRENT-LIABILITIES> 54,653
<BONDS> 130,091
<COMMON> 1
0
0
<OTHER-SE> 70,894
<TOTAL-LIABILITY-AND-EQUITY> 265,672
<SALES> 235,407
<TOTAL-REVENUES> 235,407
<CGS> 213,791
<TOTAL-COSTS> 213,791
<OTHER-EXPENSES> 23,679
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,790
<INCOME-PRETAX> (14,853)
<INCOME-TAX> (4,553)
<INCOME-CONTINUING> (10,300)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,300)
<EPS-PRIMARY> (103,000)
<EPS-DILUTED> 0
</TABLE>
