<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended DECEMBER 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
For the transition period from ___________________to____________________
Commission file number 1-12870
COLD METAL PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
NEW YORK 16-1144965
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
8526 SOUTH AVENUE, YOUNGSTOWN, OHIO 44514
(Address of principal executive offices) (Zip Code)
(330) 758-1194
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes[X] No [ ]
Number of shares of Common Stock outstanding as of January 31, 1997: 7,162,250
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COLD METAL PRODUCTS, INC.
SEC FORM 10-Q
Quarter Ended December 31, 1996
<TABLE>
<CAPTION>
Index
-----
Page No.
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C>
Consolidated Statements of Operations ...................................................................................3
Consolidated Balance Sheets..............................................................................................4
Consolidated Statements of Cash Flows....................................................................................5
Notes to Consolidated Financial Statements...............................................................................6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................9
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings ............................................................................................12
Item 2. Changes in Securities.........................................................................................12
Item 3. Defaults Upon Senior Securities...............................................................................12
Item 4. Submission of Matters to a Vote of Securities Holders.........................................................12
Item 5. Other Information.............................................................................................12
Item 6. Exhibits and Reports on Form 8-K..............................................................................12
Signatures ......................................................................................................12
</TABLE>
2
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<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COLD METAL PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended Nine Months Ended
------------------ -----------------
December 31 December 31
----------- -----------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales ................................... $ 73,162 $ 51,633 $ 207,213 $ 167,921
Cost of sales ............................... 67,914 47,368 189,219 153,133
---------- ---------- ---------- ----------
Gross profit ................................ 5,248 4,265 17,994 14,788
Selling, general, and administrative expenses 3,758 3,333 11,647 9,812
Income from equity investment ............... -- 47 28 22
Interest expense ............................ 791 658 1,946 2,368
---------- ---------- ---------- ----------
Income before income taxes .................. 699 321 4,429 2,630
Income taxes ................................ 262 108 1,576 939
---------- ---------- ---------- ----------
Net income .................................. $ 437 $ 213 $ 2,853 $ 1,691
========== ========== ========== ==========
Per common share data:
Net income .................................. $ 0.06 $ 0.03 $ 0.40 $ 0.24
========== ========== ========== ==========
Weighted average common shares outstanding .. 7,162,250 7,168,962 7,162,250 7,175,550
========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
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<TABLE>
<CAPTION>
COLD METAL PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
December 31, March 31,
------------ ---------
1996 1996
---- ----
<S> <C> <C>
Assets:
Cash $ 2,924 $ 2,318
Receivables 36,317 37,301
Inventories 51,215 48,320
Prepaid and other current assets 1,348 1,469
--------- ---------
Total current assets 91,804 89,408
Property, plant and equipment - at cost 77,174 56,148
Less accumulated depreciation (28,812) (26,811)
--------- ---------
Property, plant and equipment - net 48,362 29,337
Other assets 8,806 7,945
--------- ---------
Total assets $ 148,972 $ 126,690
========= =========
Liabilities and shareholders' equity:
Short-term debt $ 14,878 $ 499
Accounts payable 28,106 29,835
Other current liabilities 8,457 7,624
--------- ---------
Total current liabilities 51,441 37,958
Long-term debt 45,358 39,000
Postretirement benefits 17,019 17,364
Shareholders' equity:
Common stock, $.01 par value; 15,000,000 shares
authorized, 7,532,250 shares issued 75 75
Additional paid-in capital 25,300 25,300
Retained earnings 15,401 12,547
Cumulative translation adjustment (2,178) (2,080)
Less treasury stock, 370,000 shares, at cost (3,474) (3,474)
--------- ---------
Total shareholders' equity 35,154 32,368
--------- ---------
Total liabilities and shareholders' equity $ 148,972 $ 126,690
========= =========
</TABLE>
See notes to consolidated financial statements
4
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<TABLE>
<CAPTION>
COLD METAL PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Nine Months Ended
December 31,
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,853 $ 1,691
Adjustments to reconcile net income to cash
provided by (used in) operating activities:
Equity investment (28) (22)
Depreciation and amortization 2,294 1,916
Deferred income taxes 250 (103)
Deferred directors' fees 30 20
Changes in operating assets and liabilities:
Accounts receivable 3,937 9,875
Inventory 4,185 4,785
Accounts payable (4,406) (12,673)
Accrued expense and other 220 (2,397)
--------- ---------
Net cash provided by (used in) operating activities 9,335 3,092
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (12,752) 7,167
Acquisitions (8,626) --
--------- ---------
Net cash used in investing activities (21,378) (7,167)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from term loans 23,095 --
Proceeds from debt 142,348 131,499
Payments of debt (152,865) (122,583)
Defeasance of industrial revenue bond -- (4,250)
Other equity transactions -- (157)
Treasury stock acquisition -- (108)
--------- ---------
Net cash provided by financing activities 12,578 4,401
Net increase in cash 535 326
Effect of translation adjustment 71 (38)
Cash at beginning of period 2,318 2,946
--------- ---------
Cash at end of period $ 2,924 $ 3,234
========= =========
</TABLE>
See notes to consolidated financial statements.
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COLD METAL PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. OPINION OF MANAGEMENT
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments, consisting of normal recurring accruals,
necessary to present fairly the financial position of Cold Metal Products, Inc.
(the Company) as of December 31, 1996 and March 31, 1996, the results of
operations for the three month and nine month periods ended December 31, 1996
and 1995, and changes in cash flows for the nine months ended December 31, 1996
and 1995. The results of operations for the periods ended December 31, 1996 and
1995 are not necessarily indicative of the results to be expected for the full
year.
The condensed consolidated financial statements do not include footnotes and
certain financial information normally presented annually under generally
accepted accounting principles and, therefore, should be read in conjunction
with the audited consolidated financial statements contained in the Company's
annual report on Form 10-K for the year ended March 31, 1996.
NOTE 2. RESULTS OF FOREIGN OPERATIONS
Net sales, pretax income (loss), and net income (loss), respectively, of the
Company's Canadian subsidiary were $40.7 million, $464,000, and $291,000 for the
quarter ended December 31, 1996, and $22.5 million, $(260,000), and $(146,000)
for the quarter ended December 31, 1995. Comparable net sales, pretax income,
and net income, respectively, for the nine months ended December 31, 1996 were
$110.0 million, $2.7 million, and $1.7 million, and for the nine months ended
December 31, 1995 were $72.7 million, $363,000, and $237,000.
NOTE 3. PER SHARE CALCULATIONS
Primary earnings per common share have been computed based upon the average
weighted outstanding shares of 7,162,250 for the three month and nine month
periods ended December 31, 1996. Primary earnings per common share have been
computed based upon the average weighted outstanding shares of 7,168,962 for the
three months ended December 31, 1995 and 7,175,550 for the nine months ended
December 31,1995.
NOTE 4. INVENTORIES
Inventories are classified as follows:
<TABLE>
<CAPTION>
December 31, March 31,
------------ ---------
1996 1996
---- ----
(In thousands)
<S> <C> <C>
Raw Materials $29,992 $24,576
Work-in-process 14,089 14,784
Finished goods 7,134 8,960
--------------------------
Total inventories $51,215 $48,320
==========================
</TABLE>
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NOTE 5. ACQUISITIONS:
Effective June 18, 1996, the Company acquired the remaining outstanding shares
of its 50% equity affiliate, Direct Steel, Inc., ("Direct Steel"), for
approximately $2.6 million. Direct Steel operates a steel service center located
in Concord, Ontario, Canada. The acquisition has been accounted for as a
purchase and, accordingly, assets and liabilities are reflected at estimated
fair values. The preliminary allocation of purchase price resulted in goodwill
of approximately $1.9 million, which is being amortized over 40 years.
On November 1, 1996, the Company acquired real property and steel processing
equipment at Hamilton, Ontario (the "New Hamilton Assets") for approximately
$6.0 million including acquisition costs. The purchase was completed utilizing
the Company's existing banking facilities and short-term seller financing. The
transaction was accounted for as a purchase and assets and liabilities are
reflected at estimated fair values.
The following unaudited pro forma information has been derived from the
Company's income statement for the three month and nine month periods ending
December 31, 1996 and adjusts such information to give effect to the acquisition
of the remaining outstanding shares of Direct Steel and the purchase of the New
Hamilton Assets as if the acquisitions had occurred on April 1, 1995. The pro
forma information is presented for informational purposes only and does not
purport to be indicative of the results of operations that actually would have
resulted if the acquisitions had occurred on April 1, 1995, or which may result
from future operations.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31, December 31, December 31,
------------ ------------ ------------ ------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 73,523 $63,858 $221,722 $ 203,146
Net income 455 111 2,931 1,448
Earnings per share 0.06 0.02 0.41 0.20
</TABLE>
NOTE 6. SHORT-TERM AND LONG-TERM DEBT
In November 1996, the discretionary financing agreement between Direct Steel,
Inc. and its lender was amended to provide for a revolving line of credit of up
to approximately $14.6 million (based on accounts receivable and inventory
formulas) with interest at Canadian prime plus 3/4 of 1%, and a term loan of
approximately $1.3 million amortized over three years (subject to certain
termination rights of the lender) with interest at Canadian prime plus 1%.
Indebtedness under the agreement is secured by the accounts receivable,
inventory and fixed assets of Direct Steel, Inc. and contains certain financial
and other covenants with which Direct Steel, Inc. was in compliance at December
31, 1996. At December 31, 1996, revolving credit permitted under applicable
formulas was $10.2 million, all of which were borrowed by Direct Steel, and the
balance of the term note was $1.3 million, resulting in aggregate indebtedness
of Direct Steel under its financing agreement of $11.5 million. Approximately
$1.3 million of the indebtedness was reflected as long-term and the balance was
short-term.
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In December, 1996, the Company borrowed $21.8 million under an eight and a half
year term loan at a fixed rate of 8.8% secured by the fixed assets of its
expanded Ottawa, Ohio facility. Proceeds of the loan were used to pay-down debt
under the Company's primary lending facility. The term loan agreement contains
certain financial and other covenants with which the Company was in compliance
at December 31, 1996. At December 31, 1996, approximately $20.6 million of the
term loan was reflected as long-term debt and the balance, reflecting quarterly
principle payments due within one year, was reflected as short-term.
The Company's primary lending facility was amended in December 1996 to allow
capital expenditures up to a maximum of $20 million for the 1997 fiscal year.
NOTE 7. DIRECTORS' INCENTIVE PLAN
In accordance with the Non-Employee Directors' Incentive Plan, three directors
have elected to defer receipt of shares of stock in lieu of pay for their annual
retainer fee. As of December 31, 1996, 8,364 shares of the 60,000 shares
reserved under the Plan for such deferral elections, were committed to be issued
at the end of the deferment period, which is a specified period after the
Director's resignation or certain other events, such as a sale or merger of the
Company.
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ITEM 2.
COLD METAL PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of financial
condition and results of operations during the periods included in the
accompanying consolidated financial statements and should be read in conjunction
with the annual financial statements.
RESULTS OF OPERATIONS
The following table presents the Company's results of operations as a
percentage of net sales:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 92.8% 91.7% 91.3% 91.2%
--------------------------------
Gross profit 7.2% 8.3% 8.7% 8.8%
Selling, general, and administrative
expenses 5.2% 6.5% 5.6% 5.8%
Income from equity investment -- 0.1% 0.0% 0.0%
Interest expense 1.0% 1.3% 0.9% 1.4%
--------------------------------
Income before income taxes 1.0% 0.6% 2.2% 1.6%
Income taxes 0.4% 0.2% 0.8% 0.6%
--------------------------------
Net income 0.6% 0.4% 1.4% 1.0%
================================
</TABLE>
Net sales for the three months ended December 31, 1996 were $73.2
million, representing a $21.5 million or 41.7% increase from the three months
ended December 31, 1995. The increase in sales reported is attributable mainly
to the addition to the Company's consolidated financial statements of sales of
$13.4 million at Direct Steel, Inc., which became a wholly owned subsidiary of
the Company in June 1996 and sales of $532,000 attributable to the operation of
the New Hamilton Assets at the processing center acquired on November 1, 1996.
Excluding the effect of these acquisitions, the Company's sales increased $7.6
million, or 14.7%. Volume of tons shipped was up 20%, accounting for a $10.4
million sales increase, offset by an aggregate decrease in sales dollars per ton
of $2.8 million due to a decline in average selling price, resulting from both a
mix shift and lower market prices. Lower market selling prices were generally
followed by reduced raw material costs on the procurement side.
For the nine months ended December 31, 1996, net sales were $207.2
million, up $39.3 million, or 23.4%, from the $167.9 million in the prior year
period, on a 48.7% increase in tonnage shipped. Excluding the effects of the
acquisition transactions referred to above, sales were up $10.3 million, or 6.1%
on a 13% increase in volume, which was also offset by lower average selling
prices resulting from both a mix shift and lower market prices.
Gross profit for the three months ended December 31, 1996 was $5.2
million or 7.2% of net sales, which was an increase of $983,000, or 23.0%, over
the same period of the prior year. For the
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three months ended December 31, 1995, gross profit was $4.3 million, or 8.3% of
net sales. The decrease as a percentage of sales reflected two major factors.
First, start-up costs associated with the new Ottawa facility impacted the
margins by approximately $554,000. Secondly, with the addition of Direct Steel
and the New Hamilton Assets, a greater proportion of sales activity was weighted
by a lower margin mix of business.
Gross profit for the nine months ended December 31, 1996 was $18.0
million or 8.7% of net sales compared to $14.8 million or 8.8% of net sales for
the nine months ended December 31, 1995 reflecting the effects of the factors
discussed above.
Selling and administrative costs of $3.8 million in the third quarter
of fiscal year 1997 represented 5.2% of sales as compared to selling and
administrative costs in the third quarter of fiscal year 1996 of $3.3 million ,
representing 6.5% of sales. Increased selling expense was attributable
principally to incremental activities associated with Direct Steel and the New
Hamilton Asset acquisitions. For the nine month period ended December 31, 1996,
selling and administrative costs were $11.6 million, or 5.6% of net sales,
compared to $9.8 million, or 5.8% of net sales for the nine months ended
December 31, 1995. Increased expenses in the current year resulted from the
expansion of the Company's activities resulting from acquisitions and higher
expenses associated with the Company's more general growth plan.
Income from equity investment at Direct Steel was $47,000 for the three
month period ended December 31, 1995. Subsequent to June 18, 1996, the
operations were consolidated the Company's and no longer reported as income from
equity investment.
Interest expense was $791,000 or 1.0% of net sales for the three months
ended December 31, 1996 as compared to $658,000 or 1.3% of net sales for the
three months ended December 31, 1995. The increase primarily represents the
addition during the period ended December 31, 1996 of interest charges
associated with the Ottawa expansion project which were previously capitalized.
For the nine months ended December 31, 1996, interest expense was $1.9 million,
or .9% of net sales, compared to $2.4 million, or 1.4% of net sales for the nine
month period ended December 31, 1995. Lower expense in the current year reflects
lower borrowing levels associated with decreased inventory resulting from
improved inventory management and slightly lower interest rates.
Income taxes for the three months ended December 31, 1996 were
$262,000, or .4% of net sales compared to $108,000, or .2% of net sales for the
same period ended December 31, 1995. Taxes for the nine months ended December
31, 1996 were $1.6 million, or .8% of net sales, compared to $939,000, or .6% of
net sales for the nine months ended December 31, 1995. Both comparisons
reflected the higher levels of income in the current year periods.
Net income for the three months ended December 31, 1996 was $437,000,
or $.06 per share based on 7,162,250 shares as compared to a net income of
$213,000, or $.03 per share based on 7,168,962 shares for the three months ended
December 31, 1995. Net income for the nine months ended December 31, 1996 was
$2.9 million or $.40 per share based on 7,162,250 shares compared to net income
of $1.7 million or $.24 per share based on 7,175,550 shares for the nine months
ended December 31, 1995.
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LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended December 31, 1996, operating activities
generated cash of $9.3 million, compared to cash generated of $3.1 million for
the nine months ended December 31, 1995. Contributing to cash inflows in the
current year were net income, non-cash depreciation, and reductions in accounts
receivable and inventory. A decrease in accounts payable somewhat offset the
effect of lower inventories which resulted from improved inventory management.
Capital expenditures were $12.8 million for the nine months ended
December 31, 1996. The majority of capital spending was attributable to the
Company's Ottawa expansion project. Current projections are that the Company
will spend approximately $17 million in total in fiscal 1997 in connection with
this expansion project and other planned capital projects.
The acquisition of the New Hamilton Assets for $6.0 million in November
1996 was accounted for as a purchase and was completed utilizing the Company's
primary lending facility and short-term seller financing. The Company
anticipates repayment of the short-term seller financing with funds available
under the Company's primary lending agreement. This acquisition, together with
the acquisition of the remaining outstanding stock of Direct Steel, Inc. in June
1996, accounted for a total $8.6 million funds used for acquisitions for the
nine months ended December 31, 1996.
Cash flows from financing activities provided $12.6 million for the
nine months ended December 31, 1996, after taking into account application of
the $23.1 million proceeds of the Company's term loans to reduce borrowings
under the Company's primary line of credit. The Company was in compliance with
covenant requirements under all of its credit facilities as of December 31,
1996.
The Company's various bank lending arrangements provided a maximum
borrowing availability of approximately $107.8 million of which $57.3 million
was outstanding at December 31, 1996. The Company is currently pursuing
discussions with several lenders in regards to its long-term financing
arrangements. The Company believes that cash generated from operations and
borrowings under the various credit facilities will provide adequate cash for
the Company's currently anticipated requirements over the next twelve months.
The Company's capital requirements, however, may change as business
opportunities arise. For example, in connection with expansion strategies, the
company may from time to time seek additional funds to purchase new facilities
or assets or to improve processing equipment to respond to its customers'
requirements.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no legal proceedings to be reported. For certain proceedings
previously reported, see Form 10K for the fiscal year ended March 31, 1996.
ITEM 2. CHANGE IN SECURITIES
There have been no changes in securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
There have been no defaults upon senior securities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no submission of matters to a vote of security holders.
ITEM 5. OTHER INFORMATION
There is no other information to report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit Number and Description
(10)(q) Credit Agreement between Direct Steel, Inc. and BNY
Financial Corporation-Canada
(10)(r) Loan Agreement between Cold Metal Products, Inc. and
The CIT Group/Equipment Financing, Inc.
(10)(s) Amendment No. 2 to Second Amended and Restated Credit
and Security Agreement between Cold Metal Products,
Inc. and The Bank of New York
(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
undesigned thereunto duly authorized.
Cold Metal Products, Inc.
(Registrant)
/s/ James R. Harpster
-----------------------------------
James R. Harpster
President, Chief Executive Officer
/s/ John E. Sloe
-----------------------------------
John E. Sloe
Vice-President, Chief Financial Officer
(Principal Financial and Accounting Officer)
February 10, 1997
12
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Exhibit (10)(q)
CREDIT AGREEMENT
between
DIRECT STEEL INC.
and
BNY FINANCIAL CORPORATION - CANADA
dated as of
November 15, 1996
MORRIS, ROSE, LEDGETT MEIGHEN DEMERS
BORROWER'S COUNSEL LENDER'S COUNSEL
TORONTO, CANADA
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<TABLE>
<CAPTION>
I N D E X
=========
<S> <C> <C>
I. DEFINITIONS............................................................................................ 1
-----------
1.1 ACCOUNTING TERMS.............................................................................. 1
1.2 GENERAL TERMS................................................................................. 1
1.3 PPSA TERMS.................................................................................... 15
1.4 INTERPRETATION................................................................................ 15
1.5 REFERENCES.................................................................................... 15
1.6 INTEREST CALCULATIONS AND PAYMENTS............................................................ 16
1.7 INTEREST ACT (CANADA)......................................................................... 16
II. ADVANCES, PAYMENT, INTEREST AND FEES................................................................... 16
------------------------------------
2.1 LOAN ADVANCES................................................................................. 16
2.2 PROCEDURE FOR REVOLVING ADVANCES BORROWING.................................................... 18
2.3 DISBURSEMENT OF ADVANCE PROCEEDS.............................................................. 18
2.4 TERM LOAN..................................................................................... 18
2.5 REPAYMENT OF ADVANCES......................................................................... 19
2.6 REPAYMENT OF EXCESS ADVANCES.................................................................. 19
2.7 STATEMENT OF ACCOUNT.......................................................................... 19
2.8 LENDER GUARANTEES AND LETTERS OF CREDIT....................................................... 20
2.9 ISSUANCE OF LETTERS OF CREDIT................................................................. 20
2.10 ADDITIONAL REQUIREMENTS FOR ISSUANCE OF LENDER GUARANTEES AND
LETTERS OF CREDIT............................................................................. 21
2.11 ADDITIONAL PAYMENTS........................................................................... 22
III. INTEREST AND FEES...................................................................................... 22
------------------
3.1 INTEREST...................................................................................... 22
3.2 LENDER GUARANTEE AND LETTER OF CREDIT FEES.................................................... 22
3.3 CLOSING FEE................................................................................... 23
3.4 COLLATERAL MONITORING FEE..................................................................... 23
3.5 NOT A BUSINESS DAY............................................................................ 24
3.6 MAXIMUM CHARGES............................................................................... 24
3.7 INCREASED COSTS............................................................................... 24
3.8 CAPITAL ADEQUACY.............................................................................. 25
3.9 SURVIVAL...................................................................................... 25
3.10 ILLEGALITY.................................................................................... 25
3.11 OVERADVANCES.................................................................................. 25
3.12 EXCESS RESULTING FROM EXCHANGE RATE CHANGE.................................................... 26
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
3.13 CURRENCY...................................................................................... 26
IV. COLLATERAL: GENERAL TERMS............................................................................. 26
--------------------------
4.1 SECURITY INTEREST IN THE COLLATERAL........................................................... 26
4.2 PERFECTION OF SECURITY INTEREST............................................................... 27
4.3 DISPOSITION OF COLLATERAL..................................................................... 27
4.4 PRESERVATION OF COLLATERAL.................................................................... 28
4.5 OWNERSHIP OF COLLATERAL....................................................................... 28
4.6 DEFENSE OF THE LENDER'S INTERESTS,............................................................ 29
4.7 BOOKS AND RECORDS............................................................................. 29
4.8 FINANCIAL DISCLOSURE.......................................................................... 29
4.9 COMPLIANCE WITH LAWS.......................................................................... 30
4.10 INSPECTION OF PREMISES........................................................................ 30
4.11 INSURANCE..................................................................................... 30
4.12 FAILURE TO PAY INSURANCE...................................................................... 32
4.13 PAYMENT OF TAXES.............................................................................. 32
4.14 PAYMENT OF LEASEHOLD OBLIGATIONS.............................................................. 32
4.15 RECEIVABLES................................................................................... 32
4.16 INVENTORY..................................................................................... 35
4.17 MAINTENANCE OF EQUIPMENT...................................................................... 35
4.18 EXCULPATION OF LIABILITY...................................................................... 35
4.19 ENVIRONMENTAL MATTERS......................................................................... 35
V. REPRESENTATIONS AND WARRANTIES......................................................................... 38
------------------------------
5.1 AUTHORITY..................................................................................... 38
5.2 FORMATION AND QUALIFICATION................................................................... 38
5.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.................................................... 38
5.4 TAX RETURNS................................................................................... 38
5.5 FINANCIAL STATEMENTS.......................................................................... 39
5.6 CORPORATE NAME................................................................................ 39
5.7 ENVIRONMENT COMPLIANCE........................................................................ 39
5.8 SOLVENCY; NO LITIGATION, VIOLATION, INDEBTEDNESS OR DEFAULT................................... 40
5.9 PATENTS, TRADEMARKS, COPYRIGHTS AND LICENSES.................................................. 40
5.10 LICENSES AND PERMITS.......................................................................... 40
5.11 DEFAULT OF INDEBTEDNESS....................................................................... 41
5.12 NO DEFAULT.................................................................................... 41
5.13 NO BURDENSOME RESTRICTIONS.................................................................... 41
5.14 NO LABOUR DISPUTES............................................................................ 41
5.15 DISCLOSURE.................................................................................... 41
5.16 PLANS......................................................................................... 42
5.17 AUTHORITY TO INCUR DEBTS...................................................................... 42
5.18 WORKERS' COMPENSATION......................................................................... 42
5.19 REAL PROPERTY................................................................................. 43
</TABLE>
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<TABLE>
<S> <C> <C>
VI. AFFIRMATIVE COVENANTS.................................................................................. 43
---------------------
6.1 PAYMENT OF FEES............................................................................... 44
6.2 CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE AND ASSETS................................... 44
6.3 VIOLATIONS.................................................................................... 44
6.4 GOVERNMENT RECEIVABLES........................................................................ 44
6.5 TANGIBLE NET WORTH............................................................................ 44
6.6 INDEBTEDNESS TO TANGIBLE NET WORTH............................................................ 44
6.7 MINIMUM PROFITABILITY......................................................................... 44
6.8 PLEDGE OF CREDIT.............................................................................. 45
6.9 EXECUTION OF SUPPLEMENTAL INSTRUMENTS......................................................... 45
6.10 PAYMENT OF INDEBTEDNESS....................................................................... 45
6.11 STANDARDS OF FINANCIAL STATEMENTS............................................................. 45
6.12 PLANS......................................................................................... 45
VII. NEGATIVE COVENANTS..................................................................................... 45
------------------
7.1 MERGER, CONSOLIDATION, ACQUISITION AND SALE OF ASSETS......................................... 45
7.2 CREATION OF LIENS............................................................................. 46
7.3 GUARANTEES.................................................................................... 46
7.4 INVESTMENTS................................................................................... 46
7.5 LOANS......................................................................................... 46
7.6 CAPITAL EXPENDITURES.......................................................................... 46
7.7 INDEBTEDNESS.................................................................................. 46
7.8 NATURE OF BUSINESS............................................................................ 47
7.9 TRANSACTIONS WITH AFFILIATES.................................................................. 47
7.10 LEASES........................................................................................ 47
7.11 SUBSIDIARIES.................................................................................. 47
7.12 FISCAL YEAR AND ACCOUNTING CHANGES............................................................ 47
7.13 PREPAYMENT OF INDEBTEDNESS.................................................................... 47
7.14 TRANSACTIONS AFFECTING COLLATERAL OR OBLIGATIONS.............................................. 47
7.15 DISTRIBUTIONS................................................................................. 48
VIII. CONDITIONS PRECEDENT................................................................................... 48
--------------------
8.1 CONDITIONS TO INITIAL ADVANCES................................................................ 48
8.2 CONDITIONS TO EACH ADVANCE.................................................................... 51
IX. INFORMATION AS TO BORROWER............................................................................. 52
--------------------------
9.1 DISCLOSURE OF MATERIAL MATTERS................................................................ 52
9.2 SCHEDULES..................................................................................... 53
9.3 ENVIRONMENTAL REPORTS......................................................................... 53
9.4 LITIGATION.................................................................................... 53
9.5 OCCURRENCE OF DEFAULTS, ETC................................................................... 53
9.6 GOVERNMENT RECEIVABLES........................................................................ 54
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
<S> <C> <C>
9.7 ANNUAL FINANCIAL STATEMENTS................................................................... 54
9.8 MONTHLY FINANCIAL STATEMENTS.................................................................. 55
9.9 OTHER REPORTS................................................................................. 55
9.10 ADDITIONAL INFORMATION........................................................................ 55
9.11 PROJECTED OPERATING BUDGET.................................................................... 55
9.12 REVISIONS TO OPERATING BUDGET................................................................. 56
9.13 ADDITIONAL DOCUMENTS.......................................................................... 56
X. EVENTS OF DEFAULT...................................................................................... 56
-----------------
10.1 EVENTS OF DEFAULT............................................................................. 56
XI. LENDER'S RIGHTS AND REMEDIES AFTER DEFAULT............................................................. 59
------------------------------------------
11.1 RIGHTS AND REMEDIES........................................................................... 59
11.2 LENDER'S DISCRETION........................................................................... 60
11.3 SET-OFF....................................................................................... 61
11.4 RIGHTS AND REMEDIES NOT EXCLUSIVE............................................................. 61
XII. WAIVERS AND JUDICIAL PROCEEDINGS....................................................................... 61
--------------------------------
12.1 WAIVER OF NOTICE.............................................................................. 61
12.2 DELAY......................................................................................... 61
XIII. EFFECTIVE DATE AND TERMINATION......................................................................... 61
------------------------------
13.1 TERM.......................................................................................... 61
13.2 TERMINATION................................................................................... 62
XIV. MISCELLANEOUS.......................................................................................... 62
-------------
14.1 GOVERNING LAW................................................................................. 62
14.2 ENTIRE UNDERSTANDING.......................................................................... 62
14.3 SUCCESSORS AND ASSIGNS; PARTICIPATION; NEW LENDERS............................................ 63
14.4 APPLICATION OF PAYMENTS....................................................................... 64
14.5 INDEMNITY..................................................................................... 64
14.6 NOTICE........................................................................................ 64
14.7 SEVERABILITY.................................................................................. 65
14.8 EXPENSES...................................................................................... 65
14.9 CUMULATIVE REMEDIES; NO PRIOR RECOURSE TO COLLATERAL.......................................... 67
14.10 NO IMPLIED WAIVERS............................................................................ 67
14.11 OTHER SECURITY AND GUARANTEES................................................................. 67
14.12 PRECEDENCE.................................................................................... 67
14.13 CUSTOMER INFORMATION.......................................................................... 68
14.14 JUDGMENT CURRENCY............................................................................. 68
14.15 COUNTERPARTS.................................................................................. 68
</TABLE>
<PAGE> 6
CREDIT AGREEMENT
CREDIT AGREEMENT dated as of November 15, 1996 between Direct
Steel Inc. ("BORROWER"), and BNY FINANCIAL CORPORATION - CANADA ("BNY"), a
corporation organized under the laws of the Province of Ontario.
IN CONSIDERATION of the mutual covenants and undertakings
herein contained, the Borrower and the Lender hereby agree as follows:
I. DEFINITIONS.
------------
1.1 ACCOUNTING TERMS. As used in this Agreement
or any certificate, report or other document made or delivered pursuant to this
Agreement, accounting terms not defined in Section 1.2 or elsewhere in this
Agreement and accounting terms partly defined in Section 1.2 to the extent not
defined, shall have the respective meanings given to them under GAAP. All
financial covenants, and computations in respect thereof, shall be made and
determined in accordance with GAAP unless otherwise provided.
1.2 GENERAL TERMS. For purposes of this
Agreement, the following terms shall have the following meanings:
"ADVANCES" shall mean and include the Revolving
Advances, the Lender Guarantees, Letters of Credit, as well as the Term Loan.
"ADVANCE RATES" shall have the meaning set forth in
Section 2.1(a) hereof.
"AFFILIATE" of any Person shall mean (a) any Person
(other than a Subsidiary) which, directly or indirectly, is in control of, is
controlled by, or is under common control with such Person, or (b) any Person
who is a director or officer (i) of such Person, (ii) of any Subsidiary of such
Person or (iii) of any Person described in clause (a) above and includes any
Affiliate within the meaning specified in the BUSINESS CORPORATIONS ACT
(Ontario) on the date hereof. For purposes of this definition, control of a
Person shall mean the power, direct or indirect, (x) to vote five per cent (5%)
or more of the securities having ordinary voting power for the election of
directors of such Person, or (y) to direct or cause the direction of the
management and policies of such Person whether by contract or otherwise.
"BANK" shall mean The Toronto-Dominion Bank.
"BLOCKED ACCOUNTS" shall have the meaning set forth
in Section 4.15(h).
<PAGE> 7
2
"BORROWER" shall mean Direct Steel Inc. an Ontario
corporation, and all successors and permitted assigns.
"BUSINESS DAY" shall mean any day other than a
Saturday, Sunday or a day on which commercial banks in Toronto are authorized or
required by law to close.
"CAPITAL EXPENDITURES" means all payments due
(whether or not paid) during a Fiscal Year in respect of the cost (including
expenditures on materials, contract labour and direct labour, but excluding
expenditures properly chargeable to repairs and maintenance in accordance with
GAAP) of any fixed asset or improvement, or replacement, substitution, or
addition thereto, which have a useful life of more than one year, including,
without limitation, those arising in connection with the direct or indirect
acquisition of such assets by way of increased product or service charges or
offset items or in connection with Capital Leases.
"CAPITAL LEASE" means any lease of Property by the
Borrower that, in accordance with GAAP, should be reflected as a liability on
the balance sheet of the Borrower.
"CLAIMS" shall mean all Liens, claims or encumbrances
held or asserted by any Person against any or all of the Collateral or the Real
Property, other than Permitted Encumbrances.
"CLOSING DATE" shall mean November 15, 1996 or such
other date as may be agreed to by the parties hereto.
"CLOSING FEE" shall have the meaning set forth in
Section 3.3 hereof.
"CMP" means Cold Metal Products Company, Limited and
its successors and permitted assigns.
"CMP (U.S.)" means Cold Metal Products, Inc., and its
successors and permitted assigns.
"COLLATERAL" shall mean all Property of the Borrower,
now owned or hereafter acquired, and shall also include (whether or not included
in the foregoing):
(a) all Receivables;
(b) all Equipment;
(c) all General Intangibles;
<PAGE> 8
3
(d) all Inventory;
(e) the Lands;
(f) all the Leasehold Interests;
(g) all of the Borrower's right, title and
interest in and to: (i) its goods and other property including, but not limited
to all merchandise returned or rejected by Customers, relating to or securing
any of the Receivables; (ii) all of the Borrower's rights as a consignor, a
consignee, an unpaid vendor, mechanic, artisan, or other lienor,
including stoppage in transit, set off, detinue, replevin, reclamation and
repurchase; (iii) all additional amounts due to the Borrower from any Customer
relating to the Receivables; (iv) other property, including warranty claims
relating to any goods securing this Agreement; (v) if and when obtained by the
Borrower, all real and personal property of third parties in which the Borrower
has been granted a lien or security interest as security for the payment or
enforcement of Receivables; and (vi) any other goods and other Property now
owned or hereafter acquired by the Borrower, in which the Borrower has granted
a security interest or may in the future grant a security interest to the
Lender hereunder, or in any amendment or supplement hereto, or under any other
agreement between the Lender and the Borrower;
(h) all of the Borrower's ledger sheets,
ledger cards, files, correspondence, records, books of account, business papers,
computers, computer software (owned by the Borrower or in which it has an
interest), computer programs, tapes, disks and documents relating to paragraphs
(a), (b), (c), (d), (e), (f) or (g) of this Section; and
(i) all proceeds and products of paragraphs
(a), (b), (c), (d), (e), (f) and (g) of this Section in whatever form including,
but not limited to: cash, deposit accounts (whether or not comprised solely of
proceeds), certificates of deposit, insurance proceeds (including hazard, flood
and credit insurance), negotiable instruments and other instruments for the
payment of money, chattel paper, security agreements or documents.
"CONTRACT RATE" shall mean, as applicable, the
Revolving Advance Rate and the Term Loan Rate.
"CURRENT ASSETS" at a particular date, shall mean
all cash, cash equivalents, accounts and inventory of the Borrower and all other
items which would, in conformity with GAAP, be included under current assets on
a balance sheet of the Borrower as at such date; PROVIDED, HOWEVER, that such
amounts shall not include (a) any amounts for any Indebtedness owing by an
Affiliate to the Borrower, unless such Indebtedness arose in connection with the
sale of goods or rendition of services in the ordinary course of business and
would
<PAGE> 9
4
otherwise constitute current assets in conformity with GAAP or (b) any shares of
stock issued by an Affiliate of the Borrower.
"CURRENT LIABILITIES" at a particular date, shall
mean all amounts which would, in conformity with GAAP, be included under current
liabilities on a balance sheet of the Borrower, as at such date, but in any
event including, without limitation, the amounts of (a) all Indebtedness of any
such Person payable on demand, or at the option of the Person to whom such
Indebtedness is owed, not more than twelve (12) months after such date, (b) any
payments in respect of any Indebtedness of such Person (whether instalment,
serial maturity, sinking fund payment or otherwise) required to be made not more
than twelve (12) months after such date and (c) all reserves in respect of
liabilities or Indebtedness payable on demand or, at the option of the Person to
whom such Indebtedness is owed, not more than twelve (12) months after such
date, the validity of which is contested at such date, and (d) all accruals for
federal or other taxes measured by income payable within a twelve (12) month
period.
"CUSTOMER" shall mean and include the account
debtor with respect to any of the Receivables and/or the prospective purchaser
of goods, services or both with respect to any contract or other arrangement
with the Borrower, pursuant to which the Borrower is to deliver any personal
property or perform any services.
"DEFAULT RATE" shall have the meaning set forth
in Section 3.1 hereof.
"DEPOSITORY ACCOUNTS" shall have the meaning set
forth in Section 4.15(h) hereof.
"DISTRIBUTION" means, in respect of any
corporation: (a) the payment or making of any dividend or other distribution of
Property (including any purchases, retractions, redemptions or other
transactions made out of its treasury) in respect of capital stock of such
corporation, other than distributions in capital stock of the same class; or (b)
the redemption or other acquisition of any capital stock of such corporation.
"DOLLAR", "dollar" and the sign "$" shall mean
lawful money of Canada.
"ELIGIBLE INVENTORY" shall mean and include
Inventory that is located at premises owned by the Borrower in Canada or the
United States or, provided the Lender has received a consent and waiver from the
landlord of the premises in form and substance acceptable to the Lender, leased
by the Borrower, excluding work-in-progress, inventory that has been shipped but
not billed, goods on consignment, service parts, spare parts, used parts,
packaging and shipping materials and supplies, defective Inventory, valued at
the lower of cost or market
<PAGE> 10
5
value, determined on a first-in-first-out basis, which is not, in the Lender's
opinion, defective material, obsolete, slow moving (including "off-cuts") or
unmerchantable and which the Lender, in its sole discretion, acting reasonably
shall not deem ineligible Inventory, based on such considerations as the Lender
may from time to time deem appropriate including, without limitation, whether
the Inventory is subject to a perfected, first priority security interest in
favour of the Lender and whether the Inventory conforms to all standards imposed
by any Public Authority which has regulatory authority over such goods or the
use or sale thereof.
"ELIGIBLE RECEIVABLES" shall mean each Receivable
arising in the ordinary course of the Borrower's business and which the Lender,
in its sole credit judgment, acting reasonably shall deem to be an Eligible
Receivable, based on such considerations as the Lender may from time to time
deem appropriate. In general, a Receivable shall not be deemed eligible unless
such Receivable is subject to the Lender's perfected security interest and no
other Liens other than Permitted Encumbrances, and is evidenced by an invoice or
other documentary evidence satisfactory to the Lender. In addition and without
limiting the Lender's discretion to establish criteria of eligibility from time
to time, no Receivable shall be an Eligible Receivable if:
(a) it arises out of a sale made by the
Borrower to an Affiliate of the Borrower or to a Person controlled by an
Affiliate of the Borrower;
(b) it is due or unpaid more than ninety (90)
days after the original invoice date;
(c) fifty percent (50%) or more of the
Receivables from the account debtor are not deemed Eligible Receivables
hereunder. Such percentage may, in the Lender's sole discretion, be increased or
decreased from time to time;
(d) any covenant, representation or warranty
contained in this Agreement with respect to such Receivable has been breached;
(e) the account debtor is also the Borrower's
creditor or supplier, or the account debtor has disputed liability, or the
account debtor has made any claim with respect to any other Receivable due from
such account debtor to the Borrower, or the Receivable otherwise is or may
become subject to any right of setoff by the account debtor;
(f) any one or more of the following events
has occurred with respect to the account debtor on such account: death or
judicial declaration of incompetency of an account debtor who is an individual;
the filing by or against the account debtor of a request, proposal, notice of
intent to file a proposal, proceeding, action or petition for liquidation,
reorganization, arrangement, adjustment of debts, adjudication as a bankrupt,
winding-up, or
<PAGE> 11
6
other relief under the bankruptcy, insolvency, restructuring, liquidation,
winding up, corporate or similar laws of Canada, any province or territory
thereof, or any foreign jurisdiction, now or hereafter in effect; the making of
any general assignment by the account debtor for the benefit of creditors; the
appointment of a receiver, trustee, monitor, custodian, liquidator,
administrator, interim receiver, monitor or trustee or other official for the
account debtor or for any of the assets of the account debtor, including,
without limitation, the appointment of or taking possession by a "custodian," as
defined in the Federal Bankruptcy Code or "trustee" under the BANKRUPTCY AND
INSOLVENCY ACT of Canada; the institution by or against the account debtor of
any other type of insolvency, liquidation, bankruptcy, winding up or
reorganization proceeding (under the laws of Canada, the United States or
otherwise, including applicable corporate statutes, the BANKRUPTCY AND
INSOLVENCY ACT of Canada and the COMPANIES' CREDITORS ARRANGEMENT ACT of Canada)
or of any formal or informal proceeding for the dissolution or liquidation of,
settlement of claims against, or winding up of affairs of, the account debtor;
the sale, assignment, or transfer of all or any material part of the assets of
the account debtor; the nonpayment generally by the account debtor of its debts
as they become due; the failure, cessation of the business of the account debtor
as a going concern or insolvency of the account debtor; or the account debtor
calling a meeting of its creditors or indicating its consent to any proceeding
or action hereinabove described;
(g) subject to paragraph (j), the sale
giving rise to the Receivable is to an account debtor outside Canada or the
United States of America unless the sale is on letter of credit, guarantee or
acceptance terms, in each case acceptable to the Lender in its sole discretion
or in the case of Receivables to an account debtor in Mexico, unless such
Receivable is credit insured and the Lender has been given a right of first
refusal to insure such Receivable.
(h) the sale giving rise to the
Receivable to the account debtor is on a bill-and-hold, guaranteed sale,
sale-and-return, sale on approval, consignment or any other repurchase or return
basis or is evidenced by chattel paper;
(i) the Lender believes, in its sole
judgment, that collection of such Receivable is insecure or that such Receivable
may not be paid by reason of the account debtor's financial inability to pay;
(j) the account debtor is the United
States of America, any state or any department, agency or instrumentality of any
of them, unless the Borrower assigns its right to payment of such Receivable to
the Lender pursuant to the ASSIGNMENT OF CLAIMS ACT of 1940, as amended (31
U.S.C. Sub-Section 203 ET SEQ.) or has otherwise complied with other applicable
laws, statutes, regulations or ordinances;
(k) the account debtor is the federal
or provincial Crown, unless the Borrower has complied with all applicable laws,
statutes and regulations in order to duly and validly assign such Receivable;
<PAGE> 12
7
(l) the goods giving rise to such
Receivable have not been shipped and delivered to and accepted by the account
debtor or the services giving rise to such receivable have not been performed by
the Borrower and accepted by the account debtor or the Receivable otherwise does
not represent a final sale;
(m) the Receivables of the account
debtor exceed a credit limit determined by the Lender, in its sole discretion,
to the extent such Receivable exceeds such limit;
(n) the Receivable is subject to any
offset, deduction, defense, dispute, or counterclaim or if the Receivable is
contingent in any respect or for any reason;
(o) the Borrower has made any agreement
with any account debtor for any extension of the time for payment beyond 90 days
from date of invoice or any deduction therefrom, except for discounts or
allowances made in the ordinary course of business for prompt payment, all of
which discounts or allowances are reflected in the calculation of the face value
of each respective invoice related thereto;
(p) shipment of the merchandise or the
rendition of services has not been completed or the Receivable otherwise
represents a progress billing or the account debtor's obligation to pay is
otherwise conditional upon completion of any further performance under any
contract, agreement or arrangement;
(q) any return, rejection or
repossession of the merchandise has occurred;
(r) such Receivable is not payable to
the Borrower;
(s) such Receivable is not otherwise
satisfactory to the Lender as determined in good faith by the Lender in the
exercise of its discretion in a reasonable manner.
"ENVIRONMENTAL COMPLAINT" shall have the meaning set
forth in Section 4.19(d) hereof.
"ENVIRONMENTAL LAWS" shall mean all federal,
provincial and local environmental, land use, zoning, health, chemical use,
safety and sanitation laws, statutes, regulations, ordinances, codes, programs,
permits, guidelines, orders and decrees relating to the protection of the
environment and/or governing the use, storage, treatment, generation,
transportation, processing, handling, production or disposal of Hazardous
Substances and the rules, regulations, policies, guidelines, interpretations,
decisions, orders and directives of any Public Authorities with respect thereto
and including, without limitation, to the extent applicable to the Borrower or
its Property, the following:
<PAGE> 13
8
CANADA
ARCTIC WATERS POLLUTION PREVENTION ACT, R.S.C. 1985, c.A-12, as am.
CANADA WATER ACT, R.S.C. 1985, c. C-11, as am.
CANADIAN ENVIRONMENTAL PROTECTION ACT, R.S.C. 1985, c. C-15.3, as am.
FISHERIES ACT, R.S.C. 1985, c. F-14, as am.
NORTHERN INLAND WATERS ACT, R.S.C. 1985, c. N-25, as am.
TRANSPORTATION OF DANGEROUS GOODS ACT, S.C. 1992, c. 34.
ONTARIO
CONSERVATION AUTHORITIES ACT, R.S.O. 1990, c. C27 as am.
ENVIRONMENTAL PROTECTION ACT, R.S.O. 1990, c. E. 19 as am.
GASOLINE HANDLING ACT, R.S.O. 1990, c. G.4, as am.
"EQUIPMENT" shall mean and include all of the
Borrower's goods (excluding Inventory) whether now owned or hereafter acquired
and wherever located including, without limitation, all equipment, machinery,
apparatus, motor vehicles, fittings, furniture, furnishings, fixtures, parts,
accessories and all replacements and substitutions therefor or accessions
thereto.
"EQUIVALENT AMOUNT" means on any date, the amount of
US$ into which an amount of Cdn.$ may be converted or the amount of Cdn.$ into
which an amount of US$ may be converted, in either case at the Lender's spot
buying rate in Toronto as at approximately 12:00 noon (Toronto time) on such
date.
"EVENT OF DEFAULT" shall mean the occurrence of any
of the events set forth in Article X hereof.
"EXISTING SECURITY" has the meaning specified in
Section 14.2.
"FISCAL YEAR" means the Borrower's fiscal year for
financial accounting purposes. The current Fiscal Year of the Borrower will end
on March 31, 1997.
"FORMULA AMOUNT" shall have the meaning set forth in
Section 2.1(a).
"GAAP" means at any particular time with respect to
the Borrower, generally accepted accounting principles as in effect at such time
in Canada, consistently applied, PROVIDED, HOWEVER, that, if employment of more
than one principle shall be permissible at such time in respect of a particular
accounting matter, "GAAP" shall refer to the principle which is then employed by
the Borrower with the concurrence of its independent chartered accountants, who
are acceptable to the Lender, PROVIDED FURTHER THAT, for the purposes of
determining compliance with the financial covenants herein, "GAAP" means GAAP as
at the date hereof.
<PAGE> 14
9
"GABD" has the meaning specified in Section 8.1(a).
"GSA" has the meaning specified in Section 8.1(a).
"GENERAL INTANGIBLES" shall mean and include all of
the Borrower's general intangibles, whether now owned or hereafter acquired
including, without limitation, all choses in action, causes of action, corporate
or other business records, inventions, designs, patents, patent applications,
equipment formulations, manufacturing procedures, quality control procedures,
trademarks, trade secrets, goodwill, copyrights, registrations, licenses,
franchises, customer lists, tax refunds, tax refund claims, computer programs,
all claims under guarantees, security interests or other security held by or
granted to the Borrower to secure payment of any of the Receivables by an
account debtor, all rights of indemnification and all other intangible property
of every kind and nature (other than Receivables).
"GUARANTEE" by any Person means all obligations of
such Person which in any manner directly or indirectly guarantee or assure, or
in effect guarantee or assure, or indemnify and/or save harmless any Person in
respect of the payment or performance of any proceeding, claim, liability,
indebtedness, dividend or other obligation of any other Person (the "GUARANTEED
OBLIGATIONS"), or to assure or in effect assure the holder of the guaranteed
obligations against loss in respect thereof, including, without limitation, any
such obligations incurred through an agreement, contingent or otherwise: (a) to
purchase the guaranteed obligations or any Property constituting security
therefor; (b) to advance or supply funds for the purchase or Payment of the
guaranteed obligations or to maintain a working capital or other balance sheet
condition; (c) to lease Property or to purchase any debt or equity securities or
other Property or services.
"HAZARDOUS DISCHARGE" shall have the meaning set
forth in Section 4.19(d) hereof.
"HAZARDOUS SUBSTANCE" or "HAZARDOUS SUBSTANCES" shall
mean, without limitation, any flammable explosives, radon, radioactive
materials, asbestos, urea formaldehyde foam insulation, polychlorinated
biphenyls, petroleum and petroleum products, methane, hazardous materials,
hazardous wastes, hazardous or toxic substances or related materials as
regulated, defined, identified or interpreted under any applicable Environmental
Law now in force or hereinafter enacted.
"HAZARDOUS WASTE" or "HAZARDOUS WASTES" includes all
waste materials subject to regulation pursuant to any Environmental Law now in
force or hereafter enacted relating to hazardous waste or its storage, handling,
transport or disposal.
<PAGE> 15
10
"INCIPIENT EVENT OF DEFAULT" shall mean an event
which, with the giving of notice or passage of time, or both, would constitute
an Event of Default.
"INDEBTEDNESS" of a Person at a particular date shall
mean all obligations of such Person which in accordance with GAAP would be
classified upon a balance sheet as liabilities (except capital stock and surplus
earned or otherwise) and in any event, without limitation by reason of
enumeration, shall include all indebtedness, debt and other similar monetary
obligations of such Person whether direct or guaranteed, and all premiums, if
any, due at the required prepayment dates of such indebtedness, all indebtedness
and obligations pursuant to any Guarantee and all indebtedness secured by a Lien
on assets owned by such Person, whether or not such indebtedness actually shall
have been created, assumed or incurred by such Person and includes, for greater
certainty, the Obligations. Any indebtedness of such Person resulting from the
acquisition by such Person of any assets subject to any Lien shall be deemed,
for the purposes hereof, to be the equivalent of the creation, assumption and
incurring of the indebtedness secured thereby, whether or not actually so
created, assumed or incurred.
"INITIAL MATURITY DATE" means the third anniversary
of the Closing Date, or if such date is not a Business Day, the Business Day
preceding such third anniversary date.
"INVENTORY" shall mean all of the Borrower's now
owned or hereafter acquired goods, merchandise and other personal property,
wherever located, to be furnished under any contract of service or held for sale
or lease, all raw materials, work-in-process, finished goods and materials and
supplies of any kind, nature or description which are or might be used or
consumed in the Borrower's business or used in selling or furnishing such goods,
merchandise and other personal property, and all documents of title or other
documents representing them.
"INVENTORY ADVANCE RATE" shall have the meaning set
forth in Section 2.1(a) hereof.
"LANDS" means the real property municipally know as
215 Doughton Road, Concord, Ontario L4K 1R1.
"LENDER" shall mean BNY and any successor or assign.
"LENDER GUARANTEE" shall have the meaning set forth
in Section 2.8.
"LENDER GUARANTEE FEES" shall have the meaning set
forth in Section 3.2(a).
<PAGE> 16
11
"LETTER OF CREDIT AND SECURITY AGREEMENT" means an
agreement in form and substance satisfactory to the Lender in its discretion.
"LETTERS OF CREDIT" shall have the meaning set forth
in Section 2.8.
"LETTER OF CREDIT FEES shall have the meaning set
forth in Section 3.2(b).
"LIEN" means: (a) any interest in Property securing
an obligation owed to, or a claim by, a Person other than the owner of the
Property, whether such interest is based on the common law, statute, or
contract, and including without limitation, a security interest, charge, claim,
or lien arising from a mortgage, deed of trust, encumbrance, pledge,
hypothecation, assignment, deposit arrangement, agreement,security agreement,
conditional sale or trust receipt or a lease, consignment or bailment for
security purposes; and (b) to the extent not included under clause (a), (i) any
reservation, exception, encroachment, easement, right-of-way, covenant,
condition, restrictment, lease or other title exception or encumbrance affecting
Property, and (ii) any other lien, charge, privilege, secured claim, title
retention, garnishment right, deemed trust, encumbrance or other right affecting
Property, choate or inchoate, whether or not crystallized or fixed, whether or
not for amounts due or accruing due, arising by any statute or law of any
jurisdiction, at common law, in equity or by any agreement.
"MANAGEMENT COMPENSATION" means any compensation in
any form, including, without limitation, fees, commissions, salaries, bonuses,
remuneration or incentive compensation paid or payable directly or indirectly,
in cash or otherwise to any officer, director or shareholder of the Borrower.
"MAXIMUM REVOLVING ADVANCE AMOUNT" shall mean
$20,000,000 or its Equivalent Amount in US$.
"MONTHLY ADVANCES" shall have the meaning set forth
in Section 3.1 hereof.
"MORTGAGE" has the meaning specified in Section
8.1(a).
"NOTES" shall mean collectively, the Term Note, the
Canadian Dollar Grid Note and the US Dollar Grid Note.
"OBLIGATIONS" shall mean and include any and all of
the Borrower's Indebtedness and/or liabilities to the Lender or any corporation
that directly or indirectly controls or is controlled by or is under common
control with the Lender of every kind, nature and description, direct or
indirect, secured or unsecured, joint, several, joint and several, absolute or
contingent, due or to become due, now existing or hereafter arising, contractual
or tortious, liquidated or unliquidated, regardless of how such indebtedness or
liabilities arise or by what
<PAGE> 17
12
agreement or instrument they may be evidenced or whether evidenced by any
agreement or instrument, including, but not limited to, any and all of the
Borrower's indebtedness and/or liabilities under this Agreement or under any of
the Other Documents or under any other agreement between the Lender and the
Borrower and all obligations of the Borrower to the Lender to perform acts or
refrain from taking any action.
"OTHER DOCUMENTS" shall mean the Mortgage, the GABD,
the GSA, the Notes and any and all other agreements, instruments and documents,
including, without limitation, the Subordination Agreement, postponement
agreements, guarantees, pledges, powers of attorney, consents, and all other
writings heretofore, now or hereafter executed by the Borrower and/or delivered
to the Lender in respect of the transactions contemplated by this Agreement.
"PARENT" of any Person shall mean a corporation or
other entity owning, directly or indirectly at least fifty per cent (50%) of the
shares of stock or other ownership interests having ordinary voting power to
elect a majority of the directors of the Person, or other Persons performing
similar functions for any such Person.
"PAYMENT OFFICE" shall mean initially 4950 Yonge
Street, Suite 706, North York, Ontario, M2N 6K1; thereafter, such other office
of the Lender, if any, which it may designate by notice to the Borrower to be
the Payment Office..
"PERMITTED ENCUMBRANCES" shall mean (a) Liens in
favour of the Lender; (b) Liens for taxes, assessments or other governmental
charges not delinquent, or, being contested in good faith and by appropriate
proceedings and with respect to which proper reserves have been taken by the
Borrower and provided that a stay of enforcement of such Lien is in effect; (c)
Liens disclosed in the financial statements referred to in Section 5.5, the
existence of which the Lender has consented to in writing; (d) deposits or
pledges to secure obligations under workmen's compensation, social security or
similar laws, or under unemployment insurance in an amount not exceeding in the
aggregate $25,000; (e) deposits or pledges to secure bids, tenders, contracts
(other than contracts for the payment of money), leases, statutory obligations,
surety and appeal bonds and other obligations of like nature arising in the
ordinary course of the Borrower's business in an amount not exceeding in the
aggregate $25,000; (f) judgment Liens that have been stayed or bonded and
mechanic's, workmen's, materialmen's or other like Liens arising in the ordinary
course of the Borrower's business with respect to obligations which are not due
or which are being contested in good faith by the Borrower and provided that a
stay of enforcement of such lien is in effect; (g) Liens placed upon fixed
assets hereafter acquired to secure a portion of the purchase price thereof,
provided that (x) any such lien shall not encumber any Property of the Borrower
except the purchased asset, and (y) the aggregate amount of Indebtedness secured
by such Liens incurred as a result of such purchases during any fiscal year
shall not exceed seventy-five thousand ($75,000) dollars and (h) Liens disclosed
on EXHIBIT 1.2, the existence of which
<PAGE> 18
13
the Lender has consented to in writing.
"PERSON" shall mean an individual, a partnership, a
corporation, a business trust, a joint stock company, a trust, an unincorporated
association, a joint venture, a Public Authority or any other entity of whatever
nature.
"PLAN" means any pension or other employee benefit
plan and which is: (a) a plan maintained by the Borrower (b) a plan to which the
Borrower contributes or is required to contribute; (c) a plan to which the
Borrower was required to make contributions at any time during the five (5)
calendar years preceding the date of this Agreement; or (d) any other plan with
respect to which the Borrower has incurred or may incur liability, including
contingent liability, either to such plan or to any person, administration or
Public Authority.
"PPSA" means the PERSONAL PROPERTY SECURITY ACT
(Ontario) (or any successor statute) or similar legislation of any other
jurisdiction the laws of which are required by such legislation to be applied in
connection with the issue, perfection, enforcement, validity or effect of
security interests.
"PRIME RATE" for the purpose of this Agreement means
the rate of interest publicly announced from time to time by the Bank at its
principal office in Canada as its prime rate or prime lending rate. This rate of
interest is determined from time to time by the Bank as a means of pricing some
loans to its customers and is neither tied to any external rate of interest or
index nor does it necessarily reflect the lowest rate of interest actually
charged by the Bank to any particular class or category of customers of the
Bank.
"PROPERTY" means any interest in any kind of property
or asset, whether real, personal or mixed, moveable or immoveable, tangible or
intangible.
"PUBLIC AUTHORITY" means the government of any
country or sovereign state, or of any state, province, municipality, or other
political subdivision thereof, or any department, agency, public corporation,
commission, tribunal, committee, board or other instrumentality of any of the
foregoing and includes, without limitation, any pension board.
"REAL PROPERTY" shall mean the Lands, all leasehold
interests of the Borrower and all other lands and premises now or hereafter in
the charge, management or control (as such phrase or any of such terms are
defined or interpreted under any Environmental Laws) of the Borrower.
"RECEIVABLES" shall mean and include all of the
Borrower's accounts, contract rights, instruments, documents, chattel paper,
general intangibles relating to accounts, drafts and acceptances, and all other
forms of obligations owing to the Borrower arising out of
<PAGE> 19
14
or in connection with the sale or lease of Inventory or the rendition of
services, all guarantees and other security therefor, whether secured or
unsecured, now existing or hereafter created, and whether or not specifically
sold or assigned to the Lender hereunder.
"RECEIVABLES ADVANCE RATE" shall have the meaning set
forth in Section 2.1(a) hereof.
"RELEASE" shall have the meaning set forth in Section
5.7(c)(i) hereof.
"REVOLVING ADVANCES" shall mean Advances made other
than the Term Loan.
"REVOLVING ADVANCE RATE" shall mean an interest rate
per annum (based on a year of 360 days) equal to the Prime Rate plus three
quarters of one (3/4%) percent.
"SUBORDINATION AGREEMENT" shall mean the
Subordination Agreement dated November 15, 1996 between the Lender, the
Borrower, and CMP in form and substance satisfactory to the Lender.
"SUBSIDIARY" of any Person shall mean a corporation
or other entity of whose shares of stock or other ownership interests having
ordinary voting power (other than stock or other ownership interests having such
power only by reason of the happening of a contingency) to elect a majority of
the directors of such corporation, or other Persons performing similar functions
for such entity, are owned, directly or indirectly, by such Person.
"TANGIBLE NET WORTH" means, at any date, all amounts
which would be included as shareholders' equity, contributed surplus and
retained earnings on a balance sheet of the Borrower, determined in accordance
with GAAP at such date plus all amounts of subordinated debt less an amount
equal to the sum of intangible assets determined in accordance with GAAP.
"TERM" shall mean the Closing Date through the
Initial Maturity Date, as same may be extended in accordance with the provisions
of Section 13.1.
"TERM LOAN" shall mean the Advances made pursuant to
Section 2.5 hereof.
"TERM LOAN RATE" shall mean an interest rate per
annum equal to the Prime Rate plus one (1%) percent.
"TERM NOTE" shall mean the promissory note described
in Section 2.5 hereof.
<PAGE> 20
15
"TERMINATION DATE" has the meaning specified in
Section 13.1.
"TERMINATION EVENT" means: (a) the withdrawal of the
Borrower from a Plan during a plan year; or (b) the filing of a notice of intent
to terminate a Plan or the treatment of a Plan amendment as a termination; or
(c) the institution of proceedings by any Public Authority to terminate or have
a trustee appointed to administer a Plan; or (d) any other event or condition
which might constitute grounds for the termination of, winding up or the
appointment of a trustee to administer, any Plan.
"TOXIC SUBSTANCE" shall mean and include any material
present on the Real Property which has been shown to have significant adverse
effect on human health or which is subject to regulation under any Environmental
Law now in force or hereafter enacted, relating to toxic substances. "Toxic
substance" includes but is not limited to asbestos, polychlorinated biphenyl
("PCBS") and lead-based paints.
"TRANSFEREE" has the meaning specified in Section
14.3.
"U.S. DOLLARS" OR "US$" means lawful currency of the
United States of America.
1.3 PPSA TERMS. All terms used herein and defined in
the PPSA shall have the meaning given therein unless otherwise defined herein.
1.4 INTERPRETATION. In this Agreement, (a) the
singular includes the plural and vice versa, (b) "in writing" or "written"
includes printing, typewriting, or any electronic means of communication capable
of being visibly reproduced at the point of reception, including telex, telecopy
and telegraph, (c) the headings, the table of contents, the Articles and the
Sections are inserted for convenience only and are to be ignored in construing
this Agreement, (d) a document, notice, note, bill of exchange or other
instrument shall be deemed to have been validly signed and executed if it has
been signed by either an original signature or a facsimile signature or stamp,
(e) all references to amounts of money shall, unless otherwise indicated, be
references to Canadian dollars, and (f) all references to the Lender acting
"reasonably", all references to the Lender's "reasonable" discretion or
determination and all references to not unreasonably withholding a consent
shall, unless otherwise indicated, be read as references to acting reasonably in
the good faith exercise of its judgement in the circumstances or making a
determination which is reasonable in the good faith exercise of its judgement in
the circumstances or reasonably in the good faith exercise of its judgement in
the circumstances withholding a consent, where the circumstances include the
recognition of the credit, repayment, security and other risks faced by the
Lender at the time of the action or determination, given, inter alia, the
subordinate nature of the Security in relation to certain of the Permitted
Encumbrances and the amounts and terms of repayment of indebtedness or
liabilities secured pursuant to Permitted Encumbrances.
<PAGE> 21
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1.5 REFERENCES. Any reference made in this Agreement
to:
(a) the "Lender" shall so be construed as to include
its successors and permitted assigns;
(b) a time of day is, unless otherwise stated, a
reference to Toronto time;
(c) Sections, Articles or Schedules is, unless
otherwise indicated, a reference to Sections and Articles of this Agreement and
to Schedules to this Agreement, as the case may be. The provisions of each
Schedule shall constitute provisions of this Agreement as though repeated at
length herein;
(d) a "quarter" is a reference to a period of three
(3) months and ending on March 31, June 30, September 30 and December 31; and
"fiscal quarter" means one of the four (4) consecutive periods in each fiscal
year of the Borrower each of three (3) months in duration.
1.6 INTEREST CALCULATIONS AND PAYMENTS. Unless
otherwise stated, wherever in this Agreement reference is made to a rate of
interest "PER ANNUM" or a similar expression is used, such interest will be
calculated on the basis of a year of three hundred and sixty (360) days and the
actual number of days elapsed in the period, and using the nominal rate method
of calculation, and will not be calculated using the effective rate method of
calculation or on any other basis that gives effect to the principle of deemed
reinvestment of interest. All payments of interest to be made hereunder will be
paid both before and after maturity and before and after default and/or
judgment, if any, until payment thereof, and interest will accrue on overdue
interest, if any.
1.7 INTEREST ACT (CANADA). For the purposes of this
Agreement, whenever interest to be paid hereunder is to be calculated on the
basis of a year of three hundred and sixty (360) days or any other period of
time that is less than a calendar year, the yearly rate of interest to which the
rate determined pursuant to such calculation is equivalent is the rate so
determined multiplied by the actual number of days in the calendar year in which
the same is to be ascertained and divided by either three hundred and sixty
(360) or such other period of time, as the case may be.
<PAGE> 22
17
II. ADVANCES, PAYMENT, INTEREST AND FEES
------------------------------------
2.1 LOAN ADVANCES.
(a) Subject to the terms and conditions
set forth in this Agreement, the Lender may make Advances to the Borrower in
aggregate amounts outstanding at any time equal to the lesser of (x) the Maximum
Revolving Advance Amount or (y) an amount equal to the sum of:
(i) up to eighty per cent (80%), subject to the
provisions of Section 2.1(b) hereof ("RECEIVABLES
ADVANCE RATE"), of Eligible Receivables less such
reserves as the Lender may consider proper and
necessary in its discretion, but without
duplication of risks, in their entirety (as
determined by the Lender) under clause (ii),
including, among other things, for goods and
services, sales, excise and other taxes and
reserves established for all amounts secured by
any Liens, choate or inchoate, which rank or are
capable of ranking in priority to the Lender's
Lien, including without limitation, amounts due
and not paid for vacation pay, amounts due and not
paid under any legislation relating to workers'
compensation or to unemployment insurance, all
amounts deducted or withheld and not paid and
remitted under the INCOME TAX ACT (Canada),
amounts currently or past due and not paid for
realty, municipal or similar taxes and all amounts
currently or past due and not contributed,
remitted or paid to any Plan or under the Canada
Pension Plan, the PENSION BENEFITS ACT (Ontario)
or any similar legislation, plus
(ii) up to fifty per cent (50%) subject to the
provisions of Section 2.1(b) hereof ("INVENTORY
ADVANCE RATE"), of the value of the Eligible
Inventory less such reserves as the Lender may
consider proper and necessary in its discretion ,
but without duplication of risks, rights and/or
liens reserved for in their entirety (as
determined by the Lender) under clause (i),
including, among other things, for the rights of
unpaid suppliers and the rights of landlords,
processors, warehousemen and bailees and reserves
established for all amounts secured by any Liens,
choate or inchoate, which rank or are capable of
ranking in priority to
<PAGE> 23
18
the Lender's Lien, including without limitation,
amounts due and not paid for vacation pay, amounts
due and not paid under any legislation relating to
workers' compensation or to unemployment
insurance, all amounts deducted or withheld and
not paid and remitted under the INCOME TAX ACT
(Canada), amounts currently or past due and not
paid for realty, municipal or similar taxes and
all amounts currently or past due and not
contributed, remitted or paid to any Plan or under
the Canada Pension Plan, the PENSION BENEFITS ACT
(Ontario) or any similar legislation (the
Receivables Advance Rate and the Inventory Advance
Rate shall be referred to collectively, as the
"ADVANCE RATES"); PROVIDED, HOWEVER, the maximum
amount of outstanding Advances against Eligible
Inventory shall not exceed $8,000,000 at any one
time.
The sum of the amounts derived from Sections 2.1(a)(i)
and (ii) at any time and from time to time shall be referred to as the "Formula
Amount".
(b) DISCRETIONARY RIGHTS. The Advance
Rates may be increased or decreased by the Lender at any time and from time to
time in the exercise of its reasonable discretion. The Borrower consents to any
such increases or decreases and acknowledges that decreasing the Advance Rates
may limit or restrict Advances requested by the Borrower.
2.2 PROCEDURE FOR REVOLVING ADVANCES BORROWING.
The Borrower may notify the Lender prior to
10:00 a.m. on a Business Day of its request to incur, on that day, a Revolving
Advance hereunder. Should any amount required to be paid as interest hereunder,
or as fees or other charges under this Agreement or any other agreement with the
Lender, or with respect to any other Obligation, become due, same shall be
deemed a request for a Revolving Advance as of the date such payment is due, in
the amount required to pay in full such interest, fee, charge or Obligation
under this Agreement or any other agreement with the Lender, and such request
shall be irrevocable.
2.3 DISBURSEMENT OF ADVANCE PROCEEDS. All
Advances shall be disbursed from whichever office or other place the Lender may
designate from time to time and, together with any and all other Obligations of
the Borrower to the Lender, shall be charged to the Borrower's account on the
Lender's books. During the Term, the Borrower may use the Revolving Advances by
borrowing, prepaying and reborrowing, all in accordance with the terms and
conditions hereof. The proceeds of each Revolving Advance requested by the
Borrower or deemed to have been requested by the Borrower under Section 2.2
hereof shall, with respect to
<PAGE> 24
19
requested Revolving Advances to the extent the Lender makes such Revolving
Advances, be made available to the Borrower on the day so requested by way of
credit to the Borrower's operating account at the Bank, in immediately available
funds or, with respect to Revolving Advances deemed to have been requested, be
disbursed to the Lender in payment of outstanding Obligations.
2.4 TERM LOAN. Subject to the terms and conditions
of this Agreement, the Lender will make a Term Loan to the Borrower in the sum
of $1,863,250.00. The Term Loan shall be advanced on the Closing Date and shall
be, with respect to principal, payable in equal monthly instalments of
$22,181.55 for the initial period of 35 months. The entire balance to be repaid
on the payment date falling in the 36th month after the Closing Date, subject to
acceleration upon the termination or the non-renewal of the Revolving Facility
or upon the occurrence of an Event of Default under this Agreement or
termination of this Agreement. The Term Loan shall otherwise be evidenced by and
subject to the terms and conditions set forth in the secured promissory note
("TERM NOTE") attached hereto as Exhibit 2.4.
2.5 REPAYMENT OF ADVANCES.
(a) The Revolving Advances shall be due and payable
in full on the last day of the Term subject to earlier prepayment as herein
provided. The Term Loan shall be due and payable as provided in Section 2.4
hereof and in the Term Note.
(b) The Borrower recognizes that the amounts
evidenced by cheques, notes, drafts or any other items of payment relating to
and/or proceeds of Collateral may not be collectible by the Lender on the date
received. The Borrower agrees that, in computing the charges under this
Agreement, all items of payment shall be deemed applied by the Lender on account
of the Obligations one (1) Business Day after confirmation to the Lender by the
Blocked Account bank or the Depository Account bank as provided for in Section
4.15(h), that such items of payment have been collected in good funds and
finally credited to the Lender's account. The Lender is not, however, required
to credit the Borrower's account for the amount of any item of payment which is
unsatisfactory to the Lender and the Lender may charge the Borrower's account
for the amount of any item of payment which is returned to the Lender unpaid.
(c) All payments of principal, interest and other
amounts payable hereunder, or under any of the related agreements, shall be made
to the Lender at the Payment Office not later than 1:00 p.m. (Toronto time) on
the due date therefor in lawful money of Canada immediately available to the
Lender. The Lender shall have the right to effectuate payment on any and all
Obligations due and owing hereunder by charging the Borrower's account or by
making Advances as provided in Section 2.3 hereof.
<PAGE> 25
20
(d) The Borrower shall pay principal, interest
and all other amounts payable hereunder, or under any related agreement, without
any deduction whatsoever, including, but not limited to, any deduction for any
setoff or counterclaim.
2.6 REPAYMENT OF EXCESS ADVANCES. The aggregate
balance of Advances outstanding at any time in excess of the lesser of the
Maximum Revolving Advance Amount and the Formula Amount shall be immediately due
and payable without the necessity of any demand, at the place designated by the
Lender, whether or not an Incipient Event of Default or Event of Default has
occurred.
2.7 STATEMENT OF ACCOUNT. The Lender shall
maintain, in accordance with its customary procedures, a loan account in the
name of the Borrower in which shall be recorded the date and amount of each
Advance made by the Lender and the date and amount of each payment in respect
thereof; PROVIDED, HOWEVER, the failure by the Lender to record the date and
amount of any Advance shall not adversely affect the Lender. For each month, the
Lender shall send to the Borrower a statement showing the accounting for the
Advances made, payments made or credited in respect thereof, and other
transactions between the Lender and the Borrower during such month. The monthly
statements shall be deemed correct and binding upon the Borrower in the absence
of manifest error and shall constitute an account stated between the Lender and
the Borrower unless the Lender receives a written statement of the Borrower's
specific exceptions thereto within thirty (30) days after such statement is
received by the Borrower. The records of the Lender with respect to the loan
account shall be PRIMA FACIE evidence of the amounts of Advances and other
changes thereto and of payments applicable thereto.
2.8 LENDER GUARANTEES AND LETTERS OF CREDIT.
Subject to the terms and conditions hereof, the Lender may in its sole
unfettered discretion, and provided the Borrower shall have first executed and
delivered a Letter of Credit and Security Agreement shall (a) issue the Lender
guarantees ("LENDER GUARANTEES") guaranteeing the payment or performance by the
Borrower of its obligations under letters of credit issued for the account of
the Borrower from time to time during the term of this Agreement or (b) issue or
cause the issuance of Letters of Credit ("LETTERS OF CREDIT") PROVIDED, HOWEVER,
that the Lender will not be required to issue or cause to be issued any Lender
Guarantees or Letters of Credit to the extent that the face amount of such
Lender Guarantees or Letters of Credit would then cause the sum of the
outstanding Revolving Advances PLUS the face amount of the Lender Guarantees
PLUS outstanding Letters of Credit to exceed the lesser of the Maximum Revolving
Advance Amount or the Formula Amount. All disbursements or payments related to
Lender Guarantees or Letters of Credit shall be deemed to be Revolving Advances
and shall bear interest at the Revolving Advance Rate; unfunded Lender
Guarantees, Letters of Credit that have not been drawn upon shall not bear
interest. Lender Guarantees and Letters of Credit shall be subject to the terms
and conditions set forth in the Letter of Credit and Security Agreement.
<PAGE> 26
21
2.9 ISSUANCE OF LETTERS OF CREDIT
(a) The Borrower may request the Lender to
issue or cause the issuance of a Letter of Credit by delivering to the Lender at
the Payment Office, the Lender's standard form of Letter of Credit and Security
Agreement together with Lender's standard form of Letter of Credit Application
(collectively, the "LETTER OF CREDIT APPLICATION") completed to the satisfaction
of the Lender; and such other certificates, documents and other papers and
information as the Lender may reasonably request.
(b) Each Letter of Credit shall, among other
things, (i) provide for the payment of sight drafts when presented for honour
thereunder in accordance with the terms thereof and when accompanied by the
documents described therein and (ii) have an expiry date not later than six
months after such Letter of Credit's date of issuance and in no event later than
the last day of the Term. Each Letter of Credit Application and each Letter of
Credit shall be subject to the Uniform Customs and Practice for Documentary
Credits (1983 Revision), International Chamber of Commerce Publication No. 400,
and any amendments or revisions thereof and, to the extent not inconsistent
therewith, the laws of Ontario.
2.10 ADDITIONAL REQUIREMENTS FOR ISSUANCE OF
LENDER GUARANTEES AND LETTERS OF CREDIT
(a) In connection with the issuance or
creation of any Lender Guarantee or Letter of Credit, the Borrower shall
indemnify, save and hold the Lender harmless from any loss, cost, expense or
liability, including, without limitation, payments made by the Lender, and
expenses and reasonable legal fees incurred by the Lender arising out of, or in
connection with, any Lender Guarantee or Letter of Credit to be issued or
created for the Borrower. The Borrower shall be bound by the Lender's or any
issuing or accepting bank's regulations and good faith interpretations of any
Lender Guarantee or Letter of Credit issued or created for the Borrower's
account, although this interpretation may be different from the Borrower's own;
and neither the Lender, the bank which opened the Letter of Credit for which the
Lender has issued a Lender Guarantee, nor any of its correspondents shall be
liable for any error, negligence, or mistakes, whether of omission or
commission, in following the Borrower's instructions or those contained in any
Letter of Credit or Lender Guarantee or of any modifications, amendments or
supplements thereto or in creating or paying any Lender Guarantee or Letter of
Credit except for the Lender's or such correspondents' willful misconduct or
gross negligence.
(b) The Borrower shall authorize and direct
any bank which issues a Letter of Credit to name the Borrower as the "Account
Party" therein and to deliver to the Lender all instruments, documents, and
other writings and property received by the bank pursuant to the Letter of
Credit and to accept and rely upon the Lender's instructions and agreements with
<PAGE> 27
22
respect to all matters arising in connection with the Letter of Credit, the
application therefor or any acceptance therefor.
(c) In connection with all Lender Guarantees
and Letters of Credit issued or created by the Lender under this Agreement, the
Borrower hereby appoints the Lender, or its designee, as its attorney, with full
power and authority (i) to sign and/or endorse the Borrower's name upon any
warehouse or other receipts, letter of credit applications and acceptances; (ii)
to sign the Borrower's name on bills of lading; (iii) to clear Inventory through
Customs in the name of the Borrower or the Lender or the Lender's designee, and
to sign and deliver to Customs Officials powers of attorney in the name of the
Borrower for such purpose; and (iv) to complete in the Borrower's name or the
Lender's, or in the name of the Lender's designee, any order, sale or
transaction, obtain the necessary documents in connection therewith, and collect
the proceeds thereof. Neither the Lender nor its attorneys will be liable for
any acts or omissions nor for any error of judgment or mistakes of fact or law,
except for the Lender's or its attorney's willful misconduct or gross
negligence. This power, being coupled with an interest, is irrevocable as long
as any Lender Guarantees or Letters of Credit remaining outstanding.
2.11 ADDITIONAL PAYMENTS. Any sums expended by
the Lender due to the Borrower's failure to perform or comply with its
obligations under this Agreement including, without limitation, the Borrower's
obligations under Sections 4.2, 4.4, 4.12, 4.13, 4.14 and 6.1 hereof, may be
charged to the Borrower's account as a Revolving Advance and added to the
Obligations.
III. INTEREST AND FEES.
------------------
3.1 INTEREST. Interest on Advances shall be
payable in arrears on the last day of each month. Interest charges shall be
computed on the actual average of such daily Advances outstanding during the
month (the "MONTHLY ADVANCES") at a rate per annum (expressed on the basis of a
year of 360 days) equal to (i) with respect to Revolving Advances, the Revolving
Advance Rate and (ii) with respect to the Term Loan, the Term Loan Rate (as
applicable, the "CONTRACT RATE"). Whenever, subsequent to the date of this
Agreement, the Prime Rate is increased or decreased, the applicable Contract
Rate shall be similarly changed without notice or demand of any kind by an
amount equal to the amount of such change in the Prime Rate during the time such
change or changes remain in effect. Upon and after the occurrence of an Event of
Default, and during the continuation thereof, the Obligations shall bear
interest at the greater of applicable Contract Rate plus two (2%) percent per
annum (the "DEFAULT RATE").
<PAGE> 28
23
3.2 LENDER GUARANTEE AND LETTER OF CREDIT FEES
(a) As additional consideration for the
issuance of the Lender Guarantees, the Borrower shall pay to the Lender, Lender
Guarantee fees ("LENDER GUARANTEE FEES") in addition to any fees or charges
payable to the issuing bank equal to such percent per annum of the aggregate
face value of Letters of Credit outstanding from time to time during the term of
this Agreement which are the subject of Lender Guarantees as the Lender may
specify at the time of application by the Borrower for the Lender Guarantee. The
Lender Guarantee Fees shall be earned upon issuance of the Lender Guarantees and
shall be due and payable on the first Business Day of each month. All bank
charges and other disbursements incurred by the Lender for the Borrower are to
be paid by the Borrower. Service charges and commissions may be charged to the
Borrower's account at the time service is rendered. No Lender Guarantee Fee
payable hereunder shall be subject to rebate or proration upon the termination
of this Agreement for any reason.
(b) The Borrower shall pay the Lender
(i) (A) for issuing or causing the issuance of a standby Letter of Credit, a
fee computed at such rate per annum on the outstanding amount thereof from time
to time as the Lender may specify at the time of application by the
Borrower for the Letter of Credit and (B) for issuing or causing the issuance
of a Letter of Credit that is not a standby Letter of Credit, a fee equal to
one and two-tenths percent (1.2%) of the original face amount and each increase
in the face amount thereof for each one hundred and twenty (120) days or part
thereof of its term (the fees set forth in (A) and (B) herein referred to as
"LETTER OF CREDIT FEES"), and (ii) the Lender's other customary charges payable
in connection with Letters of Credit, as in effect from time to time (which
charges shall be furnished to the Borrower by the Lender upon request). Such
fees and charges shall be payable (i) in the case of any Letter of Credit, on
its opening, (ii) in the case of a standby Letter of Credit, (A) monthly
thereafter in advance and (B) upon each increase in the outstanding amount
thereof, (iii) in the case of any Letter of Credit that is not a standby Letter
of Credit, at the time of each increase in face amount thereof. Any such charge
in effect at the time of a particular transaction shall be the charge for that
transaction, notwithstanding any subsequent change in Bank's prevailing charges
for that type of transaction. All Letter of Credit Fees payable hereunder shall
be deemed earned in full on the date when the same are due and payable
hereunder and shall not be subject to rebate or proration upon the termination
of this Agreement for any reason.
Upon the occurrence of an Event of Default or an Incipient
Event of Default, the Borrower will cause cash to be deposited and maintained in
an account with the Lender, as cash collateral, in an amount equal to
outstanding Letters of Credit and the Borrower hereby irrevocably authorizes the
Lender, in its discretion, on the Borrower's behalf and in the Borrower's name,
to open such an account and to make and maintain deposits therein, or in an
account opened by the Borrower, in the amounts required to be made by the
Borrower, out of the proceeds of Receivables or other Collateral or out of any
other funds of the Borrower coming into
<PAGE> 29
24
the Lender's possession at any time. The Lender will invest such cash collateral
(less applicable reserves) in such short-term money-market items as to which the
Lender and the Borrower mutually agree and the net return on such investments
shall be credited to such account and constitute additional cash collateral. The
Borrower may not withdraw amounts credited to any such account except upon
payment and performance in full of all Obligations and termination of this
Agreement.
3.3 CLOSING FEE. Upon the execution of this
Agreement, the Borrower shall pay to the Lender a closing fee of $10,000 (the
"Closing Fee").
3.4 COLLATERAL MONITORING FEE. The Borrower shall
pay to the Lender on the first day of each month following any month in which
the Lender, or any person on its behalf, performs any collateral monitoring -
namely any field examination, collateral analysis or other business analysis,
the need for which is to be determined by the Lender and which monitoring is
undertaken by the Lender acting reasonably or for the Lender's benefit - a
collateral monitoring fee equal to (a) all out-of-pocket expenses of the Lender
(including but not limited to the charges of an outside auditor used by the
Lender) PLUS (b) a per diem charge for each person employed by the Lender to
perform such monitoring at the Lender's then standard rates, plus, in either
case, all other costs and disbursements (including, without limitation, costs of
meals, travel and lodging) incurred by the Lender in the performance of such
examination or analysis.
3.5 NOT A BUSINESS DAY. If any payment to be made
hereunder becomes due and payable on a day other than a Business Day, the due
date thereof shall be extended to the next succeeding Business Day and interest
thereon shall be payable at the applicable Contract Rate during such extension.
3.6 MAXIMUM CHARGES. In no event whatsoever shall
interest and other charges charged hereunder exceed the highest rate permissible
under law which a court of competent jurisdiction shall, in a final
determination, deem applicable hereto. In the event that a court determines that
the Lender has received interest and other charges hereunder in excess of the
highest rate applicable hereto, such excess interest shall be first applied to
any unpaid principal balance owed by the Borrower, and if the then remaining
excess interest is greater than the previously unpaid principal balance, the
Lender shall promptly refund such excess amount to the Borrower and the
provisions hereof shall be deemed amended to provide for such permissible rate.
3.7 INCREASED COSTS. In the event that any
applicable law, treaty or governmental regulation, or any change therein or in
the interpretation or application thereof, or compliance by the Lender acting
reasonably with any request or directive (whether or not having the force of
law) from any central bank or other financial, monetary or other authority,
shall:
<PAGE> 30
25
(a) subject the Lender to any tax of any kind
whatsoever with respect to this Agreement or any Advance or change the basis of
taxation of payments to the Lender of principal, fees, interest or any other
amount payable hereunder or under any Other Documents (except for changes in the
rate of tax on the overall net income of the Lender by the jurisdiction in which
it maintains its principal office);
(b) impose, modify or hold applicable any reserve,
special deposit, assessment or similar requirement against assets held by, or
deposits in or for the account of, advances or loans by, or other credit
extended by, any office of the Lender; or
(c) impose on the Lender of the London interbank
Eurodollar market any other condition with respect to this Agreement, any Other
Documents or any Advance;
and the result of any of the foregoing is to increase the cost to the Lender of
making, renewing or maintaining its Advance hereunder by an amount or any
payment (whether of principal, interest or otherwise) in respect of any Advance
by an amount that the Lender, acting reasonably, deems to be material, then, in
any case the Borrower shall promptly pay the Lender, upon its demand, such
additional amount as will compensate the Lender for such additional cost or such
reduction, as the case may be. The Lender shall certify the amount of such
additional cost or reduced amount to the Borrower, and such certification shall
be conclusive absent manifest error.
3.8 CAPITAL ADEQUACY.
(a) In the event that the Lender shall have
determined that any applicable law, rule, regulation or guideline regarding
capital adequacy, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by the Lender has or would have the effect of reducing the rate of return on the
Lender's capital as a consequence of its obligations hereunder to a level below
that which the Lender could have achieved but for such adoption, change or
compliance (taking into consideration the Lender's policies with respect to
capital adequacy) by an amount deemed by the Lender acting reasonably to be
material, then, from time to time, the Borrower shall pay upon demand to the
Lender such additional amount or amounts as will compensate the Lender for such
reduction. In determining such amount or amounts, the Lender may use any
reasonable averaging attribution methods. The protection of this Section 3.8
shall be available to the Lender regardless of any possible contention of
invalidity or inapplicability of the law, regulation or condition which shall
have been imposed.
<PAGE> 31
26
(b) A certificate of the Lender setting
forth such amounts of amounts as shall be necessary to compensate the Lender as
specified in Section 3.8 hereof shall be delivered to the Borrower and shall be
conclusive absent manifest error.
3.9 SURVIVAL. The obligations of the Borrower
under Sections 3.7 and 3.8 shall, for greater certainty, survive termination of
this Agreement and the Other Documents and payment in full of the Obligations.
3.10 ILLEGALITY. If the introduction of, or any
change in, applicable law, regulation, treaty or official directive, or
regulatory requirement (whether or not having the force of law) or in the
interpretation or application thereof by any court or by any governmental
authority charged with the administration thereof, makes it unlawful, or
prohibited for the Lender (in its sole opinion) to make, to fund or to maintain
any Advance, the Lender may, by written notice to the Borrower, terminate its
obligations to make, to fund or to maintain any such Advance and the Borrower
shall prepay such Advance affected by the illegality.
3.11 OVERADVANCES. If the aggregate of the
Revolving Advances, Letters of Credit, Lender Guarantees and other amounts
chargeable to the Borrower's account exceed the lesser of (x) the Maximum
Revolving Advance Amount and (y) the Formula Amount, and such excess exists on
any two consecutive (2) days in any week, then the Borrower shall pay to the
Lender such excess in accordance with the provisions of Section 2.6 and:
(a) a fee equal to one (1%) percent per
annum on the amount of the Obligations, including without limitation, the
Advances, outstanding on each day on which such excess existed during the week;
and
(b) an overadvance fee in the amount of
$1,000 per week for each week in which such excess has existed on two (2) or
more days.
The foregoing shall not be construed as any consent by the Lender to the
existence of any such excess, which shall be in the sole, unfettered discretion
of the Lender.
3.12 EXCESS RESULTING FROM EXCHANGE RATE CHANGE.
Any time that following one or more fluctuations in the exchange rate of the
Canadian Dollar against the U.S. Dollar, the sum of (a) the Equivalent Amount in
Canadian Dollars of Obligations in U.S. Dollars and (b) the Obligations in
Canadian Dollars exceeds the amount denominated in Canadian Dollars permitted to
be outstanding, the Borrower shall immediately (i) make the necessary payments
or repayments to the Lender to reduce such Obligations to an amount equal to or
less than the amount denominated in Canadian Dollars permitted to be outstanding
or (ii) maintain or cause to be maintained with the Lender deposits of Canadian
Dollars in an amount equal to or greater than the amount by which such
Obligations exceed the amount denominated in
<PAGE> 32
27
Canadian Dollars permitted to be outstanding, such deposits to be maintained in
such form and upon such terms as are acceptable to the Lender. Without in any
way limiting the foregoing provisions, the Lender shall, and weekly or more
frequently in the Lender's sole discretion, make the necessary exchange rate
calculations to determine whether any such excess exists on such date.
3.13 CURRENCY. All Obligations shall be payable
to the Lender in the currency in which they are denominated.
IV. COLLATERAL: GENERAL TERMS.
---------------------------
4.1 SECURITY INTEREST IN THE COLLATERAL.
(a) Without limitation to any other provision hereof or the Other Documents, as
security for all Obligations, the Borrower shall, prior to the Closing Date,
grant to the Lender, and on the date of making each subsequent Revolving Advance
or any other Advance, the Lender shall hold, a continuing first-ranking and
perfected and duly registered security interest in, lien on, and assignment of
all Property of the Borrower, now owned or hereafter acquired, tangible or
intangible, real or personal, moveable or immoveable, including, without
limitation, all Collateral. The Lender shall have all of the rights with respect
to the Collateral of a secured party under the PPSA and the other laws of
Ontario and of any other applicable jurisdiction and the Lender shall have all
the rights of a mortgagee in respect of the Lands. The Borrower shall mark its
books and records as may be necessary or appropriate to evidence, protect and
perfect the Lender's security interests and shall cause its financial statements
to reflect such security interests and claims.
(b) All Obligations shall constitute a
single loan secured by the Collateral. The Lender may, in its sole discretion
but subject to the terms hereof, (i) exchange, waive, or release any of the
Collateral, (ii) apply Collateral and direct the order or manner of sale thereof
as the Lender may determine, and (iii) settle, compromise, collect, or otherwise
liquidate any Collateral in any manner, all without affecting the Obligations or
the Lender's right to take any other action with respect to any other
Collateral.
4.2 PERFECTION OF SECURITY INTEREST. The
Borrower shall take all action that may be necessary or desirable, or that the
Lender may request, so as at all times to maintain the validity, perfection,
enforceability and priority of the Lender's security interest in the Collateral
or to enable the Lender to protect, exercise or enforce its rights hereunder and
in the Collateral, including, but not limited to (i) immediately discharging all
Liens other than Permitted Encumbrances, (ii) obtaining landlords' or
mortgagees', bailee's, processor's and warehouseman's Lien waivers (on terms
satisfactory to the Lender in its discretion), (iii) delivering to the Lender,
endorsed or accompanied by such instruments of assignment as the Lender may
specify, and stamping or marking, in such manner as the Lender may specify, any
and all chattel paper, instruments, letters of credit and advices thereof and
documents evidencing or forming a part of
<PAGE> 33
28
the Collateral, (iv) entering into warehousing, lockbox and other custodial
arrangements satisfactory to the Lender in its discretion, and (v) executing and
delivering financing statements, instruments of pledge, mortgages, notices and
assignments, in each case in form and substance satisfactory to the Lender in
its discretion, relating to the creation, validity, perfection, maintenance or
continuation of the Lender's security interest under the PPSA or other
applicable law. All charges, expenses and fees the Lender, acting reasonably,
may incur in doing any of the foregoing, and any local taxes relating thereto,
shall be charged to the Borrower's account and added to the Obligations, or at
the Lender's option, shall be paid to the Lender immediately upon demand.
4.3 DISPOSITION OF COLLATERAL. The Borrower
will safeguard and protect all Collateral for the Lender's general account and
make no disposition thereof whether by sale, lease or otherwise except:
(a) the sale of Inventory in the
ordinary course of business;
(b) the disposition or transfer of
obsolete and worn-out Equipment in
the ordinary course of business
during any fiscal year having an
aggregate fair market value of not
more than $50,000 and only to the
extent that the proceeds for any
such disposition are used to acquire
replacement Equipment which is
subject to the Lender's first
priority security interest; and
(c) the disposition or transfer of
obsolete and worn out Equipment in
the ordinary course of business
during any fiscal year having an
aggregate fair market value of not
more than $200,000 (in addition to
the $50,000 permitted under
paragraph (b) above) and only to the
extent that the proceeds of such
disposition are applied as a
repayment of outstanding Revolving
Advances.
4.4 PRESERVATION OF COLLATERAL. Following the
occurrence of an Incipient Event of Default or Event of Default, in addition to
the rights and remedies set forth in Section 11.1 hereof, the Lender: (a) may at
any time take such steps as the Lender deems necessary to protect the Lender's
interest in and to the preserve the Collateral, including the hiring of such
security guards for the placing of such security protection measures as the
Lender may deem appropriate; (b) may employ and maintain at any of the
Borrower's premises a custodian who shall have full authority to do all acts
necessary to protect the Lender's interests in the Collateral; (c) may lease
warehouse facilities to which the Lender may move all or part of the Collateral;
(d) may use any of the Borrower's owned or leased lifts, hoists, trucks and
other facilities or
<PAGE> 34
29
equipment for handling or removing the Collateral; and (e) shall have, and is
hereby granted, a right of ingress and egress to the places where the Collateral
is located, and may proceed over and through any of the Borrower's owned or
leased property. The Borrower shall cooperate fully with all of the Lender's
efforts to preserve the Collateral and will take such actions to preserve the
collateral as the Lender may direct. All of the Lender's expenses of preserving
the Collateral, including any expenses relating to the bonding of a custodian,
shall be charged to the Borrower's account and added to the Obligations.
4.5 OWNERSHIP OF COLLATERAL. With respect to
the Collateral, at the time the Collateral becomes subject to the Lender's
security interest: (a) the Borrower shall be the sole owner of and fully
authorized and able to sell, transfer pledge and/or grant a first security
interest in each and every item of the Collateral to the Lender, and, except for
Permitted Encumbrances the Collateral shall be free and clear of all Liens,
Claims and encumbrances whatsoever; (b) each document and agreement executed by
the Borrower or its predecessors or delivered to the Lender in connection with
this Agreement shall be true and correct in all respects; (c) all signatures and
endorsements of the Borrower or its predecessors that appear on such documents
and agreements are and shall be genuine and the Borrower had and shall have full
capacity to execute same; and (d) the Borrower's Equipment and Inventory is
located as set forth on EXHIBIT 4.5 and shall not be removed from such
location(s) without the prior written consent of the Lender except with respect
to the sale of Inventory in the ordinary course of business.
4.6 DEFENSE OF THE LENDER'S INTERESTS. Until
(a) payment and performance in full of all of Obligations and (b) termination of
this Agreement, the Lender's interests in the Collateral hereby granted to the
Lender shall continue in full force and effect. During such period the Borrower
shall not, without the Lender's prior written consent (which consent will not be
unreasonably withheld), pledge, sell (except Inventory in the ordinary course of
business ) assign, transfer, create or suffer to exist a security interest in,
Lien or Claim upon or encumber or allow or suffer to be encumbered in any way
except for Permitted Encumbrances, any part of the Collateral. The Borrower
shall defend the Lender's interests in the Collateral against any and all
persons whatsoever. At any time following an Event of Default or an Incipient
Event of Default, the Lender shall have the right to take possession of the
indicia of the Collateral and the Collateral in whatever physical form
contained, including, without limitation: labels, stationery, documents,
instruments and advertising materials. If the Lender exercises this right to
take possession of the Collateral, the Borrower shall, upon demand, assemble it
in the best manner possible and make it available to the Lender at a place
reasonably convenient to the Lender. In addition, with respect to all
Collateral, the Lender shall be entitled to all of the rights and remedies set
forth herein and further provided by the PPSA or other applicable law. The
Borrower shall, and the Lender may, at its option, instruct all suppliers,
carriers, forwarders, warehouses or others receiving or holding cash, cheques,
Inventory, documents or instruments in which the Lender holds a security
interest to deliver same to the Lender and/or subject to the Lender's order and
if they shall come into the Borrower's possession, they, and each of them, shall
<PAGE> 35
30
be held by the Borrower in trust as the Lender's trustee, and the Borrower will
immediately deliver them to the Lender in their original form together with any
necessary endorsement.
4.7 BOOKS AND RECORDS. The Borrower (a) shall
keep proper books of record and account in which full, true and correct entries
will be made of all dealings or transactions of or in relation to its business
and affairs; (b) set up on its books accruals with respect to all taxes,
assessments, charges, levies and claims; and (c) on a reasonable current basis
set up on its books, from its earnings, allowances against doubtful Receivables,
advances and investments and all other proper accruals (including without
limitation by reason of enumeration, accruals for premiums, if any, due on
required payments and accruals for depreciation, obsolescence, or amortization
of properties), which should be set aside from such earnings in connection with
its business. All determinations pursuant to this subsection shall be made in
accordance with, or as required by, GAAP consistently applied in the opinion of
such independent public accountant as shall then be regularly engaged by the
Borrower.
4.8 FINANCIAL DISCLOSURE. The Borrower hereby
irrevocably authorizes and directs all accountants and employees employed by the
Borrower at any time during the term of this Agreement to exhibit and deliver to
the Lender copies of any of the Borrower's financial statements, trial balances
or other accounting records of any sort in the accountant's or employee's
possession, and to disclose to the Lender any information such accountants or
employees may have concerning the Borrower's financial status and business
operations. Upon the occurrence of an Event of Default or Incipient Event of
Default, the Borrower hereby authorizes all auditors employed by the Borrower
and all federal, provincial, state and municipal authorities to furnish to the
Lender copies of reports or examinations relating to the Borrower, whether made
by the Borrower or otherwise; however, the Lender will attempt to obtain such
information or materials directly from the Borrower prior to obtaining such
information or materials from such auditors or authorities.
4.9 COMPLIANCE WITH LAWS. The Borrower shall
comply with all laws, acts, rules, regulations, judgments, court orders, decrees
and declarations and orders, decrees, determinations, and guidelines (whether or
not having the force of law), of any Public Authority applicable to the
Collateral or any part thereof or to the operation of the Borrower's business
the non-compliance with which would have a material adverse effect on the
Collateral, or the operations, business or condition or prospects (financial or
otherwise) of the Borrower. The Borrower may, however, contest or dispute any
laws, acts, rules, regulations, orders and directions of those bodies or
officials in any reasonable manner, provided that any related Lien is inchoate
or stayed and sufficient reserves are established to the satisfaction of the
Lender to protect the Lender's Lien on or security interest in the Collateral.
4.10 INSPECTION OF PREMISES. At all reasonable
times, upon reasonable notice to the Borrower, the Lender shall have full access
to and the right to audit, check, inspect
<PAGE> 36
31
and make abstracts and copies from the Borrower's books, records, audits,
correspondence and all other papers relating to the Collateral and the operation
of the Borrower's business. The Lender and its agents, upon reasonable notice to
the Borrower, may enter upon any of the Borrower's premises at any time during
business hours and at any other reasonable time in the Lender's discretion, and
from time to time, for the purpose of inspecting the Collateral and any and all
records pertaining thereto and the operation of the Borrower's business and for
the purpose of conducting Collateral audits, all of which shall be at the
Borrower's expense.
4.11 INSURANCE. The Borrower shall bear the full
risk of loss from any loss of any nature whatsoever with respect to the
Collateral. At the Borrower's own cost and expense in amounts and with carriers
acceptable to the Lender, the Borrower shall: (a) keep all its insurable
properties and properties in which the Borrower has an interest insured against
the hazards of fire, flood, sprinkler leakage, those hazards covered by extended
coverage insurance and such other hazards, and for such amounts, as is customary
in the case of companies engaged in businesses similar to the Borrower's
including, without limitation, business interruption insurance; (b) maintain a
bond in such amounts as is customary in the case of companies engaged in
business similar to the Borrower's insuring against larceny, embezzlement or
other criminal misappropriation of insured's officers and employees who may
either singly or jointly with others at any time have access to the assets or
funds of the Borrower either directly or through authority to draw upon such
funds or to direct generally the disposition of such assets; (c) maintain all
such workmen's compensation or similar insurance as may be required under the
laws of any province, state or jurisdiction in which the Borrower is engaged in
business; (d) furnish the Lender with (i) copies of all policies and evidence of
the maintenance of such policies by the renewal thereof at least thirty (30)
days before any expiration date, and (ii) appropriate loss payable endorsements
in form and substance satisfactory to the Lender, naming the Lender as loss
payee as its interests may appear with respect to all insurance coverage
referred to in clauses (a), and (b) above, and providing (A) that all proceeds
thereunder shall be payable to the Lender, (B) no such insurance shall be
affected by any act or neglect of the insured or owner of the property described
in such policy, and (C) that such policy and loss payable clauses may not be
cancelled, amended or terminated unless at least thirty (30) days' prior written
notice is given to the Lender. In the event of any loss thereunder, the carriers
named therein hereby are directed by the Lender and the Borrower to make payment
for such loss to the Lender and not to the Borrower and the Lender jointly. If
any insurance losses are paid by cheque, draft or other instrument payable to
the Borrower and the Lender jointly, the Lender may endorse the Borrower's name
thereon and do such other things as the Lender may deem advisable to reduce the
same to cash. The Lender is hereby authorized to adjust and compromise claims
under insurance coverage referred to in clauses (a) and (b) above. All loss
recoveries received by the Lender upon any such insurance may, except as
provided herein below, be applied to the Obligations, in such order as the
Lender in its sole discretion shall determine. Any surplus shall be paid by the
Lender to the Borrower or applied as may be otherwise required by law. Any
deficiency thereon shall be paid by the Borrower to the Lender, on demand.
Anything hereinabove to the contrary notwithstanding, and
<PAGE> 37
32
subject to the fulfilment of the conditions set forth below, the Lender shall
remit to the Borrower insurance proceeds received by the Lender during any
calendar year under insurance policies procured and maintained by the Borrower
which insure the Borrower's insurable properties to the extent such insurance
proceeds do not exceed $50,000 in the aggregate during such calendar year or
$25,000 per occurrence and the Borrower first provides the Lender with evidence
reasonably satisfactory to the Lender that the insurance proceeds will be used
by the Borrower to repair, replace or restore the insured property which was the
subject of the insurable loss. In the event the Borrower has previously received
(or, after giving effect to any proposed remittance by the Lender to the
Borrower would receive) insurance proceeds which equal or exceed $50,000 in the
aggregate during any calendar year, or the insurance proceeds for any occurrence
exceed $25,000 then the Lender may, in its sole discretion, either remit the
insurance proceeds to the Borrower upon the Borrower providing the Lender with
evidence reasonably satisfactory to the Lender that the insurance proceeds will
be used by the Borrower to repair, replace or restore the insured property which
was the subject of the insurable loss, or apply the proceeds to the Obligations,
as aforesaid. The agreement of the Lender to remit insurance proceeds in the
manner above provided shall be subject in each instance to satisfaction of each
of the following additional conditions: (x) No Event of Default or Incipient
Event of Default shall then have occurred, and (y) the Borrower shall use such
insurance proceeds to repair, replace or restore the insurable property which
was the subject of the insurable loss and for no other purpose.
4.12 FAILURE TO PAY INSURANCE. If the Borrower
fails to obtain insurance as hereinabove provided, or to keep the same in force,
the Lender, if the Lender so elects, may obtain such insurance and pay the
premium therefor for the Borrower's account and charge the Borrower's account
therefore and such expenses so paid shall be part of the Obligations.
4.13 PAYMENT OF TAXES. The Borrower will pay,
when due, all taxes, assessments and other Claims lawfully levied or assessed
upon the Borrower or any of the Collateral including, without limitation, real
and personal property taxes, assessments and charges and all franchise, income,
employment, old age benefits, withholding, and sales taxes. If any tax by any
governmental authority is or may be imposed on or as a result of any transaction
between the Borrower and the Lender which the Lender may be required to withhold
or pay or if any taxes, assessments, or other charges remain unpaid after the
date fixed for their payment, or if any Claim shall be made which, in the
Lender's opinion, may possibly create a valid Lien, or Claim on the Collateral,
the Lender may without notice to the Borrower pay the taxes, assessments, Liens,
or Claims and the Borrower hereby indemnifies and holds the Lender harmless in
respect thereof. The amount of any payment by the Lender under this Section 4.13
shall be charged to the Borrower's account as a Revolving Advance and added to
the Obligations and, until the Borrower shall furnish the Lender with an
indemnity therefore (or supply the Lender with evidence satisfactory to the
Lender that due provision for the payment thereof has been made), the Lender may
hold without interest any balance standing to the Borrower's credit and the
Lender shall retain its security interest in any and all Collateral held by the
Lender. The Lender
<PAGE> 38
33
shall use all reasonable efforts to notify the Borrower if the Lender makes any
payment in respect of any taxes payable by the Borrower; provided that the
Lender shall be under no obligation to provide any such notice to the Borrower.
4.14 PAYMENT OF LEASEHOLD OBLIGATIONS. The
Borrower shall at all times pay, when and as due, its rental obligations under
all leases under which it is a tenant, and shall otherwise comply, in all
material respects, with all other terms of such leases and keep them in full
force and effect and, at the Lender's request will provide evidence of having
done so.
4.15 RECEIVABLES.
(a) NATURE OF RECEIVABLES. Each of the
Receivables shall be a bona fide and valid account representing a bona fide
indebtedness incurred by the Customer therein named, for a fixed sum as set
forth in the invoice relating thereto (provided immaterial or unintentional
invoice errors shall not be deemed to be a breach hereof), provided that any
Receivable which represents Inventory which has been sold and shipped but not
billed, shall be invoiced as aforesaid within five (5) Business Days of the date
of shipment and the Inventory shall not be included in Eligible Inventory from
and after the date of shipment, with respect to an absolute sale or lease and
delivery of goods upon stated terms of the Borrower, or work, labour or services
theretofore rendered by the Borrower and as of the date each Receivable is
created, same shall be due and owing in accordance with the Borrower's standard
terms of sale without dispute, setoff or counterclaim except as may be stated on
the accounts receivable schedules delivered by the Borrower to the Lender.
(b) SOLVENCY OF CUSTOMERS. Each Customer,
to the best of the Borrower's knowledge, as of the date each Receivable is
created, is and will be solvent and able to pay all Receivables on which the
Customer is obligated in full when due or with respect to such Customers of the
Borrower who are not solvent the Borrower has set up on its books and in its
financial records bad debt reserves adequate to cover such Receivables.
(c) LOCATION OF THE BORROWER. The
Borrower's chief executive office is located at 215 Doughton Road, Concord,
Ontario, L4K 1R1. Until written notice is given to the Lender by the Borrower of
any other office at which it keeps its records pertaining to Receivables, all
such records shall be kept at such executive office and all invoices of
Receivables shall be issued from and all Receivables shall be payable to such
office (or a Blocked Account or lockbox as herein provided).
(d) COLLECTION OF RECEIVABLES. Until
the Borrower's authority to do so is terminated by the Lender (which notice the
Lender may give at any time following the occurrence of an Event of Default or
an Incipient Event of Default or when the Lender in its sole discretion acting
reasonably deems it to be in the Lender's best interest to do so), the Borrower
<PAGE> 39
34
will, at the Borrower's sole cost and expense, but on the Lender's behalf and
for the Lender's account, collect as the Lender's property and in trust for the
Lender all amounts received on Receivables, and shall not commingle such
collections with the Borrower's funds or use the same except to pay Obligations.
The Borrower shall, upon request, deliver to the Lender in original form and on
the date of receipt thereof, all cheques, drafts, notes, money orders,
acceptances, cash and other evidences of Indebtedness.
(e) NOTIFICATION OF ASSIGNMENT OF
RECEIVABLES. At any time following an Event of Default or an Incipient Event of
Default, the Lender shall have the right to send notice of the assignment of,
and the Lender's security interest in, the Receivables to any and all Customers
or any third party holding or otherwise concerned with any of the Collateral.
Thereafter, the Lender shall have the sole right to collect the Receivables,
take possession of the Collateral, or both. Stationery and postage, telephone
and telegraph, secretarial and clerical expenses and the salaries of any
collection personnel used for collection, may be charged to the Borrower's
account and added to the Obligations.
(f) POWER OF THE LENDER TO ACT ON THE
BORROWER'S BEHALF. After the occurrence of an Event of Default or an Incipient
Event of Default, the Lender shall have the right to receive, endorse, assign
and/or deliver in the name of the Lender or the Borrower any and all cheques,
drafts and other instruments for the payment of money relating to the
Receivables, and the Borrower hereby waives notice of presentment, protest and
non-payment of any instrument so endorsed. The Borrower hereby constitutes the
Lender or the Lender's designee as the Borrower's attorney with power (i) to
endorse the Borrower's name upon any notes, acceptances, cheques, drafts, money
orders or other evidences of payment or Collateral; (ii) to sign the Borrower's
name on any invoice or bill of lading relating to any of the Receivables; (iii)
to send verifications of Receivables, drafts against Customers, assignments and
verifications of Receivables; (iv) to send verifications of Receivables to any
Customer; (v) to sign the Borrower's name on all financing statements or any
other documents or instruments deemed necessary or appropriate by the Lender to
preserve, protect, or perfect the Lender's interest in the Collateral and to
file same; (vi) to demand payment of the Receivables; (vii) to enforce payment
of the Receivables by legal proceedings or otherwise; (viii) to exercise all of
the Borrower's rights and remedies with respect to the collection of the
Receivables and any other Collateral; (ix) to settle, adjust, compromise, extend
or renew the Receivables; (x) to settle, adjust or compromise any legal
proceedings brought to collect Receivables; (xi) to prepare, file and sign the
Borrower's name on a proof of claim in bankruptcy or similar document against
any account debtor; (xii) to prepare, file and sign the Borrower's name on any
notice of Lien, assignment or satisfaction of Lien or similar document in
connection with the Receivables; and (xiii) to do all other acts and things
necessary to carry out this Agreement. All acts of said attorney or designee are
hereby ratified and approved, and said attorney or designee shall not be liable
for any acts of omission or commission nor for any error of judgment or mistake
of fact or of law, unless done maliciously or with gross negligence; this power
being coupled with an interest is irrevocable while any of
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35
the Obligations remain unpaid. The Lender shall have the right at any time
following the occurrence of an Event of Default or Incipient Event of Default,
to change the address for delivery of mail addressed to the Borrower to such
address as the Lender may designate.
(g) NO LIABILITY. The Lender shall not,
under any circumstances or in any event whatsoever, have any liability for any
error or omission or delay of any kind occurring in the settlement, collection
or payment of any of the Receivables or any instrument received in payment
thereof, or for any damage resulting therefrom. Following the occurrence of an
Event of Default or Incipient Event of Default the Lender may, without notice or
consent from the Borrower, sue upon or otherwise collect, extend the time of
payment of, compromise or settle for cash, credit or upon any terms any of the
Receivables or any other securities, instruments or insurance applicable thereto
and/or release any obligor thereof. The Lender is authorized and empowered to
accept following the occurrence of an Event of Default or Incipient Event of
Default the return of the goods represented by any of the Receivables, without
notice to or consent by the Borrower, all without discharging or in any way
affecting the Borrower's liability hereunder.
(h) ESTABLISHMENT OF A BLOCKED ACCOUNT,
DOMINION ACCOUNT. All proceeds of Receivables shall, at the direction of the
Lender, be deposited by the Borrower into a dominion account or such other
"blocked account" ("BLOCKED ACCOUNTS") as the Lender may require pursuant to an
arrangement with such bank as may be selected by the Borrower and be acceptable
to the Lender. The Borrower shall issue to any such bank, an irrevocable letter
of instruction directing said bank to transfer such funds so deposited to the
Lender, either to any account maintained by the Lender at said bank or by wire
transfer to appropriate account(s) of the Lender. All funds deposited in such
Blocked Account shall immediately become the property of the Lender and the
Borrower shall obtain the agreement by such bank to waive any offset rights
against the fund so deposited. The Lender assumes no responsibility for such
"blocked account" arrangement, including without limitation, any claim of accord
and satisfaction or release with respect to deposits accepted by any bank
thereunder. Alternatively, the Lender may establish depository accounts
("DEPOSITORY ACCOUNTS") in the name of the Lender at a bank or banks for the
deposit for such funds and the Borrower shall deposit all proceeds of
Receivables or cause same to be deposited, in kind, in such Depository Accounts
of the Lender in lieu of depositing same to the Blocked Accounts.
4.16 INVENTORY. All Inventory has been, and will
be produced by the Borrower in accordance with all laws, rules, statutes,
regulations and orders.
4.17 MAINTENANCE OF EQUIPMENT. The Equipment
shall be maintained in good operating condition and repair (reasonable wear and
tear excepted) and all necessary replacements of and repairs thereto shall be
made so that the value and operating efficiency of
<PAGE> 41
36
the Equipment shall be maintained and preserved. The Borrower shall have the
right to sell Equipment only to the extent set forth in Section 4.3 hereof.
4.18 EXCULPATION OF LIABILITY. Nothing herein
contained shall be construed to constitute the Lender as the Borrower's agent
for any purpose whatsoever, nor shall the Lender be responsible or liable for
any shortage, discrepancy, damage, loss or destruction of any part of the
Collateral wherever the same may be located and regardless of the cause thereof,
save for gross negligence or wilful misconduct on the part of the Lender. The
Lender does not, whether by anything herein or in any assignment or otherwise,
assume any of the Borrower's obligations under any contract or agreement
assigned to the Lender, and the Lender shall not be responsible in any way for
the performance by the Borrower of any of the terms and conditions thereof.
4.19 ENVIRONMENTAL MATTERS.
(a) The Borrower shall conduct its
business in material compliance with all Environmental Laws applicable to it,
including, without limitation, those relating to the Borrower's generation,
handling, use, storage, and disposal of Hazardous Substances and Hazardous
Wastes. The Borrower will ensure that the Real Property remains in compliance
with all Environmental Laws and it will not place or permit to be placed any
Hazardous Substances or Hazardous Wastes on any Real Property except as not
prohibited by applicable law or any Public Authority.
(b) The Borrower will establish and
maintain a system to assure and monitor continued compliance by it with all
applicable Environmental Laws, which system shall include periodic review of
such compliance.
(c) The Borrower will (i) employ in
connection with the use of the Real Property appropriate technology necessary to
maintain compliance with any applicable Environmental Laws and (ii) dispose of
any and all Hazardous Substance or Hazardous Waste generated at or otherwise
located at any of the Real Property only at facilities and with carriers that
maintain valid permits under all applicable Environmental Laws. The Borrower
shall use its best efforts to obtain certificates of disposal, such as hazardous
waste manifest receipts, from all treatment, transport, storage or disposal
facilities or operators employed by the Borrower in connection with the
transport or disposal of any Hazardous Substance or Hazardous Waste generated at
or otherwise located at any of the Real Property.
(d) In the event the Borrower obtains,
gives or receives notice of any Release of a reportable quantity of any
Hazardous Substances at the Real Property (any such event being hereinafter
referred to as a "HAZARDOUS DISCHARGE") or receives any notice of violation or
alleged violation, request for information or notification that it is
potentially
<PAGE> 42
37
responsible for investigation or cleanup of environmental conditions, demand
letter, complaint, order, citation, action request, violation notice or other
written notice with regard to any Hazardous Substances, Hazardous Waste,
Hazardous Discharge or alleged or actual violation of any Environmental Laws
affecting it, any Collateral, the Real Property or the Borrower's interest
therein (any of the foregoing is referred to herein as an "ENVIRONMENTAL
COMPLAINT") from any Public Authority or Other Person, then the Borrower shall,
within ten (10) Business Days, give written notice of same to the Lender
detailing non-privileged and non-confidential facts and circumstances of which
the Borrower is aware giving rise to the Hazardous Discharge or Environmental
Complaint. Such information is to be provided to allow the Lender to protect its
security interest in the Collateral and its position and is not intended to
create nor shall it create any obligation upon the Lender with respect thereto.
(e) The Borrower shall promptly forward
to the Lender copies of any request for information, notification of potential
liability, demand letter relating to potential responsibility with respect to
the investigation or cleanup of Hazardous Substances, Hazardous Discharge or
Hazardous Waste at any other site owned, operated or used by the Borrower to
dispose of Hazardous Substances or now or previously in the charge, management
or control of the Borrower and shall continue to forward copies of
correspondence between the Borrower and the Public Authority or any other Person
regarding such claims to the Lender until the claim is settled. The Borrower
shall promptly, forward to the Lender copies of all documents and reports
concerning a Hazardous Discharge that the Borrower is required to file under any
Environmental Laws. Such information is to be provided solely to allow the
Lender to protect the Lender's security interest in the Collateral and its
position.
(f) The Borrower shall respond, promptly
to any Hazardous Discharge or Environmental Complaint and take all necessary
action in order to safeguard to health of any Person or Property and to avoid
subjecting it or the Collateral or Real Property to any Lien. If the Borrower
shall fail to respond promptly to any Hazardous Discharge or Environmental
Complaint or the Borrower shall fail to comply with any of the requirements of
any Environmental Laws, the Lender may, but without the obligation to do so, for
the sole purpose of protecting the Lender's interest in Collateral: (A) give
such notices or (B) enter onto the Real Property (or authorize third parties to
enter onto the Real Property) and take such actions as the Lender (or such third
parties as directed by the Lender) deem reasonably necessary or advisable, to
clean up, remove, mitigate or otherwise deal with any such Hazardous Discharge
or Environmental Complaint. All reasonable costs and expenses incurred by the
Lender (or such third parties) in the exercise of any such rights, including any
sums paid in connection with any judicial or administrative investigation or
proceedings, fines and penalties, together with interest thereon from the date
expended at the Default Rate for Revolving Advances shall be paid upon demand by
the Borrower, and until paid shall be added to and become a part of the
Obligations secured by the Liens created by the terms of this Agreement, the
Other Documents and any other agreement between the Lender and the Borrower.
<PAGE> 43
38
(g) The Borrower shall defend and
indemnify the Lender and hold the Lender harmless from and against all loss,
liability, damage and expense, claims, costs, fines and penalties, including
legal fees (on a solicitor and his own client basis), suffered or incurred by
the Lender under, on account of or in connection with any Environmental Laws,
including without limitation, the assertion of any Lien thereunder or in
connection therewith, the presence of any Hazardous Substances, Hazardous Waste
or Hazardous Discharge which may affect the Real Property or any other Property
of the Borrower whether or not the same originates or engages from the Real
Property or any contiguous Real Property, including any loss of value of or Lien
upon the Real Property or any other Collateral as a result of the foregoing,
except to the extent such loss, liability, damage and expenses is attributable
to any Hazardous Discharge resulting from actions on the part of the Lender
which constitute gross negligence or wilful default. The Borrower's obligations
under this Section 4.19 shall arise whether or not any Public Authority or other
Person has taken or threatened any action in connection with the presence of any
Hazardous Substances or alleged violation of any Environmental Lands. The
Borrower's obligation and the indemnifications hereunder shall survive the
termination of this Agreement.
V. REPRESENTATIONS AND WARRANTIES.
------------------------------
The Borrower represents and warrants as follows:
5.1 AUTHORITY. The Borrower has full power,
authority and legal right to enter into this Agreement and the Other Documents
to which it is party and perform all obligations hereunder and thereunder. The
execution, delivery and performance hereof and of the Other Documents are within
the Borrower's corporate powers, have been duly authorized, are not in
contravention of law or the terms of the Borrower's by-laws, articles of
incorporation and, as applicable, amendment or amalgamation or other applicable
documents relating to the Borrower's formation or to the conduct of the
Borrower's business or of any material agreement or material undertaking to
which the Borrower is a party or by which the Borrower is bound and will not
conflict with nor result in any breach in any of the provisions of or constitute
a default under or result in the creation of any Lien except Permitted
Encumbrances upon any asset of the Borrower under the provisions of any
agreement, charge, instrument, by-law or other instrument to which the Borrower
is a party or by which it may be bound.
5.2 FORMATION AND QUALIFICATION. The Borrower
is duly amalgamated and in good standing under the laws of Ontario and is
qualified to do business and is in good standing in the jurisdictions listed on
EXHIBIT 5.2 which constitute all jurisdictions in which qualification and good
standing are necessary for the Borrower to conduct its business and own its
property and where the failure to so qualify would have a material adverse
effect on the Borrower, or its business. The Borrower has delivered to the
Lender true and complete copies of its articles of amalgamation and by-laws, as
presently in effect, and will promptly notify the Lender of any amendment or
changes thereto.
<PAGE> 44
39
5.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
All representations and warranties of the Borrower contained in this Agreement
and the Other Documents shall be true at the time of the Borrower's execution of
this Agreement and the Other Documents and at the Closing, and shall survive the
execution, delivery and acceptance thereof by the Lender and the parties thereto
and the closing of the transactions described therein or related thereto. The
Borrower and the Lender expressly agree that any misrepresentation or breach of
any representation or warranty whatsoever contained in this Agreement or the
Other Documents shall be deemed material.
5.4 TAX RETURNS. The Borrower has filed all
federal, provincial, municipal, state and local tax returns and other reports it
is required by law to file and has paid all taxes, assessments, fees and other
governmental charges that are due and payable. The provision for taxes on the
books of the Borrower are adequate for all years not closed by applicable
statutes, and for its current fiscal year, and except as described on Exhibit
5.4, the Borrower has no knowledge of any deficiency or additional assessment in
connection therewith not provided for on its books.
5.5 FINANCIAL STATEMENTS. The balance sheet of
the Borrower as of September 30, 1996, and the related statements of income,
changes in shareholder's equity, and changes in financial position statements
for the period ended on such date, all accompanied by reports thereon containing
opinions without qualification by independent chartered accountants, copies of
which have been delivered to the Lender, have been prepared in accordance with
GAAP, practices and procedures, consistently applied (except for changes in
application in which such accountants concur) and present fairly the financial
position of the Borrower at such date and the results of its operations for such
period. Since September 30, 1996 there has been no change in the condition,
financial or otherwise, of the Borrower as shown on the balance sheet as of such
date and no change in the aggregate value of machinery, equipment and Real
Property owned by the Borrower, except changes in the ordinary course of
business, none of which individually or in the aggregate has been materially
adverse.
5.6 CORPORATE NAME. The Borrower has not been
known by any other corporate name (other than its predecessor 955404 Ontario
Inc.) in the past five years and does not sell Inventory under any other name
except as set forth on EXHIBIT 5.6.
5.7 ENVIRONMENT COMPLIANCE. The Borrower has
complied in all respects with all Environmental Laws applicable to transfer,
construction on, and operation of its Property and business. The Borrower does
not have any material contingent liability with respect to non-compliance with
Environmental Laws or the generation, handling, use, storage, or disposal of
Hazardous Substances. The Borrower has not received any Environmental Complaint
including, without limitation, any summons, complaint, order or other notice
that it
<PAGE> 45
40
is not in compliance with, or that any Public Authority is investigating its
compliance with, Environmental Laws. Without limiting the generality of the
foregoing:
(a) the Borrower does not generate,
transport, treat or dispose of any Hazardous Substances;
(b) the Borrower has been issued all
required federal, state, provincial and local licenses, certificates or permits
relating to the Borrower and its facilities, businesses, Property and leaseholds
are in compliance in all material respects with all applicable Environmental
Laws;
(c) (i) there are no visible signs of
releases, spills, discharges, leaks or disposal (collectively referred to as
"RELEASES") of Hazardous Substances at, upon, under or within any Real Property;
(ii) there are no underground storage tanks, land fills, land disposal sites,
dumps or polychlorinated biphenyl on the Real Property; (iii) the Real Property
has not ever been used as a treatment, storage or disposal facility of Hazardous
Waste; and (iv) no Hazardous Substances are present on the Real Property,
excepting such quantities as are handled in accordance with all applicable
Environmental Laws and manufacturer's instructions and in proper storage
containers and as are necessary for the operation of the commercial business of
the Borrower or of its tenants; and
(d) the Borrower hereby indemnifies and
holds the Lender harmless from and against any liability, loss, damage, suit,
action or proceeding pertaining to Hazardous Substances, Hazardous Wastes,
Hazardous Discharges, or Toxic Substances, including, but not limited to, claims
of any federal, state, provincial or municipal government or quasi-governmental
agency, any other Public Authority or any other Person, whether arising under
any Environmental Law or at common law (whether under contract or tort law) or
in equity.
5.8 SOLVENCY; NO LITIGATION, VIOLATION,
INDEBTEDNESS OR DEFAULT.
(a) The Borrower is solvent, able to pay
its debts as they mature, has capital sufficient to carry on its business and
all businesses in which it is about to engage, and (i) as of the Closing Date,
the fair present saleable value of its assets is in excess of the amount of its
liabilities (including all Indebtedness), and (ii) subsequent to the Closing
Date, the fair saleable value of its assets will be in excess of the amount of
its liabilities (including its Indebtedness and the Obligations).
(b) Except as disclosed in EXHIBIT
5.8(B), the Borrower does not have (i) any pending or threatened litigation,
actions or proceedings which involve the possibility of materially and adversely
affecting its business, Property, operations, condition or prospects,
<PAGE> 46
41
financial or otherwise, or the Collateral, or the ability of the Borrower to
perform this Agreement and the Other Documents to which it is party, and (ii)
any liabilities or indebtedness other than the Obligations, Indebtedness fully
disclosed in the financial statements delivered to the Lender on or prior to the
Closing Date, and trade payables and contractual obligations arising in the
ordinary course of business since the date of such financial statements.
(c) The Borrower is not in violation of
any applicable statute, regulation or ordinance in any respect which may
materially and adversely affect the Collateral or its business, Property,
operations or condition or prospects, financial or otherwise, nor is the
Borrower in violation of any order of any court, Public Authority or arbitration
board or tribunal.
5.9 PATENTS, TRADEMARKS, COPYRIGHTS AND LICENSES.
The Borrower does not own or utilize any patents, patent applications,
trademarks, trademark applications, copyrights, copyright applications,
tradenames, trade secrets or licenses.
5.10 LICENSES AND PERMITS. Except as set forth
in EXHIBIT 5.10, the Borrower (a) is in compliance with and (b) has procured and
is now in possession of, all material licenses or permits required by any
applicable federal, state, provincial or local law or regulation for the
operation of its business in each jurisdiction wherein it is now conducting or
proposes to conduct business and where the failure to procure such licenses or
permits may have a material adverse effect on the business, Property, operation
or condition or prospects (financial or otherwise), present or prospective of
the Borrower.
5.11 DEFAULT OF INDEBTEDNESS. The Borrower is
not in default in the payment of the principal of or interest on any
Indebtedness or under any instrument or agreement under or subject to which any
Indebtedness has been issued and no event has occurred under the provisions of
any such instrument or agreement which with or without the lapse of time or the
giving of notice, or both, constitutes or would constitute an event of default
thereunder.
5.12 NO DEFAULT. The Borrower is not in default
in the payment or performance of any of its contractual obligations and no
Incipient Event of Default has occurred.
5.13 NO BURDENSOME RESTRICTIONS. The Borrower is
not party to any contract or agreement the performance of which may materially
adversely affect the business, Property, operations or condition or prospects
(financial or otherwise) of the Borrower. The Borrower has not agreed or
consented to cause or permit in the future (upon the happening of a contingency
or otherwise) any of its Property, whether now owned or hereafter acquired, to
be subject to a Lien which is not a Permitted Encumbrance.
5.14 NO LABOUR DISPUTES. (a) There is no
collective bargaining agreement or other labour contract covering employees of
the Borrower ; (b) no union or other
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42
labour organization is seeking to organize, or to be recognized as, a collective
bargaining unit of employees of the Borrower or for any similar purpose; and (c)
there is no pending or, to the best of the Borrower's knowledge, threatened
strike, work stoppage, material unfair labour practice claims, or other material
labour dispute against or affecting the Borrower or its employees.
5.15 DISCLOSURE. No representation or warranty
made by the Borrower in this Agreement, any Other Document or in any financial
statement, report, certificate or any other document furnished in connection
herewith contains any untrue statement of a material fact or omits to state any
material fact necessary to make the statements herein or therein not misleading.
There is no fact known to the Borrower or which reasonably should be known to
the Borrower which the Borrower has not disclosed to the Lender in writing with
respect to the transactions contemplated by or this Agreement which may
materially and adversely affect the condition (financial or otherwise), results
of operations, business, or assets of the Borrower.
5.16 PLANS. (a) The Borrower does not have any
Plan; (b) no Plan has been terminated or partially terminated or is insolvent or
in reorganization, nor have any proceedings been instituted to terminate, in
whole or in part, or reorganize any Plan; (c) the Borrower has not ceased to
participate (in whole or in part) as a participating employer in any Plan which
is a registered pension plan or has withdrawn from any Plan in a complete or
partial withdrawal, nor has a condition occurred which if continued would result
in a complete or partial withdrawal; (d) the Borrower does not have any unfunded
liability on windup or withdrawal liability, including contingent withdrawal or
windup liability, to any Plan or any solvency deficiency in respect of any Plan;
(e) the Borrower does not have any unfunded liability on windup or any liability
in respect of any Plan other than for required insurance premiums or
contributions or remittances which have been paid, contributed and remitted when
due; (f) the Borrower made all contributions to any Plans required by law or the
terms thereof to be made by it when due and it is not in arrears in the payment
of any contribution, payment, remittance or assessment or in default in filing
any reports, returns, statements and similar documents in respect of the Plans
required to be made or paid by it pursuant to any Plan, any law, act,
regulation, directive or order or any employment, union, pension, deferred
profit sharing, benefit, bonus or other similar agreement or arrangement; (g)
the Borrower is not liable or, to the best of its knowledge, alleged to be
liable, to any employee or former employee, director or former director, officer
or former officer resulting from any violation or alleged violation of any Plan,
any fiduciary duty, any law or agreement in relation to any Plan and does not
have any unfunded pension or like obligations or solvency deficiency (including
any past service or experience deficiency funding liabilities), other than
accrued obligations not yet due, for which it has made full provision in its
books and records; (h) all vacation pay, bonuses, salaries and wages, to the
extent accruing due, are properly reflected in the Borrower's books and records;
(i) without limiting the foregoing, all of the Borrower's Plans are duly
registered where required by, and are in compliance and good standing in all
material respects under, all applicable laws, acts, statutes,
<PAGE> 48
43
regulations, orders, directives and agreements, including, without limitation,
the INCOME TAX ACT of Canada, and the PENSION BENEFITS ACT of Ontario, any
successor legislation thereto, and other applicable laws of any jurisdiction,
and (j) there are no outstanding or pending or threatened investigations,
claims, suits or proceedings in respect of any Plans (including to assert rights
or claims to benefits or that could give rise to any material liability).
5.17 AUTHORITY TO INCUR DEBTS. The Borrower is
not, and will not be in consequence of the execution, delivery or performance of
the Agreement or any of the Other Documents or the consummation of the
transactions therein provided, in breach of any regulation under any Canadian
federal or provincial law, act, statute or regulation limiting its ability to
incur indebtedness for money borrowed or to secure payment of same or to provide
financial assistance, directly or indirectly, by means of a loan, guarantee or
otherwise.
5.18 WORKERS' COMPENSATION. The Borrower does
not have any unpaid workers' compensation or like obligations except as are
being incurred and paid on a current basis in the ordinary course of business
and there are no proceedings, claims, actions, orders or investigations relating
to worker's compensation outstanding, pending or, to its knowledge, threatened
relating to it or any of its employees or former employees.
5.19 REAL PROPERTY. (a) No part of the Real
Property has been condemned, taken or expropriated by any provincial, state,
municipal or any other competent authority and no alteration, repair,
improvement or other work has been ordered or directed to be done or performed
to or in respect of such property by any provincial, state, municipal or any
other competent authority; (b) there are no Liens, easements, encroachments,
rights-of-way, work orders, licenses, concession agreements, leases or tenancies
affecting the Real Property, save and except for Permitted Encumbrances; (c)
there is nothing owing in respect of the Real Property including any leasehold
property (to the extent the Borrower is or may be liable for same) to any
municipality or to any corporation or commission owning or operating a public
utility for water, gas, electrical power or energy, steam or hot water or for
the use thereof or for the fittings, machines, apparatus, meters or other things
leased in respect thereof or for any work or service performed for any such
corporation or commission in connection with such public utilities, except
current charges and Permitted Encumbrances; (d) the Borrower does not retain any
interest, beneficially or otherwise, in any land abutting the Real Property
either by way of fee or equity of redemption in, or a power or right to grant or
exercise a power of appointment with respect to, any such land abutting the Real
Property; (e) the buildings on the Real Property are located entirely within the
limits of such Real Property, as the case may be, and all present uses in
respect of the Real Property may lawfully be continued and all permitted uses
are satisfactory for the Borrower's current and intended purposes; (f) there are
no unsatisfied judgments against the Borrower and there are no writs of
execution which would affect the Real Property, including with respect to any of
its interests in any leasehold property; (g) all real property taxes, including
local improvement rates, have been paid to date in respect of the Real Property;
(h) all accounts
<PAGE> 49
44
for work and service performed and materials placed or furnished upon or in
respect of the Real Property, including any of its leasehold property, including
any claims by any municipal, provincial or other competent authority, have been
fully paid and no one is entitled to claim a lien under the CONSTRUCTION LIEN
ACT of Ontario (or any similar law or legislation of any jurisdiction) against
such Real Property or any part thereof; (i) the Lender's security interests and
Liens are not being granted with the intention of securing the financing of any
alteration, addition or repair to, or any construction, erection, demolition or
installation on or in respect of the Real Property or any structure thereon, nor
are such security interests and liens being taken to repay any mortgage the
proceeds of which were so used; (j) no Inventory is located at any location not
owned by and in the name of the Borrower except as indicated in EXHIBIT 5.19.
VI. AFFIRMATIVE COVENANTS
---------------------
The Borrower covenants and agrees that it shall, until payment
in full of the Obligations and termination of this Agreement:
6.1 PAYMENT OF FEES. Pay to the Lender on
demand all usual and customary fees and expenses which the Lender incurs in
connection with (a) the forwarding of Advance proceeds and (b) the establishment
and maintenance of any Blocked Accounts or Depository Accounts as provided for
in Section 4.15(h). The Lender may, without making demand, charge the account of
the Borrower for all such fees and expenses.
6.2 CONDUCT OF BUSINESS AND MAINTENANCE OF
EXISTENCE AND ASSETS. (a) Conduct continuously and operate actively its business
according to good business practices and maintain all of its properties useful
or necessary in its business in good working order and condition (reasonable
wear and tear excepted and except as may be disposed of in accordance with the
terms of this Agreement), including, without limitation, all licenses, patents,
copyrights, tradenames, trade secrets and trademarks; (b) keep in full force and
effect its existence and comply in all material respects with the laws and
regulations governing the conduct of its business; and (c) make, all such
reports and pay all such franchise and other taxes and license fees and do all
such other acts and things as may be lawfully required to maintain its rights,
licenses, leases powers and franchises under all applicable laws.
6.3 VIOLATIONS. Operate its business in
compliance with all applicable laws, including Environmental Laws, and promptly
notify the Lender in writing of any violation or alleged violation of any law,
statute, regulation or ordinance of any governmental entity, or of any agency
thereof, applicable to the Borrower which may adversely affect the Collateral or
the Borrower's business, Property, assets, operations or condition or prospects
(financial or otherwise).
<PAGE> 50
45
6.4 GOVERNMENT RECEIVABLES. Take all steps
necessary to protect the Lender's interest in the Collateral under the
ASSIGNMENT OF CROWN DEBTS ACT or other applicable federal, provincial, state or
local statutes or ordinances and deliver to the Lender appropriately endorsed,
any Instrument or Chattel Paper connected with any Receivable arising out of
contracts between the Borrower and the United States, Canada, any state,
province or any department, agency or instrumentality of any of them.
6.5 TANGIBLE NET WORTH. Cause to be maintained
at all times a Tangible Net Worth in an amount not less than $5,000,000.
6.6 INDEBTEDNESS TO TANGIBLE NET WORTH. Cause
to be maintained tested on a quarterly basis at all times a ratio of its
Indebtedness to Tangible Net Worth of not less than 4.5 to 1.
6.7 MINIMUM PROFITABILITY. Generate a net profit
after taxes from consolidated operations of the Borrower for each Fiscal Year
LESS all Management Compensation, and other Distributions paid or payable in the
Fiscal Year, of not less than $1 each Fiscal Year.
6.8 PLEDGE OF CREDIT. Not now or hereafter
pledge the Lender's credit on any purchases or for any purpose whatsoever or use
any portion of any Advance in or for any business other than the Borrower's
business as conducted on the date of this Agreement.
6.9 EXECUTION OF SUPPLEMENTAL INSTRUMENTS.
Execute and deliver to the Lender from time to time, upon demand, such
supplemental agreements, statements, assignments and transfers, or instructions
or documents relating to the Collateral, and such other instruments as the
Lender acting reasonably may request, in order that the full intent of this
Agreement may be carried into effect.
6.10 PAYMENT OF INDEBTEDNESS. Pay, discharge or
otherwise satisfy at or before maturity (subject, where applicable, to specified
grace periods and, in the case of the trade payables, to normal payment
practices) all its obligations and liabilities of whatsoever nature, except when
the amount or validity thereof is currently being contested in good faith by
appropriate proceedings and the Borrower shall have provided for such reserves
as the Lender may reasonably deem proper and necessary, subject at all times to
any applicable subordination arrangement in favour of the Lender.
6.11 STANDARDS OF FINANCIAL STATEMENTS. Cause
all financial statements referred to in Section 9.7 and 9.8 to be complete and
correct in all material respects (subject, in the case of interim statements, to
normal year-end audit adjustments) and to be prepared in reasonable detail and
in accordance with GAAP applied consistently throughout the periods
<PAGE> 51
46
reflected therein (except as concurred in by such reporting accountants or
officer, as the case may be, and disclosed therein).
6.12 PLANS. The Borrower shall cause any Plans
of the Borrower to be duly qualified and administered in all respects in
compliance with all applicable laws (including regulations, orders and
directives) and the terms of the Plans and any agreements relating thereto. The
Borrower shall ensure that (a) it has no unfunded, solvency, or deficiency on
windup liability in respect of any Plan including any Plan to be established and
administered by it, (b) all amounts required to be paid by it are paid when due,
and (c) no liability upon it or Lien on any of its Property arises or exists in
respect of any Plan.
VII. NEGATIVE COVENANTS.
-------------------
The Borrower covenants and agrees that it shall not, until
satisfaction in full of the Obligations and termination of this Agreement.
7.1 MERGER, CONSOLIDATION, ACQUISITION AND SALE
OF ASSETS.
(a) In one or a series of transactions,
enter into any merger, amalgamation, consolidation or other reorganization with
or into any other Person or acquire all or a substantial portion of the assets
or stock of any Person or permit any other Person to consolidate with or merge
with it;
(b) In one or a series of transactions,
sell, lease, transfer or otherwise dispose of any of its properties or assets,
except for sales of Inventory in the ordinary course of its business; or
(c) Wind-up, liquidate, dissolve or
cease to carry on any business.
7.2 CREATION OF LIENS. Create or suffer to
exist any Lien, Claim or transfer upon or against any of its property or assets
now owned or hereafter acquired, except Permitted Encumbrances.
7.3 GUARANTEES. Grant any Guarantee or
otherwise become liable upon the obligations of any person, firm or corporation
by assumption, endorsement or guarantee thereof or otherwise (other than to the
Lender) except the endorsement of cheques in the ordinary course of business.
7.4 INVESTMENTS. Purchase or acquire obligations
or stock of, or any other interest in, any Person, except (a) obligations issued
or guaranteed by the United States of
<PAGE> 52
47
America or Canada or any agency thereof, (b) commercial paper with maturities of
not more than one hundred and eighty (180) days and a published rating of not
less than A-1 or P-1 (or the equivalent rating), (c) certificates of time
deposit and bankers' acceptances having maturities of not more than one hundred
and eighty (180) days and repurchase agreements backed by United States or
Canadian government securities of a commercial bank if (i) such bank has a
combined capital and surplus of at least $500,000,000 or (ii) its debt
obligations, or those of a holding company of which it is a Subsidiary, are
rated not less than A (or the equivalent rating) by a nationally recognized
investment rating agency and (d) U.S. or Canadian money market funds that invest
solely in obligations issued or guaranteed by the United States of America or
Canada or an agency thereof.
7.5 LOANS. Make advances, loans or extensions
of credit to any Person, including without limitation, any Parent, Subsidiary or
Affiliate.
7.6 CAPITAL EXPENDITURES. Contract for, purchase
or make any expenditure or commitments for any Capital Expenditure in any Fiscal
Year in an amount in excess of $500,000.
7.7 INDEBTEDNESS. Create, incur, assume or
suffer to exist any Indebtedness (exclusive of trade debt incurred in the
ordinary course of its business) of the Borrower except in respect of
Indebtedness to the Lender and Indebtedness to CMP which is postponed and
subordinated to the Lender in accordance with the terms of the Subordination
Agreement.
7.8 NATURE OF BUSINESS. Substantially change
the nature of the business in which it is presently engaged, nor, except as
specifically permitted hereby, purchase or invest, directly or indirectly, in
any assets or property other than in the ordinary course of business for assets
or property which are useful in, necessary for and are to be used in its
business as presently conducted.
7.9 TRANSACTIONS WITH AFFILIATES. Directly or
indirectly, purchase, acquire or lease any property from, or sell, transfer or
lease any property to, or otherwise deal with, any Affiliate, except disclosed
transactions in the ordinary course of business, on an arm's-length basis on
terms no less favourable than terms which would have been obtainable from a
Person other than an Affiliate.
7.10 LEASES. Enter as lessee into any lease
arrangement for real or personal Property (unless capitalized and permitted
under Section 7.6 hereof) if after giving effect thereto, aggregate annual
rental payments for all leased property would exceed $350,000 in any one fiscal
year.
<PAGE> 53
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7.11 Subsidiaries.
-------------
(a) Form, acquire or organize any
Subsidiary.
(b) Enter into any partnership, joint
venture, co-venture or similar arrangement.
7.12 FISCAL YEAR AND ACCOUNTING CHANGES. Change
its Fiscal Year from March 31 or make any change (i) in accounting treatment and
reporting practices except as required by GAAP or (ii) in tax reporting
treatment except as required by law.
7.13 PREPAYMENT OF INDEBTEDNESS. Except as
expressly permitted under the Subordination Agreement, at any time, directly or
indirectly, prepay an Indebtedness (other than to the Lender), or repurchase,
redeem, retire or otherwise acquire any Indebtedness without the prior written
consent of the Lender.
7.14 TRANSACTIONS AFFECTING COLLATERAL OR
OBLIGATIONS. Enter into any transaction which may materially and adversely
affect the Collateral or the Borrower's ability to repay the Obligations or
otherwise cause, permit or suffer to occur or continue any material adverse
change in its condition (financial or otherwise), its ability to perform its
obligations hereunder or the Collateral.
7.15 DISTRIBUTIONS. Except as expressly
permitted under the Subordination Agreement, make or declare any Distributions
to its shareholder without the prior written consent of the Lender.
VIII. CONDITIONS PRECEDENT.
---------------------
8.1 CONDITIONS TO INITIAL ADVANCES. The
agreement of the Lender to make the initial Advances requested to be made on the
Closing Date is subject to the satisfaction, or waiver by the Lender,
immediately prior to or concurrently with the making of such Advances, of the
following conditions precedent:
(a) CLOSING DATE CONDITIONS. The Lender
shall have received (2 copies of each) on or prior to the Closing Date and shall
continue to hold, in form and substance satisfactory to the Lender and the
Lender's counsel:
(i) this Agreement duly executed
by the Borrower;
(ii) certified copies of the
articles of amalgamation and amendment, if applicable, of the Borrower and its
borrowing by-laws;
<PAGE> 54
49
(iii) evidence reasonably
satisfactory to the Lender and the Lender's counsel that each of the
representations and warranties herein is true and accurate in all material
respects, the Borrower is in compliance in all material respects with all of its
covenants and obligations herein, no Event of Default or Incipient Event of
Default has occurred, there has not occurred any material adverse change in the
Borrower since August 31, 1996 and the Borrower has, as of the Closing Date, met
its financial projections delivered to the Lender;
(iv) the Cdn. Dollar Grid Note;
(v) the U.S. Dollar Grid Note;
(vi) the Term Note;
(vii) a general security agreement
in form and substance satisfactory to the Lender (the "GSA");
(viii) a general assignment of book
debts of the Borrower, in form and substance satisfactory to the Lender (the
"GABD");
(ix) the Subordination Agreement;
(x) a mortgage on the Lands in form
and substance satisfactory to the Lender (the "Mortgage");
(xi) intentionally deleted;
(xii) landlord, mortgagee,
warehouseman, bailee and consignee waivers and consents with respect to each
location not owned by the Borrower where Inventory may be located, in form and
substance acceptable to the Lender and the Lender's counsel;
(xiii) each of the documents listed
in EXHIBIT 8.1(a), in form and substance satisfactory to the Lender;
(xiv) Phase I Environmental Audit in
form and content satisfactory to the Lender confirming the absence of any
environmental problems or concerns with respect to the Lands;
(xv) a pledge of funds agreement
together with a deposit of cash collateral in the amount of one hundred and
fifty thousand ($150,000) dollars to secure the Borrower's obligations to Mara
Dunlap; and
<PAGE> 55
50
(xvi) the Lender's customary
agreements and all documents, instruments, financial statements, consents,
evidences of corporate authority, certificates, insurance certificates, opinions
of legal counsel and such other writings to confirm and effectuate the lending
transactions and the matters referred to herein as may be required by the Lender
and its counsel acting reasonably, all duly executed and/or delivered by the
Borrower.
(b) FILINGS REGISTRATIONS AND RECORDINGS.
Each document (including, without limitation, any Uniform Commercial Code or
PPSA financing statement) required by this Agreement, any related agreement or
under law or reasonably requested by the Lender to be filed, registered or
recorded in order to create, in favour of the Lender, a perfected security
interest in or Lien upon the Collateral shall have been properly filed,
registered or recorded in each jurisdiction in which the filing, registration or
recordation thereof is so required or requested, and the Lender shall have
received an acknowledgement copy, or other evidence satisfactory to it, of each
such filing, registration or recordation and satisfactory evidence of the
payment of any necessary fee, tax or expense relating thereto;
(c) CORPORATE PROCEEDINGS OF THE BORROWER.
The Lender shall have received a copy of the resolutions in form and substance
reasonably satisfactory to the Lender, of the Board of directors of the Borrower
authorizing (i) the execution, delivery and performance of this Agreement, and
the Other Documents signed by it, any related agreements, and (ii) the granting
by the Borrower of the security interests in and Liens upon the Collateral, the
GABD, the GSA and the Mortgage in each case certified by the Secretary or an
Assistant Secretary of the Borrower as of the Closing Date; and, such
certificate shall state that the resolutions thereby certified have not been
amended, modified, revoked or rescinded as of the date of such certificate;
(d) INCUMBENCY CERTIFICATES. The Lender
shall have received a certificate of the Secretary or any Assistant Secretary of
the Borrower, dated the Closing Date, as to the incumbency and signature of the
officers of the Borrower, executing this Agreement, any certificate or other
documents to be delivered by it pursuant hereto, together with evidence of the
incumbency of such Secretary or Assistant Secretary;
(e) LEGAL OPINION. The favourable opinion of
the Borrower's counsel, addressed to the Lender and the Lender's counsel, such
opinions to speak to the status of the Borrower and qualification to carry on
business in each jurisdiction where it does so, the due authorization,
execution, delivery and enforceability in accordance with their terms of this
Agreement and all Other Documents, the absence of pending litigation to the
knowledge of such counsel, the making of all filings and recordings necessary or
appropriate in respect of the Liens of the Lender, the Mortgage creating a valid
and enforceable first charge of the Lands and on enquiries and public record
searches to confirm the accuracy of each of the matters referred to
<PAGE> 56
51
in Section 5.19, and otherwise to be in form and substance satisfactory to the
Lender and the Lender's counsel acting reasonably;
(f) NO LITIGATION. (i) No litigation,
investigation or proceeding before or by any arbitrator or governmental
authority shall be continuing or threatened against the Borrower or against the
officers or directors of the Borrower (A) in connection with this Agreement or
the Other Documents or any of the transactions contemplated hereby and which, in
the reasonable opinion of the Lender, is deemed material or (B) which if
adversely determined, may, in the reasonable opinion of the Lender, have a
material adverse effect on the business, assets, operations or condition or
prospects (financial or otherwise) of the Borrower, and (ii) no injunction,
writ, restraining order or other order of any nature materially adverse to the
Borrower or the conduct of its business or inconsistent with the due
consummation of the Transactions shall have been issued by any governmental
authority;
(g) SUBORDINATION AGREEMENTS. The Lender
shall have entered into a Subordination Agreement with the Borrower and CMP
which shall set forth the basis upon which CMP may receive, and the Borrower may
make, payments to CMP, which basis shall be satisfactory in form and substance
to the Lender in its sole discretion;
(h) GOVERNMENTAL APPROVALS. All necessary
legislative, regulatory, governmental and other third party approvals, notices,
consents and permits including as may be necessary to grant and perform the
Other Documents and carry on the Borrower's business shall have been given and
obtained by the Borrower such approvals, notices, consents and permits not to
contain any terms or conditions which the Lender reasonably considers to be
materially adverse to the Borrower and evidence thereof shall have been
furnished to the Lender;
(i) INSURANCE. The Lender shall have
reviewed and shall be satisfied with the insurance policies maintained by the
Borrower and all terms thereof (including risks and amounts of coverage) and the
insurers, it being understood and agreed that the Lender shall be named as loss
payee as its interest may appear and first mortgagee on each of the policies of
the Borrower and that all such policies shall contain the standard mortgagee
endorsement clauses in favour of the Lender, certificates (including, without
limitation, renewal certificates) evidencing the foregoing and on terms and in
substance satisfactory to the Lender shall have been delivered to the Lender;
(j) SEARCHES. The Lender shall be satisfied
with the results of all real and personal property and other searches and
enquiries conducted in respect of the Borrower and its property and assets as
the Lender's counsel may require and such discharges to terminate Liens other
than Permitted Encumbrances and/or estoppel letters (to confirm the amounts
secured by any existing encumbrances and the collateral covered thereby) shall
be received by the Lender as may be required by the Lender in its discretion;
<PAGE> 57
52
(k) COPIES OF DOCUMENTS. The Borrower
shall have delivered complete certified copies of the Mortgage registered in
respect of the Lands, all leases of its premises and all leases of the Lands,
all as then in effect (including all amendments and assignments);
(l) DUE DILIGENCE. The Lender shall
have completed all due diligence which it considers necessary or appropriate in
its discretion in regard to the Borrower and its properties, assets, books and
records, operations, prospects and condition (financial or otherwise),
including, without limitation, in regard to past and ongoing compliance with
Environmental Laws, union and labour relations and pension matters, and the
Lender shall be satisfied in its discretion that the Borrower is adequately
capitalized, the fair, saleable value of its Property exceeds its liabilities at
the Closing Date and the Borrower has sufficient working capital to pay its
Indebtedness as it becomes due; and
(m) PAYMENT OF FEES AND EXPENSES. The
Borrower shall have paid the Closing Fee and all fees and expenses of the
Lender's outside counsel, Meighen Demers, and all special local counsel
retained, and all other fees and expenses of the Lender incurred in connection
with this Agreement and any of the Other Documents and the transactions
contemplated thereby.
8.2 CONDITIONS TO EACH ADVANCE. The agreement
of the Lender to make any Advance requested to be made on any date (including,
without limitation, its initial Advance), is subject to the satisfaction of the
following conditions precedent as of the date such Advance is made and the
obligation to continue to make any Advances at any time is subject to
satisfaction of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. Each
of the representations and warranties made by the Borrower in or pursuant to
this Agreement and of the Other Documents, and any related agreements to which
it is a party, and each of the representations and warranties contained in any
certificate, document or financial or other statement furnished at any time
under or in connection with this Agreement and of the Other Documents or any
related agreement shall be true and correct in all material respects on and as
of such date as if made on and as of such date;
(b) NO DEFAULT. No Event of Default or
Incipient Event of Default shall have occurred and be continuing on such date,
or would exist after giving effect to the Advances requested to be made, on such
date; PROVIDED, HOWEVER, that the Lender in its sole, unfettered discretion, may
continue to make Advances notwithstanding the existence of an event of Default
or Incipient Event of Default; and
<PAGE> 58
53
(c) MAXIMUM ADVANCES. In the case of any
Revolving Advances requested to be made, after giving effect thereto, the
aggregate Revolving Advances shall not exceed the lesser of the Maximum
Revolving Advance Amount and the Formula Amount.
(d) The Lender shall continue to hold
each of the instruments and documents referred to in Section 8.1(a), Section
8.1(c), 8.1(d), 8.1(e), 8.1(g) and 8.1(k), each enforceable in accordance with
its terms subject to bankruptcy and insolvency laws and general principles of
equity, and each of the conditions specified in Sections 8.1(b), 8.1(c), 8.1(f),
8.1(g), 8.1(h), 8.1(i), 8.1(j) and 8.1(l) shall continue to be satisfied.
Each request for an Advance by the Borrower hereunder shall
constitute a representation and warranty by the Borrower as of the date of such
Advance that the conditions contained in this Section shall have been satisfied.
IX. INFORMATION AS TO BORROWER.
---------------------------
The Borrower covenants and agrees that it shall, until
satisfaction in full of the Obligations and the termination of this Agreement:
9.1 DISCLOSURE OF MATERIAL MATTERS. Immediately
upon learning thereof, report to the Lender all matters materially affecting the
value, enforceability or collectability of any portion of the Collateral
including, without limitation, the Borrower's reclamation or repossession of, or
the return to the Borrower of a material amount of goods or claims or disputes
asserted by any Customer or other obligor. The Borrower will not, without the
Lender's consent, compromise or adjust any material amount of the Receivables
(or extend the time for payment thereof) or accept any material returns of
merchandise or grant any additional discounts, allowances or credits thereon
except for those compromises, adjustments, returns, discounts, credits and
allowances as have been heretofore customary in the business of the Borrower.
9.2 SCHEDULES. Provide to the Lender daily
Receivables reports (including reports of sales, shipped not billed Inventory,
credit notes and collections and deposits) and deliver to the Lender on or
before the fifteenth (15th) day of each month as and for the prior month (a)
accounts receivable aging, (b) accounts payable schedules and (c) Inventory
reports and (d) all collateral receivables reconciliations required by the
Borrower. In addition, the Borrower will deliver to the Lender at such intervals
as the Lender may require: (i) confirmatory assignment schedules, (ii) copies of
Customer's invoices, (iii) evidence of shipment or delivery, and (iv) such
further schedules, documents and/or information regarding the Collateral as the
Lender may require including, without limitation, trial balances and test
verifications. The Lender shall have the right to confirm and verify all
Receivables by any manner and through any medium it considers advisable and do
whatever it may deem necessary to protect its interests hereunder. The items to
be provided under this Section are to be in form satisfactory to the
<PAGE> 59
54
Lender and executed by the Borrower and delivered to the Lender from time to
time solely for the Lender's convenience in maintaining records of the
Collateral, and the Borrower's failure to deliver any of such items to the
Lender shall not affect, terminate, modify or otherwise limit the Lender's Lien
on and security interest in the Collateral.
9.3 ENVIRONMENTAL REPORTS. Furnish the Lender,
concurrently with the delivery of the financial statements referred to in
Sections 9.7, accompanied by a certificate of the Borrower signed by an
authorized officer of the Borrower stating, to the best of his knowledge, that
the Borrower is in compliance in all material respects with all Environmental
Laws. To the extent the Borrower is not in compliance with the foregoing laws,
the certificate shall set forth with specificity all areas of non-compliance and
the proposed action the Borrower will implement in order to achieve full
compliance.
9.4 LITIGATION. Promptly notify the Lender in
writing of any action, suit, litigation or proceeding (including administrative
proceedings), pending or threatened, affecting the Borrower, whether or not the
claim is covered by insurance, and of any action, suit, litigation or
proceeding, pending or threatened, which may affect the Collateral or the
Borrower's business, Property, operations or condition or prospects (financial
or otherwise).
9.5 OCCURRENCE OF DEFAULTS, ETC. Promptly
notify the Lender in writing upon the occurrence of (a) any Event of Default or
Incipient Event of Default; (b) any event, development or circumstance whereby
the financial statements most recently furnished to the Lender fail in any
material respect to present fairly, in accordance with GAAP consistently
applied, the financial condition and operating results of the Borrower as of
the date of such financial statements; (c) any Termination Event with respect
to a Plan, accompanied by any materials required to be filed with any Public
Authority with respect thereto; any notice received by the Borrower concerning
the imposition of any withdrawal liability with respect to a Plan; the
establishment of any Plan not existing at the Closing Date, or the commencement
of contributions by the Borrower to any Plan to which the Borrower was not
contributing at the Closing Date; or any other event or condition regarding a
Plan or the Borrower's compliance with all applicable laws relating to the
establishment or administration of any Plan which has or may result in any Lien
on any of its Property or which may otherwise materially and adversely affect
the Borrower's Property, business, operations, or condition or prospects
(financial or otherwise); (d) each and every default by the Borrower which
might result in the acceleration of the maturity of any Indebtedness with
respect to which there is a default existing or with respect to which the
maturity has been or could be accelerated, and the amount of such Indebtedness;
and (e) any other development in the business or affairs of the Borrower which
could be expected to be materially adverse; in each case describing the nature
thereof and in the case of notification under clause (a), (b), (c), or (d) the
action the Borrower proposes to take with respect thereto.
<PAGE> 60
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9.6 GOVERNMENT RECEIVABLES. Notify the Lender
immediately if any of its Receivables arise out of contracts between the
Borrower and the United States, Canada, any state or province, or any
department, agency or instrumentality of any of them.
9.7 ANNUAL FINANCIAL STATEMENTS.
(a) Furnish the Lender within ninety
(90) days after the end of each Fiscal Year of the Borrower, audited financial
statements of the Borrower including, but not limited to, statements of income
and shareholders' equity and changes in financial position from the beginning of
the current Fiscal Year to the end of such Fiscal Year and the balance sheet as
at the end of such Fiscal Year, all prepared in accordance with GAAP applied on
a basis consistent with prior practices, and in reasonable detail and reported
upon without qualification by chartered accountants selected by the Borrower and
satisfactory to the Lender (the "ACCOUNTANTS"). The report of such Accountants
shall be accompanied by a statement of such Accountants certifying that in
making the examination upon which such report was based either no information
came to their attention which to their knowledge constituted an Event of Default
or an Incipient Event of Default under this Agreement or any related agreement
or, if such information came to their attention, specifying any such default,
and such report shall contain or have appended thereto calculations which set
forth the Borrower's compliance with the requirements or restrictions imposed by
Sections 6.5, 6.6 and 6.7; and
(b) Furnish the Lender within 90 days of
the end of the fiscal year of CMP, audited financial statements on a
consolidated and consolidating basis including, but not limited to, statements
of income and shareholders' equity and changes in financial position from the
beginning of CMP's current fiscal year to the end of such fiscal year, all
prepared in accordance with generally accepted accounting principles applicable
in Canada, applied on a basis consistent with prior practices, and in reasonable
detail and reported upon without qualification by chartered accountants selected
by CMP.
9.8 MONTHLY FINANCIAL STATEMENTS. Furnish the
Lender within thirty (30) days after the end of each month, an unaudited balance
sheet of the Borrower and an unaudited statement of income and shareholders'
equity and changes in financial position of the Borrower reflecting results of
operations from the beginning of the Fiscal Year to the end of such month and
for such month, prepared on a basis consistent with prior practices and complete
and correct in all material respects, subject to normal year end adjustments.
The reports shall be accompanied by a certificate of the Borrower, signed by the
Chief Financial Officer of the Borrower, which shall state whether an Event of
Default or an Incipient Event of Default has occurred.
9.9 OTHER REPORTS. Furnish the Lender as soon
as available, but in any event within ten (10) days after the issuance thereof,
with copies of such financial statements,
<PAGE> 61
56
reports and returns directly or indirectly concerning the Borrower which CMP
U.S. sends to its Shareholders.
9.10 ADDITIONAL INFORMATION. Furnish the Lender
with additional information as the Lender shall reasonably request in order to
enable the Lender to determine whether the terms, covenants, provisions and
conditions of this Agreement and the Notes have been complied with by the
Borrower including, without limitation, and without the necessity of any request
by the Lender, (a) copies of all environmental audits and reviews, (b) at least
thirty (30) days prior thereto, of the Borrower's opening of any new office or
place of business or the Borrower's closing of any existing office or place of
business or of moving the location of any of the Collateral or of any changes in
its name, and (c) promptly upon the Borrower's learning thereof, of any labour
dispute to which the Borrower may become a party, any alleged unfair labour
practice, any strikes or walkouts relating to any of its plants or other
facilities, and the expiration of any labour contract to which the Borrower is a
party or by which the Borrower is bound.
9.11 PROJECTED OPERATING BUDGET. Furnish to the
Lender, no less than thirty (30) days prior to the beginning of each of the
Borrower's Fiscal Years beginning 1997, a month by month projected operating
budget (including planned Capital Expenditures) and cash flow of the Borrower
for such Fiscal Year (including an income statement for each month and a balance
sheet as at the end of the last month in each fiscal quarter), such projections
to be accompanied by a certificate signed by the Borrower's Chief Financial
Officer to the effect that such projections have been prepared on the basis of
sound financial planning practice consistent with past budgets and financial
statements and that such officer has no reason to question the reasonableness of
any material assumptions on which such projections were prepared.
9.12 REVISIONS TO OPERATING BUDGET. Furnish the
Lender, concurrently with the delivery of the financial statements referred to
in Section 9.7 and each monthly report, a written report summarizing all
material revisions to budgets submitted by the Borrower at or prior to the
Closing Date and thereafter pursuant to Section 9.11 and a discussion and
analysis by management with respect to such revisions.
9.13 ADDITIONAL DOCUMENTS. Execute and deliver
to the Lender, in form and substance satisfactory to the Lender in its
discretion acting reasonably, such documents and agreements as the Lender acting
reasonably may, from time to time, request to carry out the purposes, terms or
conditions of this Agreement.
<PAGE> 62
57
X. EVENTS OF DEFAULT.
------------------
10.1 EVENTS OF DEFAULT. The occurrence of any
one or more of the following events shall constitute an "Event of Default":
(a) failure by the Borrower to pay any
principal or interest on the Obligations when due, whether at maturity or by
reason of acceleration pursuant to the terms of this Agreement or by notice of
intention to prepay, or by required prepayment or failure to pay any other
liabilities or make any other payment, fee or charge provided for herein or in
the Other Documents when due;
(b) any representation or warranty made
or deemed made by the Borrower in this Agreement, any Other Document or any
related agreement or in any certificate, document or financial or other
statement furnished at any time in connection herewith or therewith shall prove
to have been misleading in any material respect on the date when made or deemed
to have been made;
(c) failure by the Borrower to
(i) furnish financial information when due or when requested which is unremedied
for a period of seven (7) days, or (ii) permit the inspection of and access to
its Property, premises, books or records;
(d) issuance of a notice of Lien, Claim,
execution, distress, writ of seizure and sale, sequestration, extent, discussion
or analogous process, levy assessment, injunction or attachment or other process
of any court against:
(i) any Receivables or Inventory; or
(ii) any of the Borrower's other Property
which is not stayed within five (5) days
and discharged within thirty (30) days;
(e) failure or neglect of the Borrower
to perform, keep or observe any term, provision, condition, covenant herein
contained, or contained in any Other Document or any other agreement or
arrangement, now or hereafter entered into between the Borrower and the Lender
other than as enumerated as an Event of Default under any other paragraph of
this Section 10.1 other than a failure or neglect of the Borrower to perform,
keep or observe any term, provision, condition or covenant, contained in (x)
Sections 4.7, 4.8, 4.9, 6.4, 6.10, 9.4 or 9.6 hereof which is cured within
thirty (30) days from the occurrence of such failure or neglect or (y) Sections
4.10, 4.11, 4.12, 4.13, 4.14 hereof which is cured within three (3) Business
Days from the occurrence of such failure or neglect;
<PAGE> 63
58
(f) any judgment is rendered or judgment
Liens filed against the Borrower which is not within five (5) days stayed and,
within thirty (30) days of such rendering or filing, satisfied or discharged of
record;
(g) default shall occur in the payment
of any principal, interest or premium with respect to any Indebtedness of the
Borrower, (other than the Obligations) in an outstanding principal amount in
excess of $50,000 or under any agreement or instrument under or pursuant to
which any such indebtedness may have been issued, created, assumed, or
guaranteed by the Borrower and such default shall continue for more than the
period of grace, if any, therein specified, or if any such Indebtedness or shall
be declared due and payable prior to the stated maturity thereof or if the
Borrower otherwise defaults in the performance of any material term or condition
contained in any document relating to a Permitted Encumbrance;
(h) the Borrower shall: (i) file a
voluntary petition in bankruptcy or file a voluntary petition or an answer or
file any proposal or notice of intent to file a proposal, or file any
application or otherwise commence any action or proceeding seeking
reorganization, arrangement, consolidation or readjustment of its debts or
securities, or which seeks to stay, or has the effect of staying, any creditors,
or for any other relief under the BANKRUPTCY AND INSOLVENCY ACT of Canada, or
the COMPANIES' CREDITORS ARRANGEMENT ACT of Canada, or under any other
bankruptcy, insolvency, liquidation, winding up, corporate or similar statute or
law or any other law providing for the relief of debtors, provincial, state or
federal, now or hereafter existing, or consent to, approve of, or acquiesce in,
any such petition, proposal, action or proceeding; (ii) apply for or acquiesce
in the appointment of a receiver, assignee, monitor, liquidator, sequestrator,
custodian or trustee (whether or not on an interim or permanent basis) or
similar officer for it or for all or any part of its Property; (iii) make an
assignment for the benefit of creditors; or (iv) admit in writing its inability,
or be generally unable to pay when debts become due or cease operating any of
its present businesses; or (v) be adjudicated bankrupt or insolvent;
(i) an involuntary petition or proposal
shall be filed or an action or proceeding otherwise commenced seeking
reorganization, arrangement, consolidation or readjustment of the Borrower's
debts or securities or for any other relief under the BANKRUPTCY AND INSOLVENCY
ACT of Canada, the COMPANIES' CREDITORS ARRANGEMENT ACT of Canada, or under any
other bankruptcy, insolvency, liquidation, winding up, corporate or similar
statute or law, provincial, state or federal, now or hereafter existing unless
(A) such proceeding is discharged within a period of thirty (30) days (B) until
discharged is being actively and diligently contested in good faith and any
relief or remedies upon or against the Borrower's Property have been stayed, (C)
has not given rise to any material adverse effect on the Borrower or its
Property, operations, business or conditions (financial or otherwise), and (D)
has not otherwise resulted in any adjudication or declaration of bankruptcy or
any of the events referred to in paragraph (g);
<PAGE> 64
59
(j) a receiver, assignee, liquidator,
sequestrator, custodian, trustee, monitor or similar official for the Borrower
or for all or any part of the Collateral or all or any material part of the
other Property shall be appointed involuntarily;
(k) the Borrower shall file a certificate
of dissolution or like process under applicable law or shall be liquidated,
dissolved or wound-up or shall commence or have commenced against it any action
or proceeding for dissolution, winding-up or liquidation, or shall take any
corporate action in furtherance thereof or if the Borrower abandons all or any
part of its Property or ceases or threatens to cease to carry on business;
(l) all or any material part of the
Property of the Borrower shall be nationalized, expropriated or condemned,
seized or otherwise appropriated, or custody or control of such Property or of
the Borrower shall be assumed by any Public Authority or any court of competent
jurisdiction at the instance of any Public Authority, except where contested in
good faith by proper proceedings diligently pursued where a stay of enforcement
is in effect;
(m) one or more final judgments for the
payment of money aggregating in excess of $50,000 (whether or not covered by
insurance) shall be rendered against the Borrower and the Borrower shall fail to
discharge the same within thirty (30) days from the date of notice of entry
thereof;
(n) any event or condition shall occur
or exist with respect to a Plan that could, in the Lender's judgment, acting
reasonably, subject the Borrower to any tax, penalty, or other liabilities under
any applicable law or statute in the aggregate material in relation to the
business, operations, Property or financial or other condition of the Borrower;
(o) if the Borrower violates any
Environmental Law which results in an Environmental Complaint or other notice or
control order, cancellation of any license or certificate or approval that
results in any material disruption of the Borrower's business or that could
reasonably be expected to have a material adverse effect on the Collateral, the
repayment of the Obligations, the Lender's rights hereunder or under the Other
Documents, the Borrower's Property, business, operations or prospect or
condition (financial or otherwise);
(p) any change (whether or not otherwise
constituting an event or circumstance otherwise referred to in Section 10.1) in
the Borrower's Property, business, operations, or prospects or condition
(financial or otherwise) which in the Lender's opinion acting reasonably impairs
or imperils the Collateral, the Lender's Lien or the ability of the Borrower to
perform its Obligations under this Agreement;
(q) if any Lien created hereunder or
under the Other Documents or provided for hereby or thereby or under any related
agreement for any reason ceases to be or
<PAGE> 65
60
is not a valid and perfected Lien having a first priority interest (subject
only to Permitted Encumbrances);
(r) a default of the obligations of the
Borrower under any other agreement to which it is a party shall occur which
adversely affects its Property, operations, business or condition or prospects
(financial or otherwise), which default is not cured within any applicable grace
period;
(s) termination or breach of any
agreement executed and delivered to the Lender in connection with the
Obligations;
(t) the Borrower fails to pay any taxes,
rates or charges when due in respect of any Real Property;
(u) any material provision of this
Agreement or any Other Document shall, for any reason, cease to be valid and
binding on the Borrower, or the Borrower shall so claim in writing to the
Lender; and
(v) if the Borrower ceases to be a
wholly owned Subsidiary of CMP.
XI. LENDER'S RIGHTS AND REMEDIES AFTER DEFAULT
------------------------------------------
11.1 RIGHTS AND REMEDIES. Upon the occurrence of
an Event of Default pursuant to paragraph (h), (i), (j) or (k) of Section 10.1,
all Obligations shall be immediately due and payable and this Agreement shall be
deemed terminated; and, upon the occurrence of any of the other Events of
Default and at any time thereafter (such default not having previously been
cured), at the option of the Lender, all Obligations shall be immediately due
and payable and the Lender shall have the right to terminate this Agreement. In
any such event, (i) the Borrower shall immediately (A) pay to the Lender the
amount declared to be due and payable (except for the principal amount of
Letters of Credit and the Lender Guarantees then issued and outstanding) (the
"AMOUNT"), and (B) deposit with the Lender, as security for the due payment on
the respective expiry dates of the Letters of Credit and the Lender Guarantees
issued and outstanding, a sum of money equal to the principal amount of all such
Letters of Credit and the Lender Guarantees and all fees and expenses payable by
the Borrower to the date of expiration of such Letters of Credit and the Lender
Guarantees (the "DEPOSIT") and the Lender shall, upon the respective expiry
dates of such Letters of Credit and the Lender Guarantees apply the Deposit (or
such portion thereof as shall be necessary) to pay the principal amount of such
Letters of Credit and the Lender Guarantees; and (ii) the Other Documents and
any other security shall immediately become enforceable and the Lender shall,
without the need for any further notice or observance of any other formality
(except only mandatory notices of sale or foreclosure as
<PAGE> 66
61
required to be given under the PPSA or the MORTGAGES ACT (Ontario)) have the
right to exercise any and all other rights and remedies provided for herein and
in the Other Documents, under the PPSA and at law or equity generally,
including, without limitation, the right to foreclose the security interest
granted herein or therein and to realize upon any Collateral by any available
judicial procedure and/or to take possession of and sell any or all of the
Collateral with or without judicial process. The Lender may enter any of the
Borrower's premises or other premises without legal process and without
incurring liability to the Borrower therefore, and the Lender may thereupon, or
at any time thereafter, in its discretion without notice or demand, take the
Collateral and remove the same to such place as the Lender may deem advisable
and the Lender may require the Borrower to make the Collateral available to the
Lender at a convenient place. With or without having the Collateral at the time
or place of sale, the Lender may sell the Collateral, or any part thereof, at
public or private sale, at any time or place, in one or more sales, at such
price or prices, and upon such terms, either for cash, credit or future
delivery, as the Lender may elect. At any public sale the Lender may bid for and
become the purchaser, and the Lender or any other purchaser at any such sale
thereafter shall hold the Collateral sold absolutely free from any claim or
right of whatsoever kind, including any equity of redemption and such right and
equity are hereby expressly waived and released by the Borrower. In connection
with the exercise of the foregoing remedies, the Lender is granted permission to
use all the Borrower's trademarks, trade styles, trade names, patents, patent
applications, licenses, franchises and other proprietary rights which are used
in connection with (a) Inventory for the purpose of disposing of such Inventory
and (b) Equipment for the purposes of completing the manufacture of unfinished
goods. The proceeds realized from the sale of any Collateral shall be applied
first to the reasonable costs, expenses and solicitors' fees and expenses
incurred by the Lender for collection and for acquisition, completion,
protection, removal, storage, sale and delivery of the Collateral; secondly to
interest due upon any of the Obligations; and thirdly to the principal of the
Obligations. If any deficiency shall arise, the Borrower shall remain liable to
the Lender therefor.
11.2 LENDER'S DISCRETION. The Lender shall have
the right in its sole discretion to determine which rights, Liens, security
interests or remedies the Lender may at any time pursue, relinquish,
subordinate, or modify or to take any other action with respect thereto and such
determination will not in any way modify or affect any of the Lender's rights
hereunder.
11.3 SET-OFF. In addition to any other rights
which the Lender may have under applicable law, upon the occurrence of any Event
of Default hereunder, the Lender shall have a right to apply any of the
Borrower's Property held by or on behalf of the Lender to reduce the
Obligations.
11.4 RIGHTS AND REMEDIES NOT EXCLUSIVE. The
enumeration of the foregoing rights and remedies is not intended to be
exhaustive and the exercise of any right or remedy shall not preclude the
exercise of any other right or remedies, all of which shall be cumulative and
not alternative. Any single or partial exercise by the Lender of any right or
<PAGE> 67
62
remedy for a default or breach of any term, covenant, condition or agreement in
this Agreement does not affect its rights and does not waive, alter, affect, or
prejudice any other right or remedy to which the Lender may be lawfully entitled
for the same default or breach. Any waiver by the Lender of the strict
observance of, performance of or compliance with any term, covenant, condition
or agreement of this Agreement or the Other Documents, and any indulgence by the
Lender is not a waiver of that or any subsequent default.
XII. WAIVERS AND JUDICIAL PROCEEDINGS.
---------------------------------
12.1 WAIVER OF NOTICE. The Borrower hereby
waives notice of non-payment of any of the Receivables, demand, presentment,
protest and notice thereof with respect to any and all instruments, notice of
acceptance hereof, notice of loans or advances made, credit extended, Collateral
received or delivered, or any other action taken in reliance herein, and all
other demands and notices of any description, except such as are expressly
provided for herein.
12.2 DELAY. No delay or omission on the Lender's
part in exercising any right, remedy or option shall operate as a waiver of such
or any other right, remedy or option or of any default.
XIII. EFFECTIVE DATE AND TERMINATION.
-------------------------------
13.1 TERM. This Agreement, which shall inure to
the benefit of and shall be binding upon the respective successors and permitted
assigns of each of the Borrower and the Lender, shall become effective on the
date hereof and shall continue in full force and effect until November 15, 1999
unless sooner terminated as herein provided. The Term shall be automatically
extended for successive periods of one (1) year each unless terminated by either
party at the end of such initial Term or any successive Term by giving the other
party, in the case of the Borrower, ninety (90) days and, in the case of the
Lender, thirty (30) days, prior written notice PROVIDED, HOWEVER, that the
Lender may terminate the Agreement without prior written notice upon the
occurrence of an Event of Default. The Borrower and the Lender may terminate
this Agreement at any time by giving the other party, in the case of the
Borrower, ninety (90) days prior written notice and, in the case of the Lender,
thirty (30) days' prior written notice ("Termination Date") and all Obligations
shall be paid and discharged in full on the Termination Date.
13.2 TERMINATION. The termination of the
Agreement shall not affect any of the Borrower's or the Lender's rights, or any
of the Obligations having their inception prior to the effective date of such
termination, and the provisions hereof shall continue to be fully operative
until all transactions entered into, rights or interest created or Obligations
have been full disposed of, concluded or liquidated. The security interests,
Liens and rights granted to the Lender hereunder and the financing statements
filed in connection herewith and the Other
<PAGE> 68
63
Documents shall continue in full force and effect, notwithstanding the
termination of this Agreement or the fact that the Borrower's account may from
time to time be temporarily in a zero or credit position, until all of the
Obligations of the Borrower have been paid or performed in full after the
termination of this Agreement or the Borrower has furnished the Lender with an
indemnification satisfactory to the Lender with respect thereto. All
representations, warranties, covenants, waivers and agreements contained herein
shall survive termination hereof until all Obligations are repaid or performed
in full otherwise provided.
XIV. MISCELLANEOUS
-------------
14.1 GOVERNING LAW. This Agreement shall be
governed by and construed in accordance with the laws of Ontario and the laws of
Canada applicable therein (without giving effect to its conflict of laws rules).
Any judicial proceeding with respect to any of the Obligations, this Agreement
or any related agreement may be brought in any court of competent jurisdiction
in the Province of Ontario and, by execution and delivery of this Agreement, the
Borrower accepts for itself and in connection with its Property, generally and
unconditionally, the non-exclusive jurisdiction of the aforesaid courts, and
irrevocably agrees to be bound by any judgment rendered thereby in connection
with this Agreement. Nothing herein shall affect the right to serve process in
any manner permitted by law or shall limit the right of the Lender to bring
proceedings against the Borrower in the courts of any other jurisdiction. The
Borrower waives any objection to jurisdiction and venue of any action instituted
hereunder and shall not assert any defense based on lack of jurisdiction or
venue or based upon forum non convenience.
14.2 ENTIRE UNDERSTANDING. This Agreement and
the documents executed concurrently herewith contain the entire understanding
between the Borrower and the Lender and supersedes and replaces all prior
agreements and understandings, if any, relating to the subject matter hereof
PROVIDED, HOWEVER, that all instruments and documents of security, priority
agreements, guarantees, postponements, subordinations, consents and waivers (the
"EXISTING SECURITY") which have previously been granted and/or delivered to the
Lender (or to Bank of Boston Canada and assigned to the Lender) shall, unless
expressly released by the Lender in writing, subject to Section 14.13, continue
in full force and effect binding upon the parties thereto in accordance with
their terms and shall evidence, secure or guarantee, as the case may be, all
Obligations. Any promises, representations, warranties or guarantees not herein
contained and hereinafter made shall have no force and effect unless in writing,
signed by the Borrower's or any the Lender's respective officers, as the case
may be. Neither this Agreement nor any portion or provisions hereof may be
changed, modified, amended, waived, supplemented, discharged, cancelled or
terminated orally or by any course of dealing, or in any manner other than by an
agreement in writing, signed by the party. The Borrower acknowledges that it has
been advised by counsel in connection the execution of this Agreement and Other
Documents and is not relying
<PAGE> 69
64
upon oral representations or statements inconsistent with the terms and
provisions of this Agreement.
14.3 SUCCESSORS AND ASSIGNS; PARTICIPATION;
NEW LENDERS.
(a) This Agreement and the Other
Documents shall be binding upon and inure to the benefit of the Borrower, the
Lender, all future holders of the Notes and their respective successors and
assigns, except that the Borrower may not assign or transfer any of its rights
or obligations under this Agreement without the prior written consent of the
Lender.
(b) The Lender may, without requiring
the Borrower's consent, subparticipate all or any Advances to any Person
(without disclosing same to the Borrower) or sell, assign or transfer all or any
part of its rights under this Agreement, the Other Documents and all related
agreements, instruments and documents provided the Borrower is given notice of
such sale as soon as practicable and the transferee agrees to perform the
obligations of the transferor; in addition to the foregoing, the Borrower
acknowledges that in the regular course of commercial banking business the
Lender may at any time and from time to time sell participating interests in the
Advances to other financial institutions (each such transferee or purchaser of a
participating interest, a "TRANSFEREE"). Each Transferee may exercise all rights
of payment (including without limitation rights of set-off) with respect to the
portion of such Advances held by it or other Obligations payable hereunder as
fully as if such Transferee were the direct holder thereof, provided that the
Borrower shall not be required to pay to any Transferee more than the amount
which it would have been required to pay to the Lender which granted an interest
in its Advances or other Obligations payable hereunder to such Transferee had
such the Lender retained such interest in the Advances hereunder or other
Obligations payable hereunder and in no event shall the Borrower be required to
pay any such amount arising from the same circumstances and with respect to the
same Advances or other Obligations payable hereunder to both the Lender and such
Transferee. The Borrower hereby grants to any Transferee a continuing security
interest in any deposits, Moneys or other property actually or constructively
held by such Transferee as security for the Transferee's interest in the
Advance. The Lender is hereby authorized to disclose to any proposed Transferee
or subparticipant any information in the Lender's possession relating to the
Borrower or the Collateral. Notwithstanding anything herein to the contrary, if
the Lender notifies the Borrower of a Transferee's participation in the Loans,
the Borrower covenants and agrees to deliver to such Transferee,
contemporaneously with the delivery of same to the Lender, the financial
statements and corresponding certificates, and all notices, required to be
furnished by the Borrower pursuant to this Agreement.
14.4 APPLICATION OF PAYMENTS. The Lender shall
have the continuing and exclusive right to apply or reverse and reapply any and
all proceeds of Collateral to any portion of the Obligations. To the extent that
the Borrower makes a payment or the Lender receives any payment or proceeds of
the Collateral for the Borrower's benefit, which are subsequently
<PAGE> 70
65
invalidated, declared to be fraudulent or preferential, set aside or required to
be repaid to a trustee, debtor in possession, receiver, custodian or any other
party under any bankruptcy law, common law or equitable cause, then, to such
extent, the Obligations or part thereof intended to be satisfied shall be
revived and continue as if such payment or proceeds had not been received by the
Lender.
14.5 INDEMNITY. The Borrower shall indemnify the
Lender from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses and disbursements of any
kind or nature whatsoever (including, without limitation, fees and disbursements
of legal counsel) which may be imposed on, incurred by, or asserted against the
Lender in any litigation, proceeding or investigation instituted or conducted by
any governmental agency or instrumentality or any other Person with respect to
any aspect of, or any transaction contemplated by, or referred to in, or any
matter related to, this Agreement or the Other Documents, whether or not the
Lender is a party thereto, except to the extent that any of the foregoing arises
out of the wilful misconduct or gross negligence of the Lender.
14.6 NOTICE. Any notice or request hereunder may
be given to the Borrower or to the Lender at their respective addresses set
forth below or at such other address as may hereafter be specified in a notice
designated as a notice of change of address under this Section. Any notice or
request hereunder shall be given by (a) hand delivery, or (b) telefax to the
number set out below (or such other number as may hereafter be specified in a
notice designated as a notice of change of address) with telephone communication
to a duly authorized officer of the recipient confirming its receipt as
subsequently confirmed by registered or certified mail. Notices and requests
shall, in the case of those by mail or telegram, be deemed to have been given
when deposited in the mail, or delivered to the telegraph office addresses as
provided in this Section:
(A) If to the Lender, at: BNY Financial Corporation - Canada
4950 Yonge Street, Suite 706
North York, Ontario
M2N 6K1
Attention: Ihor Burachok
Telephone: (416) 226-6580
Fax: (416) 226-6961
<PAGE> 71
66
<TABLE>
<CAPTION>
<S> <C>
(B) If to the Borrower, at: Direct Steel Inc.
215 Doughton Road
Concord, Ontario
L4K 1R1
Attention: Mr. John Butcher
Vice-President, Finance
Telecopier Number: (416) 738-6867
with a copy to CMP, at: Cold Metal Products Company,
Limited
65 Imperial Street
P.O. 66, Station "B"
Hamilton, Ontario
L8L 7V2
Attention: Mr. Jack W. Watson
Vice-President
Telecopier Number: (416) 544-2957;
</TABLE>
provided that the Lender shall not be liable for any
inadvertent failure to provide copies of any notices
to CMP and in no event shall any failure by the
Lender to provide a copy of a notice to CMP render
any notice ineffective or invalid.
14.7 SEVERABILITY. If any provision of this
Agreement shall be prohibited or invalid under the applicable law of any
jurisdiction, such prohibition or invalidity shall not invalidate the remainder
of this Agreement in such jurisdiction or this Agreement as whole in any other
jurisdiction PROVIDED, HOWEVER, that, if the Lender acting reasonably,
determines as a result of any such prohibition or invalidity that the Lender has
lost any material benefit of or right under this Agreement, then an Event of
Default shall be deemed to have occurred whereupon the Lender may exercise any
of its right or remedies as provided in Section 11.1 hereof.
14.8 EXPENSES. All costs and expenses including,
without limitation, reasonable legal fees (on a solicitor and his own client
basis) and allocated costs of all in-house legal counsel, inspectors, appraisers
and auditors incurred by the Lender in connection with any of the following:
(a) efforts made to enforce payment of
any Obligation or effect collection of any Collateral, or
(b) the entering into, modification,
amendment, administration and enforcement of this Agreement or, any of the Other
Documents, or any consents or waivers hereunder and all related agreements,
documents and instruments, or
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67
(c) the instituting, maintaining,
registering, perfecting, defending, preserving, enforcing and foreclosing of or
on the Lender's security interest or Lien in any of the Collateral, whether
through judicial proceedings or otherwise, or
(d) in defending or prosecuting any
actions or proceedings arising out of or relating to the Lender's transactions
with the Borrower, or
(e) any advice given to the Lender with
respect to its rights and obligations under this Agreement and all related
agreements, or
(f) any title or Lien searches or
enquiries; or
(g) costs of appraisals, inspections and
verifications of Collateral;
(h) costs of forwarding, clearing,
collecting or processing cheques and other items of payment or maintaining any
accounts; or
(i) preserving or protecting Collateral;
shall be for the Borrower's account and may be charged to the Borrower's account
and shall be part of the Obligations. The Borrower shall pay to the Lender its
per diem charges at the Lender's then standard rates, and all out-of-pocket
expenses (including meals, travel and lodging) of the Lender's inspectors,
examiners and auditors. The foregoing shall not be construed to limit any other
provisions of this Agreement or the Other Documents regarding costs and expenses
to be paid by the Borrower. In addition to any liability of the Borrower to the
Lender under any other provision hereof, the Borrower shall indemnify the Lender
and hold the Lender harmless against any reasonable costs or expenses incurred
by the Lender as a result (i) of any failure by the Borrower to fulfil any of
its obligations hereunder in the manner provided herein including, without
limitation, any cost or expense incurred by reason of the liquidation or
re-employment in whole or in part of deposits or other funds required by the
Lender to fund or maintain any Loan as a result of the Borrower's failure to
complete a drawdown or to make any repayment or other payment on the date
required hereunder or specified by it in any notice given hereunder (but
excluding costs arising solely out of loss of anticipated profits); or (ii) the
Borrower's failure to pay any other amount including, without limitation, any
interest or fee, due hereunder on its due date. The foregoing indemnities and
agreements to pay shall survive until all Obligations have been fully and
finally paid. The certificate of an officer or manager of the Lender setting
forth the amount of any such losses, damages, charges, claims, expenses and
liabilities, shall constitute PRIMA FACIE evidence of any such amount and the
Lender shall be entitled to debit, from the Borrower's accounts, the amount
stipulated in the certificate.
<PAGE> 73
68
14.9 CUMULATIVE REMEDIES; NO PRIOR RECOURSE TO
COLLATERAL. The enumeration herein or in the Other Documents of the Lender's
rights and remedies is not intended to be exclusive, and such rights and
remedies are in addition to and not by way of limitation of any other rights or
remedies that the Lender may have under the PPSA, or other applicable law or the
Other Documents. The Lender shall have the right, in its sole discretion, to
determine which rights and remedies are to be exercised and in which order. The
exercise of one right or remedy shall not preclude the exercise of any others,
all of which shall be cumulative. The Lender may, without limitation, proceed
directly against the Borrower to collect the Obligations without any prior
recourse to the Collateral.
14.10 NO IMPLIED WAIVERS. No act, failure or delay by
the Lender shall constitute a waiver of any of its rights and remedies. No
single or partial waiver by the Lender of any provision of this Agreement or any
Other Document, or of breach or default hereunder or thereunder, or of any right
or remedy which the Lender may have, shall operate as a waiver of any other
provision, breach, default, right or remedy or of the same provision, breach,
default, right or remedy on a future occasion. No waiver by the Lender shall
affect its rights to require strict performance of this Agreement.
14.11 OTHER SECURITY AND GUARANTEES. The Lender may,
without notice or demand and without affecting the Borrower's obligations
hereunder, from time to time: (a) take from any Person and hold collateral
(other than the Collateral) for the payment of all or any part of the
Obligations and exchange, enforce or release such collateral or any part
thereof; and (b) accept and hold any endorsement or guarantee of payment of all
or any part of the Obligations and release or substitute any such endorser or
guarantor, or any Person who has given any Lien in any other collateral as
security for the payment of all or any part of the Obligations, or any other
Person in any way obligated to pay all or any part of the Obligations.
14.12 PRECEDENCE. In the event that any provisions of
the Other Documents (other than this Agreement) or the Existing Security (the
"CONFLICTED AGREEMENTS") contradict or are otherwise incapable of being
construed in conjunction with the provisions of this Agreement, the provisions
of this Agreement shall take precedence over those contained in the Conflicted
Agreements and, in particular, if any act of the Borrower is expressly permitted
under this Agreement but is prohibited under the Conflicted Agreements, any such
act shall be permitted under this Agreement and shall be deemed to be permitted
under the Conflicted Agreements.
14.13 CUSTOMER INFORMATION. The Borrower hereby
consents to any disclosure from time to time of any information of or concerning
it, its Property or businesses, this Agreement or the Obligations to any of the
Lender's affiliates.
<PAGE> 74
69
14.14 JUDGMENT CURRENCY. If for the purpose of
obtaining judgment in any court it is necessary to convert an amount due
hereunder in the currency in which it is due (the "ORIGINAL CURRENCY") into
another currency (the "SECOND CURRENCY"), the rate of exchange applied shall be
that at which, in accordance with normal banking procedures, the Lender could
purchase in the Toronto foreign exchange market, the Original Currency with the
Second Currency on the date two (2) Business Days preceding that on which
judgment is given. The Borrower agrees that its obligation in respect of any
Original Currency due from it hereunder shall, notwithstanding any judgment or
payment in such other currency, be discharged only to the extent that, on the
Business Day following the date the Lender receives payment of any sum so
adjudged to be due hereunder in the Second Currency, the Lender may, in
accordance with normal banking procedures, purchase, in the Toronto foreign
exchange market, the Original Currency with the amount of the Second Currency so
paid; and if the amount of the Original Currency so purchased or could have been
so purchased is less than the amount originally due in the Original Currency,
the Borrower agrees as a separate obligation and notwithstanding any such
payment or judgment to indemnify the Lender against such loss. The term "rate of
exchange" in this Section 14.14 means the spot rate at which the Lender, in
accordance with normal practices, is able on the relevant date to purchase the
Original Currency with the Second Currency and includes any premium and costs of
exchange payable in connection with such purchase.
14.15 COUNTERPARTS. This Agreement may be executed in
one or more counterparts, each of which taken together shall
constitute one and the same instrument.
Each of the parties has signed this Agreement as of the date
first above written.
DIRECT STEEL INC.
By: /S/ JOHN D. BUTCHER
--------------------------------
Its: V. P. FINANCE
--------------------------------
BNY FINANCIAL CORPORATION
- CANADA
By: /S/ IHOR BURACHOK
--------------------------------
Its:
--------------------------------
<PAGE> 75
<TABLE>
<CAPTION>
EXHIBITS
<S> <C>
EXHIBIT 1.2 PERMITTED ENCUMBRANCES
EXHIBIT 2.4 TERM NOTE
EXHIBIT 4.5 LIST OF LOCATIONS
EXHIBIT 5.2 LIST OF JURISDICTIONS
EXHIBIT 5.4 TAX DEFICIENCIES/ASSESSMENTS
EXHIBIT 5.6 BUSINESS NAMES
EXHIBIT 5.8(b) LITIGATION
EXHIBIT 5.10 LICENSES AND PERMITS
EXHIBIT 5.19 LOCATIONS OF INVENTORY
EXHIBIT 8.1(a) DOCUMENTS TO BE DELIVERED
</TABLE>
<PAGE> 1
Exhibit (10)(r)
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT ("Agreement"), dated as of November
22, 1996, is between COLD METAL PRODUCTS, INC., a New York corporation (the
"Debtor"), and THE CIT GROUP/EQUIPMENT FINANCING, INC., a New York corporation
(the "Lender").
BACKGROUND
----------
The Lender and the Debtor desire to set forth the terms and conditions
under which the Lender will make available to the Debtor certain credit
facilities to be used for the purposes specified in this Agreement. Accordingly,
the Lender and the Debtor, each intending to be legally bound hereby, agree as
follows:
ARTICLE I
DEFINITIONS
-----------
Terms used herein without definition that are defined in the Uniform
Commercial Code shall have the meanings ascribed to them therein, unless the
context requires otherwise. The following terms shall have the following
meanings in this Agreement:
"Affiliate" shall mean any Subsidiary of the Debtor and any Person or
entity that, now or hereafter, directly or indirectly through one or more
intermediaries, controls, is controlled by or is under common ownership or
control with the Debtor. For purposes of this definition, the terms "control,"
"controls" and "controlled" shall refer to the power to determine the management
or policies of a Person, whether resulting from an official position or capacity
with such Person, direct or indirect beneficial ownership of at least twenty
percent (20%) of the voting securities or other equity interests of such Person,
or otherwise.
"Agreement" shall mean this agreement, together with all exhibits,
amendments, restatements, modifications, riders and supplements hereto as may be
in effect from time to time, as from time to time amended.
"Applicable Law" shall mean all applicable provisions of (i)
constitutions, statutes, rules, regulations and orders of governmental
authorities of any kind having jurisdiction over the Lender or the Debtor, (ii)
authorizations, consents, approvals, and licenses of such governmental
authorities, (iii) judgments, and (iv) common law and equity.
"Business Day" shall mean any day other than a Saturday, Sunday or
legal holiday under the laws of the State of New York.
"Capital Lease" shall mean any lease of property which, in accordance
with GAAP, should be capitalized on the lessee's balance sheet.
- 1 -
<PAGE> 2
"Capital Lease Obligation" shall mean the amount of the liability
which, according to GAAP, should be capitalized or disclosed with respect to a
Capital Lease.
"Cash Flow Coverage Ratio" shall mean, for any period, the ratio of (i)
the sum of (A) Net Income (or Net Loss) for such period, PLUS (B) depreciation
and amortization expense for such period, LESS (C) dividends paid during such
period, TO (ii) the current portion of scheduled long term debt principal
payments and Capital Lease Obligations, excluding any short term revolving
credit debt due within one year, all as determined in accordance with GAAP.
"Change of Control" shall mean (a) the occurrence of any event (whether
in one or more transactions) which result in a transfer of Control of Debtor to
a Person other than Aarque Capital Corporation or (b) any merger or
consolidation of or with Debtor or sale of all or substantially all of the
property or assets of Debtor. For purposes of this definition, "Control of
Debtor" shall mean the power, direct or indirect (x) to vote 35% or more of the
securities having ordinary voting power for the election of directors of Debtor
or (y) to direct or cause the direction of the management and policies of Debtor
by contract or otherwise.
"Closing" shall mean the execution and delivery to the Lender of all of
the documents and instruments required by the terms of this Agreement and the
closing of the transactions contemplated by this Agreement.
"Closing Date" shall mean the date on which the Closing takes place.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Collateral" shall mean the following property, whether now owned or
hereafter acquired:
(a) the Equipment;
(b) all general intangibles, contracts and contract rights
related to the Equipment, which term shall have the meaning given to it in the
Uniform Commercial Code and shall additionally include but not be limited to all
licenses related to the Equipment;
(c) all leases, rental agreements, contracts and contract
rights relating to the Equipment between the Debtor (whether by origination or
derivation) and any and all persons or parties, and all rentals, purchase option
amounts, and other sums due thereunder;
(d) all other property of the Debtor relating to the
Equipment, including without limitation, securities, instruments, chattel paper
and documents, which at any time the Lender shall have or have the right to have
in its possession, or which is in transit to it;
(e) the Real Property;
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<PAGE> 3
(f) all books and records evidencing or relating to the
foregoing of every kind and description;
(g) all additions, replacements, attachments, accretions,
accessions, components and substitutions to or for any items listed in
subparagraphs (a) through (e) above; and
(h) all proceeds of the Collateral, which term shall have the
meaning given to it in the Uniform Commercial Code and shall additionally
include but not be limited to, whatever is received upon the use (outside of the
ordinary course of business), lease, sale, exchange, collection or other
utilization (outside of the ordinary course of business) or any disposition of
any of the Collateral described in subparagraphs (a) through (g) above, whether
cash or noncash, and including without limitation, rental or lease payments,
chattel paper, instruments, documents, contract rights, general intangibles,
equipment, and insurance proceeds; and all such proceeds of the foregoing.
"Commitment" shall mean the Lender's obligation to make the Term Loan
to the Debtor in the maximum amount of $21,800,000.
"Covenant Compliance Certificate" shall mean a certificate in the form
of EXHIBIT A attached hereto.
"Debtor" shall have the meaning specified in the initial paragraph of
this Agreement, together with its successors and assigns.
"Encumbrance" shall mean, as to any Person, any mortgage, lien, pledge,
adverse claim, charge, security interest or other encumbrance in or on, or any
interest or title of any vendor, lessor, lender to, or other secured party of
the Person under any conditional sale or other title retention agreement or
capital lease with respect to, any property or asset of the Person.
"Environmental Laws" shall mean the Federal Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. Sections 9601, ET SEQ., the
Federal Resource Conservation and Recovery Act, 42 U.S.C. Sections 6901, ET
SEQ., the Hazardous Materials Transportation Act, 49 U.S.C. 1801, ET SEQ., and
all other federal, state (including, without limitation, the State of Ohio) and
local environmental or health laws applicable to the Debtor or its business,
operations or assets now or hereafter enacted, and all rules, regulations,
orders and publications adopted or promulgated pursuant thereto from time to
time.
"Equipment" shall mean all of the Debtor's now existing and hereafter
acquired machinery, equipment tools, motor vehicles, and all accessories, parts
and equipment now or hereafter attached thereto or used in connection therewith,
and all other tangible personal property (except inventory, raw materials, or
supplies) located at the Debtor's Ottawa Plant (as defined herein), together
with all now existing and hereafter acquired land, buildings, improvements and
fixtures located at the Ottawa Plant.
"ERISA" shall mean the federal Employee Retirement Income Security Act
of 1974, as amended.
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<PAGE> 4
"Event of Default" shall have the meaning set forth in Article VIII of
this Agreement.
"Financial Statements" shall have the meaning set forth in Section
4.4(a) of this Agreement.
"GAAP" shall mean generally accepted accounting principles, as in
effect on May 16, 1996, and consistently applied.
"Hazardous Materials" shall mean all materials of any kind which are
flammable, explosive, toxic, radioactive or otherwise hazardous to animal or
plant life or the environment, including, without limitation, "hazardous
wastes," "hazardous substances" and "contaminants," as such terms are defined by
Environmental Laws.
"Indebtedness" shall mean any obligation for borrowed money, including,
without limitation:
(a) any obligation owed for all or any part of the purchase
price of property or other assets or for the cost of property or other assets
constructed or of improvements thereto, other than accounts payable included in
current liabilities and incurred in respect of property purchased in the
ordinary course of business;
(b) any Capital Lease Obligation; and
(c) any reimbursement obligations and other obligations under
any letter of credit, currency swap agreement, interest rate swap, cap, collar
or floor agreement or other interest rate management devise, or any forward sale
or purchase agreement for foreign currencies.
"Installment Date" shall have the meaning given such term in Section
2.1(a).
"Judgment" shall have the meaning set forth in Section 8.6 of this
Agreement.
"Late Charge Rate" shall mean the rate of interest per annum equal to
three percent (3.0%) over the highest interest rate payable hereunder, but not
to exceed the highest rate permitted by applicable law.
"Lender" shall have the meaning specified in the initial paragraph of
this Agreement, together with its successors and assigns.
"Liabilities" shall mean, at any time, all liabilities which, in
accordance with GAAP, shall be classified as liabilities of the Debtor.
"Loan Documents" shall mean this Agreement, the Note, the Mortgage, and
all agreements, amendments, certificates, financing statements, schedules,
annexes, reports, notices, and exhibits now or hereafter executed or delivered
in connection with any of the foregoing, as may be in effect from time to time.
- 4 -
<PAGE> 5
"Loan" shall mean the Term Loan.
"Mortgage" shall mean that certain mortgage, dated the same day as this
Agreement, in form and substance satisfactory to the Lender, by which the Debtor
shall grant to the Lender a first priority mortgage lien on real property
located at Ottawa, Ohio, together with all amendments, modifications, exhibits
and schedules thereto as may be in effect from time to time.
"Net Income" shall mean, for any period, the net income (after the
deduction of federal and state income taxes) of the Debtor for such period,
determined in accordance with GAAP.
"Net Loss" shall mean, for any period, the net loss of the Debtor for
such period, determined in accordance with GAAP, after the provision for federal
and state income taxes.
"Note" shall mean the Term Loan Note and all replacements, amendments,
restatements, extensions and renewals thereof.
"Obligations" shall mean the obligations of the Debtor:
(a) To pay the principal, interest, commitment fees and any
other liabilities of the Debtor to the Lender under this Agreement, the Note and
the other Loan Documents in accordance with the terms thereof;
(b) To satisfy all of the other direct or indirect liabilities
of the Debtor to the Lender, whether hereunder or otherwise, whether now
existing or hereafter incurred, whether or not evidenced by any note or other
instrument, matured or unmatured, direct, absolute or contingent, joint or
several, including any extensions, modifications, renewals thereof and
substitutions therefor;
(c) To repay the Lender all amounts advanced by the Lender
hereunder or otherwise on behalf of the Debtor, including, but without
limitation, advances for principal or interest payments to prior secured
parties, mortgagors or lienors, or for taxes, levies, insurance, rent, wages,
repairs to or maintenance or storage of any Collateral; and
(d) To reimburse the Lender, on demand, for all of the
Lender's expenses and costs, including the reasonable fees and expenses of its
counsel (up to a maximum of $20,000), in connection with the negotiation,
preparation, administration, amendment, modification, or enforcement of this
Agreement and the documents required hereunder, including all amounts payable
under Section 10.3 hereof.
"Ottawa Plant" shall have the meaning given such term in Section 2.1(a)
hereof.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
- 5 -
<PAGE> 6
"Person" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization, joint
venture, court or governmental or political subdivision or agency thereof.
"Primary Credit Facility" shall mean the Second Amended and Restated
Credit and Security Agreement between the Bank of New York and Cold Metal
Products, Inc., dated as of August 1, 1994, as amended, restated or modified
from time to time, or any one or more facilities with any one or more other
financial institutions which may in the future exist in full or partial
replacement thereof.
"Primary Lender" shall mean the Bank of New York, its successors and
assigns, or any other lender or lenders under the Primary Credit Facility.
"Primary Credit Facility Liens" shall mean the liens and security
interest heretofore or hereafter granted by the Debtor to the Primary Lender as
security for advances and other financial accommodations under the Primary
Credit Facility, provided, however, that the Primary Credit Facility Liens shall
not include the Collateral.
"Prohibited Transaction" shall mean any transaction in which: (i) the
Debtor enters into any transaction of merger or consolidation where (x) it shall
not be the surviving corporation, or (y) if it is the surviving corporation,
after giving effect to such merger or consolidation, its tangible net worth,
determined in accordance with GAAP, does not equal or exceed that which existed
prior to such merger or consolidation; or (ii) the Debtor sells, transfers or
otherwise disposes of all or any substantial part of its assets; (iii) any
Person, or group of Persons acting together, becomes or agrees to become the
beneficial owner (directly or indirectly) of 25% or more of the Debtor's shares
of voting stock (excluding current shareholders as of the date of this Agreement
owning 25% or more of the Debtor's shares of voting stock), or (iv) any Person,
or group of Persons owning 25% or more of the Debtor's voting stock as of the
date of this Agreement ceases to own at least 25% of the Debtor's voting stock
at any time.
"Real Property" shall mean all of the Borrower's right, title and
interest in and to the Real Estate (as such term is defined in the Mortgage).
"Regulatory Change" means (a) the enactment or effectuation after the
date of this Agreement of any new, or change in any existing, Applicable Law,
(b) the adoption after such date of any new, or the adoption or other
effectuation after such date of any change in any existing, interpretation,
directive or request (whether or not having the force of law), or (c) any change
after such date in the administration or enforcement of any Applicable Law to
which the Lender is subject. As used in this definition, the "effectuation" of a
change shall include, without limitation, that consisting of or resulting from a
determination of a court or regulatory authority.
"Security Agreement Questionnaire" shall mean that certain Security
Agreement Questionnaire, dated October 8, 1996, in the form of SCHEDULE 3.1,
executed by the Debtor.
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<PAGE> 7
"Severable Additions" shall mean any Equipment acquired after the date
hereof which does not constitute accessories, parts, replacements,
substitutions, attachment, additions to or otherwise constitute an integral part
of the Equipment identified on Schedule 1 attached hereto.
"Stockholders' Equity" shall mean, at any time, stockholders' equity as
determined in accordance with GAAP.
"Subsidiary" shall mean, as to any designated corporation, any
corporation, the outstanding shares of which having sufficient voting power (not
depending on the happening of a contingency) to elect at least a majority of the
members of its board of directors, are at the time owned by the designated
corporation.
"Tangible Net Worth" shall mean, at any time, the aggregate
Stockholders' Equity, less all intangible assets of the Debtor (including,
without limitation, organization costs, securities issuance costs, unamortized
debt discount and expense, goodwill, excess of purchase costs over net assets
acquired, patents, trademarks, trade names, copyrights, trade secrets, knowhow,
licenses, franchises, capitalized research and development expenses, amounts
owing from officers and/or Affiliates and any amount reflected as treasury
stock), plus foreign exchange losses or minus foreign exchange gains, as
applicable.
"Tax" means any federal, state or foreign tax, assessment or other
governmental levy or duty or other charge (including any withholding tax) upon a
person or entity or upon its assets, revenues, income or profits, other than
income and franchise taxes imposed upon the Lenders by the jurisdictions (or any
political subdivision thereof) in which the Lender or any office of the Lender
is located.
"Term Loan" shall have the meaning given such term in Section 2.1(a)
hereof.
"Term Loan Note" shall have the meaning given such term in Section
2.1(c) hereof.
"Treasury" or "Treasuries" shall mean a United States fixed rate
security (i.e., a Treasury bond, note or bill, but excluding any security (a)
which can be surrendered at the option of the holder at face value in payment of
any estate tax, (b) which provides tax benefits to the holder, other than
withholding tax benefits to nonresident aliens, or (c) which was issued at a
discount) maturing in the same month and year as the Loan for which any interest
rate calculation is being made based upon the Treasury Rate.
"Treasury Rate" shall mean the rate per annum, as reported on page 5
("U.S. Treasury and Money Markets") of the information ordinarily provided by
Telerate Systems Incorporated, equal to the yield to maturity for the Treasury
having a remaining term to maturity closest to six (6) years as at the close of
the third Business Day prior to the Closing Date.
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<PAGE> 8
"Uniform Commercial Code" shall mean the Uniform Commercial Code, as in
effect from time to time in any applicable jurisdiction.
ARTICLE II
CREDIT ACCOMMODATIONS
----------------------
2.1 TERM LOAN.
----------
(a) GENERALLY. The Lender shall make available to the Debtor
on the Closing Date a term loan in an amount equal to Twenty-One Million Eight
Hundred Thousand Dollars ($21,800,000) (the "Term Loan"), to be used by the
Borrower to purchase new and/or refurbished equipment for use at its Ottawa,
Ohio facility (the "Ottawa Plant"), to retire short term debt associated with
the expansion of the Ottawa Plant, to pay vendors, suppliers, subcontractors, or
to reimburse the Borrower for expenditures made in connection with the expansion
of the Ottawa Plant. The Debtor shall repay the outstanding principal of the
Term Loan together with all interest accrued thereon at the rate set forth in
Section 2.1(b) below, in thirty-three (33) equal, consecutive, quarterly
installments of principal and interest in arrears on the last Business Day of
each fiscal quarter, commencing March 31, 1997, and a final thirty-fourth (34th)
installment, consisting of all remaining principal together with all accrued but
unpaid interest thereon, due and payable on September 30, 2005. Each date on
which an installment is due under this Section 2.1(a) is referred to herein as
an "Installment Date."
(b) INTEREST. Interest shall accrue on the outstanding
principal during the entire term of the Term Loan at a fixed rate equal to the
Treasury Rate plus two hundred and sixty (260) basis points.
(c) TERM LOAN NOTE. The obligations of the Debtor to repay the
aggregate outstanding principal under the Term Loan made by the Lender and to
pay accrued interest thereon shall be evidenced by a promissory note payable to
the Lender, in form and substance satisfactory to the Lender, to be executed and
delivered by the Debtor to the Lender concurrently with the execution and
delivery of this Agreement (the "Term Loan Note").
2.2 PAYMENTS AND COMPUTATIONS. All amounts payable by the Debtor to the
Lender under this Agreement and the Note shall be paid directly to the Lender,
in immediately available funds, at the address of the Lender set forth in
Section 10.2 hereof or at such other address of which the Lender shall give
notice to the Debtor pursuant to Section 10.2 hereof. All computations of
interest hereunder shall be made by the Lender on the basis of a year of 360
days for the actual number of days elapsed. All payments under the Note shall be
applied first to the payment of interest due and payable thereunder and then to
the reduction of the outstanding principal balance thereof.
- 8 -
<PAGE> 9
2.3 PREPAYMENT.
-----------
(a) For the period from the Closing Date to the third
anniversary of the Closing Date, the Debtor shall not be permitted to make any
prepayment of any amounts of principal of the Term Loan.
(b) After the third anniversary of the Closing Date, the
Debtor may, on any Installment Date, prepay the outstanding principal balance of
the Term Loan, in full and not in part, at the greater of: (i) the outstanding
principal amount of the Term Loan together with all accrued interest thereon; or
(ii) the present value of the remaining interest and principal payments,
discounted at a rate equal to the current yield to maturity for Treasuries with
a term to maturity closest to that of the remaining average life of the Term
Loan plus two percent (2.0%); PLUS any other amounts then due and owing under
the Loan Documents. Partial prepayments shall not be permitted.
2.4 REQUIREMENTS OF LAW. In the event that after the date hereof, any
change in any law, regulation or treaty or in the interpretation or application
thereof or compliance by the Lender with any request or directive (whether or
not having the force of law) from any central bank or other governmental
authority, agency or instrumentality:
(a) subjects or shall subject the Lender to any tax of any
kind whatsoever with respect to this Agreement, the Loan made hereunder, or
changes the basis of taxation of payments to the Lender of principal, commitment
fees, interest or any other amount payable hereunder (except for changes in the
rate of tax on the overall net income of the Lender);
(b) imposes, modifies or holds or shall impose, modify or hold
applicable any reserve, special deposit, compulsory loan or similar requirement
against assets held by, or deposits or other liabilities in or for the account
of, advances or loans by, or other credit extended by, or any other acquisition
of funds by, any office of the Lender, which reserve, special deposit,
compulsory loan or similar requirement is not otherwise included in
determination of the interest rate hereunder; or
(c) imposes or shall impose on the Lender any other condition;
and the result of any of the foregoing is to, directly or indirectly, increase
the cost to the Lender of making, renewing or maintaining advances or extensions
of credit or to reduce any amount receivable thereunder then, in any such case,
the Debtor shall promptly pay to the Agent, for the benefit of the Lender, upon
its demand, any additional amounts necessary to compensate the Lender for such
additional cost or reduced amount receivable. If the Lender becomes entitled to
claim any additional amounts pursuant to this subsection, the Lender shall
promptly notify the Debtor of the event by reason of which it has become so
entitled. The good faith determination as to any additional amounts payable
pursuant to the foregoing sentence by the Lender shall be conclusive in the
absence of manifest error.
- 9 -
<PAGE> 10
2.5 FUNDING LOSSES. If any Regulatory Change:
--------------
(a) shall subject the Lender to any Tax determined by such
Lender to be applicable to the Loan, to the Lender's obligation to make or
maintain the Loan, to this Agreement or the Note, or shall, in the determination
of the Lender, change the basis of taxation of payments to the Lender of the
principal of or interest on the Loan or of any other amounts payable under this
Agreement in respect of the Loan or its obligation to make or maintain the Loan;
or
(b) shall impose, increase, modify or deem applicable any Tax,
reserve, insurance charge, special deposit, assessment or other requirement or
condition against assets of, deposits with or to the account of, credit extended
by, or the obligations of the Lender under this Agreement, or shall impose on
the Lender or on any relevant interbank market for U.S. Dollars, any condition;
and the result of the foregoing, in the determination of the Lender, is to (x)
reduce the amount of any sum received or receivable by the Lender with respect
to the Loan or the return to be earned by the Lender on the Loan, (y) impose a
cost on the Lender that is attributable to the making or maintaining of, or its
commitment to make, the Loan, or (z) require the Lender to make any payment on,
or calculated by reference to, the gross amount of any amount received by it
hereunder or under the Loan, then, within 15 days after request by the Lender,
the Debtor shall pay to the Lender such additional amount or amounts as the
Lender determines will compensate the Lender for such reduction, increased cost
or payment. The Lender will promptly notify the Debtor of any Regulatory Change
of which it has knowledge that will entitle the Lender to compensation, but the
failure to give such notice shall not affect the Lender's right to such
compensation. The Lender agrees to take any reasonable action which the Lender
determines, in its discretion, may be available without cost or expense to the
Lender in order to eliminate or mitigate the effect of such Regulatory Change.
2.6 DETERMINATIONS.
--------------
(a) In making the determinations contemplated by Section 2.4
or Section 2.5 hereof, the Lender may make such estimates, assumptions,
allocations and the like that it, in good faith, determines to be appropriate.
All such determinations shall be final, binding and conclusive upon the Debtor,
except to the extent of any manifest error in computation or transmission. The
Lender shall furnish to the Debtor, upon request, a certificate outlining in
reasonable detail the computation of any amounts claimed by it under Section 2.4
or Section 2.5 and the assumptions underlying such computations, provided that
the failure to deliver a certificate shall not affect the Lender's right to such
amounts.
(b) All statements of account rendered by the Lender to the
Debtor shall, in the absence of manifest error, be final, binding and conclusive
upon the Debtor, unless the Debtor makes a specific objection or objections to
such statement in writing within forty-five (45) days after such statement has
been sent to Debtor by the Lender in accordance with the provisions hereof.
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<PAGE> 11
2.7 PROHIBITED TRANSACTIONS. A Prohibited Transaction may be
consummated only with the prior written consent of the Lender, which consent
shall not be unreasonably withheld. Not less than forty-five (45) days prior to
the date the proposed Prohibited Transaction is expected to be consummated, the
Debtor shall give the Lender written notice of the proposed Prohibited
Transaction. In the event the Lender does not consent to the Prohibited
Transaction and the Prohibited Transaction is nonetheless consummated, the
Debtor shall, on the Installment Date prior to the date the Prohibited
Transaction is to be consummated, prepay (i) the outstanding principal under the
Note, together with all accrued interest thereon, and (ii) all other Obligations
due and owing under the Loan Agreement, the Note and the other Loan Documents,
in accordance with and subject to the provisions of Section 2.3 hereof.
ARTICLE III
SECURITY
-------
3.1 SECURITY AGREEMENT. As security for the prompt payment,
performance, satisfaction and discharge when due of all the Obligations, the
Debtor hereby grants to the Lender a first priority security interest in all of
Debtor's right, title and interest in, to and under the Collateral. The Debtor
shall execute and deliver or shall cause to be executed and delivered to the
Lender, concurrently with the execution of this Agreement, the Mortgage. The
Security Agreement Questionnaire in the form of SCHEDULE 3.1 hereto is, as of
the Closing Date, complete and correct in all material respects.
3.2 ADDITIONAL DOCUMENTS. The Debtor shall execute and deliver and/or
cause to be executed and delivered, concurrently with the execution of this
Agreement and such other documents as the Lender may reasonably request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE DEBTOR
--------------------------------------------
In order to induce the Lender to execute and deliver this Agreement and
to make the Loan available to the Debtor, the Debtor represents and warrants to
the Lender that, as of the date hereof:
4.1 GOOD STANDING OF THE DEBTOR; AUTHORIZATION.
-------------------------------------------
(a) The Debtor is duly incorporated, organized and existing
and in good standing in the State of New York and is duly qualified as a foreign
corporation and authorized to do business in Ohio and all other jurisdictions
wherein the nature of its business or property makes such qualification
necessary, and has the corporate power to own its properties and to carry on its
business as now conducted. The execution, delivery and performance of this
Agreement, the Note and the other Loan Documents have been duly authorized by
all necessary corporate proceedings on the part of the Debtor.
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<PAGE> 12
4.2 COMPLIANCE WITH LAWS AND OTHER AGREEMENTS. The Debtor is in
compliance with all laws, rules, regulations, judgments, decrees, orders,
agreements and requirements which affect in any material way the Debtor, its
assets or the operation of its business and the Debtor has not received, and has
no knowledge of, any order or notice of any governmental investigation or of any
violation or claim of violation of any law, regulation, judgment, decree, order,
agreement, or other governmental requirement.
4.3 NO CONFLICT; GOVERNMENTAL APPROVALS. The execution, delivery, and
performance of this Agreement, the Note and each of the Loan Documents will not
(i) conflict with, violate, constitute a default under, or result in a breach of
any provision of any applicable law, rule, regulation, judgment, decree, order,
instrument or other agreement, or (ii) conflict with or result in a breach of
any provision of the certificate of incorporation or by-laws of the Debtor. No
authorization, permit, consent or approval of or other action by, and no filing,
registration or declaration with, any governmental authority or regulatory body
is required to be obtained or made by the Debtor for the due execution, delivery
and performance of this Agreement, the Note or any of the Loan Documents, except
such as have been duly obtained or made prior to the Closing Date and are in
full force and effect as of the Closing Date (copies of which have been
delivered to the Lender on or before the Closing Date).
4.4 FINANCIAL AND OTHER INFORMATION REGARDING DEBTOR.
-------------------------------------------------
(a) The Debtor has delivered to the Lender true, correct and
complete copies of the balance sheets of the Debtor as of June 30, 1996, and
related statements of income for the period then ended, together with notes
thereto. Those financial statements ("Financial Statements") present fairly the
financial position of the Debtor as of June 30, 1996, and the results of the
operations of the Debtor for the period then ended in conformity with GAAP,
subject to normal year-end adjustments.
(b) The Debtor has no Indebtedness other than the Loan, and
as set forth on SCHEDULE 7.2.
(c) The Debtor has no "investment" (as such term is defined
under GAAP), whether by stock purchase, capital contribution, loan, advance,
purchase of property or otherwise, in any Person, other than as shown in the
most recent Financial Statements.
4.5 TAXES. The Debtor is not delinquent in payment of any income,
property or other tax, except for any delinquency in the payment of a tax which
is contested in good faith by the Debtor and for which appropriate reserves have
been established in accordance with GAAP.
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<PAGE> 13
4.6 ENCUMBRANCES AND GUARANTIES.
---------------------------
(a) All properties and assets of the Debtor are owned by the
Debtor free and clear of all Encumbrances except (i) those for taxes or other
government charges either not yet delinquent or the nonpayment of which is
permitted by Section 4.5 of this Agreement, (ii) those created under the Loan
Documents, and (iii) those described on SCHEDULE 7.3.
(b) The Debtor is not obligated under any Guaranty, except as
set forth on SCHEDULE 4.6(b).
4.7 MATERIAL ADVERSE CHANGES. Since June 30, 1996, there has not been
any material adverse change in the business, operations, properties or financial
position of the Debtor. The Debtor does not know of any fact (other than matters
of a general economic or political nature) which materially adversely affects,
or will materially adversely affect, the business, operations, properties or
financial position of the Debtor or the performance by the Debtor of its
obligations under this Agreement or the other Loan Documents.
4.8 ERISA. The provisions of each employee benefit plan as defined in
Section 3(3) of ERISA (each, a "Plan") maintained by the Debtor comply with all
applicable requirements of ERISA and of the Code, and with all applicable
rulings and regulations issued under the provisions of ERISA and the Code
setting forth those requirements. No reportable event, as defined in Section
4043 of ERISA, has occurred with respect to any Plan; no Plan to which Section
4021 of ERISA applies has been terminated; no Plan has incurred any liability to
PBGC as provided in Section 4062, 4063 and 4064 of ERISA; no Plan has been
involved in any prohibited transaction within the meaning of Section 406 of
ERISA or Section 4975 of the Code; and there are no unfunded liabilities of a
type which would normally be disclosed in financial statements under GAAP, with
respect to any Plan which are not disclosed in the Financial Statements.
4.9 PENDING LITIGATION. Except as set forth on SCHEDULE 4.9, there are
no actions, suits, proceedings or investigations pending, or, to the knowledge
of the Debtor, threatened against or affecting the Debtor, before any court,
arbitrator or administrative or governmental body which, in the aggregate, might
adversely affect any action taken or to be taken by the Debtor under this
Agreement or the other Loan Documents or which, in the aggregate, might
materially adversely affect the business, operations, properties or financial
position of the Debtor, or the ability of the Debtor to perform its obligations
under this Agreement, the Note or the other Loan Documents.
4.10 VALID, BINDING AND ENFORCEABLE. This Agreement, the Note and the
other Loan Documents have been duly and validly executed and delivered by the
Debtor and constitute the valid and legally binding obligations of the Debtor
enforceable in accordance with their respective terms, except as enforcement of
this Agreement and the other Loan Documents may be limited by bankruptcy,
insolvency or other laws of general application relating to or affecting the
enforcement of creditors' rights and except as enforcement is subject to general
equitable principles.
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<PAGE> 14
4.11 PRIORITY OF SECURITY INTERESTS. This Agreement, upon the filing of
financing statements in the appropriate governmental offices and related
documents including, without limitation, partial releases under the Uniform
Commercial Code, upon the execution and filing thereof, will create valid first
perfected security interests in the Collateral as collateral for all the
Obligations, subject to no other Encumbrances. Upon request of Debtor, Lender
agrees to release its security interest in any Severable Addition with a cost of
less than $500,000 per item and to permit Debtor to grant a security interest in
such Severable Addition to a party other than Lender.
4.12 ENVIRONMENTAL MATTERS.
----------------------
(a) The Debtor has performed all of its obligations under, has
obtained all necessary approvals, permits, authorizations and other consents
required by, and is not in material violation of, any Environmental Laws, except
as set forth on SCHEDULE 4.12.
(b) The Debtor has not received any notice, citation, summons,
directive, order or other communication, written or oral, from, and the Debtor
has no knowledge of the filing or giving of any such notice, citation, summons,
directive, order or other communication by, any governmental or
quasi-governmental authority or agency or any other Person concerning the
presence, generation, treatment, storage, transportation, transfer, disposal,
release or other handling of any Hazardous Materials within, on, from, related
to, or affecting (i) the Real Property or (ii) except for any such notice,
citation, summons, directive, order or other communication which, as of the date
hereof, is no longer outstanding or has been resolved to the satisfaction of
such authority, agency or other person, any other real property owned or
occupied by the Debtor, except as set forth on SCHEDULE 4.12.
(c) To the best of the Debtor's knowledge, after reasonable
inquiry, the Real Property has never been used, either by the Debtor or any of
its predecessors in interest, to generate, treat, store, transport, transfer,
dispose of, release or otherwise handle any Hazardous Material in violation of
any applicable Environmental Laws, except as set forth on SCHEDULE 4.12. To the
best of the Debtor's knowledge, after reasonable inquiry, no other real property
owned or occupied by the Debtor has ever been used, either by the Debtor or any
of its predecessors in interest, to generate, treat, store, transport, transfer,
dispose of, release or otherwise handle any Hazardous Material in violation of
any applicable Environmental Laws, which violation could have a material adverse
effect on the Debtor's financial condition, results or operations, business,
properties, assets, operations or prospects, except as set forth on SCHEDULE
4.12.
(d) To the best of the Debtor's knowledge, after due
inspection, there are no Hazardous Materials within, on or under any real
property owned or occupied by the Debtor in violation of any applicable
Environmental Laws, except as set forth on SCHEDULE 4.12.
4.13 NO UNTRUE STATEMENTS. Neither this Agreement, the Loan Documents
nor any other document, certificate or statement furnished or to be furnished
by the Debtor or by any other party to the Lender in connection herewith
contains, or at the time of delivery will contain, any untrue
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<PAGE> 15
statement of a material fact or omits or will omit to state a material fact
necessary in order to make the statements contained herein and therein not
misleading.
4.14 MAINTENANCE OF EQUIPMENT. The Debtor has maintained all of the
Equipment in good operating condition and repair (reasonable wear and tear
excepted) and all necessary replacements of and repairs thereto have been made
so that the value and operating efficiency of the Equipment has been maintained
and preserved.
4.15 LOCATION OF BOOKS AND RECORDS. The locations of the offices where
Debtor maintains its books and records concerning the Collateral are as set
forth in SCHEDULE 4.15 or at the location(s) hereafter disclosed to the Lender
upon thirty (30) days prior written notice.
4.16 CHIEF EXECUTIVE OFFICE. The chief executive offices of the Debtor
are at the address set forth in SCHEDULE 4.16 or at the location(s) hereafter
disclosed to the Lender upon thirty (30) days prior written notice.
4.17 LOCATION OF COLLATERAL. The locations where the Debtor maintains
the Collateral are as set forth on SCHEDULE 4.17.
4.18 PATENTS AND TRADEMARKS. The Debtor does not own any patents,
trademarks, service marks, trade names, copyrights, or other intellectual
property or proprietary rights which are related in any way or used in
connection with the Collateral.
ARTICLE V
CONDITIONS PRECEDENT TO THE LENDER'S OBLIGATIONS
------------------------------------------------
The Lender's obligations hereunder are conditioned upon the completion
by the Lender or its designated representatives of an inspection of the Debtor's
books and records, which inspection shall be satisfactory to the Lender, and
satisfaction by the Debtor of the following conditions precedent:
5.1 DOCUMENTS TO BE DELIVERED BY THE DEBTOR AT CLOSING. The Debtor
shall deliver or cause to be delivered to the Lender at the Closing the
following:
(a) This Agreement duly executed by the Debtor;
(b) The Note duly executed by the Debtor;
(c) The Mortgage, duly executed by the Debtor;
(d) The Security Agreement Questionnaire, duly executed by
the Debtor;
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<PAGE> 16
(e) Such Uniform Commercial Code financing statements and
other documents as the Lender may reasonably require to be executed by the
Debtor;
(f) A certificate of the Secretary or an Assistant Secretary
of the Debtor dated the Closing Date including (i) resolutions duly adopted by
the Debtor authorizing the transactions under the Loan Documents to which it is
a party; (ii) a copy of the by-laws of the Debtor; (iii) evidence of the
incumbency and signature of the officers executing on the Debtor's behalf any of
the Loan Documents and any other document to be delivered pursuant to any such
documents, together with evidence of the incumbency of such Secretary or
Assistant Secretary; (iv) a copy, certified by the secretary of state of its
jurisdiction of incorporation, as of the most recent date practicable, of the
Debtor's Articles and Certificate of Incorporation, together with the
certification of the Secretary or Assistant Secretary of the Debtor as of the
Closing Date that such Articles and Certificate of Incorporation have not been
amended since the date of the aforesaid certification by the Secretary of State;
and (v) certificates of authority or good standing for the Debtor from its
jurisdiction of incorporation and Ohio;
(g) A copy of each and every authorization, permit, consent,
and approval of and other action by, and notice to and filing with, every
governmental authority and regulatory body which is required to be obtained or
made by the Debtor for the due execution, delivery and performance of this
Agreement and the other Loan Documents;
(h) The opinion of Cohen Swados Wright Hanifin Bradford &
Brett, LLP dated as of Closing Date, in form and substance reasonably
satisfactory to the Lender and its counsel;
(i) The opinion of Hahn, Loeser & Parks dated as of the
Closing Date, in form and substance reasonably satisfactory to the Lender and
its counsel;
(j) A current survey of the Real Property, certified to the
Lender by registered professional surveyors not more than thirty (30) days prior
to the Closing Date as an urban survey in accordance with ALTA/ACSM standards
(the "Survey");
(k) A marked-up commitment of a title insurance company
satisfactory to the Lender to issue to the Lender a policy of title insurance
insuring the lien of the Mortgage as a first lien on the Real Property, subject
only to Permitted Encumbrances (as defined in the Mortgage) and without
exception for (i) any liens for labor or materials, actual or inchoate; or (ii)
discrepancies in boundary lines, unrecorded easements, encroachments or area
content, and shall include such endorsements as the Lender may require;
(l) A Phase I environmental audit of the Real Property, from
an environmental consultant acceptable to the Lender, satisfactory to the
Lender in its sole discretion;
(m) A written summary of all licenses, permits, exemptions,
certificates and regulatory approvals necessary for the ownership and operation
of the Ottawa Plant;
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<PAGE> 17
(n) Such assignments of existing contracts, licenses, and
other property as the Lender may require;
(o) Evidence (including, without limitation, an insurance
certificate satisfactory to the Lender) of the Debtor's compliance with the
requirements relating to insurance set forth in Section 6.5 hereof;
(p) A true, correct and complete copy of that certain Second
Amended and Restated Credit and Security Agreement dated August 1, 1994 (the
"Revolving Credit Agreement"), between the Debtor and the Bank of New York;
(q) UCC-3 termination statements, releases and other
documents, all in form and substance satisfactory to the Lender, evidencing the
release and termination of any existing liens or Encumbrances on the Collateral;
and
(r) Such other documents as the Lender may reasonably request.
5.2 CONDITIONS PRECEDENT TO MAKING LOAN. The Lender shall not be
obligated to make the Loan hereunder unless:
(a) The Debtor shall have delivered to the Lender each of the
documents referenced in Section 5.1 hereof;
(b) As of the Closing Date, no Event of Default has occurred
(unless waived by the Lender in writing) and is continuing and no event has
occurred and is continuing which, with the giving of notice or lapse of time, or
both, would constitute an Event of Default;
(c) The representations and warranties contained in Article
IV are true and correct on the Closing Date;
(d) No material adverse change shall have occurred in the
business, financial condition, or operations of the Debtor since June 30, 1996;
(e) The Debtor shall have delivered to the Lender a
certificate executed by the chief executive officer of the Debtor confirming the
statements made in paragraphs (b), (c), and (d) above;
(f) The Lender shall have completed a satisfactory operational
review of the Ottawa Plant, consisting of, INTER ALIA, such measurements and
analyses of the Ottawa Plant, its production capacity, its machinery and
equipment, and such other features of its operation as are necessary to
ascertain whether the criteria set forth on SCHEDULE 5.2(f) hereto for such
operational review have been satisfied.
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<PAGE> 18
ARTICLE VI
AFFIRMATIVE COVENANTS OF THE DEBTOR
-----------------------------------
The Debtor hereby covenants and agrees that from the date hereof and
until satisfaction in full of the Obligations, unless the Lender shall otherwise
consent in writing, the Debtor shall do the following:
6.1 USE OF PROCEEDS. Use the proceeds of the borrowings hereunder only
for the purposes specified in Section 2.1 of this Agreement.
6.2 FINANCIAL STATEMENTS. Furnish to the Lender:
(a) within one hundred and twenty (120) days after the end of
each fiscal year, the financial statements of the Debtor, including a balance
sheet, statement of income, statement of cash flows and such other consolidated
financial statements of the Debtor in such detail as the Lender may reasonably
request. Such financial statements shall present fairly the financial condition
of the Debtor as of the close of such fiscal year and the results of operations
and cash flows during such fiscal year, in accordance with GAAP, and shall be
audited and accompanied by the opinion, satisfactory in form and substance to
the Lender, of an independent public accountant selected by the Debtor and
reasonably acceptable to the Lender, together with a completed Covenant
Compliance Certificate for such period, duly executed by the chief financial
officer of the Debtor;
(b) within ninety (90) days after the end of each fiscal
quarter (other than the last fiscal quarter during the Debtor's fiscal year) and
within one hundred twenty (120) days after the end of the last fiscal quarter
during the Debtor's fiscal year, the financial statements of the Debtor,
including a balance sheet, statement of income and such other financial
statements of the Debtor in such detail as the Lender may reasonably request,
which shall present fairly the financial position of the Debtor as of the end of
such fiscal quarter and the results of operations and cash flows during such
fiscal quarter, in accordance with GAAP, certified by the chief financial
officer of the Debtor, together with a completed Covenant Compliance Certificate
for such period, duly executed by the chief financial officer of the Debtor;
(c) within thirty (30) days after the end of each fiscal
quarter (other than the last fiscal quarter during the Debtor's fiscal year) and
within one hundred twenty (120) days after the end of the last fiscal quarter
during the Debtor's fiscal year, management-prepared financial statements
including a balance sheet, statement of income, and statement of cash flows for
the Ottawa Plant, and such other financial statements related to the Ottawa
Plant in such detail as the Lender may reasonably request, which shall present
fairly the financial position of the Ottawa Plant as of the end of such quarter
and the results of its operations, in accordance with GAAP, certified by the
chief financial officer of the Debtor; and
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<PAGE> 19
(d) such other financial information in the Debtor's possession as
the Lender shall reasonably request.
6.3 ORDINARY COURSE OF BUSINESS; RECORDS. Conduct its business only in
the ordinary course; and (i) keep proper books of record and account in which
full, true and correct entries will be made of all dealings or transactions of
or in relation to its business and affairs, (ii) set up on its books accruals
with respect to all taxes, assessments, charges, levies and claims; and (iii) on
a reasonably current basis set up on its books, from its earnings, allowances
against doubtful receivables, advances and investments and all other proper
accruals (including without limitation by reason of enumeration, accruals for
premiums, if any, due on required payments and accruals for depreciation,
obsolescence, or amortization of properties), which should be set aside from
such earnings in connection with its business. All determinations pursuant to
this subsection shall be made in accordance with, or as required by, GAAP
consistently applied in the opinion of such independent public accountant as
shall then be regularly engaged by the Debtor.
6.4 INFORMATION FOR THE LENDER. Make available during normal business
hours for inspection by the Lender or its designated representatives any of its
books, records, assets when reasonably requested to do so, and furnish the
Lender any information reasonably requested regarding its operations, business
affairs and financial condition within a reasonable time after the Lender gives
notice of its request therefor. In particular, and without limiting the
foregoing, the Debtor shall permit, during normal business hours,
representatives of the Lender's Audit Department to make such periodic
inspections of the Debtor's books, records, assets on a quarterly basis,
PROVIDED that upon the occurrence of an Event of Default, such inspections may
be performed as frequently as the Lender deems necessary and proper, and
PROVIDED FURTHER that the Lender shall be able to obtain and/or review on a
routine, continuous basis, all licenses, permits, exemptions, certificates and
regulatory approvals necessary for the ownership and operation of the Ottawa
Plant.
6.5 INSURANCE. Carry at all times in financially sound and reputable
insurers acceptable to the Lender: (a) all workers' compensation or similar
insurance as may be required under the laws of any jurisdiction; (b) commercial
general liability insurance against claims for personal injury, death or
property damage suffered upon, in or about any premises occupied by it or
occurring as a result of the ownership, maintenance or operation by it of any
automobile, truck or other vehicle or as a result of the use of products
manufactured, constructed or sold by it, or services rendered by it, in an
amount not less than $2,000,000 per occurrence; (c) business interruption
insurance covering risk of loss as a result of the cessation for all or any part
of one year of any substantial part of the business conducted by it; (d)
physical damage and hazard insurance against such other hazards as are usually
insured against by business entities of established reputation engaged in like
businesses and similarly situated, including, without limitation, fire (flood
and earthquake, if applicable) and extended coverage; and (e) such other
insurance as the Lender may from time to time reasonably require, and pay all
premiums on the policies for all such insurance when and as they become due and
take all other actions necessary to maintain such policies in full force and
effect at all times. For purposes of this section, as long as Bank of New York
is the Primary Lender, the insurers, insurance coverage amounts of insurance for
the business, properties and operations of Debtor other than at the Ottawa
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<PAGE> 20
Plant, if acceptable to the Primary Lender, shall be deemed to be acceptable to
Lender. The insurance specified in Subsections (b), (c) and (d) shall be
maintained in an amount not less than $5,500,000, with no co-insurance or
deductibles in excess of $100,000, as such insurance is usually carried by
business entities of established reputation engaged in the same or similar
business and similarly situated, acceptable to the Lender. The Debtor shall from
time to time, upon request by the Lender, promptly furnish or cause to be
furnished to the Lender evidence, in form and substance satisfactory to the
Lender, of the maintenance of all insurance required to be maintained hereby,
including, without limitation, such originals or copies as the Lender may
request of policies, certificates of insurance, riders and endorsements relating
to such insurance and proof of premium payments. The Debtor shall cause each
property or liability insurance policy related to the Ottawa Plant and/or the
Equipment to provide, and the insurer issuing each such policy to certify to the
Lender, that (a) if such insurance be proposed to be canceled or materially
changed for any reason whatsoever, such insurer will promptly notify the Lender,
and such cancellation or change shall not be effective for 30 days after receipt
by the Lender of such notice, unless the effect of such change is to extend or
increase coverage under the policy; (b) the Lender shall be named as lender loss
payee with respect to property insurance; and (c) the Lender will have the
right, at its election, to remedy any default in the payment of premiums within
30 days of notice from the insurer of such default.
6.6 MAINTENANCE. Maintain its equipment (including, without limitation,
the Collateral), real property and other properties in good condition and repair
(normal wear and tear excepted) and pay and discharge the cost of repairs
thereto or maintenance thereof.
6.7 TAXES. Pay all taxes, assessments, charges and levies imposed upon
it or on any of its property, or which it is required to withhold and pay over,
and provide evidence of payment thereto to the Lender if the Lender so requests,
except where contested in good faith by lawful and appropriate proceedings and
where adequate reserves therefor have been set aside on its books; PROVIDED,
however, that the Debtor shall pay all such taxes, assessments, charges and
levies forthwith whenever foreclosure on any lien which attaches or security
therefor appears imminent.
6.8 LEASES. Pay all rent and other sums required by every lease to
which the Debtor is a party as the same become due and payable, perform all its
obligations as tenant or lessee thereunder, except where contested in good faith
by lawful and appropriate proceedings and where adequate reserves therefor have
been set aside; and keep all such leases at all times in full force and effect
during the terms thereof.
6.9 CORPORATE EXISTENCE; CERTAIN RIGHTS; LAWS. Do all things necessary
to preserve and keep in full force and effect in each jurisdiction in which it
conducts business the business existence, licenses, permits, exemptions,
regulatory approvals, rights, patents, trademarks, trade names, certificates and
franchises of the Debtor and comply with all present and future laws,
ordinances, rules, regulations judgments, orders and decrees which affect in any
material way the Debtor, its assets or the operation of its business.
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<PAGE> 21
6.10 NOTICE OF LITIGATION OR OTHER PROCEEDINGS. Give notice as soon as
reasonably practicable, but in no event later than ten (10) Business Days after
the Debtor becomes aware thereof, to the Lender of (i) the existence of any
material dispute, (ii) the institution of any litigation, administrative
proceeding or governmental investigation involving the Debtor or (iii) the entry
of any judgment, decree or order against or involving the Debtor, any of which
might materially and adversely affect the financial condition, property,
business or operation of the Ottawa Plant of the Debtor or affect the
enforceability of this Agreement or any of the other Loan Documents.
6.11 INDEBTEDNESS. Pay or cause to be paid when due (or within
applicable grace periods) all Indebtedness of the Debtor, except when the amount
or validity thereof is contested in good faith and Debtor shall have established
adequate reserves therefor.
6.12 NOTICE OF EVENTS OF DEFAULT. Give immediate notice to the Lender
if the Debtor becomes aware of the occurrence of any Event of Default, or of any
fact, condition or event which with the giving of notice or lapse of time, or
both, would be an Event of Default, or of the failure of the Debtor to observe
or perform any of the conditions or covenants to be observed or performed by it
under this Agreement or any of the other Loan Documents.
6.13 ERISA. Maintain each Plan in compliance with all applicable
requirements of ERISA and of the Code and with all applicable rulings and
regulations issued under the provisions of ERISA and of the Code. As promptly as
practicable (but in any event not later than ten (10) days) after the Debtor
receives from the PBGC a notice of intent to terminate any Plan or to appoint a
trustee to administer any Plan, after the Debtor has notified the PBGC that any
reportable event, as defined in Section 4043 of ERISA, with respect to any Plan
has occurred, or after the Debtor has provided a notice of intent to terminate
to each affected party, as defined for purposes of Section 4041(a)(2) of ERISA,
with respect to any Plan, a certificate of the chief executive officer of the
Debtor shall be furnished to the Lender setting forth the details with respect
to the events resulting in such reportable event, as the case may be, and the
action which the Debtor proposes to take with respect thereto, together with a
copy of the notice of intent to terminate or to appoint a trustee from the PBGC,
of the notice of such reportable event or of the Debtor's notice of intent to
terminate, as the case may be.
6.14 COMPLIANCE WITH ENVIRONMENTAL LAWS. Comply fully with all
Environmental Laws and not use any property which it owns or occupies to
generate, treat, store, transport, transfer, dispose of, release or otherwise
handle any Hazardous Material, except in compliance with all Environmental Laws.
6.15 PERFECTION AND CONFIRMATION OF SECURITY INTERESTS. The Debtor
shall take all action that may be necessary or desirable, or that Lender may
request, so as at all time to maintain the validity, perfection, enforceability
and priority of Lender's security interest in the Collateral or to enable Lender
to protect, exercise or enforce its rights hereunder and in the Collateral,
including, but not limited to (i) immediately discharging all liens other than
those in favor of the Lender with respect to the Collateral, (ii) entering into
warehousing, lockbox and other custodial arrangements
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<PAGE> 22
satisfactory to Lender, and (iii) executing and delivering financing statements,
instruments of pledge, mortgages, notices and assignments, in each case in form
and substance satisfactory to Lender, relating to the creation, validity,
perfection, maintenance or continuation of Lender's security interest in the
Collateral under the Uniform Commercial Code or other applicable law. All
charges, expenses and fees the Lender may incur in doing any of the foregoing,
and any local taxes relating thereto, shall be charged to the Debtor's account
and added to the Obligations, or at the Lender's option, shall be paid to the
Lender immediately upon demand. The Debtor shall permit the Lender, at the
Debtor's expense, to perform appropriate searches under the Uniform Commercial
Code, as the Lender shall deem necessary to confirm that the Debtor owns the
Collateral free and clear of all Encumbrances, except in favor of the Lender and
Permitted Encumbrances (as defined in the Mortgage).
6.16 FURTHER ACTIONS. Cooperate and join with the Lender, at its own
expense, in taking all such further actions as the Lender, in its reasonable
sole judgment, shall deem necessary to effectuate the provisions of the Loan
Documents.
6.17 NOTICES. Notify the Lender as soon as is reasonably practicable,
but in any event within two (2) Business Days, upon the occurrence of any event
which is reasonably likely to have a material adverse effect on the business,
operations or financial condition of the Debtor, including, without limitation,
the receipt of any order or notice of any governmental investigation, or of any
violation or claim of violation of any law, Environmental Law, regulation,
judgment, decree, order, agreement or other governmental requirement which is
reasonably likely to have a material adverse effect on the business, operations
or financial condition of the Debtor.
6.18 DISPOSITION OF COLLATERAL. The Debtor will safeguard and protect
all Collateral for the Lender's general account and make no disposition thereof
whether by sale, lease or otherwise except the disposition or transfer of
obsolete and worn-out Equipment in the ordinary course of business during any
fiscal year having an aggregate fair market value of not more than $500,000 and
only to the extent that the proceeds for any such dispositions, to the extent
that the aggregate amount of the proceeds for such dispositions occurring on or
after the date hereof through the date on which the Obligations are paid in full
are in excess of $500,000, are used to acquire replacement Equipment which is
subject to Lender's first priority security interest.
6.19 PRESERVATION OF COLLATERAL. Following the occurrence of an Event
of Default, in addition to the rights and remedies set forth in Article IX
hereof, the Lender: (a) may at any time take such steps as the Lender deems
necessary to protect the Lender's interest in and to preserve the Collateral,
including the hiring of such security guards for the placing of such security
protection measures as the Lender may deem appropriate; (b) may employ and
maintain at any of the Debtor's premises a custodian who shall have full
authority to do all acts necessary to protect the Lender's interests in the
Collateral; (c) may lease warehouse facilities to which the Lender may move all
or part of the Collateral; (d) may use any of the Debtor's owned or leased
lifts, hoists, trucks and other facilities or equipment for handling or removing
the Collateral; and (e) shall have, and is hereby granted, a right of ingress
and egress to the places where the Collateral is located, and may proceed over
and through any of the Debtor's owned or leased property. The Debtor shall
cooperate fully
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<PAGE> 23
with all of the Lender's efforts to preserve the Collateral and will take such
actions to preserve the Collateral as the Lender may direct. All of the Lender's
expenses of preserving the Collateral, including any expenses relating to the
bonding of a custodian, shall be charged to the Debtor's account and added to
the Obligations.
6.20 OWNERSHIP OF COLLATERAL. With respect to the Collateral, at the
time the Collateral becomes subject to the Lender's security interest: (a) the
Debtor shall be the sole owner of and fully authorized and able to sell,
transfer, pledge and/or grant a first security interest in each and every item
of the Collateral to the Lender, and the Collateral shall be free and clear of
all liens, claims, charges and Encumbrances whatsoever; (b) each document and
agreement executed by the Debtor or delivered to Lender in connection with this
Agreement shall be true and correct in all respects; (c) all signatures and
endorsements of the Debtor that appear on such documents and agreements shall be
genuine and the Debtor shall have full capacity to execute same; and (d) the
Equipment shall be located as set forth on SCHEDULE 4.17 and shall not be
removed from such location(s) without the prior written consent of the Lender
except with respect to Equipment to the extent permitted in Section 6.18 hereof.
The Debtor agrees to provide the Lender with landlord's waivers, in form and
substance satisfactory to the Lender, by each landlord of real property leased
to the Debtor where any Collateral is or may be located. The Debtor further
agrees to give the Lender or its designated representatives access to any such
locations and to permit, during normal business hours, representatives of the
Lender's audit department to make such periodic inspections of the Collateral as
such representatives deem necessary and proper.
6.21 DEFENSE OF LENDER'S INTERESTS. Until (a) payment and performance
in full of all of the Obligations and (b) termination of this Agreement, the
Lender's interests in the Collateral hereby granted to the Lender shall continue
in full force and effect. During such period the Debtor shall not, without the
Lender's prior written consent, pledge, sell (except Equipment to the extent
permitted in Section 6.18 hereof), assign or transfer any part of the
Collateral. The Debtor shall defend the Lender's interests in the Collateral
against any and all persons whatsoever. At any time following demand by Lender
for payment of all Obligations, the Lender shall have the right to take
possession of the indicia of the Collateral and the Collateral in whatever
physical form contained, including without limitation: labels, stationery,
documents, instruments and advertising materials. If the Lender exercises this
right to take possession of the Collateral, the Debtor shall, upon demand,
assemble it in the best manner possible and make it available to the Lender at a
place reasonably convenient to the Lender. In addition, with respect to all
Collateral, the Lender shall be entitled to all of the rights and remedies set
forth herein and further provided by the Uniform Commercial Code or other
applicable law. The Debtor shall, and the Lender may, at its option, instruct
all suppliers, carriers, forwarders, warehouses or others receiving or holding
cash, checks, inventory, documents or instruments in which the Lender holds a
security interest to deliver same to the Lender and/or subject to the Lender's
order and if they shall come into the Debtor's possession, they, and each of
them, shall be held by the Debtor in trust as the Lender's trustee, and will
immediately deliver them to the Lender in their original form together with any
necessary endorsement.
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<PAGE> 24
6.22 COST OVERRUNS. The Debtor shall complete the plant expansion at
the Ottawa Plant in accordance with the plans and specifications previously
delivered to the Lender, and shall pay all cost overruns associated with such
plant expansion in excess of $21,800,000.
ARTICLE VII
NEGATIVE COVENANTS
------------------
The Debtor hereby covenants and agrees that from the Closing Date until
satisfaction in full of the Obligations, it will not do any one or more of the
following without first obtaining the written consent of the Lender, which
consent shall not be unreasonably withheld:
7.1 FUNDAMENTAL CORPORATE CHANGES.
------------------------------
(a) Enter into any Prohibited Transaction, except as provided
in Section 2.7 hereof, and except for the acquisition of all or a substantial
portion of the assets or the stock of any person or consolidation of any person
with or merger with the Debtor if the aggregate amount of all such transactions
during the term of the Loan does not exceed Twenty-Five Million Dollars
($25,000,000) and no other default or Event of Default would be in existence
after giving effect thereto;
(b) Without thirty (30) days prior written notice to Lender,
change its name or the location of its chief executive office; or
(c) Form any Subsidiary other than those identified on
Schedule 7.1(c).
7.2 INDEBTEDNESS. Incur, create, assume or have any Indebtedness,
except the Loan and the Indebtedness described on SCHEDULE 7.2 hereto and other
Indebtedness the aggregate outstanding amount of which at any one time shall not
exceed (A) Twenty-Five Million Dollars ($25,000,000) less (B) any Indebtedness
secured by a Guaranty permitted under Section 7.7 below.
7.3 ENCUMBRANCES. Create or allow any Encumbrances to be on or
otherwise affect any of its property or assets except Encumbrances in favor of
the Lender, and except Encumbrances securing Indebtedness permitted under
Section 7.2 above, except as described on SCHEDULE 7.3 hereto.
7.4 Intentionally Deleted.
7.5 CHANGE IN BUSINESS. Discontinue any substantial part, or
substantially change the nature of, the business of the Debtor, or enter into
any new business unrelated to the present business conducted by the Debtor.
7.6 Intentionally Deleted.
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<PAGE> 25
7.7 GUARANTIES. Directly or indirectly make any Guaranty other than a
Guaranty which secures Indebtedness the aggregate outstanding amount of which
shall not exceed (A) Twenty-Five Million Dollars ($25,000,000) less (B) any
Indebtedness permitted under Section 7.2 above.
7.8 ERISA.
(a) Terminate any Plan maintained by the Debtor to which
Section 4021 of ERISA applies.
(b) With respect to all Plans subject to Title IV of ERISA,
allow, in the aggregate, the value of the benefits guaranteed under Title IV of
ERISA to exceed the value of assets allocable to the benefits by more than an
amount which, if incurred in the case of termination of the Plans, would have a
material adverse effect on the financial condition of the Debtor.
(c) Incur a withdrawal liability within the meaning of
Section 4201 of ERISA.
7.9 RESTRICTED PAYMENTS. Declare, pay or make any dividend or
distribution on any shares of the common stock or preferred stock of Debtor
(other than dividends or distributions payable in its stock, or split-ups or
reclassification of its stock) or apply any of its funds, property or assets to
the purchase, redemption or retirement of any common or preferred stock, or of
any options to purchase or acquire any such shares of common or preferred stock
of the Debtor, except as may be permitted under the Primary Credit Facility ,
provided that the Debtor delivers to the Lender a copy of the writing required
as a condition thereto under the Primary Credit Facility at the same time the
Debtor delivers such writing to the Primary Lender.
7.10 SALES AND LEASE-BACKS. Sell, transfer or otherwise dispose of any
property, real or personal, now owned or hereafter acquired, with the intention
of directly or indirectly taking back a lease on such property, other than such
dispositions of property which property has an aggregate value of not greater
than Twenty-Five Million Dollars ($25,000,000).
7.11 COMPLIANCE WITH FEDERAL RESERVE BOARD REGULATIONS. (i) Use any of
the proceeds of the Loan, directly or indirectly, for the purposes of purchasing
or carrying any "margin security" within the meaning of Regulations G or U of
the Board of Governors of the Federal Reserve System (12 C.F.R. Sections 207,
221), (ii) use any of the proceeds of the Loan, directly or indirectly, for the
purpose of purchasing, carrying or trading in any securities under such
circumstances as to involve the Debtor in a violation of Regulation X of such
Board (12 C.F.R. Section 224), or (iii) take or permit to be taken any other
action which would result in the Loan or the consummation of any of the other
transactions contemplated hereby being violative of such regulations or any
other regulation of such Board.
7.12 LOANS, INVESTMENTS. Purchase, invest in, or make any loan in
the nature of an investment in the stocks, bonds, notes or other securities or
evidence of Indebtedness of any person, or make any loan or advance to or for
the benefit of any Person except for (i) obligations issued or
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<PAGE> 26
guaranteed by the United States of America or any agency thereof; (ii)
commercial paper with maturities at the time of issuance thereof of not more
than 180 days and which have, at the time of such purchase, investment or other
acquisition, a published rating of not less than A-1 or P-1 (or the equivalent
rating), (iii) certificates of time deposit and banker's acceptances having
maturities of not more than 180 days and purchase agreements backed by United
States government securities of a commercial bank if (A) such bank has a
combined surplus of at least $500,000,000 or (B) its debt obligations, or those
of a holding company of which it is a subsidiary, are rated not less than A (or
the equivalent rating) by a nationally recognized rating agency, U.S. money
market funds that invest solely in obligations issued or guaranteed by the
United States of America or an agency thereof and (iv) purchases, investments in
and loans to Direct Steel, Inc., a corporation incorporated under the laws of
the Province of Ontario, Canada the outstanding aggregate principal amount of
which do not exceed $300,000 at any one time.
ARTICLE VIII
EVENTS OF DEFAULT
-----------------
An event of default ("Event of Default") under this Agreement shall be
deemed to exist if any one or more of the following events occurs and is
continuing, whatever the reason therefor:
8.1 DEBTOR'S FAILURE TO PAY. The Debtor fails to pay any amount of
principal, interest or fees on the date such payment was due under this
Agreement, or any of the Loan Documents, whether upon stated maturity,
acceleration or otherwise; provided that if (A) the Debtor fails to make any
such payment as and when due under this Agreement and (B) no default under this
Section 8.1 has occurred during the immediately preceding twelve (12)
consecutive months, then no Event of Default shall be deemed to have occurred,
but only with respect to such failure to pay, if the Debtor cures such failure
within one (1) day of the date on which such payment was due as provided herein.
8.2 BREACH OF COVENANTS OR CONDITIONS. The Debtor (i) fails to perform
or observe any term, covenant, agreement or condition set forth in Article VI or
VII of this Agreement, or (ii) fails to perform or observe any other term,
covenant, agreement or condition set forth in this Agreement or any of the other
Loan Documents or is in violation of or non-compliance with any provision of
this Agreement or any of the Loan Documents, and, with respect only to clause
(ii) above, has not remedied and fully cured such non-performance,
non-observance, violation of or non-compliance within thirty days after the
Lender has given written notice thereof to the Debtor.
8.3 DEFAULTS IN OTHER AGREEMENTS.
----------------------------
(a) The Debtor shall fail to perform or observe any term,
covenant, agreement or condition contained in, or there shall occur any default
under or as defined in, any other agreement (i) to which the Lender or any of
its Affiliates is a party, and (ii) which is applicable to the Debtor or by
which the Debtor is bound, which shall not be remedied within the period of time
(if any) within
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<PAGE> 27
which such other agreement permits such default to be remedied, unless such
default is waived by the other party thereto or excused as a matter of law.
(b) The Debtor shall fail to pay when due and payable (after
giving effect to all applicable grace periods and subject to all applicable
waivers), the principal of or interest on any Indebtedness (other than
Indebtedness to the Lender or any of its Affiliates) in excess of One Million
Dollars ($1,000,000), or the maturity of such Indebtedness shall, in whole or in
part, have been accelerated or any such Indebtedness shall, in whole or in part,
have been required to be prepaid prior to the stated maturity thereof. In
accordance with the provisions of any contract evidencing, providing for the
creation of, or concerning such Indebtedness, any event shall have occurred and
be continuing which would permit any holder or holders of such Indebtedness, any
trustee or agent acting on behalf of such holder or holders, or any other Person
to accelerate such maturity or require any such prepayment and such event has
not been cured or waived within thirty (30) days following the Debtor's receipt
of notice thereof.
8.4 AGREEMENTS INVALID. The validity, binding nature of, or
enforceability of any material term or provision of any of the Loan Documents is
disputed by, on behalf of, or in the right or name of the Debtor or any material
term or provision of any such Loan Document is found or declared to be invalid,
avoidable, or non-enforceable by any court of competent jurisdiction.
8.5 FALSE WARRANTIES; BREACH OF REPRESENTATIONS. Any warranty or
representation made by the Debtor in this Agreement or any other Loan Document
or in any certificate or other writing delivered under or pursuant to this
Agreement or any other Loan Document, or in connection with any provision of
this Agreement or related to the transactions contemplated hereby shall prove to
have been false or incorrect or breached in any material respect on the date as
of which made.
8.6 JUDGMENTS. A final judgment or judgments is entered, or an order or
orders of any judicial authority or governmental entity is issued against the
Debtor (such judgment(s) and order(s) hereinafter collectively referred to as
"Judgment") (i) for payment of money, which Judgment, in the aggregate, exceeds
Five Hundred Thousand Dollars ($500,000) outstanding at any one time; or (ii)
for injunctive or declaratory relief which would have a material adverse effect
on the ability of the Debtor to conduct its business, and such Judgment is not
discharged or execution thereon or enforcement thereof stayed pending appeal,
within thirty (30) days after entry or issuance thereof, or, in the event of
such a stay, such Judgment is not discharged within thirty (30) days after such
stay expires.
8.7 BANKRUPTCY OR INSOLVENCY OF THE DEBTOR.
--------------------------------------
(a) The Debtor becomes insolvent, or generally fails to pay,
or is generally unable to pay, or admits in writing its inability to pay, its
debts as they become due or applies for, consents to, or acquiesces in, the
appointment of a trustee, receiver or other custodian for the Debtor, as the
case may be, or a substantial part of its property, or makes a general
assignment for the benefit of creditors.
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<PAGE> 28
(b) The Debtor commences any bankruptcy, reorganization, debt
arrangement, or other case or proceeding under any state or federal bankruptcy
or insolvency law, or any dissolution or liquidation proceeding.
(c) Any bankruptcy, reorganization, debt arrangement, or other
case or proceeding under any state or federal bankruptcy or insolvency law, or
any dissolution or liquidation proceeding, is involuntarily commenced against or
in respect of the Debtor that has not been dismissed within thirty (30) days, or
an order for relief is entered in any such proceeding.
(d) A trustee, receiver, or other custodian is appointed for
the Debtor or a substantial part of the Debtor's property and the appointment
has not been dismissed within thirty (30) days.
8.8 OTHER ENCUMBRANCES. Any Encumbrances shall be on or otherwise
materially affect the Collateral or proceeds thereof, except Encumbrances in
favor of the Lender.
8.9 MATERIAL CHANGE. If, in the sole judgment of the Lender, there has
been a material adverse change in the financial condition, business or
operations of Debtor from the Closing Date, including, without limitation, any
material adverse change which has occurred as the result of a violation of any
Environmental Law.
8.10 FINANCIAL COVENANTS. The Debtor shall fail to maintain the
following financial covenants:
(a) TANGIBLE NET WORTH--A Tangible Net Worth of greater than
$24,000,000, for the fiscal quarter ending September 30, 1996 and for each
fiscal quarter end thereafter;
(b) RATIO OF LIABILITIES TO TANGIBLE NET WORTH--A ratio of
Liabilities to Tangible Net Worth of less than the following:
<TABLE>
<CAPTION>
<S> <C> <C>
(i) 6.00:1.00 from the Closing Date through March 31, 1997;
(ii) 5.75:1.00 from April 1, 1997 through March 31, 1998;
(iii) 5.50:1.00 from April 1, 1998 through March 31, 1999;
(iv) 5.25:1.00 from April 1, 1999 through March 31, 2000;
(v) 5.00:1.00 from April 1, 2000 through March 31, 2001; and
(vi) 4.50:1.00 for each fiscal quarter ending thereafter; and
</TABLE>
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<PAGE> 29
(c) CASH FLOW COVERAGE RATIO. A Cash Flow Coverage Ratio at
the end of each fiscal quarter on a rolling four quarter basis of equal to or
greater than: (i) 1.25:1.00 for each fiscal quarter during the period from the
Closing Date through March 31, 1997, and (ii) 1.50:1.00 at the end of each
fiscal quarter thereafter.
ARTICLE IX
REMEDIES
--------
9.1 ACCELERATION; SETOFF.
---------------------
(a) Automatically upon the occurrence of any Event of Default
described in Section 8.7 of this Agreement, and in the sole discretion of the
Lender upon the occurrence of any other Event of Default, the unpaid principal
balance of the Loan, all interest and fees accrued and unpaid thereon, and all
other amounts and Obligations payable by the Debtor under this Agreement and the
other Loan Documents shall immediately become due and payable in full, all
without protest, presentment, demand, or further notice of any kind to the
Debtor, all of which are expressly waived by the Debtor, provided that if (A)
the Event of Default occurred as a result of a payment default under Section 8.1
hereof and (B) no Event of Default has occurred as a result of a payment default
under Section 8.1 hereof during the immediately preceding twelve (12)
consecutive months, then with respect to such Event of Default only, the Lender
shall give the Debtor two (2) days prior notice of the Lender's intention to
exercise its rights under this Section 9.1;
(b) If any of the Obligations shall be due and payable or any
one or more Events of Default shall have occurred, the Lender shall have the
right, in addition to all other rights and remedies available to it, without
notice to the Debtor, to apply toward and set-off against and apply to the then
unpaid balance of the Note and the other Obligations any items or funds held by
the Lender, any and all deposits (whether general or special, time or demand,
matured or unmatured, fixed or contingent, liquidated or unliquidated) now or
hereafter maintained by the Debtor for its own account with the Lender, and any
other indebtedness at any time held or owing by the Lender to or for the credit
or the account of the Debtor. For such purpose the Lender shall have, and the
Debtor hereby grants to the Lender, a first lien on all such deposits. The
Lender is hereby authorized to charge any such account or indebtedness for any
amounts due to the Lender. Such right of set-off shall exist whether or not the
Lender shall have made any demand under this Agreement, the Note or any other
Loan Document and whether or not the Note and the other Obligations are matured
or unmatured. The Debtor hereby confirms the Lender's lien on such accounts and
right of set-off, and nothing in this Agreement shall be deemed any waiver or
prohibition of such lien and right of set-off.
(c) Upon the occurrence of any one or more Events of Default,
the Lender may proceed to protect and enforce its rights under this Agreement
and the other Loan Documents by exercising such remedies as are available to the
Lender in respect thereof under applicable law, either by suit in equity or by
action at law, or both, whether for specific performance of any provision
contained in this Agreement or any of the other Loan Documents or in aid of the
exercise of any
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<PAGE> 30
power granted in this Agreement or any of the other Loan Documents. In addition,
upon the occurrence of any one or more Events of Default, without limiting the
generality of the foregoing, the Debtor agrees that in any such event, the
Lender, without demand of performance or other demand, advertisement or notice
of any kind (except the notice specified below of time and place of public or
private sale) to or upon the Debtor or any other Person (all and each of which
demands, advertisements and notices are hereby expressly waived), may forthwith
do any one or more of the following: collect, receive, appropriate and realize
upon the Collateral or any part thereof, and sell, lease, assign, give an option
or options to purchase or otherwise dispose of and deliver, the Collateral (or
contract to do so), or any part thereof, in one or more parcels at public or
private sale or sales at such places and at such prices as it may deem best, for
cash or on credit or for future delivery without the assumption of any credit
risk. The Lender shall have the right upon any such public sale or sales, and,
to the extent permitted by law, upon any such private sale or sales, to purchase
the whole or any part of the Collateral so sold, free of any right or equity of
redemption of the Debtor, which right or equity is hereby expressly released.
The Debtor further agrees, at the Lender's request, to assemble (at the Debtor's
expense) the Collateral and make it available to the Lender at such places which
the Lender shall select, whether at the Debtor's premises or elsewhere, which
Collateral shall, at the Lender's request, be assembled and/or disassembled by
representatives of the applicable manufacturer(s). At such time, each item of
Collateral shall be in the good condition and repair, shall be capable of
passing performance tests according to each applicable manufacturer's
specifications and its peripherals and additional systems shall be intact and
correctly operational. The Lender shall apply the net proceeds of any such
collection, recovery, receipt, appropriation, realization or sale (after
deducting all reasonable costs and expenses of every kind incurred therein or
incidental to the care, safekeeping or otherwise of any or all of the Collateral
or in any way relating to the rights of the Lender hereunder, including
reasonable attorney's fees and legal expenses) to the payment in whole or in
part of the Obligations, in such order as the Lender may elect. The Debtor
agrees that the Lender need not give more than ten (10) days notice of the time
and place of any public sale or of the time after which a private sale may take
place and that such notice is reasonable notification of such matters. The
Debtor shall be liable for any deficiency if the proceeds of any sale or
disposition of the Collateral are insufficient to pay all amounts to which the
Lender is entitled. The Debtor agrees to pay all costs of the Lender, including
reasonable attorneys' fees, incurred with respect to collection of any of the
Obligations and enforcement of any of the Lender's rights hereunder. To the
extent permitted by law, the Debtor hereby waives presentment, demand, protest
or any notice of any kind in connection with this Agreement or any Collateral.
9.2 CONFESSION OF JUDGMENT. THE DEBTOR HEREBY IRREVOCABLY
AUTHORIZES AND EMPOWERS THE LENDER, BY ITS ATTORNEY, OR BY THE PROTHONOTARY OR
CLERK OF ANY COURT OF RECORD IN THE STATE OF NEW YORK OR IN ANY JURISDICTION
WHERE PERMITTED BY LAW, UPON THE OCCURRENCE OF AN EVENT OF DEFAULT, OR AT ANY
TIME THEREAFTER, TO APPEAR FOR THE DEBTOR AND CONFESS AND ENTER JUDGMENT AGAINST
IT IN FAVOR OF THE LENDER IN ANY JURISDICTION IN WHICH THE DEBTOR OR ANY OF ITS
PROPERTY IS LOCATED FOR THE AMOUNT OF ALL OBLIGATIONS, TOGETHER WITH COSTS OF
SUIT AND WITH ACTUAL COLLECTION COSTS (INCLUDING
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<PAGE> 31
REASONABLE ATTORNEYS' FEES), WITH OR WITHOUT DECLARATION, WITHOUT STAY OF
EXECUTION AND WITH RELEASE OF ALL ERRORS AND THE RIGHT TO ISSUE EXECUTION
FORTHWITH, AND FOR DOING SO THIS AGREEMENT OR A COPY VERIFIED BY AFFIDAVIT SHALL
BE A SUFFICIENT WARRANT. THE DEBTOR HEREBY WAIVES AND RELEASES ALL RELIEF FROM
ANY AND ALL APPRAISEMENT, STAY OR EXEMPTION LAW OF ANY STATE NOW IN FORCE OR
HEREAFTER ENACTED. THIS AUTHORITY AND POWER SHALL NOT BE EXHAUSTED BY THE
EXERCISE THEREOF, AND SHALL CONTINUE UNTIL THE OBLIGATIONS ARE FULLY PAID,
PERFORMED, DISCHARGED AND SATISFIED.
BEING FULLY AWARE OF ITS RIGHTS TO PRIOR NOTICE AND
HEARING ON THE VALIDITY OF ANY CLAIMS THAT MAY BE ASSERTED AGAINST IT BY THE
LENDER UNDER THIS AGREEMENT BEFORE JUDGMENT CAN BE ENTERED AND BEFORE ASSETS OF
THE DEBTOR CAN BE GARNISHED AND ATTACHED, THE DEBTOR HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVES THESE RIGHTS AND EXPRESSLY AGREES AND
CONSENTS TO THE LENDER, UPON THE OCCURRENCE OF AN EVENT OF DEFAULT, OR AT ANY
TIME THEREAFTER, ENTERING JUDGMENT AGAINST THE DEBTOR BY CONFESSION AND
ATTACHING AND GARNISHING THE BANK ACCOUNTS AND OTHER ASSETS OF THE DEBTOR,
WITHOUT PRIOR NOTICE OR OPPORTUNITY FOR A HEARING. THE DEBTOR ACKNOWLEDGES THAT
IT HAS HAD THE ASSISTANCE OF LEGAL COUNSEL IN THE REVIEW AND EXECUTION OF THIS
AGREEMENT AND FURTHER ACKNOWLEDGES THAT THE MEANING AND EFFECT OF THE FOREGOING
PROVISIONS CONCERNING CONFESSION OF JUDGMENT HAVE BEEN FULLY EXPLAINED TO THE
DEBTOR BY SUCH COUNSEL.
ARTICLE X
MISCELLANEOUS
-------------
10.1 REMEDIES CUMULATIVE; NO WAIVER. The rights, powers and remedies of
the Lender provided in this Agreement and the other Loan Documents are
cumulative and not exclusive of any right, power or remedy provided by law or
equity, and no failure or delay on the part of the Lender in the exercise of any
right, power, or remedy shall operate as a waiver thereof, nor shall any single
or partial exercise of any right, power, or remedy preclude other or further
exercise thereof, or the exercise of any other right, power or remedy.
10.2 NOTICES. Every notice and communication under this Agreement or
any of the other Loan Documents shall be in writing and shall be given by either
(i) hand delivery, (ii) first class mail (postage prepaid), (iii) reliable
overnight commercial courier (charges prepaid), or (iv) telecopy or other means
of electronic transmission, if confirmed promptly by any of the methods
specified in clauses (i), (ii) and (iii) of this sentence, to the following
addresses:
- 31 -
<PAGE> 32
If to the Debtor:
Cold Metal Products Inc.
8526 South Avenue
P.O. Box 6078
Youngstown, OH 44501-6078
Attention: James R. Harpster, President and Chief
Executive Officer
Fax: (330) 758-2705
With a copy to:
Cohen Swados Wright Hanifin Bradford & Brett, LLP
70 Niagara Street
Buffalo, New York 14202
Attention: Jane F. Clemens, Esquire
Fax: (716) 856-5228
If to the Lender:
The CIT Group/Equipment Financing, Inc.
1211 Avenue of the Americas
20th Floor
New York, NY 10036
Attention: Senior Vice President/Credit
Fax: (212) 536-1385
With a copy to:
Duane, Morris & Heckscher
One Liberty Place
Philadelphia, PA 19103
Attention: Thomas J. Karl, Esquire
Fax: (215) 979-1020
Notice given by telecopy or other means of electronic
transmission shall be deemed to have been given and received when sent. Notice
by overnight courier shall be deemed to have been given and received on the date
scheduled for delivery. Notice by mail shall be deemed to have been given and
received three (3) calendar days after the date first deposited in the United
States Mail. Notice by hand delivery shall be deemed to have been given and
received upon delivery. A party may change its address by giving written notice
to the other party as specified herein.
10.3 COSTS, EXPENSES AND ATTORNEYS' FEES. Whether or not
the transactions contemplated by this Agreement and the other Loan Documents are
fully consummated, the Debtor
- 32 -
<PAGE> 33
shall promptly pay (or reimburse, as the Lender may elect) all costs and
expenses which the Lender has incurred or may hereafter incur in connection with
the negotiation, preparation, reproduction, interpretation and enforcement of
this Agreement and the other Loan Documents, the collection of all amounts due
hereunder and thereunder, and any amendment, modification, consent or waiver
which may be hereafter requested by the Debtor or otherwise required. Such costs
and expenses shall include, without limitation, the fees and disbursements of
counsel to the Lender (up to a maximum of $20,000), the costs of appraisal fees,
searches of public records, costs of filing and recording documents with public
offices, and similar costs and expenses incurred by the Lender. Upon the
occurrence of an Event of Default, such costs shall also include the fees of any
accountants, consultants or other professionals retained by the Lender. The
Debtor's reimbursement obligations under this Section shall survive any
termination of this Agreement. Lender acknowledges receipt of Fifty Thousand
Dollars ($50,000) from the Debtor which shall be applied toward costs and
expenses under this paragraph, including costs of counsel and other closing
costs.
10.4 SURVIVAL OF COVENANTS. This Agreement and all covenants,
agreements, representations and warranties made herein and in any certificates
delivered pursuant hereto shall survive the making of the Loan and the execution
and delivery of the Note and, subject to the provisions of 10.14 hereof, shall
continue in full force and effect until all of the Obligations have been fully
paid, performed, satisfied and discharged.
10.5 COUNTERPARTS; EFFECTIVENESS. This Agreement may be
executed in any number of counterparts and by the different parties on separate
counterparts. Each such counterpart shall be deemed to be an original, but all
such counterparts shall together constitute one and the same Agreement. This
Agreement shall be deemed to have been executed and delivered when the Lender
has received counterparts hereof executed by all parties listed on the signature
page(s) hereto.
10.6 HEADINGS. The headings of sections have been included
herein for convenience only and shall not be considered in interpreting this
Agreement.
10.7 PAYMENT DUE ON A DAY OTHER THAN A BUSINESS DAY. If any
payment due or action to be taken under this Agreement or any Loan Document
falls due or is required to be taken on a day which is not a Business Day, such
payment or action shall be made or taken on the next succeeding Business Day and
such extended time shall be included in the computation of interest.
10.8 JUDICIAL PROCEEDINGS. THIS AGREEMENT AND THE NOTE SHALL
BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE INTERNAL
LAWS OF THE STATE OF NEW YORK. THE DEBTOR HEREBY IRREVOCABLY CONSENTS AND
AGREES THAT ANY LEGAL ACTION IN CONNECTION WITH THIS AGREEMENT MAY BE
INSTITUTED IN THE COURTS OF THE STATE OF NEW YORK, THE COUNTY OF NEW YORK, NEW
YORK OR THE UNITED STATES COURTS FOR THE SOUTHERN DISTRICT OF NEW YORK, AS
LENDER MAY ELECT, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE DEBTOR
HEREBY IRREVOCABLY ACCEPTS AND SUBMITS TO, FOR ITSELF AND IN RESPECT OF ITS
- 33 -
<PAGE> 34
PROPERTY, THE NON-EXCLUSIVE JURISDICTION OF ANY SUCH COURT, AND TO ALL
PROCEEDINGS IN SUCH COURTS. THE DEBTOR AND THE LENDER ACKNOWLEDGE THAT JURY
TRIALS OFTEN ENTAIL ADDITIONAL EXPENSES AND DELAYS NOT OCCASIONED BY NONJURY
TRIALS. THE DEBTOR AND THE LENDER AGREE AND STIPULATE THAT A FAIR TRIAL MAY BE
HAD BEFORE A STATE OR FEDERAL JUDGE BY MEANS OF A BENCH TRIAL WITHOUT A JURY. IN
VIEW OF THE FOREGOING, AND AS A SPECIFICALLY NEGOTIATED PROVISION OF THIS
AGREEMENT, THE DEBTOR AND THE LENDER HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION ARISING UNDER THIS AGREEMENT, OR THE TRANSACTIONS RELATED
HERETO, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN
CONTRACT OR TORT OR OTHERWISE; AND THE DEBTOR AND THE LENDER HEREBY AGREE AND
CONSENT THAT THE DEBTOR OR THE LENDER MAY FILE AN ORIGINAL COUNTERPART OR A COPY
OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES
HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. FURTHER, THE DEBTOR AND
THE LENDER EACH WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH
SUIT, ACTION OR PROCEEDING, ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL
DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES. THE DEBTOR
ACKNOWLEDGES AND AGREES THAT THIS SECTION IS A SPECIFIC AND MATERIAL ASPECT OF
THIS AGREEMENT AND THAT THE LENDER WOULD NOT EXTEND CREDIT TO THE DEBTOR IF THE
WAIVERS SET FORTH IN THIS SECTION WERE NOT A PART OF THIS AGREEMENT.
10.9 INTEGRATION. This Agreement and the other Loan Documents
constitute the sole agreement of the parties with respect to the subject matter
hereof and thereof and supersede all oral negotiations and prior writings with
respect to the subject matter hereof and thereof.
10.10 AMENDMENT AND WAIVER. The Lender and the Debtor may from
time to time enter into written agreements amending or changing any provision of
this Agreement or any other Loan Document or the rights of the Lender or the
Debtor hereunder or thereunder, or may grant written waivers or consents to a
departure from the due performance of the obligations of the Debtor hereunder or
thereunder.
10.11 SUCCESSORS AND ASSIGNS.
-----------------------
(a) GENERALLY. This Agreement (i) shall be binding
upon the Debtor, and the Lender and their respective successors and assigns,
and (ii) shall inure to the benefit of the Debtor, and the Lender and their
respective successors and assigns, PROVIDED, however, that the Debtor may not
assign its rights hereunder or any interest herein without the prior written
consent of the Lender, and any such assignment or attempted assignment by the
Debtor shall be void and of no effect with respect to the Lender, and PROVIDED
FURTHER that the Lender may assign its rights hereunder or any
- 34 -
<PAGE> 35
interest herein subject to the consent of the Debtor which shall not be
unreasonably withheld or delayed.
(b) PARTICIPATIONS. Subject to the consent of the
Debtor, which consent shall not be unreasonably withheld, the Lender may from
time to time sell or otherwise grant participations in the Loan and the Note,
in whole or in part, and the holder of any such participation, if the
participation agreement so provides, (i) shall, with respect to its
participation, be entitled to all of the rights of the Lender and (ii) may
exercise any and all rights of setoff or banker's lien with respect thereto, in
each case as fully as though the Debtor were directly indebted to the holder of
such participation in the amount of such participation. The Lender may disclose
to prospective participants such information regarding the Debtor's affairs as
the Lender possess.
10.12 SEVERABILITY OF PROVISIONS. Any provision in this
Agreement that is held to be inoperative, unenforceable, voidable, or invalid in
any jurisdiction shall, as to that jurisdiction, be ineffective, unenforceable,
void or invalid without affecting the remaining provisions, and to this end the
provisions of this Agreement are declared to be severable.
10.13 SERVICE OF PROCESS. The Debtor irrevocably appoints each
and every officer of the Debtor as its attorneys upon whom may be served, by
regular or certified mail at the address set forth in Section 10.2 hereof, any
notice, process or pleading in any action or proceeding against it arising out
of or in connection with this Agreement or any of the other Loan Documents.
10.14 INDEMNIFICATION
---------------
(a) If, after receipt of any payment of all or any
part of the Obligations, the Lender is compelled to surrender such payment to
any Person or entity for any reason (including, without limitation, a
determination that such payment is void or voidable as a preference or
fraudulent conveyance, an impermissible setoff, or a diversion of trust funds),
then this Agreement and the other Loan Documents shall continue in full force
and effect, and the Debtor shall be liable for, and shall indemnify, defend and
hold harmless the Lender with respect to the full amount so surrendered.
(b) The Debtor shall indemnify, defend and hold
harmless the Lender with respect to any and all claims, expenses, demands,
losses, costs, fines or liabilities of any kind, including reasonable attorneys'
fees and costs, arising from or in any way related to (i) acts or conduct of the
Debtor under, pursuant to or related to this Agreement and the other Loan
Documents, (ii) Debtor's breach or violation of any representation, warranty,
covenant or undertaking contained in this Agreement or the other Loan Documents,
and (iii) Debtor's failure to comply with any or all laws, statutes, ordinances,
governmental rules, regulations or standards, whether federal, state, or local,
or court or administrative orders or decrees, including without limitation those
resulting from any Hazardous Materials or dangerous environmental condition
within, on, from, related to or affecting any real property owned or occupied by
the Debtor, unless resulting from the acts or conduct of the Lender constituting
gross negligence or willful misconduct.
- 35 -
<PAGE> 36
(c) The provisions of this section shall survive the
termination of this Agreement and the other Loan Documents and shall be and
remain effective notwithstanding the payment of the Obligations, the
cancellation of the Note, the release of any Encumbrance securing the
Obligations or any other action which the Lender may have taken in reliance
upon its receipt of such payment. Any cancellation of any of the Note, release
of any Encumbrance or other such action shall be deemed to have been
conditioned upon any payment of the Obligations having become final and
irrevocable.
- 36 -
<PAGE> 37
IN WITNESS WHEREOF, the undersigned have caused this Agreement
to be executed by their duly authorized officers on the date first above
written.
Attest: COLD METAL PRODUCTS, INC.
By: /s/ JANE F. CLEMENS By: /s/ A.R. MORROW
--------------------------- --------------------------
Title: Assistant Secretary Title: Vice President
THE CIT GROUP/EQUIPMENT
FINANCING, INC.
By: /s/ L. B. CAVALIERE
--------------------------
Title: Vice President
- 37 -
<PAGE> 1
Exhibit (10)(s)
AMENDMENT NO. 2
TO
SECOND AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT
THIS AMENDMENT NO. 2 ("Amendment No. 2") is entered into as of
December 31, 1996, by and between Cold Metal Products, Inc., a New York
corporation having its principal place of business at 8526 South Avenue,
Youngstown, Ohio 44514 ("Borrower") and The Bank of New York having an office at
1290 Avenue of the Americas, New York, New York 10104 ("Bank").
BACKGROUND
Borrower and Bank are parties to a Second Amended and Restated
Credit and Security Agreement dated as of August 1, 1994, as amended by
Amendment No. 1 dated as of June 30, 1995 (as modified from time to time, the
"Loan Agreement") pursuant to which Bank provided Borrower with certain
financial accommodations.
Borrower has requested that Bank amend the Loan Agreement to,
among other things, adjust certain financial covenants set forth in the Loan
Agreement and to increase the maximum amount of permitted capital expenditures
from $5,000,000 to $20,000,000 through March 31, 1997 and Bank is willing to do
so on the terms and conditions hereafter set forth.
NOW, THEREFORE, in consideration of any loan or advance or grant
of credit heretofore or hereafter made to or for the account of Borrower by
Bank, and for other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto hereby agree as follows:
1. DEFINITIONS. All capitalized terms not otherwise defined
herein shall have the meanings given to them in the Loan
Agreement.
2. AMENDMENT TO LOAN AGREEMENT. Subject to satisfaction of the
conditions precedent set forth in Section 3 below, the Loan
Agreement is hereby amended as follows:
2.1. Section 1.2 of the Loan Agreement is hereby amended as
follows:
(a) the following defined terms are hereby added in their
appropriate alphabetical order:
"AMENDMENT NO. 2" shall mean Amendment No. 2 to Second Amended
and Restated Credit and Security Agreement dated as of December 31, 1996.
<PAGE> 2
2.2. Section 6.5 of the Loan Agreement is hereby amended in its entirety to
provide as follows:
"6.5 Current Ratio. Cause the ratio of consolidated current
assets to consolidated current liabilities to be not less than
(a) 1.31 to 1 at the end of the fiscal quarter ending December
31, 1996 and (b) 1.23 to 1 at the end of the fiscal quarter
ending March 31, 1997 and at the end of each fiscal quarter
thereafter during the Term; provided, however, that for the
fiscal quarter ending June 30, 1997 and thereafter during the
Term the ratio may be adjusted by the mutual agreement of
Borrower and Bank based upon projections delivered to Bank in
accordance with Section 9.12 hereof. The above ratios shall be
calculated exclusive of the effect of any conversion to a current
liability of any Indebtedness to Bank."
2.3. Section 6.8 of the Loan Agreement is hereby amended in its entirety to
provide as follows:
"6.8 FIXED CHARGE COVERAGE. Cause the ratio of (x) the
sum of aggregate consolidated net income during each fiscal
period set forth below plus the aggregate amount of income tax,
and the interest, depreciation, amortization and all other
non-cash expense deducted in determining such net income during
such fiscal period to (y) aggregate consolidated interest expense
during such fiscal period plus aggregate amount of tax expense
and capital expenditures paid in cash during such fiscal period
plus, without duplication, the aggregate amount of scheduled
reductions in availability during such fiscal period pursuant to
Section 2.1 (a)(y)(iii) hereof to be not less than the ratio
corresponding to the fiscal periods set forth below:
FISCAL PERIOD RATIO
------------- -----
1/1/96 - 12/31/96 1.00 to 1
4/1/96 - 3/31/97 1.00 to 1
and each four quarter
fiscal period thereafter
during the Term
; PROVIDED, HOWEVER, that for the fiscal period ending June 30,
1997 and thereafter during the Term the ratio may be adjusted by
the mutual agreement of Borrower and Bank based upon projections
delivered to Bank in accordance with section 9.12 hereof. The
above ratios shall be calculated exclusive of capital
expenditures associated with the Ottawa Expansion Program."
2
<PAGE> 3
2.4. Section 6.9 of the Loan Agreement is hereby amended in its entirety to
provide as follows:
"6.9 TOTAL LIABILITIES TO EQUITY. Cause the ratio of
total consolidated Indebtedness to consolidated stockholders
equity (exclusive of Borrower's foreign currency translation
adjustment account) to be not more than (a) 3.84 to 1 at the
end of the fiscal quarter ending December 31, 1996 and (b)
3.89 to 1 at the end of the fiscal quarter ending March 31,
1997 and at the end of each fiscal quarter thereafter during
the Term; PROVIDED, HOWEVER, that for the fiscal quarter
ending June 30, 1997 and thereafter during the Term the ratios
provided in this Section 6.9 may be adjusted by the mutual
agreement of Borrower and Bank based upon projections
delivered to Bank in accordance with Section 9.12 hereof. The
above ratios shall be calculated exclusive of any future
accounting changes and their impact on non-current liabilities
and shareholders' equity."
2.5. Section 7.6 of the Loan Agreement is hereby amended in its entirety to
provide as follows:
"7.6 CAPITAL EXPENDITURES. Contract for, purchase or
make any expenditure or commitments for fixed or capital
assets (including capitalized leases) in any fiscal year in an
amount in excess of $5,000,000 in the aggregate for itself and
its Subsidiaries; PROVIDED, however, that Borrower may make
such capital expenditures or commitments of up to $ 20,000,000
in the aggregate for fiscal year ended March 31, 1997."
3. CONDITIONS OF EFFECTIVENESS. This Amendment No. 2 shall become effective as
of December 31, 1996, when and only when Bank shall have received (i) four
(4) copies of this Amendment No.2 executed by Borrower and consented to and
agreed to by Cold Metal Products Company, Ltd.. a guarantor and by the
Participants and (ii) consent of Participants.
4. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and warrants as
follows:
a) This Amendment No. 2 and the Loan Agreement, as amended
hereby, constitute legal, valid and binding obligations of
Borrower and are enforceable against Borrower in accordance
with their respective terms.
3
<PAGE> 4
b) No Event of Default or Default has occurred and is
continuing or would exist after giving effect to this
Amendment No.2.
c) Borrower has no defense, counterclaim or offset with
respect to the Obligations.
5. EFFECT ON THE LOAN AGREEMENT.
a) Upon the effectiveness of SECTION 2 hereof, each reference
in the Loan Agreement to "this Agreement," "hereunder,"
"hereof," "herein" or words of like import shall mean and be
a reference to the Loan Agreement as amended hereby.
b) Except as specifically amended herein, the Loan Agreement,
and all other documents, instruments and agreements executed
and/or delivered in connection therewith, shall remain in
full force and effect, and are hereby ratified and
confirmed.
c) The execution, delivery and effectiveness of this Amendment
No.2 shall not operate as a waiver of any right, power or
remedy of Bank, nor constitute a waiver of any provision of
the Loan Agreement, or any other documents, instruments or
agreements executed and/or delivered under or in connection
therewith.
6. GOVERNING LAW. This Amendment No. 2 shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns
and shall be governed by and construed in accordance with the laws of the
State of New York.
7. HEADINGS. Section headings in this Amendment No. 2 are included herein for
convenience of reference only and shall not constitute a part of this
Amendment No. 2 for any other purpose.
8. COUNTERPARTS. This Amendment No. 2 may be executed by the parties hereto in
one or more counterparts, each of which shall be deemed an original and all
of which taken together shall be deemed to constitute one and the same
agreement.
4
<PAGE> 5
IN WITNESS WHEREOF, this Amendment No. 2 has been duly executed as of the day
and year first written above.
COLD METAL PRODUCTS, INC.
By:/S/J.E. SLOE
----------------------------
Name: JOHN E. SLOE
---------------------------
Title: VICE PRESIDENT CFO
--------------------------
THE BANK OF NEW YORK
By:/S/ANTHONY VIOLA
------------------------
Name: ANTHONY VIOLA
Title: VICE PRESIDENT
GUARANTOR CONSENT AND REAFFIRMATION
By its signature below, Cold Metal Products Company, Ltd. hereby consents to
Amendment No. 2 and confirms that (i) its Guaranty Agreement dated as of August
4, 1987 in favor of Bank, as confirmed by Guaranty Confirmation dated as of
August 1, 1994 (the "Guaranty") and (ii) the Collateral Documents (as defined in
the Guaranty), each remain in full force and effect and are in no way modified
or impaired by Amendment No. 2 or any documents executed in connection
therewith.
CONSENTED AND AGREED TO:
COLD METAL PRODUCTS COMPANY, LTD.
By:/S/ A. R. MORROW
-----------------------------
Name: A. R. MORROW
--------------------------
Title: SECRETARY, TREASURER
-------------------------
5
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,924
<SECURITIES> 0
<RECEIVABLES> 36,317
<ALLOWANCES> 0
<INVENTORY> 51,215
<CURRENT-ASSETS> 91,804
<PP&E> 77,174
<DEPRECIATION> 28,812
<TOTAL-ASSETS> 148,972
<CURRENT-LIABILITIES> 51,441
<BONDS> 0
<COMMON> 75
0
0
<OTHER-SE> 35,049
<TOTAL-LIABILITY-AND-EQUITY> 148,972
<SALES> 73,162
<TOTAL-REVENUES> 73,162
<CGS> 67,914
<TOTAL-COSTS> 67,914
<OTHER-EXPENSES> 3,758
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 791
<INCOME-PRETAX> 699
<INCOME-TAX> 262
<INCOME-CONTINUING> 437
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 437
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
